RECTO AND MACEDA LAW
These two laws are relevant and are very often the issue of many court cases.
Both laws govern the sale of property by installments. The Recto Law, which
forms part of the Civil Code, covers installment sales of personal property while
the Maceda Law governs installment sales of real property.
The Recto Law
The Recto Law comprises Articles 1484 to 1486 of the Civil Code. It was added
to the Civil Code to prevent abuses in the foreclosure of chattel mortgages, such
as when mortgagee-creditors foreclosed mortgaged property, bought them at a
low price (on purpose,) then prosecuted the mortgagor-debtors to recover the
deficiencies.
In the event a buyer of personal property defaults by failing to pay two or more
of the agreed installments, the seller can do any of the following:
1.) Demand that the buyer pay (a.k.a. specific performance)
2.) Cancel or rescind the sale
3.) Foreclose the mortgage on the property bought (if there ever was a chattel
mortgage)
Regarding no. 3, this happens when a person takes a loan to buy something
and he mortgages the thing he bought to ensure the creditor that he will pay
the loan. Remember: If you choose one remedy, you can't choose the others.
These remedies, believe it or not, are also available to the buyer. You also can't
use all or any of them at the same time. The Recto Law also won't apply to a
straight sale (i.e. a sale where there is a downpayment and the balance is
payable in the future in a single payment only.) The seller can also assign his
credit to another person, making that person the newcreditor.
If the buyer refuses to surrender the items to the seller, he becomes a perverse
buyer-mortgagor. When that happens, the seller can recover expenses and
attorney's fees.
The Recto Law also covers leases with the option to purchase.
The Maceda Law
The Maceda Law, RA 6552, is the real estate equivalent of the Recto Law. Like
the Recto Law, it also covers financing of sales of real property (which is why
mortgages also come in.) It doesn't apply,however, to the following sales:
1.) Industrial lots
2.) Commercial buildings and lots
3.) Lands under the CARP Law
Depending on when the buyer defaults, there are two (2) possible scenarios: if
the buyer paid at least two (2) years' installments and if the buyer paid less
than 2 years' installments.
If the buyer paid less than 2 years' installments and defaults, he is given a
grace period of sixty (60) days starting from the date of his last installment to
resume paying. This period can be increased by the seller. If after the grace
period the buyer still can't pay, the seller must make a notarial demand to
cancel the sale. The cancellation becomes effective thirty (30) days after the
buyer was notified. So it's possible that the buyer could be notified two months
after the 60-day period and then the 30-day period will begin.
If the buyer paid at least two years' installments, the buyer can pay the unpaid
balance without interest. The grace period is computed at one (1) month per
year of installment payments. It also begins from the time the buyer paid his
last installment. The grace period can be used only once every five (5) years of
the sales contract's life -including its extensions. So it's possible to have a grace
period of a year if the buyer had been paying his installments faithfully for 12
years. Once the buyer chooses to use the grace period, he can't get it again
until another five years are over.
If the seller wants to cancel the sale, he has to refund the buyer of 50% of the
actual payments. If the buyer paid more than five years' installments another
5% for every year is to be added to the refund, but only up to 90% of the total
payments made. The payments mentioned here include the downpayment,
options and deposits. The refund is made in this way: if the buyer paid more 2
to 5 years' installments, he can get back 50% of the cash surrender value. If he
paid for more than 5 years, he can get the 50% plus 5% per year up to 90%.
The buyer is also allowed to make advanced payments, or even the full price,
without interest. He can also assign his rights to another person, making that
person the new buyer, but he can only do that with a notarial deed of sale
assignment.