RECTO LAW (Article 1484-1486)  The chattel mortgage must be the thing sold

itself.
Rights of seller in case the buyer fails to
REMEDIES OF THE SELLER IN CASE THE BUYER FAILS
pay installments TO MAKE THE INSTALLMENT PAYMENT/S

INTRODUCTION 1. If the vendee’s failure to pay covers only one

installment, the only remedy that could apply is
 Also known as “Installment Sales Law” the specific performance: elect fulfillment of
 Authored by Senator Claro M. Recto in Dec. the unpaid installment payment due.
1933
 Inspired by the case of “Bachrach Motor vs. 2. If the vendee’s failure to pay covers two or
Pablo Milan (1933)” more installments

COVERAGE a. Specific performance: elect fulfillment of

the unpaid installment payments due.
Recto Law applies only to –  General Rule – If availed of, the unpaid
1. Sale of personal property where price is seller cannot anymore choose other
payable in several installments; and remedies
2. Lease of personal property with an option to  Exception Rule – if after choosing, it has
buy, wherein the lessor has deprived the lessee become impossible, rescission may be
of the possession or enjoyment of the thing. pursued.
Example: MultiCab Company leases multicab units
with an option to buy. The installment payment is
b. Rescission: cancel the sale.
thru “boundary-hulog-scheme”. MultiCab Company
cannot pull out the units being leased right away
 When the sale is cancelled or rescinded,
upon failure of the lessee to pay 2 or more the buyer shall return the object and the
installment payments. The lessor must follow the seller shall return the installments or
rules of the 3 remedies under RECTO LAW. rents received.

PURPOSE OF RECTO LAW  General Rule – The seller is allowed to

retain:
 To prevent the potential abuse committed in
connection with the foreclosure of chattel 1. a reasonable amount of the
mortgages. This occurs when the mortgagee- purchase price already paid as
creditor (seller) foreclose the chattel mortgage compensation for the use of
and bought it in a lower price then collects the thing (rent); or
deficiency from the mortgagor-debtor (buyer).
2. ALL of the amount paid provided
REQUISITES OF RECTO LAW it would not be unconscionable

1. Personal property Example of unconscionable: 75%

2. Price is payable in several installments na nabayaran mo pero hindi mo
3. There has been failure to pay two or more man masyadong nagamit yung
installments sasakyan. Conscionability
4. Chattel mortgage has been executed depends upon circumstances and
 the Court will be the one to
evaluate this. 2. If security foreclosed is other than
the thing sold.
 It must be stipulated in case the parties  Binenta sayo is oven then chattel
agreed that the installments or rents mortgage mo is cellphone
paid will not be returned. But if the case
is silent, installments or rents received 3. If the case of sale on execution of
will be returned to the buyer. judgment in favor of the seller.
 Yung thing sold nalang mismo yung
property nung buyer so binenta yun
 This remedy is deemed chosen when:
para mabayaran yung unpaid
− Notice of rescission is sent
installments (execution sale). Sa
− Takes possession of the object of
foreclosure of chattel mortgage lang
sale prohibited yung deficiency rule hindi sa
− Files action for rescission execution sale.

c. Foreclosure: foreclose the chattel mortgage NOTE: The above remedies are alternative and are
(if any). not to be exercised cumulatively or successively.
 When the unpaid seller chose to The election of one is a waiver of the right to resort
foreclose the chattel mortgage and sell to the others. (Isa lang dapat, di pwedeng
it to the public auction, any deficiency nagforeclose ka na tas maniningil kapa)
resulting thereto shall not be recovered
from the buyer. Any stipulation to the
contrary is void. MACEDA LAW (R.A. 6552)
Example: Php 1,000,000 is still Rights of buyer in case of failure to pay
unpaid then the seller foreclosed the installments
chattel mortgage and sold it in public
auction for only Php 500,000. The INTRODUCTION
deficiency of Php 500,000 cannot be
recovered from the buyer even if there is
 Also known as “Realty Installment Buyer Act”
a stipulation thereto.
 Senator Ernesto Maceda

 When deficiency may be recovered?

COVERAGE

1. In case of sale on straight-term

 Maceda Law applies only to sale or financing of
 down ka ng 500,000 ngayon tas yung
residential real property wherein the price is
500,000 balance is sa September 2
Nangutang ka sa bangko pambili ng
payable in several installment payments. This
car. Yung bank binayaran in full yung excludes the –
kotse tas ikaw nagbabayad ka sa  Industrial lots
bangko ng installment. So, in case na di  Commercial building
ka makapagbayad ifoforeclose ni bank  Sales to tenants under Land Reform Law
yung car then masisingil pa sayo yung
deficiency. This is not under the RECTO PURPOSE OF MACEDA LAW
LAW since hindi naman installment
yung binili mong car. Chattel Mortgage
Law na cumocover neto.
 To protect buyers of real estate on installment  To cancel the sale, if failed to pay within the
payments against onerous and oppressive total grace period earned. If cancelled, the
conditions. buyer shall be entitled to the refund of the
cash surrender value equivalent to 50% of
the total payments made.
RIGHTS OF THE BUYER
c. If more than 5 years
1. To have a grace period to pay the unpaid
installments due in case of default.  In addition to the 60-day grace period, the
buyer shall have additional 1-month grace
Determining factor: Ilang taon na ba yung period for every 1-year installment paid
nababayaran ng buyer from the time na nadefault after the first 2 years of installment to pay,
siya. without additional interest, the unpaid
installments due. Note that this right can
a. If less than 2 years only be applied once every 5 years.

 To pay, without interest, the due within 60  To cancel the sale, if failed to pay within the
days from the due date. Note that this right total grace period earned. If cancelled, the
can only be applied once every 5 years. buyer shall be entitled to the refund of the
cash surrender value equivalent to 50% of
 To cancel the sale, if failed to pay within 60 the total payments made for the paid 5
days grace period. years PLUS another 5% every year after 5
years BUT not to exceed 90% of the total
When cancellation shall take place? payments made.

 The actual cancellation shall take place after 30 When cancellation shall take place?
days from the receipt by the buyer from the
seller of the notice of cancellation or demand  The actual cancellation shall take place after 30
for rescission of the contract by notarial act. days from the receipt by the buyer from the
seller of the:
NOTE: The buyer can still pay within the 30 days − notice of cancellation or demand for
period with interest. rescission of the contract by notarial act;
AND
b. If 2 to 5 years − upon full payment of the cash surrender
value to the buyer.
 In addition to the 60-day grace period, the
buyer shall also have an additional 1-month COMPUTATION OF CASH SURRENDER VALUE?
grace period for every 1-year installment
paid after the first 2 years of installment, to Example:
pay, without additional interest, the unpaid • Down payment 60,000
installments due. Note that this right can • Balance 540,000 payable in 15 years
only be applied once every 5 years of the • Default is 85th and succeeding installments
life of the contract. • The buyer cancelled the sale
Step 1: Determine ilan taon na yung nabayaran CONDOMINIUMS OR SUBDIVISIONS
from the date of default
(PD No 957)
 84 months or 7 years, then apply the rules in
letter (c) – more than 5 years INTRODUCTION

 Also known as the “The Subdivision and

Step 2: Compute for the cash surrender value Condominium Buyers’ Protective Decree”
Down payment 60,000  PD No 957 is an expansion of Maceda Law
Installment paid (84 x 3,000) 252,000
Total payments made 312,000
Percentage (%) 60% COVERAGE
Cash surrender value 187,200
th
5 year – 50%  Sale of subdivision and condominium units
th
6 year – 5% whether industrial, commercial, residential or
th
7 year – 5% recreational.
60%
NOTE: RULES AFFECTING INSTALLMENT PURCHASES OF
• Down payments, deposits or options on CONDOMINIUMS:
the contracts shall be included in the
computation of the total payments 1. Non-forfeiture of payments – if the owner or
made. the developer fails to develop the subdivision
• Percentage must not exceed 90%. or condominium project according to the
approved plans and within the limit of
2. Additional Rights complying to the same, the buyer may:

a. The buyer shall have the right within the 30 a. After due notice to the owner or
days before the actual cancellation of the developer, suspend further payment
contract: and there shall be no forfeiture of the
 To sell his rights to another by notarial act; installments already made; or
 To assign his rights to another by notarial
act; b. Cancel the sale and be reimbursed with
 To reinstate the contract by updating the the total amount paid including
account amortization interests but excluding
delinquency interests, with interest
b. To pay in advance any installment or the full thereon at the legal rate.
unpaid balance any time without interest
2. Failure to pay installments – the rights of the
c. To ask for the annotation of the full payment of buyer in the event of this failure to pay
the purchase price in the certificate of title installments due for reasons other than the
covering the property. failure of the owner or developer to develop
the project shall be governed by RA 6552
(Maceda Law).