Rights of a defaulting buyer

In 1995, Nolly bought lots from Primo Properties. He deposited a sizable sum of money through check payments in favor of Primo Properties.

Primo Properties, however, did not deliver to Nolly the copies of the lots’ certificates of title and their sales agreement. He was frustrated, and dismayed when he finally received the sales agreement, as it contained unacceptable conditions to which he conveyed his objections to Primo Properties. Nolly demanded the money he paid on the belief that since he had not yet signed the sales agreement, there was therefore no meeting of the minds between him and Primo Properties.

Primo Properties countered that Nolly could not yet be issued certificates of title since their transaction was not a contract of sale but a contract to sell. It further argued that (a) Nolly impliedly agreed to the unsigned Contract to Sell, and that (b) Nolly, under the Maceda Law, is not entitled to a refund of his deposits since he failed to complete the payments within the grace period provided by Primo Properties, resulting in their forfeiture and the rescission of the contract to sell.

Q: What is the Maceda Law?

A: The Realty Installment Buyer Protection Act, otherwise known as Republic Act No. 6552 or the Maceda Law, protects “buyers of real estate on installment payments against onerous and oppressive conditions.”

Q: Was a contract to sell forged between Nolly and Primo Properties?

A: Yes, the parties have forged and perfected an unwritten contract to sell. Contracts are created upon agreement between consenting parties and generally do not require it to be reduced into writing to validate its existence.

Q: What is a notarial rescission?

A: A notarial rescission contemplated under R.A. No. 6552 is a unilateral cancellation by a seller of a perfected contract thereunder acknowledged by a notary public and accompanied by competent evidence of identity. Rescission unmakes a contract. Necessarily, the rights and obligations emanating from a rescinded contract are extinguished. Being a mode of nullifying contracts and their correlative rights and obligations, rescission must be conveyed in an unequivocal manner and couched in unmistakable terms.

Q: Did Primo Properties rescind the contract to sell in accordance with the Maceda Law?

A: No, Primo Properties only warned Nolly that it shall be constrained to rescind their oral contract. It is established that a demand letter is not the same as the notice of cancellation or demand for rescission by a notarial act required by R.A. No. 6552.

Q: What are the basic remedies of a defaulting buyer under the Maceda law?

A: A defaulting buyer of real property on installments, whether or not she or he has paid two years of installments, has three common legal remedies in the absence of a valid rescission, granted by Section 6 of R.A. No. 6552 and jurisprudence: (a) pay in advance any installment at any time, necessarily without interest; (b) pay the full unpaid balance of the purchase price at any time without interest, and to have such full payment of the purchase price annotated in the certificate of title covering the real property subject of the transaction under R.A. No. 9552; or (c) claim an equitable refund of prior payments and/or deposits made by the defaulting buyer to the seller pertinent to their transaction under R.A. No. 9552, if any.

A defaulting buyer enjoys other rights in addition to the foregoing, depending on the status of her or his payments and of the contract.

A defaulting buyer that has paid at least two years of installments has the following options: (a) to pay, without additional interest, the unpaid installments due within the total grace period earned by him, which is hereby fixed at the rate of one month grace period for every one year of installment payments made: Provided, That this right shall be exercised by the buyer only once in every five years of the life of the contract and its extensions, if any; (b) if the contract is cancelled, the seller shall refund to the buyer the cash surrender value of the payments on the property equivalent to 50 percent of the total payments made and, after five years of installments, an additional 5 percent every year but not to exceed 90 percent of the total payments made: Provided, that the actual cancellation of the contract shall take place after 30 days from receipt by the buyer of the notice of cancellation or the demand for rescission of the contract by a notarial act and upon full payment of the cash surrender value to the buyer.

A defaulting buyer that has paid less than two years of installments is entitled to the following: (a) The seller shall give the buyer a 60-day grace period of not less than 60 days to be reckoned from the date the installment became due; (b) The seller must give the buyer a notice of cancellation/demand for rescission by notarial act if the buyer fails to pay the installments due at the expiration of the said grace period; and (c) The seller may actually cancel the contract only after 30 days from the buyer’s receipt of the said notice of cancellation/demand for rescission by notarial act.

(Source: Pryce Properties Corp vs. Nolasco, G.R. No. 203990, Aug. 24, 2020)

Ma. Soledad Deriquito-Mawis is Dean, College of Law at the Lyceum of the Philippines University; chairman of Philippine Association of Law Schools; and founder of Mawis Law Office