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 new creditor.
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.
The Maceda Law cannot be used by a real estate developer
(see here.) It also cannot be used by the highest bidder in
foreclosure proceedings.
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:
Demand that the buyer pay (a.k.a. specific performance)
Cancel or rescind the sale
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 new creditor.
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, Ra 6552
Do you want to know your rights as a real estate investor, or
simply as a real estate buyer who is making installment
payments? The first logical step would be to know what law
applies and what that particular law contains, which in this
case would be the full text of Republic Act No. 6552. More
popularly known as the Maceda Law, the RA 6552 follows.
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:
Industrial lots
Commercial buildings and lots
Lands under the CARP Law
MACEDA LAW (RA6552) Maceda Law in the Philippines
applies to the purchaser of real property by installment
payments when the purchase becomes cancelled by a
delinquency in payment. It provides the buyer with a right to
a refund as a requisite for cancellation of contract due to
delinquency when the buyer has paid at least two years. The
refund is 50% of total payments; additional 5% per year after
5th year.
To qualify for the Maceda Law, the buyer must have already
paid at least 2 years of installment payments.
The buyer has the right to continue the unpaid installments
due without additional interest provided that the buyer must
pay within the grace period. The grace period provided is one
month for every one year of installments paid.
The buyer has the right to opt for a refund of the installment
payments being made (This includes the down payments,
deposits or options on the contract). The buyer is entitled to
50% refund from his total payments made. An additional of
5% refund per year for every 5 years.
If the buyer has paid less than two years installment:
The buyer has the right to continue his payments within a
grace period of 60 days.
MACEDA LAW
REPUBLIC ACT NO. 6552
REALTY INSTALLMENT BUYER PROTECTION ACT
AN ACT TO PROVIDE PROTECTION TO BUYERS OF REAL
ESTATE ON INSTALLMENT PAYMENTS
Section 1. This Act shall be known as the “Realty Installment
Buyer Act.”
Sec. 2. It is hereby declared a public policy to protect buyers of
real estate on installment payments against onerous and
oppressive conditions.
Sec. 3. In all transactions or contracts involving the sale or
financing of real estate on installment payments, including
residential condominium apartments but excluding industrial
lots, commercial buildings and sales to tenants under
Republic Act Numbered Thirty-eight hundred forty-four, as
amended by Republic Act Numbered Sixty-three hundred
eighty-nine, where the buyer has paid at least two years of
installments, the buyer is entitled to the following rights in
case he defaults in the payment of succeeding installments:
(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 fifty per cent of the total payments
made, and, after five years of installments, an additional five
per cent every year but not to exceed ninety per cent of the
total payments made: Provided, That the actual cancellation of
the contract shall take place after thirty 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.
Down payments, deposits or options on the contract shall be
included in the computation of the total number of
installment payments made.
Sec. 4. In case where less than two years of installments were
paid, the seller shall give the buyer a grace period of not less
than sixty days from the date the installment became due.
If the buyer fails to pay the installments due at the expiration
of the grace period, the seller may cancel the contract after
thirty days from receipt by the buyer of the notice of
cancellation or the demand for rescission of the contract by a
notarial act.
Sec. 5. Under Section 3 and 4, the buyer shall have the right to
sell his rights or assign the same to another person or to
reinstate the contract by updating the account during the
grace period and before actual cancellation of the contract.
The deed of sale or assignment shall be done by notarial act.
Sec. 6. The buyer shall have the right to pay in advance any
installment or the full unpaid balance of the purchase price
any time without interest and to have such full payment of the
purchase price annotated in the certificate of title covering the
property.
Sec. 7. Any stipulation in any contract hereafter entered into
contrary to the provisions of Sections 3, 4, 5 and 6, shall be
null and void.
Sec. 8. If any provision of this Act is held invalid or
unconstitutional, no other provision shall be affected thereby.
Sec. 9. This Act shall take effect upon its approval.
Approved: August 26, 1972
RECTO LAW
REPUBLIC ACT NO. 4122
REPUBLIC ACT NO. 4122 - AN ACT TO FURTHER AMEND
SECTION ONE HUNDRED EIGHTY-FIVE OF COMMONWEALTH
ACT NUMBERED FOUR HUNDRED AND SIXTY-SIX,
OTHERWISE KNOWN AS THE NATIONAL INTERNAL REVENUE
CODE, AS AMENDED, AND FOR OTHER PURPOSES
Section 1. Section one hundred and eighty-five of
Commonwealth Act Numbered Four hundred and sixty-six, as
amended, is hereby further amended by deleting from
subsection (g) thereof the following articles: phonographs,
combination radio and phonograph sets, television sets,
combination radio and televisions sets, gramophones, and
similar articles for reproducing music.
Sec. 2. A new section is hereby inserted between Sections one
hundred eighty-five and one hundred eighty-six, which shall
read as follows:
"Sec. 185-B. Percentage tax on sales of phonographs,
combination radio and phonograph sets of all types, television
sets, combination radio and television sets, combination radio-
phonograph-televisions sets, gramophones and similar
articles. — There shall be levied, assessed, and collected, one
only on every original sale, barter, exchange, or similar
transaction intended to transfer ownership of, or title to, the
articles hereinbelow enumerated a tax equivalent to thirty per
centum of the gross selling price or gross value in money of the
articles so sold, bartered, exchanged or transferred, such tax to
be paid by the manufacturer or producer: provided, however,
that where the articles hereinbelow enumerated are locally
manufactured articles as hereinafter defined, the tax shall be
seven per centum: provided, further, that where the articles
enumerated hereinbelow are manufactured from materials
subject to tax under this section, the total cost of such
materials shall be deducted from the gross selling price or
gross value in money of such manufactured articles:
(a) Phonographs;
(b) Combination radio and phonograph sets of all types;
(c) Television sets;
(d) Combination radio and television sets;
(e) Combination radio-phonograph-television sets;
(f) Gramophones; and
(g) Similar articles for reproducing and/or recording music
and sound, like tape recorders, etc.
"The words 'locally manufactured articles' means articles
manufactured in a manufacturing enterprise which processes
physically and/or chemically raw materials such as copper
clad boards, silicon, steel laminations, other metal sheets,
wires, plastic powder and/or pallets, fiber boards, wood,
metallic and non-metallic tubes, roads, special paper, etc., into
the various intermediate components and parts, and
subsequently assembling or fitting them together with other
imported collaterals or intermediate components and parts
into such completed and finished articles: provided, however,
that if the following parts are intermediate components of a
finished article, except as used in the tuner assembly, they
must be locally manufactured within the manufactured
enterprise or any other local manufacturing enterprise:
1. Printed circuit roads;
2. Transformers;
3. Coils, except yoke and flyback, and sheet metalware
attached thereto except the mask;
4. Cabinets;
5. Chassis."
Sec. 3. This Act shall take effect upon its approval.
What is the Installment Sales Law?
Commonly known as the Recto Law. It is embodied in Art.
1484 of the NCC which provides for the remedies of a seller in
the contracts of sale of personal property by installments.
Note: Art. 1484 of the NCC incorporates the provisions of Act
No. 4122 passed by the Philippine Legislature on Dec. 9, 1939,
known as the "Installment Sales Law" or the "Recto Law,"
which then amended Art. 1454 of the Civil Code of 1889.
To what does the Recto Law apply?
This law covers contracts of sale of personal property by
installments (Act No. 4122). It is also applied to contracts
purporting to be leases of personal property with option to
buy, when the lessor has deprived the lessee of the possession
or enjoyment of the thing. (PCI Leasing and Finance Inc. v.
Giraffe-X Creative Imaging, Inc., G.R. No. 142618, July 12,
2007)
What are the alternative remedies in case of sale of personal
property in installments?
1. Specific Performance: Exact fulfillment should the buyer fail
to pay
General Rule: If availed of, the unpaid seller cannot anymore
choose other remedies;
Exception: if after choosing, it has become impossible,
rescission may be pursued
2. Rescission: Cancel the sale if buyer fails to pay 2 or more
installments Deemed chosen when:
a. Notice of rescission is sent
b. Takes possession of subject matter of sale
c. Files action for rescission
3. Foreclosure: Foreclose on chattel mortgage if buyer fails to
pay 2 or more installments
General Rule: Actual foreclosure is necessary to bar recovery
of balance - Extent of barring effect: purchase price
Exception: Mortgagor refuses to deliver property to effect
foreclosure; expenses incurred in attorneys fees, etc.
Article 1484 of the Civil Code provides for the remedies of a
seller in contracts of sale of personal property by
installments, and incorporates the provisions of Act No. 4122,
known as the Installment Sales Law or the Recto Law, which
then amended Article 1454 of the Civil Code of 1889.

RATIONALE � the object of Recto Law was to remedy the

abuses committed in connection with the
foreclosure of chattel mortgages and was meant to prevent
mortgagees from seizing the mortgaged
property, buying it at foreclosure sale for a low price and then
bringing suit against the mortgagor for a
deficiency judgment.

� Under Article 1484 of the New Civil Code, in a contract of

sale of personal property the price of
which is payable in installments, the vendor may exercise any
of the following REMEDIES:
1. Exact fulfillment of the obligation, should the buyer fail to
pay any installment;
2. Cancel the sale, should the buyer�s failure to pay cover
two or more installments;
3. Foreclose the chattel mortgage on the thing sold, if one has
been constituted, should the buyer�s failure to pay cover two
or more installments.

� The remedies have been recognized as alternative, not

cumulative, in that the exercise of one would also bar the
exercise of the others. They cannot also be pursued
simultaneously.

� If the seller should foreclose on the mortgage constituted

on the thing sold, he shall have no
further action against the purchaser to recover any unpaid
balance of the price. Any agreement
to the contrary shall be void.

The provisions of Recto Law are applicable to financing

transactions derived or arising from
sales of movables on installments, even if the underlying
contract at issue is a loan because the
promissory note has been assigned or negotiated by the
original seller.