INSTALLMENT SALES LAW

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.

REALTY INSTALLMENT BUYER ACT

What is the Realty Installment Buyer Act?

Commonly known as the “Maceda Law.” It is embodied in R.A. 6552 which provides for
certain protection to particular buyers of real estate payable on installments. The law declares
as "public policy to protect buyers of real estate on installment payments against onerous and
oppressive conditions.
Note: The purpose of the law is to protect buyers in installment against oppressive conditions.
What are the transactions/sale covered by the Maceda Law?
The law involves the sale of immovables on installment (Maceda Law, R.A. 6552).
1. Coverage: Residential Real Estate (Villanueva, p. 431)
2. Exclude:
a. Industrial lots
b. Commercial buildings (and commercial lots by implication)
c. Sale to tenants under agrarian laws

What are the rights granted to buyers?

1. Buyer paid at least 2 years installment
a. Pay without interest the balance within grace period of 1 month for every year of
installment payment. Grace period to be exercised once every 5 years.
b. When no payment – cancelled; buyer entitled to 50% of what he has paid + 5% for
every year but not exceeding 90% of payments made
Note: Cancellation to be effected 30 days from notice & upon payment of cash surrender
value.
2. Buyer paid less than 2 years installment
a. Grace period is not less than 60 days from due date
b. Cancellation if failure to pay w/in 60 days grace
c. 30 days notice before final cancellation
Note: buyer can still pay w/in the 30 days period with interest.