RECTO LAW and MACEDA LAW

● Both Recto and Maceda apply on sale by installment.

● The difference between Recto and Maceda are application and purpose
● Recto applies to Sale of PERSONAL PROPERTY (MOVABLE) on installment,the purpose of
the law is to limit the option or remedies of the seller when the buyer fails to pay the
installments
● Maceda applies to Sale of REAL PROPERTY (IMMOVABLE), the purpose of the law is to
provide the requirements, rights and benefits that the buyer can have when he fails to pay
or make further installment.

What are the options or remedies of a seller under the recto law?
1. Demand payment or fulfillment of the obligation.
2. Cancel the sale; or
3. Foreclose the chattel mortgage if one has been constituted on the subject of the sale

Note: The following remedies are alternative and not successive, meaning only one remedy can be
avail by the seller. The options of cancelation and foreclosure of chattel is only available when
the buyer has defaulted two (2) or more installments thus if only one (1) is not in paid the seller can
only demand payment or fulfillment of the obligation and not the other remedies.

What are the rights and benefits of a buyer under Maceda law?
There are recurring period the length of time that the buyer has paid in installment, if the buyer has
paid in two (2) years of installments, he is entitled of the following:
1. A grace period of up to 60 days.
2. Now, if he fails to pay within the grace period, he is entitled to a notarial notice of
cancellation or rescission.
3. FInally, 30 days shall be observed from the receipt of the notarial notice of cancellation or
rescission before the contract is terminated.

If the buyer has paid for more than two (2) years of installment, he is shall have the
following:
1. A grace period equivalent to 30 days or one (1) month for every year of payment
2. Now, if he falls to pay within the grace period, he is entitled to a notarial notice of
cancellation or rescission
3. Then, a refund or cash surrender value of 50% of the total payments shall be given
4. FInally, 30 days shall be observed from the receipt of the notarial notice of cancellation or
rescission before the contract is terminated.

Note: If the sale is canceled and the buyer has paid for more than five (5) years in addition to the
50% refund the buyer is also entitled to have an additional 5% for every year but not to exceed
90% of the total payments paid.
Recto law does not applied to the following:
1. Sale of real property
2. It also does not apply to sale of personal property when the price is payable in full at the
time of the contract
3. The exclusivity of the remedies does not apply when the first chosen remedy is not
successful due to no fault of the seller

Maceda law does not applied to the following:

1. The sale is an absolute sale; the Maceda Law being applicable only to contracts to sell
2. It does not apply when the property was purchased after a housing loan was obtained and
the installments are repayments of the loan
3. It also does not apply to sale of industrial lots, commercial buildings and sale to tenants of
agricultural lands
4. Finally, the Maceda Law does not apply when the reason why the buyer defaulted in his
payments is the breach of the seller of its obligations, for example failure to deliver the
property or violation of warranties.
 ARTICLE 1479
Nature of option contract.
(1) An option is a contract. It is a preparatory contract, separate and distinct from the main
contract itself (subject matter of the option) which the parties may enter into upon the
consummation of the option.
(2) It gives the party granted the option the right to decide, whether or not to enter into a
principal contract, while it binds the party who has given the option, not to enter into the principal
contract with any other person during the agreed time and within that period, to enter into such
contract with the one to whom the option was granted if the latter should decide to use the
option.17 (see Carceller vs. Court of Appeals, 103 SCAD 258, 302 SCRA 718 [1999]; Litonjua vs. L &
R Corporation, 328 SCRA 796 [2000].)
(3) An option must be supported by a consideration distinct from the price. (Co. vs. Court of
Appeals, 312 SCRA 528 [1999]; Laforteza vs. Machuca, 127 SCAD 798, 333 SCRA 643 [2000]; Abalos
vs. Macatangay, Jr., 439 SCRA 649 [2004].) The promisee has the burden of proving such
consideration. (see Vasquez vs. Court of Appeals, 199 SCRA 102 [1991].)
(4) A consideration of an option contract is just as important as the consideration for any
other kind of contract. (see Enriquez de la Cavada vs. Diaz, 37 Phil. 982 [1918].) An option without
consideration is void; the effect is the same as if there was no option.

Effect of accepted unilateral promise.

The optionee (holder of the option), after accepting the option and before he exercises it, has
the right, but not the obligation, to buy or sell, as the case may be. Once the option is exercised, i.e.,
offer is accepted before a breach of the option, a bilateral promise to sell and to buy ensues and
both parties are then reciprocally bound to comply with their respective undertakings. It would be
a breach of the option for the optioner-offeror to withdraw the offer during the agreed period. If in
fact, he withdraws the offer before its acceptance (exercise of the option) by the optionee-offeree,
the latter may not sue for specific performance on the proposed contract since it has failed to reach
its own stage of perfection. The offeror, however, renders himself liable for damages for breach of
the option.18 (Asuncion vs. Court of Appeals, 56 SCAD 163, 238 SCRA 602 [1994].)

*An option imposes no binding obligation on the optionee, aside from the consideration for
the offer. Until accepted, it is not, properly speaking, treated as a contract. (Tayag vs. Lacson, 426
SCRA 282 [2004]; Adelfa Properties, Inc. vs. Court of Appeals, 240 SCRA 565 [1995].) When the
consideration given, for what otherwise would have been an option, partakes the nature in reality of a
part payment of the purchase price (termed as earnest money [Art. 1482.] and considered as an initial
payment thereof), an actual contract of sale is de

Consideration in an option contract may be anything of value, unlike in sale where it must
be the price certain in money or its equivalent. Lacking any proof of such consideration, the option
is unenforceable. (San Miguel Properties Philippines, Inc. vs. Huang, 130 SCAD 713, 336 SCRA 737
[2000].) A contract of option to buy is separate from the contract to sell, and both contracts need
separate and distinct considerations for validity. (Dijamco vs. Court of Appeals, 440 SCRA 190
[2004].)

Full payment of price not necessary for exercise of option to buy.

The obligations under an option to buy are reciprocal obligations — the performance of one
obligation is conditioned upon the simultaneous fulfillment of the other obligation. (Art. 1169.)
In an option to buy, the party who has an option may validly and effectively exercise his
right by merely notifying the owner of the former’s decision to buy and expressing his readiness to
pay the stipulated price.
The notice need not be coupled with actual payment of the purchase price so long as this is
delivered to the owner of the property upon the execution and delivery by him of the deed of sale.
The payment of the price is contingent upon the delivery of the deed of sale. Unless and until the
owner shall have done this, the buyer who has the option is not and cannot be held in default in the
discharge of his obligation to pay. (Nietes vs. Court of Appeals, 46 SCRA 654 [1972].) Consequently,
since the obligation to pay is not yet due, consignation19 in court of the purchase price is not
required. (Heirs of Luis Bacus vs. Court of Appeals, 341 SCRA 2295 [2003].)
An option to buy is not, of course, a contract of purchase and sale. (Kilosbayan, Inc. vs.
Morato, 63 SCAD 97, 246 SCRA 540 [1995].)

ARTICLE 1482
Meaning of earnest money.
Note: By agreement of the parties, the amount given may be merely a deposit of what would
eventually become earnest money or downpayment should a contract of sale be made by them, not
as a part of the purchase price and as proof of the perfection of the contract of sale but only as a
guarantee that the buyer would not back out of the sale. Thus, it is not really the giving of earnest
money but the proof of the concurrence of all the essential elements of a contract which establishes
the existence of the perfected contract. There is no sale where the parties still have to agree on the
acceptable terms of payment. (San Miguel Properties Philippines, Inc. vs. Huang, 130 SCAD 713, 336
SCRA 737 [2000].) The earnest money forms part of the consideration only if the sale is
consummated upon full payment of the purchase price. (Chua vs. Court of Appeals, 401 SCRA 54
[2003].)

Under Article 1454 of the old Civil Code, it has been held that the delivery of part of the
purchase price should not be understood as constituting earnest money to bind the agreement in
the absence of something in the contract showing that such was the intention of the parties. (Salas
Rodriguez vs. Leuterio, 47 Phil. 818 [1925].)

ARTICLE 1481
Meaning of bulk of goods.
In this article, the term “bulk of goods” is not used to designate the greater portion of the
goods. Rather, it is used to denote the goods as distinguished from the sample with which they must
correspond. The word “goods” in the phrase is an oppositional genitive defining “bulk.” In other
words “bulk of goods” mean the same as “goods” which, as a whole body, must correspond
substantially with the sample and description. (see 77 C.J.S. 1172.)
The buyer is given a reasonable opportunity of comparing the bulk with the description or
the example. (Art. 1481, par. 2.)

ARTICLE 1483
Modes of satisfaction of the Statute of Frauds.
The statute specifies three ways in which contracts of sales of goods within its terms may be
made binding, namely:
(1) The giving of a memorandum;
(2) Acceptance and receipt of part of the goods (or things in action) sold and actual receipt
of the same (see Art. 1585.); and
(3) Payment or acceptance at the time some part of the purchase price. Art. 1483 NATURE
AND FORM OF THE CONTRACT 118 SALES
The requirement of a memorandum is obviously suitable either for a contract to sell or a
sale. The other two modes of satisfaction seem more naturally to apply to sales than to executory
contracts. (Williston, op. cit., Sec. 73.)
The Statute of Frauds applies not only to goods but to things in action as well. (See Art.
1403[2, d].) Thus, an assignment of credit (Art. 1624.) at a price not less than P500.00 is within the
operation of the Statute.

ARTICLE 1484
Remedies alternative.
These remedies are alternative and are not to be exercised cumulatively or successively and
the election of one is a waiver of the right to resort to the others. (Pacific Commercial Co. vs. De la
Rama, 62 Phil. 380 [1935]; Erlanger & Galinger, Inc. vs. Flor, [C.A.] 57 O.G. 482; Cruz vs. Filipinas
Invest. & Finance Corp., 23 SCRA 791 [1968]; Filipinas Invest. & Finance Corp. vs. Ridad, 30 SCRA
564 [1969]; Industrial Finance Corp. vs. Tobias, 78 SCRA 28 [1977]; Nonato vs. Intermediate
Appellate Court, 140 SCRA 255 [1985].)
Thus, where from the prayer of the vendor in its brief, it asks the appellate court to order
the vendee to pay the remaining unpaid sum under the promissory note, it thereby waives the
other remedies. (Servicewide Specialists, Inc. vs. Intermediate Appellate Court, 174 SCRA 80
[1989].) To file an action containing the three remedies: to collect the purchase price; to seize the
property purchased by suing for replevin; and to foreclose the mortgage executed thereon, is not
only irregular but is a flagrant circumvention of the prohibition of the law. (Luneta Motor Co. vs.
Dimagiba, 3 SCRA 884 [1961].)

Applicability of Article 1484.

The law is aimed at those sales of personal property where the price is payable in several
installments.
 (1) Sale of personal property not payable in installments. — Article 1484 does not apply to
a sale of personal property on straight term or partly in cash and partly in term. Where the balance,
after payment of the initial sum, should be paid in its totality at the time specified, the transaction is
not by installment as contemplated in Article 1484. (Levi Hermanos, Inc. vs. Gervacio, 69 Phil. 52
[1939].)
(2) Sale or mortgage of real estate. — Neither does the article apply to sale of immovable
property nor to real estate mortgage. Under Article 1484, the creditor is given the right or option to
seize the chattel and dispose of the same in accordance with the Chattel Mortgage Law, while the
mortgage on real property may only be foreclosed in conformity with the provisions of the Rules of
Court, or those of Act No. 3135, if a special power to sell is granted to the creditor under the
contract. (Pacific Commercial Co. vs. Jocson, [C.A.] 39 O.G. 1859.)
(3) Action of replevin. — It does not also apply to an action of replevin. (Universal Motors
Corp. vs. Dy Hian Tat, 28 SCRA 161 [1969].) An action by the mortgagee for recovery of possession
of personal property with replevin as a provisional remedy is not an action for collection much less
for foreclosure (extra-judicial) of chattel mortgage. It is a preliminary step to foreclosure which
should be conducted in accordance with Section 14 of Act No. 1508. (Universal Motors Corp. vs.
Velasco, 98 SCRA 545 [1980]; PAMECA Wood Treatment Plant, Inc. vs. Court of Appeals, 109 SCAD
7, 310 SCRA 281 [1999].)

Sale or financing of real estate on installment payments.

(1) Rights of buyer. — In transactions or contracts involving the sale or financing of real
estate on installment payments (see Appendix “B.”), including residential condominium
apartments, the following are the rights given to the buyer who has paid at least two (2) years of
installments in case he defaults in the payment of succeeding payments:
(a) To pay without additional interest, the unpaid installments due within the total grace
period earned by him fixed at the rate of one (1)-month grace period for every one (1) year of
installment payments made. This right however, shall be exercised by him only once in every five
(5) years of the life of the contract and its extension, if any; and
(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% of the total payments made and, after five (5)
years of installments, an additional 5% every year but not to exceed 90% of the total payments
made. (Sec. 3, R.A. No. 6552 [Realty Installment Buyer Protection Act]; see Layug vs. Intermediate
Appellate Court, 67 SCRA 627 [1988].)
(c) The buyer has the right to sell his right or assign the same before actual cancellation of
the contract (see Sec. 5, R.A. No. 6552.) and to pay in advance any unpaid installment anytime
without interest and to have such full payment of the purchase price annotated in the certificate of
title covering the property. (see Sec. 6, ibid.)

(2) Conditions for cancellation of sale by seller. — The actual cancellation shall take place
after 30 days from receipt by the buyer of the notice of cancellation or the demand for rescission 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. 3, Ibid.; see McLaughlin vs. Court of Appeals, 144 SCRA 693
[1986].)
In case the defaulting buyer has paid less than two (2) years of installments, the seller shall
give him a grace period of not less than 60 days from the date the installment became due. If he fails
to pay the installments due at the expiration of the grace period, the seller may cancel the contract
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. (Sec. 4, R.A. No. 6552)

(3) Installment sales not covered. — The Act excludes from its operation sales on
installments of industrial lots, commercial buildings, and sales to tenants under the Code of
Agrarian Reforms.25 (Ibid.) In other words, in the case of such kind of property, the Act recognizes
the vendor’s right unqualifiedly to cancel the sale upon the buyer’s default. (Luzon Brokerage Co.,
Inc. vs. Maritime Bldg. Co., Inc., 86 SCRA 305 [1978]; see Art. 1592.)

(4) Purpose of the law. — The purpose is to protect buyers of real estate on installment
payments against onerous and oppressive conditions. (Sec. 2, R.A. No. 6552.)