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Maceda Law Governs the Cancellation of Contract to Sell Involving Real Property

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Maceda Law (Republic Act No. 6552) – the Realty Installment Buyer Act

Republic Act No. 6552, (commonly referred to as the Maceda Law), regulates the right of the seller to cancel the contract. It operates as a mechanism to protect the buyer from unfair forfeiture and cancellation provisions in an installment sale of residential real estate.

Requirements of Valid Cancellation

Under Section 3, when the buyer has paid at least 2 years of installments, for the cancellation to be valid, the following requirements must be satisfied:

1. The seller must serve on the buyer a duly notarized notice of cancellation; and
2. The seller must refund to the buyer the cash surrender value of payments made.

When the buyer has paid less than two years of installments, he is entitled only to notice; he is not entitled to cash surrender value.

Non-compliance with any of these requisites renders the cancellation void and ineffective. The contract remains valid and subsisting. The seller may be compelled to accept payment once tendered by the buyer.

However, the subject property may have been sold to a third person in the time being. In such a case, what remedies may the buyer avail of?

The case:

ACTIVE REALTY & DEVELOPMENT CORPORATION versus NECITA G. DAROYA (G.R. No. 141205 – May 9, 2002)

ACTIVE REALTY & DEVELOPMENT CORPORATION (DEVELOPER) is the owner and developer of Town & Country Hills Executive Village in Antipolo, Rizal. On January 2, 1985, it entered into a Contract to Sell with NECITA DAROYA (BUYER), a contract worker in the Middle East.

Under the contract to sell, BUYER was to pay ₱53,766.00, as down payment, upon the execution of the contract. The balance was to be paid in 60 equal monthly installments of ₱4,893.35.

By August 8, 1989, BUYER had been in default in the payment of 3 amortizations.

DEVELOPER sent to BUYER a notice of cancellation of the contract to sell. The notice was not notarized.

BUYER sued DEVELOPER for specific performance and damages before the Arbitration Branch of the Housing and Land Use Regulatory Board (HLURB)

Decision of HLURB Arbiter:

⇒ the cancellation of the contract to sell was void as the developer failed to pay the cash surrender value to the buyer as mandated by law
⇒ as the subject lot was already sold to a third party and the buyer had agreed to a full refund of her installment payments, the developer was ordered to refund to the buyer all her payments, with 12% interest per annum from the date of the filing of the complaint until fully paid and to pay P10,000.00 as attorney’s fees.

Decision of HLURB Board of Commissioners:

The Board did not apply the remedies provided under the Maceda Law since both parties were at fault based on these findings:

⇒ the buyer incurred delay in her installment payments
⇒ the developer failed to send a notarized notice of cancellation

Instead, the Board formulated an ‘equitable solution’, which was allegedly akin to the remedies provided under the Maceda Law:

⇒ the developer was ordered to refund to the buyer one-half of the total amount she had paid

Decision of the Office of the President:

⇛ the cancellation of the contract was not valid since the developer did not comply with the legal requisites
⇛ the contract to sell between the parties subsisted
⇛ the buyer was entitled to the lot after payment of her outstanding balance
⇛ considering that the lot was already sold to another person, the developer was ordered to refund to the buyer the amount equivalent to the price when the lot was resold (the true and actual value of the lot) OR to deliver a substitute lot, at the choice of the buyer

Decision of the Supreme Court:

The Supreme Court sustained the Office of the President.

⇛ the cancellation of the contract by the developer was void and ineffective for failure to comply with the mandatory twin requirements:

a. service of notarized notice of cancellation
b. refund of cash surrender value

⇛ the contract to sell remained valid and subsisting
⇛ the buyer had the right to pay for the balance of the purchase price, without interest;

HOWEVER, the lot having been resold, the buyer had 2 mutually exclusive options:

a. to demand the ‘actual value’ (price on resale) of the lot, plus interest from date of filing of complaint until the price would be fully delivered to the buyer, OR
b. to demand delivery of a substitute lot

The Supreme Court further discoursed:

On the decision of the HLURB Board of Commissioners

“On a final note, it would not be amiss to stress that the HLURB Board Decision ordering petitioner to refund to respondent one half of her total payments is not an equitable solution as it punished the respondent for her delinquent payments but totally disregarded petitioner’s failure to comply with the mandatory requisites for a valid cancellation of the contract to sell. The Board failed to consider that the Maceda law was enacted to remedy the plight of low and middle-income lot buyers, save them from the exacting default clauses in real estate sales and assure them of a home they can call their own. “

On the decision of the HLURB Arbiter

“Neither would the Decision of the HLURB Arbiter ordering a full refund of the installment payments of respondent in the amount of P314,816.70 be justified as, under the law, respondent is entitled to the lot she purchased after payment of her outstanding balance which she was ready and willing to do. Thus, to penalize the petitioner for failing in its obligation to deliver the subject lot and to give the respondent what is rightly hers, the petitioner was correctly ordered to refund to the respondent the actual value of the land (P875,000.00) she lost to another buyer, plus interest at the rate of 12% per annum from August 26, 1991 until fully paid or to deliver a substitute lot at the choice of the respondent.”

In fine, the gist of the Decision may be stated, thus:

The consequences of failure by the seller to comply with the requisites provided by Republic Act No. 6552 for cancellation of contract are as follows:

1. The cancellation is invalid;
2. The contract remains valid and subsisting;
3. The buyer may compel the seller to accept payment;
4. The buyer is entitled to the subject property;
5. If the property has been sold to a buyer in good faith, the buyer may either:

a. demand the price paid by the third-party buyer, plus legal interest; or
b. demand delivery of substitute property

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