Protecting Installment Buyers Understanding Rescission Rights Under THE Maceda LAW

The Maceda Law, or Republic Act No. 6552, is one of the most important protections for Filipino buyers of real estate on installment payments. It shields buyers from harsh and one-sided contract terms, especially when they fall behind on payments. In a June 2024 ruling, the Supreme Court clarified just how strictly sellers must follow this law before they can cancel a contract to sell—even when the contract itself gives the seller the right to cancel unilaterally.

The case of State Investment Trust, Inc. v. Baculo (G.R. No. 237934, June 10, 2024) serves as a valuable reminder that contractual freedom has limits when the law steps in to protect buyers.

The Facts of the Case

State Investment Trust, Inc. (SITI) sold two parcels of land in Quezon City to spouses Carlos and Victoria Baculo under two Contracts to Sell dated March 25, 1997. The spouses paid the downpayments and eight monthly amortizations for each property, but then defaulted due to business difficulties. SITI granted several concessions, including restructured payment schedules and temporary suspensions of payments while a third-party case questioning SITI's title was pending.

After that case was dismissed in 2004, SITI demanded resumption of payments. The spouses repeatedly asked for further suspensions, citing concerns about the titles. In November 2005, SITI sent a demand letter giving the spouses five days to pay the full balance, warning that failure would result in cancellation of the contracts. SITI later sent another letter demanding they vacate the properties.

The Legal Issue

The core question was whether SITI validly cancelled the Contracts to Sell under the Maceda Law. SITI argued that the contract's provision allowing unilateral cancellation, plus its demand letters, were sufficient. The spouses countered that SITI failed to follow the strict procedure required by law.

The Supreme Court's Ruling

The Supreme Court ruled in favor of the buyers, holding that SITI's cancellation was invalid. The Court emphasized that Section 4 of the Maceda Law applies when a buyer has paid less than two years of installments, which was the situation here. This section imposes three mandatory requirements before a seller may cancel a contract:

1. A 60-day grace period from the date the installment became due.
2. A notice of cancellation or demand for rescission by notarial act if the buyer fails to pay after the grace period expires.
3. A 30-day waiting period after the buyer receives the notarial notice before the seller may actually cancel.

SITI failed on all three counts. The demand letter was sent barely a month after the due date, not after a 60-day grace period. The letters were not notarized—they lacked the acknowledgment before a notary public that the law requires. And because there was no valid notice, the 30-day period never began to run.

The Court also rejected SITI's argument that it was exempt from the law because it was not a real estate developer. This argument was raised only for the first time on appeal, and the Court noted that the Maceda Law protects buyers of "all kinds of real estate," including commercial properties.

The Remedy: Pay or Vacate

Despite the invalid cancellation, the Court did not simply dismiss the case. Following earlier precedents, it gave the buyers a final chance to keep the properties. The Court ordered the spouses to pay the outstanding balance of PHP 7,361,744.87 within 60 days from the finality of the decision, plus interest. If they paid, SITI had to execute a Deed of Absolute Sale and deliver the titles. If they failed to pay, they had to vacate the properties, and their payments would be treated as rentals.

The Court also addressed the interest rates in the contracts. The 19% per annum monetary interest was upheld as reasonable. However, the 3% per month penalty interest was struck down as unconscionable and reduced to 12% per annum, the prevailing legal rate at the time the contracts were entered into.

Practical Takeaways

• The Maceda Law applies broadly. It protects buyers of residential, commercial, and industrial real estate on installment payments, regardless of whether the seller is a developer or an individual.
• A 60-day grace period is mandatory. Sellers cannot skip this step, even if the contract says cancellation is automatic upon default.
• Notarization is crucial. A plain demand letter, no matter how strongly worded, is not a valid notice of cancellation under Section 4 of the Maceda Law. The notice must be acknowledged before a notary public.
• Contract clauses cannot override the law. Any stipulation contrary to Sections 3, 4, 5, and 6 of the Maceda Law is null and void, even if the buyer agreed to it.
• Courts may give buyers a final chance. Even when a seller fails to properly cancel, courts can order the buyer to pay the balance within a set period, with the property forfeited as rental if they cannot.

This article is general information and not legal advice. For your specific situation, consult a lawyer or ask ASG Legal AI.