Yu, Stevenson S.

1st Semester, AY 2015 - 2016

SALES
Chapter 10
Remedies of Parties
Introduction (You can ignore this)
When it comes to performance, the main rule in Sales was CAVEAT
EMPTOR (Let the buyer beware). It required the buyer to be aware of the
supposed title of the seller to the subject matter. Thus, when a buyer buys
without checking the sellers title usually takes all the risks and losses
consequent to such failure. This however, does not apply when there was
false representation on the part of the seller. Today, we just really look at
whether the buyer was in good faith or did the buyer assume the risks
attached to the subject matter of sale.
An exception to the rule on CAVEAT EMPTOR exists under the Torrens
System. For under the Torrens System, the buyer need only rely upon the
title of a registered land and as no obligation to look beyond such title.
But take note that, in Erquiaga vs CA, the court held that the ancient defense
of CAVEAT EMPTOR belongs to a bygone age, and has no place in
contemporary business ethics.

Remedies in Cases of Movables

A. Ordinary Remedies of Seller
1. Movables in General
Generally, when the buyer does not tender the price at the time he was
supposed to, the seller may maintain an action to rescind the sale.
2. Sales of Goods
a. Non-Payment of Price by Buyer
When ownership has already transferred to buyer and the buyer wrongfully
neglects or refuses to pay, the seller may maintain an action against the
buyer for the price of the goods. (specific performance)
When ownership has not yet transferred to the buyer and the goods can no
longer be resold for reasonable price, the seller may deliver the goods to

buyer and if buyer refuses to receive them, seller may notify buyer that the
are hereafter held by seller as bailee for the buyer. The seller may treat the
goods as the buyers and may maintain an action for the price.
When the price is payable on a certain day and the buyer wrongfully neglects
or refuses to pay such, the seller may maintain an action for the price
although the ownership in the goods has not passed. However, when
payment is due prior to delivery, the seller may use as defense for nonpayment the fact that the seller manifested an inability to perform the sale on
his part or an intention not to perform it.
b. When Buyer Wrongfully Neglects/Refuses to Accept Goods
The seller may maintain an action against seller for damages for nonacceptance, in accordance with the following rules:
(a) Damages shall cover the estimated loss directly and naturally
resulting in the ordinary course of events from the buyers breach of
contract.
(b) Where there is an available market for the goods in question, in the
absence of special circumstances showing proximate damage of a
different amount, the measure of damages is the difference between
the contract price and market or current price at the time or times
when the goods ought to have been accepted, or, if no time was
fixed for acceptance, then at the time of the refusal to accept.
(c) If the buyer repudiates the contract or notifies the seller to proceed
no further, buyer shall be liable for labor performed or expenses of
material amount is necessary on the part of the seller to enable him
to fulfill his obligations under the sale made before receiving notice of
the buyers repudiation or countermand; and
(d) The profits the seller would have made if the contract or the sale had
been fully performed shall be considered in awarding damages.
B. Special Remedies of Unpaid Seller of Goods
The remedies of an unpaid seller are similar to the doctrine of self-help in
Article 429 of the Civil Code, the owner or lawful possessor of a thing may
use force as may be reasonably necessary to repel or prevent an actual or
threatened unlawful physical invasion or usurpation of his property. The
minimum requirement is possession.
Who is an unpaid seller?
Art. 1525
The seller of goods is deemed to be an unpaid seller:
a. When the whole of the price has not been paid or tendered;
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Yu, Stevenson S.
1st Semester, AY 2015 - 2016
b. When the bill of exchange or other negotiable instrument has been
received as conditional payment, and the condition on which it was
received has been broken by reason of the dishonor of the
instrument, the insolvency of the buyer, or otherwise.
Rights of Unpaid Seller: (Art. 1526)
a. Possessory Lien
b. Stoppage in transitu
c. Special right of resale
d. Special right to rescind
Note: The four remedies have a hierarchical application. Ex. The special
rights to resell and to rescind can only be availed of when either of the two
prior rights of possessory lien or stoppage in transit have been exercised by
the unpaid seller.
Possessory Lien
If the seller is an unpaid seller as defined by law, notwithstanding that the
ownership in the goods may have passed to the buyer, the unpaid seller still
has a lien on the goods or right to retain them for the price while he is in
possession of them. Where the ownership of the goods has not passed to
the buyer, the unpaid seller has, in addition to his other remedies, a right of
withholding delivery similar to and co-extensive with his right of lien. Seller
may exercise right of lien even when possession is as agent or bailee for
buyer. Right of lien is also not affected by any sale, or other disposition of the
goods which the buyer may have made, unless the seller assented thereto.
The possessory lien of the unpaid seller is exercisable only in the following
instances:
(a) Where the goods have been sold without any stipulation as to credit.
(b) Where the goods have been sold on credit, but the term of credit has
expired.
(c) Where the buyer becomes insolvent.
What happens to possessory lien when negotiable document of title was
issued?
If a negotiable document of title has been issued for goods, no sellers lien
shall defeat the right of any purchaser for value and in good faith to whom
such document has been negotiated, whether such negotiation be prior or
subsequent to the notification to the carrier, or other bailee who issued such
document, of the sellers claim to a lien.
How about when partial delivery was effected?

Where an unpaid seller has made part delivery of the goods, he may
exercise his right of lien on the remainder, unless such part delivery has been
made under such circumstances as to show an intent to waive the lien or
right of retention.
When is possessory lien lost?
Art. 1529
The unpaid seller of goods loses his lien thereon:
(1) When he delivers the goods to a carrier or other bailee for the
purpose of transmission to the buyer without reserving the ownership
in the goods or the right to the possession thereof.
(2) When the buyer or his agent lawfully obtains possession of the
goods;
(3) By waiver thereof.
The unpaid seller of goods, having a lien thereon, does not lose his lien by
reason only that he has obtained judgment or decree for the price of the
goods.
Stoppage in Transitu
Art. 1530
When the buyer of goods is or becomes insolvent, the unpaid seller who has
parted with the possession of the goods has the right of stopping them in
transitu, that is to say, he may resume possession of the goods at any time
while they are in transit, and he will then become entitled to the same rights
in regard to the goods as he would have had if he had never parted with the
possession.
Just like possessory lien, the unpaid sellers right to stoppage in transitu is
not affected by any sale, or other disposition of the goods which the buyer
may have made, unless the seller assented thereto.
When is buyer deemed insolvent?
A buyer is deemed insolvent when either he has ceased to pay his debts in
the ordinary course of business or cannot pay his debts as they become due,
whether insolvency proceedings have been commenced or not.
When are goods deemed in transit?
Good are in transit when:
a. From the time they are delivered to a carrier by land, water, or air, or
other bailee for the purpose of transmission to the buyer, until the
buyer, or his agent in that behalf, takes delivery of them from such
carrier or other bailee; or
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b. If the goods are rejected by the buyer, and the carrier or other bailee
continues in possession of them, even if the seller has refused to
receive them back.
Goods are no longer in transit when:
a. The buyer or his agent obtains delivery of the goods before their
arrival at the appointed destination;
b. After the arrival of the goods at the appointed destination, the carrier
or other bailee acknowledges to the buyer or his agent that he holds
the goods on his behalf and continues in possession of them as
bailee for the buyer or his agent (and it is immaterial that further
destination for the goods may have been indicated by the buyer);
c. The carrier or other bailee wrongfully refuses to deliver the goods to
the buyer or his agent.
What happens to stoppage in transitu when negotiable document of title is
issued?
If a negotiable document of title has been issued for goods, no sellers right
to stoppage in transitu shall defeat the right of any purchaser for value and in
good faith to whom such document has been negotiated, whether such
negotiation be prior or subsequent to the notification to the carrier, or other
bailee who issued such document, of the sellers claim to right of stoppage in
transitu.
How about when partial delivery has been made?
If part delivery of the goods has been made to the buyer, or his agent in that
behalf, the remained of the goods may be stopped in transitu, unless such
part delivery has been under such circumstances as to show an agreement
with the buyer to give up possession of the whole of the goods.
How is right of stoppage in transitu exercised?
The unpaid seller may exercise his right of stoppage in transit either by:
a. Obtaining actual possession of the goods; or
b. Giving notice of his claim to the carrier or other bailee in whose
possession the goods are.
Note; When notice of stoppage in transitu is given by the seller to the carrier,
or other bailee in possession of the goods, he must redeliver the goods to, or
according to the directions of, the seller. The expenses of such delivery must
be borne by the seller.
Special Right to Resell Goods

Yu, Stevenson S.
1st Semester, AY 2015 - 2016
Art. 1533 - The special right to resell goods can be made only when the
unpaid seller has previously exercised either his right of possessory lien or
stoppage in transitu, and under any of the following conditions:
(a) The goods are of perishable nature
(b) Where the seller has been expressly reserved in case the buyer
should make default; (part of contract) or
(c) Where the buyer has been in default in the payment of the price for
an unreasonable time
Note:
1. If the buyer fails to take delivery and pay the purchase price of the
subject matter of the contract, the seller, without need of first rescinding
the contract judicially, is entitled to resell the same, and if he is obliged to
sell it for less than the contract price, the buyer is liable for the difference.
(Katigbak vs CA)
2. After exercising right of resale, seller is not liable to original buyer for any
profit made in such resale. He may also recover damages from buyer for
any loss occasioned by the breach of the sale.
3. In cases of resale made by unpaid seller, NEW buyer has better title
against the OLD buyer. Special feature of the right of the unpaid seller to
resell: not only is he able to destroy or obliterate the ownership over the
goods in the original buyer, he is also able to transfer ownership to the
subsequent buyer, even if at the time of tradition, he no longer has
ownership over the goods.
4. No judicial action necessary to exercise right of unpaid seller to resell.
5. Notice to defaulting buyer to exercise right to resell is generally not
necessary. But notice shall be relevant in any issue involving the
question whether the buyer had been in default for an unreasonable time
before resale was made.
Special Right to Rescind
Art. 1534 - An unpaid seller having the right of lien or having stopped the
goods in transitu, may rescind the transfer of title and resume the ownership
in the goods, where:
(a) The seller has expressly reserved the right to do so in case the buyer
should make default; or
(b) The buyer has been in default in the payment of the price for an
unreasonable time.
Note:
1. Damages may still be recovered for any loss occasioned by the breach
of the contract.
2. Transfer of title shall only be considered rescinded when unpaid seller:
a. Manifested by notice to the buyer; or
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b. Manifested by some overt act an intention to rescind

3. When unpaid sellers right to rescind is manifested by some overt act,
notice to buyer of such overt act is not necessary.
4. But the giving or failure to give notice to the buyer of the intention to
rescind becomes relevant when the issue is whether the buyer had been
in default for an unreasonable time.

Yu, Stevenson S.
1st Semester, AY 2015 - 2016
(3) Foreclose the chattel mortgage on the thing sold, if one has been
constituted, should the vendees failure to pay cover two or more
installments. In this case, 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.
Note: Art. 1484 incorporates the old Art. 1454 and RA4122 or the Recto Law

C. Remedies of Buyer
1. When SELLER FAILS TO DELIVER, the buyer may go to court and seek
action for SPECIFIC PERFORMANCE.
2. When seller breaches warranty, buyer may avail of the following
remedies: (Art. 1599)
a. Accept or keep the goods and set up against the seller, the
breach of warranty by way of recoupment in diminution or
extinction of the price;
b. Accept or keep the goods and maintain an action against the
seller for damages for the breach of warranty;
c. Refuse to accept the goods, and maintain an action against
the seller for damages for the breach of warranty;
d. Rescind the sale and refuse to receive the goods or if the
goods have already been received, return them or offer to
return them to the seller and recover the price or any part
thereof which has been paid.
Note: When the buyer was granted remedy in Art. 1599, no other remedy can
thereafter be granted, without prejudice to buyers right to rescind.
3. Buyer may suspend payment of the price in anticipation of a breach.
Such suspension will last until seller has caused the disturbance or
danger to cease. Unless, the seller gives security for the return of the
price in a proper case. Breach here involves disturbance of the buyers
possession or ownership of the thing acquired.
a. A pending suit over the subject matter of the sale justifies a
buyer in suspending payment of the balance of the purchase
price by reason of aforesaid vindicatory action filed against
it.
D. Recto Law (Sales of Movables on Installments)
Art. 1484
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 vendee fail to pay;
(2) Cancel the sale, should the vendees failure to pay cover two or more
installments;

Rationale of Recto Law

The passage of the Recto Law was meant to remedy the abuses committed
in connection with the foreclosure of chattel mortgages and 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. Basically, to avoid a situation where mortgagor loses
the property and still owing mortgagee practically the full amount of
indebtedness.
Notes:
1. The court held, provisions of Recto Law cannot apply to a sale where
there is an initial payment, and the balance payable in the future,
because the same is not a sale on installment but actually a straight sale.
2. The law provides that the buyer needs to have defaulted in the payment
of two or more installments to allow remedies under the Recto Law.
3. Provisions of the Recto Law are applicable to financing transactions
derived or arising from sales of movables on installments.
4. Contracts to sell movables on installment not covered.
Remedies under Art. 1484
Should the buyer of a personal property default in the payment of two or
more of the agreed installments, the vendor or seller has the option to avail
of any of these three remedies:
(a) Exact fulfillment by the purchaser of the obligation; (specific
performance)
(b) Rescind or cancel the sale; or
(c) Foreclose the mortgage on the purchased personal property, if one
was constituted.
Note: Remedies are alternative, not cumulative. Meaning, if you use one you
can no longer use the others.
Barring Effects
Generally, there are two levels of barring effects:
(1) Choice of remedies (when you choose one, you cant choose the
others)

(2) Non-recovery of any unpaid balance when it comes to the remedies

of rescission and foreclosure (when remedy is rescission or
foreclosure, seller cannot recover the unpaid balance)
Remedy of Specific Performance
- General rule, when seller has chosen specific performance, he can no
longer seek for rescission nor foreclosure of the chattel mortgage
constituted on the thing sold.
- Exception, when specific performance has become impossible, seller
may still choose rescission. (Art. 1191)
Remedy of Rescission
When seller chooses rescission, he is under obligation to make restitution, he
shall return what the buyer has paid, and buyer returns the subject if already
delivered. (General Rule)
Art. 1486, a stipulation that the installments or rents paid shall not be
returned to the vendee or lessee shall be valid insofar as the same may not
be unconscionable under the circumstances. (Exception)
Retention is justified especially when it is shown that buyer benefited
(Delta Motor Sales Corp. vs Niu Kim Duan)
In rescission, seller can also sue for damages. Sometimes retention
is done instead of damages.
When is rescission deemed chosen?
The seller is deemed to have chosen the remedy of rescission when he
clearly indicated to end the contract such as:
(1) When he sends a notice of rescission
(2) When he takes possession of the subject matter of the sale
(3) When he files an action for rescission
Note:
1. When the seller is deemed to have chosen rescission, he can no longer
avail specific performance or foreclosure.
2. When the unpaid seller has chosen the remedy of rescission, generally
he cannot seek further action on the purchase price against the buyer,
and in fact, where there is no stipulation to the contrary, the seller is even
obliged to return any portion of the purchase price he received from the
buyer, although he can recover damages. (mutual restitution)
Foreclosure of Chattel Mortgage Constituted on Subject Property
When is foreclosure deemed chosen?

Yu, Stevenson S.
1st Semester, AY 2015 - 2016
Foreclosure is deemed chosen at the time of actual sale of the subject
property as public auction pursuant to the foreclosure proceedings
completed. Not upon filing action for foreclosure.
Note:
1. When the seller has chosen to foreclose on the mortgage constituted on
the subject matter of sale, he can no longer seek the remedies of specific
performance or rescission.
2. Securing possession of thing does not necessarily mean it will foreclose
its mortgage. (Universal Motors Corp. vs Sy Hian Tat)
3. Filing of an action of replevin with damages and seeking repossession
of the movable to allow extrajudicial foreclosure and sale does not
amount to having chosen remedy of foreclosure. (IFC vs Ramirez)
4. It is the foreclosure and actual sale at public auction of the mortgaged
chattel that shall bar further recovery by the seller of any balance on the
purchasers outstanding obligation not satisfied by the sale; prior to that
point in time, the seller has every right to receive payments on the unpaid
balance of the price from the buyer.
5. Further action being barred under Art. 1484 is not limited to judicial
proceedings, but should include extrajudicial proceedings by virtue of
which the seller may be enabled to exact recovery of the supposed
unsatisfied balance of the purchase price from the purchaser or his privy.
(Cruz vs Filipinas Investment & Finance Corp.)
Extent of Barring Effect in Foreclosure
If the vendor has chosen to foreclose the mortgage he shall have no further
action against the purchaser for the recovery of any unpaid balance owing by
the same, any agreement to the contrary shall be null and void.
The extent of the barring effect shall be all encompassing and does limit itself
to the balance of the purchase price.
Exception:
When a defaulting buyer-mortgagor refuses to surrender the chattel to the
seller to allow the latter to be able to proceed with foreclosure, then the
seller, even after actual foreclosure, should be allowed to recover expenses
and attorneys fees incurred in trying to obtain possession of the chattel.
(Filipinas Investment & Finance Corp. vs Ridad)
Where the mortgagor plainly refuses to deliver the chattel subject fo the
mortgage upon his failure to pay two or more installments, or if he conceals
the chattel to place it beyond the reach of the mortgagee, the necessary
expenses incurred in the prosecution by the mortgagee of the action for
replevin so that he can regain possession of the chattel should be borne by
the mortgagor. (Agustin vs CA)
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What is any unpaid balance?

Any unpaid balance should be interpreted as having reference to the
deficiency judgment to which the mortgagee may be entitled where, after the
mortgaged chattel is sold at public auction, the proceeds obtained therefrom
are sufficient to cover the full amount of the secured obligation which in the
case at bar as shown by the note and by the mortgaged deed, include
interest on the principal, attorneys fees, expenses of collection, and the
costs. (Macondray & Co., Inc. vs Eustaquio)

Yu, Stevenson S.
1st Semester, AY 2015 - 2016
2. Court has tended to interpret Art. 1592 liberally in favor of the buyer to
give him every opportunity to comply with his obligation and proceed to
take the subject immovable.
3. Buyer of two small residential lots on installment contracts on a ten-year
basis who has faithfully paid for eight continuous years on the principal
alone already more than the value of one lot, besides the larger
stipulated interests on both lots, was entitled to the conveyance of one
fully paid lot of his choice. The judgment is fair and just in accordance
with law and equity. (Legarda Hermanos vs Saldana)

E. Lease with Option to Purchase

B. Remedies of Buyer
Provisions of Art. 1484 are applicable 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. (Art. 1485)

Remedies in Cases of Immovables

A. Remedies of Seller
Anticipatory Breach
Art. 1591
Should the seller have reasonable grounds to fear the loss of
immovable property sold and its price, he may immediately sue for the
rescission of the sale.
Should such ground not exist, the provisions of Art. 1191 shall be
observed.
Upon substantial breach by the buyer for failure to comply with his obligation
to pay the price when due, the seller may sue for rescission of the sale. (in
relation to Art. 1191)
Failure of Buyer to Pay Price
a. Rescission under Article 1592
Art. 1592
In the sale of immovable property, even though it may have been stipulated
that upon failure to pay the price at the time agreed upon the rescission of
the contract shall of right take place, the vendee may pay, even after the
expiration of the period, as long as no demand for rescission of the contract
has been made upon him either judicially or by a notarial act. After the
demand, the court may not grant him a new term.
Note:
1. Contracts to sell are not covered by Art. 1592

Suspension of Payment
Art. 1590
Should the buyer be disturbed in the possession or ownership of the thing
acquired, or should he have reasonable grounds to fear such disturbance, by
a vindicatory action or a foreclosure of mortgage, the buyer may suspend the
payment of the price until the seller has caused the disturbance or danger to
cease, unless the seller gives a security for the return of the price in a proper
case, or it has been stipulated that, notwithstanding any such contingency,
the buyer shall be bound to make the payment. Again, a mere act of trespass
shall not authorize the suspension of the payment of the price.
Suspension of Payment in Case of Subdivision or Condominium Projects
Sec. 23 and 24 of PD957, provides that no installment payments made by
the buyer in a subdivision or condominium project for the lot or unit he
contracts to buy shall be forfeited in favor of the owner or developer when the
buyer, after due notice to the owner or developer desists from further
payment due to the failure of the owner or developer to develop the
subdivision or condominium project according to the approved plans and
within the time limit for complying with the same. The sections also grant to
the buyer the option to be reimbursed the total amount paid.
Basically, when the owner/developer fails to develop property according to
the plans (including time), the buyer may desist from further payment after
due notice to owner/developer. Buyers prior payment cannot be forfeited in
favor of owner, in fact, buyer may even ask for reimbursement of total
amount paid.
Cases:
- PD957 vests upon the buyer the option to demand reimbursement of the total
amount paid, or to wait for further development of the subdivision or
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condominium project; and when the buyer opts for the latter alternative, he
may not be ousted from the subdivision. (Relucio vs Brillante-Garfin)
- The buyer in a subdivision land has the right to compel the seller to complete
the roads and other facilities of the subdivision, even when nothing to that
effect is stipulated in the sale. (Lim vs De los Santos, Consing vs CA)
- The buyer is entitled to a copy of the deed, otherwise, he would not be
informed of the rights and obligations under the contract. A buyer of a
condominium unit is justified in suspending payment of his monthly
amortization where the seller fails to give a copy of the Contract to Sell
despite repeated demands therefore. (Gold Loop Properties, Inc. vs CA)
- Nothing in PD957 provides for the nullification of a contract to sell in the
event that the seller, at the time the contract was entered into did not
posses a certificate of registration and a license to sell. (Cho Chien vs Sta.
Lucia Realty & Dev. Inc.)
Note:
1. Notice given to the seller by the buyer before a demand of refund can be
made is not required. Notice and demand can be made in the same letter
or communication.
2. PD957 has retroactive application, social justice and all. (Eugenio vs
Drilon)
3. When a grace period is provided for in the contract of sale, it should be
construed as a right, not an obligation of the debtor, and when
unconditionally conferred, the grace period is effective without further
need of demand either calling for the payment of the obligation or for
honoring the right.
C. Maceda Law (Sales of Real Estate on Installments)
RA6552 or the Realty Installment Buyer Protection Act (or the Maceda
Law), provides for certain protection to particular buyers of real estate
payable on installments. The declares as public policy to protect buyers of
real estate on installment payments against onerous and oppressive
conditions.
Transactions Covered
Maceda law does not cover all sales of realty installments, but primarily
residential real estate. Covers both contracts of sale and contracts to sell.
Sale by installments should involve at least two installments to be paid in the
future at the time of perfection of the contract.
Transactions Excluded from Coverage
The following transactions, although involving sales on installments, are
expressly excluded from the coverage of the Law, thus:
(a) Sales covering industrial lots;

Yu, Stevenson S.
1st Semester, AY 2015 - 2016
(b) Sales covering commercial buildings (and commercial lots by
implication); and
(c) Sales to tenants under agrarian reform laws
Others not covered:
1. Sales of Commercial or Office Condominium Units
2. A person or entity who acquired subdivision lots in a foreclosure sale
on the mortgage constituted thereon by the developer. (not real party
to the original installment sales)
Rights Granted
a.Where the buyer has paid at least two (2) years of installments, he is entitled
to the following rights in case he defaults in the payments of succeeding
installments: (two years or more payment)
(a) To pay, without additional interest, the unpaid installments due within
the total grace period earned by him, which is fixed at the rate of one
(1) month grace period for every one (1) year of installment payments;
(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.
Note:
1. The right to make use of the grace period can be exercised by the buyer
only once in every five (5) years of the life of the contract and its
extensions, if any.
2. Down payments, deposits or options on the contract shall be included in
the computation of the total number of installments made.
3. Cancellation of the contract takes place 30 days from receipt by buyer of:
a. Notice of Cancellation
b. Demand for rescission by notarial act and upon full payment of the
cash surrender value to the buyer
b.Where less than two (2) years of installments were paid: (less than two
years)
The buyer shall be entitled to a grace period of sixty (60) days from the date
the installment became due. After grace period, buyer still fails to pay; the
seller may cancel the contract after thirty (30) days from receipt by the buyer
of the notice of cancellation or the demand for rescission of the contract by a
notarial act.
c. Compensation Rule on Amortization Payments
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Generally, when buyer fails to pay any monthly amortization, he is already in

default and liable for the damages stipulated in the contract. Nevertheless,
the court held that the default committed by the buyer in respect of the
obligation could be compensated by the interest and surcharges imposed
upon the buyer under the contract. (Principle of compensation is applicable
to remedies under the Maceda Law) (Leao vs CA)
d. Formula to Compute the Installment Mode
The proper formula in determining how many installments have been made is
to include any payment made as downpayment or reservation fee as part of
the installments made, and then to divide them by the stipulated mode of
payment, i.e., whether it is monthly, quarterly, semi-annual or annual.
Interpretation of Grace Period and Mode of Cancellation
Two basic doctrines applicable to Maceda Law (McLaughlin vs CA):
1. Although, the Law seem to require rescission and cancellation to be both
by notarial act, McLaughlin would hold notarial act as merely applicable
to rescission, whereas notice of cancellation need not be by notarial
act.
2. Even after the expiration of the grace period provided by law, the buyer
still can prevent rescission or cancellation of the contract within the 30day period when rescission or cancellation is to take effect.
In other words, there are two grace periods, the STATUTORY GRACE
PERIOD and the JURISPRUDENTIAL GRACE PERIOD. Statutory grace
period is the minimum 60 days expressed by the Maceda Law and the
jurisprudential grace period is the 30 day period before rescission or
cancellation actually takes effect. (McLaughlin vs CA)
Note:
- The difference between the statutory grace period and the jurisprudential
grace period is that, in the jurisprudential grace period, the buyer would
be liable for and would have to include in his payments the stipulated
interests and penalties incurred.

Yu, Stevenson S.
1st Semester, AY 2015 - 2016
Also in Leao vs CA, the court affirmed the principle that even when the
requisite notice of cancellation is given but the buyer has not been given
the cash surrender value of the payments made, there was still no actual
cancelaltion or conditional sale, and the buyer may reinstate the contract
by updating the account.

Other Rights Granted to Buyer

The Maceda Law provides the following rights to the buyer:
(a) 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 assignment shall be
done by notarial act.
(b) 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.
Note:
1. Pre-termination penalty clauses where any advance payment was met
with a penalty clause to compensate the bank for the inability of such
pre-payment to earn interest income on the loan are void. (Art. 6,
Maceda Law)
2. Any stipulation in any contract entered into contrary to the provisions of
the Maceda Law, shall be null and void. (Art. 7, Maceda Law)
3. Maceda Law has no application to protect the developer or one who
succeeds the developer. (Lagandaon vs CA)
4. Where a judicial sale is voided without the fault of the purchaser, the
latter is entitled to reimbursement of the purchase money paid by him.
- A judicial sale can only be set aside upon the return to the buyer of
the purchase price with simple interest, together with all sums paid
out by him in improvements introduced on the property, taxes and
other expenses by him.