The Recto Law

The Recto Law comprises Articles 1484 to 1486 of the Civil Code.
It was added to the Civil Code to prevent abuses in the foreclosure
of chattel mortgages, such as when mortgagee-creditors
foreclosed mortgaged property, bought them at a low price (on
purpose,) then prosecuted the mortgagor-debtors to recover the
deficiencies.

The Maceda Law

REALTY INSTALLMENT BUYER ACT
The Maceda Law, RA 6552, is the real estate equivalent of the Recto Law. Like
the Recto Law, it also covers financing of sales of real property (which is why
mortgages also come in.) It doesn't apply, however, to the following
sales:
1.) Industrial lots

In the event a buyer of personal property defaults by failing to

pay two or more of the agreed installments, the seller can do any 2.) Commercial buildings and lots
of the following (EXCLUSIVE)
3.) Lands under the CARP Law
1.) Demand that the buyer pay (a.k.a. specific performance)
Depending on when the buyer defaults, there are two (2) possible scenarios:
2.) Cancel or rescind the sale
if the buyer paid at least two (2) years' installments and if the buyer paid less
than 2 years' installments.
3.) Foreclose the mortgage on the property bought (if there ever
was a chattel mortgage)
If the buyer paid less than 2 years' installments and defaults, he is given a
grace period of sixty (60) days starting from the date of his last
Regarding no. 3, this happens when a person takes a loan to buy installment to resume paying. This period can be increased by the seller.
something and he mortgages the thing he bought to ensure the If after the grace period the buyer still can't pay, the seller must make a
creditor that he will pay the loan. Remember: If you choose one notarial demand to cancel the sale. The cancellation becomes
remedy, you can't choose the others. These remedies, believe it or effective thirty (30) days after the buyer was notified. So it's possible
not, are also available to the buyer. You also can't use all or any of that the buyer could be notified two months after the 60-day period and then
them at the same time. The Recto Law also won't apply to a the 30-day period will begin.
straight sale (i.e. a sale where there is a downpayment and the
balance is payable in the future in a single payment only.) The If the buyer paid at least two years' installments, the buyer can pay the
seller can also assign his credit to another person, making that unpaid balance without interest. The grace period is computed at one
person the new creditor.
(1) month per year of installment payments. It also begins from the time
the buyer paid his last installment. The grace period can be used only once
If the buyer refuses to surrender the items to the seller, he every five (5) years of the sales contract's life -including its extensions. So
becomes a perverse buyer-mortgagor. When that happens, the it's possible to have a grace period of a year if the buyer had been paying his
seller can recover expenses and attorney's fees.
installments faithfully for 12 years. Once the buyer chooses to use the grace
period, he can't get it again until another five years are over.

The Recto Law also covers leases with the option to purchase.
The buyer is also allowed to make advanced payments, or even
the full price, without interest. He can also assign his rights to
another person, making that person the new buyer, but he can
only do that with a notarial deed of sale assignment.
The Maceda Law cannot be used by a real estate developer
(see here.) It also cannot be used by the highest bidder in
foreclosure proceedings.

If the seller wants to cancel the sale, he has to refund the buyer of 50%
of the actual payments. If the buyer paid more than five years'
installments another 5% for every year is to be added to the refund,
but only up to 90% of the total payments made. The payments
mentioned here include the downpayment, options and deposits. The refund
is made in this way: if the buyer paid more 2 to 5 years' installments, he can
get back 50% of the cash surrender value. If he paid for more than 5 years,
he can get the 50% plus 5% per year up to 90%.
The buyer is also allowed to make advanced payments, or even the full price,
without interest. He can also assign his rights to another person, making that
person the new buyer, but he can only do that with a notarial deed of sale
assignment.
The Maceda Law cannot be used by a real estate developer (see here.) It
also cannot be used by the highest bidder in foreclosure proceedings.

A sale with Pacto de retro transfers the

legal title to the vendee a retro. The
essence of a pacto de retro sale is that the
title and ownership of the property sold are
immediately vested in the vendee a retro,
subject to the resolutory condition of
repurchase by a vendor a retro to
repurchase the property within the period
agreed upon by them, or, in the absence
thereof, as provided by law, vests upon the
vendee a retro absolute title and
ownership over the property sold by
operation of law.
The failure of the vendee a retro to
consolidate his title under Article 1607 of
the New Civil Code does not impair such
title and ownership because the method
prescribed thereunder is merely for the
purpose of registering and consolidating
titles to the property. (Cadungog v. Yap,
G.R. No. 161223, September 12, 2005).

> Automatic appropriation by the creditor of the thing pledged or mortgaged upon the failure of the debtor to
pay the principal obligation
> TEST IF THERE IS EXISTS PACTUM COMMISSORIUM is whether or not there is no need for extra step to be
taken by creditor
PROHIBITION AGAINST PACTUM COMMISSORIUM
1. Stipulation is null and voidit is said to be contrary to good morals and public policy
2. Requisites
a. There should be a pledge, mortgage, antichresis of property by way of security for the payment of the
principal obligation
b. Stipulation for the automatic appropriation of the property in favor of the creditor upon default of the
debtor/pledgor
3. Effect on the security contractdoesnt affect substantially the principal contract of pledge, mortgage or
antichresis with regard to its validity and efficacy
AGREEMENTS THAT WOULD NOT CONSTITUTE PACTUM COMMISSORIUM
1. Attorney in fact
2. Option contract. There would be another contract. There is a risk of the courts to look at it as a PC.
3. Dacion en pago
4. Assigned shares. Creditor would only have legal title and pledgor would still have beneficial ownership.