Know your rights when buying on installment.
Many Filipinos buy property or vehicles through installment payments. However, when the buyer fails to pay, the seller cannot just do whatever they want. The law provides protection to buyers through two important laws: Recto Law and Maceda Law.
Let us simplify them.
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RECTO LAW (Article 1484 of the Civil Code)
This law applies when you buy personal property on installment, such as:
• Cars
• Motorcycles
• Appliances
• Equipment
• Gadgets
In short, movable property.
If the buyer fails to pay installments, the seller has ONLY THREE OPTIONS under the law:
1. Exact fulfillment
The seller may demand payment of the unpaid installments.
2. Cancel the sale
The seller may cancel the contract if the buyer fails to pay at least two installments.
3. Foreclosure of the chattel mortgage
If the property is mortgaged (for example, a car loan), the seller may foreclose the mortgage.
BUT HERE IS THE IMPORTANT PART:
If the seller chooses foreclosure, the seller can no longer collect any remaining balance from the buyer.
This is called the prohibition on deficiency judgment.
Illustration
You bought a car worth ₱1,000,000.
You already paid ₱300,000, but you stopped paying.
The seller repossessed the car and sold it at auction for ₱500,000.
There is still a balance of ₱200,000.
Under the Recto Law, the seller can no longer collect the ₱200,000 deficiency from the buyer if foreclosure was chosen.
This rule prevents abusive practices by financing companies.
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MACEDA LAW (RA 6552)
Also known as the Realty Installment Buyer Protection Act.
This law applies to real estate sold on installment, such as:
• House and lot
• Condominium units
• Residential lots
The law protects buyers who have already paid installments.
Your rights depend on how long you have been paying.
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If you have paid LESS THAN 2 YEARS
You are entitled to:
• A grace period of 60 days to pay the unpaid installment.
• If you still fail to pay after the grace period, the seller may cancel the contract.
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If you have paid AT LEAST 2 YEARS
You have stronger protection.
You are entitled to:
1. Grace Period
One month grace period for every year of installment payments.
Example:
If you paid for 5 years, you are entitled to 5 months grace period.
2. Cash Surrender Value
If the contract is cancelled, the seller must refund at least 50% of the total payments made.
If you paid more than 5 years, the refund increases by 5% per year, up to 90% maximum.
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Illustration
You bought a house and lot worth ₱2,000,000.
You paid installments for 6 years totaling ₱900,000.
If the contract is cancelled:
Minimum refund:
50% of ₱900,000
= ₱450,000
Since you paid more than 5 years, there may be additional percentages depending on the computation.
This prevents developers from simply cancelling the contract and keeping all payments.
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Simple comparison
Recto Law
Applies to cars, appliances, and other personal property sold on installment
Maceda Law
Applies to real estate sold on installment
Recto Law
Seller cannot collect the remaining balance after foreclosure
Maceda Law
Buyer is entitled to refunds and grace periods
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Important Reminder
Many buyers do not know their rights. Sometimes financing companies or developers threaten buyers with actions that are not allowed by law.
If you bought a car, motorcycle, house, or lot on installment and are experiencing problems with the seller or financing company, it is best to know your legal rights before agreeing to anything.
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For legal consultation and notarial services:
DAVAO LAWYER AND NOTARY PUBLIC
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