DOCUMENTS OF TITLE

document of title. (Art. 1510)

Definition and Function

Negotiation of Negotiable Documents of Title

1. Who can negotiate (Article 1512)
(a) The owner thereof (i.e., the person to whom it was
originally issued); or
(b) Any person to whom the possession or custody of
the document has been entrusted by the owner, if, by the
terms thereof the bailee undertakes to deliver the goods to
the order of the person to whom the possession or custody
of the document has been entrusted, or if at the time of
such entrusting the document is in such form that it may be
negotiated by delivery.

A document of title of goods includes any bill of lading,

dock warrant, quedan, or warehouse receipt or order for the
delivery of goods, or any other document used in the
ordinary course of business in the sale or transfer of goods,
as proof of the possession or control of the goods, or
authorizing or purporting to authorize the possessor of the
document to transfer or receive, either by endorsement or by
delivery, goods represented by such document. (Art. 1636)
Two Functions:
(a) As evidence of the possession or control of the goods
described therein; and
(b) As the medium of transferring title and possession over
the goods described therein, without having to effect actual
delivery thereof.
Note: Through the document of title, the seller is allowed,
by ction of law, to deal with the goods described therein as
though he had physically delivered them to the buyer; and
the buyer may take the document of title as though he had
actually taken possession and control over the goods
described therein.
Rationale: Therefore, the provisions on documents of title
are geared towards assuring the public to take, accept, and
deal with transactions over goods and merchandise by
means of the documents of title issued in representation
thereof.
Types of Documents of Title
1. Negotiable Document of Title
- A document of title in which it is stated that the goods
referred to therein are deliverable to bearer, or to order of
any person named in such document, is a negotiable
document of title. (Art. 1507)
2. Non-negotiable Document of Title
- A document of title in which it is not stated that the goods
referred to therein are deliverable to bearer, or to order of
any person named in such document.
3. Effects of Errors on Documents of Title
Clerical errors: does not destroy negotiability
4. Effects of Use of Non-Negotiable Terms
on
Negotiable Documents of Title
- If a document of title which contains an undertaking by a
carrier, warehouseman or other bailee to deliver the goods to
bearer, to a speci ed person or order, to the order of a
speci ed person, or which contains words of like import,
has placed upon it the words non negotiable,
not-negotiable or the like, such document may
nevertheless be negotiated by the holder and is a negotiable

2. How Negotiation Properly Effected

(a) By Delivery alone (Art. 1508)
(a) Where by the terms of the document the
carrier, warehouseman or other bailee issuing the
same undertakes to deliver the goods to bearer; and
(b) Even when originally the document of title was
issued to the order of a speci ed person, where
such person or a subsequent endorsee of the
document has endorsed it in blank or to the
bearer.
(b) By Endorsement and Delivery (Article 1509)
- A negotiable document of title may be negotiated by
the endorsement of the person to whose order the goods are
by the terms of the document deliverable. Such
endorsement may be in blank, to bearer or to a specified
person. If indorsed to a specified person, it may be again
negotiated by the endorsement of such person in blank, to
bearer or to another specified person. Subsequent
negotiations may be made in like manner.
3. Effects of Proper Negotiation (Art. 1513)
A person to whom a negotiable document of title has
been duly negotiated acquires thereby:
(a) Such title to the goods as the person negotiating
the document to him had or had ability to convey to a
purchaser in good faith and for value;
(b) Such title to the goods as the person to whose order
the goods were to be delivered by the terms of the document
had or had ability to convey to a purchaser in good faith and
for value; and
(c) The direct obligation of the bailee issuing the
document to hold possession of the goods for him according
to the terms of the document as fully as if such bailee had
contracted directly with him.
4. Effects of Merely Transferring/Delivering of Order
Negotiable Documents of Title
(a) Under Article 1511 of the Civil Code, a negotiable
document of title which is not in such form that it can be
negotiated by delivery (i.e., not a bearer document), may be
transferred by the holder by delivery to a purchaser or
donee, meaning that the transferee would thereby own the
document of title;

(b) The legal consequence of such transfer under

Article 1514 is that the person to whom a document has
been transferred, but not negotiated, acquires thereby as
against the transferor, the title to the goods, subject to the
terms of any agreement with the transferor, meaning as
between the transferor and the transferee, the goods are
owned by the transferee, but not as to the rest of the world,
including the bailee;
(c) Under Article 1515, where a negotiable document of
title is transferred for value by delivery, and the
endorsement of the transferor is essential for negotiation,
the transferee acquires a right against the transferor to
compel him to endorse the document unless a contrary
intention appears, meaning that the negotiation shall take
effect as of the time when the endorsement is actually made.
5. Effects and Consequence of Unauthorized Negotiation
Art. 1518. The validity of the negotiation of a negotiable
document of title is not impaired by the fact that the
negotiation was a breach of duty on the part of the person
making the negotiation, or by the fact that the owner of the
document was deprived of the possession of the same by
loss, theft, fraud, accident, mistake, duress, or conversion, if
the person to whom the document was negotiated or a
person to whom the document was subsequently negotiated
paid value therefor in good faith without notice of the
breach of duty, or loss, theft, fraud, accident, mistake,
duress or conversion.
- Even when the owner loses the negotiable document of
title to a thief, and it is deliverable to bearer, the latter may
validly impart title thereto to a holder in due course, who is
essentially a buyer in good faith and for value.
- . The only real defense that can validly be raised against the
holder in due course of a negotiable document of title (and
therefore as to his title to the goods covered thereby) would
be forgery of the endorsement of the owner when such
endorsement is necessary to effect proper negotiation.
Assignment of Non-negotiable Documents of Title
1. How Assignment Made
Art. 1511. A document of title which is not in such form
that it can be negotiated by delivery may be transferred by
the holder by delivery to a purchaser or donee. A
non-negotiable document cannot be negotiated and the
endorsement of such a document gives the transferee no
additional right.
- Since a non-negotiable document of title constitutes an
incorporeal right, its sale constitutes actually an assignment
which under Article 1624 is perfected by mere consent, but
which under Article 1625 would require its appearance in a
public instrument, otherwise it shall produce no effect as
against third persons.
2. Effects of Transfer by Assignment (Article 1514)
A person to whom a non-negotiable document of title has

been duly assigned acquires thereby, as against the

transferor:
(a) The title to the goods, subject to the terms of any
agreement with the transferor; and
(b) The right to notify the bailee who issued the
document of the transfer thereof, and thereby to acquire the
direct obligation of such bailee to hold possession of the
goods for him according to the terms of the document.
- Unlike in the negotiation of a negotiable document of title
which ipso jure makes the bailee liable to the holder thereof,
in the assignment of a non-negotiable document of title,
there is no legal relationship between the assignee and the
bailee until the latter is informed by the former of the
assignment of the covering document of title. Likewise, the
assignee merely steps into the shoes of his immediate
assignor.
Warranties on Negotiation and Assignment of Title
Art. 1516. A person who for value negotiates or transfers a
document of title by endorsement or delivery, including one
who assigns for value a claim secured by a document of title
unless a contrary intention appears, warrants:
(1) That the document is genuine;
(2) That he has a legal right to negotiate or transfer it;
(3) That he has knowledge of no fact which would impair
the validity or worth of the document; and
(4) That he has a right to transfer the title to the goods and
that the goods are merchantable or fit for a particular
purpose, whenever such warranties would have been
implied if the contract of the parties had been to transfer
without a document of title the goods represented thereby.
Art. 1517. The endorsement of a document of title shall not
make the endorser liable for any failure on the part of the
bailee who issued the document or previous endorsers
thereof to fulfill their respective obligations.
- Since the assignment of a document of title is covered by
the species assignment under Chapter 8 of the Title on
Sales of the Civil Code, under Article 1628 thereof, the
seller/assignor of the document of title also warrants the
existence and legality of the documents of title at the time of
sale, unless it has been sold as doubtful; but that he does not
warrant the solvency of the debtor (i.e., the bailee), unless it
has been so expressly stipulated or unless the insolvency was
prior to the sale and of common knowledge
Effects When Owner of the Document of Title has No Legal
Title to the Goods
1. When Goods covered by Non-negotiable Document
In all situations where the owner had neither lost nor
been unlawfully deprived of the goods, the assignee-buyers
title to the goods is preferred even against the owner who
can no longer recover the goods. In such cases, the
assignee-buyers ownership to the goods is not derived from
the assignor-seller, but is granted directly under the aegis of
Article 559 which states that [t]he possession of the

movable property acquired in good faith is equivalent to

title. In such situations, it does not even matter if the
assignor-seller had no ownership at all to the goods he sold
to the assignee-buyer since the latters title is not dependent
on the assignor-sellers title.
On the other hand, if the owner had lost the goods or
been unlawfully deprived thereof, the owner may recover
against the assignee-buyer, even when the latter is in good
faith and bought for value, because Article 559 expressly
does not give to the assignee-buyer any original title; and in
such case the assigneebuyers title to the goods must be
derived from that of the assignorsellers. If the
assignor-seller had no title to the goods sold, the
assignee-buyer receives no title even if the goods are
delivered to him under the principle Nemo dat quod non
habet.

execution unless the document be first surrendered to the

bailee or its negotiation enjoined. The bailee shall in no case
be compelled to deliver up the actual possession of the
goods until the document is surrendered to him or
impounded by the court. (n)

2. When Goods covered by Negotiable document

If the owner had neither lost nor been unlawfully
deprived of the goods, then the holder-buyer acquires valid
ownership of such goods because his possession in good
faith and for value, which by itself would constitute as an
original source of ownership under Article 559, is clearly
evidenced by his being a holder in due course of the
negotiable document of title.
On the other hand, if the owner had lost or been
unlawfully deprived of the goods, the owner may recover
against the bailee, and therefore against the holder-buyer,
even when the latter is a holder in due course with respect to
the negotiable document of title, and a possessor in good
faith and for value with respect to the goods.

Before perfection
- Before the perfection of a sale, the rules on loss,
deterioration, fruits and improvement of the purported
subject matter are the same: such loss, deterioration, fruits
and improvements shall pertain to the purported seller,
since he owns the thing

Rules on Levy/Garnishment of Goods covered by

Documents of Title
1. When Non-negotiable Document of Title
- In effect, the assignment or sale by the original owner
of the non-negotiable document of title, even when
executed in a public instrument, does not transfer
possession or title over the goods covered by the document
of title, until actual noti cation is made to the bailee of the
transfer or assignment of the goods, actions can be taken by
the original owner to defeat the transfer of the title and/or
possession of the goods. (see Article 1514)
- In the case of a non-negotiable document of title,
possession and ownership of the document of title (by
assignment) does not necessarily bring with it possession or
title over the goods covered thereby; it is the noti cation of
the bailee of the assignment that is the operative act that
will transfer title and/or possession of the goods in favor of
the transferee-assignee
2. When Negotiable Document of Title
Art. 1519. If goods are delivered to a bailee by the owner or
by a person whose act in conveying the title to them to a
purchaser in good faith for value would bind the owner and
a negotiable document of title is issued for them they
cannot thereafter, while in possession of such bailee, be
attached by garnishment or otherwise or be levied under an

Art. 1520. A creditor whose debtor is the owner of a

negotiable document of title shall be entitled to such aid
from courts of appropriate jurisdiction by injunction and
otherwise in attaching such document or in satisfying the
claim by means thereof as is allowed at law or in equity in
regard to property which cannot readily be attached or
levied upon by ordinary legal process. (n)
LOSS AND DETERIORATION, FRUITS AND OTHER
BENEFITS

At the time of Perfection

- Under Article 1493 of the New Civil Code, if at the time the
sale is perfected, the subject matter has been entirely lost,
the contract shall be without any effect. But if the thing
should have been lost in part only, the buyer may choose
between withdrawing from the contract and demanding the
remaining part, paying its price in proportion to the total
sum agreed upon.
- In sale of speci c goods, and without the knowledge of the
seller, the goods have perished in part or have wholly or
materially deteriorated in quality as to be substantially
changed in character, the buyer may treat the sale as either
avoided, or as valid in all of the existing goods or in so much
thereof as have not deteriorated, and as binding the buyer to
pay the agreed price for the goods in which the ownership
will pass, if the sale was divisible.
After Perfection but Before Delivery
1. Loss of Subject Matter
Firstly, the general principle of res perit domino is now
covered by Article 1504 of the New Civil Code, which
provides that [u]nless otherwise agreed, the goods
remain at the sellers risk until the ownership therein is
transferred to the buyer, but when the ownership
therein is transferred to the buyer the goods are at the
buyers risk whether actual delivery of the goods has
been made or not. Unfortunately, Article 1504 is
worded to cover only goods.

Secondly, Article 1480 of the New Civil Code (based on

Article 1452 of the old Civil Code), provides that [a]ny
injury to or bene t from the thing sold, after the
contract has been perfected, from the moment of the
perfection of the contract to the time of delivery, shall

be governed by Articles 1163 to 1165, and 1262. As

applied to the sale, under cross-referred Article 1165, it
is provided that when what is to be delivered is a
determinate thing, the buyer, in addition to the right to
recover damages, may compel the seller to make the
delivery. This shows that the underlying obligation in a
sale is a real obligation and therefore may be subject to
the remedy of speci c performance. Under
cross-referred Article 1262, as applied to a sale, the
obligation to deliver a determinate thing shall be
extinguished if it should be lost or destroyed without
the fault of the seller, and before he has incurred in
delay.

obligation and its fulllment, with indemnity for damages

in either case;
(c) If the thing is improved by its nature, or by time,
the improvements shall inure to the bene t of the buyer;
(d) If the thing is improved at the expense of the seller,
he shall have no other right than that granted to the
usufructuary.

Thirdly, Article 1538 of the New Civil Code provides

that [i]n case of loss, deterioration or improvement of
the thing before its delivery, the rules in Article 1189
shall be observed, the vendor being considered the
debtor. Article 1538 is a new article not based on any
provision of the old Civil Code. But like Article 1480,
Article 1538 is a specic provision in the Title on Sales
invoking provisions of loss applicable to contracts in
general in Article 1189. (see p. 350, Villanueva)

Under Article 1504, unless otherwise agreed, the goods

remain at the sellers risk until the ownership therein is
transferred to the buyer; but when the ownership is
transferred to the buyer the goods are at the buyers risk
whether actual delivery of the goods has been made or
not, except that:
(a) Where delivery of the goods has been made to
the buyer or to a bailee for the buyer, in pursuance of
the contract and the ownership in the goods has been
retained by the seller merely to secure performance by
the buyer of his obligations under the contract, the
goods are at the buyers risk from the time of such
delivery;
(b) Where actual delivery has been delayed
through the fault of either the buyer or seller the goods
are at the risk of the party in fault.
goods includes all chattels personal and growing
fruits or crops, but not things in action or money of
legal tender.

After delivery
Article 1504. Unless otherwise agreed, the goods remain at
the seller's risk until the ownership therein is transferred to
the buyer, but when the ownership therein is transferred to
the buyer the goods are at the buyer's risk whether actual
delivery has been made or not, except that:
(1) Where delivery of the goods has been made to the
buyer or to a bailee for the buyer, in pursuance of the
contract and the ownership in the goods has been retained
by the seller merely to secure performance by the buyer of
his obligations under the contract, the goods are at the
buyer's risk from the time of such delivery;
(2) Where actual delivery has been delayed through the
fault of either the buyer or seller the goods are at the risk of
the party in fault

Under Article 1537, the seller is bound to deliver the

thing sold and its accessions and accessories in the
condition in which they were upon the perfection of
the contract; all the fruits shall pertain to the buyer
from the day on which the contract is perfected

Structuring Proper Doctrine on Loss, Deterioration, Fruits

and Improvements
To perhaps oversimplify the unifying doctrine on the risk of
loss, deterioration and improvement, the same shall always
be for the account of the person or party who has both title
and benecial interest over the property or subject matter of
the sale. When title and benecial interest do not merge in
the same party, then he who bears the risk of loss or
deterioration, and who bene ts from the improvement of
the thing, should be the party who at that point in time is
understood to have the benecial interest over the subject
matter.
REMEDIES OF PARTIES

2. Deterioration, Fruits and Improvements

Under Article 1538 of the New Civil Code, in case of
deterioration or improvement of the thing before its
delivery, the rules in Article 1189 shall be observed, the
seller being considered the debtor. Under Article 1189
of the Civil Code, as it is applicable to a sale, the
following rules shall govern the deterioration of the
thing during the pendency of a condition suspending
the efcacy of the sellers obligation to deliver the
subject matter:
(a) When the thing deteriorates without the fault of
the seller, the impairment is to be borne by the buyer;
(b) If the thing deteriorates through the fault of the
seller, the buyer may choose between the rescission of the

Remedies in cases of Movables

A. Ordinary Remedies of Seller
1. Movables in General
In the sale of movables, in case the buyer, upon
the expiration of the period xed for the delivery of the
thing, should not have appeared to receive it, or, having
appeared, he should not have tendered the price at the
same time, unless a longer period has been stipulated
for its payment, the seller may maintain an action to
rescind the sale. (Article 1593)
2. Sale of Goods
a) Non-payment of price by Buyer (Article 1595)
Ownership Transferred to Buyer Where the

ownership of the goods has passed to the buyer who

wrongfully neglects or refuses to pay for them
according to the terms of the contract, the seller may
maintain an action against him for the price of the
goods,11 i.e., an action for specic performance.
No Transfer of Ownership to Buyer When the
ownership in the goods has not passed, if they cannot
readily be resold for a reasonable price, the seller may
offer to deliver the goods to the buyer, and, if the buyer
refuses to receive them, may notify the buyer that the
goods are thereafter held by the seller as bailee for the
buyer; thereafter, the seller may treat the goods as the
buyers and may maintain an action for the price.
When Price Payable on Certain Day Where the
price is payable on a certain day, irrespective of delivery
or of transfer of title, and the buyer wrongfully neglects
or refuses to pay such price, the seller may maintain an
action for the price although the ownership in the
goods has not passed.
However, it shall be a defense to such an action
that the seller at any time before the judgment in such
action has 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
Article 1596. Where the buyer wrongfully neglects or
refuses to accept and pay for the goods, the seller may
maintain an action against him for damages for
nonacceptance.
The measure of damages is the estimated loss
directly and naturally resulting in the ordinary course
of events from the buyer's breach of contract.
Where there is an available market for the goods in
question, the measure of damages is, in the absence of
special circumstances showing proximate damage of a
different amount, the difference between the contract
price and the 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.
If, while labor or expense of material amount is
necessary on the part of the seller to enable him to
fulfill his obligations under the contract of sale, the
buyer repudiates the contract or notifies the seller to
proceed no further therewith, the buyer shall be liable
to the seller for labor performed or expenses made
before receiving notice of the buyer's repudiation or
countermand. The profit the seller would have made if
the contract or the sale had been fully performed shall
be considered in awarding the damages
B. Special Remedies of Unpaid Seller of Goods
1. Definition of Unpaid Seller
Article 1525. The seller of goods is deemed to be an unpaid
seller within the meaning of this Title:
(1) When the whole of the price has not been paid or

tendered;
(2) When a 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.
2. Rights of Unpaid Seller
(a) Possessory lien;
(b) Stoppage in transitu;
(c) Special right of resale; and
(d) Special right to rescind.
3. Possessory lien
If the seller is an unpaid seller as dened 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.19 Where the ownership in 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.
(Article 1526)
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. (Article 1527)
a. When Negotiable Document of Title 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 notication
to the carrier, or other bailee who issued such
document, of the sellers claim to a lien
b. When Part Delivery 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.
c. Instances When Possessory Lien Lost
(a) Seller delivers the goods to a carrier or other
bailee for the purpose of transmission to buyer without
reserving the ownership in the goods or the right to the
possession thereof;
(b) The buyer or his agent lawfully obtains
possession of the goods;
(c) By waiver thereof.
However, 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. (Article 1526)

4. Stoppage in transitu
- 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
a. When Negotiable Document of Title Issued
- 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 noti cation to the
carrier, or other bailee who issued such document, of the
sellers claim to right of stoppage in transitu (Art. 1535)
b. When Buyer is Deemed Insolvent
- either 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 (Art. 1636)
c. When Goods Are Deemed In transit
(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
(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. (Art.
1531)
d. When Goods Are Deemed no longer In Transit
(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.
If the goods are delivered to a ship, freight train,
truck, or airplane chartered by the buyer, it is a
question depending on the circumstances of the
particular case, whether they are in the possession
of the carrier as such or as agent of the buyer(Art.
1531)
e. When Part Delivery already made
- the remainder 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
f. How right is Exercised (Art. 1532)

(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.
g. When Goods covered by Negotiable Document of
Title
When a negotiable document of title representing
goods has been issued by the carrier or other bailee, he
shall not be obliged to deliver or justi ed in delivering
the goods to the unpaid seller unless such document is
rst surrendered for cancellation. (Art. 1532)
5. Special Right to Resell Goods
a. When Right Exercisable
The special right of resale 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; or
(c) Where the buyer has been in default in the
payment of the price for an unreasonable time
b. Effect of Having Exercised Right of Resale
- Unpaid seller shall not thereafter be liable to the
original buyer upon the sale or for any pro t made by
such resale, but may recover from the buyer damages
for any loss occasioned by the breach of the sale
c. Transfer of Ownership
- This is the 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 had ownership over the goods. (Art. 1533)
d. Notice to Defaulting Buyer
- It is not essential to the validity of a resale that
notice of an intention to resell the goods be given by
the seller to the original buyer. But where the right to
resell is not based on the perishable nature of the goods
or upon an express provision of the sale, the giving or
failure to give such notice shall be relevant in any issue
involving the question whether the buyer had been in
default for an unreasonable time before the resale was
made. It is not essential to the validity of a resale that
notice of the time and place of such resale should be
given by the seller to the original buyer. (Article 1533)
e. Standard of Care and Disqualification in Resale
The seller is bound to exercise reasonable care and
judgment in making a resale, and subject to this
requirement may make a resale either by public or
private sale. He cannot, however, directly or indirectly
buy the goods.

6. Special Right to Rescind

a. When Right may be exercised (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.
b. Effect of exercise of such right (Art. 1534)
The seller shall not thereafter be liable to the
buyer upon the sale, but may recover from the buyer
damages for any loss occasioned by the breach of the
contract
c. Transfer of Title (Art. 1534)
The transfer of title shall not be held to have been
rescinded by an unpaid seller until he has manifested
by notice to the buyer or by some other overt act an
intention to rescind. It is not necessary that such overt
act should be communicated to the buyer, but the
giving or failure to give notice to the buyer of the
intention to rescind shall be relevant in any issue
involving the question whether the buyer had been in
default for an unreasonable time before the right of
rescission was asserted.
C. Remedies of Buyer
1. Failure of Seller to Deliver
Where the seller has broken a contract to deliver speci
c or ascertained goods, the buyer may seek action for
specic performance to direct that the contract shall be
performed specically, without giving the seller the
option of retaining the goods on payment of damages.
(Art. 1598)
2. Breach of Sellers Warranty
Under Article 1599 of the Civil Code, where there is a
breach of warranty by the seller in the sale of goods, the
buyer may, at his election, avail of the following remedies:
(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 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
3. Suspension of Payments in Anticipation of Breach
Under Article 1590 of the Civil Code, 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, he may suspend the payment of the price until

the seller has caused the disturbance or danger to cease,
unless the latter gives 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. A mere trespass shall not authorize the
suspension of the payment of the price.
a. Remedy of Buyer for Pending Suit
The pendency of suit over the subject matter of
the sale justi es the buyer in suspending payment of
the balance of the purchase price by reason of aforesaid
vindicatory action led against it.
D. RECTO LAW: Sales of Movables on Installments
1. Coverage of Law
Under Article 1484 of the New Civil Code, in a sale of
personal property the price of which is payable in
installments, the seller may exercise any of the following
remedies:
(a) Exact ful llment of the obligation, should the
buyer fail to pay any installment;
(b) Rescind the sale, should the buyers failure to pay
cover two or more installments;
(c) Foreclose the chattel mortgage on the thing sold, if
one has been constituted, should the buyers failure to pay
cover two or more installments.
a. Rationale of Recto Law
The Recto Law aims to correct a social and
economic evil, the inordinate love for luxury of those
who, without suf cient means, purchase personal
effects, and the ruinous practice of some commercial
houses of purchasing back the goods sold for a nominal
price besides keeping a part of the price already paid
and collecting the balance, with stipulated interest,
cost and attorneys fees. ... And although, of course, the
purchaser must suffer the consequences of his
imprudence and lack of foresight, the chastisement
must not be to the extent of ruining him completely
and, on the other hand, enriching the vendor in a
manner which shocks the conscience. The object of the
law is highly commendable.
b. When is sale on Installments?
Recto Law is aimed at those sales where the
price is payable in several installments, for, generally, it
is in these cases that partial payments consists in
relatively small amounts, constituting thus a great
temptation for improvident purchasers to buy beyond
their means.
c. Loans and Financing Transactions
Zayas, Jr. v. Luneta Motor Company,61 af rmed
that Article 1484 would apply to a person or entity
which has nanced the purchase on installments of a
motor vehicle, where the seller subsequently assigns
the loan documents to the nancing person or entity.

 les an action for rescission.

2. Remedies Provided under Article 1483
a. Nature of Remedies under Article 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 fulllment by the purchaser of the
obligation;
(b) Rescind or cancel the sale; or
(c) Foreclose the mortgage on the purchased
personal property, if one was constituted.
b. Two Groups of Barring Effects of Remedies
Article 1484 of the Civil Code actually has two (2)
levels of barring effects: the rst level on the choice of
remedies (vertical); and the second level, on the
non-recovery of any unpaid balance when it comes to
the remedies of rescission and foreclosure (horizontal).
There can be no mixing of the effects of the remedies
provided in Article 1484.
- The rule that in installment sales, if the action
instituted is for speci c performance and the mortgaged
property is subsequently attached and sold, the sale does
not amount to a foreclosure of the mortgage, has been
upheld in subsequent decisions and seems now
well-established
3. Remedy of Specific Performance
- The general rule is that when the seller has chosen speci c
performance, he can no longer seek for rescission nor
foreclosure of the chattel mortgage constituted on the thing
sold.
- The seller is deemed to have chosen speci c performance
to foreclose the resort to the other two remedies under
Article 1484, when he les an action in court for recovery.
Generally, the mere sending of demand letters to the buyer
to pay the balance of the purchase price should not be
considered as having barred the resort to either the
remedies of rescission or foreclosure.
4. Remedy of Rescission
- When a seller chooses the remedy of rescission, then
generally he is under obligation to make restitution, which
would include the return of any amount of the purchase
price that the buyer may have paid. amount of the purchase
price that the buyer may have paid. However, under the
terms of Article 1486 of the Civil Code which provides that
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.
a. When Rescission Deemed Chosen
The general rule is that the seller is deemed to
have chosen the remedy of rescission, and can no
longer avail of the other two (2) remedies under Article
1484, when he has clearly indicated to end the contract,
such as when he sends a notice of rescission, or takes
possession of the subject matter of the sale, or when he

b. Barring Effect of Rescission

- The present version of the Recto Law under Article
1484 only provides for a barring on recovery
of balance
only when it comes to the remedy of foreclosure.
Although no barring effect is expressly provided
for the remedy of rescission under the present language
of Article 1484 of the Civil Code, the same is implicit
from the nature of the remedy of rescission, which
requires mutual restitution. Under Article 1385 of the
Civil Code, even a non-defaulting party cannot seek
rescission unless he is in a position to return what he
has received under the contract.
5. Foreclosure of Chattel Mortgage Constituted on Subject
Property
a. When Remedy of Foreclosure Deemed Chosen
- the point by which the seller is deemed to have
chosen the remedy of foreclosure is only at the time of
actual sale of the subject property at public auction
pursuant to the foreclosure proceedings commenced
b. Barring Effect of Foreclosure
It is the foreclosure and actual sale at public action
of the mortgaged chattel that shall bar further recovery
by the seller of any balance on the purchasers
outstanding obligation not satis ed 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.
c. Barring Effect on Other Securities Given for Payment
of Price
Cruz also held that the further action being
barred under Article 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 unsatised
balance of the purchase price from the purchaser or his
privy.
d. Extent of barring effect
Under the original version of the Recto Law, it
explicitly stated that 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 of foreclosure was then all-encompassing
and did not limit itself to the balance of the purchase
price.
e. Perverse Buyer-Mortgagor
By way of exception to the complete barring effect
on the remedy of foreclosure, Filipinas Investment &
Finance Corp. v. Ridad, held that 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.
E. Lease With Option to Purchase
The Court has recognized that sellers who do not wish
to enter into conditional contracts of sale have often
resorted to lease with options to purchase, but that
nevertheless the underlying contract would not prevent the
transfer of ownership of the subject matter to the
buyer-lessee upon ful llment of the condition of the full
payment of the rents, thus:
Sellers desirous of making conditional sales of their
goods, but who do not wish openly to make a bargain in that
form, for one reason or another, have frequently resorted to
the device of making contracts in the form of leases either
with options to the buyer to purchase for a small
consideration at the end of term, provided the so-called rent
has been duly paid, or with stipulations that if the rent
throughout the term is paid, title shall thereupon vest in the
lessee. The so-called rent must necessarily be regarded as
payment of the price in installments since the due payment of
the agreed amount results, by the terms of the bargain, in the
transfer of title to the lessee.

The provision of the Recto Law may be to apply to lease

arrangements over moveables which do not expressly
provide for an option on the part of the lessee to purchase.
1. What is the Barring Effect on Such contracts?
The issue that arises when it comes to purported
contracts of lease with option to purchase is whether the
taking back of possession or enjoyment of the property
leased as treated by Article 1485 carries the concept of
rescission or foreclosure. The distinction is critical, because
if the taking back of possession or enjoyment of the leased
movable is treated as a rescission, then the barring effect of
rescission is applicable, which means that even after taking
back possession or enjoyment, and forfeiting all rentals
previously paid, the lessor-seller will be able to collect
damages as may be warranted by the circumstances. On the
other hand, if the taking back of possession or enjoyment of
the leased movable is equivalent to foreclosure, then
although the seller-lessor may forfeit in his favor all rentals
previously paid, if such has been stipulated, he can no
longer collect any further amounts against the buyer-lessee,
whether in the form of damages, attorneys fees, or even
unpaid but accrued rentals, and not even the expenses
incurred in repairing the movable.
In Elisco Tool Manufacturing Corp. v. Court of
Appeals,123 the Court held that under a purported contract
of lease with option to purchase which is covered under
Articles 1484 and 1485, the condition that the lessor has
deprived the lessee of possession or enjoyment of the thing
for the purpose of applying Article 1485 which would be ful
lled by the ling by the lessor of a complaint for replevin to
recover possession of movable property and its enforcement
by the sheriff, and barred all action to recover any amount
from the lessee. However, the Court also held that if the

main purpose for seeking recovery of the personal property

under a writ of replevin was merely to ensure enforcement of
the remedy of speci c performance under Article 1484(1),
there would be no barring effect by reason of the
enforcement of the writ. Therefore, not every deprivation of
possession would result in producing the barring effect
under Article 1485 of the Civil Code.
Lately, in PCI Leasing and Finance, Inc. v. Giraffe-X
Creative Imaging, Inc.,124 the Court held that when the
lessor in a lease with option to purchase, in choosing,
through replevin, to deprive the lessee of possession of the
leased equipment, waived its right to bring an action to
recover unpaid rentals, since the remedies provided for in
Article 1484 are alternative, not cumulative the exercise of
one bar the exercise of the others.
By and large, it seems to be the thinking of the Court
that a sale of movables on installment, when structured as a
lease with option to purchase is equivalent to a security
arrangement whereby the subject movables are mortgaged
by the buyer to the seller. Consequently, when the purported
lessor takes possession of the subject movable, the same is
treated legally as a foreclosure and the barring effect
applicable to foreclosure remedy, not rescission, is given
application.
Remedies in cases of Immovables
A. Remedies of Seller
1. Anticipatory Breach
Article 1591. Should the vendor 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 article 1191
shall be observed.
Article 1191. The power to rescind obligations is implied in
reciprocal ones, in case one of the obligors should not
comply with what is incumbent upon him.
The injured party may choose between the fulfillment and
the rescission of the obligation, with the payment of
damages in either case. He may also seek rescission, even
after he has chosen fulfillment, if the latter should become
impossible.
The court shall decree the rescission claimed, unless there
be just cause authorizing the fixing of a period.
This is understood to be without prejudice to the rights of
third persons who have acquired the thing, in accordance
with articles 1385 and 1388 and the Mortgage Law.
2. Failure of Buyer to Pay Price
a. Rescission under Article 1952
Article 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.

b. Contracts to Sell not covered by Article 1592
In J.M. Tuason & Co., Inc. v. Javier,127 despite the
rescission clause provided for in the contract to sell a
residential lot in a subdivision project, the Court
refused to rule on the proper application of Article 1592
to the case, nor to allow either a rescission or
cancellation on the part of the seller in spite of clear
default on the part of the buyer holding:
Plaintiff maintains that this provision governs
contracts of sale, not contracts to sell, such as the one
entered into by the parties in this case. Regardless,
however, of the propriety of applying said Art. 1592
thereto, We nd that plaintiff herein has not been
denied substantial justice, for, according to Art. 1234 of
said Code: If the obligation has been substantially
performed in good faith, the obligor may recover as
though there has been a strict and complete ful llment,
less damages suffered by the obligee. ... accordingly, the
trial court sentenced the defendant to pay all such
installments, interests, fees and costs. Thus, plaintiff
will thereby recover everything due thereto, pursuant to
its contract with the defendant, including such damages
as the former may have suffered in consequence of the
latters default. Under these circumstances, We feel that,
in the interest of justice and equity, the decision appeal
from may be upheld upon the authority of Art. 1234 of
the Civil Code.

The Court also held that in any event Article 1592 of the
Civil Code has no application to a contract to sell; the said
article applies only to ordinary sale transferring ownership
simultaneously with the delivery of the real property sold,
but not to one in which the seller retained ownership of the
immovable object of the sale, merely undertaking to convey
it provided the buyer strictly complied with the terms of the
contract.
c. Resort to Equitable Resolutions
In Legarda Hermanos v. Saldana,130 the contract
between the parties covering the purchase of two
residential lots clearly provided that in case of default
on the part of the buyer, all amounts paid in accordance
with the agreement together with the improvements on
the premises shall be considered as rents and as
payment for damages suffered by reason of such breach.
Nevertheless, the Court held that the buyer of the 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. In upholding such
ruling, the Court held that the judgment is fair and
just and in accordance with law and equity.
B. Remedies of Buyer
1. Suspension of Payment
Article 1590. Should the vendee 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, he may suspend the payment of the price
until the vendor has caused the disturbance or danger
to cease, unless the latter gives security for the return of
the price in a proper case, or it has been stipulated that,
notwithstanding any such contingency, the vendee
shall be bound to make the payment. A mere act of
trespass shall not authorize the suspension of the
payment of the price.
2. In case of Subdivision or Condominium Projects
Sections 23 and 24 of Pres. Decree 957, provide
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.
Yet, in Cho Chien v. Sta Lucia Realty & Dev.,
Inc.,141 it was held that nothing in P.D. 957 provides for
the nulli cation of a contract to sell in the event that
the seller, at the time the contract was entered into did
not posses a certi cate of registration and a license to
sell.
a. Notice Required under Section 23 of PD 957
Section 23 of Pres. Decree 957 does not require
that a notice be given rst by the buyer to the seller
before a demand for refund can be made as the notice
and demand can be made in the same letter or
communication.
b. Retroactive Application of PD 957
In Eugenio v. Drilon,143 the Court held that the
failure to develop a subdivision constitute legal justi
cation for the nonpayment of amortization by the
buyer on installment under the land purchase
agreements entered into prior to the enactment of Pres.
Decree 957: P.D. 957 did not expressly provide for
retroactivity in its entirety, but such can be plainly
inferred from the unmistakable intent of the law. The
intent of the law, as culled from its preamble and from
the situation, circumstances and conditions it sought to
remedy, must be enforced.144 x x x It goes without
saying that, as an instrument of social justice, the law
must favor the weak and the disadvantaged, including,
in this instance, small lot buyers and aspiring
homeowners. P.D. 957 was enacted with no other end
in view than to provide a protective mantle over
helpless citizens who may fall prey to the
manipulations and machinations of unscrupulous

subdivisions and condominium sellers.

3. Right to Grace Period Stipulated
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
Republic Act 6552, entitled the Realty Installment
Buyer Protection Act (also the Maceda Law), provides for
certain protection to particular buyers of real estate payable
on installments. The law declares as public policy to protect
buyers of real estate on installment payments against
onerous and oppressive conditions.
a. Role of Maceda Law
It would seem that more than just providing for a
substantial and procedural setting for the rescission
and cancellation of contracts covered therein, the
Maceda Law in whole is relied upon and used by the
courts, including the Supreme Court, as a policy
statement of the State in protecting the interests of
buyers of residential real estate on installments.
Take for example the case of Palay, Inc. v. Clave,159
which involved a contract to sell entered into by the
parties in 1965 (the Maceda Law took effect in 1972),
which provided for automatic extrajudicial rescission
upon default in payment of any monthly installment
after the lapse of 90 days from the expiration of the
grace period of one month, without need of notice and
with forfeiture of all installments paid. Although the
Maceda Law was inapplicable, the Court took into
consideration Section 3 of the Law which provided for
the indispensability of notice of cancellation to the
buyer and declared it is a matter of public policy to
protect buyers of real estate on installment payments
against onerous and oppressive conditions. Waiver of
notice is one such onerous and oppressive condition to
buyers of real estate on installment payments.
b. Retroactive Application of Law
In Siska Dev. Corp. v. Of ce of the President,161
the Court extended the formal requirements of
rescission under the Maceda Law to apply even to
contracts entered into prior to the effectivity of the
Maceda Law.
However, in one case, the Court refused to apply
retroactively the terms of the Maceda Law, thus: As
with Presidential Decrees Nos. 9576 and 1344, Republic
Act No. 6552 does not expressly provide for its
retroactive application and, therefore, it could not have
encompass(ed) the cancellation of the contracts to sell
pursuant to an automatic cancellation clause which
had become operational long before the approval of the
law.

1. Transactions Covered
It should be noted that the Maceda Law does not cover
all sales of realty on installments, but primarily residential
real estate. But unlike the Recto Law on movables, the
Maceda Law covers not only sales on installments of real
estate, but also nancing of such acquisitions. It expressly
covers all transactions or contracts involving the sale or
nancing of real estate on installment payments, including
residential condominium apartments.
sale by installments- for sales of movables by installments,
which should involve at least two (2) installments to be paid
in the future at the time of the perfection of the contract.
(held by Levy Hermanos, Inc.)

a. Maceda Law Covers Contracts to Sell

The reasoning in Mortel is defective for the
following reasons: First, there is no doubt under the
provisions of the Maceda Law that it covers both
contracts of sale and contracts to sell on installments
condominium units, and the coverage is based on the
nature of the contract and subject matter at the time of
perfection, and not what happens at consummation.
Secondly, precisely when the conditions attaching to
the contract to sell (such as non-payment of the
installments) is not ful lled which have the effect of
extinguishing the contract, the Maceda Law governs
the effective remedies and consequences available to
the parties (i.e., notarial rescission and return of cash
surrender value, etc.). Therefore, the non-ful llment
of condition under a contract to sell does not take it out
of the Maceda Law.
2. 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;
(b) Sales covering commercial buildings (and
commercial lots by implication); and
(c) Sales to tenants under agrarian reform laws.
The enumeration of the transactions not covered by the
Maceda Law is not exclusive, since other transactions over
immovables, although not within the enumerated
exclusions are to be considered as excluded because they are
not within the clearly expressed coverage. An example would
be the sale on installment of commercial or of ce
condominium units.
a. Maceda Law cannot be Invoked by Highest Bidder in
Foreclosure Proceedings
The Court has ruled that the terms of the Maceda
Law cannot be invoked by a person or entity who
acquired the subdivision lots in a foreclosure sale on
the mortgaged constituted thereon by the developer.
Such person or entity, although binding itself to the
terms of the contracts of sale, is not the real party to
the original installment sales, and more importantly,

does not have any rights promoted under the Maceda

Law which contains provisions for the bene ts of real
estate buyers on installments.
3. Rights Granted
a. At least Two (2) Years Installments Paid
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:
(a) To pay, without additional interest, the unpaid
installments due within the total grace periodearned by
him, which is xed 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 ve (5) years of
installments, an additional 5% every year but not to
exceed 90% of the total payments made.
i. Exercise of Grace Period
The right to make use of the grace period can
be exercised by the buyer only once in every ve (5)
years of the life of the contract and its extensions,
if any.
Down payments, deposits or options on the
contract shall be included in the computation of
the total number of installments made.
ii. How cancellation of Contract Can be Effected
The actual cancellation of the contract shall
take place 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 and
upon full payment of the cash surrender value to
the buyer.
b. Less than Two (2) Years Installments Paid
In case where less than two (2) years of
installments were paid, the buyer shall still be entitled
to a grace period of sixty (60) days from the date the
installment became due.
If the buyer fails to pay the installments due at the
expiration of the grace period, 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
In case where less than two (2) years of
installments were paid, the buyer shall still be entitled
to a grace period of sixty (60) days from the date the
installment became due. If the buyer fails to pay the
installments due at the expiration of the grace period,
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.
d. Formula to Compute the Installment Mode
In Jestra Dev. and Mgt. Corp. v. Paci co,173 the
Court clari ed that the proper formula to apply 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.
4. Interpretation of Grace Period and Mode of Cancellation
McLaughlin ruling therefore clearly provides for two
basic doctrines applicable to the Maceda Law. First,
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. Second,
McLaughlin would hold that even after the expiration of the
grace period provided by the Law, the buyer still can prevent
rescission or cancellation of the contract within the 30-day
period when rescission or cancellation is to take effect.
In other words, McLaughlin would provide for two
grace periods: the rst grace period is the one provided for
expressly by the Law, which is a minimum of 60 days; and
the other would be the period before rescission or
cancellation actually takes effect.
The principle was reiterated in Active Realty & Dev.
Corp. v. Daroya,177 which held that the refund of the cash
surrender value is one of the mandatory twin requriements
for a valid and effective cancellation under the Maceda Law,
and absence of which would mean that the contract remains
valid and subsisting.
Olympia Housing v. Panasiatic Travel Corp.,178 held
that the Maceda law recognizes the right of the seller to
cancel the contract but any such cancellation must be done
in conformity with the requirements therein prescribed. The
Court held that In addition to the notarial act of rescission,
the seller is required to refund to the buyer the cash
surrender value of the payments on the property; and that
the actual cancellation of the contract can only be deemed
to take place upon the expiration of a 30day period following
the receipt by the buyer of the notice of cancellation or
demand for rescission by a notarial act and the full payment
of the cash surrender value.
5. Other Rights Granted to Buyer
In addition, the Maceda Law provides for 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 certi cate of title covering the property.

6. Effect of Contrary
Stipulations Under Section 7 of the Maceda Law, any
stipulation in any contract entered into contrary to the
provisions of the Law, shall be null and void.
7. Maceda Law Cannot be Availed by Developer
In Lagandaon v. Court of Appeals,181 the Court held
that the Maceda Law has no application to protect the
developer or one who succeeds the developer, since the
policy of that law, as embodied in its title, is to provide
protection to buyers of real estate on installment payments.
Cancellation of Judicial Sale
Where a judicial sale is voided without 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.