Where a contract to sell real property on installment basis is being cancelled, the law requires the twin requisites of a notarized notice and the refund of the cash surrender value to the buyer. Go to OpEd Page A4.

A couple entered into a Contract to Sell a house and two lots with a subdivision developer. To fund the purchase, they procured a loan from a bank. To facilitate the loan, they executed a simulated or fictitious contract of sale, and the properties were transferred under the spouses’ names. However, the bank closed down before the loan could be released. Hence, another Contract to Sell was entered into but this time, the price was payable on installment over a period of four years.

After paying for two years, the couple defaulted on their monthly amortization payments. The developer sought to cancel the Contract to Sell by sending them a Notice of Delinquency and Cancellation and by filing a complaint with the Regional Trial Court to recover the properties.

The trial court declared the simulated sale void for lack of consideration since no payment was given in exchange for the properties. It ordered the couple to return the properties to the developer and the latter to refund to the couple the total amortizations paid. In other words, the lower court ordered for a “mutual restitution.”

Before the Supreme Court, the spouses contested the mutual resitution order and alleged that the provisions of Republic Act No. 6552, the Realty Installment Buyer Act, more popularly known as the Maceda Law, should have been applied by the lower court. The Supreme Court ruled in favor of the spouses.

The Maceda Law governs the sale of real estate on installment basis. It was enacted to protect buyers of real property on installment payment schemes from onerous and oppressive conditions. The law provides for the rights of a defaulting buyer and the requirements for a valid cancellation of a contract. Where the buyer has paid at least two years of installments and the contract is subsequently cancelled, the seller shall send the buyer a notarized notice of cancellation and shall refund the buyer the cash surrender value of the payments on the property equivalent to 50 percent of the total payments made. Until and unless these twin requirements are met, the contract to sell is deemed valid and subsisting.

In the present case, the developer failed to comply with one of the requirements—the refund of the cash surrender value. Although the Contract to Sell should be considered subsisting, the order of the trial court can no longer be overturned in this aspect because the spouses failed to appeal the same. They must return the properties to the developer. But considering that they have already paid two years’ worth of installments, they are entitled to the cash surrender value of their payments (Communities Cagayan, Inc. v. Spouses Arsenio. G.R. No. 176791, November 14, 2012, J. Del Castillo).