The Supreme Court held that a contract to sell remains valid if the seller fails to comply with the Maceda Law’s requirements for cancellation, specifically, failure to send a notarized notice of cancellation and refund the cash surrender value. This ruling protects installment buyers, ensuring they receive either the property or a refund of its value, especially when the seller fails to follow legal procedures for cancellation. This decision underscores the law’s intent to shield buyers from unfair contract terms and forfeiture of payments, even after substantial payments have been made.

Real Estate Roulette: When Can a Developer Cancel Your Contract?

Active Realty & Development Corporation sought to overturn a Court of Appeals ruling regarding a contract to sell a lot to Necita G. Daroya. Daroya, working abroad, entered into an agreement to purchase a lot in Active Realty’s subdivision. However, disputes arose when Daroya faced delays in payments, leading Active Realty to attempt cancellation of the contract. This case highlights the critical question: Under what conditions can a real estate developer legally cancel a contract to sell, and what recourse do buyers have when developers fail to comply with legal requirements?

The heart of the matter lies in Republic Act No. 6552, also known as the Maceda Law, which aims to protect real estate installment buyers from oppressive conditions. The law specifically addresses situations where buyers default on payments and outlines the rights and remedies available to them. It seeks to mitigate the inherent advantage real estate developers often have over individual buyers. The policy behind the Maceda Law is rooted in the recognition that many real estate contracts are offered on a “take it or leave it” basis, leaving buyers vulnerable to unfair terms.

In this case, Daroya had already paid a substantial amount, exceeding the contract price, but faced cancellation due to a relatively small delinquency. Active Realty attempted to cancel the contract and sell the lot to another buyer without adhering to the Maceda Law’s requirements. The Supreme Court emphasized the importance of following the procedures outlined in the law. The court referred to Section 3 of R.A. No. 6552, which details the rights of the buyer in case of default:

“(a) To pay, without additional interest, the unpaid installments due within the total grace period earned by him, which is hereby fixed at the rate of one month grace period for every one year of installment payments made; x x x

(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 fifty per cent of the total payments made; provided, that the actual cancellation of the contract shall take place after thirty 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.”

The court found that Active Realty failed to comply with these mandatory requirements, specifically the failure to send a notarized notice of cancellation and refund the cash surrender value. This failure rendered the attempted cancellation invalid, meaning the contract to sell remained in effect. The Supreme Court noted that:

“Thus, for failure to cancel the contract in accordance with the procedure provided by law, we hold that the contract to sell between the parties remains valid and subsisting.  Following Section 3(a) of R.A. No. 6552, respondent has the right to offer to pay for the balance of the purchase price, without interest, which she did in this case.”

Building on this principle, the Court determined that since Active Realty had already sold the lot to another buyer, Daroya was entitled to the actual value of the lot or a substitute lot, at her option. This remedy ensures that the buyer is not unfairly deprived of the property’s value due to the seller’s non-compliance with the law. The Supreme Court’s decision underscored the protective nature of the Maceda Law and its role in preventing real estate developers from unjustly enriching themselves at the expense of installment buyers.

The High Tribunal strongly criticized the HLURB Board’s decision to refund only half of Daroya’s payments, stating it unfairly penalized her for payment delays while ignoring Active Realty’s failure to comply with cancellation requisites. This stance highlights the judiciary’s commitment to enforcing consumer protection laws and preventing inequitable outcomes in real estate transactions. The decision serves as a warning to developers. It reiterates the importance of adhering strictly to the Maceda Law when dealing with installment contracts, reinforcing the rights and remedies available to buyers facing potential forfeiture of their investments.

FAQs

What is the Maceda Law?	The Maceda Law (R.A. 6552) is a Philippine law that protects the rights of real estate installment buyers against onerous and oppressive conditions in contracts, ensuring fair treatment in case of default.
What are the requirements for a valid cancellation of a contract under the Maceda Law?	For a valid cancellation, the seller must send a notarized notice of cancellation to the buyer and refund the cash surrender value of the payments made. Failure to comply with these requirements renders the cancellation invalid.
What happens if the seller fails to comply with the Maceda Law’s cancellation requirements?	If the seller fails to comply, the contract to sell remains valid, and the buyer retains the right to pay the outstanding balance without interest. If the property has been resold, the buyer is entitled to the actual value of the lot or a substitute lot.
What is the cash surrender value that must be refunded to the buyer?	The cash surrender value is equivalent to fifty percent of the total payments made by the buyer. This ensures that the buyer recovers a portion of their investment even if the contract is cancelled.
What was the main issue in Active Realty & Development Corporation vs. Necita G. Daroya?	The key issue was whether Active Realty could legally cancel the contract to sell with Necita Daroya, given their non-compliance with the Maceda Law’s requirements for valid cancellation.
What did the Supreme Court decide in this case?	The Supreme Court ruled that the contract to sell remained valid because Active Realty failed to send a notarized notice of cancellation and refund the cash surrender value. Daroya was entitled to the value of the lot or a substitute lot.
How did the HLURB initially rule in this case?	Initially, the HLURB Board of Commissioners ordered Active Realty to refund only half of Daroya’s total payments, a decision that the Supreme Court later criticized for not fully addressing the seller’s non-compliance with the Maceda Law.
What is the significance of this case for real estate buyers?	This case reinforces the importance of the Maceda Law in protecting the rights of real estate installment buyers and ensures that developers comply with the legal requirements for cancellation of contracts.

In conclusion, this case serves as a strong reminder to real estate developers of their obligations under the Maceda Law. It highlights the judiciary’s commitment to protecting the rights of installment buyers and ensuring fairness in real estate transactions. Buyers should also be aware of their rights and remedies under the Maceda Law to safeguard their investments.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: Active Realty & Development Corporation v. Daroya, G.R. No. 141205, May 9, 2002