This case affirms the protection afforded to real estate installment buyers under the Maceda Law (Republic Act No. 6552). The Supreme Court ruled that a contract to sell remains valid if the seller fails to follow the law’s mandatory requirements for cancellation, specifically the need for a notarized notice and the refund of cash surrender value. This means buyers who have diligently paid installments are safeguarded from losing their rights due to technicalities or the seller’s failure to comply with legal procedures, ensuring fairness and equity in real estate transactions.

Installment Payments, Unfulfilled Promises: Upholding Buyer Rights Under the Maceda Law

Active Realty & Development Corporation sought to reverse a Court of Appeals decision regarding a land sale agreement with Necita G. Daroya. Daroya, an overseas contract worker, entered into a contract to buy a lot in Active Realty’s subdivision. Over several years, she diligently made payments, even exceeding the original contract price. However, due to a temporary default, Active Realty attempted to cancel the contract and later sold the property to another buyer. This prompted Daroya to file a legal complaint, seeking specific performance and damages, leading to a legal battle that ultimately reached the Supreme Court.

The central issue revolved around whether Active Realty validly canceled the contract to sell under the Maceda Law. This law protects real estate installment buyers from oppressive conditions. A key provision of the Maceda Law is Section 3, which outlines the rights of a buyer who defaults after paying at least two years of installments. It states:

“(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 Supreme Court emphasized that Active Realty failed to meet the mandatory requirements for a valid cancellation. Specifically, they did not send a notarized notice of cancellation nor did they refund the cash surrender value to Daroya. These are twin requirements that must be satisfied to legally terminate a contract to sell under the Maceda Law. Because Active Realty did not comply, the Court found the contract to sell between the parties remained valid and enforceable.

Building on this principle, the Court noted that Daroya had the right to pay the outstanding balance without interest. Although she had offered to do so, Active Realty’s sale of the lot to another party made this impossible. Therefore, the Court determined that it was just and equitable for Active Realty to refund Daroya the actual value of the lot at the time of the resale, along with interest, or to provide a substitute lot at Daroya’s discretion. This remedy ensured that Daroya was not unjustly deprived of the property she had substantially paid for.

The Court rejected the Housing and Land Use Regulatory Board (HLURB) Board’s decision to refund only half of Daroya’s payments, deeming it an inequitable solution. This decision failed to acknowledge Active Realty’s non-compliance with the mandatory legal requirements for cancellation. The HLURB Arbiter’s initial decision to refund the total installment payments was also deemed insufficient. The Court highlighted that the Maceda Law was enacted to protect vulnerable lot buyers and ensure they have a fair chance at owning a home, thus the final decision aimed to fully compensate Daroya for the loss of the property.

The Supreme Court’s decision underscored the importance of adhering to the procedural requirements outlined in the Maceda Law. It serves as a reminder to real estate developers that they cannot simply cancel contracts and forfeit payments without following the proper legal channels. The ruling safeguards the rights of installment buyers and promotes fairness in real estate transactions. This case re-emphasizes the law’s intent to protect buyers from oppressive contract conditions, especially where significant payments have already been made.

To further illustrate, consider the contrasting outcomes based on compliance with the Maceda Law:

Scenario	Outcome
Seller complies with Maceda Law (notarized notice, cash surrender value refund)	Contract cancellation is valid; buyer receives cash surrender value.
Seller does not comply with Maceda Law	Contract remains valid; buyer has right to pay balance, or receive compensation if property is sold.

This case reinforces the necessity for real estate developers to uphold their legal obligations and respect the rights of installment buyers. The decision seeks to prevent developers from unjustly enriching themselves at the expense of buyers who have invested significant amounts of money into their properties. Ultimately, the Active Realty case serves as a crucial precedent for protecting the interests of real estate installment buyers in the Philippines.

FAQs

What is the Maceda Law?	The Maceda Law (R.A. 6552) protects real estate installment buyers from onerous conditions and outlines their rights in case of default.
What are the key requirements for a valid contract cancellation under the Maceda Law?	The seller must send a notarized notice of cancellation to the buyer and refund the cash surrender value of the payments made.
What happens if the seller fails to comply with these requirements?	The contract to sell remains valid, and the buyer retains the right to pay the outstanding balance.
What is cash surrender value?	Cash surrender value is equivalent to fifty percent of the total payments made by the buyer.
What was the main issue in the Active Realty case?	The main issue was whether Active Realty validly canceled its contract to sell with Necita Daroya, and if not, what remedies were available to Daroya.
What did the Supreme Court decide in this case?	The Supreme Court ruled that Active Realty failed to validly cancel the contract and ordered them to refund Daroya the current value of the lot or provide a substitute lot.
Why did the Court rule in favor of Daroya?	The Court ruled in favor of Daroya because Active Realty did not comply with the mandatory requirements for cancellation under the Maceda Law.
What is the significance of this case?	This case reinforces the protection afforded to real estate installment buyers and underscores the importance of complying with the Maceda Law.
Can a buyer still claim their right if the property was already sold to another buyer?	No, because the contract is still valid then they are afforded protection under the law such as refund of payment.

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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. Necita G. Daroya, G.R. No. 141205, May 09, 2002