In Active Realty & Development Corporation v. Necita G. Daroya, the Supreme Court upheld the rights of real estate installment buyers under the Maceda Law (Republic Act No. 6552). The Court ruled that a contract to sell remains valid if the seller fails to follow the law’s mandatory requirements for cancellation, particularly the sending of a notarized notice and the refund of the cash surrender value. This decision reinforces the law’s intent to protect buyers from unfair contract terms and ensures they receive due process before losing their investment.

Real Estate Rights: Can a Developer Forfeit Payments After Default?

Active Realty & Development Corporation, the developer of Town & Country Hills Executive Village, entered into a contract to sell a lot to Necita Daroya, a contract worker. Daroya agreed to buy a 515 sq. m. lot for P224,025.00, payable in installments. After making substantial payments, Daroya defaulted on three monthly amortizations. Active Realty sent a notice of cancellation but failed to comply with the Maceda Law’s requirements. Daroya then offered to pay the remaining balance, but Active Realty refused, claiming the lot had been sold to another buyer. This led Daroya to file a complaint for specific performance, seeking to compel Active Realty to execute a final deed of sale.

The Housing and Land Use Regulatory Board (HLURB) initially ruled in favor of Daroya, but this decision was later modified. The Office of the President eventually ruled that Active Realty had failed to validly cancel the contract under the Maceda Law and ordered the developer to refund the actual value of the lot. This ruling was based on the premise that the contract to sell was still in effect because Active Realty did not comply with the requisites for cancellation. The case reached the Supreme Court after the Court of Appeals initially denied Active Realty’s appeal due to procedural issues.

The Supreme Court emphasized the importance of adhering to procedural requirements, noting that Active Realty had substantially complied with the necessary steps for appeal. More importantly, the Court reiterated that the Maceda Law protects installment buyers from onerous conditions. The core of the dispute revolved around whether Active Realty could legally cancel the contract to sell and forfeit Daroya’s payments. Section 3 of R.A. No. 6552 outlines the rights of buyers who default after paying at least two years of installments:

“(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.”

In this case, Daroya had paid significantly more than the contract price, but Active Realty sought to cancel the contract due to a relatively small amount of arrears. The Court found that Active Realty had failed to comply with the mandatory requirements for a valid cancellation, namely, sending a notarized notice of cancellation and refunding the cash surrender value. The absence of these actions meant that the contract to sell remained valid. The Supreme Court underscored that the Maceda Law aims to protect low and middle-income lot buyers from exploitative practices by developers.

The Supreme Court highlighted that since the contract to sell remained valid, Daroya had the right to pay the outstanding balance. However, given that Active Realty had already sold the lot to another buyer, this was no longer possible. As a result, the Court upheld the Office of the President’s decision, ordering Active Realty to refund the actual value of the lot (P875,000.00) with 12% interest per annum from August 26, 1991, until fully paid, or to deliver a substitute lot at Daroya’s option. This decision ensured that Daroya was adequately compensated for the loss of the property.

This ruling reinforces the importance of developers adhering to the Maceda Law’s provisions to protect the rights of installment buyers. It serves as a reminder that failing to comply with the mandatory requirements for cancellation renders the cancellation invalid. The Supreme Court’s decision in Active Realty & Development Corporation v. Necita G. Daroya underscores the law’s intent to provide equitable remedies for buyers and prevent unjust enrichment by developers.

FAQs

What is the Maceda Law?	The Maceda Law (R.A. 6552) protects real estate installment buyers by providing rights and remedies in case of default, particularly requiring a notarized notice of cancellation and refund of cash surrender value.
What are the requirements for a valid cancellation of a contract to sell 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.
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 additional interest.
What was the main issue in the Active Realty case?	The main issue was whether Active Realty validly canceled the contract to sell with Necita Daroya after she defaulted on a few monthly amortizations.
What did the Supreme Court decide in the Active Realty case?	The Supreme Court ruled that Active Realty failed to comply with the Maceda Law’s requirements for canceling the contract, thus the contract remained valid.
What remedy did the Supreme Court provide to Necita Daroya?	Since the property had already been sold, the Court ordered Active Realty to refund the actual value of the lot with interest or provide a substitute lot at Daroya’s option.
Why is the Maceda Law important for real estate buyers?	The Maceda Law protects buyers from onerous contract terms and ensures they receive due process before losing their investment in case of default.
What should a buyer do if they receive a notice of cancellation from a developer?	A buyer should verify if the notice is notarized and inquire about the cash surrender value to ensure the developer complies with the Maceda Law.

The Supreme Court’s decision in Active Realty & Development Corporation v. Necita G. Daroya serves as a critical reminder of the protections afforded to real estate installment buyers under the Maceda Law. By enforcing the mandatory requirements for contract cancellation, the Court reinforces the law’s intent to balance the rights of both buyers and sellers, preventing unjust enrichment and ensuring fair dealings in real estate transactions.

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