Cancelling a House-and-Lot Sale for Buyer’s Nonpayment (Philippines): Maceda Law, Civil Code Rescission, and Ejectment

Plain-English guide for sellers, developers, and property owners. Philippine law references include Republic Act No. 6552 (“Maceda Law”) and the Civil Code. This is general information, not legal advice.

Quick map of the terrain

If the sale is on installments (typical Contract-to-Sell/CTS): Maceda Law (RA 6552) governs default, grace periods, cancellation, and refunds.
If the sale is NOT on installments (e.g., lump-sum sale, or title already transferred and buyer’s bank loan is the one in default): Civil Code remedies (rescission or foreclosure) govern; Maceda Law usually does not apply.
Taking the property back from a defaulting buyer in possession is done via unlawful detainer (ejectment) in the MTC—but only after a valid cancellation or termination of the buyer’s right to possess.

Part I — Maceda Law 101 (RA 6552)

What it covers. RA 6552 protects buyers of real estate sold on installment, including house-and-lot and condominium units sold by developers or owners on a pay-over-time scheme. It is a special law that overrides contrary stipulations; waivers of its protections are generally void.

A. Rights of buyers who have paid at least 2 years of installments

Grace period: 1 month of grace for every year of installments paid (no additional interest) to update all unpaid installments.
- Usable only once every 5 years of the contract’s life (including extensions).
If the contract is cancelled after default: the buyer is entitled to a cash surrender value (CSV) equal to:
- 50% of total payments made, plus 5% per year after the 5th year, capped at 90% of total payments made.
Prepayment right: Buyer may pay in full at any time without interest charges for the balance (unless expressly allowed by law/contract) and with proportional reduction of interest.

“Total payments made” generally includes downpayment and monthly amortizations actually paid. Penalties are not part of the CSV base in many implementations.

B. Rights of buyers who have paid less than 2 years

Grace period: Not less than 60 days from default to update unpaid installments, without additional interest.
Cancellation: If still unpaid after the grace period, the seller may cancel the contract after 30 days from the buyer’s receipt of a notarial notice of cancellation or demand for rescission.
Refund: No CSV is mandated by RA 6552 for <2 data-preserve-html-node="true" years paid (contractual liquidated damages may apply but are subject to court moderation if unconscionable).

C. How to cancel under Maceda Law (step-by-step)

Compute the grace period (per Section 3 or 4 of RA 6552).
Give the buyer a written demand to pay and let the grace period run.
If still unpaid, serve a Notarial Notice of Cancellation or Demand for Rescission (must be notarized) and prove actual receipt by the buyer.
Wait 30 days from buyer’s receipt of the notarial notice. Only then is the cancellation effective.
If the buyer has ≥2 years of payments, tender the CSV (set off permissible charges only if clearly allowed).
Demand to vacate. If the buyer refuses, proceed to ejectment (Part III).

No notarized cancellation, no valid cancellation. Ordinary letters or emails are not enough. Keep the registry receipts, return cards, courier logs, or signed acknowledgments.

D. Practical CSV computations (illustrations)

Example 1: Buyer paid 3 years; total payments = ₱720,000.
- Grace period = 3 months. If cancelled, CSV = 50% of ₱720,000 = ₱360,000.
Example 2: Buyer paid 8 years; total payments = ₱1,920,000.
- CSV = 50% + (5% × 3) = 65% of ₱1,920,000 = ₱1,248,000 (well below the 90% cap).

CSV applies only on cancellation. If the buyer cures within the grace period, the contract continues.

Part II — When Maceda Law doesn’t fit: Civil Code rescission & other structures

A. Contract type matters

Contract to Sell (CTS)/developer financing: Title remains with seller until full payment. Maceda Law applies if it’s on installments.
Deed of Absolute Sale + buyer’s bank/Pag-IBIG loan (title already transferred): Buyer owes the lender, not the seller. The lender’s remedy is foreclosure on the mortgage; Maceda Law typically does not apply.
Cash/lump-sum sale: If buyer simply fails to pay the agreed price (rare once title has moved), remedies are under the Civil Code.

B. Civil Code rescission (Art. 1191; and Art. 1592 nuances)

Article 1191 (resolution) lets the injured party rescind a reciprocal obligation (like a sale) for substantial breach (e.g., nonpayment).
- Judicial rescission is the rule unless validly stipulated extrajudicial rescission applies and is properly exercised (and not contrary to special laws like RA 6552 for installment sales).
Article 1592 (sales of immovables) allows a buyer to pay even after the lapse of the term so long as the seller has not yet made a demand for rescission (by suit or notarial act).
- In installment sales, RA 6552 controls; Art. 1592’s broad leniency yields to the special Maceda protections and processes.

If title is already in buyer’s name and the default is on the loan, foreclosure (not rescission) is the usual path.

Part III — Ejectment (Unlawful Detainer): Getting the property back

When to use: The buyer’s initial possession was lawful (under a CTS/contract) but became unlawful after valid cancellation and demand to vacate.

A. Elements you must line up

Prior lawful possession by buyer under a contract.
Valid termination of the right to possess (e.g., proper RA 6552 cancellation or valid Civil Code rescission).
Demand to vacate served on buyer (keep proof of service).
Filing within 1 year from the last demand or the date of last withholding of possession.

B. Where and how

Court: MTC/MTCC/MCTC where the property is located, under the Rules on Summary Procedure.
Barangay conciliation: Required only if both parties are natural persons residing in the same city/municipality and no recognized exception applies.
Reliefs: Restitution of possession, reasonable compensation for use and occupation (often called “rent”), attorney’s fees/costs where warranted.

Ejectment courts resolve possession (material/physical). They may look at title/cancellation only provisionally to decide who has the better right to physical possession—ownership issues can be threshed out separately.

C. Evidence checklist for ejectment

CTS or sale documents; payment ledger.
Notarized cancellation/demand for rescission with proof of buyer’s receipt and lapse of 30 days.
Demand to vacate with proof of receipt.
Photos/inspection reports showing continued occupation.
Computation of reasonable compensation for use from demand until turnover.

Part IV — Regulator & forum notes (subdivision/condominium sales)

Sales of subdivision lots and condominium units are also subject to PD 957 and its successors. Disputes arising from such sales (e.g., rescission, specific performance, refunds) may fall under the housing adjudicatory body (now the Human Settlements Adjudication Commission (HSAC), formerly HLURB).
Ejectment (physical possession) remains under the MTC. It’s common to see parallel or sequential proceedings: regulatory/contract issues with HSAC and possession with the courts.

Part V — Practical playbooks

A. Developer/Owner playbook (installment buyer in default)

Review the contract (payment terms, default clauses, notices).
Compute Maceda grace and send default demand (calendar this).
After grace lapses unpaid, serve Notarial Notice of Cancellation/Rescission; keep rock-solid proof of receipt.
Wait 30 days from receipt; if ≥2 years paid, tender CSV.
Serve demand to vacate (give a definite date).
If refusal, file unlawful detainer (attach all proofs; claim reasonable compensation for use).
Consider amicable options anytime: restructure, payment plan, dación en pago (deed in payment), or assumption/assignment to a new buyer (Maceda allows assignment with seller notice).

B. Individual seller (non-installment or atypical deals)

If not a classic installment sale, assess whether RA 6552 applies. If not, prepare for Civil Code rescission (often judicial) or negotiate deed of cancellation.
If buyer already holds title and you got paid via buyer’s loan, your recourse is usually against contractual warranties (if any) or you let the lender foreclose for nonpayment of the loan.

Part VI — Common pitfalls & tips

Skipping notarized cancellation: A top reason ejectment cases fail. Always notarize and prove receipt.
Wrong forum first: Ejectment demands prior valid cancellation. Don’t file ejectment while the buyer’s right to possess is still alive.
CSV mishandling: For ≥2 years paid, budget for CSV; tendering it promptly strengthens your case.
Overbroad forfeitures: Clauses forfeiting huge sums can be reduced by courts if unconscionable.
One-time grace per 5 years: Track if the buyer already used the grace period within the last 5-year slice of the contract.
Counting the 1-year ejectment clock: Safest is to reckon from your last demand to vacate (with a firm date) and file well within a year.
Barangay conciliation: Don’t overlook it where required; non-compliance can dismiss the case.
Bank-financed deals: Maceda protects installment buyers from sellers, not borrowers from banks—foreclosure rules apply there.

Part VII — Short templates (editable)

1) Notarial Notice of Cancellation / Demand for Rescission (RA 6552)

[Date]

[Buyer Name]
[Address]

RE: NOTARIAL NOTICE OF CANCELLATION / DEMAND FOR RESCISSION
Contract to Sell dated [date] over [Property: Lot/Blk, Phase, Subdivision/Address]

Dear [Mr./Ms. Buyer]:

You are in default for failure to pay the installments due for [months], totaling ₱[amount]. 
Pursuant to RA 6552, you were entitled to a grace period of [__] ending on [date]. Despite demand, the account remains unpaid.

Accordingly, and pursuant to RA 6552 and our Contract to Sell, we hereby CANCEL/RESCIND the contract.
This cancellation shall take effect **30 days from your receipt of this notarized notice**.

[If ≥2 yrs paid:] Upon effectivity of cancellation, we shall make available to you the **cash surrender value** (CSV) per RA 6552 in the amount of ₱[amount], net of allowable deductions (if any).

Please govern yourself accordingly.

Very truly yours,
[Seller/Developer Representative]
(With Acknowledgment/Notarial Certificate)

2) Demand to Vacate (post-cancellation)

[Date]

[Buyer Name]
[Address]

RE: DEMAND TO VACATE – [Property]

Dear [Mr./Ms. Buyer]:

The Contract to Sell over [Property] was validly CANCELLED effective [date] after your receipt on [date] of the notarized notice and the lapse of 30 days, in accordance with RA 6552.

You no longer have any right to occupy the premises. 
We **demand that you vacate** and peacefully turn over possession **on or before [date]**.
Failure will constrain us to file **unlawful detainer** and claim reasonable compensation for use and occupation, attorney’s fees, and costs.

Very truly yours,
[Seller/Owner/Developer]

FAQs

Q1: Can I “automatically” cancel based on a contract clause? Not for installment sales. RA 6552 requires a notarized cancellation and compliance with grace periods and, where applicable, CSV.

Q2: Can the buyer reinstate after cancellation? Before effective cancellation: yes, by paying within the grace period (no interest). After a valid notarized cancellation has taken effect: reinstatement is generally by seller’s consent only.

Q3: What if the buyer improved the property? In developer-built house-and-lot scenarios, improvements are typically the developer’s. If the buyer added fixtures, disputes over removal/compensation can arise; courts weigh good-faith builder rules, but ejectment focuses on possession—ownership/compensation issues may be handled in a separate action or settlement.

Q4: Can I offset unpaid dues against the CSV? Courts allow reasonable set-offs expressly authorized by law/contract (e.g., unpaid association dues, utilities, documented damages). Over-withholding risks liability—itemize and document.

Q5: How do I compute “years of installments paid”? The statute speaks in years. In practice, parties sometimes compute by the number of monthly installments actually paid to determine the grace period and additional 5% increments. Be consistent and reasonable; document your method.

One-page checklist (seller)

Confirm installment sale → RA 6552 applies.
Compute grace period (≥2 yrs: 1 month/year paid; <2 data-preserve-html-node="true" yrs: 60 days).
Demand to pay; let grace run.
Notarial cancellation served; prove receipt; wait 30 days.
If ≥2 yrs paid, tender CSV.
Demand to vacate with a firm deadline.
File unlawful detainer (within 1 year of last demand).
Keep a clean paper trail (notices, receipts, ledgers, photos).
Consider settlement/restructure at any point.

If you want, I can adapt this to your exact contract (CTS clauses, payment history), compute the precise grace period and CSV, and draft the notarized notices with your names, dates, and property details.