1) Why this topic matters

In Philippine real estate transactions, many disputes start the same way: a buyer pays a “downpayment” (sometimes called a reservation fee, booking fee, equity, or initial payment), then misses a deadline. The seller (or developer) wants to cancel the deal, keep the money, and sell to someone else. Whether that is legally allowed depends on (a) what kind of contract you actually have, (b) what the payment legally represents, and (c) whether statutory buyer-protection laws apply—especially Republic Act No. 6552 (the Maceda Law) for residential sales on installment.

This article maps the full landscape: when forfeiture is valid, when refunds are required, what notices must be given, and when resale exposes the seller to liability.

2) Key concepts and terminology (what courts and contracts usually mean)

A. “Downpayment” is not a single legal category

“Downpayment” can function as any of the following, each with different consequences:

Earnest money (arras)

Typically given to “bind” a perfected sale.
It is part of the purchase price, not merely a deposit.
If the sale is perfected and later one party breaches, the remedies follow the law on reciprocal obligations (see Section 5).

Option money

Payment to keep an offer open for a period (an option contract).
Generally separate from the purchase price unless the parties agree otherwise.
If the buyer does not exercise the option, the option money is commonly not refundable, because the buyer bought the “right to decide,” not the property.

Reservation/booking fee (common in condos/subdivisions)

Could be treated like option money, earnest money, or a simple deposit depending on contract wording and surrounding acts.
Labels do not control; substance controls.

Part of installment payments (“equity”) under a Contract to Sell

Very common structure: buyer pays monthly “equity,” then later pays balance via financing; seller transfers title only after full payment.
This is where Maceda Law often becomes central.

B. Contract of Sale vs. Contract to Sell (crucial distinction)

Contract of Sale

Ownership transfer is intended upon delivery (even if price is not fully paid), subject to remedies if buyer defaults.
If buyer breaches, seller typically seeks rescission or specific performance, with restitution rules.

Contract to Sell

Seller reserves ownership until buyer fulfills conditions (usually full payment).
Buyer’s failure usually prevents the obligation to transfer title from arising.
Cancellation procedures and statutory protections (Maceda) become especially important.

This distinction affects whether the seller can “just cancel,” what must be returned, and the risk of the buyer successfully demanding transfer.

3) The main governing rules in the Philippines

A. Civil Code framework (default rules)

When no special statute applies (or for issues not covered by the statute), the Civil Code governs:

Reciprocal obligations and remedies (specific performance vs rescission)
Damages and penalty clauses
Rules on rescission and restitution
Unjust enrichment principles (cannot keep money without legal basis)

B. The Maceda Law (RA 6552): the centerpiece for residential installment buyers

RA 6552 applies to many (not all) transactions involving sale or financing of residential real estate on installment, including many contracts to sell for houses, lots, and condominium units used for residence.

What it generally does: It imposes grace periods, notice requirements, and (for longer-paying buyers) mandatory refunds called “cash surrender value,” limiting a seller’s ability to forfeit payments.

Why it matters for forfeiture/resale: If the seller cancels and resells without complying with Maceda, the cancellation may be legally defective, exposing the seller to suits for refund, damages, and sometimes reinstatement of the contract (depending on facts).

C. Other regulatory overlays (often relevant)

Depending on the property and seller:

PD 957 (subdivision and condominium buyer protections) and housing regulations can affect developer conduct, documentation, and buyer remedies.
Consumer protection principles, contract interpretation rules, and equity doctrines can influence outcomes even if Maceda technically doesn’t apply.

4) When can a seller forfeit a downpayment?

Scenario 1: The payment is option money

If the arrangement is truly an option contract, and the buyer simply fails to exercise the option (or exercise it on time), the seller can usually keep the option money—not as a penalty, but as the agreed price of the option—unless the contract or circumstances show bad faith, misrepresentation, or an illegal/unconscionable term.

Practical indicators it’s option money:

Document explicitly says it is “option money” and “non-refundable”
There is a defined option period
No perfected sale yet (no meeting of minds on sale itself, or option precedes the sale)
Buyer has a right, not an obligation, to buy

Scenario 2: The payment is earnest money / part of the price under a perfected sale

Here, automatic forfeiture is not guaranteed just because the buyer defaulted.

If the contract says the earnest money/downpayment is forfeited as liquidated damages upon buyer’s default, courts often enforce it if reasonable and not unconscionable, but may reduce excessive penalties.
If there is no valid forfeiture/penalty clause, then as a rule, earnest money is part of the price and should be accounted for in the proper remedy (rescission with restitution, or fulfillment with payment), subject to actual damages.

Scenario 3: The payment is part of a residential installment sale covered by Maceda (most common dispute)

In Maceda-covered sales, forfeiture is tightly regulated:

A) If the buyer has paid less than 2 years of installments

Buyer gets a minimum grace period of 60 days from the due date to pay missed installments (and avoid default consequences).
If the buyer still fails after the grace period, the seller may cancel only after giving an additional 30-day notice of cancellation/demand (commonly required to be notarized in practice).
Refund: Maceda does not require a cash surrender value refund for buyers who have paid less than 2 years. This makes forfeiture more contract-driven, but still subject to general law and fairness (e.g., unconscionable penalties may be reduced).

Net effect: forfeiture may be possible, but the seller must respect the grace period and notice requirement before cancellation becomes effective.

B) If the buyer has paid at least 2 years of installments

Maceda grants stronger rights:

Grace period:

Buyer gets a grace period of 1 month for every year of installment payments made.
This grace period is generally available only once every 5 years of the life of the contract (a limitation many people miss).

Cash surrender value (mandatory refund): If cancellation proceeds, the seller must refund a cash surrender value:

At least 50% of total payments made, and
After 5 years, an additional 5% per year (often described as increasing after the fifth year), up to a stated cap in the law.

Notice requirement remains: Cancellation typically requires proper notice (commonly implemented as a notarized notice), and effectiveness is tied to compliance.

Net effect: for longer-paying buyers, the seller generally cannot simply forfeit all payments; the law mandates a substantial refund.

5) Seller remedies when the buyer fails to pay on time (Civil Code baseline)

In many real estate arrangements (especially a perfected sale), the seller generally has two main paths:

Demand fulfillment (specific performance)

Seller insists buyer pay (plus interest/penalties if valid), possibly suing to collect.

Rescind (resolve) the contract

Seller cancels the deal due to breach.

Rescission and restitution (why “keep the downpayment” isn’t automatic)

A core principle in rescission is mutual restitution: parties return what they received, so neither is unjustly enriched. A seller keeping a downpayment after rescission is typically justified only if:

There is a valid penalty/liquidated damages clause, or
The seller proves actual damages that justify retaining some amount, and the retained amount is not unconscionable.

Courts may enforce liquidated damages but can reduce penalties that are excessive or iniquitous.

6) The cancellation problem: “automatic cancellation” clauses, notices, and timing

A. “Automatic rescission upon default” clauses

Contracts often state that upon missed payment, the contract is “automatically cancelled” and all payments are forfeited. Even with such language:

Enforcement is not always as simple as “default = done.”
Notice and due process-like safeguards matter greatly, especially under Maceda.
If the buyer disputes cancellation, sellers often still need a solid paper trail; otherwise, cancellation can be attacked as ineffective or in bad faith.

B. Notice is not a formality—it’s often the turning point

For Maceda-covered deals, failure to properly grant:

the grace period, and/or
the required notice can render cancellation defective.

Practical implications:

A defective cancellation makes resale risky (see Section 7).
It can trigger obligations to refund, reinstate, or pay damages depending on circumstances.

C. Acceptance of late payments can waive strict deadlines

If a seller repeatedly accepts late payments without reservation, the seller may be seen as having waived strict punctuality, making sudden strict enforcement vulnerable to challenge. Contracts often include “no waiver” clauses, but real-world conduct can still matter.

7) Seller resale after buyer default: when it is safe, and when it backfires

A. When resale is generally safer

Resale is safer when:

The contract was validly cancelled/rescinded, with statutory compliance (Maceda where applicable).
Required refunds (cash surrender value) were paid (if required).
The seller ensured the buyer has no remaining enforceable right (e.g., no pending dispute that could cloud title).
Documentation is complete (notices served, computation of refunds, proof of delivery, deed of cancellation/termination where appropriate).

B. Resale risks: “double sale” and bad faith issues

If the first buyer’s rights were not properly extinguished, resale can create a double-sale-type dispute, especially if:

The first buyer claims the contract is still valid; or
The cancellation is challenged as ineffective; or
The second buyer knew (or should have known) of the first buyer’s claim (bad faith).

For titled properties, registration and good faith matter heavily. A second buyer who buys with notice of a prior buyer’s rights can face serious legal exposure.

C. Cloud on title and litigation exposure

Even when the seller believes cancellation is valid, a disgruntled first buyer may file:

a claim for refund/cash surrender value,
damages (bad faith cancellation, harassment, unfair forfeiture),
sometimes specific performance (if arguing there was a perfected sale and rescission was invalid), or
requests that can lead to annotations (depending on the situation), making resale and financing harder.

8) Common fact patterns and how the law usually treats them

Pattern 1: “Reservation fee is non-refundable” but buyer was already paying monthly equity

If payments and documents show an installment purchase of a residential unit, courts and regulators may treat it as covered by Maceda despite “non-refundable” labels, especially once the relationship looks like a contract to sell rather than a mere option.

Pattern 2: Buyer paid for years, then defaulted; seller kept everything and resold immediately

High risk if Maceda applies:

mandatory grace period,
mandatory cash surrender value refund,
proper notice requirements. Skipping these creates strong grounds for refund and damages claims.

Pattern 3: Buyer missed one deadline by a few days; seller cancelled and forfeited

Even outside Maceda, forfeiture of a large amount for a minor delay can be attacked as an unconscionable penalty, especially if seller suffered little actual damage and acted oppressively.

Pattern 4: Seller accepted late payments many times, then suddenly cancelled

Buyer may argue waiver of strict deadlines and bad faith enforcement. Sellers need consistent enforcement or clear written reservations when accepting late payments.

9) Drafting and documentation issues that decide cases

A. Clauses that strengthen enforceability (when lawful)

Clear classification of payment: option money vs earnest money vs installment
Clear default rules: interest, penalties (reasonable), grace treatment
Clear cancellation process aligned with Maceda (if applicable)
Clear liquidated damages amounts that are not shockingly disproportionate

B. Seller documentation checklist (risk-control)

Accurate ledger of payments and due dates
Proof of grace period computation and availability
Written notices with proof of service (and notarization where required/used)
Computation and proof of payment of cash surrender value (if required)
Written termination/cancellation instrument where appropriate
Clean status of title and absence of unresolved buyer claims before resale

C. Buyer-side documentation that matters

Receipts, official statements of account
Copies of notices (or lack thereof)
Evidence of seller’s acceptance of late payments
Communications showing seller promises/extensions
Proof property is residential and transaction is installment-based (Maceda triggers)

10) Practical “rules of thumb” (Philippine setting)

Forfeiture is easiest to defend when the payment is truly option money and no sale was perfected.
In a perfected sale, keeping the downpayment usually needs a valid liquidated damages/penalty clause (and even then, it must be reasonable).
In residential installment sales, assume Maceda Law applies unless clearly excluded; it can require grace periods, notice, and major refunds.
Resale is safest only after valid cancellation and after satisfying any refund obligations; otherwise resale can multiply liability.
Labels (“non-refundable reservation fee”) do not control if the transaction’s substance is an installment purchase of a residential unit.

11) Bottom-line summary

In the Philippines, whether a seller may forfeit a downpayment and resell the property after a buyer fails to pay on time depends primarily on:

the true nature of the payment (option money vs earnest money vs installment equity),
the type of contract (sale vs contract to sell),
and whether RA 6552 (Maceda Law) governs (which can impose grace periods, notice requirements, and mandatory refunds).

A seller who cancels and resells without complying with the correct legal framework risks refund obligations, damages, and title disputes—problems that can be larger than the original missed payment.