Updated for general doctrinal guidance under the Civil Code and special laws, with emphasis on immovable property.

1) The Legal Architecture

A. Reciprocal obligations and resolution (rescission) under Article 1191

Sales are reciprocal: the seller must deliver and transfer ownership; the buyer must pay the price (and, when agreed, take possession). If one party commits a substantial breach, the other may choose between (i) specific performance or (ii) rescission (resolution)—in either case, with damages. Courts may allow a short period to cure, depending on equity, but repeated or material default usually justifies resolution.

Key points: • The breach must be substantial, not trivial. • The aggrieved party (seller) must elect a remedy—performance or rescission—then pursue it consistently. • Mutual restitution follows rescission (see §7).

B. Default (mora) and the role of demand (Article 1169)

As a rule, a buyer is in legal delay only after demand for performance (judicial or extrajudicial). Demand is not required when:

the obligation or the law makes time of the essence;
demand would be useless; or
the parties expressly waived demand.

C. Special rule for immovables—Article 1592

Even if there is a clause that the sale is rescinded upon failure to pay on the exact date, a buyer of real property may still pay after the due date until the seller demands rescission. This “last-chance” protection ends once rescission is demanded (best done by notarial notice or suit). Accepting late payments can waive strict punctuality; the seller must give clear notice to restore it.

D. Extrajudicial rescission when stipulated

Although Article 1191 speaks of judicial rescission, Philippine jurisprudence has long upheld clear and express contractual clauses allowing the seller to cancel extrajudicially upon buyer default. These clauses are valid but must be strictly complied with (defaults, notices, grace periods). Courts may still review good faith, substantiality of breach, and conscionability of forfeitures.

Not to confuse: The prohibition on pactum commissorium applies to pledges/mortgages (automatic appropriation of collateral), not to sales’ automatic cancellation clauses—though the latter are strictissimi juris and subject to Article 1592 for immovables.

2) Demand: Types, Form, and Best Practices

Demand to Pay (to put the buyer in mora):
- Written demand is best; notarial demand is stronger evidence.
- Specify amount due, due dates, mode/place of payment, and a reasonable cure period (unless time is of the essence).
Demand to Rescind (Article 1592 context; or to trigger a contractual cancellation clause):
- Must clearly state rescission/cancellation is being exercised for specific breaches.
- Serve by personal delivery or registered mail to the contract address; notarization is strongly advised.
- If the buyer already tendered full payment timely or within a contractual grace period, rescission may be ineffective.
Notice Hygiene
- Keep proof of service (registry receipt, affidavits).
- Avoid equivocal language (e.g., “may cancel” vs. “we hereby cancel”).

3) When May the Seller Cancel?

A. Under Article 1191 (general rule)

Prerequisites: a substantial and culpable buyer default; demand (unless excused); and either (i) judicial rescission (action in court), or (ii) valid extrajudicial rescission if expressly agreed in the contract and lawfully invoked.
Effect: contract set aside; see mutual restitution (§7).

B. Under Article 1592 (immovables)

Even with an automatic rescission clause, the buyer’s right to pay persists until the seller demands rescission. Once demand is made, late payment can no longer defeat rescission unless the seller waives or accepts it.

C. Installment sales of real property—the Maceda Law (R.A. 6552)

Applies to sales of real estate on installments (commonly residential lots/units).
If buyer has paid ≥ 2 years:
- Grace period: 1 month per year of paid installments.
- Cancellation only after (a) failure to pay within grace period and (b) notarized notice of cancellation, with a 30-day waiting period.
- Cash surrender value (CSV): at least 50% of total payments; plus 5% per year after the 5th year, capped at 90%.
If buyer has paid < 2 years:
- 60-day grace period; cancellation only after a notarized notice of cancellation.
Other buyer rights: assignment, reinstatement upon updated amounts, and prepayment without interest.
Consequences for sellers: Cancellation without strict Maceda compliance is ineffective; reselling/leasing to others prematurely risks liability for damages and nullity of cancellation.

D. Subdivision & condominium projects (PD 957; RA 4726)

Project developers are subject to protective rules (e.g., disclosure, permits, turnover timelines). Regulatory policy (now under DHSUD) tends to construe forfeitures strictly and can provide administrative remedies for buyers. Align cancellation procedures and notices with both Maceda and project-specific rules.

4) May the Seller Lease or Resell the Property After Buyer’s Default?

Yes—but only after a lawful termination of the defaulting buyer’s rights.

Where extrajudicial cancellation is allowed and properly invoked (and, if applicable, Maceda timing and notices are met), the seller may treat the property as free and lease or resell it.
Leasing or reselling before valid cancellation (or while a buyer still has statutory grace or cure rights) can amount to anticipatory breach by the seller and expose it to damages, annulment of the lease/sale, or orders of reinstatement.

Practical sequence:

Put buyer in mora (if needed).
Observe statutory/contractual grace and cure windows.
Serve clear, notarized demand to rescind/cancel.
Observe any waiting period (e.g., 30 days post-notice under Maceda for ≥2 years paid).
Document cancellation and, for titled land/condos, annotate at the Registry of Deeds when appropriate.
Only then lease/resell.

5) Evidentiary & Drafting Guidance

Automatic cancellation clause: Use clear, unequivocal language tying cancellation to identified defaults (e.g., non-payment of two consecutive installments).
Grace periods: State them expressly and not less protective than Maceda when it applies.
Notices: Require notarial written notices sent to the contract address; specify that notices are deemed received on certain objective proofs (registry, courier logs).
Forfeiture/liquidated damages:
- Ensure amounts are reasonable (Article 2227 allows courts to reduce unconscionable penalties).
- For Maceda sales, align forfeiture with CSV rules; otherwise, forfeitures may be struck down.
Late-payment tolerance: Add a non-waiver clause stating that acceptance of late or partial payments does not waive strict compliance, and that strictness may be restored only by written notice.
Tax & registration trail: Keep a paper trail for potential BIR and Registry actions (while tax treatment can be fact-sensitive, you’ll need proof of cancellation and restitution, if any).

6) Litigation vs. Self-Help

Judicial rescission remains available and may be preferable if:
- The breach or amounts due are contested;
- There is doubt about Maceda coverage or compliance;
- Possession is with the buyer and peaceful ejectment is unlikely.
Summary ejectment (unlawful detainer) requires prior demand to vacate and a terminated right of possession. Filing ejectment while the buyer still has cure or CSV rights is risky.

7) Effects of Rescission (Mutual Restitution)

Upon valid rescission/cancellation:

Return of what was received:
- The buyer returns possession; the seller returns payments subject to:
  - Lawful forfeitures (e.g., agreed liquidated damages if reasonable; Maceda CSV rules for covered installment sales).
Fruits & interests:
- Generally, the party who enjoyed the property’s fruits must account for them; money retained may bear legal interest from demand, depending on fault and equities.
Damages:
- The non-breaching party may claim damages proven (e.g., unpaid use/rents, deterioration beyond normal wear, collection costs).
Third-party effects:
- If the buyer has encumbered or transferred rights before cancellation, priority and notice issues arise; proper annotation and timely notices help protect the seller.

8) Intersections & Edge Cases

Recto Law (Art. 1484): Governs movables sold on installments (e.g., vehicles/appliances), not immovables. Its “three remedies” scheme (cancel, foreclose, or exact performance—choose only one) does not apply to real property.
Earnest money vs. option money (Art. 1482): Earnest money is part of the price and proof of the perfected sale; option money is consideration for the option. Mislabeling can affect forfeiture analysis.
Developer delay: If the seller is in delay (e.g., failure to deliver/turn over), buyers may invoke Article 1191 against the seller, plus PD 957/DHSUD remedies.
Acceptance of substantial performance: If the seller accepted substantial performance despite defects or delays, rescission may be disfavored; damages may be the proper remedy.
Prescription: Actions for rescission under Article 1191 generally prescribe in four (4) years from the breach; actions on a written contract for damages may carry a different prescriptive period. Track your timelines carefully.
Condominium corporation / HLURB-DHSUD processes: Project documentation and buyer protection rules may add procedural layers to effective cancellation.

9) Practical Playbook for Sellers

Audit the contract:
- Is there a clear extrajudicial cancellation clause? Does Maceda apply? Any developer-specific obligations?
Compute the exact arrears, dates, and any grace or CSV metrics.
Serve demand to pay with a cure window (unless excused).
If still in default, serve notarized demand to rescind/cancel compliant with Article 1592 and, if applicable, Maceda (including the 30-day post-notice period for ≥2 years paid).
Document cancellation; annotate as needed with the Registry of Deeds.
Demand to vacate (if buyer possesses). If ignored, consider ejectment.
Only then lease or resell; keep a complete dossier (demands, proofs of service, computations, photos/turnover minutes).
Mind penalties: Keep liquidated damages reasonable; be prepared for judicial moderation.

10) Takeaways

For immovables, Article 1592 gives buyers a last window to pay until the seller demands rescission.
Rescission under Article 1191 is available for substantial buyer default, but observe demand, grace, and notice rules.
In installment sales, the Maceda Law overlays mandatory grace periods, notarized notices, and refund (CSV) rights—noncompliance can invalidate cancellation.
A seller may lease or resell the property only after lawful termination of the buyer’s rights.
Keep everything in writing, notarized where appropriate, and provable.

Model Clauses (for guidance)

Automatic Cancellation on Default “If Buyer fails to pay two (2) consecutive installments or otherwise commits a substantial breach, and such breach remains uncured within fifteen (15) days from Buyer’s receipt of Seller’s written demand, Seller may cancel this Contract by notarial notice to Buyer. For sales covered by R.A. 6552, cancellation shall be effective only after compliance with the statute’s grace periods, cash surrender value, and 30-day post-notice requirement.”

Non-Waiver of Strict Compliance “Acceptance of late or partial payments shall not constitute a waiver of Seller’s right to enforce strict punctuality in future payments. Strict compliance may be reinstated only by written notice from Seller.”

Liquidated Damages (Subject to Law) “Upon valid cancellation, Seller may retain as liquidated damages an amount equal to ___% of the contract price/total payments subject to statutory limits (including R.A. 6552, if applicable) and judicial reduction if unconscionable.”

Right to Repossess and Re-market After Cancellation “Upon effective cancellation and demand to vacate, Buyer shall surrender possession within ___ days. Seller may thereafter lease or resell the Property.”

Final Word

The decisive levers are demand, substantial breach, statutory overlays (especially Maceda), and clean documentation. Align your contract and process with these pillars, and the right to cancel—and then to lease or resell—will stand on solid ground.