Remedies for Buyer Breach in Real Estate Sale Philippines

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Remedies for Buyer Breach in a Philippine Real-Estate Sale

(Comprehensive doctrinal, statutory, and jurisprudential overview)

Scope of this article

• Immovable property located in the Philippines
• Private, arm’s-length transactions (not expropriation or government auctions)
• Both “contract of sale” and “contract to sell” structures
• Cash sales, straight-term sales, instalment sales covered by Republic Act No. 6552 (the “Maceda Law”), and subdivision/condominium sales governed by Presidential Decree No. 957

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1. Legal Foundations

Source	Key Provisions on Buyer Default
Civil Code of the Philippines (Arts. 1191, 1306, 1315-1319, 1592-1596, 1654)	General contract law; obligations and contracts; special rules on sales of immovables
Maceda Law (1972)	Rights of defaulting buyers in instalment sales of real estate (built or raw)
PD 957 (and HLURB/DHSUD rules)	Additional safeguards when the seller is a developer of subdivisions or condominiums
Rules of Court	Actions for specific performance, rescission, ejectment, foreclosure, attachment, etc.
Alternative Dispute Resolution Act (2004)	Validity of arbitration clauses in real-estate contracts
Existing Jurisprudence (e.g., Castillo v. Rebancos, G.R. 171913-14; Spouses Venancio v. Spouses Calinisan, G.R. 237908; Delos Reyes v. BPI Family Bank, G.R. 137536)	Concrete applications and refinements of the above statutes

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2. Forms of Buyer Breach

1. Non-payment of the purchase price (total or instalments)
2. Late payment outside agreed grace periods
3. Failure to comply with conditions precedent (e.g., documentary requirements, assumption of mortgage)
4. Unauthorized possession or alteration of the property prior to full payment
5. Repudiation (express notice that the buyer will not proceed)

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3. Seller’s Menu of Remedies

Remedy	When Available	Practical Steps	Legal Basis	Notes & Caveats
Specific performance	Buyer is able but unwilling to pay, and seller still wants the sale to push through	(a) Extrajudicial demand; (b) File an ordinary civil action; (c) Tender and consign the deed/title if applicable	Arts. 1165, 1595-1596; 1654	Seller must show he himself is ready, willing, and able to perform (“clean hands rule”).
Judicial rescission (resolution)	Breach is substantial and defeats the object of the contract	Action under Art. 1191; court decree is required for contracts of sale of immovables unless the contract contains a valid automatic-rescission clause AND Art. 1592 grace-period requirements are met	Art. 1191, Art. 1592	Court may order mutual restitution (return of payments, interest, fruits).
Extrajudicial rescission	(i) The agreement expressly reserves the right to rescind on default and (ii) buyer fails to pay within 30-day grace period after written demand for cash sales, or within Maceda/PD 957 periods for instalment sales	Serve notarized notice of cancellation and demand to vacate; register the deed of cancellation with the Registry of Deeds	Art. 1592 (cash sale); Maceda Law or PD 957 (instalment); jurisprudence	Failure to strictly comply can invalidate rescission and expose seller to damages.
Forfeiture of earnest money / option money	Earnest money is proof of the perfected sale (Art. 1482). Upon buyer default, seller may retain it as liquidated damages unless the contract stipulates otherwise	None—automatic upon default, but safer to state forfeiture in the demand letter	Art. 1599(1); Art. 2226	Distinguish from “option money,” which is consideration for an option and not automatically forfeitable absent stipulation.
Damages (actual, moral, exemplary, attorneys’ fees)	Any breach causing loss or injury to seller	Plead and prove in the same action for specific performance/rescission	Arts. 1170-1171; 2200-2224	Must be specifically alleged and proven; moral/exemplary require bad faith.
Interest on unpaid price	Delay (mora solvendi) triggers legal interest	Include in demand and prayer for judgment	Art. 2209; BSP Circular 799 (currently 6% p.a.)	Interest runs from extrajudicial demand or filing of complaint.
Ejectment / Recovery of possession	Buyer already occupies the property but is in breach	File ejectment (summary) if possession was by mere tolerance; otherwise include with rescission/specific performance	Sec. 1, Rule 70; Art. 446	Does not bar a later action on the contract.
Cancellation under Maceda Law	Buyer has paid at least (a) 2 years of instalments → 60-day grace + refund of 50%–90% of total payments after 30-day notice of cancellation; (b) < 2 years → 60-day grace only	Follow strict notice, refund, and registration rules	RA 6552	Failure to refund within 30 days of cancellation makes rescission ineffective.
Cancellation under PD 957	Projects licensed by DHSUD	30-day notice to buyer + DHSUD approval; refund of cash surrender value	PD 957, Sec. 23	DHSUD retains jurisdiction even after title transfer.
Foreclosure of real-estate mortgage	Price secured by mortgage of same or other property	Extrajudicial foreclosure under Act 3135 or judicial foreclosure under Rule 68	Mortgage contract; Act 3135	Foreclosure and action for specific performance are mutually exclusive remedies.
Annotation of lis pendens / adverse claim	Seller sues while title is already in buyer’s name or about to be transferred	File notice with Registry of Deeds	Sec. 76, PD 1529	Protects seller’s claim against third persons but can be cancelled if suit is dismissed.
Attachment / preliminary injunction	Prevent fraudulent disposal or protect possession during suit	Apply for provisional remedy	Rules of Court, Rules 57 & 58	Must post bond; court discretion.
Arbitration	Contract contains arbitration clause	File request with named ADR institution (e.g., PDRCI)	ADR Act of 2004	Awards enforceable under Special ADR Rules.

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4. Distinguishing Contract of Sale vs. Contract to Sell

Aspect	Contract of Sale	Contract to Sell
Ownership transfer	Upon delivery of the thing	Suspensive condition (usually full payment); seller retains legal title
Remedy for buyer default	Rescission under Art. 1191/1592 or Maceda/PD 957	Automatic cancellation—no transfer of ownership yet; seller need not rescind but must observe Maceda/PD 957 if applicable
Registration implications	If deed of sale is registered and title issued, seller must seek reconveyance or cancellation	Title still in seller; easier recovery of possession

Mis-labelling a contract does not control; courts look at the parties’ true intent and stipulations (Heirs of Malate v. Gamboa, G.R. 221062).

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5. Interaction with Tax and Regulatory Compliance

1. Capital gains tax (6%) and documentary stamp tax (1.5%) are triggered by the execution of a deed of sale, not by full payment. If the sale is rescinded, seller may claim a refund/credit from the BIR within the two-year prescriptive period (Sec. 204, NIRC).
2. Real property tax (RPT) liability follows beneficial ownership; during dispute, parties may stipulate who shoulders RPT to avoid penalties.
3. Anti-Money Laundering (AMLA) rules now cover real-estate brokers (2021 AMLC guidelines); large cash payments must be reported—relevant when documenting default.

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6. Procedural Roadmap for Sellers

1. Send a formal, notarised demand citing the contract clause breached, amount due, and applicable grace period.
2. Compute legal interest and penalties to fix the amount of the buyer’s default.
3. Observe statutory notices (30-day/60-day/Maceda/PD 957).
4. Decide on remedy — specific performance or rescission (they are alternative, not cumulative).
5. File the appropriate action in the proper court or ADR forum; include prayer for provisional remedies if risk of disposal/insolvency.
6. Register notices (lis pendens, adverse claim, notice of cancellation) with the Registry of Deeds to bind third parties.
7. If rescinding, return the buyer’s payments in accordance with Maceda/PD 957 before asking the court to order eviction.
8. Secure a writ of possession or judgment award; coordinate with the sheriff and local barangay to enforce peacefully.
9. Settle taxes on any refund or subsequent resale; file BIR claims if taxes were previously paid on a rescinded sale.

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7. Prescription (Statute of Limitations)

Cause of Action	Prescriptive Period	When Period Starts
Specific performance / rescission of written contract	10 years (Art. 1144)	From date of buyer’s default or seller’s extrajudicial demand
Rescission under Art. 1381-1389 (lesion, etc.)	4 years	From discovery of cause
Ejectment based on tolerance	1 year from last demand (Rule 70)
Action for reconveyance of registered title procured by fraud	4 years from discovery; but never beyond 1 year from decree issuance under Torrens system

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8. Practical Tips for Drafting and Enforcement

• Include a clear automatic-rescission clause that dovetails with Art. 1592 and Maceda/PD 957 timelines; stipulate that payments may be applied to rentals or damages.
• Distinguish earnest money vs. down-payment; specify forfeiture terms.
• Insert an arbitration clause to speed up resolution (but ensure it remains enforceable – specify seat, institution, number of arbitrators).
• Record the contract (or even just a caveat) early to protect against double sales (Art. 1544).
• Maintain meticulous payment ledgers; courts require proof of amounts received and dates to apply Maceda percentages.
• Use escrow arrangements for title delivery to avoid dual compliance problems.
• Keep communications in writing; verbal indulgences can be deemed waiver of deadlines.

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9. Emerging Issues

1. Digital and electronic contracts – e-signatures are now presumptively valid under the E-Commerce Act; be sure to keep audit logs.
2. COVID-19 and force majeure – Generally, financial incapacity is not force majeure; grace periods granted by Bayanihan laws have lapsed.
3. Environmental, social, governance (ESG) conditions – Large developers increasingly tie payment schedules to project milestones; breach analysis can therefore involve construction timetables.
4. Foreign ownership caps – A foreign buyer who turns out to be ineligible can constitute a legal impossibility; seller may invoke Art. 1266 (impossibility) instead of ordinary rescission.

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10. Conclusion

Philippine law gives sellers a robust—but highly regulated—arsenal when a buyer defaults on a real-estate purchase. The core strategic choice is between forcing the sale (specific performance) and unwinding it (rescission), each demanding strict compliance with the Civil Code and special statutes like the Maceda Law and PD 957. Because procedural missteps (e.g., failure to give statutory notices or refund payments) can nullify otherwise meritorious claims, sellers should combine careful contract drafting, timely documentation, and prompt assertion of rights to maximize their leverage while minimizing exposure to damages.

This article is for educational purposes only and does not constitute legal advice. Consult Philippine counsel for advice tailored to specific facts.