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The Recto Law comprises Articles 1484 to 1486 of the Civil Code.
It was added to the Civil Code to prevent abuses in the foreclosure
of chattel mortgages, such as when mortgagee-creditors
foreclosed mortgaged property, bought them at a low price (on
purpose,) then prosecuted the mortgagor-debtors to recover the
deficiencies.
The Recto Law also covers leases with the option to purchase.
The buyer is also allowed to make advanced payments, or even
the full price, without interest. He can also assign his rights to
another person, making that person the new buyer, but he can
only do that with a notarial deed of sale assignment.
The Maceda Law cannot be used by a real estate developer
(see here.) It also cannot be used by the highest bidder in
foreclosure proceedings.
If the seller wants to cancel the sale, he has to refund the buyer of 50%
of the actual payments. If the buyer paid more than five years'
installments another 5% for every year is to be added to the refund,
but only up to 90% of the total payments made. The payments
mentioned here include the downpayment, options and deposits. The refund
is made in this way: if the buyer paid more 2 to 5 years' installments, he can
get back 50% of the cash surrender value. If he paid for more than 5 years,
he can get the 50% plus 5% per year up to 90%.
The buyer is also allowed to make advanced payments, or even the full price,
without interest. He can also assign his rights to another person, making that
person the new buyer, but he can only do that with a notarial deed of sale
assignment.
The Maceda Law cannot be used by a real estate developer (see here.) It
also cannot be used by the highest bidder in foreclosure proceedings.
> Automatic appropriation by the creditor of the thing pledged or mortgaged upon the failure of the debtor to
pay the principal obligation
> TEST IF THERE IS EXISTS PACTUM COMMISSORIUM is whether or not there is no need for extra step to be
taken by creditor
PROHIBITION AGAINST PACTUM COMMISSORIUM
1. Stipulation is null and voidit is said to be contrary to good morals and public policy
2. Requisites
a. There should be a pledge, mortgage, antichresis of property by way of security for the payment of the
principal obligation
b. Stipulation for the automatic appropriation of the property in favor of the creditor upon default of the
debtor/pledgor
3. Effect on the security contractdoesnt affect substantially the principal contract of pledge, mortgage or
antichresis with regard to its validity and efficacy
AGREEMENTS THAT WOULD NOT CONSTITUTE PACTUM COMMISSORIUM
1. Attorney in fact
2. Option contract. There would be another contract. There is a risk of the courts to look at it as a PC.
3. Dacion en pago
4. Assigned shares. Creditor would only have legal title and pledgor would still have beneficial ownership.