iv. Requisites for Valid Cancellation; Effect of Failure to Comply

Requisites for Valid Cancellation; Effect of Failure to Comply

Concept

A seller’s decision to cancel a real estate installment contract does not, by itself, complete cancellation. The Realty Installment Buyer Act prescribes grace periods and a notarial notice or demand. The requirements differ according to whether the buyer has paid at least two years of installments. (Sec. 3, Rep. Act No. 6552)¹ (Sec. 4, Rep. Act No. 6552)²

Governing provisions

Section 3 governs default after at least two years of installments; Section 4 governs default when less than two years have been paid. Section 5 preserves the buyer’s ability to update the account during the grace period and before actual cancellation. A contractual stipulation contrary to these protections is null and void. (Sec. 3, Rep. Act No. 6552)¹ (Sec. 4, Rep. Act No. 6552)² (Sec. 5, Rep. Act No. 6552)³ (Sec. 7, Rep. Act No. 6552)⁴

Requisites / Rules

• Less than two years paid: The seller must give a grace period of at least 60 days from the date the installment became due. If the buyer still fails to pay when that period expires, the seller may cancel only after 30 days from the buyer’s receipt of a notice of cancellation or demand for rescission by notarial act. (Sec. 4, Rep. Act No. 6552)²
• At least two years paid: The buyer has the grace period provided by Section 3. Actual cancellation takes place only after 30 days from receipt of the notarial notice of cancellation or demand for rescission and upon full payment of the cash surrender value to the buyer. (Sec. 3, Rep. Act No. 6552)¹
• Before actual cancellation: The buyer may reinstate the contract by updating the account during the grace period. The buyer may also sell or assign the buyer’s rights; the deed of sale or assignment must be by notarial act. (Sec. 5, Rep. Act No. 6552)³

Distinctions

The 60-day minimum grace period belongs to the less-than-two-years category. For a buyer who has paid at least two years, Section 3 instead provides a grace period based on years of installment payments and makes full payment of the cash surrender value a condition of actual cancellation. Both categories require receipt of the prescribed notarial notice or demand and a further 30-day period. (Sec. 4, Rep. Act No. 6552)² (Sec. 3, Rep. Act No. 6552)¹

Key doctrines

A mere demand letter does not satisfy the statutory requirement of a notice of cancellation or demand for rescission by notarial act. Nor does the seller’s action for reconveyance amount to an action for rescission. Without proper cancellation notice, the contract remains subsisting. (Danan v. Spouses Reyes, G.R. No. 195072, 29 May 2017)⁵

Failure to cancel in accordance with law leaves the contract to sell valid and subsisting. Statutory cancellation requirements must also be observed before the installment buyer’s possession may be treated as illegal in an unlawful detainer action. (Orbe v. Filinvest Land, Inc., G.R. No. 208185, 6 September 2017)⁶ (Spouses Bayudan v. Dacayan, G.R. No. 246836, 7 October 2020)⁷

Exceptions

The seller may cancel unilaterally under the Act and the parties’ contract, but that power does not dispense with the statutory requisites for valid cancellation. Where a contract to sell has not been canceled, equity may permit the buyer to settle arrears and pay the balance, subject to the applicable interest. (State Investment Trust, Inc. v. Baculo, G.R. No. 237934, 10 June 2024)⁸ (Buce v. Heirs of Galang, G.R. No. 259066, 4 December 2023)⁹

Bar tip

First determine whether two years of installments have been paid. Then check the applicable grace period, receipt of the notarial notice or demand, the 30-day period, and—under Section 3—full payment of the cash surrender value. (Sec. 4, Rep. Act No. 6552)² (Sec. 3, Rep. Act No. 6552)¹