Contract to Sell (Philippines) — Sample, Maceda Law, Free Generator

CONTRACT TO SELL

KNOW ALL MEN BY THESE PRESENTS:

That [EDUARDO M. VILLAR], of legal age, Filipino, married, and a resident of [9 Acacia Street, Barangay Sto. Domingo, Cabanatuan City], hereinafter referred to as the SELLER,

                              — and —

[GRACE L. TAN], of legal age, Filipino, single, and a resident of [33 Burgos Street, Barangay Zulueta, Cabanatuan City], hereinafter referred to as the BUYER,

WITNESSETH: That —

WHEREAS, the SELLER is the absolute and registered owner of a residential house and lot situated at [Lot 12, Block 4, Villa Alegre Subdivision, Barangay Sto. Niño, Cabanatuan City], covered by [Transfer Certificate of Title No. 98765] of the Registry of Deeds for [Nueva Ecija];

WHEREAS, the SELLER has agreed to sell, and the BUYER has agreed to buy, the said property on instalment under the terms set out below;

NOW THEREFORE, the parties agree as follows:

1. PURCHASE PRICE. The total contract price is ONE MILLION EIGHT HUNDRED THOUSAND PESOS ([P1,800,000.00]), Philippine currency, payable as follows:
   (a) A down payment of THREE HUNDRED THOUSAND PESOS ([P300,000.00]), receipt of which is hereby acknowledged by the SELLER; and
   (b) The balance of ONE MILLION FIVE HUNDRED THOUSAND PESOS ([P1,500,000.00]) payable in [sixty (60)] equal monthly instalments of [TWENTY-FIVE THOUSAND PESOS (P25,000.00)] each, without interest, due on the [fifth (5th)] day of each month beginning [January 2027].

2. RESERVATION OF OWNERSHIP. Ownership of the property shall remain with the SELLER and shall not pass to the BUYER until the full purchase price has been paid. This instrument is a contract to sell and not a contract of sale.

3. DEED OF ABSOLUTE SALE. Upon full payment of the purchase price, the SELLER shall execute and deliver to the BUYER a Deed of Absolute Sale over the property, free from all liens and encumbrances, and shall surrender the owner's duplicate certificate of title for transfer.

4. POSSESSION. The BUYER may take possession of the property upon payment of the down payment, and shall from then on pay the real property taxes, association dues and utilities accruing on the property.

5. DEFAULT. Should the BUYER fail to pay [two (2)] successive monthly instalments, the SELLER may, after written notice and the lapse of the grace period provided by law, cancel this contract, subject to the BUYER's rights under Republic Act No. 6552 (the Realty Instalment Buyer Protection Act).

6. MACEDA LAW RIGHTS. The parties acknowledge that this contract involves the sale of real estate on instalment payments and is therefore governed by Republic Act No. 6552; that where the BUYER has paid at least two (2) years of instalments, the BUYER is entitled to a grace period of one (1) month for every year of instalment payments made, exercisable once every five (5) years, and, in the event of cancellation, to the cash surrender value of the payments made, being fifty per cent (50%) of the total payments made and, after five (5) years of instalments, an additional five per cent (5%) every year but not exceeding ninety per cent (90%) of the total payments made; that where the BUYER has paid less than two (2) years of instalments, the BUYER is entitled to a grace period of not less than sixty (60) days from the date the instalment became due; and that in either case the SELLER may cancel this contract only after thirty (30) days from the BUYER's receipt of a notice of cancellation or a demand for rescission by notarial act, and, where a cash surrender value is due, only upon its full payment to the BUYER. Any stipulation contrary to sections 3 to 6 of Republic Act No. 6552 is void.

7. TAXES AND EXPENSES. The capital gains tax on the eventual sale, or where the property is an ordinary asset the creditable withholding tax and income tax on that sale, shall be for the account of the [SELLER]. The documentary stamp tax, transfer tax, registration fees and all other expenses of transfer shall be for the account of the [BUYER]. This allocation governs as between the parties only and does not affect the liability of the taxpayer designated by law.

8. ANNOTATION. The BUYER may, at their own expense, cause this Contract to Sell to be annotated on the certificate of title.

9. WARRANTIES. The SELLER warrants that they are the absolute owner of the property, that they have full authority to sell it, and that it is free from all liens, encumbrances and adverse claims; and undertakes not to sell, mortgage or otherwise encumber the property during the term of this contract.

IN WITNESS WHEREOF, the parties have hereunto set their hands this ____ day of __________, 20____, at [Cabanatuan City], Philippines.

______________________________          ______________________________
[EDUARDO M. VILLAR]                      [GRACE L. TAN]
Seller                                   Buyer

WITH MY MARITAL CONSENT:

______________________________
[Spouse of the Seller]

SIGNED IN THE PRESENCE OF:

______________________________          ______________________________
Witness                                  Witness

REPUBLIC OF THE PHILIPPINES )
CITY OF [CABANATUAN CITY] ) S.S.
x----------------------------------------x

ACKNOWLEDGMENT

BEFORE ME, a Notary Public for and in [Cabanatuan City], this ____ day of __________, 20____, personally appeared the above-named parties, exhibiting to me their competent evidence of identity, known to me and to me known to be the same persons who executed the foregoing Contract to Sell, and they acknowledged to me that the same is their free and voluntary act and deed.

WITNESS MY HAND AND SEAL on the date and at the place first above written.

                                        ______________________________
                                        Notary Public

Doc. No. ______;
Page No. ______;
Book No. ______;
Series of 20____.

The difference that decides everything

In a contract of sale, ownership passes on delivery and the seller's remedy for non-payment is to sue for the price or to rescind. In a contract to sell, ownership is expressly reserved until the price is fully paid — full payment is a positive suspensive condition. If the buyer does not pay in full, the obligation to transfer ownership never arises at all. Nothing to rescind, because nothing was transferred.

That is why instalment sales of real property use a contract to sell. The seller keeps the title as security. The buyer takes possession and builds up equity, and the law — RA 6552 — steps in to make sure the buyer does not lose everything on a missed payment.

The Maceda Law, in plain terms

Republic Act No. 6552, the Realty Instalment Buyer Protection Act, is usually summarised as a law about “residential real property”. That is a shorthand, and it is narrower than the statute. Section 3 applies the Act “in all transactions or contracts involving the sale or financing of real estate on instalment payments, including residential condominium apartments”, and then carves out specific exclusions: industrial lots, commercial buildings, and sales to tenants under Republic Act No. 3844 as amended by Republic Act No. 6389, the agrarian legislation. So the correct question is not “is this residential?” but “is this a sale or financing of real estate on instalments that is not within one of the three exclusions?”

The buyer also has statutory rights to pay in advance without interest, and to have the contract to sell — and the deed of sale when it comes — annotated on the title.

Clauses that protect each side

1. 1

   For the buyer: annotate the contract on the title

   An annotated contract to sell puts the world on notice of your interest and makes it far harder for the seller to sell the same property to somebody else. It costs a registration fee and is worth every peso.

2. 2

   For the buyer: a negative covenant against encumbrance

   The seller undertakes not to sell, mortgage or encumber the property during the term. Without it, you may finish paying only to find a mortgage annotated on the title.

3. 3

   For the seller: a clear default definition

   State how many missed instalments constitute default and how notice is given — but remember that section 7 of RA 6552 makes void any stipulation contrary to sections 3 to 6, so a shorter contractual grace period, an automatic-forfeiture clause or a waiver of the cash surrender value simply does not operate where the Act applies.

4. 4

   For both: the tax allocation

   The transfer taxes fall due on the eventual deed of absolute sale, not on the contract to sell. Which tax that is depends on the classification of the property: the 6% final tax under section 24(D)(1) if it is a capital asset, or creditable withholding tax and ordinary income tax if it is an ordinary asset. Say who bears what, and when, in terms that cover both.

5. 5

   For both: what happens on death

   State that the contract binds the heirs, successors and assigns of both parties. Instalment contracts often outlive one of the signatories.

Legal basis: Civil Code of the Philippines, arts. 1458, 1475–1479 (contract of sale and the effect of a suspensive condition) and 1191; RA 6552 (Realty Instalment Buyer Protection Act, the Maceda Law); PD 957 for subdivision and condominium projects; PD 1529 on annotation of instruments affecting registered land.

How to annotate the contract on the title

This is the step that separates a buyer who is protected from one who is merely hopeful, and it is cheap. A contract to sell does not transfer ownership, so it cannot be registered as a conveyance — but it can be recorded against the title so that anyone dealing with the property afterwards is on notice of your interest.

1. 1

   Have the contract notarised

   Only a public instrument can be recorded. An unnotarised contract to sell cannot be annotated.

2. 2

   Get a certified true copy of the title

   From the Register of Deeds where the property is registered, so you know exactly what is already annotated on it.

3. 3

   File the instrument with the Register of Deeds

   Present the notarised contract with the owner's duplicate title where the seller will cooperate. Pay the entry and annotation fees under the LRA schedule.

4. 4

   If the seller will not cooperate, consider an adverse claim

   Section 70 of PD 1529 lets a person claiming an interest in registered land adverse to the registered owner record a sworn adverse claim, which is effective for thirty days from registration unless a party in interest moves for its cancellation. It is a blunt instrument and a defensive one — take advice before using it.

5. 5

   Get a fresh certified true copy afterwards

   Confirm the annotation actually appears. An annotation you were told about but never verified is not protection.

Subdivision and condominium projects

If you are buying from a developer, PD 957 adds another layer: the project must have a licence to sell, the developer has obligations on completion of facilities, and buyers have remedies before the Department of Human Settlements and Urban Development. Ask for the licence to sell and the certificate of registration before you pay a reservation fee.

What if…

1. 1

   …the buyer finishes paying and the seller will not sign the deed

   The buyer can sue for specific performance to compel execution of the deed of absolute sale, and the court's decision can itself be registered. Keep every receipt — proof of full payment is the whole case.

2. 2

   …the seller sells to somebody else

   If the contract was annotated, the second buyer takes with notice and cannot claim to be in good faith. If it was not annotated, the buyer is left with an action for damages and a much harder fight. Annotate.

3. 3

   …the buyer wants out

   Under RA 6552 a buyer past two years may also sell or assign their rights by a notarial act, or reinstate the contract during the grace period. Negotiating an assignment to a new buyer is often better for everyone than a cancellation.

4. 4

   …the property is mortgaged to a bank

   Ask for the bank's written consent and a clear payoff arrangement. A buyer paying instalments on a property the bank can foreclose is buying a problem.