EXTINGUISHMENT OF SALE How a Contract of Sale Is Extinguise!" Generall# Generall#$$ through through payment of the price or performanc performance e ( i.e., delivery ; however, buyer-seller relationship relationship remains due to enforceability of warranties warranties ) ),, loss of the subject matter, condonation or remission, confusion or merger of the rights of creditor and debtor, compensation, novation, annulment, rescission, fulfillment of a resolutory condition, and prescription. S%eciall#$ through conventional or legal redemption which is unique to contracts of sale (pacto de retro) which retro) which may be exercised only by the seller as recognied by the contract, or by the transferee transferee of the rights, or by the person entitled by the law in legal redemption. Note: reservation Note: reservation of the right of repurchase stays the buyer-seller relationship with respect to such reservation until its period expires or when it is exercised. !owever, it does not prevent the full consummation of the contract of sale. "i#ewi "i#ewise, se, non-p non-paym ayment ent of the full full purch purchase ase price price does does not a$ect a$ect the runnin running g of the the redemption period as long as there were consent to sell and to purchase, partial payment, and delivery of possession of the property (%atangcalang v. "egayada&.
I& CON'ENTIONAL (E)EM*TION +at Constitutes Con,entional (e!e-%tion" (e!e-%tion" •
'. hen the seller reserved the the right to repurchas repurchase e what he sold with with the obligation obligation to return return the following) *. +he +he pur purchas chase e pric price; e; . +he expe expens nses es of the the contr contract act;; . +he legiti legitimate mate paymen payments ts made made due to to the sale; sale; and, and, . +he necess necessary ary and usefu usefull expenses expenses made made on the the thing. thing. •
How (igt of (e%urcase.(e!e-%tion Is (eser,e!"
'. /t must be reserved reserved by the the vendor by stipula stipulation tion in the same same contract contract of sale and not in a subsequent instrument. 0therwise, it may be some other right li#e an 1option to buy2. *. +he +he unde underl rlyi ying ng cont contra ract ct of sale sale must must be oper operat ativ ive e (tha (thatt is, is, the contr contract act must must not contem contempla plate te an imposs impossibl ible e servic service e [Art. [Art. 1409, 1409, and the the vendor vendor must must have have a ri!ht ri!ht to trans"er the o#nership o" the thin! at the time it is delivered [Art. 14$9 &. 0therwise, the right of repurchase repurchase shall li#ewise be void because it can only be exercised exercised when there has been a performance 3 a complete transfer of the title over and ownership of the property. •
+en Can Te (igt of (e!e-%tion /e Exercise!"
If tere is no %erio! agree! u%on0 /t must be exercised within years from the date of the contract. (4rt. '565& If tere is a %erio! agree! u%on0 ithin the period stipulated. !owever, the period must not exceed '6 years (4rt. '565&. 0therwise, the agreement is valid only for the first '6 years. Note: /f the agreement exceeds the '6-year rule, it shall be reduced to '6 years applying 4rt. '565. 4s long as there is a stipulation as to the period, even though unclear or void, the '6year rule shall apply, not the -year rule.
+he completion of the redemption process is tolled by the filing of a civil action relating to the issue of the exercise of right of redemption provided that the exercise of the right and the filing of the suit are done within the redemption period. •
How is Con,entional (e!e-%tion Exercise!"
'. +here must be a notice of the exercise sent within the period of redemption. *. +here must be tender of payment of the price of the sale, the expenses of contract and other legitimate payments made by reason of the sale, and the necessary and useful expenses made on the thing sold. (4rt. '5'5& +he seller7s reservation may charge every possessor whose right is derived from the buyer even if there was a second contract which did not mention anything about the reservation. (4rt. '568& 9ailure of to pay useful improvements entitles the buyer a retro to retain possession of the thing sold until actual reimbursement is done by the seller a retro. (:argollo v. uero& /t is enough that a sincere or genuine tender of payment, and not a moc# or deceptive one was made, to show that there was a valid tender of payment ("egaspi v. %4&. 0n the other hand, mere sending of letters expressing desire to repurchase without accompanying tender of redemption price is insuulueta v. 0ctavio; "ee v. %4&. 0n the other hand, a judicial action within the redemption period with the simultaneous deposit of the redemption price would su
(e!e-%tion of (eal *ro%erties /n case of real properties, the consolidation of the ownership in the buyer by virtue of the failure of the seller to comply with his obligation to return the price and other legally mandated expenses shall not be recorded in the ?egistry of @roperty without a judicial order, after the seller has been duly heard (4rt. '56A&. /t means that no automatic redemption shall occur and the buyer a retro is required to file an action for consolidation of ownership first wherein the seller a retro is given an opportunity to be heard.
E1ect of A-2iguit# (egar!ing te True Nature of te Contract of Sale /n case the true nature of the contract was also raised as an issue (that is, the contract was not an absolute sale and the seller actually considered the transaction as an equitable mortgage&, as a fair grant, 4rt. '565 even gives the seller to repurchase the property within 6 days from the finality of the judgment if the buyer proved that the transaction is a pacto de retro. +his situation contemplates a condition precedent to exercise the right of legal redemption. !owever, in case the issue raised is opposite (that is, the seller feigns the contract as an equitable mortgage when actually it is an absolute sale& and it was proven that the contract was indeed an absolute sale, the 6-day period will not be granted to the seller. ?eason is that holding otherwise would enable the seller to resurrect an expired right of repurchase by instituting an action to reform the contract into an equitable mortgage. 0n the part of the buyer, remember that failure to consolidate under 4rt. '56A will not impair his title or ownership because that method is for purpose of registering the consolidated title only and is not a condition sine %ua non to transfer ownership. Note: /n case of doubt regarding the validity and existence of the agreement, and the written contract fails to show the true intent of the parties, parol evidence may be adduced since
the deed of sale and the verbal agreement allowing the right is an integral whole with the deed being relied upon by the seller as the note or memorandum evidencing the contract, ta#ing it outside the provisions of the Btatute of 9rauds. Coreover, Dest Evidence ?ule would not be an obstacle to the adducement of parol evidence.
Inco-%liance of Seller !ue to /u#er /f tender of payment cannot be validly made, because the buyer cannot be located, the seller a retro should file a suit for consignation with the courts of the redemption price; failing to do so within the redemption period shall lapse his rights. (%atangcatang v. "egayada&
(e!e-%tion of Co3Owne! *ro%erties /n sale a retro, the buyer of a part of an undivided immovable who acquires the whole thereof in the case of 4rticle F8, compel the seller to redeem the whole property, if the latter wishes to ma#e use of the right of redemption (4rt. '5''&. /f several persons, jointly and in the same contract, should sell an undivided immovable with a right of repurchase, none of them may exercise this right for more than his respective share. +he same rule shall apply if the person who sold an immovable alone has left several heirs, in which case each of the latter may only redeem the part which he may have acquired (4rt. '5'*&. /n the case of the preceding situation, the buyer may demand of all the vendors or coheirs, that they come to an agreement upon the repurchase of the whole thing sold; and should they fail to do so, the buyer cannot be compelled to consent to a partial redemption (4rt. '5'&. 0n the other hand, each one of the co-owners of an undivided immovable who may have sold his share separately may independently exercise the right of repurchase as regards his own share, and the buyer cannot compel him to redeem the whole property (4rt. '5'&. /n addition, the creditors of the seller cannot ma#e use of the right of redemption against the buyer, until after they have exhausted the property of the seller (4rt. '5'6& Bhould one of the co-owners or co-heirs succeed alone in redeeming the whole property, such co-owner or co-heir shall be considered as a mere trustee with respect to the shares of his co-owners or co-heirs accordingly, no prescription will lie against the right to any co-owner or coheir to demand from the redemptioner his respective share in the property redeemed, which share is subject to a lien in favor of the redemptioner for the amount paid by him corresponding to the value of the share (e :uman v. %ourt of 4ppeals&.
(ules (egar!ing Fruits 4 Art& 5657 If tere was fruits at te ti-e of te sale0 no reimbursement or pro-rating of those existing at the time of redemption shall be made, if no indemnity was paid by the buyer when the sale as executed. If tere were NO fruits at te ti-e of te sale an! so-e existe! at te ti-e of re!e-%tion0 pro-rating shall be made between seller-redemptioner and buyer. +he buyer
receives the part corresponding to the time he possessed the land in the last year, counted rom the anniversary of the date of the sale. Note: 4rt. '5'A applies only when parties have not provided for their sharing arrangement with respect to the fruits existing 4+ +!E +/CE 09 ?EEC@+/0G. (4lmeda v. aluro&
+at is E8uita2le Mortgage" 9Art& 56:;<
/t is a mortgage which, although lac#ing in some formality or other requisites demanded by a statute, nevertheless reveals the intention of the parties to charge real property as security for a debt, and contains nothing impossible or contrary to law (Catanguihan v. %4&. •
Essential (e8uisites of an E8uita2le Mortgage
'. +he parties entered into a contract denominated as a contract of sale, *. Dut their intention was to secure an existing debt by way of a mortgage. Note: Doth requirements must concur to treat a sale as an equitable mortgage (Ban @edro v. "ee&. +he issue of ambiguity whether the contract is a sale or an equitable mortgage is generally inclined to be construed as the latter because it involves a lesser transmission of rights and interest over the property. +he intention of the parties to an agreement is shown not necessarily by the terminology but by all the surrounding circumstances and all pertinent facts having a tendency to fix and determine the real nature of their design and understanding (Colina v. %4&. !ence, to reiterate, parol evidence is competent and admissible to clear the ambiguities in a contract of sale. 0n the other hand, best evidence rule finds no application to equitable mortgage situations since there is no conclusive test to determine whether a deed of absolute sale on its face is really a loan secured by a mortgage (4ustria v. :onales, Hr.&
+en is a Sale *resu-e! to 2e E8uita2le Mortgage" Inder 4rticle '56* of the %ivil %ode, the contract of sale with right to repurchase (sale a retro& shall be presumed to be an equitable mortgage, in any of the following cases) (a& hen the price of under a sale a retro is unusually inadequate; (b& hen the seller remains in possession as lessee or otherwise; (c& hen the period of redemption is extended or renewed under a separate instrument; (d& hen the buyer retains part of the purchase price; (e& hen the seller binds himself or continues to pay the taxes on the thing sold; (f& /n any other case where it may be fairly inferred that the real intention of the parties is that the transaction shall secure the payment of a debt or the performance of any other obligation. Note: the existence of any one of the conditions above is su
Circu-stances to Treat a Contract of Sale as an E8uita2le Mortgage 4 Li- ,& Calaguas (a& +he terms used in the deed or power-of-attorney indicate that the conveyance was intended to be a loan secured by a mortgage; (b& +he price paid, in relation to the value of the property, is grossly inadequate;
(c& +he seller, at the time of the alleged sale was in urgent need of money; (d& +he supposed seller invested the money he obtained from the alleged buyer in ma#ing improvements on the property sold; (e& +he supposed seller remained in possession of the land sold; (f& +he seller paid the land tax which is a usual burden attached to ownership; (g& +he buyer accepted partial payments from the seller, and such acceptance of partial payment is absolutely incompatible with the idea of irrevocability of the title of ownership of the purchaser at the expiration of the term stipulated in the original contract for the exercise of the right of redemption; (h& +he seller remained bound for the repayment of the money received strongly tends to show that a mortgage only was intended; (i& +he transaction had its origin in a borrowing of money also tends to show that the subsequent transaction although in the form of a sale with the right of repurchase was in fact intended as a mortgage; and (j& +here was a previous debt between the parties and this was not extinguished by the sale, but remained subsisting. Dut if the previous debt was extinguished by the sale, and the seller has the privilege of repurchasing within a given time, the transaction is a conditional sale.
E1ects +en Sale is Actuall# an E8uita2le Mortgage (a& 4ny money, fruit, or other benefit to be received by the buyer as rent or otherwise shall be considered as interest which shall be subject to the usury laws (4rt. '56*&; (b& +he apparent 1seller2 may as# for the reformation of the instrument (4rt. '56&. /n case the property has been sold to a third party buyer, an aggrieved party may pursue other remedies li#e declaration of nullity of the deed of sale and specific performance (+olentino v. %4&. (c& 9or the court to decree that 1vendor2-debtor to pay his outstanding loan to the 1vendee2-creditor (Danga v. Dello&. (d& here the trial court did not pass upon the mortgagor7s claim that he had paid his mortgage obligation, a remand of the case to the trial court is in order, only for the purpose of determining whether the mortgage obligation had indeed been settled, and if not, how much the mortgagor should pay to settle the same.
+at is *actu- Co--issoriu-" 4 stipulation which gives the mortgagee the right to own the property or which automatically vests the title over the security to the creditor in case the debtor fails to pay the loan on the stipulated time. @actum %ommissorium is an unlawful, against public policy and a void stipulation which is the reason why provisions on equitable mortgage are created favoring the least transmission of right and interest over a property in controversy. Note: /f it was found that the seller was not a debtor and owed nothing to the buyer and nothing was o$ered as security for the payment of any indebtedness, there will be no @actum %ommissorium. +he reason is that it only applies to transaction covering mortgage and other security contracts and not to contracts of absolute sale. hen a purported sale a retro is found to be an equitable mortgage, the proper remedy in case the borrower refuses to pay the price is to foreclose on the mortgage, and there can be no loss of the purported seller7s right to redeem since it would constitute a @actum %ommissorium (Cotevirgin v. %4&.
II&
Legal (e!e-%tion
)e=nition$ &e!al 'edemption is the right to be subrogated upon the same terms and conditions stipulated in a contract, in the place of one who acquires a thing by purchase or dation in payment, or by any other transaction whereby ownership is transmitted by onerous title.
(ationale$ &e!al 'edemption is in the nature of a privilege created by law partly for reasons of public policy and partly for the benefit and convenience of the redemptioner, to a$ord him a way out of what might be a disagreeable or inconvenient association into which he has been thrust. /t is intended to minimie co-ownership. +he law grants a coowner the exercise of the said right of redemption when the shares of the other owners are sold to a third person. (asa vs. A!uilar , :.?. Go. ''A B%?4 '*8, 'F8*& Salient )istinctions /etween Con,entional an! Legal (igts of (e!e-%tion Con,entional Legal '. Btrictly spea#ing, a right a retro can '. 4 legal right of redemption does not only be constituted by express have to be expressly reserved (it is a reservation in a contract of sale at right granted by law&, and covers sales time of perfection. and other 1onerous Jtransfers ofK title. *. ?ight a retro is in favor of the seller.
*. 4 legal right of redemption is given to a third- party to the sale.
. +he exercise of the right a retro extinguishes the underlying contract of sale as though there was never any contract at all.
. +he exercise of the legal right of redemption, although it extinguishes the original sale, actually constitutes a new sale in substitution of the original sale.
Legal (e!e-%tion un!er te Ci,il Co!e$ a& A-ong Co3Heirs$ Bhould any of the heirs sell his hereditary rights to a stranger before the partition of the decedent7s estate, any or all of the other co-heirs may be subrogated to the rights of the purchaser by reimbursing him for the price of the sale, provided they do so within the period of one month from the time they were notified in writing of the sale by the selling co-heir. (4rticle '688, %ivil %ode& +he situation contemplated above is a sale by an heir of his hereditary right to a stranger to the co-ownership. 2& A-ong Co3Owners$ 4 co-owner of a thing may exercise the right of redemption in case the shares of other co-owners or any of them, are sold to a third person. /f the price of the alienation is grossly excessive, the redemptioner shall pay only a reasonable price therefor. (4rticle '5*6, %ivil %ode& Bhould two or more co-owners desire to exercise the legal right of redemption, they may only do so in proportion to the share they may respectively have in the thing owned in common. (4rticle '5*6, %ivil %ode& •
)e Facto *artition a-ong Co3Heirs an! Co3Owners$ /f in fact they (co-heirs who became co-owners upon succession& have partitioned it (the property& among themselves and each have occupied and treated definite portions thereof as their own, co-ownership has ceased even though the property is covered under one title, and the sale by one of the
heirs of his definite portion cannot trigger the right of redemption in favor of the other heirs.
)istinguising /etween (igts of (e!e-%tion of Co3Heirs an! Co3Owners Co3Heirs Co3Owners '. ?edemption by a co-owner of '. 4n heir may validly redeem for himself alone theproperty owned in common, even the hereditary rights sold by another co-heir. when he uses his own fund, within the period prescribed by law inures to the benefit of all the other co-owners. *. hen the sale consists of an *. /f the sale is the hereditary right itself, fully or in interest in some particular property part, in the abstract sense, without specifying any or properties of the inheritance, the particular object, the right recognied is that in right of redemption that arises in 4rticle '688. favor of the other co-heirs is that recognied in 4rticle '5*6. c& A-ong A!>oining Owners of (ural Lan!$ +he owners of adjoining lands have the right of redemption when a piece of rural land, the area of which does not exceed one hectare, is alienated, unless the grantee does not own any rural land. +he burden of proof to apply the exemption (that the buyer does not own any rural land& lies with the buyer. ( rimary *tructures +orp. vs. alencia, 6F B%?4 A', *66& +he right is not available to adjacent lands which are separated by broo#s, drains, ravines, roads and other apparent servitudes for the benefit of estates. +he person exercising the right of redemption must be an owner of a rural land, otherwise, 4rticle '5*' cannot be invo#ed. /f two or more adjacent owners desire to exercise the right of legal redemption, the owner of the smaller area shall be preferred. Bhould both lands have the same area, the one who first requested the redemption shall be preferred. !& A-ong A!>oining Owners of Ur2an Lan!$ henever a piece of urban land which is so small and so situated that a major portion thereof cannot be used for any practical purpose within a reasonable time, having been bought merely for speculation, is about to be resold, the owner of any adjoining land has a right of pre-emption at a reasonable price. ( rimary *tructures +orp. vs. alencia , 6F B%?4 A', *66& hen two or more owners of adjoining lands wish to exercise the right of preemption or redemption, the owner whose intended use of the land in question appears best justified shall be preferred. hen two or more owners of adjoining lands wish to exercise the right of preemption or redemption, the owner whose intended use of the land in question appears best justified shall be preferred ?edemption of urban land applies only when it involves its 1resale,2 and therefore there is no right of redemption that can be exercised by an adjoining owner when the urban land is transferred under an 1exchange2 of properties. ( -e *antos vs. +ity o" anila , B%?4 6F, 'FA*& e& Sale of a Cre!it in Litigation$ hen a credit or other incorporeal right in litigation is sold, the debtor shall have a right to extinguish it by reimbursing the assignee for the price the latter paid therefor, the judicial costs incurred by him, and the interest on the price from the day on which the same was paid. (4rticle '5, %ivil %ode& Co--ence-ent of Legal (e!e-%tion$
+he right of legal pre-emption or redemption shall no be exercised except within 6 days from the notice in writing by the prospective seller, or seller, as the case may be. +he deed of sale shall not be recorded unless accompanied by an a
Notice$ a& Notice Must Co,er *erfecte! Sale$ +he written notice referred to by the law to be given to the co-owners is the written notice of a perfected sale. Buch written notice must be accompanied by the actual execution and delivery of the deed of sale. +he 6-day period shall commence from the time this notice has been given to the co-owners. 4bsent such documents, no 6-day period shall begin to run against the co-owners. 4rticle '5'F of the %ivil %ode bestows unto a co-owner the right to redeem and to be subrogated under the same terms and conditions stipulated in the contract, and to avoid any controversy as to the terms and conditions under which the right to redeem may be exercised, it is best that the period therefor should not be deemed to have commenced unless the notice of the disposition is made after the formal deed of disposal has been duly executed. (*pouses -ormal vs. +ourt o" Appeals, 55 B%?4 A& +he purpose is to remove all the doubts and uncertainty regarding the alienation. +he redemptioners must have #nowledge of all the circumstances of the alienation, and only after such #nowledge is the owner required to exercise the right of redemption given by law. (/ermoso vs. +ourt o" Appeals , 66 B%?4 '5, 'FF8& 2& Su--ation on Strict (ules on Notice$ 4rticle '5* stresses the need for notice in writing in three other species of legal redemption namely) 5< redemption in case where the share of all the other co-owners or any of them are sold to a third person; ;< redemption by owners of adjoining lands when a piece of rural land not exceeding one hectare is alienated; ?< redemption by owners of adjoining lands in the sale of a piece of an urban land so small and so situated that the portion thereof cannot be used for any practical purpose within a reasonable time, having been bought merely for speculation. /n all the three situations, the interpretation is always resolved in favor of the redemptioner and against the vendee. +he purpose is to reduce the number of participants until the community is terminated, being a hindrance to development and better administration of property. (/ermoso vs. +ourt o" Appeals , 66 B%?4 '5, 'FF8& •
9ernande vs. Doiser) '. 9or the 6-day redemption period to begin to run, notice must be given by the seller; and that notice given by the buyer or even by the ?egister of eeds is not su
c& Exce%tions to te +ritten Notice (e8uire-ent$ '. "4%!EB-- here co-heirs only brought an action for redemption of hereditary right sold by another co-heir only after ' years after having actual #nowledge thereof,
by their actuations, they have lost their right to redeem. ( Alono vs. ntermediate Appellate +ourt , '6 B%?4 *F, 'F8A& *. 4%+I4" LG0"E:E--here it is the co-owner himself who acted as a middle man or intermediary to e$ect the sale to a third party, thus having actual #nowledge thereof, the written notice required under 4rticle '5* is no longer necessary, and the 6-day period for redemption begins to run from having actual #nowledge of the sale, by being present at the time the deed of sale was executed. ( -istrito vs. +ourt o" Appeals, 'FA B%?4 565, 'FF'&
Oter Instances +en (igt of Legal (e!e-%tion is Grante!$ a. (e!e-%tion of Ho-estea!s$ Every conveyance of land acquired under the free patent homestead provisions, when proper, shall be subject to repurchase by the applicant, his widow, or legal heirs, within a period of years from the dates of conveyance. (Bection ''F, @ublic "and 4ct& Bale of a homestead patent within the -year prohibition period is void even when the sale is in favor of the homesteader7s children. 4lso, the right of repurchase in homestead land cannot be waived by the party entitled thereto and applies with equal force to both voluntary and involuntary conveyances. ( *ta. !nacia 'ural an2, nc. v. +ourt o" Appeals, *6 B%?4 ', 'FF& b. (e!e-%tion of Tax Sales$ /n case of delinquency sale of property of a taxpayer for failure to pay tax assessments, within one ('& year from the date of sale, the delinquent taxpayer, or anyone for him, shall have the right of redeeming the property by paying to the ?evenue istrict 0
d. (e!e-%tion in Extra>u!icial Foreclosure$ /n all cases in which an extrajudicial foreclosure sale has been made under a special power, the debtor, his successors-ininterests or any judicial creditor, any judgment creditor of said debtor, or any person having a lien on the property subsequent to the mortgage or deed of trust under which the property has been sold, may redeem the same within one year from and after the date of sale and registration. (Bection 5, 4ct. Go. '&
e. (e!e-%tion in @u!icial Foreclosure$ hile jurisprudence recognies the principle that Mno right to redeem is granted to the debtor-mortgagor when there has been a judicial foreclosure of a real estate mortgage7, there is an exception to such rule as when the mortgagee is a ban# or ban#ing institution. f.
Foreclosure in /aning Institutions$ /n the event of foreclosure of any mortgage on real estate which is security for any loan or other credit accommodation granted, the individual mortgagor or corporate mortgagor whose property has been sold for the full or partial payment to his obligation, B!4"" !4=E +!E ?/:!+ /+!/G 0GE NE4? 49+E? +!E B4"E 09 +!E ?E4" EB+4+E, +0 ?EEEC +!E @?0@E?+N DN @4N/G: +!E 4C0IG+ IE IGE? +!E C0?+:4:E EE, /+! /G+E?EB+ +!E?E0G 4+ +!E ?4+E B@E%/9/E /G +!E
C0?+:4:E, 4G 4"" +!E %0B+B 4G EO@EGBEB /G%I??E DN +!E D4GL 0? /GB+/+I+/0G 9?0C +!E B4"E 4G %IB+0N 09 B4/ @?0@E?+N "EBB +!E /G%0CE E?/=E +!E?E9?0C. (Bection A, ?.4. 8AF'& g. (igt to (e!ee- un!er Agrarian (efor- Laws$ /n the event the landholding is sold to a third person without the #nowledge of the agricultural lessee, the latter is granted by law the right to redeem it within '86 days from notice in writing and at a reasonable price and consideration. (Bection '*, ?.4. 8&
