Extinguishment of

contract of sale
 Modes of
extinguishing
1. Same causes as all other obligations, namely:
“PALOREMECONO” sale
a. Payment or performance
b. Loss of the thing due
c. Condonation or remission of the debt
d. Confusion or merger of the rights of creditor and debtor
e. Compensation
f. Novation
g. Annulment
h. Rescission
i. Fulfillment of resolutory condition
j. Prescription
• Payment-consist in the delivery of money
• Payment in cash– all monetary obligations shall be settled in
the Philippine currency which is legal tender in the
Philippines.
 Q: What is the effect of loss of the thing which is the object of the obligation?
A: If the obligation is a:
Determinate obligation to give:
GR:The obligation is extinguished when the object of the obligation is lost.
XPNs: LAS‐CD‐PCG

• Law provides otherwise

• Nature of the obligation requires the Assumption of risk
• Stipulation to the contrary
• Debtor Contributed to the loss
• Loss the of the thing occurs after the debtor incurred in
Delay
 – When debtor Promised to deliver the same thing to two or more persons who do not
have the same interest
– When the debt of a certain and determinate thing proceeds from a Criminal offense
– When the obligation is Generic

• Generic obligation to give:

GR: The obligation is not extinguished

because a generic thing never perishes.

XPN:In case of generic obligations whose object is a particular class or group with specific or
determinate qualities (limited generic obligation)

• An obligation to do – the obligation is extinguished when the prestation becomes legally or

physically impossible.
• Q: What is condonation?

• A: It is an act of liberality by virtue of which the creditor,

without receiving any price or equivalent, renounces
the enforcement of the obligation, as a result of which it
is extinguished in its entirety or in that part or aspect of
the same to which the condonation or remission refers.
Q: When is there a confusion or merger of rights?

A: The meeting in one person of the qualities of a creditor and

debtor of the same obligation.
Q: What is compensation?

A: It is a mode of extinguishing to the concurrent amount, the

obligations of those persons who in their own right are
reciprocally debtors and creditors of each other (Art. 1232, NCC).

It involves the simultaneous balancing of two obligations in order

to extinguish them to the extent in which the amount of one is
covered by that of the other.
Q: What is novation?

A: It is the change of an obligation by another, resulting in its

extinguishment or modification, either by changing the object or
principal conditions, or by substituting another in the place of
the debtor or by subrogating a third person to the rights of the
creditor. (Pineda, Obligations and Contracts, 2000 ed, p. 298)
2. Causes stated in the preceding articles;
a. Cancellation of sale of personal property payable in installments
b. Resale of the goods by the unpaid seller
c. Rescission of the sale by unpaid seller
d. Rescission by the buyer in case of partial eviction
e. Rescission by the buyer in case of breach of warranty against hidden defects
f. Rescission by the buyer of sale of animals redhibitory defects (redhibitory
defect refers to a defect of such nature that even expert or professional
inspection cannot discover it)
“ACCION REDHIBITORIA”
3. Conventional Redemption; or
4. Legal redemption
Q: What is redemption?
A: It is a mode of extinguishment wherein the seller has the right to redeem or repurchase the
thing sold upon return of the price paid.

Q: What are the kinds of redemption?

A:
1. Legal
2. Conventional

Q: Should the right to redeem be incorporated in

every contract of sale?
A: The right of the vendor to redeem/ repurchase must appear in the same instrument.
However, parties may stipulate on the right of repurchase in a separate document but in this
case, it is valid only between the parties and not against third persons.
 Conventional redemption
• Takes place when the vendor reserved the right to repurchase the thing sold with
the obligation to
A. return to the vendee
– Price of the sale
– Expenses of the contract and any other legitimate payments made by reason of
sale
– Necessary and useful expenses
B. to comply with other conditions
Q: What is the period of redemption?
1. No period agreed upon – 4 years from date of contract
2. When there is agreement – should not exceed 10 years; but if it exceeded, valid
only for 10 years.
3. When period to redeem has expired & there has been a previous suit on the
nature of the contract – seller still has 30 days from final judgment on the basis
that contract was a sale with pacto de retro:
Rationale: no redemption due to erroneous belief that it is equitable mortgage
which can be extinguished by paying the loan.
4. When period has expired & seller allowed the period of redemption to expire –
seller is at fault for not having exercised his rights so he should not be granted a
new period
5. When period is indefinite: such as “anytime”, period of redemption is 10 years
• Note: Tender of payment is sufficient but it is not in itself a
payment that relieves the seller from his liability to pay the
redemption price.

• Effect of failure to exercise right of repurchase

– Ownership is consolidated in the vendee
– In real property, a judicial order is required for the purpose of
recording in the Registry of Property
 Legal redemption

Q: What is legal redemption?

A: Also referred to as “retracto legal”, it is the right to be subrogated upon the
same terms and conditions stipulated in the contract, in the place of one who
acquires the thing by purchase or by dation in payment or by other transaction
whereby ownership is transmitted by onerous title.

TRUST DE SON TORT

Q: What is a trust de son tort?
A: It is a trust created by the purchase or redemption of property by one other
than the person lawfully entitled to do so and in fraud of the other.
Q: What are the instances of legal redemption?
A:
1. Sale of a co-owner of his share to a stranger (Art. 1620)
2. When a credit or other incorporeal right in litigation is sold (Art. 1634)
3. Sale of an heir of his hereditary rights to a stranger (Art. 1088)
4. Sale of adjacent rural lands not exceeding 1 hectare (Art. 1621)
5. Sale of adjacent small urban lands bought merely for speculation (Art.
1622)
Q: Are there other instances when the right of legal
redemption is also granted?
A:
1. Redemption of homesteads
2. Redemption in tax sales
3. Redemption by judgment debtor
4. Redemption in extrajudicial foreclosure
5. Redemption in judicial foreclosure of mortgage
Q: When does period of redemption begin to run?

1. Right of legal pre-emption or redemption shall be exercised

within 30 days from written notice by the buyer – deed of sale
not to be recorded in Registry of Property unless accompanied by
affidavit that buyer has given notice to redemptioners

2. When there is actual knowledge, no need to give written notice;

period of redemption begins to run from actual knowledge
 Equitable mortgage

Q: What is an equitable mortgage?

A: One which lacks the proper formalities, form or words or other requisites
prescribed by law for a mortgage, but shows the intention of the parties to
make the property subject of the contract as security for a debt and contains
nothing impossible or contrary to law

Q: What are the essential requisites of equitable mortgage?

1. Parties entered into a contract of sale
2. Their intention was to secure an existing debt by way of a mortgage.
Q: What is the rule on the presumption of an equitable mortgage?
A: A sale with conventional redemption is deemed to be an equitable
mortgage in any of the following cases: (Art. 1602) AIR‐STAR

1. Price of the sale with right to repurchase is unusually Inadequate

2. Seller Remains in possession as lessee or otherwise
3. Upon or after the expiration of the right to repurchase Another instrument
extending the period of redemption or granting a new period is executed
4. Purchaser Retains for himself a part of the purchase
price
5. Seller binds himself to pay the Taxes on the thing
sold
6. In any other case where the real intention of the
parties is that the transaction shall Secure the payment
of a debt or the performance of any other obligation.
7. Art. 1602 shall also apply to a contract purporting to
be an Absolute sale. (Art. 1604)
Note: In case of doubt in determining whether it is equitable mortgage or
sale a retro (with right of repurchase); it shall be construed as equitable
mortgage.

Remedy is reformation.

REFORMATION: It is a remedy to conform to the real intention of the parties due to

mistake, fraud, inequitable conduct, accident. (Art. 1359)

Note: Reformation is based on justice and equity.

Q: Does inadequacy of price constitute proof
sufficient to declare a contract as one of
equitable mortgage?
A: Mere inadequacy of the price is not
sufficient. The price must be grossly
inadequate, or purely shocking to the
conscience.
THANK YOU!!