PRE-TEST

CHAPTER 7

EXTINGUISHMENT OF SALE

INSTRUCTION: Connect each word by filling all the blanks with the
corresponding answer.

⁵ ² ²⁰ ¹⁰

⁷ ¹⁴
¹⁸
¹⁹
³ ¹ ¹⁶
¹⁷

⁸ ¹² ⁶
⁴

¹¹

¹³
¹⁵

HORIZONTAL VERTICAL
3. ______ or those causes which are 1. _______ or those causes which are
recognized by the law on sales also the means of extinguishing all other
contracts like payment, loss of the thing,
condonation
4. __________redemption is the right 2. ___________or those causes which
which the vendor reserves to himself, to are given special discussion by the Civil
reacquire the property sold provided he Code and these are conventional
returns to the vendee the price of the redemption and legal redemption
sale, the expenses of the contract
5. Both __________ property may be the 6. It is purely contractual because it is a
subject matter of pacto de retro sales or right created, not by __________ of the
sales with the right to repurchase law, but under an express contract
although there are certain articles
7. It is an accidental stipulation and, 8. It is a __________ when registered
therefore, its nullity cannot affect the sale because it binds third persons
itself since the latter might be entered
into without said ___________
9. It is _____________ because it 10. It is a ___________ condition
depends upon the will of the vendor because when exercised, the right of
ownership acquired by the vendee is
extinguished.
11. In a pacto de retro _____, the title or 12. It is not an obligation but a
ownership of the property sold is _______or privilege that the vendor has
immediately vested in the vendee a retro, reserved for himself.
subject only to the resolutory condition of
repurchase
13. It is reserved at the moment of the
_______ of the contract for if the right to
repurchase is agreed upon afterward,
there is only a promise to sell which
produces different rights and effects and
is governed by Article 1479
15. It gives rise to a reciprocal obligation
that of returning the price of sale and
other _________, on the part of the
vendor
17. The right of the repurchase is not a
right granted the vendor by the _______
in a subsequent instrument
19. Distinction must be made because
redemption is by force of ____
14. The person entitled to exercise the
right of redemption necessarily is the
________ of the property sold and not
any third party
16. An option to buy is different and
distinct from the right of __________
18. The right to redeem becomes functus
officio on the ____ of its expiry, and its
exercise after the period is not one of
redemption but a repurchase.
20. An equitable mortgage is one which
lacks the proper formalities, ____ or
words or other requisites prescribed by
law for a mortgage
 CHAPTER 7

EXTINGUISHMENT OF SALE

Art. 1600. Sales are extinguished by the same causes as all other obligations,
by those stated in the preceding articles of this Title, and by conventional or legal
redemption. (1506) (Civil Code of the Philippines)

Question: What are the modes in extinguishing sales?

Answer: The modes or causes of extinguishing the contract of sale may be

classified into:

Art. 1231 (Civil Code):

(a) By payment or performance;

(b) By the loss of the thing due;

(c) By the condonation or remission of

the debt;

(d) By the confusion or merger of the

rights of creditor and debtor;

1. By the same causes as all other (e) By compensation;

obligations
(f) By novation.

Other causes of extinguishment of

obligations, such as

(g) Annulment

(h) rescission

(i) fulfillment of a resolutory condition,

and

(j) Prescription

a. Cancellation of sale of personal

property payable in installments (Art
2. By the various causes of
1484)
extinguishment under title VI (Sales)
such as:
b. Resale of the goods by the unpaid
seller (Art 1532)
 c. Rescission of the sale by the unpaid
seller (Art. 1534)

d. Rescission by the buyer in case of

partial eviction (Art 1556)

e. Rescission by the buyer in case of

breach of warranty against hidden
defects (Art 1567)

f. Rescission by the buyer of the sale of

animals with redhibitory defects. (Art
1580).

In other words, here are the sub-classifications:

(1) Common or those causes which are also the means of extinguishing all
other contracts like payment, loss of the thing, condonation, etc. (see Art. 1231.);

(2) Special or those causes which are recognized by the law on sales (such
as those covered by Articles 1484, 1532, 1539, 1540, 1542, 1556, 1560, 1567, and
1591.); and

(3) Extra-special or those causes which are given special discussion by the
Civil Code and these are conventional redemption and legal redemption. (see 10
Manresa 300, 303.)

SECTION 1. - Conventional Redemption

Art. 1601. Conventional redemption shall take place when the vendor
reserves the right to repurchase the thing sold, with the obligation to comply with the
provisions of Article 1616 and other stipulations that may have been agreed upon.
(1507) (Civil Code of the Philippines)

Question: What is conventional redemption?

Answer: Conventional redemption is the right which the vendor reserves to

himself, to reacquire the property sold provided he returns to the vendee the price of
the sale, the expenses of the contract, any other legitimate payments made therefor
and the necessary and useful expenses made on the thing sold (Art. 1616.) and
fulfills other stipulations which may have been agreed upon.
Subject Matter of Conventional Redemption

Both real and personal property may be the subject matter of pacto de retro
sales or sales with the right to repurchase although there are certain articles (Arts.
1607, 1611, 1612, 1613, 1614, 1617, 1618.) which apply only to immovable.

Nature of Conventional Redemption

In a decision made by the Supreme Court, in the case of Ordoñez vs.

Villaroman, 78 Phil. 116 [1947], it is purely contractual because it is a right created,
not by mandate of the law, but under an express contract. It is an accidental
stipulation and, therefore, its nullity cannot affect the sale itself since the latter might
be entered into without said stipulation. (Alojado vs. Lim Siongco, 51 Phil. 339
[1927].). It is a real right when registered because it binds third persons. (Art. 1608;
see Mortera vs. Martinez, 14 Phil. 541 [1909].). It is potestative because it depends
upon the will of the vendor. (see Art. 1182.). It is a resolutory condition because
when exercised, the right of ownership acquired by the vendee is extinguished.1
(please see Art. 1179); In a pacto de retro sale, the title or ownership of the property
sold is immediately vested in the vendee a retro, subject only to the resolutory
condition of repurchase by the vendor a retro within the stipulated period. (Solid
Homes, Inc. vs. Court of Appeals, 81 SCAD 546, 275 SCRA 267 [1997].). It is not an
obligation but a power or privilege that the vendor has reserved for himself. (Ocampo
vs. Potenciano, [C.A.] 48 O.G. 2230.). In Diamante vs. Court of Appeals, 206 SCRA
52 [1992], the Supreme Court held that it is reserved at the moment of the perfection
of the contract for if the right to repurchase is agreed upon afterward, there is only a
promise to sell which produces different rights and effects and is governed by Article
1479.

The person entitled to exercise the right of redemption necessarily is the

owner of the property sold and not any third party. (see Quimson vs. Phil. National
Bank, 36 SCRA 26 [1970].)

Unlike a debt which a third person may satisfy even against the debtor‟s will
(please see Art. 1237.), the right of repurchase may be exercised only by the vendor
in whom the right is recognized by contract or by any person in whom the right may
have been transferred. (Gallar vs. Husain, 20 SCRA 186 [1967].)

It gives rise to reciprocal obligation that of returning the price of sale and other
expenses, on the part of the vendor (Art. 1616.);

The plea that the vendee made the delivery of the property to a third person
whom he believed was better entitled to possess it, cannot serve as an excuse for
the failure to comply with said obligation. (Pandaquilla vs. Gaza, 12 Phil. 663 [1909].)
Option to Buy and Right of Repurchase Distinguished

Option to Buy Right of Repurchase

An option to buy is different and distinct
from the right of the repurchase which
must be reserved by the vendor by
stipulation to that effect in the contract
of sale (Article 1601.)
The right of the repurchase is not a right
granted the vendor by the vendee in a
subsequent instrument, but a right
reserved by the vendor in the same
instrument of sale as one of the
stipulations of the contract.
Once the instrument of absolute sale is
executed, the vendor no longer
reserves the right to repurchase, and
any right thereafter granted the vendor
by the vendee in a separate instrument
cannot be a right of return, 26 SCRA
189 [1968]

In the case of Ramos vs. Icasiano, 51 Phil. 343 [1927, it has been held that an
agreement to repurchase becomes a promise to sell when made after an absolute
sale because where the sale is made without such an agreement, the purchaser
acquires the thing sold absolutely, and if he afterward grants the seller the right to
repurchase, it is a new contract entered into by the purchaser, as the absolute owner
already of the object.

Right to Redeem and Right of Repurchase Distinguished.

Right to Redeem Right of Repurchase

The right to redeem becomes functus
officio on the date of its expiry, and its
exercise after the period is not one of
redemption but a repurchase.
In the case of Vda. De Urbano vs.
GSIS, 157 SCAD 133, 367 SCRA 672
[2001], citing Natino vs. Intermediate
Appellate Court, 397 SCRA 323 [2001].)
redemption is defined as the one which
has by force of law; the purchaser at
public auction is bound to accept
redemption. Repurchase, however, of
foreclosed property, after the
redemption period, imposes no such
obligation. After expiry, the purchaser
may or may not re-sell the property but
no law will compel him to do so. And, he
is not bound by the bid price; it is
entirely within his discretion to set a
higher price, for, after all, the property
already belongs to him as owner.‟‟
 Art. 1602. The contract shall be presumed to be an equitable mortgage, in
any of the following cases:

(1) When the price of a sale with right to repurchase is unusually inadequate;

(2) When the vendor remains in possession as lessee or otherwise;

(3) When 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) When the purchaser retains for himself a part of the purchase price;

(5) When the vendor binds himself to pay the taxes on the thing sold;

(6) In 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.

In any of the foregoing cases, any money, fruits, or other benefits to be

received by the vendee as rent or otherwise shall be considered as interest which
shall be subject to the usury laws. (Civil Code of the Philippines)

Question: What is an equitable mortgage?

Answer: An equitable mortgage is 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. (41 C.J. 303; Cachola vs.
Court of Appeals, 208 SCRA 496 [1992].

The “Pacto de Retro” Problem

Article 1602 is a new provision and is one of the suitable remedies (see Arts.
1603-1607.1 ) sponsored by the Code Commission to provide safeguards and
restrictions against the evils of sales with a right of repurchase, commonly called
pacto de retro sales.

The policy of the law is to discourage pacto de retro sales and thereby
prevent the circumvention of the prohibition against usury (see note, infra.) and
pactum commissorium2 (Ching Sen Ben vs. Court of Appeals, 112 SCAD 698, 314
SCRA 762 [1999].)

“One of the gravest problems that must be solved is that raised by the
contract of sale with right of repurchase or pacto de retro. The evils arising
from this contract have festered like a sore on the body politic.” (Report of the
Code Commission, p. 61.)
“It is a matter of common knowledge that in practically all of the so-
called contracts of sale with right of repurchase, the real intention of the
 parties is that the pretended purchase price is money loaned, and to secure
the payment of the loan, a contract purporting to be a sale with pacto de retro
is drawn up. It is, thus, that the provisions obtained in Articles 1859 and 1958
[now Articles 2087 and 2088.] of the present [old] Civil Code which
respectively prohibit the creditor from appropriating the things given in pledge
or mortgage and ordering that said things be sold or alienated when the
principal obligations become due are circumvented.

Furthermore, it is well-known that the practice in these so-called contracts of

sale with pacto de retro is to draw up another contract purporting to be a lease of the
property to the supposed vendor, who pays in money or crops a so-called rent. It is,
however, no secret to anyone that this simulated rent is in truth and fact interest on
the money loaned. In many instances, the interest is usurious. Thus, usury law is
also circumvented.” (Ibid., p. 63.)

Note: The Usury Law (Art. 2655, as amended.) is now “legally inexistent” as
the lender and borrower can agree on any interest that may be charged on the loan
under Central Bank Circular No. 905 approved by the Monetary Board in Resolution
No. 224 dated December 3, 1982. (see Verdejo vs. Court of Appeals, 157 SCRA 743
[1988].)

“Pacto de Retro” and Mortgage, Distinguished.

Pacto de Retro Mortgage

In pacto de retro, ownership is Mortgage, ownership is not transferred

transferred but the ownership is subject but the property is merely subject to a
to the condition that the seller might charge or lien as security for the
recover the ownership within a certain compliance of a principal obligation,
period; usually a loan;

Pacto de retro, there is no obligation In the case of Basilio vs. Encarnacion, 5

resting upon the purchaser to foreclose.
Neither does the vendor have any right
to redeem the property after the maturity
of the debt.
Phil. 360 [1905, the court define
mortgage as the mortgagee has to
foreclose the mortgage if he wishes to
secure a perfect title thereto, and after
the maturity of the debt secured by the
mortgage and before foreclosure, the
mortgagor has a right to redeem.

A vendor who decides to redeem or repurchase a property sold with pacto de

retro in a sense stands as the debtor and the vendee as the creditor of the
repurchase price. (Catangcatang vs. Legayada, 84 SCRA 51 [1978];
Subsequent Sale of Property by Vendor a Retro.

The sole right of the vendor under a pacto de retro agreement is that of
redemption. He has no other interest left in the property which he can transfer.
(Davis vs. Neyra, 24 Phil. 417 [1913].)

Take note that it is said that a sale subsequently made by the vendor to an
innocent purchaser for value could defeat the vendee‟s title and right to possession if
the latter‟s right is not properly registered or annotated.

When Contract with Right to Repurchase Presumed an Equitable Mortgage.

For a presumption of an equitable mortgage to arise, there are two (2)

requisites, namely: that the parties entered into a contract denominated as a contract
of sale with a right of repurchase or purporting to be an absolute sale (Art. 1604.)
and that they intended to secure an existing debt by way of mortgage. (Lustan vs.
Court of Appeals, 78 SCAD 351)

Article 1602 enumerates six distinct and separate circumstances the presence
of any (not a concurrence) of which is sufficient to give rise to the presumption that a
contract, regardless of its nomenclature, is an equitable mortgage in consonance
with the rule that the law favors the last transmission of property rights. (Art. 1378.)

Under Art 1603, in case of doubt, a contract purporting to be a sale with right
of repurchase shall be construed as an equitable mortgage.

It is common knowledge borne out by experience that in nearly all cases, the
zonal valuations of the Bureau of Internal Revenue hardly approximate the fair
market values of real property. (Zamora vs. Court of Appeals, 72 SCAD 833)

But the mere disproportion of the price to the value of the property, in the
absence of other circumstances incompatible with the contract of purchase and sale,
cannot alone justify the conclusion that the transaction is a pure and simple loan.
(Bruce vs. Court of Appeals, 157 SCRA 330 [1988].)

It was held in Cachola vs. Court of Appeals, 208 SCRA 496 [1992],
inadequacy is not sufficient to set aside a sale unless it is grossly inadequate or
purely shocking to the conscience

Where the contract also provides that “It is agreed that the vendor shall have
the right to possess [e.g., as lessee], use and build on the property during the period
of redemption,” there is here an acknowledgment by the vendee of the right of the
vendor to retain possession of the property, making the contract one of loan
guaranteed by a mortgage, not a conditional sale or an option to repurchase.
(Bundalian vs. Court of Appeals, 129 SCRA 645 [1984].) Thus, the Vendor remains
in possession.
 If the transaction is an absolute sale of the property, particularly land, the
vendee ordinarily would assume immediate possession after the execution of the
deed of sale (Capulong vs. Court of Appeals, 130 SCRA 245 [1984].)

Well-settled to the point of being elementary is the doctrine that where the
vendor remains in physical possession of the land sold as lessee or otherwise, the
contract should be treated as an equitable mortgage. The real intention of the parties
is determinative of the true nature of the transaction. (Ramirez vs. Court of Appeals,
97 SCAD 612, 294 SCRA 512 [1998].)

The vendor‟s continued possession of the property allegedly sold taken

together with other circumstances, may even cast serious doubt on the due
execution and genuineness of a contested deed of sale. (Domingo vs. Court of
Appeals, 156 SCAD 819, 367 SCRA 368 [2001].)

In a case, the vendor, under the agreement shall remain in possession of the
property for only one year. It was held that this “did not detract from the fact that the
possession of the property an indicium of ownership, was retained by the private
respondent as the alleged vendor. The period may be deemed as actually the time
allotted for the private respondent for fulfilling its part of the agreement by paying its
indebtedness x x x as may be gleaned from paragraph (f) x x x of the agreement.‟‟
(Oronce vs. Court of Appeals, 100 SCAD 277, 298 SCRA 133 [1998].)

In the cited case of Oronce vs. Court of Appeals (supra.), paragraph (f) of the
deed of sale with assumption of mortgage states that the “full title and possession‟‟ of
the property “shall vest upon the VENDEES upon the full compliance by them with all
the terms and conditions herein set forth.‟‟ It “also evidences the fact that the agreed
“purchase price‟‟ of fourteen million pesos (P14,000,000.00) was not handed over by
petitioners to private respondent upon the execution of the agreement. Only
P5,400,000.00 was given by petitioners to the private respondents, as the balance
thereof was to be dependent upon the private respondent‟s satisfaction of its
mortgage obligation to China Banking Corporation. Notably, the MTC found that
petitioners gave private respondent the amount of P8,500,000.00 that should be paid
to the bank to cover the latter‟s obligation, thereby leaving the amount of
P100,000.00 (P5,400,000.00 + P8,500,000.00 = P13,900,000.00) of the purchase
price still unpaid in the hands of petitioners, the alleged „vendees.‟ Held: “Hence, two
of the circumstances enumerated in Article 1602 are manifest in the Deed of Sale
with Assumption of Mortgage, namely: (a) the vendor would remain in possession of
the property (No. 2), and (b) the vendees retained a part of the purchase price (No.
4). On its face, therefore, the document subject of controversy is a contract of
equitable mortgage.‟‟

In a case, although the tax declarations for the property in question have been
transferred to the vendee‟s name and he has been continuously paying the realty
taxes thereon, the fact that he has made no move for 30 years to oust the vendor
and his heirs from their possession of the property was taken as a circumstance
which falls within the ambit of Article 1602 as a badge of an equitable mortgage.
(Dapiton vs. Court of Appeals, 83 SCAD 82, 272 SCRA 95 [1997].)
 Please take note that in the case of Molina vs. Court of Appeals, 398 SCRA
97 [2002].), the intention of the parties is the decisive factor in evaluating whether or
not the agreement is a simple loan accommodation secured by a mortgage.

In the case of Labasan vs. Lacuesta, supra; Claravall vs. Court of Appeals,
190 SCRA 439 [1990), taking into account the surrounding circumstances, a pacto
de retro sale may be deemed an equitable mortgage where it appears that it was
executed due to the urgent necessity for money of the vendor, notwithstanding that
he was aware of the contents of the contract.

The Supreme Court held in Lanuza vs. de Leon, 20 SCRA 369 [1969].) that
the stipulation in pacto de retro sale that the ownership over the property sold would
automatically pass to the vendee in case no redemption was effected within the
stipulated period, is contrary to the nature of a true pacto de retro sale under which
the vendee acquires ownership of the thing sold immediately upon the execution of
the sale, subject only the vendor‟s right of redemption.

It has also been ruled that a stipulation in a contract sharply escalating the
repurchase price every month enhances the presumption that the transaction is an
equitable mortgage. Its purpose is to secure the return of the money invested with
substantial profit or interest, a common characteristic of loans. (Bundalian vs. Court
of Appeals, 129 SCRA 645 [1984].)

In Balatero vs. Intermediate Appellate Court, 154 SCRA 60 [1987], the

following circumstances existed to prove that the alleged contract of sale was an
equitable mortgage:

1. the vendor remained undisturbed in the possession of the parcel of

land sold, paid the taxes thereon, and mortgaged it to a bank; and

2. The price was unusually inadequate. The fact that the vendee
subsequently executed an affidavit to consolidate his right of ownership over
the subject property was held of no consequence. His alleged “constructive
possession” did not ripen into ownership because the contract was not a
contract of sale. (Balatero vs. Intermediate Appellate Court, 154 SCRA 60
[1987].)

Price in Pacto de Retro Sales Usually Lower

According to the court‟s decision in Barrozo vs. Macaraeg, 83 Phil. 381

[1949], It should be noted that in a contract of sale with pacto de retro, the price
usually is less than in absolute sale for the reason that in the former, the vendor
expects to reacquire or redeem the property sold, or else he may sell his right to
redeem and thus recover the loss he claims suffered because of the inadequacy of
the price.

In another decision, the practice is to fix a relatively reduced price to afford the
vendor a retro every facility to redeem the property. In an absolute sale where the
vendor is permanently giving away his property, he tries to get as compensation its
real value. Hence, the inadequacy of repurchase price of itself cannot be considered
a ground for annulling the contract or justify the conclusion that the contract is one of
equitable mortgage2

Art. 1603. In case of doubt, a contract purporting to be a sale with right to

repurchase shall be construed as an equitable mortgage. (Civil Code of the
Philippines)

Art. 1604. The provisions of Article 1602 shall also apply to a contract
purporting to be an absolute sale. (Civil Code of the Philippines)

Effect where Contract Held as an Equitable Mortgage.

When a contract purporting to be sold with a right to repurchase is held as an

equitable mortgage, the same shall be given effect as if it has complied with the
formal requirements of a mortgage. (Zubiri vs. Quijano, 74 Phil. 47 [1942].)

In Art. 2125, the equitable mortgage, while valid as between the immediate
parties thereto, cannot, however, prevail over a subsequently registered mortgage.

The circumstance that the original transaction is subsequently declared to be

an equitable mortgage means that the title to the mortgaged property which had
been transferred to the supposed vendee actually remained or is transferred back to
the supposed vendor as owner mortgagor conformably to the well-established
doctrine that the mortgagee does not become the owner of the mortgaged property
because the ownership remains with the mortgagor. (Art. 2088.)

In Montevirgen vs. Court of Appeals, 112 SCRA 641 [1982], it is not proper for
a court to declare the property as already owned by the mortgagee upon failure of
the mortgagor to pay his obligation within the required period, as it would produce
the same effect as a pactum commissorium, a forfeiture clause that has traditionally
been held as contrary to good morals and public policy and, therefore, void. The
proper remedy to enforce a transaction declared to be a mortgage is not an action
for consolidation of ownership (see Art. 1607.) but to foreclose the mortgage and sell
the property at public auction.

Neither is a person‟s right as a mortgagor inequity affected by the fact that the
subject property was already titled in the name of the supposed vendee based on
the mistaken notion that the property was sold a retro.

The equitable doctrine that deems a conveyance intended as a security for a

debt to be, in effect, an equitable mortgage, operates regardless of the form of the
agreement chosen by the contracting parties. Equity looks through the form and
considers the substance. No conveyance of land, even if accompanied by
registration in the name of the transferee and the issuance of a new certificate, can
be allowed which will enable a party to escape from the operation of this equitable
doctrine. (ibid.)

“Pacto de retro’’ Sales not Favored.

In Aquino vs. Deala, 63 Phil. 582 [1936], it was held that sales with a right to
repurchase, as defined by the Civil Code (Art. 1602.), are not favored, and the
contract will be construed as a mere loan unless the court can see that if enforced
according to its terms, it is not an unconscionable one.

Art. 1605. In the cases referred to in Articles 1602 and 1604, the apparent
vendor may ask for the reformation of the instrument. (Civil Code of the Philippines)

Question: What is the reformation of the instrument?

Answer: It is a remedy granted by law through which a written instrument is

made or construed to express or conform to the real intention of the parties when
such intention is not expressed in the instrument. (Art. 1359.)

If the parties intended a mortgage but the instrument states that the property
is sold absolutely or with a right of repurchase, the same may be reformed (Art.
1365.) so that the contract should appear to be a mortgage and not an absolute sale
or a pacto de retro sale.

According to Art. 1359, In reformation, there has been a meeting of the minds
between the parties, but the written instrument purporting to embody their agreement
does not express their true intention by reason, for instance, of mistake or fraud.

Where there has been no meeting of the minds, the remedy is an annulment.
(Art. 1390.)

Art. 1606. The right referred to in Article 1601, in the absence of an express
agreement, shall last four years from the date of the contract.

Should there be an agreement, the period cannot exceed ten years.

However, the vendor may still exercise the right to repurchase within thirty
days from the time final judgment was rendered in a civil action on the basis that the
contract was a true sale with right to repurchase. (1508a) (Civil Code of the
Philippines)

Period for Exercise of Right of Redemption.

Article 1606 refers to conventional redemption. It does not apply where the
contract is not one of sale with right of repurchase. (Baluran vs. Navarro, 79 SCRA
309 [1977].)
 It pursuance to Art. 1601, for conventional redemption to take place, the
vendor should reserve, in no uncertain terms, the right to repurchase the thing sold.

Thus, the right to redeem must be expressly stipulated in the contract of sale
so that it may have legal existence.

In Leal vs. Intermediate Appellate Court, 155 SCRA 394 [1987], where the
contract provides: “In case of sale” by the buyer of the property (sold) to the seller,
the Supreme Court held that the stipulation does not grant the right of repurchase.
The quoted phrase should be construed to mean “should the buyer wish to sell”
which is the plain and simple import of the words, and not “the buyer should sell.”

Definite Period of Redemption Agreed Upon.

If the parties agreed on a definite period of redemption, then the right to

redeem must be exercised within the period fixed provided it does not exceed 10
years. (par. 2.)

It has been held that the non-payment by the vendee a retro of the balance of
the purchase price does not suspend the running of the period of redemption agreed
upon (5 years) in the absence of a stipulation to that effect.

In Catangcatang vs. Legayada, 84 SCRA 51 [1978], it was decided that sale

is consummated upon the execution of the document and the delivery of the subject
matter thereof to the vendee. Failure to pay part of the price does not in any way
affect the cause or consideration of the contract.

Where the agreed period exceeds 10 years, the vendor a retro has 10 years
from the execution of the contract to exercise his right of redemption. (Anchuelo vs.
Intermediate Appellate Court, 147 SCRA 434 [1987].)

“From the time final judgment was rendered in a civil action on the basis that
the contract was a true sale with right to repurchase,” the vendor a retro has 30 days
within which to exercise the right to repurchase. (par. 3; see Gonzales vs. De Leon,
4 SCRA 332 [1962]

When Article 1606, par. 3, Not Applicable.

(1) Contract found to be an absolute sale. — Article 1606, paragraph 3 is

not applicable where the contract is found to be an absolute deed of sale, pure and
simple. There could not even be a period of redemption. It refers to cases involving a
transaction where the seller contests or denies that the true agreement is one of sale
with right to repurchase and claims that the real intention was a loan with equitable
mortgage, but the court decides otherwise. (Tapas vs. Court of Appeals, 69 SCRA
349 [1976].)
 (2) Sale known and admitted by the vendor as pacto de retro. — Neither is
said provision applicable where the sale is admittedly one with pacto de retro. If the
rule were otherwise, it would be within the power of every vendor a retro to set at
naught a pacto de retro or resurrect an expired right of repurchase, by simply
instituting an action to reform the contract — known to him to be in truth, a sale with
pacto de retro — into an equitable mortgage. (Felicen, Sr. vs. Orias, 156 SCRA 586
[1987].) The issue or controversy between the parties must concern or involve the
juridical nature or character of the contract in question and the court makes an
express finding that the contract is one of pacto de retro. (see Tapia vs. Court of
Appeals, supra.)

(3) Party abandoned the position that transaction an equitable mortgage

after the judicial declaration of the transaction as a pacto de retro sale. — In Abilla
vs. Goboseng, Jr. (172 SCAD 437, 374 SCRA 51 [2002].), it has been respondents‟
consistent claim that the transaction subject hereof was an equitable mortgage and
not a pacto de retro sale or a sale with the option to buy. Even after the Court of
Appeals declared the transaction to be a pacto de retro sale, respondents
maintained their view that the transaction was an equitable mortgage. Seeing the
chance to turn the decision in their favor, however, respondents abandoned their
theory that the transaction was an equitable mortgage and adopted the finding of the
Court of Appeals that it was a pacto de retro sale. Respondents now insist that they
are entitled to exercise the right to repurchase according to the third paragraph of
Article 1606. Under the facts of the case, the respondents were not allowed to
exercise the right of repurchase.

In the parallel case of Vda. de Macoy vs. Court of Appeals (206 SCRA 244
[1992].), the petitioners raised the defense that the contract was not a sale with right
to repurchase but an equitable mortgage. They further argued as an alternative
defense that even assuming the transaction to be a pacto de retro sale, they can
nevertheless repurchase the property by Article 1606, the third paragraph of the Civil
Code. It was held that the said provision was inapplicable, thus: “The application of
the third paragraph of Article 1606 is predicated upon the bona fides of the vendor a
retro. It must appear that there was a belief on his part, founded on facts attendant
upon the execution of the sale with pacto de retro, honestly and sincerely
entertained, that the agreement was, in reality, a mortgage, one not intended to
affect the title to the property ostensibly sold, but merely to give it as security for a
loan or other obligation. In that event, if the matter of the real nature of the contract is
submitted for judicial resolution, the application of the rule is meet and proper; that
the vendor a retro be allowed to repurchase the property sold within 30 days from
the rendition of a final judgment declaring the contract to be a true sale with right to
repurchase. x x x‟‟

In Abilla, the Court of Appeals correctly noted that if respondents believed that
the transaction was indeed an equitable mortgage, as a sign of good faith, they
should have, at the very least, consigned with the trial court the amount of
P896,000.00, representing their alleged loan, on or before the expiration of the right
to repurchase x x x.‟‟
Date from which Period Reckoned.

Under paragraphs 1 and 2 of Article

1606, the date from which the period
must be counted is the date of the
contract. The date, however, of the
contract must not be taken in a very
material sense. The date of the contract
referred to must be that from which the
contract produces its effects, for
(1) Date of contract.
example, if the contracting parties agreed
on a suspensive condition to determine
the effectiveness of the contract, the
period within which the right to
repurchase must be exercised must not
be counted from the date of the contract
itself but from the time of the fulfillment of
the suspensive condition.

Under paragraph 3 of Article 1606, it has

been held that the period to redeem is
reckoned from the time the judgment
becomes final; and judgment becomes
final after the period to appeal had
lapsed without one having been
perfected. The date of finality of a
(2) Date of the finality of judgment.
decision is entirely distinct from the date
of its entry and the delay in the latter
does not affect the effectivity of the
former, as such is counted from the
expiration of the period of appeal.
(Muñez vs. Court of Appeals, 152 SCRA
197 [1987].)

Effect of Stipulation Extending Period of Repurchase.

(1) After the expiration of the period of redemption. — It is legally

impossible to speak of extension because that which is extinguished cannot be
extended and because the ownership in the vendee is already consolidated, and
becomes absolute.

(2) Before the expiration of the period of redemption. — The original term
may be extended provided that the extension, including the original term, shall not
extend beyond 10 years; otherwise, the extension is void as to the excess.
Reason for Limiting the Period of Redemption.

The question of the period within which the repurchase may be made is
unanimously considered as a question of public interest. It is not a good thing that
the title to property should be left for a long period subject to indefinite conditions of
this nature. For this reason, the intention of the law is restrictive and limitative. (10
Manresa 302.)

“A long term for redemption renders the tenure of property uncertain

and redounds to its detriment, for neither does the precarious holder cultivate
the ground with the same interest as the owner, nor does he properly attend
to the preservation of the building, and since his enjoyment of the property is
temporary, he endeavors above all to derive the greatest benefit therefrom,
economizing to that end even the most essential expenses.” (23 Scaevola
667.)

The Validity of Penal Clause Providing Automatic Termination of Redemption

Period.

In a contract of sale with pacto de retro, the parties may legitimately fix any
period they please, not over ten (10) years, for the redemption of the property sold
by the vendor. The determination of the right of redemption may be made to depend
upon the delinquency of the vendor. (Dimatulac vs. Coronel, 40 Phil. 686 [1919].)

Art. 1607. In the case of real property, the consolidation of ownership in the
vendee under the failure of the vendor to comply with the provisions of article 1616
shall not be recorded in the Registry of Property without a judicial order, after the
vendor has been duly heard. (Civil Code of the Philippines)

Judicial Order for Recording of Consolidation of Ownership.

If real property is involved and the vendor

failed to redeem within the period agreed
upon, the vendee‟s title becomes
irrevocable but the consolidation of
ownership in the vendee shall not be
(1) Necessity. recorded in the Registry of Property
without a judicial order and until after the
vendor has been duly heard. The reason
is that the transaction may not be a
genuine pacto de retro but only an
equitable mortgage.
 The requirement provides additional
safeguards to debtors. The purpose is
not only to have all doubts over the true
nature of the transaction speedily
ascertained and decided but also to
(2) Purpose.
prevent the interposition of buyers in
good faith while such determination is
being made. (Teodoro vs. Arcenas, 110
Phil. 222 [1960]; Cruz vs. Leis, 122
SCAD 693, 327 SCRA 570 [2000].)

Under the former method of

consolidation by a mere extra-judicial
affidavit of the buyer a retro, the latter
could easily cut off any claims of the
seller by disposing of the property after
(3) Former method. such consolidation to strangers in good
faith and without notice. The chances of
the seller a retro to recover his property
would thus be nullified, even if the
transaction were proved to be a
mortgage and not a sale. (Ibid.)

It is plain from Article 1607 that the

acquisition of ownership by a vendee a
retro is automatic (Oviedo vs. Garcia, 40
SCRA 17 [1971].), i.e., once there is a
failure to redeem within the stipulated
period, ownership of the property sold
becomes vested or consolidated by
operation of law on the vendee. Any
other interpretation would be violative of
(4) Acquisition of ownership by
the sanctity of the contract between the
vendee a retro.
parties. (Rosario vs. Rosario, 110 Phil.
394 [1960].) The needed judicial hearing
contemplated by Article 1607 refers not
to the consolidation itself, but merely to
register the consolidation (De Bayquen
vs. Baleoro, 156 SCRA 412 [1986].) or
the consolidated title. (De Guzman, Jr.
vs. Court of Appeals, 156 SCRA 701
[1987].)
 The only effect of the failure of the
vendee a retro to comply with Article
1607 is that the absolute ownership of
the vendee a retro cannot be recorded in
the Registry of Property. It does not
impair his title or ownership for the
method prescribed under Article 1607 as
mentioned above is merely to register the
consolidated title. The nature of a sale
(5) Effect of failure to comply with the
with the right of the repurchase is such
requirement.
that the ownership over the thing sold is
transferred to the vendee upon execution
of the contract, subject only to the
resolutory condition that the vendor
exercises his right of repurchase within
the period agreed upon. (Heirs of
Francisco Parco vs. Haw Pia, 45 SCRA
164 [1972]; see Flores vs. So, 162 SCRA
117 [1988]; Cruz vs. Leis, supra.)

Action to Consolidate Ownership.

(1) Ordinary civil actions. — The consolidation shall be effected through an

ordinary civil action cognizable by the Regional Trial Court wherein the vendor a
retro is made a party defendant. The petition to consolidate ownership under Article
1607 does not partake of the nature of motion, it not being merely an incident to an
action or proceeding.

Article 1607 contemplates a contentious proceeding wherein the vendor a

retro must be named respondent in the caption and title of the petition for
consolidation of ownership and duly summoned and heard. The failure on the part of
the court to cause the service of summons as prescribed (in Rule 14, Rules of Court)
is sufficient cause for attacking the validity of the judgment and subsequent orders
on jurisdictional grounds. (Yturralde vs. Court of Appeals, 43 SCRA 313 [1972];
Ongoco vs. Judge, CFI of Bataan, 15 SCRA 30 [1965]; Crisologo vs. Centeno, 26
SCRA 68 [1968]; Ramos vs. Court of Appeals, 180 SCRA 635 [1989].)

(2) Registration proceedings. — Where the land has been sold under
pacto de retro, the vendor a retro may apply for the original registration of the land.
However, should the period for redemption expire during the pendency of the
registration procedure and ownership to the property consolidated in the vendee a
retro, the latter shall be substituted for the applicant and may continue the
proceedings. (Sec. 14, par. 2, Pres. Decree No. 1529 [Property Registration
Decree].)
 Art. 1608. The vendor may bring his action against every possessor whose
right is derived from the vendee, even if in the second contract no mention should
have been made of the right to repurchase, without prejudice to the provisions of the
Mortgage Law and the Land Registration Law with respect to third persons. (1510)
(Civil Code of the Philippines)

Nature of Right to Redeem.

(1) A right, not an obligation. — The right to redeem is what it is: a right,
not an obligation; therefore, consignation (Art. 1256.) is not required to preserve the
right to redeem. Thus, the allegation that the offer to redeem was not sincere
because there was no consignation of the purchase price is devoid of merit. But to
redeem, there must, of course, be payment or consignation. (Immaculate vs.
Navarro, 160 SCRA 211 [1988].)

(2) A real right. — Under the provision of this article, it can be concluded
that the right to repurchase is real and should not be considered personal. The
exception is, however, made to the provisions of the Mortgage Law and the Land
Registration Law concerning third persons. (10 Manresa 314.) This means that the
vendor a retro cannot exercise his right of redemption against a subsequent
transferee for value and in good faith if his right is not properly registered or
annotated. (see Art. 1544; see Lucido vs. Calupitan, 27 Phil. 148 [1914]; Alarcon vs.
Esteva, 16 SCRA 123 [1966].)

Note: The Spanish Mortgage Law has been discontinued by Presidential

Decree No. 892. The discontinuance is reiterated by Presidential Decree No. 1529,
the latter being the new Property Registration Decree which superseded Act No.
196, as amended, the Land Registration Law.

Art. 1609. The vendee is subrogated to the vendor's rights and actions.
(1511) (Civil Code of the Philippines)

Rights Acquired by Vendee a Retro.

(1) Vendee subrogated to the vendor’s rights. — Subrogation transfers to

the person subrogated the credit with all the rights thereto appertaining. (Art. 1303.)
The above article is logical because a pacto de retro sale transfers ownership to the
vendee although subject to the condition of repurchase. As the owner, the vendee,
for example, may transfer or alienate his right to a third person, mortgage the
property, enjoy the fruits thereof, recover the property against every possessor, and
perform all other acts of ownership subject only to the right of redemption of the
vendor. Of course, the vendor cannot transfer ownership if he is not the real owner.

(2) Right to eject vendor. — Prior possession by the vendee a retro of the
property is not a condition precedent in an unlawful detainer action against the
vendor a retro who, after having failed to redeem, and title in the vendee a retro had
been consolidated, refused to vacate the property. (Pharma Industries, Inc. vs.
Pajarillaga, 100 SCRA 339 [1980].)

Art. 1610. The creditors of the vendor cannot make use of the right of
redemption against the vendee, until after they have exhausted the property of the
vendor. (1512) (Civil Code of the Philippines)

Right of Vendor’s Creditors to Redeem.

This article is a practical application of Article 1177 permitting creditors to

exercise the rights and actions of their debtor after exhausting his properties to
satisfy their claims. (see Manresa 331.) The right to redeem being property, it is
answerable for the debts of the vendor provided the vendor‟s properties are first
exhausted. The exhaustion must be established to the satisfaction of the vendee.12

Article 1610 refers to all kinds of creditors, whether ordinary or preferred,

except those in whose favor exists a mortgage or antichresis upon the very property
sold recorded before the sale. They need not exhaust. All these latter creditors have
to do is to foreclose their rights, ignoring the rights of the vendee. (see 10 Manresa
325-326.)

Art. 1611. In a sale with a right to repurchase, the vendee of a part of an

undivided immovable who acquires the whole thereof in the case of article 498, may
compel the vendor to redeem the whole property, if the latter wishes to make use of
the right of redemption. (1513) (Civil Code of the Philippines)

Redemption in Sale of Part of Undivided Immovable.

The purpose of the above article (and Arts. 1612-1615.) is to discourage co-
ownership which is recognized as undesirable, since it does not encourage the
improvement of the property coowned.

(1) A co-owner may demand the partition of the thing owned in common
insofar as his share is concerned. (Art. 494.)

(a) If the thing is essentially indivisible, it may be allotted to the co-

owner who shall indemnify the others.

(b) If the co-owners cannot agree that the thing is allotted to one of
them, it shall be sold and its proceeds distributed. (Art. 498.)

(2) In either case, the vendee who acquires the whole of an undivided
immovable a part of which is subject to a right to repurchase, has a right to demand
that the vendor a retro, who likes to exercise his right of redemption, redeem the
whole property.
 Art. 1612. If 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.

The 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. (1514) (Civil Code of the Philippines)

Art. 1613. In the case of the preceding article, the vendee may demand of all
the vendors or co-heirs that they come to an agreement upon the purchase of the
whole thing sold; and should they fail to do so, the vendee cannot be compelled to
consent to a partial redemption. (1515) (Civil Code of the Philippines)

Redemption in Joint Sale by Co-owners/Co-heirs of Undivided Immovable.

(1) The co-owners of an undivided immovable sold by them jointly or

collectively and in the same contract with the right to repurchase, can exercise such
right only as regards their respective shares. (Art. 1612, par. 1.)

(2) Similarly, the co-heirs of the vendor of an undivided immovable can

exercise the right of redemption only for the respective portions they have inherited.
(Ibid., par. 2.)

(3) The vendee a retro can refuse partial redemption; he may require all the
vendors or all the heirs to redeem the entire property or to agree to its redemption by
any one of them. (Art. 1613.) This right is given to the vendee in line with the object
of the law (see Art. 1620.) to put an end to co-ownerships whenever possible.

(4) Under Article 1620 (infra.), the right of a co-owner who chooses not to
redeem accrues to the benefit of the others. The extent of the share of the
redeeming co-owner is not taken into account except as provided in the second
paragraph thereof.

Effect of Redemption by Co-owner of Entire Property.

Under Article 1612, a co-owner cannot redeem more than his share in the co-
ownership. The redemption by a co-owner of the property in its entirety, shouldering
the expenses therefore, does not make him the owner of all of it. In other words, it
does not put to end the existing state of co-ownership.

Article 1613 does not provide for a mode of terminating a co-ownership nor
does the fact that the redeeming co-owner has succeeded in securing title over a
parcel of land in his name terminate the existing co-ownership. Registration of
property is not a means of acquiring ownership. It operates as a mere notice of the
existing title, that is if there is one. (Adill vs. Court of Appeals, 157 SCRA 455 [1988];
see Paulmian vs. Court of Appeals, 215 SCRA 866 [1992].)
 Art. 1614. 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 vendee cannot compel him to redeem the whole
property. (1516) (Civil Code of the Philippines)

Redemption in Separate Sales by Co-owners of Undivided Immovable.

Although it is the policy of the law to avoid indivision, it would be unjust, if the
sale was made separately and independently, to require the co-owners to come to
an agreement about the repurchase of the thing sold, and certainly, it would be
worse to deprive them of their right in case they fail to agree.

The very purpose of the article is to prevent such injustice. (10 Manresa 332.)

Art. 1615. If the vendee should leave several heirs, the action for redemption
cannot be brought against each of them except for his own share, whether the thing
be undivided, or it has been partitioned among them.

But if the inheritance has been divided, and the thing sold has been awarded
to one of the heirs, the action for redemption may be instituted against him for the
whole. (1517) (Civil Code of the Philippines)

Redemption against Heirs of Vendee.

The vendor a retro can exercise the right to redeem against the heirs of the
vendee a retro with respect only to their respective shares, whether the thing be
undivided or it has been partitioned among them.

However, if by partition the entire property has been adjudicated to one of the
heirs, the vendor can exercise the right to redeem against said heir for the whole.

Art. 1616. The vendor cannot avail himself of the right of repurchase without
returning to the vendee the price of the sale, and in addition:

(1) The expenses of the contract, and any other legitimate payments made by
reason of the sale;

(2) The necessary and useful expenses made on the thing sold. (1518) (Civil
Code of the Philippines)

The Obligation of Vendor a Retro in Case of Redemption.

Article 1616 defines the obligations of the vendor who desires to exercise his
right to repurchase. (see Gargallo vs. Duero, 1 SCRA 134 [1961].) He must return to
the vendee a retro:
 (1) The price. — The law speaks of the “price of the sale” and not the
value of the thing. It is lawful, however, for the parties to agree that the price to be
returned will be more or less than the original sum paid by the vendee (10 Manresa
338-339.);

(2) Expenses of contract and other legitimate expenses. — If the expenses

for the execution and registration of the sale were paid by the vendee, the same
shall be reimbursed by the vendor. (see Art. 1497.) But they need not be paid at the
very time of the exercise of the right since they are unknown amounts. They may be
paid later. The same is true of necessary and useful expenses (Decision of Supreme
Court of Spain, Dec. 31, 1897; 10 Manresa 338.); and

(3) Necessary and useful expenses. — The first are expenses incurred for
the preservation of the thing or those which seek to prevent the waste, deterioration,
or loss of the thing, while the second is which increase the value of the thing or
create improvements thereon, such as a house.

(a) The necessary expenses which must be repaid to the vendee are
not those which are ordinary and simple expenses of preservation because
these expenses are incident to the enjoyment of the thing and should be
borne by the vendee. (10 Manresa 339-342.)

(b) Useful expenses are refunded to the vendee a retro because he is

considered a possessor in good faith. (Art. 546, par. 2.)

(c) The vendor a retro is given no option to require the vendee a retro
to remove the useful improvements on the land subject of the sale a retro,
unlike that granted the owner of a land under Articles 546 and 54713 of the
Civil Code.

(d) The vendor a retro must pay for the useful improvements
introduced by the vendee a retro; otherwise, the latter may retain possession
of the land until reimbursement is made. (Gargollo vs. Duero, 1 SCRA 1311
[1961].) It has been held, however, that considering the purpose of the law on
homesteads (Public Land Act, C.A. No. 141, as amended.), which is to
conserve ownership in the hands of the home steader and his family, Article
1616 should be construed in conjunction with Articles 546 and 547.To allow a
vendee a retro of a homestead the right of retention until payment of useful
expenses is made by the redemptioner would be to render nugatory the right
of repurchase granted by law to a homesteader because all a vendor a retro
can do to prevent repurchase is to build something on the homestead beyond
the capacity to pay of the homesteader who seeks to repurchase. (Calagan
vs. CFI of Davao, 95 SCRA 498 [1980].)

(e) The payment of land tax has been as neither necessary nor useful.
It is a charge against the property. The object of the land tax is to contribute to
the expenses of the government in the protection of the vendee‟s right as
owner and it is but just that he should bear said charges. (Cabigao vs.
Valencia, 53 Phil. 646 [1929].) Taxes on the property may be considered
 necessary expenses in the sense that if they are not paid, the property may
be sold for tax delinquency or forfeited to the government.

Offer to Redeem and Tender of Payment Generally Required.

(1) Offer to redeem must be bona fide. — The mere declaration of the
vendor of his intention to exercise the right of repurchase is not sufficient to preserve
the right of redemption. The law requires that the offer must be a bona fide one and
accompanied by an actual and simultaneous tender of payment or consignation of
the full amount agreed upon for repurchase. (see Torrijos vs. Crisologo, 6 SCRA
1984 [1962]; Catangcatang vs. Legayada, 84 SCRA 51 [1978].) Thus, the mere
sending of letters by the vendor expressing his desire to repurchase without an
accompanying tender of the redemption price falls short of the requirement of the
law. (Uy Lee vs. Court of Appeals, 68 SCRA 196 [1975]; see State Investment
House, Inc. vs. Court of Appeals, 215 SCRA 734 [1992].)

(2) When tender of payment not necessary. — Neither is it necessary to

tender payment of the repurchase price if the vendee has already flatly refused to
reconvey. (Gonzaga vs. Go, 69 Phil. 778 [1940]; Catalan vs. Rivera, [C.A.] 45 O.G.
4538; Torrijos vs. Crisologo, supra; Lafont vs. Pascasio, 5 Phil. 391 [1905]; Fructo
vs. Fuentes, 15 Phil. 362 [1910].) This rule is premised on the ground that under
such circumstance the vendee will also refuse the tender of payment. (Uy Lee vs.
Court of Appeals, 68 SCRA 196 [1975].) Where the vendor a retro had consigned or
deposited in court the redemption price when the action was filed, prior tender could
be excused. (see De la Cruz vs. Marcelino, 84 Phil. 709 [1949]; Torio vs. Del
Rosario, 93 Phil. 800 [1953]; Torrijos vs. Crisologo, supra.)

If the tender is made after the period of repurchase has expired, its
acceptance would amount only to a promise to sell on the part of the vendee
because the right of repurchase having expired, there was no more right that could
have been preserved. (Tan Queto vs. Vda. de Maquiling, 2 C.A. Rep. 150.)

Consignation of Price Generally not Required.

It is not a legal requisite for the vendor to make a consignation or judicial

deposit of the price if the offer or tender is refused. (Canuto vs. Mariano, 37 Phil. 849
[1918]; see Rumbaoa vs. Arzaga, 84 Phil. 812 [1949].) He is not a debtor. He has a
right, not an obligation, to repurchase. (Villegas vs. Capistrano, 9 Phil. 416 [1907].) It
is enough that a sincere and genuine tender of payment is made and refused,
although consignation may serve to provide additional security for the vendor and to
indicate the veracity of his desire to exercise the right of repurchase. (Legaspi vs.
Court of Appeals, 142 SCRA 82 [1986].)

(1) Where right of repurchase judicially declared. — Where the right of the
vendor a retro to repurchase had been judicially declared to exist, the effect of the
judgment is to definitely fix the relation of the vendor a retro and the vendee a retro,
as that of debtor and creditor, respectively, in the amount and within the period fixed
in the judgment. Should the vendee (creditor) refuse to accept the amount of the
redemption price offered, the vendor (debtor) must deposit it in court. (Torrijos vs.
Crisologo, supra.)

(2) In case of absence of the vendee a retro. — In such case, the right of
redemption may still be exercised as a vendor who decides to redeem a property
sold with pacto de retro, in a sense, stands as the debtor and the vendee as the
creditor of the purchase price. The vendor can and should exercise his right of
redemption against the vendee by filing a suit against him and making a
consignation with the court of the amount due for redemption (Catangcatang vs.
Legayada, supra; Rivero vs. Rivero, 80 Phil. 802 [1948].), not that deposit or
consignation is legally essential to preserve his reserved right of redemption but
because he should be regarded as having done that which should have been done
to terminate the right of the vendee over the property where the redemption price is
already due and payable. (Rumbaoa vs. Arzaga, supra; see Legaspi vs. Court of
Appeals, supra.)

Art. 1617. If at the time of the execution of the sale there should be on the
land, visible or growing fruits, there shall be no reimbursement for or prorating of
those existing at the time of redemption, if no indemnity was paid by the purchaser
when the sale was executed.

Should there have been no fruits at the time of the sale and some exist at the
time of redemption, they shall be prorated between the redemptioner and the
vendee, giving the latter the part corresponding to the time he possessed the land in
the last year, counted from the anniversary of the date of the sale. (1519a) (Civil
Code of the Philippines)

Right of Parties as to Fruits of Land.

This article applies only when the parties have not provided for any sharing
arrangement with respect to the fruits existing at the time of redemption. (Almeda vs.
Daluro, 79 SCRA 327 [1977].) It refers only to natural and industrial fruits. Civil fruits
are deemed to accrue daily and belong to the vendee in that proportion.14

(1) If there were fruits at the time of the sale and the vendee paid for them, he
must be reimbursed at the time of redemption as the payment forms part of the
purchase price.

(2) If no indemnity was paid by the vendee for the fruits, there shall be no
reimbursement for those existing at the time of redemption. (par. 1.)

(3) If the property had no fruits at the time of the sale and some exist at the
time of redemption, they shall be apportioned proportionately between the
redemptioner and the vendee, giving the latter a share in proportion to the time he
possessed the property during the last year counted from the anniversary of the date
of the sale (par. 2.) to compensate the vendee for his expense. (see Lustado vs.
Pinol, [unrep.] 102 Phil. 1164 [1958].)

The same rule, it is believed, is also applicable if there were fruits at the time
of the sale and the vendee paid for them.

Art. 1618. The vendor who recovers the thing sold shall receive it free from all
charges or mortgages constituted by the vendee, but he shall respect the leases
which the latter may have executed in good faith, and in accordance with the custom
of the place where the land is situated. (1520) (Civil Code of the Philippines)

Right of Vendor a Retro to Recover Thing Sold Free from Charges.

The vendee a retro may alienate, encumber, or perform other acts of

ownership over the thing sold. But his ownership being revocable upon redemption,
all acts done by him are also revocable. Thus, he may borrow money and mortgage
the property but when the vendor a retro redeems, the vendee a retro is obliged to
redeem the mortgage. The vendor has the right to receive the property in the same
condition in which it was at the time of the sale.

The law, however, establishes an exception with respect to leases which the
vendee may have entered into in good faith according to the custom of the place
where the land is located.15 The exception is dictated by public convenience in the
interest of agriculture.

SECTION 2. - Legal Redemption

Art. 1619. Legal redemption is the right to be subrogated, upon the same
terms and conditions stipulated in the 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. (1521a) (Civil Code of the Philippines)

Legal Redemption Defined.

Article 1619 gives the definition of legal redemption. As the word “thing” is
employed without qualification, the right applies to both movable and immovable
property. (U.S. vs. Caballero, 23 Phil. 65 [1912].)

Transfer of Ownership by Onerous Title.

Subrogation transfers to the person subrogated the rights pertaining to

another. (Art. 1303.) Note that legal redemption may take place not only in purchase
or dation in payment but in any other transfer of ownership by onerous title. It has
been held, however, that it cannot take place in barter and in the transmission of
property by hereditary title. (Decision of the Supreme Court of Spain, July 9, 1903
and June 7, 1915; 10 Manresa 319.)

Evidently, the right is not available where there is only a mortgage or lease.

Dation in Payment Defined.

Dation in payment or dacion en pago is the transmission of the ownership of a

thing by the debtor to the creditor as the accepted equivalent of the performance of
an obligation. (8 Manresa 314; see Art. 1245.) In this special mode of payment, the
debtor offers another thing to the creditor who accepts it as equivalent of payment of
an outstanding debt.

Nature of Dation in Payment.

(1) Sale of thing. — The undertaking partakes in one sense of the nature
of sale,1 that is, the creditor is really buying the thing or property of the debtor,
payment for which is to be charged against the debtor‟s debt. As such, the essential
elements of a contract of sale, namely, consent, object certain, and cause or
consideration must be present. It is, therefore, governed by the law of sales. 2

(2) Novation of an obligation. — In its modern concept, what actually takes

place in dacion en pago is an objective novation of the obligation where the thing
offered as an accepted equivalent of the performance of an obligation is considered
as the object of the contract of sale, while the debt is considered as the purchase
price. (Filinvest Credit Corporation vs. Phil. Acetylene Co., Inc., 111 SCRA 421
[1982].)

Basis and Nature of Right of Legal Redemption.

(1) The nature of conventional and legal rights of redemption is identical,

except for the source of the right. While conventional redemption arises from the
voluntary agreement of the parties, legal redemption proceeds from law. (see
Alarcon vs. Esteva, 16 SCRA 123 [1966].)

The concept of legal redemption may be converted into one of conventional

redemption. Thus, where there was voluntary agreement of the parties, consisting of
extensions of the redemption period granted at the request of the vendors followed
by commitment by them to pay the redemption price at a fixed date, it was held that
the concept of legal redemption is converted by the parties into one of conventional
redemption such that it generated binding contracts when approved by the vendee.
In such case, the period of redemption is that agreed upon by the parties. (Lazo vs.
Republic Surety & Insurance Co., Inc., 31 SCRA 329 [1970].)

(2) The right of legal redemption is not predicated on proprietary right but on a
bare statutory privilege to be exercised only by the person named in the statute. In
other words, the statute does not make actual ownership at the time of sale or
redemption a condition precedent, the right following the person and not the
property. (Magno vs. Viola and Sotto, 61 Phil. 80 [1934].) Under the law (Rules of
Court, Rule 39, Sec. 30.), the property sold subject to redemption may be redeemed
by the judgment debtor or his successor-in-interest in the whole or any part of the
property. In an extra-judicial foreclosure sale, the mortgagor, his successorsin-
interest, judgment creditor or any person having a lien on the property subsequent to
the mortgage, may redeem the same. (Act No. 3155, Sec. 6.)

(3) Legal redemption is in the nature of a mere privilege created partly for
reason of public policy and partly for the benefit and convenience of the
redemptioner to afford him a way out of what might be a disagreeable or
inconvenient association into which he has been thrust. It is intended to minimize co-
ownership. (Basa vs. Aguilar, 117 SCRA 128 [1982]; Tan vs. Court of Appeals, 172
SCRA 660 [1989].) It works only one way in favor of the redemptioner. Not having
parted with anything, he can compel the purchaser to sell, but cannot be compelled
by him to buy. (Villasor vs. Medel, [C.A.] No. 8677, Sept. 29, 1948.)

Instances of Legal Redemption.

(1) Under the Civil Code, the instances of legal redemption are found in
Articles 1620, 1621, 1622, 1634 (infra.), and 1088.

Article 1088 provides:

“Should any of the heirs sell his hereditary rights to a stranger before
the partition, any or all of the 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 of the vendor.”

Article 1088 refers to sale of hereditary rights, and not to specific properties,
for the payment of the debts of the decedent‟s estate. In the administration and
liquidation of the estate of a deceased person, sales ordered by the probate court for
payment of debts are final and not subject to legal redemption. Unlike in ordinary
execution sales, there is no legal provision allowing redemption in the sale of
property for the payment of debts of a deceased person. (Plan vs. Intermediate
Appellate Court, 135 SCRA 270 [1985].)

(2) Under special laws, the following are instances of legal redemption:

(a) Redemption by owner of real property sold for delinquent taxes.

The period is within one year from the date of sale (R.A. No. 7160 [Local
Government Code], Sec. 261.);

(b) Repurchase by homesteader of homestead sold under the Public

Land Act. The period is five years (Com. Act No. 141 [Public Land Law], Sec.
119; see Tupas vs. Damasco, 132 SCRA 593 [1984].);
 (c) Redemption by judgment debtor or redemptioner of real property
sold on execution. The period is twelve months (Rules of Court, Rule 39, Sec.
30.);

(d) Redemption by mortgagor after mortgaged property has been

judicially foreclosed and sold. The period is ninety days but before
confirmation of sale by the court. (Ibid., Rule 68, Sec. 3.) In all cases of extra-
judicial foreclosure sale, the mortgagor may redeem the property within one
year from the date of registration of the sale (see Act No. 3135, Sec. 6); and

(e) Redemption by an agricultural lessee of landholding sold by the

landowner. The period is 180 days from notice in writing which shall be served
by the vendee on all lessees affected and the Department of Agrarian Reform
upon the registration of the sale. (R.A. No. 3844, as amended [Code of
Agrarian Reform], Sec. 12.) This right has priority over any other right of
redemption, like the right of redemption of a coowner under Article 1620.

Art. 1620. A co-owner of a thing may exercise the right of redemption in case
the shares of all the other co-owners or of any of them, are sold to a third person. If
the price of the alienation is grossly excessive, the redemptioner shall pay only a
reasonable one.

Should two or more co-owners desire to exercise the right of redemption, they
may only do so in proportion to the share they may respectively have in the thing
owned in common. (1522a) (Civil Code of the Philippines)

Right of Legal Redemption of Co-owner.

The right of legal redemption among co-owners presupposed of course, the

existence of a co-ownership. The following are the requisites for the right to exist:

(1) There must be co-ownership of a thing;

(2) There must be alienation of all or of any of the shares of the other co-
owners;

(3) The sale must be to a third person or stranger (Art. 1620.), i.e., a non-co-
owner; and

(4) The sale must be before partition.

The right of a co-owner to legal redemption is based on his status as such

independently of the size of his share. (Butte vs. M. Uy & Sons, Inc., 4 SCRA 527
[1961].) It can no longer be invoked where there had been an actual partition of the
property so that co-ownership no longer exists. (Salantandol vs. Reyes, 162 SCRA
568 [1988].) Redemption by a co-owner within the period prescribed by law (see Art.
1623.) inures to the benefit of all the other co-owners. (Mariano vs. Court of Appeals,
41 SCAD 927, 222 SCRA 736 [1993].)

By Whom and Against Whom Right may be Exercised.

(1) A co-owner has the legal right to sell, assign, or mortgage his ideal share
in the property held in common. (see Art. 493.) By the very nature of the right of legal
redemption, a co-owner‟s right to redeem is invoked only after the shares of the
other co-owners are sold to a third party or stranger.

(2) Co-owners have no right of legal redemption against each other to whom
the law grants the same privilege, but only against a third person. (Estrada vs.
Reyes, 33 Phil. 31 [1915]; Reyes vs. Concepcion, 190 SCRA 171 [1990].) A third
person, within the meaning of Article 1620, is anyone who is not a co-owner. Article
1620 is intended to minimize co-ownership. (Basa vs. Aguilar, 117 SCRA 128
[1982].)

(3) Should any of the heirs sell his hereditary right to a stranger before
partition, any or all of the co-heirs may be subrogated to the rights of the purchaser
by reimbursing him for the purchase price, provided it be done within the period of
one (1) month to be counted from the time they were notified in writing of the sale by
the vendor. (Art. 1088.) Once the portion corresponding to each heir is fixed, the co-
heirs turn into co-owners and their right of legal redemption should be governed by
Articles 1620 and 1623. (Saturnino vs. Paulino, 97 Phil. 51 [1955].)

(4) The right of legal redemption is not granted solely and exclusively to the
original co-owners but applies to those who subsequently acquire their respective
shares while the community subsists. (see Felices vs. Colegado, 35 SCRA 173
[1970].) There is nothing in Article 1620 which, expressly or by inference, limits the
right of redemption to the original co-owners. Moreover, this interpretation is in
accordance with the spirit of the law. (Viola and Roura vs. Tecson, 43 Phil. 808
[1922].)

When Right Cannot be Invoked.

Article 1620 applies only if the co-ownership still exists. (see Mendoza vs.
Court of Appeals, 199 SCRA 778 [1992]; Abalos vs. Court of Appeals, 42 SCAD 569,
223 SCRA [1993].) It presupposes the existence of a co-ownership at the time the
conveyance is made by a co-owner and when it is demanded by the other co-owner
or co-owners. (Uy vs. Court of Appeals, 63 SCAD 243, 246 SCRA 703 [1995].)

(1) Thing owned in common partitioned. — The right given to a co-heir or

co-owner by Article 1620 in case any of the other coheirs or co-owners sells his
share to a third person cannot be invoked where the sale was made after the
properties owned in common had been partitioned, judicially or extra-judicially.
(Umengan vs. Butacan, 7 SCRA 311 [1963].) If a plan of partition has been agreed
upon though not approved at the time of the sale, its approval by the court relates
back to the date of the plan, and property sold after such date is not subject to legal
redemption. (De Jesus vs. Daza, 77 Phil. 152 [1946].)

(2) Shares of all co-owners sold. — The provision covers the case where
some or one of the co-owners sell(s) their/his share(s) in the property owned in
common but not the case where all the coowners have sold their shares. (Tan Queto
vs. Candongo, 106 SCRA 199 [1981].)

(3) Thing owned in common had been offered for sale by all co-owners. —
Neither can the right be invoked where the petitioners, together with the other co-
owners, had previously offered for sale the entire property and after the respondent
agreed to purchase the same and advanced a considerable amount of money, said
petitioners wanted to renege on their agreement to sell and instead, offered to
redeem from the respondent portion of the property sold by the other co-owners to
the respondent. (Dominguez vs. Lee, 155 SCRA 703 [1987].)

Price of Redemption.

(1) Reasonable price. — The law requires the redemptioner to pay only a
reasonable price if the price of the alienation is grossly excessive. This is to prevent
collusion between the buyer and the selling co-owner. The right of the redemptioner
to pay a reasonable price under Article 1620 does not excuse him from the duty to
make proper tender of the price that can be honestly deemed reasonable under the
circumstances, without prejudice to final arbitration by the courts, nor does it
authorize said redemptioner to demand that the vendee accept payment by
installments. (Torrijos vs. Crisologo, 6 SCRA 186 [1962].) There is no legal
redemption in case of a mere least. (De La Cruz vs. Marcelino, 84 Phils. 709 [1949];
Fernandez vs. Terun, 391 SCRA 653 [2002].)

(2) Price stated in the deed of sale. — The practice of understating the
consideration of transactions for the purpose of evading taxes and fees due the
government is violative of public policy and injurious to public interest and must be
condemned and the parties guilty thereof must be made to suffer the consequences
of their ill-advised agreements to defraud the State. In a case where only P30,000
was the price stated in the deed of sale of the interest of a co-owner in a piece of
land “to minimize the payment of the registration fees, stamps and sales tax,” the
court ruled that the co-owner exercising the right of legal redemption should pay only
P30,000, although much more had been paid by the buyer. (Doromal vs. Court of
Appeals, 66 SCRA 575 [1975].)

(3) Amount actually paid by the buyer. — On the other hand, if by false
representations the buyer obtains from the redemptioner an amount (e.g., P100,000)
greater than the price which he actually paid (e.g., P80,000), the co-owner who
made the repurchase can recover from the buyer the difference (P20,000) in an
appropriate action. (see Lim Tuico vs. Cu Unjieng, 21 Phil. 493 [1912].)
Purpose of the Grant of Right to Co-owners.

The purpose of the law in establishing the right of legal redemption between
co-owners is to reduce the number of participants until the community is done away
with, as being a hindrance to the development and better administration of the
property. This reason exists while the community subsists and the participants
continue to be so whether they be the original coowners or their successors. (Viola
and Roura vs. Tecson, 43 Phil. 808 [1922]; see Estrada vs. Reyes, 33 Phil. 31
[1915]; Caram vs. Court of Appeals, 101 Phil. 315 [1957].)

Art. 1621. The owners of adjoining lands shall also 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.

This right is not applicable to adjacent lands which are separated by brooks,
drains, ravines, roads and other apparent servitudes for the benefit of other estates.

If two or more adjoining owners desire to exercise the right of redemption at

the same time, the owner of the adjoining land of smaller area shall be preferred;
and should both lands have the same area, the one who first requested the
redemption. (1523a) (Civil Code of the Philippines)

Rights of Legal Redemption of Adjacent Owners of Rural Lands.

The following are the requisites for the exercise of the right under this article:

(1) Both the land of the one exercising the right of redemption and the land
sought to be redeemed must be rural;

(2) The lands must be adjacent;

(3) There must be an alienation;

(4) The piece of rural land alienated must not exceed one (1) hectare;

(5) The grantee or vendee must already own any other rural land; and

(6) The rural land sold must not be separated by brooks, drains, ravines,
roads and other apparent servitudes from the adjoining lands.

The lands mentioned in paragraph 2 of Article 1621 are not really adjacent.

When the land exceeds one (1) hectare, the adjacent owners are not given
the right of legal redemption because this may lead to the creation of big landed
estates. (10 Manresa 372.) The right cannot be exercised against a vendee if he is
also an adjacent owner. The last paragraph of Article 1621 refers to a situation
where the vendee of a piece of rural land is not an adjoining owner.
Meaning of Rural Lands.

The word “rural” has been defined as relating to or constituting tenement in

land adopted and used for agricultural or pastoral purposes. It is one which,
regardless of site, is principally used for the purpose of obtaining products from the
soil as opposed to urban lands, which are principally for the purpose of residence.
(Fabia vs. Intermediate Appellate Court, 133 SCRA 364 [1984], citing 3 Castan 124.)

Use of Property a Determining Factor.

The above definition is correct insofar as the word is ordinarily and commonly
used or understood. However, in giving an adjoining owner the right to redeem “a
piece of rural land,” the word “rural,” as used in Article 1621, must be construed in
consonance with the meaning intended by the framers of the law. The reason for the
law in question is to foster the development of agricultural areas by adjacent owners
who may desire the increase for the improvement of their own land. (infra.)

In view of the legislative objective, the “use” of property for agricultural

purposes is essential in order that the same may be characterized as rural land for
purposes of legal redemption under Article 1621. The use and destination of the land
and the customs of each town will be the data that ought to be taken into account in
order to decide firmly the cases where the qualification appears doubtful. (Ibid., citing
10 Manresa 372.)

Preference as Between Two or More Adjacent Owners of Rural Lands.

In case two or more adjacent owners desire to exercise the right of

redemption, the law gives preference to the owner of the adjoining land of smaller
area but if both lands have the same area, to the one who first requested the
redemption.

Under Article 1620, the co-owners exercise their right of redemption pro rata.

Purpose of the Grant of Right to Owners of Adjoining Rural Lands.

(1) To benefit adjacent owners and public weal as well. — The object of
the lawmaker in allowing the redemption by adjacent owners is to prevent an
adjoining real estate belonging to another owner or owners, the area of which does
not exceed one hectare, from passing into the hands of a person other than
someone among the adjacent owners whereby the property of the latter would be
divided without benefit to the public weal and perhaps to the prejudice of the
adjacent owners themselves who are interested in preserving the integrity of their
respective properties and making use of the alienated property for the improvement
and development of their own lands. (Del Pilar vs. Catindig, 35 Phil. 263 [1916].)
 (2) To avoid difficulties in cultivation. — “An estate of not more than a
hectare in area does not, as a general rule, produce enough to keep one family; its
cultivation cannot be accomplished economically, as the agricultural implements
used have to be brought in across lands belonging to other owners, and the same
may be said with regard to the gathering and transportation of the produce. All these
difficulties disappear if on the sale of the estate, it is purchased by one of the
adjacent owners whereby the public interest is favored, because the production
increases, the private interests of the redemptioner are respected, and no ostensible
harm is occasioned either on the vendor or the purchaser.” (Ibid., quoting 10
Manresa 358.)

(3) To protect agriculture. — The intention of the law in giving the right of
redemption is to protect agriculture, by the union of small agricultural lands and
those adjoining thereto under one single owner for their better exploitation. If the land
adjacent to that which is sought to be redeemed is not agricultural, then the
redemption is in vain — it does not answer the purpose behind the law. (Cortes vs.
Flores, 47 Phil. 992 [1925]; Fabia vs. Intermediate Appellate Court, 133 SCRA 364
[1984].) Both the land of the one exercising the right and the adjacent property
sought to be redeemed should be rural or destined for agricultural exploitation;
otherwise, there is no right of redemption.

In short, the purpose is to encourage the maximum development and

utilization of agricultural lands. (Ortega vs. Orcine, 38 SCRA 276 [1971].)

Art. 1622. Whenever 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 re-sold,
the owner of any adjoining land has a right of pre-emption at a reasonable price.

If the re-sale has been perfected, the owner of the adjoining land shall have a
right of redemption, also at a reasonable price.

When two or more owners of adjoining lands wish to exercise the right of pre-
emption or redemption, the owner whose intended use of the land in question
appears best justified shall be preferred. (Civil Code of the Philippines)

Rights of Pre-emption and Legal Redemption of Adjacent Owners of Urban

Lands.

(1) Meaning. — Article 1622 recognizes two rights; namely:

(a) Pre-emption, which has been defined as the act or right of

purchasing before others. (72 C.J.S. 478.) It is exercised before the sale or
resale against the would-be vendor; and
 (b) Redemption, which is exercised after the sale has been
perfected against the vendee. The recognition of the right of redemption will
result in the rescission of the sale.

(2) Requisites. — The conditions or requisites for the exercise of the right
of pre-emption or redemption, as the case may be, are the following:

(a) The one exercising the right must be an adjacent owner;

(b) The piece of land sold must be so small and so situated that a
major portion thereof cannot be used for any practical purpose within a
reasonable time; and

(c) Such urban land was bought by its owner merely for
speculation.

The above requisites must be alleged by the adjoining owner in his complaint
and proved by him. (Del Rosario vs. Bansil, 149 SCRA 662 [1989].)

(3) Price. — The price to be paid is a reasonable price. In a case, an

adjoining owner was held not entitled to redeem a lot (612 sq. meters) which was
much bigger area-wise, than the lot (140 sq. meters) owned by him. (Tañedo vs.
Bernad, 165 SCRA 86 [1988].)

(4) Preference as between two or more adjacent owners. — In case two or

more adjoining owners desire to exercise the right of legal redemption, the law
prefers him whose intended use of the land appears best justified. (last par.) The
determinative factor is the intended use that appears best justified, and not whether
the land was acquired for speculative purposes.

Meaning of Urban Land.

The term “urban,” as used in Article 1622, does not necessarily refer to the
nature of the land itself sought to be redeemed nor to the purpose to which it is
somehow devoted, but to the character of the community or vicinity in which it is
found. In this sense, even if the land is somehow dedicated to agriculture, it is still
urban in contemplation of Article 1622, if it is located within the center of population
or the more or less populated portion of a city or town. (Ortega vs. Orcine, 38 SCRA
276 [1971].)

Urban and Rural Lands Distinguished.

As it is not easy to fix with exactitude as to furnish a sure norm for all cases
the line that separates the rural from the urban, the law has avoided any definition on
this point.
 (1) As to location. — “Rural” means of, or pertaining to, the country as
distinguished from a city or town. The word “urban” is defined as of, or belonging to,
a city or town. And “rural property” is to be determined from the character of the
locality, the streets, lots, buildings, improvements, and the market value of the
property as also of the neighboring and surrounding properties. (Enriquez vs.
Devanadera, [C.A.] 32 O.G. 1486; see Ortega vs. Orcine, supra.)

(2) As to purpose. — Urban lands are distinguished from rural lands by

their purpose or being for dwelling, industry or commerce, and not for agricultural,
fishing or timber exploitation.

A land is urban if it is principally used for residential purposes. The character

of the locality, the streets, the neighboring and surrounding properties give a clear
picture of a residential area. Truly, a residential home lot is not converted into
agricultural land by the simple reservation of a plot for the cultivation of garden crops
or the planting of bananas and some fruit trees. Nor can an orchard or agricultural
land be considered residential simply because a portion thereof has been criss-
crossed with asphalt and cement roads with buildings here and there.

The rule of reason based on the specific facts of each case must be applied.
(Fabia vs. Intermediate Appellate Court, 133 SCRA 364 [1984].)

Meaning of “To Speculate.’’

According to Webster‟s International Dictionary (2nd edition, p. 2417.), “to

speculate” means: “To enter into a business transaction or venture from which the
profits or return are conjectural because the undertaking is outside the ordinary
course of business, to purchase or sell with the expectation of profiting by
anticipated, but conjectural fluctuations in price. Often in a somewhat depreciative
sense, to engage in a hazardous business transaction for the chance of an unusually
large profit; as to speculate in coffee, in sugar, or in bank stock.” (cited in Ortega vs.
Orcine, supra.)

Purpose of the Grant of Right to Owners of Adjoining Urban Lands.

Whereas, the objective of the right of redemption of adjoining rural land is to

encourage the maximum development and utilization of agricultural lands, the
evident purpose of Article 1622 is to discourage speculation in real estate and the
consequent aggravation of the housing problems in centers of population. (Ibid.)

Art. 1623. The right of legal pre-emption or redemption shall not be exercised
except within thirty days from the notice in writing by the prospective vendor, or by
the vendor, as the case may be. The deed of sale shall not be recorded in the
Registry of Property, unless accompanied by an affidavit of the vendor that he has
given written notice thereof to all possible redemptioners.
 The right of redemption of co-owners excludes that of adjoining owners.
(1524a) (Civil Code of the Philippines)

Exercise of Right of Pre-emption or Redemption.

Article 1623 stresses the need for notice in writing in the three (3) species of
legal redemption mentioned in Articles 1620, 1621, and 1622.

While the co-owner‟s right of legal redemption is a substantial right, it is

exceptional in nature, limited in its duration and subject to strict compliance with legal
requirements. One of these is that the redemptioner should tender payment of the
redemption money within 30 days from written notice of the sale by the co-owner.
(Caro vs. Court of Appeals, 113 SCRA 10 [1982].)

One who purchases an undivided interest in a property is charged with notice

that this acquisition is subject to redemption by any other co-owner within the
statutory 30-day period. (Butte vs. M. Uy & Sons, Inc., 4 SCRA 527 [1962].) The right
of redemption of co-owners (Art. 1620.) is preferred over that of adjoining owners.
(Arts. 1621, 1622.) In other words, the law attaches more importance to the
necessity to put an end to tenancy in common than to the purpose of encouraging
the development of agriculture.

Under Article 484 of the Civil Code, there is co-ownership whenever the
ownership of an undivided thing or right belongs to different persons. There is no
longer co-ownership when the different portions owned by different people are
already concretely determined and separately identifiable, even if not yet technically
described. This situation makes inapplicable the provision on the right of redemption
of a co-owner under Article 1623. (Si vs. Court of Appeals, 342 SCRA 653 [2002].)

Period for Exercise of Right.

(1) Absolute and non-extendible — The period provided in the above

article is absolute. It is peremptory and non-extendible. (Cabrera vs. Villanueva, 160
SCRA 672 [1988].) In fact, there is much stronger reason against relaxing the period
in favor of a legal redemptioner than in favor of a vendor with pacto de retro. In the
latter transaction, there is a contractual relation founded on valuable consideration, a
contract by which the party from whom the repurchase is sought has been benefited.
The right of a legal redemption is a pure creature of the law, regulated by law, and
works only one way in favor of the redemptioner. Even if the person entitled to
redeem is a minor, the running of the period is not interrupted. (Villasor vs. Medel, 81
Phil. 546 [1948].)

(2) A condition precedent. — The thirty-day period4 is not a prescriptive

period but is more a requisite or condition precedent to the exercise of the right of
legal redemption. (Caro vs. Court of Appeals, supra.) It is a period set by law to
restrict the right of the payor exercising the right of legal redemption. It is not one of
prescription. (Hermoso vs. Court of Appeals, 300 SCRA 516 [1999].) In other words,
if no offer is made within the prescribed period, no action will be allowed to enforce
the right of redemption. (Cabrera vs. Villanueva, supra.)

(3) Reason for rule. — The fundamental policy of the law is to discourage
the keeping for a long time of property in a state of uncertainty, beyond the thirty-day
period, a situation which obviously is unjust to the purchaser and prejudicial to public
interest. (Ibid.; Manaois vs. Zamora, [C.A.] 48 O.G. 5362; Daza vs. Tomacruz, 58
Phil. 414 [1933]; Lim Tuico vs. Cu Unjieng, 21 Phil. 493 [1912].) Nevertheless, in the
interpretation of Articles 1620, 1621, and 1622, it is always tilted in favor of the re-
demptioner and against the vendee. The purpose is to reduce the number of
participants until the community is terminated being a hindrance to the development
and better administration of the property. It is a one-way street. It is always in favor
of the redemptioner since he can compel the vendee to sell to him but he cannot be
compelled by the vendee to buy the alienated property. (Hermoso vs. Court of
Appeals, 300 SCRA 516 [1999].)

Notice by Vendor or Prospective Vendor.

The period of thirty (30) days is counted from the notice in writing given by the
prospective vendor or by the vendor, as the case may be, and not by the vendee.

(1) Reasons for rule. — The reasons for requiring the vendor to give the
notice are easy to see. The seller of an undivided interest is in the best position to
know who are his co-owners that under the law must be notified of the sale. Also, the
notice by the seller removes all doubts as to the fact of the sale, its perfection, and
its validity, the notice being a reaffirmation thereof; so that the party notified need not
entertain doubt that the seller may still contest the alienation. This assurance would
not exist if the notice should be given by the buyer. (Butte vs. M. Uy & Sons, Inc.,
supra; Salantadol vs. Reyes, 162 SCRA 568 [1988].)

(2) Notice must be in writing. — The written notice required under Article
1088 (supra.) and Article 1623 is indispensable. Any other kind of notice such as
verbal or by registration, or the mere knowledge of the sale, acquired in some other
manner by the legal redemptioner, does not satisfy the statute. The written notice
was obviously exacted by the law to remove all uncertainty as to the sale, its terms
and its validity and to quiet any doubts that the alienation is not definitive. (Conejero
vs. Court of Appeals, 16 SCRA 407 [1978]; Mariano vs. Court of Appeals, 41 SCAD
927, 222 SCRA 736 [1993]; see, however, Alonzo vs. Intermediate Appellate Court,
150 SCRA 259 [1987], infra.)

(3) Form of written notice. — Jurisprudence affirms the need for notice but
its form has been the subject of varying interpretations. Article 1623 does not
prescribe any particular form of notice so long as the reasons for a written notice are
present or otherwise satisfied. So long, therefore, as the redemptioner is informed in
writing of the sale and the particulars thereof, the 30 days for redemption start
running. (Ibid.)
 (a) Accordingly, the mere furnishing of the deed of sale is
equivalent to giving of written notice, in a more authentic manner than any
other writing could have done. (Ibid., Badillo vs. Ferrer, 152 SCRA 407 [1987];
see Castillo vs. Samonte, 106 Phil. 1023 [1960]; Garcia vs. Calaliman, 172
SCRA 201 [1989].) But the mere statement in a deed of sale to the effect that
the vendor has complied with the provisions of Article 1623 does not comply
with the required written notice where the holder of the right of pre-emption or
redemption is not a party to the deed of sale. (Primary Structures Corp. vs.
Valencia, 409 SCRA 371 [2003].)

(b) The court must not adopt a stand of having to sacrifice substance to
technicality. More so where the vendor stated under oath in the deed of sale
that notice of the sale had been given to prospective redemptioners in
accordance with Article 1623. “A sworn statement or clause in a deed of sale
to the effect that a written notice of sale was given to possible redemptioners
or co-owners might be used to determine whether an offer to redeem was
made on or out of time, or whether there was substantial compliance with the
requirement of Article 1623.” (Etcuban vs. Court of Appeals, 148 SCRA 507
[1987].)

(c) Similarly, although Article 1623 has provided “a particular method of

giving notice and that notice must be deemed exclusive” (Butte vs. M. Uy &
Sons, Inc., supra.), an exception to the rule may be adopted, in view of the
peculiar circumstances of the case, to prevent manifest injustice. The only
purpose of the written notice is to ensure that all the co-owners shall be
actually notified of the sale and to remove all doubt as to the perfection of the
sale. Thus, in a case where the co-owner was actually present and even
acted as an active intermediary in the consummation of the sale of the
property, it was held that he was and must be considered to have had actual
notice of the sale. A written notice to him as required by Article 1623 was no
longer necessary since he was actually aware of the sale. (Distrito vs. Court
of Appeals, 197 SCRA 606 [1991].) Where the buyer took possession of the
property sold immediately after the execution of the deed of sale in his favor
and continued to possess the same and the fact of such possession had not
been questioned by any of the co-owners, the requirement in Article 1623 had
been rendered inutile thereby as the latter should be deemed to have
knowledge of the sale. (Pilapil vs. Court of Appeals, 66 SCAD 178, 250 SCRA
566 [1995].)

(d) In a case, it appears that the executor of the deceased who had
petitioned the court for authority to sell the property in question was granted
such authority with the conformity of all the heirs. It was held that the heirs‟
conformity was “actually a waiver of their right of pre-emption; and, in the
least, it was notice of the intention of the heirs to sell their shares, sufficient to
supplement the written notice required by Article 1623 of the Civil Code.”
(Seechung-Federis vs. Sunga, 134 SCRA 16 [1985].)

(e) In a civil case for collection of a share in the rentals by an alleged

buyer of a co-owned property, the receipt of a summons by a co-owner has
 been held to constitute actual knowledge of the sale. On that basis, the co-
owner may exercise the right of redemption within 30 days from finality of the
decision. (Francisco vs. Boiser, 127 SCAD 198, 332 SCRA 792 [2000].)
Similarly, a co-owner was deemed to have been given notice of sale to the
respondents by the execution and signing of the deed of extra-judicial partition
and exchange of shares. (Fernandez vs. Tarun, 391 SCRA 653 [2002].)

(f) The written notice of sale is mandatory. Notwithstanding actual

knowledge of a co-owner, the latter is still entitled to a written notice from the
selling co-owner in order to remove all uncertainties about the sale, its terms
and conditions, as well as its efficacy and status. (see Cabrera vs. Villanueva,
160 SCRA 672 [1988]; Cornejero vs. Court of Appeals, supra.) Even in Alonzo
vs. Intermediate Appellate Court (infra.), the Supreme Court made it clear that
it was not reversing the prevailing jurisprudence but merely adopting an
exception to the general rule in view of the peculiar circumstances of the
case. In Alonzo, the right to legal redemption was invoked several years, not
just days or months after the consummation of the contract of sale. The
complaint for legal redemption itself was filed more than 30 years after the
sale was concluded. (Verdad vs. Court of Appeals, 70 SCAD 482, 256 SCRA
593 [1996]; see Primary Structures Corp. vs. Valencia, 409 SCRA 371
[2003].)

In Si vs. Court of Appeals(135 SCAD 754, 342 SCRA 653 [2000].), the
Supreme Court, made a contrary ruling, to wit: “Co-owners with actual notice of the
sale are not entitled to written notice. A written notice is a formal requisite to make
certain that the coowners have actual notice of the sale to enable them to exercise
their right of redemption within the limited period of thirty days. But where the co-
owners had actual notice of the sale at the time thereof and/or afterwards, a written
notice of a fact already known to them, would be superfluous. The statute does not
demand what is unnecessary.‟‟

(4) Contents of written notice of sale. — The notice in writing which Article
1623 requires to be made is a notice not only of a perfected sale but of the actual
execution and delivery of the deed of sale. This is implied from the second sentence
of Article 1623. A sale may not be presented to the register of deeds for registration
unless it be in the form of a duly executed public instrument. Moreover, the law
prefers that all the terms and conditions of the sale should be definite and in writing.
(see Doromal vs. Court of Appeals, 66 SCRA 575 [1975].) Note that Article 1623
merely provides that a deed of sale shall not be recorded in the Registry of Property
unless accompanied by an affidavit that a written notice has been given to all
possible redemptioners. It does not state that by reason of such lack of notice the
sale shall become void. (Fernandez vs. Tarun, 391 SCRA 653 [2002].)

(5) Notice by any other insufficient. — The notice required by Article 1623
must be given by the vendor (or prospective vendor) and by nobody else. This is
clear from Article 1623 unlike Article 1524 of the former Civil Code which did not
specify who must give the notice.
How Right Exercised.

(1) Consignation in court. — In exercising the right to redeem, the

redemptioner may go to the court directly, and practically make the offer to
repurchase through it. The reason for this is that the redemptioner might not know
the vendee‟s whereabouts or the latter might even conceal himself to prevent
redemption. (see De la Cruz vs. Marcelino, 84 Phil. 709 [1949]; Torio vs. Del
Rosario, 93 Phil. 800 [1953].)

Consignation is not required to preserve the right of redemption as a mere

tender of payment is enough if made on time. It is not necessary because the tender
of payment is not made to discharge an obligation but to enforce or exercise a right.
(Moreno vs. Court of Appeals, supra.)

There is actually no prescribed form for an offer to redeem to be properly

effected. Hence, it can either be through a formal tender with consignation, or by
filing a complaint in court coupled with consignation of the redemption price within
the prescribed period. Either of the two modes is a condition precedent to a valid
exercise of the right of legal redemption. (Lee Chuy Realty Corp. vs. Court of
Appeals, 66 SCAD 203, 250 SCRA 596 [1995].)

(2) Tender of price. — That the legal redemptioner is only required to pay
a reasonable price is no obstacle to the requirement of tender. The statutory period
fixed for the exercise of the right of legal redemption would be rendered meaningless
and of easy evasion, unless the redemptioner is required to make an actual tender in
good faith of what he believes to be the reasonable price of the land sought to be
redeemed.

Unless tender or consignation is made requisite to the valid exercise of the

right to redeem everytime redemption is attempted, a case must be filed in court to
ascertain the reasonable price. On the other hand, a prior tender by the
redemptioner of the price he considers reasonable affords an opportunity to avoid
litigation, for the landowner may well decide to accept a really reasonable offer,
considering that he would thereby save the attorney‟s fees and the expenses of
protracted litigation. (see Basbas vs. Entena, 28 SCRA 665 [1969].)
 ENDNOTES

1. Aquino vs. Deal, 63 Phil. 582 [1936]; Heirs of Francisco Parco vs. Haw Pia, 45
SCRA 164 [1972].)

2 Claridad vs. Novella, 105 Phil. 756 [1959]; Lacson vs. Granada, 1 SCRA 876
[1961];
 REVIEW QUESTIOPNS NO.7

I. Define the following terms and concept: (5 points for every correct answer)

1. What is conventional redemption?

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2. Option to Buy

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3. Right to Redeem

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4. Mortgage

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5. Redemption against Heirs of Vendee

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II. Enumerate and explain (10 points each number)

1. Offer to Redeem and Tender of Payment Generally Required

a.

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b.

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2. Nature of Dation in Payment

a.

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b.

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III. TRUE OR FALSE. Write the word “TRUE” if the statement is true, and “FALSE” if
the statement is not true. Write your answer in the blank. (3 points each)

__________1. The right of legal redemption is not granted solely and exclusively to
the original co-owners but applies to those who subsequently acquire their
respective shares while the community subsists.

__________2. Although it is the policy of the law to avoid indivision, it would be

unjust, if the sale was made separately and independently, to require the co-
owners to come to an agreement with regard to the repurchase of the thing
sold, and certainly, it would be worse to deprive them of their right in case
they fail to agree.

__________3. If the parties agreed on a definite period of redemption, then the right
to redeem must be exercised within the period fixed provided it does not
exceed 10 years.

__________4. Article 1613 does not provide for a mode of terminating a

coownership nor does the fact that the redeeming co-owner has succeeded in
securing title over a parcel of land in his name terminate the existing co-
ownership.

__________5. In a contract of sale with pacto de retro, the parties may legitimately
fix any period they please, not in excess of ten (10) years, for the redemption
of the property sold by the vendor.