Professional Documents
Culture Documents
Extinguishment of Sale
Extinguishment of Sale
Generall#
Generall#$$ through
through payment of the price or performanc
performance e ( i.e., delivery ; however, buyer-seller
relationship
relationship remains due to enforceability of warranties
warranties )
),, loss of the subject matter, condonation
or remission, confusion or merger of the rights of creditor and debtor, compensation, novation,
annulment, rescission, fulfillment of a resolutory condition, and prescription.
S%eciall#$ through conventional or legal redemption which is unique to contracts of sale (pacto
de retro) which
retro) which may be exercised only by the seller as recognied by the contract, or by the
transferee
transferee of the rights, or by the person entitled by the law in legal redemption.
Note: reservation
Note: reservation of the right of repurchase stays the buyer-seller relationship with respect
to such reservation until its period expires or when it is exercised. !owever, it does not prevent
the full consummation of the contract of sale.
"i#ewi
"i#ewise,
se, non-p
non-paym
ayment
ent of the full
full purch
purchase
ase price
price does
does not a$ect
a$ect the runnin
running
g of the
the
redemption period as long as there were consent to sell and to purchase, partial payment, and
delivery of possession of the property (%atangcalang v. "egayada&.
If tere is no %erio! agree! u%on0 /t must be exercised within years from the date of the
contract. (4rt. '565&
If tere is a %erio! agree! u%on0 ithin the period stipulated. !owever, the period must not
exceed '6 years (4rt. '565&. 0therwise, the agreement is valid only for the first '6 years.
Note: /f the agreement exceeds the '6-year rule, it shall be reduced to '6 years applying
4rt. '565. 4s long as there is a stipulation as to the period, even though unclear or void, the '6-
year rule shall apply, not the -year rule.
+he completion of the redemption process is tolled by the filing of a civil action relating to
the issue of the exercise of right of redemption provided that the exercise of the right and the
filing of the suit are done within the redemption period.
'. +here must be a notice of the exercise sent within the period of redemption.
*. +here must be tender of payment of the price of the sale, the expenses of contract and
other legitimate payments made by reason of the sale, and the necessary and useful
expenses made on the thing sold. (4rt. '5'5&
+he seller7s reservation may charge every possessor whose right is derived from the buyer
even if there was a second contract which did not mention anything about the reservation. (4rt.
'568&
9ailure of to pay useful improvements entitles the buyer a retro to retain possession of the
thing sold until actual reimbursement is done by the seller a retro. (:argollo v. uero&
/t is enough that a sincere or genuine tender of payment, and not a moc# or deceptive one
was made, to show that there was a valid tender of payment ("egaspi v. %4&. 0n the other hand,
mere sending of letters expressing desire to repurchase without accompanying tender of
redemption price is insu<cient (=da. e >ulueta v. 0ctavio; "ee v. %4&. 0n the other hand, a
judicial action within the redemption period with the simultaneous deposit of the redemption
price would su<ce even though no notice was sent. +he filing of action is equivalent to a formal
o$er to redeem ("ee %huy ?ealty %orp v. %4&.
/n case of real properties, the consolidation of the ownership in the buyer by virtue of the
failure of the seller to comply with his obligation to return the price and other legally mandated
expenses shall not be recorded in the ?egistry of @roperty without a judicial order, after the seller
has been duly heard (4rt. '56A&. /t means that no automatic redemption shall occur and the
buyer a retro is required to file an action for consolidation of ownership first wherein the seller a
retro is given an opportunity to be heard.
/n case the true nature of the contract was also raised as an issue (that is, the contract
was not an absolute sale and the seller actually considered the transaction as an equitable
mortgage&, as a fair grant, 4rt. '565 even gives the seller to repurchase the property within 6
days from the finality of the judgment if the buyer proved that the transaction is a pacto de retro.
+his situation contemplates a condition precedent to exercise the right of legal redemption.
!owever, in case the issue raised is opposite (that is, the seller feigns the contract as an
equitable mortgage when actually it is an absolute sale& and it was proven that the contract was
indeed an absolute sale, the 6-day period will not be granted to the seller. ?eason is that
holding otherwise would enable the seller to resurrect an expired right of repurchase by
instituting an action to reform the contract into an equitable mortgage.
0n the part of the buyer, remember that failure to consolidate under 4rt. '56A will not
impair his title or ownership because that method is for purpose of registering the consolidated
title only and is not a condition sine %ua non to transfer ownership.
Note: /n case of doubt regarding the validity and existence of the agreement, and the
written contract fails to show the true intent of the parties, parol evidence may be adduced since
the deed of sale and the verbal agreement allowing the right is an integral whole with the deed
being relied upon by the seller as the note or memorandum evidencing the contract, ta#ing it
outside the provisions of the Btatute of 9rauds. Coreover, Dest Evidence ?ule would not be an
obstacle to the adducement of parol evidence.
/f tender of payment cannot be validly made, because the buyer cannot be located, the
seller a retro should file a suit for consignation with the courts of the redemption price; failing to
do so within the redemption period shall lapse his rights. (%atangcatang v. "egayada&
/n sale a retro, the buyer of a part of an undivided immovable who acquires the whole
thereof in the case of 4rticle F8, compel the seller to redeem the whole property, if the latter
wishes to ma#e use of the right of redemption (4rt. '5''&.
/f several persons, jointly and in the same contract, should sell an undivided immovable
with a right of repurchase, none of them may exercise this right for more than his respective
share. +he same rule shall apply if the person who sold an immovable alone has left several
heirs, in which case each of the latter may only redeem the part which he may have acquired
(4rt. '5'*&.
/n the case of the preceding situation, the buyer may demand of all the vendors or co-
heirs, that they come to an agreement upon the repurchase of the whole thing sold; and should
they fail to do so, the buyer cannot be compelled to consent to a partial redemption (4rt. '5'&.
0n the other hand, each one of the co-owners of an undivided immovable who may have
sold his share separately may independently exercise the right of repurchase as regards his own
share, and the buyer cannot compel him to redeem the whole property (4rt. '5'&.
/n addition, the creditors of the seller cannot ma#e use of the right of redemption against
the buyer, until after they have exhausted the property of the seller (4rt. '5'6&
Bhould one of the co-owners or co-heirs succeed alone in redeeming the whole property,
such co-owner or co-heir shall be considered as a mere trustee with respect to the shares of his
co-owners or co-heirs accordingly, no prescription will lie against the right to any co-owner or co-
heir to demand from the redemptioner his respective share in the property redeemed, which
share is subject to a lien in favor of the redemptioner for the amount paid by him corresponding
to the value of the share (e :uman v. %ourt of 4ppeals&.
If tere was fruits at te ti-e of te sale0 no reimbursement or pro-rating of those existing
at the time of redemption shall be made, if no indemnity was paid by the buyer when the sale as
executed.
If tere were NO fruits at te ti-e of te sale an! so-e existe! at te ti-e of
re!e-%tion0 pro-rating shall be made between seller-redemptioner and buyer. +he buyer
receives the part corresponding to the time he possessed the land in the last year, counted rom
the anniversary of the date of the sale.
Note: 4rt. '5'A applies only when parties have not provided for their sharing arrangement
with respect to the fruits existing 4+ +!E +/CE 09 ?EEC@+/0G. (4lmeda v. aluro&
Note: Doth requirements must concur to treat a sale as an equitable mortgage (Ban @edro
v. "ee&. +he issue of ambiguity whether the contract is a sale or an equitable mortgage is
generally inclined to be construed as the latter because it involves a lesser transmission of rights
and interest over the property. +he intention of the parties to an agreement is shown not
necessarily by the terminology but by all the surrounding circumstances and all pertinent facts
having a tendency to fix and determine the real nature of their design and understanding (Colina
v. %4&. !ence, to reiterate, parol evidence is competent and admissible to clear the ambiguities
in a contract of sale. 0n the other hand, best evidence rule finds no application to equitable
mortgage situations since there is no conclusive test to determine whether a deed of absolute
sale on its face is really a loan secured by a mortgage (4ustria v. :onales, Hr.&
Inder 4rticle '56* of the %ivil %ode, the contract of sale with right to repurchase (sale a
retro& shall be presumed to be an equitable mortgage, in any of the following cases)
Note: the existence of any one of the conditions above is su<cient to give rise to the
@?EBIC@+/0G (only& that the contract is an equitable mortgage.
4lso, by virtue of 4rt. '56, the provisions on equitable mortgage of 4rt. '56* shall also apply to
a contract purporting to be an absolute sale.
(a& +he terms used in the deed or power-of-attorney indicate that the conveyance was
intended to be a loan secured by a mortgage;
(b& +he price paid, in relation to the value of the property, is grossly inadequate;
(c& +he seller, at the time of the alleged sale was in urgent need of money;
(d& +he supposed seller invested the money he obtained from the alleged buyer in ma#ing
improvements on the property sold;
(e& +he supposed seller remained in possession of the land sold;
(f& +he seller paid the land tax which is a usual burden attached to ownership;
(g& +he buyer accepted partial payments from the seller, and such acceptance of partial
payment is absolutely incompatible with the idea of irrevocability of the title of ownership
of the purchaser at the expiration of the term stipulated in the original contract for the
exercise of the right of redemption;
(h& +he seller remained bound for the repayment of the money received strongly tends to
show that a mortgage only was intended;
(i& +he transaction had its origin in a borrowing of money also tends to show that the
subsequent transaction although in the form of a sale with the right of repurchase was in
fact intended as a mortgage; and
(j& +here was a previous debt between the parties and this was not extinguished by the
sale, but remained subsisting. Dut if the previous debt was extinguished by the sale, and
the seller has the privilege of repurchasing within a given time, the transaction is a
conditional sale.
(a& 4ny money, fruit, or other benefit to be received by the buyer as rent or otherwise shall
be considered as interest which shall be subject to the usury laws (4rt. '56*&;
(b& +he apparent 1seller2 may as# for the reformation of the instrument (4rt. '56&. /n
case the property has been sold to a third party buyer, an aggrieved party may pursue
other remedies li#e declaration of nullity of the deed of sale and specific performance
(+olentino v. %4&.
(c& 9or the court to decree that 1vendor2-debtor to pay his outstanding loan to the
1vendee2-creditor (Danga v. Dello&.
(d& here the trial court did not pass upon the mortgagor7s claim that he had paid his
mortgage obligation, a remand of the case to the trial court is in order, only for the
purpose of determining whether the mortgage obligation had indeed been settled, and if
not, how much the mortgagor should pay to settle the same.
4 stipulation which gives the mortgagee the right to own the property or which
automatically vests the title over the security to the creditor in case the debtor fails to pay the
loan on the stipulated time. @actum %ommissorium is an unlawful, against public policy and a
void stipulation which is the reason why provisions on equitable mortgage are created favoring
the least transmission of right and interest over a property in controversy.
Note: /f it was found that the seller was not a debtor and owed nothing to the buyer and
nothing was o$ered as security for the payment of any indebtedness, there will be no @actum
%ommissorium. +he reason is that it only applies to transaction covering mortgage and other
security contracts and not to contracts of absolute sale.
hen a purported sale a retro is found to be an equitable mortgage, the proper remedy in
case the borrower refuses to pay the price is to foreclose on the mortgage, and there can be no
loss of the purported seller7s right to redeem since it would constitute a @actum %ommissorium
(Cotevirgin v. %4&.
(ationale$ &e!al 'edemption is in the nature of a privilege created by law partly for
reasons of public policy and partly for the benefit and convenience of the redemptioner, to
a$ord him a way out of what might be a disagreeable or inconvenient association into
which he has been thrust. /t is intended to minimie co-ownership. +he law grants a co-
owner the exercise of the said right of redemption when the shares of the other owners
are sold to a third person. (asa vs. A!uilar , :.?. Go. ''A B%?4 '*8, 'F8*&
. +he exercise of the right a retro . +he exercise of the legal right of
extinguishes the underlying contract redemption, although it extinguishes
of sale as though there was never any the original sale, actually constitutes a
contract at all. new sale in substitution of the original
sale.
• )e Facto *artition a-ong Co3Heirs an! Co3Owners$ /f in fact they (co-heirs who
became co-owners upon succession& have partitioned it (the property& among themselves
and each have occupied and treated definite portions thereof as their own, co-ownership
has ceased even though the property is covered under one title, and the sale by one of the
heirs of his definite portion cannot trigger the right of redemption in favor of the other
heirs.
Notice$
a& Notice Must Co,er *erfecte! Sale$
+he written notice referred to by the law to be given to the co-owners is the written
notice of a perfected sale. Buch written notice must be accompanied by the actual
execution and delivery of the deed of sale. +he 6-day period shall commence from the
time this notice has been given to the co-owners. 4bsent such documents, no 6-day
period shall begin to run against the co-owners.
4rticle '5'F of the %ivil %ode bestows unto a co-owner the right to redeem and to
be subrogated under the same terms and conditions stipulated in the contract, and to
avoid any controversy as to the terms and conditions under which the right to redeem
may be exercised, it is best that the period therefor should not be deemed to have
commenced unless the notice of the disposition is made after the formal deed of disposal
has been duly executed. (*pouses -ormal vs. +ourt o" Appeals, 55 B%?4 A&
+he purpose is to remove all the doubts and uncertainty regarding the alienation.
+he redemptioners must have #nowledge of all the circumstances of the alienation, and
only after such #nowledge is the owner required to exercise the right of redemption given
by law. (/ermoso vs. +ourt o" Appeals , 66 B%?4 '5, 'FF8&
*. hen notice is given by the proper party (the seller&, no particular form of written
notice is prescribed under 4rticle '5*, so that the furnishing of the copies of the
deeds of sale to the co-owner would be su<cient, but only on the form of giving notice
but not on the ruling of who is the proper party to give notice;
. +he filing of the suit for ejectment or collection of rentals against a co-owner actually
dispenses with the need for a written notice, and must be construed as commencing
the running of the period to exercise the right of redemption, since the filing of the suit
amounted to actual #nowledge of the sale from which the 6-day period of redemption
commences to run.
g. (igt to (e!ee- un!er Agrarian (efor- Laws$ /n the event the landholding is sold to
a third person without the #nowledge of the agricultural lessee, the latter is granted by law
the right to redeem it within '86 days from notice in writing and at a reasonable price and
consideration. (Bection '*, ?.4. 8&