Extinguishment of Sale: How to Terminate a Sales Contract

Extinguishment of sale in general

In general, a sales contract may be extinguished by the same causes as all other obligations and by
conventional or legal redemption.[1]

Conventional redemption
Conventional redemption happens “when the vendor reserves the right to repurchase the thing sold, with the
obligations to comply with the provisions of Article 1616 and other stipulations which may have been agreed
upon.” The right to repurchase lasts only for four years from date of the contract unless otherwise
stipulated. If there is an express agreement to extend the right to repurchase, it cannot exceed 10 years.

Equitable mortgage
A contract, including one purporting to be a deed of absolute sale, is presumed to be an equitable mortgage in
any of the following instances:

1. If the price of a sale with right to repurchase is unusually inadequate;

2. If the vendor remains in possession as lessee or otherwise;
3. If 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. If the purchaser retains for himself a part of the purchase price;
5. If 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 is to secure the payment of a debt or the performance of any other obligation.
Money, fruit, benefit considered interest

In any of the above instances considered an equitable mortgage, the money, fruits, or other benefit to be
received by the buyer as rent or otherwise is considered an interest.

Right to repurchase; Requirements

Before the seller can avail of the right to repurchase, the seller is required first:
(a) to return to the buyer the price of the sale;
(b) to pay for the expenses of the contract, and any other legitimate payments made by virtue of the
sale; and
(c) to pay for the necessary and useful expenses made on the thing sold.

If the sale involves a real property, a judicial order, after the seller has been duly heard, is required for the
registration and consolidation of the ownership in the buyer.
Action against every possessor

To enforce his rights, the seller may initiate an action against every possessor whose right is derived from the
buyer. The seller may do so even if the contract between the buyer and the possessor does not mention the
seller’s right to repurchase, without prejudice to the Mortgage Law and the Land Registration Law in relation
to third persons.

Subrogation by buyer

The buyer is subrogated to the seller’s rights and actions despite existence of right of repurchase.
Creditors to exhaust property of seller

The seller’s creditors are required to exhaust the property of the seller before they can make use of the right
of redemption against the buyer.

Undivided immovable property sold jointly

If several persons jointly sell an undivided immovable in the same contract and it provides for a right of
repurchase, each one may exercise his right to the extent of his respective share only. The same rule applies if
a seller has several heirs. However, the buyer may demand of all the sellers or co-heirs that they come to an
agreement upon the repurchase of the whole thing sold. If the sellers or heirs fail to do so, the buyer cannot
be compelled to consent to a partial redemption.

Co-owner may repurchase respective share only

A co-owner who may have sold his share separately may independently exercise the right of repurchase as
regards his own share. The buyer cannot require said co-owner to redeem the entire property.
Buyer’s heirs subject to redemption to proportionate share only

The buyer’s heirs may be the subject of the seller’s right of redemption to their proportionate share only
regardless of whether the property is undivided or it has already been partitioned. However, if the inheritance
has already been divided, and the thing sold has already been awarded to an heir, he may be the subject of an
action for redemption for the whole property.

No reimbursement or prorating for fruits

If there were visible and growing fruits at the time of the execution of the sale, a reimbursement or prorating
of existing fruits is not required unless the buyer paid indemnity when the sale was executed. Conversely, if no
fruits were existing at the time of the sale but later on exist at the time of redemption, the fruits will be
prorated between the redemptioner and the buyer. The buyer’s share is to correspond to the time he
possessed the land in the last year, counted from the anniversary of the date of the sale.
Redemptioner to receive property free from charges or mortgages

The redemptioner will receive the property free form all charges or mortgages which may have been
constituted by the buyer. However, the redemptioner is to respect the leases which the latter may have
executed in good faith, and in accordance with customs of the place where the land is situated.
Legal Redemption
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.”

Co-owner’s right of redemption

A co-owner may exercise the right of redemption in case the shares of all the co-owners or of any of them, are
sold to a third person. The redemption is required only to pay a reasonable one if the price of the alienation is
grossly excessive. If there are two or more co-owners desiring 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.

Adjoining lot owner’s right of redemption

For rural land that does not exceed one  hectare, the owners or adjoining lands may exercise the right of
redemption unless the grantee/buyer does not have any rural land. The owner of the adjoining land of smaller
area is preferred should there be several prospective buyers. If the lands have the same area, the first who
requested the redemption is preferred. This right cannot be exercised on adjacent lands which are separated
by brooks, drains, ravines, roads, and other apparent servitudes for the benefit of other estates.

Right of pre-emption of adjoining land owner

If a piece of urban land bought for speculation is so small and so situated that a major portion thereof cannot
be used for any practical purpose within a reasonable time is about to be re-sold, the adjoining land owner has
a right of pre-emption at a reasonable price. If the same has already been sold, the adjoining landowner has
the right of redemption for a reasonable price. If there are two or more who desires to exercise the right of
pre-emption or redemption, the owner whose intended use of the land in question appears to best justified is
preferred.

Right of pre-emption or redemption when exercised

The redemption may only exercise the right of legal pre-emption or redemption within 30 days from the
notice in writing by the prospective seller, or by the seller, as the case may be. The said seller is required to
accompany the deed of sale with an affidavit stating therein that he has given written notice thereof to all
possible redemptioners; otherwise, the Registry of Deeds will not record the deed of sale.

Right of redemption of co-owners excludes adjoining land owners

Should there be a conflict between a co-owner and adjoining land owners, the right of redemption of co-
owners prevails and will exclude the adjoining land owners.