Chapter 5 – Obligations of the Vendee petitioner executed an act which was more consistent with his exercise
of ownership over it. This gains credence when it is borne in mind that
I. TO ACCEPT DELIVERY
➢ The vendee is bound to accept delivery of the thing sold at
the time and place stipulated in the contract (Article 1582).
A.) Right of Examination
➢ If there was no previous examination, the buyer must have a
reasonable opportunity to examine the goods (Art. 1584, pars. 1
& 2)
➢ The seller must allow the buyer to examine, if the buyer so
demands.
a.) Case: Sale of jewelry where buyer had opportunity to examine the
items
Fule vs CA
Facts:
Petitioner Gregorio Fule, a banker by profession and a jeweler at the
same time, acquired a 10-hectare property in Tanay, Rizal. He asked
Remelia Dichoso and Oliva Mendoza to look for a buyer who might be
interested in the Tanay property. The two found one in the person of
herein private respondent Dr. Ninevetch Cruz. It so happened that at
the time, petitioner had shown interest in buying a pair of emerald-cut
diamond earrings owned by Dr. Cruz which he had seen in January of
the same year when his mother examined and appraised them as
genuine.
After several negotiations petitioner and Dr. Cruz finally agreed to
exchange the pair of emerald-cut diamond earrings for the Tanay
property. However, just shortly after the sale was made, Fule
complained that the jewelry given to him was fake. He then used a
tester to prove the alleged fakery.
Thereafter, petitioner filed a complaint against private respondents
praying, among other things, that the contract of sale over the Tanay
property be declared null and void on the ground of fraud and deceit.
Issue:
Whether or not the contract of barter or sale under the circumstances
of this case is null and void.
Held:
No.
There is fraud when, through the insidious words or machinations of
one of the contracting parties, the other is induced to enter into a
contract which, without them, he would not have agreed to. The
records, however, are bare of any evidence manifesting that private
respondents employed such insidious words or machinations to entice
petitioner into entering the contract of barter.
Likewise, the facts as proven do not support the allegation that
petitioner himself could be excused for the "mistake." On account of
his work as a banker-jeweler, it can be rightfully assumed that he was
an expert on matters regarding gems. He had the intellectual capacity
and the business acumen as a banker to take precautionary measures
to avert such a mistake, considering the value of both the jewelry and
his land. The fact that he had seen the jewelry before October 24,
1984 should not have precluded him from having its genuineness
tested in the presence of Dr. Cruz. Had he done so, he could have
avoided the present situation that he himself brought about. Indeed,
the finger of suspicion of switching the genuine jewelry for a fake
inevitably points to him. Such a mistake caused by manifest
negligence cannot invalidate a juridical act. As the Civil Code provides,
"(t)here is no mistake if the party alleging it knew the doubt,
contingency or risk affecting the object of the contract."
Furthermore, petitioner was afforded the reasonable opportunity
required in Article 1584 of the Civil Code within which to examine the
jewelry as he in fact accepted them when asked by Dr. Cruz if he was
satisfied with the same. By taking the jewelry outside the bank,
he himself had earlier delivered the Tanay property to Dr. Cruz by
affixing his signature to the contract of sale. That after two hours he
later claimed that the jewelry was not the one he intended in exchange
for his Tanay property, could not sever the juridical tie that now bound
him and Dr. Cruz. The nature and value of the thing he had taken
preclude its return after that supervening period within which anything
could have happened, not excluding the alteration of the jewelry or its
being switched with an inferior kind.
Both the trial and appellate courts, therefore, correctly ruled that there
were no legal bases for the nullification of the contract of sale.
Ownership over the parcel of land and the pair of emerald-cut diamond
earrings had been transferred to Dr. Cruz and petitioner, respectively,
upon the actual and constructive delivery thereof. Said contract of sale
being absolute in nature, title passed to the vendee upon delivery of
the thing sold since there was no stipulation in the contract that title to
the property sold has been reserved in the seller until full payment of
the price or that the vendor has the right to unilaterally resolve the
contract the moment the buyer fails to pay within a fixed period.
b.) Except: in case of a stipulation that the goods are not to be
delivered by the carrier unless paid for (C.O.D) – the buyer is not
entitled to an examination unless the contract or usage to the contrary
permits examination (Art. 1584, par. 3)
Acceptance by the buyer:
1.) express acceptance (Article 1585): when the buyer intimates to the
seller acceptance of delivered goods
2.) implied acceptance (Article 1585):
● when the buyer does an act, in relation to the delivered goods,
which is inconsistent with the seller’s ownership
● when the buyer retains the goods after the lapse of reasonable
time, without intimating to the seller that he has rejected the
goods
c.) Effect of acceptance by the buyer (for seller’s liability)
GEN. RULE: Acceptance of goods by the buyer shall not discharge the
seller from liability for breach of any promise or warranty.
EXCEPTIONS:
1. where there is an agreement to the contrary
2. where the buyer fails to give notice to the seller of any breach of
promise or warranty within a reasonable time after he comes to
know or ought to have known of it
Cases:
1.) Guzman vs. Triangle Ace Corp.
Facts:
De Guzman purchased large quantities of steel bars form Triangle Ace
Corp. Triangle Ace sued de Guzman for recovery of the unpaid price of
P124,277.00. De Guzman answered that his liability was only P79,
510.00; and by way of counterclaim, he said that he suffered damages
as a result of the cancellation of his contract with another corporation
because the steel bars delivered to him measured only 8mm x 20ft
instead of 9mm by 20ft as agreed.
Issue:
May de Guzman refuse to pay the price on the ground that the steel
bars delivered to him was not the size stipulated in the contract?
Held:
No.
Art. 1595 provides that if ownership of the goods has passed to the
buyer and he wrongfully refuses to pay for such, the seller may
maintain an action for the price of the goods. A buyer is deemed to
have accepted the goods when he does an act inconsistent with the
ownership of the seller, or when after the lapse of a reasonable time,
1
he retains the goods without intimating to the seller that he has
rejected them (Art. 1585).
In the case at bar, there is no dispute that the steel bars purchased by
petitioner were received by him. It is also not disputed that petitioner
made partial payments for the goods and that some of the steel bars
were in fact used by him to manufacture reinforced concrete pipes
although they were allegedly rejected on the ground that the steel bars
were undersized. The retention and use of the steel bars by the
petitioner clearly show that he accepted the goods and for this reason
he should pay the price of the same.
B.) Rule for unjustified refusal of the buyer to accept (Art. 1588)
➢ title passes to the buyer, and he bears the risk of loss
C.) Rule if the buyer justifiably refused to accept (Art. 1587)
➢ buyer is not bound to return the goods to the seller, it
being sufficient that he notifies the seller of his refusal
to accept
II. PAYMENT OF PRICE AND INTEREST
A. Time and Place (Art. 1582)
▪ as stipulated in the contract; or
▪ if there is none, at the time and place of delivery
B. Suspension of payment by the buyer after delivery (Art. 1590)
a.) Grounds:
1. Actual disturbance of possession or ownership; or
2. Reasonable ground to fear a disturbance caused by –
i.) vindicatory action;
ii.) foreclosure of mortgage (which grounds are exclusive)
✴ vendee may suspend payment until the vendor has caused the
disturbance or danger to cease
Case: Suspension of payment for refusal to issue title
Arra Realty Corp vs. Guarantee Dev’t Corp and Insurance Agency
Facts:
Arra Realty Corporation (ARC) was the owner of a parcel of land.
Through its president, Architect Carlos D. Arguelles, the ARC decided
to construct a five-story building on its property and engaged the
services of Engineer Erlinda Peñaloza as project and structural
engineer. In the process, Peñaloza and the ARC, through Carlos
Arguelles, agreed on November 18, 1982 that Peñaloza would share
the purchase price of one floor of the building, consisting of 552 square
meters for the price of P3,105,838: P901,738, payable within sixty (60)
days from November 20, 1982, and the balance payable in twenty (20)
equal quarterly installments of P110,205. The parties further agreed
that the payments of Peñaloza would be credited to her account in
partial payment of her stock subscription in the ARC’s capital stock.
Sometime in May 1983, Peñaloza took possession of the one-half
portion of the second floor, with an area of 552 square meters where
she put up her office and operated the St. Michael International
Institute of Technology.
Unknown to her, ARC had executed a real estate mortgage over the lot
and the entire building in favor of the China Banking Corporation as
security for a loan. She learned that the property had been mortgaged
to the China Banking Corporation sometime in July 1984. Thereafter,
she stopped paying the installments due on the purchase price of the
property.
When the ARC failed to pay its loan to China Banking Corporation, the
subject property was foreclosed extrajudicially, and, thereafter, sold at
public auction to China Banking Corporation on August 13, 1986 for
P13,953,171.07.
On April 29, 1987, the ARC and the Guarantee Development
Corporation and Insurance Agency (GDCIA) executed a deed of
conditional sale covering the building and the lot for P22,000,000, part
of which was to be used to redeem the property from China Banking
Corporation.
On May 28, 1987, Peñaloza filed a complaint against the ARC, the
GDCIA, and the Spouses Arguelles, with the Regional Trial Court of
Makati, Branch 61, for “specific performance or damages” with a
prayer for a writ of preliminary injunction.
Issue:
Whether or not no contract of sale over the subject property was
perfected between the petitioner ARC, on the one hand, and
respondent Peñaloza, on the other, because the latter failed to pay the
balance of the total purchase price of a portion of the second floor of
the building as provided in their November 18, 1982 agreement.
Held:
As gleaned from the agreement, the petitioner ARC, as vendor, and
respondent Peñaloza, as vendee, entered into a contract of sale over a
portion of the second floor of the building yet to be constructed for the
price of P3,105,838 payable in installments. As soon as the second
floor was constructed within five (5) months, respondent Peñaloza
would take possession of the property, and title thereto would be
transferred to her name. The parties had agreed on the three
elements of subject matter, price, and terms of payment. Hence, the
contract of sale was perfected, it being consensual in nature, perfected
by mere consent, which, in turn, was manifested the moment there
was a meeting of the minds as to the offer and the acceptance thereof.
The respondent cannot be blamed for suspending further remittances
of payment to the petitioner ARC because when she pushed for the
issuance of her title to the property after taking possession thereof, the
ARC failed to comply. She was aghast when she discovered that in
July 1984, even before she took possession of the property, the
petitioner ARC had already mortgaged the lot and the building to the
China Banking Corporation; when she offered to pay the balance of the
purchase price of the property to enable her to secure her title thereon,
the petitioner ARC ignored her offer. Under Article 1590 of the New
Civil Code, a vendee may suspend the payment of the price of the
property sold:
Art. 1590. Should the vendee be disturbed in the possession or
ownership of the thing acquired, or should he have reasonable
grounds to fear such disturbance, by a vindicatory action or a
foreclosure of mortgage, he may suspend the payment of the price
until the vendor has caused the disturbance or danger to cease, unless
the latter gives security for the return of the price in a proper case, or it
has been stipulated that, notwithstanding any such contingency, the
vendee shall be bound to make the payment. A mere act of trespass
shall not authorize the suspension of the payment of the price.
In view of the failure of the petitioner ARC to transfer the title of the
property to her name because of the mortgage thereof to China
Banking Corporation and the subsequent sale thereof to the GDCIA,
respondent Peñaloza is entitled to the refund of the amount she paid to
the petitioner ARC.
b.) When there is no right to suspend payment:
1. if the stipulation provides for payment despite risk of
disturbance;
2. if the vendor caused the disturbance to cease;
3. if the vendor gives security for the return of the price;
4. if the disturbance is by mere act of trespass.
C.) Payment of Interest on the Price (Art. 1589)
▪ This duty arises—
2
a. Even before default, if:
1.) the stipulation so provides; if none, the rate is 12% per annum
when the obligation arises out of a loan or a forbearance of money,
goods or credits. In other cases, it shall be six percent (6%).
2.) the thing produces fruits or income which pertain to the buyer
under Art. 1164
b. After default (moratory interest) – from the time of judicial or
extrajudicial demand for the payment of the price
Case:
Rate of interest if payable as indemnity for delay in the performance of
an obligation
Crismina Garments Corp vs. CA
Facts:
The herein petitioner, which was engaged in the export of girls’ denim
pants, contracted the services of the respondent, the sole proprietress
of the D’Wilmar Garments, for the sewing of 20,762 pieces of assorted
girls‘ denims supplied by the petitioner. The petitioner was obliged to
pay the respondent, for her services, in the total amount of
P76,410.00. The respondent sewed the materials and delivered the
same to the petitioner which acknowledged the same in good order
condition.
At first, the respondent was told that the sewing of some of the pants
was defective. She offered to take delivery of the defective pants.
However, she was later told by petitioner’s representative that the
goods were already good. She was told to just return for her check of
P76,410.00. However, the petitioner failed to pay her the aforesaid
amount.
This prompted her to hire the services of counsel who wrote a letter to
the petitioner demanding payment of the aforesaid amount within ten
(10) days from receipt thereof. However, the petitioner’s vice-
president-comptroller, wrote a letter to respondent’s counsel, averring,
inter alia, that the pairs of jeans sewn by her, numbering 6,164 pairs,
were defective and that she was liable to the [petitioner] for the amount
of P49,925.51 which was the value of the damaged pairs of denim
pants and demanded refund of the aforesaid amount.
On January 8, 1981, the respondent filed her complaint against the
petitioner with the trial court for the collection of the principal amount of
P76,410.00.
Issue:
Whether or not it is proper to impose interest at the rate of twelve
percent (12%) per annum for an obligation that does not involve a loan
or forbearance of money in the absence of stipulation of the parties.
Held:
We sustain petitioner’s contention that the interest rate should be
computed at six percent (6%) per annum.
The controversy revolves around petitioner’s payment of the price
beyond the period prescribed in a contract for a piece of work. Article
1589 of the Civil Code provides that "[t]he vendee [herein petitioner]
shall owe interest for the period between the delivery of the thing and
the payment of the price x x x should he be in default, from the time of
judicial or extrajudicial demand for the payment of the price." The only
issue now is the applicable rate of interest for the late payment.
Because the case before us is "an action for the enforcement of an
obligation for payment of money arising from a contract for a piece of
work,” petitioner submits that the interest rate should be six percent
(6%), pursuant to Article 2209 of the Civil Code, which states:
"If the obligation consists in the payment of money and the debtor
incurs in delay, the indemnity for damages, there being no stipulation
to the contrary, shall be the payment of the interest agreed upon, and
in the absence of stipulation, the legal interest, which is six per cent
per annum."
On the other hand, private respondent maintains that the interest rate
should be twelve percent (12%) per annum, in accordance with Central
Bank (CB) Circular No. 416, which reads:
"By virtue of the authority granted to it under Section 1 of Act No. 2655,
as amended, otherwise known as the ‘Usury Law’, the Monetary
Board, in its Resolution No. 1622 dated July 29, 1974, has prescribed
that the rate of interest for the loan or forbearance of any money,
goods or credits and the rate allowed in judgments, in the absence of
express contract as to such rate of interest, shall be twelve per cent
(12%) per annum."
We agree with the petitioner
This Court stressed that the interest rate under CB Circular No. 416
applies to (1) loans; (2) forbearance of money, goods or credits; or (3)
a judgment involving a loan or forbearance of money, goods or credits.
Cases beyond the scope of the said circular are governed by Article
2209 of the Civil Code, which considers interest a form of indemnity for
the delay in the performance of an obligation.
Because the amount due in this case arose from a contract for a piece
of work, not from a loan or forbearance of money, the legal interest of
six percent (6%) per annum should be applied. Furthermore, since the
amount of the demand could be established with certainty when the
Complaint was filed, the six percent (6%) interest should be computed
from the filing of the said Complaint. But after the judgment becomes
final and executory until the obligation is satisfied, the interest should
be reckoned at twelve percent (12%) per year.
Nacar vs. Gallery Frames
Basically a Labor case where the judgment has become final and
executory.
Court laid down the guidelines in the manner of computing legal
interest as cited in the case of Eastern Shipping Lines:
1. When the obligation is breached, and it consists in the
payment of a sum of money, i.e., a loan or forbearance of
money, the interest due should be that which may have been
stipulated in writing. Furthermore, the interest due shall itself
earn legal interest from the time it is judicially demanded. In
the absence of stipulation, the rate of interest shall be 12%
per annum to be computed from default, i.e., from judicial or
extrajudicial demand under and subject to the provisions of
Article 1169 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of
money, is breached, an interest on the amount of damages
awarded may be imposed at the discretion of the court at the
rate of 6% per annum. No interest, however, shall be
adjudged on unliquidated claims or damages except when or
until the demand can be established with reasonable
certainty. Accordingly, where the demand is established with
reasonable certainty, the interest shall begin to run from the
time the claim is made judicially or extrajudicially (Art. 1169,
Civil Code) but when such certainty cannot be so reasonably
established at the time the demand is made, the interest
shall begin to run only from the date the judgment of the
court is made (at which time the quantification of damages
may be deemed to have been reasonably ascertained). The
actual base for the computation of legal interest shall, in any
case, be on the amount finally adjudged.
3. When the judgment of the court awarding a sum of money
becomes final and executory, the rate of legal interest,
whether the case falls under paragraph 1 or paragraph 2,
above, shall be 12% per annum from such finality until its
satisfaction, this interim period being deemed to be by then
an equivalent to a forbearance of credit.
3
D.) Legal Guaranties for Payment of the Price:
a. Suspension of delivery (retention) by the seller—
1) In cash sales, if the payment is not tendered (Art. 1524);
2) In sales on credit, if the buyer loses the benefit of the term
under Art. 1198 (Art. 1536) or the buyer is insolvent (Art.
1527)
b. Seller’s lien on the goods in his possession (Art. 1526)
c. Stoppage in transitu, if the buyer is insolvent and the price is
unpaid (Art. 1530)--
1) When goods are in transit (Art. 1531):
- the goods must be in the possession of the carrier as
such, not as bailee for the buyer.
2) How stoppage is made (Art.1532)
a.) resuming actual possession;
b.) giving opportune notice to the carrier or bailee
3) Effect of notice on the carrier or bailee (Art. 1532, par. 2)
- the carrier or baille must redeliver, unless the
negotiable receipt issued is not surrendered to the
carrier or bailee.
d. Resale of the goods (Art. 1533)
1) The remedy is applicable in case of:
a.) perishable goods; or
b.) express reservation in the event of default; or
c.) default for an unreasonable time on the part of the
buyer,
Provided: the seller has a lien or made stoppage in transit.
e. Rescission of transfer of title
1) In case of goods (corporeal movables)—
a.) Extrajudicial rescission (Art. 1534), if:
i) expressly reserved, or
ii) the buyer is in default for an unreasonable time in
paying the price
- notice (or some overt act) is required otherwise
transfer of title is not rescinded, but need not be
communicated to the buyer
- failure to give notice is relevant on the question of
default for an unreasonable time; and
iii) the seller has a lien or made stoppage in transitu
(Art. 1534)
b.) Judicial (Art. 1191), if—
i) the buyer fails to accept at the stipulated time,
without just reasons.
ii) the buyer fails to tender the price upon receipt, if
no period was stipulated (Art. 1593)
2) In case of real property (Art. 1592)
GEN. RULE:
➢ the buyer may pay until given judicial or notarial demand for
rescission, despite a stipulation to the contrary
EXCEPTIONS: This rule does not apply:
a.) where the title was reserved by the seller
b.) in case of danger of loss of the thing and price, after delivery
(Art. 1591), the seller may sue immediately for rescission
even if the price is not yet due
c.) to mere contract to sell
3.)Action for the Price and Damages (see Post)
Chapter 6
Actions for Breach of Contract Of Sale Of Goods
I. Action for the price (of personal property) – (Art. 1595)
A. Grounds—
a) After ownership has passed, and price is not paid, if no period
for payment was given.
b) Failure to pay where it is stipulated to be payable on a certain
day, irrespective of delivery or transfer of title, although title has
not passed.
➢ Defenses of the buyer:
1. That the seller at any time before judgment, manifested
either—
I. inability to perform; or
II. intention not to perform
c) Refusal of the buyer to accept delivery of the goods, if:
1) The goods were offered and refused;
2) The goods can not be readily sold;
3) The buyer did not notify repudiation before the goods
were placed in a fully deliverable state (if Art. 1596, par.4 is
not applicable); and
4) The seller notifies the buyer that he holds the goods as
bailee for the buyer
* then the seller may treat the goods as the buyer’s and sue
for the price.
Case:
See De Guzman vs. Triangle Ace Corp, supra
(p.1 of this reviewer)
II. Action for damages for non- acceptance (Art. 1596) of the
goods
A. Grounds--
a) The buyer’s wrongful failure to accept and pay (the goods may
be resold).
b) The buyer’s repudiation or countermand before the goods are
placed in a deliverable state.
B. Measure of damages
a) GEN. RULE:
➢ the loss naturally and directly resulting (in the ordinary
course) from the breach.
b) When there is available market—
➢ the difference between the contract price and the market
price at the time when acceptance should be made.
** if no time was fixed for acceptance, then the market price
at the time of refusal.
c) When repudiation is made or notified before the seller
completes preparation for fulfillment—
➢ the liability is for expenses incurred, and
➢ the profit the seller would have obtained under the contract.
III. Action for Total Rescission (Art. 1597) by the seller (against
the buyer)
A. Requisites:
a.) the goods were not delivered
b.) the buyer either—
1. repudiates; or
2. manifests inability to perform; or
3. commits breach of contract;
c.) the seller gives notice of his election to rescind.
IV. Buyer’s Action for Seller’s Specific Performance (Art. 1598)
A. The seller has no option to retain the goods by paying
damages.
B. The judgment may be absolute or conditional as the court
deems fit.
4

V. Buyer’s Action for Breach of Warranty (Art. 1599)- (express or
impied)
A. Buyer’s choices:
1) to accept or keep the goods and set off damagesm against the
price;
2) to accept the goods and sue for damages;
3) to refuse to return the goods and sue for damages;
4) to rescind the contract, refuse or return the goods and recover
the price.
* rescission= mutual restitution
Case:
Harrison Motors vs. Navarro, supra
Facts:
Harrison Motors Corporation through its president, Renato Claros, sold
two (2) Isuzu Elf trucks to private respondent Rachel Navarro, owner of
RN Freight Lines, a franchise holder operating and maintaining a fleet
of cargo trucks all over Luzon. Petitioner, a known importer, assembler
and manufacturer, assembled the two (2) trucks using imported
component parts. 2 Prior to the sale, Renato Claros represented to
private respondent that all the BIR taxes and customs duties for the
parts used on the two (2) trucks had been paid for.
In December of 1988 government agents seized and detained the two
(2) Elf trucks of respondent after discovering that there were still
unpaid BIR taxes and customs duties thereon. The BIR and the BOC
ordered private respondent to pay the proper assessments or her
trucks would be impounded. Private respondent went to Claros to ask
for the receipts evidencing payment of BIR taxes and customs duties;
however, Claros refused to comply. Private respondent then
demanded from Claros that he pay the assessed taxes and warned
him that he would have to reimburse her should she be forced to pay
for the assessments herself. Her demands were again ignored thus
this case was filed.
Issue:
Whether the breach of an express warranty gives right to the buyer to
ask for reimbursement?
Held:
Yes.
It is true that the ownership of the trucks shifted to private respondent
after the sale. But petitioner must remember that prior to its
consummation it expressly intimated to her that it had already paid the
taxes and customs duties. Such representation shall be considered as
a seller's express warranty under Art. 1546 of the Civil Code which
covers any affirmation of fact or any promise by the seller which
induces the buyer to purchase the thing and actually purchases it
relying on such affirmation or promise. It includes all warranties which
are derived from express language, whether the language is in the
form of a promise or representation. Presumably, therefore, private
respondent would not have purchased the two (2) Elf trucks were it not
for petitioner's assertion and assurance that all taxes on its imported
parts were already settled.
This express warranty was breached the moment petitioner refused to
furnish private respondent with the corresponding receipts since such
documents were the best evidence she could present to the
government to prove that all BIR taxes and customs duties on the
imported component parts were fully paid. Without evidence of
payment, she was powerless to prevent the trucks from being
impounded.
Under Art. 1599 of the Civil Code, once an express warranty is
breached the buyer can accept or keep the goods and maintain an
action against the seller for damages. This was what private
respondent did. She opted to keep the two (2) trucks which she
apparently needed for her business and filed a complaint for damages,
particularly seeking the reimbursement of the amount she paid to
secure the release of her vehicles.
B. Nature of the options
➢ The options are alternative, but the buyer may ask for
rescission after asking for specific performance, if the latter is
impossible (Art. 1191, par. 2)
Case:
Supercars Management vs. Flores, supra
Facts:
Respondent Flores purchased a vehicle (Isuzu carter Crew cab)
from Supercars. The vehicle, after it was delivered to respondent,
malfunctioned. Flores complained about the defects. It was repaired
and returned assuring that it was already in good condition. After few
days, the same defects resurfaced, prompting respondent to send
petitioner a letter rescinding the contract of sale and returning the
vehicle due to breach of warranty against hidden defects.
Petitoner contend that the vehicle had only “minor and
inconsequential defects” which “were promptly and satisfactorily
repaired pursuant to its warranty as the seller.
Issue:
Whether respondent has the right to rescind the contract of sale
and to claim damages as a result thereof.
Held:
YES.
The evidence clearly shows that Flores was justified in opting to
rescind the sale given the hidden defects of the vehicle, allowance for
the repair of which he patiently extended, but which repair did not turn
out to be satisfactory. It is well within respondent’s right to recover
damages from petitioner who committed a breach of warranty against
hidden defects.
It is well within respondent's right to recover damages from petitioner
who committed a breach of warranty against hidden defects. Article
1599 of the Civil Code partly provides:
"Article 1599. Where there is a breach of warranty by the
seller, the buyer may, at his election:
xxx
(4) Rescind the contract of sale and refuse to receive the
goods, or if the goods have already been received, return
them or offer to return them to the seller and recover the
price or any part thereof which has been paid.
When the buyer has claimed and been granted a remedy in
anyone of these ways, no other remedy can thereafter be
granted, without prejudice to the provisions of the second
paragraph of Article 1191.
Petitioner's contention that under Article 1191 of the Civil Code,
rescission can no longer be availed of as the vehicle was already in the
hands of an innocent purchaser for value lacks merit. Rescission is
proper if one of the parties to a contract commits a substantial breach
of its provisions. It creates an obligation to return the object of the
contract. It can be carried out only when the one who demands
rescission can return whatever he may be obliged to restore.
Rescission abrogates the contract from its inception and requires a
mutual restitution of the benefits received. Petitioner is thus mandated
by law to give back to respondent the purchase price upon his return of
the vehicle.
C. The buyer can not rescind, if:
a.) he knew of the beach of warranty when he accepted the good;
or
b.) he fails to notify the seller in due time of the election to
rescind; or
5
 c.) he fails to return the goods in substantially the same condition.
** unless the deterioration was due to the breach of warranty.
D. Effects of Buyer’s Election to Rescind (Art. 1599, par. 4)
1) The buyer ceases to be liable for the price upon tender or
return of the goods.
2) He may recover the price paid—
a.) concurrently with the return, or
b.) immediately after the tender.
3) If the seller refuses to accept the return; the buyer holds the
goods as bailee. In which case, the buyer—
➢ has a lien on the goods to secure repayment of the price;
and
➢ has a right of stoppage in transitu and resale, as the seller
has under Art. 1526
E. Loss in Case of Breach of Warranty of Quality (Art. 1599, par.5)
➢ The liability consists in the difference in value at the time of
delivery and the value if the warranty were not broken.
➢ Unless, special circumstances show greater damage.
II. Conventional redemption includes transactions presumed to be
equitable mortgages
A. Equitable mortgage
➢ One in which although it lacks some formality, form or words
or other requisites, prescribed by a statute, show the intention
of the parties to charge a real property as security for a debt
and contains nothing impossible or contrary to law.
B. The following are presumed to be equitable mortgages:
a) Contracts of sale with right to repurchase in the following
cases— (Art. 1602)
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 the period of redemption is extended;
4. When the vendee retains part of the price;
5. When the vendor binds himself to pay taxes;
6. Other cases where it may be inferred that the intention of the
parties is that the transaction is to secure the payment of a
debt or the performance of any other obligation.

Chapter 7 Cases:
Extinguishment of Sale 1.) Caballero vs Ong Tiao Bok
Facts:
I. Causes of Extinguishment Sergio Caballero, the predecessor-in-interest of the petitioners sold to
A. General Causes (Art. 1231)— respondent Ong Tiao Bok for P60,000 two parcels of land with a total
a) Payment or performance area of about 11 hectares. They executed a “Deed of Sale with Right
b) Loss of the thing due to Repurchase” with a provision that the vendor may repurchase the
c) Condonation or remission property with 5 years with a grace period of another 3 years.
d) Confusion or merger
e) Compensation 16 years after the expiration of the period fro redemption, the
f) Novation petitioners filed an action for cancellation of the annotations of the sale
g) Annulment on the titles of the lots. They claimed that the contract entered into by
h) Rescission their father was an equitable mortgage. Their complaint was dismissed
i) Fulfillment of a resolutory condition by the trial court on the ground that the contract in question was a valid
j) Prescription contract of sale with a right of repurchase.

When they appealed to the CA, they argued that the contract was an
B. Special Causes— equitable mortgage because the purchase price was lower than the
a. Redemption assessed value. They reiterated this contention in their petition before
1. Conventional the SC.
2. Legal
Issue:
II. Art. 1600- applies to perfected as well as consummated sales. Was the contract entered into by Caballero and Ong Tiao Bok an
equitable mortgage?

Section 1—
Conventional Redemption
(Sales with Pacto De Retro)
I. Concept
A. Defined (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 Art. 1616 and other
stipulations as agreed upon.
B. Nature: conventional redemption is—
a. An accidental element (must be stipulated);
b. An express condition;
c. A potestative resolutory condition;
d. A real right which may be sold or assigned and enforced
against a third person claiming under the purchaser.
Held:
No. It was a valid pacto de retro sale.
In order to determine whether a contract is one of sale or mortgage,
the intention of the parties must be ascertained. In this case, the
parties stipulated that “for and in consideration of the sum of P60,000,
which the Party of the Second Part [respondent] shall pay the Party of
the First Part [Caballero], the latter hereby sells, cedes and conveys
unto the Party of the Second Part all his rights, interest and
participation in the abovementioned lots” and that “after the expiration
of five (5) years from signing of the contract the Party of the First Part
has the right to repurchase the two lots for the same consideration as
stated in the Deed of Sale with pacto de retro and that the said Party of
the First Part shall have a grace period of three (3) years from the
expiration of the five years.” These stipulations clearly express the
intention of the parties to enter into a contract of sale with a right to
repurchase. Their contract needs no interpretation and should be
enforced as written.
2.) Ramos vs Sarao
Facts:
Spouses Jonas Ramos and Myrna Ramos executed a contract over
their conjugal house and lot in favor of Susana S. Sarao for and in
consideration of P1,310,430. Entitled “DEED OF SALE UNDER

6
PACTO DE RETRO,” the contract, inter alia, granted the Ramos
spouses the option to repurchase the property within six months from
February 21, 1991, for P1,310,430 plus an interest of 4.5 percent a
month. It was further agreed that should the spouses fail to pay the
monthly interest or to exercise the right to repurchase within the
stipulated period, the conveyance would be deemed an absolute sale.
Myrna Ramos tendered to Sarao the amount of P1,633,034.20 in the
form of two manager’s checks, which the latter refused to accept for
being allegedly insufficient. On August 8, 1991, Myrna filed a
Complaint for the redemption of the property and moral damages plus
attorney’s fees. On August 13, 1991, she deposited with the RTC two
checks that Sarao refused to accept.
Thereafter, Sarao filed against the Ramos spouses a Petition “for
consolidation of ownership in pacto de retro sale.”
Issue:
Whether the parties intended the contract to be a bona fide pacto de
retro sale or an equitable mortgage.
Held:
There is no single conclusive test to determine whether a deed
absolute on its face is really a simple loan accommodation secured by
a mortgage. However, the law enumerates several instances that show
when a contract is presumed to be an equitable mortgage, as follows:
Article 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 benefit to be
received by the vendee as rent or otherwise shall be considered as
interest which shall be subject to the usury laws.
Furthermore, a contract purporting to be a pacto de retro is construed
as an equitable mortgage when the terms of the document and the
surrounding circumstances so require. The law discourages the use of
a pacto de retro, because this scheme is frequently used to circumvent
a contract known as a pactum commissorium. The Court has
frequently noted that a pacto de retro is used to conceal a contract of
loan secured by a mortgage. Such construction is consistent with the
doctrine that the law favors the least transmission of rights.
Jurisprudence has consistently declared that the presence of even just
one of the circumstances set forth in the forgoing Civil Code provision
suffices to convert a contract to an equitable mortgage. Article 1602
specifically states that the equitable presumption applies to any of the
cases therein enumerated.
In the present factual milieu, the vendor retained possession of the
property allegedly sold. Petitioner and her children continued to use it
as their residence, even after Jonas Ramos had abandoned them. In
fact, it remained as her address for the service of court orders and
copies of Respondent Sarao’s pleadings.
The presumption of equitable mortgage imposes a burden on Sarao to
present clear evidence to rebut it. Corollary to this principle, the
favored party need not introduce proof to establish such presumption;
the party challenging it must overthrow it, lest it persist. To overturn
that prima facie fact that operated against her, Sarao needed to
adduce substantial and credible evidence to prove that the contract
was a bona fide pacto de retro. This evidentiary burden she miserably
failed to discharge.
Contrary to Sarao’s bare assertions, a meticulous review of the
evidence reveals that the alleged contract was executed merely as
security for a loan.
3.) Diño vs. Jardines
Facts:
On December 14, 1992, Leonides C. Diño (petitioner) filed a Petition
for Consolidation of Ownership with the Regional Trial Court of Baguio
City, Branch 7 (RTC). She alleged that: on January 31, 1987, Lina
Jardines (respondent) executed in her favor a Deed of Sale with Pacto
de Retro over a parcel of land with improvements thereon covered by
Tax Declaration No. 44250, the consideration for which amounted to
P165,000.00; it was stipulated in the deed that the period for
redemption would expire in six months or on July 29, 1987; such
period expired but neither respondent nor any of her legal
representatives were able to redeem or repurchase the subject
property; as a consequence, absolute ownership over the property has
been consolidated in favor of petitioner.
Respondent countered in her Answer that: the Deed of Sale with Pacto
de Retro did not embody the real intention of the parties; the
transaction actually entered into by the parties was one of simple loan
and the Deed of Sale with Pacto de Retro was executed just as a
security for the loan; the amount borrowed by respondent during the
first week of January 1987 was only P50,000.00 with monthly interest
of 9% to be paid within a period of six months, but since said amount
was insufficient to buy construction materials for the house she was
then building, she again borrowed an additional amount of P30,000.00;
it was never the intention of respondent to sell her property to
petitioner; the value of respondent’s residential house alone is over a
million pesos and if the value of the lot is added, it would be around
one and a half million pesos; it is unthinkable that respondent would
sell her property worth one and a half million pesos for only
P165,000.00; respondent has even paid a total of P55,000.00 out of
the amount borrowed and she is willing to settle the unpaid amount,
but petitioner insisted on appropriating the property of respondent
which she put up as collateral for the loan; respondent has been the
one paying for the realty taxes on the subject property; and due to the
malicious suit filed by petitioner, respondent suffered moral damages.
After trial, the RTC rendered its Decision declaring the contract entered
into by the contending parties as one of deed of sale with right to
repurchase or pacto de retro sale and ordering the consolidation of
ownership of Diño over the residential house and other improvements,
and over the rights, she (Diño) acquired over the parcel of land in
question.
Respondent then appealed to the CA which reversed the RTC
judgment. The CA held that the true nature of the contract between
7
herein parties is one of equitable mortgage, as shown by the fact that
(a) respondent is still in actual physical possession of the property; (b)
respondent is the one paying the real property taxes on the property;
and (c) the amount of the supposed sale price, P165,000.00, earns
monthly interest.
Hence, herein petition for review on certiorari.
Issue:
Whether or not the true nature of the contract entered into by the
parties as one equitable mortgage and not a pacto de retro sale.
Held:
The Court sees no reversible error with the foregoing findings of fact
made by the CA. The CA correctly ruled that the true nature of the
contract entered into by herein parties was one of equitable mortgage.
Article 1602 of the Civil Code enumerates the instances when a
purported pacto de retro sale may be considered an equitable
mortgage.
In Legaspi vs. Ong, the Court further explained that:
The presence of even one of the above-mentioned circumstances as
enumerated in Article 1602 is sufficient basis to declare a contract of
sale with right to repurchase as one of equitable mortgage. As stated
by the Code Commission which drafted the new Civil Code, 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 in order to secure the payment of the loan, a
contract purporting to be a sale with pacto de retro is drawn up.
In the same case, the Court cited Article 1603 of the Civil Code, which
provides that in case of doubt, a contract purporting to be a sale with
right to repurchase shall be construed as an equitable mortgage.
In the instant case, the presence of the circumstances provided for
under paragraphs (2) and (5) of Article 1602 of the Civil Code, and the
fact that petitioner herself demands payment of interests on the
purported purchase price of the subject property, clearly show that the
intention of the parties was merely for the property to stand as security
for a loan. The transaction between herein parties was then correctly
construed by the CA as an equitable mortgage.
b) Contracts of absolute sale in the cases mentioned in Art.
1602 (Art. 1604)
1.) Go vs. Bacaron
Facts:
As evidenced by the Transfer of Rights dated October 1, 1993,
Eliodoro Bacaron conveyed a 15.3955-hectare parcel of land located in
Langub, Talomo, Davao City, in favor of Benny Go for P20,000.00.
About a year thereafter, Bacaron, seeking to recover his property, went
to Go to pay his alleged P20,000.00 ‘loan’ but the latter refused to
receive the same and to return his property saying that the transaction
between the two of them was a sale and not a mortgage as claimed by
Bacaron.
Consequently, on March 5, 1997, Eliodoro Bacaron, as plaintiff [herein
respondent], filed a Complaint for Reformation of Instrument with
Damages and prayer for the issuance of a writ of preliminary
injunction, with the Regional Trial Court of Davao City, Branch 12,
against the [petitioner] Benny Go, which case was docketed as Civil
Case No. 25,101-97.
Issue:
Whether the agreement entered into by the parties was one for
equitable mortgage or for absolute sale.
Held:
In the present case, three of the instances enumerated in Article 1602
-- grossly inadequate consideration, possession of the property, and
payment of realty taxes -- attended the assailed transaction and thus
showed that it was indeed an equitable mortgage.
Inadequate Consideration
The parties’ respective arguments show that the sum of
P20,000, by itself, is inadequate to justify the purported absolute
Transfer of Rights. Petitioner’s claim that there was a dacion en pago
is not reflected on the instrument executed by the parties. That claim,
however, confirms the inadequacy of the P20,000 paid in consideration
of the Transfer of Rights; hence, the Contract does not reflect the true
intention of the parties. As to what their true intention was -- whether
dacion en pago or equitable mortgage -- will have to be determined by
some other means.
Possession
In the present case, the witnesses of respondent swore that
they had seen him gather fruits and coconuts on the property. Based
on the cited case, the witnesses’ testimonies sufficiently establish that
even after the execution of the assailed Contract, respondent has
remained in possession of the property. The testimonies proffered by
petitioner’s witnesses merely indicated that they were tenants of the
property. Petitioner only informed them that he was the new owner of
the property. This attempt at a factual presentation hardly signifies that
he exercised possession over the property. As held by the appellate
court, petitioner’s other witness (Redoña) was unconvincing, because
he could not even say whether he resided within the premises.
Payment of Realty Taxes
The appellate court concluded that he had paid taxes for the
years 1995, 1996 and 1997 within each of those years; hence, before
the filing of the present controversy. In contrast, petitioner paid only
the remaining taxes due on October 17, 1997, or after the case had
been instituted. This fact allegedly proves that respondent has
remained in possession of the property and continued to be its owner.
He argues that if he had really transferred ownership, he would have
been foolish to continue paying for those taxes.
Petitioner indeed paid the realty taxes on the property for the years
1980 to 1997. The records show that the payments were all
simultaneously made only on October 31, 1997, evidently in the light of
the Complaint respondent had filed before the trial court on March 5,
1997.[30] On the other hand, respondent continued to pay for the
realty taxes due on the property for the years 1995, 1996 and 1997.
That the parties intended to enter into an equitable mortgage is
bolstered by respondent’s continued payment of the real property
taxes subsequent to the alleged sale. Payment of those taxes is a
usual burden attached to ownership. Coupled with continuous
possession of the property, it constitutes evidence of great weight that
a person under whose name the realty taxes were declared has a valid
and rightful claim over the land.
2.) Romulo vs. Layug
Facts:
On April 11, 1996, petitioners Spouses Cesar and Nenita Romulo filed
a verified Complaint for Cancellation of Title, Annulment of Deed of
Absolute Sale and Contract of Lease with Damages against
respondents Spouses Moises and Felisarin Layug. The complaint was
docketed as Civil Case No. 96-0172 and raffled to Branch 258 of the
RTC of Parañaque.
Petitioners averred in their complaint that sometime in 1986, they
obtained from respondents a loan in the amount of P50,000.00 with a
monthly interest of 10%, which subsequently ballooned to
P580,292.00. To secure the payment of the loan, respondents
allegedly duped petitioners into signing a Contract of Lease and a
8
Deed of Absolute Sale covering petitioners’ house and lot located at
Phase II, BF Homes, Sucat, Parañaque and covered by Transfer
Certificate of Title (TCT) No. S-71528. The Deed of Absolute Sale
purportedly facilitated the cancellation of petitioners’ title on the house
and lot and the issuance of TCT No. 20489 in the name of
respondents. Thus, petitioners prayed for the nullification of the Deed
of Absolute Sale, the contract of lease and TCT No. 20489, and the
award of moral and exemplary damages
Prior to the filing of Civil Case No. 96-0172, respondent Moises Layug,
Jr. (“Moises”) filed Civil Case No. 9422, an action for ejectment,
against petitioners to compel the latter to vacate the house and lot
allegedly sold by petitioners to Moises and subsequently rented out by
him to petitioners. Moises alleged that petitioners violated the terms of
the Contract of Lease when the latter failed to pay any rental or
exercise their option to repurchase the house and lot and refused to
vacate the property despite demand.
Issue:
Whether or not the parties intended an equitable mortgage.
Held:
The form of the instrument cannot prevail over the true intent of the
parties as established by the evidence. We have also decreed that in
determining the nature of a contract, courts are not bound by the title
or name given by the parties. The decisive factor in evaluating such
agreement is the intention of the parties, as shown not necessarily by
the terminology used in the contract but by their conduct, words,
actions and deeds prior to, during and immediately after execution of
the agreement. In order to ascertain the intention of the parties, their
contemporaneous and subsequent acts should be considered. Once
the intention of the parties has been ascertained, that element is
deemed as an integral part of the contract as though it has been
originally expressed in unequivocal terms. As such, documentary and
parol evidence may be submitted and admitted to prove such intention.
And, in case of doubt, a contract purporting to be a sale with right to
repurchase shall be construed as an equitable mortgage.
Between 1985 and 1987, petitioner Nenita Romulo (“Nenita”) obtained
from respondent Felisarin Layug (“Felisarin”) loans in various amounts
totaling around P500,000.00. Being close friends at that time, Felisarin
did not require any written instrument to secure payment, other than
the title to the house and lot, which Nenita handed to Felisarin
sometime in 1988. When respondents demanded payment of the loan,
petitioners defaulted. Nevertheless, as admitted by Layug, despite her
repeated demands, she allowed petitioners some more time within
which to pay their debts. Felisarin claimed that eventually petitioners
offered their house and lot as payment for their debt because
petitioners no longer had any money. However, even after the
execution of the assailed Deed of Absolute Sale, respondents
continued to grant petitioners loan accommodations as evidenced by
the three promissory notes executed by petitioner Cesar Romulo.
Respondents’ continuing to lend money to petitioners does not make
sense if the intention of the parties was really to extinguish petitioners’
outstanding obligation. The logical and inevitable conclusion is that
respondents deemed it wise to formalize a security instrument on
petitioners’ house and lot by executing the Deed of Absolute Sale after
realizing that petitioners could no longer fully satisfy their obligation to
respondents. At that time, as petitioners were hard-pressed to come up
with funds to pay their loan, they were hardly in a position to bargain.
The preponderance of evidence shows that they signed knowing that
said documents did not express their real intention, and if they did so
notwithstanding this, it was due to the urgent necessity of obtaining
funds. “Necessitous men are not, truly speaking, free men; but to
answer a present emergency will submit to any terms that the crafty
may impose upon them.” The circumstances surrounding the execution
of the Deed of Absolute Sale, particularly the fact that respondents
continued to extend some loans to petitioners after its execution,
precludes the Court from declaring that the parties intended the
transfer of the property from one to the other by way of sale.
3.) Bacungan vs. CA
Facts:
Respondents Napoleon and Victoria Velo instituted an action for
reconveyance with damages against petitioners Alexander and Jean
Jimeno Bacungan before the RTC of Rosales, Pangasinan.
They alleged that they were the registered owners of 18 parcels of land
and that sometime in February of 1993, they had experienced
business reversals and financial difficulties and had sought assistance
from petitioners in securing a loan. Petitioners allegedly proposed that
they would obtain the loan from the bank provided that respondents
secure the transfer of the titles to petitioners that would be used as
security for the loan. Respondents agreed, executed the corresponding
deeds of sale and caused the cancellation and issuance of new TCTs
over the properties in favor of petitioners. However, respondents
claimed that after petitioners had obtained the new titles, they never
applied for a loan with the bank but had secretly negotiated for the sale
of the properties to third parties.
In their answer, petitioners asserted that respondents offered to sell to
them 23 parcels of land, 18 of which were used as collateral for the
loan respondents had obtained from Traders Royal Bank. Petitioners
claimed to have bought 22 parcels of land and executed the
corresponding deeds of sale on 26 February 1993 and 10 March 1993.
They also allegedly paid in full respondents’ obligation with said bank
but only 18 certificates of title released by the bank were delivered to
petitioners. Petitioners further maintained that out of their
gratuitousness, they returned one of the deeds of sale to respondents
and considered the sale as cancelled. Petitioners averred that the
amounts they paid to respondents, as well as their payments to the
bank, were more than enough as consideration of the 23 contracts.
Issue:
Whether or not the deeds of absolute sale in this case embody the real
intention of the parties.
Held:
After a careful examination of the records of the case, the Court finds
that the deeds of absolute sale do not embody the real intention of the
parties. The records reveal that respondents had earlier executed
several real estate mortgages over the properties to secure the
payment of the total amount of P350,000.00. Respondents defaulted
on the payments, prompting the bank to foreclose the properties.
However, as illustrated in the testimony of respondent Victoria Velo,
respondents and petitioners devised a plan in which they agreed that
in exchange for the apparent transfer of ownership of the parcels of
land to petitioners, the latter would provide for the funds for the
redemption of the properties from the bank in addition to the loan that
petitioners would obtain from the bank. Thus, respondents were able to
redeem the properties for the amount of P369,000.00 that was
advanced by way of mortgage to them by petitioners. The amount
approximates the total loans in the amount of P350,000.00 secured by
the properties subject of the real estate mortgages executed by
respondents.
Thereafter, respondents executed several deeds of sale purporting to
transfer the 18 parcels of lands for a total consideration of
P232,000.00. The parties further agreed that upon the transfer of the
properties in the name of petitioners, the latter would obtain another
loan from the bank using the properties as collateral. Petitioners were
supposed to remit the loan proceeds to respondents after deducting
the amount of P369,000.00 lent by petitioners to respondents and,
thereafter, allow respondents to buy back the properties. However,
because petitioners had failed to secure a loan from the bank after the
transfer of the titles in their names, respondents instituted the present
action to nullify the deeds of sale on the ground that the sale was
simulated.
This kind of arrangement, where the ownership of the land is
supposedly transferred to the buyer who provides for the funds to
redeem the property from the bank but nonetheless allows the seller to
9
later on buy back the properties, is in the nature of an equitable
mortgage governed by Articles 1602 and 1604 of the Civil Code
In the instant case, three telling circumstances indicating that an
equitable mortgage exists are present. First, as established by the CA,
the price of each of the properties was grossly inadequate. Second,
petitioners retained part of the "purchase price" when they failed to turn
over to the respondents the loan that they were supposed to secure
from the bank. Third, petitioners insisted that part of the consideration
of the sale consisted of amounts previously borrowed by respondents
from them, indicating that petitioners were using the properties as
"security" for the payment of respondents’ other loans from them.
c) When a transaction purporting to be a contract of sale with
right to repurchase is of doubtful interpretation. (Art. 1603)
1. A stipulation that in case of failure of the vendor-a-retro as
lessee to pay rentals, the lease shall automatically terminate
and the right of ownership of the vendee shall become absolute
—is valid, not contrary to law, nor oppressive. It is a clause
common to “pacto de retro” and has received court sanction.
2. Although “pactum commissorium” (a stipulation for automatic
vesting of title over the security in the creditor in case of
debtor’s default) is void, such a clause in a contract is
conclusive proof that it is a mortgage and not a sale with pacto
de retro.
C. Effect when the transaction is deemed an equitable mortgage:
a) Fruits, money or other benefit received as rents by the
vendee are considered as interest which shall be subject to the
usury laws. (Art. 1602, last par.)
b) The apparent vendor may ask for the reformation of the
instrument (Art. 1605)
Case:
Go vs, Bacaron, supra (refer to FACTS on p. 11)
Second Issue:
Reformation of Instrument
Held:
Petitioner claims that the CA erred in granting the remedy of
reformation of contracts. He avers that the failure of the instrument to
express the parties’ true agreement was not due to his mistake; or to
fraud, inequitable conduct, or accident.
We rule for respondent.
Ultimately, it is the intention of the parties that determines
whether a contract is one of sale or of mortgage. In the present case,
one of the parties to the contract raises as an issue the fact that their
true intention or agreement is not reflected in the instrument. Under
this circumstance, parol evidence becomes admissible and competent
evidence to prove the true nature of the instrument. Hence, unavailing
is the assertion of petitioner that the interpretation of the terms of the
Contract is unnecessary, and that the parties clearly agreed to execute
an absolute deed of sale. His assertion does not hold, especially in the
light of the provisions of Article 1604 of the Civil Code, under which
even contracts purporting to be absolute sales are subject to the
provisions of Article 1602.
Moreover, under Article 1605 of the New Civil Code, the
supposed vendor may ask for the reformation of the instrument, should
the case be among those mentioned in Articles 1602 and 1604.
Because respondent has more than sufficiently established that the
assailed Contract is in fact an equitable mortgage rather than an
absolute sale, he is allowed to avail himself of the remedy of
reformation of contracts.
III. Period of Repurchase or Redemption
A. When no period is agreed upon—
➢ 4 years from the date of the contract (Art. 1606, par.1)
B. When a period is agreed upon— (which includes a stipulation of
redemption “at any time”) –
➢ Within the period stipulated, which cannot exceed 10 years
(Art. 1606, par. 2)
C. When period may be extended—
➢ the period may be extended to 30 days after final judgment
was rendered in a civil case claiming that the contract was a
true sale with right to repurchase (Art. 1606, par.3)
a. Pendency of litigation suspends the period of redemption
b. The 30-day extension is applicable even should the case be
filed after the expiration of the redemption period, if the parties
dispute its nature as a pacto-de-retro sale with the allegation
that it does not express their true agreement.
▪ The period, during which the vendor can not redeem, when added to
the period of permitted redemption must not total more than 10
years.
▪ Redemption period was not extended by the enemy occupation.
Case:
Abilla vs, Gobonseng
Facts:
Petitioner spouses instituted against respondents an action for specific
performance, recovery of sum of money and damages, docketed as
Civil Case No. 8148 of the Regional Trial Court of Dumaguete City,
Branch XLII, seeking the reimbursement of the expenses they incurred
in connection with the preparation and registration of two public
instruments, namely a “Deed of Sale” and an “Option to Buy.” In their
answer, respondents raised the defense that the transaction covered
by the “Deed of Sale” and “Option to Buy,” which appears to be a Deed
of Sale with Right of Repurchase, was in truth, in fact, in law, and in
legal construction, a mortgage.
The trial court ruled in favor of petitioners and declared that the
transaction between the parties was not an equitable mortgage. On
appeal by respondents, the Court of Appeals ruled that the transaction
between the parties was a pacto de retro sale, and not an equitable
mortgage.
Issue:
Whether or not the declaration of the transaction as a pacto de retro
sale by the appellate court entitle respondents to the right of
repurchase set forth under the third paragraph of Article 1606 of the
Civil Code.
Held:
Following the theory of the respondents which was sustained by the
trial court, the scenario would be that although respondents failed in
their effort to prove that the contract was an equitable mortgage, they
could nonetheless still repurchase the property within 30 days from the
finality of the judgment declaring the contract to be truly a pacto de
retro sale. However, under the undisputed facts of the case at bar, this
cannot be allowed.
In the parallel case of Vda. de Macoy v. Court of Appeals,[15] the
petitioners therein 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 virtue of Article 1606, 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
10
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 rendition of final
judgment declaring the contract to be a true sale with right to
repurchase. Conversely, if it should appear that the parties’ agreement
was really one of sale — transferring ownership to the vendee, but
accompanied by a reservation to the vendor of the right to repurchase
the property — and there are no circumstances that may reasonably
be accepted as generating some honest doubt as to the parties'
intention, the proviso is inapplicable. The reason is quite obvious. 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. As postulated by the petitioner, “to allow herein
private respondents to repurchase the property by applying said
paragraph x x x to the case at bar despite the fact that the stipulated
redemption period had already long expired when they instituted the
present action, would in effect alter or modify the stipulation in the
contract as to the definite and specific limitation of the period for
repurchase (2 years from date of sale or only until June 25, 1958)
thereby not simply increasing but in reality resuscitating the expired
right to repurchase x x x and likewise the already terminated and
extinguished obligation to resell by herein petitioner.” The rule would
thus be made a tool to spawn, protect and even reward fraud and bad
faith, a situation surely never contemplated or intended by the law.
In the case at bar, both the trial court and the Court of Appeals were of
the view that the subject transaction was truly a pacto de retro sale;
and that none of the circumstances under Article 1602 of the Civil
Code exists to warrant a conclusion that the transaction subject of the
“Deed of Sale” and “Option to Buy” was an equitable mortgage. The
Court of Appeals correctly noted that if respondents really 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 on August 21, 1983.
Clearly, therefore, the declaration of the transaction as a pacto de retro
sale will not, under the circumstances, entitle respondents to the right
of repurchase set forth under the third paragraph of Article 1606 of the
Civil Code.
D. Rulings on the period within which to make a repurchase—
a) The legal period of 4 years may be extended by stipulation,
provided that the new period does not exceed 10 years (Umale
vs. Fernandez, 28 Phil 89).
b) A stipulation that the vendor cannot redeem the property until
after 3 years should be construed to allow redemption within 4
years, after the lapse of the 3 years. Counted from such lapse
(Rosales vs. Reyes, 25 Phil 495).
c) An agreement granting the vendor the right to repurchase
when he “has established a certain business” is not a period. In
such a case the vendor may redeem within 4 years (Medel vs.
Francisco, 51 Phil 367).
d) Where there is an agreed period, the period in excess of 10
years is void. (Montero vs. Salgado, 27 Phil 367).
e) A stipulation granting the vendors the right to redeem “at any
time the vendors have the money” should be construed to allow
redemption within 10 years (Soriano vs. Abalos, 47 O.G. 168).
f) The stipulated period of redemption is suspended by the filing
of an action brought in good faith relating to the validity of a sale
with pacto-de-retro (it being claimed an equitable mortgage) and
again commences to run only after decision declaring it to be a
sale has become final (Fernandez vs. Suplido, L-5977, Feb. 17,
1955)
g) Where the courts are functioning regularly, the redemption term
is not suspended or extended by war (Yoro vs. Yagas, 47 O.G.
2390).
IV. Who may redeem or exercise the right of redemption—
A. The vendor in whose favor the right is reserved.
The following are included:
a.) When the vendors are co-owners selling jointly and in the
same contract an undivided immovable.
1. Right of each co-owner:
▪ to redeem only his share (Art. 1612, par.1)
2. Right of the vendee:
▪ he may compel all the co-owners to redeem the whole
(Art. 1613). Also when the whole of the property is
adjudicated to the vendee in partition (Art. 1611).
b.) When a co-owner sells his share of an undivided immovable
separately (Art. 1614)
1. Right of the vendor—co-owner:
▪ he may only redeem his share (Art. 1614);
▪ he cannot be compelled to redeem the whole (Art.
1614)
B. Heirs of the vendor (Art. 1612, par.2)
a.) Right of each heir:
➢ each can redeem only the part which he may have acquired
b.) Right of the vendee:
➢ he may compel all the heirs to redeem the whole (Art. 1613)
C. Creditors of the vendor (Art. 1610)
a.) Requisite:
➢ The creditors must have already exhausted the properties of
the vendor (Art. 1610).
V. From or against whom may redemption be made-
A. The vendee
B. The heir or heirs of the vendee
B.1 Rule if there is more than one heir
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.
(1615)
C. 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. (1608)
VI. Obligations of the vendor-a-retro
A.The vendor’s obligations (1616)
a.1 to return the price of the sale
a.2The expenses of the contract, and any other legitimate
payments made by reason of the sale
a.3The necessary and useful expenses made on the thing sold.
B.Effect of the vendor’s failure to comply with his obligation
11
b.1 General Rule: Ownership is consolidated in the vendee.
b.2 Exception: In case of real property, the consolidation of ownership
in the vendee by virtue of 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. (1607)
VII. Obligations of the vendee-a-retro
A. To return the thing sold free from all liens and mortgages
constituted by the vendee.(1618)
Exception: Lease contracts in good faith and according to customs
which must be respected
VIII. Rights of the vendee-a-retro
A. 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 in
partition proceedings.
B. To be subrogated to the vendor’s rights and actions (1609)
A.Redemption by Co-owners
a. Purpose- to end indivision or at least reduce the number of co-
owners, keeping strangers out of the co-ownership.
b. Requisites:
1. Co-ownership must exist
2. There must be alienation of the shares of all other co-
owners or any of them
3. Alienation must be to a stranger not to a co-owner
4. Alienation to said stranger must be before partition
For other requisites pls refer to the cases below:
Aguilar v. Aguilar
GR No. 141613
Parties: SENEN   B.   AGUILAR- petitioner
VIRGILIO B. AGUILAR and ANGEL B. AGUILAR-
respondents, Alejandro Sangalang- intervenor-
respondent
Facts:
On October 28, 1993, Senen and Virgilio purchased a house and lot
Maximiano Aguilar (now deceased).   The brothers wanted their father
to enjoy his retirement in a quiet neighborhood.   

IX. Rules on Pro-rating fruits existing at the time of redemption February 23, 1970, they executed a written agreement stipulating that
their shares in the house and lot would be equal; and that Senen would
A.If there are visible fruits existing at the time of the execution of the live with their father on condition that he would pay the Social Security
sale: NO REIMBURSEMENT OR PRO-RATING IS REQUIRED. System (SSS) the remaining loan obligation of the former owners. 
(1617, p. 1)
In 1974, their father died.  Virgilio then demanded that Senen vacate
Exception: If indemnity for fruits was paid by the vendee when the sale the house and that the property be sold, the proceeds to be divided
was executed(1617, p. 1) between them.   Senen refused to comply with Virgilio’s demand.
B.If NO visible fruits existing at the time of the sale: FRUITS MUST BE
PRO-RATED BETWEEN THE REDEMPTIONER AND THE VENDEE. January 12, 1979, Virgilio filed a complaint with the Court of First
(1617, P.1) Instance (now Regional Trial Court) of Rizal at Pasay City for specific
performance
Share of the vendee: that portion corresponding to the time he                   
possessed the land in the last year counted from the anniversary of the July 26, 1979, the trial court rendered its Decision, declaring the
date of sale. brothers co-owners of the house and lot and are entitled to equal
shares; and ordering that the property be sold, the proceeds to be
Section 2 – LEGAL REDEMPTION divided equally between them.    The trial court also ordered Senen to
vacate the property and to pay Virgilio rentals with interests
ARTS. 1619-1623 corresponding to the period from January 1975 until he leaves the
premises.  
i.CONCEPT
On March 27, 1995, Senen filed with RTC, an action for legal
A. DEFINITION- the right to be subrogated, upon the same terms and redemption against Virgilio and another brother, Angel.    In his
conditions stipulated in the contract, in the place of one who acquires a complaint, Senen alleged that while he knows that Virgilio sold his ½
thing by purchase or dation inpayment, or by any other transaction share of the property to Angel in January 1989, however, he (Senen)
whereby ownership is transmitted by onerous title. (1619) was not furnished any written notice of the sale.    Consequently, as a
co-owner, he has the right to redeem the property.
B.Alienation must be by
a. Sale November 27, 1995, the property was sold at public auction to
b. Dation in payment (dacion en pago) Alejandro. Virgilio then received his share of the proceeds as well as
c. Transaction whereby ownership is transferred by onerous the rental payments due from Senen.
title (1619)
The trial court dismissed the case on the ground of laches, holding that
C.Distinction between PRE-EMPTION AND LEGAL REDEMPTION Senen incurred a delay of seven (7) years before asserting his right to
redeem the property in question. On appeal, the Court of Appeals
PRE-EMPTION REDEMPTION affirmed the assailed Order of the trial court.
1. arises before sale 1. arises after sale
2. no rescission because no sale 2. there can be rescission of ISSUE: WON Senen’s complaint for legal redemption is barred by
as yet exists the original sale laches.
3. the action is directed against 3. action is directed against the
the prospective seller buyer Ruling: The court in this case had discussed on matters involving legal
redemption.

Legal redemption (retracto legal de comuneros) is a privilege created

D.Applicability of the Rules: The rules are applicable to both movables by law, partly by reason of public policy and partly for the benefit of the
and immovables. redemptioner to afford him a way out of a disagreeable or inconvenient
association into which he has been thrust.
II.INSTANCES OF LEGAL REDEMPTION
12

With respect to redemption by co-owners, in case the share of a co-
owner is sold to a third person, the governing law is Article 1620 of the
Civil Code which provides:  RTC- favored the Barabats, declaring the private document as a valid
         “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 rate.
            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.”
The purpose behind Article 1620 is to provide a method for terminating
the co-ownership and consolidating the dominion in one sole owner.
Article 1623 of the same Code also provides:
            ”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 vendee, 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 vendee that he has given written
notice thereof to all possible redemptioners.
            The right of redemption of co-owners excludes that of adjoining
owners.”
 
From the above provisions, the following are the requisites for the
exercise of legal redemption: (1) There must be a co-ownership; (2)
one of the co-owners sold his right to a stranger;  (3) the sale was
made before the partition of the co-owned property; (4) the right
of redemption must be exercised by one or more co-owners
within a period of thirty days to be counted from the time that he
or they were notified in writing by the vendee or by the co-owner
vendor; and (5) the vendee must be reimbursed for the price of
the sale.
Petitioner has actual knowledge ( no need of written notice when there
is actual knowledge) of the sale of Virgilio’s share to Angel in 1989.    respectively have in the thing owned in common.
As provided by Article 1623, he has thirty days from such actual
knowledge within which to exercise his right to redeem the property.  
Inexplicably, petitioner did not take any action.    He waited for seven
(7) years before filing his complaint.   Definitely, such an unexplained
delay is tantamount to laches.    To be sure, to uphold his right would
unduly cause injury to respondent-intervenor, a purchaser in good faith
and for value. DENIED.
Avila v. Barabat
GR. No. 141993
Parties: Narcisa Avila et. Al-petitioner
Sps. Barabat – respondent
FACTS: (Redemption not applicable)
Subject property is a land located in Toledo City which is now owned
by the 5 children of Anunciation (upon her death), each of the five
children have built their houses on the lot.
Sps. Barabat leased the house built by Narcisa Avila (Avila) one of the
children. Avila subsequently relocated to Cagayan de Oro City. She
came back to Toledo City in July 1979 to sell her house and share in
the lot to her siblings but no one showed interest in it. She then offered
it to respondents who agreed to buy it. Both Parties executed a private
document evidencing the transaction. Respondents stopped paying
rentals to Avila and took possession of the property as owners. They
also assumed the payment of realty taxes on it.
1982, Adlawans demanded Barabats to relocate as they are
purchasing the house and lot of Avila. Respondents then filed an
action for quieting of title and specific performance for Avila to issue a
public document. Avila denied the sale, alleging it was a loan and that
she innocently affixed her signature on the document.
and lawful deed of sale. It nullified the subsequent deed of sale
between Avila and the spouses Adlawan. Avila was ordered to execute
a formal and notarized deed of sale in favor of respondents. CA
affirmed.
ISSUE: WON the transaction between respondents and Avila was an
absolute sale or an equitable mortgage.
Petitioners Relied on Arts. 1602 and 1604 Equitable mortgage and on
1620 and 1623 of the Civil Code to justify their right of redemption.
RULING: For Articles 1602 and 1604 to apply, two requisites must
concur: (1) the parties entered into a contract denominated as a
contract of sale and (2) their intention was to secure an existing debt
by way of mortgage.Here, both the trial and appellate courts found that
Exhibit "A" evidenced a contract of sale. They also agreed that the
circumstances of the case show that Avila intended her agreement
with respondents to be a sale. Both courts were unanimous in finding
that the subsequent acts of Avila revealed her intention to absolutely
convey the disputed property. It was only after the perfection of the
contract, when her siblings began protesting the sale, that she wanted
to change the agreement.
Petitioner’s reliance on 1620 and 1623 is incorrect:
These provisions state:
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 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
xxxxxxxxx
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.
Petitioners’ right to redeem would have existed only had there
been co-ownership among petitioners-siblings. But there was
none. For this right to be exercised, co-ownership must exist at the
time the conveyance is made by a co-owner and the redemption is
demanded by the other co-owner or co-owner(s).However, by their
own admission, petitioners were no longer co-owners when the
property was sold to respondents in 1979. The co-ownership had
already been extinguished by partition.
Every act intended to put an end to indivision among co-heirs is
deemed to be a partition.Here, the particular portions pertaining to
petitioners had been ascertained and they in fact already took
possession of their respective parts. Under the law, subject to certain
conditions, owners of adjoining urban land have the pre-emptive right
to a lot before it is sold to third parties, or the redemptive right if it has
already been sold. This is not applicable in the case and this is not also
alleged. DENIED.
c. Who May Exercise Redemption-
A Co-owner (1620)
13
 If two or more co-owners desire to redeem they may only do
so in PROPORTION to the share they may respectively
have in the thing owned in common (1620 p.2)
CASE: Effect of Redemption by a co-owner of a deceased co-owners
share
Cabales v. CA
GR No. 162421
Parties: Nelson and Rito Cabales- petitioners
CA, Jesus and Anunciacion Feliano- Respondents
FACTS: Subject property is a parcel of land owned by Rufino. When
Rufino died intestate, his wife Saturnina and his six (6) children,
Bonifacio, Albino, Francisco, Leonora, Alberto and petitioner Rito,
survived and succeeded him.  Article 996 of the New Civil Code
provides that “[i]f a widow or widower and legitimate children or
descendants are left, the surviving spouse has in the succession the
same share as that of each of the children.”  Verily, the seven (7) heirs
inherited equally on subject property.  Petitioner Rito and Alberto,
petitioner Nelson’s father, inherited in their own rights and with equal
shares as the others. 
Two sale transactions involving the same parcel took place (1) Pacto
de retro sale to Dr. Corrompido made by Bonifacio, Albino and
Alberto. Prior to repurchasing Alberto died; it was Saturnina (mama
nila) who repurchased the land (2) Upon redemption from Dr.
Corrompido, the subject property was resold to respondents-spouses
by the co-owners.  Petitioners Rito and Nelson were then minors and
as indicated in the Deed of Sale, their shares in the proceeds were
held in trust by respondents-spouses to be paid and delivered to them
upon reaching the age of majority.  Nelson and Rito now questions the
validity of the sale as regards to their respective shares in the
undivided lot and as to whether Nelson can redeem.
RTC: Favored Petitioners. Sale was Valid
CA: Modified: It held that the sale by Saturnina of petitioner Rito’s
undivided share to the property was unenforceable for lack of authority
or legal representation but that the contract was effectively ratified by
petitioner Rito’s receipt of the proceeds on July 24, 1986.  The
appellate court also ruled that petitioner Nelson is co-owner to the
extent of one-seventh (1/7) of subject property as Saturnina was not
subrogated to Alberto’s rights when she repurchased his share to the
property.  It further directed petitioner Nelson to pay the estate of the
late Saturnina Cabales the amount of P966.66, representing the
amount which the latter paid for the obligation of petitioner Nelson’s
late father Alberto.  Finally, however, it denied petitioner Nelson’s claim
for redemption for his failure to tender or consign in court the
redemption money within the period prescribed by law.   Galvez v. CA
ISSUE: WON Nelson and Rito still has rights over the lands sold to
respondents.
RULING: SC Affirmed CA’s decision with modification ordering RoD to
cancel OCT and issue new CT to Respondents Feliano for the 6/7 and
1/7 to Nelson and his mother pro-indiviso.
When Saturnina repurchased the property, she is not subrogated
to Alberto’s or his heirs rights to the property.
With respect to petitioner Nelson, on the other hand, the contract of
sale was void.  He was a minor at the time of the sale.  It was his
mother who was his legal guardian and, if duly authorized by the
courts, could validly sell his undivided share to the property.  She did
not.  Necessarily, when Saturnina and the others sold the subject
property in its entirety to respondents-spouses, they only sold and
transferred title to their pro-indiviso shares and not that part which
pertained to petitioner Nelson and his mother.  Consequently,
petitioner Nelson and his mother retained ownership over their
undivided share of subject property.  of TIMOTEA FLORES GALVEZ.
Accordingly, the contract of sale as to the pro-indiviso share of
petitioner Rito was unenforceable.  However, when he acknowledged
receipt of the proceeds of the sale on July 24, 1986, petitioner Rito
effectively ratified it.  This act of ratification rendered the sale valid and
binding as to him.
But may petitioners redeem the subject land from respondents-
spouses?  Articles 1088 and 1623 of the New Civil Code are pertinent
Art. 1088.  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 by the vendor.
 
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.
 
Clearly, legal redemption may only be exercised by the co-owner
or co-owners who did not part with his or their pro-indiviso share
in the property held in common.  As demonstrated, the sale as to
the undivided share of petitioner Rito became valid and binding upon
his ratification on July 24, 1986.  As a result, he lost his right to redeem
subject property. 
 
Nelson and his mother may redeem the subject property from
respondents-spouses.  But they must do so within thirty days from
notice in writing of the sale by their co-owners vendors.  The Court is
satisfied that there was sufficient notice of the sale to petitioner
Nelson.  The thirty-day redemption period commenced in 1993, after
petitioner Nelson sought the barangay conciliation process to redeem
his property.  It was only in 1995 when complaint was filed so
redemption period has expired.
d. Obligation of the Redemptioneer
TO PAY THE PRICE OF THE SALE (1620 P.1) BUT when the price is
grossly excessive, he is only obliged to pay a reasonable price
e. Legal Redemption by Co-heirs (1088) is a variety of this redemption
by co-owners.
CASE: Redemption by excluded co-heir
GR. NO. 157954
Parties: Paz Galvez et al.- petitioners
CA, Porfirio Galvez- respondents
FACTS: Subject property is a parcel of land (unirrigated Riceland)
owned originally by Timotea.
The land is now co-owned by Paz and Porfirio. However, after
executing a deed of adjudication that she is the owner of the land Paz
sold the land to Tam. Tam sold it to Tycoon properties.
Hence, Porfirio filed an action for Legal Redemption with Damages and
Cancellation of Documents 13 against Paz Galvez and Carlos Tam
RTC: Ruled in favor of Porfirio. Declaring the affidavit of adjudication
and the sale of Paz-Tam-Tycoon properties as null and void and TCTs
be cancelled.that Tam is obliged to receive the redemption money.
That the property, be reconveyed (whole property) to PORFIRIO
GALVEZ, he having redeemed one-half (½) of the property from
CARLOS TAM and other half of the property belongs to him as co-heir
14
CA: Affirmed month from the time they were notified in writing of the sale by the
vendor."
ISSUE: 1. WON action has prescribed as the property is held in
implied trust. There was no written notice sent to Porfirio Galvez by Paz Galvez
2. WON action is barred by laches as it has been raised when she sold her share over the land to Carlos Tam. Porfirio Galvez
only after 24 years. only discovered on May 12, 1994.Tam and Tycoon are not purchasers
3. WON Tycoon properties and Tam are purchasers for in good faith as they did not exert efforts to determine the true title of
value and in good faith. the land.

RULING: Affirmed the decision of CA.

This case is governed by the rules on co-ownership since both Paz
Galvez and Porfirio Galvez are obviously co-owners of the disputed
property having inherited the same from a common ancestor. It is a
B. Redemption by Adjoining Owners
fundamental principle that a co-owner cannot acquire by prescription
a. Instances
the share of the other co-owners, absent any clear repudiation of the
co-ownership.
1. Rural Lands
Purpose- to favor the development of rural property in the interest
Implied trust comes into being by operation of law. The latter kind is
of agriculture.
either constructive or resulting trust. A constructive trust is imposed
where a person holding title to property is subject to an equitable duty
Requisites:
to convey it to another on the ground that he would be unjustly
a. Both adjoining tenements are rural.
enriched if he were permitted to retain it. The duty to convey the
b. There must be alienation.
property arises because it was acquired through fraud, duress, undue
c. The area of the land alienated does not exceed one hectare
influence or mistake, or through breach of a fiduciary duty, or through
d. The tenements must be adjacent without solution of surface
the wrongful disposition of another’s property.
continuity (tenements separated by brooks, ravines, roads,
etc. are excluded)
The prescriptive period may only be counted from the time petitioners
e. The vendee must owned some other rural land.
repudiated the trust relation in 1955 upon the filing of the complaint for
recovery of possession against private respondents so that the
Who may exercise the right; By order of Preference
counterclaim of the private respondents contained in their amended
a. Co-owners (1623 p. 2)
answer wherein they asserted absolute ownership of the disputed
b. Adjoining owners (1621 p.3)
realty by reason of the continuous and adverse possession of the
b.1 the owner of the adjoining land with smaller area.
same is well within the 10-year prescriptive period.
b.2. the first to request redemption if areas are equal.
In this case, we find that Paz Galvez effected no clear and evident
CASES:
repudiation of the co-ownership. The execution of the affidavit of self-
Fabia v. IAC
adjudication does not constitute such sufficient act of repudiation as
GR NO. L-66101
contemplated under the law as to effectively exclude Porfirio Galvez
Parties: Sps. Fabia-Petitioners
from the property. This Court has repeatedly expressed its
IAC et. Al- Respondents
disapproval over the obvious bad faith of a co-heir feigning sole
ownership of the property to the exclusion of the other heirs
Facts:
essentially stating that one who acts in bad faith should not be
1. Plaintiffs reside on a lot east of the land in question and adjacent to
permitted to profit from it to the detriment of others. In the cases of
it;
Adille and Pangan where, as in this case, a co-heir was excluded from
2. The lot is owned by the plaintiffs in common;
his legal share by the other co-heir who represented himself as the
3. The land in question formerly belonged to Hugo Mararac who sold
only heir, this Court held that the act of exclusion does not constitute
the same to the spouses Leonardo Mararac and Monica Resuello;
repudiation.
4. At that time, the lot now owned by plaintiffs was owned by plaintiff
Angel Mararac and Juanito Mararac, who was the husband of plaintiff
On the issue of prescription, while admittedly prescription operates as
Carina Rafanan who died in 1976;
a bar to recovery of property, the ten-year period commenced to run
5. Leonardo Mararac and Monica Resuello sold to the defendants the
from date of registration. In this case, Carlos Tam obtained his title to
land in question on February 25, 1975;
the property on 21 January 1994. Since the complaint of Porfirio
6. At that time, the lot in eastern side of the land in question was
Galvez was filed on 12 May 1994, the same was well within the ten-
owned by Angel Mararac and his brother, Juanita Mararac;
year period to file the action.
7. On April 8, 1975, defendants declared the land for tax purposes;
8. At the time of sale of the land in question to the defendants in 1975
On the matter of laches, it is hornbook doctrine that laches is a
there was no offer to exercise right of legal redemption;
creation of equity and its application is controlled by equitable
9. At the time of the sale of the land in question to Leonardo Mararac
considerations. Laches cannot be used to defeat justice or perpetrate
and Monica Resuello in 1971, there was no offer of legal redemption;
fraud and injustice. Neither should its application be used to prevent
10. There was no legal redemption offered during the period between
the rightful owners of a property from recovering what has been
the first and second sale;
fraudulently registered in the name of another. The equitable remedy
11. The southern boundary of the lot in question is a barrio road with
of laches is, therefore, unavailing in this case.
approximate area of 10 meters wide;
12. The land in question in relation to plaintiffs' lot is not separated by
Finally, petitioners claim that if the sale would be nullified, the
ravine, by brook, trait road or other servitude for the benefit of others;
nullification should extend only to the one-half share of Porfirio Galvez
13. The land in question is fenced and was fenced even before the first
but not to the share of Paz Galvez, who, by her overt act of selling the
sale in March 27, 1971;
property, manifested her intention to dispose of her part.
14. Defendants own rural lands other than the land in question;
15. From Barangay Balogo, to Basing along the road touching the
Art. 1088, provides: "Should any of the heirs sell his hereditary rights to
southern bound of the land in question are lines of houses on both
a stranger before the partition, any or all the co-heirs may be
sides;
subrogated to the rights of the purchaser by reimbursing him for the
16. House of plaintiffs is along the said road;
price of the sale, provided they do so within the period of one (1)

15
17. A portion of the land in question on the side farther from the road,
is used as a fishwell;
18. Plaintiffs offered to redeem the land in the amount paid by the
defendants as well as an amount for the return of investment of the
property and interest, and payments of attorney's fees and are able
and willing to make the payment.
RTC- favored petitioners
CA- Reversed
ISSUEs: 1. WON the land in question may be considered rural for
purposes of legal redemption under Section 2, Chapter 7, Title VI, New
Civil Code 2. WON the parties are guilty of laches to prevent them from
redeeming the property.
RULING: A construction of the word "rural" that is in consonance with
the legislative purpose must be followed.
Thus, rural lands are distinguished from urban tenements:
xxx xxx xxx
(2) By its purpose or being for agricultural, fishing or timber
exploitation, and not for dwelling, industry or commerce.
xxx xxx xxx
The respondents have failed to satisfy the above criterion. The land in
question cannot be legally classified as rural land since it is
principally used for residential rather than agricultural purposes.
From the respondent's complaint alone, the land is admittedly
residential. 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 (Republic of the
Philippines v. Lara, 50 O.G. 5778). We have to apply the rule of reason
based on the specific facts of each case. The land, subject matter of
the petition, being primarily residential, cannot be considered as rural
for purposes of legal redemption under the law.
A further requisite laid down by the law to enable legal
redemption of adjoining lands is that 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.
If either, is urban or both are urban, there is no right of
redemption.
Thus, the circumstances under which legal redemption may be
exercised not having been found present in the case at bar, the
respondents have no right to enforce against the petitioners.
GRANTED
Primary Structures Corp. V. Valencia
GR. No. 150060
FACTS: Petitioner is a private corporation based in Cebu City.
Adjacent to the lot of petitioner are parcels of land. The three lots,
Mendoza to respondent spouses sometime in December 1994. 
Petitioner learned of the sale of the lots only in January, 1996, when
Mendoza sold to petitioner a parcel also adjacent to lot belonging to
the latter.  Forthwith, it sent a letter to respondents, on 30 January
1996, signifying its intention to redeem the three lots. Respondents
Refused.
Thereupon, invoking the provisions of Articles 1621 and 1623,
petitioner filed an action against respondents to compel the latter to
allow the legal redemption.  Petitioner claimed that neither Mendoza,
the previous owner, nor respondents gave formal or even just a verbal
notice of the sale of the lots as so required by Article 1623 of the Civil
Code.
RTC: Dismissed
CA: Affirmed dismissal
ISSUE: WON Arts. 1621 and 1623 are applicable.
RULING: Whenever a piece of rural land not exceeding one hectare is
alienated, the law grants to the adjoining owners a right of redemption
except when the grantee or buyer does not own any other rural land. In
order that the right may arise, the land sought to be redeemed and the
adjacent property belonging to the person exercising the right of
redemption must both be rural lands.  If one or both are urban lands,
the right cannot be invoked.
The trial court found the lots involved to be rural lands.  Unlike the case
of Fabia vs. Intermediate Appellate Court (which ruled, on the issue of
whether a piece of land was rural or not, that the use of the property for
agricultural purpose would be essential in order that the land might be
characterized as rural land for purposes of legal redemption),
respondents in the instant case, however, did not dispute before the
Court of Appeals the holding of the trial court that the lots in question
are rural lands. 
With respect to the second issue, Article 1623 of the Civil Code
provides that the right of legal pre-emption or redemption shall not be
exercised except within thirty days from notice in writing by the
prospective vendor, or by the vendor, as the case may be.  In stressing
the mandatory character of the requirement, the law states that the
deed of sale shall not be recorded in the Registry of Property unless
the same is accompanied by an affidavit of the vendor that he has
given notice thereof to all possible redemptioners
GRANTED, and the assailed decision of the CA is REVERSED and
SET ASIDE.  Petitioner is hereby given a period of thirty days from
finality of this decision within which to exercise its right of legal
redemption.
2. Urban Lands (1622)
Requisites
a. Both adjoining tenements are urban
b. The tenement being redeemed was bought merely for
speculation
c. The major portion of the tenement is so situated that it
cannot be used for any practical purpose within a reasonable
time.
d. There is alienation
e. The tenements are adjacent
Who may exercise the right- ( by order of preference)
a. Co-owners (1623 p.2)
b. Adjoining owners (1622 p.1) ; if two or more adjoining
owners desire to exercise the right: Preference is given
to the adjacent owner/s whose intended use of the land
in question appears best justified. (1622 p.3)
CASE:
Contreras v. CA
GR No. 164819
Parties: Jerty Pascual Contreras- Petitioners
CA, Sps. Alcantara- respondents
FACTS: Property subject to the controversy is a house owned by Leis
constructed on a parcel of land owned by Gatchalian. This segregate
ownership of land and improvement, unreconciled to date, has
ultimately spawned the present dispute.
The house after redeemed by Alcantaras ownership was transferred to
them, they then rented it to Contreras. Alcantaras then purchased an
adjacent land to their house. The Land where the house was located
on the one hand has been mortgage and foreclosed subsequently by
Capitol Bank (CCDB). The Bank now sold the land to Contreras (sa
nagrent sa house). Spouses Alcantara now wants to avail their
preferential right as adjoining lot owner and that they were not notified
of the sale to Contreras. They pray for the annulment of the sale
between Contreras and CCDB.
16

RTC : The RTC rendered a Decision that affirmed the Alcantaras’
ownership over the subject house; ordered the surrender of
possession of the house to the Alcantaras; declared the Deed of
Absolute Sale as null and void. It further held that the Alcantaras were
entitled to exercise the right of pre-emption.
CA: Affirmed in toto.
ISSUE: WON the CS committed grave abuse of discretion when it
affirmed RTCs ruling to convey the land to the Alcantaras at a measly
sum of P212,400.
RULING: NO. As it happens, that “measly sum” happens to be the
exact amount for which CCDB had sold the subject property to
petitioner, as evidenced by the Deed of Absolute Sale which petitioner
herself had attached to her Answer before the RTC. The precise relief
granted by the RTC is drawn from the Alcantaras’ specific prayer in
their complaint that sought a judgment “allowing the plaintiffs to
exercise their right of pre-emption and redemption under Article 1622
of the Civil Code of the Philippines.
Clearly, it is sufficiently alleged in the complaint that the Alcantaras are
entitled to exercise their right of pre-emption and redemption under
Article 1622 of the Civil Code. They specifically prayed that judgment
be rendered entitling them to exercise such right, which under Article
1622 entails the following:
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 the 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.
x  x  x  x
The exercise of the right of redemption would entail the
reconveyance to petitioner of the subject land on which the house
stands. This relief stands apart from the judicial affirmation in the
same RTC decision that the Alcantaras are also the owners of the
house.
In the case at bar, the trial court found that the Alcantaras were entitled
to exercise their rights under Article 1622, but it would not have been
sufficient nor correct for it to just make the corresponding
pronouncement in the decision and then stop.  The relief assailed by
petitioner as unwarranted is nothing more but the affordance of the
right of redemption to the Alcantaras at the same reasonable price the
bank had sold the property to petitioner.  We see no error in granting
such relief. DENIED.
b.Obligation of the Redemptioneer
1. To pay a reasonable price
2. To notify the prospective vendor and vendee of his desire
to redeem.
III. Procedure in Redemption
A. When to exercise the redemption- within 30 days from the
notice in writing by the vendor
CASES:
Verdad v. CA
GR No. 109972
FACTS:
The petitioner, Zosima Verdad, is the purchaser of a 248-square meter
residential lot. Private respondent, Socorro Cordero Vda. de Rosales,
seeks to exercise a right of legal redemption over the subject property
and traces her title to the late Macaria Atega, her mother-in-law, who
died intestate on 08 March 1956.
ISSUE: (1) WON Socorro has the capacity to redeem the property
when she is only a daughter in law (of Macaria), she being the wife of
David Rosales(+) not a direct heir. (2) WON the right to lapse has not
lapsed.
RULING: (Alonzo v. IAC ruling not applied)
(1)YES, Socorro's right to the property is not because she rightfully can
claim heirship in Macaria's estate but that she is a legal heir of her
husband, David Rosales, part of whose estate is a share in his
mother's inheritance
(2) We hold that the right of redemption was timely exercised by
private respondents. Concededly, no written notice of the sale was
given by the Burdeos heirs (vendors) to the co-owners 5 required under
Article 1623 of the Civil
Code —
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 safe 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.
Hence, the thirty-day period of redemption had yet to commence
when private respondent Rosales sought to exercise the right of
redemption on 31 March 1987, a day after she discovered the sale
from the Office of the City Treasurer of Butuan City, or when the
case was initiated, on 16 October 1987, before the trial court.
The written notice of sale is mandatory. This Court has long
established the rule that 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. 6
The case of Alonzo v. IAC were SC held that actual knowledge is
equivalent to notification is an exception as the complaint was filed
only after 13 years have lapsed from consummation of sale. DENIED.
Francisco v. Boiser
Gr. No. 137677
FACTS
Petitioner Adalia B. Francisco and three of her sisters, Ester, Elizabeth
and Adeluisa, were co-owners of four parcels of registered lands 1 on
which stands the Ten Commandments Building. On August 6, 1979,
they sold 1/5 of their undivided share in the subject parcels of land to
their mother, Adela Blas, for P10,000.00, thus making the latter a co-
owner of said real property to the extent of the share sold.
On August 8, 1986, without the knowledge of the other co-owners,
Adela Blas sold her 1/5 share for P10,000.00 to respondent Zenaida
Boiser who is another sister of petitioner.
On August 5, 1992, petitioner received summons, with a copy of the
complaint, filed by respondent demanding her share in the rentals
being collected by petitioner from the tenants of the building. Petitioner
then informed respondent that she was exercising her right of
redemption as a co-owner of the subject property.
Petitioner alleged that she learned about the sale only in August 1992,
after she received the summons, together with the complaint.
Respondent countered that even before on May 1992, petitioner
already knew of the sale as she sent the latter a letter informing her
about the sale
ISSUE:WON the letter of May 30, 1992 sent by respondent to
petitioner notifying her of the sale on August 8, 1986 of Adela Blas' 1/5
share of the property to respondent, containing a copy of the deed
evidencing such sale, can be considered sufficient as compliance with
the notice requirement of Art. 1623 for the purpose of legal redemption.
RULING: (Alonzo v. IAC Ruling Applied)
17
YES. The principal difference between Art. 1524 of the former Civil
Code and Art. 1623 of the present one is that the former did not specify
who must give the notice, whereas the present one expressly says the
notice must be given by the vendor.
It makes sense to require that the notice required in Art. 1623 be given
by the vendor and by nobody else. As explained by this Court through
Justice J.B.L. Reyes in Butte, the vendor of an undivided interest is in
the best position to know who are his co-owners who under the law
must be notified of the sale. It is likewise the notification from the seller,
not from anyone else, which can remove all doubts as to the fact of the
sale, its perfection, and its validity, for in a contract of sale, the seller is
in the best position to confirm whether consent to the essential
obligation of selling the property and transferring ownership thereof to
the vendee has been given.
Now, it is clear that by not immediately notifying the co-owner, a
vendor can delay or even effectively prevent the meaningful exercise
of the right of redemption. In the present case, for instance, the sale
took place in 1986, but it was kept secret until 1992 when vendee
(herein respondent) needed to notify petitioner about the sale to
demand 1/5 rentals from the property sold. Compared to serious
prejudice to petitioner's right of legal redemption, the only adverse
effect to vendor Adela Blas and respondent-vendee is that the sale
could not be registered. It is non-binding, only insofar as third persons
are concerned. It is, therefore, unjust when the subject sale has
already been established before both lower courts and now, before this
Court, to further delay petitioner's exercise of her right of legal
redemption by requiring that notice be given by the vendor before
petitioner can exercise her right. For this reason, we rule that the
receipt by petitioner of summons in Civil Case No. 15510 on
August 5, 1992 constitutes actual knowledge on the basis of
which petitioner may now exercise her right of redemption within
30 days from finality of this decision. GRANTED.
Vda. De Ape v. CA
GR No. 133638
FACTS:
Cleopas Ape was the registered owner of a parcel of land particularly
Upon Cleopas Ape's death, the property passed on to his wife, Maria
Ondoy, and their eleven (11) children, namely:  Fortunato, Cornelio,
Bernalda, Bienvenido, Encarnacion, Loreta, Lourdes, Felicidad, Adela,
Dominador, and Angelina, all surnamed Ape.
On 15 March 1973, Generosa Cawit de Lumayno (private respondent
herein) instituted a case for "Specific Performance of a Deed of Sale
with Damages" against Fortunato and his wife Perpetua (petitioner
herein).  It was alleged in the complaint that on April 1971, private
respondent and Fortunato entered into a contract of sale of land.  hereditary rights to a stranger before partition (1088)
As private respondent wanted to register the claimed sale transaction,
she supposedly demanded that Fortunato execute the corresponding
deed of sale and to receive the balance of the consideration.  d. Redemption within 1 year by a judgment debtor or
However, Fortunato unjustifiably refused to heed her demands.  redemptioneer of real property sold under execution.
Private respondent, therefore, prayed that Fortunato be ordered to
execute and deliver to her "a sufficient and registrable deed of sale
involving his one-eleventh (1/11) share or participation in the land.
Fortunato and petitioner denied the material allegations of the
complaint and claimed that Fortunato never sold his share in Lot No.
2319 to private respondent and that his signature appearing on the
purported receipt was forged.  CASES:
ISSUE: WON Fortunato was furnished with a written notice of sale of
the shares of his co-owners as required by Article 1623 of the Civil
Code.
RULING: … Art. 1623 of the Civil Code is clear in requiring that the
written notification should come from the vendor or prospective vendor,
not from any other person.  There is, therefore, no room for
construction.  Indeed, the principal difference between Art. 1524 of the
former Civil Code and Art. 1623 of the present one is that the former
did not specify who must give the notice, whereas the present one
expressly says the notice must be given by the vendor.  Effect must be
given to this change in statutory language.
In this case, the records are bereft of any indication that Fortunato
was given any written notice of prospective or consummated sale
of the portions of Lot No. 2319 by the vendors or would-be
vendors.  The thirty (30)-day redemption period under the law,
therefore, has not commenced to run.
Despite this, however, we still rule that petitioner could no longer
invoke her right to redeem from private respondent for the exercise of
this right "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. The regime of co-ownership exists when
ownership of an undivided thing or right belongs to different persons.
By the nature of a co-ownership, a co-owner cannot point to specific
portion of the property owned in common as his own because his
share therein remains intangible. As legal redemption is intended to
minimize co-ownership, once the property is subdivided and distributed
among the co-owners, the community ceases to exist and there is no
more reason to sustain any right of legal redemption.
In this case, records reveal that although Lot No. 2319 has not yet
been formally subdivided, still, the particular portions belonging to
the heirs of Cleopas Ape had already been ascertained and they
in fact took possession of their respective parts.
Aguilar v. Aguilar (see above digested case)
Cabales v. CA (see above digested case)
B. Requisites for the registration of the sale in the registry of the
property- it must be accompanied by an affidavit of the
vendor that he has given written notice to all possible
redemptioneers.
C. Special Rules:
a. Legal Redemption requires no previous notice of
intention to redeem.
b. Tender of the price is not a condition precedent to
redemption.
IV. Other Cases of Legal Redemption
a. Redemption by the debtor in the sale of credit in litigation
(1634)
b. Redemption by co-heirs in case of a sale by an heir of his
c. Redemption by the applicant, his widow, and legal heirs
within 5 years from the conveyance under a homestead or
free patent (Sec. 119, CA 141)
e. Redemption by the owner of the property sold for delinquent
realty taxes.
f. Redemption within 1 year by the mortgagor in sales under
1. Extra-judicial foreclosure (Sec 6, Act 3135)
2. Judicial foreclosure sale by banks within the
purview of the General banking act
a. Period of redemption in auction sale of homestead to satisfy
money judgment
Tupas v. Damasco
GR No. L-34654
Facts:
On March 8, 1951, spouses Tupas were issued homestead patent and
on July 8, 1952, OCT was issued by the Register of Deeds of
Cotabato. On April 4, 1959, the land was sold at public auction to PNB
to satisfy a money judgment against Tupas in favor of PNB.
18
On April 6, 1959, a certificate of sale was issued to PNB with a right of
redemption within 1year or until April 4, 1960. The certificate of sale
was registered on August 26, 1959. On June 10, 1965, spouses
Tupas filed a case against Bulaong et al for repurchase of land under
section 119 of CA 141.
The lower court held that the 5-year period should be counted from
August 26, 1960 apparently because the sheriff’s certificate of sale
was registered on August 26, 1959 and it is only from the expiration of
this 1-year period of redemption that the 5-year period to repurchase
under Sec. 119 of CA 141 begins to run.
ISSUE: WON spouses Tupas can exercise the right of redemption
under Sec 119 of CA 141.
RULING: NO.
In the case of Olivia vs. Lamadrid the court ruled that, “It is therefore
our considered view that plaintiff herein has the right to repurchase
the property in question within five (5) years from the date of the
conveyance or foreclosure sale or up to February 4, 1966, and that
having exercised such right and tendered payment long before the
date last mentioned, defendants herein are bound to reconvey the
property to him.”
Applying the aforesaid doctrine to the case at bar, appellees could only
exercise the right to repurchase his former homestead within five years
from April 4, 1959, the date of the execution sale or up to April 4, 1964.
Since this action to repurchase was filed on June 10, 1965, the same
was filed out of time. At any rate, even if we have to compute the five-
year period from the expiration of the right to redeem granted to a
judgment debtor, still this case was filed beyond five years, because
the one-year period of redemption in this case expired on April 4, 1960,
and the five-year period from April 4, 1960 is April 4, 1965.
b. Period of redemption in auction sale of homestead
Belisario v. IAC
GR No. 73503
FACTS:
Sps Belisario were the grantees of a homestead patent. After the
death of Rufino (husband), his heirs executed a mortgage over the
homestead in favor of PNB. The mortgagors defaulted in the payment
of the loan. On January 31, 1963, the land was sold at public auction
with with PNB as the highest bidder. The sale was registered on July
22, 1971.
On April 21, 1971, Belisario et al. wrote to PNB making known their
desire to redeem the land for the same price as the auction sale. On
August 24, 1971, PNB refused Belisario’s offer of redemption. On
January 9, 1975, Belisario et al. filed an action for Repurchase of
Homestead against PNB.
The trial court dismissed the action on the grounds that consignation of
the redemption price was not made by Belisario. CA affirmed.
ISSUE: WON Belisario can repurchase the property under Sec. 119 of
CA 141.
RULING: YES
The redemption period, for purposes of determining the time when a
formal Deed of Sale may be executed or issued and the ownership of
the registered land consolidated in the purchaser at an extrajudicial
foreclosure sale under Act 3135, should be reckoned from the date of
the registration of the Certificate of Sale in the Office of the Register of
Deeds concerned and not from the date of public auction.
In this case, under Act 3135, petitioners may redeem the property until
July 22, 1972. In addition, Section 119 of Commonwealth Act 141
provides that every conveyance of land acquired under the free patent
or homestead patent provisions of the Public Land Act, when proper,
shall be subject to repurchase by the applicant, his widow or legal
heirs, within the period of five years from the date of conveyance. The
five-year period of redemption fixed in Section 119 of the Public Land
Law of homestead sold at extrajudicial foreclosure begins to run from
the day after the expiration of the one-year period of repurchase
allowed in an extrajudicial foreclosure. (Manuel vs. PNB, et al., 101
Phil. 968). Hence, petitioners still had five (5) years from July 22, 1972
(the expiration of the redemption period under Act 3135) within which
to exercise their right to repurchase under the Public Land Act.
Chapter 8
Assignment of Credits and Other Incorporeal Rights
I. Concept: “ A contract unilateral or bilateral, onerous or lucrative,
commutative or aleatory, whereby a person transmits to another his
right or rights against a third party, whether or not an equivalent for the
transmission is received from the transferee.” (Sanchez Roman)
While the NCC treats of assignment of credits as a variety of sales, the
fact is that the assignment may be effected in a variety of ways; by
sale, by barter, by donation or even by testament. The assignment is a
transfer entirely different from the transaction originating it.
CASE:
Ledonio v Capitol Development Corp.
GR No. 149040
FACTS:
This is a case for a collection of sum of money filed by Capitol
Development Corp against Ledonio. Respondent alleged that petitioner
obtained from a Ms. Patrocinio S. Picache two loans, with the
aggregate principal amount of P60,000.00, and covered by promissory
notes duly signed by petitioner.
Petitioner obtained two loans totaling P60,000.00 from Ms. Picache, for
which he executed promissory notes, dated 9 November 1988 and 10
November 1988; (2) he failed to pay any of the said loans; (3) Ms.
Picache executed on 1 April 1989 an Assignment of Credit covering
petitioner's loans in favor of respondent for the consideration of
P60,000.00; (4) petitioner had knowledge of the assignment of credit;
and (5) petitioner still failed to pay his indebtedness despite repeated
demands by respondent and its counsel. Petitioner's persistent
assertions that he never acquired any loan from Ms. Picache, or that
he signed the promissory notes in blank and under duress, deserve
scant consideration. They were already found by both the Court of
Appeals and the RTC to be implausible and inconsistent with
petitioner's own evidence.
ISSUE: WON conventional subrogation occurred when Ms. Picache
assigned the debt, due her from the petitioner, to the respondent; and
without petitioner's consent as debtor, WON the said conventional
subrogation should be deemed to be without force and effect.
RULING: NO to all. This Court cannot sustain petitioner's contention
and hereby declares that the transaction between Ms. Picache and
respondent was an assignment of credit, not conventional subrogation,
and does not require petitioner's consent as debtor for its validity and
enforceability.
An assignment of credit has been defined as an agreement by virtue of
which the owner of a credit (known as the assignor), by a legal cause -
such as sale, dation in payment or exchange or donation - and without
need of the debtor's consent, transfers that credit and its accessory
rights to another (known as the assignee), who acquires the power to
enforce it, to the same extent as the assignor could have enforced it
against the debtor.
On the other hand, subrogation, by definition, is the transfer of all the
rights of the creditor to a third person, who substitutes him in all his
rights. It may either be legal or conventional. Legal subrogation is that
which takes place without agreement but by operation of law because
19
of certain acts. Conventional subrogation is that which takes place by
agreement of parties.
Although it may be said that the effect of the assignment of credit is to
subrogate the assignee in the rights of the original creditor, this Court
still cannot definitively rule that assignment of credit and conventional
subrogation are one and the same.
A noted authority on civil law provided a discourse on the difference
between these two transactions, to wit –
Conventional Subrogation and Assignment of Credits. – In the
Argentine Civil Code, there is essentially no difference between
conventional subrogation and assignment of credit. The subrogation is
merely the effect of the assignment. In fact it is expressly provided
(article 769) that conventional redemption shall be governed by the
provisions on assignment of credit.
Under our Code, however, conventional subrogation is not
identical to assignment of credit. In the former, the debtor's consent
is necessary; in the latter, it is not required. Subrogation extinguishes
an obligation and gives rise to a new one; assignment refers to the
same right which passes from one person to another. The nullity of an
old obligation may be cured by subrogation, such that the new
obligation will be perfectly valid; but the nullity of an obligation is not
remedied by the assignment of the creditor's right to another.
(Emphasis supplied.)
This Court has consistently adhered to the foregoing distinction
between an assignment of credit and a conventional subrogation. Such
distinction is crucial because it would determine the necessity of the
debtor's consent. In an assignment of credit, the consent of the debtor
is not necessary in order that the assignment may fully produce the
legal effects. What the law requires in an assignment of credit is not
the consent of the debtor, but merely notice to him as the assignment
takes effect only from the time he has knowledge thereof. A creditor
may, therefore, validly assign his credit and its accessories without the
debtor's consent. On the other hand, conventional subrogation
requires an agreement among the parties concerned – the original
creditor, the debtor, and the new creditor. It is a new contractual
relation based on the mutual agreement among all the necessary
parties.
Article 1300 of the Civil Code provides that conventional subrogation
must be clearly established in order that it may take effect. Since it is
petitioner who claims that there is conventional subrogation in this
case, the burden of proof rests upon him to establish the same by a
preponderance of evidence.
Finally, assuming arguendo that this Court considers petitioner a third
person to the Assignment of Credit, dated 1 April 1989, the fact that
the said document was duly notarized makes it legally enforceable
even as to him. According to Article 1625 of the Civil Code –
ART. 1625. An assignment of credit, right or action shall
produce no effect as against third persons, unless it appears
in a public instrument, or the instrument is recorded in the
Registry of Property in case the assignment involves real
property.
Notarization converted the Assignment of Credit, dated 1 April 1989, a
private document, into a public document, thus, complying with the
mandate of the afore-quoted provision and making it enforceable even
as against third persons.
II. Essential Requisites and Formalities
A. These depend in each case upon the contract or act giving
rise to the assignment.
a. Assignment of real rights upon immovable property,
done by way of donation, requires a public instrument.
b. Assignment by way of legacy requires a probated will.
c. Assignment of choses in action by sale or onerous
contract, if involving P500 or more, is unenforceable
inter partes, and comes under the Statute of Frauds (a
written memo is required)
d. Assignment of a negotiable instrument requires
indorsement or delivery.
B. As against third persons (but not the debtor of the credit
assigned)- an assignment of a credit, right or action shall
produce no effect unless it appears in a public instrument, or
the instrument is recorded in the registry of property, in case
the assignment involves real property (1625)
a. The consent of the debtor of the assigned credit is not
required for the validity of the assignment: but the
assignment is not fully effective against the debtor until
he is notified thereof or has actual knowledge of the
assignment; i.e. the debtor until then is not bound to
pay the assignee.
III. Effect of a valid assignment
A. It transfers title to the assigned credit to the assignee, even if
the debtor is unaware thereof.
a. The assignment includes all accessory rights, such as
guaranty, pledge, mortgage or preference (1672)
B. The assignee takes the credit subject to all defenses
acquired by the debtor before notice or knowledge of the
assignment.
a. The debtor who, before having knowledge of the
assignment, pays his creditor shall be released from the
obligation. (1626)
b. The debtor may set up compensation of credits
acquired after assignment but before notice thereof
(1198) unless the debtor agreed to the assignment
(when he cannot compensate).
c. Any compromise or release of the assigned claim made
by the assignor before notice, will be valid against the
assignee and discharge the debtor.
Is recording a sufficient notice? Yes, provided the recording is
required (not merely permitted) by law
C. Warranty by the assignor
a. The assignor in good faith shall be responsible for the
existence and legality of the credit at the time of sale,
unless it should have been sold as doubtful.
Doubtfulness of the credit assigned must expressly
appear; it is not presumed (Manresa)
b. The assignor in good faith does not answer for the
solvency of the debtor unless-
1. Expressly stipulated; or
2. The insolvency of the debtor was known to him
personally; or
3. The insolvency of the debtor was prior to the sale
and of common knowledge (1628)
c. Where the solvency of the debtor is warranted by the
assignor, his liability lasts only-
1. One year after the assignment, if the debt was
already matured.
2. One year after maturity, if the debt matures after
assignment(1629) *Compare this with partition
between co-heirs (liability for solvency lasts 5
years)
d. Recovery of the warranty
1. The assignor in good faith must return the rice
recived plus expenses of the contract and
payments on account thereof. (1628 p.2)
2. The assignor in bad faith: all of the above plus
damages (1628, p.3).
CASES:
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Servicewide Specialists v. CA GR 116363
FACTS: Sometime in 1975, respondent spouses Atty. Jesus and
Elizabeth Ponce bought on installment a Holden Torana vehicle from
C.R. Tecson Enterprises. They executed a promissory note and a
chattel mortgage on the vehicle dated December 24, 1975 in favor of
the C.R. Tecson Enterprises to secure payment of the note. The
mortgage was registered both in the Registry of Deeds and the Land
Transportation Office. On the same date, C.R. Tecson Enterprises, in
turn, executed a deed of assignment of said promissory note and
chattel mortgage in favor of Filinvest Credit Corporation with the
conformity of respondent spouses. The latter were aware of the
endorsement of the note and the mortgage to Filinvest as they in fact
availed of its financing services to pay for the car. In 1976, respondent
spouses transferred and delivered the vehicle to Conrado R. Tecson
by way of sale with assumption of mortgage. Subsequently, in 1978,
Filinvest assigned all its rights and interest over the same promissory
note and chattel mortgage to petitioner Servicewide Specialists Inc.
without notice to respondent spouses. Due to the failure of respondent
spouses to pay the installments under the promissory note from
October 1977 to March 1978, and despite demands to pay the same or
to return the vehicle, petitioner was constrained to file before the
Regional Trial Court of Manila on May 22, 1978 a complaint for
replevin with damages against them, docketed as Civil Case No.
115567. In their answer, respondent spouses denied any liability
claiming they had already returned the car to Conrado Tecson
pursuant to the Deed of Sale with Assumption of Mortgage. Thus, they
filed a third party complaint against Conrado Tecson praying that in
case they are adjudged liable to petitioner, Conrado Tecson should
reimburse them.
ISSUE: (1)WON the assignment of a credit requires notice to the
debtor in order to bind him. More specifically, is the debtor-mortgagor
who sold the property to another entitled to notice of the assignment of
credit made by the creditor to another party such that if the debtor was
not notified of the assignment, he can no longer be held liable since he
already alienated the property? Conversely, is the consent of the
creditor-mortgagee necessary when the debtor-mortgagor alienates
the property to a third person?
Only notice to the debtor of the assignment of credit is required.
His consent is not required. In contrast, consent of the creditor-
mortgagee to the alienation of the mortgaged property is necessary in
order to bind said creditor. To evade liability, respondent spouses
invoked Article 1626 of the Civil Code which provides that "the debtor
who, before having knowledge of the assignment, pays his creditor
shall be released from the obligation." They argue that they were not
notified of the assignment made to petitioner. This provision, however,
is applicable only where the debtor pays the creditor prior to acquiring
knowledge of the latter's assignment of his credit. It does not apply, nor
is it relevant, to cases of non-payment after the debtor came to know of
the assignment of credit. This is precisely so since the debtor did not
make any payment after the assignment.
In the case at bar, what is relevant is not the assignment of credit
between petitioner and its assignor, but the knowledge or consent of
the creditor's assignee to the debtor-mortgagor's sale of the property to
another.
When the credit was assigned to petitioner, only notice to but not the
consent of the debtor-mortgagor was necessary to bind the latter.
Applying Article 1627 of the Civil Code, 3 the assignment made to
petitioner includes the accessory rights such as the mortgage. Article
2141, on the other hand, states that the provisions concerning a
contract of pledge shall be applicable to a chattel mortgage, such as
the one at bar, insofar as there is no conflict with Act No. 1508, the
Chattel Mortgage Law. As provided in Article 2096 in relation to Article
2141 of the Civil Code, a thing pledged may be alienated by the
pledgor or owner "with the consent of the pledgee."
In this case, however, since the alienation by the respondent spouses
of the vehicle occurred prior to the assignment of credit to petitioner, it
follows that the former were not bound to obtain the consent of the
latter as it was not yet an assignee of the credit at the time of the
alienation of the mortgaged vehicle.
T
he next question is whether respondent spouses needed to notify or
secure the consent of petitioner's predecessor to the alienation of the
vehicle. The sale with assumption of mortgage made by respondent
spouses is tantamount to a substitution of debtors. In such case, mere
notice to the creditor is not enough, his consent is always necessary as
provided in Article 1293 of the Civil Code. Without such consent by the
creditor, the alienation made by respondent spouses is not binding on
the former. On the other hand, Articles 1625, 9 1626 10 and 1627 of the
Civil Code on assignment of credits do not require the debtor's consent
for the validity thereof and so as to render him liable to the assignee.
The law speaks not of consent but of notice to the debtor, the purpose
of which is to inform the latter that from the date of assignment he
should make payment to the assignee and not to the original creditor.
Notice is thus for the protection of the assignee because before said
date, payment to the original creditor is valid.
When Tecson Enterprises assigned the promissory note and the
chattel mortgage to Filinvest, it was made with respondent spouses'
tacit approval. When Filinvest in turn, as assignee, assigned it further
to petitioner, the latter should have notified the respondent spouses of
the assignment in order to bind them. This, they failed to do. Therefore,
for failure of respondent spouses to obtain the consent of Filinvest
thereto, the sale of the vehicle to Conrado R. Tecson was not binding
on the former. When the credit was assigned by Filinvest to petitioner,
respondent spouses stood on record as the debtor-mortgagor.
Lo v. KJS Eco-Formwork System Phil Inc.
An assignment of credit is an agreement by virtue of which the owner
of a credit, known as the assignor, by a legal cause, such as sale,
dacion en pago, exchange or donation, and without the consent of the
debtor, transfers his credit and accessory rights to another, known as
the assignee, who acquires the power to enforce it to the same extent
as the assignor could enforce it against the debtor.
Corollary thereto, in dacion en pago, as a special mode of payment,
the debtor offers another thing to the creditor who accepts it as
equivalent of payment of an outstanding debt. In order that there be a
valid dation in payment, the following are the requisites: (1) There must
be the performance of the prestation in lieu of payment (animo
solvendi) which may consist in the delivery of a corporeal thing or a
real right or a credit against the third person; (2) There must be some
difference between the prestation due and that which is given in
substitution (aliud pro alio); (3) There must be an agreement between
the creditor and debtor that the obligation is immediately extinguished
by reason of the performance of a prestation different from that due.
The undertaking really partakes in one sense of the nature of sale, 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 vendor in good faith shall be responsible, for the existence and
legality of the credit at the time of the sale but not for the solvency of
the debtor, in specified circumstances. Hence, it may well be that the
assignment of credit, which is in the nature of a sale of personal
property, produced the effects of a dation in payment which may
extinguish the obligation. However, as in any other contract of sale, the
vendor or assignor is bound by certain warranties. More specifically,
the first paragraph of Article 1628 of the Civil Code provides:
The vendor in good faith shall be responsible for the existence and
legality of the credit at the time of the sale, unless it should have been
sold as doubtful; but not for the solvency of the debtor, unless it has
been so expressly stipulated or unless the insolvency was prior to the
sale and of common knowledge.
From the above provision, petitioner, as vendor or assignor, is bound
to warrant the existence and legality of the credit at the time of the sale
or assignment. When Jomero claimed that it was no longer indebted to
petitioner since the latter also had an unpaid obligation to it, it
essentially meant that its obligation to petitioner has been extinguished
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by compensation. In other words, respondent alleged the non-
existence of the credit and asserted its claim to petitioner’s warranty
under the assignment. Therefore, it behooved on petitioner to make
good its warranty and paid the obligation.

Furthermore, we find that petitioner breached his obligation under the

Deed of Assignment, to wit:
And the ASSIGNOR further agrees and stipulates as aforesaid that the
said ASSIGNOR, his heirs, executors, administrators, or assigns, shall
and will at times hereafter, at the request of said ASSIGNEE, its
successors or assigns, at his cost and expense, execute and do all
such further acts and deeds as shall be reasonably necessary to
effectually enable said ASSIGNEE to recover whatever collectibles
said ASSIGNOR has in accordance with the true intent and meaning of
these presents. (underscoring ours)

Indeed, by warranting the existence of the credit, petitioner should be

deemed to have ensured the performance thereof in case the same is
later found to be inexistent. He should be held liable to pay to
respondent the amount of his indebtedness.

IV. Special Assignments

A. Sale of inheritance (estate):
a. If without enumeration of the items composing it, the
vendor only answers for his character as heir(1630)
b. The vendor shall reimburse the vendee for the fruits
obtained or anything received from the inheritance sold
(1632) if the contrary is not stipulated.
c. The vendee shall reimburse the vendor for-
1. All that vendor paid on account of the estate
debts;
2. Credits that the vendor had against the estate
(1633)

B. Sale rights, rents or products for a lump sum

a. The vendor answers for the legitimacy of the whole in
general
b. There is no warranty of individual items, unless there is
eviction of the whole or of the part of greater value
(1631).

C. Sale and redemption of litigous credits

a. Concept of Litigous credit- a credit is considered in
litigation from the time the complaint concerning the
same is answered.
b. Effect of Sale-
1. Legal Redemption by the debtor- Requisites:
i.The debtor must reimburse the assignee for-
a. The price the assignee paid
b. Judicial costs incurred by him
c. Interest on the price from the day it was paid
(1634 p.1)

ii. The right must be exercised within 30 days from

the date the assignee demands payment from
him. (1634 p.3)

2. Excepted from the rule are sales (or assignments)

made to:
a. A co-heir or co-owner of the right assigned;
b. A creditor in payment of the credit;
c. The possessor of a tenement or piece of land
which is subject to the right in litigation
assigned (1635)

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