RFBT3

THE LAW ON SALES AND CREDIT TRANSACTIONS

EXTINGUISHMENT OF THE SALE

Causes for extinguishment of sale

The modes or causes of extinguishing the contract of sale may be classified into:
1. Common or those causes which are also the means of extinguishing all other
contracts like:
a. By payment or performance;
b. By the loss of the thing due;
c. By the condonation or remission of the debt;
d. By the confusion or merger of the rights of creditor and debtor;
e. By compensation;
f. By novation;
g. Other causes of extinguishment of obligations, such as annulment,
rescission, fulfillment of a resolutory condition, and prescription

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

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

EFFECTS OF THE CONTRACT WHEN THE THING SOLD HAS BEEN LOST

Arts. 1493-1494
Effect of loss of the thing sold:

If at the time the contract of sale is perfected, the thing which is the object of the contract
has been entirely lost, the contract shall be without any effect.

But if the thing should have been lost in part only, the vendee may choose between
withdrawing from the contract and demanding the remaining part, paying its price in
proportion to the total sum agreed upon.

Where the parties purport a sale of specific goods, and the goods without the knowledge
of the seller have perished in part or have wholly or in a material part so deteriorated in

1
quality as to be substantially changed in character, the buyer may at his option treat the
sale:

(1) As avoided; or
(2) As valid in all of the existing goods or in so much thereof as have not
deteriorated, and as binding the buyer to pay the agreed price for the goods in
which the ownership will pass, if the sale was divisible

Loss after perfection and before delivery

By the fault of one party (1480, 1504)

Any injury to or benefit from the thing sold, after the contract has been perfected, from
the moment of the perfection of the contract to the time of delivery, shall be governed
by Articles 1163 to 1165, and 1262.

Art. 1163. Every person obliged to give something is also obliged to take care of it with
the proper diligence of a good father of a family, unless the law or the stipulation of the
parties requires another standard of care.

When what is to be delivered is a determinate thing, the creditor, in addition to the right
granted him by Article 1170, may compel the debtor to make the delivery.

If the thing is indeterminate or generic, he may ask that the obligation be complied with
at the expense of the debtor.

If the obligor delays, or has promised to deliver the same thing to two or more persons
who do not have the same interest, he shall be responsible for any fortuitous event until
he has effected the delivery.

An obligation which consists in the delivery of a determinate thing shall be extinguished

if it should be lost or destroyed without the fault of the debtor, and before he has incurred
in delay.

Unless otherwise agreed, the goods remain at the seller's risk until the ownership therein
is transferred to the buyer, but when the ownership therein is transferred to the buyer
the goods are at the buyer's risk whether actual delivery has been made or not, except
that:

(1) Where delivery of the goods has been made to the buyer or to a bailee for the
buyer, in pursuance of the contract and the ownership in the goods has been
retained by the seller merely to secure performance by the buyer of his obligations
under the contract, the goods are at the buyer's risk from the time of such delivery;

2
 (2) Where actual delivery has been delayed through the fault of either the buyer
or seller the goods are at the risk of the party in fault.

Loss after perfection and before delivery

By fortuitous event (1480, 1504, 1538)

Unless otherwise agreed, the goods remain at the seller's risk until the ownership therein
is transferred to the buyer, but when the ownership therein is transferred to the buyer
the goods are at the buyer's risk whether actual delivery has been made or not, except
that:

Where delivery of the goods has been made to the buyer or to a bailee for the buyer, in
pursuance of the contract and the ownership in the goods has been retained by the seller
merely to secure performance by the buyer of his obligations under the contract, the
goods are at the buyer's risk from the time of such delivery;
Where actual delivery has been delayed through the fault of either the buyer or seller the
goods are at the risk of the party in fault.

(1) If the thing is lost without the fault of the debtor, the obligation shall be extinguished;

(2) If the thing is lost through the fault of the debtor, he shall be obliged to pay damages;
it is understood that the thing is lost when it perishes, or goes out of commerce, or
disappears in such a way that its existence is unknown or it cannot be recovered;

(3) When the thing deteriorates without the fault of the debtor, the impairment is to be
borne by the creditor;

(4) If it deteriorates through the fault of the debtor, the creditor may choose between
the rescission of the obligation and its fulfillment, with indemnity for damages in either
case;

(5) If the thing is improved by its nature, or by time, the improvement shall inure to the
benefit of the creditor;

(6) If it is improved at the expense of the debtor, he shall have no other right than that
granted to the usufructuary.

CONVENTIONAL REDEMPTION

Arts. 1601-1618

Conventional redemption defined

3
 It is the right which the vendor reserves to himself, to reacquire the property sold
provided he returns to the vendee the price of the sale, the expenses of the
contract, any other legitimate payments made there for and the necessary and
useful expenses made on the thing sold (Art. 1616.), and fulfils other stipulations
which may have been agreed upon.

Subject matter of conventional redemption

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

Nature of conventional redemption

(1) It is purely contractual because it is a right created, not by mandate of the law,
but by virtue of an express contract.
(2) It is an accidental stipulation and, therefore, its nullity cannot affect the sale
itself since the latter might be entered into without said stipulation.
(3) It is a real right when registered, because it binds third persons.
(4) It is potestative because it depends upon the will of the vendor. (see Art. 1182.)
(5) It is a resolutory condition because when exercised, the right of ownership
acquired by the vendee is extinguished. (see Art.1179; In a pacto de retro sale,
the title or ownership of the property sold is immediately vested in the vendee
a retro, subject only to the resolutory condition of repurchase by the vendor a
retro within the stipulated period.
(6) It is not an obligation but a power or privilege that the vendor has reserved
for himself.
(7) It is reserved at the moment of the perfection of the contract for if the right to
repurchase is agreed upon afterwards, there is only a promise to sell which
produces different rights and effects and is governed by Article 1479.
(8) The person entitled to exercise the right of redemption necessarily is the owner
of the property sold and not any third party. Unlike a debt which a third person
may satisfy even against the debtor’s will (see Art. 1237.), the right of
repurchase may be exercised only by the vendor in whom the right is
recognized by contract or by any person in whom the right may have been
transferred.
(9) It gives rise to reciprocal obligation that of returning the price of sale and other
expenses, on the part of the vendor (Art. 1616.); and that of delivering the
property and executing a deed of sale therefor, on the part of the vendee. The
plea that the vendee made delivery of the property to a third person whom he
believed was better entitled to possess it, cannot serve as an excuse for the
failure to comply with said obligation.

4
II. Equitable mortgage

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

Transactions presumed to be equitable mortgages

a. Contracts of sale with right to repurchase in the cases mentioned in 1602

b. Contracts of absolute sale in the cases mentioned in 1602
c. Pacto de retro sale with doubtful interpretation (1603)

For a presumption of an equitable mortgage to arise, there are two (2) requisites, namely:
that the parties entered into a contract denominated as a contract of sale with a right of
repurchase or purporting to be an absolute sale (Art. 1604.) and that their intention was
to secure an existing debt by way of mortgage.

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

PACTO DE RETRO MORTGAGE

Ownership is immediately transferred, Ownership is not transferred but the
subject to the resolutory condition of property is merely subject to a charge or
repurchase by the vendee lien as security
Failure of seller to repurchase loses all his
Mortgagor does not lose his interest if he
interest in the property, title to which vests
fails to pay his debt at maturity but
upon the buyer by operation of law subjects the property to foreclosure and
public sale
No obligation upon the purchaser to Duty of the mortgagee to foreclose if he
foreclosure nor the vendor to redeem after wishes to secure a perfect title thereto,
the maturity of the debt and mortgagor has right to redeem after
maturity of the debt and before
foreclosure

Cases where the contract shall be presumed to be an equitable mortgage:

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;

5
 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; or
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.

Presumption in case of doubt.

(1) Doubt resolved in favor of equitable mortgage. — Whether the sale is absolute or
pacto de retro, it shall be presumed to be an equitable mortgage even if only one of the
circumstances mentioned in Article 1602 is present. This is so because pacto de retro
sales with the stringent and onerous effects that accompany them, are not favored. In
case of doubt, a contract purporting to be a sale with right to repurchase shall still be
regarded as an equitable.

a. A contract of reconveyance is but a necessary consequence of the exercise of a

party’s right to repurchase the property subject of a contract of sale with a right
of repurchase or of an equitable mortgage.
b. The failure of the alleged vendee to take steps to consolidate ownership of real
property after the vendor failed to redeem within the period agreed upon, may be
taken as a factor in construing a sale a retro an equitable mortgage.
c. Where the contract is deemed an equitable mortgage, ownership of the property
cannot be consolidated until after foreclosure of the mortgage has been
undertaken.

(2) Presumption, an exception to general rule. — Article 1603 is an exception to the rule
that doubts affecting an onerous contract shall be settled in favor of the greatest
reciprocity of interests. (Art.1378, par. 1.) An equitable mortgage effects a lesser
transmission of rights and interests than a contract of sale, since the debtor does not
surrender all rights to his property but simply confers upon the creditor the right to
collect what is owing from the value of the thing given as security.

When vendor may ask for reformation.

Article 1604 seeks to prevent a circumvention of Article 1602 by making the contract of
loan appear as an absolute sale.

Reformation is that remedy granted by law by means of which a written instrument is

made or construed so as to express or conform to the real intention of the parties when
such intention is not expressed in the instrument. (see Art. 1359.) If the parties really
intended a mortgage but the instrument states that the property is sold absolutely or with

6
a right of repurchase, the same may be reformed (Art. 1365.) so that the contract should
appear to be a mortgage and not an absolute sale or a pacto de retro sale.

In reformation, there has been a meeting of the minds between the parties, but the
written instrument purporting to embody their agreement does not express their true
intention by reason, for instance, of mistake or fraud. (Art. 1359.) Where there has been
no meeting of the minds, the remedy is annulment. (Art. 1390.)

Effects when transaction is deemed an equitable mortgage

A. Money, fruits or other benefits to be received by the vendee as rent or otherwise

shall be considered as interest which shall be subject to the usury laws (1602)

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

III. Period of Purchase or Redemption

a. If there is no period agreed upon, it must be exercised within 4 years from the
date of the contract. (Art. 1606)
b. If there is a period agreed upon, within the period stipulated. However, the period
must not exceed 10 years (Art. 1606). Otherwise, the agreement is valid only for
the first 10 years.
c. If the agreement exceeds the 10-year rule, it shall be reduced to 10 years applying
Art. 1606. As long as there is a stipulation as to the period, even though unclear
or void, the 10-year rule shall apply, not the 4-year rule.

The completion of the redemption process is tolled by the filing of a civil action relating
to the issue of the exercise of right of redemption provided that the exercise of the right
and the filing of the suit are done within the redemption period.

NOTE: Non-payment of the price does not affect running of redemption period.

Effect of stipulation extending period of repurchase.

(1) After expiration of period of redemption. — It is legally impossible to speak of

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

7
(2) Before the expiration of the period of redemption. — The original term may be
extended provided that the extension, including the original term, shall not extend beyond
10 years; otherwise, the extension is void as to the excess.

RIGHT TO REDEEM OPTION TO PURCHASE

Not a separate contract but merely part of Generally, it is a principal contract and
a main contract of sale. may be created independent of another
contract.
Does not need its separate consideration To be valid, it must have a consideration
in order to be valid and effective separate and distinct from purchase price
Cannot exceed 10 years May be beyond 10 years
There must be a tender of payment of the May be exercised by notice of its exercise
amount required by law, including to the offeror
consignment thereof if tender of payment
cannot be made effectively on the buyer

IV. Who may redeem

A. The vendor
a. When vendors are co-owners
1. Right of each co-owner. The co-owners of an undivided immovable sold by
them jointly or collectively and in the same contract with the right to
repurchase, can exercise such right only as regards their respective shares.
(Art. 1612, par. 1.)
2. Right of the vendee.

2.1. The vendee a retro can refuse partial redemption; he may require all the
vendors or all the heirs to redeem the entire property or to agree to its
redemption by any one of them. (Art. 1613.) This right is given to the
vendee in line with the object of the law to put an end to co-ownerships
whenever possible.
2.2. In a sale with a right to repurchase, the vendee of a part of an undivided
immovable who acquires the whole thereof in the case of article 498, may
compel the vendor to redeem the whole property, if the latter wishes to
make use of the right of redemption. (1611)

b. When the vendee sells his undivided share

Each one of the co-owners of an undivided immovable who may have sold his share
separately, may independently exercise the right of repurchase as regards his own share,
and the vendee cannot compel him to redeem the whole property. (1614)

8
 Although it is the policy of the law to avoid indivision, it would be unjust, if the
sale was made separately and independently, to require the co-owners to come to an
agreement with regards to the repurchase of the thing sold, and certainly, it would be
worse to deprive them of their right in case they fail to agree. The very purpose of the
article is to prevent such injustice.

B. Heirs of the vendor (1612, par. 2)

If the person who sold an immovable alone has left several heirs, each of the latter may
only redeem the part which he may have acquired.

C. Creditors of the vendor (1610)

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

Right of vendor’s creditors to redeem.

This article is a practical application of Article 1177 permitting creditors to exercise the
rights and actions of their debtor after exhausting his properties to satisfy their claims.
(see Manresa 331.)

The right to redeem being property, it is answerable for the debts of the vendor provided
the vendor’s properties are first exhausted. The exhaustion must be established to the
satisfaction of the vendee. Article 1610 refers to all kinds of creditors, whether ordinary
or preferred, except those in whose favor exists a mortgage or antichresis upon the very
property sold recorded prior to the sale.

V. From whom/against whom redemption may be made

A. The vendee
B. Heir or heirs of the vendee
a. Rule if there is more than one heir (1615)

Redemption against heirs of vendee.

The vendor a retro can exercise the right to redeem against the heirs of the vendee a
retro with respect only to their respective shares, whether the thing be undivided or it
has been partitioned among them.
However, if by partition the entire property has been adjudicated to one of the heirs, the
vendor can exercise the right to redeem against said heir for the whole.

9
Every possessor whose right is derived from the vendee (1608)

The vendor may bring his action against every possessor whose right is derived from the
vendee, even if in the second contract no mention should have been made of the right
to repurchase without prejudice to the provisions of the Mortgage Law and the Land
Registration Law with respect to third persons. (1510)

Nature of right to redeem.

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

(2) A real right. — By virtue of the provision of this article, it can be concluded that the
right to repurchase is of a real character and should not be considered personal. Exception
is, however made to the provisions of the Mortgage Law and the Land Registration Law
with respect to third persons. This means that the vendor a retro cannot exercise his right
of redemption against a subsequent transferee for value and in good faith if his right is
not properly registered or annotated.

NOTE: Consignation is only required if the vendee a retro refuses to accept the
redemption price or when a judicial action has already been filed to enforce compliance
with the contract of sale with right of repurchase.

VI. Obligations of the vendor-a-retro

A. Obligations (1616)
a. General rule

Obligation of vendor a retro in case of redemption.

Article 1616 defines the obligations of the vendor who desires to exercise his right of
repurchase. He must return to the vendee a retro:

(1) The price. — The law speaks of “price of the sale” and not the value of the
thing. It is lawful, however, for the parties to agree that the price to be returned
will be more or less than the original sum paid by the vendee
(2) Expenses of contract and other legitimate expenses. — If the expenses for the
execution and registration of the sale were paid by the vendee, the same shall be
reimbursed by the vendor. But they need not be paid at the very time of the
exercise of the right since they are unknown amounts. They may be paid later.
The same is true of necessary and useful expenses

10
Exception (1608)

The vendor may bring his action against every possessor whose right is derived from the
vendee, even if in the second contract no mention should have been made of the right
to repurchase without prejudice to the provisions of the Mortgage Law and the Land
Registration Law with respect to third persons. (1510)

This means that the vendor a retro cannot exercise his right of redemption against a
subsequent transferee for value and in good faith if his right is not properly registered or
annotated.

VII. Obligations of the vendee-a-retro (1618)

Right of vendor a retro to recover thing sold free from charges.

The vendee a retro may alienate, encumber, or perform other acts of ownership over the
thing sold. But his ownership being revocable upon redemption, all acts done by him are
also revocable.

Thus, he may borrow money and mortgage the property but when the vendor a retro
redeems, the vendee a retro is obliged to redeem the mortgage. The vendor has the right
to receive the property in the same condition in which it was at the time of the sale.
The law, however, establishes an exception with respect to leases which the vendee may
have entered into in good faith according to the custom of the place where the land is
located. The exception is dictated by public convenience in the interest of agriculture.

VIII. Rights of the vendee-a-retro (1611, 1609)

Redemption in sale of part of undivided

immovable.

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

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

(a) If the thing is essentially indivisible, it may be allotted to the co-owner who
shall indemnify the others.

11
 (b) If the co-owners cannot agree that the thing be allotted to one of them, it shall
be sold and its proceeds distributed.
(Art. 498.)

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

Rights acquired by vendee a retro.

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

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

2. Right to eject vendor. — Prior possession by the vendee a retro of the property is
not a condition precedent in an unlawful detainer action against the vendor a retro
who, after having failed to redeem, and title in the vendee a retro had been
consolidated, refused to vacate the property.

IX. Rules on pro-rating of fruits (1617)

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

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

IX. Pactum Commissorium

A stipulation for automatic vesting of title over the security in the creditor in case of
debtors default.

12
If the contract is an equitable mortgage, the action for consolidation of ownership is not
the proper remedy. The creditor cannot appropriate the things given by way of pledge or
mortgage or dispose of them otherwise that would result in pactum commissorium. The
proper remedy is foreclosure of the mortgage. If there is no foreclosure, the debtor
retains the ownership. (Vasquez vs. Court of Appeals, etc., G.R. No. 144882, February 4,
2005).

Pactum commissorium applies only when the covering transaction is a mortgage or other
security contract is and has no application to a true sale or transfer transaction. (Vda. De
Zulueta vs. Octaviano, G.R. No. L-55350, March 28, 1983).

LEGAL REDEMPTION

Arts. 1619-1323

Legal redemption defined.

Legal redemption is the right to be subrogated, upon the same terms and conditions
stipulated in the contract, in the place of one who acquires a thing by: purchase, dation
in payment, or by any other transaction where ownership is transmitted by onerous title. .
As the word “thing” is employed without qualification, the right applies to both movable
and immovable property.

CONVENTIONAL REDEMPTION LEGAL REDEMPTION

By express reservation in a contract of sale Does not have to be expressly reserved
at time of perfection and covers sales and other onerous
transfers of title
In favour of the seller Given to a third party to the sale
Extinguishes the underlying contract of Actually constitutes a new sale in
sale as though there was never any substitute of the original sale
contract at all

Kinds of alienation

Transfer of ownership by onerous title.

Subrogation transfers to the person subrogated the rights pertaining to another. (Art.
1303.) Note that legal redemption may take place not only in purchase or dation in
payment but in any other transfer of ownership by onerous title. It has been held,
however, that it cannot take place in barter and in the transmission of property by
hereditary title. Evidently, the right is not available where there is only a mortgage or
lease.

13
Dation in payment defined.

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

the debtor to the creditor as the accepted equivalent of the performance of an obligation.

Nature of dation in payment.

(1) Sale of thing. — The undertaking 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 essential
elements of contract of sale, namely, consent, object certain, and cause or
consideration must be present. It is, therefore, governed by the law of sales.

(2) Novation of an obligation. — In its modern concept, what actually takes place
in dacion en pago is an objective novation of the obligation where the thing offered
as an accepted equivalent of the performance of an obligation is considered as the
object of the contract of sale, while the debt is considered as the purchase price.

Legal redemption distinguished from pre-emption

Pre-emption, is the act or right of purchasing before others. It is exercised before the
sale or resale against the would-be vendor;
Redemption, is exercised after the sale has been perfected against the vendee. The
recognition of the right of redemption will result in the rescission of the sale.

Right of pre-emption gives the owner of any adjoining land the right to buy the land
before others. On the other hand, right of redemption gives the owner of the adjoining
land the right to regain possession if the resale has been perfected.

PRE-EMPTION REDEMPTION
Arises before sale Arises after sale
No rescission because the sale does not There can be rescission of the original sale
yet exist
The action is directed against the Action is directed against the buyer
prospective seller

II. Instances of legal redemption

Right of legal redemption of co-owner.

The right of legal redemption among co-owners presupposed of course, the existence of
a co-ownership. The following are the requisites for the right to exist:

14
 (1) There must be co-ownership of a thing;
(2) There must be alienation of all or of any of the shares of the other co-owners;
(3) The sale must be to a third person or stranger (Art. 1620.),i.e., a non-co-
owner; and
(4) The sale must be before partition.

The right of a co-owner to legal redemption is based on his status as such independently
of the size of his share.

It can no longer be invoked where there had been an actual partition of the property so
that co-ownership no longer exists. Redemption by a co-owner within the period
prescribed by law (see Art. 1623.) inures to the benefit of all the other co-owners.

Right of legal redemption of adjacent owners of rural lands.

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

(1) Both the land of the one exercising the right of redemption and the land sought
to be redeemed must be rural;
(2) The lands must be adjacent;
(3) There must be alienation;
(4) The piece of rural land alienated must not exceed one (1hectare;
(5) The grantee or vendee must already own any other rural land; and
(6) The rural land sold must not be separated by brooks, drains, ravines, roads
and other apparent servitudes from the adjoining lands.

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

When the land exceeds one (1) hectare, the adjacent owners are not given the right of
legal redemption because this may lead to the creation of big landed estates. The right
cannot be exercised against a vendee if he is also an adjacent owner.

The last paragraph of Article 1621 refers to a situation where the vendee of a piece of
rural land is not an adjoining owner.

Rights of pre-emption and legal redemption of adjacent owners of urban lands.

Meaning. — Article 1622 recognizes two rights; namely:

(a) Pre-emption, which has been defined as the act or right of purchasing before others.
It is exercised before the sale or resale against the would-be vendor; and

15
(b) Redemption, which is exercised after the sale has been perfected against the vendee.
The recognition of the right of redemption will result in the rescission of the sale.

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

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

(b) The piece of land sold must be so small and so situated that a major portion
thereof cannot be used for any practical purpose within a reasonable time; and c)
Such urban land was bought by its owner merely for speculation.

The above requisites must be alleged by the adjoining owner in his complaint and proved
by him.

Price. — The price to be paid is a reasonable price. In a case, an adjoining owner was
held not entitled to redeem a lot (612 sq. meters) which was much bigger area-wise,
than the lot (140 sq.meters) owned by him.

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

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

III. Procedure in redemption

Exercise of right of pre-emption or redemption.

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

While the co-owner’s right of legal redemption is a substantial right, it is exceptional in

nature, limited in its duration and subject to strict compliance with legal requirements.
One of these is that the redemptioner should tender payment of the redemption money
within 30 days from written notice of the sale by the co-owner.

One who purchases an undivided interest in a property is charged with notice that this
acquisition is subject to redemption by any other co-owner within the statutory 30-day
period. The right of redemption of co-owners (Art. 1620.) is preferred over that of
adjoining
owners. (Arts. 1621, 1622.) In other words, the law attaches more importance to the
necessity to put an end to tenancy in common than to the purpose of encouraging the
development of agriculture.

16
Under Article 484 of the Civil Code, there is co-ownership whenever the ownership of an
undivided thing or right belongs to different persons. There is no longer co-ownership
when the different portions owned by different people are already concretely determined
and separately identifiable, even if not yet technically described. This situation makes
inapplicable the provision on the right of redemption of a co-owner under Article 1623.

ASSIGNMENT OF CREDIT

DEFINITION

Assignment of credit is a contract by which the owner (assignor/ creditor) of a credit and
other incorporeal rights transfers, either onerously or gratuitously, to another (assignee)
his rights and actions against a third person (debtor).

NATURE

1. Consensual, bilateral, onerous, and commutative or aleatory contract

2. The assignment involves no transfer of ownership but merely effects the transfer
of rights which the assignor has at the time to the assignee.
3. It may be done gratuitously or onerously.

CONTRACT OF SALE ASSIGNMENT OF CREDITS

Involves property
Need not be through a public instrument
Binding upon the whole world
Transfer of ownership need not be upon
delivery of the thing. The parties may
agree that ownership be transferred only
after full payment. (Art. 1478)
Consideration is always a requisite.
Involves credit, incorporeal rights or
right
Must execute a public instrument
Binding upon a definite third person
Ownership is transferred upon delivery
of the documents evidencing the credit
or incorporeal rights
Consideration is not always a requisite.
An action may be maintained by the
assignee based on his title even if there
is no consideration.

EFFECT

1. Transfers the right to collect the full value of the credit even if he paid a price
less than such value;
2. Transfers all the accessory rights;
3. Debtor can set up against the assignee all the defenses he could set up against
the assignor.

17