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EXTINGUISHMENT OF SALE

What are the causes of extinguishment of sale?


A contract of sale is extinguish by:
1. Same cause as all other obligations namely:
A. Payment or performance
B. Loss of the thing
C. Condonation or remission of the debt
D. Confusion or merger of the rights of creditor and debtor
E. Compensation
F. Novation
G. Annulment
H. Rescission
I. Fulfillment of resolutory condition
J. Prescription
2. Causes stated in the preceding articles
3. Conventional Redemption
4. Legal Redemption

Redemption is a mode of extinguishment wherein the seller has the right


to redeem or repurchase the thing sold upon return of the price paid.
What are the kinds of redemption?
A. Legal
B. Conventional
Should the right to redeem be incorporated in every contract of sale?
The right of vendor to redeem/ repurchase must appear in the same
instrument. However parties may stipulate on the right repurchase in a
separate document but in this case, it is valid only between the parties
and not against third persons.
What are the difference between pre-emption and redemption?
PRE-EMPTION REDEMPTION
Arises before sale Arise after sale
Rescission inapplicable There can be recission of
original sale
Action is directed against Action against directed
prospective seller
Period of redemption:
A. No period agreed upon – 4 years from date of contract
B. When there is agreement – Should not exceed 10 years
C. When period to redeem has expired & there has been a previous suit
on the nature of the contract – seller still has 30 days from final
judgement from the basis of Pacto de Retro.
D. When period has expired & Seller allowed the period of redemption
to expire – seller is at fault for not having exercised his rights so
should not be granted a new period.
Note: Tender payment is sufficient but it is not in itself a payment that
relieves the seller from his liability to pay the redemption price.
When does the period of redemption begin to run?
1. Right of legal pre-emption or redemption shall be exercised within 30
days from written notice by the buyer deed of sale not be recorded in
registry of property unless accompanied by affidavit that buyer has
given notice to redemptioners.
2. When there is actual knowledge, no need to give written notice;
period of redemption begins to run from actual knowledge.
Trust de son tort
It is created by the purchase or redemption of property by one other
than the person lawfully entitled to do so and in fraud of the other.
Constructive trust
Also known as trust ex maleficio, trust ex delicto, trust de son torn,
involuntary trust, implied trust is a trust by operation of law which
arises contrary to intentions and in invitum, against one who, by fraud,
actual or constructive, by duress or abuse of confidence, by commission
of wrong, or by any form of unconscionable conduct, artifice,
concealment, or questionable means, or who in any way against equity
and good conscience, either has obtained or holds the legal right to
property which he ought not, in equity and good conscience hold and
enjoy.
Conventional Redemption
Seller reserved the right to repurchase thing sold coupled with
obligation to return price of the sale, expenses of contract & other
legitimate payments and the necessary & useful expenses made on the
thing sold.
Note: Right to repurchase must be reserved at the time of perfection of
sale.
Legal Redemption
Also referred as “retracto legal” it is the right to be subrogated upon the
same tems and condition stipulated in the contract, in the place of one
who acquires the thing by purchase or by dation in payment or by other
transaction whereby ownership is transmitted by onerous title.
Instances of legal redemption:
1. Sale of co-owner of his share to a stranger
2. When a credit or other incorporeal right in litigation is sold
3. Sale of an heir hereditary rights of stranger
4. Sale of adjacent rural lands not exceeding 1 hectare
5. Sale of adjacent small urban lands bought merely for speculation
Other instances when the right of legal redemption is granted:
1. Redemption of homesteads
2. Redemption of tax sales
3. Redemption by judgement debtor
4. Redemption by extrajudicial foreclosure
5. Redemption in judicial foreclosure of mortgage
The right of legal redemption shall not be exercised except within
30 days from the notice in writing by the prospective seller, or seller, 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 seller that he has
given written notice thereof to all possible redemption.
Art. 1600
Sales are extinguished by the same causes as all other obligations, by
those stated in the preceding articles of this title, and by conventional
or legal redemption.

Causes for extinguishment of sale:


1) Common those causes which are also the means of extinguishing all
other contracts like payment, loss of the thing, condonation, etc.
2) Special those causes which are recognized by the law of sales (Laws
covered by Articles 1484, 1532, 1539, 1540, 1542, 1556, 1567 and
1541)
3) Extra-special those causes which are given special discussion by the
Civil Code and these are conventional redemption and legal
redemption.
Section 1
Article 1601
Conventional Redemption shall take place when the vendor reserves
the right to repurchase the thing sold, with the obligation to comply
with the provision of Article 1616 and other stipulations which may
have agreed upon.
Conventional Redemption is the right which the vendor reserve to
himself, to reacquire the property sold provided he reimbursed the
vendee of the price, the expenses of the contract, any other legitimate
payments made therefor and the necessary and useful expenses made
on the thing sold and fulfills other stipulation which may have agreed
upon.
Art. 1602
The contract shall be presumed to be an equitable mortgage, in any of
the following cases:
Causes for extinguishment of sale:

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


inadequate.
2) When the vendor remain in possessions as lesee 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 purchase price.
5) When the vendor binds himself to pay 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.

Note: In any other 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 law.
Pacto de retro – is a matter of common knowledge that in practically all
of the so called contracts of sale with right of repurchase, the real
intention of the parties is that the pretended purchase price is money
loaned, and in order to secure the payment of loan a contract
purporting to be a sale with pacto de retro drawn up.

Price for Pacto de retro sale:

The price usually is less than in absolute sales for the reason that
in former, the vendor expects to reacquire or redeem the property sold,
or else he may sell his right to redeem and thus recover the loss he
claims suffered by reason of the inadequacy of the price.
Art. 1603
In case a doubt, a contract purporting to be a sale with right to
repurchase shall be construed as an equitable mortgage.

Art. 1604
The provision of Article 1602 shall also apply to a contract
purporting to be an absolute sale.

Presumption in case of doubt:


1) Doubt resolved in favor of equitable mortgage
2) Presumption an exception to general rule
Art. 1605
In the cases referred to in Articles 1602 and 1604, the apparent vendor
may ask for the reformation of the instrument.

Reformation is that remedy in equity by means which a written


instrument is made or construed so as to express or conform to the real
intention of the parties when such intentions is not expressed in the
instrument.
Art. 1606
The right referred to in Article 1601, in the absence of an express
agreement, shall last four years from the date of the contract.

Should be there in agreement the period cannot exceed ten years.

However the vendor may still exercise the right to repurchase


within thirty days from the time final judgement was rendered in a
civil action on the basis that the contract was true sale which right
to repurchase.
Period of exercise of right of redemption:

1) No agreement/ granting right – if there is no agreement granting the


vendor the right to redeem, there is no right of redemption since the
sale should be considered an absolute sale.
2) Agreement merely grants right – If the parties agree only on the right
to redeem on the part of the vendor but there is total absence of
express stipulation as to the time within which the repurchase should
be made, then the period of redemption shall be four years from the
date of the contract.
3) Definite period of redemption agreed upon – If the parties agree
on definite period of redemption, then the right to redeem must
be exercised within the period fixed provided it does not exceed
ten years.
4) Period of redemption agreed upon the specified – If the parties
agree that the vendor shall have a right to redeem and they intend
a period which however is not specified, then the redemption
period is ten years.
5) Period agreed upon exceeds ten years – Where the agreed period
exceeds 10 years, the vendor a retro has 10 years from execution
of the contract to exercise his right of redemption.
6) Final judgement rendered that contract pacto de retro – the
vendor has 30 days within which to exercise the right to
repurchase.
Art. 1607
In case a doubt of real property the consolidation of ownership in
the vendee by virtue of the failure of the vendor to comply the
provision of article 1616 shall not be recorded in the registry of
property without a judicial order, after the vendor has been duly heard.

Necessity of Judicial order for recording of consolidation of ownership.

If the real property is involved and the vendor failed to redeem within
the period agreed upon, the vendees title becomes irrevocable.
Art. 1608
The vendor may bring his action against every possessor
whose right is derived from the vendee, even if in the second
contract no mention should have been made of the right to
repurchase, without prejudice to the provisions of the Mortgage
Law and the Land Registration Law with respect to third person.
Right to redeem, a real thing.

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. However the exception is made to the provision of
the Mortgage Law and 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.
Art. 1609
The vendee is subrogated to the vendor`s right and actions.

Subrogation transfers to the person subrogated the credit with all the
right thereto appertaining.

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. The
vendor cannot transfer ownership if he is not the real owner.
Art. 1610
The creditors of the vendor cannot make use of the right of
redemption against the vendee, until after they have exhausted the
property of the vendor.

Vendor`s right to redeem in its nature of 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.
Art. 1611

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


undivided immovable who acquires the whole thereof in the case of
Article 498, may compel the vendor to redeem the whole property, if
the latter wishes to make use of the right of redemption.
Redemption in sale of part of undivided immovable:
1) Petition of the property – Co-owner may demand the partition of
the thing owned in common, insofar as his share is concerned.
a) If the thing is essentially indivisible, it may be allotted to the
co-owner who shall not indemnify the others.
b) If the co-owner cannot agree that the thing be allotted to
one of them, it shall be sold and its proceeds distributed.

2) Redemption of the whole property – In either case the vendee,


who acquires the whole of an undivided immovable a part of which
is subject to a right to repurchase, has a right to demand that the
vendor a retro, who likes to exercise his right of redemption, redeem
the whole property.
Art. 1612
If several person, jointly and in the same contract, should sell an
undivided immovable with a right of repurchase, none of them may
exercise this right for more than his respective share.

The same rules apply if the person who sold an immovable alone has
left several heirs in which case each of the latter may only redeem the
part which he have acquired.
Art. 1613
In the case of the preceding article the vendee may demand of all the
vendors or co-heirs that they come to an agreement upon the
repurchase of the whole thing sold; and should they fail to do so, the
vendee cannot be compelled to consent to a partial redemption.
Redemption in joint sale by co-owners of undivided immovable.

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


collectively and in the same contract with the right to repurchase,
can exercise such right only as regards their respective shares.
2) Similarly, the co-heirs of the vendor of an undivided immovable,
can exercise the right of redemption only for the respective portions
they have inherited.
3) The vendee a retro can refuse partial redemption. He may acquire
all the vendors or all the heirs to redeem the entire property or to
agree to its redemption by any one of them.
4) Under Article 1620 the right of co-owner who chooses not to
redeem accrues to the benefit of the others. The extent of the share
of the redeeming co-owner is not taken into the account except as
provided in the second paragraph.

Effect of the redemption by co-owner of entire property.


Under Article 1612, A co-owner cannot redeem more than his share
in the co-ownership. The redemption by a co-owner of the property
in its entirely, shouldering the expenses there for, does not make him
the owner of all of it. In other words it does not put to end the
existing state of co-ownership.
Art. 1614
Each one of the co-ownership of an undivided immovable who may
have sold his share separately, may independently exercise the right of
repurchase as regards his own sharem and the vendee cannot compel
him to redeem the whole property.

Redemption in separate sales by co-owner of undivided immovable.


If the sale was made separately and independently, it would be unjust
to require the co-owners, to come to an agreement with regard to the
repurchase of the thing sold, and certainly, it would be worse to deprive
them of their right in case they fail to agree.
Art. 1615
If the vendee should leave several heirs, the action for redemption
cannot be brought against each of them except for his own share,
whether the thing be undivided, or it has been partitioned among
them.

But if the inheritance has been divided, and the thing sold has been
awarded to one of the heirs, the action for redemption may be
instituted against him for the whole.
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 undivided or it has been patitioned among them.
However, if by partition, the entire property has been adjudicated to
one of the heirs, the vendor can exercise the right to redeem against
said heir for the whole.
Art. 1616
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.
Art. 1617
If at the time of the execution of the sale there should be on the land,
visible or growing fruits, there shall be no reimbursement for or
prorating of those existing at the time of redemption, if no indeminity
was paid by the purchaser when the sale was executed.

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

1) If there were fruits at the time of the sale and the vendee paid for
them, he must be reimbursed at the time of redemption as the
payment forms part of the purchase price.
2) If no indemnity was paid by the vendee for the fruits, there shall be no
reimbursement for those existing at the time of redemption.
3) If the property had no fruits at the time of the sale and some exist at
the time of redemption, they shall be apportioned proportionately
between the redemptioner and the vendee, giving the latter a share in
proportion to the time he possessed the property during last year
counted from the anniversary of the date of the sale to compensate the
vendee for his expenses.
The same rule is also applicable if there were fruits at the time of the sale
and the vendee paid for them
Art. 1618
The vendor who recovers the thing sold shall receive it free from all
charges or mortgages constituted by the vendee, but he shall respect
the leases which the latter may have executed in good faith, and in
accordance with the customs of the place where the land is situated.

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


The vendee a retro may alienate, encumber or perform others 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.
Section 2 – Legal redemption
Art 1619
Legal redemption is the right to be subrogated, upon the same terms
and conditions stipulated in the contract, in the place of one who
acquires a thing by purchase or dation in payment or by any other
transactions whereby ownership is transmitted by onerous title.

Legal redemption as the word “thing” is employed without qualification,


the right applies to both movable and immovable property.
Basis and nature of right of legal redemption.

Legal redemption is in the nature of a mere privilege created partly for


reason of public policy and partly for the benefit and convenience of the
redemptioner to afford him a way out of what might be a disagreeable
or inconvenient association into which he has been thrust.
Art. 1620
A co-owner of a thing may exercise the right of redemption in case the
shares of all the co-owner or of any of them, are sold to a third person.
If the price of the alienation is grossly excessive, the redemptioner shall
pay only a reasonable one.

Should two or more co-owner 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.
Right of legal redemption of co-owner.

The right of legal redemption among co-owners presupposes, of course,


the existence of a co-ownership at the time the conveyance is made.
The following are the requisites for the right to exist:

1) There must be a co-ownership


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, a non co-owner.
4) The sale must be before partition.
5) The right must be exercised within the period provide in Article
1623.
6) The vendee must be reimbursed for the price of the sale.
By whom and against whom right may be exercised.

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

2) Co-owner have no right of legal redemption against each other to


whom the law grants the same privilege, but only against a third
person. A third person, within the meaning of Article 1620, is
anyone who is not a co-owner.
3) Should any of the heirs sell his hereditary right to a stranger before
partition, any or all of the co-heirs may be subrogated to the rights
of the purchaser by reimbursing him for the purchase price,
provided it be done within a period of one month to be counted
from the time they were notified in writing of the sale by the
vendor. Once the portion corresponding to each heir is fixed, the co-
heirs turn into co-owners and their right of legal redemption should
be governed by Aricles 1620 & 1623.

4) The right of legal redemption is not granted solely and exclusively to


the original co-owners by applies to those who subsequently
acquires their respective shares while the community subsists.
Art. 1621
The owners of adjoining lands shall also have the right of redemption
when a piece of rural land, the area of which does not exceed one
hectare, is alienated, unless the grantee does not own any rural land.

The right is not applicable to adjacent lands which are separated by


brooks, drains, ravines, roads and other apparent servitudes for the
benefit of other estates.

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


redemption at the same time, the owner of the adjoining land of small
area shall be preferred; and should both lands have the same area, the
one who first requested the redemption.
Right of legal redemptions of adjacent owners of rural lands.

Requisites:

1) Both the land of the one exercising the right of redemption and the
land sought to be redeemed must be rural;
2) The lands must be adjacent
3) There must be an alienation
4) The piece if rural lang alienated must not exceed one hectare
5) The vendee must already own some rural land
6) The rural land sold must not be separated by brooks, drains, ravines,
roads and other apparent servitudes from the adjoining lands.
In case two or more adjacent owners desire to exercise the right of
redemption, the law gives preference to the owner of the adjoining
land of smaller area but if both lands have the same area, to the one
who first requested the redemption. Under Article 1620, The co-
owners exercise their right of redemption pro rata.
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 resold, the owner of any adjoining land has a right of pre-emption at
a reasonable price.

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

When two or more owners of adjoining lands wish to exercise the right
of preemption or redemption, the owner whose intended use of the
land in question appears best justified shall be preferred.
Rights of pre-emption and legal redemption of adjacent owner of
urban lands.

1) Meaning recognize by Article 1622 namely:


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.

Redemption which is exercised after the sale against the vendee.


2) Requisites – The condition for the exercise of the right of pre-emption
or redemption, as the case may be are the following:
a) The piece of land is urban land
b) The one exercising the right must be adjacent
c) 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
d) Such urban land was bought by its owner merely for speculation
e) It is about to be resold, or that its resale has been perfected.

3) Price – The price to be paid is a reasonable price.


4) Preference – 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.
Art. 1623
The right of legal pre-emption or redemption shall not be exercised
except withing 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.
Period for exercise of right of pre-emption or redemption

The period provided In the above article is absolute. A period of 30 days


is counted from the notice in writing give by the vendor.