Conventional Redemption

• 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 provisions of article 1616 and other
stipulations which may have been agreed upon. (1507)
• Conventional redemption = right to repurchase of the vendor agreed upon
by the parties at the time of the perfection of the sale. This is a reservation
on the part of the vendor of the right to repurchase the property from the
vendee.

• Pacto de retro sale = sale with a right of repurchase reserved by the vendor.

• Note that it must be agreed upon at the perfection of the sale. If it is

agreed upon after the perfection of the sale, then it will not be considered
as conventional redemption and different laws will govern such agreement.
If the agreement is properly considered a conventional redemption, then it
is governed by Arts. 1601 to 1618.
• In order to exercise the right of repurchase, the vendor must comply
with Art. 1616.

• Art. 1616 provides for additional requirements for the valid exercise
of the right of repurchase. These are the following:
• The vendor must pay the purchase price
• The vendor must pay for the expenses of the contract and other legitimate
payments made by the vendee by reason of the contract of sale
• The necessary and useful expenses made on the thing sold.
• Note that both real and personal property may be the subject matter of a
pacto de retro sale.

• Nature of conventional redemption:

• Contractual – not given by law
• Accidental – not an essential element of the contract of sale
• Real – binds third persons, subject to certain exceptions
• Potestative – it depends upon the will of the vendor. The vendor may choose not to
exercise the right.
• Privilege or right – not an obligation
• Reserved at perfection of sale
• Generally exercised by the owner – owner may assign the right to redeem
• Gives rise to reciprocal obligations – to pay and to return the thing sold
• Note: right to repurchase is technically not the same as right of
redemption

• Right of repurchase is a reservation made by the vendor. It is

contractual in nature as it must be agreed upon by the parties. On the
other hand, right of redemption is one given by law. It is not subject
to the agreement of the parties but imposed by provisions of law.
• 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. (n)
• Equitable mortgage = is one which lacks the proper formalities 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. The decisive factor in this case is the intention of the parties.
• Ex: A sold a parcel of land to B for only P50,000 despite its market
value listed at P2,000,000. Not indicated in their written contract is
their understanding that when A pays the loan of P50,000 to B, then B
will return the property to A.

• In this case, we can see that the intention of A and B is to give the
parcel of land of A to B as a security for the payment of the P50,000
loan of A.
• When is a “contract” considered an equitable mortgage instead of the
denomination used by the parties?
• PACTO DE RETRO SALE
• If the contract purports to be a pacto de retro sale,
• but in reality, the intention of the parties is to give the property as a security for the
payment of a debt.
• ABSOLUTE SALE
• If the contract purports to be an absolute sale,
• but in reality, the intention of the parties is to give the property as a security for the
payment of a debt. (Art. 1604)

• Note that the enumeration under Art. 1602 gives a disputable presumption that the
contract is an equitable mortgage and not a sale.
• ARTICLE 1603. In case of doubt, a contract purporting to be a sale
with right to repurchase shall be construed as an equitable mortgage.
(n)

• ARTICLE 1604. The provisions of article 1602 shall also apply to a

contract purporting to be an absolute sale. (n)
• ARTICLE 1605. In the cases referred to in articles 1602 and 1604, the
apparent vendor may ask for the reformation of the instrument. (n)

• Remedy of apparent vendor?

• Reformation of the instrument. (not the contract; the defective one is the
instrument containing the contract and not the contract)
• ARTICLE 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 there be an agreement, the period cannot exceed ten years.
• However, the vendor may still exercise the right to repurchase within
thirty days from the time final judgment was rendered in a civil action
on the basis that the contract was a true sale with right to
repurchase. (1508a)
• Period to exercise right of repurchase:
• No agreement as to the period = 4 years from date of contract (perfection of
sale)
• If agreed upon = follow the period agreed upon, but the period cannot be
more than 10 years.
• If the parties agree to a period more than 10 years, the excess is void.
• The 10-year period may be extended by agreement of the parties, but the extension also
cannot exceed 10-years. Every extension is subject to this limitation.
• If a case is filed to determine whether the contract is a pacto de retro or an
equitable mortgage = 30 days from the finality of the judgment declaring the
contract as pacto de retro sale.
• Obviously if the contract is found to be an absolute sale, then there is no right to
repurchase.
• ARTICLE 1607. 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. (n)
• Upon delivery of the thing sold (with a reservation of the right to
repurchase by the vendor), is ownership transferred to the vendee?
• Yes. Delivery transfers ownership unless the vendor reserves his right of
ownership.

• When does a vendee become an owner of the thing, if the vendor

reserved this right to repurchase the thing sold?
• At the time of delivery the vendee becomes the owner. Delivery transfers
ownership.
• If the vendor fails to exercise his right to repurchase, what happens to
the title of the vendee?
• Title of the vendee will be consolidated. This simply means that the title of
the vendee is no longer subject to the resolutory condition that is the right to
repurchase by the vendor.

• Does consolidation require a court order?

• No. once the vendor fails to repurchase, then title of the vendee is
consolidated.
• Does the recording of the consolidation of the title of the vendee in
the proper registry require a court order?
• Yes. 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.
• ARTICLE 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)
• The right of repurchase is a real right. It is binding to third persons
without prejudice to the provisions of the Mortgage Law and the
Land Registration Law.

• The right to repurchase is enforceable against third persons even if it

is not indicated in the second contract.

• Exception: registered land. The right of repurchase is binding only to

third persons if it is annotated in the certificate of title.
• ARTICLE 1609. The vendee is subrogated to the vendor’s rights and
actions. (1511)

• This is because the vendee becomes the owner of the thing sold upon
delivery by the vendor. Thus the vendee is subrogated to the vendor’s
rights and actions over the thing sold.
• ARTICLE 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)
• ARTICLE 1177. The creditors, after having pursued the property in
possession of the debtor to satisfy their claims, may exercise all the
rights and bring all the actions of the latter for the same purpose,
save those which are inherent in his person; they may also impugn
the acts which the debtor may have done to defraud them.
• Art. 1610 + 1177 = the creditors of the vendor who has a right to
repurchase cannot use that right to repurchase unless the creditors
have exhausted the properties of the debtor-vendor.
• ARTICLE 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.
(1513)
• ARTICLE 1612. If several persons, jointly and in the same contract,
should sell an undivided immovable with a right of repurchase, none
of them may exercise this right for more than his respective share.
• The same rule shall apply if the person who sold an immovable alone
has left several heirs, in which case each of the latter may only
redeem the part which he may have acquired. (1514)
• ARTICLE 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. (1515)
• ARTICLE 1614. 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. (1516)
• ARTICLE 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. (1517)
Arts. 1611 to 1615
• Art. 1611 = If the vendee has acquired a property where a portion is
subjected to a right to repurchase, the vendee may compel that the
entire area be repurchased.
• Ex: A, B, C, and D are co-owners of a parcel of land. A sold his share to
X with a right to repurchase within 5 years. After 2 years, B, C, D, and
X demands partition and the land was sold to Y, and the proceeds
were distributed to the co-owners.
• Can A still exercise his right to repurchase?
• Yes. If A want to exercise the right to repurchase, Y can compel A to
repurchase the entire property.
• Art. 1612 = co-owners sold the property with right to repurchase.
Each co-owner can only repurchase up to his respective share. Same
rule applies if there is a sole vendor, but he has several heirs, the heirs
can only repurchase to the extent of their inheritance.

• Ex: A, B, C, and D are co-owners of a parcel of land. All of them sold

their share to X with a right to repurchase within 5 years.
• If any of them wants to repurchase, they can only do so to the extent
of their share. (in this case, the shares are presumed equal because
there is no indication of the actual share). Thus, if A wants to redeem,
then A can only redeem up to 25% of the property.
• Art. 1613 = in the cases covered by Art. 1612, the vendee can compel
the vendors (or heirs of the vendors) to repurchase the entire
property. He cannot be compelled to accept partial repurchase.

• The vendee may demand that the vendors (or heirs) settle among
themselves as to who will repurchase the entire property.
• Art. 1614 = if the co-owned this is sold separately by its co-owners
(co-owners sell their share separately) then Art. 1612 and 1613 are
not applicable.

• In this case, the vendee cannot compel the vendors to repurchase the
entire property.
• Art. 1615 = if the vendee dies and has several heirs, the vendor can
only bring an action for the repurchase as against an heir to the
extent of the heir’s share.

• BUT if the inheritance is divided AND the thing sold is given to one
heir, then the vendor may bring an action for the repurchase against
the heir who receives the thing sold.
• ARTICLE 1616. The vendor cannot avail himself of the right of
repurchase without returning to the vendee the price of the sale, and
in addition:
• (1) The expenses of the contract, and any other legitimate payments
made by reason of the sale;
• (2) The necessary and useful expenses made on the thing sold. (1518)

• Note: SC = no need to pay #1 and #2 at the time of the repurchase.

The vendor can be given a reasonable time to determine the value of
the expenses and the improvements before paying the amount.
• Note that the vendor is not given the option to remove the
improvements instead of paying for their value.
• ARTICLE 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 indemnity 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. (1519a)
I. No fruits – with fruits
• 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 vendee the part corresponding to the time he possessed
the land in the last year, counted from the anniversary of the date of
the sale. (just look at the date of the sale, then that is the reckoning
point to count possession of the vendee to determine his share to the
fruits)
II. With fruits – with fruits
• 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.

• Vendee pays indemnity = vendor must pay when he repurchases.

• Vendee did not pay = vendor is not required to pay for indemnity for
the fruits
• ARTICLE 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 custom of the place where the land
is situated. (1520)
• The vendor who repurchases is not bound by the encumbrances
constituted by the vendee, except in cases of leases, then the vendor
is required to respect the lease.

• Provided that the lease is executed:

• In good faith
• in accordance with the custom of the place where the land is situated.
Legal Redemption
• ARTICLE 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 transaction whereby ownership is transmitted by onerous
title. (1521a)
• Definition of legal redemption = the right to be subrogated, upon the
same terms and conditions stipulated in the contract, in the place of
one who acquires a thing by purchase or dation in payment, or by
any other transaction whereby ownership is transmitted by onerous
title.

• Basically, the one to exercise the right will be subrogated to the

purchaser of the thing sold. (or given in dation, or some other
onerous contract)
• The difference between right to repurchase and legal redemption is
the source of the right.
• The right to repurchase is given by a contract, while legal redemption
is given by law.
• ARTICLE 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 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
respectively have in the thing owned in common. (1522a)
• Legal redemption by co-owner
• If one co-owner sold his share to a third person (not a co-owner of the thing owned
in common), the other co-owners may exercise the right of redemption.

• Note that the co-owner can only exercise the right if the share is sold to a third
person. If it is sold to another co-owner, the other co-owners cannot exercise the
right.

• For this to apply, the share must be sold while the co-ownership still exists.
(obviously, if the thing is already partitioned, then there are no co-owners to speak
of)
• If all the co-owners will sell their share, then there is also no co-owner to exercise
the right.
• Price?
• The co-owner shall pay the price paid by the buyer.
• If the price is grossly excessive, the redemptioner shall pay only a reasonable
one. (depends on each case)

• Should two or more co-owners desire to exercise the right of redemption

what is the rule?
• they may only do so in proportion to the share they may respectively have in the thing
owned in common.
• ARTICLE 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.
• This 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
smaller area shall be preferred; and should both lands have the same
area, the one who first requested the redemption. (1523a)
• Right of redemption of owners of rural lands:
• Both lands must be rural
• The lands must be adjacent
• There must be an alienation
• The rural land sold must not exceed one hectare (if the land sold exceeds one
hectare, then the owner of the adjacent land cannot redeem it)
• The buyer must own other rural land. (if the buyer does not own any rural
land, then the owner of the adjacent land cannot redeem the rural land sold)
• The rural land sold must not be separated by brooks, drains, ravines, roads
and other apparent servitudes.
• The purpose of this right of redemption is to foster the development
of agricultural areas.

• That is why… Rural land = used for agricultural purposes.

• Note that the right of redemption cannot be exercised if the buyer of

the rural land is also an adjacent owner.
• If two or more adjoining owners desire to exercise the right of
redemption at the same time what is the rule?
• The owner of the adjoining land of smaller area shall be preferred; and
should both lands have the same area, the one who first requested the
redemption.
• ARTICLE 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 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 pre-emption or redemption, the owner whose intended use
of the land in question appears best justified shall be preferred. (n)
• 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 any adjoining land has a right of
pre-emption at a reasonable price.

• Right of pre-emption = the act or right of purchasing before others.

• Requisites:
• The land is urban land (usually used for dwelling, industry or commerce; not
rural)
• Land is so small that there can be no practical use of it
• It was bought merely for speculation (buyer buys with intention to sell at a
higher rate, IF prices go high)
• The land is about to be resold – for pre-emption, or it has already been sold –
for redemption.

• Price to be paid = reasonable price. Depends on each case.

• When two or more owners of adjoining lands wish to exercise the
right of pre-emption or redemption what is the rule?
• The owner whose intended use of the land in question appears best justified
shall be preferred.
• ARTICLE 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. (1524a)
• When to exercise the right?
• 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.

• If the proper parties are not notified, will this affect the validity of the
sale?
• No, the sale is not affected, BUT the sale cannot be recorded. 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.
• Note:
• 30-day period:
• Not extendible
• It starts from notice given by the prospective vendor, or by the vendor.
• It is a condition precedent and not a prescriptive period. (the defense of failure to comply
with a condition precedent is waivable, but prescription can still be alleged later.)

• Notice:
• Must be given by the vendor
• Must be in writing (though no specific contents are required by law; what is important is that
the person who may exercise the right is informed of the prospective or executed sale)
• In some cases, actual knowledge by the person who is to exercise the right negates the need
for a written notice. (ex. A co-owner signed as a witness to the sale) = to be sure, just notify
all that is required to notify.