1.

repudiates; or
2. manifests inability to perform; or
FINALS 3. commits breach of contract;
c.) the seller gives notice of his election to rescind.
Chapter 6
Actions for Breach of Contract Of Sale Of Goods IV. Buyer’s Action for Seller’s Specific Performance
(Art. 1598)
I. Action for the price (of personal property) – (Art. A. The seller has no option to retain the goods by
1595) paying damages.
A. Grounds— B. The judgment may be absolute or conditional as the
a) After ownership has passed, and price is not paid, if no court deems fit.
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, V. Buyer’s Action for Breach of Warranty (Art. 1599)-
although title has not passed. (express or impied)
A. Buyer’s choices:
 Defenses of the buyer: 1) to accept or keep the goods and set off damages
1. That the seller at any time before judgment, against the price;
manifested either— 2) to accept the goods and sue for damages;
I. inability to perform; or 3) to refuse to return the goods and sue for damages;
II. intention not to perform 4) to rescind the contract, refuse or return the goods and
recover the price.
c) Refusal of the buyer to accept delivery of the goods, if: * rescission= mutual restitution
1) The goods were offered and refused;
2) The goods can not be readily sold; Case:
3) The buyer did not notify repudiation before the Harrison Motors vs. Navarro, supra
goods were placed in a fully deliverable state (if Art. Facts:
1596, par.4 is not applicable); and Harrison Motors Corporation through its president, Renato
4) The seller notifies the buyer that he holds the Claros, sold two (2) Isuzu Elf trucks to private respondent
goods as bailee for the buyer Rachel Navarro, owner of RN Freight Lines, a franchise holder
* then the seller may treat the goods as the buyer’s operating and maintaining a fleet of cargo trucks all over
and sue for the price. Luzon. Petitioner, a known importer, assembler and
Case: manufacturer, assembled the two (2) trucks using imported
See De Guzman vs. Triangle Ace Corp, supra component parts. 2 Prior to the sale, Renato Claros
(p.1 of this reviewer) represented to private respondent that all the BIR taxes and
customs duties for the parts used on the two (2) trucks had
II. Action for damages for non- acceptance (Art. 1596) been paid for.
of the goods
A. Grounds-- In December of 1988 government agents seized and detained
a) The buyer’s wrongful failure to accept and pay (the the two (2) Elf trucks of respondent after discovering that
goods may be resold). there were still unpaid BIR taxes and customs duties thereon.
b) The buyer’s repudiation or countermand before the The BIR and the BOC ordered private respondent to pay the
goods are placed in a deliverable state. proper assessments or her trucks would be impounded.
Private respondent went to Claros to ask for the receipts
B. Measure of damages evidencing payment of BIR taxes and customs duties;
a) GEN. RULE: however, Claros refused to comply. Private respondent then
 the loss naturally and directly resulting (in the demanded from Claros that he pay the assessed taxes and
ordinary course) from the breach. warned him that he would have to reimburse her should she
be forced to pay for the assessments herself. Her demands
b) When there is available market— were again ignored thus this case was filed.
 the difference between the contract price and the
market price at the time when acceptance should be Issue:
made. Whether the breach of an express warranty gives right to the
** if no time was fixed for acceptance, then the buyer to ask for reimbursement?
market price at the time of refusal.
Held:
c) When repudiation is made or notified before the seller Yes.
completes preparation for fulfillment—
 the liability is for expenses incurred, and It is true that the ownership of the trucks shifted to private
 the profit the seller would have obtained under the respondent after the sale. But petitioner must remember that
contract. 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
III. Action for Total Rescission (Art. 1597) by the seller warranty under Art. 1546 of the Civil Code which covers any
(against the buyer) affirmation of fact or any promise by the seller which induces
A. Requisites: the buyer to purchase the thing and actually purchases it
a.) the goods were not delivered relying on such affirmation or promise. It includes all
b.) the buyer either— warranties which are derived from express language, whether

The greatest results in life are usually attained by simple means and the exercise of ordinary qualities. These may for the most part be summed in
these two: common-sense and perseverance. -Owen Feltham
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.
(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.

This express warranty was breached the moment petitioner

When the buyer has claimed and been granted a
refused to furnish private respondent with the corresponding
remedy in anyone of these ways, no other remedy
receipts since such documents were the best evidence she
can thereafter be granted, without prejudice to the
could present to the government to prove that all BIR taxes
provisions of the second paragraph of Article 1191.
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. Petitioner's contention that under Article 1191 of the Civil
Code, rescission can no longer be availed of as the vehicle
Under Art. 1599 of the Civil Code, once an express was already in the hands of an innocent purchaser for value
warranty is breached the buyer can accept or keep the goods lacks merit. Rescission is proper if one of the parties to a
and maintain an action against the seller for damages. This contract commits a substantial breach of its provisions. It
was what private respondent did. She opted to keep the two creates an obligation to return the object of the contract. It
(2) trucks which she apparently needed for her business and can be carried out only when the one who demands rescission
filed a complaint for damages, particularly seeking the can return whatever he may be obliged to restore. Rescission
reimbursement of the amount she paid to secure the release abrogates the contract from its inception and requires a
of her vehicles. 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.
B. Nature of the options
 The options are alternative, but the buyer may ask
for rescission after asking for specific performance, if the
C. The buyer can not rescind, if:
latter is impossible (Art. 1191, par. 2)
a.) he knew of the beach of warranty when he accepted
the good; or
Case:
b.) he fails to notify the seller in due time of the election
Supercars Management vs. Flores, supra
to rescind; or
c.) he fails to return the goods in substantially the same
Facts:
condition.
Respondent Flores purchased a vehicle (Isuzu carter
** unless the deterioration was due to the breach of
Crew cab) from Supercars. The vehicle, after it was delivered
warranty.
to respondent, malfunctioned. Flores complained about the
defects. It was repaired and returned assuring that it was
D. Effects of Buyer’s Election to Rescind (Art. 1599, par. 4)
already in good condition. After few days, the same defects
1) The buyer ceases to be liable for the price upon tender
resurfaced, prompting respondent to send petitioner a letter
or return of the goods.
rescinding the contract of sale and returning the vehicle due
2) He may recover the price paid—
to breach of warranty against hidden defects.
a.) concurrently with the return, or
Petitoner contend that the vehicle had only “minor and
b.) immediately after the tender.
inconsequential defects” which “were promptly and
3) If the seller refuses to accept the return; the buyer
satisfactorily repaired pursuant to its warranty as the seller.
holds the goods as bailee. In which case, the buyer—
 has a lien on the goods to secure repayment of the
Issue:
price; and
Whether respondent has the right to rescind the contract
 has a right of stoppage in transitu and resale, as the
of sale and to claim damages as a result thereof.
seller has under Art. 1526
Held:
E. Loss in Case of Breach of Warranty of Quality (Art. 1599,
YES.
par.5)
 The liability consists in the difference in value at the
The evidence clearly shows that Flores was justified in opting
time of delivery and the value if the warranty were not
to rescind the sale given the hidden defects of the vehicle,
broken.
allowance for the repair of which he patiently extended, but
 Unless, special circumstances show greater damage.
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

Chapter 7
petitioner who committed a breach of warranty against Extinguishment of Sale
hidden defects. Article 1599 of the Civil Code partly provides:
I. Causes of Extinguishment
A. General Causes (Art. 1231)—
"Article 1599. Where there is a breach of warranty a) Payment or performance
by the seller, the buyer may, at his election: b) Loss of the thing due
c) Condonation or remission
xxx d) Confusion or merger
e) Compensation

The greatest results in life are usually attained by simple means and the exercise of ordinary qualities. These may for the most part be summed in
these two: common-sense and perseverance. -Owen Feltham
 f) Novation
g) Annulment
h) Rescission
i) Fulfillment of a resolutory condition
j) Prescription
Case:
Uraca vs. CA
Facts:
The Velezes (herein private respondents) were the owners of
the lot and commercial building in question located at
Progreso and M.C. Briones Streets in Cebu City. Herein
(petitioners) were the lessees of said commercial building.
On July 8, 1985, the Velezes through Carmen Velez Ting
wrote a letter to herein (petitioners) offering to sell the
subject property for P1,050,000.00 and at the same time
requesting (herein petitioners) to reply in three days.
On July 10, 1985, (herein petitioners) through Atty.
Escolastico Daitol sent a reply-letter to the Velezes accepting
the aforesaid offer to sell.
On July 11, 1985, (herein petitioner) Emilia Uraca went to see
Carmen Ting about the offer to sell but she was told by the
latter that the price was P1,400,000.00 in cash or manager's
check and not P1,050,000.00 as erroneously stated in their
letter-offer after some haggling. Emilia Uraca agreed to the
price of P1,400,000.00 but counter-proposed that payment be
paid in installments with a down payment of P1,000,000.00
and the balance of P400,000 to be paid in 30 days. Carmen
Velez Ting did not accept the said counter-offer of Emilia
Uraca although this fact is disputed by Uraca.
No payment was made by (herein petitioners) to the Velezes
on July 12, 1985 and July 13, 1985.
On July 13, 1985, the Velezes sold the subject lot and
commercial building to the Avenue Group (Private Respondent
Avenue Merchandising Inc.) for P1,050,000.00 net of taxes,
registration fees, and expenses of the sale.
At the time the Avenue Group purchased subject property on
July 13, 1985 from the Velezes, the certificate of title of the
said property was clean and free of any annotation of adverse
claims or lis pendens.
On July 31, 1985 as aforestated, herein (petitioners) filed the
instant complaint against the Velezes.
On August 1, 1985, (herein petitioners) registered a notice of
lis pendens over the property in question with the Office of
the Register of Deeds.
On October 30, 1985, the Avenue Group filed an ejectment
case against (herein petitioners) ordering the latter to vacate
the commercial building standing on the lot in question.
Thereafter, herein (petitioners) filed an amended complaint
impleading the Avenue Group as new defendants (after about
4 years after the filing of the original complaint).
Issue:
Whether or not the sale of the real property in controversy,
by the Velezes to petitioners for P1,050,000.00, was
extinguished by novation after the said parties negotiated to
increase the price to P1,400,000.00.
Held:
The greatest results in life are usually attained by simple means and the exercise of ordinary qualities. These may for the most part be summed in
these two: common-sense and perseverance. -Owen Feltham
No.
The Court notes that the petitioners accepted in writing and
without qualification the Velezes' written offer to sell at
P1,050,000.00 within the three-day period stipulated therein.
Hence, from the moment of acceptance on July 10, 1985, a
contract of sale was perfected since undisputedly the
contractual elements of consent, object certain and cause
concurred. Thus, this question is posed for our resolution:
Was there a novation of this perfected contract?
Article 1600 of the Civil Code provides that "(s)ales are
extinguished by the same causes as all other
obligations, . . . ." Article 1231 of the same Code states that
novation is one of the ways to wipe out an obligation.
Extinctive novation requires: (1) the existence of a previous
valid obligation; (2) the agreement of all the parties to the
new contract; (3) the extinguishment of the old obligation or
contract; and (4) the validity of the new one. The foregoing
clearly show that novation is effected only when a new
contract has extinguished an earlier contract between the
same parties. In this light, novation is never presumed; it
must be proven as a fact either by express stipulation of the
parties or by implication derived from an irreconcilable
incompatibility between old and new obligations or contracts.
After a thorough review of the records, we find this element
lacking in the case at bar.
As aptly found by the Court of Appeals, the petitioners and
the Velezes did not reach an agreement on the new price of
P1,400,000.00 demanded by the latter. In this case, the
petitioners and the Velezes clearly did not perfect a new
contract because the essential requisite of consent was
absent, the parties having failed to agree on the terms of the
payment. True, petitioners made a qualified acceptance of
this offer by proposing that the payment of this higher sale
price be made by installment, with P1,000,000.00 as down
payment and the balance of P400,000.00 payable thirty days
thereafter. Under Article 1319 of the Civil Code, such qualified
acceptance constitutes a counter-offer and has the ineludible
effect of rejecting the Velezes' offer. Indeed, petitioners'
counter-offer was not accepted by the Velezes. It is well-
settled that "(a)n offer must be clear and definite, while an
acceptance must be unconditional and unbounded, in order
that their concurrence can give rise to a perfected contract."
In line with this basic postulate of contract law, "a definite
agreement on the manner of payment of the price is an
essential element in the formation of a binding and
enforceable contract of sale." Since the parties failed to enter
into a new contract that could have extinguished their
previously perfected contract of sale, there can be no
novation of the latter. Consequently, the first sale of the
property in controversy, by the Velezes to petitioners for
P1,050,000.00, remained valid and existing.
B. Special Causes—
a. Redemption
1. Conventional
2. Legal
II. Art. 1600- applies to perfected as well as consummated
sales.
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.
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.
Cases:
1.) Caballero vs Ong Tiao Bok
Facts:
Sergio Caballero, the predecessor-in-interest of the
petitioners sold to respondent Ong Tiao Bok for P60,000 two
parcels of land with a total area of about 11 hectares. They
executed a “Deed of Sale with Right to Repurchase” with a
provision that the vendor may repurchase the property with 5
years with a grace period of another 3 years.
16 years after the expiration of the period fro redemption, the
petitioners filed an action for cancellation of the annotations
of the sale on the titles of the lots. They claimed that the
contract entered into by their father was an equitable
mortgage. Their complaint was dismissed by the trial court on
the ground that the contract in question was a valid contract
of sale with a right of repurchase.
When they appealed to the CA, they argued that the contract
was an equitable mortgage because the purchase price was
lower than the assessed value. They reiterated this contention
in their petition before the SC.
Issue:
Was the contract entered into by Caballero and Ong Tiao Bok
an equitable mortgage?
The greatest results in life are usually attained by simple means and the exercise of ordinary qualities. These may for the most part be summed in
these two: common-sense and perseverance. -Owen Feltham
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 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:
The greatest results in life are usually attained by simple means and the exercise of ordinary qualities. These may for the most part be summed in
these two: common-sense and perseverance. -Owen Feltham
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 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.) Salonga vs. Concepcion
Facts:
The spouses Natalio Salonga and Felicidad Salonga were the
owners of eight (8) prime parcels of land located in Dagupan
City covered by Transfer Certificate of Title (TCT) Nos. 40886,
40887, 43547, 26506, 35156, 49460, 49459 and 53650.[1]
They had a commercial building with four floors which stood
on their property located along A.B. Fernandez Avenue,
Dagupan City and covered by TCT No. 53650. The spouses
leased the building to traders and merchants, and lived in a
house along Arellano Street. The house stood on a lot which
they also owned, covered by TCT No. 26506.
To finance their business, the spouses secured a loan from
the Associated Bank, Philippine National Bank (PNB),
Development Bank of the Philippines (DBP), and Rural Bank
of Malasiqui, Inc. (Pangasinan). To secure the payment
thereof, they executed a Real Estate Mortgage in favor of
these banks over their abovementioned properties.
The devastating earthquake of July 16, 1990 severely
damaged the spouses’ commercial building, adversely
affecting their business. Consequently, they defaulted in the
payment of their loans. The creditor banks foreclosed or
threatened to foreclose their real estate mortgages.
Beleaguered, the spouses Salonga secured several loans, this
time, from the spouses Manuel and Nenita Concepcion, who
were engaged in the business of lending money, to repay
their loan to their creditor banks.
The greatest results in life are usually attained by simple means and the exercise of ordinary qualities. These may for the most part be summed in
these two: common-sense and perseverance. -Owen Feltham
The spouses Salonga failed to pay the loans, interest and
commission despite the lapse of several months. In the
meantime, they continued residing in the same house. Much
as they tried, the spouses Salonga failed to sell their property
to any interested buyer. Worse, the spouses Concepcion
pressed them to pay their loan accounts, plus the interests
thereon.
On August 31, 1993, the spouses Salonga executed, in favor
of the spouses Concepcion, a Deed of Absolute Sale over their
property previously mortgaged to the Associated Bank
covered by TCT Nos. 43547, 40886, 40887, 35156 and
49459. It appears on the said deed that the property was
sold for the price of P575,000.00, and that the spouses
Salonga received the amount from the spouses Concepcion.
On September 20, 1993, the spouses Concepcion executed a
Deed of Absolute Sale over the property covered by TCT Nos.
40886, 40887, and 43547 in favor of the Florencia Realty
Corporation for P600,000.00. On September 21, 1993, the
spouses Concepcion filed the said deed in the Office of the
Register of Deeds. The spouses Concepcion then filed the
cancellation of real estate mortgage executed by the
Associated Bank, the deed of absolute sale executed by the
spouses Salonga, and the deed of absolute sale in favor of the
Florencia Realty Corporation in the Office of the Register of
Deeds, which issued TCT Nos. 60530, 60531 and 60532 in the
names of the Florencia Realty Corporation, and TCT Nos.
60533, 60534 and 60694 in the names of the spouses
Concepcion on September 21, 1993.
Sometime in 1994, the daughter of the spouses Salonga
arrived from abroad. The spouses and their daughter offered
to redeem the property from the spouses Concepcion.
However, the latter informed the spouses Salonga and their
daughter that the title to the property had already been
transferred to their names, and agreed to the redemption of
the property for P8,000,000.00 and the spouses Concepcion
increased it to P10,000,000.00.
On July 12, 1994, the spouses Salonga filed a complaint
against the spouses Concepcion and the Florencia Realty
Corporation with the RTC of Dagupan City for annulment of
the August 31, 1993 and October 18, 1993 Deeds of Absolute
Sale, as well as the reconveyance of the property subject of
said deeds with damages.
Issue:
Whether or not the Deeds of Absolute Sale executed by the
parties are mere equitable mortgages.
Held:
For the presumption in Article 1602 of the New Civil Code to
arise, two requirements must concur: (a) that the parties
entered into a contract denominated as a contract of sale;
and (b) that their intention was to secure an existing debt by
way of a mortgage. The existence of any of the
circumstances defined in Article 1602 of the New Civil Code,
not the concurrence nor an overwhelming number of such
circumstances is sufficient for a contract of sale to be
presumed an equitable mortgage.
If the terms of a contract are clear and leave no doubt upon
the intention of the contracting parties, the literal meaning of
its stipulations shall control. However, if the records appear to
be contrary to the evident intention of the contracting parties,
the latter shall prevail.
After a thorough examination of the records, we find and so
hold that the August 31 and October 18, 1993 Deeds of
Absolute Sale are mere equitable mortgages and not bona
fide absolute sale of the parcels of land therein described.
FIRST. The petitioners were hard-pressed to pay their
account to the respondents in the total principal amount of
P3,198,886.47; the said amount paid by the respondents for
the account of the petitioners to the PNB, the Associated Bank
and the DBP, excluding the amount of 36% interest a month
or 36% interest per annum. The petitioners tried to sell the
property to third-persons, but failed. The respondents
refused to give the petitioners any further extensions of time
to sell the property, unless they execute the deeds of
absolute sale in favor of the respondents and insure the
payment of their account. The specter of the petitioners
being evicted from their residence loomed large in the
horizon. To give themselves more time to sell their property
and avert eviction from their house, the petitioners opted to
execute the deeds of absolute sale.
SECOND. It was made to appear under the August 31, 1993
Deed of Absolute Sale that the petitioners had sold their five
parcels of land to the respondents for the principal amount of
P575,000.00, and that the petitioners received the said
amount from the respondents. However, at the time of the
execution of said deed, the petitioners were indebted to the
respondents for the principal amount of P586,520.50, which
the respondents had remitted to the Associated Bank for the
account of the petitioners. It is incredible that the petitioners
would sell the said parcels of land to the respondents
, and that the latter would remit the purchase price of
P575,000.00 to the petitioners, and retain the said amount
to be applied as payment to the petitioners’ account of
P586,520.50.
THIRD. Respondent Manuel Concepcion had earlier signed
on March 10, 1993 an undertaking that he would not register
the deed of
absolute sale as long as the petitioners will pay their
outstanding account plus interests thereon at the rate of 3%
per month:
FOURTH. The petitioners remained in possession of the
residential house even after October 18, 1993 without paying
any rentals therefor. It was only on August 23, 1994, after
the petitioners filed their complaint against the respondents in
the trial court, that the respondents filed their complaint for
ejectment against the petitioners.
FIFTH. The parcels of land covered by TCT Nos. 43547,
40886, 40887, 35156 and 49459 and TCT Nos. 53650 and
26506 had a total market value of P10,270,600.00.[55]
However, under the two deeds of absolute sale, the seven
parcels of land, including the petitioners’ house, were sold to
the respondents for only P2,078,000.00, an amount grossly
disproportionate to the market value of the property. The
respondents failed to adduce any evidence to controvert the
petitioners’ evidence relative to the market value of the seven
parcels of land.
2.) Go vs. Bacaron
Facts:
As evidenced by the Transfer of Rights dated October 1,
1993, Eliodoro Bacaron conveyed a 15.3955-hectare parcel of
The greatest results in life are usually attained by simple means and the exercise of ordinary qualities. These may for the most part be summed in
these two: common-sense and perseverance. -Owen Feltham
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.
3.) 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 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
The greatest results in life are usually attained by simple means and the exercise of ordinary qualities. These may for the most part be summed in
these two: common-sense and perseverance. -Owen Feltham
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.
4.) 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 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
The greatest results in life are usually attained by simple means and the exercise of ordinary qualities. These may for the most part be summed in
these two: common-sense and perseverance. -Owen Feltham
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
The greatest results in life are usually attained by simple means and the exercise of ordinary qualities. These may for the most part be summed in
these two: common-sense and perseverance. -Owen Feltham
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 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
— properties of the vendor (Art. 1610).
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)
The greatest results in life are usually attained by simple means and the exercise of ordinary qualities. These may for the most part be summed in
these two: common-sense and perseverance. -Owen Feltham
C. Creditors of the vendor (Art. 1610)
a.) Requisite:
 The creditors must have already exhausted the
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
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)
IX. Rules on Pro-rating fruits existing at the time of
redemption
A.If there are visible fruits existing at the time of the Facts:
execution of the sale: NO REIMBURSEMENT OR PRO-RATING On October 28, 1993, Senen and Virgilio purchased a house
IS REQUIRED. (1617, p. 1) and lot Maximiano Aguilar (now deceased). The brothers
wanted their father to enjoy his retirement in a quiet
Exception: If indemnity for fruits was paid by the vendee neighborhood.
when the sale was executed(1617, p. 1)
B.If NO visible fruits existing at the time of the sale: FRUITS February 23, 1970, they executed a written agreement
MUST BE PRO-RATED BETWEEN THE REDEMPTIONER AND stipulating that their shares in the house and lot would be
THE VENDEE.(1617, P.1) equal; and that Senen would live with their father on
condition that he would pay the Social Security System (SSS)
Share of the vendee: that portion corresponding to the time the remaining loan obligation of the former owners.
he possessed the land in the last year counted from the
anniversary of the date of sale. In 1974, their father died. Virgilio then demanded that Senen
vacate the house and that the property be sold, the proceeds
Section 2 – LEGAL REDEMPTION to be divided between them. Senen refused to comply with
Virgilio’s demand.
ARTS. 1619-1623
January 12, 1979, Virgilio filed a complaint with the Court of
i.CONCEPT First Instance (now Regional Trial Court) of Rizal at Pasay City
for specific performance
A. DEFINITION- the right to be subrogated, upon the same
terms and conditions stipulated in the contract, in the place of July 26, 1979, the trial court rendered its Decision, declaring
one who acquires a thing by purchase or dation inpayment, or the brothers co-owners of the house and lot and are entitled
by any other transaction whereby ownership is transmitted by to equal shares; and ordering that the property be sold, the
onerous title. (1619) proceeds to be divided equally between them. The trial
court also ordered Senen to vacate the property and to pay
B.Alienation must be by Virgilio rentals with interests corresponding to the period from
a. Sale January 1975 until he leaves the premises.
b. Dation in payment (dacion en pago)
c. Transaction whereby ownership is transferred by On March 27, 1995, Senen filed with RTC, an action for legal
onerous title (1619) redemption against Virgilio and another brother, Angel. In
his complaint, Senen alleged that while he knows that Virgilio
C.Distinction between PRE-EMPTION AND LEGAL sold his ½ share of the property to Angel in January 1989,
REDEMPTION however, he (Senen) was not furnished any written notice of
the sale. Consequently, as a co-owner, he has the right to
PRE-EMPTION REDEMPTION redeem the property.
1. arises before sale 1. arises after sale
2. no rescission because no 2. there can be rescission of November 27, 1995, the property was sold at public auction
sale as yet exists the original sale to Alejandro. Virgilio then received his share of the proceeds
3. the action is directed 3. action is directed against as well as the rental payments due from Senen.
against the prospective seller the buyer
The trial court dismissed the case on the ground of laches,
holding that Senen incurred a delay of seven (7) years before
asserting his right to redeem the property in question. On
D.Applicability of the Rules: The rules are applicable to both
appeal, the Court of Appeals affirmed the assailed Order of
movables and immovables.
the trial court.
II.INSTANCES OF LEGAL REDEMPTION
ISSUE: WON Senen’s complaint for legal redemption is barred
by laches.
A.Redemption by Co-owners
a. Purpose- to end indivision or at least reduce the number of
Ruling: The court in this case had discussed on matters
co-owners, keeping strangers out of the co-ownership.
involving legal redemption.
b. Requisites:
1. Co-ownership must exist
Legal redemption (retracto legal de comuneros) is a privilege
2. There must be alienation of the shares of all other
created by law, partly by reason of public policy and partly for
co-owners or any of them
the benefit of the redemptioner to afford him a way out of a
3. Alienation must be to a stranger not to a co-owner
disagreeable or inconvenient association into which he has
4. Alienation to said stranger must be before
been thrust.
partition
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
For other requisites pls refer to the cases below:
Article 1620 of the Civil Code which provides:
Aguilar v. Aguilar
“ART. 1620. A co-owner of a thing may exercise the
GR No. 141613
right of redemption in case the shares of all the other co-
Parties: SENEN B. AGUILAR- petitioner
owners or of any of them are sold to a third person. If the
VIRGILIO B. AGUILAR and ANGEL B. AGUILAR-
price of the alienation is grossly excessive, the redemptioner
respondents, Alejandro Sangalang- intervenor-
shall pay only a reasonable rate.
respondent
Should two or more co-owners desire to exercise the
right of redemption, they may only do so in proportion to the

The greatest results in life are usually attained by simple means and the exercise of ordinary qualities. These may for the most part be summed in
these two: common-sense and perseverance. -Owen Feltham
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. 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.
The greatest results in life are usually attained by simple means and the exercise of ordinary qualities. These may for the most part be summed in
these two: common-sense and perseverance. -Owen Feltham
RTC- favored the Barabats, declaring the private document as
a valid 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 respectively have in the thing owned in common.
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)
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.
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.
The greatest results in life are usually attained by simple means and the exercise of ordinary qualities. These may for the most part be summed in
these two: common-sense and perseverance. -Owen Feltham
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.
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
Galvez v. CA
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.
Timotea (+)
Ulpiano(+)
Galvez
Porfirio
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 Documents13 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 of
TIMOTEA FLORES GALVEZ.
CA: Affirmed
ISSUE: 1. WON action has prescribed as the property is held
in implied trust.
2. WON action is barred by laches as it has been
raised only after 24 years.
3. WON Tycoon properties and Tam are purchasers
for value and in good faith.
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 fundamental principle that a co-owner cannot
acquire by prescription the share of the other co-owners,
absent any clear repudiation of the co-ownership.
Implied trust comes into being by operation of law. The latter
kind is either constructive or resulting trust. A constructive
trust is imposed where a person holding title to property is
subject to an equitable duty to convey it to another on the
ground that he would be unjustly enriched if he were
permitted to retain it. The duty to convey the property arises
because it was acquired through fraud, duress, undue
influence or mistake, or through breach of a fiduciary duty, or
through the wrongful disposition of another’s property.
The prescriptive period may only be counted from the time
petitioners repudiated the trust relation in 1955 upon the
The greatest results in life are usually attained by simple means and the exercise of ordinary qualities. These may for the most part be summed in
these two: common-sense and perseverance. -Owen Feltham
filing of the complaint for recovery of possession against
private respondents so that the counterclaim of the private
respondents contained in their amended answer wherein they
asserted absolute ownership of the disputed realty by reason
of the continuous and adverse possession of the same is well
within the 10-year prescriptive period.
In this case, we find that Paz Galvez effected no clear and
evident repudiation of the co-ownership. The execution of the
affidavit of self-adjudication does not constitute such
sufficient act of repudiation as contemplated under the law as
to effectively exclude Porfirio Galvez from the property. This
Court has repeatedly expressed its disapproval over the
obvious bad faith of a co-heir feigning sole ownership
of the property to the exclusion of the other heirs
essentially stating that one who acts in bad faith
Paz should not be permitted to profit from it to the
detriment of others. In the cases of Adille and Pangan
where, as in this case, a co-heir was excluded from his legal
share by the other co-heir who represented himself as the
only heir, this Court held that the act of exclusion does not
constitute repudiation.
On the issue of prescription, while admittedly prescription
operates as a bar to recovery of property, the ten-year period
commenced to run from date of registration. In this case,
Carlos Tam obtained his title to the property on 21 January
1994. Since the complaint of Porfirio Galvez was filed on 12
May 1994, the same was well within the ten-year period to
file the action.
On the matter of laches, it is hornbook doctrine that laches is
a creation of equity and its application is controlled by
equitable considerations. Laches cannot be used to defeat
justice or perpetrate fraud and injustice. Neither should its
application be used to prevent the rightful owners of a
property from recovering what has been fraudulently
registered in the name of another. The equitable remedy of
laches is, therefore, unavailing in this case.
Finally, petitioners claim that if the sale would be nullified, the
nullification should extend only to the one-half share of
Porfirio Galvez but not to the share of Paz Galvez, who, by
her overt act of selling the property, manifested her intention
to dispose of her part.
Art. 1088, provides: "Should any of the heirs sell his
hereditary rights to a stranger before the partition, any or all
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 (1) month from the time they
were notified in writing of the sale by the vendor."
There was no written notice sent to Porfirio Galvez by Paz
Galvez when she sold her share over the land to Carlos Tam.
Porfirio Galvez only discovered on May 12, 1994.Tam and
Tycoon are not purchasers in good faith as they did not exert
efforts to determine the true title of the land.
B.Redemption by Adjoining Owners
a. Instances
1. Rural Lands
i. Purpose- to favor the development of
rural property in the interest of agriculture.
ii. Requisites:
-Both adjoining tenements are
rural.
 -There must be alienation. 16. House of plaintiffs is along the said road;
-The area of the land alienated 17. A portion of the land in question on the side farther from
does not exceed one hectare the road, is used as a fishwell;
-The tenements must be adjacent 18. Plaintiffs offered to redeem the land in the amount paid
without solution of surface by the defendants as well as an amount for the return of
continuity (tenements separated by investment of the property and interest, and payments of
brooks, ravines, roads, etc. are attorney's fees and are able and willing to make the payment.
excluded)
-The vendee must owned some RTC- favored petitioners
other rural land. CA- Reversed
iii. Who may exercise the right ISSUEs: 1. WON the land in question may be considered rural
By order of Preference for purposes of legal redemption under Section 2, Chapter 7,
a. Co-owners (1623 p. Title VI, New Civil Code 2. WON the parties are guilty of
2) laches to prevent them from redeeming the property.
b. Adjoining owners
(1621 p.3)
RULING: A construction of the word "rural" that is in
Preference
consonance with the legislative purpose must be followed.
(secondary
order)
b.1 the owner of Thus, rural lands are distinguished from urban tenements:
the adjoining
land with smaller xxx xxx xxx
area.
b.2 the first to request
redemption if areas are equal. (2) By its purpose or being for agricultural,
fishing or timber exploitation, and not for
CASES: dwelling, industry or commerce.
Fabia v. IAC
GR NO. L-66101 xxx xxx xxx
Parties: Sps. Fabia-Petitioners
IAC et. Al- Respondents
The respondents have failed to satisfy the above criterion.
Facts: The land in question cannot be legally classified as
1. Plaintiffs reside on a lot east of the land in question and rural land since it is principally used for residential rather
adjacent to it; than agricultural purposes.
2. The lot is owned by the plaintiffs in common;
3. The land in question formerly belonged to Hugo Mararac From the respondent's complaint alone, the land is admittedly
who sold the same to the spouses Leonardo Mararac and residential. Truly a residential home lot is not converted into
Monica Resuello; agricultural land by the simple reservation of a plot for the
4. At that time, the lot now owned by plaintiffs was owned by cultivation of garden crops or the planting of bananas and
plaintiff Angel Mararac and Juanito Mararac, who was the some fruit trees. Nor can an orchard or agricultural land be
husband of plaintiff Carina Rafanan who died in 1976; considered residential simply because a portion thereof has
5. Leonardo Mararac and Monica Resuello sold to the been criss-crossed with asphalt and cement roads with
defendants the land in question on February 25, 1975; buildings here and there (Republic of the Philippines v. Lara,
6. At that time, the lot in eastern side of the land in question 50 O.G. 5778). We have to apply the rule of reason based on
was owned by Angel Mararac and his brother, Juanita the specific facts of each case. The land, subject matter of the
Mararac; petition, being primarily residential, cannot be considered as
7. On April 8, 1975, defendants declared the land for tax rural for purposes of legal redemption under the law.
purposes;
8. At the time of sale of the land in question to the
A further requisite laid down by the law to enable legal
defendants in 1975 there was no offer to exercise right of
redemption of adjoining lands is that both the land of
legal redemption;
the one exercising the right and the adjacent property
9. At the time of the sale of the land in question to Leonardo
sought to be redeemed should be rural or destined for
Mararac and Monica Resuello in 1971, there was no offer of
agricultural exploitation. If either, is urban or both are
legal redemption;
urban, there is no right of redemption.
10. There was no legal redemption offered during the period
between the first and second sale;
11. The southern boundary of the lot in question is a barrio Thus, the circumstances under which legal redemption may
road with approximate area of 10 meters wide; be exercised not having been found present in the case at
12. The land in question in relation to plaintiffs' lot is not bar, the respondents have no right to enforce against the
separated by ravine, by brook, trait road or other servitude petitioners. GRANTED
for the benefit of others;
13. The land in question is fenced and was fenced even Primary Structures Corp. V. Valencia
before the first sale in March 27, 1971; GR. No. 150060
14. Defendants own rural lands other than the land in FACTS: Petitioner is a private corporation based in Cebu City.
question; Adjacent to the lot of petitioner are parcels of land. The three
15. From Barangay Balogo, to Basing along the road touching lots, Mendoza to respondent spouses sometime in December
the southern bound of the land in question are lines of houses 1994. Petitioner learned of the sale of the lots only in
on both sides;

The greatest results in life are usually attained by simple means and the exercise of ordinary qualities. These may for the most part be summed in
these two: common-sense and perseverance. -Owen Feltham
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)
i. Requisites
- Both adjoining tenements are urban
- The tenement being redeemed was bought
merely for speculation
- The major portion of the tenement is so
situated that it cannot be used for any
practical purpose within a reasonable time.
- There is alienation
- The tenements are adjacent
ii. 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
The greatest results in life are usually attained by simple means and the exercise of ordinary qualities. These may for the most part be summed in
these two: common-sense and perseverance. -Owen Feltham
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.
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
The greatest results in life are usually attained by simple means and the exercise of ordinary qualities. These may for the most part be summed in
these two: common-sense and perseverance. -Owen Feltham
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)
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 1623 of the present one is that the former did not specify who
has been given. 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.
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 In this case, the records are bereft of any indication that
case, for instance, the sale took place in 1986, but it was kept Fortunato was given any written notice of prospective
secret until 1992 when vendee (herein respondent) needed to or consummated sale of the portions of Lot No. 2319 by
notify petitioner about the sale to demand 1/5 rentals from the vendors or would-be vendors. The thirty (30)-day
the property sold. Compared to serious prejudice to redemption period under the law, therefore, has not
petitioner's right of legal redemption, the only adverse effect commenced to run.
to vendor Adela Blas and respondent-vendee is that the sale
could not be registered. It is non-binding, only insofar as third
Despite this, however, we still rule that petitioner could no
persons are concerned. It is, therefore, unjust when the
longer invoke her right to redeem from private respondent for
subject sale has already been established before both lower
the exercise of this right "presupposes the existence of a co-
courts and now, before this Court, to further delay petitioner's
ownership at the time the conveyance is made by a co-owner
exercise of her right of legal redemption by requiring that
and when it is demanded by the other co-owner or co-
notice be given by the vendor before petitioner can exercise
owners. The regime of co-ownership exists when ownership of
her right. For this reason, we rule that the receipt by
an undivided thing or right belongs to different persons. By
petitioner of summons in Civil Case No. 15510 on
the nature of a co-ownership, a co-owner cannot point to
August 5, 1992 constitutes actual knowledge on the
specific portion of the property owned in common as his own
basis of which petitioner may now exercise her right of
because his share therein remains intangible. As legal
redemption within 30 days from finality of this
redemption is intended to minimize co-ownership, once the
decision. GRANTED.
property is subdivided and distributed among the co-owners,
the community ceases to exist and there is no more reason to
Vda. De Ape v. CA sustain any right of legal redemption.
GR No. 133638
FACTS:
In this case, records reveal that although Lot No. 2319 has
Cleopas Ape was the registered owner of a parcel of land
not yet been formally subdivided, still, the particular
particularly Upon Cleopas Ape's death, the property passed
portions belonging to the heirs of Cleopas Ape had
on to his wife, Maria Ondoy, and their eleven (11) children,
already been ascertained and they in fact took
namely: Fortunato, Cornelio, Bernalda, Bienvenido,
possession of their respective parts.
Encarnacion, Loreta, Lourdes, Felicidad, Adela, Dominador,
and Angelina, all surnamed Ape.
Aguilar v. Aguilar (see above digested case)
Cabales v. CA (see above digested case)
On 15 March 1973, Generosa Cawit de Lumayno (private
respondent herein) instituted a case for "Specific Performance
B. Requisites for the registration of the sale in the
of a Deed of Sale with Damages" against Fortunato and his
registry of the property- it must be accompanied by
wife Perpetua (petitioner herein). It was alleged in the
an affidavit of the vendor that he has given written
complaint that on April 1971, private respondent and
notice to all possible redemptioneers.
Fortunato entered into a contract of sale of land.
C. Special Rules:
As private respondent wanted to register the claimed sale
a. Legal Redemption requires no previous notice of
transaction, she supposedly demanded that Fortunato
intention to redeem.
execute the corresponding deed of sale and to receive the
b. Tender of the price is not a condition precedent
balance of the consideration. However, Fortunato
to redemption.
unjustifiably refused to heed her demands. Private
respondent, therefore, prayed that Fortunato be ordered to
IV. Other Cases of Legal Redemption
execute and deliver to her "a sufficient and registrable deed
a. Redemption by the debtor in the sale of credit in
of sale involving his one-eleventh (1/11) share or
litigation (1634)
participation in the land.
b. Redemption by co-heirs in case of a sale by an heir
of his hereditary rights to a stranger before partition
Fortunato and petitioner denied the material allegations of the
(1088)
complaint and claimed that Fortunato never sold his share in
c. Redemption by the applicant, his widow, and legal
Lot No. 2319 to private respondent and that his signature
heirs within 5 years from the conveyance under a
appearing on the purported receipt was forged.
homestead or free patent (Sec. 119, CA 141)
d. Redemption within 1 year by a judgment debtor or
ISSUE: WON Fortunato was furnished with a written notice of
redemptioneer of real property sold under execution.
sale of the shares of his co-owners as required by Article
e. Redemption by the owner of the property sold for
1623 of the Civil Code.
delinquent realty taxes.
f. Redemption within 1 year by the mortgagor in sales
under
RULING: … Art. 1623 of the Civil Code is clear in requiring 1. Extra-judicial foreclosure (Sec 6, Act
that the written notification should come from the vendor or 3135)
prospective vendor, not from any other person. There is, 2. Judicial foreclosure sale by banks within
therefore, no room for construction. Indeed, the principal the purview of the General banking act
difference between Art. 1524 of the former Civil Code and Art.

The greatest results in life are usually attained by simple means and the exercise of ordinary qualities. These may for the most part be summed in
these two: common-sense and perseverance. -Owen Feltham
CASES:
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.
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.
The greatest results in life are usually attained by simple means and the exercise of ordinary qualities. These may for the most part be summed in
these two: common-sense and perseverance. -Owen Feltham
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.
c. Redemption of mortgaged property foreclosed by
bank
Cruz v. Leis
GR No. 125233
FACTS:
On 5 February 1985, Gertrudes obtained a loan from
petitioners, the spouses Alexander and Adelaida Cruz. For
failure of Gertrudes to repurchase the property, ownership
thereof was consolidated in the name of Alexander Cruz. On 9
June 1987, Gertrudes Isidro died. Thereafter, her heirs,
herein private respondents, received demands to vacate the
premises from petitioners, the new owners of the property.
Private respondents, the heirs of spouses Adriano Leis and
Gertrudes Isidro, filed an action before the Regional Trial
Court (RTC) of Pasig seeking the nullification of the contracts
of sale over a lot executed by Gertrudes Isidro in favor of
petitioner Alexander Cruz, as well as the title subsequently
issued in the name of the latter. Private respondents claimed
that the contracts were vitiated by fraud as Gertrudes was
illiterate and already 80 years old at the time of the execution
of the contracts; that the price for the land was insufficient as
it was sold only for P39,083.00 when the fair market value of
the lot should be P1,000.00 per square meter, instead of
P390.00, more or less; and that the property subject of the
sale was conjugal and, consequently, its sale without the
knowledge and consent of private respondents was in
derogation of their rights as heirs.
ISSUE:WON the land became the exclusive property of
Gertrudes when, in 1979, she mortgaged the property to the
Daily Savings Bank and Loan Association. The bank later
foreclosed on the mortgage in 1981 but Gertrudes redeemed
the same in 1983.
RULING: NO. There is no merit in petitioners' contention that
Gertrudes' redemption of the property from the Daily Savings
Bank vested in ownership over the same to the exclusion of
her co-owners. We dismissed the same argument by one of
the petitioners in Paulmitan vs. Court of Appeals, where one
of the petitioners therein claimed ownership of the entire
property subject of the case by virtue of her redemption
thereof after the same was forfeited in favor of the provincial
government for non-payment of taxes. We held however, that
the redemption of the land "did not terminate the co-
ownership nor give her title to the entire land subject of the
co-ownership."
It is conceded that, as a rule, a co-owner such as Gertrudes
could only dispose of her share in the property owned in
common.
Unfortunately for private respondents, however, the property
was registered in TCT No. 43100 solely in the name of
"Gertrudes Isidro, widow." Where a parcel of land, forming
past of the undistributed properties of the dissolved conjugal
partnership of gains, is sold by a widow to a purchaser who
merely relied on the face of the certificate of title thereto,
issued solely in the name of the widow, the purchaser
acquires a valid title to the land even as against the heirs of
the deceased spouse. The rationale for this rule is that "a
person dealing with registered land is not required to go
behind the register to determine the condition of the
property. He is only charged with notice of the burdens on the
property which are noted on the face of the register or the
certificate of title. To require him to do more is to defeat one
of the primary objects of the Torrens system."
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
The greatest results in life are usually attained by simple means and the exercise of ordinary qualities. These may for the most part be summed in
these two: common-sense and perseverance. -Owen Feltham
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 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 greatest results in life are usually attained by simple means and the exercise of ordinary qualities. These may for the most part be summed in
these two: common-sense and perseverance. -Owen Feltham
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:
 1. Ledonio v. Capitol Development Corp. (Refer above)
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.
The greatest results in life are usually attained by simple means and the exercise of ordinary qualities. These may for the most part be summed in
these two: common-sense and perseverance. -Owen Feltham
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 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.
Atok Finance Corp. v. CA
It may be stressed as a preliminary matter that the Deed of
Assignment was valid and binding upon Sanyu Chemical.
Assignment of receivables is a commonplace commercial
transaction today. It is an activity or operation that permits
the assignee to monetize or realize the value of the
receivables before the maturity thereof. In other words,
Sanyu Chemical received from Atok Finance the value of its
trade receivables it had assigned; Sanyu Chemical obviously
benefitted from the assignment. The payments due in the first
instance from the trade debtors of Sanyu Chemical would
represent the return of the investment which Atok Finance
had made when it paid Sanyu Chemical the transfer value of
such receivables.
Article 1629 of the Civil Code invoked by private respondents
and accepted by the Court of Appeals is not, in the case at
bar, material. The liability of Sanyu Chemical to Atok Finance
rests not on the breach of the warranty of solvency; the
liability of Sanyu Chemical was not ex lege (ex Article 1629)
but rather ex contractu. Under the Deed of Assignment, the
The greatest results in life are usually attained by simple means and the exercise of ordinary qualities. These may for the most part be summed in
these two: common-sense and perseverance. -Owen Feltham
effect of non-payment by the original trade debtors was
breach of warranty of solvency by Sanyu Chemical, resulting
in turn in the assumption of solidary liability by the assignor
under the receivables assigned. In other words, the assignor
Sanyu Chemical becomes a solidary debtor under the terms
of the receivables covered and transferred by virtue of the
Deed of Assignment. And because assignor Sanyu Chemical
became, under the terms of the Deed of Assignment, solidary
obligor under each of the assigned receivables, the other
private respondents (the Arrieta spouses, Pablito Bermundo
and Leopoldo Halili), became solidarily liable for that
obligation of Sanyu Chemical, by virtue of the operation of
the Continuing Suretyship Agreement. Put a little differently,
the obligations of individual private respondent officers and
stockholders of Sanyu Chemical under the Continuing
Suretyship Agreement, were activated by the resulting
obligations of Sanyu Chemical as solidary obligor under each
of the assigned receivables by virtue of the operation of the
Deed of Assignment. That solidary liability of Sanyu Chemical
is not subject to the limiting period set out in Article 1629 of
the Civil Code.
It follows that at the time the original complaint was filed by
Atok Finance in the trial court, it had a valid and enforceable
cause of action against Sanyu Chemical and the other private
respondents. We also agree with the Court of Appeals that
the original obligors under the receivables assigned to Atok
Finance remain liable under the terms of such receivables.
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)

The greatest results in life are usually attained by simple means and the exercise of ordinary qualities. These may for the most part be summed in
these two: common-sense and perseverance. -Owen Feltham