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Abas, Hamida M. Adsa, Malieha M. Cabilo, Karen Kane G.

Abobakar, Kassandra B. Akbar, Sittie Racma R.


TTH 4:00-5:30
LAW ON SALES

CHAPTER 7: Extinguishment of Sales

Art. 1600
○ Causes for extinguishment of sales:
1. Common. Those causes which are also the means of extinguishing all other contracts like
payment, loss of the thing, condonation, etc.(seeArt.1231)
2. Special. Those causes which are recognized by the law on sales (such as those covered by
Arts.1484, 1532, 1539, 1540, 1542, 1556, 1560,1567, and 1591)
3. Extra-special. Those causes which are given special discussion by the Civil Code and these are
conventional redemption and legal redemption.

CONVENTIONAL REDEMPTION (Arts. 1601-1618)

Art. 1601.
o Requisites REV-CR

a. The vendor reserves the right to repurchase the thing sold


b. He shall shoulder the expenses of the contract and other legitimate payments made by the buyer.
c. He shall pay the value of the necessary and useful expenses made on the thing incurred by the buyer
d. He shall comply with other stipulations agreed upon.
e. He shall return the price of the sale

o Nature:
1. It is purely contractual because it is a right created, not by mandate of the law, but by virtue of an
express contract.
2. It is an accidental stipulation and, therefore, its nullity cannot affect the sale itself since the latter
might be entered into without said stipulation.
3. It is a real right when registered, because it binds third persons.
4. It is potestative because it depends upon the will of the vendor.
5. It is a resolutory condition because when exercised, the right of ownership acquired by the vendee
is extinguished.
6. It is not an obligation but a power or privilege that the vendor has reserved for himself.
Abas, Hamida M. Adsa, Malieha M. Cabilo, Karen Kane G.
Abobakar, Kassandra B. Akbar, Sittie Racma R.
TTH 4:00-5:30
LAW ON SALES
7. It is reserved at the moment of the perfection of the contract for if the right to repurchase is agreed
upon afterwards, there is only a promise to sell which produces different rights and effects and is
governed by Art.1479.
8. The person entitled to exercise the right of redemption necessarily is the owner of the property sold
and not any third party. The right may be exercised also by any person in whom the right may have
been transferred.
9. It gives rise to reciprocal obligation that of returning the price of sale and other expenses, on the
part of the vendor (Art.1616); and that of delivering the property and executing a deed of sale therefor,
on the part of the vendee.

PACTO DE RETRO SALE vs. MORTGAGE


PACTO DE RETRO SALE MORTGAGE
Ownership is consolidated in the vendee if vendor does Failure of mortgagor to pay his obligations on time does
not repurchase w/in time agreed upon not deprive him of his interest in the property
No obligation on the part of the vendee to foreclose Mortgagee must foreclose if he wants to secure a
perfect title
Vendor has no more right to redeem after expiration of Mortgagor may redeem before foreclosure and even
period to redeem after, w/in one year from registration of the sale in
extra-judicial foreclosure. In judicial foreclosure
redemption may be made before confirmation of the
sale by the court.
Vendee may alienate property Mortgagee cannot alienate property
Vendee becomes automatically the owner in case of Mortgagee does not automatically become owner, there
vendor’s failure to redeem must be foreclosure sale first
Vendee is entitled to reimbursement for necessary and Mortgagee is not entitled to reimbursement for
useful expenses improvements he made

Art. 1602—Presumption of Equitable Mortgage. (IPERTOD)


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
Abas, Hamida M. Adsa, Malieha M. Cabilo, Karen Kane G.
Abobakar, Kassandra B. Akbar, Sittie Racma R.
TTH 4:00-5:30
LAW ON SALES
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.
7. When there is doubt as to whether contract is Pacto de retro or an equitable mortgage
Equitable Mortgage—one which lacks the proper formalities, form of words or other requisites prescribed by
law for a mortgage, but however shows the intention of the contracting parties to make the property subject of
the contract as security for a debt and contains nothing impossible or contrary to law.

Consequences of Declaration of Pacto de Retro Sale as an Equitable Mortgage (PTFR)


1. The repurchase price paid by the vendor is considered the principal of the loan.
2. Title remains in the vendor or if the title has already been transferred to the vendee, the same must be revested
into the vendor by a deed of reconveyance.
3. Any money fruits or other benefits received thereafter by the vendee are considered interests on the loan.
4. If the vendor does not redeem on time the remedy of the vendee is to foreclose the mortgage.

Art. 1603—In case of doubt, a contract purporting to be a sale with right to repurchase shall be construed as an
equitable mortgage.
Rationale: Least transmission of rights.
*Although in conflict with Art. 1378, where it provides that if the contract is onerous, the doubt shall be
settled in favor of the greatest reciprocity of interests, Art. 1603 is the exception. This is justified by the
condemnation of pactum commissorium (which is a stipulation that creditor automatically becomes owner of a
property upon non-payment by the debtor)

Art. 1604—Art. 1602 also applicable to contract purporting to be an absolute sale

Art. 1605—Vendor may ask for reformation of instrument in cases referred to in 1602 & 1604

Art. 1606—Time to redeem in conventional redemption


1. If there is a period agreed upon then this shall be observed, but this should not exceed 10 years
2. If there is no period agreed upon, the redemption shall be exercised within 4 years from the date of contract.
3. If an action was brought by the seller claiming that the contract was an equitable mortgage but later on proven
that it was Pacto de retro Sale, he is given 30 days from the time final judgment was rendered to repurchase.
Abas, Hamida M. Adsa, Malieha M. Cabilo, Karen Kane G.
Abobakar, Kassandra B. Akbar, Sittie Racma R.
TTH 4:00-5:30
LAW ON SALES
Art. 1607—Judicial Order is required for the registration of the consolidation of ownership of a real property
in the vendee by failure of the vendor to redeem.
Rationale: To accord the vendor the maximum safeguards for the protection of his legal rights under the
true agreement of the parties.

Art. 1608—The vendor may exercise his right of redemption against every possessor whose right is derived
from the vendee, even if the second contract does not mention of the right of redemption.

Art. 1609—Vendee is subrogated to the vendor’s rights and actions


As owner, vendee may:
a. transfer his rights to a 3rd person
b. mortgage the property
c. enjoy the fruits thereof
d. recover the property against every possessor
e. perform other acts of ownership
Art. 1610—Creditors of the vendor must exhaust first all the other properties of vendor before they could
exercise the right of redemption against the vendee.

Art. 1611—Applicability.
1. The vendee entered a Pacto de Retro Sale of a part of an undivided immovable.
2. The vendee later acquired the whole of the property.
3. The vendor in the “Pacto de Retro Sale of a part” wishes to exercise his right of redemption over the part.
If the above mentioned are present the vendee may compel the vendor in the Pacto de Retro Sale of a part to
redeem the whole property.
Rationale: Co-ownership is not favored, because the co-owners are reluctant to make improvements on
the property due to the state of instability in its ownership.

Art. 1612—Joint Pacto de Retro Sale by Co-Owners or Co-Heirs of an Undivided Immovable.


 Each Co-Owner/Co-Heir can exercise right of redemption with respect to their share

Art. 1613—In the case referred to in Art. 1612, vendee may demand that all the vendors or co-heirs come to
an agreement upon the repurchase of the whole thing, if they failed to do so vendee cannot be compelled to
accept partial redemption.
Abas, Hamida M. Adsa, Malieha M. Cabilo, Karen Kane G.
Abobakar, Kassandra B. Akbar, Sittie Racma R.
TTH 4:00-5:30
LAW ON SALES

Art. 1614—Separate Sales of Shares of Co-owners of an undivided immovable.


 Each vendor may exercise their right of redemption independently and the vendee cannot compel any
of them to redeem the whole property

Art. 1615—If the vendee dies and property is left to several heirs, the action for redemption can only be
brought to each of them independently with respect to their share, whether or not the property is still undivided
or already partitioned.

Art. 1616—Obligations of the Vendor a Retro if he desires to redeem


a. Return to the vendee the price of the sale
b. He shall shoulder the expenses of the contract and other legitimate payments made by the buyer.
c. He shall pay the value of the necessary and useful expenses made on the thing incurred by the buyer

Art. 1617—Rule in case there is no agreement on the sharing of the fruits of the property.
1. If there are fruits at the time of the sale and the vendee paid them, he shall be reimbursed by the vendor.
2. Where there are no fruits at the time of the sale but there are existing at the time of redemption, the vendee
shall be entitled to the fruits gathered for one year reckoned from the last anniversary of the date of the effectivity
of the contract of sale.

Art. 1618—The vendor who recovers the thing shall receive it free from all charges or mortgages constituted
by the vendee, but shall respect the lease contract constituted on the property in good faith and in accordance with
the customs of the place.

LEGAL REDEMPTION (1619)


--is the right to be subrogated upon the same terms and conditions stipulated in the contract, in the place of one
who acquires a thing by purchase or dation in payment, or by any other transaction whereby ownership is
transmitted by onerous title.
Art. 1620—A co-owner of a thing may exercise the right of redemption when the shares of all the other co-
owners or any of them are sold to a 3rd person. If the price of alienation is grossly excessive, redemptioner
shall pay only a reasonable price.
--If two or more co-owners desire to exercise right of redemption they may only do so in proportion
to their share.
Abas, Hamida M. Adsa, Malieha M. Cabilo, Karen Kane G.
Abobakar, Kassandra B. Akbar, Sittie Racma R.
TTH 4:00-5:30
LAW ON SALES

Art. 1621—Redemption by adjacent owner of rural lands. Requisites: (RATSO)


1. The adjacent lands involved must be rural land.
2. The rural land alienated and to be redeemed must not exceed one hectare in area
3. The alienation must be made in favor of a third person, not in favor of another adjacent owner
4. The two lands involved must not be separated by brooks, drains, ravines, roads and other servitudes for the
benefit of other estates.
5. The vendee or grantee must already be an owner of a rural land. If he does not own any, redemption is not
allowed.

If two or more adjoining owners desire to exercise the right of redemption at the same time, the one with a smaller
area shall be preferred. If both have same area, the one who first requested.

Art. 1622—Applicability: Piece of Urban Land which is so small and so situated that a major portion cannot
be used for any practical purpose w/in a reasonable time, having bought merely for speculation and is about to
resold.
*Speculation—means buying or selling with expectation of profiting by a rise and fall in price.
Rights recognized by Article 1622.
1. Right of Pre-emption—the right of an adjacent owner to purchase the property before it is sold to a third
person or before the projected sale to a 3rd person is consummated.
2. Right of Redemption—the right of an adjacent owner to redeem the property after the sale had been perfected
and consummated.

Pre-emption Redemption
Arises before sale Arises after sale
No Rescission because no sale as yet exists There can be rescission of the original sale
The action is directed against the Action is directed against the buyer
prospective seller
* Preference when two or more owners of adjoining lands wish to exercise the right of redemption or pre-emption:
To the owner whose intended use is best justified.

Art. 1623—Period of Legal Pre-emption or Redemption.


Abas, Hamida M. Adsa, Malieha M. Cabilo, Karen Kane G.
Abobakar, Kassandra B. Akbar, Sittie Racma R.
TTH 4:00-5:30
LAW ON SALES
 Must be exercised within 30 days from the notice in writing by the prospective vendor.
 The deed of sale executed by the vendor is not registered if not accompanied by an affidavit that he has given
the required written notice.
 The right of redemption of co-owners is superior to the right of adjoining owners.

Instances of Legal Redemption under the Civil Code (CHURC)


1. Sale of a co-owner of his share to a stranger (1620)
2. Sale of an heir of his hereditary rights to a stranger (1088)
3. Sale of adjacent small urban lands bought merely for speculation (1622)
4. Sale of adjacent rural land not exceeding one hectare (1621)
5. When a credit or other incorporeal right in litigation is sold (1634)
Instances of Legal Redemption under special laws (THEJA)
1. Redemption in tax sales
2. Redemption of homesteads
3. A right of redemption in cases of extra-judicial foreclosures
4. An equity of redemption in cases of judicial foreclosures
5. Redemption by an agricultural tenant of land sold by the landowner