Transactions) LESSON no.

7 Module 7 EXTINGUISHMENT OF THE CONTRACT OF SALE

The contract of sale is extinguished by:

1. The same causes as found in Book IV, Title 1, Chapter IV, of the New Civil Code;

2. All other instances where obligations are extinguished under the New Civil Code;

3. Conventional Redemption; and

4. Legal Redemption. (Art. 1600, New Civil Code)

Conventional Redemption

Conventional Redemption is a contract of sale where the seller has the right to repurchase the goods
sold. It is also known as a pacto de retro sale. The seller is known as the vendor a retro, while the buyer
is known as the vendee a retro.

Conventional redemption is when the seller expressly makes a reservation to repurchase the thing (Art.
1601, New Civil Code) by returning:

a. The price of the sale;

b. The expenses of the contract;

c. Legitimate payments made by reason of the sale;

d. The necessary and useful expenses made on the thing sold (Art. 1616, New Civil Code).

Rules in the exercise of the right of conventional redemption

1. The right to repurchase in a contract of sale shall only last four years if there is no period agreed
upon;

2. If a period for the right to repurchase by the seller is agreed upon, such period can only last ten years;

3. The seller may still purchase his right of redemption after 30 days from the final judgment of a civil
action where the issue is whether the contract of sale is one with the right to repurchase (Art. 1606,
New Civil Code);
For example, A, the buyer, entered into a contract of sale with “Option to buy” with the seller B.
Unsure of whether the contract is a pacto de retro sale or a one with a mortgage, A filed a case in
court against B. The court after 11 years ruled that it is indeed a pacto de retro sale. B can still
exercise his right to repurchase the 90 days after the judgment was rendered/promulgated.

4. The seller may exercise the right to repurchase against any person who is in possession of the
property even if the possessor’s contract does not mention of the right to repurchase, without
prejudice over the rights of the possessor according to existing laws at the time of redemption (Art.
1608, New Civil Code);

For example, A and B entered into a pacto de retro sale over a piece of land where A is the seller and
B is the buyer. B then later transferred the property to C. A can still exercise his right to repurchase
by filing a civil action against C, without prejudice of the rights provided by law to C.

5. The seller’s creditors cannot use the right of redemption of the seller against the buyer until they
have exhausted all other properties of the seller (Art. 1610, New Civil Code);

6. If the property sold in a pacto de retro sale shall bears fruits:

a. When there are fruits are visible and growing at the time that the pacto de retro sale
was executed the vendee a retro will not be reimbursed for such fruits at the time of
redemption if the vendee a retro did not indemnify the seller for such goods at the time
the sale was executed;
b. If there are no visible and growing fruits at the time that the pacto de retro sale was
executed and are existing at the time of redemption, the fruits shall be prorated
between the seller and the vendee a retro where the latter shall be given fruits
pertaining to from the last year he possessed the property counted one year from the
execution of the sale (Art. 1617, New
Civil Code);
c. If there is an agreement as to the division of the fruits between the vendor a retro and
the vendee a retro then that agreement shall prevail (Almeda v. Daluro, G.R. No. L-
28070, October 5, 1977);

7. The vendor a retro who exercises his right to repurchase shall redeem the property without any
burden or encumbrance in it as instituted by the vendee a retro (Art. 1618, New Civil Code);

8. The vendor a retro who exercises his right to repurchase shall respect any existing lease executed in
good faith on the property at the time of redemption (Ibid.);

9. The buyer shall be subrogated into the rights and actions of the seller before his title to the property
is consolidated (Art. 1609, New Civil Code);

10. The title of ownership of the vendee a retro shall only be consolidated (confirmed) when an
action for consolidation of title has been filed in court and granted in favor of the vendee a retro (Art.
1607, New Civil Code).
Rules in Pacto De Retro Sale of Co-owned property

1. In a pacto de retro sale where the sellers are co-owners who were forced to sell indivisible property
due to their failure to agree on which co-owners shall sell their rights to a single co-owner, the buyer
can compel the seller to repurchase the whole property if the latter shall exercise his right to do so
(Art. 1611, New Civil Code);

2. When the sellers are co-owners who sell their undivided share in an immovable with the right to
repurchase, the exercise of such right should only be for their own respective shares, the same rule is
applicable to heirs who inherit an immovable (Art. 1612, New Civil Code);

The vendee a retro can demand that the whole property be repurchased by the coowners, if the co-
owners fail to do so, the vendee a retro cannot be compelled to accept partial redemption;

For example, A, B, and C inherited a house and lot from their father now owning 1/3 each thereof.
They are now co-owners of the property and decided to sell the property through a pacto de retro
sale without going through partition. If only A will exercise his right to repurchase, then he can only
repurchase his 1/3 share of the property.

3. Each co-owner who separately sells his share in co-owned property in a pacto de retro sale can
exercise such right to repurchase for his share, the vendee a retro cannot compel such co-owner to
redeem the whole property (Art. 1614, New Civil Code);

4. If the property had already transferred to heirs of the vendee a retro:

a. The whole property can be repurchased from one heir if the property had been awarded
to such heir; or
b. The property can only be repurchased from the heirs for their own inherited shares (Art.
1615, New Civil Code);

Equitable Mortgage

An equitable mortgage is defined as one which although lacking in some formality, or form or words, or
other requisites demanded by a statute, nevertheless reveals the intention of the parties to charge real
property as security for a debt, and contains nothing impossible or contrary to law. (Matanguihan v.
Court of Appeals, G.R. No. 115033, July 11, 1997)

A contract of sale shall be presumed as an equitable mortgage in the following instances:

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. (Art. 1602
in relation to Art. 1604, New Civil Code)

An equitable mortgage is presumed in these cases because the retention of possession by the seller of
the property sold is inconsistent with the right of ownership of the buyer as in a contract of sale
ownership is transferred to the buyer. (Rockville v. Sps Culla, G.R. No. 155716, October 2, 2009).

LEGAL REDEMPTION

Legal redemption is the right to be subrogated, upon the same terms and conditions stipulated in the
contract, in the place of one who acquires a thing by purchase or dation in payment, or by any other
transaction whereby ownership is transmitted by onerous title. (Art. 1619, New Civil Code)

Redemption by co-owners

When the shares of some or all others of the co-owners have been sold to a third person, a co-owner
may exercise his right of redemption over those portions. The co-owner exercising his right of
redemption shall only pay a reasonable price for the portions sold if the price of the transfer is grossly
excessive.

When two or more co-owners want to exercise their right of redemption, they can only do so in
proportion to their respective shares and not for all shares which have been transferred. (Art. 1620, New
Civil Code)

For example, A, B, C, D, E and F are co-owners of a lot. A and B sold their shares to G. Either, C, D, E and F
can exercise their right of redemption as against A and/or B; or if C and D both want to exercise their
right of redemption as against A and/or B, they can only redeem as much as 1/3 of the transferred
properties in proportion to their co-owned share.

Redemption of Adjoining Land Owners in Rural Land

Adjoining owners of rural land sold has the right of redemption if:
1. The area of the rural land sold is less than one hectare;

2. The transferee of the rural land sold already owns rural land; and
3. The adjacent lands are not separated by rooks, drains, ravines, roads and other apparent servitudes
for the benefit of other estates. (Art. 1621, New Civil Code)

When there are two or more owners of adjoining lands and two or more want to exercise their right of
redemption:

a. The owner of adjoining land with a smaller area is preferred; or

b. If the lands have equal area, the owner who first requested redemption shall be
preferred. (Ibid.)

Pre-emption by Adjoining Land Owners in Urban Land

An owner of Urban land has the right of redemption over urban land that is so small that it has no
practical use or purpose, that it was bought merely for speculation, and is about to be re-sold. (Art.
1622, New Civil Code)

When the re-sale is already perfected then the right shall become that of redemption.
(Ibid.)

Requirements for the exercise of the right of pre-emption of urban land:

1. Allege in the complaint that the land 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; and

2. Prove that the land 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 (Del Rosario v.
Sps. Bansil, G.R. No. 51655, Nov. 29, 1989).

When two or more owners of adjoining lands wish to exercise the right of pre-emption or redemption,
the owner whose intended use of the land in question appears best justified shall be preferred. (Ibid.)

For example, A sold to B a 153 square meter urban land where the extra three meters do not form a
quadrilateral in the overview of the property and was sold merely to raise the price of the sale, and B
decides to resell the three square meters to D, so that his property will form a perfect quadrilateral.
Suppose that C is an adjoining land owner, if the sale between B and D has not yet been perfected then
C can exercise the right of pre-emption over the three square meters; on the other hand if the sale
between B and D had already been perfected then C can exercise the right of redemption.

Time to Exercise the Right of Pre-emption or Redemption

The right of legal pre-emption or redemption can only be exercised within thirty (30) days from the
written notice of the prospective seller or seller to the co-owners/adjoining land owners of the
sale/prospective sale. (Art. 1623, New Civil Code)

References:

Republic Act 386, An Act to Ordain and Institute the Civil Code of the Philippines

Mardonio Almeda and Maria Torrecampo v. Juan R. Daluro and Marcelino G. Daluro, G.R.
No. L-28070, October 5, 1977

Ponciano T. Matanguihan and Eustaquia M. Matanguihan v. Court of Appeals, Hermino

Paran, substituted by Reynaldo, Joseph, Ronnie, all surnamed Paran; Erlinda ParanGonzales, Flora Paran-
Lescano, represented by Reynaldo Paran, G.R. No. 115033, July 11,
1997

Rockville Excel International Exim Corporation v. Spouses Oligario Culla and Bernardita
Miranda, G.R. No. 155716, October 2, 2009

Vicente Del Rosario v. Spouses Julio Bansil and Josefina Tamayo and Alejandra Sanchez, G.R. No. 51655,
November 29, 1989

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