EXTINGUISHMENT OF SALE

How a Contract of Sale Is Extinguished?

Generally: through payment of the price or performance (i.e., delivery; however, buyer-seller
relationship remains due to enforceability of warranties), loss of the subject matter, condonation
or remission, confusion or merger of the rights of creditor and debtor, compensation, novation,
annulment, rescission, fulllment of a resolutory condition, and prescription.
Specially: through conventional or legal redemption which is unique to contracts of sale (pacto
de retro) which may be exercised only by the seller as recognized by the contract, or by the
transferee of the rights, or by the person entitled by the law in legal redemption.
Note: reservation of the right of repurchase stays the buyer-seller relationship with respect
to such reservation until its period expires or when it is exercised. However, it does not prevent
the full consummation of the contract of sale.
Likewise, non-payment of the full purchase price does not affect the running of the
redemption period as long as there were consent to sell and to purchase, partial payment, and
delivery of possession of the property (Catangcalang v. Legayada).
I. CONVENTIONAL REDEMPTION
What Constitutes Conventional Redemption?
1. When the seller reserved the right to repurchase what he sold with the obligation to return
the following:
2. The purchase price;
3. The expenses of the contract;
4. The legitimate payments made due to the sale; and,
5. The necessary and useful expenses made on the thing.

How Right of Repurchase/Redemption Is Reserved?

1. It must be reserved by the vendor by stipulation in the same contract of sale and not in a
subsequent instrument. Otherwise, it may be some other right like an option to buy.
2. The underlying contract of sale must be operative (that is, the contract must not
contemplate an impossible service [Art. 1409], and the vendor must have a right to
transfer the ownership of the thing at the time it is delivered [Art. 1459]). Otherwise, the
right of repurchase shall likewise be void because it can only be exercised when there has
been a performance a complete transfer of the title over and ownership of the property.

When Can The Right of Redemption Be Exercised?

If there is no period agreed upon, It must be exercised within 4 years from the date of the
contract. (Art. 1606)
If there is a period agreed upon, Within the period stipulated. However, the period must not
exceed 10 years (Art. 1606). Otherwise, the agreement is valid only for the rst 10 years.
Note: If the agreement exceeds the 10-year rule, it shall be reduced to 10 years applying
Art. 1606. As long as there is a stipulation as to the period, even though unclear or void, the 10year rule shall apply, not the 4-year rule.

The completion of the redemption process is tolled by the ling of a civil action relating to
the issue of the exercise of right of redemption provided that the exercise of the right and the
ling of the suit are done within the redemption period.

How is Conventional Redemption Exercised?

1. There must be a notice of the exercise sent within the period of redemption.
2. There must be tender of payment of the price of the sale, the expenses of contract and
other legitimate payments made by reason of the sale, and the necessary and useful
expenses made on the thing sold. (Art. 1616)
The sellers reservation may charge every possessor whose right is derived from the buyer
even if there was a second contract which did not mention anything about the reservation. (Art.
1608)
Failure of to pay useful improvements entitles the buyer a retro to retain possession of the
thing sold until actual reimbursement is done by the seller a retro. (Gargollo v. Duero)
It is enough that a sincere or genuine tender of payment, and not a mock or deceptive one
was made, to show that there was a valid tender of payment (Legaspi v. CA). On the other hand,
mere sending of letters expressing desire to repurchase without accompanying tender of
redemption price is insufficient (Vda. De Zulueta v. Octavio; Lee v. CA). On the other hand, a
judicial action within the redemption period with the simultaneous deposit of the redemption
price would suffice even though no notice was sent. The ling of action is equivalent to a formal
offer to redeem (Lee Chuy Realty Corp v. CA).

Redemption of Real Properties

In case of real properties, the consolidation of the ownership in the buyer by virtue of the
failure of the seller to comply with his obligation to return the price and other legally mandated
expenses shall not be recorded in the Registry of Property without a judicial order, after the seller
has been duly heard (Art. 1607). It means that no automatic redemption shall occur and the
buyer a retro is required to le an action for consolidation of ownership rst wherein the seller a
retro is given an opportunity to be heard.
Effect of Ambiguity Regarding the True Nature of the Contract of Sale
In case the true nature of the contract was also raised as an issue (that is, the contract
was not an absolute sale and the seller actually considered the transaction as an equitable
mortgage), as a fair grant, Art. 1606 even gives the seller to repurchase the property within 30
days from the nality of the judgment if the buyer proved that the transaction is a pacto de retro.
This situation contemplates a condition precedent to exercise the right of legal redemption.
However, in case the issue raised is opposite (that is, the seller feigns the contract as an
equitable mortgage when actually it is an absolute sale) and it was proven that the contract was
indeed an absolute sale, the 30-day period will not be granted to the seller. Reason is that
holding otherwise would enable the seller to resurrect an expired right of repurchase by
instituting an action to reform the contract into an equitable mortgage.
On the part of the buyer, remember that failure to consolidate under Art. 1607 will not
impair his title or ownership because that method is for purpose of registering the consolidated
title only and is not a condition sine qua non to transfer ownership.
Note: In case of doubt regarding the validity and existence of the agreement, and the
written contract fails to show the true intent of the parties, parol evidence may be adduced since

the deed of sale and the verbal agreement allowing the right is an integral whole with the deed
being relied upon by the seller as the note or memorandum evidencing the contract, taking it
outside the provisions of the Statute of Frauds. Moreover, Best Evidence Rule would not be an
obstacle to the adducement of parol evidence.

Incompliance of Seller due to Buyer

If tender of payment cannot be validly made, because the buyer cannot be located, the
seller a retro should le a suit for consignation with the courts of the redemption price; failing to
do so within the redemption period shall lapse his rights. (Catangcatang v. Legayada)
Redemption of Co-Owned Properties
In sale a retro, the buyer of a part of an undivided immovable who acquires the whole
thereof in the case of Article 498, compel the seller to redeem the whole property, if the latter
wishes to make use of the right of redemption (Art. 1611).
If several persons, jointly and in the same contract, should sell an undivided immovable
with a right of repurchase, none of them may exercise this right for more than his respective
share. The same rule shall apply if the person who sold an immovable alone has left several
heirs, in which case each of the latter may only redeem the part which he may have acquired
(Art. 1612).
In the case of the preceding situation, the buyer may demand of all the vendors or coheirs, that they come to an agreement upon the repurchase of the whole thing sold; and should
they fail to do so, the buyer cannot be compelled to consent to a partial redemption (Art. 1613).
On the other hand, each one of the co-owners of an undivided immovable who may have
sold his share separately may independently exercise the right of repurchase as regards his own
share, and the buyer cannot compel him to redeem the whole property (Art. 1614).
In addition, the creditors of the seller cannot make use of the right of redemption against
the buyer, until after they have exhausted the property of the seller (Art. 1610)
Should one of the co-owners or co-heirs succeed alone in redeeming the whole property,
such co-owner or co-heir shall be considered as a mere trustee with respect to the shares of his
co-owners or co-heirs accordingly, no prescription will lie against the right to any co-owner or coheir to demand from the redemptioner his respective share in the property redeemed, which
share is subject to a lien in favor of the redemptioner for the amount paid by him corresponding
to the value of the share (De Guzman v. Court of Appeals).
Rules Regarding Fruits Art. 1617
If there was fruits at the time of the sale, no reimbursement or pro-rating of those existing
at the time of redemption shall be made, if no indemnity was paid by the buyer when the sale as
executed.
If there were NO fruits at the time of the sale and some existed at the time of
redemption, pro-rating shall be made between seller-redemptioner and buyer. The buyer

receives the part corresponding to the time he possessed the land in the last year, counted rom
the anniversary of the date of the sale.
Note: Art. 1617 applies only when parties have not provided for their sharing arrangement
with respect to the fruits existing AT THE TIME OF REDEMPTION. (Almeda v. Daluro)
What is Equitable Mortgage? (Art. 1602)
It is a mortgage which, although lacking in some formality 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. CA).

Essential Requisites of an Equitable Mortgage

1. The parties entered into a contract denominated as a contract of sale,

2. But their intention was to secure an existing debt by way of a mortgage.
Note: Both requirements must concur to treat a sale as an equitable mortgage (San Pedro
v. Lee). The issue of ambiguity whether the contract is a sale or an equitable mortgage is
generally inclined to be construed as the latter because it involves a lesser transmission of rights
and interest over the property. The intention of the parties to an agreement is shown not
necessarily by the terminology but by all the surrounding circumstances and all pertinent facts
having a tendency to x and determine the real nature of their design and understanding (Molina
v. CA). Hence, to reiterate, parol evidence is competent and admissible to clear the ambiguities
in a contract of sale. On the other hand, best evidence rule nds no application to equitable
mortgage situations since there is no conclusive test to determine whether a deed of absolute
sale on its face is really a loan secured by a mortgage (Austria v. Gonzales, Jr.)

When is a Sale Presumed to be Equitable Mortgage?

Under Article 1602 of the Civil Code, the contract of sale with right to repurchase (sale a
retro) shall be presumed to be an equitable mortgage, in any of the following cases:
(a) When the price of under a sale a retro is unusually inadequate;
(b) When the seller remains in possession as lessee or otherwise;
(c) When the period of redemption is extended or renewed under a separate instrument;
(d) When the buyer retains part of the purchase price;
(e) When the seller binds himself or continues to pay the taxes on the thing sold;
(f) In any other case where it may be fairly inferred that the real intention of the parties is
that the transaction shall secure the payment of a debt or the performance of any other
obligation.
Note: the existence of any one of the conditions above is sufficient to give rise to the
PRESUMPTION (only) that the contract is an equitable mortgage.
Also, by virtue of Art. 1604, the provisions on equitable mortgage of Art. 1602 shall also apply to
a contract purporting to be an absolute sale.

Circumstances to Treat a Contract of Sale as an Equitable Mortgage Lim v.

Calaguas
(a) The terms used in the deed or power-of-attorney indicate that the conveyance was
intended to be a loan secured by a mortgage;
(b) The price paid, in relation to the value of the property, is grossly inadequate;

(c) The seller, at the time of the alleged sale was in urgent need of money;
(d) The supposed seller invested the money he obtained from the alleged buyer in making
improvements on the property sold;
(e) The supposed seller remained in possession of the land sold;
(f) The seller paid the land tax which is a usual burden attached to ownership;
(g) The buyer accepted partial payments from the seller, and such acceptance of partial
payment is absolutely incompatible with the idea of irrevocability of the title of ownership
of the purchaser at the expiration of the term stipulated in the original contract for the
exercise of the right of redemption;
(h) The seller remained bound for the repayment of the money received strongly tends to
show that a mortgage only was intended;
(i) The transaction had its origin in a borrowing of money also tends to show that the
subsequent transaction although in the form of a sale with the right of repurchase was in
fact intended as a mortgage; and
(j) There was a previous debt between the parties and this was not extinguished by the
sale, but remained subsisting. But if the previous debt was extinguished by the sale, and
the seller has the privilege of repurchasing within a given time, the transaction is a
conditional sale.

Effects When Sale is Actually an Equitable Mortgage

(a) Any money, fruit, or other benet to be received by the buyer as rent or otherwise shall
be considered as interest which shall be subject to the usury laws (Art. 1602);
(b) The apparent seller may ask for the reformation of the instrument (Art. 1605). In
case the property has been sold to a third party buyer, an aggrieved party may pursue
other remedies like declaration of nullity of the deed of sale and specic performance
(Tolentino v. CA).
(c) For the court to decree that vendor-debtor to pay his outstanding loan to the
vendee-creditor (Banga v. Bello).
(d) Where the trial court did not pass upon the mortgagors claim that he had paid his
mortgage obligation, a remand of the case to the trial court is in order, only for the
purpose of determining whether the mortgage obligation had indeed been settled, and if
not, how much the mortgagor should pay to settle the same.

What is Pactum Commissorium?

A stipulation which gives the mortgagee the right to own the property or which
automatically vests the title over the security to the creditor in case the debtor fails to pay the
loan on the stipulated time. Pactum Commissorium is an unlawful, against public policy and a
void stipulation which is the reason why provisions on equitable mortgage are created favoring
the least transmission of right and interest over a property in controversy.
Note: If it was found that the seller was not a debtor and owed nothing to the buyer and
nothing was offered as security for the payment of any indebtedness, there will be no Pactum
Commissorium. The reason is that it only applies to transaction covering mortgage and other
security contracts and not to contracts of absolute sale.
When a purported sale a retro is found to be an equitable mortgage, the proper remedy in
case the borrower refuses to pay the price is to foreclose on the mortgage, and there can be no
loss of the purported sellers right to redeem since it would constitute a Pactum Commissorium
(Motevirgin v. CA).
II.

Legal Redemption

 Definition: Legal Redemption is the right to be subrogated upon the same terms and
conditions stipulated in a 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.
Rationale: Legal Redemption is in the nature of a privilege created by law partly for
reasons of public policy and partly for the benet and convenience of the redemptioner, to
afford him a way out of what might be a disagreeable or inconvenient association into
which he has been thrust. It is intended to minimize co-ownership. The law grants a coowner the exercise of the said right of redemption when the shares of the other owners
are sold to a third person. (Basa vs. Aguilar, G.R. No. 117 SCRA 128, 1982)
Salient Distinctions Between Conventional and Legal Rights of
Redemption
Conventional
Legal
1. Strictly speaking, a right a retro can 1. A legal right of redemption does not
only be constituted by express
have to be expressly reserved (it is a
reservation in a contract of sale at
right granted by law), and covers sales
time of perfection.
and other onerous [transfers of] title.
2. Right a retro is in favor of the seller.

2. A legal right of redemption is given

to a third- party to the sale.

3. The exercise of the right a retro

extinguishes the underlying contract
of sale as though there was never any
contract at all.

3. The exercise of the legal right of

redemption, although it extinguishes
the original sale, actually constitutes a
new sale in substitution of the original
sale.

Legal Redemption under the Civil Code:

a. Among Co-Heirs:
Should any of the heirs sell his hereditary rights to a stranger before the
partition of the decedents estate, any or all of the other 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
notied in writing of the sale by the selling co-heir. (Article 1088, Civil Code)
The situation contemplated above is a sale by an heir of his hereditary right
to a stranger to the co-ownership.
b. Among Co-Owners:
A co-owner of a thing may exercise the right of redemption in case the shares
of 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 price
therefor. (Article 1620, Civil Code)
Should two or more co-owners desire to exercise the legal right of
redemption, they may only do so in proportion to the share they may respectively
have in the thing owned in common. (Article 1620, Civil Code)

De Facto Partition among Co-Heirs and Co-Owners: If in fact they (co-heirs who
became co-owners upon succession) have partitioned it (the property) among themselves
and each have occupied and treated denite portions thereof as their own, co-ownership
has ceased even though the property is covered under one title, and the sale by one of the

heirs of his denite portion cannot trigger the right of redemption in favor of the other
heirs.
Distinguishing Between Rights of Redemption of Co-Heirs and Co-Owners
Co-Heirs
Co-Owners
1. Redemption by a co-owner of
1. An heir may validly redeem for himself alone
theproperty owned in common, even
the hereditary rights sold by another co-heir.
when he uses his own fund, within
the period prescribed by law inures to
the benet of all the other co-owners.
2. When the sale consists of an
2. If the sale is the hereditary right itself, fully or in
interest in some particular property
part, in the abstract sense, without specifying any
or properties of the inheritance, the
particular object, the right recognized is that in
right of redemption that arises in
Article 1088.
favor of the other co-heirs is that
recognized in Article 1620.
c. Among Adjoining Owners of Rural Land:
The owners of adjoining lands have the right of redemption when a piece of
rural land, the area of which does not exceed one hectare, is alienated, unless the
grantee does not own any rural land. The burden of proof to apply the exemption
(that the buyer does not own any rural land) lies with the buyer. ( Primary Structures
Corp. vs. Valencia, 409 SCRA 371, 2003)
The right is not available to adjacent lands which are separated by brooks,
drains, ravines, roads and other apparent servitudes for the benet of estates.
The person exercising the right of redemption must be an owner of a rural
land, otherwise, Article 1621 cannot be invoked. If two or more adjacent owners
desire to exercise the right of legal redemption, the owner of the smaller area shall
be preferred. Should both lands have the same area, the one who rst requested
the redemption shall be preferred.
d. Among Adjoining Owners of Urban Land:
Whenever a piece of urban land which is so small and so situated that a
major portion thereof cannot be used for any practical purpose within a reasonable
time, having been bought merely for speculation, is about to be resold, the owner of
any adjoining land has a right of pre-emption at a reasonable price. (Primary
Structures Corp. vs. Valencia, 409 SCRA 371, 2003)
When two or more owners of adjoining lands wish to exercise the right of preemption or redemption, the owner whose intended use of the land in question
appears best justied shall be preferred.
When two or more owners of adjoining lands wish to exercise the right of preemption or redemption, the owner whose intended use of the land in question
appears best justied shall be preferred
Redemption of urban land applies only when it involves its resale, and
therefore there is no right of redemption that can be exercised by an adjoining
owner when the urban land is transferred under an exchange of properties. (De
Santos vs. City of Manila, 45 SCRA 409, 1972)
e. Sale of a Credit in Litigation:
When a credit or other incorporeal right in litigation is sold, the debtor shall
have a right to extinguish it by reimbursing the assignee for the price the latter paid
therefor, the judicial costs incurred by him, and the interest on the price from the
day on which the same was paid. (Article 1634, Civil Code)
Commencement of Legal Redemption:

The right of legal pre-emption or redemption shall no be exercised except within 30

days from the notice in writing by the prospective seller, or seller, as the case may be.
The deed of sale shall not be recorded unless accompanied by an affidavit of the
seller that he has given written notice thereof to all possible redemptioners.
Notice:
a. Notice Must Cover Perfected Sale:
The written notice referred to by the law to be given to the co-owners is the written
notice of a perfected sale. Such written notice must be accompanied by the actual
execution and delivery of the deed of sale. The 30-day period shall commence from the
time this notice has been given to the co-owners. Absent such documents, no 30-day
period shall begin to run against the co-owners.
Article 1619 of the Civil Code bestows unto a co-owner the right to redeem and to
be subrogated under the same terms and conditions stipulated in the contract, and to
avoid any controversy as to the terms and conditions under which the right to redeem
may be exercised, it is best that the period therefor should not be deemed to have
commenced unless the notice of the disposition is made after the formal deed of disposal
has been duly executed. (Spouses Dormal vs. Court of Appeals, 66 SCRA 575)
The purpose is to remove all the doubts and uncertainty regarding the alienation.
The redemptioners must have knowledge of all the circumstances of the alienation, and
only after such knowledge is the owner required to exercise the right of redemption given
by law. (Hermoso vs. Court of Appeals, 300 SCRA 516, 1998)
b. Summation on Strict Rules on Notice:
Article 1623 stresses the need for notice in writing in three other species of legal
redemption namely:
1) redemption in case where the share of all the other co-owners or any of them are
sold to a third person;
2) redemption by owners of adjoining lands when a piece of rural land not
exceeding one hectare is alienated;
3) redemption by owners of adjoining lands in the sale of a piece of an urban land
so small and so situated that the portion thereof cannot be used for any practical purpose
within a reasonable time, having been bought merely for speculation.
In all the three situations, the interpretation is always resolved in favor of the
redemptioner and against the vendee. The purpose is to reduce the number of participants
until the community is terminated, being a hindrance to development and better
administration of property. (Hermoso vs. Court of Appeals, 300 SCRA 516, 1998)

Fernandez vs. Boiser:

1. For the 30-day redemption period to begin to run, notice must be given by the seller;
and that notice given by the buyer or even by the Register of Deeds is not sufficient.
2. When notice is given by the proper party (the seller), no particular form of written
notice is prescribed under Article 1623, so that the furnishing of the copies of the
deeds of sale to the co-owner would be sufficient, but only on the form of giving notice
but not on the ruling of who is the proper party to give notice;
3. The ling of the suit for ejectment or collection of rentals against a co-owner actually
dispenses with the need for a written notice, and must be construed as commencing
the running of the period to exercise the right of redemption, since the ling of the suit
amounted to actual knowledge of the sale from which the 30-day period of redemption
commences to run.
c. Exceptions to the Written Notice Requirement:
1. LACHES-- Where co-heirs only brought an action for redemption of hereditary right
sold by another co-heir only after 13 years after having actual knowledge thereof,

by their actuations, they have lost their right to redeem. (Alonzo vs. Intermediate
Appellate Court, 150 SCRA 259, 1987)
2. ACTUAL KNOWLEDGE--Where it is the co-owner himself who acted as a middle man
or intermediary to effect the sale to a third party, thus having actual knowledge
thereof, the written notice required under Article 1623 is no longer necessary, and
the 30-day period for redemption begins to run from having actual knowledge of the
sale, by being present at the time the deed of sale was executed. (Distrito vs. Court
of Appeals, 197 SCRA 606, 1991)
Other Instances When Right of Legal Redemption is Granted:
a. Redemption of Homesteads: Every conveyance of land acquired under the free patent
homestead provisions, when proper, shall be subject to repurchase by the applicant, his
widow, or legal heirs, within a period of 5 years from the dates of conveyance. (Section
119, Public Land Act)
Sale of a homestead patent within the 5-year prohibition period is void even when
the sale is in favor of the homesteaders children. Also, the right of repurchase in
homestead land cannot be waived by the party entitled thereto and applies with equal
force to both voluntary and involuntary conveyances. (Sta. Ignacia Rural Bank, Inc. v.
Court of Appeals, 230 SCRA 513, 1994)
b. Redemption of Tax Sales: In case of delinquency sale of property of a taxpayer for
failure to pay tax assessments, within one (1) year from the date of sale, the delinquent
taxpayer, or anyone for him, shall have the right of redeeming the property by paying to
the Revenue District Officer the amount of the public taxes, penalties, and interest thereon
from the date of delinquency to the date of sale, together with interest on the purchase
price. (Section 214, National Internal Revenue Code of 1997)
c. Redemption by Judgment Debtor: A judgment debtor, or his successor-in-interests, or
a creditor having a lien by attachment, judgment or mortgage on the property sold at
public auction shall have one (1) year from date of registration of the certicate of sale,
and not just twelve (12) months after the sale as provided previously under the old Rules
of Court, to redeem the property by paying the purchaser at the public auction the amount
of his purchase, with interest up to the time of redemption, together with amount of any
assessments or taxes which the purchaser may have paid thereon after purchase, with
interest thereon. (Sections 27 and 28, Rule 39, Rules of Court)
d. Redemption in Extrajudicial Foreclosure: In all cases in which an extrajudicial
foreclosure sale has been made under a special power, the debtor, his successors-ininterests or any judicial creditor, any judgment creditor of said debtor, or any person
having a lien on the property subsequent to the mortgage or deed of trust under which the
property has been sold, may redeem the same within one year from and after the date of
sale and registration. (Section 6, Act. No. 3135)
e. Redemption in Judicial Foreclosure: While jurisprudence recognizes the principle that
no right to redeem is granted to the debtor-mortgagor when there has been a judicial
foreclosure of a real estate mortgage, there is an exception to such rule as when the
mortgagee is a bank or banking institution.
f.

Foreclosure in Banking Institutions: In the event of foreclosure of any mortgage on

real estate which is security for any loan or other credit accommodation granted, the
individual mortgagor or corporate mortgagor whose property has been sold for the full or
partial payment to his obligation, SHALL HAVE THE RIGHT WITHIN ONE YEAR AFTER THE
SALE OF THE REAL ESTATE, TO REDEEM THE PROPERTY BY PAYING THE AMOUNT DUE
UNDER THE MORTGAGE DEED, WITH INTEREST THEREON AT THE RATE SPECIFIED IN THE

MORTGAGE, AND ALL THE COSTS AND EXPENSES INCURRED BY THE BANK OR INSTITUTION
FROM THE SALE AND CUSTODY OF SAID PROPERTY LESS THE INCOME DERIVED
THEREFROM. (Section 47, R.A. 8791)
g. Right to Redeem under Agrarian Reform Laws: In the event the landholding is sold to
a third person without the knowledge of the agricultural lessee, the latter is granted by law
the right to redeem it within 180 days from notice in writing and at a reasonable price and
consideration. (Section 12, R.A. 3844)