EXTINGUISHMENT OF SALE

By: Atty. Marites U. Ygrubay

ART. 1600: HOW IS SALE EXTINGUISHED?

➢Common - by the same causes as all other obligations

(Art. 1231)

➢Special – under Law on Sales

➢Extra-special - by conventional or legal redemption
SAME CAUSES AS ALL OTHER OBLIGATIONS:

➢Art. 1231
1. Payment or performance 6. Novation

2. Loss of the thing due 7. Annulment

3. Remission or condonation 8. Rescission

4. Merger or confusion 9. Fulfilment of a resolutory condition

5. Compensation or set-off 10. Prescription

SPECIAL – UNDER LAW ON SALES

➢Art. 1484 – Recto Law

➢Art. 1532 – Seller’s Right of Stoppage
➢Art. 1539/1540/1542 – Area and Quality of Immovable does not
conform with the contract
➢Art. 1556 – In case of Eviction
➢Art.1560 – Encumbrance of Non-apparent burden or servitude
➢Art. 1567 – Hidden Defects
➢Art. 1591 – Vendor Fears Loss of Immovable or its price
EXTRA-SPECIAL

➢Conventional Redemption

➢Legal Redemption
CONVENTIONAL REDEMPTION (Art. 1601)

- also known as “Right of Repurchase” or “Pacto de retro sale”

- takes place when the vendor reserves the right to repurchase

the thing sold with the obligation to reimburse to the vendee the:
➢ price of the sale
➢ expenses of the contract,
➢ other legitimate payments made by reason of sale, and
➢ necessary and useful expenses made on the thing sold.

- Applies both to movable or immovable properties

CONVENTIONAL REDEMPTION (Art. 1601)

- also known as “Right of Repurchase” or “Pacto de retro sale”

- Not favored
- The contract will be construed as mere loan (Equitable Mortgage)
unless the court can see that, if enforced according to its terms, it is
not an unconscionable one. (Aquino vs. Deala, 63 Phil. 582 [1936])
OWNERSHIP

• Ownership transfers to the vendee-a-retro upon delivery.

However, such ownership is not absolute but only
temporary because it is subject to a resolutory condition
(i.e. vendor-a-retro’s right to repurchase).
REFORMATION OF INSTRUMENT (Art. 1605)

REFORMATION – the remedy granted by law by means of

which a written instrument is made or construed so as to express
or conform to the real intention of the parties when such intention
is not expressed in the instrument. (Art. 1359)
 CONVENTIONAL REDEMPTION (Art. 1601)
NATURE:
➢ Contractual – created by virtue of an express contract at the time of perfection
➢ Accidental – does not affect the contract of sale itself
➢ Real Right – when registered, it binds third persons
➢ Potestative – depends upon the will of the vendor
➢ Resolutory condition – when exercised by the vendor, the right of ownership acquired by
the vendee is extinguished
➢ Right/Power/Privilege – not an obligation
➢ Personal to vendor – exercised by the owner not a third person
➢ Reciprocal/bilateral – bound by obligations dependent upon each other
OPTION TO BUY VS. RIGHT OF REPURCHASE

OPTION TO BUY RIGHT OF REPURCHASE

- Granted by the seller to a buyer - Right reserved by the seller in the same
instrument of sale

- May be granted after the sale - Reserved by Vendor at the time of

perfection of sale
“PACTO DE RETRO” VS. MORTGAGE
“PACTO DE RETRO”
• Ownership is transferred but subject to the
condition that the seller might recover the
ownership within a certain period of time.
• If Seller does not repurchase the property
upon the very day named in the contract, he
loses all interest thereon.
• No obligation upon the purchaser to
foreclose.
• Vendor have no right to redeem after maturity. • After maturity but before foreclosure,
MORTGAGE
• Ownership is not transferred but the property
is merely subject to a charge or lien as
security for the compliance of a principal
obligation.
• If he fails to pay his debt at maturity,
mortgagor does not lose his interest in the
property.
• Mortgagee has the duty to foreclose if he
wishes to secure a perfect title thereto.
mortgagor has right to redeem.
 EQUITABLE MORTGAGE (ART. 1602)

- one which lacks the proper formalities, form or words, or other requisites
prescribed by law for a mortgage, but shows the intention of the parties to
make the property subject of the contract as security for a debt and contains
nothing impossible or contrary to law.

Requisites for presumption to arise:

1. Parties entered into a contract denominated as a contract of sale with a right
of repurchase or purporting to be an absolute sale;
2. Their intention was to secure existing debt by way of mortgage.
 EQUITABLE MORTGAGE (ART. 1602)

Instances deemed an Equitable Mortgage:

1. Price of the sale is unusually inadequate;
2. Vendor remains in possession;
3. Period of redemption is extended after expiration;
4. Purchaser retains part of the price;
5. Vendor binds himself to pay taxes on the thing sold;
6. Other cases where the real intention of the parties is to secure payment of a
debt.
 Other Instances that Intention of parties is not Pacto de Retro Sale:

1. Vendor in urgent need of money;

2. Automatic appropriation by vendee of the property sold stipulated (pactum commissorium);
3. Vendee given possession of certificate of title;
4. Escalation of purchase price every month stipulated;
5. Vendor borrowed from vendee money used in buying property sold or renovating it;
6. Vendor of low intelligence and illiterate;
7. Vendor continued to pay monthly interest; property not transferred to vendee; etc.
8. Vendor continued to be indebted
9. Vendor mortgaged property sold to a bank; paid taxes thereon.
 EFFECT IF HELD AN EQUITABLE MORTGAGE:

1. Formal requirements of mortgage deemed complied with;

2. Contract subordinate to a subsequent mortgage;
3. Title of property remains in supposed vendor;
4. Remedy of creditor is to foreclose;
5. Conveyance of land not to affect mortgagor’s right of redemption;
 PERIOD TO EXERCISE RIGHT OF REDEMPTION:

Art. 1606

➢Without an agreement as to period: within 4 years from the contract date

➢With an agreement as to period: within the period agreed but shall not
exceed ten (10) years

➢30 days - from final judgment rendered in a civil action finding the contract
as pacto de retro
EFFECT OF STIPULATION EXTENDING PERIOD:

➢After expiration of period of redemption

➢Before the expiration of the period of redemption

 CONSOLIDATION OF OWNERSHIP IN THE VENDEE:

Art. 1607 (Immovable Property):

➢Ordinary Civil Action – at the Regional Trial Court wherein the vendor-a-retro
is made a party-defendant.
▪ Necessity
▪ Purpose
▪ Acquisition of ownership by vendee-a-retro’
▪ Effect of failure to comply

➢Registration Proceedings – vendee subrogated to the vendor’s right

 NATURE OF RIGHT TO REDEEM:

Art. 1608

➢A Right, not an Obligation

➢A Real Right – vendor may bring his action against every possessor whose right
is derived from the vendee without prejudice to the provisions of
the Land Registration Law with respect to third persons.
 RIGHTS ACQUIRED BY THE VENDEE-A-RETRO:

Art. 1609

➢Vendee subrogated to vendor’s rights

➢Right to eject vendor

 RIGHTS OF VENDOR’S CREDITOR TO REDEEM:

Art. 1610

➢Creditors of the vendor cannot make use of the right of redemption against
the vendee, until after they have exhausted the property of the vendor.
REDEMPTION IN SALE OF PART OF UNDIVIDED IMMOVABLE:

Art. 1611

➢Vendee of a part of an undivided immovable who acquired the whole, may

compel the vendor to redeem the whole property should the latter wish to
make use of the right of redemption.
REDEMPTION IN JOINT SALE BY CO-OWNERS/CO-HEIRS
OF UNDIVIDED IMMOVABLE
Art. 1612
➢Co-owners of an undivided immovable sold by them jointly/collectively in
same contract of pacto-de-retro, can exercise such right only as to their
respective shares.
➢Co-heirs – only for the respective portions they have inherited.
Art. 1613
➢Vendee may demand of all the vendors or co-heirs to come to an
agreement to repurchase the whole thing sold.
➢Vendee-a-retro can refuse partial redemption –
REDEMPTION IN SEPARATE SALES BY CO-OWNERS OF
UNDIVIDED IMMOVABLE

Art. 1614

➢Each one of the co-owners of an undivided immovable who sold his share
separately, may independently exercise the right of repurchase as
regards his own share.

➢Vendee cannot compel him to redeem the whole property.

REDEMPTION AGAINST HEIRS OF VENDEE

Art. 1615

➢Vendor a retro can exercise the right to redeem against the heirs of the
vendee a retro with respect only to their respective shares (whether the
thing sold be undivided or partitioned).

➢If by partition the entire property has been adjudicated to one of the heirs,
the vendor can exercise the right to redeem against said heir for the whole.
OBLIGATION OF VENDOR A RETRO IN CASE OF REDEMPTION

Art. 1616

➢Vendor a retro obliged to return to vendee a retro:

➢Price of the sale

➢Expenses of the contract, and other legitimate expenses by reason of the sale

➢Necessary and useful expenses made on the thing sold

 RIGHT OF PARTIES AS TO FRUITS OF LAND (ART. 1617)

AT THE TIME OF AT THE TIME OF EFFECT

SALE REDEMPTION
There are visible or There were fruits as If purchaser paid for the fruits existing at the
growing fruits well time of sale, he shall be entitled to
reimbursement or pro-rating of the fruits
existing at the time of redemption
No fruits Some exist The fruits shall be prorated between the
redemptioner (vendor-a-retro) and the
vendee, giving the latter the part
corresponding to the time he possessed the
land in the last year, counted from the
anniversary of the date of the sale.
RIGHT TO RECOVER THING SOLD FREE FROM CHARGES

Art. 1618

➢Vendor a retro who recovers the thing sold shall receive it free from:
▪ Charges; or

▪ Mortgages

➢But shall respect the leases executed in good faith, and in accordance with the
customs of the place where the land is situated
2. LEGAL REDEMPTION, DEFINITION

• 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)
• E.g. Sale by a co-owner to a stranger, sale of an heir of his hereditary
rights to a stranger, sale of adjacent rural lands not exceeding 1
hectare
 BASIS AND NATURE OF RIGHT OF LEGAL REDEMPTION

➢ Nature:
▪ Proceeds from law;
▪ Mere statutory privilege created partly for reason of public policy
and partly for the benefit 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.
 INSTANCES OF LEGAL REDEMPTION

➢ Art. 1620 – Legal redemption of co-owner

➢ Art. 1621 – Legal redemption of adjacent owners of rural lands
➢ Art. 1622 – Right of pre-emption and legal redemption of adjacent
owners of urban lands
➢ Art. 1634 – Legal redemption in sale of credit or other incorporeal
right in litigation
 LEGAL REDEMPTION:

• The right is available to:

1. Co-owners
2. Owners of adjoining lands:
• RURAL; or
• URBAN land
LEGAL REDEMPTION OF CO-OWNER (ART. 1620):

REQUISITES:
1. There must be co-ownership of a thing;
2. There must be alienation of all or of any of the shares of the
other co-owners;
3. The sale must be to a third person or stranger; and
4. The sale must be before partition.
LEGAL REDEMPTION OF CO-OWNER:

Price of Redemption:
1. Reasonable Price
2. Price stated in the deed of sale
3. Amount actually paid by the buyer
LEGAL REDEMPTION OF RURAL LAND (ART. 1621):
REQUISITES:
1. Both the land of the one exercising the right of redemption and the land
sought to be redeemed must be rural;
2. The lands must be adjacent;
3. There must be an alienation;
4. The piece of rural land alienated must not exceed one (1) hectare;
5. The grantee or vendee must already own any other rural land; and
6. The rural land sold must not be separated by brooks, drains, ravines,
roads, and other apparent servitudes from the adjoining lands.
 LEGAL REDEMPTION OF RURAL LAND (ART. 1621):

• Rule if 2 or more adjoining owners desire to exercise the right of

redemption at the same time:

➢The owner of the adjoining land of smaller area shall be

preferred; and

➢Should both lands have the same area, the one who first
requested the redemption.
RIGHT OF PRE-EMPTION & LEGAL REDEMPTION OF ADJACENT
OWNERS OF URBAN LANDS (ART. 1622):

➢PRE-EMPTION – defined as the act or right of purchasing

before others;

➢REDEMPTION – exercised after the sale has been perfected

against the vendee.
RIGHT OF PRE-EMPTION & LEGAL REDEMPTION OF ADJACENT
OWNERS OF URBAN LANDS (ART. 1622):

REQUISITES:
a) The one exercising the right must be an adjacent owner;
b) The piece of urban land must be so small;
c) The urban land must be situated in a way that a major portion thereof
cannot be used for any practical purpose within a reasonable time;
d) The urban land was bought by its owner merely for speculation
RIGHT OF PRE-EMPTION & LEGAL REDEMPTION OF ADJACENT
OWNERS OF URBAN LANDS (ART. 1622):

➢Price of Redemption: Reasonable Price

Rule if 2 or more adjoining owners desire to exercise the right of pre-

emption or redemption at the same time:

➢The owner whose intended use of the land in question

appears best justified shall be preferred.
REDEMPTION (ART. 1623)

• Period for exercise of right:

➢ 30 days from NOTICE in writing by the prospective
vendor, or by the vendor.
➢ Absolute and non-extendible
➢ A condition precedent
 REDEMPTION OF URBAN LAND (ART. 1623)

REQUIREMENT OF NOTICE BY VENDOR OR PROSPECTIVE VENDOR:

➢ Reason for the Rule – vendor knows who are the co-owners;
– removes all doubts as to the fact of the sale;
➢ Notice must be in writing – indispensable;
➢ Form of written notice – no form prescribed as long as the reasons
for a written notice are present or satisfied;
THANKS!
On January 2, 1980, A and B entered into a contract whereby
A sold to B a parcel of land for and in consideration of
P10.000.00. A reserving to himself the right to repurchase the
same. Because they were friends, no period was agreed upon
for the repurchase of the property.

1) Until when must A exercise his right of repurchase?

2) If A fails to redeem the property within the allowable
period, what would you advise B to do for his better
protection?
Max and Ned were co-owners of a parcel of land.
Last April 10, 2022, Max discovered that Ned
sold his share to Pete on February 5, 2022. Max
offered to redeem Ned’s share from Pete, but the
latter replied that Pax’s right to redeem has
prescribed.

Is Pete correct or not? Why? `