Extinguishment of sale

You are here:
< All Topics
Table of Contents

Extinguishment of sale in general – In general, a sales contract may be extinguished by the same causes as all other obligations and by conventional or legal redemption.[1]

Conventional redemption

What constitutes conventional redemption – Conventional redemption happens “when the vendor reserves the right to repurchase the thing sold, with the obligations to comply with the provisions of Article 1616[2] and other stipulations which may have been agreed upon.”[3] The right to repurchase lasts only for four years from date of the contract unless otherwise stipulated.[4] If there is an express agreement to extend the right to repurchase, it cannot exceed 10 years.[5]

Equitable mortgage – A contract, including one purporting to be a deed of absolute sale,[6] is presumed to be an equitable mortgage in any of the following instances:[7]

  • If the price of  a sale with right to repurchase is unusually inadequate;[8]
  • If the vendor remains in possession as lessee or otherwise;[9]
  • If upon or after the expiration of the right to repurchase another instrument extending the period of redemption or granting a new period is executed;[10]
  • If the purchaser retains for himself a part of the purchase price;[11]
  • If the vendor binds himself to pay the taxes on the thing sold;[12]
  • In any other case where it may be fairly inferred that the real intention of the parties is that the transaction is to secure the payment of a debt or the performance of any other obligation.[13]

Same; Money, fruit, benefit considered interest – In any of the above instances considered an equitable mortgage, the money, fruits, or other benefit to be received by the buyer as rent or otherwise is considered an interest.[14]

Right to repurchase; Requirements – Before the seller can avail of the right to repurchase, the seller is required first: (a) to return to the buyer the price of the sale; (b) to pay for the expenses of the contract, and any other legitimate payments made by virtue of the sale; and (c) to pay for the necessary and useful expenses made on the thing sold.[15] If the sale involves a real property, a judicial order, after the seller has been duly heard, is required for the registration and consolidation of the ownership in the buyer.[16]

Same; Action against every possessor – To enforce his rights, the seller may initiate an action against every possessor whose right is derived from the buyer.[17] The seller may do so even if the contract between the buyer and the possessor does not mention the seller’s right to repurchase, without prejudice to the Mortgage Law and the Land Registration Law in relation to third persons.[18]

Same; Subrogation by buyer – The buyer is subrogated to the seller’s rights and actions despite existence of right of repurchase.[19]

Same; Creditors to exhaust property of seller – The seller’s creditors are required to exhaust the property of the seller before they can make use of the right of redemption against the buyer.[20]

Same; Undivided immovable property sold jointly – If several persons jointly sell an undivided immovable in the same contract and it provides for a right of repurchase, each one may exercise his right to the extent of his respective share only.[21] The same rule applies if a seller has several heirs.[22] However, the buyer may demand of all the sellers or co-heirs that they come to an agreement upon the repurchase of the whole thing sold.[23] If the sellers or heirs fail to do so, the buyer cannot be compelled to consent to a partial redemption.[24]

Same; Co-owner may repurchase respective share only – A co-owner who may have sold his share separately may independently exercise the right of repurchase as regards his own share.[25] The buyer cannot require said co-owner to redeem the entire property.[26]

Same; Buyer’s heirs subject to redemption to proportionate share only – The buyer’s heirs may be the subject of the seller’s right of redemption to their proportionate share only regardless of whether the property is undivided or it has already been partitioned.[27] However, if the inheritance has already been divided, and the thing sold has already been awarded to an heir, he may be the subject of an action for redemption for the whole property.[28]

Same; No reimbursement or prorating for fruits – If there were visible and growing fruits at the time of the execution of the sale, a reimbursement or prorating of existing fruits is not required unless the buyer paid indemnity when the sale was executed.[29] Conversely, if no fruits were existing at the time of the sale but later on exist at the time of redemption, the fruits will be prorated between the redemptioner and the buyer.[30] The buyer’s share is to correspond to the time he possessed the land in the last year, counted from the anniversary of the date of the sale.[31]

Same; Redemptioner to receive property free from charges or mortgages – The redemptioner will receive the property free form all charges or mortgages which may have been constituted by the buyer.[32] However, the redemptioner is to respect the leases which the latter may have executed in good faith, and in accordance with customs of the place where the land is situated.[33]

Legal Redemption

What constitutes 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.”[34]

Same; Co-owner’s right of redemption – A co-owner may exercise the right of redemption in case the shares of all the co-owners or of any of them, are sold to a third person.[35] The redemption is required only to pay a reasonable one if the price of the alienation is grossly excessive.[36] If there are two or more co-owners desiring 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.[37]

Same; Adjoining lot owner’s right of redemption – For rural land that does not exceed one  hectare, the owners or adjoining lands may exercise the right of redemption unless the grantee/buyer does not have any rural land.[38] The owner of the adjoining land of smaller area is preferred should there be several prospective buyers.[39] If the lands have the same area, the first who requested the redemption is preferred.[40] This right cannot be exercised on adjacent lands which are separated by brooks, drains, ravines, roads, and other apparent servitudes for the benefit of other estates.[41]

Right of pre-emption of adjoining land owner – If a piece of urban land bought for speculation is so small and so situated that a major portion thereof cannot be used for any practical purpose within a reasonable time is about to be re-sold, the adjoining land owner has a right of pre-emption at a reasonable price.[42] If the same has already been sold, the adjoining landowner has the right of redemption for a reasonable price.[43] If there are two or more who desires to exercise the right of pre-emption or redemption, the owner whose intended use of the land in question appears to best justified is preferred.[44]

Right of pre-emption or redemption when exercised – The redemption may only exercise the right of legal pre-emption or redemption within 30 days from the notice in writing by the prospective seller, or by the seller, as the case may be.[45] The said seller is required to accompany the deed of sale with an affidavit stating therein that he has given written notice thereof to all possible redemptioners; otherwise, the Registry of Deeds will not record the deed of sale.[46]

Right of redemption of co-owners excludes adjoining land owners – Should there be a conflict between a co-owner and adjoining land owners, the right of redemption of co-owners prevails and will exclude the adjoining land owners.[47]

[1] Ibid. Article 1600.

[2] “The vendor cannot avail himself of the right of repurchase without returning to the vendee the price of the sale, and in addition: … (1) The expenses of the contract, and any other legitimate payments made by reason of the sale; … (2) The necessary and useful expenses made on the thing sold” (Article 1616, Civil Code).

[3] Ibid. Article 1601.

[4] Ibid. Paragraph 1, Article 1606.

[5] Ibid. Paragraph 2, Article 1606. “However, the vendor may still exercise the right to repurchase within thirty days from the time the final  judgment was rendered in a civil action on the basis that the contract was a true sale with right to repurchase” (Paragraph 3, Article 1606, Civil Code).

[6] Ibid. Article 1604.

[7] Ibid. Article 1602. The remedy of the apparent seller is for the reformation of instrument (Article 1605, Civil Code).

[8] Ibid. Article 1602 (1).

[9] Ibid. Article 1602 (2).

[10] Ibid. Article 1602 (3).

[11] Ibid. Article 1602 (4).

[12] Ibid. Article 1602 (5).

[13] Ibid. Article 1602 (6).

[14] Ibid. Paragraph 2, Article 1602.

[15] Ibid. Article 1616.

[16] Ibid. Article 1607.

[17] Ibid. Article 1608.

[18] Ibid.

[19] CIVIL CODE. Article 1609.

[20] Ibid. Article 1610.

[21] Ibid. Paragraph 1, Article 1612. “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 (Paragraph 2, Ibid.).

[22] Ibid.

[23] CIVIL CODE. Article 1613.

[24] Ibid. Article 1613.

[25] Ibid. Article 1614.

[26] Ibid.

[27] CIVIL CODE. Paragraph 1, Article 1615.

[28] Ibid. Paragraph 2, Article 1615.

[29] Ibid. Paragraph 1, Article 1617.

[30] Ibid. Paragraph 2, Article 1617.

[31] Id at 189.

[32] CIVIL CODE. Article 1618.

[33] Ibid. Paragraph 1, Article 1617.

[34] Ibid. Article 1619.

[35] Ibid. Paragraph 1, Article 1620.

[36] Ibid.

[37] CIVIL CODE. Paragraph 2, Article 1620.

[38] Ibid. Paragraph 1, Article 1621.

[39] Ibid. Paragraph 3, Article 1621.

[40] Ibid.

[41] CIVIL CODE. Paragraph 2, Article 1621.

[42] Ibid. Paragraph 1, Article 1622.

[43] Ibid. Paragraph 2, Article 1622.

[44] Ibid. Paragraph 3, Article 1622.

[45] Ibid. Paragraph 1, Article 1623.

[46] Ibid. Paragraph 1, Article 1623.

[47] Ibid. Paragraph 2, Article 1623.

©2020 BUSINESSLAW.PH. All rights reserved. Statements and opinions of the author are of his own, and does not reflect any organization he may be connected or affiliated. All information herein are for educational and general information only. The content should not be considered as a legal advice or opinion. Please consult a lawyer to address your specific concerns.
Copy link
Powered by Social Snap