N. EXTINGUISHMENT OF SALE
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TOPICS UNDER THE SYLLABUS N. Extinguishment of Sale
1. Causes (Arts. 1600, 1231) 2. Conventional redemption (Art.
1601)
3. Equitable mortgage (Arts. 1602-1604)
4. Distinguish from option to buy (Art. 1602)
5. Period of redemption (Art. 1606) 6. Exercise of the right to redeem (Art. 1616)
7. Legal redemption (Art. 1619) 8. Age redemption (Art. 1619)
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TOPICS UNDER THE SYLLABUS N. EXTINGUISHMENT OF SALE 1. Causes
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1. CAUSES
I. GROUNDS (same grounds whereby obligations in general are extinguished)
1. Payment or performance 2. Loss of the subject matter 3. Condonation or remission
4. Confusion or merger of rights of creditor and debtor
5. Compensation 6. Novation 7. Annulment 8. Rescission
9. Fulfillment of a resolutory condition 10. Prescription
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TOPICS UNDER THE SYLLABUS N. EXTINGUISHMENT OF SALE 2. Conventional Redemption
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2. CONVENTIONAL REDEMPTION
Only extinguishes obligations pertaining to contract of sale, not extinguish contract itself; only applies to contract of sale
The right which the vendor reserves to himself to reacquire the property sold provided he returns to the vendee:
a. The price of the sale, b. Expenses of contract, c. Other legitimate payments,
d. The necessary and useful expenses made on the thing sold
e. And fulfills other stipulations which may have been agreed upon
The right is exercised only be seller in whom right is recognized in the contract or by any person to whom right was transferred; must be in the same contract
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TOPICS UNDER THE SYLLABUS N. EXTINGUISHMENT OF SALE 3. Equitable Mortgage
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3. EQUITABLE MORTGAGE
One which lacks the proper formalities, form of 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 contrary to law. Cachola v. CA, [208 SCRA 496]
1.A contract with right to repurchase is deemed to be an equitable mortgage if the following requisites concur (IPERTI):
a. Price of sale with right to repurchase is unusually inadequate
b. Seller remains in possession as lessee or otherwise
c. Upon or after expiration of right to repurchase, another instrument extending the period of redemption or granting new period is executed
d. Buyer retains for himself a part of the purchase price
e. Seller binds himself to pay taxes on thing sold
f. Real intention of parties is to secure the payment of a debt or performance of other obligation
NOTE: In case of doubt – in determining whether it is an equitable mortgage or a sale a retro, the sale shall be construed as an equitable mortgage.
2.What to Look for in Determining Nature of Contract
a. Language of the contract
b. Conduct of parties – to reveal real intent 3.Remedy available to vendor: ask for reformation of contract
4.Rationale behind provision on Equitable Mortgage:
a. Circumvention of usury law
b. Circumvention of prohibition against pactum commissorium – creditor cannot appropriate the things given by way of pledge or mortgage; remedy here is foreclosure. The real intention of parties is that the pretended purchase price is
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money loaned and to secure payment of the loan, sale with pacto de retro is drawn up
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TOPICS UNDER THE SYLLABUS N. EXTINGUISHMENT OF SALE 4. Distinguish from option to buy
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4. DISTINGUISH FROM OPTION TO BUY OPTION TO PURCHASE - Right to repurchase the thing sold granted to the vendor in a separate instrument from the deed of sale
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TOPICS UNDER THE SYLLABUS N. EXTINGUISHMENT OF SALE 5. Period of Redemption
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5. PERIOD OF REDEMPTION
a. No period agreed upon – 4 years from date of contract
b. Period agreed upon – should not exceed 10 years; if it exceeded, valid only for the first 10 years.
c. When period to redeem has expired and there has been a previous suit on the nature of the contract – seller still has 30 days from final judgment on the basis that contract was a sale with pacto de retro:
d. Rationale: no redemption due to erroneous belief that it is equitable mortgage which can be extinguished by paying the loan.
e. This refers to cases involving a transaction where one of the parties contests or denies that the true agreement is one of sale with the right to repurchase; not to cases where the transaction is conclusively a pacto de retro sale.
f. Example: Where a buyer a retro honestly believed that he entered merely into an equitable mortgage, not a pacto de retro transaction, and because of such belief he had not redeemed within the proper period.
NOTE: When period has expired and seller allowed the period of redemption to expire – seller is at fault for not having exercised his rights so should not be granted a new period Tender of payment is SUFFICIENT to compel redemption, but is not in itself a payment that relieves the vendor from his liability to pay the redemption price. Paez v. Magno, G.R. No. :-792, April 27, 1949
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TOPICS UNDER THE SYLLABUS N. EXTINGUISHMENT OF SALE 6. Exercise of the Right to Redeem
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EFFECT WHEN THERE IS NO REDEMPTION MADE
i. Jurisprudence before the NCC: buyer a retro automatically acquires full ownership
ii. Under present art 1607: there must be judicial order before ownership of real property is consolidated in the buyer a retro
HOW IS REDEMPTION EFFECTED Seller a retro must first pay the following:
o The price of the thing sold
o Expenses of the contract and other legitimate payments made by reason of the sale
o Necessary and useful expenses made on the thing sold
o Valid tender of payment is sufficient
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o Mere sending of notice without valid tender is insufficient
o Failure to pay useful and unnecessary expenses entitles vendee to retain land unless actual reimbursement is made
IN CASE OF MULTI-PARTIES
1. When an undivided thing is sold because co-owners cannot agree that it be allotted to one of them – vendee a retro may compel the vendor to redeem the whole thing
2. When an undivided thing is sold by co-owners / co-heirs, vendors a retro may only exercise his right over his respective share; vendee a retro may demand that they must come to an agreement first and may not be compelled to consent to a partial redemption
3. When rights of co-owners over an undivided thing is sold as regards to their own share – vendee retro cannot compel one to redeem the whole property
4. Should one of the co-heirs/co-owners succeed in redeeming the property – such vendor a retro shall be considered as trustee with respect to the share of the other co-owners/co-heirs.
FRUITS
What controls is the stipulation between parties as regards the fruits;
If none:
a. At time of execution of the sale a retro there are visible or growing fruits – there shall be no pro-rating at time of redemption if no indemnity was paid by the vendee a retro
b. At time of execution sale a retro there be no fruits but there are fruits at time of redemption – pro-rated between vendor a retro and vendee a retro giving the vendee a retro a part corresponding to the time he possessed the land.
PRE-EMPTION REDEMPTION 1. Arises before sale Arises after sale 2. No rescission
because no sale exists yet
There can be rescission of the original sale 3. The action is
directed against prospective seller
Action is directed against buyer
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TOPICS UNDER THE SYLLABUS N. EXTINGUISHMENT OF SALE 7. Legal Redemption
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7. LEGAL REDEMPTION LEGAL REDEMPTION
Only applies to contracts of sale.
The right to be subrogated upon the same terms and conditions stipulated in the contract, in the place of one who acquires the thing by (1) purchase OR (2) by dation in payment OR (3) by other transaction whereby ownership is transmitted by onerous title.
Types of Legal Redemption:
a. Among co-heirs
i. Any of the heirs sell his hereditary rights to stranger before partition ii. Any of the co-heirs may be subrogated
to the rights of the purchaser by redeeming said hereditary right:
reimburse buyer of the price of the sale
iii. Co-heirs has 1 month from receipt of notice in writing
b. Among co-owners
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i. any or all of co-owners sells their shares to 3rd person
ii. any co-owner may exercise right of redemption by paying reasonable price of property to the buyer
iii. if 2 or more co-owners desire to exercise right of redemption, they may only do so in proportion to the share they respectively have in thing owned in common
c. Among adjoining owners i. Rural land
o Where piece of rural land has an area not exceeding 1 hectare, adjoining owner has right to redeem unless grantee does not own a rural land
o If two or more adjacent lot owners desire to exercise right to redeem, owner of adjoining lot with smaller area shall be preferred
o If two or more adjacent lit owners desire to exercise right to redeem and both have same lot area, one who first requested shall be granted
ii. Urban land
o when piece of land is small and cannot be used for any practical purpose and bought merely for speculation, owner of adjoining land can redeem
o 2 or more owners of adjoining lot desire to exercise right to redeem, owner whose intended use is best justified shall be preferred.
d. Sale of credit in litigation
i. when a credit or other incorporeal right in litigation is sold, debtor shall have a right to extinguish it by reimbursing the assignee for the price the latter
paid therefor plus judicial costs, interest
ii. debtor may exercise right within 30 days from the date assignee demands payment from him
Other Instances When Right of Legal Redemption is Granted
a. Redemption of homesteads b. Public Land Act
c. Land acquired under free patent homestead subject to repurchase by wife, legal heirs within 5 years from date of conveyance granted by law, need not be stipulated
1. Redemption in tax sales
i. in case of tax delinquency/failure to pay tax assessments, property is foreclosed
ii. delinquent payer has 1 year from date of sale to redeem by paying to the revenue District Officer the amount of tax delinquencies, and interest or purchase price.
2. Redemption by judgment debtor - 1 year from date of registration of certificate of sale to redeem by paying purchaser at public auction with interest
3. Redemption in extrajudicial foreclosure - 1 year from date of sale and registration 4. Redemption in judicial foreclosure of
mortgage - no right to redeem is granted to debtor mortgagor except when mortgagee is bank of a banking institution 90 days after finality of judgment
5. When Period of Redemption Begins to Run - Right of legal pre-emption of redemption shall be exercised within 30 days from notice by the seller
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6. How exercised - tender of payment is not necessary; offer to redeem is enough.
i. There is no prescribed form for an offer to redeem to be properly effected. Hence, it can either be through a formal tender with consignation of the redemption price within the prescribed period. What is paramount is the availment of the fixed and definite period within which to exercise the right of legal redemption.
ii. Deeds of sale are not to be recorded in Register of Deeds unless accompanied by affidavit of seller that he has given notice to all possible redemptioners
NOTE: Written notice under Art. 1623 is mandatory for the right of redemption to commence (PSC vs. Sps. Valencia, [August 19, 2003].
GENERAL RULE: Actual knowledge notwithstanding, written notice is still required
EXCEPTION: When actual knowledge is acquired by co-heirs living in same land with purchaser, or co-owner was middleman in sale to 3rd party.
o Art. 1623 does not prescribe any distinctive method for notifying the redemptioner. Etcuban v. CA, [148 SCRA 507]
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TOPICS UNDER THE SYLLABUS N. EXTINGUISHMENT OF SALE 8. Age Redemption
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9. ASSIGNMENT (See Arts . 1624 – 1634) I. ASSIGNMENT: The owner of a credit
transfers to another his rights and actions in
consideration of a price certain in money or its equivalent
1. Transfers the right to collect the full value of the credit, even if he paid a price less than such value
2. Transfers all the accessory rights (e.g.
guaranty, mortgage, pledge, preference) 3. Debtor can set up against the assignee
all the defenses he could have set up against the assignor
II. WHAT MAKES ASSIGNMENT
DIFFERENT FROM SPECIES SALE?
1. Technical term but basically a sale
2. Sale of credits and other incorporeal things
III. EFFECTS OF ASSIGNMENT
1. Lack of knowledge or consent of debtor not essential for validity but has legal effects (“meeting of minds” in assignment contemplates that between assignor of the credit and his assignee) 2. Assignment of rights made w/o
knowledge of debtor – debtor may set up against assignee the compensation w/c would pertain to him against assignor of all credits prior to assignment and of later ones until he had knowledge of the assignment
3. Debtor has consented to assignment – cannot set up
4. Compensation unless assignor was notified by debtor that he reserved his right to the compensation
5. Debtor has knowledge but no consent -may still set up compensation of debts previous to assignment but not the subsequent ones.
IV. TRANSFER OF OWNERSHIP
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1. By tradition and not by perfection
2. By execution of public instrument because intangibles cannot be physically transferred
3. Without necessity of delivering the document evidencing the credit.
4. This rule does not apply to negotiable documents and documents of title which are governed by special laws.
V. EFFECT OF PAYMENT OF DEBTOR AFTER ASSIGNMENT OF CREDIT 1. Before Notice of the Assignment
Payment to the original creditor is valid and debtor shall be released from his obligation
2. After Notice
a. Payment to the original creditor is not valid as against the assignee b. He may be made to pay again by the
assignee
VI. WARRANTIES OF THE ASSIGNOR OF CREDIT
1. NO warranty against hidden defect - N/A because intangibles has no physical existence
2. He warrants the existence and legality of credit - there is warranty except when expressly sold as a doubtful account
a. NO warranty as to the solvency of debtor unless it is expressly stipulated OR unless the insolvency was already existing and of public knowledge at the time of the assignment
b. Warranty shall last for 1 year only c. One who assigns inheritance right w/o enumerating rights shall
be answerable for his character as an heir
d. One who sells whole of certain rights for a lump sum, shall be answerable for legitimacy of the whole in general but not for each of the various parts
VII. BREACH OF WARRANTY: LIABILITIES OF THE ASSIGNOR OF CREDIT FOR VIOLATION OF HIS WARRANTIES 1. Assignor in good faith
Liability is limited to price received, expenses of the contract and other legitimate payments made by reason of the assessment
2. Assignor in bad faith
Liable ALSO for (expenses of contract and other legitimate payments plus useful and necessary expenses) damages
VIII. ASSIGNMENT OF CREDIT OR INCORPOREAL RIGHT IN LITIGATION -REQUISITES:
1. There must be a sale or assignment of credit 2. There must be a pending litigation
3. The debtor must pay the assignee:
a. Price paid by him AND
b. Judicial costs incurred by him AND c. Interest on the price from the date of payment
4. The right must be exercised by the debtor within 30 days from the date the assignee demands (judicially or extra-judicially) payment from him
NOTE:
Presumption: buyer’s purpose is speculation and; law would rather benefit the debtor of
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such credits rather than the one who merely speculates for profit.
When credit or incorporeal right in litigation is assigned or sold, debtor has a right to extinguish it by reimbursing the assignee for the price the buyer paid plus interest
IX. Right to redeem by debtor not available in the following instances (not considered speculative
1. Assignment of credit / incorporeal right to co-heir or co-owner; the law does not favor co-ownership
2. Assignment to creditor in payment for his credit
Presumption is that the assignment is above suspicion; assignment is in the form of dacion en pago, thus perfectly legal
3. Assignment to possessor of tenement or piece of land which is subject to the right in litigation assigned
Purpose is to presumably preserve the tenement