Chapter 5 – Obligations of the Vendee property, could not sever the juridical tie that now bound him

ical tie that now bound him and Dr.

Cruz. The nature and value of the thing he had taken preclude its return
I. TO ACCEPT DELIVERY after that supervening period within which anything could have
 The vendee is bound to accept delivery of the thing sold at the happened, not excluding the alteration of the jewelry or its being
time and place stipulated in the contract (Article 1582). switched with an inferior kind.

A.) Right of Examination Both the trial and appellate courts, therefore, correctly ruled that there
 If there was no previous examination, the buyer must have a were no legal bases for the nullification of the contract of sale.
reasonable opportunity to examine the goods (Art. 1584, pars. 1 & Ownership over the parcel of land and the pair of emerald-cut diamond
2) earrings had been transferred to Dr. Cruz and petitioner, respectively,
 The seller must allow the buyer to examine, if the buyer so upon the actual and constructive delivery thereof. Said contract of sale
demands. being absolute in nature, title passed to the vendee upon delivery of the
thing sold since there was no stipulation in the contract that title to the
a.) Case: Sale of jewelry where buyer had opportunity to examine the property sold has been reserved in the seller until full payment of the
items price or that the vendor has the right to unilaterally resolve the contract
the moment the buyer fails to pay within a fixed period.
Fule vs CA
Facts:
Petitioner Gregorio Fule, a banker by profession and a jeweler at the b.) Except: in case of a stipulation that the goods are not to be delivered
same time, acquired a 10-hectare property in Tanay, Rizal. He asked by the carrier unless paid for (C.O.D) – the buyer is not entitled to an
Remelia Dichoso and Oliva Mendoza to look for a buyer who might be examination unless the contract or usage to the contrary permits
interested in the Tanay property. The two found one in the person of examination (Art. 1584, par. 3)
herein private respondent Dr. Ninevetch Cruz. It so happened that at the
time, petitioner had shown interest in buying a pair of emerald-cut
diamond earrings owned by Dr. Cruz which he had seen in January of Acceptance by the buyer:
the same year when his mother examined and appraised them as 1.) express acceptance (Article 1585): when the buyer intimates to the
genuine. seller acceptance of delivered goods

After several negotiations petitioner and Dr. Cruz finally agreed to 2.) implied acceptance (Article 1585):
exchange the pair of emerald-cut diamond earrings for the Tanay  when the buyer does an act, in relation to the delivered goods,
property. However, just shortly after the sale was made, Fule which is inconsistent with the seller’s ownership
complained that the jewelry given to him was fake. He then used a tester  when the buyer retains the goods after the lapse of reasonable
to prove the alleged fakery. time, without intimating to the seller that he has rejected the goods

Thereafter, petitioner filed a complaint against private respondents c.) Effect of acceptance by the buyer (for seller’s liability)
praying, among other things, that the contract of sale over the Tanay GEN. RULE: Acceptance of goods by the buyer shall not discharge the
property be declared null and void on the ground of fraud and deceit. seller from liability for breach of any promise or warranty.

Issue: EXCEPTIONS:
Whether or not the contract of barter or sale under the circumstances of 1. where there is an agreement to the contrary
this case is null and void. 2. where the buyer fails to give notice to the seller of any breach of
promise or warranty within a reasonable time after he comes to
Held: know or ought to have known of it
No.
Cases:
There is fraud when, through the insidious words or machinations of one 1.) Guzman vs. Triangle Ace Corp.
of the contracting parties, the other is induced to enter into a contract Facts:
which, without them, he would not have agreed to. The records, De Guzman purchased large quantities of steel bars form Triangle Ace
however, are bare of any evidence manifesting that private respondents Corp. Triangle Ace sued de Guzman for recovery of the unpaid price of
employed such insidious words or machinations to entice petitioner into P124,277.00. De Guzman answered that his liability was only P79,
entering the contract of barter. 510.00; and by way of counterclaim, he said that he suffered damages
as a result of the cancellation of his contract with another corporation
Likewise, the facts as proven do not support the allegation that petitioner because the steel bars delivered to him measured only 8mm x 20ft
himself could be excused for the "mistake." On account of his work as a instead of 9mm by 20ft as agreed.
banker-jeweler, it can be rightfully assumed that he was an expert on
matters regarding gems. He had the intellectual capacity and the Issue:
business acumen as a banker to take precautionary measures to avert May de Guzman refuse to pay the price on the ground that the steel bars
such a mistake, considering the value of both the jewelry and his land. delivered to him was not the size stipulated in the contract?
The fact that he had seen the jewelry before October 24, 1984 should
not have precluded him from having its genuineness tested in the Held:
presence of Dr. Cruz. Had he done so, he could have avoided the No.
present situation that he himself brought about. Indeed, the finger of Art. 1595 provides that if ownership of the goods has passed to the
suspicion of switching the genuine jewelry for a fake inevitably points to buyer and he wrongfully refuses to pay for such, the seller may maintain
him. Such a mistake caused by manifest negligence cannot invalidate a an action for the price of the goods. A buyer is deemed to have accepted
juridical act. As the Civil Code provides, "(t)here is no mistake if the party the goods when he does an act inconsistent with the ownership of the
alleging it knew the doubt, contingency or risk affecting the object of the seller, or when after the lapse of a reasonable time, he retains the goods
contract." without intimating to the seller that he has rejected them (Art. 1585).

Furthermore, petitioner was afforded the reasonable opportunity In the case at bar, there is no dispute that the steel bars purchased by
required in Article 1584 of the Civil Code within which to examine the petitioner were received by him. It is also not disputed that petitioner
jewelry as he in fact accepted them when asked by Dr. Cruz if he was made partial payments for the goods and that some of the steel bars
satisfied with the same. By taking the jewelry outside the bank, petitioner were in fact used by him to manufacture reinforced concrete pipes
executed an act which was more consistent with his exercise of although they were allegedly rejected on the ground that the steel bars
ownership over it. This gains credence when it is borne in mind that he were undersized. The retention and use of the steel bars by the
himself had earlier delivered the Tanay property to Dr. Cruz by affixing petitioner clearly show that he accepted the goods and for this reason
his signature to the contract of sale. That after two hours he later claimed he should pay the price of the same.
that the jewelry was not the one he intended in exchange for his Tanay
1
B.) Rule for unjustified refusal of the buyer to accept (Art. 1588) the total purchase price of a portion of the second floor of the building
 title passes to the buyer, and he bears the risk of loss as provided in their November 18, 1982 agreement.

C.) Rule if the buyer justifiably refused to accept (Art. 1587)

 buyer is not bound to return the goods to the seller, it Held:
being sufficient that he notifies the seller of his refusal to As gleaned from the agreement, the petitioner ARC, as vendor, and
accept respondent Peñaloza, as vendee, entered into a contract of sale over a
portion of the second floor of the building yet to be constructed for the
price of P3,105,838 payable in installments. As soon as the second floor
II. PAYMENT OF PRICE AND INTEREST was constructed within five (5) months, respondent Peñaloza would take
A. Time and Place (Art. 1582) possession of the property, and title thereto would be transferred to her
 as stipulated in the contract; or name. The parties had agreed on the three elements of subject matter,
 if there is none, at the time and place of delivery price, and terms of payment. Hence, the contract of sale was perfected,
it being consensual in nature, perfected by mere consent, which, in turn,
B. Suspension of payment by the buyer after delivery (Art. 1590) was manifested the moment there was a meeting of the minds as to the
offer and the acceptance thereof.
a.) Grounds:
1. Actual disturbance of possession or ownership; or The respondent cannot be blamed for suspending further remittances of
2. Reasonable ground to fear a disturbance caused by – payment to the petitioner ARC because when she pushed for the
i.) vindicatory action; issuance of her title to the property after taking possession thereof, the
ii.) foreclosure of mortgage (which grounds are exclusive) ARC failed to comply. She was aghast when she discovered that in July
1984, even before she took possession of the property, the petitioner
 vendee may suspend payment until the vendor has caused the ARC had already mortgaged the lot and the building to the China
disturbance or danger to cease Banking Corporation; when she offered to pay the balance of the
purchase price of the property to enable her to secure her title thereon,
Case: Suspension of payment for refusal to issue title the petitioner ARC ignored her offer. Under Article 1590 of the New Civil
Code, a vendee may suspend the payment of the price of the property
Arra Realty Corp vs. Guarantee Dev’t Corp and Insurance Agency sold:

Facts: Art. 1590. Should the vendee be disturbed in the possession or

Arra Realty Corporation (ARC) was the owner of a parcel of land. ownership of the thing acquired, or should he have reasonable grounds
Through its president, Architect Carlos D. Arguelles, the ARC decided to fear such disturbance, by a vindicatory action or a foreclosure of
to construct a five-story building on its property and engaged the mortgage, he may suspend the payment of the price until the vendor has
services of Engineer Erlinda Peñaloza as project and structural caused the disturbance or danger to cease, unless the latter gives
engineer. In the process, Peñaloza and the ARC, through Carlos security for the return of the price in a proper case, or it has been
Arguelles, agreed on November 18, 1982 that Peñaloza would share the stipulated that, notwithstanding any such contingency, the vendee shall
purchase price of one floor of the building, consisting of 552 square be bound to make the payment. A mere act of trespass shall not
meters for the price of P3,105,838: P901,738, payable within sixty (60) authorize the suspension of the payment of the price.
days from November 20, 1982, and the balance payable in twenty (20)
equal quarterly installments of P110,205. The parties further agreed that In view of the failure of the petitioner ARC to transfer the title of the
the payments of Peñaloza would be credited to her account in partial property to her name because of the mortgage thereof to China Banking
payment of her stock subscription in the ARC’s capital stock. Corporation and the subsequent sale thereof to the GDCIA, respondent
Peñaloza is entitled to the refund of the amount she paid to the petitioner
Sometime in May 1983, Peñaloza took possession of the one-half ARC.
portion of the second floor, with an area of 552 square meters where
she put up her office and operated the St. Michael International Institute
of Technology. b.) When there is no right to suspend payment:
1. if the stipulation provides for payment despite risk of disturbance;
Unknown to her, ARC had executed a real estate mortgage over the lot 2. if the vendor caused the disturbance to cease;
and the entire building in favor of the China Banking Corporation as 3. if the vendor gives security for the return of the price;
security for a loan. She learned that the property had been mortgaged 4. if the disturbance is by mere act of trespass.
to the China Banking Corporation sometime in July 1984. Thereafter,
she stopped paying the installments due on the purchase price of the
property. C.) Payment of Interest on the Price (Art. 1589)
 This duty arises—
When the ARC failed to pay its loan to China Banking Corporation, the a. Even before default, if:
subject property was foreclosed extrajudicially, and, thereafter, sold at 1.) the stipulation so provides; if none, the rate is 12% per annum when
public auction to China Banking Corporation on August 13, 1986 for the obligation arises out of a loan or a forbearance of money, goods or
P13,953,171.07. credits. In other cases, it shall be six percent (6%).

On April 29, 1987, the ARC and the Guarantee Development 2.) the thing produces fruits or income which pertain to the buyer
Corporation and Insurance Agency (GDCIA) executed a deed of under Art. 1164
conditional sale covering the building and the lot for P22,000,000, part
of which was to be used to redeem the property from China Banking b. After default (moratory interest) – from the time of judicial or
Corporation. extrajudicial demand for the payment of the price
Case:
On May 28, 1987, Peñaloza filed a complaint against the ARC, the Rate of interest if payable as indemnity for delay in the performance of
GDCIA, and the Spouses Arguelles, with the Regional Trial Court of an obligation
Makati, Branch 61, for “specific performance or damages” with a prayer
for a writ of preliminary injunction.
Crismina Garments Corp vs. CA
Facts:
Issue: The herein petitioner, which was engaged in the export of girls’ denim
Whether or not no contract of sale over the subject property was pants, contracted the services of the respondent, the sole proprietress
perfected between the petitioner ARC, on the one hand, and respondent of the D’Wilmar Garments, for the sewing of 20,762 pieces of assorted
Peñaloza, on the other, because the latter failed to pay the balance of girls‘ denims supplied by the petitioner. The petitioner was obliged to
pay the respondent, for her services, in the total amount of P76,410.00.
2
The respondent sewed the materials and delivered the same to the from the filing of the said Complaint. But after the judgment becomes
petitioner which acknowledged the same in good order condition. final and executory until the obligation is satisfied, the interest should be
reckoned at twelve percent (12%) per year.
At first, the respondent was told that the sewing of some of the pants
was defective. She offered to take delivery of the defective pants. Nacar vs. Gallery Frames
However, she was later told by petitioner’s representative that the goods
were already good. She was told to just return for her check of Basically a Labor case where the judgment has become final and
P76,410.00. However, the petitioner failed to pay her the aforesaid executory.
amount.
Court laid down the guidelines in the manner of computing legal interest
This prompted her to hire the services of counsel who wrote a letter to as cited in the case of Eastern Shipping Lines:
the petitioner demanding payment of the aforesaid amount within ten
(10) days from receipt thereof. However, the petitioner’s vice-president- 1. When the obligation is breached, and it consists in the
comptroller, wrote a letter to respondent’s counsel, averring, inter alia, payment of a sum of money, i.e., a loan or forbearance of
that the pairs of jeans sewn by her, numbering 6,164 pairs, were money, the interest due should be that which may have been
defective and that she was liable to the [petitioner] for the amount of stipulated in writing. Furthermore, the interest due shall itself
P49,925.51 which was the value of the damaged pairs of denim pants earn legal interest from the time it is judicially demanded. In
and demanded refund of the aforesaid amount. the absence of stipulation, the rate of interest shall be 12%
per annum to be computed from default, i.e., from judicial or
On January 8, 1981, the respondent filed her complaint against the extrajudicial demand under and subject to the provisions of
petitioner with the trial court for the collection of the principal amount of Article 1169 of the Civil Code.
P76,410.00. 2. When an obligation, not constituting a loan or forbearance of
money, is breached, an interest on the amount of damages
Issue: awarded may be imposed at the discretion of the court at the
Whether or not it is proper to impose interest at the rate of twelve percent rate of 6% per annum. No interest, however, shall be
(12%) per annum for an obligation that does not involve a loan or adjudged on unliquidated claims or damages except when or
forbearance of money in the absence of stipulation of the parties. until the demand can be established with reasonable
certainty. Accordingly, where the demand is established with
Held: reasonable certainty, the interest shall begin to run from the
We sustain petitioner’s contention that the interest rate should be time the claim is made judicially or extrajudicially (Art. 1169,
computed at six percent (6%) per annum. Civil Code) but when such certainty cannot be so reasonably
established at the time the demand is made, the interest shall
The controversy revolves around petitioner’s payment of the price begin to run only from the date the judgment of the court is
beyond the period prescribed in a contract for a piece of work. Article made (at which time the quantification of damages may be
1589 of the Civil Code provides that "[t]he vendee [herein petitioner] deemed to have been reasonably ascertained). The actual
shall owe interest for the period between the delivery of the thing and base for the computation of legal interest shall, in any case,
the payment of the price x x x should he be in default, from the time of be on the amount finally adjudged.
judicial or extrajudicial demand for the payment of the price." The only 3. When the judgment of the court awarding a sum of money
issue now is the applicable rate of interest for the late payment. becomes final and executory, the rate of legal interest,
whether the case falls under paragraph 1 or paragraph 2,
Because the case before us is "an action for the enforcement of an above, shall be 12% per annum from such finality until its
obligation for payment of money arising from a contract for a piece of satisfaction, this interim period being deemed to be by then
work,” petitioner submits that the interest rate should be six percent an equivalent to a forbearance of credit.
(6%), pursuant to Article 2209 of the Civil Code, which states:
D.) Legal Guaranties for Payment of the Price:
"If the obligation consists in the payment of money and the debtor incurs a. Suspension of delivery (retention) by the seller—
in delay, the indemnity for damages, there being no stipulation to the 1) In cash sales, if the payment is not tendered (Art. 1524);
contrary, shall be the payment of the interest agreed upon, and in the 2) In sales on credit, if the buyer loses the benefit of the term
absence of stipulation, the legal interest, which is six per cent per under Art. 1198 (Art. 1536) or the buyer is insolvent (Art.
annum." 1527)

On the other hand, private respondent maintains that the interest rate b. Seller’s lien on the goods in his possession (Art. 1526)
should be twelve percent (12%) per annum, in accordance with Central
Bank (CB) Circular No. 416, which reads: c. Stoppage in transitu, if the buyer is insolvent and the price is
unpaid (Art. 1530)--
"By virtue of the authority granted to it under Section 1 of Act No. 2655, 1) When goods are in transit (Art. 1531):
as amended, otherwise known as the ‘Usury Law’, the Monetary Board, - the goods must be in the possession of the carrier as
in its Resolution No. 1622 dated July 29, 1974, has prescribed that the such, not as bailee for the buyer.
rate of interest for the loan or forbearance of any money, goods or 2) How stoppage is made (Art.1532)
credits and the rate allowed in judgments, in the absence of express a.) resuming actual possession;
contract as to such rate of interest, shall be twelve per cent (12%) per b.) giving opportune notice to the carrier or bailee
annum." 3) Effect of notice on the carrier or bailee (Art. 1532, par. 2)
- the carrier or baille must redeliver, unless the
We agree with the petitioner negotiable receipt issued is not surrendered to the
carrier or bailee.
This Court stressed that the interest rate under CB Circular No. 416
applies to (1) loans; (2) forbearance of money, goods or credits; or (3) a d. Resale of the goods (Art. 1533)
judgment involving a loan or forbearance of money, goods or credits. 1) The remedy is applicable in case of:
Cases beyond the scope of the said circular are governed by Article a.) perishable goods; or
2209 of the Civil Code, which considers interest a form of indemnity for b.) express reservation in the event of default; or
the delay in the performance of an obligation. c.) default for an unreasonable time on the part of the
buyer,
Because the amount due in this case arose from a contract for a piece
of work, not from a loan or forbearance of money, the legal interest of Provided: the seller has a lien or made stoppage in transit.
six percent (6%) per annum should be applied. Furthermore, since the
amount of the demand could be established with certainty when the
Complaint was filed, the six percent (6%) interest should be computed
3
 e. Rescission of transfer of title B. Measure of damages
1) In case of goods (corporeal movables)— a) GEN. RULE:
 the loss naturally and directly resulting (in the ordinary
a.) Extrajudicial rescission (Art. 1534), if: course) from the breach.
i) expressly reserved, or
b) When there is available market—
ii) the buyer is in default for an unreasonable time in  the difference between the contract price and the market
paying the price price at the time when acceptance should be made.
- notice (or some overt act) is required otherwise ** if no time was fixed for acceptance, then the market price
transfer of title is not rescinded, but need not be at the time of refusal.
communicated to the buyer
- failure to give notice is relevant on the question of c) When repudiation is made or notified before the seller
default for an unreasonable time; and completes preparation for fulfillment—
 the liability is for expenses incurred, and
iii) the seller has a lien or made stoppage in transitu  the profit the seller would have obtained under the contract.
(Art. 1534)

b.) Judicial (Art. 1191), if— III. Action for Total Rescission (Art. 1597) by the seller (against
i) the buyer fails to accept at the stipulated time, the buyer)
without just reasons. A. Requisites:
a.) the goods were not delivered
ii) the buyer fails to tender the price upon receipt, if b.) the buyer either—
no period was stipulated (Art. 1593) 1. repudiates; or
2. manifests inability to perform; or
2) In case of real property (Art. 1592) 3. commits breach of contract;
GEN. RULE: c.) the seller gives notice of his election to rescind.
 the buyer may pay until given judicial or notarial demand for
rescission, despite a stipulation to the contrary
IV. Buyer’s Action for Seller’s Specific Performance (Art. 1598)
EXCEPTIONS: This rule does not apply: A. The seller has no option to retain the goods by paying
a.) where the title was reserved by the seller damages.
b.) in case of danger of loss of the thing and price, after delivery B. The judgment may be absolute or conditional as the court
(Art. 1591), the seller may sue immediately for rescission deems fit.
even if the price is not yet due
c.) to mere contract to sell
V. Buyer’s Action for Breach of Warranty (Art. 1599)- (express or
3.)Action for the Price and Damages (see Post) impied)
A. Buyer’s choices:
1) to accept or keep the goods and set off damagesm against the
Chapter 6 price;
Actions for Breach of Contract Of Sale Of Goods 2) to accept the goods and sue for damages;
3) to refuse to return the goods and sue for damages;
I. Action for the price (of personal property) – (Art. 1595) 4) to rescind the contract, refuse or return the goods and recover
A. Grounds— the price.
a) After ownership has passed, and price is not paid, if no period * rescission= mutual restitution
for payment was given.
b) Failure to pay where it is stipulated to be payable on a certain Case:
day, irrespective of delivery or transfer of title, although title has Harrison Motors vs. Navarro, supra
not passed. Facts:
Harrison Motors Corporation through its president, Renato Claros, sold
 Defenses of the buyer: two (2) Isuzu Elf trucks to private respondent Rachel Navarro, owner of
1. That the seller at any time before judgment, manifested RN Freight Lines, a franchise holder operating and maintaining a fleet
either— of cargo trucks all over Luzon. Petitioner, a known importer, assembler
I. inability to perform; or and manufacturer, assembled the two (2) trucks using imported
II. intention not to perform component parts. 2 Prior to the sale, Renato Claros represented to
private respondent that all the BIR taxes and customs duties for the parts
c) Refusal of the buyer to accept delivery of the goods, if: used on the two (2) trucks had been paid for.
1) The goods were offered and refused;
2) The goods can not be readily sold; In December of 1988 government agents seized and detained the two
3) The buyer did not notify repudiation before the goods (2) Elf trucks of respondent after discovering that there were still unpaid
were placed in a fully deliverable state (if Art. 1596, par.4 is BIR taxes and customs duties thereon. The BIR and the BOC ordered
not applicable); and private respondent to pay the proper assessments or her trucks would
4) The seller notifies the buyer that he holds the goods as be impounded. Private respondent went to Claros to ask for the receipts
bailee for the buyer evidencing payment of BIR taxes and customs duties; however, Claros
* then the seller may treat the goods as the buyer’s and sue refused to comply. Private respondent then demanded from Claros that
for the price. he pay the assessed taxes and warned him that he would have to
Case: reimburse her should she be forced to pay for the assessments herself.
See De Guzman vs. Triangle Ace Corp, supra Her demands were again ignored thus this case was filed.
(p.1 of this reviewer)
Issue:
II. Action for damages for non- acceptance (Art. 1596) of the Whether the breach of an express warranty gives right to the buyer to
goods ask for reimbursement?
A. Grounds--
a) The buyer’s wrongful failure to accept and pay (the goods may Held:
be resold). Yes.
b) The buyer’s repudiation or countermand before the goods are
placed in a deliverable state.
4
It is true that the ownership of the trucks shifted to private respondent When the buyer has claimed and been granted a remedy in
after the sale. But petitioner must remember that prior to its anyone of these ways, no other remedy can thereafter be
consummation it expressly intimated to her that it had already paid the granted, without prejudice to the provisions of the second
taxes and customs duties. Such representation shall be considered as paragraph of Article 1191.
a seller's express warranty under Art. 1546 of the Civil Code which
covers any affirmation of fact or any promise by the seller which induces
Petitioner's contention that under Article 1191 of the Civil Code,
the buyer to purchase the thing and actually purchases it relying on such
rescission can no longer be availed of as the vehicle was already in the
affirmation or promise. It includes all warranties which are derived from
hands of an innocent purchaser for value lacks merit. Rescission is
express language, whether the language is in the form of a promise or
proper if one of the parties to a contract commits a substantial breach of
representation. Presumably, therefore, private respondent would not
its provisions. It creates an obligation to return the object of the contract.
have purchased the two (2) Elf trucks were it not for petitioner's assertion
It can be carried out only when the one who demands rescission can
and assurance that all taxes on its imported parts were already settled.
return whatever he may be obliged to restore. Rescission abrogates the
contract from its inception and requires a mutual restitution of the
This express warranty was breached the moment petitioner refused to
benefits received. Petitioner is thus mandated by law to give back to
furnish private respondent with the corresponding receipts since such
respondent the purchase price upon his return of the vehicle.
documents were the best evidence she could present to the government
to prove that all BIR taxes and customs duties on the imported
component parts were fully paid. Without evidence of payment, she was
powerless to prevent the trucks from being impounded. C. The buyer can not rescind, if:
a.) he knew of the beach of warranty when he accepted the good;
Under Art. 1599 of the Civil Code, once an express warranty is or
breached the buyer can accept or keep the goods and maintain an b.) he fails to notify the seller in due time of the election to
action against the seller for damages. This was what private respondent rescind; or
did. She opted to keep the two (2) trucks which she apparently needed c.) he fails to return the goods in substantially the same condition.
for her business and filed a complaint for damages, particularly seeking ** unless the deterioration was due to the breach of warranty.
the reimbursement of the amount she paid to secure the release of her
vehicles. D. Effects of Buyer’s Election to Rescind (Art. 1599, par. 4)
1) The buyer ceases to be liable for the price upon tender or
return of the goods.
B. Nature of the options 2) He may recover the price paid—
 The options are alternative, but the buyer may ask for a.) concurrently with the return, or
rescission after asking for specific performance, if the latter is b.) immediately after the tender.
impossible (Art. 1191, par. 2) 3) If the seller refuses to accept the return; the buyer holds the
goods as bailee. In which case, the buyer—
Case:  has a lien on the goods to secure repayment of the price;
Supercars Management vs. Flores, supra and
 has a right of stoppage in transitu and resale, as the seller
Facts: has under Art. 1526
Respondent Flores purchased a vehicle (Isuzu carter Crew cab)
from Supercars. The vehicle, after it was delivered to respondent, E. Loss in Case of Breach of Warranty of Quality (Art. 1599, par.5)
malfunctioned. Flores complained about the defects. It was repaired and  The liability consists in the difference in value at the time of
returned assuring that it was already in good condition. After few days, delivery and the value if the warranty were not broken.
the same defects resurfaced, prompting respondent to send petitioner a  Unless, special circumstances show greater damage.
letter rescinding the contract of sale and returning the vehicle due to
breach of warranty against hidden defects.
Petitoner contend that the vehicle had only “minor and
inconsequential defects” which “were promptly and satisfactorily Chapter 7
repaired pursuant to its warranty as the seller. Extinguishment of Sale
Issue: I. Causes of Extinguishment
Whether respondent has the right to rescind the contract of sale A. General Causes (Art. 1231)—
and to claim damages as a result thereof. a) Payment or performance
b) Loss of the thing due
Held: c) Condonation or remission
YES. d) Confusion or merger
e) Compensation
The evidence clearly shows that Flores was justified in opting to rescind f) Novation
the sale given the hidden defects of the vehicle, allowance for the repair g) Annulment
of which he patiently extended, but which repair did not turn out to be h) Rescission
satisfactory. It is well within respondent’s right to recover damages from i) Fulfillment of a resolutory condition
petitioner who committed a breach of warranty against hidden defects. j) Prescription
It is well within respondent's right to recover damages from petitioner
who committed a breach of warranty against hidden defects. Article B. Special Causes—
1599 of the Civil Code partly provides: a. Redemption
1. Conventional
"Article 1599. Where there is a breach of warranty by the 2. Legal
seller, the buyer may, at his election:
II. Art. 1600- applies to perfected as well as consummated sales.
xxx

(4) Rescind the contract of sale and refuse to receive the

goods, or if the goods have already been received, return
them or offer to return them to the seller and recover the
price or any part thereof which has been paid.

5
 Section 1— have a grace period of three (3) years from the expiration of the five
Conventional Redemption years.” These stipulations clearly express the intention of the parties to
(Sales with Pacto De Retro) enter into a contract of sale with a right to repurchase. Their contract
needs no interpretation and should be enforced as written.
I. Concept
A. Defined (Art. 1601)
 Conventional redemption shall take place when the vendor 2.) Ramos vs Sarao
reserves the right to repurchase the thing sold with the Facts:
obligation to comply with the provisions of Art. 1616 and other Spouses Jonas Ramos and Myrna Ramos executed a contract over their
stipulations as agreed upon. conjugal house and lot in favor of Susana S. Sarao for and in
consideration of P1,310,430. Entitled “DEED OF SALE UNDER PACTO
B. Nature: conventional redemption is— DE RETRO,” the contract, inter alia, granted the Ramos spouses the
a. An accidental element (must be stipulated); option to repurchase the property within six months from February 21,
b. An express condition; 1991, for P1,310,430 plus an interest of 4.5 percent a month. It was
c. A potestative resolutory condition; further agreed that should the spouses fail to pay the monthly interest or
d. A real right which may be sold or assigned and enforced to exercise the right to repurchase within the stipulated period, the
against a third person claiming under the purchaser. conveyance would be deemed an absolute sale.

II. Conventional redemption includes transactions presumed to be Myrna Ramos tendered to Sarao the amount of P1,633,034.20 in the
equitable mortgages form of two manager’s checks, which the latter refused to accept for
A. Equitable mortgage being allegedly insufficient. On August 8, 1991, Myrna filed a Complaint
 One in which although it lacks some formality, form or words for the redemption of the property and moral damages plus attorney’s
or other requisites, prescribed by a statute, show the intention of fees. On August 13, 1991, she deposited with the RTC two checks that
the parties to charge a real property as security for a debt and Sarao refused to accept.
contains nothing impossible or contrary to law.
Thereafter, Sarao filed against the Ramos spouses a Petition “for
B. The following are presumed to be equitable mortgages: consolidation of ownership in pacto de retro sale.”
a) Contracts of sale with right to repurchase in the following
cases— (Art. 1602) Issue:
Whether the parties intended the contract to be a bona fide pacto de
1. When the price of a sale with right to repurchase is unusually retro sale or an equitable mortgage.
inadequate;
2. When the vendor remains in possession as lessee or otherwise; Held:
3. When the period of redemption is extended; There is no single conclusive test to determine whether a deed
4. When the vendee retains part of the price; absolute on its face is really a simple loan accommodation secured by a
5. When the vendor binds himself to pay taxes; mortgage. However, the law enumerates several instances that show
6. Other cases where it may be inferred that the intention of the when a contract is presumed to be an equitable mortgage, as follows:
parties is that the transaction is to secure the payment of a debt
or the performance of any other obligation.
Article 1602. The contract shall be presumed to be an equitable
Cases: mortgage, in any of the following cases:
1.) Caballero vs Ong Tiao Bok
Facts:
Sergio Caballero, the predecessor-in-interest of the petitioners sold to (1) When the price of a sale with right to repurchase is unusually
respondent Ong Tiao Bok for P60,000 two parcels of land with a total inadequate;
area of about 11 hectares. They executed a “Deed of Sale with Right to
Repurchase” with a provision that the vendor may repurchase the (2) When the vendor remains in possession as lessee or otherwise;
property with 5 years with a grace period of another 3 years.
(3) When upon or after the expiration of the right to repurchase another
16 years after the expiration of the period fro redemption, the petitioners instrument extending the period of redemption or granting a new period
filed an action for cancellation of the annotations of the sale on the titles is executed;
of the lots. They claimed that the contract entered into by their father
was an equitable mortgage. Their complaint was dismissed by the trial (4) When the purchaser retains for himself a part of the purchase price;
court on the ground that the contract in question was a valid contract of
sale with a right of repurchase. (5) When the vendor binds himself to pay the taxes on the thing sold;

When they appealed to the CA, they argued that the contract was an (6) In any other case where it may be fairly inferred that the real intention
equitable mortgage because the purchase price was lower than the of the parties is that the transaction shall secure the payment of a debt
assessed value. They reiterated this contention in their petition before or the performance of any other obligation.
the SC.

Issue: In any of the foregoing cases, any money, fruits, or other benefit to be
Was the contract entered into by Caballero and Ong Tiao Bok an received by the vendee as rent or otherwise shall be considered as
equitable mortgage? interest which shall be subject to the usury laws.

Held:
No. It was a valid pacto de retro sale. Furthermore, a contract purporting to be a pacto de retro is construed
In order to determine whether a contract is one of sale or mortgage, the as an equitable mortgage when the terms of the document and the
intention of the parties must be ascertained. In this case, the parties surrounding circumstances so require. The law discourages the use of
stipulated that “for and in consideration of the sum of P60,000, which the a pacto de retro, because this scheme is frequently used to circumvent
Party of the Second Part [respondent] shall pay the Party of the First a contract known as a pactum commissorium. The Court has frequently
Part [Caballero], the latter hereby sells, cedes and conveys unto the noted that a pacto de retro is used to conceal a contract of loan secured
Party of the Second Part all his rights, interest and participation in the by a mortgage. Such construction is consistent with the doctrine that the
abovementioned lots” and that “after the expiration of five (5) years from law favors the least transmission of rights.
signing of the contract the Party of the First Part has the right to
repurchase the two lots for the same consideration as stated in the Deed
of Sale with pacto de retro and that the said Party of the First Part shall
6
Jurisprudence has consistently declared that the presence of even just Hence, herein petition for review on certiorari.
one of the circumstances set forth in the forgoing Civil Code provision
suffices to convert a contract to an equitable mortgage. Article 1602 Issue:
specifically states that the equitable presumption applies to any of the Whether or not the true nature of the contract entered into by the parties
cases therein enumerated. as one equitable mortgage and not a pacto de retro sale.

Held:
The Court sees no reversible error with the foregoing findings of fact
In the present factual milieu, the vendor retained possession of the made by the CA. The CA correctly ruled that the true nature of the
property allegedly sold. Petitioner and her children continued to use it as contract entered into by herein parties was one of equitable mortgage.
their residence, even after Jonas Ramos had abandoned them. In fact,
it remained as her address for the service of court orders and copies of Article 1602 of the Civil Code enumerates the instances when a
Respondent Sarao’s pleadings. purported pacto de retro sale may be considered an equitable mortgage.

In Legaspi vs. Ong, the Court further explained that:

The presumption of equitable mortgage imposes a burden on Sarao to
present clear evidence to rebut it. Corollary to this principle, the favored The presence of even one of the above-mentioned circumstances as
party need not introduce proof to establish such presumption; the party enumerated in Article 1602 is sufficient basis to declare a contract of
challenging it must overthrow it, lest it persist. To overturn that prima sale with right to repurchase as one of equitable mortgage. As stated
facie fact that operated against her, Sarao needed to adduce substantial by the Code Commission which drafted the new Civil Code, in practically
and credible evidence to prove that the contract was a bona fide pacto all of the so-called contracts of sale with right of repurchase, the real
de retro. This evidentiary burden she miserably failed to discharge. intention of the parties is that the pretended purchase price is money
loaned and in order to secure the payment of the loan, a contract
Contrary to Sarao’s bare assertions, a meticulous review of the evidence purporting to be a sale with pacto de retro is drawn up.
reveals that the alleged contract was executed merely as security for a
loan. In the same case, the Court cited Article 1603 of the Civil Code, which
provides that in case of doubt, a contract purporting to be a sale with
right to repurchase shall be construed as an equitable mortgage.
3.) Diño vs. Jardines
Facts: In the instant case, the presence of the circumstances provided for
On December 14, 1992, Leonides C. Diño (petitioner) filed a Petition for under paragraphs (2) and (5) of Article 1602 of the Civil Code, and the
Consolidation of Ownership with the Regional Trial Court of Baguio City, fact that petitioner herself demands payment of interests on the
Branch 7 (RTC). She alleged that: on January 31, 1987, Lina Jardines purported purchase price of the subject property, clearly show that the
(respondent) executed in her favor a Deed of Sale with Pacto de Retro intention of the parties was merely for the property to stand as security
over a parcel of land with improvements thereon covered by Tax for a loan. The transaction between herein parties was then correctly
Declaration No. 44250, the consideration for which amounted to construed by the CA as an equitable mortgage.
P165,000.00; it was stipulated in the deed that the period for redemption
would expire in six months or on July 29, 1987; such period expired but
neither respondent nor any of her legal representatives were able to
redeem or repurchase the subject property; as a consequence, absolute b) Contracts of absolute sale in the cases mentioned in Art.
ownership over the property has been consolidated in favor of petitioner. 1602 (Art. 1604)

Respondent countered in her Answer that: the Deed of Sale with Pacto 1.) Go vs. Bacaron
de Retro did not embody the real intention of the parties; the transaction Facts:
actually entered into by the parties was one of simple loan and the Deed As evidenced by the Transfer of Rights dated October 1, 1993,
of Sale with Pacto de Retro was executed just as a security for the loan; Eliodoro Bacaron conveyed a 15.3955-hectare parcel of land located in
the amount borrowed by respondent during the first week of January Langub, Talomo, Davao City, in favor of Benny Go for P20,000.00.
1987 was only P50,000.00 with monthly interest of 9% to be paid within
a period of six months, but since said amount was insufficient to buy About a year thereafter, Bacaron, seeking to recover his property, went
construction materials for the house she was then building, she again to Go to pay his alleged P20,000.00 ‘loan’ but the latter refused to
borrowed an additional amount of P30,000.00; it was never the intention receive the same and to return his property saying that the transaction
of respondent to sell her property to petitioner; the value of respondent’s between the two of them was a sale and not a mortgage as claimed by
residential house alone is over a million pesos and if the value of the lot Bacaron.
is added, it would be around one and a half million pesos; it is
unthinkable that respondent would sell her property worth one and a half Consequently, on March 5, 1997, Eliodoro Bacaron, as plaintiff [herein
million pesos for only P165,000.00; respondent has even paid a total of respondent], filed a Complaint for Reformation of Instrument with
P55,000.00 out of the amount borrowed and she is willing to settle the Damages and prayer for the issuance of a writ of preliminary
unpaid amount, but petitioner insisted on appropriating the property of injunction, with the Regional Trial Court of Davao City, Branch 12,
respondent which she put up as collateral for the loan; respondent has against the [petitioner] Benny Go, which case was docketed as Civil
been the one paying for the realty taxes on the subject property; and Case No. 25,101-97.
due to the malicious suit filed by petitioner, respondent suffered moral
damages. Issue:
Whether the agreement entered into by the parties was one for
After trial, the RTC rendered its Decision declaring the contract entered equitable mortgage or for absolute sale.
into by the contending parties as one of deed of sale with right to
repurchase or pacto de retro sale and ordering the consolidation of Held:
ownership of Diño over the residential house and other improvements, In the present case, three of the instances enumerated in Article 1602 -
and over the rights, she (Diño) acquired over the parcel of land in - grossly inadequate consideration, possession of the property, and
question. payment of realty taxes -- attended the assailed transaction and thus
showed that it was indeed an equitable mortgage.
Respondent then appealed to the CA which reversed the RTC judgment.
The CA held that the true nature of the contract between herein parties Inadequate Consideration
is one of equitable mortgage, as shown by the fact that (a) respondent The parties’ respective arguments show that the sum of
is still in actual physical possession of the property; (b) respondent is the P20,000, by itself, is inadequate to justify the purported absolute
one paying the real property taxes on the property; and (c) the amount Transfer of Rights. Petitioner’s claim that there was a dacion en pago
of the supposed sale price, P165,000.00, earns monthly interest. is not reflected on the instrument executed by the parties. That claim,
however, confirms the inadequacy of the P20,000 paid in consideration
7
of the Transfer of Rights; hence, the Contract does not reflect the true Whether or not the parties intended an equitable mortgage.
intention of the parties. As to what their true intention was -- whether
dacion en pago or equitable mortgage -- will have to be determined by Held:
some other means. The form of the instrument cannot prevail over the true intent of the
parties as established by the evidence. We have also decreed that in
Possession determining the nature of a contract, courts are not bound by the title or
In the present case, the witnesses of respondent swore that name given by the parties. The decisive factor in evaluating such
they had seen him gather fruits and coconuts on the property. Based agreement is the intention of the parties, as shown not necessarily by
on the cited case, the witnesses’ testimonies sufficiently establish that the terminology used in the contract but by their conduct, words, actions
even after the execution of the assailed Contract, respondent has and deeds prior to, during and immediately after execution of the
remained in possession of the property. The testimonies proffered by agreement. In order to ascertain the intention of the parties, their
petitioner’s witnesses merely indicated that they were tenants of the contemporaneous and subsequent acts should be considered. Once the
property. Petitioner only informed them that he was the new owner of intention of the parties has been ascertained, that element is deemed as
the property. This attempt at a factual presentation hardly signifies that an integral part of the contract as though it has been originally expressed
he exercised possession over the property. As held by the appellate in unequivocal terms. As such, documentary and parol evidence may be
court, petitioner’s other witness (Redoña) was unconvincing, because submitted and admitted to prove such intention. And, in case of doubt,
he could not even say whether he resided within the premises. a contract purporting to be a sale with right to repurchase shall be
construed as an equitable mortgage.
Payment of Realty Taxes
The appellate court concluded that he had paid taxes for the Between 1985 and 1987, petitioner Nenita Romulo (“Nenita”) obtained
years 1995, 1996 and 1997 within each of those years; hence, before from respondent Felisarin Layug (“Felisarin”) loans in various amounts
the filing of the present controversy. In contrast, petitioner paid only totaling around P500,000.00. Being close friends at that time, Felisarin
the remaining taxes due on October 17, 1997, or after the case had did not require any written instrument to secure payment, other than the
been instituted. This fact allegedly proves that respondent has title to the house and lot, which Nenita handed to Felisarin sometime in
remained in possession of the property and continued to be its owner. 1988. When respondents demanded payment of the loan, petitioners
He argues that if he had really transferred ownership, he would have defaulted. Nevertheless, as admitted by Layug, despite her repeated
been foolish to continue paying for those taxes. demands, she allowed petitioners some more time within which to pay
their debts. Felisarin claimed that eventually petitioners offered their
house and lot as payment for their debt because petitioners no longer
Petitioner indeed paid the realty taxes on the property for the years had any money. However, even after the execution of the assailed Deed
1980 to 1997. The records show that the payments were all of Absolute Sale, respondents continued to grant petitioners loan
simultaneously made only on October 31, 1997, evidently in the light of accommodations as evidenced by the three promissory notes executed
the Complaint respondent had filed before the trial court on March 5, by petitioner Cesar Romulo.
1997.[30] On the other hand, respondent continued to pay for the
realty taxes due on the property for the years 1995, 1996 and 1997. Respondents’ continuing to lend money to petitioners does not make
sense if the intention of the parties was really to extinguish petitioners’
That the parties intended to enter into an equitable mortgage is outstanding obligation. The logical and inevitable conclusion is that
bolstered by respondent’s continued payment of the real property respondents deemed it wise to formalize a security instrument on
taxes subsequent to the alleged sale. Payment of those taxes is a petitioners’ house and lot by executing the Deed of Absolute Sale after
usual burden attached to ownership. Coupled with continuous realizing that petitioners could no longer fully satisfy their obligation to
possession of the property, it constitutes evidence of great weight that respondents. At that time, as petitioners were hard-pressed to come up
a person under whose name the realty taxes were declared has a valid with funds to pay their loan, they were hardly in a position to bargain.
and rightful claim over the land. The preponderance of evidence shows that they signed knowing that
said documents did not express their real intention, and if they did so
notwithstanding this, it was due to the urgent necessity of obtaining
2.) Romulo vs. Layug funds. “Necessitous men are not, truly speaking, free men; but to answer
Facts: a present emergency will submit to any terms that the crafty may impose
On April 11, 1996, petitioners Spouses Cesar and Nenita Romulo filed upon them.” The circumstances surrounding the execution of the Deed
a verified Complaint for Cancellation of Title, Annulment of Deed of of Absolute Sale, particularly the fact that respondents continued to
Absolute Sale and Contract of Lease with Damages against extend some loans to petitioners after its execution, precludes the Court
respondents Spouses Moises and Felisarin Layug. The complaint was from declaring that the parties intended the transfer of the property from
docketed as Civil Case No. 96-0172 and raffled to Branch 258 of the one to the other by way of sale.
RTC of Parañaque.
3.) Bacungan vs. CA
Petitioners averred in their complaint that sometime in 1986, they Facts:
obtained from respondents a loan in the amount of P50,000.00 with a Respondents Napoleon and Victoria Velo instituted an action for
monthly interest of 10%, which subsequently ballooned to P580,292.00. reconveyance with damages against petitioners Alexander and Jean
To secure the payment of the loan, respondents allegedly duped Jimeno Bacungan before the RTC of Rosales, Pangasinan.
petitioners into signing a Contract of Lease and a Deed of Absolute Sale
covering petitioners’ house and lot located at Phase II, BF Homes, They alleged that they were the registered owners of 18 parcels of land
Sucat, Parañaque and covered by Transfer Certificate of Title (TCT) No. and that sometime in February of 1993, they had experienced business
S-71528. The Deed of Absolute Sale purportedly facilitated the reversals and financial difficulties and had sought assistance from
cancellation of petitioners’ title on the house and lot and the issuance of petitioners in securing a loan. Petitioners allegedly proposed that they
TCT No. 20489 in the name of respondents. Thus, petitioners prayed for would obtain the loan from the bank provided that respondents secure
the nullification of the Deed of Absolute Sale, the contract of lease and the transfer of the titles to petitioners that would be used as security for
TCT No. 20489, and the award of moral and exemplary damages the loan. Respondents agreed, executed the corresponding deeds of
sale and caused the cancellation and issuance of new TCTs over the
Prior to the filing of Civil Case No. 96-0172, respondent Moises Layug, properties in favor of petitioners. However, respondents claimed that
Jr. (“Moises”) filed Civil Case No. 9422, an action for ejectment, against after petitioners had obtained the new titles, they never applied for a loan
petitioners to compel the latter to vacate the house and lot allegedly sold with the bank but had secretly negotiated for the sale of the properties
by petitioners to Moises and subsequently rented out by him to to third parties.
petitioners. Moises alleged that petitioners violated the terms of the
Contract of Lease when the latter failed to pay any rental or exercise
In their answer, petitioners asserted that respondents offered to sell to
their option to repurchase the house and lot and refused to vacate the
them 23 parcels of land, 18 of which were used as collateral for the loan
property despite demand.
respondents had obtained from Traders Royal Bank. Petitioners claimed
to have bought 22 parcels of land and executed the corresponding
Issue:
8
deeds of sale on 26 February 1993 and 10 March 1993. They also default) is void, such a clause in a contract is conclusive proof
allegedly paid in full respondents’ obligation with said bank but only 18 that it is a mortgage and not a sale with pacto de retro.
certificates of title released by the bank were delivered to petitioners.
Petitioners further maintained that out of their gratuitousness, they C. Effect when the transaction is deemed an equitable mortgage:
returned one of the deeds of sale to respondents and considered the a) Fruits, money or other benefit received as rents by the vendee
sale as cancelled. Petitioners averred that the amounts they paid to are considered as interest which shall be subject to the usury laws.
respondents, as well as their payments to the bank, were more than (Art. 1602, last par.)
enough as consideration of the 23 contracts. b) The apparent vendor may ask for the reformation of the
instrument (Art. 1605)
Issue:
Case:
Go vs, Bacaron, supra (refer to FACTS on p. 11)
Whether or not the deeds of absolute sale in this case embody the real Second Issue:
intention of the parties. Reformation of Instrument

Held:
Held: Petitioner claims that the CA erred in granting the remedy of reformation
of contracts. He avers that the failure of the instrument to express the
After a careful examination of the records of the case, the Court finds parties’ true agreement was not due to his mistake; or to fraud,
that the deeds of absolute sale do not embody the real intention of the inequitable conduct, or accident.
parties. The records reveal that respondents had earlier executed
several real estate mortgages over the properties to secure the payment We rule for respondent.
of the total amount of P350,000.00. Respondents defaulted on the
payments, prompting the bank to foreclose the properties. However, as Ultimately, it is the intention of the parties that determines whether
illustrated in the testimony of respondent Victoria Velo, respondents and a contract is one of sale or of mortgage. In the present case, one of the
petitioners devised a plan in which they agreed that in exchange for the parties to the contract raises as an issue the fact that their true intention
apparent transfer of ownership of the parcels of land to petitioners, the or agreement is not reflected in the instrument. Under this circumstance,
latter would provide for the funds for the redemption of the properties parol evidence becomes admissible and competent evidence to prove
from the bank in addition to the loan that petitioners would obtain from the true nature of the instrument. Hence, unavailing is the assertion of
the bank. Thus, respondents were able to redeem the properties for the petitioner that the interpretation of the terms of the Contract is
amount of P369,000.00 that was advanced by way of mortgage to them unnecessary, and that the parties clearly agreed to execute an absolute
by petitioners. The amount approximates the total loans in the amount deed of sale. His assertion does not hold, especially in the light of the
of P350,000.00 secured by the properties subject of the real estate provisions of Article 1604 of the Civil Code, under which even contracts
mortgages executed by respondents. purporting to be absolute sales are subject to the provisions of Article
1602.
Thereafter, respondents executed several deeds of sale purporting to Moreover, under Article 1605 of the New Civil Code, the supposed
transfer the 18 parcels of lands for a total consideration of P232,000.00. vendor may ask for the reformation of the instrument, should the case
The parties further agreed that upon the transfer of the properties in the be among those mentioned in Articles 1602 and 1604. Because
name of petitioners, the latter would obtain another loan from the bank respondent has more than sufficiently established that the assailed
using the properties as collateral. Petitioners were supposed to remit the Contract is in fact an equitable mortgage rather than an absolute sale,
loan proceeds to respondents after deducting the amount of he is allowed to avail himself of the remedy of reformation of contracts.
P369,000.00 lent by petitioners to respondents and, thereafter, allow
respondents to buy back the properties. However, because petitioners
had failed to secure a loan from the bank after the transfer of the titles
in their names, respondents instituted the present action to nullify the III. Period of Repurchase or Redemption
deeds of sale on the ground that the sale was simulated.
A. When no period is agreed upon—
This kind of arrangement, where the ownership of the land is supposedly  4 years from the date of the contract (Art. 1606, par.1)
transferred to the buyer who provides for the funds to redeem the
property from the bank but nonetheless allows the seller to later on buy B. When a period is agreed upon— (which includes a stipulation of
back the properties, is in the nature of an equitable mortgage governed redemption “at any time”) –
by Articles 1602 and 1604 of the Civil Code  Within the period stipulated, which cannot exceed 10 years
(Art. 1606, par. 2)
In the instant case, three telling circumstances indicating that an C. When period may be extended—
equitable mortgage exists are present. First, as established by the CA,  the period may be extended to 30 days after final judgment
the price of each of the properties was grossly inadequate. Second, was rendered in a civil case claiming that the contract was a true
petitioners retained part of the "purchase price" when they failed to turn sale with right to repurchase (Art. 1606, par.3)
over to the respondents the loan that they were supposed to secure from a. Pendency of litigation suspends the period of redemption
the bank. Third, petitioners insisted that part of the consideration of the b. The 30-day extension is applicable even should the case be
sale consisted of amounts previously borrowed by respondents from filed after the expiration of the redemption period, if the parties
them, indicating that petitioners were using the properties as "security" dispute its nature as a pacto-de-retro sale with the allegation that
for the payment of respondents’ other loans from them. it does not express their true agreement.

 The period, during which the vendor can not redeem, when added to
the period of permitted redemption must not total more than 10 years.
c) When a transaction purporting to be a contract of sale with
right to repurchase is of doubtful interpretation. (Art. 1603)  Redemption period was not extended by the enemy occupation.
1. A stipulation that in case of failure of the vendor-a-retro as
lessee to pay rentals, the lease shall automatically terminate and Case:
the right of ownership of the vendee shall become absolute—is Abilla vs, Gobonseng
valid, not contrary to law, nor oppressive. It is a clause common Facts:
to “pacto de retro” and has received court sanction. Petitioner spouses instituted against respondents an action for specific
performance, recovery of sum of money and damages, docketed as Civil
2. Although “pactum commissorium” (a stipulation for automatic Case No. 8148 of the Regional Trial Court of Dumaguete City, Branch
vesting of title over the security in the creditor in case of debtor’s XLII, seeking the reimbursement of the expenses they incurred in
9
connection with the preparation and registration of two public amount of P896,000.00, representing their alleged loan, on or before the
instruments, namely a “Deed of Sale” and an “Option to Buy.” In their expiration of the right to repurchase on August 21, 1983.
answer, respondents raised the defense that the transaction covered by
the “Deed of Sale” and “Option to Buy,” which appears to be a Deed of Clearly, therefore, the declaration of the transaction as a pacto de retro
Sale with Right of Repurchase, was in truth, in fact, in law, and in legal sale will not, under the circumstances, entitle respondents to the right of
construction, a mortgage. repurchase set forth under the third paragraph of Article 1606 of the Civil
Code.
The trial court ruled in favor of petitioners and declared that the
transaction between the parties was not an equitable mortgage. On
appeal by respondents, the Court of Appeals ruled that the transaction D. Rulings on the period within which to make a repurchase—
between the parties was a pacto de retro sale, and not an equitable a) The legal period of 4 years may be extended by stipulation,
mortgage. provided that the new period does not exceed 10 years (Umale vs.
Fernandez, 28 Phil 89).
Issue:
Whether or not the declaration of the transaction as a pacto de retro sale b) A stipulation that the vendor cannot redeem the property until
by the appellate court entitle respondents to the right of repurchase set after 3 years should be construed to allow redemption within 4
forth under the third paragraph of Article 1606 of the Civil Code. years, after the lapse of the 3 years. Counted from such lapse
(Rosales vs. Reyes, 25 Phil 495).
Held:
Following the theory of the respondents which was sustained by the trial c) An agreement granting the vendor the right to repurchase when
court, the scenario would be that although respondents failed in their he “has established a certain business” is not a period. In such a
effort to prove that the contract was an equitable mortgage, they could case the vendor may redeem within 4 years (Medel vs. Francisco,
nonetheless still repurchase the property within 30 days from the finality 51 Phil 367).
of the judgment declaring the contract to be truly a pacto de retro sale.
However, under the undisputed facts of the case at bar, this cannot be d) Where there is an agreed period, the period in excess of 10
allowed. years is void. (Montero vs. Salgado, 27 Phil 367).

In the parallel case of Vda. de Macoy v. Court of Appeals,[15] the e) A stipulation granting the vendors the right to redeem “at any
petitioners therein raised the defense that the contract was not a sale time the vendors have the money” should be construed to allow
with right to repurchase but an equitable mortgage. They further argued redemption within 10 years (Soriano vs. Abalos, 47 O.G. 168).
as an alternative defense that even assuming the transaction to be a
pacto de retro sale, they can nevertheless repurchase the property by f) The stipulated period of redemption is suspended by the filing of
virtue of Article 1606, third paragraph of the Civil Code. It was held that an action brought in good faith relating to the validity of a sale with
the said provision was inapplicable, thus: pacto-de-retro (it being claimed an equitable mortgage) and again
commences to run only after decision declaring it to be a sale has
The application of the third paragraph of Article 1606 is predicated upon become final (Fernandez vs. Suplido, L-5977, Feb. 17, 1955)
the bona fides of the vendor a retro. It must appear that there was a
belief on his part, founded on facts attendant upon the execution of the g) Where the courts are functioning regularly, the redemption term
sale with pacto de retro, honestly and sincerely entertained, that the is not suspended or extended by war (Yoro vs. Yagas, 47 O.G.
agreement was in reality a mortgage, one not intended to affect the title 2390).
to the property ostensibly sold, but merely to give it as security for a loan
or other obligation. In that event, if the matter of the real nature of the
contract is submitted for judicial resolution, the application of the rule is IV. Who may redeem or exercise the right of redemption—
meet and proper; that the vendor a retro be allowed to repurchase the A. The vendor in whose favor the right is reserved.
property sold within 30 days from rendition of final judgment declaring The following are included:
the contract to be a true sale with right to repurchase. Conversely, if it a.) When the vendors are co-owners selling jointly and in the same
should appear that the parties’ agreement was really one of sale — contract an undivided immovable.
transferring ownership to the vendee, but accompanied by a reservation 1. Right of each co-owner:
to the vendor of the right to repurchase the property — and there are no  to redeem only his share (Art. 1612, par.1)
circumstances that may reasonably be accepted as generating some 2. Right of the vendee:
honest doubt as to the parties' intention, the proviso is inapplicable. The  he may compel all the co-owners to redeem the whole
reason is quite obvious. If the rule were otherwise, it would be within the (Art. 1613). Also when the whole of the property is
power of every vendor a retro to set at naught a pacto de retro, or adjudicated to the vendee in partition (Art. 1611).
resurrect an expired right of repurchase, by simply instituting an action
to reform the contract — known to him to be in truth a sale with pacto de b.) When a co-owner sells his share of an undivided immovable
retro — into an equitable mortgage. As postulated by the petitioner, “to separately (Art. 1614)
allow herein private respondents to repurchase the property by applying 1. Right of the vendor—co-owner:
said paragraph x x x to the case at bar despite the fact that the stipulated  he may only redeem his share (Art. 1614);
redemption period had already long expired when they instituted the  he cannot be compelled to redeem the whole (Art. 1614)
present action, would in effect alter or modify the stipulation in the
contract as to the definite and specific limitation of the period for B. Heirs of the vendor (Art. 1612, par.2)
repurchase (2 years from date of sale or only until June 25, 1958) a.) Right of each heir:
thereby not simply increasing but in reality resuscitating the expired right  each can redeem only the part which he may have acquired
to repurchase x x x and likewise the already terminated and extinguished
obligation to resell by herein petitioner.” The rule would thus be made a b.) Right of the vendee:
tool to spawn, protect and even reward fraud and bad faith, a situation  he may compel all the heirs to redeem the whole (Art. 1613)
surely never contemplated or intended by the law.
C. Creditors of the vendor (Art. 1610)
In the case at bar, both the trial court and the Court of Appeals were of a.) Requisite:
the view that the subject transaction was truly a pacto de retro sale; and  The creditors must have already exhausted the properties of
that none of the circumstances under Article 1602 of the Civil Code the vendor (Art. 1610).
exists to warrant a conclusion that the transaction subject of the “Deed
of Sale” and “Option to Buy” was an equitable mortgage. The Court of
Appeals correctly noted that if respondents really believed that the V. From or against whom may redemption be made-
transaction was indeed an equitable mortgage, as a sign of good faith,
they should have, at the very least, consigned with the trial court the A. The vendee
B. The heir or heirs of the vendee
10
 thing by purchase or dation inpayment, or by any other transaction
B.1 Rule if there is more than one heir whereby ownership is transmitted by onerous title. (1619)
If the vendee should leave several heirs, the action for
redemption cannot be brought against each of them except B.Alienation must be by
for his own share, whether the thing be undivided, or it has a. Sale
been partitioned among them. b. Dation in payment (dacion en pago)
c. Transaction whereby ownership is transferred by onerous
But if the inheritance has been divided, and the thing sold title (1619)
has been awarded to one of the heirs, the action for
redemption may be instituted against him for the whole. C.Distinction between PRE-EMPTION AND LEGAL REDEMPTION
(1615)
PRE-EMPTION REDEMPTION
C. Every possessor whose right is derived from the vendee even if in the 1. arises before sale 1. arises after sale
second contract no mention should have been made of the right to 2. no rescission because no sale 2. there can be rescission of the
repurchase, without prejudice to the provisions of the Mortgage Law and as yet exists original sale
the Land Registration Law with respect to third persons. (1608) 3. the action is directed against 3. action is directed against the
the prospective seller buyer
VI. Obligations of the vendor-a-retro

A.The vendor’s obligations (1616)

a.1 to return the price of the sale D.Applicability of the Rules: The rules are applicable to both movables
a.2The expenses of the contract, and any other legitimate and immovables.
payments made by reason of the sale
a.3The necessary and useful expenses made on the thing sold. II.INSTANCES OF LEGAL REDEMPTION

B.Effect of the vendor’s failure to comply with his obligation A.Redemption by Co-owners
a. Purpose- to end indivision or at least reduce the number of co-
b.1 General Rule: Ownership is consolidated in the vendee. owners, keeping strangers out of the co-ownership.
b.2 Exception: In case of real property, the consolidation of ownership b. Requisites:
in the vendee by virtue of the failure of the vendor to comply with the 1. Co-ownership must exist
provisions of article 1616 shall not be recorded in the Registry of 2. There must be alienation of the shares of all other co-
Property without a judicial order, after the vendor has been duly owners or any of them
heard. (1607) 3. Alienation must be to a stranger not to a co-owner
4. Alienation to said stranger must be before partition
VII. Obligations of the vendee-a-retro
For other requisites pls refer to the cases below:
A. To return the thing sold free from all liens and mortgages
constituted by the vendee.(1618) Aguilar v. Aguilar
GR No. 141613
Exception: Lease contracts in good faith and according to customs Parties: SENEN B. AGUILAR- petitioner
which must be respected VIRGILIO B. AGUILAR and ANGEL B. AGUILAR-
respondents, Alejandro Sangalang- intervenor-
respondent
VIII. Rights of the vendee-a-retro
Facts:
A. The vendee of a part of an undivided immovable who On October 28, 1993, Senen and Virgilio purchased a house and lot
acquires the whole thereof in the case of article 498, may Maximiano Aguilar (now deceased). The brothers wanted their father
compel the vendor to redeem the whole property, if the to enjoy his retirement in a quiet neighborhood.
latter wishes to make use of the right of redemption in partition
proceedings. February 23, 1970, they executed a written agreement stipulating that
B. To be subrogated to the vendor’s rights and actions (1609) their shares in the house and lot would be equal; and that Senen would
live with their father on condition that he would pay the Social Security
IX. Rules on Pro-rating fruits existing at the time of redemption System (SSS) the remaining loan obligation of the former owners.

A.If there are visible fruits existing at the time of the execution of the In 1974, their father died. Virgilio then demanded that Senen vacate the
sale: NO REIMBURSEMENT OR PRO-RATING IS REQUIRED. (1617, house and that the property be sold, the proceeds to be divided between
p. 1) them. Senen refused to comply with Virgilio’s demand.

Exception: If indemnity for fruits was paid by the vendee when the sale January 12, 1979, Virgilio filed a complaint with the Court of First
was executed(1617, p. 1) Instance (now Regional Trial Court) of Rizal at Pasay City for specific
B.If NO visible fruits existing at the time of the sale: FRUITS MUST BE performance
PRO-RATED BETWEEN THE REDEMPTIONER AND THE
VENDEE.(1617, P.1) July 26, 1979, the trial court rendered its Decision, declaring the brothers
co-owners of the house and lot and are entitled to equal shares; and
Share of the vendee: that portion corresponding to the time he ordering that the property be sold, the proceeds to be divided equally
possessed the land in the last year counted from the anniversary of the between them. The trial court also ordered Senen to vacate the
date of sale. property and to pay Virgilio rentals with interests corresponding to the
period from January 1975 until he leaves the premises.
Section 2 – LEGAL REDEMPTION
On March 27, 1995, Senen filed with RTC, an action for legal redemption
ARTS. 1619-1623 against Virgilio and another brother, Angel. In his complaint, Senen
alleged that while he knows that Virgilio sold his ½ share of the property
i.CONCEPT to Angel in January 1989, however, he (Senen) was not furnished any
written notice of the sale. Consequently, as a co-owner, he has the
A. DEFINITION- the right to be subrogated, upon the same terms and right to redeem the property.
conditions stipulated in the contract, in the place of one who acquires a

11
November 27, 1995, the property was sold at public auction to Alejandro. Sps. Barabat leased the house built by Narcisa Avila (Avila) one of the
Virgilio then received his share of the proceeds as well as the rental children. Avila subsequently relocated to Cagayan de Oro City. She
payments due from Senen. came back to Toledo City in July 1979 to sell her house and share in the
lot to her siblings but no one showed interest in it. She then offered it to
The trial court dismissed the case on the ground of laches, holding that respondents who agreed to buy it. Both Parties executed a private
Senen incurred a delay of seven (7) years before asserting his right to document evidencing the transaction. Respondents stopped paying
redeem the property in question. On appeal, the Court of Appeals rentals to Avila and took possession of the property as owners. They
affirmed the assailed Order of the trial court. also assumed the payment of realty taxes on it.

ISSUE: WON Senen’s complaint for legal redemption is barred by 1982, Adlawans demanded Barabats to relocate as they are purchasing
laches. the house and lot of Avila. Respondents then filed an action for quieting
of title and specific performance for Avila to issue a public document.
Ruling: The court in this case had discussed on matters involving legal Avila denied the sale, alleging it was a loan and that she innocently
redemption. affixed her signature on the document.

Legal redemption (retracto legal de comuneros) is a privilege created by RTC- favored the Barabats, declaring the private document as a valid
law, partly by reason of public policy and partly for the benefit of the and lawful deed of sale. It nullified the subsequent deed of sale between
redemptioner to afford him a way out of a disagreeable or inconvenient Avila and the spouses Adlawan. Avila was ordered to execute a formal
association into which he has been thrust. and notarized deed of sale in favor of respondents. CA affirmed.

With respect to redemption by co-owners, in case the share of a co- ISSUE: WON the transaction between respondents and Avila was an
owner is sold to a third person, the governing law is Article 1620 of the absolute sale or an equitable mortgage.
Civil Code which provides:
Petitioners Relied on Arts. 1602 and 1604 Equitable mortgage and on
“ART. 1620. A co-owner of a thing may exercise the right of 1620 and 1623 of the Civil Code to justify their right of redemption.
redemption in case the shares of all the other co-owners or of any of
them are sold to a third person. If the price of the alienation is grossly RULING: For Articles 1602 and 1604 to apply, two requisites must
excessive, the redemptioner shall pay only a reasonable rate. concur: (1) the parties entered into a contract denominated as a contract
Should two or more co-owners desire to exercise the right of of sale and (2) their intention was to secure an existing debt by way of
redemption, they may only do so in proportion to the share they may mortgage.Here, both the trial and appellate courts found that Exhibit "A"
respectively have in the thing owned in common.” evidenced a contract of sale. They also agreed that the circumstances
of the case show that Avila intended her agreement with respondents to
The purpose behind Article 1620 is to provide a method for terminating be a sale. Both courts were unanimous in finding that the subsequent
the co-ownership and consolidating the dominion in one sole owner. acts of Avila revealed her intention to absolutely convey the disputed
Article 1623 of the same Code also provides: property. It was only after the perfection of the contract, when her
siblings began protesting the sale, that she wanted to change the
”ART. 1623. The right of legal pre-emption or redemption shall agreement.
not be exercised except within thirty days from the notice in writing by
the prospective vendee, or by the vendor, as the case may be. The deed Petitioner’s reliance on 1620 and 1623 is incorrect:
of sale shall not be recorded in the Registry of Property, unless
accompanied by an affidavit of the vendee that he has given written These provisions state:
notice thereof to all possible redemptioners. Art. 1620. A co-owner of a thing may exercise the right of redemption
The right of redemption of co-owners excludes that of adjoining in case the shares of all the other co-owners or any of them, are sold
owners.” to a third person. If the price of the alienation is grossly excessive, the
redemptioner shall pay only a reasonable one.
From the above provisions, the following are the requisites for the
exercise of legal redemption: (1) There must be a co-ownership; (2) Should two or more co-owners desire to exercise the right of
one of the co-owners sold his right to a stranger; (3) the sale was redemption, they may only do so in proportion to the share they may
made before the partition of the co-owned property; (4) the right of respectively have in the thing owned in common.
redemption must be exercised by one or more co-owners within a xxxxxxxxx
period of thirty days to be counted from the time that he or they
were notified in writing by the vendee or by the co-owner vendor; Art. 1623. The right of legal pre-emption or redemption shall not be
and (5) the vendee must be reimbursed for the price of the sale. exercised except within thirty days from the notice in writing by the
prospective vendor, or by the vendor, as the case may be. The deed of
Petitioner has actual knowledge ( no need of written notice when there sale shall not be recorded in the Registry of Property, unless
is actual knowledge) of the sale of Virgilio’s share to Angel in 1989. As accompanied by an affidavit of the vendor that he has given written
provided by Article 1623, he has thirty days from such actual knowledge notice thereof to all possible redemptioners.
within which to exercise his right to redeem the property. Inexplicably,
petitioner did not take any action. He waited for seven (7) years before The right of redemption of co-owners excludes that of adjoining owners.
filing his complaint. Definitely, such an unexplained delay is tantamount Petitioners’ right to redeem would have existed only had there been
to laches. To be sure, to uphold his right would unduly cause injury to co-ownership among petitioners-siblings. But there was none. For
respondent-intervenor, a purchaser in good faith and for value. DENIED. this right to be exercised, co-ownership must exist at the time the
conveyance is made by a co-owner and the redemption is demanded by
the other co-owner or co-owner(s).However, by their own admission,
Avila v. Barabat petitioners were no longer co-owners when the property was sold to
GR. No. 141993 respondents in 1979. The co-ownership had already been extinguished
by partition.
Parties: Narcisa Avila et. Al-petitioner
Sps. Barabat – respondent Every act intended to put an end to indivision among co-heirs is deemed
to be a partition.Here, the particular portions pertaining to petitioners had
FACTS: (Redemption not applicable) been ascertained and they in fact already took possession of their
respective parts. Under the law, subject to certain conditions, owners of
Subject property is a land located in Toledo City which is now owned adjoining urban land have the pre-emptive right to a lot before it is sold
by the 5 children of Anunciation (upon her death), each of the five to third parties, or the redemptive right if it has already been sold. This
children have built their houses on the lot. is not applicable in the case and this is not also alleged. DENIED.

12
c. Who May Exercise Redemption- effectively ratified it. This act of ratification rendered the sale valid and
A Co-owner (1620) binding as to him.
If two or more co-owners desire to redeem they may only do
so in PROPORTION to the share they may respectively have But may petitioners redeem the subject land from respondents-
in the thing owned in common (1620 p.2) spouses? Articles 1088 and 1623 of the New Civil Code are pertinent

CASE: Effect of Redemption by a co-owner of a deceased co-owners Art. 1088. Should any of the heirs sell his hereditary rights to a stranger
share before the partition, any or all of the 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
Cabales v. CA were notified in writing of the sale by the vendor.
GR No. 162421
Art. 1623. The right of legal pre-emption or redemption shall not be
Parties: Nelson and Rito Cabales- petitioners exercised except within thirty days from the notice in writing by the
CA, Jesus and Anunciacion Feliano- Respondents prospective vendor, or by the vendor, as the case may be. The deed of
sale shall not be recorded in the Registry of Property, unless
FACTS: Subject property is a parcel of land owned by Rufino. When accompanied by an affidavit of the vendor that he has given written
Rufino died intestate, his wife Saturnina and his six (6) children, notice thereof to all possible redemptioners. The right of redemption of
Bonifacio, Albino, Francisco, Leonora, Alberto and petitioner Rito, co-owners excludes that of adjoining owners.
survived and succeeded him. Article 996 of the New Civil Code provides
that “[i]f a widow or widower and legitimate children or descendants are Clearly, legal redemption may only be exercised by the co-owner
left, the surviving spouse has in the succession the same share as that or co-owners who did not part with his or their pro-indiviso share
of each of the children.” Verily, the seven (7) heirs inherited equally on in the property held in common. As demonstrated, the sale as to the
subject property. Petitioner Rito and Alberto, petitioner Nelson’s father, undivided share of petitioner Rito became valid and binding upon his
inherited in their own rights and with equal shares as the others. ratification on July 24, 1986. As a result, he lost his right to redeem
subject property.
Two sale transactions involving the same parcel took place (1) Pacto de
retro sale to Dr. Corrompido made by Bonifacio, Albino and Alberto. Nelson and his mother may redeem the subject property from
Prior to repurchasing Alberto died; it was Saturnina (mama nila) who respondents-spouses. But they must do so within thirty days from notice
repurchased the land (2) Upon redemption from Dr. Corrompido, the in writing of the sale by their co-owners vendors. The Court is satisfied
subject property was resold to respondents-spouses by the co- that there was sufficient notice of the sale to petitioner Nelson. The
owners. Petitioners Rito and Nelson were then minors and as indicated thirty-day redemption period commenced in 1993, after petitioner
in the Deed of Sale, their shares in the proceeds were held in trust by Nelson sought the barangay conciliation process to redeem his
respondents-spouses to be paid and delivered to them upon reaching property. It was only in 1995 when complaint was filed so redemption
the age of majority. Nelson and Rito now questions the validity of the period has expired.
sale as regards to their respective shares in the undivided lot and as to
whether Nelson can redeem. d. Obligation of the Redemptioneer

RTC: Favored Petitioners. Sale was Valid TO PAY THE PRICE OF THE SALE (1620 P.1) BUT when the price is
CA: Modified: It held that the sale by Saturnina of petitioner Rito’s grossly excessive, he is only obliged to pay a reasonable price
undivided share to the property was unenforceable for lack of authority
or legal representation but that the contract was effectively ratified by e. Legal Redemption by Co-heirs (1088) is a variety of this redemption
petitioner Rito’s receipt of the proceeds on July 24, 1986. The appellate by co-owners.
court also ruled that petitioner Nelson is co-owner to the extent of one-
seventh (1/7) of subject property as Saturnina was not subrogated to CASE: Redemption by excluded co-heir
Alberto’s rights when she repurchased his share to the property. It
further directed petitioner Nelson to pay the estate of the late Saturnina Galvez v. CA
Cabales the amount of P966.66, representing the amount which the GR. NO. 157954
latter paid for the obligation of petitioner Nelson’s late father
Alberto. Finally, however, it denied petitioner Nelson’s claim for Parties: Paz Galvez et al.- petitioners
redemption for his failure to tender or consign in court the redemption CA, Porfirio Galvez- respondents
money within the period prescribed by law.
FACTS: Subject property is a parcel of land (unirrigated Riceland)
ISSUE: WON Nelson and Rito still has rights over the lands sold to owned originally by Timotea.
respondents.
The land is now co-owned by Paz and Porfirio. However, after executing
RULING: SC Affirmed CA’s decision with modification ordering RoD to a deed of adjudication that she is the owner of the land Paz sold the land
cancel OCT and issue new CT to Respondents Feliano for the 6/7 and to Tam. Tam sold it to Tycoon properties.
1/7 to Nelson and his mother pro-indiviso.
Hence, Porfirio filed an action for Legal Redemption with Damages and
When Saturnina repurchased the property, she is not subrogated Cancellation of Documents 13 against Paz Galvez and Carlos Tam
to Alberto’s or his heirs rights to the property.
RTC: Ruled in favor of Porfirio. Declaring the affidavit of adjudication
With respect to petitioner Nelson, on the other hand, the contract of sale
and the sale of Paz-Tam-Tycoon properties as null and void and TCTs
was void. He was a minor at the time of the sale. It was his mother who
be cancelled.that Tam is obliged to receive the redemption money.
was his legal guardian and, if duly authorized by the courts, could validly
That the property, be reconveyed (whole property) to PORFIRIO
sell his undivided share to the property. She did not. Necessarily, when
GALVEZ, he having redeemed one-half (½) of the property from
Saturnina and the others sold the subject property in its entirety to
CARLOS TAM and other half of the property belongs to him as co-heir
respondents-spouses, they only sold and transferred title to their pro-
of TIMOTEA FLORES GALVEZ.
indiviso shares and not that part which pertained to petitioner Nelson
and his mother. Consequently, petitioner Nelson and his mother
retained ownership over their undivided share of subject property. CA: Affirmed

Accordingly, the contract of sale as to the pro-indiviso share of ISSUE: 1. WON action has prescribed as the property is held in implied
petitioner Rito was unenforceable. However, when he acknowledged trust.
receipt of the proceeds of the sale on July 24, 1986, petitioner Rito 2. WON action is barred by laches as it has been raised only
after 24 years.
13
 3. WON Tycoon properties and Tam are purchasers for value B. Redemption by Adjoining Owners
and in good faith. a. Instances

RULING: Affirmed the decision of CA. 1. Rural Lands

This case is governed by the rules on co-ownership since both Paz Purpose- to favor the development of rural property in the interest
Galvez and Porfirio Galvez are obviously co-owners of the disputed of agriculture.
property having inherited the same from a common ancestor. It is a
fundamental principle that a co-owner cannot acquire by prescription the Requisites:
share of the other co-owners, absent any clear repudiation of the co- a. Both adjoining tenements are rural.
ownership. b. There must be alienation.
c. The area of the land alienated does not exceed one hectare
Implied trust comes into being by operation of law. The latter kind is d. The tenements must be adjacent without solution of surface
either constructive or resulting trust. A constructive trust is imposed continuity (tenements separated by brooks, ravines, roads,
where a person holding title to property is subject to an equitable duty to etc. are excluded)
convey it to another on the ground that he would be unjustly enriched if e. The vendee must owned some other rural land.
he were permitted to retain it. The duty to convey the property arises
because it was acquired through fraud, duress, undue influence or Who may exercise the right; By order of Preference
mistake, or through breach of a fiduciary duty, or through the wrongful a. Co-owners (1623 p. 2)
disposition of another’s property. b. Adjoining owners (1621 p.3)
b.1 the owner of the adjoining land with smaller area.
The prescriptive period may only be counted from the time petitioners b.2. the first to request redemption if areas are equal.
repudiated the trust relation in 1955 upon the filing of the complaint for
recovery of possession against private respondents so that the CASES:
counterclaim of the private respondents contained in their amended Fabia v. IAC
answer wherein they asserted absolute ownership of the disputed realty GR NO. L-66101
by reason of the continuous and adverse possession of the same is well Parties: Sps. Fabia-Petitioners
within the 10-year prescriptive period. IAC et. Al- Respondents

In this case, we find that Paz Galvez effected no clear and evident Facts:
repudiation of the co-ownership. The execution of the affidavit of self- 1. Plaintiffs reside on a lot east of the land in question and adjacent to
adjudication does not constitute such sufficient act of repudiation as it;
contemplated under the law as to effectively exclude Porfirio Galvez 2. The lot is owned by the plaintiffs in common;
from the property. This Court has repeatedly expressed its 3. The land in question formerly belonged to Hugo Mararac who sold the
disapproval over the obvious bad faith of a co-heir feigning sole same to the spouses Leonardo Mararac and Monica Resuello;
ownership of the property to the exclusion of the other heirs 4. At that time, the lot now owned by plaintiffs was owned by plaintiff
essentially stating that one who acts in bad faith should not be Angel Mararac and Juanito Mararac, who was the husband of plaintiff
permitted to profit from it to the detriment of others. In the cases of Carina Rafanan who died in 1976;
Adille and Pangan where, as in this case, a co-heir was excluded from 5. Leonardo Mararac and Monica Resuello sold to the defendants the
his legal share by the other co-heir who represented himself as the only land in question on February 25, 1975;
heir, this Court held that the act of exclusion does not constitute 6. At that time, the lot in eastern side of the land in question was owned
repudiation. by Angel Mararac and his brother, Juanita Mararac;
7. On April 8, 1975, defendants declared the land for tax purposes;
On the issue of prescription, while admittedly prescription operates as a 8. At the time of sale of the land in question to the defendants in 1975
bar to recovery of property, the ten-year period commenced to run from there was no offer to exercise right of legal redemption;
date of registration. In this case, Carlos Tam obtained his title to the 9. At the time of the sale of the land in question to Leonardo Mararac
property on 21 January 1994. Since the complaint of Porfirio Galvez was and Monica Resuello in 1971, there was no offer of legal redemption;
filed on 12 May 1994, the same was well within the ten-year period to 10. There was no legal redemption offered during the period between
file the action. the first and second sale;
11. The southern boundary of the lot in question is a barrio road with
On the matter of laches, it is hornbook doctrine that laches is a creation approximate area of 10 meters wide;
of equity and its application is controlled by equitable considerations. 12. The land in question in relation to plaintiffs' lot is not separated by
Laches cannot be used to defeat justice or perpetrate fraud and ravine, by brook, trait road or other servitude for the benefit of others;
injustice. Neither should its application be used to prevent the rightful 13. The land in question is fenced and was fenced even before the first
owners of a property from recovering what has been fraudulently sale in March 27, 1971;
registered in the name of another. The equitable remedy of laches is, 14. Defendants own rural lands other than the land in question;
therefore, unavailing in this case. 15. From Barangay Balogo, to Basing along the road touching the
southern bound of the land in question are lines of houses on both sides;
Finally, petitioners claim that if the sale would be nullified, the 16. House of plaintiffs is along the said road;
nullification should extend only to the one-half share of Porfirio Galvez 17. A portion of the land in question on the side farther from the road, is
but not to the share of Paz Galvez, who, by her overt act of selling the used as a fishwell;
property, manifested her intention to dispose of her part. 18. Plaintiffs offered to redeem the land in the amount paid by the
defendants as well as an amount for the return of investment of the
Art. 1088, provides: "Should any of the heirs sell his hereditary rights to property and interest, and payments of attorney's fees and are able and
a stranger before the partition, any or all the co-heirs may be subrogated willing to make the payment.
to the rights of the purchaser by reimbursing him for the price of the sale,
provided they do so within the period of one (1) month from the time they RTC- favored petitioners
were notified in writing of the sale by the vendor." CA- Reversed
ISSUEs: 1. WON the land in question may be considered rural for
There was no written notice sent to Porfirio Galvez by Paz Galvez when purposes of legal redemption under Section 2, Chapter 7, Title VI, New
she sold her share over the land to Carlos Tam. Porfirio Galvez only Civil Code 2. WON the parties are guilty of laches to prevent them from
discovered on May 12, 1994.Tam and Tycoon are not purchasers in redeeming the property.
good faith as they did not exert efforts to determine the true title of the
land.
RULING: A construction of the word "rural" that is in consonance with
the legislative purpose must be followed.

Thus, rural lands are distinguished from urban tenements:

14
xxx xxx xxx except within thirty days from notice in writing by the prospective vendor,
or by the vendor, as the case may be. In stressing the mandatory
character of the requirement, the law states that the deed of sale shall
(2) By its purpose or being for agricultural, fishing or timber exploitation,
not be recorded in the Registry of Property unless the same is
and not for dwelling, industry or commerce.
accompanied by an affidavit of the vendor that he has given notice
thereof to all possible redemptioners
xxx xxx xxx
GRANTED, and the assailed decision of the CA is REVERSED and SET
ASIDE. Petitioner is hereby given a period of thirty days from finality of
The respondents have failed to satisfy the above criterion. The land in
this decision within which to exercise its right of legal redemption.
question cannot be legally classified as rural land since it is
principally used for residential rather than agricultural purposes.
2. Urban Lands (1622)

From the respondent's complaint alone, the land is admittedly Requisites

residential. Truly a residential home lot is not converted into agricultural a. Both adjoining tenements are urban
land by the simple reservation of a plot for the cultivation of garden crops b. The tenement being redeemed was bought merely for
or the planting of bananas and some fruit trees. Nor can an orchard or speculation
agricultural land be considered residential simply because a portion c. The major portion of the tenement is so situated that it cannot
thereof has been criss-crossed with asphalt and cement roads with be used for any practical purpose within a reasonable time.
buildings here and there (Republic of the Philippines v. Lara, 50 O.G. d. There is alienation
5778). We have to apply the rule of reason based on the specific facts e. The tenements are adjacent
of each case. The land, subject matter of the petition, being primarily
residential, cannot be considered as rural for purposes of legal Who may exercise the right- ( by order of preference)
redemption under the law. a. Co-owners (1623 p.2)
b. Adjoining owners (1622 p.1) ; if two or more adjoining
owners desire to exercise the right: Preference is given
A further requisite laid down by the law to enable legal redemption to the adjacent owner/s whose intended use of the land
of adjoining lands is that both the land of the one exercising the in question appears best justified. (1622 p.3)
right and the adjacent property sought to be redeemed should be
rural or destined for agricultural exploitation. If either, is urban or
both are urban, there is no right of redemption.
CASE:
Thus, the circumstances under which legal redemption may be Contreras v. CA
exercised not having been found present in the case at bar, the GR No. 164819
respondents have no right to enforce against the petitioners. GRANTED Parties: Jerty Pascual Contreras- Petitioners
CA, Sps. Alcantara- respondents
Primary Structures Corp. V. Valencia FACTS: Property subject to the controversy is a house owned by Leis
GR. No. 150060 constructed on a parcel of land owned by Gatchalian. This segregate
FACTS: Petitioner is a private corporation based in Cebu City. Adjacent ownership of land and improvement, unreconciled to date, has ultimately
to the lot of petitioner are parcels of land. The three lots, Mendoza to spawned the present dispute.
respondent spouses sometime in December 1994. Petitioner learned of
the sale of the lots only in January, 1996, when Mendoza sold to The house after redeemed by Alcantaras ownership was transferred to
petitioner a parcel also adjacent to lot belonging to the latter. Forthwith, them, they then rented it to Contreras. Alcantaras then purchased an
it sent a letter to respondents, on 30 January 1996, signifying its adjacent land to their house. The Land where the house was located on
intention to redeem the three lots. Respondents Refused. the one hand has been mortgage and foreclosed subsequently by
Capitol Bank (CCDB). The Bank now sold the land to Contreras (sa
Thereupon, invoking the provisions of Articles 1621 and 1623, petitioner nagrent sa house). Spouses Alcantara now wants to avail their
filed an action against respondents to compel the latter to allow the legal preferential right as adjoining lot owner and that they were not notified
redemption. Petitioner claimed that neither Mendoza, the previous of the sale to Contreras. They pray for the annulment of the sale
owner, nor respondents gave formal or even just a verbal notice of the between Contreras and CCDB.
sale of the lots as so required by Article 1623 of the Civil Code.
RTC : The RTC rendered a Decision that affirmed the Alcantaras’
RTC: Dismissed ownership over the subject house; ordered the surrender of possession
CA: Affirmed dismissal of the house to the Alcantaras; declared the Deed of Absolute Sale as
null and void. It further held that the Alcantaras were entitled to exercise
ISSUE: WON Arts. 1621 and 1623 are applicable. the right of pre-emption.
RULING: Whenever a piece of rural land not exceeding one hectare is CA: Affirmed in toto.
alienated, the law grants to the adjoining owners a right of redemption
except when the grantee or buyer does not own any other rural land. In ISSUE: WON the CS committed grave abuse of discretion when it
order that the right may arise, the land sought to be redeemed and the affirmed RTCs ruling to convey the land to the Alcantaras at a measly
adjacent property belonging to the person exercising the right of sum of P212,400.
redemption must both be rural lands. If one or both are urban lands, the
right cannot be invoked. RULING: NO. As it happens, that “measly sum” happens to be the exact
amount for which CCDB had sold the subject property to petitioner, as
The trial court found the lots involved to be rural lands. Unlike the case evidenced by the Deed of Absolute Sale which petitioner herself had
of Fabia vs. Intermediate Appellate Court (which ruled, on the issue of attached to her Answer before the RTC. The precise relief granted by
whether a piece of land was rural or not, that the use of the property for the RTC is drawn from the Alcantaras’ specific prayer in their complaint
agricultural purpose would be essential in order that the land might be that sought a judgment “allowing the plaintiffs to exercise their right of
characterized as rural land for purposes of legal redemption), pre-emption and redemption under Article 1622 of the Civil Code of the
respondents in the instant case, however, did not dispute before the Philippines.
Court of Appeals the holding of the trial court that the lots in question are
rural lands. Clearly, it is sufficiently alleged in the complaint that the Alcantaras are
entitled to exercise their right of pre-emption and redemption under
With respect to the second issue, Article 1623 of the Civil Code provides Article 1622 of the Civil Code. They specifically prayed that judgment be
that the right of legal pre-emption or redemption shall not be exercised
15
rendered entitling them to exercise such right, which under Article 1622 from the Office of the City Treasurer of Butuan City, or when the
entails the following: case was initiated, on 16 October 1987, before the trial court.

The written notice of sale is mandatory. This Court has long established
ART. 1622. Whenever a piece of urban land which is so small and so the rule that notwithstanding actual knowledge of a co-owner, the latter
situated that a major portion thereof cannot be used for any practical is still entitled to a written notice from the selling co-owner in order to
purpose within a reasonable time, having been bought merely for remove all uncertainties about the sale, its terms and conditions, as well
speculation, is about to be re-sold, the owner of the adjoining land has as its efficacy and status. 6
a right of pre-emption at a reasonable price. The case of Alonzo v. IAC were SC held that actual knowledge is
equivalent to notification is an exception as the complaint was filed only
If the re-sale has been perfected, the owner of the adjoining land shall after 13 years have lapsed from consummation of sale. DENIED.
have a right of redemption, also at a reasonable price.
Francisco v. Boiser
x x x x Gr. No. 137677
The exercise of the right of redemption would entail the FACTS
reconveyance to petitioner of the subject land on which the house
stands. This relief stands apart from the judicial affirmation in the
Petitioner Adalia B. Francisco and three of her sisters, Ester, Elizabeth
same RTC decision that the Alcantaras are also the owners of the
and Adeluisa, were co-owners of four parcels of registered lands 1 on
house.
which stands the Ten Commandments Building. On August 6, 1979,
they sold 1/5 of their undivided share in the subject parcels of land to
In the case at bar, the trial court found that the Alcantaras were entitled
their mother, Adela Blas, for P10,000.00, thus making the latter a co-
to exercise their rights under Article 1622, but it would not have been
owner of said real property to the extent of the share sold.
sufficient nor correct for it to just make the corresponding
pronouncement in the decision and then stop. The relief assailed by
petitioner as unwarranted is nothing more but the affordance of the right On August 8, 1986, without the knowledge of the other co-owners, Adela
of redemption to the Alcantaras at the same reasonable price the bank Blas sold her 1/5 share for P10,000.00 to respondent Zenaida Boiser
had sold the property to petitioner. We see no error in granting such who is another sister of petitioner.
relief. DENIED.
On August 5, 1992, petitioner received summons, with a copy of the
b.Obligation of the Redemptioneer
complaint, filed by respondent demanding her share in the rentals being
1. To pay a reasonable price
2. To notify the prospective vendor and vendee of his desire collected by petitioner from the tenants of the building. Petitioner then
informed respondent that she was exercising her right of redemption as
to redeem.
a co-owner of the subject property.
III. Procedure in Redemption
Petitioner alleged that she learned about the sale only in August 1992,
A. When to exercise the redemption- within 30 days from the
after she received the summons, together with the complaint.
notice in writing by the vendor
Respondent countered that even before on May 1992, petitioner
already knew of the sale as she sent the latter a letter informing her
CASES:
about the sale
Verdad v. CA
GR No. 109972
ISSUE:WON the letter of May 30, 1992 sent by respondent to petitioner
FACTS:
notifying her of the sale on August 8, 1986 of Adela Blas' 1/5 share of
the property to respondent, containing a copy of the deed evidencing
The petitioner, Zosima Verdad, is the purchaser of a 248-square meter such sale, can be considered sufficient as compliance with the notice
residential lot. Private respondent, Socorro Cordero Vda. de Rosales, requirement of Art. 1623 for the purpose of legal redemption.
seeks to exercise a right of legal redemption over the subject property
and traces her title to the late Macaria Atega, her mother-in-law, who RULING: (Alonzo v. IAC Ruling Applied)
died intestate on 08 March 1956.
YES. The principal difference between Art. 1524 of the former Civil Code
and Art. 1623 of the present one is that the former did not specify who
ISSUE: (1) WON Socorro has the capacity to redeem the property when
must give the notice, whereas the present one expressly says the notice
she is only a daughter in law (of Macaria), she being the wife of David
must be given by the vendor.
Rosales(+) not a direct heir. (2) WON the right to lapse has not lapsed.

It makes sense to require that the notice required in Art. 1623 be given
RULING: (Alonzo v. IAC ruling not applied)
by the vendor and by nobody else. As explained by this Court through
(1)YES, Socorro's right to the property is not because she rightfully can
Justice J.B.L. Reyes in Butte, the vendor of an undivided interest is in
claim heirship in Macaria's estate but that she is a legal heir of her
the best position to know who are his co-owners who under the law must
husband, David Rosales, part of whose estate is a share in his
be notified of the sale. It is likewise the notification from the seller, not
mother's inheritance
from anyone else, which can remove all doubts as to the fact of the sale,
its perfection, and its validity, for in a contract of sale, the seller is in the
(2) We hold that the right of redemption was timely exercised by private
best position to confirm whether consent to the essential obligation of
respondents. Concededly, no written notice of the sale was given by the
selling the property and transferring ownership thereof to the vendee
Burdeos heirs (vendors) to the co-owners 5 required under Article 1623
has been given.
of the Civil
Code —
Art. 1623. The right of legal pre-emption or redemption shall Now, it is clear that by not immediately notifying the co-owner, a vendor
not be exercised except within thirty days from the notice in can delay or even effectively prevent the meaningful exercise of the right
writing by the prospective vendor, or by the vendor, as the of redemption. In the present case, for instance, the sale took place in
case may be. The deed of safe shall not be recorded in the 1986, but it was kept secret until 1992 when vendee (herein respondent)
Registry of Property, unless accompanied by an affidavit of needed to notify petitioner about the sale to demand 1/5 rentals from the
the vendor that he has given written notice thereof to all property sold. Compared to serious prejudice to petitioner's right of legal
possible redemptioners. redemption, the only adverse effect to vendor Adela Blas and
respondent-vendee is that the sale could not be registered. It is non-
Hence, the thirty-day period of redemption had yet to commence binding, only insofar as third persons are concerned. It is, therefore,
when private respondent Rosales sought to exercise the right of unjust when the subject sale has already been established before both
redemption on 31 March 1987, a day after she discovered the sale lower courts and now, before this Court, to further delay petitioner's
16
exercise of her right of legal redemption by requiring that notice be given B. Requisites for the registration of the sale in the registry of the
by the vendor before petitioner can exercise her right. For this reason, property- it must be accompanied by an affidavit of the
we rule that the receipt by petitioner of summons in Civil Case No. vendor that he has given written notice to all possible
15510 on August 5, 1992 constitutes actual knowledge on the basis redemptioneers.
of which petitioner may now exercise her right of redemption within
30 days from finality of this decision. GRANTED. C. Special Rules:
a. Legal Redemption requires no previous notice of
intention to redeem.
Vda. De Ape v. CA
b. Tender of the price is not a condition precedent to
GR No. 133638
redemption.
FACTS:
Cleopas Ape was the registered owner of a parcel of land particularly
IV. Other Cases of Legal Redemption
Upon Cleopas Ape's death, the property passed on to his wife, Maria
a. Redemption by the debtor in the sale of credit in litigation
Ondoy, and their eleven (11) children, namely: Fortunato, Cornelio,
(1634)
Bernalda, Bienvenido, Encarnacion, Loreta, Lourdes, Felicidad, Adela,
b. Redemption by co-heirs in case of a sale by an heir of his
Dominador, and Angelina, all surnamed Ape.
hereditary rights to a stranger before partition (1088)
c. Redemption by the applicant, his widow, and legal heirs
On 15 March 1973, Generosa Cawit de Lumayno (private respondent
within 5 years from the conveyance under a homestead or
herein) instituted a case for "Specific Performance of a Deed of Sale
free patent (Sec. 119, CA 141)
with Damages" against Fortunato and his wife Perpetua (petitioner
d. Redemption within 1 year by a judgment debtor or
herein). It was alleged in the complaint that on April 1971, private
redemptioneer of real property sold under execution.
respondent and Fortunato entered into a contract of sale of land.
e. Redemption by the owner of the property sold for delinquent
realty taxes.
As private respondent wanted to register the claimed sale transaction,
f. Redemption within 1 year by the mortgagor in sales under
she supposedly demanded that Fortunato execute the corresponding
1. Extra-judicial foreclosure (Sec 6, Act 3135)
deed of sale and to receive the balance of the consideration. However,
2. Judicial foreclosure sale by banks within the
Fortunato unjustifiably refused to heed her demands. Private
purview of the General banking act
respondent, therefore, prayed that Fortunato be ordered to execute and
deliver to her "a sufficient and registrable deed of sale involving his one-
CASES:
eleventh (1/11) share or participation in the land.
a. Period of redemption in auction sale of homestead to satisfy
money judgment
Fortunato and petitioner denied the material allegations of the complaint
and claimed that Fortunato never sold his share in Lot No. 2319 to
Tupas v. Damasco
private respondent and that his signature appearing on the purported
GR No. L-34654
receipt was forged.
Facts:
On March 8, 1951, spouses Tupas were issued homestead patent and
ISSUE: WON Fortunato was furnished with a written notice of sale of
on July 8, 1952, OCT was issued by the Register of Deeds of Cotabato.
the shares of his co-owners as required by Article 1623 of the Civil
On April 4, 1959, the land was sold at public auction to PNB to satisfy a
Code.
money judgment against Tupas in favor of PNB.
RULING: … Art. 1623 of the Civil Code is clear in requiring that the
On April 6, 1959, a certificate of sale was issued to PNB with a right of
written notification should come from the vendor or prospective vendor,
redemption within 1year or until April 4, 1960. The certificate of sale was
not from any other person. There is, therefore, no room for
registered on August 26, 1959. On June 10, 1965, spouses Tupas filed
construction. Indeed, the principal difference between Art. 1524 of the
a case against Bulaong et al for repurchase of land under section 119
former Civil Code and Art. 1623 of the present one is that the former did
of CA 141.
not specify who must give the notice, whereas the present one expressly
says the notice must be given by the vendor. Effect must be given to
The lower court held that the 5-year period should be counted from
this change in statutory language.
August 26, 1960 apparently because the sheriff’s certificate of sale
was registered on August 26, 1959 and it is only from the expiration of
In this case, the records are bereft of any indication that Fortunato this 1-year period of redemption that the 5-year period to repurchase
was given any written notice of prospective or consummated sale under Sec. 119 of CA 141 begins to run.
of the portions of Lot No. 2319 by the vendors or would-be
vendors. The thirty (30)-day redemption period under the law, ISSUE: WON spouses Tupas can exercise the right of redemption
therefore, has not commenced to run. under Sec 119 of CA 141.

RULING: NO.
Despite this, however, we still rule that petitioner could no longer invoke In the case of Olivia vs. Lamadrid the court ruled that, “It is therefore
her right to redeem from private respondent for the exercise of this right
our considered view that plaintiff herein has the right to repurchase
"presupposes the existence of a co-ownership at the time the
the property in question within five (5) years from the date of the
conveyance is made by a co-owner and when it is demanded by the conveyance or foreclosure sale or up to February 4, 1966, and that
other co-owner or co-owners. The regime of co-ownership exists when
having exercised such right and tendered payment long before the date
ownership of an undivided thing or right belongs to different persons. By
last mentioned, defendants herein are bound to reconvey the property
the nature of a co-ownership, a co-owner cannot point to specific portion to him.”
of the property owned in common as his own because his share therein
remains intangible. As legal redemption is intended to minimize co-
Applying the aforesaid doctrine to the case at bar, appellees could only
ownership, once the property is subdivided and distributed among the exercise the right to repurchase his former homestead within five years
co-owners, the community ceases to exist and there is no more reason
from April 4, 1959, the date of the execution sale or up to April 4, 1964.
to sustain any right of legal redemption.
Since this action to repurchase was filed on June 10, 1965, the same
was filed out of time. At any rate, even if we have to compute the five-
In this case, records reveal that although Lot No. 2319 has not yet been year period from the expiration of the right to redeem granted to a
formally subdivided, still, the particular portions belonging to the judgment debtor, still this case was filed beyond five years, because the
heirs of Cleopas Ape had already been ascertained and they in fact one-year period of redemption in this case expired on April 4, 1960, and
took possession of their respective parts. the five-year period from April 4, 1960 is April 4, 1965.

Aguilar v. Aguilar (see above digested case)

Cabales v. CA (see above digested case)

17
 b. Period of redemption in auction sale of homestead signed the promissory notes in blank and under duress, deserve scant
consideration. They were already found by both the Court of Appeals
Belisario v. IAC and the RTC to be implausible and inconsistent with petitioner's own
GR No. 73503 evidence.
FACTS:
Sps Belisario were the grantees of a homestead patent. After the death
ISSUE: WON conventional subrogation occurred when Ms. Picache
of Rufino (husband), his heirs executed a mortgage over the homestead
assigned the debt, due her from the petitioner, to the respondent; and
in favor of PNB. The mortgagors defaulted in the payment of the loan.
without petitioner's consent as debtor, WON the said conventional
On January 31, 1963, the land was sold at public auction with with PNB
subrogation should be deemed to be without force and effect.
as the highest bidder. The sale was registered on July 22, 1971.

On April 21, 1971, Belisario et al. wrote to PNB making known their RULING: NO to all. This Court cannot sustain petitioner's contention and
desire to redeem the land for the same price as the auction sale. On hereby declares that the transaction between Ms. Picache and
August 24, 1971, PNB refused Belisario’s offer of redemption. On respondent was an assignment of credit, not conventional subrogation,
January 9, 1975, Belisario et al. filed an action for Repurchase of and does not require petitioner's consent as debtor for its validity and
Homestead against PNB. enforceability.

The trial court dismissed the action on the grounds that consignation of An assignment of credit has been defined as an agreement by virtue of
the redemption price was not made by Belisario. CA affirmed. which the owner of a credit (known as the assignor), by a legal cause -
such as sale, dation in payment or exchange or donation - and without
ISSUE: WON Belisario can repurchase the property under Sec. 119 of need of the debtor's consent, transfers that credit and its accessory
CA 141. rights to another (known as the assignee), who acquires the power to
enforce it, to the same extent as the assignor could have enforced it
RULING: YES against the debtor.
The redemption period, for purposes of determining the time when a
formal Deed of Sale may be executed or issued and the ownership of On the other hand, subrogation, by definition, is the transfer of all the
the registered land consolidated in the purchaser at an extrajudicial rights of the creditor to a third person, who substitutes him in all his
foreclosure sale under Act 3135, should be reckoned from the date of rights. It may either be legal or conventional. Legal subrogation is that
the registration of the Certificate of Sale in the Office of the Register of which takes place without agreement but by operation of law because
Deeds concerned and not from the date of public auction. of certain acts. Conventional subrogation is that which takes place by
agreement of parties.
In this case, under Act 3135, petitioners may redeem the property until
July 22, 1972. In addition, Section 119 of Commonwealth Act 141 Although it may be said that the effect of the assignment of credit is to
provides that every conveyance of land acquired under the free patent subrogate the assignee in the rights of the original creditor, this Court
or homestead patent provisions of the Public Land Act, when proper, still cannot definitively rule that assignment of credit and conventional
shall be subject to repurchase by the applicant, his widow or legal heirs, subrogation are one and the same.
within the period of five years from the date of conveyance. The five-
year period of redemption fixed in Section 119 of the Public Land Law A noted authority on civil law provided a discourse on the difference
of homestead sold at extrajudicial foreclosure begins to run from the day between these two transactions, to wit –
after the expiration of the one-year period of repurchase allowed in an
extrajudicial foreclosure. (Manuel vs. PNB, et al., 101 Phil. 968). Hence, Conventional Subrogation and Assignment of Credits. – In the
petitioners still had five (5) years from July 22, 1972 (the expiration of Argentine Civil Code, there is essentially no difference between
the redemption period under Act 3135) within which to exercise their conventional subrogation and assignment of credit. The subrogation is
right to repurchase under the Public Land Act. merely the effect of the assignment. In fact it is expressly provided
(article 769) that conventional redemption shall be governed by the
provisions on assignment of credit.
Chapter 8
Assignment of Credits and Other Incorporeal Rights Under our Code, however, conventional subrogation is not
I. Concept: “ A contract unilateral or bilateral, onerous or lucrative, identical to assignment of credit. In the former, the debtor's consent
commutative or aleatory, whereby a person transmits to another his right is necessary; in the latter, it is not required. Subrogation extinguishes an
or rights against a third party, whether or not an equivalent for the obligation and gives rise to a new one; assignment refers to the same
transmission is received from the transferee.” (Sanchez Roman) right which passes from one person to another. The nullity of an old
obligation may be cured by subrogation, such that the new obligation will
While the NCC treats of assignment of credits as a variety of sales, the be perfectly valid; but the nullity of an obligation is not remedied by the
fact is that the assignment may be effected in a variety of ways; by sale, assignment of the creditor's right to another. (Emphasis supplied.)
by barter, by donation or even by testament. The assignment is a
transfer entirely different from the transaction originating it. This Court has consistently adhered to the foregoing distinction between
an assignment of credit and a conventional subrogation. Such distinction
CASE: is crucial because it would determine the necessity of the debtor's
Ledonio v Capitol Development Corp. consent. In an assignment of credit, the consent of the debtor is not
GR No. 149040 necessary in order that the assignment may fully produce the legal
FACTS: effects. What the law requires in an assignment of credit is not the
This is a case for a collection of sum of money filed by Capitol consent of the debtor, but merely notice to him as the assignment takes
Development Corp against Ledonio. Respondent alleged that petitioner effect only from the time he has knowledge thereof. A creditor may,
obtained from a Ms. Patrocinio S. Picache two loans, with the aggregate therefore, validly assign his credit and its accessories without the
principal amount of P60,000.00, and covered by promissory notes duly debtor's consent. On the other hand, conventional subrogation requires
signed by petitioner. an agreement among the parties concerned – the original creditor, the
debtor, and the new creditor. It is a new contractual relation based on
Petitioner obtained two loans totaling P60,000.00 from Ms. Picache, for the mutual agreement among all the necessary parties.
which he executed promissory notes, dated 9 November 1988 and 10
November 1988; (2) he failed to pay any of the said loans; (3) Ms. Article 1300 of the Civil Code provides that conventional subrogation
Picache executed on 1 April 1989 an Assignment of Credit covering must be clearly established in order that it may take effect. Since it is
petitioner's loans in favor of respondent for the consideration of petitioner who claims that there is conventional subrogation in this case,
P60,000.00; (4) petitioner had knowledge of the assignment of credit; the burden of proof rests upon him to establish the same by a
and (5) petitioner still failed to pay his indebtedness despite repeated preponderance of evidence.
demands by respondent and its counsel. Petitioner's persistent
assertions that he never acquired any loan from Ms. Picache, or that he
18
Finally, assuming arguendo that this Court considers petitioner a third c. Where the solvency of the debtor is warranted by the
person to the Assignment of Credit, dated 1 April 1989, the fact that the assignor, his liability lasts only-
said document was duly notarized makes it legally enforceable even as 1. One year after the assignment, if the debt was
to him. According to Article 1625 of the Civil Code – already matured.
ART. 1625. An assignment of credit, right or action shall 2. One year after maturity, if the debt matures after
produce no effect as against third persons, unless it appears assignment(1629) *Compare this with partition
in a public instrument, or the instrument is recorded in the between co-heirs (liability for solvency lasts 5
Registry of Property in case the assignment involves real years)
property.
d. Recovery of the warranty
Notarization converted the Assignment of Credit, dated 1 April 1989, a 1. The assignor in good faith must return the rice
private document, into a public document, thus, complying with the recived plus expenses of the contract and
mandate of the afore-quoted provision and making it enforceable even payments on account thereof. (1628 p.2)
as against third persons. 2. The assignor in bad faith: all of the above plus
II. Essential Requisites and Formalities damages (1628, p.3).
A. These depend in each case upon the contract or act giving
rise to the assignment. CASES:
a. Assignment of real rights upon immovable property,
done by way of donation, requires a public instrument. Servicewide Specialists v. CA GR 116363
b. Assignment by way of legacy requires a probated will. FACTS: Sometime in 1975, respondent spouses Atty. Jesus and
c. Assignment of choses in action by sale or onerous Elizabeth Ponce bought on installment a Holden Torana vehicle from
contract, if involving P500 or more, is unenforceable inter C.R. Tecson Enterprises. They executed a promissory note and a
partes, and comes under the Statute of Frauds (a written chattel mortgage on the vehicle dated December 24, 1975 in favor of the
memo is required) C.R. Tecson Enterprises to secure payment of the note. The mortgage
d. Assignment of a negotiable instrument requires was registered both in the Registry of Deeds and the Land
indorsement or delivery. Transportation Office. On the same date, C.R. Tecson Enterprises, in
turn, executed a deed of assignment of said promissory note and chattel
B. As against third persons (but not the debtor of the credit mortgage in favor of Filinvest Credit Corporation with the conformity of
assigned)- an assignment of a credit, right or action shall respondent spouses. The latter were aware of the endorsement of the
produce no effect unless it appears in a public instrument, or note and the mortgage to Filinvest as they in fact availed of its financing
the instrument is recorded in the registry of property, in case services to pay for the car. In 1976, respondent spouses transferred and
the assignment involves real property (1625) delivered the vehicle to Conrado R. Tecson by way of sale with
assumption of mortgage. Subsequently, in 1978, Filinvest assigned all
a. The consent of the debtor of the assigned credit is not its rights and interest over the same promissory note and chattel
required for the validity of the assignment: but the mortgage to petitioner Servicewide Specialists Inc. without notice to
assignment is not fully effective against the debtor until respondent spouses. Due to the failure of respondent spouses to pay
he is notified thereof or has actual knowledge of the the installments under the promissory note from October 1977 to March
assignment; i.e. the debtor until then is not bound to pay 1978, and despite demands to pay the same or to return the vehicle,
the assignee. petitioner was constrained to file before the Regional Trial Court of
Manila on May 22, 1978 a complaint for replevin with damages against
III. Effect of a valid assignment them, docketed as Civil Case No. 115567. In their answer, respondent
A. It transfers title to the assigned credit to the assignee, even if spouses denied any liability claiming they had already returned the car
the debtor is unaware thereof. to Conrado Tecson pursuant to the Deed of Sale with Assumption of
a. The assignment includes all accessory rights, such as Mortgage. Thus, they filed a third party complaint against Conrado
guaranty, pledge, mortgage or preference (1672) Tecson praying that in case they are adjudged liable to petitioner,
B. The assignee takes the credit subject to all defenses acquired Conrado Tecson should reimburse them.
by the debtor before notice or knowledge of the assignment.
a. The debtor who, before having knowledge of the ISSUE: (1)WON the assignment of a credit requires notice to the debtor
assignment, pays his creditor shall be released from the in order to bind him. More specifically, is the debtor-mortgagor who sold
obligation. (1626) the property to another entitled to notice of the assignment of credit
b. The debtor may set up compensation of credits acquired made by the creditor to another party such that if the debtor was not
after assignment but before notice thereof (1198) unless notified of the assignment, he can no longer be held liable since he
the debtor agreed to the assignment (when he cannot already alienated the property? Conversely, is the consent of the
compensate). creditor-mortgagee necessary when the debtor-mortgagor alienates the
c. Any compromise or release of the assigned claim made property to a third person?
by the assignor before notice, will be valid against the
assignee and discharge the debtor. Only notice to the debtor of the assignment of credit is required.
His consent is not required. In contrast, consent of the creditor-
Is recording a sufficient notice? Yes, provided the recording is mortgagee to the alienation of the mortgaged property is necessary in
required (not merely permitted) by law order to bind said creditor. To evade liability, respondent spouses
invoked Article 1626 of the Civil Code which provides that "the debtor
C. Warranty by the assignor who, before having knowledge of the assignment, pays his creditor shall
a. The assignor in good faith shall be responsible for the be released from the obligation." They argue that they were not notified
existence and legality of the credit at the time of sale, of the assignment made to petitioner. This provision, however, is
unless it should have been sold as doubtful. applicable only where the debtor pays the creditor prior to acquiring
Doubtfulness of the credit assigned must expressly knowledge of the latter's assignment of his credit. It does not apply, nor
appear; it is not presumed (Manresa) is it relevant, to cases of non-payment after the debtor came to know of
the assignment of credit. This is precisely so since the debtor did not
b. The assignor in good faith does not answer for the make any payment after the assignment.
solvency of the debtor unless-
1. Expressly stipulated; or In the case at bar, what is relevant is not the assignment of credit
2. The insolvency of the debtor was known to him between petitioner and its assignor, but the knowledge or consent of the
personally; or creditor's assignee to the debtor-mortgagor's sale of the property to
3. The insolvency of the debtor was prior to the sale another.
and of common knowledge (1628)
When the credit was assigned to petitioner, only notice to but not the
consent of the debtor-mortgagor was necessary to bind the latter.
19
Applying Article 1627 of the Civil Code, 3 the assignment made to
petitioner includes the accessory rights such as the mortgage. Article From the above provision, petitioner, as vendor or assignor, is bound to
2141, on the other hand, states that the provisions concerning a contract warrant the existence and legality of the credit at the time of the sale or
of pledge shall be applicable to a chattel mortgage, such as the one at assignment. When Jomero claimed that it was no longer indebted to
bar, insofar as there is no conflict with Act No. 1508, the Chattel petitioner since the latter also had an unpaid obligation to it, it essentially
Mortgage Law. As provided in Article 2096 in relation to Article 2141 of meant that its obligation to petitioner has been extinguished by
the Civil Code, a thing pledged may be alienated by the pledgor or owner compensation. In other words, respondent alleged the non-existence of
"with the consent of the pledgee." the credit and asserted its claim to petitioner’s warranty under the
assignment. Therefore, it behooved on petitioner to make good its
In this case, however, since the alienation by the respondent spouses warranty and paid the obligation.
of the vehicle occurred prior to the assignment of credit to petitioner, it
follows that the former were not bound to obtain the consent of the latter Furthermore, we find that petitioner breached his obligation under the
as it was not yet an assignee of the credit at the time of the alienation of Deed of Assignment, to wit:
the mortgaged vehicle. And the ASSIGNOR further agrees and stipulates as aforesaid that the
T said ASSIGNOR, his heirs, executors, administrators, or assigns, shall
he next question is whether respondent spouses needed to notify or and will at times hereafter, at the request of said ASSIGNEE, its
secure the consent of petitioner's predecessor to the alienation of the successors or assigns, at his cost and expense, execute and do all such
vehicle. The sale with assumption of mortgage made by respondent further acts and deeds as shall be reasonably necessary to effectually
spouses is tantamount to a substitution of debtors. In such case, mere enable said ASSIGNEE to recover whatever collectibles said
notice to the creditor is not enough, his consent is always necessary as ASSIGNOR has in accordance with the true intent and meaning of these
provided in Article 1293 of the Civil Code. Without such consent by the presents. (underscoring ours)
creditor, the alienation made by respondent spouses is not binding on
the former. On the other hand, Articles 1625, 9 1626 10 and 1627 of the Indeed, by warranting the existence of the credit, petitioner should be
Civil Code on assignment of credits do not require the debtor's consent deemed to have ensured the performance thereof in case the same is
for the validity thereof and so as to render him liable to the assignee. later found to be inexistent. He should be held liable to pay to respondent
The law speaks not of consent but of notice to the debtor, the purpose the amount of his indebtedness.
of which is to inform the latter that from the date of assignment he should
make payment to the assignee and not to the original creditor. Notice is
thus for the protection of the assignee because before said date, IV. Special Assignments
payment to the original creditor is valid. A. Sale of inheritance (estate):
a. If without enumeration of the items composing it, the
When Tecson Enterprises assigned the promissory note and the chattel vendor only answers for his character as heir(1630)
mortgage to Filinvest, it was made with respondent spouses' tacit b. The vendor shall reimburse the vendee for the fruits
approval. When Filinvest in turn, as assignee, assigned it further to obtained or anything received from the inheritance sold
petitioner, the latter should have notified the respondent spouses of the (1632) if the contrary is not stipulated.
assignment in order to bind them. This, they failed to do. Therefore, for c. The vendee shall reimburse the vendor for-
failure of respondent spouses to obtain the consent of Filinvest thereto, 1. All that vendor paid on account of the estate debts;
the sale of the vehicle to Conrado R. Tecson was not binding on the 2. Credits that the vendor had against the estate
former. When the credit was assigned by Filinvest to petitioner, (1633)
respondent spouses stood on record as the debtor-mortgagor.
B. Sale rights, rents or products for a lump sum
Lo v. KJS Eco-Formwork System Phil Inc. a. The vendor answers for the legitimacy of the whole in
An assignment of credit is an agreement by virtue of which the owner of general
a credit, known as the assignor, by a legal cause, such as sale, dacion b. There is no warranty of individual items, unless there is
en pago, exchange or donation, and without the consent of the debtor, eviction of the whole or of the part of greater value
transfers his credit and accessory rights to another, known as the (1631).
assignee, who acquires the power to enforce it to the same extent as
the assignor could enforce it against the debtor. C. Sale and redemption of litigous credits
a. Concept of Litigous credit- a credit is considered in
Corollary thereto, in dacion en pago, as a special mode of payment, the litigation from the time the complaint concerning the
debtor offers another thing to the creditor who accepts it as equivalent same is answered.
of payment of an outstanding debt. In order that there be a valid dation b. Effect of Sale-
in payment, the following are the requisites: (1) There must be the 1. Legal Redemption by the debtor- Requisites:
performance of the prestation in lieu of payment (animo solvendi) which i.The debtor must reimburse the assignee for-
may consist in the delivery of a corporeal thing or a real right or a credit a. The price the assignee paid
against the third person; (2) There must be some difference between the b. Judicial costs incurred by him
prestation due and that which is given in substitution (aliud pro alio); (3) c. Interest on the price from the day it was paid
There must be an agreement between the creditor and debtor that the (1634 p.1)
obligation is immediately extinguished by reason of the performance of
a prestation different from that due. The undertaking really partakes in ii. The right must be exercised within 30 days from
one sense of the nature of sale, that is, the creditor is really buying the the date the assignee demands payment from him.
thing or property of the debtor, payment for which is to be charged (1634 p.3)
against the debtor’s debt. As such, the vendor in good faith shall be
responsible, for the existence and legality of the credit at the time of the 2. Excepted from the rule are sales (or assignments)
sale but not for the solvency of the debtor, in specified circumstances. made to:
Hence, it may well be that the assignment of credit, which is in the nature a. A co-heir or co-owner of the right assigned;
of a sale of personal property, produced the effects of a dation in b. A creditor in payment of the credit;
payment which may extinguish the obligation. However, as in any other c. The possessor of a tenement or piece of land
contract of sale, the vendor or assignor is bound by certain warranties. which is subject to the right in litigation
More specifically, the first paragraph of Article 1628 of the Civil Code assigned (1635)
provides:

The vendor in good faith shall be responsible for the existence and
legality of the credit at the time of the sale, unless it should have been
sold as doubtful; but not for the solvency of the debtor, unless it has
been so expressly stipulated or unless the insolvency was prior to the
sale and of common knowledge.
20