University of the Cordilleras

College of Accountancy

RFBT 3 (Law on Sales, Credit Transactions, Negotiable Instruments and Other Business
Transactions)

LESSON no. 7

Module 7

EXTINGUISHMENT OF THE CONTRACT OF SALE

The contract of sale is extinguished by:

1. The same causes as found in Book IV, Title 1, Chapter IV, of the New Civil Code;
a. Payment or performance of obligations;
b. Loss of the thing due;
c. Condonation or remission of debt;
d. Confusion or merger of rights;
e. Compensation
f. Novation
g. Others

2. All other instances where obligations are extinguished under the New Civil Code;

3. Conventional Redemption; and

4. Legal Redemption. (Art. 1600, New Civil Code)

Conventional Redemption

Conventional Redemption is a contract of sale where the seller has the right to
repurchase the goods sold. It is also known as a pacto de retro sale. The seller is known
as the vendor a retro, while the buyer is known as the vendee a retro.

Conventional redemption is when the seller expressly makes a reservation to

repurchase the thing (Art. 1601, New Civil Code) by returning:

a. The price of the sale;

b. The expenses of the contract;

c. Legitimate payments made by reason of the sale;

d. The necessary and useful expenses made on the thing sold (Art. 1616, New Civil
Code).
Rules in the exercise of the right of conventional redemption

1. The right to repurchase in a contract of sale shall only last four years if there is no
period agreed upon;

2. If a period for the right to repurchase by the seller is agreed upon, such period can
only last ten years;

3. The seller may still exercise his right of redemption after 30 days from the final
judgment of a civil action where the issue is whether the contract of sale is one with
the right to repurchase (Art. 1606, New Civil Code);

For example, A, the buyer, entered into a contract of sale with “Option to buy” with
the seller B. Unsure of whether the contract is a pacto de retro sale or a one with a
mortgage, A filed a case in court against B. The court after 11 years ruled that it is
indeed a pacto de retro sale. B can still exercise his right to repurchase the 30 days
after the judgment was rendered/promulgated.

4. The seller may exercise the right to repurchase against any person who is in
possession of the property even if the possessor’s contract does not mention of the
right to repurchase, without prejudice over the rights of the possessor according to
existing laws at the time of redemption (Art. 1608, New Civil Code);

For example, A and B entered into a pacto de retro sale over a piece of land where
A is the seller and B is the buyer. B then later transferred the property to C. A can still
exercise his right to repurchase by filing a civil action against C, without prejudice of
the rights provided by law to C.

5. If the property sold in a pacto de retro sale shall bears fruits:

a. If there is an agreement as to the division of the fruits between the vendor
a retro and the vendee a retro then that agreement shall prevail (Almeda
v. Daluro, G.R. No. L-28070, October 5, 1977);
b. When there are fruits are visible and growing at the time that the pacto
de retro sale was executed the vendee a retro will not be reimbursed for
such fruits at the time of redemption if the vendee a retro did not
indemnify the seller for such goods at the time the sale was executed;
c. If there are no visible and growing fruits at the time that the pacto de retro
sale was executed and are existing at the time of redemption, the fruits
shall be prorated between the seller and the vendee a retro where the
latter shall be given fruits pertaining to from the last year he possessed the
property counted one year from the execution of the sale (Art. 1617, New
Civil Code);

6. The vendor a retro who exercises his right to repurchase shall respect any existing
lease executed in good faith on the property at the time of redemption (Ibid.);
7. The buyer shall be subrogated into the rights and actions of the seller before his title
to the property is consolidated (Art. 1609, New Civil Code);

Rules in Pacto De Retro Sale of Co-owned property

1. In a sale with a right to repurchase, the vendee of a part of an undivided immovable

who acquires the whole thereof in the case of article 498, may compel the vendor to
redeem the whole property, if the latter wishes to make use of the right of
redemption (Art. 1611, NCC);

Example: S, T, U, V are co-owners of a parcel of land. Afterwards, S sold his 1/4

share to B with a right of repurchase. Subsequently, T, U, and V sold also their shares to
B. What if S would like to repurchase his 1/4 share, can B compel him to redeem the
whole property? YES, B may compel S to redeem the whole property.

2. When the sellers are co-owners who sell their undivided share in an immovable with
the right to repurchase, the exercise of such right should only be for their own
respective shares(Art. 1612, New Civil Code);

The vendee a retro can demand that the whole property be repurchased by the co-
owners, if the co-owners fail to do so, the vendee a retro cannot be compelled to
accept partial redemption;

For example, A, B, and C inherited a house and lot from their father now owning 1/3
each thereof. They are now co-owners of the property and decided to sell the
property through a pacto de retro sale without going through partition. If only A will
exercise his right to repurchase, then he can only repurchase his 1/3 share of the
property.

3. Each co-owner who separately sells his share in co-owned property in a pacto de
retro sale can exercise such right to repurchase for his share, the vendee a retro
cannot compel such co-owner to redeem the whole property (Art. 1614, New Civil
Code);

4. If the property had already transferred to heirs of the vendee a retro:

a. The whole property can be repurchased from one heir if the property had
been awarded to such heir; or

LEGAL REDEMPTION

Legal redemption is the right to be subrogated, upon the same terms and conditions
stipulated in the contract, in the place of one who acquires a thing by purchase or
dation in payment, or by any other transaction whereby ownership is transmitted by
onerous title. (Art. 1619, New Civil Code)
Legal redemption in simpler terms means the acquisition of a person of the right to
repurchase of another person. In legal redemption, it is called such, because it is the
law which gives the right to repurchase.

What are the instances of legal redemption?

1. Sale of a co-owner of his share to a stranger (Art. 1620)
2. When a credit or other incorporeal right in litigation is sold (Art. 1634)
3. Sale of an heir of his hereditary rights to a stranger (Art. 1088)
4. Sale of adjacent rural lands not exceeding 1 hectare
5. Sale of adjacent small urban lands bought merely for speculation..

Redemption by co-owners

When the shares of some or all others of the co-owners have been sold to a third
person, a co-owner may exercise his right of redemption over those portions. The co-
owner exercising his right of redemption shall only pay a reasonable price for the
portions sold if the price of the transfer is grossly excessive.

When two or more co-owners want to exercise their right of redemption, they can only
do so in proportion to their respective shares and not for all shares which have been
transferred. (Art. 1620, New Civil Code)

For example, A, B, C, D, E and F are co-owners of a lot. A and B sold their shares to G.
Either, C, D, E and F can exercise their right of redemption as against A and/or B; or if C
and D both want to exercise their right of redemption as against A and/or B, they can
only redeem as much as 1/3 of the transferred properties in proportion to their co-
owned share.

Redemption of Adjoining Land Owners in Rural Land

Adjoining owners of rural land sold has the right of redemption if:
1. The area of the rural land sold is less than one hectare;

2. The transferee of the rural land sold already owns rural land; and

3. The adjacent lands are not separated by rooks, drains, ravines, roads and other
apparent servitudes for the benefit of other estates. (Art. 1621, New Civil Code)

When there are two or more owners of adjoining lands and two or more want to
exercise their right of redemption:

a. The owner of adjoining land with a smaller area is preferred; or

b. If the lands have equal area, the owner who first requested redemption
shall be preferred. (Ibid.)

Pre-emption by Adjoining Land Owners in Urban Land

An owner of Urban land has the right of redemption over urban land that is so small that
it has no practical use or purpose, that it was bought merely for speculation, and is
about to be re-sold. (Art. 1622, New Civil Code)

REMEDIES IN CONTRACTS OF SALE

In a contract of sale the parties have the following remedies:

1. Specific Performance

The Seller may file an action for specific performance, that is to perform specifically
the payment of the purchase price, against the Buyer, whether the object of the sale
has been delivered to the buyer, or has not been delivered to the buyer, or where
the seller has kept possession of the object when he cannot exercise his right of
resale and the buyer had unjustly refused to accept the object of the sale (Art 1595,
New Civil Code).

The Buyer may file an action for specific performance, that is to perform specifically
the delivery of the object, when the seller has failed to deliver specific or ascertained
goods (Art. 1598, New Civil Code).

2. Damages

The Seller may file an action for damages against the Buyer when the latter
wrongfully neglects or refuses to accept the goods as delivered (Art. 1596, New Civil
Code)

The Buyer may file an action for damages against the seller when the seller has failed
to deliver specific or ascertained goods (Art. 1598, New Civil Code) and for the
breach of warranty (Art. 1599 Sub. Par. 1,2,3 and 5, New Civil Code).

3. Rescission

The Seller may rescind the contract when the goods have not been delivered to the
buyer, and the buyer has repudiated the contract of sale, or has manifested his
inability to perform his obligations thereunder, or has committed a breach thereof,
the seller may totally rescind the contract of sale by giving notice of his election so to
do to the buyer (Art. 1597, New Civil Code).

The Buyer may rescind the contract and refuse to accept 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 (Art. 1599 Sub. Par. 4, New
Civil Code

Remedies of the Buyer in Case of Breach of Warranty

The following remedies are alternative, thus, if the buyer elects one of the remedies
then he can no longer elect the other remedies:

1. Accept or keep the goods and set up against the seller, the breach of warranty by
way of recoupment in diminution or extinction of the price;

2. Accept or keep the goods and maintain an action against the seller for damages for
the breach of warranty;

3. Refuse to accept the goods, and maintain an action against the seller for damages
for the breach of warranty;

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. In the case of breach of warranty of quality, such loss, in the absence of special
circumstances showing proximate damage of a greater amount, is the difference
between the value of the goods at the time of delivery to the buyer and the value
they would have had if they had answered to the warranty.

When the buyer is entitled to rescind the contract he also has the right to return the
goods to the seller, or if the seller refuses to accept, offer to return the goods to the
seller and from thereon he shall be free from any liability arising out of the goods, the
seller on the other hand shall return any price already paid to him once the buyer
had returned or offered to return the goods.

If the Buyer is aware of the breach prior to delivery, he must accept the goods with
protest in order to be able to rescind the contract of sale (Art. 1599, New Civil Code).

References:

Republic Act 386, An Act to Ordain and Institute the Civil Code of the Philippines

Mardonio Almeda and Maria Torrecampo v. Juan R. Daluro and Marcelino G. Daluro,
G.R. No. L-28070, October 5, 1977

Ponciano T. Matanguihan and Eustaquia M. Matanguihan v. Court of Appeals, Hermino

Paran, substituted by Reynaldo, Joseph, Ronnie, all surnamed Paran; Erlinda Paran-
Gonzales, Flora Paran-Lescano, represented by Reynaldo Paran, G.R. No. 115033, July
11, 1997

Rockville Excel International Exim Corporation v. Spouses Oligario Culla and Bernardita
Miranda, G.R. No. 155716, October 2, 2009
Vicente Del Rosario v. Spouses Julio Bansil and Josefina Tamayo and Alejandra
Sanchez, G.R. No. 51655, November 29, 1989

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