EXTINGUISHMENT OF SALE
Causes:
1. Common modes, such as those which applies to all other obligations
2. Special modes (such as article 1481, 1534, 1542……)
3. Conventional or legal redemption
Conventional Redemption (Sale with Pacto de Retro)
Concept: Takes place when the vendor reserves the right to repurchase the thing sold, with the
obligation of (1) returning to the vendee the price of the sale, (2)the expenses of the contract and any
other legitimate payments made by reason of the sale, (3)the necessary and useful expenses made on
the thing sold, and the obligation of complying with such other stipulations which may have been agreed
upon.
Note: Right of redemption must be reserved at the time of the perfection of the sale. The existence of
right of repurchase may be proven by parol evidence.
Nature:
1. Accidental element (must be stipulated)
2. An express condition
3. A potestative resolutory condition (fulfilment is completely within the power of the obligated
party)
4. A Real right which may be sold or assigned and enforced against person claiming under the
purchaser
Pacto de Retro Sale distinguished from:
1. From Loan: In PDR, there is always the transmission of ownership although revocable; in loan,no
transmission exist.
2. From Mortagage: In PDR, if seller does not repurchase, he loses all interest therein (art. 1509);
in mortgages, the mortgagor does not lose his interest in the property if he fails to pay debt at
its maturity.
In PDR, the purchaser has no obligation to foreclose, neither does the vendor have any right to
redeem property after maturity of the debt. In mortgage, it is the duty of the mortgagee to
foreclose the mortgage if he wishes to secure a perfect title after maturity of the debt secured
(and before foreclosure, the mortgagor has right to redeem).
Period of Redemption:
1. The period agreed upon, but cannot exceed 10 years.
2. In the absence of an express agreement, it shall be four years from the date of the contract.
3. If there is a question on the true nature of the agreement (whether it is an equitable mortgage
or PDR), the vendor may still exercise right to repurchase within 30 days from the time final
judgement is rendered that such is a true sale with right of repurchase.
Note: Application of this rule is predicated upon good faith of the vendor a retro, believing that
the agreement was in reality a mortgage (art. 1606)
Rights of the Parties During Pendency (or prior to repurchase): The vendee a retro may alienate,
mortgage or encumber the property, but such alienation is revocable as is his right. If the vendor a retro
repurchases the property, the right of the vendee a retro is resolved, because he has to return the
property free from all damages and encumbrances imposed by him.
Exercise of Right of Redemption
1. Against whom: vendor may bring his action (for repurchase) against every possessor whose right
is derived from the vendee even if in the second contract no mention was made of the right to
repurchase (without prejudice to Mortgage Law and Land Registration Law with respect to third
persons)
2. Effect of failure to record right of redemption: If PDR sale of registered land is not recorded until
after the said property is levied upon and sold at public auction pursuant to an order of
execution issued against the vendor, the purchaser at auction sale- if a bona fide one for value,
acquires good title as against the vendor a retro.
3. When vendor’s creditor entitled to exercise the right: The creditors of the vendor cannot make
use of the right of redemption against the vendee, until after they have exhausted the property
of the vendor.
4. Effect of repurchase: In general, as the condition which PDR sale implies is resolutory, its
fulfilment resolves the sale. By virtue of the action of redemption, the vendee must return it to
the vendor with all its accessories, including its accessories, being responsible for impairments.
5. Effect of failure to exercise right to repurchase: In general, the failure of the vendor a retro to
exercise the right to repurchase within the period results in the consolidation of the vendee’s
ownership over the thing sold.
Equitable Mortgage
Concept: One which although lacking in some formality, or form or words, or other requisites demanded
by a statute, nevertheless reveals the intention of the parties to charge real property as a security for a
debt, and contains nothing impossible or contrary to law.
Requisites:
1. The parties enter into what appears to be a contract of sale
2. (but) their intention is to secure an existing debt by way of mortgage
Distinguished from Pacto de Retro: In PDR, ownership of the property sold is immediately transferred to
the vendee a retro. Failure to repurchase within agreed time vests upon the vendee a retro absolute
title to the property. An equitable mortgage is a contract that, although lacking the formality gives the
mortgagee the right to foreclose the property and apply proceeds of the sale to the satisfaction of the
loan obligation.
Presumption of equitable mortgage: When? (art. 1602)
a. When the price of a sale with right to repurchase is unusually inadequate
b. When the vendor remains in possession as lessee or otherwise
c. When upon or after the expiration of the right to repurchase another instrument extending the
period of redemption or granting a new period is executed
d. When the purchaser retains for himself a part of the purchase price
e. When the vendor binds himself to pay the taxes on the thing sold
f. In any other case where it may be fairly inferred that the real intention of the parties is that the
transaction shall secure the payment of a debt or the performance of any other obligation