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LAW ON SALES

by Judge Ma Lynna Adviento


Compiled by LSG EH 405 2016
TOPIC 5
Arts. 1582-1593 Obligations of the Vendee
What are the obligations of the buyer?
1. To accept delivery
2. To pay the price and interest
To accept delivery:
A.
If there was no previous examination, the buyer must have a reasonable opportunity to examine (1584, pars. 1 & 2)
a.

The seller must allow the buyer to examine, if the buyer so demands
Is it mandatory upon the buyer to inspect the item first before accepting?
No. It is however, mandatory upon the seller to provide the buyer of such opportunity.

b.

Except in case of a stipulation that the goods are not to be delivered by the carrier unless paid for (C.O.D.) (the
buyer is not entitled to an examination unless the contract or usage to the contrary permits examination) (1584,
par. 3)

c.

Effect of acceptance by the buyer


i)
It does not discharge the seller from liability in damages or other legal remedy for breach of any promise or
warranty
Inspection of the item prior to acceptance does not bar the vendees right to file damages for any defect
aa)
Except:
If, after acceptance, the buyer fails to give notice to the seller within reasonable time from
knowledge of the breach (1586)
Notification must be made within reasonable time = before 6 months from sale.
It must be made before 6 months because the prescription for filing a case of damages for
breach of warranty is 6 months. Notification must be made before the filing of civil action.

B.

Unjustified refusal of the buyer to accept does not bar transfer of title (and risk) (1588)
a.
But the seller may make consignation (1256)
I sell to you my computer and on the agreed date, I called you and said, I am now ready to deliver the
computer. And then you unjustifiably refuse to accept the item. What is my remedy?
Consign the item. This will not bar the seller from demanding the payment price from vendee. The
unjustifiable refusal does not prevent the transfer of title to the vendee.

B.

The buyer justifiably refusing to accept need not return the thing (1587) but only has to notify the seller.
If I obliged myself to sell to you a brand new MacBook, yet what I delivered is a four year old MacBook,
the vendee has justifiable reason to refuse acceptance of delivery.
The vendor has left the computer in the vendees office. The vendee then calls the vendor to inform him
that he is not accepting it because this was not what was agreed upon, is the vendee obliged to return
the item to the vendor?
No, vendee is not obliged to return.
What if the vendee returns and the vendor refuses to accept. After two months, vendor says, okay Im
taking the item back. Does the vendee have the right to retain item until vendor pays a storage fee?
No. Even if the storage of the vendee was voluntary or if the storage was done because he has no
choice, vendee cannot claim for storage fee. Buyer may voluntarily constitute himself as depositary
of the goods, but he will be liable for damages if he does not fulfill the duties of a depositary as
required by law. Buyer may consign the item if seller refuses to receive.

Payment of Price and Interest:


A.

Time and Place (1528) (1582 & 1521?)


a.
According to stipulation (unless the buyer loses the benefit of the period).
b.
At the time and place of delivery, if there is no contrary stipulation (simultaneity).

B.

Suspension of payment by the buyer (1590) after delivery.


a.
Grounds
1)
Actual disturbance of possession or ownership; or
Example: A court order of eviction

2)

Reasonable ground to fear a disturbance caused by


i)
Vindicatory action;
A third person claiming ownership over the property sold and asking for reconveyance from the
buyer, so there is fear of deprivation. There is no actual disturbance yet because there is no final
judgement ordering the buyer to surrender the property to the third party claiming but there is
a fear that the court may decide against the buyer so in the meantime the buyer is justified in
suspending payment
ii)

Foreclosure of mortgage (which grounds are exclusive)


Under the law the mortgagor is not precluded from selling the property mortgage because during
he effectivity of the mortgage, the mortgagor remains the absolute owner of the property.
What happened in the case of Arra Realty Corp?
Answer: Engr. Penalosa the builder of the building and subsequently the buyer of the one-half
portion of the second floor where she put up her office and a school by virtue of an agreement
with Arra Realtys president, who mortgage the property to China Bank.
The reason why Penalosa suspended her payment was because when she pushed for the issuance
of her title to the property after taking possession thereof, the ARC failed to comply. She was
aghast when she discovered that in July 1984, even before she took possession of the property,
the petitioner ARC had already mortgaged the lot and the building to the China Banking
Corporation; when she offered to pay the balance of the purchase price of the property to enable
her to secure her title thereon, the petitioner ARC ignored her offer.

b.

There is no right to suspend payment if:


1)
2)
3)
4)

C.

The
The
The
The

stipulation provides for payment despite risk of disturbance; or


vendor caused the disturbance to cease; or
vendor gives security for the return of the price; or
disturbance is my mere act of trespass.

Payment of Interest on the Price: (1598 [1589?]). The duty arises


a.

Even before default, if


1)

The stipulation so provides; or


Is the buyer oblige to pay interest?
Answer: Yes if it is stipulated in the contract.
For example, I sell this computer to you and I deliver it to you today and you are going to pay me on
December 1, 2016. Does the seller needs to pay even if it is not stipulated? Is the mere fact that it is
a credit it already obligates the buyer to pay interest
Answer: No, interest is payable only if it is stipulated even if it is on credit

2)
b.
D.

The thing produces fruits which pertain to the buyer under 1164.

After default (moratory interest) from the time of the sellers tender or performance (1169, last par. on reciprocal
obligations)

Legal Guaranties for Payment of the Price:


a.

Suspension of delivery (retention) by the seller


1)
2)

b.
c.
d.
e.

In cash sales, if the payment is not tendered (1524);


In sales on credit, if the buyer loses the benefit of the term under 1198 (1536) or the buyer is insolvent
(1527)

Sellers lien on the goods in his possession (1526).


Stoppage in transitu, if the buyer is insolvent and the price is unpaid (1530)
Resale of goods (1533) (without bringing an action).
Rescission
1)

In case of goods (corporeal movables)


i)

Extrajudicial rescission (1534), or


When may seller exercise the right to extra judicially rescind the sale?
If the goods has been delivered and the buyer has refuted the sale or when the buyer
manifested his inability to pay or has committed a breach

ii)

Judicial (1191), if -aa)


The buyer fails to accept at the stipulated time, without just reasons.
bb) The buyer fails to tender the price upon receipt, if no period was stipulated (1593)

No notice or demand is required (Cf. 1534) unless the goods have not been delivered (1597)
2)

In case of real property (1592). The buyer may pay until given judicial or notarial demand for rescission,
despite a stipulation to the contrary (pacto comisorio)

3)
Article 1504 requiring demand by suit or notarial act in case the vendor or realty wants to rescind, does not
apply to a contract to sell or promise to sell, where title remains with the vendor until fulfillment to a positive
suspensive condition, such as full payment of the price (except contracts covered by the Maceda Law)
Question: When can a seller consider a contract rescinded?
Answer: When there is a judicial demand or notice for rescission similar to your Maceda Case. Your Maceda
Case applies whether your contract is contract of sale or contract to sell. Here we are talking of Contract
of Sale. Again because not many lawyers remember this, the buyer can still pay the price, even after
default, when there is no judicial demand for rescission or notarial notice. Its merely a lawyers demand
letter, if none the buyer can still pay
Exceptions:
i)

The rule does not apply where title was reserved by the seller

ii)

In case of danger of loss of the thing and price, after delivery (1591), the seller may sue immediately
for rescission even if the price is not yet due.
Example:
If the vendee appears to be insolvent and cannot pay the price, and at the same time he uses hi rights
in such a manner that the thing might be lost, such as when he destroys the building, or cuts down the
forest or woodlands, he may bring his action for resolution under 1591. (V Tolentino p. 138-139, c.1999)

iii)

Neither does the rule apply to a mere contract to sell

Article 1592 of the Civil Code which requires rescission either by judicial action or notarial act is not applicable
to a contract to sell where title remains with the vendor until fulfillment of a positive suspensive condition

TOPIC 6
Actions for Breach of Contract of Sale of Goods
Arts. 1594-1599
Action for the price (of personal property) (1595).
II.
A.

Grounds
a.
After ownership has passed, and price is not paid, if no period for payment was given.
b.
Failure to pay, where it is stipulated to be payable, irrespective of delivery or transfer of title, although title has not
passed
1)

c.

Defenses of the buyer:


i)
That the seller at any time before judgment, manifested either
aa)
Inability to perform; or
bb) Intention not to perform.

Refusal of the buyer to accept delivery of the goods, if:


1)
The goods were offered and refused; and
2)
The goods can not readily be resold; and
3)
The buyer did not notify repudiation before the goods were placed in a fully deliverable state (if 1596, par. 4
is not applicable); and
4)
The seller notifies the buyer that he holds the goods as bailee for the buyer.
Then the seller may treat the goods as the buyers and sue for the price.

III.
IV.

Action for damages for non-acceptance (1596) of the goods


A.

Grounds -a.
The buyers wrongful failure to accept and pay (the goods may be resold).
b.
The buyers repudiation or countermand before the goods are placed in a deliverable state.

Illustration:
S sold B a thing. If B wrongfully refuses to accept and pay for the thing, S may bring an action against him for
damages for non-acceptance. The damage is estimated from the loss directly and naturally resulting in the ordinary
course of events from the buyers breach of contract.
Question: What action or actions are available to the seller of the goods in case the buyer wrongfully refuses to
accept the goods sold?
Answer:
Maintain an action for damages because of the non- acceptance.
Hold the goods as bailee for the buyer and bring an action for the price.
Ask for the resolution of the contract for failure of the buyer to fulfill his obligations.
Question: Suppose a thing was sold by the seller valued at 500,000 however, the buyer unjustifiably refuse to accept
the same. The current market value of thing is 600,000 pesos. Using the measure of damages, how much can the
seller recover from the buyer?
Answer: None, there is no lose suffered by the seller. In fact he has gained more if the seller decides to sell
the said good now.
C.
D.

Measure of damages
a.

Generally
1)
The loss naturally and directly resulting (in the ordinary course) from the breach.

b.

When there is an available market


1)
The difference between the contract price and the market price at the time when acceptance should be made.
i)
If no time was fixed for acceptance, then the market price at the time of refusal.

c.

When repudiation is made or notified before the seller completes preparations for fulfillment
1)
The liability is for expenses incurred, and
2)
The profit the seller would have obtained under the contract.

III. Action for Total Rescission (1597) by the seller (against the buyer).
A.

Requisites:
a.
The goods were not delivered.
b.
The buyer either
1)
Repudiates; or
2)
Manifests inability to perform; or
3)
Commits breach of contract

c.

The seller gives notice of his election to rescind.


The rescission here requires notice thereof to the buyer.

IV. Buyers Action for Sellers Specific Performance (1598)


A.
The seller has no option to retain the goods by paying damages.
B.
The judgment may be absolute or conditional as the court deems fit.
GR: There is no right of retention on his part even if said seller is willing to pay damages. However, there must be
an order from the court for the specific performance.
V. Buyers Actions for Breach of Warranty (1599) (express or implied).
A.

Buyers choices:
a.
To accept or keep the goods and set off damages against the price;
b.
To accept the goods and sue for damages;
c.
To refuse or return the goods and sue for damages;
d.
To rescind the contract, refuse or return the goods and recover the price.

B.

The options are alternative, but the buyer may ask for rescission after asking for specific performance, if the latter is
impossible. (1191, par. 2)
GR: If the buyer has selected any of the remedies, and has been GRANTED the same, no other remedy can be
given.
However, if the buyer still accepted the goods despite his/her knowledge of the breach of the warranty, no
rescission can be availed of.

C.

The buyer can not rescind, if


a.
He knew of the breach of warranty when he accepted the goods; or
b.
He fails to notify the seller in due time of the election to rescind; or
c.
he fails to return the goods in substantially the same condition.
1)
Unless the deterioration was due to the breach of warranty.

D.

Effects of Buyers Election to Rescind (1599, par. 4)


a.
b.
c.

E.

The buyer ceases to be liable for the price upon tender or return of the goods.
The may recover the price paid
1)
Concurrently with the return, or
2)
Immediately after the tender.
If the seller refuses to accept the return; the buyer holds the goods as bailee. In which case, the buyer
1)
Has a lien on the goods to secure repayment of the price; and
2)
Has a right of stoppage in transitu and resale, as the seller has under Article 1526.

Loss in Case of Breach of Warranty of Quality (1599, par. 5)


a.
The liability consists in the difference in value at the time of delivery and the value if the warranty were not broken.
1.
Unless special circumstances show greater damage.

Chapter 7
Extinguishment Of Sale
Art. 1600
I.
Causes of Extinguishment
A.
General causes (1231)
a.
Payment or performance
b.
Loss of the thing due
c.
Condonation or remission
d.
Confusion or merger
e.
Compensation
f.
Novation
g.
Annulment
h.
Rescission
i.
Fulfillment of the resolutory condition
j. Prescription
B.

Special causes
a.

Redemption
1)
Conventional
2)
Legal
Section 1 - Conventional Redemption
(Sales with Pacto de Retro)

Arts. 1601-1618
I.

Concept
A.
Defined (1601) one which takes place when the vendor reserves the right to repurchase the thing sold, with the obligation
to comply with the provisions of Article 1616 and other stipulations which may have been agreed upon
Who is entitled to redeem? The vendor.
If the stipulation to redeem is embodied in a separate instrument, do you still have a valid stipulation?
Answer: (taken from Pieda book)
GR: The right of the vendor to repurchase must appear in the same instrument and not in a separate one.
Exception: If the stipulation is in a separate document it is valid only between the parties and cannot be set up
against intervening third persons
B.

II.

Nature: Conventional redemption is


a.
An accidental element (must be stipulated);
b.
An express condition;
c.
A potestative resolutory condition;
d.
A real right which may be sold or assigned and enforced against a third person claiming under the purchaser

Conventional redemption includes transactions presumed to be equitable mortgages.


A.

Equitable mortgage defined - One in which although it lacks some formality, form of words or other requisites, prescribed
by a statute, show the intention of the parties to charge a real property as security for a debt and contains nothing
impossible or contrary to law.
If the correct document has been executed, it would have been a contract of mortgage either real estate or chattel.

B.

The following are (disputably) presumed to be equitable mortgages


a.

Contracts of sale with right to repurchase in the following cases (1602)


1)
2)
3)

When the price of a sale with right to repurchase is unusually inadequate


When the vendor remains in possession as lessee or otherwise;
When the period of redemption is extended;
In a contract of sale pacto de retro, when the parties in the said contract agreed that should the seller
failed to repurchase the property within the period fixed, the buyer does not become the owner but a
new pacto de retro document shall be issued. The contract entered into between the parties is a mere
mortgage.

4)
5)
6)

When the vendee retains part of the price;


When the vendor binds himself to pay taxes;
Other cases where it may be inferred that the intention of the parties is that the transaction is to secure the
payment of a debt or the performance of any other obligation
Example of another circumstance: the vendor continues to pay interests despite the conveyance (Dino
v Jardines case)
The presence of at least ONE condition, would make the contract a contract of equitable mortgage

b.

Contracts of absolute sale in the cases mentioned in Art. 1602 (1604).


Q: What is the effect if the instances cited under Article 1602 are present in an absolute sale?
A: Even if a contract purports to be an absolute sale, if the elements enumerated under 1602 are present, the
said contract entered into is not an absolute sale but an equitable mortgage.

c.

When a transaction purporting to be a contract of sale with right to repurchase is of doubtful interpretation (1603).
Note that if there is doubt, as expressly stipulated under the law, the said contract of sale is presumed to be
an equitable mortgage.
1)

A stipulation that in case of failure of the vendor-a-retro as lessee to pay rentals, the lease shall
automatically terminate and the right of ownership of the vendee shall become absolute is valid,
not contrary to law nor oppressive. It is a clause common to pacto de retro and has received court
sanction.

2) Although pactum commissorium (a stipulation for automatic vesting of title over the security in the
creditor in case of debtors default) is void, such a clause in a contract is conclusive proof that it is a
mortgage and not a sale with pacto de retro.
C.

Effect when the transaction is deemed an equitable mortgage.


a.
b.

Fruits, money or other benefit received as rents by the vendee are considered as interest which shall be subject to
the usury laws. (1602, last par.)
The apparent vendor may ask for the reformation of the instrument (1605)
Q: What remedy is afforded to the vendor in case the instrument does not express the true intent of the
parties?
A: The proper remedy afforded by the law to the vendor should the instrument do not expressly represent
the intent of the parties is the reformation of the instrument.

I.

Period of Repurchase or Redemption


A.

When no period is agreed upon a.


Four years from the date of the contract (1606, par. 1)

B.

When a period is agreed upon (which includes a stipulation of redemption at any time)
a.
Within the period stipulated, which cannot exceed 10 years (1606, par. 2)
Buyer and seller stipulated that the contract that the seller shall have the right to redeem the property.
Question: For example it is a parcel of land, in what period can the seller redeem the property?
Answer: from the date of the contract
Question: What if the contract stipulates that no redemption shall be made within 5 years. When can redemption be
exercised?
Answer: within 4 years after the 5th year
Question: How about if they agreed that no redemption shall be made within 8 years?
Answer: as long as period shall not exceed 10 years. So its 2 years after the 8th year but should not exceed 10
years and the only exception is if there is a final judgement that the contract is really and truly a pacto de retro
sale, but the seller believe in good faith that it is an equitable mortgage, the law says that he who shall redeem has
30 days to redeem it.
Take note of the case of Abilla v. Gobonseng, it was not redeemed because when the RTC ruled that it was already a pacto
de retro sale but they did not redeemed it and went all the way to the CA where it was again declared a pacto de retro
and again went to the SC. And when SC affirmed the CA said that then w hav 30 day to redeem. The SC says you cannot
change your defense, your period had already prescribed.
Question: How about if it says when the vendor has money? Is it 10 years or 4 years?
Answer: 10 years because in oblicon when it says the when the debtor has the means it is understood that it has
a period and thus it should be within the 10 years in keeping with the rules on sales.

C.

The period may be extended to 30 days after final judgment was rendered in a civil case claiming that the contract was a
true sale with right to repurchase (1606, par. 3)
a.
Pendency of litigation suspends the period of redemption
b.
The thirty day extension is applicable even should the case be filed after the expiration of the
redemption period, if the parties dispute its nature as a pacto-de-retro sale with the allegation that it
does not express their true agreement

E.

The period during which vendor can not redeem when added to the period of permitted redemption must not total more
than 10 years

E.

Rulings on the period within which to make a repurchase


a.
b.
c.
d.
e.
f.
g.

IV.

The legal period of 4 years may be extended by stipulation, provided that the new period stipulated does not exceed
10 years
A stipulation that the vendor cannot redeem the property until after 3 years should be construed to allow redemption
within 4 years, after the lapse of the 3 years, counted from such lapse
An agreement granting the vendor the right to repurchase when he as established a certain business is not a
period. In such a case the vendor may redeem within 4 years.
Where there is an agreed period, the period in excess of 10 years is void
A stipulation granting the vendors the right to redeem at any time the vendors have the money should be construed
to allow redemption within 10 years
The stipulated period of redemption is suspended by the filing of an action brought in good faith relating to the
validity of a sale with pacto-de-retro (it being claimed to be an equitable mortgage) and again commences to run
only after decision declaring it to be a sale has become final
Where the courts are functioning regularly, the redemption term is not suspended or extended by war

Who may redeem or exercise the right of redemption


A.

The vendor in whose favor the right is reserved. The following are included:
a.

When vendors are co-owners selling jointly and in the same contract an undivided immovable.
1)
Right of each co-owner.
i)
To redeem only his share (1612, par. 1)
2)
Right of the vendee
i)
He may compel all the co-owners to redeem the whole (1613). Also when the whole property is
adjudicated to the vendee in partition (1611).

b.

When a co-owner sells his share of an undivided immovable separately (1614).


1)
Right of the vendor co-owner
i)
He may only redeem his share (1614).
ii)
He can not be compelled to redeem the whole (1614)

Question: This is an undivided land. This is before partition. A shares his undivided land to C. Is it valid? Can a coowner share his undivided share?
Answer: Yes. And the buyer becomes another co-owner together with the other co-owners.
Question: After that B and C sold all the property to X because they could not agree on how to partition it. A goes to X
to redeem the property. Can X refuse redemption of As share only? What does the law say?
Answer: If this is the scenario a co-owner sells his undivided share and later on the entire property is sold
to the buyer. Under article 498 of the CC, the buyer may refuse on the redemption of the sellers undivided
share and may insist redemption on the entire property.
Question: A B and C and D are co-owners and all of them sold the entire property to X on pacto de retro. Valid or not
valid?
Answer: Of course its valid. X becomes the owner of the entire property. A exercises his right of
redemption. The law says he can only redeem his undivided share. Can X refuse redemption only by A?
Question: Can X refuse partial redemption?
Answer: Yes, and he can compel the other co-owners to redeem the entire property.
Question: The other co-owners are not interested in redeeming the property, only A. Can he redeem the property?
Answer: Yes. But under Property, he is entitled to the consequences. He will hold the property only in trust
for the others.
Question: A shares his sells his share to X under pacto de retro. B in a separate contact sells his share under pacto de
retro. C sells his share under pacto de retro and so on. There are 4 separate contracts to X. A redeems his portion sold.
Can X insist on the redemption of the entire property?
Answer: The rule is one sale, one redemption.
Question: A sells his share to X under pacto de retro.( Natukhang?) The surviving B C D. Did the inherit the the right of
A to redeem the property?
Answer: YES! They had not partitioned the estate of A , so they are presumed to be co owners of the
whatever rights A has over the property.
Question: A redeems his share can X refuse?
Answer: As our previous rule, under pacto de retro sale, the buyer can refuse redemption. So he can insist
of redemption of the entire property. So B C D must redeem the entire property. Or A can
redeem the entire property but definitely X has the right to refuse partial redemption.

B.

C.

V.

Heirs of the vendor (1612, par. 2)


a.

Right of each heir.


1) Each can redeem only the part which he may have acquired.

b.
1)

Right of the vendee


He may compel all the heirs to redeem the whole (1613)
Note: The rule of the Code is one sale, one redemption; except in case of death of the buyer a retro.

Creditors of the vendor (1610)


a.
Requisite
1)
The creditors must have already exhausted the properties of the vendor (1610).

From whom or against whom may redemption be made


A.
B.

The vendee
The heir or heirs of the vendee
a.
If there is more than one heir (1615):
1)
Against each of the heirs for his respective share
i)
Exception:
aa)
When the thing sold is awarded to only one heir

C.

Every possessor whose right is derived from the vendee (1608)


a.
Without prejudice to the provisions of the Mortgage Law and Act No. 496 (Land Registration Act)
Question: A sells the entire property to X. X died. C D and E are the heirs of X. They had not partitioned. Can A redeem
the entire property from C?
Answer: No because C only has a portion. If A wants to redeem the property he must redeem from all the
heirs unless the property is adjudicated to one of the heirs

VI.

VII.

Obligations of the vendor-a-retro


A.

The vendors obligations are (1616):


a.
To return the price of the sale
b.
To return the expenses of the contract and any other legitimate payments made by reason of the sale;
c.
To reimburse the necessary and useful expenses made on the thing sold, after their amount is determined

B.

Effect of the vendors failure to comply with his obligation


a.
General rule:
1)
Ownership is consolidated in the vendee
b.
Exception:
1)
When the subject matter consists of real property (1608)
i)
Requisites
aa)
Consolidation of ownership must be by virtue of a judicial order, after hearing the vendor (1607)

Obligations of the vendee-a-retro


A.
To return the thing sold free from all charges and mortgages constituted by the vendee (1618)
1)
Exception:
i)
Lease contracts in good faith and according to custom, which must be respected

VIII. Rights of the vendee-a-retro


A.
To compel the vendor of a part of an undivided immovable to redeem the whole property upon the vendee acquiring the
entire immovable (1611) in partition proceedings.
B.
To be subrogated to the vendors rights and actions (1609)
IX.

Rules on pro-rating of fruits existing at the time of redemption


A.

If there are visible fruits at the time of the execution of the sale a.
No reimbursement or pro-rating (1617, par. 1) is required
1)
Exception:
i)
If indemnity for fruits was paid by the vendee when the sale was executed (1617, par. 1)

B.

If no visible fruits at the time of the sale existed


a.
Fruits must be pro-rated (1617, par. 2)
1)
Share of the vendee:
i)
That portion corresponding to the time he possessed the land in the last year counted from the
anniversary of the date of the sale. (Cf. Art. 545)

Section 2 LEGAL REDEMPTION


ARTS. 1619-1623
i.CONCEPT
A.

DEFINITION- 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 inpayment, or by any other transaction whereby ownership is transmitted
by onerous title. (1619)
Take note of the definition because there seems to be an inconsistency as in redemption of urban lands, the
redemptioner is only made to pay the reasonable price. This is inconsistent as the definition of legal
redemption is to be subrogated upon the same terms and conditions stipulated in the contract.

B. Alienation must be by
a. Sale
b. Dation in payment (dacion en pago)
c. Transaction whereby ownership is transferred by onerous title (1619)
C. Distinction between PRE-EMPTION AND LEGAL REDEMPTION
PRE-EMPTION
No sale yet
1. arises before sale
2. no rescission because no sale as yet exists
3. the action is directed against the prospective seller

REDEMPTION
1. arises after sale
2. there can be rescission of the original sale
3. action is directed against the buyer

D.Applicability of the Rules:


The rules are applicable to both movables and immovables.
II.INSTANCES OF LEGAL REDEMPTION
A.Redemption by Co-owners
Applies to both immovable and movable properties
a. Purpose- to end indivision or at least reduce the number of co-owners, keeping strangers out of the co-ownership.
b. Requisites:
1.
2.
3.
4.

Co-ownership must exist


There must be alienation of the shares of all other co-owners or any of them
Alienation must be to a stranger not to a co-owner
Alienation to said stranger must be before partition

Situation:
A B C D co-owns a property
If A B C (not including D), sells their pro-indiviso shares to X, absolutely, prior to partition.
Can D redeem the property?
Yes, because co-ownership still exists.
Although it was not sold on pacto de retro, D can redeem the property by virtue of legal redemption.
But if in the same situation but the sale was done after the co-owners has each identified which part of the property
belongs to them, will your answer still be the same?
No, because there no longer is a co-ownership. Legal redemption presupposes an existence of co-ownership
B.Redemption by Adjoining Owners
applies only to immovables (lands)
a.

Instances
1. Rural Lands
i. Purpose- to favor the development of rural property in the interest of agriculture.
Remember that not just because the property is located in the rural area, it is automatic that it is rural
land. The main consideration is the use of the property, as it must be used for agriculture.
ii. Requisites:
Both adjoining tenements are rural.
There must be alienation.
The area of the land alienated does not exceed one hectare
The tenements must be adjacent without solution of surface continuity (tenements separated by brooks,
ravines, roads, etc. are excluded)

The vendee must owned some other rural land.


iii. Who may exercise the right
By order of Preference
a. Co-owners (1623 p. 2)
b. Adjoining owners (1621 p.3)
Preference (secondary order)
b.1 the owner of the adjoining land with smaller area.
b.2 the first to request redemption if areas are equal.
Case: Primary Structures
(Refer to case digest compilation for additional facts)
Facts:
This case involves a sale of a parcel of land. Primary Structures is engaged in the construction industry. The said
parcel of land was sold to spouses Valencia. Primary Structures want to redeem the said land however, Spouses
Valencia refuse the said redemption.
RTC granted the petition for redemption.
CA affirmed the decision by the RTC.
It is only when the case was already before the Supreme Court where the Spouses Valencia raised the issue whether
legal redemption is proper in this case or not.
SC: The Supreme Court reminded the Spouses Valencia that they should have raised the said issue before the
appellate court. (Judges note: Whose fault is this? The lawyer of Spouses Valencia.) The property here is surely not
intended for agricultural purposes, however, the court is not a trier of facts, it is not within its ambit to determine
whether the said property is indeed intended for agricultural purposes. It was the duty of the Spouses Valencia to
raise such issue when the case was still in the lower court.
2. Urban Lands (1622)
i. Requisites
Both adjoining tenements are urban
The tenement being redeemed was bought merely for speculation
The major portion of the tenement is so situated that it cannot be used for any practical purpose within a
reasonable time.
There is alienation
The tenements are adjacent
ii. Who may exercise the right- (by order of preference)
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 to the adjacent owner/s
whose intended use of the land in question appears best justified. (1622 p.3)
iii.Obligation of the Redemptioneer
1. To pay a reasonable price
2. To notify the prospective vendor and vendee of his desire to redeem.
Case: Contreras v CA
The urban lot in question has the house of the petitioner built on it.
Respondents filed a case for legal redemption of urban land, which was granted by the lower courts and the CA.
Now, I want you to remember this case because if the lawyer had properly done his job, the legal redemption would
have been denied.
Remember, a requisite for legal redemption in urban lands is that the land is so situated that it cannot be used for
any practical purpose within a reasonable time and that up to that moment of redemption, the land was bought
merely for speculation.
But remember, a house has already been built on it, giving it a practical purpose. Thus, requisites were not actually
satisfied to grant legal redemption. However, the lawyers failed to raise such defense.
III. Procedure in Redemption
A. When to exercise the redemption- within 30 days from the notice in writing by the vendor
B.

Requisites for the registration of the sale in the registry of the property- it must be accompanied by an affidavit of the vendor
that he has given written notice to all possible redemptioners.
If the law says that legal redemption may be exercised in 30 days from receipt of notice, what does the supreme court has to
say? The Supreme Court was actually not consistent with their ruling.
In the 1996 case of Verdad, the court established the rule that, notwithstanding the actual knowledge of the co-owners, the
latter is sill entitled to a written notice from the selling co-owner in order to remove all uncertainties about the sale, terms ad
conditions ad the over-all status of the transaction.

In 2005, Aguilar v. Aguilar, the court ruled that a co-owner with actual knowledge of the sale is NOT entitled to a written
notice for such would be superfluous. The law does not demand what is unnecessary.
In 2007 case of Cabales v. CA, it says to require a strict rule of written notice of the sale would be to countenance of obvious
false claim of lack of knowledge thereof just to permit the letter of the law over its purpose. It is actually similar to the Aguilar
case.
2009, Dalma v. Santos, with respect to a written notice the exception is when co-owner has actual knowledge of the sale.
2012, Pacual v. Balesteros, The written notice of sale is MANDATORY. This court has long established that, notwithstanding
the actual knowledge of the co-owners, the latter is sill entitled to a written notice from the selling co-owner in order to
remove all uncertainties about the sale. Back to the Verdad case.
So hat about us? I dont know. There is no consistent ruling of the courts hen it comes to this case unless I see a case decided
by the SC en banc, which is nearly impossible because this case does not involve constitutional issues and this only pertains
to private rights of persons.
C.

Special Rules:
a. Legal Redemption requires no previous notice of intention to redeem.
b. Tender of the price is not a condition precedent to redemption.

IV. Other Cases of Legal Redemption


a. Redemption by the debtor in the sale of credit in litigation (1634)
b. Redemption by co-heirs in case of a sale by an heir of his hereditary rights to a stranger before partition (1088)
c. Redemption by the applicant, his widow, and legal heirs within 5 years from the conveyance under a homestead or free patent
(Sec. 119, CA 141)
d. Redemption within 1 year by a judgment debtor or redemptioneer of real property sold under execution.
e. Redemption by the owner of the property sold for delinquent realty taxes.
f.
Redemption within 1 year by the mortgagor in sales under
1. Extra-judicial foreclosure (Sec 6, Act 3135)
2. Judicial foreclosure sale by banks within the purview of the General banking act

Chapter 8
Assignment of Credits and Other Incorporeal Rights
I. Concept: A contract unilateral or bilateral, onerous or lucrative, commutative or aleatory, whereby a person transmits to another
his right or rights against a third party, whether or not an equivalent for the transmission is received from the transferee. (S anchez
Roman)
While the NCC treats of assignment of credits as a variety of sales, the fact is that the assignment may be effected
in a variety of ways; by sale, by barter, by donation or even by testament. The assignment is a transfer entirely
different from the transaction originating it.
An example is purchasing a car on installments. The document you sign is a promissory notes, those are in favor of
the sellers for example the Gateway Motors Inc., and that promissory notes you sign on installments in many cases
in my court the term is for 5 years.
What the dealer does is to assign this to BPI, that is an example assignment of credits. For example it states I
promise to pay Gateway Motors or order, it is a negotiable promissory note, the assignment is actually the
negotiation. Mao na ng uban maingon Negotiable Instrument Law I obsolete. Not totally, we just dont see it.
Credit, you can sell it. Your right to collect the credit can be sold. Now why assignment not sale? Remember in sale
the obligation is to deliver a tangible thing, physical determinate existing thing.
II. Essential Requisites and Formalities
A.

These depend in each case upon the contract or act giving rise to the assignment.
a. Assignment of real rights upon immovable property, done by way of donation, requires a public instrument.
b. Assignment by way of legacy requires a probated will.
c. Assignment of choses in action by sale or onerous contract, if involving P500 or more, is unenforceable inter partes, and
comes under the Statute of Frauds (a written memo is required)
d. Assignment of a negotiable instrument requires indorsement or delivery.

B.

As against third persons (but not the debtor of the credit assigned)- an assignment of a credit, right or action shall produce
no effect unless it appears in a public instrument, or the instrument is recorded in the registry of property, in case the
assignment involves real property (1625)
a.

The consent of the debtor of the assigned credit is not required for the validity of the assignment: but the assignment is
not fully effective against the debtor until he is notified thereof or has actual knowledge of the assignment; i.e. the debtor
until then is not bound to pay the assignee.

In what form should it be?


It appears that it is a formal contract right. But to bind third parties it must be executed in a public instrument. Moreover f
the credit involves rights over a registered property it must also be registered in the Register of Deeds.
When we say for it to be valid between the parties it must be in writing What parties are we talking about here? Creditor =
Assignee. Now does the third party includes te debtor? NO he/she does not even need to give her or his consent. What is
required to bind the debtor is notice to him in whatever manner.
Notice is there to let him know whom he shall pay because after notice he cannot insist on paying the old creditor.
III. Effect of a valid assignment
A.

It transfers title to the assigned credit to the assignee, even if the debtor is unaware thereof.
a.

B.

The assignment includes all accessory rights, such as guaranty, pledge, mortgage or preference (1672)

The assignee takes the credit subject to all defenses acquired by the debtor before notice or knowledge of the assignment.
a.
b.
c.

The debtor who, before having knowledge of the assignment, pays his creditor shall be released from the obligation.
(1626)
The debtor may set up compensation of credits acquired after assignment but before notice thereof (1198) unless the
debtor agreed to the assignment (when he cannot compensate).
Any compromise or release of the assigned claim made by the assignor before notice, will be valid against the assignee
and discharge the debtor.

Is recording a sufficient notice? Yes, provided the recording is required (not merely permitted) by law
Debtor here, on the upper part, owes creditor 100,000, payable on or before 9/15/16.On the lower part, it is A here, the debtor
(B) owes the creditor 50,000 payable on or before September 1, 2016. On October 1, today, A assigns his credit to X. Thus he
need the consent of B to make the assignment valid? No. Is debtors debt already due and demandable? Yes, as of September 15.
If after today, October 1, X the new assignee, the new creditor, collects from debtor. How much can he collect from debtor?
(50,000) He acquired the credit subject to the defenses available to the debtor at the time of the assignment.

What is then defense available to the debtor here?


Legal Compensation. Remember that legal compensation takes place by operation of law. The parties do not have to agree on it.
Even if A insists that he would not agree to legal compensation, he cannot. So X can collect 50,000. If debts are 100,000, then X
cannot collect anything from B.
If the debtor pays the creditor after the notice of assignment, can the assignee collect from the debtor?
Yes. But if the debtor pays the creditor prior to the notice of assignment. Then that payment is valid, the debtor can raise it against
the assignee. The assignee can collect from the assignor.
C.

Warranty by the assignor


a. The assignor in good faith shall be responsible for the existence and legality of the credit at the time of sale, unless it
should have been sold as doubtful. Doubtfulness of the credit assigned must expressly appear; it is not presumed
(Manresa)
What is an example of an illegal credit?
Baligya ko sa imu shabu nag issue ka promissory note, an illegal consideration, that is an illegal credit.
A non-existing credit, for example is when the credit was condoneD by the assignor prior to the notice of assignment to
the debtor.
b.

The
1.
2.
3.

assignor in good faith does not answer for the solvency of the debtor unlessExpressly stipulated; or
The insolvency of the debtor was known to him personally; or
The insolvency of the debtor was prior to the sale and of common knowledge (1628)
The creditor does not warrant the solvency of the debtor, meaning there is no implied warrant.
Can he stipulate an express warrant?
Yes of course, there is no prohibition.

c.

Where the solvency of the debtor is warranted by the assignor, his liability lasts only1. One year after the assignment, if the debt was already matured.
2. One year after maturity, if the debt matures after assignment(1629) *Compare this with partition between co-heirs
(liability for solvency lasts 5 years)

d.

Recovery of the warranty


1. The assignor in good faith must return the rice recived plus expenses of the contract and payments on account
thereof. (1628 p.2)
2. The assignor in bad faith: all of the above plus damages (1628, p.3).

IV. Special Assignments


A.

Sale of inheritance (estate):


a. If without enumeration of the items composing it, the vendor only answers for his character as heir(1630)
b. The vendor shall reimburse the vendee for the fruits obtained or anything received from the inheritance sold (1632) if
the contrary is not stipulated.
c. The vendee shall reimburse the vendor for1. All that vendor paid on account of the estate debts;
2. Credits that the vendor had against the estate (1633)

B.

Sale rights, rents or products for a lump sum


a. The vendor answers for the legitimacy of the whole in general
b. There is no warranty of individual items, unless there is eviction of the whole or of the part of greater value (1631).

C.

Sale and redemption of litigous credits


a. Concept of Litigous credit- a credit is considered in litigation from the time the complaint concerning the same is answered.
b. Effect of Sale1. Legal Redemption by the debtor- Requisites:
i.The debtor must reimburse the assignee fora. The price the assignee paid
b. Judicial costs incurred by him
c. Interest on the price from the day it was paid (1634 p.1)
ii. The right must be exercised within 30 days from the date the assignee demands payment from him. (1634 p.3)
2.

Excepted from the rule are sales (or assignments) made to:
a. A co-heir or co-owner of the right assigned;
b. A creditor in payment of the credit;
c. The possessor of a tenement or piece of land which is subject to the right in litigation assigned (1635)
I want to focus on litigious credit, I owe you 1M and because of my default, you filed a case against me. I filed my
answer. The moment I filed my answer, the credit is considered litigious credit.

You need the money now because you are leaving for Syria, because you are sure you can collect from me but you
know it will take time you sold your credit to X. You sold the credit to X for 300,000. What is my right as debtor? I
can redeem the credit from X by paying X the amount he paid me which is 300,000