CHAPTER 12
CONDITIONS AND WARRANTIES
CONDITIONS
Article 1545 of the Civil Code grants two alternative remedies
to a party where the obligation of the other party to a contract
of sale is subject to any condition which is not performed, in
that such first party may either:
(a) refuse to proceed with the contract,
or
(b) he may waive performance of the condition.
Romero v. Court of Appeals
emphasized the distinction between a condition imposed on
the perfection of the contract and a condition imposed on the
performance of an obligation: The failure to comply with the
first condition results in the failure of the contract, while the
failure to comply with the second condition only gives the other
party the option to either refuse to proceed with the sale or to
waive the condition as mandated under Article 1545; and that
the choice is not with the obligor but with the injured party.
In Heirs of Pedro Escanlar v. Court of Appeals
where the sale contract contained the stipulation that “this
Contract of Sale of rights, interests and participations shall
become effective only upon the approval by the Honorable
Court,” it was held that the non-happening of the condition did
not affect the validity of the contract itself, thus —
There has arisen here a confusion in the concepts of validity
and the effi cacy of a contract.
Under Art. 1318 of the Civil Code, the essential requisites of a
contract are: consent of the contracting parties; object certain
which is the subject matter of the contract and cause of the
obligation which is established. Absent one of the above, no
contract can arise. Conversely, where all are present, the
result is a valid contract. However, some parties introduce
various kinds of restrictions or modalities, the lack of which will
not, however, affect the validity of the contract.
In the instant case, the Deed of Sale, complying as it does with
the essential requisites, is a valid one. However, it did not bear
the stamp of approval of the court. This notwithstanding, the
contract’s validity was not affected. ... In other words, only the
effectivity and not the validity of the contract is affected.
David v. Tiongson
citing Escanlar, held that a stipulation that the deed of sale
and corresponding certificate of title would be issued after full
payment, did not prevent the perfection of a contract, which
would then be a contract to sell.
On the other hand, Ramos v. Court of Appeals
Held that under a “Sale with Assumption of Mortgage,” the
formal assumption of mortgage was a condition to the seller’s
consent, so that without approval by the mortgagee, no sale was
perfected; and that where the mortgagee has not approved the
assumption of mortgage by the buyer, the seller remained the
owner and mortgagor of the property and retained the right to
redeem the foreclosed property. The gravamen of Ramos was
not the perfection of the valid contract of sale, but rather the
effect of transfer of ownership, which goes into consummation
stage.
DISTINCTIONS BETWEEN CONDITIONS AND
WARRANTIES
Unlike in the non-fulfillment of a warranty which would
constitute a breach of the contract, the non-happening of the
condition, although it may extinguish the obligation upon which
it is based, generally does not amount to a breach of the
contract of sale.
Under Article 1545 of the Civil Code, where the ownership in the
things has not passed, the buyer may treat the fulfillment by the
seller of his obligation to deliver the same, as described and as
warranted expressly or by implication in the contract of sale, as
a condition of the obligation of the buyer to perform his promise
to accept and pay for the thing.
On the other hand, if the party has promised that the condition
should happen or be performed, the other party may also treat
the non-performance of the condition as a breach of warranty.
Such stipulation would elevate the condition to a warranty, and
the non-happening of the condition would itself constitute a
breach of such warranty, and would entitle the other party to
sue for damages.
In addition to the foregoing differences in the legal effects of
the non-happening of the condition and non-fulfillment of the
warranty, the following difference also apply:
(a) Condition generally goes into the root of the existence of
the obligation, whereas a warranty goes into the performance
of such obligation, and in fact may constitute an obligation in
itself;
(b) Condition must be stipulated by the parties in order to form
part of an obligation, while a warranty may form part of the
obligation or contract by provision of law, without the parties
having expressly agreed thereto; and
(c) Condition may attach itself either to the obligations of the
seller or of the buyer; whereas, warranty, whether express or
implied, relates to the subject matter itself or to the obligations
of the seller as to the subject matter of the sale.
Power Commercial and Industrial Corp. v. Court of Appeals,
demonstrates the difference in the legal effect between a
condition and a warranty:
The alleged “failure” of [sellers] to eject the lessees from the lot
in question and to deliver actual and physical possession
thereof cannot be considered a substantial breach of a
condition for two reasons: first, such “failure” was not stipulated
as a condition — whether resolutory or suspensive — in the
contract; and second, its effects and consequences were not
specified either.
xxx.
If the parties intended to impose on the [sellers] the obligation
to eject the tenants from the lot sold, it should have included in
the contract a provision similar to that referred to in Romero vs.
Court of Appeals, where the ejectment of the occupants of the
lot sold ... was the operative act which set into motion the
period of [buyer’s] compliance with his own obligation, i.e., to
pay the balance of the purchase price. Failure to remove the
squatters within the stipulated period gave the other party the
right to either refuse to proceed with the agreement or to waive
that condition of ejectment in consonance with Article 1545 of
the Civil Code ...
xxx.
As stated, the provision adverted to in the contract pertains to
the usual warranty against eviction, and not to a condition that
was not met. The terms of the contract are so clear as to leave
no room for any other
interpretation.
EXPRESS WARRANTIES
Since the breach of an express warranty makes the seller
liable for damages, it is important to note that the following
requisites must be present in order that there be an express
warranty in a contract of sale:
(a) It must be an affirmation of fact or any promise by the seller
relating to the subject matter of the sale;
(b) The natural tendency of such affirmation or promise is to
induce the buyer to purchase the thing; and
(c) The buyer purchases the thing relying on such affirmation
or promise thereon.
In Goodyear Philippines, Inc. v. Sy,
the Court held that a warranty is an affirmation of fact or any
promise made by a seller in relation to the thing sold, and that
the decisive test is whether the seller assumes to assert a fact
of which the buyer is ignorant of.
An affirmation of the value of the thing, or any statement
purporting to be a statement of the seller’s opinion only, shall
not be construed as a warranty, unless the seller made such
affirmation or statement as an expert and it was relied upon by
the buyer.
In this connection, Article 1341 of the Civil Code provides that
“[A] mere expression of an opinion does not signify fraud,
unless made by an expert and the other party has relied on the
former’s special knowledge.”
In Azarraga v. Gay,13 the Court recognized that the law allows
considerable latitude to seller’s statements, or dealer’s talk; and
experience teaches that it is exceedingly risky to accept it at its
face value. The Court held that assertions concerning the
property which is the subject of a contract of sale, or in regard
to its qualities and characteristics, are the usual and ordinary
means used by sellers to obtain a high price and are always
understood as affording to buyers no ground for omitting to
make inquiries, thus: “A man who relies upon such an affirmation
made by a person whose interest might so readily prompt him
to exaggerate the value of his property does so at his peril, and
must take the consequences of his own
imprudence.”
Investments & Development, Inc. v. Court of Appeals
which involved the sale of agricultural land, distinguished
between the legal effects of an express warranty which provided
that the subject land was “free from all liens and encumbrances,”
and another express warranty that the subject land was “free
from all liens, adverse claims, encumbrances, claims of any
tenant and/or agricultural workers, either arising as
compensation for disturbance or from improvements.” It held
that the actual existence of a tenancy relationship on the subject
land did not breach the fi rst general express warranty, since the
existence of tenancy relationship thereon cannot be considered
a lien or encumbrance that the seller warranted did not exist at
the time of sale, since “[I]t is a relationship which any buyer of
agricultural land should reasonably expect to be present and
which it is its duty to specifically look into and provide for.”
Whereas, the second more specific express warranty by its very
wordings did take such tenancy relationship into consideration
as a part of the express warranty.
IMPLIED WARRANTIES
Implied warranties are those which by law constitute part of
every contract of sale, whether or not the parties were aware of
them, and whether or not the parties intended them. Although
only a seller is bound by the implied warranties of law,
nevertheless, by express contractual stipulation, an agent of
the seller may bind himself to such warranties.
1. Warranty That Seller Has Right to Sell
In a contract of sale, unless a contrary intention appears, there
is an implied warranty on the part of the seller that he has a
right to sell the thing at the time when the ownership is to pass.
Since warranty goes into the issue of performance of obligation,
the warranty of the seller “that he has a right to sell” refers only
to the transfer of ownership at the point of consummation, and
not to any representation as to ownership and the capacity to
transfer the same at the point of perfection. The foregoing
warranty shall not be applicable to render liable a sheriff,
auctioneer, mortgagee, pledgee, or other person professing to
sell by virtue of authority in fact or law, for the sale of a thing in
which a third person has a legal or equitable interest.
Although Article 1547 uses the phrase “unless a contrary
intention appears,” there can be no legal waiver of such warranty
without changing the basic nature of the relationship, for the
warranty on the part of the seller that he has the capacity to sell,
i.e., to transfer ownership of the subject matter pursuant to the
sale, is the essence of sale; unless, it amounts to clear
assumption of risk on the part of the buyer, as when the
obligation of the seller is subject to a condition
2. Warranty Against Eviction
In a contract of sale, unless a contrary intention appears, there
is an implied warranty on the part of the seller that when the
ownership is to pass, the buyer shall from that time have and
enjoy the legal and peaceful possession of the thing.20 The
vendor shall answer for the eviction even though nothing has
been said in the contract on the subject.
a. When There Is Breach of Warranty Against Eviction
The seller’s implied warranty against eviction only applies (i.e.,
there has been a breach of warranty) when the following
conditions are present:
(a) Purchaser has been deprived of, or evicted from, the whole
or part of the thing sold;
(b) Eviction is by a fi nal judgment;
(c) Basis thereof is by virtue of a right prior to the sale made by
the seller; and
(d) Seller has been summoned and made co-defendant in the
suit for eviction at the instance of the buyer.
The warranty cannot be enforced until a fi nal judgment has
been rendered, whereby the buyer loses the thing acquired or
a part thereof. The buyer need not appeal from the decision in
order that the seller may become liable for eviction. There is no
need for the buyer to resist to the fullest the action for eviction
taken against him, since the warranty is a covenant on the part
of the seller, and by having given the seller proper notice of the
eviction, (i.e., by making him a party to the case) the buyer is
deemed to have complied with what is incumbent upon him, and
the seller, being a party to the case, must then take the lead to
resist the claim of the third party on the subject matter of the
sale.
Power Commercial and Industrial Corp. v. Court of Appeals,
held that there can be no action for breach of the said warranty
when the buyer was well aware of the presence of the tenants
at the time the buyer entered into the sale transaction, and it
even undertook the job of ejecting the squatters which in fact fi
led suit to eject the occupants.
Jovellano v. Lualhati, held that “[N]o discussion, therefore,
should be made here as to whether or not the vendor had
means of defense. All of this counts very little. There is only
one condition to be complied with by the vendee, and that is to
give notice of the complaint. Once this is proven, his right to
the warranty is perfect, and the vendor cannot set up anything
against it.”
Escaler v. Court of Appeals, held that the breach of warranty
against eviction cannot be enforced against the seller when the
only thing that the buyer did was to furnish the seller, by
registered mail, with a copy of the opposition the buyer fi led in
the eviction suit, without going through formally summoning the
seller to be a party to the case. The Court held that — This is
not the kind of notice prescribed by the aforequoted Articles
1558 and 1559 of the New Civil Code ... the respondents as
vendor/s should be made parties to the suit at the instance of
petitioners vendees, either by way of asking that the former be
made a co-defendant or by the fi ling of a third-party complaint
against said vendors.
b. Eviction in Part
Should the buyer lose, by reason of the eviction, a part of the
thing sold of such importance, in relation to the whole, that he
would not have bought it without said part, he may demand the
rescission of the contract; but with the obligation to return the
thing without other encumbrances than those which it had when
he acquired it. He may exercise this right of action, instead of
enforcing the vendor’s liability for eviction. The same rule shall
be observed when two or more things have been jointly sold for
a lump sum, or for a separate price for each of them, when it
clearly appears that the buyer would not have purchased one
without the other.
c. Particular Causes Given by Law
When adverse possession had been commenced before the
sale but the prescriptive period is completed after the transfer,
the seller shall not be liable for breach of warranty against
eviction.
If the property is sold for nonpayment of taxes due and not made
known to the buyer before the sale, the seller is liable for the
eviction.
d. Applicability to Judicial Sales
The judgment debtor is also responsible for eviction in judicial
sales, unless it is otherwise decreed in the judgment.
Nevertheless, Santiago Land Dev. Corp. v. Court of Appeals,
held that although in voluntary sales, the vendor can be
expected to defend his title because of his warranty to the
vendees, no such obligation is owed by the owner whose land
is sold at execution sale, and that “[i]n fact the buyer at such
sales takes the property subject to the superior right of other
parties,” as provided expressly under the Rules of Court.
In another case, the Court ruled that in execution sales, the rule
of caveat emptor applies; the sheriff does not warrant the title to
the property sold by him, and it is not incumbent on him to place
the purchaser in possession of the property.
e. Amounts for Which Seller Is Liable in Case of Eviction
Under Article 1555 of the Civil Code, when the warranty has
been agreed upon or nothing has been stipulated on this point,
in case eviction occurs, the buyer shall have the right to
demand of the seller:
(a) Return of the value which the thing sold had at the time of
the eviction, be it greater or
lesser than the price of the sale;
(b) Income or fruits, if buyer has been ordered to deliver them
to the party who won the suit against him;
(c) Costs of the suit which caused the eviction, and, in a proper
case, those of the suit brought against the seller for the
warranty;
d) Expenses of the contract, if the buyer has paid them; and
(e) Damages and interests and ornamental expenses, if the
sale was made in bad faith.
f. Waiver of Warranty and Effects Thereof
Although Article 1548 of the Civil Code provides that the
contracting parties to a contract of sale “may increase, diminish,
or suppress” the implied warranty against eviction, nonetheless,
the effect of waiver depends on the nature of such waiver,
whether it is general or specific waiver, and whether done in
good faith or bad faith on the part of the seller.
Under Article 1553, if the seller acted in bad faith then any
stipulation exempting the seller from the obligation to answer
for eviction shall be void.
On the other hand, if the buyer merely renounces the warranty
in general terms, without knowledge of a particular risk, and
eviction should take place, the seller shall only pay the value
which the thing sold had at the time of the eviction. In other
words, a general waiver of the warranty does not create the
effect of waiver but merely limits the liability of the seller to the
value of the thing sold at the time of eviction.
Should the buyer have made the waiver with knowledge of the
risks of eviction and assumed its consequences, the seller shall
not be liable. When the waiver is of a specific case of expected
eviction, the waiver has the effect of wiping out the warranty as
to that specific risk, but not as to eviction caused by other
reasons not covered in the waiver.
J.M. Tuazon v. Court of Appeals,
has, however, held that even when there is no specific waiver,
a buyer cannot take refuge on the warranty against eviction
when he purchases the land fully aware of a claim by a third
party on the title to the land and who was in actual possession
thereof; when the buyer cannot show that he is a buyer in good
faith, it is not entitled to the warranty against eviction.
3. Warranty Against Non-Apparent Servitudes
Under Article 1560 of the Civil Code, the warranty shall apply
only when the following conditions are present:
(a) The immovable sold is encumbered with any non-apparent
burden or servitude, not mentioned in the agreement; and
(b) The nature of such non-apparent burden or servitude is
such that it must presumed that the buyer would not have
acquired it had he been aware thereof.
a. When Warranty Not Applicable
The warranty does not apply:
(a) If the servitude is mentioned in the agreement;
(b) If the non-apparent burden or servitude is recorded in the
Registry of Deeds, unless there is an express warranty that the
thing is free from all burdens and encumbrances.
b. Remedies and Prescriptive Period
The buyer may either bring an action for rescission or sue for
damages only if he does so within one (1) year computed from
the execution of the deed. If such one year period has lapsed,
the buyer may only bring an action for damages within an equal
period, to be counted from the date on which he discovered the
burden or servitude.
4. Warranty Against Hidden Defects
Under Article 1561 of the Civil Code, the seller shall be
responsible for warranty against “hidden defect” only when:
(a) The nature of the hidden defect is such that it should render
the subject matter unfit for the use for which it is intended; or
(b) Should diminish its fitness for such use to such an extent
that, had the buyer been aware thereof, he would not have
acquired it or would have given a lower price for it. The seller is
not answerable for patent defects or those which are visible, or
even for those which are not visible if the buyer is an expert who,
by reason of his trade or profession, should have known them.
The seller is responsible to the buyer for any hidden faults or
defects in the thing sold, even though he was not aware thereof.
Investments & Development, Inc. v. Court of Appeals, the Court
held that the implied warranty against hidden defects under
Article 1547 of the Civil Code covers only those that make the
object of the sale unfit for the use for which it was intended at
the time of sale, and that in the sale of agricultural land, the
existing tenancy relationship pertaining thereto cannot be
considered as “hidden fault or defect” since it did not go into the
use of the land.
a. Requisites for Breach of Warranty
Nutrimix Feeds Corp. v. Court of Appeals,
held that “the requisites to recover on account of hidden
defects are as follows:”
(a) Defect must be hidden;
(b) Defect must exist at the time the sale was made;
(c) Defect must ordinarily have been excluded from the
contract;
(d) Defect, must be important (render the thing unfit or
considerably decreases fitness);
(e) Action must be instituted within the statute of limitations.
b. Remedies of Buyer and Obligation of Seller for Breach
of Warranty
In the event of breach of the warranty against hidden defects,
Nutrimix Feeds Corp. also confirmed the principle under Article
1567 of the Civil Code that the remedy of the buyer is either
towithdraw from the contract (accion redhibitoria) or to demand
a proportionate reduction of the price (accion quanti minoris),
with damages in either case. A choice of remedies is available
to the buyer only when the thing has not been lost. If the subject
matter of sale is actually lost, the extent of the obligations of the
seller for breach of warranty against hidden defects depends
upon the: cause of the lost, knowledge of the hidden defect by
seller, and whether there has been a waiver of the warranty,
thus:
(a) If the thing sold should be lost as a consequence of the
hidden faults:
(i) If the seller was aware of them, he shall bear the
loss, and shall be obliged to return the price and refund
the expenses of the contract, with damages; or
(ii) If seller was not aware of them, the seller is
obliged only to return the price and interest thereon,
and reimburse the expenses of the contract which the
buyer might have paid, but not for damages.
(b) If thing is lost through a fortuitous event or through the fault
of the buyer, then:
(i) If the seller was not aware of the hidden defects,
the buyer may demand from the seller the price which
he paid, less the value which the thing had when it
was lost;
(ii) If the seller acted in bad faith, in addition he shall
pay damages to the buyer.48
c. Waiver of Warranty
If there has been a stipulation exempting the seller from hidden
defects, then:
(a) If the seller was not aware of the hidden defects, the loss of
the thing by virtue of such defect will not make the seller liable
at all to the buyer; or
(b) If the seller was fully aware of such defect, such waiver is in
bad faith, and the seller would still be liable for the warranty.
In Filinvest Credit Corp. v. Court of Appeals, the Court held that
a provision in a contract of lease with option to purchase (which
it treated as a sale of movable on installments) that the buyer-
lessee “absolutely releases the lessor from any liability
whatsoever as to any and all matters in relation to warranty in
accordance with the provisions hereinafter stipulated,” was an
express waiver of warranty against hidden defects in favor of the
seller-lessor which “absolved the [seller-lessor] from any liability
arising from any defect or deficiency of the machinery they
bought.”
The Court also held in that case that since the buyers lessees
deal with such particular type of machinery, they should
shoulder the responsibility of protecting themselves against the
product defects, thus: “This is where the waiver of warranties is
of paramount importance. Common sense dictates that a buyer
inspects a product before purchasing it (under the principle of
caveat emptor or ‘buyer beware’) and does not return it for
defects discovered later on, particularly if the return of the
product is not covered by or stipulated in a contract or warranty.”
The Court further held that “to declare the waiver as non
effective, as the lower courts did, would impair the obligation of
contracts. Certainly, the waiver in question could not be
considered a mere surplusage in the contract between the
parties.”
NDC v. Madrigal Wan Hai Lines Corp.,
held that in contracts of sale, the phrase “as is, where is” basis
pertains solely to the physical condition of the thing sold, not to
its legal situation, and therefore does not amount to a waiver on
the legal defects pertaining to the subject matter. The Court
ruled that the U.S. tax liabilities which constituted a potential lien
pertained only to the legal situation of the subject matter, and
not to its physical aspect, and that the buyer of the thing had no
obligation to shoulder the same.
d. Applicability to Judicial Sales
The warranty against hidden defects shall be applicable to
judicial sales, except that the judgment debtor shall not be
liable for damages.
e. Prescriptive Period
Actions on warranties against hidden defects shall be barred
after six (6) months from the delivery of the thing sold.
5. Redhibitory Defects of Animals
Under Article 1576 of the Civil Code, even when professional
inspection has been made, if the hidden defect of animals
should be of such a nature that expert knowledge is not sufficient
to discover it, the defect shall be considered as redhibitory. But
if the veterinarian, through ignorance or bad faith, should fail to
discover or disclose it, he shall be liable for damages.
a. Sale of Team
Under Article 1572 of the Civil Code, if two or more animals are
sold together, whether for a lump sum or for a separate price
for each of them, the redhibitory defect of one shall only give
rise to its redhibition, and not that of the others; unless it should
appear that the buyer would not have purchased the sound
animal or animals without the defective one. The latter case shall
be presumed when a team, yoke, pair, or set is bought, even if
a separate price has been fixed for each one of the animals
composing the same. Note that the foregoing rules with respect
to the sale of animals shall in like manner be applicable to the
sale of other things.
b. Other Rules on Sale of Animals
There is no warranty against hidden defects of animals sold at
fairs or at public auctions, or of live stock sold as condemned.
The sale of animals suffering from contagious diseases
shall be void.
A contract of sale of animals shall also be void if the use or
service for which they are acquired has been stated in the
contract and they are found to be unfit therefor.
c. Prescriptive Period
The redhibitory action, based on the faults or defects of
animals, must be brought within forty (40) days from the date
of their delivery to the buyer.
If the animal should die within three (3) days after its purchase,
the vendor shall be liable if the disease which cause the death
existed at the time of the contract. When the buyer returns the
objects bought and demands the payment of the purchase price,
he is in effect “withdrawing from the contract” as provided in
Article 1567, where the prescriptive period is six (6) months from
the delivery of the thing sold.
d. Obligation of Buyer to Return
If the sale be rescinded, the animal shall be returned in the
condition in which it was sold and delivered, the buyer being
answerable for any injury due to his negligence, and not arising
from the redhibitory fault or defect.
e. Remedies of Buyer
In the sale of animals with redhibitory defects, the buyer may
also elect between withdrawing from the contract and
demanding a proportionate reduction of the price, with damages
in either case; but he must make use thereof within the same
period which has been fixed for the exercise of the redhibitory
action.
IMPLIED WARRANTIES IN SALE OF GOODS
1. Warranty as to Fitness or Quality
Under Article 1562 of the Civil Code, in a sale of goods, there
is an implied warranty or condition as to the quality or fitness of
the goods, as follows:
(a) Where the buyer, expressly or by implication, makes known
to the seller the particular purpose for which the goods are
acquired, and it appears that the buyer relies on the seller’s skill
or judgment (whether he be the grower or manufacturer or not),
there is an implied warranty that the goods shall be reasonably
fit for such purpose;
(b) Where the goods are bought by description from a seller who
deals in goods of that description (whether he be the grower or
manufacturer or not), there is an implied warranty that the goods
shall be of merchantable quality.
An implied warranty or condition as to the quality or fitness for a
particular purpose may be annexed by the usage of trade. In the
case of contract of sale of a specified article under its patent or
other trade name, there is no warranty as to its fitness for any
particular purpose, unless there is a stipulation to the contrary.
a. Requisites for Breach of Warranty to Apply
Nutrimix Feeds Corp. v. Court of Appeals which covered a
contract of sale of animal feeds, described the requisites to be
established for breach of the implied warranty that the goods
sold are reasonably fi t and suitable to be used for the purpose
which both parties contemplated, thus:
(a) That the buyer sustained injury because of the product;
(b) That the injury occurred because the product was defective
or unreasonably unsafe; and
(c) The defect existed when the product left the hands of the
seller.
Nutrimix Feeds Corp. also held that a manufacturer or seller of
a product cannot be held liable for any damage allegedly caused
by the product in the absence of any proof that the product in
question is defective; that the defect must be present upon the
delivery or manufacture of the product, or when the product left
the manufacturer’s or seller’s, or when the product was sold to
the purchaser; or the product must have reached the user or
consumer without substantial change in the condition it was
sold.
b. Measure of Damage In Case of Breach of Warranty on
Quality
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.
2. Sale of Goods by Sample and/or by Description
In the case of a contract of sale by sample, if the seller is a dealer
in goods of that kind, there is an implied warranty that the goods
shall be free from any defect rendering them unmerchantable
which would not be apparent on reasonable examination of the
sample.
Mendoza v. David,held that in a sale by sample, there is an
implied warranty that the goods shall be free from any defect
which is not apparent or reasonable upon examination of the
sample and which would render the goods unmerchantable. On
the other hand, in a sale of goods by description, Mendoza held
that a “seller’s description of the goods which is made part of the
basis of the transaction creates a warranty that the goods will
conform to that description. Where the goods are bought by
description from a seller who deals in the goods of that
description, there is an implied warranty that the goods are of
mechantable quality.”
3. Buyer’s Option in Case of Breach of Warranty
Under Article 1599 of the Civil Code, where there is a breach
of warranty by the seller in the sale of goods, the buyer may, at
his election, avail of the following remedies:
(a) 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;
(b) Accept or keep the goods and maintain an action against
the seller for damages;
(c) Refuse to accept the goods, and maintain an action against
the seller for damages;
(d) 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.
When the buyer has claimed and been granted a remedy in any
of these ways, no other remedy can thereafter be granted,
without prejudice to the buyer’s right to rescind, even if
previously he has chosen specific performance when fulfillment
has become impossible.
4. Waiver of Remedies by Buyer
When goods have been delivered to the buyer, he cannot
rescind the sale if he knew of the breach of warranty when he
accepted the goods without protest, or if he fails to notify the
seller within a reasonable time of the election to rescind, or if he
fails to return or to offer to return the goods to the seller in
substantially as good condition as they were in at the time the
ownership was transferred to the buyer. But if deterioration or
injury of the goods is due to the breach of warranty, such
deterioration or injury shall not prevent the buyer from returning
or offering to return the goods to the seller and rescinding the
sale.
5. Obligation of Buyer on the Price
Where the buyer is entitled to rescind the sale and elects to do
so, he shall cease to be liable for the price upon returning or
offering to return the goods. If the price or any part thereof has
already been paid, the seller shall be liable to repay so much
thereof as has been paid, concurrently with the return of the
goods, or immediately after an offer to return the goods in
exchange for repayment of the price.
6. Refusal of Seller to Accept Return of Goods
Where the buyer is entitled to rescind the sale and elects to do
so, and the seller refuses to accept an offer of the buyer to return
the goods, the buyer shall thereafter be deemed to hold the
goods as bailee for the seller, but subject to a lien to secure
payment of any portion of the price which has been paid, and
with the remedies for the enforcement of such lien allowed to an
unpaid seller by Article 1526 of the Civil Code.
ADDITIONAL TERMS OF WARRANTIES FOR CONSUMER
GOODS
The term “consumer products” is defined under Article 4(q) of
the Consumer Act of the Philippines, to cover goods “which are
primarily for personal, family, household or agricultural
purposes, which shall include but not limited to, food, drugs,
cosmetics, and devices.”
The warranty rights can be enforced by presentment to the
immediate seller either the warranty card or the official receipt
along with the product to be serviced or returned to the
immediate seller. No other documentary requirement shall be
demanded from the purchaser.
3. Duration of Warranty
The seller and the consumer may stipulate the period within
which the express warranty shall be enforceable. But if the
implied warranty on merchantability accompanies an express
warranty, both will be of equal duration. Any other implied
warranty shall endure not less than sixty (60) days nor more than
one (1) year following the sale of new consumer products.
4. Breach of Warranties
In case of breach of express warranty, the consumer may elect
to have the goods repaired or its purchase price refunded by the
warrantor. In case the repair of the product in whole or in part is
elected, the warranty work must be made to conform to the
express warranty within thirty (30) days by either the warrantor
or his representative. The thirty-day period, however, may be
extended by conditions which are beyond the control of the
warrantor or his representatives.
In case the refund of the purchase price is elected, the amount
directly attributable to the use of the consumer prior to the
discovery of the non-conformity shall be deducted.
In case of breach of implied warranty, the consumer may retain
the goods and recover damages, or reject the goods, cancel the
contract and recover from the seller so much of the purchase
price as has been paid, including damages.
5. Contrary Stipulations
All covenants, stipulations or agreements contrary to the
provisions of Article are specifically declared null and void, and
without legal effect.
—oOo—

Article 68 of the Consumer Act provides that when the seller or

manufacturer gives an express warranty, it shall be operative
from the moment of sale, and consequently such seller or
manufacture shall:
(a) Set forth the terms of warranty in clear and readily
understandable language and clearly identify himself as the
warrantor;
(b) Identify the party to whom the warranty is extended;
(c) State the products or parts covered;
(d) State what the warrantor will do in the event of a defect,
malfunction or failure to conform to the written warranty and at
whose expense;
(e) State what the consumer must do to avail of the rights
which accrue to the warranty; and
(f) Stipulate the period within which, after notice of defect,
malfunction or failure to conform to the warranty, the warrantor
will perform any obligation under the warranty.
1. Subsidiary Liability of Retailer
The retailer shall be subsidiarily liable under the warranty in case
of failure of both the manufacturer and distributor to honor the
warranty, and that in such case the retailer shall shoulder the
expenses and costs necessary to honor the warranty.

The remedy of the retailer in such case would be to proceed

against the distributor or manufacturer.

2. Enforcement of Warranty

CHAPTER 13
EXTINGUISHMENT OF SALE
IN GENERAL
The same grounds by which obligations in general are
extinguished, also apply to the extinguishment of the obligations
arising from contracts of sale. They include payment of the price
or performance (i.e., delivery of subject matter), loss of the
subject matter, condonation or remission, confusion or merger
of the rights of creditor and debtor, compensation, novation,
annulment, rescission, fulfillment of a resolutory condition, and
prescription.
Payment or performance only extinguishes the obligations to
which they pertain to in a contract of sale, but not necessarily
the contract itself, since the relationship between buyer and
seller remains after performance or payment, such as the
continuing enforceability of the warranties of the seller. More
importantly, under Article 1600 of the Civil Code, sales are also
extinguished by conventional or legal redemption. Redemption
as a mode of extinguishment is therefore unique to contracts of
sale.
CONVENTIONAL REDEMPTION
1. Definition
Conventional redemption shall take place when the seller
reserved for himself the right to repurchase the thing sold, with
the obligation to:
(a) return the price of the sale,
(b) the expenses of the contract,
(c) any other legitimate payments made by reason of the sale,
(d) and the necessary and useful expenses made on the thing
sold.
Even when a sale is one with a right of repurchase, the buyer
would still be subrogated to the seller’s rights and actions even
during the period when redemption can be made by the seller.
In other words, the redemption feature of sale does not prevent
its full consummation. Unlike a debt which a third party may
satisfy even against the debtor’s will the right of repurchase may
be exercised only by the seller in whom the right is recognized
by a contract, or by any person to whom the right may have been
transferred, or in the case of legal redemption, by the person so
entitled by law.
2. Proper Reservation of Right to Repurchase
Villarica v. Court of Appeals,
distinguished between the right to redeem from an option to
purchase, in that it is clear from Article 1601 of the Civil Code
that “the right of repurchase ... must be reserved by the
vendor, by stipulation to that effect, in the contract of sale.”8 It
held that “[T]he right of repurchase is not a right granted [to]
the vendor by the vendee in a subsequent instrument, but is a
right reserved by the vendor in the same instrument of sale as
one of the stipulations of the contract. Once the instrument of
absolute sale is executed, the vendor can no longer reserve
the right to repurchase, and any right thereafter granted the
vendor by the vendee in a separate instrument cannot
be a right of repurchase but some other right like the option to
buy in the instant case.
In another way of looking at it, Misterio v. Cebu State College of
Science and Technology, held that the essence of a pacto de
retro sale is that title and ownership of the property sold is
immediately vested in the vendee a retro, subject to the
restrictive condition of repurchase by the vendor a retro within
the redemption period.
In Nool v. Court of Appeals, two separate documents were
executed, one a sale agreement, and the other an agreement
granting the sellers the right of repurchase; but that when they
were executed the sellers had actually lost ownership of the
subject parcel of land which had been foreclosed by the
mortgagee bank. When the buyer learned that the sellers no
longer owned the property, he arranged for its direct purchase
from the mortgagee-bank. The sellers then sought to exercise
the right of repurchase against the buyer. Recognizing that a
sale contract does not become void by reason only that the
subject matter is not owned by the seller at the time of the
perfection, the Court, nevertheless considered the underlying
sale contract as “inoperative” under item 5 of Article 1409 which
declares void a contract which “contemplates an impossible
service,” in line with
Article 1459 of the Civil Code which requires that “the vendor
must have a right to transfer the ownership thereof at the time it
is delivered.” Since the underlying contract of sale was
inoperative, and consequently, void, then the right of repurchase
reserved would also be void.
Nool indicates that the valid existence of a stipulated right of
repurchase is premised upon the fact that the underlying
contract of sale is valid and there has been performance (i.e.,
delivery of the subject matter and transfer of ownership to the
buyer), upon which the right to repurchase can be exercised
later on.
3. Right of Repurchase May Be Proved by Parol Evidence
Since a right to repurchase is merely a feature of the contract of
sale, it is governed also by the Statute of Frauds. However, the
Supreme Court has held that when the contract of sale has been
reduced in writing, parol evidence may be adduced to prove the
agreement granting the seller a right to repurchase the property
sold, since the deed of sale and the verbal agreement allowing
the right of repurchase should be considered as an integral
whole, then the deed of sale relied upon by the seller “is in itself
the note or memorandum evidencing the contract,” which would
take the case outside the provisions of the Statute of
Frauds.Parol evidence may also be admitted to prove that a right
of repurchase was part of a deed of sale, when no objection to
such parol evidence was made during trial.
The Court also held that the “best evidence rule” would not be
an obstacle to the adducement of such parol evidence where it
is shown that the parol agreement was the moving cause of the
written contract, or where the parol agreement forms part of the
consideration of the written contract, and it appears that the
written contract was executed on the faith of the parol contract
or representation, and especially so when the right of
repurchase proved by parol evidence is not inconsistent with the
terms of the written contract.
4. Distinguished from Option to Purchase
The differences between a right of redemption from an option
right may be summarized as follows:
(a) A right to redeem is not a separate contract, but merely part
of a main contract of sale, and in fact cannot exist unless
reserved at the time of the perfection of the contract of sale;
whereas, an option to purchase is generally a principal, albeit
preparatory, contract and may be created independent
of another contract;
(b) A right to redeem must be imbedded in a contract of sale
upon the latter’s perfection; whereas, an option right may exist
prior to or after the perfection of the sale, or be imbedded in
another contract, like a lease, upon that contract’s perfection;

(c) The right to redeem does not need a separate consideration
in order to be valid and effective; whereas, an option to purchase
in order to be valid must have a consideration separate and
distinct from the purchase price;
(d) For a right to redeem, the redemption period cannot exceed
ten (10) years; whereas, the period for an option right may
exceed ten (10) years;
(e) The exercise of a right of redemption requires notice to be
accompanied by a tender of payment, including consignment
when tender of payment cannot be made effectively on the
buyer; whereas, the exercise of a option to purchase requires
only a notice of such exercise be given to the optioner; and
(f) The exercise of a right of redemption extinguishes an existing
contract of sale; whereas, the valid exercise of an option right
results into the perfection of a contract of sale.
5. Period of Redemption
a. When No Period Agreed Upon
In case of stipulated right to redeem, in the absence of an
express agreement as to the period when the right can be
exercised, it shall last four (4) years from the date of the contract.
In Misterio v. Cebu State College of Science and Technology,
18 the four year period was held to begin from the happening of
the stipulated condition contained in the covering deed of sale,
rather than from the date of the contract, and even when the
entire covered period from the date of the contract would exceed
ten (10) years.
The inexplicable ruling in Misterio is further discussed
hereunder.
b. When Period Agreed Upon
Should there be an agreement as to the period of redemption,
the period cannot exceed 10 years;19 if exceeds 10 years, the
agreement is valid only for the first 10 years.
In Anchuel v. Intermediate Appellate Court, where it was
stipulated in the sale a retro that the seller cannot redeem the
property within a period of 19 years from the execution of the
contract, the Court held that such stipulation is void since it
violated Article 1601 of the Civil Code; it therefore held that the
period of redemption would be 10 years.
In Tayao v. Dulay,22 it was stipulated by the parties in the sale
a retro that the seller’s right of redemption cannot be exercised
within 10 years. Although the Court found the stipulation to be
void, it held that such nullity of the stipulation did not convert the
contract into a mere indebtedness nor an equitable mortgage,
and since there was an agreement, although void, the provisions
of Article 1606 of the Civil Code would apply in that the seller
may exercise his right of redemption within a period of 10 years
from the date of the contract.
Tayao illustrated clearly that when a period of redemption is
agreed upon by the parties in a sale a retro, although the
stipulation as to period may be unclear or void, it is the 10 year
period provided in Article 1606 that applies and not the 4 year
period provided therein where there is no agreement as to
period.
Bandong v. Austria held that the provisions of the contract of
sale which secured to the sellers a right of repurchase in the
month of March of any year after the date of the contract, but
such a right of redemption could be exercised for a period of
10 years from the date of the contract, but wholly without force
and effect thereafter.
Ochagabia v. Court of Appeals
held that the right to redeem under a sale pacto de retro had
prescribed when the action was initiated more than six
decades later, since the right to redeem should have been
exercised at the latest within (10) years reckoned from the
execution of the contract.
c. The Mysterious Aberration of Misterio
Appropriate to its name, the decision in Misterio v. Cebu State
College of Science and Technology,25 defi es practically all
established jurisprudential rules on the proper application of
the statutory periods for the exercise of the conventional right
of redemption.
In Misterio, a deed of sale with right to repurchase was executed
in December, 1956 over a parcel of land “subject to the right of
the vendor to repurchase the property after the high school shall
have ceased to exist, or shall have transferred its site
elsewhere.” When the condition did happen in June, 1983 (or
more than twenty years from the date of the contract), the Court
ruled that since no period was agreed upon, the applicable
period under Article 1606 of the Civil Code should be four (4)
years to be counted, not from the “date of the contract” as
required in the article, but within four (4) years from the
happening of the condition, even though it would exceed the
maximum 10-year limitation provided in said Article 1606, which
has been strictly construed by the Supreme Court in previous
rulings discussed above. Was it oversight on the part of the
Supreme Court or does Misterio establish the new rule on
redemption period?
d. Pendency of Action Tolls Redemption Period
Ong Chua v. Carr
held that the pendency of an action brought in good faith and
relating to the validity of a sale a retro tolls the running of the
period of redemption, thus: “Neither was it error on the part of
the court to hold that the pendency of the
action tolled the term for the right of redemption; that is an old
and well established rule.”
On the other hand, Misterio v. Cebu State College of
Science and Technology,29 held that the pendency of a
litigation pertaining to the right of redemption does not toll the
period because such period “is not suspended merely and solely
because there is a divergence of opinion between the parties as
to the precise meaning of the phrase providing for the condition
upon which the right to repurchase is triggered. The existence
of seller a retro’s right to repurchase the proper is not dependent
upon the prior fi nal interpretation by the court of the said
phrase.”
There is actually no contradiction between the Ong Chua and
the Misterio rulings on this particular matter, the important
consideration being the “vesting” of the exercise of the right of
redemption by its proper exercise, which require notice and
tender of payment. In the case of Ong Chua, the seller a retro
had given notice of the exercise of the redemption right within
the redemption period; whereas in Misterio the facts showed the
successors-in-interests of the sellers a retro actual sought to
exercise the redemption right after the expiration of the four year
redemption period. In essence therefore, the completion of the
redemption process (i.e., the payment of the amounts required
by Article 1616) is tolled by the fi ling of a civil action relating to
the issue of such redemption, provided that the exercise of the
redemption right and the fi ling of the suit are done within the
redemption period.
e. Non-Payment of Price Does Not Affect Running of
Redemption Period
Catangcatang v. Legayada
held that the non-payment of the purchase price by itself
would not serve to suspend the period of redemption, thus —
The sale was consummated upon the execution of the
document and the delivery of the land subject matter thereof to
the vendee, petitioner herein. It was a perfectly valid agreement,
and the non-payment of the balance of the purchase price could
not have the effect of suspending the efficacy of the
provisionsthereof. ... The sale under consideration was
perfected from the moment Legayada consented to sell the land
in question and Catangcatang agreed to purchase it for the sum
of 51,400.00 and the latter had partially complied with his
obligation by paying the sum of
51,200.00 and the former by delivering possession of the land
to the vendee.”
6. Possession of Subject Matter During Period of
Redemption
In a sale a retro, the buyer has a right to the immediate
possession of the property sold, unless otherwise agreed upon.
It is basic that in a pacto de retro sale, the title and ownership of
the property sold are immediately vested in the buyer a retro,
subject only to the resolutory condition of repurchase by the
seller a retro within the stipulated period.
Misterio v. Cebu State College of Science and Technology,held
— Pending the repurchase of the property, the vendee a retro
may alienate, mortgage or encumber the same, but such
alienation or encumbrance is as 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. The
vendor a retro may also register his right to repurchase under
the Land Registration Act and may be enforced against any
person deriving title from the vendee a retro.
7. How Redemption Effected
The seller can avail himself of the right of repurchase by
returning to the buyer:
(a) The price of the sale:
(b) The expenses of contract, and any other legitimate
payments made by reason of the sale;
(c) The necessary and useful expenses made on the thing
sold.
The seller may bring his action against every possessor whose
right is derived from the buyer, even if in the second contract no
mention should have been made of the right to repurchase,
without prejudice to the provisions of the Mortgage Law and the
Property Registration Decree, with respect to third persons, who
may have bought in good faith and for value.
Under Article 1616 of the Civil Code, the seller a retro must pay
for the useful improvements introduced by the buyer a retro.
Gargollo v. Duero
held that failure of the seller a retro to pay the useful
improvements, entitles the buyer a retro to retain possession of
the land until actual reimbursement is done by the seller a retro.
The exercise of redemption is not limited only to the total
redemption price enumerated in Article 1616 of the Civil Code,
since said legal provision is not restrictive nor exclusive. It
should be construed with Article 1601 which provides that legal
redemption shall take place when the seller 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.”
a. How Redemption Exercised
Legaspi v. Court of Appeals
held that in order to exercise the right to redeem, only tender of
payment is sufficient. The Court further held that “[S]ince the
case at bar involves the exercise of the right to repurchase, a
showing that petitioner made a valid tender of payment is
sufficient. It is enough that a sincere or genuine tender of
payment and not a mock or deceptive one was made. The fact
that he deposited the amount of the repurchase money with the
Clerk of Court was simply an additional security for the
petitioner. It was not an essential act that had to be performed
after tender of payment was refused by the private respondent
although it may serve to indicate the veracity of the desire to
comply with the obligation.”
The mere sending of letters by the seller expressing his desire
to repurchase the property without accompanying tender of the
redemption price does not comply with the requirement of law.
Catangcatang v. Legayada
held that when tender of payment cannot be validly made,
because the buyer cannot be located, it becomes imperative
for the seller a retro then to fi le a suit for consignation with the
courts of the redemption price, and failing to do so within the
redemption period, his right of redemption shall lapse.
Lee Chuy Realty Corp. v. Court of Appeals
accompanied by a bona fi de tender of redemption price, is not
essential where the right to redeem is exercised through a
judicial action within the redemption period and simultaneously
depositing the redemption price. The fi ling of the action itself
within the period of redemption is equivalent to a formal offer to
redeem. Lee Chuy held that there is actually no prescribed form
for an offer to redeem to be properly effected. It can either be
through a formal tender with consignation, or by fi ling a
complaint in court coupled with consignation of the redemption
price within the prescribed period, thus: ... a formal offer to
redeem, accompanied by a bona fi de tender of the redemption
price, is not essential where the right to redeem is exercised
through a judicial action within the redemption period and
simultaneously depositing the redemption price. The formal offer
to redeem accompanied by a bona fide tender of the redemption
price prescribed by law is only essential to preserve the right of
redemption for future enforcement even beyond the period of
redemption. The fi ling of the action itself within the period of
redemption is equivalent to a formal offer to
redeem.
In sum, the formal offer to redeem is not a distinct step or
condition sine qua non to the fi ling of the action in court for the
valid exercise of the right of legal redemption. What constitutes
a condition precedent is either a formal offer to redeem or the fi
ling of an action in court together with the consignation of the
redemption price within the reglementary period.
Outside of seeking court action within the redemption period to
enforce the redemption right, Lee Chuy thereby discussed
when the right of redemption is deemed “vested,” i.e., the
“formal offer to redeem accompanied by a bona fi de tender
of the redemption price” within the redemption period, which
thereafter allows the enforcement of the right even beyond the
redemption period.
b. In Multi-Parties Cases
In sale a retro, the buyer of part of an undivided immovable who
acquires the whole thereof in the case of Article 498, may
compel the seller to redeem the whole property, if the latter
wishes to make use of the right of redemption.
If several persons, jointly and in the same contract, should sell
an undivided immovable with a right of repurchase, none of them
may exercise this right for more than his respective share.
The same rule shall apply if the person who sold an immovable
alone has left several heirs, in which case each of the latter may
only redeem the part which he may have acquired.
In the case of the preceding situation, the buyer may demand
of all the vendors or co-heirs, that they come to an agreement
upon the repurchase of the whole thing sold; and should they
fail to do so, the buyer cannot be compelled to consent to a
partial redemption.
On the other hand, each one of the co-owners of an undivided
immovable who may have sold his share separately, may
independently exercise the right of repurchase as regards his
own share, and the buyer cannot compel him to redeem the
whole property. In addition, the creditors of the seller cannot
make use of the right of redemption against the buyer, until
after they have exhausted the property of the seller.
De Guzman v. Court of Appeals,
the Court held that under the rules contained in Article 1612 of
the Civil Code, should one of the co-owners or co-heirs succeed
alone in redeeming the whole property, such co-owner or co-
heir shall be considered Art. 498. Whenever the thing is
essentially indivisible and the co-owners cannot agree that it be
allotted to one of them who shall indemnify the others, it shall be
sold and its proceeds distributed. as a mere trustee with respect
to the shares of his co-owners or co-heirs; accordingly, no
prescription will lie against the right to any co-owner or co-heir
to demand from the redemptioner his respective share in the
property redeemed, which share is subject to a lien in favor of
the redemptioner for the amount paid by him corresponding to
the value of the share.
8. When Redemption Not Made
Jurisprudence before the new Civil Code held that when no
redemption is made, the buyer a retro automatically acquires full
ownership.
However, under the present Article 1607 of the Civil Code, in the
case of real property, the consolidation of the ownership in the
buyer by virtue of the failure of the seller to comply with his
obligation to return the price and other legally mandated
expenses, shall not be recorded in the Registry of Property
without a judicial order, after the seller has been duly heard.
The proceeding for consolidation of title under Article 1607 is not
a mere motion incident to a main action or special proceeding,
but is an ordinary civil action where a complaint or petition must
be filed; with the buyer a retro being made a party to the
complaint and summons being served upon him.55 If such
action for consolidation of ownership is denied because the
contract is found to be an equitable mortgage, another action
can be fi led to collect on the indebtedness or to foreclose the
mortgage.
Article 1607 abolished automatic consolidation of ownership in
the buyer a retro upon expiration of the redemption period by
requiring the buyer to institute an action for consolidation
where the vendor a retro may be duly heard. If the buyer
succeeds in proving that the transaction was indeed a pacto de
retro, the vendor is still given a period of thirty days from the
finality of the judgment within which to repurchase the property.
Notwithstanding the provisions of Article 1607, the recording
in the Registry of Deeds of the consolidation of ownership of the
buyer is not a condition sine qua non to the transfer of
ownership. The buyer would still be the owner of the property
when the seller a retro fails to redeem the property within the
redemption period. The essence of a pacto de retro sale that the
title and ownership of the property sold are immediately vested
in the buyer a retro, subject to the resolutory condition of
repurchase by the seller a retro within the stipulated period.
Failure of the seller a retro to perform said resolutory condition
vests absolute title and ownership over the property sold. As title
is already vested in the buyer a retro, his failure to consolidate
his title under Article 1607 does not impair such title or
ownership for the method prescribed thereunder is merely for
the purpose of registering the consolidated title.
9. Grant of 30-day Redemption Right in Case of Litigation
and Article 1606
Under the last paragraph of Article 1606 of the Civil Code,“the
vendor may still exercise the right to repurchase within thirty-
days from the time fi nal judgment was rendered in a civil action
on the basis that the contract was a true sale with right to
repurchase.”
When the period of redemption has expired, then ipso jure the
right to redeem has been extinguished. However, even when
the right to redeem has expired, and there has been a previous
suit on the nature of the contract, the seller may still exercise
the right to repurchase within 30 days from the time fi nal
judgment was rendered in a civil action on the basis that the
contract was a true sale with right to repurchase.
Tapas v. Court of Appeals
held that the 30-day period granted under Article 1606 for the
seller to redeem the property sold a retro “contemplates a case
involving a controversy as to the true nature of the contract,
and the court is called upon to decide whether it is a sale with
pacto de retro or an equitable mortgage ... there can be no
controversy as to the contract being one of absolute deed of
sale, pure and simple. There could not even then be a period
of redemption.”
Pangilinan v. Ramos
held that the 30-day period for redemption granted under
Article 1606 does not apply to a contract found to be an
absolute sale. It also held that the “thirty day period is pre-
emptory because the policy of the law is not to leave the
purchaser’s title in uncertainty beyond the established thirty
day period. It is not a prescriptive period but is more a requisite
or condition precedent to the exercise of the right of legal
redemption.”
Nevertheless, it cited as authority the case of Caro v. Court of
Appeals,which referred to the 30-day legal redemption right of a
co-owner under Article 1623 of the Civil Code, and not the 30-
day period provided under Article 1606. The rationale for the
grant of the 30-day period of redemption under Article 1606 is
quite clear: although a period of redemption is stated in the
purported sale a retro, nevertheless, the purported seller has
placed no importance thereto since he considers the transaction
to be an equitable mortgage; being an equitable mortgage, then
the purported seller has every right to extinguish the equitable
mortgage by paying-up the loan at any time before the purported
buyer has foreclosed on the mortgage. Allowing the expiration
of the stipulated redemption period is not negligence or fault on
the part of the purported seller, and is in fact consistent with his
position that the sale is not one a retro but actually an equitable
mortgage. Therefore, should a judgment be finally rendered
upholding the transaction to be one of sale a retro, then it is but
fair to grant to the seller a final 30-day period within which to
redeem from the time he is bound by the judgment finding the
contract to be one not of equitable mortgage.
On the other hand, if the issue before the court is one whether
the contract at issue was one of absolute sale or a sale a retro,
a judgment finding the contract to be a sale a retro should not
authorize the application of the 30-day redemption period under
Article 1606 in favor of the seller who had previously allowed the
period of redemption to expire. In such a case, the seller a retro
was negligent or at fault for not having exercised his right to
redeem during the redemption period, and should not be
granted a new period.
a. Feigning Equitable Mortgage Situation
to Avail of Article 1606
Even when the sale involved a true sale a retro, and the seller
failed to redeem within the redemption period, there was danger
that the seller, as a desperate move, would feign the defense of
equitable mortgage in a suit fi led to redeem the property, and
knowing that the evidence would still yield a judgment on a sale
a retro, would nevertheless allow him to avail of the 30-day
redemption period allowed under the last paragraph of Article
1606.
Adorable v. Inacala
where it held that where the evidence established that there
could be no honest doubt as to the parties’ intention that the
transaction was clearly and definitely a sale with pacto de
retro, the seller would not be entitled to the benefit of Article
1606.
Vda. De Macoy v. Court of Appeals
the sellers raised the defense that the sale was actually an
equitable mortgage, but with an alternative defense that even
assuming the transaction to be a pacto de retro sale, they can
nevertheless repurchase the property by virtue of Article 1606.
Felicen, Sr. v. Orias
which held that “the application of the third paragraph of Article
1606 is predicated upon the bona fi des 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 sale with pacto de retro,
honestly and sincerely entertained, that the agreement was in
reality a mortgage, one not intended to affect the title to the
property ostensibly sold, but merely to give it as security for a
loan or other obligation. ... The reason is quite obvious. If the
rule were otherwise, it would be within the power of every vendor
a retro to set at naught a pacto de retro, or 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 retro
— into an equitable mortgage.”
Abilla v. Gobonseng
held that the vendors in a sale judicially declared as pacto de
retro may not exercise the right to repurchase within the 30-
day period provided under Article 1606, after they have taken
the position that the same was an equitable mortgage, when it
is shown that there was no honest belief that the sale was an
equitable mortgage since:
(a) none of the circumstances under Article 1602 of the
Civil Code were shown to exist to warrant a
conclusion that the transaction was an equitable
mortgage; and
(b) that if they truly believed the sale to be an equitable
mortgage, as a sign of good faith, they should have,
at the very least, consigned with the trial court the
amount representing their alleged loan, on or before
the expiration of the right to repurchase.
Nonetheless, the Court reversed its earlier decision Abilla and
granted the exercise of redemption under Article 1606. In
reversing its earlier resolution, the Court held that Article 1606
applies only where the nature and character of the transaction
— whether as a pacto de retro sale or as an equitable mortgage
— was put in issue before the court. In other words, it applies in
a situation where one of the contending parties claims that the
transaction was a sale with right to repurchase and the other
counters that the same was an equitable mortgage, and the
courts declares in a final judgment that the transaction was really
a sale with pacto de retro. But the applicability of Article 1606
rests on the bona fi de intent of the seller a retro, if he honestly
believed that the transaction was an equitable mortgage, the
said article applies and he can still repurchase the property
within thirty days from finality of the judgment declaring the
transaction as a sale with pacto de retro. Parenthetically, it
matters not what the buyer intended the transaction to be.
10. Fruits
If at the time of the execution of the sale there should be on the
land, visible or growing fruits, there shall be no reimbursement
for or pro-rating of those existing at the time of the redemption,
if no indemnity was paid by the purchaser when the sale was
executed.
Should there have been no fruits at the time of the sale, and
some exist at the time of redemption, they shall be prorated
between the redemptioner and the buyer, giving the latter the
part corresponding to the time he possessed the land in the
last year, counted from the anniversary of the date of the
Sale
Almeda v. Daluro
held that the provisions of Article 1617 of the Civil Code on fruits
applies only when the parties have not provided for their sharing
arrangement with respect to the fruits existing at the time of
redemption: “In the case at bar, the Agreement ... specifically
provided that the parties would share equally the net harvest of
the palay planted on the land in question. Since said Agreement
is not contrary to law, morals or public policy, the same is,
therefore, binding on the parties.”
11. Equitable Mortgage
a. Definition of “Equitable Mortgage”
Matanguihan v. Court of Appeals
defined an equitable mortgage “as 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 security for a debt, and contains nothing
impossible or contrary to law.” It also enumerated the essential
requisites of an equitable mortgage to be as follows:
(a) That the parties entered into a contract denominated as a
contract of sale; and
(b) That the intention was to secure existing debt by way of a
mortgage.
San Pedro v. Lee
held that when the two above enumerated conditions are not
proven, the existence of any of the circumstances enumerated
in Article 1602 cannot become the basis to treat the transaction
as an equitable mortgage. When in doubt, courts are generally
inclined to construe a transaction purporting it to be a sale as an
equitable mortgage, which involves a lesser transmission of
rights and interest over property in controversy.
Lapat v. Rosario
held that “[a] contract should be construed as a mortgage or a
loan instead of a pacto de retro sale when its terms are
ambiguous or the circumstances surrounding its execution or
its performance are incompatible or inconsistent with a sale.”
Molina v. Court of Appeals
the Court held that the intention of the parties to an agreement
is shown not necessarily by the terminology used therein but by
all the surrounding circumstances, such as the relative situation
of the parties at the time, the attitude, acts, conduct, declaration
of the parties at the time, leading to the deed, and generally, all
pertinent facts having a tendency to fi x and determine the real
nature of their designand understanding.
Banga v. Bello,reiterating such ruling, added that — Debtors
usually find themselves in an unequal position when bargaining
with their creditors, and will readily sign onerous contracts just
to have the money they need. Necessitous men are not always
free, in that to answer a pressing emergency, they will submit to
any term that the crafty may impose on them. This precisely the
evil that the above-quoted provision on equitable mortgage
seeks to prevent.
b. Pactum Commissorium
Under Article 2088 of the Civil Code, a creditor cannot
appropriate the things given by way of pledge or mortgage, or
dispose of them; any stipulation to the contrary is null and void.
Vda. de Zulueta v. Octaviano
an instrument was executed between the parties where it was
provided inter alia that upon the redemption of the land by the
buyer from a third party, then the instrument shall be considered
a deed of absolute and definite sale by the seller to the buyer
and the Register of Deeds was authorized to cancel title and to
issue a new title in favor of the buyer. Subsequently, another
instrument was executed entitled an “option to repurchase,”
between the same parties over the same parcel of land.
The Court could not consider the transactions to be one of sale
a retro since the option to purchase was executed
subsequently and in a separate document citing the
Villarica doctrine. The Court could not also consider the
transactions to be an equitable mortgage since nothing in the
main document tended to show that the property sold was meant
to be a security for the payment of a loan, and none of the
circumstances under Article 1602 showing an equitable
mortgage were shown to be present.
The Court held that “[i]nasmuch as the contract was neither a
sale with right of repurchase, nor an equitable mortgage, neither
can it be successfully alleged that it partook of a ‘pactum
commissorium’ and was, therefore, void. ‘
Pactum commissorium’ is a stipulation for automatic vesting of
title over the security in the creditor in case of the debtor’s
default.” In that case it found that the seller was not a debtor and
owed nothing to the buyer and nothing was offered as security
for the payment of any indebtedness. Octaviano emphasized
that the public policy on pactum commissorium applies only
when the covering transaction is a mortgage or other security
contracts and has no application to a true sale or transfer
transaction.
Guerrero v. Yñigo
it was stipulated in an instrument entitled “Mortgage with
Conditional Sale” that the mortgagor reserved for himself the
right to redeem the said property after the period of five years
from the date of the instrument by paying back and returning
the amount loaned and the right of possession and use within
said period; and that on failure of the mortgagor to exercise the
said right to redeem the said property according to the terms
thereof, title thereto shall pass to and become vested,
absolutely, in the mortgagee. The Court held that the
stipulation cannot be construed as giving the mortgagee the
right to own the property upon failure of the mortgagor to pay
the loan on the stipulated time, since that would amount to
pactum commissorium which is unlawful and void. Therefore, it
dismissed the contention of the mortgagee that the instrument
was actually a sale a retro.
Montevirgin v. Court of Appeals
showed why an equitable mortgage guised as a sale a retro
cannot be enforced as a sale arrangement, which would allow
the purported buyer to consolidate his title to the property when
the apparent seller does not return the purchase price. In that
case, a judgment was rendered recognizing the sale a retro as
actually an equitable mortgage. Nevertheless, the trial court
decreed that if the apparent seller shall fail to pay the
obligation within the period as fixed in the judgment, he would
also lose the right to redeem the property and as such, the
absolute ownership over the subject premises would be
consolidated in the buyer.
The Court held — We do not agree with the respondent court’s
interpretation. It contradicts the agreement between the parties
and the declaration in the decision that the contract between
the parties was an equitable mortgage, not a pacto de retro
sale. It would produce the same effect as a pactum
commissorium, a forfeiture clause that has traditionally been
held as contrary to good morals and public policy and therefore
void.
In other words, when a purported sale a retro is found to be an
equitable mortgage, the proper remedy in case the borrower
refuses to pay the “price” is to foreclose on the mortgage, and
there can be no loss of the purported seller’s right to redeem
since this would constitute the process as a pactum
commissorium. In such a case, the return of the redemption
price would actually be equivalent to the payment of the principal
loan, which would have the legal effect of extinguishing the
equitable mortgage as an ancillary security contract.
Solid Homes, Inc. v. Court of Appeals
it was held that when the lender and borrower enter into a
“Memorandum of Agreement/Dacion en Pago with a Right to
Repurchase” in order to restructure the defaulted loan of the
borrower, and the terms thereof provide that in the event the
borrower fails to comply with the new terms of payment, the
agreement shall automatically operate to be an instrument of
dacion en pago without need of executing any document to such
an effect and that the borrower thereby obligates and binds
himself to transfer, convey and assign the covered real property
in favor of the lender in full payment of the outstanding
obligation, such arrangement was held not to constitute pactum
commissorium.
Francisco Realty v. Court of Appeals
held that the stipulation in the promissory note providing that
upon failure of the makers to pay interests, ownership of the
property would automatically be transferred to the payee, and
the covering deed of sale would be registered was in substance
a pactum commissorium arrangement, in violation of Article
2088 of the Civil Code, and consequently, the resultant sale was
void and the registration and obtaining of new title in the name
of the buyer would have be declared void also.
c. Rationale Behind the Provisions on Equitable
Mortgages
The provisions of the Civil Code governing equitable mortgages
guised as sale contracts are designed primarily to curtail the
evils brought about by contracts of sale with right of repurchase,
such as the circumvention of usury laws and the public policy on
pactum commissorium. They particularly envision contracts of
sale with right of repurchase where the real intention of the
parties is that the pretended repurchase price is money loaned,
and in order to secure the payment of the loan a contract
purporting to be a sale with pacto de retro is drawn up.
Matanguihan v. Court of Appeals
summarized the rationale thus: ... Articles 1602 to 1604 were
designed to prevent circumvention of the laws on usury and the
prohibition against the creditor appropriating the mortgaged
property. Courts have taken judicial notice of the well known fact
that contracts of sale with right of repurchase have been
frequently used to conceal the true nature of a contract, that is
a loan secured by a mortgage. The wisdom of the provisions
cannot be ignored nor doubted considering that in many cases
unlettered persons or even those of average intelligence
invariably find themselves in no position whatsoever to bargain
with the creditor. Besides, it is a fact that in time of grave
financial distress which render persons hard-pressed to meet
even their basic needs or answer an emergency, such persons
would have no choice but to sign a deed of absolute sale of
property or a sale thereof with pacto de retro if only to obtain a
much-needed loan from unscrupulous money lenders.
In one case the Court held that the law favors the least
transmission of rights and interest over a property in
controversy; the purpose of the law is to prevent circumvention
of the law on usury and the prohibition against a creditor
appropriating the mortgage property, and additionally, to end
unjust or oppressive transactions or violations in connection with
a sale of property. Since Article 1602 is remedial in nature, it
was applied retroactively in cases prior to the effectivity of the
New Civil Code.
d. When Presumed Equitable Mortgage
Under Article 1602 of the Civil Code, the contract of sale with
right to repurchase (sale a retro) shall be presumed to be an
equitable mortgage, in any of the following cases:
(a) When the price of under a sale a retro is unusually
inadequate;
(b) When the seller remains in possession as lessee or
otherwise;
(c) When the period of redemption is extended or renewed
under a separate instrument;
(d) When the buyer retains part of the purchase price;
(e) When the seller binds himself or continues 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.
The existence of any one of the conditions under Article 1602 of
the Civil Code, not a concurrence, nor an overwhelming number
of such circumstances, suffices to give rise to the presumption
that the contract is an equitable mortgage. Nonetheless, it
should be noted that the presumption of equitable mortgage
created in Article 1602 is not conclusive — it may be rebutted by
competent and satisfactory proof to the contrary.
Lim v. Calaguas held that in order for the presumption of
equitable mortgage to apply there must be either in the language
of the contract, or in the conduct of the parties which shows
clearly and beyond doubt that they intended the contract to be a
mortgage and not a pacto de retro sale.
Thus, Lim enumerates the following circumstances as basis to
treat the contract as an equitable mortgage:
(a) The terms used in the deed or power of- attorney indicate
that the conveyance was intended to be a loan secured by a
mortgage;
(b) The price paid, in relation to the value of the property, is
grossly inadequate;
(c) The seller, at the time of the alleged sale was in urgent
need of money;
(d) The supposed seller invested the money he obtained from
the alleged buyer in making improvements on the property
sold;
(e) The supposed seller remained in possession of the land
sold;
(f) The seller paid the land tax which is a usual burden
attached to ownership;
(g) The buyer accepted partial payments from the seller, and
such acceptance of partial payment is absolutely incompatible
with the idea of irrevocability of the title of ownership of the
purchaser at the expiration of the term stipulated in the original
contract for the exercise of the right of
redemption;
(h) The seller remained bound for the repayment of the money
received strongly tends to show that a mortgage only was
intended;
(i) The transaction had its origin in a borrowing of money also
tends to show that the subsequent transaction although in the
form of a sale with the right of repurchase was in fact intended
as a mortgage;and
(j) There was a previous debt between the parties and this was
not extinguished by the sale, but remained subsisting. But if the
previous debt was extinguished by the sale, and the seller has
the privilege of repurchasing within a given time, the
transaction is a conditional sale.
The mere allegation of the insufficiency of the selling price will
not create the presumption of an equitable mortgage, where
the proponent fails to present any proof whatsoever that the
fair market values of the real property in the area at the time
of the transactions were much higher than the selling price of
the parcels in question: “Mere allegation that the price paid by
the proponents was inadequate, without more, does not make
a case favorable to the proponent.”
The Court has characterized inadequacy of the purchase price
as “a consideration so far short of the real value of the property
as to startle a correct mind” and has confirmed that in
determining whether the price is inadequate, comparison
should be made of the property’s assessed value. Even with the
inadequacy of the price shown on the deed of sale, the Court
has held that even with the assertion that the price in a pacto de
retro sale is not the true value of the property does not justify the
conclusion that the contract is one of equitable mortgage, but
that in fact the practice in a pacto de retro sale is to fi x a
relatively reduced price to afford the seller a retro every
facility to redeem the property.
In one case, the Court held that although under the agreement
the seller shall remain in possession of the property for only one
year, such stipulation does not detract from the fact that
possession of the property, an indicium of ownership, was
retained by the alleged vendor to qualify the arrangement as an
equitable mortgage, especially when it was shown that the
vendor retained part of the purchase price.
The Court also held that when the true intentions between the
parties for executing the Deed of Absolute Sale was not to
convey ownership of the property in question but merely to
secure the housing loan of the supposed buyer in which the
supposed seller had a direct interest since the proceeds thereof
were to be immediately applied to their outstanding mortgage
obligations then the sale is deemed to be merely an equitable
mortgage.
On the other hand, when the alleged loan was disbursed on
installments over several months, no proof was shown on the
inadequacy of the price, and the continued receipt of rentals by
the seller from the current lessee was found to be a gesture of
generosity, kinship and leniency from his relatives, he being
jobless and without visible means of support, the transaction
was construed to be a sale on installment rather than an
equitable mortgage. Possession retained by the seller after the
sale does not also give rise to the presumption, where the sellers
executed an undertaking promising to vacate the premises, but
they repeatedly delayed in honoring it, and in fact improvements
were introduced by the buyer on the premise without the sellers’
objection. In short, mere tolerated possession is not enough to
prove that the transaction is on equitable mortgage.
In another case, the Court held that mere delay in transferring
title to the buyer is not one of the instances enumerated under
Article 1602 in which an equitable mortgage can be presumed.
The Court also held that the fact that the original transaction on
the property was to support a loan, which when it was not paid
on due date was negotiated into a sale, without evidence that
the subsequent deed of sale does not express the true intentions
of the parties, give rise to a presumption of equitable mortgage.
e. Applicability to Deeds of Absolute Sale
Article 1604 of the Civil Code expressly provides that the
provisions on equitable mortgage of Article 1602 shall also
apply to a contract purporting to be an absolute sale, if indeed
the real intention of the parties is that the transaction shall
secure the payment of a debt or the performance of any other
obligation. For the provision to apply, two requisites must be
present:
(a) that the parties entered into a contract denominated
as a contract of sale; and
(b) that their intention was to secure an existing debt by
way of mortgage.
f. Proof by Parole Evidence; Best Evidence Rule
Parole evidence is competent and admissible in support of the
allegations that an instrument in writing, purporting on its face
to transfer the absolute title to property, or to transfer the title
with a right to repurchase under specified conditions
reserved to the seller, was in truth and in fact given merely as
security for the repayment of a loan; provided that the nature
of the agreement in placed in issue by the pleadings fi led with
the trial court.
IMatanguihan v. Court of Appeals
the Court held that “[U]nder the wise, just and equitable
presumption in Article 1602, a document which appears on its
face to be a sale — absolute or with pacto de retro — may be
proven by the vendor or vendora- retro to be one of a loan with
mortgage. In this case, parol evidence becomes competent and
admissible to prove that the instrument was in truth and in fact
given merely as a security for the payment of a loan. And upon
proof of the truth of such allegations, the court will enforce the
agreement or understanding in consonance with the true intent
of the parties at the time of the
execution of the contract.”
Austria v. Gonzales, Jr.,
the Court explained the rationale for the non-application of the
“best evidence rule” to equitable mortgage situations, thus:
There is no conclusive test to determine whether a deed
absolute on its face is really a simple loan accommodation
secured by a mortgage. To determine whether a deed absolute
in form is a mortgage in reality, the court is not limited to the
written memorials of the transaction. This is so because the
decisive factor in evaluating such agreement is the intention of
the parties, as shown not necessarily by the terminology used in
the contract but by all the surrounding circumstances, such as
the relative situations of the parties at that time; the negotiations
between them leading to the deed; and generally, all pertinent
facts having a tendency to fix and determine the real nature of
their design and understanding. As such, documentary and
parole evidence may be submitted and admitted to prove the
intention of the parties.
g. Effects When Sale Adjudged To Be an Equitable
Mortgage
When a contract is construed to be an equitable mortgage,
then the following may result:
(a) Any money, fruit, or other benefit to be received by the
buyer as rent or otherwise shall be considered as interest
which shall be subject to the usury laws;
(b) The apparent “seller” may ask for the reformation of the
instrument.
(c) For the court to decree that “vendor”- debtor to pay his
outstanding loan to the “vendee”-creditor.
(d) Where the trial court did not pass upon the mortgagor’s
claim that the had paid his mortgage obligation, a remand of
the case to the trial court is in order, only for the purpose of
determining whether the mortgage obligation had indeed been
settled, and if not, how much should the mortgagor pay
to settle the same.
Tolentino v. Court of Appeals
held that although Article 1605 allows for the remedy of
reformation, nothing therein precludes an aggrieved party from
pursuing other remedies to effectively protect his interest and
recover his property, such as an action for declaration of nullity
of the deed of sale and specific performance. The remedy of
nullification of the sale given under Tolentino would be unfair
since it would leave the buyer-mortgagee to be without the
necessary security contract which remains valid. Reformation
should be the proper remedy to enforce the true intentions
between the parties. But in the event the property has been sold
to a third-party buyer, then nullification of the sale and
reconveyance of the title to the seller-mortgagor should be
allowed provided the security arrangement over the property is
preserved.
Balatero v. Intermediate Appellate Court
held that if a sale a retro is construed to be an equitable
mortgage, then the execution of an affidavit of consolidation by
the purported buyer to consolidate ownership over the subject
parcel of land is of no consequence and the “constructive
possession” over the parcel of land would not ripen into
ownership, since only possession acquired and enjoyed in the
concept of owner can serve as title
for acquiring dominion.
Briones-Vasquez v. Court of Appeals,confirmed that in an
equitable mortgage situation, the consolidation of ownership in
the person of the mortgagee in equity upon failure of the
mortgagor in equity to pay the obligation, would amount to a
pactum commissorium; and that an action for consolidation of
ownership is an inappropriate remedy on the part of the
mortgagee in equity. The Court held that the only proper remedy
is to cause the foreclosure of the mortgage in equity. Finally, the
equitable mortgage being a security contract, the expiration of
the purported period of redemption does not prevent the
purported seller (actually the equitable mortgagor) from
extinguishing the main contract of loan, and thereby extinguish
also the ancillary equitable mortgage contract, so long as the
purported buyer (the equitable mortgagee) has not gone through
the process of foreclosure. Foreclosure cannot take the form of
the creditor-mortgagor appropriating for himself the property
given as security, because this would amount to pactum
commissorium.
LEGAL REDEMPTION
1. Definition
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.
a. Rationale for Legal Redemption
The Court held in Basa v. Aguilar, that “[L]egal redemption is in
the nature of a privilege created by law partly for reasons of
public policy and partly for the benefit and convenience of the
redemptioner, to afford him a way out of what might be a
disagreeable or [an] inconvenient association into which he has
been thrust. It is intended to minimize co-ownership. The law
grants a co-owner the exercise of the said right of redemption
when the shares of the other owners are sold to a ‘third person.’”
Avila v. Barabat
the Court held that since legal redemption is intended to
minimize co-ownership, once a property is subdivided and
distributed among the co-owners, the community ceases to exist
and there is no more reason to sustain any right of legal
redemption.
2. Salient Distinctions Between Conventional and Legal
Rights of Redemption
It is interesting to note the following essential distinctions
between the conventional right of redemption (herein referred to
as “right a retro”) from the legal right of redemption, thus:
(a) Strictly speaking, a right a retro can only be constituted by
express reservation in a contract of sale at time of perfection;
whereas, a legal right of redemption does not have to be
expressly reserved (it is a right granted by law), and covers sales
and other “onerous [transfers of] title”;
(b) Right a retro is in favor of the seller; whereas, a legal right
of redemption is given to a third party to the sale; and
(c) The exercise of the right a retro extinguishes the underlying
contract of sale as though there was never any contract at all;
whereas, the exercise of the legal right of redemption, although
it extinguishes the original sale, actually constitutes a new sale
in substitution of the original sale.
3. Legal Redemption under Civil Code
a. Among Co-Heirs
Under Article 1088 of the Civil Code, should any of the heirs sell
his hereditary rights to a stranger before the partition of the
decedent’s estate, any or all of the other 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
(1) month from the time they were notified in writing of the sale
by the selling co-heir. There is no right of legal redemption
available to the coheirs when the sale covers a particular
property of the estate, since the legal right of redemption applies
only to the sale by an heir of his hereditary right. Likewise, the
heirs who participated in the execution of the extrajudicial
settlement which included the sale to a third person of their pro
indiviso shares in the property are bound by the same, which the
co-heirs who did not participate would have the right to redeem
their shares pursuant to Article 1088 of the Civil Code.
b. Among Co-Owners
Under Article 1620 of the Civil Code, a co-owner of a thing may
exercise the right of 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 excessive, the redemptioner
shall pay only a reasonable price therefor.The right of
redemption may be exercised by a co-owner only when part of
the community property is sold to a stranger. When the portion
is sold to another co-owner, the right does not arise because a
new participant is not added to the coownership. Should two or
more co-owners desire to exercise the right of redemption, they
may only do so in proportion to the share they may respectively
have in the thing owned in common.
The right of redemption of co-owners excludes that of
adjoining owners.
c. Effect of De Facto Partition Among Co-Heirs
and Co-Owners
Vda de Ape v. Court of Appeals
held that although an inherited property is succeeded to by the
heirs as co-owners thereof, if in fact they have partitioned it
among themselves and each have occupied and treated definite
portions thereof as their own, co-ownership has ceased even
though the property is covered under one title, and the sale by
one of the heirs of his definite portion cannot trigger the right of
redemption in favor of the other heirs.
In another case the Court held that the right of redemption to be
exercised, co-ownership must exist at the time of the
conveyance is made by a co-owner and the redemption is
demanded by the other co-owner or co-owners.
d. Distinguishing Between the Rights of Redemption
of Co-heirs and Co-owners
The Court has construed Article 1620 of the Civil Code to include
the doctrine that a redemption by a co-owner of the property
owned in common, even when he uses his own fund, within the
period prescribed by law inures to the benefit of all the other co-
owners.
On the other hand, under Article 1088 of the Civil Code, an heir
may validly redeem for himself alone the hereditary rights sold
by another co-heir.
Mariano v. Court of Appeals
the Court was confronted with the issue of which redemption
clause to apply when a coheir had exercised the right of legal
redemption over the sale of a parcel of land belonging to the
estate of the decedent. Mariano held that “the fi ne distinction
between Article 1088 and Article 1620 is that when the sale
consists of an interest in some particular property or properties
of the inheritance, the right of redemption that arises in favor of
the other co-heirs is that recognized in Article 1620. On the other
hand, if the sale is the hereditary right itself, fully or in part, in the
abstract sense, without specifying any particular object, the right
recognized in Article 1088 exists.” Thus, under Mariano when
the subject matter sold was a particular property of the estate
and not hereditary rights, the redemption by a co-owner/co-heir
redounded to the benefit of all other co-owners, while
redemption by a co-heir of heredetary rights sold is only for his
own account.
e. Among Adjoining Owners of Rural Lands
Under Article 1621 of the Civil Code, the owners of adjoining
lands have the right of redemption when a piece of rural land,
the area of which does not exceed one (1) hectare, is alienated,
unless the grantee does not own any rural land. The burden of
proof to apply the exemption (i.e., the buyer does not own any
other rural land) lies with the buyer.
This right is not applicable to adjacent lands which are separated
by brooks, drains, ravines, roads and other apparent servitudes
for the benefit of other estates.149 In order for the right of
redemption to apply, both land sought to be redeemed and the
adjacent property belonging to the person exercising the right of
redemption must be rural lands; if one or both are urban lands,
the right under Article 1621 cannot be invoked
If two or more adjoining owners desire to exercise the right of
redemption at the same time, the owner of the adjoining land of
smaller area shall be preferred; and should both lands have the
same area, the one who first requested the redemption.
f. Among Adjoining Owners of Urban Land
Under Article 1622 of the Civil Code, whenever a piece of urban
land which is so small and so situated that a major portion
thereof cannot be used for any practical purpose within a
reasonable time, having been bought merely for speculation, is
about to be resold, the owner of any adjoining land has a right
of pre-emption at a reasonable price. If the re-sale has been
perfected, the owner of the adjoining land shall have a right of
redemption, also at a reasonable price.
When two or more owners of adjoining lands wish to exercise
the right of pre-emption or redemption, the owner whose
intended use of the land in question appears best justified shall
be preferred.
Ortega v. Orcine
discussed the purpose of the introducing into the New Civil Code
the right of pre-emption or redemption for urban lands, thus:
The right of redemption of adjoining urban land did not exist in
the Spanish Civil Code, which confined itself to the redemption
of rural lands. It was introduced here only by the new Civil Code.
Whereas, as already observed, the objective of the right of
redemption of adjoining rural land under the old code as adopted
in the new Civil Code, is to encourage the maximum
development and utilization of agricultural lands, it is evident that
the purpose of the new Civil Code in allowing redemption of
adjoining urban land is to discourage speculation in real estate
and the consequent aggravation of the housing problems in
centers of population.
Ortega further held that the term “urban” in Article 1622 does not
necessarily refer to the nature of the land itself sought to be
redeemed nor to the purpose to which it is devoted, but to the
character of the community or vicinity in which it is found.
Redemption of urban land applies only when it involves its
“resale,” and therefore there is no right of redemption that can
be exercised by an adjoining owner when the urban land is
transferred under an “exchange” of properties.
Although the requisite of having previously purchased the land
for speculation is required under Article 1622, Legaspi v.
Court of Appeals, practically did away with the adjoining owner
having to prove such element when it found that the owner of
the subject parcel of land actually inherited the property, and
therefore it would require from the adjoining owner the
requirement to comply with an impossible and inequitable
condition, if he had to prove that the registered owner had
acquired the land for speculative purpose.
Sen Po Ek Marketing Corp. v. Martinez, held that Article 1622 of
the Civil Code which grants an adjacent owner the right of pre-
emption or the right of redemption only deals with small urban
lands that are bought for speculations; the right does not apply
to a lessee trying to buy the land that he is leasing.
g. Sale of Credit in Litigation
When a credit or other incorporeal right in litigation is sold, the
debtor shall have a right to extinguish it by reimbursing the
assignee for the price the latter paid therefor, the judicial costs
incurred by him, and the interest on the price from the day on
which the same was paid.159 The debtor may exercise his right
within 30 days from the date the assignee demands payment
from him.
h. When Legal Redemption Period Begins to Run
The right of legal pre-emption or redemption shall not be
exercised except within 30 days from the notice in writing by the
prospective seller, or seller, as the case may be. The article also
provides that, the deed of sale shall not be recorded in the
Registry of Property unless accompanied by an affidavit of the
seller that he has given written notice thereof to all possible
redemptioners.
Cabrera v. Villanueva
the Court accepted the sworn declaration of the seller in an
affidavit executed by him to the effect that he had given written
notice of the sale to his co-owners, as proof that in fact the
written notice required under Article 1623 has been complied
with.
Primary Structures Corp. v. Valencia
Affirmed the need for strict compliance with the provisions of
Article 1623 by pointing that “In stressing the mandatory
character of the requirement, the law states that the deed of sale
shall not be recorded in the Registry of Property unless the same
is accompanied by an affidavit of the vendor that he has given
notice thereof to all possible redemptioners.” In that decision,
the Court held that the existence of a clause in the deed of sale
to the effect that the seller has complied with the provisions of
Article 1623 cannot be taken to “being the written affirmation
under oath, as well as the evidence, that the required written
notice to petitioner under Article 1623 has been meet ... [since
party entitled to redemption] is not a party to the deed of sale ...
and has had no hand in the preparation and execution of the
deed of sale. It could not thus be considered a binding
equivalent of the obligatory written notice prescribed by the
Code.”
The author believes that Primary Structures Corp. provides the
better rule when compared to the ruling in Cabrera, as gleaned
from the other decisions of the Supreme Court discussed
hereunder.
Butte v. Manuel Uy & Sons, Inc., held that under the language
of the law, the notice must be given by the “vendor” or seller;
notice given by the buyer, even when in written form, does not
start the running of the 30-day period of redemption. The Court
held:
The text of Article 1623 clearly and expressly prescribes that the
thirty days for making the redemption are to be counted from
notice in writing by the vendor. Under the old law (Civil Code of
1889, Article 1524), it was immaterial who gave the notice; so
long as the redeeming co-owner learned of the alienation in
favor of the stranger, the redemption period began to run. It is
thus apparent that the Philippine legislature in Article 1623
deliberately selected a particular method of giving
notice, and that method must be deemed exclusive.
Castillo v. Samonte
held that both the letter and spirit of the law argue against any
attempt to widen the scope of the notice specified in Article 1088
by including therein any other kind of notice, such as verbal or
by registration, and that if the intention of the law had been to
include verbal notice or any other means of information as
sufficient to give the effect of this notice, then there would have
been no necessity or reasons to specify in Article 1088 of the
Civil Code that the said notice be made in writing for, under the
old Civil Code, a verbal notice or information was sufficient. The
30-day period does not begin to run in the absence of written
notifi cation.
Conejero v. Court of Appeals
laid down the rule that the law did not provide for a particular
mode of written notice, and therefore any compliance with
“written notice” should suffice, including the giving of a copy of
the deed of sale.
Garcia v. Calaliman
applying the Samonte doctrine to Article 1623, held that the
written notice required under Article 1623 is indispensable,
“actual knowledge of the sale acquired in some other manners
by the redemptioner, notwithstanding. He or she is still entitled
to written notice, as exacted by the Code to remove all
uncertainty as to the sale, its terms and its validity, and to quiet
any doubt that the alienation is not defi nitive.
The law not having provided for any alternative, the method of
notifications remains exclusive, though the Code does not
prescribe any particular form of written notice nor any distinct
method for written notifi cation of redemption.”170 Comparing
the Conejero doctrine, the Court in Garcia held that the facts in
Conejero showed that the redemptioner was not only shown the
deed of sale but was also “given a copy of the deed of sale of
the subject property,” which was equivalent to the giving of
written notice.
Vda De Ape v. Court of Appeals
held that the annotation of an adverse claim on the title of the
property does not comply with the written notice required under
Article 1623 to begin the tolling of the 3-day period of redemption
in a sale by a co-owner of his spiritual share.
(1) Notice Must Cover Perfected Sale
Spouses Doromal v. Court of Appeals held that although written
notice is given to the co-owner, the 30-day redemption period
does not begin to run from the receipt of such written notice,
because the transaction covered in the notice did not pertain to
a perfected contract of sale, and must be accompanied by the
actual execution and delivery of the deed of sale. The Court held
that “Art. 1619 of the Civil Code bestows unto a coowner the
right to redeem and ‘to be subrogated under the same terms and
conditions stipulated in the contract,’ and to avoid any
controversy as to the terms and conditions under which the right
to redeem may be exercised, it is best that the period therefor
should not be deemed to have commenced unless the notice of
the disposition is made after the formal deed of disposal has
been duly executed.”
The ruling in Spouses Doromal seems to go beyond the
requirements of Article 1619, and perhaps we can anticipate the
Court toning down the principle in subsequent cases. The
doctrine on requiring a perfected contract of sale cannot also be
applied in cases of legal pre-emption such as under Article 1622
which covers a situation when an urban land “is about to be re-
sold.”
(2) Summation on Strict Rules on Notice
Hermoso v. Court of Appeals
the Court held that Article 1623 stresses the need for notice in
writing in three (3) other species of legal redemption namely: (a)
redemption in a case where the share of all the other co owners
or any of them are sold to a third person;
(b) redemption by owners of adjoining lands when a piece of
rural land not exceeding one hectare in area is alienated; and
(c) redemption by owners of adjoining lands in the sale of a piece
of an urban land so small and so situated that the portion thereof
cannot be used for any practical purpose within a reasonable
time, having been bought merely for speculation. The Court held
In all the above-cited provisions of law, the interpretation
thereof always tilts in favor of the redemptioner and against the
vendee. The purpose is to reduce the number of participants
until the community is terminated, being a hindrance to the
development and better administration of the property. ... It is a
one-way street. It is always in favor of the redemptioner since
he can compel the vendee to sell to him but he cannot be
compelled by the vendee to buy the alienated property.
The Court also noted that the written notice required by Article
1623 was enacted to remove all doubts and uncertainty that
the alienation may not be defi nite. The co-owners must know
with certainty the circumstances of the sale by his coowners
and the terms and the validity of the alienation. Only after said
knowledge is the co-owner required to exercise the right of
redemption given to him by law.
Francisco v. Boiser
the Court reviewed the require- The Court also held: “If a co-
owner has offered to redeem the land within the period fixed by
law, he has complied with the law and he may bring the action
to enforce the redemption after every offer has been rejected. In
a situation when the vendor never gave written notice to the
other co-owner of the disposition of his rights, and the co owners
learned of such sale only by confronting the buyer with whom
they began immediately to negotiate for its redemption, then the
right to redeem has not expired under the 30-day rule provided
under Art. 1623. The period of legal redemption is not a
prescriptive period; it is a condition precedent to the exercise of
the right of redemption. It is a period set by law to restrict the
right of the person exercising the right of legal redemption and
not one of prescription.” (at p. 534.)
The Court held: “... In the first place, reversion to the ruling in
Butte is proper. Art. 1623 of the Civil Code is clear in requiring
that the written notification should come from the vendor or
prospective vendor, not from any other person. There is,
therefore, no room for construction. Indeed, 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
must give the notice, whereas the present one expressly says
the notice must be given by the vendor. Effect must be given to
this change in statutory language. “In the second place, it makes
sense to require that the notice required in Art. 1623 be given by
the vendor and by nobody else. As explained by this Court
through Justice J.B.L. Reyes in Butte, the vendor of an
undivided interest is in the best position to know who are his co-
owners who under the law must be given notice of the sale. It is
likewise the notification from the seller, not 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
ments under Article 1623 and the case-law that has interpreted
the article, and with definitiveness declared:
(a) For the 30-day redemption period to begin to run, notice
must be given by the seller; and that notice given by the buyer
or even by the Register of Deeds is not sufficient.
(b) When notice is given by the proper party (i.e., the seller),
no particular form of written notice is prescribed under Article
1623, so that the furnishing of the copies of the deeds of sale
to the co-owner would be suffi cient,
as held previously in Distrito v. Court of
Appeals,182 Conejero v. Court of Appeals,183
Badillo v. Ferrer,184 but only on the form of
giving notice but not on the ruling of who is
the proper party to give notice;
(c) Affi rmed the ruling in Alonzo v. Intermediate
Appellate Court,185 that the fi ling of the suit
for ejectment or collection of rentals against
a co-owner actually dispenses with the need
for a written notice, and must be construed
as commencing the running of the period
in the best position to confi rm whether consent to the essential
obligation of selling the
property and transferring ownership thereof to the vendee has
been given.” (at p. 800.)
560 LAW ON SALES
to exercise the right of redemption, since
the fi ling of the suit amounted to actual
knowledge of the sale from which the 30-day
period of redemption commences to run.
In Fernandez v. Tarun,186 it was held that appropriate notice
is deemed to have been complied with when the other co-
owner
has signed the Deed of Extrajudicial Partition and Exchange of
Shares which embodies the disposition of part of the property
owned in common.
(3) Exceptions to Written Notice Requirement
In Alonzo v. Intermediate Appellate Court,187 the Court
declared expressly that it was not abandoning the necessity
under Article 1088 of the Civil Code of written notifi cation
to commence the running of the 30-day period. However,
as a matter of exception in Alonzo and due to the peculiar
circumstances of the case where the co-heirs only brought an
action for redemption of hereditary right sold by another coheir
only after 13 years after having actual knowledge thereof,
by their actuations, they are deemed to have lost their right to
redeem.
Alonzo therefore provides as an exception to the written
notice required under Article 1623 of the Civil Code, the
situation
when the co-heirs lived with the purchaser in the same lot and
are deemed to have received actual notice of the sale. Laches
seems to be the main principle for the Alonzo doctrine.
The principle of laches was applied also in Pilapil v. Court
of Appeals,188 where the Court held that the provision of the
law
requiring the seller of the property to give a written notice of
sale
to the other co-owners had been rendered inutile by the fact
that
even as the buyers took possession of the property
immediately
after the execution of the deed of sale in their favor, no one of
the
co-owners questioned the same.
Distrito v. Court of Appeals,189 subsequently added another
exception to the Alonzo exception. It held that where it is the
co-owner himself who acted as a middleman or intermediary
to effect the sale to a third-party, thus having actual knowledge
thereof, the written notice required under Article 1623 is no
longer necessary, and the 30-day period for redemption begins
to run from having actual knowledge of the sale, by being
present at the time the deed of sale was executed.
Verdad v. Court of Appeals
Reiterated the principle that the Alonzo and Distrito rulings are
specia lexceptions. In that case the Court held that when a co-
owner learns of the sale of the co-ownership interest only from
the city treasurer, her exercise of the right of redemption was
timely since no written notice of the sale was ever given by the
sellers as required under Article 1623, and therefore the 30-day
period has not even begun to run: “The written notice of sale is
mandatory; and notwithstanding actual knowledge of a co-
owner, the latter is still entitled to a written notice from the selling
co-owner in order to remove all uncertainties about the sale, its
terms and conditions, as well as its efficacy and status.”
Verdad also noted that even Alonzo made it clear that it was not
reversing the prevailing jurisprudence: “In that case, the right of
legal redemption was invoked several years, not just days or
months, after the consummation of the contract of sale, with the
complaint for legal redemption itself fi led only thirteen years
after the sale were conducted.”
4. Other Instances When Right of Legal Redemption Is
Granted
a. Redemption of Homesteads
Under Section 119, of Public Land Act,193 every conveyance of
land acquired under the free patent homestead provisions, when
proper, shall be subject to repurchase by the applicant, his
widow, or legal heirs, within a period of five (5) years from the
date of the conveyance.
Sale of homestead within the 5-year prohibition period is void
even when the sale is in favor of the homesteader’s own son or
daughter. The right to repurchase a land received previously
under a homestead patent, is granted by law and need not be
provided for in the deed of sale. Such right of repurchase in
homestead land cannot be waived by the party entitled thereto
and applies with equal force to both voluntary and involuntary
conveyances.
The 5-year redemption period fixed under Section 119 of the
Public Land Law of homestead sold at extra-judicial foreclosure
begins to run from the day after the expiration of the one-year
period of repurchase allowed in an extra-judicial foreclosure. In
all other cases, the 5-year redemption period is to be reckoned
from the date of the sale and not from the date of registration of
the deed in the office of the Register of Deeds, which is
reckoned from the date execution of the deed transferring the
ownership of the land to the buyer. Section 119 of the Public
Land Act should be construed with Article 1616 of the Civil Code,
which provides that the seller cannot avail himself of the right to
repurchase without returning to the buyer the price of the sale;
a mere notice of intent to redeem is not sufficient.
b. Redemption in Tax Sales
Under Section 214, National Internal Revenue Code of 1997, in
case of delinquency sale of property of a taxpayer for failure to
pay tax assessments, within one (1) year from the date of sale,
the delinquent taxpayer, or anyone for him, shall have the right
of redeeming the property by paying to the Revenue District
Officer the amount of the public taxes, penalties, and interest
thereon from the date of delinquency to the date of sale, together
with interest on the purchase price. It is expressly provided that
the owner shall not be deprived of the possession of the said
property and shall be entitled to the
rents and other income thereof until the expiration of the time
allowed for its redemption.
c. Redemption by Judgment Debtor
Under Sections 27 and 28, Rule 39 of the Rules of Court, a
judgment debtor, or his successor-in-interests, or a creditor
having a lien by attachment, judgment or mortgage on the
property sold at public auction shall have “one (1) year from date
of registration of the certificate of sale,” and not just twelve (12)
months after the sale as provided previously under the old Rules
of Court, to redeem the property by paying the purchaser at the
public auction the amount of his purchase, with interest up to the
time of redemption, together with amount of any assessments
or taxes which the purchaser may have paid thereon after
purchase, with interest thereon.
In execution sales, the sheriff does not warrant the title to the
property sold by him and it is not incumbent on him to place
the purchaser in possession of the property. The rule of caveat
emptor applies to execution sales.
Torres v. Cabling
held that written notice is required to be given to the judgment
debtor before the sale of the property on execution to give him
the opportunity to prevent the sale by paying the judgment debt
sought to be enforced and the costs which have been incurred.
Torres also held that where there is a third-party claim, the
sheriff should demand from the judgment creditor who
becomes the highest bidder, payment in cash of the amount of
his bid instead of merely crediting the amount to the partial
satisfaction of the judgment debt.
d. Redemption in Extrajudicial Foreclosure
Under Section 6 of Act No. 3135, as amended, in all cases in
which an extrajudicial foreclosure sale has been made under a
special power, the debtor, his successors-in-interests or any
judicial creditor or judgment creditor of said debtor, or any
person having a lien on the property subsequent to the mortgage
or deed of trust under which the property has been sold, may
redeem the same within one (1) year from and after the date of
the sale and registration thereof.
Before the expiration of the one-year redemption period within
which the judgment-debtor or mortgagor may redeem the
property, the purchaser thereof is not entitled, as a matter of
right, to the possession of the subject matter. While the Rules
of Court allow the purchaser to receive the rentals if the
purchased property is occupied by tenants, such purchaser is
nevertheless accountable to the judgment-debtor or mortgagor
as the case may be, for the amount so received and the same
will be duly credited against the redemption price when the
said judgmentdebtormor mortgagor effects the redemption.
Soriano v. Bautistamheld as valid a stipulation in the mortgage
contract which in effect may render defeasible the option of the
mortgagor to redeem the property mortgage. In that case, the
following stipulation was part of the mortgage contract: “That it
has likewise been agreed that if the fi nancing condition of the
mortgagees will permit, they may purchase said land absolutely
on any date within the two-year term of this mortgage at the
agreed price of 53,900.00.”207 The Court held that stipulation
was neither illegal or immoral, and constituted simply an option
to buy attached to the mortgage.
While the right of redemption of one year is retained for both
judicial and extrajudicial foreclosure, an exception is now
created under Section 47 of the General Banking Law of 2000:
in the case of extrajudicial foreclosures where the mortgagor is
a juridical person redemption is available only until the
registration of the certificate of foreclosure sale, which shall be
no more than three (3) months after foreclosure, “whichever is
earlier.”
e. Redemption in Judicial Foreclosure
Government Service Insurance System (GSIS) v. Court of
First Instance of Iloilo, Branch III
confirmed the long-recognized principle embodied in the our
jurisdiction that no right to redeemis granted to the debtor-
mortgagor when there has been a judicial foreclosure of a real
estate mortgage, except when the mortgagee is a bank or a
banking institution.
However, GSIS also recognized the doctrine of “equity of
redemption” which covers the right of a defendant mortgagor to
extinguish the mortgage and retain ownership of the property by
paying the secured debt within the 90-day period after the
judgment becomes final, in accordance with Rule 68 of the
Rules of Court, or even after the foreclosure sale but prior to the
confirmation of such auction sale by the court.
f. Foreclosures by Banking Institutions
The General Banking Law of 2000,209 distinguishes between
an individual debtor from a corporate debtor of banking
institutions, with respect to the period of redemption. Under
Section 47 of the Law, in the event of foreclosure of any
mortgage on real estate which is security for any loan or other
credit accommodation granted:
(a) The individual mortgator or debtor whose real property has
been sold for the full or partial payment to his obligation,
whether judicially or extra-judicially; and
(b) The corporate mortgator or debtor whose real property has
been sold for the full or partial payment to his obligation, by
virtue of a judicial foreclosure; shall have the right within one (1)
year after the sale of the real estate, to redeem the property by
paying the amount due under the mortgage deed, with interest
thereon at the rate specified in the mortgage, and all the costs
and expenses incurred by the bank or institution from the sale
and custody of said property less the income derived therefrom;
whereas,
(c) Notwithstanding Act 3135, judicial persons whose property
is being sold pursuant to an extrajudicial foreclosure, shall
have the right to redeem the property in accordance
with this provision until, but not after, the registration of the
certificate of foreclosure sale with the applicable Register of
Deeds which in no case shall be more than three (3) months
after foreclosure, whichever is earlier.
The purchaser at the auction sale whether in a judicial or
extrajudicial foreclosure shall have the right to enter upon and
take possession of such property immediately after the date of
the confirmation of the auction sale administer the same in
accordance with law. Any petition to enjoin or restrain the
conduct of foreclosure proceedings shall be given due course
only upon the fi ling by the petitioner of a bond in an amount
fixed by the conditioned that he will pay all the damages which
the bank may suffer by the enjoining or the restraint of the
foreclosure proceeding.The one-year redemption period in case
of foreclosure of a real estate mortgage is not interrupted by the
filing of an action assailing the validity of the mortgage, so that
at the expiration thereof, the mortgage who acquires the
property at the foreclosure sale can proceed to have title
consolidated in his name and a writ of possession issued in his
favor.
The Court has held that the execution of dacion en pago
effectively constitutes a waiver of the redemption period
normally given a mortgagor.

g. Period of Redemption When Rural Bank Forecloses

If the land, previously received under patent, is mortgaged to a
rural bank under Rep. Act No. 720, the mortgagor may redeem
the property within two (2) years from the date of foreclosure or
from the registration of the sheriff’s certificate of sale at such
foreclosure if the property is not covered or is covered,
respectively, by Torrens title. If the mortgagor fails to exercise
such right, he or his heirs may still repurchase the property
within five (5) years from expiration of the two (2) year
redemption period pursuant to Sec. 119 of the Public Land Act,
where the subject matter was obtained through a homestead
patent.
h. Legal Right to Redeem under Agrarian Reform Code
Under Section 12 of Rep. Act No. 3844, in the event that the
landholding is sold to a third person without the knowledge of
the agricultural lessee, the latter is granted by law the right to
redeem it within 180 days from notice in writing and at a
reasonable price and consideration.
—oOo—
CHAPTER 14
ASSIGNMENT
How often has it been heard in layman conversations that
a person does not want a mere “assignment” but an outright
purchase of the subject matter? How many country clubs have
refused to honor a “deed of assignment” covering the transfer
of
a proprietary share in favor of the assignee on the ground that
a In reality, however, neither in the Spanish law nor
“deed of absolute sale” is required, to ensure that only one
person
has a right to the corresponding membership entitlement? Has
it
not been the common perception that the process of
assignment
covers the temporary lease or use of the thing, while the title
remains with the assignor to whom it would ultimately have to
be returned? Why has assignment become the poor relations
of
sale?
NATURE OF ASSIGNMENT IN THE SCHEME OF THINGS
Under Article 1624 of the Civil Code, “assignment” is in fact
the sale of credits and other incorporeal rights. Although
credits
and other intangible things within human commerce are the
proper object of a contract of “sale” as defi ned in Article 1458
of
the Civil Code, “assignment” is the proper, or rather the
technical,
term that should be used. Therefore, although a “Deed of Sale
of Shares of Stock” is legally correct, it is technically
innacurate,
since the proper term is “Deed of Assignment of Shares of
Stock.”
If “sale” and “assignment” are legally the same contracts,
but with different names, the logical question then would be:
Why
does our Civil Code provide for a separate chapter under the
Title on Sales to cover assignments, Chapter 8 — Assignment
of Credits and Other Incorporeal Rights? Although sale and
assignment are not technically the same, they come from the
same root or genus, which happens to be called “sale” also;
568
569
consequently, the law must take up special matter peculiar to
the sale of intangibles. Assignment therefore is a species of
the
genus sale, defi ned in Article 1458 of the Civil Code.
Although the foregoing discussions may seem trite, they
are meant to focus on an important point: Since assignment
is a species of the genus sale, all the characteristics of the
genus sale must necessarily pertain to assignment; and that
all jurisprudential doctrines pertaining to genus sale pertain to
assignment, except to the extent modifi ed by the chapter
dealing
specifi cally on assignments.
Like the genus sale, an assignment is a nominate,
consensual, reciprocal, onerous, and commutative contract.
However, Paras included in the term “assignment” both the
gratuitous and onerous transfers of credits and other
incorporeal
rights; although he required the formalities of donation if the
assignment is gratuitous.1 Tolentino defi ned assignment of
credit
as one where the assignor, “by legal cause, such as sale,
dation
in payment, exchange or donation, and without the need of the
consent of the debtor, transfers his credit and its accessory
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 against the debtor.”2
Prior to the New Civil Code, assignment was not therefore
limited to the contract of sale, as an onerous contract. As
Tolentino
observed —
in the French law is the assignment always a sale; it
may be a sale, but at times it may constitute a dation
in payment, such as when a debtor, in order to obtain
a release from his debt, assigns to his creditor a credit
he has against a third person, or it may constitute a
donation as when it is by gratuitous title; or it may even
be merely by way of guaranty, as when the creditor
gives it as a collateral to secure his own debt in favor
of the assignee, without transmitting ownership. The
1PARAS, CIVIL CODE OF THE PHILIPPINES, Vol. V (1990
ed.), pp. 258-259.
2TOLENTINO, CIVIL CODE OF THE PHILIPPINES, Vol. V
(1959 ed.), p. 165.
ASSIGNMENT
570 LAW ON SALES
character that it may assume determines its requisites
and effects, its regulation, and the capacity of the
parties to execute it; and, in every case, the obligations
between assignor and assignee will depend upon the
juridical relation which is the basis of the assignment.3
It would seem therefore that it was the old concept of
assignment that today adds much to the confusion as to the
nature and effects of such contract, as a species of sale. In
effect,
“assignment” was merely a term and was not under the old
setup
a nominate contract unto its own.
With the adoption of specifi c provisions in Chapter 8 on
the Title on Sales of the New Civil Code, there should be little
doubt that “assignment” should only cover “sales” of credits
and intangible property. Nevertheless, in Nyco Sales Corp. v.
BA Finance Corp.,4 the Court still held that “[A]n assignment of
credit is the process of transferring the right of the assignor to
the assignee, who would then be allowed to proceed against
the
debtor. It may be done either gratuitously or onerously, in
which
case, the assignment has an effect similar to that of a sale.”5
Even lately in South City Homes, Inc. v. BA Finance Corp.,6
the Court defi ned an assignment of credit as an agreement by
virtue of which the owner of a credit, known as the assignor,
by a legal cause, such as sale, dacion en pago, exchange or
donation, and without the consent of the debtor, transfers his
credit and accessory rights to another, known as the assignee,
who acquires the power to enforce it to the same extent as the
assignor could enforce it against the debtor.7
Except in the case of donation, even in all the other instances
when the form of assignment is being used, the transaction is
still covered by the Law on Sales. An assignment by dation in
payment, under Article 1245 of the Civil Code is governed by
the Law on Sales. An exchange or barter through an
assignment
3TOLENTINO, ibid., at p. 166.
4200 SCRA 637 (1991).
5Ibid, at p. 641.
6371 SCRA 603 (2001).
7Also Far East Bank v. Diaz Realty, Inc., 363 SCRA 659
(2001).
571
is also governed by the Law on Sales under Article 1641 of the
Civil Code. An assignment of credit as a mere guarantee is
also
governed by the provisions of the Law on Sales on equitable
mortgages, but strictly speaking is not a sale contract but a
mortgage contract.
WHAT MAKES ASSIGNMENT DIFFERENT?
To know assignment better is to know how different it is from
the species sale. In Philippine National Bank v. Court of
Appeals,8
the Court defi ned and characterized an “assignment” as
follows:
In its most general and comprehensive sense, an
assignment is “a transfer or making over to another
of the whole of any property, real or personal, in
possession or in action, or of any estate or right
therein. It includes transfers of all kinds of property, and
is peculiarly applicable to intangible personal property
and, accordingly, it is ordinarily employed to describe
the transfer of non-negotiable choses in action and of
rights in or connected with property as distinguished
from the particular item or property.”9
Philippine National Bank seems to imply, that although
assignment ordinarily refers to transfer of “non-negotiable
choses
in action and of rights,” it can refer also to transfer of tangible
property. But properly speaking, the transfer of ownership and
possession of tangible property is not an assignment, but
rather
is the species sale.
It is even implied in Philippine National Bank that the
“assignment of a right” would be different from the “sale” of
that same right, thus: “An assignment is a contract between the
assignor and the assignee. It generally operates by way of
such
contract or agreement. It is subject to the same requisites as
to validity of contracts. Whether or not a transfer of a particular
right or interest is an assignment or some other transactions
depends, not on the name by which it calls itself, but on the
legal
8272 Phil. 291 (1997).
9Ibid, at p. 312, quoting from MORENO’S PHIILIPPINE LAW
DICTIONARY, 3rd ed., p. 75.
ASSIGNMENT
572 LAW ON SALES
effect of its provisions. This rule applied in determining whether
a particular transaction is an assignment or a sale.”10 The
Court
then went on to say that: “In assignments, a consideration is
not always a requisite, unlike in sale. Thus, an assignee may
maintain an action based on his title and it is immaterial
whether
or not he paid any consideration therefor. Furthermore, in an
assignment, title is transferred but possession need not be
delivered.”11 The foregoing pronouncements of the Court are
clearly a drawback to the antediluvian thoughts on the nature
of assignment.
Recently, in Project Builders, Inc. v. Court of Appeals,12
the Court characterized “assignment” under the fused concept
covering both onerous and gratuitously contracts of transfer.
An assignment of credit is an act of transferring,
either onerously or gratuitously, the right of an
assignor to an assignee who would then be capable
of proceeding against the debtor for enforcement or
satisfaction of the credit. The transfer of rights takes
place upon perfection of the contract, and ownership
of the right, including all appurtenant accessory
rights, is thereupon acquired by the assignee. The
assignment binds the debtor only upon acquiring
knowledge of the of the assignment but he is entitled,
even then, to raise against the assignee the same
defenses he could set up against the assignor. Where
the assignment is on account of pure liberality on
the part of the assignor, the rules on donation would
likewise be pertinent; where valuable consideration is
involved, the assignment partakes of the nature of a
contract of sale or purchase ... In an assignment of
credit, the consent of the debtor is not essential for its
perfection, his knowledge thereof orlack of it affecting
only the effi caciousness or ineffi caciousness of any
payment he might make.13
10Ibid, at p. 312.
11Ibid at p. 317, citing 6A C.J.S. 781; emphasis supplied.
12358 SCRA 626 (2001).
13Ibid, at pp. 632-633. Reiterated in Aquintey v. Tibong, 511
SCRA 414 (2006).
ASSIGNMENT 573
1. Validity and Binding Effect
The subject matter of an assignment is an intangible property,
whereas the object of species sale would be tangible property.
It
is from the subject matter of assignment being intangible that
dictates the difference of assignment from species sale.
An assignment is also a consensual contract, and is
perfected therefore by mere consent in exactly the same
manner
as species sale. This is confi rmed by Article 1624 which
provides
that an assignment of credits and other incorporeal rights shall
be
perfected in accordance with the provisions of Article 1475
which
states: “The contract of sale is perfected at the moment there
is a meeting of minds upon the thing which is the object of the
contract and upon the price.” This is also a clear indication that
the term “assignment” should no longer be used when covering
a donation involving intangible which must comply with the
solemnities of donation and are not perfected by mere consent.
In one case,14 the Court held that any ambiguity or uncertainty
in the meaning of an assignment will be resolved against the
party who prepared the deed of assignment.
2. Binding Effect as to Third Parties
The “binding effect” of an assignment as to third persons
is not present unless it appears in a public instrument, or the
instrument is recorded in the Registry of Property in case the
assignment involves real rights.15 Unlike, say in the sale of a
car, where third parties may more or less judge who owns it by
manifestation of control and possession thereof, in an
intangible
property which is unseen and cannot be materially possessed,
the only evidence of its having been “sold” would really be a
public instrument.
Without the public instrument, the assignment would still be
valid, but it is enforceable only as between the assignor and
the
assignee, and their successors-in-interest. When the
assignment
14Aquintey v. Tibong, 511 SCRA 414 (2006).
15Art. 1625, Civil Code.
574 LAW ON SALES
is still at the executory stage and not evidenced in writing, and
since assignment is merely a species of the genus sale, it is
covered by the Statute of Frauds.
Another noted exception on the binding effect of a public
instrument covering an assignment is that when the
assignment
involves a document of title, the assignment does not bind the
bailee unless specifi c notice of the transfer of the covering
document of title is given by the transferor or transferee to the
bailee.16
3. Effect of Assignment of Credit on Debtor
C & C Commercial Corp. v. Philippine National Bank,17 held
that the “meeting of the minds” in assignment contemplates
that
between the assignor of the credit and his assignee, there
being
no necessity for the consent of the debtor. It is suffi cient that
the
assignment be brought to the debtor’s knowledge in order to
be
binding upon him.
The debtor’s consent is not necessary in order that
assignment may fully produce legal effects, and hence, the
duty to pay to the assigned does not depend on the consent of
the debtor.18 Otherwise, all creditors would be prevented from
assigning their credits because of the possibility of the debtor’s
refusal to give consent. A creditor may therefore validly assign
his
credit and its accessories without the debtor’s consent; and the
purpose of the notice is only to inform debtor that from the date
of the assignment, payment should be made to the assignee
and
not the original creditor.19
The assignment of credit, although constituting novation,
does not result in extinguishing the debtor’s liability, even when
the assignment is effected without his consent.20
Nevertheless,
although knowledge or consent of the debtor of a credit is not
16Art. 1514, Civil Code.
17175 SCRA 1 (1989).
18Ledonio v. Capitol Dev. Corp., 526 SCRA 379 (2007).
19Rodriguez v. Court of Appeals, 207 SCRA 553 (1992);
National Investment and
Dev. Co. v. De Los Angeles, 40 SCRA 489 (1971); Sison &
Sison v. Yaptico, 37 Phil. 587
(1918); Ledonio v. Capitol Dev. Corp., 526 SCRA 379 (2007).
20South City Homes, Inc. v. BA Finance Corp., 371 SCRA 609
(2002).
ASSIGNMENT 575
essential for the validity of its assignment, the lack of such
knowledge and/or consent has legal effects.
When the subject matter of an assignment is a credit, if the
debtor pays his creditor without knowledge of the assignment,
his payment shall produce the effect of payment to release him
from further obligations.21
Under Article 1285 of the Civil Code, if the assignment of
rights made by a creditor in favor of a third person is made
without
the knowledge of the debtor, the debtor may set up against the
assignee the compensation which would pertain to him against
the assignor of all credits prior to the assignment and also later
ones until he had knowledge of the assignment.
On the other hand, if the debtor has consented to the
assignment, he cannot set up against the assignee such
compensation,
unless the assignor was notifi ed by the debtor at
the time he gave his consent, that he reserved his right to the
compensation.
If the creditor communicated the assignment to him but the
debtor did not consent thereto the debtor may still set up the
compensation of debts previous to the assignment, but not the
subsequent ones.
4. Transfer of Ownership
Project Builders, Inc. v. Court of Appeals,22 held that “[A]n
assignment of credit is an act of transferring, either onerously
or gratuitorialy, the right of an assignor to an assignee who
would then be capable of proceedings against the debtor for
enforcement on satisfaction of the credit. The transfer of rights
takes place upon perfection of the contract and ownership
of the right including all appurtenant accessory rights, is
thereupon acquired by the assignee.”23 We do not agree with
the
characterization of assignment in Project Builders. Assignment,
21Art. 1626, Civil Code; Aquintey v. Tibong, 511 SCRA 414
(2006).
22358 SCRA 626 (2001).
23Ibid, at pp. 632-633.
576 LAW ON SALES
like the genus sale, is not a mode but merely constitute title,
and does not by its perfection alone transfer ownership of the
subject matter thereof.
Although the chapter of the Civil Code on assignment does
not particularly cover this point, the transfer of title or
ownership
over the subject matter of assignment should also be effected
not by the mere perfection of the assignment, but by the same
manner by which ownership is transferred under the species
sale, by constructive delivery, such as the execution of a public
instrument. Since assignment falls under the genus sale, then
the effects of tradition of sale in general should also apply to
assignment; except that doctrines as to actual or physical
delivery
have no application, since the object of assignment does not
have physical existence.
This position is bolstered by Article 1508 of the Civil Code
on sales in general which provides that for incorporeal
property,
the provisions of Article 1498 shall govern on the effects of the
execution of a public instrument. In addition it states that for
sale
of incorporeal property, “the placing of the titles of ownership in
the
possession of the vendee or the use by the vendee of his
rights,
with the vendor’s consent, shall be understood as a delivery.”
However, without the execution of the public instrument, or the
registration in the Registry of Deeds in case of real rights, such
constructive delivery would not bind third parties.
In Leonido v. Capitol Dev. Corp.,24 it was held that the
notarization of the Assignment of Credit, converted it into a
public
document, thereby complying with the mandate of Article 1625
of
the Civil Code and making it enforceable even as against third
person.
a. Accessories and Accessions
Like the effect in species sale, the assignment of a credit
includes all the accessory rights, such as a guaranty,
mortgage,
pledge or preference.25
24526 SCRA 379 (2007).
25Art. 1627, Civil Code. Also United Planters Sugar Milling
Co., Inc. (UPSUMCO)
v. Court of Appeals, 527 SCRA 336 (2007).
ASSIGNMENT 577
b. Warranties
The warranty against hidden defects generally has no
application
to an intangible because it has no physical existence.
In assignment, the assignor shall be responsible for the
existence and legality of the credit at the time of sale, unless it
has been expressly sold as a doubtful account, in which case
the assignee takes the credit at his own risk.26 Consequently,
the
invalidity of the credit assigned makes the assignor-vendor
liable
for breach of such warranty.27
In addition, assignment does not make the assignor warrant
the solvency of the debtor to the credit, unless:
(a) There is a stipulation to that effect; or
(b) The insolvency of the debtor was prior to the
assignment and of common knowledge.28
But even when the assignor warrants the solvency of the
debtor, the warranty should last for one (1) year only, from the
time of the assignment if the credit is already due; otherwise,
the
warranty shall cease only one (1) year after the maturity of the
credit.29
If the assignor in good faith is liable for a warranty, he is liable
only for the expenses of the contract, and any other legitimate
payments made by reason of the assignment. On the other
hand,
an assignor in bad faith who breaches such warranties, shall in
addition be liable to pay for the necessary and useful
expenses,
plus damages.30
Lo v. KJS Eco-Formwork System Phil., Inc.,31 held that when
dacion en pago takes the form of an assignment of credit,
which
is in the nature of a sale of personal property, it produces the
effects of a dation in payment, which extinguishes the
obligation;
however, the seller or assignor is still bound by the warranty of
26Art. 1628, Civil Code.
27Nyco Sales Corp. v. BA Finance Corp., 200 SCRA 637
(1991).
28Art. 1628, Civil Code.
29Art. 1629, Civil Code.
30Art. 1628, Civil Code.
31413 SCRA 182 (2003).
578 LAW ON SALES
the fi rst paragraph of Article 1628 of the Civil Code, which
makes
the seller or assignor liable for the existence and legality of the
credit at the time of sale. The Court held that when it is shown
that the assigned credit no longer existed at the time of dation,
then it obliged the assignor-debtor to make good its warranty
and
pay the obligation.
Other specifi c warranties pertaining to assignment are as
follows:
(a) One who assigns an inheritance right without
enumerating the things it is composed of,
shall only be answerable for his character
as an heir;32 but any fruits received he shall
pay to the assignee, unless the contrary
has been stipulated;33
On the other hand, the assignee shall
reimburse the assignor for all that the latter
has paid for the debts and charges on
the estate, unless the contrary has been
stipulated;34
(b) One who sells for a lump sum the whole of
certain rights, rents, or products, shall be
answerable for the legitimacy of the whole
in general, but not for each of the various
parts of which it may be composed; except
in the case of eviction from the whole or the
part of the greater value.35
ASSIGNMENT OF CREDIT IN LITIGATION
Recently, in South City Homes, Inc. v. BA Finance Corp.,36
the Court described an assignment of credit as follows:
An assignment of credit is an agreement by virtue of
which the owner of a credit, known as the assignor, by a
32Art. 1630, Civil Code.
33Art. 1632, Civil Code.
34Art. 1633, Civil Code.
35Art. 1631, Civil Code.
36371 SCRA 603 (2001).
ASSIGNMENT 579
legal cause, such as sale, dacion en pago, exchange or
donation, and without the consent of the debtor, transfers
his credit and accessory rights to another, known as the
assignee, who acquires the power to enforce it to the same
extent as the assignor could enforce it against the debtor.
As a consequence, the third party steps into the shoes
of the original creditor as subrogee of the latter. But such
assignment does not extinguish the obligation under the
credit assigned.37
A specifi c rule on the assignments of credit or incorporeal
right in litis pendencia is provided by law, since such
assignments
are deemed to be speculative on the part of the assignee, and
as
much as possible, the law would rather benefi t the debtor of
such
credit than the one who merely speculates for profi t. The
rationale
of the law is that if the assignor is willing to dispose of the
credit
at a low price, then it should be the debtor who should benefi t
from the bargain and not a speculator. There presumption is
that
one who buys a credit under litigation is buying for purposes of
speculation.
A credit or other incorporeal right is deemed to be in litigation
from the time a complaint concerning the same is answered.
Under Article 1634 when a credit or other incorporeal right in
litigation is assigned or “sold,” the debtor shall have a right to
extinguish it by reimbursing the assignee for the price the latter
paid therefor, the judicial cost incurred, and the interest on the
price from the day on which the credit was paid. The right to
redeem can be exercised by the debtor within thirty (30) days
from the demand by the assignee for payment.38
The right to redeem on the part of the debtor shall not exist
with respect to the following assignments which the law
considers
not for speculation:
(a) Assignment of the credit or incorporeal
right to the co-heir or co-owner of the rights
assigned;
37Reiterated in Lo v. KJS Eco-Formwork System Phil., Inc.,
413 SCRA 182
(2003).
38Art. 1634, Civil Code.
580 LAW ON SALES
(b) Assignment to a creditor in payment for his
own credit; and
(c) Assignment to the possessor of a tenement
or piece of land which is subject to the right
in litigation assigned.
Note that in all the immediately foregoing cases, the
assignee has a legitimate purpose for taking the assignment of
credit, and not merely for speculation. Likewise, in the fi rst
case of
assignment of the credit to a co-heir or a co-owner, redemption
is
not allowed because it would further the co-ownership
situation,
and the law discourages co-ownership situations.
1. Differentiating from Subrogration
Recently in Licaros v. Gatmaitan,39 the Court distinguished
subrogation from an assignment of credit, as follows:
(a) Subrogation extinguishes the original
obligation and gives rise to a new one;
assignment refers to the same right which In Development Bank of the Philippines v. Court of Appeals,46
passes from one person to another; where an assignor executed a Deed of Assignment covering
(b) The nullity of an old obligation may be cured her
by subrogation, such that a new obligation leasehold rights in order to secure the payment of promissory
will be perfectly valid; but the nullity of an notes covering the loan she obtained from the bank, the Court
obligation is not remedied by the assignment held that such assignment is equivalent to an equitable
of the creditor’s right to another; mortgage,
(c) In an assignment of credit, the consent of and the non-payment of the loan cannot authorize the
the debtor is not necessary in order that the assignee
assignment may fully produce legal effects, to register the assigned leasehold rights in its name as it would
and what the law requires is merely notice be a violation of Article 2088 of the Civil Code against pactum
to him. A creditor may, therefore, validly commissorium. The proper remedy of the assignee-bank is to
assign his credit and accessories without proceed to foreclose on the leasehold right assigned as
the debtor’s consent; security
(d) On the other hand, under Article 1301 of for the loan.
the Civil Code, conventional subrogation In addition, the Court held that the assignment cannot even
39362 SCRA 548 (2001). be considered as a dacion en pago, because dation in
ASSIGNMENT 581 payment
requires an agreement among the three
parties concerned — the original creditor,
the debtor, and the new creditor. It is a new
contractual relation based on the mutual
agreement among all the necessary parties.
Licaros held that conventional subrogation has the effect
of extinguishing the old obligation and giving rise to a new one,
however, the extinguishment of the old obligation is the effect
of the establishment of a contract for conventional subrogation.
It is not a requisite without which a contract for conventional
subrogation may not be created. As such, it is not
determinative
of whether or not a contract of conventional subrogation was
constituted.40
ASSIGNMENT OF COPYRIGHT
The owner of a copyright may assign it in whole or in part;
and within the scope of the assignment, the assignee is
entitled
to all the rights and remedies which the assignor had with
respect
to the copyright.41
The copyright is not deemed assigned inter vivos in whole
or in part unless there is a written indication of such
intention.42
The submission of a literary, photographic or artistic work
to a newspaper, magazine or periodical for publication shall
constitute an assignment but only a license to make a single
publication, unless a greater right is expressly granted.43
If two or more persons jointly own a copyright or any
part thereof, neither of the owners shall be entitled to grant
licenses without the prior written consent of the other owner or
owners.44
40Ibid.
41Sec. 180, Intellectual Property Code.
42Sec. 180.2, ibid.
43Sec. 180.3, ibid.
44Sec. 180.3, ibid.
582 LAW ON SALES
Since the copyright is distinct from the property in the
material object subject to it, the transfer or assignment of the
copyright shall not itself constitute a transfer of the material
object. In the same manner, the transfer or assignment of the
sole copy or of one or several copies of the work does not
imply
transfer or assignment of the copyright.45
ASSIGNMENT AS AN EQUITABLE MORTGAGE
Like species sale used as a device to secure an obligation,
assignment of intangibles is also resorted to as a means to
secure loans. In both cases, the principles pertaining to
equitable
mortgages will apply.
is effected in satisfaction of a debt in money, contrary to
the case
where the assignment is effected at the commencement of the
transaction to secure a loan.
Finally, the Court also held that the assignment could not
amount to payment by cession under Article 1255 of the Civil
Code for the plain and simple reason that there was only one
creditor, whereas cession contemplates the existence of two or
more creditors and involves the assignment of all the debtor’s
property.
45Sec. 181, ibid.
46284 SCRA 14 (1998).
—oOo—
583
CHAPTER 15
THE BULK SALES LAW
The