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CHAPTER 12 it is based, generally does not amount to a breach of the

CONDITIONS AND WARRANTIES contract of sale.

CONDITIONS Under Article 1545 of the Civil Code, where the ownership in the
Article 1545 of the Civil Code grants two alternative remedies things has not passed, the buyer may treat the fulfillment by the
to a party where the obligation of the other party to a contract seller of his obligation to deliver the same, as described and as
of sale is subject to any condition which is not performed, in warranted expressly or by implication in the contract of sale, as
that such first party may either: a condition of the obligation of the buyer to perform his promise
(a) refuse to proceed with the contract, to accept and pay for the thing.
or
(b) he may waive performance of the condition. On the other hand, if the party has promised that the condition
should happen or be performed, the other party may also treat
Romero v. Court of Appeals the non-performance of the condition as a breach of warranty.
emphasized the distinction between a condition imposed on Such stipulation would elevate the condition to a warranty, and
the perfection of the contract and a condition imposed on the the non-happening of the condition would itself constitute a
performance of an obligation: The failure to comply with the breach of such warranty, and would entitle the other party to
first condition results in the failure of the contract, while the sue for damages.
failure to comply with the second condition only gives the other
party the option to either refuse to proceed with the sale or to In addition to the foregoing differences in the legal effects of
waive the condition as mandated under Article 1545; and that the non-happening of the condition and non-fulfillment of the
the choice is not with the obligor but with the injured party. warranty, the following difference also apply:
(a) Condition generally goes into the root of the existence of
In Heirs of Pedro Escanlar v. Court of Appeals the obligation, whereas a warranty goes into the performance
where the sale contract contained the stipulation that “this of such obligation, and in fact may constitute an obligation in
Contract of Sale of rights, interests and participations shall itself;
become effective only upon the approval by the Honorable
Court,” it was held that the non-happening of the condition did (b) Condition must be stipulated by the parties in order to form
not affect the validity of the contract itself, thus — part of an obligation, while a warranty may form part of the
There has arisen here a confusion in the concepts of validity obligation or contract by provision of law, without the parties
and the effi cacy of a contract. having expressly agreed thereto; and

Under Art. 1318 of the Civil Code, the essential requisites of a (c) Condition may attach itself either to the obligations of the
contract are: consent of the contracting parties; object certain seller or of the buyer; whereas, warranty, whether express or
which is the subject matter of the contract and cause of the implied, relates to the subject matter itself or to the obligations
obligation which is established. Absent one of the above, no of the seller as to the subject matter of the sale.
contract can arise. Conversely, where all are present, the
result is a valid contract. However, some parties introduce Power Commercial and Industrial Corp. v. Court of Appeals,
various kinds of restrictions or modalities, the lack of which will demonstrates the difference in the legal effect between a
not, however, affect the validity of the contract. condition and a warranty:

In the instant case, the Deed of Sale, complying as it does with The alleged “failure” of [sellers] to eject the lessees from the lot
the essential requisites, is a valid one. However, it did not bear in question and to deliver actual and physical possession
the stamp of approval of the court. This notwithstanding, the thereof cannot be considered a substantial breach of a
contract’s validity was not affected. ... In other words, only the condition for two reasons: first, such “failure” was not stipulated
effectivity and not the validity of the contract is affected. as a condition — whether resolutory or suspensive — in the
contract; and second, its effects and consequences were not
David v. Tiongson specified either.
citing Escanlar, held that a stipulation that the deed of sale xxx.
and corresponding certificate of title would be issued after full
payment, did not prevent the perfection of a contract, which If the parties intended to impose on the [sellers] the obligation
would then be a contract to sell. 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.
On the other hand, Ramos v. Court of Appeals Court of Appeals, where the ejectment of the occupants of the
Held that under a “Sale with Assumption of Mortgage,” the lot sold ... was the operative act which set into motion the
formal assumption of mortgage was a condition to the seller’s period of [buyer’s] compliance with his own obligation, i.e., to
consent, so that without approval by the mortgagee, no sale was pay the balance of the purchase price. Failure to remove the
perfected; and that where the mortgagee has not approved the squatters within the stipulated period gave the other party the
assumption of mortgage by the buyer, the seller remained the right to either refuse to proceed with the agreement or to waive
owner and mortgagor of the property and retained the right to that condition of ejectment in consonance with Article 1545 of
redeem the foreclosed property. The gravamen of Ramos was the Civil Code ...
not the perfection of the valid contract of sale, but rather the xxx.
effect of transfer of ownership, which goes into consummation
stage. As stated, the provision adverted to in the contract pertains to
the usual warranty against eviction, and not to a condition that
DISTINCTIONS BETWEEN CONDITIONS AND was not met. The terms of the contract are so clear as to leave
WARRANTIES no room for any other
Unlike in the non-fulfillment of a warranty which would interpretation.
constitute a breach of the contract, the non-happening of the
condition, although it may extinguish the obligation upon which EXPRESS WARRANTIES
Since the breach of an express warranty makes the seller nevertheless, by express contractual stipulation, an agent of
liable for damages, it is important to note that the following the seller may bind himself to such warranties.
requisites must be present in order that there be an express
warranty in a contract of sale: 1. Warranty That Seller Has Right to Sell
(a) It must be an affirmation of fact or any promise by the seller In a contract of sale, unless a contrary intention appears, there
relating to the subject matter of the sale; 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.
(b) The natural tendency of such affirmation or promise is to
induce the buyer to purchase the thing; and Since warranty goes into the issue of performance of obligation,
the warranty of the seller “that he has a right to sell” refers only
(c) The buyer purchases the thing relying on such affirmation to the transfer of ownership at the point of consummation, and
or promise thereon. not to any representation as to ownership and the capacity to
transfer the same at the point of perfection. The foregoing
In Goodyear Philippines, Inc. v. Sy, warranty shall not be applicable to render liable a sheriff,
the Court held that a warranty is an affirmation of fact or any auctioneer, mortgagee, pledgee, or other person professing to
promise made by a seller in relation to the thing sold, and that sell by virtue of authority in fact or law, for the sale of a thing in
the decisive test is whether the seller assumes to assert a fact which a third person has a legal or equitable interest.
of which the buyer is ignorant of.
Although Article 1547 uses the phrase “unless a contrary
An affirmation of the value of the thing, or any statement intention appears,” there can be no legal waiver of such warranty
purporting to be a statement of the seller’s opinion only, shall without changing the basic nature of the relationship, for the
not be construed as a warranty, unless the seller made such warranty on the part of the seller that he has the capacity to sell,
affirmation or statement as an expert and it was relied upon by i.e., to transfer ownership of the subject matter pursuant to the
the buyer. sale, is the essence of sale; unless, it amounts to clear
assumption of risk on the part of the buyer, as when the
In this connection, Article 1341 of the Civil Code provides that obligation of the seller is subject to a condition
“[A] mere expression of an opinion does not signify fraud,
unless made by an expert and the other party has relied on the 2. Warranty Against Eviction
former’s special knowledge.” In a contract of sale, unless a contrary intention appears, there
is an implied warranty on the part of the seller that when the
In Azarraga v. Gay,13 the Court recognized that the law allows ownership is to pass, the buyer shall from that time have and
considerable latitude to seller’s statements, or dealer’s talk; and enjoy the legal and peaceful possession of the thing.20 The
experience teaches that it is exceedingly risky to accept it at its vendor shall answer for the eviction even though nothing has
face value. The Court held that assertions concerning the been said in the contract on the subject.
property which is the subject of a contract of sale, or in regard
to its qualities and characteristics, are the usual and ordinary a. When There Is Breach of Warranty Against Eviction
means used by sellers to obtain a high price and are always The seller’s implied warranty against eviction only applies (i.e.,
understood as affording to buyers no ground for omitting to there has been a breach of warranty) when the following
make inquiries, thus: “A man who relies upon such an affirmation conditions are present:
made by a person whose interest might so readily prompt him (a) Purchaser has been deprived of, or evicted from, the whole
to exaggerate the value of his property does so at his peril, and or part of the thing sold;
must take the consequences of his own (b) Eviction is by a fi nal judgment;
imprudence.” (c) Basis thereof is by virtue of a right prior to the sale made by
the seller; and
Investments & Development, Inc. v. Court of Appeals (d) Seller has been summoned and made co-defendant in the
which involved the sale of agricultural land, distinguished suit for eviction at the instance of the buyer.
between the legal effects of an express warranty which provided
that the subject land was “free from all liens and encumbrances,” The warranty cannot be enforced until a fi nal judgment has
and another express warranty that the subject land was “free been rendered, whereby the buyer loses the thing acquired or
from all liens, adverse claims, encumbrances, claims of any a part thereof. The buyer need not appeal from the decision in
tenant and/or agricultural workers, either arising as order that the seller may become liable for eviction. There is no
compensation for disturbance or from improvements.” It held need for the buyer to resist to the fullest the action for eviction
that the actual existence of a tenancy relationship on the subject taken against him, since the warranty is a covenant on the part
land did not breach the fi rst general express warranty, since the of the seller, and by having given the seller proper notice of the
existence of tenancy relationship thereon cannot be considered eviction, (i.e., by making him a party to the case) the buyer is
a lien or encumbrance that the seller warranted did not exist at deemed to have complied with what is incumbent upon him, and
the time of sale, since “[I]t is a relationship which any buyer of the seller, being a party to the case, must then take the lead to
agricultural land should reasonably expect to be present and resist the claim of the third party on the subject matter of the
which it is its duty to specifically look into and provide for.” sale.
Whereas, the second more specific express warranty by its very
wordings did take such tenancy relationship into consideration Power Commercial and Industrial Corp. v. Court of Appeals,
as a part of the express warranty. 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
IMPLIED WARRANTIES at the time the buyer entered into the sale transaction, and it
Implied warranties are those which by law constitute part of even undertook the job of ejecting the squatters which in fact fi
every contract of sale, whether or not the parties were aware of led suit to eject the occupants.
them, and whether or not the parties intended them. Although
only a seller is bound by the implied warranties of law, 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 (b) Income or fruits, if buyer has been ordered to deliver them
one condition to be complied with by the vendee, and that is to to the party who won the suit against him;
give notice of the complaint. Once this is proven, his right to (c) Costs of the suit which caused the eviction, and, in a proper
the warranty is perfect, and the vendor cannot set up anything case, those of the suit brought against the seller for the
against it.” warranty;
d) Expenses of the contract, if the buyer has paid them; and
Escaler v. Court of Appeals, held that the breach of warranty (e) Damages and interests and ornamental expenses, if the
against eviction cannot be enforced against the seller when the sale was made in bad faith.
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 f. Waiver of Warranty and Effects Thereof
the eviction suit, without going through formally summoning the Although Article 1548 of the Civil Code provides that the
seller to be a party to the case. The Court held that — This is contracting parties to a contract of sale “may increase, diminish,
not the kind of notice prescribed by the aforequoted Articles or suppress” the implied warranty against eviction, nonetheless,
1558 and 1559 of the New Civil Code ... the respondents as the effect of waiver depends on the nature of such waiver,
vendor/s should be made parties to the suit at the instance of whether it is general or specific waiver, and whether done in
petitioners vendees, either by way of asking that the former be good faith or bad faith on the part of the seller.
made a co-defendant or by the fi ling of a third-party complaint
against said vendors. Under Article 1553, if the seller acted in bad faith then any
stipulation exempting the seller from the obligation to answer
b. Eviction in Part for eviction shall be void.
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 On the other hand, if the buyer merely renounces the warranty
would not have bought it without said part, he may demand the in general terms, without knowledge of a particular risk, and
rescission of the contract; but with the obligation to return the eviction should take place, the seller shall only pay the value
thing without other encumbrances than those which it had when which the thing sold had at the time of the eviction. In other
he acquired it. He may exercise this right of action, instead of words, a general waiver of the warranty does not create the
enforcing the vendor’s liability for eviction. The same rule shall effect of waiver but merely limits the liability of the seller to the
be observed when two or more things have been jointly sold for value of the thing sold at the time of eviction.
a lump sum, or for a separate price for each of them, when it
clearly appears that the buyer would not have purchased one Should the buyer have made the waiver with knowledge of the
without the other. risks of eviction and assumed its consequences, the seller shall
not be liable. When the waiver is of a specific case of expected
c. Particular Causes Given by Law eviction, the waiver has the effect of wiping out the warranty as
When adverse possession had been commenced before the to that specific risk, but not as to eviction caused by other
sale but the prescriptive period is completed after the transfer, reasons not covered in the waiver.
the seller shall not be liable for breach of warranty against
eviction. J.M. Tuazon v. Court of Appeals,
has, however, held that even when there is no specific waiver,
If the property is sold for nonpayment of taxes due and not made a buyer cannot take refuge on the warranty against eviction
known to the buyer before the sale, the seller is liable for the when he purchases the land fully aware of a claim by a third
eviction. 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
d. Applicability to Judicial Sales faith, it is not entitled to the warranty against eviction.
The judgment debtor is also responsible for eviction in judicial
sales, unless it is otherwise decreed in the judgment. 3. Warranty Against Non-Apparent Servitudes
Under Article 1560 of the Civil Code, the warranty shall apply
Nevertheless, Santiago Land Dev. Corp. v. Court of Appeals, only when the following conditions are present:
held that although in voluntary sales, the vendor can be
expected to defend his title because of his warranty to the (a) The immovable sold is encumbered with any non-apparent
vendees, no such obligation is owed by the owner whose land burden or servitude, not mentioned in the agreement; and
is sold at execution sale, and that “[i]n fact the buyer at such (b) The nature of such non-apparent burden or servitude is
sales takes the property subject to the superior right of other such that it must presumed that the buyer would not have
parties,” as provided expressly under the Rules of Court. acquired it had he been aware thereof.

In another case, the Court ruled that in execution sales, the rule a. When Warranty Not Applicable
of caveat emptor applies; the sheriff does not warrant the title to The warranty does not apply:
the property sold by him, and it is not incumbent on him to place (a) If the servitude is mentioned in the agreement;
the purchaser in possession of the property. (b) If the non-apparent burden or servitude is recorded in the
Registry of Deeds, unless there is an express warranty that the
e. Amounts for Which Seller Is Liable in Case of Eviction thing is free from all burdens and encumbrances.

Under Article 1555 of the Civil Code, when the warranty has b. Remedies and Prescriptive Period
been agreed upon or nothing has been stipulated on this point, The buyer may either bring an action for rescission or sue for
in case eviction occurs, the buyer shall have the right to damages only if he does so within one (1) year computed from
demand of the seller: the execution of the deed. If such one year period has lapsed,
(a) Return of the value which the thing sold had at the time of the buyer may only bring an action for damages within an equal
the eviction, be it greater or period, to be counted from the date on which he discovered the
lesser than the price of the sale; burden or servitude.
4. Warranty Against Hidden Defects c. Waiver of Warranty
Under Article 1561 of the Civil Code, the seller shall be If there has been a stipulation exempting the seller from hidden
responsible for warranty against “hidden defect” only when: defects, then:
(a) The nature of the hidden defect is such that it should render (a) If the seller was not aware of the hidden defects, the loss of
the subject matter unfit for the use for which it is intended; or the thing by virtue of such defect will not make the seller liable
(b) Should diminish its fitness for such use to such an extent at all to the buyer; or
that, had the buyer been aware thereof, he would not have (b) If the seller was fully aware of such defect, such waiver is in
acquired it or would have given a lower price for it. The seller is bad faith, and the seller would still be liable for the warranty.
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, In Filinvest Credit Corp. v. Court of Appeals, the Court held that
by reason of his trade or profession, should have known them. a provision in a contract of lease with option to purchase (which
it treated as a sale of movable on installments) that the buyer-
The seller is responsible to the buyer for any hidden faults or lessee “absolutely releases the lessor from any liability
defects in the thing sold, even though he was not aware thereof. whatsoever as to any and all matters in relation to warranty in
accordance with the provisions hereinafter stipulated,” was an
Investments & Development, Inc. v. Court of Appeals, the Court express waiver of warranty against hidden defects in favor of the
held that the implied warranty against hidden defects under seller-lessor which “absolved the [seller-lessor] from any liability
Article 1547 of the Civil Code covers only those that make the arising from any defect or deficiency of the machinery they
object of the sale unfit for the use for which it was intended at bought.”
the time of sale, and that in the sale of agricultural land, the
existing tenancy relationship pertaining thereto cannot be The Court also held in that case that since the buyers lessees
considered as “hidden fault or defect” since it did not go into the deal with such particular type of machinery, they should
use of the land. shoulder the responsibility of protecting themselves against the
product defects, thus: “This is where the waiver of warranties is
a. Requisites for Breach of Warranty of paramount importance. Common sense dictates that a buyer
Nutrimix Feeds Corp. v. Court of Appeals, inspects a product before purchasing it (under the principle of
held that “the requisites to recover on account of hidden caveat emptor or ‘buyer beware’) and does not return it for
defects are as follows:” defects discovered later on, particularly if the return of the
(a) Defect must be hidden; product is not covered by or stipulated in a contract or warranty.”
(b) Defect must exist at the time the sale was made;
(c) Defect must ordinarily have been excluded from the The Court further held that “to declare the waiver as non
contract; effective, as the lower courts did, would impair the obligation of
(d) Defect, must be important (render the thing unfit or contracts. Certainly, the waiver in question could not be
considerably decreases fitness); considered a mere surplusage in the contract between the
(e) Action must be instituted within the statute of limitations. parties.”

b. Remedies of Buyer and Obligation of Seller for Breach NDC v. Madrigal Wan Hai Lines Corp.,
of Warranty held that in contracts of sale, the phrase “as is, where is” basis
In the event of breach of the warranty against hidden defects, pertains solely to the physical condition of the thing sold, not to
Nutrimix Feeds Corp. also confirmed the principle under Article its legal situation, and therefore does not amount to a waiver on
1567 of the Civil Code that the remedy of the buyer is either the legal defects pertaining to the subject matter. The Court
towithdraw from the contract (accion redhibitoria) or to demand ruled that the U.S. tax liabilities which constituted a potential lien
a proportionate reduction of the price (accion quanti minoris), pertained only to the legal situation of the subject matter, and
with damages in either case. A choice of remedies is available not to its physical aspect, and that the buyer of the thing had no
to the buyer only when the thing has not been lost. If the subject obligation to shoulder the same.
matter of sale is actually lost, the extent of the obligations of the
seller for breach of warranty against hidden defects depends d. Applicability to Judicial Sales
upon the: cause of the lost, knowledge of the hidden defect by The warranty against hidden defects shall be applicable to
seller, and whether there has been a waiver of the warranty, judicial sales, except that the judgment debtor shall not be
thus: liable for damages.

(a) If the thing sold should be lost as a consequence of the e. Prescriptive Period
hidden faults: Actions on warranties against hidden defects shall be barred
(i) If the seller was aware of them, he shall bear the after six (6) months from the delivery of the thing sold.
loss, and shall be obliged to return the price and refund
the expenses of the contract, with damages; or 5. Redhibitory Defects of Animals
(ii) If seller was not aware of them, the seller is Under Article 1576 of the Civil Code, even when professional
obliged only to return the price and interest thereon, inspection has been made, if the hidden defect of animals
and reimburse the expenses of the contract which the should be of such a nature that expert knowledge is not sufficient
buyer might have paid, but not for damages. to discover it, the defect shall be considered as redhibitory. But
(b) If thing is lost through a fortuitous event or through the fault if the veterinarian, through ignorance or bad faith, should fail to
of the buyer, then: discover or disclose it, he shall be liable for damages.
(i) If the seller was not aware of the hidden defects,
the buyer may demand from the seller the price which a. Sale of Team
he paid, less the value which the thing had when it Under Article 1572 of the Civil Code, if two or more animals are
was lost; sold together, whether for a lump sum or for a separate price
(ii) If the seller acted in bad faith, in addition he shall for each of them, the redhibitory defect of one shall only give
pay damages to the buyer.48 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 Nutrimix Feeds Corp. v. Court of Appeals which covered a
be presumed when a team, yoke, pair, or set is bought, even if contract of sale of animal feeds, described the requisites to be
a separate price has been fixed for each one of the animals established for breach of the implied warranty that the goods
composing the same. Note that the foregoing rules with respect sold are reasonably fi t and suitable to be used for the purpose
to the sale of animals shall in like manner be applicable to the which both parties contemplated, thus:
sale of other things.
(a) That the buyer sustained injury because of the product;
b. Other Rules on Sale of Animals (b) That the injury occurred because the product was defective
There is no warranty against hidden defects of animals sold at or unreasonably unsafe; and
fairs or at public auctions, or of live stock sold as condemned. (c) The defect existed when the product left the hands of the
seller.
The sale of animals suffering from contagious diseases
shall be void. Nutrimix Feeds Corp. also held that a manufacturer or seller of
a product cannot be held liable for any damage allegedly caused
A contract of sale of animals shall also be void if the use or by the product in the absence of any proof that the product in
service for which they are acquired has been stated in the question is defective; that the defect must be present upon the
contract and they are found to be unfit therefor. delivery or manufacture of the product, or when the product left
the manufacturer’s or seller’s, or when the product was sold to
c. Prescriptive Period the purchaser; or the product must have reached the user or
The redhibitory action, based on the faults or defects of consumer without substantial change in the condition it was
animals, must be brought within forty (40) days from the date sold.
of their delivery to the buyer.
b. Measure of Damage In Case of Breach of Warranty on
If the animal should die within three (3) days after its purchase, Quality
the vendor shall be liable if the disease which cause the death In the case of breach of warranty of quality, such loss, in the
existed at the time of the contract. When the buyer returns the absence of special circumstances showing proximate damage
objects bought and demands the payment of the purchase price, of a greater amount, is the difference between the value of the
he is in effect “withdrawing from the contract” as provided in goods at the time of delivery to the buyer and the value they
Article 1567, where the prescriptive period is six (6) months from would have had if they had answered to the warranty.
the delivery of the thing sold.
2. Sale of Goods by Sample and/or by Description
d. Obligation of Buyer to Return In the case of a contract of sale by sample, if the seller is a dealer
If the sale be rescinded, the animal shall be returned in the in goods of that kind, there is an implied warranty that the goods
condition in which it was sold and delivered, the buyer being shall be free from any defect rendering them unmerchantable
answerable for any injury due to his negligence, and not arising which would not be apparent on reasonable examination of the
from the redhibitory fault or defect. sample.

e. Remedies of Buyer Mendoza v. David,held that in a sale by sample, there is an


In the sale of animals with redhibitory defects, the buyer may implied warranty that the goods shall be free from any defect
also elect between withdrawing from the contract and which is not apparent or reasonable upon examination of the
demanding a proportionate reduction of the price, with damages sample and which would render the goods unmerchantable. On
in either case; but he must make use thereof within the same the other hand, in a sale of goods by description, Mendoza held
period which has been fixed for the exercise of the redhibitory that a “seller’s description of the goods which is made part of the
action. basis of the transaction creates a warranty that the goods will
conform to that description. Where the goods are bought by
IMPLIED WARRANTIES IN SALE OF GOODS description from a seller who deals in the goods of that
1. Warranty as to Fitness or Quality description, there is an implied warranty that the goods are of
Under Article 1562 of the Civil Code, in a sale of goods, there mechantable quality.”
is an implied warranty or condition as to the quality or fitness of
the goods, as follows: 3. Buyer’s Option in Case of Breach of Warranty
(a) Where the buyer, expressly or by implication, makes known Under Article 1599 of the Civil Code, where there is a breach
to the seller the particular purpose for which the goods are of warranty by the seller in the sale of goods, the buyer may, at
acquired, and it appears that the buyer relies on the seller’s skill his election, avail of the following remedies:
or judgment (whether he be the grower or manufacturer or not), (a) Accept or keep the goods and set up against the seller, the
there is an implied warranty that the goods shall be reasonably breach of warranty by way of recoupment in diminution or
fit for such purpose; extinction of the price;
(b) Accept or keep the goods and maintain an action against
(b) Where the goods are bought by description from a seller who the seller for damages;
deals in goods of that description (whether he be the grower or (c) Refuse to accept the goods, and maintain an action against
manufacturer or not), there is an implied warranty that the goods the seller for damages;
shall be of merchantable quality. (d) Rescind the contract of sale and refuse to receive the
goods or if the goods have already been received, return them
An implied warranty or condition as to the quality or fitness for a or offer to return them to the seller and recover the
particular purpose may be annexed by the usage of trade. In the price or any part thereof which has been paid.
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 When the buyer has claimed and been granted a remedy in any
particular purpose, unless there is a stipulation to the contrary. of these ways, no other remedy can thereafter be granted,
without prejudice to the buyer’s right to rescind, even if
a. Requisites for Breach of Warranty to Apply
previously he has chosen specific performance when fulfillment The warranty rights can be enforced by presentment to the
has become impossible. immediate seller either the warranty card or the official receipt
along with the product to be serviced or returned to the
4. Waiver of Remedies by Buyer immediate seller. No other documentary requirement shall be
When goods have been delivered to the buyer, he cannot demanded from the purchaser.
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 3. Duration of Warranty
seller within a reasonable time of the election to rescind, or if he The seller and the consumer may stipulate the period within
fails to return or to offer to return the goods to the seller in which the express warranty shall be enforceable. But if the
substantially as good condition as they were in at the time the implied warranty on merchantability accompanies an express
ownership was transferred to the buyer. But if deterioration or warranty, both will be of equal duration. Any other implied
injury of the goods is due to the breach of warranty, such warranty shall endure not less than sixty (60) days nor more than
deterioration or injury shall not prevent the buyer from returning one (1) year following the sale of new consumer products.
or offering to return the goods to the seller and rescinding the
sale. 4. Breach of Warranties
In case of breach of express warranty, the consumer may elect
5. Obligation of Buyer on the Price to have the goods repaired or its purchase price refunded by the
Where the buyer is entitled to rescind the sale and elects to do warrantor. In case the repair of the product in whole or in part is
so, he shall cease to be liable for the price upon returning or elected, the warranty work must be made to conform to the
offering to return the goods. If the price or any part thereof has express warranty within thirty (30) days by either the warrantor
already been paid, the seller shall be liable to repay so much or his representative. The thirty-day period, however, may be
thereof as has been paid, concurrently with the return of the extended by conditions which are beyond the control of the
goods, or immediately after an offer to return the goods in warrantor or his representatives.
exchange for repayment of the price.
In case the refund of the purchase price is elected, the amount
6. Refusal of Seller to Accept Return of Goods directly attributable to the use of the consumer prior to the
Where the buyer is entitled to rescind the sale and elects to do discovery of the non-conformity shall be deducted.
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 In case of breach of implied warranty, the consumer may retain
goods as bailee for the seller, but subject to a lien to secure the goods and recover damages, or reject the goods, cancel the
payment of any portion of the price which has been paid, and contract and recover from the seller so much of the purchase
with the remedies for the enforcement of such lien allowed to an price as has been paid, including damages.
unpaid seller by Article 1526 of the Civil Code.
5. Contrary Stipulations
ADDITIONAL TERMS OF WARRANTIES FOR CONSUMER All covenants, stipulations or agreements contrary to the
GOODS provisions of Article are specifically declared null and void, and
The term “consumer products” is defined under Article 4(q) of without legal effect.
the Consumer Act of the Philippines, to cover goods “which are —oOo—
primarily for personal, family, household or agricultural
purposes, which shall include but not limited to, food, drugs,
cosmetics, and devices.”

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
In Nool v. Court of Appeals, two separate documents were
CHAPTER 13 executed, one a sale agreement, and the other an agreement
EXTINGUISHMENT OF SALE granting the sellers the right of repurchase; but that when they
IN GENERAL were executed the sellers had actually lost ownership of the
The same grounds by which obligations in general are subject parcel of land which had been foreclosed by the
extinguished, also apply to the extinguishment of the obligations mortgagee bank. When the buyer learned that the sellers no
arising from contracts of sale. They include payment of the price longer owned the property, he arranged for its direct purchase
or performance (i.e., delivery of subject matter), loss of the from the mortgagee-bank. The sellers then sought to exercise
subject matter, condonation or remission, confusion or merger the right of repurchase against the buyer. Recognizing that a
of the rights of creditor and debtor, compensation, novation, sale contract does not become void by reason only that the
annulment, rescission, fulfillment of a resolutory condition, and subject matter is not owned by the seller at the time of the
prescription. perfection, the Court, nevertheless considered the underlying
sale contract as “inoperative” under item 5 of Article 1409 which
Payment or performance only extinguishes the obligations to declares void a contract which “contemplates an impossible
which they pertain to in a contract of sale, but not necessarily service,” in line with
the contract itself, since the relationship between buyer and
seller remains after performance or payment, such as the Article 1459 of the Civil Code which requires that “the vendor
continuing enforceability of the warranties of the seller. More must have a right to transfer the ownership thereof at the time it
importantly, under Article 1600 of the Civil Code, sales are also is delivered.” Since the underlying contract of sale was
extinguished by conventional or legal redemption. Redemption inoperative, and consequently, void, then the right of repurchase
as a mode of extinguishment is therefore unique to contracts of reserved would also be void.
sale.
Nool indicates that the valid existence of a stipulated right of
CONVENTIONAL REDEMPTION repurchase is premised upon the fact that the underlying
1. Definition contract of sale is valid and there has been performance (i.e.,
Conventional redemption shall take place when the seller delivery of the subject matter and transfer of ownership to the
reserved for himself the right to repurchase the thing sold, with buyer), upon which the right to repurchase can be exercised
the obligation to: later on.
(a) return the price of the sale,
(b) the expenses of the contract, 3. Right of Repurchase May Be Proved by Parol Evidence
(c) any other legitimate payments made by reason of the sale, Since a right to repurchase is merely a feature of the contract of
(d) and the necessary and useful expenses made on the thing sale, it is governed also by the Statute of Frauds. However, the
sold. Supreme Court has held that when the contract of sale has been
reduced in writing, parol evidence may be adduced to prove the
Even when a sale is one with a right of repurchase, the buyer agreement granting the seller a right to repurchase the property
would still be subrogated to the seller’s rights and actions even sold, since the deed of sale and the verbal agreement allowing
during the period when redemption can be made by the seller. the right of repurchase should be considered as an integral
whole, then the deed of sale relied upon by the seller “is in itself
In other words, the redemption feature of sale does not prevent the note or memorandum evidencing the contract,” which would
its full consummation. Unlike a debt which a third party may take the case outside the provisions of the Statute of
satisfy even against the debtor’s will the right of repurchase may Frauds.Parol evidence may also be admitted to prove that a right
be exercised only by the seller in whom the right is recognized of repurchase was part of a deed of sale, when no objection to
by a contract, or by any person to whom the right may have been such parol evidence was made during trial.
transferred, or in the case of legal redemption, by the person so
entitled by law. The Court also held that the “best evidence rule” would not be
an obstacle to the adducement of such parol evidence where it
2. Proper Reservation of Right to Repurchase is shown that the parol agreement was the moving cause of the
Villarica v. Court of Appeals, written contract, or where the parol agreement forms part of the
distinguished between the right to redeem from an option to consideration of the written contract, and it appears that the
purchase, in that it is clear from Article 1601 of the Civil Code written contract was executed on the faith of the parol contract
that “the right of repurchase ... must be reserved by the or representation, and especially so when the right of
vendor, by stipulation to that effect, in the contract of sale.”8 It repurchase proved by parol evidence is not inconsistent with the
held that “[T]he right of repurchase is not a right granted [to] terms of the written contract.
the vendor by the vendee in a subsequent instrument, but is a
right reserved by the vendor in the same instrument of sale as 4. Distinguished from Option to Purchase
one of the stipulations of the contract. Once the instrument of The differences between a right of redemption from an option
absolute sale is executed, the vendor can no longer reserve right may be summarized as follows:
the right to repurchase, and any right thereafter granted the
vendor by the vendee in a separate instrument cannot (a) A right to redeem is not a separate contract, but merely part
be a right of repurchase but some other right like the option to of a main contract of sale, and in fact cannot exist unless
buy in the instant case. reserved at the time of the perfection of the contract of sale;
whereas, an option to purchase is generally a principal, albeit
In another way of looking at it, Misterio v. Cebu State College of preparatory, contract and may be created independent
Science and Technology, held that the essence of a pacto de of another contract;
retro sale is that title and ownership of the property sold is
immediately vested in the vendee a retro, subject to the (b) A right to redeem must be imbedded in a contract of sale
restrictive condition of repurchase by the vendor a retro within upon the latter’s perfection; whereas, an option right may exist
the redemption period. prior to or after the perfection of the sale, or be imbedded in
another contract, like a lease, upon that contract’s perfection;
10 years from the date of the contract, but wholly without force
(c) The right to redeem does not need a separate consideration and effect thereafter.
in order to be valid and effective; whereas, an option to purchase
in order to be valid must have a consideration separate and Ochagabia v. Court of Appeals
distinct from the purchase price; held that the right to redeem under a sale pacto de retro had
prescribed when the action was initiated more than six
(d) For a right to redeem, the redemption period cannot exceed decades later, since the right to redeem should have been
ten (10) years; whereas, the period for an option right may exercised at the latest within (10) years reckoned from the
exceed ten (10) years; execution of the contract.

(e) The exercise of a right of redemption requires notice to be c. The Mysterious Aberration of Misterio
accompanied by a tender of payment, including consignment Appropriate to its name, the decision in Misterio v. Cebu State
when tender of payment cannot be made effectively on the College of Science and Technology,25 defi es practically all
buyer; whereas, the exercise of a option to purchase requires established jurisprudential rules on the proper application of
only a notice of such exercise be given to the optioner; and the statutory periods for the exercise of the conventional right
of redemption.
(f) The exercise of a right of redemption extinguishes an existing
contract of sale; whereas, the valid exercise of an option right In Misterio, a deed of sale with right to repurchase was executed
results into the perfection of a contract of sale. in December, 1956 over a parcel of land “subject to the right of
the vendor to repurchase the property after the high school shall
5. Period of Redemption have ceased to exist, or shall have transferred its site
a. When No Period Agreed Upon elsewhere.” When the condition did happen in June, 1983 (or
In case of stipulated right to redeem, in the absence of an more than twenty years from the date of the contract), the Court
express agreement as to the period when the right can be ruled that since no period was agreed upon, the applicable
exercised, it shall last four (4) years from the date of the contract. period under Article 1606 of the Civil Code should be four (4)
years to be counted, not from the “date of the contract” as
In Misterio v. Cebu State College of Science and Technology, required in the article, but within four (4) years from the
18 the four year period was held to begin from the happening of happening of the condition, even though it would exceed the
the stipulated condition contained in the covering deed of sale, maximum 10-year limitation provided in said Article 1606, which
rather than from the date of the contract, and even when the has been strictly construed by the Supreme Court in previous
entire covered period from the date of the contract would exceed rulings discussed above. Was it oversight on the part of the
ten (10) years. Supreme Court or does Misterio establish the new rule on
redemption period?
The inexplicable ruling in Misterio is further discussed
hereunder. d. Pendency of Action Tolls Redemption Period
Ong Chua v. Carr
b. When Period Agreed Upon held that the pendency of an action brought in good faith and
Should there be an agreement as to the period of redemption, relating to the validity of a sale a retro tolls the running of the
the period cannot exceed 10 years;19 if exceeds 10 years, the period of redemption, thus: “Neither was it error on the part of
agreement is valid only for the first 10 years. the court to hold that the pendency of the
action tolled the term for the right of redemption; that is an old
In Anchuel v. Intermediate Appellate Court, where it was and well established rule.”
stipulated in the sale a retro that the seller cannot redeem the
property within a period of 19 years from the execution of the On the other hand, Misterio v. Cebu State College of
contract, the Court held that such stipulation is void since it Science and Technology,29 held that the pendency of a
violated Article 1601 of the Civil Code; it therefore held that the litigation pertaining to the right of redemption does not toll the
period of redemption would be 10 years. period because such period “is not suspended merely and solely
because there is a divergence of opinion between the parties as
In Tayao v. Dulay,22 it was stipulated by the parties in the sale to the precise meaning of the phrase providing for the condition
a retro that the seller’s right of redemption cannot be exercised upon which the right to repurchase is triggered. The existence
within 10 years. Although the Court found the stipulation to be of seller a retro’s right to repurchase the proper is not dependent
void, it held that such nullity of the stipulation did not convert the upon the prior fi nal interpretation by the court of the said
contract into a mere indebtedness nor an equitable mortgage, phrase.”
and since there was an agreement, although void, the provisions
of Article 1606 of the Civil Code would apply in that the seller There is actually no contradiction between the Ong Chua and
may exercise his right of redemption within a period of 10 years the Misterio rulings on this particular matter, the important
from the date of the contract. consideration being the “vesting” of the exercise of the right of
redemption by its proper exercise, which require notice and
Tayao illustrated clearly that when a period of redemption is tender of payment. In the case of Ong Chua, the seller a retro
agreed upon by the parties in a sale a retro, although the had given notice of the exercise of the redemption right within
stipulation as to period may be unclear or void, it is the 10 year the redemption period; whereas in Misterio the facts showed the
period provided in Article 1606 that applies and not the 4 year successors-in-interests of the sellers a retro actual sought to
period provided therein where there is no agreement as to exercise the redemption right after the expiration of the four year
period. redemption period. In essence therefore, the completion of the
redemption process (i.e., the payment of the amounts required
Bandong v. Austria held that the provisions of the contract of by Article 1616) is tolled by the fi ling of a civil action relating to
sale which secured to the sellers a right of repurchase in the the issue of such redemption, provided that the exercise of the
month of March of any year after the date of the contract, but redemption right and the fi ling of the suit are done within the
such a right of redemption could be exercised for a period of redemption period.
e. Non-Payment of Price Does Not Affect Running of a. How Redemption Exercised
Redemption Period Legaspi v. Court of Appeals
Catangcatang v. Legayada held that in order to exercise the right to redeem, only tender of
held that the non-payment of the purchase price by itself payment is sufficient. The Court further held that “[S]ince the
would not serve to suspend the period of redemption, thus — case at bar involves the exercise of the right to repurchase, a
The sale was consummated upon the execution of the showing that petitioner made a valid tender of payment is
document and the delivery of the land subject matter thereof to sufficient. It is enough that a sincere or genuine tender of
the vendee, petitioner herein. It was a perfectly valid agreement, payment and not a mock or deceptive one was made. The fact
and the non-payment of the balance of the purchase price could that he deposited the amount of the repurchase money with the
not have the effect of suspending the efficacy of the Clerk of Court was simply an additional security for the
provisionsthereof. ... The sale under consideration was petitioner. It was not an essential act that had to be performed
perfected from the moment Legayada consented to sell the land after tender of payment was refused by the private respondent
in question and Catangcatang agreed to purchase it for the sum although it may serve to indicate the veracity of the desire to
of 51,400.00 and the latter had partially complied with his comply with the obligation.”
obligation by paying the sum of
51,200.00 and the former by delivering possession of the land The mere sending of letters by the seller expressing his desire
to the vendee.” to repurchase the property without accompanying tender of the
redemption price does not comply with the requirement of law.
6. Possession of Subject Matter During Period of
Redemption Catangcatang v. Legayada
In a sale a retro, the buyer has a right to the immediate held that when tender of payment cannot be validly made,
possession of the property sold, unless otherwise agreed upon. because the buyer cannot be located, it becomes imperative
It is basic that in a pacto de retro sale, the title and ownership of for the seller a retro then to fi le a suit for consignation with the
the property sold are immediately vested in the buyer a retro, courts of the redemption price, and failing to do so within the
subject only to the resolutory condition of repurchase by the redemption period, his right of redemption shall lapse.
seller a retro within the stipulated period.
Lee Chuy Realty Corp. v. Court of Appeals
Misterio v. Cebu State College of Science and Technology,held accompanied by a bona fi de tender of redemption price, is not
— Pending the repurchase of the property, the vendee a retro essential where the right to redeem is exercised through a
may alienate, mortgage or encumber the same, but such judicial action within the redemption period and simultaneously
alienation or encumbrance is as revocable as is his right. If the depositing the redemption price. The fi ling of the action itself
vendor a retro repurchases the property, the right of the vendee within the period of redemption is equivalent to a formal offer to
a retro is resolved, because he has to return the property free redeem. Lee Chuy held that there is actually no prescribed form
from all damages and encumbrances imposed by him. The for an offer to redeem to be properly effected. It can either be
vendor a retro may also register his right to repurchase under through a formal tender with consignation, or by fi ling a
the Land Registration Act and may be enforced against any complaint in court coupled with consignation of the redemption
person deriving title from the vendee a retro. price within the prescribed period, thus: ... a formal offer to
redeem, accompanied by a bona fi de tender of the redemption
7. How Redemption Effected price, is not essential where the right to redeem is exercised
The seller can avail himself of the right of repurchase by through a judicial action within the redemption period and
returning to the buyer: simultaneously depositing the redemption price. The formal offer
(a) The price of the sale: to redeem accompanied by a bona fide tender of the redemption
(b) The expenses of contract, and any other legitimate price prescribed by law is only essential to preserve the right of
payments made by reason of the sale; redemption for future enforcement even beyond the period of
(c) The necessary and useful expenses made on the thing redemption. The fi ling of the action itself within the period of
sold. redemption is equivalent to a formal offer to
redeem.
The seller may bring his action against every possessor whose
right is derived from the buyer, even if in the second contract no In sum, the formal offer to redeem is not a distinct step or
mention should have been made of the right to repurchase, condition sine qua non to the fi ling of the action in court for the
without prejudice to the provisions of the Mortgage Law and the valid exercise of the right of legal redemption. What constitutes
Property Registration Decree, with respect to third persons, who a condition precedent is either a formal offer to redeem or the fi
may have bought in good faith and for value. ling of an action in court together with the consignation of the
redemption price within the reglementary period.
Under Article 1616 of the Civil Code, the seller a retro must pay
for the useful improvements introduced by the buyer a retro. Outside of seeking court action within the redemption period to
enforce the redemption right, Lee Chuy thereby discussed
Gargollo v. Duero when the right of redemption is deemed “vested,” i.e., the
held that failure of the seller a retro to pay the useful “formal offer to redeem accompanied by a bona fi de tender
improvements, entitles the buyer a retro to retain possession of of the redemption price” within the redemption period, which
the land until actual reimbursement is done by the seller a retro. thereafter allows the enforcement of the right even beyond the
The exercise of redemption is not limited only to the total redemption period.
redemption price enumerated in Article 1616 of the Civil Code,
since said legal provision is not restrictive nor exclusive. It b. In Multi-Parties Cases
should be construed with Article 1601 which provides that legal In sale a retro, the buyer of part of an undivided immovable who
redemption shall take place when the seller reserves the right to acquires the whole thereof in the case of Article 498, may
repurchase the thing sold, with the obligation to comply with the compel the seller to redeem the whole property, if the latter
provisions of Article 1616 “and other stipulations which may wishes to make use of the right of redemption.
have been agreed upon.”
If several persons, jointly and in the same contract, should sell ownership. The buyer would still be the owner of the property
an undivided immovable with a right of repurchase, none of them when the seller a retro fails to redeem the property within the
may exercise this right for more than his respective share. redemption period. The essence of a pacto de retro sale that the
title and ownership of the property sold are immediately vested
The same rule shall apply if the person who sold an immovable in the buyer a retro, subject to the resolutory condition of
alone has left several heirs, in which case each of the latter may repurchase by the seller a retro within the stipulated period.
only redeem the part which he may have acquired. Failure of the seller a retro to perform said resolutory condition
vests absolute title and ownership over the property sold. As title
In the case of the preceding situation, the buyer may demand is already vested in the buyer a retro, his failure to consolidate
of all the vendors or co-heirs, that they come to an agreement his title under Article 1607 does not impair such title or
upon the repurchase of the whole thing sold; and should they ownership for the method prescribed thereunder is merely for
fail to do so, the buyer cannot be compelled to consent to a the purpose of registering the consolidated title.
partial redemption.
9. Grant of 30-day Redemption Right in Case of Litigation
On the other hand, each one of the co-owners of an undivided and Article 1606
immovable who may have sold his share separately, may
independently exercise the right of repurchase as regards his Under the last paragraph of Article 1606 of the Civil Code,“the
own share, and the buyer cannot compel him to redeem the vendor may still exercise the right to repurchase within thirty-
whole property. In addition, the creditors of the seller cannot days from the time fi nal judgment was rendered in a civil action
make use of the right of redemption against the buyer, until on the basis that the contract was a true sale with right to
after they have exhausted the property of the seller. repurchase.”

De Guzman v. Court of Appeals, When the period of redemption has expired, then ipso jure the
the Court held that under the rules contained in Article 1612 of right to redeem has been extinguished. However, even when
the Civil Code, should one of the co-owners or co-heirs succeed the right to redeem has expired, and there has been a previous
alone in redeeming the whole property, such co-owner or co- suit on the nature of the contract, the seller may still exercise
heir shall be considered Art. 498. Whenever the thing is the right to repurchase within 30 days from the time fi nal
essentially indivisible and the co-owners cannot agree that it be judgment was rendered in a civil action on the basis that the
allotted to one of them who shall indemnify the others, it shall be contract was a true sale with right to repurchase.
sold and its proceeds distributed. as a mere trustee with respect
to the shares of his co-owners or co-heirs; accordingly, no Tapas v. Court of Appeals
prescription will lie against the right to any co-owner or co-heir held that the 30-day period granted under Article 1606 for the
to demand from the redemptioner his respective share in the seller to redeem the property sold a retro “contemplates a case
property redeemed, which share is subject to a lien in favor of involving a controversy as to the true nature of the contract,
the redemptioner for the amount paid by him corresponding to and the court is called upon to decide whether it is a sale with
the value of the share. pacto de retro or an equitable mortgage ... there can be no
controversy as to the contract being one of absolute deed of
8. When Redemption Not Made sale, pure and simple. There could not even then be a period
Jurisprudence before the new Civil Code held that when no of redemption.”
redemption is made, the buyer a retro automatically acquires full
ownership. Pangilinan v. Ramos
held that the 30-day period for redemption granted under
However, under the present Article 1607 of the Civil Code, in the Article 1606 does not apply to a contract found to be an
case of real property, the consolidation of the ownership in the absolute sale. It also held that the “thirty day period is pre-
buyer by virtue of the failure of the seller to comply with his emptory because the policy of the law is not to leave the
obligation to return the price and other legally mandated purchaser’s title in uncertainty beyond the established thirty
expenses, shall not be recorded in the Registry of Property day period. It is not a prescriptive period but is more a requisite
without a judicial order, after the seller has been duly heard. or condition precedent to the exercise of the right of legal
redemption.”
The proceeding for consolidation of title under Article 1607 is not
a mere motion incident to a main action or special proceeding, Nevertheless, it cited as authority the case of Caro v. Court of
but is an ordinary civil action where a complaint or petition must Appeals,which referred to the 30-day legal redemption right of a
be filed; with the buyer a retro being made a party to the co-owner under Article 1623 of the Civil Code, and not the 30-
complaint and summons being served upon him.55 If such day period provided under Article 1606. The rationale for the
action for consolidation of ownership is denied because the grant of the 30-day period of redemption under Article 1606 is
contract is found to be an equitable mortgage, another action quite clear: although a period of redemption is stated in the
can be fi led to collect on the indebtedness or to foreclose the purported sale a retro, nevertheless, the purported seller has
mortgage. placed no importance thereto since he considers the transaction
to be an equitable mortgage; being an equitable mortgage, then
Article 1607 abolished automatic consolidation of ownership in the purported seller has every right to extinguish the equitable
the buyer a retro upon expiration of the redemption period by mortgage by paying-up the loan at any time before the purported
requiring the buyer to institute an action for consolidation buyer has foreclosed on the mortgage. Allowing the expiration
where the vendor a retro may be duly heard. If the buyer of the stipulated redemption period is not negligence or fault on
succeeds in proving that the transaction was indeed a pacto de the part of the purported seller, and is in fact consistent with his
retro, the vendor is still given a period of thirty days from the position that the sale is not one a retro but actually an equitable
finality of the judgment within which to repurchase the property. mortgage. Therefore, should a judgment be finally rendered
Notwithstanding the provisions of Article 1607, the recording upholding the transaction to be one of sale a retro, then it is but
in the Registry of Deeds of the consolidation of ownership of the fair to grant to the seller a final 30-day period within which to
buyer is not a condition sine qua non to the transfer of
redeem from the time he is bound by the judgment finding the Nonetheless, the Court reversed its earlier decision Abilla and
contract to be one not of equitable mortgage. granted the exercise of redemption under Article 1606. In
reversing its earlier resolution, the Court held that Article 1606
On the other hand, if the issue before the court is one whether applies only where the nature and character of the transaction
the contract at issue was one of absolute sale or a sale a retro, — whether as a pacto de retro sale or as an equitable mortgage
a judgment finding the contract to be a sale a retro should not — was put in issue before the court. In other words, it applies in
authorize the application of the 30-day redemption period under a situation where one of the contending parties claims that the
Article 1606 in favor of the seller who had previously allowed the transaction was a sale with right to repurchase and the other
period of redemption to expire. In such a case, the seller a retro counters that the same was an equitable mortgage, and the
was negligent or at fault for not having exercised his right to courts declares in a final judgment that the transaction was really
redeem during the redemption period, and should not be a sale with pacto de retro. But the applicability of Article 1606
granted a new period. rests on the bona fi de intent of the seller a retro, if he honestly
believed that the transaction was an equitable mortgage, the
a. Feigning Equitable Mortgage Situation said article applies and he can still repurchase the property
to Avail of Article 1606 within thirty days from finality of the judgment declaring the
Even when the sale involved a true sale a retro, and the seller transaction as a sale with pacto de retro. Parenthetically, it
failed to redeem within the redemption period, there was danger matters not what the buyer intended the transaction to be.
that the seller, as a desperate move, would feign the defense of
equitable mortgage in a suit fi led to redeem the property, and 10. Fruits
knowing that the evidence would still yield a judgment on a sale If at the time of the execution of the sale there should be on the
a retro, would nevertheless allow him to avail of the 30-day land, visible or growing fruits, there shall be no reimbursement
redemption period allowed under the last paragraph of Article for or pro-rating of those existing at the time of the redemption,
1606. if no indemnity was paid by the purchaser when the sale was
executed.
Adorable v. Inacala
where it held that where the evidence established that there Should there have been no fruits at the time of the sale, and
could be no honest doubt as to the parties’ intention that the some exist at the time of redemption, they shall be prorated
transaction was clearly and definitely a sale with pacto de between the redemptioner and the buyer, giving the latter the
retro, the seller would not be entitled to the benefit of Article part corresponding to the time he possessed the land in the
1606. last year, counted from the anniversary of the date of the
Sale
Vda. De Macoy v. Court of Appeals
the sellers raised the defense that the sale was actually an Almeda v. Daluro
equitable mortgage, but with an alternative defense that even held that the provisions of Article 1617 of the Civil Code on fruits
assuming the transaction to be a pacto de retro sale, they can applies only when the parties have not provided for their sharing
nevertheless repurchase the property by virtue of Article 1606. arrangement with respect to the fruits existing at the time of
redemption: “In the case at bar, the Agreement ... specifically
Felicen, Sr. v. Orias provided that the parties would share equally the net harvest of
which held that “the application of the third paragraph of Article the palay planted on the land in question. Since said Agreement
1606 is predicated upon the bona fi des of the vendor a retro. It is not contrary to law, morals or public policy, the same is,
must appear that there was a belief on his part, founded on facts therefore, binding on the parties.”
attendant upon the execution of the sale with pacto de retro,
honestly and sincerely entertained, that the agreement was in 11. Equitable Mortgage
reality a mortgage, one not intended to affect the title to the a. Definition of “Equitable Mortgage”
property ostensibly sold, but merely to give it as security for a Matanguihan v. Court of Appeals
loan or other obligation. ... The reason is quite obvious. If the defined an equitable mortgage “as one which although lacking
rule were otherwise, it would be within the power of every vendor in some formality, or form or words, or other requisites
a retro to set at naught a pacto de retro, or resurrect an expired demanded by a statute, nevertheless reveals the intention of the
right of repurchase, by simply instituting an action to reform the parties to charge real
contract — known to him to be in truth a sale with pacto de retro
— into an equitable mortgage.” property as security for a debt, and contains nothing
impossible or contrary to law.” It also enumerated the essential
Abilla v. Gobonseng requisites of an equitable mortgage to be as follows:
held that the vendors in a sale judicially declared as pacto de (a) That the parties entered into a contract denominated as a
retro may not exercise the right to repurchase within the 30- contract of sale; and
day period provided under Article 1606, after they have taken (b) That the intention was to secure existing debt by way of a
the position that the same was an equitable mortgage, when it mortgage.
is shown that there was no honest belief that the sale was an
equitable mortgage since: San Pedro v. Lee
(a) none of the circumstances under Article 1602 of the held that when the two above enumerated conditions are not
Civil Code were shown to exist to warrant a proven, the existence of any of the circumstances enumerated
conclusion that the transaction was an equitable in Article 1602 cannot become the basis to treat the transaction
mortgage; and as an equitable mortgage. When in doubt, courts are generally
(b) that if they truly believed the sale to be an equitable inclined to construe a transaction purporting it to be a sale as an
mortgage, as a sign of good faith, they should have, equitable mortgage, which involves a lesser transmission of
at the very least, consigned with the trial court the rights and interest over property in controversy.
amount representing their alleged loan, on or before
the expiration of the right to repurchase. Lapat v. Rosario
held that “[a] contract should be construed as a mortgage or a the amount loaned and the right of possession and use within
loan instead of a pacto de retro sale when its terms are said period; and that on failure of the mortgagor to exercise the
ambiguous or the circumstances surrounding its execution or said right to redeem the said property according to the terms
its performance are incompatible or inconsistent with a sale.” thereof, title thereto shall pass to and become vested,
absolutely, in the mortgagee. The Court held that the
Molina v. Court of Appeals stipulation cannot be construed as giving the mortgagee the
the Court held that the intention of the parties to an agreement right to own the property upon failure of the mortgagor to pay
is shown not necessarily by the terminology used therein but by the loan on the stipulated time, since that would amount to
all the surrounding circumstances, such as the relative situation pactum commissorium which is unlawful and void. Therefore, it
of the parties at the time, the attitude, acts, conduct, declaration dismissed the contention of the mortgagee that the instrument
of the parties at the time, leading to the deed, and generally, all was actually a sale a retro.
pertinent facts having a tendency to fi x and determine the real
nature of their designand understanding. Montevirgin v. Court of Appeals
showed why an equitable mortgage guised as a sale a retro
Banga v. Bello,reiterating such ruling, added that — Debtors cannot be enforced as a sale arrangement, which would allow
usually find themselves in an unequal position when bargaining the purported buyer to consolidate his title to the property when
with their creditors, and will readily sign onerous contracts just the apparent seller does not return the purchase price. In that
to have the money they need. Necessitous men are not always case, a judgment was rendered recognizing the sale a retro as
free, in that to answer a pressing emergency, they will submit to actually an equitable mortgage. Nevertheless, the trial court
any term that the crafty may impose on them. This precisely the decreed that if the apparent seller shall fail to pay the
evil that the above-quoted provision on equitable mortgage obligation within the period as fixed in the judgment, he would
seeks to prevent. also lose the right to redeem the property and as such, the
absolute ownership over the subject premises would be
b. Pactum Commissorium consolidated in the buyer.
Under Article 2088 of the Civil Code, a creditor cannot
appropriate the things given by way of pledge or mortgage, or The Court held — We do not agree with the respondent court’s
dispose of them; any stipulation to the contrary is null and void. interpretation. It contradicts the agreement between the parties
and the declaration in the decision that the contract between
Vda. de Zulueta v. Octaviano the parties was an equitable mortgage, not a pacto de retro
an instrument was executed between the parties where it was sale. It would produce the same effect as a pactum
provided inter alia that upon the redemption of the land by the commissorium, a forfeiture clause that has traditionally been
buyer from a third party, then the instrument shall be considered held as contrary to good morals and public policy and therefore
a deed of absolute and definite sale by the seller to the buyer void.
and the Register of Deeds was authorized to cancel title and to
issue a new title in favor of the buyer. Subsequently, another In other words, when a purported sale a retro is found to be an
instrument was executed entitled an “option to repurchase,” equitable mortgage, the proper remedy in case the borrower
between the same parties over the same parcel of land. 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
The Court could not consider the transactions to be one of sale since this would constitute the process as a pactum
a retro since the option to purchase was executed commissorium. In such a case, the return of the redemption
subsequently and in a separate document citing the price would actually be equivalent to the payment of the principal
loan, which would have the legal effect of extinguishing the
Villarica doctrine. The Court could not also consider the equitable mortgage as an ancillary security contract.
transactions to be an equitable mortgage since nothing in the
main document tended to show that the property sold was meant Solid Homes, Inc. v. Court of Appeals
to be a security for the payment of a loan, and none of the it was held that when the lender and borrower enter into a
circumstances under Article 1602 showing an equitable “Memorandum of Agreement/Dacion en Pago with a Right to
mortgage were shown to be present. Repurchase” in order to restructure the defaulted loan of the
borrower, and the terms thereof provide that in the event the
The Court held that “[i]nasmuch as the contract was neither a borrower fails to comply with the new terms of payment, the
sale with right of repurchase, nor an equitable mortgage, neither agreement shall automatically operate to be an instrument of
can it be successfully alleged that it partook of a ‘pactum dacion en pago without need of executing any document to such
commissorium’ and was, therefore, void. ‘ an effect and that the borrower thereby obligates and binds
himself to transfer, convey and assign the covered real property
Pactum commissorium’ is a stipulation for automatic vesting of in favor of the lender in full payment of the outstanding
title over the security in the creditor in case of the debtor’s obligation, such arrangement was held not to constitute pactum
default.” In that case it found that the seller was not a debtor and commissorium.
owed nothing to the buyer and nothing was offered as security
for the payment of any indebtedness. Octaviano emphasized Francisco Realty v. Court of Appeals
that the public policy on pactum commissorium applies only held that the stipulation in the promissory note providing that
when the covering transaction is a mortgage or other security upon failure of the makers to pay interests, ownership of the
contracts and has no application to a true sale or transfer property would automatically be transferred to the payee, and
transaction. the covering deed of sale would be registered was in substance
a pactum commissorium arrangement, in violation of Article
Guerrero v. Yñigo 2088 of the Civil Code, and consequently, the resultant sale was
it was stipulated in an instrument entitled “Mortgage with void and the registration and obtaining of new title in the name
Conditional Sale” that the mortgagor reserved for himself the of the buyer would have be declared void also.
right to redeem the said property after the period of five years
from the date of the instrument by paying back and returning
c. Rationale Behind the Provisions on Equitable
Mortgages Thus, Lim enumerates the following circumstances as basis to
The provisions of the Civil Code governing equitable mortgages treat the contract as an equitable mortgage:
guised as sale contracts are designed primarily to curtail the (a) The terms used in the deed or power of- attorney indicate
evils brought about by contracts of sale with right of repurchase, that the conveyance was intended to be a loan secured by a
such as the circumvention of usury laws and the public policy on mortgage;
pactum commissorium. They particularly envision contracts of (b) The price paid, in relation to the value of the property, is
sale with right of repurchase where the real intention of the grossly inadequate;
parties is that the pretended repurchase price is money loaned, (c) The seller, at the time of the alleged sale was in urgent
and in order to secure the payment of the loan a contract need of money;
purporting to be a sale with pacto de retro is drawn up. (d) The supposed seller invested the money he obtained from
the alleged buyer in making improvements on the property
Matanguihan v. Court of Appeals sold;
summarized the rationale thus: ... Articles 1602 to 1604 were (e) The supposed seller remained in possession of the land
designed to prevent circumvention of the laws on usury and the sold;
prohibition against the creditor appropriating the mortgaged (f) The seller paid the land tax which is a usual burden
property. Courts have taken judicial notice of the well known fact attached to ownership;
that contracts of sale with right of repurchase have been (g) The buyer accepted partial payments from the seller, and
frequently used to conceal the true nature of a contract, that is such acceptance of partial payment is absolutely incompatible
a loan secured by a mortgage. The wisdom of the provisions with the idea of irrevocability of the title of ownership of the
cannot be ignored nor doubted considering that in many cases purchaser at the expiration of the term stipulated in the original
unlettered persons or even those of average intelligence contract for the exercise of the right of
invariably find themselves in no position whatsoever to bargain redemption;
with the creditor. Besides, it is a fact that in time of grave (h) The seller remained bound for the repayment of the money
financial distress which render persons hard-pressed to meet received strongly tends to show that a mortgage only was
even their basic needs or answer an emergency, such persons intended;
would have no choice but to sign a deed of absolute sale of (i) The transaction had its origin in a borrowing of money also
property or a sale thereof with pacto de retro if only to obtain a tends to show that the subsequent transaction although in the
much-needed loan from unscrupulous money lenders. form of a sale with the right of repurchase was in fact intended
as a mortgage;and
In one case the Court held that the law favors the least (j) There was a previous debt between the parties and this was
transmission of rights and interest over a property in not extinguished by the sale, but remained subsisting. But if the
controversy; the purpose of the law is to prevent circumvention previous debt was extinguished by the sale, and the seller has
of the law on usury and the prohibition against a creditor the privilege of repurchasing within a given time, the
appropriating the mortgage property, and additionally, to end transaction is a conditional sale.
unjust or oppressive transactions or violations in connection with
a sale of property. Since Article 1602 is remedial in nature, it The mere allegation of the insufficiency of the selling price will
was applied retroactively in cases prior to the effectivity of the not create the presumption of an equitable mortgage, where
New Civil Code. the proponent fails to present any proof whatsoever that the
fair market values of the real property in the area at the time
d. When Presumed Equitable Mortgage of the transactions were much higher than the selling price of
Under Article 1602 of the Civil Code, the contract of sale with the parcels in question: “Mere allegation that the price paid by
right to repurchase (sale a retro) shall be presumed to be an the proponents was inadequate, without more, does not make
equitable mortgage, in any of the following cases: a case favorable to the proponent.”
(a) When the price of under a sale a retro is unusually
inadequate; The Court has characterized inadequacy of the purchase price
(b) When the seller remains in possession as lessee or as “a consideration so far short of the real value of the property
otherwise; as to startle a correct mind” and has confirmed that in
(c) When the period of redemption is extended or renewed determining whether the price is inadequate, comparison
under a separate instrument; should be made of the property’s assessed value. Even with the
(d) When the buyer retains part of the purchase price; inadequacy of the price shown on the deed of sale, the Court
(e) When the seller binds himself or continues to pay the taxes has held that even with the assertion that the price in a pacto de
on the thing sold; retro sale is not the true value of the property does not justify the
(f) In any other case where it may be fairly inferred that the real conclusion that the contract is one of equitable mortgage, but
intention of the parties is that the transaction shall secure the that in fact the practice in a pacto de retro sale is to fi x a
payment of a debt or the performance of any other obligation. relatively reduced price to afford the seller a retro every
The existence of any one of the conditions under Article 1602 of facility to redeem the property.
the Civil Code, not a concurrence, nor an overwhelming number
of such circumstances, suffices to give rise to the presumption In one case, the Court held that although under the agreement
that the contract is an equitable mortgage. Nonetheless, it the seller shall remain in possession of the property for only one
should be noted that the presumption of equitable mortgage year, such stipulation does not detract from the fact that
created in Article 1602 is not conclusive — it may be rebutted by possession of the property, an indicium of ownership, was
competent and satisfactory proof to the contrary. retained by the alleged vendor to qualify the arrangement as an
equitable mortgage, especially when it was shown that the
Lim v. Calaguas held that in order for the presumption of vendor retained part of the purchase price.
equitable mortgage to apply there must be either in the language
of the contract, or in the conduct of the parties which shows The Court also held that when the true intentions between the
clearly and beyond doubt that they intended the contract to be a parties for executing the Deed of Absolute Sale was not to
mortgage and not a pacto de retro sale. convey ownership of the property in question but merely to
secure the housing loan of the supposed buyer in which the There is no conclusive test to determine whether a deed
supposed seller had a direct interest since the proceeds thereof absolute on its face is really a simple loan accommodation
were to be immediately applied to their outstanding mortgage secured by a mortgage. To determine whether a deed absolute
obligations then the sale is deemed to be merely an equitable in form is a mortgage in reality, the court is not limited to the
mortgage. written memorials of the transaction. This is so because the
decisive factor in evaluating such agreement is the intention of
On the other hand, when the alleged loan was disbursed on the parties, as shown not necessarily by the terminology used in
installments over several months, no proof was shown on the the contract but by all the surrounding circumstances, such as
inadequacy of the price, and the continued receipt of rentals by the relative situations of the parties at that time; the negotiations
the seller from the current lessee was found to be a gesture of between them leading to the deed; and generally, all pertinent
generosity, kinship and leniency from his relatives, he being facts having a tendency to fix and determine the real nature of
jobless and without visible means of support, the transaction their design and understanding. As such, documentary and
was construed to be a sale on installment rather than an parole evidence may be submitted and admitted to prove the
equitable mortgage. Possession retained by the seller after the intention of the parties.
sale does not also give rise to the presumption, where the sellers
executed an undertaking promising to vacate the premises, but g. Effects When Sale Adjudged To Be an Equitable
they repeatedly delayed in honoring it, and in fact improvements Mortgage
were introduced by the buyer on the premise without the sellers’ When a contract is construed to be an equitable mortgage,
objection. In short, mere tolerated possession is not enough to then the following may result:
prove that the transaction is on equitable mortgage.
(a) Any money, fruit, or other benefit to be received by the
In another case, the Court held that mere delay in transferring buyer as rent or otherwise shall be considered as interest
title to the buyer is not one of the instances enumerated under which shall be subject to the usury laws;
Article 1602 in which an equitable mortgage can be presumed. (b) The apparent “seller” may ask for the reformation of the
The Court also held that the fact that the original transaction on instrument.
the property was to support a loan, which when it was not paid (c) For the court to decree that “vendor”- debtor to pay his
on due date was negotiated into a sale, without evidence that outstanding loan to the “vendee”-creditor.
the subsequent deed of sale does not express the true intentions (d) Where the trial court did not pass upon the mortgagor’s
of the parties, give rise to a presumption of equitable mortgage. 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
e. Applicability to Deeds of Absolute Sale determining whether the mortgage obligation had indeed been
Article 1604 of the Civil Code expressly provides that the settled, and if not, how much should the mortgagor pay
provisions on equitable mortgage of Article 1602 shall also to settle the same.
apply to a contract purporting to be an absolute sale, if indeed
the real intention of the parties is that the transaction shall Tolentino v. Court of Appeals
secure the payment of a debt or the performance of any other held that although Article 1605 allows for the remedy of
obligation. For the provision to apply, two requisites must be reformation, nothing therein precludes an aggrieved party from
present: pursuing other remedies to effectively protect his interest and
(a) that the parties entered into a contract denominated recover his property, such as an action for declaration of nullity
as a contract of sale; and of the deed of sale and specific performance. The remedy of
(b) that their intention was to secure an existing debt by nullification of the sale given under Tolentino would be unfair
way of mortgage. since it would leave the buyer-mortgagee to be without the
necessary security contract which remains valid. Reformation
f. Proof by Parole Evidence; Best Evidence Rule should be the proper remedy to enforce the true intentions
Parole evidence is competent and admissible in support of the between the parties. But in the event the property has been sold
allegations that an instrument in writing, purporting on its face to a third-party buyer, then nullification of the sale and
to transfer the absolute title to property, or to transfer the title reconveyance of the title to the seller-mortgagor should be
with a right to repurchase under specified conditions allowed provided the security arrangement over the property is
reserved to the seller, was in truth and in fact given merely as preserved.
security for the repayment of a loan; provided that the nature
of the agreement in placed in issue by the pleadings fi led with Balatero v. Intermediate Appellate Court
the trial court. held that if a sale a retro is construed to be an equitable
mortgage, then the execution of an affidavit of consolidation by
IMatanguihan v. Court of Appeals the purported buyer to consolidate ownership over the subject
the Court held that “[U]nder the wise, just and equitable parcel of land is of no consequence and the “constructive
presumption in Article 1602, a document which appears on its possession” over the parcel of land would not ripen into
face to be a sale — absolute or with pacto de retro — may be ownership, since only possession acquired and enjoyed in the
proven by the vendor or vendora- retro to be one of a loan with concept of owner can serve as title
mortgage. In this case, parol evidence becomes competent and for acquiring dominion.
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 Briones-Vasquez v. Court of Appeals,confirmed that in an
proof of the truth of such allegations, the court will enforce the equitable mortgage situation, the consolidation of ownership in
agreement or understanding in consonance with the true intent the person of the mortgagee in equity upon failure of the
of the parties at the time of the mortgagor in equity to pay the obligation, would amount to a
execution of the contract.” pactum commissorium; and that an action for consolidation of
ownership is an inappropriate remedy on the part of the
Austria v. Gonzales, Jr., mortgagee in equity. The Court held that the only proper remedy
the Court explained the rationale for the non-application of the is to cause the foreclosure of the mortgage in equity. Finally, the
“best evidence rule” to equitable mortgage situations, thus: equitable mortgage being a security contract, the expiration of
the purported period of redemption does not prevent the property of the estate, since the legal right of redemption applies
purported seller (actually the equitable mortgagor) from only to the sale by an heir of his hereditary right. Likewise, the
extinguishing the main contract of loan, and thereby extinguish heirs who participated in the execution of the extrajudicial
also the ancillary equitable mortgage contract, so long as the settlement which included the sale to a third person of their pro
purported buyer (the equitable mortgagee) has not gone through indiviso shares in the property are bound by the same, which the
the process of foreclosure. Foreclosure cannot take the form of co-heirs who did not participate would have the right to redeem
the creditor-mortgagor appropriating for himself the property their shares pursuant to Article 1088 of the Civil Code.
given as security, because this would amount to pactum
commissorium. b. Among Co-Owners
Under Article 1620 of the Civil Code, a co-owner of a thing may
LEGAL REDEMPTION 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
1. Definition the price of the alienation is grossly excessive, the redemptioner
Legal redemption is the right to be subrogated upon the same shall pay only a reasonable price therefor.The right of
terms and conditions stipulated in the contract, in the place of redemption may be exercised by a co-owner only when part of
one who acquires a thing by purchase or dation in payment or the community property is sold to a stranger. When the portion
by any other transaction whereby ownership is transmitted by is sold to another co-owner, the right does not arise because a
onerous title. new participant is not added to the coownership. Should two or
more co-owners desire to exercise the right of redemption, they
a. Rationale for Legal Redemption may only do so in proportion to the share they may respectively
The Court held in Basa v. Aguilar, that “[L]egal redemption is in have in the thing owned in common.
the nature of a privilege created by law partly for reasons of The right of redemption of co-owners excludes that of
public policy and partly for the benefit and convenience of the adjoining owners.
redemptioner, to afford him a way out of what might be a
disagreeable or [an] inconvenient association into which he has c. Effect of De Facto Partition Among Co-Heirs
been thrust. It is intended to minimize co-ownership. The law and Co-Owners
grants a co-owner the exercise of the said right of redemption Vda de Ape v. Court of Appeals
when the shares of the other owners are sold to a ‘third person.’” held that although an inherited property is succeeded to by the
heirs as co-owners thereof, if in fact they have partitioned it
Avila v. Barabat among themselves and each have occupied and treated definite
the Court held that since legal redemption is intended to portions thereof as their own, co-ownership has ceased even
minimize co-ownership, once a property is subdivided and though the property is covered under one title, and the sale by
distributed among the co-owners, the community ceases to exist one of the heirs of his definite portion cannot trigger the right of
and there is no more reason to sustain any right of legal redemption in favor of the other heirs.
redemption.
In another case the Court held that the right of redemption to be
2. Salient Distinctions Between Conventional and Legal exercised, co-ownership must exist at the time of the
Rights of Redemption conveyance is made by a co-owner and the redemption is
It is interesting to note the following essential distinctions demanded by the other co-owner or co-owners.
between the conventional right of redemption (herein referred to
as “right a retro”) from the legal right of redemption, thus: d. Distinguishing Between the Rights of Redemption
of Co-heirs and Co-owners
(a) Strictly speaking, a right a retro can only be constituted by The Court has construed Article 1620 of the Civil Code to include
express reservation in a contract of sale at time of perfection; the doctrine that a redemption by a co-owner of the property
whereas, a legal right of redemption does not have to be owned in common, even when he uses his own fund, within the
expressly reserved (it is a right granted by law), and covers sales period prescribed by law inures to the benefit of all the other co-
and other “onerous [transfers of] title”; owners.

(b) Right a retro is in favor of the seller; whereas, a legal right On the other hand, under Article 1088 of the Civil Code, an heir
of redemption is given to a third party to the sale; and may validly redeem for himself alone the hereditary rights sold
by another co-heir.
(c) The exercise of the right a retro extinguishes the underlying
contract of sale as though there was never any contract at all; Mariano v. Court of Appeals
whereas, the exercise of the legal right of redemption, although the Court was confronted with the issue of which redemption
it extinguishes the original sale, actually constitutes a new sale clause to apply when a coheir had exercised the right of legal
in substitution of the original sale. redemption over the sale of a parcel of land belonging to the
estate of the decedent. Mariano held that “the fi ne distinction
3. Legal Redemption under Civil Code between Article 1088 and Article 1620 is that when the sale
consists of an interest in some particular property or properties
a. Among Co-Heirs of the inheritance, the right of redemption that arises in favor of
Under Article 1088 of the Civil Code, should any of the heirs sell the other co-heirs is that recognized in Article 1620. On the other
his hereditary rights to a stranger before the partition of the hand, if the sale is the hereditary right itself, fully or in part, in the
decedent’s estate, any or all of the other co-heirs may be abstract sense, without specifying any particular object, the right
subrogated to the rights of the purchaser by reimbursing him for recognized in Article 1088 exists.” Thus, under Mariano when
the price of the sale, provided they do so within the period of one the subject matter sold was a particular property of the estate
and not hereditary rights, the redemption by a co-owner/co-heir
(1) month from the time they were notified in writing of the sale redounded to the benefit of all other co-owners, while
by the selling co-heir. There is no right of legal redemption redemption by a co-heir of heredetary rights sold is only for his
available to the coheirs when the sale covers a particular own account.
e. Among Adjoining Owners of Rural Lands condition, if he had to prove that the registered owner had
Under Article 1621 of the Civil Code, the owners of adjoining acquired the land for speculative purpose.
lands have the right of redemption when a piece of rural land,
the area of which does not exceed one (1) hectare, is alienated, Sen Po Ek Marketing Corp. v. Martinez, held that Article 1622 of
unless the grantee does not own any rural land. The burden of the Civil Code which grants an adjacent owner the right of pre-
proof to apply the exemption (i.e., the buyer does not own any emption or the right of redemption only deals with small urban
other rural land) lies with the buyer. lands that are bought for speculations; the right does not apply
to a lessee trying to buy the land that he is leasing.
This right is not applicable to adjacent lands which are separated
by brooks, drains, ravines, roads and other apparent servitudes g. Sale of Credit in Litigation
for the benefit of other estates.149 In order for the right of When a credit or other incorporeal right in litigation is sold, the
redemption to apply, both land sought to be redeemed and the debtor shall have a right to extinguish it by reimbursing the
adjacent property belonging to the person exercising the right of assignee for the price the latter paid therefor, the judicial costs
redemption must be rural lands; if one or both are urban lands, incurred by him, and the interest on the price from the day on
the right under Article 1621 cannot be invoked which the same was paid.159 The debtor may exercise his right
within 30 days from the date the assignee demands payment
If two or more adjoining owners desire to exercise the right of from him.
redemption at the same time, the owner of the adjoining land of
smaller area shall be preferred; and should both lands have the h. When Legal Redemption Period Begins to Run
same area, the one who first requested the redemption. The right of legal pre-emption or redemption shall not be
exercised except within 30 days from the notice in writing by the
f. Among Adjoining Owners of Urban Land prospective seller, or seller, as the case may be. The article also
Under Article 1622 of the Civil Code, whenever a piece of urban provides that, the deed of sale shall not be recorded in the
land which is so small and so situated that a major portion Registry of Property unless accompanied by an affidavit of the
thereof cannot be used for any practical purpose within a seller that he has given written notice thereof to all possible
reasonable time, having been bought merely for speculation, is redemptioners.
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 Cabrera v. Villanueva
perfected, the owner of the adjoining land shall have a right of the Court accepted the sworn declaration of the seller in an
redemption, also at a reasonable price. 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
When two or more owners of adjoining lands wish to exercise written notice required under Article 1623 has been complied
the right of pre-emption or redemption, the owner whose with.
intended use of the land in question appears best justified shall
be preferred. Primary Structures Corp. v. Valencia
Affirmed the need for strict compliance with the provisions of
Ortega v. Orcine Article 1623 by pointing that “In stressing the mandatory
discussed the purpose of the introducing into the New Civil Code character of the requirement, the law states that the deed of sale
the right of pre-emption or redemption for urban lands, thus: shall not be recorded in the Registry of Property unless the same
is accompanied by an affidavit of the vendor that he has given
The right of redemption of adjoining urban land did not exist in notice thereof to all possible redemptioners.” In that decision,
the Spanish Civil Code, which confined itself to the redemption the Court held that the existence of a clause in the deed of sale
of rural lands. It was introduced here only by the new Civil Code. to the effect that the seller has complied with the provisions of
Whereas, as already observed, the objective of the right of Article 1623 cannot be taken to “being the written affirmation
redemption of adjoining rural land under the old code as adopted under oath, as well as the evidence, that the required written
in the new Civil Code, is to encourage the maximum notice to petitioner under Article 1623 has been meet ... [since
development and utilization of agricultural lands, it is evident that party entitled to redemption] is not a party to the deed of sale ...
the purpose of the new Civil Code in allowing redemption of and has had no hand in the preparation and execution of the
adjoining urban land is to discourage speculation in real estate deed of sale. It could not thus be considered a binding
and the consequent aggravation of the housing problems in equivalent of the obligatory written notice prescribed by the
centers of population. Code.”

Ortega further held that the term “urban” in Article 1622 does not The author believes that Primary Structures Corp. provides the
necessarily refer to the nature of the land itself sought to be better rule when compared to the ruling in Cabrera, as gleaned
redeemed nor to the purpose to which it is devoted, but to the from the other decisions of the Supreme Court discussed
character of the community or vicinity in which it is found. hereunder.
Redemption of urban land applies only when it involves its
“resale,” and therefore there is no right of redemption that can Butte v. Manuel Uy & Sons, Inc., held that under the language
be exercised by an adjoining owner when the urban land is of the law, the notice must be given by the “vendor” or seller;
transferred under an “exchange” of properties. notice given by the buyer, even when in written form, does not
start the running of the 30-day period of redemption. The Court
Although the requisite of having previously purchased the land held:
for speculation is required under Article 1622, Legaspi v.
Court of Appeals, practically did away with the adjoining owner The text of Article 1623 clearly and expressly prescribes that the
having to prove such element when it found that the owner of thirty days for making the redemption are to be counted from
the subject parcel of land actually inherited the property, and notice in writing by the vendor. Under the old law (Civil Code of
therefore it would require from the adjoining owner the 1889, Article 1524), it was immaterial who gave the notice; so
requirement to comply with an impossible and inequitable 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 applied in cases of legal pre-emption such as under Article 1622
deliberately selected a particular method of giving which covers a situation when an urban land “is about to be re-
notice, and that method must be deemed exclusive. sold.”

Castillo v. Samonte (2) Summation on Strict Rules on Notice


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 Hermoso v. Court of Appeals
by including therein any other kind of notice, such as verbal or the Court held that Article 1623 stresses the need for notice in
by registration, and that if the intention of the law had been to writing in three (3) other species of legal redemption namely: (a)
include verbal notice or any other means of information as redemption in a case where the share of all the other co owners
sufficient to give the effect of this notice, then there would have or any of them are sold to a third person;
been no necessity or reasons to specify in Article 1088 of the (b) redemption by owners of adjoining lands when a piece of
Civil Code that the said notice be made in writing for, under the rural land not exceeding one hectare in area is alienated; and
old Civil Code, a verbal notice or information was sufficient. The (c) redemption by owners of adjoining lands in the sale of a piece
30-day period does not begin to run in the absence of written of an urban land so small and so situated that the portion thereof
notifi cation. cannot be used for any practical purpose within a reasonable
time, having been bought merely for speculation. The Court held
Conejero v. Court of Appeals
laid down the rule that the law did not provide for a particular In all the above-cited provisions of law, the interpretation
mode of written notice, and therefore any compliance with thereof always tilts in favor of the redemptioner and against the
“written notice” should suffice, including the giving of a copy of vendee. The purpose is to reduce the number of participants
the deed of sale. until the community is terminated, being a hindrance to the
development and better administration of the property. ... It is a
Garcia v. Calaliman one-way street. It is always in favor of the redemptioner since
applying the Samonte doctrine to Article 1623, held that the he can compel the vendee to sell to him but he cannot be
written notice required under Article 1623 is indispensable, compelled by the vendee to buy the alienated property.
“actual knowledge of the sale acquired in some other manners
by the redemptioner, notwithstanding. He or she is still entitled The Court also noted that the written notice required by Article
to written notice, as exacted by the Code to remove all 1623 was enacted to remove all doubts and uncertainty that
uncertainty as to the sale, its terms and its validity, and to quiet the alienation may not be defi nite. The co-owners must know
any doubt that the alienation is not defi nitive. with certainty the circumstances of the sale by his coowners
and the terms and the validity of the alienation. Only after said
The law not having provided for any alternative, the method of knowledge is the co-owner required to exercise the right of
notifications remains exclusive, though the Code does not redemption given to him by law.
prescribe any particular form of written notice nor any distinct
method for written notifi cation of redemption.”170 Comparing Francisco v. Boiser
the Conejero doctrine, the Court in Garcia held that the facts in the Court reviewed the require- The Court also held: “If a co-
Conejero showed that the redemptioner was not only shown the owner has offered to redeem the land within the period fixed by
deed of sale but was also “given a copy of the deed of sale of law, he has complied with the law and he may bring the action
the subject property,” which was equivalent to the giving of to enforce the redemption after every offer has been rejected. In
written notice. a situation when the vendor never gave written notice to the
other co-owner of the disposition of his rights, and the co owners
Vda De Ape v. Court of Appeals learned of such sale only by confronting the buyer with whom
held that the annotation of an adverse claim on the title of the they began immediately to negotiate for its redemption, then the
property does not comply with the written notice required under right to redeem has not expired under the 30-day rule provided
Article 1623 to begin the tolling of the 3-day period of redemption under Art. 1623. The period of legal redemption is not a
in a sale by a co-owner of his spiritual share. 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
(1) Notice Must Cover Perfected Sale right of the person exercising the right of legal redemption and
not one of prescription.” (at p. 534.)
Spouses Doromal v. Court of Appeals held that although written
notice is given to the co-owner, the 30-day redemption period The Court held: “... In the first place, reversion to the ruling in
does not begin to run from the receipt of such written notice, Butte is proper. Art. 1623 of the Civil Code is clear in requiring
because the transaction covered in the notice did not pertain to that the written notification should come from the vendor or
a perfected contract of sale, and must be accompanied by the prospective vendor, not from any other person. There is,
actual execution and delivery of the deed of sale. The Court held therefore, no room for construction. Indeed, the principal
that “Art. 1619 of the Civil Code bestows unto a coowner the difference between Art. 1524 of the former Civil Code and Art.
right to redeem and ‘to be subrogated under the same terms and 1623 of the present one is that the former did not specify who
conditions stipulated in the contract,’ and to avoid any must give the notice, whereas the present one expressly says
controversy as to the terms and conditions under which the right the notice must be given by the vendor. Effect must be given to
to redeem may be exercised, it is best that the period therefor this change in statutory language. “In the second place, it makes
should not be deemed to have commenced unless the notice of sense to require that the notice required in Art. 1623 be given by
the disposition is made after the formal deed of disposal has the vendor and by nobody else. As explained by this Court
been duly executed.” 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-
The ruling in Spouses Doromal seems to go beyond the owners who under the law must be given notice of the sale. It is
requirements of Article 1619, and perhaps we can anticipate the likewise the notification from the seller, not from anyone else,
Court toning down the principle in subsequent cases. The which can remove all doubts as to the fact of the sale, its
doctrine on requiring a perfected contract of sale cannot also be perfection, and its validity, for in a contract of sale, the seller is
ments under Article 1623 and the case-law that has interpreted thereof, the written notice required under Article 1623 is no
the article, and with definitiveness declared: longer necessary, and the 30-day period for redemption begins
(a) For the 30-day redemption period to begin to run, notice to run from having actual knowledge of the sale, by being
must be given by the seller; and that notice given by the buyer present at the time the deed of sale was executed.
or even by the Register of Deeds is not sufficient.
Verdad v. Court of Appeals
(b) When notice is given by the proper party (i.e., the seller), Reiterated the principle that the Alonzo and Distrito rulings are
no particular form of written notice is prescribed under Article specia lexceptions. In that case the Court held that when a co-
1623, so that the furnishing of the copies of the deeds of sale owner learns of the sale of the co-ownership interest only from
to the co-owner would be suffi cient, the city treasurer, her exercise of the right of redemption was
as held previously in Distrito v. Court of timely since no written notice of the sale was ever given by the
Appeals,182 Conejero v. Court of Appeals,183 sellers as required under Article 1623, and therefore the 30-day
Badillo v. Ferrer,184 but only on the form of period has not even begun to run: “The written notice of sale is
giving notice but not on the ruling of who is mandatory; and notwithstanding actual knowledge of a co-
the proper party to give notice; owner, the latter is still entitled to a written notice from the selling
(c) Affi rmed the ruling in Alonzo v. Intermediate co-owner in order to remove all uncertainties about the sale, its
Appellate Court,185 that the fi ling of the suit terms and conditions, as well as its efficacy and status.”
for ejectment or collection of rentals against
a co-owner actually dispenses with the need Verdad also noted that even Alonzo made it clear that it was not
for a written notice, and must be construed reversing the prevailing jurisprudence: “In that case, the right of
as commencing the running of the period legal redemption was invoked several years, not just days or
in the best position to confi rm whether consent to the essential months, after the consummation of the contract of sale, with the
obligation of selling the complaint for legal redemption itself fi led only thirteen years
property and transferring ownership thereof to the vendee has after the sale were conducted.”
been given.” (at p. 800.)
560 LAW ON SALES 4. Other Instances When Right of Legal Redemption Is
to exercise the right of redemption, since Granted
the fi ling of the suit amounted to actual
knowledge of the sale from which the 30-day a. Redemption of Homesteads
period of redemption commences to run. Under Section 119, of Public Land Act,193 every conveyance of
In Fernandez v. Tarun,186 it was held that appropriate notice land acquired under the free patent homestead provisions, when
is deemed to have been complied with when the other co- proper, shall be subject to repurchase by the applicant, his
owner widow, or legal heirs, within a period of five (5) years from the
has signed the Deed of Extrajudicial Partition and Exchange of date of the conveyance.
Shares which embodies the disposition of part of the property
owned in common. Sale of homestead within the 5-year prohibition period is void
(3) Exceptions to Written Notice Requirement even when the sale is in favor of the homesteader’s own son or
In Alonzo v. Intermediate Appellate Court,187 the Court daughter. The right to repurchase a land received previously
declared expressly that it was not abandoning the necessity under a homestead patent, is granted by law and need not be
under Article 1088 of the Civil Code of written notifi cation provided for in the deed of sale. Such right of repurchase in
to commence the running of the 30-day period. However, homestead land cannot be waived by the party entitled thereto
as a matter of exception in Alonzo and due to the peculiar and applies with equal force to both voluntary and involuntary
circumstances of the case where the co-heirs only brought an conveyances.
action for redemption of hereditary right sold by another coheir
only after 13 years after having actual knowledge thereof, The 5-year redemption period fixed under Section 119 of the
by their actuations, they are deemed to have lost their right to Public Land Law of homestead sold at extra-judicial foreclosure
redeem. begins to run from the day after the expiration of the one-year
Alonzo therefore provides as an exception to the written period of repurchase allowed in an extra-judicial foreclosure. In
notice required under Article 1623 of the Civil Code, the all other cases, the 5-year redemption period is to be reckoned
situation from the date of the sale and not from the date of registration of
when the co-heirs lived with the purchaser in the same lot and the deed in the office of the Register of Deeds, which is
are deemed to have received actual notice of the sale. Laches reckoned from the date execution of the deed transferring the
seems to be the main principle for the Alonzo doctrine. ownership of the land to the buyer. Section 119 of the Public
The principle of laches was applied also in Pilapil v. Court Land Act should be construed with Article 1616 of the Civil Code,
of Appeals,188 where the Court held that the provision of the which provides that the seller cannot avail himself of the right to
law repurchase without returning to the buyer the price of the sale;
requiring the seller of the property to give a written notice of a mere notice of intent to redeem is not sufficient.
sale
to the other co-owners had been rendered inutile by the fact b. Redemption in Tax Sales
that Under Section 214, National Internal Revenue Code of 1997, in
even as the buyers took possession of the property case of delinquency sale of property of a taxpayer for failure to
immediately pay tax assessments, within one (1) year from the date of sale,
after the execution of the deed of sale in their favor, no one of the delinquent taxpayer, or anyone for him, shall have the right
the of redeeming the property by paying to the Revenue District
co-owners questioned the same. Officer the amount of the public taxes, penalties, and interest
Distrito v. Court of Appeals,189 subsequently added another thereon from the date of delinquency to the date of sale, together
exception to the Alonzo exception. It held that where it is the with interest on the purchase price. It is expressly provided that
co-owner himself who acted as a middleman or intermediary the owner shall not be deprived of the possession of the said
to effect the sale to a third-party, thus having actual knowledge property and shall be entitled to the
rents and other income thereof until the expiration of the time registration of the certificate of foreclosure sale, which shall be
allowed for its redemption. no more than three (3) months after foreclosure, “whichever is
earlier.”
c. Redemption by Judgment Debtor
Under Sections 27 and 28, Rule 39 of the Rules of Court, a e. Redemption in Judicial Foreclosure
judgment debtor, or his successor-in-interests, or a creditor Government Service Insurance System (GSIS) v. Court of
having a lien by attachment, judgment or mortgage on the First Instance of Iloilo, Branch III
property sold at public auction shall have “one (1) year from date
of registration of the certificate of sale,” and not just twelve (12) confirmed the long-recognized principle embodied in the our
months after the sale as provided previously under the old Rules jurisdiction that no right to redeemis granted to the debtor-
of Court, to redeem the property by paying the purchaser at the mortgagor when there has been a judicial foreclosure of a real
public auction the amount of his purchase, with interest up to the estate mortgage, except when the mortgagee is a bank or a
time of redemption, together with amount of any assessments banking institution.
or taxes which the purchaser may have paid thereon after
purchase, with interest thereon. However, GSIS also recognized the doctrine of “equity of
redemption” which covers the right of a defendant mortgagor to
In execution sales, the sheriff does not warrant the title to the extinguish the mortgage and retain ownership of the property by
property sold by him and it is not incumbent on him to place paying the secured debt within the 90-day period after the
the purchaser in possession of the property. The rule of caveat judgment becomes final, in accordance with Rule 68 of the
emptor applies to execution sales. Rules of Court, or even after the foreclosure sale but prior to the
confirmation of such auction sale by the court.
Torres v. Cabling
held that written notice is required to be given to the judgment f. Foreclosures by Banking Institutions
debtor before the sale of the property on execution to give him The General Banking Law of 2000,209 distinguishes between
the opportunity to prevent the sale by paying the judgment debt an individual debtor from a corporate debtor of banking
sought to be enforced and the costs which have been incurred. institutions, with respect to the period of redemption. Under
Torres also held that where there is a third-party claim, the Section 47 of the Law, in the event of foreclosure of any
sheriff should demand from the judgment creditor who mortgage on real estate which is security for any loan or other
becomes the highest bidder, payment in cash of the amount of credit accommodation granted:
his bid instead of merely crediting the amount to the partial
satisfaction of the judgment debt. (a) The individual mortgator or debtor whose real property has
been sold for the full or partial payment to his obligation,
d. Redemption in Extrajudicial Foreclosure whether judicially or extra-judicially; and
Under Section 6 of Act No. 3135, as amended, in all cases in
which an extrajudicial foreclosure sale has been made under a (b) The corporate mortgator or debtor whose real property has
special power, the debtor, his successors-in-interests or any been sold for the full or partial payment to his obligation, by
judicial creditor or judgment creditor of said debtor, or any virtue of a judicial foreclosure; shall have the right within one (1)
person having a lien on the property subsequent to the mortgage year after the sale of the real estate, to redeem the property by
or deed of trust under which the property has been sold, may paying the amount due under the mortgage deed, with interest
redeem the same within one (1) year from and after the date of thereon at the rate specified in the mortgage, and all the costs
the sale and registration thereof. and expenses incurred by the bank or institution from the sale
and custody of said property less the income derived therefrom;
Before the expiration of the one-year redemption period within whereas,
which the judgment-debtor or mortgagor may redeem the
property, the purchaser thereof is not entitled, as a matter of (c) Notwithstanding Act 3135, judicial persons whose property
right, to the possession of the subject matter. While the Rules is being sold pursuant to an extrajudicial foreclosure, shall
of Court allow the purchaser to receive the rentals if the have the right to redeem the property in accordance
purchased property is occupied by tenants, such purchaser is with this provision until, but not after, the registration of the
nevertheless accountable to the judgment-debtor or mortgagor certificate of foreclosure sale with the applicable Register of
as the case may be, for the amount so received and the same Deeds which in no case shall be more than three (3) months
will be duly credited against the redemption price when the after foreclosure, whichever is earlier.
said judgmentdebtormor mortgagor effects the redemption.
The purchaser at the auction sale whether in a judicial or
Soriano v. Bautistamheld as valid a stipulation in the mortgage extrajudicial foreclosure shall have the right to enter upon and
contract which in effect may render defeasible the option of the take possession of such property immediately after the date of
mortgagor to redeem the property mortgage. In that case, the the confirmation of the auction sale administer the same in
following stipulation was part of the mortgage contract: “That it accordance with law. Any petition to enjoin or restrain the
has likewise been agreed that if the fi nancing condition of the conduct of foreclosure proceedings shall be given due course
mortgagees will permit, they may purchase said land absolutely only upon the fi ling by the petitioner of a bond in an amount
on any date within the two-year term of this mortgage at the fixed by the conditioned that he will pay all the damages which
agreed price of 53,900.00.”207 The Court held that stipulation the bank may suffer by the enjoining or the restraint of the
was neither illegal or immoral, and constituted simply an option foreclosure proceeding.The one-year redemption period in case
to buy attached to the mortgage. of foreclosure of a real estate mortgage is not interrupted by the
filing of an action assailing the validity of the mortgage, so that
While the right of redemption of one year is retained for both at the expiration thereof, the mortgage who acquires the
judicial and extrajudicial foreclosure, an exception is now property at the foreclosure sale can proceed to have title
created under Section 47 of the General Banking Law of 2000: consolidated in his name and a writ of possession issued in his
in the case of extrajudicial foreclosures where the mortgagor is favor.
a juridical person redemption is available only until the 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 to another, known as the assignee, who acquires the power to
ASSIGNMENT enforce it to the same extent as the assignor could have
How often has it been heard in layman conversations that enforced
a person does not want a mere “assignment” but an outright it against the debtor.”2
purchase of the subject matter? How many country clubs have Prior to the New Civil Code, assignment was not therefore
refused to honor a “deed of assignment” covering the transfer limited to the contract of sale, as an onerous contract. As
of Tolentino
a proprietary share in favor of the assignee on the ground that observed —
a In reality, however, neither in the Spanish law nor
“deed of absolute sale” is required, to ensure that only one in the French law is the assignment always a sale; it
person may be a sale, but at times it may constitute a dation
has a right to the corresponding membership entitlement? Has in payment, such as when a debtor, in order to obtain
it a release from his debt, assigns to his creditor a credit
not been the common perception that the process of he has against a third person, or it may constitute a
assignment donation as when it is by gratuitous title; or it may even
covers the temporary lease or use of the thing, while the title be merely by way of guaranty, as when the creditor
remains with the assignor to whom it would ultimately have to gives it as a collateral to secure his own debt in favor
be returned? Why has assignment become the poor relations of the assignee, without transmitting ownership. The
of 1PARAS, CIVIL CODE OF THE PHILIPPINES, Vol. V (1990
sale? ed.), pp. 258-259.
NATURE OF ASSIGNMENT IN THE SCHEME OF THINGS 2TOLENTINO, CIVIL CODE OF THE PHILIPPINES, Vol. V
Under Article 1624 of the Civil Code, “assignment” is in fact (1959 ed.), p. 165.
the sale of credits and other incorporeal rights. Although ASSIGNMENT
credits 570 LAW ON SALES
and other intangible things within human commerce are the character that it may assume determines its requisites
proper object of a contract of “sale” as defi ned in Article 1458 and effects, its regulation, and the capacity of the
of parties to execute it; and, in every case, the obligations
the Civil Code, “assignment” is the proper, or rather the between assignor and assignee will depend upon the
technical, juridical relation which is the basis of the assignment.3
term that should be used. Therefore, although a “Deed of Sale It would seem therefore that it was the old concept of
of Shares of Stock” is legally correct, it is technically assignment that today adds much to the confusion as to the
innacurate, nature and effects of such contract, as a species of sale. In
since the proper term is “Deed of Assignment of Shares of effect,
Stock.” “assignment” was merely a term and was not under the old
If “sale” and “assignment” are legally the same contracts, setup
but with different names, the logical question then would be: a nominate contract unto its own.
Why With the adoption of specifi c provisions in Chapter 8 on
does our Civil Code provide for a separate chapter under the the Title on Sales of the New Civil Code, there should be little
Title on Sales to cover assignments, Chapter 8 — Assignment doubt that “assignment” should only cover “sales” of credits
of Credits and Other Incorporeal Rights? Although sale and and intangible property. Nevertheless, in Nyco Sales Corp. v.
assignment are not technically the same, they come from the BA Finance Corp.,4 the Court still held that “[A]n assignment of
same root or genus, which happens to be called “sale” also; credit is the process of transferring the right of the assignor to
568 the assignee, who would then be allowed to proceed against
569 the
consequently, the law must take up special matter peculiar to debtor. It may be done either gratuitously or onerously, in
the sale of intangibles. Assignment therefore is a species of which
the case, the assignment has an effect similar to that of a sale.”5
genus sale, defi ned in Article 1458 of the Civil Code. Even lately in South City Homes, Inc. v. BA Finance Corp.,6
Although the foregoing discussions may seem trite, they the Court defi ned an assignment of credit as an agreement by
are meant to focus on an important point: Since assignment virtue of which the owner of a credit, known as the assignor,
is a species of the genus sale, all the characteristics of the by a legal cause, such as sale, dacion en pago, exchange or
genus sale must necessarily pertain to assignment; and that donation, and without the consent of the debtor, transfers his
all jurisprudential doctrines pertaining to genus sale pertain to credit and accessory rights to another, known as the assignee,
assignment, except to the extent modifi ed by the chapter who acquires the power to enforce it to the same extent as the
dealing assignor could enforce it against the debtor.7
specifi cally on assignments. Except in the case of donation, even in all the other instances
Like the genus sale, an assignment is a nominate, when the form of assignment is being used, the transaction is
consensual, reciprocal, onerous, and commutative contract. still covered by the Law on Sales. An assignment by dation in
However, Paras included in the term “assignment” both the payment, under Article 1245 of the Civil Code is governed by
gratuitous and onerous transfers of credits and other the Law on Sales. An exchange or barter through an
incorporeal assignment
rights; although he required the formalities of donation if the 3TOLENTINO, ibid., at p. 166.
assignment is gratuitous.1 Tolentino defi ned assignment of 4200 SCRA 637 (1991).
credit 5Ibid, at p. 641.
as one where the assignor, “by legal cause, such as sale, 6371 SCRA 603 (2001).
dation 7Also Far East Bank v. Diaz Realty, Inc., 363 SCRA 659
in payment, exchange or donation, and without the need of the (2001).
consent of the debtor, transfers his credit and its accessory 571
rights is also governed by the Law on Sales under Article 1641 of the
Civil Code. An assignment of credit as a mere guarantee is even then, to raise against the assignee the same
also defenses he could set up against the assignor. Where
governed by the provisions of the Law on Sales on equitable the assignment is on account of pure liberality on
mortgages, but strictly speaking is not a sale contract but a the part of the assignor, the rules on donation would
mortgage contract. likewise be pertinent; where valuable consideration is
WHAT MAKES ASSIGNMENT DIFFERENT? involved, the assignment partakes of the nature of a
To know assignment better is to know how different it is from contract of sale or purchase ... In an assignment of
the species sale. In Philippine National Bank v. Court of credit, the consent of the debtor is not essential for its
Appeals,8 perfection, his knowledge thereof orlack of it affecting
the Court defi ned and characterized an “assignment” as only the effi caciousness or ineffi caciousness of any
follows: payment he might make.13
In its most general and comprehensive sense, an 10Ibid, at p. 312.
assignment is “a transfer or making over to another 11Ibid at p. 317, citing 6A C.J.S. 781; emphasis supplied.
of the whole of any property, real or personal, in 12358 SCRA 626 (2001).
possession or in action, or of any estate or right 13Ibid, at pp. 632-633. Reiterated in Aquintey v. Tibong, 511
therein. It includes transfers of all kinds of property, and SCRA 414 (2006).
is peculiarly applicable to intangible personal property ASSIGNMENT 573
and, accordingly, it is ordinarily employed to describe 1. Validity and Binding Effect
the transfer of non-negotiable choses in action and of The subject matter of an assignment is an intangible property,
rights in or connected with property as distinguished whereas the object of species sale would be tangible property.
from the particular item or property.”9 It
Philippine National Bank seems to imply, that although is from the subject matter of assignment being intangible that
assignment ordinarily refers to transfer of “non-negotiable dictates the difference of assignment from species sale.
choses An assignment is also a consensual contract, and is
in action and of rights,” it can refer also to transfer of tangible perfected therefore by mere consent in exactly the same
property. But properly speaking, the transfer of ownership and manner
possession of tangible property is not an assignment, but as species sale. This is confi rmed by Article 1624 which
rather provides
is the species sale. that an assignment of credits and other incorporeal rights shall
It is even implied in Philippine National Bank that the be
“assignment of a right” would be different from the “sale” of perfected in accordance with the provisions of Article 1475
that same right, thus: “An assignment is a contract between the which
assignor and the assignee. It generally operates by way of states: “The contract of sale is perfected at the moment there
such is a meeting of minds upon the thing which is the object of the
contract or agreement. It is subject to the same requisites as contract and upon the price.” This is also a clear indication that
to validity of contracts. Whether or not a transfer of a particular the term “assignment” should no longer be used when covering
right or interest is an assignment or some other transactions a donation involving intangible which must comply with the
depends, not on the name by which it calls itself, but on the solemnities of donation and are not perfected by mere consent.
legal In one case,14 the Court held that any ambiguity or uncertainty
8272 Phil. 291 (1997). in the meaning of an assignment will be resolved against the
9Ibid, at p. 312, quoting from MORENO’S PHIILIPPINE LAW party who prepared the deed of assignment.
DICTIONARY, 3rd ed., p. 75. 2. Binding Effect as to Third Parties
ASSIGNMENT The “binding effect” of an assignment as to third persons
572 LAW ON SALES is not present unless it appears in a public instrument, or the
effect of its provisions. This rule applied in determining whether instrument is recorded in the Registry of Property in case the
a particular transaction is an assignment or a sale.”10 The assignment involves real rights.15 Unlike, say in the sale of a
Court car, where third parties may more or less judge who owns it by
then went on to say that: “In assignments, a consideration is manifestation of control and possession thereof, in an
not always a requisite, unlike in sale. Thus, an assignee may intangible
maintain an action based on his title and it is immaterial property which is unseen and cannot be materially possessed,
whether the only evidence of its having been “sold” would really be a
or not he paid any consideration therefor. Furthermore, in an public instrument.
assignment, title is transferred but possession need not be Without the public instrument, the assignment would still be
delivered.”11 The foregoing pronouncements of the Court are valid, but it is enforceable only as between the assignor and
clearly a drawback to the antediluvian thoughts on the nature the
of assignment. assignee, and their successors-in-interest. When the
Recently, in Project Builders, Inc. v. Court of Appeals,12 assignment
the Court characterized “assignment” under the fused concept 14Aquintey v. Tibong, 511 SCRA 414 (2006).
covering both onerous and gratuitously contracts of transfer. 15Art. 1625, Civil Code.
An assignment of credit is an act of transferring, 574 LAW ON SALES
either onerously or gratuitously, the right of an is still at the executory stage and not evidenced in writing, and
assignor to an assignee who would then be capable since assignment is merely a species of the genus sale, it is
of proceeding against the debtor for enforcement or covered by the Statute of Frauds.
satisfaction of the credit. The transfer of rights takes Another noted exception on the binding effect of a public
place upon perfection of the contract, and ownership instrument covering an assignment is that when the
of the right, including all appurtenant accessory assignment
rights, is thereupon acquired by the assignee. The involves a document of title, the assignment does not bind the
assignment binds the debtor only upon acquiring bailee unless specifi c notice of the transfer of the covering
knowledge of the of the assignment but he is entitled, document of title is given by the transferor or transferee to the
bailee.16 takes place upon perfection of the contract and ownership
3. Effect of Assignment of Credit on Debtor of the right including all appurtenant accessory rights, is
C & C Commercial Corp. v. Philippine National Bank,17 held thereupon acquired by the assignee.”23 We do not agree with
that the “meeting of the minds” in assignment contemplates the
that characterization of assignment in Project Builders. Assignment,
between the assignor of the credit and his assignee, there 21Art. 1626, Civil Code; Aquintey v. Tibong, 511 SCRA 414
being (2006).
no necessity for the consent of the debtor. It is suffi cient that 22358 SCRA 626 (2001).
the 23Ibid, at pp. 632-633.
assignment be brought to the debtor’s knowledge in order to 576 LAW ON SALES
be like the genus sale, is not a mode but merely constitute title,
binding upon him. and does not by its perfection alone transfer ownership of the
The debtor’s consent is not necessary in order that subject matter thereof.
assignment may fully produce legal effects, and hence, the Although the chapter of the Civil Code on assignment does
duty to pay to the assigned does not depend on the consent of not particularly cover this point, the transfer of title or
the debtor.18 Otherwise, all creditors would be prevented from ownership
assigning their credits because of the possibility of the debtor’s over the subject matter of assignment should also be effected
refusal to give consent. A creditor may therefore validly assign not by the mere perfection of the assignment, but by the same
his manner by which ownership is transferred under the species
credit and its accessories without the debtor’s consent; and the sale, by constructive delivery, such as the execution of a public
purpose of the notice is only to inform debtor that from the date instrument. Since assignment falls under the genus sale, then
of the assignment, payment should be made to the assignee the effects of tradition of sale in general should also apply to
and assignment; except that doctrines as to actual or physical
not the original creditor.19 delivery
The assignment of credit, although constituting novation, have no application, since the object of assignment does not
does not result in extinguishing the debtor’s liability, even when have physical existence.
the assignment is effected without his consent.20 This position is bolstered by Article 1508 of the Civil Code
Nevertheless, on sales in general which provides that for incorporeal
although knowledge or consent of the debtor of a credit is not property,
16Art. 1514, Civil Code. the provisions of Article 1498 shall govern on the effects of the
17175 SCRA 1 (1989). execution of a public instrument. In addition it states that for
18Ledonio v. Capitol Dev. Corp., 526 SCRA 379 (2007). sale
19Rodriguez v. Court of Appeals, 207 SCRA 553 (1992); of incorporeal property, “the placing of the titles of ownership in
National Investment and the
Dev. Co. v. De Los Angeles, 40 SCRA 489 (1971); Sison & possession of the vendee or the use by the vendee of his
Sison v. Yaptico, 37 Phil. 587 rights,
(1918); Ledonio v. Capitol Dev. Corp., 526 SCRA 379 (2007). with the vendor’s consent, shall be understood as a delivery.”
20South City Homes, Inc. v. BA Finance Corp., 371 SCRA 609 However, without the execution of the public instrument, or the
(2002). registration in the Registry of Deeds in case of real rights, such
ASSIGNMENT 575 constructive delivery would not bind third parties.
essential for the validity of its assignment, the lack of such In Leonido v. Capitol Dev. Corp.,24 it was held that the
knowledge and/or consent has legal effects. notarization of the Assignment of Credit, converted it into a
When the subject matter of an assignment is a credit, if the public
debtor pays his creditor without knowledge of the assignment, document, thereby complying with the mandate of Article 1625
his payment shall produce the effect of payment to release him of
from further obligations.21 the Civil Code and making it enforceable even as against third
Under Article 1285 of the Civil Code, if the assignment of person.
rights made by a creditor in favor of a third person is made a. Accessories and Accessions
without Like the effect in species sale, the assignment of a credit
the knowledge of the debtor, the debtor may set up against the includes all the accessory rights, such as a guaranty,
assignee the compensation which would pertain to him against mortgage,
the assignor of all credits prior to the assignment and also later pledge or preference.25
ones until he had knowledge of the assignment. 24526 SCRA 379 (2007).
On the other hand, if the debtor has consented to the 25Art. 1627, Civil Code. Also United Planters Sugar Milling
assignment, he cannot set up against the assignee such Co., Inc. (UPSUMCO)
compensation, v. Court of Appeals, 527 SCRA 336 (2007).
unless the assignor was notifi ed by the debtor at ASSIGNMENT 577
the time he gave his consent, that he reserved his right to the b. Warranties
compensation. The warranty against hidden defects generally has no
If the creditor communicated the assignment to him but the application
debtor did not consent thereto the debtor may still set up the to an intangible because it has no physical existence.
compensation of debts previous to the assignment, but not the In assignment, the assignor shall be responsible for the
subsequent ones. existence and legality of the credit at the time of sale, unless it
4. Transfer of Ownership has been expressly sold as a doubtful account, in which case
Project Builders, Inc. v. Court of Appeals,22 held that “[A]n the assignee takes the credit at his own risk.26 Consequently,
assignment of credit is an act of transferring, either onerously the
or gratuitorialy, the right of an assignor to an assignee who invalidity of the credit assigned makes the assignor-vendor
would then be capable of proceedings against the debtor for liable
enforcement on satisfaction of the credit. The transfer of rights for breach of such warranty.27
In addition, assignment does not make the assignor warrant 34Art. 1633, Civil Code.
the solvency of the debtor to the credit, unless: 35Art. 1631, Civil Code.
(a) There is a stipulation to that effect; or 36371 SCRA 603 (2001).
(b) The insolvency of the debtor was prior to the ASSIGNMENT 579
assignment and of common knowledge.28 legal cause, such as sale, dacion en pago, exchange or
But even when the assignor warrants the solvency of the donation, and without the consent of the debtor, transfers
debtor, the warranty should last for one (1) year only, from the his credit and accessory rights to another, known as the
time of the assignment if the credit is already due; otherwise, assignee, who acquires the power to enforce it to the same
the extent as the assignor could enforce it against the debtor.
warranty shall cease only one (1) year after the maturity of the As a consequence, the third party steps into the shoes
credit.29 of the original creditor as subrogee of the latter. But such
If the assignor in good faith is liable for a warranty, he is liable assignment does not extinguish the obligation under the
only for the expenses of the contract, and any other legitimate credit assigned.37
payments made by reason of the assignment. On the other A specifi c rule on the assignments of credit or incorporeal
hand, right in litis pendencia is provided by law, since such
an assignor in bad faith who breaches such warranties, shall in assignments
addition be liable to pay for the necessary and useful are deemed to be speculative on the part of the assignee, and
expenses, as
plus damages.30 much as possible, the law would rather benefi t the debtor of
Lo v. KJS Eco-Formwork System Phil., Inc.,31 held that when such
dacion en pago takes the form of an assignment of credit, credit than the one who merely speculates for profi t. The
which rationale
is in the nature of a sale of personal property, it produces the of the law is that if the assignor is willing to dispose of the
effects of a dation in payment, which extinguishes the credit
obligation; at a low price, then it should be the debtor who should benefi t
however, the seller or assignor is still bound by the warranty of from the bargain and not a speculator. There presumption is
26Art. 1628, Civil Code. that
27Nyco Sales Corp. v. BA Finance Corp., 200 SCRA 637 one who buys a credit under litigation is buying for purposes of
(1991). speculation.
28Art. 1628, Civil Code. A credit or other incorporeal right is deemed to be in litigation
29Art. 1629, Civil Code. from the time a complaint concerning the same is answered.
30Art. 1628, Civil Code. Under Article 1634 when a credit or other incorporeal right in
31413 SCRA 182 (2003). litigation is assigned or “sold,” the debtor shall have a right to
578 LAW ON SALES extinguish it by reimbursing the assignee for the price the latter
the fi rst paragraph of Article 1628 of the Civil Code, which paid therefor, the judicial cost incurred, and the interest on the
makes price from the day on which the credit was paid. The right to
the seller or assignor liable for the existence and legality of the redeem can be exercised by the debtor within thirty (30) days
credit at the time of sale. The Court held that when it is shown from the demand by the assignee for payment.38
that the assigned credit no longer existed at the time of dation, The right to redeem on the part of the debtor shall not exist
then it obliged the assignor-debtor to make good its warranty with respect to the following assignments which the law
and considers
pay the obligation. not for speculation:
Other specifi c warranties pertaining to assignment are as (a) Assignment of the credit or incorporeal
follows: right to the co-heir or co-owner of the rights
(a) One who assigns an inheritance right without assigned;
enumerating the things it is composed of, 37Reiterated in Lo v. KJS Eco-Formwork System Phil., Inc.,
shall only be answerable for his character 413 SCRA 182
as an heir;32 but any fruits received he shall (2003).
pay to the assignee, unless the contrary 38Art. 1634, Civil Code.
has been stipulated;33 580 LAW ON SALES
On the other hand, the assignee shall (b) Assignment to a creditor in payment for his
reimburse the assignor for all that the latter own credit; and
has paid for the debts and charges on (c) Assignment to the possessor of a tenement
the estate, unless the contrary has been or piece of land which is subject to the right
stipulated;34 in litigation assigned.
(b) One who sells for a lump sum the whole of Note that in all the immediately foregoing cases, the
certain rights, rents, or products, shall be assignee has a legitimate purpose for taking the assignment of
answerable for the legitimacy of the whole credit, and not merely for speculation. Likewise, in the fi rst
in general, but not for each of the various case of
parts of which it may be composed; except assignment of the credit to a co-heir or a co-owner, redemption
in the case of eviction from the whole or the is
part of the greater value.35 not allowed because it would further the co-ownership
ASSIGNMENT OF CREDIT IN LITIGATION situation,
Recently, in South City Homes, Inc. v. BA Finance Corp.,36 and the law discourages co-ownership situations.
the Court described an assignment of credit as follows: 1. Differentiating from Subrogration
An assignment of credit is an agreement by virtue of Recently in Licaros v. Gatmaitan,39 the Court distinguished
which the owner of a credit, known as the assignor, by a subrogation from an assignment of credit, as follows:
32Art. 1630, Civil Code. (a) Subrogation extinguishes the original
33Art. 1632, Civil Code. 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