CHAPTER 6- ACTIONS FOR BREACH OF CONTRACT OF SALE OF GOODS:

The seller can file an action for the price-

1. After the ownership has been passed and the price has been paid and no period is stipulated (CASE: triangle
Ace did to de Guzman)
2. If there is no delivery then payment of the price is stipulated to be paid on a certain date and that date arrives
and the debtor does not pay despite DEMANDS
o Why am i always emphasizing despite DEMANDS- because you don’t consider the buyer in default
unless there's demand as a general rule)
o But if you're a buyer what could be your defense? The seller has manifested his intention not to
perform or the seller has manifested his inability to perform, but this is before judgment could be
rendered. Meaning the action has already been filed in court. Therefore, a complaint has already been
filed by the seller.

If the goods are placed in a deliverable state already, and the seller offers to deliver the goods and the
buyer refused to accept and there is not ready market for the goods because the goods were
manufactured according to special instructions by the buyer and the seller notifies the buyer that he is
holding the goods as bailee for the buyer (why bailee? because of the unjustifiable refusal which did not
hinder the transfer of title to the buyer), despite the possession of the goods still being with the seller
can he sue for the price?

Yes, ownership has already been transferred to the buyer even if he refuses to accept delivery because the refusal is
unjustifiable.

Another action that can be filed by the seller is action for damages for non acceptance of the goods
because of BF.

The grounds are the following:

1. Unjustifiable refusal to accept
2. The goods are not yet placed in a deliverable state and the buyer repudiates the contract.

What is to repudiate the contract?- no answer

If the seller files an action for damages, how do we measure damages?

Loss naturally, directly, occurring because of the breach of contract

If the goods can be resold, meaning there is a ready market for the goods, how do we measure damages?
- The difference between the contract price and the market value at the time when acceptance is supposed to
be made
- But if there is no stipulated time for acceptance or delivery- market value at the time of refusal

This is on the presumption that contract price is more than the market value because if the contract price is less than
the market value then there will be no damages because the seller will earn a profit from the sale (damage without
injury)

What is the measure of damages if the repudiation happened before the goods are placed in a
deliverable state (goods in process)?
- Amount spent for the materials, labor and PROFIT

Action for rescission of the contract:

(Remember: we discussed about rescission without court action. Rights of an unpaid seller, rescission has no court
action filed he just notifies he buyer of his intention to rescind or commits and overt act manifesting his intention to
rescind and then just a few seconds ago we said that in case of sale of movables, if the buyers fails to pay the price at
the time of delivery or fails to accepts delivery or fails to tender the price if no period is stipulated then rescission will
take place or it is stipulated in the contract rescission shall automatically take place. In these cases there is no court
action involved. Even in the sale of real property, if there is notarial demand for rescission there is no court action
required for the rescission of a contract)

If the goods are not delivered and the buyer either repudiates or manifests an inability to perform or
there is a breach of a contract and the seller notifies the buyer of his intention to rescind then the seller
can file an action of rescission of the contract. What about on the part of the buyer what actions are
available for him in case of a breach on the seller. Of course, if the seller fails to deliver then he can file a
case for specific performance. Can the seller opt to pay damages in lieu of specific performance?

For damages for the breach of warranty by the seller, available remedies for the buyer?
1. He can accept the goods and sue for diminution of the price
2. Accept goods, sue the damages
3. Refuse acceptance or sue for damages

1|P a g e
 4. Return the goods and recover the price

Soler vs. Chesley- where the court did not allow Chesley to rescind but also did not require Chesley to pay for the
balance of the purchase price.
Harisson vs. Navarro- his only option was to ask for damages because he needed to use the trucks for his business
Supercars Case- the first choice of the buyer was for specific performance to have the vehicle repaired but since it
was beyond repair he sued for rescission.

You know in the law that if the creditor opts for specific performance he cannot sue for rescission because these are
alternative remedies. Thus, if you exercise one you cannot use the other.

EXCEPTION: if specific performance is impossible then you can sue for rescission (SUPER CAR CASE)

When CANT he sue for rescission?

1. If he had knowledge of the breach
2. He fails to notify the seller of the breach within the reasonable period (warranty of hidden defects, he must
notify not more than 6months; Animals- 40 days)
3. If he cannot restore to the seller the goods in substantially same condition as they were at the time of delivery.
(Remember: the effect of rescission is mutual restitution), unless the cause of the deterioration of the goods
is the breach

If the buyer elects for the rescission for the contact then he is no longer liable for the price. Now since
there is rescission entails mutual restitution must the buyer return the goods to the seller or is it enough
that he notifies the seller to claim the goods?

- The buyer can constitute himself as bailee for the seller especially if he has paid the price and the seller has
not returned the price.

Remember the rights of an unpaid seller?

Now, in rescission the roles are reversed. Prior to the return of the price, the buyer can exercise POSSESSORY LIEN over
the goods if the buyer has delivered the goods to the carrier for transmission to the seller and the seller becomes
insolvent then the buyer can exercise STOPPAGE IN TRANSITU.

What about if there is a breach of warranty in quality only?

The buyer can sue for breach of contract
- If the diminution is for than 10 percent he can sue for rescission

What will be the basis for damages?

- Difference of the value at the time of delivery and the value of the goods had they corresponded to the quality
stipulated in the contract

I ordered from you export quality Mangoes but what was delivered was Carbon quality mangoes? So the
value of the mangoes you delivered as not actually 50,000 pesos was there a breach of quality?

YES, the measure of the loss it the value at the time of delivery which is let say 30,000 and the value if the mangoes
had corresponded to the contract example 50000. Then that would be the loss awarded to the buyer

CHAPTER 7- EXTINGUISHMENT OF SALE

There are two special modes of extinguishing a sale, these are:

1. Conventional redemption, and
2. Legal redemption

Conventional Redemption is one which takes place where the vendor reserves for himself the right to repurchase the
property by complying with the provisions of Art. 1616.

What kind of element of a contract is conventional redemption?

Accidental, because it cannot be enforced unless stipulated and agreed by the parties.

It is also called a potestative resolutory condition, why?

It is one where the fulfillment depends upon the will of one of the parties. In fact we learned in obligations and contract
that if the fulfillment of the conditions of the contract depends upon the will of the debtor (potestative on the will of
the debtor), i.e. it depends upon the seller to redeem the property or not. Aside from the fact that it is potestative it is
also a resolutory condition, why?

2|P a g e
Because you already have a valid and existing contract of sale where ownership is already transferred to the buyer
and yet because of the exercise of the right of redemption, the sale is extinguished because the property reverts back
to the vendor.

What is your indication that the contract of sale includes with it the right of redemption? How is the
contract usually denominated?
Sale with the right to repurchase or Sale with the right of repurchase where you usually find the stipulation reserving
for the vendor the right to redeem or to repurchase the property.

But even if the document is denominated as a pacto de retro sale or a contract of sale with the right to repurchase, in
certain instances, the Court would rule that the contract really is an equitable mortgage and not a sale with the right
to repurchase. Such as when the price is usually inadequate. It must be so gross as to be revolting to the mind. So if
this is the situation between the parties, then it gives rise to the presumption that what took place really is not a pacto
de retro sale but an equitable mortgage.

If the vendor remains in possession of the property, now even if you have a pacto de retro sale ownership is still
transferred to the vendee. Although, the ownership of the vendee is subject to the resolutory condition of redemption
by the vendor. Again ownership is transferred to the vendee, therefore, possession is likewise transferred to the
vendee.

Why is it when you have this pacto de retro sale the vendor is still in possession of the property when
the intention really, if this is a real and true pacto de retro sale, is to transfer ownership to the buyer,
only subject to the resolutory condition of redemption? Why is the vendor still in possession of the
property?
Is an indication that the contract really is a mortgage and not a sale.

What is an equitable mortgage?

It is called an equitable mortgage because the document executed by the parties is not a mortgage document. What
you have is a contract of sale with the right to repurchase or right of repurchase and yet the real intention of the
parties is to just subject the property as security for a payment of a debt or another obligation. There is no real
intention to transfer ownership to the apparent vendee or to the vendee a retro. The intention is really only to consider
or to subject the property as security for the payment of a debt or for the fulfillment of an obligation.

That is why since the instrument executed is not a real estate mortgage or chattel mortgage, but a contract of sale
with the right to repurchase and if anyone of those instances is present, those instances enumerated under Art. 1602
is present, then that gives rise to the presumption that the contract really is a mortgage and not a sale.

So what is the second circumstance?

If you have a contract of sale with the right to repurchase and there is a period stipulated for the redemption. After the
expiration of the period of redemption, the parties enter into another contract extending the period of redemption.
Now if you are the buyer and your intention is to acquire ownership of the property subject of the sale, would you
normally agree to the extension period of the period of redemption?
Since your intention is to acquire absolute ownership and you agree to an extension of the period of redemption, the
presumption arises that the agreement really is a mortgage and not a sale.

What’s the third circumstance?

If the buyer retains part of the purchase price. If you have an arms-length transaction of a contract of sale, really, truly
a contract of sale, the intention of the seller is to acquire the full purchase price, right? In the like manner that the
intention of the buyer is to acquire absolute ownership and possession of the property, why is the buyer retaining part
of the purchase price? Again, that gives rise to the presumption that the contract is an equitable mortgage and not a
sale.

The fourth?
If the seller continues to pay the realty taxes. Payment of real estate taxes is the obligation of the owner of the
property, right? If you have a contract of sale with right of repurchase, the owner is the buyer already after delivery,
whether real or constructive, i.e. can be made by execution of public document. You now have a contract of sale with
right to repurchase and yet the vendor continues to pay the real estate taxes. That means there was no intention
really to part with ownership of the property. That the intention really is to subject the property as security for the
payment of an obligation.

Any other attending circumstance which gives rise to the presumption that the intention of the parties really is to
subject the property as security for payment of a debt. What is an example?
After the execution of the deed of sale or pacto de retro sale where it is made to appear that the buyer has paid the
full purchase price, the buyer continues to extend loans to the seller.
In one case, the Court said that this really is an indication that the property is merely considered as security for the
payment of the loan. That the parties merely wanted to formalize the security transaction. But instead of executing a
mortgage document, what they executed was a contract of sale with right to repurchase or even an absolute deed of
sale.

3|P a g e
Caballero v. Ong Tiao Bok
In the 1970s, Caballero sold a parcel of land consisting of 11ha for P60,000. In 1972, the assessed value of the
property was something like P65,000. But it was sold under pacto de retro. In the pacto de retro document it was
stipulated that Caballero had the right to redeem the property within 5 years with an extension of 3 years. So total of 8
years. Eight years lapsed and no redemption was made. Sixteen years lapsed from the expiration of the 8 year period,
a total of 24 years had lapsed before the heirs of Sergio Caballero asked the Court to cancel the annotation on the
titles. Maybe what happened here is Caballero was not able to consolidate his titles over the properties. So the heirs of
Caballero were asking the Court to cancel the annotation because they claimed that the contract really was an
equitable mortgage and not a pacto de retro sale.
What was their basis in claiming that it was an equitable mortgage?
They claimed that there was gross inadequacy of the price by the fact that the consideration stated in the contract
was even lower than the assessed value. And it is public knowledge that the assessed value is much less than the
market value of the property.
The Court said “you did not present evidence to prove the disparity between the market value and the purchase
price”. They did not present how much the market value was at that time. They only claimed that it was less than the
assessed value, which was of course admitted late below the market value. But how much really was the market value
to really determine that the price was grossly inadequate. So the Court ruled in favor of Bok. This was a true pacto de
retro sale.

For purposes of discussion, even if we say that this was an equitable mortgage still you cannot redeem the property
anymore. Why? Because you are guilty of laches. You waited 23 years to assert whatever rights you have.

Ramos v. Sarao
The Court said that the sale with pacto de retro was an equitable mortgage because the spouses Jonas and Myrna
Ramos where in desperate need of money because the house and lot they were residing in was about to be subject to
a foreclosure because they were not able to pay their obligations to the bank. So they went to Sarao to borrow money.
Sarao agreed to pay to redeem the mortgage if they sign a pacto de retro sale. But even after the execution of the
pacto de retro sale the spouses Ramos stayed in the property, continued residing in the property.
The Court said that even only one of the circumstances is present, i.e. the fact that Myrna continued in staying in the
property subject of the sale, gives rise to the presumption that the contract was an equitable mortgage and not a
contract of sale.

Take note that if only one of the circumstances is present, the vendor need not prove that circumstance. It is
incumbent upon the vendee to disprove. So the burden of proof is now shifted to the vendee to prove that really this
was a sale and not an equitable mortgage. That was not satisfied by Sarao because even the evidence presented by
Sarao would reveal that really the intention was just to subject the property as security for the loan obtained by the
Ramos spouses. Even the demand letter sent by Sarao mentioned of a loan and not a sale. So this was a tacit
acknowledgment on the part of Sarao that really the agreement was a loan secured by a mortgage but a different
contract was executed by the parties.

Why would lenders or creditors opt for the execution of a pacto de retro sale instead of a real estate
mortgage?
Because ownership is automatically consolidated on the part of the vendee a retro whereas if you execute a mortgage
contract you still have to go through the lengthy process of foreclosure.

If you are from the province you might have this experience wherein a neighbor or relative comes knocking on your
door and asks to borrow money and instead of executing a mortgage they execute a pacto de retro sale because it is
not troublesome in the sense that unlike a mortgage where you have to register it to bind third parties and you
become the preferred creditor. You also have to pay the registration fees. If you want to foreclose you cannot do it
automatically, and you have to pay again. Whereas in pacto de retro sale, if not redeemed then automatic ownership
goes to the buyer even if you have not obtained the judicial approval. Consolidation of title still takes effect. Although
you cannot register in your name but title becomes absolute even without registration. Meaning the vendor a retro can
no longer redeem even if you have not registered or consolidated your title and registered it with the Register of
Deeds. That is why many in the province would opt for pacto de retro sale and because the borrower is not in a
position to bargain. They are not actually negotiating on the level with the lender, so they agree to sign anything.

Dino v. Jardines
Two circumstances were present. Jardines, the seller, not only remained in possession but continued to pay the realty
taxes. There was even no need for 2 circumstances to exist. Even one circumstance attending the contract will give
rise to the presumption that the contract is an equitable mortgage and not a sale. Even if the contract is not a pacto
de retro sale even if it is an absolute sale, if any one of those circumstances in Art. 1602 is present then that also gives
rise to the presumption that the contract is an equitable mortgage and not a sale.

Salonga v. Concepcion
The Salonga spouses were suffering from business losses because of an earthquake which destroyed the commercial
building which was the source of their income so they could not pay their loans from at least four banks. And 2 banks
had already foreclosed the mortgages. So they borrowed money from the Concepcion spouses and the promised to

4|P a g e
pay the Concepcion spouses by selling the properties. There were 3 reasons given by the Court when it ruled that the
agreement was an equitable mortgage and not a sale. First was because the Salonga spouses were hard pressed for
money and the Concepcion spouses would not give them another extension of time to be able to sell the property to
pay the Concepcion spouses unless they sign deeds of sale over their prime properties. But of course the Concepcions
promised not to register the sale. Now if your intention is to acquire ownership of the property which is the subject of
the sale, would you promise to the vendor I will not register the sale? That means you really don’t have any intention
to part with ownership. That your intention is just to secure your obligation by subjecting this property as security for
payment of an obligation. That is why here the Court said the contract was an equitable mortgage and not of sale.

Go v. Bacaron
Bacaron here, in a document denominated as transfer of rights apparently sold a 15ha parcel of land for P20,000 and
this was in the 1990s. After one year from the execution of the transfer of rights Bacaron went to Go and offered to pay
the loan. Go said “no way, you have already sold the property to me”. So Bacaron filed an action for the reformation of
instrument because he claimed well the transfer of rights did not reflect our true intention which was merely to subject
the property as security for the payment of my loan. Three circumstances were present here. Gross inadequacy of the
price, he continued in possession of the property and he continued paying the realty taxes. If this was truly a sale then
he would have vacated the property and surrendered possession to Go. He would have stopped paying the real estate
taxes. So the Court allowed the reformation of the instrument.

I want to emphasize this because for the past nine years almost half of the students would answer reformation of the
contract.

Romulo v. Layug
After the deed of sale was signed the vendee continued to extend loans to the vendor. Now, the vendee testified that
part of the consideration in the deed of sale was the extinguishment of a prior loan in addition to the P200,000 which
was indicated as the purchase price. Although the Court said that although did not include that in their contract
because the capital gains tax would increase. So they only stated that the consideration was only P200,000 where
actually, according to the vendee, the intention was only to cancel a previous loan. Now if that is the intention, dacion
en pago, why did the vendee continue to extend loans to the vendor? So the conclusion reached by the Court is that
the real intention of the parties was to subject the property as a security for the payment for the loan and not a sale.

If it is finally determined that the contract really is a mortgage and not a sale what would be the proper thing to do?
Would the contract be rescinded? Would the contract be annulled?
What’s going to be done according to the Court in the case of Bacungan v. CA is to enforce the contract actually. The
contract is a mortgage and not a sale. You have a contract which is not reflected in the document, that’s why you
reform the document in order to reflect the true intention of the parties.

If there is doubt whether the contract is a pacto de retro sale or an equitable mortgage or even an absolute sale or an
equitable mortgage, the doubt would be resolved in favor of equitable mortgage. Why?
It is that interpretation which would result in the least transmission of rights.

What is the effect if the contract is now determined to be equitable mortgage, what about the fruits received by the
vendee, who is actually the mortgagee?
The fruits or income will be considered as payment for interest subject to usury law. But we do not apply the usury law
now. And since the effects of the usury law are now suspended, if the vendee is receiving income from the property
which is more than the legal rate of interest, do you think the vendor would be able to recover that amount in excess
of the legal interest if he questions that? Considering that as you learned in oblicon we do not have any usury law. Do
you think he can still recover the excess? Like if the value of the property is 1 million. He is receiving maybe P50,000 a
month as income from the property. It’s a lot and building. And it’s generating income because there are tenants in the
property and the vendee is receiving P50,000 a month, that is P600,000 a year. That’s 60% interest, right? Now if you
are the vendor a retro, or if you are the mortgagor because the contract is really an equitable mortgage and not a
pacto de retro sale and the law says that fruits should be applied as payment for interest subject to usury law. Since
the effects of usury law are suspended so our question is if you are the vendor, can you still recover the excess
amount over the legal interest? If you want to can you? Yes, by claiming that the interest is not usurious but
unconscionable. Of course the law says that the vendor may ask for a reformation of the instrument. And this is what
Bacaron did in Go v. Bacaron.

Pacto de Retro Proper

You have a Pacto de Retro sale where it is stipulated that the vendor has a right to redeem the property.
Within what period can the vendor exercise redemption?
It depends. If there is no period stipulated then within 4 years from date of the contract. If there is a period stipulated,
then within that period so long as it does not exceed 10 years.

If the parties agree that the vendor can redeem the property at any time when can the vendor redeem
the property?
Ten years. Because when you agree to pay at any time it means that there is a period agreed.

5|P a g e
The stipulation states that the vendor can redeem the property once he passes the bar?
Four years. Is passing the bar a day certain? No, it is a condition because it may or may not happen.

The vendor may redeem the property when he has the money?
Ten years. When the debtor undertakes to pay when his means permit him to do so then the obligation is deemed to
be one with a period. It is not a conditional obligation.

Now even if the 4 year period has already lapsed because there is no period agreed or 10 year period has lapsed if
there is a period stipulated, the vendor can still exercise the right of redemption beyond that period but which he must
exercise within 30 days from the finality of the judgment of the court declaring that the contract is really a pacto de
retro sale.

But it is not in all instance when the vendor challenges the contract as an equitable mortgage and not a pacto de retro
sale that he is allowed to redeem within 30 days from finality. The case he files in court must be under a bona fide
belief, a belief in good faith, that their agreement really is an equitable mortgage and not a pacto de retro sale.

Abilla v. Gobonseng
This was a pacto de retro sale. Deed of sale and option to purchase where Gobonseng was given until, we don’t know
when the contract was executed, but until August 31, 1983 to repurchase the property. But the fact of repurchase or
the nature of the contract was not really the cause of action when Abilla filed the case. Because when the case was
filed it was to recover from Gobonseng the expenses for the execution of the contract. And because Gobonseng did not
want to pay the defense he raised was that the contract was an equitable mortgage and not a pacto de retro sale. The
trial court said this is a pacto de retro sale because you cannot find any of the circumstances under Art. 1602.
Gobonseng went to the Court of Appeals, CA said this is a pacto de retro sale. Gobonseng went to the Supreme Court,
on a technicality his petition for review was denied. So he quickly went to the trial court where the first case was filed
by Abilla and said that since it was ruled that it was a pacto de retro sale then allow us to redeem because we still
have 30 days from the finality within which to redeem. The Court did not allow it. Why? Because it has been the
consistent ruling of the trial court and the CA that this was really a pacto de retro sale and Gobonseng was consistent
in claiming that it was an equitable mortgage. After several years Gobonseng now wants to benefit from the ruling of
the courts that it was a pacto de retro sale by trying to exercise right of redemption. The Court said no, because your
claim that this is an equitable mortgage must be based on a bona fide belief that the contract really is an equitable
mortgage, that the property subject of the purported sale was merely security for the payment of an obligation. And
there is no claim here that it was a loan extended by Abilla. What was clearly established was that this really was a
pacto de retro sale. In fact he was given time to redeem which was until August 31, 1993 and the case was filed in
1990, or shortly before that.

If we say that the maximum period of redemption cannot exceed 10 years, can the parties agree that there shall be no
redemption, for example, prior to within 5 years. If it is hereby agreed that the vendor can redeem the property at any
time but not earlier than 5 years? So when you say at any time, is there a period agreed? Yes, which is ten years. But
not earlier than 5 years. So how long can he redeem the property? Ten years after five years or just only ten years
including the 5 years? In can never exceed ten years. The only exception is if there is a case, which he must exercise
within 30 days from finality of the judgment declaring the contract to be a pacto de retro and not an equitable
mortgage.

If there is a restriction, like there shall be no redemption earlier than 9 years, so you only have one year to redeem.

Who can exercise the right of redemption?

Of course the vendor. No problem if one vendor, one vendee. And of course the entire property is sold. But what if A, B,
C and D are co-owners of the property and there is no partition yet. A owns an ideal portion of ¼ of this, because
unless there is a stipulation/indication of their respective ownership, the presumption under the law is that they own
equal shares. A sells his share to X under pacto de retro. So X now becomes co-owner with B, C and D. Now since they
are co-owners and they cannot agree how to go about the partition of the property under Art. 498, they sold the
property to X and divided the proceeds among themselves. So X now becomes the owner of the entire property. But
remember that the sale between A and X is pacto de retro. So A has right to repurchase. He exercises redemption over
¼ of the ideal portion that he sold. Can X refuse redemption? Yes. He can refuse redemption. He can insist that A
redeems the entire property even if what was subject of the pacto de retro sale was only ¼ undivided share. The law
frowns upon co-ownership. So X can refuse redemption of ¼. He can insist that A redeems the entire property even if
B, C and D did not sell their respective shares under pacto de retro. That is Art. 1611. If one co-owner sells under pacto
de retro and the buyer becomes the owner of the entire property under Art. 498, then the vendee can insist that the
vendor a retro redeems the entire property. So that’s first instance of redemption.

Second instance.
A, B, C and D are co-owners of this property and no partition yet. In the same contract they sold the entire property to
X under pacto de retro. The rule is each co-owner can redeem only his share. But if a co-owner redeems his share the
vendee a retro can refuse redemption unless they agree among themselves for the redemption of the entire property.
So if this is a scenario the rule is one contract, one redemption. Of course, if X allows partial redemption, well and
good. But the law allows him to insist on redemption of the whole property. This is true if there’s only one seller Y who
sells the property under pacto de retro to X and then within the period of redemption, Y dies and is survived by A, B, C

6|P a g e
and D. So each co-heir is entitled to redeem only his share. Again presumption is there is no partition yet. If one co-
heir decides to redeem the buyer X can refuse partial redemption. He can insist on redemption of the whole. Unless in
the meantime after the death of Y the entire property is adjudicated to one heir, so that one heir can exercise
redemption.

If it is not the seller who dies but the buyer, survived by A, B, C and D then Y cannot redeem the entire property from
just A. He must redeem from all the heirs. Unless the property is adjudicated to any one of them. If the entire property
is adjudicated to A then he can redeem the property only from A regardless of whether there is partition or nor.
Because if there is partition then of course it is more obvious. Even if there is no partition, still, if he wants to redeem
the entire property he must redeem it from all the heirs.

Any one of A, B, C and D sells his share under pacto de retro to X. Maybe A, B and C sell all their shares in this property
undivided share to X under pacto de retro. Maybe all of them sold their respective shares but not in the same contract.
So assuming that A, B, C and D sold their respective shares on different dates under different contracts to X all under
pacto de retro and A wants to redeem his share. Can A insist that the entire property be redeemed? No, because our
rule earlier was one contract, one redemption. So even if the entire property is sold under pacto de retro by all the co-
owners if all the co-owners did not sell in the same contract then the buyer cannot insist on the redemption of the
entire property. Each co-owner can redeem only his ideal share in the property.

Can creditors of the vendor redeem the property? Between the vendor and his creditors, who has the
right to redeem the property? Who has the preference to redeem since that is one of the rights of the
creditor?
Of course creditors of the vendor can exercise the right of redemption. But it’s a remedy of last resort because the
creditors must have already exhausted the properties of the vendor before they can exercise redemption.

If there is no redemption, what is the obligation of the vendor a retro?

Return the price, expenses of the contract, necessary and useful expenses made on the thing sold.

What is the obligation on the part of the vendee?

He must return the thing without charges and encumbrances except that if there are legitimate lease contracts
entered into with the vendee with other lessees and tenants then that must be respected by the vendor.

What about fruits? Is the vendee obliged to return the fruits?

Is there an obligation to deliver the fruits to the vendor when there is redemption?
It depends. If there were fruits existing at the time of the contract and there are fruits at the time of the redemption
and the buyer did not pay premium for the fruits at the time of the contract then there is no obligation to deliver the
fruits to the vendor-redemptioner.

But if the vendee paid an indemnity for the fruits, would there be prorating of the fruits?
If he did not pay for the fruits at the time of the contract and there are fruits existing at the time of the contract will
there be a reimbursement or prorating of the fruits?
No reimbursement, no prorating.

What if he paid an indemnity for the fruits at the time of the contract and he enjoyed the fruits at the
time of the contract, and there is now redemption? Would he be reimbursed by the seller, the
redemptioner for the value of the fruits?
Yes, because there was indemnity paid at the time of the contract.

What if there were no fruits existing at the time of the contract and there are fruits existing at the time
of redemption?
There shall be prorating of the fruits and prorating shall be done in such a manner that the fruits existing during the
last year of the contract computed from the anniversary date of the contract shall pertain to the vendee. That means
he shall be reimbursed by the vendor for the value of the fruits during the last year of the contract computed from the
anniversary of the contract.

If the contract was executed on January 1 and redemption happens at September 24, and there were no fruits existing
at the time of the contract, there are fruits existing at the time of redemption. What the law simply means is that the
fruits from January 1 up to today shall pertain to the vendee. That’s how the fruits are prorated. That is what is meant
by the provision that the fruits belonging to the vendee shall be reckoned from the last year of the contract computed
from the anniversary of the contract.

Legal Redemption
If Conventional Redemption is an agreement by the parties that the vendor may repurchase the property after
complying with Art. 1616, under Legal Redemption it is the law itself that provides for other persons to exercise the
rights of the buyer under the same terms and conditions in the contract executed between the buyer and the seller. It
is not the seller who redeems the property, it’s another person under the same terms and conditions.
Forget about pacto de retro sale here, you have an absolute sale here and you have a document executed by the
parties to evidence the sale. And the terms and conditions of the sale are stated in the document, right? If there is

7|P a g e
legal redemption then the redemptioner must comply with all the conditions in the deed of sale executed between the
parties.

If the property is a proper subject of legal redemption and the parties indicate a lower purchase price here, if it is
subject of legal redemption, the buyer against whom the right is exercised cannot insist on the redemptioner paying a
price higher than the price stipulated. Remember that the exercise of legal redemption must be under the same terms
and conditions. So if the purchase price is one million and what you right in the deed is only P200,000, the buyer
against whom the right is exercised cannot say that he paid P1,000,000 as the real purchase price. Because BIR can
sue you for tax evasion. (Rule on mirisi).

Legal Redemption can be exercised even if the contract is not an absolute sale. Even in dacion en pago or any contract
where property is transferred by onerous title.

Can legal redemption be exercised in foreclosures?

Is ownership transferred by onerous title in foreclosure sales? These are involuntary sales. Is title transferred by
onerous title in foreclosure or execution sales? Meaning, if you have an execution sale or a foreclosure sale is
consideration paid for transfer of ownership? That is what is meant by onerous title.

We actually have 2 terms here, redemption and preemption. How are they differentiated?
Right of preemption is not right of first refusal. And this is also not an option contract. What is preemption? Preemption
in legal redemption is the right to be preferred in the resale of certain property. Meaning, there is no sale perfected yet.
So an adjacent owner can exercise right of preemption. So while redemption is a right borne after the sale, preemption
is a right borne before the sale. Meaning, before the owner can sell the property the adjacent owner can exercise
preemption over the property to be sold.

Since redemption is borne after the sale the effect is to rescind an already perfected sale. In right of preemption, since
the right is borne before the sale then there is no prior contract which is actually rescinded.
In redemption there is already a perfected sale so it is directed against the buyer. Preemption is directed against the
prospective seller.

It’s not at all instance when there is redemption that there is also a right of preemption. It’s only with respect to
prospective sale of urban lands, and not in all sales of urban lands.

What are the instances of legal redemption?

First, redemption by co-owners. When is there redemption by co-owners?
Regardless of what property, this can be real or personal property. So indivisible property is co-owned and no partition
yet, one of the co-owners sells his share. There is no pacto de retro sale, only absolute sale. Here A sells his share to X
absolutely. So the new co-owners are X, B, C and D. What are the requisites before any of B, C or D or all of them can
exercise redemption by co-owners?

First, there must be a co-ownership existing.

Second, that one of the co-owners has sold his right to a stranger. Therefore, if sale is to a co-owner there is no right
of redemption because you are not introducing a stranger in the co-ownership.
The reason why redemption is allowed in a co-owned property is to prevent strangers from joining the co-ownership or
to allow persons from getting out of an undesirable co-ownership.
Third, the sale must be made before a partition. Because if there is a partition already even if there is no legal
document executed if the parties have identified their respective portions there can be no redemption anymore.
Fourth, the right must be exercised by one or more or all of the co-owners within a period of 30 days from written
notice by the vendor co-owner.

Aguilar v. Aguilar
Aguilar acknowledged that the notice may be given by the vendee. The Law does not require what is not necessary.
Why would you require a written notice from the vendor before you start counting the 30 day period for redemption
when the co-owner has actual knowledge of the sale.

Although here in some cases, the Court in this particular requisites sometimes flip-flops. In some cases even if there
was no written notice where there was actual notice with the co-owners the Court did not allow redemption anymore
because the Court said that there was no actual notice. The Court also said in one case that even if the notice was
given by the vendee and not the vendor, that complies with the requirement of notice.

Fifth, the vendee must be reimbursed with the price, not the value. Because the premise is legal redemption is
exercised by the redemptioner under the same terms and conditions. It’s only in redemption of urban lands where the
law provides for reasonable price whether it’s redemption or preemption.

Avila v. Barabat
For the right to be exercised, co-ownership must exist at the time conveyance is made by the co-owner and the
redemption is demanded by the other co-owner or co-owners. By their own admission, the petitioners, the co-heirs,

8|P a g e
were no longer co-owners when the property was sold by respondents in 1979, because there was already actual
partition.

LEGAL REDEMPTION
-If there is one co-owner who exercises redemption then walang problema pare
-If there are 2 or more co-owners desire to redeem the property sold or the portion sold by one of the co-owners then
they are entitled to redeem only to proportion to their shares

What if a co-owner redeems the entire property? Does he become the owner of the entire property?HELL
NOOOOOOOOOOOO!!!!!

What is the obligation of the redemptioner?

-return the price with respect to redemption by a co-owner. WHY? Because the redemptioner steps into the size 7 ½
shoes of the beautiful buyer. He is bound by the terms and condtions created by the contract, so whatever the buyer
pays, the redemptioner returns that to the buyer . So meaning the redemptioner shall only return the price stipulated
in the contract of sale.

Ex. Sa contract of sale, the price stipulated is P100,000 but the real price is 1M, this is done to evade taxes, then the
redemption price to be paid is the P100,000 my friends. The buyer cannot insist on collecting 1M nigga. Brother
redemptioner is only bound to return what is stated in the deed of sale.

+ Legal redemption by co-heirs is governed by legal redemption by co-owners and so the co-heir can redeem that
portion of the property sold by the other co-heir

GALVEZ CASE vs CA
Timotea F. Galvez died intestate on 28 April 1965. 1 She left behind her children Ulpiano and Paz Galvez. Ulpiano, who
died on 24 July 1959,2 predeceased Timotea and was survived by his son, Porfirio Galvez. Timotea left a parcel of land
situated at Pagdaraoan, San Fernando, La Union, covered by Tax Declaration No. 39645.
Paz Galvez executed an affidavit of adjudication stating that she is the true and lawful owner of the said property and
the only heir of the deceased Timotea. She sold the property to Carlos Tam
After the sale Porfiro learned of the sale and so he tried to exercise redemption and recover the share that belonged to
him. After a few days of the redemption application, TAM sold the coveted property to TYCOON PROPERTIES. WHY? So
tycoon can claim “buyer in good faith”. Ofcourse the court didn’t buy into that BS and more so because Tycoon
properties was owned by Carlos TAM, he was president of tycoon. Assuming without admitting that tycoon was a buyer
in good faith, it STILL could not acquire that which was not owned by PAZ GALVEZ. Porfirio was allowed to redeem one
half of the property which belonged to him.

THE OTHER KIND OF REDEMPTION IS REDEMPTION BY ADJOINING OWNERS EITHER OF:

RURAL LANDS
- There can be redemption of rural lands if the property sold is 1 hectare or less. Cannot be more than 1 hectare.
Adjacent owners can only exercises redemption if the vendee or grantee has other rural lands because if the
buyer does not own other rural lands except the property that he bought, then there can be no legal
redemption. PINEDA “ the buyer or grantee of rural land to be redeemed must already be an owner of rural
land. If he is not an owner yet, redemption cannot be exercised by the adjoining owners. The law evidently
intends to grant the opportunity to have rural lands.” Pg 395
- AND prospective redemptioners, although they are adjoining owners, should also have or own properties
adjoining the property which is being redeemed but must NOT be divided by BROOKS, DRAINS, RAVINES,
ROADS, LAKES, OCEANS and other SERVITUDES for the benefit of other estates. REASON OF REDEMPTION? To
promote the development of agriculture

Even if land is 3 hectares but co-owned by A, B, C, D and A sells his undivided share to X-RATED NINJA who
owns other rural lands and there are adjacent co-owners around the property. Co-owners want to exercise
redemption and one of the adjacent owners want to exercise redemption. WHO SHALL BE PREFERRED? Co-
owners are preferred

IF land is 1 hectare or less, owned by A and E,F and G want to redeem, as between the adjoining owners. The
one with the SMALLER AREA shall be given preference to redeem over the other owners. HOWEVER, if
adjoining areas of the adjacent owners are equal or the same then the FIRST to request redemption shall be
preferred.

FABIA vs. IAC

Where the court declared that the purpose of the law to allow adjoining owners to redeem rural lands is to
preserve the development of agricultural or rural lands to adjoining owners who may desire the redemption for the
benefit of their land.

9|P a g e
PRIMARY STRUCTURES vs. VALENCIA

Primary structures owns 22K square meter lot in lilo-an. So its more than 2 hectares. Then there are 3
adjacent lots owned by MENDOZA but the total area of the 3 adjacent lots were less than 1 hectare. Mendoza sold the
lots to spouses Valecia when PRIMARY STRUCTURES learned of the sale, it wrote the Valencia spouses informing them
that it wanted to exercise its right of redemption over rural lands. Valencia spouses didn’t TAGAD. So Primary
structures filed a case. Although the case was dismissed, there was a decision claiming the lands to be agricultural.
SC: because the Valencia spouses did not question the declaration of the trial court that the land was rural
land then the SC hands were tied, they were bound by the factual findings. They were forced to decide the case in
favour of Primary structures. COURT ALLOWED LEGAL REDEMPTION
Note: Sc can only decide based on the facts if the RTC or CA have different facts or under the other circumstances
provided by the rules.

URBAN LANDS
-In legal pre-emption or redemption on URBAN land the area must be so small that the major portion of the
land cannot be used for any practical purpose. That it was merely purchased by the seller merely for SPECULATION.
(ART 1622) Although now pwde naman e lotto outlet ba bida
If in the sale of urban land is very small noh, there is right of pre-emption( sorry kai g drawing man gd ni ATTY) nya it is
surrounded by other lands, note: gamita ang imaginative factor of a law student please. Even if A can sell property to
other co-owners adjacent owners can exercise legal pre-emption or the right of pre-emption.

Right pre-emption can only be exercised within 30 days from written notice of the sale by A to adjacent owners that he
is selling the property.
ESSENTIAL REQUISITE HERE IS THAT THE PROPERTY HERE CANNOT BE USED FOR ANY PRACTICAL
PURPOSE BECAUSE IT IS SO SMALL BUT IT WAS ACQUIRED BY MERE SPECULATION Area like love is very
crucial

CONTRERAS vs. CA

There is a 350 sq.m lot owned by A and then B constructed a house on a small portion of A but eventually it
reached more than half of the property of A. B did not owned any portion of the lot but instead owned the house. DUH!
B died, survived by C. C fell in love, because of his lustful intentions he got married. And because he was sexually
gratified everyday, he became rich so he was able to acquire the lot adjacent of A’s lot. A’s lot was foreclosed by the
bank and the bank sold it to D. Because C was the owner of the adjacent property, he wanted to redeem the property
sold to D claiming ART 1622, legal redemption of urban land. ( essential requisite is that area is so small and cannot be
used for any practical purpose, however, unsaon pag small anang uta.a na na tukoran biya ug balai nya 350 square
meters pagyd, pataka rasad ni si C ug invoke ug article dah, sexually gratified mangd) It should be taken out of the
coverage of ART 1622.The trial court allowed redemption because they said 1622 is applicable. CA affirmed. SC sa
daghan na mga issues na imu g raise, nganu mangy dang formal issues mangyd imu g raise. Ni palag ragyd sya sa
fact na wala ni sign ang CA justice. They didn’t raise the issue of whether 1622 was applicable. SC again was bound by
the factual findings by the lower courts, in effect the urban land in question is a proper subject of redemption. SC
allowed redemption.

+ it is only in the redemption or the exercise of the right of pre-emption of urban lands that the redemptioner is
obliged to pay a reasonable price. In redemption of rural lands, the law does not mention how to determine the price of
redemption so we are bound by law that the redemptioner is bound by the terms and conditions in the contract or to
pay the price stipulated in the contract. Therefore, redmeptioner must return the price stated in the contract.

Redemption must be exercised within 30 days from written notice by the seller. WHY SELLER? Because it is the seller
who can confirm the fact of the sale, not just anybody because it is the seller who is deprived of ownership. In fact, in
previous cases the court was very strict in applying this, where there is no written notice given by the seller then the
right of the co-owner or adjacent owner to redeem, rather the 30 day period which to redeem the property will not
even begin to run. Even if the adjacent owner or co-owner has actual knowledge of the fact of the sale.

VERDAD vs. CA
Written notice by seller is mandatory! The rule that notwithstanding actual knowledge of the co-owner the
latter is still entitled to a written notice by the selling co-owner in order to remove all uncertainties.

FRANCISCO vs. BOISER

Receipt by a co-owner of summons in a civil case for collection of share in the rentals by an alleged buyer of a
co-owned property constitutes actual knowledge of the sale on basis of which the former may now exercise her right of
redemption within 30 days from finality of the decision.

AGUILAR vs AGUILAR

10 | P a g e
 Old rule is that notice to co-owner is mandatory

The new rule is that a co-owner with ACTUAL notice of the sale is not anymore entitled to a written notice.
After a property has been subdivided and distributed to and among co-owners, the community has already terminated
and there is no reason to sustain any right of pre-emption or redemption.
But still we follow the 30 day period from the time the co-owner had actual knowledge.

GALVEZ vs CA
Porfilio was not given written notice by the aunt of the sale. In fact, he learned of the sale or he had actual
knowledge of the sale in May 12 1994. He filed a case June 12, 1994. Court started to run on June 12. Court not
consistent.

CABALES vs CA
1988 Nelson Cabales learned of the sale. In 1993 he went to barangay for conciliation. In 1995 he filed a case
for redemption. Court said period expired.
In absence of proof of writte notice of the sale, the 30 day redemption period commenced when the one
seeking redemption sought the barangay conciliation process to redeem his property – to require strict proof of written
notice of the sale would be to countenance an obvious false claim of lack of knowledge.

For property subject to redemption, whether rural or urban land or co-owned property, the register of deeds will not
register the sale without an affidavit by the vendor claiming that all the prospective redemptioners have been notified.

Chapter 8-ASSIGNMENT OF CREDITS

By the contract of sale one of the contracting parties undertakes to deliver something or transfer ownership of a
determinate thing while the other party undertakes or obligates himself to pay the price certain in money

Assignment of Credit
- Is also considered a sale because there is consent, Object and consideration.

+ assignment of credits or other incorporeal rights is not only be perfected through contract of sale but it can also be
perfected through donation, donation

LEDONIO vs. CAPITOL DEVELOPMENT CORPORATION

The court defined assignment of credit as an agreement by virtue of which the owner of the credit known as the
assignor by legal cause such as sale, dation in payment or exchange or donation and without need of the debtor’s
consent transfers that credit and its accessory right to another known as the assignee who acquires the power to
enforce it in the same way the assignor would have against the debtor.

EXAMPLE. ( again g drawingan, gamita ang imaginative chuva sa law student)

B is indebted to Toyota, B is the debtor. The indebtedness is evidenced by a promissory note for 1 million pesos. And
then Toyota sells (this happens among merchants or traders like toyota). So the promissory note is signed by B which
is secured by the chattel mortgage over the car that he bought. Toyota then will sell that promissory note ,which is
actually an assignment of credit, to a financing company(ALANO). – this is assignment of credit

If the credit is evidenced by a negotiable promissory note because it is payable to the order of the creditor then it
requires the endorsement of the creditor.

+ Court said that in assignment of credits, there is no need for the CONSENT of the debtor because in many cases that
could be the defence of the debtor that they did not know of the assignment of the credit. They claim that because
they did not know then their debt has been extinguish. WRONG! Because there is no need for the consent of the
debtor however the debtor should be notified inorder for him to know where and who payment shall be made.

What is required to bind the parties in an assignment of credit?

-If it is a real right over an immovable property then a public document.
-Assignment of legacy requires a probated will.
-Assignment of NEGO instrument requires endorsement or delivery depending on whether the instrument is a bearer
instrument or an order instrument.

+ Against third persons, in order to bind them then it must be in a public document. If it involves real property then it
must be registered.

In the above example where B is the debtor and TOYOTA assigned the credit to ALANO, the promissory note does not
need to be registered in the RD because B is still bound to pay. B only needs to be notified. So prior to the notification
of the debtor B he can claim compensation, he can still pay C the price prior to the notification of the assignment of

11 | P a g e
credit because the assignment is not fully effective against the debtor unless he is notified or has actual knowledge of
the assignment. As far as the debtor B is concerned, before he was notified, his creditor is still TOYOTA.

COMPENSATION
Compensation takes places, of course, by the mere operation of law, even unknown to the debtors the two
debts are reciprocally extinguished, as soon as they exist simultaneously, to the, amount of their respective sums.
Compensation takes place only between two debts, having equally for their object a sum of money, or a certain
quantity of consumable things of one and the same kind, and which are equally liquidated and demandable.
Compensation takes place, whatever be the cause of either of the debts.

What is the effect of INVALID assignment?

It transfers title to the assignee even if the debtor is not aware of it.
In LEDONIO , in an assignment of credit the consent of the debtor is not necessary in order for the assignment
to fully produce legal effects. But what the law requires in an assignment of credit is not the consent of the debtor but
merely notice to him which gives effect to the assignment of credit. ( HASOLA ANING ATTY OI, PASPAS AU UG BA-
BA!!!!!!!) The creditor may validly assign credit and its accessories without the debtors consent. Assignment of credit
and its accessories.

+ If the obligation of debtor to creditor is evidenced by a promissory note , PM is not an accessory. The accessory
contract here is there is a mortgage to secure the price.

Ex. If A purchase car from C , A being the debtor gives a promissory note evidencing the 1M debt and it secured by a
chattel mortgage over the car. Then the mortgage is the accessory contract. If C assigns the credit to D, it is not only
the promissory note that is assigned but also the chattel mortgage.

MEANING CLASS if debtor cannot pay the PM upon maturity, D can foreclose the mortgage. Even if on the face of the
mortgage the name of D is not state because D now steps into the SIZE 12 SHOES of C by virtue of the assignment
even without the consent of the debtor.
The law says again that in order for the assignment of credit to be recognized, A must be notified otherwise, he can
still pay directly to C. And if C accepts payment even if he has already assigned the credit then it is liable to the
assignor. But the assignor, D, cannot anymore claim from the debtor anymore. Payment of A to C extinguished his
obligation. D’s only remedy is to collect from C.

If the assignment happens on Sept 15, and the debtor A knew of the assignment and still pays C and C accepts it. Can
D collect from debtor A? HELL YEAH! Because A paid creditor in bad faith.

SERVICEWIDE vs. CA
A, debtor, purchased a vehicle from B, creditor. A promissory note was issued together with a mortgage over
the car in order to secure the debt. B assigned the credit to C, a financing company, with the consent of debtor. After
the assignment with the consent of A, A then sold the car to X-RATED NINJA without the consent of C.
C assigned the credit to MANYAK EATING EAGLE, another financing company. MANYAK EATING EAGLE is the new
creditor and because is unpaid sues A, the debtor. A then raises as his defence that his obligation to pay has been
extinguish because he has already sold the car to X-RATED NINJA and that X-RATED NINJA has executed an undertaking
to assume the mortgage. A, Debtor, also raised the defence that he was not notified of the assignment of the credit so
he was not bound.
The court said the debtor may not be notified of the assignment. While the law says that the debtor may raise
defences acquired prior to the assignment, that defence is payment made by the debtor prior to his knowledge of the
assignment. IT DOES NOT APPLY HERE TO SERVICEWIDE CASE because the debtor did not pay any creditor. Debtor
cannot invoke ART 1626 because there was no payment made. Article 1626 is only applicable when the debtor pays
the creditor prior to acquiring knowledge of the latter’s assignment of credit. It does not apply to cases of non-
payment after the debtor came to know of the assignment of credit.

Another EXAMPLE:

A assigns the credit to B on Aug 15, On Aug 30 A condones the credit. ( CONDONATION –it is the gratuitous
abandonment by the creditor of the debt) And at the time of condonation, C, the debtor, was not aware of the
assignment, so as far as the debtor is concerned his obligation is already extinguished because creditor is still, A due
to the absence of notice of assignment. So when the promissory note matures, B tries to collect from C. CAN C SET UP
THE DEFENCE OF EXTINGUISHMENT BY CONDONATION? HELL YEAH!!! This is another example of a defence acquired
by the debtor prior to his knowledge of assignment.

+ If in an ordinary contract of sale, the creditor has a good title, free from encumbrances etc.
IN ASSIGNMENT of Credit, his ONLY warranty is that his credit is existing and valid. He does not warrant that the debtor
will pay.

Can an assignor assign a doubtful credit?

Yes he can, however, it must be expressly stated in the public document that the credit is doubtful.

12 | P a g e
Does the assignor warrant the solvency of the Debtor?
-NO. There is no implied warranty to solvency of the debtor

If there is no warranty for the solvency of the debtor and yet the assignor warrants the solvency of the debtor, until
when is the warranty valid?
1.It is valid for (1) one year from the date of assignment of the credit if the period of payment of the credit has expired;
or
2.One year after maturity of the credit, if the period of payment has not yet expired.

+ If there was a breach of warranty because of the non-existence of the credit or illegality of the credit, where there is
a breach of warranty of the solvency of the debtor. Then the assignor, who was in good faith must return the price,
expenses of the contract and other legitimate expenses incurred by the assignment.
+ If assignor acted in bad faith, then must also pay damages.

LO V. KJS ECO-FRAMEWORK SYSTEM PHIL INC G.R. NO 149420 (2003)

FACTS: Respondent KJS Eco-Framework System is a corporation engaged in the sale of steel scaffoldings, while
petitioner Sonny Lo, doing business under the name of San’s Enterprises, is a building contractor.
1. In February 1990, petitioner ordered scaffolding equipments from the respondent amounting to P540, 425.80. He
paid a down payment of P150,000 and the balance was to be paid in 10 monthly installments
2. However, Lo was only able to pay the first 2 monthly installments due to financial difficulties despite demands
from the respondent
3. In October 1990, petitioner and respondent executed a deed of assignment whereby petitioner assigned to
respondent his receivables of P335,462.14 from Jomero Realty Corp
4. But when respondent tried to collect the said credit from Jomero Realty Corp, the latter refused to honor the deed
of assignment because it claimed that the petitioner was also indebted to it. As such, KJS sent Lo a demand letter but
the latter refused to pay, claiming that his obligation had been extinguished when they executed the deed of
assignment
5. Subsequently, respondent filed an action for recovery of sum of money against petitioner.
6. Petitioner argued that his obligation was extinguished with the execution of the deed of assignment of credit.
Respondent alleged that Jomero Realty Corp refused to honor the deed of assignment because it claimed that the
petitioner had outstanding indebtedness to it
7. The trial court dismissed the complaint on the ground that the assignment of credit extinguished the bligation
8. Upon appeal, CA reversed the trial court decision and held in favor of KJS. CA held that
a. Petitioner failed to comply with his warranty under the deed
b. The object of the deed did not exist at the time of the transaction, rendering it void under Art 1409 NCC
c. Petitioner violated the terms of the deed of assignment when he failed to execute and do all acts necessary to
effectually enable the respondent to recover the collectibles

ISSUE: WON the deed of assignment extinguished the petitioner’s obligation

HELD: No, the petitioner’s obligation was not extinguished with the execution of the deed of assignment.

An assignment of credit is an agreement by virtue of which the owner of a credit, known as the assignor, by a legal
cause, such as sale, dacion en pago, exchange or donation, and without the consent of the debtor, transfers his credit
and accessory rights to another, known as the assignee, who acquires the power to enforce it to the same extent as
the assignor could enforce it against the debtor.

In dacion en pago, as a special mode of payment, the debtor offers another thing to the creditor who accepts it as
equivalent of payment of an outstanding debt. In order that there be a valid dation in payment, the following are the
requisites: (1) There must be the performance of the prestation in lieu of payment (animo solvendi) which may consist
in the delivery of a corporeal thing or a real right or a credit against the third person; (2) There must be some
difference between the prestation due and that which is given in substitution (aliud pro alio); (3) There must be an
agreement between the creditor and debtor that the obligation is immediately extinguished by reason of the
performance of a prestation different from that due. The undertaking really partakes in one sense of the nature of sale,
that is, the creditor is really buying the thing or property of the debtor, payment for which is to be charged against the
debtor’s debt. As such, the vendor in good faith shall be responsible, for the existence and legality of the credit at the
time of the sale but not for the solvency of the debtor, in specified circumstances.

Hence, it may well be that the assignment of credit, which is in the nature of a sale of personal property, produced the
effects of a dation in payment which may extinguish the obligation. However, as in any other contract of sale, the
vendor or assignor is bound by certain warranties. More specifically, the first paragraph of Article 1628 of the Civil
Code provides:
The vendor in good faith shall be responsible for the existence and legality of the credit at the time of the sale, unless
it should have been sold as doubtful; but not for the solvency of the debtor, unless it has been so expressly stipulated
or unless the insolvency was prior to the sale and of common knowledge.

13 | P a g e
From the above provision, petitioner, as vendor or assignor, is bound to warrant the existence and legality of the credit
at the time of the sale or assignment. When Jomero claimed that it was no longer indebted to petitioner since the
latter also had an unpaid obligation to it, it essentially meant that its obligation to petitioner has been extinguished by
compensation. In other words, respondent alleged the non-existence of the credit and asserted its claim to petitioner’s
warranty under the assignment. Therefore, it necessary for the petitioner to make good its warranty and pay the
obligation.

Furthermore, the petitioner breached his obligation under the Deed of Assignment, to execute and do all such further
acts and deeds as shall be reasonably necessary to effectually enable said ASSIGNEE to recover whatever collectibles
said ASSIGNOR has in accordance with the true intent and meaning of these presents.

Indeed, by warranting the existence of the credit, petitioner should be deemed to have ensured the performance
thereof in case the same is later found to be inexistent. He should be held liable to pay to respondent the amount of
his indebtedness.

Can inheritance be assigned? YES!

ABNORMAL NA WAKNIT, BAYOT NA TARSIER and CALOG NA LECHON BAKA survived X-RATED NINJA, the decedent.
ABNORMAL NA WAKNIT sells his share of the inheritance to DAGOL NA NAWONG DARNA. What extent is he assigning?
He only assigns those rights as an heir. So after he assigns whatever rights he has and receives fruits from the estate,
then he must reimburse the assignee of the fruits and income he has received.
ABNORMAL NA WAKNIT can assign rights as an heir DAGOL NA NAWONG DARNA even without partition because at the
time the decedent dies then the rights of an heir accrues.
On the other hand (specifically the right hand), if ABNORMAL NA WAKNIT after assigning his rights as an heir, pays
expenses needed for the preservation of the inheritance. Or if the estate has a debt and ABNORMAL NA WAKNIT pays
said debt. Then ABNORMAL NA WAKNIT can ask reimbursement from DAGOL NA NAWONG DARNA

SALE OF LITIGIOUS CREDIT

Debtor, A, owes creditor, B, 1 Million pounds. The debt is unpaid because debtor defaults. So Creditor files a collection
for the debt . Debtor files his answer, from this moment on the credit is considered LITIGIOUS CREDIT NA or credit
under litigation.

So If creditor, B, assigns his right over the credit to ALANO FINANCING prior to the judgment by the court. The law
allows debtor to redeem the credit.

Why would debtor redeem the credit from ALANO?

Because in most likelihood, B the creditor, sold the credit at a much lesser price. When can A exercise redemption?
Within 30 days from demand from ALANO or notice of demand.

14 | P a g e