ETRIII
CIVIL LAW REVIEW Lecture Series
OUTLINE/ LECTURE ON:
REDEMPTION AS MODE OF
EXTINGUISHMENT OF SALES CONTRACTS
By: Atty. Eduardo T.
Reyes, III
(Prepared for Law 4-C,
Univ. of San Agustin Law School,
Civil Law Review II, SY 2016-2017)
I. Art.
1600. Sales are extinguished by the same causes as all other obligations, by
those stated in the preceding articles of this Title, and by conventional
or legal redemption.
II. Conventional Redemption –
Article
1601. Conventional redemption shall take place when the vendor reserves the
right to repurchase the thing sold, with the obligation to comply with the
provisions of Article 1616 and other stipulations which may have been
agreed upon.
In turn,
Article 1616 circumscribes the period to redeem/ repurchase, in this manner:
“Art. 1606. The right referred to in Article 1601, in the absence of an
express agreement, shall last four years from the date of the contract.
Should there be an agreement, the period cannot exceed ten years.
However, the vendor may still exercise the right to repurchase within
thirty days from the time final judgment was rendered in a civil action on the
basis that the contract was a true sale with right to repurchase.” (Emphasis
supplied)
Thus, the
law is clear that the time-frames are only: 4-years if not expressly agreed
upon in the contract and 10-years if subject to a period.
Curiously,
what if instead of a period, the right of redemption is conditioned upon the happening
of an event and the fulfillment of the condition far exceeds 10 years, what do we make of the such?
1.1.Latest case law Cebu State College of Science and
Technology (CSCST) etc. v Luis & Misterio, G.R. No. 179025, June 17, 2015.
“In cases of conventional
redemption when the vendor a retro reserves the right to repurchase the
property sold,27 the parties to the sale must observe the parameters set forth
by Article 1606 of the New Civil Code, which states:
Art.
1606. The right referred to in Article 1601, in the absence of an express
agreement, shall last four years from the date of the contract.
Should
there be an agreement, the period cannot exceed ten years.
However,
the vendor may still exercise the right to repurchase within thirty days from
the time final judgment was rendered in a civil action on the basis that the
contract was a true sale with right to repurchase. (Emphasis supplied)
Thus, depending on whether
the parties have agreed upon a specific period within which the vendor a retro
may exercise his right to repurchase, the property subject of the sale may be
redeemed only within the limits prescribed by the aforequoted provision. In the
Decision dated June 23, 2005, this Court ruled that since petitioner and respondents
in this case did not agree on any period for the exercise of the right to
repurchase the property herein, respondents may use said right within four (4)
years from the happening of the allocated conditions contained in their Deed of
Sale: (a) the cessation of the existence of the SAHS, or (b) the transfer of
the school to other site.28 However, due to respondents’ failure to exercise
their right to redeem the property within the required four (4) years from the
time when SAHS had ceased to exist, or 26 Rollo, p. 90. 27 Article 1601 of the
New Civil Code provides: Art. 1601. Conventional redemption shall take place
when the vendor reserves the right to repurchase the thing sold, with the
obligation to comply with the provisions of Article 1616 and other stipulations
which may have been agreed upon. 28 Misterio v. Cebu State College of Science
and Technology (CSCST), duly represented by its President, Dr. Jose Sal Tan,
supra note 4, at 745. Decision - 10 - G.R. No. 179025 from June 10, 1983, the
date of effectivity of BP Blg. 412, this Court held that respondents are barred
by prescription. Despite this, respondents nevertheless insist on the
redemption of the subject property pursuant to the second suspensive condition,
namely, petitioner’s transfer of its school site. Applicable law and
jurisprudence, however, runs contrary to respondents’ stance. As early as 1913,
this Court had already enunciated an unfavourable notion against a prolonged
uncertainty with respect to the ownership and tenure of real property, to wit:
Under
the Partidas, as under the Roman Law, no attempt was made to limit the duration
of contracts with pacto de retro. Unless limited by the contract of the
parties, it was generally held that the right to repurchase was perpetual. By
its decision of May 12, 1875, the supreme court of Spain first attempted to
place a restriction upon the length of such contracts by holding that they gave
rise to a personal action of prescription in accordance with the law on
prescription of actions. (23 Scaevola. 767.) In the recent times, however,
practically all those countries where such sales are recognized have found it
advisable to limit the time within which the right of redemption can be
exercised. (4 Bonel's Com. on the Civil Code, 519.) As stated in Yadao vs.
Yadao (20 Phil. Rep., 260): "A pacto de retro is, in a certain aspect, the
suspension of the title to the land involved. We are of the opinion that it was
the intention of the legislature to limit the continuance of such a condition,
with the purpose that the title to the real estate in question should be
definitely placed, it being, in the opinion of the legislature, against public
policy to permit such an uncertain condition relative to the title to real
estate to continue for more than ten years."29
Consistent with such view,
this Court frowned upon agreements indicating indefinite stipulations for the
exercise of the right to repurchase and restricted the redemption period to ten
(10) years from the date of the contract of sale, in consonance with the
provisions of the Civil Code. Accordingly, when vendors a retro were granted
the right to repurchase properties sold “at any time they have the money,” “in
the month of March of any year,” or “at any time after the first year,” this
Court had not hesitated in imposing the ten (10)-year period, the expiration of
which effectively bars redemption of the subject properties.30 Similarly, there
have been numerous occasions31 wherein We invalidated stipulations permitting
the repurchase of property only after the lapse of at least ten (10) years from
the date of the 29 Rosales v. Reyes, 25 Phil. 495, 497 (1913). (Emphasis supplied)
30 Yadao v. Yadao, 20 Phil. 260 (1911); Alojado v. Lim, 51 Phil. 339 (1927);
Bandong v. Austria, 31 Phil. 479 (1915); Soriano v. Abalos, 84 Phil. 206
(1949); Tumaneng v. Abad, 92 Phil. 18 (1952). 31 Anchuelo v. Intermediate
Appellate Court, 231 Phil. 385 (1987); Baluyot, et al. v., 130 Phil. 455
(1968); Santos v. Heirs of Crisostomo and Tiongson, 41 Phil. 342 (1921); Tayao
v. Dulay, et. al., 121 Phil. 734 (1965). Decision - 11 - G.R. No. 179025
execution of the contract for being in contravention of the limitation mandated
by the Civil Code provision. Waivers of such period were likewise held to be
void for being against public policy.32 Furthermore, this Court deemed it
necessary to keep within the ten (10)-year period those instances where parties
agree to suspend the right until the occurrence of a certain time, event, or
condition, insofar as the application of the four (4)-year period in the first
paragraph of Article 1606 Civil Code would prolong the exercise of the right
beyond ten (10) years. Thus, in Rosales v. Reyes,33 We held that in cases where
the four (4)-year period would extend the life of the contract beyond ten (10)
years, the vendor a retro will only have the remainder of the said ten
(10)-year period to redeem the property, in line with the manifest spirit of
the law.34 When, for instance, the contract provides that the right may only be
exercised after seven (7), eight (8), or nine (9) years after the execution of
the sale, the vendor a retro may only redeem the property before the expiration
of the ten (10)-year period from the date of the sale. In line with this, Umale
v. Fernandez, et. al.35 pronounces that the period of redemption agreed upon by
the parties may be extended after the four (4)-year period so long as the total
period does not exceed ten (10) years from the date of the contract. As
elucidated in Badayos v. Court of Appeals: 36 While the counting of this
four-year period shall begin from the execution of the contract, where the
right is suspended by agreement until after a certain time, event or condition,
the period shall be counted from the time such right could be exercised, but
not exceeding ten (10) years from the execution of the contract. Applying the
provision to the instant case, the period to repurchase the property must be
deemed to be four (4) years from 9 March 1975 or until 9 March 1979.37 In the
instant case, while the four (4)-year period was counted from the time the
right to repurchase could be exercised or when the SAHS ceased to exist, even
beyond ten (10) years from the execution of the deed of sale, one must not
nevertheless lose sight of the fundamental spirit and intent of the law which
have been upheld in jurisprudence, time and time again, viz.: The question of
the period within which the repurchase may be made is unanimously considered as
a question of public interest. It is not a good thing that the title to
property should be left for a long period 32 Dalandan, et al. v. Julio, et al.,
G.R. No. L-19101, February 29, 1964, 10 SCRA 400. 33 Supra note 29. 34 Id. 35
28 Phil. 89 (1914). 36 G.R. No. 57630, March 13, 1992, 283 SCRA. 37 Id.
(Emphasis ours) Decision - 12 - G.R. No. 179025 of time subject to indefinite
conditions of this nature. For this reason, the intention of the law is
restrictive and limitative. (10 Manresa) A long term for redemption renders the
tenure of property uncertain and redounds to its detriment, for neither does
the precarious holder cultivate the ground with the same interest as the owner,
nor does he properly attend to the preservation of the building, and owing to
the fact that his enjoyment of the property is temporary, he endeavours above
all to derive the greatest benefit therefrom, economizing to that end even the
most essential expenses.38 Hence, while the occurrence of the second suspensive
condition may give rise to a separate cause of action, the same must always be
taken in conjunction with the periods prescribed by law insofar as they frown
upon the uncertainty of titles to real property. Otherwise, vendors may simply
impose several resolutory conditions, the happening of each will practically
extend the life of the contract beyond the parameters set forth by the Civil
Code. This is certainly not in line with the spirit and intent of the law. To
permit respondents to exercise their right to repurchase upon the happening of
the second resolutory condition, when they utterly failed to timely exercise
the same upon the happening of the first, would effectively result in a
circumvention of the periods expressly mandated by law. To repeat, Article 1606
expressly provides that in the absence of an agreement as to the period within
which the vendor a retro may exercise his right to repurchase, the same must be
done within four (4) years from the execution of the contract. In the event the
contract specifies a period, the same cannot exceed ten (10) years. Thus,
whether it be for a period of four (4) or ten (10) years, this Court
consistently implements the law and limits the period within which the right to
repurchase may be exercised, adamantly striking down as illicit stipulations
providing for an unlimited right to repurchase. Indubitably, it would be rather
absurd to permit respondents to repurchase the subject property upon the
occurrence of the second suspensive condition, particularly, the relocation of
SAHS on October 3, 1997, the time when petitioner ceded the property to the
Province of Cebu, which is nearly forty-one (41) years after the execution of
the Deed of Sale on December 31, 1956. This Court must, therefore, place it
upon itself to suppress these kinds of attempts in keeping with the
fundamentally accepted principles of law. Indeed, the freedom to contract is
not absolute. The contracting parties may establish such stipulations, clauses,
terms and conditions as they may deem convenient, provided they are not
contrary to law, morals, good 38 Hector S. De Leon and Hector M. De Leon, Jr.,
Comments and Cases on Sales and Lease, (2014), Eighth Edition, p. 257.
(Emphasis ours) Decision - 13 - G.R. No. 179025 customs, public order, or
public policy. 39 When the conditions in a contract manifest an effective
circumvention of existing law and jurisprudence, it is incumbent upon the
courts to construe the same in accordance with its ultimate spirit and intent.”
1.2. Distinctions
between DEBT and RIGHT OF REDEMPTION
a. Debt is an obligation; Right of Redemption is a right
b. “Unlike a debt which a third
party may satisfy even against the debtor’s will, the right of repurchase may
be exercised only by the seller in whom the right is recognized by a contract,
or by any person to whom the right may have been transferred”[1].
c. Corollarily, unjustified refusal of the obligee in
a debt would call for tender of payment and consignation; but in the exercise
of a right of redemption, mere tender during the redemption period is
sufficient[2].
1.3. If a contract of sale embodies the terms and
conditions of the sale but fails to state the right of redemption, can the
party who alleges its existence prove the same by parol evidence?
Right of Repurchase and the
Statute of Frauds
A.“Since a right to repurchase is a part of the
contract of sale, it is governed also by the Statute of Frauds. However, when
the contract of sale has been reduced in writing, parol evidence may be adduced
to prove the agreement allowing the right of repurchase the property sold,
since the deed of sale and the verbal agreement allowing the right of
repurchase should be considered as an integral whole, then the deed of sale
relied upon by the seller “is in itself the note or memorandum evidencing the
contract” which would take the case outside the provisions of the Statute
of Frauds”[3].
B. Waiver; Estoppel
1.4. Basically, in Nool v. CA,[4]
the doctrine was laid down that a right of repurchase must be part and parcel
of a contract of sale and cannot be embodied in a separate contract.
1.5. Right of Redemption v. Option to Purchase
a. Right to Redemption is not a
separate contract
b. In Right to Redemption, separate
consideration is not required
c. Art. 1606 limits the period of
redemption to 4 or 10 years
d. Right of redemption – tender of
payment is required; Option to Purchase- Mere notice of exercise of option is
enough
1.6. Consolidation if No Redemption is Made;
v Automatic upon Mere Lapse of Redemption
Period?
v Would mere MOTION be sufficient?
-“ Article 1607 of the Civil Code is intended to minimize the evils
which the pacto de retro sale has caused in the hands of usurers. A judicial
order is necessary in order to determine the true nature of the transaction and
to prevent the interposition of buyers in good faith while the determination is
being made.[5]”
-“The proceeding for consolidation
of title under Article 1607 of the Civil Code is not a mere motion incident to
a main action or special proceeding, but is an ordinary civil action where a
complaint or petition must be filed with the buyer a retro being made a party
to the complaint and summons being served upon him”[6].
1.7. 3rd
Para of Article 1606; 30-Day Redemption Period in case of Litigation refers to
Equitable Mortgage
1.7.1. Equitable Mortgage v. Pacto de retro sale
v If the
litigation takes more than 10 years, would this not contravene the spirit of
the law prohibiting a prolonged period of uncertainty of ownership as
enunciated in the ruling in Cebu State College of Science and Technology
(CSCST) etc. v Luis & Misterio, G.R. No. 179025, June 17, 2015?
Prof.
Cesar Villanueva[7]
opines NOT.
“The
rationale for the grant of the 30-day period of redemption under Article 1606
is quite clear: although a period of redemption is stated in the purported sale
a retro, nevertheless, the purported seller has placed no importance thereto
since he considers the transaction to be an equitable mortgage; being an
equitable mortgage then, the purported seller has every right to extinguish the
equitable mortgage by paying-up the loan at anytime before the purported
buyer has foreclosed on the mortgage. Allowing the expiration of the stipulated
redemption period is not negligence or fault on the part of the part of the
purported seller, and is in fact consistent with his position that the sale is
not one a retro but actually an equitable mortgage. Therefore, should a
judgment be finally rendered upholding the transaction to beone of sale a
retro, then it is but fair to grant to the seller a final 30-day period within
which to redeem from the time he is bound by the judgment finding the contract
to be one not of equitable mortgage.
On
the other hand, if the issue before the court is one whether the contract at
issue was one of absolute sale or a sale a retro, a judgment finding the
contract to be a sale a retro should not authorize the application of the
30-day redemption period under Article 1606 in favor of the seller who had
previously allowed the period of redemption to expire. In such a case, the
seller a retro was negligent or at fault for not having exercised his right to
redeem during the redemption period, and should not be granted a new period.
-In Adorable
v. Inacala[8],
it was ruled that where the evidence established that there could be no honest
doubt as to the parties’ intention that the transaction was clearly and
definitely a sale with pacto de retro, the seller a retro would not be
entitled to the benefit of Article 1606.”
1.8. Equitable Mortgage
Article 1602.
a. When the price of a sale with right to
repurchase is unusually inadequate
b. When the seller remains in possession as lessee
or otherwise;
c. When upon or after the expiration of the right
to repurchase another instrument extending the period of redemption or granting
a new period is executed;
d. When the buyer retains for himself a part of the
purchase price;
e. When the seller binds himself to pay the taxes
on the thing sold;
f. In any other case where it may be fairly
inferred that the real intention of the parties is that the transaction shall
secure the payment of a debt or the performance of any other obligation.
-“under the wise, just and equitable presumption in
Article 1602, a document which appears on its face to be a sale- absolute or
with pacto de retro- may be proven by the vendor or vendor-a –retro to be one
of a loan with mortgage. In this case, parol evidence becomes competent and
admissible to prove that the instrument was in truth and in fact given merely
as a security for the payment of a loan. And upon proof of the truth of such
allegations, the court will enforce the agreement or understanding in
consonance with the true intent of the parties at the time of the execution of
the contract”[9].
III. LEGAL REDEMPTION
3.1. Art. 1619. “Legal redemption is the right to be
subrogated upon the same terms and conditions stipulated in the contract in the
place of one who acquires a thing by purchase or dation in payment, or by any
other transaction whereby ownership is transmitted by onerous title.”
a) Articles 1088 & 1620-
Co-Heirs; Co-owners
Article 1088-
“Should any of the heirs sell his hereditary rights to a stranger before the
partition, any or all of the co-heirs may be subrogated to the rights of the
purchaser by reimbursing him for the price of the sale, provided they do so within
the period of one month from the time they were notified in writing of the sale
by the vendor.”
Article 1620- “A
co-owner of a thing may exercise the right of redemption in case the shares of
all the other co-owners or any of them, are sold to a third person. If
the price of the alienation is grossly excessive, the redemptioner shall pay
only a reasonable one.
Should two or more
co-owners desire to exercise the right of redemption, they may only do so in
proportion to the share they may respectively have in the thing owned in
common.
Ø Does not apply
when buyer is one of the co-owners
Ø Redemption by
co-owner of the property owned in common, even when he uses his own fund,
within the period prescribed by law inures to the benefit of all the other
co-owners[10].
On the other hand, under Article 1088 of the Civil Code, an heir may validly
redeem for himself alone the hereditary rights sold by another co-heir.
b) Adjoining Owners; Rural Land; Urban Land
c) Sale of Credit in Litigation; Article 1634, New Civil Code
d) Legal Redemption Period Commences to Run
-
“For the 30-day redemption period to begin to
run, notice must be given by the seller; and that notice given by the buyer or
even by the Register of Deeds is not sufficient.”
-
Exception: In Alonzo v.
Intermediate Appellate Court[11]. Actual knowledge by heirs of the sale and their inaction for 13 long
years after actual knowledge was treated as estoppels and prescription.
-“Article 1623
stresses the need for notice in writing in three (3) other species of legal
redemption namely: 1. Redemption in case where the share of all the other
co-owners or any of them are sold to a third person; 2. Redemption by owners of
adjoining lands when a piece of rural land not exceeding one hectare in area is
alienated; and 3. Redemption by owners of adjoining lands in the sale of a
piece of an urban land so small and so situated that the portion thereof cannot
be used for any practical purpose within a reasonable time, having been bought
merely for speculation. The Court held: “In
all these cases, the interpretation thereof always tilts in favor of the
redemptioner and against the vendee. The purpose is to reduce the number of
participants until the community is terminated, being a hindrance to the
development and better administration of the property. It is always in favor of
the redemptioner since he can compel the vendee to sell to him but he cannot be
compelled by the vendee to buy the alienated property”[12].
e. Other instances of Legal Redemption
a) Homesteads- Section 119 of Public Land Act- 5 years from date of
conveyance; applies even in the absence of stipulation. Law is specific.
b) Section 214 NIRC- One year redemption period of delinquent tax payer
c) Sections 27 & 28, Rule 39, Rules of Court
d) Section 6, Act 3135 in Extra-Judicial Foreclosure
e) Rule 68, Rules of Court; Redemption in Judicial Foreclosure of Mortgage;
Equity of Redemption
f) General Banking Law of 2000- Redemption period is 1- year for natural
person debtor; Juridical persons have the right to redeem the property in accordance
with Act 3135, but not after, the registration of the certificate of
foreclosure sale with the applicable register of deeds which in no case shall
be more than three (3) months after foreclosure, whichever is earlier”.
g) Rep. Act No. 720- Rural Banks- 2 years
h) Section 12, RA No. 38444, Agrarian Reform Code. When landholding is sold
to a third person without the knowledge of the agricultural lessee, the latter
is granted 180 days from notice in writing and at a reasonable price and
consideration.
[6] Ongoco v. Judge, the
CFI of Bataan, 15 SCRA 30; Crisologo v. Centeno, 26 SCRA 48; Heirs of Jose A.
Arches v. Vda. De Diaz, 50 SCRA 440
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