CHAPTER 7

• The modes or causes of extinguishing the contract of sale may be classified into:

  (1) Common or those causes which are also the means of extinguishing all other contracts like payment, loss of the thing, condonation, etc. (see Art. 1231.);

  (2) Special or those causes which are recognized by the law on sales (such as those covered by Articles 1484, 1532, 1539, 1540, 1542, 1556, 1560, 1567, and 1591.); and

  (3) Extra-special or those causes which are given special discussion by the Civil Code and these are conventional redemption and legal redemption. (see 10 Manresa 300, 303.)
• Conventional redemption


  The right which the vendor reserves to himself, to reacquire the property sold provided he returns to the vendee the price of the sale, the expenses of the contract, any other legitimate payments made therefor and the necessary and useful expenses made on the thing sold (Art. 1616.), and fulfills other stipulations which may have been agreed upon.
• What may be the Subject matter of conventional redemption or pacto de retro sales


  Both real and personal property may be the subject matter of pacto de retro sales or sales with right to repurchase although there are certain articles (Arts. 1607, 1611, 1612, 1613, 1614, 1617, 1618.) which are applicable only to immovables.
• Nature of conventional redemption. (380)

  1. contractual;

  2. accidental;

  3. real right, when registered;

  4. potestative condition;

  5. resolutory condition;

  6. not an obligation but a power/privilege;

  7. reserved at the moment of the perfection of the contract;

  8. person entitled to exercise the right is the owner of the property sold (not 3rd party;

  9. gives rise to reciprocal obligation of returning price of sale and other expenses, and delivering property.
• Equitable mortgage


  An equitable mortgage is one which lacks the proper formalities, form or words, or other requisites prescribed by law for a mortgage, but shows the intention of the parties to make the property subject of the contract as security for a debt and contains nothing impossible or contrary to law.
• What is the purpose of Art 1602? (equitable mortgage)

  To provide safeguards and restrictions against the evils of sales with a right of repurchase, commonly called pacto de retro sales.

  
  

  The policy of the law is to discourage pacto de retro sales and thereby prevent the circumvention of the prohibition against usury (see note, infra.) and pactum commissorium.
• ART. 1602. The contract shall be presumed to be an equitable mortgage, in any of the following cases:


  (1) When the price of a sale with right to repurchase is unusually inadequate;

  (2) When the vendor remains in possession as lessee or otherwise;

  (3) 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;

  (4) When the purchaser retains for himself a part of the purchase price;

  (5) When the vendor binds himself to pay the taxes on the thing sold;

  (6) 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.

  In any of the foregoing cases, any money, fruits or other benefits to be received by the vendee as rent or otherwise shall be considered as interest which shall be subject to the usury laws.
• What is pactum commissorium?

  Automatic appropriation by the creditor of the thing pledged or mortgaged upon the failure of the debtor to pay the principal obligation.

  - unlawful and void
• Test if there exists pactum commissorium

  TEST IF THERE IS EXISTS PACTUM COMMISSORIUM is whether or not there is no need for extra step to be taken by creditor
• 2 requisites For a presumption of an equitable mortgage to arise

  1. that the parties entered into a contract denominated as a contract of sale with a right of repurchase or purporting to be an absolute sale (Art. 1604.)

  
  

  2. and that their intention was to secure an existing debt by way of mortgage.
• When is the Price of the sale unusually inadequate?


  Inadequacy is not sufficient to set aside a sale unless it is grossly inadequate or purely shocking to the conscience or is such that the mind revolts at it and such that a reasonable man would neither directly or indirectly be likely to consent to it
• 1. Common

  2. Special

  3. Extra-special


  3 classifications for the modes or causes of extinguishing the contract of sale
• Common


  category of those causes which are also the means of extinguishing all other contracts
• Special


  category of those causes which are recognized by the law of sales
• Extra-special


  category of those causes which are given special discussion by the Civil Code
• Conventional redemption


  right which the vendor reserves to himself, to reacquire the property sold provided he reimburses the vendee of the price, the expenses of the contract, any other legit pmts made therefor and the necessary and useful expenses made on the thing sold and fulfills other stipulation agreed upon
• Real and personal property


  subject matter of conventional redemption
• Equitable mortgage


  on which, although it lacks the proper formalities of a mortgage, shows the intention of the parties to make the property subject of the contract as security for thw fulfillment of an obligation
• Pacto de retro sales


  sales with a right of repurchase
• 1. Price of sale with right tonrepo is unusually inadequate

  2. Vendor remains in possession as lessee or otherwise

  3. Upon or after expiration of right to repo another instrument extending the period of redemption or granting a new period is executed

  4. Purchaser retains for himself a part of the purchase price

  5. Vendor binds himself to pay the taxes on the thing sold

  6. In any other case where it may be fairly inferred that such is their intention


  when contract with right to repurchase presumed an equitable mortgage
• Lower bec in pacto, vendor expects to reacquire or redeem the property sold


  price in pacto de retro sales relative to that in absolute sales
• It is an equitable mortgage, whether the sale is absolute or pacto de retro

  presumption in case of doubt as to contract of sale with right to rwpo
• Equitable mortgage

  
  

  (presumption aforementioned is thus an exception to the general rule that onerous contracts shall be settled in favor of the greatest reciprocity )

  which effects a lesser transmission of rights: equitable mortgage or contract of sale
• Reformation


  remedy in equity by means of which a written instrument is made or construed so as to express or conform to the real intention of the parties when such intention is not expressee in the instrument
• No right of redemption since sale is an absolute sale


  period for exercise of right of redemption if there is no agreement/granting right
• 4 years from date of contract


  period for exercise of right of redemption if agreement merely grants right
• Within period fixed (not more than 10 yrs)


  period for exercise of right of redemption if there is definite period of redemption agreed upon
• 10 years


  period for exercise of right of redemption if period of redemption agreed upon is not specified
• 10 years from execution of the contract


  period for exercise of right of redemption if period agreed upon exceeds 10 years
• Within 30 days from when final judgement was rendered in a civil action


  period for exercise of right of redemption if final judgement rendered contract pacto de retro
• Additional protection to debtors


  necessity of judicial order for recording of consolidation of ownership
• Subrogation


  transfers to a certain person the credit with all the rights thereto appertaining
• 1. Common

  2. Special

  3. Extra-special


  3 classifications for the modes or causes of extinguishing the contract of sale
• Common


  category of those causes which are also the means of extinguishing all other contracts
• Special


  category of those causes which are recognized by the law of sales
• Extra-special


  category of those causes which are given special discussion by the Civil Code
• Conventional redemption


  right which the vendor reserves to himself, to reacquire the property sold provided he reimburses the vendee of the price, the expenses of the contract, any other legit pmts made therefor and the necessary and useful expenses made on the thing sold and fulfills other stipulation agreed upon
• Real and personal property


  subject matter of conventional redemption
• Equitable mortgage


  on which, although it lacks the proper formalities of a mortgage, shows the intention of the parties to make the property subject of the contract as security for thw fulfillment of an obligation
• Pacto de retro sales


  sales with a right of repurchase