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PROPERTY RULES

A shot at redemption

05:16 AM December 08, 2018

A contract of sale of real property may be extinguished by, among others, conventional or legal redemption.

Conventional redemption takes place when the seller reserves the right to repurchase the property, upon: (a) returning to the vendee the purchase price; (b) payment of the expenses of the contract and any other legitimate payments made by reason of the sale; (c) payment of the necessary and useful expenses made on the property sold; and (d) compliance with other stipulations which the parties may have agreed upon.

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The right of conventional redemption may be exercised within four years from the date of the contract in the absence of an express agreement; or within the period stated in the contract, which period shall not exceed 10 years.

The seller, however, may still exercise the right to repurchase within 30 days from the final judgment was rendered in a civil action on the basis that the contract was a true sale with right to repurchase.

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Furthermore, the seller may bring his action against every possessor whose right is derived from the buyer, even if the second contract did not mention his right to repurchase, without prejudice to the provisions of the Mortgage Law and the Land Registration Law with respect to third persons.

The seller who recovers the property shall receive it free from all charges or mortgages constituted by the buyer, but he shall respect the leases which the latter may have executed in good faith, and in accordance with the custom of the place where the land is situated.

When the seller fails to pay the abovementioned expenses and comply with the other stipulations of the contract, the consolidation of ownership over the property in the buyer’s name shall not be automatically recorded in the Registry of Property, unless there is a judicial order, after the seller has been duly heard.

A contract of sale with right of repurchase should be distinguished from an equitable mortgage. In Matanguihan v. Court of Appeals, the Supreme Court defined an equitable mortgage as one which although lacking in some formality, or form or words, or other requisites demanded by a statute, nevertheless reveals the intention of the parties to charge real property as security for a debt, and contains nothing impossible or contrary to law.

Sales with a right of repurchase are not favored. To be sure, the Supreme Court held in the Matanguihan case that contracts of sale with right of repurchase have been frequently used to conceal the true nature of a contract—that is, a loan secured by a mortgage.

In many cases, people suffering from grave financial distress may have no choice but to sign a purported contract of sale with right of repurchase which may have been designed to circumvent laws on usury and the prohibition against the creditor appropriating the mortgaged property.

Thus, in case of doubt, a contract purporting to be a sale with right of repurchase shall be construed as an equitable mortgage.

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A contract of sale with right of repurchase shall be presumed to be an equitable mortgage when: (a) the price of a sale with right of repurchase is unusually inadequate; (b) the seller remains in possession as lessee or otherwise; (c) 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) the buyer retains for himself a part of the purchase price; (e) the seller binds himself to pay the taxes on the thing sold; or (f) in any other case, 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 any of these cases from which an equitable mortgage may be presumed, any money, fruits, or other benefits to be received by the buyer as rent or otherwise shall be considered as interest which shall be subject to usury laws.

Meanwhile, legal redemption is the right to be subrogated, upon the same terms and conditions stated in the contract, in the place of one who acquires the property by sale or donation, or by any other transaction where ownership is transmitted by onerous title.

Legal redemption may be exercised by: (a) co-owners of a certain property; and (b) owners of adjoining lands, which are not separated by brooks, drains, ravines, roads, and other apparent servitudes for the benefit of other estates.

The right of legal redemption may only be exercised within 30 days from written notice by the prospective or actual seller, as the case may be. The deed of sale shall not be recorded in the Registry of Property, unless accompanied by the seller’s affidavit that he has given written notice thereof to all possible redemptioners.

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