Fernandez vs. Spouses Tarun

The right of legal redemption under Article 1620 of the Civil Code may be exercised by a co-owner only when the shares of the other co-owners are sold to a third person or stranger; the right does not arise when the portion is sold to a co-owner, because no new participant is added to the co-ownership. The right of redemption is a privilege created by law to minimize co-ownership and to afford a co-owner a way out of an inconvenient association, but it does not apply where the purchaser is already a co-owner.

The case involves an 8,209-square meter fishpond in Dagupan City, known as Lot No. 2991 of the Cadastral Survey of Dagupan, originally covered by OCT No. 43099 and subsequently by TCT No. 24440. The property was co-owned by the brothers Antonio, Santiago, Demetria, and Angel Fernandez, together with their uncle Armando, each holding a 1/6 share, which later increased to 1/5 when Armando died single and without issue. The dispute arose between the respondents, Carlos Tarun and Narcisa Zareno, who purchased portions of the property from two co-owners, and the petitioners, the heirs of Angel Fernandez, who claimed a right to redeem those portions under the Civil Code provisions on legal redemption.

The disputed property is an 8,209-square meter fishpond in Dagupan City, known as Lot No. 2991 of the Cadastral Survey of Dagupan, originally covered by OCT No. 43099 and subsequently cancelled by TCT No. 24440. The brothers Antonio, Santiago, Demetria, and Angel Fernandez, together with their uncle Armando, co-owned the property to the extent of 1/6 each, which was subsequently increased to 1/5 on account of Armando's share, who died single and without issue, accruing in favor of the five remaining co-owners.

On June 4, 1967, Antonio Fernandez sold his share of about 547.27 square meters to the Spouses Tarun, and on June 18, 1967, Demetria Fernandez also sold her share of 547.27 square meters to them, for a total area of 1,094.54 square meters. The two sales were registered and annotated on OCT No. 43099. On November 14, 1969, the co-owners of the subject fishpond and another fishpond covered by TCT No. 10944 executed a Deed of Extrajudicial Partition of two parcels of registered land with exchange of shares, with Antonio, Santiago, Demetria, and Angel Fernandez among the parties. The deed stipulated that the parties recognize and respect the sale of the 1,094.54-square meter portion previously sold to respondents, which was excluded from the partition. By virtue of the deed, Angel B. Fernandez exchanged his share in the other fishpond for the shares of his co-owners in the remaining portion of Lot No. 2991, making Angel B. Fernandez and respondents co-owners of Lot No. 2991, and TCT No. 24440 was issued in their favor.

From the time respondents bought their portion, they had been paying the realty taxes thereon, but it was Angel B. Fernandez and later his heirs, petitioners, who remained in possession of the entire fishpond. While Angel B. Fernandez was still alive, respondents sought the partition of the property and their share of its income, but he refused. After his death, respondents wrote to petitioners of their desire for partition, but this was rejected, prompting respondents to file a suit for partition and damages. Petitioners claimed they were entitled to redeem the property under Articles 1620, 1621, and 1623 of the Civil Code, arguing that they were not notified of the sale and learned about it only upon receiving the summons for the partition case. They also contended that the sale was an equitable mortgage because the price was grossly inadequate and the vendors remained in possession, and that the extrajudicial partition was lopsided and iniquitous.

• Entitlement to Legal Redemption: Petitioners averred that the sale to respondents was void for non-compliance with the Civil Code, claiming they were not notified of the sale and learned about it only upon receiving the summons for the partition case, and that they had a right to redeem under Articles 1620, 1621, and 1623.
• Sale or Equitable Mortgage: Petitioners contended that the sale was only an equitable mortgage because (1) the price of P7,662 for 1,094.54 square meters was grossly inadequate given the property's prime location, and (2) the vendors remained in possession of the land and enjoyed its fruits.
• Validity of the Extrajudicial Partition: Petitioners assailed the partition as lopsided and iniquitous, arguing that their predecessor stood to lose 5,498.14 square meters under the extrajudicial partition.
• Damages and Attorney's Fees: Petitioners claimed entitlement to P50,000 as attorney's fees and damages.
• Factual Findings of the CA: Petitioners insisted that the CA made factual findings not in conformity with those of the RTC or borne by the evidence, particularly that the extrajudicial partition had been freely and willfully entered into when Angel B. Fernandez had been shortchanged, and that the registration of the Deeds of Sale was invalid for lack of an affidavit of written notice.

• Co-ownership Status: Respondents maintained that they were co-owners of the property, having purchased portions from Antonio and Demetria Fernandez, and that the right of redemption under Article 1620 does not apply when the sale is made to a co-owner rather than a third person.
• Waiver of Right to Redeem: Respondents argued that Angel Fernandez, as the co-owner at the time of the sale, was the one entitled to receive notice and to redeem the property, but he did not choose to exercise that right, and his inaction binds his successors-in-interest.
• Substantial Compliance with Notice Requirement: Respondents contended that the execution of the Deed of Extrajudicial Partition was a substantial compliance with the notice requirement under the law, and that it was too late to declare the exchange highly iniquitous when Angel Fernandez had not complained about it.

• Entitlement to Legal Redemption: Whether petitioners are entitled to exercise their right of legal redemption under Articles 1620, 1621, and 1623 of the Civil Code.
• Sale or Equitable Mortgage: Whether the transaction between the co-owners and respondents is one of equitable mortgage.
• Validity of the Extrajudicial Partition: Whether the deed of extrajudicial partition is void and inefficacious.
• Damages and Attorney's Fees: Whether petitioners are entitled to damages, attorney's fees, and costs.
• Factual Findings of the CA: Whether the lower court committed grave abuse of discretion amounting to lack of jurisdiction when it substituted its surmises, conjectures, and guesswork in place of the trial court's findings of fact borne by the evidence on record.

• Entitlement to Legal Redemption: No. The right of redemption under Article 1620 applies only when a portion of co-owned property is sold to a third person or non-co-owner. Since respondents had become co-owners of the property before petitioners entered the co-ownership, the right to redeem did not arise. Moreover, the right to redeem had long expired, as Angel Fernandez was deemed to have received notice through the Deed of Extrajudicial Partition executed on November 14, 1969, and the 30-day period to redeem expired on December 4, 1969.
• Sale or Equitable Mortgage: No. The sale was not an equitable mortgage. The sellers were Antonio and Demetria Fernandez, who are not claiming that the sale was an equitable mortgage, and petitioners failed to establish the fair market value of the property in 1967 to prove that the price was grossly inadequate or shocking to the conscience.
• Validity of the Extrajudicial Partition: No. The extrajudicial partition was not void. The law will not relieve parties from the effects of an unwise or disastrous agreement entered into with all the required formalities and with full awareness of what they were doing, and a perusal of the Deed reveals that the partition was done equally and fairly.
• Damages and Attorney's Fees: No. Respondents' action for partition was not an unfounded suit, as it was founded on a right given by law under Article 494 of the Civil Code, which allows each co-owner to demand partition at any time.
• Factual Findings of the CA: No. The Court found no factual or legal basis to conclude that the extrajudicial partition was iniquitous or that the sale was void, and factual findings of the CA supported by substantial evidence are conclusive and binding.

• Entitlement to Legal Redemption: The Court reasoned that while the right to redeem is granted to original co-owners and those who subsequently acquire their shares, this right is available only when part of the co-owned property is sold to a third person. In this case, the sale to respondents had long been consummated before petitioners succeeded their predecessor, Angel Fernandez, and by the time petitioners entered the co-ownership, respondents were no longer "third persons" but had already become co-owners of the whole property. Citing Basa vs. Aguilar, the Court emphasized that legal redemption is intended to minimize co-ownership and applies only when shares are sold to a "third person." The Court also rejected the argument that the sale was void for lack of written notice, noting that the Civil Code does not state that the sale becomes void for lack of notice, and that the Deed of Extrajudicial Partition constituted substantial compliance with the notice requirement. Since the Deed was executed on November 14, 1969, the period to redeem expired on December 4, 1969, and the right was deemed waived, binding petitioners as successors-in-interest.
• Sale or Equitable Mortgage: The Court found that the circumstances enumerated in Article 1602 of the Civil Code were not manifest. Although Angel Fernandez was in actual possession, he did not sell the property to respondents; the sellers were his co-owners, Antonio and Demetria Fernandez, who were not claiming that the sale was an equitable mortgage. The Court noted that mere inadequacy of price does not necessarily void a contract of sale, and petitioners failed to establish the fair market value of the property in 1967, so there was no basis to conclude that the price was grossly inadequate or shocking to the conscience.
• Validity of the Extrajudicial Partition: The Court applied the long-established doctrine that courts have no power to relieve parties from obligations they voluntarily assumed simply because their contracts turn out to be disastrous deals. Petitioners were bound by the extrajudicial partition because contracts extend to assigns and heirs under Article 1311 of the Civil Code. The Court also noted that a perusal of the Deed revealed that the partition was done equally and fairly, and that the swapping of shares was more favorable to Angel Fernandez because his ownership became contiguous and compact in only one fishpond.
• Damages and Attorney's Fees: The Court held that respondents' action for partition was founded on a right given by law under Article 494 of the Civil Code, which allows each co-owner to demand partition at any time, so the claim for damages and attorney's fees deserved scant consideration.
• Factual Findings of the CA: The Court found no factual or legal basis to conclude that the extrajudicial partition was iniquitous or that the sale was void, and held that factual findings of the CA supported by substantial evidence are conclusive and binding unless they fall under the exceptions in Fuentes vs. Court of Appeals and similar cases.

• Legal Redemption in Co-ownership (Article 1620, Civil Code) — The right of legal redemption may be exercised by a co-owner only when the shares of the other co-owners are sold to a third person or stranger. When the portion is sold to a co-owner, the right does not arise because a new participant is not added to the co-ownership. The right is intended to minimize co-ownership and to afford a co-owner a way out of a disagreeable or inconvenient association. In this case, the Court applied this doctrine to hold that respondents, having become co-owners before petitioners entered the co-ownership, were not "third persons" within the meaning of Article 1620.
• Notice Requirement for Legal Redemption (Article 1623, Civil Code) — The right of legal redemption must be exercised within 30 days from written notice by the vendor to all possible redemptioners. While the law requires written notice, it does not prescribe any particular form, so long as the reasons for a written notice are satisfied otherwise. The execution and signing of a Deed of Extrajudicial Partition and Exchange of Shares constitutes substantial compliance with the notice requirement. In this case, Angel Fernandez was deemed to have been given notice of the sale through the Deed, and his failure to redeem within 30 days constituted a waiver binding on his successors-in-interest.
• Equitable Mortgage (Article 1602, Civil Code) — A contract is considered an equitable mortgage when the circumstances enumerated in Article 1602 are manifest, including (a) when the price of the sale with the right to repurchase is unusually inadequate, and (b) when the vendor remains in possession as lessee or otherwise. For the presumption of an equitable mortgage to arise, one must first satisfy the requirement that the parties entered into a contract denominated as a contract of sale, and that their intention was to secure an existing debt by way of mortgage. In this case, the presumption did not arise because the sellers were not claiming that the sale was an equitable mortgage, and petitioners failed to establish the fair market value of the property.
• Freedom of Contract and Binding Effect on Heirs (Article 1311, Civil Code) — The law will not relieve parties from the effects of an unwise, foolish, or disastrous agreement entered into with all the required formalities and with full awareness of what they were doing. Contracts not only take effect between the parties but also extend to their assigns and heirs. In this case, petitioners were bound by the extrajudicial partition executed by their predecessor, Angel Fernandez.

• "The right of redemption may be exercised by a co-owner, only when part of the community property is sold to a stranger. When the portion is sold to a co-owner, the right does not arise because a new participant is not added to the co-ownership." — This opening statement articulates the core ratio decidendi of the case, defining the scope of the right of legal redemption under Article 1620 of the Civil Code.
• "Legal redemption is in the nature of a privilege created by law partly for reasons of public policy and partly for the benefit and convenience of the redemptioner, to afford him a way out of what might be a disagreeable or [an] inconvenient association into which he has been thrust. It is intended to minimize co-ownership. The law grants a co-owner the exercise of the said right of redemption when the shares of the other owners are sold to a 'third person.'" — This passage, quoted from Basa vs. Aguilar, states the policy rationale behind the right of legal redemption and is the canonical formulation of the doctrine.
• "While the law requires that the notice must be in writing, it does not prescribe any particular form, so long as the reasons for a written notice are satisfied otherwise." — This statement clarifies the flexible application of the written notice requirement under Article 1623, supporting the Court's finding that the Deed of Extrajudicial Partition constituted substantial compliance.

• Basa vs. Aguilar, 117 SCRA 128 (1982) — Controlling precedent cited for the doctrine that legal redemption may be availed of by a co-owner only when the shares of the other owners are sold to a third person, and that the right is intended to minimize co-ownership.
• Francisco vs. Boiser, 332 SCRA 792 (2000) — Cited for the definition of a "third person" within the meaning of Article 1620 as anyone who is not a co-owner, and for the principle that receipt of a summons constitutes actual knowledge of a sale.
• Conejero vs. Court of Appeals, 16 SCRA 775 (1966) — Cited for the holding that a written notice was still required even if the redemptioner had actual prior knowledge of the sale.
• Distrito vs. Court of Appeals, 197 SCRA 606 (1991) — Cited for the ruling that written notice was not necessary if the co-owner was actually aware of the sale.
• Hermoso vs. Court of Appeals, 300 SCRA 516 (1998) — Cited for the principle that the law does not prescribe any particular form of written notice, so long as the reasons for a written notice are satisfied otherwise.
• Lustan vs. Court of Appeals, 266 SCRA 663 (1997) — Cited for the requirement that for the presumption of an equitable mortgage to arise, the parties must have entered into a contract denominated as a contract of sale with the intention to secure an existing debt by way of mortgage.
• Fuentes vs. Court of Appeals, 268 SCRA 703 (1997) — Cited for the exceptions to the rule that factual findings of the CA supported by substantial evidence are conclusive and binding.

• Article 1620, Civil Code — Provides that a co-owner may exercise the right of redemption when the shares of all the other co-owners or any of them are sold to a third person, and that if the price is grossly excessive, the redemptioner shall pay only a reasonable one. Applied to hold that the right of redemption is available only when the sale is to a non-co-owner.
• Article 1621, Civil Code — Provides that owners of adjoining lands have the right of redemption when a piece of rural land not exceeding one hectare is alienated. Cited by petitioners but found inapplicable.
• Article 1623, Civil Code — Provides that the right of legal pre-emption or redemption shall not be exercised except within 30 days from written notice by the vendor, and that the deed of sale shall not be recorded unless accompanied by an affidavit of written notice. Applied to hold that the Deed of Extrajudicial Partition constituted substantial compliance with the notice requirement.
• Article 1602, Civil Code — Enumerates the circumstances that manifest an equitable mortgage, including unusually inadequate price and vendor's continued possession. Applied to reject petitioners' claim that the sale was an equitable mortgage.
• Article 1470, Civil Code — Provides that mere inadequacy of price does not necessarily void a contract of sale. Applied to reject the claim that the sale was void for grossly inadequate price.
• Article 494, Civil Code — Provides that each co-owner may demand at any time the partition of the thing owned in common. Applied to hold that respondents' action for partition was founded on a right given by law.
• Article 1311, Civil Code — Provides that contracts take effect between the parties and extend to their assigns and heirs. Applied to hold that petitioners were bound by the extrajudicial partition executed by their predecessor.

Puno (Chairman), Sandoval-Gutierrez, Corona, and Carpio-Morales, JJ., concurred.