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ABILLA vs GOBONSENG

[G.R. NO. 146651 | JANUARY 17, 2002]

FACTS:

Petitioner spouses instituted against respondents an action for specific performance, recovery of sum of
money and damages, docketed as Civil Case No. 8148 of the Regional Trial Court of Dumaguete City,
Branch XLII, seeking the reimbursement of the expenses they incurred in connection with the
preparation and registration of two public instruments, namely a Deed of Sale and an Option to Buy.

In their answer, respondents raised the defense that the transaction covered by the Deed of Sale and
Option to Buy which appears to be a Deed of Sale with Right of Repurchase, was in truth, in fact, in
law, and in legal construction, a mortgage.

ISSUE:

May the vendors in a sale judicially declared as a pacto de retro exercise the right of repurchase under
Article 1606, third paragraph, of the Civil Code, after they have taken the position that the same was an
equitable mortgage?

RTC:

On October 29, 1990, the trial court ruled in favor of petitioners and declared that the transaction
between the parties was not an equitable mortgage. Citing Villarica vs Court of Appeals, it ratiocinated
that neither was the said transaction embodied in the Deed of Sale and Option to Buy a pacto de
retro sale, but a sale giving respondents until August 31, 1983 within which to buy back the seventeen
lots subject of the controversy.

CA:

On the appeal filed by the respondents the CA decided as:

On appeal by respondents, the Court of Appeals ruled that the transaction between the parties was a
pacto de retro sale, and not an equitable mortgage. The decretal portion thereof states:

WHEREFORE, the decision appealed from is MODIFIED by deleting the award of attorneys fees. In other
respects the decision of the lower court is AFFIRMED. Costs against defendant-appellants.

Motion for reconsideration was denied.

On January 14, 2001, Branch 41 of the Regional Trial Court of Dumaguete City, to which the case was
reraffled, set aside the November 10, 1999 order and granted respondents motion to repurchase.
Hence, the instant recourse.

RULING:

At the outset, it must be stressed that it has been respondents consistent claim that the transaction
subject hereof was an equitable mortgage and not a pacto de retro sale or a sale with option to buy.

Even after the Court of Appeals declared the transaction to be a pacto de retro sale, respondents
maintained their view that the transaction was an equitable mortgage. Seeing the chance to turn the
decision in their favor, however, respondents abandoned their theory that the transaction was an
equitable mortgage and adopted the finding of the Court of Appeals that it was in fact a pacto de retro
sale.

Respondents now insist that they are entitled to exercise the right to repurchase pursuant to the third
paragraph of Article 1606 of the Civil Code, which reads:

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.

The question now is, can respondents avail of the aforecited provision? Following the theory of the
respondents which was sustained by the trial court, the scenario would be that although respondents
failed in their effort to prove that the contract was an equitable mortgage, they could nonetheless still
repurchase the property within 30 days from the finality of the judgment declaring the contract to be
truly a pacto de retro sale. However, under the undisputed facts of the case at bar, this cannot be
allowed.

In the parallel case of Vda. de Macoy v. Court of Appeals, the petitioners therein raised the defense that
the contract was not a sale with right to repurchase but an equitable mortgage. They further argued as
an alternative defense that even assuming the transaction to be a pacto de retro sale, they can
nevertheless repurchase the property by virtue of Article 1606, third paragraph of the Civil Code. It was
held that the said provision was inapplicable.

In the case at bar, both the trial court and the Court of Appeals were of the view that the subject
transaction was truly a pacto de retro sale; and that none of the circumstances under Article 1602 of the
Civil Code exists to warrant a conclusion that the transaction subject of the Deed of Sale and Option
to Buy was an equitable mortgage.

The Court of Appeals correctly noted that if respondents really believed that the transaction was indeed
an equitable mortgage, as a sign of good faith, they should have, at the very least, consigned with the
trial court the amount of P896,000.00, representing their alleged loan, on or before the expiration of the
right to repurchase on August 21, 1983.

Clearly, therefore, the declaration of the transaction as a pacto de retro sale will not, under the
circumstances, entitle respondents to the right of repurchase set forth under the third paragraph of
Article 1606 of the Civil Code.
SC DECISION:

WHEREFORE, in view of all the foregoing, the instant petition is GRANTED and the January 14, 2001
Order of the Regional Trial Court of Dumaguete City, Branch 41, in Civil Case No. 8148, is REVERSED and
SET ASIDE.