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Abilla vs Gobonseng Jr : 146651 : January 17, 2002 : J.

Ynares-Santiago : First Division 27/11/2017, 3)28 PM

FIRST DIVISION

[G.R. No. 146651. January 17, 2002]

RONALDO P. ABILLA and GERALDA A. DIZON, petitioners, vs. CARLOS ANG


GOBONSENG, JR. and THERESITA MIMIE ONG, respondents.

DECISION
YNARES-SANTIAGO, J.:

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?
This is the legal question raised in this petition for review assailing the January 14, 2001
[1]
Order of the Regional Trial Court of Dumaguete City, Branch 41, in Civil Case No. 8148, which
[2]
granted herein respondent spouses the right to repurchase the seventeen lots subject of the
pacto de retro sale within thirty (30) days from the finality of the order.
The undisputed facts are as follows:
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
[3]
connection with the preparation and registration of two public instruments, namely a Deed of Sale
[4]
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
[5]
Repurchase, was in truth, in fact, in law, and in legal construction, a mortgage.
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 v. Court of Appeals,
[6]
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. The dispositive portion thereof reads:

IN THE LIGHT OF THE FOREGOING, it is the considered opinion of this Court that plaintiffs have proven
by preponderance of evidence their case and judgment is therefore rendered in their favor as follows:

1. Ordering defendants to pay plaintiffs the sum of P171,483.40 representing the total expenses
incurred by plaintiffs in the preparation and registration of the Deed of Sale, amount paid to the
Bank of Asia and America (IBAA) and capital gains tax with legal rate of interest from the time
the same was incurred by plaintiffs up to the time payment is made by defendants; P10,000.00

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as attorneys fees; P15,000.00 moral damages; P10,000.00 expenses of litigation and to pay
cost.
2. The Philippine National Bank, Dumaguete City Branch is directed to release in favor of plaintiffs,
the spouses Ronaldo P. Abilla and Gerald A. Dizon all the money deposited with the said
bank, representing the rentals of a residential house erected inside in one of the lots in
question;
3. For insufficiency of evidence, defendants counterclaim is ordered dismissed.

[7]
SO ORDERED.

On appeal by respondents, the Court of Appeals ruled that the transaction between the parties
[8]
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.

[9]
SO ORDERED.

On November 10, 1997, the Court of Appeals denied the motion for reconsideration of the
foregoing decision.
Respondents filed a petition for review with this Court which was docketed as G.R. No. 131358;
[10]
however, the same was dismissed on February 11, 1998, for having been filed out of time. The
[11]
motion for reconsideration thereof was denied with finality on June 17, 1998.
Undaunted, respondents filed a second motion for reconsideration, claiming that since the
transaction subject of the controversy was declared a pacto de retro sale by the Court of Appeals,
they can therefore repurchase the property pursuant to the third paragraph of Article 1606 of the
Civil Code. The issue of the applicability of Article 1606 of the Civil Code was raised by the
respondents only in their motion for clarification with the Court of Appeals, and not before the trial
court and on appeal to the Court of Appeals. Thus, respondents second motion for reconsideration
[12] [13]
was denied. The denial became final and executory on February 8, 1999.
On February 23, 1999, respondents filed with the trial court in Civil Case No. 8148 an urgent
motion to repurchase the lots in question with tender of payment. The motion was, however, denied
[14]
on November 10, 1999 by Judge Ibarra B. Jaculbe, Jr., who subsequently inhibited himself from
the case.
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.
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,

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Abilla vs Gobonseng Jr : 146651 : January 17, 2002 : J. Ynares-Santiago : First Division 27/11/2017, 3)28 PM

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.
[15]
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, thus:

The application of the third paragraph of Article 1606 is predicated upon the bona fides of the vendor a retro.
It must appear that there was a belief on his part, founded on facts attendant upon the execution of the sale
with pacto de retro, honestly and sincerely entertained, that the agreement was in reality a mortgage, one not
intended to affect the title to the property ostensibly sold, but merely to give it as security for a loan or other
obligation. In that event, if the matter of the real nature of the contract is submitted for judicial resolution, the
application of the rule is meet and proper; that the vendor a retro be allowed to repurchase the property sold
within 30 days from rendition of final judgment declaring the contract to be a true sale with right to
repurchase. Conversely, if it should appear that the parties agreement was really one of sale transferring
ownership to the vendee, but accompanied by a reservation to the vendor of the right to repurchase the
property and there are no circumstances that may reasonably be accepted as generating some honest doubt as
to the parties' intention, the proviso is inapplicable. The reason is quite obvious. If the rule were otherwise, it
would be within the power of every vendor a retro to set at naught a pacto de retro, or resurrect an expired
right of repurchase, by simply instituting an action to reform the contract known to him to be in truth a sale
with pacto de retro into an equitable mortgage. As postulated by the petitioner, to allow herein private
respondents to repurchase the property by applying said paragraph x x x to the case at bar despite the fact that
the stipulated redemption period had already long expired when they instituted the present action, would in
effect alter or modify the stipulation in the contract as to the definite and specific limitation of the period for
repurchase (2 years from date of sale or only until June 25, 1958) thereby not simply increasing but in reality
resuscitating the expired right to repurchase x x x and likewise the already terminated and extinguished
obligation to resell by herein petitioner. The rule would thus be made a tool to spawn, protect and even
reward fraud and bad faith, a situation surely never contemplated or intended by the law.

This Court has already had occasion to rule on the proper interpretation of the provision in question. In
Adorable v. Inacala, where the proofs 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 Court adjudged the

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[16]
vendor a retro not to be entitled to the benefit of the third paragraph of Article 1606.

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.
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.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Puno, Kapunan, and Pardo, JJ., concur.

[1]
Issued by Judge Araceli S. Alafriz (Annex A, Rollo, p. 28).
[2]
Covered by Transfer Certificate of Title Nos. 14321-14337 and located in Daro and Bantayan, Dumaguete City (See
Annex D, Rollo, p. 133).
[3]
Annex E, Rollo, p. 136.
[4]
Annex D, Rollo, p. 133.
[5]
Annex C, Rollo, p. 129.
[6]
26 SCRA 189 (1968).
[7]
Penned by Judge Jesus L. Tabilon (Annex B, Rollo, pp. 45-46).
[8]
Second Division, composed of Associate Justices Vicente V. Mendoza (chairman and ponente), Jesus M. Elbinias
(member), and Lourdes K. Tayao-Jaguros (member).
[9]
Annex C, Rollo, p. 60 (Dated December 15, 1993).
[10]
Annex E, Rollo, p. 63.
[11]
Annex F, Rollo, p. 64.
[12]
Annex G, Rollo, p. 68.
[13]
Annex H, Rollo, p. 70.

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Abilla vs Gobonseng Jr : 146651 : January 17, 2002 : J. Ynares-Santiago : First Division 27/11/2017, 3)28 PM

[14]
See Annex I, Rollo, p. 72.
[15]
206 SCRA 244 (1992).
[16]
Ibid., citing Felicen, Sr. v. Orias, 156 SCRA 586 (1987).

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