Labasan vs Lacuesta G.R. No.

L-25931 (1978)
March 15, 2016
Ponente: J. Muñoz- Palma

Facts:

Spouses Lacuesta were the owners of an unregistered, irrigated riceland in Ilocos Norte. They
conveyed by means of a written document the land with the right to repurchase after 10 years.
They failed to exercise their right within the stipulated period.

They filed a petition seeking the reconveyance of the parcel of land, allegedly as security for a
loan. The trial court ruled that the document executed by the Lacuestas was a pacto de
retro sale and that they lost their right to redeem the land for not having taken any step within
the agreed 10 years.

On appeal, the Court of Appeals set aside the judgement of the trial court and declared the
contract an equitable mortgage and ordered the Labasans to reconvey the land, and that the
loan by the Lacuestas be deemed paid from the fruits of the property which the Labasans had
been receiving for the past 32 years.

Issue: Whether or not the contract is a pacto de retro sale or an equitable mortgage.

Held:

The contract is an equitable mortgage.

It is a basic fundamental rule in the interpretation of a contract that if the terms thereof are
clear and leave no doubt upon the intention of the contracting parties the literal meaning of the
stipulation shall control, but when the words appear to be contrary to the evident intention of
the parties, the latter shall prevail over the former (Article 1370, NCC).

In case of doubt concerning the surrounding circumstances in the execution of a contract, the
least transmission of rights and interest shall prevail if the contract is gratuitous, and if
onerous, the doubt is to be settled in favor of the greatest reciprocity of interest.