G.R. No.

146651            August 6, 2002 The second check was dishonored by the drawee bank. Respondent promised to pay
RONALDO P. ABILLA and GERALDA A. DIZON, petitioners, petitioner the sum of P690,000.00 upon approval of his pending loan application with the
vs. State Investment House, Inc. However, the said lending institution required a collateral
CARLOS ANG GOBONSENG, JR. and THERESITA MIMIE ONG, respondents. before approving and releasing the loan, for which reason respondent borrowed from
RESOLUTION
YNARES-SANTIAGO, J.:
petitioner the two titles, TCT Nos. 13607 and 13535, so he can mortgage the same. Thus,
petitioner cancelled the mortgage in his favor and delivered the two titles to respondent.
This resolves the Motion for Reconsideration filed by respondents of our Decision dated
January 17, 2002 which granted the instant petition and reversed the Order dated January Despite approval of the loan, respondent failed to make good on his promise to pay his
14, 2001 of the Regional Trial Court of Dumaguete City, Branch 41 in Civil Case No. 8148. outstanding obligation to petitioner. Hence, the latter threatened to sue him for Estafa.
Respondent thus executed a deed of absolute sale over his seventeen lots in Dumaguete
City in favor of petitioner. On the same day, the parties executed an Option to Buy whereby
The Motion for Reconsideration raises the following grounds: respondent was allowed to repurchase the lots within a period of six months.

A. WITH DUE RESPECT, THIS HONORABLE HIGHEST COURT ERRED IN NOT

Respondent failed to repurchase the seventeen lots within the stipulated period of six
AFFIRMING THE ORDER OF THE REGIONAL TRIAL COURT, BRANCH 41, DUMAGUETE
CITY, IN CIVIL CASE NO. 8148 WHICH GRANTED RESPONDENT SPOUSES months. Consequently, petitioners instituted an action for specific performance, praying that
GOBONSENG THE RIGHT TO REPURCHASE THE SEVENTEEN (17) LOTS SUBJECT OF respondent be made to pay the capital gains tax and registration expenses for the transfer of
THE PACTO DE RETRO SALE WITHIN THIRTY (30) DAYS FROM THE FINALITY OF THE title to the said lots, pursuant to the deed of absolute sale. In his answer, respondent
ORDER. interposed the defense that the transaction was in reality an equitable mortgage.

B. WITH DUE RESPECT, THIS HONORABLE HIGHEST COURT ERRED IN NOT On October 29, 1990, the Regional Trial Court of Dumaguete City, Branch 42, rendered
APPLYING TO THE INSTANT CASE THE THIRD PARAGRAPH OF ARTICLE 1606 OF THE judgment in favor of petitioner and ruled that the Option to Buy was rendered null and void by
NEW CIVIL CODE, HENCE, THE PERIOD TO REPURCHASE ON THE PART OF respondent's failure to exercise the option within the period of six months. 4 On appeal, the
RESPONDENTS HAS NOT YET EXPIRED. 1âwphi1.nêt

Court of Appeals affirmed the decision of the trial court, but further declared that "the deed of
sale and option to buy actually constitute a pacto de retro  sale."5 Respondent's motion for
C. WITH DUE RESPECT, THIS HONORABLE HIGHEST COURT ERRED IN APPLYING TO reconsideration was denied,6 and the petition filed with this Court was dismissed. 7 Hence, the
THE CASE AT BAR THE CASE OF VDA. DE MACOY VS. COURT OF APPEALS (206 SCRA decision became final on February 8, 1999 and was duly entered in the Book of Entries of
244) CITING THE CASE OF FELICEN, SR. VS. ORIAS (156 SCRA 586). 1
Judgments.8

In compliance with our resolution, 2 petitioners filed their Comment to the motion for
On February 27, 1999, respondent filed with the court of origin a motion to repurchase the
reconsideration, arguing that respondents failed to seasonably exercise their right of
lots with tender of payment, which was denied. 9 Subsequently, the trial court issued an Order
redemption; and that this Court was correct in its application of the case of Vda. de Macoy v.
granting respondent's motion for reconsideration and allowing him to repurchase the lots
Court of Appeals, which held that Article 1606, third paragraph, of the Civil Code does not
within thirty days from finality thereof.10
apply to cases where the parties intended their contract of sale not as an equitable mortgage
but a true sale involving transfer of ownership. 3
Thus, petitioner brought the instant petition for review.
It may be helpful to restate the undisputed facts. Respondent contracted a loan from
petitioner in the sum of P550,000.00, secured by a real estate mortgage over two parcels of On January 17, 2002, we rendered the assailed Decision reversing the Order of the Regional
land, covered by TCT Nos. 13607 and 13535. Respondent defaulted in the payment of the Trial Court of Dumaguete City, in effect denying respondent the right to repurchase the
loan, which had reached the amount of P700,000.00. He sought a renewal of the loan and subject lots.
issued two postdated checks, one for P10,000.00 and the other for P690,000.00,
representing the full amount of his obligation. Respondent's claim of the right to repurchase the lots is anchored on the third paragraph of
Article 1606 of the Civil Code, which states:
However, the vendor may still exercise the right to repurchase within thirty days from the thirty days from finality of the judgment declaring the transaction as a sale with pacto de
time final judgment was rendered in a civil action on the basis that the contract was a true retro. Parenthetically, it matters not what the vendee intended the transaction to be.
sale with right to repurchase.
As we stated above, we analyzed the peculiar factual background of this case in order to
The above-quoted provision applies only where the nature and character of the transaction – determine the true intent of respondent. We noted that his contractual relations with
whether as a pacto de retro  sale or as an equitable mortgage – was put in issue before the petitioner commenced with a loan secured by a real estate mortgage over two parcels of
court.11 In other words, it applies in a situation where, in a case, one of the contending parties registered land. Said mortgage was cancelled by petitioner when respondent borrowed the
claims that the transaction was a sale with right to repurchase and the other counters that titles to the properties so that he can mortgage the same to the State Investment House, Inc.
the same was an equitable mortgage, and the court declares in a final judgment that the Respondent applied for a loan with the said lending institution precisely to settle his unpaid
transaction was really a sale with pacto de retro. obligation to petitioner. However, respondent still failed to settle his obligation to petitioner.

In our Decision, we ruled that Article 1606 of the Civil Code does not apply to the case at bar When petitioner lent the two titles to respondent, the loan he extended to respondent
because the transaction between the parties was a pacto de retro sale, citing the case became unsecured. Naturally, there was a need to secure respondent's obligation after he
of Vda. de Macoy v. Court of Appeals. 12 However, upon a careful review and analysis of the reneged on his promise to pay the same out of the loan proceeds from State Investment
antecedent facts, we are convinced that the right granted under the third paragraph of Article House. Thus, it may well be that the deed of sale, together with the option to buy executed
1606 may be invoked by respondent. on the same day, was meant to serve as security for the indebtedness of respondent which
had become long overdue. Said obligation would have been satisfied had respondent
In Vda. de Macoy,13 citing the earlier ruling in Felicen, Sr. v. Orias,14 we held: exercised the option to buy within the stipulated period.

The application of the third paragraph of Article 1606 is predicated upon the bona These circumstances, peculiar to the case at bar, make this case fall squarely within the
fides of the vendor a retro. It must appear that there was a belief on his part, situation contemplated in the above-quoted doctrine – that there was a belief on the part of
founded on facts attendant upon the execution of the sale with  pacto de the vendor a retro, 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 retro, honestly and sincerely entertained, that the agreement was in reality a mortgage, one
mortgage, one not intended to affect the title to the property ostensibly sold, but not intended to affect the title to the property ostensibly sold, but merely to give it as security
merely to give it as security for a loan or other obligation. In that event, if the matter for a loan or other obligation. Consistently therewith, respondent has maintained throughout
of the real nature of the contract is submitted for judicial resolution, the application of the proceedings that transaction between him and petitioner was really an equitable
the rule is meet and proper; that the vendor a retro be allowed to repurchase the mortgage. As such, respondent may avail of the third paragraph of Article 1606 of the Civil
property sold within 30 days from rendition of final judgment declaring the contract to Code and repurchase the lots affected by the deed of absolute sale and option to buy.
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, The trial court, however, erred in holding that respondent shall be allowed to repurchase the
but accompanied by a reservation to the vendor of the right to repurchase the subject lots within thirty days from finality of its Order dated January 14, 2001. Pursuant to
property — and there are no circumstances that may reasonably be accepted as Article 1606, third paragraph, of the Civil Code, the thirty-day period shall be counted from
generating some honest doubt as to the parties' intention, the proviso is inapplicable. the date of finality of the decision declaring the transaction to be a pacto de
The reason is quite obvious. If the rule were otherwise, it would be within the power retro sale, i.e., February 8, 1999.15 Consequently, the urgent motion to repurchase the lots
of every vendor a retro to set at naught a pacto de retro, or resurrect an expired right with tender of payment which respondent filed on February 27, 1999 was on time. Petitioners
of repurchase, by simply instituting an action to reform the contract — known to him should, therefore, be ordered to accept the tendered payment for the lots and to execute the
to be in truth a sale with pacto de retro  — into an equitable mortgage. xxx xxx xxx. necessary deed of sale conveying the same to respondents. 1âwphi1.nêt

(Underscoring ours)
WHEREFORE, in view of the foregoing, the Decision dated January 17, 2002 is SET ASIDE.
Therefore, the applicability of Article 1606 rests on the bona fide  intent of the vendor a The instant petition is DENIED. Petitioners are ORDERED to accept the payment tendered
retro, i.e., respondent in this case. If he honestly believed that the transaction was an by respondents and to execute the necessary deed of sale conveying the subject lots to
equitable mortgage, the said article applies and he can still repurchase the property within respondents. SO ORDERED.