Olea v. Court of Appeals
REITERATIONFacts
The Antecedents: Spouses Filoteo and Severa Pacardo executed a Deed of Sale with Right to Repurchase (Sale Con Pacto de Retro) over Lot No. 767 for P950.00 in favor of Maura Palabrica, with the condition that the spouses could repurchase the land on January 27, 1950, for P500.00 cash plus P450.00 cash or 18 cavans of palay. The vendors remained in possession of the land and delivered one-third (1/3) of its produce annually to the vendee and her successors-in-interest for approximately 40 years. The Pacardo spouses failed to repurchase the land on January 27, 1950. Maura Palabrica registered the Sale Con Pacto de Retro in 1966. In 1978, Palabrica sold the lot to petitioner Thelma Olea. Petitioner continued to receive the 1/3 produce until 1987. Procedural History: Petitioner filed a complaint for recovery of possession with damages against the successors of the Pacardo spouses, alleging ownership by virtue of the Sale Con Pacto de Retro and the failure to repurchase. The private respondents contended that the transaction was an equitable mortgage. The trial court dismissed the complaint, finding the action had prescribed and the deed was an equitable mortgage. The Court of Appeals affirmed the trial court's decision. The Petition: Petitioner assailed the Court of Appeals' findings, arguing that the terms of the Sale Con Pacto de Retro were clear and unambiguous, and that the failure to repurchase automatically vested absolute title in Maura Palabrica. She also argued that Article 1607 of the New Civil Code should not apply retroactively.
Issue(s)
Whether the Deed of Sale with Right to Repurchase is an equitable mortgage or a true sale with pacto de retro. Whether the action for recovery of possession has prescribed. Whether the stipulation for automatic vesting of title constitutes a pactum commissorium.
Ruling
The petition is denied, and the decision of the Court of Appeals is affirmed. The Deed of Sale with Right to Repurchase is considered an equitable mortgage, and the action for recovery of possession has prescribed.
Ratio Decidendi
On whether the Deed of Sale with Right to Repurchase is an equitable mortgage: The Court held that the contract is presumed to be an equitable mortgage under Article 1602 of the New Civil Code, citing several circumstances. Firstly, the vendor spouses remained in possession of the land and continued its cultivation even after the purported sale. Secondly, the delivery of one-third (1/3) of the annual produce to the vendee and her successors for approximately 40 years, even after the stipulated repurchase period, indicated that the produce was treated as interest on a loan. The Court noted that the testimony of defendant-intervenor Monserrat Paciente, stating that "dues was (sic) paid to this land when the land was mortgaged," further supported this conclusion. The Court emphasized that the presence of even one circumstance under Article 1602 is sufficient to declare a contract an equitable mortgage, and in case of doubt, a purported sale with right to repurchase shall be construed as an equitable mortgage. On whether the action for recovery of possession has prescribed: The Court ruled that the action had prescribed. It clarified that the amount loaned was P950.00, secured by Lot No. 767. The spouses were allowed to pay the loan on January 27, 1950, by tendering P500.00 cash and P450.00 cash or 18 cavans of palay. The continued delivery of 1/3 of the produce until 1987 was considered as interest on the loan. Even if the action were treated as one for the enforcement of a mortgagee's right, Article 1142 of the New Civil Code provides that a mortgage action prescribes after ten (10) years. Since the loan was due on January 27, 1950, and the action was filed in 1989, thirty-nine (39) years had elapsed, barring the action due to prescription and estoppel by laches. On whether the stipulation for automatic vesting of title constitutes a pactum commissorium: The Court declared that the stipulation providing for the automatic vesting of complete and absolute title in the vendee upon failure to redeem within the stipulated period is void. This stipulation is considered a pactum commissorium, which is prohibited because it allows the mortgagee to acquire ownership of the mortgaged property without the need for foreclosure. The Court reasoned that the insertion of such a stipulation in the contract is an avowal of the intention to mortgage rather than to sell the property. Consequently, no valid sale to Maura Palabrica occurred, and ownership was not transferred to her, meaning she had no title to convey to the petitioner.
Main Doctrine
A contract of sale with right to repurchase is presumed to be an equitable mortgage if any of the circumstances enumerated in Article 1602 of the New Civil Code are present. The stipulation that ownership automatically passes to the vendee upon failure to redeem is void as a pactum commissorium. Furthermore, an action to enforce a mortgage prescribes after ten (10) years.