G.R. No. 95871 February 13, 1992
HEIRS OF DOMINGA TABORA VDA. DE MACOY, represented by GENEROSO MACOY, petitioners, vs. HON. COURT OF APPEALS, JESUS F. REDILLAS AND ANATALIA ELON, respondents.

FACTS

Dominga Tabora Vda. de Macoy, owner of a rice land, executed a document titled “Pabilihang Mabibili-Muli” (sale with right to repurchase) in favor of spouses Jesus Redillas and Anatalia Elon on December 28, 1970, for P6,000.00, with a repurchase period from December 29, 1973, to December 29, 1975. Dominga died in 1972. Alleging failure to repurchase, Redillas executed an Affidavit of Consolidation in 1977, filed a petition for consolidation, and obtained a default judgment. A new title was issued in their name. They subsequently mortgaged the property.
The heirs of Dominga filed a petition for relief, which the trial court granted, setting aside the default judgment. In their answer, the heirs contended the document was an equitable mortgage, not a pacto de retro sale. After trial, the Regional Trial Court ruled in favor of the heirs, declaring the contract an equitable mortgage. It found the consideration inadequate and noted that realty taxes were still paid in Dominga’s name. The court held redemption was effected when the heirs deposited P6,000.00 with the clerk of court in 1980.

ISSUE

Whether the contract executed by Dominga Tabora Vda. de Macoy is a true pacto de retro sale or an equitable mortgage, and consequently, whether the heirs are entitled to redeem the property.

RULING

The Supreme Court affirmed the decision of the Court of Appeals, which had reversed the trial court. The Court held the contract was a true sale with pacto de retro, not an equitable mortgage. The legal logic centers on the application of Article 1606 of the Civil Code, which allows a vendor a retro to repurchase within thirty days from a final judgment declaring a contract to be a true sale, but only if the vendor acted in good faith, honestly believing the transaction was a mortgage.
The Court found no factual basis for such honest belief by the vendor, Dominga. The document was explicitly titled as a sale with right to repurchase, contained a fixed repurchase period, and the stipulated consideration, while lower than the land’s acquisition cost, was not so grossly inadequate as to indicate a loan. The continued payment of taxes in the vendor’s name, standing alone, is not conclusive proof of an equitable mortgage. Since the stipulated redemption period (1973-1975) had long expired when the heirs filed their action, and there was no showing of the vendor’s bona fide belief that the contract was a mortgage, the benefit under Article 1606 does not apply. To rule otherwise would allow a vendor to unilaterally resurrect an expired right of repurchase through a belated reformation action, which the law does not countenance. The consolidation of ownership in favor of the respondents was therefore valid.