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.

FACTS

Petitioners Ronaldo Abilla and Geralda Dizon filed an action for specific performance and damages against respondents Carlos Gobonseng, Jr. and Theresita Ong. The dispute centered on a transaction involving seventeen lots, documented by a “Deed of Sale” and an “Option to Buy.” Petitioners sought reimbursement for expenses related to these documents. Respondents defended by claiming the transaction was an equitable mortgage, not a sale. The trial court ruled for petitioners, declaring the transaction was not an equitable mortgage nor a pacto de retro sale, but a sale with an option to repurchase that had expired. The Court of Appeals modified this, declaring the transaction a pacto de retro sale. Respondents’ appeal to the Supreme Court was dismissed for being filed out of time, making the appellate court’s decision final.
After the finality of the judgment, respondents filed an urgent motion with the trial court to repurchase the properties, invoking Article 1606, third paragraph of the Civil Code. The trial court initially denied this motion but, upon reraffle, a different branch granted it, allowing repurchase within thirty days from the finality of the order. This grant prompted the petitioners’ instant recourse.

ISSUE

May the vendors, who consistently claimed the transaction was an equitable mortgage, exercise the right of repurchase under Article 1606, third paragraph, after a final judicial declaration that the contract was a true pacto de retro sale?

RULING

No. The Supreme Court reversed the trial court’s order granting the right to repurchase. The legal logic is anchored on the principle of good faith and the proper application of Article 1606. The third paragraph of Article 1606 allows a vendor a retro to repurchase within thirty days from a final judgment declaring a contract to be a true sale with right to repurchase. However, this benefit is not absolute. The Court, citing Vda. de Macoy v. Court of Appeals and Adorable v. Inacala, ruled that the provision cannot be invoked by a party who, in bad faith, persistently alleged the transaction was an equitable mortgage solely to avoid the consequences of a pacto de retro sale, only to opportunistically shift to a claim of a right to repurchase after losing that argument.
Here, respondents consistently and exclusively posited that the contract was an equitable mortgage throughout the litigation. They never alternatively pleaded a right to repurchase under Article 1606. To allow them to repurchase after final judgment would unjustly resurrect an expired right and reward their bad faith litigation strategy. The Court found that none of the circumstances indicative of an equitable mortgage under Article 1602 existed, and respondents failed to consign the loan amount as a sign of good faith. Therefore, under these specific circumstances, the judicial declaration of a pacto de retro sale does not entitle respondents to the repurchase right under Article 1606(3).