G.R. No. 229243, June 26, 2019
MAXIMA P. SACLOLO AND TERESITA P. OGATIA, Petitioners, vs. ROMEO MARQUITO, MONICO MARQUITO, CLEMENTE MARQUITO, ESTER M. LOYOLA, MARINA M. PRINCILLO, LOURDES MARQUITO AND LORNA MARQUITO, Respondents.

FACTS

1. Parties and Property: Petitioners Maxima P. Saclolo and Teresita P. Ogatia are co-owners of a parcel of coconut land inherited from their father. Respondents are the children of Felipe Marquito.
2. Conflicting Claims of the Transaction:
* Petitioners’ Claim: They alleged that on December 27, 1987, they each obtained a loan of ₱3,500.00 from respondents’ father, Felipe Marquito, using their land as collateral (an equitable mortgage). Respondents’ father took possession of the land thereafter. Petitioners obtained additional loans in March 2003 (₱6,000.00 by Ogatia) and June 2004 (₱10,000.00 by Saclolo), again using their shares as collateral. In October 2004, they verbally, and on November 18, 2004, formally in writing, offered to redeem the property by repaying the loans, but respondents refused.
* Respondents’ Claim: They asserted that petitioners sold the property to them in 1984 under a “Memorandum of Deed of Sale with Right of Repurchase” for ₱1,000.00. Since then, they have been in possession as owners and introduced improvements worth ₱120,000.00. They admitted extending subsequent loans to petitioners but claimed these were given on the understanding that petitioners would execute a deed of absolute sale in their favor.
3. RTC Proceedings: The Regional Trial Court (RTC) found that the true transaction between the parties was an equitable mortgage, not a sale with pacto de retro. However, it dismissed petitioners’ Complaint for redemption, holding that the right to repurchase/redeem had prescribed under the four-year period provided in Article 1606 of the Civil Code (governing sales with right of repurchase). Respondents did not appeal the RTC’s finding of an equitable mortgage, making that finding final.
4. CA Proceedings: The Court of Appeals affirmed the RTC’s dismissal but on different grounds. Initially, it applied the ten-year prescriptive period for a mortgage action under Articles 1142 and 1144 of the Civil Code, counting from the 1984 deed. Since petitioners offered to redeem only in 2004, it held the action prescribed. Upon reconsideration, the CA reversed itself and agreed with the RTC that the four-year period under Article 1606 applied, barring petitioners’ action.

ISSUE

Whether the petitioners’ action to redeem the subject property, which was found to be the subject of an equitable mortgage, has prescribed.

RULING

The Supreme Court GRANTED the petition, REVERSED the assailed CA Decision and Resolution, and REMANDED the case to the RTC for further proceedings.
1. Nature of an Equitable Mortgage: The Court reiterated the doctrine from Spouses Salonga v. Spouses Concepcion. An equitable mortgage is essentially a loan secured by real property. The ownership and the right to possess the property remain with the mortgagor (the debtor). The prescriptive period for enforcing the right to redeem or recover the property in an equitable mortgage is governed by the rules on mortgages, not by the rules on sales with right of repurchase (pacto de retro).
2. Inapplicability of Article 1606: The Court held that both the RTC and the CA erred in applying Article 1606 of the Civil Code, which provides for a four-year redemption period in a contract of sale with right to repurchase. This article is irrelevant because the final and binding finding was that the transaction was an equitable mortgage, not a true sale with right to repurchase. The rules on pacto de retro do not govern equitable mortgages.
3. Correct Prescriptive Period: For an equitable mortgage, the action to redeem or to recover the property is a real action that prescribes in ten years pursuant to Article 1144(1) of the Civil Code (action upon a written contract). This ten-year period commences from the time the right of action accrues.
4. When the Right of Action Accrues: The Court clarified that in an equitable mortgage, the right of action to redeem accrues only upon the extrajudicial demand by the mortgagor to redeem and the mortgagee’s refusal. The mortgagor’s obligation to pay the debt is not yet due and demandable until such a demand is made. Therefore, the ten-year prescriptive period to file an action for redemption starts from the date of the mortgagee’s unjustified refusal to allow redemption after a valid demand.
5. Application to the Case: Petitioners made a formal written offer to redeem on November 18, 2004, which respondents refused. They filed their Complaint for redemption on December 27, 2004. Counting the ten-year prescriptive period from November 18, 2004, their filing on December 27, 2004, was well within the prescriptive period. Consequently, their action had not prescribed.
6. Remand for Further Proceedings: Since the lower courts dismissed the case solely on the ground of prescription, the Supreme Court remanded the case to the RTC to determine the exact amount to be paid by petitioners to redeem the property, taking into account the principal loans, lawful interest, and other charges, if any, and to proceed with the appropriate foreclosure proceedings if warranted.
DOCTRINE:
In an equitable mortgage, the action to redeem or recover the mortgaged property is a real action that prescribes in ten (10) years under Article 1144(1) of the Civil Code. The prescriptive period commences from the time the right of action accrues, which is upon the mortgagee’s refusal to allow redemption after a valid demand by the mortgagor. The four-year redemption period under Article 1606 of the Civil Code applies only to true contracts of sale with right to repurchase (pacto de retro) and is inapplicable to equitable mortgages.