G.R. No. 28864, October 13, 1928
PAUL KRAPFENBAUER, plaintiff-appellant, vs. JUAN L. ORBETA, defendant-appellant.

FACTS

Paul Krapfenbauer owned two parcels of land mortgaged to El Hogar Filipino for P24,000. Facing arrears and imminent foreclosure, he approached Juan L. Orbeta for a loan. Orbeta refused a loan secured by a second mortgage but agreed to a “pacto de retro” sale. They executed a contract (Exhibit A) stating: (1) Krapfenbauer sold the property to Orbeta for P30,000; (2) only P6,610.41 was paid in cash to Krapfenbauer, with the balance covering the assumed mortgage debt; (3) Krapfenbauer reserved the right to repurchase within one year, extendible for two more years, provided annual rent was paid; (4) Krapfenbauer remained in possession as lessee, paying P300 monthly rent; and (5) he would pay taxes while in possession. Krapfenbauer failed to redeem within the stipulated period and also defaulted on rent payments. He filed an action to declare the contract void and cancel its registration. Orbeta cross-claimed for rent and possession. The trial court upheld the contract as a valid pacto de retro sale but ruled that title had not yet consolidated, ordering Krapfenbauer to pay rent for a limited period and surrender possession. Both parties appealed.

ISSUE

1. Whether the contract (Exhibit A) is a valid pacto de retro sale or an equitable mortgage.
2. Whether Krapfenbauer’s right to redeem had lapsed, resulting in consolidation of title in Orbeta.
3. Whether the stipulated rent was usurious interest disguised in a loan transaction.

RULING

1. The contract is a valid pacto de retro sale, not an equitable mortgage. The terms clearly indicate a sale with right of repurchase. Orbeta had refused a loan on mortgage, and Krapfenbauer, an intelligent man, signed knowingly. Allegations of fraud were unproven and not pleaded in the complaint.
2. The right to redeem had lapsed, and title consolidated in Orbeta. The redemption period expired at the latest on May 23, 1926. Krapfenbauer never made a valid tender to redeem, even of the cash he received (P6,610.41), let alone the full P30,000. The trial court’s extension of the redemption period until after Orbeta paid the mortgage was legally baseless and contravened the contract.
3. The transaction was not a usurious loan. The property’s value approximated P30,000, and P300 monthly rent was reasonable for its use. The contract was a bona fide sale, not a loan disguised with excessive interest.

DISPOSITIVE:
The appealed decision was MODIFIED. The contract was declared a valid pacto de retro sale wherein Krapfenbauer’s right of redemption had lapsed and title consolidated in Orbeta. Krapfenbauer was ordered to pay Orbeta rent at P300 per month from August 23, 1925, until possession was surrendered. No costs.