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

FACTS

Paul Krapfenbauer, the owner of two parcels of land mortgaged to El Hogar Filipino for P24,000, was in arrears on his payments and faced foreclosure. To obtain funds, he approached Juan L. Orbeta, who refused to grant a loan secured by a second mortgage but agreed to purchase the property under a contract of sale with pacto de retro. The parties executed a contract (Exhibit A) stating a consideration of P30,000, with Orbeta paying Krapfenbauer P6,610.41 in cash and assuming the P24,000 mortgage debt. Krapfenbauer retained possession as a lessee, paying monthly rent of P300, and reserved the right to repurchase the property for P30,000 within one year, extendable for two more years provided the annual rent was paid. Krapfenbauer later filed an action seeking a declaration that the contract was void and cancellation of its registration. Orbeta counterclaimed 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, awarding Orbeta rent only from September to December 1926 and ordering Krapfenbauer to surrender possession. Both parties appealed.

ISSUE

1. Whether the contract (Exhibit A) is a valid contract of sale with pacto de retro or an equitable mortgage.
2. Whether Krapfenbauer’s right to redeem has lapsed, resulting in consolidation of title in Orbeta.
3. Whether the stipulated rent is usurious and the redemption clause is void as a clog on the equity of redemption.

RULING

1. The contract is a valid sale with pacto de retro, not an equitable mortgage. The terms clearly indicate a sale with right of repurchase, and the defendant refused to enter into a mortgage arrangement. Krapfenbauer’s claim of fraud is unavailing as it was not alleged in the complaint. The consideration of P30,000 was reasonable given the property’s value, and the monthly rent of P300 was not excessive.

2. The right to redeem has lapsed, and title has consolidated in Orbeta. Under the contract, redemption required payment of the full P30,000, free from incumbrances. Krapfenbauer never made a valid tender to redeem, even for the amount he actually received (P6,610.41). The redemption period expired at the latest on May 23, 1926, or earlier due to non-payment of rent. The trial court’s ruling that redemption could be exercised within one year after Orbeta paid off the mortgage has no legal basis and violates the contract’s stipulations.

3. The transaction is not usurious, and the redemption clause is not an invalid clog. The contract was a bona fide sale, not a loan; thus, usury laws do not apply. The requirement to pay the full P30,000 to redeem, including the mortgage amount assumed by Orbeta, was part of the agreed terms. While the Court suggested that Krapfenbauer might have been entitled to redeem by tendering only the cash he received if he had done so timely, this issue is academic as no such tender was made.

DISPOSITIVE PORTION:
The decision of the trial court is MODIFIED. The contract is declared a valid pacto de retro sale, and title is consolidated in Orbeta due to Krapfenbauer’s failure to redeem. Krapfenbauer is ordered to pay Orbeta rent at P300 per month from August 23, 1925, until possession is surrendered. The rest of the judgment is AFFIRMED. No costs.