G.R. No. L-21160; April 30, 1965
FELISA TAYAO, ET AL., plaintiffs-appellants, vs. PASCUALA DULAY, ET AL., defendants-appellees.

FACTS

Plaintiffs-appellants Felisa Tayao, et al., filed an action to compel defendants-appellees to reconvey a parcel of land in Pulilan, Bulacan. Plaintiffs claimed their predecessor-in-interest, Apolonio Tayao, merely mortgaged the land to Pascuala Dulay on December 8, 1926, via a public document. Defendants asserted the document was a pacto de retro sale. They contended that due to Tayao’s failure to repurchase within the agreed period, it ripened into an absolute sale, vesting ownership in Dulay, who later sold it to her co-defendants Primitivo Reyes and Anatalia Cayetano, who claimed to be purchasers in good faith. Defendants also claimed continuous, open, peaceful, and adverse possession in the concept of owners, with corresponding tax declarations and payments. The trial court dismissed the complaint.

ISSUE

Whether the contract executed by Apolonio Tayao in favor of Pascuala Dulay was an equitable mortgage or a pacto de retro sale, and if the latter, whether the plaintiffs’ right to repurchase had been forfeited.

RULING

The Supreme Court affirmed the trial court’s decision, holding the contract was a sale with pacto de retro. The deed of sale with option to repurchase covered a parcel of land for P138.79. It stipulated the land could not be repurchased during the first ten years but did not set a final limit for the repurchase period. Plaintiffs argued this stipulation was contrary to law and should be considered non-existent, converting the contract into mere evidence of indebtedness. The Court, citing Santos v. Heirs of Crisostomo (41 Phil. 342), ruled that the stipulation prohibiting repurchase for ten years was illicit under Article 1508 of the Spanish Civil Code, which provided that if there is an agreement on the time for repurchase, the period shall not exceed ten years. This stipulation offended the law by prohibiting exercise of the right during the entire period when it could be lawfully exercised and by inferentially allowing it after ten years. However, this illegality did not change the contract’s character from a pacto de retro sale. The law controlled the parties’ intent, meaning the right of repurchase could be exercised at any time within the ten-year period from the contract’s date. Since neither the plaintiffs nor their predecessor exercised the right of redemption within the ten-year period allowed by law, their claim was forfeited, and the defendants’ title over the property became consolidated.