G.R. No. L-7053, November 4, 1912
TOMAS, ENRIQUE, and ALEJANDRA TUAZON, plaintiffs-appellants, vs. ISMAEL and ESTEBAN GODUCO, defendants-appellees.

FACTS

On May 23, 1897, plaintiffs Tomas, Enrique, and Alejandra Tuazon executed a written contract in Tagalog with defendant Ismael Goduco (and his wife Teodora Mendoza) concerning a parcel of land in Gapan, Nueva Ecija. The contract stated that the plaintiffs “sold as by mortgage” the land for 104 cavanes of palay. It contained stipulations allowing Tomas Tuazon to cultivate the land, share the crops equally with the Goducos, and provided that if the plaintiffs violated the agreement to the detriment of the “creditor” (Goduco), they could be ejected and obliged to redeem the land; if unable to redeem, they authorized Goduco to sell the land to another without any claim from them. In 1908, Ismael Goduco sold the land to his co-defendant Esteban Goduco. In May 1910, the plaintiffs sought to redeem the land, but Ismael Goduco refused, leading the plaintiffs to file an action for annulment of the sale to Esteban, specific performance to allow redemption upon payment of P60, cancellation of the mortgage, and damages for unauthorized possession since 1897. The defendants contended the contract was a pacto de retro sale without a stipulated term, that the plaintiffs’ right of redemption had prescribed, and that Ismael had lawfully sold the land to Esteban as absolute owner. The trial court dismissed the complaint.

ISSUE

Whether the contract executed on May 23, 1897, is an equitable mortgage or a pacto de retro sale, and consequently, whether the plaintiffs’ right to redeem the land had prescribed.

RULING

The Supreme Court affirmed the trial court’s dismissal, holding that the contract was a pacto de retro sale, not an equitable mortgage. The Court examined the literal terms of the contract, noting the use of the words “we have sold” and the stipulations authorizing the creditor to eject the plaintiffs and sell the land to another if they failed to redeem it. The phrases “sold as by mortgage” and references to “creditor” and “redeem the land from the mortgage” did not alter the contract’s essential nature as a pacto de retro sale. Applying Article 1508 of the Civil Code, the Court ruled that the right to repurchase, in the absence of an express agreement, prescribes in four years from the date of the contract, and even with an agreement, the maximum period is ten years. Since the contract was executed in 1897 and the action was filed in 1910, more than ten years had elapsed, thereby extinguishing the plaintiffs’ right to redeem. Consequently, Ismael Goduco’s ownership became absolute by prescription under Article 1509, and his subsequent sale to Esteban Goduco was valid. The claim for damages was also denied, as the plaintiffs failed to fulfill their obligations under the contract.