Manila Banking vs Teodoro
Bidin, J. | 1989
1. April 1966, Spouses Teodoro together with Teodoro Sr executed a PN in
favour of Manila Banking Corp (MBC);
- Payable within 120 days (until Aug), with 12% interest per annum;
- They failed to pay and left balance of 15k as of September 1969;
2. May and June 1966, executed two PNs;
- 8k and 1k respectively payable within 120 days and 12% per annum;
- They made partial payment but still left 8.9k balance as of September 1969;
3. It appears than in 1964, Teodoro Jr executed a Deed of Assignment of
Receivables in favour of MBC from Emergency Employment Administration;
- Amounted to 44k;
- The deed provided it was for consideration of certain credits, loans,
overdrafts and other credit accommodations extended to the spouses and Teodoro Sr
as security for the payment of said sum and interest thereon; and that they release
and quitclaim all its rights, title and interest in the receivables;
4. In the stipulations of fact, it was admitted by the parties:
- That MBC extended loans to the spouses and Teodoro Jr because of certain
contracts entered into by latter with EEA for fabrication of fishing boats and that the
Philippine Fisheries Commission succeeded EEA after its abolition;
- That non-payment of the PNs was due to failure of the Commission to pay
spouses;
- That the Bank took steps to collect from the Commission but no collection
was effected;
5. For failure of the spouses and Teodor Sr to pay, MBC instituted against
them;
- Teodoro Sr subsequently died so suit only against the spouses;
6. TC favoured MBC; MFR denied;
- Spouses appealed to CA but since issue pure question of law, CA forwarded
to SC;
Issues:
W/N the assignment of receivables has the effect of payment of all the loans
contracted by the spouses; No.
W/N MBC must exhaust all legal remedies against PFC before it can proceed against
the spouses. No
Ratio:
Assignment of credit:
- An agreement by virtue of which the owner of a credit(assignor) by a legal
cause (e.g. sale, dation in payment, exchange or donation) and without the need of
the consent of the debtor, transfers his credit and its accessory rights to
another(assignee) who acquires the power to enforce it to the same extent as the
assignor could have enforced it against the debtor;
- May be in form of:
o Sale
o Dation in payment - when a debtor, in order to obtain a release from his
debt, assigns to his creditor a credit he has against a third person;
o Donation when it is by gratuitous title;
o Guaranty creditor gives as a collateral, to secure his own debt in favour of
the assignee, without transmitting ownership;
- Obligations between the parties will depend upon the juridical relation which
is the basis of the assignment;
What is the legal effect of the Assignment (since its validity is not in question):
1. Assignment of receivables in 1964 did not transfer the ownership of the
receivables to MBC and release the spouses from their loans;
- Consideration was for certain credits, loans, overdrafts and credit
accommodations worth 10k extended by MBC to spouses and as security for the
payment of said sum and interest thereon; also quitclaim of rights to MBC of their
interest in the receivables;
- Stipulated also that it was a continuing guaranty for future loans and
correspondingly, the assignment shall extend to all accounts receivable;
Contention of spouses: not mere guaranty since it was stipulated:
- That the assignor release and quitclaim to assignee all its rights, title and
interest in the accounts receivable;
- That title and right of possession to account receivable is to remain in
assignee and it shall have right to collect directly from the debtor; that whatever the
assignor does in connection with collection of such, it does so as agent and
representative and in trust of assignee;
- SC: character of transaction is not determined by the language in document
but by intention of the parties;;
- If it was intended to secure the payment of money, it must be construed as a
pledge.
- A transfer of property by the debtor to a creditor, even if sufficient on its farm
to make an absolute conveyance, should be treated as a pledge if the debt continues
in existence and is not discharged by the transfer;
Assignment of receivables did not result from sale or by virtue of a dation in payment;
- At time the deed was executed, the loans were non-existent yet;
- At most, it was a dation for 10k, the amount of credit with MBC indicated in
the deed; at the time of execution, there was no obligation to be extinguished except
for the 10k;
- 1292: in order that an obligation may be extinguished by another which
substitutes the same, it is imperative that it be so declared in unequivocal terms, or
that the old and the new obligations be on every point incompatible with each other;
Deed of assignment intended as collateral security for the loans, as a continuing
guaranty for whatever sums that would be owing by spouses;
- In case of doubt as to whether a transaction is a pledge or a dation in
payment, the presumption is in favor of pledge, the latter being the lesser
transmission of rights and interests (Lopez v CA);
2. MBC need not exhaust all legal remedies against PFC:
- Spouses, not being released by the assignment, remain as the principal
debtors of MBC, rather than mere guarantors;
- The deed merely guarantees said obligations;
- 2058 (creditor must have exhausted property of debtor and resorted to all
legal remedies before it can proceed to guarantor) does not apply to them;
- Appellants are both the principal debtors and the pledgors or mortgagors;
- MBC did try to collect but at OP, it was disapproved; so the loan was
basically unsecured;
DISMISSED.
Feliciano, J. concurring.
Justice Bidins, "the character of the transactions between the parties is not, however,
determined by the language used in the document but by their intention not without
exception;
- Deed here contains language which suggest that the parties intended
complete alienation of title to and rights over the receivables;
- Words remise, release and quitclaim and clauses title the title and right
of possession to said accounts receivable is to remain in said assignee" who "shall
have the right to collect directly from the debtor;
- Words agent also convey the ideas;
- But such must be taken in conjunction with and qualified by other language
showing intent of the parties that title to the receivables shall pass to the assignee for
the limited purpose of securing another, principal obligation owed by the assignor to
the assignee;
Title moves from assignor to assignee but that title is defeasible being designed to
collateralize the principal obligation:
- Operationally: means assignee is burdened to collateralize the principal
obligation; taking the proceeds of the receivables assigned and applying such
proceeds to the satisfaction of the principal obligation and returning any balance
remaining thereafter to the assignor;
The parties gave the deed of assignment the form of an absolute conveyance of title
over the receivables assigned, essentially for the convenience of the assignee:
- Without such nature of absolute conveyance, the assignee would have to
foreclose the properties; he would have to comply with documentation and
registration requirements of a pledge or chattel mortgage);
- A deed of assignment by way of security avoids the necessity of a public
sale impose by the rule on pactum commisorium, by in effect placing the sale of the
collateral up front;
- The foregoing is applicable where the deed of assignment of receivables
combines elements of both a complete alienation of the credits and a security
arrangement to assure payment of a principal obligation;
- Where the 2nd element is absent, the assignment would constitute
essentially a mode of payment or dacion en pago;
- in order that a deed of assignment of receivables which is in form an
absolute conveyance of title to the credits being assigned, may be qualified and
treated as a security arrangement, language to such effect must be found in the
document itself and that language, precisely, is embodied in the deed of assignment
in the instant case;
Arenas vs Raymundo
ARENAS vs. RAYMUNDO
FACTS : Estanislaua Arenas was the owner and proprietor of the jewelry, alleged that
the jewelries was delivered to Elena de Vega to sell on commission, and that the
latter, in turn, delivered it to Conception Perello, likewise to sell on commission, but
that Perello, instead of fulfilling her trust, pledged the jewelry in the defendant's
pawnshop and appropriated to her own use the money thereby obtained.
Conception Perello was prosecuted for estafa, convicted, and the judgment
became final; that the said jewelry was then under the control and in the possession
of the defendant, as a result of the pledge by Perello, and that the former refused to
deliver it to the plaintiffs (owner), wherefore counsel for the plaintiffs asked that
judgment be rendered sentencing the defendant to make restitution of the said
jewelry and to pay the costs.
The trial court rendered judgment sentencing the defendant to restore to the
plaintiff spouses the jewelry described in the complaint, the right being reserved to the
defendant to institute his action against the proper party. The counsel for the
defendant excepted to this judgment, asked that the same be set aside, and a new
trial granted. This motion was denied, exceptions was taken by the appellant, and the
proper bill of exceptions was duly approved certified to, and forwarded to the clerkof
this court.
ISSUE : WON defendant Raymundo is entitled to retain the thing pledge.
HELD : The aforementioned decision, No. 3890, Varela vs. Finnick, recites among
other considerations, the following:
The exception contained in paragraph 3 of said article is not applicable to the present
case because a pawnshop does not enjoy the privilege established by article 464 of
the Civil Code. The owner of the loan office of Finnick Brothers, notwithstanding the
fact that he actedin good faith, did not acquire the jewels at a public sale; it is not a
question of public property,securities, or other such effects, the transfer, sale, or
disposal of which is subject to the provisions of the Code of Commerce. Neither does
a pawnshop enjoy the privilege granted to a monte de piedad; therefore, Josefa
Varela, who lost said jewels and was deprived of thesame in consequence of a crime,
is entitled to the recovery thereof from the pawnshop of Finnick Brothers, where they
were pledged; the latter can not lawfully refuse to comply with the provisions of article
120 of the Penal Code, as it is a question of jewels which has been misappropriated
by the commission of the crime of estafa, and the execution of the sentencewhich
orders the restitution of the jewels can not be avoided because of the good faith with
which the owner of the pawnshop acquired them, inasmuch as they were delivered to
the accused, who was not the owner nor authorized to dispose of the same
Even supposing that the defendant Raymundo had acted in good faith in
accepting the pledge of thejewelry in litigation, even then he would not be entitled to
retain it until the owner thereof reimburse him for the amount loaned to the embezzler,
since the said owner of the jewelry, the plaintiff, did not make any contract with the
pledgee, that would obligate him to pay the amount loaned to Perello, and the trial
record does not disclose any evidence, even circumstantial, that the plaintiff Arenas
consented to or had knowledge of the pledging of her jewelry in the pawnshop of the
defendant.
For this reason, and because Conception Perello was not the legitimate
owner of the jewelry which she pledged to the defendant Raymundo, for a certain
sum that she received from the latter as a loan, the contract of pledge entered the
jewelry so pawned can not serve as security for the paymentof the sum loaned, nor
can the latter be collected out of the value of the said jewelry.
Article 1857 of the Civil Code prescribes as one of the essential requisites of
the contracts of pledge and of mortgage, that the thing pledged or mortgaged must
belong to the person who pledges or mortgages it. This essential requisite for the
contract of pledge between Perello and the defendant being absent as the former was
not the owner of the jewelry given in pledge, the contract is as devoid of value and
force as if it had not been made, and as it was executed with marked violation ofan
express provision of the law, it can not confer upon the defendant any rights in the
pledged jewelry, nor impose any obligation toward him on the part of the owner
thereof, since the latter was deprived of her possession by means of the illegal
pledging of the said jewelry, a criminal act. Between the supposed good faith of the
defendant Raymundo and the undisputed good faith of the plaintiff Arenas, the owner
of the jewelry, neither law nor justice permit that the latter, after being the victim of the
embezzlement, should have to choose one of the two extremes of a dilemma, both of
which, without legal ground or reason, are injurious and prejudicial to her interest and
rights, that is, she must either lose her jewelry or pay a large sum received by the
embezzler as a loan from the defendant, when the plaintiff Arenas is not related to the
latter by any legal or contractual bond out of which legal obligations arise.
Rural bank of Caloocan vs ca
FACTS:
Maxima Castro, accompanied by Severino Valencia, went to the Rural Bank of
Caloocan to apply for a loan. Valencia arranged everything about the loan with
thebank. He supplied to the latter the personal data required for Castro's
loanapplication. After the bank approved the loan for the amount of P3,000.00,
Castro,accompanied by the Valencia spouses, signed a promissory note
corresponding toher loan in favor of the bank. On the same day, the Valencia spouses
obtained fromthe bank an equal amount of loan for P3,000.00. They signed another
promissorynote (Exhibit "2") corresponding to their loan in favor of the bank and had
Castroaffixed thereon her signature as co-maker.Both loans were secured by a real-
estate mortgage on Castro's house and lot. Later,the sheriff of Manila sent a notice to
Castro, saying that her property would be soldat public auction to satisfy the
obligation covering the two promissory notes plusinterest and attorney's fees. Upon
request by Castro and the Valencias and withconformity of the bank, the auction sale
was postponed, but was neverthelessauctioned at a later date.Castro claimed that
she is a 70-year old widow who cannot read and write inEnglish. According to her,
she has only finished second grade. She needed money inthe amount of P3,000.00
to invest in the business of the defendant spousesValencia, who accompanied her to
the bank to secure a loan of P3,000.00. While atthe bank, an employee handed to her
several forms already prepared which shewas asked to sign, with no one explaining
to her the nature and contents of thedocuments. She also alleged that it was only
when she received the letter from thesheriff that she learned that the mortgage
contract which was an encumbrance onher property was for P6.000.00 and not for
P3,000.00 and that she was made tosign as co-maker of the promissory note without
her being informed.Castro filed a suit against petitioners contending that thru mistake
on her part orfraud on the part of Valencias she was induced to sign as co-maker of a
promissorynote and to constitute a mortgage on her house and lot to secure the
questionednote. At the time of filing her complaint, respondent Castro deposited the
amount of P3,383.00 with the court a quo in full payment of her personal loan plus
interest.Castro prayed for:
(1) the annulment as far as she is concerned of the promissory note (Exhibit
"2")and mortgage (Exhibit "6") insofar as it exceeds P3,000.00; and
(2) for the discharge of her personal obligation with the bank by reason of
adeposit of P3,383.00 with the court a quo upon the filing of her complaint.
ISSUE: Whether or not respondent court correctly affirmed the lower court in
declaring thepromissory note (Exhibit 2) invalid insofar as they affect respondent
Castro vis-a-vispetitioner bank, and the mortgage contract (Exhibit 6) valid up to the
amount of P3,000.00 only.
HELD: Yes.RATIO:
While the Valencias defrauded Castro by making her sign the promissory note andthe
mortgage contract, they also misrepresented to the bank Castro's
personalqualifications in order to secure its consent to the loan. Thus,
as a result of thefraud upon Castro and the misrepresentation to the bank inflicted by
theValencias both Castro and the bank committed mistake in giving theirconsents to
the contracts
. In other words, substantial mistake vitiated theirconsents given. For if Castro had
been aware of what she signed and the bank of the true qualifications of the loan
applicants, it is evident that they would not havegiven their consents to the
contracts.Article 1342 of the Civil Code which provides:Art. 1342. Misrepresentation
by a third person does not vitiate consent,unless such misrepresentation has created
substantial mistake and thesame is mutual.
We cannot declare the promissory note valid between the bank and Castroand the
mortgage contract binding on Castro beyond the amount of P3,000.00, for while the
contracts may not be invalidated insofar as theyaffect the bank and Castro on the
ground of fraud because the bank wasnot a participant thereto, such may however be
invalidated on the groundof substantial mistake mutually committed by them as a
consequence of the fraud and misrepresentation inflicted by the Valencias
. Thus, in the case of Hill vs. Veloso, this Court declared that a contract may
beannulled on the ground of vitiated consent if deceit by a third person, even
withoutconnivance or complicity with one of the contracting parties, resulted in
mutualerror on the part of the parties to the contract. The fraud particularly averred in
the complaint, having been proven, is deemedsufficient basis for the declaration of
the promissory note invalid insofar as it affectsCastro vis-a-vis the bank, and the
mortgage contract valid only up to the amount of P3,000.00.
Alcantara v. Alinea, G.R. No. 3227, March 22, 1907
FACTS:
In 1905, the defendants borrowed from the plaintiff 480 pesos, payable in
January of said year under the agreement that if, at the expiration of the said period,
said amount should not be paid it would be understood that the house and lot they
owned be considered as absolutely sold to the plaintiff for the said sum. The plaintiff
filed a complaint in the Court of First Instance of La Laguna, praying that judgment be
rendered in his behalf ordering the defendants to deliver to him the house and lot
claimed, and to pay him in addition thereto as rent the sum of pesos per month from
February of that year, and to pay the costs of the action.
The defendants argued that the principal borrowed was only 200 pesos and
that the interest was 280 pesos, although the amount of indebtedness was made to
appear in the sum of 480 pesos; and that as their special defense defendants alleged
that they offered to pay the plaintiff the sum of 480 pesos, but the plaintiff had refused
to accept the same.
The trial court rendered a judgment ordering the defendants to deliver to the
plaintiff the house and lot and to pay the costs of the action.
ISSUE:
Whether or not the two contracts entered into between the parties are void.
HELD:
The fact that the parties have agreed at the same time, in such a manner that
the fulfillment of the promise of sale would depend upon the nonpayment or return of
the amount loaned, has not produced any charge in the nature and legal conditions of
either contract, or any essential defect which would tend to nullify the same.
If the promise of sale is not vitiated because, according to the agreement
between the parties thereto, the price of the same is to be the amount loaned and not
repaid, neither would the loan be null or illegal, for the reason that the added
agreement provides that in the event of failure of payment the sale of property as
agreed will take effect, the consideration being the amount loaned and not paid.
The property, the sale of which was agreed to by the debtors, does not appear
mortgaged in favor of the creditor, because in order to constitute a valid mortgage it is
indispensable that the instrument be registered in the Register of Property, in
accordance with article 1875 of the Civil Code. In the case at bar, the transaction
does not constitute a mortgage, nor could it possibly be a mortgage, for the reason of
said document is not vested with the character and conditions of a public instrument.
Also, the said property could not be pledged, not being personal property, and
notwithstanding the said double contract the debtor continued in possession thereof
and the said property has never been occupied by the creditor.
Neither was there ever any contract of antichresis by reason of the said
contract of loan, inasmuch as the creditor-plaintiff has never been in possession
thereof, nor has he enjoyed the said property, nor for one moment ever received its
rents; therefore, there are no proper terms in law, taking into consideration the terms
of the conditions contained in the aforesaid contract, whereby this court can find that
the contract was null, and under no consideration whatever would it be just to apply to
the plaintiff articles 1859 and 1884 of the same code.
The contract (pactum commissorium), indicates the existence of the contracts of
mortgage or of pledge or that of antichresis, none of which have coincided in the loan
indicated herein.
It is a principle in law, that the will of the contracting parties is the law of
contracts. It was agreed between plaintiff and defendants herein that if defendants
should not pay the loan of 480 pesos in January1905, the property belonging to the
defendants and described in the contract should remain sold for the aforesaid sum.
The document of contract has been recognized by the defendant Alinea and by the
witnesses who signed same with him, being therefore an authentic and efficacious
document, in accordance with article 1225 of the Civil Code; and as the amount
loaned has not been paid and continues in possession of the debtor, it is only just that
the promise of sale be carried into effect, and the necessary instrument be executed
by the vendees.
Therefore, by virtue of the reasons given above and accepting the findings
given in the judgment appealed from, we affirm the said judgment herein, with the
costs against the appellants.
After expiration of twenty days from the date of the notification of this decision
let judgment be entered in accordance herewith and ten days thereafter let the case
be remanded to the court from whence it came for proper action.
WILLARD, J., dissenting:
This contract violates the fundamental principle of the Spanish law, which does not
permit a debtor, at the time he secures a loan of money, to make an agreement
whereby the mere failure to pay the loan at maturity shall divest him irrevocably or
allow his interest in the specific property mentioned in the agreement without any right
on his part to redeem or to have the property sold to pay the debt. (Civil Code, arts.
1859, 1872, and 1884.) I therefore dissent.
Francisco Realty v. Court of Appeals, G.R. No. 125055, October 30, 1998
FACTS:
A. Francisco Realty & Development Corporation (AFRDC), of which petitioner
Francisco is the president, entered into a Land Development and Construction
Contract with private respondent Herby Commercial & Construction Corporation
(HCCC), represented by its President and General Manager private respondent Ong.
Under the contract, HCCC was to be paid on the basis of the completed houses and
developed lands delivered to and accepted by AFRDC and the GSIS. Sometime in
1979, Ong discovered that Diaz and Francisco, the Vice-President of GSIS, had
executed and signed seven checks of various dates and amounts payable to HCCC
for completed and delivered work under the contract. Ong, however, claims that these
checks were never delivered to HCCC. It turned out that Francisco forged the
indorsement of Ong on the checks and indorsed the checks for a second time by inutang na halagang P100
signing her name at the back of the checks, petitioner then deposited said checks in )
her savings account. A case was brought by private respondents against petitioner to
recover the value of said checks. Petitioner however claims that she was authorized
to sign Ong's name on the checks by virtue of the Certification executed by Ong in
her favor giving her the authority to collect all the receivables of HCCC from the
Beltran, however, died in 1938 without being able to pay the loan and Vicente Reyes,
GSIS, including the questioned checks.
Jr.continued in possession thereof, believing that the document executed was a
contractof sale and not of mortgage
ISSUE:

Whether petitioner cannot be held liable on the questioned checks by virtue of the
Certification executed by Ong giving her the authority to collect such checks from the
GSIS. Oppositors Sierra et al now claiming that the words sangla, ipinanagutan
sa halagang
RULING: isangdaang piso manifest that the document was one of mortgage
Petitioner is liable. The Negotiable Instruments Law provides that where any person Issue: What was the nature of the document?
is under obligation to indorse in a representative capacity, he may indorse in such
terms as to negative personal liability. An agent, when so signing, should indicate
that he is merely signing in behalf of the principal and must disclose the name of his determinative of the lands ownership
principal; otherwise he shall be held personally liable. Even assuming that Francisco Held/Ratio:
was authorized by HCCC to sign Ong's name, still, Francisco did not indorse the
instrument in accordance with law. Instead of signing Ong's name, Francisco should
have signed her own name and expressly indicated that she was signing as an agent It is a mortgage contract. The intention of the parties at the time it was executed
of HCCC. Thus, the Certification cannot be used by Francisco to validate her act of mustprevail, i.e., the borrowing and lending of money with security. The terms indicate
forgery. adebt and the creation of a creditor-debtor relationship, where the land was used
tosecure repayment of the loan.
Reyes v. Sierra, G.R. No. L-28658, October 18, 1979

Following established doctrine, once a mortgage attaches to a transaction, its

Facts: characteras a mortgage will always continue. The parties cannot by any stipulation
deprive it of the essential attributes of a mortgage in equity. Civil Code itself provides:
The creditorcannot appropriate the things given by way of mortgage
Vicente Reyes sought to register under his name a parcel of land located in
Antipolo,Rizal
Act of Vicente Reyes in registering the property in his name after failure of mortgagor
opposed by Sierra et al toredeem the property constitutes a
pactum commisorium
which is against good moralsand public policy.
TC approved Reyes application, declaring him owner of said land owing to his and
his
predecessor-in- Court also declared that possession by Reues has not been continuous (they had
interests onlyused the property to spend some vacation time there, but this was discontinued
constructive possession of the same, particularly because theyhad been paying the for thelast 23 years). Moreover, mere failure of owner to pay taxes does not
realty taxes thereon since 1926 until 1961 necessarily implyabandonment of a right to property; and on the other hand, payment
of realty taxes byitself does not constitute sufficient evidence of title.

Origin of the dispute over land was because in 1926, the Sierras predecessor, Basilia
Beltran, borrowed P100 from Vicente Reyes, Sr. and secured the loan with the said Application by Reyes for registration should therefore be dismissed.
piece Oppositorsdirected to pay back the P100 debt plus interest (6% p.a.) from 1926 until
of land. In so doing, Basilias children executed together with her a paid.
document(katibayan ng papgpapahintulot sa aming ina na ipananagutan kay Vicente
Reyes sa
Spouses Uy Tong v. Court of Appeals, G.R. No. L-77465, May 21, 1988
Olea v. Court of Appeals, G.R. No. 109696, August 14, 1995
Facts:
On 27 January 1947 spouses Filoteo Pacardo and Severa de Pacardo executed a
deed of Sale Con Pacto de Retro over Lot No. 767 of the Passi Cadastre covered by
Transfer Certificate of Title No. 26424 in their name for a consideration of P950.00 in
favor of Maura Palabrica, predecessor in interest of petitioner, subject to the condition
that
. . . if we, the said spouses, Filoteo Pacardo and Severa de Pacardo, our heirs,
assigns, successors-in-interest, executors and administrators shall and will truly
repurchase the above-described parcel of land from the said Maura Palabrica, her
heirs, assigns, successors-in-interest after THREE YEARS counting from the date of
the execution of this instrument, to wit, on January 27, 1950 in cash payment in the
sum of Five Hundred Pesos, Philippine currency, plus Four Hundred and Fifty Pesos
(P450), also lawful currency, in cash or eighteen (18) cavans of palay (Provincial
Measurement) at our option, then this sale shall become null and void and of no force
and effect whatsoever. On the contrary, the same will become irrevocable,
definite and final.
The contract of sale with right to repurchase was acknowledged by the vendors
before Notary Public Victorio Tagamolila on the same day the contract was executed
in the Municipality of Passi, Province of Iloilo.
After the execution of the sale, the Pacardo spouses as vendors remained in
possession of the land and continued the cultivation thereof. Since the sale on 27
January 1947 up to August 1987, or for a period of about 40 years, the spouses
delivered annually one-third (1/3) of the produce of the land to Maura Palabrica and
kept for themselves the remaining two-thirds (2/3).
Despite the lapse of 3 years, the Sps. Pacardo failed to repurchase the property but
still gave the 1/3 share of the produce to Maura Palabrica. Filoteo Sr. died and Filoteo
Jr. continued to give the 1/3 share to Maura and eventually to Thelma Olea, daughter
of Maura, to whom she eventually sold the land. Maura caused the registration of the
sale con pacto de retro on 22 Sept 1969.
Filoteo Jr. died and Sps. Jesus and Elizabeth Palencia took over but they gave the
1/3 share not to Thelma but to Elena Pacardo, wife of Filoteo Jr.
Thelma filed a case against sps. Palencia and Elena for recovery of possession with
damages.
Private respondents Elena Vda. de Pacardo and Jesus and Elizabeth Palencia filed
their answer alleging that their parents intended the disputed transaction to be an
equitable mortgage and not a sale with right to repurchase. Respondent Monserrat
Paciente, another daughter of the vendor-spouses Filoteo and Severa Pacardo, filed
an answer in intervention raising likewise as defense that the Sale Con Pacto de
Retro was indeed an equitable mortgage.
Issue: W/N the sale was a Sale Con Pacto de Retro?
Held: No, Sale was an Equitable Mortgage.
We cannot sustain petitioner. Art. 1602 of the New Civil Code provides that the
contract of sale with right to repurchase shall be presumed to be an equitable
mortgage in any of the following cases: (a) when the price of the sale is unusually
inadequate; (b) when the vendor remains in possession as
lessee or otherwise; (c) when upon or after the expiration of the right to repurchase
another instrument extending the period of redemption or granting a new period is
executed; (d) when the purchaser retains for himself a part of the purchase price; (e)
when the vendor binds himself to pay the taxes on the thing sold; and, (f) in any other
case where it may be fairly inferred that the real intention of the parties is that the
transaction shall secure the payment of a debt or the performance of any other
obligation. Being remedial in nature, Art. 1602 may be applied retroactively to cases
prior to the effectivity of the New Civil Code 3 Hence it may apply to the instant case
where the deed of sale with right to repurchase was executed on 27 January 1947.
It has been held that a contract should be construed as a mortgage or a loan instead
of a pacto de retro sale when its terms are ambiguous or the circumstances
surrounding its execution or its performance are incompatible or inconsistent with the
theory that it is a sale
Even when a document appears on its face to be a sale with pacto de retro the owner
of the property may prove that the contract is really a loan with mortgage by raising as
an issue the fact that the document does not express the true intent and agreement of
the parties. In this case, parol evidence then becomes competent and admissible to
prove that the instrument was in truth and in fact given merely as a security for the
repayment of a loan.
In pacto de retro sale the payment of the repurchase price does not merely render the
document null and void but there is the obligation on the part of the vendee to sell
back the property.
This is so because pacto de retro sales with the stringent and onerous effects that
accompany them are not favored. In case of doubt, a contract purporting to be a sale
with right to repurchase shall be construed as an equitable mortgage.
Such stipulation that the ownership of the property would automatically pass to the
vendee in case no redemption was effected within the stipulated period is void for
being a pactum commissorium which enables the mortgagee to acquire ownership of
the mortgaged property without need of foreclosure. Its insertion in the contract is an
avowal of the intention to mortgage rather than to sell the property.
Consequently, there was no valid sale to Maura Palabrica. Ownership over the
property was not transferred to her for she was merely a mortgagee. There being no
title to the land that Palabrica acquired from the spouses Filoteo and Severa Pacardo,
it follows that Palabrica had no title to the same land which could be conveyed to
petitioner. 15 Hence there is no legal basis for petitioner to recover possession of the
property.
Sps. Pacardo still gave the 1/3 of the produce until 1987 which is equal to the interest
on the rent. Case for recovery was filed 39 years after, hence barred by estoppel by
laches.
Dayrit v. Court of Appeals, G.R. No. L-29388, December 28, 1970

Central Bank v. Court of Appeals, G.R. No. L-45710, October 3, 1985

Spouses Belo v. PNB, G.R. No. 134330, March 1, 2001
Ajax Marketing and Development Corporation v. Court of Appeals, G.R. No.
118585, September 14, 1995