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PROBLEMS:

1. S sold his house to B with right to repurchase.

(a) May B lease the property, knowing that S will certainly exercise his right of
redemption?

Answer:

YES, B can lease the property even with the knowledge that S will
certainly exercise his right of redemption because as stipulated in Article.
1609 The vendee is subrogated to the vendor’s rights and actions.

The above article is logical because a pacto de retro sale transfers ownership to
the vendee although subject to the condition of repurchase. As owner, the
vendee, for example, may transfer or alienate his right to a third person,

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mortgage the property, enjoy the fruits thereof, recover the property against every
possessor, and perform all other acts of ownership subject only to the right of

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redemption of the vendor. Of course, the vendor cannot transfer ownership if he
is not the real owner.

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(b) Has B the obligation to respect the lease after exercising his right of
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redemption? Why? (5pts)

Answer:
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IT DEPENDS, because as stated in Article. 1618 The vendor who

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recovers the thing sold shall receive it free from all charges or mortgages
constituted by the vendee, but he shall respect the leases which the latter may
have executed in good faith, and in accordance with the customs of the place
where the land is situated.
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The vendee a retro may alienate, encumber, or perform other acts of

ownership over the thing sold. But his ownership being revocable upon
redemption, all acts done by him are also revocable. Thus, he may borrow
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money and mortgage the property but when the vendor a retro redeems, the
vendee a retro is obliged to redeem the mortgage. The vendor has the right to
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receive the property in the same condition in which it was at the time of the sale.

The law, however, establishes an exception with respect to leases which

the vendee may have entered into in good faith according to the custom of the
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place where the land is located. The exception is dictated by public convenience
in the interest of agriculture.

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 2. S, being in of money, sold to B for P500,000 his right of inheritance from his
father who has died telling that he believes that its value is more than P500,000.
It turns out that the value is only P300, 000. Is S liable to B? Why? (5pts)

Answer:

IT DEPENDS, because as stipulated in Article. 1630 One who sells an

inheritance without enumerating the things of which it is composed, shall only be
answerable for his character as an heir.

An inheritance may be sold either with specification of the properties to be

alienated or without enumerating the things comprising it, that is to say, the
hereditary rights only. The seller of an inheritance warrants only the fact of his
heirship but he does not warrant the objects which make up his inheritance.

3. S exchanged his parcel of land for the new car of B. It turns out the car was

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subject to ac chattel mortgage and was sold at public auction for failure of B to
comply with the conditions of mortgage. What rights are given by law to S? (5Pts)

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Answer:

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Article. 1639 states that: If one of the contracting parties, having received the
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thing promised him in barter, should prove that it did not belong to the person who
gave it, he cannot be compelled to deliver that which he offered in exchange, but he
shall be entitled to damages.
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Under this provision, the aggrieved party cannot be compelled to deliver the thing he
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has promised. Moreover, he is entitled claim damages. The rule is analogous to

Article. 1590 and Article. 1591.
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V. Exercises / Learning Activities

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1. The spouses Villarica in a public instrument of absolute sale sold to the spouses
Consunji on May 19, 1951, a parcel of land located in Davao City for P35,000
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(sufficiently adequate). On May 25, 1951, the buyers executed another public
instrument granting the sellers an option to buy the same property within the
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period of one year. In February, 1953, the buyers Consunji sold the property to
Jovito S. Francisco for P47, 000. On April 14, 1953, the spouses Villarica sued
the spouses Consunji and Jovito S. Francisco for the reformation of the
instrument of absolute sale into an equitable mortgage as a security for a certain
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loan. The spouses Villarica alleged among other things that since the option to
buy was extended for a month. Art. 1602 (No.3) of the Civil Code, referring to a
sale a retro (sale with the right to repurchase) should be applied and therefore
there is a presumption that an equitable mortgage was the true agreement
arrived at. Should the deed of absolute sale be reformed? Why? (10pts)

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 Answer:

NO, the deed of absolute sale cannot be reformed. The Consunjis, as new
owners of the lot, granted the Villaricas an option to buy the property within
the period of one year. Said option to buy is different and distinct from the right of
repurchase which must be reserved by the vendor, by stipulation to that effect,
in the contract of sale. This is clearly stated from Article. 1601 Conventional
redemption shall take place when the vendor reserves the right to repurchase the
thing sold, with the obligation to comply with the provisions of Article 1616 and
other stipulation which may have been agreed upon.

The right of repurchase is not a right granted to the vendor by the vendee in a
subsequent instrument, but is a right reserved by the vendor in the same
instrument of sale as one of the stipulations of the contract. Once the
instrument of absolute sale is executed, the vendor can no longer reserve the right

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to repurchase, and any right thereafter granted the vendor by the vendee in a
separate instrument cannot be a right of repurchase but some other right like the

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option to buy in the instant case. Hence, the public instrument of absolute sale
cannot be considered as evidencing a contract of sale with pacto de retro.

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Since the public instrument of absolute sale did not evidence a right to
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repurchase but an option to buy, the extension of the period of one year for the
exercise of the option by one month does not fall under Article. 1602; No. 3 When
upon or after the expiration of the right to repurchase another instrument extending
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the period of redemption or granting a new period is executed.

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2. Case Analysis:

a) Magtira v. Court of Appeals, L-27547, March 31, 1980 (10pts)

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Answer:

FACTS:
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A Petition for Review on Certiorari of the Decision of the Court of Appeals

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affirming the trial Court Decision and holding that the contract between the
parties was one of pacto de retro and not of equitable mortgage, to which we
gave due course in a Resolution dated May 22, 1967.
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The parcel of riceland in controversy, situated in Barrio Santo Rosario,

Paombong, Bulacan, measuring approximately 3,412 square meters, belonged to
ISIDORO Magtira who died intestate in 1953 leaving petitioner, SOFIA Magtira,
as his sole heir.

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 On February 8, 1926, ISIDORO Magtira, for and in consideration of the amount
of Seven Hundred and Twenty-Five (P725.00) Pesos, which he obtained from
herein private respondent ZACARIAS Pangan, had entered into an agreement
with the latter involving the aforesaid parcel of land evidenced by a public
instrument (Exhibit "A.")

ZACARIAS took possession of the property beginning February 8, 1926 and paid
taxes thereon pursuant to the aforequoted agreement.

Almost two and a half years after the execution of Annex "A", or on June 12,
1928, ISIDORO and his daughter SOFIA obtained from ZACARIAS an additional
amount of One Hundred and Forty Pesos (P140.00) evidenced by a receipt
marked as Exhibit "3."

Another amount of P35.00 was obtained by SOFIA from ZACARIAS on May 17,
1929, evidenced by a receipt marked as Exhibit "3-a". Finally, on May 1, 1930,

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ISIDORO received the amount of P100.00 from ZACARIAS as shown by a
receipt marked as Exhibit "3-b". The amounts thus obtained by the Magtiras

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reached a total of P1, 000.00.

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In an undated private instrument signed by SOFIA and ZACARIAS, quoted
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hereunder, the Magtiras asked for and were given an extension of five years, or
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up to April 30, 1935, within which to "redeem."

Petitioner maintains that on three occasions, she orally sought the redemption f
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the property by offering to ZACARIAS the sum of P1,000.00: the first was
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sometime before April 30, 1935; the second was shortly before the outbreak of
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the Second World War; and the third was immediately after the Japanese
occupation, but in all these instances, ZACARIAS pleaded for more time to
remain in possession, giving as a reason his wish to see his daughter, who is the
god-daughter of SOFIA a chance to complete her studies. To these entreaties of
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her "compadre", SOFIA declared she could not turn a deaf ear.
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On August 23, 1945, or ten (10) years and four (4) months after the extended
period up to April 30, 1935, ZACARIAS filed with the Register of Deeds of
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Bulacan an Affidavit for Consolidation of Ownership.

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Isidoro Magtira died intestate in 1953 leaving as his sole compulsory heir, the
petitioner SOFIA.

It is SOFIA's submission that it was only sometime in 1955 during the cadastral
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survey in Paombong, Bulacan that she came to know that ZACARIAS was
claiming ownership of the land which the latter wanted to be surveyed in his
name.

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 The Amended Complaint alleged mainly that the amount of P725.00 obtained by
ISIDORO from ZACARIAS was a loan secured by a real estate mortgage over
the subject land, evidenced by a public instrument (Annex "A"); that while a
phrase in said document speaks of a contract of sale with right of repurchase, the
whole agreement and the only intention of the parties was in reality one of loan
with equitable mortgage.

In his Answer to the Amended Complaint, ZACARIAS insisted that the sum of
P725.00 which ISIDORO had obtained from him was not a loan secured by a real
estate mortgage but the consideration paid by ISIDORO by virtue of a sale with
pacto de retro of the property being litigated; that the additional amounts secured
from him represented an additional consideration for the sale with right to
repurchase; that in the interpretation of contracts, the title of the instrument is not
controlling but only the recitals thereof; that during the period for repurchase the
Magtiras evidenced no intention to repurchase the property, nor had they made
any tender of payment, nor did they file the necessary action for the protection of

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their rights; that he has been in possession of the property for exactly 30 years, 4
months and ten days computed from February 28, 1926 to the date of the filing of

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the Complaint on June 18, 1956, so that he has acquired absolute ownership by
extraordinary acquisitive prescription and plaintiff's right to recover the same had

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been extinguished by prescription; and finally, the property having been sold by
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pacto de retro, he is under no obligation to render an accounting of the fruits
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thereof.

On February 23, 1959, the trial Court rendered its Decision dismissing the
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Complaint reasoning that from the documentary evidence it is shown that

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ISIDORO intended to sell his property by means of a pacto de retro sale for a
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term of 4 years, which was later extended to 5 years, and he failed to take any
step to recover said property notwithstanding the lapse of a considerable length
of time; and that whatever doubt there may be as to the exact nature of their
agreement has lost significance because ZACARIAS Pangan has become owner
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of the property by acquisitive prescription.

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ISSUE:
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1. Whether the agreement between the parties is a sale with pacto de retro
instead of a loan with equitable mortgage.
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2. Whether Sofia Magtira, the petitioner, is guilty of laches which estops her from
asserting her cause of action.

HELD:
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Court's finding that the words "aking inilipat, ipinagbili nang biling mabibiling muli"
used by the parties in the document, Exhibit "A", are expressive of their intent
that the property be sold with a right of repurchase. Those words must be given

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 their ordinary and common meaning. That the document, Exhibit "A", is entitled
"Kasulatang Sanglaan" is not a decisive factor.

The actuations of both parties after entering into the agreement show that
ZACARIAS immediately entered into the possession of subject land, paid taxes
thereon, and enjoyed its fruits. In fact, Exhibit "A" made specific mention of
ZACARIAS' obligation to pay taxes, a burden attached to ownership of property.
Thus, the document, Exhibit "A", cannot even be presumed as one of equitable
mortgage considering that the conveyance does not fall within the purview of any
of the cases mentioned in Article 1602 of the new Civil Code, a provision which
may be applied retroactively since it is remedial in nature.

Nor did respondent Court err in holding SOFIA guilty of laches. Not even once
did she disturb ZACARIAS' possession for exactly 30 years, 4 months and 10
days from February 8, 1926, the date the first agreement (Exhibit "A") was
entered into, up to the time of the filing of the complaint on June 18, 1956.

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Further, SOFIA showed inexcusable negligence in effectively asserting and
protecting her rights as the alleged mortgagee by her failure to either seek a

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reformation of their agreement, or to make proper consignation of the repurchase
price, or to file the action for redemption and cancellation of the alleged mortgage

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as early as after the Japanese occupation when for the third time her alleged
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offer to redeem was refused by ZACARIAS. Again, from April 30, 1935, the last
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day of redemption, up to August 23, 1945, the date of the filing of the Affidavit for
Consolidation by ZACARIAS, more than ten years had elapsed without SOFIA
having undertaken any positive and decisive step to assert and protect her rights
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to the property, contenting herself with mere feeble requests for redemption.
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SOFIA's contention that the consolidation of ownership in ZACARIAS' name in

1945 was kept a secret from her and that ZACARIAS had done nothing else to
her knowledge which indicated that he was claiming the land as his own, does
not negate the presence of laches.
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Additionally, acquisitive prescription operates to bar any action by SOFIA. From

the date of the filing of the Affidavit for Consolidation of Ownership by ZACARIAS
with the Register of Deeds on August 23, 1945 up to the date of the filing of the
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complaint by SOFIA on June 18, 1956, or for almost eleven (11) years,
ZACARIAS enjoyed an uninterrupted, adverse, public and peaceful possession
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of the litigated property in the concept of owner, which under Article 1134 of the
Civil Code ripened into ownership by ordinary prescription through possession of
at least ten years. Contrary to SOFIA's claim, the period of prescription should be
reckoned not merely from the time when she allegedly came to know of the claim
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of ownership of ZACARIAS during the cadastral survey in 1955, but from the
date of registration of the Affidavit for Consolidation with the Register of Deeds
because registration of an instrument in the Office of the Register of Deeds
constitutes constructive notice to the whole world.

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 The collective weight of the foregoing considerations justify the conclusion of
respondent Court that the contract between the parties was indeed a conditional
sale. It appearing that SOFIA had failed to exercise the right of repurchase,
ZACARIAS acted well within his rights under the old Civil Code when he
consolidated the ownership unto himself in 1945.

WHEREFORE, the judgment appealed from, dismissing the Complaint, is hereby

affirmed. With costs against petitioner.

REFLECTION:

According to the ruling of this case, the Court reached to a conclusion that the
contract between the parties was a conditional sale and not a pacto de retro sale.
This case was actually based on Article. 1602 together with Article. 1134.

Article. 1602 The contract shall be presumed to be an equitable mortgage, in any

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of the following cases:

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(1) When the price of a sale with right to repurchase is unusually inadequate;

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(2) When the vendor remains in possession as lessee or otherwise;
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(3) 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;
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(4) When the purchaser retains for himself a part of the purchase price;
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(5) When the vendor binds himself to pay the taxes on the thing sold;

(6) In any other case where it may be fairly inferred that the real intention of the
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parties is that the transaction shall secure the payment of a debt or the
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performance of any other obligation. In any of the foregoing cases, any

money, fruits or other benefits to be received by the vendee as rent or
otherwise shall be considered as interest which shall be subject to the usury
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laws.
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Article. 1134 Ownership and other real rights over immovable property are
acquired by ordinary prescription through possession of ten years.
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The Court also concluded that the petitioner is guilty of laches.

"Laches, in a general sense, is failure or neglect, for an unreasonable and

unexplained length of time, to do that which, by exercising due diligence, could
or should have been done earlier; it is negligence or omission to assert a right

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 within a reasonable time, warranting a presumption that the party entitled to
assert it either has abandoned it or declined to assert it."

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