Case Summary (G.R. No. 199972)
Key Dates
- June 4, 2001: Execution of the “Deed of Sale Under Pacto de Retro.”
- May 16, 2003: Transfer of tax declaration to respondent’s name.
- July 21, 2008: Regional Trial Court decision.
- August 29, 2012: Court of Appeals decision.
- December 19, 2012: CA resolution denying reconsideration.
- June 22, 2022: Supreme Court final judgment.
Applicable Law
- 1987 Constitution of the Republic of the Philippines.
- Civil Code (Republic Act No. 386):
• Articles 1601–1606 (Pacto de Retro Sales and Redemption Periods)
• Article 1602 (Presumptions of Equitable Mortgage)
• Article 1603 (Construction in Case of Doubt)
• Article 1616 (Monetary Obligations on Repurchase)
• Article 2088 (Prohibition of Pactum Commissorium) - Usury Laws (prohibition of excessive interest and pactum commissorium).
Factual Background
- Respondent filed a petition under Article 1607 of the Civil Code to consolidate ownership, alleging she purchased the land from petitioner for P32,000 under a Deed of Sale with pacto de retro.
- The deed granted petitioner a six-month right to repurchase at the same price; failure to repurchase would render the sale absolute, without new conveyance.
- Petitioner countered that the real transaction was a loan of P20,000 at 10% monthly interest, secured by the land. He remained in possession, paid taxes, and offered to pay P32,000 but respondent refused.
- Petitioner’s sister corroborated that the document served only as collateral and that neither the nature nor consequences of a pacto de retro sale were explained.
Rulings Below
Regional Trial Court (July 21, 2008)
- Declared the contract a true sale with right to repurchase.
- Allowed a 30-day repurchase period upon finality, requiring payment of P32,000 plus P182,000 interest.
- Denied attorney’s fees.
Court of Appeals (August 29, 2012)
- Affirmed the existence of a pacto de retro sale.
- Deleted the 30-day repurchase allowance and interest award, declaring respondent absolute owner.
- Denied reconsideration (Dec. 19, 2012).
Issue
Whether the parties’ transaction is a genuine sale with pacto de retro or, in truth, an equitable mortgage masked as such, and whether the pactum commissorium clause is void.
Supreme Court’s Analysis and Ruling
Policy and Presumptions (Civ. Code Arts. 1601–1603):
– Pacto de retro sales are discouraged to prevent usury and pactum commissorium abuses.
– Article 1602 triggers a presumption of equitable mortgage when, among others, the sale price is grossly inadequate, the vendor remains in possession, or a pactum commissorium clause exists.
– In case of doubt, a sale with right to repurchase must be construed as an equitable mortgage (Art. 1603).Conclusive Circumstances Present:
a. Unduly low price: P32,000 for 1,378 sqm of coconut land.
b. Continuous vendor possession: Petitioner remained in physical possession, paid taxes, and respondent only took possession upon tax declaration transfer in 2003.
c. Pactum commissorium clause: Provision automatically vested absolute ownership in respondent upon default, contrary to Article 2088.Parol Evidence Admissibility:
– The parties’ true intent (loan secured by land) was a central issue.
– Testimonies of petitioner and his sister established that the land served merely as collateral for a cash loan, not a sale with repurchase rights.Void Pactum Commissorium:
– The clause dispensing with foreclosure and granting automatic ownership upon default is void as against public policy (Art. 2088).Conclusi
Case Syllabus (G.R. No. 199972)
Case Title and Procedural History
- G.R. No. 205672, decided June 22, 2022 by the Second Division of the Supreme Court
- Petitioner: Froilan Dala; Respondent: Editha A. Auticio
- Petitioner assails the Court of Appeals’ dispositions in CA-G.R. CEB-CV No. 02713:
- Decision dated August 29, 2012 holding the parties’ contract to be a pacto de retro sale
- Resolution dated December 19, 2012 denying petitioner’s motion for reconsideration
Antecedents and Petition for Consolidation of Ownership
- February 21, 2002: Respondent filed a Petition to Consolidate Ownership under Article 1607 of the Civil Code
- Subject property: 1,378 sqm coconut land in Barangay Cabong, Borongan, Eastern Samar (T.D. No. 99-04019-00903)
- Prayers:
- Temporary Restraining Order enjoining petitioner from disposing of the property
- Declaration of absolute ownership in respondent’s name
- Award of 25% attorney’s fees, expenses, and costs
Deed of Sale Under Pacto de Retro
- June 4, 2001: Execution of a “Deed of Sale with Pacto de Retro” by Froilan Dala (vendor) and Editha Auticio (vendee)
- Consideration: ₱32,000 paid by respondent
- Key stipulations:
- Six-month period for vendor to repurchase at ₱32,000
- Upon failure, conveyance becomes absolute and irrevocable without new deed
- Conveyance free from liens and encumbrances
Respondent’s Allegations and Actions
- Six-month redemption period lapsed without repurchase by petitioner
- May 16, 2003: Tax declaration issued in respondent’s name
- Alleged petitioner sought extension, refused by respondent, then encumbered and offered the same land for sale
- Delay in consolidation proceedings attributed to petitioner’s acts
Petitioner’s Defense and Counterclaims
- Denies true nature of sale, asserts transaction was a loan of ₱20,000 at 10% monthly interest for six months, with land as collateral
- Claims coercion into signing deed, grossly inadequate price relative to market value
- Remained in possession, paid realty taxes, offered to pay l