IN RE: PETITION FOR CONSOLIDATION OF OWNERSHIP IN PACTO DE RETRO SALE OF A HOUSE. JUAN TACDORO, PETITIONER AND APPELLEE VS. JESUS ARCENAS, OPPOSITOR AND APPELLANT.

On December 22, 1958, petitioner-appellee Juan Tacdoro filed in the Court of
First Instance of Davao a petition (docketed as Misc. Case No. 374) alleging,
among other things, that appellant Jesus Arcenas had sold to the petitioner,
con pacto de retro, a residential house situated at Bolton Street,
Davao City, and covered under Tax tion No. R-1452; that February 16, 1957 was
the original expiry date fixed by the parties for the repurchase, but I upon
subsequent agreement, the period was extended fot j another year counted from
the aforesaid date; and that the term for the repurchase had expired without the
right of repurchase having been exercised by the vendor. Accordingly, petitioner
prayed that the court order a judicial consolidation of ownership over the
property sold pursuant to the provisions of Article 1607 of the Civil Code.

The petition was heard on December 24, 1958, the date set by the petitioner.
Appellant was served a copy of the Baid petition two days previously, or on
December 22, 1958; but no summons was served by the court.

On January 6, 1959, the court a quo entered an order consolidating
ownership of the property in question in favor of the petitioner. On January 10,
1959, appellant filed a motion for reconsideration, contending that the lower
court had no jurisdiction to consider the petition of the appellee for lack of
summons, and that the denominated pacto de retro sale was in fact an
equitable mortgage. This motion was denied by the court in its order of January
21, 1959.

From the two orders aforesaid, Jesus Areenas appealed to us on points of
law.

The appeal is well taken. Article 1607 of the Civil Code states:

“In case of real property, the consolidation of ownership in the vendee by
virtue of the failure of the vendor to comply with the provisions of article
1616 shall not be recorded in the Registry of Property without a judicial order,
after the vendor has been tidy heard” (Italics
supplied)

The code did not provide for any specific procedure to be observed in
securing the judicial order above-mentioned. Accordingly, we should fall back on
the ordinary rules of procedure applicable. As correctly pointed out by-the
appellant, the petition to consolidate ownership under the article aforequoted
does not partake of the nature of a motion,^[1] it not being merely an incident to an
action or a special proceeding (see Sec. 1, Rule 26, Rules of Court; 60 C.J.S.
7), but is an ordinary civil action cognizable by the Court of First Instance.
As such ordinary action, it should be governed by the rules established for
summons found in Rule 7 of the Rules of Court, stating, among other things, that
upon the “filing of the complaint, the clerk of court shall forthwith issue the
corresponding summons to the defendant” (Sec. 1). The defendant would then be
entitled to a period of fifteen (15) days from service, of such summons within
which to file either a motion to dismiss the petition (Sec. 1, Rule 8) or an
answer (Sec. 1, Rule 9). The failure of the court to properly observe these
rules is sufficient cause for validly attacking its consequent judgments and or
orders even on jurisdictional grounds (See Salmon & Pacific
Commercial Co. vs. Tan Cueco, et al., 36 Phil., 556).

That the vendor a retro should be made a party-defendant to the
proceedings and, therefore, be entitled to notice of the same, is clearly
inferable from the codal provision, that the judicial order consolidating
ownership in the vendee a retro shall not issue unless “after the
vendor has been duly heard” (Art. 1607, Civil Code, supra) ; which
statement would also imply that the proceedings therein to be taken are in no
way to be construed as merely summary m nature. This conclusion is further
fortified by other Provisions of the new Civil Code such as articles 1602, 1603,
1604, 1605 and 1606, which are all indicative of the legislative intent to
accord the vendor a retro the maximum safeguards for the protection of
his legal rights under the true agreement of the parties. Experience has
demonstrated that many sales with right of repurchase have been devised only to
circumvent or ignore our usury laws and for this reason, the law looks upon them
with disfavor (Report of the Code Commission, pp. 63-64). When, therefore,
Article 1607 speaks of a judicial order after the vendor shall have been duly
heard, it contemplates none other than a regular court proceeding under the
governing Rules of Court, wherein the parties are given full opportunity to lay
bare before the court their real covenant. Furthermore, the obvious intent of
our Civil Code, in requiring a judicial confirmation of the consolidation in the
vendee a retro of the ownership over the property sold, is not only to
have all doubts over the true nature of the transaction speedily ascertained and
decided, but also to prevent the interposition of buyers in good faith while
such determination is being made. Under the former method of consolidation by a
mere extra-judicial affidavit of the buyer a retro, the latter could
easily cut off any claims of the seller by disposing of the property, after such
consolidation, to strangers in good faith and without notice. The chances of the
seller a retro to recover his property would thus be nullified, even if
the transaction were really proved to be a mortgage and not a sale.

The Court below, therefore, erred in considering that judicial consolidation
of ownership under Article 1607 of the new Civil Code can be had by a mere
motion with three days’ notice, instead of requiring an independent proceeding,
for which docket fees are chargeable. As aforesaid, a motion could only exist as
an incident to a principal suit or proceeding.

It is still premature to decide here and now whether the agreement in
question is a true pacto de retro sale or in reality a mere equitable
mortgage. Upon the other hand, the arguments advanced by the appellant convince
us that his exceptions to the orders appealed from were not taken merely for
frivolous reasons.

Wherefore, the orders appealed from are set aside; and appellant Jesus
Arcenas is hereby given a period of 15 days from the finality of this judgment
within which to file in the court below his answer to the petition. The case is
ordered remanded to the lower court for further proceedings in accordance with
this opinion. Costs in this instance against petitioner-appellee Juan
Tacdoro.

Paras, C.J., Bengzon, Bautista, Angelo, Labrador, Concepcion, Barrera,
Gutierrez David, Paredes and Dizon, JJ., concur.

Orders set aside, case remanded to loiver court for further
proceedings.

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^[1] As the lower court has apparently
construed the instant petition to be.