BENEDICTO BALUYOT, ET AL., PLAINTIFFS-APPELLEES, VS. EULOGIO E. VENEGAS, DEFENDANT-APPELLANT.

Plaintiffs are the heirs of Crisanto Baluyot, who in life sold a parcel of land to defendant Eulogio E. Venegas.  The sale, executed on July 24, 1951, contains
the following provision for repurchase:

“3.  That the parties hereto stipulated that at
anytime after the expiration of the period of ten (10) years to be computed
from October 1, 1951, the Vendor, his heirs or successors-in-interest has the
option and priority to purchase the aforedescribed
parcel of land for the same consideration of P4,000.00.

“4.  That the Vendee hereby accept
and agrees with the conditions and terms of this sale.”

On July 18, 1963 plaintiffs commenced this action in the Court of
First Instance of Bataan to compel defendant to reconvey the land to them pursuant to the contractual
provision aforequoted, alleging that previous offers
on their part to exercise the right therein granted had proven unavailing.

The court a quo rendered judgment for plaintiffs
and ordered defendant to execute the corresponding deed of conveyance upon
payment of P4,000. 
Defendant was further ordered to pay attorney’s fees in the sum of P500.

In this appeal defendant stands squarely on the proposition that
the stipulation in the contract giving the vendor the “option” to
purchase back the land is void and contrary to law, particularly Article 1606
of the Civil Code.  This article reads:

“ART. 1606.  The right
referred to in article 1601, in the absence of an express agreement, shall last
four years from the date of the contract.

Should there be an agreement, the period
cannot exceed ten years.

However, the vendor may still exercise the right to repurchase
within thirty days from the time final judgment was rendered in a civil action
on the basis that the contract was a true sale with right to repurchase.”

The contract here was executed in July 1951.  The option or right to repurchase was sought
to be exercised twelve (12) years thereafter, or in 1963.  Indeed, by express agreement it could not
have been exercised except “after the expiration of the period of ten (10)
years… from October 1, 1951.” 
Such stipulation is not legally feasible because it is prohibited by
Article 1606, which limits the period for repurchase, in case there be an agreement, to the maximum of ten years from the date
of the contract.  In other words, the
right to repurchase in the present case did not even arise, since by the time
it was supposed to begin it was already interdicted by the law.

A similar situation was presented in the case of Santos vs. Heirs
of Crisostomo and Tiongson,
41 Phil. 342, where this Court said, at pages 347-348:

“When the stipulation in question is examined, it will be
discovered that the intention of the parties was to suppress the exercise of
the right of repurchase for the full period of ten years from the date of the
contract and, inferentially, to allow the exercise of that right after the
expiration of ten years.  In the second
paragraph of article 1508 (now 1606) of the Civil Code it is in effect provided
that if there should be an agreement with respect to the time of repurchase,
the period shall not exceed ten years.  The
stipulation under consideration offends against this provision in two particulars,
namely, (1) in providing that the right to repurchase may be exercised after
tan years shall elapsed, and (2) in prohibiting the exercise of the same right
during the whole period when, according to the statutes, it might be lawfully
exercised.

“The stipulation is, therefore, illicit; and the result is
that the right of repurchase could in fact, under the second paragraph of
article 1508 of the Civil Code, have been exercised in this case at any time
after the making of the contract and prior to the expiration of ten years. The
law must here control over the revealed intention of the parties.

“In what has been said we do not mean to declare that the
parties to a contract of sale with pacto de retro can
not under any conditions lawfully suspend the exercise of the right of
repurchase.  Doubtless they may do so, provided
there remains en appreciable space of time for the exercise of the right within
the limitation allowed by law.  For
instance, if it were provided that repurchase should not be effected before
five nor after ten years from the date of the
contract, we see no reason for supposing the stipulation to be lawful.  It is different where the parties attempt
totally to suppress the right during the whole period when it might lawfully be
exercised.”

Plaintiffs stress the obligatory force of obligation arising from
contract (Art. 1159 Civil Code).  But the
same code provides in Article 1306 that while the contracting parties are free
to establish any claims or conditions they may deem advisable, the same must
not be contrary to law, morals, good customs, public order or public policy.

It is suggested that the defense in this case is in the nature of
prescription of action and consequently may not be pleaded for the first time
on appeal, as defendant does in this case. 
However, Article 1606 of the Civil Code concerning the period of
repurchase is not statute of limitation. 
It is a rule o substantive law which goes into the validity of the
period agreed upon, and requires no affirmative plea in the answer to be
applicable.

The judgment appealed from is reversed and the complaint is
dismissed, without pronouncement as to costs.

Concepcion, C.J., Reyes, J.B.L., Bengzon, J.P., Zaldivar, Sanchez,
Ruiz Castro, Angeles, and Fernando, JJ., concur.

Dizon, J., did not take part.