PEDRO A. FELICEN, SR. (DECEASED), SUBSTITUTED BY HIS WIDOW, BEATRIZ LANUEVO AND HIS CHILDREN, ELEUTERIO, PEDRO, JR., CLARITA, FERNANDO AND JOSE MARIA, ALL SURNAMED FELICEN, PETI…

This appeal on certiorari^[1]
involves Article 1606 of the Civil Code. 
The first paragraph of this article declares that in cases of conventional
redemption,^[2] i.e.,
when the vendor reserves the right to repurchase the thing sold — with the
obligation to return the price of the sale as well as the expenses of the
contract, any other legitimate payments made by reason of the sale, the
necessary and useful expenses made on the thing sold,^[3]
and other stipulations which may have been agreed upon — the right to
repurchase, in the absence of an express agreement, shall last four years from
the date of the contract.  The second
paragraph says that should there be an agreement, the period cannot exceed ten
years.  And the third and last paragraph
— and it is this which is directly relevant to the case at bar — reads as
follows:

“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.”

Under a “Deed of Sale With Right to Repurchase,”^[4]
the spouses Severino Orias
and Milagros O. Lim (private respondents herein) sold to Pedro A. Felicen, Sr. (petitioner) a parcel of land in the Municipality
of Salcedo,
Province of Samar with an area of 7.8
hectares at the price of P3,000.00.  The
deed expressly reserved to the vendors the right to redeem within two (2)
years.  That period expired without any
offer having been made by the vendors a retro to repurchase the land.

Some eight (8) years afterwards,1 the vendors a retro filed
suit in the Court of First Instance against the vendees to compel the latter to
resell and reconvey the property to them.  After due proceedings, the Trial Court
rendered judgment, finding that the contract between the parties was in truth
one of sale with pacto de retro, and
that the period stipulated for the repurchase had already expired; but this
notwithstanding, the vendors a retro still had the right to repurchase
the property within thirty (30) days from the time the judgment becomes final,
in accordance with the third paragaph of Article 1606
of the Civil Code, by complying with the requirements of Article 1616.2

The Court of Appeals affirmed the decision of the Trial Court.3 It
pronounced as correct the Lower Court’s conclusion that the claim of the
vendors a retro — that they had twice offered to repurchase the land
but that these had been refused — had not been proven, the proferred
proofs being totally devoid of details that could engender persuasiveness.  It also pronounced correct the finding that
the contract in question could not be deemed to be one of loan, its terms being
so plainly and distinctly indicative of a sale with pacto
de retro as to preclude its construction as some other kind of agreement,
besides bearing none of the well known indicia of a disguised mortgage,
enumerated in Article 1602 of the Civil Code. 
Nevertheless, the Appellate Court deemed proper the application of the
third paragaph of Article 1606 since the main issue
in the case was the obtention of a judicial
declaration that the agreement was a simple mortgage.

The thesis of both the Trial Court and the Appellate Court, in
other words, was that although the vendors a retro had failed in their
suit to prove that their contract with the vendees was actually one of loan
with mortgage, the contract having on the contrary been confirmed to be a sale
with conventional redemption, they could nonetheless still repurchase the
property “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”, pursuant to said third paragraph of Article 1606.  The thesis cannot upon the undisputed facts
be sustained.

The application of the third paragraph of Article 1606 is
predicated upon the bona fides of the vendor a retro.  It must appear that there was a belief on his
part, founded on facts attendant upon the execution of the sale with pacto de retro, honestly and sincerely
entertained, that the agreement was in reality a mortgage, one not intended to
affect the title to the property ostensibly sold, but merely to give it as
security for a loan or other obligation. 
In that event, if the matter of the real nature of the contract is
submitted for judicial resolution, the application of the rule is meet and
proper:  that the vendor a retro
be allowed to repurchase the property sold within 30 days from rendition of
final judgment declaring the contract to be a true sale with right to
repurchase.1
Conversely, if it should appear that the parties’ agreement was really one of
sale — transferring ownership to the vendee, but accompanied by a reservation
to the vendor of the right to repurchase the property — and there are no
circumstances that may reasonably be accepted as generating some honest doubt
as to the parties’ intention, the proviso is inapplicable.  The reason is quite obvious.  If the rule were otherwise, it would be
within the power of every vendor a retro to set at naught a pacto de retro, or resurrect an expired right
of repurchase, by simply instituting an action to reform the contract — known
to him to be in truth a sale with pacto de
retro — into an equitable mortgage. 
As postulated by the petitioner,2 “to allow herein private
respondents to repurchase the property by applying said paragraph * * to the
case at bar despite the fact that the stipulated redemption period had already
long expired when they instituted the present action, would in effect alter or
modify the stipulation in the contract as to the definite and specific
limitation of the period for repurchase (2 years from date of sale or only
until June 25, 1958) thereby not simply increasing but in reality resuscitating
the expired right to repurchase * * and likewise the already terminated and
extinguished obligation to resell by herein petitioner.” The rule would
thus be a made a tool to spawn, protect and even reward fraud and bad faith, a
situation surely never contemplated or intended by the law.

This Court has already had occasion to rule on the proper
interpretation of the provision in question. 
In Adorable v. Inacala,3 where the proofs established that
there could be no honest doubt as to the parties’ intention, that the
transaction was clearly and definitely a sale with pacto
de retro, the Court adjudged the vendor a retro not to be entitled
to the benefit of the third paragraph of Article 1606.

The case at bar is on all fours with Adorable.  Here, as in the earlier case, the evidence
persuasively establishes not only the utter paucity of the vendors’ assertion
that they had tried to exercise the right to repurchase within the stipulated
period, but also that the contract was clearly and distinctly a contract of
sale with pacto de retro and contained
no provision from which another kind of contract could fairly and reasonably be
deduced, and furthermore exhibited none of the familiar badges of a covert
mortgage specified by the Civil Code. 
The Court perceives no reason to deviate from the doctrine in Adorable,
and a disposition in accord therewith is thus inevitable.

WHEREFORE, the judgments of the Court of Appeals and the
Trial Court are reversed, and another entered declaring the private
respondents’ right to repurchase to have expired upon expiration of the period
stipulated therefor, and that ownership of the
property in question has long since been acquired by and now rests in the
petitioner, his heirs, successors and assigns. 
Costs against private respondents.

Teehankee, C.J., Cruz, Paras, and Gancayco, JJ., concur.

^[1]
From the Decision of the Court of Appeals in CA-G.R. No. 36353-R promulgated on
November 24, 1970,
affirming the judgment of the Trial Court in Civil Case No. 126 rendered on June 30, 1965

^[2]
Art. 1601

^[3]
Art. 1616

^[4]
Executed on June 25, 1956

1
October 6, 1964

2
Petitioners’ brief, pp. 45-52

3
By judgment promulgated on November
24, 1970, Lucero, J., ponente

1
SEE Ceynas v. Ulanday,
105 Phil. 1007, and Gonzales v. de Leon, 114 Phil. 274, 4 SCRA 332, in
both of which the action to reform and/or redeem was instituted before the
expiration of the stipulated period for repurchase.

2
His brief, p. 41, rollo, p. 74

3 L-10183, April
28, 1958 (103 Phil. 181), cited in Paras,
E.L., Civil Code of the Philippines Annotated,
11th ed., Vol. V, p. 219