CLARA BADAYOS, PETITIONER, VS. THE COURT OF APPEALS AND SPOUSES MAXIMO LISONDRA AND CONRADA GABISAN, RESPONDENTS.

We are primarily tasked with the determination of the proper
period within which the right to repurchase, granted under the questioned pacto
de retro sale, may be exercised.

The factual antecedents of the case are not disputed.

On 9 March 1973, petitioner executed in favor of private
respondents spouses a Deed of Sale With The Right to Repurchase over her
undivided half portion of Lot No. 3493 of the Talisay­-Minglanilla Estate
located at Tabunok, Talisay, Cebu for a consideration of Seven Thousand Four
Hundred Pesos (P7,400.00); the sale was made subject to the following
stipulation:

“That it is the essence of this contract that the vendor, Clara Badayos has the right to repurchase
the above described property after two (2) years from and after the execution
of this contract for the same amount of SEVEN THOUSAND FOUR HUNDRED PESOS
P7,400.00).”^[1]

Two (2) years after the execution of the document in question, or
specifically on 17 April 1975, private respondents filed with the then Court of
First Instance (now Regional Trial Court) of Cebu an action, docketed as Civil Case
No. 14516, to consolidate ownership over the property in question; it is
alleged therein that “the two years (sic) period from March 9, 1973 had
already elapsed but defendant never repurchased the said property in violation
of the contract of pacto de Retro Sale.”^[2]

In her Answer With Counterclaim, petitioner, as defendant,
alleges, inter alia, that: (1)
the document in question is actually an equitable mortgage intended to secure
her loan of P4,000.00 from private respondents who charged an interest of
P3,400.00; (2) after the expiration of the two-year period counted from 9 March
1973, she approached the private respondents to request for an extension of
time within which to pay the obligation, which was granted, as she was waiting
for the approval of the loan of her daughter in the amount of P30,000.00 with
the Philippine National Bank; (3) she owns the property in question and is in
possession thereof, enjoying its fruits, and paying the taxes thereon; (4) the
piece of land, located in the commercial district of Tabunok, Talisay, Cebu, is
classified as residential and has a commercial value of P100.00 per square
meter; and (6) the private respondents are lessees thereof, paying rentals of
“P18.00 only annually, for a term of 20 years to expire in 1976.”^[3]

In their Reply, private respondents deny that the document in
question is an equitable mortgage and that they had granted the petitioner an
extension of time within which to pay her obligation.

On 21 July 1975, the trial court issued a pre-trial order setting
the case for trial on the merits and stating that the “parties and
counsels did not submit any stipulation of facts but relied on their
pleadings.”^[4]

On 11 August 1975, petitioner filed a manifestation informing the
trial court that on 4 August 1975, she consigned the amount of P7,400.00 with
the Clerk of Court in favor of the private respondents as payment of her
obligation and/or redemption of the property in question; thus, the case has
become moot and academic and should be dismissed.^[5]

Acting on the manifestation, the trial court issued on 2
September 1975 an Order granting the petitioner five (5) days within which to
submit a motion to dismiss and the private respondents five (5) days from
receipt of said motion to interpose their opposition thereto.^[6]

In her motion to dismiss filed on 4 September 1975, petitioner
contends that:

“x x x the right of Clara Badayos to pay her obligation or to
redeem the property in question occurred after March 9, 1975, and under this
state of things, the right of Clara Badayos to pay her obligation or redeem the
property has not yet elapsed or expired when she consigned or consignated the
amount of P7,400.00 with the Clerk of Court, on August 4, 1975, or even up to
the present. Considering that there is
no period fixed within which to pay after March 9, 1975, the law comes in and
fixed the period which is four (4) years from the date of the contract, as
provided for in Art. 1606 of the New Civil Code x x x.

x x x

x x x even granting in gratia argumenti that the right
to pay the obligation or to redeem the property has thus elapsed, such rights
will be reborn within 30 days after final judgment. So, clearly, x x x there is no more point to proceed with the
trial of the case at bar and the case should therefore be dismissed.”^[7]

Private respondents opposed the motion to dismiss arguing that
since the pre-trial order has long become final, the petitioner has lost her
right to redeem or repurchase the property and is thus estopped from changing
her position that the pacto de retro sale is an equitable mortgage and
not a sale with the option to repurchase.^[8]

On 13 January 1976, the trial court ordered the petitioner to
file an amended answer based on her new stand as presented in the motion to
dismiss.^[9]

On 21 January 1976, petitioner filed an Amended Answer With
Counterclaim incorporating her new stand that the complaint should be dismissed
because she has already consigned the P7,400.00 repurchase price with the trial
court on 4 August 1975, well within the period prescribed by the document in
question.^[10]

On 26 February 1976, private respondents filed an Opposition to
Admission of Amended Answer contending that petitioner must take a definite
stand as to whether she considers the document in question as a contract of
sale with option to repurchase or a contract of mortgage.^[11]

The trial court, on 25 March 1976, admitted petitioner’s Amended
Answer With Counterclaim and required private respondents to file a reply
thereto.^[12]

In their Reply, private respondents contend that petitioner
should be considered as having waived her right to repurchase the property as a
result of her failure and refusal to exercise such right despite numerous
demands.^[13]

On 3 November 1976, petitioner filed with the trial court a
manifestation that she is reinstating and refiling her 4 September 1975 Motion
to Dismiss.^[14]

Thereafter, on 17 March 1977, private respondents filed a
Rejoinder to Motion to Dismiss asking for a trial on the merits and alleging
that the grounds relied upon for a dismissal are matters of defense.^[15]

On 27 May 1977, the trial court dismissed the complaint in an
Order stating that:

“A (sic) reading of the deed in question it is very clear and
in certain terms as shown in the 4th paragraph of said contract that the right to
repurchase the property shall occur after two years from and after the
execution of the contract for the same amount of P7,400.00 counted from March
9, 1973.

It appears that defendant’s former theory was that the contract was
not a deed of sale with the right to repurchase but an equitable mortgage. Later, however, she changed her theory and
admitted the allegations in the complaint for consolidation of right of
ownership but the right to exercise the right to repurchase was not within two
years, but after two years from execution thereof.

Hence, as she is now willing to repurchase the property the
defendant argued, and the Court concurs, that the condition of the contract is
that the defendant has the right to repurchase for the same amount the half (sic)
portion of this Lot No. 3493 after two years from March 9, 1973, effectively on
August 11, 1975 a little over two years from March 9, 1973 she (sic) consigned
the same amount of P7,400.00 as repurchase price in favor of the plaintiffs
thru the Clerk of Court and now asks for the dismissal of the case as she has
opted to exercise the right to repurchase within the terms and contents of the
contract.

The Court further concurs with the defendant’s arguments that even
if the complaint is decided in favor of the plaintiffs consolidating their
title and under Art. 1606 of the Civil Code, the defendant has still 30 days
from final judgment to exercise the right to repurchase and failure to exercise
the same the execution of the judgment may follow for the sale of the property
at public auction to cover the judgment debt.

Finding the motion to dismiss meritorious, the same is
GRANTED.”^[16]

Their motion^[17]
for the reconsideration of this Order having been denied for lack of merit,^[18]
private respondents appealed to the Court of Appeals, which docketed the case
as C.A.-G.R. No. 62677-R.

In its decision promulgated on 4 May 1981, the Court of Appeals
reversed the appealed Order principally on the ground that since petitioner
abandoned her theory of equitable mortgage, she should have exercised her right
of redemption within two (2) years from 9 March 1973, or on or before 9 March
1975. Since she failed to do so, she
lost that right. The appellate court
held:

“As found by the court below in the disputed order of May 27,
1977, the defendant changed the theory of her case in the amended answer from
one of an equitable mortgage to one of a deed of sale with right of repurchase,
and contended that her right to repurchase the subject land has not yet expired
when she consigned on August 11, 1975 the sum of P7,400.00, pursuant to the
penultimate paragraph on the contract. Such being the case, and without any objection from the
defendant-appellee, the issue as to the nature of the transaction is settled,
it is a deed of sale with right to repurchase.

The facts show that the defendant failed to redeem the land on May
9, 1975, which is the expiration date of the two-year period from the execution
of the contract on March 9, 1973. This
is admitted by the appellee in both her answer and amended answer. We cannot over emphasis (sic) this
point. And this fact is confirmed by
the fact that the defendant requested for an extension of time to redeem the
land. This too is admitt4d (sic) by the
appellee in her amended answer. But the
plaintiffs did not grant the request of the appellee but filed instead the
present suit on April 17, 1975.

It appearing that the appellee had failed to redeemed (sic) the
subject property as stipulated in the contract, it follows that the action for
consolidation of ownership of the subject land is tenable. The fact that defendant consigned the
redemption price in court does not cure the defect because the consignation was
effected after the defendant had incurred (sic) delay.”^[19]

Petitioner sought reconsideration of the foregoing decision but
the same was denied.^[20]

Hence, the petitioner filed the instant petition for review on certiorari
on 25 August 1981. Petitioner contends
that she neither changed nor abandoned her theory that the contract in question
is an equitable mortgage but merely alleged alternative defenses, including the
defense that if the contract is a true sale with right to repurchase, then
there is nothing more to litigate in view of her exercise of the right to
repurchase; granting even that the contract is a true sale with right to a
repurchase, she still had the time to exercise her right; the dismissal of the
case by the trial court was justified because it became moot and academic; and
that there is no procedural or substantive justification for the Court of
Appeals to declare the private respondents as the lawful owners of the property
by consolidation, without any trial on the merits.

To the mind of this Court, the principal issue is whether or not
petitioner was able to repurchase the property in question within the period
stipulated in the deed of sale with right to repurchase. The fourth paragraph of said deed expressly
provides:

“That it is the essence of this contract that the vendor,
Clara Badayos has the right to repurchase the above described property after
two (2) years from and after the execution of this contract for the same amount
of SEVEN THOUSAND FOUR HUNDRED PESOS (P7,400.00).”^[21]

The respondent Court interpreted this provision to mean that the
two-year period shall commence from the date of the execution of the contract, i.e.,
from 9 March 1973, and that the right must be exercised within that
period. This is not correct. The petition then is impressed with merit.

The foregoing stipulation is clear and needs no further interpretation;
hence, its literal meaning is binding. It simply means that petitioner can redeem the property in question
“AFTER TWO (2) years from and after the execution of the contract,”
NOT WITHIN two (2) years from such execution. Since the contract was executed on 9 March 1973, petitioner can redeem
the property only after 9 March 1975. The rule in this jurisdiction is that if the
terms of a contract are clear and leave no doubt upon the intention of the
contracting parties, the literal meaning of its stipulations shall control.^[22]

It is to be noted, however, that while the parties agreed on the
period within which the right may not be exercised or will be deemed suspended,
they did not specify the period within which such may be exercised thereafter. This suspension remains valid^[23]
as long as Article 1606 of the Civil Code is not violated. Said Article reads:

“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. x x x.”

While the counting of this four-year period shall begin from the
execution of the contract,^[24]
where the right is suspended by agreement until after a certain time, event or
condition, the period shall be counted from the time such right could be
exercised, but not exceeding ten (10) years from the execution of the contract.^[25]
Applying this provision to the instant case, the period to repurchase the
property must be deemed to be four (4) years from 9 March 1975 or until 9
March 1979. Since
petitioner consigned the repurchase price on 11 August 1975,
a fact private respondents did not deny, this Court declares that this
consignation operated as a valid offer or tender of the redemption price. It must be emphasized that consignation was
not necessary for the reason that the relationship that existed between
petitioner and private respondents, in respect to the right of redemption, was
not one of debtor-creditor. Petitioner
was exercising a right, not discharging an obligation, hence a mere tender of
payment is sufficient to preserve the right of a vendor a retro.^[26]

The foregoing renders unnecessary discussions on the other
secondary issues raised.

WHEREFORE, the petition is GRANTED. The challenged decision of the respondent
Court in C.A.-G.R. No. 62677-R, promulgated on 4 May 1981, is hereby SET ASIDE
and the Order of the trial court of 27 May 1977 in Civil Case No. R-14516 is
hereby REINSTATED and AFFIRMED.

Costs against private respondents.

IT IS SO ORDERED.

Gutierrez, Jr., (Chairman), Feliciano, Bidin, and Romero, JJ., concur.

^[1]
Record on Appeal, 6.

^[2]
Id., 3.

^[3]
Record on Appeal, 9-10.

^[4]
Id., 19-20.

^[5]
Id., 20-21.

^[6]
Record on Appeal, 22-23.

^[7]
Id., 24-29.

^[8]
Id., 43-46.

^[9]
Record on Appeal, 47-50.

^[10]
Id., 52-59.

^[11]
Id., 59-60.

^[12]
Id., 67.

^[13]
Id., 68-69.

^[14]
Record on Appeal, 69-70.

^[15]
Id., 74-76.

^[16]
Record on Appeal, 76-79.

^[17]
Id., 80-86.

^[18]
Id., 94.

^[19]
Rollo, 18-20.

^[20]
Id., 27.

^[21]
Record on Appeal, 6.

^[22]
Article 1370, Civil Code.

^[23]
PARAS, E.L., Civil Code of the Philippines, Annotated,
vol. V., 11th ed., (1986), 215-216, citing Santos vs. Heirs of
Crisostomo, 41 Phil. 342; Rosales vs. Reyes, 25 Phil. 495.

^[24]
Borlaza vs. Ramos, G.R. No. 3433, 16 July 1951; 53 O.G. 3774, June,
1957.

^[25]
Rosales vs. Reyes, 25 Phil. 495 (1913); Lucido vs. Calupitan, 27
Phil. 148 (1914); Medel vs. Francisco, 51 Phil. 367 (1927); see also
Santos vs. Heirs of Crisostomo, 41 Phil. 342 (1921); Tayao vs.
Dulay, 13 SCRA 758 (1965); Baluyot vs. Venegas, 22 SCRA 412 (1968).

^[26]
TOLENTINO, Civil Code of the Philippines,
vol. IV, 1985 ed., 322-323, citing Rosales vs. Reyes, 25 Phil. 495.