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[G. R. No. 147206.July 2, 2001]

CABALLERO et al. vs. ONG TIAO BOK

SECOND DIVISION

Gentlemen:

Quoted hereunder, for your information, is a resolution of this Court dated JUL 2 2001.

G.R. No. 147206(Danilo H. Caballero, et al. vs. Ong Tiao Bok.)

Petitioners are the children and heirs of Sergio Caballero and Elisea Hechanova. In their lifetime, the couple owned two parcels of land located in Calatrava, Negros Occidental. The lots (Lot Nos. 3 and 1451), with a total area of 110,010 square meters, were covered by Transfer Certificate of Title Nos. 24402 and 24403, respectively. On March 17, 1972, Sergio Caballero, with the marital consent of his wife, Elisea Hechanova, sold the two lots to respondent Ong Tiao Bok for P60,000.00 under a contract denominated as "Deed of Sale with Right to Repurchase." The contract provided that of the amount of P60,000.00, P23,000.00 should be paid to the Philippine National Bank, P30,000.00 to a certain Rogelio Cruz, while the remaining amount of P7,000.00 should be paid to Caballero; that the vendor may repurchase the property within a period of five years from the date of the execution of the contract with a grace period of three years from the expiration of the original period of five years; and that an area of 400 square meters in Lot No. 3, a beach resort with coconut and nipa palm trees, would be reserved for the exclusive use of the vendor until the expiration of the period of redemption, although it appears that respondent took possession of the lots. The deed of sale was duly registered.

On January 29, 1996, after Sergio Caballero and Elisea Hechanova had died and 16 years after the expiration of the stipulated period of redemption, petitioners filed an action in the Regional Trial Court, Branch 58, San Carlos City, Negros Occidental, for the cancellation of the annotations of the sale on the titles to the lots. They contended that the contract between their predecessor-in-interest and respondent was in fact a contract of equitable mortgage and, since the ten (10) year prescriptive period for the foreclosure of the mortgage had lapsed, the annotation on the titles to the lots constituted a cloud thereon which should be removed.

The trial court dismissed petitioners' complaint on the ground that the Contract in question is a valid contract of sale with right of repurchase, and not an equitable mortgage, and that in any case laches has set in to bar petitioners' action. For this reason, it ordered the Registrar of Deeds of Negros Occidental to cancel TCT Nos. 24402 and 24403 and to issue a new one in the name of respondent since, with the vendor's failure to redeem the properties, title thereto became consolidated in favor of respondent. On appeal to the Court of Appeals, the ruling was affirmed. Petitioners' motion for reconsideration was also denied. Hence this petition.

Petitioners reiterate their contention in the Court of Appeals that the purchase price of the property in question, compared to its assessed value at the time of the sale, and the fact that the vendors were granted exclusive use to a portion of the lots sufficiently indicated that the contract was not a contract of sale but rather of loan with the lots mortgaged as security.

The petition has no merit.

First. In order to determine whether a contract is one of sale or mortgage, the intention of the parties must be ascertained. In this case, the parties stipulated that "for and in consideration of the sum of P60,000.00, which the Party of the Second Part [respondent] shall pay the Party of the First Part [Caballero], the latter hereby sells, cedes, and conveys unto the Party of the Second Part all his rights, interest and participation in the abovementioned lots" and that "after the expiration of five (5) years from the signing of th[e] contract the Party of the First Part has the right to repurchase the two lots for the same consideration as stated in the Deed of Sale with pacto de [r]etro and that the said Party of the First Part shall have a grace period of three (3) years from the expiration of the five years." These stipulations clearly express the intention of the parties to enter into a contract of sale with a right of repurchase. Their contract needs no interpretation and should be enforced as written.

With regard to petitioners' claim that the purchase price is inadequate, Art. 1602(1) of the Civil Code provides that a contract shall be presumed to be an equitable mortgage when the price of a sale with right to repurchase is unusually inadequate. The inadequacy of the price paid must be so gross and unconscionable that the mind revolts at it and is such as a reasonable man would neither directly nor indirectly be likely to consent to (Aguilar v. Rubiato, 40 Phil. 570 (1919); 5 TOLENTINO, CIVIL CODE OF THE PHILIPPINES 157-158 (2nd ed., 1992)). In the case at bar, while the purchase price of the land was P60,000.00 when its assessed value is P65,610.00, the difference cannot be considered unconscionable and revolting. The Caballeros utilized a large part of the purchase price in order to settle their obligation to their creditors (PNB and Cruz). This obviously was a major factor in their decision to sell the properties at a price slightly lower than its assessed value. Petitioners claim that "it is public knowledge that that assessed value of properties is far below their fair market value ... thus a selling price equal or a little below that of the assessed value . . . is certainly and definitely inadequate." In the absence, however, of any evidence on the actual extent of the inadequacy of the price proving the same to be grossly inadequate, such allegation cannot be given much weight. Indeed, the vendor in cases of pacto de retro sale usually fixes a price less than the real value to make it easier for him to return the price received (Feliciano v. Limjuco, 41 Phil. 147 (1920)) not to mention that in cases of sale with right of repurchase, the price obtained is ordinarily less than that paid in cases of absolute sale.

Second. Neither is there merit in petitioners' contention that by virtue of the stipulation allowing the Caballeros exclusive use of a portion of the sold properties, they have remained in possession thereof and that, as provided in Art. 1602(2) of the Civil Code, this is an indication that the contract is one of equitable mortgage. The trial court found that the Caballeros did not really remain in possession of the lots and that it was respondent who has been in possession thereof since the execution of the contract in question. Moreover, the reservation of the portion of the area in question hardly amounts to the possession contemplated by law. Considering the nature of the property reserved (beach resort) and the area it covers (400 square meters) in relation to the size of the entire property (more than 11 hectares), it is evident that the arrangement was more a form of accommodation to the former lot owners than a recognition of their right to remain on the land. The applied purpose appears to be merely to give them access to the beach resort. Indeed, the contract provided that upon the expiration of the period of redemption, the Caballeros would no longer be allowed access to any part of the purchased property.

Third. Even assuming that the contract in question was one of equitable mortgage, petitioners are barred by laches from claiming any rights under the contract. They brought this action more than 23 years after the execution of the contract, during which period respondent was in possession of the land. Petitioners have slept on their claimed right.

For the foregoing reasons, the Court RESOLVED to deny the petition for lack of showing that the Court of Appeals committed a reversible error.

Very truly yours,

(Sgd.) TOMASITA B. MAGAY-DRIS
Clerk of Court

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