Spouses Uy Tong v.

CA

Facts: Uy Tong (also known as Henry Uy) and Kho Po Giok (SPOUSES) used to be the owners of
Apartment No. 307 of the Ligaya Building, together with the leasehold right for ninety- nine (99) years
over the land on which the building stands. The land is registered in the name of Ligaya Investments, Inc.
as evidenced by Transfer Certificate of Title No. 79420 of the Registry of Deeds of the City of Manila. It
appears that Ligaya Investments, Inc. owned the building which houses the apartment units but sold
Apartment No. 307 and leased a portion of the land in which the building stands to the SPOUSES.

In February, 1969, the SPOUSES purchased from private respondent Bayanihan Automotive, Inc.
(BAYANIHAN) seven (7) units of motor vehicles (Trucks) for a total amount of P47,700.00 payable in
three (3) installments. The transaction was evidenced by a written "Agreement" wherein the terms of
payment had been specified as follows:

“That immediately upon signing of this Agreement, the VENDEE shall pay unto the VENDOR the amount of Seven Thousand
Seven Hundred (P7,000.00) Pesos, Philippine Currency, and the amount of Fifteen Thousand (P15,000.00) Pesos shah be paid
on or before March 30, 1969 and the balance of Twenty Five Thousand (P25,000.00) Pesos shall be paid on or before April 30,
1969, the said amount again to be secured by another postdated check with maturity on April 30, 1969 to be drawn by the
VENDEE;

That it is fully understood that should the two (2) aforementioned checks be not honored on their respective maturity dates,
herein VENDOR will give VENDEE another sixty (60) days from maturity dates, within which to pay or redeem the value of the
said checks;

That if for any reason the VENDEE should fail to pay her aforementioned obligation to the VENDOR, the latter shall become
automatically the owner of the former's apartment which is located at No. 307, Ligaya Building, Alvarado St., Binondo, Manila,
with the only obligation on its part to pay unto the VENDEE the amount of Three Thousand Five Hundred Thirty Five (P3,535.00)
Pesos, Philippine Currency; and in such event the VENDEE shall execute the corresponding Deed of absolute Sale in favor of the
VENDOR and or the Assignment of Leasehold Rights.”

Spouses defaulted in their payment of P40,000, hence Bayanihan filed for a specific action in the CFI of
Manila which ruled in Bayanihan’s favour. Notwithstanding the deed of assignment, the spouses
remained in possession of the premises. This prompted Bayanihan to file an ejectment case. This action
was however dismissed on the ground that BAYANIHAN was not the real party in interest, not being the
owner of the building. Failing to surrender the possession of the apartment to Bayanihan, Bayanihan
filed another case and it ruled in favour of it. The court ordered the Bayanihan to recognized the
Spouses as lessee and ordered the spouses to pay rent to pay to the plaintiff the sum of P200.00
commencing from June, 1971 to November 30, 1972, or a total amount of P3,400.00 as rental for the
apartment, and the sum of P200.00 from December 1, 1972 until the premises are finally vacated and
surrendered to the plaintiff, as reasonable compensation for the use of the apartment. The spouses not
satisfied with the ruling, appealed to the CA contending that the agreement was void since it is a pactum
commissorium; there was no full compliance by private respondent of the condition imposed in the
deed of assignment; and lastly

Issue: WON the agreement between Bayanihan and Spouses Uy Tong is in the nature of Pactum
Commissorium. NO
Held: No. A perusal of the terms of the questioned agreement evinces no basis for the application of
the pactum commissorium provision. First, there is no identification of any contract of mortgage
entered into by the parties. It is a fact that the parties agreed on the sale and purchase of trucks.
Second, there is no case of automatic appropriation of property because it took the intervention of the
trial courts to exact fulllment of the obligation.

The prohibition on pactum commissorium stipulations is provided for by Article 2088 of the Civil Code:

Art. 2088. The creditor cannot appropriate the things given by way of pledge or mortgagee, or dispose
of the same. Any stipulation to the contrary is null and void.

The aforequoted provision furnishes the two elements for pactum commissorium to exist: (1) that there
should be a pledge or mortgage wherein a property is pledged or mortgaged by way of security for the
payment of the principal obligation; and (2) that there should be a stipulation for an automatic
appropriation by the creditor of the thing pledged or mortgaged in the event of non-payment of the
principal obligation within the stipulated period.
A.Francisco Reaty & Dev’t Corp. v. CA

G.R. No. 125055. October 30, 1998

Facts: A.Francisco Realty granted a Php 7.5M loan to spouses Javillonar, wherein the spouses executed a
promissory note, a real estate mortgage over a certain property, and a deed of sale of said mortgaged
property in favor of A. Francisco. The interest on the said loan was to be paid in four installments: half of
the total amount agreed upon (P900,000.00) to be paid in advance through a deduction from the
proceeds of the loan, while the balance to be paid monthly by means of checks post-dated March 27,
April 27, and May 27, 1992. The promissory note expressly provided that upon failure of the
MORTGAGOR [private respondents] to pay the interest without prior arrangement with the
MORTGAGEE [petitioner], full possession of the property will be transferred and the deed of sale will
be registered.

For this purpose, the owners duplicate of TCT No. 58748 was delivered to petitioner A. Francisco Realty.
Upon maturity of loan, the spouses failed to pay, so A. Francisco demanded possession of the
mortgaged realty. The spouses alleged that it was not their intention to sell as the deed of sale was
merely an additional security for their loan payment. The RTC adjudged in favor of A. Francisco. On
appeal, CA reversed RTC decision .During trial, Spouses Javillonar contended that the Regional Trial
Court had no jurisdiction over the case because it was actually an action for unlawful detainer which is
exclusively cognizable by municipal trial courts. A. Francisco contented that the forfeiture clause in the
Promissory Note was not a pactum commissorium because Art. 2088 (NCC) provided that a pactum
commissorium is a forfeiture clause in a deed of mortgage, and thus the forfeiture stipulation should
be in the mortgage deed itself in order to be prohibited. SC sustained the CA decision.

Issue: WON the Forfeiture clause(in the promissory note) not incorporated in the deed of mortgage is
still in the nature of pactum commissiorium. Yes

Held: Yes, The stipulations in the promissory notes providing that, upon failure of mortgagor (spouses)
to pay interest, ownership of the property would be automatically transferred and the deed of sale in its
favor would be registered to mortgagee (A. Francisco), are in substance a pactum commissorium.

The stipulations in the Promissory Note embody the two elements of pactum commissorium: (1) That
there should be a pledge or mortgage wherein a property is pledged or mortgaged by way of security
for the payment of the principal obligation; and (2) That there should be a stipulation for an
automatic appropriation by the creditor of the thing pledged or mortgaged in the event of non-
payment of the principal obligation within the stipulated period. To sustain the theory of the petitioner
(that the forfeiture clause should be in the mortgage deed itself in order to be prohibited) would be to
allow a subversion of the prohibition.
Reyes v. Sierra

G.R. No. L-28658 October 18, 1979

Facts: On January 3, 1961, Vicente Reyes filed an application for registration of his title to a
parcel of land situated in Antipolo, Rizal and covered by Plan Psu-189753 of the Bureau of
Lands. In his application, he declared that he acquired the land by inheritance from his father
who died sometime in 1944. Applicant is one of the heirs of the deceased Vicente Reyes Sr. but
the other heirs executed a deed of quit claim in favor of the applicant. Notice of hearing was
published in Official Gazette, a copy is also posted in conspicuous place in the land in question
and in the municipal building of Antipolo, Rizal. It was opposed by the director of lands,
Francisco Sierra and Emilio Sierra.

Origin of the dispute over land was because in 1926, the Sierras’ predecessor, Basilia Beltran,
borrowed P100 from Vicente Reyes, Sr. and secured the loan with the said piece of land. In so
doing, Basilia’s children executed together with her a document “katibayan ng pagpapahintulot
sa aming ina na ipananagutan kay Vicente Reyes sa inutang na halagang P100’ Beltran,
however, died in 1938 without being able to pay the loan and Vicente Reyes, Jr.continued in
possession thereof, believing that the document executed was a contract of sale and not of
mortgage Oppositors Sierra et al now claiming that the words “sangla”, “ipinanagutan sa
halagang isangdaang piso” manifest that the document was one of mortgage.

Issue: WON the agreement was a contract of sale or mortgage.

Held: Mortgage. The intention of the parties at the time it was executed must prevail, i.e., the
borrowing and lending of money with security. The terms indicate a debt and the creation of a
creditor-debtor relationship, where the land was used to secure repayment of the loan. Act of
Vicente Reyes in registering the property in his name after failure of mortgagor to redeem the
property constitutes a pactum commisorium which is against good morals and public policy.

Court also declared that possession by Reyes has not been continuous (they had only used the
property to spend some vacation time there, but this was discontinued for the last 23 years).
Moreover, mere failure of owner to pay taxes does not necessarily imply abandonment of a
right to property; and on the other hand, payment of realty taxes by itself does not constitute
sufficient evidence of title.
Olea vs. CA

G.R. No. L-28658 October 18, 1979

Facts: On 27 January 1947 spouses Filoteo Pacardo and Severa de Pacardo executed a deed of
Sale Con Pacto de Retro over Lot No. 767 of the Passi Cadastre covered by Transfer Certificate
of Title No. 26424 in their name for a consideration of P950.00 in favor of Maura Palabrica,
predecessor in interest of petitioner, subject to the condition that —

“ . . . if we, the said spouses, Filoteo Pacardo and Severa de Pacardo, our heirs, assigns, successors-in-interest,
executors and administrators shall and will truly repurchase the above-described parcel of land from the said
Maura Palabrica, her heirs, assigns, successors-in-interest after THREE YEARS counting from the date of the
execution of this instrument, to wit, on January 27, 1950 in cash payment in the sum of Five Hundred Pesos,
Philippine currency, plus Four Hundred and Fifty Pesos (P450), also lawful currency, in cash or eighteen (18) cavans
of palay (Provincial Measurement) at our option, then this sale shall become null and void and of no force and
effect whatsoever. On the contrary, the same will become irrevocable, definite and final. ”

The contract of sale with right to repurchase was acknowledged by the vendors before Notary
Public Victorio Tagamolila on the same day the contract was executed in the Municipality of
Passi, Province of Iloilo. After the execution of the sale, the Pacardo spouses as vendors
remained in possession of the land and continued the cultivation thereof. Since the sale on 27
January 1947 up to August 1987, or for a period of about 40 years, the spouses delivered
annually one-third (1/3) of the produce of the land to Maura Palabrica and kept for themselves
the remaining two-thirds (2/3). Despite the lapse of 3 years, the Sps. Pacardo failed to
repurchase the property but still gave the 1/3 share of the produce to Maura Palabrica. Filoteo
Sr. died and Filoteo Jr. continued to give the 1/3 share to Maura and eventually to Thelma Olea,
daughter of Maura, to whom she eventually sold the land. Maura caused the registration of the
sale con pacto de retro on 22 Sept 1969. Filoteo Jr. died and Sps. Jesus and Elizabeth Palencia
took over but they gave the 1/3 share not to Thelma but to Elena Pacardo, wife of Filoteo Jr.
Thelma filed a case against sps. Palencia and Elena for recovery of possession with damages.
Private respondents Elena Vda. de Pacardo and Jesus and Elizabeth Palencia filed their answer
alleging that their parents intended the disputed transaction to be an equitable mortgage and
not a sale with right to repurchase. Respondent Monserrat Paciente, another daughter of the
vendor-spouses Filoteo and Severa Pacardo, filed an answer in intervention raising likewise as
defense that the Sale Con Pacto de Retro was indeed an equitable mortgage.

Issue: WON the sale was a pacto de retro sale.

Held: No, Sale was an Equitable Mortgage. We cannot sustain petitioner. Art. 1602 of the New
Civil Code provides that the contract of sale with right to repurchase shall be presumed to be an
equitable mortgage in any of the following cases: (a) when the price of the sale is unusually
inadequate; (b) when the vendor remains in possession as lessee or otherwise; (c) when upon
or after the expiration of the right to repurchase another instrument extending the period of
redemption or granting a new period is executed; (d) when the purchaser retains for himself a
part of the purchase price; (e) when the vendor binds himself to pay the taxes on the thing sold;
and, (f) in any other case where it may be fairly inferred that the real intention of the parties is
that the transaction shall secure the payment of a debt or the performance of any other
obligation. Being remedial in nature, Art. 1602 may be applied retroactively to cases prior to
the effectivity of the New Civil Code 3 Hence it may apply to the instant case where the deed of
sale with right to repurchase was executed on 27 January 1947.

It has been held that a contract should be construed as a mortgage or a loan instead of a pacto
de retro sale when its terms are ambiguous or the circumstances surrounding its execution or
its performance are incompatible or inconsistent with the theory that it is a sale even when a
document appears on its face to be a sale with pacto de retro the owner of the property may
prove that the contract is really a loan with mortgage by raising as an issue the fact that the
document does not express the true intent and agreement of the parties. In this case, parol
evidence then becomes competent and admissible to prove that the instrument was in truth
and in fact given merely as a security for the repayment of a loan. In pacto de retro sale the
payment of the repurchase price does not merely render the document null and void but there
is the obligation on the part of the vendee to sell back the property.

This is so because pacto de retro sales with the stringent and onerous effects that accompany
them are not favored. In case of doubt, a contract purporting to be a sale with right to
repurchase shall be construed as an equitable mortgage. Such stipulation that the ownership of
the property would automatically pass to the vendee in case no redemption was effected
within the stipulated period is void for being a pactum commissorium which enables the
mortgagee to acquire ownership of the mortgaged property without need of foreclosure. Its
insertion in the contract is an avowal of the intention to mortgage rather than to sell the
property. Consequently, there was no valid sale to Maura Palabrica. Ownership over the
property was not transferred to her for she was merely a mortgagee. There being no title to the
land that Palabrica acquired from the spouses Filoteo and Severa Pacardo, it follows that
Palabrica had no title to the same land which could be conveyed to petitioner. Hence there is
no legal basis for petitioner to recover possession of the property.

Sps. Pacardo still gave the 1/3 of the produce until 1987 which is equal to the interest on the
rent. Case for recovery was filed 39 years after, hence barred by estoppel by laches.