valbuena digest

1.) Koa vs BA Finance Case Digest
[ G.R. NO. 84847, MARCH 05, 1993 ]

On April 20, 1987, the spouses Henry L. Koa and Virginia Koa, now herein petitioners, obtained from People's Car, Inc. a credit of P26,422.20 covering the cost of one Volkswagen Trakbayan de Luxe secured by a promissory note executed by the spouses in favor of People's Car, Inc. The spouses obligated themselves to pay People's Car, Inc. the sum of P26,422.20 inclusive of 14% interest on each unpaid installment to be computed from date of maturity until fully paid, payable on monthly installments of P733.95 starting July 1, 1977 and on the first day of the next 35 months from August 1, 1977 until full payment thereof. It was further stipulated that a penalty charge of P10.00 for every month or fraction thereof shall be paid by the spouses in case an installment due remains unpaid. To secure faithful and prompt compliance of their obligations under the said promissory note, petitioners constituted a chattel mortgage on the aforementioned motor vehicle. Subsequently, on May 27, 1977, People's Car, Inc. assigned the promissory note, together with the chattel mortgage, to BA Finance Corporation. The Koa spouses paid a total of P14,679.00 plus P493.78 representing interests and surcharges to BA Finance Corporation, thereby leaving an unpaid balance of P12,236.98 plus 14% interest plus a penalty charge of P10.00 for every month or fraction thereof starting September 26, 1979 until the entire amount is fully paid.

Owing to the failure of petitioners to comply with the terms and conditions of the promissory note for more than 6 months, BA Finance Corporation filed a complaint for "Replevin with Damages" against the spouses before the court of origin. After submitting their Answer, a Third-Party Complaint against People's Car, Inc. was filed by the spouses.

Following trial on merits, the lower court rendered its decision, the decretal portion of which reads:

ACCORDINGLY, judgment is hereby rendered in favor of the plaintiff and against defendants Henry L. Koa and Virginia Koa ordering them, jointly and severally, to pay plaintiff 1) P12,236.98 plus 12% interest and a penalty charge of P10.00 for every month or fraction thereof from September 26, 1979 until the whole amount is fully paid and 2) P1,000 as attorney's fees.

The third-party complaint is DISMISSED.

a)    the Court of Appeals erred in holding that BA Finance Corporation did not assume the obligation of warranty by the People's Car, Inc.;

b)    respondent court likewise erred in not holding that in surrendering possession of the car to the assignor, petitioners are absolved from paying the balance under the promissory note;

c)    respondent court erroneously concluded the absence of breach of warranty under the premises.

The CA finds the contention of petitioners to be impressed with merit. It is basic under substantive law that when a seller or vendor assigns his credit to another person, the latter is deemed subrogated to the rights as well as to the obligations of the seller. In BA Finance Corporation vs. Court of Appeals (201 SCRA 157 [1991]), BA Finance Corporation was deemed subrogated to the rights and obligations of Supercars, Inc. when the latter assigned the promissory note, together with the chattel mortgage constituted on the motor vehicle in question, in favor of the former. Consequently, BA Finance Corporation was held bound by the terms and conditions of the chattel mortgage executed between the Cuady spouses and Supercars, Inc.

Furthermore, Article 1495 of the Civil Code is very explicit that "the vendor is bound to transfer the ownership of and deliver, as well as warrant the thing which is the object of the sale." This clearly shows the responsibilities of the vendor towards the vendee. Since an assignee merely steps into the shoes, so to speak, of an assignor, the assignee shall likewise shoulder all the obligations of a vendor-assignor, including the vendor's warranty. Warranty is a collateral undertaking. Thus, in a sale of personal property it is an express or implied statement of something which a party undertakes and shall be a part of a contract and, though part of the contract, collateral to the express object of it (Mc Cullough vs. Aenlle and Company, 3 Phil. 298 [1904]). As a collateral undertaking, it follows where the principal obligation goes.

However, the real issue in the instant petition is, whether or not there was a breach of warranty on the part of People's Car, Inc. and consequently on the part of BA Finance Corporation when the motor vehicle in question was returned to People's Car, Inc. due to alleged "factory defect".

In so far as petitioners' so-called pecuniary accountability in favor of private respondent is concerned, The SC's qopinion and thus hereby hold that petitioners should be exonerated from paying the balance and legal interest arising from the promissory note because of the legal proscription against unjust enrichment (Article 2142, New Civil Code). In the case at bar, it is an admitted fact that the vehicle was surrendered to People's Car, Inc. even before the action for replevin was filed. Certainly, to require petitioners to effect full payment in the manner arrived at below after they turned over the vehicle to People's Car, Inc. which did not fulfill its avowed promise to provide a replacement therefor, is wholly incongruous, nay, inequitable. Verily, and judging from the tenor of Exhibit "1" (supra, at page 7, Decision), People's Car, Inc. opted to retain permanent possession of the vehicle after the offer to replace the same expired signifying that it was cancelling the sale, and was accepting possession of the car which is a bar against exaction of the balance of the purchase price (Nonato vs. Intermediate Appellate Court, 140 SCRA 255 [1985]). Hence, if People's Car, Inc., as assignor is barred from demanding payment of the unpaid balance then, a fortiori, BA Finance as assignee, is likewise precluded from recovering against petitioners.

The SC  Granted the petition. The Decision of respondent court dated July 29, 1988, including the Resolution dated September 8, 1988, were SET ASIDE and another one entered DISMISSING the complaint for replevin..

 [ G.R. NO. 177874, SEPTEMBER 29, 2008 ]
JAIME D. ANG, PETITIONER, VS. COURT OF APPEALS AND BRUNO SOLEDAD, RESPONDENTS.

Under a "car-swapping" scheme, respondent Bruno Soledad (Soledad) sold his Mitsubishi GSR sedan 1982 model to petitioner Jaime Ang (Ang) by Deed of Absolute Sale dated July 28, 1992.  For his part, Ang conveyed to Soledad his Mitsubishi Lancer model 1988, also by Deed of Absolute Sale of even date.  As Ang's car was of a later model, Soledad paid him an additional P55,000.00.

Ang, a buyer and seller of used vehicles, later offered the Mitsubishi GSR for sale through Far Eastern Motors, a second-hand auto display center.  The vehicle was eventually sold to a certain Paul Bugash (Bugash) for P225,000.00, by Deed of Absolute Sale dated August 14, 1992. Before the deed could be registered in Bugash's name, however, the vehicle was seized by virtue of a writ of replevin[4] dated January 26, 1993 issued by the Cebu City Regional Trial Court (RTC), Branch 21 in  Civil Case No. CEB-13503, "BA Finance Corporation vs. Ronaldo and Patricia Panes," on account of the alleged failure of Ronaldo Panes, the owner of the vehicle prior to Soledad, to pay the mortgage debt constituted thereon.

To secure the release of the vehicle, Ang paid BA Finance the amount of P62,038.47 on March 23, 1993.  Soledad refused to reimburse the said amount, despite repeated demands, drawing Ang to charge him for Estafa with abuse of confidence before the Office of the City Prosecutor, Cebu City. By Resolution of July 15, 1993, the City Prosecutor's Office dismissed the complaint for insufficiency of evidence, drawing Ang to file on November 9, 1993 the first of three successive complaints for damages against Soledad before the RTC of Cebu City where it was docketed as Civil Case No. Ceb-14883.

Branch 19 of the Cebu City RTC,  dismissed Civil Case for failure to submit the controversy to barangay conciliation.

Ang thereafter secured a certification to file action and again filed a complaint for damages, with the RTC of Cebu City, Branch 14 which dismissed it, on the ground that the amount involved is not within its jurisdiction.

Ang thereupon filed on July 15, 1996 with the Municipal Trial Court in Cities (MTCC) a complaint.

After trial, the MTCC dismissed the complaint on the ground of prescription, vìz:
It appearing that the Deed of Sale to plaintiff o[f] subject vehicle was dated and executed on 28 July 1992, the complaint before the Barangay terminated 21 September 1995 per Certification to File Action attached to the Complaint, and this case eventually was filed with this Court on 15 July 1996, this action has already been barred since more than six (6) months elapsed from the delivery of the subject.

His motion for reconsideration being denied, Ang appealed to the RTC in which it dismissed the complaint in favor to Ang.

It was error for the Court to rely on Art. 1571 of the Civil Code to declare the action as having prescribed, since the action is not one for the enforcement of the warranty against hidden defects. Moreover, Villostas vs. Court of Appeals declared that the six-month prescriptive period for a redhibitory action applies only to implied warranties.  There is here an express warranty. If at all, what applies is Art. 1144 of the Civil Code, the general law on prescription, which states, inter alia, that actions 'upon a written contract' prescribes in ten  .

Still the RTCourt finds that plaintiff cannot recover under this warranty. There is no showing of compliance with the requisites.

Nonetheless, for the sake of justice and equity, and in consonance with the salutary principle of non-enrichment at another's expense, defendant should reimburse plaintiff the  P62,038.47 which on March 23, 1993 he paid BA Finance Corporation to release the mortgage on the car.


Soledad's Motion for Reconsideration was denied by Order[16] of December 12, 2002, hence, he elevated the case to the Court of Appeals, Cebu City.

Whereby Ang "cannot anymore seek refuge under the Civil Code provisions granting award of damages for breach of warranty against eviction for the simple fact that three years and ten months have lapsed from the execution of the deed of sale in his favor prior to the filing of the instant complaint." 
While it is true that someone unjustly enriched himself at the expense of herein respondent, we agree with petitioner (Soledad) that it is not he.
The appellate court accordingly reversed the RTC decision and denied the petition, whereby the appellate court denied Ang's motion for reconsideration, it further noting that when Ang settled the mortgage debt to BA Finance, he did so voluntarily in order to resell the vehicle, hence, Soledad did not benefit from it as he was unaware of the mortgage constituted on the vehicle by the previous owner.

In declaring that he owned and had clean title to the vehicle at the time the Deed of Absolute Sale was forged, Soledad gave an implied warranty of title.  In pledging that he "will defend the same from all claims or any claim whatsoever [and] will save the vendee from any suit by the government of the Republic of the Philippines," Soledad gave a warranty against eviction.

Given Ang's business of buying and selling used vehicles, he could not have merely relied on  Soledad's affirmation that  the car was free from liens and encumbrances.  He was expected to have thoroughly verified the car's registration and related documents.

Since what Soledad, as seller, gave was an implied warranty, the prescriptive period to file a breach thereof is six months after the delivery of the vehicle, following Art. 1571.  But even if the date of filing of the action is reckoned from the date petitioner instituted his first complaint for damages on November 9, 1993, and not on July 15, 1996 when he filed the complaint subject of the present petition, the action just the same had prescribed, it having been filed 16 months after July 28, 1992, the date of delivery of the vehicle.

On the merits of his complaint for damages, even if Ang invokes breach of warranty against eviction as inferred from the second part of the earlier-quoted provision of the Deed of Absolute Sale, the following essential requisites for such breach, vìz:
"A breach of this warranty requires the concurrence of the following circumstances:

(1) The purchaser has been deprived of the whole or part of the thing sold;

(2) This eviction is by a final judgment;

(3) The basis thereof is by virtue of a right prior to the sale made by the vendor; and

(4) The vendor has been summoned and made co-defendant in the suit for eviction at the instance of the vendee.

In the absence of these requisites, a breach of the warranty against eviction under Article 1547 cannot be declared." [24]  (Emphasis supplied),
have not been met.  For one, there is no judgment which deprived Ang of the vehicle.  For another, there was no suit for eviction in which Soledad as seller was impleaded as co-defendant at the instance of the vendee.

Finally, even under the principle of solutio indebiti which the RTC applied, Ang cannot recover from Soledad the amount he paid BA Finance.  For, as the appellate court observed, Ang settled the mortgage debt on his own volition under the supposition that he would resell the car.  It turned out that he did pay BA Finance in order to avoid returning the payment made by the ultimate buyer Bugash.  It need not be stressed that Soledad did not benefit from Ang's paying BA Finance, he not being the one who mortgaged the vehicle, hence, did not benefit from the proceeds thereof.

The petition is, in light of the foregoing is DENIED.

 FILINVEST CREDIT vs. PHILIPPINE ACETYLENE
G.R. No. L-50449 January 30, 1982

Philippine Acetylene Co. purchased from Alexander Lim a motor vehicle described as Chevorlet 1969 model for P55K to be paid in installments. As security for the payment of said promissory note, the appellant executed a chattel mortgage over the same motor vehicle in favor of said Alexander Lim. Then, Lim assigned to the Filinvest all his rights, title, and interests in the promissory note and chattel mortgage by virtue of a Deed of Assignment.

Phil Acetylene defaulted in the payment of nine successive installments. Filinvest sent a demand letter. Replying thereto, Phil Acetylene wrote back of its desire to return the mortgaged property, which return shall be in full satisfaction of its indebtedness. So the vehicle was returned to the Filinvest together with the document “Voluntary Surrender with Special Power of Attorney To Sell.” Filinvest failed to sell the motor vehicle as there were unpaid taxes on the said vehicle. Filinvest requested the appellant to update its account by paying the installments in arrears and accruing interest. Filinvest offered to deliver back the motor vehicle to the appellant but the latter refused to accept it, so appellee instituted an action for collection of a sum of money with damages.

Phil Acetylene’s defense: The delivery of the motor vehicle to Filinvest extinguished its money obligation as it amounted to a dation in payment. Assuming arguendo that the return did not extinguish, it was justified in refusing payment since the appellee is not entitled to recover the same due to the breach of warranty committed by the original vendor-assignor Alexander Lim.

The issue if there was dation in payment that extinguished Phil Acetylene’s obligation? NO.

The mere return of the mortgaged motor vehicle by the mortgagor does not constitute dation in payment in the absence, express or implied of the true intention of the parties. Dacion en pago is the transmission of the ownership of a thing by the debtor to the creditor as an accepted equivalent of the performance of obligation. In dacion, the debtor offers another thing to the creditor who accepts it as equivalent of payment of an outstanding debt. The undertaking really partakes in one sense of the nature of sale, that is, the creditor is really buying the thing or property of the debtor, payment for which is to be charged against the debtor’s debt. As such, the essential elements of a contract of sale, namely, consent, object certain, and cause or consideration must be present. In its modern concept, what actually takes place in dacion en pago is an objective novation of the obligation where the thing offered as an accepted equivalent of the performance of an obligation is considered as the object of the contract of sale, while the debt is considered as the purchase price. In any case, common consent is an essential prerequisite, be it sale or innovation to have the effect of totally extinguishing the debt or obligation.

The evidence on the record fails to show that the Filinvest consented, or at least intended, that the mere delivery to, and acceptance by him, of the mortgaged motor vehicle be construed as actual payment, more specifically dation in payment or dacion en pago. The fact that the mortgaged motor vehicle was delivered to him does not necessarily mean that ownership thereof, as juridically contemplated by dacion en pago, was transferred from appellant to appellee. In the absence of clear consent of appellee to the proferred special mode of payment, there can be no transfer of ownership of the mortgaged motor vehicle from appellant to appellee. If at all, only transfer of possession of the mortgaged motor vehicle took place, for it is quite possible that appellee, as mortgagee, merely wanted to secure possession to forestall the loss, destruction, fraudulent transfer of the vehicle to third persons, or its being rendered valueless if left in the hands of the appellant.

As to the strength of the “Voluntary Surrender with Special Power of Attorney To Sell”, it only authorized Filinvest to look for a buyer and sell the vehicle in behalf of the appellant who retains ownership thereof, and to apply the proceeds of the sale to the mortgage indebtedness, with the undertaking of the appellant to pay the difference, if any, between the selling price and the mortgage obligation. Filinvest in essence was constituted as a mere agent to sell the motor vehicle which was delivered not as its property. If it were, he would have full power of disposition of the property, not only to sell it.

4.) MACHINERIES V. YAPTINCHAY (1983)
[ G.R. NO. L-30965, NOVEMBER 29, 1983 ]

Facts:

"Sometime early in January, 1962 appellant GAMI, thru a duly authorized agent, offered to sell a brand-new Fordson Diesel Engine to appellee Horacio Yaptinchay, owner of the freight hauling business styled 'Hi-Way Express'.  Relying on the representations of appellant's representative that the engine offered for sale was brand-new, appellee agreed to purchase the same at the price of P7,590.00.  Pursuant to the contract of sale thus entered into, appellant delivered to appellee, on January 27, 1962, one (1) Fordson Diesel Engine assembly, Model 6-D, with Engine Serial No. A-212193, at 1500 RPM, with fly wheel, fly wheel housing, fuel injection assembly, exhauster, fuel filter, oil filter, fuel lift pump, plus conversion kit for F-500, subject to the standard warranties, particularly the representation, relied upon by appellee, that the same was brand-new.  Said engine was installed by appellant in Unit No. 6 of the Hi-Way Express.
"Within the week after its delivery, however, the engine in question started to have a series of malfunctions which necessitated successive trips to appellant's repair shop.  Thus, it sprang an oil leak such as thereafter, the malfunctioning persisted and, on ins­pection, appellee's mechanic noticed a worn out screw which made appellee suspicious about the age of the engine.  This prompted to protest that the engine was not brand-new.
"In its defense, appellant interposed prescription of the action, denied the imputation of misrepresenta­tion, and disputed the propriety and amount of damages claimed."

Issue:

Whether or not G.A. Machineries Inc. should pay the plaintiff, Horacio Yaptinchay, actual damages sustained in the sum of P54,000.48; to reimburse the purchase price of the Fordson diesel engine in the amount of P7,590.00; and to pay attorney's fees to plaintiff's counsel on the sum of P2,000.00 and costs.

WON the plaintiff likewise, oblige to return the Fordson diesel engine with to the defendant.

Decision:

The CA affirmed the decision in favor to Yaptinchay.

Gami appealed to the SC on the following grounds:

The assignments of errors raise the following issues:  1) whether or not the respondent's cause of action against the petitioner had already pres­cribed at the time the complaint was filed in the trial court; 2) whether or not the factual findings of both the trial and appellate courts as regards the subject Fordson diesel engine are supported by evidence and 3) whether or not the award of damages was justified considering evidence on record.
The first issue is premised on the petitioner's proposition that the respondent's cause of action was for breach of warranty against hidden defects as pro­vided under Articles 1561 and 1566 of the Civil Code.  Article 1571 of the Civil Code provides for a six-month prescriptive period from the delivery of the thing sold for the filing of an action for breach of warranty against hidden defects.  According to petitioner GAMI when respondent Yaptinchay filed the case with the trial court, more than six months had already lapsed from the time the alleged defective engine was delivered and, therefore, the action had prescribed.
The petitioner contends that Yaptinchay's asserted cause of action was premised and anchored on the delivery by the defendant of a DEFECTIVE ENGINE and that the allegations in the complaint that the engine was not brand new are clearly mere specifica­tions of the precise nature of the hidden defects.
A cursory reading of the complaint shows that the petitioner's arguments are not well-taken.
The main thrust of the complaint is the conten­tion that the Fordson diesel engine delivered by the petitioner to the respondent was not brand-new contrary to the representations of the former and the expectations of the latter.  The complaint was couched in a manner which shows that instead of the brand-new Fordson diesel engine which was bought by the respondent from the petitioner, another engine which was not brand new was delivered resulting in the damages sought to be recovered.  It is evident therefore, that the complaint was for a breach of a contract of sale rather than a breach of warranty against hidden defects.  This is so because an action for breach of warranty against hidden defects presupposes that the thing sold is the same thing delivered but with hidden defects.  Consequently, the six-month prescrip­tive period under Article 1571 of the Civil Code is not applicable.

Applying the foregoing test to the instant case, we find the evidence of the respondent insufficient to be considered within the purview of "best evidence".  The bare assertion of the respondent that he lost about P54,000.00 and the accompanying documentary evidence presented to prove the amount lost are inadequate if not speculative.  The document itself merely shows that everytime a truck travels, Mr. Yaptinchay earns P369.88.  This amount is then multiplied by the number of trips which the truck was allegedly unable to make.  The estimates were prepared by a certain Dionisio M. Macasieb whose identity was not even revealed by the respondent.  Mr. Yaptinchay was in the freight truck business.  He had several freight trucks among them the truck with the subject Fordson diesel engine, covering the route from Manila to Baguio.  To prove actual damages, it would have been easy to present the average actual profits realized by the other freight trucks plying the Manila-Baguio route.  With the presentation of such actual income the court could have arrived with reason­able certainty at the amount of actual damages suffered by the respondent.  We rule that the award of actual damages in the amount of P54,000.08 is not warranted by the evidence on record.

The decision appealed to the SC was modified.  The award of actual damages in the amount of P54,000.48 is deleted.  The petitioner shall also pay six (6%) percent interest per annum on the P7,590.00 purchase price from January 27, 1962 to July 29, 1974 and twelve (12%) percent interest per annum from July 30, 1974 until the purchase price is reimbursed. 

5.) DELTA V. PAMINTUAN (1976)
[ G.R. NO. L-41667, APRIL 30, 1976 ]

On April 16, 1975 Pamintuan sued Delta Motor for the recovery of the sum of P58,000 as damages and attorney's fees. The basis of the action was that Delta Motor, as the seller of an allegedly defective Toyota car to Pamintuan for the sum of P33,950, failed to fulfill its warranty obligation by not properly repairing the car.

The lower court denied the motion in its order of July 29 on the ground that Dionisia G. Miranda was a person of suitable age and discretion who could receive summons for another person, as contemplated in section 8, Rule 14 of the Revised Rules of Court, and that although Delta Motor's legal department was served on May 27 with a copy of the motion to declare it in default, it did not oppose the motion.

Pamintuan countered with a motion for execution. He contended that the judgment was already final because Delta Motor's motion for reconsideration was filed after four-thirty in the afternoon of the thirtieth day or after the close of office hours.

The Manila court in its order of October 13 refused to give due course to Delta Motor's appeal and granted Pamintuan's motion for execution. The instant petition was filed on October 20, 1975. The sheriff levied upon a Toyota mini-bus and a car to satisfy the judgment for damages against Delta Motor.

Pamintuan in his comment on the petition revealed that on May 27, 1975, when Delta Motor was furnished with a copy of the motion to declare it in default, it sued Pamintuan in the Court of First Instance of Rizal, Pasig Branch XIII for the rescission of the sale and the recovery of the car (Civil Case No. 21303). A writ of replevin was issued in that case. A deputy sheriff of Rizal seized from Pamintuan the Toyota car on June 6, 1975.

Pamintuan filed a motion to dismiss Delta Motor's complaint in the Pasig court on the ground of the pendency in the Manila court of Civil Case No. 97373 involving the same Toyota car. Delta Motor opposed it. It was denied.

Pamintuan filed in the Court of Appeals a petition for certiorari in order to set aside the Pasig court's order denying his motion to dismiss (Pamintuan vs. Revillia CA-G.R. No.
SP-04743). The Court of Appeals in its decision dated February 16, 1976 denied the petition. It held that the Rizal court did not commit any grave abuse of discretion in not dismissing Delta Motor's action.

The issue in this case is whether Delta Motor was properly served with summons or whether the Manila court had jurisdiction to render the judgment by default against it and to execute that judgment.

In the instant case the Manila court did not acquire jurisdiction over Delta Motor because it was not properly served with summons. The service of summons on Dionisia G. Miranda, who is not among the persons mentioned in section 13 of Rule 14, was insufficient. It did not bind the Delta Motor.

Courts acquire jurisdiction over the person of a party defendant and of the subject-matter of the action by vertue of the service of summons in the manner required by law. Where there is no service of summons or a voluntary general appearance by the defendant, the court acquires no jurisdiction to pronounce a judgment in the cause. (Syllabi Salmon and Pacific Commercial Co. vs. Tan Cueco, 36 Phil. 556).

Consequently, the order of default, the judgment by default and the execution in Civil Case No. 97373 are void and should be set aside.

It appears that Civil Case No. 21303 filed b Delta Motor against Pamintuan in the Pasig court which is in effect t counter-claim to the Manila case, deals with the sale of the Toyota car which is involved in Civil Case No. 97373 of the Manila court.

In the interest of justice and to avoid conflicting decisions, the trial of the two cases should be consolidated The Pasig case should be transferred to Branch XXI of the Court of First Instance of Manila where Civil Case No. 97373 is assigned. Apparently, Delta Motor filed its replevin case in Pasig because it was stipulated in the invoice covering the sale that any action thereunder may be instituted in any competent court of Rizal.

The order of judgment by default and the other proceedings Civil Case No. 97373 are set aside. The lower court is directed to admit the answer of Delta Motor.

Respondent Pamintuan may likewise file his answer. The record of that case should be transferred to the Court of First Instance of Manila as indicated.

6.)  DINO V. SIO (2001)
[ G.R. NO. 113564, JUNE 20, 2001 ]

As this Court ruled in Engineering & Machinery Corporation v. Court of Appeals, et al.,"a contract for a piece of work, labor and materials may be distinguished from a contract of sale by the inquiry as to whether the thing transferred is one not in existence and which would never have existed but for the order of the person desiring it.  In such case, the contract is one for a piece of work, not a sale.  On the other hand, if the thing subject of the contract would have existed and been the subject of a sale to some other person even if the order had not been given then the contract is one of sale." The contract between the petitioners and respondent stipulated that respondent would manufacture upon order of the petitioners 20,000 pieces of vinyl frogs and 20,000 pieces of vinyl mooseheads according to the samples specified and approved by the petitioners.  Respondent Sio did not ordinarily manufacture these products, but only upon order of the petitioners and at the price agreed upon.[14] Clearly, the contract executed by and between the petitioners and the respondent was a contract for a piece of work.  At any rate, whether the agreement between the parties was one of a contract of sale or a piece of work, the provisions on warranty of title against hidden defects in a contract of sale apply to the case at bar, viz:

"Art. 1714.  If the contractor agrees to produce the work from material furnished by him, he shall deliver the thing produced to the employer and transfer dominion over the thing.  This contract shall be governed by the following articles as well as by the pertinent provisions on warranty of title and against hidden defects and the payment of price in a contract of sale."

"Art. 1561.  The vendor shall be responsible for warranty against the hidden defects which the thing sold may have, should they render it unfit for the use for which it is intended, or should they diminish its fitness for such use to such an extent that, had the vendee been aware thereof, he would not have acquired it or would have given a lower price for it; but said vendor shall not be answerable for patent defects or those which may be visible, or for those which are not visible if the vendee is an expert who, by reason of his trade or profession, should have known them."

Petitioners aver that they discovered the defects in respondent's products when customers in their (petitioners') shirt business came back to them complaining that the frog and moosehead figures attached to the shirts they bought were torn.  Petitioners allege that they did not readily see these hidden defects upon their acceptance.  A hidden defect is one which is unknown or could not have been known to the vendee. Petitioners then returned to the respondent 29,772 defective pieces of vinyl products and demanded a refund of their purchase price in the amount of P208,404.00.  Having failed to collect this amount, they filed an action for collection of a sum of money.

Article 1567 provides for the remedies available to the vendee in case of hidden defects, viz:

"Art. 1567.  In the cases of Articles 1561, 1562, 1564, 1565 and 1566, the vendee may elect between withdrawing from the contract and demanding a proportionate reduction of the price, with damages in either case."

By returning the 29,772 pieces of vinyl products to respondent and asking for a return of their purchase price, petitioners were in effect "withdrawing from the contract" as provided in Art. 1567.  The prescriptive period for this kind of action is provided in Art. 1571 of the New Civil Code, viz:

"Art. 1571.  Actions arising from the provisions of the preceding ten articles shall be barred after six months from the delivery of the thing sold." (Emphasis supplied)

Petitioners fault the ruling on the ground that it was too late in the day for respondent to raise the defense of prescription.  The law then applicable to the case at bar, Rule 9, Sec. 2 of the Rules of Court, provides:

"Defenses and objections not pleaded either in a motion to dismiss or in the answer are deemed waived; except the failure to state a cause of action . . .  "
Thus, they claim that since the respondent failed to raise the defense of prescription in a motion to dismiss or in its answer, it is deemed waived and cannot be raised for the first time on appeal in a motion for reconsideration of the appellate court's decision.

As a rule, the defense of prescription cannot be raised for the first time on appeal. 

Even if the defense of prescription was raised for the first time on appeal in respondent's Supplemental Motion for Reconsideration of the appellate court's decision, this does not militate against the due process right of the petitioners.  On appeal, there was no new issue of fact that arose in connection with the question of prescription, thus it cannot be said that petitioners were not given the opportunity to present evidence in the trial court to meet a factual issue. Equally important, petitioners had the opportunity to oppose the defense of prescription in their Opposition to the Supplemental Motion for Reconsideration filed in the appellate court and in their Petition for Review in this Court.

This Court's application of the Osorio and Gicano doctrines to the case at bar is confirmed and now enshrined in Rule 9,  Sec. 1 of the  1997 Rules of Civil Procedure, viz:

"Section 1.  Defense and objections not pleaded. - Defenses and objections not pleaded whether in a motion to dismiss or in the answer are deemed waived.  However, when it appears from the pleadings that the court has no jurisdiction over the subject matter, that there is another action pending between the same parties for the same cause, or that the action is barred by a prior judgment or by statute of limitations, the court shall dismiss the claim."

The SC ruled denyingthe petition and the impugned decision of the Court of Appeals dated January 24, 1994 was AFFIRMED. 

7.) SUPERCARS V.FLORES (2004)
[ G.R. NO. 148173, DECEMBER 10, 2004 ]

Facts:

In the second week of December 1988, Filemon Flores, respondent, purchased from Supercars Management and Development Corporation, petitioner, an Isuzu Carter Crew Cab.  Upon delivery of the vehicle on December 27, 1988, respondent paid petitioner the 30% down payment, plus premium for the vehicle’s comprehensive insurance policy amounting to P7,374.80. The RCBC financed the balance of the purchase price. Its payment was secured by a chattel mortgage of the same vehicle.

A day after the vehicle was delivered, respondent used it for his family’s trip to Bauang, La Union. While traversing the national highway in Tarlac, Tarlac, the fan belt of the vehicle snapped. Then its brakes hardened after several stops and did not function properly; the heater plug did not also function; the engine could not start; and the fuel consumption increased. Upon their return to Manila in the first week of January 1989, respondent complained to petitioner about the defects of the vehicle. Marquez then had the vehicle repaired and returned it to respondent that same day, assuring the latter that it was already in good condition.  But after driving the vehicle for a few days, the same defects resurfaced, prompting respondent to send petitioner a letter dated January 30, 1989 rescinding the contract of sale and returning the vehicle due to breach of warranty against hidden defects. A copy of the letter was furnished to RCBC.

On March 1, 1989, respondent sent petitioner a letter demanding the refund of his down payment, plus the premium he paid for the vehicle’s insurance.

Petitioner failed to comply with petitioner’s demand. Consequently, respondent stopped paying the monthly amortization for the vehicle.

On March 21, 1989, RCBC sent respondent a letter demanding that he settle his past overdue accounts for February 15 and March 15, 1989. In reply, respondent, through a letter dated March 31, 1989, informed RCBC that he had rescinded the contract of sale and had returned the vehicle to petitioner. This prompted RCBC to file with the Office of the Clerk of Court and Ex-Officio Sheriff, Regional Trial Court, Quezon City, a Petition for Extra-judicial Foreclosure of Chattel Mortgage.

Issue:

WON Marquez and Catley committed any breach of warranty against hidden defects, claiming that the vehicle had only “minor and inconsequential defects” which “were promptly and satisfactorily repaired by petitioner Supercars pursuant to its warranty as the seller.” For in the part of RCBC, is it's claim that it has no liability whatsoever against respondent correct because it merely enforced its right under the chattel mortgage law.

RTC decided in favor to Flores., the decision:
“WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendants, ordering the latter to jointly and severally pay the plaintiff.

Upon motion for reconsideration the RTC absolved RCBC on their liabilities dismissing the complaint against it. The decision:
“WHEREFORE, considering the foregoing premises, the Decision of the court, insofar as it holds defendant Rizal Commercial Banking Corporation jointly and severally liable to the plaintiff, is hereby MODIFIED and the case against said bank DISMISSED.  Similarly, the compulsory counterclaim against the plaintiff is likewise dismissed.

From the above Decision and Order, petitioner, Marquez and Catley interposed an appeal to the Court of Appeals. In a Decision dated November 29, 2000, the Appellate Court affirmed the RTC Decision with modification in the sense that the complaint against Marquez and Catley was dismissed.

Petitioner filed a motion for reconsideration but denied.

Hence, the instant petition.

Petitioner contends that respondent has “no right to rescind the contract of sale” because “the motor vehicle in question, as found by the RTC and the Court of Appeals, is already in the hands of a third party, one Mr. Lim – an innocent purchaser for value.” Thus, both courts erred in ordering petitioner to refund respondent of the amounts he paid for the vehicle.

The issue here is whether respondent has the right to rescind the contract of sale and to claim damages as a result thereof.

The SC ruled in favor for the respondent (Flores).

Respondent’s complaint filed with the RTC seeks to recover from petitioner the money he paid for the vehicle due to the latter’s breach of his warranty against hidden defects under Articles 1547,[13] 1561,[14] and 1566[15] of the Civil Code. The vehicle, after it was delivered to respondent, malfunctioned despite repeated repairs by petitioner. Obviously, the vehicle has hidden defects. A hidden defect is one which is unknown or could not have been known to the vendee.[16]

The findings of both the RTC and Court of Appeals that petitioner committed a breach of warranty against hidden defects are fully supported by the records. The Appellate Court correctly ruled:
“The evidence clearly shows that Flores [now respondent] was justified in opting to rescind the sale given the hidden defects of the vehicle, allowance for the repair of which he patiently extended, but which repair did not turn out to be satisfactory.

For when by letters of January 30, 1989 and February 7, 1989, which were followed up by another dated March 1, 1989, Flores declared his rescission of the sale, which rescission was not impugned or opposed by appellants as in fact they accepted the return of the vehicle on February 9, 1989, such extra-judicial rescission produced legal effect.

It is well within respondent’s right to recover damages from petitioner who committed a breach of warranty against hidden defects. Article 1599 of the Civil Code partly provides:
“Article 1599. Where there is a breach of warranty by the seller, the buyer may, at his election:

Rescind the contract of sale and refuse to receive the goods, or if the goods have already been received, return them or offer to return them to the seller and recover the price or any part thereof which has been paid.

When the buyer has claimed and been granted a remedy in anyone of these ways, no other remedy can thereafter be granted, without prejudice to the provisions of the second paragraph of Article 1191.

Petitioner’s contention that under Article 1191 of the Civil Code, rescission can no longer be availed of as the vehicle was already in the hands of an innocent purchaser for value lacks merit. Rescission is proper if one of the parties to a contract commits a substantial breach of its provisions. It creates an obligation to return the object of the contract. It can be carried out only when the one who demands rescission can return whatever he may be obliged to restore. Rescission abrogates the contract from its inception and requires a mutual restitution of the benefits.  Records show that at the time respondent opted to rescind the contract, the vehicle was still in his possession. He returned it to petitioner who, without objection, accepted it. Accordingly, the cost of the vehicle paid by the respondent including insurance premiums should be returned to Flores.

As further stated by the Court of Appeals:
“Appellant’s invocation of Article 1191 of the Civil Code in support of his argument that as the vehicle had been sold to a third party, rescission can no longer ensue is misplaced.

For, Flores is asking for the refund of the downpayment and payment for insurance premiums. This brings us to appellant’s final argument.

Appellant’s professed excuse from their inability to give refund – that refund would necessitate the return of the subject motor vehicle which is impossible because it is now in the hands of an innocent purchaser for value – miserably fails.

Supercars was paid the balance of the purchase price by RCBC and, therefore, in addition to the downpayment given by Flores, it had been fully paid for the vehicle.

Decision:

WHEREFORE, the petition is DENIED. The assailed Decision dated September 20, 1999 and Resolution dated February 1, 2000 of the Court of Appeals in CA-G.R. CV No. 52177 are AFFIRMED with MODIFICATION. The award of moral and exemplary damages and attorney’s fees are DELETED. Costs against petitioner.

8.) LUMAYAG V. NEMEÑO (2007)
[ G.R. NO. 162112, JULY 03, 2007 ]

Facts:

During their lifetime, the spouses Jacinto Nemeño and Dalmacia Dayangco-Nemeño, predecessors-in-interest of the herein respondent heirs,  owned two (2) parcels of coconut land located in Manaca, Ozamiz City.  In 1979, Dalmacia died survived by her husband, Jacinto, and their six (6) children, to wit: Meliton, Eleuteria, Timoteo, Justo, Saturnino (now deceased) and Felipa.  On April 4, 1985, Jacinto died while undergoing treatment at the MHARS General Hospital in Ozamiz City.
More than a decade later, or on August 28, 1996, the spouses Domingo Lumayag and Felipa Nemeño-Lumayag filed with the RTC of Ozamiz City a petition for the reconstitution of the owner’s duplicate copy of OCT No. 0-1743 covering Lot No. 4049, one of the two lots subject of the earlier Deed of Sale with Pacto De Retro. In that petition, the Lumayags alleged that said owner’s duplicate copy of OCT No. 0-1743 was in Domingo’s possession but the same was lost when a typhoon hit and destroyed the couple’s house in Talisay, Cebu on November 12, 1990. The petition was opposed by the other heirs of Jacinto and Dalmacia who claimed that the owner’s duplicate copy of the same OCT  was actually in the possession and custody of their brother Meliton Nemeño, the administrator of the property, when it was burned in a fire on May 22, 1992.  In an order dated December 20, 1996,[4]  the RTC resolved said petition by ordering the issuance of a new owner’s duplicate copy of OCT No. 0-1743 and its delivery to the heirs of Jacinto and Dalmacia. 

Such were the state of things when, on December 24, 1996, in the same RTC, the heirs of Jacinto and Dalmacia, namely, their children Meliton, Eleuteria, Timoteo and Justo and grandchildren Ricky and Daisy who are the heirs of Saturnino, (hereinafter collectively referred to as the respondent heirs) filed against the spouses Domingo Lumayag and Felipa N. Lumayag  a complaint[5]  for Declaration of Contract as Equitable Mortgage, Accounting and Redemption with Damages

Essentially,  the complaint alleged that the subject Deed of Sale with Pacto De Retro was executed only for the purpose of securing  the payment of a loan of P20,000.00 obtained from the defendant spouses  in connection with the medication and hospitalization of the then ailing Jacinto Nemeño

Issue:

WON The Pacto de Retro Sale is an Equitable mortgage?

Decision:

          Eventually, in a decision dated February 3, 1999, the trial court adjudged the subject Deed of Sale with Pacto De Retro as an equitable mortgage and ordered the defendant spouses to reconvey Lot Nos. 4049 and 4035 C-4 to the plaintiff heirs.
       
As stated at the threshold hereof, the appellate court, in its Decision of September 30, 2003, affirmed that of the trial court but with the modification that the mortgaged properties are subject to foreclosure should the respondents fail to redeem the same within thirty (30) days from notice.

In the instant case, it's held that the deed of sale with pacto de retro is actually an equitable mortgage. For one, the supposed price for the sale with pacto de retro in the amount of P20,000.00 is unusually inadequate for the two (2) parcels of land, the total area of which is almost 5.5 hectares. Also, [respondents heirs] remained in possession of the subject properties even after the execution of the subject instrument. Not only did [respondent heirs] retain possession of the subject properties, they also paid for the realty taxes of the same. Indeed, as the trial court found the transaction was one of an equitable mortgage.

          As well, that the parties intended to enter into an equitable mortgage is further accentuated by respondents’ continued payment of the real property taxes subsequent to the alleged sale. Payment of those taxes is a usual burden attached to ownership and when, as here, such payment is coupled with continuous possession of the property, it constitutes evidence of great weight that a person under whose name the realty taxes were declared has a valid and rightful claim over the land.

Lastly, the stipulation in the subject deed reading: “if we fail to exercise our rights to repurchase as herein granted within the period stipulated, then this conveyance shall become absolute and irrevocable without the necessity of drawing a new absolute Deed of Sale, subject to the requirements of law regarding consolidation of ownership of real property,” - is considered a pactum commissorium.  This stipulation is contrary to the nature of a true pacto de retro sale since in such sale, ownership of the property sold is immediately transferred to the vendee a retro upon execution of the sale, subject only to the repurchase of a vendor a retro within the stipulated period. Undoubtedly, the aforementioned stipulation is a pactum commissorium because it enables the mortgagee to acquire ownership of the mortgaged properties without need of any foreclosure proceedings which is a nullity being contrary to the provisions of Article 2088 of the Civil Code.  Indeed, the inclusion of such stipulation in the deed shows the intention to mortgage rather than to sell.

Essentially,  the complaint alleged that the subject Deed of Sale with Pacto De Retro was executed only for the purpose of securing  the payment of a loan of P20,000.00 obtained from the defendant spouses  in connection with the medication and hospitalization of the then ailing Jacinto Nemeño.  To support their claim that the contract in question was an equitable mortgage, the plaintiff heirs materially pointed out the following: (1) the grossly inadequate price of the subject lots considering that Lot No. 4049 with an area of 5 hectares has a market value of P40,760.00 and an assessed value of P15,230.00, as shown by Tax Declaration No. 94-07335-A, while Lot No. 4035 C-4 with an area of 4,420 square meters has a market value of P4,120.00 and an assessed value of P1,460.00, per Tax Declaration No. 94-07355-A; (2) their (plaintiffs’) continued payment of realty taxes; (3) the land title and tax declaration remained in the names of Jacinto Nemeño and Dalmacia Dayangco-Nemeño; (4) their possession, particularly Justo Nemeño’s, of the subject lots with the petitioner spouses only given two-thirds share of the harvest therefrom; and (5) the pactum commissorium stipulation in the subject contract.  Thus, the heirs pray for a judgment (a) declaring the subject Deed of Sale with Pacto de Retro as an equitable mortgage and considering the lots subject thereof as redeemed; (b) ordering the defendant spouses to render an accounting of the fruits and/or income of the coconut lands from 1985 to 1996 and to return whatever remains of the amount with interest at the legal rate after deducting the P20,000.00 loan; and (c) ordering the same defendants to pay litigation expenses.

WHEREFORE the SC decision on the the instant petition is DENIED, and the assailed decision and resolution of the CA in CA-G.R. CV No. 63230 are AFFIRMED.

9.) ESCUDERO V. DULAY (1988)
[ G.R. NO. 60578, FEBRUARY 23, 1988 ]
The facts of the case are as follows:

On 18 July 1979, petitioner Araceli D. Escudero, wife of petitioner Paterno D. Escudero, executed a "Deed of Absolute Sale under Pacto de Retro" in favor of private respondents, the Amistad spouses, over a parcel of residential land in Lapu-Lapu City covered by Transfer Certificate of Title No. 9223 of the Register of Deeds of that city. The consideration stated in the document was P42,350.00. Redemption was to be made by the vendors within three (3) months after the execution of the Deed of Sale, at the same price of P42,350.00. 1

The period of redemption expired without an offer of repurchase being made by petitioner wife or her husband, petitioner Paterno D. Escudero, who had earlier given his wife a special power of attorney "to sell, transfer, mortgage and convey" the land subject of the pacto de retro sale, which was the spouses' conjugal property.

On 28 October 1979, or ten (10) days after the expiration of the redemption period, private respondent spouses filed a petition for consolidation of title over the parcel of land in question. This was opposed by petitioner wife in an Answer, duly verified by her, where she alleged as an affirmative and special defense that the transaction between her and private respondents was actually one of loan of P 35,000.00, as principal, with 7% monthly interest, thus totalling P 42,350.00, with the land mortgaged as collateral or security. That the transaction was an equitable mortgage can be gleaned, according to her, from the gross inadequacy of the purchase price and the fact that she, the alleged vendor, remained in possession of the land and continued to enjoy the fruits thereof. 2

On 16 November 1979, or nearly a month after the expiration of the redemption period, and upon advice of petitioners' then counsel, Atty. Emmanuel Seno, petitioner wife deposited P42,350.00 in the form of a bank manager's check, as redemption money, with the Clerk of Court of respondent trial court. Atty. Seno then manifested at the pre-trial conference held on 10 March 1980 that he was moving for a judgment on the pleadings after agreeing to the characterization of the transaction between the parties as a sale with pacto de retro, because under Article 1606 of the New Civil Code, the vendors (petitioners) may still exercise their right of repurchase within thirty (30) days from the time final judgment is rendered in a civil action, if the contract is a true sale with right to repurchase.

Issue:

Is the transaction at hand a pacto de rtero sale or of an equitable mortgage?
Because of the deposit and with the provision of the law is it true that even after final judgment, under Article 1606 of the New Civil Code, the defendants have still the right to repurchase the property.

Decision:

The respondent trial court rendered judgment against petitioners. The court held that the interpretation by petitioners' counsel of par. 3 of Art. 1606 of the Civil Code was misplaced, as decisions have uniformly held that the provision applies only to situations where there is a dispute as to the nature of a transaction either as a true sale with right of repurchase or an equitable mortgage, and not where the parties admit or agree that the transaction is a true sale, as petitioners' counsel did admit or stipulate in this case.

The Court of Appeals affirmed the decision of the trial court.

The Supreme Court held that Article 1606 contemplates a case involving a controversy as to the true nature of the contract, and the court is called upon to decide the debatable question as to whether it is sale with pacto de retro or an equitable mortgage. Where, as here, the transaction is admittedly and clearly a deed of sale and the stipulated period of redemption or repurchase had expired, said legal provision does not apply.

The SC decided in favor of the petitioners, as stated:

WHEREFORE, petition is GRANTED. The decisions of the Court of First Instance of Lapu-Lapu City, now Regional Trial Court of Lapu-Lapu City (Branch XVI) in Civil Case No. 438-L and of the Court of Appeals in CA G.R. No. 67058-R are hereby REVERSED and SET ASIDE. The Register of Deeds of Lapu-Lapu City is ordered to cancel private respondents' title to the property, Transfer Certificate of Title No. 12401 and, in lieu thereof, issue a new Certificate of Title in petitioners' names, after which, the amount of P42,350.00 deposited by petitioners with the Clerk of Court of said respondent trial court on 16 November 1979 is to be released to private respondents. No costs.



10.) ABILLA V. GOBONSENG (2002)
[ G.R. NO. 146651, JANUARY 17, 2002 ]
Facts:

Petitioner spouses instituted against respondents an action for specific performance, recovery of sum of money and damages, docketed as Civil Case No. 8148 of the Regional Trial Court of Dumaguete City, Branch XLII, seeking the reimbursement of the expenses they incurred in connection with the preparation and registration of two public instruments, namely a “Deed of Sale”[3] and an “Option to Buy.”[4] In their answer, respondents raised the defense that the transaction covered by the “Deed of Sale” and “Option to Buy,” which appears to be a Deed of Sale with Right of Repurchase, was in truth, in fact, in law, and in legal construction, a mortgage.[5]

On October 29, 1990, the trial court ruled in favor of petitioners and declared that the transaction between the parties was not an equitable mortgage.  Citing Villarica v. Court of Appeals,[6] it ratiocinated that neither was the said transaction embodied in the “Deed of Sale” and “Option to Buy” a pacto de retro sale, but a sale giving respondents until August 31, 1983 within which to buy back the seventeen lots subject of the controversy.

Issue:

May the vendors in a sale judicially declared as a pacto de retro exercise the right of repurchase under Article 1606, third paragraph, of the Civil Code, after they have taken the position that the same was an equitable mortgage?

Decision:

The trial court decided in favor to Abilla and Dizon.
On the appeal filed by the respondents the CA decided as:

On appeal by respondents, the Court of Appeals ruled that the transaction between the parties was a pacto de retro sale, and not an equitable mortgage. The decretal portion thereof states:

WHEREFORE, the decision appealed from is MODIFIED by deleting the award of attorney’s fees.  In other respects the decision of the lower court is AFFIRMED.  Costs against defendant-appellants.

Motion for reconsideration was denied.

On January 14, 2001, Branch 41 of the Regional Trial Court of Dumaguete City, to which the case was reraffled, set aside the November 10, 1999 order and granted respondents’ motion to repurchase.

Hence, the instant recourse.

At the outset, it must be stressed that it has been respondents’ consistent claim that the transaction subject hereof was an equitable mortgage and not a pacto de retro sale or a sale with option to buy.  Even after the Court of Appeals declared the transaction to be a pacto de retro sale, respondents maintained their view that the transaction was an equitable mortgage.  Seeing the chance to turn the decision in their favor, however, respondents abandoned their theory that the transaction was an equitable mortgage and adopted the finding of the Court of Appeals that it was in fact a pacto de retro sale.  Respondents now insist that they are entitled to exercise the right to repurchase pursuant to the third paragraph of Article 1606 of the Civil Code, which reads:

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 question now is, can respondents avail of the aforecited provision?  Following the theory of the respondents which was sustained by the trial court, the scenario would be that although respondents failed in their effort to prove that the contract was an equitable mortgage, they could nonetheless still repurchase the property within 30 days from the finality of the judgment declaring the contract to be truly a pacto de retro sale.  However, under the undisputed facts of the case at bar, this cannot be allowed.

In the parallel case of Vda. de Macoy v. Court of Appeals, the petitioners therein raised the defense that the contract was not a sale with right to repurchase but an equitable mortgage.  They further argued as an alternative defense that even assuming the transaction to be a pacto de retro sale, they can nevertheless repurchase the property by virtue of Article 1606, third paragraph of the Civil Code.  It was held that the said provision was inapplicable.

In the case at bar, both the trial court and the Court of Appeals were of the view that the subject transaction was truly a pacto de retro sale; and that none of the circumstances under Article 1602 of the Civil Code exists to warrant a conclusion that the transaction subject of the “Deed of Sale” and “Option to Buy” was an equitable mortgage.  The Court of Appeals correctly noted that if respondents really believed that the transaction was indeed an equitable mortgage, as a sign of good faith, they should have, at the very least, consigned with the trial court the amount of P896,000.00, representing their alleged loan, on or before the expiration of the right to repurchase on August 21, 1983.

Clearly, therefore, the declaration of the transaction as a pacto de retro sale will not, under the circumstances, entitle respondents to the right of repurchase set forth under the third paragraph of Article 1606 of the Civil Code.

The SC decision states:

WHEREFORE, in view of all the foregoing, the instant petition is GRANTED and the January 14, 2001 Order of the Regional Trial Court of Dumaguete City, Branch 41, in Civil Case No. 8148, is REVERSED and SET ASIDE.