This case has been cited 1 times or more.
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2003-12-11 |
TINGA, J. |
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| Article 1606 is intended to cover suits where the seller claims that the real intention was a loan with equitable mortgage but decides otherwise.[9] The seller, however, must entertain a good faith belief that the contract is an equitable mortgage. In Felicen, Sr., et al v. Orias, et al.,[10] cited by petitioner, the Court explained:The application of the third paragraph of Article 1606 is predicated upon the bona fides of the vendor a retro. It must appear that there was a belief on his part, founded on facts attendant upon the execution of the sale with pacto de retro, honestly and sincerely entertained, that the agreement was in reality a mortgage, one not intended to affect the title to the property ostensibly sold, but merely to give it as security for a loan or obligation. In that event, if the matter of the real nature of the contract is submitted for judicial resolution, the application of the rule is meet and proper: that the vendor a retro be allowed to repurchase the property sold within 30 days from rendition of final judgment declaring the contract to be a true sale with right to repurchase. Conversely, if it should appear that the parties' agreement was really one of sale transferring ownership to the vendee, but accompanied by a reservation to the vendor of the right to repurchase the property and there are no circumstances that may reasonably be accepted as generating some honest doubt as to the parties' intention, the proviso is inapplicable. The reason is quite obvious. If the rule were otherwise, it would be within the power of every vendor a retro to set at naught a pacto de retro, or resurrect an expired right of repurchase, by simply instituting an action to reform the contract known to him to be in truth a sale with pacto de retro into an equitable mortgage. As postulated by the petitioner, "to allow herein private respondent to repurchase the property by applying said paragraph x x x to the case at bar despite the fact that the stipulated redemption period had already long expired when they instituted the present action, would in effect alter or modify the stipulation in the contract as to the definite and specific limitation of the period for repurchase (2 years from the date of sale or only until June 25, 1958) thereby not simply increasing but in reality resuscitating the expired right to repurchase x x and likewise the already terminated and extinguished obligation to resell by herein petitioner." The rule would thus be a made a tool to spawn, protect and even reward fraud and bad faith, a situation surely never contemplated or intended by the law. | |||||