VILLARICA VS.

CA, JULIANA MONTEVERDE, GUDENCIO CONSUNJI AND JOVITO FRNACISCO

FACTS: On May 19,1951, Spouses Villarica sold a parcel of land to spouses Consunji and Montaverde for P35,000.00. The instrument
of absolute sale and vendors transfer of certificate of title was delivered to the vendees. On May 25, 2951, Spouses Consunji
executed another instrument granting the spouses Villarica an option to buy the same property within one year for P37, 750.00. The
spousces Consunji registered the absolute deed of sale and a certificate was issued in their names. In February 1953, the Spouses
Consunji sold the lot to Jovito Francisco for P47, 000.00 by means of public instrument. The spouses Villarica brought an action for
the reformation of the instrument of absolute sale between them and Spouses Consunji into an equitable mortgage as a security for
a usurious loan of P28, 000.00 alleging that such was the real intention of the parties. The RTC ruled in favor of the Spouses Villarica
which was later reversed by the CA.

ISSUE: Whether the public instrument executed by the spouses Villarica in favor of the Spouses Consunji is one of absolute sale or
equitable mortgage.

RULING: The public instrument executed by the Spouses Villarica in favor of the Spouses Consunji is one of absolute sale.
Article 1601 of the New Civil Code provides that a conventional redemption shall take place when the VENDOR reserves the
right to repurchase the thing sold, with the obligation to comply with the provisions of Article 1616 and other stipulations which may
have been agreed upon.
However, the contract shall be presumed to be an equitable mortgage under any of the following cases under Article 1602:
1. When the price of a sale with a right to purchase is UNUSUALLY inadequate
2. When the vendor remains in possession as lessee or otherwise
3. 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.
4. When the purchaser retains for himself a part of the purchase price.
5. When the vendor binds himself to pay the taxes on the thing sold.
6. In any other cases where it may be fairly that the real intention of the parties is that the transaction shall secure the payment of a
debt or performance of any other obligation.
In this case, the right of repurchase is granted by the vendee through another instrument executed by the latter after the
absolute sale was executed. Hence, applying Article 1601, the right granted by the vendee cannot be a right to repurchase but
merely an option to buy.
Further, the vendor in this case asserted that the contract between them and the vendee is an equitable mortgage on the
grounds that the price is inadequate, they remained in possession of the property sold, they paid the taxes on the land sold and that
period of one year to repurchase was extended.
On the first ground, the price of P35,000.00 was not actually inadequate. The land was assessed for tax purposes at
P8,870.00 in 1950. It was purchased on the same year for P20, 000.00 and mortgaged it as security for the P10,000.00 unpaid
balance of the purchase price. Hence, he even gained a profit of P15, 000.00. The price of P70, 000.00 was the market price in 1956
and not 1951. Hence, it is evident that the market price is P35,000.00. On the second ground, the second vendors did not retain
possession of the land; they were merely allowed to collect monthly rentals for five months. On the 3rd ground, the taxes paid by the
vendors were back taxes up to the time of sale. On the last ground, since the public instrument executed by the vendee is not a
right to repurchase but merely an option to buy, the extension of the period does not fall under Article 1602.
With the foregoing, the contract between Spouses Villarica and Spouses Consunji is an absolute sale where ownership was
transferred at the time the public instrument was executed in favor of the latter. The public instrument executed by Spouses
Consunji was merely granting Spouse Villarica an option to buy and not a right to repurchase.