G.R. No. 117501 July 8, 1997
SOLID HOMES, INC., petitioner, vs. HON. COURT OF APPEALS, STATE FINANCING CENTER, INC., and REGISTER OF DEEDS FOR RIZAL, respondents.

FACTS

Solid Homes, Inc. obtained loans from State Financing Center, Inc., secured by real estate mortgages on its properties. When Solid Homes failed to pay, State Financing initiated extrajudicial foreclosure. Before the auction, the parties executed a “Memorandum of Agreement/Dacion en Pago” dated February 28, 1983. The agreement provided that Solid Homes acknowledged an obligation of P14,225,178.40 and had 180 days to pay 60% of the principal. If Solid Homes failed to pay the 60% within 180 days, the document would automatically operate as a dacion en pago, transferring the properties to State Financing in full payment of the debt. The agreement also granted Solid Homes the right to repurchase the properties within ten months after the 180-day period at the price of P14,225,178.40 plus costs equivalent to 30% per annum and other expenses. Solid Homes failed to pay the 60% within 180 days. Consequently, State Financing registered the Memorandum with the Register of Deeds, resulting in the cancellation of Solid Homes’ titles and the issuance of new titles in State Financing’s name. State Financing demanded possession of the properties. Within the repurchase period, Solid Homes proposed repayment schemes, which State Financing countered with its own proposal. Solid Homes did not accept the counter-proposal. One day before the expiry of the repurchase period, Solid Homes filed an action seeking annulment of the Memorandum and reinstatement of the mortgages, arguing it was a pactum commissorium prohibited under Article 2088 of the Civil Code. The Regional Trial Court declared the Memorandum valid and binding, a true sale with right of repurchase, not an equitable mortgage, and its registration lawful. The Court of Appeals affirmed the RTC decision.

ISSUE

1. Whether the failure to annotate the vendor a retro’s right of repurchase in the certificates of title is conclusive evidence of the vendee a retro’s malice and bad faith, entitling the vendor to damages.
2. Whether, in a sale with pacto de retro, the repurchase price is limited by Article 1616 of the Civil Code.

RULING

1. No. The failure to annotate the right of repurchase is not conclusive evidence of malice or bad faith. The Memorandum of Agreement, which contained the right of repurchase, was registered and annotated on the titles. The subsequent failure to carry over the annotation to the new titles issued in State Financing’s name was a ministerial duty of the Register of Deeds. There was no evidence that State Financing procured the cancellation of the annotation. Solid Homes was not entitled to damages as it failed to prove any malice or bad faith on the part of State Financing.
2. No. The repurchase price is not limited by Article 1616. The parties are free to stipulate the repurchase price in a pacto de retro sale. Article 1606 of the Civil Code allows the vendor to repurchase the property for the price agreed upon. The stipulated price in the Memorandum was P14,225,178.40 plus 30% per annum interest and other expenses. This stipulation is valid and binding. The Court of Appeals correctly upheld the stipulated repurchase price. The petition was denied, and the Decision of the Court of Appeals was affirmed.