A Pacto de Retro sale involves the seller reserving the right to repurchase the thing sold. This right is coupled with the obligation to reimburse the vendee the price of the sale, contract expenses, other legitimate payments, and necessary and useful expenses made on the thing sold. It is essentially a sale with a right of repurchase.
Essence
The core of a Pacto de Retro sale is that ownership and title to the property immediately transfer to the vendee a retro. This transfer is subject to the condition that the vendor a retro may repurchase the property within the agreed period. If the vendor a retro fails to repurchase within the period, absolute title and ownership vest in the vendee a retro by operation of law.
Nature and Characteristics
Based on the sources, a Pacto de Retro sale is characterized as:
- Purely contractual.
- An accidental stipulation.
- A real right when registered.
- Potestative.
- A resolutory condition.
- A power or privilege reserved by the vendor.
- Reserved at the moment the contract is perfected.
Rights and Obligations of Vendor a Retro
The vendor a retro has the right to repurchase the property. To exercise this right, the vendor a retro must pay or reimburse the vendee a retro the following:
- The price of the sale.
- The expenses of the contract.
- Other legitimate payments made by reason of the sale.
- Necessary and useful expenses made on the thing sold.
Tender of payment is sufficient to compel redemption, but it is not in itself a payment that relieves the vendor from the liability to pay the redemption price. The person entitled to exercise the right is the owner of the property sold. The vendor a retro may generally apply for registration of the land, unless the period for redemption expires and ownership consolidates in the vendee a retro during the registration proceedings.
Relation to Equitable Mortgage
When there is doubt as to whether a contract is a Pacto de Retro sale or an equitable mortgage, it shall be construed as an equitable mortgage. In such cases, the remedy available is reformation of the instrument. An equitable mortgage presumption is not conclusive and may be rebutted by contrary proof. If a deed of repurchase is executed independently of an absolute deed of sale, it may amount only to a promise to sell, not an equitable mortgage.
Consolidation of Ownership
Under present law (Art. 1607 NCC), a judicial order is required before ownership of real property sold under Pacto de Retro is consolidated in the buyer a retro, contrary to jurisprudence before the New Civil Code where the buyer a retro automatically acquired full ownership upon the expiration of the redemption period.