Guerrero v.

Yñigo
G.R. No. L-5572 – Oct. 26, 1954
J. Padilla

Topic: Formation of Contract of Sale – Right of First Refusal

Petitioners: Pedro Guerrero

Respondents: Serapion Yñigo; CA

Case Summary: A mortgage with conditional sale was entered into by Catabona (mortgagor) and
Yñigo (mortgagee), whereby ownership over the property will transfer to Yñigo if Catabona fails to
pay the loan after 5 years. Shortly thereafter, Catabona sold ½ of the land Guerrero. Guerrero sought
the sale to him to be registered, but it was opposed by Yñigo. Yñigo claims that the mortgage with
conditional sale is actually a pacto de retro sale, therefore he is the rightful owner of the land. The
court held that the wording of the contract is conclusive that it is merely a mortgage, as the title to the
land is not vested immediately with Yñigo but only after Catabona defaults in payment. There being no
pacto de retro sale in favor of Yñigo, the sale to Guerrero is legal and valid. The SC declared Guerrero
as the legal owner of the ½ of the land sold to him by Catabona.

Relevant to topic (not discussed as issue in the case, only mentioned in the facts):
 WON Yñigo had a right of first refusal? – YES, the contracts provide for it
 WON Yñigo’s right had been breached? – NO, because Catabona offered to sell the land to
Yñigo first, before he sold to Guerrero, but Yñigo himself said that he can’t afford to pay the
price Catabona was asking
o Villanueva Commentary: when the promissor has in fact negotiated in good faith, but
the parties’ minds could not meet on the price and terms of payment, then the
promissor has complied with his obligation

Facts:
 Defendant Amando Catabona had been mortgaging the land in question to Respondent Serapion
Yñigo and his wife, Francisca Batañgan.
 1st Mortgage: Mar 02, 1944 for P18k payable within 5 years with the condition that should he desire
to convey/sell, he promised to sell the same to the mortgagees, Yñigo and Batañgan. The amount
of the mortgage shall be treated as payment of ½.
 2nd Mortgage: Apr 20, 1944 for P4k payable within 2 months after the expiration of 5 years from
said date, with the same condition as the previous mortgage, and that should he sell it to others then
the mortgagees may sue him. Agreement to sell the land at the price of P2k per hectare.
 3rd Mortgage + Conditional Sale: July 11, 1944 for P5k, with a condition that should he fail to
redeem the property after 5 years, title shall pass to and become vested absolutely to the mortgagees.
o “That [Catabona], by these presents, reserves for himself and his heirs the right to redeem
the said property after the period of five years from the date hereof by paying back and
returning the above-mentioned, amount and the right of possession and use within the said
period; and that on failure of [Catabona] to exercise the said right to redeem the said
property according to the terms hereof, title thereto shall pass to and become vested,
absolutely, in [Yñigo].”
 Aug 04, 1944, Catabona sold ½ of the land to Petitioner Pedro Guerrero for P90k.
o Guerrero: he was informed that ½ of the land was mortgaged to Yñigo and that Catabona
offered to sell the land to the mortgagees but that they couldn’t afford the price he was
asking for.
  Guerrero was not able to take possession of the land because Catabona requested him to allow him
to plant palay until the harvest is over. However, Catabona kept the land from 1944 to 1947 on the
pretext that he was paid in Japanese war notes which were rendered worthless.
o Yñigo possessed the land from 1947 onwards.
 Petition by Atty. Lauro Sansano [case didn’t say but I assume he was Guerrero’s atty] for the
surrender of the owner’s duplicate of the TCT which was opposed by Atty. Espinosa (Yñigo’s atty)
o Eventually, Yñigo was ordered to surrender the TCT to the Register of Deeds for the
registration of the sale to Guerrero.
 A deed of sale in favor of Guerrero and a deed of partition between Catabona and Guerrero were
entered into, giving Guerrero the western half of the land.
 CFI of Nueva Ecija: ruled in favor of Petitioner Guerrero, holding him to be the legal owner of the
lot, subject to a lien in favor of Respondent Yñigo. Declared null and void the deed of sale in favor
of Respondent Yñigo and his spouse Batañgan.
 CA: Reversed in favor of Respondent Yñigo, absolving them from the complaint and declaring
then the absolute and exclusive owners of the land.
o Held that Petitioner Guerrero was a purchaser in bad faith.
o The land was sold with pacto de retro and since the deed was executed and registered prior
to the purchase of ½ of the land by Petitioner Guerrero from Catabona, Respondent Yñigo
has a better right.
 Deed of absolute sale in favor of Yñio was presented for registration at the Register of Deeds and
a TCT was issued in his favor subject to the lis pendens.

[Related to topic, as gleaned from the facts; but the case didn’t focus on these issues]
 WON Yñigo had a right of first refusal? – YES, the contracts provide for it
 WON Yñigo’s right had been breached? – NO, because Catabona offered to sell the land to
Yñigo first, before he sold to Guerrero, but Yñigo himself said that he can’t afford to pay the
price Catabona was asking
o Villanueva Commentary: when the promissor has in fact negotiated in good faith, but the
parties’ minds could not meet on the price and terms of payment, then the promissor has
complied with his obligation
 Who’s the rightful owner? – Guerrero

WON there was a pacto de retro sale? – NO:

 The contention of Yñigo was that the 3rd Mortgage with Conditional Sale was actually a pacto de
retro sale.
 The contract is conclusive that it is a mortgage and not a pacto de retro sale because the title will
not be immediately vested to Yñigo, but only after Catabona fails to pay back the amount of the
loan after 5 years.
o 1st clause is an attempt to stipulate that Catabona can’t pay the loan and redeem the
property for 5 years, but didn’t say for how long after the 5 years may Catabona redeem.
o 2nd clause gave Yñigo the right to own the property upon failure of Catabona to pay the
loan on the stipulated time, but which time was not provided.
 Registration of the 3 mortgages with their conditions created a real right in favor of Yñigo, but
the promise to sell doesn’t bind the land. It was just a personal obligation by Catabona.
o Therefore, when Catabona sold ½ to Guerrero, it was a sale legal and valid.
 Yñigo’s action is against Catabona, with Guerrero only if he contributed to the breach of contract
by Catabona.
 If Guerrero was guilty of fraud which is a ground for rescission of sale, then it’s Catabona, not
Yñigo, who would be entitled to bring the same.
Ruling:
Action GRANTED. CA REVERSED. Petitioner Guerrero is declared the lawful owner of ½ of the parcel
of land, subject to a mortgage to secure the payment in favor of Sps. Yñigo and Batañgan.

Dissent – (J. xxx):