G.R. No. 144227 ; February 15, 2002
GEORGINA HILADO, petitioner, vs. HEIRS OF RAFAEL MEDALLA, respondents.

FACTS

Rafael Medalla, predecessor-in-interest of the respondents, executed a “Deed of Absolute Sale” dated April 24, 1979, purportedly selling his five-hectare share in Lot No. 1031 to petitioner Georgina Hilado for ₱50,000. Subsequent transactions between the parties included a “Deed of Resale” in 1984, where Hilado resold two hectares of the same lot back to Medalla for ₱20,000, and a “Memorandum of Agreement” in 1983 concerning a separate Lopez Jaena property for ₱200,000. When a co-heir filed a suit for legal redemption, Medalla filed a cross-claim against Hilado, alleging that the 1979 deed was not a true sale but an equitable mortgage intended to secure a loan of ₱50,000. He asserted he remained in possession of the property and had made payments towards the loan.
The trial court dismissed the cross-claim, upholding the deed as a sale. The Court of Appeals reversed this decision, declaring the contract an equitable mortgage, finding Medalla’s obligation fully paid, and ordering Hilado to reconvey the remaining portion of the lot.

ISSUE

Whether the “Deed of Absolute Sale” dated April 24, 1979, is a true contract of sale or an equitable mortgage.

RULING

The Supreme Court affirmed the decision of the Court of Appeals, ruling that the contract was an equitable mortgage. The legal logic rests on the application of Article 1602 of the Civil Code, which enumerates circumstances where a contract purporting to be a sale is presumed to be an equitable mortgage. Several indicia were present in this case. First, the vendor, Medalla, remained in actual possession of the property even after the execution of the deed. Second, the subsequent “Deed of Resale” in 1984, where Hilado reconveyed a portion of the land to Medalla for the exact same price per hectare as the original transaction, strongly suggests a loan redemption rather than a new sale. Third, the price of ₱50,000 for five hectares was found to be grossly inadequate. Fourth, the series of subsequent agreements between the same parties over the same properties created a pattern inconsistent with an absolute sale. The Court found Hilado’s explanations for these transactions—such as claiming the 1983 memorandum was merely to “update” a price—unconvincing and contrary to ordinary business practice. Consequently, the presumption of an equitable mortgage prevailed, and since the loan was deemed fully paid, Hilado was ordered to execute a deed of reconveyance.