GR 149756; (February, 2005) (Digest)
G.R. No. 149756; February 11, 2005
MYRNA RAMOS, petitioner, vs. SUSANA S. SARAO and JONAS RAMOS, respondents.
FACTS
On February 21, 1991, spouses Jonas and Myrna Ramos executed a document denominated as a “Deed of Sale Under Pacto de Retro” over their conjugal house and lot in favor of Susana Sarao for a consideration of P1,310,430. The contract granted the spouses a six-month period to repurchase the property for the same price plus 4.5% monthly interest, stipulating that failure to do so would render the sale absolute. The Ramos spouses, however, remained in possession of the property. Before the expiration of the period, Myrna Ramos tendered payment via manager’s checks, which Sarao refused, claiming insufficiency. Myrna then filed a complaint for redemption and consigned the payment in court.
Sarao filed a petition for consolidation of ownership. The cases were consolidated. The trial court ruled in favor of Sarao, declaring the contract a true pacto de retro sale and ordering the consolidation of ownership. The Court of Appeals affirmed this decision. Myrna Ramos elevated the case to the Supreme Court via a petition for review.
ISSUE
Whether the contract, denominated as a “Deed of Sale Under Pacto de Retro,” is a true pacto de retro sale or an equitable mortgage.
RULING
The Supreme Court ruled that the contract is an equitable mortgage, not a true pacto de retro sale. The Court reversed the decisions of the lower courts. The legal logic hinges on the application of Article 1602 of the Civil Code, which presumes a contract to be an equitable mortgage when certain circumstances exist, such as the vendor remaining in possession of the property. Here, the Ramos spouses never relinquished possession, a fact plainly overlooked by the lower courts. This continuous possession is a strong indicator that the transaction was intended merely to secure a loan.
The Court emphasized that the true nature of a contract is determined not by its title but by the parties’ intentions and the surrounding circumstances. The gross inadequacy of the price (the property’s alleged market value being significantly higher than the consideration) further supports the conclusion that a loan, not a sale, was intended. Consequently, the contract is recharacterized as an equitable mortgage. As such, the petitioner is entitled to redeem the property by paying the secured loan, and the period for redemption had not lapsed due to the valid consignation of payment. The case was remanded for proper computation of the loan obligation.