G.R. No. 29752 ; March 12, 1929
SOTERO IGNACIO, plaintiff-appellant, vs. SANTOS CHUA HONG, ESTANISLAO FELICIANO, MARIA OJEDA, FELIX DE LEON and VICENTE SOTTO, defendants-appellees.

FACTS

Prior to August 30, 1918, spouses Santos Chua Hong and Margarita Ignacio owned an undivided half of a fishpond in Bitas, Bulacan, covered by Torrens Certificate No. 314. On that date, they executed a deed of sale with pacto de retro over the Bitas property and another fishpond in Pamarawan to Estanislao Feliciano for P10,000, with a two-year redemption period and an option for a two-year extension. On November 21, 1918, the spouses donated their interest in the Bitas property to Margarita’s son, Sotero Ignacio (plaintiff). The deed acknowledged the pacto de retro encumbrance and stipulated that if Margarita died before payment, Santos Chua Hong would redeem the property within two years from August 30, 1918. In return, Sotero renounced all rights to the donors’ other property.

Margarita died on March 14, 1919. Santos Chua Hong did not redeem the property. On January 26, 1923, Sotero filed the deed of donation for annotation on the title. The owner’s duplicate was with Feliciano, who refused to surrender it. The court ordered Feliciano to present the certificate. Santos Chua Hong, through counsel Vicente Sotto, moved to revoke the order, alleging the donation was obtained by fraud. The court suspended the annotation order and directed Santos to file an action to determine the donation’s validity within 30 days.

Before any such action was filed, and after the court denied a motion for reconsideration, Feliciano consolidated his title and sold the property to Maria Ojeda (Sotto’s mistress) for P10,000 on March 30, 1923. Sotto then moved to dismiss Sotero’s claim. Sotero filed the present action on June 8, 1923, and a notice of lis pendens was annotated on June 11. Despite this, Ojeda sold both fishponds to Felix de Leon on September 8, 1923, who on the same day conveyed a half-interest in the Bitas property to Sotto.

The plaintiff sought declaration of ownership, cancellation of the subsequent transfers, and damages. After plaintiff presented his evidence, the trial court granted the defendants’ motion to dismiss. Plaintiff appealed.

ISSUE

Whether the deed executed on August 30, 1918, was a true sale with pacto de retro or an equitable mortgage intended merely as security for a loan.

RULING

The Supreme Court REVERSED the trial court’s decision. The deed of August 30, 1918, was declared an equitable mortgage, not a true pacto de retro sale.

The Court applied the doctrine that when a deed of sale with pacto de retro, regular on its face, is shown to have been given as security for a loan, it must be regarded as an equitable mortgage. The following facts supported this conclusion:
1. Gross inadequacy of price: The combined assessed value of the two fishponds was P56,910, and testimony indicated their actual value was about P76,000, over seven times the P10,000 consideration stated in the deed.
2. Vendor remained in possession: Santos Chua Hong remained in possession of the property after the “sale,” paying Feliciano P100 per month, which amounted to exactly 12% per annum interest on the P10,000the maximum legal interest on a loan secured by real property at the time.
3. Conduct of the Feliciano’s subsequent sale of the property to Ojeda for exactly the amount of the original “loan” indicated he merely wanted his money back, not the land itself, which he never possessed.

The Court found that the plaintiff had sufficiently proven the true nature of the transaction. Consequently, the right of redemption had not been extinguished. The subsequent transfers from Feliciano to Ojeda, and from Ojeda to De Leon and Sotto, were ineffective against the plaintiff’s rights derived from the donation and the subsisting right to redeem the equitable mortgage.

The case was remanded to the trial court for further proceedings to determine the amount due on the loan and to allow the plaintiff to exercise his right of redemption.