G.R. No. 32052, October 28, 1930
ELENO CORREA, plaintiff-appellant, vs. ALEJANDRO R. MATEO and MAXIMO ICASIANO, defendants. ALEJANDRO R. MATEO, appellant.

FACTS

1. Alejandro R. Mateo (Mateo) sold ten parcels of land to Maximo Icasiano (Icasiano) for P18,000. Icasiano paid P4,000 upon delivery of the deed on August 12, 1920, with the balance payable in annual installments.
2. On the same day (August 12, 1920), Icasiano executed a document (Exhibit C) in favor of Eleno Correa (Correa). The document, in form a “pacto de retro” sale, conveyed the same ten parcels to Correa for P4,000, granting Icasiano the right to repurchase on or before August 12, 1925. The instrument stipulated that Icasiano would retain possession by paying an annual rental of P480.
3. Icasiano failed to pay the first installment of P1,500 to Mateo. Consequently, Mateo rescinded the sale, repossessed the lands, and later acquired five of the ten parcels at a sheriff’s sale.
4. Icasiano also failed to repurchase the property from Correa by the 1925 deadline. Correa filed an action to recover possession of all ten parcels and collect unpaid rentals.
5. The trial court divided the properties, awarding five parcels to Mateo and five to Correa, and ordered Icasiano to pay Correa back rentals.

ISSUE

1. Whether the document (Exhibit C) executed between Icasiano and Correa is a true pacto de retro sale or an equitable mortgage.
2. Who between Correa and Mateo has a better right to the ten parcels of land?

RULING

1. Exhibit C is an equitable mortgage, not a true pacto de retro sale. The Supreme Court held that, based on the peculiar circumstances, equity and good conscience would not permit the enforcement of Exhibit C as an absolute sale. The P4,000 paid by Correa to Icasiano was the same amount Icasiano used to pay Mateo for the initial installment. The transaction was essentially a loan secured by the property. Therefore, the Court construed Exhibit C as an equitable mortgage in favor of Correa to secure the repayment of his P4,000.
2. Mateo is declared the sole and exclusive owner of all ten parcels of land. However, Correa holds an equitable lien or mortgage on all ten parcels to secure his P4,000 loan, plus 12% interest per annum from August 12, 1921.
3. The trial court’s judgment was reversed. The complaint was dismissed, but without prejudice to Correa’s right to foreclose his mortgage lien on the properties within sixty (60) days after the judgment becomes final, should the amount due him remain unpaid. No costs were awarded.