G.R. No. 42108 December 29, 1989
OSCAR D. RAMOS and LUZ AGUDO, petitioners, vs. HON. COURT OF APPEALS, ADELAIDA RAMOS and LAZARO E. MENESES, respondents.

FACTS

In January 1959, private respondent Adelaida Ramos borrowed P5,000 and P9,000 from her brother, petitioner Oscar D. Ramos, to finance a business venture. As security for these loans, she executed two deeds of conditional sale (pacto de retro) dated May 27, 1959, and August 30, 1959, covering her hereditary shares in two parcels of land in Paniqui, Tarlac. Upon her failure to repurchase, petitioners consolidated ownership through court orders dated January 22, 1960, and April 18, 1960, issued by the probate and cadastral courts, respectively. Petitioners took possession in 1964.
On February 28, 1968, private respondents filed a complaint for declaration of nullity of the court orders, reformation of instrument, and recovery of possession. They alleged the deeds were equitable mortgages vitiated by fraud and that the court orders were void for lack of jurisdiction. During pre-trial, both parties agreed the underlying obligation was a loan, disputing only the nature of the security. The trial court declared the transactions as equitable mortgages, annulled the consolidation orders, and ordered payment of the loan within 90 days, failing which the properties would be sold. The Court of Appeals affirmed this decision.

ISSUE

Whether the contracts executed by the parties are true pacto de retro sales or equitable mortgages.

RULING

The Supreme Court affirmed the appellate court’s ruling, declaring the contracts as equitable mortgages. The legal logic rests on the application of statutory presumptions under Article 1602 of the Civil Code and the factual circumstances indicating a loan transaction. The Court emphasized that the parties themselves stipulated during pre-trial that the principal obligation was a loan, thereby removing any factual dispute on this core matter. This judicial admission conclusively established the existence of a loan, making the determination of the security’s nature a legal consequence.
Furthermore, the Court found the presence of several indicia under Article 1602 supporting an equitable mortgage. Notably, the vendor remained in possession of the properties for several years after the purported sale, a circumstance strongly indicative of a mortgage arrangement. The inadequacy of the price, while not singularly determinative, was also considered alongside the vendor’s continued possession. The Court also noted that the subject properties were undivided hereditary shares, and a co-owner cannot sell a specific, divided portion of the estate, only his ideal share. The deeds, however, described specific lots, which further militated against their characterization as absolute sales. Consequently, the contracts were construed as mortgages intended merely to secure the payment of the loans. The orders of consolidation were correctly annulled as they were based on an incorrect characterization of the contracts.