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 trip to Hawaii related to a land recovery transaction. 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. Private respondents remained in possession until 1964 when petitioners took over.
On February 28, 1968, private respondents filed a complaint seeking the declaration of the deeds as equitable mortgages, annulment of the court orders, and recovery of possession. They alleged the transactions were loans secured by mortgage, vitiated by fraud. Petitioners defended the deeds as true conditional sales. During pre-trial, both parties admitted the principal obligation was a loan, differing only on the nature of the security. The trial court declared the deeds to be equitable mortgages, ordered payment of the loans, and annulled the consolidation orders.

ISSUE

Whether the contracts, denominated as deeds of conditional sale, are true pacto de retro sales or equitable mortgages.

RULING

The Supreme Court affirmed the Court of Appeals, ruling the contracts are equitable mortgages. The legal logic rests on the application of presumptions under Article 1602 of the Civil Code and the parties’ own judicial admissions. During pre-trial, petitioners admitted the existence of the loan obligation, which is a key indicator of an equitable mortgage. The Court emphasized that the true intention of the parties prevails over the document’s nomenclature. Here, the conveyance was intended merely as security for the loan, not an absolute transfer of ownership.
Furthermore, the Court found the consolidation orders from the probate and cadastral courts void for lack of jurisdiction. A co-owner, like Adelaida Ramos, cannot sell a specific, divided portion of the co-owned property but only her undivided interest. The orders approving consolidation over specific lots were invalid as they effectively partitioned the property without proper settlement proceedings. The transactions, being equitable mortgages, required foreclosure proceedings, not mere consolidation. The Court upheld the reformation of the instruments to reflect the true loan agreement and ordered payment within ninety days, with the properties to be sold at foreclosure if payment was not made. The petition was denied.