G.R. No. L-48198. July 31, 1978.
PRUDENCIA GLORIA-DIAZ and EUGENIO DIAZ, petitioners, vs. HON. COURT OF APPEALS, FELIX B. MAGALONG and ISIDRA G. MAGALONG, respondents.

FACTS

Petitioners-spouses, the Diazes, executed a series of four documents titled “Deed of Sale with Conventional Redemption” over their riceland in favor of respondent-spouses, the Magalongs, from 1958 to 1965. With each new document, the stated repurchase price increased from an initial P3,600.00 to a final P4,500.00, reflecting additional sums received by the Diazes. The contractual repurchase period was set to expire on January 27, 1968. Prior to this expiry, the Diazes sought a renewal. A dispute arose over the terms of renewal, with the Diazes claiming the Magalongs agreed to a simple extension, while the Magalongs insisted on new conditions, including a significantly higher repurchase price due to peso depreciation. The Diazes subsequently filed an action to compel redemption by tendering the original P4,500.00. The trial court dismissed the complaint, ruling the redemption period had lapsed.

ISSUE

Whether the series of contracts, nominally “pacto de retro” sales, constituted a true sale with right to repurchase or an equitable mortgage.

RULING

The Supreme Court reinstated the original decision of the Court of Appeals, holding the transaction was an equitable mortgage. The legal logic is anchored on the principle that the law, not the parties’ nomenclature, determines a contract’s true nature. The Court found the factual circumstances indicative of a loan secured by the property. Critical was the series of documents executed over years, each increasing the repurchase price corresponding to additional sums received by the vendor. This pattern is inconsistent with a true sale, where the price is fixed, but is characteristic of a loan where the principal debt increases. The Court applied Article 1602 of the Civil Code, which presumes an equitable mortgage when, as here, the vendor remains in possession and the price is unusually inadequate. Consequently, the relationship was that of debtor-creditor. The right to redeem did not expire with the contractual period. Applying Article 1606, the vendor in an equitable mortgage may exercise the right of redemption within thirty days from a final judgment declaring the contract as such. The tender of payment by the Diazes within the judicial proceedings was thus timely. The Magalongs’ attempt to impose a new, inflated redemption price based on currency fluctuation was invalid, as the obligation was a loan in Philippine pesos, not dollars.