G.R. No. L-10978; March 22, 1916
SIXTO MANLAGNIT, plaintiff-appellee, vs. ALFONSO SANCHEZ DY PUICO, defendant-appellant.

FACTS:
On September 19, 1913, Sixto Manlagnit (plaintiff) and Alfonso Sanchez Dy Puico (defendant) executed a document. By its terms, Manlagnit received P200 from Dy Puico and, in consideration thereof, “sold and transferred with a right to repurchase” a parcel of hemp land to Dy Puico. The document stipulated that if Manlagnit paid the P200 within six months, the writing would become null and void; otherwise, it would remain in full force, and Dy Puico would be authorized to take possession of the land. It also referred to the arrangement as a “mortgage,” called Manlagnit the “debtor,” and granted Dy Puico the right to cultivate the land during the existence of the mortgage, with the harvest to be applied to reduce the debt. Manlagnit remained in possession. After the six-month period expired without payment, Manlagnit filed an action seeking a declaration of his right to redeem the land upon payment of P200.

ISSUE:
Whether the executed document constitutes a sale with a right to repurchase (pacto de retro) or is merely an instrument intended as security for a loan (an equitable mortgage).

RULING:
The Supreme Court affirmed the judgment of the Court of First Instance of Albay. The document, despite containing phrases characteristic of a pacto de retro sale, was construed as an equitable mortgage intended merely as security for a loan. The Court based its ruling on the following:
1. The instrument itself used terms inconsistent with an absolute sale, such as “mortgage” and “debtor.”
2. The acts of the parties subsequent to its execution demonstrated their intention to maintain the relationship of debtor and creditor, not vendor and vendee. Specifically, the plaintiff remained in possession of the land, and the defendant’s right to harvest crops was for the purpose of applying the proceeds to the debt, not as an exercise of ownership.
3. In a true pacto de retro, the title and possession immediately pass to the vendee, and the relationship of debtor and creditor is extinguished, leaving only a vendor’s right to repurchase. These circumstances were absent.

Consequently, the plaintiff retained the right to redeem the property by paying the debt with interest, even after the expiration of the stipulated period. The judgment allowing redemption was affirmed. No costs were awarded.