G.R. No. L-11470; April 4, 1918
SIMEON A. VILLA, plaintiff-appellee, vs. JOSE SANTIAGO, administrator of the estate of Monica Cuenca, deceased, defendant-appellant.

FACTS:
Simeon A. Villa filed an action to recover nine parcels of land in Bacoor from the administrator of the estate of Monica Cuenca. Villa based his claim on a document dated December 29, 1911, purporting to be a deed of sale with a right to repurchase, whereby Monica Cuenca “sold” the lands to him for P2,000, reserving the right to repurchase them on or before December 29, 1913. Under the agreement, Cuenca remained in possession and paid an annual rental of P300. Cuenca died in April 1913 without having repurchased the property. Villa contended that since the right of repurchase was not exercised by her heirs or administrator before the deadline, he became the absolute owner and was entitled to possession and damages.

The administrator defended, alleging that the transaction was not a true sale but an equitable mortgage intended merely to secure a loan of P2,000. This contention was supported by the following circumstances: the gross disproportion between the loan amount (P2,000) and the value of the property (over P10,000); the fact that the money was used by Cuenca to make permanent improvements on the land itself; Cuenca’s will, which referred to the amount as a debt owed to Villa; and Villa’s conducthe initially filed only a claim for unpaid rent with the estate’s claims committee and only asserted absolute ownership and consolidated his title after the period for filing claims had lapsed and after the probate of the will.

ISSUE:
Whether the instrument, absolute in form and labeled as a deed of sale with pacto de retro, is a true sale or an equitable mortgage intended merely to secure a loan.

RULING:
The Supreme Court ruled that the transaction was an equitable mortgage, not a true sale with a right of repurchase. Applying established doctrine, the Court held that parol evidence is admissible to show the real intention of the parties, especially where one party is deceased, and to look beyond the form of the instrument to the substance of the transaction.

The Court found the administrator’s contention supported by the evidence: the marked disproportion between the loan and the property’s value; the application of the loan to improve the very property conveyed; the declarations in the decedent’s will treating it as a debt; and Villa’s suspicious conduct in delaying the assertion of absolute ownership. These circumstances conclusively proved that the parties intended the conveyance as security for a loan.

Consequently, Villa could not appropriate the property. His remedy was limited to the recovery of the debt secured. The judgment of the lower court was reversed. The case was remanded for the entry of a judgment in favor of Villa for the amount of the indebtedness (P2,000, with stipulated interest), to be paid from the estate funds or, failing that, through the sale of the mortgaged property, with any surplus to be returned to the estate, and for the corresponding conveyance of the property to the rightful owners upon settlement of the debt. No costs were awarded.