G.R. No. L-19101. February 29, 1964.
EMILIANO DALANDAN and MARIA DALANDAN, assisted by her husband JULIAN SILVERIO, plaintiffs-appellants, vs. VICTORIA JULIO, ELEUTERIO SANTOS, and FRANCISCA ECHIPARI as natural guardian ad litem of the minors Dolores, Ponciano, Lorenzo and Nolasco, all surnamed SANTOS, defendants-appellees.

FACTS

The plaintiffs-appellants, heirs of Clemente Dalandan, filed a complaint seeking to redeem 50 salt beds. They alleged that a 1932 pacto de retro sale between Clemente and Victorina Dalandan was modified by a 1940 document. This 1940 document waived the original 10-year redemption period, granted Clemente an indefinite right to repurchase for P4,000, and entitled Victorina to the property’s products until repayment. The plaintiffs contended this 1940 transaction was not a true pacto de retro sale but an equitable mortgage. They based this on the indefinite redemption period, the use of terms like “redemption price,” the defendants’ long-term inaction in consolidating ownership, their own payment of real estate taxes, and the provision allowing the vendee to receive the property’s fruits.
The defendants filed a motion to dismiss, arguing the complaint failed to state a cause of action. The Court of First Instance of Rizal granted the motion and dismissed the complaint. The plaintiffs appealed, insisting their allegations sufficiently established the transaction as an equitable mortgage, thereby granting them a continuing right to redeem.

ISSUE

Whether the amended complaint sufficiently alleges facts to constitute a cause of action by establishing that the 1940 contract was an equitable mortgage and not a pacto de retro sale.

RULING

No. The Supreme Court affirmed the dismissal, holding the amended complaint failed to state a cause of action. The Court’s legal logic centered on the application of the Civil Code provisions on equitable mortgage and the effect of the contract’s execution date. The contract was executed in 1940, prior to the effectivity of the New Civil Code in 1950. Under the old law, a single circumstance (like an indefinite period of redemption) was insufficient to characterize a pacto de retro as an equitable mortgage; a combination of several circumstances was required. Article 1602 of the New Civil Code, which allows a presumption of equitable mortgage from any one of several listed circumstances, enunciates a new rule of law and cannot be applied retroactively to pre-1950 contracts.
The Court systematically rejected the plaintiffs’ allegations. The indefinite period of redemption, standing alone under the old law, did not transform the contract. The plaintiffs’ payment of taxes was irrelevant because Article 1602 requires an agreement by the vendor to pay taxes, which was not alleged. The vendee’s right to the fruits is not incompatible with a pacto de retro sale, as usufruct is an attribute of ownership transferred in a sale. Finally, the defendants’ failure to consolidate title was a mere conclusion of law, not a material fact admitted by a motion to dismiss. Since the alleged facts, even if true, did not establish an equitable mortgage under the law applicable at the time of the contract’s execution, the complaint correctly failed to state a valid cause of action for redemption.