G.R. No. L-46623 March 4, 1994
CONCEPCION NADAL, CONSUELO NAINGUE, ROGELIA NAINGUE, ALEJANDRA NAINGUE, AMADO NAINGUE, BELEN NAINGUE and RODRIGO NAINGUE, petitioners, vs. THE HON. COURT OF APPEALS and SALVADOR URETA, respondents.

FACTS

Concepcion Nadal and her sister Benigna were co-owners of a 50,861-square meter lot in Pangitan, Madalag, Capiz. In 1930, they mortgaged the land and transferred possession to spouses Cosme Nadua and Simona Nabayra for P99.00 and 15 cavans of palay. This mortgage was later assigned to private respondent Salvador Ureta, who also took possession, without a document evidencing the transfer. In 1940, Ureta brought the sisters to Notary Public Julio Perez, where they executed separate notarized documents entitled “Escritura De Compra-Venta con Pacto de Retro” in his favor—Concepcion for P140.00 and Benigna for P135.00—with a three-year redemption period. These documents were registered only in 1956. Within the redemption period, the Nadal sisters attempted to redeem the property, tendering payment, but Ureta refused, demanding additional payment for improvements. After Benigna’s death, her heirs and Concepcion filed a complaint for recovery of possession and ownership in 1956. The trial court declared the contracts null and void due to fraud, misrepresentation, and deceit, ordering Ureta to pay the plaintiffs P7,125.00 as net income from the land and to render an accounting. The Court of Appeals initially affirmed but modified the decision, declaring the true contract to be one of mortgage and ordering Ureta to pay P7,076.00 as net income after deducting improvements and the debt. Upon Ureta’s motion for reconsideration, the Court of Appeals reversed itself by a 3-2 vote, dismissing the complaint and declaring Ureta the lawful owner.

ISSUE

Whether the contracts entitled “Escritura De Compra-Venta con Pacto de Retro” are true sales with pacto de retro or equitable mortgages.

RULING

The Supreme Court granted the petition, ruling that the contracts were equitable mortgages, not true sales with pacto de retro. The Court emphasized that while factual findings of the Court of Appeals are generally conclusive, it may review facts when such findings contradict those of the trial court or are based on a split vote. Applying Articles 1370 and 1371 of the Civil Code, the Court examined the contemporaneous and subsequent acts of the parties to determine their true intention. The following circumstances indicated a mortgage: (1) the property was originally mortgaged in 1930, and the transfer to Ureta was a continuation of this mortgage; (2) the land remained declared in the Nadal sisters’ names, and they continued paying taxes until 1966; (3) the sisters and their heirs repeatedly attempted to redeem the property within and after the redemption period; (4) the consideration was grossly inadequate compared to the property’s value; and (5) Ureta’s possession was understood as a “mortgage in possession,” a common practice. The Court found that the parties’ conduct revealed an intention to secure a loan, not to transfer ownership. Consequently, the Court reinstated the modified decision of the Court of Appeals dated November 29, 1976, declaring the contract a mortgage and ordering Ureta to pay the net income to the petitioners after deducting the value of improvements and the debt, thereby discharging the mortgage.