G.R. No. L-55739, 22 June 1984, 129 SCRA 645

FACTS:

On July 1, 1975, the petitioners purchased from the Estate of the Deceased Agapita Sarao Vda. de Virata three (3) contiguous parcels of land located at San Juan, Rizal, containing an aggregate area of 3,328 square meters, more or less, for and in consideration of the amount of P499,200.00.

The following day, July 2, 1975, the petitioners, in a contract denominated as Deed of Sale with Right to Repurchase, sold to the private respondents the same three contiguous parcels of land for the same amount of P499,200.00 under specified terms and conditions.

One of the terms and conditions was that the repurchase price would escalate month after month, depending on when repurchase would be effected. The price would be P532,480.66 computed at P160.00 per square meter after the first month; P565,760.00 computed at P170.00 per square meter after the second month; P599,040.00 computed at P180.00 per square meter after the third month; and P632,320.00 computed at P190.00 per square meter after the fourth month, from and after the date of the instrument. It was also stipulated in the same contract that the vendor shall have the right to possess, use, and build on, the property during the period pending redemption.

On August 26, 1976, the petitioners filed a petition for declaratory relief and/or reformation of instrument before the Court of First Instance of Rizal at Pasig, Metro Manila to declare the Deed of Sale with Right to Repurchase an equitable mortgage and the entire portion of the same deed referring to the accelerating repurchase price null and void for being usurious, and to reduce the loan obligation to P474,200.00, contending that the amount actually loaned was only P474,200.00 and the petitioners put up P25,000.00 of the wife’s money when the purchase from the estate of Mrs. Virata was consummated.

ISSUE:

Whether or not the deed of sale with right to repurchase should be declared as an equitable mortgage?

RULING:

Yes, it should be declared as an equitable mortgage.

The private respondents argued that the petitioners’ contention is true only in cases where the contract or instrument is not reflective of the true intentions of the contracting parties as would warrant reformation of the same. They stated that if the intention of the parties is to execute a deed of sale with pacto de retro, the contract should be held as such. The petitioners were allegedly fully aware that the deed of sale with pacto de retro is what it purports to be and nothing else. Furthermore, the petitioners waited for the period of redemption to expire before availing of the relief granted by the Civil Code of reformation of contracts.

We find the stand of the private respondents without merit. The intent of the parties to circumvent the provision discouraging pacto de retro transactions is very apparent from the records. Article 1602 of the Civil Code states:

Article 1602. The contract shall be presumed to be an equitable mortgage, in any of the following cases:

(1) When the price of a sale with right to repurchase is unusually inadequate;
(2) When the vendor remains in possession as lessee or otherwise;
(3) When upon or after the expiration of the right to repurchase another instrument extending the period of redemption or granting a new period is executed;
(4) When the purchaser retains for himself a part of the purchase price;
(5) When the vendor binds himself to pay the taxes on the thing sold;
(6) In any other eases where it may be fairly inferred that the real intention of the parties is that the transaction shall secure the payment of a debt or performance of any other obligation.

In any of the foregoing cases, any money, fruits, or other benefit to be received by the vendee as rent or otherwise shall be considered as interest which shall be subject to the usury laws.

Significantly, a portion of the document in question reads:

(The vendor) having just purchased the same from the Intestate estate of the deceased Agapita Sarao Vda. de Virata (Special Proceedings No. B-710 of the Court of First Instance of Cavite), with funds loaned to him by the herein VENDEES. (Emphasis supplied).

This statement appearing in the supposed pacto de retro sale confirms the real intention of the parties to secure the payment of the loan acquired by the petitioners from the private respondents. The sale with the right to repurchase of the three parcels of land was for P499,200.00, which was exactly the same amount paid to the estate of the deceased Agapita Sarao Vda. de Virata- After having purchased the three lots for P499,200.00, the vendors should at least have earned a little profit or interest if they really intended to resell the lots the following day.

Instead, they suffered a loss of P25,000.00 because the amount borrowed, and we find grounds to believe their statement of having advanced P25,000.00 of their own funds as earnest money, was actually only P474,000.00. The petitioners also bound themselves to pay exceedingly stiff prices for the privilege of repurchase. The intent of the parties is further shown by the fact that the Bundalians P500,000.00 collectibles due from the government for completed construction contracts could not be collected on time to pay for the lots advertised for sale in Bulletin Today. The petitioners had to run to the private respondents who had money to lend. The Bundalians received the accounts due from the government only in 1977 after the proceedings in the trial court were well underway.

The stipulation in the contract sharply escalating the repurchase price every month enhances the presumption that the transaction is an equitable mortgage. Its purpose is to secure the return of the money invested with substantial profit or interest, a common characteristic of loans.

*Case digest by Mary Tweetie Antonette G. Semprun, JD – IV, Andres Bonifacio College, SY 2019 – 2020