No.

45
OSCAR
D.
RAMOS
and
LUZ
AGUDO, petitioners,
vs.
HON. COURT OF APPEALS, ADELAIDA RAMOS and LAZARO E. MENESES, respodents.
180 SCRA 635.
DOCTRINE/TOPIC: EQUITABLE MORTGAGE
FACTS:
Respondent Adelaida Ramos borrowed from her brother, petitioner Oscar D. Ramos, the amounts
of P 5,000.00 and P 9,000.00 in connection with her business transaction with one Flor Ramiro,
Fred Naboa and Atty. Ruperto Sarandi involving the recovery of a parcel of land in Tenejeros,
Malabon. The said amount was used to finance the trip to Hawaii of Ramiro, Naboa and Atty.
Sarandi. As security for said loan, private respondent Adelaida Ramos executed in favor of
petitioners two (2) deeds of conditional sale dated May 27, 1959 and August 30, 1959, of her
rights, shares, interests and participation respectively over 2 parcel of land registered in the
name of their parents. Upon the failure of said private respondent as vendor a retro to exercise
her right of repurchase within the redemption period, aforenamed petitioner filed a petition for
consolidation and approval of the conditional sale entitled "Intestate Estate of the late Margarita
Denoga, and a petition for approval of the pacto de retro sale of Lot No. 4221 in the former
Court of First Instance of Tarlac acting as a cadastral court. WHEREFORE, by way of granting
the petition, the Court orders the consolidation of ownership and dominion in petitioners-spouses
Oscar D. Ramos and Luz Agudo over the rights, shares and interests of Adelaida Ramos in Lot
No. 4221 of the Cadastral Survey of Paniqui, Tarlac, which the latter sold to the former under a
pacto de retro sale executed in a public instrument known as Document No. 22, Page 28, Book
No. VI. Series of 1959, of the Notarial Registry of Notary Public Jose P. Sibal but which she
failed to repurchase within the period specified in said Document. Private respondents had been
and remained in possession of these properties until sometime in 1964 when petitioner took
possession thereof.
ISSUE: Whether or not there is an equitable mortgage?
Held:
Article 1602 of the Civil Code provides:
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 case 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 the performance of any other obligation.
Even if we indulge the petitioners in their contention that they are justified in not taking
possession of the lots considering that what were allegedly sold to them were only the rights,
shares, interests and participation of private respondent Adelaida Ramos in the said lots which
were under administration, however, such fact will not justify a reversal of the conclusion
reached by respondent court that the purported deeds of sale con pacto de retro are equitable
mortgages. Such a conclusion is buttressed by the other circumstances catalogued by respondent
court especially the undisputed fact that the two deeds were executed by reason of the loan
extended by petitioner Oscar Ramos to private respondent Adelaida Ramos and that the purchase
price stated therein was the amount of the loan itself.
The above-stated circumstances are more than sufficient to show that the true intention of the
parties is that the transaction shall secure the payment of said debt and, therefore, shall be
presumed to be an equitable mortgage under Paragraph 6 of Article 1602 hereinbefore quoted.
Settled is the rule that to create the presumption enunciated by Article 1602, the existence of one
circumstance is enough. The said article expressly provides therefor "in any of the following
cases," hence the existence of any of the circumstances enumerated therein, not a concurrence
nor an overwhelming number of such circumstances, suffices to give rise to the presumption that
the contract with the right of repurchase is an equitable mortgage.
Thus, it may be fairly inferred that the real intention of the parties is that the transactions in
question were entered into to secure the payment of the loan and not to sell the property (Article
1602, Civil Code). Under Article 1603 of the Civil Code it is provided that 'in case of doubt, a
contract purporting to be a sale with right to repurchase shall be construed as an equitable
mortgage' in this case, we have no doubt that the transaction between the parties is that of a loan
secured by said properties by way of mortgage. Hence, we find that Exhibits B and G do not
reflect the true and real intention of the parties and should accordingly be reformed and
construed as equitable mortgages.

NO. 47
ALFONSO
FLORES
AND
vs.
JOHNSON SO, plaintiff-appellee.

VALENTIN

GALLANO, defendants-appellants,

DOCTRINE/TOPIC: Pacto de retro sale

Under the old Civil Code, the ownership was consolidated in the vendee a retro by operation of
law. Accordingly, upon the failure of Valentin Gallano, as the vendor a retro, to redeem the
property subject of the pacto de retro sale within the period agreed upon, the vendee a retro,
Alfonso Flores, became the absolute owner of the subject property.
This right of ownership which had already vested in Alfonso Flores way back in 1954 upon
Gallano's failure to redeem within the stipulated period cannot be defeated by the application of
Articles 1606 and 1607 of the New Civil Code which requires registration of the consolidation of
ownership in the vendee a retro only by judicial order.
FACTS:
On August 2, 1958, Johnson So filed an action for specific against Alfonso Flores to effect the
redemption of a parcel of coconut and rice land which was alleged to have been ostensibly sold
to the latter by Valentin Gallano on February 27, 1950, with right of repurchase within four (4)
years from the date of the sale, for a price of P2,550.00. Valentin Gallano sold in an absolute
manner the same land to Johnson So on February 26, 1958 for the price of P5,000.00. On the
allegation that the Pacto de Retro Sale did not embody the real intent and nature of the agreement
between the parties, the transaction being pi mere mortgage to secure a loan, Johnson So prayed
that the court declare the said Pacto de Retro Sale as a mere equitable mortgage and order
Alfonso Flores receive the sum of P2,550.00 deposited with the court in Civil Case No. 1224 and
to consider the land in question redeemed from the latter for all legal purposes. On September
24, 1960, the lower court ruled that, on the issue of the nature of the contract in question, it is a
contract of sale of a parcel of land with the reservation in favor of the vendor a retro of the right
to repurchase it within a period of four (4) years from execution thereof, that the execution of the
affidavit of consolidation of ownership by Flores on March 6, 1958 and its subsequent
registration in the Office of the Register of Deeds of Sorsogon did not make his ownership over
the land in question absolute and indefeasible because of non-compliance with Articles 1606 and
1607 of the New Civil Code, which require a judicial order for consolidation of the title of
vendee a retro; and that the right of redemption belonging to Valentin Gallano was, ipso
facto, acquired by Johnson So when he brought the land in question. Thus, the Court ordered
Alfonso Flores to deliver the possession of the land in question to Johnson So and to execute the
necessary deed of resale in favor of the latter and authorized Flores to withdraw for his own use
and benefit the redemption money in the sum of P2,550.00. Valentin Gallano was absolved from
liability.
ISSUE:

Whether or not the execution of the affidavit of consolidation of ownership by Alfonso Flores
and its subsequent registration in the Office of the Register of Deeds of Sorsogon made his
ownership over the land in question absolute and indefeasible.

HELD:
The pacto de retro sale between Gallano and Flores was executed when the Civil Code of Spain
was still in effect. It is provided in Article 1509 thereof that if the vendor does not comply with
the provisions of Article 1518, (i.e. to return the price, plus expenses) the vendee shall
acquire irrevocably the ownership of the thing sold.
Under the old Civil Code, the ownership was consolidated in the vendee a retro by operation of
law. Accordingly, upon the failure of Valentin Gallano, as the vendor a retro, to redeem the
property subject of the pacto de retro sale within the period agreed upon, the vendee a retro,
Alfonso Flores, became the absolute owner of the subject property.
This right of ownership which had already vested in Alfonso Flores way back in 1954 upon
Gallano's failure to redeem within the stipulated period cannot be defeated by the application of
Articles 1606 and 1607 of the New Civil Code which requires registration of the consolidation of
ownership in the vendee a retro only by judicial order. Article 2252 on Transitional Provisions in
the New Civil Code provides that:
Art. 2252. Changes made and new provisions and rules laid down by this Code
which may prejudice or impair vested or acquired rights in accordance with the
old legislation shall have no retroactive effect ...
Furthermore, Article 2255 thereof states that:
Art. 2255. The former laws shall regulate acts and contracts with a condition or
period which were executed or entered into before the effectivity of this Code,
even though the condition or period may still be pending at the time this body of
laws goes into effect.

No. 49
MANUEL LAO, petitioner, vs. COURT OF APPEALS and BETTER HOMES REALTY &
HOUSING CORPORATION, respondents.

191 SCRA 795

Doctrine/Topic: Equitable Mortgage
Facts:
Private Respondent Better Homes Realty and Housing Corporation filed with the MTC, a
complaint for unlawful detainer, on the ground that private respondent is the owner of the
premises situated at Unit I, No. 21 N. Domingo Street, Quezon City that Petitioner Manuel Lao
occupied the property without rent, but on private respondents pure liberality with the
understanding that he would vacate the property upon demand, but despite demand to vacate
made by letter received by herein petitioner on February 5, 1992, the (herein petitioner) refused
to vacate the premises.
In his answer to the complaint, petitioner claimed that he is the true owner of the house and lot;
that the private respondent purchased the same from Domingo Realty and Development
Corporation but the agreement was actually a loan secured by mortgage.
Issue: Whether or not the transaction is an Absolute Sale or Equitable Mortgage?
Held:
In determining the nature of a contract, the Court looks at the intent of the parties and not at
the nomenclature used to describe it. Pivotal to deciding this issue is the true aim and purpose of
the contracting parties as shown by the terminology used in the covenant, as well as by their
conduct, words, actions and deeds prior to, during and immediately after executing the
agreement.- In this regard, parol evidence becomes admissible to prove the true intent and
agreement of the parties which the Court will enforce even if the title of the property in question
has already been registered and a new transfer certificate of title issued in the name of the
transferee.
In the first place, it must be borne in mind that the equitable doctrine which has been so fully
stated above, to the effect that any conveyance intended as security for a debt will be held in
effect to be a mortgage, whether so actually expressed in the instrument or not, operates
regardless of the form of the agreement chosen by the contracting parties as the repository of
their will. Equity looks through the form and considers the substance; and no kind of
engagement can be adopted which will enable the parties to escape from the equitable doctrine to
which reference is made. In other words, a conveyance of land, accompanied by registration in

the name of the transferee and the issuance of a new certificate, is no more secured from the
operation of this equitable doctrine than the most informal conveyance that could be devised.
We find the agreement between the private respondent and N. Domingo Realty & Housing
Corporation, as represented by petitioner, manifestly one of equitable mortgage. First,
possession of the property in the controversy remained with Petitioner Manuel Lao who was the
beneficial owner of the property, before, during and after the alleged sale. It is settled that a
pacto de retro sale should be treated as a mortgage where the (property) sold never left the
possession of the vendors. Second, the option given to Manuel Lao to purchase the property in
controversy had been extended twice through documents executed by Mr. Tan Bun Uy, President
and Chairman of the Board of Better Homes Realty & Housing Corporation. The wording of the
first extension is a refreshing revelation that indeed the parties really intended to be bound by a
loan with mortgage, not by a pacto de retro. These extensions clearly represent the extension of
time to pay the loan given to Manuel Lao upon his failure to pay said loan on its maturity. Mr.
Lao was even granted an additional loan of P20,000.00 as evidenced by the above-quoted
document. Third, unquestionably, Manuel Lao and his brother were in such dire need of
money that they mortgaged their townhouse units registered under the name of N. Domingo
Realty Corporation, the family corporation put up by their parents, to Private Respondent Better
Homes Realty & Housing Corporation. In retrospect, it is easy to blame Petitioner Manuel Lao
for not demanding a reformation of the contract to reflect the true intent of the parties. But this
seeming inaction is sufficiently explained by the Lao brothers desperate need for money,
compelling them to sign the document purporting to be a sale after they were told that the same
was just for formality.

No. 51
SOLID HOMES, INC., petitioner, vs. HON. COURT OF APPEALS, STATE FINANCING
CENTER, INC., and REGISTER OF DEEDS FOR RIZAL,respondents.
275 SCRA 267
Doctrine/Topic: Right of Repurchase
Facts:
It appears that on June 4, 1979, Solid Homes executed in favor of State Financing a Real Estate
Mortgage on its properties in Pasig, Metro Manila, in order to secure the payment of a loan
of P10,000,000.00 which the former obtained from the latter. A year after, Solid Homes applied
for and was granted an additional loan by State Financing, and to secure its payment, Solid
Homes executed the Amendment to Real Estate Mortgage dated June 4, 1980 whereby the
credits secured by the first mortgage on the abovementioned properties were
increased. Sometime thereafter, Solid Homes obtained additional credits and financing facilities
from State Financing in the sum of P1,499,811,97, and to secure its payment, Solid Homes
executed in favor of State Financing the Amendment to Real Estate Mortgage dated March 5,
1982 whereby the mortgage executed on its properties on June 4, 1979 was again amended so
that the loans or credits secured thereby were further increased. When the loan obligations
abovementioned became due and payable, State Financing made repeated demands upon Solid
Homes for the payment thereof, but the latter failed to do so. So, on December 16, 1982, State
Financing filed a petition for extrajudicial foreclosure of the mortgages abovementioned with the
Provincial Sheriff of Rizal, who, in pursuance of the petition, issued a Notice of Sheriffs Sale,
whereby the mortgaged properties of Solid Homes and the improvements existing thereon,
including the V.V. Soliven Towers II Building, were set for public auction sale in order to satisfy
the full amount of Solid Homes mortgage indebtedness, the interest thereon, and the fees and
expenses incidental to the foreclosure proceedings.
Before the scheduled public auction sale x x x, the mortgagor Solid Homes made representations
and induced State Financing to forego with the foreclosure of the real estate mortgages referred
to above. By reason thereof, State Financing agreed to suspend the foreclosure of the mortgaged
properties, subject to the terms and conditions they agreed upon, and in pursuance of their said
agreement, they executed a document entitled MEMORANDUM OF AGREEMENT/DACION
EN PAGO.
Subsequently, Solid Homes failed to pay State Financing. Hence, and in pursuance of agreement
which provided that this document shall automatically operate to be an instrument of dacion en
pago without the need of executing any document to such an effect x x x(,) State Financing
registered the said (Memorandum) with the Register of Deeds in Pasig, Metro Manila on
September 15, 1983. Consequently, the said Register of Deeds cancelled transfer of certificate of
title in the name of Solid Homes which were the subject matter of the
Memorandum)abovementioned, and in lieu thereof, the said office issued the corresponding
transfer of certificate of title in the name of State Financing.

Issue:
Whether or not the failure to annotate the vendor a retros right of repurchase in the
certificates of title of the real estate properties subject of dacion en pago conclusive evidence of
the vendee a retros malice and bad faith, entitling the former to damages? In a sale with pacto
de retro, is the repurchase price limited by Article 1616 of the Civil Code?
Held:
Petitioner argues that such total redemption price is in contravention of Art. 1616 of the
Civil Code. We do not, however, find said legal provision to be restrictive or exclusive, barring
additional amounts that the parties may agree upon. Said provision should be construed together
with Art. 1601 of the same Code which provides as follows:
Art. 1601. Conventional redemption shall take place when the vendor reserves the right to
repurchase the thing sold, with the obligation to comply with the provisions of article 1616 and
other stipulations which may have been agreed upon.
It is clear, therefore, that the provisions of Art. 1601 require petitioner to comply with the
other stipulations of the Memorandum of Agreement/Dacion en Pago it freely entered into with
private respondent. The said Memorandums provision
Contracts have the force of law between the contracting parties who may establish such
stipulations, clauses, terms and conditions as they may want, subject only to the limitation that
their agreements are not contrary to law, morals, customs, public policy or public order and the
provision of the Memorandum does not appear to be so.

Lease
No. 1
STATE
INVESTMENT
HOUSE,
vs.
COURT OF APPEALS and NORA B. MOULIC, respondents.

INC., petitioner,

217 SCRA 32
Doctrine/topic: Holder in Due Course
Facts:
Private respondent Nora B. Moulic issued to Corazon Victoriano, as security for pieces of
jewelry to be sold on commission, two (2) post-dated Equitable Banking Corporation checks in
the amount of Fifty Thousand Pesos each, Thereafter, the payee negotiated the checks to
petitioner State Investment House. Inc. (STATE).MOULIC failed to sell the pieces of jewelry, so
she returned them to the payee before maturity of the checks. The checks, however, could no
longer be retrieved as they had already been negotiated. Consequently, before their maturity
dates, MOULIC withdrew her funds from the drawee bank.Upon presentment for payment, the
checks were dishonored for insufficiency of funds. On 20 December 1979, STATE allegedly
notified MOULIC of the dishonor of the checks and requested that it be paid in cash instead,
although MOULIC avers that no such notice was given her. On 6 October 1983, STATE sued to
recover the value of the checks plus attorney's fees and expenses of litigation. In her Answer,
MOULIC contends that she incurred no obligation on the checks because the jewelry was never
sold and the checks were negotiated without her knowledge and consent. She also instituted a
Third-Party Complaint against Corazon Victoriano, who later assumed full responsibility for the
checks.
ISSUE: Whether or not State Investment House is entitled to be paid.
The negotiability of the checks is not in dispute. Indubitably, they were negotiable. After all, at
the pre-trial, the parties agreed to limit the issue to whether or not STATE was a holder of the
checks in due course.
In this regard, Sec. 52 of the Negotiable Instruments Law provides
Sec. 52. What constitutes a holder in due course. A holder in due course is a
holder who has taken the instrument under the following conditions: (a) That it is
complete and regular upon its face; (b) That he became the holder of it before it
was overdue, and without notice that it was previously dishonored, if such was the
fact; (c) That he took it in good faith and for value; (d) That at the time it was
negotiated to him he had no notice of any infirmity in the instrument or defect in
the title of the person negotiating it.

Culled from the foregoing, a prima facie presumption exists that the holder of a negotiable
instrument is a holder in due course. Consequently, the burden of proving that STATE is not a
holder in due course lies in the person who disputes the presumption. In this regard, MOULIC
failed.
The evidence clearly shows that: (a) on their faces the post-dated checks were complete and
regular: (b) petitioner bought these checks from the payee, Corazon Victoriano, before their due
dates; (c) petitioner took these checks in good faith and for value, albeit at a discounted price;
and, (d) petitioner was never informed nor made aware that these checks were merely issued to
payee as security and not for value.
Consequently, STATE is indeed a holder in due course. As such, it holds the instruments free
from any defect of title of prior parties, and from defenses available to prior parties among
themselves; STATE may, therefore, enforce full payment of the checks.

No. 3
CITYTRUST
BANKING
CORPORATION, petitioner,
vs.
THE INTERMEDIATE APPELLATE COURT and EMME HERRERO, respondents.
232 SCRA 559
Doctrine/topic: Bouncing check through the fault of the drawee bank
Facts:
This case emanated from a complaint filed by private respondent Emme Herrero for damages
against petitioner Citytrust Banking Corporation. In her complaint, private respondent averred
that she, a businesswoman, made regular deposits, starting September of 1979, with petitioner
Citytrust Banking Corporation. On 15 May 1980, she deposited with petitioner the amount of
Thirty One Thousand Five Hundred Pesos (P31,500.00), in cash, in order to amply cover six (6)
postdated checks she issued. Petitioner, in its answer, asserted that it was due to private
respondent's fault that her checks were dishonored. It averred that instead of stating her correct
account number, i.e., 29000823, in her deposit slip, she inaccurately wrote 2900823. Petitioner
bank concedes that it is its obligation to honor checks issued by private respondent which are
sufficiently funded, but, it contends, private respondent has also the duty to use her account in
accordance with the rules of petitioner bank to which she has contractually acceded. Among such
rules, contained in its "brochures" governing current account deposits, is the following printed
provision:
In making a deposit . . . kindly insure accuracy in filing said deposit slip forms as we hold
ourselves free of any liability for loss due to an incorrect account number indicated in the deposit
slip although the name of the depositor is correctly written.
Issue: Whether or not the bank is liable to respondent Herrero for the dishonored checks?
Held:
Yes, We cannot uphold the position of defendant. For, even if it be true that there was error on
the part of the plaintiff in omitting a "zero" in her account number, yet, it is a fact that her name,
"Emme E. Herrero", is clearly written on said deposit slip. This is controlling in determining in
whose account the deposit is made or should be posted. This is so because it is not likely to
commit an error in one's name than merely relying on numbers which are difficult to remember,
especially a number with eight (8) digits as the account numbers of defendant's depositors. We
view the use of numbers as simply for the convenience of the bank but was never intended to
disregard the real name of its depositors. The bank is engaged in business impressed with public
interest, and it is its duty to protect in return its many clients and depositors who transact
business with it. It should not be a matter of the bank alone receiving deposits, lending out
money and collecting interests. It is also its obligation to see to it that all funds invested with it
are properly accounted for and duly posted in its ledgers.