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[G.R. No. 145871. January 31, 2006.

]
LEONIDES C. DIO, petitioner, vs. LINA JARDINES, respondent.
When a contract is presumed to be an equitable mortgage
Lina Jardines (respondent) executed in Dios (petitioner) favor a Deed of Sale with
Pacto de Retro over a parcel of land with improvements thereon covered by Tax
Declaration No. 44250, the consideration for which amounted to P165,000.00; it
was stipulated in the deed that the period for redemption would expire in six
months or on July 29, 1987; such period expired but neither Jardines nor any of her
legal representatives were able to redeem or repurchase the subject property; as a
consequence, absolute ownership over the property has been consolidated in favor
of Dio.
Dio filed a petition for Consolidation of Ownership. Jardines countered that the
Deed of Sale with Pacto de Retro did not embody the real intention of the parties;
that the transaction actually entered into by the parties was one of simple loan and
the Deed of Sale with Pacto de Retro was executed just as a security for the loan,
that it is unthinkable that respondent would sell her property worth one and a half
million pesos for only P165,000.00.
RTC: declared that the contract entered into was one of deed of sale with right to
repurchase or pacto de retro sale; declared Dio owner of the residential house and
other improvements standing on the parcel of land in question; and ordering the
consolidation of ownership of Dio over the residential house
CA: Reversed the RTC judgment; it held that the true nature of the contract
between herein parties is one of held that the true nature of the contract between
herein parties is one of equitable mortgage, as shown by the fact that (a)
respondent is still in actual physical possession of the property; (b) respondent is
the one paying the real property taxes on the property; and (c) the amount of the
supposed sale price, P165,000.00, earns monthly interest.
Issue: Whether the CA erred in declaring that the nature of the contract entered into
by the parties was an Equitable Mortgage and not Pacto de Retro Sale?
Held: The CA correctly ruled that the true nature of the contract entered into by
herein parties was one of equitable mortgage.
Article 1602 of the Civil Code enumerates the instances when a purported pacto de
retro sale may be considered an equitable mortgage, to wit:
Art. 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 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.
In the instant case, the presence of the circumstances provided for under
paragraphs (2) and (5) of Article 1602 of the Civil Code, and the fact that petitioner
herself demands payment of interests on the purported purchase price of the
subject property, clearly show that the intention of the parties was merely for the
property to stand as security for a loan. The transaction between herein parties was
then correctly construed by the CA as an equitable mortgage.
WHEREFORE, the petition is hereby DENIED.

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