Case Digest on Obligations and Contracts: Pacto de Retro Sale Distinguished From Equitable Mortgage - Myrna Ramos vs. Susana Sarao G.R. No. 149756
Myrna Ramos v. Susana Sarao
G.R. No. 149756, February 11, 2005
Facts:
Respondent Sarao avers that the herein Petition should have been dismissed outright, because petitioner (1) failed to show proof that she had served a copy of it to the Court of Appeals and (2) raised questions of fact that were not proper issues in a petition under Rule 45 of the Rules of Court.
Issue: Whether the parties intended the contract to be a bona fide pacto de retro sale or an equitable mortgage.
Ruling:
In a pacto de retro, ownership of the property sold is immediately transferred to the vendee a retro, subject only to the repurchase by the vendor a retro within the stipulated period. The vendor a retro's failure to exercise the right of repurchase within the agreed time vests upon the vendee a retro, by operation of law, absolute title to the property. Such title is not impaired even if the vendee a retro fails to consolidate title under Article 1607 of the Civil Code.
On the other hand, an equitable mortgage is a contract that — although lacking the formality, the form or words, or other requisites demanded by a statute — nevertheless reveals the intention of the parties to burden a piece or pieces of real property as security for a debt. The essential requisites of such a contract are as follows: (1) the parties enter into what appears to be a contract of sale, but (2) their intention is to secure an existing debt by way of a mortgage. The nonpayment of the debt when due gives the mortgagee the right to foreclose the mortgage, sell the property, and apply the proceeds of the sale to the satisfaction of the loan obligation.
This Court has consistently decreed that the nomenclature used by the contracting parties to describe a contract does not determine its nature.
Even if a contract is denominated as a pacto de retro, the owner of the property may still disprove it by means of parol evidence, provided that the nature of the agreement is placed in issue by the pleadings filed with the trial court.
There is no single conclusive test to determine whether a deed absolute on its face is really a simple loan accommodation secured by a mortgage.
Furthermore, a contract purporting to be a pacto de retro is construed as an equitable mortgage when the terms of the document and the surrounding circumstances so require. The law discourages the use of a pacto de retro, because this scheme is frequently used to circumvent a contract known as a pactum commissorium. The Court has frequently noted that a pacto de retro is used to conceal a contract of loan secured by a mortgage. Such construction is consistent with the doctrine that the law favors the least transmission of rights.
Jurisprudence has consistently declared that the presence of even just one of the circumstances set forth in the foregoing Civil Code provision suffices to convert a contract to an equitable mortgage.
Contrary to Sarao's bare assertions, a meticulous review of the evidence reveals that the alleged contract was executed merely as security for a loan.
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