SECOND DIVISION

[G.R. No. L-42108. December 29, 1989.]

OSCAR D. RAMOS and LUZ AGUDO, petitioners, vs. HON. COURT OF
APPEALS, ADELAIDA RAMOS and LAZARO E. MENESES, respondents.

Godofredo V. Magbiray for petitioners.

Joselito Lim for private respondents.
SYLLABUS
1.
CIVIL LAW; CONTRACTS; EQUITABLE MORTGAGE; PRESUMPTION UNDER ART.
1602 OF THE CIVIL CODE; EXISTENCE OF ANY ONE CIRCUMSTANCE SUFFICIENT.
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, suces to give rise to the presumption that the contract with the
right of repurchase is an equitable mortgage.
2.
ID.; ID.; MANNER OF TERMINATION. It is well entrenched principle in the
interpretation of contracts that if the terms thereof are clear and leave no doubt as
to the intention of the contracting parties the literal meaning of the stipulation shall
control but when the words appear to be contrary to the evident intention of the
parties, the latter shall prevail over the former.
3.
ID.; ID.; SALE WITH A RIGHT TO REPURCHASE; NOT FAVORED. Sales with a
right to repurchase, as dened by the Civil Code, are not favored. We will not
construe instruments to be sales with a right to repurchase, with the stringent and
onerous effects which follow, unless the terms of the document and the surrounding
circumstances require it. Whenever, under the terms of the writing, any other
construction can fairly and reasonably be made, such construction will be adopted
and the contract will be construed as a mere loan unless the court can see that, if
enforced according to its terms, it is not an unconscionable one.
4.
ID.; ID.; ID.; REGARDED AS EQUITABLE MORTGAGE WHEN GIVEN AS
SECURITY FOR A LOAN. The contracts purport to be sales with pacto de retro;
however, since the same were actually executed in consideration of the aforesaid
loans said contracts are indubitably equitable mortgages. The rule is rmly settled
that whenever it is clearly shown that a deed of sale with pacto de retro, regular on
its face, is given as security for a loan, it must be regarded as an equitable
mortgage.
5.
REMEDIAL LAW; COURT OF FIRST INSTANCE (NOW REGIONAL TRIAL COURT);
PROBATE JURISDICTION, EXPLAINED. The probate jurisdiction of the former court

of rst instance or the present regional trial court relates only to matters having to
do with the settlement of the estate and probate of wills of deceased persons, and
the appointment and removal of administrators, executors, guardians and trustees.
Subject to settled exceptions not present in this case, the law does not extend the
jurisdiction of a probate court to the determination of questions of ownership that
arise during the proceeding. The parties concerned may choose to bring a separate
action as a matter of convenience in the preparation or presentation of evidence.
Obviously, the approval by the probate court of the conditional sale was without
prejudice to the ling of the proper action for consolidation of ownership and/or
reformation of instrument in the proper court within the statutory period of
prescription.
6.
ID.; ID.; WHEN ACTING AS A CADASTRAL COURT, HAS NO JURISDICTION
OVER ACTION FOR CONSOLIDATION OF OWNERSHIP. The court of rst instance
or the regional trial court, acting as cadastral court, acts with limited competence. It
has no jurisdiction to take cognizance of an action for consolidation of ownership,
much less to issue an order to that eect, such action must have been led in the
former court of rst instance, now in the regional trial court, in the exercise of its
general jurisdiction. That remedy, and the procedure therefor, is now governed by
Rule 64 of the Rules of Court as a special civil action cognizable by the regional trial
court in the exercise of original general jurisdiction.
7.
ID.; SPECIAL CIVIL ACTION; PETITION FOR CONSOLIDATION OF OWNERSHIP;
VENDOR A RETRO MUST BE NAMED RESPONDENT. In Crisologo, et al. vs.
Centeno, et al., (26 scra 48) we ruled that said Article 1607 contemplates a
contentious proceeding wherein the vendor a retro must be named respondent in
the caption and title of the petition for consolidation of ownership and duly
summoned and heard. An order granting the vendee's petition for consolidation of
ownership, without the vendor a retro being named as respondent, summoned and
heard, is a patent nullity for want of jurisdiction of the court over the person of the
latter.
8.
ID.; JUDGMENTS; REMEDIES AVAILABLE AGAINST A VOID ORDER OF
JUDGMENT. The questioned order of consolidation issued by the cadastral court,
being void for lack of jurisdiction, is in contemplation of law non-existent and may
be wholly disregarded. Such judgment may be assailed any time, either directly or
collaterally, by means of a separate action or by resisting such judgment in any
action or proceeding whenever it is invoked. It is not necessary to take any step to
vacate or avoid a void judgment; it may simply be ignored.
9.
CIVIL LAW; PRESCRIPTION; PRESCRIPTIVE PERIOD FOR ACTIONS BASED
UPON A WRITTEN CONTRACT AND FOR REFORMATION. On the issue of
prescription, in addition to what has been said, the present case, having been led
on February 28, 1960, approximately seven (7) years from the execution of the
questioned deeds, was seasonably instituted. The prescriptive period for actions
based upon a written contract and for reformation is ten (10) years under Article
1144 of the Civil Code. Such right to reformation is expressly recognized in Article
1365 of the same code.

10.
ID.; CONTRACTS; RATIONALE OF THE PRESUMPTION OF AN EQUITABLE
MORTGAGE. Article 1602 of the Civil Code is designed primarily to curtail the
evils brought about by contracts of sale with right of repurchase, such as the
circumvention of the laws against usury and pactum commissorium . In the present
case before us, to rule otherwise would contravene the legislative intent to accord
the vendor a retro maximum safeguards for the protection of his legal rights under
the true agreement of the parties. The judicial experience in cases of this nature and
the rationale for the remedial legislation are worth reiterating, considering that
such nefarious practices still persist: "It must be admitted that there are some cases
where the parties really intend a sale with right to repurchase. Although such cases
are rare, still the freedom of contract must be maintained and respected. Therefore,
the contract under consideration is preserved, but with adequate safeguards and
restrictions. "One of the gravest problems that must be solved is that raised by the
contract of sale with right of repurchase or pacto de retro. The evils arising from this
contract have festered like a sore on the body politic. . . . "It is a matter of common
knowledge that in practically all of the so-called contracts of sale with light of
repurchase, the real intention of the parties is that the pretended purchase-price is
money loaned, and in order to secure the payment of the loan a contract purporting
to be a sale with pacto de retro is drawn up. It is thus that the provisions contained
in articles 1859 and 1858 of the present Civil Code which respectively prohibit the
creditor from appropriating the things given in pledge or mortgage and ordering
that said things be sold or alienated when the principal obligation becomes due, are
circumvented. "It is high time these transgressions of the law were stopped. It is
believed by the Commission that the plan submitted for the solution of the problem
will meet with the approval of an enlightened public opinion, and in general, of
everyone moved by a sense of justice. . . ."
DECISION
REGALADO, J :
p

The instant petition for review on certiorari impugns the decision of the Court of
Appeals dated October 7, 1975, 1 which armed in toto the decision of the Court of
First Instance of Tarlac in Civil Case No. 4168, entitled "Adelaida Ramos, et al vs.
Oscar D. Ramos, et al.," holding that the contracts between the parties are not
ventas con pacto de retro but are equitable mortgages.
LibLex

Sometime in January, 1959, private respondent Adelaida Ramos borrowed from her
brother, petitioner Oscar D. Ramos, the amounts of P5,000.00 and P9,000.00 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 nance 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 Lot No. 4033 covered by Original Certicate of Title No. 5125

registered in the name of their parents, Valente Ramos and Margarita Denoga, now
deceased, 2 and Lot No. 4221 covered by Transfer Certicate of Title No. 10788 then
registered in the names of Socorro Ramos, Josena Ramos and Adelaida Ramos, 3
said properties being of the Cadastral Survey of Paniqui, Tarlac.
llcd

Upon the failure of said private respondent as vendor a retro to exercise her right of
repurchase within the redemption period, aforenamed petitioner led a petition for
consolidation and approval of the conditional sale of Lot No. 4033 in Special
Proceedings No. 5174, entitled "Intestate Estate of the late Margarita Denoga," 4
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. 5 On January 22, 1960,
the said probate court issued an order with the following disposition:
"WHEREFORE, the deed of CONDITIONAL SALE executed on May 27, 1959,
by Adelaida Ramos in favor of spouses Oscar D. Ramos and Luz Agudo,
conveying to the latter by way of pacto de retro sale whatever rights and
interests the former may have in Lot No. 4033 of the Cadastral Survey of
Paniqui, which deed of conditional sale is known as Document No. 14, Page
26, Book VI, Series of 1959, of the notarial register of Notary Public Jose P.
Sibal, is hereby approved." 6

The cadastral Court also issued a similar order dated April 18, 1960, the dispositive
portion of which reads:
"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." 7

Private respondents had been and remained in possession of these properties until
sometime in 1964 when petitioner took possession thereof.
On February 28, 1968, private respondent led Civil Case No. 4168 with the then
Court of First Instance of Tarlac for declaration of nullity of orders, reformation of
instrument, recovery of possession with preliminary injunction and damages. The
complaint therein alleged that the deeds of conditional sale, dated May 27, 1959
and August 30, 1959, are mere mortgages and were vitiated by misrepresentation,
fraud and undue inuence and that the orders dated January 22, 1960 and April 18,
1960, respectively issued by the probate and cadastral courts, were null and void for
lack of jurisdiction. Petitioners, in their answer to the complaint, specically deny
the allegations of fraud and misrepresentation and interposed as defense the fact
that the questioned conditional sales of May 27, 1959 and August 30, 1959 were
voluntarily executed by private respondent Adelaida Ramos and truly expressed the
intention of the parties; that the action, if any, has long prescribed; that the

questioned orders of January 22, 1960 and April 18, 1960, approving the
consolidation of ownership of the lands in question in favor of petitioner were
within the jurisdiction of the lower court, in its capacity as a probate court insofar as
Lot No. 4033 is concerned, and acting as a cadastral court with respect to Lot No.
4221; and that said lands subject of the conditional sales were in custodia legis in
connection with the settlement of the properties of the late Margarita Denoga, the
predecessor in interest of both petitioners and private respondents.
On January 7, 1970, the court below issued a pre-trial order to the eect that
petitioners admit the genuineness and due execution of the promissory notes
marked as Exhibits "F" and "F-1" and that the principal triable issue is whether or
not the documents purporting to be deeds of conditional sale, marked as Exhibits
"B", "B-1" and "G" were in fact intended to be equitable mortgages. 8 In its order
dated February 17, 1971, the trial court also declared: "Both parties agreed and
manifested in open court the principal obligation in the transaction reected in
Exhibits 'B' and 'B-1' and 'G' is one of loan. The parties dier, however, on the
nature of the security described therein." 9
On May 17, 1971, the court a quo rendered a decision the decretal part of which
reads:
"WHEREFORE, judgment is hereby rendered:
1)

Denying defendants' motion to dismiss of February 23, 1970;

2)
Declaring Exhibits 'B', 'B-1' and 'G' as loan transaction secured by real
estate mortgages;
3)

Annulling and setting aside Exhibits 'D', 'D-1', 'I', 'I-1' and 'I-2';

4)
Ordering plaintis, jointly and severally to pay (within ninety [90] days
from receipt of a copy of this judgment) defendants the sum of P5,000.00
specied in Exhibit 'B', with interest thereon at the legal rate from November
28, 1959 until full payment together with the sum of P9,308.00 specied in
Exhibit 'G' with interest there on at the legal rate from December 1, 1959
until full payment, and in default of such payment, let the properties
mortgaged under Exhibits 'B', 'B-1' and 'G' be sold to realize the mortgage
debt and costs; and
5)

Dismissing defendants' counter-claim.

With costs against defendants." 10

On June 14, 1971, petitioners appealed said decision to the Court of Appeals which,
on October 7, 1975; armed in all respects the judgment of the trial court.
Petitioners' motion for reconsideration of said decision was denied on November 27,
1975. 11
On January 8, 1976, petitioners led the petition at bar anchored on the following
assignments of errors:

"1.
The Hon. Court of Appeals erred in not applying the correct
provisions of law interpreting the conditional sales dated May 27, 1959 and
August 30, 1959, Exhibits 'B' and 'G' as equitable mortgages.
"2.
That as a consequence of its ruling that the conditional sales Exhibits
'B' and 'G', are equitable mortgages, the Hon. Court of Appeals erred in
ordering the reformation of the same.
"3.
The Honorable Court of Appeals erred in holding that the order dated
January 22, 1960, Exhibit C or 2, and the order dated April 18, 1960, Exhibit
H or 6, issued by the probate court in Sp. Proc. No. 5174 and by the
cadastral court in G.L.R.O. Rec. No. 395, respectively, are null and void for
lack of jurisdiction.
"4.
The Hon. Court of Appeals erred in not applying the applicable
provisions of law on the prescription of action and in not dismissing the
complaint fled in the lower court. 12

We find the petition devoid of merit.

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

The Court of Appeals, in holding that the two (2) deeds purporting to be pacto de
retro sale contracts are equitable mortgages, relied on the following factual ndings
of the trial court, to wit:
"Several undisputed circumstances persuade this Court (that) the
questioned deeds should be construed as equitable mortgages as

contemplated in Article 1602 of the Civil Code, namely: (1) plainti vendor
remained in possession until 1964 of the properties she allegedly sold in
1959 to defendants; (2) the sums representing the alleged purchase price
were actually advanced to plainti by way of loans, as expressly admitted by
the parties at the hearing of February 17, 1971, reected in an Order of the
same date: and (3) the properties allegedly purchased by defendant Oscar
Ramos and his wife have never been declared for taxation purposes in their
names. Exhibits K, K-1, L end L-1." 13

Even if we indulge the petitioners in their contention that they are justied 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, 14 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 sucient 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 herein before quoted. Settled is the rule that to create the presumption
enunciated by Article 1602, the existence of one circumstance is enough. 15 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, suces to give rise to the
presumption that the contract with the right of repurchase is an equitable
mortgage. As aptly stated by the Court of Appeals:
"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 nd that Exhibits B and G do not reect the true and
real intention of the parties and should accordingly be reformed and
construed as equitable mortgages." 16

Equally puerile is the other contention of petitioners that respondent court erred in
not applying the exclusionary parol evidence rule in ascertaining the true
intendment of the contracting parties. The present case falls squarely under one of
the exceptions to said rule as provided in then Section 7 of Rule 130, thus:
xxx xxx xxx
(a)

Where a mistake or imperfection of the writing or its failure to

express the true intent and agreement of the parties, or the validity of the
agreement is put in issue by the pleadings;" 17

xxx xxx xxx

Moreover, it is a well entrenched principle in the interpretation of contracts that if

the terms thereof are clear and leave no doubt as to the intention of the contracting
parties the literal meaning of the stipulation shall control but when the words
appear to be contrary to the evident intention of the parties, the latter shall prevail
over the former. 18
The admission of parol testimony to prove that a deed, absolute in form, was in fact
given and accepted as a mortgage does not violate the rule against the admission of
oral evidence to vary or contradict the terms of a written instrument. 19 Sales with
a right to repurchase, as dened by the Civil Code, are not favored. We will not
construe instruments to be sales with a right to repurchase, with the stringent and
onerous effects which follow, unless the terms of the document and the surrounding
circumstances require it. Whenever, under the terms of the writing, any other
construction can fairly and reasonably be made, such construction will be adopted
and the contract will be construed as a mere loan unless the court can see that, if
enforced according to its terms, it is not an unconscionable one. 20
On the faces thereof, the contracts purport to be sales with pacto de retro; however,
since the same were actually executed in consideration of the aforesaid loans said
contracts are indubitably equitable mortgages. The rule is rmly settled that
whenever it is clearly shown that a deed of sale with pacto de retro, regular on its
face, is given as security for a loan, it must be regarded as an equitable mortgage. 21
With respect to the orders dated January 22, 1960 and April 18, 1960, issued by the
Court below acting as a probate court and cadastral court, respectively, the same
could not preclude the institution of the case now under review.
A reading of the order of the probate court will show that it is merely an approval of
the deed of conditional sale dated May 27, 1959 executed by petitioner Adelaida
Ramos in favor of petitioners. There is nothing in said order providing for the
consolidation of ownership over the lots allegedly sold to petitioners nor was the
issue of the validity of said contract discussed or resolved therein. "To give approval"
means in its essential and most obvious meaning, to conrm, ratify, sanction or
consent to some act or thing done by another. 22 The approval of the probate court
of the conditional sale is not a conclusive determination of the intrinsic or extrinsic
validity of the contract but a mere recognition of the right of private respondent
Adelaida Ramos as an heir, to dispose of her rights and interests over her
inheritance even before partition. 23 As held in Duran, et al., vs. Duran, 24 the
approval by the settlement court of the assignment pendente lite, made by one heir
in favor of the other during the course of the settlement proceedings, is not deemed
nal until the estate is closed and said order can still be vacated, hence the
assigning heir remains an interested person in the proceeding even after said

approval.

LLphil

Moreover, the probate jurisdiction of the former court of rst instance or the present
regional trial court relates only to matters having to do with the settlement of the
estate and probate of wills of deceased persons, and the appointment and removal
of administrators, executors, guardians and trustees. Subject to settled exceptions
not present in this case, the law does not extend the jurisdiction of a probate court
to the determination of questions of ownership that arise during the proceeding.
The parties concerned may choose to bring a separate action as a matter of
convenience in the preparation or presentation of evidence. 25 Obviously, the
approval by the probate court of the conditional sale was without prejudice to the
ling of the proper action for consolidation of ownership and/or reformation of
instrument in the proper court within the statutory period of prescription.
prLL

The same jurisdictional aw obtains in the order of consolidation issued by the

cadastral court. The court of rst instance or the regional trial court, acting as
cadastral court, acts with limited competence. It has no jurisdiction to take
cognizance of an action for consolidation of ownership, much less to issue an order
to that eect, such action must have been led in the former court of rst instance,
now in the regional trial court, in the exercise of its general jurisdiction. That
remedy, and the procedure therefor, is now governed by Rule 64 of the Rules of
Court as a special civil action cognizable by the regional trial court in the exercise of
original general jurisdiction.
Antecedent thereto, Article 1607 of the Civil Code provided for consolidation as
follows:
"In case of real property, the consolidation of ownership in the vendee by
virtue of the failure of the vendor to comply with the provisions of article
1616 shall not be recorded in the Registry of Property without a judicial
order, after the vendor has been duly heard."

Hence in Crisologo, et al. vs. Centeno, et al., 26 we ruled that said Article 1607
contemplates a contentious proceeding wherein the vendor a retro must be
named respondent in the caption and title of the petition for consolidation of
ownership and duly summoned and heard. An order granting the vendee's
petition for consolidation of ownership, without the vendor a retro being named
as respondent, summoned and heard, is a patent nullity for want of jurisdiction of
the court over the person of the latter.
The questioned order of consolidation issued by the cadastral court, being void for
lack of jurisdiction, is in contemplation of law non-existent and may be wholly
disregarded. Such judgment may be assailed any time, either directly or collaterally,
by means of a separate action or by resisting such judgment in any action or
proceeding whenever it is invoked. 27 It is not necessary to take any step to vacate
or avoid a void judgment; it may simply be ignored. 28
On the issue of prescription, in addition to what has been said, the present case,
having been led on February 28, 1960, approximately seven (7) years from the

execution of the questioned deeds, was seasonably instituted. The prescriptive

period for actions based upon a written contract and for reformation is ten (10)
years under Article 1144 of the Civil Code. Such right to reformation is expressly
recognized in Article 1365 of the same code. 29
Article 1602 of the Civil Code is designed primarily to curtail the evils brought about
by contracts of sale with right of repurchase, such as the circumvention of the laws
against usury and pactum commissorium . 30 In the present case before us, to rule
otherwise would contravene the legislative intent to accord the vendor a retro
maximum safeguards for the protection of his legal rights under the true agreement
of the parties. The judicial experience in cases of this nature and the rationale for
the remedial legislation are worth reiterating, considering that such nefarious
practices still persist:
"It must be admitted that there are some cases where the parties really
intend a sale with right to repurchase. Although such cases are rare, still the
freedom of contract must be maintained and respected. Therefore, the
contract under consideration is preserved, but with adequate safeguards
and restrictions.
"One of the gravest problems that must be solved is that raised by the
contract of sale with right of repurchase or pacto de retro. The evils arising
from this contract have festered like a sore on the body politic. . . .
xxx xxx xxx
"It is a matter of common knowledge that in practically all of the so-called
contracts of sale with light of repurchase, the real intention of the parties is
that the pretended purchase-price is money loaned, and in order to secure
the payment of the loan a contract purporting to be a sale with pacto de
retro is drawn up. It is thus that the provisions contained in articles 1859
and 1858 of the present Civil Code which respectively prohibit the creditor
from appropriating the things given in pledge or mortgage and ordering that
said things be sold or alienated when the principal obligation becomes due,
are circumvented.
"Furthermore, it is well-known that the practice in these so-called contracts
of sale with pacto de retro is to draw up another contract purporting to be a
lease of the property to the supposed vendor, who pays in money or in
crops a so-called rent. It is, however, no secret to anyone that this
simulated rent is in truth and in fact interest on the money loaned. In many
instances, the interest is usurious. Thus, the usury law is also circumvented.
"It is high time these transgressions of the law were stopped. It is believed
by the Commission that the plan submitted for the solution of the problem
will meet with the approval of an enlightened public opinion, and in general,
of everyone moved by a sense of justice.
"During the deliberations of the Commission the question arose as to
whether the contract of purchase with pacto de retro should be abolished
and forbidden. On rst impression, this should be done, but there is every

reason to fear that in such a case the usurious money-lenders would

demand of the borrowers that, although the real agreement is one of loan
secured with a mortgage, the instrument to be signed should purport to be
an absolute sale of the property involved. Should this happen, the problem
would become aggravated. Moreover, it must be admitted that there are
some cases where the parties really intend a sale with right to repurchase.
Although such cases are rare, still the freedom of contract must be
maintained and respected. Therefore, the contract under consideration is
preserved in the Project of Civil Code, but with adequate safeguards and
restrictions." 31

WHEREFORE, the instant petition is hereby DENIED and the assailed decision of the
Court of Appeals is hereby AFFIRMED.
SO ORDERED.
Melencio-Herrera, Paras, Padilla and Sarmiento, JJ., concur.
Footnotes

1.

CA-G.R. No. 49354-R. Penned by Justice Emilio A. Gancayco and concurred in by

Associate Justices Ricardo C. Puno and B.S. de la Fuente. Rollo, 28-37.

2.

Folder of Exhibits, 1-6.

3.

Ibid., 11-13, 15.

4.

Ibid., 7-8.

5.

Ibid., 16-17.

6.

Rollo, 7-8.

7.

Ibid., 8.

8.

Rollo, 25; Record on Appeal, 64-67.

9.

Ibid., id., 132.

10.

Folder of Original Record on Appeal, 103-104.

11.

Rollo, 48.

12.

Ibid., 105; Brief for Petitioners, 8-9.

13.

Rollo, 32-33.

14.

A co-owner has the right to freely sell end dispose of his undivided interest but no
right to sell a divided, denite part of the real estate owned in common. The

transferee does not acquire any specic portion of the whole until partition. (Lopez
vs. Ilustre, 5 Phil. 567 [1906]; Ramos Silos, et al. vs. Ramos. et al., 97 Phil. 263
[1955]).
15.
16.

Santos vs. Duata, et al., 14 SCRA 1041(1965); Capulong, et al. vs. Court of
Appeals, et al., 130 SCRA 245 (1984).
Rollo, 33-34.

17.

Formerly, Sec. 22, Rule 123, 1940 Rules of Court; now reproduced in Sec. 9, Rule
130, 1989 Revised Rules on Evidence.

18.

Art. 1370, Civil Code; Labasan, et al. vs. Lacuesta et al., 86 SCRA 16 (1978);
Balatero vs. Intermediate Appellate Court, et al., 154 SCRA 530 (1987).

19.

Ignacio vs. Chua Hong, et al., 52 Phil. 940 (1929); Aguinaldo vs. Esteban, et al.,
135 SCRA 645 (1985); Serrano vs. Court of Appeals, et al., 139 SCRA 179 (1985).

20.

Padilla vs. Linsangan, 19 Phil. 65 (1911); Aquino vs. Deala, 63 Phil. 582 (1936).

21.

Ignacio vs. Chua Hong, supra; Capulong vs. Court of Appeals, et al., ante.

22.

State vs. Rhein, 127 N.E., 1079, 1081; 149 Iowa, 76; 3A Words and Phrases,
Permanent Edition, 500.

23.

Arts. 493 and 1088, Civil Code; Jakosalem vs. Rafols, et al., 73 Phil. 628; De Borja,
et al. vs. Vda. de Borja, 46 SCRA 755 (1972); Go Ong vs. Court of Appeals, 154
SCRA 271 (1987).

24.

20 SCRA 279 (1967).

25.

Vda. de Maalac vs. Ocampo, et al., 73 Phil. 661 (1942).

26.

SCRA 48 (1948).

27.
28.
29.

Banco Espaol-Filipino vs. Palanca, 37 Phil. 921 (1918); Gomez vs. Concepcion,
etc., et al., 47 Phil. 717 (1925); Ang Lam vs. Rosillosa et. al., 86 Phil. 447 (1950).
49 C.J.S. 879-880.
Conde, et al. vs. Cuenca, et al, 99 Phil. 1056 (1956); Seno vs. Mangubat, 156
SCRA 113 (1987).

30.

Balatero vs. Intermediate Appellate Court, et al., ante.

31.

Report of the Code Commission, 61-64.