Lucia Tan v. Arador Valdehueza, G.R. No.

L-38745 / 66 SCRA 61, 6 August 1975

Doctrine: Unregistered mortgage binding between parties (Art. 2125, 2 nd sentence;

Pacto de Retro is presumed to be equitable mortgage (Art. 1602)

Facts:
 Lucia Tan (plaintiff) instituted two actions against the Valdehuezas (defendants): (1) Declaration
of ownership and recovery of possession of the parcel of land, and (2) Consolidation of
ownership of two portions of another parcel of unregistered land supposedly sold to Tan in two
separate deeds of pacto de retro.
 The parcel of land described in the first cause of action was the subject matter of the public
auction sale wherein the plaintiff was the highest bidder and as such a Certificate of Sale was
executed in favor of herein plaintiff.
 Due to the failure of defendant Arador Valdehueza to redeem the said land within the period of
one year as being provided by law, an ABSOLUTE DEED OF SALE was executed in favor of the
plaintiff by the Provincial Sheriff.
 Defendants subsequently executed two documents of DEED OF PACTO DE RETRO SALE in favor
of the plaintiff, over two portions of a parcel of land which is described in the second cause of
action. One was recorded while the other was unregistered.
 From the execution of the Deed of Sale with right to repurchase mentioned in the second cause
of action, defendants remained in the possession of the land and that land taxes to the said land
were paid by the same said defendants.
 The RTC then rendered its judgment in favor of Tan, stating that Lucia Tan is the absolute owner
of the property described in the first cause of action. And as regards the land covered by deed of
pacto de retro defendants were ordered to pay the plaintiff the amount of P300 with legal
interest of 6% from August 15, 1966, the said land serving as guaranty of the said amount of
payment.
 Defendants Valdehuezas allege that the RTC erred in making a finding that the second cause of
action that the transaction was a simple loan, instead it should be declared as equitable
mortgage.

Issue:
Whether or not the transactions involved in the second cause of action were an equitable
mortgage and not a simple loan?

Ruling:
YES. The transactions involved in the second cause of action were an equitable mortgage.

Under article 1875 of the Civil Code of 1889 (old civil code), registration was a necessary requisite for the
validity of a mortgage even as between the parties, but under new Civil Code, Art. 2125, this is no longer
so.

If the instrument is not recorded, the mortgage is nonetheless binding between the parties.
(Article 2125, 2nd sentence).
The Valdehuezas having remained in possession of the land and the realty taxes having been paid by
them, the contracts which purported to be pacto de retro transactions are presumed to be equitable
mortgages whether registered or not, there being no third parties involved

The Valdehuezas claim that their answer to the complaint of the plaintiff affirmed that they remained in
possession of the land and gave the proceeds of the harvest to the plaintiff; it is thus argued that they
would suffer double prejudice if they are to pay legal interest on the amounts stated in the pacto de
retro contracts, as the lower court has directed, and that therefore the court should have ordered
evidence to be adduced on the harvest.

Nowhere in the original and the amended complaints is an allegation of delivery to the plaintiff of the
harvest from the land involved in the second cause of action. Hence, the defendants' answer had none
to affirm.

Thus, the imposition of legal interest on the amounts subject of the equitable mortgages, is without
legal basis, for, "No interest shall be due unless it has been expressly stipulated in writing." (Art. 1956
NCC) Furthermore, the plaintiff did not pray for such interest; her thesis was a consolidation of
ownership, which was properly rejected, the contracts being equitable mortgages.

Wherefore, the judgment a quo is hereby modified.

Link: www.lawphil.net/judjuris/juri1975/aug1975/gr_38745_1975.html

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