G.R. No. 16212 - Gatmaitan vs. Nepomuceno

This is a cadastral proceeding instituted on September 10, 1917, by the Director of Lands for the purpose of settling and adjudicating titles to a large tract of land comprising 689 parcels or lots in Mabalacat, Pampanga.
The controversy here involves only lots Nos. 581, 622, and 623.

The claimants and appellees are Eligio Gatmaitan and his coheirs, while the claimant and appellant is Juan Nepomuceno.
On May 21, 1898, Nicolas Espinosa y Galang, acting for himself and as attorney-in-fact for his coheirs (the appellees), executed a deed (Exhibit C) selling the lots to Juan Nepomuceno for the sum of P2,700 with a right of redemption, “con pacto de retro,” within five years.
Subsequent to this transaction, the purchaser remained in possession of the land through successive tenants, and the appellees did not exercise the right of redemption to repurchase the property.
Additionally, over time the appellees received extra amounts aggregating P900 from the appellant, purportedly as an increase of the purchase price.

Exhibit C is the deed of sale which explicitly states the transaction was a sale with a right of redemption within five years.
Exhibit D is the power of attorney executed by the appellees in favor of Nicolas Espinosa. This document explicitly empowers Espinosa to sell the property “con pacto de retro” and to carry out all necessary acts pertaining thereto.
The lower court, however, interpreted the transaction as a mortgage or loan with guaranty rather than a sale, relying largely on the uncorroborated, self-serving testimony of Eligio Gatmaitan asserting that the parties intended only to mortgage the land to secure a debt.

The Hon. Primitivo S. Agustin, auxiliary judge, rendered a judgment denying Juan Nepomuceno’s claim, thereby ordering the lots to be registered in the names of Eligio Gatmaitan and his coheirs, subject to an incumbrance in favor of Juan Nepomuceno for P3,600.
Juan Nepomuceno appealed this decision, contesting the interpretation that the transaction was mere security for a loan instead of an absolute sale with the right of redemption.

Was the transaction between the parties properly characterized as a sale with a pacto de retro, or should it be construed as a mortgage/loan with guaranty?
Does the clear and unequivocal language of the deed (Exhibit C) and the power-of-attorney (Exhibit D) override the uncorroborated testimony alleging that the parties intended only a mortgage?
Is the apparent disproportion between the purchase price (P2,700, later increased by additional sums) and the estimated true value of the land (approximately P7,000) sufficient to recharacterize the transaction from a sale with a right of redemption into a mere secured loan?