G.R. No. 149756 - Ramos vs. Sarao

Case Summary (G.R. No. 149756)

Procedural Posture

The petition challenges the Court of Appeals’ affirmation of the RTC’s dismissal of petitioner’s complaint for redemption and award of consolidation of title in favor of respondent. The RTC had consolidated two actions (the redemption suit and Sarao’s consolidation petition) and ruled for consolidation in favor of respondent; the CA affirmed. Petitioner brought a Rule 45 petition to the Supreme Court to review both factual and legal determinations.

Core Factual Chronology

On February 21, 1991 the spouses executed a document styled “Deed of Sale under Pacto de Retro” conveying the conjugal house and lot to respondent Susana Sarao for P1,310,430 with a repurchase option exercisable within six months and an agreed interest rate of 4.5% per month (compounded). On July 30, 1991 petitioner tendered two manager’s checks totaling P1,633,034.20 which respondent refused as allegedly insufficient. Petitioner filed for redemption on August 8, 1991 and later consigned the two checks with the RTC (August 13, 1991). Respondent filed a petition for consolidation of ownership and paid various taxes and expenses to avert a bank auction; the related cases were consolidated and tried together.

Evidentiary Positions at Trial

Petitioner’s evidence emphasized that the transaction was a loan accommodation: the funds were borrowed to avert foreclosure by a commercial bank, the Ramos spouses remained in possession and residence of the property, petitioner sought computations from respondent’s counsel and attempted redemption after a short interval, and petitioner offered payment based on respondent’s own computation. Respondent’s evidence characterized the instrument as a bona fide pacto de retro, asserted nonpayment of the stipulated interest, presented a larger computation of the obligation that included taxes and other charges, and relied on a June 14, 1991 letter from Jonas Ramos admitting inability to repurchase as supporting consolidation.

Issues Presented to the Court

The petition raised three issues: (1) whether the deed styled as a pacto de retro was, in truth, an equitable mortgage; (2) whether petitioner validly tendered payment and validly consummated consignation; and (3) whether petitioner was entitled to moral damages and attorney’s fees.

Standard of Review and Scope of Relief

Although Rule 45 normally restricts appellate review of factual findings, the Supreme Court invoked recognized exceptions permitting re‑examination where the Court of Appeals manifestly overlooked relevant and undisputed facts that would change the legal conclusion. The Court found such oversight here and proceeded to examine the factual circumstances in light of legal principles concerning pacto de retro versus equitable mortgage and the law on tender and consignation.

Legal Distinction: Pacto de Retro versus Equitable Mortgage

A pacto de retro effects an immediate transfer of ownership to the vendee‑a‑retro subject to the vendor’s right to repurchase within the agreed period; failure to repurchase vests absolute title in the vendee by operation of law (and consolidation of title for registry purposes requires judicial order). An equitable mortgage, however, is a transaction that, though expressed as a sale, in substance secures a debt; the essential element is the parties’ intention to create security rather than effect an absolute transfer. Article 1371 requires that contemporaneous and subsequent acts be considered to ascertain intent; Article 1602 lists circumstances that give rise to a presumption of equitable mortgage. Parol evidence is admissible to show real intent when the nature of the agreement is properly placed in issue.

Application of Article 1602 and the Presumption of Equitable Mortgage

Article 1602’s enumerated instances (including retention of possession by the vendor and unusually inadequate price) establish a presumption that a transaction denominated a pacto de retro is actually an equitable mortgage; the presence of even one such circumstance suffices. Here, the Ramos spouses continued to possess and reside in the subject property after the transaction — an enumerated ground under Article 1602(2). The Court concluded that this fact, together with the surrounding circumstances (transaction entered on the eve of a bank foreclosure and the written communications that characterized amounts due as a “House and Lot Loan”), supported the presumption that the deed in reality secured a loan. The evidentiary burden therefore shifted to respondent to rebut the presumption by clear and convincing proof of a bona fide pacto de retro; the Court found respondent failed to discharge that burden.

Effect of the Court’s Finding That the Instrument Was an Equitable Mortgage

Because the contract was an equitable mortgage rather than an absolute sale, respondent’s proper remedies were enforcement of the loan — by action for the amount due or foreclosure — rather than consolidation of ownership through application of a pacto de retro. The Court treated the consigned sum as payment toward the loan obligation and declared the mortgage discharged upon application of the consigned amount against the debt as of the relevant deposit date.

Tender, Consignation, and the Validity of Petitioner’s Payment

Tender of payment and consignation are governed by Articles 1256 and 1258 of the Civil Code; consignation is proper when tender is refused without just cause and requires that all interested parties be notified. The lower courts had held that petitioner failed to tender the correct amount and failed to give proper consignation notice. The Supreme Court reversed that conclusion: petitioner tendered P1,633,034.20 based on respondent’s own computation, and respondent’s later demand for P2,911,579.22 was grossly excessive because it included items not contemplated by the parties’ agreement (e.g., unrelated expenses). Petitioner’s August 1, 1991 communication sufficed as an announcement that consignation would follow; the subsequent deposit with the court produced the retroactive legal effect of payment. Accordingly, consignation was valid and produced discharge as to the loan obligation to the extent of the consigned amount.

Claims for Moral Damages and Attorney’s Fees

The Court denied petitioner’s claims for moral damages and attorney’

Case Syllabus (G.R. No. 149756)

Procedural Posture

Petition for Review under Rule 45 of the Rules of Court assails the August 31, 2001 Decision of the Court of Appeals in CA-GR CV No. 50095 which affirmed the January 19, 1995 Decision of the Regional Trial Court (RTC), Branch 145, Makati City, dismissing petitioner Myrna Ramos' Complaint and consolidating title in favor of respondent Susana S. Sarao.
Case docketed before the RTC as Civil Case No. 91-2188 (redemption and damages) and Civil Case No. 91-3434 (consolidation of ownership in pacto de retro sale); later consolidated and tried jointly before Branch 145.
Matter submitted to the Supreme Court; petitioner’s memorandum and respondents’ memoranda were filed; case deemed submitted for decision on March 14, 2003 upon receipt of petitioner’s memorandum.

Title and Parties

Petitioner: Myrna Ramos (impleaded husband Jonas Ramos as co-defendant; alleged estrangement).
Respondents: Susana S. Sarao and Jonas Ramos.
Trial and appellate tribunals: RTC, Branch 145, Makati City; Court of Appeals Seventh Division (Penned by Justice Bernardo P. Abesamis).

Core Factual Allegations

On February 21, 1991 spouses Jonas and Myrna Ramos executed an instrument entitled "DEED OF SALE UNDER PACTO DE RETRO" over their conjugal house and lot (TCT No. 151784) in favor of Susana S. Sarao for P1,310,430.
The instrument granted the Ramos spouses an option to repurchase within six months (from February 21, 1991) for P1,310,430 plus interest at 4.5% per month; failure to pay monthly interest or to exercise repurchase within the period would render the conveyance an absolute sale.
Petitioner alleged the transaction was in reality a loan accommodation to avert foreclosure by a commercial bank; spouses intended to redeem the property and remain in possession.
On July 30, 1991 petitioner tendered two manager’s checks totaling P1,633,034.20 to Sarao (which Sarao refused as allegedly insufficient).
On August 8, 1991 petitioner filed Complaint for redemption and moral damages plus attorney’s fees; on August 13, 1991 she deposited with the RTC the two checks Sarao had refused (consignation).
Respondent Sarao filed, on December 21, 1991, a Petition for consolidation of ownership in pacto de retro sale (Civil Case No. 91-3434); consolidation and joint trial ensued.

Testimony of Petitioner (Myrna Ramos) at Trial

Stated that on February 21, 1991 she and husband borrowed P1,234,000 from Sarao payable within six months with 4.5% compounded monthly "in order for them to pay [the] mortgage on their house."
Explained deed reflected P1,310,430 because P20,000 attorney’s fees were added and were compounded with 4.5% interest to prepay compounded interest.
Asserted market value of the property circa February 1991 was approximately P10 million but the transaction was for P1,310,430 because they intended to redeem the property.
Wrote to Atty. Mario Aguinaldo (Sarao’s counsel) in May 1991 seeking computation and expressing intention to redeem; received no reply initially but later obtained a handwritten computation (P1,562,712.14) and later a computation dated July 23, 1991 showing P2,911,579.22.
Tendered redemption price by two manager’s checks on July 30, 1991 amounting to P1,633,034.20 (Exhs. H-1 & H-2); after refusal she came to court to consign the checks (Exhs. L-4 & L-5) and caused annotation of lis pendens on the TCT.

Testimony of Respondent (Susana S. Sarao) at Trial

Asserted that on February 21, 1991 spouses Ramos and others approached her to effect a sale of the property; she consulted Atty. Aguinaldo and deed of sale under pacto de retro was executed that same date (Exh. 1).
Sent a demand letter dated June 10, 1991 due to Myrna’s failure to pay monthly interest; received a June 14, 1991 reply from Jonas admitting lack of capacity to redeem and pay interest.
Claimed she incurred expenses (real estate taxes in arrears, transfer tax, capital gains tax, expenses for consolidated proceedings) and presented receipted expenditures and a modified computation (Exhs. 6, 6-1 to 6-0; Exh. 9).
Admitted Myrna tendered payment of P1,633,034.20 in two manager’s checks but refused them as insufficient; alleged several letters with computations were sent to Myrna and her lawyer.
Denied allegations that she allied with Jonas Ramos or had knowledge of such alliance.

Findings and Judgment of the Regional Trial Court

RTC dismissed petitioner’s Complaint and granted Sarao’s prayer to consolidate title in her favor, effectively treating the deed as a valid pacto de retro and concluding petitioner had failed to exercise repurchase rights and that consignation was invalid or insufficient.

Ruling of the Court of Appeals

CA sustained RTC’s finding that the disputed contract was a bona fide pacto de retro sale, not a mortgage.
Held that Myrna Ramos failed to validly exercise the right of repurchase because: (1) consignation was invalid as she did not deposit the correct repurchase price; and (2) she failed to comply with required notice of consignation.
Dismissed the appeal for lack of merit; affirmed RTC decision in toto.

Issues Presented to the Supreme Court

Whether the Deed of Sale under Pacto de Retro was in reality an equitable mortgage.
Whether consignation and tender of payment by petitioner were valid.
Whether petitioner’s claim for moral damages and attorney’s fees was correctly denied.

Supreme Court Preliminary Observations on Reviewability

Respondent Sarao argued dismissal for failure to serve a copy of the petition on the CA and that issues raised were questions of fact not proper for Rule 45 review.
Supreme Court disregarded the service defect to avoid substantial injustice, noting CA is not a party here; service to the CA is for information only.
Court recognized exceptions to the general bar against review of factual findings where the appellate court manifestly overlooked relevant and undisputed facts, and thus proceeded to review.

Legal Standards Applied — Pacto de Retro vs Equitable Mortgage

Defined pacto de retro: immediate transfer of ownership to vendee with vendor having right to repurchase within stipulated period; failure to repurchase