ANATALIA B. RAMOS, PETITIONER, VS. SPOUSES DOMINGO A. DIZON AND EDNA MEDINA DIZON, RESPONDENTS.

Ramos versus Dizon

The Case

This is the story of Anatalia Ramos, who asked the courts to declare that she had become the owner of a parcel of land in Tondo, Manila, because the owner's attorney-in-fact had sold it to her with a right to repurchase and nobody bought it back in time. The respondents are the spouses Domingo Dizon and Edna Medina Dizon, and Domingo is the registered owner of the land in question. The action began as a petition for registration of consolidation of ownership over real property. The case matters because the Supreme Court uses it to settle two questions every litigator must know: whether a trial court may consider exhibits that were marked but never formally offered, and when a deed that calls itself a sale with a right to repurchase is in truth only a mortgage securing a debt.

Procedural History

Anatalia Ramos filed her petition for consolidation of ownership before the Regional Trial Court of Manila, Branch 45. Domingo Dizon opposed it, claiming that the special power of attorney was meant only to secure a loan, that he had revoked it, and that the pacto de retro sale was simulated and should be treated as an equitable mortgage. The trial court dismissed the petition, holding that the contract between Ramos and Elpidio Dizon was actually an equitable mortgage and not a pacto de retro sale. Ramos appealed to the Court of Appeals, which affirmed the trial court in all respects and later denied her motion for reconsideration. She then came to the Supreme Court by petition for review on certiorari, raising the evidentiary and contractual issues now before us.

Facts

Domingo Dizon owned an undivided one-half portion of a parcel of land in Limay Street, Manuguit Subdivision, Tondo, Manila, covered by Transfer Certificate of Title Number 172510. On 1 February 1988, he executed a special power of attorney authorizing Elpidio Domingo to sell one-half of that land. Elpidio later secured loans from Anatalia Ramos: 150,000 pesos evidenced by a promissory note dated 17 April 1988, later increased to 350,000 pesos, secured by a real estate mortgage over the same property.

On 10 August 1988, Elpidio, purportedly acting under the special power of attorney, sold one-half of the land to Ramos with a right to repurchase within five months, in a deed styled as a Deed of Sale Under Pacto de Retro for 350,000 pesos. Domingo never repurchased. Ramos then filed the petition for consolidation of ownership, and Domingo countered that the special power of attorney was for a loan, that he had revoked it, and that the pacto de retro sale was simulated and in any event an equitable mortgage.

At trial, Elpidio testified for Ramos but admitted on cross-examination that the 350,000 pesos stated in the pacto de retro deed was the very same money he had earlier received from Ramos under the promissory notes and the real estate mortgage, and that he still possessed the apartment and collected rents long after the five-month period had lapsed. The trial court dismissed the petition, and the Court of Appeals affirmed.

Issues

• Whether or not the Court of Appeals erred in applying the relaxed rule on evidence not formally offered, and in considering the respondents' exhibits despite the absence of a formal offer.
• Whether or not the Court of Appeals erred in sustaining the ruling that the contract between Ramos and Elpidio was actually an equitable mortgage and not a pacto de retro sale.

Applicable Provisions

Section 34 of Rule 132 of the Rules of Court provides:

SEC. 34. Offer of evidence. – The court shall consider no evidence which has not been formally offered. The purpose for which the evidence is offered must be specified.

This is the general rule the petitioner invokes, and the Court must decide whether the exhibits in question fall under its exception.

Article 1602 of the Civil Code provides:

Art. 1602. 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 things 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.

This is the provision the trial court and the Court of Appeals applied in characterizing the deed as a mortgage rather than a sale.

Ruling

On the first issue, the Court held that the Court of Appeals did not err. While Section 34 of Rule 132 states that the court shall consider no evidence which has not been formally offered, the Court recalled its earlier rulings in People versus Napat-a and People versus Mate, reiterated in Vda. de Oñate versus Court of Appeals, which relaxed the rule. Evidence not formally offered may be admitted and considered provided two requirements are present: first, the same must have been duly identified by testimony duly recorded, and second, the same must have been incorporated in the records of the case. The Court found both requirements satisfied. The exhibits were presented and marked during pre-trial and thus formed part of the records, and Elpidio himself explained their contents when he was interrogated by respondents' counsel. The Court stressed that pre-trial forms part of the proceedings and matters dealt with therein may not be brushed aside, otherwise the real essence of compulsory pre-trial would be inconsequential and worthless.

On the second issue, the Court also ruled against Ramos. Under Article 1602 of the Civil Code, a contract of sale is presumed to be an equitable mortgage in the cases enumerated. The Court found two of those circumstances present. First, Elpidio remained in possession of the property and continued collecting rents long after the five-month repurchase period had lapsed on 7 January 1989. The Court reasoned that the essence of a pacto de retro sale is that title and ownership are immediately bestowed upon the vendee a retro, subject to the resolutory condition of repurchase, so Ramos should have immediately enforced her right to the rental payments, and her failure to do so cast doubt on the true nature of the transaction. Second, the 350,000 pesos stated in the pacto de retro deed was the same amount covered by the real estate mortgage and the promissory notes, so there was no separate consideration received by Elpidio apart from the earlier loans. This gave credence to the position that the pacto de retro sale was but a security for the loans extended by Ramos.

Doctrine

Two rules must be retained. First, the rule that a court shall consider no evidence which has not been formally offered admits of a recognized exception: evidence not formally offered may be admitted and considered if it was duly identified by testimony duly recorded and incorporated in the records of the case, as where the exhibits were marked during pre-trial. Second, under Article 1602 of the Civil Code, a deed of sale with a right to repurchase is presumed to be an equitable mortgage when the price is unusually inadequate, when the vendor remains in possession, or 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. The presence of any one of the enumerated circumstances suffices to raise the presumption, and the true intention of the parties, not the title of the deed, controls.

Disposition

The petition was denied, and the Decision of the Court of Appeals and the Decision of the Manila Regional Trial Court dismissing the petition for consolidation of ownership were affirmed, with costs against the petitioner.

Remember This

Memorize this line: a deed styled as a pacto de retro sale is presumed an equitable mortgage when the vendor remains in possession and the price is the same debt already secured by a mortgage. Examiners use this case to test the exception to the formal offer rule and the Article 1602 presumptions of equitable mortgage.