Short answer. Yes. Article 1365 covers both branches of a disguised security arrangement, an instrument stating the property was sold absolutely and one stating it was sold with a right of repurchase, or pacto de retro. If the true agreement was a mortgage or pledge securing a debt, either form can be reformed to reflect that the property only secures an obligation.

What the law says

agree upon the mortgage or pledge of real or personal property, but the instrument states that the property is sold absolutely or with a right of repurchase, reformation of the instrument is proper

Civil Code, Article 1365 — Mortgage/Pledge Stated as Sale. Read the full provision →

Two Disguises, One Rule

Article 1365 does not single out plain absolute sales. It expressly covers instruments drafted as a sale with a right of repurchase, the classic pacto de retro arrangement often used to dress up a loan as a conditional sale. Whichever wording was used, if the real deal between the parties was a mortgage or pledge, the article allows the instrument to be reformed. The same protective logic that guards against a straightforward equitable mortgage applies with equal force when the disguise takes the more elaborate form of a buy-back arrangement.

Why Lenders Use Buy-Back Language

A pacto de retro sale can look cleaner to a lender than a mortgage: on paper, ownership already transferred, and the borrower merely holds an option to repurchase within a fixed period. In practice this structure has been used to sidestep mortgage foreclosure procedures and let the lender claim outright ownership if repayment is late, even though both sides only ever intended the property to serve as collateral for a loan.

What Reformation Changes

Once a court finds the true intent was security for a debt, reforming the instrument does not cancel it, it corrects its legal character going forward. The borrower keeps ownership subject to the lien, the amount advanced is treated as a loan with interest, and any attempt by the lender to consolidate title without proper foreclosure loses its footing. Interest that was silently built into an inflated repurchase price can also be scrutinized once the arrangement is properly characterized as a loan rather than a sale.

Proving the True Intent

Because the written words say sale, the party seeking reformation carries the burden of showing by convincing evidence, such as an inadequate price, continued possession by the seller, or continued payment of property taxes by the seller after the sale, that the parties actually meant a mortgage or pledge rather than a genuine transfer of ownership. Courts have also looked at whether the repurchase price bears any relation to the value of the property or instead tracks a debt figure with interest added on top.

Why the Distinction Changes the Outcome

The distinction matters for how the dispute unfolds in court: a true pacto de retro sale is generally consolidated by the mere lapse of the repurchase period, while a mortgage in disguise can only be enforced through the safeguards that protect a debtor facing foreclosure. A lender who tries to skip those safeguards, by simply treating the repurchase deadline as automatic forfeiture, risks having the whole consolidation set aside once a court reforms the instrument, leaving the lender with only a security interest and an ordinary foreclosure action instead of outright ownership.

Cases citing this provision

These Supreme Court decisions cite the provision above. We list them so you can read them yourself; the summaries of what each decided are not ours to give.

Related provisions

Note. Statute text quoted on this page is reproduced from the official enactment and is linked to the full provision. The explanation around it is general legal information from Vivas & Nobles Law Office, not legal advice. Whether it applies to your situation depends on facts only a lawyer reviewing them can assess.