The transaction is an absolute sale.
On its face, a document is considered a contract of equitable mortgage when the circumstances enumerated in Article 1602 of the Civil Code are manifest, as follows: (a) when the price of the sale with the right to repurchase is unusually inadequate, and (b) when the vendor remains in possession as lessee or otherwise. Although it is undisputed that Angel Fernandez was in actual possession of the property, it is important to note that he did not sell it to respondents. The sellers were his co-owners -- Antonio and Demetria Fernandez -- who, however, are not claiming that the sale between them was an equitable mortgage. For the presumption of an equitable mortgage to arise, one must first satisfy the requirement that the parties entered into a
contract denominated as a contract of sale, and that their intention was to secure an existing debt by way of mortgage.
Furthermore, mere alleged inadequacy of the price does not necessarily void a contract of sale, although the inadequacy may indicate that there was a defect in the consent, or that the parties really intended a donation, mortgage, or some other act or contract. Finally, unless the price is grossly inadequate or shocking to the conscience, a sale is not set aside. In this case, petitioners failed to establish the fair market value of the property when it was sold in 1967. Hence, there is no basis to conclude that the price was grossly inadequate or shocking to the conscience.
Tolentino and Roño vs. CA, De Guzman, Pongco and Baduria
G.R. No. 128759 August 1, 2002 Second Division Quisumbing, J:
Facts:
Sps. Pedro and Josefina De Guzman were the registered owners of a parcel of land covered by TCT No. 20248 T-105 of the Register of Deeds of Quezon City (RD of QC). They obtained a loan from the Rehabilitation Finance Corporation (RFC), now Development Bank of the Philippines (DBP), and executed a mortgage security therefor. They failed to pay the obligation; hence, the mortgage was foreclosed.
But before the expiry of the redemption period, Sps. De Guzman obtained another loan of P18,000 from Raymundo Tolentino and Lorenza Roño (petitioners). The loan to RFC was paid and the mortgage was cancelled. Petitioners then requested Sps. De Guzman to sign a Deed of Promise to Sell as security for the loan. Afterwards, they asked again Sps. De Guzman to sign a Deed of Absolute Sale. Armed with the Deed of Absolute Sale, petitioners secured the cancellation of TCT No. 20248 T-105 and TCT No. 69164 was issued in their name.
Upon the death of Pedro de Guzman in 1971, respondents tried to settle the remaining balance of the loan. Petitioners agreed to reconvey the property on the condition that respondents pay the actual market value obtaining in 1971. Upon verification with the RD of QC, the De Guzmans found that the title was already in the name of the petitioners. Consequently, respondents filed a complaint for declaration of sale as equitable mortgage and reconveyance of property with damages. Both the trial court and CA ruled in favor of respondents. Hence, this instant petition.
Issues:
1.) Whether Art. 1602 (presumption of equitable mortgage) is inapplicable to the instant case.
2.) Whether the action for declaration of nullity of the Deed of Absolute Sale is the proper remedy or cause of action.
Ruling:
1.) Petitioners argue that Art. 1602 of the Civil Code applies only when there is no express agreement or stipulation between the parties. But in the instant case, there was an express agreement, therefore inapplicable.
SC said wrong. There is nothing in Art. 1602 that indicates it applies only in the absence of express agreement between the parties. The trial court in rendering the decision considered foremost the real parties’ intent in entering into the transactions. It observed that the transactions indicated that petitioners did not intend to hold the property as owner, but as security for the loan extended to the respondents. Furthermore, the respondents remained in possession of the property and continued to pay real estate taxes even after the execution of the Deed of Absolute Sale. These are badges of equitable mortgage. The trial court, invoking Art. 1602 and Art. 1604 of the Civil Code, ruled that these were sufficient to raise the presumption that the contract was an equitable mortgage.
2.) SC held that well entrenched is the rule that litigants cannot raise an issue for the first time on appeal as this contravenes the basic rules of fair play and justice. Moreover, there is nothing in Art. 1605 that prohibits the institution of an action different from the one provided therein. It uses the word “may” and denotes discretion and cannot be construed as mandatory. Thus, it is not obligatory for respondent to file an action for reformation of instruments.
_______________________________________ 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 a 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 thing 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.
In any of the foregoing cases, any money, fruits, or other benefit to be received by the vendee as rent or otherwise shall be considered as interest which shall be subject to the usury laws.
Art. 1604. The provisions of article 1602 shall also apply to a contract purporting to be an absolute sale.
Georgina Hilado vs. Heirs of Rafael Medalla
G.R. No. 144227 February 15, 2002
Second Division Mendoza, J:
Facts:
Gorgonio Macainan was the owner of several properties in Bacolod City. Upon his death in 1966, his estate was divided among his heirs, including Berbonia who had predeceased him. In turn, her children Rafael, Lourdes and Teresita, surnamed Medalla succeeded to her inheritance. Rafael Medalla’s share consisted of five hectares in Lot No. 1031 and 1,197 sq.m. in the Lopez Jaena property.
In 1979 and 1981, Rafael executed a Deed of Absolute Sale, purporting to sell his share to Georgina Hilado (petitioner). The first deed was for Lot No. 1031 for P50,000 while the second was for the Lopez Jaena property for P25,000.
Over the next two years, Hilado and Medalla executed three more contracts concerning Lot No. 1031 and the Lopez Jaena property.
In 1984, Berbonia’s sister, Anita Macainan brought a suit against Hilado and Medalla for legal redemption. Medalla filed a cross-claim against Hilado, alleging that the Deed of Sale in 1979 was an equitable mortgage to secure a loan for P50,000 which he had received from Hilado. Nevertheless, Hilado claims it was a deed of sale and not a loan agreement.
The trial court dismissed Anita’s complaint and ruled in favor of petitioner, stating that Medalla as a third year law proper when the deed was executed had full knowledge of the consequences when he affixed his signature. Hence, the court was convinced that the intention was really to sell because all the formalities required for a valid and enforceable contract have been fully satisfied.
However, the CA reversed the trial court’s decision for the reason that the assessed value of Lot No. 1031 is P145,460 and the consideration was only for P50,000. As such, it can only conclude that it was grossly inadequate.
Petitioner now seeks a reversal of the said decision.
Issues:
1.) Whether Art. 1602 of the Civil Code is present in the instant case.
2.) Whether the contract of deed of absolute sale executed is the law between the parties.
Ruling:
1.) Under Art. 1602 in relation to Art. 1604 of the Civil Code, a contract purporting to be an absolute sale is presumed to be an equitable mortgage –
(1) when the price of a sale . . . is unusually inadequate;
(2) when the vendor remains in possession as lessee or otherwise; (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
The presence of these circumstances is sufficient for a contract to be presumed as an equitable mortgage.
In the instant case, there was evidence showing that the price paid by petitioner was unusually inadequate as compared to the market value of the lands in the neighborhood.
Also, Medalla remained in possession of the lot as corroborated by his tenant Ramon Nessia and also by Anita Macainan.
Moreover, the series of transactions executed after the 1979 Deed of Absolute Sale indicated quite clearly that the real intention of the parties was to secure the loans of Medalla. In fact the CA held that “It is very unlikely for one person who had acquired a property for a certain price to sell the same property to the same person five years after for the same price rate, considering that they are unrelated, unless, there has been an understanding between them that the same property will be resold to Medalla after the fulfillment of a resolutory condition.”
2.) The SC held that in view of the conclusions reached, it will suffice to say that even if a document appears on its face to be a sale, the owner of the property may prove that the contract is really a loan with mortgage and that the document does not express the true intent and agreement of the parties.
Petition DENIED.
SPOUSES JAYME C. UY and EVELYN UY, petitioners,
vs.
THE HONORABLE COURT OF APPEALS and SPS. NICANOR G. DE GUZMAN and ESTER DE GUZMAN, respondents.
MELO, J.:
Private respondents Nicanor de Guzman, Jr. and Ester de Guzman were the owners of three lots located in Greenhills Subdivision, San Juan, Metro Manila. In 1971, they constructed, at a cost of P3 million, a 1,200 square meter residential house on two of the lots. In 1987, the market value of the lots already ranged from P4,000 to P5,000 per square meter while the house was worth about P10 million.
Sometime in 1987, Nicanor de Guzman, Jr. decided to run for the position of Representative of the Fourth District of Nueva Ecija. Sometime in April 1987, however, de Guzman’s campaign fund began to run dry and he was compelled to borrow P2.5 Million from Mario Siochi. The de Guzman spouses were required to sign, as a sort of collateral, a deed of sale dated April 10, 1987 whereby they purportedly sold 2 of the 3 lots along with the improvements thereon, to Siochi. De Guzman was able to obtain two more loans of P500,000.00 each from Siochi. No additional collateral was required, the "deed of sale" being more than sufficient to cover the original P2.5 million loan and the additional P1 million loan. Despite the "deed of sale," however, the de Guzmans remained in possession of the property. Aside from these loans, de Guzman also owed Siochi several debts, to repay these other loans, the de Guzmans agreed with Siochi to have their 1,411 square meter vacant lot, which had already been "sold" to Siochi under the April 10, 1987 deed of sale, sold. The sale of the same amounted to P4.8 Million, the proceeds of which were all retained by Siochi. In the meantime and without the knowledge of the de Guzman spouses, Siochi had the spouses TCT cancelled on the basis of the deed of sale executed by the spouses on April 10, 1987, and had new Torrens titles issued in his name.
On June 20, 1987, Siochi sold the two lots and the improvements thereon for P2.75 Million to herein petitioners Jayme and Evelyn Uy. Thereafter, petitioners had Siochi’s titles over the lots cancelled and had new titles issued over the property. On July 1, 1988, petitioners entered into a contract of lease with option to buy with Roberto Salapantan. Salapantan was, however, unable to obtain possession of the lots since the premises were occupied by the de Guzman spouses. Consequently, Salapantan
filed a complaint for ejectment on August 1, 1988 against the de Guzman spouses with the Metropolitan Trial Court of San Juan, Metro Manila. On September 16, 1988, the de Guzmans filed a complaint with the Regional Trial Court of Pasig against Siochi, Salapantan, and herein petitioners, seeking the reformation of the April 10, 1987 Deed of Absolute Sale to the end that the true intention of the parties therein be expressed. On December 28, 1990, the trial court rendered its decision in favor of the de Guzmans. Aggrieved, petitioners interposed an appeal with the Court of Appeals, the latter affirmed the decision of the trial court holding that the sale disputed by the de Guzmans to Siochi was an equitable mortgage. ISSUE : Whether or not the sale made by herein private respondents was indeed an equitable mortgage as held by both the trial court and the appellate court
HELD: YES, the sale is an equitable mortgage. Art. 1602 of the New Civil Code provides:
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 thing sold;(6) In any other case where it may fairly be 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.
The court was convinced and found that the questioned deed of sale is in reality a mere equitable mortgage and not an absolute sale in view of the following circumstances:
First, the consideration of the sale of P2.5 Million is grossly and unusually inadequate.Second, despite the alleged deed of sale, plaintiffs have
remained in actual and physical possession of the litigated property up to the present time.Third, the uncontradicted evidence is that plaintiffs were driven to obtain the emergency loan due to urgent necessity of obtaining funds and they signed the deed of sale knowing that it did not express their real intention. In fact, additional loans in the total sum of P1 million were extended to plaintiffs by Siochi even after the execution of said sale without Siochi demanding for any additional security.Lastly, Siochi had retained for themselves the entire proceeds of P4.8 million derived from the sale of plaintiffs’ vacant lot. In the following circumstances, it indubitably shows that the alleged sale was indeed an equitable mortgage. As found by both the trial court and appellate court, the April 10, 1987 deed of sale executed by the de Guzmans and Siochi was an equitable mortgage, hence, the titles to the house and lots which were sold by Siochi to petitioners actually remained with the mortgagors, the de Guzmans. The circumstance that the original transaction was subsequently declared to be an equitable mortgage must mean that the title to the subject land which had been transferred to private respondents actually remained or is transferred back to petitioners herein as owners- mortgagors, conformably with the well- established doctrine that the mortgagee does not become the owner of the mortgaged property because the ownership remains with the mortgagor. The issuance of a certificate of title in Siochi’s favor did not vest upon him ownership of the property. Neither did it validate the sale made by Siochi to petitioners, which is null and void. Article 2088 of the Civil Code provides that the "the creditor cannot appropriate the things given by way of pledge or mortgage, or dispose of them." Being null and void, the sale by Siochi of the questioned property to petitioners, who are not innocent purchasers, produced no legal effects whatsoever.
SPOUSES OCTAVIO and EPIFANIA LORBES, petitioners,
vs.
COURT OF APPEALS, RICARDO DELOS