SPOUSES JOHN T. SY AND LENY N. SY, AND VALENTINO T.
SY, Petitioners
vs.
MA. LOURDES DE VERA-NAVARRO AND BENJAEMY HO TAN LANDHOLDINGS, INC., HEREIN REPRESENTED BY
GRACE T. MOLINA, IN HER CAPACITY AS CORPORATE SECRETARY, Respondents
Second Division/ CAGUIOA, J.:
Facts:
Petitioner John was one of the co-owners of a parcel of land and the four-storey building found therein
situated at Rizal Street, Barangay Zone IV, Zamboanga City, covered by Transfer Certificate of Title No.
(TCT) T-171,105 (subject property). Petitioners Sps. Sy alleged that the subject property has a market
value of more than ₱40,000,000.00.
Petitioner John, for himself and in representation of his co-owners, borrowed ₱3,720,000.00 from
respondent De Vera-Navarro, secured by a Real Estate Mortgage Contract over the subject property.
Such Mortgage Contract was annotated on TCT T-171,105 on June 2, 2006. Petitioners Sps. Sy then
alleged that immediately after the execution of the Mortgage Contract, as per usual practice, respondent
De Vera-Navarro asked petitioner John to execute an undated Deed of Absolute Sale with a stated
consideration in the amount of ₱5,000,000.00, supposedly for the purpose of providing additional security
for the loan.
Petitioners Sps. Sy also claimed that petitioner John and respondent De Vera-Navarro verbally agreed that
the mode of payment for the said loan would be respondent De Vera-Navarro's collection of rental
payments from the tenants of the subject property in the total amount of ₱70,000.00 per month for five
years.
Petitioner John was informed by respondent BHTLI through a letter from its representative that the
ownership of the subject property had been transferred to respondent De Vera-Navarro; that a
TCT, i.e., TCT T-199, 288, was issued in favor of respondent De Vera-Navarro; and that respondent BHTLI
was demanding that the petitioners Sps. Sy vacate the subject property. On March 24, 2011, one of the
co-owners, petitioner Valentino, caused the annotation of an adverse claim on TCT T-199, 288. Such
annotation of adverse claim was carried over to TCT T-129-2011001530.
Petitioners Sps. Sy claimed that they are the rightful owners of the subject property since the undated
Deed of Absolute Sale executed purportedly between petitioner John and respondent De Vera-Navarro is
allegedly null and void, and that, despite the execution of the Deed of Absolute Sale dated March 30,
2011 by respondent De Vera-Navarro in favor of respondent BHTLI, the latter has no right to own the
property as it was allegedly not a buyer in good faith.
RTC ruled in favor of Petitioners. CA reversed the decision. Hence filed this petition.
Issue: Whether or not the contract entered by the Petitioner and Respondent was a valid Contract of Sale and
not an equitable mortgage
Ruling:
No. The Court held that the contract entered by the Petitioner and Respondent is an equitable mortgage and not a
Legitimate Contract of sale
An equitable mortgage is defined as one which although lacking in some formality, or form or words, or other
requisites demanded by a statute, nevertheless reveals the intention of the parties to charge real property as
security for a debt, and contains nothing impossible or contrary to law. Its essential requisites are: (1) that the
parties entered into a contract denominated as a contract of sale; and (2) that their intention was to secure an
existing debt by way of a mortgage.30
Article 1602 of the Civil Code states that a 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 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.
Article 1604 of the Civil Code, in turn, provides that the abovementioned badges of an equitable mortgage apply to
a contract purporting to be an absolute sale, such as in the instant case.
Jurisprudence consistently shows that the presence of even one of the circumstances enumerated in Article 1602
suffices to convert a purported contract of sale into an equitable mortgage. The existence of any of the
circumstances defined in Article 1602 of the New Civil Code, not the concurrence nor an overwhelming number of
such circumstances, is sufficient for a contract of sale to be presumed an equitable mortgage.
In fact, the Court has previously ruled that when in doubt, courts are generally inclined to construe a transaction
purporting to be a sale as an equitable mortgage, which involves a lesser transmission of rights and interests over
the property in controversy.
Applying the foregoing to the instant case, the Court finds that the presence of at least four badges of an equitable
mortgage creates a very strong presumption that the purported contract of sale entered between petitioner John
and respondent De Vera-Navarro is an equitable mortgage.
First, it is not disputed by any party that the supposed vendor of the subject property, petitioner John, remains to
be in possession of the subject property despite purportedly selling the latter to respondent De Vera-Navarro. It is
uncanny for a supposed buyer to desist from taking possession over property which he/she has already purchased.
Second, the purchase price of the purported sale indicated in the undated Deed of Absolute Sale is inadequate.
According to the Rules of Court, Rule 129, Section 2, a court may take judicial notice of matters which are of public
knowledge. In fact, the Court has previously held that trial courts can take judicial notice of the general increase in
rentals of real estate especially of the business establishments.34
In the instant case, the RTC took judicial notice of the public knowledge that similar establishments located at the
commercial center of Zamboanga City have a value of around ₱20,000,000.00. Thus, the ₱5,000,000.00 purchase
price supposedly agreed upon by the parties is grossly inadequate.35
The inadequacy of the purchase price is even confirmed by the acts of respondent De Vera-Navarro herself. As
noted by the RTC, respondent De Vera-Navarro was able to mortgage the subject property with Landbank of the
Philippines for an amount of ₱13,000,000.00. Respondent De Vera-Navarro also sold the subject property to
respondent BHTLI for the same amount of ₱13,000,000.00.36
Hence, the Court cannot accept the CA's finding that the inadequacy of the purchase price is not supported by any
evidence on record.
Third, the evidence on record shows that respondent De Vera-Navarro retained for herself the supposed purchase
price. Aside from the testimony of petitioner John that no consideration was paid at all for the supposed contract
of sale, the RTC also noted that no proof was presented by respondent De Vera-Navarro that she actually parted
with the sum of ₱5,000,000.00 in favor of petitioner John pursuant to the undated Deed of Absolute Sale.
Fourth, from the evidence presented by petitioners Sps. Sy, it is established that the real intention of the parties is
for the purported contract of sale to merely secure the payment of their debt owing to respondent De Vera
Navarro.
