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VOL. 179, NOVEMBER 13, 1989 363
Santos vs. Court of Appeals
*
G.R. No. 83664. November 13, 1989.
RENATO S. SANTOS, petitioner, vs. THE HONORABLE
COURT OF APPEALS AND THE SPOUSES CESAR A.
FERRERA AND REYNALDA PEDRONIA AND RUFINO
NAZARETH AND DOMINGO NAZARETH, respondents.
Civil Law; Equitable Mortgage; Gross inadequacy of price
indicates that transaction is one of equitable mortgage not an
absolute sale.—Firstly, it was found that the lot in question is
located within the town proper of Pasig, Metro Manila, behind the
elementary school of Caniogan, Pasig, Metro Manila. Petitioner
himself admitted the fact that the subject lot is within the town
proper of Pasig. Being so, it could thus easily command a much
higher price than P22,000.00, considering further that the same
measures about 2,221.86 square meters, more or less. The
conclusion that the price of the lot is grossly inadequate is well-
taken. We are not inclined to disturb the factual findings of the
trial court which are supported by evidence. The case of Labasan
v. Lacuesta, 86 SCRA 16, quoted the Lord Chancellor, in Vernon
v. Bethell (2 Eden, 113), which states: “Necessitous men are not,
truly speaking, free men; but to answer a present emergency, will
submit to any term that the craft may impose upon them.”
Same; Same; Fact that purported vendor remained in physical
possession of the land, indicates existence of a contract of loan,
with the land given as security.—Secondly, it was clearly
established that the private respondents, through their tenant,
remained in physical possession of the land subject matter of the
dispute, and enjoyed the fruits thereof despite the execution of the
Deed of Absolute Sale. This fact was not disputed by the
petitioner. Again, this indicates the existence of a contract of loan
with the land given as security.
Same; Same; Presence of any of the circumstances enumerated
in Art. 1602 of the Civil Code, sufficient to declare the transaction
an equitable mortgage.—After a careful evaluation of the above-
stated
________________
* SECOND DIVISION.
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circumstances, We find the present case to exhibit several of the
familiar badges of a concealed mortgage enumerated by the New
Civil Code. According to the pertinent law, presence of any of the
circumstances enumerated would be sufficient enough to declared
the transaction of absolute sale as one impressed with an
equitable mortgage. In the instant case, there is even more than
one (1) circumstance indicating an equitable mortgage. Hence, the
claim of the petitioner that the decision of the trial court is not
based on the supporting evidentiary facts and jurisprudence on
the matter is devoid of merit.
PETITION for certiorari to review the decision of the Court
of Appeals.
The facts are stated in the opinion of the Court.
Jose B. Layug for petitioner.
Pedro N. Belmi for private respondents.
PARAS, J.:
Once again, this Court is tasked with determining whether
the contract entered into by the parties constitutes an
absolute sale or merely an equitable mortgage in this
present appeal by certiorari under Rule 45 of the Rules of
Court. Petitioners seek the reversal of the decision of the
public respondent Court of Appeals which affirmed in toto
the decision of the trial court declaring the Deed of
Absolute Sale as null and void and finding the contract to
be in truth an equitable mortgage.
The antecedent facts of the case, as found by the trial
court, are as follows:
“1. Defendants Ferrera and Pedronia were the
registered owners of the property in question
containing an area of 2,221.86 square meters. The
property had been planted to rice for sometime by
defendants Nazareths under a tenancy agreement
with Romana Aniana Vda. de Ferrera, predecessor-
in-interest of defendant Ferrera.
“2. On February 1, 1971 defendants Ferrera and
Pedronia executed a deed of sale over the said
property in favor of spouses Apolonia and Rufino
Santos (Exh. ‘A’) for the sum of P22,000.00. Upon
the issuance of a new title (TCT No. 313883) in the
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name of vendees (Exh. ‘F’), the amount of
P16,000.00 was delivered to defendant Ferrera.
Simultaneous with the execution of the deed of sale
(Exh. ‘A’), an instrument entitled Promise to Sell
dated February 1, 1971 was executed by the
spouses Santos in favor of defendants Ferrera,
whereby
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VOL. 179, NOVEMBER 13, 1989 365
Santos vs. Court of Appeals
the former promised to sell back the land in
question to the latter for P22,00.00 within a period
of six months from February 1, 1971 (Exh. “4”).
“3. Defendants Ferrera failed to exercise the right to
repurchase the property. On July 30, 1971 spouses
Santos executed a deed of absolute sale covering the
property in question in favor of their daughter
Felicitacion for P30,000.00 on August 14, 1971
(Exh. ‘5’). On the same date, Felicitacion and
Gregorio Santos executed a promise to sell the
property in favor of the Ferreras for P30,000.00
within six months.
“4. Notwithstanding, the sale of the property to the
Santoses, spouses Ferrera continued in possession
of the property thru their tenants, the Nazareths.
The Santoses informed the Nazareths that they are
the new owners of the property in question and
required the latter to pay the rent for the property
in question to them but the Nazareths refused to
recognize them as the owner of the property and
continued to deliver the harvest shares to the
Ferreras. (Records, p. 223)” (pp. 4-5, Decision; pp.
86-87, Rollo)
As a consequence, on August 17, 1977, or nearly seven (7)
years after, plaintiffs, through their attorney-in-fact,
Renato Santos, filed an action for breach of warranty and
damages against the defendants based on the alleged Deed
of Absolute Sale. The defendants argue that they never
intended to sell their land for such an inadequate price;
that they were in dire need of money so they obtained the
loan of P22,000.00; that to secure payment of the loan,
defendants were required to execute a Deed of Absolute
Sale over the property in dispute, with the agreement that
the deed of sale will merely serve as collateral; that they
remain in possession of the land; and that the transfer
certificate of title in favor of Apolonia Santos is null and
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void, the real contract between the parties being one of
equitable mortgage only.
The trial court dismissed the complaint, declaring the
transaction as an equitable mortgage. We quote:
“Insofar as the price of the property in the deed of sale is
concerned, there is evidence that the same is unusually
inadequate. The original deed of sale (Exh. ‘A’) provides that the
property in question was sold for P22,000.00, although only
P16,000.00 thereof was actually received by defendant Ferreras.
On the other hand, there is evi-
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Santos vs. Court of Appeals
dence that the land in question would command a price of P50.00
to P100.00 per square meters, or from P100,000.00 to P200,000.00
for the entire parcel at the time of the transaction in 1971,
considering the location thereof at Caniogan, Pasig, Metro
Manila, which is within the poblacion or town proper of Pasig.
“In the second place, the vendor (defendants Ferreras) have
remained in possession of the property up to the present. This is
admitted by plaintiff who would only want defendants to
recognize her as the new owner and to pay the accrued and
accruing rentals to her. Defendants Ferreras, however, insist that
they are the owner and not mere lessees of the land in question.
“In the third place, there is evidence also that after the
expiration of the six-month period given to the defendants to
repurchase the property a new deed of sale was executed by the
transferee in favor of defendants giving the latter another six
months to repurchase the land in question (see Exh. ‘6’).
“Finally, except for the execution of the deed of sale in question
(Exh. ‘A’), it may be clearly inferred from the circumstances that
the intention of the parties is that the transaction in question was
to secure the payment of the amount of P16,000.00 originally
extended to and received by the defendants Ferreras by way of
loan. These are clearly indicative of the fact that the transaction
in question was in reality an equitable mortgage.” “(Records, pp.
224-225).” (pp. 5-6, Decision, pp. 87-88, Rollo)
The aforequoted decision was brought on appeal to the
Court of Appeals. Finding the conclusions of the trial court
to be supported by evidence, the respondent appellate court
affirmed in toto the questioned decision.
A motion for reconsideration having been denied,
plaintiff, now petitioner, filed the instant appeal by
certiorari. After the required pleadings were submitted by
the respective parties, this Court resolved to give due
course to the petition.
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The crucial issue presented before Us for review is
whether the transaction between the parties constitutes an
absolute sale or only an equitable mortgage.
The instant case calls for an interpretation of the
contract between the contending parties. Thus, Article
1370 of the New Civil Code provides;
“If the terms of contract are clear and leave no doubt upon the
intention of the contracting parties, the literal meaning of its
stipula-
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VOL. 179, NOVEMBER 13, 1989 367
Santos vs. Court of Appeals
tions shall control.
“If the words appear to be contrary to the evident intention of
the parties, the latter shall prevail over the former.”
Article 1371 of the same code further states:
“In order to judge the intention of the contracting parties their
contemporaneous and subsequent acts shall be principally
considered.”
In the case at bar, the terms of the transaction in question
do not plainly and distinctly indicate the intention of the
contracting parties. Since such intention cannot be
discerned from the Deed of Absolute Sale executed by the
parties, their contemporaneous and subsequent act shall be
taken into consideration to be able to determine their true
intention.
It is an undisputed fact that respondent spouses were
“in dire need of money” to settle certain obligations when
they entered into the subject transaction with the
petitioners. They entered into a loan agreement but were
however made to execute a Deed of Absolute Sale for the
amount of P22,000.00. Simultaneous with the execution of
the said document, petitioners executed a separate
document, which is the Promise to Sell for the same
amount of money. From the time the Deed of Absolute Sale
was executed up to the time the action was instituted in
court, respondent spouses continued to remain in actual
physical possession of the land in dispute, through their
tenants (Nazareths) who were also made respondents. The
existence of this tenancy relationship between the
respondents was also admitted by the petitioner.
From the foregoing contemporaneous and subsequent
acts of the parties, the trial court found that the contract in
issue could not be deemed to be an absolute sale. We agree
with the trial court’s findings. The acts of the parties
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indicate the presence of an equitable mortgage. Equitable
mortgage has been defined as “one in which although
lacking in some formality, form or words, or other
requisites demanded by a statute nevertheless reveals the
intention of the parties to charge a real property as
security for a debt, and contains nothing impossible or
contrary to law” (41 Corpus Juris 303). The applicable law,
as found in the New Civil Code, provides:
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“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 purchase 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 cases 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.”
Equally important is Article 1604 of the same Code, which
reads:
“Art. 1604. The provisions of article 1602 shall also apply to
contract purporting to be an absolute sale.”
Firstly, it was found that the lot in question is located
within the town proper of Pasig, Metro Manila, behind the
elementary school of Caniogan, Pasig, Metro Manila.
Petitioner himself admitted the fact that the subject lot is
within the town proper of Pasig. Being so, it could thus
easily command a much higher price than P22,000.00,
considering further that the same measures about 2,221.86
square meters, more or less. The conclusion that the price
of the lot is grossly inadequate is well-taken. We are not
inclined to disturb the factual findings of the trial court
which are supported by evidence. The case of Labasan v.
Lacuesta, 86 SCRA 16, quoted the Lord Chancellor, in
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Vernon v. Bethell (2 Eden, 113), which states: “Necessitous
men are not, truly speaking, free men; but to answer a
present emergency, will submit to any term that the crafty
may impose upon them.”
Secondly, it was clearly established that the private
respondents, through their tenant, remained in physical
possession of the land subject matter of the dispute, and
enjoyed the fruits thereof despite the execution of the Deed
of Absolute Sale. This
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Santos vs. Court of Appeals
fact was not disputed by the petitioner. Again, this
indicates the existence of a contract of loan with the land
given as security.
Thirdly, the respondent court noted that there had
always been an extension of the period to repurchase
arising from the fact that there were two (2) sets of deed of
sale and with a period given to the vendor to repurchase, as
seen from the two (2) sets of Promise to Sell. Such fact even
maintains the theory than an absolute sale was never
intended. Contrary to the allegation of the petitioner, the
promise to sell simultaneously executed by the vendee is in
truth the right of repurchase granted the vendor, and is
within the contemplation of Art. 1602, No. 3 of the New
Civil Code. In support of his claim, petitioner cited the case
of Villarica vs. Court of Appeals, et al., L-19196, Nov. 29,
1988, which ruled that if a seller has been granted an
“option to buy” only (and not a right to repurchase) within
a certain period, the sale is absolute, and cannot be
considered as an equitable mortgage, even if there is an
extension of the period within which to exercise the option.
The cited case is inapplicable to the present one. It is
worthy to note that the deed of sale in the Villarica case
was executed on May 19, 1951 and the option to buy on
May 25, 1951. In the present case, however, the promise to
sell was executed on the same day that the deed of sale was
executed. In like manner, the price of the sale in the cited
case was considered to be sufficiently adequate, whereas in
the instant case it is unusually inadequate. Petitioner also
cited the case of Felicen, Sr., et. al. v. Orias, 156 SCRA 586,
which decreed that “if there are no circumstances that may
reasonably be accepted as generating some honest doubts
as to the parties’ intention, the proviso is inapplicable. The
reason is quite obvious. If the rule were otherwise, it would
be within the power of every vendor a retro to set at naught
a pacto de retro, or resurrect an expired right of
repurchase, by simply instituting an action to reform the
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contract—known to him to be in truth a sale with pacto de
retro—into an equitable mortgage. x x x The rule would
thus be made a tool to spawn, protect and even reward
fraud and bad faith, a situation surely never contemplated
or intended by law.” We find no resemblance between the
cited case and the instant one. The Felicen case involves
only one deed of sale wherein the right to repurchase is
already incorporated therein. The contract could not be
consid-
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Santos vs. Court of Appeals
ered a loan, as its terms were so plain and preclude a
construction of some other kind of agreement but one of a
sale with pacto de retro. On the other hand, the
circumstances attendant in the instant case are obviously
different. The right to repurchase (or the Promise to Sell)
was embodied in a separate document which was executed
on the same date as the deed of sale.
After a careful evaluation of the above-stated
circumstances, We find the present case to exhibit several
of the familiar badges of a concealed mortgage enumerated
by the New Civil Code. According to the pertinent law,
presence of any of the circumstances enumerated would be
sufficient enough to declare the transaction of absolute sale
as one impressed with an equitable mortgage. In the
instant case, there is even more than one (1) circumstance
indicating an equitable mortgage. Hence, the claim of the
petitioner that the decision of the trial court is not based on
the supporting evidentiary facts and jurisprudence on the
matter is devoid of merit.
WHEREFORE, finding no reversible error in the
decision of the Court of Appeals, the petition for review is
DENIED for lack of merit.
SO ORDERED.
Padilla, Sarmiento and Regalado, JJ., concur.
Melencio-Herrera (Chairman), J., on leave
Petition denied.
Note.—A contract is not an equitable mortgage, but
deed of sale with right of repurchase in the absence of any
instances in the law which presumes that the contract is
one of the equitable mortgage. (De Bayquien vs. Vda. de
Alpa, 143 SCRA 412)
——o0o——
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