Facts:

The case under review is a petition for review, G.R. No. 145794, filed by Lourdes S. Arrofo against Pedro QuiAo. The events leading to this case began on April 11, 1990, when QuiAo, the owner of a 166 square meter parcel of land described as Lot 1916-D-3 in Barangay Basak, Mandaue City, Cebu, executed a Deed of Absolute Sale of the property in favor of Renato Mencias. This first Deed explicitly excluded the house standing on the property from sale. Subsequently, on March 11, 1991, QuiAo executed another Deed of Absolute Sale in favor of Renato, this time without excluding the house from the sale. TCT No. 28905 was canceled on May 9, 1991, and TCT No. 30248 was issued in Renato's name.

On March 30, 1993, Renato sold the property to Arrofo, who later held TCT No. 33304 upon cancellation of TCT No. 30248. In June 1994, QuiAo initiated legal action at the Regional Trial Court of Mandaue City, Branch 28, for the reconveyance of the property, claiming that the transactions were a

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Facts:

Background and Property Details

• Pedro QuiAo was the owner of Lot 1916-D-3, a parcel of land in Basak, Mandaue City, Cebu, originally covered by Transfer Certificate of Title (TCT) No. 28905 and measuring 166 square meters.
• The property was the subject of competing claims arising from successive transactions executed through different deeds.

Deeds of Sale and Title Transmutations

• On April 11, 1990, QuiAo executed a Deed of Absolute Sale in favor of Renato Mencias.
• This first deed explicitly excluded a house standing on the property from the sale.
• The deed’s language and circumstances later raised questions about the true nature of the transaction.
• On March 11, 1991, QuiAo executed a second Deed of Absolute Sale concerning the same property in favor of Renato, this time omitting any exclusion of the house.
• Subsequent title alterations occurred:
• On May 9, 1991, TCT No. 28905 was cancelled and replaced with TCT No. 30248 in the name of Renato.
• On March 30, 1993, Renato executed a Deed of Absolute Sale in favor of Lourdes S. Arrofo.
• On August 3, 1993, TCT No. 30248 was cancelled and TCT No. 33304 was issued in Arrofo’s name.

The Reconveyance Action and Trial Court Proceedings

• On July 6, 1994, QuiAo filed an action for reconveyance of the Property with annulment of the deeds of sale and damages before the Regional Trial Court in Mandaue City, Branch 28.
• QuiAo contended that his transaction with Renato was a mortgage (a loan secured by the property) and not an absolute sale.
• He claimed that the agreement was conditional: the Deed of Absolute Sale would be registered only if he defaulted on his P15,000 loan (plus 7% monthly interest) within five years from the first transaction date.
• The trial court, which declared Renato and his wife Myrna in default for non-appearance at a pre-trial conference, rendered a Decision on January 29, 1996, affirming the validity of both deeds of sale, dismissing claims for damages and attorney’s fees, and ordering QuiAo to pay costs.

Court of Appeals Decision and Subsequent Developments

• QuiAo appealed the trial court’s Decision, and on October 16, 2000, the Court of Appeals reversed the lower court’s ruling.
• The appellate court annulled both the April 11, 1990 and the March 11, 1991 deeds of sale.
• It ordered the reinstatement of TCT No. 28905 in QuiAo’s name and the cancellation of TCT Nos. 30248 and 33304.
• QuiAo was further ordered to pay Myrna Mencias P15,000 within 30 days from finality, with interest originally computed at 7% per month.
• The appellate ruling also addressed the issue of buyer in good faith by finding that Lourdes Arrofo did not qualify as one, given the surrounding circumstances.

Evidence and Testimonies Highlighting the True Nature of the Transaction

• Testimonies and documentary evidence suggested that:
• QuiAo never fully relinquished possession of the property, as indicated by the continued rental payments from a long-term tenant, Flaviano Moralde, Jr.
• There was a clear discrepancy between the deeds, notably the exclusion of the house in the first deed and its inclusion in the second, raising concerns about the parties’ real intention.
• Witnesses such as Fiscal Bienvenido Mabanto, Jr. affirmed that all parties were aware that the deed labeled “absolute sale” did not reflect their true agreement, which was for a mortgage arrangement.
• Evidence of inadequacy in the sale consideration further pointed to the transaction being essentially a loan secured by a mortgage rather than a bona fide sale.

Issue:

• Whether the Deed of Absolute Sale dated April 11, 1990—executed by QuiAo in favor of Renato—is void because the real agreement between the parties was that of an equitable mortgage rather than an absolute sale.

• Whether the Court correctly determined that Lourdes Arrofo is not a buyer in good faith, thereby rendering the subsequent Deed of Absolute Sale executed by Renato in her favor void.

Ruling:

• (Subscriber-Only)

Ratio:

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Doctrine:

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