G.R. No. 251792 - Cando vs. Solis

Spouses Solis were the registered owners of two parcels of land in Quezon City, covered by Transfer Certificates of Title Nos. N-313735 and N-313736, with areas of 429 sq. m. and 510 sq. m. respectively.
On February 27, 2012, Spouses Solis borrowed Php15,000,000.00 from petitioner Lourdes N. Cando.
To secure the loan, they executed a document titled “Real Estate Mortgage Without Judicial Proceedings” (deed of mortgage), which covered the subject properties and included a clause allowing Cando to enforce foreclosure and transfer ownership without judicial proceedings upon default.

On February 19, 2013, Spouses Solis received a demand letter from Cando’s counsel claiming that the subject properties had already been sold to Cando and ordering them to vacate the premises.
Spouses Solis contended that they had executed the document under a misunderstanding—that it was merely a mortgage and not an actual sale.
They pointed out discrepancies such as the inadequacy of the sale price (Php15,000,000.00) compared to the properties’ actual value (Php60,000,000.00), suggesting that the true intent was to secure repayment of the loan, not to effect a bona fide sale.

Spouses Solis filed a complaint for annulment of the deed of sale, reformation of the mortgage instrument, and damages against Cando, later amending the complaint to include the Registry of Deeds of Quezon City for failure to annotate lis pendens.
In her Answer with Compulsory Counterclaim, Cando alleged that a deed of absolute sale, executed on October 29, 2012, existed and maintained that Spouses Solis, being well-educated, were not deceived in the transaction.
It was argued that the deed of sale was executed merely as a formality or accommodation to assist Cando in obtaining funds from her bank.

The Regional Trial Court (RTC) ruled in its Decision dated February 28, 2017, annulling the deed of sale and deeming the transaction a deed of mortgage, thereby reinstating the titles in the names of Spouses Solis.
The RTC further ordered the cancellation of the titles transferred to Cando, awarded nominal damages and attorney’s fees to the Spouses Solis, and dismissed the action for reformation of the mortgage.
The Court of Appeals (CA) affirmed the RTC decision on January 29, 2020, basing its ruling on evidence that supported the existence of an equitable mortgage, including factors such as the inadequate purchase price and the continued possession of the properties by Spouses Solis.

The litigation centers on whether the transaction between Spouses Solis and Cando was a bona fide sale or a device to secure a preexisting debt—an equitable mortgage.
The dispute also involves the interpretation of the clause allowing Cando to transfer ownership upon default and whether it constitutes a pactum commissorium.
The factual background, including the simultaneous existence of a deed of mortgage and a deed of sale and the parties’ conduct before and after the execution of these documents, is pivotal to determining the true nature of the agreement.

Whether the agreement between Spouses Solis and Cando constitutes an equitable mortgage rather than a bona fide sale of the properties.
Whether the deed of sale dated October 29, 2012, which purportedly transferred title to Cando, is null and void because it was executed under the guise of a mortgage.

Whether the inadequate sale price (Php15,000,000.00 against a market value of Php60,000,000.00) is indicative of the parties’ true intent to secure a loan rather than transfer property ownership.
Whether the provision in the mortgage allowing Cando to enforce her rights without judicial proceedings (allegedly creating a pactum commissorium) should invalidate the deed or be deemed ineffective in altering the parties’ true intent.
Whether the failure of Cando and her counsel to attend pre-trial and preliminary conferences, leading to ex parte proceedings, affected the substantive outcome of the case.