G.R. No. 103038 - Mariano vs. Court of Appeals

Petitioner, Julia Ang Eng Mariano, became involved in a real estate transaction with the private respondents, Juanito Faustino and Teresita Faustino.
The private respondents owned a lot in Deparo, Kalookan City, with an area of 2,035 square meters, originally inherited from their parents.
Prior to the sale, the private respondents had mortgaged the subject property on two separate occasions:

On October 28, 1986, for a loan of P250,000.00 against the lot.
On January 15, 1987, a second mortgage was executed for another P250,000.00 on the same property.

In both transactions, the private respondents allegedly received only P150,000.00 for each mortgage, leaving unresolved obligations which later influenced subsequent dealings.

On September 29, 1987, a deed of sale was drafted and executed, transferring ownership of the property to petitioner for the sum of P320,550.00.
The deed was notarized by Notary Public Alfonso B. Capacillo on September 24, 1987 and attested by witnesses Juanito Chan and Gaspar Dandan.
Petitioner maintained that the deed of sale and the issuance of Transfer Certificate of Title (TCT No. 156493) in her name were executed with all legal formalities and solemnities, reflecting the true intent of the parties.
Despite the formal execution, private respondents later claimed that they were induced to sign by petitioner under false pretenses, whereby the real intention was to secure a P1,000,000.00 bank loan using the property as collateral.
Petitioner herself, on cross-examination, admitted that the transaction was intended to serve as a security to facilitate a bank loan and that the balance of amounts owed was to be deducted from the proceeds of that loan.

Private respondents, finding they did not receive the promised loan—and facing demands to vacate the property—initiated a case for annulment of the deed of sale and cancellation of the TCT in petitioner’s name.
The trial court dismissed their complaint based on the presumed evidentiary weight of the duly notarized deed of sale.
On appeal, however, the appellate court reversed the trial court’s ruling, declaring the deed of sale null and void, cancelling TCT No. 156493, and ordering the Register of Deeds to issue a new title in the name of Juanito Faustino.
In addition, the appellate decision imposed attorney’s fees on petitioner amounting to P10,000.00.
Petitioner raised errors before the Supreme Court, contending that there was insufficient proof to annul a duly executed public document and alleging that factual conclusions were based on fallacious premises.

A central issue in the case was whether parol (extrinsic) evidence could be admitted to prove that the notarized deed, although executed with the requisite formalities, did not reflect the true and actual intent of the parties.
Petitioner argued that as a public document the deed should be conclusive evidence of the transaction.
Conversely, private respondents, bolstered by petitioner’s own statements and the surrounding circumstances—including details of the prior mortgages and the absence of the promised loan—contended that the deed was a sham transaction crafted to defraud.

Whether parol evidence is admissible to challenge the evidentiary effect of a duly executed public document when its validity is put in issue.
Whether such evidence can be used to demonstrate that the deed of sale did not reflect the true intent of the parties but was instead a fraudulent scheme.

Whether the deed of sale, executed amidst existing mortgage obligations and contradictory testimonies, should be deemed a sham transaction intended merely as a means to secure a bank loan.
Whether the absence of proper disclosure of the pre-existing mortgage encumbrances in the deed of sale, and the inconsistencies in the financial considerations, vitiate the purported transaction.

Whether the formalities of notarization and the attestation of witnesses can overrule extrinsic evidence that points to fraud or misrepresentation.
Whether the court should rely exclusively on the four corners of the deed of sale, or consider the surrounding circumstances and supplementary evidence presented by the parties.