G.R. No. 151217 - Spouses Romulo vs. Spouses Layug, Jr.

Title: Spouses Romulo vs. Spouses Layug, Jr.

Case: G.R. No. 151217

Decision Date: Sep 8, 2006

A loan secured by property became disputed as petitioners claimed duress in signing documents allegedly transferring ownership; Supreme Court ruled it an equitable mortgage, nullifying the sale.

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Case Digest (G.R. No. 151217)
Legal Reasoning Model

Facts:

Background and Initiation of the Case

Petitioners, Spouses Cesar R. Romulo and Nenita S. Romulo, initiated a verified complaint for the cancellation of title, annulment of a Deed of Absolute Sale, and a Contract of Lease with damages against respondents, Spouses Moises P. Layug, Jr. and Felisarin Layug.

The dispute centers on a transaction involving the sale and lease of a house and lot located at Phase II, BF Homes, Sucat, ParaAaque.

The Alleged Transaction and Underlying Debt

Petitioners claimed that in 1986 they obtained a loan in the amount of P50,000.00 from respondents, which ultimately ballooned to P580,292.00.

To secure repayment, petitioners alleged that respondents induced them to execute a Deed of Absolute Sale and Contract of Lease over the property, allegedly misrepresenting the purpose of the documents.

The filings requested nullification of the deed and lease, the cancellation of Transfer Certificate of Title (TCT) No. 20489, and the issuance of a new title in the petitioners’ names, along with the award of moral and exemplary damages.

Contentions and Positions of the Parties

Petitioners asserted that the documents executed were not intended to effect a bona fide sale, but rather to serve as collateral security (equitable mortgage) for the unpaid debt.

Respondents, in their Answer, maintained that a genuine sale was executed, noting that as consideration for the sale, they paid an additional P200,000.00 and agreed to write off the petitioners’ indebtedness.

Respondents further contended that the possession of the property as lessees was based on the trust reposed in petitioners.

Parallel Ejectment Proceedings and Related Litigations

Prior to the filing of Civil Case No. 96-0172, respondent Moises filed an ejectment case (Civil Case No. 9422), alleging that petitioners had breached the terms of the lease by failing to pay the rental or exercise an option to repurchase and by refusing to vacate the property.

The ejectment action was dismissed by both the Metropolitan Trial Court (MeTC) and the Regional Trial Court (RTC) for lack of cause of action, with findings that there was no genuine intent for a lease arrangement.

The Court of Appeals later denied Moises’ petition for review based on procedural grounds, reinforcing the issues raised in the earlier decisions.

Trial Court and Appellate Proceedings

On June 21, 1999, the RTC rendered judgment in favor of petitioners, declaring the Deed of Absolute Sale and Contract of Lease null and void, and ordering the cancellation of TCT No. 20489.

The RTC also ordered respondents to pay moral damages, exemplary damages, attorney’s fees, and costs.

Respondents elevated the case to the Court of Appeals, challenging the trial court’s findings—especially the assertion that the arrangement was essentially an equitable mortgage—on the basis of insufficient evidence of fraud and misrepresentation.

The appellate court reversed the RTC decision, holding that petitioners did not prove that their signatures were fraudulently induced, and maintained that the transaction was an absolute sale.

Supreme Court Involvement and Determination of True Intent

On certiorari under Rule 45 of the 1997 Rules of Civil Procedure, petitioners challenged the Court of Appeals’ ruling and raised the issue whether the transaction was essentially an equitable mortgage, notwithstanding its form as a sale.

The Supreme Court noted contradictory factual findings between the RTC and the Court of Appeals, particularly concerning the parties’ conduct both before and after the execution of the documents.

Evidence showed that petitioners continued to occupy the property and that respondents extended additional loans even after the deed was executed, suggesting that the actual intent was to secure the debt.

The Court scrutinized the inadequacy of the sale price (P200,000.00 stated versus an actual value of P700,000.00) and the fact that petitioners remained in possession far beyond a mere lessee’s role.

Ultimately, the Supreme Court determined that the surrounding circumstances vindicated the petitioners’ claim that the documents were in substance a collateral security instrument (equitable mortgage) and not a bona fide sale.

Issue:

Characterization of the Transaction

Whether the executed transaction, despite being in the form of a Deed of Absolute Sale and Contract of Lease, was in substance an equitable mortgage intended merely as security for an existing debt.

Whether the facts—such as the inadequacy of consideration and petitioners’ continued possession—support a recharacterization of the transaction.

Determination of the Parties’ True Intent

Whether the real intention of the parties can be discerned from their conduct, notwithstanding the apparent contradictions in the documents.

Whether the extrinsic evidence (including subsequent acts and admissions by respondents) indicates that petitioners were misled into executing documents that did not reflect their true agreement.

Evidentiary Support for Fraud and Misrepresentation

Whether petitioners sufficiently demonstrated that their signatures were obtained through fraudulent means or by executing blank documents.

If the evidence supports the claim that respondents induced the petitioners to enter into an arrangement that did not genuinely transfer ownership.

Award of Damages

Whether the acts of the respondents, described as “malevolent,” warrant the award of moral and exemplary damages.

To what extent petitioners’ contributory negligence (for example, signing blank documents) affects the damages awarded.

Ruling:

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Ratio:

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Doctrine:

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