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

Case Summary (G.R. No. 251792)

Relevant Dates and Documents

Key documentary events: Deed of Real Estate Mortgage Without Judicial Proceedings executed February 27, 2012 securing a P15,000,000 loan (interest 5% per month). Deed of Absolute Sale dated October 29, 2012 purportedly conveying the same properties to Cando for P15,000,000. Demand letter to Spouses Solis dated January 29, 2013 (received February 19, 2013) demanding vacation of the premises. RTC Decision dated February 28, 2017; CA Decision dated January 29, 2020; petition to the Supreme Court denied.

Claims and Pleadings

Plaintiffs (Spouses Solis, later substituted by heirs) filed for annulment of the deed of sale, reformation of the deed of mortgage, and damages, alleging they signed only a mortgage and were mistaken as to a supposed sale; they also alleged the deed contained a pactum commissorium and that the sale price was grossly inadequate. They amended to implead the Registry of Deeds for refusal to annotate lis pendens. Defendant Cando answered, asserting the deed of sale was valid and that the deed of mortgage was presented to her by Spouses Solis; she denied fraud and challenged plaintiffs’ credibility and evidence.

Facts and Evidence Presented

Uncontested facts included the P15,000,000 loan and the mortgage dated February 27, 2012, and the subsequent deed of sale dated October 29, 2012 for the same amount. Plaintiffs testified that they remained in possession of the properties and that the deed of sale was executed merely as a formality at Cando’s request to facilitate bank release of funds. Plaintiffs also asserted that Jose was in Bicol at the time of notarization. Cando produced a deed of sale allegedly notarized and relied on tax declarations to argue market value was far lower than plaintiffs claimed. The plaintiffs’ evidence was presented ex parte at trial because Cando and her counsel repeatedly failed to attend pre-trial, resulting in the RTC allowing plaintiffs to present evidence without opposition.

Trial Court Ruling (RTC)

The RTC annulled the Deed of Absolute Sale dated October 29, 2012 and ordered cancellation of the titles in Cando’s name, reinstatement of the original TCTs in plaintiffs’ names with a memorandum, and held the February 27, 2012 instrument to be a deed of mortgage securing the P15,000,000 loan (now due and demandable). The RTC dismissed the action for reformation of the mortgage. It found no pactum commissorium because title transfer occurred via a deed of sale rather than automatic vesting by mortgage. The RTC also observed that extrajudicial sale under Act No. 3135 could not apply because the special power of attorney requirement was absent and the mortgage was not registered. The RTC awarded nominal damages of P30,000, attorney’s fees of P30,000, and costs, but denied actual damages for lack of proof.

Court of Appeals Ruling

The Court of Appeals affirmed the RTC, concluding the circumstances evidenced an equitable mortgage rather than a bona fide sale. The CA highlighted the inadequacy of the stated purchase price relative to the alleged market value, plaintiffs’ continued possession after the purported sale, absence of evidence of tax payments to effect title transfer, and the plausibility of plaintiffs’ testimony that the deed of sale was executed to aid Cando’s bank transaction. The CA also affirmed the award of nominal damages and attorney’s fees.

Petitioner’s Arguments on Appeal to the Supreme Court

Cando contended primarily that the dispute raised factual questions (not reviewable under Rule 45), that plaintiffs did not impugn the mortgage instrument, that they admitted executing the deed of sale, and that the existence of a prior mortgage made the equitable mortgage theory inapplicable. She argued the deed of mortgage sufficed to secure the debt, that the mortgage provision allowed extrajudicial transfer on default, and that tax declarations supported a much lower market value. Cando also faulted the ex parte reception of evidence and alleged fabrication and misrepresentation by plaintiffs.

Respondents’ Position and Procedural Considerations

Respondents defended the ex parte evidence ruling as warranted by Cando’s repeated nonattendance at pre-trial and denial of due process was attributable to Cando’s conduct. They emphasized evidence of misrepresentation, suspicious notarization, Jose’s alleged hospitalization in Bicol at the time of the supposed notarization, and the absence of records corroborating the asserted notarization. Respondents maintained they never intended an actual sale but executed the deed of sale as an accommodation.

Legal Issues and Standard of Review

Primary legal issue: whether the parties’ agreement constituted an equitable mortgage that justifies annulling the deed of sale. The Supreme Court applied the Rule 45 standard: it is generally confined to questions of law and will not disturb factual findings of the lower courts unless they are unsupported by evidence or fall within established exceptions (e.g., grave abuse of discretion, findings based on conjecture, misapprehension of facts, overlooked undisputed facts). The Court found the appeal constituted a challenge to factual findings and no exception justified reassessment.

Legal Principles: Equitable Mortgage and Article 1602

An equitable mortgage exists where, despite lacking certain formalities, the parties intended to charge real property as security for a debt. Article 1602 of the New Civil Code lists circumstances creating a presumption that a sale with right to repurchase is, in substance, an equitable mortgage — including unusually inadequate price, vendor remaining in possession, execution of instruments extending redemption, purchaser retaining part of purchase price, vendor binding to pay taxes, or any case where the real intent is to secure payment of a debt. Two requisites for the presumption: (1) a contract denominated as a sale, and (2) intent to secure an existing debt by way of mortgage. Any of the Article 1602 circumstances suffices to raise the presumption.

Application of the Law to the Facts

The Supreme Court accepted the lower courts’ factual findings as supported by the record and applied Article 1602. The Court identified multiple “badges” of equitable mortgage: (1) an existing loan secured by a mortgage; (2) an allegedly inadequate stated purchase price (P15,000,000 against plaintiffs’ contention of P60,000,000 market value); (3) plaintiffs’ continued possession after the supposed sale, and the demand letter seeking eviction; and (4) plaintiffs’ testimony that the deed o

Case Syllabus (G.R. No. 251792)

Case Citation, Division and Date

Third Division, G.R. No. 251792, February 27, 2023.
Reported as an appeal by certiorari under Rule 45 from the Court of Appeals (CA) Decision dated January 29, 2020 in CA-G.R. CV No. 111032.
Opinion in the Supreme Court penned by Justice Inting; concurrence by Caguioa (Chairperson), Gaerlan, J. Lopez, and Singh, JJ.

Parties

Petitioner: Lourdes N. Cando (Cando).
Respondents / Plaintiffs below: Spouses Jose Guyala Solis (Jose) and Flocerfida de Guzman Solis (collectively, Spouses Solis); after the death of Jose, substituted plaintiffs were Flocerfida and their daughters Joanne and Michelle Solis (referred to in the source with variant spellings).
Additional party impleaded below: Registry of Deeds of Quezon City.

Subject Properties and Titles

Two parcels of land located in Quezon City where a house stands, covered by Transfer Certificates of Title (TCT) Nos. N-313735 and N-313736.
Described in the record as having areas of 429 sq. m. (one parcel) and 510 sq. m. (the other).

Loan, Deed of Mortgage and Terms

On February 27, 2012, Spouses Solis borrowed P15,000,000.00 from Cando.
A document styled "Real Estate Mortgage Without Judicial Proceedings" (deed of mortgage) was executed as guarantee on the subject properties.
Terms in the deed of mortgage: mortgagors (Spouses Solis) to pay indebtedness to mortgagee (Cando) within six months with interest at five percent (5%) per month.
The deed of mortgage contains a clause stating, in substance, that failure by the mortgagors to pay would allow the mortgagee to "enforce her rights herein without judicial proceedings" and that "the MORTGAGEE has the right to transfer the ownership of the subject property in her favor without any legal intervention of the herein MORTGAGOR[S]."

Demand Letter and Subsequent Allegations

On February 19, 2013, Spouses Solis received a demand letter dated January 29, 2013 from Cando’s counsel stating that the subject properties were already sold to Cando and demanding that Spouses Solis vacate within 15 days, asserting that their occupancy was mere tolerance.
Spouses Solis alleged they signed the mortgage document believing it to be a real estate mortgage and not a sale; they asserted mistake and lack of consent concerning any sale.
Spouses Solis alleged the P15,000,000.00 consideration was grossly inadequate relative to an alleged actual value of P60,000,000.00 for the two properties, supporting the claim that the true intent was to secure the loan rather than effect a bona fide sale.

Deed of Sale and Transfer of Titles

Cando pleaded that Spouses Solis executed a Deed of Absolute Sale dated October 29, 2012 in her favor for P15,000,000.00.
The deed of sale was used to cause cancellation of the original TCT Nos. N-313735 and N-313736 and issuance of Transfer Certificate of Title Nos. 004-2013003761 and 004-2013003762 in the name of Cando.
Spouses Solis contested the deed of sale, alleging they were induced to sign it as a mere formality to assist Cando in obtaining loan proceeds and alleging falsification/misrepresentation — specifically contending Jose could not have signed before a notary in Quezon City on the date stated because he was confined in a hospital in Bicol at the time.

Plaintiffs’ (Spouses Solis) Cause of Action and Prayers

Complaint filed for annulment of deed of sale, reformation of instrument (to reform the deed of mortgage into a mere real estate mortgage), and damages against Cando and later amended to implead the Registry of Deeds of Quezon City.
Alleged grounds: mistake, lack of consent to sale, deed constituted pactum commissorium and/or should be reformed as a mortgage; requested actual and moral damages, attorney's fees.
In the amended complaint, plaintiffs sought an order directing the Registry of Deeds to annotate notices of lis pendens on the respective titles after the Registry allegedly refused to do so on the ground of a previous sale.

Defendant’s (Cando) Answer and Counterclaims/Arguments

Cando denied the claim of mistake and asserted she was the bona fide purchaser under a Deed of Absolute Sale dated October 29, 2012.
She denied that her counsel drafted the deed of mortgage and contended the deed of mortgage was presented to her by Spouses Solis when they offered to mortgage the properties.
Argued Spouses Solis were educated (notably Jose as former congressman) and would not have been deceived.
Contended that the clause quoted by Spouses Solis did not amount to pactum commissorium because it did not automatically vest ownership to her, but only contemplated a right to transfer ownership which she never exercised.
Argued the deed of mortgage was superseded by the deed of sale and that plaintiffs’ claims were barred by prescription, estoppel, laches, renunciation, waiver, or abandonment.
Presented tax declaration evidence to assert that the declared market value of the properties at the time of the mortgage amounted to P4,023,230.00, arguing the P15,000,000.00 consideration exceeded declared market value.

Plaintiffs’ Reply and Additional Allegations

Reiterated that the deed of sale was executed as a mere formality induced by Cando to secure bank loan proceeds and that the deed of sale was not reflected in Cando’s demand letter.
Alleged falsification of notarization and misrepresentation before the Registry of Deeds by Cando to cause transfer of titles.
Asserted prejudice due to Cando’s and counsel’s repeated absence from preliminary conference and pre-trial; the RTC permitted plaintiffs to present their evidence ex parte as a consequence.

Procedural Developments in Trial Court

Because of Cando’s repeated failures to attend preliminary conference and pre-trial despite due notice, plaintiffs were allowed to present evidence ex parte.
Jose died during pendency of the RTC proceedings and was substituted by his