Title
Isaguirre vs. De Lara
Case
G.R. No. 138053
Decision Date
May 31, 2000
A dispute over land ownership arose from a 1960 transaction deemed an equitable mortgage, not a sale, due to inadequate consideration. The Supreme Court upheld Felicitas' title, denied Isaguirre's claims, and affirmed her right to possession.
possession dispute
mortgagee
original owner

Case Summary (G.R. No. 138053)

Factual Background

The disputed land originated from a miscellaneous sales application over a portion of Lot 502, Guianga Cadastre, initially claimed by Alejandro de Lara and later succeeded by his wife, respondent Felicitas de Lara. The area of the claim was progressively reduced from 2,342 square meters to 1,600 square meters and ultimately to 1,000 square meters. A two‑story residential‑commercial structure stood on a 250 square meter portion of the lot. In February 1960 respondent and petitioner executed a document captioned "Deed of Sale and Special Cession of Rights and Interests" by which respondent purportedly sold the 250 square meters and the building thereon to petitioner for P5,000. Petitioner thereafter occupied the property and later applied for a sales patent over it.

Administrative and Title Developments

Respondent’s sales application for the larger parcel proceeded and resulted in the issuance of OCT No. P-13038 in her name on June 19, 1989. Petitioner’s separate sales application, based on the 1960 instrument, culminated in OCT No. P-11566 issued to him on February 13, 1984. The overlapping titles produced competing claims of ownership and possession over the 250 square meter portion with the building.

Trial Court Proceedings

Petitioner filed an action for quieting of title and damages in the Regional Trial Court of Davao City on May 17, 1990, docketed as Civil Case No. 20124-90. After trial the RTC rendered judgment on October 19, 1992, declaring petitioner the lawful owner of the disputed parcel. Respondent appealed.

Court of Appeals and This Court on Nature of the Transaction

The Court of Appeals, in CA-G.R. CV No. 42065, reversed the trial court and declared the February 10, 1960 instrument to be an equitable mortgage, not a sale, and thereby upheld the validity of OCT No. P-13038 in respondent’s name while declaring OCT No. P-11566 null and void. This Court, in G.R. No. 120832, affirmed the Court of Appeals’ characterization of the transaction as an equitable mortgage. The appellate rulings rested on findings that the consideration for the purported sale was grossly inadequate, that substantial payments were made only after execution in small installments, and that petitioner failed for many years to take steps to confirm or secure title.

Post‑judgment Enforcement and Interlocutory Proceedings

Following finality of the judgments upholding respondent’s title, respondent moved for execution and for a writ of possession. The trial court granted those motions and issued a writ of possession dated June 16, 1998. Petitioner sought relief by filing a special civil action for certiorari and prohibition with the Court of Appeals to annul the trial court orders and to obtain injunctive relief.

Issues Presented to the Court of Appeals

The Court of Appeals distilled the issues to (1) whether a mortgagee in an equitable mortgage has the right to retain possession pending actual payment of the indebtedness, and (2) whether petitioner qualified as a builder in good faith entitled to reimbursement for improvements. The appellate court held that the mortgagee need only annotate his claim on the certificate of title to protect his lien and that possession by the mortgagee is unnecessary to preserve security. The court rejected petitioner’s claim to possession and denied recovery for useful expenses, but allowed reimbursement for necessary expenses and directed that the trial court determine the total indebtedness, the period for payment, and necessary expenses.

Petitioner's Contentions on Review

Petitioner assigned errors arguing that the Court of Appeals erred in not holding that the RTC acted without or in excess of jurisdiction by ordering immediate delivery of possession; that petitioner was entitled to retain possession pending payment of respondent’s mortgage loan; that he was a builder in good faith entitled to reimbursement for improvements; and that interest on the loan should run from an earlier date than that specified by the appellate court.

Supreme Court’s Determination on Possession and Nature of Mortgage

The Supreme Court affirmed the Court of Appeals’ conclusion that the transaction was an equitable mortgage and that respondent, as the owner declared by final judgment, was entitled to possession. The Court held that ownership carries the right to enjoy and to exclude others from the property, citing Civil Code, art. 428 and art. 429. The Court explained the general rule that a mortgage constitutes a lien and that the mortgagor ordinarily retains possession because the mortgage does not transfer title. The Court emphasized, however, that a mortgagee’s security is not impaired by lack of possession because the mortgage subjects the property to satisfaction of the secured obligation regardless of the possessor, citing Civil Code, art. 2125 and art. 2126, and relevant precedents. The Court rejected petitioner’s contention that he acquired and should retain possession as part of the parties’ agreement. It found no proof beyond petitioner’s own assertions that respondent delivered possession to him or that the parties intended that the mortgagee retain possession until payment. The Court noted that a simple mortgage does not confer a right to possession absent a special provision and relied on Alvano v. Batoon, 25 Phil 178 (1913) to this effect.

Improvements, Reimbursement and Characterization of Possessor

The Supreme Court concurred with the Court of Appeals that petitioner was a possessor in bad faith. The appellate factual findings showed that petitioner knew or had notice that the transaction functioned as security. Consequently, petitioner could recover only necessary expenses under Civil Code, art. 546, and not

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