G.R. No. 219638 - Repuela vs. Estate of Spouses Larawan

Case Summary (G.R. No. 219638)

Property, Transfer and Alleged Transaction (Factual Background)

Spouses Lorenzo and Magdalena Repuela owned the subject property. After their deaths, their sons Marcelino and Cipriano succeeded as owners. In July 1963, the Repuela brothers sought P200 for Marcelino’s fare and approached Otillo Larawan. They turned over the title and signed a document described by petitioners as a mortgage but by respondents as a sale (Extrajudicial Declaration of Heirs and Sale). Petitioners allege the Repuela brothers remained in possession, cultivated the land, and paid taxes; the respondents relied on a new TCT in the names of Spouses Larawan and tax declarations reflecting ownership by the Larawans.

Procedural History

Cipriano and Marcelino filed a complaint on January 17, 2003 in the RTC (Civil Case No. CEB-28524) for annulment of the Extrajudicial Declaration of Heirs and Sale, cancellation of TCT No. 10506, quieting of title, redemption, damages, and attorney’s fees. The RTC, after trial, ruled in favor of the Repuela brothers, deeming the transaction an equitable mortgage and granting them 30 days from finality to redeem the property for P2,000 plus interest, and awarding attorney’s fees and litigation expenses. The Estate of Spouses Larawan appealed to the Court of Appeals (CA), which reversed and dismissed the complaint. The petitioners sought review by the Supreme Court by petition for certiorari under Rule 45.

Witnesses and Evidentiary Highlights

For petitioners: Cipriano and Marcelino testified regarding the loan and surrender of the title; Catalina Burlas (neighbor) corroborated that only the Repuela brothers cultivated the land and that she did not see Otillo working the property; Alma Abellanosa (City Assessor) testified on tax declarations showing initial declaration in the Repuela name in 1961 and later declarations in the Larawan names in 1964. For respondents: Galileo Larawan (son of the Larawans) testified he accompanied his father to Atty. Celestino Bacalso for preparation of the Extrajudicial Declaration of Heirs and Sale, claimed the document was read and explained to the Repuela brothers, and that P2,000 was paid as consideration; Galileo further testified to the Larawans’ possession and tax payments. The credibility and weight of these testimonies were contested.

RTC Ruling and Basis

The RTC found the transaction to be an equitable mortgage under Article 1602 of the Civil Code. It credited the Repuela brothers’ testimonies and Burlas’s corroboration of their continued possession and cultivation, discounted Galileo’s testimony because he was six years old at the time of the transaction and thus of doubtful reliability, and observed that the Repuela brothers had paid taxes and remained in possession after the execution of the document. The RTC ordered redemption upon payment of P2,000 with legal interest from filing, and awarded attorney’s fees and litigation expenses.

CA Ruling and Reasons for Reversal

The CA reversed the RTC, dismissing the complaint. Its principal reasons were: (1) lack of direct and positive proof to rebut the presumption of due execution of the Extrajudicial Declaration of Heirs and Sale and to show the parties intended a mortgage rather than a sale; (2) failure to prove continued possession by the Repuela brothers sufficient to indicate an equitable mortgage; (3) absence of any enumerated circumstance under Article 1602 (Civil Code) that would allow presumption of equitable mortgage; and (4) laches/bar by delay since 39 years had elapsed before assertion of rights.

Issue Presented to the Supreme Court

Whether the Extrajudicial Declaration of Heirs and Sale should be treated as an equitable mortgage rather than an absolute sale.

Applicable Law

1987 Philippine Constitution (applicable by virtue of the decision date being after 1990).
Civil Code provisions: Article 1602 (enumerating circumstances where an absolute sale may be presumed an equitable mortgage), Article 1604 (application of Article 1602 to absolute sales), and Article 2088 (mortgagee does not become owner of mortgaged property).
Jurisprudence cited by the Court (cases included in the record): Deheza-Inamarga v. Alano; Lustan v. CA; Solitarios v. Jaque; Go v. Bacaron; Banga v. Sps. Bello; Cruz v. Court of Appeals; Mayor v. Belen; Heirs of Soliva v. Severino; Agas v. Sabico; Inamarga v. Alano; Muñoz v. Ramirez; Nacar v. Gallery Frames.

Legal Standard on Equitable Mortgage

An equitable mortgage exists where, although the document is absolute in form (e.g., an absolute sale), surrounding circumstances show the parties intended the transfer as security for a debt. Article 1602 lists several nonexclusive circumstances that give rise to a presumption of equitable mortgage, and the presence of any one circumstance suffices. Courts consider the totality of surrounding circumstances—acts, conduct, negotiations, relative situation of parties—to ascertain true intent.

Supreme Court’s Analysis — Possession as Evidence

The Supreme Court gave weight to the Repuela brothers’ claim of continued possession and cultivation after the transaction. It held that registration and issuance of a certificate of title in the transferee’s name and tax declarations in their favor do not conclusively prove actual possession or defeat evidence of continued possession by the former owners. The Court found Burlas’s testimony—an apparently disinterested neighbor who asserted continuous occupation by the Repuela brothers—persuasive and sufficient to satisfy Article 1602(2) (“when the vendor remains in possession as lessee or otherwise”), which alone can trigger the equitable mortgage presumption.

Supreme Court’s Analysis — Inference of Real Intention and Presumption of Mistake

Considering the circumstances—petitioners’ need for a small loan, the requirement by Spouses Larawan that the title be surrendered to obtain the loan, the Repuela brothers’ limited education (Cipriano: only Grade One; Marcelino: illiterate), and the absence of convincing proof that the document’s terms were fully explained—the Court inferred the real intention was to secure a debt, not effect an absolute sale. The Court emphasized the rule that where a party cannot read o

Case Syllabus (G.R. No. 219638)

Case Caption, Procedural Posture, and Relief Sought

Supreme Court, Second Division; G.R. No. 219638; Decision dated December 07, 2016 (MENDOZA, J.).
Petition for Review on Certiorari under Rule 45 of the Rules of Court challenging:
- Court of Appeals (CA) Decision dated May 29, 2014 in CA-G.R. CV No. 03976 (reversing RTC),
- CA Resolution dated June 10, 2015 denying reconsideration.
Case below: Regional Trial Court (RTC), Seventh Judicial Region, Branch 7, Cebu City, Civil Case No. CEB-28524, titled Annulment of Documents, Quieting of Title, Redemption, Damages, and Attorney’s Fees.
Relief originally awarded by RTC sought to: declare Extrajudicial Declaration of Heirs and Sale an equitable mortgage; allow redemption by plaintiffs upon payment; and award attorney’s fees and litigation expenses.
Supreme Court disposition: GRANT of petition; CA decisions SET ASIDE; RTC Decision REINSTATED with modification of interest rate application.

Antecedent Facts (Ownership and Transfer History)

Original owners: Spouses Lorenzo and Magdalena Repuela, owners of Lot No. 3357 (subject property) in Lawaan III, Talisay City, Cebu, covered by TCT No. 5154.
Upon their deaths, children Marcelino and Cipriano Repuela (Repuela brothers) succeeded as owners.
Alleged July 1963 incident: Repuela brothers went to Otillo Larawan’s house to borrow P200.00 for Marcelino’s fare to Iligan City.
According to petitioners, Spouses Otillo and Juliana Larawan required surrender of the certificate of title and the signing of a document (purportedly a mortgage), with Marcelino thumb‑marking (illiterate) and Cipriano signing; Repuela brothers were not given a copy.
The Repuela brothers allegedly remained in possession, cultivating and planting on the land, and paying taxes.

Discovery Leading to Litigation and Filing of Complaint

October 2002: Cristina Repuela Ramos (Cipriano’s daughter) checked City Treasurer’s records and learned:
- Spouses Larawan were not paying taxes;
- Tax declaration showed Spouses Larawan as owners as early as 1964;
- TCT No. 5154 was cancelled and a new TCT No. 10506 was issued to Otillo.
Cristina learned transfer to Spouses Larawan purportedly via Extrajudicial Declaration of Heirs and Sale bearing Cipriano’s signature and Marcelino’s thumb mark.
January 17, 2003: Cipriano and Marcelino filed suit for annulment of Extrajudicial Declaration of Heirs and Sale, cancellation of TCT No. 10506, and related reliefs.

Witnesses and Testimony Presented at Trial

For petitioners (Repuela brothers):
- Catalina Burlas (neighbor): testified that only the Repuela brothers tilled and cultivated the subject property; did not see Otillo work the land; recounted referral to Otillo for P200.00 loan secured by signing a deed of mortgage and surrender of title; Marcelino left for Iligan and returned after three months to cultivate; corroborated continued, exclusive possession by Repuela brothers.
- Alma Abellanosa (City Assessor): testified that Tax Declaration No. 12543 in 1961 was in name of Lorenzo Repuela; Tax Declaration No. 24112 in 1964 in name of Spouses Larawan based on a deed of sale; subsequent tax declarations listed Spouses Larawan.
For respondents (Estate of Spouses Larawan):
- Galileo Larawan (son of Spouses Larawan; sole witness for Estate): testified he accompanied his father to Atty. Celestino Bacalso where Extrajudicial Declaration of Heirs and Sale was prepared; stated he witnessed Cipriano sign and Marcelino thumb‑mark after Atty. Bacalso read and explained the document in Cebuano; claimed P2,000.00 was handed to Repuela brothers after notarization as sale consideration; stated TCT No. 10506 was issued August 20, 1963; asserted his family paid taxes and possessed the land, harvesting produce (bamboos, jackfruit, about 100 coconut trees); admitted he was six (6) years old when these events occurred.

Trial Court (RTC) Findings and Ruling

RTC found in favor of Repuela brothers and held:
- The transaction constituted an equitable mortgage rather than a sale.
- Credited Cipriano’s testimony and the claim of illiterate Marcelino that they signed without understanding; found Galileo’s testimony (age six at the time) likely biased and unreliable.
- Credited Burlas’s testimony as disinterested corroboration of continued possession by Repuela brothers.
- Considered payment of taxes by Repuela brothers as indicator of possession and ownership conceptually consistent with equitable mortgage doctrine.
RTC decretal relief:
- Declared the Extrajudicial Declaration of Heirs and Sale of July 1, 1963 to be effectively an equitable mortgage.
- Gave Repuela brothers 30 days from finality of decision to redeem property by paying P2,000.00 with legal interest from the date of filing of complaint.
- Directed defendants to pay plaintiffs P20,000.00 as attorney’s fees and P20,000.00 as litigation expenses; costs assessed against defendants.
RTC Decision date: February 23, 2011.

Court of Appeals (CA) Ruling and Grounds for Reversal

CA reversed and set aside the RTC Decision (May 29, 2014) and dismissed the complaint, holding:
- Repuela brothers failed to present direct and positive evidence to rebut presumption of due execution of the document and to show intent of mortgage rather than sale.
- Repuela brothers did not prove continued possession after execution that would indicate mortgagor’s possession; evidence did not show continued payment of taxes immediately after execution.
- None of the enumerated circumstances in Article 1602 were present to trigger presumption of equitable mortgage.
- Even if mortgage was established, petitioners’ cause of action was barred by laches due to 39 years elapsing before assertion.
CA decretal portion: Appeal GRANTED; RTC Decision REVERSED and SET ASIDE; complaint DISMISSED.
CA Resolution denying motion for reconsideration: June 10, 2015.

Issue Presented to the Supreme Court

Whether the Extrajudicial Declaration of Heirs and Sale amounted to an equitable mortgage.

Petitioners’ (Repuela heirs) Contentions on Appeal

Delay in filing (filed in 2003) was reasonable as they perceived no immediate threat to title or possession until partitioning revealed transfer to Spouses Larawan.
They had peaceful, open, continuous, and public possession as owners from transaction in 1963 until discovery; continued possession prevents prescription of reconveyance action.
The existence of the Extrajudicial Declaration of Heirs and Sale and issuance of TCT does not conclusively prove intention of sale; registration is not shielded from equitable mortgage doctrine.
Contended CA should have credited Repuela brothers and disinterested witness Burlas over Galileo (who was six at time of alleged witnessing).
Em