Title
Spouses Alvaro vs. Spouses Ternida
Case
G.R. No. 166183
Decision Date
Jan 20, 2006
Respondent-spouses mortgaged land, later claimed it was sold under false pretenses. Court ruled the transaction as an equitable mortgage, allowing redemption and annulling the tax declaration.
equitable mortgage
absolute sale
redemption
A

Case Summary (G.R. No. 166183)

Factual Background

Respondent-spouses Osmundo Ternida and Julita Returban owned the contested riceland. On May 26, 1986, Julita mortgaged the land to spouses Salvador de Vera and Juanita Orinion for P28,000.00. As Julita testified, she was made to sign a document styled as a Deed of Pacto de Retro Sale. She was told by Salvador that she was signing a mortgage document, and the instrument stated that Julita would have three years from execution to repurchase.

After one year, Salvador executed a Deed of Transfer of Mortgage in favor of spouses Jose Calpito and Zoraida Valelo for P32,000.00. Julita later asked for an additional P3,000.00, and she was asked to sign a Deed of Sale with Right to Repurchase. On May 22, 1990, Julita again requested an additional P1,000.00, but Jose Calpito informed her that the mortgage had been transferred to petitioners, who then gave her the P1,000.00.

Julita maintained that she was asked to sign what she believed to be another mortgage document but which later turned out to be a Deed of Absolute Sale over the same property. When she attempted to redeem the property, petitioners refused, asserting that they had purchased the land and that they had been issued Tax Declaration No. 2747 in their names.

Trial Court Proceedings

On October 1, 1997, respondents filed a complaint for Annulment of Deed of Sale Documents and Tax Declaration No. 2747 with the Regional Trial Court of Dagupan City, docketed as Civil Case No. 97-01876-D. After trial on the merits, the trial court dismissed the complaint for lack of cause of action. A motion for reconsideration filed by respondents was denied.

Court of Appeals Ruling

On appeal, the Court of Appeals reversed the trial court. It held that the Deed of Absolute Sale dated May 22, 1990 between Julita and petitioners should be construed as an equitable mortgage. It likewise annulled Tax Declaration 2747 issued in the name of petitioners. The Court of Appeals ordered that respondents were entitled to redeem the property upon payment of the mortgage debt to petitioners.

Issues Raised by Petitioners

Petitioners sought reversal of the appellate ruling and assigned several errors of law. They primarily contended that the Court of Appeals erred in classifying the transaction as an equitable mortgage rather than an absolute sale. They also argued that the appellate court erred in annulling Tax Declaration 2747, failed to apply the jurisprudential rule in Abilla vs. Gobonseng, Jr., failed to apply the principle of laches and estoppel, and failed to award damages in petitioners’ favor.

The Supreme Court’s Legal Reasoning

The Supreme Court sustained the Court of Appeals. It reiterated that an equitable mortgage is a transaction which, although lacking in some formality or form required by statute, nonetheless shows the parties’ intention to charge real property as security for a debt and contains nothing impossible or contrary to law. For the presumption to arise, two requisites must concur: first, that the parties entered into a contract denominated as a sale; and second, that the parties’ intention was to secure an existing debt through a mortgage. The Court further emphasized the consequence of such characterization: nonpayment of the debt gives the mortgagee the right to foreclose and sell, with the proceeds applied to the loan obligation.

The Court rejected petitioners’ theory that the deed executed with Julita conveyed ownership. It held that the nomenclature used by contracting parties does not determine the nature of the contract. The decisive factor was the parties’ intention, as shown by their conduct, words, actions, and deeds before, during, and after execution. While no single conclusive test exists to determine whether a facially absolute deed is actually a simple loan secured by mortgage, the Court applied Article 1602 of the Civil Code, which enumerates situations giving rise to a presumption of equitable mortgage, including: unusually inadequate price; retention of possession by the vendor; extension of redemption by subsequent instrument; purchaser retaining part of the purchase price; vendor binding herself to pay taxes; and any other case where the real intention appears to secure payment of a debt or performance of an obligation.

The Court stressed that under Article 1602, the presence of even one circumstance is sufficient to treat the transaction as an equitable mortgage. It further recognized that under this presumption, a document that appears to be a sale with pacto de retro may be proven by the vendor to have been intended merely as security for a loan, making parol evidence admissible to establish the true nature of the transaction.

Application to the Parties’ Conduct and Documents

Applying these principles, the Court found that Julita’s transaction with petitioners was not intended to convey ownership. The Court adopted and reinforced the Court of Appeals’ observation that the circumstances surrounding the execution and performance of the contracts requiring Julita to sign documents were inconsistent with a theory of an outright sale.

The Court noted that Julita first mortgaged the land for P28,000.00 and was made to sign a Deed of Pacto de Retro Sale, reflecting an arrangement tied to redemption rather than an outright transfer. It also observed that Salvador, who was aware that the property was merely mortgaged, subsequently executed a Deed of Transfer Mortgage to the Calpito spouses. When Julita sought additional funds from the Calpitos, she was again required to sign a Deed of Sale with Right to Repurchase for a purported consideration of P35,000.00, but the Court relied on Maria Valelo’s testimony that the P35,000.00 was given as the redemption price of the land mortgaged by Julita. This supported the inference that the so-called purchase price functioned as payment related to redemption or the settlement of the secured obligation, not true consideration for ownership.

The Court further pointed out that Julita was given additional amounts on different occasions: first P28,000.00, then P3,000.00, and later P1,000.00 from petitioners. It treated this aggregation of additional sums as inconsistent with a true pacto de retro structure. The Court referenced an analogous statement that if the transactions were a true pacto de retro, the purchase price would be fixed and that the giving of additional amounts on multiple occasions to be aggregated to the redemption price would be absolutely inconsistent with a true sale with pacto de retro. It also relied on Julita’s testimony that throughout the periods when she signed documents releasing additional sums, she always believed—because she was made to believe—that she was signing mortgage documents.

The Supreme Court concluded that Julita’s conduct before, during, and after the dealings negated petitioners’ claim that Julita intended to sell. It held that Julita’s efforts to redeem the property were consistent with a security transaction.

Disposition and Effect on the Tax Declaration

Having found that the true intention of the parties was to secure Julita’s loan obligation rather than to effect a transfer of ownership, the Supreme Court held that the conditions giving rise to a presumption under Article 1602 applied with equal force to the instrument style

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