G.R. No. 176217 - Sta. Lucia Realty and Development, Inc. vs. Uyecio

Case Summary (G.R. No. 176217)

Factual Background

Petitioners alleged that petitioner John was a co-owner of the land and four-storey building covered by TCT T-171,105 and that he borrowed P3,720,000.00 from respondent De Vera-Navarro, secured by a Mortgage Contract. Petitioners further alleged that respondent De Vera-Navarro procured from petitioner John an undated Deed of Absolute Sale for P5,000,000.00 as additional security and that the parties agreed respondent De Vera-Navarro would collect rentals of P70,000.00 per month for five years as payment. Petitioners discovered in March 2011 that title had been transferred and a new TCT T-199,288 had been issued in favor of respondent De Vera-Navarro, and that respondent De Vera-Navarro thereafter executed a Deed of Absolute Sale in favor of respondent BHTLI which resulted in the issuance of TCT T-129-2011001530. Petitioners sought declaration of nullity of the sale documents, cancellation of the subsequent titles, reconveyance of ownership, and damages. Respondents denied that the transaction was merely security, asserted that the debt remained unpaid and that petitioner John executed a valid sale (dated February 6, 2007), and BHTLI claimed status as a buyer in good faith.

Trial Court Proceedings

The RTC conducted trial and, on October 8, 2014, rendered judgment declaring the Deed of Absolute Sale dated February 6, 2007 to be an equitable mortgage and not a document of sale. The RTC directed plaintiffs to pay P5,000,000.00 plus 6% interest from February 6, 2007 within thirty days, failing which ownership would vest finally on De Vera-Navarro; declared the March 30, 2011 sale to BHTLI null and void; ordered cancellation and restoration of the affected TCTs; ordered De Vera-Navarro to return P13,000,000.00 plus P1,800,000.00 in reimbursements to BHTLI; awarded moral and exemplary damages, attorney’s fees, and litigation expenses; and ordered costs against defendants. Motions for reconsideration were denied on November 24, 2014. Appeals were taken to the Court of Appeals; De Vera-Navarro’s appeal was dismissed for abandonment on May 19, 2016.

Ruling of the Court of Appeals

In its Decision dated November 23, 2017, the CA reversed the RTC, holding that the undated Deed of Absolute Sale was a valid contract of sale and, alternatively, a dacion en pago, and that respondent BHTLI was a buyer in good faith. The CA set aside the RTC judgment and dismissed the complaint. The CA denied petitioners’ motion for reconsideration by Resolution dated April 20, 2018.

Issue Presented

The dispositive issue presented to the Supreme Court was whether the CA erred in finding that the transaction between petitioner John and respondent De Vera-Navarro constituted a valid contract of sale rather than an equitable mortgage, and whether respondent BHTLI was a buyer in good faith, thereby justifying reversal of the RTC.

Parties’ Contentions

Petitioners maintained that the undated Deed of Absolute Sale was null and void because it was in truth security for the loan and thus an equitable mortgage, that they remained in possession of the property, and that BHTLI was not a buyer in good faith. Respondents asserted the existence of an actual sale (dated February 6, 2007) and that BHTLI purchased the property in good faith for value without notice of any defect. Respondent De Vera-Navarro further alleged additional unpaid loans and substantial encumbrances evidencing a transaction other than mere security.

Supreme Court’s Ruling

The Supreme Court held that the petition was meritorious. The Court affirmed that the purported contract of sale between petitioner John and respondent De Vera-Navarro was in fact an equitable mortgage and not a legitimate contract of sale, and it found that respondent BHTLI was not a buyer in good faith. The Court reversed the CA Decision and Resolution and reinstated the RTC Decision with modifications.

Legal Basis and Reasoning

The Court employed the statutory and jurisprudential framework governing equitable mortgages. It reiterated that an equitable mortgage is a transaction that, though denominated a sale, reveals the parties’ intention to charge real property as security for a debt; its essential requisites are a contract expressed as a sale and an intention to secure an existing debt. The Court applied Article 1602 and Article 1604 of the Civil Code, which list badges of an equitable mortgage, and emphasized the settled rule that the presence of any one of those circumstances suffices to convert a purported sale into an equitable mortgage. The Court gave deference to the RTC’s factual findings and credibility assessments, noting that trial courts are best positioned to observe witness demeanor. The Court found at least four badges present: (1) petitioner John remained in possession of the property; (2) the P5,000,000.00 purchase price was grossly inadequate in light of the property’s market value (the RTC judicially noticed comparable values and respondent De Vera-Navarro later mortgaged and sold the property for P13,000,000.00); (3) respondent De Vera-Navarro retained the supposed purchase price without proof of payment; and (4) parol testimony established that the parties intended the instrument as additional security for the mortgage. The Court rejected the CA’s reliance on the facial character of the undated Deed and on notarization, reiterating that notarization does not validate a document’s true legal effect. The Court also observed that documentary evidence offered by respondent De Vera-Navarro had been expunged by the RTC and thus had no probative value under Rule 132, Sec. 34, Rules of Court and controlling jurisprudence. Concerning respondent BHTLI’s status, the Court noted that the burden to prove buyer in good faith rests on the purchaser and that the presence of occupants and the annotation of an adverse claim on March 24, 2011 should have put BHTLI on inquiry; thus BHTLI failed to prove good faith and was deemed a buyer in bad faith. The Court cited controlling precedents including Matanguihan v. Court of Appeals, Vda. de Delfin v. Dellota, and Spouses Salonga v. Spouses Concepcion in support of these principles.

Disposition and Relief

The Supreme Court granted the petition. It reversed the CA Decision dated November 23, 2017 and Reso

Case Syllabus (G.R. No. 176217)

Parties and Procedural Posture

Spouses John T. Sy and Leny N. Sy and Valentino T. Sy filed a Complaint for Declaration of Nullity of Deed of Absolute Sale, Cancellation of Transfer Certificate of Titles, Recovery of Ownership, and Damages in RTC Civil Case No. 6333.
Ma. Lourdes De Vera-Navarro and Benjaemy Ho Tan Landholdings, Inc. answered and filed counterclaims and appeals following adverse rulings.
The RTC rendered judgment on October 8, 2014 declaring the purported sale an equitable mortgage and voiding the subsequent sale to Benjaemy Ho Tan Landholdings, Inc..
The Court of Appeals reversed the RTC in its November 23, 2017 Decision and denied the petitioners' appeal, with a Resolution of April 20, 2018 denying reconsideration.
The petitioners filed a Petition for Review under Rule 45 of the Rules of Court with the Supreme Court contesting the CA rulings.

Key Factual Allegations

Petitioners alleged that petitioner John and co-owners owned a four-storey commercial building covered by TCT T-171,105 located in Zamboanga City and valued at more than P40,000,000.00.
John borrowed P3,720,000.00 from De Vera-Navarro on May 31, 2006, secured by a Real Estate Mortgage annotated on TCT T-171,105 on June 2, 2006.
John allegedly executed an undated Deed of Absolute Sale purportedly for P5,000,000.00 as additional security for the loan while remaining in possession of the property.
Petitioners asserted a verbal agreement that rental collections of P70,000.00 per month for five years would be applied to the loan, thereby evidencing intent to secure a debt.
Valentino caused the annotation of an adverse claim on TCT T-199,288 on March 24, 2011 after learning of title transfer to De Vera-Navarro.
De Vera-Navarro executed a Deed of Absolute Sale in favor of Benjaemy Ho Tan Landholdings, Inc. on March 30, 2011, and a new title TCT T-129-2011001530 issued on July 21, 2011.

Trial Court Decision

The RTC declared the Deed of Absolute Sale dated February 6, 2007 between John and De Vera-Navarro to be an equitable mortgage and not a sale.
The RTC ordered plaintiffs to pay De Vera-Navarro P5,000,000.00 plus six percent interest compounded from February 6, 2007 within thirty days or ownership would vest in De Vera-Navarro.
The RTC declared the March 30, 2011 sale to Benjaemy Ho Tan Landholdings, Inc. null and void and ordered cancellation of the resulting title.
The RTC found that badges of an equitable mortgage were present, specifically the undated deed, inadequate consideration, and continued possession by the vendor.
The RTC ruled that Benjaemy Ho Tan Landholdings, Inc. was not a buyer in good faith due to the adverse claim annotation and continued possession by petitioners.

Court of Appeals Decision

The CA reversed the RTC and held that the undated Deed of Absolute Sale constituted a valid contract of sale, characterizing the transaction as dacion en pago.
The CA found that respondent Benjaemy Ho Tan Landholdings, Inc. was a buyer in good faith and granted its appeal while denying the appeal of the petitioners.
The CA concluded that the record lacked sufficient evidence to establish an equitable mortgage and therefore set aside the RTC