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Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 172771             January 31, 2008

SPS. ESTER SANTIAGO & DOMINGO CRISTOBAL, IMELDA SANTIAGO & JHONY TAI AND JOSE SANTIAGO & EVELYN DAMIN AND ELIZABETH SANTIAGO, petitioners,
vs.
AIDA G. DIZON, respondent.

D E C I S I O N

CARPIO MORALES, J.:

Aida G. Dizon (respondent) mortgaged to Monte de Piedad Mortgage and Savings Bank (Monte de Piedad) a 168.6-square meter parcel of land, which was registered in her name under Transfer Certificate of Title No. 132499, including the two-storey apartment (the property) built thereon, to secure a P265,000 loan.

Respondent failed to settle the loan, drawing Monte de Piedad to foreclose the mortgage, consolidate its ownership of the property, and register it in its name. Monte de Piedad nevertheless gave respondent until May 28, 1987 to purchase back the property for P550,000.

On May 28, 1987, petitioner Elizabeth Santiago (Elizabeth), on behalf of respondent, paid P550,000 for the property. Monte de Piedad thereupon executed a deed of sale in favor of respondent who, the following day or on May 29, 1987, in turn executed a deed of sale in favor of Elizabeth and her herein co-petitioners.

Also on May 29, 1987, respondent and petitioners executed an agreement giving respondent "the option to buy back the property within three (3) months from the date of this agreement at the price of P900,000.00,"¹ failing which respondent should "vacate the premises occupied by her, and turn over possession thereof to [petitioners] including the lessees of the building."²

Respondent thus continued to stay in the property. Three months having elapsed without respondent repurchasing the property, petitioners registered with the Registry of Deeds of Manila the Deed of Sale executed by Monte de Piedad in favor of respondent, as well as the Deed of Sale of the property executed by respondent in favor of petitioners who were issued a title thereover.

Respondent failed to vacate the property. Petitioner Elizabeth thus filed an ejectment case against her before the Manila Metropolitan Trial Court (MeTC), Branch 21 of which decided in petitioner Elizabeth’s favor. On appeal, Branch 27 of the Regional Trial Court (RTC) of Manila reversed the MeTC decision. The Court of Appeals affirmed the RTC decision.

On petitioners’ Motion for Reconsideration, the appellate court reversed the RTC decision and reinstated the MeTC decision (in favor of petitioner Elizabeth).

Respondent thus filed a Petition for Review before this Court which affirmed the appellate court’s reinstatement of the MeTC decision.³ This Court held, however, that the ejectment case did not bar a subsequent action to settle the issue of ownership.⁴

Respondent subsequently filed before the RTC of Manila a verified Complaint,⁵ docketed as Civil Case No. 96-81354, against petitioners and Hon. Godofredo CA. Fandialan in his capacity as Presiding Judge of Branch 21 of MeTC of Manila, for reformation of the deed of sale in favor of petitioners, alleging, inter alia, that

[the] actual agreement between the parties is that of a loan and mortgage x x x and x x x [the] subject document denominated as a deed of sale was actually an equitable mortgage considering the inadequacy of the price at P550,000.00 in the deed of sale dated May 29, 1987 for such prime property within the university and commercial belt in Manila; the fact that the "sale" was with a right of repurchase at P900,000.00; that plaintiff continued to exercise rights of ownership after the "sale" such as the payment of realty taxes and collection of rentals from tenants; and the fact that the P550,000.00 was in fact a loan by private defendants to plaintiff which was paid to Monte de Piedad to buy back the property for plaintiff.⁶ (Emphasis and underscoring supplied)

In their Answer, petitioners maintained that their transaction with respondent was a bona fide sale.

Branch 6 of the Manila RTC, applying Articles 1602⁷ and 1603⁸ of the Civil Code, decided in favor of respondent by Decision of March 22, 2002,⁹ it holding that the transaction between respondent and petitioners was an equitable mortgage in light of the following considerations:

1. Exhibits "A" and "B" were signed and executed by the parties on the same day, May 29, 1987. The purchase price of the subject property was P550,000.00 in the Deed of Absolute Sale (Exhibit "A") while in the Agreement (Exhibit "B") defendants agreed to give to give plaintiff the option to buy back the subject property within the period of three (3) months from the date of the Agreement at P900,000.00. There was a tremendous increase of P350,000.00 in the repurchase price of the subject property within a period of three (3) months. It has been held that a stipulation in the contract sharply escalating the repurchase price enhances the presumption that the transaction is an equitable mortgage. Its purpose is to secure the return of the money invested with substantial profit or interest, a common characteristic of loans.

2. The fact that the repurchase price of the subject property as stated in the Agreement dated May 29, 1987, was P900,000.00, clearly indicates that the purchase price of the subject property at P550,000.00 was inadequate as stated in the Contract of Absolute Sale.

3. Plaintiff remained in possession of the subject property in question after the execution of the Absolute Deed of Sale. Plaintiff continued to exercise the rights and obligations of owner-lessor after the execution of the Absolute Deed of Sale when she paid the realty taxes and collected rentals from the other tenants of the apartment building which were turned over to the defendants.

4. Where vendor (herein plaintiff) was given the right to possess the subject property pending the redemption period of three (3) months, equitable mortgage exists.

5. Having just repurchased the subject property from the Bank at the price of P550,000.00, it would have been utterly senseless for the plaintiff to sell the same property to the defendants at the same price of P550,000.00, without profit (Exhibit "A"). However, by the terms of the Agreement Exhibit "B", plaintiff would have to repurchase the same property from the defendants at an increased price of P900,000.00. Thus, from the afore-said documents, there is no other possible and logical conclusion that Exhibits "A" and "B", taken together, [are] an equitable mortgage because they were executed as security for the loan of P550,000.00 extended by defendants to plaintiff, for the latter to buy back the subject property from the Bank.

x x x x¹⁰

By Decision¹¹ of February 8, 2006, the Court of Appeals affirmed the RTC decision.

Hence, the present Petition for Review on Certiorari¹² faulting the Court of Appeals in affirming

I. . . . the findings and conclusions of the Regional Trial Court of Manila (Branch 06) despite the fact [that] there was no equitable mortgage.

II. . . . the findings and conclusions of the Regional Trial Court of Manila (Branch 06) even when these conclusions run contrary to the prevailing law and jurisprudence.¹³

The petition is impressed with merit.

The presumption of equitable mortgage created in Article 1602 of the Civil Code is not conclusive. It may be rebutted by competent and satisfactory proof of the contrary.¹⁴ In the case at bar, ample evidence supports petitioners’ claim that the transaction between them and respondent was one of sale with option to repurchase.

While after the sale of the property respondent remained therein, her stay was not in the concept of an owner.¹⁵ Through her, petitioners were the ones who received rentals paid by lessees with whom she had contracted before the sale of the property to petitioners. After the 3-month option to buy back the property expired without respondent exercising it, petitioner Elizabeth was the one who directly dealt with and entered into contracts with tenants of the property and received the rentals.¹⁶

Contrary to respondent’s claim that after the sale of the property in 1987, the tax declarations remained in her name and she continued to pay realty taxes thereon,¹⁷ the record shows that the 1987 tax declarations were in the names of Monte de Piedad and petitioners.¹⁸ Respondent’s copy of the tax declaration purporting to prove her claim was not only even a photocopy; it was for the year 1985.¹⁹

While it appears that respondent paid taxes on the property in 1987, the evidence shows that petitioners paid taxes thereon from 1988 up to 1999.²⁰ Payment by petitioners of realty taxes after the consummation of the sale in 1987 is not, of course, conclusive evidence of ownership, but it bolsters their claim thereon.²¹

As for the alleged inadequacy of the purchase price ─ a consideration so far short of the real value of the property as to startle a correct mind²² ─ this Court, in determining whether the price of a property is inadequate, has often referred to its assessed value.²³ In the case at bar, as of 1988, the market value of the land was P85,550 while that of its improvements was P27,880.²⁴ And the assessed value of the land and its improvements for the same year was P29,850.²⁵ Clearly, the P550,000 purchase price at which petitioners bought the property in 1987 is not inadequate.

The trial court and the Court of Appeals harped on the marked difference between the P550,000 purchase price and the would-be P900,000 repurchase price as an indicator that the purchase price was unusually inadequate.²⁶ They cited Bundalian v. Court of Appeals.²⁷ In declaring the contract in Bundalian to be an equitable mortgage, this Court, noting the following considerations:

One of the terms and conditions was that the repurchase price would escalate month after month, depending on when repurchase would be effected. The price would be P532,480.66 computed at P160.00 per square meter after the first month; P565,760.00 computed at P170.00 per square meter after the second month; P599,040.00 computed at P180.00 per square meter after the third month; and P632,320.00 computed at P190.00 per square meter after the fourth month, from and after the date of the instrument. It was also stipulated in the same contract that the vendor shall have the right to possess, use, and build on, the property during the period pending redemption. (Emphasis and underscoring supplied),²⁸

held that:

The stipulation in the contract sharply escalating the repurchase price every month enhances the presumption that the transaction is an equitable mortgage. Its purpose is to secure the return of the money invested with substantial profit or interest, a common characteristic of loans.²⁹

Unlike in Bundalian, however, there was, in the present case, no escalation of purchase price to depend on when repurchase by respondent would be effected, for a fixed price and fixed date of repurchase were agreed upon by respondent and petitioners. Also unlike in Bundalian, respondent-vendor did not have the right to, among other things, "build on the property during the period pending redemption."

In fine, respondent failed to prove that the transaction was one of equitable mortgage. Reformation of the deed of sale of the property to petitioners does not thus lie.

WHEREFORE, the petition is GRANTED. The challenged February 8, 2006 decision of the Court of Appeals is SET ASIDE. Civil Case No. 96-81354 of the Manila Regional Trial Court is DISMISSED.

SO ORDERED.

CONCHITA CARPIO MORALES
Associate Justice

WE CONCUR:

LEONARDO A. QUISUMBING Associate Justice Chairperson
ANTONIO T. CARPIO Associate Justice	DANTE O. TINGA Associate Justice
PRESBITERO J. VELASCO, JR. Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

LEONARDO A. QUISUMBING
Associate Justice
Chairperson

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairperson’s Attestation, it is hereby certified that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

REYNATO S. PUNO
Chief Justice

Footnotes

¹ Records, p. 10.

² Ibid.

³ Dizon v. Court of Appeals, 332 Phil. 429, 434 (1996).

⁴ Id. at 432-433.

⁵ Records, pp. 1-8.

⁶ Id. at 4.

⁷ Article 1602, Civil Code:

The contract shall be presumed to be an equitable mortgage, in any of the following cases:

(1) When the price of a sale with right to repurchase is unusually inadequate;

(2) When the vendor remains in possession as lessee or otherwise;

(3) When upon or after the expiration of the right to repurchase another instrument extending the period of redemption or granting a new period is executed;

(4) When the purchaser retains for himself a part of the purchase price;

(5) When the vendor binds himself to pay taxes on the thing sold;

(6) In any other case where it may be fairly inferred that the real intention of the parties is that the transaction shall secure the payment of a debt or the performance of any other obligation.

In any of the foregoing cases, any money, fruits, or other benefit to be received by the vendee as rent or otherwise shall be considered as interest which shall be subject to the usury laws.

⁸ Article 1603, Civil Code: "In case of doubt, a contract purporting to be a sale with right to repurchase shall be construed as an equitable mortgage."

⁹ Records, pp. 340-348.

¹⁰ Id. at 345-346 (citations omitted).

¹¹ Penned by Court of Appeals Associate Justice Eliezer R. de los Santos, with the concurrence of Associate Justices Jose C. Reyes, Jr. and Arturo G. Tayag. CA rollo, pp. 263-279.

¹² Rollo, pp. 9-49.

¹³ Id. at 22-23.

¹⁴ Sps. Austria v. Sps. Gonzales, Jr., 465 Phil. 355, 365 (2004).

¹⁵ Vide Vda. de Cruzo v. Carriaga, Jr., G.R. Nos. 75109-10, June 28, 1989, 174 SCRA 330, 345:

x x x Treading on the same supposition that there existed such a right to repurchase, petitioners insist that the pacto de retro sale is, for all intents and purposes, an equitable mortgage on the pretext that they have been in continuous possession of the land from the time of the execution of the document. This again is a result of the distorted notion that the petitioners’ possession is in the concept that of an owner.

¹⁶ TSN, November 16, 1999, pp. 9-10, TSN, October 16, 2000, p. 6. Vide records, pp. 17-18.

¹⁷ Records, p. 3.

¹⁸ Id. at 319-320.

¹⁹ Id. at 63 (dorsal side).

²⁰ Id. at 305-318.

²¹ Vide Tuazon v. Court of Appeals, 396 Phil. 32, 45 (2000).

²² Vide Asia Banking Corporation v. Corcuera, 51 Phil. 781, 784-785 (1928).

²³ Vide Abapo-Almario v. Court of Appeals, 283 Phil. 933, 941 (2000); Jocson v. Court of Appeals, G.R. No. 55322, February 16, 1989, 170 SCRA 333, 343; Bagadiong v. Vda. de Abundo, G.R. No. L-75395, September 19, 1988, 165 SCRA 459, 462.

²⁴ Records, pp. 319-320 (see dorsal portions).

²⁵ Ibid.

²⁶ CA rollo, pp. 272-273; Records, pp. 345-346.

²⁷ 214 Phil. 565 (1984).

²⁸ Id. at 567.

²⁹ Id. at 574.

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