GR 136421; (November, 2000) (Digest)
G.R. No. 136421 ; November 23, 2000
JOSE and ANITA LEE, petitioners, vs. COURT OF APPEALS, HON. N.C. PERELLO, as Judge of RTC, Branch 276, Muntinlupa City and Heirs of the deceased SPOUSES MANUEL and CARMEN RECARIO, respondents.
FACTS
Petitioner Anita Lee entered into a contract with Carmen Recario over a commercial lot and an unfinished building. The agreement stipulated that Lee would reimburse Recario P275,000 for construction costs and complete the building. Upon completion, Lee would become the building’s exclusive owner. However, after 7.5 years, Recario would become a co-owner of a one-half undivided portion until the agreement’s 15-year term expired, after which full ownership would revert to Recario. Lee would lease the land at a reduced rent due to her construction investment. The contract also gave Lee the absolute right to sell or encumber the building.
After Recario’s death, her heirs demanded that the Lees vacate, claiming the contract was an equitable mortgage and that the Lees had failed to pay rent. The Metropolitan Trial Court ruled for the Lees, but the Regional Trial Court reversed, ordering ejectment. The Court of Appeals dismissed the Lees’ appeal.
ISSUE
The primary issue is whether the contract is a lease agreement or an equitable mortgage, and whether the Lees have the right to possess the property and building.
RULING
The Supreme Court reversed the Court of Appeals and reinstated the MeTC decision. The contract is unequivocally a lease agreement, not an equitable mortgage. The clear terms show Lee paid P275,000 as reimbursement for construction costs, not as a loan secured by the property. The agreement explicitly states Lee would lease the land, and the provisions on ownership transition are ancillary to the leasehold right.
The Court emphasized that the contract must be interpreted as a whole. The clause granting Lee the absolute right to sell the building is qualified by the subsequent co-ownership provision that vests a one-half interest in Recario after 7.5 years. This structure does not convert the lease into a mortgage; it simply defines the parties’ proprietary interests in the structure during the lease term. Possession rightfully remained with the Lees for the lease’s duration. Furthermore, the Lees were not in default on rent, as they consigned the payments after the heirs refused acceptance, which legally extinguished their obligation under Article 1256 of the Civil Code. Thus, ejectment was unjustified.