G.R. No. 219638. December 07, 2016
MARCELINO REPUELA AND CIPRIANO REPUELA, SUBSTITUTED BY CARMELA REPUELA, ET AL., PETITIONERS, V. ESTATE OF THE SPOUSES OTILLO LARAWAN AND JULIANA BACUS, REPRESENTED BY NANCY LARAWAN MANCAO, GALILEO LARAWAN AND SOCRATES LARAWAN, RESPONDENTS.

FACTS

Petitioners Marcelino and Cipriano Repuela, successors to their parents’ property (Lot No. 3357), sought to borrow P200.00 from respondents Spouses Otillo and Juliana Larawan in 1963. They surrendered their title and signed a document they believed was a mortgage contract, with illiterate Marcelino affixing his thumbmark. They remained in possession, cultivated the land, and paid its taxes. In 2002, they discovered the title had been cancelled and a new one issued to the Larawans based on an “Extrajudicial Declaration of Heirs and Sale” bearing their signatures. They filed for annulment, claiming the document was a blank paper they were tricked into signing, and the true transaction was a loan with equitable mortgage.
Respondent Estate, through witness Galileo Larawan (son of the spouses), asserted the transaction was an absolute sale for P2,000.00, duly notarized after explanation in Cebuano. They claimed possession, payment of taxes, and enjoyment of the land’s produce. They argued petitioners were barred by laches for filing the suit nearly 40 years later, long after the spouses’ deaths.

ISSUE

Whether the transaction between the parties was an absolute sale or an equitable mortgage.

RULING

The Supreme Court ruled the transaction was an equitable mortgage, reversing the Court of Appeals and reinstating the RTC decision with modification on interest. The legal logic centered on the application of Article 1602 of the Civil Code, which presumes a mortgage when, as here, the purported vendor (petitioners) remained in possession of the property and continued to pay its taxes. These factual circumstances, affirmed by the trial court which had direct opportunity to observe witness credibility, strongly indicated the intent was to secure a loan, not to transfer ownership. The Court found the testimony of Galileo Larawan, who was only six years old at the time of the 1963 transaction, unreliable for recalling specific details like the reading and explanation of the deed.
The defense of laches was rejected. The prescriptive period for an action to declare a contract an equitable mortgage is ten years from the date of its execution. However, the ten-year period did not apply because the action was imprescriptible under the circumstances. The Repuelas were illiterate or of limited education, signed what they believed was a mortgage, and only discovered the fraudulent sale document in 2002. Their immediate filing of the complaint in 2003 was thus timely. The Court ordered petitioners to pay the P2,000.00 loan with 12% interest per annum from January 17, 2003, until June 30, 2013, and 6% per annum thereafter until full payment to redeem the property.