GR 102557; (July, 1996) (Digest)
G.R. No. 102557 July 30, 1996
ALFONSO D. ZAMORA, petitioner, vs. COURT OF APPEALS and MA. JACINTA D. DE GUZMAN, respondents.
FACTS
Ma. Jacinta de Guzman, a co-owner of a parcel of land in Quezon City, mortgaged her undivided share to her lessee, Alfonso Zamora, in 1987 to secure a loan of P140,000. She failed to pay, and after obtaining additional loans totaling P272,356, she executed a document titled “Absolute Sale of Undivided Share of Land” on March 1, 1988, in favor of Zamora for a consideration of P450,000. The P177,644 balance, after deducting the loan, was paid to her. Zamora registered the deed and obtained a new title. Despite this, Zamora continued to pay full rent for March 1988 and only deducted a share corresponding to de Guzman’s former portion starting April. In May 1988, Zamora offered de Guzman an option to repurchase, which he quickly withdrew. De Guzman filed suit, claiming the transaction was an equitable mortgage, not an absolute sale.
ISSUE
Whether the contract executed by the parties is an absolute sale or an equitable mortgage.
RULING
The Supreme Court affirmed the rulings of the lower courts, holding the contract to be an equitable mortgage. The legal logic rests on the application of Article 1602 of the Civil Code, which enumerates circumstances indicative of an equitable mortgage. Several such circumstances were present. First, the vendor (de Guzman) remained in possession of the property. Second, the purchase price was unusually inadequate, being grossly disproportionate to the property’s true value, which was established to be significantly higher. Third, the vendor continued to pay real estate taxes. Fourth, the contemporaneous and subsequent acts of the parties revealed their true intent. Crucially, Zamora’s act of continuing to pay rent after the purported sale and his offer to resell the property to de Guzman were clear admissions that she was still considered the owner. These acts, coupled with de Guzman’s financial distress at the time of the transaction, demonstrated that the deed of absolute sale was intended merely to secure the payment of her loans. Therefore, the contract was properly reformed into an equitable mortgage under Article 1365 of the Civil Code.