G.R. No. L-106822 December 21, 1993
FLORDELIZ L. BELLIDO AND VILLAMOR H. BELLIDO, petitioners, vs. THE HON. COURT OF APPEALS AND SPOUSES MAMERTO P. DEL RIO AND ESTELITA L. DEL RIO, respondents.

FACTS

Petitioner-spouses Flordeliz and Villamor Bellido filed a complaint for annulment of a deed of absolute sale covering a house and lot in Quezon City, formerly under TCT No. 277097 in Flordeliz’s name. Petitioners’ evidence sought to prove that, being financially distressed, they offered the property as collateral for a P300,000 loan from private respondents. Private respondents gave an advance of P85,284.39, which petitioners used to pay a loan with the Central Bank Provident Fund. Before releasing the loan balance, private respondents demanded the execution of a deed of absolute sale and surrender of the title, assuring petitioners these would merely serve as collateral. Petitioners executed the deed on March 5, 1987 but received only a total of P240,000 (including the advance), as P60,000 was deducted as one-year interest. Private respondents later tried to evict petitioners’ caretaker. Private respondents’ evidence tended to establish that petitioners secured an initial loan of P85,284.39 with a promise to pay within three months, failing which they would sell the property for P300,000 inclusive of the advance. Petitioners failed to pay even after a one-month extension, voluntarily executed the deed, and private respondents thereafter had the property titled in their name after paying back taxes. The Regional Trial Court dismissed petitioners’ complaint and upheld the deed. The Court of Appeals affirmed but deleted awards of moral damages and attorney’s fees.

ISSUE

Whether the deed of absolute sale should be treated as an equitable mortgage under Article 1602 of the Civil Code.

RULING

The Supreme Court SET ASIDE the decision of the Court of Appeals. The transaction was declared an equitable mortgage. The deed of absolute sale dated March 5, 1987 was declared NULL and VOID. The Register of Deeds of Quezon City was ordered to cancel TCT No. 357776 (in private respondents’ names) for being void ab initio and to reinstate TCT No. 277097 in the name of petitioner Flordeliz L. Bellido. The Court found several factors supporting the existence of an equitable mortgage under Article 1602: (1) petitioners promptly filed the complaint upon discovering the cancellation of their title; (2) petitioners were financially distressed at the time of the transaction, which was admitted by private respondents; (3) the stated purchase price of P300,000, while slightly above the property’s declared value, was intentionally fixed to circumvent Articles 1602 and 1604, considering other circumstances and the property’s higher potential market value. The Court found petitioners’ version more credible—that the title and deed served as security for the loan—and consistent with the presumption that a person takes ordinary care of his concerns.