GR 111924; (January, 1997) (Digest)
G.R. No. 111924 January 27, 1997
ADORACION LUSTAN, petitioner, vs. COURT OF APPEALS, NICOLAS PARANGAN and SOLEDAD PARANGAN, PHILIPPINE NATIONAL BANK, respondents.
FACTS
Petitioner Adoracion Lustan is the registered owner of a parcel of land in Calinog, Iloilo. She leased the property to respondent Nicolas Parangan and later executed Special Powers of Attorney (SPA) authorizing him to secure loans from respondent Philippine National Bank (PNB) using the land as collateral. Parangan obtained several loans, the proceeds of which he used for his own benefit. Subsequently, petitioner signed a Deed of Definite Sale over the property to Parangan for P75,000.00, which she claimed was executed upon Parangan’s representation that it merely evidenced her consolidated indebtedness to him. Fearing for her property, petitioner demanded the return of her title, but Parangan asserted ownership under the Deed. Petitioner then filed an action for cancellation of liens, quieting of title, and recovery of possession.
ISSUE
The main issues are: (1) whether the Deed of Definite Sale is an equitable mortgage; and (2) whether petitioner’s property is liable for the loans Parangan obtained from PNB under the SPA.
RULING
The Supreme Court reversed the Court of Appeals and reinstated the trial court’s decision with modifications, declaring the Deed of Definite Sale as an equitable mortgage. The legal logic hinges on ascertaining the true intent of the parties. Under Article 1602 of the Civil Code, a contract is presumed an equitable mortgage in certain instances, such as when the vendor remains in possession or the price is unusually inadequate. The Court found the purchase price of P75,000.00 for a 10-hectare land grossly inadequate, and petitioner, as vendor, remained in possession, both indicative of a loan secured by a mortgage, not a true sale. Parol evidence was admissible to prove the instrument was merely security for a loan, aligning the court’s enforcement with the parties’ true intent.
Regarding the PNB loans, the Court held the mortgages valid and subsisting. The SPA authorized Parangan to obtain loans and constituted a continuing authority. While Parangan may have exceeded the understood scope with petitioner, the principal is solidarily liable with an agent who acts beyond his authority if the principal allowed him to act as though he had full powers. Petitioner, by executing the SPA, enabled Parangan to deal with PNB, making the property liable for the loans. However, petitioner has a right to seek indemnification from Parangan for any amount paid to PNB from the sale of her property. The Court ordered Parangan to return possession to petitioner upon her payment of P75,000.00 within 90 days.