G.R. No. 143388; October 6, 2003
ROLANDO and ROSITA CRUZ, petitioners, vs. THE HONORABLE COURT OF APPEALS, THE HONORABLE ALFREDO R. ENRIQUEZ, Presiding Judge, Metropolitan Trial Court, Branch 79, Las Piñas City, and MIGUEL and CECILIA CAPISTRANO, respondents.

FACTS

Petitioners, spouses Rolando and Rosita Cruz, obtained several loans totaling ₱195,000 from respondents, spouses Miguel and Cecilia Capistrano, who were engaged in money lending. As security, petitioners surrendered their Transfer Certificate of Title (TCT) covering a house and lot in Las Piñas. They also signed a blank check upon respondents’ assurance it was merely for safekeeping. In 1988, petitioners discovered their property had been transferred to the Capistranos under a new TCT via a notarized Deed of Absolute Sale dated November 5, 1985. Petitioners vehemently denied executing a deed of sale, claiming they were tricked into signing blank papers which respondents later superimposed with a sale document instead of a mortgage. Respondents countered that the sale was genuine, executed to offset the unpaid debt.

ISSUE

The core issue is whether the purported Deed of Absolute Sale is valid or whether the transaction was actually an equitable mortgage intended to secure the loan.

RULING

The Supreme Court ruled the transaction was an equitable mortgage, not a true sale, and annulled the Deed of Absolute Sale. The legal logic rests on the application of Article 1602 of the Civil Code, which presumes a mortgage when, despite being denominated a sale, the vendor remains in possession, the price is unusually inadequate, or the vendor binds himself to repurchase the property. Several indicia were present here. First, petitioners continuously possessed the property even after the alleged sale. Second, the purported sale price of ₱195,000 was grossly inadequate compared to the property’s value, which petitioners claimed was ₱750,000 at the time. Third, the circumstances strongly indicated a loan security: the parties had a debtor-creditor relationship, the title was delivered as collateral, and a blank check was signed under dubious circumstances. The Court found petitioners’ version—that they signed blank papers for a mortgage—more credible than respondents’ claim of a sale to extinguish the debt. Consequently, the sale was declared void, the Capistranos’ title was cancelled, and the property was ordered reconveyed to the Cruzes upon payment of the loan amount. The ruling prevents the circumvention of the prohibition against pactum commissorium, where a creditor improperly appropriates the mortgaged property.