G.R. No. 166183 ; January 20, 2006
SPS. TITO ALVARO and MARIA VALELO, Petitioners, vs. SPS. OSMUNDO TERNIDA and JULITA RETURBAN, COURT OF APPEALS, Respondents.

FACTS

Respondent Julita Returban mortgaged her 8,450 sq. m. riceland to spouses Salvador de Vera and Juanita Orinion in 1986. Julita testified she was made to sign a Deed of Pacto de Retro Sale, believing it was a mortgage document. The mortgage was subsequently transferred to spouses Jose Calpito and Zoraida Valelo, and later to petitioners Tito Alvaro and Maria Valelo. Each transfer involved Julita receiving additional loans and signing documents she understood as mortgage instruments. On May 22, 1990, petitioners gave Julita an additional P1,000.00 and had her sign a document she later discovered was a Deed of Absolute Sale. When Julita attempted to redeem the property, petitioners refused, asserting ownership and presenting a tax declaration in their name. Consequently, respondents filed a complaint for annulment of the deed of sale and tax declaration.
The trial court dismissed the complaint. On appeal, the Court of Appeals reversed, declaring the Deed of Absolute Sale an equitable mortgage, annulling the tax declaration, and allowing redemption. Petitioners sought review, contending the transaction was an absolute sale and that the appellate court erred in applying the presumption of equitable mortgage.

ISSUE

Whether the contract between the parties is an equitable mortgage or an absolute sale.

RULING

The Supreme Court denied the petition, affirming the Court of Appeals. The contract is an equitable mortgage. The legal logic rests on Article 1602 of the Civil Code, which establishes presumptions for equitable mortgages. The Court emphasized that the parties’ true intention, not the document’s nomenclature, governs. Here, several circumstances under Article 1602 were present: the vendor remained in possession, the price was unusually inadequate, and the vendee retained part of the purchase price by providing additional loans. Critically, Julita’s continuous efforts to redeem the property and her consistent belief that she was signing mortgage documents demonstrated the transaction’s purpose was to secure a debt, not transfer ownership. The presence of even one statutory circumstance suffices to trigger the presumption. Consequently, the deed was correctly construed as an equitable mortgage, entitling respondents to redeem the property upon payment of the mortgage debt. The annulment of the tax declaration issued to petitioners was a necessary consequence of this determination.