GR 170282; (December, 2008) (Digest)
G.R. No. 170282 , December 18, 2008.
ALEXANDER and JEAN J. BACUNGAN, petitioners, vs. COURT OF APPEALS and SPS. NAPOLEON and VICTORIA VELO, respondents.
FACTS
Respondents Napoleon and Victoria Velo, registered owners of 18 parcels of land, experienced financial difficulties and sought assistance from petitioners Alexander and Jean Bacungan to secure a loan. Petitioners proposed that respondents transfer the titles to them to be used as security for the loan. Respondents executed deeds of sale, and new TCTs were issued in petitioners’ names. Petitioners, however, never applied for the loan and instead negotiated to sell the properties to third parties. Respondents filed an action for reconveyance. Petitioners claimed they bought the properties, paid respondents’ bank obligation, and considered one sale cancelled. The Regional Trial Court (RTC) dismissed the complaint, upholding the notarized deeds of sale and applying the principle of in pari delicto. The Court of Appeals (CA) reversed the RTC, declaring the deeds simulated and ordering reconveyance, citing gross inadequacy of price, non-receipt of purchase price, and petitioner Alexander Bacungan’s admission of simulation.
ISSUE
Whether the deeds of absolute sale are valid, simulated, or constitute an equitable mortgage.
RULING
The Supreme Court PARTLY GRANTED the petition. It MODIFIED the CA decision, declaring the Deeds of Absolute Sale as equitable mortgages, not simulated sales. The Court found that the real intention of the parties was to secure the payment of a debt. The arrangement, where petitioners advanced P369,000 for respondents to redeem the mortgaged properties with an agreement for respondents to later buy back the properties, falls under Article 1602 of the Civil Code. Three circumstances supported the presumption of an equitable mortgage: (1) gross inadequacy of the prices stated in the deeds; (2) petitioners’ retention of part of the purchase price (by failing to secure and remit the intended loan); and (3) petitioners’ claim that part of the consideration was for previous loans, indicating the properties served as security. Consequently, the Court ordered petitioners to reconvey the properties to respondents upon the latter’s payment of P369,000 within ninety (90) days from the finality of the decision.