GR 171250; (July, 2007) (Digest)
G.R. No. 171250 ; July 4, 2007
SPS. CARLOS AND EULALIA RAYMUNDO and SPS. ANGELITO AND JOCELYN BUENAOBRA, Petitioners, vs. SPS. DOMINADOR AND ROSALIA BANDONG, Respondents.
FACTS
Respondent Dominador Bandong worked as a “biyahero” for petitioner Eulalia Raymundo, procuring cattle using her capital. In 1989, Dominador incurred a shortage of ₱70,000. To secure this amount, the Spouses Bandong executed a Deed of Absolute Sale dated February 3, 1989, covering their Caloocan City property in favor of Eulalia. The property was subsequently registered in the names of the Spouses Raymundo. Later, the Raymundos sold the property to petitioner Spouses Buenaobra, who then obtained a new title and initiated an ejectment case against the Bandongs.
The Spouses Bandong filed an action for annulment of sale, claiming the transaction was not a true sale but an equitable mortgage intended merely to secure Dominador’s debt. They argued their consent was vitiated. The Regional Trial Court upheld the validity of the sale. The Court of Appeals reversed this decision, declaring the deed an equitable mortgage and annulling the subsequent sale to the Buenaobras.
ISSUE
Whether the Deed of Absolute Sale dated February 3, 1989, is a true sale or an equitable mortgage.
RULING
The Supreme Court affirmed the Court of Appeals, ruling the transaction was an equitable mortgage. The legal logic hinges on the application of Article 1602 of the Civil Code, which enumerates circumstances where a contract purporting to be a sale is presumed to be an equitable mortgage. The Court found several indicia present: the Spouses Bandong remained in possession of the property; the purchase price was unusually inadequate, as the ₱70,000 consideration was grossly lower than the property’s proven market value; and the relationship between the parties (employer-employee) suggested the transaction was for security. The fact that the debt of ₱70,000 was precisely the amount of the shortage further indicated a loan security arrangement, not an absolute conveyance.
Consequently, the subsequent sale to the Spouses Buenaobra was annulled. As the Raymundos were not the true owners but merely mortgagees, they could not transmit full ownership. The Buenaobras could not invoke being buyers in good faith because the defect in the Raymundos’ title was not merely a hidden flaw but a fundamental one arising from the contract’s true nature. The Bandongs were granted a one-year period to redeem the property by paying the ₱70,000 debt with interest. The awards for damages were also sustained due to the petitioners’ act of dispossessing the respondents under the guise of a void sale.