G.R. No. 196470. April 20, 2016
ROSARIO VICTORIA AND ELMA PIDLAOAN, PETITIONERS, VS. NORMITA JACOB PIDLAOAN, HERMINIGILDA PIDLAOAN AND EUFEMIA PIDLAOAN, RESPONDENTS.

FACTS

Petitioners Rosario Victoria and Elma Pidlaoan lived together. In 1984, Elma bought a parcel of land in Lucena City, with TCT issued solely in her name. Rosario later constructed a house on the lot. In 1989, Elma mortgaged the property. When foreclosure loomed, Elma sought help from her sister-in-law Eufemia, whose daughter Normita provided funds to redeem it. Elma then offered to sell the lot to Normita. On March 21, 1993, Elma executed an un-notarized “deed of sale” in favor of Normita. Upon a notary public’s advice to avoid capital gains tax, Elma executed a notarized deed of donation over the lot the next day. The TCT was cancelled and a new one issued in Normita’s name. Normita paid real property taxes, but Elma continued occupying the house. Rosario discovered the donation upon her return. In 1997, petitioners filed a complaint for reformation of contract, cancellation of title, and damages, arguing co-ownership of the lot, that the transaction was an equitable mortgage, and that the deed of donation was simulated. Respondents admitted the donation was simulated and the original transaction was a sale, but denied it was an equitable mortgage. The RTC ruled Rosario and Elma were co-owners, so Elma could donate only her half-share. The CA reversed, dismissing the complaint, holding the deed of donation was not simulated and was voluntarily executed, and that Normita acquired the entire lot.

ISSUE

1. Whether Rosario is a co-owner of the lot.
2. Whether the deed of donation was simulated.
3. Whether the transaction between Elma and Normita was a sale, a donation, or an equitable mortgage.

RULING

The Supreme Court PARTIALLY GRANTED the petition.
1. On co-ownership: Rosario is not a co-owner of the lot. The lot was purchased by Elma alone, with TCT issued solely in her name. Normita, dealing with registered land, had the right to rely on the title. The petitioners failed to prove Rosario contributed to the lot’s purchase. The construction of a house on another’s land does not create co-ownership; a house and lot are separate properties. Rosario may have remedies under Article 448 of the Civil Code (builder in good faith), but not co-ownership.
2. On the nature of the transaction: The deed of donation was relatively simulated. The contemporaneous and subsequent acts of the parties showed their true intent was a sale, as they initially executed a deed of sale and only executed a deed of donation upon the notary public’s advice to avoid tax. The CA’s reliance on the presumption of regularity of notarized documents was misplaced, as the respondents themselves admitted in their answer that the donation was simulated. The true agreement was a contract of sale.
3. On whether it was an equitable mortgage: The transaction was not an equitable mortgage. The elements under Article 1602 of the Civil Code were not present. The respondents consistently denied any agreement for a mortgage and asserted the transaction was a sale. The price (P30,000.00) was not unusually inadequate, and Elma did not remain in possession as a lessor or otherwise.
Thus, the Court ruled that Elma transferred ownership of the entire lot to Normita via a contract of sale, not donation or mortgage. The CA decision was modified accordingly.