G.R. No. 199852 , November 12, 2014
SPS. FELIPE SOLITARIOS and JULIA TORDA, Petitioners, vs. SPS. GASTON JAQUE and LILIA JAQUE, Respondents.

FACTS

The property subject of the suit is Lot 4089, an agricultural land in Calbayog, Samar, originally registered in the name of petitioner Felipe Solitarios under OCT No. 1249 and later in the name of respondents Spouses Jaque under TCT No. 745. Respondents filed a Complaint for Ownership and Recovery of Possession, alleging they purchased the lot in stages from petitioners: first, one-half via a notarized Deed of Sale dated May 8, 1981 for ₱7,000; second, the remaining half, which was initially mortgaged to them via a Real Estate Mortgage (REM) dated July 15, 1981 to secure a ₱3,000 loan, was later sold via a Deed of Sale dated April 26, 1983 for the whole lot for a stated consideration of ₱12,000. Respondents claimed they actually paid ₱19,000 in cash and condoned the ₱3,000 loan. They allowed petitioners to remain in possession and deliver a portion of the produce until petitioners stopped deliveries in 2000 and claimed ownership.
Petitioners denied the sale, claiming they merely mortgaged the lot to respondents after respondents helped them redeem it from PNB. They contended the deeds of sale were fictitious and their signatures forged, and that TCT No. 745 was acquired through fraud, machinations, and by taking advantage of their ignorance. They prayed for cancellation of TCT No. 745, declaration of the deeds as null and void, declaration of their ownership, and damages.
The RTC upheld the validity of the deeds and TCT but declared the transactions as an equitable mortgage under Article 1602 of the Civil Code, ordering reformation of the deeds into mortgage contracts, cancellation of TCT No. 745, and declaring the mortgage debt fully paid. The CA reversed, holding petitioners failed to prove the deeds were sham and that the transaction was a sale, noting petitioners’ possession after the sale was not in the concept of an owner and respondents paid taxes since 1984.

ISSUE

Whether the parties entered into a contract of absolute sale or an equitable mortgage over Lot 4089.

RULING

The Supreme Court ruled the transaction was an equitable mortgage. The petition was granted, reversing the CA and reinstating the RTC decision with modification.
The Court held that petitioners sufficiently raised the issue of equitable mortgage before the RTC through their testimony and allegation that the deeds were “fictitious,” which amounts to claiming they never agreed to a sale. In determining the nature of a contract, courts are not bound by its title or name but by the intention of the parties as shown by their conduct, words, actions, and surrounding circumstances.
The circumstances indicate an equitable mortgage: (1) Petitioners remained in possession of the land after the alleged sale. (2) The consideration of ₱12,000 for the entire 40,608 sq.m. titled agricultural land was grossly inadequate. (3) Respondents never physically occupied the land, did not install a tenant, and allowed petitioners’ relative to reside there. (4) Petitioners continued to deliver a portion of the produce to respondents, consistent with a loan with interest arrangement. (5) Respondents paid the realty taxes, which is consistent with a mortgagee protecting its security interest. These circumstances fall under the instances enumerated in Article 1602 of the Civil Code, creating a presumption of an equitable mortgage.
The Court found the respondents’ claim of having paid ₱19,000 unsupported by evidence, and the stated consideration in the deed was only ₱12,000. The inadequacy of price strengthens the conclusion of a mortgage. The Court ordered the reformation of the deeds into a mortgage contract, declared the mortgage debt as fully extinguished, and ordered the cancellation of TCT No. 745 and the issuance of a new title in the name of petitioners.