GR 239088; (April, 2019) (Digest)
G.R. No. 239088, April 3, 2019
SPOUSES JOHN T. SY AND LENY N. SY, AND VALENTINO T. SY, Petitioners vs. MA. LOURDES DE VERA-NAVARRO AND BENJAEMY HO TAN LANDHOLDINGS, INC., Respondents
FACTS
Petitioner John T. Sy, a co-owner of a property in Zamboanga City, obtained a loan of ₱3,720,000 from respondent Ma. Lourdes De Vera-Navarro, secured by a real estate mortgage. Petitioners alleged that immediately after, Navarro required John Sy to execute an undated Deed of Absolute Sale over the property for ₱5,000,000, purportedly as additional security. The parties allegedly agreed that the loan would be paid through Navarro’s collection of rentals from the property’s tenants. Years later, petitioners were surprised to learn the property had been transferred to Navarro under a new title, and subsequently sold by her to respondent Benjaemy Ho Tan Landholdings, Inc. (BHTLI).
Navarro admitted the loan but claimed it ballooned to about ₱10.5 million and remained unpaid. She asserted the undated Deed of Absolute Sale, which she dated February 6, 2007, was a true sale, not mere security. BHTLI claimed it was a buyer in good faith, having purchased the property before petitioner Valentino Sy annotated an adverse claim on the title.
ISSUE
Whether the undated Deed of Absolute Sale is a true contract of sale or an equitable mortgage.
RULING
The Supreme Court ruled the instrument is an equitable mortgage. The legal logic hinges on the application of Article 1602 of the Civil Code, which presumes a mortgage when a transaction appears as a sale but is intended as security for a debt. The Court found several circumstances supporting this presumption. First, the gross inadequacy of the ₱5,000,000 sale price compared to the property’s alleged market value of over ₱40,000,000 indicates a loan security, not a true sale. Second, the vendor, John Sy, remained in possession of the property, a strong indicator of a mortgage. Third, the contemporaneous execution of the deed with the loan documents and the understanding that rentals would apply to the loan point to a debtor-creditor relationship, not a completed sale.
The Court emphasized that the intent of the parties controls. The facts demonstrated Navarro’s primary objective was to secure the payment of the loan, not to transfer ownership. Consequently, the sale to BHTLI, which derived its rights from the voidable transaction with Navarro, conveyed no valid title. The RTC decision declaring the deed an equitable mortgage and ordering the petitioners to pay the loan to redeem the property was reinstated, reversing the Court of Appeals.