G.R. No. L-19196 November 29, 1968
ANGEL VILLARICA and NIEVES PALMA GIL DE VILLARICA, petitioners, vs. THE COURT OF APPEALS, JULIANA MONTEVERDE, GAUDENCIO CONSUNJI and JOVITO S. FRANCISCO, respondents.

FACTS

On May 19, 1951, spouses Angel Villarica and Nieves Palma Gil de Villarica sold a lot in Davao City to spouses Gaudencio Consunji and Juliana Monteverde for P35,000 through an absolute deed of sale (Exh. “B”). The deed was acknowledged on May 25, 1951, and the vendees’ title was registered in July 1951, resulting in the issuance of TCT No. 3147 in their names. On the same day, May 25, 1951, the Consunjis executed a separate instrument (Exh. “D”) granting the Villaricas an option to buy the property within one year for P37,750. In February 1953, the Consunjis sold the lot to Jovito S. Francisco for P47,000, and a new title was issued in his name. On April 14, 1953, the Villaricas filed an action to reform the absolute deed of sale (Exh. “B”) into an equitable mortgage, alleging it was security for a usurious loan of P28,000. The Court of First Instance of Davao ruled in favor of reformation but also upheld the Consunjis’ counterclaim for sums of money and recognized Francisco as a purchaser in good faith. On appeal, the Court of Appeals reversed, finding the deed of absolute sale expressed the true intention of the parties and substantiating the Consunjis’ counterclaim. The Villaricas then petitioned the Supreme Court for review.

ISSUE

Whether the Court of Appeals erred in finding that the instrument of absolute sale (Exh. “B”) expressed the true intention of the parties and should not be presumed an equitable mortgage under Article 1604 in relation to Articles 1602 and 1603 of the Civil Code.

RULING

The Supreme Court affirmed the decision of the Court of Appeals, holding that the instrument of absolute sale was not an equitable mortgage. The Court rejected the petitioners’ arguments based on Article 1602: (1) the price of P35,000 was not unusually inadequate, as it represented the market value in 1951, considering the Villaricas had purchased the property for P20,000 the previous year; (2) the vendors did not remain in possession as lessees, as they only collected rents for five months on behalf of the vendees; (3) the separate instrument (Exh. “D”) granted an option to buy, not a right of repurchase reserved in the contract of sale, so an extension of that option period did not fall under Article 1602(3); and (4) the vendors only paid back taxes due up to the time of sale, as obligated, while taxes after the sale were paid by the vendees. The Court also noted the petitioners admitted receiving the full price of P35,000. The factual findings of the Court of Appeals on the loans due to the Consunjis were deemed not reviewable. The complaint was dismissed, and the petitioners were ordered to pay their remaining indebtedness of P15,000 with interest.