GR L 46307; (October, 1985) (Digest)
G.R. No. L-46307 October 9, 1985
PACIENCIA VIZCONDE SERRANO, petitioner, vs. HONORABLE COURT OF APPEALS, LEOCADIO MACARAYA and MAXIMO C. FERNANDEZ, respondents.
FACTS
Petitioner Paciencia Vizconde Serrano owned a 384-square-meter lot in Mati, Davao, leased to a corporation. On January 17, 1969, she executed a notarized deed of absolute sale over the property to respondent Leocadio Macaraya for P12,000. A separate private document gave her a two-month right to repurchase, during which she could collect rentals. She did not repurchase. Macaraya paid the property’s tax arrearages and secured a title in his name. On October 21, 1969, Macaraya and his wife sold the property to respondent Maximo C. Fernandez for P20,000 via a dacion en pago to settle a debt. Fernandez obtained a new title.
Serrano filed a complaint seeking nullity of the contract with Macaraya, alleging it was a simulated sale that concealed a usurious loan of P10,000, with P2,000 added as purported interest. She claimed fraud. The trial court ruled in her favor, ordering cancellation of Fernandez’s title and reconveyance. The Court of Appeals reversed, upholding the deed as a valid sale and declaring Fernandez an absolute owner in good faith.
ISSUE
Whether the contract between Serrano and Macaraya is an absolute sale or an equitable mortgage, and whether Fernandez is a purchaser in good faith.
RULING
The Supreme Court reversed the Court of Appeals and reinstated the trial court’s decision. The contract was deemed an equitable mortgage, not an absolute sale. The legal logic centered on the application of Article 1602 of the Civil Code, which presumes an equitable mortgage when, in a contract purporting to be a sale, the vendor remains in possession as lessee or otherwise. Here, the contemporaneous private document granting Serrano a repurchase right and allowing her to collect rentals during that period was a key indicator that the transaction was a loan secured by the property. The gross inadequacy of the price (P12,000 for property generating P500 monthly rent) further supported this presumption.
Regarding Fernandez, the Court found he was not a purchaser in good faith. Good faith requires a buyer to exercise ordinary prudence. Fernandez, a tailor from Cebu, never visited the property, never verified its existence or value, and showed no interest in the litigation. The sale was a dacion en pago for a pre-existing debt with no actual money changing hands. The rapid sequence of title transfers from Serrano to Macaraya and then to Fernandez within a short period was highly unusual. These circumstances collectively demonstrated that Fernandez either knew or should have known the flaw in Macaraya’s title. Consequently, his title could not be protected. The Court ordered the cancellation of Fernandez’s title and the issuance of a new one in Serrano’s name.