G.R. No. L-55932 March 16, 1987
IGNACIO DOMALANTA, TEODORO DOMALANTA and DOMINADOR DOMALANTA, petitioners, vs. HON. COURT OF APPEALS, SHERIFF OF QUEZON CITY and MAGDALENA BAUTISTA, respondents.

FACTS

Magdalena Bautista owned a house and lot in Quezon City. In 1961, she obtained a P3,000.00 loan from Ignacio Domalanta, secured by a real estate mortgage on her property, with the deed prepared by Ignacio’s son, Atty. Teodoro Domalanta. Unable to redeem the property upon maturity, Bautista, in 1962, executed a Deed of Absolute Sale over the property in favor of Atty. Teodoro Domalanta for P6,000.00, and the title was transferred to him. Atty. Domalanta later conveyed the property to his brother, Dominador Domalanta.
Subsequently, Dominador filed an ejectment suit against Bautista for non-payment of rentals. Bautista retaliated by filing a suit against the Domalantas, praying that the Deed of Absolute Sale be declared an equitable mortgage and the titles issued to the Domalantas be annulled. The Court of First Instance ruled in favor of Bautista, declaring the sale an equitable mortgage. The Court of Appeals affirmed this ruling but modified the judgment, ordering Bautista to pay the Domalantas the mortgage debt.

ISSUE

The primary issue is whether the Deed of Absolute Sale executed by Magdalena Bautista in favor of Teodoro Domalanta should be construed as an absolute sale or an equitable mortgage.

RULING

The Supreme Court affirmed the decision of the Court of Appeals, ruling that the transaction was an equitable mortgage, not an absolute sale. The legal logic hinges on the application of Article 1602 of the Civil Code, which enumerates circumstances where a contract purporting to be a sale may be presumed to be an equitable mortgage. The Court found several indicia present in this case that justified reformation of the instrument.
Critically, the Court noted that Bautista remained in possession of the property even after the execution of the deed, and the Domalantas never attempted to transfer the tax declarations to their names. Furthermore, Bautista continued to pay monthly amounts to Teodoro Domalanta, which were convincingly established as interest payments on a loan. The fact that her indebtedness was documented to have increased significantly after the alleged sale, accruing substantial interest, strongly indicated a continuing debtor-creditor relationship. These circumstances collectively demonstrated that the parties’ true intention was to secure a loan, not to transfer ownership. The subsequent conveyance to Dominador Domalanta was thus correctly declared a mere assignment of the mortgage credit. The Court also upheld the appellate court’s denial of the petitioners’ belated motion for reconsideration due to procedural lapses in its filing.