GR L 75575; (January, 1988) (Digest)
G.R. No. L-75575. January 25, 1988.
SPOUSES ROGELIO BUCE and ANITA BUCE, petitioners, vs. HON. COURT OF APPEALS and RAMON DELOS REYES, In his Own Behalf And On Behalf Of RHODORA DELOS REYES BERISH, respondents.
FACTS
The private respondents, Ramon delos Reyes and Rhodora delos Reyes Berish, were the registered owners of three parcels of land mortgaged to Monte de Piedad & Savings Bank. Upon foreclosure due to loan non-payment, they entered into a Deed of Absolute Sale with the petitioner-spouses, the Buces, for P179,000. This amount was used to repurchase the properties from the bank, after which the titles were transferred to the Buces. The private respondents subsequently filed a complaint for reformation of the instrument, alleging that the true agreement was a loan secured by a real estate mortgage, not a sale. They claimed they paid monthly interest and continued to pay real estate taxes on the properties after the execution of the deed.
The trial court dismissed the complaint, upholding the deed as a sale. On appeal, the then Intermediate Appellate Court reversed the trial court, declaring the document to be a real estate mortgage and ordering its reformation. The Buces elevated the case to the Supreme Court via petition for review.
ISSUE
Whether the contract entered into by the parties is an absolute sale or an equitable mortgage.
RULING
The Supreme Court denied the petition and affirmed the decision of the Court of Appeals, ruling that the contract was an equitable mortgage. The legal logic hinges on the application of Article 1602 of the Civil Code, which enumerates circumstances where a contract shall be presumed to be an equitable mortgage. The Court found several indicia present that justified this presumption. First, the consideration of P179,000 was grossly inadequate compared to the proven aggregate market value of the properties, which was substantially higher. Second, it was highly indicative that the sale price almost exactly matched the loan amount needed to redeem the properties from the bank. Third, the vendor continued to pay real estate taxes on the properties after the execution of the deed. Fourth, the vendors paid substantial amounts which were treated as interest on the principal sum.
The Court emphasized that these circumstances, taken together, clearly and convincingly demonstrated that the real intention of the parties was not to transfer ownership absolutely but to secure the payment of a loan. Since the contract was one of equitable mortgage, the apparent vendor, under Article 1605 of the Civil Code, had the right to seek reformation of the instrument to reflect the true agreement of the parties. Therefore, the appellate court correctly ordered the reformation of the deed into one of real estate mortgage.