Villarica v. Court of Appeals
REITERATIONFacts
The Antecedents: Spouses Angel and Nieves Villarica sold a lot to spouses Gaudencio and Juliana Consunji for P35,000. The instrument of absolute sale was executed on May 19, 1951. On the same day, the Consunjis granted the Villaricas an option to buy back the property within one year for P37,750 via a separate instrument. The Consunjis registered the sale, leading to a new title in their names. Subsequently, the Consunjis sold the lot to Jovito S. Francisco for P47,000, who also obtained a new title. Procedural History: The Villaricas filed an action in the Court of First Instance (CFI) of Davao seeking reformation of the absolute sale into an equitable mortgage, alleging it was security for a usurious loan. The CFI ruled in favor of the Villaricas, reforming the deed into an equitable mortgage, and also ruled in favor of the Consunjis on their counterclaim and Francisco as a buyer in good faith. Both parties appealed to the Court of Appeals (CA). The Appeal: The Court of Appeals reversed the CFI's decision, finding that the instrument of absolute sale expressed the true intention of the parties and that the Consunjis' counterclaim was substantiated. The CA ordered the Villaricas to pay their remaining indebtedness of P15,000 with interest. The CA affirmed the dismissal of the complaint against Francisco but deleted the award of attorney's fees. The Villaricas appealed to the Supreme Court via a petition for certiorari or review, arguing that the CA erred in not presuming the instrument as an equitable mortgage based on alleged inadequacy of price, continued possession by vendors, extension of repurchase period, and payment of taxes by vendors.
Issue(s)
Whether the deed of absolute sale (Exh. 'B') and the subsequent 'option to buy' (Exh. 'D') constitute a sale with pacto de retro that triggers the legal presumption of an equitable mortgage under Article 1602 of the Civil Code.
Ruling
The Supreme Court affirmed the decision of the Court of Appeals. The petition for review was denied, and the judgment of the Court of Appeals was affirmed in toto, with costs against the petitioners. The Court held that the instrument of absolute sale expressed the true intention of the parties and was not an equitable mortgage. The claims of inadequacy of price, continued possession, and the nature of the option to buy were found insufficient to warrant reformation.
Ratio Decidendi
On Issue 1: The Supreme Court held that the transaction did not qualify as a sale with pacto de retro because the right to repurchase was not reserved in the same instrument of sale. Applying Article 1601 of the Civil Code, the Court clarified that conventional redemption takes place only when the vendor reserves the right to repurchase as a stipulation in the original contract. Since Exhibit 'B' was an absolute sale and Exhibit 'D' (the option to buy) was a subsequent instrument, it was a mere option and not a right of repurchase; thus, the presumption of an equitable mortgage under Article 1602 did not apply. Regarding the alleged 'inadequacy of price,' the Court found the P35,000 price was the fair market value in 1951, noting the Villaricas had purchased the lot for only P20,000 the previous year. On the issue of possession, the Court ruled that the Villaricas did not remain in possession as lessees; they were merely permitted to collect rents for five months to assist with their children's expenses, which the vendees charged against them. Lastly, the Court found that the taxes paid by the Villaricas were merely back taxes due before the sale, which they were obligated to pay to deliver the property 'free of all liens and encumbrances,' while the vendees paid all taxes accruing after the sale.
Main Doctrine
The Supreme Court reiterated that for an instrument of sale to be presumed an equitable mortgage, specific circumstances enumerated in Articles 1602 and 1603 of the Civil Code must be present and proven by clear and convincing evidence. The Court found that the petitioners failed to establish these circumstances, particularly regarding the alleged inadequacy of the price, the vendors' continued possession, and the nature of the option to buy granted in a separate instrument, thus affirming the Court of Appeals' finding that the transaction was a genuine absolute sale.