Serrano v. Court of Appeals
REITERATIONFacts
The Antecedents: Petitioner Paciencia Vizconde Serrano executed a notarial document purporting to convey a 384-square meter realty to respondent Leocadio Macaraya for P12,000.00. On the same date, a private document was executed by Macaraya granting Serrano a two-month period to repurchase the property, during which Serrano could collect rentals. Serrano failed to repurchase. The property was burdened with unpaid taxes, which Macaraya subsequently paid. Macaraya registered his ownership and obtained a new title. Thereafter, Macaraya and his wife executed a deed of absolute sale of the property to respondent Maximo C. Fernandez for P20,000.00, applied as partial payment for Macaraya's indebtedness to Fernandez. This transaction was in the nature of dacion en pago, and Fernandez obtained a new title. An ejectment case was filed by Fernandez against the lessee. Procedural History: Petitioner Serrano filed a complaint for declaration of nullity of contract, cancellation of titles, reconveyance, and damages, alleging the contract with Macaraya was fictitious and simulated, intended as a loan with usurious interest. The trial court ruled in favor of Serrano, ordering the cancellation of Fernandez's title and re-issuance in Serrano's name, and awarding damages. The Court of Appeals reversed the trial court's decision, declaring Fernandez's title valid and dismissing the complaint, holding that the deed of sale was regular and that even if void, the property was transferred to a third party in good faith. The Petition: Petitioner Serrano filed a petition for certiorari with the Supreme Court, assailing the Court of Appeals' findings that the contract was an absolute sale, that it was a pacto de retro sale, that Fernandez was a buyer in good faith, and that her motion for reconsideration and new trial were erroneously denied.
Issue(s)
Whether the contract between petitioner Serrano and respondent Macaraya was an absolute sale or an equitable mortgage. Whether respondent Maximo C. Fernandez was a buyer in good faith. Whether the Court of Appeals erred in denying petitioner's motion for reconsideration and new trial.
Ruling
The petition is GRANTED. The decision of the Court of Appeals is REVERSED and SET ASIDE. The contract between the petitioner and Leocadio Macaraya is declared an equitable mortgage. Transfer Certificate of Title No. T-15789 in the name of Maximo C. Fernandez is ordered CANCELLED and a new one issued in the petitioner's name.
Ratio Decidendi
On the nature of the contract between Serrano and Macaraya: The Supreme Court held that the contract was not an absolute sale but an equitable mortgage. The Court emphasized that it is not bound by the title given to a contract but by the parties' actual intent and performance. The execution of a deed of absolute sale on the same date as a separate document granting the vendor a right to repurchase strongly indicated an intent to circumvent the Civil Code provisions discouraging pacto de retro sales, making the transaction a sale pacto de retro, which must be construed as an equitable mortgage. The Court cited Article 1602 of the Civil Code, noting that the price of P12,000.00 was unusually inadequate for a valuable commercial property, and that petitioner Serrano retained possession of the property by continuing to collect rentals for several months after the supposed sale, which is contrary to the principle of ownership. The Court also noted Serrano's admission of needing money, making her susceptible to unfavorable terms. The Court found the circumstances collectively pointed to the real intention being security for a debt, not an absolute transfer of ownership. On whether Maximo C. Fernandez was a buyer in good faith: The Supreme Court sustained the trial court's finding that Fernandez was not a buyer in good faith. The appellate court's dismissal of this contention was found to be erroneous. The trial court noted that Fernandez showed no interest in the litigation, unlike Macaraya. Fernandez himself admitted in his deposition that he had never seen the lot he supposedly purchased, lived in a different city, and never bothered to ascertain the value or existence of the property for which he paid P20,000.00. The rapid registration of the title in Fernandez's name shortly after the sale, coupled with the unusual transaction of dacion en pago where a well-to-do couple sold a valuable lot to a poor tailor as partial payment for an outstanding debt, raised serious doubts about the legitimacy of the transaction. The Court found more than enough evidence in the records to affirm the trial court's conclusion that Fernandez was not a buyer in good faith. On the denial of the motion for reconsideration and new trial: The Supreme Court found no need to pass upon the fifth assignment of error regarding the denial of the petitioner's motion for reconsideration and new trial. The Court stated that there was already sufficient evidence on record to affirm the trial court's finding that Fernandez was not a buyer in good faith, rendering the additional evidence sought to be introduced unnecessary for the resolution of the case on its merits. The Court reiterated its stance on relaxing procedural rules when substantial justice is manifest, but in this instance, the substantive merits of the case were sufficiently established by the existing evidence.
Main Doctrine
A contract purporting to be an absolute sale, when accompanied by a separate document granting the vendor a right to repurchase executed on the same date, is presumed to be an equitable mortgage, especially when the price is inadequate and the vendor retains possession of the property.