Lizares v. Lopez
REITERATIONFacts
The Antecedents: Petitioner Emiliano G. Lizares, Jr. loaned P545,000.00 to respondent spouses Julio and Cristina Orlanda Lopez, secured by a real estate mortgage over a property. The spouses failed to pay the loan when it fell due. Petitioner initiated extrajudicial foreclosure proceedings. Procedural History: The respondent spouses filed a complaint for injunction, which was temporarily enjoined by the Regional Trial Court (RTC). While the injunction case was pending, the parties executed a Deed of Sale with Right to Repurchase. Under this deed, the spouses ceded ownership of the property to petitioner in consideration of their outstanding debt, which was P2,005,647.78 as of March 4, 1984, but they were allowed to retain possession and given the right to repurchase for P1,600,000.00 within six months from November 1, 1985. The spouses failed to repurchase. Petitioner then filed an action to consolidate title, which the RTC granted. The Court of Appeals reversed the RTC, declaring the contract an equitable mortgage. The appellate court denied reconsideration. The Petition: Petitioner seeks review of the Court of Appeals' decision, arguing that the transaction was a conditional sale with a right to repurchase, not an equitable mortgage, given the circumstances of its execution.
Issue(s)
Whether the Deed of Sale with Right to Repurchase executed by the parties is an equitable mortgage or a sale with right to repurchase. Whether the Court of Appeals erred in reversing the decision of the trial court.
Ruling
The petition is denied for lack of merit. The decision of the Court of Appeals is affirmed in toto, declaring the disputed contract as an equitable mortgage.
Ratio Decidendi
On whether the Deed of Sale with Right to Repurchase is an equitable mortgage: The Court affirmed the ruling of the Court of Appeals that the contract is an equitable mortgage. It cited Article 1602 of the New Civil Code, which provides that a contract of sale with right to repurchase shall be presumed to be an equitable mortgage in several cases. The Court found that at least one of these circumstances was present: the vendor (respondent spouses) remained in possession of the property. This is explicitly enumerated in paragraph (2) of Article 1602. Furthermore, the Court noted that the contract was executed due to the failure of the respondent spouses to pay the original loan, and the purchase price stated in the contract was the amount of the loan itself, albeit reduced. The contract also extended the original period of the mortgage by another six months, which is another circumstance enumerated in paragraph (3) of Article 1602. The Court emphasized that the terms of the contract appeared contrary to the evident intention of the parties, as the respondent spouses continued to retain physical possession as if they were still the absolute owners, without provisions for maintenance, expenses, or rent. The provision allowing the substitution of another property as security if partial payments reached P1,000,000.00 also belied the nature of a consummated sale, as ownership in a sale is transferred to the vendee, negating the need for security for the repurchase price. The Court concluded that the true intention of the parties was for the transaction to secure the payment of a debt, thus it is presumed an equitable mortgage. On whether the Court of Appeals erred in reversing the trial court's decision: The Court found no error in the appellate court's decision. The Court of Appeals correctly applied the provisions of Article 1602 of the New Civil Code and jurisprudence in determining that the transaction was an equitable mortgage. The trial court's finding was reversed based on the presence of circumstances that conclusively point to an equitable mortgage, overriding the literal terms of the deed. The petitioner's argument that the respondent spouses proposed the deed was unpersuasive, as the petitioner, as mortgagee, agreed to the proposal, indicating his primary interest was in recovering his money rather than acquiring ownership of the property. The respondent spouses' desperate need to hold on to their property despite financial difficulties also underscored their intention to secure their debt, not to effect a genuine sale.
Main Doctrine
A contract denominated as a sale with right to repurchase is presumed to be an equitable mortgage if any of the circumstances enumerated in Article 1602 of the New Civil Code are present, particularly when the vendor retains possession of the property, or when the contract is executed by reason of the failure to pay the original loan, or when the price of the sale is the amount of the loan itself, or when the execution of the contract extends the period of redemption.