Tolentino v. De Guzman
REITERATIONFacts
The Antecedents: Spouses Pedro and Josefina de Guzman owned a parcel of land, which they mortgaged to the Rehabilitation Finance Corporation (RFC). After defaulting, the mortgage was foreclosed. To redeem the property before the redemption period expired, the De Guzman spouses obtained a P18,000 loan from petitioners Raymundo Tolentino and Lorenza Roño, with an agreement for repayment over ten years. To secure this loan, the De Guzmans were persuaded to sign a Deed of Promise to Sell and subsequently a Deed of Absolute Sale, under the pretense that these documents were for security and to ensure their children would cover the loan in case of their demise. Petitioners then used the Deed of Absolute Sale to transfer the title to their names. After Pedro de Guzman's death, the family attempted to settle the remaining loan balance, but petitioners claimed inability to recall the original arrangement and demanded payment of the property's market value in 1971 for reconveyance. The De Guzmans discovered the title was already in petitioners' names, prompting them to file a complaint for declaration of sale as equitable mortgage and reconveyance with damages. Procedural History: The Regional Trial Court of Pasig City, Branch 162, ruled in favor of the De Guzmans on March 21, 1988, declaring the transaction an equitable mortgage, ordering the De Guzmans to pay the remaining loan balance of P3,750.00 with interest, and directing the petitioners to reconvey the property. The trial court found badges of an equitable mortgage, including the intent to secure a debt, the loan amount as consideration, and the De Guzmans' continued possession and payment of real estate taxes, invoking Articles 1602 and 1604 of the Civil Code. Petitioners appealed this decision to the Court of Appeals, which affirmed the trial court's ruling in its entirety on December 13, 1996. Petitioners' subsequent motion for reconsideration was denied. This led to the present petition before the Supreme Court. The Petition: The petitioners seek a reversal of the Court of Appeals' decision and the annulment of its resolution denying their motion for reconsideration. They raise two main arguments: first, that the Court of Appeals erred in applying Article 1602 of the Civil Code, contending it only applies in the absence of express agreements, which they claim existed regarding possession and tax payments; and second, that the De Guzmans pursued the wrong remedy by filing an action for declaration of nullity of the deed of sale and specific performance, instead of an action for reformation of instrument as provided in Article 1605 of the Civil Code. The petition is filed under Rule 45 of the Rules of Court, seeking review of the appellate court's judgment.
Issue(s)
Whether the Court of Appeals erred in applying Article 1602 of the Civil Code to the case. Whether the action for declaration of sale as an equitable mortgage and reconveyance was the proper remedy.
Ruling
The petition is denied. The decision of the Court of Appeals dated December 13, 1996, and its resolution dated March 31, 1997, in CA-G.R. CV No. 21005, are affirmed.
Ratio Decidendi
On the application of Article 1602 of the Civil Code: The Court held that Article 1602 of the Civil Code does not require the absence of an express agreement for its application. The article presumes a contract is an equitable mortgage in certain cases, including when it can be fairly inferred that the real intention of the parties is for the transaction to secure the payment of a debt or the performance of an obligation. The Court cited previous cases, such as Lapat vs. Rosario and Misena vs. Rongavilla, where Article 1602 was applied despite the presence of written contracts, emphasizing that the real intention of the parties is paramount. In this case, the trial court considered the De Guzmans' continued possession, payment of taxes, and the fact that the consideration was the loan amount as badges of an equitable mortgage, consistent with the provisions of Articles 1602 and 1604 of the Civil Code. The petitioners' argument that Article 1602 is inapplicable due to express agreements was rejected as there is nothing in the law to support such a limitation. On the propriety of the remedy: The Court found no merit in the petitioners' contention that the respondents adopted the wrong remedy. It was noted that the petitioners never raised the issue of the propriety of the remedy before the lower courts. The rule is well-established that issues cannot be raised for the first time on appeal, as this violates basic rules of fair play and justice. Furthermore, the Court clarified that Article 1605 of the Civil Code, which allows an apparent vendor to ask for reformation of the instrument, uses the word "may," indicating discretion and not a mandatory effect. Therefore, an aggrieved party is not precluded from pursuing other remedies that are most appropriate and effective under the circumstances to protect their interests and recover their property.
Main Doctrine
A contract purporting to be an absolute sale may be presumed to be an equitable mortgage under Article 1602 of the Civil Code, even in the presence of express agreements, if the real intention of the parties is that the transaction shall secure the payment of a debt or the performance of an obligation. Furthermore, an action for declaration of sale as an equitable mortgage and reconveyance is a proper remedy, and the issue of the propriety of the remedy cannot be raised for the first time on appeal.