Hilado v. Heirs of Medalla
REITERATIONFacts
The Antecedents: Rafael Medalla, one of the heirs of Gorgonio Macainan, sold his shares in Lot No. 1031 and a lot on Lopez Jaena Street to Georgina Hilado through two "Deeds of Absolute Sale" dated April 24, 1979, and December 29, 1981, for ₱50,000.00 and ₱25,000.00, respectively. Subsequently, three more contracts were executed: a "Memorandum of Agreement" on November 2, 1983, for the Lopez Jaena property for ₱200,000.00; a "Deed of Resale" on April 30, 1984, for two hectares of Lot No. 1031 for ₱20,000.00; and an "Agreement" on May 10, 1984, rectifying an error regarding Lot No. 1030 being included in previous transactions. Procedural History: Anita Macainan, sister of Rafael Medalla’s mother, filed a suit for legal redemption. Rafael Medalla filed a cross-claim against Georgina Hilado, alleging the April 24, 1979 deed of sale was an equitable mortgage to secure a ₱50,000.00 loan, and that he had obtained another loan of ₱25,000.00 secured by the Lopez Jaena property. He claimed the loans were fully paid. The Regional Trial Court (RTC) dismissed the complaint, cross-claim, and counter-claims, ruling the April 24, 1979 transaction was a valid deed of sale. The Court of Appeals (CA) reversed the RTC, declaring the April 24, 1979 deed of sale as an equitable mortgage, finding the obligation fully paid, ordering Hilado to execute a deed of reconveyance for the remaining three hectares of Lot No. 1031, and setting aside the award of attorney's fees. The Petition: Georgina Hilado filed a petition for review, arguing that the CA decision was based on a misapprehension of facts, that none of the badges of equitable mortgage under Article 1602 of the Civil Code were present, and that the deed of absolute sale was the law between the parties.
Issue(s)
Whether the Deed of Absolute Sale dated April 24, 1979, between petitioner Georgina Hilado and Rafael Medalla is an equitable mortgage. Whether the mortgage obligation of Rafael Medalla to Georgina Hilado has been fully paid. Whether petitioner Georgina Hilado is obligated to execute a deed of reconveyance in favor of the heirs of Rafael Medalla over the portion of Lot No. 1031 still retained by her. Whether the award of attorney's fees to petitioner Georgina Hilado should be upheld.
Ruling
The Supreme Court affirmed the decision of the Court of Appeals. It declared the Deed of Sale dated April 24, 1979, as an equitable mortgage, found the mortgage obligation to be fully paid, ordered the petitioner to execute a deed of reconveyance in favor of the respondents over the portion of Lot No. 1031 still retained by her, and set aside the award of attorney's fees to the petitioner.
Ratio Decidendi
On the issue of whether the Deed of Absolute Sale is an equitable mortgage: The Court affirmed the Court of Appeals' finding that the Deed of Absolute Sale dated April 24, 1979, is an equitable mortgage. The Court noted that the price of ₱50,000.00 was unusually inadequate considering the assessed value of the entire Lot No. 1031 was ₱145,460.00 in 1982, and evidence of a sale of an adjacent lot for ₱125,000.00 for only one hectare indicated a much higher market value than what petitioner paid per hectare. Furthermore, Rafael Medalla remained in possession of his five-hectare share even after the supposed sale, as corroborated by his tenant and Anita Macainan. The series of transactions, including the "Deed of Resale" and the "Memorandum of Agreement" with a significantly higher price for a smaller area, indicated that the real intention of the parties was to secure the payment of loans, not an absolute sale. The Court reiterated that even if a document appears to be a sale, the owner may prove it is a loan with mortgage if it does not express the true intent and agreement of the parties, citing Matanguihan v. Court of Appeals and Olea v. Court of Appeals. On the issue of whether the mortgage obligation has been fully paid: The Court found that the mortgage obligation was extinguished by payment. The Court of Appeals noted that Rafael Medalla presented a receipt for ₱90,000.00, which was the balance after deducting the alleged loans of ₱50,000.00 and ₱25,000.00, plus accumulated interests and ₱16,000.00 for back taxes paid by petitioner. While petitioner denied this, she failed to produce receipts for her alleged other payments to Medalla. The Court also found it unlikely for petitioner to resell two hectares of the property to Medalla for the same price per hectare five years later unless there was an understanding that the property would be resold after a resolutory condition was met, which points to a loan secured by the property. The Court found petitioner's explanations for the subsequent transactions, particularly the "Memorandum of Agreement" for the Lopez Jaena property, to be unconvincing, especially the drastic increase in price for a smaller area and the lack of receipts for the full payment. The Court also considered Medalla's uncontroverted testimony that part of the purchase price for the Lopez Jaena property was applied by petitioner as reimbursement for taxes she had paid. On the issue of reconveyance: Based on the finding that the transaction was an equitable mortgage and that the obligation was fully paid, the Court upheld the CA's order for petitioner to execute a deed of reconveyance in favor of the heirs of Rafael Medalla over the three hectares of Lot No. 1031 that she retained. This is a necessary consequence of the mortgage being extinguished and the property being considered as security for a debt that has been settled. On the award of attorney's fees: The Court affirmed the CA's decision to set aside the award of attorney's fees to petitioner. Since the CA found that the transaction was an equitable mortgage and that the obligation was paid, and considering the overall circumstances of the case, the award of attorney's fees to the petitioner was deemed unwarranted.
Main Doctrine
A contract purporting to be an absolute sale may be presumed to be an equitable mortgage if any of the circumstances under Article 1602 of the Civil Code are present, particularly when the price is unusually inadequate, or when the vendor remains in possession, or when it can be inferred that the real intention of the parties is to secure the payment of a debt.