Madrigal v. Mallari
REITERATIONFacts
The Antecedents: Jose Mallari and his wife owned a residential lot with a 2-storey house. Jose intended to mortgage the property to finance his wife's US trip. His son, Virgilio Mallari, convinced him not to mortgage it with a bank but instead to assign a portion to Virgilio, promising Jose could continue occupancy, allow his sister to operate a store, reserve a room for his mother, occupy a room when on vacation, not dispose of the property without Jose's consent, and allow Jose to redeem it anytime. Relying on Virgilio's assurances, Jose and his wife executed a Deed of Absolute Sale on October 22, 1987, conveying the property for P50,000.00, despite the property being worth more and the deed describing a smaller property. Subsequently, without Jose's knowledge, Virgilio sold the same property to Edenbert Madrigal, a neighbor, for the same amount via a "Kasulatan ng Bilihang Tuluyan" dated June 25, 1988. Jose Mallari was later shocked when Madrigal demanded he vacate the property. Procedural History: Jose Mallari filed a complaint against Virgilio Mallari and Edenbert Madrigal for annulment, redemption, and damages. The Regional Trial Court (RTC) ruled in favor of Jose Mallari, declaring the Deed of Absolute Sale as an equitable mortgage and ordering Madrigal to allow Jose to redeem the property for the sale price. The RTC also ordered Virgilio and Madrigal jointly and severally to pay Jose moral damages, exemplary damages, attorney's fees, and costs. Both defendants appealed to the Court of Appeals (CA). The CA affirmed the RTC decision in toto. Petitioners (Virgilio Mallari and Edenbert Madrigal) moved for reconsideration, which was denied. The Petition: Petitioners filed a petition for review on certiorari, assailing the CA's rulings that the Deed of Absolute Sale was an equitable mortgage, that Madrigal was not a buyer in good faith, and that the award of damages and attorney's fees was proper.
Issue(s)
Whether the Court of Appeals erred in ruling that the questioned Deed of Sale is a mortgage. Whether the Court of Appeals erred in not ruling that petitioner Edenbert Madrigal was a buyer in good faith. Whether the Court of Appeals erred in affirming the trial court’s decision awarding moral, exemplary damages and attorney’s fees in favor of private respondent.
Ruling
The petition is DENIED. The assailed decision and resolution of the Court of Appeals are AFFIRMED.
Ratio Decidendi
On the issue of whether the Deed of Sale is a mortgage: The Court ruled that both the RTC and CA correctly construed the Deed of Absolute Sale as an equitable mortgage, not an outright sale. Evidence showed no intent to sell; instead, the transaction was a mortgage to secure funds for Jose Mallari's wife's US trip. Virgilio Mallari's assurances, the grossly inadequate consideration (P50,000.00 for a property worth much more), the inaccurate description of the property in the deed, Jose Mallari's continued occupancy, and Virgilio's need to seek Jose's consent for any sale to a third party all pointed to an equitable mortgage. The Court reiterated that even if a document appears to be a sale, parol evidence is admissible to prove that it was intended as security for a loan, citing Lustan vs. CA. On the issue of Edenbert Madrigal being a buyer in good faith: The Court affirmed the findings of the lower courts that Edenbert Madrigal was not a buyer in good faith. A reversal of this finding would require a re-evaluation of facts, which is beyond the Supreme Court's purview in a Rule 45 petition. The Court found no reason to disagree with the lower courts' rejection of Madrigal's claim, implying that the circumstances surrounding his purchase did not meet the standard of good faith. On the issue of damages and attorney's fees: The Court held that the petitioners' lament against the award of moral and exemplary damages and attorney's fees was unfounded. This contention was based on their argument that Jose Mallari had no cause of action, which the Court had already rejected by affirming the existence of an equitable mortgage and the liability of the defendants. Therefore, the award of damages and attorney's fees was a logical consequence of the established facts and the ruling on the nature of the transaction.
Main Doctrine
A document denominated as a Deed of Absolute Sale may be treated as an equitable mortgage if the evidence clearly shows that the parties did not intend to sell the property, but rather to secure a loan, especially when the consideration is grossly inadequate and the vendor retains possession and the right to redeem.