Agas v. Sabico
REITERATIONFacts
The Antecedents: Respondent Caridad Sabico and the spouses Ulpiano and Concordia Paulo applied to acquire a parcel of land from the People's Homesite and Housing Corporation (PHHC). Sabico, a widowed laundrywoman, had her house on the property and considered one of the petitioners, Rustica Agas, and her mother as family. Sabico lacked funds for the downpayment and borrowed P250.00 from petitioner Juan Agas, a lawyer. In exchange, she signed an unnotarized agreement obligating her to sell half of the property to Agas for P2,500.00, payable in installments, with a stipulation that Agas would become the owner upon issuance of title and would execute an absolute sale within thirty days. Sabico, with limited education, did not fully understand the agreement. Subsequently, a Conditional Contract to Sell was executed by PHHC in favor of Sabico and the Paulos. Sabico continued to borrow money from Agas, accumulating a debt of P5,000.00. A notarized Contract to Sell was later executed between Sabico and the Agases, reiterating the earlier agreement and adding a clause for Sabico to mortgage her share of the property as security. Procedural History: After full payment of the purchase price, a Deed of Sale was executed by PHHC, and a Transfer Certificate of Title (TCT) No. 215624 was issued in the names of Sabico and the Paulos. Despite a one-year prohibition on selling the property, Sabico delivered her owner's duplicate title to Juan Agas. Sabico continued to pay realty taxes. On October 3, 1978, Sabico executed an Absolute Deed of Sale of Real Property in favor of Juan Agas for her one-half undivided share, but this deed was not filed. Agas later notified Sabico of his intent to construct apartments and demanded a nominal monthly rental. Sabico refused to move her house or pay rent. Agas filed an Affidavit of Adverse Claim. Construction of apartment buildings proceeded. On October 9, 1986, the 1978 Deed of Absolute Sale was filed, TCT No. 215624 was cancelled, and TCT No. 350542 was issued in the names of the Paulos and the Agases. On December 4, 1986, Sabico filed an action for Declaration of Nullity of Deeds and Title with Damages, alleging deceit and undue influence. The Regional Trial Court (RTC) declared the Agreement, Contract to Sell, and Deed of Absolute Sale void, ordered the cancellation of TCT No. 350542, and directed the issuance of a new title in favor of Sabico and the Paulos, while ordering Sabico to pay the Agases P5,000.00 with interest. The Court of Appeals (CA) affirmed the RTC decision, ruling that the transaction was an equitable mortgage. The Agases appealed to the Supreme Court. The Petition: This is a petition for review on certiorari under Rule 45 of the Rules of Civil Procedure, as amended, seeking to set aside the Decision and resolution of the Court of Appeals. The petitioners raise two main issues: (1) whether the restriction prohibiting the respondent from selling the property had expired, and (2) if the restriction had expired, whether the sale of the subject property to the petitioners was valid, given that the transaction was allegedly an equitable mortgage and not a sale. The petitioners argue that the CA erred in declaring the deed of absolute sale null and void, asserting that the one-year prohibition period should be reckoned from the issuance of TCT No. 350542, not TCT No. 215624. They also contend that the respondent's illiteracy does not automatically void the deed and that she is estopped from assailing the sale due to her silence during construction. Furthermore, they maintain that the transaction was a sale, not an equitable mortgage, and that the amounts received by the respondent were partial payments, not loans. The Supreme Court, however, found that the petition lacked merit, affirming the CA's conclusion that the transaction was an equitable mortgage based on the respondent's continued possession, payment of taxes, and the nature of the loans obtained, as well as the circumstances surrounding the execution of the documents, which indicated the parties' true intention was to secure a debt rather than effect a sale.
Issue(s)
Whether the restriction prohibiting the vendor (respondent) from selling, encumbering, mortgaging, or leasing the questioned property had expired, and whether the sale of the subject property to the petitioners was valid, considering the transaction was allegedly an equitable mortgage and not a sale. Whether the transaction between the petitioners and the respondent over the undivided one-half portion of the subject property was an equitable mortgage or a sale thereof, considering the application of Articles 1602 and 1604 of the New Civil Code. Whether additional supporting circumstances, including discrepancy in consideration, further support the finding of an equitable mortgage.
Ruling
The petition is DENIED for lack of merit. The Supreme Court affirmed the Court of Appeals' decision, upholding that the transaction between the parties was an equitable mortgage, not a sale. The Deed of Absolute Sale dated October 3, 1978, was declared void ab initio and of no legal force and effect.
Ratio Decidendi
On the nature of the transaction (Equitable Mortgage vs. Sale) and the expiration of restrictions: The Supreme Court reiterated that the clarity of contract terms does not preclude ascertaining the parties' true intention. The decisive factor is the intention of the parties, demonstrated by their conduct, words, actions, and deeds. In cases of doubt, courts construe a sale as an equitable mortgage. The Court emphasized that judicial determination of intention is inevitable when parties offer conflicting interpretations. The Court found no merit in the petitioners' arguments regarding the expiration of the restriction on selling, as the core issue was the true nature of the transaction, which was established as an equitable mortgage. Application of Articles 1602 and 1604 of the New Civil Code: The Court of Appeals correctly applied Articles 1602 and 1604 of the New Civil Code in declaring the transaction as an equitable mortgage. The Court found at least three indicia supporting this conclusion: (1) Vendor Caridad Sabico remained in possession of the property. (2) Sabico continued to pay the taxes on the property. (3) Sabico obtained a series of loans from the petitioners, and the "purchase price" was actually a series of loans. These circumstances manifested that the real intention was to secure the payment of a debt. Additional Supporting Circumstances and Discrepancy in Consideration: The Supreme Court further fortified the ruling with additional facts: Sabico was the petitioners' laundrywoman and had a close relationship with them. She was in dire need of money and borrowed from the petitioners. The deeds were drafted by the petitioners, and their nature and effects were not explained to Sabico, who had limited education. Notary Public Evelyn Respicio did not fully explain the deed to Sabico, violating Article 1332 of the New Civil Code. Sabico remained in possession, and the petitioners did not immediately take possession. Sabico's continued payment of realty taxes further supported the equitable mortgage theory. The petitioners' delay in filing the deed also indicated the true nature of the transaction. The petitioners' claim that the ₱5,000.00 was partial payment was contradicted by the Agreement which stated a consideration of ₱2,500.00. The Court concluded that the petitioners did not remit the ₱20,000.00 because Sabico never intended to sell her property.
Main Doctrine
A contract purporting to be an absolute sale may be presumed to be an equitable mortgage if certain circumstances are present, such as the vendor remaining in possession, continuing to pay taxes, or if the transaction was intended to secure the payment of a debt. The intention of the parties, as shown by their conduct and surrounding circumstances, is paramount in determining the true nature of the transaction, not merely the terminology used.