Go v. Bacaron
REITERATIONFacts
The Antecedents: Eliodoro Bacaron conveyed a 15.3955-hectare parcel of land in Davao City to Benny Go for P20,000.00 via a document titled "Transfer of Rights" dated October 1, 1993. Bacaron later claimed this transaction was an equitable mortgage to secure a P20,000.00 loan, asserting that Go refused to accept his payment and return the property. Go, however, maintained that the transaction was an absolute sale, arising from Bacaron's indebtedness to him amounting to P985,423.70, which Bacaron allegedly settled through dacion en pago by transferring the land. Procedural History: Bacaron filed a Complaint for Reformation of Instrument with Damages against Go before the Regional Trial Court (RTC) of Davao City, Branch 12, docketed as Civil Case No. 25,101-97. The RTC dismissed Bacaron's complaint, finding that the instrument was a freely and voluntarily entered absolute sale reflecting the parties' true intention, and granted Go's counterclaim for damages. On appeal, the Court of Appeals (CA) reversed the RTC's decision, ruling that the instrument should be considered an equitable mortgage due to inadequate consideration, Bacaron's continued possession, and his payment of real estate taxes. The CA ordered the reformation of the instrument to reflect a mortgage contract. The Petition: Benny Go filed a Petition for Review under Rule 45 of the Rules of Court, seeking to set aside the CA's Decision and Resolution. Go argues that the CA erred in ruling that there was inadequate consideration, that Bacaron remained in possession of the land, that the taxes were not paid by him, and that reformation of the instrument was proper. The core issues presented to the Supreme Court are whether the agreement was an equitable mortgage or an absolute sale, and whether the grant of reformation was appropriate.
Issue(s)
Whether the Court of Appeals erred in ruling that there was inadequate consideration, thus indicating an equitable mortgage. Whether the Court of Appeals erred in ruling that the respondent remained in possession of the land in question, thus indicating an equitable mortgage. Whether or not the Court of Appeals erred in ruling that the taxes were not paid by the petitioner, thus indicating an equitable mortgage. Whether the agreement entered into by the parties was one for equitable mortgage or for absolute sale, considering the totality of the circumstances. Whether the grant of the relief of contract reformation was proper, given the finding of an equitable mortgage. Whether the Court of Appeals erred in its overall ruling regarding the nature of the contract and the propriety of reformation.
Ruling
The Petition is denied. The Decision and Resolution of the Court of Appeals are affirmed.
Ratio Decidendi
On the issue of inadequate consideration: The Court affirmed the Court of Appeals' ruling, citing Article 1602 of the Civil Code, which presumes a contract of sale to be an equitable mortgage in cases of unusually inadequate price. The stated consideration of ₱20,000.00 was found to be inadequate for a 15-hectare land, especially when contrasted with the petitioner's claim of dacion en pago for debts amounting to ₱985,243.70. The instrument did not reflect the dacion en pago claim, further highlighting the inadequacy of the stated price. On the issue of possession: The Court affirmed the Court of Appeals' ruling, citing Article 1602 of the Civil Code, which presumes a contract of sale to be an equitable mortgage when the vendor remains in possession. The Court gave weight to the testimonies of respondent's witnesses who saw him gather fruits and coconuts from the property, establishing his continued possession. The testimonies of petitioner's witnesses, who were merely tenants informed of a new owner, were deemed insufficient to prove petitioner's exercise of possession. On the issue of payment of realty taxes: The Court affirmed the Court of Appeals' ruling, citing Article 1602 of the Civil Code, which presumes a contract of sale to be an equitable mortgage when the vendor continues to pay taxes. The Court found that respondent continued to pay realty taxes for the years 1995, 1996, and 1997, even after the alleged sale. Petitioner's payment of all arrears, including those from 1980 to 1997, was made simultaneously on October 31, 1997, after the respondent had already filed his complaint on March 5, 1997. This continued payment of taxes by the respondent constituted strong evidence of his claim over the land. On the issue of whether the agreement was an equitable mortgage or an absolute sale: The Court affirmed the Court of Appeals' ruling that the contract was an equitable mortgage. It cited Article 1602 of the Civil Code, which presumes a contract of sale to be an equitable mortgage in cases of unusually inadequate price, vendor remaining in possession, or vendor continuing to pay taxes. The Court found that three of these instances were present. The Court also considered the respondent's urgent need for money when entering the transaction, which is characteristic of an equitable mortgage. On the issue of whether reformation of instrument was proper: The Court ruled that reformation was proper. It reiterated that the intention of the parties is paramount in determining the nature of a contract. When one party claims the instrument does not reflect their true agreement, parol evidence is admissible to prove the true nature of the instrument. The Court found that the respondent had sufficiently established the contract as an equitable mortgage, not an absolute sale. Article 1605 of the Civil Code allows the supposed vendor to seek reformation of the instrument in cases covered by Articles 1602 and 1604. Therefore, since the respondent successfully proved the existence of an equitable mortgage, he was entitled to the remedy of reformation. On the overall ruling: The Court affirmed the Court of Appeals' decision, finding no reversible error in its determination that the contract was an equitable mortgage and that reformation was proper. The Court based its decision on the totality of the evidence presented, including the inadequate consideration, the respondent's continued possession, and the respondent's continued payment of taxes.
Main Doctrine
A contract purporting to be an absolute sale may be deemed an equitable mortgage if any of the circumstances enumerated in Article 1602 of the Civil Code are present, such as unusually inadequate consideration, the vendor remaining in possession, or the vendor continuing to pay realty taxes. In such cases, reformation of the instrument is a proper remedy.