Romulo v. Layug
REITERATIONFacts
The Antecedents: Petitioners Spouses Cesar and Nenita Romulo obtained loans from respondents Spouses Moises and Felisarin Layug, which allegedly ballooned due to high interest. Petitioners claimed respondents duped them into signing a Deed of Absolute Sale and a Contract of Lease for their house and lot to secure the loan, leading to the cancellation of their title and issuance of a new one in respondents' names. Respondents denied this, asserting the Deed of Absolute Sale was a valid transaction to extinguish the debt, with an additional P200,000.00 consideration and the writing off of the loan. Prior to this, respondent Moises Layug, Jr. filed an ejectment case against petitioners, which was dismissed by the MeTC, RTC, and ultimately denied by the Supreme Court. Procedural History: The Regional Trial Court (RTC) declared the Deed of Absolute Sale and Contract of Lease null and void, finding the transaction to be an equitable mortgage, and ordered the cancellation of the title and payment of damages. The Court of Appeals reversed this, finding no sufficient evidence of fraud and upholding the Deed of Absolute Sale as an absolute sale. The RTC's finding of an equitable mortgage was based on petitioners remaining in possession and the dismissal of the ejectment case. The Court of Appeals disagreed, relying on the express stipulations and respondents' acts of ownership. The Petition: Petitioners filed a petition for certiorari, assailing the Court of Appeals' decision and raising the sole issue of whether the transaction constituted an equitable mortgage.
Issue(s)
Whether the transaction between the parties constitutes an equitable mortgage. Whether the Court of Appeals erred in reversing the trial court's decision and dismissing the complaint, considering the evidence of equitable mortgage and the intent of the parties.
Ruling
The petition is GRANTED. The Decision and Resolution of the Court of Appeals are REVERSED and SET ASIDE, and the Decision of the Regional Trial Court is REINSTATED with a MODIFICATION reducing the award of moral and exemplary damages.
Ratio Decidendi
On whether the transaction constitutes an equitable mortgage: The Supreme Court held that the transaction is an equitable mortgage. The Court emphasized that the form of the instrument cannot prevail over the true intent of the parties, which is determined by their conduct, words, actions, and deeds prior to, during, and immediately after the execution of the agreement. The Court noted that respondents admitted that the Deed of Absolute Sale did not reflect the true arrangement, as they agreed to write off petitioners' loan as part of the consideration, a clause not expressed in the instrument. Furthermore, the Court found that petitioners remained in possession of the property even after the execution of the Deed of Absolute Sale, and respondents took over five years to file an ejectment case, which is inconsistent with a genuine sale. The Court also considered the unusually inadequate purchase price, with the property valued at P700,000.00 but sold for P200,000.00, indicating the property was intended as collateral. The Court applied Articles 1602 and 1604 of the Civil Code, which presume a contract of sale to be an equitable mortgage if certain conditions are met, including the vendor remaining in possession or the price being unusually inadequate, or when the real intention is to secure a debt. The Court found that petitioners' possession as lessees or otherwise, and the inadequacy of the price, were sufficient to give rise to the presumption of an equitable mortgage. The Court also noted that respondents continued to grant loan accommodations to petitioners even after the execution of the Deed of Absolute Sale, which contradicted the idea that the obligation was extinguished by the sale. The Court concluded that the circumstances surrounding the execution of the Deed of Absolute Sale, particularly the continued lending and the petitioners' financial distress, precluded the Court from declaring that the parties intended a transfer of property by way of sale. On whether the Court of Appeals erred in reversing the trial court's decision and dismissing the complaint, considering the evidence of equitable mortgage and the intent of the parties: The Supreme Court held that the Court of Appeals erred. The evidence overwhelmingly pointed to the transaction being an equitable mortgage, and the intent of the parties, as demonstrated by their actions and admissions, supported this conclusion. The continued possession by the petitioners, the inadequate price, and the continued lending by the respondents all indicated that the Deed of Absolute Sale was intended as security for a debt, not as an actual transfer of ownership. Therefore, the Court of Appeals should have upheld the trial court's decision recognizing the equitable mortgage.
Main Doctrine
A contract purporting to be an absolute sale is presumed to be an equitable mortgage if any of the conditions under Article 1602 of the Civil Code is present, particularly when the vendor remains in possession as lessee or otherwise, or when the price is unusually inadequate, or when it can be fairly inferred that the real intention of the parties is for the transaction to secure the payment of a debt.