Lumayag v. Nemeño
REITERATIONFacts
The Antecedents: Spouses Jacinto Nemeño and Dalmacia Dayangco-Nemeño owned two parcels of land. In 1985, Jacinto, joined by five of his children, executed a Deed of Sale with Pacto de Retro in favor of their daughter Felipa and her husband, Domingo Lumayag, for ₱20,000.00, with a five-year period to repurchase. Jacinto died shortly after. More than a decade later, the Lumayags filed a petition for reconstitution of a lost owner's duplicate copy of a title, which was opposed by the other heirs. Subsequently, the heirs of Jacinto and Dalmacia filed a complaint against the Lumayags, seeking to declare the Deed of Sale with Pacto de Retro as an equitable mortgage, for an accounting, redemption, and damages. They alleged the sale was merely to secure a ₱20,000.00 loan for Jacinto's hospitalization, pointing to the inadequate price, their continued possession and payment of realty taxes, the titles remaining in the original owners' names, and a pactum commissorium stipulation. Procedural History: The Regional Trial Court (RTC) ruled that the Deed of Sale with Pacto de Retro was an equitable mortgage and ordered the defendants (Lumayags) to reconvey the properties for ₱20,000.00. Both parties appealed. The Court of Appeals (CA) affirmed the RTC's decision but modified it by allowing the Lumayags to foreclose the properties if the heirs failed to redeem them within thirty (30) days from the finality of the decision. The CA found the price inadequate, noted the heirs' continued possession and payment of realty taxes, and declared the pactum commissorium stipulation void. The Petition: The Lumayags filed a petition for review on certiorari, arguing that the CA erred in not dismissing the complaint on grounds of laches and prescription, in holding the deed to be an equitable mortgage, and that the CA's decision was not supported by evidence and was contrary to law.
Issue(s)
Whether the Court of Appeals gravely erred in not reversing the trial court's decision and dismissing the respondents' complaint on grounds of laches and/or prescription. Whether the Court of Appeals gravely erred in holding that the Deed of Sale with Pacto de Retro is actually an equitable mortgage. Whether the decision rendered by the Court of Appeals is supported by the evidence and contrary to law.
Ruling
The petition is denied. The decision and resolution of the Court of Appeals are affirmed.
Ratio Decidendi
On the issue of laches and prescription: The Court held that the argument that the titles consolidated in the petitioners by operation of law due to the expiration of the redemption period is only valid if the contract was indeed a pacto de retro sale. However, both the RTC and CA found that the contract was an equitable mortgage. Factual findings of lower courts, when supported by evidence, are binding on the Supreme Court. Therefore, the issue of prescription based on the expired redemption period is moot if the contract is an equitable mortgage. On the issue of whether the Deed of Sale with Pacto de Retro is an equitable mortgage: The Court affirmed the findings of the lower courts that the contract is an equitable mortgage. Article 1602 of the Civil Code enumerates circumstances that give rise to a presumption of equitable mortgage, and the presence of even one is sufficient. In this case, the CA correctly found the presence of four circumstances: (a) gross inadequacy of the price (₱20,000.00 for almost 5.5 hectares); (b) the respondent heirs remained in possession of the property; (c) the respondent heirs continued to pay realty taxes; and (d) the stipulation on pactum commissorium. While the inadequacy of price was questioned due to the timing of valuation, the other circumstances, particularly the continued possession and payment of taxes, along with the void pactum commissorium stipulation, were convincing enough to establish the transaction as an equitable mortgage. The pactum commissorium stipulation, which allows the vendee to acquire ownership without foreclosure, is void under Article 2088 of the Civil Code and indicates an intention to mortgage rather than sell. On whether the decision is supported by evidence and contrary to law: The Court found that the CA's decision was supported by substantial evidence on record. The continued possession of the property by the respondent heirs, coupled with their payment of realty taxes, strongly indicated their claim of ownership and that the transaction was intended to secure a debt. The presence of the void pactum commissorium stipulation further supported the conclusion that the parties intended an equitable mortgage. The CA's application of Articles 1602 and 1604 of the Civil Code, which govern equitable mortgages, was also found to be in accordance with law.
Main Doctrine
A contract purporting to be a sale with pacto de retro, which contains stipulations or circumstances indicative of the parties' intention to secure a debt, shall be construed as an equitable mortgage, even if it lacks certain legal formalities. The presence of any one of the circumstances enumerated in Article 1602 of the Civil Code is sufficient to presume a contract as an equitable mortgage.