Raymundo v. Bandong
REITERATIONFacts
The Antecedents: Spouses Bandong (Dominador and Rosalia) executed a Deed of Sale on February 3, 1989, in favor of Spouses Raymundo (Carlos and Eulalia) covering a parcel of land. This was allegedly to secure Dominador's shortage of ₱70,000.00 incurred in his business as a "biyahero" for Eulalia. The property was subsequently registered in the names of Spouses Raymundo and then sold to Spouses Buenaobra (Angelito and Jocelyn). Spouses Buenaobra filed an ejectment case against Spouses Bandong, which reached the Supreme Court. Spouses Bandong then filed an action for annulment of sale, alleging their consent was vitiated and the transaction was an equitable mortgage. Procedural History: The Regional Trial Court (RTC) ruled in favor of Spouses Raymundo and Buenaobra, declaring the Deed of Sale valid. The Court of Appeals reversed the RTC decision, annulling the Deed of Sale as a sale and considering it an equitable mortgage, and also annulling the sale between Spouses Raymundo and Spouses Buenaobra. The Court of Appeals ordered the Register of Deeds to issue a new title in the names of Spouses Bandong, annotated with a real estate mortgage in favor of Spouses Raymundo, and awarded damages. The Petition: Petitioners Spouses Raymundo and Spouses Buenaobra sought review of the Court of Appeals' decision and resolution, questioning the validity of the Deed of Sale between Dominador and Eulalia, and whether Jocelyn was a buyer in good faith.
Issue(s)
Whether or not the Deed of Sale between Dominador and Eulalia is valid and binding. Whether or not Jocelyn is a buyer in good faith.
Ruling
The Supreme Court denied the petition, affirming the Decision and Resolution of the Court of Appeals. The Court ruled that the Deed of Sale executed by Spouses Bandong in favor of Spouses Raymundo is an equitable mortgage, not a sale, and that Spouses Buenaobra were not buyers in good faith.
Ratio Decidendi
On the issue of the validity of the Deed of Sale between Dominador and Eulalia: The Court ruled that the Deed of Sale is not a valid sale but an equitable mortgage. It applied Article 1602 of the Civil Code, which presumes a contract to be an equitable mortgage under certain circumstances. The Court considered Eulalia's business practice of requiring her "biyaheros" to surrender titles and execute deeds of sale as security for advances. The fact that Dominador remained in possession of the property after the supposed sale, coupled with the potential inadequacy of the price (though not definitively established as grossly inadequate), supported the conclusion that the parties intended to secure a debt, not transfer ownership. The Court emphasized that the decisive factor is the intention of the parties, gleaned from surrounding circumstances, not just the terminology used in the contract. The Court reiterated the principle that the law favors the least transmission of property rights, and the existence of any one of the conditions under Article 1602 suffices to presume an equitable mortgage. On the issue of whether Jocelyn is a buyer in good faith: The Court ruled that Jocelyn is not a buyer in good faith. It held that the burden of proving good faith lies with the party asserting it, and invoking the indefeasibility of a Torrens title is insufficient. The Court noted that Jocelyn, being Eulalia's grandniece and residing in the same locality, should have been aware of Eulalia's business practices, which involved using deeds of sale as security. Furthermore, Jocelyn admitted knowledge that Spouses Bandong were in possession of the property, and a buyer who does not investigate the rights of the possessor cannot be considered a buyer in good faith. Her claim of having spoken to the Bandongs and their supposed agreement to vacate was deemed self-serving in light of the prompt filing of the annulment case. The Court concluded that Jocelyn failed to discharge the burden of proving her good faith.
Main Doctrine
A contract denominated as a Deed of Sale may be presumed to be an equitable mortgage under Article 1602 of the Civil Code if certain circumstances indicate the intention of the parties to secure a debt, such as unusual inadequacy of price or the vendor remaining in possession. Furthermore, a buyer of registered land cannot close their eyes to facts that should put a reasonable person on guard, and claiming good faith requires more than just invoking the indefeasibility of a Torrens title.