Santiago v. Dizon
REITERATIONFacts
The Antecedents: Respondent Aida G. Dizon mortgaged a property to Monte de Piedad to secure a loan. Upon failure to pay, the bank foreclosed the mortgage and consolidated ownership. The bank gave respondent until May 28, 1987, to repurchase the property for P550,000. On May 28, 1987, petitioner Elizabeth Santiago, on behalf of respondent, paid P550,000. Monte de Piedad executed a deed of sale in favor of respondent. The following day, May 29, 1987, respondent executed a deed of sale in favor of petitioners (Sps. Santiago et al.) for the same property. On the same day, respondent and petitioners executed an agreement giving respondent an option to buy back the property within three months for P900,000, failing which she should vacate. Respondent continued to stay in the property. After three months, respondent failed to repurchase the property. Petitioners registered the deeds of sale and were issued a title. Respondent failed to vacate, prompting petitioners to file an ejectment case, which was initially decided in their favor by the MeTC, reversed by the RTC, and then reinstated by the Court of Appeals. This Court affirmed the appellate court's reinstatement of the MeTC decision but held that the ejectment case did not bar a subsequent action to settle ownership. Procedural History: Respondent filed a complaint for reformation of the deed of sale, alleging the transaction was an equitable mortgage due to inadequacy of price, a right to repurchase at a higher price, continued exercise of ownership rights (payment of realty taxes, collection of rentals), and that the P550,000 was a loan. The RTC ruled in favor of respondent, holding the transaction was an equitable mortgage based on the same considerations. The Court of Appeals affirmed the RTC decision. The Petition: Petitioners filed a petition for review on certiorari, faulting the Court of Appeals for affirming the RTC's findings despite the absence of an equitable mortgage and for conclusions contrary to law and jurisprudence.
Issue(s)
Whether the transaction between respondent and petitioners was an equitable mortgage or a bona fide sale with an option to repurchase. Whether the deed of sale in favor of petitioners should be reformed.
Ruling
The petition is granted. The challenged decision of the Court of Appeals is set aside, and Civil Case No. 96-81354 of the Manila Regional Trial Court is dismissed.
Ratio Decidendi
On the issue of whether the transaction was an equitable mortgage: The Court held that the presumption of an equitable mortgage under Article 1602 of the Civil Code is not conclusive and can be rebutted by competent and satisfactory proof. While several factors pointed to by the respondent (inadequacy of price, option to repurchase at a higher price, continued possession, and payment of taxes) are indicators of an equitable mortgage, the evidence presented by the petitioners successfully rebutted this presumption. The Court noted that the respondent's continued stay in the property was not in the concept of an owner, as petitioners eventually took over the collection of rentals and entered into contracts with tenants after the option period expired. Furthermore, the respondent's claim of paying realty taxes was disproven by the fact that tax declarations were in the names of Monte de Piedad and petitioners, and the document presented by the respondent was a photocopy for an earlier year (1985). The Court also found that the purchase price of P550,000 was not inadequate, considering the assessed value of the property in 1988. Crucially, the Court distinguished the present case from Bundalian v. Court of Appeals by highlighting that there was no escalation of the repurchase price depending on the timing of repurchase, and the respondent-vendor did not retain the right to build on the property during the redemption period, as was the case in Bundalian. Therefore, the respondent failed to prove that the transaction was an equitable mortgage. On the issue of whether the deed of sale should be reformed: Since the Court found that the transaction was a bona fide sale with an option to repurchase and not an equitable mortgage, the basis for reforming the deed of sale no longer exists. Reformation of an instrument is an equitable remedy granted when there is a meeting of the minds of the parties but the instrument does not express their true agreement. As the true agreement was established as a sale with an option to repurchase, and not a loan secured by a mortgage, reformation is not warranted. Consequently, the complaint for reformation must be dismissed.
Main Doctrine
The presumption of equitable mortgage under Article 1602 of the Civil Code is not conclusive and can be rebutted by competent proof. Factors such as the inadequacy of the price, the escalation of the repurchase price, and the continued possession of the property by the vendor are indicators of an equitable mortgage, but must be considered in conjunction with other evidence. In this case, the fixed repurchase price and date, coupled with evidence of petitioners' payment of taxes and assumption of control over rentals after the sale, rebutted the presumption.