Heirs of Reyes, Jr. v. Reyes
REITERATIONFacts
The Antecedents: Antonio Reyes and his wife, Leoncia Mag-isa Reyes, owned a residential lot in Pulilan, Bulacan. They had four children: Jose Reyes, Sr., Teofilo Reyes, Jose Reyes, Jr., and Potenciana Reyes-Valenzuela. After Antonio's death, Leoncia and her three sons executed a deed on July 9, 1955, denominated Kasulatan ng Biling Mabibiling Muli, selling the land and its improvements to Spouses Benedicto and Monica Francia for P500.00, with a right to repurchase. Potenciana's heirs did not consent. The original vendors and their families remained in possession and paid taxes. The Spouses Francia died, and their heirs later executed a deed on August 11, 1970, transferring their rights to Alejandro Reyes, the son of Jose, Sr., after Alejandro paid the P500.00. Alejandro then executed a Kasulatan ng Pagmeme-ari declaring himself owner. However, on October 17, 1970, Alejandro, Leoncia, Jose, Sr., and Jose, Jr. executed a Magkasanib na Salaysay, acknowledging the right of Leoncia, Jose, Jr., and Jose, Sr. to repurchase the property for P500.00. Leoncia died intestate in 1970, survived by her sons and Potenciana's heirs. Teofilo and Jose, Jr., with their families, continued to reside on the property. Alejandro died intestate in 1993, survived by his wife and children (the respondents). Procedural History: In 1994, respondent Amanda Reyes asked the heirs of Teofilo and Jose, Jr. (petitioners) to vacate the property. After their refusal, a barangay certification to file action was issued. The respondents then filed a suit for quieting of title and reconveyance in the Regional Trial Court (RTC), alleging their predecessor Alejandro acquired ownership and that the petitioners' predecessors failed to repurchase the property within the stipulated period. The petitioners countered that the initial deed was an equitable mortgage, not a pacto de retro sale, and that Alejandro's right was merely to seek reimbursement. The RTC ruled in favor of the respondents, declaring Alejandro's ownership and invalidating the extension of redemption. The petitioners appealed to the Court of Appeals (CA). The CA found the initial transaction to be an equitable mortgage but held that the petitioners were barred by prescription from claiming this due to their failure to file an action for reformation within ten years. The CA affirmed the RTC's decision, except for the dismissal concerning Potenciana's heirs. The Petition: The petitioners assail the CA's decision, arguing that the CA erred in finding them barred from claiming the transaction as an equitable mortgage and in disregarding the Magkasanib na Salaysay which granted them the right to repurchase. They contend that the CA should have considered the original intention of the parties and the subsequent acknowledgment of their right to redeem. The Supreme Court granted the petition, reversing the CA's decision. The Court held that the Kasulatan ng Biling Mabibiling Muli was indeed an equitable mortgage, not a pacto de retro sale, based on the continued possession of the vendors and their payment of taxes. The Court also found the Magkasanib na Salaysay valid and effective, granting a fresh period for redemption. The Court further ruled that Alejandro did not acquire ownership through prescription and that the respondents, as his heirs, were bound by his acknowledgment of the equitable mortgage. The Court nullified Alejandro's Kasulatan ng Pagmeme-ari and dismissed the respondents' claim of acquisitive prescription, stating that the respondents could only seek partition or foreclose the equitable mortgage through appropriate court actions.
Issue(s)
Whether the Court of Appeals erred in finding that the petitioners were barred from claiming that the transaction was an equitable mortgage. Whether the Court of Appeals erred in affirming the finding that the Magkasanib na Salaysay was of no legal significance.
Ruling
The Supreme Court granted the petition, reversed and set aside the decision of the Court of Appeals, and rendered a new judgment upholding the validity of the Kasulatan ng Biling Mabibiling Muli and the Pagsasa-ayos ng Pag-aari at Pagsasalin, declaring the Kasulatan ng Biling Mabibiling Muli as an equitable mortgage, finding the Magkakalakip na Salaysay valid and effective, nullifying the Kasulatan ng Pagmeme-ari, and dismissing the petitioners' counterclaim. Costs were to be paid by the respondents.
Ratio Decidendi
On the issue of whether the petitioners were barred from claiming an equitable mortgage: The Court held that the CA correctly concluded that the Kasulatan ng Biling Mabibiling Muli was an equitable mortgage, not a pacto de retro sale. This was evidenced by the continued possession of the purported vendors and the property remaining declared for taxation purposes under Leoncia's name, which are badges of an equitable mortgage under Article 1602 of the Civil Code. The Court further ruled that the petitioners were not barred by prescription from claiming this fact. The acceptance of payments by the heirs of the Spouses Francia, even beyond the ten-year redemption period, estopped them from insisting that the period had expired, implying the continued existence of the equitable mortgage. The Court cited Cuyugan v. Santos where acceptance of partial payments was incompatible with the irrevocability of ownership upon expiration of the redemption period, thus manifesting the parties' intent for a mortgage. On the issue of the legal significance of the Magkasanib na Salaysay: The Court disagreed with the lower courts and found the Magkasanib na Salaysay to be valid and effective. The Court clarified that Article 1602(3) of the Civil Code explicitly allows for a new period of redemption to be granted even after the expiration of the original right to repurchase, and such extension is an indicator of an equitable mortgage. Therefore, the Magkasanib na Salaysay effectively afforded Leoncia, Teofilo, Jose, Sr., and Jose, Jr. a fresh period to pay the redemption price to Alejandro. The Court also addressed the respondents' claim of acquisitive prescription, stating that Alejandro's possession as a co-owner was not adverse and that his acts, such as declaring the land in his name for taxation and executing an affidavit of consolidation, were equivocal and did not constitute repudiation amounting to ouster. The Court emphasized that for a co-owner's possession to be adverse, unequivocal acts of repudiation known to the other co-owners, clear and conclusive evidence, and open, continuous, exclusive, and notorious possession must concur, which were not established here. The respondents' filing of the quieting of title action was considered the only unequivocal act of repudiation, but it was not coupled with exclusive possession.
Main Doctrine
A contract, even if denominated as a deed of sale with right to repurchase, is presumed to be an equitable mortgage if any of the conditions under Article 1602 of the Civil Code are present. Furthermore, an agreement extending the period of redemption, even if executed after the original period has expired, is valid and indicative of an equitable mortgage, and the acceptance of payments beyond the redemption period estops the mortgagee's heirs from claiming the period has expired.