Sy v. De Vera-Navarro
REITERATIONFacts
The Antecedents: This case originated from a complaint filed by Spouses John T. Sy and Leny N. Sy, and Valentino T. Sy against Ma. Lourdes De Vera-Navarro and Benjaemy Ho Tan Landholdings, Inc. (BHTLI). The Sy spouses alleged that a parcel of land and a four-storey building, valued at over P40,000,000.00, was mortgaged to De Vera-Navarro for P3,720,000.00. They claimed that an undated Deed of Absolute Sale, with a P5,000,000.00 consideration, was executed solely as additional security for the loan, with repayment to be made through rental collections. The dispute escalated when BHTLI, claiming ownership through a sale from De Vera-Navarro, demanded the Sy spouses vacate the property. The Sy spouses asserted ownership, deeming the Deed of Absolute Sale null and void. De Vera-Navarro, however, maintained the transaction was a legitimate sale, asserting the loan remained unpaid and additional loans were taken. BHTLI claimed to be a buyer in good faith. Procedural History: The Regional Trial Court (RTC) of Zamboanga City, Branch 12, initially ruled in favor of the Sy spouses, declaring the Deed of Absolute Sale an equitable mortgage and thus null and void. The RTC ordered the cancellation of titles in De Vera-Navarro's and BHTLI's names and the restoration of the original title to the Sy spouses, also awarding damages. Both De Vera-Navarro and BHTLI appealed to the Court of Appeals (CA). The CA, in its assailed Decision and Resolution, reversed the RTC's ruling, finding the transaction to be a valid contract of sale and BHTLI a buyer in good faith, thereby dismissing the Sy spouses' complaint. The Sy spouses then filed the present Petition for Review on Certiorari under Rule 45 of the Rules of Court. The Petition: The petitioners, Spouses John T. Sy and Leny N. Sy, and Valentino T. Sy, are seeking review of the Court of Appeals' decision. They argue that the CA erred in concluding that the transaction between petitioner John T. Sy and respondent Ma. Lourdes De Vera-Navarro was a valid contract of sale and not an equitable mortgage, and that respondent Benjaemy Ho Tan Landholdings, Inc. (BHTLI) was a buyer in good faith. The petition contends that the undated Deed of Absolute Sale was merely intended as additional security for a loan, as evidenced by the continued possession of the property by the petitioners, the inadequate purchase price, the retention of the purchase price by the seller, and the parties' true intention to secure a debt. Furthermore, they argue that BHTLI could not be considered a buyer in good faith due to the presence of occupants and the prior annotation of an adverse claim on the title.
Issue(s)
Whether the CA erred in holding that the transaction between petitioner John T. Sy and respondent De Vera-Navarro was a valid contract of sale and not an equitable mortgage. Whether the CA erred in holding that respondent BHTLI was a buyer in good faith.
Ruling
The Supreme Court granted the petition, reversed the Court of Appeals' decision, and reinstated the Regional Trial Court's decision with modifications. The Court declared the purported Deed of Absolute Sale as an equitable mortgage and the subsequent sale to BHTLI as null and void, finding BHTLI not to be a buyer in good faith.
Ratio Decidendi
On the issue of whether the purported contract of sale is an equitable mortgage: The Supreme Court held that the CA erred in reversing the RTC's finding that the transaction was an equitable mortgage. An equitable mortgage is defined as a contract that, despite lacking some formality, reveals the parties' intention to charge real property as security for a debt. Its essential requisites are that the parties entered into a contract denominated as a contract of sale and that their intention was to secure an existing debt by way of a mortgage. Article 1602 of the Civil Code provides circumstances that create a presumption of an equitable mortgage, including inadequate price, vendor remaining in possession, and the real intention being to secure a debt. The Court found at least four badges of an equitable mortgage present: (1) the vendor, petitioner John, remained in possession of the property; (2) the purchase price of P5,000,000.00 was grossly inadequate, considering the property's market value and its subsequent mortgage and sale for P13,000,000.00; (3) respondent De Vera-Navarro retained the supposed purchase price, with no proof of payment presented; and (4) the real intention was to secure the payment of a debt, as evidenced by the immediate execution of the undated Deed of Absolute Sale upon the execution of the Mortgage Contract. The Court emphasized that the presence of even one badge of an equitable mortgage is sufficient, and the RTC's factual findings, which were ignored by the CA, are given high respect. The Court also noted that respondent De Vera-Navarro's documentary evidence was expunged by the RTC, negating her claim of a legitimate sale. The Court reiterated that the nomenclature of a contract is not conclusive, and parol evidence is admissible to prove the true intent of the parties, especially when doubt exists, favoring the construction of an equitable mortgage. On the issue of whether respondent BHTLI is a buyer in good faith: The Supreme Court ruled that respondent BHTLI is not a buyer in good faith. The Court stated that the burden of proving status as a purchaser of registered land in good faith rests on the claimant, and BHTLI failed to discharge this burden. The Court found that BHTLI's claim of good faith was contradicted by incontrovertible facts. Specifically, it was undisputed that petitioners Sps. Sy remained in continuing possession of the subject property, a circumstance that should have prompted BHTLI to investigate further into the contract of sale with respondent De Vera-Navarro. Furthermore, BHTLI could not feign ignorance of any infirmity because petitioner Valentino had already caused the annotation of an adverse claim on TCT T-199,288 prior to BHTLI's transaction with De Vera-Navarro. The Court concluded that these facts established BHTLI's status as a buyer in bad faith, rendering the sale to it null and void.
Main Doctrine
A contract denominated as a Deed of Absolute Sale, which lacks essential requisites of a sale and reveals the intention of the parties to secure an existing debt by way of a mortgage, is presumed to be an equitable mortgage. Furthermore, a buyer in bad faith, who fails to exercise due diligence despite the presence of occupants and an annotation of an adverse claim on the title, cannot be considered a buyer in good faith.