Heirs of Sebua v. Bravante
REITERATIONFacts
The Antecedents: This case originated from a complaint filed by the Heirs of Aniolina H. Sebua (petitioners) against Feliciana Bravante (respondent) for redemption, recovery of possession, damages, and attorney's fees. Petitioners alleged that their predecessor, Exequeil Sebua, mortgaged a parcel of land (Cadastral Lot No. 1525-E) to respondent's husband in 1985 for a loan of P30,000.00, with an agreement that the mortgagee would cultivate the land until the loan was repaid. Exequeil attempted to redeem the land in 1995 and again after the mortgagee's death in 2003, but respondent began claiming ownership. Respondent, in her counterclaim, asserted that the property was sold to her and her husband in 1985 for P30,000.00 after petitioners and Exequeil failed to repay multiple loans, including an initial P7,000.00 loan in 1982 to redeem the land from a prior mortgagee. Procedural History: The Regional Trial Court (RTC), Branch 26, Surallah, South Cotabato, ruled in favor of the petitioners, finding the transaction to be an equitable mortgage and allowing redemption upon payment of P30,000.00, plus damages and attorney's fees. Respondent's motion for reconsideration was denied. Upon appeal, the Court of Appeals (CA) – Cagayan de Oro City, reversed the RTC's decision, dismissing petitioners' complaint for lack of cause of action, finding that neither party had sufficiently established their claims. The CA left the parties as they were and did not rule on damages or attorney's fees. The Petition: Petitioners filed a Petition for Review under Rule 45 of the Rules of Court, assailing the CA's decision. They argued that the CA erred in disregarding the testimony of their witness, in failing to recognize circumstances indicative of an equitable mortgage, and in not holding that respondent failed to rebut the legal presumption of an equitable mortgage. Petitioners sought to reinstate the RTC's decision, which allowed them to redeem the property.
Issue(s)
Whether the Court of Appeals committed a reversible error in not giving probative value to the testimony of Mr. Joseph H. Sebua, thereby failing to recognize the transaction as an equitable mortgage. Whether the Court of Appeals committed a reversible error in not finding that various circumstances in the case give rise to the presumption that the transaction is an equitable mortgage. Whether the Court of Appeals committed a reversible error in not holding that the Respondent failed to adduce evidence that will rebut the legal presumption that the subject transaction was an equitable mortgage, and whether the consolidation of ownership constituted an invalid pactum commissorium.
Ruling
The petition is GRANTED. The Decision of the Court of Appeals is REVERSED and SET ASIDE. The Decision of the Regional Trial Court is REINSTATED and AFFIRMED with MODIFICATION regarding the interest rates on the unpaid obligation.
Ratio Decidendi
On the CA's disregard of testimony and the nature of the transaction: The Court found merit in the petition, implying that the CA erred in its assessment of the evidence. While the CA found the testimony of petitioners' sole witness to be hearsay, the Supreme Court's ultimate ruling in favor of the petitioners suggests a re-evaluation of the evidence presented. The Court's decision to reinstate the RTC ruling, which favored the petitioners, indicates that the Supreme Court found sufficient basis to establish the nature of the transaction as an equitable mortgage, despite the CA's dismissal of the complaint. The Court's focus shifted to the substantive issue of the nature of the transaction, implicitly validating the evidence presented by the petitioners to support their claim. On the presumption of equitable mortgage: The Court reiterated that an equitable mortgage is a contract that, despite lacking formal requisites, reveals the parties' intention to charge real property as security for a debt. Article 1602 of the Civil Code enumerates circumstances that create a presumption of an equitable mortgage, including situations where the price of sale is inadequate, the vendor remains in possession, or where it can be inferred that the transaction is intended to secure a debt. The presence of even one of these circumstances is sufficient to establish an equitable mortgage. The Court emphasized that in determining the nature of a contract, the intention of the parties, as shown by their conduct, words, and deeds, is paramount, not merely the title or name given to the contract. On respondent's failure to rebut the presumption and the invalidity of pactum commissorium: The Court found that respondent failed to establish her claim of ownership. The repeated attempts by Exequeil to pay the loan and regain possession of the property, coupled with the nature of the transactions as recorded by respondent, indicated that the parties' intention was to secure a debt, not to effect an absolute sale. The Court noted that respondent's consolidation of ownership due to the petitioners' failure to pay was an invalid form of pactum commissorium, which is void as it is contrary to morals and public policy. The proper remedy for the mortgagee would have been to initiate foreclosure proceedings, which respondent failed to do. Therefore, the Court concluded that the transaction was indeed an equitable mortgage, as found by the RTC.
Main Doctrine
A contract purporting to be an absolute sale may be presumed to be an equitable mortgage if it can be fairly inferred that the real intention of the parties is to secure the payment of a debt or the performance of any other obligation, as provided under Article 1602 of the Civil Code. The presence of even one of the circumstances enumerated in Article 1602 is sufficient to declare a contract as an equitable mortgage. A mortgagee's consolidation of ownership due to the mortgagor's failure to pay is considered pactum commissorium and is void.