Cando v. Solis
REITERATIONFacts
The Antecedents: Spouses Jose and Flocerfida Solis (Spouses Solis) borrowed P15,000,000.00 from Lourdes N. Cando (Cando), executing a Deed of Mortgage over their properties covered by TCT Nos. N-313735 and N-313736. The mortgage stipulated a six-month repayment period with 5% monthly interest. Subsequently, Cando's counsel sent a demand letter stating that Spouses Solis had already sold the properties to Cando and demanding they vacate. Spouses Solis filed a complaint for annulment of sale with reformation of instrument and damages, alleging they signed the document believing it was a mortgage, not a sale, and that the document contained a void pactum commissorium clause. They also argued the sale price of P15,000,000.00 was inadequate compared to the properties' P60,000,000.00 value. The complaint was amended to implead the Registry of Deeds of Quezon City after it refused to annotate notices of lis pendens. Cando countered that Spouses Solis executed a Deed of Absolute Sale on October 29, 2012, after failing to pay the loan, and denied the deed of mortgage was drafted by her counsel. She argued the pactum commissorium clause did not automatically vest ownership and that the deed of sale superseded the deed of mortgage. Spouses Solis replied that the deed of sale was a mere formality for Cando to secure her loan and pointed out that Jose Solis was hospitalized in Bicol during the alleged notarization of the deed of sale, suggesting forgery. Due to Cando's repeated non-appearance at pre-trial, Spouses Solis were allowed to present evidence ex parte. Jose Solis died during the proceedings and was substituted by his heirs (respondents). Procedural History: The Regional Trial Court (RTC) granted the annulment of the Deed of Absolute Sale dated October 29, 2012, but dismissed the action for reformation of the Deed of Real Estate Mortgage. The RTC declared the transaction as a deed of mortgage securing the P15,000,000.00 loan, ordered the cancellation of Cando's titles and reinstatement of Spouses Solis' titles, awarded nominal damages and attorney's fees to Spouses Solis, and allowed Cando to judicially foreclose the properties in case of non-payment. Cando's motion for reconsideration was denied. The Court of Appeals (CA) affirmed the RTC's decision. Cando filed the present appeal by certiorari. The Petition: Cando assails the CA's decision, arguing that Spouses Solis failed to prove the elements of an equitable mortgage and that the RTC's finding of no pactum commissorium had attained finality. She contends the deed of sale was executed because Spouses Solis could not redeem the properties and that the deed of mortgage was superseded. She also argues the deed of mortgage itself allowed her to transfer ownership without judicial proceedings. Cando further claims Spouses Solis misled the RTC by not mentioning the deed of sale and that the allegation of continued possession was unsubstantiated.
Issue(s)
Whether the agreement between Spouses Solis and Cando is an equitable mortgage that warrants the annulment of the deed of sale. Whether the RTC and CA erred in allowing Spouses Solis to present evidence ex parte. Whether the deed of sale was validly executed and notarized.
Ruling
The petition is denied. The Court affirmed the decision of the Court of Appeals, which upheld the RTC's ruling annulling the Deed of Absolute Sale dated October 29, 2012, and declaring the transaction between Spouses Solis and Cando as an equitable mortgage securing the P15,000,000.00 loan. The RTC's dismissal of the action for reformation of the Deed of Real Estate Mortgage was also affirmed. The Court ordered the Register of Deeds to cancel Cando's titles and reinstate Spouses Solis' titles, declared the transaction as a mortgage, suspended interest from the time of transfer until revival of titles, and allowed Cando to judicially foreclose in case of non-payment. Nominal damages and attorney's fees were awarded to Spouses Solis.
Ratio Decidendi
On the issue of whether the agreement is an equitable mortgage: The Court held that the circumstances strongly indicate the existence of an equitable mortgage, warranting the annulment of the deed of sale. It reiterated the definition of an equitable mortgage as one that reveals the intention of the parties to charge real property as security for a debt, even if lacking in formality. The Court found that two requisites for the presumption of an equitable mortgage under Article 1602 of the Civil Code were met: (a) the parties entered into a contract of sale (the deed of sale dated October 29, 2012), and (b) their intention was to secure an existing debt by way of mortgage. The Court highlighted several badges of an equitable mortgage present in the case. Firstly, there was an existing loan of P15,000,000.00 from Cando to Spouses Solis, initially guaranteed by a deed of mortgage. Secondly, the stated purchase price of P15,000,000.00 in the deed of sale was found to be inadequate compared to the actual market value of the properties, which was P60,000,000.00. Thirdly, Spouses Solis remained in possession of the properties even after the supposed sale, as evidenced by Cando's demand letter for them to vacate, which is inconsistent with a voluntary sale. Fourthly, Flocerfida Solis testified that they signed the deed of sale merely as a formality to help Cando secure her loan from a bank, indicating no real intent to sell the properties. The Court noted that these presumptions remained uncontroverted as the RTC proceedings were held ex parte. Therefore, the deed of sale was deemed null and void, and the deed of mortgage dated February 27, 2012, was upheld. On the issue of ex parte proceedings: The Court affirmed the CA's ruling that the RTC correctly allowed Spouses Solis to present their evidence ex parte. It found that Cando and her counsel repeatedly failed to appear for preliminary conference and pre-trial despite due notice and without valid explanation. The Court concluded that Cando's predicament was a result of her own fault, and she could not claim denial of due process, as the RTC had already shown leniency and provided ample opportunities for her to participate. On the validity of the deed of sale and notarization: The Court implicitly addressed this by annulling the deed of sale based on the equitable mortgage doctrine and the lack of genuine intent to sell. Furthermore, the respondents' contention that Cando misrepresented the notarization of the deed of sale, supported by a certification from the Office of the Clerk of Court showing no record of the alleged notarization, and the fact that Jose Solis was hospitalized in Bicol at the time of the alleged notarization, further weakened the validity of the deed of sale. These facts, combined with the ex parte proceedings where Cando failed to present counter-evidence, supported the conclusion that the deed of sale was not a genuine transaction.
Main Doctrine
A contract of sale is presumed to be an equitable mortgage when the parties' intention is to secure an existing debt by way of mortgage, as evidenced by circumstances such as inadequacy of price, the vendor remaining in possession, or the transaction being a mere formality to secure a loan.