PABLO IRAO, JR., PETITIONER-APPELLEE, VS. THE HEIRS OF EUSEBIO MORTEL, REPRESENTED BY WENINA MORTEL VILLANUEVA GANORAN, RESPONDENTS-APPELLANTS.
DICDICAN, J.:
The factual antecedents, as can be culled from the record, is as follows:
The present controversy stemmed from a Petition for Consolidation of Ownership in a Deed of Sale with Right of Repurchase filed by Mr. Pablo Irao, Jr. (“petitioner-appellee”) over a property located at Barangay Ligaya, Odiongan, Romblon. The subject lot is a residential land containing an area of 198 square meters and is more particularly described as follows:
“A residential land located at Ligaya, Odiongan, Romblon, containing an area of 198 square meters, more or less and bounded on the NORTH by Lot No. 187; East, by C.P. Garcia St., SOUTH, by Lot No. 185; and WEST, by Lot No. 187 with an assessed value of Php19,800.00 series of 2004 declared to the Heirs of Eusebio Mortel, Cad. Lot No. 186 under Tax Dec. No. A10-001-00136.”
In his petition, petitioner-appellee alleged that, on March 3, 2005, the Heirs of Eusebio Mortel represented by Wenina Mortel-Villanueva-Ganoran (“respondents-appellants”), sold, transferred and conveyed to the petitioner-appellee by way of Deed of Sale with Right to Repurchase the subject lot. Accordingly, the date of repurchase, March 3, 2008 which is three years after the execution of the Deed of Sale with right to Repurchase, had already expired and the respondents-appellants were not able to repurchase the subject lot in accordance with the agreed terms and conditions. Consequently, petitioner-appellee had the right to consolidate ownership of the subject lot.
In their Answer, respondents-appellants averred that the contract evidenced by the document denominated as a Deed of Sale with Right to Repurchase[2] dated March 5, 2005 is actually an equitable mortgage.
According to the respondents-appellants, sometime in March 2005, respondent-appellant Ganoran, accompanied by her aunt Mrs. Flor Mortel, approached petitioner-appellee for money that she would use to redeem from Mr. Caesar Fiel (“Mr. Fiel”) the subject lot. Respondents-appellants asseverated that Mr. Fiel had earlier filed a petition for consolidation of ownership over the subject property. The said property which was mortgaged to Mr. Fiel was the same property that is the subject matter of the present petition.
Thus in order to redeem the subject lot from Mr. Fiel, respondents-appellants sought from petitioner-appellee the amount of Four Hundred Thousand Pesos (Php400,000) payable in three (3) years.
Allegedly, in response to respondent-appellant Ganoran’s request, petitioner-appellee told her in vernacular: ‘Siling nako sa ida pag may mga papeles ikaw nakitao sa ako nak garantiya diling paghuyam imaw kina kag pagtao nako sa imo.’ (‘I told her, if you can give me papers to guarantee your borrowing from me, that is the time I will give you’).
Following what was instructed, respondent-appellant Ganoran purportedly looked for a lawyer who would execute the document of Deed of Sale with Right of Repurchase and proceeded in the preparation of documents that petitioner-appellee required of her as a condition for the release of the money that she was borrowing. The documents executed were: Deed of Sale With Right of Repurchase; Special Power of Attorney (SPA) and Tax Declaration.
After several days, respondent-appellant Ganoran allegedly received from petitioner-appellee a sheet of paper containing UNLAD Savings loan computation for a principal loan of Php400,000 payable in 3 years and with an interest rate of 18% per year. In this computation, total interest for 3 years is Php116,574.89 which when added to the principal of Php400,000 results to a sum of Php516,574.89. Respondents-appellants claimed that this became the basis of the purchase price of PHP516,574.89 as stipulated in the parties’ Deed of Absolute Sale with Right of Repurchase.
With the notarized Deed of Absolute Sale with Right of Repurchase, respondent-appellant Ganoran returned to petitioner-appellee and received the principal amount borrowed, that is, Php400,000 less one year additional interest of Php2,500 a month. According to respondents-appellants, on top of the Php116,574.89 interest for 3 years, petitioner-appellee also imposed additional interest of Php2,500 per month and there was nothing that Ms. Ganoran could do but protest and eventually agree to it.
On April 11, 2005, using the money that respondents-appellants had borrowed from petitioner-appellee, they were able to settle their debt from Mr. Fiel by paying Three Hundred Thousand Pesos (Php300,000) for a principal loan of only Php200,000.
However, when respondents-appellants failed to make additional payments to petitioner-appellee, they were allegedly asked by the latter to sign a Promissory Note for the 2-year additional interest (which was termed rentals) in the amount of Php60,000.
Thus, upon the expiration of the respondents-appellants’ right to repurchase in March 2008 and they were still not able to repurchase the subject lot, petitioner-appellee filed a petition for consolidation of ownership over the subject lot.
After the parties filed their respective pleadings, the trial court set the case for the pre-trial conference. When the pre-trial was terminated, trial on the merits ensued thereafter.
On October 24, 2012, the trial court rendered the herein assailed Decision, the dispositive portion of which reads:
“WHEREFORE, premises considered, judgment is hereby rendered consolidating the ownership of the property located at Ligaya, Odiongan, Romblon with an area of 198 square meters covered by Lot No. 186 under Tax Declaration No. A10-001-00136 to petitioner, Pablo Irao Jr.,”
“SO ORDERED.”
Aggrieved, respondents-appellants interposed an appeal to this Court raising the following errors purportedly committed by the trial court, to wit:
I.
THE REGIONAL TRIAL COURT ERRED WHEN IT HELD THAT NONE OF THE CIRCUMSTANCES MENTIONED IN ARTICLE 1602 OF THE CIVIL CODE BEST DESCRIBED THE CASE WHICH IS IN TOTAL DISREGARD OF THE EVIDENCE PRESENTED AND THE FACTS ESTABLISHED DURING THE TRIAL.
II.
THE REGIONAL TRIAL COURT ERRED IN NOT CONSIDERING THE DEED OF SALE WITH RIGHT TO REPURCHASE AS AN EQUITABLE MORTGAGE
III.
THE REGIONAL TRIAL COURT ERRED IN GRANTING THE PETITION DESPITE CLEAR EVIDENCE THAT RESPONDENT-APPELLANT GANORAN DOES NOT OWN THE PROPERTY.
In sum, the primordial issues to be resolved by this Court are: whether or not the trial court erred in granting petitioner-appellees’ petition for consolidation of ownership and whether or not the deed of sale with right to repurchase is actually an equitable mortgage.
After a careful perusal of the record and a judicious scrutiny of pertinent laws and jurisprudence, we find the appeal filed in this case to be meritorious.
In granting the petition of the petitioner-appellee, the trial court held that neither of the requirements or any of the circumstances in Article 1602 of the Civil Code of the Philippines best described the case at bench. The trial court held, thus:
“Based on the evidence adduced during the trial on the merits, although it was shown that the respondent remained in possession of the subject property, her continued occupancy is no longer as an owner but a mere lessor of the subject property evidenced by her payment of lease-rental. In fact she acknowledged the ownership and title of the petitioner over the subject property.”
However, after a thorough and conscientious study of the facts of this case, as well as the laws and jurisprudence applicable in the premises, we resolve the foregoing issues in the affirmative.
Article 1602 of the New Civil Code provides that, a contract, no matter how designated by the parties thereto, shall be considered as an equitable mortgage if any one of the circumstances enumerated therein is present in the said contract. The said provision of the New Civil Code states, viz:
Art. 1602. The contract shall be presumed to be an equitable mortgage, in any of the following cases:
In the present case, the record of the case revealed that the primary purpose of respondent-appellant Ganoran in approaching the petitioner-appellee was to borrow money in order to redeem the subject lot from Mr. Fiel. As supported by the following testimonies, it may be fairly inferred that the real intention of the parties is that the transaction shall secure the payment of debt to the herein petitioner-appellee, to wit:
“Q: During your testimony on page four (4) of your TSN, you mentioned that the respondent approached you for some problem in the property subject matter of the present case, will you recall what problems she approached you for?
“Mr. Irao: The problem is the consolidation of property we both filed.
“Q: And what did she exactly want from you in connection with the consolidation of ownership filed by Mr. Fiel?
“A: To redeem the property from Mr. Fiel.
“Q: And in order to be able to redeem the property, what did she want from you, if any?
“A: Money to pay.
“Q: So she approached you for money, is that correct?
“A: That is correct.”
Clearly, the trial court erred in not considering the circumstances that would lead him to rule that the contract between the parties is an equitable mortgage. Based on the record, the trial court erred when it disregarded the voluminous evidence pointing that the said deed was actually executed to secure the payment of respondents-appellants’ debt to the petitioner-appellee. To reiterate, Article 1602 of the Civil Code expressly states the word, ‘in any of the following cases’, hence, it contemplates the existence of any of the circumstances enumerated therein.
Likewise, the trial court failed to appreciate the document presented by the herein respondents-appellants regarding ‘Unlad Savings loan computation’ which apparently showed the interests that the latter would have to pay if the Four Hundred Thousand Pesos (P400,000.00) would be approved by the herein petitioner-appellee. Notably, such loan computation was also made the basis for the amount of money that petitioner-appellee had released to respondent-appellant Ganoran.
We do not lose sight of the fact that the herein petitioner-appellee was also not looking for and was not interested in buying a property when respondent-appellant Ganoran approached him. Indeed, petitioner-appellee never inspected the subject lot as supported by the following admissions by the petitioner-appellee, thus:
“Q: Have you ever inspected the property which is the subject of this case after the sale with right o repurchase?
“Mr. Irao: None sir.
“Q: Even before the sale?
“A: None sir.
Apparently, the foregoing circumstances potently lead us to the inevitable conclusion that the contract entered into by and between the parties to this case was, indeed, an equitable mortgage, not a contract of sale with right to repurchase as it seems to be. Such being the case, the respondents-appellants continue to be the lawful owner of the disputed property; hence, they are entitled to the physical possession thereof.
On this score, in the case of Tolentino v. Court of Appeals,[3] the Supreme Court’s ruling is instructive, to wit:
“Nothing in Article 1602 of the Civil Code indicates that the provision applies only in the absence of an express agreement between the parties.
“Further, we applied Article 1602 in several cases despite the presence of an express or written contract between the parties. In Lapat vs. Rosario, petitioner asked for a consolidation of ownership over two parcels of land by virtue of two Deeds of Sale of Realty with Right to Repurchase allegedly executed by private respondents in petitioner’s favor. Petitioner therein alleged that as respondents failed to repurchase the property on the agreed period, she then became its owner and was therefore entitled to consolidate ownership over it. However, private respondents denied selling the two parcels of land to petitioner. They alleged that petitioner sold to them an Isuzu Elf truck which needed some repairs. As they didn’t have the money for repairs at that time, petitioner loaned to them P60,000 with 4 percent interest. To secure its payment, petitioner required respondents to sign the two Deeds of Sale with Right to Repurchase. In that case, we ruled that the two deeds of sale constituted an equitable mortgage. We applied paragraph 6, Article 1602 of the Civil Code, to wit: In any other case where it may be fairly inferred that the real intention of the parties is that the transaction shall secure the payment of a debt or the performance of any other obligation. The contract of sale with right to repurchase was in reality intended to secure the payment of the P60,000 loan.
“In Misena vs. Rongavilla, petitioner sold to respondent an undivided one-half portion of lot 315 of the Naic Estate Subdivision in Cavite, evidenced by a Deed of Sale. Later on, respondent obtained a loan from and mortgaged the same property to petitioner. Despite respondent’s failure to settle the loan, petitioner did not foreclose the mortgage. In 1988, upon petitioner’s misrepresentation that the document was intended to foreclose the mortgage and that respondent had one year to redeem the property, petitioner asked respondent to sign a Deed of Absolute Sale conveying the property to petitioner. As respondent refused to vacate the property despite repeated demands, petitioner brought the case to court. We ruled in favor of respondent and held that, applying Article 1602 of the Civil Code, the transaction was an equitable mortgage. The real intention of respondent in signing the document was to provide security for the loan and not to transfer ownership over the property.”
Withal, based on the foregoing legal principles, it can be inferred that, in the present case, the real intention of the parties in the their contract was only to provide security for the payment of debt of respondents-appellants and not a Deed of Sale with Right of Repurchase. Thus, the said contract was an equitable mortgage.
Well-entrenched is the jurisprudential rule that Article 1602 of the Civil Code was designed primarily to curtail the evils brought about by contracts of sale with right of repurchase, such as the circumvention of the usury law and pactum commissorium. It particularly envisions contracts of sale with right of repurchase where the real intention of the parties is that the pretended purchase price is money loaned and, in order to secure the payment of the loan, a contract purporting to be a sale with pacto de retro is drawn up.[4]
WHEREFORE, in view of the foregoing premises, the appeal filed in this case is GRANTED. The assailed Decision dated October 24, 2012 of the Regional Trial Court, Branch 82, in Odiongan, Romblon in SPL Proc. No. OD-194 is hereby REVERSED AND SET ASIDE. The Deed of Sale with Right to Repurchase dated March 5, 2005 is hereby declared as an equitable mortgage and the Petition for Consolidation of Title and filed by the herein petitioner is DENIED.
SO ORDERED.
Elbinias and Paredes, JJ., concur.
[1] Record, pp 260-263.
[2] Id., pp. 6-7.
[3] G.R. No. 128759, August 1, 2002.
[4] G.R. No. L-20901, August 31, 1965.