CIRIACA SANTOS, PETITIONER, VS. TEODORICA DUATA AND THE COURT OF APPEALS, RESPONDENTS.

Santos versus Duata

The Case

This is the case of Santos versus Duata, a dispute over a parcel of land in the Lolomboy Friar Lands Estate in Polo, Bulacan. Teodorica Duata sued Ciriaca Santos to recover a one-fourth share of a lot that stood registered in Santos's name alone. Santos answered that she had bought that share from Teodorica's mother, Epifania Aguilar, under a document styled as a sale with a right to repurchase. The case matters because it is the Supreme Court's classic statement on when a deed that reads like a sale with pacto de retro — a sale with a right to repurchase — is in truth an equitable mortgage, a mere security for a loan, and on how Article 1602 of the Civil Code supplies that presumption.

Procedural History

Teodorica Duata brought the action for reconveyance in the Court of First Instance of Bulacan. The trial court found that the Duata spouses owned one-fourth of the lot, that Epifania Aguilar had sold that share to Ciriaca Santos with a right to repurchase within one year, and that no repurchase was made. It therefore declared the defendant the owner and dismissed the complaint. Duata appealed to the Court of Appeals, which treated the transaction as an equitable mortgage rather than a sale with pacto de retro, set aside the trial court's judgment, and ordered the defendant to execute a deed of conveyance over the share upon payment of the loan of 154 pesos, and to surrender the certificate of title for annotation. The defendant then appealed to the Supreme Court, which decided the case on August 31, 1965.

Facts

Apolonio del Mundo and his brother Dalmacio were lessees of a parcel of land in the Lolomboy Friar Lands Estate at Polo, Bulacan. On November 11, 1908, Apolonio sold his rights to the land to the spouses Pedro Duata and Epifania Aguilar for 40 pesos. From then on, the spouses and later their daughter Teodorica held the land adversely, peacefully, and without interruption. The property later became one-fourth of Lot Number 37 of the estate, covered by Transfer Certificate of Title Number 11938.

On March 23, 1933, Ciriaca Santos, Petrona Gaanan, and Epifania Aguilar bought Lot Number 37 from the Bureau of Lands, agreeing that Gaanan would take one-half and that Santos and the Duata spouses would share the other half equally. The portion allotted to the Duatas was the very land Apolonio had conveyed to them in 1908. For convenience in paying the price and issuing the title, the certificate was placed in the name of Ciriaca Santos alone.

On August 3, 1955, Teodorica Duata sued Ciriaca Santos for reconveyance of one-fourth of the lot. Santos denied the Duatas' ownership and claimed that, in any event, Epifania Aguilar had sold the share to her. She produced a private document, Exhibit 3, purportedly executed by Epifania on September 25, 1938, selling a one-fourth interest for 154 pesos, subject to repurchase within one year. Ciriaca Santos died in February 1957 and was substituted by her sole heir, Juana Prodon. The trial court upheld the sale and dismissed the complaint; the Court of Appeals reversed, holding the deed an equitable mortgage.

Issues

• Whether or not Ciriaca Santos and Epifania Aguilar, in executing Exhibit 3, intended a mortgage rather than a sale with a right to repurchase.
• Whether or not the presumption of an equitable mortgage under Article 1602 of the Civil Code arises from the vendor's continued possession and payment of land taxes, without a concurrence of many other circumstances.
• Whether or not Article 1602 may be applied retroactively to a transaction executed before the effectivity of the New Civil Code.

Applicable Provisions

Article 1602 of the New Civil Code provides:

Article 1602. The contract shall be presumed to be an equitable mortgage, in any of the following cases: (1) When the price of a sale with right to repurchase is unusually inadequate; (2) When the vendor remains in possession as lessee or otherwise; (3) When upon or after the expiration of the right to repurchase another instrument extending the period of redemption or granting a new period is executed; (4) When the purchaser retains for himself a part of the purchase price; (5) When the vendor binds himself to pay the taxes on the thing sold; (6) 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. In any of the foregoing cases, any money, fruits, or other benefit to be received by the vendee as rent or otherwise shall be considered as interest which shall be subject to the usury laws.

This provision supplies the presumption that converts the deed from a sale with pacto de retro into a mere security for a loan, and it is the provision on which the entire ruling turns.

Ruling

On the first issue, the Court held that the transaction was a mortgage, not a sale with a right to repurchase. The stipulation in Exhibit 3, standing alone, would show a sale with pacto de retro. But the parties' contemporaneous acts showed the contrary: despite the deed, Epifania Aguilar remained in possession of the land in the concept of an owner, and she and her daughter continued paying the land tax, a burden attached to ownership. The Court held that previous, simultaneous, and subsequent acts of the parties are proper indicia of their true intention, and that these circumstances raised the presumption under Article 1602.

On the second issue, the Court rejected Santos's argument that an overwhelming number of circumstances must concur before the presumption arises. Article 1602, said the Court, when it expressly states "in any of the following cases," contemplates the existence of any one of the circumstances enumerated. The Court explained that Article 1602 is a new provision designed primarily to curtail the evils of sales with a right of repurchase, such as the circumvention of the usury law and the pactum commisorium — the forfeiture of the debtor's property upon default.

On the third issue, the Court held that Article 1602, being remedial in nature, may be applied retroactively to cases arising before the effectivity of the New Civil Code, and so applied it to Exhibit 3. The Court also noted the Court of Appeals' findings that Epifania had obtained a loan secured by the land, that the loan remained unpaid because Santos refused payment, and that Teodorica had tendered payment after her mother's death. These facts confirmed the presumption that Exhibit 3 was in reality an equitable mortgage.

Doctrine

A deed styled as a sale with a right to repurchase is presumed to be an equitable mortgage when any one of the circumstances in Article 1602 is present — the presence of a single circumstance suffices, and no concurrence of many is required. The vendor's continued possession of the land as owner, and the vendor's payment of the land taxes, are such circumstances. The true intention of the parties is drawn from their previous, simultaneous, and subsequent acts, not from the label of the instrument. Article 1602 is remedial and may be applied retroactively to transactions executed before the New Civil Code took effect.

Disposition

The Supreme Court affirmed the decision of the Court of Appeals, holding the transaction an equitable mortgage and ordering conveyance of the share to Teodorica Duata upon payment of the loan of 154 pesos, without costs.

Remember This

Memorize this line: under Article 1602, any one circumstance — such as the vendor remaining in possession or paying the taxes — suffices to presume an equitable mortgage, and no overwhelming concurrence is needed. Examiners use this case to test the presumption of equitable mortgage, the pacto de retro disguised as security, and the retroactive application of Article 1602.