FRIAN B. LAMBO, PETITIONER, VS. EVELYN VEGA-ROSE, RESPONDENT.

Lambo versus Vega-Rose

The Case

This is a petition for review on certiorari brought by Frian B. Lambo against Evelyn Vega-Rose, arising from a complaint for specific performance with damages. The dispute concerns a residential lot in Zamboanga City that the petitioner had mortgaged to the Home Development Mutual Fund and later nearly lost to foreclosure. When the respondent paid off the loan, the parties executed a deed of absolute sale, but the courts below declared that deed to be, in truth, an equitable mortgage securing a loan. The case matters because it gathers in one decision the badges of equitable mortgage, the effect of an unnotarized deed, the doctrine of estoppel, the quasi-contract of solutio indebiti, and the proper reach of a petition for review on certiorari confined to questions of law.

Procedural History

The respondent filed a complaint for specific performance with damages before Branch 12 of the Regional Trial Court of Zamboanga City. In a decision dated January 15, 2021, the trial court ruled for the respondent, declared the transaction an equitable mortgage under Article 1602 in relation to Article 1604 of the Civil Code, ordered the petitioner to pay the amount advanced within thirty days, and provided that failure to pay would result in foreclosure and public auction of the property. It also awarded attorney's fees of 50,000 pesos.

The petitioner appealed to the Court of Appeals. In a decision dated January 26, 2023, the Court of Appeals denied the appeal and affirmed the trial court with modification, deleting the award of attorney's fees for want of any factual and legal basis stated in the body of the decision. The petitioner moved for reconsideration, which was denied in a resolution dated July 7, 2023. The petitioner then elevated the matter to the Supreme Court by petition for review on certiorari under Rule 45.

Facts

The petitioner was the registered owner of a residential lot in Casas de Amor Subdivision, Lunzuran, Zamboanga City, covered by a transfer certificate of title. To secure a housing loan, she mortgaged the property to the Home Development Mutual Fund. The loan, initially 1,080,000 pesos, was later increased to 3,281,600 pesos, payable over thirty years with interest. After paying only two monthly amortizations in 2016, she defaulted, and by March 30, 2017, the outstanding obligation had risen to 3,612,962.07 pesos. On April 12, 2017, the Fund warned her that foreclosure would be initiated if the amount due was not paid on or before April 17, 2017.

The petitioner was then working abroad in Dubai, so her mother sought the respondent's help. The respondent, based in Davao City, reviewed the loan documents, which the petitioner's brother Edlin brought to her, and agreed to advance the amount needed to settle the loan, on condition that a deed of absolute sale be executed in her favor, reserving the petitioner's right to repurchase upon full payment. On April 12, 2017, the respondent paid the Fund 3,625,607.75 pesos by manager's check, and Edlin issued an acknowledgment receipt for the amount.

The owner's duplicate copy of the title was released not to the respondent but to Edlin under a special power of attorney executed by the petitioner, prompting the respondent to register an adverse claim. No deed transferring ownership was ever registered. The petitioner admitted that she received the deed of absolute sale and the special power of attorney, signed both, and returned them to the respondent without notarization, later explaining that she had changed her mind. After demands failed, the respondent sued.

Issues

• Whether or not the Court of Appeals erred in affirming the order directing the petitioner to pay the respondent 3,625,607.75 pesos despite the finding that there was no valid sale.
• Whether or not the petition should be dismissed for defects in the verification, the certification against forum shopping, and the proof of service.
• Whether or not the transaction between the parties was an equitable mortgage rather than a contract of sale.

Applicable Provisions

Article 1602 of the 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.

This is the provision under which the transaction was presumed to be an equitable mortgage, and any one of its circumstances suffices to raise the presumption.

Article 1236 of the Civil Code provides:

Whoever pays for another may demand from the debtor what he has paid, except that if he paid without the knowledge or against the will of the debtor, he can recover only insofar as the payment has been beneficial to the debtor.

This is the basis of the petitioner's alternative liability under solutio indebiti, the principle that one who pays another's debt may recover what was beneficial to the debtor.

Ruling

On the procedural issue, the Court held that verification is a formal, not jurisdictional, requirement, and that the Court itself had directed the petitioner to submit a proper verification, a valid certification against forum shopping, and proof of authority, which she did. As to service, the respondent eventually received the petition and participated fully, so the purpose of the rule was served and no prejudice or denial of due process appeared.

On the merits, the Court held that the petition raised essentially factual questions, namely the existence of the contract, the authority of the brother, and the intent of the parties, which are beyond a petition for review on certiorari confined to questions of law, especially where the trial court's findings were affirmed by the Court of Appeals.

Even so, the Court found no reversible error. The petitioner ratified her brother's acts by signing the documents on his instructions and transmitting them to the respondent, and she was estopped from denying the contract after accepting its benefits. The absence of notarization did not repudiate her consent; it merely converted a public document into a private one, valid and binding between the parties. And even if no contract existed, she would still be liable under solutio indebiti, since the respondent's payment extinguished her debt and saved her property from foreclosure.

Finally, the Court held that the transaction bore the badges of an equitable mortgage: the petitioner and her family remained in possession as owners, the stated consideration of 1,000,000 pesos was grossly inadequate against the 3,625,607.75 pesos advanced, and the circumstances showed the deed was meant only as security. A mortgage being an accessory contract, the order to reimburse the principal obligation necessarily followed.

Doctrine

A Bar candidate should retain these rules. First, the presence of any one circumstance under Article 1602 of the Civil Code is sufficient to give rise to the presumption of an equitable mortgage. Second, the decisive factor is the intention of the parties, shown not by the nomenclature of the document but by their contemporaneous and subsequent acts and the surrounding circumstances. Third, in case of doubt, the law favors a construction that treats the transaction as an equitable mortgage, as it involves a lesser transmission of rights. Fourth, notarization is not essential to the validity of a contract; its absence merely converts a public instrument into a private one. Fifth, a party who accepts the benefits of an obligation is estopped from repudiating it. Sixth, under Article 1236, one who pays another's debt may recover what he paid, and the debtor cannot retain the benefit without reimbursing the payer, for no person should enrich himself at another's expense.

Disposition

The petition was denied, and the decision of the Court of Appeals, affirming the trial court's ruling with the deletion of attorney's fees, was sustained, leaving the petitioner liable to reimburse the respondent 3,625,607.75 pesos, with the property subject to foreclosure upon failure to pay.

Remember This

Memorize this line: the presence of any one badge under Article 1602 suffices to presume an equitable mortgage, and the true test is the intention of the parties as shown by their acts, not the title of the document. Examiners like to use this case on the badges of equitable mortgage, on the effect of an unnotarized deed, and on solutio indebiti as the fallback liability of a debtor whose obligation was paid by another.