IGNACIO DOMALANTA, TEODORO DOMALANTA AND DOMINADOR DOMALANTA, PETITIONERS, VS. HON. COURT OF APPEALS, SHERIFF OF QUEZON CITY AND MAGDALENA BAUTISTA, RESPONDENTS.

Domalanta versus Court of Appeals

The Case

This is a petition brought by Ignacio Domalanta, Teodoro Domalanta, and Dominador Domalanta against the Court of Appeals, the Sheriff of Quezon City, and Magdalena Bautista. Magdalena Bautista had sued the Domalantas to have a deed of absolute sale reformed and declared an equitable mortgage, and to annul the titles that had been issued to Teodoro and Dominador Domalanta. The case matters for two reasons. First, it is a clean illustration of the equitable mortgage doctrine under the Civil Code, where a sale is treated as security for a loan. Second, it is a stern reminder on the finality of judgments and on how a pleading filed by registered mail must be addressed.

Procedural History

The Court of First Instance of Quezon City rendered judgment in favor of Magdalena Bautista. It declared the deed of absolute sale to be an equitable mortgage, declared the second deed of sale null and void, ordered her to pay the Domalantas 6,000 pesos with legal interest less the 3,143 pesos already paid, and ordered the Domalantas to pay 3,000 pesos as attorney's fees plus costs.

The Domalantas appealed to the Court of Appeals. The Court of Appeals modified the judgment. It again declared the deed of absolute sale in favor of Teodoro Domalanta an equitable mortgage, but it treated the later deed in favor of Dominador Domalanta as an assignment of Teodoro's credit against Magdalena. It ordered her to pay 6,000 pesos with legal interest, and in default the mortgaged property would be sold. It also ordered her to pay 950 pesos to Dominador Domalanta as consideration for the cancellation of the adverse claim and quitclaim of Tomas Ilao, ordered the Register of Deeds to cancel the Domalanta titles and reinstate her title subject to the equitable mortgage lien, ordered Teodoro and Dominador to pay 3,000 pesos in attorney's fees solidarily, and dismissed the complaint against Ignacio Domalanta for lack of a valid cause of action.

The decision of the Court of Appeals was promulgated on July 30, 1980. Copies were received by the plaintiff on August 5, 1980 and by the defendants on August 12, 1980. No motion for reconsideration was filed on time. On August 28, 1980, Atty. Domalanta prepared and mailed a motion for reconsideration, but he addressed it to the Clerk of Court of the Supreme Court in Manila. Because it was carelessly misaddressed, it reached the Court of Appeals only on September 23, 1980. On September 19, 1980, the Court of Appeals issued a resolution declaring its decision final and executory and directing entry of judgment and remand for execution. On October 13, 1980, it denied the motion for reconsideration for being tardy. On November 12, 1980, it denied the motion to set aside those resolutions. Hence this petition, on the lone assignment that the Court of Appeals erred in not giving due course to the motion for reconsideration by misapplying Section 1 of Rule 13 of the Rules of Court.

Facts

Magdalena Bautista, a widow, owned a house and lot on Santolan Road in Quezon City, covered by a transfer certificate of title in her name. A portion of the lot was occupied by Tomas Ilao, who had been leasing it from her since 1954. Ilao had lent her money, reaching 500 pesos by August 1956, and she signed a note promising to sell him one fourth of her lot should she fail to pay. When she planned to sell the lot to another, Ilao caused an adverse claim over one fourth of the property to be annotated on her title in February 1960.

On March 17, 1961, Magdalena obtained a loan of 3,000 pesos from Ignacio Domalanta and offered to mortgage her lot as security. The deed of real estate mortgage was prepared by Ignacio's son, Atty. Teodoro Domalanta. On March 22, 1961, Magdalena, through Atty. Teodoro Domalanta as her counsel, filed a petition to cancel Ilao's adverse claim. The petition was denied on April 19, 1961.

Unable to redeem her property when the mortgage matured on March 17, 1962, Magdalena decided to sell it to Atty. Teodoro Domalanta for 6,000 pesos. She executed a deed of absolute sale in his favor on March 29, 1962, after the litigation on the adverse claim had ended. Upon registration, her title was cancelled and a new title was issued to Atty. Domalanta. He later conveyed the property to his brother Dominador Domalanta for a stated consideration of 8,000 pesos. On August 15, 1964, Dominador filed an ejectment suit against Magdalena for non-payment of rentals. Magdalena promptly retaliated by filing this suit on August 28, 1964, praying that the sale in favor of Teodoro Domalanta be reformed and declared an equitable mortgage, and that the titles issued to Teodoro and Dominador be annulled.

Issues

• Whether or not the Court of Appeals erred in not giving due course to the motion for reconsideration of its July 30, 1980 decision, by not correctly applying Section 1 of Rule 13 of the Rules of Court.
• Whether or not the deed of absolute sale executed by Magdalena Bautista in favor of Teodoro Domalanta is in truth an equitable mortgage securing a loan.

Applicable Provisions

Section 1 of Rule 13 of the Rules of Court provides:

That the filing of pleadings, appearances, motions and notices, orders and other papers with the Court as required by these rules shall be made by filing them personally with the Clerk of the Court or by sending them by registered mail. In the first case the Clerk shall endorse in the pleadings the date of the mailing of the motions, pleadings or any other papers or payments or deposits, as shown by the Post Office stamps on the envelope or the registry receipt, payment or deposit in Court. The envelope shall be attached to the record of the case.

This provision governs how a pleading is filed by registered mail, and the Court reads it to require that the pleading be plainly addressed to the court where the case is pending.

Article 1603 of the Civil Code is the provision the Court of Appeals applied in treating the sale as an equitable mortgage.

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 provision supplies the presumption that a sale is really a security for a debt, which is the heart of the ruling on the sale.

Ruling

On the first issue, the Court held that the Court of Appeals did not err. The mailing of the motion for reconsideration to the Clerk of Court of the Supreme Court was not a valid filing. Under Section 1 of Rule 13, filing by registered mail, like service by registered mail, requires that the pleading be plainly addressed to the court where the case is pending. The Court of Appeals correctly ruled that even if the appellants received the decision on August 13, 1980 rather than August 12, 1980, the reglementary period for filing the motion for reconsideration would have expired on August 28, 1980, and the motion was received only on September 23, 1980, or twenty-six days late. The Court acknowledged that on certain occasions it has allowed liberality in the construction of the Rules, but held that this case does not warrant such liberality because the decision of the Court of Appeals is satisfactorily supported by the records.

On the second issue, the Court quoted with approval the observations of the Court of Appeals. There was no evidence that Magdalena, after executing the deed of sale, ceased to have complete possession of the property supposedly sold. There was no attempt by Teodoro and Dominador Domalanta to transfer the property to their names for taxation purposes. Magdalena paid interest of 150 pesos monthly after the execution of the mortgage deed, and then increased it to 300 pesos monthly after the execution of the deed of sale, both to Teodoro Domalanta. The payment of such interests indicated that the transaction was a loan with interest. Finally, notwithstanding the alleged sale to Teodoro Domalanta, Magdalena's debt continued to pile up to 19,442.28 pesos as of September 1964, the 6,000 peso loan having earned interest of 13,442.28 pesos. On these circumstances, and under Article 1603 of the Civil Code, the Court considered the deed of absolute sale to be an equitable mortgage.

Doctrine

A deed of absolute sale may be declared an equitable mortgage under Article 1603 of the Civil Code where the circumstances show that the real intention of the parties is that the transaction shall secure the payment of a debt. The presumption arises where the vendor remains in possession, where the purchaser does not transfer the property to his name for taxation purposes, where the vendor continues to pay interest, and where the debt continues to accumulate despite the supposed sale.

A pleading filed by registered mail must be plainly addressed to the court where the case is pending. Mailing it to another court is not a valid filing, and the period for filing is not interrupted. Once a judgment becomes final and executory, the court is divested of jurisdiction except to order entry of judgment and remand the records for execution.

Disposition

The Court affirmed the assailed decision and resolutions of the Court of Appeals and dismissed the petition.

Remember This

The single line worth memorizing is that a sale is presumed an equitable mortgage where the real intention is to secure a debt, and a pleading mailed to the wrong court is not filed at all. Examiners like to use this case on the equitable mortgage presumption under Article 1603 and on the strict requirement that a pleading filed by registered mail be addressed to the court where the case is pending.