427 Phil. 503; 99 OG No. 46, 7130 (November 17, 2003)
MENDOZA, J.:
KNOW ALL MEN BY THESE PRESENTS:On December 29, 1981, Rafael executed another “Deed of Absolute Sale” (Exh. 6 - Medalla) in favor of petitioner over his share in the Lopez Jaena property in the amount of P25,000.00, the pertinent parts of which stated:This AGREEMENT, made and entered this 24th day of April, 1979, executed at Bacolod City, Philippines, by and between:W I T N E S S E T H:
RAFAEL M. MEDALLA, Filipino, of legal age, widower and with residence at Bacolod City, Philippines, now and herein-after called as the VENDOR,- a n d -
GEORGINA H. HILADO, Filipino, of legal age, single and a resident of Silay City, Philippines, hereinafter called as the VENDEE.
WHEREAS, in a Final Project of Partition dated December 5, 1977, duly signed by all the heirs of Intestate Estate of late Gorgonio Macainan, under Special Proceeding No. 8043 of Court of First Instance of Negros Occidental, both RAFAEL M. MEDALLA and TERESITA M. MAGALONA were adjudicated shares in Lot 1031 and 1030 as well as in Lot No. 789 and 790 of Bacolod Cadastre, otherwise known as “Badyang.”
WHEREAS, for their convenience, both RAFAEL M. MEDALLA and TERESITA M. MEDALLA agreed to consolidate their shares in one location which agreement was embodied in a public document otherwise known as “DEED OF EXCHANGE”;
WHEREAS, in the above-mentioned DEED OF EXCHANGE, VENDOR consolidated his rights and properties all in Lot No. 1031-1030 in the Bacolod Cadastre;
WHEREAS, for and in consideration of the sum of FIFTY THOUSAND PESOS (P50,000.00), Philippine Currency, receipt of which is hereby acknowledged and confessed, VENDOR transfers, sells, and conveys by way of absolute sale unto the VENDEE, her heirs, assigns and successors-in-interest his rights and interest in Lot 1031 and 1030 as adjudged in the project of partition mentioned above and the rights and interests acquired by virtue of a “Deed of Exchange” mentioned above, the same being free from any and all liens and encumbrances;
WHEREAS, the parties agree that all expenses relative to the Transfer of Title and other expenses like taxes, fees, to effect the transfer shall be borne by the VENDOR.[2]
WHEREAS, in the Final Project of Partition dated December 5, 1977 of the Intestate Estate of late Gorgonio Macainan Special Proceedings No. 8043 of the Court of First Instance of Negros Occidental and duly approved by the court dated November 3, 1981, VENDOR was adjudicated shares equal with the rest of the heirs to the following properties, to wit:Over the next two years, petitioner and Medalla executed three more contracts concerning Lot No. 1031 and the Lopez Jaena property, to wit: (1) “Memorandum of Agreement,” dated November 2, 1983 (Exh. 7 -Medalla), by virtue of which Rafael sold to petitioner “a parcel of land located at corner Lopez Jaena and Luzuriaga Sts. . . . containing an area of 1,197 square meters” for the amount of P200,000.00, payable in three installments;[4] (2) “Deed of Resale,” dated April 30, 1984 (Exh. 8 -Medalla), whereby petitioner resold to Rafael, for P20,000.00, two of the five hectares in Lot “Nos. 1030 and 1031” subject of the Deed of Absolute Sale dated April 24, 1979 (Exh. 4 - Medalla);[5] and (3) “Agreement,” dated May 10, 1984 (Exh. 10 - Medalla), whereby the parties declared that Lot No. 1030 had been inadvertently included in the “Deed of Absolute Sale,” dated April 24, 1979, and in the “Deed of Resale” of April 30, 1984, when the fact was that the subject of the aforementioned agreements was Lot No. 1031.[6]5,362 square meters in the Lopez Jaena area, measured along the whole length of Luzuriaga Street and 2,380 hectares in the Alijis area,. . .;WHEREAS, in order to confine their rights and interests in a single area, a “Deed of Exchange” dated December 4, 1981 was executed by both Rafael M. Medalla and Teresita M. Magalona, one of the heirs, whereby the parties’ rights and interests over the Lopez Jaena area were consolidated over the VENDEE Rafael M. Medalla;
WHEREAS, for and in consideration of TWENTY FIVE THOUSAND PESOS (P25,000.00) Philippine Currency receipt of which is hereby acknowledged and confessed, VENDOR hereby conveys, cedes and transfers his rights and interest over the said properties in favor [of] the VENDEE, her heirs, assigns, and successors-in-interest the above properties by way of absolute sale free from all liens and encumbrances[.][3]
In her answer to the complaint, petitioner alleged that Lot No. 1031 was Rafael Medalla’s share in the estate of Gorgonio Macainan. As for the cross-claim against her, she denied that the agreement between her and Medalla was a loan agreement but, as denominated, a Deed of Sale, reflecting their true agreement. Petitioner therefore filed counter-claims against Anita Macainan and Rafael Medalla for damages and attorney’s fees.[8]
- - That . . . since the execution of the [April 24, 1979] . . . [Deed] of Absolute Sale, cross-claimant [Rafael Medalla] has been in continuous possession and enjoyment thereof, up to the present;
- - That cross-claimant obtained another loan of P25,000.00 from the cross-defendant giving as security therefor a parcel of land situated at Lopez-Jaena Street, Bacolod City, Philippines, and, as in the case of the mortgage of his rights and interests in Lot Nos. 1030 and 1031 of Bacolod Cadastre, to secure the loan of P50,000.00, was required to execute a Deed of Sale in favor of the cross-defendant [Georgina Hilado];
- - That it was agreed between the cross-claimant and cross-defendant that should the former find a buyer for the mortgaged Lopez-Jaena property, the latter will execute the corresponding deed of sale, deducting from the proceeds of said sale the mortgage obligation of cross-claimant in her favor;
- -That after the cross-claimant found a buyer for his Lopez-Jaena property for the sum of P225,000.00, cross-defendant [Hilado] was informed accordingly, but the latter being interested in the property refused to execute the corresponding deed of sale as had been agreed and instead insisted that she buy the property for the sum of P200,000.00;
- - That on November 2, 1983, a document denominated “Memorandum of Agreement” was executed between the cross-claimant and cross defendant [Hilado], wherein the Lopez-Jaena property of the former was sold to the latter for the sum of P200,000.00. A xerox copy of the said “Memorandum of Agreement” is hereto attached, marked as Annex “A” and made an integral part hereof;
- - That from the consideration of P200,000.00 of the Lopez-Jaena property which the cross-claimant sold to the cross-defendant – [Hilado], the sum of P110,000.00 was deducted therefrom by the cross-defendant and applied to the payment of the loan obligation of cross-claimant of P50,000.00 which was secured by a mortgage on his rights and interests to five (5) hectares in Lot Nos. 1030 and 1031 of Bacolod Cadastre, plus an interest of P60,000.00 for [the] period of only ten months, and the balance in the amount of P90,000.00 was paid in cash to the former by the latter;
- - That the cross-claimant personally demanded from the cross-defendant [Hilado] the release of the mortgage constituted over his rights and interests in five hectares of Lot Nos. 1030 and 1031 of Bacolod Cadastre, since the principal obligation secured thereby had already been fully paid plus an interest of P60,000.00, but cross-defendant, with evident bad faith, refused to release the entire five (5) hectares and, instead, executed in favor of the cross-claimant a “Deed of Resale” covering two hectares only, thus retaining for herself, the other three hectares. A xerox copy of the “Deed of Resale” dated May 3, 1984, is hereto attached, marked as Annex “B” and made an integral part hereof;
- - That subsequently, cross-claimant found out that his rights and interests of five hectares was confined to Lot No. 1031 of Bacolod Cadastre and that he had no interest whatsoever in Lot No. 1030 so that after informing the cross-defendant about the error, a document denominated “Agreement” was executed between the parties rectifying the error. A xerox copy of the said “Agreement” dated May 10, 1984, is hereto attached, marked as Annex “C” and made an integral part hereof;
- - That time and again, cross-claimant demanded upon the cross-defendant for the release of the three hectares in Lot No. 1031, Bacolod Cadastre, as the principal obligation, together with the interest, had been fully paid, but said demands fell upon deaf ears;
- - That because of the continued refusal, with evident bad faith and without any justifiable cause, of the cross-defendant to effect a release or to reconvey to cross-claimant the three (3) hectares in Lot No. 1031 of Bacolod Cadastre, given as security for the loan contracted, notwithstanding that the same had already been paid together with the interest charged, although there was no stipulation as to how much interest was to be paid, cross-claimant suffered mental anguish, moral shock, serious anxiety, wounded feelings and similar injury for which the cross-defendant should be held liable in the amount of P50,000.00;[7]
On the second issue, the Court would rule that the transaction entered into by defendant cross [-] claimant [Rafael] Medalla with defendant cross[-]defendant [Georgina] Hilado was one of deed of sale. It has to be observed that at the time the deed of absolute sale was executed by defendant Medalla, he was already in his third year law proper. As such, he had full knowledge of the consequences when he affixed his signature in the aforesaid document. The Court is well convinced that indeed, the intention of defendant-cross claimant Medalla was really to sell his share . . . [in] Lot No. 1031 to defendant cross[-]defendant Hilado. All the formalities required for a valid and enforceable contract have been fully satisfied and the consideration in the amount of P[5]0,000.00 is a fair and reasonable value considering that the aforementioned property is basically an agricultural land. There was no countervailing evidence presented by defendant cross-claimant Medalla to prove that there was fraud or bad faith on the part of defendant cross-defendant Hilado in the execution of the contract. Hence, the deed of absolute sale dated April 24, 1979 covering the [five]-hectare of Lot No. 1031 in favor of defendant cross-defendant Hilado still stands.[9]Rafael Medalla appealed to the Court of Appeals which, on October 15, 1996, rendered judgment reversing the trial court. It held:
Judging from the issues and allegations advanced by both parties, the main issue in this case boils down . . . to whether the Deed of Absolute Sale (Exh. “3” [also Exh. 4 - Medalla]) executed by both appellant Medalla and appellee Hilado is in fact an equitable mortgage.Hence, the Court of Appeals ruled:
. . . .
A perusal of the records would reveal that appellee Hilado offered in evidence a Compromise Agreement of Payment of Delinquent Real Property Taxes dated February 3, 1982 (Exh. “6” -Hilado), (page 260, Records). The said Compromise Agreement, signed by both appellee Hilado and the City Treasurer of Bacolod City, reflects the assessed value of Lot 1031, the subject property of Exh. “3”, to be P145,460.00.
. . . It is common knowledge, which this court takes judicial notice of, that the market value of properties at all times exceeds the assessed value of a property. Considering the foregoing, this court can only conclude that the consideration of P50,000.00 in Exh. “3” on a property with an assessed value of P145,460.00 is grossly inadequate.
A sale is equitable mortgage when the price is inadequate (Lazatin v. Court of Appeals, 22 SCRA 736).
As to who is in possession of the subject lot, appellant [Rafael Medalla] has successfully shown by preponderance of evidence that he is in possession of the subject lot. His testimony is not only corroborated by the testimony of rebuttal witness Ramon Nessia, his tenant, but also by plaintiff herself, Anita Macainan, who is supposed to be hostile to his claim.[10]
The Court of Appeals subsequently denied reconsideration of its ruling. Petitioner now seeks a reversal of the decision alleging -
- the Deed of Sale dated April 24, 1979 is declared as an equitable mortgage;
- the mortgage obligations of defendant-appellant Medalla is found to be extinguished by payment;
- cross-defendant appellee Georgina Hilado is ordered to execute a Deed of Reconveyance in favor of the heirs of defendant-appellant Rafael Medalla over the 3 hectares of Lot 1031 at Pahonocoy, Bacolod City;
- the award of attorney’s fees to cross-defendant appellee Georgina Hilado is hereby SET ASIDE.[11]
Under Art. 1602 in relation to Art. 1604 of the Civil Code, a contract purporting to be an absolute sale is presumed to be an equitable mortgage -
- That the judgment of the Honorable Court of Appeals is premised on a misapprehension of facts.
- That not one of the badges of equitable mortgage under Article 1602 of the Civil Code is present in the instant case.
- That a contract of deed of absolute sale executed is the law between the parties and it is the bounden duty of the contracting parties to learn and know the contents of the said contract.[12]
(1) when the price of a sale . . . is unusually inadequate;The presence of any of these circumstances is sufficient for a contract to be presumed as an equitable mortgage.[13]
(2) when the vendor remains in possession as lessee or otherwise;
(3) when 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 (emphasis added).
[A]ppellant [Medalla] contends that [he took out loans from petitioner but that] his loan obligation to appellee Hilado has been fully paid [by the] proceeds of the sale . . . of the Lopez-Jaena property. . . . On the other hand, appellee Hilado claims otherwise. She avers that their transaction is one of sale which is supported by five written documents, purportedly agreements evidencing a sale which are (a) Deed of Sale dated December 29, 1981 covering lot 1 of Lopez Jaena St., for P25,000.00 (Exh. “6” - Medalla) (b) Memorandum of Agreement dated November 2, 1983 (Exh. 7, Medalla); (c) Deed of Sale dated April 24, 1979 (Exh. “1” - Hilado [also Exh. 4 - Medalla]) ; (d) Deed of Resale dated [April 30,] 1984 (Exh. “2” - Hilado [also Exh. 8 - Medalla]) and (e) Agreement dated May 1[0], 1984 (Exh. “3” - Hilado [also Exh. 10 - Medalla]), (p. 92, Rollo).Petitioner failed to sufficiently explain the “resale” of the two hectares in Lot No. 1031 in 1984 to Medalla for exactly the same price per hectare as that paid by her for the five-hectare lot in 1979 and the lack of receipts for the payment of P200,000.00 for the Lopez Jaena property. Her claim that the “Memorandum of Agreement” of November 2, 1983 concerning the Lopez Jaena property was executed in order “to reflect the total area of the lot sold and to update or correct the amount [of the purchase price]”[18] cannot be given credence not only because the contract is silent on this point but also because it is unusual for her, less than six months after “buying” a piece of land, to agree to “update” the purchase price thereof to an amount which was 700% more than that originally paid for a considerably smaller area.
Recapitulating the above mentioned transactions, appellant Medalla and appellee Hilado’s first transaction in 1979 involved five hectares of Lot 1031 evidenced by a Deed of Absolute Sale (Exh. “3” [also Exh. 4] - Medalla and Exh. “5” - Hilado) for a consideration of P50,000.00. From the very face of the document nothing can be gleaned that the intentions of the parties were different from what the document stated. In 1981 another transaction was entered into by the parties and this time Lot 1 of the Lopez Jaena property with an area of 5,362 sq. meters was the subject of a Deed of Sale (Exh. 6-Medalla) for a consideration of P25,000.00. Again, this document does not denote a different intention by the parties. Two years after, a Memorandum of Agreement (Exh. “7”- Medalla & “4”- Hilado) was entered into purporting to be a sale executed by the same parties again involving the Lopez Jaena property but this time the consideration involved is P200,000.00 for a much smaller lot of 1,191 square meters. At this point, this court is now in doubt whether the true intentions of the parties in the second deed of sale was truly a sale of the Lopez Jaena property for it is highly extraordinary for a vendor to execute two documents of sale involving properties in the same location with comparatively disproportionate price rates. With these circumstances, we have to agree with appellant’s theory that the Deed of Sale (Exh. 6 - Medalla) with a P25,000.00 consideration is really a mortgage.
[T]o show that the proceeds of the sale was applied to the loans received by [appellant]-Medalla, the latter presented the receipt of P90,000.00, (Exh. “9”) the amount that was left after the loans of P50,000.00 and P25,000.00 and its corresponding accumulated interests and P16,000.00 representing the amount paid by appellee Hilado as back taxes of the property were deducted. This allegation was vehemently denied by Hilado . . . . [S]he failed [however] to produce the alleged receipts covering her other payments to Medalla. . . .
. . . .
The Court further observes that after appellant Medalla received the P90,000.00 (see receipt marked Exh. “9”) on March 13, 1984, appellee Hilado executed a Deed of Resale (Exh. “8”) over the 2 hectares of Lot 1031 located at Pahanocoy, Bacolod City on April 30, 1984 for the same price rate of P10,000.00 per hectare. It is very unlikely for one person who had acquired a property for a certain price to sell the same property to the same person five years after for the same price rate, considering that they are unrelated, unless, there has been an understanding between them that the same property will be resold to Medalla after the fulfillment of a resolutory condition.[17]