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G.R. No. 162365 January 15, 2014

ROBERTO R. DAVID, Petitioner,

vs.
EDUARDO C. DAVID, Respondent.

DECISION

BERSAMIN, J.:

In a sale with right to repurchase, title and ownership of the property sold are immediately vested in the vendee,
subject to the resolutory condition of repurchase by the vendor within the stipulated period.

The Case

Under review at the defendant's instance is the decision promulgated on October 10, 2003,1 whereby the Court of
Appeals (CA) affirmed the judgment rendered on December 5, 2001 by the Regional Trial Court (RTC), Branch 61, in
Baguio City ordering him to return to the plaintiff the motor vehicle and trailer subject of the complaint, or to pay
their value of ₱500,000.00 should the return not be effected, and to pay the plaintiff ₱20,000.00 as litigation
expenses, ₱50,000.00 as attorney's fees, and the costs of suit.2

Antecedents

Respondent Eduardo C. David (Eduardo) initiated this replevin suit against Roberto R. David (Roberto), his first cousin
and former business partner, to recover the possession of one unit of International CO 9670 Truck Tractor and Mi-
Bed Trailer.

It appears that on July 7, 1995, Eduardo and his brother Edwin C. David (Edwin), acting on their own and in behalf of
their co-heirs, sold their inherited properties to Roberto, specifically: (a) a parcel of land with an area of 1,231 square
meters, together with all the improvements existing thereon, located in Baguio City and covered by Transfer
Certificate of Title No. T-22983 of the Registry of Deeds of Baguio City (Baguio City lot); and (b) two units
International CO 9670 Truck Tractor with two Mi-Bed Trailers.3 A deed of sale with assumption of mortgage (deed of
sale)4 embodied the terms of their agreement, stipulating that the consideration for the sale was ₱6,000,000.00, of
which ₱2,000,000 was to be paid to Eduardo and Edwin, and the remaining ₱4,000,000.00 to be paid to
Development Bank of the Philippines (DBP) in Baguio City to settle the outstanding obligation secured by a mortgage
on such properties. The parties further agreed to give Eduardo and Edwin the right to repurchase the properties
within a period of three years from the execution of the deed of sale based on the purchase price agreed upon, plus
12% interest per annum.

In April 1997, Roberto and Edwin executed a memorandum of agreement (MOA)5 with the Spouses Marquez and
Soledad Go (Spouses Go), by which they agreed to sell the Baguio City lot to the latter for a consideration of
₱10,000,000.00. The MOA stipulated that "in order to save payment of high and multiple taxes considering that the x
x x subject matter of this sale is mortgaged with DBP, Baguio City, and sold [to Roberto], Edwin will execute the
necessary Deed of Absolute Sale in favor of [the Spouses Go], in lieu of [Roberto]."6 The Spouses Go then deposited
the amount of ₱10,000,000.00 to Roberto’s account.7

After the execution of the MOA, Roberto gave Eduardo ₱2,800,000.00 and returned to him one of the truck tractors
and trailers subject of the deed of sale. Eduardo demanded for the return of the other truck tractor and trailer, but
Roberto refused to heed the demand.

Thus, Eduardo initiated this replevin suit against Roberto, alleging that he was exercising the right to repurchase
under the deed of sale; and that he was entitled to the possession of the other motor vehicle and trailer.
 SALES | 2

In his answer, Roberto denied that Eduardo could repurchase the properties in question; and insisted that the MOA
had extinguished their deed of sale by novation.

Judgment of the RTC

On December 5, 2001,8 the RTC rendered judgment in favor of Eduardo, holding that the stipulation giving Eduardo
the right to repurchase had made the deed of sale a conditional sale; that Eduardo had fulfilled the conditions for
the exercise of the right to repurchase; that the ownership of the properties in question had reverted to Eduardo;
that Roberto’s defense of novation had no merit; and that due to Roberto’s bad faith in refusing to satisfy Eduardo’s
claim, Eduardo should be awarded litigation expenses and attorney’s fees. The dispositive portion of the judgment
reads:

WHEREFORE, premises considered, judgment is hereby rendered for the plaintiff and against the defendant
ORDERING the latter to return to the former the motor vehicle and trailer subject matter of the case or to pay its
value in the amount of ₱500,000 in case manual delivery can not be effected; to pay plaintiff the amount of ₱20,000
as litigation expenses; the amount of ₱50,000 as attorney's fees and the costs of this suit.

SO ORDERED.9

Roberto appealed to the CA.

Ruling of the CA

On October 10, 2003,10 the CA promulgated its decision affirming the RTC. It opined that although there was no
express exercise of the right to repurchase, the sum of all the relevant circumstances indicated that there was an
exercise of the right to repurchase pursuant to the deed of sale, that the findings of the RTC to the effect that the
conditions for the exercise of the right to repurchase had been adequately satisfied by Eduardo, and that no
novation as claimed by Roberto had intervened.

On February 16, 2004,11 the CA denied Roberto’s motion for reconsideration.12

Hence, this petition for review on certiorari.

Issues

Roberto seeks a reversal, claiming that the CA erred:

x x x IN HOLDING THAT THE RESPONDENT HAS EXERCISED THEIR RIGHT TO REPURCHASE;

x x x IN HOLDING THAT THERE WAS NO NOVATION OF THE DEED OF SALE WITH ASSUMPTION OF MORTGAGE WHEN
THE PARTIES EXECUTED A MEMORANDUM OF AGREEMENT FOR THE SALE OF THE SUBJECT HOUSE AND LOT AND,
THEREAFTER SOLD THE SAID PROPERTY TO THIRD PERSONS;

x x x IN RESOLVING THE INSTANT CASE IN FAVOR OF RESPO[N]DENT.13

Ruling of the Court

The petition for review has no merit.

A sale with right to repurchase is governed by Article 1601 of the Civil Code, which provides that: "Conventional
redemption shall take place when the vendor reserves the right to repurchase the thing sold, with the obligation to
comply with the provisions of Article 1616 and other stipulations which may have been agreed upon." Conformably
with Article 1616,14 the seller given the right to repurchase may exercise his right of redemption by paying the buyer:
 SALES | 3

(a) the price of the sale, (b) the expenses of the contract, (c) legitimate payments made by reason of the sale, and (d)
the necessary and useful expenses made on the thing sold.

The deed of sale entered into by Eduardo and Roberto contained the following stipulation on the right to
repurchase, to wit:

x x x the Vendors are given the right to repurchase the aforesaid described real property, together with the
improvements thereon, and the two (2) motor vehicles, together with their respective trailers from the Vendee
within a period of three (3) years from the execution of this document on the purchase price agreed upon by the
parties after considering the amount previously paid to the Vendors in the amount of TWO MILLION PESOS
(₱2,000,000.00), Philippine Currency, with an interest of twelve percent (12%) per annum and the amount paid with
the Development Bank of the Philippines with an interest of twelve percent (12%) per annum.15

The CA and the RTC both found and held that Eduardo had complied with the conditions stipulated in the deed of
sale and prescribed by Article 1616 of the Civil Code. Pertinently, the CA stated:

It should be noted that the alleged repurchase was exercised within the stipulated period of three (3) years from the
time the Deed of Sale with Assumption of Mortgage was executed. The only question now, therefore, which remains
to be resolved is whether or not the conditions set forth in the Deed of Sale with Assumption of Mortgage, i.e. the
tender of the purchase price previously agreed upon, which is Php2.0 Million, plus 12% interest per annum, and the
amount paid by the defendant to DBP, had been satisfied.

From the testimony of the defendant himself, these preconditions for the exercise of plaintiff's right to repurchase
were adequately satisfied by the latter. Thus, as stated, from the Php10 Million purchase price which was directly
paid to the defendant, the latter deducted his expenses plus interests and the loan, and the remaining amount he
turned over to the plaintiff. This testimony is an unequivocal acknowledgement from defendant that plaintiff and his
co-heirs exercised their right to repurchase the property within the agreed period by satisfying all the conditions
stipulated in the Deed of Sale with Assumption of Mortgage. Moreover, defendant returned to plaintiff the amount
of Php2.8 Million from the total purchase price of Php10.0 Million. This only means that this is the excess amount
pertaining to plaintiff and co-heirs after the defendant deducted the repurchase price of Php2.0 Million plus
interests and his expenses. Add to that is the fact that defendant returned one of the trucks and trailers subject of
the Deed of Sale with Assumption of Mortgage to the plaintiff. This is, at best, a tacit acknowledgement of the
defendant that plaintiff and his co-heirs had in fact exercised their right to repurchase.16 x x x

Considering that the factual findings of the trial court, when affirmed by the CA, are binding on the Court,17 the
Court affirms the judgment of the CA upholding Eduardo’s exercise of the right of repurchase. Roberto could no
longer assail the factual findings because his petition for review on certiorari was limited to the review and
determination of questions of law only. A question of law exists when the doubt centers on what the law is on a
certain set of undisputed facts, while a question of fact exists when the doubt centers on the truth or falsity of the
alleged facts.18Whether the conditions for the right to repurchase were complied with, or whether there was a
tender of payment, is a question of fact. With both the RTC and the CA finding and holding that Eduardo had fulfilled
the conditions for the exercise of the right to repurchase, therefore, we conclude that Eduardo had effectively
repurchased the properties subject of the deed of sale.

In Metropolitan Bank and Trust Company v. Tan,19 the Court ruled that a redemption within the period allowed by
law is not a matter of intent but of payment or valid tender of the full redemption price within the period. Verily, the
tender of payment is the seller’s manifestation of his desire to repurchase the property with the offer of immediate
performance.20 As we stated in Legaspi v. Court of Appeals,21 a sincere tender of payment is sufficient to show the
exercise of the right to repurchase. Here, Eduardo paid the repurchase price to Roberto by depositing the proceeds
of the sale of the Baguio City lot in the latter’s account. Such payment was an effective exercise of the right to
repurchase.

On the other hand, the Court dismisses as devoid of merit Roberto’s insistence that the MOA had extinguished the
obligations established under the deed of sale by novation.
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The issue of novation involves a question of fact, as it necessarily requires the factual determination of the existence
of the various requisites of novation, namely: (a) there must be a previous valid obligation; (b) the parties concerned
must agree to a new contract; (c) the old contract must be extinguished; and (d) there must be a valid new
contract.22 With both the RTC and the CA concluding that the MOA was consistent with the deed of sale, novation
whereby the deed of sale was extinguished did not occur. In that regard, it is worth repeating that the factual
findings of the lower courts are binding on the Court.

In sales with the right to repurchase, the title and ownership of the property sold are immediately vested in the
vendee, subject to the resolutory condition of repurchase by the vendor within the stipulated period.23 Accordingly,
the ownership of the affected properties reverted to Eduardo once he complied with the condition for the
repurchase, thereby entitling him to the possession of the other motor vehicle with trailer.

WHEREFORE, the Court AFFIRMS the decision promulgated on October 10, 2003; and ORDERS the petitioner to pay
the costs of suit.

SO ORDERED.
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G.R. No. 92248 December 9, 1992

VICENCIO T. TORRES and SOCORRO S. TORRES, petitioners,

vs.
COURT OF APPEALS, CEFERINO ILLUSCUPIDES, ARACELI ILLUSCUPIDES and EMILIO OLORES, respondents.

G.R. No. 93390 December 9, 1992

CEFERINO ILLUSCUPIDES and ARACELI CAMACHO-ILLUSCUPIDES, petitioners,

vs.
COURT OF APPEALS, VICENCIO T. TORRES and SOCORRO S. TORRES, respondents.

NOCON. J.:

Before Us is the petition for review on certiorari of petitioners Ceferino Illuscupides and Araceli Camacho-
Illuscupides in G.R. No. 93390 from the decision of the Court of Appeals dated January 18, 1990. The petition for
review on certiorari in G.R. No. 92248, Vivencio T. Torres, et al. vs. Court of Appeals, et al., was dismissed by the
Court on June 18, 1990 1 for failure to show that a reversible error was committed by the Court of Appeals, and no
motion for reconsideration was taken therefrom.

The facts are undisputed: the Illuscupideses are the owners of two (2) adjoining parcels of lands located in the
Tapuac District, Dagupan City. The parcels are covered by TCT Nos. 14874 and 15167, and have a combined area of
465 square meters. The said properties were mortgaged to the Government Service Insurance System (GSIS).

Sometime in 1965, the Illuscupideses contracted Emilio Olores for the construction of a nine (9) door apartment on
the parcels of land for the sum of P79,400.00. While construction was going on, another door was added, thereby
increasing the cost of the construction to P97,000.00. However, the Illuscupideses could only pay Olores P54,390.51,
thus compelling the latter to sue them for the balance before the Court of First Instance of Pangasinan in Civil Case
No. D-1955. On November 1969, judgment was rendered in favor of Olores for the unpaid balance with interests and
costs. The Illuscupideses then appealed the decision to the Court of Appeals.

Meanwhile, the Illuscupideses received a notice from the GSIS that it was going to foreclosure the mortgage for their
failure to pay the loan when the same became due. To stave off the foreclosure, the Illuscupideses sold the
properties to Vivencio Torres and Socorro Torres (petitioners in G.R. No. 92248), as evidenced by the Deed of Sale
dated October 19, 1973 2 for P130,000.00, of which the vendees paid the vendors P10,000.00, P6,000.00 and
P3,000.00. The vendees likewise paid P51,498.97 to the GSIS. The aforesaid payments were in accordance to the
schedule found in the promissory note executed by the parties on October 19, 1973, 3 which provided —

Downpayment (paid on October 1973) .......... P10,000.00

Payment to the GSIS

(assumption of mortgage) .......... 51,000.00

Cash payment upon issuance of

title in the name of vendee ......... 25,000.00

Balance payable as follows:

Dec. 30, 1974 .................... 11,000.00

Dec. 30, 1975 .................... 11,000.00
Dec. 30, 1976 .................... 11,000.00
Dec. 30, 1977 .................... 11,000.00
 SALES | 6

Provided that no installment

shall be paid until after the
final adjudication of claim of
Engr. E. Olores against vendor .................... 44,000.00

—————
P130,000.00

The parties also executed on the same day an agreement 4 whereby the Torreses would "RESELL, RETRANSFER, and
RECONVEY" to the Illuscupideses "that certain building, more particularly designated as a ten-door concrete
apartment."

Olores found out about the transaction and, fearing that he would not be able to collect from the Illuscupideses, in
case the Court of Appeals would uphold the decision of the trial court in his favor, filed a new case for rescission of
the sale against the Illuscupideses and the Torreses. The Illuscupideses filed a counter-claim against Olores, and a
cross-claim against the Torreses, alleging that the Deed of Sale was a pacto de retro sale.

In 1977, the Court of Appeals upheld the decision in the collection case for the unpaid balance of the construction
costs in favor of Olores. When said judgment became final and executory. Olores tried to execute the same but was
unable to do so.

Meanwhile, trial in the rescission case continued until judgment was rendered on October 7, 1986, 5 the dispositive
portion of which provided:

WHEREFORE, premises considered, by preponderance of evidence, judgment is hereby rendered:

1. Dismissing the complaint for rescission filed by plaintiff;

2. Ordering the dismissal of the cross-claim and counterclaims of defendants Illuscupides against
defendants Torres and plaintiff;

3. Ordering defendants Illuscupides and/or Torres to deliver the P41,000.00 withheld by them as
part of the purchase price of the lots and apartments for the satisfaction of the claim of plaintiff;

4. Ordering defendants Illuscupides to pay plaintiff and defendants Torres the sum of P5,000.00 as
attorney's fees each; (and)

5. Ordering the defendants Illuscupides to pay the costs.

Olores and the Illuscupides then appealed to the Court of Appeals, where the case was docketed as CA-G.R. CV No.
14779. On January 18, 1990, the appellate court rendered a decision, 6 the dispositive portion of which reads as
follows:

WHEREFORE, the decision dated October 7, 1986 is hereby AFFIRMED insofar as the dismissal of the
complaint of plaintiff-appellant Olores, the cross-claim and counter-claim of defendants-appellants
Illuscupides, and the counter-claim of defendant-appellees Torres; REVERSED insofar as Nos. 3, 4
and 5 of the dispositve portion of the Decision are concerned; and the defendants-appellees spouses
Vivencio Torres and Socorro Torres are ordered to reconvey in favor of the defendants-cross-
claimants spouses Ceferino Illuscupides and Socorro Illuscupides "that certain building more
particularly designated as a ten-door apartment in the Deed of Sale executed by and between the
above-named parties on October 19, 1973." Without pronouncement as to costs.

With regard to the appeal of the Illuscupideses, the Court of Appeals did not agree with their contention that the
sale of the properties to the Torreses was actually a pacto de retro sale, since the terms of the Deed of Sale did not
 SALES | 7

provide for the redemption of the property by the vendors. However, the appellate court discovered that the land
and the apartment were sold separately, and only the land appears to have been fully paid. And since the
Agreement (Annex "F") provided that the apartment should be resold to the Illuscupideses, the appellate court held
that the Torreses should reconvey the apartment to the Illuscupideses.

The Illuscupideses filed a motion asking that the Court of Appeals rule upon the apartment rentals collected by
Torreses, since it had ruled that the apartment be reconveyed to them. The appellate court denied the motion on
the ground that the matter of the rentals was not raised as assignment of error in their brief.

From said resolution, the Illuscupideses elevated the case to this Court on a petition for review for certiorari. The
Torreses filed a separate petition for review on certiorari, but the same was dismissed by this Court on June 18,
1990. The dismissal of the Torreses' petition is now final in view of their failure to file a timely motion for
reconsideration.

In their petition, the Illuscupideses allege that the Court of Appeals erred in (1) not construing the Deed of Sale of
October 19, 1973 to be a pacto de retro sale; and (2) in not ruling upon the rentals collected by the Torreses from
the apartment after it had ordered the reconveyance of the apartment to the Illuscupides.

The petition is totally devoid of merit.

The Court of Appeals was correct in construing the Deed of Sale as an absolute sale inasmuch as the terms thereof
are clear on the matter. The Illuscupideses argue, however, that the appellate court should have taken into account
the circumstances surrounding the execution of the deed, particularly the fact that an Agreement to resell the
apartment was executed on the very same day as the deed of sale.

The argument is unavailing. Even if this Court were to agree with the Illuscupideses that parole evidence may be
allowed to add to the terms of the deed of sale, this Court has held in the case of Villarica, et al. vs. Court of Appeals,
et al., 7 that —

[t]he right of repurchase is not a right granted the vendor by the vendee in a subsequent instrument,
but is a right reserved by the vendor in the same instrument of sale as one of the stipulations of the
contract. Once the instrument of absolute sale is executed, the vendor can no longer reserve the
right to repurchase, and any right thereafter granted the vendor by the vendee in a separate
instrument cannot be a right to repurchase but some other right like an option to buy in the instant
case. 8

As with regard to the Illuscupideses' second contention, the Court of Appeals acted correctly in not passing upon the
rentals collected by the Torreses since the Illuscupideses did not ask for the same in their original cross-claim.

WHEREFORE, the decision appealed from is hereby AFFIRMED in toto. Costs against petitioners Illuscupideses.

SO ORDERED.
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G.R. No. 171250 July 4, 2007

SPS. CARLOS AND EULALIA RAYMUNDO and SPS. ANGELITO AND JOCELYN BUENAOBRA, Petitioners,
vs.
SPS. DOMINADOR and ROSALIA BANDONG, Respondents.

DECISION

CHICO-NAZARIO, J.:

This is a Petition for Review on Certiorari under Rule 45 of the Revised Rules of Court, filed by petitioners Spouses
Carlos and Eulalia Raymundo and Spouses Angelito and Jocelyn Buenaobra seeking the reversal and setting aside of
the Decision1 of the Court of Appeals dated 26 September 2005 and its Resolution2 dated 24 January 2006 in CA-G.R.
CV No. 59557. The Court of Appeals, in its assailed Decision and Resolution, reversed the Decision3 of the Regional
Trial Court (RTC) dated 28 January 1998, in Civil Case No. C-14980, declaring the Deed of Sale executed by
respondent Dominador Bandong (Dominador) in favor of petitioner Eulalia Raymundo (Eulalia) as valid and binding.
The dispositive portion of the asailed Court of Appeals Decision reads:

WHEREFORE, premises considered, we hereby GRANT the appeal. The January 28, 1998 decision of the RTC, Branch
126, Caloocan City is hereby REVERSED and SET ASIDE and a new one entered:

1. ANNULLING the Deed of Absolute Sale dated February 3, 1989 as a deed of sale, and considering it instead
as a real estate mortgage of the disputed property to secure the payment of the ₱70,000.00 the plaintiffs-
appellants spouses Bandong owe the defendants-appellees spouses Raymundo. The spouses Bandong are
given one (1) year from the finality of this Decision within which to pay the ₱70,000.00 owed to the spouses
Raymundo, at 12% interest per annum computed from July 17, 1991 until its full payment.

2. ANNULLING the Deed of Absolute Sale dated September 25, 1990, between the spouses Raymundo as
vendors and the spouses Buenaobra as vendees.

3. ORDERING the Register of Deeds of Caloocan City to issue a new Transfer Certificate of Title covering Lot
18, Block 2 of the subdivision plan PSD 16599, a portion of Lot 1073 of the Cadastral Survey of Caloocan, in
the names of the spouses Dominador and Rosalia Bandong, after the cancellation pursuant to this Decision
of TCT No. 222871 currently in the names of the spouses Angelito and Jocelyn Buenaobra; and FURTHER
ORDERING the said Register of Deeds to annotate in the new Transfer Certificate of Title in the names of the
spouses Bandong a real estate mortgage in favor of the spouses Carlos and Eulalia Raymundo reflecting the
terms of this Decision.

4. AWARDING – moral damages in the amount of ₱50,000.00; exemplary damages of ₱20,000.00; and
attorney’s fees and expenses of litigation of ₱20,000.00, plus ₱500.00 per proven appearance of the
plaintiffs-appellants’ counsel in court – all solidarily payable by the spouses Carlos and Eulalia Raymundo and
the spouses Angelito and Jocelyn Buenaobra, to the spouses Dominador and Rosalia Bandong.

5. ORDERING the payment of the costs of the suit, payable by the spouses Carlos and Eulalia Raymundo and
the spouses Angelito and Jocelyn Buenaobra.4

The factual and procedural backdrop of this case are as follows:

Eulalia was engaged in the business of buying and selling large cattle from different provinces within the Philippines.
For this purpose, she employed "biyaheros" whose primary task involved the procuring of large cattle with the
financial capital provided by Eulalia and delivering the procured cattle to her for further disposal. In order to secure
the financial capital she advanced for the "biyaheros," Eulalia required them to surrender the Transfer Certificates of
Title (TCTs) of their properties and to execute the corresponding Deeds of Sale in her favor.
 SALES | 9

Dominador had been working for Eulalia as one of her biyaheros for three decades. Considering his long years of
service without any previous derogatory record, Eulalia no longer required Dominador to post any security in the
performance of his duties.5

However, in 1989, Eulalia found that Dominador incurred shortage in his cattle procurement operation in the
amount of ₱70,000.00. Dominador and his wife Rosalia Bandong (Rosalia) then executed a Deed of Sale6 in favor of
Eulalia on 3 February 1989, covering a parcel of land with an area of 96 square meters, more or less, located at
Caloocan City and registered under TCT No. 1421 (subject property), in the name of the Spouses Bandong. On the
strength of the aforesaid deed, the subject property was registered in the names of Eulalia and her husband Carlos
Raymundo (Carlos). The subject property was thereafter sold by the Spouses Raymundo to Eulalia’s grandniece and
herein co-petitioner, Jocelyn Buenaobra (Jocelyn). Thus, the subject property came to be registered in the name of
Jocelyn and her husband Angelito Buenaobra (Angelito).

After the TCT of the subject property was transferred to their names, the Spouses Buenaobra instituted before the
Metropolitan Trial Court (MeTC) of Caloocan City, an action for ejectment against the Spouses Bandong, docketed
as Civil Case No. 20053, seeking the eviction of the latter from the subject property, which the Spouses Bandong
opposed on the ground that they are the rightful owners and possessors thereof. The MeTC ruled in favor of the
Spouses Buenaobra which, on appeal, was affirmed in toto by the RTC7 and subsequently, by the Court of
Appeals.8 Finally, when the case was raised on appeal before us in G.R. No. 109422, we issued a Resolution9dated 12
July 1993, finding that no substantial arguments were raised therein to warrant the reversal of the appealed
decision.

To assert their right to the subject property, the Spouses Bandong instituted an action for annulment of sale before
the RTC against Eulalia and Jocelyn on the ground that their consent to the sale of the subject property was vitiated
by Eulalia after they were served by Jocelyn’s counsel with the demand to vacate. This was docketed as Civil Case
No. C-14980. The Spouses Bandong alleged that there was no sale intended but only equitable mortgage for the
purpose of securing the shortage incurred by Dominador in the amount of ₱70,000 while employed as "biyahero" by
Eulalia.

Eulalia countered that Dominador received from her a significant sum of money, either as cash advances for the
purpose of procuring large cattle or as personal loan, and when he could no longer pay his obligations, the Spouses
Bandong voluntarily ceded the subject property to her by executing the corresponding deed of sale in her favor.
Indeed, the Spouses Bandong personally appeared before the Notary Public and manifested that the deed was their
own voluntary act and deed.

For her part, Jocelyn maintained that she was a buyer in good faith and for value for she personally inquired from
the Register of Deeds of the presence of any liens and encumbrances on the TCT of the subject property and found
that the same was completely free therefrom. While she admitted that she had previous notice that Dominador and
a certain Lourdes Santos (Lourdes) were in possession of the subject property, Jocelyn claimed that the said
possessors already acknowledged her ownership thereof and even asked for time to vacate. In the end, though, they
refused to leave the premises.

On 28 June 1998, the RTC rendered a Decision10 in Civil Case No. C-14980 in favor of Eulalia and Jocelyn by declaring
that the Deed of Sale between Dominador and Eulalia was valid and binding and, consequently, the subsequent sale
between Eulalia and Jocelyn was also lawful absent any showing that Jocelyn was a buyer in bad faith. The
dispositive portion of the said decision reads:

WHEREFORE, judgment is hereby rendered DISMISSING the complaint filed by the [Spouses Bandong] and ordering
said [Spouses Bandong] to pay [herein petitioners] spouses Raymundo and Buenaobra the amount of ₱50,000 and
₱30,000, respectively, as attorney’s fees and costs of the suit.

On appeal in CA-G.R. SP No. 59557, the Court of Appeals reversed the RTC Decision and found that the transaction
entered into by Dominador and Eulalia was not one of sale but an equitable mortgage considering that the purchase
price was grossly inadequate and the Spouses Bandong remained as possessors of the subject property after
 SALES | 10

Eulalia’s alleged purchase thereof. The appellate court likewise charged Jocelyn with knowledge that the Spouses
Raymundo were not the absolute owners of the subject property negating the presumption that she was an
innocent purchaser for value.

The Court of Appeals found the Motion for Reconsideration filed by petitioners unmeritorious and denied the same
in its Resolution11 dated 24 January 2006.

Hence, this instant Petition for Review on Certiorari filed by the petitioners assailing the Decision dated 26
September 2005 and the Resolution dated 24 January 2006 rendered by the Court of Appeals. For the resolution of
this Court are the following issues:

I.

WHETHER OR NOT THE DEED OF SALE BETWEEN DOMINADOR AND EULALIA IS VALID AND BINDING.

II.

WHETHER OR NOT JOCELYN IS A BUYER IN GOOD FAITH.

In arguing that the sale between Dominador and Eulalia is valid, petitioners posit that gross inadequacy of the price
is not sufficient to invalidate the sale, and granting arguendo that insufficient consideration may void a sale, it has
not been proven that the consideration of sale between Dominador and Eulalia was grossly inadequate.

Elaborating, petitioners maintain that the amount of ₱110,000.00 (which they claimed they have given to
Dominador), or even the sum of ₱70,000.00 (which respondents admitted receiving), was a substantial
consideration, sufficient to support a sale contract. Mere inadequacy of the price is not sufficient to invalidate a sale;
the price must be grossly inadequate or utterly shocking to the conscience in order to avoid a contract of sale.

Petitioners further aver that the alleged market value of the subject property as submitted by the appraiser, one of
respondents’ witnesses, would not serve as an objective basis in determining the actual value of the subject
property, much less the supposed amount of its purchase price, in the absence of any logical and valid basis for its
determination.

Finally, petitioners contend that so long as the contract was voluntarily entered into by the parties and in the
absence of a clear showing that their consent thereto was vitiated by fraud, mistake, violence or undue influence,
such as in the case at bar, the said contract should be upheld.

We do not agree.

An equitable mortgage is one that - although lacking in some formality, forms and words, or other requisites
demanded by a statute - nevertheless reveals the intention of the parties to charge a real property as security for a
debt and contains nothing impossible or contrary to law.12

The instances when a contract - regardless of its nomenclature - may be presumed to be an equitable mortgage are
enumerated in the Civil Code as follows:

Art. 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;
 SALES | 11

(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.

Art. 1604. The provisions of Article 1602 shall also apply to a contract purporting to be an absolute sale.

For Articles 1602 and 1604 to apply, two requisites must concur: one, the parties entered into a contract
denominated as a contract of sale; and two, their intention was to secure an existing debt by way of an equitable
mortgage.13

There is no question that Dominador and Eulalia entered into a contract of sale as evidenced by the document
denominated as Deed of Sale14 signed by them. As to whether the parties intended to transfer ownership of the
subject property or merely to constitute a security for an existing debt is an issue that needs to be addressed by this
Court.

In resolving this kind of controversy, the doctrine in Reyes v. Court of Appeals15 directs us to give utmost
consideration to the intention of the parties in light of the relative situation of each and the circumstances
surrounding the execution of the contract, thus:

In determining whether a deed absolute in form is a mortgage, the court is not limited to the written memorials of
the transaction. The decisive factor in evaluating such agreement is the intention of the parties, as shown not
necessarily by the terminology used in the contract but by all the surrounding circumstances, such as the relative
situation of the parties at that time, the attitude acts, conduct, declarations of the parties, the negotiations
between them leading to the deed, and generally, all pertinent facts having a tendency to fix and determine the real
nature of their design and understanding. x x x16 (Emphasis supplied.)

By applying the aforestated principle to the case at bar, we are constrained to rule that in executing the said Deed of
Sale, Dominador and Eulalia never intended the transfer of ownership of the subject property but to burden the
same with an encumbrance to secure the indebtedness incurred by Dominador on the occasion of his employment
with Eulalia.

By Eulalia’s own admission,17 it was her customary business practice to require her biyaheros to deliver to her the
titles to their real properties and to execute in her favor the corresponding deeds of sale over the said properties as
security for the money she provided for their cattle procurement task, and since Dominador worked for Eulalia’s
business for years, he was allowed to advance the money without any security. Significantly, it was only after he
incurred a shortage that the sale contract was executed.

We are not inclined to believe the contention of the petitioners that Dominador ceded his property to Eulalia as
payment for his obligation for it is contrary to human experience that a person would easily part with his property
after sustaining a debt. Rather, he would first look for means to settle his obligation, and the selling of a property on
which the house that shelters him and his family stands, would be his last resort. The only reasonable conclusion
that may be derived from Dominador’s act of executing a Deed of Sale in favor of Eulalia is that the latter required
him to do so in order to ensure that he will subsequently pay his obligation to her.

This conclusion is in accord with the doctrine we enunciated in Aguirre v. Court of Appeals,18 that:

The explicit provision of Article 1602 that any of those circumstances would suffice to construe a contract of sale
to be one of equitable mortgage is in consonance with the rule that the law favors the least transmission of
property rights. To stress, the existence of any one of the conditions under Article 1602, not a concurrence, or an
overwhelming number of such circumstances, suffices to give rise to the presumption that the contract is an
equitable mortgage.
 SALES | 12

While we agree in the petitioners’ insistence that inadequacy of the price is not sufficient to nullify the contract of
sale, their persistence is, however, misplaced. It is worthy to note that the factual circumstances attendant in the
case at bar call not for the application of the legal and jurisprudential principles on annulment of contract per se, but
more aptly, of the provisions of Articles 1602 and 1604 of the Civil Code on the construction of the contract of sale
as an equitable mortgage.

Consequently, the agreement between Dominador and Eulalia was not avoided in its entirety so as to prevent it
from producing any legal effect at all. Instead, we construe that said transaction is an equitable mortgage, thereby
merely altering the relationship of the parties from seller and buyer, to mortgagor and mortgagee, while the subject
property is not transferred but subjected to a lien in favor of the latter.

Moreover, granting that the purchase price is adequate, the fact that respondents remain in possession of the
subject property after its supposed sale is sufficient to support our finding that the contract is one of equitable
mortgage and not of sale. To reiterate, the existence of any one of the conditions under Article 1602, not a
concurrence, or an overwhelming number of such circumstances, suffices to give rise to the presumption that the
contract is an equitable mortgage.19

Having threshed the issue that there was no sale in favor of Eulalia but an equitable mortgage leads us to an
inevitable conclusion that she has no right to subsequently transfer ownership of the subject property, in
consonance with the principle that nobody can dispose of what he does not have.20 One of the exceptions21 to this
rule, however, can be found in Article 1506 of the Civil Code, wherein the seller has voidable title to a property
but his title has not yet been nullified at the time of the sale, and the subsequent buyer of the property was in
good faith.

An innocent purchaser for value is one who buys the property of another, without notice that some other person has
a right or interest in the property, for which a full and fair price is paid by the buyer at the time of the purchase or
before receipt of any notice of claims or interest of some other person in the property.22

Petitioners are harping on the contention that Jocelyn was an innocent purchaser for value. Invoking the
indefeasibility of a Torrens title, they assert that there is nothing in the subject property’s TCT that should arouse
Jocelyn’s suspicion as to put her on guard that there is a defect in Eulalia’s title.

Again, we are not persuaded. The burden of proving the purchaser’s good faith lies in the one who asserts the same.
In discharging the burden, it is not enough to invoke the ordinary presumption of good faith.23 In Arrofo v.
Quiño,24 we have elucidated that:

[A] person dealing with registered land, [is not required] to inquire further that what the Torrens title on its face
indicates. This rule, however, is not absolute but admits of exceptions.

Thus, while it is true x x x that a person dealing with registered lands need not go beyond the certificate of title, it
is likewise a well-settled rule that a purchaser or mortgagee cannot close his eyes to facts which should put a
reasonable man on his guard, and then claim that he acted in good faith under the belief that there was no defect
in the title of the vendor or mortgagor. His mere refusal to face up to the fact that such defect exists, or his willful
closing of his eyes to the possibility of the existence of a defect in the vendor’s or mortgagor’s title, will not make
him an innocent purchaser for value, if it afterwards develops that the title was in fact defective, and it appears that
he had such notice of the defect as would have led to its discovery had he acted with the measure of precaution
which may be required of a prudent man in a like situation.

In the present case, we are not convinced by the petitioners’ incessant assertion that Jocelyn is an innocent
purchaser for value. To begin with, she is a grandniece of Eulalia and resides in the same locality where the latter
lives and conducts her principal business. It is therefore impossible for her not to acquire knowledge of her grand
aunt’s business practice of requiring her biyaheros to surrender the titles to their properties and to sign the
corresponding deeds of sale over said properties in her favor, as security. This alone should have put Jocelyn on
guard for any possible abuses that Eulalia may commit with the titles and the deeds of sale in her possession.
 SALES | 13

The glaring lack of good faith of Jocelyn is more apparent in her own admission that she was aware that Dominador
and a certain Lourdes were in possession of the subject property. A buyer of real property that is in the possession of
a person other than the seller must be wary. A buyer who does not investigate the rights of the one in possession
can hardly be regarded as a buyer in good faith.25 Jocelyn’s self-serving statement that she personally talked to
Dominador and Lourdes about her acquisition of the subject property and intention to take possession of the same,
and that Dominador and Lourdes even pleaded for time to vacate the subject property cannot be given credence in
light of the prompt filing by the Spouses Bandong of an action for the annulment of the sale contract between
Dominador and Eulalia after they received the demand to vacate from Jocelyn’s lawyer.

In the last analysis, good faith, or the lack of it, is a question of intention.1awphi1 But in ascertaining the intention
that impels one on a given occasion, the courts are necessarily controlled by the evidence as to the conduct and
other outward acts by which the motive may be safely determined.26

Petitioners question further the belated filing by the Spouses Bandong of an action for the annulment of sale, since
the Spouses Bandong filed the same only after they received the notice to vacate, and not immediately after the
execution of the assailed Deed of Sale. We have repeatedly held that the one who is in actual possession of a piece
of land claiming to be the owner thereof may await to vindicate his right. His undisturbed possession gives him a
continuing right to seek the aid of a court of equity to ascertain and determine the nature of the adverse claim of a
third party and its effect on his own title, which right can be claimed only by one who is in possession.27

Finally, we agree with the Court of Appeals that the ejectment case which had been litigated to finality by the
Spouses Buenaobra and the respondents need not alter our conclusion in the present case. Well entrenched is the
doctrine that in ejectment cases, the sole question for resolution is the physical or material possession of the
property in question, so that neither the claim of juridical possession nor an averment of ownership can outrightly
prevent the court from taking cognizance of the case.28 In ejectment cases, all the court may do is to resolve who is
entitled to its possession although, in doing so, it may make a determination of who is the owner of the property in
order to resolve the issue of possession. But such determination of ownership is not clothed with finality. Neither
will it affect ownership of the property or constitute a binding and conclusive adjudication on the merits with respect
to the issue of ownership.29

WHEREFORE, IN VIEW OF THE FOREGOING, the instant Petition is DENIED. The Decision dated 26 September 2005,
and the Resolution dated 24 January 2006, rendered by the Court of Appeals in CA-G.R. SP No. 59957, are
hereby AFFIRMED. Costs against petitioner.

SO ORDERED.
 SALES | 14

G.R. No. 158377 August 13, 2010

HEIRS OF JOSE REYES, JR., namely: MAGDALENA C. REYES, OSCAR C. REYES, GAMALIEL C. REYES, NENITA R. DELA
CRUZ, RODOLFO C. REYES, and RODRIGO C. REYES, Petitioners,
vs.
AMANDA S. REYES, CONSOLACION S. REYES, EUGENIA R. ELVAMBUENA, LUCINA R. MENDOZA, PEDRITO S. REYES,
MERLINDA R. FAMODULAN, EDUARDO S. REYES, and JUNE S. REYES, Respondents.

DECISION

BERSAMIN, J.:

The petitioners1 assail the decision dated July 31, 2002 rendered in C.A.-G.R. CV No. 53039,2 by which the Court of
Appeals (CA) affirmed the decision dated May 21, 1996 of the Regional Trial Court (RTC), Branch 9, in Malolos,
Bulacan.3

Antecedents

Antonio Reyes and his wife, Leoncia Mag-isa Reyes (Leoncia), were owners of a parcel of residential land with an
area of 442 square meters, more or less, located in Pulilan, Bulacan and covered by Tax Declaration No. 7590. On
that land they constructed their dwelling. The couple had four children, namely: Jose Reyes, Sr. (Jose, Sr.), Teofilo
Reyes (Teofilo), Jose Reyes, Jr. (Jose, Jr.) and Potenciana Reyes-Valenzuela (Potenciana). Antonio Reyes died
intestate, and was survived by Leoncia and their three sons, Potenciana having predeceased her father. Potenciana
also died intestate, survived by her children, namely: Gloria ReyesValenzuela, Maria Reyes Valenzuela, and Alfredo
Reyes Valenzuela. Jose, Jr., and his family resided in the house of the parents, but Teofilo constructed on the
property his own house, where he and his family resided.

On July 9, 1955, Leoncia and her three sons executed a deed denominated Kasulatan ng Biling Mabibiling
Muli,4whereby they sold the land and its existing improvements to the Spouses Benedicto Francia and Monica Ajoco
(Spouses Francia) for ₱500.00, subject to the vendors' right to repurchase for the same amount sa oras na sila'y
makinabang. Potenciana's heirs did not assent to that deed. Nonetheless, Teofilo and Jose, Jr. and their respective
families remained in possession of the property and paid the realty taxes thereon.

Leoncia and her children did not repay the amount of ₱500.00.

The Spouses Francia both died intestate (i.e., Monica Ajoco on September 16, 1963, and Benedicto Francia on
January 13, 1964).

Alejandro Reyes (Alejandro), the son of Jose, Sr., first partially paid to the Spouses Francia the amount of ₱265.00 for
the obligation of Leoncia, his uncles and his father. Alejandro later paid the balance of ₱235.00. Thus, on August 11,
1970, the heirs of Spouses Francia executed a deed entitled Pagsasa-ayos ng Pag-aari at Pagsasalin,5whereby they
transferred and conveyed to Alejandro all their rights and interests in the property for ₱500.00.

On August 21, 1970, Alejandro executed a Kasulatan ng Pagmeme-ari,6 wherein he declared that he had acquired all
the rights and interests of the heirs of the Spouses Francia, including the ownership of the property, after the
vendors had failed to repurchase within the given period. On the basis of the Kasulatan ng Pagmeme-ari, Tax
Declaration No. 3703 covering the property7 was canceled by Tax Declaration No. 8715,8 effective 1971, issued to
Alejandro. From then on, he had paid the realty taxes for the property.

Nevertheless, on October 17, 1970, Alejandro, his grandmother (Leoncia), and his father (Jose, Sr.) executed
a Magkakalakip na Salaysay,9 by which Alejandro acknowledged the right of Leoncia, Jose, Jr., and Jose, Sr. to
repurchase the property at any time for the same amount of ₱500.00.
 SALES | 15

On October 22, 1970, Leoncia died intestate.10 She was survived by Jose, Sr., Teofilo, Jose, Jr. and the heirs of
Potenciana. Even after Leonica's death, Teofilo and Jose, Jr., with their respective families, continued to reside in the
property.

Subsequently, Tax Declaration 1228,11 under the name of Alejandro, was issued effective 1980. All of Leoncia's sons
eventually died intestate, survived by their respective heirs, namely:

Name of Surviving Heirs

Decedent

Teofilo Jose, Romeo Reyes, Leonardo Reyes, and Leonora C. Reyes Rodrigo Reyes, Nenita Reyes- dela
Sr. Cruz, Rodolfo Reyes, Oscar Reyes, Gamaliel Reyes, Magdalena Reyes (petitioners herein),
Efren Reyes and Amado Reyes dela Cruz

Jose, Sr. Alejandro Reyes (respondents' predecessor)12

On September 2, 1993, Alejandro also died intestate.13 Surviving him were his wife, Amanda Reyes, and their
children, namely: Consolacion Reyes, Eugenia Reyes-Elvambuena, Luciana Reyes-Mendoza, Pedrito S. Reyes,
Merlinda Reyes-Famodulan, Eduardo Reyes and June S. Reyes (respondents herein).

In 1994, respondent Amanda Reyes asked the heirs of Teofilo and Jose, Jr., to vacate the property because she and
her children already needed it. After the petitioners refused to comply, she filed a complaint against the petitioners
in the barangay, seeking their eviction from the property. When no amicable settlement was reached, the Barangay
Lupon issued a certification to file action to the respondents on September 26, 1994.14

In the interim, petitioner Nenita R. de la Cruz and her brother Romeo Reyes also constructed their respective houses
on the property.15

RTC Proceedings and Ruling

On September 28, 1994, the respondents initiated this suit for quieting of title and reconveyance in the RTC.16 The
complaint, docketed as Civil Case No. 817-M-94 and entitled Amanda Reyes, et al. v. Heirs of Jose Reyes, Jr., et al.,
was later amended.17 They alleged that their predecessor Alejandro had acquired ownership of the property by
virtue of the deed Pagsasa-ayos ng Pag-aari at Pagsasalin executed on August 11, 1970 by the heirs of the Spouses
Francia; that on the basis of such deed of assignment, Alejandro had consolidated his ownership of the property via
his Kasulatan ng Pagmeme-ari; and that under the Magkasanib na Salaysay, Alejandro had granted to Leoncia, his
father Jose, Sr., and his uncles, Teofilo and Jose, Jr. the right to repurchase the property, but they had failed to do so.

The respondents prayed for judgment in their favor, as follows:

WHEREFORE, it is respectfully prayed that judgment be rendered:

1. Quieting the title to the property by declaring the plaintiffs (respondents herein) as the rightful and lawful
owners thereof;

2. Ordering the defendants (petitioners herein) to vacate subject premises and reconvey and or surrender
possession thereof to the plaintiffs;

3. Ordering the defendants to recognize the right of the plaintiffs as the lawful owners of subject property;

4. Ordering the defendants to pay plaintiffs the following:

a. Moral damages in the amount of P50,000.00;

 SALES | 16

b. Exemplary damages in the amount of P20,000.00;

c. Attorney's fees of P20,000.00, acceptance fee of P10,000.00 and P500.00 per recorded Court
appearance of counsel;

d. The costs of this suit.

Plaintiffs further pray for such other relief which the Honorable Court may deem just and equitable under the
premises.18

In their answer,19 the petitioners averred that the Kasulatan ng Biling Mabibiling Muli was an equitable mortgage,
not a pacto de retro sale; that the mortgagors had retained ownership of the property; that the heirs of the Spouses
Francia could not have validly sold the property to Alejandro through the Pagsasaayos ng Pag-aari at
Pagsasalin; that Alejandro's right was only to seek reimbursement of the ₱500.00 he had paid from the co-owners,
namely: Leoncia, Teofilo, Jose, Jr. and Jose, Sr. and the heirs of Potenciana; and that Alejandro could not have also
validly consolidated ownership through the Kasulatan ng Pagmeme-ari, because a consolidation of ownership could
only be effected via a court order.

The petitioners interposed a counterclaim for the declaration of the transaction as an equitable mortgage, and of
their property as owned in common by all the heirs of Leoncia, Teofilo, Jose, Jr. and Jose, Sr.

On May 21, 1996, the RTC ruled in favor of the respondents, declaring that Alejandro had acquired ownership of the
property in 1965 by operation of law upon the failure of the petitioners' predecessors to repurchase the property;
that the joint affidavit executed by Alejandro, Leoncia and Jose, Jr. and Jose, Sr., to extend the period of redemption
was inefficacious, because there was no more period to extend due to the redemption period having long lapsed by
the time of its execution; and that the action should be dismissed insofar as the heirs of Potenciana were concerned,
considering that Potenciana, who had predeceased her parents, had no successional rights in the property.

Accordingly, the RTC decreed as follows:

WHEREFORE, on the basis of the evidence adduced and the law/jurisprudence applicable thereon, judgment is
hereby rendered:

a) sustaining the validity of the "Kasulatan ng Biling Mabibiling Muli" (Exh. B/Exh. 1) executed on July 9, 1955
by Leoncia Mag-isa and her sons Teofilo, Jose, Sr. and Jose, Jr., all surnamed Reyes, in favor of Spouses
Benedicto Francia and Monica Ajoco as well as the "Pagsasa-ayos ng Pag-aari at Pagsasalin" (Settlement of
Estate and Assignment) [Exh. C/Exh. 4] executed on August 11, 1970 by the heirs of spouses Benedicto
Francia and Monica Ajoco in favor of the spouses Alejandro Reyes and Amanda Salonga;

b) declaring the aforementioned "Kasulatan Ng Biling Mabibili Muli" (Exh. B/ Exh. 1) to be a contract of sale
with right to repurchase and not an equitable mortgage;

c) confirming the consolidation of ownership, by operation of law, of spouses Alejandro M. Reyes and
Amanda Salonga over the residential lot mentioned and referred to in Exhibit B/Exhibit 1 and Exhibit
C/Exhibit 4;

d) allowing the registration with the Registry of Deeds for the Province of Bulacan of the "Kasulatan ng
Pagmeme-ari" (Document of Ownership) [Exh. E/Exh. 5] executed by Alejandro M. Reyes on August 21, 1970
or of any appropriate deed of consolidation of ownership over the residential lot covered by Exhibit
E/Exhibit 5 which the plaintiffs, as eventual owners by succession of the aforementioned proeprty, may
deem proper to execute;

e) ordering the defendants and all persons claiming rights under them to vacate the residential lot subject of
the above-entitled case and to restore possession thereof unto the plaintiffs;
 SALES | 17

f) directing the defendants (except the heirs of Potenciana Reyes-Valenzuela) to pay unto the plaintiffs the
amount of P20,000.00 as attorney's fees; and

g) dismissing the complaint in so far as the defendant heirs of Potenciana Reyes-Valenzuela are concerned as
well as their counterclaim for damages and attorney's fees.1avvphi1

No pronouncement as to costs.

SO ORDERED. 20

Aggrieved, the petitioners appealed to the CA.

CA Ruling

In the CA, the petitioners assailed the RTC's dispositions, except the dismissal of the complaint as against
Potenciana's heirs.

In its decision dated July 31, 2002, the CA ruled that the transaction covered by the Kasulatan ng Biling Mabibiling
Muli was not a pacto de retro sale but an equitable mortgage under Article 1602 of the Civil Code; that even after
the deed's execution, Leoncia, Teofilo, Jose, Jr. and their families had remained in possession of the property and
continued paying realty taxes for the property; that the purported vendees had not declared the property for
taxation purposes under their own names; and that such circumstances proved that the parties envisaged an
equitable mortgage in the Kasulatan ng Biling Mabibiling Muli.

The CA observed that the heirs of the Spouses Francia had themselves admitted in paragraph 5 of the Pagsasa-ayos
ng Pag-aari at Pagsasalin that the property had been mortgaged to their predecessors-in-interest, viz:

Na, sa oras ng kamatayan ay nakaiwan sila ng isang lagay na lupang nakasanla sa kanila na makikilala sa kasulatang
kalakip nito sa halagang LIMANG DAANG PISO (P500.00). Ngunit nuong nabubuhay pa ang magasawang Benedicto
Francia at Monica Ajoco ay nakatanggap na ng halagang P265.00 kay Alejandro Reyes - Filipino, kasal kay Amanda
Salonga, may sapat na gulang at naninirahan sa Pulilan, Bulacan.21

However, the CA held that the appellants' (petitioners herein) failure to file an action for the reformation of
the Kasulatan ng Biling Mabibiling Muli to reflect the true intention of the parties within ten years from the deed's
execution on July 9, 1955, pursuant to Article 1144 of the Civil Code,22 already barred them from claiming that the
transaction executed between Leoncia and her children, on one hand, and the Spouses Francia, on the other hand,
was an equitable mortgage. The CA agreed with the RTC that the Magkakalakip na Salaysay did not effectively
extend the period for Leoncia and her children to repurchase the property, considering that the period to repurchase
had long lapsed by the time the agreement to extend it was executed on October 17, 1970.

Issues

In this appeal, therefore, the petitioners insist that:23

I.

The Honorable Court of Appeals erred in finding that respondents (were) already barred from claiming that the
transaction entered into by their predecessors-in-interest was an equitable mortgage and not a pacto de retro sale;

II.

The Honorable Court of Appeals erred in affirming the findings of the court a quo that the Magkasanib na
Salaysay (Joint Affidavit), executed by Alejandro, Leoncia and Jose, Jr., wherein Leoncia and her children were
 SALES | 18

granted by Alejandro the right to repurchase the property at anytime for the amount of P500.00, was of no legal
significance.

Ruling of the Court

The petition is meritorious.

A.

The CA correctly concluded that the true agreement of the parties vis-à-vis the Kasulatan ng Biling
Mabibiling Muli was an equitable mortgage, not a pacto de retro sale. There was no dispute that the
purported vendors had continued in the possession of the property even after the execution of the
agreement; and that the property had remained declared for taxation purposes under Leoncia's
name, with the realty taxes due being paid by Leoncia, despite the execution of the agreement. Such
established circumstances are among the badges of an equitable mortgage enumerated in Article
1602, paragraphs 2 and 5 of the Civil Code, to wit:

Art. 1602. The contract shall be presumed to be an equitable mortgage, in any of the following
cases:

xxx

(2) When the vendor remains in possession as lessee or otherwise;

xxx

(5) When the vendor binds himself to pay the taxes on the thing sold;

xxx

The existence of any one of the conditions enumerated under Article 1602 of the Civil Code, not a
concurrence of all or of a majority thereof, suffices to give rise to the presumption that the contract
is an equitable mortgage.24 Consequently, the contract between the vendors and vendees (Spouses
Francia) was an equitable mortgage.

B.

Are the petitioners now barred from claiming that the transaction under the Kasulatan ng Biling
Mabibiling Muli was an equitable mortgage by their failure to redeem the property for a long period
of time?

The petitioners contend that prescription, if it must apply to them, should as well be applied to the
respondents, who had similarly failed to enforce their right under the equitable mortgage within ten
years from its execution on July 9, 1955. Consequently, they urge the upholding of the original
intention of the parties to the Kasulatan ng Biling Mabibiling Muli, without taking prescription into
account, because both parties did not enforce their respective rights within the ten-year prescriptive
period, is more in keeping with fairness and equity.

We agree with the petitioners.

Considering that sa oras na sila'y makinabang, the period of redemption stated in the Kasulatan ng
Biling Mabibiling Muli, signified that no definite period had been stated, the period to redeem
should be ten years from the execution of the contract, pursuant to Articles 1142 and 1144 of the
Civil Code.25 Thus, the full redemption price should have been paid by July 9, 1955; and upon the
 SALES | 19

expiration of said 10-year period, mortgagees Spouses Francia or their heirs should have foreclosed
the mortgage, but they did not do so. Instead, they accepted Alejandro's payments, until the debt
was fully satisfied by August 11, 1970.

The acceptance of the payments even beyond the 10-year period of redemption estopped the
mortgagees' heirs from insisting that the period to redeem the property had already expired. Their
actions impliedly recognized the continued existence of the equitable mortgage. The conduct of the
original parties as well as of their successors-in-interest manifested that the parties to the Kasulatan
ng Biling Mabibiling Muli really intended their transaction to be an equitable mortgage, not a pacto
de retro sale.

In Cuyugan v. Santos,26 the purported buyer under a so-called contract to sell with right to
repurchase also accepted partial payments from the purported seller. We held that the acceptance
of partial payments was absolutely incompatible with the idea of irrevocability of the title of
ownership of the purchaser upon the expiration of the term stipulated in the original contract for
the exercise of the right of redemption. Thereby, the conduct of the parties manifested that they
had intended the contract to be a mortgage, not a pacto de retro sale.

C.

When Alejandro redeemed the property on August 11, 1970, he did not thereby become a co-owner
thereof, because his father Jose, Sr. was then still alive. Alejandro merely became the assignee of the
mortgage, and the property continued to be co-owned by Leoncia and her sons Jose, Sr., Jose Jr.,
and Teofilo. As an assignee of the mortgage and the mortgage credit, Alejandro acquired only the
rights of his assignors, nothing more. He himself confirmed so in the Magkasanib na
Salaysay, whereby he acknowledged the co-owners' right to redeem the property from him at any
time (sa ano mang oras) for the same redemption price of ₱500.00.

It is worthy to note that Alejandro's confirmation in the Magkasanib na Salaysay of the co-owners'
right to redeem was made despite 15 years having meanwhile elapsed from the execution of the
original Kasulatan ng Biling Mabibiling Muli (July 9, 1955) until the execution of the Magkasanib na
Salaysay (August 21, 1970).

D.

Neither did the petitioners' failure to initiate an action for reformation within ten years from the
execution of the Kasulatan ng Biling Mabibiling Muli bar them from insisting on their rights in the
property. The records show that the parties in the Kasulatan ng Biling Mabibiling Muli had abided by
their true agreement under the deed, to the extent that they and their successors-in-interest still
deemed the agreement as an equitable mortgage despite the lapse of 15 years from the execution
of the purported pacto de retro sale. Hence, an action for reformation of the Kasulatan ng Biling
Mabibiling Muli was unnecessary, if not superfluous, considering that the reason underlying the
requirement for an action for reformation of instrument has been to ensure that the parties to a
contract abide by their true intended agreement.

The Kasulatan ng Pagmeme-ari executed by Alejandro on August 21, 1970 was ineffectual to
predicate the exclusion of the petitioners and their predecessors in interest from insisting on their
claim to the property. Alejandro's being an assignee of the mortgage did not authorize him or his
heirs to appropriate the mortgaged property for himself without violating the prohibition
against pactum commissorium contained in Article 2088 of the Civil Code, to the effect that "[t]he
creditor cannot appropriate the things given by way of pledge or mortgage, or dispose of them[;]
[a]ny stipulation to the contrary is null and void." Aptly did the Court hold in Montevirgen v. Court of
Appeals:27
 SALES | 20

The declaration, therefore, in the decision of July 1, 1971 to the effect that absolute ownership over
the subject premises has become consolidated in the respondents upon failure of the petitioners to
pay their obligation within the specified period, is a nullity, for consolidation of ownership is an
improper and inappropriate remedy to enforce a transaction declared to be one of mortgage. It is
the duty of respondents, as mortgagees, to foreclose the mortgage if he wishes to secure a perfect
title to the mortgaged property if he buys it in the foreclosure sale.

Moreover, the respondents, as Alejandro's heirs, were entirely bound by his previous acts as their
predecessors-in-interest. Thus, Alejandro's acknowledgment of the effectivity of the equitable
mortgage agreement precluded the respondents from claiming that the property had been sold to
him with right to repurchase.28

E.

What was the effect of the Magkasanib na Salaysay?

Both the trial court and the CA declared that the Magkasanib na Salaysay, which extended the redemption period of
the mortgaged property, was inefficacious, because the period to redeem could no longer be extended after the
original redemption period had already expired.

In contrast, the petitioners submit that disregarding the Magkasanib na Salaysay made no sense,considering that
the respondents' predecessors-in-interest admitted therein that the petitioners had a right to redeem the property.

The respondents counter, however, that the Magkasanib na Salaysay, which acknowledged the other co-owners'
right to redeem the property, was void; that the petitioners could no longer claim to be co-owners entitled to
redeem the property, because the co-ownership had come to an end by Alejandro having openly repudiated the co-
ownership; that Alejandro's acts of repudiation had consisted of: (a) redeeming the property from the Spouses
Francia; (b) acquiring the property from the heirs of Spouses Francia by virtue of a deed of assignment denominated
as Pag-aayos ng Pag-aari at Pagsasalin; (c) executing an affidavit of consolidation of ownership over the property
(Kasulatan ng Pagmeme-ari); (d) applying for the cancellation of the tax declaration of property in the name of
Leoncia, and the subsequent issuance of a new tax declaration in his name; (e) his continuous possession of the
property from 1955, which possession the respondents as his heirs had continued up to the present time, or for a
period of almost 50 years already; and (f) the payment of the taxes by Alejandro and the respondents for more than
30 years without any contribution from the petitioners; and that such repudiation established that Alejandro and his
successors-in-interest had already acquired sole title over the property through acquisitive prescription.

The respondents' and the lower courts' positions cannot be sustained.

The provisions of the Civil Code governing equitable mortgages disguised as sale contracts, like the one herein, are
primarily designed to curtail the evils brought about by contracts of sale with right to repurchase, particularly the
circumvention of the usury law and pactum commissorium.29 Courts have taken judicial notice of the well-known fact
that contracts of sale with right to repurchase have been frequently resorted to in order to conceal the true nature
of a contract, that is, a loan secured by a mortgage. It is a reality that grave financial distress renders persons hard-
pressed to meet even their basic needs or to respond to an emergency, leaving no choice to them but to sign deeds
of absolute sale of property or deeds of sale with pacto de retro if only to obtain the much-needed loan from
unscrupulous money lenders.30 This reality precisely explains why the pertinent provision of the Civil Code includes a
peculiar rule concerning the period of redemption, to wit:

Art. 1602. The contract shall be presumed to be an equitable mortgage, in any of the following cases:

xxx

(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;
 SALES | 21

xxx

Ostensibly, the law allows a new period of redemption to be agreed upon or granted even after the expiration of the
equitable mortgagor's right to repurchase, and treats such extension as one of the indicators that the true
agreement between the parties is an equitable mortgage, not a sale with right to repurchase. It was indubitable,
therefore, that the Magkasanib na Salaysay effectively afforded to Leoncia, Teofilo, Jose, Sr. and Jose, Jr. a fresh
period within which to pay to Alejandro the redemption price of ₱500.00.

F.

Did Alejandro and his heirs (respondents herein) acquire the mortgaged property through prescription?

It is true that Alejandro became a co-owner of the property by right of representation upon the death of his father,
Jose Sr.31 As a co-owner, however, his possession was like that of a trustee and was not regarded as adverse to his
co-owners but in fact beneficial to all of them.32

Yet, the respondents except to the general rule, asserting that Alejandro, having earlier repudiated the co-
ownership, acquired ownership of the property through prescription.

The Court cannot accept the respondents' posture.

In order that a co-owner's possession may be deemed adverse to that of the cestui que trust or the other co-owners,
the following elements must concur:

1. The co-owner has performed unequivocal acts of repudiation of the co-ownership amounting to
an ouster of the cestui que trust or the other co-owners;

2. Such positive acts of repudiation have been made known to the cestui que trust or the other co-
owners;

3. The evidence on the repudiation is clear and conclusive; and

4. His possession is open, continuous, exclusive, and notorious.33

The concurrence of the foregoing elements was not established herein. For one, Alejandro did not have adverse and
exclusive possession of the property, as, in fact, the other co-owners had continued to possess it, with Alejandro and
his heirs occupying only a portion of it. Neither did the cancellation of the previous tax declarations in the name of
Leoncia, the previous co-owner, and the issuance of a new one in Alejandro's name, and Alejandro's payment of the
realty taxes constitute repudiation of the co-ownership. The sole fact of a co-owner declaring the land in question in
his name for taxation purposes and paying the land taxes did not constitute an unequivocal act of repudiation
amounting to an ouster of the other co-owner and could not constitute adverse possession as basis for title by
prescription.34Moreover, according to Blatero v. Intermediate Appellate Court,35 if a sale a retro is construed as an
equitable mortgage, then the execution of an affidavit of consolidation by the purported buyer to consolidate
ownership of the parcel of land is of no consequence and the "constructive possession" of the parcel of land will not
ripen into ownership, because only possession acquired and enjoyed in the concept of owner can serve as title for
acquiring dominion.36

In fine, the respondents did not present proof showing that Alejandro had effectively repudiated the co-ownership.
Their bare claim that Alejandro had made oral demands to vacate to his co-owners was self-serving and insufficient.
Alejandro's execution of the affidavit of consolidation of ownership on August 21, 197037 and his subsequent
execution on October 17, 1970 of the joint affidavit38 were really equivocal and ambivalent acts that did not manifest
his desire to repudiate the co-ownership.
 SALES | 22

The only unequivocal act of repudiation was done by the respondents when they filed the instant action for quieting
of title on September 28, 1994, nearly a year after Alejandro's death on September 2, 1993. However, their
possession could not ripen into ownership considering that their act of repudiation was not coupled with their
exclusive possession of the property.

G.

The respondents can only demand from the petitioners the partition of the co-owned property and the
reimbursement from their co-owners of the amount advanced by Alejandro to repay the obligation. They may also
seek from their co-owners the proportional reimbursement of the realty taxes paid for the property, pursuant to
Article 488 of the Civil Code.39 In the alternative, they may opt to foreclose the equitable mortgage, considering that
the petitioners' period to redeem the mortgaged property, which was ten years from the execution on October 17,
1970 of the Magkakasanib na Salaysay, had already long lapsed. We clarify, however, that the respondents may take
these recourses only through the appropriate actions commenced in court.

H.

The petitioners' counterclaim for damages is dismissed for their failure to prove their entitlement to it.40

WHEREFORE, we grant the petition for review on certiorari.

The decision dated July 31, 2002 rendered by the Court of Appeals is reversed and set aside, and another judgment
is rendered:

a) Upholding the validity of the Kasulatan ng Biling Mabibiling Muli (Deed of Sale with Right of Repurchase)
executed on July 9, 1955 by Leoncia Mag-isa Reyes and her sons Teofilo, Jose, Sr. and Jose, Jr., all surnamed
Reyes, in favor of the late Spouses Benedicto Francia and Monica Ajoco as well as the Pagsasa-ayos ng Pag-
aari at Pagsasalin (Settlement of Estate and Assignment) executed on August 11, 1970 by the heirs of the
late Spouses Benedicto Francia and Monica Ajoco in favor of the spouses Alejandro Reyes and Amanda
Salonga;

b) Declaring the Kasulatan ng Biling Mabibili Muli to be an equitable mortgage, not a contract of sale with
right to repurchase;1avvphi1

c) Finding the Magkakalakip na Salaysay executed on October 17, 1970 by and among Leoncia Mag-isa
Reyes, Jose Reyes, Sr. and Alejandro Reyes valid and effective;

c) Nullifying the Kasulatan ng Pagmeme-ari executed by Alejandro M. Reyes on August 21, 1970; and

d) Dismissing the petitioners' counterclaim.

Costs of suit to be paid by the respondents.

SO ORDERED.
 SALES | 23

G.R. No. 219638, December 07, 2016

MARCELINO REPUELA AND CIPRIANO REPUELA, SUBSTITUTED BY CARMELA REPUELA, MERLINDA R. VILLARUEL,
WILLIAM REPUELA, ROSITA P. REPUELA, CRISTINA R. RAMOS, ORLANDO REPUELA, JUNNE REPUELA, AND OSCAR
REPUELA, Petitioners, v. ESTATE OF THE SPOUSES OTILLO LARAWAN AND JULIANA BACUS, REPRESENTED BY
NANCY LARAWAN MANCAO, GALILEO LARAWAN AND SOCRATES LARAWAN, Respondents.

DECISION

MENDOZA, J.:

This Petition for Review on Certiorari under Rule 45 of the Rules of Court assails the May 29, 2014 Decision1 and the
June 10, 2015 Resolution2 of the Court of Appeals (CA) in CA-G.R. CV No. 03976, which reversed and set aside the
February 23, 2011 Decision3 of the Regional Trial Court (RTC), Seventh Judicial Region, Branch 7, Cebu City, in Civil
Case No. CEB-28524, a case for Annulment of Documents, Quieting of Title, Redemption, Damages, and Attorney's
Fees.

The Antecedents

Spouses Lorenzo and Magdalena Repuela owned Lot No. 3357 (subject property), situated in Lawaan III, Talisay City,
Cebu, and covered by Transfer Certificate of Title (TCT) No. 5154. After they had passed away, their children
Marcelino Repuela (Marcelino) and Cipriano Repuela (Cipriano) succeeded them as owners of the subject property.4

Cipriano and Marcelino (Repuela brothers) claimed that sometime in July 1963, after the death of their parents, they
went to the house of Otillo Larawan (Otillo) to borrow P200.00 for Marcelino's fare to Iligan City; that to secure the
loan, the spouses Otillo and Juliana Larawan (Spouses Larawan) required them to turn over the certificate of title for
Lot No. 3357; that they were made to sign a purported mortgage contract but they were not given a copy of the said
document; that Cipriano affixed his signature while Marcelino, being illiterate, just placed his thumb mark on the
document; that they remained in possession of the land despite the mortgage and had been planting bamboos,
corn, bananas, and papayas thereon and sharing the produce between them; and that they also paid the taxes due
on the property.5

In October 2002, as recalled by Cipriano's daughter, Cristina Repuela Ramos (Cristina), she went to the City
Treasurer's Office of Talisay City, upon the request of her father, to verify whether Spouses Larawan were paying the
realty taxes on the mortgaged property. She learned that Spouses Larawan did not pay the taxes and the tax
declaration on the subject property was already in their names as early as 1964; that in the Registry of Deeds of
Cebu, TCT No. 5154 was already cancelled and a new certificate of title, TCT No. 10506, had been issued to Otillo;
that Spouses Larawan were able to transfer the certificate of title to their names by virtue of the Extajudicial
Declaration of Heirs and Sale bearing the signature of her father Cipriano and the thumb mark of her uncle
Marcelino; and that her father and uncle remembered that they were made to sign a blank document.

On January 17, 2003, Cipriano and Marcelino, on account of this predicament, were compelled to file a complaint
before the RTC for the annulment of the Extrajudicial Declaration of Heirs and Sale and the cancellation of TCT No.
10506. During the trial, Catalina Burlas (Burlas), who lived next to the subject property, and Alma Abellanosa
(Abellanosa), City Assessor of Talisay City, were also presented as witnesses for the Repuela brothers.6

Burlas testified that the Repuela brothers confided in her about Marcelino's desire to go to Iligan City but they had
no money for his fare; that another neighbor referred the Repuela brothers to Otillo, who could lend them P200.00
but only upon the signing of a deed of mortgage and the surrender of the certificate of title as collateral; that
Marcelino was able to leave for Iligan but he came back after three months to help Cipriano in cultivating the land;
that she did not see any other person till the land except the Repuela brothers; and that she could not recall a time
when Otillo, whom she personally knew, ever visited or cultivated the subject property.7
 SALES | 24

Abellanosa, as City Assessor, stated that based on the records of her office, Lot No. 3357 was declared for taxation
purposes for the first time in 1961 when Tax Declaration No. 12543 was issued in the name of Lorenzo Repuela; that
in 1964, Tax Declaration No. 24112 was issued in the name of Spouses Larawan on the basis of a deed of sale; and
that the subsequent tax declarations had Spouses Larawan as the owners.8

For the Estate of Spouses Larawan, on the other hand, the transaction between the Repuela brothers and Otillo was
a sale and not a mortgage of a parcel of land. The Estate also invoked laches on the part of the Repuela brothers for
failing to file a complaint during the lifetime of Spouses Larawan. Galileo Larawan (Galileo), son of Spouses Larawan
and the sole witness for the Estate, testified that he knew of the transaction between his father and the Repuela
brothers because his father brought him along to the office of Atty. Celestino Bacalso (Atty. Bacalso), where the
document entitled Extrajudicial Declaration of Heirs and Sale was prepared; that the said document was signed by
Cipriano and thumbmarked by Marcelino which was witnessed by Hilario Bacalso and Fernando Abellanosa; that he
witnessed the Repuela brothers affix their signature and thumbmark after Atty. Bacalso read and explained to them
the contents of the document in the Cebuano dialect; that after the document was notarized, his father handed
P2,000.00 to the Repuela brothers as consideration for the sale; and that he was only six (6) years old when these all
happened.9

Galileo also pointed out that the new certificate of title, TCT No. 10506, in the name of Spouses Larawan, was issued
by the Register of Deeds on August 20, 1963; that his mother paid the real estate taxes during her lifetime and, after
her death, he himself made the payments; that he secured the tax declaration for the subject property from the
office of the Talisay City Assessor; that their family had been in possession of the subject property and they had
harvested and enjoyed the produce of the land such as bamboos, jackfruit and 100 coconut trees; and that there
were no other persons claiming ownership over the land, as the Repuela brothers never offered to redeem the
subject property from their family.10

The Ruling of the RTC

After the trial, the RTC decided in favor of the Repuela brothers. It held that the transaction between the parties was
not a sale but an equitable mortgage. The testimony of Galileo for the respondent, who was admittedly just six (6)
years old then, was "likely colored by the lens of adult perspective and self-interest." It believed the claim of
Cipriano, who only had the benefit of a Grade One education, and the illiterate Marcelino, that they merely signed a
document without knowing its nature. The trial court gave more credence to the claim of possession of the Repuela
brothers because the same was affirmed by a disinterested person, Burlas, who had been living in the area since she
was small and whose lot adjoined the subject property. According to her, only Cipriano and Marcelino cultivated the
land and she never saw anyone, not even Otillo, work on the land.11

Moreover, it was the trial court's opinion that the evidence of possession weighed more on the side of the Repuela
brothers than that of the Estate of Spouses Larawan. Their assertion of possession was bolstered by the fact that
they too paid taxes on the property, an indication that they were still in possession of the subject property.
Considering that they still possessed the subject property even after the execution of the sale, in the concept of an
owner and continued paying the land taxes thereon, the RTC was of the view that the contract, entered into by the
Repuela brothers and Otillo, was an equitable mortgage under Article 1602 of the Civil Code.12 Thus, the RTC
disposed: chanRoblesvirtualLawlibrary

Hence, the Court: ChanRoblesVirtualawlibrary

1. Declares the sale in the document, "Extrajudicial Declaration of Heirs and Sale," signed by Cipriano and Marcelino
Repuela in favor of Otillo Larawan and spouse on July 1, 1963, as in effect an equitable mortgage;

2. Gives Cipriano and Marcelino Repuela thirty (30) days from the finality of this decision to redeem the property in
the amount of Two Thousand Pesos (P2,000.00), with interest at the legal rate computed from the date of the filing
of the Complaint; and

3. Directs defendants to pay plaintiffs: ChanRoblesVirtualawlibrary

 SALES | 25

a. P20,000.00, as attorney's fees, and

b. P20,000.00, as litigation expenses.chanroblesvirtuallawlibrary

Costs are assessed against the defendants.

SO ORDERED.13

Not in conformity, the Estate of Spouses Larawan appealed the case to the CA.

The Ruling of the CA

On May 29, 2014, the CA reversed and set aside the February 23, 2011 Decision of the RTC for the following
reasons: ChanRoblesVirtualawlibrary

1. The Repuela brothers failed to present any direct and positive proof to rebut the presumption of the document's
due execution. They failed to prove any factual circumstance to point that the transaction covered therein was one
of mortgage, or at the least, that such was their intention;

2. The Repuela brothers had not proven continued possession of the subject property which would have given the
impression that it was not sold but merely mortgaged;

3. None of the enumerated circumstances in Article 1602 of the Civil Code was present in order for the presumption
of equitable mortgage to apply. Contrary to the factual finding of the trial court, the evidence did not show that they
were still in possession of the property even after the execution of the document and that they continued paying the
taxes on the property immediately after the execution of the deed; and,

4. Granting arguendo that the transaction was a mortgage, their cause of action was already barred by laches as 39
years had already elapsed before they asserted their rights over the subject property.14

The decretal portion of the CA decision reads: ChanRoblesVirtualawlibrary

WHEREFORE, premises considered, the instant appeal is GRANTED. The February 23, 2011 Decision of the RTC
Branch 7 of Cebu City in Civil Case No. CEB-28524 is REVERSEDand SET ASIDE and the complaint for Annulment of
Documents, Quieting of Title, Redemption, Damages and Attorney's Fees is DISMISSED.

SO ORDERED. cralawlawlibrary15

After their motion for reconsideration was denied by the CA in its Resolution, dated June 10, 2015, the heirs of the
Repuela brothers (petitioners) filed the subject petition.

Issue

Whether the Extrajudicial Declaration of Heirs

and Sale amounted to an equitable mortgage.

Petitioners explain that the Repuela brothers only filed the case in 2003 because they found no urgency to file it as
there were no indications that their title and possession over the subject property were threatened. They claim that
their predecessors-in-interest were in peaceful, open, continuous, and public possession as owners of the subject
property from the time of the transaction in 1963 until the time when they decided to partition their property and
learned, in the process, that the tax declaration and title of their lot were already transferred in the name of Spouses
Larawan. They argue that considering that they, who were claiming to be the owners thereof, were in actual
possession of the property, their right to seek reconveyance, which in effect sought to quiet the title to the property,
never prescribed.16
 SALES | 26

Petitioners further argue that the existence of the Extrajudicial Declaration of Heirs and Sale was not enough proof
that the Repuela brothers really intended to sell the property, and that the stipulations in the contract should be
construed together with the parties' contemporaneous and subsequent acts as regards the execution of the
contract. The same was true with the issuance of a new owner's TCT in favor of Spouses Larawan. It neither imports
conclusive evidence of ownership nor proves that the agreement between the parties was one of sale. A conveyance
by registration in the name of the transferee and the issuance of a new certificate is not secured from the operation
of the equitable doctrine, to the effect that any conveyance intended as security for a debt would be held in effect to
be a mortgage, than most informal conveyance that could be devised.17

The CA, according to petitioners, should have given more credence to the testimonies of the Repuela brothers, as
corroborated and affirmed by the disinterested witness, Burlas, over that of Galileo, the lone witness for the
respondent. As correctly observed by the trial court, Galileo was just six (6) years old when he supposedly witnessed
the alleged transaction in the office of Atty. Bacalso, and so he could not have possibly known the nature of the
executed contract. Echoing the RTC, they pointed out that a six-year old boy's curiosity and concerns could not have
extended to things of this nature and that his recollection of events was likely colored by the lens of adult
perspective and self-interest, as Galileo himself admitted that he did not read the document.18

Finally, they stress that the Repuela brothers remained in possession of the subject property even after the
transaction and they also paid the taxes thereon for the years 1985 to 2002 on December 18, 2002. These
circumstances surrounding the transaction entered into by and between the Repuela brothers and Otillo would
naturally lead anyone to infer that this instance was espoused in Article 1602 of the Civil Code. This is in line with
jurisprudence consistently holding that the presence of one, and not the confluence of several circumstances, is
sufficient to prove that a contract of sale is one of an equitable mortgage.19

The Position of Respondent

In its Comment,20 dated December 28, 2015, respondent Estate of Spouses Larawan (respondent) averred that the
extrajudicial settlement and sale executed by the parties could not be presumed as an equitable mortgage. First, the
said contract was "not a sale with right to repurchase" and the price of the sale was not unusually inadequate.
Second, there is no documentary evidence that would support the claim of possession by the Repuela brothers, as
lessee or otherwise, continuously from the execution of the document of sale until the filing of the case. Third, the
third situation (when upon or after the expiration of the right to repurchase, another instrument extending the
period of redemption or granting a new period was executed) wherein a contract shall be presumed to be an
equitable mortgage is not applicable in the instant case. The Extrajudicial Declaration of Heirs and Sale did not
provide for a right to repurchase. As such, there was no period of redemption to be extended or a new period to be
executed. Fourth, there was no showing that Otillo, as purchaser, retained for himself a part of the purchase price.
He paid the amount of P2,000.00 as sale consideration to the Repuela brothers.21 Fifth, there was no agreement in
the contract of sale that the Repuela brothers, as vendors, bound themselves to pay the taxes on the thing sold. And
finally, the Extrajudicial Declaration of Heirs and Sale was quite clear and specific that what was involved was a sale
of the subject property. From the terms of the contract, no inference could be made that the real intention of the
parties was to secure the payment of a debt or the performance of any other obligation.

The Court's Ruling

The Court finds merit in the petition.

An equitable mortgage is one which, although lacking in some formality, or form, or words, or other requisites
demanded by a statute, reveals the intention of the parties to charge real property as security for a debt, and
contains nothing impossible or contrary to law.22

For a presumption of an equitable mortgage to arise, two requisites must first be satisfied, namely: that the parties
entered into a contract denominated as a contract of sale and that their intention was to secure an existing debt by
way of mortgage.23 There is no single conclusive test to determine whether a deed of sale, absolute on its face, is
really a simple loan accommodation secured by a mortgage. Article 1602, in relation to Article 1604 of the Civil Code,
 SALES | 27

however, enumerates several instances when a contract, purporting to be, and in fact styled as, an absolute sale, is
presumed to be an equitable mortgage. Thus: ChanRoblesVirtualawlibrary

ART. 1602. The contract shall be presumed to be an equitable mortgage, in any of the following
cases: chanRoblesvirtualLawlibrary

(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 case, 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.

xxx

ART. 1604. The provisions of Article 1602 shall also apply to a contract purporting to be an absolute
sale. [Emphases and underscoring supplied]

Evident from Article 1602, the presence of any of the circumstances set forth therein suffices for a contract to be
deemed an equitable mortgage. No concurrence or an overwhelming number is needed.24In other words, the fact
that some or most of the circumstances mentioned are absent in a case will not negate the existence of an equitable
mortgage.

In this case, it appears that two (2) instances enumerated in Article 1602 — possession of the subject property and
inference that the transaction was in fact a mortgage attended the assailed transaction.

Possession as Lessee or
otherwise

Article 1602 (2) of the Civil Code provides that when the supposed vendor remains in possession of the property
even after the conclusion of the transaction, the purported contract of sale is presumed to be an equitable
mortgage. In general terms, possession is the holding of a thing or the enjoyment of a right, whether by material
occupation or by the fact that the right is subjected to the will of the claimant. The gathering of the products of and
the act of planting on the land constitute occupation, possession and cultivation.25cralawred

In this case, petitioners insist that the Repuela brothers remained in possession of the subject property after the
transaction, as was corroborated by a disinterested person, Burlas, who lived in the adjoining lot from the time she
was a child. According to her, it was only the Repuela brothers who tilled the land and planted corn, bananas and
camote. She never saw Otillo, whom she also knew, till or work on the land.

The respondent's claim of possession, as supported by a transfer certificate of title and tax declaration of the subject
property, both in the name of Spouses Larawan is, to the Court's mind, not persuasive. These documents do not
prove actual possession. They do not rebut the overwhelming evidence of the Repuela brothers that they were in
actual possession. The fact of registration in the name of Spouses Larawan does not change the picture. A
 SALES | 28

conveyance of land, accompanied by registration in the name of the transferee and the issuance of a new certificate,
is no more secured from the operation of this equitable doctrine than the most informal conveyance that could be
devised. In an equitable mortgage, title to the property in issue, which has been transferred to the respondents
actually remains or is transferred back to the petitioner as owner-mortgagor, conformably to the well-established
doctrine that the mortgagee does not become the owner of the mortgaged property because the ownership remains
with the mortgagor pursuant to Article 2088, of the Civil Code.26

Inference can be made

that the transaction was
an equitable mortgage

From the attending circumstances of the case, it can be inferred that the real intention of the Repuela brothers was
to secure their indebtedness from Spouses Larawan. They needed money for Marcelino's fare so they went to the
house of Otillo to borrow P200.00. Considering that Spouses Larawan would only agree to extend the loan if they
would surrender their certificate of title over the subject property, they obliged in the belief that its purpose was
only to secure their loan. In other words, they surrendered the title to Spouses Larawan as security to obtain the
much needed loan. It was never their intention to sell the subject property.

As held in Banga v. Sps. Bello,27 in determining whether a deed, absolute in form, is a mortgage, the court is not
limited to the written memorials of the transaction. "The decisive factor in evaluating such agreement is the
intention of the parties, as shown not necessarily by the terminology used in the contract but by all the surrounding
circumstances, such as the relative situation of the parties at that time, the attitude, acts, conduct, declarations of
the parties, the negotiations between them leading to the deed, and generally, all pertinent facts having a tendency
to fix and determine the real nature of their design and understanding."28

There is a presumption of
mistake

Granting that indeed Cipriano and Marcelino, signed and thumbmarked, respectively, the Extrajudicial Declaration of
Heirs and Sale, there is still reason to believe that they did so without understanding the real nature, effects and
consequences of what they did as they were never explained to them. Cipriano, who only finished Grade One, and
Marcelino, an illiterate, were in dire need of money. As such, the possibility that they affixed their conformity to the
onerous contract to their detriment just to get the loan was not remote. In dire need as they were, they signed a
document despite knowing that it did not express their real intention. "Necessitous men are not, truly speaking, free
men; but to answer a present emergency, will submit to any terms that the crafty may impose upon them." 29 For this
reason, the Repuela brothers should be given the protection afforded by the Civil Code provisions on equitable
mortgage.

As aptly explained in Cruz v. Court of Appeals,30 the Court held: ChanRoblesVirtualawlibrary

Vendors covered by Art. 1602 usually find themselves in an unequal position when bargaining with the vendees, and
will readily sign onerous contracts to get the money they need. Necessitous men are not really free men in the sense
that to answer a pressing emergency they will submit to any terms that the crafty may impose on them. This is
precisely the evil that Art. 1602 seeks to guard against. The evident intent of the provision is to give the supposed
vendor maximum safeguards for the protection of his legal rights under the true agreement of the parties.31

Besides, where a party is unable to read or when the contract is in a language not understood by a party and mistake
or fraud is alleged, the obligation to show that the terms of the contract had been fully explained to the said party
who is unable to read or understand the language of the contract devolves on the party seeking to enforce it.
Indeed, that burden to show that the other party fully understood the contents of the document rests upon the
party who seeks to enforce the contract. If he fails to discharge this burden, the presumption of mistake, if not,
fraud, stands unrebutted and controlling.32 Respondent failed to overcome this burden.
 SALES | 29

In the case at bench, Galileo's testimony that he had witnessed the Repuela brothers affix their conformity after
Atty. Bacalso read and explained to them the contents of the document in the Cebuano dialect, fails to convince this
Court. As keenly observed by the RTC, Galileo was just six (6) years old when he witnessed the transaction in the
office of Atty. Bacalso. To the Court's mind, Galileo could not have possibly known the nature of the purported
contract, much less, perceived with certainty if the Repuela brothers were indeed apprised of the true nature of the
said contract before they were made to sign and thumbmark it. For this reason, the presumption of mistake, if not
fraud, shall remain.

Furthermore, it must be pointed out that the law accords the equitable mortgage presumption in situations when
doubt exists as to the true intent of the parties to the contract,33 as in this case. Courts are generally inclined to
construe one purporting to be a sale as an equitable mortgage, which involves a lesser transmission of rights and
interests over the property in controversy.34

There was no prescription

or laches

Contrary to the findings of the CA that petitioners' cause of action was already barred by laches because of the 39
years that had already lapsed before they asserted their rights over the property, the Court holds otherwise.
In Inamarga v. Alano,35 the Court considered the deed of sale as equitable mortgage and
wrote: ChanRoblesVirtualawlibrary

xxx Where there is no consent given by one party in a purported contract, such contract was not perfected;
therefore, there is no contract to speak of. The deed of sale relied upon by petitioner is deemed a void contract. This
being so, the action based on said deed of sale shall not prescribe in accordance with Article 1410 of the Civil
Code.36 [Emphasis supplied]

Legal Interest

In the case of Muñoz v. Ramirez,37 the Court stated that where it was established that the reciprocal obligations of
the parties were under an equitable mortgage, reconveyance of the property should be ordered to the rightful
owner therein upon the payment of the loan within 90 days from the finality of that decision.38

In the case at bench, the RTC ordered the Repuela brothers to pay their loan amounting to P2,000.00 with interest at
the legal rate computed from the date of the filing of the complaint in order for them to repair the property.

In determining the legal rate applicable in this case, Circular No. 799, series of 2013, issued by the Office of the
Governor of the Bangko Sentral ng Pilipinas on June 21, 2013, which was the basis of the Court in Nacar v. Gallery
Frames,39 provides that effective July 1, 2013, the rate of interest for the loan or forbearance of any money, goods or
credits and the rate allowed in judgments, in the absence of an express contract as to such rate of interest, shall be
six percent (6%) per annum. Applying the foregoing, the rate of interest of 12% per annum on the obligation of the
Repuela brothers shall apply from the date of the filing of the complaint on January 17, 2003 until June 30, 2013
only. From July 1, 2013 until fully paid, the legal rate of 6% per annum shall be applied to their unpaid obligation.

WHEREFORE, the petition is GRANTED. The assailed May 29, 2014 Decision and the June 10, 2015 Resolution of the
Court of Appeals in CA-G.R. CV No. 03976 are SET ASIDE. The February 23, 2011 Decision of the Regional Trial Court,
Cebu City, Seventh Judicial Region, Branch 7 in Civil Case No. CEB-28524 is REINSTATED with MODIFACATION in that
the 12% interest per annum shall only apply from January 17, 2003 until June 30, 2013 only, after which date and
until fully paid, the mortgage indebtedness of Cipriano Repuela and Marcelino Repuela shall earn interest at 6% per
annum.

SO ORDERED. Cralawlawlibrar
 SALES | 30

G.R. No. 170023 November 27, 2009

KINGS PROPERTIES CORPORATION, Petitioner,

vs.
CANUTO A. GALIDO, Respondent.

DECISION

CARPIO, J.:

The Case

Kings Properties Corporation (petitioner) filed this Petition for Review on Certiorari 1 assailing the Court of Appeals’
Decision 2 dated 20 December 2004 in CA-G.R. CV No. 68828 as well as the Resolution 3 dated 10 October 2005
denying the Motion for Reconsideration. In the assailed decision, the Court of Appeals reversed the Regional Trial
Court’s Decision 4 dated 4 July 2000. This case involves an action for cancellation of certificates of title, registration of
deed of sale and issuance of certificates of title filed by Canuto A. Galido (respondent) before Branch 71 of the
Regional Trial Court of Antipolo City (trial court).

The Facts

On 18 April 1966, the heirs of Domingo Eniceo, namely Rufina Eniceo and Maria Eniceo, were awarded with
Homestead Patent No. 112947 consisting of four parcels of land located in San Isidro, Antipolo, Rizal (Antipolo
property) and particularly described as follows:

1. Lot No. 1 containing an area of 96,297 square meters;

Lot No. 3 containing an area of 25,170 square meters;

Lot No. 4 containing an area of 26,812 square meters; and

Lot No. 5 containing an area of 603 square meters.

The Antipolo property with a total area of 14.8882 hectares was registered under Original Certificate of Title (OCT)
No. 535. 5 The issuance of the homestead patent was subject to the following conditions:

To have and to hold the said tract of land, with the appurtenances thereunto of right belonging unto the said Heirs
of Domingo Eniceo and to his heir or heirs and assigns forever, subject to the provisions of sections 118, 121, 122
and 124 of Commonwealth Act No. 141, as amended, which provide that except in favor of the Government or any
of its branches, units or institutions, the land hereby acquired shall be inalienable and shall not be subject to
incumbrance for a period of five (5) years next following the date of this patent, and shall not be liable for the
satisfaction of any debt contracted prior to the expiration of that period; that it shall not be alienated, transferred or
conveyed after five (5) years and before twenty-five (25) years next following the issuance of title, without the
approval of the Secretary of Agriculture and Natural Resources; that it shall not be incumbered, alienated, or
transferred to any person, corporation, association, or partnership not qualified to acquire public lands under the
said Act and its amendments; x x x 6

On 10 September 1973, a deed of sale covering the Antipolo property was executed between Rufina Eniceo and
Maria Eniceo as vendors and respondent as vendee. Rufina Eniceo and Maria Eniceo sold the Antipolo property to
respondent for ₱250,000. 7 A certain Carmen Aldana delivered the owner’s duplicate copy of OCT No. 535 to
respondent. 8
 SALES | 31

Petitioner alleges that when Maria Eniceo died in June 1975, Rufina Eniceo and the heirs of Maria Eniceo (Eniceo
heirs), 9 who continued to occupy the Antipolo property as owners, thought that the owner’s duplicate copy of OCT
No. 535 was lost. 10

On 5 April 1988, the Eniceo heirs registered with the Registry of Deeds of Marikina City (Registry of Deeds) a Notice
of Loss dated 2 April 1988 of the owner’s copy of OCT No. 535. The Eniceo heirs also filed a petition for the issuance
of a new owner’s duplicate copy of OCT No. 535 with Branch 72 of the Regional Trial Court (RTC) of Antipolo, Rizal.
The case was docketed as LRC Case No. 584-A. 11

On 31 January 1989, the RTC rendered a decision finding that the certified true copy of OCT No. 535 contained no
annotation in favor of any person, corporation or entity. The RTC ordered the Registry of Deeds to issue a second
owner’s copy of OCT No. 535 in favor of the Eniceo heirs and declared the original owner’s copy of OCT NO. 535
cancelled and considered of no further value. 12

On 6 April 1989, the Registry of Deeds issued a second owner’s copy of OCT No. 535 in favor of the Eniceo heirs.13

Petitioner states that as early as 1991, respondent knew of the RTC decision in LRC Case No. 584-A because
respondent filed a criminal case against Rufina Eniceo and Leonila Bolinas (Bolinas) for giving false testimony upon a
material fact during the trial of LRC Case No. 584-A. 14

Petitioner alleges that sometime in February 1995, Bolinas came to the office of Alberto Tronio Jr. (Tronio),
petitioner’s general manager, and offered to sell the Antipolo property. During an on-site inspection, Tronio saw a
house and ascertained that the occupants were Bolinas’ relatives. Tronio also went to the Registry of Deeds to verify
the records on file. Tronio ascertained that OCT No. 535 was clean and had no lien and encumbrances. After the
necessary verification, petitioner decided to buy the Antipolo property. 15

On 14 March 1995, respondent caused the annotation of his adverse claim in OCT No. 535. 16

On 20 March 1995, the Eniceo heirs executed a deed of absolute sale in favor of petitioner covering lots 3 and 4 of
the Antipolo property for ₱500,000. 17

On the same date, Transfer Certificate of Title (TCT) Nos. 277747 and 277120 were issued. TCT No. 277747 covering
lots 1 and 5 of the Antipolo property was registered in the names of Rufina Eniceo, Ambrosio Eniceo, Rodolfo Calove,
Fernando Calove and Leonila Calove Bolinas. 18 TCT No. 277120 covering lots 3 and 4 of the Antipolo property was
registered in the name of petitioner. 19

On 5 April 1995, the Eniceo heirs executed another deed of sale in favor of petitioner covering lots 1 and 5 of the
Antipolo property for ₱1,000,000. TCT No. 278588 was issued in the name of petitioner and TCT No. 277120 was
cancelled. 20

On 17 August 1995, the Secretary of the Department of Environment and Natural Resources (DENR Secretary)
approved the deed of sale between the Eniceo heirs and respondent. 21

On 16 January 1996, respondent filed a civil complaint with the trial court against the Eniceo heirs and petitioner.
Respondent prayed for the cancellation of the certificates of title issued in favor of petitioner, and the registration of
the deed of sale and issuance of a new transfer certificate of title in favor of respondent. 22

On 4 July 2000, the trial court rendered its decision dismissing the case for lack of legal and factual basis. 23

Respondent appealed to the Court of Appeals (CA). On 20 December 2004, the CA rendered a decision reversing the
trial court’s decision. 24 Respondent filed a motion for reconsideration, which the CA denied in its Resolution dated
10 October 2005.

Aggrieved by the CA’s decision and resolution, petitioner elevated the case before this Court.
 SALES | 32

The Ruling of the Trial Court

The trial court stated that although respondent claims that the Eniceo heirs sold to him the Antipolo property,
respondent did not testify in court as to the existence, validity and genuineness of the purported deed of sale and his
possession of the duplicate owner’s copy of OCT No. 535. The trial court stated that as owner of a property
consisting of hectares of land, respondent should have come to court to substantiate his claim and show that the
allegations of the Eniceo heirs and petitioner are mere fabrications. 25

The trial court noticed that respondent did not register the deed of sale with the Register of Deeds immediately after
its alleged execution on 10 September 1973. Further, respondent waited for 22 long years before he had the sale
approved by the DENR Secretary. The trial court declared that respondent slept on his rights. The trial court
concluded that respondent’s failure to register the sale and secure the cancellation of OCT No. 535 militates against
his claim of ownership. The trial court believed that respondent has not established the preponderance of evidence
necessary to justify the relief prayed for in his complaint. 26

The trial court stated that Bolinas was able to prove that the Eniceo heirs have remained in actual possession of the
land. The filing of a petition for the issuance of a new owner’s duplicate copy requires the posting of the petition in
three different places which serves as a notice to the whole world. Respondent’s failure to oppose this petition can
be deemed as a waiver of his right, which is fatal to his cause. 27

The trial court noted that petitioner is a buyer in good faith and for value because petitioner has exercised due
diligence in inspecting the property and verifying the title with the Register of Deeds. 28

The trial court held that even if the court were to believe that the deed of sale in favor of respondent were genuine,
still it could not be considered a legitimate disposition of property, but merely an equitable mortgage. The trial court
stated that respondent never obtained possession of the Antipolo property at any given time and a buyer who does
not take possession of a property sold to him is presumed to be a mortgagee only and not a vendee. 29

The Ruling of the Court of Appeals

The CA ruled that the deed of sale in favor of respondent, being a notarized document, has in its favor the
presumption of regularity and carries the evidentiary weight conferred upon it with respect to its due execution. The
CA added that whoever asserts forgery has the burden of proving it by clear, positive and convincing evidence
because forgery can never be presumed. The CA found that petitioner and the Eniceo heirs have not substantiated
the allegation of forgery. 30

The CA pointed out that laches has not set in. One of the requisites of laches, which is injury or prejudice to the
defendant in the event relief is accorded to the complainant or the suit is not held to be barred, is wanting in the
instant case. The CA added that unrecorded sales of land brought under the Torrens system are valid between
parties because registration of the instrument is merely intended to bind third persons. 31

The CA declared that petitioner’s contention regarding the validity of the questioned deed on the ground that it was
executed without the approval of the DENR Secretary is untenable. The DENR Secretary approved the deed of sale
on 17 August 1995. However, even supposing that the sale was not approved, the requirement for the DENR
Secretary’s approval is merely directory and its absence does not invalidate any alienation, transfer or conveyance of
the homestead after 5 years and before 25 years from the issuance of the title which can be complied with at any
time in the future. 32

The CA ruled that petitioner is a buyer in bad faith because it purchased the disputed properties from the Eniceo
heirs after respondent had caused the inscription on OCT No. 535 of an adverse claim. Registration of the adverse
claim serves as a constructive notice to the whole world. Petitioner cannot feign ignorance of facts which should
have put it on guard and then claim that it acted under the honest belief that there was no defect in the title of the
vendors. Knowing that an adverse claim was annotated in the certificates of title of the Eniceo heirs, petitioner was
forewarned that someone is claiming an interest in the disputed properties. 33
 SALES | 33

The CA found no merit in petitioner’s contention that the questioned deed of sale is an equitable mortgage. The CA
stated that for the presumption of an equitable mortgage to arise, one must first satisfy the requirement that the
parties entered into a contract denominated as a contract of sale and that their intention was to secure an existing
debt by way of mortgage. 34

The CA stated that the execution of the notarized deed of sale, even without actual delivery of the disputed
properties, transferred ownership from the Eniceo heirs to respondent. The CA held that respondent’s possession of
the owner’s duplicate copy of OCT No. 535 bolsters the contention that the Eniceo heirs sold the disputed properties
to him by virtue of the questioned deed. 35

The CA reversed the trial court’s decision. The dispositive portion of the CA decision reads:

WHEREFORE, the appealed decision of the Regional Trial Court of Rizal (Antipolo, Branch 71) is REVERSED and SET
ASIDE and another rendered as follows:

1. Declaring null and void Transfer Certificates of Titles Nos. 277747, 277120 and 278588 of the Registry of Deeds of
Marikina City (the last two in the name of defendant-appellee Kings Properties Corporation), the derivative titles
thereof and the instruments which were the bases of the issuance of said certificates of title; and

2. Declaring plaintiff-appellant Canuto A. Galido the owner of fee simple of Lot Nos. 1, 3, 4, 5 formerly registered
under Original Certificate of Title No. 535 in the name of the Heirs of Domingo Eniceo, represented by Rufina Eniceo,
and ordering the Register of Deeds of Marikina City to issue new transfer certificates of title for said parcels of land
in the name of plaintiff-appellant Canuto A. Galido, upon payment of the proper fees and presentation of the deed
of sale dated September 10, 1973 executed by Rufina Eniceo and Maria Eniceo, as sole heirs of the late Domingo
Eniceo, in favor of the latter. 36

The Issues

Petitioner raises two issues in this petition:

1. Whether the adverse claim of respondent over the Antipolo property should be barred by laches; 37 and

2. Whether the deed of sale delivered to respondent should be presumed an equitable mortgage pursuant
to Article 1602(2) and 1604 of the Civil Code. 38

The Ruling of the Court

Validity of the deed of sale to respondent

The contract between the Eniceo heirs and respondent executed on 10 September 1973 was a perfected contract of
sale. A contract is perfected once there is consent of the contracting parties on the object certain and on the cause
of the obligation. 39 In the present case, the object of the sale is the Antipolo property and the price certain is
₱250,000.

The contract of sale has also been consummated because the vendors and vendee have performed their respective
obligations under the contract. In a contract of sale, the seller obligates himself to transfer the ownership of the
determinate thing sold, and to deliver the same to the buyer, who obligates himself to pay a price certain to the
seller. 40 The execution of the notarized deed of sale and the delivery of the owner’s duplicate copy of OCT No. 535
to respondent is tantamount to a constructive delivery of the object of the sale. In Navera v. Court of Appeals, the
Court ruled that since the sale was made in a public instrument, it was clearly tantamount to a delivery of the land
resulting in the symbolic possession thereof being transferred to the buyer. 41

Petitioner alleges that the deed of sale is a forgery. The Eniceo heirs also claimed in their answer that the deed of
sale is fake and spurious. 42 However, as correctly held by the CA, forgery can never be presumed. The party alleging
 SALES | 34

forgery is mandated to prove it with clear and convincing evidence. 43 Whoever alleges forgery has the burden of
proving it. In this case, petitioner and the Eniceo heirs failed to discharge this burden.

Petitioner invokes the belated approval by the DENR Secretary, made within 25 years from the issuance of the
homestead, to nullify the sale of the Antipolo property. The sale of the Antipolo property cannot be annulled on the
ground that the DENR Secretary gave his approval after 21 years from the date the deed of sale in favor of
respondent was executed. Section 118 of Commonwealth Act No. 141 or the Public Land Act (CA 141), as amended
by Commonwealth Act No. 456, 44 reads:

SEC. 118. Except in favor of the Government or any of its branches, units, or institutions, or legally constituted
banking corporations, lands acquired under free patent or homestead provisions shall not be subject to
encumbrance or alienation from the date of the approval of the application and for a term of five years from and
after the date of the issuance of the patent or grant x x x

No alienation, transfer, or conveyance of any homestead after five years and before twenty-five years after the
issuance of title shall be valid without the approval of the Secretary of Agriculture and Natural Resources, 45 which
approval shall not be denied except on constitutional and legal grounds.

In Spouses Alfredo v. Spouses Borras, 46 the Court explained the implications of Section 118 of CA 141. Thus:

A grantee or homesteader is prohibited from alienating to a private individual a land grant within five years from the
time that the patent or grant is issued. A violation of this prohibition renders a sale void. This , however, expires on
the fifth year. From then on until the next 20 years, the land grant may be alienated provided the Secretary of
Agriculture and Natural Resources approves the alienation. The Secretary is required to approve the alienation
unless there are "constitutional and legal grounds" to deny the approval. In this case, there are no apparent or legal
grounds for the Secretary to disapprove the sale of the Subject Land.

The failure to secure the approval of the Secretary does not ipso factomake a sale void. The absence of approval by
the Secretary does not a sale made after the expiration of the 5-year period, for in such event the requirement of
Section 118 of the Public Land Act becomes merely directory or a formality. The approval may be secured later,
producing the effect of ratifying and adopting the transaction as if the sale had been previously authorized.
(Underscoring supplied)

Equitable Mortgage

Petitioner contends that the deed of sale in favor of respondent is an equitable mortgage because the Eniceo heirs
remained in possession of the Antipolo property despite the execution of the deed of sale.

An equitable mortgage is "one which although lacking in some formality, or form or words, or other requisites
demanded by a statute, nevertheless reveals the intention of the parties to charge real property as security for a
debt, and contains nothing impossible or contrary to law." 47 The essential requisites of an equitable mortgage are:

1. The parties entered into a contract denominated as a contract of sale; and

2. Their intention was to secure existing debt by way of a mortgage. 48

In Lim v. Calaguas, 49 the Court held that in order for the presumption of equitable mortgage to apply, there must be:
(1) something in the language of the contract; or (2) in the conduct of the parties which shows clearly and beyond
doubt that they intended the contract to be a mortgage and not a pacto de retro sale. 50 Proof by parol evidence
should be presented in court. Parol evidence is admissible to support the allegation that an instrument in writing,
purporting on its face to transfer the absolute title to property, was in truth and in fact given merely as security for
the payment of a loan. The presumption of equitable mortgage under Article 1602 of the Civil Code is not conclusive.
It may be rebutted by competent and satisfactory proof of the contrary. 51
 SALES | 35

Petitioner claims that an equitable mortgage can be presumed because the Eniceo heirs remained in possession of
the Antipolo property. Apart from the fact that the Eniceo heirs remained in possession of the Antipolo property,
petitioner has failed to substantiate its claim that the contract of sale was intended to secure an existing debt by way
of mortgage. In fact, mere tolerated possession is not enough to prove that the transaction was an equitable
mortgage. 52

Furthermore, petitioner has not shown any proof that the Eniceo heirs were indebted to respondent. On the
contrary, the deed of sale executed in favor of respondent was drafted clearly to convey that the Eniceo heirs sold
and transferred the Antipolo property to respondent. The deed of sale even inserted a provision about defrayment
of registration expenses to effect the transfer of title to respondent.

In any event, as pointed out by respondent in his Memorandum, this defense of equitable mortgage is available only
to petitioner’s predecessors-in-interest who should have demanded, but did not, for the reformation of the deed of
sale. 53 A perusal of the records shows that the Eniceo heirs never presented the defense of equitable mortgage
before the trial court. In their Answer 54 and Memorandum 55 filed before the trial court, the Eniceo heirs claimed
that the alleged deed of sale dated 10 September 1973 between Rufina Eniceo and Maria Eniceo was fake and
spurious. The Eniceo heirs contended that even assuming there was a contract, no consideration was involved. It
was only in the Appellees’ Brief 56 filed before the CA that the Eniceo heirs claimed as an alternative defense that the
deed should be presumed as an equitable mortgage.

In Philippine Ports Authority v. City of Iloilo, 57 we ruled that a party who adopts a certain theory upon which the
case is tried and decided by the lower court will not be permitted to change the theory on appeal. A theory of the
case not brought to the attention of the lower court will not be considered by a reviewing court, as a new theory
cannot be raised for the first time at such late stage.

Although petitioner raised the defense of equitable mortgage in the lower court, he cannot claim that the deed was
an equitable mortgage because petitioner was not a privy to the deed of sale dated 10 September 1973. Petitioner
merely stepped into the shoes of the Eniceo heirs. Petitioner, who merely acquired all the rights of its predecessors,
cannot espouse a theory that is contrary to the theory of the case claimed by the Eniceo heirs.

The Court notes that the Eniceo heirs have not appealed the CA’s decision, hence, as to the Eniceo heirs, the CA’s
decision that the contract was a sale and not an equitable mortgage is now final. Since petitioner merely assumed
the rights of the Eniceo heirs, petitioner is now estopped from questioning the deed of sale dated 10 September
1973.

Petitioner is not a buyer in good faith

Petitioner maintains that the subsequent sale must be upheld because petitioner is a buyer in good faith, having
exercised due diligence by inspecting the property and the title sometime in February 1995.

In Agricultural and Home Extension Development Group v. Court of Appeals, 58 a buyer in good faith is defined as
"one who buys the property of another without notice that some other person has a right to or interest in such
property and pays a full and fair price for the same at the time of such purchase or before he has notice of the claim
or interest of some other person in the property."

In Balatbat v. Court of Appeals, 59 the Court held that in the realm of double sales, the registration of an adverse
claim places any subsequent buyer of the registered land in bad faith because such annotation was made in the title
of the property before the Register of Deeds and he could have discovered that the subject property was already
sold. 60 The Court explained further, thus:

A purchaser of a valued piece of property cannot just close his eyes to facts which should put a reasonable man upon
his guard and then claim that he acted in good faith and under the belief that there were no defect in the title of the
vendor. One who purchases real estate with knowledge of a defect or lack of title in his vendor cannot claim that he
has acquired title thereto in good faith as against the true owner of the land or of an interest therein; and the same
 SALES | 36

rule must be applied to one who has knowledge of facts which should have put him upon such inquiry and
investigation as be necessary to acquaint him with the defects in the title of his vendor. 61

Petitioner does not dispute that respondent registered his adverse claim with the Registry of Deeds on 14 March
1995. The registration of the adverse claim constituted, by operation of law, notice to the whole world. 62 From that
date onwards, subsequent buyers were deemed to have constructive notice of respondent’s adverse claim.

Petitioner purchased the Antipolo property only on 20 March 1995 and 5 April 1995 as shown by the dates in the
deeds of sale. On the same dates, the Registry of Deeds issued new TCTs in favor of petitioner with the annotated
adverse claim. Consequently, the adverse claim registered prior to the second sale charged petitioner with
constructive notice of the defect in the title of Eniceo heirs. Therefore, petitioner cannot be deemed as a purchaser
in good faith when they bought and registered the Antipolo property.

In Carbonell v. Court of Appeals, 63 this Court ruled that in double sales, the first buyer always has priority rights over
subsequent buyers of the same property. Being the first buyer, he is necessarily in good faith compared to
subsequent buyers. The good faith of the first buyer remains all throughout despite his subsequent acquisition of
knowledge of the subsequent sale. On the other hand, the subsequent buyer, who may have entered into a contract
of sale in good faith, would become a buyer in bad faith by his subsequent acquisition of actual or constructive
knowledge of the first sale. 64 The separate opinion of then Justice Teehankee is instructive, thus:

The governing principle here is prius tempore, potior jure(first in time, stronger in right). Knowledge gained by the
first buyer of the second sale cannot defeat the first buyer’s rights except only as provided by the Code and that is
where the second buyer first registers in good faith the second sale ahead of the first. Such knowledge of the first
buyer does bar her from availing of her rights under the law, among them, to first her purchase as against the
second buyer. But in converso knowledge gained by the second buyer of the first sale defeats his rights even if he is
first to register the second sale, since such knowledge taints his prior registration with bad faith.

This is the price exacted by Article 1544 of the Civil Code for the second buyer being able to displace the first buyer:
that before the second buyer can obtain priority over the first, he must show that he acted in good faith throughout
(i.e., in ignorance of the first sale and of the first buyer’s rights) – from the time of acquisition until the title is
transferred to him by registration or failing registration, by delivery of possession. The second buyer must show
continuing good faith and innocence or lack of knowledge of the first sale until his contract ripens into full ownership
through prior registration as provided by law. 65

Laches

Petitioner contends that respondent is guilty of laches because he slept on his rights by failing to register the sale of
the Antipolo property at the earliest possible time. Petitioner claims that despite respondent’s knowledge of the
subsequent sale in 1991, respondent still failed to have the deed of sale registered with the Registry of Deeds.

The essence of laches is the failure or neglect, for an unreasonable and unexplained length of time, to do that which,
through due diligence, could have been done earlier, thus giving rise to a presumption that the party entitled to
assert it had either abandoned or declined to assert it. 66

Respondent discovered in 1991 that a new owner’s copy of OCT No. 535 was issued to the Eniceo heirs. Respondent
filed a criminal case against the Eniceo heirs for false testimony. When respondent learned that the Eniceo heirs
were planning to sell the Antipolo property, respondent caused the annotation of an adverse claim. On 16 January
1996, when respondent learned that OCT No. 535 was cancelled and new TCTs were issued, respondent filed a civil
complaint with the trial court against the Eniceo heirs and petitioner. Respondent’s actions negate petitioner’s
argument that respondent is guilty of laches.

True, unrecorded sales of land brought under Presidential Decree No. 1529 or the Property Registration Decree (PD
1529) are effective between and binding only upon the immediate parties. The registration required in Section 51 of
 SALES | 37

PD 1529 is intended to protect innocent third persons, that is, persons who, without knowledge of the sale and in
good faith, acquire rights to the property. 67 Petitioner, however, is not an innocent purchaser for value.

WHEREFORE, we DENY the petition. We AFFIRM the 20 December 2004 Decision and 10 October 2005 Resolution of
the Court of Appeals in CA-G.R. CV No. 68828.

SO ORDERED.
 SALES | 38

G.R. No. 152168 December 10, 2004

HEIRS OF THE LATE SPOUSES AURELIO AND ESPERANZA BALITE; Namely, ANTONIO T. BALITE, FLOR T. BALITE-
ZAMAR, VISITACION T. BALITE-DIFUNTORUM, PEDRO T. BALITE, PABLO T. BALITE, GASPAR T. BALITE, CRISTETA T.
BALITE and AURELIO T. BALITE JR., All Represented by GASPAR T. BALITE,petitioners,
vs.
RODRIGO N. LIM, respondent.

DECISION

PANGANIBAN, J.:

A deed of sale that allegedly states a price lower than the true consideration is nonetheless binding between the
parties and their successors in interest. Furthermore, a deed of sale in which the parties clearly intended to transfer
ownership of the property cannot be presumed to be an equitable mortgage under Article 1602 of the Civil Code.
Finally, an agreement that purports to sell in metes and bounds a specific portion of an unpartitioned co-owned
property is not void; it shall effectively transfer the seller’s ideal share in the co-ownership.

The Case

Before us is a Petition for Review1 under Rule 45 of the Rules of Court, assailing the February 11, 2002 Decision2 of
the Court of Appeals (CA) in CA-GR CV No. 65395. The decretal portion of the Decision reads as follows:

"IN THE LIGHT OF ALL THE FOREGOING, the Decision of the Court a quo subject of the appeal is hereby SET
ASIDE AND REVERSED and another Decision is hereby rendered as follows:

1. The "Deed of Absolute Sale" (Exhibit "A") is valid only insofar as the pro indiviso share of Esperanza Balite
over the property covered by Original Certificate of Title No. 10824 is concerned;

2. The Register of Deeds is hereby ordered to cancel Transfer Certificate of Title No. 6683 and to issue
another over the entirety of the property covered by Original Certificate of Title No. 10824, upon the
payment of the capital gains tax due, as provided for by law, (based on the purchase price of the property in
the amount of P1,000,000.00), with the following as co-owners, over the property described therein:

a) Each of the [petitioners] over an undivided portion of 975 square meters;

b) The [respondent], with an undivided portion of 9,751 square meters.

3. The [respondent] is hereby ordered to pay to the [petitioners] the amount of P120,000.00, within a period
of five (5) months from the finality of the Decision of this Court;

4. In the event that the [respondent] refuses or fails to remit the said amount to the [petitioner] within the
period therefor, the rights and obligations of the parties shall be governed by Republic 6552 (Maceda
Law)."3

The Facts

The CA summarized the facts in this manner:

 SALES | 39

"The spouses Aurelio x x x and Esperanza Balite were the owners of a parcel of land, located [at] Poblacion
(Barangay Molave), Catarman, Northern Samar, with an area of seventeen thousand five hundred fifty-one
(17,551) square meters, [and] covered by Original Certificate of Title [OCT] No. 10824. When Aurelio died
intestate [in 1985, his wife], Esperanza Balite, and their children, x x x [petitioners] Antonio Balite, Flor
Balite-Zamar, Visitacion Balite-Difuntorum, Pedro Balite, Pablo Balite, Gaspar Balite, Cristeta (Tita) Balite and
Aurelio Balite, Jr., inherited the [subject] property and became co-owners thereof, with Esperanza x x x
inheriting an undivided [share] of [9,751] square meters.

"In the meantime, Esperanza x x x [became] ill and was in dire need of money for her hospital expenses x x x.
She, through her daughter, Cristeta, offered to sell to Rodrigo Lim, [her] undivided share x x x for the price
of P1,000,000.00. x x x Esperanza x x x and Rodrigo x x x agreed that, under the "Deed of Absolute Sale", to
be executed by Esperanza x x x over the property, it will be made to appear that the purchase price of the
property would be P150,000.00, although the actual price agreed upon by them for the property
was P1,000,000.00.

"On April 16, 1996, Esperanza x x x executed a "Deed of Absolute Sale" in favor of Rodrigo N. Lim over a
portion of the property, covered by [OCT] No. 10824, with an area of 10,000 square meters, for the price
of P150,000.00 x x x.

[They] also executed, on the same day, a "Joint Affidavit" under which they declared that the real price of
the property was P1,000,000.00, payable to Esperanza x x x, by installments, as follows:

1. P30,000.00 – upon signing today of the document of sale.

2. P170,000.00 – payable upon completion of the actual relocation survey of the land sold by a
Geodetic Engineer.

3. P200,000.00 – payable on or before May 15, 1996.

4. P200,000.00 – payable on or before July 15, 1996.

5. P200,000.00 – payable on or before September 15, 1996.

6. P200,000.00 – payable on or before December 15, 1996.

"Only Esperanza and two of her children, namely, Antonio x x x and Cristeta x x x, knew about the said
transaction. x x x Geodetic Engineer Bonifacio G. Tasic conducted a subdivision survey of the property and
prepared a "Sketch Plan" showing a portion of the property, identified as Lot 243 with an area of 10,000
square meters, under the name Rodrigo N. Lim.

"The "Sketch Plan" was signed by Rodrigo x x x and Esperanza. Thereafter, Rodrigo x x x took actual
possession of the property and introduced improvements thereon. He remitted to Esperanza x x x and
Cristeta x x x sums of money in partial payments of the x x x property for which he signed "Receipts".

"Gaspar, Visitacion, Flor, Pedro and Aurelio, Jr. x x x learned of the sale, and on August 21, 1996, they wrote
a letter to the Register of Deeds [RD] of Northern Samar, [saying] that they [were] not x x x informed of the
sale of a portion of the said property by their mother x x x nor did they give their consent thereto, and
requested the [RD] to:

"x x x hold in abeyance any processal or approval of any application for registration of title of
ownership in the name of the buyer of said lot, which has not yet been partitioned judicially or
extrajudicially, until the issue of the legality/validity of the above sale has been cleared."
 SALES | 40

"On August 24, 1996, Antonio x x x received from Rodrigo x x x, the amount of P30,000.00 in partial payment
of [the] property and signed a "Receipt" for the said amount, declaring therein that "the remaining balance
of P350,000.00 shall personally and directly be released to my mother, Esperanza Balite, only." However,
Rodrigo x x x drew and issued RCBC Check No. 309171, dated August 26, 1996, [payable] to the order of
Antonio Balite in the amount of P30,000.00 in partial payment of the property.

"On October 1, 1996, Esperanza x x x executed a "Special Power of Attorney" appointing her son, Antonio, to
collect and receive, from Rodrigo, the balance of the purchase price of the x x x property and to sign the
appropriate documents therefor.

"On October 23, 1996, Esperanza signed a letter addressed to Rodrigo informing the latter that her children
did not agree to the sale of the property to him and that she was withdrawing all her commitments until the
validity of the sale is finally resolved:

xxx xxx xxx

"On October 31, 1996, Esperanza died intestate and was survived by her aforenamed children.

"[Meanwhile], Rodrigo caused to be published, in the Samar Reporter, on November 14, 21 and 28, 1996,
the aforesaid "Deed of Absolute Sale". Earlier, on November 21, 1996, Antonio received the amount
of P10,000.00 from Rodrigo for the payment of the estate tax due from the estate of Esperanza.

"Also, the capital gains tax, in the amount of P14,506.25, based on the purchase price of P150,000.00
appearing on the "Deed of Absolute Sale", was paid to the Bureau of Internal Revenue which issued a
"Certification" of said payments, on March 5, 1997, authorizing the registration of the "Deed of Absolute
Sale" x x x. However, the [RD] refused to issue a title over the property to and under the name of Rodrigo
unless and until the owner’s duplicate of OCT No. 10824 was presented to [it]. Rodrigo filed a "Petition for
Mandamus" against the RD with the Regional Trial Court of Northern Samar (Rodrigo Lim versus Fernando
Abella, Special Civil Case No. 48). x x x. On June 13, 1997, the court issued an Order to the RD to cancel OCT
No. 10824 and to issue a certificate of title over Lot 243 under the name of Rodrigo.

"On June 27, 1997, [petitioners] filed a complaint against Rodrigo with the Regional Trial Court of Northern
Samar, entitled and docketed as "Heirs of the Spouses Aurelio Balite, et al. versus Rodrigo Lim, Civil Case
No. 920, for "Annulment of Sale, Quieting of Title, Injunction and Damages x x x, [the origin of the instant
case.]

xxx xxx xxx

"The [petitioners] had a "Notice of Lis Pendens", dated June 23, 1997, annotated, on June 27, 1997, at the
dorsal portion of OCT No. 10824.

"In the meantime, the RD cancelled, on July 10, 1997, OCT No. 10824 and issued Transfer Certificate of Title
[TCT] No. 6683 to and under the name of Rodrigo over Lot 243. The "Notice of Lis Pendens" x x x was carried
over in TCT No. 6683.

"Subsequently, Rodrigo secured a loan from the Rizal Commercial Banking Corporation in the amount
of P2,000,000.00 and executed a "Real Estate Mortgage" over the [subject] property as security therefor.

"On motion of the [petitioners], they were granted x x x leave to file an "Amended Complaint" impleading
the bank as [additional] party-defendant. On November 26, 1997, [petitioners] filed their "Amended
Complaint".

The [respondent] opposed the "Amended Complaint" x x x contending that it was improper for [petitioners]
to join, in their complaint, an ordinary civil action for the nullification of the "Real Estate Mortgage"
 SALES | 41

executed by the respondent in favor of the Bank as the action of the petitioners before the court was a
special civil action.

"On March 30, 1998, the court issued an Order rejecting the "Amended Complaint" of the petitioners on the
grounds that: (a) the Bank cannot be impleaded as party-defendant under Rule 63, Section 1 of the 1997
Rules of Civil Procedure; (b) the "Amended Complaint" constituted a collateral attack on TCT No. 6683. The
[petitioners] did not file any motion for the reconsideration of the order of the court."4

The trial court dismissed the Complaint and ordered the cancellation of the lis pendens annotated at the back of TCT
No. 6683. It held that, pursuant to Article 493 of the Civil Code, a co-owner has the right to sell his/her undivided
share. The sale made by a co-owner is not invalidated by the absence of the consent of the other co-owners. Hence,
the sale by Esperanza of the 10,000-square-meter portion of the property was valid; the excess from her undivided
share should be taken from the undivided shares of Cristeta and Antonio, who expressly agreed to and benefited
from the sale.

Ruling of the Court of Appeals

The CA held that the sale was valid and binding insofar as Esperanza Balite’s undivided share of the property was
concerned. It affirmed the trial court’s ruling that the lack of consent of the co-owners did not nullify the sale. The
buyer, respondent herein, became a co-owner of the property to the extent of the pro indiviso share of the vendor,
subject to the portion that may be allotted to him upon the termination of the co-ownership. The appellate court
disagreed with the averment of petitioners that the registration of the sale and the issuance of TCT No. 6683 was
ineffective and that they became the owners of the share of Esperanza upon the latter’s death.

The CA likewise rejected petitioners’ claim that the sale was void allegedly because the actual purchase price of the
property was not stated in the Deed of Absolute Sale. It found that the true and correct consideration for the sale
was P1,000,000 as declared by Esperanza and respondent in their Joint Affidavit. Applying Article 13535 of the Civil
Code, it held that the falsity of the price or consideration stated in the Deed did not render it void. The CA pointed
out, however, that the State retained the right to recover the capital gains tax based on the true price of P1,000,000.

The appellate court rejected petitioners’ contention that, because of the allegedly unconscionably low and
inadequate consideration involved, the transaction covered by the Deed was an equitable mortgage under Article
1602 of the Civil Code. Observing that the argument had never been raised in the court a quo, it ruled that
petitioners were proscribed from making this claim, for the first time, on appeal.

The CA further held that the remaining liability of respondent was P120,000. It relied on the Receipt dated August
24, 1996, which stated that his outstanding balance for the consideration was P350,000. It deducted therefrom the
amounts of P30,000 received by Antonio on August 27, 1996; and P200,000, which was the amount of the check
dated September 15, 1996, issued by respondent payable to Esperanza.

Finally, the appellate court noted that the mortgage over the property had been executed after the filing of the
Complaint. What petitioners should have filed was a supplemental complaint instead of an amended complaint.
Contrary to respondent’s argument, it also held that the bank was not an indispensable party to the case; but was
merely a proper party. Thus, there is no necessity to implead it as party-defendant, although the court a quo had the
option to do so. And even if it were not impleaded, the appellate court ruled that the bank would still have been
bound by the outcome of the case, as the latter was a mortgagee pendente lite over real estate that was covered by
a certificate of title with an annotated lis pendens.

Hence, this Petition.6

Issues

In their Memorandum, petitioners present the following issues:

 SALES | 42

"A

"Whether or not the [CA] seriously erred in not deciding that the Deed of Absolute Sale dated April 16, 1996
is null and void on the grounds that it is falsified; it has an unlawful cause; and it is contrary to law and/or
public policy.

"B

"Whether or not the [CA] gravely erred in not finding that the amount paid by [respondent] is only three
hundred twenty thousand (P320,000.00) pesos and that respondent’s claim that he has paid one million
pesos except P44,000.00 as balance, is fraudulent and false.

"C

"Whether or not the [CA] seriously erred in not deciding that at the time the Deed of Sale was registered x x
x on May 30, 1997, said Deed of Sale can no longer bind the property covered by OCT No. 10824 because
said land had already become the property of all the petitioners upon the death of their mother on October
31, 1996 and therefore such registration is functus of[f]icio involving a null and void document.

"D

"Whether or not the [CA] seriously erred in not ruling that petitioners’ amended complaint dated November
27, 1997 was proper and admissible and deemed admitted to conform to evidence presented.

"E

"Whether or not the [CA] seriously erred in not declaring that TCT No. T-6683 in the name of Respondent
Rodrigo N. Lim is null and void and all dealings involving the same are likewise null and void and/or subject
to the decision of the case at bar in view of the notice of lis pendens annotated therein.

"F

"Even assuming but without admitting that the Deed of Sale is enforceable, the respondent court seriously
erred in not deciding that the consideration is unconscionably low and inadequate and therefore the
transaction between the executing parties constitutes an equitable mortgage.

"G

"The [CA] greatly erred in not rendering judgment awarding damages and attorney’s fee[s] in favor of
petitioners among others."7

In sum, the issues raised by petitioners center on the following: 1) whether the Deed of Absolute Sale is valid, and 2)
whether there is still any sum for which respondent is liable.

The Court’s Ruling

The Petition has no merit.

First Issue:

Validity of the Sale

Petitioners contend that the Deed of Absolute Sale is null and void, because the undervalued consideration indicated
therein was intended for an unlawful purpose -- to avoid the payment of higher capital gains taxes on the
 SALES | 43

transaction. According to them, the appellate court’s reliance on Article 1353 of the Civil Code was erroneous. They
further contend that the Joint Affidavit is not proof of a true and lawful cause, but an integral part of a scheme to
evade paying lawful taxes and registration fees to the government.

We have before us an example of a simulated contract. Article 1345 of the Civil Code provides that the simulation of
a contract may either be absolute or relative. In absolute simulation, there is a colorable contract but without any
substance, because the parties have no intention to be bound by it. An absolutely simulated contract is void, and the
parties may recover from each other what they may have given under the "contract."8 On the other hand, if the
parties state a false cause in the contract to conceal their real agreement, such a contract is relatively simulated.
Here, the parties’ real agreement binds them.9

In the present case, the parties intended to be bound by the Contract, even if it did not reflect the actual purchase
price of the property. That the parties intended the agreement to produce legal effect is revealed by the letter of
Esperanza Balite to respondent dated October 23, 199610 and petitioners’ admission that there was a partial
payment of P320,000 made on the basis of the Deed of Absolute Sale. There was an intention to transfer the
ownership of over 10,000 square meters of the property . Clear from the letter is the fact that the objections of her
children prompted Esperanza to unilaterally withdraw from the transaction.

Since the Deed of Absolute Sale was merely relatively simulated, it remains valid and enforceable. All the essential
requisites prescribed by law for the validity and perfection of contracts are present. However, the parties shall be
bound by their real agreement for a consideration of P1,000,000 as reflected in their Joint Affidavit.11

The juridical nature of the Contract remained the same. What was concealed was merely the actual price. Where the
essential requisites are present and the simulation refers only to the content or terms of the contract, the
agreement is absolutely binding and enforceable12 between the parties and their successors in interest.

Petitioners cannot be permitted to unmake the Contract voluntarily entered into by their predecessor, even if the
stated consideration was included therein for an unlawful purpose. "The binding force of a contract must be
recognized as far as it is legally possible to do so."13 However, as properly held by the appellate court, the
government has the right to collect the proper taxes based on the correct purchase price.

Being onerous, the Contract had for its cause or consideration the price of P1,000,000. Both this consideration as
well as the subject matter of the contract -- Esperanza’s share in the property covered by OCT No. 10824 -- are
lawful. The motives of the contracting parties for lowering the price of the sale -- in the present case, the reduction
of capital gains tax liability -- should not be confused with the consideration.14 Although illegal, the motives neither
determine nor take the place of the consideration. 15

Deed of Sale not an

Equitable Mortgage

Petitioner further posits that even assuming that the deed of sale is valid it should only be deemed an equitable
mortgage pursuant to Articles 1602 and 1604 of the Civil Code, because the price was clearly inadequate. They add
that the presence of only one of the circumstances enumerated under Article 1602 would be sufficient to consider
the Contract an equitable mortgage. We disagree.

For Articles 1602 and 1604 to apply, two requisites must concur: one, the parties entered into a contract
denominated as a contract of sale; and, two, their intention was to secure an existing debt by way of mortgage.16

Indeed, the existence of any of the circumstances enumerated in Article 1602, not a concurrence or an
overwhelming number thereof, suffices to give rise to the presumption that a contract purporting to be an absolute
sale is actually an equitable mortgage.17 In the present case, however, the Contract does not merely purport to be an
absolute sale. The records and the documentary evidence introduced by the parties indubitably show that the
Contract is, indeed, one of absolute sale. There is no clear and convincing evidence that the parties agreed upon a
mortgage of the subject property.
 SALES | 44

Furthermore, the voluntary, written and unconditional acceptance of contractual commitments negates the theory
of equitable mortgage. There is nothing doubtful about the terms of, or the circumstances surrounding, the Deed of
Sale that would call for the application of Article 1602. The Joint Affidavit indisputably confirmed that the transaction
between the parties was a sale.

When the words of a contract are clear and readily understandable, there is no room for construction. Contracts are
to be interpreted according to their literal meaning and should not be interpreted beyond their obvious
intendment.18 The contract is the law between the parties.

Notably, petitioners never raised as an issue before the trial court the fact that the document did not express the
true intent and agreement of the contracting parties. They raised mere suppositions on the inadequacy of the price,
in support of their argument that the Contract should be considered as an equitable mortgage.

We find no basis to conclude that the purchase price of the property was grossly inadequate. Petitioners did not
present any witness to testify as to the market values of real estate in the subject’s locale. They made their claim on
the basis alone of the P2,000,000 loan that respondent had been able to obtain from the Rizal Commercial Banking
Corporation. This move did not sufficiently show the alleged inadequacy of the purchase price. A mortgage is a mere
security for a loan. There was no showing that the property was the only security relied upon by the bank; or that
the borrowers had no credit worthiness, other than the property offered as collateral.

Co-Ownership

The appellate court was correct in affirming the validity of the sale of the property insofar as the pro indiviso share of
Esperanza Balite was concerned.

Article 493 of the Civil Code19 gives the owner of an undivided interest in the property the right to freely sell and
dispose of such interest. The co-owner, however, has no right to sell or alienate a specific or determinate part of the
thing owned in common, because such right over the thing is represented by an aliquot or ideal portion without any
physical division. Nonetheless, the mere fact that the deed purports to transfer a concrete portion does not per se
render the sale void.20 The sale is valid, but only with respect to the aliquot share of the selling co-owner.
Furthermore, the sale is subject to the results of the partition upon the termination of the co-ownership.

Hence, the transaction between Esperanza Balite and respondent could be legally recognized only in respect to the
former’s pro indiviso share in the co-ownership. As a matter of fact, the Deed of Absolute Sale executed between the
parties expressly referred to the 10,000-square-meter portion of the land sold to respondent as the share of
Esperanza in the conjugal property. Her clear intention was to sell merely her ideal or undivided share in it. No valid
objection can be made against that intent. Clearly then, the sale can be given effect to the extent of 9,751 square
meters, her ideal share in the property as found by both the trial and the appellate courts.

Transfer of Property

During her lifetime, Esperanza had already sold to respondent her share in the subject parcel; hence her heirs could
no longer inherit it. The property she had transferred or conveyed no longer formed part of her estate to which her
heirs may lay claim at the time of her death. The transfer took effect on April 16, 1996 (the date the Deed of
Absolute Sale was executed), and not on May 30, 1997, when the Deed of Absolute Sale was registered. Thus,
petitioners’ claim that the property became theirs upon the death of their mother is untenable.

Second Issue:

Respondent’s Liability

Petitioners insist that the appellate court erred in holding that respondent’s outstanding liability on the Deed of Sale
was P120,000, when the Receipts on record show payments in the total amount of P320,000 only. They argue that
the August 24, 1996 Receipt, on which the appellate court based its conclusion, was unreliable.
 SALES | 45

To begin with, this Court is not a trier of facts. 21 It is not its function to examine and determine the weight of the
evidence. Well-entrenched is the doctrine that only errors of law,22 and not of facts, are reviewable by this Court in a
petition for review on certiorari under Rule 45 of the Revised Rules of Court. Philippine Airlines, Inc. v. Court of
Appeals23 has held that factual findings of the Court of Appeals are binding and conclusive upon the Supreme Court.
These findings may be reviewed24 only under exceptional circumstances such as, among others, when the inference
is manifestly mistaken;25 the judgment is based on a misapprehension of facts;26 findings of the trial court contradict
those of the CA;27 or the CA manifestly overlooked certain relevant and undisputed facts that, if properly considered,
would justify a different conclusion.28

Although the factual findings of the two lower courts were not identical, we hold that in the present case, the
findings of the CA are in accord with the documents on record. The trial court admitted in evidence the August 24,
1996 Receipt signed by Antonio Balite. Interestingly, he was never presented in the lower court to dispute the
veracity of the contents of that Receipt, particularly the second paragraph that had categorically stated the
outstanding balance of respondent as of August 24, 1996, to be P350,000. Furthermore, the evidence shows that
subsequent payments of P30,000 and P200,000 were made by the latter. Thus, we affirm the CA’s Decision holding
that the remaining unpaid balance of the price was P120,000.

WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED. Costs against the petitioners.

SO ORDERED.
 SALES | 46

G.R. No. L-26855 April 17, 1989

FRANCISCO GARCIA, PAZ GARCIA, and MARIA GARCIA, petitioners,

vs.
JOSE CALALIMAN, PACIENCIA TRABADILLO & HON. COURT OF APPEALS, Third Division, respondents.

Jose Gaton for petitioners.

Ricardo Q. Castro for respondents.

PARAS, J.:

This is a petition for review on certiorari of the decision * of the Court of Appeals in CA-G.R. No. 22179-R,
promulgated on August 31, 1966, reversing the decision of the Court of First Instance of Iloilo ** in Civil Case No.
3489, and rendering a new one dismissing the complaint of petitioner herein, the dispositive portion of which reads
as follows:

WHEREFORE, the judgment appealed from is hereby reversed and another entered, dismissing
plaintiff's complaint. No pronouncement as to costs. (p. 29 Rollo)

The facts of the case are as follows:

On February 11, 1946, one Gelacio Garcia died intestate, leaving a parcel of unregistered land about 372 sq. meters,
situated in the Municipality of Tubungan, Province of Iloilo (Exhibits, p. 19). On his death the property was inherited
by his nephews, nieces, grandnephews who are the descendants of his late brothers, Pedro, Simeon, Buenaventura
and Marcos (TSN, Sept. 6,1956, p. 3).

On December 3, 1954, the heirs, Juanita Bertomo, Joaquin Garcia, Porfirio Garcia, Dioscoro Garcia, Flora Garcia,
Consolacion Garcia, Remedios Garcia, Trinidad Garcia, Baltazar Garcia signed a document entitled, "Extra-judicial
Partition and Deed of Sale" (Exhibits, p. 19). The parcel of land subject of the document was described as follows:

A parcel of residential land, about 372 square meters, lst class, Identified as Assessor's Lot No. 107,
Block No. 8, bounded on the north by Paz and Federal Streets; on the south by Tabaosares and
Antonia Tacalinar; on the East by Piedad Street; and on the West by Paz Street. This parcel of land
has no concrete monuments to indicate its boundaries but there are dikes, stones and temporary
fences used as landmarks and boundary signals. This parcel of land is covered by Tax Declaration No.
1149, S. of 1947, in the name of Gelacio Garcia, and its assessed value of P110.00. (p. 19, Exhibits)

The last paragraph of the same document states:

That for and in consideration of the sum of FIVE HUNDRED PESOS (P500.00), Philippine Currency, to
us in hand paid by the spouses, JOSE CALALIMAN, and PACIENCIA TRABADILLO, all of legal age,
Filipinos and residents of the municipality of Tubungan, province of Iloilo, Philippines, receipt of
which we hereby acknowledged and confessed to our entire satisfaction, do by these presents, cede,
sell, convey and transfer the above-described parcel of land unto the said spouses, Jose Calaliman
and Paciencia Trabadillo, their heirs, successors and assigns free from all liens and encumbrances
whatever. (p. 19, Exhibits)

The document was inscribed in the Register of Deeds of Iloilo on February 24,1955, Inscription No. 20814, Page 270,
Vol. 64 (Exhibits, p. 20).
 SALES | 47

On December 17, 1954 another group of heirs, Rosario Garcia, Margarita Garcia, Dolores Rufino, Resurreccion
Tagarao, Serafin Tagarao, Buenaventura Tagarao, Fortunata Garcia and Simeon Garcia, all residents of Isabela,
Negros Occidental, also sold to the spouses Jose Calaliman and Paciencia Trabadillo through their attorney-in-fact,
Juanito Bertomo, their shares, rights, interest and participation in the same parcel of land. The Deed of Sale was
registered in the Register of Deeds of Iloilo also on December 22, 1954, Inscription No. 20640, p. 88, Vol. 64 (Exhibits,
p. 2122).

On May 7, 1955 the heirs Francisco Garcia, Paz Garcia, and Maria Garcia, petitioners herein, filed against the spouses
Jose Calaliman and Paciencia Trabadillo, private respondents herein, Civil Case No. 3489 with the Court of First
Instance of Iloilo, for legal redemption of the 3/4 portion of the parcel of land inherited by the heirs from the late
Gelacio Garcia, which portion was sold by their co-heirs to the defendants. In the complaint (Record on Appeal, p. 4)
plaintiffs alleged, among others:

5. That, plaintiffs' co-owners had never offered for sale their interest and shares over the said land
to the plaintiffs prior to the sale in favor of the defendants, nor given notice of such intention on
their part; and that, no notice in writing has been given by said co-owners to the plaintiffs of the said
sale, such that, plaintiffs came to learn of it only from other source;

6. That, plaintiffs would have purchased the interest and shares of their co-owners had the latter
offered the same to them prior to the sale thereof to the defendants; and that, within 30 days after
learning of the sale made to the defendants under annexes 'A', 'B' and 'B-l', plaintiffs made repeated
offer to the defendants to allow them to redeem said interest and shares acquired by the
defendants in accordance with the right granted to the plaintiffs by law in such a case, offering a
reasonable price thereof of P300 taking into consideration the fact that the defendants had acquired
only 3/4 of the land of 372 square meters more or less, in area with assessed value of P110 and a fair
market value of 372 at Pl per square meter, the price actually obtaining in the locality at the time of
the sale thereof under Annexes 'A', 'B' and 'B-l'; however, the defendants refused and have until the
present refused to grant redemption thereof giving no reason why other than challenging the
plaintiffs to bring their case in court:

7. That, the circumstances surrounding the transaction between the defendants and plaintiffs' co-
owners, the vendors, were such that defendants could not have actually paid nor the vendors
actually received the total price of P800 as stipulated in the deeds Annexes 'A', 'B' and 'B-l' while the
said price fixed is grossly excessive and highly exaggerated and prohibitive for evidently ulterior
motive:

8. That, the land herein described is an ancestral property and plaintiffs have actually a house
standing thereon and having lived thereon ever since, such that, the defendants' refusal to allow
redemption thereof has caused the plaintiffs mental torture, worry and anxiety, forcing them to
litigate and retain services of counsel, therefore, plaintiffs demand against the defendants P500 for
moral damage, P500 for exemplary damage, P300 for attorney's fees, aside from actual expenses
incurred; and, furthermore, P5 monthly as reasonable value of defendants' occupation of a portion
of the premises counting from the filing of this complaint.

They prayed that the trial court render judgment:

1. Declaring the plaintiffs to be entitled to redeem from the defendants for the price of P300 or for
such reasonable price as may be determined by this Honorable Court the interest and shares over
the land described in this complaint of plaintiffs' co-owners, Joaquin, Porfirio, Flora, Dioscoro,
Consolacion, Remedios, Trinidad, Baltazar, Rosario, Margarita, Dolores, Fortunata and Simon, all
surnamed Garcia, and Resurreccion, Serafin and Buenaventura, all surnamed Tagarao, sold by them
to the defendants under the deeds of sale Annexes 'A', 'B' and 'B-l' of this complaint; and ordering
the defendants to execute the proper instrument of reconveyance or redemption thereof in favor of
the plaintiffs; and, ordering them to vacate the premises;
 SALES | 48

2. Condemning the defendants to pay to the plaintiffs P500 for moral damage; P500 for exemplary
damage; P300 for attorney's fees and actual expenses incurred; P5 monthly from the filing of this
complaint as reasonable value of defendants' occupation of a portion of the land; the costs of this
action; and, for such other relief and remedy as may be legal, just and equitable."

On the other hand, the defendants, private respondents herein, alleged in their answer the following special
affirmative defenses (Record on Appeal, p. 14):

1. That plaintiffs have no cause of action against the herein defendants;

2. That due notices in writing have been sent to plaintiff Francisco Garcia at his residence at 2875
Felix Huertas St., Sta. Cruz, Manila, sometime last June 1953, in which plaintiff Francisco Garcia was
informed of his co-owners signified intention to sell their shares, and likewise, the other plaintiffs
Paz and Maria Garcia were personally notified of the same hence, for that reason, they are now
barred to claim legal redemption of the land in question, having filed their belated claim too late."

The trial court rendered judgment on September 12, 1957 in favor of the plaintiffs (Record on Appeal, p. 15), the
dispositive portion of which reads as follows:

WHEREFORE, judgment is hereby rendered:

(a) Sentencing the defendants to resell the property to the plaintiffs for P800.00 which is the total
consideration of the two deeds of sale Exhibits A and B;

(b) In the event that the defendants fail to execute the deed of resale within ten days from the date
this decision becomes final, the Clerk of Court is hereby ordered to execute the corresponding deed
pursuant to the provisions of Section 10 of Rule 39 of the Rules of Court;

(c) Without pronouncement as to costs.

On October 14, 1957 plaintiffs filed their notice of Appeal predicated on "(a) failure of the Court to adjudge the real
or reasonable price of the sale or otherwise the redemption value thereof; (b) failure of the Court to adjudge
damages including attorney's fees in favor of the plaintiffs and the costs." (Record on Appeal, p. 18).

Defendants filed their own notice of appeal on October 15, 1957 (Record on Appeal, p. 19).

On appeal the Court of Appeals in a decision promulgated on August 31, 1966 reversed the decision of the trial court
and rendered another one dismissing plaintiff's complaint with no pronouncement as to costs (Rollo, p. 22).

The instant petition for review by certiorari was filed with the Court on December 12, 1966 (Rollo, p. 11). The Court
at first dismissed the petition in a resolution dated December 22, 1966, for insufficient supporting papers (Rollo, p.
35) but reconsidered the said Resolution of Dismissal later in a Resolution dated February 8, 1967 (Rollo, p. 97) as
prayed for in a motion for reconsideration filed by petitioners on February 1, 1967 (Rollo, p. 38). The same
Resolution of February 8, 1967 gave due course to the petition.

The Brief for the Petitioners was filed on June 9,1967 (Rollo, p. 106); the Brief for the Respondents was received in
the Court on August 31, 1967 (Rollo, p. 119).

Petitioners having manifested they would not file reply brief on September 14,1967 (Rollo, p. 122) the Court
considered the case submitted for decision, in a Resolution dated September 21, 1967 (Rollo, p. 124).

Petitioners assign the following errors:

 SALES | 49

I. THE HONORABLE COURT OF APPEALS ERRED IN DECLARING THAT THE 30-DAY PERIOD PRESCRIBED
IN ARTICLE 1088 OF THE NEW CIVIL CODE FOR A CO-HEIR TO EXERCISE HIS RIGHT OF LEGAL
REDEMPTION, HAD ALREADY ELAPSED WHEN THE HEREIN PLAINTIFFS FILED THE ACTION ON MAY
7,1955.

II. THE HONORABLE COURT OF APPEALS ERRED IN DECLARING THAT THERE WAS NO OFFER TO
REIMBURSE THE DEFENDANTS FOR THE PORTION OF THE LAND IN QUESTION SOLD TO THEM BY THE
CO-HEIRS OF THE PLAINTIFFS.

III. THE HONORABLE COURT OF APPEALS ERRED IN REVERSING THE JUDGMENT OF THE LOWER
COURT, AND IN NOT ADJUDGING DAMAGES, ATTORNEY'S FEES AND COSTS IN FAVOR OF THE
PLAINTIFFS.

(Brief for the Petitioners, p. 1)

There is no question that the provision of law applicable in the instant case is Art. 1088 of the New Civil Code (Art.
1067, Old Civil Code) as the matter concerns heirs and inheritance not yet distributed (Wenceslao v. Calimon, 46
Phil. 906 [1923]). Art. 1088 states:

Article 1088. Should any of the heirs sell his hereditary rights to a stranger before the partition, any
or all of the co-heirs may be subrogated to the rights of the purchaser by reimbursing him for the
price of the sale, provided they do so within the period of one month from the time they were
notified in writing of the sale by the vendor.

The main issue is whether or not petitioners took all the necessary steps to effectuate their exercise of the right of
legal redemption within the period fixed by Art. 1088 of the Civil Code.

It is undisputed that no notification in writing was ever received by petitioners about the sale of the hereditary
interest of some of their co-heirs in the parcel of land they inherited from the late Gelacio Garcia, although in a letter
dated June 23, 1953 petitioner Francisco Garcia wrote one of his co- heirs, Joaquin Garcia, who is an uncle of
petitioners, proposing to buy the hereditary interests of his co-heirs in their unpartitioned inheritance, (Exhibit, p. 3).
Although said petitioner asked that his letter be answered "in order that I will know the results of what I have
requested you," (Exhibit, p. 14) there is no proof that he was favored with one.

Petitioners came to know that their co-heirs were selling the property on December 3, 1954 when one of the heirs,
Juanito Bertomo, asked Petitioner Paz Garcia to sign a document prepared in the Municipality of Tubungan because
the land they inherited was going to be sold to private respondent, Jose Calaliman (TSN, September 6, 1957, p. 60).
The document mentioned by petitioner Paz Garcia could be no other than the one entitled "Extra-Judicial Partition
and Deed of Sale" dated December 3, 1954 as it is in this document that the name of Paz Garcia, Maria Garcia and
Amado Garcia appear unsigned by them (Exhibits, p. 19).

It is not known whether the other heirs whose names appear in the document had already signed the document at
the time Paz Garcia was approached by Juanito Bertomo. Paz Garcia, however, testified that she immediately
informed her brother Francisco that Juanita Bertomo wanted to sell the land to Jose Calaliman (TSN, September
6,1957, p. 62). On December 26, 1954 he wrote respondents giving them notice of his desire to exercise the right of
legal redemption and that he will resort to court action if denied the right (Exhibits, p. 8). The respondents received
the letter on January 13, 1955 but petitioner Francisco Garcia did not get any answer from them. Neither did
respondents show him a copy of the document of sale nor inform him about the price they paid for the sale when he
went home to Tubungan from Manila sometime in March 1955 and went to see the respondent spouse about the
matter on March 24,1955 (TSN, September 6,1957, p. 18).

Because of the refusal of respondent Jose Calaliman to show him the document of sale or reveal to him the price
paid for the parcel of land, petitioner Francisco Garcia went to the Office of the Register of Deeds on the same date,
March 24,1955 and there found two documents of sale regarding the same parcel of land (TSN, Ibid, p. 19).
 SALES | 50

Petitioners filed the case for legal redemption with the trial court on May 7, 1955. Respondents claim that the 30-
day period prescribed in Article 1088 of the New Civil Code for petitioners to exercise the right to legal redemption
had already elapsed at that time and that the requirement of Article 1088 of the New Civil Code that notice would be
in writing is deemed satisfied because written notice would be superfluous, the purpose of the law having been fully
served when petitioner Francisco Garcia went to the Office of the Register of Deeds and saw for himself, read and
understood the contents of the deeds of sale (Brief for respondents, p. 6).

The issue has been squarely settled in the case of Castillo v. Samonte, where this Court observed:

Both the letter and spirit of the new Civil Code argue against any attempt to widen the scope of the
notice specified in Article 1088 by including therein any other kind of notice, such as verbal or by
registration. If the intention of the law had been to include verbal notice or any other means of
information as sufficient to give the effect of this notice, then there would have been no necessity or
reasons to specify in Article 1088 of the New Civil Code that the said notice be made in writing for,
under the old law, a verbal notice or information was sufficient (106 Phil. 1023 [1960]).

In the above-quoted decision the Court did not consider the registration of the deed of sale with the Register of
Deeds sufficient notice, most specially because the property involved was unregistered land, as in the instant case.
The Court took note of the fact that the registration of the deed of sale as sufficient notice of a sale under the
provision of Section 51 of Act No. 496 applies only to registered lands and has no application whatsoever to a case
where the property involved is, admittedly, unregistered land.

Consistent with aforesaid ruling, in the interpretation of a related provision (Article 1623 of the New Civil Code) this
Court had stressed that written notice is indispensable, actual knowledge of the sale acquired in some other
manners by the redemptioner, notwithstanding. He or she is still entitled to written notice, as exacted by the Code,
to remove all uncertainty as to the sale, its terms and its validity, and to quiet any doubt that the alienation is not
definitive. The law not having provided for any alternative, the method of notifications remains exclusive, though the
Code does not prescribe any particular form of written notice nor any distinctive method for written notification of
redemption (Conejero et al. v. Court of Appeals et al., 16 SCRA 775 [1966]; Etcuban v. Court of Appeals, 148 SCRA
507 [1987]; Cabrera v. Villanueva, G.R. No. 75069, April 15,1988).

Petitioners fault the appellate court in not awarding them damages, attorney's fees and costs. After finding in favor
of respondent spouses and against petitioners herein it is untenable for petitioners to expect that the appellate
court would award damages and attorney's fees and costs. However as already discussed, petitioners have not lost
their right to redeem, for in the absence of a written notification of the sale by the vendors, the 30-day period has
not even begun to run. Petitioners clearly can claim attorney's fees for bad faith on the part of respondents, first, for
refusing redemption, and secondly for declaring the entire land as theirs, although they knew some heirs had not
sold their shares.

PREMISES CONSIDERED, the decision of the Court of Appeals is REVERSED and the decision of the trial court is
REINSTATED with the modification that petitioners be awarded damages, attorney's fees and costs in the amount
prayed for.

SO ORDERED.
 SALES | 51

G.R. No. 150060 August 19, 2003

PRIMARY STRUCTURES CORP. represented herein by its President ENGR. WILLIAM C. LIU, Petitioner,
vs.
SPS. ANTHONY S. VALENCIA and SUSAN T. VALENCIA, Respondents.

DECISION

VITUG, J.:

On appeal is the decision of the Court of Appeals in CA-G.R. CV No. 59960, promulgated on 13 February 2001, which
has affirmed in toto the decision of the Regional Trial Court of Cebu City dismissing the complaint of petitioners for
legal redemption over certain rural lots sold to respondents.

Petitioner is a private corporation based in Cebu City and the registered owner of Lot 4523 situated in Liloan, Cebu,
with an area of 22,214 square meters. Adjacent to the lot of petitioner are parcels of land, identified to be Lot 4527,
Lot 4528, and Lot 4529 with a total combined area of 3,751 square meters. The three lots, aforenumbered, have
been sold by Hermogenes Mendoza to respondent spouses sometime in December 1994. Petitioner learned of the
sale of the lots only in January, 1996, when Hermogenes Mendoza sold to petitioner Lot No. 4820, a parcel also
adjacent to Lot 4523 belonging to the latter. Forthwith, it sent a letter to respondents, on 30 January 1996, signifying
its intention to redeem the three lots. On 30 May 1996, petitioner sent another letter to respondents tendering
payment of the price paid to Mendoza by respondents for the lots. Respondents, in response, informed petitioner
that they had no intention of selling the parcels. Thereupon, invoking the provisions of Articles 1621 and 1623,
petitioner filed an action against respondents to compel the latter to allow the legal redemption. Petitioner claimed
that neither Mendoza, the previous owner, nor respondents gave formal or even just a verbal notice of the sale of
the lots as so required by Article 1623 of the Civil Code.

After trial, the Regional Trial Court of Cebu dismissed petitioner’s complaint and respondents' counterclaim; both
parties appealed the decision of the trial court to the Court of Appeals. The appellate court affirmed the assailed
decision.

Basically, the issues posed for resolution by the Court in the instant petition focus on the application of Article 1621
and Article 1623 of the Civil Code, which read:

"ART. 1621. The owners of adjoining lands shall also have the right of redemption when a piece of rural land, the
area of which does not exceed one hectare, is alienated unless the grantee does not own any rural land.

"This right is not applicable to adjacent lands which are separated by brooks, drains, ravines, roads and other
apparent servitudes for the benefit of other estates.

"If two or more adjoining owners desire to exercise the right of redemption at the same time, the owner of the
adjoining land of smaller area shall be preferred; and should both lands have the same area, the one who first
requested the redemption."

"ART. 1623. The right of legal pre-emption or redemption shall not be exercised except within thirty days from the
notice in writing by the prospective vendor, or by the vendor, as the case may be. The deed of sale shall not be
recorded in the Registry of Property, unless accompanied by an affidavit of the vendor that he has given written
notice thereof to all possible redemptioners.

"The right of redemption of co-owners excludes that of adjoining owners."

Whenever a piece of rural land not exceeding one hectare is alienated, the law grants to the adjoining owners a right
of redemption except when the grantee or buyer does not own any other rural land.1 In order that the right may
 SALES | 52

arise, the land sought to be redeemed and the adjacent property belonging to the person exercising the right of
redemption must both be rural lands. If one or both are urban lands, the right cannot be invoked.2

The trial court found the lots involved to be rural lands. Unlike the case of Fabia vs. Intermediate Appellate
Court3 (which ruled, on the issue of whether a piece of land was rural or not, that the use of the property for
agricultural purpose would be essential in order that the land might be characterized as rural land for purposes of
legal redemption), respondents in the instant case, however, did not dispute before the Court of Appeals the holding
of the trial court that the lots in question are rural lands. In failing to assail this factual finding on appeal,
respondents would be hardput to now belatedly question such finding and to ask the Court to still entertain that
issue.

Article 1621 of the Civil Code expresses that the right of redemption it grants to an adjoining owner of the property
conveyed may be defeated if it can be shown that the buyer or grantee does not own any other rural land. The
appellate court, sustaining the trial court, has said that there has been no evidence proffered to show that
respondents are not themselves owners of rural lands for the exclusionary clause of the law to apply.

With respect to the second issue, Article 1623 of the Civil Code provides that the right of legal pre-emption or
redemption shall not be exercised except within thirty days from notice in writing by the prospective vendor, or by
the vendor, as the case may be. In stressing the mandatory character of the requirement, the law states that the
deed of sale shall not be recorded in the Registry of Property unless the same is accompanied by an affidavit of the
vendor that he has given notice thereof to all possible redemptioners.

The Court of Appeals has equated the statement in the deed of sale to the effect that the vendors have complied
with the provisions of Article 1623 of the Civil Code, as being the written affirmation under oath, as well as the
evidence, that the required written notice to petitioner under Article 1623 has been met. Respondents, like the
appellate court, overlook the fact that petitioner is not a party to the deed of sale between respondents and
Mendoza and has had no hand in the preparation and execution of the deed of sale.1âwphi1 It could not thus be
considered a binding equivalent of the obligatory written notice prescribed by the Code.

In Verdad vs. Court of Appeals4 this court ruled:

"We hold that the right of redemption was timely exercised by private respondents. Concededly, no written notice
of the sale was given by the Burdeos heirs (vendors) to the co-owners required under Article 1623 of the Civil Code -

"x x x xxx xxx

Hence, the thirty-day period of redemption had yet to commence when private respondent Rosales sought to
exercise the right of redemption on 31 March 1987, a day after she discovered the sale from the Office of the City
Treasurer of Butuan City, or when the case was initiated, on 16 October 1987, before the trial court.

"The written notice of sale is mandatory. This Court has long established the rule that notwithstanding actual
knowledge of a co-owner, the latter is still entitled to a written notice from the selling co-owner in order to remove
all uncertainties about the sale, its terms and conditions, as well as its efficacy and status.

"Even in Alonzo vs. Intermediate Appellate Court (150 SCRA 259), relied upon by petitioner in contending that actual
knowledge should be an equivalent to a written notice of sale, the Court made it clear that it was not reversing the
prevailing jurisprudence; said the Court:

"’We realize that in arriving at our conclusion today, we are deviating from the strict letter of the law, which the
respondent court understandably applied pursuant to existing jurisprudence. The said court acted properly as it had
no competence to reverse the doctrines laid down by this Court in the above-cited cases. In fact, and this should be
clearly stressed, we ourselves are not abandoning the De Conejero and Buttle doctrines. What we are doing simply is
adopting an exception to the general rule, in view of the peculiar circumstances of this case.’
 SALES | 53

"In Alonzo, the right of legal redemption was invoked several years, not just days or months, after the
consummation of the contracts of sale. The complaint for legal redemption itself was there filed more than thirteen
years after the sales were concluded."5

WHEREFORE, the instant petition is GRANTED, and the assailed decision of the Court of Appeals is reversed and set
aside. Petitioner is hereby given a period of thirty days from finality of this decision within which to exercise its right
of legal redemption. No costs.

SO ORDERED.
 SALES | 54

G.R. No. 72873 May 28, 1987

CARLOS ALONZO and CASIMIRA ALONZO, petitioners,

vs.
INTERMEDIATE APPELLATE COURT and TECLA PADUA, respondents.

Perpetuo L.B. Alonzo for petitioners.

Luis R. Reyes for private respondent.

CRUZ, J.:

The question is sometimes asked, in serious inquiry or in curious conjecture, whether we are a court of law or a
court of justice. Do we apply the law even if it is unjust or do we administer justice even against the law? Thus
queried, we do not equivocate. The answer is that we do neither because we are a court both of law and of justice.
We apply the law with justice for that is our mission and purpose in the scheme of our Republic. This case is an
illustration.

Five brothers and sisters inherited in equal pro indiviso shares a parcel of land registered in 'the name of their
deceased parents under OCT No. 10977 of the Registry of Deeds of Tarlac. 1

On March 15, 1963, one of them, Celestino Padua, transferred his undivided share of the herein petitioners for the
sum of P550.00 by way of absolute sale. 2 One year later, on April 22, 1964, Eustaquia Padua, his sister, sold her own
share to the same vendees, in an instrument denominated "Con Pacto de Retro Sale," for the sum of P 440.00. 3

By virtue of such agreements, the petitioners occupied, after the said sales, an area corresponding to two-fifths of
the said lot, representing the portions sold to them. The vendees subsequently enclosed the same with a fence. In
1975, with their consent, their son Eduardo Alonzo and his wife built a semi-concrete house on a part of the
enclosed area.4

On February 25, 1976, Mariano Padua, one of the five coheirs, sought to redeem the area sold to the spouses
Alonzo, but his complaint was dismissed when it appeared that he was an American citizen .5 On May 27, 1977,
however, Tecla Padua, another co-heir, filed her own complaint invoking the same right of redemption claimed by
her brother. 6

The trial court * also dismiss this complaint, now on the ground that the right had lapsed, not having been exercised
within thirty days from notice of the sales in 1963 and 1964. Although there was no written notice, it was held
that actual knowledge of the sales by the co-heirs satisfied the requirement of the law. 7

In truth, such actual notice as acquired by the co-heirs cannot be plausibly denied. The other co-heirs, including
Tecla Padua, lived on the same lot, which consisted of only 604 square meters, including the portions sold to the
petitioners . 8 Eustaquia herself, who had sold her portion, was staying in the same house with her sister Tecla, who
later claimed redemption petition. 9 Moreover, the petitioners and the private respondents were close friends and
neighbors whose children went to school together. 10

It is highly improbable that the other co-heirs were unaware of the sales and that they thought, as they alleged, that
the area occupied by the petitioners had merely been mortgaged by Celestino and Eustaquia. In the circumstances
just narrated, it was impossible for Tecla not to know that the area occupied by the petitioners had been purchased
by them from the other. co-heirs. Especially significant was the erection thereon of the permanent semi-concrete
structure by the petitioners' son, which was done without objection on her part or of any of the other co-heirs.
 SALES | 55

The only real question in this case, therefore, is the correct interpretation and application of the pertinent law as
invoked, interestingly enough, by both the petitioners and the private respondents. This is Article 1088 of the Civil
Code, providing as follows:

Art. 1088. Should any of the heirs sell his hereditary rights to a stranger before the partition, any or
all of the co-heirs may be subrogated to the rights of the purchaser by reimbursing him for the price
of the sale, provided they do so within the period of one month from the time they were notified in
writing of the sale by the vendor.

In reversing the trial court, the respondent court ** declared that the notice required by the said article
was written notice and that actual notice would not suffice as a substitute. Citing the same case of De Conejero v.
Court of Appeals 11 applied by the trial court, the respondent court held that that decision, interpreting a like rule in
Article 1623, stressed the need for written notice although no particular form was required.

Thus, according to Justice J.B.L. Reyes, who was the ponente of the Court, furnishing the co-heirs with a copy of the
deed of sale of the property subject to redemption would satisfy the requirement for written notice. "So long,
therefore, as the latter (i.e., the redemptioner) is informed in writing of the sale and the particulars thereof," he
declared, "the thirty days for redemption start running. "

In the earlier decision of Butte v. UY, 12 " the Court, speaking through the same learned jurist, emphasized that the
written notice should be given by the vendor and not the vendees, conformably to a similar requirement under
Article 1623, reading as follows:

Art. 1623. The right of legal pre-emption or redemption shall not be exercised except within thirty
days from the notice in writing by the prospective vendor, or by the vendors, as the case may be.
The deed of sale shall not be recorded in the Registry of Property, unless accompanied by an
affidavit of the vendor that he has given written notice thereof to all possible redemptioners.

The right of redemption of co-owners excludes that of the adjoining owners.

As "it is thus apparent that the Philippine legislature in Article 1623 deliberately selected a particular method of
giving notice, and that notice must be deemed exclusive," the Court held that notice given by the vendees and not
the vendor would not toll the running of the 30-day period.

The petition before us appears to be an illustration of the Holmes dictum that "hard cases make bad laws" as the
petitioners obviously cannot argue against the fact that there was really no written notice given by the vendors to
their co-heirs. Strictly applied and interpreted, Article 1088 can lead to only one conclusion, to wit, that in view of
such deficiency, the 30 day period for redemption had not begun to run, much less expired in 1977.

But as has also been aptly observed, we test a law by its results; and likewise, we may add, by its purposes. It is a
cardinal rule that, in seeking the meaning of the law, the first concern of the judge should be to discover in its
provisions the in tent of the lawmaker. Unquestionably, the law should never be interpreted in such a way as to
cause injustice as this is never within the legislative intent. An indispensable part of that intent, in fact, for we
presume the good motives of the legislature, is to render justice.

Thus, we interpret and apply the law not independently of but in consonance with justice. Law and justice are
inseparable, and we must keep them so. To be sure, there are some laws that, while generally valid, may seem
arbitrary when applied in a particular case because of its peculiar circumstances. In such a situation, we are not
bound, because only of our nature and functions, to apply them just the same, in slavish obedience to their
language. What we do instead is find a balance between the word and the will, that justice may be done even as the
law is obeyed.

As judges, we are not automatons. We do not and must not unfeelingly apply the law as it is worded, yielding like
robots to the literal command without regard to its cause and consequence. "Courts are apt to err by sticking too
 SALES | 56

closely to the words of a law," so we are warned, by Justice Holmes again, "where these words import a policy that
goes beyond them." 13 While we admittedly may not legislate, we nevertheless have the power to interpret the law
in such a way as to reflect the will of the legislature. While we may not read into the law a purpose that is not there,
we nevertheless have the right to read out of it the reason for its enactment. In doing so, we defer not to "the letter
that killeth" but to "the spirit that vivifieth," to give effect to the law maker's will.

The spirit, rather than the letter of a statute determines its construction, hence, a statute must be
read according to its spirit or intent. For what is within the spirit is within the letter but although it is
not within the letter thereof, and that which is within the letter but not within the spirit is not within
the statute. Stated differently, a thing which is within the intent of the lawmaker is as much within
the statute as if within the letter; and a thing which is within the letter of the statute is not within
the statute unless within the intent of the lawmakers. 14

In requiring written notice, Article 1088 seeks to ensure that the redemptioner is properly notified of
the sale and to indicate the date of such notice as the starting time of the 30-day period of
redemption. Considering the shortness of the period, it is really necessary, as a general rule, to
pinpoint the precise date it is supposed to begin, to obviate any problem of alleged delays,
sometimes consisting of only a day or two.

The instant case presents no such problem because the right of redemption was invoked not days but years after the
sales were made in 1963 and 1964. The complaint was filed by Tecla Padua in 1977, thirteen years after the first sale
and fourteen years after the second sale. The delay invoked by the petitioners extends to more than a decade,
assuming of course that there was a valid notice that tolled the running of the period of redemption.

Was there a valid notice? Granting that the law requires the notice to be written, would such notice be necessary in
this case? Assuming there was a valid notice although it was not in writing. would there be any question that the 30-
day period for redemption had expired long before the complaint was filed in 1977?

In the face of the established facts, we cannot accept the private respondents' pretense that they were unaware of
the sales made by their brother and sister in 1963 and 1964. By requiring written proof of such notice, we would be
closing our eyes to the obvious truth in favor of their palpably false claim of ignorance, thus exalting the letter of the
law over its purpose. The purpose is clear enough: to make sure that the redemptioners are duly notified. We are
satisfied that in this case the other brothers and sisters were actually informed, although not in writing, of the sales
made in 1963 and 1964, and that such notice was sufficient.

Now, when did the 30-day period of redemption begin?

While we do not here declare that this period started from the dates of such sales in 1963 and 1964, we do say that
sometime between those years and 1976, when the first complaint for redemption was filed, the other co-heirs
were actually informed of the sale and that thereafter the 30-day period started running and ultimately expired. This
could have happened any time during the interval of thirteen years, when none of the co-heirs made a move to
redeem the properties sold. By 1977, in other words, when Tecla Padua filed her complaint, the right of redemption
had already been extinguished because the period for its exercise had already expired.

The following doctrine is also worth noting:

While the general rule is, that to charge a party with laches in the assertion of an alleged right it is
essential that he should have knowledge of the facts upon which he bases his claim, yet if the
circumstances were such as should have induced inquiry, and the means of ascertaining the truth
were readily available upon inquiry, but the party neglects to make it, he will be chargeable with
laches, the same as if he had known the facts. 15

It was the perfectly natural thing for the co-heirs to wonder why the spouses Alonzo, who were not among them,
should enclose a portion of the inherited lot and build thereon a house of strong materials. This definitely was not
 SALES | 57

the act of a temporary possessor or a mere mortgagee. This certainly looked like an act of ownership. Yet, given this
unseemly situation, none of the co-heirs saw fit to object or at least inquire, to ascertain the facts, which were
readily available. It took all of thirteen years before one of them chose to claim the right of redemption, but then it
was already too late.

We realize that in arriving at our conclusion today, we are deviating from the strict letter of the law, which the
respondent court understandably applied pursuant to existing jurisprudence. The said court acted properly as it had
no competence to reverse the doctrines laid down by this Court in the above-cited cases. In fact, and this should be
clearly stressed, we ourselves are not abandoning the De Conejero and Buttle doctrines. What we are doing simply is
adopting an exception to the general rule, in view of the peculiar circumstances of this case.

The co-heirs in this case were undeniably informed of the sales although no notice in writing was given them. And
there is no doubt either that the 30-day period began and ended during the 14 years between the sales in question
and the filing of the complaint for redemption in 1977, without the co-heirs exercising their right of redemption.
These are the justifications for this exception.

More than twenty centuries ago, Justinian defined justice "as the constant and perpetual wish to render every one
his due." 16 That wish continues to motivate this Court when it assesses the facts and the law in every case brought
to it for decision. Justice is always an essential ingredient of its decisions. Thus when the facts warrants, we interpret
the law in a way that will render justice, presuming that it was the intention of the lawmaker, to begin with, that the
law be dispensed with justice. So we have done in this case.

WHEREFORE, the petition is granted. The decision of the respondent court is REVERSED and that of the trial court is
reinstated, without any pronouncement as to costs. It is so ordered.

Teehankee, C.J., Yap, Narvasa, Melencio-Herrera Gutierrez, Jr., Paras, Gancayco, Padilla, Bidin, Sarmiento and Cortes,
JJ., concur.

Fernan and Feliciano, JJ., are on leave.