Cando vs. Solis

A contract denominated as a deed of sale is presumed to be an equitable mortgage when the parties' real intention was to secure the payment of an existing debt, and the existence of any one of the circumstances enumerated in Article 1602 of the Civil Code is sufficient to raise this presumption.

Spouses Jose Guyala Solis and Flocerfida de Guzman Solis were the registered owners of two parcels of land in Quezon City covered by TCT Nos. N-313735 (429 sq. m.) and N-313736 (510 sq. m.), on which a house stood. On February 27, 2012, they obtained a P15,000,000 loan from Lourdes N. Cando, guaranteed by a document denominated "Real Estate Mortgage Without Judicial Proceedings" over the same properties, with the spouses undertaking to pay within six months at five percent (5%) interest per month. The dispute arose when Cando claimed that the spouses subsequently executed a deed of absolute sale over the same properties in her favor on October 29, 2012, and used it to cancel their titles and obtain new ones in her name.

Spouses Jose Guyala Solis and Flocerfida de Guzman Solis were the registered owners of two parcels of land in Quezon City covered by TCT Nos. N-313735 and N-313736, with areas of 429 and 510 square meters respectively, on which a house stood. On February 27, 2012, they borrowed P15,000,000 from Lourdes N. Cando, securing the loan with a document denominated "Real Estate Mortgage Without Judicial Proceedings" over the subject properties. In the deed, the spouses, as mortgagors, undertook to pay the indebtedness within six months at five percent (5%) interest per month. The document contained a stipulation that upon the mortgagors' default, the mortgagee could enforce her rights without judicial proceedings and had the right to transfer ownership of the subject properties in her favor without any legal intervention from the mortgagors.

On February 19, 2013, the spouses received a demand letter dated January 29, 2013 from Cando's counsel, stating that they had already sold the subject properties to Cando but refused to vacate. The letter demanded that they leave within fifteen days, characterizing their occupancy as mere tolerance by Cando. The spouses alleged that they had signed the deed of mortgage out of mistake and in the belief that it was a real estate mortgage and not a sale, and that the stipulation allowing Cando to transfer ownership upon default constituted a pactum commissorium. They also pointed out that the price of P15,000,000 for two properties actually worth P60,000,000 was grossly inadequate, indicating that the real intent was to secure the loan, not to sell.

The spouses filed a complaint for annulment of sale with reformation of instrument and damages before the RTC. After filing, they attempted to annotate notices of lis pendens on the titles but the Registry of Deeds of Quezon City refused, purportedly because the properties were covered by a previous sale. The complaint was amended to implead the Registry of Deeds. Cando, in her Answer with Compulsory Counterclaim, maintained that the spouses had sold the properties to her pursuant to a Deed of Absolute Sale dated October 29, 2012, which they executed in her favor. She argued that the spouses were highly educated — Jose being a former congressman — and would not have been tricked into signing a document they did not understand. She further contended that the stipulation in the deed of mortgage did not constitute pactum commissorium because it did not automatically vest ownership in her, and that the deed of mortgage had been superseded by the deed of sale, which was used to cancel the spouses' titles and obtain new ones in her name.

The spouses replied that Cando merely induced them into signing the deed of sale as a formality, telling them it would only be used at the bank to facilitate release of the loan amount. They noted that Cando's demand letter made no mention of any deed of sale, threatening only eviction for non-payment of the loan and violation of the mortgage agreement. They further asserted that Jose could not have signed the deed of sale before a notary public in Quezon City on October 29, 2012 because he was confined at a hospital in Bicol at that time, and that Cando had used a falsified document to misrepresent the sale's validity before the Registry of Deeds.

Because Cando and her counsel repeatedly failed to attend the preliminary conference and pre-trial despite due notice and without valid explanation, the spouses were allowed to present their evidence ex parte. Jose died during the pendency of the case and was substituted by his heirs — Flocerfida and their daughters Joanne and Michelle Solis. The RTC found that the spouses never intended to sell the properties, noting the gross inadequacy of price, their continued possession until the caretaker was evicted while they were in Bulan, Sorsogon, and the absence of any mention of a deed of sale in the demand letter. The CA affirmed, citing the same badges of equitable mortgage.

• Failure to Prove Equitable Mortgage: Cando argued that despite the waiver of her right to adduce evidence before the RTC, Spouses Solis still failed to prove the elements of an equitable mortgage.
• Validity of Deed of Mortgage Unchallenged: Cando maintained that Spouses Solis did not impugn the validity of the deed of mortgage dated February 27, 2012.
• Execution of Deed of Sale Admitted: Cando asserted that Spouses Solis did not deny that, after failing to pay the loan, they executed and signed the deed of sale dated October 29, 2012 in her favor.
• Finality of No Pactum Commissorium Finding: Cando pointed out that the RTC's finding of no pactum commissorium was not questioned before the CA and had attained finality.
• Absurdity of Second Security Document: Cando contended that the CA erred in concluding the deed of sale was intended to guarantee an existing debt already secured by the deed of mortgage, arguing that issuing a second document to secure the same debt made no sense.
• Stipulation on Transfer Without Foreclosure: Cando argued that the deed of mortgage stipulated that the mortgagee could enforce her rights without judicial proceedings and transfer ownership without the mortgagors' intervention, thus the parties agreed that foreclosure was unnecessary.
• Adequacy of Price Based on Tax Declarations: Cando submitted that based on tax declarations, the total market value of the properties at the time of the mortgage was only P4,023,230, meaning Spouses Solis received more than triple the properties' declared market value.
• Misleading Omission: Cando averred that Spouses Solis tried to mislead the RTC by not mentioning in their complaint or amended complaint that they had executed a deed of sale in her favor.
• Unsubstantiated Possession Claim: Cando argued that the allegation that the spouses remained in possession until the caretaker was evicted was unsupported by evidence, as the caretaker was not presented as a witness and the deed of mortgage stated that possession had already been delivered to her.

• Propriety of Ex Parte Presentation: Respondents countered that the CA correctly affirmed the RTC's order allowing them to present evidence ex parte, given Cando's and her counsel's repeated unexplained failures to appear at pre-trial; they argued that the RTC had given Cando adequate leniency and that her predicament was entirely her own fault.
• Lack of Consent to Sale: Respondents contended that the CA did not err in ordering the annulment of the deed of sale due to lack of consent, asserting that Spouses Solis never intended to sell their lots and were merely asked to sign the deed of sale based on Cando's false representation that it was a formality for her bank loan.
• Falsified Notarization: Respondents stressed that Cando misrepresented the deed of sale as notarized by one Atty. Jesus P. Calades, Jr., when no record of such notarization existed per certification from the Office of the Clerk of Court of Quezon City, and that on the date of alleged execution, Spouses Solis were in Bulan, Sorsogon, where Jose eventually died.

• Equitable Mortgage: Whether the agreement between Spouses Solis and Cando is one of equitable mortgage that warrants the annulment of the deed of sale they supposedly entered into.
• Review of Factual Findings: Whether the petition raises a question of fact not reviewable under Rule 45 of the Rules of Court.

• Equitable Mortgage: Yes. The deed of sale was an equitable mortgage, the badges of equitable mortgage under Article 1602 of the Civil Code being present and uncontroverted, warranting annulment of the deed of sale.
• Review of Factual Findings: No. The petition raised a question of fact — whether the agreement was an equitable mortgage — which is generally not reviewable under Rule 45, and none of the recognized exceptions applied.

• Equitable Mortgage: The requisites for the presumption of equitable mortgage under Article 1602 were present: (a) the parties entered into a contract denominated as a deed of sale dated October 29, 2012, and (b) the circumstances showed they executed it to guarantee the P15,000,000 loan. The Court identified four badges: First, an existing loan was obtained by Spouses Solis from Cando, already guaranteed by a deed of mortgage, proving the transaction was a loan and not a bona fide sale. Second, the purchase price of P15,000,000 was grossly inadequate compared to the properties' actual market value of P60,000,000. Third, Spouses Solis continued possession even after the supposed sale, as evidenced by Cando's demand letter of February 19, 2013 requiring them to vacate — inconsistent with a voluntary sale. Fourth, Flocerfida testified that Cando requested them to sign the deed of sale only as a formality to show the bank a transaction existed between the parties, revealing no real intent to sell. These presumptions remained uncontroverted because Cando was declared in default and the RTC proceedings were held ex parte. Cando's argument that the deed of mortgage was superseded by the deed of sale was rejected; the Court refused to disregard the deed of mortgage, finding instead that the true intent was to secure the loan. Consequently, the deed of sale being null and void, the deed of mortgage stood.

• Review of Factual Findings: The Court's jurisdiction in a Rule 45 petition is limited to reviewing errors of law, not fact, unless the factual findings are completely devoid of support or the judgment is based on a gross misapprehension of facts. Cando raised in the main a question of fact — whether the agreement was an equitable mortgage — requiring review of the evidence. None of the recognized exceptions to this rule applied. The Court found no cogent reason to depart from the factual findings and conclusions of the CA, more so when supported by the evidence on record.

• Equitable Mortgage (Article 1602, Civil Code) — A contract shall be presumed to be an equitable mortgage in any of the cases enumerated in Article 1602, including: (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; and (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. For the presumption to arise, two requisites must concur: (a) the parties entered into a contract denominated as a contract of sale; and (b) their intention was to secure an existing debt by way of a mortgage. The existence of any one of the circumstances under Article 1602 is sufficient. In this case, the Court found four badges present: an existing loan, grossly inadequate price, continued possession by the vendor, and lack of intent to sell, creating a strong presumption of equitable mortgage that remained uncontroverted due to Cando's default.

• Rule 45 — Questions of Fact Not Reviewable — In a petition for review on certiorari under Rule 45, the Supreme Court's jurisdiction is limited to reviewing errors of law, not fact, unless the factual findings are completely devoid of support from the evidence on record or the assailed judgment is based on a gross misapprehension of facts. The determination of whether an agreement constitutes an equitable mortgage is a question of fact, as it requires examination of the evidence and surrounding circumstances.

• "An equitable mortgage is defined as 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." — This passage provides the canonical definition of equitable mortgage as applied in the decision, drawing from Molina vs. Court of Appeals.

• "For the presumption of an equitable mortgage to arise under Article 1602, two (2) requisites must concur: (a) that the parties entered into a contract denominated as a contract of sale; and (b) that their intention was to secure an existing debt by way of a mortgage." — This states the two-concurrence test for the Article 1602 presumption, frequently cited in subsequent jurisprudence on equitable mortgage.

• "The existence of any of the circumstances stated under Article 1602 is sufficient for a contract of sale to be presumed as an equitable mortgage." — This establishes that only one badge of equitable mortgage need be present to trigger the statutory presumption, a principle central to the Court's ruling.

• Meralco Industrial Engineering Services Corp. vs. National Labor Relations Commission, 572 Phil. 94 (2008) — Cited for the doctrine that the Supreme Court's review in Rule 45 proceedings is limited to questions of law, not fact, unless the factual findings are devoid of support or the judgment is based on gross misapprehension of facts.
• Molina vs. Court of Appeals, 446 Phil. 133 (2003) — Cited for the definition of equitable mortgage as one which reveals the intention of the parties to charge real property as security for a debt, and for the principle that intention is determined not only by terminology but by all surrounding circumstances.
• Sps. Reyes vs. Court of Appeals, 393 Phil. 479 (2000) — Cited for the two requisites for the presumption of equitable mortgage under Article 1602 and for the rule that the existence of any one circumstance under Article 1602 is sufficient to raise the presumption.
• Twin Towers Condominium Corp. vs. Court of Appeals, 446 Phil. 280 (2003) — Cited for the enumerated exceptions to the rule that questions of fact are not reviewable under Rule 45.

• Article 1602, Civil Code — Enumerates the circumstances under which a contract shall be presumed to be an equitable mortgage, including unusually inadequate price, vendor remaining in possession, and any case where it may be fairly inferred that the real intention is to secure payment of a debt. Applied to find the presence of multiple badges of equitable mortgage in the transaction.
• Rule 45, Rules of Court — Governs appeal by certiorari to the Supreme Court, limiting review to questions of law. Applied to hold that Cando's petition raised a question of fact not reviewable, none of the recognized exceptions being present.
• Act No. 3135 — Entitled "An Act to Regulate the Sale of Property Under Special Powers Inserted In or Annexed to Real Estate Mortgages." Noted by the RTC as requiring a special power of attorney for extrajudicial sale of mortgaged property and registration of the mortgage with the Registry of Deeds, both of which were lacking.

Caguioa (Chairperson), Gaerlan, J. Lopez, and Singh, JJ., concurred.