Molina vs. Court of Appeals

A contract purporting to be an absolute sale is not an equitable mortgage absent proof that the parties intended the transaction to secure an existing debt.

Pedro Molina and his siblings Felisa, Felix, and Tomas were co-owners of a parcel of land in Naic, Cavite, registered under TCT No. T-44010. In 1984, Molina conveyed his share to his sister Felisa via an unregistered Deed of Absolute Sale. The siblings subsequently partitioned the property, with Molina's share designated as Lot No. 98-A-2. In 1988, at Felisa's request, Molina executed a new Deed of Absolute Sale covering the same share in favor of Felisa's son and his wife, the respondent spouses.

• Co-ownership and Initial Sale: Pedro Molina and his siblings Felisa, Felix, and Tomas co-owned a parcel of land in Naic, Cavite, registered under TCT No. T-44010. On April 23, 1984, Molina executed a Deed of Absolute Sale conveying his share to his sister Felisa. This sale was not registered.
• Partition: The siblings subsequently agreed to partition the property. Molina's share was designated as Lot No. 98-A-2, containing an area of 92 square meters.
• Second Deed of Sale: On June 13, 1988, upon Felisa's request, Molina executed another Deed of Absolute Sale covering the same share, this time in favor of Felisa’s son and his wife, respondent spouses Margarito Flores and Nerisa Herrera. The deed stated a consideration of ₱8,000.00, receipt of which was acknowledged by the vendor. TCT No. T-170585 was issued in the names of the respondent spouses.
• Prior Receipts (Kasunduan): Before executing the 1988 deed, Molina signed receipts denominated as "Kasunduan" written in the vernacular. Each receipt acknowledged the reception of ₱1,000.00 from Felisa "bilang tanda na ipinagbibili ko sa kanya ang aking kaparte sa lupang minana" (as proof that I am selling to her my share of the inherited land).
• Filing of Action: On September 5, 1990, Molina filed an action for reformation of instrument and/or annulment of document and title with reconveyance and damages, alleging that the deed did not express his true intention and that he was defrauded into signing it.

• Equitable Mortgage: Petitioner argued that the Deed of Absolute Sale was an equitable mortgage securing his debt to Felisa, invoking Arts. 1602 and 1604 of the Civil Code.
• Vitiated Consent: Petitioner maintained that he was defrauded by Felisa, who made him believe he was signing a receipt for his indebtedness, taking advantage of his lack of education and English proficiency.
• Badges of Mortgage: Petitioner asserted that the inadequacy of the purchase price (₱8,000.00) and his continued receipt of rentals from the property's lessee were badges of equitable mortgage.
• Non-consummated Sale: Petitioner contended that, assuming a sale was intended, it was not consummated because the entire purchase price was not paid.

• Validity of Sale: Respondent spouses countered that their acquisition of petitioner's share was valid, legal, and binding.

• Equitable Mortgage: Whether the Deed of Absolute Sale should be construed as an equitable mortgage.
• Vitiated Consent: Whether petitioner was defrauded into signing the deed.
• Consummation of Sale: Whether the contract of sale was not consummated due to non-payment of the purchase price.

• Equitable Mortgage: The deed was not an equitable mortgage. For the presumption under Art. 1602 to arise, two requisites must concur: (1) the parties entered into a contract denominated as a sale, and (2) their intention was to secure an existing debt by way of a mortgage. The second requisite was absent. Petitioner's own testimony revealed he received money in installments of ₱1,000.00 over ten months, indicating a sale on installment rather than a loan. Furthermore, the "Kasunduan" receipts explicitly stated the money was received as payment for his share of the land.
• Vitiated Consent: Fraud was not established. The deed was read to petitioner in English and translated to Tagalog by the notary public's secretary, as confirmed by petitioner's own witness. Another witness testified that petitioner was informed he would be selling the property and he acceded.
• Badges of Mortgage: Inadequacy of price alone does not prove the contract was a loan, especially absent proof of the property's market value in 1988. The receipt of rentals was deemed a gesture of generosity and leniency from his relatives, petitioner being jobless and without visible means of support.
• Consummation of Sale: Assuming the purchase price was not fully paid, the contract remains valid. Acknowledgment of receipt in the deed creates a presumption of payment. Non-payment is a resolutory condition, and the remedy is exact fulfillment or rescission under Art. 1191, not annulment.

• Equitable Mortgage — Defined as one which, although lacking in some formality, form, or words, reveals the intention of the parties to charge real property as security for a debt. The intention is determined by the surrounding circumstances, such as the relative situation of the parties, their acts, conduct, declarations, and the negotiations leading to the deed.
• Presumption of Equitable Mortgage (Art. 1602) — For the presumption of equitable mortgage 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.

• "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."
• "For the presumption of an equitable mortgage to arise under Art. 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."

• Reyes v. Court of Appeals, 339 SCRA 97 (2000) — Followed for the rule that the intention of the parties is shown by surrounding circumstances, and for the two requisites for the presumption of equitable mortgage under Art. 1602.
• Matanguihan v. Court of Appeals, 275 SCRA 381 (1997) — Followed for the definition of equitable mortgage.
• Cachola, Sr. v. Court of Appeals, 208 SCRA 496 (1992) — Followed for the principle that inadequacy of price does not by itself support the conclusion that the contract was one of a loan.
• Ocampo v. Court of Appeals, 233 SCRA 551 (1994) — Followed for the rule that acknowledgment of receipt of the purchase price does not bar transfer of ownership, and non-payment does not dissolve the contract of sale.
• Villaflor v. Court of Appeals, 280 SCRA 297 (1997) — Followed for the application of Art. 1191 of the Civil Code, where payment of the price is a resolutory condition and the remedy is exact fulfillment or rescission.

• Art. 1602, Civil Code — Enumerates the cases where a contract is presumed to be an equitable mortgage (e.g., inadequate price, vendor remaining in possession). Applied in conjunction with Art. 1604 to a contract purporting to be an absolute sale; however, the presumption did not arise because the requisite intent to secure a debt was absent.
• Art. 1604, Civil Code — Provides that the provisions of Art. 1602 shall also apply to a contract purporting to be an absolute sale. Invoked by petitioner but rendered inapplicable due to lack of intent to secure a debt.
• Art. 1191, Civil Code — Implies the power to rescind obligations in reciprocal ones in case one of the obligors should not comply. Applied to petitioner's argument on non-payment; non-payment of the purchase price is a resolutory condition giving rise to the right to exact fulfillment or rescind, not annul, the contract.

Puno, Panganiban, Sandoval-Gutierrez