Quinga vs. Court of Appeals

A deed purporting to be an absolute sale may be recharacterized as an equitable mortgage where the price is grossly inadequate, the vendor remains in possession, and the vendee unreasonably delays asserting ownership rights over the property. The mortgagor's cause of action to redeem does not prescribe where no foreclosure proceedings have been instituted and the mortgagee refuses to accept payment of the debt.

Filomena Salas owed Ceferino Datoon P200.00 prior to September 1934. Unable to meet demands for payment, she offered to mortgage or sell under pacto de retro her riceland — Lot No. 7741 of the Cadastral Survey of Pototan, Iloilo, containing over two hectares with an assessed value of P960.00. Datoon instead caused the preparation of a deed of absolute sale, which Salas signed on the condition that she would remain in possession and could repurchase the property. Datoon registered the deed and obtained Transfer Certificate of Title No. 14841 in his name on October 30, 1935. Upon Datoon's death in 1943, his widow Flora Quinga was appointed judicial administratrix of his intestate estate. An accounting on or about October 10, 1940 showed that only P100.00 of the original indebtedness remained unpaid, and on that same day Datoon executed a private document (Exhibit A) permitting Salas to repurchase within ten years.

Filomena Salas owed Ceferino Datoon P200.00 prior to September 1934. When demands for payment proved fruitless, she offered to mortgage or sell under pacto de retro her riceland — Lot No. 7741 of the Cadastral Survey of Pototan, Iloilo, containing two hectares, twenty-seven ares, and eighteen centares, with an assessed value of P960.00 and capable of producing eighty bultos or one hundred sixty cavanes of palay. Instead of a deed of mortgage or a pacto de retro sale, Datoon caused the preparation of a deed of absolute sale dated September 18, 1934, which Salas signed on the condition that she would remain in possession of the land and could repurchase the same. Datoon registered the deed and secured the cancellation of Original Certificate of Title No. 40792 and the issuance of Transfer Certificate of Title No. 14841 in his name on October 30, 1935.

An accounting made on or about October 10, 1940 showed that the unpaid portion of Salas's indebtedness was only P100.00. On that same day, complying with a previous promise, Datoon executed a private document — Exhibit A — allowing Salas to repurchase the property within ten years. Datoon died in 1943, and his widow Flora Quinga was appointed judicial administratrix of his intestate estate in Special Proceeding No. 8 of the Court of First Instance of Iloilo. The property was included in the amended and second amended inventories filed by Quinga as administratrix.

Because Quinga refused to allow Salas to repurchase the property, Salas filed suit in the Court of First Instance of Iloilo to compel reconveyance and to recover damages, depositing P100.00 with the Clerk of Court on February 7, 1948 as consideration for the repurchase, as evidenced by Official Receipt No. 452848. The administratrix interposed the defense that the transaction was an absolute sale and counterclaimed for physical possession of the lot and damages. After trial, the CFI found the transaction was an absolute sale and that Exhibit A was a forgery, dismissing the complaint and ordering Salas to deliver possession and pay damages. On appeal, the Court of Appeals reversed, finding the transaction was an equitable mortgage and that forgery of Exhibit A was not sufficiently proven.

• Nature of the Transaction: Petitioner contended that the Court of Appeals erred in ruling that the transaction between Datoon and Salas was an equitable mortgage rather than an absolute sale, maintaining that the deed of absolute sale duly executed and registered reflected the true intent of the parties.
• Genuineness of Exhibit A: Petitioner argued that the private document Exhibit A was a forgery, as supported by the NBI examiner's report admitted as Exhibit 18, and that the Court of Appeals erred in finding insufficient evidence of forgery.
• Prescription: Petitioner contended that respondent Salas's cause of action had long prescribed, barring her suit for reconveyance.

• Nature of the Transaction: Respondent maintained that the real contract entered into was an equitable mortgage, citing the gross inadequacy of the P200.00 price for over two hectares of riceland, her continued possession of the property as tenant, and Datoon's failure to receive his share of the crops until 1944 — nine years after the alleged sale.
• Genuineness of Exhibit A: Respondent argued that Exhibit A was genuine, supported by her own testimony and that of her witness Virginia Cordero, whose credibility had not been successfully assailed, and that the NBI examiner's report alone was insufficient to establish forgery, particularly given the incomplete record caused by the loss of stenographic notes.

• Nature of the Transaction: Whether the transaction between Salas and Datoon was an absolute sale or an equitable mortgage.
• Genuineness of Exhibit A: Whether the private document Exhibit A was a forgery, and if so, whether its falsity would alter the nature of the transaction.
• Prescription: Whether respondent Salas's cause of action to repurchase the property had prescribed.

• Nature of the Transaction: No. The transaction was an equitable mortgage, not an absolute sale. The inadequacy of the price, Salas's continued possession, and Datoon's nine-year delay in asserting his right to crop shares were inconsistent with a genuine sale.
• Genuineness of Exhibit A: Even assuming Exhibit A was a forgery, its falsity would not alter the true nature of the transaction as an equitable mortgage. At most, it would render the document without probative value and adversely affect the credibility of those who testified to its genuineness.
• Prescription: No. The cause of action had not prescribed. Absent any foreclosure proceedings, the property remained subject to the mortgage contract, and Salas's cause of action accrued only upon Quinga's refusal to accept payment and discharge the mortgage.

• Nature of the Transaction: The Court of Appeals identified three indicia of equitable mortgage: (1) the gross inadequacy of price — P200.00 for over two hectares of riceland assessed at P960.00 and capable of producing eighty bultos of palay at P20.00 to P250.00 per bulto; (2) Salas's continued material possession of the property as tenant despite the alleged sale; and (3) Datoon's failure to receive his share of the crops until 1944, more than nine years after the alleged sale and registration of the deed. The Supreme Court found these grounds persuasive, observing that had the transaction truly been a sale, Datoon — who had already registered the deed and obtained a transfer certificate of title in his name — would have asserted his right to receive crop shares immediately after the sale. The Court noted that even disregarding the inadequacy of price, the remaining circumstances sufficiently established the transaction as an equitable mortgage.
• Genuineness of Exhibit A: The Court of Appeals found the evidence of forgery incomplete because the transcript of testimony from the defendant's witnesses Arthur Mombar, Felipe P. Logan, and Isidoro Cordero was missing, the stenographer having likely lost or misplaced the stenographic notes. The NBI examiner's report (Exhibit 18) was deemed insufficient to prove forgery against the "natural and straight-forward testimonies" of Salas and her witness Virginia Cordero, whose credibility had not been successfully impeached. The Supreme Court agreed that even if Exhibit A were assumed to be a forgery, this would only strip the document of probative value and adversely affect the credibility of Salas and her witness, but would not change the nature of the transaction, which other evidence sufficiently established as an equitable mortgage.
• Prescription: Because the property was merely mortgaged to Datoon and no foreclosure proceedings had been instituted in the proper court, the property remained subject to the mortgage contract. Quinga's refusal to accept payment of the mortgage debt and to give a discharge of mortgage was the event that accrued Salas's cause of action, and she sued immediately to enforce it. Prescription therefore had not set in.

• Equitable Mortgage — A transaction ostensibly an absolute sale may be construed as an equitable mortgage where circumstances indicate that the real intention of the parties was to secure a debt rather than to transfer ownership. Indicia include gross inadequacy of price, the vendor's continued possession of the property, and the vendee's unreasonable delay in asserting ownership rights such as collecting the fruits of the land. In this case, all three indicia were present: P200.00 was grossly inadequate for over two hectares of riceland assessed at P960.00; Salas remained in possession as tenant; and Datoon only began receiving crop shares in 1944, nine years after the alleged sale and registration.
• Non-Prescription of Mortgagee's Right to Redeem Absent Foreclosure — Where property is held as security for a debt under an equitable mortgage and no foreclosure proceedings have been instituted, the mortgagor's right to redeem does not prescribe. The cause of action to enforce redemption accrues only upon the mortgagee's refusal to accept payment of the debt and discharge the mortgage, at which point the mortgagor is entitled to sue immediately.

• "Even disregarding the inadequacy of the price of P200.00 for the more two hectares of riceland alleged to have been sold by Salas to Datoon, there remains the important circumstance that, in spite of the alleged sale, Salas remained in possession of the property and the vendee started receiving his share in the fruits of the land only in 1944, that is, more than nine years after the alleged sale." — This passage articulates the Court's reasoning that continued possession and delayed receipt of fruits are sufficient, even apart from price inadequacy, to establish equitable mortgage.
• "even if the falsity of Exhibit A is admitted, the fact would not alter the true nature of the transaction, namely, that it was and is an equitable mortgage." — This statement, drawn from the Court of Appeals and quoted with approval, establishes that the character of a transaction as equitable mortgage is determined by the surrounding circumstances, not by any single document.
• "As the property in question was merely mortgaged to Datoon, and inasmuch as there had not been any foreclosure proceedings in the proper court, it is obvious that the property remains to this date subject to the same contract." — This passage defines the rule that absent foreclosure, a mortgagor's right to redeem persists and the cause of action accrues only upon refusal of payment.

Bengzon, C.J., Padilla, Labrador, Concepcion, Reyes, J.B.L., Barrera, Paredes, De Leon, and Natividad, JJ., concurred.