Repuela vs. Estate of Spouses Larawan

A contract purporting to be an absolute sale is presumed to be an equitable mortgage when the vendor remains in possession of the property after the transaction or when it may be fairly inferred from the surrounding circumstances that the real intention of the parties was to secure the payment of a debt. The presence of any single circumstance enumerated in Article 1602 of the Civil Code suffices to trigger the presumption, and no concurrence of several circumstances is required.

The petitioners are the heirs of Marcelino Repuela and Cipriano Repuela, who were the children and successors-in-interest of Spouses Lorenzo and Magdalena Repuela, the original owners of Lot No. 3357 in Lawaan III, Talisay City, Cebu, covered by Transfer Certificate of Title No. 5154. The respondents are the Estate of Spouses Otillo Larawan and Juliana Bacus, represented by their children. The dispute concerns the nature of a transaction between the Repuela brothers and Spouses Larawan involving the subject property, which was documented as an "Extrajudicial Declaration of Heirs and Sale" but which the Repuela brothers claimed was actually a mortgage to secure a loan. The Civil Code provisions on equitable mortgage, particularly Articles 1602 and 1604, govern the determination of whether a contract denominated as a sale is in fact a mortgage.

Spouses Lorenzo and Magdalena Repuela owned Lot No. 3357, situated in Lawaan III, Talisay City, Cebu, and covered by Transfer Certificate of Title No. 5154. After their death, their children Marcelino Repuela and Cipriano Repuela succeeded them as owners of the subject property. The Repuela brothers claimed that sometime in July 1963, after the death of their parents, they went to the house of Otillo Larawan to borrow P200.00 for Marcelino's fare to Iligan City. To secure the loan, the Spouses Larawan required them to turn over the certificate of title for Lot No. 3357. They were made to sign a purported mortgage contract but were not given a copy of the document. Cipriano affixed his signature while Marcelino, being illiterate, placed his thumb mark on the document. They remained in possession of the land despite the mortgage, planting bamboos, corn, bananas, and papayas thereon, sharing the produce between them, and paying the taxes due on the property.

In October 2002, Cristina Repuela Ramos, Cipriano's daughter, went to the City Treasurer's Office of Talisay City upon her father's request 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 that the tax declaration on the subject property was already in their names as early as 1964. 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. Spouses Larawan were able to transfer the certificate of title to their names by virtue of the "Extrajudicial Declaration of Heirs and Sale" bearing the signature of Cipriano and the thumb mark of Marcelino, who remembered that they were made to sign a blank document. On January 17, 2003, Cipriano and Marcelino filed 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, who lived next to the subject property, testified that the Repuela brothers confided in her about Marcelino's desire to go to Iligan City but had no money for his fare; that another neighbor referred them 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 left for Iligan but returned after three months to help Cipriano cultivate 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 ever visited or cultivated the subject property. Alma Abellanosa, City Assessor of Talisay City, 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 subsequent tax declarations had Spouses Larawan as the owners.

For the Estate of Spouses Larawan, the transaction between the Repuela brothers and Otillo was a sale and not a mortgage. 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, son of Spouses Larawan and the sole witness for the Estate, testified that he knew of the transaction because his father brought him along to the office of Atty. Celestino Bacalso, where the document entitled "Extrajudicial Declaration of Heirs and Sale" was prepared; that the document was signed by Cipriano and thumbmarked by Marcelino, 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 years old when these all happened. Galileo also pointed out that 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 their family had been in possession of the subject property and 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.

The RTC decided in favor of the Repuela brothers, holding that the transaction was not a sale but an equitable mortgage. The trial court believed the claim of Cipriano, who only had 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 it 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. The RTC was of the view that the contract was an equitable mortgage under Article 1602 of the Civil Code, considering that the Repuela brothers 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 Estate of Spouses Larawan appealed to the CA, which reversed and set aside the RTC decision, dismissing the complaint.

• Prescription and Laches: Petitioners explained 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 claimed that their predecessors-in-interest were in peaceful, open, continuous, and public possession as owners from the time of the transaction in 1963 until they decided to partition their property and learned that the tax declaration and title were already transferred to Spouses Larawan. They argued that since they were in actual possession, their right to seek reconveyance never prescribed.

• Nature of the Document: Petitioners argued 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. The issuance of a new owner's TCT in favor of Spouses Larawan neither imports conclusive evidence of ownership nor proves that the agreement was one of sale.

• Credibility of Witnesses: Petitioners argued that the CA should have given more credence to the testimonies of the Repuela brothers, as corroborated by the disinterested witness Burlas, over that of Galileo, the lone witness for the respondent, who was just six years old when he supposedly witnessed the transaction and could not have possibly known the nature of the executed contract.

• Possession and Tax Payments: Petitioners stressed that the Repuela brothers remained in possession of the subject property even after the transaction and paid the taxes thereon for the years 1985 to 2002 on December 18, 2002. These circumstances would naturally lead anyone to infer that this instance was espoused in Article 1602 of the Civil Code, and the presence of one circumstance is sufficient to prove that a contract of sale is one of an equitable mortgage.

• No Equitable Mortgage: Respondent averred that the extrajudicial settlement and sale could not be presumed as an equitable mortgage. First, the contract was not a sale with right to repurchase and the price was not unusually inadequate. Second, there was no documentary evidence supporting the claim of possession by the Repuela brothers continuously from the execution of the document until the filing of the case. Third, the situation involving the extension of the period of redemption was not applicable because the document did not provide for a right to repurchase. Fourth, there was no showing that Otillo retained for himself a part of the purchase price, as he paid the full P2,000.00 as sale consideration.

• Clear Terms of the Contract: Respondent argued that there was no agreement that the Repuela brothers bound themselves to pay the taxes on the thing sold, and 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.

• Equitable Mortgage: Whether the Extrajudicial Declaration of Heirs and Sale amounted to an equitable mortgage.
• Prescription and Laches: Whether the petitioners' cause of action was barred by prescription or laches.

• Equitable Mortgage: Yes. The Extrajudicial Declaration of Heirs and Sale amounted to an equitable mortgage. Two instances enumerated in Article 1602 of the Civil Code attended the transaction — the Repuela brothers' possession of the subject property and the inference that the transaction was in fact a mortgage — and the presence of any single circumstance suffices for a contract to be deemed an equitable mortgage.

• Prescription and Laches: No. The action was not barred by prescription or laches. Where there is no consent given by one party in a purported contract, such contract was not perfected and is deemed a void contract, and actions based on void contracts shall not prescribe in accordance with Article 1410 of the Civil Code.

• Equitable Mortgage: An equitable mortgage is one which, although lacking in some formality, 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. For a presumption of an equitable mortgage to arise, two requisites must be satisfied: 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. Article 1602, in relation to Article 1604 of the Civil Code, enumerates several instances when a contract purporting to be an absolute sale is presumed to be an equitable mortgage, including when the vendor remains in possession as lessee or otherwise, and 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. The presence of any of the circumstances set forth therein suffices; no concurrence or an overwhelming number is needed. In this case, the Repuela brothers remained in possession of the subject property after the transaction, as corroborated by the disinterested witness Burlas, who lived in the adjoining lot and testified that only the Repuela brothers tilled the land and planted corn, bananas, and camote, and that she never saw Otillo till or work on the land. The respondent's claim of possession, supported by a transfer certificate of title and tax declaration in the name of Spouses Larawan, was not persuasive because these documents do not prove actual possession. A conveyance of land accompanied by registration in the name of the transferee is no more secured from the operation of the equitable doctrine than the most informal conveyance. From the attending circumstances, it can be inferred that the real intention of the Repuela brothers was to secure their indebtedness from Spouses Larawan, as they needed money for Marcelino's fare and surrendered their title as security to obtain the loan. It was never their intention to sell the subject property. 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 is the intention of the parties, as shown by all the surrounding circumstances, such as the relative situation of the parties at that time, their attitude, acts, conduct, and declarations.

• Presumption of Mistake: Granting that Cipriano and Marcelino signed and thumbmarked 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 these were never explained to them. Cipriano, who only finished Grade One, and Marcelino, an illiterate, were in dire need of money. "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." 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 devolves on the party seeking to enforce it. Respondent failed to overcome this burden. Galileo's testimony that he witnessed the Repuela brothers affix their conformity after Atty. Bacalso read and explained the contents of the document fails to convince the Court, as Galileo was just six years old and could not have possibly known the nature of the purported contract. The law accords the equitable mortgage presumption in situations when doubt exists as to the true intent of the parties, and 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.

• Prescription and Laches: Contrary to the CA's finding that petitioners' cause of action was barred by laches because of the 39 years that had elapsed, the Court held otherwise. 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, and the action based on said deed of sale shall not prescribe in accordance with Article 1410 of the Civil Code.

• Legal Interest: 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. Circular No. 799, series of 2013, issued by the Office of the Governor of the Bangko Sentral ng Pilipinas on June 21, 2013, 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, 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.

• Equitable Mortgage — An equitable mortgage is one which, although lacking in some formality, 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. For a presumption of an equitable mortgage to arise, two requisites must be satisfied: (1) that the parties entered into a contract denominated as a contract of sale, and (2) that their intention was to secure an existing debt by way of mortgage. The presence of any single circumstance enumerated in Article 1602 of the Civil Code suffices to trigger the presumption; no concurrence or an overwhelming number is needed.

• Article 1602 Presumptions — 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; (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; 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. The provisions of Article 1602 also apply to a contract purporting to be an absolute sale.

• Presumption of Mistake — 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. If the party seeking enforcement fails to discharge this burden, the presumption of mistake, if not fraud, stands unrebutted and controlling.

• Imprescriptibility of Actions Based on Void Contracts — 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 is deemed a void contract, and the action based on said deed of sale shall not prescribe in accordance with Article 1410 of the Civil Code.

• "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; (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." — This passage states the canonical enumeration of circumstances that give rise to the presumption of an equitable mortgage, which is the controlling statutory provision in this case.

• "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." — This states the Court's interpretation that a single circumstance under Article 1602 is sufficient to trigger the presumption of an equitable mortgage.

• "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." — This quotation, adopted from Cruz v. Court of Appeals, articulates the policy rationale behind Article 1602 — protecting vulnerable parties who sign onerous contracts under financial duress.

• "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." — This passage establishes the basis for the Court's ruling that the action was not barred by prescription or laches because the contract was void for lack of consent.

• Deheza-Inamarga vs. Alano, 595 Phil. 294 (2008) — Cited as authority for the definition of an equitable mortgage and for the ruling that actions based on void contracts do not prescribe under Article 1410 of the Civil Code.
• Lustan vs. Court of Appeals, 334 Phil. 609 (1997) — Cited for the two requisites that must be satisfied for a presumption of an equitable mortgage to arise.
• Solitarios vs. Jaque, G.R. No. 199852, November 12, 2014, 740 SCRA 226 — Cited for the proposition that the presence of any of the circumstances in Article 1602 suffices for a contract to be deemed an equitable mortgage, and that a conveyance by registration is not secured from the operation of the equitable doctrine.
• Go vs. Bacaron, 509 Phil. 323 (2005) — Cited for the definition of possession as the holding of a thing or the enjoyment of a right, and that the gathering of products and planting on land constitute occupation, possession, and cultivation.
• Banga vs. Sps. Bello, 508 Phil. 633 (2005) — Cited for the principle that in determining whether a deed absolute in form is a mortgage, the court is not limited to the written memorials of the transaction but must consider all surrounding circumstances.
• Cruz vs. Court of Appeals, 459 Phil. 264 (2003) — Cited for the policy rationale of Article 1602, that vendors covered by the provision usually find themselves in an unequal position and will readily sign onerous contracts to get the money they need.
• Mayor vs. Belen, 474 Phil. 630 (2004) — Cited for the rule that where a party is unable to read or the contract is in a language not understood by a party, the burden to show that the terms were fully explained devolves on the party seeking to enforce the contract.
• Labasan vs. Lacuesta, 175 Phil. 216 (1978) — Cited for the quotation that "necessitous men are not, truly speaking, free men."
• Muñoz vs. Ramirez, 643 Phil. 267 (2010) — Cited for the ruling that where reciprocal obligations were under an equitable mortgage, reconveyance should be ordered upon payment of the loan within 90 days from finality.
• Nacar vs. Gallery Frames, 716 Phil. 267 (2013) — Cited as the basis for applying the 6% per annum interest rate effective July 1, 2013 pursuant to Bangko Sentral ng Pilipinas Circular No. 799.

• Article 1602, Civil Code — Enumerates the circumstances when a contract purporting to be a sale is presumed to be an equitable mortgage. Applied to find that the Repuela brothers' continued possession and the inference of their intent to secure a debt triggered the presumption.
• Article 1604, Civil Code — Provides that the provisions of Article 1602 also apply to a contract purporting to be an absolute sale. Applied to the Extrajudicial Declaration of Heirs and Sale, which was an absolute sale on its face.
• Article 1410, Civil Code — Provides that actions to declare the inexistence of void contracts do not prescribe. Applied to hold that the action based on the void deed of sale was not barred by prescription or laches.
• Article 2088, Civil Code — Provides that the mortgagee does not become the owner of the mortgaged property because ownership remains with the mortgagor. Cited to support the ruling that title transferred to the respondents actually remains with or is transferred back to the petitioner as owner-mortgagor.
• Bangko Sentral ng Pilipinas Circular No. 799, series of 2013 — Provides that effective July 1, 2013, the rate of interest for loans or forbearance of money, goods, or credits and the rate allowed in judgments shall be six percent (6%) per annum. Applied to modify the interest rate on the mortgage indebtedness.

Carpio (Chairperson), Brion, Del Castillo, and Leonen, JJ., concurred.