Spouses Martires vs. Chua

A second motion for reconsideration is a prohibited pleading that does not toll the running of the reglementary period to file a petition for review on certiorari; and a deed purporting to transfer ownership of mortgaged property, executed by reason of the same loan and for a consideration equal to the outstanding obligation, is an equitable mortgage under Article 1602 of the Civil Code, its automatic appropriation without foreclosure constituting a pactum commissorium void under Article 2088.

Respondent Menelia Chua and her mother Florencia R. Calagos co-own twenty-four memorial lots at Holy Cross Memorial Park in Quezon City, covered by TCT No. 342914, their ownership evidenced by a Deed of Sale and Certificate of Perpetual Care (Contract No. 31760) executed on June 4, 1992. On December 18, 1995, respondent borrowed ₱150,000.00 from petitioners Spouses Lehner and Ludy Martires, securing the loan with a real estate mortgage over the same property and stipulating an 8% monthly interest plus an additional 10% monthly interest in case of default. The dispute arose when, without foreclosure, ownership of the lots was transferred to petitioners via a Deed of Transfer, prompting respondent to seek annulment of both the mortgage and the deed.

Respondent Menelia Chua and her mother Florencia R. Calagos co-own twenty-four memorial lots at the Holy Cross Memorial Park in Barangay Bagbag, Novaliches, Quezon City, covered by Transfer Certificate of Title No. 342914. Their co-ownership is evidenced by a Deed of Sale and Certificate of Perpetual Care (Contract No. 31760) executed on June 4, 1992.

On December 18, 1995, respondent borrowed ₱150,000.00 from petitioners Spouses Lehner and Ludy Martires, securing the loan with a real estate mortgage over the memorial lots. The loan carried a monthly interest of 8%, with an additional 10% monthly interest in case of default. Respondent failed to fully settle her obligation. Subsequently, without foreclosure of the mortgage, ownership of the subject lots was transferred in the name of petitioners via a Deed of Transfer.

On June 23, 1997, respondent filed a complaint with the RTC of Quezon City against petitioners, Manila Memorial Park Inc., and the Register of Deeds of Quezon City, praying for annulment of the mortgage contract on the ground that the interest rates were unjust and exorbitant, an accounting to determine her liability, and reconveyance of the disputed property. On November 20, 1998, she moved to amend the complaint to allege that she had discovered the ownership transfer was effected through a forged Deed of Transfer and Affidavit of Warranty, and she prayed that these instruments be annulled. Petitioners did not oppose the amendment, as manifested on January 25, 1999.

After trial, the RTC dismissed the complaint and awarded damages to petitioners. The CA initially affirmed the RTC with modification on April 30, 2004, but upon respondent's motion for reconsideration, reversed itself on September 30, 2005, declaring the Deed of Transfer and Affidavit of Warranty void ab initio and treating the transaction as an equitable mortgage. The CA found that the ₱150,000.00 consideration for the Deed of Transfer was inadequate for twenty-four memorial lots, that the deed was executed by reason of the same loan, that the deed was incomplete and defective, and that the lots were the same property used to secure the loan. Petitioners' motion for reconsideration was denied on July 5, 2006, and their second motion for reconsideration was denied on August 28, 2006. Petitioners received the July 5, 2006 resolution on July 18, 2006, and the August 28, 2006 resolution on September 5, 2006. They filed the present petition on October 20, 2006.

• Validity of Notarization: Petitioners argued that the CA erred in not upholding the Deed of Transfer, contending that the notarized document enjoys the presumption of regularity and that the certifications from the notary public and the Clerk of Court of the Notarial Section of the RTC of Makati City attested to its due execution.
• Equitable Mortgage Issue Not Raised Below: Petitioners maintained that the issue of whether the Deed of Transfer constituted an equitable mortgage was never raised by respondent in any pleading before the RTC or the CA, and therefore the CA should not have ruled on it.
• Separate Mortgage Admitted: Petitioners pointed out that respondent herself admitted that a separate mortgage was executed to secure the loan, which should preclude treating the Deed of Transfer as an equitable mortgage.

• Forged Deed of Transfer: Respondent categorically denied having executed the Deed of Transfer and alleged that it was forged, lacking the marital consent of her husband and failing to state its date of execution.
• True Intent to Secure a Debt: Respondent argued that her true intention was merely to provide security for her loan and not to transfer ownership of the property to petitioners, the inadequacy of consideration and the circumstances surrounding the deed's execution supporting this interpretation.
• Validity of Deed Necessarily Involves Its Nature: Respondent contended that the determination of the validity of the Deed of Transfer would necessarily entail an examination of its true nature, making the equitable mortgage issue closely related to the validity question properly raised on appeal.

• Timeliness of Petition: Whether the petition was filed within the reglementary period under Rule 45, considering that petitioners reckoned the fifteen-day period from receipt of the denial of their second motion for reconsideration rather than the first.
• Evidentiary Weight of Notarized Document: Whether the Deed of Transfer, as a notarized document, enjoys the presumption of regularity notwithstanding the irregularities in its notarization.
• Equitable Mortgage: Whether the Deed of Transfer constitutes an equitable mortgage under Article 1602 of the Civil Code.
• Pactum Commissorium: Whether the transfer of ownership of the mortgaged property to petitioners without foreclosure constitutes a pactum commissorium prohibited under Article 2088 of the Civil Code.
• Issue Properly Raised on Appeal: Whether the equitable mortgage issue could be resolved by the CA notwithstanding that it was not specifically assigned as error.

• Timeliness of Petition: No. The petition was filed out of time, a second motion for reconsideration being a prohibited pleading that does not toll the running of the fifteen-day reglementary period under Section 2, Rule 45.
• Evidentiary Weight of Notarized Document: No. The presumption of regularity attaching to notarized documents is dispensed with when notarization is defective, reducing the document to a private instrument tested by preponderance of evidence; the irregularities here overcame any presumption.
• Equitable Mortgage: Yes. The circumstances surrounding the Deed of Transfer—adequacy of consideration, execution by reason of the same loan, incompleteness and defectiveness of the deed, and the identity of the property with that used to secure the loan—satisfy the presumption under Article 1602 of the Civil Code.
• Pactum Commissorium: Yes. The assignment of ownership of the mortgaged property to petitioners without foreclosure proceedings constituted a pactum commissorium prohibited under Article 2088 of the Civil Code.
• Issue Properly Raised on Appeal: Yes. The equitable mortgage issue was closely related to the validity and due execution of the Deed of Transfer, which was properly raised on appeal, falling within the appellate court's discretionary authority under Section 8, Rule 51.

• Timeliness of Petition: Under Section 2, Rule 45, a petition for review on certiorari must be filed within fifteen days from notice of the judgment or the denial of a motion for reconsideration filed in due time. Section 2, Rule 52 provides that no second motion for reconsideration shall be entertained. Petitioners received the CA resolution denying their first motion for reconsideration on July 18, 2006, making August 2, 2006 the last day to file the petition. By waiting for the resolution of their second motion for reconsideration—received on September 5, 2006—and filing the petition only on October 20, 2006, petitioners miscalculated the period. Because a second motion for reconsideration is a prohibited pleading, its filing did not toll the running of the reglementary period. Perfection of an appeal within the reglementary period is mandatory and jurisdictional; failure rendered the CA's amended decision and resolutions final and executory, depriving the Supreme Court of jurisdiction to entertain the appeal.

• Evidentiary Weight of Notarized Document: Notarized documents carry evidentiary weight as to their due execution and enjoy the presumption of regularity, rebuttable only by clear, strong, and convincing evidence. However, this presumption attaches only when the notarization is regular. A defective notarization strips the document of its public character and reduces it to a private instrument, tested by preponderance of evidence rather than clear and convincing proof. The CA identified several irregularities: the certification from the Clerk of Court of the Notarial Section of the RTC of Makati City was contradicted by the Administrative Officer's certification and the testimony of the court employee who prepared it, both confirming the deed could not be found in their files; respondent categorically denied executing the deed; and the document lacked the date of execution and the marital consent of respondent's husband. The certifications relied upon by petitioners were issued by persons not presented as witnesses, were contradicted by other office records, and were admittedly based not on existing files but merely on the notary public's own certification. Even assuming regular notarization, the presumption is not absolute and does not guarantee the validity of the document's contents; the questionable circumstances surrounding execution overcame the presumption.

• Equitable Mortgage: An equitable mortgage is one which, although lacking in some formality or requisite demanded by statute, reveals the intention of the parties to charge real property as security for a debt. Article 1602 of the Civil Code provides that a contract shall be presumed to be an equitable mortgage where it may be fairly inferred that the real intention of the parties is to secure the payment of a debt. The CA found, and the Court agreed, that the ₱150,000.00 consideration was unusually inadequate for twenty-four memorial lots; the Deed of Transfer was executed by reason of the same loan extended by petitioners to respondent; the deed was incomplete and defective; and the lots subject of the deed were the same property used to secure the loan. These circumstances showed that the deed was executed to circumvent the original mortgage agreement and deprive respondent of her property without foreclosure. The Court found no reason to depart from the CA's findings, citing Misena vs. Rongavilla, where a similar factual backdrop yielded the same conclusion.

• Pactum Commissorium: Since the original transaction was a mortgage, the subsequent assignment of ownership without foreclosure constituted a pactum commissorium under Article 2088 of the Civil Code, which prohibits stipulations empowering the creditor to appropriate the thing given as guaranty upon the obligor's default without foreclosure and public sale. Although no express stipulation for automatic appropriation appeared in the mortgage contract, the subsequent acts of the parties and surrounding circumstances led to no other conclusion than that petitioners were empowered to acquire ownership without foreclosure. The Court also noted the illogic of respondent voluntarily agreeing to transfer ownership of property whose value far exceeded her obligation, when waiting for foreclosure would allow her to recover any excess from the sale proceeds.

• Issue Properly Raised on Appeal: While the general rule is that no issue may be raised on appeal unless brought before the lower tribunal, this rule admits of exceptions. Under Section 8, Rule 51, an appellate court may pass upon matters not assigned as errors when they are closely related to an assigned error or when their consideration is necessary for a just and complete resolution. Respondent's appeal raised the validity and due execution of the Deed of Transfer; determining its validity necessarily entailed examining its true nature. The validity issue and the equitable mortgage question were closely related and could be resolved jointly by the CA, bringing the matter within the appellate court's discretionary authority.

• Presumption of Regularity of Notarized Documents — Notarized documents enjoy the presumption of regularity as to their due execution, rebuttable only by clear, strong, and convincing evidence. However, this presumption attaches only when the notarization is regular; a defective notarization strips the document of its public character, reduces it to a private instrument, and substitutes preponderance of evidence as the measure of validity. The Court applied this by finding the notarization of the Deed of Transfer defective through contradictory certifications, denial of execution, and missing formal requisites, thereby dispensensing with the elevated evidentiary standard.

• Equitable Mortgage (Article 1602, Civil Code) — A contract shall be presumed to be an equitable mortgage 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. Indicia include inadequate consideration, execution by reason of the same loan, incompleteness or defectiveness of the deed, and identity of the property with that securing the loan. The Court found all these circumstances present, declaring the Deed of Transfer an equitable mortgage rather than a true transfer of ownership.

• Pactum Commissorium (Article 2088, Civil Code) — The creditor cannot appropriate the things given by way of pledge or mortgage, or dispose of them, unless there is some special cause therefor. Any stipulation to the contrary is void. The Court held that the transfer of ownership of the mortgaged property to the creditor without foreclosure proceedings constituted a prohibited pactum commissorium, rendering the assignment void.

• Prohibition Against Second Motion for Reconsideration (Section 2, Rule 52, Rules of Court) — No second motion for reconsideration of a judgment or final resolution by the same party shall be entertained. Because it is a prohibited pleading, its filing does not toll the running of the reglementary period to appeal. The Court dismissed the petition on this ground, the fifteen-day period having lapsed from receipt of the denial of the first motion for reconsideration.

• Appellate Court's Discretionary Authority to Review Unassigned Errors (Section 8, Rule 51, Rules of Court) — An appellate court may review matters not assigned as errors when they are closely related to an assigned error, when their consideration is necessary for a just and complete resolution, or when they involve plain or clerical errors. The Court held that the equitable mortgage issue was closely related to the validity and due execution of the Deed of Transfer, which was properly assigned as error on appeal.

• "A defective notarization will strip the document of its public character and reduce it to a private instrument. Consequently, when there is a defect in the notarization of a document, the clear and convincing evidentiary standard normally attached to a duly-notarized document is dispensed with, and the measure to test the validity of such document is preponderance of evidence." — This passage articulates the doctrinal consequence of defective notarization, downgrading the evidentiary standard from clear and convincing to preponderance, and was central to the Court's refusal to accord the Deed of Transfer the presumption of regularity.

• "An equitable mortgage has been 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, there being no impossibility nor anything contrary to law in this intent." — This is the canonical definition of equitable mortgage applied by the Court, directly linking Article 1602 of the Civil Code to the factual circumstances of the case.

• "Since the original transaction between the parties was a mortgage, the subsequent assignment of ownership of the subject lots to petitioners without the benefit of foreclosure proceedings, partakes of the nature of a pactum commissorium, as provided for under Article 2088 of the Civil Code." — This passage establishes the ratio decidendi for voiding the transfer of ownership: the mortgage's conversion into automatic appropriation without foreclosure violated the prohibition against pactum commissorium.

• "Hence, courts are duty-bound to exercise caution in the interpretation and resolution of contracts lest the lenders devour the borrowers like vultures do with their prey." — This passage reflects the protective policy underlying the equitable mortgage doctrine, emphasizing the judiciary's role in safeguarding borrowers from oppressive lending practices.

• Misena vs. Rongavilla, 363 Phil. 361 (1999) — Followed. The Court cited this case as directly on point, involving a similar factual scenario where a mortgaged property was conveyed via a Deed of Absolute Sale and the Court ruled the transaction was an equitable mortgage under Article 1602 of the Civil Code.

• Mendoza vs. Bautista, 493 Phil. 804 (2005) — Followed. Cited for the proposition that an appellate court has broad discretionary authority to review errors not assigned, including matters closely related to assigned errors, pursuant to Section 8, Rule 51 of the Rules of Court.

• Meneses vs. Venturozo, G.R. No. 172196, October 19, 2011, 659 SCRA 577 — Followed. Cited for the doctrine that the presumption of regularity of notarized documents attaches only when notarization is regular, and that defective notarization reduces a document to a private instrument.

• Tagle vs. Equitable PCI Bank, G.R. No. 172299, April 22, 2008, 552 SCRA 424 — Followed. Cited for the rule that a second motion for reconsideration is a prohibited pleading that does not toll the reglementary period to file an appeal.

• Ong vs. Philippine Deposit Insurance Corp., G.R. No. 175116, August 18, 2010, 628 SCRA 415 — Followed. Cited for the principle that perfection of an appeal within the reglementary period is mandatory and jurisdictional.

• Bustamante vs. Rosel, 377 Phil. 436 (1999) — Followed. Cited for the policy consideration that persons in need of money are liable to enter into contractual relationships regardless of conditions, and that courts must exercise caution in interpreting contracts to protect borrowers.

• Article 1602, Civil Code — Provides the circumstances under which a contract shall be presumed to be an equitable mortgage, including where it may be fairly inferred that the real intention of the parties is to secure the payment of a debt. Applied to find that the Deed of Transfer was an equitable mortgage given the inadequate consideration, the deed's execution by reason of the same loan, and the identity of the property with that securing the loan.

• Article 2088, Civil Code — Prohibits the creditor from appropriating things given by way of pledge or mortgage or disposing of them without special cause; any stipulation to the contrary is void. Applied to declare the transfer of ownership of the mortgaged property to petitioners without foreclosure as a void pactum commissorium.

• Section 2, Rule 45, Rules of Court — Requires that a petition for review on certiorari be filed within fifteen days from notice of the judgment or the denial of a motion for reconsideration filed in due time. Applied to dismiss the petition as filed out of time, the period being reckoned from receipt of the denial of the first motion for reconsideration.

• Section 2, Rule 52, Rules of Court — Provides that no second motion for reconsideration of a judgment or final resolution by the same party shall be entertained. Applied to hold that the filing of the second motion for reconsideration did not toll the running of the reglementary period.

• Section 8, Rule 51, Rules of Court — Authorizes an appellate court to pass upon plain errors and matters closely related to assigned errors even if not specifically assigned. Applied to sustain the CA's resolution of the equitable mortgage issue notwithstanding its not having been specifically raised, it being closely related to the validity of the Deed of Transfer.

Presbitero J. Velasco, Jr. (Chairperson), Lucas P. Bersamin, Roberto A. Abad, and Marvic Mario Victor F. Leonen concurred with the decision. No separate concurring opinions were written.