Sps. Felipe Solitarios and Julia Torda v. Sps. Gaston Jaque and Lilia Jaque

A purported contract of sale where the vendor remains in physical possession of the land, as lessee or otherwise, is an indicium of an equitable mortgage.

G.R. No. 199852, 12 November 2014
Plaintiffs Sps. Gaston Jaque and Lilia Jaque initiated a Complaint for Ownership and Recovery of Possession against Defendants Sps. Felipe Solitarios and Julia Torda.

Plaintiffs alleged that “they purchased Lot 4089 from the [defendants], spouses Solitarios in stages. According to [plaintiffs], they initially bought one-half of Lot No. 4089 for 7,000.00. This sale is allegedly evidenced by a notarized Deed of Sale dated May 8, 1981. Two months later, the spouses Solitarios supposedly mortgaged the remaining half of Lot 4089 to the Jaques via a Real Estate Mortgage (REM) dated July 15, 1981, to secure a loan amounting to 3,000.00… After almost two (2) years, the spouses Solitarios finally agreed to sell the mortgaged half. However, instead of executing a separate deed of sale for the second half, they executed a Deed of Sale dated April 26, 1983 for the whole lot to save on taxes, by making it appear that the consideration for the sale of the entire lot was only 12,000.00 when the Jaques actually paid 19,000.00 in cash and condoned the spouses Solitarios’ 3,000.00 loan.” As a result, the tile was transferred and registered from defendants to plaintiffs.

In spite of the sale, the Jaques, supposedly out of pity for the spouses Solitarios, allowed the latter to retain possession of Lot 4089, subject only to the condition that the spouses Solitarios will regularly deliver a portion of the property’s produce. In an alleged breach of their agreement, however, the spouses Solitarios stopped delivering any produce sometime in 2000. Worse, the spouses Solitarios even claimed ownership over Lot 4089. Thus, the Jaques filed the adverted complaint with the RTC.”

For their defense, defendants spouses Solitarios “denied selling Lot 4089 and explained that they merely mortgaged the same to the Jaques after the latter helped them redeem the land from the Philippine National Bank (PNB).”

HELD: The parties entered into an equitable mortgage over the lot, and not an absolute contract of sale. Thus, “the transaction between the parties of the present case is actually one of equitable mortgage pursuant to the foregoing provisions of the Civil Code. It has never denied by respondents that the petitioners, the spouses Solitarios, have remained in possession of the subject property and exercised acts of ownership over the said lot even after the purported absolute sale of Lot 4089. This fact is immediately apparent from the testimonies of the parties and the evidence extant on record, showing that the real intention of the parties was for the transaction to secure the payment of a debt. Nothing more.”

It was more evident during proceedings. “During pre-trial, the Jaques admitted that the spouses Solitarios were in possession of the subject property. Gaston Jaque likewise confirmed that petitioners were allowed to produce copra and till the rice field, which comprise one-half of the lot that was previously covered by the real estate mortgage, after said portion was allegedly sold to them.”

Citing a previous case, it was held that “a purported contract of sale where the vendor remains in physical possession of the land, as lessee or otherwise, is an indicium of an equitable mortgage… the reason for this rule lies in the legal reality that in a contract of sale, the legal title to the property is immediately transferred to the vendee. Thus, retention by the vendor of the possession of the property is inconsistent with the vendee’s acquisition of ownership under a true sale. It discloses, in the alleged vendee, a lack of interest in the property that belies the truthfulness of the sale.”

Further, the plaintiffs have never asserted ownership for a long period of time. “During the period material to the present controversy, the petitioners, spouses Solitarios, retained actual possession of the property. This was never disputed. If the transaction had really been one of sale, as the Jaques claim, they should have asserted their rights for the immediate delivery and possession of the lot instead of allowing the spouses Solitarios to freely stay in the premises for almost seventeen (17) years from the time of the purported sale until their filing of the complaint. Human conduct and experience reveal that an actual owner of a productive land will not allow the passage of a long period of time, as in this case, without asserting his rights of ownership.”

As provided for in Article 1602(6) of the Civil Code, a transaction is 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.” This provision finds application in this case.  “First, the very testimony of Gaston Jaque and the documents he presented establish the existence of two loans, which the Jaques extended to the spouses Solitarios, that were secured by the subject property; and, second, the testimonies of the parties reveal that they came to an agreement as to how these loans would be paid.”

The rule on equitable mortgage is primarily designed “for the protection of the unlettered such as the spouses Solitarios, who are penurious vis-à-vis their creditors.” In this case, “the parties were negotiating on unequal footing. As opposed to the uneducated and impoverished farmer, Felipe Solitarios, Gaston Jaque, was a 2nd Lieutenant of the Armed Forces of the Philippines when he retired. Further, Felipe Solitarios was constantly in financial distress. He was constantly in debt and in dire financial need. That he borrowed money from the PNB twice, first in 1975 then in 1976, and mortgaged the subject property to the Jaques suggest as much.”

Moreover, it is a rule that “when doubt exists as to the true nature of the parties’ transaction, courts must construe such transaction purporting to be a sale as an equitable mortgage, as the latter involves a lesser transmission of rights and interests over the property in controversy.”

In view thereof, the transfer of ownership of Lot 4098 to the Jacques was invalidated. To do so “would amount to condoning the prohibited practice of pactum comissorium. Article 2088 of the Civil Code clearly provides that a creditor cannot appropriate or consolidate ownership over a mortgaged property merely upon failure of the mortgagor to pay a debt obligation.”

Lastly, “the mortgage debt of the spouses Solitarios had been fully paid. This holds true whether the amount of the debt is 12,000.00, as found by the RTC or 22,000.00, the amount which the Jaques claim they paid for the subject property.” Article 1602 of the Civil Code states: “In any of the foregoing cases, any money, fruits, or other benefit to be received by the vendee as rent or otherwise shall be considered as interest which shall be subject to the usury laws.” As applied by the trial court, from 1976 to 2000, defendants were “giving the one-half share of the plaintiffs from the proceeds of the copras and rice land to plaintiffs’ alleged caretaker, Yaning. So, if the produce of the land in question as claimed by the plaintiffs is about Php50,000.00 a year, one-half (1/2) of it would be Php25,000.00 which is 25 times higher than the Php1,000.00 interest at 12% per year for the alleged purchase price of Php12,000.00 of the land in question. The Php24,000.00 excess interest would have already been sufficient to pay even the principal of Php12,000.00. Thus, clearly, the Php12,000.00 purchase price of the land should now be considered fully paid.”