G.R. No. 219638, 7 December 2016
Cipriano and Marcelino (Repuela brothers) borrow P200.00 from Otillo Larawan (Otillo). To secure the loan, the spouses Otillo and Juliana Larawan (Spouses Larawan) required them to turn over the certificate of title for Lot No. 3357 and sign an Extajudicial Declaration of Heirs and Sale, which was purportedly a mortgage contract. However, they were not given a copy of the said document. Cipriano affixed his signature while Marcelino, being illiterate, just placed his thumb mark thereon. The Repuela brothers remained in possession of the land despite the mortgage and had been planting bamboos, corn, bananas, and papayas thereon and sharing the produce between them. They also paid the taxes due on the property.
Later, the Repuela brothers learned that the Spouses Larawan have already caused the transfer of title over the property to their name by virtue of the Extajudicial Declaration of Heirs and Sale. Hence, they filed a complaint before the RTC for the annulment of the Extrajudicial Declaration of Heirs and Sale and the cancellation of title under the name of the Spouses Larawan.
The RTC decided in favor of the Repuela brothers, holding that the transaction between the parties was not a sale but an equitable mortgage. However, the CA reversed and set aside the Decision of the RTC.
Whether the Extrajudicial Declaration of Heirs and Sale amounted to an equitable mortgage.
The Extrajudicial Declaration of Heirs and Sale amounted to an equitable mortgage. An equitable mortgage is one which, although lacking in some formality, or 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 first be satisfied, namely: 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, and in fact styled as, an absolute sale, is presumed to be an equitable mortgage.
In this case, 2 instances enumerated in Article 1602 apply:
a) possession of the subject property; and
b) inference that the transaction was in fact a mortgage attended the assailed transaction.
First, the Repuela brothers remained in possession of the subject property after the transaction.
Second, it can be inferred from the attending circumstances that the real intention of the Repuela brothers was to secure their indebtedness from Spouses Larawan. It was never their intention to sell the subject property.
The decisive factor in evaluating such agreement is the intention of the parties, as shown not necessarily by the terminology used in the contract but by all the surrounding circumstances.
Granting that the Repuela brothers, signed and thumbmarked, respectively, the Extrajudicial Declaration of Heirs and Sale, they did so without understanding the real nature, effects and consequences of what they did as they were never explained to them. Cipriano, who only finished Grade One, and Marcelino, an illiterate, were in dire need of money.
The burden to show that the other party fully understood the contents of the document rests upon the party who seeks to enforce the contract. If he fails to discharge this burden, the presumption of mistake, if not, fraud, stands unrebutted and controlling. Respondent failed to overcome this burden. Furthermore, the law accords the equitable mortgage presumption in situations when doubt exists as to the true intent of the parties to the contract, as in this case.
*Case digest by Benjie L. Sumalpong, JD – 4, Andres Bonifacio College, SY 2019 – 2020