LOURDES
S. ARROFO,
Petitioner,
-versus-
G.R.
No. 145794
January
26, 2005
PEDRO
QUIÑO,
Respondent. x------------------------x
D
E C I S I O N
CARPIO,
J.:
The
Case
Before
this Court is a Petition for Review
[1]
assailing the
Decision
[2]
of the Court of
Appeals promulgated on 16 October 2000 in CA-G.R. CV
No. 53733.
The
Antecedents
Pedro
Quiño (“Quiño) was the owner of a parcel of land
denominated as Lot 1916-D-3 under Transfer Certificate of Title (“TCT”)
No. 28905, containing an area of 166 square meters (“Property”),
situated in Basak, Mandaue City, Cebu. On 11 April 1990,
Quiño executed a Deed of Absolute Sale
[3]
of the Property
in favor of Renato Mencias (“Renato”). The Deed of Absolute Sale
explicitly excluded from the sale the house standing on the Property.
[4]
On 11 March
1991, Quiño executed another Deed of Absolute Sale
[5]
covering the
Property in favor of Renato. There is no provision excluding the
house from the sale in the second Deed of Absolute Sale. On 9 May 1991,
TCT No. 28905 was cancelled and TCT No. 30248 was issued in the name of
Renato.
[6]
On 30
March 1993, Renato executed a Deed of Absolute Sale
[7]
of the Property
in favor of Lourdes S. Arrofo (“Arrofo”). On 3 August 1993, TCT
No. 30248 was cancelled and TCT No. 33304 was issued in the name of
Arrofo.
[8]
On 6
July 1994, Quiño filed before the Regional Trial Court (“trial
court”) of Mandaue City, Branch 28, an action for Reconveyance of
Property with Annulment of Deeds of Sale and Damages against Renato,
his wife Myrna Mencias (“Myrna”) and Arrofo. Quiño claimed
that his transaction with Renato was a mortgage and not an absolute
sale. Quiño alleged that he borrowed P15,000 from Renato
and the Property served as security for the loan. He further
alleged that the agreement was that the Deed of Absolute Sale he signed
would only be registered with the Register of Deeds should he fail to
pay his P15,000 loan, plus interest at 7% per month, within five years
from 11 April 1990.
The
trial court declared Renato and Myrna in default for failure to attend
the pre-trial conference despite notice.
[9]
Still,
Myrna was able to testify because Arrofo presented her as a
witness. On 29 January 1996, the trial court rendered its
Decision,
[10]
the dispositive
portion of which reads:
WHEREFORE,
foregoing premises considered, Decision is hereby rendered:
1)
declaring the Deed of Absolute Sale dated April 11, 1990 executed and
signed by plaintiff Pedro Quiño in favor of the defendants
spouses Mencias as valid;
2)
declaring the Deed of Absolute Sale dated March 30, 1993 executed by
defendants spouses Renato and Myrna Mencias in favor of their
co-defendant Lourdes Arrofo as valid;
3)
dismissing the claim for damages, attorney’s fees and litigation
expenses by the parties for lack of basis; and
4)
ordering the plaintiff to pay the cost.
SO
ORDERED.
[11]
Quiño
appealed to the Court of Appeals seeking reversal of the trial court’s
Decision.
The
Ruling of the Court of Appeals
In a
Decision promulgated on 16 October 2000, the Court of Appeals reversed
the trial court’s Decision, as follows:
WHEREFORE,
premises considered, the present appeal is hereby GRANTED. The
Decision dated January 29, 1996 of the Regional Trial Court of Mandaue
City, Cebu, Branch 28 is hereby REVERSED and SET ASIDE and a new one
entered:
(1)
Annulling the Deed of Absolute Sale dated April 11, 1990 and Deed of
Absolute Sale dated March 11, 1991;
(2)
Reinstating TCT No. 28905 covering Lot 1916-D-3 registered in the name
of plaintiff-appellant, and cancelling the two (2) TCTs (30248 and
33304) issued in derivation thereof; and
(3)
Ordering plaintiff-appellant, to pay defendant-appellee Myrna Mencias
the amount of P15,000.00 within thirty (30) days from the date of
finality of this decision, with 7% interest per month computed from
April 11, 1990 until full payment thereof.
Costs
against the defendants-appellees.
SO
ORDERED.
[12]
The
appellate court ruled that the trial court erred in finding that the
transaction between Quiño and Renato is one of sale. The
appellate court also found that Arrofo is not a buyer in good faith.
Hence,
this petition by Arrofo.
The
Issues
The
petition raises the following issues:
1. Whether
the Court of Appeals correctly ruled that the Deed of Sale dated April
11, 1990 executed by Quiño in favor of Renato is void as the
true agreement of the parties is one of equitable mortgage.
2.
Whether the Court of Appeals correctly ruled that Arrofo is not a buyer
in good faith, and thus the Deed of Sale executed by Renato in her
favor is void.
[13]
The
Ruling of the Court
The
petition must fail. The contract between Quiño and Renato
is an equitable mortgage.
Presumptions
of an Equitable Mortgage
This
Court has ruled that there is no conclusive test to determine whether a
deed purporting to be an absolute sale on its face is in reality a loan
secured by a mortgage.
[14]
Thus:
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, such as the relative situation of
the parties at that time, the attitude, acts, conduct, declarations of
the parties, the negotiations between them leading to the deed, and
generally, all pertinent facts having a tendency to fix and determine
the real nature of their design and understanding. xxx
[15]
Under
Article 1602, in relation to Article 1604
[16]
of the Civil
Code, a contract purporting to be an absolute sale is deemed 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.
[17]
The
presence of any of these circumstances is sufficient for a contract to
be deemed an equitable mortgage.
[18]
The
following circumstances lead us to conclude that the real intention of
the parties is to treat the transaction as an equitable mortgage rather
than an absolute sale.
First,
Renato and Myrna did not take possession of the Property after the
execution of the first Deed of Absolute Sale. Flaviano Moralde,
Jr. (“Moralde”), a lessee of Quiño since 1989, confirmed
this. Moralde testified that he has been paying the rentals to
Quiño. He learned about the sale of the Property to Renato
only on 19 April 1993 when he received a letter dated 12 April 1993
from Myrna’s lawyer instructing him to pay his rentals to Myrna.
The letter at the same time demanded that he vacate the Property.
Moralde testified that Myrna subsequently filed an ejectment case
against him but the case was dismissed.
[19]
Moralde
presented receipts,
[20]
dated 30 January
1995, 28 February 1995, 30 March 1995 and 30 April 1995, evidencing his
payments to Quiño.
Myrna’s
lawyer sent the demand letter dated 12 April 1993 after the Property
was sold to Arrofo. Renato sold the Property to Arrofo on
30 March 1993. Hence, when Myrna demanded payment of rentals from
Moralde, Renato was no longer the owner of the Property.
There
is no evidence that Renato and Myrna attempted to take possession of
the property from the time of the execution of the first Deed of
Absolute sale in 1990 or even after the execution of the second Deed of
Absolute Sale in 1991. Moralde was never informed that there was
already a new owner. He was never asked to remit his payments to
the new owner. Since Moralde continued making his payments to
Quiño, Quiño must have retained his possession of the
Property.
Second,
neither the first nor the second Deed of Absolute Sale reflects the
real intention of the parties.
Fiscal
Bienvenido Mabanto, Jr. (“Mabanto”) is a signatory to the first Deed of
Absolute Sale as one of the witnesses to the transaction. He
prepared the original draft of the document but being a government
employee, he did not make the final draft. He testified:
Q
- With respect to this document marked as Exh. “B”
when you affixed your signature and you were asked to be a witness in
this particular document did you not tell Pedro Quiño what this
document was all about at the time this was signed by you considering
that Pedro Quiño is your neighbor?
A
- When that document was prepared all of the
parties were aware and that was their agreement that while this
document speaks of a deed of absolute sale, did you not explain to Mr.
Quiño the consequences of signing a deed of absolute sale in
favor of the Mencias couple? (sic)
A
- All of the parties were aware that this deed
of absolute sale was not supposed to be notarized until Pedro
Quiño will lose his right to redeem the property within the
stipulated period because spouses Mencias have agreed not to have this
document notarized until the expiration of the stipulated period within
which Pedro Quiño can redeem the property from Mencias.
[21]
x x x
Q
- Did you not insist that the document that should be
prepared is a real estate mortgage and not a deed of sale because that
is not to the advantage of Pedro Quiño?
A
- All these things were considered but the
spouses Mencias were not willing to provide Pedro Quiño with the
necessary sum without the execution of that deed of sale because the
spouses Mencias were apprehensive that if another document will be
executed, it will take unnecessary expenses.
[22]
Where
the parties have no alternative but to sign a contract which does not
reflect their real intention, the Court has declared:
x x x [W]hile it
was true that plaintiffs were aware of the contents of the contracts,
the preponderance of the evidence showed however that they signed
knowing that said contracts did not express their real intention, and
if they did so notwithstanding this, it was due to the urgent necessity
of obtaining funds. “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.”
[23]
Quiño
is an illiterate. He cannot read and write and can only write his
signature.
[24]
In its Decision,
the Court of Appeals noted that Quiño could not easily grasp the
questions asked of him when he testified before the trial court, thus
highlighting his lack of education.
[25]
Third,
the consideration paid to Quiño is unusually inadequate.
Arrofo
argues that the Court of Appeals may not be familiar with the value of
the land in Mandaue City. She further argues that the Tax
Declaration sets the market value of the land at only P8,300 while its
assessed value is only P2,400.
In her
testimony before the trial court, Myrna declared that she paid
Quiño P160,000. The deed reflected a lower amount so that
Quiño would pay a lower capital gains tax.
[26]
The
positions taken by Arrofo and Myrna are poles apart. Arrofo
maintains that the amount paid to Quiño is adequate considering
the market and assessed values of the land in the Tax
Declaration. Myrna claims that the amount reflected in the second
Deed of Absolute Sale is not the amount she paid for the Property.
The
first and second Deeds of Absolute Sale executed by Renato in favor of
Arrofo state that the consideration for the sale is P50,000.
[27]
If Quiño
sold the Property for P160,000, it is unbelievable that Renato would
resell the same Property for less than half the amount he paid for
it. The only logical explanation is that Renato paid P15,000 for
the Property. Considering that Renato sold the Property to Arrofo
for P50,000 after only three years, the amount paid to Quiño is
inadequate.
Fourth,
Myrna’s claim that the first Deed of Absolute Sale is fabricated is
clearly false.
Quiño
executed two deeds of sale, dated almost a year apart, over the same
Property. The only difference between the two deeds of sale is
that the first Deed of Absolute Sale excludes from the sale the house
standing on the Property.
Quiño
signed the first Deed of Absolute Sale on 11 April 1990 and the second
Deed of Absolute on 11 March 1991. Renato, who was working abroad
at the time of the purported sale, is not a signatory to the two deeds.
Quiño transacted with Myrna who is his niece.
Myrna
asserted that the real Deed of Absolute Sale is the one notarized by
Atty. Prisciliano Lumapas. This deed, which Myrna claimed was the
only deed in her possession, is the second Deed of Absolute Sale.
Myrna impugned the authenticity of the first Deed of Absolute
Sale. She testified:
Q
- You said that Pedro Quiño sold to you the
subject land, do you have any document to show that the said parcel of
land he sold to you by Pedro Quiño? (sic)
A
- Yes, it is complete.
Q
- Showing to you this deed of absolute sale, is this
the one you are referring to?
A
- Yes, this is the one.
Atty.
Monteclar:
May I
request, Your Honor, that this be marked as Exh. “1” for defendant
Arrofo.
Q
- At the middle portion of this Exh. “1”, there
appears a signature above the typewritten name Pedro Quiño, do
you know whose signature is this?
A
- Pedro Quiño’s signature.
Q
- Why do you know that [this] is his signature?
A
- Because after the preparation of the
document, he signed this.
Q
- Before whom did Pedro Quiño sign his name?
A
- Before Atty. Lumapas.
Q
- Were you present when he signed this document?
A
- Yes, because we were together.
Atty.
Monteclar:
May we
request, Your Honor, that the signature of Pedro Quiño be
encircled and marked as Exh. “1-A”.
Q
- The deed of sale attached to the complaint was
dated April 11, 1990 and notarized by a certain Manuel Inso while the
deed of sale you now identified is dated March 11, 1991 and notarized
by another lawyer Priscilliano[28] Lumapas. Can you explain?
A
- Because the real deed of sale is the deed of
sale that is in our possession and it was ahead and was signed before
Atty. Lumapas and that deed of sale they have presented here is a
different one and I do not even know the person who notarized it.
Q
- So are you trying to say that the deed of sale
attached to their complaint is a fabricated deed of sale?
A
- Yes, because this one has a xerox copy with
Atty. Lumapas.
[29]
However,
TCT No. 28905 has the following annotation:
Entry NO.
5228-V.7-D.B. – DEED OF ABSOLUTE SALE – Executed by Pedro Quiño,
single, in favor of Renato Mencias, Filipino, of legal age, married to
Myrna F. Mencias, resident of Basak, Mandaue City, of the parcel of
land described herein, for the sum of P15,000.00, according to the
document on file, acknowledged before Notary Public, Mr. Manuelito S.
Inso, Doc. No. 326; Page No. 67; Book No. XVIII; Series of 1990.
Date
of Instrument – April 11, 1990.
Date
of Inscription – May 9, 1991 at 10:00 a.m.
(Sgd.)
PATERNO G. ACABODILLO
Register
of Deeds
[30]
This belies Myrna’s declaration that the first Deed of Absolute Sale is
fabricated and that she did not know the person who notarized it.
What must have transpired was that she realized that the first Deed of
Absolute Sale inadvertently excluded the house from the sale and so she
made Quiño sign the second Deed of Absolute Sale. However,
she presented by mistake the first Deed of Absolute Sale to the
Register of Deeds when she caused the cancellation of TCT No.
28905. Hence, the basis for the cancellation of TCT No. 28905,
and for the issuance of TCT No. 30248, is the first Deed of Absolute
Sale. Myrna now claims that the first Deed of Absolute sale is
fabricated and the second Deed of Absolute Sale is the authentic deed
of sale. Myrna’s testimony is full of contradiction but what is
clear is that the first Deed of Absolute Sale is not fabricated.
In
sum, these circumstances, which fall under paragraphs one, two and six
of Article 1602 of the Civil Code, show that the transaction between
Quiño and Renato is a loan with mortgage.
Buyer
in Good Faith for Value
The
law does not require a person dealing with registered land to inquire
further than what the Torrens Title on its face indicates.
[31]
This rule,
however, is not absolute but admits of exceptions.
Thus,
while it is true, as asserted by petitioners, that a person dealing
with registered lands need not go beyond the certificate of title, it
is likewise a well-settled rule that a purchaser or mortgagee cannot
close his eyes to facts which should put a reasonable man on his guard,
and then claim that he acted in good faith under the belief that there
was no defect in the title of the vendor or mortgagor. His mere
refusal to face up to the fact that such defect exists, or his willful
closing of his eyes to the possibility of the existence of a defect in
the vendor’s or mortgagor’s title, will not make him an innocent
purchaser for value, if it afterwards develops that the title was in
fact defective, and it appears that he had such notice of the defect as
would have led to its discovery had he acted with the measure of
precaution which may be required of a prudent man in a like situation.
[32]
In the
present case, the records show that Arrofo failed to act as a prudent
buyer. True, she asked her daughter to verify from the Register
of Deeds if the title to the Property is free from encumbrances.
[33]
However, Arrofo
admitted that the Property is within the neighborhood and that she
conducted an ocular inspection of the Property. She saw the house
constructed on the Property.
[34]
Yet, Arrofo did
not even bother to inquire about the occupants of the house.
Arrofo also admitted that at the time of the sale, Myrna was occupying
a room in her house as her lessee.
[35]
The fact that
Myrna was renting a room from Arrofo yet selling a land with a house
should have put Arrofo on her guard. She knew that Myrna was not
occupying the house. Hence, someone else must have been occupying
the house.
Thus,
Arrofo should have inquired who occupied the house, and if a lessee,
who received the rentals from such lessee. Such inquiry would have led
Arrofo to discover that the lessee was paying rentals to Quiño,
not to Renato and Myrna, who claimed to own the Property.
One
final point. The Court of Appeals ordered Quiño to pay 7%
interest per month on the P15,000 loan from Renato, computed from 11
April 1990. This amounts to 84% interest per annum, which is
unconscionable. This Court deems it equitable to reduce this
interest rate to 18% per annum.
[36]
WHEREFORE, we DENY the Ppetition. We AFFIRM with modification the
Decision of the Court of Appeals promulgated on 16 October 2000 in
CA-G.R. CV No. 53733. Respondent Pedro Quiño shall pay 18%
interest per annum on his P15,000 loan from Renato Mencias. The
assailed Decision is affirmed in all other aspects.
SO
ORDERED.
Davide,
Jr., C.J., (Chairman),
Quisumbing, Ynares-Santiago, and Azcuna, JJ., concur.
[1]
Under Rule 45 of the 1997 Rules of Civil Procedure.
[2]
Penned by Associate Justice Martin S. Villarama, Jr., with Associate
Justices Romeo J. Callejo, Sr. (now Associate Justice of this Court)
and Juan Q. Enriquez, Jr., concurring.
[3]
Rollo, p. 37.
[4]
Ibid.
[5]
Ibid., p. 38.
[6]
Ibid., p. 39.
[7]
Ibid., p. 40.
[8]
Ibid., p. 41.
[9]
Under Section 2 of the former Rule 20 of the Revised Rules of Court,
“(a) party who fails to appear at a pre-trial conference may be
non-suited or considered as in default.”
[10]
Penned by then Judge, now Associate Justice of the Court of Appeals
Mercedes Gozo-Dadole.
[11]
Rollo, pp. 59-60.
[12]
Ibid., pp. 35-36.
[13]
Ibid., p. 99.
[14]
Lorbes v. Court of Appeals, G.R. No. 139884, 15 February 2001, 351 SCRA
716 citing Sps. Reyes v. Court of Appeals, 393 Phil. 479 (2000).
[15]
Ibid.
[16]
Article 1604 provides:
ART.
1604. The provisions of [A]rticle 1602 shall also apply to a
contract purporting to be an absolute sale.
[17]
Article 1602 of the Civil Code.
[18]
Hilado v. Heirs of Medalla, 427 Phil. 503 (2002).
[19]
TSN, 7 June 1995, pp. 3-6.
[20]
Records, p. 76.
[21]
TSN, 13 June 1995, pp. 4-5.
[22]
Ibid., p. 7.
[23]
Lorbes v. Court of Appeals, supra, see note 14.
[24]
TSN, 7 June 1995, p. 9 (Flaviano Moralde, Jr.).
[25]
Rollo, p. 33.
[26]
TSN, 21 August 1995, p. 5.
[27]
Supra, see note 7.
[28]
It should be Prisciliano.
[29]
TSN, 21 August 1995, pp. 3-5.
[30]
Annotation at the back of TCT No. 28905. Rollo, p. 48.
[31]
Col. dela Merced v. Government Service Insurance System, 417 Phil. 324
(2001).
[32]
Sps. Uy v. Court of Appeals, 411 Phil. 788 (2001).
[33]
TSN, 31 August 1995, p. 6.
[34]
Ibid., pp. 9-10.
[35]
Ibid., pp. 4, 11.
[36]
Imperial v. Jaucian, G.R. No. 149004, 14 April 2004; Cuaton v. Salud,
G.R. No. 158382, 27 January 2004, 421 SCRA 278; Ruiz v. Court of
Appeals, G.R. No. 146942, 22 April 2003, 401 SCRA 410.
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