Sanchez, John Russel A.

20190171226
Law on Sales
Repuela v. Estate of the Sps. Larawan and Bacus
GR No. 219638, 813 SCRA 563, 7 December 2016

Facts:
Sps. Lorenzo and Magdalena Repuela owned Lot No. 3357 (subject
property), situated in Cebu and covered by TCT No. 5154. After had
passed away, their children: Marcelino and Cipriano (Repuela brothers)
succeeded them as owners of the subject property.
Sometime in July 1963, Repuela brothers claimed that after the death
of their parents, they went to the house of Otilo Larawan (Otilo) to borrow
200 pesos for Marcelino’s fare to Iligan City; that to secure the loan, Sps.
Larawan required them to turn over the certificate of title of the subject
property; that they were made to sign a purported mortgage contract but
they were not given copy of the said document; that Cipriano affixed his
signature while Marcelino, being illiterate, just placed his thumbmark on
the document; that they 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; and that they also paid
the taxes due on the property.
Cristina Repuela Ramos, daughter of Cipriano, went to Talisay City
Treasurer’s Office to verify whether Sps. Larawan were paying the realty
taxes on the mortgaged property. She learned that Sps. Larawan did not
pay them and the tax declaration on the subject property was already in
their names as early as 1964; that TCT 10506 was issued under the name
of Otilo; that Sps. 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 thumbmark of Marcelino.
On 17 January 2003, filed a complaint before the RTC for the
annulment of the Extrajudicial Declaration of Heirs and Sale and the
cancellation of TCT No. 10506. RTC decided in favor of Repuela brothers.
It held that the transaction between the parties was not a sale but an
equitable mortgage. Estate of Sps. Larawan appealed the case to the CA.
On 29 May 2014, CA reversed the decision of the RTC. It held that
none of the enumerated circumstances in Article 1602 of the Civil Code
was present in order for the presumption of equitable mortgage to apply.
Contrary to the factual finding of the trial court, the evidence did not show
that they were still in possession of the property even after the execution
of the document and that they continued paying the taxes on the property
immediately after the execution of the deed and granting arguendo that
the transaction was a mortgage, their cause of action was already barred
by laches as 39 years had already elapsed before they asserted their rights
Sanchez, John Russel A.
20190171226
Law on Sales
over the subject property. Distraught, the heirs of the Repuela brothers
filed the present petition.

Issue:
Whether the Extrajudicial Declaration of Heirs and Sale amounted to
an equitable mortgage.

Held:
Yes. The Extrajudicial Declaration of Heirs and Sale is an equitable
mortgage.

Ratio:
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. There is no single conclusive test to
determine whether a deed of sale, absolute on its face, is really a simple
loan accommodation secured by a mortgage. Article 1602, in relation to
Article 1604 of the Civil Code, however, enumerates several instances
when a contract, purporting to be, and in fact styled as, an absolute sale,
is presumed to be an equitable mortgage.
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. In other
words, the fact that some or most of the circumstances mentioned are
absent in a case will not negate the existence of an equitable mortgage.
In this case, it appears that two (2) instances enumerated in Article
1602 — possession of the subject property and inference that the
transaction was in fact a mortgage attended the assailed transaction.
Article 1602(2) of the Civil Code provides that when the supposed
vendor remains in possession of the property even after the conclusion of
the transaction, the purported contract of sale is presumed to be an
equitable mortgage.
In this case, petitioners insist that the Repuela brothers remained in
possession of the subject property after the transaction, as was
Sanchez, John Russel A.
20190171226
Law on Sales
corroborated by a disinterested person, Burlas, who lived in the adjoining
lot from the time she was a child. According to her, it was only the Repuela
brothers who tilled the land and planted corn, bananas and camote. She
never saw Otillo, whom she also knew, till or work on the land. The
respondent’s claim of possession, as supported by a transfer certificate of
title and tax declaration of the subject property, both in the name of Sps.
Larawan is, to the Court’s mind, not persuasive.
Inference can be made that the transaction was an equitable
mortgage. From the attending circumstances of the case, it can be inferred
that the real intention of the Repuela brothers was to secure their
indebtedness from Sps. Larawan. They needed money for Marcelino’s fare
so they went to the house of Otillo to borrow P200.00. Considering that
Sps. Larawan would only agree to extend the loan if they would surrender
their certificate of title over the subject property, they obliged in the belief
that its purpose was only to secure their loan. In other words, they
surrendered the title to Sps. Larawan as security to obtain the much
needed loan. It was never their intention to sell the subject property.
As held in Banga v. Sps. Bello, 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 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.”
There is a presumption of mistake. Granting that indeed Cipriano and
Marcelino, signed and thumb marked, respectively, 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 they were never explained to them. Cipriano, who only
finished Grade One, and Marcelino, an illiterate, were in dire need of
money. As such, the possibility that they affixed their conformity to the
onerous contract to their detriment just to get the loan was not remote. In
dire need as they were, they signed a document despite knowing that it did
not express their real intention. “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.” For this reason, the Repuela
brothers should be given the protection afforded by the Civil Code
provisions on equitable mortgage.
Sanchez, John Russel A.
20190171226
Law on Sales
As aptly put by the Court in Cruz v. CA, Vendors covered by Art. 1602
usually find themselves in an unequal position when bargaining with the
vendees, and will readily sign onerous contracts to get the money they
need. Necessitous men are not really free men in the sense that to answer
a pressing emergency they will submit to any terms that the crafty may
impose on them. This is precisely the evil that Art. 1602 seeks to guard
against. The evident intent of the provision is to give the supposed vendor
maximum safeguards for the protection of his legal rights under the true
agreement of the parties.
Furthermore, it must be pointed out that 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. 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 in controversy.
There was no prescription or laches. In Inamarga v. Alano, the Court
considered the deed of sale as equitable mortgage and wrote: “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.