Fair inference

Under Article 1602 0f the Civil Code, a contract of sale of real property shall be presumed an equitable mortgage if, among others, the seller remains in possession of the property or when he pays the realty taxes of the property. But what if the parties expressly agreed in their contract of sale that the seller shall remain in possession and shall pay the taxes, will the sale still be presumed a mortgage? Under these circumstances, is there still doubt that real intention of the parties is to enter into a contract of sale subject to the two conditions abovementioned? This is the issue raised in this case of the spouses Ramos against the spouses Gomez.

The Gomez spouses were the registered owners of a parcel of land in Quezon City which was mortgaged way back when Development Bank of the Philippines was still known as the Rehabilitation Finance Corporation (RFC).In fact, the property had already been foreclosed by RFC for failure of the spouses to pay their obligation. Before the expiration of the redemption period, they obtained another loan of P18,000 from the spouses Ramos to redeem the property. Both Ramos and Gomez spouses agree that repayment of the loan would be for a period of ten years at P150 a month.

After the Gomez spouses redeemed the property from RFC and had the mortgage therewith cancelled, the Ramoses requested the Gomezes and the latter agreed to sign a Deed of Promise to Sell as the security for the loan they extended. A few months later, the Ramoses again asked the Gomez spouses to sign another document, a Deed of Absolute Sale, this time telling the Gomezes that they just wanted the latters’ children to answer for the loan in the event of their untimely death. The Gomezes signed the Deed. But unknown to them, the Ramos spouses registered said deed with the Register of Deeds thus obtaining a new title in their favor.

Eight years later, Mr. Gomez died. When his widow and their children tried to settle the remaining balance of the loan, the Ramoses, feigning inability to remember the actual arrangements, agreed to reconvey the property on condition that the widow and children pay the actual market value of the property obtaining at that time. This prompted the Gomez’ heirs to verify the status of the property in the Register of Deeds. Discovering for the first time that they were no longer the titled owners, the Gomez’ widow and children sued the Ramoses for the declaration of the Deed of Sale as equitable mortgage and for reconveyance of the property with damages.

The Regional Trial Court (RTC) ruled in favor of the Gomez widow and children. It declared the Deed of Sale as, in reality, an equitable mortgage to secure the loan which the Gomezes obtained from the Ramos spouses pursuant to the provisions of Art. 1602.The RTC found that both the Deed of Promise to Sell and the Deed of Sale were intended only as security for the loan extended to the Gomezes as shown by the fact that the consideration was only for P18,000.00; and that the Gomezes remained in possession of the property and paid the real estate taxes thereon. The Court of Appeals affirmed this ruling. But the Ramoses still questioned it before the Supreme Court. According to them, Art. 1602 applies only when there is no express agreement or stipulation between the parties as shown by the use of the words "presume" or "inferred" in said article. In their case, the Ramos spouses contended that the parties expressly agreed on the two conditions that the Gomezes would remain in possession of the property and would also pay the taxes thereon.

Were they correct?

No.

Nothing in Article 1602 of the Civil Code indicates that the provision applies only in the absence of an express agreement between the parties. Despite the presence of an express or written contract between the parties like in this case and previous other cases (Lapat v. Rosario 312 SCRA 539; Misena v. Rongavilla 303 SCRA 749), the contract would still be construed as an equitable mortgage because it is clear that the real intention of the seller in signing the documents was to provide security for the loan and not to transfer ownership over the property. Paragraph six of Art.1602 itself provides that the contract is presumed as an equitable mortgage 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 (Tolentino et.al. etc. vs. Court of Appeals et al. G.R. 128759, August 1,2002).

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