FACTS:

This case involves a disputed portion of a 433-square meter parcel of land in Poblacion, Toledo City, Cebu. The land was originally registered in the name of Anunciacion Bahena vda. de Nemeño, but ownership was transferred to her five children upon her death. The petitioners, who are the children, built their houses on the lot.

In 1964, the respondent Benjamin Barabat leased a portion of the house owned by one of the petitioners, Narcisa Avila. In 1969, Jovita Barabat, the co-respondent, moved in with Benjamin when they got married.

In July 1979, Avila offered to sell her house and share in the lot to her siblings, but no one showed interest. She then offered it to the respondents, who agreed to buy it. Their agreement was evidenced by a private document dated July 17, 1979.

Respondents stopped paying rentals to Avila and took possession of the property as owners. They also assumed the payment of realty taxes on it.

In 1982, the petitioners informed the respondent Benjamin that he and Jovita had until March 1982 to stay in Avila's place because he was buying the property. Respondents replied that the property had already been sold to them by Avila and showed him the July 17, 1979 document.

In January 1983, respondents received a letter from a lawyer informing them that Avila had sold her house and share in the lot to the spouses Januario and Nanette Adlawan. Respondents filed a complaint for quieting of title with the Regional Trial Court (RTC) of Toledo City, and the trial court ruled in their favor. The Court of Appeals also affirmed the decision of the RTC. Hence, this petition was filed by the petitioners.

ISSUES:

1. Whether the transaction between respondents and Avila was an absolute sale or an equitable mortgage.

2. Whether the facts of the case fall within the ambit of Article 1602 in relation to Article 1604 of the Civil Code on equitable mortgage.

RULING:

1. The Court affirms the ruling of the trial court and the Court of Appeals that the transaction between respondents and Avila was an absolute sale. The existence and due execution of the private document dated July 17, 1979, which clearly shows Avila's intention to sell the property to respondents, was established. Avila's claim that she innocently signed the document, which respondents prepared and now claim as a private deed of sale, lacks credibility.

2. The Court holds that the facts of the case do not fall within the ambit of Article 1602 in relation to Article 1604 of the Civil Code on equitable mortgage. None of the circumstances enumerated in Article 1602, which would warrant the presumption of an equitable mortgage, exist in this case. The fact that respondents paid the realty taxes on the property and that there was gross inadequacy of consideration alone does not automatically convert the transaction into an equitable mortgage.

PRINCIPLES:

• In determining whether a transaction is an absolute sale or an equitable mortgage, the court must consider the intention of the parties as shown by their acts and conduct, rather than the language used in the document.

• The circumstances enumerated in Article 1602 of the Civil Code, which would warrant the presumption of an equitable mortgage, must be present in order for such a presumption to apply. The existence of only one of these circumstances is insufficient to establish an equitable mortgage.

• Gross inadequacy of consideration and payment of realty taxes on the property, without the presence of any of the circumstances enumerated in Article 1602, do not automatically convert a transaction into an equitable mortgage.