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SPS. OCTAVIO v. CA

FACTS:

The landowners mortgaged their 225-square meter property to the Carloses for P150,000.00, which later increased to P500,000.00. In order to redeem the property, the landowners enlisted the help of their son-in-law, delos Reyes, who sought assistance from Cruz, an employee of Land Bank. It was agreed that Cruz would purchase the property using a housing loan from Land Bank, which would be reimbursed by delos Reyes. Land Bank issued a letter of guarantee and the land title was transferred to Cruz. However, in 1993, the landowners expressed their intent to redeem the property but were refused. They filed a complaint claiming that the transaction was an equitable mortgage. The trial court ruled in their favor, finding the transaction to be an equitable mortgage.

In 1992, the plaintiffs executed a Deed of Absolute Sale, stating a consideration of only P600,000.00 for a 255 square meter property with a market value of P400,000.00 per square meter. The plaintiffs argued that the transaction was actually an equitable mortgage, as they were compelled to sell due to financial need and had an agreement to redeem the property. The trial court ordered the reconveyance of the property, payment of moral damages, and attorney's fees. The Court of Appeals reversed the decision, finding it to be an absolute sale and not an equitable mortgage. The plaintiffs raised three issues before the Court: whether the Deed of Absolute Sale was an equitable mortgage, whether they were denied due process, and whether the trial court's decision lacked a clear statement of facts and law.

ISSUES:

  1. Whether the Court of Appeals erred in ruling that the Deed of Absolute Sale was an equitable mortgage.

  2. Whether the Court of Appeals erred in ruling that the trial court's decision violates the constitutional requirement that it should clearly and distinctly state the facts and the law on which it is based.

  3. Whether the true intention between the parties for executing the Deed of Absolute Sale was to convey ownership of the property or merely to secure a housing loan.

  4. Whether the transaction between the parties constituted an equitable mortgage.

  5. Whether reformation of instrument is proper in this case.

  6. Whether the transaction between the parties is an equitable mortgage.

RULING:

  1. The Court of Appeals did not err in ruling that the Deed of Absolute Sale was an equitable mortgage. The court considered the surrounding circumstances and the intention of the parties in determining the nature of the transaction. Under Article 1602 of the Civil Code, even one of the circumstances listed in the article is enough to construe a contract of sale to be an equitable mortgage.

  2. The Court reversed the holding of the Court of Appeals that the trial court's decision violates the constitutional requirement. The Court found that the trial court's decision clearly and distinctly stated the facts and the law on which it was based.

  3. The Court held that the true intention between the parties for executing the Deed of Absolute Sale was not to convey ownership of the property but merely to secure the housing loan of one of the parties. The Court found that the transaction between the parties constituted an equitable mortgage.

  4. Reformation of instrument is not proper in this case because there was no showing of mistake, fraud, inequitable conduct, or accident that affected the validity of the deed of sale.

  5. The issue of whether the transaction is an equitable mortgage can still be considered even if the complaint filed by petitioners is categorized as one for reformation of instrument.

PRINCIPLES:

  • Courts should be liberal in setting aside orders of default, as judgments of default are frowned upon unless it clearly appears that the reopening of the case is intended for delay.

  • The intention of the parties is the decisive factor in evaluating the nature of a transaction, as shown not necessarily by the terminology used in the contract, but by all the surrounding circumstances.

  • Under Article 1602 of the Civil Code, a contract shall be presumed to be an equitable mortgage when certain circumstances are present.

  • The real intention of the parties is considered in determining the true nature of a transaction.

  • A transaction can be deemed an equitable mortgage if the true intention of the parties is to secure the payment of a debt or the performance of any other obligation.

  • The form of the agreement chosen by the parties does not necessarily determine the true nature of the transaction. Equity looks through the form and considers the substance.

  • A transfer certificate of title issued in favor of a transferee does not conclusively prove ownership or the existence of a sale.

  • The nature of an action is determined by the allegations in the pleading, not by its caption.

  • Relief may be granted based on the allegations and proof presented, even if no such relief is specifically prayed for.

  • In instances where no actual damages are adjudicated, awards for moral and exemplary damages may be reduced.

  • Attorney's fees may be awarded when the party is compelled to incur expenses and undergo litigation to recover their property.