CADUNGOG v YAP, G.R. No.

161223, September 12, 2005

Facts: Virgilio Cadungog executed a deed of sale with the right to repurchase
on August 17, 1979. Through the document, Cadungog sold to his cousin
Franklin Ong six parcels of land. Based on the deed of sale, Cadungog had the
right to repurchase within 10 years from the mentioned date. Virgilio, however,
failed to redeem the subject property. Subsequently, he executed a deed of
absolute sale in favor of Jocelyn Yap, Franklins sister. Such sale covered three
parcels of land for P5,000. Thereafter, Virgilio filed a complaint for the
declaration of nullity of the deed of absolute sale against Yap. Virgilio
asseverated that the deed was fictitious because it had been merely executed
to afford Yap claim for the reduction of her tax liabilities in Canada.
Furthermore, he pointed out that after the supposed sale, Yap made no move in
order to consolidate her ownership over the property. The trial court held that
Cadungog was able to repurchase the six parcels of land on May 25-26, 1997
which was after the lapse of 18 years, upon payment to Ong of the amount of
P50k. Moreover, the court held that the 10-year redemption period was to be
regarded as extended because of the failure of Ong to consolidate his title over
the property.
Issue: Whether or not there was impairment of the title over the property of
the vendee a retro because of his failure to consolidate the sale
Held: No. A sale with pacto de retro transfers the legal title to the vendee a
retro. The essence of a pacto de retro sale is that the title and ownership of the
property sold are immediately vested in the vendee a retro, subject to the
resolutory condition of repurchase by a vendor a retro within the stipulated
period.47 Failure on the part of a vendor a retro to repurchase the property
within the period agreed upon by them, or, in the absence thereof, as provided
for by law, vests upon the vendee a retro absolute title and ownership over the
property sold by operation of law.48 The failure of the vendee a retro to
consolidate his title under Art. 1607 of the New Civil Code does not
impair such title and ownership because the method prescribed
thereunder is merely for the purpose of registering and consolidating
titles to the property.49
Franklin Ong, and not the petitioner, was the lawful owner of the six parcels of
land. The petitioner, thus, had no right to mortgage or sell the same to the
respondent on September 30, 1991 under the deed of absolute sale. As the
Latin adage goes: NEMO DAT QUOD NON HABET.50 Hence, Cadungod, not being
the owner, could not have lawfully sold the same to Jocelyn Yap.
LUSTAN V CA, G.R. No. 111924. January 27, 1997
FACTS: Petitioner Adoracion Lustan is the registered owner of a parcel of land
in Calinog, Iloilo. She leased the property to private respondent Nicolas
Parangan for a term of ten (10) years. During the period of lease, Parangan was

regularly extending loans in small amounts to petitioner to defray her daily

expenses and to finance her daughter's education. In 1970, petitioner executed
a Special Power of Attorney in favor of Parangan to secure an agricultural loan
from private respondent Philippine National Bank (PNB) with the lot as
collateral. In 1972, a second Special Power of Attorney was executed by
petitioner, hence, Parangan was able to secure four (4) additional loans. The
last three loans were without the knowledge of petitioner and all the proceeds
were used by Parangan for his own benefit. In 1973, petitioner signed a Deed of
Pacto de Retro Sale in favor of Parangan which was superseded by the Deed of
Definite Sale in 1979 which petitioner signed upon Parangan's representation
that the same merely evidences the loans extended by him unto the former.
For fear that her property might be prejudiced by the continued borrowing of
Parangan, petitioner demanded the return of her certificate of title. Instead of
complying with the request, Parangan asserted his rights over the property
which allegedly had become his by virtue of the Deed of Definite Sale. Under
said document, petitioner conveyed the subject property and all the
improvements unto Parangan absolutely for and in consideration of the sum of
Seventy Five Thousand (P75,000.00) Pesos.
Petitioner filed an action for cancellation of liens, quieting of title, recovery of
possession and damages against Parangan and PNB in the Regional Trial Court
of Iloilo City. RTC ordered their cancellation and declared the Pacto de Retro
Sale null and void.
ISSUE: whether or not the Deed of Definite Sale is in reality an equitable
mortgage
HELD:
Yes.
Even when a document appears on its face to be a sale, the owner of the
property may prove that the contract is really a loan with mortgage by raising
as an issue the fact that the document does not express the true intent of the
parties. In this case, parol evidence then becomes competent and admissible
to prove that the instrument was in truth and in fact given merely as a security
for the repayment of a loan. And upon proof of the truth of such allegations,
the court will enforce the agreement or understanding in consonance with the
true intent of the parties at the time of the execution of the contract.
For a presumption of an equitable mortgage to arise, we must first satisfy two
requisites 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. Under Art. 1604 of the Civil Code, a contract purporting to be an
absolute sale shall be presumed to be an equitable mortgage should any of the
conditions in Art. 1602 be present. The existence of any of the circumstances
therein, not a concurrence nor an overwhelming number of such

circumstances, suffices to give rise to the presumption that the contract is an

equitable mortgage. Art. 1602, (6), in relation to Art 1604 provides that a
contract of sale is presumed to be 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. That the case clearly falls under this category can be inferred from
the circumstances surrounding the transaction as herein set forth:
Here, Petitioner had no knowledge that the contract 12 she signed is a deed of
sale. The contents of the same were not read nor explained to her so that she
may intelligibly formulate in her mind the consequences of her conduct and the
nature of the rights she was ceding in favor of Parangan. Petitioner is illiterate
and her condition constrained her to merely rely on Parangan's assurance that
the contract only evidences her indebtedness to the latter. Settled is the rule
that where a party to a contract is illiterate or cannot read or cannot
understand the language in which the contract is written, the burden is on the
party interested in enforcing the contract to prove that the terms thereof are
fully explained to the former in a language understood by him. 14 To our mind,
this burden has not been satisfactorily discharged.
The foregoing squares with the sixth instance when a presumption of equitable
mortgage prevails. The contract of definite sale, where petitioner purportedly
ceded all her rights to the subject lot in favor of Parangan, did not embody the
true intention of the parties. The evidence speaks clearly of the nature of the
agreement it was one executed to secure some loans. Thus, the deed of
definite sale is an equitable mortgage.
SAN PEDRO v LEE, G.R. No. 156522, May 28, 2004
FACTS: The parties in this case executed the "Kasulatan ng Ganap na Bilihan ng
Lupa", which states that the petitioner is the true owner of a parcel of land
located in Bulacan, which is selling to the respondents for the amount of
P150,000. The document bears two signatures above the typewritten words
"ERLINDA SAN PEDRO, Nagbibili". It contains the signatures of two witnesses.
Petitioner claims that she approached one Philip dela Torre, who introduced her
to respondent. From Lee and his wife Lilian Sison, Petitioner was able to secure
a loan. As security for this loan, she agreed to mortgage a parcel of agricultural
land located in Bulacan. Petitioner claims that Atty. Roxas and Lee coerced her
to sign the "Kasulatan" and that the document was executed merely as written
evidence of the loan and mortgage. Respondents, on the other hand claim that
the sale of the property in question was brokered by their mutual acquaintance
and broker, Philip dela Torre. They thus negotiated for the purchase of the
property, which had an initial asking price of P200, 000.00, and offered to pay
P150, 000.00 thereof. San Pedro accepted their offer and agreed to sell the
land. The trial court rendered a decision in favor of petitioner. On appeal, the

Court of Appeals reversed the trial court, and rendered a decision in favor of
respondents.
Issues:
1. Whether the contract in question is an equitable mortgage or a deed of
absolute sale. Absolute sale
2. WoN the price of the sale is unusually inadequate -NO
HELD:
It is well-settled that the presence of even one of the circumstances in Art.1402
of the Civil Code is sufficient to declare a contract as an equitable
mortgage,65 in consonance with the rule that the law favors the least
transmission of property rights.66 For the presumption of an equitable mortgage
to arise under Article 1602, two requisites must concur: (1) that the parties
entered into a contract denominated as a sale; and (2) that their intention was
to secure an existing debt by way of a mortgage.67
Here, it was incumbent upon San Pedro to adduce sufficient evidence to
support her claim of an equitable mortgage. However, upon an examination of
the evidence, we find insufficient basis to conclude the existence of any of the
grounds she relied upon. Hence, The "Kasulatan ng Ganap na Bilihan ng Lupa"
unequivocally states the absolute sale of the property covered by Transfer
Certificate of Title No. T-290387. Being a notarized document, it carries the
evidentiary weight conferred upon duly executed instruments provided by
law,90 and is entitled to full faith and credit upon its face
2. NO.
Absent any evidence of the market value of the locale as of the date
of the contract, it cannot be concluded that the price at which the
property was sold, or about P8.70 per square meter, was grossly
inadequate. Mere inadequacy of price would not be sufficient. The
price must be grossly inadequate,74 or purely shocking to the
conscience.75
Since the property in question could have been worth as little as P20.00 per
square meter in 1994, the price of P8.70 per square meter nine years earlier, in
1985, does not seem to be grossly inadequate. Indeed, respondents
Declaration of Real Property No. 10786, for the year 1987, shows the market
value of the property to be only P34,470.00 for that year.

BUNDALIAN v CA

Facts:
On July 1, 1975, the petitioners purchased from the Estate of the Deceased Agapita Sarao Vda. de
Virata three (3) contiguous parcels of land located at San Juan, Rizal.
The following day, \ the petitioners, in a contract denominated as Deed of Sale with Right to
Repurchase, sold to the private respondents the same three lots for the same amount. One of the
terms and conditions was that the repurchase price would escalate month after month, depending on
when repurchase would be effected. It was also stipulated in the same contract that the vendor shall
have the right to possess, use, and build on, the property during the period pending redemption.
In 1976, the petitioners filed a petition for declaratory relief and/or reformation of instrument before the
CFI to declare the Deed of Sale with Right to Repurchase an equitable mortgage and the entire portion
of the same deed referring to the accelerating repurchase price null and void for being usurious.
The private respondents, in turn, filed a petition for the consolidation of ownership on the ground that
"more than a year has elapsed since the execution of the Deed of Sale with Right to Repurchase by the
vendor on July 2, 1975." They contended that "notwithstanding which the vendor has failed to avail of
its rights under the provisions of Article 1607 in relation to Article 1616 of the New Civil Code, the
vendor has lost all his rights to avail himself of the right to consolidate ownership of the property subject
of the Deed of Sale."
trial court rendered the decision in favor of the private respondents. CA affirmed.
ISSUE: whether or not the deed of sale with right to repurchase should be declared as an equitable
mortgage.
HELD: YES
A portion of the document in question reads:
(The vendor) having just purchased the same from the Intestate estate of the deceased
Agapita Sarao Vda. de Virata (Special Proceedings No. B-710 of the Court of First
Instance of Cavite), with funds loaned to him by the herein VENDEES. (Emphasis
supplied).
This statement appearing in the supposed pacto de retro sale confirms the real intention of the parties
to secure the payment of the loan acquired by the petitioners from the private respondents. The sale
with the right to repurchase of the three parcels of land was for P499,200.00, which was exactly the
same amount paid to the estate of the deceased Agapita Sarao Vda. de Virata- After having purchased
the three lots, the vendors should at least have earned a little profit or interest if they really intended to
resell the lots the following day. Instead, they suffered a loss of P25,000.00 because the amount
borrowed, and we find grounds to believe their statement of having advanced P25,000.00 of their own
funds as earnest money, was actually only P474,000.00. The petitioners also bound themselves to pay
exceedingly stiff prices for the privilege of repurchase.
The stipulation in the contract sharply escalating the repurchase price every month enhances the
presumption that the transaction is an equitable mortgage. Its purpose is to secure the return of the
money invested with substantial profit or interest, a common characteristic of loans.
The contract also provides that "it is agreed that the vendor shall have the right to possess, use, and
build on, the property during the period of redemption." When the vendee acknowledged the right of the
vendor to retain possession of the property the contract is one of loan guaranteed by mortgage, not a
conditional sale or an option to repurchase. (Macoy vs. Trinidad, et al., 95 Phil. 192).
The Bundalians paid the real estate taxes on the lots. As against the express provision of the contract
and the actual possession by the petitioners, the private respondents come up with a far fetched

argument that since the titles to the lots were in their hands, they were the ones in legal possession.
Parenthetically, the titles in their hands were still in the name of the estate of Agapita Sarao Vda. de
Virata, the original vendor-owner.
Hence, the deed of sale with right to repurchase is an equitable mortgage.