THIRD DIVISION 1.

ANNULLING the Deed of Absolute Sale dated

February 3, 1989 as a deed of sale, and considering it
G.R. No. 171250 July 4, 2007 instead as a real estate mortgage of the disputed property
to secure the payment of the ₱70,000.00 the plaintiffs-
SPS. CARLOS AND EULALIA RAYMUNDO and SPS. appellants spouses Bandong owe the defendants-appellees
ANGELITO AND JOCELYN BUENAOBRA, Petitioners, spouses Raymundo. The spouses Bandong are given one
vs. (1) year from the finality of this Decision within which to
SPS. DOMINADOR and ROSALIA pay the ₱70,000.00 owed to the spouses Raymundo, at
BANDONG, Respondents. 12% interest per annum computed from July 17, 1991
until its full payment.
DECISION
2. ANNULLING the Deed of Absolute Sale dated
CHICO-NAZARIO, J.: September 25, 1990, between the spouses Raymundo as
vendors and the spouses Buenaobra as vendees.
This is a Petition for Review on Certiorari under Rule 45 of the
Revised Rules of Court, filed by petitioners Spouses Carlos and 3. ORDERING the Register of Deeds of Caloocan City
Eulalia Raymundo and Spouses Angelito and Jocelyn Buenaobra to issue a new Transfer Certificate of Title covering Lot
seeking the reversal and setting aside of the Decision1 of the 18, Block 2 of the subdivision plan PSD 16599, a portion
Court of Appeals dated 26 September 2005 and its of Lot 1073 of the Cadastral Survey of Caloocan, in the
Resolution2 dated 24 January 2006 in CA-G.R. CV No. 59557. names of the spouses Dominador and Rosalia Bandong,
The Court of Appeals, in its assailed Decision and Resolution, after the cancellation pursuant to this Decision of TCT
reversed the Decision3 of the Regional Trial Court (RTC) dated No. 222871 currently in the names of the spouses
28 January 1998, in Civil Case No. C-14980, declaring the Deed Angelito and Jocelyn Buenaobra; and FURTHER
of Sale executed by respondent Dominador Bandong ORDERING the said Register of Deeds to annotate in
(Dominador) in favor of petitioner Eulalia Raymundo (Eulalia) as the new Transfer Certificate of Title in the names of the
valid and binding. The dispositive portion of the asailed Court of spouses Bandong a real estate mortgage in favor of the
Appeals Decision reads: spouses Carlos and Eulalia Raymundo reflecting the
terms of this Decision.
WHEREFORE, premises considered, we hereby GRANT the
appeal. The January 28, 1998 decision of the RTC, Branch 126, 4. AWARDING – moral damages in the amount of
Caloocan City is hereby REVERSED and SET ASIDE and a ₱50,000.00; exemplary damages of ₱20,000.00; and
new one entered: attorney’s fees and expenses of litigation of ₱20,000.00,
plus ₱500.00 per proven appearance of the plaintiffs-
appellants’ counsel in court – all solidarily payable by the
 spouses Carlos and Eulalia Raymundo and the spouses Carlos Raymundo (Carlos). The subject property was thereafter
Angelito and Jocelyn Buenaobra, to the spouses sold by the Spouses Raymundo to Eulalia’s grandniece and herein
Dominador and Rosalia Bandong. co-petitioner, Jocelyn Buenaobra (Jocelyn). Thus, the subject
property came to be registered in the name of Jocelyn and her
5. ORDERING the payment of the costs of the suit, husband Angelito Buenaobra (Angelito).
payable by the spouses Carlos and Eulalia Raymundo and
the spouses Angelito and Jocelyn Buenaobra.4 After the TCT of the subject property was transferred to their
names, the Spouses Buenaobra instituted before the Metropolitan
The factual and procedural backdrop of this case are as follows: Trial Court (MeTC) of Caloocan City, an action for ejectment
against the Spouses Bandong, docketed as Civil Case No.
Eulalia was engaged in the business of buying and selling large 20053, seeking the eviction of the latter from the subject
cattle from different provinces within the Philippines. For this property, which the Spouses Bandong opposed on the ground
purpose, she employed "biyaheros" whose primary task involved that they are the rightful owners and possessors thereof. The
the procuring of large cattle with the financial capital provided by MeTC ruled in favor of the Spouses Buenaobra which, on appeal,
Eulalia and delivering the procured cattle to her for further was affirmed in toto by the RTC7 and subsequently, by the Court
disposal. In order to secure the financial capital she advanced for of Appeals.8 Finally, when the case was raised on appeal before us
the "biyaheros," Eulalia required them to surrender the Transfer in G.R. No. 109422, we issued a Resolution9 dated 12 July 1993,
Certificates of Title (TCTs) of their properties and to execute the finding that no substantial arguments were raised therein to
corresponding Deeds of Sale in her favor. warrant the reversal of the appealed decision.

Dominador had been working for Eulalia as one of her biyaheros To assert their right to the subject property, the Spouses
for three decades. Considering his long years of service without Bandong instituted an action for annulment of sale before the
any previous derogatory record, Eulalia no longer required RTC against Eulalia and Jocelyn on the ground that their consent
Dominador to post any security in the performance of his duties.5 to the sale of the subject property was vitiated by Eulalia after
they were served by Jocelyn’s counsel with the demand to vacate.
However, in 1989, Eulalia found that Dominador incurred This was docketed as Civil Case No. C-14980. The Spouses
shortage in his cattle procurement operation in the amount of Bandong alleged that there was no sale intended but only
₱70,000.00. Dominador and his wife Rosalia Bandong (Rosalia) equitable mortgage for the purpose of securing the shortage
then executed a Deed of Sale6 in favor of Eulalia on 3 February incurred by Dominador in the amount of ₱70,000 while
1989, covering a parcel of land with an area of 96 square meters, employed as "biyahero" by Eulalia.
more or less, located at Caloocan City and registered under TCT
No. 1421 (subject property), in the name of the Spouses Eulalia countered that Dominador received from her a significant
Bandong. On the strength of the aforesaid deed, the subject sum of money, either as cash advances for the purpose of
property was registered in the names of Eulalia and her husband procuring large cattle or as personal loan, and when he could no
longer pay his obligations, the Spouses Bandong voluntarily an equitable mortgage considering that the purchase price was
ceded the subject property to her by executing the corresponding grossly inadequate and the Spouses Bandong remained as
deed of sale in her favor. Indeed, the Spouses Bandong possessors of the subject property after Eulalia’s alleged purchase
personally appeared before the Notary Public and manifested that thereof. The appellate court likewise charged Jocelyn with
the deed was their own voluntary act and deed. knowledge that the Spouses Raymundo were not the absolute
owners of the subject property negating the presumption that she
For her part, Jocelyn maintained that she was a buyer in good was an innocent purchaser for value.
faith and for value for she personally inquired from the Register
of Deeds of the presence of any liens and encumbrances on the The Court of Appeals found the Motion for Reconsideration
TCT of the subject property and found that the same was filed by petitioners unmeritorious and denied the same in its
completely free therefrom. While she admitted that she had Resolution11 dated 24 January 2006.
previous notice that Dominador and a certain Lourdes Santos
(Lourdes) were in possession of the subject property, Jocelyn Hence, this instant Petition for Review on Certiorari filed by the
claimed that the said possessors already acknowledged her petitioners assailing the Decision dated 26 September 2005 and
ownership thereof and even asked for time to vacate. In the end, the Resolution dated 24 January 2006 rendered by the Court of
though, they refused to leave the premises. Appeals. For the resolution of this Court are the following issues:

On 28 June 1998, the RTC rendered a Decision10 in Civil Case I.

No. C-14980 in favor of Eulalia and Jocelyn by declaring that the
Deed of Sale between Dominador and Eulalia was valid and WHETHER OR NOT THE DEED OF SALE
binding and, consequently, the subsequent sale between Eulalia BETWEEN DOMINADOR AND EULALIA IS
and Jocelyn was also lawful absent any showing that Jocelyn was VALID AND BINDING.
a buyer in bad faith. The dispositive portion of the said decision
reads: II.

WHEREFORE, judgment is hereby rendered DISMISSING the WHETHER OR NOT JOCELYN IS A BUYER IN
complaint filed by the [Spouses Bandong] and ordering said GOOD FAITH.
[Spouses Bandong] to pay [herein petitioners] spouses Raymundo
and Buenaobra the amount of ₱50,000 and ₱30,000, respectively, In arguing that the sale between Dominador and Eulalia is valid,
as attorney’s fees and costs of the suit. petitioners posit that gross inadequacy of the price is not
sufficient to invalidate the sale, and granting arguendo that
On appeal in CA-G.R. SP No. 59557, the Court of Appeals insufficient consideration may void a sale, it has not been proven
reversed the RTC Decision and found that the transaction that the consideration of sale between Dominador and Eulalia
entered into by Dominador and Eulalia was not one of sale but was grossly inadequate.
Elaborating, petitioners maintain that the amount of ₱110,000.00 Art. 1602. The contract shall be presumed to be an equitable
(which they claimed they have given to Dominador), or even the mortgage, in any of the following cases:
sum of ₱70,000.00 (which respondents admitted receiving), was a
substantial consideration, sufficient to support a sale contract. (1) When the price of a sale with right to repurchase is
Mere inadequacy of the price is not sufficient to invalidate a sale; unusually inadequate;
the price must be grossly inadequate or utterly shocking to the
conscience in order to avoid a contract of sale. (2) When the vendor remains in possession as lessee or
otherwise;
Petitioners further aver that the alleged market value of the
subject property as submitted by the appraiser, one of (3) When upon or after the expiration of the right to
respondents’ witnesses, would not serve as an objective basis in repurchase another instrument extending the period of
determining the actual value of the subject property, much less redemption or granting a new period is executed;
the supposed amount of its purchase price, in the absence of any
logical and valid basis for its determination. (4) When the purchaser retains for himself a part of the
purchase price;
Finally, petitioners contend that so long as the contract was
voluntarily entered into by the parties and in the absence of a (5) When the vendor binds himself to pay the taxes on
clear showing that their consent thereto was vitiated by fraud, the thing sold.
mistake, violence or undue influence, such as in the case at bar,
the said contract should be upheld. (6) In any other case where it may be fairly inferred that
the real intention of the parties is that the transaction
We do not agree. shall secure the payment of a debt or the performance of
any other obligation.
An equitable mortgage is one that - although lacking in some
formality, forms and words, or other requisites demanded by a Art. 1604. The provisions of Article 1602 shall also apply to a
statute - nevertheless reveals the intention of the parties to charge contract purporting to be an absolute sale.
a real property as security for a debt and contains nothing
impossible or contrary to law.12 For Articles 1602 and 1604 to apply, two requisites must concur:
one, the parties entered into a contract denominated as a contract
The instances when a contract - regardless of its nomenclature - of sale; and two, their intention was to secure an existing debt by
may be presumed to be an equitable mortgage are enumerated in way of an equitable mortgage.13
the Civil Code as follows:
There is no question that Dominador and Eulalia entered into a
contract of sale as evidenced by the document denominated as
Deed of Sale14 signed by them. As to whether the parties intended she provided for their cattle procurement task, and since
to transfer ownership of the subject property or merely to Dominador worked for Eulalia’s business for years, he was
constitute a security for an existing debt is an issue that needs to allowed to advance the money without any security. Significantly,
be addressed by this Court. it was only after he incurred a shortage that the sale contract was
executed.
In resolving this kind of controversy, the doctrine in Reyes v. Court
of Appeals15 directs us to give utmost consideration to the We are not inclined to believe the contention of the petitioners
intention of the parties in light of the relative situation of each that Dominador ceded his property to Eulalia as payment for his
and the circumstances surrounding the execution of the contract, obligation for it is contrary to human experience that a person
thus: would easily part with his property after sustaining a debt. Rather,
he would first look for means to settle his obligation, and the
In determining whether a deed absolute in form is a mortgage, selling of a property on which the house that shelters him and his
the court is not limited to the written memorials of the family stands, would be his last resort. The only reasonable
transaction. The decisive factor in evaluating such agreement conclusion that may be derived from Dominador’s act of
is the intention of the parties, as shown not necessarily by executing a Deed of Sale in favor of Eulalia is that the latter
the terminology used in the contract but by all the required him to do so in order to ensure that he will subsequently
surrounding circumstances, such as the relative situation of pay his obligation to her.
the parties at that time, the attitude acts, conduct, declarations
of the parties, the negotiations between them leading to the deed, This conclusion is in accord with the doctrine we enunciated
and generally, all pertinent facts having a tendency to fix and in Aguirre v. Court of Appeals,18 that:
determine the real nature of their design and understanding. x x
x16 (Emphasis supplied.) The explicit provision of Article 1602 that any of those
circumstances would suffice to construe a contract of sale to
By applying the aforestated principle to the case at bar, we are be one of equitable mortgage is in consonance with the rule
constrained to rule that in executing the said Deed of Sale, that the law favors the least transmission of property rights.
Dominador and Eulalia never intended the transfer of ownership To stress, the existence of any one of the conditions under
of the subject property but to burden the same with an Article 1602, not a concurrence, or an overwhelming number of
encumbrance to secure the indebtedness incurred by Dominador such circumstances, suffices to give rise to the presumption that
on the occasion of his employment with Eulalia. the contract is an equitable mortgage.

By Eulalia’s own admission,17 it was her customary business While we agree in the petitioners’ insistence that inadequacy of
practice to require her biyaheros to deliver to her the titles to their the price is not sufficient to nullify the contract of sale, their
real properties and to execute in her favor the corresponding persistence is, however, misplaced. It is worthy to note that the
deeds of sale over the said properties as security for the money factual circumstances attendant in the case at bar call not for the
application of the legal and jurisprudential principles on An innocent purchaser for value is one who buys the property of
annulment of contract per se, but more aptly, of the provisions of another, without notice that some other person has a right or
Articles 1602 and 1604 of the Civil Code on the construction of interest in the property, for which a full and fair price is paid by
the contract of sale as an equitable mortgage. the buyer at the time of the purchase or before receipt of any
notice of claims or interest of some other person in the
Consequently, the agreement between Dominador and Eulalia property.22
was not avoided in its entirety so as to prevent it from producing
any legal effect at all. Instead, we construe that said transaction is Petitioners are harping on the contention that Jocelyn was an
an equitable mortgage, thereby merely altering the relationship of innocent purchaser for value. Invoking the indefeasibility of a
the parties from seller and buyer, to mortgagor and mortgagee, Torrens title, they assert that there is nothing in the subject
while the subject property is not transferred but subjected to a property’s TCT that should arouse Jocelyn’s suspicion as to put
lien in favor of the latter. her on guard that there is a defect in Eulalia’s title.

Moreover, granting that the purchase price is adequate, the fact Again, we are not persuaded. The burden of proving the
that respondents remain in possession of the subject property purchaser’s good faith lies in the one who asserts the same. In
after its supposed sale is sufficient to support our finding that the discharging the burden, it is not enough to invoke the ordinary
contract is one of equitable mortgage and not of sale. To presumption of good faith.23 In Arrofo v. Quiño,24 we have
reiterate, the existence of any one of the conditions under elucidated that:
Article 1602, not a concurrence, or an overwhelming number
of such circumstances, suffices to give rise to the [A] person dealing with registered land, [is not required] to
presumption that the contract is an equitable mortgage.19 inquire further that what the Torrens title on its face indicates.
This rule, however, is not absolute but admits of exceptions.
Having threshed the issue that there was no sale in favor of
Eulalia but an equitable mortgage leads us to an inevitable Thus, while it is true x x x that a person dealing with
conclusion that she has no right to subsequently transfer registered lands need not go beyond the certificate of title, it
ownership of the subject property, in consonance with the is likewise a well-settled rule that a purchaser or mortgagee
principle that nobody can dispose of what he does not cannot close his eyes to facts which should put a reasonable
have.20 One of the exceptions21 to this rule, however, can be man on his guard, and then claim that he acted in good
found in Article 1506 of the Civil Code, wherein the seller faith under the belief that there was no defect in the title of
has voidable title to a property but his title has not yet been the vendor or mortgagor. His mere refusal to face up to the fact
nullified at the time of the sale, and the subsequent buyer of that such defect exists, or his willful closing of his eyes to the
the property was in good faith. possibility of the existence of a defect in the vendor’s or
mortgagor’s title, will not make him an innocent purchaser for
value, if it afterwards develops that the title was in fact defective,
and it appears that he had such notice of the defect as would have evidence as to the conduct and other outward acts by which the
led to its discovery had he acted with the measure of precaution motive may be safely determined.26
which may be required of a prudent man in a like situation.
Petitioners question further the belated filing by the Spouses
In the present case, we are not convinced by the petitioners’ Bandong of an action for the annulment of sale, since the
incessant assertion that Jocelyn is an innocent purchaser for Spouses Bandong filed the same only after they received the
value. To begin with, she is a grandniece of Eulalia and resides in notice to vacate, and not immediately after the execution of the
the same locality where the latter lives and conducts her principal assailed Deed of Sale. We have repeatedly held that the one who
business. It is therefore impossible for her not to acquire is in actual possession of a piece of land claiming to be the owner
knowledge of her grand aunt’s business practice of requiring thereof may await to vindicate his right. His undisturbed
her biyaheros to surrender the titles to their properties and to sign possession gives him a continuing right to seek the aid of a court
the corresponding deeds of sale over said properties in her favor, of equity to ascertain and determine the nature of the adverse
as security. This alone should have put Jocelyn on guard for any claim of a third party and its effect on his own title, which right
possible abuses that Eulalia may commit with the titles and the can be claimed only by one who is in possession.27
deeds of sale in her possession.
Finally, we agree with the Court of Appeals that the ejectment
The glaring lack of good faith of Jocelyn is more apparent in her case which had been litigated to finality by the Spouses
own admission that she was aware that Dominador and a certain Buenaobra and the respondents need not alter our conclusion in
Lourdes were in possession of the subject property. A buyer of the present case. Well entrenched is the doctrine that in ejectment
real property that is in the possession of a person other than the cases, the sole question for resolution is the physical or material
seller must be wary. A buyer who does not investigate the rights possession of the property in question, so that neither the claim
of the one in possession can hardly be regarded as a buyer in of juridical possession nor an averment of ownership can
good faith.25 Jocelyn’s self-serving statement that she personally outrightly prevent the court from taking cognizance of the
talked to Dominador and Lourdes about her acquisition of the case.28 In ejectment cases, all the court may do is to resolve who
subject property and intention to take possession of the same, is entitled to its possession although, in doing so, it may make a
and that Dominador and Lourdes even pleaded for time to vacate determination of who is the owner of the property in order to
the subject property cannot be given credence in light of the resolve the issue of possession. But such determination of
prompt filing by the Spouses Bandong of an action for the ownership is not clothed with finality. Neither will it affect
annulment of the sale contract between Dominador and Eulalia ownership of the property or constitute a binding and conclusive
after they received the demand to vacate from Jocelyn’s lawyer. adjudication on the merits with respect to the issue of
ownership.29
In the last analysis, good faith, or the lack of it, is a question of
intention.1awphi1 But in ascertaining the intention that impels one WHEREFORE, IN VIEW OF THE FOREGOING, the
on a given occasion, the courts are necessarily controlled by the instant Petition is DENIED. The Decision dated 26 September
2005, and the Resolution dated 24 January 2006, rendered by the conclusions in the above Decision were reached in consultation
Court of Appeals in CA-G.R. SP No. 59957, are before the case was assigned to the writer of the opinion of the
hereby AFFIRMED. Costs against petitioner. Court’s Division.

SO ORDERED. REYNATO S. PUNO

Chief Justice
MINITA V. CHICO-NAZARIO
Associate Justice

WE CONCUR:

CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson

MA. ALICIA AUSTRIA- ANTONIO EDUARDO

MARTINEZ B. NACHURA
Associate Justice Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision were reached

in consultation before the case was assigned to the writer of the
opinion of the Court’s Division.

CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson, Third Division

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, and the

Division Chairperson’s Attestation, it is hereby certified that the