PHILIPPINE NATIONAL BANK, 

petitioner, 
vs.
MEGA PRIME REALTY AND HOLDINGS CORPORATION, respondent.

x-------------------------x

G.R. No. 173456             October 6, 2008

MEGA PRIME REALTY AND HOLDINGS CORPORATION, petitioner, 

vs.
PHILIPPINE NATIONAL BANK, respondent.

x-------------------------x

DECISION

REYES, R.T., J.:

IN sales of realty, a breach in the warranties of the seller entitles the buyer to a proportionate reduction of the purchase price.

The principle is illustrated in these consolidated petitions for review on certiorari of the Decision1 and Resolution2 of the Court of
Appeals (CA) in CA-G.R. CV No. 66759, which reversed and set aside that of the Regional Trial Court (RTC) in Malabon City. Earlier,
the RTC invalidated the sale of shares of stock in PNB Management and Development Corporation (PNB-Madecor) by and between
Mega Prime Realty Corporation (Mega Prime), as vendee, and the Philippine National Bank (PNB), as vendor.

The Facts

The facts, as summarized by the appellate court, are as follows:

Mega Prime filed a complaint for annulment of contract before the RTC of Malabon on November 28, 1997. An amended complaint
was subsequently filed on February 17, 1998.

In its amended complaint, Mega Prime alleged, among others, that PNB operates a subsidiary by the name of PNB Management and
Development Corporation. In line with PNB's privatization plan, it opted to sell or dispose of all its stockholdings over PNB-Madecor
to Mega Prime. Thereafter, a deed of sale dated September 27, 1996 was executed between PNB (as vendor) and Mega Prime (as
vendee) whereby PNB sold, transferred and conveyed to Mega Prime, on "As is where is" basis, all of its stockholdings in PNB-
Madecor for the sum of Five Hundred Five Million Six Hundred Twenty Thousand Pesos (P505,620,000.00). The pertinent portions of
the deed of sale are hereunder quoted as follows:

WHEREAS, PNB Management and Development Corporation (PNB-MADECOR), a corporation organized and existing under
the laws of the Republic of the Philippines, with principal office at PNB Financial Center, Roxas Boulevard, Pasay City, Metro
Manila, is a wholly-owned subsidiary of the vendor;

WHEREAS, the Vendee has offered to buy all of the stockholdings of the Vendor in PNB-MADECOR with an authorized
capital stock of P250,000,000.00 and the Vendor has accepted the said offer;

WHEREAS, the parties have previously agreed for the Vendee to pay the Vendor the purchase price of all the said
stockholdings of the Vendor, as follows:

(i) P50,562,000.00 on or before July 18, 1996 which has been paid;

(ii) P50,562,000.00 on or before September 27, 1996; and

(iii) Balance of the purchase price through loan with the Vendor;
 subject to the condition that if the Vendee fails to pay the second installment, the agreement to sell the said stockholdings
will be cancelled and the initial 10% down payment will be forfeited in favor of the Vendor;

NOW, THEREFORE, for and in consideration of the foregoing premises and the sum of PHILIPPINE PESOS: FIVE HUNDRED
FIVE MILLION SIX HUNDRED TWENTY (P505,620,000.00), receipt of which in full is hereby acknowledged, the Vendor hereby
sells, transfers and conveys, on "As is where is" basis, unto and in favor of the Vendee, its assigns and successors-in-interest,
all of the Vendor's stockholdings in PNB-MADECOR, free from any liens and encumbrances, as evidenced by the following
Certificates of Stock (the "Certificates of Stock"):

Number No. of Shares

0010 313,871

0002 1

0003 1

0004 1

0005 1

0006 1

0008 1

0009 1

0012 1

0013 1

hereto attached as Annex "A," and any subscription rights thereto, subject to the following terms and conditions:

1. The sale of the above stockholdings of the Vendor is on a clean balance sheet, i.e. all assets and liabilities are squared,
and no deposits, furniture, fixtures and equipment, including receivables shall be transferred to the Vendee, except real
properties and improvements thereon of PNB-MADECOR in Quezon City containing an area of 19,080 sq. m., situated at the
corner of Quezon Boulevard (presently Quezon Avenue) and Roosevelt Avenue covered by five (5) titles, namely: TCT Nos.
87881, 87882, 87883, 87884, and 160470, per Annexes "B," "C," "D," "E," and "F" hereof.

Leasehold rights of the Vendor on the Numancia property are excluded from this sale, however, lease of the Mandy
Enterprises and sub-leases thereon shall be honored by the Vendor which shall become the sub-lessor of the said property.
xxx

Pursuant, therefore, to the terms of the above-quoted deed of sale, the parties also entered into a loan agreement on the same date
(September 27, 1996) for P404,496,000.00 and Mega Prime executed in favor of PNB a promissory note for the P404,496,000.00.

Mega Prime further alleged that one of the principal inducements for it to purchase the stockholdings of defendant PNB in PNB-
Madecor was to acquire assets of PNB-Madecor, specifically the 19,080 square-meter property located at the corner of Quezon
Avenue and Roosevelt Avenue referred to as the Pantranco property.

Mega Prime then entered into a joint venture to develop the Pantranco property. However, Mega Prime's joint venture partner
pulled out of the agreement when it learned that the property covered by Transfer Certificate of Title (TCT) No. 160470 was likewise
the subject matter of another title registered in the name of the City Government of Quezon City (TCT No. RT-9987 [266573]).
Moreover, the lot plan of the Pantranco property shows that TCT No. 160470 covers real property located right in the middle of the
Pantranco property rendering nugatory the plans set up by Mega Prime for the said property.
Mega Prime sought the annulment of the deed of sale on ground that PNB misrepresented that among the assets to be acquired by
Mega Prime from the sale of shares of stock was the property covered by TCT No. 160470. However, the subject property was
outside the commerce of man, the same being a road owned by the Quezon City Government.

Mega Prime also sought reimbursement of the P150,000,000.00 plus legal interest incurred by Mega Prime as expenses for the
development of the Pantranco property as actual damages and further sought moral and exemplary damages and attorney's fees.

In its answer to the amended complaint, PNB maintains that the subject matter of the deed of sale was PNB's shares of stock in PNB-
Madecor which is a separate juridical entity, and not the properties owned by the latter as evidenced by the deed itself. The sale of
PNB's shares of stock in PNB-Madecor to Mega Prime did not dissolve PNB-Madecor. PNB only transferred its control over PNB-
Madecor to Mega Prime. The real properties of PNB-Madecor did not change ownership, but remained owned by PNB-Madecor.
Moreover, PNB denied that it is liable for P150,000,000.00 allegedly incurred by Mega Prime for the development of the Pantranco
property since Mega Prime itself alleged in its amended complaint that no such development could be undertaken.

According to PNB, Mega Prime's accusation that there was fraudulent misrepresentation on the former's part is without basis. The
best evidence of their transaction is the subject deed of sale which clearly shows that what PNB sold to Mega Prime was PNB's
stockholdings in PNB-Madecor.

As stockholder of PNB-Madecor, PNB did not know nor was it in a position to know, that the Quezon City Government was able to
secure another title over the lot covered by TCT No. 160470. Mega Prime, as buyer, bought the shares of stock at its own risk under
the caveat emptor rule, more so considering that the sale was made on an "as is where is" basis. Moreover, the fact that the Quezon
City Government was able to secure a title over the same lot does not necessarily mean that PNB-Madecor's title to it is void or
outside the commerce of man. Only a proper proceeding may determine which of the two (2) titles should prevail over the other.
Mega Prime, now as the controlling stockholder of PNB-Madecor, should have instead filed action to quiet PNB-Madecor's title over
the said lot.3

RTC and CA Dispositions

On December 21, 1999, the RTC gave judgment in favor of Mega Prime and against PNB. The fallo of the RTC decision states:

WHEREFORE, premises considered, judgment is hereby rendered in favor of plaintiff and against the defendant, as follows:

(1) Declaring the Deed of Sale of 27 September 1996 as void and rescinded;

(2) Ordering the defendant PNB to reimburse plaintiff the legal interest on the amount of ONE HUNDRED FIFTY
MILLION PESOS (P150,000,000.00) loan intended by plaintiff in developing the Pantranco properties, as actual
damages;

(3) Ordering defendant PNB to pay plaintiff the sum of FIVE MILLION PESOS (P5,000,000.00) as exemplary
damages;

(4) Ordering defendant PNB to pay plaintiff the sum of ONE HUNDRED THOUSAND PESOS (P100,000.00) as
attorney's fees;

(5) Ordering defendant to restore to plaintiff the sum of ONE HUNDRED ONE MILLION ONE HUNDRED TWENTY-
FOUR THOUSAND PESOS (P101,124,000.00) representing the sum actually paid by plaintiff under the subject
contract of sale with legal interest thereon reckoned from the date of extra judicial demand made by plaintiff;

(6) Ordering plaintiff to return the five properties covered by T.C.T. Nos. 87881, 87882, 87883, 87884 and 160470
in favor of the defendant under the principle of mutual restitution;

(7) Ordering plaintiff to return the stockholdings subject matter of the 27 September 1996 contract of sale in favor
of defendant;

(8) Ordering defendant to pay the costs of suit.

 SO ORDERED.4

PNB elevated the matter to the CA via Rule 41 of the 1997 Rules of Civil Procedure. In its appeal, PNB contended, inter alia, that
what was sold to Mega Prime were the bank's shares of stock in PNB-Madecor, a corporation separate and distinct from PNB; that
the Pantranco property was never a consideration in the contract of sale; that Mega Prime is presumed to have undertaken due
diligence in ascertaining the ownership of the disputed property, it being a reputable real estate company.

Further, PNB claimed that Mega Prime bought its shares of stock at its own risk under the caveat emptorrule, as the sale was on an
"as is where is" basis. That the Quezon City Government was able to secure title over the same lot does not necessarily mean that
PNB-Madecor's title to it was void or outside the commerce of man. According to PNB, Mega Prime's remedy, as the new controlling
owner of PNB-Madecor, is to file an action for quieting of its title to the questioned lot.

On January 27, 2006, the CA reversed and nullified the RTC ruling, disposing as follows:

WHEREFORE, based on the above premises, the assailed Decision dated 21 December 1999 of the Regional Trial Court of
Malabon, Metro Manila, Branch 72, is hereby REVERSED and SET ASIDE and a new one entered DISMISSING the complaint
in Civil Case No. 2793-MN. The counterclaim of PNB is likewise DISMISSED.

SO ORDERED.5

Both parties moved for reconsideration of the CA decision. Both motions were, however, denied with finality on July 5, 2006.6

Hence, the present recourse by both PNB and Mega Prime.

PNB first filed its petition for review, docketed as G.R. No. 173454, assailing only the CA's dismissal of its counterclaim. In its separate
petition for review, docketed as G.R. No. 173456, Mega Prime challenged the reversal by the CA of the RTC decision.

Issues

PNB assigns solely that the CA committed a grave error, giving rise to a question of law, in concluding that Mega Prime's complaint
was not a mere ploy to prevent the foreclosure of the pledge and in dismissing PNB's counterclaim, ignoring the documentary
evidence proving that Mega Prime's complaint was intended to preempt the foreclosure of the pledge and evade payment of
its P404,496,000.00 overdue debt.

For its part, Mega Prime submits that the CA erred in ruling that Mega Prime did not have sufficient grounds to have the deed of sale
dated September 27, 1996 annulled.

Stripped to its bare essentials, the Court is tasked to resolve the following questions:

A. Are there grounds for the annulment of the deed of sale between PNB and Mega Prime? and

B. Are PNB and Mega Prime entitled to the damages they respectively claim against each other?

Our Ruling

A. There is no sufficient ground to annul the deed of sale.

There is no basis for a finding of fraud against PNB to invalidate the sale. A perusal of the deed of sale reveals that the sale
principally involves the entire shareholdings of PNB in PNB-Madecor, not the properties covered by TCT Nos. 87881, 87882, 87883,
87884 and 160740. Any defect in any of the said titles should not, therefore, affect the entire sale. Further, there is no evidence that
PNB was aware of the existence of another title on one of the properties covered by TCT No. 160740 in the name of the Quezon City
government before and during the execution of the deed of sale.

Although it is expressly stated in the deed of sale that the transfer of the entire stockholdings of PNB in PNB-Madecor will effectively
result in the transfer of the said properties, the discovery of the title under the name of the Quezon City government does not
substantially affect the integrity of the object of the sale. This is so because TCT No. 160740 covers only 733.70 square meters of the
entire Pantranco property which has a total area of 19,080 square meters.

We quote with approval the CA observations along this line:

Well-settled is the rule that the party alleging fraud or mistake in a transaction bears the burden of proof. The
circumstances evidencing fraud are as varied as the people who perpetrate it in each case. It may assume different shapes
and forms; it may be committed in as many different ways. Thus, the law requires that it be established by clear and
convincing evidence.

Fraud is never lightly inferred; it is good faith that is. Under the Rules of Court, it is presumed that "a person is innocent of
crime or wrong" and that "private transactions have been fair and regular." While disputable, these presumptions can be
overcome only by clear and preponderant evidence. Applied to contracts, the presumption is in favor of validity and
regularity.

In this case, it cannot be said that Mega Prime was able to adduce a preponderance of evidence before the trial court to
show that PNB fraudulently misrepresented that it had title or authority to sell the property covered by TCT No. 160470.
Nor was Mega Prime able to satisfactorily show that PNB should be held liable for damages allegedly sustained by it.

First, PNB correctly argued that with Mega Prime as a corporation principally engaged in real estate business it is presumed
to be experienced in its business and it is assumed that it made the proper appraisal and examination of the properties it
would acquire from the sale of shares of stock. In fact, Mega Prime was given copies of the titles to the properties which
were attached to the subject deed of sale. In other words, there was full disclosure on the part of PNB of the status of the
properties of PNB-Madecor to be transferred to Mega Prime by reason of its purchase of all of PNB's shareholdings in PNB-
Madecor.

The general rule is that a person dealing with registered land has a right to rely on the Torrens certificate of title and to
dispense with the need of making further inquiries. This rule, however, admits of exceptions: when the party has actual
knowledge of facts and circumstances that would impel a reasonably cautious man to make such inquiry or when the
purchaser has knowledge of a defect or the lack of title in his vendor or of sufficient facts to induce a reasonably prudent
man to inquire into the status of the title of the property in litigation.

A perusal of TCT No. 160470 would show that the property is registered under the name Marcris Realty Corporation and
not under PNB or PNB-Madecor, the alleged owner of the said property. Moreover, TCT No. 160470 explicitly shows on its
face that it covers a road lot.

This fact notwithstanding, Mega Prime still opted to buy PNB's shares of stock, investing millions of pesos on the said
purchase. Mega Prime cannot therefore claim that it can rely on the face of the title when the same is neither registered
under the name of PNB, the vendor of the shares of stock in PNB-Madecor, nor of PNB-Madecor, the alleged owner of the
property. This should have forewarned Mega Prime to inquire further into the ownership of PNB-Madecor with respect to
TCT No. 160470. And it should not be heard to complain that the property covered by TCT No. 160470 is outside the
commerce of man, it being a road, since this fact is evident on the face of TCT No. 160470 itself which describes the
property it covers as a road lot.

If, indeed, the principal inducement for Mega Prime to buy PNB's shares of stock in PNB-Madecor was the acquisition of the
said properties, Mega Prime should have insisted on putting in writing, whether in the same deed of sale or in a separate
agreement, any condition or understanding of the parties regarding the transfer of titles from PNB-Madecor to Mega Prime.
In buying the shares of stock with notice of the flaw in the certificate of title of PNB-Madecor, Mega Prime assumed the
risks that may attach to the said purchase or said investment. Clearly, under the deed of sale, Mega Prime purchased the
shares of stock of PNB in PNB-Madecor on an "as is where is" basis, which should give Mega Prime more reason to
investigate and look deeper into the titles of PNB-Madecor.

Second, Mega Prime's remedy is not with PNB. It must be stressed that PNB only sold its shares of stock in PNB-Madecor
which remains to be the owner of the lot in question. Although, admittedly, PNB-Madecor is a subsidiary of PNB, this does
not necessarily mean that PNB and PNB-Madecor are one and the same corporation.
The mere fact that a corporation owns all of the stocks of another corporation, taken alone is not sufficient to justify their
being treated as one entity. If used to perform legitimate functions, a subsidiary's separate existence shall be respected, and
the liability of the parent corporation as well as the subsidiary will be confined to those arising in their respective business.

The general rule is that as a legal entity, a corporation has a personality distinct and separate from its individual
stockholders or members, and is not affected by the personal rights, obligations and transactions of the latter. Courts may,
however, in the exercise of judicial discretion step in to prevent the abuses of separate entity privilege and pierce the veil of
corporate fiction.

The following circumstances are useful in the determination of whether a subsidiary is but a mere instrumentality of the
parent-corporation and whether piercing of the corporate veil is proper:

(a) The parent corporation owns all or most of the capital stock of the subsidiary.

(b) The parent and subsidiary corporations have common directors or officers.

(c) The parent corporation finances the subsidiary.

(d) The parent corporation subscribes to all the capital stock of the subsidiary or otherwise causes its
incorporation.

(e) The subsidiary has grossly inadequate capital.

(f) The parent corporation pays the salaries and other expenses or losses of the subsidiary.

(g) The subsidiary has substantially no business except with the parent corporation or no assets except those
conveyed to or by the parent corporation.

(h) In the papers of the parent corporation or in the statements of its officers, the subsidiary is described as a
department or division of the parent corporation, or its business or financial responsibility is referred to as the
parent corporation's own.

(i) The parent corporation uses the property of the subsidiary as its own.

(j) The directors or executives of the subsidiary do not act independently in the interest of the subsidiary, but take
their orders from the parent corporation.

(k) The formal legal requirements of the subsidiary are not observed.

Aside from the fact that PNB-Madecor is a wholly-owned subsidiary of PNB, there are no other factors shown to indicate
that PNB-Madecor is a mere instrumentality of PNB. Therefore, PNB's separate personality cannot be merged with PNB-
Madecor in the absence of sufficient ground to pierce the veil of corporate fiction. It must be noted that at the outset, PNB
presented to Mega Prime the titles to the properties. With the exception of one (1) title, TCT No. 160470, the four (4) titles
are registered under PNB-Madecor's name and not PNB. PNB correctly observed that Mega Prime's remedy is not to go
after PNB who merely sold its shares of stock in PNB-Madecor but to file the appropriate action to remove any cloud in
PNB-Madecor's title over TCT No. 160470.

Third, it is significant to note that the deed of sale is a public document duly notarized and acknowledged before a notary
public. As such, it has in its favor the presumption of regularity, and it carries the evidentiary weight conferred upon it with
respect to its due execution. It is admissible in evidence without further proof of its authenticity and is entitled to full faith
and credit upon its face. Thus,

It has long been settled that a public document executed and attested through the intervention of the notary
public is evidence of the facts in clear, unequivocal manner therein expressed. It has in its favor the presumption of
regularity. To contradict all these, there must be evidence that is clear, convincing and more than merely
 preponderant. The evidentiary value of a notarial document guaranteed by public attestation in accordance with
law must be sustained in full force and effect unless impugned by strong, complete and conclusive proof.

Based on the above arguments, there is no reason to annul the said deed considering that both parties freely and fairly
entered into the said contract presumptively knowing the consequences of their acts.

Lastly, Mega Prime, using its business judgment, entered into a sale transaction with PNB respecting shares of stock in PNB-
Madecor, in anticipation of owning properties owned by PNB-Madecor. However, it was found out later that a title in the
name of the Quezon City Government casts a cloud over PNB-Madecor's title to the so-called Pantranco Properties. This
fact alone cannot justify annulment of a valid and consummated contract of sale. Mega Prime cannot be relieved from its
obligation, voluntarily assumed, under the said contract simply because the contract turned out to be a poor business
judgment or unwise investment. It should have been more prudent or careful in making such a huge investment worth
millions of pesos. It should have conducted its own due diligence, so to speak. By signing the deed of sale, Mega Prime
accepted the risk of an "as is where is" arrangement with respect to the sale of shares of stock therein.

The contract has the force of law between the parties and they are expected to abide in good faith by their respective
contractual commitments, not weasel out of them. Just as nobody can be forced to enter into a contract, in the same
manner, once a contract is entered into, no party can renounce it unilaterally or without the consent of the other. It is a
general principle of law that no one may be permitted to change his mind or disavow and go back upon his own acts, or to
proceed contrary thereto, to the prejudice of the other party.

Contrary to the trial court's finding, We find that there is no sufficient basis to annul the Deed of Sale dated 27 September
1996. Mega Prime failed to sufficiently prove that PNB was guilty of misrepresentation or fraud with respect to the said
transaction.7

Nevertheless, the Court holds that there was a breach in the warranties of the seller PNB. Resultantly, a reduction in the sale price
should be decreed.

One of the express conditions in the deed of sale is the transfer of the properties under TCT Nos. 87881, 87882, 87883, 87884 and
160740 in the name of Mega Prime:

1. The Sale of the above stockholdings of the vendor is on a clean balance sheet, i.e., all assets and liabilities are squared,
and no deposits, furniture, fixtures and equipment, including receivables shall be transferred to the vendee, except real
properties and improvements thereon of PNB-Madecor in Quezon City containing an area of 19,080 sq. m., situated at the
corner of Quezon Boulevard (presently Quezon Avenue) and Roosevelt Avenue covered by five (5) titles namely: TCT Nos.
87881, 87882, 87883, 87884, and 160470 x x x.8

Verily, an important sense of the deed of sale is the transfer of ownership over the subject properties to Mega Prime. Clearly, the
failure of the seller PNB to effect a change in ownership of the subject properties amounts to a hidden defect within the
contemplation of Articles 1547 and 1561 of the New Civil Code.

The said provisions of law read:

Art. 1547. In a contract of sale, unless a contrary intention appears, there is:

(1) An implied warranty on the part of the seller that he has a right to sell the thing at the time when the ownership is to
pass, and that the buyer shall from that time have and enjoy the legal and peaceful possession of the thing;

(2) An implied warranty that the thing shall be free from any hidden faults or defects, or any charge or encumbrance not
declared or known to the buyer.

This article shall not, however, be held to render liable a sheriff, auctioneer, mortgagee, pledgee, or other person professing
to sell by virtue of authority in fact or law, for the sale of a thing in which a third person has a legal or equitable interest.9

xxxx
 Art. 1561. The vendor shall be responsible for warranty against the hidden defects which the thing sold may have, should
they render it unfit for the use for which it is intended, or should they diminish its fitness for such use to such an extent
that, had the vendee been aware thereof, he would not have acquired it or would have given a lower price for it; but said
vendor shall not be answerable for patent defects or those which may be visible, or for those which are not visible if the
vendee is an expert who, by reason of his trade or profession, should have known them.10

Up to now, the title of the said property is still under the name of the former registered owner Marcris Realty Corporation. Mega
Prime's subsequent discovery that the property covered by TCT No. 160740 is covered by a title pertaining to the City Government
of Quezon City coupled with PNB's inability up to the present to submit a title in the name of PNB-Madecor constitutes a breach of
warranty. Hence, a proportionate reduction in the consideration of the sale is justified, applying the Civil Code principle that "no
person shall be enriched at the expense of another."11

The sale of shares of stock was undertaken to effect the transfer of the subject properties with a total area of 19,080 square meters.
When PNB failed to deliver the title to the property covered by TCT No. 160740, with an area of 733.70 square meters, PNB violated
an express warranty under the deed of sale. Thus, the total consideration in the Deed of Sale should be proportionately reduced
equivalent to the value of the property covered by TCT No. 160740.

Records bear out that the total consideration for the sale contract is P505,620,000.00. The object is the 19,080-square-meter
Pantranco property. Simple division or mathematical computation yields that the property has a value of P26,500.00 per square
meter. Considering that the area covered by TCT No. 160740 is 733.70 square meters, the purchase price should be proportionately
reduced byP19,443,050.00, an amount arrived at after multiplying P26,500.00 by 733.70 or vice versa.

Necessarily, Mega Prime cannot be considered in default with respect to its obligation to petitioner bank in view of the modification
of the stipulated consideration.

B. As to the parties' claims of damages against each other, the Court fully agrees with the CA that both should be dismissed for
lack of factual and legal bases.

The CA refused to award actual and exemplary damages to Mega Prime. Said the appellate court:

Necessarily, therefore, PNB cannot be made liable for actual damages allegedly sustained by Mega Prime. The latter's
allegation that it incurred expenses for the development of the Pantranco Property in the amount of P150,000,000.00
deserves scant consideration.

Basic is the jurisprudential principle that in determining actual damages, the courts cannot rely on mere assertions,
speculations, conjectures, or guesswork but must depend on competent proof or the best obtainable evidence of the actual
amount of loss.

Aside from the site development plan adduced by Mega Prime, no other proof was presented by Mega Prime to show that
it had incurred expenses for the development of the Pantranco property. In fact, Mega Prime itself alleged that its partner
pulled out from the project and the development of the Pantranco Property could not be undertaken after knowledge of
the alleged defective title of PNB-Madecor. Without sufficient proof that Mega Prime incurred said expenses and that it was
due to PNB's fault, then the latter cannot be held liable for such unsupported allegation.

Regarding the award of exemplary damages, the Court likewise finds that PNB cannot be made liable for exemplary
damages and attorney's fees, there being no adequate proof to show that PNB was in bad faith when it entered into the
contract of sale with Mega Prime.

It is a requisite in the grant of exemplary damages that the act of the offender must be accompanied by bad faith or done in
wanton, fraudulent or malevolent manner. On the other hand, attorney's fees may be awarded only when a party is
compelled to litigate or to incur expenses to protect his interest by reason of an unjustified act of the other party, as when
the defendant acted in gross and evident bad faith in refusing the plaintiff's plainly valid, just and demandable claim. Such
circumstances were not proved in this case.12

Along the same vein, in dismissing PNB's counterclaims, the CA explained:

 In the same vein, We find no reason to hold Mega Prime liable on the counterclaim of PNB for moral and exemplary
damages and attorney's fees. PNB's counterclaim is anchored on the alleged bad faith and ill motive of Mega Prime in filing
the complaint which allegedly was done by Mega Prime to preempt PNB's foreclosure of the pledge of its shares of stock in
PNB-Madecor. According to PNB, Mega Prime filed its complaint against PNB after Mega Prime received PNB's letter dated
December 11, 1997 reminding it of the maturity date on November 26, 1997 of itsP404,496,000.00 loan with PNB, evidently
to prevent PNB from foreclosing the pledge.

We are not persuaded.

The records show that Mega Prime filed its complaint on November 28, 1997, and it was preceded by Mega Prime's
demand letter dated November 3, 1997 addressed to PNB, informing PNB of Mega Prime's discovery that the property
covered by TCT No. 160470 is actually owned by the Quezon City Government. In said letter, Mega Prime made a demand
upon PNB to pay to Mega Prime the amounts of P101,124,000.00 as actual damages and P48,876,000.00 as other expenses,
otherwise legal action shall be instituted against PNB.

Clearly, Mega Prime's complaint was filed prior to PNB's letter dated December 11, 1997. Thus, PNB's allegation that Mega
Prime filed its complaint as a mere ploy to prevent foreclosure of the pledge and thus evade payment of its overdue
obligation is not quite true. Accordingly, in the absence of ample proof that Mega Prime acted in gross and evident bad
faith in instituting the complaint against PNB, there is no justification to grant the counterclaim of PNB.13

WHEREFORE, premises considered, the appealed decision is AFFIRMED with MODIFICATION in that the consideration in the Deed of
Sale dated September 27, 1996 shall be proportionately reduced by P19,443,050.00, the value corresponding to the property
covered by TCT No. 160740.

JAIME D. ANG, Petitioner, G.R. No. 177874

- versus - Present:

COURT OF APPEALS AND BRUNO SOLEDAD,Respondents. QUISUMBING, J., Chairperson,

CARPIO MORALES,
TINGA, 
VELASCO, JR., and 
BRION, JJ.

Promulgated: 
September 29, 2008

x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION

CARPIO MORALES, J.:

Under a "car-swapping" scheme, respondent Bruno Soledad (Soledad) sold his Mitsubishi GSR sedan 1982 model to petitioner Jaime
Ang (Ang) by Deed of Absolute Sale1 dated July 28, 1992. For his part, Ang conveyed to Soledad his Mitsubishi Lancer model 1988,
also by Deed of Absolute Sale2 of even date. As Ang’s car was of a later model, Soledad paid him an additional P55,000.00.

Ang, a buyer and seller of used vehicles, later offered the Mitsubishi GSR for sale through Far Eastern Motors, a second-hand auto
display center. The vehicle was eventually sold to a certain Paul Bugash (Bugash) for P225,000.00, by Deed of Absolute Sale3 dated
August 14, 1992. Before the deed could be registered in Bugash’s name, however, the vehicle was seized by virtue of a writ of
replevin4 dated January 26, 1993 issued by the Cebu City Regional Trial Court (RTC), Branch 21 in Civil Case No. CEB-13503, "BA
Finance Corporation vs. Ronaldo and Patricia Panes," on account of the alleged failure of Ronaldo Panes, the owner of the vehicle
prior to Soledad, to pay the mortgage debt5 constituted thereon.
To secure the release of the vehicle, Ang paid BA Finance the amount of P62,038.476 on March 23, 1993. Soledad refused to
reimburse the said amount, despite repeated demands, drawing Ang to charge him for Estafa with abuse of confidence before the
Office of the City Prosecutor, Cebu City. By Resolution7 of July 15, 1993, the City Prosecutor’s Office dismissed the complaint for
insufficiency of evidence, drawing Ang to file on November 9, 1993 the first8 of three successive complaints for damages against
Soledad before the RTC of Cebu City where it was docketed as Civil Case No. Ceb-14883.

Branch 19 of the Cebu City RTC, by Order9 dated May 4, 1995, dismissed Civil Case No. Ceb-14883 for failure to submit the
controversy to barangay conciliation.

Ang thereafter secured a certification to file action and again filed a complaint for damages,10 docketed as Ceb-17871, with the RTC
of Cebu City, Branch 14 which dismissed it, by Order11 dated March 27, 1996, on the ground that the amount involved is not within
its jurisdiction.

Ang thereupon filed on July 15, 1996 with the Municipal Trial Court in Cities (MTCC) a complaint,12docketed as R-36630, the subject
of the instant petition.

After trial, the MTCC dismissed the complaint on the ground of prescription, vìz:

It appearing that the Deed of Sale to plaintiff o[f] subject vehicle was dated and executed on 28 July 1992, the complaint before the
Barangay terminated 21 September 1995 per Certification to File Action attached to the Complaint, and this case eventually was
filed with this Court on 15 July 1996, this action has already been barred since more than six (6) months elapsed from the delivery of
the subject vehicle to the plaintiff buyer to the filing of this action, pursuant to the aforequoted Article 1571."13 (Emphasis and
underscoring supplied)

His motion for reconsideration having been denied, Ang appealed to the RTC, Branch 7 of which affirmed the dismissal of the
complaint, albeit it rendered judgment in favor of Ang "for the sake of justice and equity, and in consonance with the salutary
principle of non-enrichment at another’s expense." The RTC ratiocinated:

xxxx

[I]t was error for the Court to rely on Art. 1571 of the Civil Code to declare the action as having prescribed, since the action is not
one for the enforcement of the warranty against hidden defects. Moreover, Villostas vs. Court of Appeals declared that the six-
month prescriptive period for a redhibitory action applies only to implied warranties. There is here an express warranty. If at all,
what applies is Art. 1144 of the Civil Code, the general law on prescription, which states, inter alia, that actions ‘upon a written
contract’ prescribes in ten (10) years [Engineering & Machinery Corporation vs. Court of Appeals, G.R. No. 52267, January 24, 1996].

More appropriate to the discussion would be defendant’s warranty against eviction, which he explicitly made in the Deed of
Absolute Sale: I hereby covenant my absolute ownership to (sic) the above-described property and the same is free from all liens
and encumbrances and I will defend the same from all claims or any claim whatsoever…"

Still the Court finds that plaintiff cannot recover under this warranty. There is no showing of compliance with the requisites.

xxxx

Nonetheless, for the sake of justice and equity, and in consonance with the salutary principle of non-enrichment at another’s
expense, defendant should reimburse plaintiff the P62,038.47which on March 23, 1993 he paid BA Finance Corporation to release
the mortgage on the car. (Emphasis and underscoring supplied)14

The RTC thus disposed as follows:

Wherefore, judgment is rendered directing defendant to pay plaintiff P62,038.47, the amount the latter paid BA Finance Corporation
to release the mortgage on the vehicle, with interest at the legal rate computed from March 23, 1993. Except for this, the judgment
in the decision of the trial court, dated October 8, 2001 dismissing the claims of plaintiff is affirmed." (Underscoring supplied)15

Soledad’s Motion for Reconsideration was denied by Order16 of December 12, 2002, hence, he elevated the case to the Court of
Appeals, Cebu City.
The appellate court, by the challenged Decision17 of August 30, 2006, noting the sole issue to be resolved whether the RTC erred in
directing Soledad to pay Ang the amount the latter paid to BA Finance plus legal interest, held that, following Goodyear Phil., Inc. v.
Anthony Sy,18 Ang "cannot anymore seek refuge under the Civil Code provisions granting award of damages for breach of warranty
against eviction for the simple fact that three years and ten months have lapsed from the execution of the deed of sale in his favor
prior to the filing of the instant complaint." It further held:

It bears to stress that the deed of absolute sale was executed on July 28, 1992, and the instant complaint dated May 15, 1996 was
received by the MTCC on July 15, 1996.

While it is true that someone unjustly enriched himself at the expense of herein respondent, we agree with petitioner (Soledad) that
it is not he.

The appellate court accordingly reversed the RTC decision and denied the petition.

By Resolution19 of April 25, 2007, the appellate court denied Ang’s motion for reconsideration, it further noting that when Ang
settled the mortgage debt to BA Finance, he did so voluntarily in order to resell the vehicle, hence, Soledad did not benefit from it as
he was unaware of the mortgage constituted on the vehicle by the previous owner.

The appellate court went on to hold that Soledad "has nothing to do with the transaction anymore; his obligation ended when he
delivered the subject vehicle to the respondent upon the perfection of the contract of sale." And it reiterated its ruling that the
action, being one arising from breach of warranty, had prescribed, it having been filed beyond the 6-month prescriptive period.

The appellate court brushed aside Ang’s contention that Soledad was the proximate cause of the loss due to the latter’s failure to
thoroughly examine and verify the registration and ownership of the previous owner of the vehicle, given that Ang is engaged in the
business of buying and selling second-hand vehicles and is therefore expected to be cautious in protecting his rights under the
circumstances.

Hence, the present recourse – petition for review on certiorari, Ang maintaining that his cause of action had not yet prescribed when
he filed the complaint and he should not be blamed for paying the mortgage debt.

To Ang, the ruling in Goodyear v. Sy is not applicable to this case, there being an express warranty in the herein subject Deed of
Absolute Sale and, therefore, the action based thereon prescribes in ten (10) years following Engineering & Machinery Corp. v.
CA20 which held that where there is an express warranty in the contract, the prescriptive period is the one specified in the contract
or, in the absence thereof, the general rule on rescission of contract.

Ang likewise maintains that he should not be blamed for paying BA Finance and should thus be entitled to reimbursement and
damages for, following Carrascoso, Jr. v. Court of Appeals,21 in case of breach of an express warranty, the seller is liable for damages
provided that certain requisites are met which he insists are present in the case at bar.

The resolution of the sole issue of whether the complaint had prescribed hinges on a determination of what kind of warranty is
provided in the Deed of Absolute Sale subject of the present case.

A warranty is a statement or representation made by the seller of goods, contemporaneously and as part of the contract of sale,
having reference to the character, quality or title of the goods, and by which he promises or undertakes to insure that certain facts
are or shall be as he then represents them.22

Warranties by the seller may be express or implied. Art. 1546 of the Civil Code defines express warranty as follows:

"Art. 1546. Any affirmation of fact or any promise by the seller relating to the thing is an express warranty if the natural tendency
of such affirmation or promise is to induce the buyer to purchase the same, and if the buyer purchases the thing relying thereon.
No affirmation of the value of the thing, nor any statement purporting to be a statement of the seller’s opinion only, shall be
construed as a warranty, unless the seller made such affirmation or statement as an expert and it was relied upon by the
buyer."(Emphasis and underscoring supplied)

On the other hand, an implied warranty is that which the law derives by application or inference from the nature of the transaction
or the relative situation or circumstances of the parties, irrespective of any intention of the seller to create it.23 Among the implied
warranty provisions of the Civil Code are: as to the seller’s title (Art. 1548), against hidden defects and encumbrances (Art. 1561), as
to fitness or merchantability (Art. 1562), and against eviction (Art. 1548).

The earlier cited ruling in Engineering & Machinery Corp. states that "the prescriptive period for instituting actions based on a
breach of express warranty is that specified in the contract, and in the absence of such period, the general rule on rescission of
contract, which is four years (Article 1389, Civil Code)."

As for actions based on breach of implied warranty, the prescriptive period is, under Art. 1571 (warrantyagainst hidden defects of or
encumbrances upon the thing sold) and Art. 1548 (warranty against eviction), six months from the date of delivery of the thing sold.

The following provision of the Deed of Absolute Sale reflecting the kind of warranty made by Soledad reads:

xxxx

I hereby covenant my absolute ownership to (sic) the above-described property and the same is free from all liens and
encumbrances and I will defend the same from all claims or any claim whatsoever; will save the vendee from any suit by the
government of the Republic of the Philippines.

x x x x (Emphasis supplied)

In declaring that he owned and had clean title to the vehicle at the time the Deed of Absolute Sale was forged, Soledad gave an
implied warranty of title. In pledging that he "will defend the same from all claims or any claim whatsoever [and] will save the
vendee from any suit by the government of the Republic of the Philippines," Soledad gave a warranty against eviction.

Given Ang’s business of buying and selling used vehicles, he could not have merely relied on Soledad’s affirmation that the car was
free from liens and encumbrances. He was expected to have thoroughly verified the car’s registration and related documents.

Since what Soledad, as seller, gave was an implied warranty, the prescriptive period to file a breach thereof is six months after the
delivery of the vehicle, following Art. 1571. But even if the date of filing of the action is reckoned from the date petitioner instituted
his first complaint for damages on November 9, 1993, and not on July 15, 1996 when he filed the complaint subject of the present
petition, the action just the same had prescribed, it having been filed 16 months after July 28, 1992, the date of delivery of the
vehicle.

On the merits of his complaint for damages, even if Ang invokes breach of warranty against eviction as inferred from the second part
of the earlier-quoted provision of the Deed of Absolute Sale, the following essential requisites for such breach, vìz:

"A breach of this warranty requires the concurrence of the following circumstances:

(1) The purchaser has been deprived of the whole or part of the thing sold;

(2) This eviction is by a final judgment;

(3) The basis thereof is by virtue of a right prior to the sale made by the vendor; and

(4) The vendor has been summoned and made co-defendant in the suit for eviction at the instance of the vendee.

In the absence of these requisites, a breach of the warranty against eviction under Article 1547 cannot be declared." 24 (Emphasis
supplied),

have not been met. For one, there is no judgment which deprived Ang of the vehicle. For another, there was no suit for eviction in
which Soledad as seller was impleaded as co-defendant at the instance of the vendee.

Finally, even under the principle of solutio indebiti which the RTC applied, Ang cannot recover from Soledad the amount he paid BA
Finance. For, as the appellate court observed, Ang settled the mortgage debt on his own volition under the supposition that he
would resell the car. It turned out
that he did pay BA Finance in order to avoid returning the payment made by the ultimate buyer Bugash. It need not be stressed that
Soledad did not benefit from Ang’s paying BA Finance, he not being the one who mortgaged the vehicle, hence, did not benefit from
the proceeds thereof.

WHEREFORE, the petition is, in light of the foregoing disquisition, DENIED.

SO ORDERED.

BENNY  GO,                                            G.R. No. 159048

       Petitioner,                                        
Present:
                                                                            
    Panganiban, J.,
                                                                                Chairman,
          - versus -                                             Sandoval-Gutierrez
                                                    Corona,
                                                                                                         Carpio Morales, and
                                                                       Garcia,  JJ
                                                                  
                                                                   Promulgated:
ELIODORO BACARON,          
      Respondent.                   October 11, 2005
x -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - -- x
 
DECISION
 
PANGANIBAN, J.:
 
he present Contract, which purports to be an absolute deed of sale, should be deemed an equitable mortgage for the following
reasons: (1) the consideration has been proven to be unusually inadequate; (2) the supposed vendor has remained in possession of
the property even after the execution of the instrument; and (3) the alleged seller has continued to pay the real estate taxes on the
property.
The Case
 
Before us is a Petition for Review[1] under Rule 45 of the Rules of Court, seeking to set aside the October 17, 2002
Decision  and the May 20, 2003 Resolution[3] of the Court of Appeals (CA) in CA-GR CV No. 67218.  The assailed Decision disposed as
[2]

follows:
 
“WHEREFORE, premises considered, the Decision  dated February 24, 2000 of the Regional Trial Court of
Davao City, Branch 12, in Civil Case No. 25,101-97 is hereby REVERSED and SET ASIDE and a new one is hereby
rendered ordering the reformation of the subject instrument, such that the same must be considered a mortgage
contract and not a transfer of right.  Costs against [petitioner].”[4]
 
 
 
The assailed Resolution denied Reconsideration.
 
 
The Facts
 
The antecedents are narrated by the CA as follows:
 
“As evidenced by the Transfer of Rights dated October 1, 1993, Eliodoro Bacaron conveyed a 15.3955-
hectare parcel of land located in Langub, Talomo, Davao City, in favor of Benny Go for P20,000.00.
“About a year thereafter, Bacaron, seeking to recover his property, went to Go to pay his
alleged P20,000.00 ‘loan’ but the latter refused to receive the same and to return his property saying that the
transaction between the two of them was a sale and not a mortgage as claimed by Bacaron.
 
 “Consequently, on March 5, 1997, Eliodoro Bacaron, as plaintiff [herein respondent], filed a Complaint for
Reformation of Instrument with Damages and prayer for the issuance of a writ of preliminary injunction, with the
Regional Trial Court of Davao City, Branch 12, against the [petitioner] Benny Go, which case was docketed as Civil
Case No. 25,101-97.
 
“In his Complaint, [respondent] alleged that in the middle part of 1993, he suffered business reversals
which prompted him, being in urgent need of funds, to borrow P20,000.00 from the [petitioner].  He however
averred that prior to extending said loan to him, the [petitioner] required him to execute a document purporting to
be a Transfer of Rights but was told that the same would only be a formality as he could redeem the unregistered
land the moment he pays the loan.  Admitting that he signed the instrument despite knowing that the same did
not express the true intention of the parties’ agreement, i.e., that the transaction was a mere equitable mortgage,
the [respondent] explained that he did so only because he was in a very tight financial situation and because he
was assured by the [petitioner] that he could redeem his property.  To support this claim, [respondent] stressed
the fact that the consideration in the instrument was merely P20,000.00, which is grossly inadequate as the selling
price of a 15-hectare land considering that, at that time, the market value of land in Davao City amounts
to P100,000.00 per hectare.  [Respondent] narrated that a year thereafter, or in a middle part of 1994, he was able
to raise the P20,000.00 and went to the [petitioner] to pay his loan but the latter refused to accept his payment,
insisting that the transaction entered into by the parties was not an equitable mortgage, as the [respondent]
insists, but a real transfer of right over the property.  Because of said refusal, [respondent] continued, he was
compelled to refer the matter to his lawyer in order to request the [petitioner] to accept his payment otherwise he
would file the necessary action in court.  Despite said formal demand by the [respondent], however, [petitioner]
allegedly continued to refuse to recognize the ‘equitable mortgage’, prompting [respondent] to consign
the P20,000.00 with the Clerk of Court of the RTC of Davao City, Branch 12.  He thus insisted that it is [petitioner]
who is ‘dead wrong’ in not recognizing the equitable mortgage since, aside from the fact that the consideration
was unusually inadequate, [respondent] allegedly remained in possession of the property.
“[Respondent] thus prayed for an award for moral damages, in view of the [petitioner’s] evident bad faith
in refusing to recognize the equitable mortgage, and for attorney’s fees as [petitioner’s] alleged stubbornness
compelled him to engage the services of counsel.  He likewise sought an award for exemplary damages to deter
others from committing similar acts and at the same time asked the court to issue a writ of preliminary injunction
and/or temporary restraining order to prevent [petitioner] from dispossessing [respondent] of the subject
property or from disposing of the same in favor of third parties as these acts would certainly work injustice for and
cause irreparable damage to the [respondent].  The prayer for the issuance of a restraining order was however
denied by the court in an Order.
 
“[Petitioner] filed his Answer on May 5, 1997, denying [respondent’s] claim that the transaction was only
an equitable mortgage and not an actual transfer of right.  He asserted that the truth of the matter was that when
[respondent] suffered business reverses, his accounts with the [petitioner], as evidenced by postdated checks, cash
vouchers and promissory notes, remained unpaid and his total indebtedness, exclusive of interests, amounted
to P985,423.70.  [Petitioner] further averred that, in order to avoid the filing of cases against him, [respondent]
offered to pay his indebtedness through dacion en pago, giving the land in question as full payment thereof.  In
addition, he stressed that considering that the property is still untitled and the [respondent] bought the same from
one Meliton Bacarro for onlyP50,000.00, it is most unreasonable for him to agree to accept said land in exchange
for over a million pesos of indebtedness.  He claimed though that he was only forced to do so when [respondent]
told him that if he did not accept the offer, other creditors would grab the same.
 
“By way of affirmative defenses, the [petitioner] pointed out that [respondent] has no cause of action
against him as the [respondent] failed to comply with the essential requisites for an action for reformation of
instrument.  He moreover alleged that the [respondent] is in estoppel because, by his own admission, he signed
the document knowing that the same did not express the true intention of the parties.  Further, [petitioner]
claimed that there was a valid transfer of the property herein since the consideration is not only the actual amount
written in the instrument but it also includes the outstanding obligation of [respondent] to the [petitioner]
amounting to almost P1 million.
 
“As counterclaim, [petitioner] averred that, because of this baseless complaint, he suffered mental
anguish, wounded feelings and besmirched reputation, entitling him to moral damages amounting to P20,000.00,
and that in order to deter others from doing similar acts, exemplary damages amounting to P20,000.00 should
likewise be awarded in his favor.  [Petitioner] also prayed for attorney’s fees and litigation expenses claiming that,
because he was constrained to litigate, he was forced to hire the services of counsel.
 
 x x x                       x x x                       x x x
 
“Trial ensued and thereafter the trial court rendered its Decision  dated February 24, 2000 dismissing the
complaint while finding the [petitioner’s] counterclaim meritorious.  In making said ruling, the lower court, citing
Article 1350 (should be 1359) of the New Civil Code, found that [respondent] failed to establish the existence of all
the requisites for an action for reformation by clear, convincing and competent evidence.  Considering
[respondent’s] own testimony that he read the document and fully understood the same, signing it without
making any complaints to his lawyer, the trial court held that the evidence on record shows that the subject
instrument had been freely and voluntarily entered into by the parties and that the same expresses the true
intention of the parties.  The court further noted that the [respondent’s] wife even signed the document and that
the same had been duly acknowledged by the parties before a notary public as their ‘true act and voluntary deed.’
 
“The trial court likewise observed that, contrary to [respondent’s] claim that the transaction was a mere
mortgage of the property, the terms of the instrument are clear and unequivocable that the property subject of
the document was ‘sold, transferred, ceded and conveyed’ to the [petitioner] ‘by way of absolute sale,’ and hence,
no extrinsic aids are necessary to ascertain the intention of the parties as the same is determinable from the
document itself.  Moreover, said court emphasized that considering the fact that [respondent] is an educated
person, having studied in an exclusive school like Ateneo de Davao, and an experienced businessman, he is
presumed to have acted with due care and to have signed the instrument with full knowledge of its contents and
import.  [Respondent’s] claim that he merely borrowed money from the [petitioner] and mortgaged the property
subject of litigation to guarantee said loan was thus found to be specious by the court, which found that the
[respondent] was actually indebted to the [petitioner] for almost a million pesos and that the true consideration of
the sale was in fact said outstanding obligation.
 
“With respect to [respondent’s] alleged possession of the property and payment of real estate taxes, both
of which were relied upon by the [respondent] to boost his assertion that the transaction was merely an equitable
mortgage, the trial court said that his claim of possession is belied by the fact that the actual occupants of the
property recognize that the [petitioner] owns the same and in fact said occupants prevented [respondent’s] wife
from entering the premises.  The court, noting that the [petitioner] also paid the realty taxes, was also of the
opinion that [respondent] merely made such payments in order to lay the basis of his allegation that the contract
was a mere equitable mortgage.
 
“Accordingly, the court held that [respondent] is also not entitled to his other claims and that his
unfounded action caused [petitioner] to an award for moral damages, in addition to the expenses he incurred in
defending his cause, i.e. services of a lawyer and transportation and other expenses, which justifies an award for
the reimbursement of his expenses and attorney’s fees.”[5]
 
 
 
Ruling of the Court of Appeals
 
          Granting respondent’s appeal, the appellate court ruled that the Contract entered into by the parties should be deemed an
equitable mortgage, because the consideration for the sale was grossly inadequate.  By continuing to harvest the crops and
supervise his workers, respondent remained in control of the property.  True, upon the institution of this case, petitioner paid the
required real estate taxes that were still in arrears.  Respondent, however paid the taxes for 1995, 1996 and 1997 -- the years
between the dates when the alleged absolute sale was entered into on October 1, 1993, and when this case was instituted on March
5, 1997.[6]
 
          Granting respondent’s prayer for reformation of the Contract, the CA ruled that the instrument failed to reflect the true
intention of the parties because of petitioner’s inequitable conduct.[7]
 
          Hence, this Petition.[8]
 
 
The Issues
 
 
Petitioner raises the following issues for this Court’s consideration:
 
 “I.
 
Whether o[r] not the Court of Appeals erred in ruling that there was inadequate consideration.
 
“II.
 
Whether o[r] not the Court of Appeals erred in ruling that the respondent remained in possession of the land in
question.
 
“III.
 
Whether or not the Court of Appeals erred in ruling that the taxes were not paid by the petitioner.
 
“IV.
 
Whether or not the Court of Appeals erred in ruling that reformation is proper.”[9]
 
 
 
          Simply put, these are the issues to be resolved: (1) whether the agreement entered into by the parties was one for equitable
mortgage or for absolute sale; and (2) whether the grant of the relief of contract reformation was proper.
 
 
The Court’s Ruling
 
The Petition has no merit. 
 
 
First Issue:
Equitable Mortgage
 
 
 
          An equitable mortgage has been defined “as one which although lacking in some formality, or form or words, or other
requisites demanded by a statute, nevertheless reveals the intention of the parties to charge real property as security for a debt, and
contains nothing impossible or contrary to law.”[10]   
 
The instances in which a contract of sale is presumed to be an equitable mortgage are enumerated in Article 1602 of the
Civil Code as follows:
 
“Art. 1602.  The contract shall be presumed to be an equitable mortgage, in any of the following cases:
 
(1)                                When the price of a sale with right to repurchase is unusually inadequate;
(2)                                When the vendor remains in possession as lessee or otherwise;
(3)                                When upon or after the expiration of the right to repurchase another instrument
extending the period of redemption or granting a new period is executed;
(4)                                When the purchaser retains for himself a part of the purchase price;
(5)                                When the vendor binds himself to pay the taxes on the thing sold;
(6)                                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.
 
In any of the foregoing cases, any money, fruits, or other benefit to be received by the vendee as rent or
otherwise shall be considered as interest which shall be subject to the usury laws.”
 
 
 
          Furthermore, Article 1604 of the Civil Code provides that “[t]he provisions of Article 1602 shall also apply to a contract
purporting to be an absolute sale.”
 
          In the present case, three of the instances enumerated in Article 1602 -- grossly inadequate consideration, possession of the
property, and payment of realty taxes -- attended the assailed transaction and thus showed that it was indeed an equitable
mortgage.
 
 
Inadequate Consideration
 
 
          Petitioner Go avers that the amount of P20,000 was not unusually inadequate.  He explains that the present parties entered
into a Dacion en Pago, whereby respondent conveyed the subject property as payment for his outstanding debts to petitioner --
debts supposedly amounting to P985,243.70.[11]  To substantiate his claim, petitioner presented the checks that respondent had
issued, as well as the latter’s testimony purportedly admitting the genuineness and due execution of the checks and the existence of
the outstanding debts.[12]  Petitioner Go contends that respondent failed to establish by sufficient evidence that those debts had
already been paid.[13]  Petitioner relies on the trial court’s finding that respondent knowingly and intentionally entered into a
contract of sale, not an equitable mortgage.[14] 
 
          On the other hand, Respondent Bacaron argues that the value of the property at the time of the alleged sale wasP120,000 per
hectare, and that the indicated sale amount of P20,000 was thus grossly iniquitous.[15]  Allegedly, the previous cash advances secured
from petitioner’s father had been settled, as evidenced by the fact that petitioner did not negotiate further or encash the checks; the
latter could have done so, if the obligation was still extant.[16]  Respondent points out that he paid for that obligation with the coprax
he had previously delivered to the father.[17]  Petitioner allegedly admitted this fact, though inadvertently, when he testified that
respondent had already paid some of the latter’s previous cash advances.[18]  Otherwise, petitioner would have then set off his own
debt to respondent (amounting to P214,000) against the amount of almost one million pesos that the latter supposedly owed him.[19]
 
          Checks have the character of negotiability.  At the same time, they may constitute evidence of indebtedness. [20]  Those
presented by petitioner may indeed evince respondent’s indebtedness to him in the amounts stated on the faces of those
instruments.  He, however, acknowledges (1) that respondent paid some of the obligations through the coprax delivered to
petitioner’s father; and (2) that petitioner owed and subsequently paid respondent P214,000.[21] 
 
          The parties’ respective arguments show that the sum of P20,000, by itself, is inadequate to justify the purported absolute
Transfer of Rights.[22]  Petitioner’s claim that there was a dacion en pago  is not reflected on the instrument executed by the parties. 
That claim, however, confirms the inadequacy of the P20,000 paid in consideration of the Transfer of Rights; hence, the Contract
does not reflect the true intention of the parties.  As to what their true intention was -- whether dacion en pago or equitable
mortgage -- will have to be determined by some other means.
 
Possession
 
According to Article 1602(2) of the New Civil Code, one of the instances showing that a purported contract of sale is
presumed to be an equitable mortgage is when the supposed vendor remains in possession of the property even after the
conclusion of the transaction. 
 
In general terms, possession is the holding of a thing or the enjoyment of a right, whether by material occupation or by the
fact 
 that the right -- or, as in this case, the property -- is subjected to the will of the claimant. [23]  In Director of Lands v. Heirs of
Abaldonado,[24] the gathering of the products of and the act of planting on the land were held to constitute occupation, possession
and cultivation.
 
In the present case, the witnesses of respondent swore that they had seen him gather fruits and coconuts on the property. 
Based on the cited case, the witnesses’ testimonies sufficiently establish that even after the execution of the assailed Contract,
respondent has remained in possession of the property.  The testimonies proffered by petitioner’s witnesses merely indicated that
they were tenants of the property.  Petitioner only informed them that he was the new owner of the property.  This attempt at a
factual presentation hardly signifies that he exercised possession over the property.  As held by the appellate court, petitioner’s
other witness (Redoña) was unconvincing, because he could not even say whether he resided within the premises.[25] 
 
The factual findings of the trial court and the CA are conflicting and, hence, may be reviewed by this Court. [26]  Normally, the
findings of the trial court on the credibility of witnesses should be respected.  Here, however, their demeanor while testifying is not
at issue.  What is disputed is the substance of their testimonies -- the facts to which they testified.  Assuming that the witnesses of
petitioner were indeed credible, their testimonies were insufficient to establish that he enjoyed possession over the property. 
 
Payment of Realty Taxes
 
Finally, petitioner asserts that the trial court’s finding that he paid the realty taxes should also be given corresponding
weight.[27]
 
Respondent counters with the CA’s findings that it was he who paid realty taxes on the property.  The appellate court
concluded that he had paid taxes for the years 1995, 1996 and 1997 within each of those years; hence, before the filing of the
present controversy.  In contrast, petitioner paid only the remaining taxes due on October 17, 1997, or after the case had been
instituted.  This fact allegedly proves that respondent has remained in possession of the property and continued to be its owner. [28] 
He argues that if he had really transferred ownership, he would have been foolish to continue paying for those taxes.[29]
 
          On this point, we again rule for respondent.
 
          Petitioner indeed paid the realty taxes on the property for the years 1980 to 1997.  The records show that the payments were
all simultaneously made only on October 31, 1997, evidently in the light of the Complaint respondent had filed before the trial court
on March 5, 1997.[30]  On the other hand, respondent continued to pay for the realty taxes due on the property for the years 1995,
1996 and 1997.[31]
 
          That the parties intended to enter into an equitable mortgage is bolstered by respondent’s continued payment of the real
property 
taxes subsequent to the alleged sale.  Payment of those taxes is a usual burden attached to ownership.  Coupled with continuous
possession of the property, it constitutes evidence of great weight that a person under whose name the realty taxes were declared
has a valid and rightful claim over the land.[32]
 
That the parties intended to enter into an equitable mortgage is also shown by the fact that the “seller” was driven to
obtain the loan at a time when he was in urgent need of money; and that he signed the Deed of Sale, despite knowing that it did not
express the real intention of the parties. [33]  In the present proceedings, the collapse of his business prompted respondent to obtain
the loan.[34]  Petitioner himself admitted that at the time they entered into the alleged absolute sale, respondent had suffered from
serious business reversals.[35] 
Second Issue:
Reformation of Instrument
 
 
Petitioner claims that the CA erred in granting the remedy of reformation of contracts.  He avers that the failure of the
instrument to express the parties’ true agreement was not due to his mistake; or to fraud, inequitable conduct, or accident.[36]
 
          We rule for respondent.
 
          Ultimately, it is the intention of the parties that determines whether a contract is one of sale or of mortgage. [37]  In the present
case, one of the parties to the contract raises as an issue the fact that their true intention or agreement is not reflected in the
instrument.  Under this circumstance, parol evidence becomes admissible and competent evidence to prove the true nature of the
instrument.[38]  Hence, unavailing is the assertion of petitioner that the interpretation of the terms of the Contract is unnecessary,
and that the parties clearly agreed to execute an absolute deed of sale.  His assertion does not hold, especially in the light of the
provisions of Article 1604 of the Civil Code, under which even contracts purporting to be absolute sales are subject to the provisions
of Article 1602.
 
          Moreover, under Article 1605 of the New Civil Code, the supposed vendor may ask for the reformation of the instrument,
should the case be among those mentioned in Articles 1602 and 1604.  Because respondent has more than sufficiently established
that the assailed Contract is in fact an equitable mortgage rather than an absolute sale, he is allowed to avail himself of the remedy
of reformation of contracts. 
 
WHEREFORE, the Petition is hereby DENIED, and the assailed Decision and Resolution AFFIRMED.
 
SO ORDERED.

VIRGILIO A. CADUNGOG,                  G.R. No. 161223

                              Petitioner,
 
                                       Present:
                  
                                                                       PUNO, J., Chairman,
                    -   versus    -                                  AUSTRIA-MARTINEZ,
                                                                       CALLEJO, SR.,
                                                                       TINGA, and
    CHICO-NAZARIO, JJ.
 
                                                                    
JOCELYN O. YAP,                                   Promulgated:
                             Respondent.
                                                                   September 12, 2005
x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -  - - - - - - - - - - - - - - x
                  
 
DECISION
 
 
CALLEJO, SR., J.:
 
 
 
          This is a petition for review on certiorari  of the Decision[1] of the Court of Appeals (CA) in CA-G.R. CV No. 72761 which reversed
and set aside the Decision of the Regional Trial Court (RTC) of Oslob, Cebu, Branch 62, in Civil Case No. OS-96-46.
The Antecedents
 
 
          Franklin Ong and his sister, Jocelyn Ong-Yap, are first cousins of Virgilio Cadungog.  Cresenciano Ong Aranas, the Municipal
Mayor of Ginatilan, Cebu,  from 1955 to 1978,[2]  is their uncle.
 
On August 17, 1979, Virgilio executed a Deed of Sale with Right of Repurchase [3] in which he sold to his cousin, Franklin Ong,
the  following six parcels of land located in Ginatilan, Cebu for P7,144.28:
 
Parcel Number             Tax Dec. No.                      Area
1 000821  1,170 square meters
2 4978  1,444 square meters
3 29586  4,257 square meters
4 5478  1,140 square meters
5 5486    980 square meters
6 5486  1,020 square meters
 
Parcel Nos. 5 and 6 are located in Sitio Cayam, Ginatilan, Cebu.[4]
 
Under the deed, Virgilio had the right to repurchase the property within 10 years from the said date.[5]
 
Virgilio failed to redeem the property.  Nevertheless, upon the prodding of Franklin, Virgilio, who was merely a letter-
carrier, executed a Deed of Absolute Sale[6] in favor of Jocelyn in which it appears that he sold Parcel Nos. 1, 2 and 3 for the price
ofP5,000.00. Virgilio declared therein that he inherited Parcel Nos. 2 and 3 from his mother, Soledad, who inherited the same from
her parents, Jose Aranas and Basilia Rocaberte, under a Deed of Partition executed by their heirs.  Franklin signed as one of the
witnesses to the deed.[7]
 
On December 23, 1996, Cresenciano Ong executed a Deed of Absolute Sale of Parcel No. 2 in favor of the APC Group, Inc.
for P32,380.00.  Cresenciano declared that he was the sole and absolute owner, in fee simple, of the said lot. [8]  On January 23, 1997,
Virgilio executed a Deed of Absolute Sale of Parcel No. 1 in favor of the APC Group, Inc. for P35,400.00, alleging therein that he was
the sole and exclusive owner of the property.[9] 
 
When Franklin learned of the said sales, he objected. Virgilio, thus, delivered to Franklin Check No. 0000997 [10] dated May
24, 1997, drawn and issued by Cresenciano against his account with the Prudential Bank, in the amount of P25,000.00.  Virgilio also
delivered to Franklin Check No. 0000999[11] drawn and issued by Cresenciano against his account with the same bank in the amount
of P25,000.00.  On May 26, 1997, Franklin signed Receipts dated May 25 and 26, 1997, embodied in a piece of paper. [12]  In the
Receipt dated May 26, 1997, Franklin acknowledged to have received the P25,000.00 check “representing full payment for the
refund of the lot sold in Ginatilan.”[13]
 
When Jocelyn learned that Virgilio had sold Parcel No. 1 to the APC Group, Inc., she filed a criminal complaint
for estafaagainst him.  After the requisite preliminary investigation, an Information for estafa was filed against Virgilio with the RTC.
 
By way of riposte, Virgilio filed a Complaint before the RTC, on December 8, 1998, against Jocelyn for the declaration of
nullity of the September 30, 1991 Deed of Absolute Sale. He alleged therein that he had executed the subject deed in favor of
Jocelyn only because her brother, Franklin, had requested him to do so “to lessen Jocelyn’s tax liability in Canada.”  He also alleged
that he agreed to execute the deed on the belief that it would not be notarized, as no consideration was involved.  He further
claimed that he informed Franklin’s emissary (who brought the deed for his signature) that he owned Parcel No. 1, Cresenciano
owned Parcel No. 2, and he did not know who owned Parcel No. 3.  To his surprise, Jocelyn filed a criminal complaint
for estafa against him before the Provincial Prosecutor’s Office, and later an Information before the RTC of Oslob, Cebu. He further
claimed that he and his wife signed a one-page document; the acknowledgment page was merely added to it, as it, in fact, did not
contain their signatures.
 
 
 Virgilio further stated that his uncle, Cresenciano Ong, sold Parcel No. 2, one of the lots included in the Deed of Sale dated
September 30, 1991, to the APC Group, Inc. He himself then sold Parcel No. 1, with an area of 1,770 square meters, to the same
vendee for P35,400.00.
 
Virgilio prayed for the following reliefs:
 
WHEREFORE, in view of the foregoing premises, it is most respectfully prayed of this Honorable Court that
after notice and hearing judgment be rendered in favor of plaintiff and against the defendant declaring the
aforesaid Deed of Absolute Sale as null and void from the very beginning for being without consideration and the
defendant be ordered to pay the plaintiff the following:
 
P200,000.00   –   as moral damages;
  100,000.00   –   as exemplary damages;
                20,000.00   –   as attorney’s fee plus P1,500.00 per court 
                                        appearance;
    10,000.00   –   as litigation expenses;
 
Other reliefs and remedies consistent with justice and equity are likewise prayed for.[14]
 
In her answer with special and affirmative defenses, Jocelyn averred that the Deed of Absolute Sale dated September 30,
1991 was genuine, and reflected the true and correct intention of Virgilio as the vendor. She pointed out that the document was
notarized, a public document which carried evidentiary weight. She further alleged that Virgilio had, in fact, previously sold the
questioned lots through a Deed of Sale with Right of Repurchase in favor of her brother Franklin. Her brother then told her that,
since Virgilio could no longer repurchase the subject properties, “it would be better for him to execute a Deed of Absolute Sale in her
favor.” She denied Virgilio’s allegations that the subject deed was fictitious, and averred that it was genuine in all respects and amply
supported by valuable consideration.
 
Jocelyn further averred that the filing of the instant case was a subterfuge or a mere afterthought on the part of Virgilio, as
a defense in the criminal case for estafa she had filed against him.  Moreover, Virgilio was in estoppel, and could not now be heard
to negate the contents of the deed of absolute sale which he had previously executed in her favor.
 
Alleging that the complaint was filed in evident gross bad faith and that she suffered untold mental anguish, sleepless
nights, anxiety and besmirched reputation, Jocelyn prayed that the case be dismissed, and that the following amounts in damages
be awarded to her: P500,000.00 as moral damages; P100,000.00 as exemplary damage; P50,000.00 as attorney’s fees;
and P100,000.00 as actual litigation expenses.[15]
 
The Testimonies of the Witnesses
           
 
            Cresenciano Ong Aranas testified that he was the owner of Parcel No. 2, which Virgilio had sold to Jocelyn.  The said lot was
part of a bigger parcel, with an area of 1,619 square meters situated in Malatbo, Ginatilan Cebu. He sold the said lot on December
23, 1996 to the APC Group, Inc., a mining company, for P32,380.00 as evidenced by a Deed of Absolute Sale. [16] He admitted that he
allowed Virgilio to include the said lot in the Deed of Sale with Right of Repurchase which Virgilio executed in favor of Franklin on
August 17, 1979.  He, however, admitted that he did not execute any document authorizing Virgilio to sell Parcel No. 2 since the
latter was his nephew.[17]
  Upon Virgilio’s prodding, he issued two checks: Check No. 0000997[18] for P25,000.00 on May 24, 1997, and Check No.
[19]
0000999  for P25,000.00 on May 26, 1997. These checks were issued to redeem Parcel Nos. 1, 2 and 3, the lots subject of the Deed
of Sale dated September 30, 1991.[20] Franklin signed receipts for said checks.[21] 
         
Ricardo Acojedo, caretaker of Virgilio’s properties and that of the Yap siblings, testified that he was in Virgilio’s house when
a certain Emok Dacillo brought a deed of sale to be signed by Virgilio and his wife. He saw the couple sign the document, but did not
get to read it. There was no other person who signed the document. After Virgilio said “the document should not be notarized,” he
immediately handed it over to Emok.[22]
 
            Virgilio testified that he and his wife, Rebecca, were in their house on the last week of September 1991, when Emok, an
emissary of Franklin, arrived.  Emok showed him the Deed of Absolute Sale dated September 30, 1991, and told him that Franklin
wanted him and Rebecca to sign the deed.  He read the document and was sure that it consisted of only one page. He told the
emissary that he was the owner of Parcel No. 1; Parcel No. 2 was in the name of his uncle, Cresenciano; while the records of Parcel
No. 3 could no longer be found at the Municipal Assessor’s Office.  Nevertheless, he and his wife signed the deed. He also claimed
that he was able to repurchase the lots subject of the Deed of Sale with Right of Repurchase on May 26, 1997 for P50,000.00 at the
house of his aunt, Tasiana Belarmino.
Virgilio admitted, however, that at the time he made the two payments, the period to repurchase the subject parcels of
land had already expired.[23]
 
The defendant did not testify in her behalf.  Atty. Emmanuel P. Rama testified for the defendant and declared that he
notarized the subject deed, which to his knowledge was prepared by Franklin Ong.   He was then in the office of his brother, who
was the Vice-Governor of Cebu, when Franklin and Virgilio and his wife, Rebecca, arrived to have the deed notarized. [24] However,
Virgilio, his wife, and the witnesses to the deed failed to sign on the left margin of its second page.
 
Franklin, a bachelor of laws graduate, testified that he was employed as an Interpreter in Branch 14 of the Court of First
Instance of Cebu;[25] he prepared the deed of sale with right of repurchase which Virgilio executed on August 17, 1979 and the
September 30, 1991 Deed of Absolute Sale which Virgilio and his wife executed. [26]  According to him, the lots subject of the
complaint, together with the other lots sold under the first deed of sale, were not repurchased by Virgilio.[27] 
 
Franklin further narrated that sometime in 1991, Virgilio sought financial help because his house was about to be foreclosed
by the Development Bank of the Philippines.  He  then  gave  P7,000.00 to Virgilio,
 
 and suggested that Parcel Nos. 1, 2 and 3 be sold to Jocelyn to augment his contribution.  Franklin, however, agreed to buy
Parcel Nos. 5 and 6 and inquired from Jocelyn if she was interested to buy Parcel Nos. 1, 2 and 3; Jocelyn replied that she was.[28]  He
then prepared a Deed of Absolute Sale over Parcel Nos. 1, 2 and 3, which Virgilio and his wife signed on September 30, 1991 before
Notary Public Emmanuel P. Rama.[29]  Virgilio agreed to sell the three lots for P5,000.00 only because the said amount was in addition
to the P7,144.28 paid for the six parcels of land earlier sold to Franklin in 1979.[30]  Franklin claimed he gave the P5,000.00 purchase
price of the property to Virgilio on September 30, 1991.[31]
 
Franklin declared that the receipts[32] for P50,000.00 which he signed (and which Virgilio adduced in evidence) were refunds
for Parcel Nos. 5 and 6 which he bought from Virgilio and later sold by the latter to the APC Group, Inc.; they were not payments for
the repurchase of the six parcels of land subject of the first sale as Virgilio claimed. [33]  After Jocelyn purchased  Parcel Nos. 1, 2 and
3, their sister Loreta and their mother took charge and administered the property, and paid the realty taxes thereon.[34] 
 
Taciana Aranas Belarmino, an aunt of Virgilio, Franklin and Jocelyn, testified that she and her son, Fermin Belarmino, as well
as her brother Cresenciano, witnessed Franklin sign the receipts dated May 25 and 26, 1997, for the total amount of P50,000.00, in
their house. The payment was made to redeem Parcel Nos. 5 and 6, which Virgilio sold to the APC Group, Inc. [35]  Franklin
demanded P200,000.00, but Virgilio had only P50,000.00, (inclusive of the P25,000.00 Virgilio borrowed from Cresenciano).[36]
 
By way of rebuttal, Virgilio presented Federico Erac, the Postmaster of Ginatilan, who testified that he (Virgilio) was a letter-
carrier and was at his place of work at the post office on September 30, 1991; hence, he could not have signed the Deed of Absolute
Sale of Parcel Nos. 1, 2 and 3 in favor of Jocelyn in the Office of the Vice-Governor on the said date before Notary Public Emmanuel
Rama.[37] He adduced in evidence his daily time record for September 30, 1991.[38]
 
After the trial, the court rendered judgment in favor of Virgilio.  The fallo of the decision reads:
WHEREFORE, the Deed of Absolute Sale dated September 30, 1991 allegedly executed by plaintiff in favor
of defendant is declared NULL and VOID.
 
SO ORDERED.[39]
 
 
The trial court held that, since Franklin failed to consolidate his title to the parcels of land following the lapse of the 10-year
period for Virgilio to redeem the same, the period for redemption was deemed extended until the said lots were repurchased on
May 25 and 26, 1997, upon payment of  P50,000.00 to Franklin.  The trial court ruled that there was a need for Franklin to
consolidate the title over the parcels of land by court proceedings.   It  also held that the Deed of Absolute Sale dated September 30,
1991 had no consideration because the P5,000.00 stated therein, as the price of the property, was insufficient. Since the deed was
not supported by any consideration, it was null and void.
 
Jocelyn appealed the decision to the CA, assailing the trial court’s ruling on the following grounds:
 
-I-
            The Honorable Trial Court erred in ruling that there was no action on the part of the defendant-appellant to
consolidate the title in her name when plaintiff-appellee failed to repurchase the properties subject matter of the
deed of sale with right to repurchase executed on August 17, 1979.
 
-II-
            The Honorable Trial Court erred in ruling that on May 25 and 26, 1997 the amount of P50,000.00 was paid
to the defendant-appellant through Franklin Ong and upon acceptance of the latter the real properties subject
matter of the deed of sale with right to repurchase was deemed repurchased.
 
- III -
            The Honorable Trial Court erred in ruling that the amount of P5,000.00 is not sufficient consideration for the
purchase of three parcels of land.[40]
 
         
The CA reversed the ruling of the trial court. The dispositive portion reads:
WHEREFORE, the foregoing considered, the May 4, 2001 Decision of the Regional Trial Court of Oslob,
Cebu is REVERSED ANDSET ASIDE. A new one is entered declaring the Deed of Absolute Sale dated September 30,
1991 executed by Virgilio Cadungog in favor of Jocelyn Yap, valid and binding.
 
SO ORDERED.[41]
 
 
 The appellate court held that the period to redeem the subject properties had already elapsed as early as 1989, or 10 years
after the execution of the Deed of Sale with Right of Repurchase on August 17, 1979. In view of Virgilio’s failure to redeem the same,
he lost ownership over the disputed lots. Jocelyn acquired ownership over the property when she purchased the same from Virgilio
on September 30, 1991 under the Deed of Absolute Sale. Citing Cruz v. Leis,[42] the CA ruled that Jocelyn could not be faulted for not
consolidating the title over the subject lots, as the act of consolidating title is not a condition sine qua non to the transfer of
ownership. The appellate court declared that the P50,000.00 Franklin received from Virgilio on May 25 and 26, 1997 was the refund
of the cost of Parcel Nos. 5 and 6 which Virgilio sold to the APC Group, Inc., the same lots sold to Franklin in 1999.  
         
The CA further stated that the inadequacy of the purchase price does not per se  support the conclusion that the contract
was a loan, or that the property was not at all sold. Citing Abapo v. Court of Appeals [43] and Article 1355 of the Civil Code, the CA
ruled that such inadequacy of price is not sufficient to set aside the sale, unless it is grossly inadequate or purely shocking to the
conscience. Moreover, except for his own self-serving testimony, Virgilio did not submit any other testimony to refute the said sale.
 
Finally, the CA ruled that the subject deed of sale is a public document, having been executed and attested through the
intervention of a notary public; as such, it is evidence of the facts therein expressed. While Virgilio’s officemate testified that he
could not have been present for the notarization of the said document because he was at work on the said date, such testimony
could not negate the existence of the said deed.
 
Virgilio filed a motion for reconsideration, which the CA denied.
 
Virgilio, now the petitioner, assails the said ruling and ascribes to the appellate court the following errors:
 
GROUND I
 
THE HONORABLE COURT OF APPEALS (SPECIAL FOURTH DIVISION) ERRED IN REVERSING THE DECISION OF
THE RTCBRANCH 62 OF OSLOB, CEBU, DECLARING THE DEED OF ABSOLUTE SALE DATED SEPTEMBER 30, 1991,
COVERING THREE (3) PARCELS OF LAND VALID AND BINDING AND IN NOT TAKING INTO ACCOUNT ITS FINDINGS
WHICH CONSIDERED THAT THE DEED OF ABSOLUTE SALE DATED SEPTEMBER 30, 1991, COVERING THREE (3)
PARCELS OF LAND IS NOT SUPPORTED BY ANY CONSIDERATION AND DID NOT REFLECT THE TRUE INTENTION OF
THE PARTIES, A FICTITIOUS ANDSIMULATED ONE, HENCE NON-EXISTENT AND VOID AB INITIO.
 
GROUND II
 
THE HONORABLE COURT OF APPEALS (SPECIAL FOURTH DIVISION) ALSO ERRED IN NOT TAKING INTO
CONSIDERATION THAT THE DEED OF ABSOLUTE SALE DATED SEPTEMBER 30, 1991, COVERING THREE (3) PARCELS
OF LAND WAS TAINTED WITH DECEPTION AS THE CONSENT WAS OBTAINED THROUGH DECEIT AND DISHONEST
MEANS.
 
GROUND III
 
THE HONORABLE COURT OF APPEALS (SPECIAL FOURTH DIVISION) ERRED IN NOT TAKING INTO CONSIDERATION
THAT SINCE THE DEED OF ABSOLUTE SALE DATED SEPTEMBER 30, 1991, COVERING THREE PARCELS OF LAND,
WHICH WAS COMPOSED ORIGINALLY OF ONLY ONE (1) PAGE, WAS NOT INTENDED TO BE
ACKNOWLEDGED AND NOTARIZED BY A NOTARY PUBLIC, WAS ALREADY COMPOSED OF TWO (2) PAGES AND
ACKNOWLEDGED AND NOTARIZED BY A NOTARY PUBLIC, THE SECOND PAGE OF WHICH DID NOT CONTAIN THE
SIGNATURES OF THE PARTIES AND THEIR INSTRUMENTAL WITNESSES. APPARENTLY, THIS INDICATES A
FRAUDULENT ACT WORTHY OF CONSIDERATION OF THE HONORABLE COURT OF APPEALS.
 
 GROUND IV
 
THE HONORABLE COURT OF APPEALS (SPECIAL FOURTH DIVISION) ERRED IN NOT TAKING INTO ACCOUNT OVER
THEFACT THAT RESPONDENT FAILED TO CONSOLIDATE HER OWNERSHIP OVER THE DISPUTED LAND SUBJECT TO
THE FICTITIOUS AND SIMULATED SALE DATED SEPTEMBER 30, 1991, COVERING THREE (3) PARCELS OF LAND.
APPARENTLY, INDICATING AN ACT CONTRADICTORY TO WHAT A NORMAL PERSON MIGHT HAVE ACTED UNDER
SIMILAR CIRCUMSTANCE.
 
GROUND V
 
THE HONORABLE COURT OF APPEALS (SPECIAL FOURTH DIVISION) ERRED IN FAILING TO UPHOLD THE FACTUAL
FINDINGS OF THE RTC BRANCH 62 OF OSLOB, CEBU WHICH WAS IN THE POSITION TO EVALUATE AND APPRECIATE
THE MERITS OF THE CASE AND HAD THE OPPORTUNITY OF OBSERVING THE DEMEANOR AND SINCERITY OF THE
WITNESSES.[44]
 
         
The petitioner reiterates that the subject deed is fictitious and simulated, having been executed merely to afford
respondent Jocelyn Yap a claim for the reduction of her tax liabilities in Canada. The petitioner points out that the true intention of
the parties was never that of sale, but only for accommodation purposes.
 
The petitioner, likewise, points out that his cousin Franklin added a second page to the one-page agreement and had it
notarized; the second page of the deed bore the acknowledgment of the notary public, which, however, did not contain the
signatures of the supposed parties and their instrumental witnesses. According to the petitioner, Franklin, through false pretenses,
succeeded in obtaining his consent in executing a simulated deed of sale over the subject parcel of land. Moreover, considering the
clear and convincing evidence that he was at work on the date the deed of sale was purportedly executed, the notary public could
not have notarized the document in his presence and the other parties concerned. The petitioner insists that the transaction subject
of the dispute is “wantonly devoid of any consideration, did not reflect the true intention of the parties, and was obtained through
fraudulent means, fictitious and simulated; hence, void from the very beginning.”
 
The petitioner further points out that after the supposed sale, the respondent made no move to consolidate her ownership
over the property, or other similar behavior or acts of dominion.
 
Finally, the petitioner contends that it is the findings of the trial court which should prevail, considering that it was in a
better position to evaluate and appreciate the merits of the case and had the opportunity to observe the demeanor and sincerity of
the witnesses presented.
 
The respondent, for her part, avers that the petitioner and his wife appeared before Notary Public Emmanuel P. Rama and
acknowledged the Deed of Absolute Sale dated September 30, 1991.  Such notarized deed enjoys the presumption of regularity;
there must be clear and convincing evidence to contradict the same. The respondent insists that the petitioner failed to overturn the
testimony of Atty. Rama, and that his bare denial will not suffice to overcome the positive value of the notarized document. The
respondent further posits that the appellate court correctly ruled that the consideration of the three lots was P5,000.00, and that
mere inadequacy of price is not sufficient to set aside a contract of sale.
 
The respondent further alleges that the petition is one under Rule 45 of the Rules of Court.   Only errors of law, not of facts,
are reviewable under the said rule, and in this case, no error of law was alleged by the petitioner.  Moreover, the CA correctly held
that the P50,000.00 was not a redemption price, but a refund  of the costs of Parcel Nos. 5 and 6, which the petitioner sold
to APCGroup, Inc.
 
The petition is meritorious.
 
We note that the issues raised by the petitioner are factual.  Under Rule 45 of the Rules of Court, only questions of law may
be raised in a petition for review on certiorari.  However, the Court may delve into and resolve factual issues in exceptional cases,
such as when the finding of facts and the conclusions based therein by the trial court are frontally inconsistent with those of the
appellate court, or that the factual findings of the trial court and appellate court are not based on the evidence on record, or
arbitrary or capricious.[45] 
 
In the present case, the trial court held that the petitioner was able to repurchase the 6 parcels of land on May 25 and 26,
1997, after the lapse of 18 years from the execution of the deed of sale with right of repurchase  (August 17, 1979) when he paid to
Franklin the total amount of P50,000.00.  The court held that the 10-year period fixed in the deed for the petitioner to repurchase
the property was deemed extended because Franklin failed to consolidate his title over the property.  On the other hand, the CA
held that the petitioner failed to repurchase the property, and that the respondent acquired ownership over Parcel Nos. 1, 2 and 3
when the petitioner sold the same to her under the September 30, 1991 Deed of Absolute Sale.
 
We agree with the CA that the petitioner, as vendor a retro, failed to repurchase the property within the 10-year period
fixed by the parties in the Deed of Sale with Right of Repurchase. Consequently, Franklin Ong, the vendee a retro, had acquired
absolute title and ownership over the six  parcels of land after August 17, 1979 when the petitioner, as vendor a retro, failed to
repurchase the same within the stipulated period.
 
A sale with pacto de retro transfers the legal title to the vendee a retro.[46] 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, the ruling of the CA that the
respondent acquired ownership over the three parcels of land from the petitioner under the Deed of Absolute Sale dated September
30, 1991 is erroneous.  Not being the owner of the parcels of land, the petitioner could not have lawfully sold the same to the
respondent.
 
We are not convinced that the petitioner and the respondent had agreed to the sale of Parcel Nos. 1, 2 and 3 for P5,000.00. 
The respondent was a resident of Canada on September 30, 1991.  There is no evidence that on or before said date, the petitioner
had talked to the respondent relative to the sale of the said lots.  Although Franklin testified that he talked to the respondent
relative to the sale and that the latter had agreed, no evidence was adduced to show a special power of attorney authorizing him
(Franklin) to agree to the purchase of the property for P5,000.00.  The declaration in the September 30, 1991 Deed of Absolute Sale
with Right of Repurchase, that the petitioner received P5,000.00 from the respondent on September 30, 1991, or prior thereto, is
negated by the fact that the respondent was then in Canada.
 
What is so worrisome is that Franklin, a law graduate, even induced the petitioner to execute the deed of sale in favor of his
sister, the respondent herein, despite the fact that he, and not the petitioner, was the owner of the three parcels of land.  Franklin
even falsely declared in the September 30, 1991 deed, which he prepared for the petitioner, that the latter was the owner of the
parcels of land, when he knew, for a fact, that he was the lawful owner of the property.   In fact, when he learned that Cresenciano
Ong Aranas had sold Parcel No. 2 to the APC Group, Inc. and that the petitioner had also sold Parcel No. 1, Franklin vehemently
objected.  He relented only when the petitioner gave the P50,000.00 to him in consideration for his agreement to the said sale of
Parcel Nos. 1 and 2 to the APC Group, Inc.  There is no evidence on record that the P50,000.00 which the petitioner paid was a
refund of the purchase price of Parcel Nos. 5 and 6 as regards the sale to APC Group, Inc.  In fact, there is no evidence on record to
show that the petitioner had sold Parcel Nos. 5 and 6 to the APC Group, Inc.
 
IN LIGHT OF ALL THE FOREGOING, the petition is GRANTED.  The decision of the Court of Appeals in CA-G.R. CV No. 72761
is REVERSED and SET ASIDE.  The decision of the Regional Trial Court nullifying the September 30, 1991 Deed of Absolute Sale
executed by the petitioner in favor of the respondent is REINSTATED.    No costs.
 
SO ORDERED.

JUAN OLIVARES and DOLORES ROBLES, petitioners, 

vs.
ESPERANZA DE LA CRUZ SARMIENTO, respondent.

DECISION

CARPIO, J.:

The Case
This is a petition for review1 of the Decision2 dated 30 October 2002 and the Resolution dated 8 May 2003 of the Court of Appeals in
CA-G.R. CV No. 48949. The Court of Appeals reversed the Decision dated 1 March 1993 of the Regional Trial Court of Iloilo, Branch
36.

The Facts

Respondent Esperanza de la Cruz Sarmiento (respondent) was the owner of a 230-square meter parcel of residential land located at
Barangay San Antonio, Oton, Iloilo, covered by TCT No. T-86397. On 18 August 1976, respondent and her husband Manuel
Sarmiento (Manuel) obtained a P12,000 loan from the Development Bank of the Philippines (DBP) for the construction of a
residential house on the land. Respondent mortgaged the land to DBP as security for the payment of the loan. Respondent and
Manuel failed to pay the monthly amortizations on the loan. In 1979, respondent allegedly obtained a loan of P35,000 from Luis
Boteros (Boteros) so she could pay her obligation with the DBP and to prevent the foreclosure of the mortgaged land. Boteros was
respondent's neighbor and the godfather of her eldest son. Respondent alleged that instead of getting the amount she loaned from
Boteros, she authorized Boteros and his niece Segunda Planta (Planta) to pay her loan with the DBP. Respondent accused Boteros
and Planta of forging her signatures in two deeds of sale, making it appear that respondent and her husband Manuel sold the land
and the house (property) constructed thereon to Boteros.

Boteros, on the other hand, alleged that in 1979, respondent offered to sell the property to him, provided Boteros would pay
respondent's loan with the DBP plus the interest due thereon. Boteros accepted the offer and paid respondent's loan plus interest
with the DBP, totaling P21,009.62.3 Boteros made a final payment of the loan on 26 June 1979 and the DBP thereafter issued a
certification of cancellation of mortgage4 dated 28 June 1979. Meanwhile, the agreement between Boteros and respondent was put
in writing through a notarized Deed of Definite Sale5 dated May 1979, signed by both respondent and Boteros. Under the terms of
the Deed of Definite Sale, respondent sold the property to Boteros for P2,000 in cash, with the condition that Boteros will assume
respondent's P12,000 loan from the DBP, together with the interest due thereon. After Boteros fully paid respondent's loan with the
DBP, respondent and Boteros executed another document, a Deed of Absolute Sale dated 2 July 1979, stating that spouses
respondent and Manuel were selling the property to Boteros for P25,000. The Deed of Absolute Sale was signed by both respondent
and her husband Manuel. On 24 July 1979, the Register of Deeds cancelled TCT No. T-86397 and issued a new title, TCT No. T-99121
in the name of Boteros. On 7 January 1984, Boteros sold the property to spouses Juan Olivares (Olivares) and Dolores Robles
(Robles) for P27,000.6 Boteros alleged that respondent was aware of the sale of the property to Olivares and Robles (petitioners)
since respondent was among those who looked for interested buyers of the property.

Olivares testified that before buying the property from Boteros, he approached respondent who confirmed to him that she already
sold the property to Boteros. On 7 January 1984, petitioners bought the property from Boteros. On 3 April 1985, the Register of
Deeds cancelled TCT No. T-99121 and issued a new title, TCT No. T-115,672 in petitioners' name. After the title was transferred to
petitioners' name, Olivares demanded that respondent vacate the property. Respondent allegedly requested that she be given some
time to find a place where her family could transfer. Petitioners eventually filed with the Municipal Trial Court of Oton an illegal
detainer case7 against respondent and Manuel when they continued to stay on the property despite repeated demands from
petitioners for them to vacate the property. On 14 October 1988, the Municipal Trial Court rendered a decision8 in the illegal
detainer case and ordered respondent and Manuel to vacate the property and deliver the possession thereof to petitioners.

Meanwhile, on 7 December 1984, respondent filed a civil case for recovery of possession, ownership, annulment of title, and
damages against Boteros and Planta, which was docketed as Civil Case No. 16177. On 23 April 1986, Civil Case No. 16177 was
dismissed without prejudice.

On 26 September 1986, respondent filed with the Regional Trial Court of Iloilo a complaint9 for recovery of ownership, annulment of
title, and damages against Boteros, Planta, and petitioners, which was docketed as Civil Case No. 17242.

On 1 March 1993, the Regional Trial Court of Iloilo, Branch 36 rendered a decision, the dispositive portion of which reads:

WHEREFORE, viewed from the foregoing considerations, judgment is hereby rendered DISMISSING the complaint and
ordering the plaintiff [Esperanza de la Cruz Sarmiento] to pay herein defendants [Luis Boteros, Segunda Planta, Juan
Olivares, and Dolores Robles]:

1. The amount of P3,000.00 for moral damages;

2. The amount of P5,000.00 for attorney's fees; and

 3. The amount of P2,000.00 as litigation expenses.

SO ORDERED.10

On appeal, the Court of Appeals rendered its Decision dated 30 October 2002, the dispositive portion of which reads:

WHEREFORE, the appealed judgment is hereby REVERSED and SET ASIDE and a new one entered declaring the following
deeds of sale as NULL and VOID:

(a) Deed of Definite Sale from Esperanza de la Cruz to Luis Boteros, dated May 1979;

(b) Deed of Absolute Sale from Manuel Sarmiento and Esperanza de la Cruz to Luis Boteros, dated July 2, 1979, and

(c) Definite Sale from Luis Boteros to Juan Olivares and Dolores Robles dated January 7, 1984.

The plaintiff-appellant [Esperanza de la Cruz] shall be restored in possession of the subject property.

However, the plaintiff-appellant is ordered to pay defendants-appellees Juan and Dolores within thirty (30) days from the
finality of this Decision the following:

1. P21,009.62, the amount paid by defendant-appellee Luis to DBP.

2. Interest thereon at the legal rate computed from the date of the subject transaction up to the time that the
plaintiff-appellant was ejected from the said property in 1989, and

3. The costs.

In case of default on the part of the plaintiff-appellant to settle her obligation within the period herein set forth, the
property shall be sold at public auction and the proceeds applied to the mortgage debts and the costs.

SO ORDERED.11

Petitioners moved for reconsideration, which the Court of Appeals denied for lack of merit.

Hence, this petition for review.

The Ruling of the Trial Court

The trial court upheld the validity and genuineness of the Deed of Absolute Sale executed by respondent in favor of Boteros, who
subsequently sold it to petitioners. The trial court held that respondent's mere denial of entering into a contract of sale with
Boteros, which was not corroborated by any other evidence, cannot be given evidentiary weight against the notarized deed of sale.

On the validity of the Deed of Absolute Sale, the trial court ruled:

The validity of the Deed of Sale in favor of the defendant [Boteros] must likewise be upheld, since all the requisites for a
valid contract were present, namely, consent, object certain and consideration. Consent is evident from the signature of the
defendant on the document (which signature was confirmed to be genuine by the National Bureau of Investigation) made
in the presence of two witnesses and before Notary Public Manuel C. Roa, (Exhibit "9" and "9-A" for the defendant). The
object of the contract is likewise certain, that is lot No. 2328-B covered by TCT No. T-86397. The cause or consideration is
also duly established, that is, for the sum of P25,000.00.12

The Ruling of the Court of Appeals

The Court of Appeals held that the transaction between respondent and Boteros was not a contract of sale but merely an equitable
mortgage. The Court of Appeals ruled that the P25,000 consideration indicated on the Deed of Absolute Sale dated 2 July 1979 was
unusually inadequate for the sale of the property.

Considering that respondent's educational level was only grade 3 and she could not understand English, the Court of Appeals held
that the contents of the deed of sale should have been fully explained to respondent, in accordance with Article 133213 of the Civil
Code. Because Boteros failed to explain the contents of the deed of sale, respondent could not have fully understood the import and
consequence of her signing the deed of sale.

The Court of Appeals further noted that respondent and her family stayed on the property even after the alleged sale to Boteros,
which under Article 1602 of the Civil Code is one of the cases where a contract can be presumed to be an equitable mortgage.

Since the contract is merely an equitable mortgage and not an absolute sale, the Court of Appeals ruled that respondent can still
recover the property from petitioners who were not buyers in good faith. The Court of Appeals noted that petitioners, who were
neighbors of respondent, were aware that respondent still occupied the property. Thus, petitioners should have made inquiries
before buying the property from Boteros. Since Boteros was not the owner of the property, he had no right to sell the property to
petitioners.

The Issues

Petitioners raise the following issues:

1. WHETHER THE APPELLATE COURT CAN DISREGARD THE FACTS ESTABLISHED BY THE TRIAL COURT BY UPHOLDING THE
UNCORROBORATED TESTIMONY/DENIAL OF THE RESPONDENT OVER AND ABOVE THE AFFIRMATIVE TESTIMONIES OF
WITNESSES AND NOTARY PUBLIC.

2. WHETHER THE FINDINGS OF FACTS AND CONCLUSION REACHED BY THE APPELLATE COURT WERE ENTIRELY GROUNDED
ON SPECULATION, WITHOUT CITATION OF THE SPECIFIC EVIDENCE ON WHICH THEY ARE BASED.

3. WHETHER THE SUBJECT DEED OF DEFINITE SALE CAN BE CONSTRUED AS AN EQUITABLE MORTGAGE, AND THEREAFTER
BE DECLARED NULL AND VOID INSTEAD OF BEING REFORMED.

4. WHETHER THE APPELLATE COURT CAN LEGALLY ORDER A MORTGAGEE TO REDEEM THE PROPERTY MORTGAGED.

5. WHETHER THE PETITIONER[S] IN RELYING ON THE CLEAN TITLE OF LUIS BOTEROS AND DEED OF SALE EXECUTED BY
RESPONDENT CAN BE ADJUDGED BUYER[S] IN GOOD FAITH.14

The resolution of the issues requires the determination of the real nature of the transaction between respondent and Boteros
concerning the subject property.

The Ruling of the Court

We find merit in the petition.

Deed of Absolute Sale is Valid

Respondent denies that she signed the Deed of Definite Sale dated May 1979 and the Deed of Absolute Sale dated 2 July 1979.
However, respondent failed to prove that her signatures on the Deed of Definite Sale and the Deed of Absolute Sale were indeed
forged. In fact, the Office of the Provincial Fiscal of Iloilo dismissed the complaint for falsification of public document filed by
respondent against Boteros and Planta for insufficiency of evidence.15 Furthermore, the NBI Report16 dated 25 February 1985 on the
handwriting examination on the signatures of respondent and Manuel on the Deed of Absolute Sale dated 2 July 1979 stated that
the respondent's signature on the Deed of Absolute Sale and respondent's sample signatures on other documents submitted for
comparative examination were written by one and the same person. However, the NBI could not render a definite finding on
whether Manuel's signature on the Deed of Absolute Sale and his sample signatures were written by one and the same person
because of lack of sufficient and appropriate basis for comparative examination.
On the other hand, Planta, who was one of the witnesses who signed the Deed of Absolute Sale, testified that she saw respondent
and Manuel sign the Deed of Absolute Sale.17 Atty. Manuel Roa, a retired judge who notarized the Deed of Definite Sale and the
Deed of Absolute Sale, likewise testified that he was present when respondent signed the Deed of Definite Sale and the Deed of
Absolute Sale.18

As found by the trial court, the essential requisites for a valid contract were present: (1) consent of the parties, as evidenced by their
signatures; (2) object certain which is the subject property; and (3) the consideration which is P25,000. Furthermore, the notarized
Deed of Absolute Sale is a public document which has the presumption of regularity and whose validity should be upheld absent any
clear and convincing evidence to contradict its validity.19

Contract of Loan Not Proven

We cannot subscribe to respondent's bare allegation that the agreement between her and Boteros was merely a loan for P35,000
and not the sale of the property. Respondent failed to substantiate her claim that the transaction was merely a loan. In fact, there
was no written document evidencing the alleged loan transaction. It is quite improbable that Boteros, who knew that respondent
was unable to pay her P12,000 loan from the DBP, would agree to grant respondent a P35,000 loan which is almost thrice as much
as the DBP loan, without insisting that the loan be embodied in a written document. Furthermore, respondent admitted that she has
never paid a single centavo of her alleged loan with Boteros.

On the other hand, the notarized Deed of Definite Sale and the notarized Deed of Absolute Sale signed by respondent and Manuel
clearly bely respondent's claim that the agreement was merely a loan transaction. These circumstances clearly indicate that the
agreement was indeed a sale of real property and not merely a loan.

Where the terms of the contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its
stipulations shall control.20 The contract is the law between the parties and when the words of the contract are clear and can be
easily understood, there is no room for construction.21

Contract was not an Equitable Mortgage

An equitable mortgage is defined as one that, although lacking some formality or form, nevertheless reveals the intention of the
parties to charge a real property as security for a debt.22 A contract of sale is considered an equitable mortgage when the real
intention of the parties was to secure an existing debt by way of mortgage.23 In this case, the land which was the subject of the Deed
of Absolute Sale was already mortgaged not to the buyer but to another entity who was not a party to the contract. The land was
already mortgaged to DBP by the sellers (respondent and her husband Manuel), who were unable to pay their loan. The records
show that the property was about to be foreclosed so respondent and Manuel decided to sell the property to Boteros. Under the
terms of the Deed of Definite Sale dated May 1979, the consideration for the sale was P2,000 plus the assumption of Boteros of the
sellers' loan from the DBP, including all interests. Prior to their sale transaction, there is no evidence that respondent had an existing
debt with Boteros. There is likewise no substantial evidence on the records that the parties to the contract agreed upon a different
transaction other than the sale of real property.

Article 1602 of the Civil Code enumerates the instances where a contract is presumed to be an equitable mortgage. Article 1602
reads:

Article 1602. The contract shall be presumed to be an equitable mortgage, in any of the following cases:

1. When the price of a sale with right to repurchase is unusually inadequate;

2. When the vendor remains in possession as lessee or otherwise;

3. When upon or after the expiration of the right to repurchase another instrument extending the period of redemption or
granting a new period is executed;

4. When the purchaser retains for himself a part of the purchase price;

5. When the vendor binds himself to pay the taxes on the thing sold;
 6. 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.

The foregoing provisions also apply to a contract purporting to be an absolute sale.24

In this case, the appellate court held that the contract should be presumed an equitable mortgage because the sale price of the
property was unusually inadequate and the vendor remained in possession of the property.

The records of the case are bereft of any evidence which could lead to the conclusion that the sale price was unusually inadequate.
No evidence was presented on the market value of real estate in the area where the property was located at the time of the sale.
Neither was there testimony of any alleged disparity on the price and the market value of the property. There was no testimony nor
evidence presented on the inadequacy of the sale price. Besides, the property which respondent sold to Boteros for P25,000 in 1979
was subsequently sold by Boteros to petitioners in 1984 for P27,000. If the price indicated on the Deed of Absolute Sale dated 2 July
1979 was indeed grossly inadequate, then Boteros could have sold the property five years later at a much higher price than P27,000.
To presume that a contract is an equitable mortgage based on gross inadequacy of price, it must be clearly shown from the evidence
presented that the consideration was in fact grossly inadequate at the time the sale was executed. In fact, mere inadequacy of price
is not sufficient.25

Respondent's continuous possession of the property even after the property was sold to Boteros does not automatically mean that
the transaction was an equitable mortgage and not an absolute sale. In this case, Boteros merely tolerated respondent's continued
possession of the property until Boteros sold the property and the new buyers, petitioners herein, demanded respondent to vacate
the property.

Based on the records of the case, we hold that the transaction between Boteros and respondent and Manuel was a contract of
absolute sale of real property and not merely an equitable mortgage. Boteros can therefore validly sell the property to petitioners. In
view of the conclusion we have reached, it is unnecessary to pass upon the last two issues raised by petitioners.

WHEREFORE, we GRANT the petition. We SET ASIDE the Decision dated 30 October 2002 and the Resolution dated 8 May 2003 of
the Court of Appeals in CA-G.R. CV No. 48949. We REINSTATE the Decision dated 1 March 1993 of the Regional Trial Court of Iloilo,
Branch 36.

SO ORDERED.

Puno, C.J., Chairperson, Corona, Azcuna, Leonardo-de Castro, JJ., concur.