Case Digest: Santos v.
Court of Appeals
G.R. No. 83664, November 13, 1989
258-A Phil. 951 | Second Division
Ponente: Justice Paras
Factual Background:
Spouses Cesar Ferrera and Reynalda Pedronia were the registered owners of a 2,221.86
sqm parcel of land in Caniogan, Pasig, which was being cultivated by Rufino and Domingo
Nazareth (tenants) under a tenancy agreement with Ferrera’s predecessor.
On February 1, 1971, the Ferreras executed a Deed of Sale in favor of spouses Apolonia and
Rufino Santos for ₱22,000.00. Only ₱16,000.00 was actually received by the Ferreras. A new
title (TCT No. 313883) was issued in favor of the Santos spouses.
On the same date, a Promise to Sell was executed by the Santos spouses in favor of the
Ferreras, promising to sell back the property for ₱22,000.00 within six months.
The Ferreras failed to repurchase within the period. On July 30, 1971, the Santos spouses
executed a new Deed of Absolute Sale to their daughter, Felicitacion, for ₱30,000.00, and
again a Promise to Sell was made to the Ferreras for the same price and conditions.
Despite these transfers, the Ferreras remained in possession of the land through the
Nazareths, who continued delivering harvests to the Ferreras and refused to recognize the new
owners.
On August 17, 1977, almost seven years later, the Santos family (through attorney-in-fact
Renato Santos) filed an action for breach of warranty and damages against the Ferreras
and the Nazareths.
The defendants argued that there was no true sale, only a loan of ₱16,000.00, with the Deed
of Sale being mere security (i.e., an equitable mortgage).
Procedural History:
RTC Decision: Declared the Deed of Sale null and void, ruling the transaction was an
equitable mortgage, not a true sale.
Court of Appeals: Affirmed in toto the RTC’s decision.
Petitioner (Santos) filed a petition for review on certiorari under Rule 45 of the Rules of
Court before the Supreme Court.
Issues:
Whether the contract between the parties was a true contract of sale or an equitable
mortgage.
Ruling:
The Supreme Court DENIED the petition and upheld the lower courts' ruling that the transaction
was an equitable mortgage.
Doctrines / Legal Principles:
Equitable Mortgage: One which, although in the form of an absolute sale, is intended only to
secure the performance of an obligation (usually a loan).
Article 1602, Civil Code:
A 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 of the property
as lessee or otherwise;
(3) When after the expiration of the right to repurchase,
another instrument extending the period is executed…
Article 1371, Civil Code:
“In order to judge the intention of the contracting parties,
their contemporaneous and subsequent acts shall be
principally considered.”
The Court noted the following indicia of equitable mortgage:
Inadequate consideration: Land valued at ₱100,000–₱200,000 was allegedly sold for
only ₱22,000 (and only ₱16,000 was received).
Possession: The Ferreras continued in actual possession even after the sale.
Existence of right to repurchase: A Promise to Sell was executed immediately and
again later, giving the vendors the right to buy back.
Conduct of the parties: Indicated the true intention was to secure a loan, not to effect
a permanent transfer of ownership.
Final Ruling:
The petition was denied. The Supreme Court affirmed the ruling of the Court of Appeals and the trial court.
The Deed of Sale was declared null and void, and the transaction was held to be an equitable mortgage.
Key Takeaway:
When the true intent of a contract is to secure a debt, even if the agreement is styled as a sale, the courts will
treat it as an equitable mortgage. This protects borrowers from exploitation and promotes substantive
fairness over mere form.
