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Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. L-55739 June 22, 1984

CARLO LEZAMA BUNDALIAN and JOSE R. BUNDALIAN, petitioners,

vs.
THE HON. COURT OF APPEALS, JUANITO LITTAWA and EDNA CAMCAM, respondents.

Francisco A. Lava, Jr. for petitioners.

Benjamin B. Bernardino for private respondents.

GUTIERREZ, JR., J.:

This is a petition for review of the decision of the Court of Appeals, now Intermediate Appellate Court, affirming a
judgment of the then Court of First Instance of Rizal dismissing the petition for declaratory relief and/or reformation
of instrument filed by the petitioners against the respondents and ordering the petitioners to pay jointly and severally
the amounts of P200,000.00 for respondent Edna Camcam and P50,000.00 for respondent Littawa, as moral
damages; the amount of P50,000.00 for both respondents as exemplary damages; the amount of P30,000.00 for
and as attorney's fees, and to pay the costs of the suit.

On July 1, 1975, the petitioners purchased from the Estate of the Deceased Agapita Sarao Vda. de Virata three (3)
contiguous parcels of land located at San Juan, Rizal, containing an aggregate area of 3,328 square meters, more or
less, for and in consideration of the amount of P499,200.00.

The following day, July 2, 1975, the petitioners, in a contract denominated as Deed of Sale with Right to Repurchase,
sold to the private respondents the same three contiguous parcels of land for the same amount of P499,200.00
under specified terms and conditions. One of the terms and conditions was that the repurchase price would
escalate month after month, depending on when repurchase would be effected. The price would be P532,480.66
computed at P160.00 per square meter after the first month; P565,760.00 computed at P170.00 per square meter
after the second month; P599,040.00 computed at P180.00 per square meter after the third month; and P632,320.00
computed at P190.00 per square meter after the fourth month, from and after the date of the instrument. It was also
stipulated in the same contract that the vendor shall have the right to possess, use, and build on, the property during
the period pending redemption.

On August 26, 1976, the petitioners filed a petition for declaratory relief and/or reformation of instrument before the
Court of First Instance of Rizal at Pasig, Metro Manila to declare the Deed of Sale with Right to Repurchase an
equitable mortgage and the entire portion of the same deed referring to the accelerating repurchase price null and
void for being usurious, and to reduce the loan obligation to P474,200.00, contending that the amount actually
loaned was only P474,200.00 and the petitioners put up P25,000.00 of the wife's money when the purchase from the
estate of Mrs. Virata was consummated.

On August 27, 1976, the private respondents, in turn, filed a petition for the consolidation of ownership on the
ground that "more than a year has elapsed since the execution of the Deed of Sale with Right to Repurchase by the
vendor on July 2, 1975." The private respondents contended that "notwithstanding which the vendor has failed to
avail of its rights under the provisions of Article 1607 in relation to Article 1616 of the New Civil Code, the vendor
has lost all his rights to avail himself of the right to consolidate ownership of the property subject of the Deed of
Sale." To this petition for consolidation of ownership, the petitioners filed their opposition upon the following
grounds: (a) there is a pending suit between the same parties involving the same cause and subject matter; (b)
consolidation will be improper considering that the basic document upon which it is being sought is in fact and in
law only an equitable mortgage; and (c) consolidation cannot be effected thru the instant petition. Accordingly, the
Court of First Instance of Rizal ordered the transfer of the petition for consolidation of ownership to Branch XXIV of
the same Court where the petition for declaratory relief and/or reformation of instrument was pending in order that
the two cases may be considered together.

A supplemental petition was subsequently filed by the petitioners alleging that the private respondents' petition for
consolidation of ownership was made in order to frustrate and render nugatory whatever orders or judgment may be
issued by the trial court in the petition for declaration relief/or reformation of instrument.
After the trial and presentation of the parties' respective memoranda the trial court rendered the decision in favor of
the private respondents.

The petitioners appealed to the Court of Appeals. The appellate court affirmed in toto the decision of the trial court.
Two motions for reconsideration having been denied, the petitioners filed the present petition based on the
following grounds:

A.

RESPONDENT COURT OF APPEALS ERRED GRAVELY, TO THE EXTENT OF GRAVE ABUSE OF

DISCRETION, AND IN VIOLATION OF PETITIONERS' RIGHT TO DUE PROCESS OF LAW AT APPELLATE
LEVEL, WHEN IT AFFIRMED THE APPEALED DECISION WITHOUT ANY DISCUSSION OF THE
QUESTIONS RAISED IN THE APPEAL AND BY SIMPLY ADOPTING THE POSITION OF THE TRIAL WHICH
IS PRECISELY QUESTIONED IN THE APPEAL.

B.

RESPONDENT COURT OF APPEAL ERRED GRAVELY TO THE EXTENT OF GRAVE ABUSE OF

DISCRETION IN ADOPTING TOTALLY AND UNCRITICALLY THE GROSSLY ERRONEOUS REASON AND
POSITION OF THE TRIAL COURT.

C.

RESPONDENT COURT OF APPEALS ERRED GRAVELY TO THE EXTENT OF GRAVE ABUSE OF

DISCRETION, IN UNCERMONIOUSLY, DENYING PETITIONERS' FIRST MOTION FOR RECONSIDERATION,
MOTION FOR ORAL ARGUMENT, MOTION TO INVITE AMICUS CURIAE, AND SECOND MOTION FOR
RECONSIDERATION.

E.

RESPONDENT COURT OF APPEALS ERRED GRAVELY TO THE EXTENT OF GRVE ABUSE OF

DISCREATION, IN NOT REVERSING THE APPEALED JUDGMENT AND GRANTING THE PRAYERS OF
PETITIONERS-APPELLANTS, FOREMOST OF WHICH IS TO DECLARE THE DEED OF SALE WITH RIGHT
TO REPURCHASE TO BE AN EQUITABLE MORTGAGE.

Tell issue is this case is whether or not the deed of sale with right to repurchase should be declared as an equitable
mortgage.

We find meritorious the petitioners' contention that under Article 1602 of the Civil Code the deed of sale with right to
repurchase should be presumed to be an equitable mortgage due to the following reasons.

(1) The contracts involving the subject properties came one after another in the space of two (2) days.
The Deed of Absolute Sale between petitioner Jose R. Bundalian as vendee and Romeo S. Geluz, in his
capacity as Administratorf of the Estate of the deceased Agapita Sarao Vda. de Virata, as vendor, was
executed on July 1, 1975 (pp. 19-26, Annex "A"). The purported Deed of Sale with Right to Repurchase
between petitioner, Jose R. Bundalian as vendor and respondents Juanito Littawa and Edna Camcam
as vendees was executed on July 2, 1975 (pp. 26- 32, Annex "A").lwphl@itç This already indicates, at a very
early stage, that the two transactions must be intimately related.

(2) Such intimate relation between the aforementioned Deed of Absolute Sale and Deed of Sale with
Right to Repurchase is already clear in the statement in the latter instrument that the subject property
had just been purchased by Jose R. Bundalian from the estate of the deceased Agapita Sarao Vda. de
Virata, 'with funds loaned to him by the herein VENDEES' the latter being no other than respondents
Littawa and Camcam (p. 28, Annex "A"). Patently, petitioner Jose R. Bundalian was funded by private
respondents to enable him to purchase the property from the said estate.

(3) Having just purchased the property from the estate by way of Deed of Absolute Sale on July 1, 1975,
for which he had just paid P499,200.00 as purchase price, it would have been utterly senseless for
petitioner Jose R. Bundalian to sell the same property to private respondents the very next day, July 2,
1975, with or without the right of repurchase. No other conclusion is possible except that the Deed of
Sale with Right to Repurchase is precisely the security the equitable mortgage — to petitioner Jose R.
Bundalian to enable the latter to purchase the property from the aforementioned estate.

(4) It would have been more senseless for petitioner Jose R. Bundalian to sell the property to private
respondents at the same price of P499,200.00 he had paid the estate of the deceased Agapita Sarao
Vda. de Virata, without profit and at a sure loss. By the terms of the Deed of Sale with Right to
Repurchase he would have to repurchase the property at a continually increasing price, from Pl 50.00
per square meter to P190.00 per square meter, that is, up to P133,120.00 over and above the original
price of P499,200.00, in only four (4) months. Again, no other conclusion is possible but that the
contract is an equitable mortgage, not a sale.

(5) It is provided in the Deed of Sale with Right to Repurchase that 'It is agreed that the vendor (Jose R.
Bundalian) shall have the right to possess, use, and build on, the property during the period of
redemption' (p. 30, Annex "A"). It has been held that there is a 'loan with security' rather than a pacto de
 retro sale where by agreement the vendor was to remain in possession of the lands (Escoto vs. Arcilla,
89 Phil. 199, 204). Where there was an acknowledgment of the vendor's right to retain possession of
the property, as in the case at bar, the contract was one of "loan guaranteed by a mortgage" rather than
a conditional sale (Macoy vs. Trinidad, 95 Phil. 192, 202). Indeed, there can be no question that
petitioner Jose R. Bundalian remained legally in possession of the subject property. Again, the
conclusion is ineluctable that the Deed of Sale with Right to Repurchase was executed as security for
the loan extended by private respondents to petitioner Jose R. Bundalian, i.e., as equitable mortgage.

(6) The increase per month in the alleged redemption price is very compatible with the Idea that the
transaction was really intended by the parties to be a mortgage. It bears emphasis, at this juncture, that
the supposed repurchase price is in the same amount as the original "price" of P499,200.00 should
"repurchase" be effected during the first month from and after the date of the instrument; P532,480.00
computed at P160.00 per square meter should "repurchase" be effected after the first month;
P565,760.00 computed at P170.00 per square meter should "repurchase" be after the second month;
P599,040.00 computed at P180.00 per square meter should "repurchase" be after the third month; or
P632,320.00 computed at P190.00 per square meter should "repurchase" be effected even "after the
fourth month" (pp. 29-30, Annex "A"). The monthly increases in the alleged "redemption price"clearly
represent nothing but interest. It is well-settled that provision for interest payments is a clear indication
that the supposed sale is actually an equitable mortgage (Macoy vs. Trinidad, 95 Phil. 192, 202; Escoto
vs. Arcilla, 89 Phil. 199, 204). This would fall under the legal situation "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" (No. 6), Art. 1062, Civil Code). To make matters worse, the
monthly increase in the supposed "redemption price", meaning the interest of course, are clearly
usurious, precisely one of the evils sought to be negated by the provisions of Articles 1602, 1603 and
1604 of the Civil Code, as noted previously herein.

(7) While the Deed of Sale with Right to Repurchase supposedly provided for a "redemption" period of
"four (4) months from and after the date of this instrument" (p. 29, Annex "A"), it later necessarily
provided for a built-in extension of the period of 'redemption' by providing for payment of the amount of
P632,320.00 computed at P190.00 per square meter should "repurchase" be effected "after the fourth
month" (p. 30, Annex "A"). In other words, it was implicitly agreed that the period of 'repurchase' was not
limited to 4 months from and after the date of execution of the instrument, in as much as said
"repurchase" could be effected even "after the fourth month". It is well — settled that extension of the
period of "redemption" is indicative of equitable mortgage (Nos.(3) and (6), Art. 1602, Civil Code; Reyes
vs. De Leon, 20 SCRA 369, 370).lwphl@itç

(8) It may be argued, as private respondents have argued, that normally a loan does not exceed 60% of
the price of the land given as security, so that private respondents could not have loaned P499,200.00
on the land the value of which was claimed to be also P499,200.00. However, such reasoning is clearly
unsound. It loses sight of the fact that private respondents precisely funded or financed petitioner Jose
R. Bundalian's acquisition of the property from the estate of the deceased Agapita Sarao Vda. de Virata.
In other words, petitioner Jose R. Bundalian could not have acquired the land to serve as security for
the repayment of the loan unless private respondents had extended the loan in the first place. Surely,
private respondents stood to benefit enormously from such financing transaction in view of the
patently usurious monthly interests transparently disguised as the accelerating or increasing monthly
'repurchase' price. At any rate, in the event that petitioner Jose R. Bundalian ultimately failed to pay the
loan, the rapid increase in the price of the land, which was estimated to be worth at least P632,320.00
after 4 months (from the initial P499,200.00), practically guaranteed a very good return on the money
investment of private respondents as money- lenders.

(9) It cannot be questioned that petitioner Jose R. Bundalian paid taxes on the land, even after the
supposed 4 month period of "redemption". Payment of taxes after expiration of the supposed
"redemption" period has been considered as indicative of equitable mortgage (Escoto vs. Arcilla,
supra).

(10) It is an admitted fact that private respondents took some time before filing their petition for
consolidation of ownership. Private respondents admitted in said petition that "more than a year has
elapsed since the execution of the Deed of Sale with Right to Repurchase" (p. 34, par. 3, Annex "A").
Reckoning 4 months from July 2, 1975, it would appear that the "repurchase" period expired
supposedly on November 2, 1975. As private respondents filed their petition for consolidation on
August 27, 1976, it is clear that they delayed filing said petition by more than 9 months. A similar delay
in the filing of the supposed "vendee's" petition for consolidation was considered as indicative of
equitable mortgage (Reyes vs. de Leon, 20 SCRA 369, 378).

(11) If the Deed of Sale with Right to Repurchase would not be considered as an equitable mortgage, it
would result that there was actually no security for the loan of P499,200.00 extended by private
respondents to petitioners Jose R. Bundalian, which would make no sense at all considering the
enormity of the loan. There was, to be sure, a security for said loan, none other than the equitable
mortgage tainted with usury and disguised as the Deed of Sale with Right to Repurchase.

The private respondents argued that the petitioners' contention is true only in cases where the contract or
instrument is not reflective of the true intentions of the contracting parties as would warrant reformation of the
same. They stated that if the intention of the parties is to execute a deed of sale with pacto de retro, the contract
should be held as such. The petitioners were allegedly fully aware that the deed of sale with pacto de retro is what it
purports to be and nothing else. Furthermore, the petitioners waited for the period of redemption to expire before
availing of the relief granted by the Civil Code of reformation of contracts.

We find the stand of the private respondents without merit. The intent of the parties to circumvent the provision
discouraging pacto de retro transactions is very apparent from the records. Article 1602 of the Civil Code states:

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 eases 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 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.

Significantly, a portion of the document in question reads:

(The vendor) having just purchased the same from the Intestate estate of the deceased Agapita Sarao
Vda. de Virata (Special Proceedings No. B-710 of the Court of First Instance of Cavite), with funds
loaned to him by the herein VENDEES. (Emphasis supplied).

This statement appearing in the supposed pacto de retro sale confirms the real intention of the parties to secure the
payment of the loan acquired by the petitioners from the private respondents. The sale with the right to repurchase
of the three parcels of land was for P499,200.00, which was exactly the same amount paid to the estate of the
deceased Agapita Sarao Vda. de Virata- After having purchased the three lots for P499,200.00, the vendors should
at least have earned a little profit or interest if they really intended to resell the lots the following day. Instead, they
suffered a loss of P25,000.00 because the amount borrowed, and we find grounds to believe their statement of
having advanced P25,000.00 of their own funds as earnest money, was actually only P474,000.00. The petitioners
also bound themselves to pay exceedingly stiff prices for the privilege of repurchase. The intent of the parties is
further shown by the fact that the Bundalians P500,000.00 collectibles due from the government for completed
construction contracts could not be collected on time to pay for the lots advertised for sale in Bulletin Today. The
petitioners had to run to the private respondents who had money to lend. The Bundalians received the accounts due
from the government only in 1977 after the proceedings in the trial court were well underway.

The stipulation in the contract sharply escalating the repurchase price every month enhances the presumption that
the transaction is an equitable mortgage. Its purpose is to secure the return of the money invested with substantial
profit or interest, a common characteristic of loans.

The private respondents try to capitalize on an admission by Mrs. Bundalian that she "accepted" the transaction
knowing it to be a contract of sale with right of repurchase. The reliance is grounded on shaky foundations. The
Bundalians were in the construction business and knew quite well what they were signing. But vendors covered by
Article 1602 of the Civil Code are usually in no position to bargain with the vendees and will sign onerous contracts
to get the money they need. It is precisely this evil which the Civil Code guards against. It is not the knowledge of the
vendors that they are executing a contract of sale pacto de retro which is the issue but whether or not the real
contract was one of sale or a loan disguised as a pacto de retro sale.

The contract also provides that "it is agreed that the vendor shall have the right to possess, use, and build on, the
property during the period of redemption." When the vendee acknowledged the right of the vendor to retain
possession of the property the contract is one of loan guaranteed by mortgage, not a conditional sale or an option
to repurchase. (Macoy vs. Trinidad, et al., 95 Phil. 192).

The respondents' contention that the right to possess, use, or build on the lots embodied in the contract was a mere
"right" and not actual possession appears to be sophistry. The records show that the Bundalians construction
equipment such as tractors, payloaders, and bulldozers were on the lots. A shop was built on the premises. Mr.
Bundalian testified that from the time he purchased the property from the estate of Mrs. Virata up to the "minute" he
testified, he never lost possession. The Bundalians paid the real estate taxes on the lots. As against the express
provision of the contract and the actual possession by the petitioners, the private respondents come up with a far
fetched argument that since the titles to the lots were in their hands, they were the ones in legal possession.
Parenthetically, the titles in their hands were still in the name of the estate of Agapita Sarao Vda. de Virata, the
original vendor-owner.
IN VIEW OF THE FOREGOING, the decisions of' the respondent Court of Appeals and the trial court are hereby
REVERSED; and SET ASIDE. The deed of sale with right to repurchase is declared as an equitable mortgage. The
petitioners are ordered to pay their debt to the private respondents with legal rate of interest from the time they
acquired the loan until it is fully paid.

SO ORDERED.

Teehankee (Chairman), Melencio-Herrera, Plana and Relova, JJ., concur.

De la Fuente, J., took no part.

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