FELICIDAD L. ORONCE and ROSITA L. FLAMINIANO, vs. CA, PRICILIANO B.

GONZALES DEVELOPMENT CORPORATION (PBGDC). [G.R. No. 125766. October

Facts:

 Private respondent PBGDC was the registered owner of a 2000 sqm land located
at Gilmore Street in QC, covered by TCT No. RT-54556
 In June 1988, PBGDC mortgaged the Gilmore property and all its improvements
for a P4M loan from China Banking Corporation The loan accumulated to
P8,500,000 through the years.
 On April 13, 1992, PBGDC signed and executed a “Deed of Sale with
Assumption of Mortgage” covering the Gilmore property in favor of petitioners.
The deed stipulated a P5,400,000 consideration; PBGDC guarantying the right to
possession in favor of the petitioners without the need of judicial action; and
possession of said premises shall be delivered to the petitioners at the expiration
of 1 year from the date of the signing and execution of said Deed. Petitioners also
paid PBGDC’s debt to China Banking Corp. that accumulated to P8,500,000.
 After the stipulated expiration of 1 year from execution of the Deed, petitioners
allege that PBGDC reneged on its obligation to deliver possession. Petitioners
also obtained new title, TCT No. 67990, attesting they are the new owners of the
property, and paid the real estate taxes. Petitioners sent PBGDC demand letters to
vacate the premises through post office, but were unclaimed. Hence, petitioners
filed before the MTC a complaint for unlawful detainer against PBGDC.
 PBGDC’s countered by raising the issue of ownership over the property. It
disputed the petitioners' right to eject, alleging that petitioners had no cause of
action, as it was merely a mortgagee of the property, not owner. It argued that
when the parties executed the subject Deed, its real intention was to forge an
equitable mortgage and not a sale. It pointed out three circumstances indicative of
an equitable mortgage, namely: inadequacy of the purchase price, continued
possession by PBGDC of the premises, and petitioners' retention of a portion of
the purchase price.
 MTC decision: in favor of petitioners. It ruled that petitioners are the owners of
 the Gilmore property on account of the following evidences: (a) TCT No. 67990
registered in favor of petitioners; (b) petitioners' payment of PBGDC’s mortgage
to China Banking Corp.; (c) payment of real estate taxes and tax declarations in
petitioners' names. It also held that PBGDC’s possession of the premises was
merely tolerated and when they refused to vacate, its possession became illegal.
 PBGDC appealed to the RTC. PBGDC stressed in its appeal that it was not
unlawfully withholding possession of the premises from petitioners because the
latter's basis for evicting it was the Deed of Sale with Assumption of Mortgage
which did not reflect the true intention of the parties to enter into an equitable
mortgage. On the other hand, petitioners filed a motion for the immediate
execution of the appealed decision. The RTC granted the motion on September
21, 1995 and the corresponding writ of execution was issued on September 25,
1995. The following day, the sheriff served upon private respondent the writ of
execution and a notice to vacate the premises within 5 days from receipt thereof.
 RTC Decision: On December 13, 1995, RTC Branch 219 rendered the decision
affirming MTC. Stating that in ejectment proceedings, the only issue for
resolution is who is entitled to physical or material possession of the premises
involved, RTC held that the petitioners as buyers of PBGDC by virtue of a deed
of sale where the extent of its right to continue holding possession was stipulated.
In the agreement, the existence and due execution of which the PBGDC had
admitted, it was clearly stated that the defendant shall deliver the possession of
the subject premises to the plaintiffs at the expiration of 1 year from the execution
thereof. The defendant failed to do so. From then on, it could be said that the
defendant has been unlawfully withholding possession of the premises from the
plaintiffs.
 CA Decision: On July 24, 1996, the CA rendered the herein questioned Decision.
It set aside the December 13, 1995 decision of RTC Branch 219 and declared as
null and void for want of jurisdiction, the March 24, 1995 decision of the MTC. It
also made permanent the writ of preliminary injunction enjoining petitioners from
implementing the decision of RTC Branch 219, the writ of execution and the
notice to vacate. The CA stated that the dispute between the parties extended
beyond the ordinary issues of an ejectment case. The resolution of the dispute
 hinged on the question of ownership and for that reason was not cognizable by the
MTC.

Issue: W/N the “Deed of Sale with Assumption of Mortgage” was a subject of equitable
mortgage and not of sale

Held: Yes. The SC held that the MTC and RTC erroneously ruled that the Deed was a
sale, subject to ejectment case, when it was in fact an equitable mortgage. The SC affirms
the CA Decision.

In the case at bar, petitioners clearly intended recovery of possession over the Gilmore
property. They alleged in their complaint for unlawful detainer that their claim for
possession is buttressed by the execution of the “Deed of Sale with Assumption of
Mortgage” and by the issuance of TCT No. 67990 that evidenced the transfer of
ownership over the property. Because metropolitan trial courts are authorized to look into
the ownership of the property in controversy in ejectment cases, it behooved MTC
Branch 41 to examine the bases for petitioners' claim of ownership that entailed
interpretation of the Deed of Sale with Assumption of Mortgage.

However, while MTC quoted paragraph (c) of the Deed of Sale with Assumption of
Mortgage that embodies the agreement of the parties that possession of the Gilmore
property and its improvements shall remain with the vendor that was obliged to transfer
possession only after the expiration of one year, MTC Branch 41 apparently did not
examine the terms of the deed of sale. Instead, it erroneously held that the issue of
whether or not the document was in fact an equitable mortgage "should not be properly
raised in this case." Had it examined the terms of the deed of sale, which, after all is
considered part of the allegations of the complaint having been annexed thereto, that
court would have found that, even on its face, the document was actually one of equitable
mortgage and not of sale. The inferior court appears to have forgotten that all documents
attached to a complaint, the due execution and genuineness of which are not denied under
oath by the defendant, must be considered as part of the complaint without need of
introducing evidence thereon.

Article 1602 of the Civil Code provides that a contract shall be presumed to be an
equitable mortgage by the presence of any of the following:

"(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."

Article 1604 of the same Code provides that the provisions of Article 1602 "shall also
apply to a contract purporting to be an absolute sale." The presence of even one of the
circumstances in Article 1602 is sufficient basis to declare a contract as one of equitable
mortgage. The explicit provision of Article 1602 that "any" of those circumstances would
suffice to construe a contract of sale to be one of equitable mortgage is in consonance
with the rule that the law favors the least transmission of property rights.

That under the subject Deed, PBGDC as vendor shall remain in possession of the
property for only one year, did not detract from the fact that possession of the property,
an indicium of ownership, was retained by PBGDC as the alleged vendor. That period of
time may be deemed as actually the time allotted to PBGDC for fulfilling its part of the
agreement by paying its indebtedness to petitioners. This may be gleaned from paragraph
(f) that states that "full title and possession" of the property "shall vest upon the
VENDEES upon the full compliance by them with all the terms and conditions herein set
forth.

Paragraph (f) of the contract also evidences the fact that the agreed "purchase price" of
14MP was not handed over by petitioners to PBGDC upon the execution of the
agreement. Only P5,400,000.00 was given by petitioners to private respondent, as the
balance thereof was to be dependent upon the PBGDC’s satisfaction of its mortgage
obligation to China Banking Corporation. Notably, the MTC found that petitioners gave
private respondent the amount of P8,500,000.00 that should be paid to the bank to cover
the latter's obligation, thereby leaving the amount of P100,000.00 (P5,400,000.00 +
P8,500,000.00 = P13,900,000.00) of the "purchase price" still unpaid and in the hands of
petitioners, the alleged "vendees."

Hence, two of the circumstances enumerated in Article 1602 are manifest in the Deed of
Sale with Assumption of Mortgage, namely: (a) the vendor would remain in possession
of the property (no. 2), and (b) the vendees retained a part of the purchase price (no. 4).
On its face, therefore, the document subject of controversy, is actually a contract of
equitable mortgage.