Zamora v. CA

G.R. No. 102557 (July 30, 1996)

Facts:

The case revolves around a dispute regarding the nature of a contract executed in 1988 between Alfonso D. Zamora (petitioner) and Ma. Jacinta D. de Guzman (respondent). The property in question is a parcel of land located at E. Rodriguez Avenue, Quezon City, co-owned by the respondent and her siblings. The property, measuring approximately 1,539 square meters, was leased to the petitioner starting January 8, 1973, at a monthly rental of P5,000.00.

In January 1987, the respondent executed a real estate mortgage over her share of the property to secure a loan of P140,000.00 from the petitioner, which was to be paid within one year at an interest rate of 18% per annum. The respondent defaulted on the loan, leading to additional loans being extended by the petitioner, which accumulated to a total debt of P272,356.00.

On March 1, 1988, the respondent executed a document titled "Absolute Sale of Undivided Share of Land" in favor of the petitioner for P450,000.00. The petitioner paid the respondent the balance of P177,644.00 shortly after the execution of the deed. The deed was registered, and a new title was issued in the petitioner’s name as a co-owner of the property.

However, the respondent later sought to nullify the sale, claiming it was an equitable mortgage rather than an absolute sale. She argued that the sale was executed under duress due to her financial difficulties and that the price was grossly inadequate. The trial court ruled in favor of the respondent, declaring the contract an equitable mortgage and ordering the reconveyance of the property to her upon payment of the original loan amount.

Issues:

1. Was the contract executed between the parties an absolute sale or an equitable mortgage?
2. Was the purchase price of P1,500.00 per square meter grossly inadequate?
3. Did the appellate court err in affirming the trial court's dismissal of the petitioner's counterclaim?

Arguments:

• Petitioner’s Arguments:

  • The petitioner contended that the contract was a valid absolute sale, supported by the payment of the purchase price and the issuance of a new title.
  • He argued that the price was not inadequate, as it aligned with the Bureau of Internal Revenue's zonal valuation.
  • The petitioner claimed that the trial court erred in dismissing his counterclaim against the respondent.

• Respondent’s Arguments:

  • The respondent argued that the contract was intended as an equitable mortgage, citing her financial distress and the inadequate price for the property.
  • She pointed out that the petitioner had assured her that the deed was merely a formality for securing the loan, and she had the right to repurchase the property.
  • The respondent emphasized that the circumstances surrounding the transaction indicated that the true intention was to secure a debt rather than to transfer ownership.

Court’s Decision and Legal Reasoning:

The Supreme Court affirmed the decision of the Court of Appeals, which upheld the trial court's ruling that the contract was an equitable mortgage. The Court emphasized that the intention of the parties, rather than the title of the contract, determines its nature. It cited Article 1602 of the Civil Code, which outlines circumstances under which a contract may be presumed to be an equitable mortgage, including inadequate consideration and the vendor remaining in possession.

The Court found that:

1. Both lower courts had convincingly established that the parties intended to create a mortgage rather than an absolute sale.
2. The price of P450,000.00 for a prime property was grossly inadequate, especially given the booming real estate market in 1988.
3. The petitioner’s actions, including recognizing the respondent as a co-owner and offering her the right to repurchase, indicated that he did not consider himself the absolute owner of the property.

The Court also noted that the respondent was in a dire financial situation when she signed the deed, which further supported the conclusion that the transaction was intended as a security for a debt.

Significant Legal Principles Established:

• The intention of the parties, as evidenced by their conduct and the circumstances surrounding the transaction, is paramount in determining the nature of a contract.
• A contract may be deemed an equitable mortgage despite being labeled as a sale if the conditions outlined in the Civil Code are met, particularly regarding inadequate consideration and the vendor's continued possession.