Equitable Mortgage Claims: Proving Intent Beyond Bare Allegations

The Supreme Court recently reminded litigants that claiming a deed of sale was actually an equitable mortgage requires solid evidence, not just bare assertions. In Velasco v. Buenviaje (G.R. No. 182316, June 13, 2012), the Court denied a petition seeking to overturn a quieting of title ruling, affirming that the presumption of equitable mortgage under Article 1602 of the Civil Code only arises when specific circumstances are proven.

The Dispute Over Lot 252-A

The case involved a 217-square-meter parcel of land in Albay. The petitioners, sisters Thelma Casulla Velasco and Myrna Casulla Vda. de Retuerma, claimed their late father, Felipe Casulla, was a co-owner of an undivided 199-square-meter portion of the property. They alleged that in 1952, their father obtained loans totaling P1,800 from Joaquin Buenviaje, the respondents' predecessor. As security, their father supposedly signed a document—but instead of a mortgage, a Deed of Sale was prepared. The sisters claimed they were assured it would be treated only as a mortgage.

The respondents, Felipe Buenviaje and Angelina Milan-Buenviaje, held Transfer Certificate of Title No. 29617 over the property. They asserted they were the registered owners and that the petitioners' possession was merely by tolerance. After failed barangay conciliation, the respondents filed a Complaint for Quieting of Title in 1998.

The Regional Trial Court ruled in favor of the respondents, ordering the petitioners to vacate. The Court of Appeals affirmed, and the petitioners elevated the case to the Supreme Court.

The Sole Issue: Equitable Mortgage or Absolute Sale?

The central question was whether the 1952 transaction between the parties' predecessors was an equitable mortgage rather than an absolute deed of sale. If proven, this would establish the petitioners' ownership over the disputed portion.

The Court noted a critical flaw in the petitioners' case: they never presented the Deed of Sale in evidence. This left the courts with no basis to evaluate the document's terms or the parties' intentions.

Article 1602: When a Sale Is Presumed a Mortgage

The Civil Code provides that a contract is presumed to be an equitable mortgage in specific cases, including when:

• The price of a sale with right to repurchase is unusually inadequate
• The vendor remains in possession as lessee or otherwise
• Another instrument extending the redemption period is executed
• The purchaser retains part of the purchase price
• The vendor binds himself to pay taxes on the thing sold
• Any case where it may be fairly inferred that the real intention was to secure payment of a debt

Article 1604 extends these rules to contracts purporting to be absolute sales.

Why the Presumption Did Not Apply

The petitioners invoked three circumstances: inadequacy of price, continued possession, and payment of taxes. The Court found each unproven.

On price inadequacy, the petitioners claimed the property was worth P6,000,000, but presented no evidence of its value at the time of the alleged transaction. The only valuation evidence—a 1997 Real Property Field Appraisal—pegged the adjusted market value at P199,640. Without the Deed of Sale, the Court could not verify whether the property was sold or mortgaged for only P1,800.

On continued possession, the Court acknowledged the petitioners remained on the property. However, this fact alone did not trigger the presumption because the lower courts had already ruled the petitioners had no right to possession. The petitioners' title (TCT No. 1026) had been cancelled, while the respondents' title (TCT No. 29617) reflected the property's subdivision and their registered ownership.

On tax payments, the tax receipts submitted by the petitioners showed their father paid real property taxes only on the improvements—the house built on the property—not on the lot itself. This failed to support the equitable mortgage claim.

Practical Takeaways

• Evidence is paramount. A party alleging equitable mortgage must present the actual deed or other documentary evidence. Bare allegations, however earnest, cannot overcome a registered title.
• Timing matters for valuation. To prove inadequacy of price, present evidence of the property's market value at the time of the transaction, not decades later.
• Possession alone is not enough. Continued possession supports an equitable mortgage claim only when the possessor has a lawful right to possession. Mere tolerance by the registered owner does not establish that right.
• Tax payments must relate to the land. Paying taxes on improvements, such as buildings, does not demonstrate ownership or an equitable mortgage over the land itself.
• Registered titles carry weight. A Torrens title is strong evidence of ownership. To overcome it, a claimant must present clear and convincing proof of a superior right.

This article is general information and not legal advice. For your specific situation, consult a lawyer or ask ASG Legal AI.