Lopez vs Sarabia (439 SCRA 35)

FACTS

Margarita Sarabia owned two (2) lots with a residential house built on one of the lots in Poblacion, Kalibo, Aklan. Spouses Reynaldo and Editha Lopez were renting the second floor of the house for P300.00 per month. On the other lot was a building rented by Dr. Nilda Tambong for P600.00 a month, with two (2) boarders upstairs paying P440.00 a month. Sometime in March 1984, the Spouses Lopez approached Margarita and asked her if they could construct additional rooms for their growing children. Margarita told them that she did not have the money for such construction project. They then proposed that they could apply for a Pag-ibig Housing Loan DBP and use Margarita's property as collateral. Margarita, however, informed them that her property had already been mortgaged to the PNB in 1978 in the amount of P20,000.00, and was, in fact, in danger of being foreclosed for non-payment of amortization. Her outstanding loan balance as of March 1984 had already ballooned to about P63,000.00.

The Spouses Lopez tried to convince Margarita that it was better to transfer the mortgage to the DBP where interest rates were lower. They told Margarita that the PNB loan balance could be paid off from the proceeds of the loan from the DBP, and the excess could be used for the construction of the rooms. In order to facilitate the loan, it was, however, necessary that the property be in the name of the Spouses Lopez.

Relying on the couple's good faith and assurances that they would religiously pay the amortization, Margarita agreed to their proposition. A document was thus executed denominated as "Assumption of Mortgage with Quitclaim."  In said document, the Register of Deeds was authorized to cancel the old TCT over the two (2) parcels of land and issue new TCT's under the name of the Spouses Lopez. The Spouses Lopez then mortgaged the properties to DBP where they obtained a loan in the amount of P163,000.00. They paid the PNB, which then released the mortgage of Margarita. The Spouses Lopez ceased paying rentals to Margarita and even collected the rentals from the other lot as part of the payment of the monthly amortization.

Sometime in October 1987, Reynaldo Lopez approached Margarita and informed her that he needed P30,000.00 to update their loan payments. Margarita gave him the amount as part of the refund to the payment of the PNB loan. She expected Reynaldo to give her an official receipt from the DBP, but did not receive any. Sensing something irregular, she went to the DBP to inquire about the status of the loan. She was aghast to find out that the loan amortization had not been paid and that her property was again in danger of being foreclosed.

Margarita was constrained to file an action with the RTC against the Spouses Lopez for annulment of document, specific performance and reconveyance with damages. 

However, according to Spouses Lopez, that it was Margarita who approached them to help her redeem her property from the PNB because it was going to be foreclosed. She was aware that the couple wanted to buy a house and lot of their own, and offered her property to them instead. The Spouses Lopez told her that they did not have the money to redeem the property, but if Margarita was certain in selling her house to them, they could arrange for a loan from the DBP, the proceeds of which the PNB loan could be paid in full and would form part of the purchase price. The balance would also be taken from the proceeds of the DBP loan. Pursuant to their mutual and verbal agreement, Margarita executed a Deed of Assumption of Mortgage with Quitclaim, authorizing the couple to assume her loan with the PNB over the two lots, together with all the improvements thereon and renouncing all her rights over the property.

RTC: rendered decision in favor of Margarita. The trial court found that the true intentions of the parties were not really embodied in the documents/instruments. The documentary, as well as parol evidence, clearly showed that Margarita did not really intend to convey her property to the petitioners.  She agreed to sign the pertinent documents with the understanding that they were requirements of the bank in processing the loan applied for by the Spouses Lopez. The trial court continued to rule that the Spouses Lopez were in bad faith, so whatever improvements were made on the land were forfeited in favor of Margarita.

CA: affirmed the RTC finding that the nature of the transaction between Margarita and the Spouses Lopez was, verily, an equitable mortgage and not a sale. The CA, however, declared that the petitioners were builders in good faith. According to the CA, Margarita was aware and approved the construction/improvements undertaken by the Spouses Lopez; thus, forfeiture of the improvements in favor of Margarita was unwarranted. 

Spouces Lopez filed petition for review on certiorari to SC.

ISSUE

Whether or not the transaction between the parties is a contract of sale.

HELD:

There is no dispute that the transaction between the parties is one of equitable mortgage and not a sale. It bears stressing that the law favors the least transmission of rights and interests over a property in controversy (Art.1378). The purpose of the law is to prevent circumvention of the law on usury and the prohibition against a creditor appropriating the mortgaged property. Additionally, it is aimed to end unjust or oppressive transactions or violations in connection with the sale of the property. The wisdom of these provisions cannot be doubted, considering many cases of unlettered persons or even those with average intelligence invariably finding themselves in no position whatsoever to bargain fairly with their creditors.

Reasoning:

1. 1.     The owner, Margarita, remained in possession of the house. If she really intended to sell her house, then she would have looked for another place to live.
2. 2.     It was inconceivable that Margarita would sell her house and the two lots just to pay the PNB loan. She would have necessarily retained one parcel of land which she could have called her own.
3. 3.     The acknowledgement receipt signed by Reynaldo Lopez showing that they were paid by Margarita the sum of P30,000.00 is quite telling.
4. 4.     The Spouses Lopez never paid the monthly amortization. If they were truly the owner, then they would have protected their own property from being foreclosed.

No doubt in this case, the Spouses Lopez took advantage of Margarita's advanced age and urgent necessity for money, which explains why she agreed to sign the documents without being fully aware of their meaning and contents. "Necessitous men are not, truly speaking, free men; but to answer a present emergency, will submit to any terms that the crafty may impose upon them." What was intended to be a mere loan so as to enjoin the foreclosure by the bank of her property, ended up as a transfer of property to the Spouses Lopez, which was not the real intention and agreement of the parties in the first place. This is a fact which the Spouses Lopez cannot deny. From all indications, the Spouses Lopez were quite dishonest in attempting to appropriate the property as their own when this was not their agreement with Margarita.