The Supreme Court affirmed that a ‘Deed of Sale Under Pacto de Retro’ was indeed a sale, not an equitable mortgage, settling a long-standing property dispute. The Court emphasized the importance of clear contractual terms and the need for strong evidence to overturn public documents. This ruling ensures that sales with repurchase agreements are honored, providing certainty in land transactions and protecting the rights of buyers who rely on these agreements.

From Tenant to Owner: Resolving a Family Land Feud in Cebu

The case of Santiago Abapo v. Court of Appeals revolves around a contested parcel of land in Inawayan, Cebu, originally owned by the late spouses Victoriano Abapo and Placida Mabalate. After their passing, a dispute arose between their children, Santiago and Crispula, and subsequently their heirs, regarding the ownership of Lot 3912 of the Cadastral Survey of Cebu. The heart of the matter lies in a series of transactions, primarily a ‘Deed of Sale Under Pacto de Retro’ executed in 1967 and a subsequent ‘Deed of Absolute Sale’ in 1975. The central legal question is whether the initial transaction was genuinely a sale with the right to repurchase or if it should be interpreted as an equitable mortgage due to the alleged inadequacy of the consideration.

The narrative begins with Crispula Abapo-Bacalso and Santiago Abapo entering into a contract with their tenant, Teodulfo Quimada, selling the land for P500.00 with a five-year repurchase option. When the repurchase period lapsed without any action from the Abapos, Quimada’s ownership seemingly became absolute. More than seven years later, Quimada sold the property to Crispula Abapo-Bacalso and her husband, Pedro Bacalso, for the same amount. The Bacalso spouses then took possession of the land, enjoyed its fruits, and paid the real estate taxes, effectively excluding Santiago Abapo from any benefit.

Following the deaths of the Bacalso spouses, their heirs declared themselves the owners of the land in an “Extrajudicial Declaration of Heirs.” This declaration further solidified their claim to the property. However, Santiago Abapo complicated matters by initiating a petition for reconstitution of the original certificate of title, which was granted, and a reconstituted title was issued in the name of Victoriano Abapo, with Santiago holding the owner’s copy. This action prompted the Bacalso heirs to file a petition to surrender the owner’s copy of the title, which was initially dismissed but led to the filing of a complaint for quieting of title. This case aimed to remove the cloud over their title caused by Santiago’s possession of the reconstituted title and his claim of ownership.

In response, Santiago Abapo challenged the validity of both the ‘Deed of Sale Under Pacto de Retro’ and the ‘Deed of Absolute Sale,’ asserting that he never intended to sell his interest in the land. He claimed the initial transaction was merely an equitable mortgage. To support his claim, he presented Teodulfo Quimada as a witness. The trial court, however, ruled in favor of the Bacalso heirs, declaring them the absolute owners of the property and ordering Santiago to surrender the owner’s copy of the reconstituted title. Santiago appealed, but the Court of Appeals affirmed the trial court’s decision, leading to the present petition before the Supreme Court.

The Supreme Court addressed Santiago Abapo’s claim that the 1967 contract should be considered an equitable mortgage due to the allegedly inadequate consideration of P500.00. The Court, however, found no basis to deviate from the factual findings of the lower courts. The Supreme Court reiterated that its role is not to re-evaluate factual evidence, especially when the trial court’s findings are affirmed by the Court of Appeals. Furthermore, the Court noted that none of the circumstances outlined in Article 1602 of the Civil Code, which would indicate an equitable mortgage, were present in this case.

Specifically, Article 1602 of the Civil Code states the conditions under which a contract, purporting to be a sale with right to repurchase, may be presumed to be an equitable mortgage:

“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 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.”

The Court determined that the price of P500 was not unusually inadequate, as the assessed value of the land in 1970 was only P400. The Court clarified that inadequacy of price alone does not automatically lead to the conclusion that a contract was a loan or that the property was not actually sold. The rationale behind allowing a reduced price in sales with the right to repurchase is to facilitate the vendor’s ability to redeem the land. Grossly inadequate or shocking prices are required to invalidate a sale.

The Court also emphasized the significance of Teodulfo Quimada’s testimony, where he admitted that he enjoyed the fruits of the land from 1967 to 1975. This admission contradicted Santiago Abapo’s claim that the contract was an equitable mortgage. This fact further supported the conclusion that a valid sale occurred, as the transfer of ownership rights was evident. The Supreme Court also highlighted the importance of the disputed contracts being public documents, notarized and presumed regular, which Santiago Abapo failed to overcome with sufficient evidence.

The Court further explained that public documents are evidence of the facts expressed within them in a clear and unequivocal manner. To challenge such documents, clear, strong, and convincing evidence is required to overcome the presumption of regularity. Santiago Abapo failed to provide such evidence, relying mostly on allegations and testimonies. Oral testimony, being reliant on human memory, is considered less reliable than documentary evidence. The Court found no evidence of pressure, force, or intimidation exerted upon Santiago Abapo or Teodulfo Quimada during the signing of the documents.

Finally, the Supreme Court noted the lengthy delay by Santiago Abapo and Teodulfo Quimada in questioning the validity of the documents, which were executed over two decades before the legal challenge. This delay further weakened their claim due to the principle of laches, which discourages stale claims. Based on these considerations, the Supreme Court denied the petition and affirmed the Court of Appeals’ decision, which upheld the trial court’s ruling in favor of the Bacalso heirs. The Supreme Court emphasized that clear contractual terms and the reliability of public documents must be respected to ensure stability and predictability in property transactions.

FAQs

What was the key issue in this case?	The key issue was whether the ‘Deed of Sale Under Pacto de Retro’ was genuinely a sale with the right to repurchase or if it should be interpreted as an equitable mortgage due to the alleged inadequacy of the consideration.
What is a ‘Pacto de Retro’ sale?	A ‘Pacto de Retro’ sale, or sale with right to repurchase, is a contract where the seller has the right to buy back the property within a specified period. If the seller fails to repurchase within that time, the buyer’s ownership becomes absolute.
What is an equitable mortgage?	An equitable mortgage is a transaction that appears to be a sale but is actually intended as a security for a loan. Courts may construe a sale as an equitable mortgage if certain conditions are met, such as an unusually inadequate price.
What did the Supreme Court decide?	The Supreme Court decided that the ‘Deed of Sale Under Pacto de Retro’ was indeed a valid sale, not an equitable mortgage, and affirmed the lower courts’ decisions in favor of the Bacalso heirs.
Why did the Court rule it was a sale and not a mortgage?	The Court ruled it was a sale because the price was not unusually inadequate, the buyer (Quimada) took possession and enjoyed the fruits of the land, and the documents were notarized public documents with a presumption of regularity.
What is the significance of a document being notarized?	A notarized document is considered a public document and carries a presumption of regularity. This means that the court assumes the document is valid unless there is clear and convincing evidence to the contrary.
What is Article 1602 of the Civil Code?	Article 1602 of the Civil Code lists the conditions under which a contract of sale with right to repurchase shall be presumed to be an equitable mortgage, such as an unusually inadequate price or the vendor remaining in possession of the property.
What is the legal principle of laches?	Laches is the principle that equity will not assist a party who unreasonably delays asserting a claim, especially when the delay prejudices the opposing party. In this case, the long delay in questioning the sale weakened the petitioner’s claim.

This case underscores the importance of clearly defining the terms of property transactions and adhering to legal formalities. The Supreme Court’s decision reinforces the reliability of public documents and the need for compelling evidence to challenge their validity. By upholding the ‘Deed of Sale Under Pacto de Retro,’ the Court has provided clarity and certainty in land ownership, preventing potential abuse and ensuring fairness in property dealings.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: Santiago Abapo v. Court of Appeals, G.R. No. 128677, March 02, 2000