The present
Contract, which purports to be an absolute deed of sale, should be deemed an equitable mortgage for the following reasons: (1) the
consideration has been proven to be unusually inadequate; (2) the supposed
vendor has remained in possession of the property even after the execution of
the instrument; and (3) the alleged seller has continued to pay the real estate
taxes on the property.
An equitable mortgage has been defined "as one which
although lacking in some formality, or form or words, or other requisites
demanded by a statute, nevertheless reveals the intention of the parties to
charge real property as security for a debt, and contains nothing impossible or
contrary to law."[10]
The instances in which a contract of sale is presumed to be an equitable mortgage are enumerated in Article 1602 of the Civil Code as follows:
The instances in which a contract of sale is presumed to be an equitable mortgage are enumerated in Article 1602 of the Civil Code as follows:
"Art. 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.
In any of the foregoing cases, any money, fruits, or other benefit to be received by the vendee as rent or otherwise shall be considered as interest which shall be subject to the usury laws."
(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.
In any of the foregoing cases, any money, fruits, or other benefit to be received by the vendee as rent or otherwise shall be considered as interest which shall be subject to the usury laws."
Furthermore, Article 1604 of the
Civil Code provides that "[t]he provisions of Article 1602 shall also
apply to a contract purporting to be an absolute sale."
In the present case, three of the instances enumerated in Article 1602 -- grossly inadequate consideration, possession of the property, and payment of realty taxes --attended the assailed transaction and thus showed that it was indeed an equitable mortgage.
In the present case, three of the instances enumerated in Article 1602 -- grossly inadequate consideration, possession of the property, and payment of realty taxes --attended the assailed transaction and thus showed that it was indeed an equitable mortgage.
Ultimately, it
is the intention of the parties that determines whether a contract is
one of sale or of mortgage.[37] In the present case, one of the parties to
the contract raises as an issue the fact that their true intention or agreement
is not reflected in the instrument. Under this circumstance, parol evidence
becomes admissible and competent evidence to prove the true nature of the
instrument.[38] Hence, unavailing is
the assertion of petitioner that the interpretation of the terms of the
Contract is unnecessary, and that the parties clearly agreed to execute an
absolute deed of sale. His assertion does not hold, especially in the light of
the provisions of Article 1604 of the Civil Code, under which even contracts
purporting to be absolute sales are subject to the provisions of Article 1602.
[ G.R. NO. 159048, October 11, 2005
]BENNY GO, PETITIONER, VS. ELIODORO BACARON, RESPONDENT.
This creates an
unconscionable advantage for the mortgagee and amounts to a virtual prohibition on the owner to
sell his mortgaged
property. In other words, stipulations like those covered by paragraph 8
of the subject Deed of Real Estate Mortgage circumvent the law, specifically, Article 2130 of
the New Civil Code.
DECLARING
(a) the disputed contract as an equitable mortgage, (b) petitioner’s loan to
Respondent Sarao to be in the amount of P1,633,034.19 as of July 30, 1991; and
(c) the mortgage on the property -- covered by TCT No. 151784 in the name of
the Ramos spouses and issued by the Register of Deeds of Makati City --as
discharged
Xxxx
The pivotal issue in the instant
case is whether the parties intended the contract to be a bona fide pacto de retro
sale or an equitable mortgage.
In a pacto de retro, ownership of the property sold is immediately transferred to the vendee a retro, subject only to the repurchase by the vendor a retro within the stipulated period.[21] The vendor a retro’s failure to exercise the right of repurchase within the agreed time vests upon the vendee a retro, by operation of law, absolute title to the property.[22] Such title is not impaired even if the vendee a retro fails to consolidate title under Article 1607 of the Civil Code.[23]
On the other hand, an equitable mortgage is a contract that --although lacking the formality, the form or words, or other requisites demanded by a statute -- nevertheless reveals the intention of the parties to burden a piece or pieces of real property as security for a debt.[24] The essential requisites of such a contract are as follows: (1) the parties enter into what appears to be a contract of sale, but (2) their intention is to secure an existing debt by way of a mortgage.[25] The nonpayment of the debt when due gives the mortgagee the right to foreclose the mortgage, sell the property, and apply the proceeds of the sale to the satisfaction of the loan obligation.[26]
This Court has consistently decreed that the nomenclature used by the contracting parties to describe a contract does not determine its nature.[27] The decisive factor is their intention -- as shown by their conduct, words, actions and deeds -- prior to, during, and after executing the agreement.[28] This juristic principle is supported by the following provision of law:
In a pacto de retro, ownership of the property sold is immediately transferred to the vendee a retro, subject only to the repurchase by the vendor a retro within the stipulated period.[21] The vendor a retro’s failure to exercise the right of repurchase within the agreed time vests upon the vendee a retro, by operation of law, absolute title to the property.[22] Such title is not impaired even if the vendee a retro fails to consolidate title under Article 1607 of the Civil Code.[23]
On the other hand, an equitable mortgage is a contract that --although lacking the formality, the form or words, or other requisites demanded by a statute -- nevertheless reveals the intention of the parties to burden a piece or pieces of real property as security for a debt.[24] The essential requisites of such a contract are as follows: (1) the parties enter into what appears to be a contract of sale, but (2) their intention is to secure an existing debt by way of a mortgage.[25] The nonpayment of the debt when due gives the mortgagee the right to foreclose the mortgage, sell the property, and apply the proceeds of the sale to the satisfaction of the loan obligation.[26]
This Court has consistently decreed that the nomenclature used by the contracting parties to describe a contract does not determine its nature.[27] The decisive factor is their intention -- as shown by their conduct, words, actions and deeds -- prior to, during, and after executing the agreement.[28] This juristic principle is supported by the following provision of law:
Article 1371. In order to judge the
intention of the contracting parties, their contemporaneous and subsequent acts
shall be principally considered.[29]
Even if a contract is denominated as
a pacto de retro, the owner of the property may still disprove it by
means of parol evidence,[30] provided
that the nature of the agreement is placed in issue by the pleadings filed with
the trial court.[31]
There is no single conclusive test to determine whether a deed absolute on its face is really a simple loan accommodation secured by a mortgage.[32] However, the law enumerates several instances that show when a contract is presumed to be an equitable mortgage, as follows:
There is no single conclusive test to determine whether a deed absolute on its face is really a simple loan accommodation secured by a mortgage.[32] However, the law enumerates several instances that show when a contract is presumed to be an equitable mortgage, as follows:
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.
In any of the foregoing cases, any money, fruits, or other benefit to be received by the vendee as rent or otherwise shall be considered as interest which shall be subject to the usury laws.[33]
(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.
In any of the foregoing cases, any money, fruits, or other benefit to be received by the vendee as rent or otherwise shall be considered as interest which shall be subject to the usury laws.[33]
Furthermore, a contract purporting
to be a pacto de retro is construed
as an equitable mortgage when the terms of the document and the surrounding
circumstances so require.[34] The law
discourages the use of a pacto de retro, because this scheme is frequently used to circumvent
a contract known as a pactum commissorium. The Court has frequently noted that
a pacto de retro is used to conceal a contract of
loan secured by a mortgage.[35] Such
construction is consistent with the doctrine that the law favors the least
transmission of rights.[36]
Equitable Mortgage Presumed
to be Favored by Law
Jurisprudence has consistently declared that the presence of even just one of the circumstances set forth in the forgoing Civil Code provision suffices to convert a contract to an equitable mortgage.[37] Article 1602 specifically states that the equitable presumption applies to any of the cases therein enumerated.
In the present factual milieu, the vendor retained possession of the property allegedly sold.[38] Petitioner and her children continued to use it as their residence, even after Jonas Ramos had abandoned them.[39] In fact, it remained as her address for the service of court orders and copies of Respondent Sarao’s pleadings.[40]
The presumption of equitable mortgage imposes a burden on Sarao to present clear evidence to rebut it. Corollary to this principle, the favored party need not introduce proof to establish such presumption; the party challenging it must overthrow it, lest it persist.[41] To overturn that prima facie fact that operated against her, Sarao needed to adduce substantial and credible evidence to prove that the contract was a bona fide pacto de retro. This evidentiary burden she miserably failed to discharge.
Contrary to Sarao’s bare assertions, a meticulous review of the evidence reveals that the alleged contract was executed merely as security for a loan.
The July 23, 1991 letter of Respondent Sarao’s lawyer had required petitioner to pay a computed amount -- under the heading “House and Lot Loan”[42] -- to enable the latter to repurchase the property. In effect, respondent would resell the property to petitioner, once the latter’s loan obligation would have been paid. This explicit requirement was a clear indication that the property was to be used as security for a loan.
The loan obligation was clear from Sarao’s evidence as found by the trial court, which we quote:
Equitable Mortgage Presumed
to be Favored by Law
Jurisprudence has consistently declared that the presence of even just one of the circumstances set forth in the forgoing Civil Code provision suffices to convert a contract to an equitable mortgage.[37] Article 1602 specifically states that the equitable presumption applies to any of the cases therein enumerated.
In the present factual milieu, the vendor retained possession of the property allegedly sold.[38] Petitioner and her children continued to use it as their residence, even after Jonas Ramos had abandoned them.[39] In fact, it remained as her address for the service of court orders and copies of Respondent Sarao’s pleadings.[40]
The presumption of equitable mortgage imposes a burden on Sarao to present clear evidence to rebut it. Corollary to this principle, the favored party need not introduce proof to establish such presumption; the party challenging it must overthrow it, lest it persist.[41] To overturn that prima facie fact that operated against her, Sarao needed to adduce substantial and credible evidence to prove that the contract was a bona fide pacto de retro. This evidentiary burden she miserably failed to discharge.
Contrary to Sarao’s bare assertions, a meticulous review of the evidence reveals that the alleged contract was executed merely as security for a loan.
The July 23, 1991 letter of Respondent Sarao’s lawyer had required petitioner to pay a computed amount -- under the heading “House and Lot Loan”[42] -- to enable the latter to repurchase the property. In effect, respondent would resell the property to petitioner, once the latter’s loan obligation would have been paid. This explicit requirement was a clear indication that the property was to be used as security for a loan.
The loan obligation was clear from Sarao’s evidence as found by the trial court, which we quote:
“x x x [Sarao] also testified that
Myrna did not tender payment of the correct and sufficient price for said real
property within the 6-month period as stipulated in the contract, despite her
having been shown the computation of the loan obligation, inclusive of
capital gains tax, real estate tax, transfer tax and other expenses. She
admitted though that Myrna has tendered payment amounting to P1,633,034.20 in
the form of two manager’s checks, but these were refused acceptance for being
insufficient. She also claimed that several letters (Exhs. 2, 4 and 5) were
sent to Myrna and her lawyer, informing them of the computation of the loan
obligation inclusive of said expenses. x x x.”[43]
Respondent herself stressed that the
pacto de retro had been entered into on the very same day that the
property was to be foreclosed
by a commercial bank.[44] Such
circumstance proves that the spouses direly needed funds to avert a foreclosure
sale. Had they intended to sell the property just to realize some profit, as
Sarao suggests,[45] they would not
have retained possession of the house and continued to live there. Clearly, the
spouses had entered into the alleged pacto de retro sale to secure a loan obligation, not to transfer
ownership of the property.
Sarao contends that Jonas Ramos admitted in his June 14, 1991 letter to her lawyer that the contract was a pacto de retro.[46] That letter, however, cannot override the finding that the pacto de retro was executed merely as security for a loan obligation. Moreover, on May 17, 1991, prior to the transmittal of the letter, petitioner had already sent a letter to Sarao’s lawyer expressing the former’s desire to settle the mortgage on the property.[47] Considering that she had already denominated the transaction with Sarao as a mortgage, petitioner cannot be prejudiced by her husband’s alleged admission, especially at a time when they were already estranged.[48]
Inasmuch as the contract between the parties was an equitable mortgage, Respondent Sarao’s remedy was to recover the loan amount from petitioner by filing an action for the amount due or by foreclosing the property.[49]
Sarao contends that Jonas Ramos admitted in his June 14, 1991 letter to her lawyer that the contract was a pacto de retro.[46] That letter, however, cannot override the finding that the pacto de retro was executed merely as security for a loan obligation. Moreover, on May 17, 1991, prior to the transmittal of the letter, petitioner had already sent a letter to Sarao’s lawyer expressing the former’s desire to settle the mortgage on the property.[47] Considering that she had already denominated the transaction with Sarao as a mortgage, petitioner cannot be prejudiced by her husband’s alleged admission, especially at a time when they were already estranged.[48]
Inasmuch as the contract between the parties was an equitable mortgage, Respondent Sarao’s remedy was to recover the loan amount from petitioner by filing an action for the amount due or by foreclosing the property.[49]
THIRD DIVISION[ G.R. NO. 149756, February 11, 2005 ]MYRNA
RAMOS, PETITIONER, VS. SUSANA S. SARAO AND JONAS RAMOS, RESPONDENTS.
The law requires the presence of any
one and not the concurrence of all of the circumstances enumerated under
Article 1602, supra, to conclude that the transaction is one of
equitable mortgage. So it is that in Socorro Taopo Banga v. Sps. Jose and
Emeline Bello,[14] this Court,
citing Aguirre v. CA,[15]
unequivocally ruled:
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 law favors the least
transmission of property rights. To stress, the existence of any one of the
conditions under Article 1602, not a concurrence, nor an overwhelming number of
such circumstances, suffices to give rise to the presumption that the contract
is an equitable mortgage. (Emphasis ours)
Lastly, the
stipulation in the subject deed reading: "if we fail to exercise our
rights to repurchase as herein granted within the period stipulated, then this
conveyance shall become absolute and irrevocable without the necessity of
drawing a new absolute Deed of Sale, subject to the requirements of law
regarding consolidation of ownership of real property," - is
considered a pactum commissorium. This stipulation is contrary to the
nature of a true pacto de retro
sale since in such sale, ownership of the property sold is immediately
transferred to the vendee a retro
upon execution of the sale, subject only to the repurchase of a vendor a retro within the stipulated period.[18] Undoubtedly, the aforementioned stipulation
is a pactum commissorium because it enables the mortgagee to acquire
ownership of the mortgaged properties without need of any foreclosure
proceedings which is a nullity being contrary to the provisions of Article 2088[19] of the Civil Code. Indeed, the inclusion of
such stipulation in the deed shows the intention to mortgage rather than to
sell.
FIRST DIVISION[ G.R. NO. 162112, July 03, 2007 DOMINGO R. LUMAYAG AND FELIPA N. LUMAYAG, PETITIONERS, VS.
HEIRS OF JACINTO NEMEÑO AND DALMACIA DAYANGCO-NEMEÑO, REPRESENTED BY MELITON
NEMEÑO, RESPONDENTS.
Finally, the
circumstance that the original transaction was subsequently declared to be an
equitable mortgage must mean that the title to the subject land which had been
transferred to private respondents actually remained or is transferred back to
petitioners herein as owners-mortgagors, conformably to the well-established
doctrine that the mortgagee does not become the owner of the mortgaged property
because the ownership remains with the mortgagor (Art. 2088, New Civil Code).
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