[1602] Amelia Roberts vs. Spouses Papio Facts: Spouses Papio owned a piece of land in Makati (274 sqm).

. To secure a loan from Amparo Investments, they executed a real estate mortgage on said property. Failed to pay loan, so AI executed petition for extrajudicial foreclosure of mortgage. To prevent foreclosure, spouses executed a Deed of Absolute Sale in favor of husbands cousin, Petitioner Amelia Roberts (85k purchase price- 59k to AI, 26k to spouses). Then the parties executed a Contract of Lease over property, Amelia as lessor, husband Papio as lessee. Papio paid rentals for 2 years, then stopped paying but continued in possession for 13 years. Amelia, through counsel (since she was in the US), reminded them of unpaid rentals, but still no payment. Demanded that they vacate premises. Unheeded. Amelia filed complaint for unlawful detainer and damages in MeTC Defense of Papio: Contract of sale w/ right to repurchase Amelia offered to redeem property, he accepted. Only signed deed of sale after she gave him right to redeem property, and he did, by paying her authorized representative Perlita Ventura, but unfortunately, Ventura misappropriated P39k out of the total purchase price of P250k. Presented receipts signed by Ventura. P39k only reason why Amelia does not want to transfer ownership of property. Roberts: Deed of sale states on its face that conveyance of property was absolute and unconditional, right to repurchase must appear in a public doc, but none in this case, P39k back rentals to property, denied agreeing to P250k and authorizing Perlita to sell, previously offered to sell to spouses for USD15k and then for P670k, but they said no MeTC ruled in favor of Roberts RTC affirmed MeTC CA reversed RTC: Yes, equitable mortgage MeTC and RTC erred in ignoring Papios defense of equitable mortgage, and in not finding that the transaction covered by the deed of absolute sale by and between the parties was one of equitable mortgage under Article 1602 of the New Civil Code. The appellate court ruled that Papio retained the ownership of the property and its peaceful possession; hence, the MeTC should have dismissed the complaint without prejudice to the outcome of Civil Case No. 01-851 relative to his claim of ownership over the property Roberts: Article 1602 of the Civil Code applies only when the defendant specifically alleges this defense. Consequently, the appellate court was proscribed from finding that petitioner and respondent had entered into an equitable mortgage under the deed of absolute sale

Held: Petition granted. NOT EQUITABLE MORTGAGE, BUT SALE. NO RIGHT TO REPURCHASE. Ruling of the CA, that the contract between petitioner and respondent was an equitable mortgage, is incorrect. The fact of the matter is that the respondent intransigently alleged in his answer, and even in his affidavit and position paper, that petitioner had granted him the right to redeem or repurchase the property at any time and for a reasonable amount; and that, he had, in fact, repurchased the property in July 1985 for P250,000.00 which he remitted to petitioner through an authorized representative who signed receipts therefor; he had reacquired ownership and juridical possession of the property after his repurchase thereof in 1985; and consequently, petitioner was obliged to execute a deed of absolute sale over the property in his favor. Notably, respondent alleged that, as stated in his letter to petitioner, he was given the right to reacquire the property in 1982 within two years upon the payment of P53,000.00, plus petitioners airfare for her trip to the Philippines from the USA and back; petitioner promised to sign the deed of absolute sale. He even filed a complaint against the petitioner in the RTC, docketed as Civil Case No. 01-851, for specific performance with damages to compel petitioner to execute the said deed of absolute sale over the property presumably on the strength of Articles 1357 and 1358 of the New Civil Code. Certainly then, his claim that petitioner had given him the right to repurchase the property is antithetical to an equitable mortgage An equitable mortgage is one that, although lacking in some formality, form or words, or other requisites demanded by a statute, nevertheless reveals the intention of the parties to change a 49 real property as security for a debt and contain nothing impossible or contrary to law. A contract between the parties is an equitable mortgage if the following requisites are present: (a) the parties entered into a contract denominated as a contract of sale; and (b) the intention was 50 to secure an existing debt by way of mortgage. The decisive factor is the intention of the parties. In an equitable mortgage, the mortgagor retains ownership over the property but subject to 51 foreclosure and sale at public auction upon failure of the mortgagor to pay his obligation. In contrast, in a pacto de retro sale, ownership of the property sold is immediately transferred to the vendee a retro subject only to the right of the vendor a retro to repurchase the property upon compliance with legal requirements for the repurchase. The failure of the vendor a retro

to exercise the right to repurchase within the agreed time vests upon the vendee a retro, by operation of law, absolute title over the property One repurchases only what one has previously sold. The right to repurchase presupposes a 53 valid contract of sale between the same parties. By insisting that he had repurchased the property, respondent thereby admitted that the deed of absolute sale executed by him and petitioner on April 13, 1982 was, in fact and in law, a deed of absolute sale and not an equitable mortgage; hence, he had acquired ownership over the property based on said deed. Respondent is, thus, estopped from asserting that the contract under the deed of absolute sale is an equitable mortgage unless there is allegation and evidence of palpable mistake on the 54 part of respondent; or a fraud on the part of petitioner. Respondent made no such allegation in his pleadings and affidavit. On the contrary, he maintained that petitioner had sold the property to him in July 1985 and acknowledged receipt of the purchase price thereof except the amount of P39,000.00 retained by Perlita Ventura. Respondent is thus bound by his admission of petitioners ownership of the property and is barred from claiming otherwise Respondents admission that petitioner acquired ownership over the property under the April 13, 1982 deed of absolute sale is buttressed by his admission in the Contract of Lease dated April 15, 1982 that petitioner was the owner of the property contract is one of absolute sale and not one with right to repurchase failed to prove claim that petitioner Roberts offered to sell property back to him for P250k

[1602, 2088] Martires vs. Chua Facts: Chua owned 24 memorial park lots in Holy Cross Memorial Park in Novaliches, QC. She borrowed P150k from Spouses Martires, executed a real mortgage over property. Failed to settle obligation. W/o foreclosure, ownership of lots were transferred via Deed of Transfer. Chua complaint for annulment of mortgage (interest rates unjust and exorbitant). Later amended to include annulment of Deed of Transfer and Affidavit of Warranty (on the basis that it was forged). RTC ruled in favor of Sps Martires. Complaint dismissed. CA affirmed RTC. CA reconsidered its findings and concluded that the Deed of Transfer which, on its face, transfers ownership of the subject property to petitioners, is, in fact, an equitable mortgage. The CA held that the true intention of respondent was merely to provide security for her loan and not to transfer ownership of the property to petitioners. The CA so ruled on the basis of its findings that: (1) the consideration, amounting to P150,000.00, for the alleged Deed of Transfer is unusually inadequate, considering that the subject property consists of 24 memorial lots; (2) the Deed of Transfer was executed by reason of the same loan extended by petitioners to respondent; (3) the Deed of Transfer is incomplete and defective; and (4) the lots subject of the Deed of Transfer are one and the same property used to secure respondent's P150,000.00 loan from petitioners

Held: YES, EQUITABLE MORTGAGE. 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, there being no impossibility nor anything contrary to law in this intent One of the circumstances provided for under Article 1602 of the Civil Code, where a contract shall be presumed to be an equitable mortgage, is "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 the instant case, it has been established that the intent of both petitioners and respondent is that the subject property shall serve as security for the latter's obligation to the former. As correctly pointed out by the CA, the circumstances surrounding the execution of the disputed Deed of Transfer would show that the said document was executed to circumvent the terms of the original agreement and deprive respondent of her mortgaged property without the requisite foreclosure Cited a case w/ similar facts and similar ruling (Misena vs. Rongavilla) Since the original transaction between the parties was a mortgage, the subsequent assignment of ownership of the subject lots to petitioners without the benefit of foreclosure proceedings, partakes of the nature of a pactum commissorium, as provided for under Article 2088 of the Civil Code Pactum commissorium is a stipulation empowering the creditor to appropriate the thing given as guaranty for the fulfillment of the obligation in the event the obligor fails to live up to his undertakings, without further formality, such as foreclosure proceedings, and a public sale

In the instant case, evidence points to the fact that the sale of the subject property, as proven by the disputed Deed of Transfer, was simulated to cover up the automatic transfer of ownership in petitioners' favor. While there was no stipulation in the mortgage contract which provides for petitioners' automatic appropriation of the subject mortgaged property in the event that respondent fails to pay her obligation, the subsequent acts of the parties and the circumstances surrounding such acts point to no other conclusion than that petitioners were empowered to acquire ownership of the disputed property without need of any foreclosure agrees with the CA in not giving credence to petitioners' contention in their Answer filed with the RTC that respondent offered to transfer ownership of the subject property in their name as payment for her outstanding obligation. As this Court has held, all persons in need of money are liable to enter into contractual relationships whatever the condition if only to alleviate their financial burden albeit temporarily. Court cannot fathom why respondent would agree to transfer ownership of the subject property, whose value is much higher than her outstanding obligation to petitioners. Considering that the disputed property was mortgaged to secure the payment of her obligation, the most logical and practical thing that she could have done, if she is unable to pay her debt, is to wait for it to be foreclosed. She stands to lose less of the value of the subject property if the same is foreclosed, rather than if the title thereto is directly transferred to petitioners. This is so because in foreclosure, unlike in the present case where ownership of the property was assigned to petitioners, respondent can still claim the balance from the proceeds of the foreclosure sale, if there be any. In such a case, she could still recover a portion of the value of the subject property rather than losing it completely by assigning its ownership to petitioners