AMELIA S. ROBERTS, petitioner vs. MARTIN B.

PAPIO, respondent
G.R. No. 166714, February 9, 2007 | Callejo, Sr., J. kam

TOPIC: Sale distinguished from other contracts – Equitable mortgage

SUMMARY: Sps. Papio needed money to redeem subject property so they executed Deed of Absolute Sale in favor of
Roberts. They then executed a 2-year lease subject to renewal. However Sps. Papio failed to pay monthly rentals (after
expiration of lease), and after 2 demand letters, Roberts instituted unlawful detained against Sps. Papio. Sps. Papio
claims they already repurchased the said land as their original contract was a contract of equitable mortgage. SC ruled
that it was not an equitable mortgage, it was only a Contract of Sale, the right to repurchase was not reserved, and Papio
admitted the existence of the sale thus insisting he repurchased the land is incompatible with the defense of equitable
mortgage.

DOCTRINES:
 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 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 to secure an existing debt by way of mortgage. The decisive factor is the intention of the
parties.

 One repurchases only what one has previously sold. The right to repurchase presupposes a 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.

FACTS:
 Spouses Martin and Lucina Papio were owners of a residential lot located in Makati. In order to secure a
P59,000 loan from Amparo Investments, they executed a real estate mortgage on said property. Upon Papio’s
failure to pay the loan, the corporation filed a petition for extrajudicial foreclosure of mortgage.
 Since the couple needed money to prevent the foreclosure, they executed a Deed of Absolute Sale over the
property in favor of Amelia Roberts. Of the P85,000 purchase price, P59,000 was paid to Amparo Investments
while the P26,000 difference was retained by the spouses. The title to the property was delivered to Amelia
Roberts.
 Thereafter, the parties executed a 2-year contract of lease over the property, with Roberts as lessor and Papio
as lessee. At first, Papio paid his monthly rentals, but stopped paying after 1985. However, he and his family
remained in possession of the property for almost 13 years.
 On 1998, Roberts made a demand on Papio to pay his back rentals, or vacate the property if he failed to settle
the amount. Despite repeated demand, Papio refused to pay and refused to leave the premises. Hence, Roberts
filed a complaint for unlawful detainer before the MeTC of Makati City.
 Paprio raised the defense that in the original contract of sale, Roberts gave him the right to redeem the
property at any time for a reasonable amount. In fact, on 1985 he remitted to Roberts’ authorized
representative, Perlita Ventura, the amount of P250,000 as repurchase price. Allegedly, Roberts only refused to
execute a deed of absolute sale because Ventura misappropriated the amount of P39,000 from the supposed
repurchase price.

Procedural: MeTC ruled in favor of petitioner. RTC affirmed in toto. CA reversed on ground that the Deed of Absolute
Sale entered into by Papio and Roberts is actually an equitable mortgage.

ISSUE (HELD):
1. Whether the contract of sale entered into by Papio and Roberts is actually an equitable mortgage? (NO)
2. Whether petitioner is entitled to material or de facto possession of the property? (YES)

RATIO:
1. It is a contract of sale. Respondent’s insistent position that he repurchased the property pursuant to his right to
redeem granted by the petitioner is antithetical to an equitable mortgage.
a. An equitable mortgage is one that, although lacking in some formality or other requisite demanded by
a statute nevertheless reveals the intention of the parties to change a real property as security for debt
 and contain nothing impossible or contrary to law. A contract between two parties is an equitable
mortgage if the following requisites are present:
i. Parties entered into a contract denominated as contract of sale
ii. The intention was to secure an existing debt by way of mortgage
b. In contrast, the right to repurchase presupposes a valid contract of sale. By insisting that he had
repurchased the property, Papio actually admits that the deed of absolute sale executed by him and
petitioner was really a contract of sale. Respondent is thus bound by his admission of petitioner’s
ownership of the property and is barred from claiming otherwise.

2. YES. Respondent failed to prove his claim that he was given a right to repurchase in the original contract of sale,
and that he repurchased the same property for the amount of P250,000.
a. Interpretation of contract: If the terms of a contract is clear and leave no doubt upon the intention of
the contracting parties, the literal meaning of its stipulations should control. The contract is an
absolute sale and not one with right to repurchase.

b. Right to repurchase is not a right granted to the seller by the buyer in a subsequent document but
rather, a right reserved in the same contract of sale. Once a deed of absolute sale is executed, the seller
can no longer reserve the right to repurchase; any right thereafter granted in a separate document
cannot be a right of repurchase but some other right. Hence, SC in Ramos v. Icasiano said: an agreement
to repurchase becomes a promise to sell when made after the sale. For when the sale is made without
such agreement, the purchaser acquires the thing sold absolutely, and if he afterwards grants the
vendor the right to repurchase, it is a new contract entered into by the purchaser as absolute owner.
An option to buy or a promise to sell is different and distinct from the right of repurchase that must be
reserved by means of stipulations to that effect in a contract of sale.

c. Respondent also failed to prove the concurrence of the essential elements of contract. He failed to
prove that the negotiations between him and the petitioner culminated in his offer to repurchase the
property for P250,000, which offer was unconditionally accepted by the petitioner. A contract of sale is
consensual in nature and is perfected upon mere meeting of the minds. When there is merely an offer
by one party without acceptance of the other, there is no contract. When the contract of sale is not
perfected, it cannot, as an independent source of obligation, serve as binding juridical relation between
the parties.

Disposition: CA decision reversed and set aside. Decision of MeTC, affirmed by RTC, is AFFIRMED.