Deed of Sale vs.

Equitable Mortgage
Posted on November 11, 2009 by Hector M. de Leon Jr Under the Civil Code, an a reement that, on its !ace, loo"s li"e a sale may be considered an e#$itable mort a e. %rticle 1&02 o! the Civil Code 'rovides( %rt. 1&02. )he contract shall be 'res$med to be an e#$itable mort a e, in any o! the !ollo*in cases( +1, +2, -hen the 'rice o! a sale *ith ri ht to re'$rchase is $n$s$ally inade#$ate. -hen the vendor remains in 'ossession as lessee or other*ise.

+/, -hen $'on or a!ter the e0'iration o! the ri ht to re'$rchase another instr$ment e0tendin the 'eriod o! redem'tion or rantin a ne* 'eriod is e0ec$ted. +1, +2, -hen the '$rchaser retains !or himsel! a 'art o! the '$rchase 'rice. -hen the vendor binds himsel! to 'ay the ta0es on the thin sold.

+&, 3n any other case *here it may be !airly in!erred that the real intention o! the 'arties is that the transaction shall sec$re the 'ayment o! a debt or the 'er!ormance o! any other obli ation. 3n any o! the !ore oin cases, any money, !r$its, or other bene!it to be received by the vendee as rent or other*ise shall be considered as interest *hich shall be s$b4ect to the $s$ry la*s. 3n Rockville Excel International Exim Corporation vs. Spouses Oligario Culla and Bernardita Miranda, G.R. No. !!" #, Octo$er %, %&&', the 5$'reme Co$rt !aced the iss$e o! *hether a 6eed o! %bsol$te 5ale is really an absol$te sale o! real 'ro'erty or an e#$itable mort a e. )he 5$'reme Co$rt e0'lained the conce't o! an e#$itable mort a e as !ollo*s( %n e#$itable mort a e has been de!ined 7as one *hich altho$ h lac"in in some !ormality, or !orm or *ords, or other re#$isites demanded by a stat$te, nevertheless reveals the intention o! the 'arties to char e real 'ro'erty as sec$rity !or a debt, there bein no im'ossibility nor anythin contrary to la* in this intent.8 % contract o! sale is 'res$med to be an e#$itable mort a e *hen any o! the !ollo*in circ$mstances, en$merated in %rticle 1&02 o! the Civil Code, is 'resent. . . )he 'rovisions o! %rticle 1&02 shall also a''ly to a contract '$r'ortin to be an absol$te sale. 9or the 'res$m'tion o! an e#$itable mort a e to arise $nder %rticle 1&02, t*o +2, re#$isites m$st conc$r( +a, that the 'arties entered into a contract denominated as a contract o! sale. and, +b, that their intention *as to sec$re an e0istin debt by *ay o! a mort a e. %ny o! the circ$mstances laid o$t in %rticle 1&02, not the conc$rrence nor an over*helmin n$mber o! the en$merated

circ$mstances, is s$!!icient to s$''ort the concl$sion that a contract o! sale is in !act an e#$itable mort a e. 3n several cases, *e have not hesitated to declare a '$r'orted contract o! sale to be an e#$itable mort a e based solely on one o! the en$merated circ$mstances $nder %rticle 1&02. )his a''roach !ollo*s the r$le that *hen do$bt e0ists on the nat$re o! the 'arties: transaction, the la* !avors the least transmission o! 'ro'erty ri hts. 3n Rockville, the 5$'reme Co$rt r$led that the contract bet*een the 'arties *as an e#$itable mort a e. %ccordin to the 5$'reme Co$rt( 3n the 'resent case, three attendant circ$mstances indicate that the '$r'orted sale *as in !act an e#$itable mort a e. 9irst, the 5's. C$lla retained 'ossession o! the 'ro'erty. 5econd, ;oc"ville "e't a 'art o! the '$rchase 'rice. )hird, as 'revio$sly disc$ssed, ;oc"ville contin$ed to ive the 5's. C$lla e0tensions on the 'eriod to re'ay their loan even a!ter the 'arties alle edly a reed to a dacion en 'a o. )hese circ$mstances, co$'led *ith the clear and $ne#$ivocal testimonies o! <li ario and =ernardita that the '$r'ose o! the 6eed o! %bsol$te 5ale *as merely to $arantee their loan, clearly reveal the 'arties: tr$e intention to e0ec$te an e#$itable mort a e and not a contract o! sale. )hat a contract *here the vendor remains in 'hysical 'ossession o! the land, as lessee or other*ise, is an e#$itable mort a e is *ell>settled. )he reason !or this r$le lies in the le al reality that in a contract o! sale, the le al title to the 'ro'erty is immediately trans!erred to the vendee. retention by the vendor o! the 'ossession o! the 'ro'erty is inconsistent *ith the vendee:s ac#$isition o! o*nershi' $nder a tr$e sale. 3t discloses, in the alle ed vendee, a lac" o! interest in the 'ro'erty that belies the tr$th!$lness o! the sale. %ccordin to ;oc"ville, it too" 'ossession o! the 'ro'erty, albeit constr$ctively and not thro$ h act$al occ$'ation. ;oc"ville contends, too, that its 'ossession o! the title to the 'ro'erty and its s$bse#$ent attem't to re ister the 'ro'erty in its name are clear indicators o! its intent to en!orce the contract o! sale. -e cannot a ree *ith these 'ositions. 3n the !irst 'lace, the 5's. C$lla retained act$al 'ossession o! the 'ro'erty and this *as never dis'$ted. ;oc"ville itsel! admits this in its 'etition, b$t claims in 4$sti!ication that since the 'ro'erty is conti $o$s to the site o! the 5's. C$lla:s !amily home, it *o$ld have been im'ossible !or;oc"ville to obtain act$al 'ossession o! the 'ro'erty. ;e ardless o! *here the 'ro'erty is located, ho*ever, i! the transaction had really been a sale as ;oc"villeclaimed, it sho$ld have asserted its ri hts !or the immediate delivery and 'ossession o! the lot instead o! allo*in the 5's. C$lla to !reely stay in the 'remises. 3ts !ail$re to do so s$ ests that ;oc"ville did not tr$ly intend to en!orce the contract o! sale. Moreover, *e observe that *hile ;oc"ville did ta"e ste's to re ister the 'ro'erty in its name, it did so more than t*o years a!ter the 6eed o! %bsol$te 5ale *as e0ec$ted, and only a!ter <li ario:s contin$ed !ail$re to 'ay the P2,000,000.00 loan. 3n addition, ;oc"ville admitted that it never 'aid the P1,200,000.00 balance to the 5's. C$lla. %s !o$nd by the ;)C, *hile ;oc"ville claims that it de'osited this amo$nt *ith May =an" o! Malaysia and noti!ied <li ario o! the de'osit, no evidence *as 'resented to s$''ort this claim.

=esides, even i! this contention had been tr$e, the de'osit in a !orei n ban" *as neither a valid tender o! 'ayment nor an e!!ective consi nation. Lastly, the n$mero$s e0tensions ranted by ;oc"ville to <li ario to 'ay his debt a!ter the e0ec$tion o! the 6eed o! 5ale convince $s that the 'arties never intended to enter into a contract o! sale. instead, the intent *as merely to sec$re the 'ayment o! <li ario:s loan. %ll told, *e see no reason to de'art !rom the !indin s and concl$sions o! both the trial co$rt and the Co$rt o! %''eals.