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GR 199852
November 12, 2014

The case stemmed from a parcel of land designated as Lot 4089, consisting of 40,608 sq.m. and
located in Calbayog, Samar. It was first registered under the name of petitioner Felipe Solitarios
(Solitarios) and subsequently in the name of respondents, spouses Gaston and Lilia Jaque (the Jaques).
In a complaint for Ownership and Recovery of Possession filed by the Jaques before the RTC of
Calbayog City, they alleged that they purchased Lot 4089 from Solitarios in 2 stages. First, they initially
bought half of the land for P 7,000.00. This sale was purportedly evidenced by a Notarized Deed of Sale
dated May 8, 1981. Two months later the spouses Solitarios, supposedly mortgaged the remaining
portion of Lot 4089 to the Jaques via a Real Estate Mortgage (REM) dated Juyl 15, 1981 to secure a loan
amounting to P 3,000.00. And after two years the Solitarios finally agreed to sell the half portion to the
Jaques. However, instead of executing a separate Deed of Sale for the second half, the Solitarios
executed a Deed of Sale dated April 26, 1983 covering the whole land. On the basis of which, the Jaques
were able to transfer the title of the Lot 4089 to their names. That in spite of the sale, the Jaques
allowed the Solitarios to remain in the property out of pity, on the condition that they deliver the
produce of the property to them. However, by the year 2000 stopped delivering the produce.
For their part, the spouses Solitarios denied selling the property to the Jaques and explained
that they merely mortgaged the same to the Jaques after the latter helped them redeem the property
from PNB. They narrated that, way back in 1975 they obtained a loan from PNB, they were able to pay
off this loan with their own funds. And again in 1976, they again mortgaged their property to secure a
loan of P 5,000.00 from PNB. From this, the Jaques volunteered to pay the obligation including the
interests and charges, so they gave the spouses Solitarios P 7,000.00 with the understanding that the
Solitarios will pay the Jaques by delivering portions of produce of Lot 4089, in particular one half of the
produce of the rice land and one-fourth of the produce of the coconut land. They also denied executing
any Deed of Sale and that their signatures were forged. They also challenged the validity of the new
Certificate under the name of the Jaques alleging that it was acquired through fraud and machinations.
RTC ruled in favor of the petitioners the Solitarios, ruling that the sale was actually an equitable
mortgage pursuant to Article 1602. However, CA reversed the ruling of the RTC and held the sale to be
Whether the parties effectively entered into a contract of absolute sale or an equitable
The SC held that the transaction is one of equitable mortgage, pursuant to the instances laid
down in Article 1602 of the New Civil Code, to wit:
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 withright to repurchase is unusually inadequate;

(2) When the vendor remains inpossession 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

(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 held that in a purported contract of sale where the vendor remains in physical possession of
the subject property is an indicium of an equitable mortgage. In the present case, it was not even
contested that the Solitarios remained in possession of the property, and it was only in 2000 that the
Jaques asserted their ownership. Also, the last provision of Article 1602 squarely applies to the present
case that indicates that the transaction was an equitable mortgage when in 1976 it was even admitted
by both parties that the Jaques accommodated the Solitarios in giving them P 7,000.00 to pay off the
obligation of the latter with PNB as a condition of which the Solitarios will pay through delivering
produce of the portion of Lot 4089.