2.

On  December  18,  1995,  Chua  borrowed  from  ​Spouses  Martires  the 
07 MARTIRES v CHUA  amount  of  P150,000.  The  loan  was  ​secured  by  a  ​real  estate  mortgage 
over  the  property.  Chua  committed  to  pay  a  monthy  interest  of  8%  and 
G.R. No. 174240 | March 20, 2013 | Arts. 1602 and 2088 | Binky  an additional 10% monthly interest in case of default. 
Petitioner: SPOUSES LEHNER and LUDY MARTIRES  3. PROBLEM​:​ Chua failed to fully settle her obligation. 
Respondents: MENELIA CHUA  4. Subsequently,  without  foreclosure  of  the  mortgage,  ownership  of  the 
  subject  lots  were  ​transferred  in  the  name  of  ​Spouses  Martires  via  a 
Recit-Ready:  ​Chua borrowed from Spouses Martires the amount of P150,000. The  Deed of Transfer. 
loan  was  secured  by  a  real  estate mortgage over the property. Chua committed to  5. RTC  QC:  Chua  filed  a  complaint  against  Spouses  Martires  for  the 
pay  a  monthy  interest  of  8%  and  an  additional  10%  monthly  interest  in  case  of  annulment  of  the  contract  of  mortgage  between  her  and  Sps.  Martires 
default.  Chua  failed  to  fully  settle her obligation.Subsequently, without foreclosure  on the ground that the interest rates imposed are unjust and exorbitant. 
of  the  mortgage,  ownership  of  the  subject  lots  were  transferred  in  the  name  of  6. RTC  QC  RULING:  Ruled  in  favor  of  Spouses  Martires  and dismissed the 
Spouses Martires via a Deed of Transfer.  complaint. 
7. CA:​ ​Affirmed the judgment of the RTC. 
W/N  the  Deed  of  Transfer  executed  between  Chua  and  Spouses  Martires  8. MR filed by Chua. 
constitute an equitable mortgage?​ YES  9. CA:​ Reversed itself and declared Deed of Transfer void ab initio. 

  ISSUES:  W/N  the  Deed  of  Transfer  executed  between  Chua  and  Spouses 
Doctrine:  ​In  the  instant  case,  it  has  been  established  that  the  intent  of  both  Martires constitute an equitable mortgage?​ YES 
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  RATIO: 
circumstances  surrounding  the  execution  of  the  disputed  Deed  of  Transfer would  DEFINITION OF EQUITABLE MORTGAGE​: An equitable mortgage has been 
show  that  the said document was executed to circumvent the terms of the original  defined as one which, although lacking in some formality, or form or words, or 
agreement  and  deprive  respondent  of  her  mortgaged  property  without  the  other requisites demanded by a statute, nevertheless reveals the intention of the 
requisite foreclosure.  parties to charge real property as security for a debt, there being no impossibility 
  nor anything contrary to law in this intent. 
In  addition,  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  CIRCUMSTANCE OF EM APPLIED IN THIS CASE:​ "where it may be fairly inferred 
transfer  of  ownership  in  petitioners'  favor.  While  there  was  no  stipulation  in  the  that the real intention of the parties is that the transaction shall secure the 
mortgage  contract  which  provides  for  petitioners'  automatic  appropriation  of  the  payment of a debt or the performance of any other obligation." 
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  IN THE CASE AT BAR:​ In the instant case, it has been established that the intent 
point  to  no  other  conclusion  than  that  petitioners  were  empowered  to  acquire  of both petitioners and respondent is that the subject property shall serve as 
ownership of the disputed property without need of any foreclosure.  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 
FACTS:  terms of the original agreement and deprive respondent of her mortgaged 
property without the requisite foreclosure 
1. SUBJECT  OF  CONTROVERSY:  24  memorial  lots  located  at  the  Holy   
Cross  Memorial  Park  in  Novaliches.  It is owned by ​Menelia Chua (Chua)  DEFINITION OF PACTUM COMMISSORIUM:​ a stipulation empowering the 
and her mother, ​Florencia Calagos (Calagos).  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 
 
APPLICATION OF PACTUM IN THIS CASE:​ 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.