22 ALUDOS VS SUERTE /hat e(isted was an equita!

le mortgage" as contemplated in
'rticle 0123" in relation with 'rticle 0124" of the Civil Code.
FACTS: 5'n equita!le mortgage has !een defined 6as one which
Lomises acquired from Baguio City Government the right to although lacking in some formality" or form or words" or other
occupy two stalls in the Hangar Market in Baguio City. requisites demanded !y a statute" nevertheless reveals the
Lomises entered into an agreement with respondent johnny intent ion of the parti es to charge real proper ty as
uerte for the transfer of all improvements and rights over sec ri ty fo r a !e"t " there !eing no impossi!ility nor
the two market stalls. uerte gave down payment and there anything contrary to law in this intent. 'rti cle 0123 of the
is a receipt. Civil Code lists down the circumstances that may indicate
uerte gave another payment !ut !efore the completion of that a contract is an equita!le mortgage&
payment" Lomises !acked out of the agreement and o 'rt. 0123. The contract shall "e pres#e! to "e
an e$ita"le #ortgage% in any of the follo&ing

returned
#ohnny didwhat
notwas
wantpaid
theand there
return wasmoney
of his a receipt
andfor this. the
wanted cases&
continuation and enforcement of his agreement. He filed for 708 /hen the price of a sale wit h right to
specific performance with damages. repurchase is unusually inadequate9
$%C& nullified the agreement !etween johnny and Lomises 738 /hen the vendor remains in possession as
lessee or otherwise9
for failure to secure the consent of the !aguio city
7:8 /hen upon or after the e(piration of the right
government.
to repurchase another instrument e(tending the period of
o Lomises are merely lessees and the government
redemption or granting a new period is e(ecuted9
was the lessor owner of stalls.
748 /hen the purchaser retains for himself a part
Lomises appealed to C'& the real agreement !etween the of the purchase price9
parties was merely one of loan and not for sale. %he load 7;8 /hen the vendor !inds himself to pay the
had !een e(tinguished upon the return of amount to ta(es on the thing sold9
#ohnny)s mother *omes. '() *n any other case &here it #ay "e fairly
C'& there are two agreements entered into !etween #ohnny inferre! that the real intention of the parties is that
and Lomises& one for assignment of leasehold rights and the the transaction shall secre the pay#ent of a !e"t or
other was for the sale of the improvements on the market the perfor#ance of any other o"ligation+
stalls. %he assignement of leasehold rights was void for lack ,n any of the foregoing cases" any money" fruits" or other
of consent of the lessor" !aguio government. %he sale of !enefit to !e received !y the vendee as rent or otherwise
improvements was valid !ecause there were Lomises private shall !e considered as interest.
properties. Based on Lomises) allegations in his pleadings" we consider

+etitioner&agreement was a loan. three circumstances to determine whether his claim is well<
supported. First" #ohnny was a mere college student
,-& dependent on his parents for support when the agreement
HELD: was e(ecuted" and it was #ohnny)s mother" *omes" who was
the party actually interested in acquiring the market stalls.
 Second" Lomises received only +4="222.22 of the
+1="222.22 that #ohnny claimed he gave as down payment9
Lomises said that the +32"222.22 represented interests on
the loan. Third" Lomises retained possession of the market
stalls even after the e(ecution of the agreement.
/hether separately or taken together" these
circ#stances !o not spport a conclsion that the
parties only inten!e! to enter into a contract of loan+
%hat #ohnny was a mere student when the agreement was
e(ecuted does not indicate that he had no financial capacity
to pay the purchase price. 't that time" #ohnny was a 31<
year old third year engineering student who operated as a
!usinessman as a sideline activity and who helped his family
sell goods in the Hangar Market. *uring trial" #ohnny was
asked where he was to get the funds to pay the +312"222.22
purchase price" and he said he would get a loan from his
grandfather. %hat he did not have the full amount at the time
the agreement was e(ecuted does not necessarily negate
his capacity to pay the purchase price" since he had 01
months to complete the payment. 'part from Lomises) !are
claim that it was #ohnny)s mother" *omes" who was
interested in acquiring his market stalls" we find no other
evidence supporting the claim that #ohnny was merely acting
as a dummy for his mother.
Lomises contends that of the +1="222.22 given !y #ohnny"
he only received +4="222.22" with the remaining +32"222.22
retained !y #ohnny as interest on the loan. However" the
testimonies of the witnesses presented during trial" including
Lomises himself" negate this claim. #udge $odolfo $odrigo
7$%C of Baguio City" Branch >,,8 asked Lomises) lawyer" 'tty.
Lockey" if they deny receipt of the +1="222.229 'tty. Lockey
said that they were not denying receipt" and added that they
had in fact returned the same amount. #udge $odrigo
accurately summari?ed their point !y stating that 5there is no
need to dispute whether the +1="222.22 was given" !ecause
if @LomisesA tried to return that ( ( ( he had received that.
/itness 'tty. 'l!ert -maming said he counted the money
!efore he drafted the cto!er " 0=; receipt evidencing the
return9 he said that Lomises returned +1="222.22 in total.
%hus" if the transaction was indeed a loan and the
+32"222.22 interest was already prepaid !y Lomises" the
return of the full amount of +1="222.22 !y Lomises to #ohnny
7through his mother" *omes8 would not make sense.
%hat Lomises retained possession of the market stalls even
after the e(ecution of his agreement with #ohnny is also not
an indication that the true transaction !etween them was one
of loan. #ohnny had yet to complete his payment and" until
Lomises decided to forego with their agreement" had four
more months to pay9 until then" Lomises retained ownership
and possession of the market stalls.
Lomises cannot feign ignorance of the import of the terms of
the receipt of eptem!er =" 0=4 !y claiming that he was an
illiterate old man. ' witness 7'na Comnad8 testified not only
of the fact of the sale" !ut also that Lomises) daugh ter"
*olores" translated the terms of the agreement from nglish
to ,locano for Lomises) !enefit. Lomises himself admitted this
fact. ,f Lomises !elieved that the receipt of eptem!er ="
0=4 did not e(press the parties) true intent" he could have
refused to sign it or su!sequently requested for a reformation
of its terms. Lomises rejected the agreement only after
#ohnny sought to enforce it.
Hence"
!etweenthe C' was
#ohnny andcorrect in characteri?ing
Lomises the agreement
as a sale of improvements
and assignment of leasehold rights.