Lazo v. Sps.

Villas
G.R. No. 221792, Jan 30, 2019
Topic: Equitable Mortgage
Third Division

Facts: In March 1991, Lagrimas Dela Rosa Lazo (petitioner), who was in need of money, offered for
sale to Rosario Yap Bautista (Bautista)  a parcel of land with an area of 250 sqm, situated at
Amparo Subdivision, Novaliches, Caloocan City, for the amount of P100,000.00. Petitioner
represented to Bautista that she was the absolute owner thereof. Bautista acceded but informed
petitioner that she would initially pay P35,000.00 in cash which petitioner accepted. Thus, on Mar
6, 1991, petitioner executed a deed of conditional sale over the said property in favour of Bautista.
They agreed that petitioner would execute a deed of absolute sale once Bautista completed
payment of the purchase price. After full payment of the purchase price, Bautista asked petitioner
to execute a deed of absolute sale over the said property. However, despite several demands,
petitioner failed to do so.
Bautista subsequently learned that the property sold to her by petitioner was part of a
777-square meter parcel of land covered by TCT No. 56774 registered in the name of Republic
Planter's Bank (now Maybank Philippines, Inc.). Apparently, on October 20, 1986, the bank sold
the entire property to petitioner. On September 30, 1987, petitioner entered a transaction
concerning a part thereof with Eleuterio Villas (Eleuterio). Petitioner gave the owner's duplicate
copy of TCT No. 56774 to Eleuterio through a certain Atty. Eden F. Dandal (Atty. Dandal). Bautista
then filed the instant complaint for specific performance against petitioner, Republic Planter's
Bank, and Spouses Eleuterio and Clarita Villas (Spouses Villas) for the issuance of a deed of
absolute sale in her favor and the surrender of TCT No. 56774.
RTC ruled that the transaction between the parties is an equitable mortgage and not a sale
with right to repurchase. RTC rules in favor of the petitioners. In CA, the decision was modified
favoring spouses Villas. Hence this case in the SC.

Issue: Whether the parties entered an equitable mortgage or a sale with right to repurchase?

Ruling: The Court agrees with the RTC that petitioner and Eleuterio entered an equitable
mortgage, not a sale with a right to repurchase. An equitable mortgage is defined "as one which
although lacking in some formality, or form or words, or other requisites demanded by a statute,
nevertheless reveals the intention of the parties to charge real property as security for a debt, and
contains nothing impossible or contrary to law."
Article 1602 of the Civil Code enumerates the instances when a contract shall be
presumed to be an equitable mortgage, to wit:
(1) When the price of a sale with right to repurchase is unusually inadequate;
(2) When the vendor remains in possession 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
executed;
(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 presence of even one of the circumstances in Art. 1602 is sufficient basis to declare a
contract as one of equitable mortgage. The express provision of Art. 1602 that any of those
circumstances would suffice to construe a contract of sale to be one of equitable mortgage is in
consonance with the rule that the law favours the least transmission of property rights. To
stress, the existence of any one of the conditions under Art. 1602, not a concurrence, or an
overwhelming number of such circumstances, suffices to give rise to the presumption that the
contract is an equitable mortgage.  Further, Art. 1603 of the Civil Code provides that "[i]n case of
doubt, a contract purporting to be a sale with right to repurchase shall be construed as an
equitable mortgage." The Court is convinced that the subject transaction entered by petitioner
and Eleuterio is one of equitable mortgage on the basis of paragraphs 1, 2, and 6 of Art. 1602.
First, the purchase price of the supposed sale is unusually inadequate. The object of the
transaction is 57) square meters of the parcel of land covered by TCT No. 56774. The price
agreed upon is P50,000.00. As aptly observed by the RTC, this amount appears to be inadequate
for the sale of this property. Second, it is undisputed that petitioner remained in possession of
the subject property. The RTC held that there is no showing that the Sps. Villas ever took
possession of the subject property prior to the expiration of the two-year period. The Spouses
Villas did not contest this finding in its pleadings before the Court despite petitioner referring to
the "equitable mortgage" finding in its petition. Third, it is evident that the parties entered the
subject transaction solely in consideration of the loan extended by Eleuterio to petitioner. The
underlying cause of the subject transaction is the loan. In fact, the amount of the loan is the
amount of the purchase price for the supposed sale of the subject property to Eleuterio. The RTC
is correct in its observation that the parties' true intention is to secure the payment of the loan,
not to transfer ownership of the subject property from petitioner to Eleuterio.
Based on the foregoing circumstances, the Court finds that the parties entered an
equitable mortgage. In an equitable mortgage, non-payment of the debt when due gives the
mortgagee the right to foreclose the mortgage, sell the property and apply the proceeds of the
sale to the satisfaction of the loan obligation.