Civil Law,  Legally Yours

Alvaro v. Ternida

Alvaro v. Ternida

G.R. NO. 166183; January 20, 2006


Julita Ternida mortgaged their land to Spouses De Vera for 28,000 php. She was made to sign a Deed of Pacto de Retro Sale but Salvador explained to him that what she signed was a mortgage document. As worded, the document rovided that Julita has three years from the date of the execution of the document to repurchase the land. 

After a year, Salvador executed a Deed of Transfer of Mortgagein favor of the spouses Jose Calpito and Zoraida Valelo for a consideration of P32,000.00. Thereafter, Julita requested from the latter for an additional amount of P3,000.00, at which point, she was askedto sign a Deed of Sale with Right to Repurchase.

On May 22, 1990, Julita again asked for an additional amount of P1,000.00 but she was informed by Jose Calpito that they have transferred the mortgage to the spouses Tito Alvaro and Maria Valelo, herein petitioners. Julita thus went to the petitioners who gave her the additional amount of P1,000.00. Julita claimed that petitioners asked her to sign a document that she believed was a mortgage document but later on turned out to be a Deed of Absolute Sale over the contested property.

When Julita tried to redeem the property from the petitioners, the latter refused and claimed that they had purchased the property and were in fact issued Tax Declaration No. 2747. Hence, Ternida file a complaint for annulment of Deed of Sale documents.


Whether or not the transaction is an equitable mortgage and not sale


Yes, it is an equitable mortgage and not a absolute sale or sale with pacto de retro. 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. 

For the presumption of an equitable mortgage to arise, two requisites must concur: (1) that the parties entered into a contract denominated as a sale; and (2) that their intention was to secure an existing debt by way of a mortgage. Consequently, the nonpayment 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.

While there is no single conclusive test to determine whether a deed absolute on its face is really a simple loan accommodation secured by a mortgage, however, the Civil Code enumerates several instances when a contract is clothed with the presumption that it is an equitable mortgage, to wit:

Article 1602.  xxxxxx

 (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.

It is an established rule that the presence of even one of the circumstances set forth in Article 1602 consonance with the true intent of the parties at the time of the execution of the contract.

Applying the foregoing considerations to the instant case, we find that the true intention of the parties in the execution of the Deed of Absolute Sale was never to convey the ownership of the disputed property but merely to secure the loan obtained by Julita.

The circumstances surrounding the execution and performance of the terms of the contracts which plaintiff-appellant Julita Returban was made to sign involving the subject property are inconsistent with the theory that the property was sold.

When plaintiff-appellant Julita Returban first mortgaged the land in favor of spouses Salvador de Vera and Juanita Orinion for the amount of P28,000.00, she was made to sign a Deed of Pacto de Retro Sale. Salvador de Vera himself was aware that the subject property was merely mortgaged, not sold, because he himself subsequently executed a Deed of Transfer Mortgage in favor of spouses Jose Calpito and Zoraida Valelo.

If the transactions were a true pacto de retro, the purchase price had been fixed (at P3,600.00) not a centavo more and respondents’ giving of additional amounts on (three) different occasions to be aggregated to the redemption price “was absolutely inconsistent” with the concept of a “true sale with pacto de retro.”

The conditions which give rise to a presumption of equitable mortgage, as set out in Article 1602 of the Civil Code, apply with equal force to a contract purporting to be one of absolute sale.

Moreover, the presence of even one of the circumstances in Article 1602 is a sufficient basis to declare a contract as one of an equitable mortgage. This is in consonance with the rule that the law favors the least transmission of rights.

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