Case Digest: SOCORRO TAOPO BANGA v. SPOUSES JOSE AND EMELINE BELLO

SOCORRO TAOPO BANGA v. SPOUSES JOSE AND EMELINE BELLO

471 SCRA 653 (2005)

It is the intention of the parties and not the terminology used in the contract that determines whether a deed of absolute sale in form is an equitable mortgage

Nelson Banga, as mortgagor, with the consent of his wife Socorro, executed a Deed of Real Estate Mortgage in favor of Jose V. Bello over their real property as security for a loan extended by Jose to Nelson. The said mortgage was amended twice increasing the amount of the loan. It appears that a Deed on Absolute Sale was subsequently executed involving the same property. Socorro filed a complaint for the declaration of nullity of the sale for making it appear that she consented to the absolute sale. Also, Socorro questions the unconscionably low consideration for the sale of the property.
Bello contends that the sale was personally and voluntarily executed by Spouses Banga before the notary public and that the consideration of the sale is fair and reasonable because it is also based on the real estate mortgage and its amendments. Nelson, on the other hand, claims that the executed Deed was actually a third amendment to the mortgage and that he had already paid in full their principal indebtedness.

ISSUE:

Whether or not the parties intended the deed of absolute sale to be merely an equitable mortgage

HELD:

Article 1602 of the Civil Code enumerates instances when a contract shall be presumed to be an equitable mortgage. Some of these cases are: (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) In any other cases where it may be fairly inferred that the real intention of the parties is that the transaction shall ensure the payment of a debt or the performance of an obligation. Also, Article 1604 of the Civil Code provides that the provisions of Article 1602 shall also apply to a contract purporting to be an absolute sale.

It has been observed by the Trial Court that the Deed of Absolute Sale was prepared in 1987, the same year that the original deed of real estate mortgage was executed. Such is because the residence certificate numbers issued to the parties in 1987 appearing in the real estate mortgage of 1987 are the same as those appearing in the Deed of Absolute Sale purportedly executed in 1989. In fact, in the acknowledgement portion of the 1989 Deed of Absolute Sale whereon the phrase ―Series of 1987‖ appears, the number ―9‖ was superimposed on the number ―7‖, which this Court takes as a clear design to make it appear that it was notarized in 1989.

In determining whether a deed absolute in form is a mortgage, the court is not limited to the written memorials of the transaction. The decisive factor in evaluating such agreement is the intention of the parties, as shown not necessarily by the terminology used in the contract but by all the surrounding circumstances, such as the relative situation of the parties at that time, the attitude, acts, conduct, declarations of the parties, the negotiations between them leading to the deed, and generally, all pertinent facts having a tendency to fix and determine the real nature of their design and understanding.

Revealing the true intention of the parties is the undisputed relationship of Nelson and the Bello spouses as debtor and creditors respectively, which, together with the circumstances mentioned above, draws the Supreme Court to affirm the trial court’s ruling that the deed of absolute sale was executed to serve as additional security for the loan extended to Nelson.