“EQUITABLE MORTGAGE”

I. What is Equitable Mortgage?

An equitable mortgage has been 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, there being no impossibility nor anything contrary to law in
this intent.” (Rockville Excel International Exim Corporation vs. Sps. Oligario Culla
& Bernardita Miranda, G.R. No. 155716, October 2, 2009)

A contract of sale is presumed to be an equitable mortgage when any of the

following circumstances, enumerated in Article 1602 of the Civil Code, is
present.

The provisions of Article 1602 shall also apply to a contract purporting to be an

absolute sale.

For the presumption of an equitable mortgage to arise under Article 1602, two
(2) requisites must concur:

(a) that the parties entered into a contract denominated as a contract of sale;
and, (b) that their intention was to secure an existing debt by way of a
mortgage.

Any of the circumstances laid out in Article 1602, not the concurrence nor an
overwhelming number of the enumerated circumstances, is sufficient to support
the conclusion that a contract of sale is in fact an equitable mortgage. In
several cases, we have not hesitated to declare a purported contract of sale to
be an equitable mortgage based solely on one of the enumerated
circumstances under Article 1602. This approach follows the rule that when
doubt exists on the nature of the parties’ transaction, the law favors the least
transmission of property rights.

II. Legal Basis

Art. 1602. The contract shall be presumed to be an equitable mortgage, in any

of the following cases:

(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.

In any of the foregoing cases, any money, fruits, or other benefit to be received
by the vendee as rent or otherwise shall be considered as interest which shall be
subject to the usury laws.

In Rockville, the Supreme Court ruled that the contract between the parties was
an equitable mortgage. According to the Supreme Court:

In the present case, three attendant circumstances indicate that the purported
sale was in fact an equitable mortgage. First, the Sps. Culla retained possession
of the property. Second, Rockville kept a part of the purchase price. Third, as
previously discussed, Rockville continued to give the Sps. Culla extensions on the
period to repay their loan even after the parties allegedly agreed to a dacion
en pago. These circumstances, coupled with the clear and unequivocal
testimonies of Oligario and Bernardita that the purpose of the Deed of Absolute
Sale was merely to guarantee their loan, clearly reveal the parties’ true intention
to execute an equitable mortgage and not a contract of sale.

That a contract where the vendor remains in physical possession of the land, as
lessee or otherwise, is an equitable mortgage is well-settled. The reason for this
rule lies in the legal reality that in a contract of sale, the legal title to the property
is immediately transferred to the vendee; retention by the vendor of the
possession of the property is inconsistent with the vendee’s acquisition of
ownership under a true sale. It discloses, in the alleged vendee, a lack of interest
in the property that belies the truthfulness of the sale.
According to Rockville, it took possession of the property, albeit constructively
and not through actual occupation. Rockville contends, too, that its possession
of the title to the property and its subsequent attempt to register the property in
its name are clear indicators of its intent to enforce the contract of sale.

We cannot agree with these positions. In the first place, the Sps. Culla retained
actual possession of the property and this was never disputed. Rockville itself
admits this in its petition, but claims in justification that since the property is
contiguous to the site of the Sps. Culla’s family home, it would have been
impossible for Rockville to obtain actual possession of the property. Regardless
of where the property is located, however, if the transaction had really been a
sale as Rockville claimed, it should have asserted its rights for the immediate
delivery and possession of the lot instead of allowing the Sps. Culla to freely stay
in the premises. Its failure to do so suggests that Rockville did not truly intend to
enforce the contract of sale.

Moreover, we observe that while Rockville did take steps to register the property
in its name, it did so more than two years after the Deed of Absolute Sale was
executed, and only after Oligario’s continued failure to pay the P2,000,000.00
loan.

In addition, Rockville admitted that it never paid the P1,500,000.00 balance to

the Sps. Culla. As found by the RTC, while Rockville claims that it deposited this
amount with May Bank of Malaysia and notified Oligario of the deposit, no
evidence was presented to support this claim. Besides, even if this contention
had been true, the deposit in a foreign bank was neither a valid tender of
payment nor an effective consignation.

Lastly, the numerous extensions granted by Rockville to Oligario to pay his debt
after the execution of the Deed of Sale convince us that the parties never
intended to enter into a contract of sale; instead, the intent was merely to
secure the payment of Oligario’s loan.

____________________________________________________________________

B.P. Blg. 22 is not unconstitutional or, more specifically, that it does not transgress
the constitutional inhibition against imprisonment for non-payment of debt
_____________________________________________________________________

I. (Ivy Lim, Petitioner, V. People Of The Philippines And Blue Pacific Holdings, Inc.,
Respondents. G.R. No. 224979, December 13, 2017)

Court ruled:

The elements of violation of B.P. Blg. 22 are as follows:

1. The accused makes, draws or issues any check to apply to account or for
value;

2. The check is subsequently dishonored by the drawee bank for insufficiency of

funds or credit; or it would have been dishonored for the same reason had not
the drawer, without any valid reasons, ordered the bank to stop payment; and

3. The accused knows at the time of the issuance that he or she does not have
sufficient funds in, or credit with, drawee bank for payment of the check in full
upon its presentment.

All the foregoing elements were established beyond reasonable doubt by the
prosecution, as thoroughly discussed by the MeTC:

First element, the Court finds that the checks were issued for value. Accused is
the co-maker of the promissory note wherein she voluntarily bound herself to be
jointly and severally liable with Rochelle Benito, her sister, to Blue Pacific Inc. for
the amount of P605,000.00 plus interests. Accused is also a signatory to the
eleven checks issued, along with her sister, in favor of Blue Pacific. These checks
constitute the means for payment of the promissory note signed by the accused
and her sister. It is undisputed that the co-accused, Rochelle Benito was able to
travel to the United States. The expenses incurred for the said travel came,
undoubtedly, from the proceeds of the said loan albeit the accused did not
personally received the proceeds thereof. Although there was no personal
receipt of the proceeds by the accused, it is undisputed that the principal
objective of the accused, the processing and travel of her sister to the United
States was accomplished. The accused then stood to benefit from the loan. The
allegation of human trafficking, fraud and payment remains allegations as no
evidence was presented to the Court to prove [them]. The pieces of evidence
presented, testimonial and documentary, show that this is a business transaction
between Blue Pacific and the accused.
Second element, except for Exhibit "G", the
checks were presented for payment and
reason "Account Closed". The check dated
0105461 in the amount of P67,617.65 was
hence to criminal liability attached thereto.
evidence shows that the ten (10)
subsequently dishonored for the
May 29, 2004 with check number
not presented for payment, and

Third element, Exhibit "Q", the demand letter dated May 18, 2005 addressed to
Ivy Benito Lim and signed by Juanita Enriquez was undisputedly received by the
accused Ivy Lim as shown in Exhibit "Q-6". The distinctive strokes in writing the
name "Ivy" and the flourish of the stroke in writing "im" in the latter part thereof,
compared with the signatures appearing on all the checks shown that these
signatures were made by one and [the] same person. No evidence was
presented by the defense to refute the sending, receipt and existence of the
signature of accused Ivy Lim in Exhibits "Q" and Q-6".[25]

Be that as it may, a modification of the fine of P676,176.50 imposed by the MeTC

is in order because it appears to exceed the P200,000.00 limit under Section 1 of
B.P. Blg. 22 which provides for the penalty of "imprisonment of not less than thirty
days but not more than one (1) year or by a fine of not less than but not more
than double the amount of the check which fine shall in no case exceed Two
Hundred Thousand Pesos, or both such fine and imprisonment at the discretion
of the court." Instead of imposing a lump sum fine, the proper penalty should be
a fine of P67, 617.65 [face value of each check] for each of the Ten (10) counts
of violation of Batas Pambansa Blg. 22 with subsidiary imprisonment in case of
insolvency.

Finally, the actual damages in the amount of P743, 794.15 representing the face
value of the Eleven (11) checks, which the MeTC awarded to BPHI shall further
incur interest at the rate of six percent (6%) per annum from finality of this
Decision until fully paid, in line with Nacar v. Gallery Frames, Inc.

The petition for review on certiorari is DENIED. The CA Decision dated October
27, 2014 in CA-G.R. CR No. 36204 is AFFIRMED with MODICATION.

DARIO NACAR, PETITIONER, vs. GALLERY FRAMES AND/OR FELIPE BORDEY, JR.,
RESPONDENTS. (G.R. No. 189871, August 13, 2013)

When the judgment of the court awarding a sum of money becomes final
and executory, the rate of legal interest, whether the case falls under
paragraph 1 or paragraph 2, above, shall be 6% per annum from such
finality until its satisfaction, this interim period being deemed to be by then
an equivalent to a forbearance of credit.

And, in addition to the above, judgments that have become final and
executory prior to July 1, 2013, shall not be disturbed and shall continue to
be implemented applying the rate of interest fixed therein.