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... - The Lawyer's Post

See - 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... - The Lawyer's Post





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THIRD DIVISION, G.R. No. 174240, March 20, 2013, SPOUSES LEHNER AND LUDY MARTIRES, PETITIONERS, VS. MENELIA CHUA, RESPONDENT.

"x x x.

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[14].

One of the circumstances provided for under Article 1602 of the Civil Code, where a contract shall be presumed to be an equitable mortgage, is “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 the instant case, it has been established that the intent of both petitioners and respondent is that the subject property shall serve as security for the latter’s obligation to the former. As correctly pointed out by the CA, the circumstances surrounding the execution of the disputed Deed of Transfer would show that the said document was executed to circumvent the terms of the original agreement and deprive respondent of her mortgaged property without the requisite foreclosure.

With respect to the foregoing discussions, it bears to point out that in Misena v. Rongavilla[15] a case which involves a factual background similar to the present case, this Court arrived at the same ruling. In the said case, the respondent mortgaged a parcel of land to the petitioner as security for the loan which the former obtained from the latter. Subsequently, ownership of the property was conveyed to the petitioner via a Deed of Absolute Sale. Applying Article 1602 of the Civil Code, this Court ruled in favor of the respondent holding that the supposed sale of the property was, in fact, an equitable mortgage as the real intention of the respondent was to provide security for the loan and not to transfer ownership over the property.

Since the original transaction between the parties was a mortgage, the subsequent assignment of ownership of the subject lots to petitioners without the benefit of foreclosure proceedings, partakes of the nature of a pactum  commissorium, as provided for under Article 2088 of the Civil Code.

Pactum commissorium is a stipulation empowering the creditor to appropriate the thing given as guaranty for the fulfillment of the obligation in the event the obligor fails to live up to his undertakings, without further formality, such as foreclosure proceedings, and a public sale[16].

In the instant case, evidence points to the fact that the sale of the subject property, as proven by the disputed Deed of Transfer, was simulated to cover up the automatic transfer of ownership in petitioners’ favor. While there was no stipulation in the mortgage contract which provides for petitioners’ automatic appropriation of the subject mortgaged property in the event that respondent fails to pay her obligation, the subsequent acts of the parties and the circumstances surrounding such acts point to no other conclusion than that petitioners were empowered to acquire ownership of the disputed property without need of any foreclosure.

x x x."