G.R. No. 156705 September 30, 2005
Socorro Taopo Banga vs. Spouses Jose and Emeline Bello

FACTS

Spouses Socorro and Nelson Banga owned a property in Mandaluyong City. Nelson, with Socorro’s consent, mortgaged it to respondent Jose Bello to secure a loan. The mortgage was amended twice, increasing the loan to ₱500,000. A Deed of Absolute Sale dated December 11, 1989, was later executed by Nelson, purportedly with Socorro’s marital consent, conveying the property to Jose for ₱300,000. Socorro filed a complaint for declaration of nullity of the deed, alleging her signature was forged, the consideration was unconscionably low, and she never appeared before the notary. Nelson, in his answer, claimed the deed was actually a third amendment to the mortgage—an equitable mortgage—and that he had already paid the loan.
The trial court found that Socorro failed to substantiate her forgery claim. However, examining the deed’s authenticity, it noted discrepancies: dates and residence certificate details appeared typed on different occasions. It concluded the document was prepared earlier, likely in 1987 alongside the original mortgage, and did not reflect a true sale. The court declared it an equitable mortgage, ordered the title reconveyed, and awarded damages. The Court of Appeals reversed, upholding the deed as a valid sale.

ISSUE

Whether the Deed of Absolute Sale is a true contract of sale or an equitable mortgage.

RULING

The Supreme Court reversed the Court of Appeals and reinstated the trial court’s finding that the deed was an equitable mortgage. The legal logic hinges on the application of Article 1602 of the Civil Code, which presumes a transaction is an equitable mortgage when certain circumstances exist, such as inadequate consideration. Here, the Court found the ₱300,000 sale price for a commercial property was grossly inadequate compared to its value, supporting the presumption.
Crucially, the Court affirmed the trial court’s factual findings on the deed’s irregularities. The discrepancies in the typing of dates and details indicated the document was not genuinely executed on December 11, 1989, but was prepared earlier, aligning with the mortgage transactions. This undermined its validity as a distinct sale. Since the deed was intended merely to secure the loan, it constituted an equitable mortgage. Consequently, the Bangas, as mortgagors, are entitled to redeem the property. The award of exemplary damages was deleted for lack of basis. The case was remanded to the trial court solely to determine if the mortgage obligation had been settled and, if not, to ascertain the amount due for redemption.