GR 141311; (May, 2005) (Digest)
G.R. No. 141311 May 26, 2005
BERNICE LEGASPI, petitioner, vs. SPOUSES RITA and FRANCISCO ONG, respondents.
FACTS
Respondent spouses Francisco and Rita Ong owned a property mortgaged to Permanent Savings and Loan Bank (PSLB). After foreclosure and failure to redeem, title was consolidated in PSLB’s name. When PSLB was liquidated, the spouses were given priority to repurchase the property for P2,655,000.00 but lacked funds. They sought assistance from petitioner Bernice Legaspi’s father. The parties executed a Deed of Sale with Right to Repurchase, wherein Legaspi would pay the bank for the property, and the Ongs could repurchase it within four months, extendable by one month. Legaspi paid the bank, and the title was released to her. The Ongs failed to repurchase within the agreed and extended periods.
Legaspi filed a petition for consolidation of ownership. The Ongs contended the deed was an equitable mortgage, not a true sale. The trial court ruled for Legaspi, ordering consolidation of title. The Court of Appeals reversed, declaring the contract an equitable mortgage. Legaspi appealed to the Supreme Court.
ISSUE
Whether the contract between the parties is a true Deed of Sale with Right to Repurchase or an equitable mortgage.
RULING
The Supreme Court affirmed the Court of Appeals, ruling the contract 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, even if denominated as a sale. The Court found several indicia present. First, the purchase price (P2,655,000.00) was grossly inadequate compared to the property’s proven market value of P16,004,072.00, strongly suggesting a loan security. Second, the vendor (the Ongs) remained in possession of the property. Third, the Ongs, who were the original owners, sought financial help from a friend, indicating a loan arrangement rather than an intent to absolutely sell. Fourth, the onerous terms, including a 4% monthly interest charge and the vendor bearing all taxes and expenses, are characteristic of a mortgage. The Court emphasized that the law favors the interpretation that preserves a debtor’s right to redeem property. Since the contract was reclassified as an equitable mortgage, the Ongs retain the right to redeem the property upon payment of the loan secured by it, plus interest. The Court ordered the remand of the case to the trial court to determine the exact redemption price.