G.R. No. 151333 September 20, 2005
Spouses Natalio and Felicidad Salonga, Petitioners, vs. Spouses Manuel and Nenita Concepcion and Florencia Realty Corporation, Respondents.

FACTS

The spouses Salonga owned several parcels of land in Dagupan City, which they mortgaged to various banks to finance their business. After the 1990 earthquake damaged their commercial building, they defaulted on their loans, leading the banks to initiate foreclosure proceedings. To prevent this, the Salongas secured multiple loans from the spouses Concepcion, who were money lenders. The Concepcions directly paid the Salongas’ obligations to the Philippine National Bank, Associated Bank, and Development Bank of the Philippines, totaling millions of pesos, and took custody of the corresponding mortgage cancellations and titles.
The Salongas failed to repay the Concepcions. Subsequently, they executed two Deeds of Absolute Sale covering their properties in favor of the Concepcions. The first deed, covering five parcels, stated a consideration of ₱575,000. The second deed, covering two parcels including their residence, stated a price of ₱1,500,000. The Concepcions later sold three of these parcels to Florencia Realty Corporation. The Salongas then sued, claiming the deeds were actually equitable mortgages, not sales, and that they were grossly disadvantageous.

ISSUE

Whether the contracts denominated as Deeds of Absolute Sale were true sales or equitable mortgages.

RULING

The Supreme Court ruled that the contracts were equitable mortgages. The legal logic hinges on the application of statutory presumptions under Articles 1602 and 1604 of the Civil Code. The Court found several indicia present that triggered the presumption of an equitable mortgage. Crucially, the vendors (the Salongas) remained in possession of the property, specifically their family home. Furthermore, the purchase price was unusually inadequate, as the stated ₱2,075,000 total consideration was far less than the actual market value, which was proven to be over ₱9,000,000. The circumstances of the transaction also showed that the “seller” continued to benefit from the property.
The Court emphasized that the intention of the parties, not the nomenclature of the contract, controls. Given the Salongas’ dire financial straits—seeking loans to prevent foreclosure—the execution of the deeds was clearly intended to secure the repayment of the substantial sums advanced by the Concepcions. Therefore, the contracts were re-characterized as equitable mortgages. The Salongas were granted the right to redeem the properties by paying the secured loans to the Concepcions, and the titles issued to Florencia Realty were declared void as the Concepcions had no valid ownership to convey.