Dear PAO,

My parents were in a quandary because they thought that the document entitled “Bilihan ng Lupa” which they signed with Tino was a sale. However, the latter insists that it is an equitable mortgage. According to my parents, the document is a sale with a right to repurchase for three years, while Tino claims that he signed the document merely as a security for his loan. Tino further asserted that he remained in possession and never surrendered the ownership of said property to my parents. Which view will prevail?

Jenice

Dear Jenice,

Generally, the intention of the parties shall prevail in the interpretation of contracts. This is in consonance with Article 1370 of the New Civil Code of the Philippines which provides that: “[I]f the terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulations shall control. If the words appear to be contrary to the evident intention of the parties, the latter shall prevail over the former.”

Relative thereto, Article 1602 of the same law also states that:

“The contract is 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. xxx”

If indeed the real intention of your parents and Tino is a sale with a right to repurchase, then, the appropriate remedy is to compel the seller to repurchase the property within the stipulated time. This is provided under Article 1611, of the New Civil Code of the Philippines, viz.:

“In a sale with a right to repurchase, the vendee of a part of an undivided immovable who acquires the whole thereof in the case of article 498, may compel the vendor to redeem the whole property, if the latter wishes to make use of the right of redemption.”

However, if there is doubt, the contract purporting to be a sale with right to repurchase may be construed as an equitable mortgage pursuant to Article 1603 of the New Civil Code of the Philippines, and further backed by the pronouncement of the court in Singson vs Spouse Carpio, GR 238714, Aug. 30, 2023, where Chief Justice Alexander Gesmundo stated that:

“To stress, the CA ruled correctly that the Bilihan ng Lupa is an equitable mortgage, and not a contract of sale with conventional redemption as held by the RTC. As duly noted by the CA, the Bilihan ng Lupa can be presumed as an equitable mortgage in view of the existence of two circumstances under Art. 1602 of the New Civil Code, namely: (1) Primitiva and petitioner were allowed to remain in possession of the property for five years despite the purchase thereof by respondents; and (2) Primitiva was shown to be in dire need of money at the time of the transaction in order to redeem the same property from Piamonte.

“At any rate, whenever it is clearly shown that a deed of sale with pacto de retro, regular on its face is given as a security for a loan, it must be regarded as an equitable mortgage inasmuch as a sale with right to repurchase is not favored. In case of doubt, a contract purporting to be a sale with right to repurchase shall be construed as an equitable mortgage, because this involves a smaller transmission of rights and interests.”

Applying the above-quoted decision in your situation, the “Bilihan ng Lupa” could be interpreted as an equitable mortgage because of the existence of the following: Tino (vendor) remains in possession as lessee or otherwise (No. 2, Article 1602, New Civil Code of the Philippines); and 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 (No. 6, Article 1602, Id). Also, in case of doubt as to whether the contract is a sale with right of repurchase or an equitable mortgage, the interpretation in favor of equitable mortgage will more likely be sustained because it involves a smaller transmission of rights and interest.

We hope that we were able to answer your queries. This advice was based solely on the facts you have narrated and our appreciation of the same. Our opinion may vary when other facts are changed or elaborated.

Thank you for your continued trust and support.

Editor’s note: Dear PAO is a daily column of the Public Attorney’s Office. Questions for Chief Acosta may be sent to [email protected]