The spouses NatalioSalonga and FelicidadSalonga were the owners of eight (8) prime parcels of land located in Dagupan City. They had a commercial building with four floors which stood on their property located to which they are leasing ito traders and merchants.

To finance their business, the spouses secured a loan from several banks to which they excuted a Real Estate Mortgage as payment thereof. An earthquake occurred and they latter defaulted in payment. The banks threatened to foreclose the real estate mortgages. The spouses Salonga secured a loan from spouses Concepcion, who were engaged in the business of lending money, to repay their loan to the PNB and to release the mortgages in favour of the spouses Concepcion.

            The spouses Salonga failed to pay the loans, interest and commission despite the lapse of several months. The spouses Salonga executed, in favor of the spouses Concepcion and Florencoa Realty Corporation, a Deed of Absolute Sale.

 The spouses Salonga and their daughter offered to redeem the property from the spouses Concepcion. But the latter informed the Salonga family that the title to the property had already been transferred to their names. Hence, Salonga filed a complaint against the spouses Concepcion and the FlorenciaRealty Corporation with the RTC.


W/N the deeds of sale in favor of respondents are null and void as they are absolutely simulated.


Article 1602 of the New Civil Code of the Philippines provides that a contract shall be presumed to be an equitable mortgage, in any of the following cases:….

 (2)   When the vendor remains in possession as lessee or otherwise;…”

The provision shall apply to a contract purporting to be an absolute sale.[41] In case of doubt, a contract purporting to be a sale with right to repurchase shall be considered as an equitable mortgage.[42] In a contract of mortgage, the mortgagor merely subjects the property to a lien, but the ownership and possession thereof are retained by him.[43]

The nomenclature given by the parties to the contract is not conclusive of the nature and legal effects thereof.[46] Even if a document appears on its face to be a sale, the owner of the property may prove that the contract is really a loan with mortgage, and that the document does not express the true intent of the parties.[47]

After a thorough examination of the records, we find and so hold that the August 31 and October 18, 1993 Deeds of Absolute Sale are mere equitable mortgages and not bona fide absolute sale of the parcels of land therein described.

Digest Credit: Abby Parwani



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