FACTS: The spouses NatalioSalonga and FelicidadSalonga were the owners of the 8 prime parcels of land located in Dagupan City. They had a commercial building with four floors which stood on their property located along A.B. Fernandez Avenue, Dagupan City. The spouses leased the building to traders and merchants, and lived in a house along Arellano Street. The house stood on a lot which they also owned. The spouses loaned from several banks and mortgaged several of their properties in order to finance their business. Due to an earthquake that damaged their building, they were unable to pay their loans and some of their properties were foreclosed. They asked help from respondent to redeem their properties with the agreement that the building would be sold after 2 months and that the loands would be paid. Due to this agreement a deed of absolute sale was made in favor of respondents with the condition that it will not be registered. The loan was not repayed and the building was subsequently transferred in the name of respondents.
ISSUE: Whether the contract above is one of Equitable Mortgage or Absolute Sale.
HELD: The Supreme Court ruled that the contract was one of equitable mortgage due to the following reasons: First, the petitioners were hard-pressed to pay their account to the respondents in the total of the principla amount of P3, 198, 886.47; the said amount paid by the respondents for the account of the petitioners to the PNB, the Associated Bank and the DBP, excluding the amount of 36% interest a month of 36% interest per annum. Second, it was made to appear under the August 31, 1993 Deed of Absolute Sale that the petitioners had sold their five parcels of land to the respondents for the principal amount of P575,000.00, and that the petitioners received the said amount from the respondents. However, at the time of the execution of the said deed, the petitioners were indebted to the respondents for the principal amount of P586, 520.50, which the respondents had remitted to the Associated Bank for the account of the petitioners. It is incredible that the petitioners would sell the said parcels of land to the respondents, and that the latter, would remit the purchase price of P575,000.00 to the petitioners, and retain the said amount to be applied as payment to the petitioner’s accounts P586, 520.50. Third, respondent Manuel Concepcion had earlier signed on March 10, 1993 an undertaking that he would not register the deed of absolute sale as long as the petitioners will pay their outstanding account plus interests thereon at the rate of 3% per month. There was also gross inadequacy of price in this case as it appeared that their commercial building was sold for only 2M while the actual market price was 10M.
Digest Credit: Irvin Henson S. Ilog