SECOND DIVISION

[G.R. No. 229243. June 26, 2019.]

MAXIMA P. SACLOLO AND TERESITA P. OGATIA , petitioners, vs.

ROMEO MARQUITO, MONICO MARQUITO, CLEMENTE MARQUITO,
ESTER M. LOYOLA, MARINA M. PRINCILLO, LOURDES MARQUITO
and LORNA MARQUITO , respondents.

DECISION

CAGUIOA , J : p

This is a petition for review on certiorari (Petition) under Rule 45 of the Rules of
Court assailing the Decision 1 of the Court of Appeals (CA) dated July 10, 2015 and the
Resolution 2 dated November 14, 2016 in CA-G.R. CEB-CV. No. 01796. The CA Decision
denied the appeal and affirmed the Decision 3 dated July 26, 2006 of Branch 3, Regional
Trial Court, Guiuan, Eastern Samar (RTC), in Civil Case No. 1159, denying the Complaint
on the ground that the right to repurchase/redeem the subject property had already
expired.
The Facts and Antecedent Proceedings
The dispute involved a co-owned parcel of coconut land, which Maxima P.
Saclolo (petitioner Saclolo) and Teresita P. Ogatia (petitioner Ogatia) (together,
petitioners) inherited from their father. 4
Petitioners claimed that on December 27, 1987, they each obtained a loan of
P3,500.00 from Felipe Marquito, the father of Romeo Marquito, Monico Marquito,
Clemente Marquito, Ester M. Loyola, Marina M. Princillo, Lourdes Marquito and Lorna
Marquito 5 (respondents). Petitioners used their land as collateral for the loan
obligation. 6 On said date, respondents' father began occupying the land. 7 In March
2003, petitioner Ogatia borrowed an additional P6,000.00, and again used her aliquot
share of the land as collateral for the loan. 8 In June 2004, petitioner Saclolo also
borrowed an additional amount of P10,000.00 from respondents, using her aliquot
share of the land as collateral. 9
Sometime in October 2004, petitioners verbally informed respondents of their
intention to "redeem" the property. 1 0 On November 18, 2004, a written offer to redeem
the property was made. 1 1 Respondents, however, refused. 1 2 Thus, petitioners were
constrained to le a Complaint for redemption of mortgaged properties, speci c
performance with damages before the RTC. 1 3 During the proceedings, they manifested
their willingness to deposit the amounts due on their loan obligation for the purpose of
redemption. 1 4
Respondents, on the other hand, alleged that in 1984, petitioners sold the subject
property for P1,000.00 under a Memorandum of Deed of Sale with Right of Repurchase.
1 5 Since then, they have been in actual possession of the property in the concept of
owner and even introduced improvements thereon worth P120,000.00. 1 6 They
admitted that since 1984, petitioners, on numerous occasions, borrowed money from
them but explained that they extended said loans on the understanding that petitioners
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 would execute a deed of absolute sale in their favor. 1 7 CAIHTE

After trial, the RTC found that the true transaction between the parties was one of
equitable mortgage. 1 8 However, it held that the period for the redemption of the
property had lapsed as it was led beyond the four-year period under Article 1606 1 9 of
the Civil Code. 2 0 Thus, it dismissed the complaint. 2 1
Petitioners led a Motion for Reconsideration. 2 2 On the other hand, respondents
failed or refused to challenge the nding that the real transaction between the parties
was an equitable mortgage. 2 3 Thus, this issue attained finality. 2 4
When the RTC denied their motion, 2 5 petitioners appealed to the CA alleging that
the RTC erred in ruling that their right to redeem the property had already prescribed. 2 6
They argued that since the transaction was found to be an equitable mortgage, the
property should be subjected to a foreclosure sale and the period to redeem the
property under Article 1606 does not apply. 2 7
The Ruling of the CA
The CA denied the appeal and a rmed the Decision of the RTC. 2 8 The CA held
that "inasmuch as [respondents] did not interpose their own appeal, the trial court's
nding that the transaction between the parties is an equitable mortgage can no longer
be disturbed x x x in line with the rule that only assigned errors will be decided during
appeal." 2 9 Nevertheless, the CA agreed that the real transaction between the parties
was one of equitable mortgage. 3 0
Further, the CA agreed that petitioners' action had prescribed, but found the
RTC's application of the four-year period under Article 1606 incorrect. The CA explained
that under Article 1142 3 1 and 1144, 3 2 petitioners had 10 years from the execution of
t h e Memorandum of Deed of Sale with Right to Repurchase on July 26, 1984 "to
redeem the property." 3 3 As petitioners only formally offered to redeem the property on
November 18, 2004, the action had prescribed. 3 4
On reconsideration, however, the CA reversed its ruling on the proper prescriptive
period and agreed "with the trial court that [petitioners could] no longer repurchase or
redeem the property pursuant to Article 1606 of the Civil Code." 3 5
Hence, this Petition.
Issue
Whether the action has prescribed.
The Court's Ruling
The Petition has merit.
In Spouses Salonga v. Spouses Concepcion , 3 6 the Court explained the nature of
an equitable mortgage, viz.:
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:
(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
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 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.
In any of the foregoing case, any money, fruits, or other
bene t to be received by the vendee as rent or otherwise shall be
considered as interest which shall be subject to the usury laws.
The provision shall apply to a contract purporting to be an absolute sale.
In case of doubt, a contract purporting to be a sale with right to repurchase shall
be considered as an equitable mortgage. In a contract of mortgage, the
mortgagor merely subjects the property to a lien, but the ownership and
possession thereof are retained by him.
For the presumption in Article 1602 of the New Civil Code to arise, two
requirements must concur: (a) that the parties entered into a contract
denominated as a contract of sale; and (b) that their intention was to secure an
existing debt by way of a mortgage. The existence of any of the circumstances
de ned in Article 1602 of the New Civil Code, not the concurrence nor an
overwhelming number of such circumstances[,] is su cient for a contract of
sale to be presumed an equitable mortgage.
If 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.
However, if the records appear to be contrary to the evident intention of the
contracting parties, the latter shall prevail.
The nomenclature given by the parties to the contract is not conclusive of
the nature and legal effects thereof. 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. DETACa

There is no conclusive test to determine whether a deed absolute on its

face is really a simple loan accommodation secured by a mortgage. The
decisive factor in evaluating such deed is the intention of the parties as shown
by all the surrounding circumstances, such as the relative situation of the
parties at that time, the attitude, acts, conduct, and declarations of the parties
before, during and after the execution of said deed, and generally all pertinent
facts having a tendency to determine the real nature of their design and
understanding. As such, documentary and parol evidence may be adduced by
the parties. When in doubt, courts are generally inclined to construe a
transaction purporting to be a sale as an equitable mortgage, which involves a
lesser transmission of rights and interests over the property in controversy. 3 7
In the instant case, the RTC and CA both held that the subject Memorandum of
Deed of Sale with Right of Repurchase, while purporting to be a sale with right to
repurchase, was, in fact, an equitable mortgage. 3 8 Factual ndings of the lower court,
more so when supported by the evidence, as in this case, command not only respect
but even nality and are binding on the Court. 3 9 Further, the ndings of the RTC and the
CA on the nature of the transaction have attained nality considering that the
respondents never challenged the same. 4 0

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 Thus, the only issue for resolution before the Court is whether petitioners' action
to "redeem" the subject property has prescribed. Both the RTC and the CA held that
while the true transaction was one of equitable mortgage under Articles 1602 and 1603
of the Civil Code, petitioners could no longer "repurchase" or "redeem" the subject
property as the period for redemption under Article 1606 of the Civil Code has lapsed.
4 1 This is erroneous .

An equitable mortgage, like any other mortgage, is a mere accessory contract

"constituted to secure the ful llment of a principal obligation," 4 2 i.e., the full payment of
the loan.
Since the true transaction between the parties was an equitable mortgage and
not a sale with right of repurchase, there is no "redemption" or "repurchase" to speak of
and the periods provided under Article 1606 do not apply. Instead, the prescriptive
period under Article 1144 4 3 of the Civil Code is applicable. In other words, the parties
had 10 years from the time the cause of action accrued to file the appropriate action.
A review of the records unequivocally shows that the parties faithfully abided by
their true agreement for 19 years counted from the execution of the Memorandum of
Deed of Sale with Right of Repurchase.
Although the Memorandum of Deed of Sale with Right of Repurchase was
executed in 1984 and the period to redeem the same supposedly lapsed in 1994 if
such contract were a true sale with right to repurchase, both the RTC and CA found that
subsequent loans were extended to either or both of the petitioners in 1987, 2003, and
2004, "using the same land as security for the loan." 4 4 These facts were alleged in
petitioners' Complaint 4 5 and were not specifically denied in respondents' Answer. 4 6
The release of additional loans on the basis of the same security, coupled with
the fact that respondents never led an action to consolidate ownership over the
subject property under Article 1607, 4 7 evidently shows that for 19 years, respondents
expressly recognized: 1) that petitioners continued to own the subject property and 2)
that the loan and equitable mortgage subsisted.
Thus, petitioners' cause of action to recover the subject property can be said to
have accrued only in 2004, that is, when respondents rejected petitioners' offers to pay
and extinguish the loan and to recover the mortgaged property as it was only at this
time that respondents manifested their intention not to comply with the true agreement
of the parties. Undoubtedly, the ling of the complaint in 2005 was made well-
within the 10-year prescriptive period . Such treatment is more in keeping with the
principle that:
The provisions of the Civil Code governing equitable mortgages
disguised as sale contracts, like the one herein, are primarily designed to curtail
the evils brought about by contracts of sale with right to repurchase, particularly
the circumvention of the usury law and pactum commissorium. Courts have
taken judicial notice of the well-known fact that contracts of sale with right to
repurchase have been frequently resorted to in order to conceal the true nature
of a contract, that is, a loan secured by a mortgage. It is a reality that grave
nancial distress renders persons hard-pressed to meet even their basic needs
or to respond to an emergency, leaving no choice to them but to sign deeds of
absolute sale of property or deeds of sale with pacto de retro if only to obtain
the much-needed loan from unscrupulous money lenders. 4 8
Respondents, for their part, are not without remedy. They are entitled to collect
the outstanding amount of petitioners' loan, plus interest, and to foreclose on the
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 subject property should the latter fail to pay the same. 4 9 To allow respondents to
appropriate the subject lot without prior foreclosure would produce the same effect as
a pactum comissorium. 5 0 Upon full satisfaction of the debt, the mortgage, being a
security contract, shall be extinguished 5 1 and the property should be returned to herein
petitioners. As the records are bereft of any basis for the determination of the
outstanding amount of the loan, the Court is left with no choice but to remand the
instant case to the RTC for a determination of the outstanding amount of the loan and
the imposition of the applicable interest, and for a declaration of whether or not
respondents are entitled to foreclose on the equitable mortgage.
WHEREFORE , the Petition is GRANTED . The Decision dated July 10, 2015 and
the Resolution dated November 14, 2016 in CA-G.R. CEB-CV. No. 01796 are
REVERSED . The instant case is REMANDED to Branch 3, Regional Trial Court, Guiuan,
Eastern Samar to determine the outstanding amount of the loan and the applicable
interest, to x a reasonable period for the payment of the same, and to order the return
of the subject property only upon full satisfaction thereof. aDSIHc

SO ORDERED.
Carpio, Perlas-Bernabe, J.C. Reyes, Jr. and Lazaro-Javier, JJ., concur.

Footnotes

1. Rollo, pp. 33-42. Penned by Associate Justice Germano Francisco D. Legaspi, with Associate
Justices Pamela Ann Abella Maxino and Jhosep Y. Lopez concurring.

2. Id. at 44-46. Penned by Associate Justice Germano Francisco D. Legaspi, with Associate
Justices Edgardo L. Delos Santos and Pamela Ann Abella Maxino concurring.
3. Id. at 69-80. Penned by Presiding Judge Rolando M. Laode-o.

4. Id. at 34.
5. Id.

6. Id.
7. Id. at 35.

8. Id. at 34.
9. Id.
10. Id.

11. Id.
12. Id.

13. Id.
14. Id. at 35.

15. Id.
16. Id.
17. Id.
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 18. Id. at 40 and 79.

19. Art. 1606. The right referred to in article 1601, in the absence of an express agreement, shall
last four years from the date of the contract.
  Should there be an agreement, the period cannot exceed ten years.

  However, the vendor may still exercise the right to repurchase within thirty days from the
time final judgment was rendered in a civil action on the basis that the contract was a
true sale with right to repurchase.
20. Rollo, p. 80.

21. Id.
22. Id. at 36.
23. Id. at 41.
24. Id.

25. Id. at 36.

26. Id. at 37.
27. Id.
28. Id. at 42.

29. Id. at 41.

30. Id. at 40.
31. Art. 1142. A mortgage action prescribes after ten years.
32. Art. 1144. The following actions must be brought within ten years from the time the right of
action accrues:
  (1) Upon a written contract;
  (2) Upon an obligation created by law;

  (3) Upon a judgment.

33. Rollo, p. 41.
34. Id.
35. Id. at 45.
36. 507 Phil. 287 (2005).

37. Id. at 302-304. Citations omitted. Emphasis supplied.

38. Rollo, pp. 39-40.
39. Spouses Lumayag v. Heirs of Nemeño, 553 Phil. 293, 303 (2007).
40. Rollo, p. 41.
41. Id. at 45 and 80.

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 42. CIVIL CODE, Art. 2085. The following requisites are essential to the contracts of pledge and
mortgage:
  (1) That they be constituted to secure the fulfillment of a principal obligation;

  (2) That the pledgor or mortgagor be the absolute owner of the thing pledged or
mortgaged;
  (3) That the persons constituting the pledge or mortgage have the free disposal of their
property, and in the absence thereof, that they be legally authorized for the purpose.
  Third persons who are not parties to the principal obligation may secure the latter by
pledging or mortgaging their own property.
43. Art. 1144. The following actions must be brought within ten years from the time the right of
action accrues:
  (1) Upon a written contract;
  (2) Upon an obligation created by law;

  (3) Upon a judgment.

44. Rollo, pp. 34 and 39.
45. Id. at 81-84.
46. Id. at 85-87.

47. CIVIL CODE, Art. 1607. In case of real property, the consolidation of ownership in the vendee
by virtue of the failure of the vendor to comply with the provisions of article 1616 shall
not be recorded in the Registry of Property without a judicial order, after the vendor has
been duly heard.
48. See Heirs of Reyes, Jr. v. Reyes, 641 Phil. 69, 86-87 (2010).
49. Montevirgen v. CA, 198 Phil. 338, 346-347 (1982).
50. Id. at 346.

51. CESAR L. VILLANUEVA, LAW ON SALES 547 (2009 ed).

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