A Transaction is Deemed to Be an Equitable Mortgage

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A transaction is deemed to be an equitable mortgage, not an absolute sale, when a
party have remained in possession of the subject property and exercised acts of
ownership over the lot even after the purported absolute sale and it could be
gleaned from the intention of the parties that the transaction is intended secure the
payment of a debt. SPS. FELIPE SOLITARIOS and JULIA TORDA vs. SPS.
GASTON JAQUE and LILIA JAQUE, G.R. No. 199852, November 12, 2014, J
In an extra-judicial foreclosure of registered land acquired under a free patent, the
mortgagor may redeem the property within two (2) years from the date of
foreclosure if the land is mortgaged to a rural bank under Republic Act No. (RA) 720,
as amended, otherwise known as the Rural Banks Act, or within one (1) year from
the registration of the certificate of sale if the land is mortgaged to parties other
than rural banks pursuant to Act No. 3135. If the mortgagor fails to exercise such
right, he or his heirs may still repurchase the property within five (5) years from the
expiration of the redemption period pursuant to Section 119 of the Public Land Act.
The RTC and CA both correctly ruled that Sps. Guevarra’s right to repurchase the
subject property had not yet expired when Cadastral Case No. 122 was filed on
As a general rule, a mortgage liability is usually limited to the amount mentioned in
the contract. However, the amounts named as consideration in a contract of
mortgage do not limit the amount for which the mortgage may stand as security if,
from the four corners of the instrument, the intent to secure future and other
indebtedness can be gathered. This stipulation is valid and binding between the
parties and is known as the "blanket mortgage clause" also known as the "dragnet
clause. - Ramona Ramos and the Estate of Luis T. Ramos vs. Philippine
National Bank, Opal Portfolio Investments (SPV-AMC), Inc. and Golden
Dragon Star Equities, Inc., G.R. No. 178218,

Is written notice mandatory for the right of redemption to
A: Yes, the notice must be in writing stating the execution of the sale and its
particulars. It may be made in a private or public document. (Pineda, p. 400)
Q: Is there a prescribed form for an offer to redeem?
A: There is no prescribed form for an offer to redeem to be properly effected.
Hence, it can either be through a formal tender with consignation of the
redemption price within the prescribed period. What is paramount is the
availment of the fixed and definite period within which to exercise the right
of legal redemption.
Note: Art. 1623 does not prescribe any distinctive method for notifying the
Q: Is tender of payment necessary for redemption to take effect?
A: Tender of payment is not necessary; offer to redeem is enough.
What is the effect of failure to redeem?
A: There must be judicial order before ownership of real property is
consolidated to the buyer a retro.

Are there other instances when the right of legal redemption is also granted?


of homesteads
in tax sales
by judgment debtor
in extrajudicial foreclosure
in judicial foreclosure of mortgage

Q: When does legal redemption period begin to run?
The right of legal redemption shall not be exercised except within 30 days from the notice in writing by
the prospective seller, or seller, as the case may be. The deed of sale shall not be recorded in the
Registry of Property unless accompanied by an affidavit of the seller that he has given written notice
thereof to all possible redemptioners. (Art. 1623, NCC)
X transferred three parcels of land in favor of Y. The transaction was embodied in two
Deeds of Absolute Sale for the price of P240, 000. The titles of said lots were transferred to
Y. However, X failed to vacate and turn over the purchased lots. This prompted Y to file an
ejectment suit against X. X claimed that the transactions entered between them were not
actually sales, but an equitable mortgage. Does the transaction involve an absolute sale or
an equitable mortgage of real property?
A: It is an absolute sale. Decisive for the proper determination of the true nature of the transaction
between the parties is the intent of the parties. There is no conclusive test to determine whether a
deed absolute on its face is really a simple loan accommodation secured by a mortgage. To determine
whether a deed absolute in form is a mortgage in reality, the court is not limited to the written
memorials of the transaction. This is so because the decisive factor in evaluating such agreement is
the intention of the parties, as shown not necessarily by the terminology used in the contract but by all
the surrounding circumstances, such as the relative situations of the parties at that time; the attitudes,
acts, conduct, and declarations of the parties; the negotiations between them leading to the deed; and
generally, all pertinent facts having a tendency to fix and determine the real nature of their design and
understanding. As such, documentary and parol evidence may be submitted and admitted to prove the
intention of the parties. (Sps Austria v. Sps Gonzales, G.R. No. 147321, Jan. 21, 2004)
What is the basis of extrajudicial foreclosure?

An extrajudicial foreclosure may only be effected if in the mortgage contract
covering a real estate, a clause is incorporated therein giving the mortgagee
the power, upon default of the debtor, to foreclose the mortgage by an
extrajudicial sale of the mortgage property (Sec. 1, Act No. 3135, as
amended by Act No. 4148).
How is extrajudicial foreclosure initiated?
By filing a petition with the office of the sheriff. It may also be initiated
through a Notary Public commissioned in the place where the property is
Note: Notice containing the place and date is required before an auction
sale is made in extrajudicial foreclosure. (Sec. 3, Act No. 3135)
Requisites of Reformation
1. There must have been a meeting of the minds upon the contract

2. The instrument or document evidencing the contract does not express the true
agreement between the parties 3. The failure of the instrument to express the agreement
must be due to mistake, fraud, inequitable conduct or accident
 Requisites of Mistake
a. That the mistake is one of fact
 Whenever an instrument is drawn with the intention of carrying an agreement previously
made, but which, due to mistake or inadvertence of the draftsman or clerk, does not carry
out the intention of the parties, but violates it, there is a ground to correct the mistake by
reforming the instrument.
b. That it was common to both parties
 A written instrument may be reformed where there is a mistake on 1 side and fraud or
inequitable conduct on the other, as where 1 party to an instrument has made a mistake
and the other knows it and conceals the truth from him.
 The mistake of 1 party must refer to the contents of the instrument and not the subject
mater or the principal conditions of the agreement. In the latter case, an action for
annulment is the proper remedy.
 If 2 parties agree upon the mortgage or pledge of real property or personal property, but
the instrument states that the property is sold absolutely or with a right of repurchase,
reformation is proper.
c. The proof of mutual mistake must be clear and convincing

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