CASE FACTS ISSUES RULING

JMA House Incorporated (JMA) applied for a P1,500,000.00 loan from the
An equitable mortgage is one which, although lacking in some formality, or form or words or other
Pioneer Savings and Loan Association, Inc. (Pioneer). To secure payment thereof,
requisites deemed required by statutes nevertheless reveals the intention of the parties to charge a real property
JMA executed a real estate mortgage over a parcel of land identified as Lot No. 4,
as security for a debt and contains nothing impossible or contrary to law. An equitable mortgage may be
Block No. 13, Subdivision Plan No. Psd-35337 covered by Transfer Certificate of
constituted by any writing from which the intention to create such a lien may be patterned.
Title (TCT) No. 268126. The lot, which was located in Quezon City across Gate 1 of
the Maryknoll College, had an area of 1,611.6 square meters.[3] There was likewise
a three-storey commercial and residential building which was occupied by
tenants.[4] Upon the failure of JMA to pay its loan, the real estate mortgage was Under Article 1602 of the New Civil Code, a contract shall be presumed to be an equitable mortgage in
foreclosed extrajudicially. Pioneer was the winning bidder at P2,000,000.00 during any of the following cases:
the sale at public auction held on August 26, 1985. The Sheriff executed a
Certificate of Sale over the property in favor of Pioneer which was annotated at the
dorsal portion of TCT No. 268126 on October 11, 1985.[5] JMA had one year or
until October 11, 1986 to redeem the property. (1) When the price of a sale with right to repurchase is unusually inadequate;
JMA decided to redeem the property from Pioneer sometime in June
1986. It offered to borrow from Sta. Monica Industrial and Development Corporation WON the
(Sta. Monica) the amount of P2,300,000.00. During the negotiations between
honorable (2) When the vendor remains in possession as lessee or otherwise;
Rosita Alberto, the General Manager of JMA, and Sta. Monicas president Eugenio
Trinidad, the parties agreed that the latter would purchase the property court of
for P3,021,000.00.[6] Trinidad insisted that JMA execute a deed of absolute sale appeals
JMA over the property for the price of P4,100,000.00. Rosita Alberto suggested that gravely erred
(3) When upon or after the expiration of the right to repurchase another instrument
instead of a deed of absolute sale, a real estate mortgage be executed considering in not applying extending the period of redemption or granting a new period is executed;
that the property was worth much more than P4,100,000.00. Trinidad refused. By article 1602 of
way of a compromise, Alberto suggested that a supplement deed giving JMA the the civil code
vs. option to repurchase the property within a period of two years be
and not
executed.[7]Trinidad agreed to this proposal. Thus, the lawyers of JMA and Sta. (4) When the purchaser retains for himself a part of the purchase price;
Monica prepared two deeds.[8] From the P3,021,000.00 it received from Sta. holding that
Monica, JMA remitted P2,300,000.00 to Pioneer. the contract (5) When the vendor binds himself to pay the taxes on the thing sold;
Sta. Monica On June 23, 1986, Pioneer and JMA executed a Deed of Legal subject matter
Redemption and Absolute Sale in which Pioneer, for and consideration of the instant
of P2,300,000.00, transferred to JMA all the rights over the property, including the petition is that
improvements thereon, which Pioneer acquired under the Certificate of Sale. [9] The (6) In any other case where it may be fairly inferred that the real intention of the
of an equitable parties is that the transaction shall secure the payment of a debt or the performance of any
parties, likewise, declared therein that it was their intention that, with the execution
of said deed, the loan of JMA amounting to P1,250,000.00, including all interests, mortgage. other obligation.
penalties and charges thereon, were considered fully paid and legally
extinguished.[10]
On June 30, 1986 JMA, represented by its General Manager Rosita
For the presumptions under the article to apply, two requisites must concur: (1) that the parties entered
Alberto, executed a Deed of Absolute Sale over the lot, including the buildings
into a contract denominated as a sale; and (2) that their intention was to secure an existing debt by way of
thereon, in favor of Sta. Monica, represented by Eugenio Trinidad. The receipt
mortgage.[74] In order for a deed to be declared a mortgage, the relation of debtor and creditor must exist between
for P4,100,000.00 as purchase price was acknowledged by JMA from Sta.
the grantor in such a deed and one who seeks to have it declared a mortgage.[75] There must be a continuing
Monica.[11] As agreed upon by the parties, the parties likewise executed a contract
binding debt; a debt in its fullest sense. Where there is no debt, there can be no mortgage; for if there is nothing
denominated as Option to Buy, in which Sta. Monica gave JMA the option to buy
to secure, there can be no security.[76] If there is an indebtedness or liability between the parties, either a debt
the property for P4,100,000.00 within one (1) year from the execution of the Deed
existing prior to the conveyance, or a debt arising from a loan made at the time of the conveyance, or from any
Of Absolute Sale on or before July 1, 1987, with a grace period of one year
other cause, and this debt is still left subsistent, not being discharged or satisfied by the conveyance, but the
immediately upon the expiration thereof (until July 1, 1988). The parties agreed
grantor is regarded as still owing and bound to pay at some future time, so that the payment stipulated for in the
that, in case JMA availed of such extension, JMA would be obligated to pay an
agreement to re-convey is in reality the payment of this existing debt, then the whole transaction amounts to a
additional amount equivalent to 3.5% a month as liquidated damages, until the
mortgage, whatever stipulation they may have inserted in the instruments. If there is no relation of debtor-creditor,
whole amount is fully paid and/or the option is finally exercised.[12]
but by the terms of the contract one is merely given an option to buy real property for a fixed amount and for a
Alberto turned over to Trinidad the owners duplicate of TCT No. 26812.6
The Register of Deeds thereafter issued TCT No. 347638 in the name of Sta.
Monica;[13]however, the Option to Buy was not annotated at the dorsal portion of the
title.
As agreed upon between JMA and Sta. Monica, the latter thenceforth
paid the realty taxes on the property.[14] JMA continued collecting the rentals from
the tenants of the buildings with the knowledge and conformity of Sta.
Monica. On November 17, 1986, Sta. Monica mortgaged the property to the PCI
Capital Corporation as security for a P3,600,000.00 loan.[15]
In a letter dated January 26, 1988, Sta. Monica, through Eugenio
Trinidad, informed Rosita Alberto and the tenants of the buildings in the property
that due to the failure of JMA to repurchase the property, it had been sold to A.
Guerrero Development Corporation (AGCOR) effective February 1, 1988, and, as
the new owner, AGCOR would be collecting the rentals.[16] Rosita Alberto protested
to Trinidad, insisting that the period given to JMA to buy back the property had not
yet elapsed. Nevertheless, on February 2, 1988, Sta. Monica and AGCOR
executed a Deed of Absolute Sale over the property for P5,700,000.00, receipt of
which was acknowledged by Sta. Monica.[17] Part of the amount was used by Sta.
Monica to redeem the property from PCI Capital Corporation which executed a
Release of Real Estate Mortgage on February 16, 1988.[18] On February 17, 1988,
the Register of Deeds issued TCT No. 376746 in the name of AGCOR.[19] It paid
the realty taxes on the property starting 1988.[20]
Despite the sale of the property to AGCOR, Trinidad received, on June
30, 1988, five checks from Rosita Alberto drawn against the account of JMA in the
total amount of P3,000,000.00. He likewise received P57,000.00 from Atty. Rosalie
Alberto, Rositas sister and a member of the JMA Board of Directors as partial
payment of the account of JMA for the property located at No. 335, Katipunan
Street, Quezon City.[21] However, the checks were dishonored by the drawee
Bank.[22] Trinidad failed to return the cash amount of P57,000.00 to JMA.
On October 30, 1989, AGCOR mortgaged the property to Planters Development
Bank as security for a P7,000,000.00 loan.
Almost two years thereafter, or on November 11, 1991, JMA filed a
complaint against Sta. Monica and AGCOR, as defendants, in the RTC of Quezon
City for specific performance, reconveyance and damages. It alleged that it
mortgaged its property to Sta. Monica as security for a P3,021,000.00 loan
and P1,079,000.00 as interest; however, upon the insistence of Trinidad, in lieu of a
real estate mortgage, a deed of absolute sale was executed over the property for
the price of P4,100,000.00; an Option to Buy was also executed in its favor, giving it
the option to buy the property for P4,100,000.00 within a period of one (1) year from
execution thereof, and in the meantime, it retained dominion over the property; on
January 26, 1988, it received notice that beginning February 1, 1988, the tenants
will pay their rentals to the new owner of the property, defendant AGCOR, to which
it protested; defendant Sta. Monica assured the plaintiff that defendant AGCOR
was aware of its option to buy the property.
fixed price, there is no equitable mortgage; the optionee is not bound to buy and to pay for said real property.
It must be stressed that an option is a continuing offer or contract by which an owner stipulates with
another that the latter shall have the right to buy the property at a fixed price with a certain time, or under, or in
compliance with, certain terms and conditions; or which gives to the owner of the property the right to sell or
demand a sale.[85] It is, in fine, an unaccepted offer, governed by the second paragraph of Article 1479 of the New
Civil Code which states that a promise to buy and sell a determinate thing for a price certain is reciprocally
demandable. An option is not of itself a purchase, but merely secures the privilege to buy. An option is a privilege
given by the owner of the property to another to buy the property at his election, and the owner does not sell the
property but gives another the right to buy at his election.[86] It imposes no binding obligation on the person
holding the option, aside from the consideration for the offer. Without acceptance, it is not, properly speaking,
treated as a contract, and does not vest, transfer or agree to transfer, any title to, or any interest or right in the
subject property, but is merely a contract by which the owner of the property gives the optionee the right or
privilege of accepting the offer and buying the property on certain terms.[87]
Thus, an option contract involves two distinct elements, that is: (1) the offer to sell, which does not
become a contract until accepted; (2) the completed contract to lease the offer for a specified time. [88] It is a
separate and distinct contract from that which the parties may enter into, upon the consummation of the option.
It bears stressing that an option must be supported by a consideration distinct and separate from the
price. A consideration for an optional contract is just as important as the consideration for any other kind of
contract.[89] If there is no consideration for the optional contract, then it cannot be enforced anymore than any
other contract where no consideration exists.[90] However, case law is that although an option is not binding as a
contract for want of consideration, yet if the offer contained therein is not withdrawn, its acceptance within the
time limited gives rise to a contract of sale, binding on the vendor, which cannot be affected by any subsequent
attempt to withdraw the offer.[91]
The optionee or promisee is burdened to prove such consideration for the option. The consideration for the option
is not presumed. In Villamor v. Court of Appeals,[92] the Court ruled that consideration is the why of the contract,
the essential reason which moves the contracting parties to enter into the contract.[93] The consideration for a
contract, including an option, need not be money or anything of monetary value but may consist of either a benefit
or a detriment to the promisor.[94] There is sufficient consideration for a promise if there is any benefit to the
promisee or any detriment to the promisor. A benefit should not necessarily accrue to the promisee if a detriment
to the promisor is present; and there is consideration if the promisee does anything legal which he is not bound to
do or refrain from doing anything which he has a right to do, whether or not there is any actual loan or detriment
to him or actual benefit to the promisor.[95] It is sufficient that something valuable flows from the person to whom it
is made, or that he suffers some prejudice or inconvenience, and that the promise is the inducement to the
transaction. Indeed, there is a consideration if the promisee, in return for the promise, does anything legal which
he is not bound to do, or refrains from doing anything which he has a right to do, whether there is any actual loss
or detriment to him or actual benefit to the promisor or not.