(Article published in the Nov 23,2005 issue of Manila Standard Today)
an era of credit-driven lifestyles, maintaining one’s reputation of
being a “good credit” is just as crucial to an estate planner as
having substantial assets. Thus,
when strong winds of adversity buffet the economy, whether man-made like
the Asian financial crisis of 1987 or acts of nature like the recent
“Katrina”, borrowers are forced adopt various ways in order to cope,
or even just, for many, to survive.
some of the rich and/or powerful, the attractive action is often to simply
pass on the problem to their lenders.
Afraid of having neither the sheriff nor the hungry wolf at their
doors, they prefer to leave
it to their creditors, mostly banks, to “restructure” the debts they
do not pay. For many of the
poor and/or powerless, no action is a viable option.
After all, hunger is a daily visitor and the sheriff is a hardly
credible threat since his cost is more often bigger than their unpaid
for those in-between, constituting the over-whelming majority that make up
the critical mass that, ironically, keep the credit economy humming in
good times, maintaining “good credit” in bad times mean making painful
sacrifices, at times, even having to put at risk the roofs over their
heads and the wells from which they draw financial sustenance.
case of Spouses Natalio and
Felicidad Salonga v. Spouses Manuel and Nenita Concepcion and Florencia
Realty Corporation, G.R. No. 151333, September 20, 2005 like last
week’s summary of the Bank of the Philippine Islands tax victory, is
good news to the underdog. It
illustrates the plight of these in-betweens and tells of how the Supreme
Court and the law came to their rescue. Like an O. Henry story, it has a
twist: equity triumphed, appropriately, in this case on “equitable
The 16 July 1990 earthquake, which many of us recall
collapsed a school building in Nueva Ecija and brought down the Hyatt
Terraces Hotel in Baguio City, made the business fortunes of the Salongas
slide from the upper to the lower side of the wheel. Eventually, they
defaulted on their bank loans.
Their loans were covered by real estate mortgages on prime parcels
of land and so one by one the creditor banks foreclosed or threatened to
first to foreclose, on 4 September 1991, was the Rural Bank of Malasiqui. It was followed by Development Bank of the Philippines on 21
November 1991. The Associated
Bank filed for extra-judicial foreclosure on 01 October 1992.
What remained, after the flurry of public auctions, was the spouses
Salonga’s loan with the Philippine National Bank which was secured by
their home and the lot on which it was built.
from the facts of the case, the spouses Salonga were, by this time, “taong nagigipit” or persons in dire need. As the Pilipino proverb continues, they “sa patalim man ay kakapit” or, would hang on for dear life even to
the blade of a knife.
“knife” was financial assistance from the spouses Concepcion, who were
in the business of lending money. The
spouses Concepcion paid Php 500,000 to
PNB which thus executed a Release of Real Estate Mortgage and gave
the title to the Concepcions. They
also remitted a total of Php 596,000 to Associated Bank which similarly
gave the release papers to the Concepcions.
And for the payment of the Salonga’s around Php 2 million
outstanding, DBP likewise released the papers to the Concepcions. The
“blade,” however, consisted in a 3% interest per month and,
additionally, 5% commission if the properties mortgaged were sold to third
after several months, the Salongas were not able to repay the amounts paid
to their creditors by the Concepcions nor sell the properties released
from the mortgages to the creditor banks, the blade cut deeper.
The Salongas were asked, and they apparently agreed, to execute
deeds of absolute sale over their properties in favor of the Concepcions
and Florencia Realty Corporation.
wheel of fortune did not stop turning, however, lady luck started smiling.
In 1994 their daughter of the Salongas returned from abroad.
Like a true Filipina daughter, she learned of what her parents were
constrained to do and wanted her parents to redeem title to their home, at
least. But she and her parents were told by the Concepcions that titles
had already been transferred to them.
However, the Concepcions gave a price at which they would be
willing sell back. There was no agreement.
Hence, the case in court.
issue before the courts was simply whether the Salongas had parted with
their property in payment of their debt (and therefore, the Concepcions
were under no obligation to sell back to the Salongas at a price they did
not like) or had simply offered their properties as security for their
debt (in which case the Salongas could force the Concepcions to return the
titles upon full payment of their obligation).
The Supreme Court held it was the latter.
contractual disputes, where the parties are not in agreement as to what
they agreed upon, courts resolve the controversy by determing the
“intent” of the parties. The
name given to the document is not conclusive as to the nature and effect
of parties’ contract. Not
even the notarization of the document gives it binding effect.
What is determinative is “the intention of parties as shown by
the surrounding circumstances, such as the relative situation of the
parties at that time, the attitude, acts, conduct, and declaration of the
parties before, during and after the execution of the deed, and generally
all pertinent facts having a tendency to determine the real nature of
their design and understanding.”
Supreme Court observed that the Salongas, who were not able to repay the
Concepcions, were faced with eviction for their residence unless they
executed deeds of absolute sale. Furthermore,
the consideration in the deeds had an uncanny correspondence to the
indebtedness of the Salongas paid for by the Concepcions but was grossly
disproportionate to the market value.
Moreover, the Concepcions agreed not to register the deeds of sale
provided the Salongas paid the interest of 3% a month.
And the Salongas remained in possession of their house without
paying any rental.
Supreme Court, applying Article 1602 of the New Civil Code (the code is
called “new” even if it has been effective since 1950!) ruled that
instead of being true conveyances of ownership, the so-called “absolute
deeds of sale” were merely “equitable mortgages”.
In other words, the “intent” of the Salongas and the
Concepcions, as manifested by the facts proven in court, showed that the
Salongas did not intend, and the Concepcions did not expect, an actual
transfer ownership but simply a method to secure repayment of the moneys
lent by the Concepcions.
The contracts were thus “equitable mortgages” because while in law the form purported that the agreements were of sale; in equity, the substance was shown to merely the creation of a security for debt. In our jurisdiction where our courts are both courts of law and courts of equity, judges must interpret an agreement according to the real intent of the parties as evidenced therein and, if not contrary to some positive rule or law or public policy, will give it effect, even though it does not meet the technical and formal requirements of the law.
We fault our judiciary so often; but Salonga v. Concepcion assures us all is not lost.