EQUITABLE MORTGAGE

What is an equitable mortgage?

One which lacks the proper formalities, form or words or other requisites prescribed by law for a mortgage, but shows the intention of the parties to make the property subject of the contract as security for a debt and contains nothing impossible or contrary to law

What are the essential requisites of equitable mortgage?

1. Parties entered into a contract of sale

2. Their intention was to secure an existing debt by way of a mortgage.

What is the rule on the presumption of an equitable mortgage?

A sale with conventional redemption is deemed to be an equitable mortgage in any of the following cases: (Art. 1602)

1. Price of the sale with right to repurchase is unusually Inadequate

2. Seller Remains in possession as lessee or otherwise

3. Upon or after the expiration of the right to repurchase Another instrument extending the period of redemption or granting a new period is executed

4. Purchaser Retains for himself a part of the purchase price

5. Seller binds himself to pay the Taxes on the thing sold

6. In any other case where the real intention of the parties is that the transaction shall Secure the payment of a debt or the performance of any other obligation.

7. Art. 1602 shall also apply to a contract purporting to be an Absolute sale. (Art. 1604)

Note: In case of doubt in determining whether it is equitable mortgage or sale a retro (with right of repurchase); it shall be construed as equitable mortgage.

Remedy is reformation.

An equitable mortgage is one which although lacking in some formality, or form or words, or other requisites demanded by a statute, nevertheless reveals the intention of the parties to charge real property as security for a debt, and contains nothing impossible or contrary to law.