Sale Eulalia Secure Bandong Incurred Shortage Equitable Domeng

b) Eulalia was engaged in the business of buying and selling large cattle. In order to secure the financial capital, she advanced for her employees (biyaheros). She required them to surrender TCT of their properties anq to execute the corresponding Deeds of Sale in her favor.  Domeng Bandong was not required to post any security but when Eulalia discovered that he incurred shortage in cattle procurement operation, he was required to execute a Deed of Sale over a parcel of land in favor of Eulalia. She sold the property to her grandniece Jocelyn who thereafter instituted an action for ejectment against the Spouses Bandong.

To assert their right, Spouses Bandong filed an action for annulment of sale against Eulalia and Jocelyn alleging that there was no sale intended but only equitable mortgage for the purpose of securing the shortage incurred by Domeng in the amount of P7O,OOO.OO while employed as "biyahero" by Eulalia. Was the Deed of Sale between Domeng and Eulalia a contract of sale or an equitable mortgage? Explain. (5%)

SUGGESTED ANSWER:

The contract between Domeng Bandong and Eulalia was an equitable mortgage rather than a contract of sale.  The purported deed of sale was actually intended to merely secure payment of the shortage incurred by Domeng in the conduct of the cattle-buying operations.  Under Article 1602, Civil Code, the contract shall be presumed to be an equitable mortgage when it may be fairly inferred that the real intentions of the parties is simply to secure the payment of a debt or the performance of any other obligation.  The present transaction was clearly intended to just secure the shortage incurred by Eulalia bacause Bandong remained in possession of the property inspite of the execution of the sale.