GR 155716; (October, 2009) (Digest)
G.R. No. 155716; October 2, 2009
Rockville Excel International Exim Corporation, Petitioner, vs. Spouses Oligario Culla and Bernardita Miranda, Respondents.
FACTS
Respondent spouses, owners of a property in Batangas City, faced foreclosure of another property mortgaged to PS Bank. To prevent this, Oligario Culla obtained a loan of ₱2,000,000 from petitioner Rockville. Upon failure to repay, the parties executed a Deed of Absolute Sale over the Batangas property for ₱3,500,000. Rockville alleged this was a dacion en pago, with ₱2,000,000 applied to the loan and the ₱1,500,000 balance payable upon the wife Bernardita’s signature on the deed. Only Oligario signed. Rockville filed for specific performance to compel Bernardita to sign after she refused.
The spouses contended the deed was merely security for the debt to Rockville’s president, Diana Young, not an absolute sale. They claimed the ₱1,500,000 was a condition precedent to Bernardita’s signature, which was never paid, and they offered to repay the loan to rescind the transaction.
ISSUE
Whether the Deed of Absolute Sale is a true contract of sale or an equitable mortgage.
RULING
The Supreme Court affirmed the lower courts, ruling the transaction was an equitable mortgage. The legal logic hinges on the application of Article 1602 of the Civil Code, which enumerates circumstances where a contract purporting to be a sale is presumed to be an equitable mortgage. The Court found several indicia present: the gross inadequacy of the ₱3.5 million price compared to the property’s proven market value of ₱10.6 million; the vendors’ continued possession of the property; the fact that the balance of the purchase price was never paid; and Rockville’s conduct of granting extensions to pay the loan despite the alleged sale. These circumstances, taken together, clearly established that the parties’ true intention was to secure the existing loan, not to transfer ownership absolutely. The claim of dacion en pago failed because the essential element of full payment through the property’s conveyance was absent, given the unpaid balance and the unresolved conditional signature. Consequently, the respondents were entitled to redeem the property upon payment of the secured debt with legal interest.