G.R. No. 155716 - Rockville Excel International Exim Corp. vs. Spouses Culla

The spouses Oligario and Bernardita Culla are the registered owners of a parcel of land covered by Transfer Certificate of Title (TCT) No. 5416, which was previously mortgaged to PS Bank to secure a loan of ₱1,400,000.00.
Due to an extrajudicial foreclosure (initiated by a Sheriff’s Notice of Sale issued in 1993), the spouses sought to prevent the foreclosure.

Oligario approached Rockville Excel International Exim Corporation (Rockville), represented by its president and chairman, Diana Young, for financial assistance to forestall the foreclosure.
Rockville extended a loan totaling ₱2,000,000.00—₱1,400,000.00 for the original loan amount plus an additional ₱600,000.00 for cash advances.

To discharge the debt, the parties agreed that the Sps. Culla would sell another property in Brgy. Calicanto, Batangas City (approximately 7,074 square meters, covered by TCT No. T-19538) to Rockville for a fixed price of ₱3,500,000.00.
Although the property was conjugal, only Oligario signed the Deed of Absolute Sale. It was agreed that Bernardita would sign later, and upon her signing, Rockville would deliver an additional ₱1,500,000.00.

Rockville asserted its readiness to pay the additional ₱1,500,000.00, evidenced by its initial deposit of the amount with May Bank of Malaysia (later transferred to its law firm).
Bernardita’s refusal to sign the Deed led Rockville to annotate an adverse claim on TCT No. T-19538 in order to protect its interest.
Rockville’s subsequent attempt to transfer the title in its name was thwarted by the Registry of Deeds due to the absence of Bernardita’s signature.

On February 4, 1997, Rockville filed a complaint for Specific Performance and Damages before the RTC of Batangas City, Branch 2, seeking either the enforcement of the sale by compelling Bernardita’s signature or authorization to proceed without it.
The Sps. Culla, in their Answer, contended that the Deed did not reflect a bona fide sale but was merely intended to guarantee the debt owed to Rockville’s representative, Diana Young. They asserted that the arrangement required the payment of the additional ₱1,500,000.00 before Bernardita would affix her signature.
The RTC ruled in favor of the Sps. Culla on October 26, 1999, dismissing Rockville’s complaint and declaring that the transaction was in fact an equitable mortgage, not an absolute sale, with the operative order allowing the respondents to redeem the property upon full payment of the ₱2,000,000.00.

Rockville appealed the RTC decision to the Court of Appeals (CA), which, in its October 9, 2002 decision, affirmed the RTC ruling by observing indicators such as:

Inadequacy of the consideration relative to the actual market value;
The Sps. Culla’s retention of possession of the property;
Rockville’s non-payment of the ₱1,500,000.00 balance; and
The continuous extensions granted by Rockville to the Sps. Culla for loan repayment.

Following the denial of its motion for reconsideration by the CA, Rockville elevated the case to the Supreme Court via a petition for review on certiorari, contending that the transaction was a dacion en pago—a mode of discharge of a money obligation by delivering property—and maintaining that the Deed of Absolute Sale was binding even without Bernardita’s signature due to her implied ratification.

Whether the purported Deed of Absolute Sale constitutes an absolute sale of real property or an equitable mortgage.

Sub-issue: Whether the transaction should be considered a dacion en pago, where delivery of the property serves as discharge of an existing obligation.
Sub-issue: Whether the parties’ conduct—especially the retention of possession by the Sps. Culla and the continuous extensions granted by Rockville—better evidences an intention to secure a debt rather than to effect an outright sale.