Case Summary (G.R. No. L-2322)
Background Facts
The spouses Oligario and Bernardita Culla owned a parcel of land under Transfer Certificate of Title (TCT) No. 5416, which they mortgaged to PS Bank for a loan of P1,400,000.00. In 1993, faced with the threat of foreclosure, Oligario sought financial assistance from Rockville, which extended a total loan of P2,000,000.00 to the Cullas. When the couple defaulted, they purportedly agreed to sell another property, TCT No. T-19538, to Rockville for P3,500,000.00 as dacion en pago. The Deed of Absolute Sale was executed on June 25, 1994, but only Oligario signed it. Bernardita refused to sign unless the additional payment of P1,500,000.00 was made. Rockville claimed it was ready to comply, but Bernardita's continued refusal led to an annotation of an adverse claim and subsequently to Rockville filing a complaint for specific performance against the C for the property transfer.
Trial Court Decision
The Regional Trial Court (RTC) of Batangas City ruled in favor of the spouses Culla on October 26, 1999, determining that the transaction was an equitable mortgage, not an absolute sale. The court instructed that the Culla spouses were entitled to redeem the property upon full repayment of the original debt of P2,000,000.00. The decision highlighted the true nature of the transaction as reflecting the intention of the parties to secure a loan rather than to sell property outright.
Court of Appeals Decision
Rockville’s appeal was denied by the Court of Appeals on October 9, 2002. It affirmed the RTC's findings, concluding that the transaction revealed significant evidence of being an equitable mortgage, including the inadequacy of consideration, the Culla spouses' possession of the property, Rockville's failure to pay the full purchase price, and the extensions granted for the repayment of the loan.
Petition and Arguments
Rockville filed a petition questioning whether the agreement constituted an absolute sale or an equitable mortgage. Rockville contended that the agreement was a valid dacion en pago and insisted that Bernardita had benefited from the transaction, leading to implied ratification. The Culla spouses maintained their position that the nature of the transaction was equitable mortgage, supported by their testimony and the circumstances surrounding the agreement.
Court’s Ruling
The Supreme Court denied Rockville’s petition, reiterating that the elements of dacion en pago were not satisfied. The Court emphasized that for dacion en pago to exist, there must be a clear intention to replace a debt with property, which was undermined by Rockville's actions, including granting extensions to Oligario. The Court further clarified that, regardless of the title given to the agreement, the actual intention of the parties, inferred from their conduct, determined its legal nature.
Definition and Indicators of Equitable Mortgage
The Court defined equitable mortgage as one that, while lacking specific formalities, demonstrates the parties' intention to secure a debt wi
...continue readingCase Syllabus (G.R. No. L-2322)
Main Issue
- The primary issue revolves around the classification of the transaction between Rockville Excel International Exim Corporation (Rockville) and the spouses Oligario and Bernardita Culla (Sps. Culla) as either a Deed of Absolute Sale or an equitable mortgage.
Background Facts
- The spouses Culla are the registered owners of a parcel of land, covered by Transfer Certificate of Title (TCT) No. 5416, which they mortgaged to PS Bank for a loan of P1,400,000.00.
- In 1993, with the foreclosure of their property imminent, Oligario sought financial assistance from Rockville, which provided a loan of P2,000,000.00, comprising the P1,400,000.00 loan plus P600,000.00 in cash advances.
- Due to non-payment of the loan, the spouses agreed to sell a different property in Barangay Calicanto, Batangas City, to Rockville for P3,500,000.00, intending it as payment for the debt.
- A Deed of Absolute Sale was executed on June 25, 1994, but only Oligario signed it, with an agreement to pay an additional P1,500,000.00 upon Bernardita's signature.
- Rockville deposited the P1,500,000.00, but Bernardita refused to sign the Deed, prompting Rockville to file a complaint for Specific Performance and Damages in February 1997.
Regional Trial Court (RTC) Decision
- On October 26, 1999, the RTC ruled in favor of the spouses Culla, dismissing Rockville's complaint, declaring the transaction as an equitable mortgage rather than a sale.
- The RTC found that