Ching Sen Ben v. Court of Appeals
REITERATIONFacts
The Antecedents: Petitioner Ching Sen Ben (Ching Sen Ben) agreed to construct a house on his lot and sell it to private respondent David Vicente (David Vicente) for P150,000.00, payable through David Vicente's housing loan from the Social Security System (SSS). David Vicente's loan was approved for P119,400.00, which was remitted to Ching Sen Ben as partial payment. A Deed of Absolute Sale was executed, and a Transfer Certificate of Title was issued in David Vicente's name. Ching Sen Ben informed David Vicente of a remaining balance of P43,000.00. David Vicente executed a Promissory Note to the SSS and a Deed of Real Estate Mortgage over the property, which included a stipulation prohibiting mortgage or sale without SSS consent. Ching Sen Ben constructed the house. On September 21, 1988, Ching Sen Ben and David Vicente executed a Deed of Sale With Assumption of Mortgage and With Right to Repurchase. In this deed, David Vicente sold the property to Ching Sen Ben for P60,242.86, with Ching Sen Ben assuming the mortgage obligation to SSS. David Vicente reserved the right to repurchase the property for P69,842.00 within one year, failing which the sale would be absolute. David Vicente remained in possession of the property. Ching Sen Ben demanded payment of the P43,000.00 balance. When David Vicente failed to pay, Ching Sen Ben paid the SSS the outstanding balance of David Vicente's loan amounting to P144,917.06 on February 5, 1990. The SSS executed a Release of Real Estate Mortgage, which was annotated on David Vicente's title. Ching Sen Ben demanded that David Vicente execute a Deed of Absolute Sale, which David Vicente refused. Ching Sen Ben then executed an Affidavit of Consolidation of Ownership and filed a Petition for Consolidation of Title. Procedural History: The Regional Trial Court (RTC), Branch 166, Pasig City, dismissed Ching Sen Ben's petition for consolidation of title and ordered him to pay David Vicente P5,000.00 as attorney's fees and costs. The Court of Appeals affirmed the RTC's decision, ruling that the deed of sale with right to repurchase was an equitable mortgage and that Ching Sen Ben, as mortgagee, could not seek foreclosure through a petition for consolidation of title. The Petition: Ching Sen Ben filed a petition for review on certiorari, arguing that the Court of Appeals erred in not ordering foreclosure and in holding that the transaction was an equitable mortgage.
Issue(s)
Whether the Deed of Sale With Assumption of Mortgage and With Right to Repurchase constitutes an equitable mortgage. Whether Ching Sen Ben, as the mortgagee, can seek foreclosure of the mortgage through a petition for consolidation of title.
Ruling
The Supreme Court affirmed the decision of the Court of Appeals. The Court ruled that the transaction was an equitable mortgage and that a petition for consolidation of title is not the proper remedy for foreclosure.
Ratio Decidendi
On the issue of whether the transaction was an equitable mortgage: The Court held that the Deed of Sale With Assumption of Mortgage and With Right to Repurchase was an equitable mortgage. The Court reiterated that in determining the nature of a contract, courts are not bound by the parties' denomination but by their intention, as evidenced by their contemporaneous and subsequent acts. Article 1602 of the Civil Code enumerates instances where a contract is presumed to be an equitable mortgage, including when the price of a sale with right to repurchase is unusually inadequate and when the vendor remains in possession. In this case, the consideration of P60,242.86 was unusually inadequate compared to the original purchase price of P150,000.00, and David Vicente remained in possession of the property. Furthermore, the reservation of a right to repurchase and the obligation to pay monthly interest of P800.00 clearly indicated the intention to secure a debt, not an absolute sale. The stipulation for absolute title vesting in the vendee upon failure to redeem was void as a pactum commissorium. On the issue of the proper remedy for foreclosure: The Court affirmed the Court of Appeals' ruling that a petition for consolidation of title under Rule 64 is not the proper remedy to foreclose a mortgage. The Court clarified that a petition for consolidation of title is distinct from a petition for judicial foreclosure of a real estate mortgage under Rule 68 of the Revised Rules of Court. The latter is an independent special civil action. The Court cited Montevirgen v. Court of Appeals to support the principle that an action for consolidation of ownership is not the appropriate remedy to enforce a mortgage; the mortgagee must foreclose the mortgage if they wish to secure title to the mortgaged property. Therefore, Ching Sen Ben's recourse should have been judicial foreclosure, not a petition for consolidation of title.
Main Doctrine
A deed of sale with right to repurchase, where the vendor remains in possession and the price is unusually inadequate, is presumed to be an equitable mortgage. A stipulation for absolute title vesting in the vendee upon failure to redeem is void as pactum commissorium. An action for consolidation of title is not the proper remedy to foreclose a mortgage; judicial foreclosure under Rule 68 is required.