Ramos v. Sarao
REITERATIONFacts
The Antecedents: Spouses Jonas and Myrna Ramos executed a contract denominated as a "DEED OF SALE UNDER PACTO DE RETRO" in favor of Susana S. Sarao over their conjugal house and lot for ₱1,310,430. The contract granted the Ramos spouses the option to repurchase the property within six months for the same amount plus 4.5 percent monthly interest, with the stipulation that failure to pay interest or repurchase would render the sale absolute. Procedural History: On July 30, 1991, Myrna Ramos tendered ₱1,633,034.20 via manager's checks, which Sarao refused to accept for being insufficient. Myrna filed a Complaint for redemption and damages. Sarao subsequently filed a Petition for consolidation of ownership. The cases were consolidated and jointly tried. The Regional Trial Court (RTC) dismissed the Complaint and granted Sarao's petition to consolidate ownership. The Court of Appeals (CA) affirmed the RTC decision. The Petition: The Supreme Court reviewed the case, considering the overlooked fact that the sellers continued to possess and reside in the property, indicating an intent to secure a loan rather than sell. The Court focused on whether the contract was an equitable mortgage or a pacto de retro sale, and the validity of the tender of payment and consignation.
Issue(s)
Whether or not the appellate court erred in ruling that the Deed of Sale under Pacto de Retro was, in reality and under the law, an equitable mortgage. Whether or not the appellate court erred in affirming the ruling that there was no valid tender of payment of the redemption price nor a valid consignation. Whether or not the appellate court erred in affirming the ruling denying the claim for damages and attorney's fees.
Ruling
The Petition is partly GRANTED. The assailed Decision of the Court of Appeals is SET ASIDE. The contract is declared an equitable mortgage. Petitioner's loan to Respondent Sarao is in the amount of ₱1,633,034.19 as of July 30, 1991, and the mortgage on the property is discharged. The RTC is ordered to release the consigned amount to Sarao, and Sarao is ordered to return the owner's copy of the title to petitioner. The Register of Deeds is directed to cancel the annotation on the title. Petitioner is ordered to reimburse Sarao for real property taxes paid.
Ratio Decidendi
On Issue 1 (Equitable Mortgage vs. Pacto de Retro Sale): The Court ruled that the contract was an equitable mortgage, not a bona fide pacto de retro sale. The primary factor was the overlooked fact that the "sellers" (Ramos spouses) continued to possess and reside in the subject house and lot, which is a strong indicator under Article 1602(2) of the Civil Code that the transaction was intended to secure a debt. The Court emphasized that the nomenclature used by parties does not determine the nature of the contract; their intention, as evidenced by contemporaneous and subsequent acts, is paramount. The circumstances, including the dire need for funds to avert foreclosure by a commercial bank on the same day the contract was executed, further supported the conclusion that the transaction was a loan secured by a mortgage. The inclusion of the phrase "House and Lot Loan" in a letter from Sarao's lawyer also indicated the true nature of the agreement. The Court found that Sarao failed to present clear evidence to rebut the presumption of an equitable mortgage. On Issue 2 (Validity of Tender of Payment and Consignation): The Court found the tender of payment and consignation to be valid, reversing the lower courts' findings. The Court determined that the amount of ₱1,633,034.20 tendered by petitioner was the correct amount due, based on Sarao's own computation of the principal loan plus compounded interest for six months. The amount demanded by Sarao (₱2,911,579.22) was deemed exorbitant and included items not covered by the original loan agreement, such as gasoline, miscellaneous expenses, taxes, and attorney's fees. The Court held that when Sarao unjustly refused the valid tender of payment, petitioner correctly filed suit and consigned the amount, which produced the effect of payment. The Court also found that the notice requirement for consignation was complied with through petitioner's letter announcing her intention to consign if payment was refused, and that such announcement and tender could be done in the same act. The consignation, having been validly made, retroactively discharged the obligation. On Issue 3 (Damages and Attorney's Fees): The Court denied petitioner's claim for moral damages and attorney's fees. The Court found that petitioner's bare assertions were insufficient to prove the legal basis for moral damages under Article 2219 of the Civil Code. Furthermore, it was noted that Sarao's accommodation had actually settled an earlier obligation of the spouses and allowed them to retain ownership. Regarding attorney's fees, the general rule that they are not awarded in the absence of contractual or statutory liability was applied, especially since the case involved a determination of the contract's true nature.
Main Doctrine
A contract denominated as a 'DEED OF SALE UNDER PACTO DE RETRO' shall be deemed an equitable mortgage if the parties' intention, as shown by their contemporaneous and subsequent acts, was to secure a loan obligation, especially when the vendor retains possession of the property. The refusal of a creditor to accept a valid tender of payment, followed by a proper consignation, discharges the debtor from the obligation.