Rockville Excel International Exim Corp. v. Culla
REITERATIONFacts
The Antecedents: Spouses Oligario and Bernardita Culla (Sps. Culla) were the registered owners of a parcel of land mortgaged to PS Bank. To prevent foreclosure, Oligario obtained a loan of P1,400,000.00 from Rockville Excel International Exim Corporation (Rockville), which was later increased to P2,000,000.00 due to cash advances. According to Rockville, when Sps. Culla failed to pay the loan, they agreed to sell another property (the subject property) to Rockville for P3,500,000.00 as dacion en pago. A Deed of Absolute Sale was executed on June 25, 1994, signed only by Oligario, with Rockville agreeing to pay the remaining P1,500,000.00 upon Bernardita's signature. Rockville claimed it deposited the P1,500,000.00 but Bernardita refused to sign. Rockville annotated an adverse claim on the title. Procedural History: Rockville filed a complaint for Specific Performance and Damages against Sps. Culla. The Regional Trial Court (RTC) dismissed the complaint, declaring the Deed of Absolute Sale as an equitable mortgage and entitling Sps. Culla to redeem the property upon payment of P2,000,000.00 with legal interest. The Court of Appeals (CA) affirmed the RTC decision, citing inadequacy of consideration, Sps. Culla's continued possession, Rockville's failure to pay the balance, and Rockville's grant of extensions to Sps. Culla. The Petition: Rockville filed a petition for review, arguing that the transaction was a dacion en pago and not an equitable mortgage, and that Bernardita implicitly ratified the sale. Sps. Culla maintained that the transaction was an equitable mortgage.
Issue(s)
Whether the transaction between Rockville and Sps. Culla, denominated as a Deed of Absolute Sale, is an absolute sale or an equitable mortgage. Whether the transaction constitutes a dacion en pago.
Ruling
The petition is denied for lack of merit. The assailed Decision of the Court of Appeals is affirmed.
Ratio Decidendi
On the issue of whether the transaction is an absolute sale or an equitable mortgage: The Court affirmed the findings of the RTC and CA that the transaction was an equitable mortgage, not an absolute sale. The Court reiterated that in determining the nature of a contract, the intention of the parties, as shown by their conduct, words, actions, and deeds prior to, during, and immediately after the execution of the agreement, is the decisive factor, not the terminology used. The Court found that the circumstances indicated an equitable mortgage, specifically: (1) Sps. Culla retained possession of the property; (2) Rockville retained a part of the purchase price (P1,500,000.00); and (3) Rockville continued to grant extensions to Oligario for the repayment of the loan even after the execution of the Deed of Sale. The Court emphasized that the retention of possession by the vendor is inconsistent with the vendee's acquisition of ownership under a true sale, and Rockville's failure to assert its right for immediate delivery and possession suggested it did not truly intend to enforce a sale. Furthermore, Rockville's claim of depositing the balance in a foreign bank was unsubstantiated and did not constitute a valid tender of payment or consignation. The numerous extensions granted further belied the intention of a dacion en pago. On the issue of whether the transaction constitutes a dacion en pago: The Court ruled that the transaction was not a dacion en pago. For dacion en pago to exist, the debtor must alienate property to the creditor as an accepted equivalent for the performance of an outstanding debt. The Court found that the continued granting of extensions by Rockville to Oligario to repay the loan after the execution of the Deed of Absolute Sale contradicted the notion of a dacion en pago, as it indicated that the debt was not extinguished by the transfer of property. If the parties had truly intended a dacion en pago, Oligario would not have continued to ask for extensions, and Rockville would not have granted them.
Main Doctrine
A contract denominated as a Deed of Absolute Sale may be declared an equitable mortgage if the parties' intention, as evidenced by their conduct and circumstances surrounding the transaction, was to secure the payment of a debt, rather than to transfer ownership of the property. The presence of any of the circumstances enumerated in Article 1602 of the Civil Code is sufficient to presume an equitable mortgage.