Dacquel v. Sotelo
REITERATIONFacts
The Antecedents: Respondents-spouses Ernesto and Flora Sotelo (Sotelos) borrowed P140,000.00 from petitioner Arturo Dacquel (Dacquel), Flora's brother, for the completion of a 7-door apartment on a land they owned. The loan was allegedly payable in double the amount, P280,000.00, to be collected from rental income of four units, with the land ceded as security. A Deed of Sale was executed on September 1, 1994, for P140,000.00, leading to the transfer of the title to Dacquel. Upon full collection of P280,000.00 in rentals, the Sotelos demanded the return of the land, which Dacquel allegedly refused. Procedural History: The Sotelos filed a Complaint for annulment of title and reconveyance, alleging the Deed of Sale was merely security for the loan and that Dacquel held the title in trust. They claimed Ernesto's signature was forged, Dacquel was a foreigner misrepresenting his nationality, and the property's market value was P1,750,000.00 in 1994. Dacquel countered that the debt was P1,000,000.00 and the Deed of Sale was for this amount, with P140,000.00 stated to reduce taxes. The RTC ruled in favor of Dacquel, dismissing the Sotelos' complaint for lack of evidence. The CA reversed the RTC, declaring the Deed of Sale an equitable mortgage due to gross inadequacy of price and the Sotelos' continued possession, ordering reconveyance and attorney's fees. Dacquel's motion for reconsideration was denied. The Petition: Dacquel seeks review of the CA decision, asserting the validity of the Deed of Sale and his lawful ownership. He argues the price was not inadequate, the transaction was a dacion en pago, and he had constructive possession. The Sotelos maintain the transaction was an equitable mortgage based on the CA's findings.
Issue(s)
Whether the September 1, 1994 Deed of Sale constituted an equitable mortgage. Whether petitioner's title to the subject property should be nullified and reconveyed to respondents-spouses. Whether respondents-spouses are entitled to attorney's fees.
Ruling
The Supreme Court affirmed the Court of Appeals' ruling that the transaction was an equitable mortgage but deleted the award of attorney's fees. The Court ordered the reconveyance of the property to the Sotelos and the cancellation of Dacquel's title, but found no sufficient basis for awarding attorney's fees.
Ratio Decidendi
On the issue of whether the September 1, 1994 Deed of Sale constituted an equitable mortgage: The Court ruled in the affirmative, affirming the CA's finding. The Court reiterated that the intent of the parties, determined by the totality of circumstances, governs the nature of the transaction. Two badges of fraud were identified: gross inadequacy of the purchase price and the continued possession of the property by the respondents-spouses. The market value of the property in 1994 was P1,750,000.00, while the Deed of Sale stated a consideration of only P140,000.00. Dacquel failed to prove his claim of a P1,000,000.00 debt and that the transaction was a dacion en pago. Furthermore, the Sotelos remained in actual possession, supervising construction and entering into lease contracts, which is inconsistent with an absolute sale. The Court cited Articles 1602 and 1604 of the Civil Code, which presume a contract to be an equitable mortgage under such circumstances. On the issue of whether petitioner's title to the subject property should be nullified and reconveyed to respondents-spouses: The Court ruled in the affirmative. As the transaction was deemed an equitable mortgage, Dacquel was merely a mortgagee and not the owner. His act of consolidating ownership in his name without foreclosure proceedings was considered a violation of Article 2088 of the Civil Code, which prohibits pactum commissorium. The Court held that the mortgagee cannot appropriate the mortgaged property upon the mortgagor's default. Therefore, Dacquel's title was void, and the property must be reconveyed to the Sotelos. The Court emphasized that foreclosure is the proper remedy for a mortgagee to acquire ownership. On the issue of whether respondents-spouses are entitled to attorney's fees: The Court ruled in the negative, deleting the award made by the CA. While Article 2208 of the Civil Code allows for attorney's fees in certain instances, the Court found no sufficient showing of bad faith on the part of Dacquel. The Court noted that both parties acted under the honest belief that their respective claims were justified, and the litigation arose from undocumented transactions and misunderstandings. The mere fact that the Sotelos were compelled to litigate or that Dacquel persisted in his claim did not automatically warrant attorney's fees without proof of gross and evident bad faith.
Main Doctrine
A contract purporting to be an absolute sale may be presumed to be an equitable mortgage if there are badges of fraud, such as gross inadequacy of price and the continued possession of the property by the vendor. The consolidation of ownership by the mortgagee upon the mortgagor's default, without foreclosure, constitutes pactum commissorium and is void.