View full case

CHING SEN BEN v. CA

FACTS:

Petitioner Ching Sen Ben, engaged in the construction and sale of houses, agreed with private respondent David Vicente that petitioner will construct a house on petitioner's lot in Marikina and transfer it to respondent for a total price of P150,000 to be paid through a housing loan from the Social Security System (SSS). The SSS approved respondent's loan but only for the amount of P119,400. Petitioner executed a Deed of Absolute Sale over the property and on this basis, a Transfer Certificate of Title was issued to respondent. Petitioner informed respondent that there was a remaining balance of P43,000 for the house and lot. Respondent executed a Promissory Note and Deed of Real Estate Mortgage in favor of the SSS to secure the loan. The proceeds of the loan were remitted to petitioner, but respondent failed to pay the remaining debt of P43,000. Petitioner and respondent then executed a Deed of Sale With Assumption and With Right to Repurchase, wherein petitioner agreed to sell the property to respondent but also assumed the mortgage obligations. The deed provided that if respondent fails to exercise his right of repurchase within one year, the conveyance shall be considered an absolute and irrevocable sale. Petitioner paid the loan in full to the SSS and demanded that respondent execute a Deed of Absolute Sale, but respondent failed to comply. Petitioner then executed an Affidavit of Consolidation of Ownership and filed a petition for consolidation of title, which was dismissed by the court a quo and affirmed by the Court of Appeals. Petitioner now seeks a review of the decision of the Court of Appeals.

ISSUES:

  1. Whether the transaction between the parties was an equitable mortgage.

  2. Whether the stipulation in the deed of sale with right to repurchase, vesting absolute title in the vendee in case of failure to redeem, is valid.

  3. Whether petitioner assumed private respondent's obligation to the SSS primarily for his own benefit.

  4. Whether petitioner is entitled to the foreclosure of the deed of sale.

RULING:

  1. The Court held that the transaction between the parties was an equitable mortgage. The determination of a contract's real nature is not bound by the parties' denomination of the same. The decisive factor is the intention of the parties, as shown by their contemporaneous acts and acts subsequent to the execution of the contract. Article 1602 of the Civil Code enumerates the instances when a contract will be presumed to be an equitable mortgage. The policy of the law is to discourage pacto de retro sales and prevent the circumvention of the prohibition against usury and pactum commissorium. In this case, the Court found that the deed of sale with assumption of mortgage and right to repurchase was actually an equitable mortgage based on the inadequacy of the purchase price, the vendor's possession of the property, and the intent to secure the payment of the balance of the purchase price and transfer fees.

  2. The stipulation in the deed of sale with right to repurchase, vesting absolute title in the vendee in case of failure to redeem, is void for being a pactum commissorium.

  3. Yes. The assumption of the mortgage obligation was done primarily for petitioner's own benefit. Petitioner did not actually spend twice for the subject property since private respondent remitted to petitioner the proceeds of the loan obtained from the SSS. By assuming private respondent's obligation to the SSS, petitioner ensured the payment of the debt or the recovery of the subject property for himself.

  4. No. The Court of Appeals correctly held that the appropriate remedy is a Petition for Judicial Foreclosure of Real Estate Mortgage under Rule 68. A Petition for Consolidation of Title is not the appropriate remedy to enforce a transaction declared to be a mortgage.

PRINCIPLES:

  • In determining the real nature of a contract, courts are not bound by the parties' designation but by their intention as evidenced by their contemporaneous and subsequent acts.

  • Article 1602 of the Civil Code enumerates the instances when a contract will be presumed to be an equitable mortgage.

  • The policy of the law is to discourage pacto de retro sales and prevent the circumvention of the prohibition against usury and pactum commissorium.

  • The stipulation in a contract of sale with right to repurchase, vesting absolute title in case of failure to redeem, is void for being a pactum commissorium.

  • The assumption of an obligation must be done in good faith and for the benefit of the creditor. (Case did not provide a specific legal principle, but is implied from the ruling)

  • A Petition for Judicial Foreclosure of Real Estate Mortgage is the appropriate remedy to secure a title to the mortgaged property. (Montevirgen v. Court of Appeals)

  • Attorney's fees may be awarded when a party is compelled to litigate or incur expenses to protect his interest due to the unjustified act of the other party.