DIGEST/ HANNAH GRACE REFUGIO/ LUISA BRIONES-VASQUEZ vs. COURT OF APPEALS and HEIRS OF MARIA MENDOZA VDA. DE OCAMPO

 

LUISA BRIONES-VASQUEZ vs. COURT OF APPEALS and HEIRS OF MARIA MENDOZA VDA. DE OCAMPO
G.R. No. 144882

February 4, 2005

FACTS:

Under an agreement denominated as a pacto de retro sale, Maria Mendoza Vda. de Ocampo acquired a parcel of land from Luisa Briones. The latter thereunder reserved the right to repurchase the parcel of land up to December 31, 1970.

Maria Mendoza Vda. De Ocampo passed away on May 27, 1979. 2 On June 14, 1990, the heirs of Maria Mendoza Vda. De Ocampo, filed a petition for consolidation of ownership, alleging that the seller was not able to exercise her privilege to redeem the property on or before December 31, 1970.

The RTC rendered a decision declaring the sale as a true pacto de retro sale and that Briones can still redeem the property within 30 days from the finality of this judgment, subject to the provisions of Art. 1616 of the New Civil Code.

Private respondents appealed the RTC Decision to the CA who set aside the RTC’s ruling and declared that the sale was one of an equitable mortgage and not a sale with right of repurchase.

ISSUE:

Whether consolidation of ownership is proper in cases of equitable mortgage

RULING:

Since the contract is characterized as a mortgage, the provisions of the Civil Code governing mortgages apply. Article 2088 of the Civil Code states:

“The creditor cannot appropriate the things given by way of pledge or mortgage, or dispose of them. Any stipulation to the contrary is null and void.”

The Court has interpreted this provision in the following manner:

The essence of pacto commissorio, which is prohibited by Article 2088 of the Civil Code, is that ownership of the security will pass to the creditor by the mere default of the debtor. The only right of a mortgagee in case of non-payment of a debt secured by mortgage would be to foreclose the mortgage and have the encumbered property sold to satisfy the outstanding indebtedness. The mortgagor’s default does not operate to vest in the mortgagee the ownership of the encumbered property, for any such effect is against public policy, as enunciated by the Civil Code.

Applying the principle of pactum commissorium specifically to equitable mortgages, in Montevirgen v. CA, the Court enunciated that the consolidation of ownership in the person of the mortgagee in equity, merely upon failure of the mortgagor in equity to pay the obligation, would amount to a pactum commissorium. The Court further articulated that an action for consolidation of ownership is an inappropriate remedy on the part of the mortgagee in equity. The only proper remedy is to cause the foreclosure of the mortgage in equity. And if the mortgagee in equity desires to obtain title to the mortgaged property, the mortgagee in equity may buy it at the foreclosure sale.

The private respondents do not appear to have caused the foreclosure of the mortgage much less have they purchased the property at a foreclosure sale. Petitioner, therefore, retains ownership of the subject property. The right of ownership necessarily includes the right to possess, particularly where, as in this case, there appears to have been no availment of the remedy of foreclosure of the mortgage on the ground of default or non-payment of the obligation in question.