Arturo A. Dacquel v. Spouses Ernesto Sotelo

Summary

This case involved a dispute between in-laws over a property transaction initially documented as a sale but later determined to be an equitable mortgage. In 1994, the Sotelo spouses borrowed P140,000.00 from Dacquel for apartment construction and executed a deed of sale as security. When the debt was fully paid through rental income, Dacquel refused to reconvey the property. The Supreme Court applied the Civil Code provisions on equitable mortgage, finding two badges of fraud: gross inadequacy of price (P140,000.00 vs. P1,750,000.00 market value) and continued possession by the Sotelos. The Court ruled that Dacquel was merely a mortgagee who violated the prohibition against pactum commissorium by consolidating ownership without foreclosure. The transaction was declared void, title was ordered reconveyed to the Sotelos, but attorney's fees were denied for lack of proven bad faith. The decision reinforces the protection of property rights and the strict application of equitable mortgage principles in Philippine law.