Heirs of Jose Reyes vs Amanda Reyes

Heirs of Jose Reyes vs Amanda Reyes

GR 158377, August 13, 2010

Bersamin, J.:

Facts:

Leoncia and her 3 sons executed the Kasulatan ng Biling Mabibiling Muli by which they sold their parcel to Sps. Francia for P500, subject to the vendors' right to repurchase for the same amount sa oras na sila'y makinabang. Potenciana's heirs did not assent to that deed. Nonetheless, Teofilo and Jose, Jr. and their respective families remained in possession of the property and paid the realty taxes thereon. Leoncia and her children did not repay the amount of P500.00.

Alejandro, the son of Jose, Sr., first partially paid to the Sps Francia P265.00 for the obligation of Leoncia, his uncles and his father. Alejandro later paid the balance of P235.00. Thus, on August 11, 1970, the heirs of Spouses Francia executed a deed entitled Pagsasa-ayos ng Pag-aari at Pagsasalin, whereby they transferred and conveyed to Alejandro all their rights and interests in the property for P500.00.

Leoncia and her 3 sons excuted the Kasulatan ng Biling Mabibiling Muli by which they sold their parcel to Sps. Francia for P500, subject to the vendors' right to repurchase for the same amount sa oras na sila'y makinabang. Potenciana's heirs did not assent to that deed. Nonetheless, Teofilo and Jose, Jr. and their respective families remained in possession of the property and paid the realty taxes thereon. Leoncia and her children did not repay the amount of P500.00.

On August 21, 1970, Alejandro executed a Kasulatan ng Pagmeme-ari, wherein he declared that he had acquired all the rights and interests of the heirs of the Sps Francia, including the ownership of the property, after the vendors had failed to repurchase within the given period. From then on, he had paid the realty taxes for the property.

Nevertheless, on October 17, 1970, Alejandro, his grandmother (Leoncia), and his father (Jose, Sr.) executed a Magkasanib na Salaysay, by which Alejandro acknowledged the right of Leoncia, Jose, Jr., and Jose, Sr. to repurchase the property at any time for the same amount of P500.00.

Amanda filed a suit to quiet the title.

Issues:

1. Whether the transaction entered into by Alejandro, Leoncia, Jose Sr., Jose Jr. and Teofilo was an equitable mortgage and not a pacto de retro sale;
2. Whether upon the execution of the Kasulatan ng Pagmeme-ari, ownership was consolidated to Alejandro upon failure of Leoncia and her sons to redeem within the agreed period; and
3. Whether the Magkasanib na Salaysay executed by Alejandro granted Leoncia and her three sons a right to repurchase at any time for P500.

Held:

1.      It was an equitable mortgage.

There was no dispute that the purported vendors (Leoncia and sons) had continued in the possession of the property even after the execution of the agreement; and that the property had remained declared for taxation purposes under Leoncia's name, with the realty taxes due being paid by Leoncia, despite the execution of the agreement. Such established circumstances are among the badges of an equitable mortgage enumerated in Article 1602, paragraphs 2 and 5 of the Civil Code, to wit:

Art. 1602. The contract shall be presumed to be an equitable mortgage, …:

x x x

(2) When the vendor remains in possession as lessee or otherwise;

x x x

(5) When the vendor binds himself to pay the taxes on the thing sold;

x x x

The existence of any one of the conditions enumerated under Article 1602 of the Civil Code, not a concurrence of all or of a majority thereof, suffices to give rise to the presumption that the contract is an equitable mortgage. Consequently, the contract between the vendors and vendees (Spouses Francia) was an equitable mortgage.

Considering that sa oras na sila'y makinabang, the period of redemption stated in the Kasulatan ng Biling Mabibiling Muli, signified that no definite period had been stated, the period to redeem should be ten years from the execution of the contract, pursuant to Articles 1142 and 1144 of the Civil Code. Thus, the full redemption price should have been paid by July 9, 1955; and upon the expiration of said 10-year period, mortgagees Sps Francia or their heirs should have foreclosed the mortgage, but they did not do so. Instead, they accepted Alejandro's payments, until the debt was fully satisfied by August 11, 1970.

The acceptance of the payments even beyond the 10-year period of redemption estopped the mortgagees' heirs from insisting that the period to redeem the property had already expired. Their actions impliedly recognized the continued existence of the equitable mortgage. The conduct of the original parties as well as of their successors-in-interest manifested that the parties to the Kasulatan ng Biling Mabibiling Muli really intended their transaction to be an equitable mortgage, not a pacto de retro sale.

2.      No, ownership was not consolidated to Alejandro upon failure of Leoncia and her sons to redeem within the agreed period.

It is true that Alejandro became a co-owner of the property by right of representation upon the death of his father, Jose Sr. As a co-owner, however, his possession was like that of a trustee and was not regarded as adverse to his co-owners but in fact beneficial to all of them.

Yet, the respondents except to the general rule, asserting that Alejandro, having earlier repudiated the co-ownership, acquired ownership of the property through prescription.

The Court cannot accept the respondents' posture.

In order that a co-owner's possession may be deemed adverse to that of the cestui que trust or the other co-owners, the following elements must concur:

1. The co-owner has performed unequivocal acts of repudiation of the co-ownership amounting to an ouster of the cestui que trust or the other co-owners;

2. Such positive acts of repudiation have been made known to the cestui que trust or the other co-owners;

3. The evidence on the repudiation is clear and conclusive; and

4. His possession is open, continuous, exclusive, and notorious.

The concurrence of the foregoing elements was not established herein. For one, Alejandro did not have adverse and exclusive possession of the property, as, in fact, the other co-owners had continued to possess it, with Alejandro and his heirs occupying only a portion of it. Neither did the cancellation of the previous tax declarations in the name of Leoncia, the previous co-owner, and the issuance of a new one in Alejandro's name, and Alejandro's payment of the realty taxes constitute repudiation of the co-ownership. The sole fact of a co-owner declaring the land in question in his name for taxation purposes and paying the land taxes did not constitute an unequivocal act of repudiation amounting to an ouster of the other co-owner and could not constitute adverse possession as basis for title by prescription.

Moreover, according to Blatero v. IAC, if a sale a retro is construed as an equitable mortgage, then the execution of an affidavit of consolidation by the purported buyer to consolidate ownership of the parcel of land is of no consequence and the "constructive possession" of the parcel of land will not ripen into ownership, because only possession acquired and enjoyed in the concept of owner can serve as title for acquiring dominion.

In fine, the respondents did not present proof showing that Alejandro had effectively repudiated the co-ownership. Their bare claim that Alejandro had made oral demands to vacate to his co-owners was self-serving and insufficient. Alejandro's execution of the affidavit of consolidation of ownership on August 21, 1970 and his subsequent execution on October 17, 1970 of the joint affidavit were really equivocal and ambivalent acts that did not manifest his desire to repudiate the co-ownership.

The only unequivocal act of repudiation was done by the respondents when they filed the instant action for quieting of title on September 28, 1994, nearly a year after Alejandro's death on September 2, 1993. However, their possession could not ripen into ownership considering that their act of repudiation was not coupled with their exclusive possession of the property.

The Kasulatan ng Pagmeme-ari executed by Alejandro on August 21, 1970 was ineffectual to predicate the exclusion of the petitioners and their predecessors in interest from insisting on their claim to the property. Alejandro's being an assignee of the mortgage did not authorize him or his heirs to appropriate the mortgaged property for himself without violating the prohibition against pactum commissorium contained in Article 2088 of the Civil Code, to the effect that "[t]he creditor cannot appropriate the things given by way of pledge or mortgage, or dispose of them[;] [a]ny stipulation to the contrary is null and void." Aptly did the Court hold in Montevirgen v. Court of Appeals:

The declaration, therefore, in the decision of July 1, 1971 to the effect that absolute ownership over the subject premises has become consolidated in the respondents upon failure of the petitioners to pay their obligation within the specified period, is a nullity, for consolidation of ownership is an improper and inappropriate remedy to enforce a transaction declared to be one of mortgage. It is the duty of respondents, as mortgagees, to foreclose the mortgage if he wishes to secure a perfect title to the mortgaged property if he buys it in the foreclosure sale.

Moreover, the respondents, as Alejandro's heirs, were entirely bound by his previous acts as their predecessors-in-interest. Thus, Alejandro's acknowledgment of the effectivity of the equitable mortgage agreement precluded the respondents from claiming that the property had been sold to him with right to repurchase.

3.      No, the Magkasanib na Salaysay executed by Alejandro did not grant Leoncia and her three sons a right to repurchase at any time for P500.

The provisions of the Civil Code governing equitable mortgages disguised as sale contracts are primarily designed to curtail the evils brought about by contracts of sale with right to repurchase, particularly the circumvention of the usury law and pactum commissorium. Courts have taken judicial notice of the well-known fact that contracts of sale with right to repurchase have been frequently resorted to in order to conceal the true nature of a contract, that is, a loan secured by a mortgage. It is a reality that grave financial distress renders persons hard-pressed to meet even their basic needs or to respond to an emergency, leaving no choice to them but to sign deeds of absolute sale of property or deeds of sale with pacto de retro if only to obtain the much-needed loan from unscrupulous money lenders. This reality precisely explains why the pertinent provision of the Civil Code includes a peculiar rule concerning the period of redemption, to wit:

Art. 1602. The contract shall be presumed to be an equitable mortgage, in any of the following cases:

x x x

(3)When upon or after the expiration of the right to repurchase another instrument extending the period of redemption or granting a new period is executed;

x x x

Ostensibly, the law allows a new period of redemption to be agreed upon or granted even after the expiration of the equitable mortgagor's right to repurchase, and treats such extension as one of the indicators that the true agreement between the parties is an equitable mortgage, not a sale with right to repurchase. It was indubitable, therefore, that the Magkasanib na Salaysay effectively afforded to Leoncia, Teofilo, Jose, Sr. and Jose, Jr. a fresh period within which to pay to Alejandro the redemption price of P500.00.

Martinez vs CA (56 SCRA 647)

Martinez vs CA (56 SCRA 647)

GR No. L- 31271, April 29 1974

Esguerra, J.:

Facts:

The spouses Romeo Martinez and Leonor Suarez are the registered owners of two (2) parcels of land located in Lubao, Pampanga. The disputed property was originally owned by one Paulino Montemayor, who secured a "titulo real" over it way back in 1883. After the death of Paulino Montemayor the said property passed to his successors-in-interest, Maria Montemayor and Donata Montemayor, who in turn, sold it, as well as the first parcel, to a certain Potenciano Garcia.

Because Potenciano Garcia was prevented by the then municipal president of Lubao, Pedro Beltran, from restoring the dikes constructed on the contested property, Garcia filed a civil case with the Court of First Instance against Beltran to restrain the latter in his official capacity from molesting him in the possession of said second parcel, and on even date, applied for a writ of preliminary injunction, which was issued against said municipal president. The Court declared permanent the preliminary injunction.

On April 17, 1925. Potenciano Garcia applied for the registration of both parcels of land in his name, and the Court of First Instance of Pampanga, sitting as land registration court, granted the registration.

Thereafter, the ownership of these properties changed hands until eventually they were acquired by the spouses.

To avoid any untoward incident, the disputants agreed to refer the matter to the Committee on Rivers and Streams, which, after conducting an ocular inspection, reported that the parcel was not a public river but a private fishpond owned by the herein spouses.

The Secretary of Public Works and Communications, ordered another investigation of the said parcel of land, directing the spouses to remove the dikes they had constructed, threatening that the dikes would be demolished should the spouses fail to comply therewith within 30 days.

Issue:

Whether the spouses are purchasers for value and in good faith on the parcel alleged to be a public river.

Held:

No, they are not.

There is no weight in the spouses' argument that, being a purchaser for value and in good faith of Lot No. 2, the nullification of its registration would be contrary to the law and to the applicable decisions of the Supreme Court as it would destroy the stability of the title which is the core of the system of registration. Appellants cannot be deemed purchasers for value and in good faith as in the deed of absolute conveyance executed in their favor.

Before purchasing a parcel of land, it cannot be contended that the spouses did not know exactly the condition of the land that they were buying and the obstacles or restrictions thereon that may be put up by the government in connection with their project of converting Lot No. 2 in question into a fishpond. Nevertheless, they willfully and voluntarily assumed the risks attendant to the sale of said lot. One who buys something with knowledge of defect or lack of title in his vendor cannot claim that he acquired it in good faith.

The ruling that a purchaser of a registered property cannot go beyond the record to make inquiries as to the legality of the title of the registered owner, but may rely on the registry to determine if there is no lien or encumbrances over the same, cannot be availed of as against the law and the accepted principle that rivers are parts of the public domain for public use and not capable of private appropriation or acquisition by prescription.

Sun Brothers vs. Velasco (54 O.G. 5143)

Sun Brothers vs. Jose Velasco (54 OG 5143)

L-17085-R, January 13, 1958

Angeles, J.:

Facts:

Sun Brothers & company delivered to Lopez an Admiral refrigerator under a “Conditional Sale Agreement”. Out of the P1,700 purchase price, only P500 was paid as downpayment.

Inter alia, they stipulated that Lopez shall not remove the refrigerator from his address nor part possession therewith without the express written consent of Sun brothers. In violation thereof, Sun Brothers may rescind the sale, recover possession and the amounts paid shall be forfeited. The refrigerator shall remain the absolute property of Sun Brothers until Lopez has fully paid the purchase price.

Lopez sold the refrigerator to JV Trading (owned by Jose Velasco) without knowledge of Sun brothers for P850, misrepresented himself as Jose Lim and executed a document stating that he is the absolute owner. Thereafter, Velasco displayed the refrigerator in his store abd Co Kang Chui bought it for P985.

Issue:

Whether Co Kang Chiu, an innocent buyer from a store, has a better right as owner than Sun Brothers, a conditional vendor

Held:

Co Kang Chiu has a better right than Sun Brothers.

Article 1505 of the Civil Code provides:

“Art. 1505. Subject to the provisions of this Title, where goods are sold by a person who is not the owner thereof, and who does not sell them under authority or with the consent of the owner, the buyer acquires no better title to the goods than the seller had, unless the owner if the goods is by his conduct precluded from denying the seller’s authority to sell.

“Nothing in this Title, however, shall affect:

(1)   The provisions of any factors’ acts, recording laws, or any other provision of law enabling the apparent owner of goods to dispose of them as if he were  the true owner thereof;

…

(3) Purchases made in a merchant’s store, or in fairs, or markets, …”

The lower court committed error when it applied the 1^st paragraph of Article 1505. It is true that Francisco Lopez, the conditional vendee, never had any title to the refrigerator in question, because the stipulation between him and the conditional vendor, Sun Brothers, is that title shall vest in the vendee upon payment in full of the purchase price, and Lopez has not fully paid such price. When Lopez, who has not tile to the refrigerator, sold it to Jose Velasco, the latter did not acquire any better right than what Lopez had --- which is practically nothing. We do not agree with the court a quo that Velasco was a purchaser in good faith and for value for the reason that Lopez, being a private person who is not engaged in the business of selling refrigerators, Velasco must be reasonably expected to have inquired from Lopez whether or not the refrigerator he was selling has been paid in full. In this, Velasco has been negligent.

            Also, since Co Kang Chui purchased the refrigerator from JV Trading, a merchant store and displayed thereat, the 3^rd paragraph of Art. 1505 applies, from which Co Kang Chui should be declared as having acquired a valid title to the refrigerator, although his predecessors in interest did not have any right of ownership over it. This is a case of imperfect or void title ripening into a valid one, as a result of some intervening causes. The policy of the law which we do not feel justified to deviate, has always been that where the rights and interests of a vendor comes into clash with that of an innocent buyer for value, the latter must be protected.

The rule embodied in Article 1505 (3) protecting innocent third parties who have made purchases at merchants’ stores in good faith and for value appears to us to be a wise and necessary rule not only to facilitate commercial sales on movables but to give stability to business transactions. This rule is necessary in a country such as ours where free enterprise prevails, for buyers cannot be reasonably expected to look behind the title of every article when he buys at a store. The doctrine of caveat emptor [the buyer alone is responsible for checking the quality and suitability of goods before a purchase is made] is now rarely applied, and if it is ever mentioned, it is more of an exception rather than the general rule.

Upon the whole, we are persuaded to believe that Co Kang Chui who is now is possession of the refrigerator should be adjudged the owner thereof, because he bought it at a merchant’s store in good faith and for value.