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[ GR No. 43304, Oct 21, 1936 ]



63 Phil. 582

[ G. R. No. 43304, October 21, 1936 ]




The questions raised in this  appeal may be summarized into two: (1)   Whether  the  contract  evidenced  by the documents Exhibits 1, 3, 4 and  5 is a  sale with right of repurchase or a simple loan secured by  real property, and (2)  whether or not, as the question of ownership of the real property referred to in the complaint has been raised in the  municipal court  of Manila  where this case  originated, and later in  the Court of  First Instance of Manila, where it was brought on appeal, said courts had  jurisdiction to continue hearing it.  The other questions are  incidental and subordinate and  the resolution thereof  will depend upon that of the former ones.

The  following facts have  been established  by the evidence  of the case:

The  defendant approached Mariano  Aquino, the  plain- tiff's father, to solicit  a  loan for a certain amount secured by the real  property described  in4 original certificate of title No. 5014, on which a house of strong1 materials designated  by No. 670,  Tanduay  Street, was built.  Mariano Aquino acceded to the defendant's proposition on condition that the transaction be evidenced by a deed in the form and under the  conditions of Exhibit 1.   The defendant accepted the conditions imposed because otherwise he would not have obtained the sum needed  by him, and  to  that effect Exhibit 1 was executed, the principal clauses of which read as follows:
"2. In consideration of the sum of four thousand pesos (P4,000)  actually received  by Tomas Deala and paid by Mariano Aquino, said Tomas  Deala  sells, cedes and transfers to said  Mariano Aquino the real property described in  paragraph 1 of this deed, free from all liens  and incumbrances,  subject to the resolutory condition  hereinafter stated.

"3. It is hereby agreed and stipulated between Tomas Deala  and Mariano Aquino  that the latter hereafter becomes  the owner of the property sold, the vendor being liable for eviction and warranty in  the present sale.

"4. It is likewise stipulated  that the  vendor  Tomas Deala  shall be entitled  to repurchase the property sold, provided he  pays the selling price  within the period of four (4)  years from this date, plus any  other sum  for the payment of which he may be liable under the terms of this document.

"5. It is  likewise  stipulated  that Tomas Deala binds himself to construct a two-story house of strong materials on the vacant lot of the parcels of land described  in  paragraph 1 of this deed, within the period of six  (6)  months from this date.

"6. It is also  stipulated that  said  Tomas Deala binds himself to  insure against fire the buildings on the parcel of  land  above-stated  for not less  than  three thousand pesos (P3,000),  the premiums thereon to be paid by  said Tomas Deala who will immediately  indorse the policy to the  purchaser Mariano Aquino  after the property  is insured.

"7.  It is likewise stipulated that should the period for the repurchase elapse and the vendor fails to make use of such right, this sale will become final  and  irrevocable without the necessity of executing any  other document therefor.

"8.  It is likewise stipulated that Tomas Deala will defray the  expenses  for the  execution  of  this deed and that of the repurchase, as  the case may be, as well as the  registration of both documents in the registry of deeds.

"9.  Mariano Aquino, as purchaser, states his acceptance of and conformity to the sale executed by Tomas Deala.

"10.  Upon the consummation of the sale under the above-stated terms, it is now stipulated and agreed that Mariano Aquino cedes  and Tomas Deala  receives, under lease, the property described  in paragraph 1  of this  deed, as well as the house which said Deala binds himself  to build, on the following  conditions:
"(a) The term of the lease is  four (4) years, from this date.
"(b) The lease will  be for the  sum of forty pesos (P40) a month,  payable in advance within the first five days of every month,  at the residence of the lessor.
"(c)  Failure to pay the lease  for three  (3)  consecutive months will entitle the lessor to  eject the  lessee from the property leased.
"(d) Payment of the land tax  on the property leased as well  as of any other tax actually imposed or hereafter to be imposed thereon, will be  charged  to the  account of  the lessee.
"(e) Expenses for the conservation and hygienization of the leased  property, as well as those in compliance  with all orders issued by any office or dependency of  the government in connection with  said  property, will also be charged to the account of the lessee.
"(f) Payment of the electric  current, gas consumption, water and sewer service of the leased  property  will likewise be charged to the account of the lessee.
"11. Lastly, it is stipulated that in the event Mariano Aquino has to resort to an attorney or the courts of justice to enforce the stipulations of this contract, Tomas Deala will pay to said Mariano Aquino damages in the sum of three  hundred pesos  (P300), which will have to  be added to the repurchase  price agreed upon  in case the right of repurchase above-stated is exercised."
Exhibit 1 was novated on December 26, 1926, the only alteration made  being in the clause referring to  the price and the  rent which were increased  to P4,500 and P45, respectively  (Exhibit 3).  It was renovated  on May 31, 1927,  by increasing said price and rent to P5,200 and P52, respectively  (Exhibit 4), and on  April 20,  1931,  it  was finally renovated by increasing the price to P6,600,  reducing the  rent to 1*49.50 a month and  extending the period of repurchase to  April  20,  1933, the  original  period of four years agreed upon in Exhibit 1  having expired some months  before.  With the exception  of the amount  of the price  and the rent and the extension of the period  of repurchase, the stipulations of the  original deed  (Exhibit 1) were  left intact in the subsequent novations (Exhibits 3, 4 and 5).

On  November  4, 1926, the defendant obtained permission from  the department  of engineering  and public   works to construct a two-story  house of strong materials  on the vacant part of the lot in question, the work having been finished about June 23, 1928.

On  June 9, 1933, Mariano  Aquino had the consolidation of his ownership of the property referred to in said documents registered in the registry  of deeds and transfer certificate of title No. 42982 (Exhibit B) was issued to him. He died  sometime later  and his son Antonio F. Aquino, who instituted the present ejectment proceedings  in  the municipal court of Manila, was appointed special administrator of his testate estate.  The defendant timely raised the question of ownership both in the court of origin and in  the Court  of  First  Instance.  The municipal  court ordered the defendant to vacate the property in question and to pay the plaintiff the unpaid rents at the rate  of P50 a month, plus the costs.  The Court of First Instance, on  appeal, substantially affirmed the appealed judgment, overruling the  defenses  set up by the  defendant.

We  are of the opinion that the defendant's contention regarding the nature of the contract Exhibit 1 and the novations thereof is meritorious.  Although from the defendant's  testimony that Mariano Aquino refused to give him the  sum of  P4,000  if the contract  was  not executed under  the conditions of Exhibit 1, it may be inferred that the parties  entered, with reluctance on the part of the defendant, into a contract of sale with pacto  de retro and not of simple loan, the  very terms of the stipulations of Exhibit 1, the subsequent conduct of the parties and  other circumstances of the case warrant the conclusion that the true intention of the parties was the granting  of a loan in a certain amount to the defendant, with interest  at 12 per cent  per  annum which, in  view of  the  defendant's precarious situation, was later reduced  to 9 per  cent so that he could build  another house on the  vacant part of the lot in question, the loan being secured by  said lot, the house already built thereon at the time of the execution of the contract  and that which the defendant  intended to  build with the  money  received from Mariano Aquino.  If the words "sale with right  of repurchase", "price",  "repurchase", "right of redemption", "lease", "rent", "purchaser", "vendor", and other similar words used  according to custom in the deed  Exhibit  1, the other stipulations contained therein and the  other circumstances of the  case  are  incompatible with the idea that it was the intention of the assignor to transfer the  ownership of the  property in question to the purchaser at a certain price, the vendor reserving  for  himself only  the  right to repurchase it within a certain period.

Let us begin with the stipulations  of the original contract Exhibit 1.  Those contained in  paragraphs 5,  6, 10 and 11 thereof are,  in our opinion, incompatible with the theory that the contract was  one  of purchase  and sale as claimed by the plaintiff.  We should not lose sight of the fact that between an absolute sale and a sale with  right of repurchase, no difference exists except that in the latter the ownership of the purchaser is  subject to the resolutory condition, that the vendor exercises his right of repurchase within the time agreed upon.

Under paragraph  5 of Exhibit  1, the so-called vendor found himself  to construct a two-story house of strong materials within six months on the vacant part of the lot referred  to in the  contract.  If the  contract  were  truly one of purchase and sale, it is not explained why the vendor should have to assume said obligation and spend the money received from the purchaser in compliance therewith.   The act which the defendant bound himself to execute by virtue of the contractual clause under consideration  was an  act of ownership and the performance thereof devolved  upon the  purchaser-owner,  not upon the  vendor-lessee.  Said clause indicates that Mariano  Aquino,  in granting the loan of P4,000 to the defendant, considered the security offered insufficient and therefore required the debtor to amplify it by constructing another additional house on the lot given as security.  Had it been the intention of the parties to make this  new house,  upon  construction, a part of the subject  matter of the said sale,  a stipulation regarding payment of  additional rent would have been  inserted in the contract inasmuch as a rental of P40 a  month  was fixed for the use and occupation of the house already existing  on the property which is the  subject matter of  the contract.   It is true that under paragraph 10  this sum of P40 was for the rent not only  of the house 'already existing but  also of that which the  defendant undertook to  construct, but this part of the contract is clearly  fictitious, because if the rent of P40 covered the two  houses, it  is not explained Why the lessee should agree to  pay rent for the  occupation of an in-existent house which he himself was to construct with his own money and how the lessor should accept rent of only P40 for two houses of strong materials, one of which consists of two stories.

Paragraph 6 and paragraph  10, sub-paragraph (d), of Exhibit 1 imposed upon the vendor  the obligation to insure against fire the buildings constructed  on  the property which is the subject matter of the contract,  for not less than P3,000, the payment of the premiums thereof being to the account of said vendor who was obliged to indorse the policy immediately to  the purchaser and  to  pay,  also for his own account  and responsibility,  the land tax and any  other taxes imposed  or that might thereafter  be imposed upon the property.  When a property is insured, the indemnity, in case of loss, is paid to the owner because the insurable interest is his.  This  being so, the correlative obligation to pay for the  insurance premiums should devolve upon the owner and not upon the lessee or vendor with right of repurchase who,  with  the  exception of his right of redemption, should have considered all other juridical  relations  with the property  sold extinguished  after the contract.   The same is true with respect to the payment of the land tax.   This lien should have  been shouldered by the owner and not by the  lessee.

Under  paragraph  10, sub-paragraph  (e), the  expenses for the conservation of the property should likewise be for the account of the defendant.   However,  these  expenses are ordinarily for  the account of the lessor (article 1554, Civil Code).

It  appears  that Mariano Aquino desired to  obtain a net income of 12 per cent per annum from his investment and for this  reason  he caused the  defendant to  assume the obligation to  pay not only the  land tax and  insurance of the property but also the expenses for its conservation.  If Mariano  Aquino  had  assumed  these  obligations  which strictly belong to the owner of  the property, instead of imposing them upon the defendant, he would not have been able to realize said net income of 12 per cent per annum on his capital, because he would have had to deduct therefrom the sum represented by the insurance, the land tax and the expenses for  the conservation of the property. On the other  hand,  had he assumed such obligations and compensated these liens by charging interest in excess of 12 per cent he would have openly violated the Usury Law.

The other facts of the case showing that the  contract in question was a  simple loan  with interest at  12 per cent which was  later reduced to 9 per cent are as  follows:

(a)  When the alleged sale price was increased to P4,500 in the first novation of the contract on December 26, 1926, the rent of the property was  increased to P45,  in  spite of the fact  that said property  had suffered no change, in order to maintain the rate of interest at 12 per cent.  When the contract was novated for the second time on May 31, 1927, by increasing the so-called selling  price to P5,200, the rent was  likewise increased  to  P52 in order to continue maintaining the rate of interest at 12 per cent.  It was only when said contract was  novated  for the last time on April 20, 1931, and the so-called selling price  was increased to P6,600 that  the rent  was reduced to P49.50 a month because Mariano Aquino had acceded to reduce the rate of interest  to 9 per cent.  The new  house on the lot in question had just been finished  about June 23, 1928, and it is strange  that  the fluctuations of the amount of the rent had nothing to do with the construction of said new house but with the successive increases of the so-called selling price, or the  amount of the loan.  In other words, the rent went  up or  down not because of the improvement or amplification  of the leased property but because of the increase of the amount of the loan and  the  rate  of the interest agreed upon by the parties.

(b)  The  term of the  right  of redemption, under the original  deed, was supposed to expire and it expired on September  25,  1930.   However*  the  so-called purchaser, far from having the consolidation 6f his  ownership registered  in  the registry of deeds, executed Exhibit  5, on April 20, 1931, "extending" the  already expired original term  of four years stipulated in Exhibit  1 to  April 20, 1933.  This shows  that, notwithstanding the form  of the contract, Mariano Aquino always considered the transaction as a simple loan.   The affirmation made in paragraph 3 of the deed Exhibit 5 that "as the term  of the contract had expired on September 25, 1930, the same remaining in statu quo, etc., excludes every idea that the parties in- tended to enter  into a contract of sale.  In fact, once the period for the  right of redemption  has expired without the right having been  exercised,  it could  not be said,  if the contract were one  of sale with  pacto de retro, that "the  contract  has remained in statu quo",  because failure to exercise the right of  redemption, in such contract, automatically "produces  the  effect  of consolidating the ownership of the purchaser without the necessity of any  other act on his part,  the fact on which his ownership was temporarily  conditioned not having  been  realized.

In Padilla vs. Linsangan (19 Phil.,  65),  we stated that "the court  will not construe an  instrument to  be one of a sale con pacto de retro, with  the stringent and onerous effects that follow, unless  the terms of the instrument and all  the circumstances  positively  require   it.  Whenever, under the  terms of the writing, any other  construction can fairly and reasonably be made, such construction will be adopted.  Sales with a right to repurchase, as defined by the Civil  Code, are  not favored, and the contract will be construed as  a mere  loan unless the court can see that, if enforced according to its terms, it is not an unconscionable one."

We consider the following provisions of the Civil Code in matters of interpretation of contracts  pertinent  to the case:
"If the words appear to be contrary to the evident intention of the contracting parties, the intention shall prevail."   (Art. 1281.)

"In order to judge as to the intention of the contracting parties, attention must be paid principally  to their conduct at the time of making the contract and subsequently thereto."   (Art. 1282.)
It may be contended that "the contracting parties may establish  any agreements, terms and conditions that may deem advisable,  provided they are  not  contrary to law, morals, or public order."   (Art. 1255, Civil Code.)   How- ever, we do not declare herein the nullity of the agreements contained in Exhibit 1 and in its various novations.  None of said agreements is  contrary  to law, morals, or  public order, and all of them should therefore be maintained out of respect to the will of the contracting parties.  The validity of these agreements,  however, is one  thing, while the juridical qualification of  the contract resulting therefrom is very distinctly another.  Such agreements, in our opinion, change the status of the sale with pacto de retro and give rise to juridical relations of a different nature.   Similar thereto is a contract of commodatum wherein payment of compensation by the  person  acquiring the  use  of the thing is  stipulated.  This  stipulation  is valid  but  the commodatum, although so termed, ceases to exist  and is converted into  another  contract  with   different  effects (art. 1741).  The  same thing happens with the contract of depositum.  Although  it would seem that article 1760 of  the  Civil  Code indirectly authorizes  the  constitution of an onerous deposit, when there is an express stipulation to that  effect, this court  has repeatedly held that the deposit should be considered a loan when it contains a stipulation for payment of interest.  (Garcia Gavieres vs. Pardo de Tavera,  1  Phil.,  71; Barretto vs. Reyes, 10 Phil., 489; In re Guardianship  of the minors  Tamboco, 36 Phil., 939, 941)  In order not to multiply the examples, w.e shall cite the cases of use and habitation wherein the  usuary who consumes all  the  fruits of the thing subject to use,  and the person having the right of habitation who occupies the whole house, are considered usufructuaries (art. 527).

The other point to  be resolved  is whether or  not the municipal court had jurisdiction to proceed with the trial of the case  after the defendant had raised the question of ownership therein.   We have repeatedly held that the mere fact that the  defendant,  in his answer, claims  to be the owner of the property from which the  plaintiff seeks to eject him is not sufficient to divest a justice of the peace court of its summary  jurisdiction in actions of  forcible entry and detainer,  because were the principle otherwise, the ends of justice would be frustrated by making the efficacy of this kind of actions depend upon the  defendant in all cases.   However, we  have also held  (Supia and Batioco vs. Quintero and Ayala, 59 Phil., 312), favorably citing Pettit vs. Black (13 Neb., 142, 154), and Green  vs. Morse (57 Neb., 391), that the foregoing rule does not hold when the evidence shows that the question of title is actually involved in the litigation and that the defendant's contention. according to said evidence, is  meritorious.  In this  case the records do not disclose the  nature  of the evidence presented in the municipal  court of origin in connection with the question of ownership raised by the  defendant and, therefore, we are not  in a position to rule that said court was  without jurisdiction to  proceed  with the  trial of the case.  We find, however, that the evidence presented in the Court of First Instance of Manila,  where the case was  brought on appeal, shows that the title to the disputed property was correctly questioned.   Therefore  the Court of First Instance should have declared itself  without jurisdiction to  proceed with the trial of the case  on appeal after examining said evidence, and ordered the  dismissal thereof.

Wherefore, we are of the opinion and so hold that  the case should be  dismissed without prejudice to any other action compatible with the  pronouncements  contained in this  decision,  which  the parties  or  any  of them  might desire to bring,  without costs.

Avanceña, C. J., Villa-Real, Abad Santos, Imperial, Diaz, and Laurel, JJ.,  concur.