Source: http://lawlibrary.chanrobles.com/index.php?option=com_content&view=article&id=4628:g-r-no-11470-april-4,-1918-simeon-a-villa-v-jose-santiago-br-br-038-phil-157&catid=326&Itemid=566
Timestamp: 2019-04-22 08:34:08+00:00

Document:
SIMEON A. VILLA, Plaintiff-Appellee, v. JOSE SANTIAGO, administrator of the estate of Monica Cuenca, deceased, Defendant-Appellant.
Southworth & General, for Appellant.
1. VENDOR AND PURCHASER; SALE WITH RIGHT OF REPURCHASE; SANTOS v. CUYUGAN, FOLLOWED. — The doctrine announced in Cuyugan v. Santos (34 Phil. Rep., 100), adhered to and reaffirmed.
2. ID., ID.; EFFECT OF AGREEMENT TO HOLD DEED AS SECURITY FOR DEBT. — There can be no question, in the absence of express statutory prohibition, as to the validity of an agreement or understanding whereby a lender of money, who, as security for the repayment of a loan, has taken a deed to land, absolute on its face or in the form of a deed reserving a mere right of repurchase to the vendor, obligates himself to hold such deed, not as evidence of a contract of sale but by way of security for the repayment of the debt; and that unless the rights of innocent third persons have intervened, the lender of the money may be compelled to comply specifically with the terms of such an agreement, whether it be oral or written; and further, that he will not be permitted, in violation of its terms, to set up title in himself or to assert a claim of absolute ownership.
3. ID.; ID.; ID. — If the parties actually enter into such an agreement, the lender of the money is legally and morally bound to fulfill it. Of course such an oral contract does not give the borrower a real right in the lands unless it is executed in compliance with the formalities prescribed by law. If entered into orally, it creates a mere personal obligation which in no wise affects the lands, and if the lender conveys the lands to innocent third persons, the borrower must content himself with a mere right of action for damages against the lender, for failure to comply with his agreement. But so long as the land remains in the hands of the lender, the borrower may demand the fulfillment of the agreement, and a mere lack of any of the formalities prescribed under the Spanish Code for the execution of contracts affecting real estate will not defeat his right to have the contract fulfilled, as the lender may be compelled in appropriate proceedings to execute the contract with the necessary prescribed formalities.
5. ID.; ID.; CONSTRUCTION OF INSTRUMENTS IN DOUBTFUL CASES. — In construing instruments alleged to evidence sales of real estate with a right to repurchase reserved to the vendor, the courts should, in doubtful cases, lean to the conclusion that the real nature of the transaction was not a contract of sale but rather a contract conveying or purporting to convey the property by way of security for the repayment of a debt.
Plaintiff in this action seeks to recover nine parcels of land situated in and about Bacoor, some of which are salt fields (salinares), some urban lots, and others agricultural lands, together with damages for their detention, from the defendant administrator of the estate of a woman, named Monica Cuenca, who died in April, 1913, leaving behind her minor children, the youngest of whom was about 6 years of age at the time of her death.
Plaintiff bases his action on the terms of an instrument purporting to be a deed of sale of these lands to himself for the sum of P2,000, executed by the widow on December 29, 1911, wherein she reserved a right of repurchase to be exercised on or before December 29, 1913, she to continue in possession of all this property and to pay an annual rental of P300, that is to say, at the rate of 15 per cent per annum on the amount advanced by the plaintiff.
Plaintiff contends that since the widow did not exercise her reserve right to repurchase before her death in April, 1913, and since that right was not exercised by her heirs or legal representatives before the 29th of December, 1913, he became the absolute owner of the property on the latter date, and is entitled to recover possession from the administrator, together with damages for its detention from that date to date of the complaint, October 8, 1914.
It appears that the plaintiff filed, with the committee of claims against the estate, a separate claim for the amount of one year’s rent (P300) alleged to be due under the contract with the widow and unpaid at the time of her death.
The circumstances under which this claim was presented are of considerable interest and throw a flood of light on the character of the transactions brought under review on this appeal.
This will was offered for probate September 12, 1913, and special letters testamentary were issued to the defendant administrator the following day to take charge of the property pending the proceedings looking to the probate of the will.
The will was probated on December 13, 1913.
On February 14, 1914, a committee of appraisement and claims was appointed to sit for six months from the date of appointment, and to have fifteen days, in addition, to give notice of its sittings and to make its report.
No claim for the amount of the rent was submitted during the period set for the preparation of the report of this committee, but on October 10, 1914, plaintiff appeared, and applied for an extention of the time allowed for the presentation of claims against the estate, in order that he might have an opportunity to file his claim for rent due under the contract; setting forth at the same time, that five days earlier (October 5, 1914) he had procured the entry of an annotation in the registry consolidating his title under the alleged deed of sale, and that two days earlier (October 6, 1914) he had filed his action against the administrator for recovery of the possession of the property in question.
Then, for the first time, did the administrator discover the existence of the alleged deed of sale, and of the claim of ownership by the plaintiff of the property of the estate of the widow.
Counsel for the administrator ask the court to consider the motives which led the plaintiff to keep silent, after the death of the widow and throughout the period allowed for the hearing of the claims against her estate, without attempting to consolidate his title and without setting up his claims for rent, and for damages for the alleged unlawful detention of the property; and it is urged that his conduct in this regard, taken together with all the circumstances as disclosed by the record, justifies the inference that he well knew that despite the execution of the document purporting to be a sale with a reserved right of repurchase, the money was advanced as indicated in the will, by way of a loan at 15 per cent interest per annum, and the deed given merely by way of security therefor, with the understanding that whenever payment should be made of the amount of the indebtedness, the land would be reconveyed to the original owner.
Counsel insist that the attempt of the plaintiff to take from the minor heirs of the deceased property worth more an P10,00 on account of a loan of P2,000 was an afterthought, which only occurred to him when he found that by the death of the widow and the lapse of time it was possible for him to secure the registry of absolute title to the property in his own name, apparently without the possibility of successful challenge of his unconscionable conduct by the heirs of the estate, who seemed to have had no knowledge of the true nature of the original transaction.
Counsel contend that it would be unreasonable and absurd to suppose that the widow would sell the nine parcels of land worth more than P10,000 for P2,000, and then expend the money secured from the purchaser in permanent improvements on the land itself, without some such understanding as that set forth in her will, by virtue of which she was assured that, despite the formalities which marked the execution of the written document, the plaintiff would not attempt to enforce any legal or technical rights in the premises other than those of a creditor for the amount of his advances, holding the paper title to the property by way of security for the repayment of the loan.
Counsel insist that the conduct of the plaintiff himself, taken together with the marked disproportion between the amount of money advanced and the value of the property in question, and having in mind the purpose to which the money was applied, and the fact that there was no physical transfer of the possession of the land at the time of the alleged sale, sustains his contention that the true understanding between the parties was that the money was advanced by way of a loan; and that the property described in the deed would be held by the lender merely as security for its repayment, this property to be sold in the event of failure to repay the loan, and the proceeds to be applied to the repayment of the indebtedness to the extent necessary to reimburse the creditor in full.
"‘The first question is whether this transaction was a mortgage, or a sale.
"‘It is suggested that a different rule is held by the highest court of equity in Kentucky. If it were, with great respect for that learned court, this court would not feel bound thereby. This being a suit in equity, and oral evidence being admitted, or rejected, not by the mere force of any State statute, but upon the principles of general equity jurisprudence, this court must be governed by its own views of those principles. (Robinson v. Campbell, 3 Wheat., 212; United States v. Howland, 4 Id., 108; Boyle v. Zacharie Et. Al., 6 Pet., 658; Swift v. Tyson, 16 Id., 1; Foxcroft v. Mallet, 4 How., 379.) But we do not perceive that the rule held in Kentucky differs from that above laid down. That rule, as stated in Thomas v. McCormack (9 Dana [Ky. ], 109), is that oral evidence is not admissible in opposition to the legal import of the deed and the positive denial in the answer, unless a foundation for such evidence had been first laid by an allegation, and some proof of fraud or mistake in the execution of the conveyance, or some vice in the consideration.
"‘The memorandum does not contain any promise by Russel to repay the money, and no personal security was taken; but it is settled that this circumstance does not make the conveyance less effectual as a mortgage. (Floyer v. Lavington, 1 P. Wms., 268; Lawley v. Hooper, 3 Atk. . 278; Scott v. Fields, 7 Watts. [Pa. ], 360; Flagg v. Mann, 2 Sumn., 533; Ancaster v. Mayer, 1 Bro. C. C., 464.) And consequently it is not only entirely consistent with the conclusion that a mortgage was intended, but in a case where it was the design of one of the parties to clothe the transaction with the forms of a sale, in order to cut off the right of redemption, it is not to be expected that the party would, by taking personal security, effectually defeat his own attempt to avoid the appearance of a loan.
"‘Parol evidence is admissible in equity to show that a certificate of stock issued to a party as owner was delivered to him as security for a loan of money. A court of equity will look beyond the terms of an instrument to the real transaction, and when that is shown to be one of security and not of sale, it will give effect to the actual contract of the parties.
"‘The rule which excludes such evidence to contradict or vary a written instrument does not forbid an inquiry into the object of the parties in executing and receiving it.’"
We conclude that the judgment entered in the court below should be reversed, without costs in this instance, and the record returned to the court below where judgment will be entered granting the relief to which the plaintiff appears to be entitled upon the pleadings and the proof, that is to say, a judgment for the amount of the indebtedness evidenced by the instrument, and providing for the sale of the property mentioned therein and the application of the proceeds to the payment of the amount of the judgment, unless that amount is paid by the administrator from other available funds in his hands as such administrator, and providing further for the conveyance of the lands described in the complaint from the plaintiff to the person or persons entitled thereto as a result of their sale by order of the court, or of the payment of the indebtedness by the administrator. So ordered.
Arellano, C.J., Torres, Araullo, Street and Malcolm, JJ., concur.

References: v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v.