Peñaloza v. Ty Honga

[CA No. 22836-R. July 8, 1960.] CRESENCIO PEALOZA , plaintiff and appellee , vs . FERNANDO TY HONGA , defendant and appellant . Jose A . Buendia and Rustico V . Nazareno, for defendant and appellant. Cipriano Manansala, for plaintiff and appellee. SYLLABUS 1. CONTRACTS; INTERPRETATION; "PACTO DE RETRO" DEED, CONSIDERED AS EQUITABLE MORTGAGE IN CASE AT BAR Where a deed entitled "Escritura de venta con pacto de retro" contains a covenant that part of the fruits of the property were to be retained by the vendee a retro as interest on the loan, and emphasizes that "at kailan paman at makasulong na ng nasabing halaga sa kanilan kabahagui, sa loob ng tanin na panahon, ang naturan kasulatan ay mawawalan na ng bisa, at pati ang sanglaan at obligaciones ng naturan at hinaharap na kasunduan", the contract entered into is merely an equitable mortgage. 2. ID.; SALE A RETRO; FAILURE TO PAY TAXES BY VENDEE A RETRO, EFFECT. Payment of taxes constitutes evidence of great weight in support of a claim of title or ownership over lands. (Director of Lands vs . Aaron, et al., CA-G.R. No. 10337-R, Oct. 28, 1954; Director of Lands vs . Baligod, et al., CA-G.R. No. 8748-R, May 13, 1955; Director of Lands vs . Depositario, et al., C.A.-G.R. No. 10308-R, May 20, 1955. A vendee a retro's omission, therefore, to pay the corresponding taxes is a clear indication that he does not believe himself the owner. Cruzado vs . Bustos, et al., 34 Phil., 17, 34-35. 3. ID.; MORTGAGE; PRESCRIPTION. Where the mortgagee has to apply part of the fruits of the property delivered to him to the payment of the mortgage debt, he stands on the same footing of an antichretic and his possession of such property cannot be the basis of acquiring title thereto by acquisitive prescription. Trillana vs . Manansala, et al., 51 O.G., No. 6 pp. 2911, 2913; Garcia vs . Arjona, et al., G.R. No. L-7279, October 29, 1955; Barretto vs . Barretto, 37 Phil., 234; Valencia vs . Acala, 41 Phil., 177. D E C I S I O N SANCHEZ , J p : Cresencio Pealoza was owner of three parcels of land situate in barrio San Gabriel, San Pablo City. The first two, with areas 35,317 and 12,938 square meters, registered under the Torrens system, are covered by Original Certificates of Title Nos. 1349 and 1350, respectively; the third was declared under Tax Declaration No. 60912 and assessed at P1,830.00. cdlex On July 22, 1922, Cresencio Pealoza, by a public document, gave the said three parcels of land as security for a loan of P5,700.00, granted him by Ty Guan, father of defendant Fernando Ty Honga, and payable within 5 years. The document was labelled "biling mabibiling muli". Exhibit C and C-1. Two extensions for redemption were agreed upon: the first, for three years (Exhibit C); and the second, verbally, for two years. The parties covenanted that one-half of the produce of the lands was to be applied to the payment of the obligation; and the other half, to be given to Ty Guan as interest (pakinabang) on the 5,700-peso loan. Exhibit C-1. About May 9, 1932, Ty Guan departed for China. The balance of the loan then P2,250.00 was transferred by Ty Guan to his son, Fernando Ty Honga. Whereupon, a new document denominated "Escritura de venta con Pacto de Retro", Exhibit D, was executed by Cresencio Pealoza in favor of Fernando Ty Honga over the same three parcels of land, in consideration of the said sum of P2,250.00 and for a term of two years. Copy of this notarial document was not given to Cresencio Pealoza who had confidence in Fernando Ty Honga. Pealoza had to procure a certified copy of said deed, Exhibit D, from the Register of Deeds of Laguna on May 2, 1941. Exhibit 3. The true agreement of the parties, however, is that only two of the parcels of land, namely, those covered by Title No. 1349 and Tax Declaration No. 60912, were given as security of the reduced indebtedness of P2,250.00, under the same arrangement as to payment as that stipulated in the previous contract with Ty Guan. The other parcel, that set forth in the Title No. 1350, was loaned by Pealoza to Fernando Ty Honga to enable the letter to obtain credit facilities from the bank. An added reason given by Fernando Ty Honga to include the land covered Title No. 1350 was to save the same from seizure on execution proceedings in a suit filed by Lim Tek Guan against Cresencio Pealoza, where deficiency judgment against the latter subsisted. In turn, Pealoza was allowed to retain the northern portion of the land in Title No. 1349 which was planted with 200 coconut trees. This portion is in the possession of Pealoza up to the present. Since 1932, Pealoza had been paying taxes on all the three parcels of the land question. Before the two-year period elapsed, that is, in April 1934, Andrea Evangelista, wife of Cresencio Pealoza, offered to redeem the properties by tendering to Fernando Ty Honga the sum of P2,250.00 which she borrowed from one Margarita Reyes who was to take over the mortgage. Fernando Ty Honga side-tracked the offer with the excuse that the Torrens titles to the properties were with his father, Ty Guan, in China. Time and again, Pealoza's offer to redeem the lands was blocked by defendant upon the same ground. Finally, plaintiff engaged the services of Atty. Antonio Barredo who, on May 5, 1947, and on May 27, 1947, wrote defendant formal letters demanding the release of the properties mortgaged. Exhibits E-1 and E-2. Thereafter, defendant told plaintiff that he could only redeem said lands by paying double the amount of P2,250.00, or P4,500.00. Due to lack of funds, plaintiff was able to start suit only on August 9, 1955. The complaint prays that the pacto de retro deed be declared an equitable mortgage; that possession of the properties turned over to plaintiff; and the defendant render an accounting of the fruits thereof and apply the proceeds therefrom to the indebtedness, and turn the balance over the plaintiff. Defendant presented a three-pronged defense: First, that the contract of May 9, 1932 was in truth and in fact a sale with right to purchase; second, that plaintiff's action has prescribed; and third, that defendant acquired ownership by adverse possession. The judgment below declared that the deed of sale with pacto de retro , Exhibit D, is an equitable mortgage given as security for a loan of P2,250.00; and ordered defendant to: (1) submit to the court within 30 days from the finality of the judgment a statement of the income derived from the properties in question and expenditures made by him on the same during his period of possession from May 9, 1932; (2) release said properties and the return the possession thereof to plaintiff upon payment by the latter of the sum of P2,250.00 or such amount as may be adjudged by the courts as still owing defendant after the statement of account required shall have been approved; and (3) pay plaintiff the sum of P500.00 by way of attorneys' fees, plus the costs of the action, and such amount, if any, which may be fixed by the court, after the approval of the statement of account, to be due plaintiff at unrealized income from the properties aforesaid. Defendant appealed. Appellant's theory is this: The transaction of May 9, 1932 was a sale of the three parcels of coconut land therein described with right to repurchase within two years, in consideration of P2,250.00. Appellee having failed to repurchase the properties on time, appellant had his lawyer prepare an affidavit of consolidation. With this affidavit, he applied for and obtained, with the help of Atty. Alfonso Farcon, the issuance in his name of Torrens Titles Nos. 14793 and 14794 in lieu of the original titles to two of the parcels. In 1941, he mortgaged the lands covered by the said titles to Dy Bun Chin and Tan C. Sing. The mortgage deed, acknowledged before Notary Public Alfonso Farcon, together with the titles, was burned. He is in possession of all the properties involved, enjoying the fruits therefrom, and paying the taxes thereon. Appellant denied that the transaction between him and appellee was an offshoot of a previous one had between the latter and the former's father, Ty Guan. 1. Was the transaction a sale with right to repurchase or an equitable mortgage? Appellant presented no evidence as to the origin of the transactions culminating in the execution of the deed of sale with pacto de retro , Exhibit D, on May 9, 1932. On the other hand, appellee positively declared that Exhibit D was but continuation of the former obligation contracted by appellee with appellant's father. In the words of the trial Judge, appellee appeared to the court "as an old man of 73 years of ages with sincere and honest motives and not a 'blackmailer' as defendant would want to picture him". Appellee's testimony on this score stands. On close scrutiny, Exhibits C and C-1 yield not merely broad hints as to the nature of the original transaction. Exhibit C employed the words "Matubos" (redeem) and "panahon paluguid" (extension). Exhibit C-1 speaks of coconut lands mortgaged (niugan nasasanla) and a covenant between appellee and Ty Guan, whereby of the fruits of the properties were to be retained by the latter as interest on the loan of 5,700.00 (bilang pakinabang ng aking salaping halagang LIMANG LIBO AT PITONG DAAN PISO) P5,700.00 na sinasaysay ng naturan kasulatan) referring to the pacto de retro deed executed between the two; and emphasized that "at kailan paman at makasulong na ng nasabing halaga sa kanilang kabahagui, sa loob ng tanin na panahon, ay ang naturan kasulatan ay mawawalan na ng bisa, at pati ang sanglaan at obligaciones ng naturan at hinaharap na kasunduan." No unusual stretch of imagination is necessary to show that the foregoing point to only one conclusion: the agreement was an equitable mortgage not a pacto de retro sale. If the first agreement covering the three parcels of land with a consideration of P5,700.00 could not be pacto de retro sale, a fortiori the novated transaction, Exhibit D, for merely P2,250.00 less than one-half the original amount could not have been a pacto de retro sale it was also a mere mortgage. But the foregoing is not all. In 1932, the lands had a total market value of P10,000.00. The alleged vendor retained possession of part thereof. They continued in the tax rolls under the name of appellee who had been paying the taxes thereon from 1932 up to the present. Appellant, in effect, had been extending the period of payment by staving off redemption. These, too, are convincing evidence that the agreement was not a sale with pacto de retro but an equitable mortgage. Article 1602 Civil Code. Upon a claim that appellant's documents were burned, he advanced the theory that he consolidated the title. The following, from the decision below, sufficiently answer this connection: "The claim of defendant that he executed an affidavit of consolidation of ownership that the Titles were transferred to his name is not substantiated by any evidence worthy of credit and belief. On this point we have only the testimony of defendant who naturally is a biased and prejudiced party and whose declarations on the matter have not been corroborated by any other reliable and competent proof. It is significant that Atty. Alfonso Farcon, who allegedly helped and assisted the defendant in the execution of the affidavit of consolidation and the issuance of new Titles to him, did not at all corroborate such allegations of defendant. Atty. Farcon was absolutely silent as the point." Indeed, loss of papers during the last war had been an ever ready excuse to put up oral testimony which, as in this case, has been found to be wanting in probity. Enriquez vs . Pelante, et al., CA-G.R. No. 10808-R, May 20, 1955, citing: De Leon vs. Dy Kiet, 43 O.G. No. 8, pp. 3141, 3144. True, one Ng Sio paid taxes on the lands in question purportedly on behalf of appellant. But the first payment Ng Sio ever made was in 1952 and next was in 1955. These payments obviously were thought of after appellant was already cognizant of appellee's determination to recover the lands an eleventh hour effort to conjure a sale out of a mortgage. Appellant also leans on the circumstance that, in 1941, he mortgaged the lands. There is nothing much in this. Appellant, it will be recalled, was allowed by appellee to mortgage to property described in Original Certificate of Title No. 1350. Said isolated act of appellant would not prove that he has considered himself owner thereof. For, if he were, then he should have driven appellee from the portion possessed by the latter, paid continually the taxes on the lands. A real property owner is conscious of his obligation to pay real estate taxes. This, on the one hand. On the other, he fears distraint of that property for tax delinquency. Appellant's omission in this regard is a clear sign that he "did not believe himself to be the owner of the land he claims"; but, instead, recognized ownership in another person appellee. Cruzado vs . Bustos, et al., 34 Phil., 17, 34-35. Payment of taxes, it must be remembered, constitute evidence of great weight in support of a claim of title or ownership over land. Director of Lands vs . Aaron, et al., CA-G.R. 10337-R, October 28, 1954; Director of Lands vs. Baligod, et al., CA-G.R. No. 8748-R, May 13, 1953; Director of Lands vs . Depositario, et al., CA-G.R. No. 10308-R, May 20, 1955. We conclude, therefore, that the real agreement between appellant and appellee in the execution of Exhibit D is that of equitable mortgage with one-half of the fruits of the property to be applied to the discharge of obligation secured thereby. 2. Appellant set up the defense of acquisive prescription. Section 41 of the Code of Civil Procedures exacts that possession to ripen into ownership by acquisitive prescription must be "under a claim of title exclusive of any other right and adverse to all other claimants". In essence, appellant's possession is that of a trustee for the benefit of his debter. For, he had to apply part of the fruits of the properties delivered to him the payment of the debt. His possession is not adverse. He is an antichretic creditor. As was pointed out by the Supreme Court in Trillana vs . Manansala, et al., 51 O.G., No. 6, pp, 2911, 2913, ". . . several decisions of this court consistently hold that the antichretic creditor cannot ordinarily acquire by prescription the land surrendered to him by the debtor." * He therefore, cannot avail of the defense of acquisitive prescription. Garcia vs . Arjona, et al., G.R. No. L-7279, October 29, 1955 3. Appellant argues that appellee's right of action has prescribed. On this point, we may well quote extensively from the decision of the Supreme Court in Garcia vs . Arjona, et al., supra, viz : "It is urged, also, that the present action is barred by the statute of limitations over 20 years having elapsed since the execution of Exhibit A. It appearing, however, that the intention of the parties thereto was merely to constitute a mortgage in order to guarantee the payment of a loan, we must conclude that Marcelino Arjona held the properties in dispute from 1932 to 1941, conformity with the terms of said agreement, that is to say as a mere mortgagee, in the absence of satisfactory evidence to the contrary, and no such evidence has been introduced, or even offered by appellants herein. Neither is there any evidence to the effect that the possession of Engracio Arjona from 1941 to 1951 as administrator of the estate of Marcelino Arjona was adverse to plaintiff Felix Garcia. In fact, considering that Exhibit A had been prepared precisely by Engracio Arjona, he must be deemed to be aware of the intent of the parties thereto and to have held said properties in conformity with such intent. For this reason, and because his possession must be regarded a continuation of that of Marcelino Arjona, that possession of Engracio Arjona must be held to be identical in nature to that of Marcelino Arjona, namely, as agent of the mortgagee not adverse to plaintiff herein. In other words, the possession of Marcelino Arjona and Engracio Arjona was not in derogation of the rights of plaintiff herein. Accordingly, the latter had no cause of action against them and the statute of limitations could not have run against him for said statute begins to run only from the accrual of the cause of action." And, in Dayao vs . Diaz, et al., G.R. No. L-4106, May 29, 1952, the rule is expressed in the following language: "As a last resort the appellant invokes prescription. But there is no rule of law that the mortgagee or his assignee may, by prescription, acquire ownership over the property mortgaged if the mortgage is not redeemed within ten years." The defense of statute of limitations fails. 4. Appellant assails the judgment below ordering him to render an accounting of the fruits of the lands. Potent reasons there are to sustain the appeal on this score. Appellee testified that not all the fruits of the property could be applied to the payment of his obligation in Exhibit D, because part thereof, from time to time, were used to discharge his other accounts with appellant. Then, proceedings on the accounting would take time. Appellee, on the date he took the witness stand, was already 73 years old. We do not believe that such accounting would "assist the parties in obtaining a just, speedy and inexpensive adjudication" of this action. Rather, it would only cause additional expenses, anxiety and delay. If only to honor Section 2, Rule 1 of the Rules of Court in adherence, accounting should not be exacted. More, the equities of the parties can be balanced in the equation: Thus fruits received by appellant is compensated with the continued use by appellee of P2,250.00 and the fact that the purchasing power of said amount which is to be returned is certainly lower now than it was in 1932. Equitable considerations induce us to take the stand that appellee should pay appellant the sum of P2,250.00 and the latter should turn over to the former the possession of the properties held by him. 5. The matter of granting attorneys' fees is one within the discretion of the court. Article 2208-(11), Civil Code. The amount of P500.00 granted appellee, by way of attorneys' fees, is reasonable. It should not be disturbed. WHEREFORE, the judgment appealed from is hereby modified and another is hereby rendered: (1) declaring that the deed of sale with pacto de retro , Exhibit D, is in truth and in fact an equitable mortgage executed by plaintiff-appellee Cresencio Pealoza in favor of defendant Fernando Ty Honga as security for a loan P2,250.00; (2) ordering defendant-appellant to return the properties described in the complaint now in his possession to plaintiff-appellee upon payment by the latter to the former of the sum of P2,250.00; and declaring, upon such return and payment, that the mortgage is cancelled and of no further force or effect; and (3) directing defendant-appellant to pay plaintiff-appellee the sum of P500.00, by way of attorneys' fees. Costs in the court of first instance shall be borne by defendant-appellant. No costs allowed on appeal. IT IS SO ORDERED. Natividad and Angeles, JJ . , concur. Footnotes * Citing : Barretto vs . Barretto, 37 Phil., 234; Valencia vs . Acala 43 Phil., 177.