**Facts:**
The central matter of this case revolves around a dispute concerning the nature of a contract executed on June 23, 1958, between Jose Aguinaldo (represented by plaintiff Juan Aguinaldo, and subsequently by Marina and Primitivo Aguinaldo after Juan’s death) and the defendant spouses Jose Esteban and Francisca Sarmiento. The plaintiff alleged that the defendants, through deceit and undue influence, secured the thumbmark of Jose Aguinaldo on a contract that was presented as a mortgage but purportedly acted as a sale, transferring ownership of a parcel of land to the defendants. After Jose’s death in 1960, the defendants claimed absolute ownership of the property, leading the plaintiffs to file a complaint asserting that the contract contained illegal “pacto comisario” clauses, was void for lack of consideration, specified no payment period or mortgage duration, and hence was fraudulent.
The case was initially filed in the Court of First Instance of Rizal, where both parties agreed to decide the case on the question of whether the contract was a sale or a mortgage. After Juan Aguinaldo passed away, Marina and Primitivo Aguinaldo were substituted as plaintiffs. The lower court ruled the contract as a valid sale, dismissing the complaint and counterclaim. Dissatisfied, the plaintiffs appealed to the Supreme Court on a question of law.
**Issues:**
1. Whether the contract in dispute was a mortgage or a sale.
2. The validity of the contract based on allegations of “pacto comisario,” lack of consideration, and the method of acquisition of the thumbmark of Jose Aguinaldo.
**Court’s Decision:**
The Supreme Court, upon review, found merit in the appeal. The court determined that the circumstances surrounding the execution of the contract indicated that Jose Aguinaldo might not have understood the contract’s nature due to his illiteracy and low intelligence. The term “Sanglaan” in the contract, understood locally as a form of sale with a right to repurchase (Pacto de Retro), contrasted with the plaintiff’s assumption of a mortgage (or “Prenda”). The court observed that the defendants’ actions, such as providing daily financial support before the contract’s execution and their unrelatedness to Jose Aguinaldo, raised concerns over their intentions and the true nature of the agreement.
Given these considerations, the Court reversed the trial court’s decision, holding that the contract was null and void. The Supreme Court declared that Jose Aguinaldo, through his heirs substituting the initially filed plaintiff, was the rightful owner of the disputed property. The defendants were ordered to relinquish possession of the property to the heirs, and relevant property tax declarations were to be corrected to reflect this ownership.
**Doctrine:**
The Supreme Court’s decision in this case reiterates the doctrine that a contract’s nature is determined not only by its wording or title but by the parties’ intentions and the surrounding circumstances. Furthermore, it emphasizes that contracts predicated on fraud or misrepresentation, particularly those exploiting illiteracy or lack of understanding, are null and void.
**Class Notes:**
– The intent of parties is pivotal in determining the nature of a contract.
– Contracts obtained through deceit or undue influence are voidable.
– The distinction between a mortgage and a sale, especially a pacto de retro sale, hinges on the agreement’s terms and the parties’ understanding.
– Legal protection extends to parties who are illiterate or unable to comprehend contract terms fully.
**Historical Background:**
This case highlights the Philippine legal system’s approach to protecting property rights and ensuring fair dealings, especially involving vulnerable parties. It underscores the courts’ role in scrutinizing agreements for potential abuses of power or deceit and their willingness to overturn decisions from lower courts in pursuit of justice. The emphasis on the parties’ intent and the conditions under which agreements are made aligns with broader principles of equity and fairness in contractual obligations.
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