DOMINADOR T. ALMEDA AND JOSEFA MENDOZA-ALMEDA, PLAINTIFFS AND APPELLEES, VS. CONCEPCION A. RUBIO AND CLEMENTE S. RUBIO, DEFENDANTS AND APPELLANTS.

Almeda versus Rubio

The Case

This is the case of Almeda versus Rubio, a dispute over whether a deed purporting to be a sale with a right of repurchase was in truth an equitable mortgage, and, once that character is settled, over the interest that the loan so secured must bear. The spouses Dominador Almeda and Josefa Mendoza-Almeda sued the spouses Concepcion Rubio and Clemente Rubio for consolidation of ownership. The case matters to the reviewee for two reasons. First, it illustrates the statutory presumptions that convert a purported sale into an equitable mortgage. Second, and more sharply for the bar, it fixes the rule on conventional and legal interest: where the parties stipulated no rate, the legal rate of six percent applies, and it runs not from the execution of the contract but from the date of demand, judicial demand being the filing of the complaint.

Procedural History

The Almeda spouses filed their complaint for consolidation of ownership before the Court of First Instance of Camarines Sur. The trial court rendered judgment declaring the deed in question, Exhibit A, an equitable mortgage rather than a sale with right of repurchase, and ordering the Rubios to pay Josefa Almeda five thousand pesos plus interest at twelve percent per annum from the date of the execution of Exhibit A until full payment, with costs against the plaintiff.

The Rubios appealed to the Court of Appeals, assigning two errors: that the trial court erred in holding that the principal obligation of five thousand pesos must bear interest at twelve percent per annum, and that the interest should begin to accrue from the date of the execution of the contract. The Court of Appeals, finding that the two issues raised were purely legal in nature, certified the case to the Supreme Court, which is how it reached this Court.

Facts

The Almedas and the Rubios dealt with each other over a house and lot. The transaction was embodied in a document, Exhibit A, which on its face was a sale with a right of repurchase. The purchase price stated was five thousand pesos. In truth, the trial court found, the document was only security for a loan, and the actual amount of the loan was likewise five thousand pesos.

Two circumstances drove that finding. First, the Rubios remained in possession of the property as lessees, which raised the presumption that the contract was an equitable mortgage. Second, there was gross inadequacy of price: the market value of the house and lot was conservatively estimated at twenty thousand pesos, so that the five thousand peso price was only one fourth of the value, which likewise raised the presumption that the land was offered merely as security for a loan.

The trial court accordingly declared Exhibit A an equitable mortgage and ordered the Rubios to pay the five thousand pesos with interest at twelve percent per annum from the execution of Exhibit A. The Rubios appealed, and because the appeal raised only pure questions of law on the interest, the Court of Appeals certified the case to the Supreme Court.

Issues

• Whether or not the principal obligation of five thousand pesos must bear interest at twelve percent per annum, there being no stipulation as to the rate of interest.
• Whether or not the interest shall begin to accrue from the date of the execution of the contract, or only from the time demand for payment was made.

Applicable Provisions

Article 2209 of the Civil Code provides:

If the obligation consists in the payment of a sum of money, and the debtor incurs in delay, the indemnity for damages, there being no stipulation to the contrary, shall be the payment of the interest agreed upon, and in the absence of stipulation, the legal interest, which is six percent per annum.

This is the provision the Court applies to fix the rate of interest, since the parties stipulated none.

Article 1169 of the Civil Code provides:

Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially demands from them the fulfillment of their obligation.

This is the provision the Court applies to fix the starting point of the interest, which is the time of demand.

Ruling

On the first issue, the Court held that the twelve percent rate imposed by the trial court had no legal basis. The Almedas had admitted that there was no stipulation as to the payment of interest. That admission brought Article 2209 of the Civil Code into play, and the Court quoted its mandate:

If the obligation consists in the payment of a sum of money, and the debtor incurs in delay, the indemnity for damages, there being no stipulation to the contrary, shall be the payment of the interest agreed upon, and in the absence of stipulation, the legal interest, which is six percent per annum.

The Court rejected the appellees' argument that the absence of a stipulation on interest was simply because such a stipulation has no place in a deed of sale with repurchase. Having admitted that there was no stipulation, the legal rate of six percent governs.

On the second issue, the Court agreed with the appellants that interest should commence only when demand for payment was made. Since the record showed nothing as to when demand was made upon the appellants, the computation of interest was reckoned from the presentation of the complaint on January 17, 1957. The Court cited Article 1169 of the Civil Code, together with the doctrine of Gutierrez Hermanos versus Fuentebella and Juaneza versus Palu-ay, for the rule that delay begins only upon judicial or extrajudicial demand.

Doctrine

First, where the parties have stipulated no rate of interest on an obligation to pay a sum of money, the legal rate of six percent per annum applies under Article 2209 of the Civil Code. A court may not impose a higher conventional rate that the parties never agreed upon.

Second, interest on such an obligation runs only from the time the debtor incurs in delay, which under Article 1169 of the Civil Code is the time of judicial or extrajudicial demand. In the absence of proof of extrajudicial demand, the filing of the complaint is the judicial demand that fixes the starting point.

Third, a contract purporting to be a sale with a right of repurchase may be declared an equitable mortgage where the statutory presumptions obtain, among them that the vendor remains in possession as lessee and that the price is grossly inadequate. Once so declared, the true obligation is a loan, and the interest on it is governed by the rules on monetary obligations.

Disposition

The Rubios prevailed on the interest questions: the Supreme Court modified the decision appealed from by reducing the interest to the legal rate of six percent per annum and reckoning it from the filing of the complaint on January 17, 1957, affirming all portions of the decision not inconsistent with that ruling, with no pronouncement as to costs.

Remember This

Memorize this line: no stipulation on interest means the legal rate of six percent, and it runs from demand, not from the execution of the contract. Examiners use this case to test Article 2209 and Article 1169 of the Civil Code together, and to test whether a candidate can spot an equitable mortgage hiding inside a deed of sale with repurchase.