RUBY H. GARDNER, PETITIONER, VS. HON. COURT OF APPEALS, EUGENIO DE CASTRO AND TRINIDAD MAR, RESPONDENTS.

This is an appeal by certiorari from the decision of the
Court of Appeals^[1]
in CA-G.R. No. 38388-R entitled "Ruby H. Gardner, plaintiff-appellee, versus Eugenio de
Castro, et al., defendants-appellants" which affirmed the decision of the
Court of First Instance of Laguna insofar as it declared valid the consignation
of the amount of P10,436.75 by the plaintiff-appellee
with the trial court but modified it in the sense that in addition to the
amount of P10,436.75, plaintiff-appellee was also
ordered to pay the defendants-appellants the sum of P30,000.00 for actual losses
plus P100,000.00 for unrealized profits by reason of the breach of contract
committed by plaintiff-appellee, with costs against
her.

The records establish the facts that on various occasions prior
to October 23, 1957, petitioner, Ruby H. Gardner, obtained on credit from the
grocery store of the private respondents, spouses Eugenio
de Castro and Trinidad Mar, located in Los Baños,
Laguna, some petty cash and a variety of consumer goods such as groceries,
toilet articles, rice, and other necessities for home use, which totalled P7,000.00.  Without enough cash to pay her debt,
petitioner executed on October 23, 1957 in favor of the private respondents a
public instrument entitled "Deed of Sale With Right of Repurchase"
(Exhibit A), hereunder reproduced:^[2]

"DEED
OF SALE WITH RIGHT OF REPURCHASE

KNOW ALL MEN BY THESE PRESENTS:

That I, RUBY HENRY GARDNER, of legal age, American Citizen, married
to Frank Gardner, with residence and postal address at Los Baños,
Laguna, hereby voluntarily state:

That I am the owner and possessor of the following described parcel
of land together with all the improvements thereon:

‘A parcel of "secano" land,
known as Lot No. 1440 of the Calamba Estate, together
with all the improvements thereon, located at Sucol, Calamba, Laguna, bounded on the NORTH by the Provincial
Road; on the EAST by Andrew Monroe; on the SOUTH by 4194 Hugo Tubang; and on the WEST by 1440-pt. Miguel Bonifacio; containing an area of EIGHTY SIX THOUSAND ONE
HUNDRED AND THIRTY ONE (86,131) square meters, more or less, assessed in the
amount of P2,150.00 for the current year in the name of James Henry under Tax
Declaration No. 3258.  The visible
boundaries around the land are stone monuments of the Calamba
Subdivision and wood fences.’

That for and in consideration of the amount of SEVEN THOUSAND
(P7,000.00) pesos, Philippine Currency, which I have this date received to my
entire satisfaction from the spouses EUGENIO DE CASTRO and TRINIDAD MAR, both
of legal age, Filipino citizens, with residence and postal address at Batungmalake, Los Baños, Laguna,
do hereby sell, transfer and convey by SALE WITH RIGHT OF REPURCHASE the
above-described parcel of land, together with all the improvements thereon
under the following terms and conditions:

1.                 
That I shall have the right to
repurchase the land described above within a period of ten (10) years from the
date of the execution of this document by paying back unto the said EUGENIO DE
CASTRO and TRINIDAD MAR, or their heirs and assigns, the sum of seven thousand
(P7,000.00.) pesos, Philippine currency;

2.                 
That in case the land and its
improvements will be sold, the vendee spouses (Eugenio
de Castro and Trinidad Mar) shall be given the first opportunity to buy the
land under the condition that the price for the same will be at the rate of ONE
THOUSAND FIVE HUNDRED (P1,500.00) pesos per hectare;

3.                 
That I, as the owner and vendor a
retro shall make the necessary steps to have the land titled as early as
possible to give more facility for negotiation; and

4.                 
That during the period of time
that I have not yet made the repurchase of the land described above, the
possession thereof shall be transferred exclusively to the vendees a retro, the
spouses Eugenio de Castro and Trinidad
Mar.

That if I shall be able to repurchase the land mentioned above
within the period of time herein stipulated by paying back unto the spouses Eugenio de Castro and Trinidad Mar, or their heirs and
assigns, the sum of SEVEN THOUSAND (P7,000.00) Pesos,
Philippine Currency, then this deed shall be automatically cancelled and of no
further force or effect and absolute ownership of the land shall revert in my
favor.

That this land is free from all forms of liens and encumbrances and
I do hereby warrant the vendees, or their heirs and assigns, against the claim
of all third persons whomsoever.

That this land is not registered under Act.
No. 496 or the Spanish Mortgage Law and registration of this document is requested under Act. 3344.

IN WITNESS WHEREOF, I hereby set my signature this 23rd day of
October, 1957, at Sta. Cruz, Laguna.

(Sgd.)
RUBY HENRY GARDNER

With my consent:

(Sgd.)
FRANK GARDNER

Husband of Ruby Henry Gardner

In the presence of:

(Sgd.) Illegible                                                           (Sgd.) Illegible

(Acknowledgment Omitted)

After the execution of the above instrument, petitioner continued
her credit line with the private respondents’ store incurring additional
obligations totalling P3,436.75.  Still unable to pay, petitioner on April 10, 1958 executed in favor of
the private respondents another public instrument entitled "Document of
the Increase of the Amount Involved in the Deed of Sale with Right of
Repurchase" (Exhibit B), which reads as follows:^[3]

"DOCUMENT OF THE INCREASE OF AMOUNT
INVOLVED IN THE DEED OF SALE

WITH
RIGHT OF REPURCHASE

KNOW ALL MEN BY THESE PRESENTS:

That I, RUBY GARDNER, of legal age, American citizen, married to
Frank Gardner, with residence and postal address at Los Baños,
Laguna, by virtue of the Deed of Sale with right of repurchase dated October
23, 1957, which I executed before the faith of Notary Public Celso N. Caba­lones, a notary
public for and in the Province of Laguna, at Santa Cruz, have sold for the sum
of SEVEN THOUSAND (P7,000.00) pesos to the spouses EUGENIO DE CASTRO and
TRINIDAD MAR, both of legal age, Filipino citizens with residence and postal
address at Batungmalake, Los Baños,
Laguna, the following described parcel of land:

‘A parcel of "secano" land
known as Lot No. 1440 of the Calamba Estate, together
with all the improvements thereon, located at Sucol, Calamba, Laguna, bounded on the NORTH by the Provincial
Road, on the EAST by Andrew Monroe, on the SOUTH by 4194 Hugo Tubang; and on the WEST by 1440-pt. Miguel Bonifacio; containing an area of 86,131 square meters, more
or less, assessed in the amount of P2,150.00 for the current year in the name
of James Henry under Tax Declaration No. 3258, the visible boundaries around
the land are stone monuments of the Calamba
Subdivision and wood fences.’

The said deed of sale is designated as
Document No. 47, page 11, Book 1, Series of 1957, of the said notary public.

That on this date I received to my entire satisfaction from the
said spouses EUGENIO DE CASTRO and TRINIDAD MAR, the sum of THREE THOUSAND FOUR
HUNDRED THIRTY SIX PESOS AND SEVENTY FIVE (P3,436.75) as additional
consideration thereby making a total of TEN THOUSAND FOUR HUNDRED THIRTY SIX
PESOS AND SEVENTY FIVE (P10,436.75) centavos as the total consideration of the
sale with right of repurchase, it being understood that all the other terms of
the said deed of sale with right of repurchase dated October 23, 1957 and which
is mentioned above shall remain in full force and effect.

IN WITNESS WHEREOF, I hereby set my signature this 10th day of
April, 1958, at Los Baños, Laguna.

(Sgd.)
RUBY HENRY GARDNER

Vendor A Retro

WITH MY CONSENT:

(Sgd.)
FRANK GARDNER

Husband of Ruby Henry Gardner

In the presence of:

(Sgd.) Mauricio Rabajo                                 (Sgd.) Rosa Tison"

(Acknowledgment Omitted)

From the evidence of the petitioner, it appears that on various
dates before the lapse of the stipulated ten (10) year period within which she
may repurchase the land, specifically on April 2, 10 and 11, 1965, she offered
and actually tendered the agreed repurchase price of P10,436.75 to the private
respondents at their house in Los Baños, Laguna.  The offer and tender of payment was turned
down on the alleged ground that the two children of the private respondents,
Eduardo and Tony, were not agreeable to the said sum, as they demanded P50,000.00, later reduced to P45,000.00 as the repurchase
price.

Due to the persistent refusal by the private respondents to
accept the tendered amount of P10,436.75, petitioner’s
lawyer sent them a letter on April 13, 1965 informing them that his client,
Ruby H. Gardner, will deposit for consignation the amount of P10,436.75 with
the Court of First Instance of Laguna, Biñan Branch,
on April 19, 1965 at 8:00 o’clock in the morning.  Since the private respondents failed to
accept the said amount before April
19, 1965, petitioner consequently deposited the sum of P10,436.75 for consignation with the above court on the said
date, and by another letter to the private respondents, informed them of the
consignation.

On the other hand, the private respondents alleged that they
refused to accept the amount of P10,436.75 as repurchase price of the property
be­cause the said amount was grossly inadequate to compensate for the
improvements introduced by them on the said land; that the value of the
improvements alone aggregates to not less than P30,000.00, specifically:  100 rambutan trees,
300 lanzones trees, 40 indian
mango trees, 30 Bangkok santol trees, 40 marcotted chico trees, 2,000
coffee seedlings, 2,000 cacao seedlings, a residential house worth P10,000.00,
and the clearings of the undergrowth of cogon and grass on the property; that
these improvements were introduced by the respondents spouses on the faith of a
stipulation in the Deed of Sale with Right of Repurchase executed by the
petitioner giving them the preferential right to buy the land in dispute at the
rate of One Thousand Five Hundred Pesos (P1,500.00) per hectare; that this
stipulation was breached by the petitioner because on April 7, 1965, the land
was sold to one Bienvenido Banaag
for P232,551.00 and the remaining portion thereof measu­ring about 7,130 square
meters was sold to one Sally Lopez for P5,000.00 plus other considerations.

On her alleged breach of contract, petitions countered that she
had offered her land for sale the private respondents since 1961; that, in
fact, prior to April 19, 1965 she again offered to sell to the private respondents
and informed them that if they were not in a position to buy the land, she was
selling the same to others, and allegedly, the private respondents had no
objections to such sale and even offered to locate a buyer for her; that,
therefore, there was no breach of contract.

With respect to private respondents’ claim for value of the
improvements introduced by them on the land, petitioner contended that at the
time of the execution of the contracts (Exhibits A and B), there were on the
land, visible or growing fruit-bearing trees, specifically:  100,000 banana plants, 17 chico
trees, 100 calamansi trees, 100 orange trees, 9 casoy trees, 2 siniguelas trees,
25 lucban trees, 9 avocado trees, 3 guyabano trees, 5 nangka trees,
and half of the whole land area was planted to rice and corn; that, when she
repossessed the land, she found that most of what she planted was either
destroyed or dead; that the residential house constructed on the land by the
private respondents was actually used for sometime as a cabaret; that,
therefore, whatever improvements made by the private respondents could not even
compensate for the damage done to her property while in their possession.

On the basis of the above evidence, the lower court declared that
the Contract of Sale with Right of Repurchase is really a contract of equitable
mortgage; denied the claim of spouses Eugenio de
Castro and Trinidad Mar for the value of the improvements introduced by them;
and rendered judgment for plaintiff Ruby H. Gardner declaring the consignation
properly made with the effect of releasing her from her obligation to the
defendant spouses under the contracts, Exhibits A and B.

On appeal filed by the defendants, the appellate court, on
September 6, 1969, rendered its decision which, while affirming the lower
court’s decision declaring the consignation validly made, went further and
declared the plaintiff-appellee, Ruby H. Gardner,
guilty of breach of contract upon its finding that Gardner sold the land to
third persons at a much higher price instead of selling the land to the spouses
De Castro for the stipulated price of P1,500.00 per
hectare.

Not entirely satisfied with the above decision, Ruby H. Gardner
filed this present appeal by certiorari seeking the affirmation of the
judgment declaring the consignation validly made, and the setting aside of the
award of damages consisting of reimbursement for actual losses and unrealized
profits to the spouses De Castro.

Anent the issue of the validity of the con­signation, We affirm and uphold that part of the appealed decision
declaring the consignation to be validly made. 
The law and related jurisprudence are clear that in order that
consignation may be effec­tive, the debtor must first comply with certain
requirements prescribed by law.  The
debtor must show (1) that there was a debt due; (2) that the consignation of
the obligation had been made because the creditor to whom tender of payment was
made refused without reason to accept it or refuses to give receipt thereof, or
because several persons claimed to be entitled to receive the amount due, or
because the title of the obligation has been lost (Art. 1256, New Civil Code);
(3) that previous notice of the consignation had been given to the person
interested in the performance of the obligation (Art. 1257, New Civil Code);
(4) that the amount due was placed at the disposal of the court (Art. 1258, New
Civil Code); and (5) that after the consignation had been made the person
interested was notified thereof (Art. 1258, New Civil Code).^[4]

From the undisputed facts of the case, it is admitted that a debt
was owing from the petitioner to the private respondents; there was tender of
payment of the agreed stipulated repurchase price of P10,436.75; the tender was
refused without reason, i.e., the contention that the agreed repurchase price
was grossly inadequate to cover the alleged improvements introduced by the
private respondents is not an adequate reason for refusal because the terms of
the contracts (Exhibits A and B) are clear that petitioner can repurchase the
pro­perty by merely paying back to the private respondents the amount of
P10,436.75 within a period of ten (10) years from the date of execution of the
contracts, without any stipulation as to any improve­ments that may be
introduced by the respondents-spouses on the land; there was also previous
notice to the respondents-spouses of the desire of petitio­ner to deposit the
said amount in court, which in fact was deposited on April 19, 1965 with the
Court of First Instance of Laguna, Biñan Branch; and lastly,
notice of the fact of consignation was given to the private respondents.  These facts prove that a valid consignation
was made with the resultant effect of releasing petitioner Ruby H. Gardner from
her indebtedness to the respondents-spouses Eugenio
de Castro and Trinidad Mar.

The second issue before Us is whether or
not the Court of Appeals can properly make a finding of breach of contract in a
purely consignation case.  Under the
circumstances of the case at bar, the answer must be in the affirmative.  Although this is a case where the only
question properly before the lower court and likewise, the appellate court, is
the validity of the consignation and its effectivity
to extinguish the obligation of the plaintiff, We find that during the trial the
parties had presented evidence, testimonial and documentary, on their
respective contentions with respect to the alleged breach of contract.  Thus, by their consent and acquiescence, they
had broadened the issues to include petitioner’s alleged breach of contract
which in fact was litigated by them before the trial court, and hence throwing
the entire case open for the appellate court’s review.

The last issue raised by the petitioner which We deem decisive is
the correctness of that part of the appealed decision declaring that Ruby H.
Gardner committed breach of contract and ordering her to pay the private
respondents, damages consisting of P30,000.00 as
actual losses and P100,000.00 as unrealized profits, by reason of the alleged
breach.

To this part of the appealed decision, We
do not agree.

The pertinent stipulation alleged to have been violated states:

"(2) That in case the land and its improvements will be sold,
the vendee spouses (Eugenio de Castro and Trinidad
Mar) shall be given the first opportunity to buy the land under the condition
that the price for the same will be at the rate of ONE THOUSAND FIVE HUNDRED
(P1,500.00) pesos per hectare;"

We have examined the records carefully and We find the positive
testimony of petitioner Ruby H. Gardner that she had offered her land for sale
to the respondents-spouses in 1961 (t.s.n., pp.
14-15, Hearing of October 27, 1965 cited in CA Decision, 55, Records), and this
is not denied by the latter.  The records
also clearly disclose the oral evidence given by petitioner that prior to April
19, 1965, she told the respondents that if they would not be in a position to
buy the land, she was selling it to another person; that in answer, the De Castros told her that she could proceed in selling the
property to another person; that in fact they told her that they are willing to
help her locate a buyer.  (t.s.n., Hearing of October
27, 1965, pp. 23-24 cited in Motion for Reconsideration, Records,
p. 69).  This also was not denied or
contradicted by respondents.

The clear and convincing evidence shown above constrains Us to find that petitioner had substan­tially complied with
the stipulation.  We hold that said
stipulation must be strictly construed to mean that if the best price
obtainable by the petitioner was at P1,500.00 per
hectare, then the respondents must be given the first opportunity to buy the
land, otherwise if the price offered by any prospective buyer was more than or
above P1,500.00 per hectare, the petitioner was not under obligation to sell
the land to the respondents-spouses.

As was actually the case at bar, petitioner was able to find two
buyers who bought the land, namely, Bienvenido Banaag and Sally Lopez at a price considerably much higher
than P1,500.00 per hectare.  It would be
contrary to common sense and ordinary prudence to construe that under the
stipulation in question, the parties intended that the price of the land be
pegged or tied to a specified price per hectare when it is of general knowledge
that the value of real property tends always to rise especially in the
particular area of the land in ques­tion, which is at Los Baños,
Laguna, a highly agricultural region and a most valued health resort community.

Be that as it may, the deed of sale with pacto
de retro having been declared by the trial court and the appellate court as
an equitable mortgage, to which We agree, it follows as a legal consequence
that the land was constituted as a mortgage or security for the loan obtained
by the petitioner from the respondents in the total amount of P10,436.75.  In other
words the consideration for such mortgage was the loan secured from the
mortgagees, the respondents herein.  The
mortgage being merely an accessory to the principal obligation of the obligor, We find no other consideration for the stipulation inserted
in the instrument denominated "Deed of Sale with Right of Repurchase"
and, therefore, the stipulation is null and void.

Since We find no breach of contract committed by the petitioner,
the award of damages granted by the, respondent court consisting of alleged
losses to the respondents-spouses in the amount of P30,000.00 and unrealized
profits in the sum of P100,000.00 has no legal or factual basis and is,
therefore, a reversible error.

As a general rule, the mortgagee who is in possession of the
mortgaged property and introduces improvements therein is not entitled to
reimbursement for the value thereof upon the redemption of the mortgage for
according to Art. 2125, par. 2, N.C.C., "the persons in
whose favor the law establishes a mortgage have no other right than to demand
execution and the recording of the document in which the mortgage is
formalized."

In the case at bar, respondents-spouses have no right to claim
for reimbursement of the value of the improvements introduced by them on the
land, for the possession of the mortgagee is subject to the right of redemption
by the mortgagor who at any time may exercise such right within the period
stipulated.  If the mortgagee improves
the land, he does so at his risk.

To hold otherwise would render redemption oppressive and onerous
to the owner-redemptioner, if not nugatory and
inoperative, for all that a scheming mortgagee interested in owning the land
would do is to saddle the land with so much improvements that the owner will
find himself financially incapable of redeeming the
mortgage.  The value of the improvements
will have to be added to the prin­cipal indebtedness thereby driving the debtor
deeper and deeper into debt until he is finally "improved out" of his
property.

WHEREFORE, the judgment appealed from is affirmed insofar
as it declares the validity of the consignation thereby releasing the
petitioner from her obligation to the private respondents; the award of damages
for losses and unrealized profits is set aside with costs against the private
respondents.

SO ORDERED.

Teehankee, (Chairman), Makasiar, Muñoz Palma, Martin, and Fernandez, JJ., concur.

^[1]
Third Division; Rodriguez, J., ponente; Villamor and Martin, JJ.,
concurring.

^[2]
pp. 37-39, Records.

^[3]
pp. 40-41, Records.

^[4] Limkako v.
Teodoro, 77 Phil. 313; Ponce de Leon v. Syjuco, Inc., 90 Phil. 311.