VICENTE C. REYES, APPLICANT-APPELLEE, VS. FRANCISCO SIERRA, EMILIO SIERRA, ALEJANDRA SIERRA, FELIMON SIERRA, AURELIO SIERRA, CONSTANCIO SIERRA, CIRILO SIERRA AND ANTONIA SANTOS,…

Appeal from the decision dated December 29, 1966 of the Court of First Instance of Rizal Branch I, Pasig,
which declared applicant Vicente Reyes the true and rightful owner of the land
covered by Plan Psu-189753 and ordered the registration of his title thereto.

On January 3, 1961,
Vicente Reyes filed an application for registration of his title to a parcel of
land situated in Antipolo, Rizal
and covered by Plan Psu-189753 of the Bureau of Lands.  In his application, he declared that he
acquired the land by inheritance from his father who died sometime in
1944.  Applicant is one of the heirs of
the deceased Vicente Reyes Sr. but the other heirs executed a deed of quit
claim in favor of the applicant.

The notice of initial hearing was published in the Official
Gazette, and a copy thereof was posted in a con­spicuous place in the land in
question and in the municipal building of Antipolo, Rizal.  An opposition
was filed by the Director of Lands, Francisco Sierra and Emilio Sierra.  An Order of General Default was issued on June 28, 1962.  A motion to set aside an interlocutory
default order was filed by Alejandra, Felimon, Aurelio, Apolonio, Constancio, Cirilo, all surnamed
Sierra and Antonia Santos, thru counsel, and the trial court issued an Order on
February 4, 1966 amending
the general order of default so as to include the aforementioned movants as oppositors.

The case was set for hearing, and after trial the court rendered
a decision, the dispositive portion of which reads as follows:

“IN VIEW OF THE ABOVE CONSIDERATIONS, this Court declares
Vicente Reyes the true and rightful owner of the land covered by Plan
Psu-189753 and orders the registration of his title thereto, provided that the
title to be issued shall be subject to a public easement of right-of-way over a
2.00 meter-wide strip of the land along Lucay Street
for the latter’s widening and improvement.

“As soon as this decision is final let the corresponding
decree be issued in favor of VICENTE C. REYES, widower, filipino,
of legal age and resident of 1851 P. Guevarra Street,
Santa Cruz, Manila.” (p. 25, Record on Appeal).

Oppositors appealed from the aforesaid
decision, with the following assignment of errors:

I

“THE LOWER COURT
ERRED IN BELIEVING AND HOLDING THAT ARTICLES 1134 AND 1137 OF THE NEW            CIVIL CODE ARE APPLICABLE TO THIS
INSTANT CASE ALTHOUGH THERE WAS NO FORECLOSURE OR SALE
OF THE PROPERTY TO THE HIGHEST BIDDER.

II

“THE LOWER COURT
ERRED IN BELIEVING AND HOLDING THAT APPLICANT-APPELLEE AND HIS PRE­DECESSOR-IN-INTEREST
HAD BEEN IN CONSTRUCTIVE POSSESSION OF THE LAND FROM APRIL 19, 1926 UP TO THE PRESENT AS SHOWN BY THE
FACT THAT THEY HAD PAID THE REALTY TAXES.

III

“THE LOWER COURT
ERRED IN BELIEVING AND HOLDING THAT BECAUSE OPPOSITORS-APPELLANTS AND THEIR
PREDECESSORS-IN-INTEREST HAD NOT TAKEN ANY ACTIVE INTEREST TO PAY REALTY TAXES
SINCE 1926 AND IT WAS APPLICANT-APPELLEE AND HIS PREDECESSOR-IN-INTEREST THAT
PAID THE REALTY TAXES FROM THE SAME PERIOD, THIS CONSTI­TUTES STRONG
CORROBORATING EVIDENCE OF APPLI­CANT’S ADVERSE POSSESSION.

IV

“THE LOWER COURT
ERRED IN BELIEVING AND HOLDING THAT DOCUMENT EXH. ‘D’
EXECUTED BY BASILIA BELTRAN IN 1926 WAS ALREADY A CONVEYANCE OF THE LAND IN
QUESTION TO VICENTE REYES AND THE FAILURE OF BASILIA BELTRAN AND HER CHILDREN
TO REDEEM THE SAME, COULD BE CONSIDERED AS IF THE LAND HAD ALREADY BEEN SOLD TO
HIM.” (p. 21, Rollo).

The land applied for was originally owned by Basilia
Beltran’s parents, and upon their death in 1894, Basilia
inherited the property.  On April 19, 1926, Basilia
Beltran, a widow, borrowed from applicant’s father, Vicente Reyes, Sr. the
amount of P100.00 and secured the loan with the piece of land in question, as
evidenced by exhibit “D” quoted hereunder:

“SA KAALAMAN NANG LAHAT
NA BUMASA AT

NAKAKITA NITONG KASULATAN:

Kaming mag-kakapatid
may sapat na gulang na nakalagda
sa kasulatan ito, bilang katibayan
nang pag-papahintulot sa aming Ina na
si Bacilia na ipanagutan kay
G. Vicente Reyes sa inutang
na halagang isang daan piso (P100.00) na walang anopamang pakinabang; ang isang lagay na
lupa sa kallehon
Sukay, Antipolo, Rizal, naliligiran nang mga lupang
may titulo Torrents, expedientes
Nos. 770, 1831 lote 1, 645 at 1839 lote 2, may kabu-uan humigit kumulang sa apat na
raan metro; ito’y aring naiwan ng
ama naming namatay na si Melecio
Sierra.

Ang katotohanan
kahit isangla o ipag-bile man ng tuluyan ang nasabing
pag-aari o lupa wala kaming kinalaman,
sapagkat ipinauubaya na­ming
lubusan sa
aming Ina ang kapamahalaan.

Sa katunayan nagsilagda kaming mga anak, at apo
kay Esteban, sa harap nang saksing
mag­papatotoo.

Ngayon ika 19 nang Abril nang 1926.  Antipolo, Rizal, K.P.

Lagda
ni

Bacilia
Beltran Gregorio Sierra

Saksi:

_______________

_______________”

Since the execution of this document, Vicente Reyes, Sr. began
paying the realty taxes up to the time of his death in 1944, after which, his
children continued paying the taxes.  Basilia Beltran died in 1938 before Reyes could recover
from the loan.

Applicant, in seeking the registration of the land, relied on his
belief that the property belongs to his father who bought the same from Basilia Beltran, as borne out by his testimony during the
trial on direct examination.

“Q. Mr. Reyes, do you claim to be the owner of this property included or
described in your application?

“A.   Yes, sir.

“Q. How did you acquire this property?

“A.   Since 1926 we were the ones paying the land taxes.

“Q. From whom did you acquire this property?

“A.   Basilia Beltran.

“Q. Do you mean to say that you yourself bought this property?

“A.   My father was the one who bought the property.”

“Q.  What is the name of your father?

“A.
  Vicente C. Reyes.

“Q.  Where
is he now?

“A.   He is already dead.

“Q.  Can
you inform this Honorable Court, if you know, how your
father acquired this property?

“A.   Since
1926 my father bought that land.

“Q.  Was
that transaction evidenced by a document?

“A.   Yes,
there is a document.

“Q.  From
whom did your father allegedly purchase the property?

“A.   Basilia Beltran.”

From the above-quoted testimony of applicant, it is evident that
he considered the document marked Exhibit “D” as a contract of Sale
and not as a mortgage.  Oppositors contended that the words “isinangla,” “na ipananagutan sa inutang na halagang
isang daang piso,” “Kahit isangla o ipagbili,” etc.,
manifest that the document should be treated as a mortgage, antichresis,
or pactum commissorium and
not as an absolute sale or pacto de retro sale.  (p. 28, Brief, Oppositors-Appellants).

The Court is of the opinion that Exhibit “D” is a
mortgage contract.  The intention of the
parties at the time of the execution of the contract must prevail, that is, the
borrowing and lending of money with security. 
The use of the word debt (utang) in an
agreement helps to point out that the transaction was intended to be a loan
with mortgage, because the term “utang”
implies the existence of a creditor-debtor relationship.  The Court has invariably upheld the validity
of an agreement or understanding whereby the lender of money has taken a deed
to the land as security for repayment of the loan.

Thus:

“The fact that the real transaction between
the parties was a borrowing and lending, will, whenever, or however it may
appear, show that a deed, absolute on its face was intended as a
security for money; and whenever it can be ascertained to be a security for
money, it is only a mortgage, however artfully it may be disguised.”
(Villa vs. Santiago, 38 Phil. 163).

“The whole case really turns on the question of whether the
written instrument in controversy was a mortgage or a conditional sale.  x x x The real intention of the
parties at the time the written instrument was made must govern in the
interpretation given to it by the courts. 
x x x The correct test, where it can be applied, is the continued
existence of a debt or liability between the parties.  If such exists, the conveyance may be held to
be merely a security for the debt or an indemnity against the liability.”
(Cuyugan vs. Santos,
34 Phil. 112).

The Cuyugan Case quoted
some provisions in Jones’
Commentaries on Evidence, vol. 3, paragraphs 446-447 which are likewise
applicable to the facts of the case at bar:

“446.
  To show that instruments apparently
absolute are only securities. 
x x x It is an
established doctrine that a court of equity will treat a deed, absolute in
form, as a mortgage, when it is executed as security for loan of money, The
court looks beyond the terms of the 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.”

“447.   Same–Real intention of the parties to be
ascertained.  x x x As
we have shown in the preceding section, the intention of the parties must
govern; and it matters not what peculiar form the transaction may have
taken.  The inquiry always is, Was a security for the loan of money or other property
intended?  x x x A debt owing to the mortgagee, or a liability incurred
for the grantor, either pre-existing or created at the time the deed is made,
is essential to give the deed the character of a mortgage.  The relation of debtor and creditor must
appear.  The existence of the debt is one
of the tests.  x x x In construing the deed to be a mortgage, its character as
such must have existed from its very inception,–created at the time the
conveyance was made.”

The same principle was laid down in a later case, that of Macapinlac vs. Gutierrez Rapide,
43 Phil. 781, quoting 3 Pomeroy’s Equity Jurisdiction, Section 1195, wherein it
was stated:

“* * * The
doctrine has been firmly established from an early day that when the character
of a mortgage has attached at the
commencement of the transaction, so that the instrument, whatever be its form,
is regarded in equity as a mortgage, that character of mortgage must and will
always continue.  If the instrument is in
its essence a mortgage, the parties cannot by any stipulations, however express
and posi­tive, render it anything but a mortgage or deprive it of the essential
attributes belong­ing to a mortgage in equity.”

Concerning the legal effects of such Contract, Pomeroy observes:

“* * * Whenever
a deed absolute on its face is thus treated as a mortgage, the parties are
clothed with all the rights, are subject to all liabilities, and are entitled
to all the remedies of ordinary mortgagors and mortgagees.  The grantee may maintain an action for the
foreclosure of the grantor’s equity of redemp­tion; the grantor may maintain an
action to redeem and to compel a reconveyance upon
his payment of the debt secured.  If the
grantee goes into possession, he is in reality a mort­gagee in possession, and
as such is liable to account for the rents and profits.”

Obviously, from the nature of the transaction, appli­cant’s
predecessor-in-interest is a mere mortgagee, and ownership of the thing
mortgaged is retained by Basilia Beltran, the
mortgagor.  The mortgagee, however, may
recover the loan, although the mortgage document evidencing the loan was non-registrable being a purely private instrument.  Failure of mortgagor to redeem the property
does not automatically vest ownership of the property to the mortgagee, which
would grant the latter the right to appropriate the thing mortgaged or dispose
of it.  This violates the provision of
Article 2088 of the New Civil Code, which reads:

“The creditor cannot appropriate the things given by way of
pledge or mortgage, or dispose by them. 
Any stipulation to the contrary is null and void.”

The
act of applicant in registering the property in his own name upon mortgagor’s
failure to redeem the property would amount to a pactum commissorium
which is against good morals and
public policy.

In declaring applicant as the “true and rightful owner of
the land in question,” the trial court held that applicant and his
predecessor-in-interest acquired ownership over the property by means of
prescription having been in constructive possession of the land applied for
since 1926, applying Arts. 1134 and 1137 of the New Civil Code:

“Art. 1134.  – Ownership
and other real rights over immovable property are acquired by ordinary
prescription through possession of ten years.

“Art. 1137. 
–Ownership and other real rights over immovables
also prescribe through uninterrupted adverse possession thereof for thirty
years, without need of title or good faith.”