SIMEON A. VILLA, PLAINTIFF AND APPELLEE, VS. JOSE SANTIAGO, ADMINISTRATOR OF THE ESTATE OF MONICA CUENCA, DECEASED, DEFENDANT AND APPELLANT.

Plaintiff in this action seeks to recover nine parcels of land situated in
and about Bacoor, some of which are salt fields (salinares), some urban
lots, and others agricultural lands, together with damages for their detention,
from the defendant administrator of the estate of a woman, named Monica Cuenca,
who died in April, 1913, leaving behind her minor children, the youngest of whom
was about 6 years of age at the time of her death.

Plaintiff bases his action on the terms of an instrument purporting to be a
deed of sale of these lands to himself for the sum of P2,000, executed by the
widow on December 29, 1911, wherein she reserved a right of repurchase to be
exercised on or before December 29, 1913, she to continue in possession of all
this property and to pay an annual rental of P300, that is to say, at the rate
of 15 per cent per annum on the amount advanced by the plaintiff.

Plaintiff contends that since the widow did not exercise her reserve right to
repurchase before her death in April, 1913, and since that right was not
exercised by her heirs or legal representatives before the 29th of December,
1913, he became the absolute owner of the property on the latter date, and is
entitled to recover possession from the administrator, together with damages for
its detention from that date to date of the complaint, October 8, 1914.

It appears that the plaintiff filed, with the committee of claims against the
estate, a separate claim for the amount of one year’s rent (P300) alleged to be
due under the contract with the widow and unpaid at the time of her death.

The circumstances under which this claim was presented are of considerable
interest and throw a flood of light on the character of the transactions brought
under review on this appeal.

Monica Cuenca died in April, 1913, leaving a will executed in the month
preceding her death wherein she set forth the following:

“I declare that I now owe Mr. Simeon Villa, a resident of Manila, the sum of
P2,300, Philippine currency, which I have employed in the construction of the
Chinese salina, and order that the payments to be made on this debt shall be
taken from the product of the said Chinese salina.”

This will was offered for probate September 12, 1913, and special letters
testamentary were issued to the defendant administrator the following day to
take charge of the property pending the proceedings looking to the probate of
the will.

The will was probated on December 13, 1913.

On February 14, 1914, a committee of appraisement and claims was appointed to
sit for six months from the date of appointment, and to have fifteen days, in
addition, to give notice of its sittings and to make its report.

No claim for the amount of the rent was submitted during the period set for
the preparation of the report of this committee, but on October 10, 1914,
plaintiff appeared, and applied for an extention of the time allowed for the
presentation of claims against the estate, in order that he might have an
opportunity to file his claim for rent due under the contract; setting forth at
the same time, that five days earlier (October 5, 1914) he had procured the
entry of an annotation in the registry consolidating his title under the alleged
deed of sale, and that two days earlier (October 6, 1914) he had filed his
action against the administrator for recovery of the possession of the property
in question.

Then, for the first time, did the administrator discover the existence of the
alleged deed of sale, and of the claim of ownership by the plaintiff of the
property of the estate of the widow.

Counsel for the administrator ask the court to consider the motives which led
the plaintiff to keep silent, after the death of the widow and throughout the
period allowed for the hearing of the claims against her estate, without
attempting to consolidate his title and without setting up his claims for rent,
and for damages for the alleged unlawful detention of the property; and it is
urged that his conduct in this regard, taken together with all the circumstances
as disclosed by the record, justifies the inference that he well knew that
despite the execution of the document purporting to be a sale with a reserved
right of repurchase, the money was advanced as indicated in the will, by way of
a loan at 15 per cent interest per annum, and the deed given merely by way of
security therefor, with the understanding that whenever payment should be made
of the amount of the indebtedness, the land would be reconveyed to the original
owner.

Counsel insist that the attempt of the plaintiff to take from the minor heirs
of the deceased property worth more than P10,000 on account of a loan of P2,000
was an afterthought, which only occurred to him when he found that by the death
of the widow and the lapse of time it was possible for him to secure the
registry of absolute title to the property in his own name, apparently without
the possibility of successful challenge of his unconscionable conduct by the
heirs of the estate, who seemed to have had no knowledge of the true nature of
the original transaction.

Counsel contend that it would be unreasonable and absurd to suppose that the
widow would sell the nine parcels of land worth more than P10,000 for P2,000,
and then expend the money secured from the purchaser in permanent improvements
on the land itself, without some such understanding as that set forth in her
will, by virtue of which she was assured that, despite the formalities which
marked the execution of the written document, the plaintiff would not attempt to
enforce any legal or technical rights in the premises other than those of a
creditor for the amount of his advances, holding the paper title to the property
by way of security for the repayment of the loan.

Counsel insist that the conduct of the plaintiff himself, taken together with
the marked disproportion between the amount of money advanced and the value of
the property in question, and having in mind the purpose to which the money was
applied, and the fact that there was no physical transfer of the possession of
the land at the time of the alleged sale, sustains his contention that the true
understanding between the parties was that the money was advanced by way of a
loan; and that the property described in the deed would be held by the lender
merely as security for its repayment, this property to be sold in the event of
failure to repay the loan, and the proceeds to be applied to the repayment of
the indebtedness to the extent necessary to reimburse the creditor in full.

We are of opinion that this contention should be sustained, giving as we do,
exceptional weight to the circumstances surrounding the transaction and the
conduct of the parties themselves, especially that of the plaintiff, in view of
the fact that the mouth of one of the parties to the transaction is sealed by
death. (Laureano vs. Kilayco, 34 Phil. Rep., 148; Cuyugan vs.
Santos, 34 Phil. Rep., 100; and PP. Agustinos Recoletos vs. Lichauco,
34 Phil. Rep., 5.)

In the case of Cuyugan vs. Santos (supra), we said by way
of answer to contentions substantially similar to those advanced by counsel for
the plaintiff in the case at bar:

“In the case of Russel vs. Southard (53 U. S., 138-147), the Supreme
Court of the United States dealt with these objections in part as follows:

” ‘The first question is whether this transaction was a mortgage, or a
sale.

” ‘It is insisted, on behalf of the defendants, that this question is to be
determined by inspection of the written papers alone, oral evidence not being
admissible to contradict, vary, or add to, their contents. But we have no doubt
extraneous evidence is admissible to inform the court of every material fact
known to the parties when the deed and memorandum were executed. This is clear,
both upon principle and authority. To insist on what was really a mortgage, as a
sale, is in equity a fraud, which cannot be successfully practiced, under the
shelter of any written papers, however precise and complete they may appear to
be. In Conway vs. Alexander (7 Cranch, 238), C. J. Marshall says:
“Having made these observations on the deed itself, the court will proceed to
examine those extrinsic circumstances, which are to determine whether it was a
sale or a mortgage;” and in Morris vs. Nixon (1 How., 126), it is stated: ‘The
charge against Nixon is, substantially, a fraudulent attempt to convert that
into an absolute sale, which was originally meant to be a security for a loan.
It is in this view of the case that the evidence is admitted to ascertain the
truth of the transaction, though the deed be absolute on its face.” ‘

” ‘These views are supported by many authorities. (Maxwell vs.
Montacute, Pr. in Ch., 526; Dixon vs. Parter 2 Ves., Sen., 225; Prince
vs. Bearden, 1 A. K. Marsh. [Ky.], 170; Oldham vs. Halley, 2
J. J. Marsh. [Ky.], 114; Whittick vs. Kane, 1 Paige [N. Y.], 202;
Taylor vs. Luther, 2 Sumn., 232; Flagg vs. Mann, Id., 538;
Overton vs. Bigelow, 3 Yerg. [Tenn.], 513; Brainerd vs.
Brainerd, 15 Conn., 575; Wright vs. Bates, 13 Vt., 341; McIntyre
vs. Humphries, 1 Hoffm. [N. Y.], Ch., 331; 4 Kent, 143, note A., and 2
Green. Cruise, 86, n.)

” ‘It is suggested that a different rule is held by the highest court of
equity in Kentucky. If it were, with great respect for that learned court, this
court would not feel bound thereby. This being a suit in equity, and oral
evidence being admitted, or rejected, not by the mere force of any State
statute, but upon the principles of general equity jurisprudence, this court
must be governed by its own views of those principles. (Robinson vs.
Campbell, 3 Wheat, 212; United States vs. Howland, 4 Id., 108; Boyle
vs. Zacharie et al., 6 Pet., 658; Swift vs. Tyson, 16 Id., 1;
Foxcroft vs. Mallet, 4 How., 379.) But we do not perceive that the rule
held in Kentucky differs from that above laid down. That rule, as stated in
Thomas vs. McCormack (9 Dana [Ky.], 109), is that oral evidence is not
admissible in opposition to the legal import of the deed and the positive denial
in the answer, unless a foundation for such evidence had been first laid by an
allegation, and some proof of fraud or mistake in the execution of the
conveyance, or some vice in the consideration.

” ‘But the inquiry still remains, what amounts to an allegation of fraud, or
of some vice in the consideration—and it is the doctrine of this court that,
when it is alleged and proved that a loan on security was really intended, and
the defendant sets up the loan as a payment of purchase money, and the
conveyance as a sale, both fraud and a vice in the consideration are
sufficiently averred and proved to require a court of equity to hold the
transaction to be mortgaged; and we know of no court which has stated this
doctrine with more distinctness, than the Court of Appeals of the State of
Kentucky. In Edrington vs. Harper (3 J. J. Marsh. [Ky.], 355), that
court declared: “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.”

* * * * * * *

” ‘In respect to the written memorandum, it was clearly intended to manifest
a conditional sale. Very uncommon pains are taken to do this. Indeed, so much
anxiety is manifested on this point as to make it apparent that the draftsman
considered he had a somewhat difficult task to perform. But it is not to be
forgotten, that the same language which truly describes a real sale, may also be
employed to cut off the right of redemption, in case of a loan on security; that
it is the duty of the court to watch vigilantly these exercises of skill, lest
they should be effectual to accomplish what equity forbids; and that, in
doubtful cases, the court leans to the conclusion that the reality was a
mortgage, and not a sale. (Conway vs. Alexander, 7 Cranch, 218; Flagg
vs. Mann, 2 Sumn., 533; Secrest vs. Turner, 2 J. J. Marsh.
[Ky.], 471; Edrington vs. Harper, 3 Id., 354; Crane vs.
Bonnel, 1 Green [N. Y.] Ch., 264; Robertson vs. Campbell, 2 Call.
[Va.], 421; Poindexter vs. McCannon, 1 Dev. [N. C] Eq., 373.)

” ‘It is true, Russel must have given his assent to this form of the
memorandum; but the distress for money under which he then was, places him in
the same condition as other borrowers, in numerous cases reported in the books,
who have submitted to the dictation of the lender under the pressure of their
wants; and a court of equity does not consider a consent, thus obtained, to be
sufficient to fix the rights of parties. “Necessitous men” says the Lord
Chancellor, in Vernon vs. Bethell (2 Eden, 113), “are not, truly
speaking, free men; but, to answer a present emergency, will submit to any terms
that the crafty may impose upon them.”

” ‘The memorandum does not contain any promise by Russel to repay the money,
and no personal security was taken; but it is settled that this circumstance
does not make the conveyance less effectual as a mortgage. (Floyer vs.
Lavington, 1 P. Wms., 268; Lawley vs. Hooper, 3 Atk., 278; Scott
vs. Fields, 7 Watts. [Pa.], 360; Flagg vs. Mann, 2 Sumn., 533;
Ancaster vs. Mayer, 1 Bro. C. C, 464.) And consequently it is not only
entirely consistent with the conclusion that a mortgage was intended, but in a
case where it was the design of one of the parties to clothe the transaction
with the forms of a sale, in order to cut off the right of redemption, it is,
not to be expected that the party would, by taking personal security,
effectually defeat his own attempt to avoid the appearance of a loan.’

“Citing and relying upon this case Mr. Justice Field speaking for the Supreme
Court of the United States (Brick vs. Brick, 98 U. S., 514) announced
the doctrine with relation to transactions in personal property, which is
summarized as follows in the head notes:

” Parol evidence is admissible in equity to show that a certificate of stock
issued to a party as owner was delivered to him as security for a loan of money.
A court of equity will look beyond the terms of an 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.

” ‘The rule which excludes such evidence to contradict or vary a written
instrument does not forbid an inquiry into the object of the parties in
executing and receiving it.’ “

In the Cuyugan case (supra) we summarized the doctrine in this
jurisdiction as follows:

“* * * there can be no question, in the absence of express statutory
prohibition, as to the validity of an agreement or understanding whereby the
lender of money, who as security for the repayment of the loan has taken a deed
to land, absolute on its face or in the form of a deed reserving a mere right of
repurchase to the vendor, obligates himself to hold such deed, not as evidence
of a contract of sale but by way of security for the repayment of the debt; and
that unless the rights of innocent third persons have intervened, the lender of
the money may be compelled to comply specifically with the terms of such an
agreement, whether it be oral or written; and further, that he will not be
permitted, in violation of its terms, to set up title in himself or to assert a
claim of absolute ownership.

“If the parties actually enter into such an agreement, the lender of the
money is legally and morally bound to fulfill it. Of course such an oral
contract does not give the borrower a real right in the lands unless it is
executed in compliance with the formalities prescribed by law. If entered into
orally, it creates a mere personal obligation which in no wise affects the
lands, and if the lender conveys the lands to innocent third persons, the
borrower must content himself with a mere right of action for damages against
the lender, for failure to comply with his agreement. But so long as the land
remains in the hands of the lender, the borrower may demand the fulfillment of
the agreement, and a mere lack of any of the formalities prescribed under the
Spanish code for the execution of contracts affecting real estate will not
defeat his right to have the contract fulfilled, as the lender may be compelled
in appropriate proceedings to execute the contract with the necessary prescribed
formalities.”

In this connection it may be well to add the following extract from a
decision of the supreme court of Spain, dealing with the provisions of articles
1278, 1279 and 1280 of the, Civil Code touching the conditions essential to the
validity of contract, and the necessity for the execution of certain contracts,
including conveyances of real estate, in public documents:

“Neither this article (1279), nor the one that precedes it (1278), nor the
one that follows it (1280) prescribes that the bringing of the action to compel
the execution of the formal instrument, shall precede the action arising out of
the contract.” (Decisions of July 4, 1899, and October 19, 1901.)

We conclude that the judgment entered in the court below should be reversed,
without costs in this instance, and the record returned to the court below where
judgment will be entered granting the relief to which the plaintiff appears to
be entitled upon the pleadings and the proof, that is to say, a judgment for the
amount of the indebtedness evidenced by the instrument, and providing for the
sale of the property mentioned therein and the application of the proceeds to
the payment of the amount of the judgment, unless that amount is paid by the
administrator from other available funds in his hands as such administrator, and
providing further for the conveyance of the lands described in the complaint
from the plaintiff to the person or persons entitled thereto as a result of
their sale by order of the court, or of the payment of the indebtedness by the
administrator. So ordered,

Arellano, C. J., Torres, Araullo, Street, and Malcolm, JJ.,
concur.