SOTERO IGNACIO, PLAINTIFF AND APPELLANT, VS. SANTOS CHUA HONG, ESTANISLAO FELICIANO, MARIA OJEDA, FELIX DE LEON AND VICENTE SOTTO, DEFENDANTS AND APPELLEES.

It appears from the record that prior to August 30, 1918, the
spouses Santos Chua Hong and Margarita Ignacio were the owners of an
undivided half of a fish pond situated in a place called Bitas,
municipality of Paombong, Bulacan, and embracing an area of over 40
hectares. Their title was evidenced by Torrens certificate No. 314 of
the Province of Bulacan. On the date mentioned, the spouses executed a
deed of sale, with pacto de retro, to one Estanislao
Feliciano, not only for the Bitas property but also for another fish
pond situated in a place called Pamarawan and which measures about 30
hectares. The consideration mentioned in the document was P10,000, and
the term for redemption or repurchase was fixed at two years with an
option for a two years extension of the term.

On November 21, 1918, Santos Chua Hong and Margarita Ignacio
executed a deed of donation of their interest in the Bitas fish pond in
favor of the herein plaintiff, Sotero Ignacio, the son of Margarita.
The document recited that there was an encumbrance of a sale with pacto de retro
on the land, in favor of Estanislao Feliciano, as security for a loan
of P10,000, and which the donors undertook to pay, and it was also
stipulated in subparagraph {a) of paragraph 4 of the deed that in case
Margarita Ignacio should die before payment had been made, the other
donor, Santos Chua Hong, obligated himself to redeem the land from the pacto de retro
sale two years from August 30, 1918. It further appears in the deed
that, in return for the donation, Sotero Ignacio renounced any and all
rights, interests, and participation in the remaining property of the
donors.

Margarita Ignacio died on March 14, 1919, and notwithstanding the stipulation in subparagraph (a)
of paragraph 4 of the deed of donation, Santos Chua Hong remained in
possession of the property in question and did not redeem the land from
the encumbrance above mentioned.

It becoming evident to the plaintiff that Santos Chua Hong had no
intention to carry out the provisions of the deed of donation, he, on
January 26, 1923, filed the deed with the register of deeds of Bulacan
for annotation on the certificate of title No. 314. The owner’s
duplicate of said certificate was in possession of Estanislao
Feliciano, who refused to surrender it to the register of deeds, and
application was made to the Court of First “Instance for an order
compelling Feliciano to exhibit the certificate of title in order that
the donation might be entered on it by way of memorandum. On January
27, 1923, the court issued an order requiring Feliciano to present the
certificate to the register of deeds. Seven days later, Santos Chua
Hong and his son, Geminiano Ignacio, through their counsel, Vicente
Sotto, filed a motion in the original land registration case asking
that the order of January 27 be revoked. The motion was set down for
hearing February 17, 1923, but was continued until March 8 when
Attorney Sotto, in representation of Santos Chua Hong presented an
amended motion in which it was alleged that the donation in question
had been obtained by fraud and that Santos Chua Hong signed the deed of
donation in the belief that it was executed in favor of his son,
Geminiano Ignacio, and not in favor of Sotero Ignacio and that
therefore the donation was null and void and should not be noted in the
registry of deeds. On the same date, March 8, the Court of First
Instance issued an order suspending the effects of the order of January
27, until the validity of the donation had been definitely determined,
and ordered the opponents Santos Cfrua Hong and Geminiano Ignacio to
bring an action within thirty days for that purpose. On March 14, 1923,
Attorney Sotto filed a motion for reconsideration of the order of March
8, which motion was denied on the 23d of the same month. Seven days
thereafter Feliciano, after having obtained a consolidation of his
title in the registry of deeds, sold the property to one, Maria Ojeda,
a mistress of Attorney Sotto, for the sum of P10,000. She took no
active part in the transaction, and the check for the purchase money
was signed “M. Ojeda, By: Vicente Sotto.” On April 7, 1923, Sotto
presented a motion in which it was alleged that the title .of
Estanislao Feliciano had been consolidated and that he, according to
“informes fidedignos,” had sold the property to a lady called Maria
Ojeda, whose title had been duly registered. Counsel therefore asked
that his clients be relieved from the effects of the order of March 8
and that the claim of Sotero Ignacio be dismissed.

The present action was thereupon brought, and three days later, on June 11, 1923, notice of lis pendens was
filed with the register of deeds and entered in the Us pendens.
register. Notwithstanding this, Maria Ojeda, on September 8, 1923, sold
both of the fish ponds to Felix de Leon, the consideration mentioned in
the deed being P10,000, and on the same date, the latter conveyed
one-half of his alleged interest in the Bitas fish pond to Attorney
Sotto for the alleged consideration of P5,000.

In his last amended complaint, the plaintiff prays (a) that
he be declared the owner of the property described in the deed of
donation, and that the defendants be ordered to deliver possession to
him; (b) that it be declared that the conveyances made to Maria Ojeda and Felix de Leon are fictitious and null and void; (c)
that all transfer certificates of title which affect the property in
question be cancelled and that instead thereof, a certificate of title
be issued in favor of the plaintiff; and (d) that the
plaintiff be given compensation for the products of the property in
question, of which products he had been deprived. At the trial of the
case, the plaintiff presented his evidence whereupon the defendants
moved the dismissal of the case, which motion was granted in a decision
dated January 30, 1928. From this decision the plaintiff appealed.

In our opinion, the appeal is well taken. Contrary to the earlier
conception in this jurisdiction, it is now well settled that whenever
it is clearly shown that a deed of sale with pacto de retro,
regular on its face, is given as security for a loan, it must be
regarded as an equitable mortgage. In other words, we are now following
the doctrine laid down by the United States Supreme Court in the case
of Russell vs. Southard (35 U. S., 139).

It appears from Exhibit G in the record that the assessed value of
Margarita Ignacio’s interest in the Bitas property was P22,060 and that
the Pamarawan fish pond was assessed at P34,850. The uncontradicted
testimony of Severino Gonzales, owner of ftsli ponds itf the same
vicinity, tends to show that the real total value of the two properties
is no less than P76,000, over seven times the amount of the
consideration for the pacto de retro sale.

Another indication that the sale was made as security for money is
the fact that Santos Chua Hong remained in possession of the property
sold, paying a so-called rent of P100 to Estanislao Feliciano, the
purchaser. It will be noted that the P100 per month would be exactly 12
per cent per annum, the maximum legal interest on a loan secured by
real property. Feliciano’s sale of the properties to Maria Ojeda
indicates that he merely desired to recover his money and did not want
the land, of which he, as a matter of fact, never had possession.

Aside from other evidence pointing in the same direction, the facts
stated are fully sufficient to show that, though regular on its face,
the deed of sale with pacto de retro was given as security
for a loan of P10,000 and that, consequently, the legal effect of the
document was that of an equitable mortgage. In the case of Villa vs. Santiago (38 Phil., 157), this court, citing Laureano vs. Kilayco (34 Phil., 148); Cuyugan vs. Santos (34 Phil.,. 100) ; and PP. Agustinos Recoletos vs. Lichauco (34 Phil, 5), said:

“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.”

But it is argued that the defendants were holders in good faith of
their transfer certificates of title and that, therefore, their titles
cannot now be questioned. That would be true if the defendants really
were holders in good faith and for valuable consideration (sec. 39, Act
No. 496). But we cannot find that such is the case here. The defendant
Sotto was counsel for Santos Chua Hong almost from the beginning of the
controversy between his client and the plaintiff and must have had full
knowledge of the latter’s claim; it is also evident that he was the
leading spirit in the scheme subsequently put in effect. It is not
disputed that he was living with Maria Ojeda as husband and wife and
though the check for P10,000 delivered to Feliciano was in the name of
Maria Ojeda, it was made and signed by Vicente Sotto. A few months
afterwards, the property was transferred to Doctor De Leon, the
consideration stated in the deed being P10,000, the same sum as that
paid to Feliciano.

Under the circumstances of the case, it can hardly be doubted that
the transfer to De Leon was in reality made by Sotto. In any event,
considering the intimate relations between Sotto and Maria Ojeda, the
presumption is that she was fully informed of the circumstances. It may
further be noted that there was uncontradicted evidence in the record
to the effect that Maria Ojeda had neither property nor business
occupation. There is also uncontradicted evidence showing that the
relations between Santos Chua Hong and Doctor De Leon were very close.
It also appears that the alleged sales to De Leon and to Vicente Sotto
were made after a notice of lis pendens had been recorded in the proper
registry of deeds, and that Santos Chua Hong had been in possession of
the property up to the time of the trial of the case and probably still
is in such possession. It may further be observed that the encargados or
caretakers of the two fish ponds testified that they always dealt with
their employer, Santos Chua Hong, and recognized him as the owner and
that they never had seen any of the defendants in the vicinity of the
said fish ponds.

The facts stated show clearly that the defendants were not holders
in good faith of their respective transfer certificates of title. On
the contrary, the plaintiff’s surmise that the successive transfers of
the properties have been made for the benefit of Santos Chua Hong and
that the property in some manner has been transferred back to him,
seems quite probable. Not being holders in good faith and for a
valuable consideration, the defendants cannot invoke the provisions of
section 39 of the Land registration Act, and their titles are not
indefeasible.

At the trial of the case, the plaintiff did not present in evidence the deed of sale with pacto de retro
and it is suggested that an instrument of that nature “cannot be
interpreted, construed, or reformed unless the document itself is
before the court. That may be true; it is, indeed, difficult to
conceive of a situation where a document may be reformed without being
exhibited to the court either in the original or by copy. But that has
nothing to do with this case. We are not here endeavoring to interpret
or reform any document; it is conceded, and not disputed, that the deed
of sale to Feliciano is in the form of a pacto de retro deed
and is, in every respect, properly executed as such. We are here only
concerned with the determination of the legal effect of such a document
if it is executed as security for a debt, and it is settled beyond
argument that for the purpose of such determination, oral evidence is
admissible. As stated in 27 Cyc, 1023: The admission of parol testimony
to prove that a deed absolute in form was in fact given and accepted as
a mortgage does not violate the rule against the admission of oral
evidence to vary or contradict the terms of a written instrument.”

Feliciano’s loan to Santos Chua Hong has been repaid. The Bitas fish
pond must therefore be considered redeemed, and the plaintiff is now
unquestionably the sole owner of the undivided one-half donated to him,
but there is no direct evidence that the money with which the property
was redeemed was furnished by Santos Chua Hong, though there are strong
indications that such was the case. We must therefore leave the
settlement of that question to the defendants among themselves.

From what we have said, it follows that the decision of the court
below must be reversed, and it is hereby declared that the plaintiff is
the owner of the undivided one-half of the Bitas fish pond donated to
him by Santos Chua Hong and Margarita Ignacio on November 21, 1918, and
it is ordered that possession of said undivided one-half be delivered
to said plaintiff. It is further ordered that the transfer certificate
of title issued to the defendant Felix de Leon be cancelled as to the
Bitas property and that the transfer certificate of title issued to the
defendant Vicente Sotto be cancelled, in toto and that thereupon a
transfer certificate of title to an undivided one-half of the said
Bitas property, free from all encumbrances except those expressly
provided for by statute (sec. 39 of the Land Registration Act as
amended), be issued in favor of the plaintiff, Sotero Ignaeio. It is
further ordered that the defendant Santos Chua Hong pay damages to the
plaintiff in the sum of P2,000 per annum from June 8,1923, until
possession of the property is delivered to said plaintiff. Without
costs. So ordered.

Street, Johns, Romualdez, and Villa-Real, JJ., concur.
Johnson, J., concurs in the result.

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DISSENTING:

MALCOLM and VILLAMOR, JJ.:

The fundamental issue in this case, on the determination of which
all other questions depend, is the nature of the instrument dated
August 30, 1918—whether a pacto de retro or a mortgage. As
explanatory of this statement, it may be remarked that at the time the
instrument was executed the persons involved in the transaction were
the spouses Santos Chua Hong and Margarita Ignacio and one Estanislao
Feliciano. Sotero Ignacio was the natural son of Margarita Ignacio, and
became interested in the matter after the accomplishment of the
document of donation by Santos Chua Hong and Margarita Ignacio on
November 21, 1918, that is, subsequent to the formulation of the
instrument of pacto de retro or mortgage. In reaching a
correct decision on the issue, there is consequently absolutely no need
to complicate matters by sanctioning the intrusion of the various
transfers from Feliciano to others and the various intrigues and
machinations through which the par ties saw fit to drag themselves. All
these latter facts, while proving nothing of credit to those involved,
are entirely beside the point in resolving the question before us.

As showing that the instrument of August 30, 1918, should be
considered to be a mortgage, there are present the following facts: (1)
The oral testimony of Lazaro Ignacio regarding the payment of interest
and rent; and (2) the testimony of Severino Gonzalez as to the alleged
value of the property.

As showing that the instrument of August 30, 1918, was in the nature of a pacto de retro,
we have the following: (1) The document itself was not offered in
evidence. The presumption must consequently be, as was stated by the
trial judge, that the parties considered the instrument to be one of
sale with pacto de retro. It is believed that the history of
the law of evidence can be searched in vain for any authority which
holds that an instrument sought to be cancelled, an instrument sought
to be reformed, or an instrument sought to be interpreted or construed
can be cancelled, reformed, interpreted, or construed without the
physical presence in the record of the instrument itself. (2) The
document of donation which was accepted by Sotero Ignacio spoke of the
land as having been sold under pacto de retro in favor of
Estanislao Feliciano. Sotero Ignacio is thus estopped by his own action
to prove that the instrument was other than a pacto de retro. (3) In the deed of sale by Estanislao Feliciano to Maria Ojeda attached to the complaint, the instrument is described as a pacto de retro,
and Estanislao Feliciano while on the witness stand said that it was
such. (4) The instrument perfected and signed on August 30, 1918, was
to be effective for a term of two years. In other words, it expired on
August 30, 1920. On that date, title consolidated in the name of
Estanislao Feliciano and he became the absolute owner of the land, and
this is shown by the contents of the Torrens title. (5) The instrument
of August 30, 1918, covered two parcels of land while the donation
which it is now sought to enforce covered one parcel of land. Holding
the instrument of August 30, 1918, to be a mortgage in this case will
result in that instrument being a mortgage for one parcel of land and a
pacto de retro for the other parcel of land—certainly rather anomalous.

We understand the natural indignation of the court on the discovery
of a fraud. Yet even so we should not depart from an even minded
reflection on the basic fads. Our conclusion is that the issue should
be decided by holding that there is lacking a clear preponderance of
the evidence to prove the instrument of August 30, 1918, to be a
mortgage. Accordingly, Judge Teodoro acted advisedly in dismissing the
action, and his judgment should be sustained and confirmed.