FLORENCIO BALATERO AND HEIRS OF JOSEFA BADELLES, PETITIONERS, VS. INTERMEDIATE APPELLATE COURT AND JUAN VELOSO, RESPONDENTS.

This is a petition to review on certiorari the decision of
the then Intermediate Appellate Court in AC-G.R. No. CV-58576
which reversed the decision of the then
Court of First Instance of Lanao del Norte in
Cadastral Case No. IL-N-1 LRC Record No. N-146
adjudicating Lot Numbers 433-A and 433-B of the Iligan
Cadastral 292 to petitioners Florencio Balatero and the heirs
of Josefa Badelles.

The Director of Lands initiated the court proceedings to settle and adjudicate
1419 lots to rightful claimants inside the tract of land in Iligan City designated as the Iligan
Cadastral 292.

The claimants for Lot No. 433 with an area of 216 square meters
and Lot No. 817 with an area of 34 square meters were:

1.  Petitioner Florencio Balatero for a portion of
both lots, by purchase from Josefa I. de Badelles and Leona, Salvacion,
Jose, Catalina and Dominga, all surnamed Badelles;

2.  Josefa Iglupas Badelles for Lot No. 433 having inherited the
same from her parents.  Josefa died during pendency of
the case and was substituted by her heirs, petitioners herein;

3.  Private respondent Juan
A. Veloso, for Lot No. 433, having purchased the same
from Josefa Iglupas; and

4.  Anacleto Iglupas for Lot No. 433,
having inherited the same from his deceased parents Alejo
Iglupas and Tomasa Ronda.

The facts which
formed the basis for the trial court’s decision are summarized as follows:

“The court finds that Lot No. 817 which contains an area of 34
square meters was provided by the cadastral surveyors for the widening of a
national street and the corner thereof with San Miguel
St.  With the
filing of their cadastral answers,
claimants admit that the land in question is still part and parcel of the
public domain.  The State as sovereign
power and as absolute and final owner of all lands of the public domain has the
right to segregate from an area
which it allows to be claimed for private ownership such portion or portions
thereof as it may deem necessary to retain for common use and for the public good.  Lot
No. 817 cannot, therefore, be claimed in private ownership by the claimants
herein or any other person for that matter. 
The State had reserved the same for public use.” (p. 33, Rollo)

xxx                                                xxx                                           xxx

xxx                                                xxx                                           xxx

“x
x x That the
property in question was originally owned by the parents of Josefa
Iglupas (mother-in-law of claimant Florencio Balatero) and her
brother Alejo (father
of
claimant Anacleto Iglupas);
that after the death of their parents, the
lot was given
to Alejo Iglupas and his
wife Tomasa Ronda; that Alejo Iglupas
died in 1916 and on May 10, 1968, his widow Tomasa Ronda, and their son Sovero
sold the property to Josefa Iglupas and
her husband Juan Badelles for a consideration of P111.00, which sale is embodied in
a public document denominated ‘Escritura de Compra Venta‘ (Exh. “E”); that in that same year of 1918, Josefa Iglupas together with her husband and children
occupied the lot and the old house thereon; that in 1925, Josefa Badelles built a new and bigger house on the lot;
that Juan Badelles died in that house and lot in 1927 and his widow Jesefa
Badelles and her children continued living thereon
until the
children became of age and got married; that Josefa
I. Badelles herself died in that property in
1967; that on June 9, 1930, Josefa Iglupas in order to
secure a loan
of P68.00 mortgaged the property to claimant Juan Veloso
in a public document denominated as ‘Pacto de Retro Sale’ (Exh.
“B”); that this loan was paid sometime in 1947, first in an amount of P100.00 and subsequently an
additional amount of P300.00; that on April 30, 1954, Josefa Iglupas and her children
Catalina, Leona, Salvacion and Leoncia
sold a portion
of the lot to Florencio Balatero
as shown in a document denominated ‘Deed of Sale Unregistered Land’ (Exh. “II”); that the lot was later resurveyed
and subdivided and in a plan (Exh.
“I”) duly approved by the Director of Lands, Lot
433 was
divided into Lot 433-A (Exh.
“I-A”) with an area of 98 square meters as pertaining to Florencio
Balatero and Lot 433-B (Exh. “I-B”)
with an area of 118 square meters as pertaining to the Heirs of Josefa Badelles; that Josefa Iglupas Vda. de Badelles
had occupied the property from the year 1918 and up to the time of her death in
1967 when her ‘Deed of Sale of Unregistered Land’ (Exh.
“II”); (sic) that heirs succeeded her in the possession thereof; that
the property has always been declared in the name of Josefa Iglupas Badelles (Exhs. “IV-Badelles“) and taxes thereon paid under her name (Exhs.
“VI-Badelles” and “VI-A-Badelles” to “VI-J-Badelles);
that the portion, Lot 433-A, acquired by Florencio
Balatero was also later declared in his own name (Ex. “III”)
and the taxes thereon also paid by him (Exhs. “IV” and “IV-A” to “IV-U”).

“After consideration of the evidence of the claimants, the
court finds and holds that it is claimant Florencio Balatero who has a registerable title over Lot No. 433-A and the Heirs
of Josefa Iglupas Vda. de Badelles over that of Lot No. 433-B.  There
is no conflict as between the
Heirs of Josefa I. Badelles
and Florencio Balatero, hence it is only incumbent
upon the court to treat of the claims of Anacleto Iglupas and Juan Veloso.

“Anacleto
Iglupas claims that what was sold to Josefa Iglupas in the document ‘Escritura de Compra Venta‘ in 1918 is only a house and does not include the
lot.  The Spanish phrase in the document which is in point reads:  ‘una casa con su solar de tabla con techo de nipa dentro de la poblacion del Municipio
de Iligan‘.  Iglupas would like to have the word ‘solar’
interpreted as meaning ‘floor’.  The english word ‘floor’ is ‘suelo‘ in Spanish.  So what was
sold is ‘a house including the lot made of wood and with nipa roofing’.  This
interpretation is buttressed by the fact that the boundaries
of the property is (sic) even described in the document.  While it is true that Anacleto
Iglupas did not
sign the document, he testified
in Court that Josefa Iglupas
began claiming the land as her own wayback in 1925
and he did nothing about it.  If Iglupas had ever any right to the property in 1918 to 1925, he lost it by
prescription:

“‘The owners or proprietors of real property, provided with the most legitimate and perfect title,
may be deprived and dispossessed thereof by usurpers who, by the lapse of time
specified by law, acquire the same by prescription to their benefit and to the prejudice of the legitimate
owners.’ (Arts 1106 and 1137, Civil Code, Cruz v. De Leon, 21 Phil. 199).

“From 1925 to the present is a period
of more than 40 years.

“With
respect to claimant Juan Veloso, he was never in
possession of the property.  He never for
once asserted his right to possess
the same.  This only jibes with the claim
of the Heirs of Josefa Iglupas
that the ‘Pacto de Retro Sale’
on which Veloso bases his claim of ownership was only a mortgage.  The consideration of the pacto
de retro sale in 1930 for the amount of P68.00 is inconsistent with
logic if the fact that Josefa Iglupas
bought the property from Tomasa Ronda and Severo Iglupas for a consideration of P111.00 in 1918
is taken into account.  In fine, Veloso had
never any actual possession or control over the property or any portion thereof
which could ripen into a registerable title.

“On the other hand, the Heirs of Josefa
Iglupas and Florencio Balatero, the latter through the late Josefa
Iglupas have always been in possession of the
property under claim of ownership since 1918.” (pp. 38-41)

The dispositive portion of the decision
of trial court reads:

“WHEREFORE, judgment is hereby rendered adjudicating Lot No.
433-A containing an area of 98
square meters to claimant Florencio Balatero married to Leoncia B. Balatero and Lot
No. 433-B containing an area of 118
square meters to the Heirs of Josefa Iglupas Vda. de Badelles,
namely:  Leona B. Vda.
de Moncote, Salvacion B. Dacup, Leoncia B. Balatero, Catalina B. de Gracia,
Jose I. Badelles and Dominga
Jarabe.

“Lot No. 817 containing an area of 34 square meters is hereby
declared as property of the State, the same having been provided for the widening of a national road.

“The Commissioner of Land
Registration is hereby directed, after this decision shall have become final, of which he shall be advised by a specific order of this court
in Judicial Form No. 115, to issue the corresponding
decrees and titles as above provided.  (p. 41, Rollo)

Claimant Juan Veloso appealed the decision to the then
Intermediate Appellate Court.  As stated earlier the lower court’s decision was reversed and set aside.  The
dispositive portion of the appellate decision
reads:

‘”WHEREFORE, decision appealed from is hereby REVERSED and SET ASIDE.  Judgment
is hereby rendered:

“1.  Adjudicating
the whole of Cadastral Lot No. 433 (Lot Nos. 433-A and 433-B) to claimant Juan Veloso, Filipino, of legal age, married to Pilar Dancel Veloso with residence at Iligan
City.

“2.  Declaring Lot No. 817 as property of
the state, the same having been provided for the widening of the national road.

“3.  Directing the
National Land Titles and Deeds of
Registration Administration to issue the corresponding decrees and titles as
above provided, after the decision has become final.

“Costs
against the appellees.” (p. 51, Rollo).

Petitioners Florencio Balatero and the Heirs of Josefa Badelles filed a motion for reconsideration on the decision but the motion was denied
by the appellate court.

Hence, this petition over the ownership of Lot
No. 433.

The petitioners now contend:

“(1)  That the
Respondent Court erred in holding that the court a quo committed
an error in declaring the Pacto de Retro Sale, Exh. B as a mere mortgage;

“(2)  That the
Respondent Court erred in holding that the two factors inadequacy of price and the
vendor remains in possession as a lessee, does not give rise to the presumption
that the contract is one of equitable mortgage, inasmuch as Art. 1602 of the
New Civil Code of the Philippines, was not found in the Old Civil Code, hence,
since the contract was executed in 1930 – ‘no such presumption existed as yet’;

“(3)  That Respondent
Court erred in disregarding and not giving weight to the fact that the
Petitioners occupied and possessed the subject property openly, adversely,
continuously, peacefully and uninterruptedly from 1934, the alleged date of the
consolidation of title, to Private Respondent Veloso,
up to the present, is covered by Art. 41 of the Code of Civil Procedure and
effected the acquisition of the property by prescription; and that Private
Respondent’s assertion of better title is barred;

“(4)  That Respondent
Court erred in holding that Petitioners Heirs of Josefa
Iglupas had no more right or interest in the subject property when they sold Lot 433-A to
Petitioner Florencio Balatero
and that the sale to the latter was null and void;

“(5)  That Respondent
Court erred in disregarding the fact that Petitioner Florencio
Balatero is an innocent purchaser in good faith for
value and the Respondent Court had no authority to order reconveyance
of property already in the name of another;

“(6)  That
Respondent Court has allowed Private Respondent Veloso
to take inconsistent positions
contrary to the elementary principles of right dealing and good faith, and
cannot ‘adopt a posture of double-dealing without running afoul of the doctrine
of estoppel‘; for it has allowed Private Respondent Veloso who has slept on his rights to prejudice the rights
of third parties who have placed reliance on his inaction.” (pp. 9-10, Rollo)

The following facts are not disputed:  that the subject parcel of land (Lot 433 Iligan Cadastre)
was originally owned by the parents of Josefa Iglupas; that after the death of Josefa’s parents, Lot 433 was given to Alejo Iglupas who is married to Tomasa Ronda; that after the death
of Alejo, Tomasa Ronda sold
the said lot to Josefa Iglupas
for P111.00 as evidenced by an ‘Escritura de Compra Venta‘ (Exh. “E”).

In a June 23,
1930 document denominated as “Pacto
de Retro Sale” (Exh.
“B”) this Lot
433 was sold by Josefa Iglupas to private respondent Juan Veloso for the amount of P68.00.  Whether or not this contract was really what
it purports to be or was an equitable mortgage is the main issue in the instant petition.

Article 1602 of the
present Civil Code states:

“The contract shall be presumed to be an equitable mortgage,
in any of the fallowing cases:

“(1)  When
the price of a sale with right to repurchase is unusually
inadequate;

“(2)  When
the vendor remains in possession as lessee or otherwise;

“(3)  When upon or after the expiration of the right to repurchase another instrument extending the period of redemption or
granting a new period is executed;

“(4)  When
the purchaser retains for himself a part of the purchase price;

“(5)  When
the vendor binds himself to pay the taxes on the thing sold;

“(6)  In any other case
where it may be fairly inferred that the real intention of the parties is that
the transaction shall secure the payment of a debt or the performance of any other obligation.

“In any of the foregoing cases, any money, fruits, or other
benefit to be received by the vendee as rent or otherwise shall be considered
as interest which shall be subject to the usury laws.”

The appellate court, however, declined to apply Article 1602 on
the ground that it is a new
provision of the New Civil Code not found in the Old Civil
Code.  The appellate court opined that
since the contract was executed in 1930, there was no presumption of an equitable mortgage existing at this time.

This is not well-taken.

We have ruled that
Article 1602 applies even to cases arising
prior to the effectivity of the New Civil Code.  Thus, in the case of Santos v. Duata (14
SCRA 1041) we stated:

“Article 1602 is a new provision in Civil Code designed
primarily to curtail the evils brought about by contracts of sale with right of repurchase, such as the
circumvention of the usury law and pactum commissorium.  It
particularly envisions contracts of sale
with right of repurchase where the real intention of the parties is that
the (pretended purchase price is money loaned, and in order to secure the payment of the loan a contract purporting to be a sale with pacto de
retro is drawn up (See report of the Code Commission, pp. 61-63).

Being remedial in nature, Article 1602 may be applied retroactively to cases
arising prior to the effectivity
of the New Civil Code. 
(Casabar v. Sino Cruz, L-6882, Dec. 29, 1954).  Hence, it may be applied in this case to determine the nature of Exhibit 3.” (at p. 1045; emphasis
supplied).

The pertinent portions
of the contract denominated as Pacto de Retro
Sale stated:

“x
x x That for and in consideration
of the sum of P68.00, the receipt whereof is by these presents acknowledged, the party of the First Part sells, cedes and transfers the property above
described to the party of
the second part (now Veloso), his heirs and assigns, subject to the conditions
hereinbelow specified.

“That the party
of the first part (now Iglupas) by these presents reserves for herself, her heirs and assigns, the right to repurchase said property
during the period of four (4 months from the execution of this instrument by paying back and
returning to said party of the second part the purchase price herein stated
together with all the expenses
incident to the execution of this instrument; and that on failure of said party
of the first part to exercise the right to repurchase said property according to the terms herein stipulated, title thereto shall pass
to and resume vested, absolutely and
with no reservation, in the
party of the second part, his heirs and assigns.  In such case, the party of the
first part does by these presents covenant with the said party of the second
part that before the execution of this instrument she was lawfully seized in fee of said premises; that they
were free from all liens and
encumbrances, that she had a perfect right to convey the same, and
that she will warrant and forever defend the same unto the said party of the second part, his
heirs and assigns, against the lawful claims
of all persons whomsoever.

“IN TESTIMONY WHEREOF, —-x x.’

(Exh. “B”)
(pp. 86-87, Rollo)

The well-settled principle in the interpretation of a contract is
that if the terms thereof are clear and leave no doubt as to the intention of
the contracting parties the literal meaning of the stipulation shall control
but when the words appear to be contrary to the evident intention of the
parties, the latter shall prevail over the former (Article 1281 of the Old
Civil Code, now Article 1370, New Civil Code; Labasan
v. Lacuesta, 86 SCRA 16).

On its face, the contract would show that the disputed parcel of
land was transferred to private respondent Juan Veloso
by way of sale with pacto de retro.  However, there are circumstances present in
the instant case which clearly indicate that the contract should be treated as
an equitable mortgage.

First, the 216 square meters parcel of land remained undisturbed
in the possession of the vendor Josefa Iglupas even after the execution of the contract.  Had Josefa Iglupas really executed a contract of sale in favor of Juan
Veloso, this small parcel of land should have been
delivered to the latter and he would have taken immediate possession after the
execution of the contract of sale.  The
assertion of the private respondent to the effect that Josefa
Iglupas became a lessee after the execution of the
contract and his claim that the P100.00 received from Josefa
Iglupas and the P300.00 from Leoncia
Balatero (receipt of which amounts he had earlier denied) were rentals create a presumption that
the contract was intended to be an equitable mortgage under paragraph 2,
Article 1602 of the New Civil Code (see Capulong
v. Court of Appeals, 130 SCRA 245).  Moreover, Josefa paid the taxes due on the property, mortgaged the
lot to the Philippine National Bank, and exercised all acts of ownership during
the period when it was supposed to already have been sold.

On this score alone, the appellate court’s findings that the
contract was really a pacto de retro sale constitutes reversible error.  As we ruled in Santos v. Duata, supra:

“Ciriaca Santos, however, maintains
that mere posession of the land and payment of land
taxes due thereon by Duata would not warrant
presumption that Exhibit 3 is an equitable mortgage.  Accordingly, she contends that there must be
a ‘concurrence of an overwhelming number
of circumstances’ before the presumption would arise.  To this proposition we do not agree.  Article 1602, when it expressly states ‘in
any of the following cases,’ contemplates the existence of any of the
circumstances enumerated therein.” (at p. 1045)

Second, the price or consideration in 1930 of P68.00 is unusually
inadequate.  This conclusion is supported
by the fact that the same parcel of land was bought by Josefa
Iglupas in 1918 for the price of P111.00.  If the contract was indeed one of sale, why
should the vendor, Josefa Iglupas
sell the parcel of land for a price almost half of what she paid for it twelve
years earlier. 
It is common knowledge that the value of real property appreciates
through the years and not otherwise. 
This fact also shows that the contract was an equitable mortgage rather
than a contract of sale (See Labasan v. Lacuesta, supra;
and Serrano v. Court of Appeals, 139 SCRA 179).

The fact that four (4) years after the
execution of the contract, more specifically on October 6, 1934, private respondent Juan Veloso
executed an affidavit (Exh. “D”) to consolidate his right of ownership
over the subject parcel
of land is of
no consequence.  The “constructive
possession” over the parcel of land mentioned by the appellate court did
not ripen into ownership.  The rule is
that only the possession acquired
and enjoyed in the concept of owner
can serve as a title for acquiring dominion. 
(Article 447, old Civil Code,
Article 540, new Civil Code) As can be gleaned from the facts earlier stated,
Juan Veloso never owned the subject parcel of land
because the contract over the same between Josefa Iglupas and Juan Veloso was actually an equitable mortgage and not a
contract of sale.

The appellate court’s observations that the lower court’s
findings of fact conclusively show that the contract was
actually a contract of sale are inaccurate and based on misreading of
the provisions.

An examination of the lower court’s decision shows that the
supposed findings of facts cited by the respondent
court are actually a summary of the evidence presented by the private
respondent to substantiate his claim that the contract between him and
Josefa Iglupas was indeed
a contract of sale.  This claim was,
however, controverted by the petitioners who presented
their own evidence to prove that the subject contract was an equitable
mortgage.  The petitioners’ evidence was
likewise summarized in the lower court’s decision.  The lower court, after summarizing the
conflicting evidence adduced by both parties, came out with its own findings of
facts, the end result of which was its ruling that the subject contract between
the protagonists was actually an
equitable mortgage.  We find no reason to
set aside these findings.

WHEREFORE, the
instant petition is GRANTED.  The
questioned decision of the then Intermediate Appellate Court is REVERSED
and SET ASIDE.  The decision of the then
Court of First Instance of Lanao del Norte is
REINSTATED.

SO ORDERED.

Fernan, (Chairman), Feliciano, and Cortes, JJ., concur.

Bidin, J., no part.