Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-6622

July 31, 1957

Intestate Estate of the deceased MARCELO DE BORJA. CRISANTO DE BORJA, administratorappellant,

vs.
JUAN DE BORJA, ET AL., oppositors-appellees.
E. V. Filamor for appellant.
Juan de Borja for himself and co-appellees.
FELIX, J.:
The case. Quintin, Francisco, Crisanta and Juliana, all surnamed de Borja, are legitimate children
of Marcelo de Borja who, upon his demise sometime in 1924 or 1925, left a considerable amount of
property. Intestate proceedings must have followed, and the pre-war records of the case either
burned, lost or destroyed during the last war, because the record shows that in 1930 Quintin de
Borja was already the administrator of the Intestate Estate of Marcelo de Borja.
In the early part of 1938, Quintin de Borja died and Crisanto de Borja, son of Francisco de Borja,
was appointed and took over as administrator of the Estate. Francisco de Borja, on the other hand,
assumed his duties as executor of the will of Quintin de Borja, but upon petition of the heirs of said
deceased on the ground that his interests were conflicting with that of his brother's estate he was
later required by the Court to resign as such executor and was succeeded by Rogelio Limaco, a sonin-law of Quintin de Borja.
It also appears that on February 16, 1940, at the hearing set for the approval of the statement of
accounts of the late administrator of the Intestate Estate of Marcelo de Borja, then being opposed by
Francisco de Borja, the parties submitted an agreement, which was approved by the Court (Exh. A).
Said agreement, translated into English, reads as follows:
1. All the accounts submitted and those that are to be submitted corresponding to this year
will be considered approved;
2. No heir shall claim anything of the harvests from the lands in Cainta that came from
Exequiel Ampil, deceased, nor from the land in Tabuatin, Nueva Ecija;
3. That the amounts of money taken by each heir shall be considered as deposited in
conjunction with the other properties of the intestate and shall form part of the mass without
drawing any interest;
4. That it shall be understood as included in this mass the sum of twelve thousand pesos
(P12,000) that the sisters Crisanta and Juliana de Borja paid of their own money as part of

the price the lands and three thousand pesos (P3,000) the price of the machinery for
irrigation;
5. The right, interests or participation that the deceased Quintin de Borja has or may have in
Civil Case No. 6190 of the Court of First Instance of Nueva Ecija, shall be likewise included
in the total mass of the inheritance of the Intestate;
6. Not only the lands in Tabuatin but also those in Cainta coming from the now deceased
Exequiel Ampil shall also from part of the total mass of the inheritance of the Intestate of the
late Marcelo de Borja;
7. Once the total of the inheritance of the intestate is made up as specified before in this
Agreement, partition thereof will be made as follows:
From the total mass shall be deducted in case or in kind, Twelve Thousand Pesos (P12,000)
that shall be delivered to Da. Juliana de Borja and Da. Crisanta de Borja in equal shares,
and the rest shall be divided among the four heirs, i. e., Don Francisco de Borja, the heirs of
Quintin de Borja, Da. Juliana de Borja, and Da. Crisanta de Borja, in equal parts.
(TRANSLATION)
The Intestate remained under the administration of Crisanto de Borja until the then outbreak of the
war. From then on and until the termination of the war, there was a lull and state of inaction in
Special proceeding No. 2414 of the Court of First Instance of Rizal, Pasig branch (In the Matter of
the Intestate Estate of Marcelo de Borja), until upon petition filed by Miguel B. Dayco, as
administrator of the estate of his deceased mother, Crisanta de Borja, who is one of heirs, for
reconstitution of the records of this case, the Court on December 11, 1945, ordered the
reconstitution of the same, requiring the administrator to submit his report and a copy of the project
of partition.
On January 3, 1946, the administrator, Dr. Crisanto de Borja, filed his accounts for the period
ranging from March 1 to December 22, 1945, which according to the heirs of Quintin de Borja were
so inadequate and general that on February 28, 1946, they filed a motion for specification. On April
30, 1946, they also filed their opposition to said statement of accounts alleging that the income
reported in said statement was very much less than the true and actual income of the estate and that
the expenses appearing therein were exaggerated and/or not actually incurred, and prayed that the
statement of accounts submitted by the administrator be disapproved.
The administrator later filed another report of his administration, dated August 9, 1949,
corresponding to the period lapsed from December 23, 1945, to July 31, 1949, showing a cash
balance of P71.96, but with pending obligation amounting to P35,415.
On August 22, 1949, Juan de Borja and sisters, heirs of the deceased Quintin de Borja, filed their
opposition to the statement of accounts filed by the administrator on the ground that same was not
detailed enough to enable the interested parties to verify the same; that they cannot understand why
the Intestate could suffer any loss considering that during the administration of the same by Quintin
de Borja, the Estate accumulated gains of more than P100,000 in the form of advances to the heirs
as well as cash balance; that they desired to examine the accounts of Dr. Crisanto de Borja to verify
the loss and therefore prayed that the administrator be ordered to deposit with the Clerk of Court all
books, receipts, accounts and other papers pertaining to the Estate of Marcelo de Borja. This motion
was answered by the administrator contending that the Report referred to was already clear and
enough, the income as well as the expenditures being specified therein; that he had to spend for the
repairs of the properties of the Estate damaged during the Japanese occupation; that the allegation

that during the administration of Quintin de Boria the Estate realized a profit of P100,000 was not
true, because instead of gain there was even a shortage in the funds although said administrator
had collected all his fees (honorarios) and commissions corresponding to the entire period of his
incumbency; that the obligations mentioned in said report will be liquidated before the termination of
the proceedings in the same manner as it is done in any other intestate case; that he was willing to
submit all the receipts of the accounts for the examination of the interested parties before the Clerk
or before the Court itself; that this Intestate could be terminated, the project of partition having been
allowed and confirmed by the Supreme Court and that the Administrator was also desirous of
terminating it definitely for the benefit of all the parties.
On September 14, 1949, the administrator filed another statement of accounts covering the period of
from March 1, 1945, to July 31, 1949, which showed a cash balance of P71.95, with pending
obligations in the sum of P35,810.
The heirs of Quintin de Borja, Juan de Borja and his sisters, registered their opposition said
statement of accounts and prayed the Court to disapprove the same and to appoint an account to go
over the books of the administrator and to submit a report thereon as soon as possible. The heir
Juliana de Borja also formally offered her objection to the approval of the accounts submitted by the
administrator and prayed further that said administrator be required to submit a complete accounting
of his administration of the Estate from 1937 to 1949. On the other hand, Francisco de Borja and
Miguel B. Dayco, as the only heir of the deceased Crisanta de Borja, submitted to the Court an
agreement to relieve the administrator from accounting for the period of the Japanese occupation;
that as to the accounting from 1937 to 1941, they affirmed their conformity with the agreement
entered into by all the heirs appearing in the Bill of Exceptions of Juliana de Borja; and they have no
objection to the approval of the statement of accounts submitted by the administrator covering of the
years 1945 to 1949.
On December 6, 1949, the administrator, answered the opposition of the heir Juliana de Borja,
alleging that the corresponding statement of accounts for the years 1937, 1938, 1939, 1940 and
1941 were presented and approved by the Court before and during the Japanese occupation, but
the records of the same were destroyed in the Office of the Clerk of that Court during the liberation of
the province of Rizal, and his personal records were also lost during the Japanese occupation, when
his house was burned; that Judge Pea who was presiding over the Court in 1945 impliedly denied
the petition of heirs to require him to render an accounting for the period from 1942 to the early part
of 1945, for the reason that whatever money obtained from the Estate during said period could not
be made the subject of any adjudication it having been declared fiat money and without value, and
ordered that the statement of accounts be presented only for the period starting from March 1, 1945.
The administrator further stated that he was anxious to terminate this administration but some of the
heirs had not yet complied with the conditions imposed in the project of partition which was approved
by the Supreme Court; that in accordance with said partition agreement, Juliana de Borja must
deliver to the administrator all the jewelry, objects of value, utensils and other personal belongings of
the deceased spouses Marcelo de Borja and Tircila Quiogue, which said heir had kept and
continued to retain in her possession; that the heirs of Quintin de Borja should deliver to the
administrator all the lands and a document transferring in favor of the Intestate the two parcels of
land with a total area of 71 hectares of cultivated land in Cabanatuan, Nueva Ecija which were in the
possession of said heirs, together with the house of Feliciana Mariano Vda. de Sarangaya, which
were the objects of Civil Case No. 6190 mentioned in Paragraph 11 of the project of partition; that as
consequence of the said dispossession the heirs of Quintin de Borja must deliver to the
administrator the products of the 71 hectares of land in Cabanatuan, Nueva Ecija, and the rentals of
the house of Feliciana Mariano or else render to the Court an accounting of the products of these
properties from the time they took possession of the same in 1937 to the present; that there was a
pending obligation amounting to P36,000 as of September 14, 1949, which the heirs should pay
before the properties adjudicated to them would be delivered. The Court, however, ordered the

administrator on December 10, 1949, to show and prove by evidence why he should not be
accounts the proceeds of his administration from 1937.
Meantime, Juliana de Borja filed a Constancia denying possession of any jewelry belonging to the
deceased spouses Marcelo de Borja and Tarcilla Quiogue or any other personal belonging of said
spouses, and signified her willingness to turn over to the administrator the silver wares mentioned in
Paragraph III of the project of partition, which were the only property in her care, on the date that she
would expect the delivery to her of her share in the inheritance from her deceased parents.
On July 6, 1950, Juan de Borja and his sisters Marcela, Saturnina, Eufracia, Jacoba and Olimpia, all
surnamed de Borja, as heirs of Quintin de Borja, filed a motion for the delivery to them of their
inheritance in the estate, tendering to the administrator a document ceding and transferring to the
latter all the rights, interests and participation of Quintin de Borja in Civil Case No. 7190 of the Court
of First Instance of Nueva Ecija, pursuant to the provisions of the project of Partition, and expressing
their willingness to put up a bond if required to do so by the Court, and on July 18, 1950, the Court
ordered the administrator to deliver to Marcela, Juan, Saturniana, Eufracia, Jacoba and Olimpia, all
surnamed de Borja, all the properties adjudicated to them in the Project of Partition dated February
8, 1944, upon the latter's filing a bond in the sum of P10,000 conditioned upon the payment of such
obligation as may be ordered by the Court after a hearing on the controverted accounts of the
administrator. The Court considered the fact that the heirs had complied with the requirement
imposed by the Project of Partition when they tendered the document ceding and transferring the
rights and interests of Quintin de Borja in the aforementioned lands and expressed the necessity of
terminating the proceedings as soon as practicable, observing that the Estate had been under
administration for over twenty-five years already. The Court, however, deferred action on the petition
filed by the special administratrix of the Intestate Estate of Juliana de Borja until after compliance
with the conditions imposed by the project of partition. But on July 20, 1950, apparently before the
properties were delivered to the heirs, Francisco de Borja and Miguel B. Dayco filed a motion
informing the Court that the two parcels of land located in Cabanatuan, Nueva Ecija, produced some
21,300 cavans of palay, amounting to P213,000 at P10 per cavan, which were enjoyed by some
heirs; that the administrator Crisanto de Borja had not taken possession of the same for
circumstances beyond his control; and that there also existed the sum of P70,204 which the former
administrator, Quintin de Borja, received from properties that were redeemed, but which amount did
not come into the hands of the present, administrator because according to reliable information,
same was delivered to the heir Juliana de Borja who deposited it in her name at the Philippine
National Bank. It was, therefore prayed that the administrator be required to exert the necessary
effort to ascertain the identity of the person or persons who were in possession of the same amount
and of the value of the products of the lands in Mayapyap, Cabanatuan, Nueva Ecija, and to recover
the same for the Intestate Estate.
On July 28, 1950, the special administratrix of the estate of Juliana de Borja, then deceased, filed an
answer to the motion of these two heirs, denying the allegation that said heir any product of the
lands mentioned from Quintin de Borja, and informed the Court that the Mayapyap property had
always been in the possession of Francisco de Borja himself and prayed the court that the
administrator be instructed to demand all the fruits and products of said property from Francisco de
Borja.
On July 28, 1950, the heirs of Quintin de Borja also filed their opposition to the said motion of
Francisco de Borja and Miguel B. Dayco on the ground that the petition was superfluous because
the present proceeding was only for the approval of the statement of accounts filed by the
administrator; that said motion was improper because it was asking the Court to order the
administrator to perform what he was duty bound to do; and that said heirs were already barred or

stopped from raising that question in view of their absolute ratification of and assent to the statement
of accounts submitted by the administrator.
On August 16, 1950, by order of the Court, the properties adjudicated to Juliana de Borja in the
project of Partition were finally delivered to the estate of said heir upon the filing of a bond for
P20,000. In that same order, the Court denied the administrator's motion to reconsider the order of
July 18, 1950, requiring him to deliver to the heirs of Quintin de Borja the properties corresponding to
them, on the ground that there existed no sufficient reason to disturb said order. It also ruled that as
the petition of Francisco de Borja and Miguel B. Dayco made mention of certain properties allegedly
belonging to the Intestate, said petition should properly be considered to gather with the final
accounts of the administrator.
The administrator raised the matter by certiorari to this Tribunal, which was, docketed as G.R. No. L4179, and on May 30, 1951, We rendered decision affirming the order complained of, finding that the
Juan de Borja and sisters have complied with the requirement imposed in the Project of Partition
upon the tender of the document of cession of rights and quit-claim executed by Marcela de Borja,
the administratrix of the Estate of Quintin de Borja, and holding that the reasons advanced by the
administrator in opposing the execution of the order of delivery were trivial.
On August 27, 1951, the administrator filed his amended statement of accounts covering the period
from March 1, 1945, to July 31, 1949, which showed a cash balance of P36,660. An additional
statement of accounts filed on August 31, 1961 for the period of from August 1, 1949, to August 31,
1951, showed a cash balance of P5,851.17 and pending obligations in the amount of P6,165.03.
The heirs of Quintin de Borja again opposed the approval of the statements of accounts charging the
administrator with having failed to include the fruits which the estate should have accrued from 1941
to 1951 amounting to P479,429.70, but as the other heirs seemed satisfied with the accounts
presented by said administrator and as their group was only one of the 4 heirs of Intestate Estate,
they prayed that the administrator be held liable for only P119,932.42 which was 1/4 of the amount
alleged to have been omitted. On October 4, 1951, the administrator filed a reply to said opposition
containing a counterclaim for moral damages against all the heirs of Quintin de Borja in the sum of
P30,000 which was admitted by the Court over the objection of the heirs of Quintin de Borja that the
said pleading was filed out of time.
The oppositors, the heirs of Quintin de Borja, then filed their answer to the counterclaim denying the
charges therein, but later served interrogatories on the administrator relative to the averments of
said counterclaim. Upon receipt of the answer to said interrogatories specifying the acts upon which
the claim for moral damages was based, the oppositors filed an amended answer contending that
inasmuch as the acts, manifestations and pleadings referred to therein were admittedly committed
and prepared by their lawyer, Atty. Amador E. Gomez, same cannot be made the basis of a
counterclaim, said lawyer not being a party to the action, and furthermore, as the acts upon which
the claim for moral damages were based had been committed prior to the effectivity of the new Civil
Code, the provisions of said Code on moral damages could not be invoked. On January 15, 1952,
the administrator filed an amended counterclaim including the counsel for the oppositors as
defendant.
There followed a momentary respite in the proceedings until another judge was assigned to preside
over said court to dispose of the old case pending therein. On August 15, 1952, Judge Encarnacion
issued an order denying admission to administrator's amended counterclaim directed against the
lawyer, Atty. Amador E. Gomez, holding that a lawyer, not being a party to the action, cannot be
made answerable for counterclaims. Another order was also issued on the same date dismissing the
administrator's counterclaim for moral damages against the heirs of Quintin de Borja and their

counsel for the alleged defamatory acts, manifestation and utterances, and stating that granting the
same to be meritorious, yet it was a strictly private controversy between said heirs and the
administrator which would not in any way affect the interest of the Intestate, and, therefore, not
proper in an intestate proceedings. The Court stressed that to allow the ventilation of such personal
controversies would further delay the proceedings in the case which had already lagged for almost
30 years, a situation which the Court would not countenance.
Having disposed of these pending incidents which arose out of the principal issue, that is, the
disputed statement of accounts submitted by the administrator, the Court rendered judgment on
September 5, 1952, ordering the administrator to distribute the funds in his possession to the heirs
as follows: P1,395.90 to the heirs of Quintin de Borja; P314.99 to Francisco de Borja; P314.99 to the
Estate of Juliana de Borja and P314.99 to Miguel B. Dayco, but as the latter still owed the intestate
the sum of P900, said heirs was ordered to pay instead the 3 others the sum of P146.05 each. After
considering the testimonies of the witnesses presented by both parties and the available records on
hand, the Court found the administrator guilty of maladministration and sentenced Crisanto de Borja
to pay to the oppositors, the heirs of Quintin de Borja, the sum of P83,337.31, which was 1/4 of the
amount which the state lost, with legal interest from the date of the judgment. On the same day, the
Court also issued an order requiring the administrator to deliver to the Clerk of that Court PNB
Certificate of Deposit No. 211649 for P978.50 which was issued in the name of Quintin de Borja.
The administrator, Dr. Crisanto de Borja, gave notice to appeal from the lower Court's orders of
August 15, 1952, the decision of September 5, 1952, and the order of even date, but when the
Record on Appeal was finally approved, the Court ordered the exclusion of the appeal from the order
of September 5, 1952, requiring the administrator to deposit the PNB Certificate of Deposit No.
2114649 with the Clerk of Court, after the oppositors had shown that during the hearing of that
incident, the parties agreed to abide by whatever resolution the Court would make on the ownership
of the funds covered by that deposit.
The issues. Reducing the issues to bare essentials, the questions left for our determination are:
(1) whether the counsel for a party in a case may be included as a defendant in a counterclaim; (2)
whether a claim for moral damages may be entertained in a proceeding for the settlement of an
estate; (3) what may be considered as acts of maladministration and whether an administrator, as
the one in the case at bar, may be held accountable for any loss or damage that the estate under his
administration may incur by reason of his negligence, bad faith or acts of maladministration; and (4)
in the case at bar has the Intestate or any of the heirs suffered any loss or damage by reason of the
administrator's negligence, bad faith or maladministration? If so, what is the amount of such loss or
damage?
I. Section 1, Rule 10, of the Rules of Court defines a counterclaim as:
SECTION 1. Counterclaim Defined. A counterclaim is any claim, whether for money or
otherwise, which a party may have against the opposing party. A counterclaim need not
dismiss or defeat the recovery sought by the opposing party, but may claim relief exceeding
in amount or different in kind from that sought by the opposing party's claim.
It is an elementary rule of procedure that a counterclaim is a relief available to a party-defendant
against the adverse party which may or may not be independent from the main issue. There is no
controversy in the case at bar, that the acts, manifestations and actuations alleged to be defamatory
and upon which the counterclaim was based were done or prepared by counsel for oppositors; and
the administrator contends that as the very oppositors manifested that whatever civil liability arising
from acts, actuations, pleadings and manifestations attributable to their lawyer is enforceable against
said lawyer, the amended counterclaim was filed against the latter not in his individual or personal

capacity but as counsel for the oppositors. It is his stand, therefore, that the lower erred in denying
admission to said pleading. We differ from the view taken by the administrator. The appearance of a
lawyer as counsel for a party and his participation in a case as such counsel does not make him a
party to the action. The fact that he represents the interests of his client or that he acts in their behalf
will not hold him liable for or make him entitled to any award that the Court may adjudicate to the
parties, other than his professional fees. The principle that a counterclaim cannot be filed against
persons who are acting in representation of another such as trustees in their individual
capacities (Chambers vs. Cameron, 2 Fed. Rules Service, p. 155; 29 F. Supp. 742) could be applied
with more force and effect in the case of a counsel whose participation in the action is merely
confined to the preparation of the defense of his client. Appellant, however, asserted that he filed the
counterclaim against said lawyer not in his individual capacity but as counsel for the heirs of Quintin
de Borja. But as we have already stated that the existence of a lawyer-client relationship does not
make the former a party to the action, even this allegation of appellant will not alter the result We
have arrived at.
Granting that the lawyer really employed intemperate language in the course of the hearings or in
the preparation of the pleadings filed in connection with this case, the remedy against said counsel
would be to have him cited for contempt of court or take other administrative measures that may be
proper in the case, but certainly not a counterclaim for moral damages.
II. Special Proceedings No. 6414 of the Court of First Instance of Rizal (Pasig branch) was
instituted for the purpose of settling the Intestate Estate of Marcelo de Borja. In taking cognizance of
the case, the Court was clothed with a limited jurisdiction which cannot expand to collateral matters
not arising out of or in any way related to the settlement and adjudication of the properties of the
deceased, for it is a settled rule that the jurisdiction of a probate court is limited and special
(Guzman vs. Anog, 37 Phil. 361). Although there is a tendency now to relax this rule and extend the
jurisdiction of the probate court in respect to matters incidental and collateral to the exercise of its
recognized powers (14 Am. Jur. 251-252), this should be understood to comprehend only cases
related to those powers specifically allowed by the statutes. For it was even said that:
Probate proceedings are purely statutory and their functions limited to the control of the
property upon the death of its owner, and cannot extend to the adjudication of collateral
questions (Woesmes, The American Law of Administration, Vol. I, p. 514, 662-663).
It was in the acknowledgment of its limited jurisdiction that the lower court dismissed the
administrator's counterclaim for moral damages against the oppositors, particularly against Marcela
de Borja who allegedly uttered derogatory remarks intended to cast dishonor to said administrator
sometime in 1950 or 1951, his Honor's ground being that the court exercising limited jurisdiction
cannot entertain claims of this kind which should properly belong to a court general jurisdiction. From
what ever angle it may be looked at, a counterclaim for moral damages demanded by an
administrator against the heirs for alleged utterances, pleadings and actuations made in the course
of the proceeding, is an extraneous matter in a testate or intestate proceedings. The injection into
the action of incidental questions entirely foreign in probate proceedings should not be encouraged
for to do otherwise would run counter to the clear intention of the law, for it was held that:
The speedy settlement of the estate of deceased persons for the benefit of the creditors and
those entitled to the residue by way of inheritance or legacy after the debts and expenses of
administration have been paid, is the ruling spirit of our probate law (Magabanua vs. Akel, 72
Phil., 567, 40 Off Gaz., 1871).
III. and IV. This appeal arose from the opposition of the heirs of Quintin de Borja to the approval of
the statements of accounts rendered by the administrator of the Intestate Estate of Marcelo de Borja,

on the ground that certain fruits which should have been accrued to the estate were unaccounted
for, which charge the administrator denied. After a protracted and extensive hearing on the matter,
the Court, finding the administrator, Dr. Crisanto de Borja, guilty of certain acts of maladministration,
held him liable for the payment to the oppositors, the heirs of Quintin de Borja, of 1/4 of the
unreported income which the estate should have received. The evidence presented in the court
below bear out the following facts:
(a) The estate owns a 6-door building, Nos. 1541, 1543, 1545, 1547, 1549 and 1551 in Azcarraga
Street, Manila, situated in front of the Arranque market. Of this property, the administrator reported to
have received for the estate the following rentals:

Annual
Total
monthly
rentals
rental

Period of time

March to December, 1945

P3,085.00

P51.42

January to December, 1946

4,980.00

69.17

January to December, 1947

8,330.00

115.70

January to December, 1948

9,000.00

125.00

January to December, 1949

8,840.00

122.77

January to December, 1950

6,060.00

184.16

Total

P40,295.00

The oppositors, in disputing this record income, presented at the witness stand Lauro Aguila, a
lawyer who occupied the basement of Door No. 1541 and the whole of Door No. 1543 from 1945 to
November 15, 1949, and who testified that he paid rentals on said apartments as follows:
1945
Door No. 1541 (basement)
Door No. 1543
February

P20.00

March

20.00 For 7 months at

P300

April

60.00 a month

May-December

Total

P2,100.0
0

800.00

P900.00
1946

January-December P1,200.00 January-December

P4,080.0
0

1947
January

P100.00 January

P380.00

February

100.00 February

380.00

March

180.00 March 1-15

190.00

April-December

1,140.00 March 16December

P1,820.00

4,085.00

P5,035.0
0

1948
January-December P1,920.00 January-December

P5,150.0
0

1949
January-November P1,680.00 January-December

P4,315.0

15

From the testimony of said witness, it appears that from 1945 to November 15,1949, he paid a total
of P28,200 for the lease of Door No. 1543 and the basement of Door No. 1541. These figures were
not controverted or disputed by the administrator but claim that said tenant subleased the
apartments occupied by Pedro Enriquez and Soledad Sodora and paid the said rentals, not to the
administrator, but to said Enriquez. The transcript of the testimony of this witness really bolster this
contention that Lauro Aguila talked with said Pedro Enriquez when he leased the aforementioned
apartments and admitted paying the rentals to the latter and not to the administrator. It is interesting
to note that Pedro Enriquez is the same person who appeared to be the administrator's collector,
duly authorized to receive the rentals from this Azcarraga property and for which services, said
Enriquez received 5 per cent of the amount he might be able to collect as commission. If we are to
believe appellant's contention, aside from the commission that Pedro Enriquez received he also
sublet the apartments he was occupying at a very much higher rate than that he actually paid the
estate without the knowledge of the administrator or with his approval. As the administrator also
seemed to possess that peculiar habit of giving little importance to bookkeeping methods, for he
never kept a ledger or book of entry for amounts received for the estate, We find no record of the
rentals the lessees of the other doors were paying. It was, however, brought about at the hearing
that the 6 doors of this building are of the same sizes and construction and the lower Court based its
computation of the amount this property should have earned for the estate on the rental paid by Atty.
Aguila for the 1 1/2 doors that he occupied. We see no excuse why the administrator could not have
taken cognizance of these rates and received the same for the benefit of the estate he was
administering, considering the fact that he used to make trips to Manila usually once a month and for
which he charged to the estate P8 as transportation expenses for every trip.
Basing on the rentals paid by Atty. Aguila for 1 1/2 doors, the estate received P112,800 from
February 1, 1945, to November 15, 1949, for the 6 doors, but the lower Court held him accountable
not only for the sum of P34,235 reported for the period ranging from March 1, 1945, to December
31, 1949, but also for a deficit of P90,525 or a total of P124,760. The record shows, however that the
upper floor of Door No. 1549 was vacant in September, 1949, and as Atty. Aguila used to pay P390 a
month for the use of an entire apartment from September to November, 1949, and he also paid P160
for the use of the basement of an apartment (Door No. 1541), the use, therefore, of said upper floor
would cost P230 which should be deducted, even if the computation of the lower Court would have
to be followed.
There being no proper evidence to show that the administrator collected more rentals than those
reported by him, except in the instance already mentioned, We are reluctant to bold him accountable
in the amount for which he was held liable by the lower Court, and We think that under the
circumstances it would be more just to add to the sum reported by the administrator as received by
him as rents for 1945-1949 only, the difference between the sum reported as paid by Atty. Aguila and
the sum actually paid by the latter as rents of 1 1/2 of the apartments during the said period, or
P25,457.09 1/4 of which is P6,364.27 which shall be paid to the oppositors.
The record also shows that in July, 1950, the administrator delivered to the other heirs Doors Nos.
1545, 1547, 1549 and 1551 although Doors Nos. 1541 and 1543 adjudicated to the oppositors
remained under his administration. For the period from January to June, 1950, that the entire
property was still administered by him, the administrator reported to have received for the 2
oppositors' apartments for said period of six months at P168.33 a month, the sum of P1,010 which
belongs to the oppositors and should be taken from the amount reported by the administrator.

The lower Court computed at P40 a month the pre-war rental admittedly received for every
apartment, the income that said property would have earned from 1941 to 1944, or a total of
P11,520, but as We have to exclude the period covered by the Japanese occupation, the estate
should receive only P2,880 1/4 of which P720 the administrator should pay to the oppositors for the
year 1941.
(b) The Intestate estate also owned a parcel of land in Mayapyap, Nueva Ecija, with an area of 71
hectares, 95 ares and 4 centares, acquired by Quintin de Borja the spouses Cornelio Sarangaya and
Feliciana Mariano in Civil Case NO. 6190 of the Court of First Instance of said province, In virtue of
the agreement entered into by the heirs, this property was turned over by the estate of Quintin de
Borja to the intestate and formed part of the general mass of said estate. The report of the
administrator failed to disclose any return from this property alleging that he had not taken
possession of the same. He does not deny however that he knew of the existence of this land but
claimed that when he demanded the delivery of the Certificate of Title covering this property, Rogelio
Limaco, then administrator of the estate of Quintin de Borja, refused to surrender the same and he
did not take any further action to recover the same.
To counteract the insinuation that the Estate of Quintin de Borja was in possession of this property
from 1940 to 1950, the oppositors presented several witnesses, among them was an old man,
Narciso Punzal, who testified that he knew both Quintin and Francisco de Borja; that before the war
or sometime in 1937, the former administrator of the Intestate, Quintin de Borja, offered him the
position of overseer (encargado) of this land but he was notable to assume the same due to the
death of said administrator; that on July 7, 1951, herein appellant invited him to go to his house in
Pateros, Rizal, and while in said house, he was instructed by appellant to testify in court next day
that he was the overseer of the Mayapyap property for Quintin de Borja from 1937-1944, delivering
the yearly proceeds of 1,000 cavanes of Palay to Rogelio Limaco; that he did not need to be afraid
because both Quintin de Borja and Rogelio Limaco were already dead. But as he knew that the facts
on which he was to testify were false, he went instead to the house of one of the daughters of
Quintin de Borja, who, together with her brother, Atty. Juan de Borja, accompanied him to the house
of the counsel for said oppositors before whom his sworn declaration was taken (Exh. 3).
Other witnesses, i.e., Isidro Benuya, Federico Cojo, Emilio de la Cruz and Ernesto Mangulabnan,
testified that they were some of the tenants of the Mayapyap property; that they were paying their
shares to the overseers of Francisco de Borja and sometimes to his wife, which the administrator
was not able to contradict, and the lower Court found no reason why the administrator would fail to
take possession of this property considering that this was even the subject of the agreement of
February 16, 1940, executed by the heirs of the Intestate.
The lower Court, giving due credence to the testimonies of the witnesses for the oppositors,
computed the loss the estate suffered in the form of unreported income from the rice lands for 10
years at P67,000 (6,700 a year)and the amount of P4,000 from the remaining portion of the land not
devoted to rice cultivation which was being leased at P20 per hectare. Consequently, the Court held
the administrator liable to appellees in the sum of P17,750 which is 1/4 of the total amount which
should have accrued to the estate for this item.
But if We exclude the 3 years of occupation, the income for 7 years would be P46,900 for the
ricelands and P2,800 (at P400 a year) for the remaining portion not developed to rice cultivation or a
total of P48,700, 1/4 of which is P12,175 which We hold the administrator liable to the oppositors.
(c) The Hacienda Jalajala located in said town of Rizal, was divided into 3 parts: the Punta section
belonged to Marcelo de Borja, the Bagombong pertained to Bernardo de Borja and Francisco de
Borja got the Jalajala proper. For the purpose of this case, we will just deal with that part called

Junta. This property has an area of 1,345, hectares, 29 ares and 2 centares (Exh. 36) of which,
according to the surveyor who measured the same, 200 hectares were of cultivated rice fields and
100 hectares dedicated to the planting of upland rice. It has also timberland and forest which
produce considerable amount of trees and firewoods. From the said property which has an assessed
value of P115,000 and for which the estates pay real estate tax of P1,500 annually, the administrator
reported the following:

Year

Income

Expenditure
(not including
administration's
fees

1945...........

P625.00

P1,310.42

1946.............

1,800.00

3,471.00

1947.............

2,550.00

2,912.91

1948.............

1,828.00

3,311.88

1949.............

3,204.50

4,792.09

1950.............

2,082.00

2,940.91

P12,089.50

P18,739.21

This statement was assailed by the oppositors and to substantiate their charge that the administrator
did not file the true income of the property, they presented several witnesses who testified that there
were about 200 tenants working therein; that these tenants paid to Crisanto de Borja rentals at the
rate of 6 cavanes of palay per hectare; that in the years of 1943 and 1944, the Japanese were the
ones who collected their rentals, and that the estate could have received no less than 1,000 cavanes
of palay yearly. After the administrator had presented witnesses to refute the facts previously
testified to by the witnesses for the oppositors, the Court held that the report of the administrator did
not contain the real income of the property devoted to rice cultivation, which was fixed at 1,000
cavanes every year for 1941, 1942, 1945, 1946, 1947, 1948, 1949 and 1950, or a total of 8,000
cavanes valued at P73,000. But as the administrator accounted for the sum of P11,155 collected
from rice harvests and if to this amount we add the sum of P8,739.20 for expenses, this will make a
total of P19,894.20, thus leaving a deficit of P53,105.80, of which will be P13,276.45 which the
administrator is held liable to pay the heirs of Quintin de Borja.

It was also proved during the hearing that the forest land of this property yields considerable amount
of marketable firewoods. Taking into consideration the testimonies of witnesses for both parties, the
Court arrived at the conclusion that the administrator sold to Gregorio Santos firewoods worth P600
in 1941, P3,500 in 1945 and P4,200 in 1946 or a total of P8,300. As the report included only the
amount of P625, there was a balance of P7,675 in favor of the estate. The oppositors were not able
to present any proof of sales made after these years, if there were any and the administrator was
held accountable to the oppositors for only P1,918.75.
(d) The estate also, owned ricefields in Cainta, Rizal, with a total area of 22 hectares, 76 ares and 66
centares. Of this particular item, the administrator reported an income of P12,104 from 1945 to 1951.
The oppositors protested against this report and presented witnesses to disprove the same.
Basilio Javier worked as a tenant in the land of Juliana de Borja which is near the land belonging to
the Intestate, the 2 properties being separated only by a river. As tenant of Juliana de Borja, he knew
the tenants working on the property and also knows that both lands are of the same class, and that
an area accommodating one cavan of seedlings yields at most 100 cavanes and 60 cavanes at the
least. The administrator failed to overcome this testimony. The lower Court considering the facts
testified to by this witness made a finding that the property belonging to this Intestate was actually
occupied by several persons accommodating 13 cavanes of seedlings; that as for every cavan of
seedlings, the land produces 60 cavanes of palay, the whole area under cultivation would have
yielded 810 cavanes a year and under the 50-50 sharing system (which was testified by witness
Javier), the estate would have received no less than 405 cavanes every year. Now, for the period of
7 years from 1941 to 1950, excluding the 3 years of war the corresponding earning of the
estate should be 2,835 cavanes, out of which the 405 cavanes from the harvest of 1941 is valued at
P1,215 and the rest 2,430 cavanes at P10 is valued at P24,300, or all in all P25,515. If from this
amount the reported income of P12,104 is deducted, there will be a balance of P13,411.10 1/4 of
which or P3,352.75 the administrator is held liable to pay to the oppositors.
(e) The records show that the administrator paid surcharges and penalties with a total of P988.75 for
his failure to pay on time the taxes imposed on the properties under his administration. He advanced
the reason that he lagged in the payment of those tax obligations because of lack of cash balance
for the estate. The oppositors, however, presented evidence that on October 29, 1939, the
administrator received from Juliana de Borja the sum of P20,475.17 together with certain papers
pertaining to the intestate (Exh. 4),aside from the checks in the name of Quintin de Borja. Likewise,
for his failure to pay the taxes on the building at Azcarraga for 1947, 1948 and 1949, said property
was sold at public auction and the administrator had to redeem the same at P3,295.48, although the
amount that should have been paid was only P2,917.26. The estate therefore suffered a loss
of P378.22. Attributing these surcharges and penalties to the negligence of the administrator, the
lower Court adjudged him liable to pay the oppositors of P1,366.97, the total loss suffered by the
Intestate, or P341.74.
(f) Sometime in 1942, a big fire razed numerous houses in Pateros, Rizal, including that of Dr.
Crisanto de Borja. Thereafter, he claimed that among the properties burned therein was his safe
containing P15,000 belonging to the estate under his administration. The administrator contended
that this loss was already proved to the satisfaction of the Court who, approved the same by order of
January 8, 1943, purportedly issued by Judge Servillano Platon(Exh. B). The oppositors contested
the genuineness of this order and presented on April 21, 1950, an expert witness who conducted
several tests to determine the probable age of the questioned document, and arrived at the
conclusion that the questioned ink writing "(Fdo)" appearing at the bottom of Exhibit B cannot be
more than 4 years old (Exh. 39). However, another expert witness presented by the administrator
contradicted this finding and testified that this conclusion arrived at by expert witness Mr. Pedro
Manzaares was not supported by authorities and was merely the result of his own theory, as there

was no method yet discovered that would determine the age of a document, for every document has
its own reaction to different chemicals used in the tests. There is, however, another fact that called
the attention of the lower Court: the administrator testified that the money and other papers delivered
by Juliana de Borja to him on October 29, 1939, were saved from said fire. The administrator
justified the existence of these valuables by asserting that these properties were locked by Juliana
de Borja in her drawer in the "casa solariega" in Pateros and hence was not in his safe when his
house, together with the safe, was burned. This line of reasoning is really subject to doubt and the
lower Court opined, that it runs counter to the ordinary course of human behaviour for an
administrator to leave in the drawer of the "aparador" of Juliana de Borja the money and other
documents belonging to the estate under his administration, which delivery has receipted for, rather
than to keep it in his safe together with the alleged P15,000 also belonging to the Intestate. The
subsequent orders of Judge Platon also put the defense of appellant to bad light, for on February 6,
1943, the Court required Crisanto de Borja to appear before the Court of examination of the other
heirs in connection with the reported loss, and on March 1, 1943, authorized the lawyers for the
other parties to inspect the safe allegedly burned (Exh. 35). It is inconceivable that Judge Platon
would still order the inspection of the safe if there was really an order approving the loss of those
P15,000. We must not forget, in this connection, that the records of this case were burned and that
at the time of the hearing of this incident in 1951, Judge Platon was already dead. The lower Court
also found no reason why the administrator should keep in his such amount of money, for ordinary
prudence would dictate that as an administration funds that come into his possession in a fiduciary
capacity should not be mingled with his personal funds and should have been deposited in the Bank
in the name of the intestate. The administrator was held responsible for this loss and ordered to pay
thereof, or the sum of P3,750.
(g) Unauthorized expenditures
1. The report of the administrator contained certain sums amounting to P2,130 paid to and receipted
by Juanita V. Jarencio the administrator's wife, as his private secretary. In explaining this item, the
administrator alleged that he needed her services to keep receipts and records for him, and that he
did not secure first the authorization from the court before making these disbursements because it
was merely a pure administrative function.
The keeping of receipts and retaining in his custody records connected with the management of the
properties under administration is a duty that properly belongs to the administrator, necessary to
support the statement of accounts that he is obliged to submit to the court for approval. If ever his
wife took charge of the safekeeping of these receipts and for which she should be compensated, the
same should be taken from his fee. This disbursement was disallowed by the Court for being
unauthorized and the administrator required to pay the oppositors , thereof or P532.50.
2. The salaries of Pedro Enriquez, as collector of the Azcarraga property; of Briccio Matienzo and
Leoncio Perez, as encargados, and of Vicente Panganiban and Herminigildo Macetas as forestguards were found justified, although un authorized, as they appear to be reasonable and necessary
for the care and preservation of the Intestate.
3. The lower Court disallowed as unjustified and unnecessary the expenses for salaries paid to
special policemen amounting to P1,509. Appellant contended that he sought for the services of
Macario Kamungol and others to act as special policemen during harvest time because most of the
workers tilting the Punta property were not natives of Jalajala but of the neighboring towns and they
were likely to run away with the harvest without giving the share of the estate if they were not
policed. This kind of reasoning did not appear to be convincing to the trial judge as the cause for
such fear seemed to exist only in the imagination. Granting that such kind of situation existed, the
proper thing for the administrator to do would have been to secure the previous authorization from

the Court if he failed to secure the help of the local police. He should be held liable for this
unauthorized expenditure and pay the heirs of Quintin de Borja thereof or P377.25.
4. From the year 1942 when his house was burned, the administrator and his family took shelter at
the house belonging to the Intestate known as "casa solariega" which, in the Project of Partition was
adjudicated to his father, Francisco de Borja. This property, however, remained under his
administration and for its repairs he spent from 1945-1950, P1465,14, duly receipted.
None of these repairs appear to be extraordinary for the receipts were for nipa, for carpenters and
thatchers. Although it is true that Rule 85, section 2 provides that:
SEC. 2. EXECUTOR OR ADMINISTRATOR TO KEEP BUILDINGS IN REPAIR. An
executor or administrator shall maintain in tenant able repair the houses and other structures
and fences belonging to the estate, and deliver the same in such repair to the heirs or
devisees when directed so to do by the court.
yet considering that during his occupancy of the said "casa solariega" he was not paying any rental
at all, it is but reasonable that he should take care of the expenses for the ordinary repair of said
house. Appellant asserted that had he and his family not occupied the same, they would have to pay
someone to watch and take care of said house. But this will not excuse him from this responsibility
for the disbursements he made in connection with the aforementioned repairs because even if he
stayed in another house, he would have had to pay rentals or else take charge also of expenses for
the repairs of his residence. The administrator should be held liable to the oppositors in the amount
of P366.28.
5. Appellant reported to have incurred expenses amounting to P6,304.75 for alleged repairs on the
rice mill in Pateros, also belonging to the Intestate. Of the disbursements made therein, the items
corresponding, to Exhibits I, I-1, I-21, L-26, L-15, L-64 and L-65, in the total sum of P570.70 were
rejected by the lower court on the ground that they were all unsigned although some were dated.
The lower Court, however, made an oversight in including the sum of P150 covered by Exhibit L-26
which was duly signed by Claudio Reyes because this does not refer to the repair of the rice-mill but
for the roofing of the house and another building and shall be allowed. Consequently, the sum of
P570.70 shall be reduced to P420.70 which added to the sum of P3,059 representing expenditures
rejected as unauthorized to wit:

Exhibit L-59 .............

P500.00

Yek Wing

Exhibit L-60 .............

616.00

Yek Wing

Exhibit L-61 .............

600.00

Yek Wing

Exhibit L-62 .............

840.00

Yek Wing

Exhibit L-63 .............

180.00

Yek Wing

Exhibit Q-2 .............

Total ......................

scale
323.00 "Howe"

P3,059.0
0

will give a total of P3,479 1/4 of which is P869.92 that belongs to the oppositors.
6. On the expenses for planting in the Cainta ricefields: In his statement of accounts, appellant
reported to have incurred a total expense of P5,977 for the planting of the ricefields in Cainta, Rizal,
from the agricultural year 1945-46 to 1950-51. It was proved that the prevailing sharing system in
this part of the country was on 50-50 basis. Appellant admitted that expenses for planting were
advanced by the estate and liquidated after each harvest. But the report, except for the agricultural
year 1950 contained nothing of the payments that the tenants should have made. If the total
expenses for said planting amounted to P5,977, thereof or P2,988.50 should have been paid by
the tenants as their share of such expenditures, and as P965 was reported by the administrator as
paid back in 1950, there still remains a balance of P2,023.50 unaccounted for. For this shortage, the
administrator is responsible and should pay the oppositors thereof or P505.87.
7. On the transportation expenses of the administrator: It appears that from the year 1945 to
1951, the administrator charged the estate with a total of P5,170 for transportation expenses. The un
receipted disbursements were correspondingly itemized, a typical example of which is as follows:
1950
Gastos de viaje del administrador From
Pateros
To Pasig ................

50 x P4.00 =

P200.00

To Manila ...............

50 x
P10.00 =

P500.00

To Cainta ................

8 x P8.00 =

P64.00

To Jalajala ............... 5 x P35.00 =

P175.00

P399.00

(Exhibit W-54).
From the report of the administrator, We are being made to believe that the Intestate estate is a
losing proposition and assuming arguendo that this is true, that precarious financial condition which
he, as administrator, should know, did not deter Crisanto de Borja from charging to the depleted
funds of the estate comparatively big amounts for his transportation expenses. Appellant tried to
justify these charges by contending that he used his own car in making those trips to Manila, Pasig
and Cainta and a launch in visiting the properties in Jalajala, and they were for the gasoline
consumed. This rather unreasonable spending of the estate's fund prompted the Court to observe
that one will have to spend only P0.40 for transportation in making a trip from Pateros to Manila and
practically the same amount in going to Pasig. From his report for 1949 alone, appellant made a total
of 97 trips to these places or an average of one trip for every 3 1/2 days. Yet We must not forget that
it was during this period that the administrator failed or refused to take cognizance of the prevailing
rentals of commercial places in Manila that caused certain loss to the estate and for which he was
accordingly held responsible. For the reason that the alleged disbursements made for transportation
expenses cannot be said to be economical, the lower Court held that the administrator should be
held liable to the oppositors for thereof or the sum of P1,292.50, though We think that this sum
should still be reduced to P500.
8. Other expenses:
The administrator also ordered 40 booklets of printed contracts of lease in the name of the Hacienda
Jalajala which cost P150. As the said hacienda was divided into 3 parts one belonging to this
Intestate and the other two parts to Francisco de Boria and Bernardo de Borja, ordinarily the
Intestate should only shoulder /3 of the said expense, but as the tenants who testified

during the hearing of the matter testified that those printed forms were not
being used, the Court adjudged the administrator personally responsible for
this amount. The records reveal, that this printed form was not utilized
because the tenants refused to sign any, and We can presume that when the
administrator ordered for the printing of the same, he did not foresee this
situation. As there is no showing that said printed contracts were used by
another and that they are still in the possession of the administrator which
could be utilized anytime, this disbursement may be allowed.
The report also contains a receipt of payment made to Mr. Severo Abellera in the sum of P375 for
his transportation expenses as one of the two commissioners who prepared the Project of Partition.
The oppositors were able to prove that on May 24, 1941, the Court authorized the administrator to
withdraw from the funds of the intestate the sum of P300 to defray the transportation expenses of
the commissioners. The administrator, however, alleged that he used this amount for the payment of
certain fees necessary in connection with the approval of the proposed plan of the Azcarraga
property which was then being processed in the City Engineer's Office. From that testimony, it would
seem that appellant could even go to the extent of disobeying the order of the Court specifying for
what purpose that amount should be appropriated and took upon himself the task of judging for what
it will serve best. Since he was not able to show or prove that the money intended and ordered by
the Court to be paid for the transportation expenses of the commissioners was spent for the benefit

of the estate as claimed, the administrator should be held responsible therefor and pay to the
oppositors of P375 or the sum of P93.75.
The records reveal that for the service of summons to the defendants in Civil Case No. 84 of the
Court of First Instance of Rizal, P104 was paid to the Provincial Sheriff of the same province (Exhibit
H-7). However, an item for P40 appeared to have been paid to the Chief of Police on Jalajala
allegedly for the service of the same summons. Appellant claimed that as the defendants in said civil
case lived in remote barrios, the services of the Chief of Police as delegate or agent of the Provincial
Sheriff were necessary. He forgot probably the fact that the local chiefs of police are deputy
sheriffs ex-officio. The administrator was therefore ordered by the lower Court to pay of said
amount or P10 to the oppositors.
The administrator included in his Report the sum of P550 paid to Atty. Filamor for his professional
services rendered for the defense of the administrator in G.R. No. L-4179, which was decided
against him, with costs. The lower Court disallowed this disbursement on the ground that this Court
provided that the costs of that litigation should not be borne by the estate but by the administrator
himself, personally.
Costs of a litigation in the Supreme Court taxed by the Clerk of Court, after a verified petition has
been filed by the prevailing party, shall be awarded to said party and will only include his fee and that
of his attorney for their appearance which shall not be more than P40; expenses for the printing and
the copies of the record on appeal; all lawful charges imposed by the Clerk of Court; fees for the
taking of depositions and other expenses connected with the appearance of witnesses or for lawful
fees of a commissioner (De la Cruz, Philippine Supreme Court Practice, p. 70-71). If the costs
provided for in that case, which this Court ordered to be chargeable personally against the
administrator are not recoverable by the latter, with more reason this item could not be charged
against the Intestate. Consequently, the administrator should pay the oppositors of the sum of
P550 or P137.50.
(e) The lower Court in its decision required appellant to pay the oppositors the sum of P1,395 out of
the funds still in the possession of the administrator.
In the statement of accounts submitted by the administrator, there appeared a cash balance of
P5,851.17 as of August 31, 1961. From this amount, the sum of P1,002.96 representing the
Certificate of Deposit No. 21619 and Check No. 57338, both of the Philippine National Bank and in
the name of Quintin de Borja, was deducted leaving a balance of P4,848. As Judge Zulueta ordered
the delivery to the oppositors of the amount of P1,890 in his order of October 8, 1951; the delivery of
the amount of P810 to the estate of Juliana de Borja in his order of October 23, 1951, and the sum
of P932.32 to the same estate of Juliana de Borja by order of the Court of February 29, 1952, or a
total of P3,632.32 after deducting the same from the cash in the possession of the administrator,
there will only be a remainder of P134.98.
The Intestate is also the creditor of Miguel B. Dayco, heir and administrator of the estate of Crisanta
de Borja, in the sum of P900 (Exhibits S and S-1). Adding this credit to the actual cash on hand,
there will be a total of P1,034.98, , of which or P258.74 properly belongs to the oppositors.
However, as there is only a residue of P134.98 in the hands of the administrator and dividing it
among the 3 groups of heirs who are not indebted to the Intestate, each group will receive P44.99,
and Miguel B. Dayco is under obligation to reimburse P213.76 to each of them.
The lower Court ordered the administrator to deliver to the oppositors the amount of P1,395.90 and
P314.99 each to Francisco de Borja and the estate of Juliana de Borja, but as We have arrived at
the computation that the three heirs not idebted to the Intestate ought to receive P44.99 each out of

the amount of P134.98, the oppositors are entitled to the sum of P1,080.91 the amount deducted
from them as taxes but which the Court ordered to be returned to them plus P44.99 or a total of
P1,125.90. It appearing however, that ina Joint Motion dated November 27, 1952, duly approved by
the Court, the parties agreed to fix the amount at P1,125.58, as the amount due and said heirs have
already received this amount in satisfaction of this item, no other sum can be chargeable against the
administrator.
(f) The probate Court also ordered the administrator to render an accounting of his administration
during the Japanese occupation on the ground that although appellant maintained that whatever
money he received during that period is worthless, same having been declared without any value,
yet during the early years of the war, or during 1942-43, the Philippine peso was still in circulation,
and articles of prime necessity as rice and firewood commanded high prices and were paid with
jewels or other valuables.
But We must not forget that in his order of December 11, 1945, Judge Pea required the
administrator to render an accounting of his administration only from March 1, 1945, to December of
the same year without ordering said administrator to include therein the occupation period. Although
the Court below mentioned the condition then prevailing during the war-years, We cannot simply
presume, in the absence of proof to that effect, that the administrator received such valuables or
properties for the use or in exchange of any asset or produce of the Intestate, and in view of the
aforementioned order of Judge Pea, which We find no reason to disturb, We see no practical
reason for requiring appellant to account for those occupation years when everything was affected
by the abnormal conditions created by the war. The records of the Philippine National Bank show
that there was a current account jointly in the names of Crisanto de Borja and Juanita V. Jarencio,
his wife, with a balance of P36,750.35 in Japanese military notes and admittedly belonging to the
Intestate and We do not believe that the oppositors or any of the heirs would be interested in an
accounting for the purpose of dividing or distributing this deposit.
(g) On the sum of P13,294 for administrator's fees:
It is not disputed that the administrator set aside for himself and collected from the estate the sum of
P13,294 as his fees from 1945 to 1951 at the rate of P2,400 a year. There is no controversy as to
the fact that this appropriated amount was taken without the order or previous approval by the
probate Court. Neither is there any doubt that the administration of the Intestate estate by Crisanto
de Borja is far from satisfactory.
Yet it is a fact that Crisanto de Borja exercised the functions of an administrator and is entitled also
to a certain amount as compensation for the work and services he has rendered as such. Now,
considering the extent and size of the estate, the amount involved and the nature of the properties
under administration, the amount collected by the administrator for his compensation at P200 a
month is not unreasonable and should therefore be allowed.
It might be argued against this disbursement that the records are replete with instances of highly
irregular practices of the administrator, such as the pretended ignorance of the necessity of a book
or ledger or at least a list of chronological and dated entries of money or produce the Intestate
acquired and the amount of disbursements made for the same properties; that admittedly he did not
have even a list of the names of the lessees to the properties under his administration, nor even a
list of those who owed back rentals, and although We certainly agree with the probate Court in
finding appellant guilty of acts of maladministration, specifically in mixing the funds of the estate
under his administration with his personal funds instead of keeping a current account for the
Intestate in his capacity as administrator, We are of the opinion that despite these irregular practices
for which he was held already liable and made in some instances to reimburse the Intestate for

amounts that were not properly accounted for, his claim for compensation as administrator's fees
shall be as they are hereby allowed.
Recapitulation. Taking all the matters threshed herein together, the administrator is held liable to
pay to the heirs of Quintin de Borja the following:
Under Paragraphs III and IV:

(a) ....................................................... P7,084.

........................
27

(b) .......................................................
........................

12,175.
00

(c) ....................................................... 16,113.9

........................
5

(d) .......................................................
........................

3,352.7
5

(e) .......................................................
........................

341.74

(f) ........................................................
........................

3,750.0
0

(g)
1 ..........................................................
...........

532.50

377.25
2 ..........................................................
...........

366.28
3 ..........................................................
...........

869.92
4 ..........................................................
...........

505.87
5 ..........................................................
...........

500.00
6 ..........................................................
...........

7-a

93.75
b ..........................................................
........

10.00
c ..........................................................
........

d ..........................................................
.........

137.50

P46,210
.00

In view of the foregoing, the decision appealed from is modified by reducing the amount that the
administrator was sentenced to pay the oppositors to the sum of P46,210.78 (instead of
P83,337.31), plus legal interests on this amount from the date of the decision appealed from, which
is hereby affirmed in all other respects. Without pronouncement as to costs. It is so ordered.
Paras, C.J., Bengzon, Montemayor, Reyes, A., Bautista Angelo, Labrador and Endencia, JJ., concur.

THIRD DIVISION

[G.R. No. 125766. October 19, 1998]

FELICIDAD L. ORONCE and ROSITA L. FLAMINIANO, petitioners, vs.

HON. COURT OF APPEALS and PRICILIANO B. GONZALES
DEVELOPMENT CORPORATION, respondents.
DECISION
ROMERO, J.:

The issue of whether or not a Metropolitan or Municipal Trial Court may resolve the issue of
ownership of the property involved in an unlawful detainer case has been discussed by this Court
in a number of cases, the more recent of which is that of Hilario v. Court of Appeals.
[1]
Jurisprudence on the matter has in fact been reflected in the 1997 Rules of Civil Procedure
under Rule 70, to wit:

SEC. 16. Resolving defense of ownership. When the defendant raises the defense of
ownership in his pleadings and the question of possession cannot be resolved without
deciding the issue of ownership, the issue of ownership shall be resolved only to
determine the issue of possession. (4a)
These developments in the law notwithstanding, there remains some misconceptions on the issue
of jurisdiction of inferior courts in ejectment cases where ownership is raised as a defense that
the Court deems proper to clarify in this petition.
Private respondent Priciliano B. Gonzales Development Corporation was the registered
owner of a parcel of land with an area of 2,000 square meters. The land with improvements,
covered by Transfer Certificate of Title No. RT-54556 (383917), is situated at No. 52 Gilmore
Street, New Manila, Quezon City.
In June 1988, private respondent obtained a four million peso - (P4,000,000.00) loan from
the China Banking Corporation. To guarantee payment of the loan, private respondent mortgaged
the Gilmore property and all its improvements to said bank. Due to irregular payment of
amortization, interests and penalties on the loan accumulated through the years.
On April 13, 1992, private respondent, through its president, Antonio B. Gonzales, signed
and executed a Deed of Sale with Assumption of Mortgage covering the Gilmore property and its
improvements, in favor of petitioners Rosita Flaminiano and Felicidad L. Oronce. [2] The deed,
which states that the sale was in consideration of the sum of P5,400,000.00,[3] provided inter
alia that

x x x the VENDOR (PBGDC) also guarantees the right of the VENDEES (petitioners)
to the possession of the property subject of this contract without the need of judicial
action; and possession of said premises shall be delivered to the VENDEES by the
VENDOR at the expiration of one (1) year from the date of the signing and execution
of this Deed of Sale with Assumption of Mortgage.
On the other hand, petitioners bound themselves to pay private respondents indebtedness with
China Banking Corporation.
In fulfillment of the terms and conditions embodied in the Deed of Sale with Assumption of
Mortgage, petitioners paid private respondents indebtedness with the bank. However, private
respondent reneged on its obligation to deliver possession of the premises to petitioners upon the
expiration of the one-year period from April 13, 1992. Almost six months later since the
execution of the instrument or on October 2, 1992, petitioners caused the registration of the Deed
of Sale with Assumption of Mortgage with the Register of Deeds. Simultaneously, they obtained
a new title, TCT No. 67990, consistent with the fact that they are the new owners of the property.
[4]
Sometime in July 1993, they paid the real estate taxes on the property for which they were
issued Tax Declarations Nos. C-061-02815 and C-061-02816.[5]
On November 12, 1993, petitioners sent private respondent a demand letter asking it to
vacate the premises. Said letter, just like three other consecutive notices sent through the Quezon
City post office, was unclaimed. Hence, on April 11, 1994, petitioners filed before the
Metropolitan Trial Court of Quezon City, a complaint for unlawful detainer against private
respondent. The complaint, docketed as Civil Case No. 8638 was raffled to Branch
41. Petitioners alleged that by virtue of the Deed of Sale with Assumption of Mortgage, they
acquired from private respondent the Gilmore property and its improvements, for which reason
they were issued TCT No. 67990. However, they added, in violation of the terms of that
document, specifically Sec. 3 (c) thereof, private respondent refused to surrender possession of
the premises. Consequently, they demanded that private respondent vacate the premises through
notices sent by registered mail that were, however, returned to them unclaimed.
In its answer to the complaint, private respondent raised the issue of ownership over the
property. It impugned petitioners right to eject, alleging that petitioners had no cause of action
against it because it was merely a mortgagee of the property. It argued that when the parties
executed the Deed of Sale with Assumption of Mortgage, its real intention was to forge an
equitable mortgage and not a sale. It pointed out three circumstances indicative of an equitable
mortgage, namely: inadequacy of the purchase price, continued possession by private respondent
of the premises, and petitioners retention of a portion of the purchase price.
During the preliminary conference on the case, the parties agreed to stipulate on the
following: (a) the existence and due execution of the Deed of Sale with Assumption of Mortgage,
and (b) the issue of whether or not the premises in litis are being unlawfully detained by private
respondent.[6]

On March 24, 1995, the MTC[7] decided the case in favor of petitioners. It ruled that
petitioners are the owners of the Gilmore property on account of the following pieces of
evidence: (a) TCT No. 67990; (b) petitioners payment to the China Banking Corporation
of P8,500,000.00, the amount of the mortgage entered into between private respondent and said
bank; (c) payment of real estate taxes for 1993, and (d) Tax Declaration No. 02816 in petitioners
names. The MTC further held that private respondents possession of the premises was merely
tolerated by petitioners and because it refused to vacate the premises despite demand to do so,
then its possession of the same premises had become illegal. Thus, the MTC decreed as follows:

WHEREFORE, premises considered, judgment is hereby rendered ordering defendant

and all persons claiming rights under it to vacate the premises-in-litis located at No.
52 Gilmore St., New Manila, Quezon City, and to peacefully surrender possession
thereof to the plaintiffs; to pay plaintiffs the sum of P20,000.00 a month as
compensation for the unjust occupation of the same from April 11, 1994 (the date of
filing of this case) until defendant fully vacates the said premises; to pay plaintiffs the
amount of P20,000.00 as and for attorneys fees plus costs of suit.
Counterclaim is dismissed for lack of merit.
SO ORDERED.[8]
On April 25, 1995, private respondent interposed an appeal to the Regional Trial Court,
Branch 219, of Quezon City that docketed it as Civil Case No. Q-95-23697. Private respondent
stressed in its appeal that it was not unlawfully withholding possession of the premises from
petitioners because the latters basis for evicting it was the Deed of Sale with Assumption of
Mortgage that did not reflect the true intention of the parties to enter into an equitable mortgage.
Clearly in pursuance of that allegation, private respondent filed a motion questioning the
jurisdiction of the RTC to entertain its appeal. On the other hand, petitioners filed a motion for
the immediate execution of the appealed decision. The RTC granted the motion on September
21, 1995 and the corresponding writ of execution was issued on September 25, 1995. The
following day, the sheriff served upon private respondent the writ of execution and a notice to
vacate the premises within five (5) days from receipt thereof.
Meanwhile, during the pendency of its appeal, private respondent filed an action for
reformation of instrument with the RTC. It was docketed as Civil Case No. Q-95-24927 and
assigned to Branch 227.
In a resolution dated December 7, 1995, RTC Branch 219 asserted jurisdiction over the
appeal. It ruled that the issue of whether or not an action for reformation of a deed of sale and an
unlawful detainer case can proceed independently of each other has been resolved by this Court
in Judith v. Abragan.[9] In said case, this Court held that the fact that defendants had previously
filed a separate action for the reformation of a deed of absolute sale into one of pacto de

retro sale or equitable mortgage in the same Court of First Instance is not a valid reason to
frustrate the summary remedy of ejectment afforded by law to the plaintiff.
On December 12, 1995, private respondent filed in the Court of Appeals a petition for
certiorari with prayer for a temporary restraining order and writ of preliminary injunction against
petitioners and RTC Branch 219. It assailed the September 21, 1995 order granting the issuance
of a writ of execution pending appeal, the writ of execution and the notice to vacate served upon
private respondent (CA-G.R. SP-39227).
On December 13, 1995, RTC Branch 219 [10] rendered the decision affirming in toto that of
the Metropolitan Trial Court. Stating that in ejectment proceedings, the only issue for resolution
is who is entitled to physical or material possession of the premises involved, RTC Branch 219
held that:

x x x the plaintiffs (petitioners herein) are vendees of the defendant (PBGDC) by

virtue of a deed of sale where the extent of its right to continue holding possession
was stipulated. In the agreement, the existence and due execution of which the
defendant had admitted (Order, December 16, 1994, Rollo, p. 111), it was clearly
stated that the defendant shall deliver the possession of the subject premises to the
plaintiffs at the expiration of one (1) year from the execution thereof, April 12, 1992.
The defendant failed to do so. From then on, it could be said that the defendant has
been unlawfully withholding possession of the premises from the plaintiffs.
In any case, this ruling on the matter of possession de facto is without prejudice to the
action for reformation. This is because `the judgment rendered in an action for
forcible entry or detainer shall be effective with respect to the possession only and in
no wise bind the title or effect the ownership of the land or building nor shall it be
held conclusive of the facts therein found in a case between the same parties upon a
different cause of action not involving possession (Ang Ping v. Regional Trial Court,
154 SCRA 153; Section 7, Rule 70, Rules of Court). [11]
On that same date, December 13, 1995, the Court of Appeals issued a temporary restraining
order enjoining RTC Branch 219 from enforcing the writ of execution and the notice to vacate
the premises and on January 15, 1996, the same court granted private respondents application for
a writ of preliminary injunction enjoining the implementation of both the writ of execution
pending appeal and the decision of RTC Branch 219.
Around six months later or on July 2, 1996, RTC Branch 227 [12] issued an order declaring
private respondent non-suited for failure to appear at the pre-trial and, therefore, dismissing the
action for reformation of instrument in Civil Case No. Q-95-24927. Private respondent, not
having sought reconsideration of said order, the same court issued a resolution on August 15,

1996 directing the entry of judgment in the case. [13] The Clerk of Court accordingly issued the
final entry of judgment thereon.[14]
In the meantime, on July 24, 1996, the Court of Appeals rendered the herein questioned
Decision.[15] It set aside the December 13, 1995 decision of RTC Branch 219 and declared as null
and void for want of jurisdiction, the March 24, 1995 decision of the Metropolitan Trial Court of
Quezon City, Branch 41. It made permanent the writ of preliminary injunction enjoining
petitioners from implementing the decision of RTC Branch 219, the writ of execution and the
notice to vacate. In so holding, the Court of Appeals said:

It is quite evident that, upon the pleadings, the dispute between the parties extended
beyond the ordinary issues in ejectment cases. The resolution of the dispute hinged on
the question of ownership and for that reason was not cognizable by the MTC. (See:
General Insurance and Surety Corporation v. Castelo, 13 SCRA 652 [1965]).
Respondent judge was not unaware of the pendency of the action for reformation.
However, despite such knowledge, he proceeded to discuss the merits of the appeal
and rendered judgment in favor of respondents on the basis of the deed of sale with
assumption of mortgage which was precisely the subject of the action for reformation
pending before another branch of the court. Prudence dictated that respondent judge
should have refused to be drawn into a discussion as to the merits of the respective
contentions of the parties and deferred to the action of the court before whom the
issue was directly raised for resolution.
On whether or not private respondent was in estoppel from questioning the jurisdiction of
the MTC since it voluntarily submitted thereto the question of the validity of its title to the
property, the Court of Appeals said:

This is not so. As earlier pointed out, petitioner (private respondent here) had, in its
answer to the complaint for unlawful detainer, promptly raised the issue of jurisdiction
by alleging that what was entered into by the parties was just an equitable mortgage
and not a sale. Assuming the truth of this allegation, it is fairly evident that
respondents would not have had a cause of action for ejectment. In other words,
petitioner, since the start of the case, presented a serious challenge to the MTCs
jurisdiction but, unfortunately, the court ignored such challenge and proceeded to
decide the case simply on the basis of possession.
`The operation of the principle of estoppel on the question of jurisdiction seemingly
depends upon whether the lower court actually had jurisdiction or not, if it had no
jurisdiction, but the case was tried and decided upon the theory that it had jurisdiction,
the parties are not barred, on appeal, from assailing such jurisdiction, for the same

must exist as a matter of law, and may not be conferred by consent of the parties or by
estoppel (5 C.J.S., 861-863). (La Naval Drug Corporation v. Court of Appeals, 236
SCRA 78 [1994]).
Contrary to respondents pretense, the filing by petitioner of an action for the
reformation of contract may not really be an afterthought. As we understand it,
petitioner, to support its allegation that the contract was a mere equitable mortgage,
cites the fact that the price was inadequate; it remained in possession of the premises;
it has retained a part of the purchase price; and, in any case, the real intention of the
parties was that the transaction shall secure the payment by petitioner of its loan,
adverting to Article 1602 of the Civil Code. Under Article 1604 of the same code, it is
provided that the presence of only one circumstance defined in Article 1602, such as
those cited above, is sufficient for a contract of sale with right to repurchase to be
presumed an equitable mortgage. Without in any way preempting the decision of the
court in the action for reformation, it is our considered view that, under the factual
milieu, the action was initiated for the proper determination of the rights of the parties
under the contract, and not just an afterthought.
No derogatory inference can arise from petitioners admission of the existence of the
deed of sale with assumption of mortgage. The admission does not necessarily dilute
its claim that the same does not express the true intent of the parties.
Verily, since the case at bench involves a controverted right, the parties are required to
preserve the status quo and await the decision of the proper court on the true nature of
the contract. It is but just that the person who has first acquired possession should
remain in possession pending decision on said case, and the parties cannot be
permitted meanwhile to engage in petty warfare over possession of property which is
the subject of dispute. To permit this will be highly dangerous to individual security
and disturbing to the social order. (Manlapaz v. Court of Appeals, 191 SCRA 795
[1990]).[16]
Hence, the present petition for review on certiorari where petitioners raise the following
assigned errors allegedly committed by respondent Court of Appeals:
I.

THE DECISION OF THE RESPONDENT COURT OF APPEALS IS CONTRARY

TO THE PROVISIONS OF SEC. 33 (2) OF THE JUDICIARY REORGANIZATION
ACT OF 1980 CONFERRING EXCLUSIVE ORIGINAL JURISDICTION ON THE
METROPOLITAN TRIAL COURT IN EJECTMENT CASES AND VESTING IT

WITH AUTHORITY, INDEED MANDATORILY, TO RESOLVE ISSUES OF

OWNERSHIP TO DETERMINE ISSUES OF POSSESSION.
II.

THE DECISION OF THE RESPONDENT COURT IS CONTRARY TO CURRENT

AND PREVAILING DOCTRINE AS ENUNCIATED IN WILMON AUTO SUPPLY
CORP. VS. COURT OF APPEALS, 208 SCRA 108; SY VS. COURT OF APPEALS,
200 SCRA 117; AND ASSET PRIVATIZATION TRUST VS. COURT OF APPEALS,
229 SCRA 627.
III.

THE FILING OF THE REFORMATION CASE CONFIRMS THE JURISDICTION

OF THE METROPOLITAN TRIAL COURT OVER THE EJECTMENT CASE; THE
DISMISSAL OF THE REFORMATION CASE CONFIRMS THE FACT THAT IT
WAS FILED MERELY AS A PLOY TO DELAY DISPOSITION OF EJECTMENT
PROCEEDINGS, AND BARES NOT JUST THE ERROR BUT THE UTTER
INEQUITY OF THE RESPONDENT COURTS DECISION ANNULLING THE
EJECTMENT DECREE AND SETTING ASIDE THE REGIONAL TRIAL COURT
DECISION OF AFFIRMANCE.
Petitioners argue that the precedent laid down in Ching v. Malaya[17] relied upon by the Court
of Appeals, was based on the old law, Republic Act No. 296 (Judiciary Act of 1948), as amended,
which vested in the city courts original jurisdiction over forcible entry and unlawful detainer
proceedings and the corresponding power to receive evidence upon the question of ownership for
the only purpose of determining the character and extent of possession. [18] They claim that since
the original complaint for unlawful detainer was filed on April 13, 1992, then the applicable law
should have been Section 33 (2) of the Judiciary Reorganization Act of 1980 (Batas Pambansa
Blg. 129). That law vests in the city courts exclusive original jurisdiction over forcible entry and
unlawful detainer cases and the corresponding power to receive evidence upon questions of
ownership and to resolve the issue of ownership to determine the issue of possession.[19]
The history of the law vesting Municipal and Metropolitan Trial Courts with jurisdiction
over ejectment cases has invariably revolved upon the assumption that the question of ownership
may be considered only if necessary for the determination of the issue as to who of the parties
shall have the right to possess the property in litigation. [20] Thus, under the Judiciary Act of 1948,
as amended, Section 88 vested municipal and city courts with authority to receive evidence upon
the question of title therein, whatever may be the value of the property, solely for the purpose of
determining the character and extent of possession and damages for detention. Section 3 of
Republic Act No. 5967 that was enacted on June 21, 1969, provided that city courts shall have
concurrent jurisdiction with Courts of First Instance over ejection cases where the question of

ownership is brought in issue in the pleadings and that the issue of ownership shall be resolved in
conjunction with the issue of possession. Expounding on that provision of law, in Pelaez v.
Reyes,[21] this Court said:

x x x We are of the considered opinion that the evident import of Section 3 above is to
precisely grant to the city courts concurrent original jurisdiction with the courts of
first instance over the cases enumerated therein, which include `ejection cases where
the question of ownership is brought in issue in the pleadings. To sustain petitioners
contention about the meaning of the last phrase of paragraph (c) of said section
regarding the resolution of the issue of ownership `in conjunction with the issue of
possession is to disregard the very language of the main part of the section which
denotes unmistakably a conferment upon the city courts of concurrent jurisdiction
with the courts of first instance over ejection cases in which ownership is brought in
issue in the pleadings. It is to Us quite clear that the fact that the issue of ownership is
to be resolved `in conjunction with the issue of possession simply means that both the
issues of possession and ownership are to be resolved by the city courts. And the
jurisdiction is concurrent with the Courts of First Instance precisely because usually
questions of title are supposed to be resolved by superior courts. In other words, this
grant of special jurisdiction to city courts is to be distinguished from the power
ordinarily accorded to municipal courts to receive evidence of title only for the
purpose of determining the extent of the possession in dispute.
Upon the approval on August 14, 1981 of Batas Pambansa Blg. 129 or the Judiciary
Reorganization Act of 1980, however, the power of inferior courts, including city courts, to
resolve the issue of ownership in forcible entry and unlawful detainer cases was modified.
Resolution of the issue of ownership became subject to the qualification that it shall be only for
the purpose of determining the issue of possession. In effect, therefore, the city courts lost the
jurisdiction to determine the issue of ownership per se that was theretofore concurrent with the
then Courts of First Instance. Thus, Section 33 of B.P. Blg. 129 provides that Metropolitan Trial
Courts, Municipal Trial Courts and Municipal Circuit Trial Courts shall exercise:

Exclusive original jurisdiction over cases of forcible entry and unlawful detainer:
Provided, That when in such cases, the defendant raises the question of ownership in
his pleadings and the question of possession cannot be resolved without deciding the
issue of ownership, the issue of ownership shall be resolved only to determine the
issue of possession.
Accordingly, the Interim Rules and Guidelines in the implementation of Batas Pambansa
Blg. 129 provides as follows:

10. Jurisdiction in ejectment cases. Metropolitan trial courts, municipal trial courts,
and municipal circuit trial courts, without distinction, may try cases of forcible entry
and detainer even if the question of ownership is raised in the pleadings and the
question of possession could not be resolved without deciding the issue of ownership,
but the question of ownership shall be resolved only to determine the issue of
possession.
Explaining these provisions of law, in Sps. Refugia v. Court of Appeals,[22] the Court said:

These issuances changed the former rule under Republic Act No. 296 which merely
allowed inferior courts to receive evidence upon the question of title solely for the
purpose of determining the extent and character of possession and damages for
detention, which thereby resulted in previous rulings of this Court to the effect that if
it appears during the trial that the principal issue relates to the ownership of the
property in dispute and any question of possession which may be involved necessarily
depends upon the result of the inquiry into the title, then the jurisdiction of the
municipal or city courts is lost and the action should be dismissed. With the enactment
of Batas Pambansa Blg. 129, the inferior courts now retain jurisdiction over an
ejectment case even if the question of possession cannot be resolved without passing
upon the issue of ownership, with the express qualification that such issue of
ownership shall be resolved only for the purpose of determining the issue of
possession. In other words, the fact that the issues of ownership and possession de
facto are intricately interwoven will not cause the dismissal of the case for forcible
entry and unlawful detainer on jurisdictional grounds.
Another development in the law has emphasized the fact that inferior courts shall not lose
jurisdiction over ejectment cases solely because the issue of ownership is interwoven with the
issue of possession. Under the 1983 Rules on Summary Procedure, as amended by a resolution
of this Court that took effect on November 15, 1991, all forcible entry and unlawful detainer
cases shall be tried pursuant to the Revised Rules on Summary Procedure, regardless of whether
or not the issue of ownership of the subject property is alleged by a party. [23] In other words, even
if there is a need to resolve the issue of ownership, such fact will not deprive the inferior courts
of jurisdiction over ejectment cases[24] that shall be tried summarily.
When the jurisdiction of the Metropolitan Trial Courts, Municipal Trial Courts and
Municipal Circuit Trial Courts was expanded, thereby amending Batas Pambansa Blg. 129, by
virtue of Republic Act No. 7691 that took effect on April 15, 1994, the jurisdiction of said courts
over ejectment cases was retained. Thus, in Hilario v. Court of Appeals this Court said:

x x x. As the law now stands, inferior courts retain jurisdiction over ejectment cases
even if the question of possession cannot be resolved without passing upon the issue

of ownership; but this is subject to the same caveat that the issue posed as to
ownership could be resolved by the court for the sole purpose of determining the issue
of possession.
Thus, an adjudication made therein regarding the issue of ownership should be
regarded as merely provisional and, therefore, would not bar or prejudice an action
between the same parties involving title to the land. The foregoing doctrine is a
necessary consequence of the nature of forcible entry and unlawful detainer cases
where the only issue to be settled is the physical or material possession over the real
property, that is, possession de facto and not possession de jure.
In other words, inferior courts are now conditionally vested with adjudicatory power over
the issue of title or ownership raised by the parties in an ejectment suit. [25] These courts shall
resolve the question of ownership raised as an incident in an ejectment case where a
determination thereof is necessary for a proper and complete adjudication of the issue of
possession. Considering the difficulties that are usually encountered by inferior courts as regards
the extent of their power in determining the issue of ownership, in Sps. Refugia v. Court of
Appeals, the Court set out guidelines to be observed in the implementation of the law which, as
stated at the outset, has recently been restated in the 1997 Rules of Civil Procedure. The
guidelines pertinent to this case state:

1. The primal rule is that the principal issue must be that of possession, and that
ownership is merely ancillary thereto, in which case the issue of ownership may be
resolved but only for the purpose of determining the issue of possession. Thus, x x x,
the legal provision under consideration applies only where the inferior court believes
and the preponderance of evidence shows that a resolution of the issue of possession
is dependent upon the resolution of the question of ownership.
2. It must sufficiently appear from the allegations in the complaint that what the
plaintiff really and primarily seeks is the restoration of possession. Consequently,
where the allegations of the complaint as well as the reliefs prayed for clearly
establish a case for the recovery of ownership, and not merely one for the recovery of
possession de facto, or where the averments plead the claim of material possession as
a mere elemental attribute of such claim for ownership, or where the issue of
ownership is the principal question to be resolved, the action is not one for forcible
entry but one for title to real property.
x x x x x x x x x,

5. Where the question of who has the prior possession hinges on the question of who
the real owner of the disputed portion is, the inferior court may resolve the issue of
ownership and make a declaration as to who among the contending parties is the real
owner. In the same vein, where the resolution of the issue of possession hinges on a
determination of the validity and interpretation of the document of title or any other
contract on which the claim of possession is premised, the inferior court may likewise
pass upon these issues. This is because, and it must be so understood, that any such
pronouncement made affecting ownership of the disputed portion is to be regarded
merely as provisional, hence, does not bar nor prejudice an action between the same
parties involving title to the land. Moreover, Section 7, Rule 70 of the Rules of Court
expressly provides that the judgment rendered in an action for forcible entry or
unlawful detainer shall be effective with respect to the possession only and in no wise
bind the title or affect the ownership of the land or building. [26] (Emphasis supplied.)
In the case at bar, petitioners clearly intended recovery of possession over the Gilmore
property. They alleged in their complaint for unlawful detainer that their claim for possession is
buttressed by the execution of the Deed of Sale with Assumption of Mortgage, a copy of which
was attached as Annex A to the complaint and by the issuance of TCT No. 67990 that evidenced
the transfer of ownership over the property.[27] Because metropolitan trial courts are authorized to
look into the ownership of the property in controversy in ejectment cases, it behooved MTC
Branch 41 to examine the bases for petitioners claim of ownership that entailed interpretation of
the Deed of Sale with Assumption of Mortgage.
However, while it quoted paragraph (c) of the Deed of Sale with Assumption of Mortgage
that embodies the agreement of the parties that possession of the Gilmore property and its
improvements shall remain with the vendor that was obliged to transfer possession only after the
expiration of one year,[28] MTC Branch 41 apparently did not examine the terms of the deed of
sale. Instead, it erroneously held that the issue of whether or not the document was in fact an
equitable mortgage should not be properly raised in this case. Had it examined the terms of the
deed of sale, which, after all is considered part of the allegations of the complaint having been
annexed thereto, that court would have found that, even on its face, the document was actually
one of equitable mortgage and not of sale. The inferior court appears to have forgotten that all
documents attached to a complaint, the due execution and genuineness of which are not denied
under oath by the defendant, must be considered as part of the complaint without need of
introducing evidence thereon.[29]
Article 1602 of the Civil Code provides that a contract shall be presumed to be an equitable
mortgage by the presence of any of the following:

(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.
Article 1604 of the same Code provides that the provisions of Article 1602 shall also apply
to a contract purporting to be an absolute sale. The presence of even one of the circumstances in
Article 1602 is sufficient basis to declare a contract as one of equitable mortgage. [30] The explicit
provision of Article 1602 that any of those circumstances would suffice to construe a contract of
sale to be one of equitable mortgage is in consonance with the rule that the law favors the least
transmission of property rights.
The Deed of Sale with Assumption of Mortgage covering the 2,000-square-meter lot located
at No. 52 Gilmore Street, New Manila, Quezon City provides as follows:

3. That the total consideration for the sale of the above-described property by the
VENDOR to the VENDEES is FOURTEEN MILLION (P14,000,000.00) PESOS, in
Philippine currency, payable as follows:
a) The VENDOR shall be paid by the VENDEE the sum of FIVE MILLION FOUR
HUNDRED THOUSAND (P5,400,000.00) PESOS upon the signing and execution of
this Deed of Sale With Assumption of Mortgage after computation of the mortgage
obligation of the VENDOR with CHINA BANKING CORPORATION in the amount
of ______________________ which the VENDEES agree to assume as part of the
consideration of this sale. The VENDEES hereby assume the mortgage obligation of
the VENDOR with the CHINA BANKING CORPORATION in the total amount of
___________________.
b) The VENDOR hereby undertakes and agrees with the VENDEES that the firstnamed party shall warrant and defend the title of said real property hereby conveyed
in favor of the VENDEES, their heirs, successors or assigns, against all just claims of
all persons or entities; that the VENDOR also guarantees the right of the VENDEES
to the possession of the property subject of this contract without the need of judicial
action; and furthermore, the VENDOR binds itself to execute any additional
documents to complete the title of the VENDEES to the above-described property so

that it may be registered in the name of the VENDEES in accordance with the
provisions of the Land Registration Act.
c) It is hereby expressly agreed and understood by and between the VENDOR and the
VENDEES that the house and other improvements found in the premises are included
in this sale and that possession of said premises shall be delivered to the VENDEES by
the VENDOR at the expiration of one (1) year from the date of the signing and
execution of this Deed of Sale with Assumption of Mortgage.
d) It is furthermore expressly provided and agreed by and between the VENDOR and
the VENDEES that the capital gains tax shall be paid by the VENDOR while any and
all fees and expenses incident to the registration and transfer of the title to the
aforementioned property shall be defrayed and borne by the VENDEES.
e) Attached to this Deed of Sale with Assumption of Mortgage as Annex `A thereof is
the Certificate of ROSANA FLORES, Corporate Secretary of PRICILIANO B.
DEVELOPMENT CORPORATION, a corporation duly organized and existing under
Philippine Laws who certified that at a special meeting of the Board of Directors of
said corporation held on December 3, 1991 at which meeting a quorum was present,
the following resolution was adopted and passed, to wit:
`RESOLVED, AS IT IS HEREBY RESOLVED, that the company, PRICILIANO B.
GONZALES DEVELOPMENT is (sic) hereby authorized the President, Mr. Antonio
B. Gonzales to enter into and/or negotiate for the sale of a property described as
Transfer Certificate of Title No. 383917 with an area of TWO THOUSAND (2,000)
SQUARE METERS under the Registry of Deeds of Quezon City;
`RESOLVED FURTHER, that Mr. ANTONIO B. GONZALES, is hereby authorized
to sign, execute any and all documents relative thereto.
That aforesaid resolution is in full force and effect.
(sgd.)
ROSANA FLORES
Corporate Secretary
(SGD.)

f) Full title and possession over the above-described property shall vest upon the
VENDEES upon the full compliance by them with all the terms and conditions herein
set forth.[31] (Underscoring supplied.)
That under the agreement the private respondent as vendor shall remain in possession of the
property for only one year, did not detract from the fact that possession of the property, an
indicium of ownership, was retained by private respondent as the alleged vendor. That period of
time may be deemed as actually the time allotted to private respondent for fulfilling its part of
the agreement by paying its indebtedness to petitioners. This may be gleaned from paragraph (f)
that states that full title and possession of the property shall vest upon the VENDEES upon the
full compliance by them with all the terms and conditions herein set forth.
Paragraph (f) of the contract also evidences the fact that the agreed purchase price of
fourteen million pesos (P14,000,000.00) was not handed over by petitioners to private
respondent upon the execution of the agreement. Only P5,400,000.00 was given by petitioners to
private respondent, as the balance thereof was to be dependent upon the private respondents
satisfaction of its mortgage obligation to China Banking Corporation. Notably, the MTC found
that petitioners gave private respondent the amount of P8,500,000.00 that should be paid to the
bank to cover the latters obligation, thereby leaving the amount of P100,000.00 (P5,400,000.00
+ P8,500,000.00 = P13,900,000.00) of the purchase price still unpaid and in the hands of
petitioners, the alleged vendees.
Hence, two of the circumstances enumerated in Article 1602 are manifest in the Deed of
Sale with Assumption of Mortgage, namely: (a) the vendor would remain in possession of the
property (no. 2), and (b) the vendees retained a part of the purchase price (no. 4). On its face,
therefore, the document subject of controversy, is actually a contract of equitable mortgage.
The denomination of the contract as a deed of sale is not binding as to its nature. The
decisive factor in evaluating such an agreement is the intention of the parties, as shown, not
necessarily by the terminology used in the contract, but by their conduct, words, actions and
deeds prior to, during and immediately after executing the agreement. [32] Private respondents
possession over the property was not denied by petitioners as in fact it was the basis for their
complaint for unlawful detainer.
Neither does the issuance of a new transfer certificate of title in petitioners favor import
conclusive evidence of ownership or that the agreement between the parties was one of sale.
[33]
In Macapinlac v. Gutierrez Repide, this Court said:

x x x it must be borne in mind that the equitable doctrine x x x to the effect that any
conveyance intended as security for a debt will be held in effect to be a mortgage,
whether so actually expressed in the instrument or not, operates regardless of the form
of the agreement chosen by the contracting parties as the repository of their will.

Equity looks through the form and considers the substance; and no kind of
engagement can be adopted which will enable the parties to escape from the equitable
doctrine to which reference is made. In other words, a conveyance of land,
accompanied by registration in the name of the transferee and the issuance of a new
certificate, is no more secured from the operation of the equitable doctrine than the
most informal conveyance that could be devised. [34]
A closer look into the allegations of the complaint would therefore show that petitioners
failed to make out a case for unlawful detainer. By the allegations in the complaint, private
respondent as a mortgagor had the right to posses the property. A mortgage is a real right
constituted to secure an obligation upon real property or rights therein to satisfy with the
proceeds of the sale thereof such obligation when the same becomes due and has not been paid
or fulfilled.[35] The mortgagor generally retains possession of the mortgaged property [36] because
by mortgaging a piece of property, a debtor merely subjects it to a lien but ownership thereof is
not parted with.[37] In case of the debtors nonpayment of the debt secured by the mortgage, the
only right of the mortgagee is to foreclose the mortgage and have the encumbered property sold
to satisfy the outstanding indebtedness. The mortgagors default does not operate to vest in the
mortgagee the ownership of the encumbered property, for any such effect is against public
policy.[38] Even if the property is sold at a foreclosure sale, only upon expiration of the
redemption period, without the judgment debtor having made use of his right of redemption,
does ownership of the land sold become consolidated in the purchaser.[39]
Petitioners tenuous claim for possession of the Gilmore property was emasculated further by
private respondents answer to their complaint. The latter claimed ownership of the property,
alleging that the agreement was one of mortgage and not of sale. Private respondent alleged
therein that in March 1993 (sic), it borrowed money from petitioner Felicidad Oronce alone to
redeem the subject property from China Banking Corporation. She agreed to lend it the amount
on condition that the Gilmore property should be mortgaged to her to guarantee payment of the
loan. However, petitioner Flaminiano took the money from petitioner Oronce and paid the
mortgage obligation of private respondent to the China Banking Corporation while claiming that
50% of the amount was hers. Petitioner Flaminianos husband, Atty. Eduardo Flaminiano,
forthwith prepared the Deed of Sale with Assumption of Mortgage and, without private
respondents knowledge, had it registered for which reason a new certificate of title was issued to
petitioners. In claiming that the agreement was one of mortgage, private respondent alleged in its
answer, inter alia, that the actual total value of the property was thirty million pesos
(P30,000,000.00); that while it had possession of the property, petitioners did not then attempt to
repossess the same, notwithstanding the lapse of one year from the execution of the document;
that petitioners did not pay the real estate taxes even after the transfer of title in their favor, and
that petitioners did not deliver to private respondent the alleged purchase price.
Considering these claims of private respondent, MTC Branch 41 should have passed upon
the issues raised on the ownership of the Gilmore property for the purpose of determining who
had the right to possess the same. As it turned out, it simply accepted the allegations of

petitioners without examining the supporting documents. Had it closely analyzed the documents,
it would have concluded that petitioners could not have validly ousted private respondent from
the property since the basis for its claim of ownership, the Deed of Sale with Assumption of
Mortgage, was actually a document evidencing an equitable mortgage. It would have accordingly
dismissed the complaint for lack of cause of action.
In fine, had the MTC exercised its bounden duty to study the complaint, it would have
dismissed the same for lack of cause of action upon a provisional ruling on the issue of
ownership based on the allegations and annexes of the complaint. Or, exercising caution in
handling the case, considering petitioners bare allegations of ownership, it should have required
the filing of an answer to the complaint and, having been alerted by the adverse claim of
ownership over the same property, summarily looked into the issue of ownership over the
property. As this Court declared in Hilario v. Court of Appeals:

It is underscored, however, that the allegations in the complaint for ejectment should
sufficiently make out a case for forcible entry or unlawful detainer, as the case may
be; otherwise, jurisdiction would not vest in the inferior court. Jurisdiction over the
subject matter is, after all, determined by the nature of the action as alleged or pleaded
in the complaint. Thus, even where the defendant alleges ownership or title to the
property in his or her answer, the inferior court will not be divested of its jurisdiction.
A contrary rule would pave the way for the defendant to trifle with the ejectment suit,
which is summary in nature, as he could easily defeat the same through the simple
expedient of asserting ownership.[40]
As discussed above, even a perusal of the complaint without going over the claims of private
respondent in his answer would have sufficed to arrive at a provisional determination of the issue
of ownership. The importance of such provisional ruling on the issue of ownership is demanded
by the fact that, in the event that the claim of the plaintiff in an ejectment case is controverted as
in this case, any ruling on the right of possession would be shaky, meaningless and fraught with
unsettling consequences on the property rights of the parties. After all, the right of possession
must stand on a firm claim of ownership. Had the MTC made a provisional ruling on the issue of
ownership, the parties would have availed of other remedies in law early on to thresh out their
conflicting claims.
Private respondents action for reformation of instrument was in fact a step in the right
direction. However, its failure to pursue that action [41] did not imply that private respondent had
no other remedy under the law as regards the issue of ownership over the Gilmore
property. There are other legal remedies that either party could have availed of. Some of these
remedies, such as an action for quieting of title, have been held to coexist with actions for
unlawful detainer.[42] There is a policy against multiplicity of suits but under the circumstances,
only the institution of proper proceedings could settle the controversy between the parties in a
definitive manner.

Hence, although the Court of Appeals resolved the appeal under the misconception that the
action for reformation of instrument was still viable, it correctly held that the controversy
between the parties was beyond the ordinary issues in an ejectment case. Because of the
opposing claims of the parties as to the true agreement between them, the issue of ownership was
in a sense a prejudicial question that needed determination before the ejectment case should have
been filed. To reiterate, a decision reached in the ejectment case in favor of any of the parties
would have nonetheless spawned litigation on the issue of ownership. At any rate, proceedings
would have been facilitated had the inferior courts made even a provisional ruling on such issue.
The contentious circumstances surrounding the case were demonstrated by an occurrence
during the pendency of this petition that cries out for the resolution of the issue of ownership
over the Gilmore property.
After the parties had filed their respective memoranda before this Court, private respondent
filed an urgent motion to cite petitioner Rosita L. Flaminiano and her husband, Atty. Eduardo B.
Flaminiano, in contempt of court.[43] The motion was founded on an affidavit of Dr. Tadeo
Gonzales who resided at the contested property, deriving his right to do so from private
respondent corporation that is owned by his family. Gonzales alleged that on September 20,
1997, petitioner Flaminiano and her husband entered the property through craftiness and
intimidation. At around 5:30 p.m. on that day, two (2) men knocked at the gate. When the
houseboy, Luis R. Fernandez, opened the gate for pedestrians tentatively, the two men told him
that they would like to visit Gonzales mother who was ailing.
Once inside, the two men identified themselves as policemen and opened the gate for twenty
(20) men, two (2) trucks and an L-300 van to enter. When Gonzales went outside the house, he
saw thirty (30) to forty (40) men and two (2) trucks entering the driveway. The person he asked
regarding the presence of those people inside the property turned out to be the brother of
petitioner Flaminiano. That person said, Kami ang may-ari dito. Matagal na kaming nagtitiis,
kayo ang dapat sa labas. After Gonzales had told him that the property was still under litigation
before this Court, the man said, Walang Supreme Court Supreme Court. When Gonzales asked
petitioner Flaminiano, who was inside the premises, to order the people to leave, she
said, Papapasukin namin ito dahil sa amin ito. Maglalagay ako ng tao diyan sa loob, sa harap,
sa likod. Wala ng pakiusap. When a power generator was brought inside the property and
Gonzales pleaded that it be taken out because the noise it would create would disturb his ailing
mother, Emiliana Gonzales, petitioner Flaminiano said, Walang awa-awa sa akin. Atty.
Flaminiano butted in and, referring to Gonzales mother, said, Ialis mo na, matanda na
pala. When Gonzales prevented the switching on of some lights in the house due to faulty
wiring, Atty. Flaminiano suggested, Bakit hindi mo ipasunog ito? May insurance pa kayo 5
million, madali lang yan. Short circuit. Since the Flaminianos and their crew were not about to
leave the property, Gonzales called up his brother, Atty. Antonio Gonzales, and informed him of
what happened. However, instead of confining themselves in the driveway, the Flaminianos and
their group entered the terrace, bringing in food.

Gonzales was all the while concerned about his 81-year-old mother who had just been
discharged from the hospital. However, the Flaminianos stayed until the next day, September 22,
1997, using the kitchen, furniture and other fixtures in the house. Gonzales took pictures of
Flaminiano and his companions. When Atty. Flaminiano arrived, he confronted Gonzales and
told him, Hindi ako natatakot kahit kanino ka pa mag-report, kahit pa sa Supreme Court, gusto
ko nga mag-reklamo kayo para matapos ang kaso. Sa September 25, may shooting dito, gagawin
ko ang gusto ko dito.[44]
The affidavits of Renato C. Mola, driver of Atty. Antonio Gonzales, and that of Luis R.
Fernandez, houseboy of Dr. Tadeo Gonzales, as well as the xerox copy of the sworn statement
dated September 21, 1997 of Pria B. Gonzales before the Philippine National Police in Camp
Crame where she filed a complaint against Atty. Flaminiano for the illegal entry into their house,
support the affidavit of Dr. Gonzales.
In its supplemental motion[45] to cite petitioner Flaminiano and her husband, Atty.
Flaminiano, in contempt of court, private respondent alleged that the Flaminianos committed
additional contumacious acts in preventing another member of the family, Mrs. Cipriana
Gonzales, from entering the property. In her affidavit, Mrs. Gonzales said that the Flaminianos
and their people used the whole house, except the bedrooms, for their filming activities.[46]
Thereafter, private respondent filed an urgent motion for the issuance of a temporary
restraining order and/or writ of preliminary injunction with this Court to enjoin petitioners, Atty.
Flaminiano and their representatives and agents from preventing private respondent, its agents
and representatives from entering the property and to cease and desist from occupying the
property or from committing further acts of dispossession of the property.[47] On October 13,
1997, this Court issued the temporary restraining order prayed for.[48] In the motion it filed on
October 21, 1997,[49] private respondent informed the Court that the TRO could not be served
upon petitioners immediately because, Atty. Flaminiano, their counsel of record, had changed
address without informing the Court. It was served upon said counsel only on October 15, 1997.
However, instead of complying with this Courts order, petitioners continued occupying the
property. On October 16, 1997, after receiving a copy of the TRO, petitioners put up a huge
billboard in front of the property stating that it is the national headquarters of the Peoples
Alliance for National Reconciliation and Unity for Peace and Progress (PANRUPP).
In their comment on the motion for contempt, petitioners noticeably did not controvert the
facts set forth by private respondent in said motion. Instead, it reasserted its claim of ownership
over the property as evidenced by TCT No. 67990. They alleged that they had mortgaged the
property to the Far East Bank and Trust Company in the amount of thirty million pesos
(P30,000,000.00) for which they are paying a monthly interest of around P675,000.00 without
enjoying the material possession of the subject property which has been unlawfully and unjustly
detained by private respondent for the last four (4) years as it was used as the residence of the
members of the family of its President ANTONIO B. GONZALES without the said private
respondent paying rentals thereon for the period from January 1995 up to October 5, 1997 when

the said property was voluntarily vacated by the members of the President (sic) of respondent
corporation, ANTONIO B. GONZALES, who has since then been a fugitive from justice having
been convicted by final judgment of the crime of estafa through falsification of public document
and has succeeded in evading his sentence.
They averred that Tadeo Gonzales erroneously claimed that the rights of ownership and
possession over the property are still under litigation because the issue of ownership is no longer
involved in this litigation when the complaint for reformation of instrument with annulment of
sale and title filed by private respondent was dismissed with finality by reason of non-suit.
Hence, they claimed that they now stand to be the unquestionable registered and lawful owners
of the property subject of controversy and that the July 24, 1996 Decision of the Court of
Appeals has already lost its virtuality and legal efficacy with the occurrence of a supervening
event which is a superior cause superseding the basis of the judgment in CA-G.R. No. 39227 of
respondent court.
They informed the Court that they are now leasing the property to PANRUPP from October
1, 1997 to September 30, 1998. They alleged, however, that the property is in a deplorable state
of decay and deterioration that they saw the need to act swiftly and decisively to prevent further
destruction of the property where they invested millions of pesos of their life-time savings to
acquire the same. Hence, they sought the assistance of barangay officials in Barangay Mariana,
New Manila who helped them effect the peaceful entry into the property of the petitioners
without the use of strategy, force and intimidation contrary to what was alleged in the motion for
contempt. They peacefully took over possession of the property on September 20, 1997 but
allowed the immediate members of the family of private respondents president to stay on. The
family finally agreed to vacate the premises on October 5, 1997 upon the offer of the petitioners
to shoulder partially the expenses for the hospitalization of the ailing mother at the St. Luke
General Hospital where she was brought by an ambulance accompanied by a doctor at petitioners
expense.
Petitioners questioned the issuance by this Court of the TRO on October 13, 1997, asserting
that when it was issued, there were no more acts to restrain the illegal occupants of the subject
property (as they) had already peacefully vacated the premises on October 5, 1997 or more than
a week after the said TRO was issued by the Third Division of this Court. They prayed that the
motion for contempt be denied for lack of merit and that the TRO issued be lifted and set aside
for the act or acts sought to be restrained have already been done and have become a fait
accompli before the issuance of the TEMPORARY RESTRAINING ORDER on October 13,
1997.[50]
As earlier discussed, petitioners claim that the dismissal of the action for reformation of
instrument for non-suit had written finis to the issue of ownership over the Gilmore property is
totally unfounded in law. Petitioners should be reminded that the instant petition stemmed from
an unlawful detainer case, the issue of which is merely possession of the property in
question. The issue of ownership has not been definitively resolved for the provisional

determination of that issue that should have been done by the MTC at the earliest possible time,
would only be for the purpose of determining who has the superior right to possess the property.
Inasmuch as this Court has resolved that the rightful possessor should have been private
respondent and its representatives and agents, the TRO issued by this Court on October 13, 1997
should not be lifted. That the TRO was issued days before private respondent left the property is
immaterial. What is in question here is lawful possession of the property, not possession on the
basis of self-proclaimed ownership of the property. For their part, petitioners should cease and
desist from further exercising possession of the same property which possession, in the first
place, does not legally belong to them.
The conduct of petitioner Flaminiano in taking possession over the property as alleged by
private respondent through Tadeo Gonzales is deplorably high-handed. On an erroneous
assumption that she had been legally vested with ownership of the property, she took steps prior
to the present proceedings by illegally taking control and possession of the same property in
litigation. Her act of entering the property in defiance of the writ of preliminary injunction issued
by the Court of Appeals constituted indirect contempt under Section 3, Rule 71 of the Rules of
Court that should be dealt with accordingly.
Be that as it may, what is disturbing to the Court is the conduct of her husband, Eduardo
Flaminiano, a lawyer[51] whose actuations as an officer of the court should be beyond
reproach. His contumacious acts of entering the Gilmore property without the consent of its
occupants and in contravention of the existing writ or preliminary injunction issued by the Court
of Appeals and making utterances showing disrespect for the law and this Court, are certainly
unbecoming of a member of the Philippine Bar. To be sure, he asserted in his comment on the
motion for contempt that petitioners peacefully took over the property. Nonetheless, such
peaceful take-over cannot justify defiance of the writ of preliminary injunction that he knew was
still in force. Notably, he did not comment on nor categorically deny that he committed the
contumacious acts alleged by private respondent. Through his acts, Atty. Flaminiano has flouted
his duties as a member of the legal profession. Under the Code of Professional Responsibility, he
is prohibited from counseling or abetting activities aimed at defiance of the law or at lessening
confidence in the legal system.[52]
WHEREFORE, the instant petition for review on certiorari is hereby DENIED and the
questioned Decision of the Court of Appeals AFFIRMED without prejudice to the filing by either
party of an action regarding the ownership of the property involved. The temporary restraining
order issued on October 13, 1997 is hereby made permanent. Petitioners and their agents are
directed to turn over possession of the property to private respondent.
Petitioner Rosita Flaminiano is hereby held guilty of contempt of court for disobeying the
writ of injunction issued by the Court of Appeals and accordingly fined P20,000.00 therefor. Her
counsel and husband, Atty. Eduardo B. Flaminiano, is ordered to pay a fine of P25,000.00 for
committing contumacious acts unbecoming of a member of the Philippine Bar with a stern

warning that a repetition of the same acts shall be dealt with more severely. Let a copy of this
Decision be attached to his record at the Office of the Bar Confidant.
This Decision is immediately executory. Costs against petitioners.
SO ORDERED.
Narvasa, C.J., (Chairman), Kapunan, and Purisima, JJ., concur.
Pardo, J., no part.

[G.R. No. 141311. May 26, 2005]

BERNICE LEGASPI, petitioner, vs. SPOUSES RITA and FRANCISCO

ONG, respondents.
DECISION
AUSTRIA-MARTINEZ, J.:

Before us is a petition for review on certiorari filed by petitioner Bernice

Legaspi seeking to annul and set aside the Decision dated July 30, 1998 of
the Court of Appeals (CA) reversing the decision of the trial court and ruling
that the deed of sale with right to repurchase executed by respondent
spouses in favor of petitioner over the subject property was an equitable
mortgage; and its Resolution dated January 4, 2000 denying petitioners
motion for reconsideration.
[1]

[2]

Respondent spouses Francisco and Rita Ong were owners of a parcel of

land located at 375 Matienza Street, San Miguel, Manila with an area of 1,010
square meters and a two-storey house. They mortgaged the subject property
with the Permanent Savings and Loan Bank (PSLB) to secure their loan. For
their failure to pay their loan, PSLB foreclosed the mortgage on the subject
property and thereafter sold it in a public auction where the bank emerged as
the highest bidder. Respondent spouses failed to redeem the property within
the redemption period, thus, the title was consolidated in the name of PSLB
under Transfer Certificate of Title (TCT) No. 182956 on November 10,
1988 but respondent spouses continued to occupy the premises. When
PSLB was subsequently ordered liquidated by the Monetary Board of the
Central Bank, PSLBs acquired assets were required to be disposed of to pay
its debts, thus respondent spouses, being the original owners of the subject
[3]

property, were given first priority by the Central Bank Liquidator to buy back
their property in the amount of P2,655,000.00 on or before June 13, 1989.
Since respondent spouses had no money then, they approached petitioners
father, Stephen Hong, a classmate and friend of respondent Francisco, and
sought his help to pay and redeem the subject property. Petitioner and her
father were shown the title of the subject property in respondent Ritas name.
After some deliberations thereon, the parties agreement was reduced into
writing denominated as a Deed of Sale with Right to Repurchase drafted by
petitioners counsel, Atty. Bienvenido Rillo, in the following terms and
conditions:
[4]

...
The title to above-described property is presently held by the Central Bank of the
Philippines and the latter has given VENDOR the privilege of getting back the title to
the above-described property by paying them the amount of TWO MILLION SIX
HUNDRED FIFTY FIVE THOUSAND (P2,655,000.00) PESOS;
VENDOR has offered to sell this property to VENDEE on condition she be allowed to
repurchase this property subject to the terms and conditions hereinafter recited:
1. VENDEE shall pay the Central Bank of the Philippines the amount of TWO
MILLION SIX HUNDRED FIFTY FIVE THOUSAND (P2,655,000.00) PESOS for
and in behalf of VENDOR;
2. VENDOR shall have the right to repurchase the above-described property within a
period of four (4) months, without interest, which shall be extended by another month
upon request of the VENDOR;
3. During the four (4) month period or its extension VENDOR shall have the right to
re-sell the said property to any party, other than the VENDEE, who may desire to
purchase the property;
4. In the event VENDOR should fail to repurchase the property within the four (4)
months agreed upon then VENDEE, notwithstanding the extended period, shall pay
interest at the rate of four (4%) percent per month reckoned from the execution of this
document;
5. In the event VENDOR shall repurchase the property at any time before the
expiration of four (4) months or its extended period the VENDOR shall pay interest

on the amount at the rate of four (4%) percent per month reckoned from the signing of
this Agreement;
6. Should VENDOR fail to comply with the foregoing terms and conditions then the
property shall by virtue thereof become the property of VENDEE;
7. All expenses to be incurred as a result of this transaction such as documentary
stamps, transfer fee, capital gains tax and documentation fees, shall be for the account
of VENDOR;
NOW, THEREFORE, for and in consideration of the foregoing, VENDOR hereby
sells, cedes, transfers and conveys unto the VENDEE the above-described parcel of
land together with all the improvement thereon fall (sic) from any lien and
encumbrances. VENDOR hereby warrants the property is not devoted to the
cultivation of palay or corn nor is it covered by the priority development program of
the government.
[5]

which respondent spouses and petitioner signed on June 13, 1989.

Immediately after the deed was signed, and since it was the last day to
redeem the property, petitioner, with her lawyer, Atty. Rillo, and respondent
Francisco went to the Central Bank and with petitioners check paid the
amount of P2,655,000.00 to the bank for and in behalf of respondents. A Deed
of Absolute Sale was executed between PSLBs Liquidator, Renan V. Santos,
and respondent spouses, as original owners, over the subject property on
June 13, 1989. Respondent Francisco then wrote the Deputy Liquidator of
PSLB, Central Bank, to release the Deed of Sale and the title to the subject
property to petitioner as his authorized representative. Petitioner received the
documents on June 19, 1989.
[6]

[7]

[8]

On September 26, 1989, petitioner wrote respondents a letter reminding

them that the four-month period to repurchase the subject property will expire
on October 12, 1989 and that failure to pay the amount of P2,655,000.00 on
its due date will force her to take the corresponding action to consolidate title
on the property in her name. On November 23, 1989, petitioners counsel
wrote respondents a letter informing them that petitioner, acting on their
request for extension of a weeks time to repurchase the subject property,
consented to give them up to November 28, 1989. However, respondent
spouses failed to redeem the subject property from petitioner within the period
given them. Despite the expiration of the period to repurchase, petitioner still
[9]

[10]

granted respondent spouses opportunity to repurchase the subject property in

a letter dated April 14, 1990, where petitioners counsel demanded for the
payment of the amount of P2,655,000.00 plus all the interest due thereon
within five days from receipt otherwise, necessary legal action will be taken to
transfer ownership in petitioners name.
[11]

In October 1990, petitioner filed a petition for consolidation of

ownership before the Regional Trial Court (RTC) of Manila, which was raffled
to Branch 39, docketed as Civil Case No. 90-54623. Petitioner prayed for the
cancellation of TCT No. 182956 and for the issuance of a new title in her
name, attorneys fees and cost of suit.
[12]

[13]

In their answer with compulsory counterclaim, respondent spouses

alleged that the Deed of Sale with Right to Repurchase did not reflect the true
intention of the parties because the document was actually an equitable
mortgage with illegal provision, i.e., pactum commissorium; that petitioner has
no cause of action against respondents; that there was non-joinder of the real
party-in-interest; that the Court has no jurisdiction over the case; that relief
sought will cause undue enrichment on respondents as the subject property
claimed was worth P15 million. They prayed for the dismissal of the petition
and asked for damages, attorneys fees and costs of the suit as counterclaim.
[14]

[15]

On July 6, 1993, the RTC rendered its decision in favor of petitioner, the
dispositive portion of which reads:
[16]

WHEREFORE, in view of the foregoing, judgment is hereby rendered ordering the

consolidation of title in the name of petitioner Bernice Legaspi and the Register of
Deeds of the City of Manila is hereby ordered to cancel Transfer Certificate of Title
No. 182956, issued in the name of Permanent Savings and Loan Bank, and in lieu
thereof, a new one be issued in the name of petitioner BERNICE LEGASPI upon
payment of the corresponding charges. Respondents are hereby ordered to pay
attorneys fees in the sum of P25,000.00.
Respondents counterclaim is hereby DISMISSED for lack of merit. With costs against
respondents.
[17]

In arriving at its decision, the trial court made the following disquisition:

The main controversy centers on the true nature of Exhibit C, the Deed of Absolute
Sale with Right to Repurchase. The Court examines Exhibit C, and finds it clear,
unambiguous and unequivocal. If the terms of the contract are clear and leave no
doubt upon the intention of the contracting parties, the literal meaning of the
stipulation shall control (Art. 1370 CC). The intention of the parties is to be deduced
from the language employed by them and the terms of the contract found
unambiguous, are conclusive in the absence of averment and proof of mistake, the
question being not what intention existed in the minds of the parties but what intention
is expressed by the language used. When the words of a contract are plain and readily
understandable, there is no room for construction (Dihiasan, et al. vs. CA, G.R.
49839, Sept. 14, 1987).
According to Rita Ong who admitted having signed the document she trusted Mr.
Hong as her husbands former classmate. There is a presumption in law that a person
takes ordinary care of his concern (Rule 131, Sec. 5(d), Revised Rules of Evidence). It
is to be presumed that Rita Ong a pharmacy and medical technology graduate would
not sign a document without being satisfied of the contents thereof. She knew fully
well what she was signing. Rita Ong admitted on the stand that the matter was
discussed in the residence of the petitioner in the presence of her husband and Mr.
Hong. She was completely aware, therefore, that she was executing a document, a
Deed of Sale with Right to Repurchase. If she did not like its contents, she could
easily refrain from signing the document. After signing the document, she cannot now
be heard to complain that the parties to said exhibit intended the same to be loan with
mortgage contrary to what are clearly expressed therein. The natural presumption is
that one does not sign a document without first informing himself of its contents. It is
the duty of every contracting party to learn and know the contents of a contract before
he signs and delivers it. He owes this duty to the other party to the contract because
the latter may probably pay his money and shape his action in reliance upon the
agreement. To permit a party when sued on a written contract to admit that he signed
it but to deny that it expresses the agreement he made or to allow him to admit that he
signed it but did not read it or know its stipulation could absolutely destroy the value
of all contracts. (Tan Tun Sia vs. Yu Bin Sentua, 56 Phil. 711).
The Court rejects respondents Exhibits 11, 11-A and 12 to show the inadequacy of the
price considering that evaluation of P4,500.00 per square meter and the appraisal
of P15M were not made on or before June 13, 1989, the date the contract was
executed by the parties. The evidence shows that the lot in question is titled in the
name of Permanent Savings and Loan Bank for P2,655,000.00 and was paid by the
petitioner in such amount. Said amount is approximately 50% of their total assessed

value of P1,016,580.00 (Exhibit D) as appearing in the tax declaration. A difference in

value is not always a decisive factor for determining whether or not the contract is one
of sale with right to repurchase or equitable mortgage.
After the sale on June 13, 1989, Spouses Ong did not pay the real estate taxes on the
land.
The records show that after the expiration of respondents right to repurchase the lot,
demands were made but were completely ignored, hence, the filing of this case and
the unlawful detainer with the Metropolitan Trial Court (Exhibit E).
Assessing the evidence on record, the Court declares that the contract entered into by
the petitioner and respondents Spouses Ong is one of a sale with right to repurchase,
as supported by the evidence on record. Respondents Ongs had already parted with
their property when the mortgage was foreclosed by Permanent Savings and Loan
Bank for P2,655,000.00 which was the price of the lot and, therefore, having
discussed the transaction with the petitioner prior to the preparation of the contract,
respondents cannot now repudiate what they have done. Since petitioner was forced to
litigate to enforce her right under the contract, respondent spouses Ong should pay
reasonable attorneys fees.
[18]

Respondent spouses motion for reconsideration was denied in an Order

dated November 25, 1993.
[19]

At the time that the proceedings for the petition for consolidation of
ownership were on-going, petitioner, on February 14, 1991, claiming her right
to possess the subject property on the basis of respondents failure to
repurchase the subject property had filed an unlawful detainer case against
respondents before the Metropolitan Trial Court (MeTC), Branch 19, Manila,
docketed as Civil Case No. 134770-CV. The MeTC decided against
respondent spouses on September 1, 1993 whereby respondent spouses
were ordered to vacate the subject property and surrender possession thereof
to petitioner; to pay P25,000.00 a month from February 13, 1991 as
reasonable compensation for the use and occupancy of the subject property
until possession is surrendered to petitioner; and attorneys fees plus cost of
the suit. The MeTC granted the motion for execution filed by petitioner and
issued a writ of execution on October 8, 1993. Possession of the subject
property was delivered by the sheriff to petitioners father on October 11, 1993.
Respondent spouses appeal with the RTC was dismissed in an Order dated
[20]

[21]

[22]

[23]

March 9, 1994 for being moot and academic as the respondents had already
abandoned the property and possession thereof was turned over to petitioner
and ordered that the records be remanded to the court a quo for execution of
its own judgment.
[24]

As respondents were aggrieved by the decision of the RTC granting the

consolidation of title in petitioners name, respondent spouses appealed to the
CA. During the pendency of respondents appeal, petitioner filed a motion for
execution pending appeal of the RTCs decision dated July 6, 1993. The
appellate court granted the motion for execution pending appeal in a
Resolution dated December 1, 1994, subject to the posting of a bond in the
amount of P50,000.00. It anchored its judgment on the following findings: (1)
the property had been adjudged by the trial court to be owned by petitioner
who paid the purchase price to the bank; (2) the ejectment case filed by
petitioner against respondents was decided by the MeTC in favor of the
former by ordering respondents to vacate the property, to pay P25,000.00 a
month from February 13, 1991, as compensation for the use of the property
and to surrender possession, in addition to attorneys fees; (3) possession of
the property was already delivered to petitioner and that respondents had
already abandoned the premises much earlier; (4) upon inspection made by
the sheriff, it was found that the house was destroyed, cannibalized and
stripped of vital fixtures and furnitures; (5) major repairs had to be undertaken
at quite staggering cost; (6) realty taxes were not paid by respondents from
1989 up to the present nor did they pay the capital gains tax, transfer fee,
documentary stamps and documentation fees even though there was an
agreement for such payment; (7) taxes due on the property, and surcharges
on overdue payment continue to accumulate which endangered the property
and the possibility of its being lost through auction sale; and (8) the grant of
execution pending appeal would then bind the petitioner to preserve the
property and to return it to respondents should the appeal be in their favor.
[25]

[26]

Respondent spouses filed their motion for reconsideration which was

denied by the CA in a Resolution dated June 30, 1995. As a consequence,
the Register of Deeds of Manila cancelled TCT No. 182956 in the name of
PSLB and issued TCT No. 219397 in petitioners name.
[27]

On July 30, 1998, the CA rendered herein assailed decision reversing the
RTC decision dated July 6, 1993, the dispositive portion of which reads:

Wherefore, judgment is hereby rendered setting aside the decision of the court a quo
dated July 6, 1993 in Civil Case No. 90-54623 and dismissing the complaint of
plaintiff-appellee.
The appellants are hereby ordered to redeem the property from appellee in the amount
of P2,655,000.00 with legal interest computed from the time the sale of redemption
fell due up to the time the obligation is fully paid.
Appellee is hereby ordered to pay appellants the monthly rent of the subject premises
from October 1993 up to the time possession thereof is turned over to appellant,
which is hereby fixed in the amount of P25,000.00 a month; attorneys fees in the
amount of P100,000.00; and the cost of suit.
[28]

The appellate courts reversal was based on the following findings:

Art. 1602. The contract shall be presumed to be an equitable mortgage, in any of the
following 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.
From the aforecited provisions, it is clear that the contract executed between the
parties is one of equitable mortgage. The law requires anyone, and not the

concurrence of all the circumstances mentioned therein to conclude that the

transaction is one of equitable mortgage. It is clear from the records of the case, that
appellants remained in possession of the property even after the execution of the
contract, aside from the fact that the amount in the document purportedly the
consideration of the sale was only P2.6 Million, while the property commands the
price of P16 Million (Exhs. 12-12-U; TSN, August 12, 1992, pp. 16-17, 19), hence,
there was gross inadequacy of the price. Likewise, the deed stipulates the payment of
interest (TSN, April 27, 1992, p. 40; TSN, May 28, 1992, p. 31), and there were a
number of extensions of time given by the appellee for the payment by appellants of
the sum of P2.6 Million (TSN, Sept. 30, 1991, pp. 5-6, 54-56).
These circumstances proven by the appellants to show that the agreement was not sale
with right to repurchase but one of equitable mortgage are conclusive. On the other
hand, appellee failed to rebut these pieces of evidence.
...
The extensions of the original period of redemption as contained in pars. 2, 3 and 5 of
the Deed of Sale with Right to Repurchase are indicative that the instrument was one
of equitable mortgage. As ruled by the Supreme Court in Reyes vs. De Leon, 20
SCRA 639 and Burdalian vs. CA, 129 SCRA 645, it said that
It is well-settled that extension of the period of redemption is indicative of equitable
mortgage.
After a careful evaluation of the above-stated circumstances, this Court finds the
present case to exhibit several of the familiar badges of a concealed mortgage
enumerated by Art. 1602 of the Civil Code. According to the said provisions of the
Civil Code, presence of any of the circumstances enumerated would be sufficient
enough to declare the transaction of absolute sale as one impressed with an equitable
mortgage. In the instant case there is even more than one circumstance indicating an
equitable mortgage . . .
It has also been convincingly shown that appellants were badly in need of money at
the time of the transaction because they wanted to redeem the property and the
deadline within which to do that had almost been up. This circumstance is likewise
conclusive of the fact that a pacto de retro sale may be deemed an equitable mortgage
when executed due to urgent necessity for money of the apparent vendor.
[29]

The CA denied petitioners motion for reconsideration in a Resolution dated

January 4, 2000.
Petitioner filed the instant petition for review on certiorari on the question
of whether a Deed of Sale with Right To Repurchase may be interpreted as
one of equitable mortgage as found by the CA.
As a rule, only questions of law may be raised in a petition for review
under Rule 45 of the Rules of Court, nonetheless factual issues may be
entertained by this Court in exceptional cases. These include instances where
the findings of fact are conflicting or when the findings of the CA are contrary
to those of the trial court, as in the present case. We are constrained to go
over the records of the case and examine the arguments of the parties in their
pleadings.
[30]

We have consistently decreed that the nomenclature used by the

contracting parties to describe a contract does not determine its nature.
Decisive for the proper determination of the true nature of the transaction
between the parties is the intent of the parties, as shown not necessarily by
the terminology used in the contract but by all the surrounding circumstances,
such as the relative situations of the parties at that time; the attitudes, acts,
conduct, and declarations of the parties; the negotiations between them
leading to the deed; and generally, all pertinent facts having a tendency to fix
and determine the real nature of their design and understanding.
[31]

[32]

[33]

Even if a contract is denominated as a pacto de retro, the owner of the

property may still disprove it by means of parol evidence, provided that the
nature of the agreement is placed in issue by the pleadings filed with the trial
court. It must be stressed, however, that there is no conclusive test to
determine whether a deed absolute on its face is really a simple loan
accommodation secured by a mortgage. In fact, it is often a question difficult
to resolve and is frequently made to depend on the surrounding
circumstances of each case. When in doubt, courts are generally inclined to
construe a transaction purporting to be a sale as an equitable mortgage,
which involves a lesser transmission of rights and interests over the property
in controversy.
[34]

Art. 1602 of the Civil Code enumerates the instances when a contract,
regardless of its nomenclature, may be presumed to be an equitable

mortgage. They are as follows: (a) when the price of a sale with right to
repurchase is unusually inadequate; (b) when the vendor remains in
possession as lessee or otherwise; (c) 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; (d) when the purchaser retains for himself
a part of the purchase price; (e) when the vendor binds himself to pay the
taxes on the thing sold; and, (f) 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. Art. 1603
provides that in case of doubt, a contract purporting to be a sale with right to
repurchase shall be construed as an equitable mortgage.
The presence of even one of the above-mentioned circumstances as
enumerated in Article 1602 is sufficient basis to declare a contract of sale with
right to repurchase as one of equitable mortgage. As stated by the Code
Commission which drafted the new Civil Code, in practically all of the socalled contracts of sale with right of repurchase, 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.
[35]

The CA found the presence of four circumstances in the transaction on

which bases it ruled that the transaction was an equitable mortgage, to wit: (a)
respondents remained in possession of the subject property even after the
execution of the contract; (b) there was gross inadequacy of price
of P2,655,000.00 as contract price since the property commands the price
of P16 million; (c) extensions of the original period of redemption; and (d)
stipulation of interest.
We agree with the finding of the CA that the transaction between
respondents and petitioner was not a sale with right to repurchase but an
equitable mortgage.
Petitioner argues that Article 1602 does not apply in the instant case; that
petitioner was the one who purchased the subject property from PSLB, the
registered owner, for and in behalf of respondents; that since the ownership
had been consolidated in PSLB and the title was in PSLBs name as early as
November 10, 1988, respondents were no longer the owners of the subject
property at the time the Deed of Sale with Right To Repurchase was executed

by respondents in favor of petitioner on June 13, 1989; that respondents can

no longer constitute a mortgage on the subject property; that respondents had
the personality to sell the property only because they were the original owners
who were favored by the Bank with the first option but it was petitioners
money that was used in buying back the subject property. Petitioner also
claims that there was never any loan between the parties as money was not
given by one to the other since petitioner paid her money directly to the bank,
thus debt which is a condition sine qua non of an equitable mortgage was
absent.
We are not persuaded.
While it is true that the title to the subject property was consolidated in
PSLBs name as early as 1988, the property was bought back by respondent
spouses, the original owners, who were given the first option to buy it during
PSLBs liquidation. Respondents were given up to June 13, 1989 to buy back
the property and since they had no money, they had to approach petitioners
father to help them in their predicament. As respondents were able to redeem
the subject property with the use of petitioners money, a deed of sale was
executed by the Liquidator in favor of respondent spouses on June 13, 1989,
the last day given to respondents to buy back the property. Since the money
came from petitioner, respondent spouses, as owners, had executed a
document, which was denominated as a Deed of Sale with Right to
Repurchase, which was prepared by petitioners counsel and signed by the
parties also on June 13, 1989. It can be seen that the transactions are
intimately related and they were even embodied in the deed of sale with right
to repurchase, to wit:
The title to above-described property is presently held by the Central Bank of the
Philippines and the latter has given VENDOR the privilege of getting back the title to
the above-described property by paying them the amount of TWO MILLION SIX
HUNDRED FIFTY FIVE THOUSAND (P2,655,000.00) PESOS;
VENDOR has offered to sell this property to VENDEE on condition she be allowed to
repurchase this property subject to the terms and conditions hereinafter recited:
1. VENDEE shall pay the Central Bank of the Philippines the amount of TWO
MILLION SIX HUNDRED FIFTY FIVE THOUSAND (P2,655,000.00) PESOS for
and in behalf of VENDOR;

Clearly, the deed of sale with right to repurchase was precisely executed by
respondents to secure the money paid by petitioner for and in behalf of
respondents to PSLB Liquidator to buy back the subject property, i.e., as
equitable mortgage. Notably, respondent spouses bought back the subject
property in the amount of P2,655,000.00 and sold the same to petitioner at
exactly the same amount they paid to PSLB Liquidator. If the intention of the
respondent spouses were to sell, they could have at least earned some profit
or interest on such sale, otherwise, they could have just allowed PSLB
Liquidator to sell it to anybody in a public bidding. Respondents wanted to
hold on to their property and not to part with it by selling the same.
Petitioner claims that respondents expressly recognized their intention to
sell the subject property to her when they executed a letter requesting the
bank Liquidator to release the Deed of Sale executed between the bank and
respondents as well as the duplicate copy of the title to petitioner.
[36]

We are not impressed.

Respondent Francisco wrote Deputy Liquidator Leopoldo Ramos and
requested him to release the deed of sale and title to the subject property to
petitioner as his authorized representative. There was nothing in the letter that
would show that respondents acknowledged petitioner as the new owner of
the property.
Although, we do not agree with the CA that the price of the sale with right
to repurchase is grossly inadequate since the appraisal of the property in the
amount of more than P16 million was not made on or before June 13, 1989,
the date the contract was executed by the parties, but only on July 24, 1992,
we find in the transaction the presence of some other circumstances
enumerated in Art. 1602 of the Civil Code which would establish that the
transaction was an equitable mortgage rather than sale.
[37]

Respondent spouses, as vendors, remained in the possession of the

subject property even after the execution of the deed of sale with right to
repurchase. Well settled to the point of being elementary is the doctrine that
where the vendor remains in physical possession of the land as lessee or
otherwise, the contract should be treated as an equitable mortgage. If the
deed executed was really what it purports to be, a sale with right to
repurchase, petitioner should have asserted her right for the immediate
[38]

[39]

delivery of the subject property to her so that she would have the enjoyment
and possession of the same, since petitioner, during those times, was renting
a place in New Manila, Quezon City, and not allowed respondents to freely
stay in the premises.
[40]

Notably, in all the letters of petitioner and her lawyer, i.e., reminding
respondents that the period to repurchase was about to lapse and later the
extension of period to repurchase and demands for respondents to
repurchase the property in the amount of P2,655,000.00 plus interest within a
certain period, were sent to respondents address which is the subject
property, without registering any objection on respondents continuous
possession of the same. In effect, petitioner acknowledged respondents right
to retain possession of the subject property even after the execution of
the pacto de retro sale. It was only on January 14, 1991 that petitioner made a
demand for respondents to vacate the subject property after respondents
failed to repurchase the property.
Another circumstance is the fact that the period to repurchase the subject
property was extended by petitioner. In the letter dated November 23,
1989 to respondents by petitioners counsel, Atty. Rillo, he stated that
petitioner had consented to respondents request for an extension of time to
repurchase the subject property by giving them up to November 28, 1989. In
fact, even in the petition for consolidation itself, petitioner stated that despite
the expiration of the right to repurchase on November 28, 1989, petitioner still
granted respondent spouses opportunity to repurchase the subject property in
a letter dated April 14, 1990 by paying the amount due thereon. Moreover,
petitioner, on cross-examination, even admitted that more than one extension
was given for the respondents to repurchase. It is well settled that extension
of the period of redemption is indicative of equitable mortgage.
[41]

[42]

[43]

Petitioner claims that there was no separate instrument extending the

period of redemption granting a new period executed between the parties.
Petitioner through her counsel wrote Exhibit I extending the period of
redemption. In Claravall vs. Court of Appeals, we held that a note executed
extending a period of redemption is indicative of equitable mortgage.
[44]

Also, we find that there was no transmission of ownership to the vendee.

As stated in the deed, to wit:

8. Should VENDOR fail to comply with the foregoing terms and conditions then the
property shall by virtue thereof become the property of VENDEE;
This stipulation is contrary to the nature of a true pacto de retro sale since
ownership of the property sold is immediately transferred to the vendee a retro
upon execution of the sale, subject only to the repurchase of a vendor a retro
within the stipulated period. Such stipulation is considered a pactum
commissorium enabling the mortgagee to acquire ownership of the mortgaged
properties without need of foreclosure proceedings which is a nullity being
contrary to the provisions of Article 2088 of the Civil Code. The inclusion of
such stipulation in the deed shows the intention to mortgage rather than to
sell.
Moreover, the following provision, to wit:
3. During the four (4) month period or its extension VENDOR shall have the
right to re-sell the said property to any party, other than the VENDEE,
who may desire to purchase the property;
of the subject deed is a concrete revelation of the real intention of the parties,
as contemplated in paragraph (6) of Article 1602 of the Civil Code, that the
transaction was merely to secure the payment of a debt. A purchaser like the
petitioner would not allow the respondent spouses, as the purported vendors,
to re-sell the property to any party who may desire to purchase the property.
This clearly indicates that petitioner recognized the right of respondent
spouses to exercise their ownership of the property.
Petitioner contends that the assailed decision of the CA runs counter with
the findings of the same appellate court in the Resolution dated December 1,
1994 granting petitioners motion for execution pending appeal.
While the appellate court had earlier issued a Resolution granting the
motion for execution pending appeal which upheld the trial courts findings that
the transaction between the parties was one of sale, such finding did not
preclude the same appellate court from making its final judgment on the
appealed case after a review of the evidence. The nature of the transaction is
the very issue raised in the appeal filed by the respondents. Execution
pending appeal does not bar the continuance of the appeal on the merits, for
[45]

the Rules of Court precisely provides for restitution according to equity in case
the executed judgment is reversed on appeal.
[46]

We find no basis for the CA to order petitioner to pay respondents the

monthly rent of P25,000.00 for the formers possession of the subject property
from October 1993 up to the time the property is surrendered to respondents.
The origin of this petition for review is the petition for consolidation of
ownership filed by petitioner which was granted by the trial court since it found
that the transaction between respondents and petitioner is a sale.
Respondents then filed their appeal with the CA. An examination of the
appellants (respondents) brief filed before the appellate court merely claimed
that they are the ones entitled to the damages and attorneys fees without
mention of any back rentals. In fact, in the prayer in their brief, respondents
merely asked that another judgment be rendered dismissing the plaintiffs
(petitioners) complaint. Moreover, the appellate court did not make any
discussion on the basis of how it arrived in the amount of P25,000.00 as
monthly rental since the same was only mentioned in the dispositive portion of
the decision. Courts in making an award must point out specific facts which
can serve as basis for measuring whatever compensatory or actual
damages are borne.
[47]

We also disallow the award of attorneys fees as the appellate court merely
stated such award in the dispositive portion without explicitly stating in the text
of the decision the legal reason for such award. In Consolidated Bank & Trust
Corporation (Solidbank) vs. Court of Appeals, we held:
[48]

The award of attorneys fees lies within the discretion of the court and depends upon
the circumstances of each case. However, the discretion of the court to award
attorneys fees under Article 2208 of the Civil Code of the Philippines demands
factual, legal and equitable justification, without which the award is a conclusion
without a premise and improperly left to speculation and conjecture. It becomes a
violation of the proscription against the imposition of a penalty on the right to litigate
(Universal Shipping Lines Inc. v. Intermediate Appellate Court, 188 SCRA 170
[1990]). The reason for the award must be stated in the text of the courts decision. If it
is stated only in the dispositive portion of the decision, the same shall be disallowed.
As to the award of attorneys fees being an exception rather than the rule, it is
necessary for the court to make findings of fact and law that would bring the case
within the exception and justify the grant of the award. Refractories Corporation of
the Philippines v. Intermediate Appellate Court, 176 SCRA 539 [1989].

WHEREFORE, the petition is PARTIALLY GRANTED. The decision of the

Court of Appeals is AFFIRMED with MODIFICATION to the effect that the
award of monthly rentals on the subject property and attorneys fees in favor of
respondents is DELETED.
SO ORDERED.
Puno, Acting
JJ., concur.

C.J.,

(Chairman),

Callejo,

Sr., and Chico-Nazario,

Tinga, J., out of the country.

EN BANC
[G.R. No. 43304. October 21, 1936.]
ANTONIO F. AQUINO, special administrator of the testate estate of the deceased
Mariano Aquino, Plaintiff-Appellee, v. TOMAS DEALA, Defendant-Appellant.
Bernardo Fabian for Appellant.
M.A. Ferrer for Appellee.
SYLLABUS
1. CONTRACTS; SALE WITH "PACTO DE RETRO" AND LOAN; INTERPRETATION OF A
CONTRACT; AFFIRMATION OF FORMER DOCTRINE. In view of the facts stated in the decision
this court reiterates the doctrine laid down in the case of Padilla v. Linsangan (19 Phil., 65),
that "the court will not construe an instrument to be one of a sale con pacto de retro, with the
stringent and onerous effects that follow, unless the terms of the instrument and all the
circumstances positively require it. Whenever, under the terms of the writing, any other
construction can fairly and reasonably be made, such construction will be adopted. Sales with
a right to repurchase, as defined by the Civil Code, are not favored, and the contract will be
construed as a mere loan unless the court can see that, if enforced according to its terms, it is
not an unconscionable one."
cralaw virtua1aw library

2. VALIDITY OF STIPULATIONS OF A CONTRACT; JURIDICAL QUALIFICATION OF RESULTING

CONTRACT. While it is true that the contracting parties may establish any agreements,
terms and conditions they may deem advisable, provided they are not contrary to law, morals,
or public order (art. 1255, Civil Code), the validity of these agreements is one thing, and the
juridical qualification of the contract resulting therefrom is very distinctly another. The
stipulations of the contract in this case change the status of the sale with pacto de retro and
give rise to juridical relations of different nature.

3. EJECTMENT; JURISDICTION WHEN QUESTION OF OWNERSHIP IS RAISED. The mere fact

that the defendant, in his answer, claims to be the owner of the property from which the
plaintiff seeks to eject him is not sufficient to divest a justice of the peace court of its summary
jurisdiction in actions of forcible entry and detainer, because were the principle otherwise, the
ends of justice would be frustrated by making the efficacy of this kind of actions depend upon
the defendant in all cases. The foregoing rule does not hold when the evidence shows that the
question of title is actually involved in the letigation and that the defendants contention,
according to said evidence, is meritorious.
4. ID.; ID. The evidence presented in the Court of First Instance of Manila where the case
was brought on appeal, shows that the title to the disputed property was correctly questioned.
Therefore the Court of First Instance should have declared itself without jurisdiction to proceed
with the trial of the case on appeal after examining said evidence, and ordered the dismissal
thereof.

DECISION

RECTO, J.:

The questions raised in this appeal may be summarized into two: (1) Whether the contract
evidenced by the documents Exhibits 1, 3, 4 and 5 is a sale with right of repurchase or a
simple loan secured by real property, and (2) whether or not, as the question of ownership of
the real property referred to in the complaint has been raised in the municipal court of Manila
where this case originated, and later in the Court of First Instance of Manila, where it was
brought on appeal, said courts had jurisdiction to continue hearing it. The other questions are
incidental and subordinate and the resolution thereof will depend upon that of the former
ones.
The following facts have been established by the evidence of the case:

chanrob1es virtual 1aw library

The defendant approached Mariano Aquino, the plaintiffs father, to solicit a loan for a certain
amount secured by the real property described in original certificate of title No. 5014, on which
a house of strong materials designated by No. 670, Tanduay Street, was built. Mariano Aquino
acceded to the defendants proposition on condition that the transaction be evidenced by a
deed in the form and under the conditions imposed because otherwise he would not have
obtained the sum needed by him, and to that effect Exhibit 1 was executed, the principal
clauses of which read as follows:
jgc:chanrobles.com .ph

"2. In consideration of the sum of four thousand pesos (P4,000) actually received by Tomas
Deala and paid by Mariano Aquino, said Tomas Deala sells, cedes and transfers to said Mariano
Aquino the real property described in paragraph 1 of this deed, free from all liens and
incumbrances, subject to the resolutory condition hereinafter stated.
"3. It is hereby agreed and stipulated between Tomas Deala and Mariano Aquino that the latter
hereafter becomes the owner of the property sold, the vendor being liable for eviction and
warranty in the present sale.
"4. It is likewise stipulated that the vendor Tomas Deala shall be entitled to repurchase the
property sold, provided he pays the selling price within the period of four (4) years from this
date, plus any other sum for the payment of which he may be liable under the terms of this
document.
"5. It is likewise stipulated that Tomas Deala binds himself to construct a two-story house of
strong materials on the vacant lot of the parcels of land described in paragraph 1 of this deed,
within the period of six (6) months from this date.
"6. It is also stipulated that said Tomas Deala binds himself to insure against fire the buildings
on the parcel of land above-stated for not less than three thousand pesos (P3,000), the

premiums thereon to be paid by said Tomas Deala who will immediately indorse the policy to
the purchaser Mariano Aquino after the property is insured.
"7. It is likewise stipulated that should the period for the repurchase elapse and the vendor
fails to make use of such right, this sale will become final and irrevocable without the necessity
of executing any other document therefor.
"8. It is likewise stipulated that Tomas Deala will defray the expenses for the execution of this
deed and that of the repurchase, as the case may be, as well as the registration of both
documents in the registry of deeds.
"9. Mariano Aquino, as purchaser, states his acceptance of and conformity to the sale executed
by Tomas Deala.
"10. Upon the consummation of the sale under the above-stated terms, it is now stipulated
and agreed that Mariano Aquino cedes and Tomas Deala receives, under lease, the property
described in paragraph 1 of this deed, as well as the house which said Deala binds himself to
build, on the following conditions:
jgc:chanroble s.com.ph

"(a) The terms of the lease is four (4) years, from this date.
"(b) The lease will be for the sum of forty pesos (P40) a month, payable in advance within the
first five days of every month, at the residence of the lessor.
"(c) Failure to pay the lease for three (3) consecutive months will entitle the lessor to eject the
lessee from the property leased.
"(d) Payment of the land tax on the property leased as well as of any other tax actually
imposed or hereafter to be imposed thereon, will be charged to the account of the lessee.
"(e) Expenses for the conservation and hygienization of the leased property, as well as those in
compliance with all orders issued by any office or dependency of the government in connection
with said property, will also be charged to the account of the lessee.
"(f) Payment of the electric current, gas consumption, water and sewer service of the leased
property will likewise be charged to the account of the lessee.
"11. Lastly, it is stipulated that in the event Mariano Aquino has to resort to an attorney or the
courts of justice to enforce the stipulations of this contract, Tomas Deala will pay to said
Mariano Aquino damages in the sum of three hundred pesos (P300), which will have to be
added to the repurchase price agreed upon in case the right of repurchase above-stated is
exercised."
cralaw virtua1aw library

Exhibit 1 was novated on December 26, 1926, the only alteration made being in the clause
referring to the price and the rent which were increased to P4,500 and P45, respectively
(Exhibit 3). It was renovated on May 31, 1927, by increasing said price and rent to P5,200 and
P52, respectively (Exhibit 4), and on April 20, 1931, it was finally renovated by increasing the
price to P6,600, reducing the rent to P49.50 a month and extending the period of repurchase
to April 20, 1933, the original period of four years agreed upon in Exhibit 1 having expired
some months before. With the exception of the amount of the price and the rent and the
extension of the period of repurchase, the stipulations of the original deed (Exhibit 1) were left
intact in the subsequent novations (Exhibits 3,4 and 5).
On November 4, 1926, the defendant obtained permission from the department of engineering
and public works to construct a two-story house of strong materials on the vacant part of the
lot in question, the work having been finished about June 23, 1928.
On June 9, 1933, Mariano Aquino had the consolidation of his ownership of the property
referred to in said documents registered in the registry of deeds and transfer certificate of title
No. 42982 (Exhibit B) was issued to him. He died sometime later and his son Antonio F.
Aquino, who instituted the present ejectment proceedings in the municipal court of Manila, was
appointed special administrator of his testate estate. The defendant timely raised the question

of ownership both in the court of origin and in the Court of First Instance. The municipal court
ordered the defendant to vacate the property in question and to pay the plaintiff the unpaid
rents at the rate of P50 a month, plus the costs. The Court of First Instance, on appeal,
substantially affirmed the appealed judgment, overruling the defenses set up by the
defendant.
We are of the opinion that the defendants contention regarding the nature of the contract
Exhibit 1 and the novations thereof is meritorious. Although from the defendants testimony
that Mariano Aquino refused to give him the sum of P4,000 if the contract was not executed
under the conditions of Exhibit 1, it may be inferred that the parties entered, with reluctance
on the part of the defendant, into a contract of sale with pacto de retro and not of simple loan,
the very terms of the stipulations of Exhibit 1, the subsequent conduct of the parties and other
circumstances of the case warrant the conclusion that the true intention of the parties was the
granting of a loan in a certain amount to the defendant, with interest at 12 per cent per annum
which, in view of the defendants precarious situation, was later reduced to 9 per cent so that
he could build another house on the vacant part of the lot in question, the loan being secured
by said lot, the house already built thereon at the time of the execution of the contract and
that which the defendant intended to build with the money received from Mariano Aquino. If
the words "sale with right of repurchase", "price", "repurchase", "right of redemption", "lease",
"rent", "purchaser", "vendor", and other similar words used according to custom in the deed
Exhibit 1, the other stipulations contained therein and the other circumstances of the case are
incompatible with the idea that it was the intention of the assignor to transfer the ownership of
the property in question to the purchaser at a certain price, the vendor reserving for himself
only the right to repurchase it within a certain period.
Let us begin with the stipulations of the original contract Exhibit 1. Those contained in
paragraphs 5, 6, 10 and 11 thereof are, in our opinion, incompatible with the theory that the
contract was one of purchase and sale as claimed by the plaintiff. We should not lose sight of
the fact that between an absolute sale and a sale with right of repurchase, no difference exists
except that in the latter the ownership of the purchaser is subject to the resolutory condition
that the vendor exercises his right of repurchase with the time agreed upon.
Under paragraph 5 of Exhibit 1, the so-called vendor found himself to construct a two-story
house of strong materials within six months on the vacant part of the lot referred to in the
contract. If the contract were truly one of purchase and sale, it is not explained why the
vendor should have to assume said obligation and spend the money received from the
purchaser in compliance therewith. The act which the defendant bound himself to execute by
virtue of the contractual clause under consideration was an act of ownership and the
performance thereof devolved upon the purchaser-owner, not upon the vendor-lessees. Said
clause indicates that Mariano Aquino, in granting the loan of P4,000 to the defendant,
considered the security offered insufficient and therefore required the debtor to amplify it by
constructing another additional house on the lot given as security. Had it been the intention of
the parties of make this new house, upon construction, a part of the subject matter of the said
sale, a stipulation regarding payment of additional rent would have been inserted in the
contract inasmuch as a rental of P40 a month was fixed for the use and occupation of the
house already existing on the property which is the subject matter of the contract. It is true
that under paragraph 10 this sum of P40 was for the rent not only of the house already
existing but also of that which the defendant undertook to construct, but this part of the
contract is clearly fictitious, because if the rent of P40 covered the two houses, it is not
explained why the lessee should agree to pay rent for the occupation of an inexistent house
which he himself was to construct with his own money and how the lessor should accept rent
of only P40 for two houses of strong materials, one of which consists of two stories.
Paragraph 6 and paragraph 10, subparagraph (d), of Exhibit 1 imposed upon the vendor the
obligation to insure against fire the buildings constructed on the property which is the subject
matter of the contract, for not less than P3,000, the payment of the premiums thereof being to
the account of said vendor who was obliged to indorse the policy immediately to the purchaser
and to pay, also for his own account and responsibility, the land tax and any other taxes
imposed or that might thereafter be imposed upon the property. When a property is insured,
the indemnity, in case of loss, is paid to the owner because the insurable interest is his. This
being so, the correlative obligation to pay for the insurance premiums should devolve upon the
owner and not upon the lessee or vendor with right of repurchase who, with the exception of

his right of redemption, should have considered all other juridical relations with the property
sold extinguished after the contract. The same is true with respect to the payment of the land
tax. This lien should have been shouldered by the owner and not by the lessee.
Under paragraph 10, subparagraph (e), the expenses for the conservation of the property
should likewise be for the account of the defendant. However, these expenses are ordinarily for
the account of the lessor (article 1554, Civil Code).
It appears that Mariano Aquino desired to obtain a net income of 12 per cent per annum from
his investment and for this reason he caused the defendant to assume the obligation to pay
not only the land tax and insurance of the property but also the expenses for its conservation.
If Mariano Aquino had assumed these obligations which strictly belong to the owner of the
property, instead of imposing them upon the defendant, he would not have been able to realize
said net income of 12 per cent per annum on his capital, because he would have had to deduct
therefrom the sum represented by the insurance, the land tax and the expenses for the
conservation of the property. On the other hand, had he assumed such obligations and
compensated these liens by charging interest in excess of 12 per cent he would have openly
violated the Usury Law.
The other facts of the case showing that the contract in question was a simple loan with
interest at 12 per cent which was later reduced to 9 per cent are as follows:
chanrob1es virtual 1aw library

(a) When the alleged sale price was increased to P4,500 in the first novation of the contract on
December 26, 1926, the rent of the property was increased to P45, in spite of the fact that
said property had suffered no change, in order to maintain the rate of interest at 12 per cent.
When the contract was novated for the second time on May 31, 1927, by increasing the socalled selling price to P5,200, the rent was likewise increased to P52 in order to continue
maintaining the rate of interest at 12 per cent. It was only when said contract was novated for
the last time on April 20, 1931, and the so-called selling price was increased to P6,600 that the
rent was reduced to P49.50 a month because Mariano Aquino had acceded to reduce the rate
of interest to 9 per cent. The new house on the lot in question had just been finished about
June 23, 1928, and it is strange that the fluctuations of the amount of the rent had nothing to
do with the construction of said new house but with the successive increases of the so-called
selling price, or the amount of the loan. In other words, the rent went up or down not because
of the improvement or amplification of the leased property but because of the increase of the
amount of the loan and the rate of the interest agreed upon by the parties.
(b) The term of the right of redemption, under the original deed, was supposed to expire and it
expired on September 25, 1930. However, the so-called purchaser, far from having the
consolidation of his ownership registered in the registry of deeds, executed Exhibit 5, on April
20, 1931, "extending" the already expired original term of four years stipulated in Exhibit 1 to
April 20, 1933. This shows that, notwithstanding the form of the contract, Mariano Aquino
always considered the transaction as a simple loan. The affirmation made in paragraph 3 of the
deed Exhibit 5 that "as the term of the contract had expired on September 25, 1930, the same
remaining in statu quo, etc." excludes every idea that the parties intended to enter into a
contract of sale. In fact, once the period for the right have been exercised, it could not be said,
if the contract were on of sale with pacto de retro, that "the contract has remained in statu
quo", because failure to exercise the right of redemption, in such contract, automatically
produces the effect of consolidating the ownership of the purchaser without the necessity of
any other act on his part, the fact on which his ownership was temporarily conditioned not
having been realized.
In Padilla v. Linsangan (19 Phil., 65), we stated that "the court will not construe an instrument
to be one of a sale con pacto de retro, with the stringent and onerous effects that follow,
unless the terms of the instrument and all the circumstances positively require it. Whenever,
under the terms of the writing, any other construction can fairly and reasonably be made, such
construction will be adopted. Sales with a right to repurchase, as defined by the Civil Code, are
not favored, and the contract will be construed as a mere loan unless the court can see that, if
enforced according to its terms, it is not an unconscionable one."
cralaw virtua1aw library

We consider the following provisions of the Civil Code in matters of interpretation of contracts
pertinent to the case:
jgc:chanrobles.com .ph

"If the words appear to be contrary to the evident intention of the contracting parties, the
intention shall prevail." (Art. 1281.)
"In order to judge as to the intention of the contracting parties, attention must be paid
principally to their conduct at the time of making the contract and subsequently thereto." (Art.
1282.)
It may be contended that "the contracting parties may establish any agreements, terms and
conditions that may deem advisable, provided they are not contrary to law, morals, or public
order." (Art. 1255, Civil Code.) However, we do not declare herein the nullity of the
agreements contained in Exhibit 1 and in its various novations. None of said agreements is
contrary to law, morals, or public order, and all of them should therefore be maintained out of
respect to the will of the contracting parties. The validity of these agreements, however, is one
thing, while the juridical qualification of the contract resulting therefrom is very distinctly
another. Such agreements, in our opinion, charge the status of the sale with pacto de retro and
give rise to juridical relations of a different nature. Similar thereto is a contract of
commodatum wherein payment of compensation by the person acquiring the use of the thing
is stipulated. This stipulation is valid but the commodatum, although so termed, ceases to exist
and it converted into another contract with different effects (art. 1741). The same thing
happens with the contract of depositum. Although it would seem that article 1760 of the Civil
Code indirectly authorizes the constitution of an onerous deposit, when there is an express
stipulation to that effect, this court has repeatedly held that the deposit should be considered a
loan when it contains a stipulation for payment of interest. (Garcia Gavieres v. Pardo de
Tavera, 1 Phil., 71; Barretto v. Reyes, 10 Phil., 489; In re Guardianship of the minors Tamboco,
36 Phil., 939, 941.) In order not to multiply the examples, we shall cite the cases of use and
habitation wherein the usuary who consumes all the fruits of the thing subject to use, and the
person having the right of habitation who occupies the whole house, are considered
usufructuaries (art. 527).
The other point to be resolved is whether or not the municipal court had jurisdiction to proceed
with the trial of the case after the defendant had raised the question of ownership therein. We
have repeatedly held that the mere fact that the defendant, in his answer, claims to be the
owner of the property from which the plaintiff seeks to eject him is not sufficient to divest a
justice of the peace court of its summary jurisdiction in actions of forcible entry and detainer,
because were the principle otherwise, the ends of justice would be frustrated by making the
efficacy of this kind of actions depend upon the defendant in all cases. However, we have also
held (Supia and Batioco vs Quintero and Ayala, 59 Phil., 312), favorably citing Pettit v. Black
(13 Neb., 142, 154), and Green v. Morse (57 Neb., 391), that the foregoing rule does not hold
when the evidence shows that the question of title is actually involved in the litigation and that
the defendants contention, according to said evidence, is meritorious. In this case the records
do not disclose the nature of the evidence presented in the municipal court of origin in
connection with the question of the ownership raised by the defendant and, therefore, we are
not in a position to rule that said court was without jurisdiction to proceed with the trial of the
case. We find, however, that the evidence presented in the Court of First Instance of Manila,
where the case was brought on appeal, shows that the title to the disputed property was
correctly questioned. Therefore the Court of First Instance should have declared itself without
jurisdiction to proceed with the trial of the case on appeal after examining said evidence, and
ordered the dismissal thereof.
Wherefore, we are of the opinion and so hold that the case should be dismissed without
prejudice to any other action compatible with the pronouncements contained in this decision,
which the parties or any of them might desire to bring, without costs.
Avancea, C.J., Villa-Real, Abad Santos, Imperial, Diaz and Laurel, JJ., concur.