Diño v. Jardines
REITERATIONFacts
The Antecedents: Leonides C. Diño filed a Petition for Consolidation of Ownership against Lina Jardines, alleging that Jardines executed a Deed of Sale with Pacto de Retro for a parcel of land with improvements for P165,000.00. The redemption period expired on July 29, 1987, without Jardines redeeming the property, leading Diño to claim absolute ownership. Jardines countered that the transaction was a loan secured by the deed, not a sale, and that the property's value was significantly higher than the stated sale price. She claimed to have paid a substantial portion of the loan and was willing to settle the balance, but Diño insisted on appropriating the property. Diño later amended her complaint to include claims for actual and moral damages. Procedural History: The Regional Trial Court (RTC) of Baguio City, Branch 7, initially ruled in favor of Diño, declaring the contract as a deed of sale with right to repurchase and ordering the consolidation of ownership of the house and improvements, and Diño's acquired rights over the land. The RTC also awarded damages and attorney's fees to Diño. Jardines appealed this decision to the Court of Appeals (CA). The CA reversed the RTC's decision, finding the contract to be an equitable mortgage based on Jardines' continued possession of the property, her payment of real property taxes, and the fact that the sale price earned monthly interest. The CA ordered Jardines to pay legal interest on the P165,000.00 from July 29, 1987. Diño's motion for reconsideration was denied. The Petition: Diño filed a petition for review on certiorari with the Supreme Court, assailing the CA's decision. She argued that the CA erred in classifying the contract as an equitable mortgage instead of a pacto de retro sale, in ordering the payment of legal interest despite conflicting admissions on the agreed interest rate, and in its findings of fact which she claimed were contrary to evidence. Diño also contended that the CA erred in deleting the award for damages, arguing this went beyond the issues raised in the appeal. The Supreme Court, however, found the petition to be without merit, affirming the CA's classification of the contract as an equitable mortgage and its ruling on damages, while modifying the computation of legal interest.
Issue(s)
Whether the contract between the parties is a pacto de retro sale or an equitable mortgage. Whether the CA erred in deleting the award for damages. Whether the CA erred in ordering the respondent to pay legal interest despite conflicting stipulations on the interest rate.
Ruling
The petition is denied. The Decision of the Court of Appeals is affirmed with modification regarding the computation of legal interest.
Ratio Decidendi
On whether the contract is a pacto de retro sale or an equitable mortgage: The Court affirmed the CA's finding that the contract was an equitable mortgage. The Court reiterated that under Article 1602 of the Civil Code, a contract is presumed to be an equitable mortgage if, among other circumstances, the vendor remains in possession of the property (paragraph 2) or the vendor binds himself to pay the taxes on the thing sold (paragraph 5). The Court noted that respondent Jardines remained in actual physical possession of the property and continued to pay the real property taxes, which were admitted by petitioner Diño during the pre-trial conference. Furthermore, the purported purchase price of P165,000.00 was stipulated to earn monthly interest of 10% if not paid by the redemption date, a circumstance that strongly indicates the intention to secure a debt rather than a genuine sale. The Court emphasized that even one of the circumstances enumerated in Article 1602 is sufficient to declare a contract as an equitable mortgage, and in case of doubt, Article 1603 mandates that the contract be construed as an equitable mortgage. The disproportionate value of the property compared to the sale price, as argued by respondent, further supports the equitable mortgage characterization. On whether the CA erred in deleting the award for damages: The Court found the allegation unmeritorious, citing Section 8, Rule 51 of the Rules of Court, which allows appellate courts to pass upon plain errors even if not assigned. The RTC's award for actual damages was deemed a plain error because there was insufficient evidence to prove the claim. Petitioner's testimony regarding expenses for collection and travel to attend hearings was not supported by official receipts, which are required for the award of actual damages according to jurisprudence. Therefore, the CA correctly deleted the award for actual and compensatory damages. On whether the CA erred in ordering the respondent to pay legal interest despite conflicting stipulations on the interest rate: The Court held that the stipulated interest rates of 9% or 10% per month were excessive, iniquitous, unconscionable, and exorbitant, rendering them void. Citing established jurisprudence, the Court explained that such rates are contrary to morals and public policy, even if agreed upon by the parties, especially when one party is in dire need of funds. Consequently, the CA correctly reduced the exorbitant rate to "legal interest." The Court applied the ruling in Eastern Shipping Lines, Inc. v. Court of Appeals, stating that when the agreed interest rate is void, the rate of interest shall be 12% per annum, to be computed from default. In this case, default occurred upon judicial or extrajudicial demand. The Court determined that the earliest clear demand was the demand letter dated March 19, 1989, received by respondent on March 29, 1989. Therefore, the 12% legal interest should be computed from March 29, 1989, until fully paid.
Main Doctrine
A contract purporting to be a sale with right to repurchase is presumed to be an equitable mortgage when the vendor remains in possession of the property, or when the vendor pays the real property taxes thereon, or when the purported purchase price earns interest. Excessive, iniquitous, unconscionable, and exorbitant interest rates stipulated in a loan agreement are void, and in such cases, legal interest shall be imposed.