Aquino v. Deala
REITERATIONFacts
The Antecedents: The defendant, Tomas Deala, approached Mariano Aquino for a loan secured by real property. The parties executed a document (Exhibit 1) styled as a sale with right of repurchase, wherein Deala sold the property to Aquino for P4,000, with a right to repurchase within four years. The contract also stipulated that Deala would construct a house on the property, insure it, pay taxes and maintenance, and lease the property back from Aquino for P40 per month. The contract was subsequently novated multiple times, increasing the purported sale price and rent, and extending the repurchase period. Procedural History: Mariano Aquino registered the consolidation of ownership and obtained a transfer certificate of title. After Aquino's death, his special administrator, Antonio F. Aquino, filed an ejectment suit against Deala. The municipal court ordered Deala to vacate and pay back rents. The Court of First Instance affirmed the judgment. The Petition: The defendant appealed, raising two main issues: the nature of the contract (sale with right of repurchase vs. simple loan) and the jurisdiction of the courts given the question of ownership raised.
Issue(s)
Whether the contract evidenced by Exhibits 1, 3, 4, and 5 is a sale with right of repurchase or a simple loan secured by real property. Whether the municipal and Court of First Instance had jurisdiction to hear the case despite the question of ownership being raised.
Ruling
The Supreme Court held that the contract is a simple loan secured by real property, not a sale with right of repurchase. Consequently, the Court of First Instance should have dismissed the case for lack of jurisdiction after finding that the question of title was genuinely involved. The case was dismissed without prejudice.
Ratio Decidendi
On the nature of the contract: The Court ruled that despite the language used in the contract (e.g., "sale with right of repurchase," "price," "repurchase," "lease," "rent"), the true intention of the parties was to enter into a simple loan agreement. Several stipulations in the contract were incompatible with a genuine sale with right of repurchase. These included the vendor's obligation to construct a new house on the property, to insure the buildings, and to pay land taxes and maintenance expenses. These obligations are typically incumbent upon the owner, not a vendor with a right to repurchase or a lessee. Furthermore, the fluctuations in the purported "rent" directly correlated with changes in the "selling price" and the desired interest rate, indicating that the rent was merely a guise for interest payments on the loan. The extension of the repurchase period beyond its expiration also demonstrated that the parties considered the transaction as an ongoing loan. The Court emphasized that it would not construe an instrument as a sale with pacto de retro unless the terms and circumstances positively required it, preferring a construction as a mere loan when reasonably possible, especially when the terms appear unconscionable. On the jurisdiction of the courts: The Court reiterated its established jurisprudence that while the mere claim of ownership by the defendant in an ejectment case does not divest the inferior court of jurisdiction, this rule does not apply when the evidence shows that the question of title is actually involved and the defendant's contention is meritorious. In this case, the evidence presented in the Court of First Instance demonstrated that the title to the disputed property was genuinely questioned. Therefore, the Court of First Instance, on appeal, should have declared itself without jurisdiction to proceed with the trial and should have ordered the dismissal of the case. The Court noted that the records did not disclose the nature of the evidence presented in the municipal court regarding the ownership question, thus it could not rule on its jurisdiction.
Main Doctrine
The Court will not construe an instrument to be one of sale with pacto de retro unless the terms and circumstances positively require it; otherwise, it will be construed as a mere loan. The intention of the parties, as evidenced by their conduct and the stipulations in the contract, prevails over the literal wording.