Heirs of Juanita Padilla Reyes v. Reyes

n. Right to Demand Partition — Repudiation

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Case DigestChapter III — Co-ownership

Heirs of Juanita Padilla Reyes v. Reyes

G.R. No. 158377 · August 13, 2010 · Supreme Court

n. Right to Demand Partition — Repudiation

Gist

A Bulacan family pledged the house they lived in for ₱500 in 1955 under a deed styled a sale with right to repurchase. Fifteen years later a grandson paid the debt, took an assignment from the lender's heirs, executed an affidavit consolidating ownership in himself and moved the tax declaration into his own name — then, two months later, signed a joint affidavit acknowledging that his relatives could still redeem. The Court held the deed an equitable mortgage, the consolidation void as pactum commissorium, and the repudiation of the co-ownership never effected.

Core Doctrine

A co-owner's possession "was like that of a trustee and was not regarded as adverse to his co-owners but in fact beneficial to all of them," and adverse possession requires four concurring elements: unequivocal acts of repudiation amounting to an ouster, made known to the other co-owners, evidence that is clear and conclusive, and possession that is open, continuous, exclusive, and notorious. Cancelling the co-owner's tax declaration and paying the taxes is not enough — "[t]he sole fact of a co-owner declaring the land in question in his name for taxation purposes and paying the land taxes did not constitute an unequivocal act of repudiation" — and an affidavit of consolidation over what is really an equitable mortgage is void for pactum commissorium and can repudiate nothing.

Facts

Antonio Reyes and his wife Leoncia Mag-isa Reyes owned a 442-square-metre residential lot in Pulilan, Bulacan under Tax Declaration No. 7590, and built their dwelling on it. They had four children — Jose Sr., Teofilo, Jose Jr. and Potenciana.
Antonio died intestate, survived by Leoncia and the three sons, Potenciana having predeceased her father; Potenciana also died intestate, leaving Gloria, Maria and Alfredo Reyes Valenzuela. Jose Jr. lived in the parents' house; Teofilo built his own house on the lot. Potenciana's line drops out of the case: the trial court dismissed as to her heirs because, having predeceased her parents, she "had no successional rights in the property," and that ruling was never appealed.
On 9 July 1955, Leoncia and her three sons executed a Kasulatan ng Biling Mabibiling Muli — a deed of sale with right to repurchase — conveying the land and its improvements to Spouses Benedicto Francia and Monica Ajoco for ₱500.00, redeemable for the same amount "sa oras na sila'y makinabang." Potenciana's heirs did not assent. (The open-ended redemption clause is why the Court supplies a ten-year period: it "signified that no definite period had been stated.")
After the deed, Teofilo and Jose Jr. and their families remained in possession and paid the realty taxes, and the land stayed declared in Leoncia's name. These two facts decide the character of the whole transaction — they are paragraphs (2) and (5) of Article 1602, and any one of the six badges suffices.
Leoncia and her children never repaid the ₱500.00. The Spouses Francia died intestate — Monica Ajoco on 16 September 1963, Benedicto Francia on 13 January 1964 — and never foreclosed.
Alejandro Reyes, son of Jose Sr., paid the debt in two instalments: ₱265.00 during the spouses' lifetime, then the ₱235.00 balance. On 11 August 1970 the heirs of the Spouses Francia executed a Pagsasa-ayos ng Pag-aari at Pagsasalin, transferring all their rights and interests to Alejandro for ₱500.00. (That deed itself calls the land "nakasanla" — mortgaged — to their predecessors, an admission the Court of Appeals seized on.)
On 21 August 1970 Alejandro executed a Kasulatan ng Pagmeme-ari, declaring that he had acquired ownership because the vendors had failed to repurchase in time. Tax Declaration No. 3703 was cancelled and Tax Declaration No. 8715 issued to Alejandro effective 1971, and from then on he paid the taxes; Tax Declaration No. 1228 in his name followed effective 1980. This is the strongest repudiation evidence in the case — and it fails, because "[t]he sole fact of a co-owner declaring the land in question in his name for taxation purposes and paying the land taxes did not constitute an unequivocal act of repudiation."
Yet on 17 October 1970 — two months later — Alejandro, his grandmother Leoncia and his father Jose Sr. executed a Magkakalakip na Salaysay, in which Alejandro acknowledged the right of Leoncia, Jose Sr. and Jose Jr. to repurchase the property at any time ("sa ano mang oras") for the same ₱500.00. The Court calls this and the consolidation affidavit "really equivocal and ambivalent acts that did not manifest his desire to repudiate the co-ownership" — and, fifteen years after the original deed, it is proof that everyone still treated the arrangement as a mortgage.
Leoncia died intestate on 22 October 1970. Teofilo and Jose Jr. and their families continued to reside on the property. All of Leoncia's sons eventually died; Jose Sr. was survived by Alejandro, and Jose Jr. by the petitioners.
Alejandro died intestate on 2 September 1993, survived by his wife Amanda Reyes and their children, the respondents.
In 1994, Amanda Reyes asked the heirs of Teofilo and Jose Jr. to vacate, "because she and her children already needed it," and on their refusal brought the matter to the barangay; the Lupon issued a certification to file action on 26 September 1994. Meanwhile Nenita R. de la Cruz and Romeo Reyes built their own houses on the property.
On 28 September 1994 the respondents sued for quieting of title and reconveyance in the RTC of Malolos, Bulacan, Branch 9 (Civil Case No. 817-M-94), praying to be declared the lawful owners, for the petitioners to vacate, and for ₱50,000.00 moral and ₱20,000.00 exemplary damages plus fees. The Court later identifies this filing as "[t]he only unequivocal act of repudiation" in the whole record — nearly forty years after the deed, and a year after Alejandro's death.
The petitioners answered that the 1955 deed was an equitable mortgage, that the mortgagors kept ownership, that Alejandro's right was only to reimbursement of the ₱500.00 from his co-owners, and that consolidation "could only be effected via a court order"; they counterclaimed for a declaration of equitable mortgage and co-ownership.
On 21 May 1996 the RTC ruled for the respondents, holding the deed a true pacto de retro sale, ownership consolidated in Alejandro by operation of law in 1965, the Magkasanib na Salaysay inefficacious because there was no subsisting period left to extend, and ordering the petitioners to vacate and pay ₱20,000.00 attorney's fees.
On 31 July 2002 the Court of Appeals agreed the deed was an equitable mortgage under Article 1602 — the vendors stayed in possession, paid the taxes, and the vendees never declared the property in their own names — but affirmed anyway, holding the petitioners barred by their failure to sue for reformation within ten years of 1955, and agreeing that the joint affidavit came too late.

Issue

Main issue. Whether Alejandro and his heirs acquired the property by prescription, the respondents contending that he had openly repudiated the co-ownership by redeeming, taking the assignment, consolidating ownership, moving the tax declaration into his name, possessing continuously and paying the taxes for decades.

Secondary issues. (1) Whether the Kasulatan ng Biling Mabibiling Muli was a pacto de retro sale or an equitable mortgage. (2) Whether failure to redeem, or to sue for reformation within ten years, barred the petitioners. (3) What effect the Magkasanib na Salaysay had. (4) Whether the Kasulatan ng Pagmeme-ari validly consolidated ownership. (5) What remedies remain to the respondents.

Ruling

Main issue. NO — no repudiation was ever effected, and nothing ripened into ownership. "It is true that Alejandro became a co-owner of the property by right of representation upon the death of his father, Jose Sr. As a co-owner, however, his possession was like that of a trustee and was not regarded as adverse to his co-owners but in fact beneficial to all of them." The test has four elements: "1. The co-owner has performed unequivocal acts of repudiation of the co-ownership amounting to an ouster of the cestui que trust or the other co-owners; 2. Such positive acts of repudiation have been made known to the cestui que trust or the other co-owners; 3. The evidence on the repudiation is clear and conclusive; and 4. His possession is open, continuous, exclusive, and notorious." None of the six acts the respondents listed satisfies them. Possession was never exclusive: "Alejandro did not have adverse and exclusive possession of the property, as, in fact, the other co-owners had continued to possess it, with Alejandro and his heirs occupying only a portion of it." The tax evidence is insufficient as a matter of law: "Neither did the cancellation of the previous tax declarations in the name of Leoncia, the previous co-owner, and the issuance of a new one in Alejandro's name, and Alejandro's payment of the realty taxes constitute repudiation of the co-ownership. The sole fact of a co-owner declaring the land in question in his name for taxation purposes and paying the land taxes did not constitute an unequivocal act of repudiation amounting to an ouster of the other co-owner and could not constitute adverse possession as basis for title by prescription." The consolidation affidavit is worth nothing because the underlying deed was a mortgage: "if a sale a retro is construed as an equitable mortgage, then the execution of an affidavit of consolidation by the purported buyer to consolidate ownership of the parcel of land is of no consequence and the 'constructive possession' of the parcel of land will not ripen into ownership, because only possession acquired and enjoyed in the concept of owner can serve as title for acquiring dominion." And the oral demands prove nothing: "Their bare claim that Alejandro had made oral demands to vacate to his co-owners was self-serving and insufficient. Alejandro's execution of the affidavit of consolidation of ownership on August 21, 1970 and his subsequent execution on October 17, 1970 of the joint affidavit were really equivocal and ambivalent acts that did not manifest his desire to repudiate the co-ownership. The only unequivocal act of repudiation was done by the respondents when they filed the instant action for quieting of title on September 28, 1994, nearly a year after Alejandro's death on September 2, 1993. However, their possession could not ripen into ownership considering that their act of repudiation was not coupled with their exclusive possession of the property."

Secondary issue (1) — the character of the deed. It is an EQUITABLE MORTGAGE. The vendors "had continued in the possession of the property even after the execution of the agreement" and it "had remained declared for taxation purposes under Leoncia's name, with the realty taxes due being paid by Leoncia" — paragraphs (2) and (5) of Article 1602 — and "[t]he existence of any one of the conditions enumerated under Article 1602 of the Civil Code, not a concurrence of all or of a majority thereof, suffices to give rise to the presumption that the contract is an equitable mortgage."

Secondary issue (2) — the bars. NEITHER applies. On redemption, the open-ended clause "sa oras na sila'y makinabang... signified that no definite period had been stated," so Articles 1142 and 1144 gave ten years — but the mortgagees never foreclosed either, and instead "accepted Alejandro's payments, until the debt was fully satisfied by August 11, 1970. The acceptance of the payments even beyond the 10-year period of redemption estopped the mortgagees' heirs from insisting that the period to redeem the property had already expired. Their actions impliedly recognized the continued existence of the equitable mortgage." On reformation, the parties "had abided by their true agreement under the deed, to the extent that they and their successors-in-interest still deemed the agreement as an equitable mortgage despite the lapse of 15 years... Hence, an action for reformation of the Kasulatan ng Biling Mabibiling Muli was unnecessary, if not superfluous, considering that the reason underlying the requirement for an action for reformation of instrument has been to ensure that the parties to a contract abide by their true intended agreement."

Secondary issue (3) — the Magkasanib na Salaysay. VALID and EFFECTIVE. The lower courts had voided it for extending an expired period, but Article 1602(3) treats exactly that as a badge of mortgage: "Ostensibly, the law allows a new period of redemption to be agreed upon or granted even after the expiration of the equitable mortgagor's right to repurchase, and treats such extension as one of the indicators that the true agreement between the parties is an equitable mortgage, not a sale with right to repurchase. It was indubitable, therefore, that the Magkasanib na Salaysay effectively afforded to Leoncia, Teofilo, Jose, Sr. and Jose, Jr. a fresh period within which to pay to Alejandro the redemption price of ₱500.00."

Secondary issue (4) — the Kasulatan ng Pagmeme-ari. VOID. "When Alejandro redeemed the property on August 11, 1970, he did not thereby become a co-owner thereof, because his father Jose, Sr. was then still alive. Alejandro merely became the assignee of the mortgage... As an assignee of the mortgage and the mortgage credit, Alejandro acquired only the rights of his assignors, nothing more." To appropriate the land would violate Article 2088: "[t]he creditor cannot appropriate the things given by way of pledge or mortgage, or dispose of them[;] [a]ny stipulation to the contrary is null and void." As Montevirgen holds, "consolidation of ownership is an improper and inappropriate remedy to enforce a transaction declared to be one of mortgage. It is the duty of respondents, as mortgagees, to foreclose the mortgage if he wishes to secure a perfect title." And "the respondents, as Alejandro's heirs, were entirely bound by his previous acts as their predecessors-in-interest."

Secondary issue (5) — what the respondents may still do. They "can only demand from the petitioners the partition of the co-owned property and the reimbursement from their co-owners of the amount advanced by Alejandro to repay the obligation. They may also seek from their co-owners the proportional reimbursement of the realty taxes paid for the property, pursuant to Article 488 of the Civil Code. In the alternative, they may opt to foreclose the equitable mortgage, considering that the petitioners' period to redeem the mortgaged property, which was ten years from the execution on October 17, 1970 of the Magkakasanib na Salaysay, had already long lapsed" — but "only through the appropriate actions commenced in court."

"WHEREFORE, we grant the petition for review on certiorari. The decision dated July 31, 2002 rendered by the Court of Appeals is reversed and set aside, and another judgment is rendered: a) Upholding the validity of the Kasulatan ng Biling Mabibiling Muli... as well as the Pagsasa-ayos ng Pag-aari at Pagsasalin...; b) Declaring the Kasulatan ng Biling Mabibili Muli to be an equitable mortgage, not a contract of sale with right to repurchase; c) Finding the Magkakalakip na Salaysay executed on October 17, 1970 by and among Leoncia Mag-isa Reyes, Jose Reyes, Sr. and Alejandro Reyes valid and effective; d) Nullifying the Kasulatan ng Pagmeme-ari executed by Alejandro M. Reyes on August 21, 1970; and e) Dismissing the petitioners' counterclaim. Costs of suit to be paid by the respondents. SO ORDERED."

Ratio

The four elements of adverse possession between co-owners. "1. The co-owner has performed unequivocal acts of repudiation of the co-ownership amounting to an ouster of the cestui que trust or the other co-owners; 2. Such positive acts of repudiation have been made known to the cestui que trust or the other co-owners; 3. The evidence on the repudiation is clear and conclusive; and 4. His possession is open, continuous, exclusive, and notorious."
A co-owner possesses as trustee. "As a co-owner... his possession was like that of a trustee and was not regarded as adverse to his co-owners but in fact beneficial to all of them."
Possession shared with the others is not exclusive. "Alejandro did not have adverse and exclusive possession of the property, as, in fact, the other co-owners had continued to possess it, with Alejandro and his heirs occupying only a portion of it."
Tax declarations in one's own name are not repudiation. "The sole fact of a co-owner declaring the land in question in his name for taxation purposes and paying the land taxes did not constitute an unequivocal act of repudiation amounting to an ouster of the other co-owner and could not constitute adverse possession as basis for title by prescription."
An affidavit of consolidation over an equitable mortgage accomplishes nothing. "[I]f a sale a retro is construed as an equitable mortgage, then the execution of an affidavit of consolidation by the purported buyer to consolidate ownership... is of no consequence and the 'constructive possession' of the parcel of land will not ripen into ownership, because only possession acquired and enjoyed in the concept of owner can serve as title for acquiring dominion."
Equivocal acts, and the true date of repudiation. "Alejandro's execution of the affidavit of consolidation of ownership on August 21, 1970 and his subsequent execution on October 17, 1970 of the joint affidavit were really equivocal and ambivalent acts that did not manifest his desire to repudiate the co-ownership. The only unequivocal act of repudiation was done by the respondents when they filed the instant action for quieting of title on September 28, 1994."
Any one badge suffices. "The existence of any one of the conditions enumerated under Article 1602 of the Civil Code, not a concurrence of all or of a majority thereof, suffices to give rise to the presumption that the contract is an equitable mortgage."
An open-ended redemption clause gets ten years. "[S]a oras na sila'y makinabang, the period of redemption stated in the Kasulatan ng Biling Mabibiling Muli, signified that no definite period had been stated, the period to redeem should be ten years from the execution of the contract, pursuant to Articles 1142 and 1144 of the Civil Code."
Accepting late payments estops the mortgagee. "The acceptance of the payments even beyond the 10-year period of redemption estopped the mortgagees' heirs from insisting that the period to redeem the property had already expired. Their actions impliedly recognized the continued existence of the equitable mortgage."
Reformation is unnecessary where the parties already honour the true agreement. "[T]he parties in the Kasulatan ng Biling Mabibiling Muli had abided by their true agreement under the deed... Hence, an action for reformation... was unnecessary, if not superfluous."
A post-expiry extension is a badge, not a nullity. "[T]he law allows a new period of redemption to be agreed upon or granted even after the expiration of the equitable mortgagor's right to repurchase, and treats such extension as one of the indicators that the true agreement between the parties is an equitable mortgage."
An assignee takes only what his assignors had. "Alejandro merely became the assignee of the mortgage, and the property continued to be co-owned by Leoncia and her sons... As an assignee of the mortgage and the mortgage credit, Alejandro acquired only the rights of his assignors, nothing more."
Appropriation by a mortgagee is pactum commissorium. "[T]he creditor cannot appropriate the things given by way of pledge or mortgage, or dispose of them[;] [a]ny stipulation to the contrary is null and void."
Foreclosure is the mortgagee's remedy. "[C]onsolidation of ownership is an improper and inappropriate remedy to enforce a transaction declared to be one of mortgage. It is the duty of respondents, as mortgagees, to foreclose the mortgage if he wishes to secure a perfect title."
Heirs are bound by their predecessor's acts. "Alejandro's acknowledgment of the effectivity of the equitable mortgage agreement precluded the respondents from claiming that the property had been sold to him with right to repurchase."
Why the Code guards this ground. These provisions "are primarily designed to curtail the evils brought about by contracts of sale with right to repurchase, particularly the circumvention of the usury law and pactum commissorium," because financial distress leaves debtors "no choice... but to sign deeds of absolute sale of property or deeds of sale with pacto de retro if only to obtain the much-needed loan from unscrupulous money lenders."
The remedies that remain. Partition, reimbursement of the amount advanced, proportional reimbursement of realty taxes under Article 488, or foreclosure — "only through the appropriate actions commenced in court."

Doctrine

Four Concurring Elements of Adverse Possession Between Co-Owners: unequivocal acts amounting to ouster; made known; evidence clear and conclusive; and possession open, continuous, exclusive and notorious.
A Co-Owner Possesses as Trustee (Art. 494), beneficially for all.
Possession Shared With the Other Co-Owners Fails the Exclusivity Element — occupying "only a portion" is fatal.
Transferring the Tax Declaration Into One's Own Name and Paying the Taxes Is Not Repudiation.
Any One Badge Raises the Presumption of Equitable Mortgage (Art. 1602) — a concurrence is not required.
A Post-Expiry Extension of the Redemption Period Is Itself a Badge (Art. 1602(3)), not a void act.
An Open-Ended Redemption Clause Runs Ten Years (Art. 1142, Art. 1144), and accepting payment after it estops the mortgagee.
Reformation Is Unnecessary Where the Parties Have Honoured Their True Agreement.
An Assignee of a Mortgage Acquires Only the Rights of His Assignors.
A Mortgagee's Affidavit of Consolidation Is Void as Pactum Commissorium (Art. 2088); the remedy is foreclosure, and a void act can repudiate nothing.
Heirs Are Bound by Their Predecessor's Acknowledgments.
The Redeeming Co-Owner's Remedy Is Partition Plus Reimbursement (Art. 488), or Foreclosure — Not Ownership.

How to place this case in the chapter. This is the chapter's fullest catalogue of failed repudiation, because the respondents pleaded six acts at once and every one is answered. Read it against Heirs of Restar v. Heirs of Cichon, where a transferred tax declaration was the repudiation, and the contrast is instructive: in Restar the possessor held the land alone for thirty-eight years, while here the other co-owners never left. The tax declaration is only ever half the argument; exclusive possession is the other half, and Reyes is the case that says so. Set it beside Bicarme v. Court of Appeals and Fangonil-Herrera v. Fangonil and a pattern emerges — the possessor's own instrument keeps defeating him. Bicarme's deeds recited inheritance, Fangonil-Herrera's settlement named her a creditor, and Alejandro's Magkasanib na Salaysay acknowledged that his relatives could still redeem. Finally, note that the case teaches the chapter's remedial lesson twice over: paying to save the family land yields a credit, and a mortgagee who wants title must foreclose, not declare.

Full Digest — Recitation Format

I. Gist and Central Doctrine

Relationship to requested topic: DIRECT. Leoncia Mag-isa Reyes and her three sons conveyed the family's 442 sq m lot in Pulilan, Bulacan to the Spouses Francia for ₱500.00 in 1955 under a deed styled a sale with right to repurchase, redeemable "sa oras na sila'y makinabang." The family stayed on the land and kept paying its taxes. In 1970 the grandson Alejandro Reyes paid the debt, took an assignment from the lenders' heirs, executed an affidavit consolidating ownership in himself and moved the tax declaration into his name — then two months later signed a joint affidavit acknowledging his relatives' right to redeem at any time. His heirs sued in 1994 to quiet title; the RTC and the Court of Appeals ruled for them. The Supreme Court reversed, holding the 1955 deed an equitable mortgage, the consolidation void for pactum commissorium, the joint affidavit valid, and the co-ownership never repudiated — Alejandro having occupied only part of the land while the others remained.

II. Chronological Narration of Material Facts

Antonio Reyes and Leoncia Mag-isa Reyes owned a 442-square-metre residential lot in Pulilan, Bulacan, covered by Tax Declaration No. 7590, on which they built their dwelling. Their children were Jose Reyes, Sr., Teofilo Reyes, Jose Reyes, Jr. and Potenciana Reyes-Valenzuela.
Antonio died intestate, survived by Leoncia and the three sons; Potenciana predeceased her father, leaving Gloria, Maria and Alfredo Reyes Valenzuela.
Jose Jr. and his family resided in the parents' house; Teofilo built his own house on the property and lived there with his family.
On 9 July 1955, Leoncia and her three sons executed a Kasulatan ng Biling Mabibiling Muli, selling the land and its improvements to Spouses Benedicto Francia and Monica Ajoco for ₱500.00, subject to the vendors' right to repurchase for the same amount "sa oras na sila'y makinabang." Potenciana's heirs did not assent.
Teofilo and Jose Jr. and their families remained in possession and paid the realty taxes, and the property stayed declared for taxation in Leoncia's name. Leoncia and her children never repaid the ₱500.00.
The Spouses Francia died intestate — Monica Ajoco on 16 September 1963, Benedicto Francia on 13 January 1964 — without ever foreclosing.
Alejandro Reyes, son of Jose Sr., "first partially paid to the Spouses Francia the amount of ₱265.00 for the obligation of Leoncia, his uncles and his father," and "later paid the balance of ₱235.00."
On 11 August 1970, the heirs of the Spouses Francia executed a Pagsasa-ayos ng Pag-aari at Pagsasalin, transferring and conveying to Alejandro all their rights and interests for ₱500.00. The deed itself recites that the land was "nakasanla" — mortgaged — to their predecessors.
On 21 August 1970, Alejandro executed a Kasulatan ng Pagmeme-ari, declaring that he had acquired all the rights and interests of the Francia heirs, "including the ownership of the property, after the vendors had failed to repurchase within the given period."
On the basis of that document, Tax Declaration No. 3703 was cancelled and Tax Declaration No. 8715 issued to Alejandro effective 1971, and "[f]rom then on, he had paid the realty taxes." Tax Declaration No. 1228 in his name issued effective 1980.
On 17 October 1970, Alejandro, his grandmother Leoncia and his father Jose Sr. executed a Magkakalakip na Salaysay, "by which Alejandro acknowledged the right of Leoncia, Jose, Jr., and Jose, Sr. to repurchase the property at any time for the same amount of ₱500.00."
On 22 October 1970, Leoncia died intestate, survived by Jose Sr., Teofilo, Jose Jr. and Potenciana's heirs. Teofilo and Jose Jr. and their families continued to reside on the property.
All of Leoncia's sons eventually died intestate. Jose Jr. was survived by the petitioners — Magdalena, Oscar, Gamaliel, Rodolfo and Rodrigo C. Reyes and Nenita R. dela Cruz; Jose Sr. was survived by Alejandro Reyes, the respondents' predecessor.
On 2 September 1993, Alejandro died intestate, survived by his wife Amanda Reyes and their children Consolacion, Eugenia Reyes-Elvambuena, Luciana Reyes-Mendoza, Pedrito, Merlinda Reyes-Famodulan, Eduardo and June S. Reyes.
In 1994, Amanda Reyes asked the heirs of Teofilo and Jose Jr. to vacate "because she and her children already needed it," then filed a barangay complaint seeking their eviction. No settlement being reached, the Barangay Lupon issued a certification to file action on 26 September 1994. In the interim, Nenita R. de la Cruz and Romeo Reyes constructed their own houses on the property.
On 28 September 1994, the respondents filed Civil Case No. 817-M-94 for quieting of title and reconveyance in the RTC of Malolos, Bulacan, Branch 9, later amended, praying to be declared lawful owners, for the petitioners to vacate and reconvey, and for ₱50,000.00 moral damages, ₱20,000.00 exemplary damages, ₱20,000.00 attorney's fees, a ₱10,000.00 acceptance fee, ₱500.00 per court appearance, and costs.
On 21 May 1996 the RTC ruled for the respondents, sustaining the 1955 deed as a true sale with right to repurchase, confirming consolidation of ownership in Alejandro by operation of law in 1965, allowing registration of the Kasulatan ng Pagmeme-ari, ordering the petitioners to vacate, awarding ₱20,000.00 attorney's fees, and dismissing the complaint as against Potenciana's heirs because she "had no successional rights in the property."
On 31 July 2002, the Court of Appeals (Justice Romeo J. Callejo, Sr., with Justices Remedios Salazar-Fernando and Danilo B. Pine) affirmed in CA-G.R. CV No. 53039, holding the deed an equitable mortgage under Article 1602 but ruling the petitioners barred by their failure to sue for reformation within ten years of 9 July 1955, and agreeing that the joint affidavit could not extend an expired period.
On 13 August 2010, the Supreme Court granted the petition and reversed.

III. Arguments of the Parties

A. Petitioners (Heirs of Jose Reyes, Jr.)

That the Kasulatan ng Biling Mabibiling Muli "was an equitable mortgage, not a pacto de retro sale"; that "the mortgagors had retained ownership"; that the Francia heirs "could not have validly sold the property to Alejandro"; that "Alejandro's right was only to seek reimbursement of the ₱500.00 he had paid from the co-owners"; and that he "could not have also validly consolidated ownership... because a consolidation of ownership could only be effected via a court order." On prescription, that it "should as well be applied to the respondents, who had similarly failed to enforce their right under the equitable mortgage within ten years from its execution," so that upholding "the original intention of the parties... without taking prescription into account, is more in keeping with fairness and equity." They counterclaimed for a declaration of equitable mortgage and of co-ownership among all the heirs.

B. Respondents (Amanda S. Reyes and her children)

That Alejandro acquired ownership through the Pagsasa-ayos ng Pag-aari at Pagsasalin, consolidated it by the Kasulatan ng Pagmeme-ari, and had merely granted a right to repurchase that was not exercised. That the Magkasanib na Salaysay was void, and the petitioners could no longer claim to be co-owners because Alejandro had openly repudiated the co-ownership by: "(a) redeeming the property from the Spouses Francia; (b) acquiring the property from the heirs of Spouses Francia by virtue of a deed of assignment...; (c) executing an affidavit of consolidation of ownership over the property...; (d) applying for the cancellation of the tax declaration of property in the name of Leoncia, and the subsequent issuance of a new tax declaration in his name; (e) his continuous possession of the property from 1955... for a period of almost 50 years already; and (f) the payment of the taxes by Alejandro and the respondents for more than 30 years without any contribution from the petitioners" — so that he and his successors "had already acquired sole title over the property through acquisitive prescription."

IV. Issues

A. MAIN ISSUE

Whether Alejandro and his heirs acquired sole title by acquisitive prescription, the co-ownership having allegedly been repudiated.

B. SECONDARY ISSUES

Whether the Kasulatan ng Biling Mabibiling Muli was a pacto de retro sale or an equitable mortgage.
Whether the petitioners are barred by failure to redeem, or by failure to sue for reformation within ten years.
What the effect of the Magkasanib na Salaysay was.
Whether the Kasulatan ng Pagmeme-ari validly consolidated ownership in Alejandro.
What remedies remain to the respondents.

V. Ruling / Disposition

A. MAIN ISSUE

NO. A co-owner's possession "was like that of a trustee and was not regarded as adverse to his co-owners but in fact beneficial to all of them"; adverse possession requires the concurrence of four elements — unequivocal acts of repudiation amounting to ouster, made known to the others, clear and conclusive evidence, and possession open, continuous, exclusive and notorious — and "[t]he concurrence of the foregoing elements was not established herein." "Alejandro did not have adverse and exclusive possession of the property, as, in fact, the other co-owners had continued to possess it, with Alejandro and his heirs occupying only a portion of it." "The sole fact of a co-owner declaring the land in question in his name for taxation purposes and paying the land taxes did not constitute an unequivocal act of repudiation." The affidavit of consolidation over an equitable mortgage "is of no consequence"; oral demands to vacate were "self-serving and insufficient"; and both 1970 affidavits "were really equivocal and ambivalent acts." "The only unequivocal act of repudiation was done by the respondents when they filed the instant action for quieting of title on September 28, 1994... However, their possession could not ripen into ownership considering that their act of repudiation was not coupled with their exclusive possession of the property."

B. SECONDARY ISSUES

Equitable mortgage. The vendors stayed in possession and the property remained declared in Leoncia's name with her paying the taxes — Article 1602(2) and (5) — and "[t]he existence of any one of the conditions... suffices."
No bar. Ten years applied to redemption under Articles 1142 and 1144, but the mortgagees never foreclosed and "accepted Alejandro's payments," which "estopped the mortgagees' heirs"; and reformation "was unnecessary, if not superfluous" where the parties honoured the true agreement.
The joint affidavit is valid. Article 1602(3) treats a post-expiry extension as a badge of mortgage, so the Magkasanib na Salaysay "effectively afforded... a fresh period."
The consolidation is void. Alejandro was "merely... the assignee of the mortgage" and could not appropriate the property without violating Article 2088; "[i]t is the duty of respondents, as mortgagees, to foreclose the mortgage if he wishes to secure a perfect title."
Remedies. Partition, reimbursement of the amount advanced, proportional reimbursement of realty taxes under Article 488, or foreclosure — "only through the appropriate actions commenced in court."

"WHEREFORE, we grant the petition for review on certiorari... b) Declaring the Kasulatan ng Biling Mabibili Muli to be an equitable mortgage, not a contract of sale with right to repurchase; c) Finding the Magkakalakip na Salaysay... valid and effective; d) Nullifying the Kasulatan ng Pagmeme-ari...; and e) Dismissing the petitioners' counterclaim. Costs of suit to be paid by the respondents. SO ORDERED."

VI. Ratio Decidendi and Doctrines

A. Ratio Decidendi

The badges, and how few are needed. "The existence of any one of the conditions enumerated under Article 1602 of the Civil Code, not a concurrence of all or of a majority thereof, suffices to give rise to the presumption that the contract is an equitable mortgage."
Why the Code guards this ground. The provisions "are primarily designed to curtail the evils brought about by contracts of sale with right to repurchase, particularly the circumvention of the usury law and pactum commissorium... grave financial distress renders persons hard-pressed to meet even their basic needs or to respond to an emergency, leaving no choice to them but to sign deeds of absolute sale of property or deeds of sale with pacto de retro if only to obtain the much-needed loan from unscrupulous money lenders."
The ten-year redemption period. "[S]a oras na sila'y makinabang... signified that no definite period had been stated, the period to redeem should be ten years from the execution of the contract, pursuant to Articles 1142 and 1144."
Estoppel from accepting late payment. "Instead, they accepted Alejandro's payments, until the debt was fully satisfied by August 11, 1970. The acceptance of the payments even beyond the 10-year period of redemption estopped the mortgagees' heirs from insisting that the period to redeem the property had already expired."
Conduct proves intention. "The conduct of the original parties as well as of their successors-in-interest manifested that the parties... really intended their transaction to be an equitable mortgage, not a pacto de retro sale."
Reformation not needed. "Hence, an action for reformation of the Kasulatan ng Biling Mabibiling Muli was unnecessary, if not superfluous, considering that the reason underlying the requirement for an action for reformation of instrument has been to ensure that the parties to a contract abide by their true intended agreement."
An extension after expiry is a badge. "Ostensibly, the law allows a new period of redemption to be agreed upon or granted even after the expiration of the equitable mortgagor's right to repurchase, and treats such extension as one of the indicators that the true agreement between the parties is an equitable mortgage."
The assignee takes no more than the assignors had. "When Alejandro redeemed the property on August 11, 1970, he did not thereby become a co-owner thereof, because his father Jose, Sr. was then still alive. Alejandro merely became the assignee of the mortgage... As an assignee of the mortgage and the mortgage credit, Alejandro acquired only the rights of his assignors, nothing more."
The prohibition against appropriation. "Alejandro's being an assignee of the mortgage did not authorize him or his heirs to appropriate the mortgaged property for himself without violating the prohibition against pactum commissorium."
Consolidation is the wrong remedy. "[C]onsolidation of ownership is an improper and inappropriate remedy to enforce a transaction declared to be one of mortgage. It is the duty of respondents, as mortgagees, to foreclose the mortgage if he wishes to secure a perfect title to the mortgaged property if he buys it in the foreclosure sale."
Heirs bound by the predecessor's acts. "[T]he respondents, as Alejandro's heirs, were entirely bound by his previous acts as their predecessors-in-interest. Thus, Alejandro's acknowledgment of the effectivity of the equitable mortgage agreement precluded the respondents from claiming that the property had been sold to him with right to repurchase."
The co-owner as trustee. "As a co-owner, however, his possession was like that of a trustee and was not regarded as adverse to his co-owners but in fact beneficial to all of them."
The four elements, and the two that failed. Ouster, notice, clear and conclusive evidence, and open, continuous, exclusive and notorious possession — "Alejandro did not have adverse and exclusive possession of the property, as, in fact, the other co-owners had continued to possess it."
Tax declarations are not repudiation. "Neither did the cancellation of the previous tax declarations in the name of Leoncia... and the issuance of a new one in Alejandro's name, and Alejandro's payment of the realty taxes constitute repudiation of the co-ownership."
Constructive possession does not ripen. "[O]nly possession acquired and enjoyed in the concept of owner can serve as title for acquiring dominion."
The remedies. Partition, reimbursement of the advance, proportional reimbursement of taxes under Article 488, or foreclosure — the redemption period under the 1970 joint affidavit "had already long lapsed."

B. Doctrines/Rules

Any One Badge Suffices for an Equitable Mortgage (Art. 1602) — vendor's continued possession and payment of taxes among them.
A Post-Expiry Extension of the Redemption Period Is a Badge, Not a Nullity (Art. 1602(3)).
An Open-Ended Redemption Clause Runs Ten Years (Art. 1142, Art. 1144).
Accepting Payment After the Period Estops the Mortgagee.
Reformation Is Superfluous Where the Parties Abide by Their True Agreement.
An Assignee of a Mortgage Acquires Only the Rights of His Assignors.
A Mortgagee May Not Appropriate — Pactum Commissorium (Art. 2088); his remedy is foreclosure.
Heirs Are Bound by Their Predecessor's Acknowledgments.
A Co-Owner Possesses as Trustee (Art. 494), Beneficially for All.
Four Concurring Elements of Adverse Possession, including possession open, continuous, exclusive and notorious.
Transferring the Tax Declaration and Paying Taxes Is Not an Unequivocal Act of Repudiation.
A Void Instrument Cannot Repudiate, and constructive possession cannot ripen into ownership.
The Redeeming Co-Owner's Remedy Is Partition and Reimbursement (Art. 488), or Foreclosure.

C. Limitations/Exceptions

The Court upheld both the 1955 deed and the 1970 assignment as valid instruments — it recharacterised the first and confined the second, but annulled neither.
The respondents are not left without recourse: partition with reimbursement, or foreclosure of the equitable mortgage, the redemption period reckoned from the 17 October 1970 joint affidavit having "already long lapsed." These must be pursued "only through the appropriate actions commenced in court."
The dismissal as to Potenciana's heirs — she having predeceased her parents and therefore having "no successional rights" — was not appealed and stands.
The petitioners' counterclaim for damages was dismissed for failure to prove entitlement, so the reversal was not total.
Costs were taxed against the respondents, who had won below.
The finding that the respondents' own 1994 suit was the first unequivocal repudiation did not help them, because repudiation must be coupled with exclusive possession — the two elements are cumulative.

D. Topic Integration

The relationship is DIRECT.
The case is the chapter's most complete checklist of failed repudiation, because six alleged acts are pleaded and each is separately answered: redemption (makes an assignee, not an owner), assignment (transfers only the assignors' rights), consolidation (void as pactum commissorium), tax declaration in one's own name (not unequivocal), long possession (not exclusive), and payment of taxes (not adverse).
The sharpest comparison is with Heirs of Restar v. Heirs of Cichon, where a transferred tax declaration was the first concrete act of repudiation. Both cases involve the same act with opposite results, and the variable is the fourth element: Restar's possessor held the land alone for thirty-eight years, while Alejandro and his heirs occupied "only a portion of it." Learn the pair together — a tax declaration without exclusive possession starts no clock.
The case also shows how recharacterising the contract can decide a co-ownership question. Once the deed became an equitable mortgage, the consolidation affidavit became void, the assignee became a creditor, and the whole repudiation theory lost its foundation. Test what the transaction is before asking what it did.
Note the symmetry argument the petitioners won on. Where both sides let a ten-year period lapse, neither may invoke it against the other; the Court preferred to give effect to the parties' actual conduct over four decades. That is a useful answer to any "you slept on your rights" contention where the other side slept too.
Finally, the case restates the chapter's remedial rule for a third time. A co-owner who spends to save the common property gets reimbursement and may compel contribution to taxes under Article 488 — never ownership by that fact alone.

VII. Separate Opinions

NOT IN RECORD. The decision was penned by Justice Lucas P. Bersamin for the Third Division, with Justice Conchita Carpio Morales (Chairperson) and Justices Arturo D. Brion, Roberto A. Abad (additional member per Special Order No. 843) and Martin S. Villarama, Jr. concurring.

Cited Laws & Provisions

Every statute, rule, and issuance the decision turns on — the text as written, and the work it does in this case.

Civil Code

Article 1602, Civil Code

Civil Code of the Philippines (R.A. No. 386), Book IV (Obligations and Contracts), Title VI (Sales), Chapter 7 (Extinguishment of Sale), Section 1 (Conventional Redemption)

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. (n)

Why it is cited here

The provision that reclassifies the whole transaction, and with it the parties' relationship. A contract "shall be presumed to be an equitable mortgage" in six enumerated cases, and three of them matter here.

Paragraphs (2) and (5) established the mortgage in the first place: the purported vendors "had continued in the possession of the property even after the execution of the agreement," and the land "had remained declared for taxation purposes under Leoncia's name, with the realty taxes due being paid by Leoncia." The Court stresses how little is needed — "[t]he existence of any one of the conditions enumerated under Article 1602 of the Civil Code, not a concurrence of all or of a majority thereof, suffices."

Paragraph (3) then saves the Magkasanib na Salaysay, which both lower courts had thrown out as an attempt to extend a period that had already lapsed. The article treats exactly that as a badge of mortgage: "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." So "the law allows a new period of redemption to be agreed upon or granted even after the expiration of the equitable mortgagor's right to repurchase, and treats such extension as one of the indicators that the true agreement between the parties is an equitable mortgage."

The Court explains why the Code is built this way: these provisions "are primarily designed to curtail the evils brought about by contracts of sale with right to repurchase, particularly the circumvention of the usury law and pactum commissorium," because "grave financial distress renders persons hard-pressed... leaving no choice to them but to sign deeds of absolute sale of property or deeds of sale with pacto de retro if only to obtain the much-needed loan from unscrupulous money lenders."

Civil Code

Article 2088, Civil Code

Civil Code of the Philippines (R.A. No. 386), Book IV (Obligations and Contracts), Title XVI (Pledge, Mortgage and Antichresis), Chapter 1 (Provisions Common to Pledge and Mortgage)

The creditor cannot appropriate the things given by way of pledge or mortgage, or dispose of them. Any stipulation to the contrary is null and void. (1859a)

Why it is cited here

Why the affidavit of consolidation was a nullity rather than a repudiation. "The creditor cannot appropriate the things given by way of pledge or mortgage, or dispose of them. Any stipulation to the contrary is null and void."

Alejandro was "an assignee of the mortgage," and that "did not authorize him or his heirs to appropriate the mortgaged property for himself without violating the prohibition against pactum commissorium." The remedy a mortgagee has is foreclosure, not a self-executing consolidation: "consolidation of ownership is an improper and inappropriate remedy to enforce a transaction declared to be one of mortgage. It is the duty of respondents, as mortgagees, to foreclose the mortgage if he wishes to secure a perfect title."

For this chapter the consequence is what matters. A void instrument cannot be an unequivocal act of repudiation, because it accomplishes nothing — which is why the Kasulatan ng Pagmeme-ari "was ineffectual to predicate the exclusion of the petitioners and their predecessors in interest from insisting on their claim to the property."

Civil Code

Article 494, Civil Code

Civil Code of the Philippines (R.A. No. 386), Book II (Property, Ownership, and Its Modifications), Title III (Co-Ownership)

No co-owner shall be obliged to remain in the co-ownership. Each co-owner may demand at any time the partition of the thing owned in common, insofar as his share is concerned.

Nevertheless, an agreement to keep the thing undivided for a certain period of time, not exceeding ten years, shall be valid. This term may be extended by a new agreement.

A donor or testator may prohibit partition for a period which shall not exceed twenty years.

Neither shall there be any partition when it is prohibited by law.

No prescription shall run in favor of a co-owner or co-heir against his co-owners or co-heirs so long as he expressly or impliedly recognizes the co-ownership. (400a)

Why it is cited here

The rule the repudiation argument had to overcome. Alejandro "became a co-owner of the property by right of representation upon the death of his father, Jose Sr. As a co-owner, however, his possession was like that of a trustee and was not regarded as adverse to his co-owners but in fact beneficial to all of them."

The Court then applies the four-element test — ouster, notice, clear and conclusive evidence, and possession open, continuous, exclusive and notorious — and finds the first and fourth missing on the same fact: "Alejandro did not have adverse and exclusive possession of the property, as, in fact, the other co-owners had continued to possess it, with Alejandro and his heirs occupying only a portion of it."

The most quotable holding is on tax declarations: "The sole fact of a co-owner declaring the land in question in his name for taxation purposes and paying the land taxes did not constitute an unequivocal act of repudiation amounting to an ouster of the other co-owner and could not constitute adverse possession as basis for title by prescription."

Note how the Court dates the repudiation when it finally comes: "The only unequivocal act of repudiation was done by the respondents when they filed the instant action for quieting of title on September 28, 1994" — and even that failed, because "their act of repudiation was not coupled with their exclusive possession of the property."

Civil Code

Article 488, Civil Code

Civil Code of the Philippines (R.A. No. 386), Book II (Property, Ownership, and Its Modifications), Title III (Co-Ownership)

Each co-owner shall have a right to compel the other co-owners to contribute to the expenses of preservation of the thing or right owned in common and to the taxes. Any one of the latter may exempt himself from this obligation by renouncing so much of his undivided interest as may be equivalent to his share of the expenses and taxes. No such waiver shall be made if it is prejudicial to the co-ownership. (395a)

Why it is cited here

The measure of what the redeeming branch of the family actually gets. Each co-owner "shall have a right to compel the other co-owners to contribute to the expenses of preservation of the thing or right owned in common and to the taxes," subject to the option of renouncing his share to escape the obligation.

This is the case's practical remedy: the respondents "can only demand from the petitioners the partition of the co-owned property and the reimbursement from their co-owners of the amount advanced by Alejandro to repay the obligation. They may also seek from their co-owners the proportional reimbursement of the realty taxes paid for the property, pursuant to Article 488 of the Civil Code."

The pattern is the chapter's constant: money spent to save the common property buys a credit, not dominion. Compare Fangonil-Herrera v. Fangonil, where the redeeming heir was likewise held "a mere creditor of the estate and not an owner."

Civil Code

Article 1142, Civil Code

Civil Code of the Philippines (R.A. No. 386), Book III (Different Modes of Acquiring Ownership), Title V (Prescription), Chapter 3 (Prescription of Actions)

A mortgage action prescribes after ten years. (1964a)

Why it is cited here

"A mortgage action prescribes after ten years." With Article 1144 this supplies the period the deed itself omitted: the redemption clause said only "sa oras na sila'y makinabang" (when they are able), which "signified that no definite period had been stated," so "the period to redeem should be ten years from the execution of the contract."

The article cuts both ways, and that symmetry is the petitioners' winning argument: prescription, "if it must apply to them, should as well be applied to the respondents, who had similarly failed to enforce their right under the equitable mortgage within ten years from its execution." The mortgagees never foreclosed either.

What broke the deadlock was conduct: the mortgagees "accepted Alejandro's payments, until the debt was fully satisfied by August 11, 1970. The acceptance of the payments even beyond the 10-year period of redemption estopped the mortgagees' heirs from insisting that the period to redeem the property had already expired. Their actions impliedly recognized the continued existence of the equitable mortgage."

Civil Code

Article 1144, Civil Code

Civil Code of the Philippines (R.A. No. 386), Book III (Different Modes of Acquiring Ownership), Title V (Prescription), Chapter 3 (Prescription of Actions)

The following actions must be brought within ten years from the time the right of action accrues:

(1) Upon a written contract;

(2) Upon an obligation created by law;

(3) Upon a judgment. (n)

Why it is cited here

"The following actions must be brought within ten years from the time the right of action accrues: (1) Upon a written contract; (2) Upon an obligation created by law; (3) Upon a judgment."

It appears twice, and the Court accepts it for one purpose and rejects it for another.

Accepted: with Article 1142, it fixes the ten-year redemption period the deed left open.

Rejected: the Court of Appeals had used it to bar the petitioners for failing to sue for reformation of the deed within ten years of 1955. That reasoning is reversed, because reformation exists to make an instrument speak the parties' true agreement, and here they were already living by it: "the parties... had abided by their true agreement under the deed, to the extent that they and their successors-in-interest still deemed the agreement as an equitable mortgage despite the lapse of 15 years... Hence, an action for reformation... was unnecessary, if not superfluous."

The transferable point is that a prescriptive period presupposes a right of action that accrued. Where nobody is contradicting your understanding of the contract, there is nothing yet to sue about.

Cited laws & provisions