Amigo vs. Teves

A lease covenant in a deed of sale with pacto de retro that stipulates automatic termination of the redemption period and consolidation of title upon the vendor-lessee’s default in rental payments is lawful and enforceable; an agent armed with authority to sell land “upon such terms and conditions, and under such covenants as he shall think fit” may validly insert such a clause, and courts will relieve from its effects only upon clear proof of waiver or compromise by the vendee.

On 11 August 1937, spouses Macario Amigo and Anacleto Cagalitan executed a power of attorney in favor of their son Marcelino Amigo, granting him extensive authority to sell, lease, mortgage, or otherwise dispose of their real properties. Acting under this power, Marcelino Amigo sold a parcel of land to Serafin Teves on 30 October 1938 for P3,000, with a right to repurchase within 18 months. Incorporated in the same deed was a lease covenant allowing the vendor-spouses to remain in possession as lessees for the same 18-month term, paying P180 every six months; the covenant further provided that failure to pay any rental would automatically terminate the lease and vest absolute ownership in the vendee. The vendors paid the first semester’s rent but defaulted on the second. Teves executed and registered an Affidavit of Consolidation of Title on 8 January 1940, and a transfer certificate of title was issued in his name on 28 January 1940. Meanwhile, the vendor-spouses had donated their rights, including the right to repurchase the litigated land, to their sons Pastor and Justino Amigo on 20 July 1939. On 9 March 1940 — before the 18-month redemption period expired — the donees tendered the redemption price, but Teves refused, asserting that ownership had already consolidated.

• Power of Attorney: On 11 August 1937, spouses Macario Amigo and Anacleto Cagalitan executed a power of attorney in favor of their son Marcelino Amigo, granting him, among other powers, the authority to “lease, let, bargain, transfer, convey and sell, remise, release, mortgage and hypothecate … upon such terms and conditions, and under such covenants as he shall think fit.”

• Deed of Sale with Pacto de Retro and Lease Covenant: On 30 October 1938, Marcelino Amigo, acting as attorney-in-fact, executed a deed of sale covering a parcel of land in favor of Serafin Teves for P3,000, with a stipulation allowing the vendors to repurchase within 18 months from the date of sale. The same instrument contained a lease covenant whereby the vendors would remain in possession as lessees for 18 months under the following conditions: (a) payment of P180 as rent every six months; (b) the lease would terminate on 30 April 1940; (c) the lessees would pay P100 as attorney’s fees in case of litigation; and (d) failure to pay any rental would automatically terminate the lease and render the vendee’s ownership absolute.

• Donation of Redemption Right: On 20 July 1939, the vendor-spouses donated to their sons Pastor Amigo and Justino Amigo several parcels of land, including the right to repurchase the land in litigation. The donation was made by public instrument, duly accepted by the donees, and registered with the Register of Deeds.

• Default and Consolidation: The vendor-lessees paid the first six-month rental but failed to pay the second. On 8 January 1940, Serafin Teves executed an “Affidavit of Consolidation of Title,” registering it with the Office of the Register of Deeds of Negros Oriental. On 28 January 1940, the Register of Deeds issued a transfer certificate of title in Teves’s name.

• Offer to Repurchase and Refusal: On 9 March 1940, before the expiration of the 18-month redemption period, petitioners tendered the redemption price to Teves. Teves refused, asserting that his ownership had already been consolidated.

• Action Filed: On 26 April 1940, still within the 18-month period, petitioners commenced the present action for reconveyance and damages. The assessed value of the land in 1938 was P4,280.

• Ultra Vires Lease Covenant: Petitioners argued that while the power of attorney authorized Marcelino Amigo to execute a sale with pacto de retro, the lease covenant embodied in the deed was not germane to the powers granted and was therefore ultra vires and null and void.

• Invalidity of the Penal Clause: Petitioners contended that the clause providing for the automatic termination of the redemption period upon default in rent payments was null and void.

• Equitable Right to Repurchase: Petitioners maintained that they should be allowed to redeem the land on equitable grounds, citing the great disproportion between the P3,000 redemption price and the land’s market value, which they alleged to be P43,004.50 in 1940.

• Validity of Lease Covenant and Penal Clause: Respondent countered that the leaseback arrangement and the penal clause were common and lawful stipulations in a pacto de retro sale and were fully enforceable as written.

• Consolidation of Title: Respondent argued that the vendors-lessees’ failure to pay the second semester’s rent triggered the automatic termination clause, consolidating ownership in him and extinguishing the right to redeem before the petitioners’ tender was made.

• Scope of Agency: Whether the lease covenant in the deed of sale with pacto de retro was ultra vires and void because it was not germane to the powers conferred by the power of attorney.

• Validity of Penal Clause: Whether the clause automatically terminating the period of redemption upon default in rent payments is null and void.

• Equitable Redemption: Whether petitioners should be permitted to repurchase the land on equitable considerations due to the alleged gross disproportion between the redemption price and the market value of the property.

• Scope of Agency: The lease covenant was held valid and within the ambit of the broad power of attorney. The authority granted expressly allowed the agent to sell “upon such terms and conditions, and under such covenants as he shall think fit” — language broad enough to cover the insertion of a lease arrangement. Even assuming the agent exceeded his authority, only the principals could impugn the act, and they tacitly ratified it by donating the right to redeem under the very terms contained in the deed executed by the agent. Further, a leaseback in a pacto de retro sale operates as a mode of delivery by constitutum possessorium and is thus germane to the contract.

• Validity of Penal Clause: The penal clause was declared lawful. A stipulation in a pacto de retro sale that accelerates the extinction of the redemption right upon the vendor-lessee’s default in rent is a common and valid contractual provision; it is not contrary to law, morals, or public order. Vitug Dimatulac vs. Coronel, 40 Phil. 686, expressly upheld such a clause. Although courts may relieve a party from its effects where waiver or compromise is shown, no such circumstances existed in this case — the vendee acted swiftly to consolidate title, without vacillation or any act that could be construed as waiver.

• Equitable Redemption: The claim was rejected. The price in a sale with pacto de retro is ordinarily lower than in an absolute sale because the vendor retains the expectation of reacquisition. The evidence of market value pertained to 1940 and 1941, not to the time the contract was entered into in 1938. More critically, the Court of Appeals found that the price was not so unreasonable as to justify nullification of the sale, and that factual finding is conclusive in a petition for review on certiorari.

• Broad Construction of Agency Powers — Where a power of attorney empowers an agent to sell property “upon such terms and conditions, and under such covenants as he shall think fit,” the agent may incorporate stipulations germane to the contract of sale, including a leaseback covenant and a penal clause for acceleration of consolidation. The phrase encompasses the full range of dispositions the principal could have made personally.

• Validity of Penal Clause in Pacto de Retro Sale — A provision in a sale with right to repurchase that automatically extinguishes the redemption period and vests absolute ownership in the vendee upon the vendor-lessee’s failure to pay rent is valid and enforceable. Such clauses are not repugnant to law, morals, or public order. The rule, drawn from Vitug Dimatulac vs. Coronel, 40 Phil. 686, is that relief from the penal effect requires an unequivocal showing of waiver, compromise, or vacillation on the part of the vendee; absent such evidence, the clause will be strictly enforced.

• Tacit Ratification by Principal — A principal may ratify an agent’s unauthorized act by accepting its benefits or by adopting the transaction’s terms. A donation of rights arising from the contract, without protest as to the impugned stipulations, constitutes tacit ratification and estops the principal from later challenging the agent’s authority.

• Conclusiveness of Factual Findings of the Court of Appeals — In a petition for review on certiorari, the factual findings of the Court of Appeals — including the reasonableness of the contract price — are final and binding upon the Supreme Court.

• “The lease that a vendor executes on the property may be considered as a means of delivery or tradition by constitutum possessorium. Where the vendor a retro continues to occupy the land as lessee, by fiction of law, the possession is deemed to be constituted in the vendee by virtue of this mode of tradition (10 Manresa, 4th ed. p.124).”

• “It is undeniable that the clause in the contract of sale with pacto de retro … providing for extinction of the right of the plaintiff to repurchase in case he should default in the payment of the rent for any year was lawful. The parties to a contract of this character may legitimately fix any period to please, not in excess of ten years, for the redemption of the property by the vendor; and no sufficient reason occurs to us why the determination of the right of redemption may not be made to depend upon the delinquency of the vendor — now become lessee — in the payment of the stipulated rent.” (Quoting Vitug Dimatulac vs. Coronel, 40 Phil. 686)

• “Nevertheless, admitting the validity of such a provision, it is not to be expected that any court will be reluctant to relieve from its effects wherever this can be done consistently with established principles of law.”

• “We only wish that in this case, as in the Dimatulac case, a way may be found consistent with law whereby we would relieve the petitioners from the effects of the penal clause under consideration, but, to our regret, none we have found, for respondent has been alert and quick enough to assert his right by consolidating his ownership when the first chance to do so has presented itself. He has shown no vacillation, nor offered any compromise which may deem as a waiver or a justification for forfeiting the privilege given him under the penal clause.”

• Vitug Dimatulac vs. Coronel, 40 Phil. 686 — Followed and distinguished. The Supreme Court adopted its holding that a penal clause accelerating consolidation upon default in rent is lawful. Relief was denied in the present case because, unlike in Dimatulac where the vendee’s act of taking possession by compromise constituted a waiver, respondent Teves exhibited no vacillation or compromise.

• N/A — The decision does not cite specific constitutional or statutory provisions; it rests on general principles of contract law, agency, and judicial precedent.

Justices Pablo, Bengzon, Padilla, Montemayor, Reyes (A.), Jugo, and Concepcion concurred.

None.