Mojica vs. Fernandez

Heirs of a deceased party to a contract are not "third persons" under Article 1280 of the Civil Code; thus, a private document for a lease of real property for more than six years is valid and binding upon them, and they may be compelled to execute a public instrument evidencing the same.

The case arose from a series of transactions over real property in Manila and Bulacan. Benito Mojica originally sold the property to Pedro Sanchez via a venta con pacto de retro (sale with right of repurchase). After the repurchase period lapsed, Sanchez became the absolute owner. Subsequently, Sanchez and Mojica entered into a new, private written agreement (dated September 1, 1901) that leased the property back to Mojica for ten years and granted him a right to repurchase it for the original price at the end of the term. After Sanchez died, his estate's administratrix (Juana Fernandez) attempted to increase the monthly rental, prompting Mojica to file suit.

• Filed in the Court of First Instance (CFI/RTC).
• The CFI ruled in favor of Mojica but limited the enforceability of the private lease/repurchase document to six years from its execution, citing Article 1280 of the Civil Code.
• The defendant administratrix appealed directly to the Supreme Court (SC).

• In 1894, Benito Mojica sold three parcels of land to Pedro Sanchez for P15,000 via a pacto de retro, with a four-year repurchase period. Mojica retained possession and paid rent.
• The repurchase period expired without Mojica exercising his right. Sanchez consolidated title in his name.
• Later, Sanchez verbally agreed to resell the property to Mojica upon request, allowing Mojica to stay in possession while paying "interest" on the P15,000.
• On September 1, 1901, Sanchez and Mojica executed a private written document leasing the property to Mojica for ten years at P1,800 per year (12% interest on P15,000), with Mojica having the right to repurchase for P15,000 at the end of the term.
• Mojica paid the P150 monthly rent consistently, first to Sanchez and later to his widow/administratrix.
• Sanchez's will (which recognized Mojica's repurchase right) was not probated due to formal defects.
• In May 1905, the defendant administratrix attempted to raise the rent to P350 and refused Mojica's tender of P150.
• Mojica sued, asking the court to either: (1) declare the original pacto de retro was actually a loan secured by a mortgage, or (2) compel the estate to honor the private lease/repurchase agreement and annul the consolidated title.

• The original pacto de retro sale was in reality a loan of P15,000 secured by a mortgage, and the consolidation of title should be annulled.
• Alternatively, the private document of September 1, 1901, should be recognized as a valid lease and repurchase agreement. The estate should be compelled to formalize it into a public document and honor its terms, including the right to repurchase.

• The text of the SC decision does not detail the appellant's specific arguments, but the appeal contested the CFI's judgment in favor of Mojica.

• Procedural Issues: N/A
• Substantive Issues:
  1. Whether the original venta con pacto de retro or the subsequent private document could be declared a loan/mortgage.
  2. Whether the private document of September 1, 1901, a lease for more than six years, is valid and enforceable against the estate and heirs of Pedro Sanchez, despite not being in a public document as per Article 1280 of the Civil Code.
  3. Whether the plaintiff is entitled to the specific performance of the repurchase option.

• Procedural: N/A
• Substantive:
  1. No. The SC affirmed the CFI's finding that neither the original pacto de retro nor the 1901 private document could be construed as a loan or mortgage. The pacto de retro was a valid sale, and Sanchez properly consolidated ownership.
  2. Yes. The SC reversed the CFI on this point. The private document was valid and binding against Sanchez's heirs. Heirs are not "third persons" under Article 1280 of the Civil Code. They are successors who step into the shoes of the deceased and are bound by his contracts. Therefore, the requirement for a public document for leases over six years, when prejudicial to third persons, did not apply to invalidate the contract against the heirs.
  3. Yes. Mojica, having complied with all terms of the 1901 contract, was entitled to the full ten-year lease term and, upon its expiration and payment of P15,000, to a resale of the property. However, the specific prayer to compel the administratrix to execute a public document was improper in this action because the proper defendants would be the heirs, not the estate's administratrix in a proceeding under Sections 702 and 703 of the Code of Civil Procedure.

• Heirs are Not "Third Persons" in Contract Law. The SC applied the principle that heirs, by right of succession (Article 661, Civil Code), are subrogated to all rights and obligations of the deceased. They are a continuation of the juridical personality of their predecessor and cannot be considered "third persons" under Article 27 of the Mortgage Law or Article 1280 of the Civil Code. Therefore, contracts binding on the deceased are equally binding on them.
• Requisites/Application: The contract must be one to which the deceased was a party and must pertain to property that forms part of the estate inherited by the heirs.

• "The heirs, by virtue of the right of succession are subrogated to all the rights and obligations of the deceased (art. 661) and can not be regarded as third parties with respect to a contract to which the deceased was a party, touching the estate of the deceased."
• "The heirs are no more than the continuation of the juridical personality of their predecessor in interest, and can in no way be considered as third persons within the meaning of article 27 of the Mortgage Law."

• Barrios vs. Dolor, 2 Phil. Rep., 44 — Cited to support the doctrine that heirs are not third persons with respect to contracts of their decedent.
• SC of Spain decisions of Jan. 27, 1881, and Jan. 28, 1892 — Cited as persuasive authority for the same doctrine that heirs are bound by the acts of their predecessor and are not "third persons."

• Article 1280, Civil Code — Provides that contracts of rental of real estate for six or more years, when to the prejudice of third persons, must appear in a public document. The SC interpreted "third persons" to exclude heirs.
• Article 1279, Civil Code — Grants the right to compel the execution of a public instrument when the law requires it. The SC held this right could be exercised against the heirs.
• Article 661, Civil Code — States that heirs succeed to the rights and obligations of the deceased from the moment of death.
• Article 27, Mortgage Law — Defines a "third person" as one who has not taken part in the recorded act or contract.
• Section 335, Code of Civil Procedure — Requires agreements for leasing real property for more than one year to be in writing. The SC noted this was not in force when the 1901 contract was made, and in any case, the contract was in writing.