Roberts vs. Papio

A party who consistently alleges that he repurchased property from another is estopped from later claiming the original deed of absolute sale was an equitable mortgage, because the act of repurchasing necessarily admits the validity and absolute character of the prior sale.

Amelia Roberts, a resident of California, USA, is the cousin of Martin Papio. Papio and his wife owned a 274-square-meter residential lot in Makati covered by TCT No. S-44980, which they had mortgaged to Amparo Investments Corporation for a ₱59,000 loan. When the mortgage faced extrajudicial foreclosure, Roberts offered to redeem the property, leading to the execution of a Deed of Absolute Sale on April 13, 1982 for ₱85,000, of which ₱59,000 was paid to the mortgagee corporation and ₱26,000 was retained by the spouses. A contract of lease was simultaneously executed, with Papio leasing the property back from Roberts. The dispute centers on whether the 1982 deed was an absolute sale or an equitable mortgage, and whether a subsequent repurchase arrangement was validly perfected.

Spouses Martin and Lucina Papio owned a 274-square-meter residential lot in Makati covered by TCT No. S-44980, which they mortgaged to Amparo Investments Corporation for a ₱59,000 loan. Upon Papio's failure to pay, the corporation filed a petition for extrajudicial foreclosure. To prevent the foreclosure and redeem the property, the spouses executed a Deed of Absolute Sale on April 13, 1982 in favor of Martin's cousin, Amelia Roberts, a resident of California, USA. Of the ₱85,000 purchase price, ₱59,000 was paid to Amparo Investments Corporation and ₱26,000 was retained by the spouses. The corporation thereafter returned the owner's duplicate of TCT No. S-44980, which was delivered to Roberts.

Two days later, on April 15, 1982, the parties executed a two-year contract of lease, effective May 1, 1982, with Roberts as lessor and Papio as lessee. The contract was subject to renewal at the option of the lessor, with the lessee waiving the benefits of an implied new lease. Monthly rental was set at ₱800, to be deposited in Roberts' account at the Bank of America. On July 6, 1982, TCT No. S-44980 was cancelled and TCT No. 114478 was issued in Roberts' name. Papio paid rentals from May 1982 to 1985, but thereafter ceased payment while he and his family remained in possession of the property for nearly thirteen years.

According to Papio, the sale was not intended to be absolute. He claimed that Roberts had agreed to let him redeem or repurchase the property at any time for a reasonable amount. He alleged that he remitted ₱150,000 in July 1985 and ₱100,000 on June 16, 1986 to Roberts' authorized representative, Perlita Ventura, as partial and final payment of the ₱250,000 repurchase price, evidenced by receipts signed by Ventura. Roberts, however, denied authorizing Ventura to sell the property or to receive the repurchase price, claiming she had authorized Ventura only to collect rentals. Roberts asserted that Ventura misappropriated ₱39,000 of the amounts received. Papio pointed to letters from Roberts and her husband dated July 25, 1986 as admissions that he had paid the repurchase price, but Roberts maintained the ₱39,000 referenced in those letters represented back rentals, not a balance on a repurchase.

On June 3, 1998, Roberts, through counsel, demanded that Papio pay accumulated rentals of ₱410,000 and vacate the property within fifteen days. When he refused, a final demand letter was sent on April 22, 1999. On June 28, 1999, Roberts filed a complaint for unlawful detainer and damages before the MeTC of Makati City. Papio raised the defense of repurchase in his Answer, and separately filed a complaint for specific performance with damages before the RTC, docketed as Civil Case No. 01-851, to compel Roberts to execute a deed of sale and transfer title to him. The MeTC and RTC both ruled in favor of Roberts, ordering Papio to vacate and pay accrued rentals. The Court of Appeals reversed, declaring the transaction an equitable mortgage and ruling Papio entitled to possession. Roberts then elevated the case to the Supreme Court via petition for review on certiorari.

• Estoppel from Claiming Equitable Mortgage: Petitioner argued that respondent was barred from raising the defense of equitable mortgage because his defense in the MeTC and RTC was consistently that he had repurchased the property, which necessarily admitted the validity and absolute character of the April 13, 1982 Deed of Absolute Sale.
• Inapplicability of Article 1602: Petitioner maintained that Article 1602 of the Civil Code applies only when the defendant specifically alleges the defense of equitable mortgage, which respondent never did; respondent instead claimed a pacto de retro sale in his separate specific performance case.
• Improper Forum for Ownership Issue: Petitioner contended that the issue of whether a sale is an equitable mortgage should be properly resolved by the RTC in an action to enforce ownership, not in an ejectment case before the MeTC where the main issue is possession de facto.
• Absence of Written Authority for Agent: Petitioner asserted that Ventura was not authorized in writing to sell the property or receive the purchase price, rendering any sale through Ventura void under Article 1874 of the Civil Code.

• Surrounding Circumstances Support Equitable Mortgage: Respondent countered that the defense of equitable mortgage need not be particularly stated, as he had amply discussed in his pleadings all surrounding circumstances—the relative situation of the parties, their acts, conduct, declarations, and negotiations leading to the repurchase agreement.
• Valid Repurchase Through Authorized Representative: Respondent insisted that petitioner had allowed him to redeem and reacquire the property, and accepted his full payment of ₱250,000 through Ventura, her authorized representative, as shown by signed receipts.
• Admissions in Correspondence: Respondent relied on petitioner's letter dated July 25, 1986 and her husband's letter of even date as admissions that he had paid the repurchase price, arguing these constituted declarations against interest admissible to prove his reacquisition of the property.

• Jurisdiction of MeTC: Whether the MeTC had jurisdiction in an action for unlawful detainer to resolve the issue of who between petitioner and respondent is the owner of the property and entitled to de facto possession thereof.
• Nature of the Transaction: Whether the transaction entered into between the parties under the Deed of Absolute Sale and the Contract of Lease is an equitable mortgage over the property.
• Entitlement to Possession: Whether the petitioner is entitled to the material or de facto possession of the property.

• Jurisdiction of MeTC: Yes. The MeTC may make a provisional determination of ownership in an unlawful detainer case when the issue of possession cannot be resolved without deciding ownership, pursuant to Section 18, Rule 70 of the Rules of Court.
• Nature of the Transaction: No. The transaction was not an equitable mortgage. Respondent was estopped from claiming equitable mortgage because he consistently alleged he had repurchased the property, thereby admitting the deed of absolute sale was valid and absolute.
• Entitlement to Possession: Yes. Petitioner is entitled to de facto possession, the respondent having failed to prove a perfected contract of repurchase or that Ventura was authorized in writing to sell the property.

• Jurisdiction of MeTC: Section 18, Rule 70 of the Rules of Court provides that when the defendant raises the defense of ownership and the question of possession cannot be resolved without deciding ownership, the issue of ownership shall be resolved only to determine the issue of possession. The judgment in an unlawful detainer action is conclusive only with respect to possession and does not bind title or affect ownership. The summary nature of the action is not changed by the defendant's claim of ownership. The MeTC is not divested of jurisdiction simply because the defendant asserts ownership. Any resolution on ownership is merely provisional or interlocutory, and the question of ownership should be settled with finality in a separate action—in this case, Civil Case No. 01-851 pending before the RTC.

• Nature of the Transaction: An equitable mortgage requires that the parties entered into a contract denominated as a sale and that their intention was to secure an existing debt by way of mortgage. The decisive factor is the intention of the parties. In an equitable mortgage, the mortgagor retains ownership subject to foreclosure; in a pacto de retro sale, ownership transfers to the vendee a retro subject only to the right of repurchase. One repurchases only what one has previously sold. By insisting that he had repurchased the property, respondent admitted that the April 13, 1982 deed was an absolute sale and not an equitable mortgage. He was thus estopped from asserting the contrary absent any allegation of palpable mistake or fraud, which he never made. His admission was further buttressed by his acknowledgment in the Contract of Lease that Roberts was the owner and by his payment of rentals through 1985. The deed of absolute sale on its face stated the conveyance was absolute and unconditional; under Article 1370 of the Civil Code, when the terms of a contract are clear, the literal meaning controls. The right of repurchase must be reserved in the same instrument of sale, not granted in a subsequent separate document, which would constitute an option to buy or promise to sell—a distinct and different right. No evidence showed that Roberts agreed to sell the property for ₱250,000 on or before July 1985, nor that Ventura was authorized in writing to sell or receive the purchase price, as required by Article 1874. A sale of land through an agent without written authority is void and cannot be ratified. Respondent also failed to prove that negotiations culminated in a perfected contract of sale, as Roberts' offers to sell (US$15,000 in May 1984 and ₱670,000 in December 1997) were both rejected by respondent.

• Entitlement to Possession: Respondent's reliance on Roberts' letter dated July 25, 1986 was misplaced. The letter did not admit receipt of ₱211,000 from Ventura. Only a week earlier, on July 18, 1986, Ventura had written pleading for one year to refund ₱39,000 she had misappropriated, making it incredible that she had remitted ₱211,000 to Roberts before July 25, 1986. Respondent failed to submit an affidavit from Ventura confirming the remittance. Under Article 1318 of the Civil Code, a contract requires consent, object, and cause; contracts are perfected by the meeting of offer and acceptance. No perfected contract of repurchase was established. Accordingly, Roberts, as the registered owner with TCT No. 114478 in her name, was entitled to possession, and the MeTC decision as modified by the RTC was proper.

• Estoppel in Pleadings — A party is bound by the admissions made in his pleadings and cannot subsequently take a position inconsistent therewith without alleging palpable mistake or fraud. Applied here: respondent's consistent claim that he repurchased the property estopped him from later asserting the deed was an equitable mortgage, since repurchase necessarily admits the validity of the prior absolute sale.

• Provisional Determination of Ownership in Ejectment — In an unlawful detainer action, the MeTC may resolve the issue of ownership when it is intertwined with and necessary to resolve the issue of possession, but such resolution is merely provisional or interlocutory and does not bar a separate action between the same parties respecting title to the land. (Section 18, Rule 70, Rules of Court)

• Right of Repurchase vs. Option to Buy — The right of repurchase must be reserved by the vendor in the same instrument of sale; once the deed of absolute sale is executed, the vendor can no longer reserve the right to repurchase, and any right thereafter granted in a separate instrument is not a right of repurchase but an option to buy or promise to sell, which is a new and distinct contract.

• Written Authority for Agent in Sale of Land — Under Article 1874 of the Civil Code, when a sale of land or any interest therein is made through an agent, the authority of the latter must be in writing; otherwise, the sale is void and cannot produce any legal effect. A void contract cannot be ratified and produces no effect either against or in favor of anyone.

• Essential Elements of a Valid Contract — Under Article 1318 of the Civil Code, there is no contract unless there is consent of the contracting parties, object certain, and cause of the obligation established. A contract of sale is consensual and perfected upon the meeting of minds; a mere offer without acceptance does not constitute a contract.

• "One repurchases only what one has previously sold. The right to repurchase presupposes a valid contract of sale between the same parties." — This passage articulates the logical foundation for the estoppel ruling: by claiming repurchase, respondent necessarily admitted the validity of the absolute sale.

• "The right of repurchase is not a right granted the vendor by the vendee in a subsequent instrument, but is a right reserved by the vendor in the same instrument of sale as one of the stipulations of the contract." — Quoting Villarica vs. Court of Appeals, this formulation distinguishes a true right of repurchase from a subsequent option to buy, a distinction central to the Court's rejection of respondent's claim.

• "By insisting that he had repurchased the property, respondent thereby admitted that the deed of absolute sale executed by him and petitioner on April 13, 1982 was, in fact and in law, a deed of absolute sale and not an equitable mortgage; hence, he had acquired ownership over the property based on said deed. Respondent is, thus, estopped from asserting that the contract under the deed of absolute sale is an equitable mortgage unless there is allegation and evidence of palpable mistake on the part of respondent; or a fraud on the part of petitioner." — This passage states the ratio decidendi on the equitable mortgage issue, defining the conditions under which estoppel bars a party from recharacterizing a sale as a mortgage.

• Villarica vs. Court of Appeals, 135 Phil. 166 (1968) — Controlling precedent on the distinction between right of repurchase and option to buy; followed to hold that the right of repurchase must be reserved in the same instrument of sale, not granted in a subsequent separate document.
• Ramos vs. Icasiano, 51 Phil. 343 (1927) — Followed for the proposition that an agreement to repurchase made after the sale becomes a promise to sell, as the purchaser has already acquired the property absolutely.
• Boston Bank of the Philippines vs. Manalo, G.R. No. 158149, Feb. 9, 2006 — Followed for the principle that a definite agreement on price is essential to a binding contract of sale, and that a price fixed by one party, if accepted by the other, gives rise to a perfected sale.
• Ocampo vs. Tirona, G.R. No. 147812, Apr. 6, 2005 — Cited for the principle that the summary nature of an ejectment action is not changed by the defendant's claim of ownership.
• Arambulo vs. Gungab, G.R. No. 156581, Sept. 30, 2005 — Cited for the principle that the MeTC in an unlawful detainer case decides ownership only if intertwined with and necessary to resolve the issue of possession.

• Section 18, Rule 70, Rules of Court — Governs the MeTC's authority to resolve the issue of ownership in an unlawful detainer case when possession cannot be determined without deciding ownership; such resolution is provisional and does not bind title.
• Article 1602, Civil Code — Defines the circumstances under which a contract denominated as a sale is presumed to be an equitable mortgage; the Court held it inapplicable because respondent never alleged this defense and was estopped from doing so.
• Article 1603, Civil Code — Cited by the CA in declaring the deed an equitable mortgage; the Supreme Court reversed this determination.
• Article 1370, Civil Code — Provides that when the terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulations shall control; applied to the deed's express declaration of absolute and unconditional conveyance.
• Article 1318, Civil Code — Sets forth the three requisites of a valid contract (consent, object, cause); applied to find no perfected contract of repurchase.
• Article 1458, Civil Code — Defines a contract of sale; applied in analyzing whether the elements of a valid sale were present in the alleged repurchase.
• Article 1874, Civil Code — Requires that the authority of an agent in the sale of land must be in writing; applied to render void any sale purportedly made through Ventura without written authority.
• Article 1358, Civil Code — Requires acts and contracts creating, transmitting, modifying, or extinguishing real rights over immovable property to appear in a public document; cited by Roberts to argue that any right to repurchase must be in a public document.
• Section 4, Rule 129, Rules of Court — Cited in connection with the doctrine of estoppel from judicial admissions, requiring allegation of palpable mistake to avoid their binding effect.

Consuelo Ynares-Santiago (Associate Justice, Chairperson), Ma. Alicia Austria-Martinez (Associate Justice), and Minita V. Chico-Nazario (Associate Justice) concurred. No separate concurring opinions were noted.