epublic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-2263             May 30, 1951

PAZ Y. OCAMPO, JOSEFA Y. OCAMPO, ISIDRO Y. OCAMPO, GIL Y. OCAMPO, MAURO Y.

REYES, J.:

FACTS:

On February 3, 1930, Edilberto Ocampo, married to Paz Yatco, executed a deed purporting to
convey to his relative, Conrado Potenciano, and the latter's wife, Rufina Reyes, by way of sale
with pacto de retro for the sum of P2,5000, a town a lot in Binan, Laguna. On that same day,
Ocampo signed another document, making it appear that, for an annual rental of P300, which, as
may be noted, is equivalent to 12 per cent of the purchase price, the vendees were leasing to him
the house and lot for the duration of the redemption period. Though registered in the name of
Ocampo alone, it in reality belonged to him and his wife as conjugal property.

The period originally fixed for the repurchase was one year, "extendible to another year," but several
extensions were granted, with the vendor paying part of the principal in addition to interests. The last
extension granted was for year from February 3, 1937, and the period having elapsed without the
repurchase having been made.

Potenciano, on January 24, 1939, filed with the register of deeds of Laguna an affidavit for the
consolidation of title, on the strength which the register of deeds issued the transfer certificate of title
in the name of Potenciano and his wife.

On February 28, 1939, with Edilberto Ocampo and Rufina Reyes were already dead,
Potenciano gave Paz Yatco an option to repurchase the property for P2,500 within 5 years,
and a lease thereon for the same period of time at annual rental of P300 which, as may again be
noted, is equivalent to 12 per cent of the purchase price. Thenafter, Paz Yatco sought to exercise
the option by tendering to Potenciano the sum of P4,000 an amount sufficient to cover both principal
and interest.

Upon the tender being rejected, Paz deposited the money in court and brought an action in her
own name and as judicial administratrix of the estate of her deceased husband to compel
Potenciano to accept it and to have the title to the property reinstated in her name and that of
her husband.

Potenciano's children, Victor and Lourdes, filed a cross-complaint, alleging that the option to
purchase granted by their father to plaintiff was null and void as to the share of their deceased
mother Rufina Reyes in the property in litigation, which share passed to them by right of inheritance,
and that as to their father's share in the same property they, the intervenors, were exercising the
right of redemption accorded by law to co-owners of property held in common, for which purpose
they had already tendered him the sum of P1,250 on the fifth day after they learned of said
option through plaintiff's complaint. To meet these allegations, plaintiff amended her complaint
by including the intervenors as defendants and alleging, in effect, that the pacto de retro sale in
question was in reality a mortgage to secure a pre-existing debt, with the rental contract
thrown in to cover the stipulated interest of 12 per cent; that the option agreement for the
repurchase of the property within five years from February 28, 1939, and for the payment of
rental for that period in an amount equal to an annual interest of 12 per cent on the loan, was also
meant to be in reality an extension of the life of the mortgage; and that the tender of payment was
valid, the same having been made within the extended period.

The Court of First Instance, after trial, upheld these allegations and gave judgment in favor of the
children of Edilberto Ocampo and Paz Yatco, who had substituted the latter after her death.

When the case was elevated to the Court of Appeals, that court took a somewhat different view and
rendered judgment declaring:

a. That contract Exhibit A entered into between Edilberto Ocampo and Conrado Potenciano
was one of mortgage, with interest at the rate of 12 per cent per annum;

b. That the "option to purchase" and the "contract of lease" (Exhibit E and E-1) were validly
executed by defendant Conrado Potenciano and binding upon the property in litigation;

c. That appellants were not co-owners of said property, by inheritance of one-half of the
same from their deceased mother Rufina Reyes;

d. That appellants were not entitled to exercise the right of legal redemption (retracto legal) of
the other half of the property belonging to their father Conrado Potenciano;

e. That the late Paz Yatco exercised her option to purchase the property in litigation within the
time she had to do so;

f. That the consignation of the P4,000 in Japanese military notes, made with the Clerk of the
Court of First Instance of Laguna in payment of the property in question, was in accordance
with the law and relieved the heirs of the spouses Ocampo-Yatco from paying anew said
purchase price;

g. Ordering defendant Conrado Potenciano to execute the corresponding deed of conveyance,

h. Ordering the Register of Deeds of Laguna to cancel transfer certificate of title No. 18056
(Exhibit 1) and issue in lieu thereof a new transfer certificate of title for said property in favor
of the heirs of the spouses Edilberto Ocampo and Paz Yatco, upon payment by appellees of
the corresponding fees and the registration in his office of the deed of conveyance
mentioned in the next preceding paragraph.

This judgment that is now before us for review.

ISSUE:
Can Potenciano be declared as the de facto administrator of the conjugal estate?

RULING:

No. First thing to be noted is that the Court of Appeals found and it is not disputed that the pacto de
retro sale was in reality a loan with security or an equitable mortgage, with simulated rental for
interest. Such being the case, the lenders had no right, through the unilateral declaration of
one or both them, to consolidate title in themselves over the property given as security. The
consolidation of title effected by Potenciano in this case was, therefore, null and void.

The Court of Appeals, however, held that the mortgage contract was superseded, through
novation, by the option agreement for the repurchase of the property mortgaged, and the
appellants now contend that this war error because Potenciano had no authority to enter into
that agreement after the death of his wife. To this contention we have to agree.

The Court of Appeals erred in supposing that the surviving spouse had such authority as de
facto administrator of the conjugal estate. As pointed out by appellants, the decisions relied on by
that court in support of its view are now obsolete. Those decisions laid down the rule that, upon the
dissolution of the marriage by the death of the wife, the husband must liquidate the partnership
affairs. But the procedure has been changed by Act No. 3176 (approved on November 24, 1924),
now section 2, Rule 75, of the Rules of Court, which provides that when the marriage is
dissolved by the death of either husband or wife, the partnership affairs must be liquidated in
the testate or intestate proceedings of the deceased spouse (Moran, Comments on the Rules of
Court, 3rd ed., Vol. II, p. 324).

Furthermore, there is ground to believe that, as alleged by the appellees, the option agreement in
question was nothing more than mere extension of time for the payment of the mortgagee
debt, since in the mind of the parties the real transaction had between them was that of loan with
security, or equitable mortgage, though as is usual in these cases, it was given the form of sale with
right to repurchase.

It follows from the foregoing that at the time Paz Yatco made the tender of payment and consigned
the necessary amount in court, the said contract of loan with security was still in effect, and as the
tender was made in legal currency (Haw Pia vs. China Banking Corporation, * 45 O.G. [Supp. 9] 229),
the tender and consignation must be held to produce their legal effect, which is that of
relieving the debtor from liability. (Art. 1176, Civil Code; Limkako vs. Teodoro, 74 Phil., 313.)

Under this view of the case, it is not necessary to consider the claim of the appellants Victor
Potenciano and Lourdes Potenciano and that the Court of Appeals erred in not declaring them
owners of the property in question, they having inherited one-half of it from their mother and
acquired the other half from their father in the exercise of their right of legal redemption as
co-owners. As ownership in the property never passed to their parents, these appellants
acquired nothing.

Wherefore, with the modifications of the judgment below, let judgment be entered, declaring the
obligation evidenced by Exhibit "A", which is hereby held to be mere contract of loan with security or
equitable mortgage, already discharged, and ordering the Register of Deeds of Laguna to cancel
transfer certificate of title No. 18056 and to issue in lieu thereof a new certificate of title for said
property in favor of the heirs of the spouses Edilberto Ocampo and Paz Yatco upon payment of the
corresponding fees. With costs against the appellants.