Title
Amigo vs. Teves
Case
G.R. No. L-6389
Decision Date
Nov 29, 1954
A 1938 pacto de retro sale with a lease covenant led to ownership consolidation due to unpaid rent; petitioners' repurchase claim was denied, upholding the contract's validity and penal clause.
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Case Digest (G.R. No. L-6389)

Facts:

1. Power of Attorney and Execution of Deed of Sale:

  • On August 11, 1937, Macario Amigo and Anacleta Gagalitan executed a power of attorney in favor of their son, Marcelino Amigo, granting him broad powers, including the authority to sell, mortgage, or lease their properties.
  • On October 30, 1938, Marcelino Amigo, acting as attorney-in-fact, executed a deed of sale with pacto de retro (right to repurchase) in favor of Serafin Teves for a parcel of land for P3,000. The vendors retained the right to repurchase the land within 18 months.

2. Lease Covenant and Terms:

  • The deed included a lease covenant where the vendors (Marcelino Amigo and his parents) would remain in possession of the land as lessees for 18 months, paying P80 every six months as rent.
  • The lease would terminate on April 30, 1940, and failure to pay rent would result in the automatic termination of the lease and consolidation of ownership in favor of Serafin Teves.

3. Donation of Right to Repurchase:

  • On July 20, 1939, Macario Amigo and Anacleta Gagalitan donated their right to repurchase the land to their sons, Justino Amigo and Pastor Amigo (petitioners), through a public instrument registered with the Register of Deeds.

4. Failure to Pay Rent and Consolidation of Ownership:

  • The vendors paid the rent for the first six months but failed to pay the rent for the subsequent semester.
  • On January 8, 1940, Serafin Teves executed an "Affidavit of Consolidation of Title" due to the non-payment of rent and registered it with the Register of Deeds, resulting in the issuance of a transfer certificate of title in his name.

5. Offer to Repurchase and Refusal:

  • On March 9, 1940, Justino and Pastor Amigo offered to repurchase the land by tendering the redemption price, but Serafin Teves refused, claiming ownership had already been consolidated in his favor.

6. Filing of the Action:

  • On April 26, 1940, before the expiration of the 18-month redemption period, Justino and Pastor Amigo filed an action in the Court of First Instance of Negros Oriental, seeking:
    • A declaration that the contract was a mortgage, not a sale with pacto de retro.
    • A declaration that the offer to repurchase was made within the agreed period.
    • Reconveyance of the property and payment of damages.

Issue:

  1. Validity of the Lease Covenant:

    • Whether the lease covenant in the deed of sale with pacto de retro executed by Marcelino Amigo as attorney-in-fact was within the scope of his authority under the power of attorney.
  2. Validity of the Penal Clause:

    • Whether the penal clause in the lease covenant, which provided for the automatic termination of the redemption period upon non-payment of rent, was valid.
  3. Equitable Repurchase:

    • Whether petitioners should be allowed to repurchase the land on equitable grounds, considering the alleged great disproportion between the redemption price and the market value of the land.

Ruling:

The Supreme Court affirmed the decision of the Court of Appeals, holding that:

  1. Validity of the Lease Covenant:

    • The lease covenant was within the scope of Marcelino Amigo's authority under the power of attorney, which granted him broad powers to enter into contracts concerning the property. Even if the lease covenant was not explicitly mentioned, the principals (Macario Amigo and Anacleta Gagalitan) had tacitly ratified the act by donating the right to repurchase to the petitioners.
  2. Validity of the Penal Clause:

    • The penal clause in the lease covenant, which provided for the automatic termination of the redemption period upon non-payment of rent, was valid and not contrary to law, morals, or public order. The clause was common in contracts of sale with pacto de retro and had been upheld in previous jurisprudence.
  3. Equitable Repurchase:

    • The Court rejected the petitioners' argument for equitable repurchase, noting that the price agreed upon in a sale with pacto de retro is typically lower than in an absolute sale, as the vendor expects to reacquire the property. The Court also found that the evidence presented regarding the market value of the land pertained to a later period (1940-1941) and not to the time of the contract (1938). The Court deferred to the factual findings of the Court of Appeals, which held that the price was not unreasonable.

Ratio:

  1. Scope of Authority Under Power of Attorney:

    • A power of attorney granting broad powers to an agent, including the authority to sell, lease, or mortgage property, encompasses the execution of contracts with ancillary covenants, such as a lease agreement. The agent's actions are deemed valid if they fall within the general scope of the authority granted, and any excess of authority can only be challenged by the principals, not third parties.
  2. Validity of Penal Clauses in Pacto de Retro Contracts:

    • Penal clauses in contracts of sale with pacto de retro, such as the automatic termination of the redemption period upon non-payment of rent, are lawful and enforceable, provided they are not contrary to law, morals, or public order. Such clauses are common in these types of contracts and have been upheld by the courts.
  3. Equitable Considerations in Pacto de Retro Contracts:

    • In contracts of sale with pacto de retro, the price is typically lower than in absolute sales, as the vendor retains the right to repurchase the property. Courts will not intervene to adjust the price or allow equitable repurchase unless there is clear evidence of unconscionability or fraud, which was not established in this case.
  4. Finality of Factual Findings:

    • In appeals by certiorari, the Supreme Court is bound by the factual findings of the lower courts, particularly the Court of Appeals, unless there is a clear showing of error or abuse of discretion. In this case, the Court found no reason to disturb the factual findings of the Court of Appeals.


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