Case Digest (G.R. No. 125272)
Facts:
The case involves Candido Amil as the petitioner and the spouses Ernesto and Nila Gador as the respondents. The events leading to the case began with the execution of a document titled "Deed of Pacto de Retro Sale" on November 14, 1987, concerning a parcel of land located in Calindagan, Dumaguete City, Negros Oriental, covered by Transfer Certificate of Title No. 14021. In this deed, Amil sold the property to the Gadors for P30,000, with the stipulation that he could repurchase the land within three years. If he failed to do so, the sale would be considered absolute without the need for further action. An addendum to this deed was executed on December 12, 1987, which indicated that the Gadors were the mortgagees of the property and included additional costs for capital gains tax, raising the total amount to P31,800.
After the three-year redemption period expired without Amil exercising his right to repurchase, the Gadors filed a petition for consolidation of owne...
Case Digest (G.R. No. 125272)
Facts:
Execution of the Deed of Pacto de Retro Sale
- Petitioner Candido Amil and respondents Ernesto and Nila Gador executed a "Deed of Pacto de Retro Sale" on November 14, 1987.
- The property in question was sold for P30,000.00, with Amil retaining the right to repurchase the property within three years.
- If Amil failed to repurchase within the stipulated period, the sale would become absolute and irrevocable.
Addendum to the Deed
- On December 12, 1987, the parties executed an "Addendum to Deed of Pacto de Retro Sale."
- The addendum stated that the Gadors had to pay an additional P1,800.00 for capital gains tax and documentary stamps, increasing the total repurchase price to P31,800.00.
- The addendum also referred to the transaction as a "mortgage," with Amil as the "mortgagor" and the Gadors as the "mortgagees."
Failure to Repurchase and Consolidation of Ownership
- Amil failed to repurchase the property within the three-year period.
- The Gadors filed a petition for consolidation of ownership, and Amil was declared in default due to his counsel's failure to file an answer.
- The trial court ruled in favor of the Gadors, declaring them the absolute owners of the property.
Motion for New Trial and Appeal
- Amil, through new counsel, filed a motion for new trial, which was denied.
- The Court of Appeals affirmed the trial court's decision, ruling that Amil was bound by his former counsel's negligence and that the contract was a pacto de retro sale, not a mortgage.
Issue:
- Whether the trial court erred in denying Amil's motion for new trial.
- Whether the trial court erred in granting consolidation of ownership in favor of the Gadors, considering the addendum referred to the transaction as a mortgage.
Ruling:
The Supreme Court reversed the decision of the Court of Appeals and remanded the case to the trial court for further proceedings. The Court held that:
Motion for New Trial
- The gross negligence of Amil's former counsel deprived him of his day in court, warranting a new trial.
- The trial court should have been more liberal in setting aside the default judgment, especially since Amil appeared to have a meritorious defense.
Nature of the Contract
- The contract between Amil and the Gadors was likely an equitable mortgage rather than a pacto de retro sale.
- The price of P30,000.00 was unusually inadequate, and the addendum referred to the transaction as a mortgage.
- The stipulation that the sale would become absolute upon failure to repurchase was void as a pactum commissorium.
Ratio:
Gross Negligence of Counsel
- A client is generally bound by the mistakes of their counsel, but an exception exists when the negligence is so gross that it deprives the client of their day in court.
- In this case, the failure of Amil's counsel to file an answer and protect his interests constituted gross negligence, justifying a new trial.
Equitable Mortgage vs. Pacto de Retro Sale
- Under Articles 1602 and 1603 of the Civil Code, a contract purporting to be a sale with a right to repurchase may be construed as an equitable mortgage if certain conditions are met.
- The inadequate price, the use of terms like "mortgage" in the addendum, and the void stipulation of automatic consolidation of ownership all indicated that the transaction was an equitable mortgage.
Liberal Grant of New Trials
- Trial courts should be liberal in setting aside default judgments and granting new trials, especially when the defendant has a meritorious defense.
- The issuance of default judgments should be the exception, not the rule.