G.R. No. L-7667 - Palileo vs. Cosio

Plaintiff Cherie Palileo initiated a complaint against defendant Beatriz Cosio based on a transaction entered into on December 18, 1951.
The transaction involved a loan of P12,000 with stipulated conditions on interest and deductions from the loan amount.
The parties executed a document titled “Conditional Sale of Residential Building,” which in reality was intended as an equitable mortgage to secure the repayment of the loan.

Terms included a monthly interest of P250 payable by the plaintiff and a deduction mechanism whereby the defendant would deduct certain obligations (amounting to P4,550 plus first-month interest of P250) from the loan amount before disbursing the balance.
Plaintiff paid a total of P2,250 as interest, which for nine months exceeded the maximum interest allowed by law.
Defendant was required, as a condition of the loan, to secure the transaction by insuring the property, which was covered by a policy issued in the defendant’s name by the Associated Insurance & Surety Co., Inc.

The case was initially set for trial on April 7, 1953, but was postponed several times due to motions by both parties.
The hearing was rescheduled multiple times: from April 7, 1953, to April 28, 1953, then to November 6, 1953, then to December 15, 1953, and finally to January 18, 1954.
On the final hearing date, neither the defendant nor her counsel appeared. This absence was attributed to the sudden appointment of the defendant’s counsel, Atty. Leon Ma. Guerrero, as Undersecretary of Foreign Affairs, which overwhelmed his official duties.

The property, a two-story building, was partly damaged by fire.
Subsequent to the fire, defendant collected an insurance indemnity of P13,107.00 from the Associated Insurance & Surety Co., Inc.
Plaintiff demanded that the defendant credit the amount received from the insurance company to settle the loan obligation. The defendant, however, refused to do so, leading to further disputes and counterclaims involving sums totaling P4,900.

After the evidence was received on January 18, 1954, the trial court rendered judgment in favor of the plaintiff, granting relief as prayed in the complaint.
Following the judgment, on February 2, 1954, the defendant’s new counsel moved to set aside the judgment based on mistake or excusable negligence, citing that the absence of the original counsel—due to his sudden appointment—was an unavoidable confusion that the court should have taken into account.
The trial court denied the motion, and the defendant appealed the decision, raising issues regarding both procedural fairness (in light of the counsel’s absence) and substantive determination of the transaction’s nature.

Whether the trial court committed a grave abuse of discretion by refusing to reopen the case and allow the defendant to present evidence, given the claim of mistake or excusable negligence on the part of her original counsel.

Consideration of whether the sudden appointment of Atty. Leon Ma. Guerrero constituted excusable negligence that ordinary prudence could not have guarded against.
Impact of receiving almost one month’s notice before the trial date on the adequacy of legal preparation.

Whether the trial court correctly ruled that the transaction was an equitable mortgage to secure the loan rather than a conditional sale with an option to repurchase.

Analysis of the true intention of the parties in executing the “Conditional Sale of Residential Building” document.
Determination of whether the representation of the transaction as an equitable mortgage fits the evidentiary record.

Whether the trial court erred in ordering that the insurance proceeds (P13,107.00) collected by the defendant be applied towards the mortgaged loan amount, effectively declaring the plaintiff’s obligation fully compensated.

Whether the insurance policy, taken by the defendant in her own name, should benefit the mortgagee exclusively.
The legal implications of subrogation in the context of a mortgagee-insured property, vis-à-vis the rights of the mortgagor.