Case Summary (G.R. No. 46623)
Procedural History
– Civil Case No. 1504, CFI Bataan: trial court held Exhibit 1 a valid mortgage of improvements, awarded possession to respondents subject to indemnity for improvements.
– Court of Appeals: treated Exhibit 1 as absolute sale disguised to evade Public Land Act, voided it in toto, ordered cancellation of Title No. 325 and issuance in favor of respondents and brother pro indiviso, awarded petitioner P1,000 plus 6% interest, denied indemnity for improvements.
– Petitioner filed certiorari before the Supreme Court.
Applicable Law
– 1935 Philippine Constitution (decision date 1939)
– Public Land Act No. 2874, as amended by Act No. 3517 (section 116)
– Land Registration Act No. 496, as amended by Act No. 3901
– Civil Code (Articles 1281 on contract interpretation; 1255 on separability; 433 on good faith; 361 on improvements; 1881 on antichresis)
– Jurisprudence on contract interpretation and severability of void clauses
Facts and Stipulated Contract (Exhibit 1)
– May 16, 1932: Emiliana executed a public deed stating a P1,000 mortgage on her homestead’s improvements (4 mango, 110 bamboo, 1 tamarind, 6 bonga trees) at 12% interest, due November 16, 1936; obligating her to pay land taxes; requiring her to seek conversion of homestead title to Torrens within 30 days; providing that failure to redeem would trigger execution of an absolute sale deed for the same P1,000 plus unpaid interest; and that if conversion motion were denied, the sale clause would be void.
Extrinsic Circumstances and Alleged Verbal Pact
– 1933: Emiliana defaulted on interest and taxes.
– Petitioner allegedly agreed verbally to pay taxes, waive interest, take possession, collect fruits, and introduce improvements (claimed by him at P5,000); he transferred tax declaration to his name (1934) and benefited exclusively from the land and its fruits.
Court of Appeals’ Finding
– Concluded true intent was absolute sale masked as mortgage to evade section 116.
– Void entire Exhibit 1 as prohibited alienation/encumbrance of homestead.
– Held petitioner in bad faith, awarded respondents sole ownership and possession, canceled Title No. 325, issued new pro indiviso title, ordered petitioner to refund P1,000 with interest, denied indemnity for improvements.
Supreme Court’s Contract Interpretation
– Applied Civil Code Article 1281: when terms are clear, their literal meaning governs.
– Determined Exhibit 1 unambiguously creates a mortgage of improvements with an accessory, conditional sale clause.
– Invoked rule of separability (Article 1255) to excise illegal antichresis/sale stipulations.
Validity of the Mortgage Clause
– Section 116 Public Land Act expressly permits mortgage of improvements on homesteads though forbidding encumbrance or alienation of land itself within five years of patent.
– Exhibit 1’s mortgage provision is lawful and remains effective after severance of void clauses.
Illegality of Antichresis Agreement
– Subsequent verbal pact converting mortgage into antichresis (possession, fruits, improvements) breaches section 116’s prohibition on land encumbrance.
– Such antichresis clause is void; parties’ actions under it cannot sustain a valid antichresis contract.
Possession and Good Faith
– Under Civil Code Article 433, good faith presumes ignorance of a title defect.
– Petitioner’s non‐legal background and reasonable belief in the validity of an improvements mortgage render his possession in good faith.
– Doctrine permits excusable legal ignorance when arising from complex statutes (Manresa commenta
Case Syllabus (G.R. No. 46623)
Facts
- In 1918 Emiliana Ambrosio applied for a homestead in Limay, Bataan (Lot No. 285), approved 1919; final proof filed 1927, approved 1929.
- Homestead patent No. 16074 and Certificate of Title No. 325 issued June 11, 1931; registered June 27, 1931.
- Respondents (Ambrosio’s heirs) sued petitioner Marcial Kasilag in CFI Bataan Civil Case No. 1504 to:
• Recover possession of the homestead and its improvements;
• Compel petitioner to pay P 650 for fruits taken;
• Restrain petitioner from encumbering the property;
• Cancel Title No. 325 and reissue it in respondents’ names;
• Recover costs of suit. - Petitioner’s answer:
• Denied material allegations;
• Special defense: he held the land by virtue of a mortgage contract (Exhibit 1) executed May 16, 1932;
• Counterclaim: P 1,000 + 12% interest owed by Emiliana; if respondents prevail, they must pay P 5,000 as value of improvements he introduced.
Procedural History
- CFI of Bataan rendered judgment (details not fully quoted).
- On appeal, the Court of Appeals modified the CFI judgment, holding Exhibit 1 a null and void absolute sale of land and improvements:
• Declared respondents owners in common with Gavino Rodriguez; entitled to possession free of liens;
• Ordered petitioner to vacate and to pay respondents P 1,000 + 6% interest from decision;
• Ordered cancellation of Title No. 325 and reissuance to respondents and Gavino Rodriguez as co-owners;
• Declined to award value of improvements claimed by petitioner. - Petitioner sought review by certiorari before the Supreme Court.
The Deed of May 16, 1932 (Exhibit 1)
- Article I: Described Lot No. 285 (6.7540 ha) with metes and bounds; homestead title held by Emiliana.
- Article II–III: Enumerated improvements (4 mango trees, 110 bamboo hills, 1 tamarind, 6 bonga); assessed land value P 940, improvements P 860.
- Article IV: Emiliana “encumbers and hypothecates … by way of mortgage only the improvements … in consideration of P 1,000 paid by” petitioner.
- Article V: Mortgagor to repay P 1,000 + 12% interest on or before November 16, 1936, or mortgage remains enforceable.
- Article VI: Mortgagor to pay taxes on land and improvements during term.
- Article VII: Within 30 days, mortgagor to move CFI Balanga to