G.R. No. 12209; September 9, 1918
ISIDRA DE OCAMPO and MARIANO G. CUSTODIO, plaintiffs-appellees, vs. MARIANO LIM, defendant-appellant.

FACTS:
In 1904, plaintiffs Isidra de Ocampo and Mariano G. Custodio sold four parcels of land (A, B, C, and D) to Hermogena Romero under a pacto de retro, with a right to repurchase within ten years for P8,000. Plaintiffs later paid P700 on account, reducing the repurchase price to about P7,000. Parcel C, comprising lots 5 and 6, was appraised at P1,620 in this contract.

In 1908, a new contract was executed among Hermogena Romero (as first party), defendant Mariano Lim (as second party), and Ramon Custodio (representing the plaintiffs as third party). This contract stipulated that Romero would resell the lands to the plaintiffs, who would then sell them to Lim. Pursuant to this, Lim executed a promissory note for P6,580 in favor of Romero, which was later endorsed to Warner, Barnes & Co. Disputes arose, and Warner, Barnes & Co. sued Lim for collection.

In 1910, to settle the disputes, Lim, Romero, and Warner, Barnes & Co. executed another contract. They acknowledged that Ramon Custodio lacked authority to represent the plaintiffs in the 1908 contract. Consequently, the P6,580 promissory note was canceled, the collection suit was withdrawn, and the 1908 contract was effectively canceled. They agreed instead that Romero would simply transfer to Lim all rights she acquired under the 1904 pacto de retro sale, without prejudice to the plaintiffs’ right to repurchase the properties for P7,000.

Plaintiffs filed this action to compel Lim to resell the lands to them based on the 1910 contract. Lim, in his answer, sought to enforce the obligations assumed by Ramon Custodio in the 1908 contract. The trial court ruled in favor of the plaintiffs, ordering Lim to resell the four parcels at P7,000. Regarding lot 6 of parcel C, on which Lim had built improvements in good faith, the court gave plaintiffs 30 days to choose either to buy the improvements from Lim or compel Lim to buy the land. Plaintiffs opted to compel Lim to buy the land. When the parties could not agree on a price, the court appointed commissioners to appraise it and later fixed the value at P1.50 per square meter based on their report. Lim appealed.

ISSUE:
1. Whether the plaintiffs are bound by the 1908 contract executed by their unauthorized representative, Ramon Custodio.
2. Whether the trial court erred in appointing commissioners to appraise lot 6 and in fixing its value based on their report.

RULING:
1. On the first issue: No. The 1908 contract does not bind the plaintiffs. The defendant himself admitted in the 1910 contract that Ramon Custodio lacked authority to represent the plaintiffs. By canceling the 1908 contract and the promissory note that constituted its price in the 1910 agreement, the defendant cannot now invoke the 1908 contract. A subsequent letter from plaintiff Mariano Custodio (Exhibit 10), which defendant claims ratified the 1908 contract, lost any effect after the 1910 cancellation. Therefore, the defendant’s rights to the lands are limited to those transferred by Romero under the 1904 pacto de retro, subject to the plaintiffs’ right of repurchase.

2. On the second issue: Yes. The trial court erred in appointing commissioners to appraise lot 6 and in basing its valuation on their report. The appointment was illegal as it was not authorized by law for an ordinary action for recovery. It did not qualify as an appointment under eminent domain proceedings or as referees, as it was done motu proprio and over the defendant’s objection. Since the appointment was illegal, the valuation based on the commissioners’ report is also invalid.

The Supreme Court proceeded to determine the proper valuation based on the evidence. It rejected the defendant’s contention that the P1,620 appraisal for parcel C in the 1904 pacto de retro contract represented its true value. The Court explained that the price in a sale with a right of repurchase is generally not the just value, as it includes compensation for the resolutory condition. The defendant admitted that P4,000 would be a reasonable value for the entire parcel C. In the absence of contrary evidence from the plaintiffs (who had the burden to prove the land’s value for compelling its sale), the Court accepted P4,000 as the value. Based on the areas of lots 5 and 6, the value of lot 6 (4,782 sq. m.) was calculated at P1,951.52.

DISPOSITIVE:
The judgment was modified. The defendant is obliged to resell parcels A, B, D, and lot 5 of parcel C to the plaintiffs. The defendant is obliged to buy lot 6 of parcel C from the plaintiffs for P1,951.52. No costs.