G.R. No. 47641 . June 27, 1941.
JOSEFA BUNDALIAN, ET AL., petitioners, vs. JUAN DE VERA, ET AL., respondents.

FACTS

Carolina Triviño, as the judicial guardian of the minors Josefa, Bienvenida, and Buenaventura Bundalian, initially obtained court authority from the Court of First Instance of Laguna to mortgage a parcel of land belonging to her wards for P6,000. Subsequently, on June 30, 1931, she filed a motion with the same court, which was granted, seeking authority to sell the land under a pacto de retro (sale with right to repurchase) on the ground that a mortgage loan could not be secured. On September 25, 1931, the guardian entered into a contract with respondent Juan de Vera, selling the land to him for P5,000, payable upon court approval of the deed. The deed stipulated that if the guardian repaid the P5,000 within two years from the date of court approval, the sale would be rescinded; otherwise, it would remain in full force. The guardian submitted this contract to the court for approval, alleging the maximum price obtainable was only P5,000 due to a decline in coconut land prices, and the court approved it. On September 30, 1931, the guardian executed a final deed of sale with pacto de retro in favor of De Vera, which was duly registered. The guardian failed to repurchase the property within the stipulated two-year period. De Vera granted a one-year extension, which the guardian also did not utilize. Thereafter, De Vera executed an affidavit of consolidation of ownership and registered it. He later sold the land to respondents Jacinto Alvero and Carmen Alvero, who subsequently mortgaged the property to respondent People’s Bank & Trust Company. On March 13, 1936, Carolina Triviño (as guardian) and Josefa Bundalian filed an action to annul the sales between Triviño and De Vera and between De Vera and the Alveros, as well as the mortgage to the bank. The Court of First Instance of Laguna ruled for the defendants, and the Court of Appeals affirmed the decision on May 31, 1940. The petitioners elevated the case via certiorari.

ISSUE

The primary issue is whether the contract entered into between guardian Carolina Triviño and Juan de Vera on September 25, 1931, is an equitable mortgage or a true sale with pacto de retro. A secondary issue is whether the court order authorizing the guardian’s sale is invalid for alleged non-compliance with procedural requirements under Section 569 of the Code of Civil Procedure, as amended.

RULING

The Supreme Court dismissed the petition and affirmed the appealed judgment. The Court ruled that the contract in question is a true sale with pacto de retro, not an equitable mortgage. In construing contracts, the court must give effect to the intention of the parties as ascertained from the whole instrument. The contract was explicitly entitled “Escritura de Venta con Pacto de Retro.” The guardian’s petition to the court for approval referred to it as a “venta con pacto de retro,” and the attached document was described as a contract of sale with pacto de retro. Furthermore, in a public document, the guardian acknowledged receipt of P5,000 as the price for the “venta con pacto de retro.” The price paid was not deemed decisive, considering the then-existing market prices for coconut lands. The fact that the guardian remained in possession of the land for two years after the sale did not convert the transaction into a mortgage, as it was proven she occupied it as a lessee. Regarding the procedural challenge, the Court found that the alleged irregularities in the court order authorizing the sale were neither distinctly alleged in the complaint nor proved during trial. The lower court’s finding on this matter was not disturbed. The Court also noted that the rights of innocent third parties—the Alveros as purchasers in good faith and the People’s Bank & Trust Company as mortgagee in good faith—were involved and must be protected.