G.R. No. L-2819; May 30, 1951
MARCIANA ESCOTO, plaintiff-appellant, vs. BENITO M. ARCILLA, ET AL., defendants-appellees.

FACTS

On May 2, 1932, Manuel Tancungco (since deceased) executed a “pacto de retro” sale of two parcels of land in Angeles, Pampanga, to Jacinto Hilario for P3,500, with a two-year repurchase period and an annual rent of P420. On May 5, 1932, Tancungco similarly conveyed 4/5 of another residential parcel to Amada Hilario (Jacinto’s daughter) for P2,000, with a P240 annual rent. Upon Jacinto Hilario’s death, his rights in the two lots were assigned to Amada Hilario, consolidating both contracts in her favor. Tancungco failed to repurchase but remained in possession, paying the agreed amounts. Amada Hilario died on October 18, 1939, leaving her husband Benito M. Arcilla and their children (the defendants-appellees) as heirs.
Due to Tancungco’s failure to pay rents, Arcilla, as guardian ad litem for his minor children, filed an unlawful detainer action on July 8, 1940. On July 19, 1940, the parties compromised, allowing Tancungco to repurchase the lands for P7,000 within two years, provided he paid P500 within six months to facilitate the intestate proceedings of Amada Hilario and the guardianship of the minors. Tancungco did not pay. On February 10, 1941, the parties executed a new agreement (Exhibit A), where Tancungco paid P500, and Arcilla bound himself to institute intestate proceedings, be appointed administrator, and obtain court authorization to sell the lands to Tancungco for P6,750 (plus the P500) within ten days of notification of such authorization. If the court refused authorization, Tancungco would deliver the lots to Arcilla on demand.
Arcilla was appointed administrator on March 24, 1941, and Artemio Hilario was appointed guardian ad litem for the minors on April 2, 1941. On August 2, 1941, Arcilla, as administrator, filed a motion for authority to sell the lands to Tancungco, noting the guardian ad litem’s conformity. On August 11, 1941, Judge Pedro Magsalin denied the motion because Tancungco was a Chinese citizen, despite finding the sale beneficial. Arcilla notified Tancungco and demanded he vacate. Instead of seeking reconsideration, Tancungco, on November 17, 1941, manifested he had conveyed his right to purchase to Dr. Magdaleno Bundalian, a Filipino citizen.
Tancungco died on May 12, 1943. His widow, Marciana Escoto (plaintiff-appellant), was appointed administratrix. She applied for an order compelling Arcilla to comply with the agreement. Judge Pablo Angeles David, on December 6, 1943, authorized Arcilla to sell the lands to Tancungco’s widow for P6,750 within ten days and, on February 29, 1944, peremptorily directed Arcilla to execute the deed. Arcilla challenged these orders via certiorari in the Supreme Court, which granted the writ, citing lack of notice to Amada Hilario’s heirs as required by the Rules of Court.
On April 16, 1947, Escoto, as administratrix, filed this action for specific performance against Arcilla alone, later amended to include Amada Hilario’s children as co-defendants, to compel Arcilla to obtain court authority to sell the lands to Tancungco’s heirs for P6,750. The trial court dismissed the action and ordered Escoto to deliver possession of the lots to Arcilla.

ISSUE

Whether the plaintiff-appellant, Marciana Escoto as administratrix of Manuel Tancungco’s estate, is entitled to specific performance of the agreement (Exhibit A) to compel the defendants-appellees (Benito M. Arcilla and the heirs of Amada Hilario) to obtain judicial authority to sell the disputed lands to Tancungco’s heirs, notwithstanding Tancungco’s Chinese citizenship and the constitutional prohibition on aliens acquiring land.

RULING

The Supreme Court reversed the trial court’s dismissal. It held that the agreement (Exhibit A) was an extension of the original pacto de retro sale and not a new contract for the acquisition of new property by an alien. Tancungco was exercising a pre-existing property right (the right to repurchase) that antedated the 1935 Constitution, which the Constitution expressly respects. The transaction possessed characteristics of an equitable mortgage, as the “rents” were equivalent to 12% annual interest, Tancungco remained in possession, paid taxes, and the “buyers” were primarily concerned with recovering their money. Although the theory of equitable mortgage was not pleaded and could not be the basis for judgment, these circumstances demonstrated the contractual relation was outside the constitutional prohibition. Furthermore, any constitutional objection was removed by the fact that Tancungco’s widow had reacquired Philippine citizenship and her children were Filipino citizens. The Court also noted that Arcilla, as administrator, had complied with his obligation under Exhibit A by seeking court authorization, which was wrongfully denied solely due to Tancungco’s alienage. The case was remanded for further proceedings consistent with the opinion, with costs against the defendants-appellees.