Cabigao vs. Lim

A contract that is outwardly a sale with right to repurchase will be treated as an equitable mortgage when the purchase price is grossly inadequate relative to the property’s real value and income, and the surrounding circumstances indicate it was given merely as security for a debt. Further, under section 497 of the Code of Civil Procedure, an appellant who does not move for a new trial on the ground that the evidence is insufficient to justify the decision may not obtain appellate review of the evidence or retry questions of fact; only questions of law remain open.

Tomas Cabigao owned a tract of mangrove land described in a Torrens certificate of title as containing 90 hectares, 19 ares and 1 centiare. In mid-1917 he was in financial need. Petrona Lim, a more educated businesswoman, sought to acquire an interest in the property and develop it into fish ponds. Luisa Lim, a relative of Petrona, later became involved, providing funds that were documented as a sale with right of repurchase.

The Original Agreement and Modification: On August 11, 1917, Cabigao, needing money, agreed to sell Petrona Lim one‑half of a mangrove tract for ₱14,000, on condition that she convert the entire tract into fish ponds. The notarial document described the land by its Torrens title area of 90 hectares, 19 ares and 1 centiare. Petrona Lim paid ₱10,000 in cash; the balance of ₱4,000 was due by December 31, 1918. No deadline was set for completing the fish ponds. On August 27, 1917, the same parties executed another document reducing Petrona Lim’s share to 61½ hectares, on the stated ground that Cabigao had previously represented the total area as 123 hectares, whereas the Torrens title showed only about 90. The trial court later found this document fraudulent.

The Transaction with Luisa Lim: On May 10, 1918, Cabigao, Petrona Lim, and Luisa Lim executed a document in which Cabigao acknowledged receipt of ₱4,000 (the balance from Petrona) and received ₱2,100 from Luisa Lim. In the same instrument, Cabigao “agreed to sell” to Luisa Lim all his remaining right, title and interest in the land, with a right to repurchase within one year. Cabigao contended that he never dealt with Luisa Lim, that the money actually came from Petrona Lim and totaled only ₱1,000, and that the difference represented interest at 20% and a 15% discount on the premature payment of the ₱4,000.

The Suit: Cabigao’s complaint sought annulment of all three documents, damages for Petrona Lim’s delay in building the fish ponds, and a declaration that he alone was entitled to the fish. He alleged the May 10, 1918 instrument was usurious and was intended as a mortgage.

Trial Findings: The CFI found that by the time of trial, Petrona Lim had converted about 57 hectares into fish ponds and sold fish worth ₱11,750 in 1920, half of which belonged to Cabigao. It also found she had cut nipa worth ₱1,150 from the land. The new trial on area produced a survey showing the land contained about 100 hectares, but the court held this made no difference: the contract called for a half‑and‑half division once the entire tract was converted.

Tomas Cabigao, as plaintiff-appellant, raised only two points:

• Usurious Contract: Cabigao argued that the May 10, 1918 document was usurious and therefore void.
• Admission by Unverified Answer: He maintained that the defendants’ failure to verify their answers under oath, as required by section 9 of the Usury Act, operated as an admission of the facts alleged in the complaint, thus conclusively establishing usury.

Petrona Lim and Luisa Lim, as defendants-appellants, advanced separate arguments:

• Petrona Lim — Factual Errors: She assigned errors directed at the trial court’s factual findings, particularly the ruling that the August 27, 1917 document was fraudulent and that Cabigao had not misrepresented the land’s area.
• Luisa Lim — Theory of the Case: She argued that the complaint sought only annulment, not a declaration that the transaction was an equitable mortgage; the trial court therefore decided the case on an unpleaded theory.
• Luisa Lim — Insufficiency of Evidence: She contended there was no evidence supporting the finding that the May 10, 1918 document was a loan rather than a genuine sale with right to repurchase.
• Luisa Lim — Ineffective Deposit: She challenged the legal effect of Cabigao’s deposit of ₱2,100 with the court, asserting it could not constitute a valid redemption.
• Luisa Lim — Proceeds During Pendency: She objected to the order requiring her to pay half the fishpond proceeds to Cabigao while the case was ongoing.
• Luisa Lim — Denial of Motion to Prove Expenses: She asserted error in the denial of her motion to introduce evidence that she had incurred expenses for stocking the ponds, caring for the fish, and defending against adjoining landowners’ claims, which should have been deducted from Cabigao’s share.

• Scope of Appellate Review: Whether Petrona Lim’s failure to move for a new trial on the ground of insufficient evidence against the March 23, 1923 decision barred review of questions of fact.
• Sufficiency of the Pleadings: Whether the complaint’s allegations were sufficient to support a judgment declaring the May 10, 1918 transaction an equitable mortgage, despite a prayer seeking only annulment.
• Characterization of the Transaction: Whether the evidence justified the finding that the transaction between Cabigao and Luisa Lim was an equitable mortgage and not a genuine sale with right of repurchase.
• Defense Expenses and Receivership Orders: Whether the trial court erred in ordering payment of half the fishpond proceeds during the suit and in denying Luisa Lim’s motion to prove offsetting expenses.
• Usury: Whether the May 10, 1918 document was usurious such that it should have been declared void.

• Scope of Appellate Review: Review of the evidence was not permitted. The appeal was taken from the March 23, 1923 decision, against which no motion for a new trial based on insufficiency of the evidence had been filed. The earlier motion directed at the May 22, 1922 decision could not substitute for a motion against the later, separate decision. Under section 497 of the Code of Civil Procedure, only questions of law could be determined.
• Sufficiency of the Pleadings: The complaint sufficiently supported the judgment. Although the prayer suggested only annulment, the body of the complaint — specifically paragraph (5) of the fourth cause of action — alleged facts which, if true, made out a case for an equitable mortgage. The character of an action is determined by the facts alleged, not by the prayer.
• Characterization of the Transaction: The transaction was correctly held to be an equitable mortgage. The ₱2,100 paid by Luisa Lim was grossly inadequate compared with the unimproved land’s earlier sale price of ₱14,000 for one‑half, and even more so when measured against the proven gross revenue of ₱5,875 from less than half the property in a single year. Relying on the presumption that a person takes ordinary care of his concerns, it was highly improbable that Cabigao would sell his remaining interest for less than one‑seventh of its value unless the sale was security for a loan. The case fell squarely within the rule of Aguilar vs. Rubiato and Gonzalez Vila, 40 Phil. 570.
• Defense Expenses and Receivership Orders: No error was committed in denying the motion to prove expenses. The motion was unaccompanied by affidavits or other proof of the amounts claimed; without such a showing, there was no basis to amend the receivership order. The court acted within its discretion.
• Usury: There was no evidence of usury. Section 9 of the Usury Act, requiring a verified answer on pain of admission, applies only to actions “to recover the money or other personal or real property … charged or received” in violation of the Act. The present suit did not fall strictly within that class; the failure to verify did not constitute an admission. Accordingly, the trial record contained no proof of a usurious agreement.

• Equitable Mortgage by Inadequate Price and Circumstance — A deed absolute in form, or a sale with right to repurchase, will be construed as an equitable mortgage where the price is so grossly inadequate compared with the property’s value and revenue that, in light of the attendant circumstances, the transaction could only have been intended as security for a debt. Applied here, the ₱2,100 price against a recent ₱14,000 partial sale and annual revenues exceeding ₱5,875 compelled the conclusion that the instrument was a mortgage.
• Pleading: Facts Determine the Cause of Action — The character of a cause of action is not fixed by the prayer of the complaint but by the facts alleged in its body. (Citing 21 R. C. L. 489 and sec. 126, Code of Civil Procedure.) Because the complaint set out facts sufficient to show an equitable mortgage, the judgment could rest on that theory even though the prayer sought annulment.
• Scope of Appellate Review Under Section 497, Code of Civil Procedure — When an appellant fails to file a motion for a new trial on the ground that the evidence is insufficient to justify the decision, the appellate court is confined to questions of law and may not review the evidence or retry questions of fact. The rule was applied strictly; a motion against an earlier, superseded decision was held not to preserve factual review against the final, distinct judgment.
• Admissibility of Sale Price as Evidence of Value — A sale of property made under ordinary circumstances, at the real price stated, is admissible as evidence of the property’s market value at the time of the sale. Where the vendor was in need of money, the price is competent to show minimum market value.
• Presumption of Ordinary Care — Under section 334 of the Code of Civil Procedure, a person is presumed to take ordinary care of his own business. This presumption supported the inference that Cabigao would not have sold his land for far less than its worth unless the conveyance was security for a loan.

• “In its essential points, the case is very similar to that of Aguilar vs. Rubiato and Gonzalez Vila (40 Phil., 570), in which this court held that an alleged sale, with the right to repurchase, was only a mortgage.” — The passage encapsulates the controlling precedent on equitable mortgage.
• “The presumptions are that a person takes ordinary care of his own business and that he is of sound mind until otherwise proven. … [I]f these presumptions hold good, we must also presume that the plaintiff would not sell his land for less than one‑seventh of its value and less than one‑half the annual revenue produced therefrom, unless the sale was intended merely as security for a loan.” — Articulates the inference drawn from normal business prudence.
• “[T]he character of the cause of action is not determined by the prayer of the complaint, but by the facts alleged.” — A rule of pleadings repeatedly invoked in Philippine jurisprudence.
• “[U]nder section 497 of the Code of Civil Procedure, [this court] can … only determine questions of law and is prohibited from reviewing the evidence or retry questions of fact.” — States the procedural bar that prevented Petrona Lim from securing a factual re‑examination.

• Aguilar vs. Rubiato and Gonzalez Vila, 40 Phil. 570 — Controlling precedent. The Supreme Court treated it as squarely in point and applied its holding that an ostensible sale with right to repurchase was in reality an equitable mortgage.
• Beans vs. Denny, 141 Iowa 52; Engel vs. Tate, 170 N.W. (Mich.) 105; Wolff vs. Meyer, 75 N.J.L. 181; and others — Cited as American authorities for the rule that a sale under ordinary circumstances is evidence of value at the time of sale. These supported the use of the prior sale to Petrona Lim as evidence of the land’s minimum worth.

• Section 497, Code of Civil Procedure — Limits appellate review to questions of law when the appellant has not moved for a new trial on the ground of insufficiency of the evidence. Applied to bar Petrona Lim’s factual challenges.
• Section 126, Code of Civil Procedure — Governs the requisites of a complaint. Relied on for the rule that the facts pleaded, not the prayer, determine the cause of action.
• Section 334, Code of Civil Procedure — Establishes the disputable presumption that a person takes ordinary care of his own concerns. Used to infer that Cabigao would not have sold his property at a ruinous price unless the transaction was a secured loan.
• Section 9, Act No. 2655 (Usury Act) — Provides that in actions to recover money or property charged or received in violation of the Act, the defendant’s failure to file a verified answer constitutes an admission of the complaint’s allegations. Construed not to apply to the present suit, which was not strictly one for recovery of property under the Act.

Johnson, Avanceña, Johns, and Romualdez, JJ., concurred. Justice Malcolm concurred in a separate opinion.

• Justice Street — Dissented from the majority’s refusal to review Petrona Lim’s factual assignments. He viewed the motion for a new trial against the May 22, 1922 decision as effectively overruled by the March 23, 1923 decision, which should have opened the entire record to review. On the merits, he found no evidence of fraud in the August 27, 1917 contract and would have upheld it, entitling Petrona Lim to 61½ hectares upon completion of the fish ponds. He also considered the deposit of ₱2,100 legally effective as a redemption, making the characterization of the sale as a mortgage practically unnecessary.