1. EVIDENCE; PROBATIVE VALUE OF DOCUMENTS PRESENTED IN REBUTTAL. — Plaintiffs brought this action to recover rentals merely. It is argued by the defendant that the only contract between the parties was the original one of sale with the right to repurchase, as the subsequent contracts were not offered as evidence in chief, but merely in rebuttal, and therefore, immaterial and inadmissible. Held: Their introduction as evidence on rebuttal is proper. It was the defendant who put up the special defense that the land supposed to have been leased to him was in fact conveyed as a security merely, and a counterclaim demanding the resale of the property to him. It was in support of this special defense and counterclaim that he presented the original contract of sale with the right to repurchase. In their reply, the plaintiffs expressly alleged that defendant’s right to repurchase had expired in the year 1937, and it was to support this allegation that the subsequent contracts were offered in rebuttal. They were, therefore, offered in rebuttal of a new matter put up in defendant’s answer, which was developed in defendant’s evidence in chief, and for that purpose perfectly proper and legal. Plaintiffs could not be expected to introduce them as part of their evidence in chief, in anticipation merely of defendant’s evidence.

2. CONTRACTS AND OBLIGATIONS; NOVATION; REQUIREMENT OF A NOVATION. — The original sale with right to repurchase executed in 1924 fixed the price of repurchase at P20,000, but the subsequent contracts placed it at P60,000. The right to repurchase was expressly recognized in the original deed of sale. In the subsequent agreements, plaintiffs’ title was expressly recognized and only an option to purchase was granted, this right being made subject to the condition that the yearly rentals be paid. Held: It is evident that there has been a clear case of novation within the purview of article 1204 of the Old Civil Code. (8 Manresa 386.) No specific form is required of a novation. All that is required is incompatibility between the original and the subsequent contracts (8 Manresa, p. 430, Abel v. Lina Malasarte, L-2374, September 21, 1950.) In two respects, at least, there is incompatibility between the original contract and the subsequent ones, namely, in the price of the repurchase, and in the holder of the title. In the original contract, the price was only P20,000 and the owner was the defendant; in the latter deeds the price is P60,000 and the owners, the plaintiffs. While there may not be any substantial difference between the right to repurchase and the option to buy, the consideration was increased from P20.000 for the right to repurchase to P60,000 for the option to buy. The transfer of the title from the vendor a retro to the vendee and the acquiescence thereto of the vendor also had changed entirely their respective rights and obligations, for the right under the pacto de retro sale would never terminate, except by an action to execute the security, whereas under the new contracts the repurchase could be made only during the terms specified in the option.

3. ID.; MORTGAGE; THE DOCTRINE ONCE A MORTGAGE ALWAYS A MORTGAGE, EXPLAINED. — The case of Macapinlac v. Gutierrez Repide (43 Phil., 799) quoted with approval the doctrine that if the instrument is in its essence a mortgage, the parties can not by any stipulations, however express and positive, render it anything but a mortgage or deprive it of the essential attributes belonging to a mortgage in equity (Pomeroy Equity Jurisprudence, section 1193). The principle just stated prohibits the parties from making stipulations that would tend to destroy the contract of its essence as a mortgage and deprive the debtor of the equitable right of redemption. The stipulations that are prohibited are those executed or made simultaneously with the original contract, not those subsequently entered into. The principle does not prohibit modification of the original contract by subsequent agreements such as the parties may see fit to adopt.

In G. R. No. L-4505 plaintiffs-appellees seek to recover from the defendant-appellant P24,355.30, representing the total balance of an original indebtedness of P19,400.68 as of March 31, 1949, plus interest thereon (on P24,355.30) at the rate of 10 per cent until the same is paid; while in G. R. No. L-5228 they seek to recover the rentals of a parcel of riceland situated in San Manuel, Tarlac leased to defendant-appellant from March 1, 1941 at P6,000 a year, plus interest on said rentals at 12 per cent per annum and P4,000 as attorney’s fees. In the first case, the defendant admits an original indebtedness of P10.000 on June 30, 1947 plus an additional amount of P9,400.68, but denies the alleged obligation to pay interest thereon. He claims that the above amounts are part of a transaction entered into and mentioned in the other case, and expressed willingness to pay the amount actually due, but that upon deposit thereof plaintiffs should be required to return the real estate described in the complaint in the second action. In his answer in the second case, the defendant alleges that the land claimed to have been leased to him was conveyed by him to plaintiffs to secure the payment of an original loan of P20,000, which contract was made to appear as a sale with right to repurchase and a lease; that the loan was subsequently increased to P60,000; that he paid interests on the said loan from the year 1933 to 1942, but that in the years 1942 to 1945, the plaintiffs refused to accept the interests; that in 1943 and 1944 defendant offered to redeem the property, but plaintiffs refused to allow him to do so; and, by way of counterclaim, that the defendant would pay all of his indebtedness, but that plaintiffs be required to execute a deed of resale of the land in his favor. In reply to this counterclaim for the resale of the property, plaintiffs-appellees allege that defendant’s right to purchase the property had expired in the year 1937 and, therefore, they prayed that the defendant’s demand be denied. On these issues the parties went to trial, and thereafter the court rendered judgment, in the second case, ordering the defendant to pay plaintiffs P6,000 a year from March 1, 1941, with interest thereon at 12 per cent per annum from March, 1945. In the first case, the court ordered the defendant to pay to plaintiffs the sum of P19,400.68 plus P4,954.62, plus interest on said P19,400.68 at 10 per cent from March 31, 1949, and dismissed defendant’s counterclaim. The payment of the rentals from 1942 to 1945 was declared suspended by reason of the moratorium law.

The land involved in the second case originally belonged to defendant, who had a registered title thereto as early as the year 1915 (Original Certificate of Title No. 376, Register of Deeds, Tarlac, Exhibit D-2.) It was mainly riceland, but some of it were residential lots. In the year 1928, it was assessed at P102,706.84 Exhibits D-5-a to n.) In 1918, it was mortgaged to the Philippine National Bank for P15,000. On March 3, 1924, it was sold to Jose Cojuangco, Sr., deceased father of plaintiffs, for P20,000, with the right to repurchase the same in two years. At the time of the sale, a contract of lease was entered into between the vendor and the vendee, whereby the latter leased the land to the vendor for P2,400 a year, payable in palay (Exhibit D-4). The defendant neglected to pay the annual rentals of the land, or the taxes thereon, so it was declared forfeited to the government for non-payment of real estate taxes. On June 23, 1931, the heirs of the vendee, thru their lawyer, notified defendant of these facts and gave him notice to redeem the land, otherwise they would consolidate ownership thereof (Exhibit P-9.) As the vendor was not heard from, the heirs of the vendee on July 5, 1932, consolidated their ownership (Exhibit P-14), and title to the property was issued in their favor (Exhibit P-1). They also paid the delinquent taxes on the land on August 15, 1932 (Exhibits P-16 to P- 20). On August 17, 1932, a liquidation of accounts of the defendant was made. The total indebtedness of the defendant, including the principal and the interests, was found to have reached P57,200.54. An additional amount of P2,799.46 was paid to him in order to raise his total indebtedness to P60,000 (Exhibits P-11 and P-12), and on the same day a new contract of lease was entered into between them, whereby the defendant received the property from the plaintiffs by way of lease, at a rental of P4,200 until March 1, 1933. It was expressly stipulated that the land shall be returned to the lessors on March 1, 1933, but that if the lessee pay the rental agreed upon, he may be allowed to repurchase the property for P60,000 (Exhibit P-13.) The defendant did not redeem the property within the time agreed upon, and on August 23, 1933, upon defendant’s request, they again entered into another contract of lease, fixing the yearly rental at P6,000. The defendant was again given the privilege to repurchase the property until March 1, 1937 for the sum of P60,000, provided he regularly paid the yearly rental (Exhibit P-2.) But again the defendant failed to redeem the property within this period, although he was allowed to continue in possession of the land. He paid his rentals, however, until the outbreak of the war in 1941.

On May 5, 1945 plaintiffs, thru their lawyers, demanded the possession of the land from the defendant (Exhibit D-8.) Upon receipt of this letter, the defendant replied that he was surprised by this demand as he believed that plaintiffs would never assume to be the owners of the property in violation of their understanding or of their word of honor (Exhibit D-9.) The defendant, nevertheless, was allowed to continue in possession of the property, although he paid the yearly rentals or the interest on the capital of the debt. Plaintiffs brought these two actions in the year 1949.

The main question at issue is the nature of the transaction that was entered into between the parties in relation to the property. Plaintiffs claim that they are the owners thereof since the year 1932, while the defendant denies this alleged ownership, pretending that the conveyance of the land in favor of plaintiffs was merely as a security for the payment of an indebtedness. On this issue, the trial court held that while the original contract entered into between the parties was a loan with security, there has been a novation thereof, as supported by the preponderance of the evidence, especially the title, Exhibit P-1, and the deeds of lease, Exhibit P-2 and Exhibit P-13. It therefore rendered judgments in both cases in favor of plaintiffs and against the defendant, as already indicated above.

The defendant’s principal contention on this appeal is that no novation of the original contract of loan with security was ever brought about by and between the parties. It is argued in support of this contention that the only contract between the parties was the original one of sale with the right to repurchase dated March 3, 1924, Exhibit D-3, as the subsequent contracts of August 17, 1932, Exhibit P-13 and of August 23, Exhibit P-2, were not offered as evidence in chief, but merely in rebuttal (t. s. n. p. 281) and, therefore, immaterial and inadmissible (Assignment of Error No. 2.) The importance of this preliminary question becomes evident, when we take into account that these two contracts, Exhibit P-13 and Exhibit P-2, are the main basis of the trial court’s conclusion that there has been a novation of the original contract.

We hold that their introduction as evidence on rebuttal is proper. Plaintiffs brought the action to recover rentals merely. It was the defendant who put up the special defense that the land supposed to have been leased to him was in fact conveyed as a security merely, and a counterclaim demanding the resale of the property to him. It was in support of this special defense and counterclaim that he presented the original contract of sale with the right to repurchase, Exhibit D-3. In their reply, the plaintiffs expressly alleged that defendant’s right to repurchase had expired in the year 1937, and it was to support this allegation that Exhibit P-2 and Exhibit P-13 were offered. They were, therefore, offered in rebuttal of a new matter put up in defendant’s answer, which was developed in defendant’s evidence in chief, and for that purpose perfectly proper and legal. Plaintiffs could not be expected to introduce them as part of their evidence in chief, in anticipation merely of defendant’s evidence.

But the brunt of defendant’s argument is made to rest on the principle that "once a mortgage, always a mortgage", claim being made that since the original contract was admittedly a mortgage or venta con pacto de retro, the execution of Exhibit P-13 and Exhibit P-2, as well as of Exhibit P-11, upon which the trial court mainly based its conclusion that the original contract was novated, did not have the effect of modifying the agreement.

It is to be noted that the contract of lease, Exhibit P-13, of August 17, 1932 contains the following stipulation:jgc:chanrobles.com.ph

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