(Reformation of Instrument)G.R. No. 157439 July 4, 2007MULTI-VENTURES CAPITAL and MANAGEMENT CORPORATION, Petitioner.vs.STALWART MANAGEMENT SERVICES CORPORATION, MARIAN G. TAJO, CESAR TAJO and ARIANAGALANG, Respondents*

FACTS:

- As alleged by Multi-Ventures, Stalwart borrowed P9,000,000 from Multi-Ventures, with interest and for purposes of expediency, this transaction was denominated by the parties as a sale of Land Bank bonds from Stalwart to Multi-Ventures as shown in a Confirmation of Agreement. The Bonds, as Multi-Ventures say only serve as partial collateral for the payment of the loan. Multi-Ventures suspects that Stalwart will renege on its loan obligation with Multi-Ventures impelling Multi-Ventures to file the present petition before this Court for reformation in order to express the true intent of the parties, i.e., that the ostensible sale of the bonds is actually a loan agreement.

-Countering Multi-Ventures arguments, Stalwart denied all allegations and affirmed the intent of the parties that the transaction they had was really a sale of Land Bank bonds. Supporting this statement is the fact presented that Multi-Ventures and Stalwart are engaged in dealing and trading government securities.

-RTC Ruling: Reformation is proper from Contract of Sale to Contract of Loan.

-CA Ruling: Reversed RTC decision. No reformation needed. The transaction was that of a sale.

ISSUE/S:

-WON the contract entered into between Multi-Ventures Capital and Management Corporation and Stalwart Management Services Corporation is one of loan or sale?

HELD:

- The Court ruled to sustain the CA’s ruling affirming that the subject transaction between Multi-Ventures and Stalwart is that of a sale of Land Bank bonds.

- Under Article 1359, in order that an action for reformation of instrument may prosper, the following requisites must concur:

(1) there must have been a meeting of the minds of the parties to the contract; (2) the instrument does not express the true intention of the parties; and (3) the failure of the instrument to express the true intention of the parties is due to mistake, fraud, inequitable conduct or accident.

-The burden of proof devolves on the party asserting that the instrument did not express the true intention of the parties and so needs to be reformed. The presumption is that an instrument sets out the true agreement of the parties thereto and that it was executed for valuable consideration. Multi-Ventures failed to overturn the presumption of validity of the contract and it also failed to discharge the burden of proving that the true intention of the parties has not been expressed.

-The argument of Multi-Ventures is that the buy-back arrangement in the letter of Stalwart where it will purchase back the bonds at 11,557,972.60 proves that the transaction between them is that of a loan. Because if it was not, why would Stalwart pay a higher price of P11,557,972.60 when it only received as consideration therefrom was only P9,000,000?

-The Court did not find merit in the argument and said that the buy-back arrangement only corroborates the fact that the transaction was of sale. For if the bonds were only to serve as a collateral for the loan, why would respondent offer to buy them back from petitioner if they were not sold in the first place? Obviously, ownership of the bonds had been transferred from respondent to petitioner on January 11, 1991; for if it were not so and the bonds were merely being held by petitioner as a security for the payment of the alleged loan, then ownership would have remained with respondent and there would have been no need to buy it back.

- In addition, the Court took notice of a subsequent transaction made by Multi-Ventures of using the Land Bank bonds as collateral for an investment from AFP Mutual Benefits Association, Inc. which is evidently an act of ownership.

-Lastly, Multi-Ventures failed to establish existence of the third requisite which is, the failure of the instrument to express the true intention of the parties is due to mistake, fraud, inequitable conduct or accident. Absent any proof of mistake, fraud, inequitable conduct or accident, the Confirmation of Agreement dated January 11, 1991 remains the best evidence to ascertain the real intent of the parties.

(Reformation of Instrument)G.R. No. L39592 January 28, 1975 TEEHANKEE, J.:The Spouses ANTONIO JAYME and ANA SOLIDARIOS, petitioners,

vs.Hon. Judge NESTOR ALAMPAY and BENITO ONG, respondents.

FACTS:

-Sps Solidarios filed a complaint before the CFI of Judge Alampay against Ong for reformation of their contract from contract of sale to contract of mortgage which subject is the land parcel of the spouses. They prayed for the return of their land upon payment of the alleged loan obligation. Sps Solidarios further stated that they acceded to Ong’s suggestion to execute a deed of absolute sale instead on the subject property since they have trust and confidence for the man being a good family friend and that they are in dire need of money.

-Sps Solidarios provided facts which corroborate to their claims:

1. that simultaneous to the execution of the deed of sale, Annex A, the defendant Ong executed in favor of the plaintiff an option (for six months) to purchase the ... parcel of land for the same sum of P16,500.00;

2. that since the purported sale up to now, petitioners "continue to occupy part of the premises without paying rentals to the defendant;

3. plaintiffs collect up to the present time all the rentals due from the other occupants of the premises;

4. that the "sum of P16,500.00 ... is grossly inadequate for purpose of definite sale

-CFI ruling: Dismissed the case on 2 grounds:

1) The proper remedy of petitioners on the basis of the complaint is annulment of the sale on the ground of "vitiated consent" which action has prescribed within the statutory four year period citing Article 1391, Civil Code; and

2) The existence of a mortgage for P100,000.00 over the lot executed by respondent in favor of Jose del Castillo who is a mortgagee in good faith presents a legal impediment to petitioners' action for reformation of instrument and recovery of the property free from all liens and encumbrances.

ISSUE/S:

WON dismissal of the petition for reformation was proper?

HELD:

-The CFI erred in using the 4 year prescription period for this type of action. The established rule in this jurisprudence says that the allegations of the complaint are deemed to be hypothetically admitted. The complaint for reformation of instrument clearly alleged that the deed of sale did not express the true agreement of the parties and should be reformed into the mortgage that it actually was and prayed that petitioners be allowed to redeem the property by repaying the loan of P16,500.00 (the true value of the property being much more, as evidenced by the mortgage loan for P100,000.00 which respondent in turn secured on it). Hence, the prescription period that should be used is 10 years based on Article 1144 of the NCC. The action filed by Sps for reformation took only less than 8 years and is hence not yet prescribed.

- Article 1365 of the Civil Code provides:

“If two parties agree upon the mortgage or pledge of real or personal property but the instrument states that the property is sold absolutely or with a right to repurchase, reformation of the instrument is proper."

-The defense of Ong that their agreement was appropriately reflected in the deed of absolute sale should be established by adducing evidence in trial and not be considered as a proven fact during pre-trial for the granting of motion to dimiss.

- The Court, in ruling for the 2nd ground for dismissal of the Spouses petition for reformation that there is a legal impediment to proceed with reformation because of the mortgage made by Ong to Del Castillo, a third party and a mortgagee in good faith, said that the same would in no way be a hurdle in the reformation of the instrument as if in case the spouses win the case based on its merits, Ong will just need to fulfill/discharge his obligation to Del Castillo to free the land title from any encumbrances thereof before delivering title to the spouses.

-The Court reversed the order of dismissal and remanded the case to the CFI.

(Simulated Contract)G.R. No. 17321 lPetitioners: HEIRS OF DR. MARIO S. INT AC and ANGELINA MENDOZA-INTAC,Respondents: COURT OF APPEALS and SPOUSES MARCELO ROY, JR. and JOSEFINA MENDOZA-ROY and SPOUSES DOMINADOR LOZADA and MARTINA

FACTS:

-

During the lifetime of Ireneo Mendoza (Ireneo), he executed a deed of absolute sale involving a property located in Bagong Pag-asa, Quezon City in favor of spouses Angelina and Mario Intac (spouses Intac). Consequently, TCT No. 242655 was issued in favorof the spouses Intac. The deed was executed because the spouses Intac needed to borrow the title of the property and to use the same as collateral for their loan application.

Respondents Josefina Mendoza-Roy and Martina Mendoza-Lozada, heirs of the late Ireneo, sought the cancellation of TCT No. 242655 claiming that the sale was only simulated, and therefore, void.

Both the RTC and the CA declared that the deed of absolute sale was null and void and ordered the cancellation of TCT No. 242655.Hence, this present recourse.

ISSUE: Whether or not the deed of absolute sale was a simulated contract or a valid agreement?

HELD: The Court finds no merit in the petition.

CIVIL LAW: simulated contract

Accordingly, for a contract to be valid, it must have three essential elements: (1) consent of the contracting parties; (2) objectcertain which is the subject matter of the contract; and (3) cause of the obligation which is established. In a contract of sale, its perfection is consummated at the moment there is a meeting of the minds upon the thing that is the object of the contract and upon the price. Consent is manifested by the meeting of the offer and the acceptance of the thing and the cause, which are to constitute the contract.

If the parties state a false cause in the contract to conceal their real agreement, the contract is only relatively simulated and the parties are still bound by their real agreement. Hence, where the essential requisites of a contract are present and the simulation refers only to the content or terms of the contract, the agreement is absolutely binding and enforceable between the parties and their successors in interest.

In absolute simulation, there is a colorable contract but it has no substance as the parties have no intention to be bound by it. The main characteristic of an absolute simulation is that the apparent contract is not really desired or intended to produce legal effect or in any way alter the juridical situation of the parties. As a result, an absolutely simulated or fictitious contract is void, and the parties may recover from each other what they may have given under the contract.

In the case at bench, the Court is one with the courts below that no valid sale of the subject property actually took place between the alleged vendors, Ireneo and Salvacion; and the alleged vendees, Spouses Intac. There was simply no consideration and no intent to sell it.

Petition is DENIED.

FACTS:-Ireneo Mendoza, married to Salvacion Fermin, was the owner of the subject property located in Quezon city which he purchased in 1954. (TCT No. 242655)

Ireneo had two children: respondents Josefina and Martina (respondents), Salvacion being their stepmother.

When he was still alive, Ireneo, also took care of his niece, Angelina,(Petitioner) since she was three years old until she got married.

On October 25, 1977, Ireneo, with the consent of Salvacion, executed a deed of absolute sale of the property in favor of Angelina and her husband, Mario (Spouses Intac).

Despite the sale, Ireneo and his family, including the respondents, continued staying in the premises and paying the realty taxes. After Ireneo died intestate in 1982, his widow and the respondents remained in the premises. After Salvacion died, respondents still maintained their residence there. Up to the present, they are in the premises, paying the real estate taxes thereon, leasing out portions of the property, and collecting the rentals.

The controversy arose when respondents sought the cancellation of TCT No. 242655, claiming that the sale was only simulated and, therefore, void.

The heirs of Ireneo, the respondents in this case, alleged that: 1. When Ireneo was still alive, Spouses Intac borrowed the title of the property (TCT No. 106530) from him to be used as collateral for a loan from a financing institution; 2. they objected because the title would be placed in the names of said spouses and it would then appear that the couple owned the property; that Ireneo, however, tried to appease them, telling them not to worry because Angelina would not take advantage of the situation considering that he took care of her for a very long time; that during his lifetime, he informed them that the subject property would be equally divided among them after his death; and 3. that respondents were the ones paying the real estate taxes over said property.

Spouses Intac countered, among others, that the subject property had been transferred to them based on a valid deed of absolute sale and for a valuable consideration; that the action to annul the deed of absolute sale had already prescribed; that the stay of respondents in the subject premises was only by tolerance during Ireneo’s lifetime because they were not yet in need of it at that time; and that despite respondents’ knowledge about the sale that took place on October 25, 1977, respondents still filed an action against them.

RTC ruled in favor of the respondents saying that the sale to the spouses Intac was null and void. The CA also ruled that there was no consideration in the sale to the spouses Intac and that the contract was one for equitable mortgage.

-RTC Ruling: The RTC ruled, among others, that the sale between Ireneo and Salvacion, on one hand, and Spouses Intac was null and void for being a simulated one considering that the said parties had no intention of binding themselves at all.

-CA Ruling: Modified decision of the RTC only as to the equitable mortgage but sustained RTC’s finding that the sale was null and void for being an absolutely simulated contract and for lack of consideration.

Issues:

WON the Deed of Absolute Sale was a simulated contract or a valid agreement?

Held:

The deed of sale executed by Ireneo and Salvacion was absolutely simulated for lack of consideration and cause and, therefore, void.

Articles 1345 and 1346 of the Civil Code provide:Art. 1345. Simulation of a contract may be absolute or relative. The former takes place when the parties do not intend to be bound at all; the latter, when the parties conceal their true agreement.

Art. 1346. An absolutely simulated or fictitious contract is void. A relative simulation, when it does not prejudice a third person and is not intended for any purpose contrary to law, morals, good customs, public order or public policy binds the parties to their real agreement.

Relatively simulated agreement vs. Absolute simulation If the parties state a false cause in the contract to conceal their real agreement, the contract is only relatively simulated and the parties are still bound by their real agreement. Hence, where the essential requisites of a contract are present and the simulation refers only to the content or terms of the contract, the agreement is absolutely binding and enforceable between the parties and their successors in interest

In absolute simulation, there is a colorable contract but it has no substance as the parties have no intention to be bound by it. "The main characteristic of an absolute simulation is that the apparent contract is not really desired or intended to produce legal effect or in any way alter the juridical situation of the parties." "As a result, an absolutely simulated or fictitious contract is void, and the parties may recover from each other what they may have given under the contract."

No valid sale took place between Ireneo and Spouses IntacIn the case at bench, the Court is one with the courts below that no valid sale of the subject property actually took place between the alleged vendors, Ireneo and Salvacion; and the alleged vendees, Spouses Intac. There was simply no consideration and no intent to sell it.

Evidences to prove that there was no absolute deed of sale between the partiesCritical is the testimony of Marietto, a witness to the execution of the subject absolute deed of sale. He testified that Ireneo personally told him that he was going to execute a document of sale because Spouses Intac needed to borrow the title to the property and use it as collateral for their loan application. Ireneo and Salvacion never intended to sell or permanently transfer the full ownership of the subject property to Spouses Intac. Marietto was characterized by the RTC as a credible witness.

Aside from their plain denial, the heirs of Intac failed to present any concrete evidence to disprove Marietto’s testimony. They claimed that they actually paid P150,000.00 for the subject property. They, however, failed to adduce proof, even by circumstantial evidence, that they did, in fact, pay it. Even for the consideration of P60,000.00 as stated in the contract, petitioners could not show any tangible evidence of any payment therefor. Their failure to prove their payment only strengthened Marietto’s story that there was no payment made because Ireneo had no intention to sell the subject property.

Angelina’s story, except on the consideration, was consistent with that of Marietto. Angelina testified that she and her husband mortgaged the subject property sometime in July 1978 to finance the construction of a small hospital in Sta. Cruz, Laguna. Angelina claimed that Ireneo offered the property as he was in deep financial need.

The contract of sale was only for the purpose of lending the title of the property to Spouses Intac to enable them to secure a loan. Their arrangement was only temporary and could not give rise to a valid sale. Where there is no consideration, the sale is null and void ab initio. The case of Lequin vs. VIzconde was cited in this case.

The fact that Ireneo was still in physical possession of the subject property after the sale is a strong evidence to prove that there was no valid sale between the parties.More importantly, Ireneo and his family continued to be in physical possession of the subject property after the sale in 1977 and up to the present. They even went as far as leasing the same and collecting rentals. If Spouses Intac really purchased the subject property and claimed to be its true owners, why did they not assert their ownership immediately after the alleged sale took place? Why did they have to assert their ownership of it only after the death of Ireneo and Salvacion? One of the most striking badges of absolute simulation is the complete absence of any attempt on the part of a vendee to assert his right of dominion over the property.

As heretofore shown, the contemporaneous and subsequent acts of both parties in this case, point to the fact that the intention of Ireneo was just to lend the title to the Spouses Intac to enable them to borrow money and put up a hospital in Sta. Cruz, Laguna. Clearly, the subject contract was absolutely simulated and, therefore, void.

The Spouses Intac never became the owners of the property despite its registration in their names.It is also of no moment that TCT No. 106530 covering the subject property was cancelled and a new TCT (TCT No. 242655)21 was issued in their names. After all, registration does not vest title. As a logical consequence, petitioners did not become the owners of the subject property even after a TCT had been issued in their names.

[G.R. No. 138018. July 26, 2002]RIDO MONTECILLO, petitioner, vs. IGNACIA REYNES and SPOUSES REDEMPTOR and ELISA ABUCAY, respondents.

Facts:

Respondents Ignacia Reynes and spouses Abucay filed on June 20, 1984 a complaint for Declaration of Nullity and Quieting of Title against petitioner Rico Montecillo. Reynes asserted that she is the owner of a lot situated in Mabolo, CebuCity. In 1981 Reynes sold 185 square meters of the Mabolo Lot to the Abucay Spouses who built a residential house on the lot they bought.Reynes alleged further that on March 1, 1984, she signed a Deed of Sale of the Mabolo Lot in favor of Montecillo. Reynes, being illiterate signed by affixing her thumbmark on the document.Montecillo promised to pay the agreed Php47,000.00 purchase price within one month from the signing of the Deed of Sale.Reynes further alleged that Montecillo failed to pay the purchase price after the lapse of the one-month period, prompting Reynes to demand from Montecillothe return of the Deed of Sale. Since Montecillo refused to return the Deed of Sale, Reynes executed a document unilaterally revoking the sale and gave a copy of the document to Montecillo.

Subsequently, on May 23, 1984 Reynes signed a Deed of Sale transferring to the Abucay Spouses the entire Mabolo Lot, at the same time confirming the previous sale in 1981 of a 185 square meter portion of the lot.Reynes and the Abucay Spouses alleged that on June 18, 1984 they received information that the Register of Deeds of Cebu City issued Certificate of Title No. 90805 in the name of Montecillo for the Mabolo Lot.

Reynes and the Abucay Spouses argued that “for lack for consideration there (was) no meeting of the minds) between Reynes and Montecillo. Thus, the trial court should declare null and void ab initio Monticello’s Deed of sale, and order the cancellation of certificate of title No. 90805 in the name of Montecillo.

In his Answer, Montecillo a bank executive with a BS Commerce degree, claimed he was a buyer in good faith and had actually paid the Php47,000.00 consideration stated on his Deed of Sale. Montecillo however admitted he still owned Reynes a balance of Php10,000.00. He also alleged that he paid Php50,000.00 for the release of the chattel mortgage which he argued constituted a lien on the Mabolo Lot. He further alleged that he paid for the real property tax as well as the capital gains tax on the sale of the Mabolo Lot.

In their reply, Reynes and the Abucay Spouses contended that Montecillo did not have authority to discharge the chattel mortgage especially after Reynes revoked Montecillo’s Deed of Sale and gave the mortgagee a copy of the document of revocation. Reynes and the Abucay Spouses claimed that Montecillo secured the release of the chattel mortgage through machination. They further asserted that Montecillo took advantage of the real property taxes paid by the Abucay Spouses and surreptitiously caused the transfer of the title to the Mabolo Lot in his name.

During pre-trial Montecillo claimed that the consideration for the sale of the Mabolo Lot was the amount he paid to Cebu Iced and Cold Storage Corporation for the mortgage debt of Bienvenido Jayag.Montecillo argued that the release of the mortgage was necessary since the mortgage constituted a lien on the Mabolo Lot.

Reynes, however stated that she had nothing to do with Jayag’s mortgage debt except that the house mortgaged by Jayag stood on a portion of the Mabolo Lot. Reynes further stated that the payment by Montecillo to release the mortgage on Jayag’s house is a matter between Montecillo andJayag. The mortgage on the house being a chattel mortgage could not be interpreted in any way as an encumbrance on the Mabolo Lot.Reynes further claimed that the mortgage debt had long prescribed since the Php47,000.00 mortgage debt was due for payment on January 30,1967.

Issue:

Whether or not there was a valid consent in the case at bar to have a valid contract?

Held:

Ruling:One of the three essential requisites of a valid contract is consent of the parties on the object and cause of the contract. In a contract of sale, the parties must agree not only on the p[rice, but also on the manner of payment of the price. An agreement on the price but a disagreement on the manner of its payment will not result in consent, thus preventing the existence of a valid contract for a lack of consent. This lack of consent is separate and distinct for lack of consideration where the contract states that the price has been paid when in fact it has never been paid.

Reynes expected Montecillo to pay him directly the P47, 000.00 purchase price within one month after the signing of the Deed of Sale. On the other hand, Montecillo thought that his agreement with Reynes required him to pay the P47, 000.00-purchase price to Cebu Ice Storage to settle Jayag’s mortgage debt. Montecillo also acknowledged a balance of P10, 000.00 in favor of Reynes although this amount is not stated in Montecillo’s Deed of Sale. Thus, there was no consent or meeting of the minds, between Reynes and Montecillo on the manner of payment. This prevented the existence of a valid contract because of lack of consent.

In summary, Montecillo’s Deed of Sale is null and void ab initio not only for lack of consideration, but also for lack of consent. The cancellation of TCT No. 90805 in the name of Montecillo is in order as there was no valid contract transferring ownership of the Mabolo Lot from Reynes to Montecillo.

FACTS:

Respondents Ignacia Reynes and Spouses Abucay filed on June 20, 1984 a complaint for Declaration of Nullity and Quieting of Title against petitioner Rido Montecillo. Reynes asserted that she is the owner of a lot situated in Mabolo, Cebu CitY. In 1981, Reynes sold 185 square meters of the Mabolo Lot to the Abucay Spouses who built a residential house on the lot they bought. A Deed of Sale was then issued by Ignacia in favour of Montecillo. The latter promised to pay the agreed price after one month but he failed to fulfil his obligation. Ignacia made a demand to Montecillo that he should return the Deed but Montecillo refused to return the Deed of Sale that’s why Reynes executed a document unilaterally revoking the sale and gave a copy of the document to Montecillo.

Ignacia Reynes,subsequently sold the land to spouses Abucay but they received an information that the lot was already registered in the name of the Montecillos.

Reynes and the Abucay Spouses argued that "for lack of consideration there (was) no meeting of the minds" between Reynes and Montecillo. Thus, the trial court should declare null and void ab initio Montecillo’s Deed of Sale, and order the cancellation of Certificate of Title in the name of Montecillo.

In his Answer, Montecillo claimed he was a buyer in good faith and had actually paid the P47,000.00 consideration stated in his Deed of Sale. Montecillo, however, admitted he still owed Reynes a balance of P10,000.00. He also alleged that he paid P50,000.00 for the release of the chattel mortgage between Cebu Ice Storage and Bienvenido Jayag which he argued constituted a lien on the Mabolo Lot. He further alleged that he paid for the real property tax as well as the capital gains tax on the sale of the Mabolo Lot.

The Issues

1. "Was there an agreement between Reynes and Montecillo that the stated consideration of P47,000.00 in the Deed of Sale be paid to Cebu Ice and Cold Storage to secure the release of the Transfer Certificate of Title?"

2. "If there was none, is the Deed of Sale void from the beginning or simply rescissible?"

Held:

First issue: manner of payment of the P47,000.00 purchase price.

Montecillo’s Deed of Sale does not state that the P47,000.00 purchase price should be paid by Montecillo to Cebu Ice Storage. Montecillo failed to adduce any evidence before the trial court showing that Reynes had agreed, verbally or in writing, that the P47,000.00 purchase price should be paid to Cebu Ice Storage. Absent any evidence showing that Reynes had agreed to the payment of the purchase price to any other party, the payment to be effective must be made to Reynes, the vendor in the sale.

Article 1240 of the Civil Code provides as follows:

"Payment shall be made to the person in whose favor the obligation has been constituted, or his successor in interest, or any person authorized to receive it."

Thus, Montecillo’s payment to Cebu Ice Storage is not the payment that would extinguish16 Montecillo’s obligation to Reynes under the Deed of Sale.

Second issue: whether the Deed of Sale is void ab initio or only rescissible.

One of the three essential requisites of a valid contract is consent of the parties on the object and cause of the contract. In a contract of sale, the parties must agree not only on the price, but also on the manner of payment of the price. An agreement on the price but a disagreement on the manner of its payment will not result in consent, thus preventing the existence of a valid contract for lack of consent. This lack of consent is separate and distinct from lack of consideration where the contract states that the price has been paid when in fact it has never been paid.

Reynes expected Montecillo to pay him directly the P47,000.00 purchase price within one month after the signing of the Deed of Sale. On the other hand, Montecillo thought that his agreement with Reynes required him to pay the P47,000.00 purchase price to Cebu Ice Storage to settle Jayag’s mortgage debt. Montecillo also acknowledged a balance of P10,000.00 in favor of Reynes although this amount is not stated in Montecillo’s Deed of Sale. Thus, there was no consent, or meeting of the minds, between Reynes and Montecillo on the manner of payment. This prevented the existence of a valid contract because of lack of consent.

In summary, Montecillo’s Deed of Sale is null and void ab initio not only for lack of consideration, but also for lack of consent. The cancellation of TCT No. 90805 in the name of Montecillo is in order as there was no valid contract transferring ownership of the Mabolo Lot from Reynes to Montecillo.

FIRST PHILIPPINE HOLDINGS CORPORATION V TRANS MIDDLE EAST EQUITIES INC.G.R. NO. 179505, 04 DECEMBER 2009

FACTS:

FHPC formerly known as Meralco Securities Corporation incorporated on 30 June 1961 by Filipino Entreprenuers led by Eugenio Lopez Sr. sold its 6,299,179.00 php shares of common stock in Philippine Commercial International Bank (PCIB), now Equitable PCIB to TMEE. Such shares according to the FHPC were obtained by the TMEE through fraud, acts contrary to Law, Morals, Good Customs and Public Policy and such acquisition is either voidable, void or unenforceable. FHPC filed then its motion for leave to intervene and admit complaint in intervention and was granted by the court.

On the other hand, TMEE filed its motion to dismiss the complaint-in-intervention by the FHPC on the ground that the action of FHPC has already prescribed under Article 1391 of the Civil Code. Since the action was filed only on 28 December 1988 and the sale was 24 May 1984 the action was already 7 months late from the date of prescription.

Art 1391 provides:

The action for annulment shall be brought within 4 years.

This period shall begin: In cases of intimidation, violence or undue influence, from the time the defect of the consent ceases.

In case of mistake or fraud, from the time of the discovery of the same.

And when the action refers to contracts entered into by minors orother incapacitated persons, from the time the guardianship ceases.

ISSUE :

Whether or not the sale of property is void and the prescriptive period had elapsed.

HELD:

No, the SC found that the sale is not void for a suit for the annulment of voidable contract on account of fraud shall be filed within four years from the discovery of the same.

Here, from the time the questioned sale transaction on May 24, 1984 took place, FHPC didn't deny that it had actual knowledge of the same. Simply, petitioner was fully aware of the sale of the PCIB shares to TMEE and despite full knowledge petitioners did not question the said sale from its inception and sometime thereafter. It was only four years and seven months had elapsed following the knowledge or discovery of the alleged fraudulent sale that the petitioner assailed the same, by then it was too late for the petitioners to beset same transaction, since the prescriptive period had already come into play.

The SC therefore denied the instant petition and affirmed the resolution of the Sandiganbayan granting TMEE’s Motion to Dismiss on the ground of prescription with cost against the petitioner.

ESTATE OF K. H. HEMADY, deceased, vs. LUZON SURETY CO., INC., claimant-Appellant. [GR L-8437. Nov. 28, 1956.] J. REYES en banc

Luzon Surety Co. filed a claim against the Estate based on 20 different indemnity agreements, or counter bonds, each subscribed by a distinct principal and by the deceased K. H. Hemady, a surety solidary guarantor.

Luzon Surety Co., prayed for allowance, as a contingent claim, of the value of the 20 bonds it executed in consideration of the counterbonds, and asked for judgment for the unpaid premiums and documentary stamps affixed to the bonds, with 12 % interest thereon. CFI dismissed the claims of Luzon Surety Co., on failure to state the cause of action.

ISSUE :

what obligations are transmissible upon the death of the decedent? Are contingent claims chargeable against the estate?

HELD:

Under the present Civil Code (Art. 1311), “Contracts take effect only as between the parties, their assigns and heirs, except in the case where the rights and obligations arising from the contract are not transmissible by their nature, or by stipulation or by provision of law.”

While in our successional system the responsibility of the heirs for the debts of their decedent cannot exceed the value of the inheritance they receive from him, the principle remains intact that these heirs succeed not only to the rights of the deceased but also to his obligations. Articles 774 & 776,NCC, provides, thereby confirming Art. 1311.

“ART. 774. — Succession is a mode of acquisition by virtue of which the property, rights and obligations to the extent of the value of the inheritance, of a person are transmitted through his death to another or others either by his will or by operation of law.”

“ART. 776. — The inheritance includes all the property, rights and obligations of a person which are not extinguished by his death.”The binding effect of contracts upon the heirs of the deceased party is not altered by the provision in our Rules of Court that money debts of a deceased must be liquidated and paid from his estate before the residue is distributed among said heirs (Rule 89). The reason is that whatever payment is made from the estate is ultimately a payment by the heirs and distributees, since the amount of the paid claim in fact diminishes or reduces the shares that the heirs would have been entitled to receive.

The general rule is that a party’s contractual rights and obligations are transmissible to the successors. The rule is a consequence of the progressive “depersonalization” of patrimonial rights and duties.

Of the 3 exceptions fixed by Art 1311, the nature of obligation of the surety or guarantor does not warrant the conclusion that his peculiar individual qualities are contemplated as a principal inducement for the contract.Creditor Luzon Surety Co. expects from Hemady when it accepted the latter as surety in the counterbonds was the reimbursement of the moneys that the Luzon Surety Co. might have to disburse on account of the obligations of the principal debtors. This reimbursement is a payment of a sum of money, resulting from an obligation to give; and to the Luzon Surety Co., it was indifferent that the reimbursement should be made by Hemady himself or by some one else in his behalf, so long as the money was paid to it.

The 2nd exception of Art. 1311, is intransmissibility by stipulation of the parties. Being exceptional and contrary to the general rule, this intransmissibility should not be easily implied, but must be expressly established, or at the very least, clearly inferable from the provisions of the contract itself, and the text of the agreements sued upon nowhere indicate that they are non-transferable.

The 3rd exception to the transmissibility of obligations under Art. 1311 exists when they are “not transmissible by operation of law”. The provision makes reference to those cases where the law expresses that the rights or obligations are extinguished by death: legal support, parental authority, usufruct, contracts for a piece of work, partnership & agency. By contract, the articles of the Civil Code that regulate guaranty or suretyship (Art 2047 to 2084) contain no provision that the guaranty is extinguished upon the death of the guarantor or the surety.

The contracts of suretyship entered into by Hemady in favor of Luzon Surety Co. not being rendered intransmissible due to the nature of the undertaking, nor by the stipulations of the contracts themselves, nor by provision of law, his eventual liability thereunder necessarily passed upon his death to his heirs. The contracts give rise to contingent claims provable against his estate under sec. 5, Rule 87.

“The most common example of the contigent claim is that which arises when a person is bound as surety or guarantor for a principal who is insolvent or dead. Under the ordinary contract of suretyship the surety has no claim whatever against his principal until he himself pays something by way of satisfaction upon the obligation which is secured. When he does this, there instantly arises in favor of the surety the right to compel the principal to exonerate the surety. But until the surety has contributed something to the payment of the debt, or has performed the secured obligation in whole or in part, he has no right of action against anybody — no claim that could be reduced to judgment.

Our conclusion is that the solidary guarantor’s liability is not extinguished by his death, and that in such event, the Luzon Surety Co., had the right to file against the estate a contingent claim for reimbursement.Wherefore, the order appealed from is reversed, and the records are ordered remanded to the court of origin. Costs against the Administratrix- Appellee.

Heirs of Policronio Ureta v. Heirs of Liberato UretaG.R. Nos. 165748, 165930 September 14, 2011Mendoza, J.

Facts:o In his lifetime, Alfonso Ureta begot 14 children. Among these 14 belong the ascendants of the parties in this case – Policronio and Liberato. Here, the descendants of Policronio are up against the rest of Alfonso’s children and their descendants (including those of Liberato)

o When he was alive, Alfonso was well-off – he owned several fishpens, a fishpond and a sari-sari store, among others.

o On October 1969, four of Alfonso’s children (Policronio, Liberato, Prudencia, and Francisco), together with their father met in Liberato’s house. Francisco, who was then a municipal judge suggested that to reduce the inheritance taxes, their father should make it appear that he sold some of his lands to his children. As such, Alfonso executed 4 deeds of sale covering parcels of land in favour of Policronio, Liberato, Prudencia, and his common-law wife, Valeriana dela Cruz.

o The dispute of this case is centered on the deed of sale in favour of Policronio which covered six parcels of land.

o Since the sale was only made to avoid taxes and that no monetary consideration was received, Alfonso continued to enjoy the lands.

o When Alfonso died, except for a portion of parcel 5, the rest of the parcels “transferred” to Policronio were never turned over to him. Instead, these were turned over to the administrators of Alfonso’s estate – Liberato, succeeded by Prudencia, and then by her daughter Carmencita Perlas

o Subsequently, Alfonso’s heirs executed a Deed of Extrajudicial Partition, which included all the lands covered by the 4 deeds of sale executed by Alfonso for “tax purposes.”

o When the heirs of Policronio learned about the extrajudicial partition involving Alfonso’s estate (Conrado, the Policronio heirs representative avers that he did not understand the partition’s terms when he signed it) which “excludes” them, they sought to amicably settle the matter with the rest of the heirs of Alfonso.

o Given the futility of these talks, the heirs of Policronio filed a complaint for declaration of ownership, recovery of possession, annulment of documents, partition, and damages.

o Note: a will was never mentioned in this case

- RTC Judgment

o In favour of the Heirs of Alfonso. According to the court, it was clearly established that the deed of sale was null and void. Policronio’s heirs never took possession of the involved lots and not even a single centavo was paid for consideration of the sale. Even assuming there was, the 2000 pesos for the six parcels of land the heirs of Policronio claimed that was paid to Alfonso was grossly inadequate.

o The deed of extrajudicial partition was declared valid by the RTC. The Court considered Conrado’s (the representative of the heirs of Policronio) claim that he did not understand the full significance of his signature when he signed in behalf of his co-heirs, as a gratuitous assertion. The RTC said that given his signature in all the pages of the extrajudicial partition and having appeared personally before the notary public, he is presumed to have understood the contents.

- Court of Appeals Judgment

o Partially Granted – the CA, disagreeing with the RTC, declared that the Deed of Extrajudicial Partition was void. This decision of the CA was predicated on the incapacity of one of the parties to give his consent to the contract. It held that for Conrado to bind his co-heirs to the partition, it was necessary that he acquired special powers of attorney from them pursuant to Article 1878 of the Civil Code.

o The CA said that the case should be remanded to determine the proper portions to be awarded to the heirs

Issue (relevant to preterition):

WON the defense of ratification and/or preterition raised for the first time on appeal may be entertained

Held: No preterition in this case

Ratio:

- The heirs of Alfonso were of the position that the absence of the Heirs of Policronio in the partition or the lack of authority of their representative results, at the very least, in the preterition and not the invalidity of the entire deed of partition. They argue that remanding the case to determine proper inheritance is no longer necessary since the issue is purely legal. Conrado then, according to them, should just fully account for what he received and deliver to his co-heirs their respective shares in the inheritance.

- This cannot be given credence AT ALL

- Their posited theory on preterition is no longer viable. Why?BECAUSE THERE WAS NO WILL IN THIS CASE

- Preterition has been defined as “the total omission of a compulsory heir from the disinheritance. It consists in the silence of the testator with regard to a compulsory heir, omitting him in the testatment, either by not mentioning him at all, or by not giving him anything in the hereditary property buy without expressly disinheriting him, even if he is mentioned in the will in the latter case”

- Thus, PRETERITION IS A CONCEPT OF TESTAMENTARY SUCCESSION.

In the absence of a will, there can be no preterition.

Francisco vs Herrera

Facts:

Eligio Herrera, Sr., the father of respondent, was the owner of two parcels of land, one consisting of 500 sq. m. and another consisting of 451 sq. m., covered by Tax Declaration (TD) Nos. 01-00495 and 01-00497, respectively. Both were located at Barangay San Andres, Cainta, Rizal.

On January 3, 1991, petitioner bought from said landowner the first parcel, covered by TD No. 01-00495, for the price of P1,000,000, paid in installments from November 30, 1990 to August 10, 1991.

On March 12, 1991, petitioner bought the second parcel covered by TD No. 01-00497, for P750,000.

At first, the children of Eligio thought that the consideration paid for the lands were not sufficient, thus, they asked Francisco for an increase but Francisco refused.

Then, they asserted that the contract of sale was void since their father was already suffering senile dementia when he sold the land to Francisco.

Francisco contended that the contract was not void but rather voidable, susceptible of prescription.

Issue: Won the sale is void or voidable.

Held: Petition granted. The contract was voidable and thus susceptible of ratification.

It was established that the vendor Eligio, Sr. entered into an agreement with petitioner, but that the former’s capacity to consent was vitiated by senile dementia. Hence, we must rule that the assailed contracts are not void or inexistent per se; rather, these are contracts that are valid and binding unless annulled through a proper action filed in court seasonably.

An annullable contract may be rendered perfectly valid by ratification, which can be express or implied. Implied ratification may take the form of accepting and retaining the benefits of a contract.13 This is what happened in this case. Respondent’s contention that he merely received payments on behalf of his father merely to avoid their misuse and that he did not intend to concur with the contracts is unconvincing. If he was not agreeable with the contracts, he could have prevented petitioner from delivering the payments, or if this was impossible, he could have immediately instituted the action for reconveyance and have the payments consigned with the court. None of these happened. As found by the trial court and the Court of Appeals, upon learning of the sale, respondent negotiated for the increase of the purchase price while receiving the installment payments. It was only when respondent failed to convince petitioner to increase the price that the former instituted the complaint for reconveyance of the properties. Clearly, respondent was agreeable to the contracts, only he wanted to get more. Further, there is no showing that respondent returned the payments or made an offer to do so. This bolsters the view that indeed there was ratification. One cannot negotiate for an increase in the price in one breath and in the same breath contend that the contract of sale is void.

Nor can we find for respondent’s argument that the contracts were void as Eligio, Sr., could not sell the lots in question as one of the properties had already been sold to him, while the other was the subject of a co-ownership among the heirs of the deceased wife of Eligio, Sr. Note that it was found by both the trial court and the Court of Appeals that Eligio, Sr., was the "declared owner" of said lots. This finding is conclusive on us. As declared owner of said parcels of land, it follows that Eligio, Sr., had the right to transfer the ownership thereof under the principle of jus disponendi.Campos vs Pastrana

G.R. No. 182435 August 13, 2012LILIA B. ADA, LUZ B. ADANZA, FLORA C. BA YLON, REMO BA YLON, JOSE BA YLON, ERIC BA YLON,FLORENTINO BAYLON, and MA. RUBY BA YLON, Petitioners,vs.FLORANTE BA YLON, Respondent.