ROSENCOR v. INQUING

ROSENCOR v. INQUING

Facts: The plaintiffs herein are the lessees of the subject disputed property. The late spouses Tiangcos were the original owners of the subject property. They had a verbal lease agreement with the lessees herein that the latter would have the right of first refusal in the event that the spouses Tiangco would sell the property with the other buyers. The heirs of the spouses Tiangco sold the subject property with Rosencor. The lessees protested that they have the right of first refusal which the heirs of the Tiangcos ignored. They also imputed bad faith to Rosencor. Hence, this petition.

Issue:May a contract of sale entered into in violation of a third partys right of first refusal be rescinded in order that such third party can exercise said right?Held: Thus, the prevailing doctrine, as enunciated in the cited cases, is that a contract of sale entered into in violation of a right of first refusal of another person, while valid, is rescissible.

There is, however, a circumstance which prevents the application of this doctrine in the case at bench.In the cases cited above, the Court ordered the rescission of sales made in violation of a right of first refusal precisely because the vendees therein could not have acted in good faith as they were aware or should have been aware of the right of first refusal granted to another person by the vendors therein.The rationale for this is found in the provisions of the New Civil Code on rescissible contracts.Under Article 1381 of the New Civil Code, paragraph 3, a contract validly agreed upon may be rescinded if it is undertaken in fraud of creditors when the latter cannot in any manner collect the claim due them.Moreover, under Article 1385, rescission shall not take place when the things which are the object of the contract are legally in the possession of third persons who did not act in bad faith.

It must be borne in mind that, unlike the cases cited above, the right of first refusal involved in the instant case was an oral one given to respondents by the deceased spouses Tiangco and subsequently recognized by their heirs.As such, in order to hold that petitioners were in bad faith, there must be clear and convincing proof that petitioners were made aware of the said right of first refusal either by the respondents or by the heirs of the spouses Tiangco.

It is axiomatic that good faith is always presumed unless contrary evidence is adduced. A purchaser in good faith is one who buys the property of another without notice that some other person has a right or interest in such a property and pays a full and fair price at the time of the purchase or before he has notice of the claim or interest of some other person in the property.In this regard, the rule on constructive notice would be inapplicable as it is undisputed that the right of first refusal was an oral one and that the same was never reduced to writing, much less registered with the Registry of Deeds.In fact, even the lease contract by which respondents derive their right to possess the property involved was an oral one.

On this point, we hold that the evidence on record fails to show that petitioners acted in bad faith in entering into the deed of sale over the disputed property with the heirs of the spouses Tiangco.Respondents failed to present any evidence that prior to the sale of the property on September 4, 1990, petitioners were aware or had notice of the oral right of first refusal.

Respondents point to the letter dated June 1, 1990[33]as indicative of petitioners knowledge of the said right.In this letter, a certain Atty. Erlinda Aguila demanded that respondent Irene Guillermo vacate the structure they were occupying to make way for its demolition.

We fail to see how the letter could give rise to bad faith on the part of the petitioner.No mention is made of the right of first refusal granted to respondents.The name of petitioner Rosencor or any of it officers did not appear on the letter and the letter did not state that Atty. Aguila was writing in behalf of petitioner.In fact, Atty. Aguila stated during trial that she wrote the letter in behalf of the heirs of the spouses Tiangco.Moreover, even assuming that Atty. Aguila was indeed writing in behalf of petitioner Rosencor, there is no showing that Rosencor was aware at that time that such a right of first refusal existed.

Neither was there any showing that after receipt of this June 1, 1990 letter, respondents notified Rosencor or Atty. Aguila of their right of first refusal over the property.Respondents did not try to communicate with Atty. Aguila and inform her about their preferential right over the disputed property.There is even no showing that they contacted the heirs of the spouses Tiangco after they received this letter to remind them of their right over the property.

Respondents likewise point to the letter dated October 9, 1990 of Eufrocina de Leon, where she recognized the right of first refusal of respondents, as indicative of the bad faith of petitioners.We do not agree.Eufrocina de Leon wrote the letter on her own behalf and not on behalf of petitioners and, as such, it only shows that Eufrocina de Leon was aware of the existence of the oral right of first refusal.It does not show that petitioners were likewise aware of the existence of the said right.Moreover, the letter was made a month after the execution of the Deed of Absolute Sale on September 4, 1990 between petitioner Rosencor and the heirs of the spouses Tiangco.There is no showing that prior to the date of the execution of the said Deed, petitioners were put on notice of the existence of the right of first refusal.

Clearly, if there was any indication of bad faith based on respondents evidence, it would only be on the part of Eufrocina de Leon as she was aware of the right of first refusal of respondents yet she still sold the disputed property to Rosencor.However, bad faith on the part of Eufrocina de Leon does not mean that petitioner Rosencor likewise acted in bad faith.There is no showing that prior to the execution of the Deed of Absolute Sale, petitioners were made aware or put on notice of the existence of the oral right of first refusal.Thus, absent clear and convincing evidence to the contrary, petitioner Rosencor will be presumed to have acted in good faith in entering into the Deed of Absolute Sale over the disputed property.

Considering that there is no showing of bad faith on the part of the petitioners, the Court of Appeals thus erred in ordering the rescission of the Deed of Absolute Sale dated September 4, 1990 between petitioner Rosencor and the heirs of the spouses Tiangco.The acquisition by Rosencor of the property subject of the right of first refusal is an obstacle to the action for its rescission where, as in this case, it was shown that Rosencor is in lawful possession of the subject of the contract and that it did not act in bad faith.

This does not mean however that respondents are left without any remedy for the unjustified violation of their right of first refusal.Their remedy however is not an action for the rescission of the Deed of Absolute Sale but an action for damages against the heirs of the spouses Tiangco for the unjustified disregard of their right of first refusal.KHE HONG CHENG v. CA

Facts: In said case, Philam filed an action for collection against Khe Hong Cheng. While the case was still pending, or on December 20, 1989, Khe Hong Cheng, executed deeds of donations over parcels of land in favor of his children, and on December 27, 1989, said deeds were registered. Thereafter, new titles were issued in the names of Khe Hong Chengs children. Then, the decision became final and executory. But upon enforcement of writ of execution, Philam found out that Khe Hong Cheng no longer had any property in his name. Thus, on February 25, 1997, Philam filed an action for rescission of the deeds of donation against Khe Hong Cheng alleging that such was made in fraud of creditors. However, Khe Hong Cheng moved for the dismissal of the action averring that it has already prescribed since the four-year prescriptive period for filing an action for rescission pursuant to Article 1389 of the Civil Code commenced to run from the time the deeds of donation were registered on December 27, 1989. Khe Hong Cheng averred that registration amounts to constructive notice and since the complaint was filed only on February 25, 1997, or more than four (4) years after said registration, the action was already barred by prescription. The trial court ruled that the complaint had not yet prescribed since the prescriptive period began to run only from December 29, 1993, the date of the decision of the trial court. Such decision was affirmed by this court but reckoned the accrual of Philam's cause of action in January 1997, the time when it first learned that the judgment award could not be satisfied because the judgment creditor, Khe Hong Cheng, had no more properties in his name. Hence, the case reached the Supreme Court.

Issue: W/N CA erred in ruling that the donation inter vivos of Lot No. 4709 and half of Lot No. 4706 in favor of Florante may only be rescinded if there is already a judicial determination that the same actually belonged to the estate of Spouses Baylon.

Issue:When did the four (4) year prescriptive period as provided for in Article 1389 of the Civil Code for respondent Philam to file its action for rescission of the subject deeds of donation commence to run?Held: The petition is without merit.

Article 1389 of the Civil Code simply provides that, The action to claim rescission must be commenced within four years. Since this provision of law is silent as to when the prescriptive period would commence, the general rule, i.e, from the moment the cause of action accrues, therefore, applies.Article 1150 of the Civil Code is particularly instructive:

Art. 1150. The time for prescription for all kinds of actions, when there is no special provision which ordains otherwise, shall be counted from the day they may be brought.

Indeed, this Court enunciated the principle that it is the legal possibility of bringing the action which determines the starting point for the computation of the prescriptive period for the action. Article 1383 of the Civil Code provides as follows:

Art. 1383. An action for rescission is subsidiary; it cannot be instituted except when the party suffering damage has no other legal means to obtain reparation for the same.

It is thus apparent that an action to rescind or anaccion paulianamust be of last resort, availed of only after all other legal remedies have been exhausted and have been proven futile. For an accion paulianato accrue, the following requisites must concur:

1) That the plaintiff asking for rescission has a credit prior to the alienation, although demandable later; 2) That the debtor has made a subsequent contract conveying a patrimonial benefit to a third person; 3)That the creditor has no other legal remedy to satisfy his claim, but would benefit by rescission of the conveyance to the third person; 4) That the act being impugned is fraudulent; 5) That the third person who received the property conveyed, if by onerous title, has been an accomplice in the fraud.

We quote with approval the following disquisition of the CA on the matter:

Anaccion paulianaaccrues only when the creditor discovers that he has no other legal remedy for the satisfaction of his claim against the debtor other than anaccion pauliana.Theaccion paulianais an action of a last resort.For as long as the creditor still has a remedy at law for the enforcement of his claim against the debtor, the creditor will not have any cause of action against the creditor for rescission of the contracts entered into by and between the debtor and another person or persons.Indeed, anaccion paulianapresupposes a judgment and the issuance by the trial court of a writ of execution for the satisfaction of the judgment and the failure of the Sheriff to enforce and satisfy the judgment of the court.It presupposes that the creditor has exhausted the property of the debtor.The date of the decision of the trial court against the debtor is immaterial.What is important is that the credit of the plaintiff antedates that of the fraudulent alienation by the debtor of his property.After all, the decision of the trial court against the debtor will retroact to the time when the debtor became indebted to the creditor.Petitioners, however, maintain that the cause of action of respondent Philam against them for the rescission of the deeds of donation accrued as early as December 27, 1989, when petitioner Khe Hong Cheng registered the subject conveyances with the Register of Deeds. Respondent Philam allegedly had constructive knowledge of the execution of said deeds under Section 52 of Presidential Decree No. 1529, quotedinfra, as follows:

Section 52. Constructive knowledge upon registration. Every conveyance, mortgage, lease, lien, attachment, order, judgment, instrument or entry affecting registered land shall, if registered, filed or entered in the Office of the Register of Deeds for the province or city where the land to which it relates lies, be constructive notice to all persons from the time of such registering, filing, or entering.

Petitioners argument that the Civil Code must yield to the Mortgage and Registration Laws is misplaced, for in no way does this imply that the specific provisions of the former may be all together ignored. To count the four year prescriptive period to rescind an allegedly fraudulent contract from the date of registration of the conveyance with the Register of Deeds, as alleged by the petitioners, would run counter to Article 1383 of the Civil Code as well as settled jurisprudence. It would likewise violate the third requisite to file an action for rescission of an allegedly fraudulent conveyance of property, i.e., the creditor has no other legal remedy to satisfy his claim.

Anaccion paulianathus presupposes the following: 1) A judgment; 2) the issuance by the trial court of a writ of execution for the satisfaction of the judgment, and 3) the failure of the sheriff to enforce and satisfy the judgment of the court. It requires that the creditor has exhausted the property of the debtor. The date of the decision of the trial court is immaterial. What is important is that the credit of the plaintiff antedates that of the fraudulent alienation by the debtor of his property. After all, the decision of the trial court against the debtor will retroact to the time when the debtor became indebted to the creditor.

Tolentino, a noted civilist, explained:

xxx[T]herefore, credits with suspensive term or condition are excluded, because theaccion paulianapresupposes a judgment and unsatisfied execution, which cannot exist when the debt is not yet demandable at the time the rescissory action is brought. Rescission is a subsidiary action, which presupposes that the creditor has exhausted the property of the debtor which is impossible in credits which cannot be enforced because of a suspensive term or condition.

While it is necessary that the credit of the plaintiff in theaccion paulianamust be prior to the fraudulent alienation, the date of the judgment enforcing it is immaterial. Even if the judgment be subsequent to the alienation, it is merely declaratory with retroactive effect to the date when the credit was constituted.

These principles were reiterated by the Court when it explained the requisites of anaccion paulianain greater detail, to wit:

The following successive measures must be taken by a creditor before he may bring an action for rescission of an allegedly fraudulent sale: (1) exhaust the properties of the debtor through levying by attachment and execution upon all the property of the debtor, except such as are exempt from execution; (2) exercise all the rights and actions of the debtor, save those personal to him (accion subrogatoria); and (3) seek rescission of the contracts executed by the debtor in fraud of their rights (accion pauliana).Without availing of the first and second remedies, i.e., exhausting the properties of the debtor or subrogating themselves in Francisco Baregs transmissible rights and actions, petitioners simply undertook the third measure and filed an action for annulment of sale. This cannot be done.[11]In the same case, the Court also quoted the rationale of the CA when it upheld the dismissal of theaccion paulianaon the basis of lack of cause of action:

In this case, plaintiffs appellantshad not even commenced an action against defendants-appellees Bareng for the collection of the alleged indebtedness. Plaintiffs-appellants had not even tried to exhaust the property of defendants-appellees Bareng. Plaintiffs-appellants, in seeking the rescission of the contracts of sale entered into between defendants-appellees,failed to show and prove that defendants-appellees Bareng had no other property, either at the time of the sale or at the time this action was filed, out of which they could have collected this (sic) debts.

Even if respondent Philam was aware, as of December 27, 1989, that petitioner Khe Hong Cheng had executed the deeds of donation in favor of his children, the complaint against Butuan Shipping Lines and/or petitioner Khe Hong Cheng was still pending before the trial court. Respondent Philam had no inkling, at the time, that the trial court's judgment would be in its favor and further, that such judgment would not be satisfied due to the deeds of donation executed by petitioner Khe Hong Cheng during the pendency of the case. Had respondent Philam filed his complaint on December 27, 1989, such complaint would have been dismissed for being premature. Not only were all other legal remedies for the enforcement of respondent Philams claims not yet exhausted at the time the deeds of donation were executed and registered. Respondent Philam would also not have been able to prove then that petitioner Khe Hong Chneg had no more property other than those covered by the subject deeds to satisfy a favorable judgment by the trial court.

It bears stressing that petitioner Khe Hong Cheng even expressly declared and represented that he had reserved to himself property sufficient to answer for his debts contracted prior to this date:

That the DONOR further states, for the same purpose as expressed in the next preceding paragraph, that this donation is not made with the object of defrauding his creditors having reserved to himself property sufficient to answer his debts contracted prior to this date.[12]As mentioned earlier, respondent Philam only learned about the unlawful conveyances made by petitioner Khe Hong Cheng in January 1997 when its counsel accompanied the sheriff to Butuan City to attach the properties of petitioner Khe Hong Cheng. There they found that he no longer had any properties in his name.It was only then that respondent Philam's action for rescission of the deeds of donation accrued because then it could be said that respondent Philam had exhausted all legal means to satisfy the trial court's judgment in its favor. Since respondent Philam filed its complaint foraccion paulianaagainst petitioners on February 25, 1997, barely a month from its discovery that petitioner Khe Hong Cheng had no other property to satisfy the judgment award against him, its action for rescission of the subject deeds clearly had not yet prescribed.

From the foregoing, it is clear that the four-year prescriptive period commences to run neither from the date of the registration of the deed sought to be rescinded nor from the date the trial court rendered its decision but from the day it has become clear that there are no other legal remedies by which the creditor can satisfy his claims.

UNION BANK v. SPOUSES ONG

Facts:

Issue: W/N theOng-Leecontract of salepartakes of a conveyance to defraudUnion Bank.Held: Essentially, petitioner anchors its case on Article 1381 of the Civil Code whichlists as among the rescissible contracts [T]hose undertaken in fraud of creditors when the latter cannot in anyother manner collect the claimdue them."Contracts in fraud of creditors are those executed with the intention to prejudice the rights of creditors.They should not be confused with those entered into without suchmal-intent,even if, asadirect consequencethereof, the creditor may suffer some damage.In determining whether or not a certain conveying contract is fraudulent,what comes to mind first is the question ofwhether the conveyance was abona fidetransaction or a trick and contrivance to defeat creditors.[7]Tocreditors seekingcontractrescissionontheground of fraudulent conveyancerest the onus of provingby competent evidence the existence of such fraudulent intent on the part of the debtor, albeit they may fall back on the disputable presumptions, if proper, established under Article 1387 of the Code.[8]Inthepresentcase,respondentspousesOng,asthe CA had determined,had sufficiently established thevalidity and legitimacy of the salein question.Theconveyingdeed,adulynotarizeddocument,carrieswithitthe presumption of validity and regularity. Too, the sale was duly recorded and annotated on the title of the property owners, the spouses Ong. As the transferee of said property,respondentLee caused the transfer of title to his name.There can be no quibbling about the transaction being supportedbyavalidandsufficientconsideration.Respondent Leesaccount,whileon the witness box, about this angle of the salewas categorical and straightforward.The foregoing testimonyreadilyproves that money indeed changed hands in connection with the sale of the subject property.RespondentLee, as purchaser, paid thestipulatedcontractprice to the spouses Ong, as vendors.Receiptspresentedin evidence covered and proved such payment.Accordingly, any suggestionnegating payment and receipt ofvaluable considerationfor the subject conveyance, or worse, that the sale wasfictitiousmust simply be rejected.In a bid to attach a badge of fraud on the transaction,petitionerraises the issue of inadequate consideration, allegingin this regardthat onlyP12,500,000.00was paid for property having, during the period material,afairmarketvalueofP14,500,000.00.We do not agree.Theexistenceof fraud or the intent to defraud creditors cannot plausibly be presumed from the fact thatthe pricepaid for a piece of real estateisperceived to beslightlylower, if that really be the case,thanitsmarket value.To be sure, it is logical, even expected,forcontracting minds, each having an interest to protect,to negotiateon theprice and otherconditions beforeclosing a sale of a valuable piece of land.Thenegotiatingareascould cover various items.Thepurchase price, while undeniably an important consideration, is doubtless only one of them.Thus,a scenario wherethepriceactuallystipulatedmay, as a matter offact,be lower than the original asking price of the vendor or the fair market value ofthe property, as whatperhapshappened in the instant case, is not out of the ordinary, let alone indicative of fraudulent intention.That the spouses Ongacquiesced tothe price ofP12,500,000.00,whichmay belower than the market value of the house and lot at the time of alienation, is certainly notanunusual business phenomenon.Lest it be overlooked,the disparity between the price appearing in theconveyingdeed and whatthepetitioner regarded as the real value of the property is not as gross to support a conclusion offraud. What is more,oneOliver Morales, a licensed real estate appraiser and broker,virtually made short shrift of petitioners claim of gross inadequacy of the purchase price. Mr. Morales declaredthat there exists no gross disparity between the market value of the subject property and the price mentionedin the deedas consideration.Withal, the consideration of the sale is fair and reasonable as would justify the conclusion that the sale is undoubtedly a trueand genuineconveyance to which the parties thereto are irrevocably and undeniably bound.It may be stressed that,when the validity ofsalescontract is in issue, two veritable presumptions are relevant:first, that there was sufficient consideration of the contract[11];and,second, that it was the result of a fair and regular private transaction.[12]If shown to hold, these presumptions inferprima faciethe transaction's validity, except that it must yield to the evidence adduced[13]which the partydisputingsuchpresumptivevalidity has the burdenof overcoming.Unfortunately forthepetitioner, it failed to discharge this burden.Its bareallegationrespectingthe salehaving beenexecuted in fraud of creditors and without adequate consideration cannot, without more,prevail over the respondents' evidence which more than sufficientlysupportsaconclusion as tothelegitimacy of the transaction and thebona fidesof the parties.Parenthetically, the rescissory action to set aside contractsin fraud of creditors isaccion pauliana,essentially a subsidiary remedyaccorded under Article 1383 of the Civil Codewhichthe party suffering damagecan availof only whenhehas no other legal means to obtain reparation for the same.[14]In net effect, the provision applies only whenthe creditor cannot recover in any other manner what is due him.Itis true that respondent spouses, as surety for BMC, bound themselves to answer forthe lattersdebt. Nonetheless,for purposes ofrecoveringwhatthe eventually insolventBMCowed the bank,it behoovedthe petitionerto showthatit had exhausted all the properties ofthespouses Ong.It does not appear in this case thatthe petitionersought other properties of the spouses other than the subjectGreenhillsproperty.The CA categorically said so.Absent proof, therefore,thatthe spouses Ong had no other property except their Greenhills home, the sale thereof to respondent Lee cannot simplistically beconsideredas onein fraud ofcreditors.

Neitherwas evidenceadducedto show that the salein question peremptorilydeprivedthe petitionerof means to collect its claimagainsttheOngs.Whereacreditorfailstoshowthathe has no other legal recourse to obtain satisfaction for his claim, then he is not entitled to the rescission asked.[15]For a contract to be rescinded for being in fraud of creditors, both contracting parties must be shown to have acted maliciously so as to prejudice the creditors who were prevented from collecting their claims.[16]Again, in this case, there is no evidence tending to prove that the spouses Ong and Lee were conniving cheats.In fact, the petitioner did not even attempt to prove the existence of personal closeness or business and professional interdependence between the spouses Ong and Lee as to castdoubt on their true intent in executing the contract of sale.With the view we take of the evidence on record, their relationship vis--vis the subject Greenhills property was no more than one between vendor and vendee dealing with each other for the first time.Any insinuation that the two colluded to gyp petitioner bank is to read in a relationship something which, from all indications, appearsto be purely business.It cannot be overemphasized thatrescission is generally unavailing should a third person, acting in good faith,is in lawful possession of the property,[17]that is to say, he is protected by law against a suit for rescission by the registration of the transfer to him in the registry.As recited earlier,Lee was- and may stillbe-in lawful possession of the subject property as the transferto him was by virtue of apresumptively validonerouscontract of sale.His possession is evidenced by no less than a certificate of title issued him bytheRegistry of Deeds of San Juan, Metro Manila, afterthe usual registration of the corresponding conveying deed of sale.On the other hand,thebona fidesof hisacquisitioncan be deduced from his conduct and outward acts previous to the sale.As testified to byhimand duly noted by the CA,respondent Lee undertook what amounts to due diligence on the possible defects in the title of the Ongs before proceeding with the sale.As it were, Lee decided to buy the propertyonlyafter being satisfied of the absenceof such defects.[18]Time and again, theCourt hasheldthatone dealingwitharegisteredparcel oflandneednot go beyond the certificate of title as he is charged with notice only of burdenswhich are notedon the face of the register or on the certificate of title.[19]TheContinuing Surety Agreement, it ought to beparticularlypointed out,was never recorded nor annotated on the title of spouses Ong. There is no evidence extant in the recordsto showthat Lee had knowledge, priorto the subject sale,of the surety agreementadverted to.In fine,there is nothing to remotely suggest that the purchase of the subject property was characterized by anything other than good faith.Petitionerhas made much ofrespondentLeenottakingimmediate possession of the property after the sale, stating that such failureis an indication of his participation in the fraudulent scheme toprejudice petitioner bank.We are not persuaded.Lee, it is true, allowedtherespondentspousesto continueoccupyingthe premiseseven after the sale. This development, however, is not without basis or practical reason. Thespouses' continuous possession of theproperty wasby virtue ofaone-yearlease[20]theyexecutedwithrespondentLee six days after the sale.As explainedbythe respondentspouses,they insisted on thelease arrangement asacondition for the salein question.And pursuant to the lease contract aforementioned, therespondentOngs paid andLee collected rentals at the rate ofP25,000.00a month.Contrarythusto thepetitionersasseveration,respondentLee, after the sale,exercised acts of dominion over the said property and asserted his rights as the new owner. So, when therespondentspouses continued to occupy the property after its sale, they didsoas mere tenants. While the failure of the vendee to take exclusive possession of the property is generallyrecognized asa badge of fraud,the same cannot be said here in the light of the existence ofwhat appearsto be a genuine lessor-lessee relationshipbetween the spouses Ong and Lee.To borrow fromReyesvs. Court of Appeals,[21]possession may be exercised inones own name or in the name of another; an owner of a piece of land has possession, either when he himself physically occupies the same or when another person who recognizes his right as owner is in such occupancy.Petitioners assertion regarding respondent Lees lack of financial capacity to acquire the property in question since his income in 1990 was onlyP346,571.73is clearly untenable. Assuming for argument that petitioner got its figure right, it is clearly incorrect to measure ones purchasing capacity with ones income at a given period.But the more important consideration in this regard is the uncontroverted fact that respondent Lee paid the purchase price of said property.Where he sourced the needed cash is, for the nonce, really of no moment.The cited case ofChina Banking[22]cannot plausibly provide petitioner with a winning card.In that case, the Court,applying Article 1381 (3) of the Civil Code, rescinded anAssignment of Rights to Redeemowing to the failure of the assignee to overthrow the presumption that the said conveyance/assignment is fraudulent.In turn, the presumption was culled from Article 1387, par. 2, of the Code pertinently providing that [A]lienation by onerous title are also presumed fraudulent when madebypersons against whom some judgment has beenrendered in any instance or some writ of attachment has beenissued.Indeed, when the deed of assignment was executed inChina Banking,the assignor therein already faced at that time an adverse judgment.In the same case, moreover, the Court took stock of other signs offraud which tainted the transaction therein and which are, significantly, not obtaining in the instantcase. We refer, firstly, to the element of kinship, the assignor, Alfonso Roxas Chua, being the father of the assignee, Paulino.Secondly,Paulinoadmitted knowing his father to be insolvent.Hence, the Court, rationalizing the rescission of the assignment of rights, made the following remarks:The mere fact that the conveyance was founded on valuable consideration does not necessarily negate the presumption of fraud under Article 1387 of the Civil Code. There has to be valuable consideration and the transaction must have been made bona fide.[23]There lies the glaring difference with the instant case.Here, the existence of fraud cannot be presumed, or, atthevery least, what were perceived to be badges of fraud have been proven to be otherwise.And, unlike Alfonso Roxas Chua inChina Banking,a judgment has not been rendered against respondent spouses Ong or that a writ of attachment has been issued against them at the time of the disputed sale.Inalast-ditchattempt to resuscitate a feeble cause, petitioner cites Section 70of the Insolvency Lawwhich, unlike the invoked Article 1381 of the Civil Code that deals with a valid but rescissible contract, treats of a contractual infirmity resulting in nullity no less of the transaction in question. Insofar as pertinent, Section 70 of the Insolvency Law provides:Sec.70.If any debtor, being insolvent, or in contemplation of insolvency, within thirty days before the filing of a petitionby or against him, with a view to giving a preference to any creditor or personhavingaclaim against himxxxmakes anyxxxsale or conveyance of any part of his property,xxxsuchxxxsale, assignment or conveyance is void, and the assignee, or the receiver, may recover the property or the value thereof, as assets of suchinsolvent debtor.xxx. Any payment, pledge, mortgage, conveyance, sale, assignment, or transfer of property of whatever character made by the insolvent within one (1) month before the filing of a petition in insolvency by or against him,except for a valuable pecuniary consideration made in good faithshall be void. xxx. (Emphasisadded)Petitioner avers that the Ong-Leesalescontractpartakesofa fraudulent transfer andisnull and voidin contemplation of the aforequoted provision, thesalehavingoccurredonOctober 22, 1991or withinthirty (30) daysbefore BMC filed a petition for suspension of payments onNovember 22, 1991.Petitioner's reliance on the afore-quoted provision is misplaced for the following reasons:First, Section70,supra,ofthe Insolvency Lawspecifically makes reference toconveyanceofpropertiesmade by a debtororby an insolvent who filed a petition,oragainst whom a petition for insolvency has been filed. Respondentspouses Onghave doubtlesslynot filed a petition fora declaration of their owninsolvency. Neither has one been filed against them. AndastheCAaptly observed, itwas never proven that respondent spouses are likewise insolvent,petitionerhaving failedto show thatthey were down to their Greenhillspropertyas their only asset.It may be that BMC had filed a petition for rehabilitation and suspension of payments with the SEC.Thenagging fact,howeveristhat BMCisadifferentjuridical person fromtherespondent spouses.Their seventy percent (70%) ownership of BMCs capital stock does not change the legal situation.Accordingly, the alleged insolvency of BMC cannot, as petitioner postulates, extend to the respondent spouses such that transaction of the latter comeswithin the purview of Section 70 of the Insolvency Law.Second, the real debtor of petitioner bank in this case is BMC.The fact that therespondentspouses bound themselves to answer forBMCs indebtednessunder the surety agreementreferred to at the outsetis not reason enough to conclude that thespouses are themselves debtors ofpetitioner bank.We havealreadypassed upon the simplereasonfor this proposition. We refer tothebasic precept in thisjurisdictionthata corporation, upon coming into existence, is invested by law with a personality separate and distinct from those of the personscomposing it.[24]Mere ownership by a single or small group of stockholders of nearly all of the capitalstock of the corporation is not, without more, sufficient to disregard the fiction ofseparate corporate personality.[25]Third, Section 70 of the Insolvency Law considers transfers made withinamonthafter the date of cleavage void, except those made in good faithandfor valuable pecuniaryconsideration.The twin elements of good faith and valuable and sufficient consideration have been duly established. Given thevalidity and the basic legitimacy of thesale in question, there is simply no occasion to applySection 70 of the Insolvency Lawto nullify the transaction subject of the instant case.All told, we are far from convinced by petitioners argumentation that the circumstances surrounding the sale of the subject property may be considered badges of fraud. Consequently, its failuretoshowactual fraudulent intent on the part of the spouses Ong defeats its own cause.HEIRS OF QUIRONG v. DBP

Facts: Every sale of a real property has a sellers warranty against eviction. Eviction takes place whenever the buyer is deprived of the whole or part of the thing purchased by virtue of a final judgment based on a right prior to the sale or an act imputable to the seller (Article 1458, Civil Code). In case of eviction, what is the remedy of the seller? And when should it be exercised? These questions are answered in this case of the heirs of Sonia.The case involved a parcel of land with an area of 589 square meters inherited by Isa and her nine children which was mortgaged by one of her children Rina and the latters husband to the Development Bank of the Philippines (DBP). The couple was able to mortgage the land because Isa sold the whole lot to them.But Rina and her husband failed to pay the loan. So on February 12, 1979, DBP foreclosed the mortgage and consolidated its ownership on June 17, 1981. Then on September 20, 1983, DBP conditionally sold the lot to Sonia for the price of P78,000 with a down-payment of P14,000 under a contract containing a waiver of warranty against eviction and liability for any liens and encumbrances on the part of DBP.Ten months after such sale, Isa and her eight other children filed an action before the Regional Trial Court against DBP and Rina and her husband for partition and declaration of nullity of documents with damages. Notwithstanding the suit, DBP still executed a Deed of Absolute Sale in favor of Sonia containing the same waivers. Then on May 11, 1985, after Sonias death, her heirs filed an answer in intervention in the said case. The heirs asked the RTC to award the lot to them or should it instead be given to Isa and her 8 children, to order DBP to pay them the value of the lot.Sonias heirs however failed to file a formal offer of evidence so the RTC did not rule on the merits of their claim and rendered a decision on December 12, 1992 declaring DBPs sale to Sonia valid only with respect to the shares of Isa and Rina in the property. It also declared Isas sale to Rina and her husband, the latters mortgage to DBP and DBPs sale to Sonia void in so far as they prejudiced the shares of the eight other children of Isa who were entitle to a tenth share of the subject lot. So only 20% of the lot went to Sonias heirs while the 80% went to Isas eight other childrenThis decision became final and executory on January 28, 1993 when DBP failed to appeal from it within the time set for such appeal.With the loss of 80% of the subject lot, Sonias heirs filed an action before the RTC for rescission against DBP on June 10, 1998 pursuant to the provisions of Article 1556 of the Civil Code which provides that Should the vendee lose, by reason of eviction, a part of the thing sold of such importance that he would not have bought it without said part, he may demand the rescission of the contract.On June 14, 2004, the RTC rendered a decision in favor of Sonias heirs rescinding the sale between DBP and Sonia and ordering the latter to return to them the P78,000 that Sonia paid the bank. On appeal by DBP to the Court of Appeals (CA) however, the latter reversed the RTC decision and dismissed the heirs action on the ground of prescription.Issue: 1.Whether or not the Quirong heirs action for rescission of respondent DBPs sale of the subject property to Sofia Quirong was already barred by prescription; and2.In the negative, whether or not the heirs of Quirong were entitled to the rescission of the DBPs sale of the subject lot to the late Sofia Quirong as a consequence of her heirs having been evicted from it.Held: The CA held that the Quirong heirs action for rescission of the sale between DBP and their predecessor, Sofia Quirong, is barred by prescription reckoned from the date of finality of the December 16, 1992 RTC decision in Civil Case D-7159 and applying the prescriptive period of four years set by Article 1389 of the Civil Code.Unfortunately, the CA did not state in its decision the date when the RTC decision in Civil Case D-7159 became final and executory, which decision resulted in the Quirong heirs loss of 80% of the lot that the DBP sold to Sofia Quirong.Petitioner heirs claim that the prescriptive period should be reckoned from January 17, 1995, the date this Courts resolution in G.R. 116575 became final and executory.[15]But the incident before this Court in G.R. 116575 did not deal with the merit of the RTC decision in Civil Case D-7159.That decision became final and executory on January 28, 1993 when the DBP failed to appeal from it within the time set for such appeal.The incident before this Court in G.R. 116575 involved the issuance of the writ of execution in that case.The DBP contested such issuance supposedly because the dispositive portion of the decision failed to specify details that were needed for its implementation.Since this incident did not affect the finality of the decision in Civil CaseD-7159, the prescriptive period remained to be reckoned from January 28, 1993, the date of such finality.The next question that needs to be resolved is the applicable period of prescription.The DBP claims that it should be four years as provided under Article 1389 of the Civil Code.[16]Article 1389 provides that the action to claim rescission must be commenced within four years.The Quirong heirs, on the other hand, claim that it should be 10 years as provided under Article 1144 which states that actions upon a written contract must be brought within 10 years from the date the right of action accrues.Now, was the action of the Quirong heirs for rescission or upon a written contract?There is no question that their action was for rescission, since their complaint in Civil Case CV-98-02399-D asked for the rescission of the contract of sale between Sofia Quirong, their predecessor, and the DBP and the reimbursement of the price ofP78,000.00 that Sofia Quirong paid the bank plus damages.The prescriptive period for rescission is four years.But it is not that simple.The remedy of rescission is not confined to the rescissible contracts enumerated under Article 1381.[17]Article 1191 of the Civil Code gives the injured party in reciprocal obligations, such as what contracts are about, the option to choose between fulfillment and rescission.Arturo M. Tolentino, a well-known authority in civil law, is quick to note, however, that the equivalent of Article 1191 in the old code actually uses the term resolution rather than the present rescission.[18]The calibrated meanings of these terms are distinct.Rescission is a subsidiary action based on injury to the plaintiffs economic interests as described in Articles 1380 and 1381.Resolution, the action referred to in Article 1191, on the other hand, is based on the defendants breach of faith, a violation of the reciprocity between the parties.As an action based on the binding force of a written contract, therefore, rescission (resolution) under Article 1191 prescribes in 10 years.Ten years is the period of prescription of actions based on a written contract under Article 1144.The distinction makes sense.Article 1191 gives the injured party an option to choose between,first, fulfillment of the contract and,second, its rescission.An action to enforce a written contract (fulfillment) is definitely an action upon a written contract, which prescribes in 10 years (Article 1144).It will not be logical to make the remedy of fulfillment prescribe in 10 years while the alternative remedy of rescission (or resolution) is made to prescribe after only four years as provided in Article 1389 when the injury from which the two kinds of actions derive is the same.Here, the Quirong heirs alleged in their complaint that they were entitled to the rescission of the contract of sale of the lot between the DBP and Sofia Quirong because the decision in Civil Case D-7159 deprived her heirs of nearly the whole of that lot.But what was the status of that contract at the time of the filing of the action for rescission?Apparently, that contract of sale had already been fully performed when Sofia Quirong paid the full price for the lot and when, in exchange, the DBP executed the deed of absolute sale in her favor.There was a turnover of control of the property from DBP to Sofia Quirong since she assumed under their contract, the ejectment of squatters and/or occupants on the lot, at her own expense.Actually, the cause of action of the Quirong heirs stems from their having been ousted by final judgment from the ownership of the lot that the DBP sold to Sofia Quirong, their predecessor, in violation of the warranty against eviction that comes with every sale of property or thing.Article 1548 of the Civil Code provides:Article 1548.Eviction shall take place whenever by a final judgment based on a right prior to the sale or an act imputable to the vendor, the vendee is deprived of the whole or of a part of thing purchased.x x x xWith the loss of 80% of the subject lot to the Dalopes by reason of the judgment of the RTC in Civil Case D-7159, the Quirong heirs had the right to file an action for rescission against the DBP pursuant to the provision of Article 1556 of the Civil Code which provides:Article 1556.Should the vendee lose, by reason of the eviction, a part of the thing sold of such importance, in relation to the whole, that he would not have bought it without said part, he may demand the rescission of the contract; but with the obligation to return the thing without other encumbrances than those which it had when he acquired it.x x xAnd that action for rescission, which is based on a subsequent economic loss suffered by the buyer, was precisely the action that the Quirong heirs took against the DBP.Consequently, it prescribed as Article 1389 provides in four years from the time the action accrued.Since it accrued on January 28, 1993 when the decision in Civil Case D-7159 became final and executory and ousted the heirs from a substantial portion of the lot, the latter had only until January 28, 1997 within which to file their action for rescission.Given that they filed their action on June 10, 1998, they did so beyond the four-year period.With the conclusion that the Court has reached respecting the first issue presented in this case, it would serve no useful purpose for it to further consider the issue of whether or not the heirs of Quirong would have been entitled to the rescission of the DBPs sale of the subject lot to Sofia Quirong as a consequence of her heirs having been evicted from it.As the Court has ruled above, their action was barred by prescription.The CA acted correctly in reversing the RTC decision and dismissing their action.ADA v. BAYLON

Facts: The persons involved in this case are the heirs of the spouses Baylon. The subject property was inherited by the heirs from the spouses after they died. They alleged therein that Spouses Baylon, during their lifetime, owned 43 parcels of land5 all situated in Negros Oriental. After the death of Spouses Baylon, they claimed that Rita took possession of the said parcels of land and appropriated for herself the income from the same. Using the income produced by the said parcels of land, Rita allegedly purchased two parcels of land, Lot No. 47096 and half of Lot No. 4706,7 situated in Canda-uay, Dumaguete City. The petitioners averred that Rita refused to effect a partition of the said parcels of land. During the pendency of the case, Rita, through a Deed of Donation dated July 6, 1997, conveyed Lot No. 4709 and half of Lot No. 4706 to Florante. On July 16, 2000, Rita died intestate and without any issue. Thereafter, learning of the said donation inter vivos in favor of Florante, the petitioners filed a Supplemental Pleading17 dated February 6, 2002, praying that the said donation in favor of the respondent be rescinded in accordance with Article 1381(4) of the Civil Code. They further alleged that Rita was already sick and very weak when the said Deed of Donation was supposedly executed and, thus, could not have validly given her consent thereto.

Florante and Panfila opposed the rescission of the said donation, asserting that Article 1381(4) of the Civil Code applies only when there is already a prior judicial decree on who between the contending parties actually owned the properties under litigation.

Issue: W/N the CA erred in ruling that the donation inter vivos of Lot No. 4709 and half of Lot No. 4706 in favor of Florante may only be rescinded if there is already a judicial determination that the same actually belonged to the estate of Spouses Baylon.

Held:

Rescission is a remedy to address the damage or injury caused to the contracting parties or third persons.Rescission is a remedy granted by law to the contracting parties and even to third persons, to secure the reparation of damages caused to them by a contract, even if it should be valid, by means of the restoration of things to their condition at the moment prior to the celebration of said contract. It is a remedy to make ineffective a contract, validly entered into and therefore obligatory under normal conditions, by reason of external causes resulting in a pecuniary prejudice to one of the contracting parties or their creditors.

Contracts which are rescissible are valid contracts having all the essential requisites of a contract, but by reason of injury or damage caused to either of the parties therein or to third persons are considered defective and, thus, may be rescinded.

The kinds of rescissible contracts, according to the reason for their susceptibility to rescission, are the following: first, those which are rescissible because of lesion or prejudice; second, those which are rescissible on account of fraud or bad faith; and third, those which, by special provisions of law, are susceptible to rescission.

Contracts which refer to things subject of litigation is rescissible pursuant to Article 1381(4) of the Civil Code.

Contracts which are rescissible due to fraud or bad faith include those which involve things under litigation, if they have been entered into by the defendant without the knowledge and approval of the litigants or of competent judicial authority. Thus, Article 1381(4) of the Civil Code provides:

Art. 1381. The following contracts are rescissible:

x x x x

Those which refer to things under litigation if they have been entered into by the defendant without the knowledge and approval of the litigants or of competent judicial authority[.]

The rescission of a contract under Article 1381(4) of the Civil Code only requires the concurrence of the following: first, the defendant, during the pendency of the case, enters into a contract which refers to the thing subject of litigation; and second, the said contract was entered into without the knowledge and approval of the litigants or of a competent judicial authority. As long as the foregoing requisites concur, it becomes the duty of the court to order the rescission of the said contract.

The reason for this is simple. Article 1381(4) seeks to remedy the presence of bad faith among the parties to a case and/or any fraudulent act which they may commit with respect to the thing subject of litigation.

When a thing is the subject of a judicial controversy, it should ultimately be bound by whatever disposition the court shall render. The parties to the case are therefore expected, in deference to the courts exercise of jurisdiction over the case, to refrain from doing acts which would dissipate or debase the thing subject of the litigation or otherwise render the impending decision therein ineffectual.

There is, then, a restriction on the disposition by the parties of the thing that is the subject of the litigation. Article 1381(4) of the Civil Code requires that any contract entered into by a defendant in a case which refers to things under litigation should be with the knowledge and approval of the litigants or of a competent judicial authority.

Further, any disposition of the thing subject of litigation or any act which tends to render inutile the courts impending disposition in such case, sans the knowledge and approval of the litigants or of the court, is unmistakably and irrefutably indicative of bad faith. Such acts undermine the authority of the court to lay down the respective rights of the parties in a case relative to the thing subject of litigation and bind them to such determination.

It should be stressed, though, that the defendant in such a case is not absolutely proscribed from entering into a contract which refer to things under litigation. If, for instance, a defendant enters into a contract which conveys the thing under litigation during the pendency of the case, the conveyance would be valid, there being no definite disposition yet coming from the court with respect to the thing subject of litigation. After all, notwithstanding that the subject thereof is a thing under litigation, such conveyance is but merely an exercise of ownership.

This is true even if the defendant effected the conveyance without the knowledge and approval of the litigants or of a competent judicial authority. The absence of such knowledge or approval would not precipitate the invalidity of an otherwise valid contract. Nevertheless, such contract, though considered valid, may be rescinded at the instance of the other litigants pursuant to Article 1381(4) of the Civil Code.

Here, contrary to the CAs disposition, the RTC aptly ordered the rescission of the donation inter vivos of Lot No. 4709 and half of Lot No. 4706 in favor of Florante. The petitioners had sufficiently established the presence of the requisites for the rescission of a contract pursuant to Article 1381(4) of the Civil Code. It is undisputed that, at the time they were gratuitously conveyed by Rita, Lot No. 4709 and half of Lot No. 4706 are among the properties that were the subject of the partition case then pending with the RTC. It is also undisputed that Rita, then one of the defendants in the partition case with the RTC, did not inform nor sought the approval from the petitioners or of the RTC with regard to the donation inter vivos of the said parcels of land to Florante.

Although the gratuitous conveyance of the said parcels of land in favor of Florante was valid, the donation inter vivos of the same being merely an exercise of ownership, Ritas failure to inform and seek the approval of the petitioners or the RTC regarding the conveyance gave the petitioners the right to have the said donation rescinded pursuant to Article 1381(4) of the Civil Code.

Rescission under Article 1381(4) of the Civil Code is not preconditioned upon the judicial determination as to the ownership of the thing subject of litigation.

In this regard, we also find the assertion that rescission may only be had after the RTC had finally determined that the parcels of land belonged to the estate of Spouses Baylon intrinsically amiss. The petitioners right to institute the action for rescission pursuant to Article 1381(4) of the Civil Code is not preconditioned upon the RTCs determination as to the ownership of the said parcels of land.

It bears stressing that the right to ask for the rescission of a contract under Article 1381(4) of the Civil Code is not contingent upon the final determination of the ownership of the thing subject of litigation. The primordial purpose of Article 1381(4) of the Civil Code is to secure the possible effectivity of the impending judgment by a court with respect to the thing subject of litigation. It seeks to protect the binding effect of a courts impending adjudication vis--vis the thing subject of litigation regardless of which among the contending claims therein would subsequently be upheld. Accordingly, a definitive judicial determination with respect to the thing subject of litigation is not a condition sine qua non before the rescissory action contemplated under Article 1381(4) of the Civil Code may be instituted.

Moreover, conceding that the right to bring the rescissory action pursuant to Article 1381(4) of the Civil Code is preconditioned upon a judicial determination with regard to the thing subject litigation, this would only bring about the very predicament that the said provision of law seeks to obviate. Assuming arguendo that a rescissory action under Article 1381(4) of the Civil Code could only be instituted after the dispute with respect to the thing subject of litigation is judicially determined, there is the possibility that the same may had already been conveyed to third persons acting in good faith, rendering any judicial determination with regard to the thing subject of litigation illusory. Surely, this paradoxical eventuality is not what the law had envisioned.

Even if the donation inter vivos is validly rescinded, a determination as to the ownership of the subject parcels of land is still necessary.Having established that the RTC had aptly ordered the rescission of the said donation inter vivos in favor of Florante, the issue that has to be resolved by this Court is whether there is still a need to determine the ownership of Lot No. 4709 and half of Lot No. 4706.

In opting not to make a determination as to the ownership of Lot No. 4709 and half of Lot No. 4706, the RTC reasoned that the parties in the proceedings before it constitute not only the surviving heirs of Spouses Baylon but the surviving heirs of Rita as well. As intimated earlier, Rita died intestate during the pendency of the proceedings with the RTC without any issue, leaving the parties in the proceedings before the RTC as her surviving heirs. Thus, the RTC insinuated, a definitive determination as to the ownership of the said parcels of land is unnecessary since, in any case, the said parcels of land would ultimately be adjudicated to the parties in the proceedings before it.

We do not agree.

Admittedly, whoever may be adjudicated as the owner of Lot No. 4709 and half of Lot No. 4706, be it Rita or Spouses Baylon, the same would ultimately be transmitted to the parties in the proceedings before the RTC as they are the only surviving heirs of both Spouses Baylon and Rita. However, the RTC failed to realize that a definitive adjudication as to the ownership of Lot No. 4709 and half of Lot No. 4706 is essential in this case as it affects the authority of the RTC to direct the partition of the said parcels of land. Simply put, the RTC cannot properly direct the partition of Lot No.

4709 and half of Lot No. 4706 until and unless it determines that the said parcels of land indeed form part of the estate of Spouses Baylon.

It should be stressed that the partition proceedings before the RTC only covers the properties co-owned by the parties therein in their respective capacity as the surviving heirs of Spouses Baylon. Hence, the authority of the RTC to issue an order of partition in the proceedings before it only affects those properties which actually belonged to the estate of Spouses Baylon.

In this regard, if Lot No. 4709 and half of Lot No. 4706, as unwaveringly claimed by Florante, are indeed exclusively owned by Rita, then the said parcels of land may not be partitioned simultaneously with the other properties subject of the partition case before the RTC. In such case, although the parties in the case before the RTC are still co-owners of the said parcels of land, the RTC would not have the authority to direct the partition of the said parcels of land as the proceedings before it is only concerned with the estate of Spouses Baylon.

ANCHOR SAVINGS BANK v. FURIGAY

Facts:

Issue: W/N the CA was correct in dismissing ASBs complaint on the ground that the action against respondents was premature.

Held: In relation to an action for rescission, it should be noted that the remedy of rescission is subsidiary in nature; it cannot be instituted except when the party suffering damage has no other legal means to obtain reparation for the same.24 Article 1177 of the New Civil Code provides:

The creditors, after having pursued the property in possession of the debtor to satisfy their claims, may exercise all the rights and bring all the actions of the latter for the same purpose, save those which are inherent in his person; they may also impugn the actions which the debtor may have done to defraud them.

Consequently, following the subsidiary nature of the remedy of rescission, a creditor would have a cause of action to bring an action for rescission, if it is alleged that the following successive measures have already been taken: (1) exhaust the properties of the debtor through levying by attachment and execution upon all the property of the debtor, except such as are exempt by law from execution; (2) exercise all the rights and actions of the debtor, save those personal to him (accion subrogatoria); and (3) seek rescission of the contracts executed by the debtor in fraud of their rights (accion pauliana).

With respect to an accion pauliana, it is required that the ultimate facts constituting the following requisites must all be alleged in the complaint, viz.:

1) That the plaintiff asking for rescission, has credit prior to the alienation, although demandable later;

2) That the debtor has made a subsequent contract conveying a patrimonial benefit to a third person;

3) That the creditor has no other legal remedy to satisfy his claim, but would benefit by rescission of the conveyance to the third person;

4) That act being impugned is fraudulent; and

5) That the third person who received the property conveyed, if by onerous title, has been an accomplice in the fraud.26

A cursory reading of the allegations of ASBs complaint would show that it failed to allege the ultimate facts constituting its cause of action and the prerequisites that must be complied before the same may be instituted. ASB, without availing of the first and second remedies, that is, exhausting the properties of CTS, Henry H. Furigay and Genilda C. Furigay or their transmissible rights and actions, simply undertook the third measure and filed an action for annulment of the donation. This cannot be done.

In all, it is incorrect for ASB to argue that a complaint need not allege all the elements constituting its cause of action since it would simply adduce proof of the same during trial. "Nothing is more settled than the rule that in a motion to dismiss for failure to state a cause of action, the inquiry is "into the sufficiency, not the veracity, of the material allegations."28 The inquiry is confined to the four comers of the complaint, and no other. Unfortunately for ASB, the Court finds the allegations of its complaint insufficient in establishing its caust.:~ of action and in apprising the respondents of the same so that theycould defend themselves intelligently and effective!y pursuant to their right to due process. It is a rule of universal application that courts of justice are constituted to adjudicate substantive rights. While courts should consider public policy and necessity in putting an end to litigations speedily they must nevertheless harmonize such necessity with the fundamental right of litigants to due process.

SAMONTE v. CA

The exception to the rule that the Torrens System serves as a notice to the whole world.

Facts: It is not disputed that Ignacio Atupan caused the fraudulent cancellation of OCT No. RO-238(555).The trial court found that Atupan, on the basis of his Affidavit of Extra-judicial Settlement and Confirmation Sale, adjudicated unto himself one-half of Lot 216 by misrepresenting himself as the sole heir of Apolonia Abao.Atupan, in said affidavit, likewise confirmed the two deeds of sale allegedly executed by him and Abao on September 15 and 16, 1939, covering the latters one-half lot in favor of Nicolas Jadol.

The trial court found Atupans affidavit, dated August 7, 1957, to be tainted with fraud because he falsely claimed therein that he was the sole heir of Abao when in fact, he merely lived and grew up with her.Jadol and his wife, Beatriz, knew about this fact.Despite this knowledge, however, the Jadol spouses still presented the affidavit of Atupan before the Register of Deeds of the Province of Agusan when they caused the cancellation of OCT No. R0-238(555) and issuance of TCT No. RT-476 in their names covering that portion owned by Abao.

The trial court concluded that the incorporation of the statement in Atupans affidavit confirming the alleged execution of the aforesaid deeds of sale was intended solely to facilitate the issuance of the certificate of title in favor of the Jadol spouses.It was noted that the documents evidencing the alleged transactions were not presented in the Register of Deeds.It was further pointed out that the Jadol spouses only sought the registration of these transactions in 1957, eighteen (18) years after they supposedly took place or twelve (12) years after Abao died.

Based on the foregoing facts, the CA, on appeal, ruled that the cancellation of OCT No. R0-238(555) and the consequent issuance of TCT No. RT-476 in its place in the name of the Jadol spouses were effected through fraudulent means and that they (spouses Jadol) not only had actual knowledge of the fraud but were also guilty of bad faith.[7]Nonetheless, petitioner contends that respondents action in the courta quohad already prescribed.Generally, an action for reconveyance of real property based on fraud may be barred by the statute of limitations which requires that the action must be commenced within four (4) years from the discovery of fraud, and in case of registered land, such discovery is deemed to have taken place from the date of the registration of title.Issue: W/N prescription has already set in.

Held: Article 1456 of the Civil Code, however, provides:

Art. 1456. If property is acquired through mistake or fraud, the person obtaining it is, by force of law, considered a trustee of an implied trust for the benefit of the person from whom the property comes.

As it had been indubitably established that fraud attended the registration of a portion of the subject property, it can be said that the Jadol spouses were trustees thereof on behalf of the surviving heirs of Abao.An action based on implied or constructive trust prescribes in ten (10) years from the time of its creation or upon the alleged fraudulent registration of the property.[9]Petitioner, as successor-in-interest of the Jadol spouses, now argues that the respondents action for reconveyance, filed only in 1975, had long prescribed considering that the Jadol spouses caused the registration of a portion of the subject lot in their names way back in August 8, 1957.It is petitioners contention that since eighteen years had already lapsed from the issuance of TCT No. RT-476 until the time when respondents filed the action in the courta quoin 1975, the same was time-barred.

Petitioners defense of prescription is untenable. The general rule that the discovery of fraud is deemed to have taken place upon the registration of real property because it is considered a constructive notice to all persons[10]does not apply in this case.Instead, the CA correctly applied the ruling inAdille vs. Court of Appeals[11]which is substantially on all fours with the present case.

InAdille, petitioner therein executed a deed of extra-judicial partition misrepresenting himself to be the sole heir of his mother when in fact she had other children.As a consequence, petitioner therein was able to secure title to the land in his name alone.His siblings then filed a case for partition on the ground that said petitioner was only a trustee on an implied trust of the property. Among the issues resolved by the Court in that case was prescription.Said petitioner registered the property in 1955 and the claim of private respondents therein was presented in 1974.

The Courts resolution of whether prescription had set in therein is quiteaproposto the instant case:

It is true that registration under the Torrens system is constructive notice of title, but it has likewise been our holding that the Torrens title does not furnish a shield for fraud. It is therefore no argument to say that the act of registration is equivalent to notice of repudiation, assuming there was one, notwithstanding the long-standing rule that registration operates as a universal notice of title.

For the same reason, we cannot dismiss private respondents claims commenced in 1974 over the estate registered in 1955. While actions to enforce a constructive trust prescribes in ten years, reckoned from the date of the registration of the property, we, as we said, are not prepared to count the period from such a date in this case.We note the petitionerssub rosaefforts to gethold of the property exclusively for himself beginning with his fraudulent misrepresentation in his unilateral affidavit of extrajudicial settlement that he is the only heir and child of his mother Feliza with the consequence that he was able to secure title in his name [alone]. Accordingly, we hold that the right of the private respondents commenced from the time they actually discovered the petitioners act of defraudation.According to the respondent Court of Appeals, they "came to know [of it] apparently only during the progress of the litigation." Hence, prescription is not a bar.[12]In this case, the CA reckoned the prescriptive period from the time respondents had actually discovered the fraudulent act of Atupan which was, as borne out by the records, only during the trial of Civil Case No. 1672.[13]CitingAdille, the CA rightfully ruled that respondents action for reconveyance had not yet prescribed.

MENDEZONA v. OZAMIZ

A person is not incapacitated mainly because of old age.

Facts: Carmen Ozamiz is the owner of the disputed property in this case. The Mendezonas claimed that they bought a certain property in Lahug Cebu from Carmen Ozamiz. This was evidenced by a notarized DOAS and a consideration of P1,040,000.00. This however was rebutted by the other hairs of Carmen Ozamiz. They alleged that Ms. Ozamiz could not have executed such DOAS because she was already very old at the time the DOAS was executed. They alleged that her old age rendered her incapacitated to execute such contract with the Mendezonas. Issue: W/N old age incapacitates a person to contract with annother party.

Held: Simulation is defined as the declaration of a fictitious will, deliberately made by agreement of the parties, in order to produce, for the purposes of deception, the appearances of a juridical act which does not exist or is different from what that which was really executed.[20]The requisites of simulation are: (a) an outward declaration of will different from the will of the parties; (b) the false appearance must have been intended by mutual agreement; and (c) the purpose is to deceive third persons.[21]None of these were clearly shown to exist in the case at bar.

Contrary to the erroneous conclusions of the appellate court, a simulated contract cannot be inferred from the mere non-production of the checks.It was not the burden of the petitioners to prove so.It is significant to note that the Deed of Absolute Sale datedApril 28, 1989is a notarized document duly acknowledged before a notary public.As such, it has in its favor the presumption of regularity, and it carries the evidentiary weight conferred upon it with respect to its due execution.It is admissible in evidence without further proof of its authenticity and is entitled to full faith and credit upon its face.[22]Payment is not merely presumed from the fact that the notarized Deed of Absolute Sale datedApril 28, 1989has gone through the regular procedure as evidenced by the transfer certificates of title issued in petitioners names by the Register of Deeds. In other words, whosoever alleges the fraud or invalidity of a notarized document has the burden of proving the same by evidence that is clear, convincing, and more than merely preponderant.[23]Therefore, with this well-recognized statutory presumption, the burden fell upon the respondents to prove their allegations attacking the validity and due execution of the said Deed of Absolute Sale. Respondents failed to discharge that burden; hence, the presumption in favor of the said deed stands. But more importantly, that notarized deed shows on its face that the consideration of One Million Forty Thousand Pesos (P1,040,000.00) was acknowledged to have been received by CarmenOzamiz.

Simulation cannot be inferred from the alleged absence of payment based on the testimonies ofConcepcionAgac-ac, assistant of CarmenOzamiz, andNelfaPerdido, part-time bookkeeper of CarmenOzamiz. The testimonies of these two (2) witnesses are unreliable and inconsistent.

WhileConcepcionAgac-ac testified that she was aware of all the transactions of CarmenOzamiz, she also admitted that not all income of CarmenOzamizpassed through her since AntonioMendezona, as appointed administrator, directly reported to CarmenOzamiz.[24]With respect toNelfaPerdido, she testified that most of the transactions that she recorded refer only to rental income and expenses, and the amounts thereof were reported to her byConcepcionAgac-ac only, not by CarmenOzamiz. She does not record deposits or withdrawals in the bank accounts of CarmenOzamiz.[25]Their testimonies hardly deserve any credit and, hence, the appellate court misplaced reliance thereon.

Considering that CarmenOzamizacknowledged, on the face of the notarized deed, that she received the consideration at One Million Forty Thousand Pesos (P1,040,000.00), the appellate court should not have placed too much emphasis on the checks, the presentation of which is not really necessary. Besides, the burden to prove alleged non-payment of the consideration of the sale was on the respondents, not on the petitioners. Also, between its conclusion based on inconsistent oral testimonies and a duly notarized document that enjoys presumption of regularity, the appellate court should have given more weight to the latter. Spoken words could be notoriously unreliable as against a written document that speaks a uniform language.[26]Furthermore, the appellate court erred in ruling that at the time of the execution of the Deed of Absolute Sale onApril 28, 1989the mental faculties of CarmenOzamizwere already seriously impaired.[27]It placed too much reliance upon the testimonies of the respondents witnesses. However, after a thorough scrutiny of the transcripts of the testimonies of the witnesses, we find that the respondents core witnesses all made sweeping statements which failed to show the true state of mind of CarmenOzamizat the time of the execution of the disputed document. The testimonies of the respondents witnesses on the mental capacity of CarmenOzamizare far from being clear and convincing, to say the least.

CarolinaLagura, ahousehelperof CarmenOzamiz, testified that when CarmenOzamizwas confronted by Paz O.Montalvanin January 1989 with the sale of theLahug property, CarmenOzamizdenied the same. She testified that CarmenOzamizunderstood the question then.[28]However, this declaration is inconsistent with her (Carolinas) statement that since 1988 CarmenOzamizcould not fully understand the things around her, that she was physically fit but mentally could not carry a conversation or recognize persons who visited her.[29]Furthermore, the disputed sale occurred onApril 28, 1989or three (3) months after this alleged confrontation in January 1989. This inconsistency was not explained by the respondents.

The revelation of Dr. Faith Go did not also shed light on the mental capacity of CarmenOzamizon the relevant day -April 28, 1989when the Deed of Absolute Sale was executed and notarized. At best, she merely revealed that CarmenOzamizwas suffering from certain infirmities in her body and at times, she was forgetful, but there was no categorical statement that CarmenOzamizsuccumbed to what the respondents suggest as her alleged second childhood as early as 1987. The petitioners rebuttal witness, Dr. WilliamBuot, a doctor of neurology, testified that no conclusion of mental incapacity at the time the said deed was executed can be inferred from Dr. FaithGosclinical notes nor can such fact be deduced from the mere prescription of a medication for episodic memory loss.

It has been held that a person is not incapacitated to contract merely because of advanced years or by reason of physical infirmities. Only when such age or infirmities impair her mental faculties to such extent as to prevent her from properly, intelligently, and fairly protecting her property rights, is she considered incapacitated.The respondents utterly failed to show adequate proof that at the time of the sale on April 28, 1989 CarmenOzamizhad allegedly lost control of her mental faculties.

We note that the respondents sought to impugn only one document, namely, the Deed of Absolute Sale datedApril 28, 1989, executed by CarmenOzamiz. However, there are nine (9) other important documents that were, signed by CarmenOzamizeither before or afterApril 28, 1989which were not assailed by the respondents.[31]Such is contrary to their assertion of complete incapacity of CarmenOzamizto handle her affairs since 1987. We agree with the trial courts assessment that it is unfair for the [respondents] to claim soundness of mind of CarmenOzamizwhen it benefits them and otherwise when it disadvantages them.[32]A person is presumed to be of sound mind at any particular time and the condition is presumed to continue to exist, in the absence of proof to the contrary.[33]Competency and freedom from undue influence, shown to have existed in the other acts done or contracts executed, are presumed to continue until the contrary is shown.[34]FAMANILA v. CA

Facts: Roberto G. Famanila was hired as Messman[4]forHansa Riga. OnJune 21, 1990, whileHansa Rigawas docked at theportofEureka,California,U.S.A.and while petitioner was assisting in the loading operations, the latter complained of a headache. Petitioner experienced dizziness and he subsequently collapsed. Upon examination, it was determined that he had a sudden attack of left cerebral hemorrhage from a ruptured cerebral aneurysm.[5]Petitioner underwent a brain operation and he was confined at theEmmanuelHospitalinPortland,Oregon,U.S.A.OnJuly 19, 1990, he underwent a second brain operation. Owing to petitioners physical and mental condition, he was repatriated to thePhilippines.OnAugust 21, 1990, he was examined at theAmericanHospitalin Intramuros,Manilawhere the examining physician, Dr. Patricia Abesamis declared that he cannot go back to sea duty and has been observed for 120 days, he is being declared permanently, totally disabled.[6] Thereafter, authorized representatives of the respondents convinced him to settle his claim amicably by accepting the amount of US$13,200.[7]Petitioner accepted the offer as evidenced by his signature in the Receipt and Release datedFebruary 28, 1991.[8]His wife, Gloria Famanila and one Richard Famanila, acted as witnesses in the signing of the release. Thereafter, he filed with the NLRC a complaint for an award of disability benefits. From the NLRC to the CA, his claim was denied. Issue: W/N there was a vitiation of consent.

Held: A vitiated consent does not make a contract void and unenforceable.A vitiated consent only gives rise to a voidable agreement.Under the Civil Code, the vices of consent are mistake, violence, intimidation, undue influence or fraud.[16]If consent is given through any of the aforementioned vices of consent, the contract is voidable.[17]A voidable contract is binding unless annulled by a proper action in court.[18]

Petitioner contends that his permanent and total disability vitiated his consent to the Receipt and Release thereby rendering it void and unenforceable.However, disability is not among the factors that may vitiate consent.Besides, save for petitioners self-serving allegations, there is no proof on record that his consent was vitiated on account of his disability.In the absence of such proof of vitiated consent, the validity of the Receipt and Release must be upheld.We agree with the findings of the Court of Appeals that:

In the case at bar, there is nothing in the records to show that petitioners consent was vitiated when he signed the agreement. Granting that petitioner has not fully recovered his health at the time he signed the subject document, the same cannot still lead to the conclusion that he did not voluntar[il]y accept the agreement, for his wife and another relative witnessed his signing.

Moreover, the document entitled receipt and release which was attached by petitioner in his appeal does not show on its face any violation of law or public policy.In fact, petitioner did not present any proof to show that the consideration for the same is not reasonable and acceptable. Absent any evidence to support the same, the Court cannot, on its own accord, decide against the unreasonableness of the consideration.[19]It is true that quitclaims and waivers are oftentimes frowned upon and are considered as ineffective in barring recovery for the full measure of the workers right and that acceptance of the benefits therefrom does not amount to estoppel.[20]The reason is plain.Employer and employee, obviously do not stand on the same footing.[21]However, not all waivers and quitclaims are invalid as against public policy.If the agreement was voluntarily entered into and represents a reasonable settlement, it is binding on the parties and may not later be disowned simply because of change of mind.It is only where there is clear proof that the waiver was wangled from an unsuspecting or gullible person, or the terms of the settlement are unconscionable on its face, that the law will step in to annul the questionable transaction.But where it is shown that the person making the waiver did so voluntarily, with full understanding of what he was doing, and the consideration for the quitclaim is credible and reasonable, the transaction must be recognized as a valid and binding undertaking,[22]as in this case.

To be valid and effective, waivers must be couched in clear and unequivocal terms, leaving no doubt as to the intention of those giving up a right or a benefit that legally pertains to them.[23]We have reviewed the terms and conditions contained in the Receipt and Release and we find the same to be clear and unambiguous.The signing was even witnessed by petitioners wife, Gloria T. Famanila and one Richard T. Famanila.

It is elementary that a contract is perfected by mere consent and from that moment the parties are bound not only to the fulfillment of what has been expressly stipulated but also to all the consequences which, according to their nature, may be in keeping with good faith, usage and law.[25]Further, dire necessity is not an acceptable ground for annulling the Receipt and Release since it has not been shown that petitioner was forced to sign it.[26]

Regarding prescription, the applicable prescriptive period for the money claims against the respondents is the three year period pursuant to Article 291 of the Labor Code which provides that:

ART. 291.Money Claims. All money claims arising from employer-employee relations accruing during the effectivity of this Code shall be filed within three (3) years from the time the cause of action accrued; otherwise they shall be forever barred.

x x x x

Since petitioners demand for an award of disability benefits is a money claim arising from his employment, Article 291 of the Labor Code applies.From the time petitioner was declared permanently and totally disabled on August 21, 1990 which gave rise to his entitlement to disability benefits up to the time that he filed the complaint on June 11, 1997, more than three years have elapsed thereby effectively barring his claim.

CATALAN v. BASA

A person suffering from schizophrenia does not necessarily lose his competence to intelligently dispose his property.Facts: OnOctober 20, 1948, FELICIANO CATALAN (Feliciano) was discharged from active military service.The Board of Medical Officers of the Department of Veteran Affairs found that he was unfit to render military service due to his schizophrenic reaction, catatonic type, which incapacitates him because of flattening of mood and affect, preoccupation with worries, withdrawal, and sparce (sic) and pointless speech. He allegedly donated to his sister Mercedes his 1/2 share in a parcel of land located in Binmaley, Pangasinan. Mercedes then sold the said property to her two children. BPI thereafter was declared by the court as guardian of Feliciano Catalan. On April 1, 1997, BPI, acting as Felicianos guardian, filed a case for Declaration of Nullity of Documents, Recovery of Possession and Ownership,[13]as well as damages against the herein respondents.BPI alleged that the Deed of Absolute Donation to Mercedes was voidab initio, as Feliciano never donated the property to Mercedes.In addition, BPI averred that even if Feliciano had truly intended to give the property to her, the donation would still be void, as he was not of sound mind and was therefore incapable of giving valid consent.Thus, it claimed that if the Deed of Absolute Donation was voidab initio, the subsequent Deed of Absolute Sale to Delia and Jesus Basa should likewise be nullified, for Mercedes Catalan had no right to sell the property to anyone.BPI raised doubts about the authenticity of the deed of sale, saying that its registration long after the death of Mercedes Catalan indicated fraud.Thus, BPI sought remuneration for incurred damages and litigation expenses.Issue: W/N a schizophrenic person is deemd incapacitated.

Held: A donation is an act of liberality whereby a person disposes gratuitously a thing or right in favor of another, who accepts it.[22]Like any other contract, an agreement of the parties is essential. Consent in contracts presupposes the following requisites: (1) it should be intelligent or with an exact notion of the matter to which it refers; (2) it should be free; and (3) it should be spontaneous.[23]The parties' intention must be clear and the attendance of a vice of consent, like any contract, renders the donation voidable.[24]In order for donation of property to be valid, what is crucial is the donors capacity to give consent at the time of the donation. Certainly, there lies no doubt in the fact that insanity impinges on consent freely given.[25]However, the burden of proving such incapacity rests upon the person who alleges it; if no sufficient proof to this effect is presented, capacity will be presumed.[26]A thorough perusal of the records of the case at bar indubitably shows that the evidence presented by the petitioners was insufficient to overcome the presumption that Feliciano was competent when he donated the property in question to Mercedes.Petitioners make much ado of the fact that, as early as 1948, Feliciano had been found to be suffering from schizophrenia by the Board of Medical Officers of the Department of Veteran Affairs.By itself, however, the allegation cannot prove the incompetence of Feliciano.A study of the nature of schizophrenia will show that Feliciano could still be presumed capable of attending to his property rights.Schizophrenia was brought to the attention of the public when, in the late 1800s, Emil Kraepelin, a German psychiatrist, combined hebrephrenia and catatonia with certain paranoid states and called the condition dementia praecox.Eugene Bleuler, a Swiss psychiatrist, modified Kraepelins conception in the early 1900s to include cases with a better outlook and in 1911 renamed the condition schizophrenia.According to medical references, in persons with schizophrenia, there is a gradual onset of symptoms, with symptoms becoming increasingly bizarre as the disease progresses.The condition improves (remission or residual stage) and worsens (relapses) in cycles.Sometimes, sufferers may appear relatively normal, while other patients in remission may appear strange because they speak in a monotone, have odd speech habits, appear to have no emotional feelings and are prone to have ideas of reference.The latter refers to the