ADA v.

BAYLON (2012)

Facts:
This case involves the estate of the spouses Florentino Baylon and Maximina Baylon.This case
involves the estate of spouses Florentino Baylon and Maximina Elnas Baylon (Spouses Baylon)
who died on November 7, 1961 and May 5, 1974, respectively. At the time of their death,
Spouses Baylon were survived by their legitimate children, namely, Rita Baylon (Rita), Victoria
Baylon (Victoria), Dolores Baylon (Dolores), Panfila Gomez (Panfila), Ramon Baylon (Ramon) and
herein petitioner Lilia B. Ada (Lilia).

Dolores died intestate and without issue on August 4, 1976. Victoria died on November 11, 1981
and was survived by her daughter, herein petitioner Luz B. Adanza. Ramon died intestate on July
8, 1989 and was survived by herein respondent Florante Baylon (Florante), his child from his first
marriage, as well as by petitioner Flora Baylon, his second wife, and their legitimate children,
namely, Ramon, Jr. and herein petitioners Remo, Jose, Eric, Florentino and Ma. Ruby, all
surnamed Baylon.

On July 3, 1996, the petitioners filed with the RTC a Complaint for partition, accounting and
damages against Florante, Rita and Panfila. They alleged therein that Spouses Baylon, during
their lifetime, owned 43 parcels of land 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. The petitioners averred that Rita refused to effect a partition of the said parcels of land.

In their Answer,Florante, Rita and Panfila asserted that they and the petitioners co-owned 229
out of the 43 parcels of land mentioned in the latter’s complaint, whereas Rita actually owned
10 parcels of land out of the 43 parcels which the petitioners sought to partition, while the
remaining 11 parcels of land are separately owned by Petra Cafino Adanza, Florante, Meliton
Adalia, Consorcia Adanza, Lilia and Santiago Mendez. Further, they claimed that Lot No. 4709
and half of Lot No. 4706 were acquired by Rita using her own money. They denied that Rita
appropriated solely for herself the income of the estate of Spouses Baylon, and expressed no
objection to the partition of the estate of Spouses Baylon, but only with respect to the co-owned
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 Pleading 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.

The RTC regarded Rita as the owner of the said 10 parcels of land and, accordingly, directed that
the same be partitioned among her heirs. Nevertheless, the RTC rescinded the donation inter
vivos of Lot No. 4709 and half of Lot No. 4706 in favor of Florante on the ground that it was
entered into by the defendant Rita Baylon without the knowledge and approval of the litigants of
competent judicial authority.

The CA held that before the petitioners may file an action for rescission, they must first obtain a
favorable judicial ruling that Lot No. 4709 and half of Lot No. 4706 actually belonged to the
estate of Spouses Baylon and not to Rita. Until then, the CA asserted, an action for rescission is
premature.

Issue:
Whether or not 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

Ruling: No.

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.

Here, contrary to the CA’s 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, Rita’s 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.

Moreover, 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 court’s impending adjudication vis-à-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.

DAILISAN v. COURT OF APPEALS (2008)

Facts:
Petitioner filed a Complaint for partition alleging that he purchased one-fourth (¼) of the land of
Federico Pugao. According to petitioner, he and Federico had initially agreed to the sale of one-
half (1/2) portion of the same land for P12,000.00 and that he had paid Federico several
installments from 1976 to 1979, which all in all totaled to P6,000.00, but was told to stop further
payments because per Federico’s representation he could only sell one-fourth ( ¼) of the lot.
Federico could not deliver the title to him because the property was still mortgaged to a bank.
When the mortgage was released, petitioner demanded the execution of a deed of absolute
sale. Instead of acceding, Federico proposed to mortgage the property to petitioner as security
for a P10,000.00 loan, payable in three (3) months, and upon payment of the loan the deed of
absolute sale would be executed. Petitioner agreed, and they executed a deed of real estate
mortgage. The loan was paid after three (3) months, after which petitioner and Federico
executed a deed of absolute sale on 5 February 1979. Petitioner asked for the partition of the lot
and caused a resurvey to expedite the partition. However, Federico still refused to effect the
partition.

However, Federico denied having voluntarily executed the deed of absolute sale, and instead
alleged that when he was seriously ill in January of 1992, petitioner, with a certain Atty. Juanitas,
made him sign pages of what the former told him to be parts of the real estate mortgage he had
earlier executed in favor of petitioner. Federico passed away while this case was pending before
the trial court. And so he was substituted by his heirs, herein respondents.

The trial court found that the respondents failed to disprove the validity of the absolute sale and
ordered the partition of the property. The Court of Appeals granted the appeal. It noted that
petitioner should have filed an action for specific performance to compel Federico to honor the
deed of absolute sale;19 yet the right to file such action, had already expired.20 It further noted
that petitioner "filed the instant action for partition simply because it is not barred by
prescription."21 It ruled against the validity of the sale between Federico and petitioner, finding
that there was no consent on Federico’s part and that there was no proof of payment of the
price or consideration on the part of petitioner.22 It concluded that the deed of sale is fictitious
and invalid, and hence could not serve as basis of any claim of ownership.

Issues:
(1) whether the deed of absolute sale is valid;
(2) What is the prescriptive period within which to file petitioner’s action.

Ruling:
1. Respondents were unable to overcome the presumption of validity of the deed of absolute
sale as well as the regularity in its execution. Respondents claim that the deed of sale "is not
valid because there was absolutely no consent on the part of" Federico "to said contract, which
was in English," considering that Federico "did not even finish Grade 2 of the elementary school
level,"34 and that he was only led to believe that the pages thereof corresponded to and were
part of the real estate mortgage.

First, a distinction must be made between void and voidable contracts. A contract is inexistent
and void from the very beginning when (i) its cause, object or purpose is contrary to law, morals,
good customs, public order or public policy; (ii) it is absolutely simulated or fictitious; (iii) its
cause or object did not exist at the time of the transaction; (iv) its object is outside the
commerce of men; (v) it contemplates an impossible service; (vi) the intention of the parties
relative to the principal object of the contract cannot be ascertained; or (vii) it is expressly
prohibited or declared void by law.30 The action or defense for the declaration of the inexistence
of a contract does not prescribe. On the other hand, a voidable or annullable contract is one
where (i) one of the parties is incapable of giving consent to a contract; or (ii) the consent is
vitiated by mistake, violence, intimidation, undue influence or fraud.

Basically, respondents’ claim is that the deed of sale is a voidable, and not void, contract and the
ground to be raised is mistake and/or fraud because Federico was led to believe that what he
was signing was still part of the earlier deed of real estate mortgage. In that regard, respondents
stress Federico’s low educational attainment and inability to understand the English language.

Anent Federico’s low educational attainment and unfamiliarity with English, Article 1332 of the
Civil Code is the governing provision:

Art. 1332. When one of the parties is unable to read, or if the contract is in a language not
understood by him, and mistake or fraud is alleged, the person enforcing the contract must show
that the terms thereof have been fully explained to the former.
That Federico did not even reach Grade 2, that he was unable to read or understand English, and
that his consent was vitiated by mistake or fraud, make the situation fall under the above-quoted
provision. Thus, it would have been incumbent upon petitioner to show that he fully explained
the terms of the contract to Federico if not for a crucial point. Respondents failed to file an
action for annulment of the deed of sale on the ground of mistake or fraud within the four-year
period provided by law. Thus, they have lost both their right to file an action for annulment or to
set up such nullity of the deed of sale as a defense in an action to enforce the same, which was
the case filed by petitioner.

2. The action for annulment must be brought within four (4) years from the time the
intimidation, violence or undue influence ceases, or four (4) years from the time of the discovery
of the mistake or fraud.

Here the action has already prescribed. We note that the Court of Appeals ruled that petitioner’s
cause of action has prescribed following its conclusion that petitioner’s action is actually one for
specific performance, not partition. Petitioner’s action before the trial court was properly
captioned as one for partition because there are sufficient allegations in the complaint that he is
a co-owner of the property.

GREGORIO F. AVERIA, et al. v. DOMINGO AVERIA (2004)

Facts:
Macaria Francisco (Macaria) was married to Marcos Averia in which they had six children
namely: petitioners Gregorio and Teresa and respondents Domingo, Angel, Felipe and Felimon.
Upon the death of Marcos, Macaria contracted a second marriage with Roberto Romero in
which they had no children. Upon the death of Roberto, he left three adjoining residential lots.
In a Deed of Extrajudicial Partition and Summary Settlement of the Estate of Romero, a house
and lot (Extremadura property) was apportioned to Macaria.

Macaria then filed an action for annulment of title and damages alleging that fraud was
employed by her co-heirs in which she was represented by Atty. Mario C.R. Domingo. The case
lasted for 10 years until the Court of Appeals (CA) decided in favor of Macaria entitling her to an
additional 30 square meters of the estate of Romero. Her son Gregorio and his family and
Teresa‘s family lived with her in the Extremadura property until her death. After six years,
respondents Domingo, Angel, Felipe and Filemon filed an action for judicial partition against
petitioners Gregorio and Teresa.

In their defense Gregorio contends that Macaria verbally sold ½ of her Extramadura property to
him and his wife Agripina because they were the ones who spent for the litigation expenses in
the former civil case and that Agripina took care of her. Gregorio and co-petitioner Sylvana
claimed that Domingo sold to Gregorio and Agripina his 1/6 share in the remaining ½ portion of
the property. Upon hearing, Gregorio presented oral evidence to establish their claim of the sale
of the property to them by Macaria and also the sale of Domingo of his share. The Regional Trial
Court of (RTC) decided in favor of Gregorio. The CA however, reversed the decision of the RTC on
the ground that since the sale executed by Macaria in favor of Gregorio was in violation of the
statute of frauds and it cannot be proven by oral evidence.

Issue:

Whether or not parol evidence may be admitted in proving partial performance

Ruling:

With respect to the application by the appellate court of the Statute of Frauds, Gregorio
contends that the same refers only to purely executory contracts and not to partially or
completely executed contracts as in the instant case. The finding of the CA that the testimonies
of Gregorio‘s witnesses were timely objected to by Domingo is not, as Gregorio insist, borne out
in the records of the case except with respect to his testimony.

Indeed, except for the testimony of petitioner Gregorio bearing on the verbal sale to him by
Macaria of the property, the testimonies of Gregorio‘s witnesses Sylvanna Vergara Clutario and
Flora Lazaro Rivera bearing on the same matter were not objected to by respondents. Just as the
testimonies of Gregorio, Jr. and Veronica Bautista bearing on the receipt by respondent Domingo
on July 23, 1983 from Gregorio‘s wife of P5,000.00 representing partial payment of the
P10,000.00 valuation of his (Domingo‘s) 1/6 share in the property, and of the testimony of
Felimon Dagondon bearing on the receipt by Domingo of P5,000.00 from Gregorio were not
objected to. Following Article 1405 of the Civil Code, the contracts which infringed the Statute of
Frauds were ratified by the failure to object to the presentation of parol evidence, hence,
enforceable.

Contrary then to the finding of the CA, the admission of parol evidence upon which the trial
court anchored its decision in favor of respondents is not irregular and is not foreclosed by
Article 1405.

In any event, the Statute of Frauds applies only to executory contracts and not to contracts
which are either partially or totally performed. In the case at bar, petitioners claimed that there
was total performance of the contracts, full payment of the objects thereof having already been
made and the vendee Gregorio having, even after Macaria‘s death in 1983, continued to occupy
the property until and after the filing on January 19, 1989 of the complaint subject of the case at
bar as in fact he is still occupying it.

However it is not enough for a party to allege partial performance in order to render the Statute
of Frauds inapplicable; such partial performance must be duly proved. But neither is such party
required to establish such partial performance by documentary proof before he could have the
opportunity to introduce oral testimony on the transaction. The partial performance may be
proved by either documentary or oral evidence.

OUANO v. COURT OF APPEALS

Facts:
The appellate proceedings at bar treat of a parcel of land registered under RFC ( now DBP). The
property was offered for sale by public bidding by the RFC on April 1, 1958. Actually this was the
second public bidding scheduled for the property. The first in which both Ouano and Echavez
participated, together with others was nullified on account of a protest by Ouano.

Now, it appears that prior to the second bidding, Ouano and Echavez orally agreed that only
Echavez would make a bid, and that if it was accepted, they would divide the property in
proportion to their adjoining properties. To ensure success of their enterprise, they also agreed
to induce the only other party known to be interested in the property-a group headed by a Mrs.
Bonsucan to desist from presenting a bid. They broached the matter to Mrs. Bonsucan's group.
The latter agreed to withdraw, as it did in fact withdraw from the sale; and Ouano's wife paid it
P2,000 as reimbursement for its expenses.

As expected, the highest bid submitted, and thus accepted by the RFC, was that of Francisco
Echavez, who offered P27,826.00 for the land . Echavez paid the sum of P5,565.00 representing
20% deposit of the prefferred price.

Still later, or two weeks after Echavez won the bid, a document simply entitled "Agreement," was
signed by him and Ouano. That document, prepared by Echavez in his own handwriting stating
that it is agreed between them, Francisco B. Echavez and Paterno J. Ouano, that they will share
the said lot among them.

However, the RFC never approved the sharing agreement between Echavez and Ouano
concerning Lot 3-A-1. It approved the sale of the lot to Echavez only, on May 9, 1958, on the
condition that the purchase price of P27,825.00 be paid in cash. Apparently Echavez found great
initial difficulty in complying with this condition. It took all of four years, and patient negotiation
and diligent effort on his part, for him ultimately to acquire title to the property

Ouano, in his turn, tried to have DBP either accept and implement his sharing agreement with
Echavez, or allow him to pay the full price of the lot in Echavez's behalf.

Before the deed of absolute sale was executed by the DBP in Echavez's favor, Paterno J. Ouano
filed suit for "specific performance and reconveyance" against Francisco Echavez and DBP.

The RTC and the CA dismissed the action on the ground that the sharing agreement between
Ouano and Echavez could not be enforced in view of the absence of consent of the RFC (DBP)
Issue: Whether or not the RTC and CA erred dismissing the Ouano's action

Ruling: No.

Two material facts, however, about which Ouano and Echavez are in agreement, render these
questions of academic interest only, said facts being determinative of this dispute on an
altogether different ground. These facts are:

1) that they bad both orally agreed that only Echavez would make a bid at the second
bidding called by the RFC, and that if it was accepted, they would divide the property in
proportion to their adjoining properties; and

2) that to ensure success of their scheme, they had also agreed to induce the only other
party known to be interested in the property a group headed by a Mrs. Bonsucan to desist from
presenting a bid, 28 as they did succeed in inducing Mrs. Bonsucan's group to withdraw from the
sale, paying said group P2,000 as reimbursement for its expenses. 29

These acts constitute a crime, as the Trial Court has stressed. Ouano and Echavez had promised
to share in the property in question as a consideration for Ouano's refraining from taking part in
the public auction, and they had attempted to cause and in fact succeeded in causing another
bidder to stay away from the auction. in order to cause reduction of the price of the property
auctioned In so doing, they committed the felony of machinations in public auctions defined and
penalized in Article 185 of the Revised Penal Code, supra.

That both Ouano and Echavez did these acts is a matter of record, as is the fact that thereby only
one bid that of Echavez was entered for the 'land in consequence of which Echavez eventually
acquired it. The agreement therefore being criminal in character, the parties not only have no
action against each other but are both liable to prosecution and the things and price of their
agreement subject to disposal according to the provisions of the criminal code. This, in
accordance with the so-called pari delicto principle set out in the Civil Code.

Article 1409 of said Code declares as "inexistent and void from the beginning" those contracts,
among others, "whose cause, object or purpose is contrary to law, morals, good customs, public
order or public policy," or "expressly prohibited ... by law." Such contracts "cannot be ratified
"the right to set up the defense of illegality (cannot) be waived;" and, Article 1410 adds, the
"action or defense for the declaration of the inexistence ... (thereof) does not prescribe."
Furthermore, according to Article 1411 of the same Code 30 —

... When the nullity proceeds from the illegality of the cause or object of the contract, and the
act constitutes a criminal offense, both parties being in pari delicto, they shall have no action
against each other, and both shall be prosecuted. Moreover, the provisions of the Penal Code
relative to the disposal of effects or instruments of a crime shall be applicable to the things or
the price of the contract.

xxx xxx xxx

The dismissal of Ouano's action by both the Trial Court and the Court of Appeals was thus
correct, being plainly in accord with the Civil Code provisions just referred to. Article 1411 also
dictates the proper disposition of the land involved, i.e., "the forfeiture of the proceeds of the
crime and the instruments or tools with which it was committed," as mandated by the provisions
of Article 45 of the Revised Penal Code, this being obviously the provision "of the Penal Code
relative to the disposal of effects or instruments of a crime" that Article 1411 makes "applicable
to the things or the price of the contract."

WHEREFORE, the appealed decision of the Court of Appeals is MODIFIED, so that in addition to
affirming the Trial Court's judgment dismissing Ouano's complaint and Echavez's counterclaim in
Civil Case No. R-8011, Lot No. 3-A-1 subject of said case is ordered FORFEITED in its entirety in
favor of the Government of the Philippines. No pronouncement as to costs. Let copy of this
Decision be furnished the Solicitor General.