Republic of the Philippines nullity of a
dacion en pago allegedly executed by respondent
SUPREME COURT Benjamin Bayhon in favor of petitioner William Ong Genato. 2
Manila
Respondent Benjamin Bayhon alleged that on July 3, 1989, he
FIRST DIVISION obtained from the petitioner a loan amounting to PhP
1,000,000.00;3 that to cover the loan, he executed a Deed of Real
G.R. No. 171035 August 24, 2009 Estate Mortgage over the property covered by Transfer Certificate of
Title (TCT) No. 38052; that, however, the execution of the Deed of
Real Estate Mortgage was conditioned upon the personal assurance
WILLIAM ONG GENATO, Petitioner,
of the petitioner that the said instrument is only a private
vs.
memorandum of indebtedness and that it would neither be notarized
BENJAMIN BAYHON, MELANIE BAYHON, BENJAMIN BAYHON,
nor enforced according to its tenor.4
JR., BRENDA BAYHON, ALINA BAYHON-CAMPOS, IRENE
BAYHON-TOLOSA, and the minor GINO BAYHON, as
represented herein by his natural mother as guardian-ad-litem, Respondent further alleged that he filed a separate proceeding for
JESUSITA M. BAYHON, Respondents. the reconstitution of TCT No. 38052 before the RTC, Quezon City,
Branch 87.5 Petitioner William Ong Genato filed an Answer in
Intervention in the said proceeding and attached a copy of an
DECISION
alleged dacion en pago covering said lot.6 Respondent assailed
the dacion en pago as a forgery alleging that neither he nor his wife,
PUNO, CJ.: who had died 3 years earlier, had executed it.7
At bar is a Petition for Review on Certiorari assailing the Decision of In his Answer, petitioner Genato denied the claim of the respondent
the Court of Appeals dated September 16, 2005 1 and Resolution regarding the death of the latter’s wife. 8 He alleged that on the date
denying the petitioner’s motion for reconsideration issued on January that the real estate mortgage was to be signed, respondent
6, 2006. introduced to him a woman as his wife. 9 He alleged that the
respondent signed the dacion en pago and that the execution of the
This is a consolidated case stemming from two civil cases filed instrument was above-board.10
before the Regional Trial Court (RTC) – Civil Case No. Q-90-7012
and Civil Case No. Q-90-7551. Civil Case No. Q-90-7551
Civil Case No. Q-90-7012 On December 20, 1990, petitioner William Ong Genato filed Civil
Case No. Q-90-7551, an action for specific performance, before the
On October 18, 1990, respondents Benjamin M. Bayhon, Melanie RTC, Quezon City, Branch 79. In his Complaint, petitioner alleged
Bayhon, Benjamin Bayhon Jr., Brenda Bayhon, Alina Bayhon- that respondent obtained a loan from him in the amount of PhP
Campos, Irene Bayhon-Tolosa and the minor Gino Bayhon, as 1,000,000.00. Petitioner alleged further that respondent failed to pay
represented by his mother Jesusita M. Bayhon, filed an action before the loan and executed on October 21, 1989 a dacion en pago in
the RTC, Quezon City, Branch 76, docketed as Civil Case No. Q-90- favor of the petitioner. The dacion en pago was inscribed and
7012. In their Complaint, respondents sought the declaration of recorded with the Registry of Deeds of Quezon City.11
1
Petitioner further averred that despite demands, respondent refused Appeal to the Court of Appeals
to execute the requisite documents to transfer to him the ownership
of the lot subject of the dacion en pago. Petitioner prayed, inter alia, Respondents appealed before the Court of Appeals. On March 28,
for the court to order the respondent to execute the final deed of sale 2002, respondent Benjamin Bayhon died while the case was still
and transfer of possession of the said lot.12 pending decision.18 On September 16, 2005, the Court of Appeals
rendered a decision reversing the trial court.
Decision of the Consolidated Cases
The Court of Appeals held that the real estate mortgage and
The two cases were consolidated and transferred to the RTC, the dacion en pago were both void. The appellate court ruled that at
Quezon City, Branch 215. On October 9, 1997, the trial court the time the real estate mortgage and the dacion en pago were
rendered its Decision. It found that respondent obtained a loan in the executed, or on July 3, 1989 and October 21, 1989, respectively, the
amount of PhP 1,000,000.00 from the petitioner on July 3, 1989. The wife of respondent Benjamin Bayhon was already dead. 19 Thus, she
terms of the loan were interest payment at 5% per month with an could not have participated in the execution of the two documents.
additional 3% penalty in case of nonpayment.13 The appellate court struck down both the dacion en pago and the
real estate mortgage as being simulated or fictitious contracts
With respect to the dacion en pago, the trial court held that the pursuant to Article 1409 of the Civil Code.20
parties have novated the agreement.14 It deduced the novation from
the subsequent payments made by the respondent to the petitioner. The Court of Appeals held further that while the principal obligation is
Of the principal amount, the sum of PhP 102,870.00 had been paid: valid, the death of respondent Benjamin Bayhon extinguished
PhP 27,870.00 on March 23, 1990, PhP 55,000.00 on 26 March it. 21 The heirs could not be ordered to pay the debts left by the
1990 and PhP 20,000.00 on 16 November 1990. 15 All payments were deceased.22 Based on the foregoing, the Court of Appeals dismissed
made after the purported execution of the dacion en pago. petitioner’s appeal. Petitioner’s motion for reconsideration was
denied in a resolution dated January 6, 2006.23
The trial court likewise found that at the time of the execution of the
real estate mortgage, the wife of respondent, Amparo Mercado, was Petition for Review
already dead. It held that the property covered by TCT No. 38052
was owned in common by the respondents and not by respondent Petitioner now comes before this Court assailing the decision of the
Benjamin Bayhon alone. It concluded that the said lot could not have Court of Appeals and raising the following issues:
been validly mortgaged by the respondent alone; the deed of
mortgage was not enforceable and only served as evidence of the Whether or not Benjamin Bayhon is liable to Mr. Genato in the
obligation of the respondent.16 amount of Php 5,647,130.00 in principal and interest as of October 3,
1997 and 5% monthly interest thereafter until the account shall have
In sum, the trial court upheld the respondent’s liability to the been fully paid.24
petitioner and ordered the latter to pay the sum of Php
5,647,130.00.17 This amount included the principal, the stipulated The Court of Appeals erred in declaring the Real Estate Mortgage
interest of 5% per month, and the penalty; and, was calculated from dated July 3, 1989 and the Dacion en Pago dated October 21, 1989,
the date of demand until the date the RTC rendered its judgment. null and void.25
2
We shall first tackle the nullity of the dacion en pago. The Court proceeded further to state the general rule:
We affirm the ruling of the appellate court that the subject dacion en Under our law, therefore, the general rule is that a party's
pago is a simulated or fictitious contract, and hence void. The contractual rights and obligations are transmissible to the
evidence shows that at the time it was allegedly signed by the wife of successors. The rule is a consequence of the progressive
the respondent, his wife was already dead. This finding of fact cannot "depersonalization" of patrimonial rights and duties that, as observed
be reversed. by Victorio Polacco, has characterized the history of these
institutions. From the Roman concept of a relation from person to
We now go to the ruling of the appellate court extinguishing the person, the obligation has evolved into a relation from patrimony to
obligation of respondent. As a general rule, obligations derived from patrimony, with the persons occupying only a representative position,
a contract are transmissible. Article 1311, par.1 of the Civil Code barring those rare cases where the obligation is strictly personal, i.e.,
provides: is contracted intuitu personae, in consideration of its performance by
a specific person and by no other. The transition is marked by the
disappearance of the imprisonment for debt.28 (Emphasis supplied)
Contracts take effect only between the parties, their assigns and
heirs, except in case where the rights and obligations arising from
the contract are not transmissible by their nature, or by stipulation or The loan in this case was contracted by respondent. He died while
by provision of law. The heir is not liable beyond the value of the the case was pending before the Court of Appeals. While he may no
property he received from the decedent.1avvphi1 longer be compelled to pay the loan, the debt subsists against his
estate. No property or portion of the inheritance may be transmitted
to his heirs unless the debt has first been satisfied. Notably,
In Estate of Hemady v. Luzon Surety Co., Inc., 26 the Court, through
throughout the appellate stage of this case, the estate has been
Justice JBL Reyes, held:
amply represented by the heirs of the deceased, who are also his co-
parties in Civil Case No. Q-90-7012.
While in our successional system the responsibility of the heirs for
the debts of their decedent cannot exceed the value of the
The procedure in vindicating monetary claims involving a defendant
inheritance they receive from him, the principle remains intact that
who dies before final judgment is governed by Rule 3, Section 20 of
these heirs succeed not only to the rights of the deceased but also to
the Rules of Civil Procedure, to wit:
his obligations. Articles 774 and 776 of the New Civil Code (and
Articles 659 and 661 of the preceding one) expressly so provide,
thereby confirming Article 1311 already quoted. When the action is for recovery of money arising from contract,
express or implied, and the defendant dies before entry of final
judgment in the court in which the action was pending at the time of
"ART. 774. — Succession is a mode of acquisition by virtue of which
such death, it shall not be dismissed but shall instead be allowed to
the property, rights and obligations to the extent of the value of the
continue until entry of final judgment. A favorable judgment obtained
inheritance, of a person are transmitted through his death to another
by the plaintiff therein shall be enforced in the manner especially
or others either by his will or by operation of law."
provided in these Rules for prosecuting claims against the estate of a
deceased person.
"ART. 776. — The inheritance includes all the property, rights and
obligations of a person which are not extinguished by his
Pursuant to this provision, petitioner’s remedy lies in filing a claim
death."27 (Emphasis supplied)
against the estate of the deceased respondent.
3
We now go to the interest awarded by the trial court. We note that REYNATO S. PUNO
the interest has been pegged at 5% per month, or 60% per annum. Chief Justice
This is unconscionable, hence cannot be enforced.29 In light of this,
the rate of interest for this kind of loan transaction has been fixed in WE CONCUR:
the case of Eastern Shipping Lines v. Court of Appeals, 30 at 12% per
annum, calculated from October 3, 1989, the date of extrajudicial ANTONIO T. CARPIO
demand.31 Associate Justice
Following this formula, the total amount of the obligation of the estate
TERESITA J. LEONARDO-
of Benjamin Bayhon is as follows: RENATO C. CORONA
DE CASTRO
Associate Justice
Associate Justice
Plus: Interest
LUCAS P. BERSAMIN
Principal Php 1,000,000.00 Associate Justice
Less: Partial Payments 27,870.00
CERTIFICATION
55,000.00
Pursuant to Section 13, Article VIII of the Constitution, I certify that
20,000.00
the conclusions in the above decision had been reached in
consultation before the case was assigned to the writer of the opinion
897,130.00 of the Court’s Division.
(12% per annum x 20 years) 2,153,552.00 REYNATO S. PUNO
Chief Justice
TOTAL: Php 3,050,682.00
IN VIEW WHEREOF, the decision of the Court of Appeals dated
September 16, 2005 is AFFIRMED with the MODIFICATION that the
obligation to pay the principal loan and interest contracted by the
deceased Benjamin Bayhon subsists against his estate and is
computed at PhP 3,050,682.00.
No costs.
SO ORDERED.
