122. CORNELIA BALADAD vs. SERGIO RUBLICO and SPS.

YUPANO

G.R. No. 160743; August 4, 2009

NACHURA, J.

FACTS

Two parcels of land were registered in the name of Julian Angeles who later on
married Corazon Rublico. At that time, Corazon already had a son, respondent
Sergio Rublico. Julian died on February 2, 1969 leaving no compulsory heirs
except his wife and his brother, Epitacio. Thereafter, a deed of Extrajudicial
Settlement of Estate with Absolute Sale was executed wherein Corazon and
Epitacio adjudicated unto themselves the two lots registered in the name of
Julian. The document also stated that both Corazon and Epitacio conveyed by way
of absolute sale both their shares in the said lots in favor of Cornelia, Epitacios
daughter. Present during the execution of said document was Atty. Francisco, who
had been called and accompanied by Cornelia herself to Corazons house to
notarize the deed. Atty. Francisco testified that Corazon imprinted her thumbmark
on the document after he read and explained the contents thereof in Tagalog to
her. Corazons thumbmark was imprinted at the bottom of the said deed.
However, there was no signature of Cornelia on the said document.

Two days later, Corazon died but the title over the subject lots remained in the
name of Julian. Respondent Sergio executed an Affidavit of Adjudication by Sole
Heir of Estate of Deceased Person adjudicating unto himself the same parcels of
land which had been subject of the deed of sale between Corazon and Cornelia.
Subsequently, respondent then sold said properties to Sps. Yupano.

Cornelia filed a complaint for annulment of sale, cancellation of title and

damages. Cornelia argued that respondent Sergio knew of the sale made by
Corazon in her favor and was even given part of the proceeds. Cornelia also
averred that the Yupanos could not be considered as buyer in good faith.

As for respondent Sergio, he argued that the Extrajudicial Settlement with

Absolute Sale could not have been executed because at that time, Corazon was
already dying. Moreover, respondent Sergios son also testified that he saw
Vicente Angeles holding the hand of Corazon to affix her thumbmark on a blank
sheet of paper. Also, it was argued that the property was originally bought by his
mother, but was only registered in the name of Julian in keeping with the tradition
at that time.
ISSUE

Was there a valid consent on the part of Corazon in executing the Extrajudicial
Settlement of Estate with Absolute Sale?

RULING

Yes, there was a valid consent on the part of Corazon executing the Extrajudicial
Settlement of Estate with Absolute Sale.

The Extrajudicial Settlement of Estate with Absolute Sale executed by Corazon

and Epitacio through the latters attorney-in-fact, Vicente Angeles, partakes of the
nature of a contract. To be precise, the said document contains two contracts, to
wit: the extrajudicial adjudication of the estate of Julian Angeles between Corazon
and Epitacio as Julians compulsory heirs, and the absolute sale of the adjudicated
properties to Cornelia. While contained in one document, the two are severable
and each can stand on its own. Hence, for its validity, each must comply with the
requisites prescribed in Article 1318 of the Civil Code, namely (1) consent of the
contracting parties; (2) object certain, which is the subject matter of the contract,
and (3) cause of the obligation which is established.

Respondents failed to refute the testimony of Atty. Francisco, who notarized the
deed, that he personally read to Corazon the contents of the Extrajudicial
Settlement of Estate with Absolute Sale, and even translated its contents to
Tagalog.

It is also noteworthy that in the course of the trial, respondents did not question
Corazons mental state at the time she executed the said document. Respondents
only focused on her physical weakness, arguing that she could not have executed
the deed because she was already dying, and, thus, could not appear before a
notary public. Impliedly therefore, respondents indulged the presumption that
Corazon was still of sound and disposing mind when she agreed to adjudicate and
sell the disputed properties. And, most important of all is the fact that the subject
 deed is, on its face, unambiguous. When the terms of a contract are lawful, clear
and unambiguous, facial challenge cannot be allowed. We should not go beyond
the provisions of a clear and unambiguous contract to determine the intent of the
parties thereto, because we will run the risk of substituting our own interpretation
for the true intent of the parties.

It is immaterial that Cornelias signature does not appear on the Extrajudicial

Settlement of Estate with Absolute Sale. A contract of sale is perfected the
moment there is a meeting of the minds upon the thing which is the object of the
contract and upon the price. The fact that it was Cornelia herself who brought
Atty. Francisco to Corazons house to notarize the deed shows that she had
previously given her consent to the sale of the two lots in her favor. Her
subsequent act of exercising dominion over the subject properties further
strengthens this assumption.

Thus, based on these findings, the Court was constrained to uphold the validity of
the disputed deed.

159. COASTAL PACIFIC TRADING, INC., vs. SOUTHERN ROLLING MILLS, CO.,
INC. (now known as Visayan Integrated Steel Corporation), et.al

G.R. No. 118692; July 28, 2006

PANGANIBAN, C.J:

FACTS

Respondent Southern Rolling Mills Co., was organized for the purpose of engaging
in a steel processing business, later renamed as Visayan Integrated Steel
Corporation (VISCO). VISCO obtained a loan from DBP and was secured by a
recorded real estate mortgage over VISCOs three (3) parcels of land, including all
the machineries and equipment found therein. Subsequently, VISCO entered into
a Loan Agreement with several banks (Consortium) to finance its importation of
various raw materials and as a security, executed a second mortgage over the
same land, machineries and equipment in favor of respondent banks
(Consortium). This second mortgage remained unrecorded.

VISCO defaulted in the performance of its obligation. Negotiations were made for
the conversion of the unpaid loan into equity in the corporation. As a result of the
reorganized corporate structure of VISCO, respondent banks acquired more than
90 percent of its equity. Nine (9) out of ten (10) directors of corporation were all
officials of the Consortium which may thus be said to have effectively controlled
the board. Notwithstanding this conversion, it remained indebted to the
Consortium.

Meanwhile, VISCO entered into a processing agreement with Petitioner Coastal

Pacific Trading, Inc. wherein tons of hot rolled steel coils are to be processed into
block iron sheets. VISCO failed to fully comply. Proposal for compromise was made
but eventually failed. Petitioner then filed a complaint for Recovery of Property
and Damages with Preliminary Injunction and Attachment against VISCO.
Petitioner alleged that VISCO had fraudulently misapplied or converted the
finished steel sheets entrusted to it. A Writ of Preliminary Attachment over
VISCOs assets was issued. Sheriff attempted to garnish the account of VISCO in
FEBT, which denied holding said account because what it had was a deposit in the
name of Board of Trustees-Consortium of Banks. While Petitioners case was
pending, VISCOs vice-president and director made a cash advance from FEBTC
for the settlement of its liability with DBP. Also, VISCO, through a resolution issued
by its board of directors, started to sell its assets to pay its liabilities with DBP.
However, on even date, DBP executed a Deed of Assignment of Mortgage Rights
Interest and Participation in favor of Respondent Consortium of Banks.
Subsequently, Consortium, filed a Petition for Extra Judicial Foreclosure with the
Office of the Provincial Sheriff of Bohol.

Auction sale of VISCOs mortgaged properties ensued and the Consortium

emerged as the highest bidder. On the same day, Consortium sold the foreclosed
real and personal properties of VISCO to the NSC. Petitioner Coastal thereafter
filed a complaint for Annulment or Rescission of Sale, Damages with Preliminary
Injuction. Petitioner Coastal alleged that despite the Writ of Attachment issued in
its favor, Consortium had sold the properties to NSC. Further, despite the
attachment of the properties, the Consortium was allegedly able to sell and place
them beyond the reach of VISCOs other creditors. Thus imputing bad faith to
respondent banks actions as it was allegedly intended to defraud VISCOs other
creditors. Moreover, Petitioner contended that the assignment in favor of the
Consortium was fraudulent, because DBO had been paid with the proceeds from
the sale of the generator sets owned by VISCO, and not with the Consortiums
own funds. Respondent Consortium countered that the minutes would in fact
readily disclosed that the intention of its members was to apply the proceeds to a
partial payment to DBP. Respondent insisted that it used its own funds to pay the
bank.
Trial court held that Petitioner failed to prove its case for rescission of sale by
preponderance of evidence. The insufficiency of proof was based on the sole
ground that petitioner did not file an objection when the properties were sold on
execution.

ISSUE

Should the assignment of mortgage, extrajudicial foreclosure and sale of

properties of VISCO be rescinded on the ground that they were done to defraud
the latters creditors?

RULING

Yes, the assignment of mortgage, extrajudicial foreclosure and sale of properties

of VISCO should be rescinded on the ground that they were done to defraud the
latters creditors.

Elementary is the principle that the validity of a contract does not preclude its
rescission. Under Articles 1380 and 1381 (3) of the Civil Code, contracts that are
otherwise valid between the contracting parties may nonetheless be
subsequently rescinded by reason of injury to third persons, like creditors. In fact,
rescission implies that there is a contract that, while initially valid, produces a
lesion or pecuniary damage to someone. Thus, when the CA confined itself to the
issue of the validity of these contracts, it did not at all address the heart of
petitioners cause of action: whether these transactions had been undertaken by
the Consortium to defraud VISCOs other creditors. There is more than
preponderance of evidence showing the Consortiums deliberate plan to defraud
VISCOs other creditors.

To be sure, there was undue advantage. The payment scheme devised by the
Consortium continued the efficacy of the primary lien, this time in its favor, to the
detriment of the other creditors. When one considers its knowledge that VISCOs
assets might not be enough to meet its obligations to several creditors, the
intention to defraud the other creditors is even more striking. Fraud is present
when the debtor knows that its actions would cause injury.

The assignment in favor of the Consortium was a rescissible contract for having
been undertaken in fraud of creditors. Article 1385 of the Civil Code provides for
the effect of rescission, as follows:

Rescission creates the obligation to return the things which were the
object of the contract, together with their fruits, and the price with its
interest; consequently, it can be carried out only when he who demands
rescission can return whatever he may be obligated to restore.

Neither shall rescission 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.

In this case, indemnity for damages may be demanded from the person
causing the loss.

Indeed, mutual restitution is required in all cases involving rescission. But when it
is no longer possible to return the object of the contract, an indemnity for
damages operates as restitution. The important consideration is that the
indemnity for damages should restore to the injured party what was lost.

In the case at bar, it is no longer possible to order the return of VISCOs

properties. They have already been sold to the NSC, which has not been shown to
have acted in bad faith. The party alleging bad faith must establish it by
competent proof. Sans that proof, purchasers are deemed to be in good faith, and
their interest in the subject property must not be disturbed. Purchasers in good
faith are those who buy the property; and who pay the full and fair price for it at
the time of the purchase, or before they get notice of some other persons claim
of interest in the property.