Genato vs Bayhon G.R. No. 171035 [Case Digest]

 

Genato vs Bayhon

G.R. No. 171035

 

Facts:

            Respondents (Bayhon et al) filed an action before RTC QC for the declaration of nullity of a dacion en pago allegedly executed by respondent Benjamin Bayhon in favor of petitioner William Genato.  Benjamin Bayhon alleged that he obtained from the petitioner a loan amounting to PhP 1,000,000.00; that to cover the loan, he executed a Deed of Real Estate Mortgage over the property.        Respondent further alleged that he filed a separate proceeding for the reconstitution of TCT No. 38052 before the RTC, QC.  Petitioner Genato filed an Answer in Intervention in the said proceeding and attached a copy of an alleged dacion en pago covering said lot. Respondent assailed the dacion en pago as a forgery alleging that neither he nor his wife, who had died 3 years earlier, had executed it.

            In his Answer, petitioner denied the claim of the respondent regarding the death of the latter’s wife. He alleged that on the date that the real estate mortgage was to be signed, respondent introduced to him a woman as his wife. He alleged that the respondent signed the dacion en pago and that the execution of the instrument was above-board.

            With respect to the dacion en pago, the trial court held that the parties have novated the agreement. It deduced the novation from the subsequent payments made by the respondent to the petitioner. Of the principal amount, the sum of PhP 102,870.00 had been paid: PhP 27,870.00 on March 23, 1990, PhP 55,000.00 on 26 March 1990 and PhP 20,000.00 on 16 November 1990. All payments were made after the purported execution of the dacion en pago.

            The trial court likewise found that at the time of the execution of the real estate mortgage, the wife of respondent, Amparo Mercado, was already dead. It held that the property covered by TCT No. 38052 was owned in common by the respondents and not by respondent Benjamin Bayhon alone. It concluded that the said lot could not have been validly mortgaged by the respondent alone; the deed of mortgage was not enforceable and only served as evidence of the obligation of the respondent. Trial court upheld the respondent’s liability to the petitioner and ordered the latter to pay the sum of Php 5,647,130.00.

            CA reversed the decision of the trial court and held that the real estate mortgage and the dacion en pago were both void. The appellate court ruled that at the time the real estate mortgage and the dacion en pago were executed, or on July 3, 1989 and October 21, 1989, respectively, the wife of respondent Benjamin Bayhon was already dead. Thus, she could not have participated in the execution of the two documents. The appellate court struck down both the dacion en pago and the real estate mortgage as being simulated or fictitious contracts pursuant to Article 1409 of the Civil Code.

            CA held further that while the principal obligation is valid, the death of respondent Benjamin Bayhon extinguished it.  The heirs could not be ordered to pay the debts left by the deceased.

 

Issue:

            Whether or not Benjamin Bayhon is liable to Mr. Genato in the 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 been fully paid.

 

Held:

            Yes with modification as to 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.

As a general rule, obligations derived from a contract are transmissible. Article 1311, par.1 of the Civil Code provides: 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 by provision of law. The heir is not liable beyond the value of the property he received from the decedent.

 

In Estate of Hemady v. Luzon Surety Co., Inc., the Court, through Justice JBL Reyes, held: While in our successional system the responsibility of the heirs for the debts of their decedent cannot exceed the value of the inheritance they receive from him, the principle remains intact that these heirs succeed not only to the rights of the deceased but also to his obligations. Articles 774 and 776 of the New Civil Code (and Articles 659 and 661 of the preceding one) expressly so provide, thereby confirming Article 1311.

            Under our law, therefore, the general rule is that a party's contractual rights and obligations are transmissible to the successors.

            The loan in this case was contracted by respondent. He died while the case was pending before the Court of Appeals. While he may no 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, throughout the appellate stage of this case, the estate has been amply represented by the heirs of the deceased, who are also his co-parties in Civil Case No. Q-90-7012.

            The procedure in vindicating monetary claims involving a defendant who dies before final judgment is governed by Rule 3, Section 20 of the Rules of Civil Procedure, to wit:  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 such death, it shall not be dismissed but shall instead be allowed to continue until entry of final judgment. A favorable judgment obtained by the plaintiff therein shall be enforced in the manner especially provided in these Rules for prosecuting claims against the estate of a deceased person.