MANUEL C. MORALDE, PETITIONER, VS. HEIRS OF FELICIANO UY LIM AND SHIRLEY GO, SPOUSES RICHARD UNCHUAN AND THE REGIONAL TRIAL COURT, BRANCH 54 OF LAPULAPU CITY, CEBU (PRESIDED BY …

Moralde versus Heirs of Feliciano Uy Lim

The Case

This is a petition for certiorari filed by Manuel Moralde against the Heirs of Feliciano Uy Lim and Shirley Go, against spouses Richard and Ma. Cristina Unchuan, and against the Regional Trial Court, Branch 54 of Lapulapu City, presided over by Judge Victor Teves. Moralde asks the Supreme Court to annul two orders of that trial court: the order that allowed Richard Unchuan to substitute him as party-plaintiff in a long-pending suit for quieting of title, and the order that denied his later plea to be restored or joined as a party and to have his new counsel enter an appearance. The case matters because it is the Supreme Court's cleanest statement on transfer of interest pending litigation under Rule 3, Section 19 of the Rules of Court, and because it draws the boundary between a genuine deed of assignment and a presumed equitable mortgage.

Procedural History

In December 1994, Manuel Moralde and his sister Florentina Moralde Vda. de Eduave filed a complaint for quieting of title, declaration of nullity of a deed of sale, reconveyance, annulment of title, and damages against spouses Feliciano Uy Lim and Shirley Go. That case, Civil Case Number 4158-L, was raffled to the Regional Trial Court, Branch 54 of Lapulapu City.

Years later, after Moralde executed deeds of assignment and a memorandum of agreement in favor of Richard Unchuan, Unchuan filed a motion for substitution with entry of appearance in Civil Case Number 4158-L. The trial court granted the motion in its order of May 4, 2010. Moralde then engaged new counsel and filed a verified manifestation with motion and formal entry of appearance, which the trial court denied in its order of October 8, 2012. Moralde moved for reconsideration, and the trial court denied the motion in its order of February 8, 2013.

Moralde came to the Supreme Court by petition for certiorari under Rule 65, alleging grave abuse of discretion amounting to lack or excess of jurisdiction.

Facts

Spouses Demetrio Moralde and Leoncia Cavan Moralde acquired nine parcels of land in Maribago, Lapulapu City, Cebu. After Leoncia died, their children Manuel Moralde and Florentina Moralde became co-owners with their father Demetrio. In October 1978, the children and Demetrio sold the parcels to spouses Feliciano Uy Lim and Shirley Go for ten thousand pesos. Sometime in 1981, shortly before his death, Demetrio told his children that the agreement had been canceled and that the ten thousand pesos had been returned to the buyers. Demetrio died in March 1981. In July 1993, the children learned that the buyers had fenced the properties and had registered them in their own names, on the strength of a deed of absolute sale that the children claimed was a forgery. Demands to cancel the titles and reconvey the land were refused, so the children sued in December 1994.

While that suit was pending, Moralde dealt with Richard Unchuan. According to Moralde, in March 2012 Unchuan tricked him into signing a deed of assignment and a memorandum of agreement promising him ten million pesos and a seventy percent interest in the nine parcels. Unchuan's version is that Moralde himself sought financial assistance and was given a thirty percent share under the memorandum of agreement. A second deed of assignment, dated April 2010, irrevocably transferred all of Moralde's rights in the properties to Unchuan for a consideration of three hundred fifty thousand pesos, of which only one hundred thousand pesos was paid on that date. Moralde also signed a special power of attorney coupled with interest in Unchuan's favor.

Relying on the second deed of assignment, Unchuan moved to substitute Moralde in Civil Case Number 4158-L, and the trial court granted the motion in May 2010. Moralde and his wife later filed a separate complaint for annulment of the deed of assignment, the special power of attorney, and the memorandum of agreement, docketed as Civil Case Number CEB-37141. During mediation they signed a withdrawal of that complaint, and the case was dismissed. Moralde refiled the complaint as Civil Case Number CEB-38950. He then filed in Civil Case Number 4158-L a manifestation seeking to participate again, which the trial court denied, and reconsideration was likewise denied.

Issues

• Whether or not the trial court committed grave abuse of discretion in allowing Richard Unchuan to substitute Manuel Moralde as party-plaintiff in Civil Case Number 4158-L despite the pendency of a separate action questioning the validity of the deed of assignment.
• Whether or not the trial court committed grave abuse of discretion in denying Moralde's motion to be restored or joined as a party-plaintiff and to have his new counsel enter an appearance.
• Whether or not the deed of assignment in favor of Unchuan is in reality an equitable mortgage under Article 1602 of the Civil Code.
• Whether or not Moralde made a valid offer of redemption of the properties.

Applicable Provisions

Section 19 of Rule 3 of the 1997 Rules of Civil Procedure provides:

Section 19. Transfer of interest. In case of any transfer of interest, the action may be continued by or against the original party, unless the court upon motion directs the person to whom the interest is transferred to be substituted in the action or joined with the original party.

This is the provision at the heart of the dispute, because it gives the trial court discretion to allow or disallow substitution or joinder by a transferee pending litigation.

Article 1602 of the Civil Code provides:

Article 1602. The contract shall be presumed to be an equitable mortgage, in any of the following cases: (1) When the price of a sale with right to repurchase is unusually inadequate; (2) When the vendor remains in possession as lessee or otherwise; (3) When upon or after the expiration of the right to repurchase another instrument extending the period of redemption or granting a new period is executed; (4) When the purchaser retains for himself a part of the purchase price; (5) When the vendor binds himself to pay the taxes on the thing sold; (6) In any other case where it may be fairly inferred that the real intention of the parties is that the transaction shall secure the payment of a debt or the performance of any other obligation. In any of the foregoing cases, any money, fruits, or other benefit to be received by the vendee as rent or otherwise shall be considered as interest which shall be subject to the usury laws.

Moralde invoked this provision to argue that the assignment was really security for a debt, and the Court used it to test and reject that claim.

Article 1355 of the Civil Code provides:

Except in cases specified by law, lesion or inadequacy of cause shall not invalidate a contract, unless there has been fraud, mistake or undue influence.

Article 1470 of the Civil Code provides:

Gross inadequacy of price does not affect a contract of sale, except as may indicate a defect in the consent, or that the parties really intended a donation or some other act or contract.

These two provisions answer the argument that the low consideration invalidated the assignment.

Ruling

On the first issue, the Court held that the trial court did not commit grave abuse of discretion. Under Rule 3, Section 19, substitution is not mandatory but is permitted when the transferee files a motion and the court grants it, and all these requirements were complied with. The Court stressed that the transferee's interest is, in general, deemed adequately represented by his transferor, so the trial court's discretion is broad.

On the second issue, the Court noted that the substitution order was issued in May 2010, while Moralde filed his manifestation only in August 2012, almost two years later. The Court also refused to rule on whether fraud attended the deed of assignment, because that question is the very subject of the pending annulment case, and ruling on it would preempt the outcome. Certiorari, the Court reminded, is not a remedy for errors of judgment, and grave abuse of discretion means capricious and whimsical exercise of judgment equivalent to lack of jurisdiction; mere abuse is not enough.

On the third issue, the Court refused to treat the assignment as an equitable mortgage. The transaction was not a sale with right of repurchase, and apart from the three hundred fifty thousand pesos, Moralde was entitled to thirty percent of the net proceeds once recovery succeeded. The circumstances did not show that the real intention was to secure a debt. The Court added that mere inadequacy of consideration does not invalidate a contract, and that courts cannot constitute themselves guardians of persons who are not legally incompetent.

On the fourth issue, the Court held that there was no valid offer of redemption. Moralde merely expressed willingness and ability to redeem, and the letter and check were mere photocopies with no proof of receipt. Upon refusal, he should have consigned the amount in court or filed a separate action for redemption.

Doctrine

Under Rule 3, Section 19, the transferee of an interest pending litigation may be substituted for or joined with the original party upon motion, and the grant or denial rests on the sound discretion of the trial court. Substitution is not a matter of right.

A contract is presumed to be an equitable mortgage only when one of the circumstances in Article 1602 is present, or when it may be fairly inferred that the real intention of the parties is to secure the payment of a debt. A deed of assignment that is not a sale with right of repurchase, and that gives the assignor a share in the net proceeds, does not fall under that presumption.

Inadequacy of the price does not by itself invalidate a contract; under Articles 1355 and 1470, lesion or gross inadequacy affects the contract only as it may indicate a defect in consent or a different intention of the parties.

Certiorari lies only for grave abuse of discretion, meaning capricious and whimsical exercise of judgment equivalent to lack of jurisdiction, and not for mere errors of judgment correctible by appeal.

Disposition

The petition was dismissed, and the orders of October 8, 2012 and February 8, 2013 in Civil Case Number 4158-L were affirmed; Richard Unchuan prevailed.

Remember This

Memorize this line: substitution of a transferee pending litigation is discretionary with the trial court under Rule 3, Section 19, and inadequacy of price alone does not make a contract an equitable mortgage. Examiners use this case on transfer of interest, on the requisites of a valid redemption offer, and on the Article 1602 presumption of equitable mortgage.