SPOUSES MELCHOR AND BEVERLY GABUNILAS, PLAINTIFFS-APPELLANTS, VS. SPOUSES HERMINIO AND EDITHA ERORITA AND OR/H & E REALTY CO., DEFENDANTS-APPELLANTS,
SADANG, J.:
Records show that on August 28, 2002, plaintiffs-appellants spouses Melchor and Beverly Gabunilas (hereafter, appellants) filed a case against defendants-appellants spouses Herminio and Editha Erorita (hereafter, spouses Erorita) and/or H & E Realty Co. (H & E) and defendants-appellees Antonio and Liwayway Pelayo (hereafter, spouses Pelayo) for annulment of TCT No. 115885, specific performance and damages before the Regional Trial Court of Paranaque City, Branch 274, docketed as Civil Case No. 02-0353.
In their Complaint,[3] appellants alleged that in 1976 they and spouses Erorita entered into a verbal agreement whereby the latter sold to them a 300-square meter lot (Lot No. 8, Block No. 2) located at No. 163 Armstrong Avenue (Phase II), Moonwalk Avenue, Parañaque City for the price of P350,000.00, payable in monthly installments. Later, they remitted various amounts to spouses Erorita and, in 1977, occupied the property as their family residence until they were evicted on August 7, 1998. In May 1984, appellants paid the full purchase price for which official receipt of H & E was issued by Mr. Erorita. They requested the transfer of the property in their names, however, no transfer was made. In September 1997, appellants heard from a former employee of H & E that the title to the property had been transferred to someone else. Confronted by the appellants, the spouses Erorita assured the appellants that the problem would be resolved. Appellants then discovered that the property was transferred in the name of H & E in 1986 under Transfer Certificate of Title (TCT) No. 104692 and mortgaged to Premier Bank for P550,000.00. The mortgage was foreclosed but the property was later redeemed. Based on public records, appellants learned that Herminio and Editha Erorita are the chairman and vice-chairman, respectively, of H & E. They also discovered that the lot was again mortgaged by H & E in favor of spouses Pelayo to secure a P620,000.00 loan. The mortgage was foreclosed and the title to the lot was transferred to the spouses Pelayo as the highest bidders at the auction sale. Consequently, TCT No. 104692 was cancelled and TCT No. 115885 was issued in the names of spouses Pelayo. On December 10, 1997, appellants annotated their adverse claim on the title of the spouses Pelayo.
Appellants further alleged that: the spouses Erorita and/or H & E were not the owners of the property when they mortgaged it and appellants did not consent to the mortgages, and that spouses Erorita and/or H & E Realty Co., Inc. conspired with the spouses Pelayo to defraud them of their property because the mortgages were executed to secure non-existent obligations; the spouses Pelayo knew that the improvements were in appellants’ name and that appellants were in possession of the property. They prayed that spouses Erorita be ordered, jointly and severally, to deliver at their expense full title to the lot by executing the appropriate conveyance, that TCT No. 104692 be cancelled and TCT No. 115885 declared null and void, and that all the defendants be ordered to pay, jointly and severally, P1,000,000.00 as moral damages, P500,000.00 as exemplary damages, P500,000.00 as litigation expenses, and attorney’s fees and cost of suit.
In their Answer,[4] spouses Erorita denied having entered into a sale or mortgage with appellants or received money from them as payment for the property. They alleged that: they merely tolerated appellants’ occupation of the property; the receipts are subject to different interpretations; the complaint states no cause of action; a criminal case was filed against them involving the same property and the Metropolitan Trial Court of Parañaque City, Branch 77, decided the case in their favor. They prayed for the dismissal of the case and the payment of P300,000.00 as moral damages.
On June 30, 2004, the lower court issued an Order[5] dismissing the case without prejudice for failure to prosecute.
Plaintiffs filed a Motion for Reconsideration[6] alleging that they were not able to serve summons on the spouses Pelayo for “lack of address” and sought to serve summons by publication.
On August 18, 2004, the lower court set aside the June 30, 2004 Order and required plaintiffs to file a motion for leave to serve summons by publication which appellants did.
After summons by publication, appellants filed a Motion to Declare Defendants Spouses Antonio and Liwayway Pelayo In Default[7] for failure to file responsive pleading which the lower court granted in an Order dated May 18, 2005.
During the pre-trial conference, spouses Erorita and their counsel failed to appear. On motion, the lower court issued an Order on September 13, 2005 allowing reception of evidence ex-parte before the branch clerk of court.
Spouses Erorita filed a Motion for Reconsideration of the September 13, 2005 Order. On March 14, 2006, spouses Pelayos also filed a Motion to Set Aside Order of Default, to Admit Answer, and to Re-open the Case; both motions were denied by the lower court in the Order dated November 8, 2005.
On December 12, 2005, the spouses Eroritas filed a Motion for Clarification of Orders, inquiring whether they can present evidence but the motion was denied in an Order dated January 6, 2006.
The orders of the lower court were questioned in two petitions for certiorari filed before the Court of Appeals, viz.: 1) CA-GR SP. No. 97351,[8] assailing the Orders dated May 18, 2005, July 26, 2006 and October 10, 2006; 2) CA-GR. SP No. 93664,[9] assailing the Orders dated September 13, 2005, November 8, 2005 and January 6, 2006. The Court of Appeals, Third and Fourth Divisions, dismissed both petitions and affirmed the assailed orders in the Decisions dated December 22, 2008[10] and March 23, 2007.[11]
At the ex parte hearing, appellants offered their testimonies and documentary exhibits, thus:[12] 1) Official Receipt No. 225; 2) handwritten receipt dated July 19, 1993; 3) handwritten receipt dated February 6, 1986; 4) handwritten receipt dated August 5, 1982; 5) handwritten receipt dated August 7, 1983; 6) summary of payment; 7) first computation; 8) TCT No. 115885; 9) TCT No. 104692; 10) Deed of Mortgage dated July 27, 1994; 11) Certification issued by the Municipal Treasurer of Parañaque dated October 11, 1996; 12) Certification issued by the Municipal Treasurer of Parañaque dated July 27, 1994/1995; 13) Articles of Incorporation of H & E Realty Co., Inc.; 14) Certified True Copy of Declaration of Real Property No. E008-03803-Building; 15) Affidavit of Adverse Claim thru Register of Deeds dated December 10, 1997; 16) Contract between Capt. Melchor Gabunilas and his lawyer dated December 10, 1997; 17) Contract between Capt. Gabunilas and his lawyer dated November 21, 1997.
On May 3, 2010, the lower court rendered the assailed Order,[13] the fallo of which reads:
WHEREFORE, in view of the foregoing, judgment is hereby rendered in favor of the plaintiffs and against defendants-spouses Erorita only as follows:
- Php. 216,665.00 as indemnity or refund of the actual payment made by the plaintiffs;
- Php. 500,000.00 as moral damages;
- Php. 250,000.00 as exemplary damages;
- Php. 200,000.00 as attorney’s fees and litigation expenses;
- Costs of suit.
SO ORDERED.
Appellants filed a Motion for Reconsideration[14] on the grounds that the lower court failed to uphold their rights as owners of the property over the right of the spouses Pelayo as mortgagees and to consider evidence showing that spouses Pelayo were not in good faith. The motion was denied in the Order dated August 10, 2010.[15]
Appellants[16] and spouses Erorita [17] filed notices of appeal which were given due course in the Order dated October 21, 2010.[18]
In their appeal, appellants raise the following assignment of errors:
- THE REGIONAL TRIAL COURT COMMITTED GRAVE ERROR OF FACT AND LAW IN CONCLUDING THAT CERTIFICATE OF TITLE NO. 115885 UNDER THE NAME OF DEFENDANTS-APPELLEES SPOUSES PELAYO COULD NOT BE ANNULLED.
- THE REGIONAL TRIAL COURT COMMITTED GRAVE ERROR OF FACT AND LAW IN CONCLUDING THAT DEFENDANTS-APPELLANTS SPOUSES ERORITA COULD NOT BE COMPELLED TO CONVEY THE SUBJECT PROPERTY TO PLAINTIFFS-APPELLANTS.
- ASSUMING THAT THE REGIONAL TRIAL COURT WAS CORRECT IN CONCLUDING THAT CERTIFICATE OF TITLE NO. 115885 UNDER THE NAME OF DEFENDANTS-APPELLEES SPOUSES PELAYO COULD NOT BE ANNULLED; AND THAT DEFENDANTS-APPELLANTS SPOUSES ERORITA COULD NOT BE COMPELLED TO CONVEY THE SUBJECT PROPERTY TO PLAINTIFFS-APPELLANTS, THE AWARD OF P216,665.00 AS ACTUAL DAMAGES FAILS TO COMPLY WITH THE LAW.
On their part, spouses Erorita assign these alleged errors:
- THE HONORABLE COURT A QUO WITH ALL DUE RESPECT, HAS ERRED IN NOT HOLDING THAT THE PLAINTIFFS-APPELLANTS HAS NO CAUSE OF ACTION AGAINST THE DEFENDANTS-APPELLANTS CONSIDERING THAT THE LATTER CANNOT BE MADE PERSONALY LIABLE SINCE THEY DID NOT ENTER INTO ANY TRANSACTION WITH THE PLAINTIFFS-APPELLANTS IN THEIR PRIVATE CAPACITIES BUT ONLY AS REPRESENTATIVES OF H & E REALTY CO.;
- THE HONORABLE COURT A QUO WITH ALL DUE RESPECT, ERRED IN NOT HOLDING THAT PLAINTIFFS-APPELLANTS ACTION FOR ANNULMENT OF TRANSFER CERTIFICATE OF TITLE AGAINST THE DEFENDANTS-APPELLANTS-APPELLEES WAS ALREADY BARRED BY THE STATUTE OF LIMITATIONS;
- THE HONORABLE COURT A QUO, WITH ALL DUE RESPECT, ERRED IN AWARDING THE PLAINTIFFS-APPELLANTS UNCONSCIONABLE AMOUNT OF DAMAGES, THE SAME NOT BEING WARRANTED BY LAW AND JURISPRUDENCE, THE EVIDENCES OFFERED AND THE FACTS PROVEN.
RULING
The lower court ruled that there being no record of the sale and in view of the admission of plaintiffs that there was only a verbal agreement, the contract is unenforceable. We disagree.
The pertinent provisions of the Civil Code read thus:
Art. 1358. The following must appear in a public document:
(1) Acts and contracts which have for their object the creation, transmission, modification or extinguishment of real rights over immovable property; sales of real property or of an interest therein are governed by Articles 1403, No. 2 and 1405;
x x x x x x x x x
Art. 1403. The following contracts are unenforceable, unless they are ratified:
x x x x x x x x x
(2) Those that do not comply with the Statute of Frauds as set forth in this number. In the following cases an agreement hereafter made shall be unenforceable by action, unless the same, or some note or memorandum thereof, be in writing, and subscribed by the party charged, or by his agent; evidence, therefore, of the agreement cannot be received without the writing, or a secondary evidence of its contents:
x x x x x x x x x
(e) An agreement for the leasing for a longer period than one year, or for the sale of real property or of an interest therein; x x x (Underscoring supplied)
Art. 1405. Contracts infringing the Statute of Frauds, referred to in No. 2 of Article 1403, are ratified by the failure to object to the presentation of oral evidence to prove the same, or by the acceptance of benefits under them. (Underscoring supplied)
The purpose of the statute of frauds is to prevent fraud and perjury in the enforcement of obligations depending for their evidence upon the unassisted memory of witnesses by requiring certain enumerated contracts and transactions to be evidenced by a writing signed by the party to be charged.[19] A contract that falls under the statute of frauds cannot be proved without the writing or a memorandum thereof.[20] The statute of frauds simply provides for the manner of proving the contracts that fall under it. It does not attempt to make such a contract invalid if not executed in writing but only makes ineffective the action for specific performance.[21] Thus, oral evidence of the contract will be excluded upon timely objection. However, if no timely objection is made to the oral evidence, the contract shall be just as binding upon the parties as if it had been reduced to writing.[22] More important, partial or full performance of the verbal contract removes it from the operation of the statute. It is settled that the statute of frauds applies only to executory contracts.[23]
In this case, the evidence shows that appellants had already performed their obligation under the verbal contract. They had presented competent evidence, such as receipts, to show that they had paid the consideration of the sale. They offered O.R. No. 225 issued by H & E as proof of “full payment of House and Lot at 163 Armstrong Ave., Phase II, Moonwalk.”[24] The receipt, which is a memorandum of the sale, removes the transaction from the provisions of the statute of frauds.[25] Moreover, by accepting payments for the lot, spouses Erorita and H & E had ratified the verbal agreement. There can therefore be no question that appellants had shown the sale of realty between the parties.
There is no merit in the contention of spouses Erorita that there is no privity of contract between them and appellants because the sale was between appellants and H & E. Spouses Erorita should not be allowed to hide behind the veil of corporate fiction to avoid personal liability. The evidence shows that from the start, although they were officers of H & E, Herminio and Edith Erorita, nonetheless, did not transact with appellants at arms length but dealt with them in their personal capacities as they were the wedding sponsors at appellants’ wedding. Thus, Editha Erorita accepted payments of the installments in her personal capacity is shown by the fact that she acknowledged receipt thereof merely on H & E stationeries. Only the final payment was acknowledged by official receipt of H & E, signed by Editha Erorita as vice-president/treasurer. In short, H & E was used merely as an alter ego of the spouses Erorita. The veil of corporate fiction cannot be used as a shield for fraud. In this case, the spouses Erorita caused the fraudulent transfer of the lot to H & E in June 1986 in spite of the fact that they had already sold the lot to appellants and accepted payments in 1982 and 1983. As held in Philippine National Bank v. Andrada Electric Engineering Company:[26]
Equally well-settled is the principle that the corporate mask may be removed or the corporate veil pierced when the corporation is just an alter ego of a person or of another corporation. For reasons of public policy and in the interest of justice, the corporate veil will justifiably be impaled only when it becomes a shield for fraud, illegality or inequity committed against third persons.
We shall now rule on the issue of whether appellants’ cause of action has already prescribed. This requires a determination of the cause of action. Appellants alleged that the spouses Erorita transferred the title to the lot to H & E in spite of the fact that said spouses had sold the lot to them. They further alleged that the property was mortgaged to Premiere Bank and then to the spouses Pelayo who obtained title thereto as the highest bidders at the foreclosure sale. They prayed that the spouses Erorita be ordered to convey the lot to them and that the title of the spouses Pelayo be cancelled.
In essence, appellants’ complaint is for reconveyance and annulment of title. Where land is wrongfully or erroneously registered in the name of another an action for reconveyance is the legal and equitable remedy of the rightful owner provided that the land has not yet passed to an innocent purchaser for value.[27] Where the action for reconveyance is grounded on fraud, it must be filed within four (4) years from the discovery of the fraud. Such discovery is deemed to have taken place from the issuance of a certificate of title over the property. Registration of real property is a constructive notice to all persons and the prescriptive period shall be counted therefrom.[28] However, where the action for reconveyance is based on implied or constructive trust, it must be filed within ten (10) years from the issuance of title.[29] In this case, appellants do not seek the annulment of the title of H & E on the ground that it was based on a voidable contract. Rather, they aver that the spouses Erorita were able to transfer title in the name of H & E through fraud. In which case, appellants’ action for reconveyance is based on implied or constructive trust under Art. 1456 of the Civil Code which provides:[30]
Art. 1456. If property is acquired through mistake or fraud, the person obtaining it is, by force of law, considered a trustee of an implied trust for the benefit of the person from whom the property comes.
When a party resorts to fraud or concealment to obtain a certificate of title of property, a constructive trust is created in favor of the defrauded party.[31] The action for reconveyance of the title to the rightful owner prescribes in 10 years and said period begins to run from the date the adverse party repudiates the implied trust, which repudiation takes place when the adverse party registers the land.[32]
In this case, the spouses Erorita registered the land in the name of H & E in June 1986, thus, the prescriptive period began to run on that date. Unfortunately, appellants filed their action for reconveyance only in 2002 or about sixteen (16) years later. Clearly, the action is barred by prescription.[33] In other words, the title of H & E may no longer be cancelled and the property may no longer be conveyed to appellants.
Considering that appellants’ action for reconveyance and annulment of title has already prescribed there is no legal basis for this court to resolve the issue of whether the spouses Pelayo are mortgagees in good faith.
The lower court, however, ruled that the spouses Erorita are liable under Articles 19, 20, and 21 of the Civil Code[34] for moral and exemplary damages and attorney’s fees. The spouses Erorita contend that the award of moral damages is without legal basis because appellants failed to prove malice, bad faith, or wanton or injurious conduct on their part. They also aver that there is nothing to justify the award of exemplary damages and the award of attorney’s fees is without factual basis.
We are not persuaded. Contrary to the contention of spouses Erorita, the transfer of title in the name of H & E and the mortgages over the property were attended by malice and bad faith and resulted in great injury to appellants. The evidence shows that at the time of the transfer in 1986, the spouses Erorita had already sold the property to appellants and had received full payment therefor. Notwithstanding the consummation of the sale, spouses Erorita refused without valid reason to transfer title in the names of appellants in spite of repeated demands. Apparently, they took advantage of appellants’ trust and confidence in them considering that they were the wedding sponsors or godparents of appellants. Then, despite full knowledge of the previous sale to appellants and the fact that appellants had already occupied the land and introduced improvements thereon, spouses Erorita continued to exercise acts of ownership by mortgaging the land. These acts betrayed said spouses’ utter disregard of the rights of appellant who undoubtedly suffered mental anguish, serious anxiety, and wounded feelings as a result of their having been deprived of their property for which they had paid good money. Moral damages may be awarded in breach of contract where the defendant acted fraudulently or in bad faith.[35] On the other hand, the award of exemplary damages is justified where, as in this case, the wrongful act is accompanied by bad faith and in a fraudulent, oppressive, or malevolent manner.[36] Considering that the award of exemplary damages is proper, attorney’s fees and cost of the suit may also be recovered as provided under Article 2208 of the Civil Code.[37]
WHEREFORE, the separate appeals of plaintiffs-appellants spouses Melchor and Beverly Gabunilas are DENIED. The Order dated May 3, 2010 of the Regional Trial Court of Paranaque City, Branch 274 in Civil Case No. 02-0353 and the Order dated August 10, 2010 are AFFIRMED.
SO ORDERED.
Librea-Leagogo, (Chairperson), Diamante, JJ., concur.
[1] Rollo., pp. 80-88; Should have been a Decision.
[2] Id., pp. 89-90.
[3] Records, pp. 3-12.
[4] Id., pp. 151-155.
[5] Id., p. 165.
[6] Id., pp. 78-80.
[7] Id., pp. 237-236.
[8] Entitled, “Antonio and Liwayway Pelayo v. Hon. Fortunito L. Madrona, Presiding Judge, RTC, Branch 274, Paranaque City, and Sps. Melchor and Beverly Gabunilas.”
[9] Entitled, “Spouses Herminio E. Erorita and Editha C. Erorita v. Hon. Fortunito L. Madrona, Presiding Judge, RTC of Paranaque City, Branch 274, and Spouses Melchor and Beverly Gabunilas.”
[10] Records, pp. 794-804.
[11] Id., pp. 829-840.
[12] Formal Offer of Evidence, Records, pp. 484-491 (Note, the exhibits are found on pp. 491-526).
[13] Presided by Judge Fortunito L. Madrona.
[14] Records, pp. 884-904.
[15] Supra at note 2.
[16] Records, pp. 927-930.
[17] Id., pp. 958-961.
[18] Id., p. 966.
[19] Orduña v. Fuentebella, G.R. No. 176841, June 29, 2010, citing Asia Productions Co., Inc. v. Paño, 205 SCRA 458 (1992).
[20] Art. 1403 par. 2, Civil Code; See Mactan — Cebu International Airport v. Court of Appeals, 346 SCRA 126 (2000).
[21] Municipality of Hagonoy Bulacan v. Hon. Dumdum, G.R. No. 168289, March 22, 2010.
[22] Peñalber v. Ramos, G.R. No. 178645, Jan. 30, 2009, citing Conlu v. Araneta, 15 Phil. 391 (1910).
[23] Mactan-Cebu International Airport Authority v. Tudtud, G.R. No. 174012, Nov. 14, 2000, citing Asia Productions Co., Inc. v. Paño, supra, note 36.
[24] Exhibit A, Records p. 492.
[25] Alfredo v. Borras, 404 SCRA 145 (2003).
[26] 381 SCRA 244 (2002).
[27] Esconde v. Barlongay, 152 SCRA 603; De la Cruz v. Court of Appeals, 286 SCRA 230.
[28] Philippine Economic Zone Authority v. Fernandez, 411 Phil. 107, 119 (2001), cited in Government Service Insurance System v. Santiago, G.R. No. 155206, 28 October 2003, 414 SCRA 563, 571.
[29] Crisostomo, et al. v. Garcia, G.R. NO. 164787, January 31, 2006.
[30] Id.
[31] Juan v. Zuñiga, 114 Phil. 1163, 1167-1168 (1962), cited in Heirs of Clemente Ermac v. Heirs of Vicente Ermac, 451 Phil. 368, 378-379 (2003).
[32] Id.
[33] Vda. De Pama v. Pama, 124 SCRA 377
[34] Art. 19. “Every person must, in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due and observe honesty and good faith.”
Art. 20. “Every person who, contrary to law, wilfully or negligently causes damage to another, shall indemnify the latter for the same.”
Art. 21. “Any person who wilfully causes loss or injury to another in manner that is contrary to morals, good customs or public policy shall compensate the latter for the damage.”
[35] American Home Assurance Company v. Chua, 309 SCRA 250, 263 [1999].
[36] Art. 2232, Civil Code; Sunbanun v. Go, G.R. No. 163280, February 2, 2010.
[37] Unlad Resources Development Corporation v. Dragon, 560 SCRA 63.