THE GOVERNMENT SERVICE INSURANCE SYSTEM, PLAINTIFF, VS. SUSANA, ROMUALDO, JULIAN, MACARIO A., MOISES, MACARIO C., ADRIANO, CE­LESTINA AND LUISA, ALL SURNAMED CUSTODIO, DEFENDANTS.

Government Service Insurance System versus Custodio

The Case

This is an interpleader action brought by the Government Service Insurance System, a non-stock corporation created by Commonwealth Act 186, to determine who among several claimants is entitled to the retirement benefits that fell due to a deceased member, Simeon Custodio. The contest lies between Susana Custodio, the decedent's surviving sister, who claims to be the sole beneficiary, and her nephews and nieces, the children of the decedent's three predeceased brothers, who claim to share in the proceeds by right of representation. The case matters because it fixes two rules a reviewee must carry into the examination room: the effect of an unsigned and unfiled beneficiary designation, and the strictness with which fraud must be pleaded before it can upset a deed of extrajudicial settlement.

Procedural History

Proceedings began in the Court of First Instance of Rizal, which approved the parties' stipulation of facts and required them to submit memoranda on a question of law. The trial court rendered judgment in favor of Susana Custodio. It held that her designation as beneficiary in the unsigned application form, never filed with the System before the employee's death as the regulations require, was invalid; but it held that she was nonetheless entitled to the retirement benefits to the exclusion of the nephews and nieces, because they had recognized her as sole beneficiary in the deed of extrajudicial settlement, which is presumed regular absent evidence of fraud or mistake.

The nephews and nieces moved for reconsideration, and upon denial they appealed to the Court of Appeals. Finding no question of fact but only questions of law, the Court of Appeals certified the appeal to the Supreme Court, which is how the case reached this Court.

Facts

Simeon Custodio, a member of the Retirement Insurance Fund administered by the Government Service Insurance System, died intestate at Tanay, Rizal, on February 16, 1957. He was survived by his only sister, Susana Custodio, and by his nephews and nieces, the children of his three brothers Vicente, Crispin and Jacinto, all of whom had predeceased him. Shortly after his death, there was found among his personal belongings an undated and unsigned application form for retirement accomplished by him, naming his sister Susana as beneficiary, but that form was never submitted to the System.

On July 7, 1957, at the residence of Leon Tongohan, Susana's son-in-law, several of the heirs executed a document entitled Extrajudicial Settlement of Estate Among Heirs. It provided that for any amount due the decedent, their aunt Susana Custodio, as the decedent's only living sister, was recognized as the sole and only beneficiary, with the right to file, sign and receive whatever retirement pay was due under Republic Act 660 as amended. Three of the heirs, Macario C. Custodio, Luisa Custodio and David Custodio, did not sign the deed.

The very next day, July 8, 1957, several of the signatories wrote to the Manager of the System, saying that they had inadvertently signed the document without properly understanding it, and that it made it appear they were waiving their claims on the benefits legally accruing to the deceased. The parties later submitted a stipulation of facts and prayed the trial court to resolve the questions of law arising from it, without offering any other evidence.

Issues

• Whether or not the nephews and nieces who did not sign the deed of extrajudicial settlement may be considered to have recognized Susana Custodio as the sole beneficiary of the retirement money.
• Whether or not fraud or mistake, shown by the circumstances surrounding the preparation and signing of the deed, rendered the deed null and void.
• Whether or not the nephews and nieces who signed the deed are also entitled to share as intestate heirs in the proceeds due from the System.

Applicable Provisions

Article 1005 of the Civil Code governs the division of the estate among the heirs who inherit by right of representation:

Should grandchildren survive their parents, they shall inherit from the latter by representation, and if they survive with their uncles or aunts, they shall take the share that would pertain to their parents.

This is the provision under which the non-signatory heirs, and ultimately all the nephews and nieces, take their shares per stirpes.

Section 9 of Rule 9 of the Rules of Court governs the pleading of fraud:

Fraud or mistake must be alleged with particularity in the complaint or in a counterclaim, or in a reply, or in a third-party complaint, as the case may be.

This is the procedural rule that defeats the appellants' plea of fraud, because fraud was never specifically pleaded or stipulated.

Ruling

On the first issue, the Court held that the intestate heirs Macario C. Custodio, Luisa Custodio and David Custodio, who did not sign the deed of extrajudicial settlement, cannot be considered as having recognized Susana Custodio as the only beneficiary. There was no evidence, the case having been submitted solely on a stipulation of facts, that these non-signatory heirs had agreed or accepted other benefits under the deed. Susana herself did not oppose their separate motion for reconsideration and even prayed that it be granted. These three heirs should therefore inherit per stirpes under Article 1005 of the Civil Code. As Macario C. Custodio is the only child of Crispin, he inherits by representation the one-fourth share pertaining to his father; while Luisa and David Custodio, being two of the six children of Jacinto, are each entitled to a sixth of one-fourth, equivalent to one twenty-fourth of the hereditary mass.

On the second issue, the Court affirmed the action of the Court of Appeals in certifying the appeal, and held that even if the five circumstances invoked by the appellants were indicative of fraud or mistake, the stark fact is that the existence of fraud or mistake was not stipulated. Raising the issue of fraud without having specifically stipulated or pleaded it constitutes an unfair surprise upon the adversary and violates the rule that fraud be specifically pleaded. The plea of fraud is therefore not allowable, being deemed waived by the lack of proper averment. At any rate, the Court found that the circumstances fell short of evidencing fraud or mistake: the failure to secure the signatures of Luisa, David and Macario C. could not have escaped their co-heirs; the intervention of Leon Tongohan was without particular significance since none of the signers was illiterate and the deed was not notarized by him; and the appellants' repudiation of their signatures was a self-serving act, more indicative of a belated intention to squirm out of a disadvantageous transaction entered into with open eyes, which is no ground for setting the deed aside.

On the third issue, the Court held that the nephews and nieces who signed the deed are bound by their recognition of Susana as sole beneficiary, and so the judgment in her favor stands as to them, subject only to the modification in favor of the three non-signatory heirs.

Doctrine

First, a designation of beneficiary in an application form that is unsigned and never filed with the System before the member's death is invalid and cannot by itself transfer the retirement benefits. Second, a deed of extrajudicial settlement is presumed regular, and the recognition of a sole beneficiary contained in it binds only those who signed it; heirs who did not sign it are not bound and inherit per stirpes under Article 1005 of the Civil Code. Third, fraud or mistake must be alleged with particularity; when it is not pleaded or stipulated, the plea is deemed waived and cannot be raised for the first time on appeal, for to allow it would work an unfair surprise on the adversary.

Disposition

The Supreme Court affirmed the judgment of the trial court, with the modification that Macario C. Custodio is declared entitled to one-fourth and Luisa Custodio and David Custodio to one twenty-fourth each of the retirement benefits, without costs.

Remember This

Memorize this line: fraud must be pleaded with particularity, and a plea of fraud never pleaded is deemed waived. Examiners use this case to test the per stirpes shares of nephews and nieces under Article 1005, and the procedural trap of raising fraud for the first time on appeal.