GR 13300; (September, 1919)

EN BANC

G.R. No. 13300; September 29, 1919

BASILIA BOUGH and GUSTAVUS BOUGH, plaintiffs-appellants,

vs.
MATILDE CANTIVEROS and PRESBITERA HANOPOL, defendants-appellees.

P. E. del Rosario and William F. Mueller for appellants.
Sison and Veloso for appellees.

MALCOLM, J.:

This action was begun in the Court of First Instance of Leyte, pursuant to a complaint by means of which the plaintiffs Basilia Bough and Gustavus Bough sought to have themselves put in possession of the property covered by the deed of sale quoted in the complaint, and to require the defendant Matilde Cantiveros to pay the plaintiffs the sum of five hundreds pesos by way of damages, and to pay the costs. Matilde Cantiveros answered with a general denial and a special defense, not sworn to, in which she asked that judgment be rendered declaring the contract of sale theretofore made between herself and Basilia Bough null. The plaintiffs, thereupon, denied under oath the genuineness and due execution of the so-called donation intervivos set forth in the answer. Presbitera Hanopol was permitted to intervene as a defendant. After trial, judgment was rendered by the Honorable W. E. McMahon, judge of first instance, in favor of the defendants, declaring the deed of sale, Exhibit A, fictitious, null, and without effect, and absolving the defendants from the complaint, with costs against the plaintiffs. It is from this judgment through the ordinary means of perfection of a bill of exceptions that the case is brought to this court for decision.

The facts are these: Matilde Cantiveros is reputed to be the richest resident of the municipality of Carigara, Leyte. In the latter part of the year 1913, she was the owner of various parcels of realty of the value of thirty thousand pesos or more. On December 24, 1912, Matilde Cantiveros and her husband Jose Vasquez, signed a marital contract of separation. At this time there lived with Matilde Cantiveros, Basilia Hanopol, a cousin and protege since childhood, who was married to Gustavus Bough. For this reason, Gustavus Bough was regarded by Matilde Cantiveros with great confidence, even as her child. Through the influence of Gustavus Bough, who brought a story to Matilde Cantiveros that her husband Jose Vasquez was in town and might contest the contract for the separation of the conjugal property, Matilde Cantiveros was induced to sign a fictitious contract of sale of all her property to Basilia Bough. This document, introduced in evidence as Exhibit A, was prepared in due from and acknowledged before a notary public, the amount of the consideration, ten thousand pesos, being last inserted with a pen. By this deed, Matilde Cantiveros purported to convey sixty-three parcels of land, the real value of which was over thirty thousand pesos, for ten thousand pesos, although no evidence that any such sum ever passed between the parties was introduced, to her cousin, Basilia Bough. In order to reassure Matilde Cantiveros that they would not take advantage of the fictitious sale, Gustavus Bough and Basilia Bough prepared and signed another document, introduced in evidence as Exhibit 1, which is a donation by them to Matilde Cantiveros of all the property mentioned in Exhibit A, to be effective in case of the death of themselves and their children before the death of Matilde Cantiveros. The defendant, Matilde Cantiveros, has remained in possession of the property.

These facts, which, it may be said, are mainly derived from the findings of the trial court, merely repeat the threadbare story of a conveyance of property entered into with a fraudulent intention and for a fraudulent purpose, in order to defeat recovery in a suit at law by a third party.

Plaintiffs and appellants assign six errors of the trial court. In so far as these assignments concern the facts, they need no discussion. Plaintiff’s declarations have not been corroborated, while defendant’s story has been corroborated by reliable witnesses. All the reason ? all the equity ? of the case, is in favor of the defendants. As far as necessary for the disposition of the appeal, we resolve plaintiff’s points in order.

1. The first assignment of error reads: “The lower Court erred in permitting the defendants to present evidence, over the objections of the plaintiff, tending to impugn the genuineness and due execution of the document, Exhibit A, and in admitting them to show the circumstances under which it was executed.

It is undeniable that this was an action brought upon a written instrument, and that the complaint contained a copy of the instrument, but that its genuineness and due execution were not specifically denied under oath in the answer. Is this fatal to the defense?

Section 103 of the Philippine Code of Civil Procedure provides:

When an action is brought upon a written instrument and the complaint contains or has annexed a copy of such instrument, the genuineness and due execution of the instrument shall be deemed admitted, unless specifically denied under oath in the answer; and when the defense to an action, or a counterclaim stated in an answer, is founded upon a written instrument and the copy thereof is contained in or annexed to the answer, the genuineness and due execution of such instrument shall be deemed admitted, unless specifically denied under oath by the plaintiff in his pleadings.

This section is derived from sections 448 and 449 of the Code of Civil Procedure of California, and is to be found in varying form in the statutes of practically all the states of the American Union. The meaning of this portion of the Code, and the intention of the Legislature in enacting it, are easily found. The law says that the genuineness and due execution of a written instrument properly pleaded shall be deemed admitted unless the plaintiff or defendant, as the case may be, shall specifically deny the same under oath. When the law makes use of the phrase “genuineness and due execution of the instrument” it means nothing more than that the instrument is not spurious, counterfeit, or of different import on its face from the one executed. As an example, where the name of a corporation is signed to the document which is the basis of an action, the failure of the defendant corporation to put in issue, by denial under oath, the due execution of the instrument, as required in section 103 of the Code of Civil Procedure, operates as an admission of the authority of the officer to execute the contract, since the authority of the officer to bind the company is essential to the due execution of its contract. (Ramirez vs. Orientalist Co. and Fernandez [1918], 38 Phil., 634.) But the failure of the party to file an affidavit denying the genuineness and due execution of the document does not estop him from controverting it by evidence of fraud, mistake, compromise, payment, statute of limitations, estoppel, and want of consideration. As section 285 of our Code of Civil Procedure permits a writing to be impeached because of its illegality or fraud, such a defense would not be barred by the provisions of section 103. (Moore vs. Copp [1897], 119 Cal., 429 Brooks vs. Johnson [1898], 122 Cal., 569; Hibberd vs. Rohde and McMillian [1915], 32 Phil., 476.)

We hold that although the defendants did not deny the genuineness and due execution of the contract of sale of December 9, 1913, under oath, yet the defendants could properly set up the defenses of fraud and want of consideration.

2. The second assignment of error reads: “The lower Court erred in finding that the plaintiff Gustavus Bough, having prepared a contract of separation between the defendant Matilde Cantiveros and her husband, Jose Vasquez, sought to cause her to believe that she exposed herself to a suit by her husband regarding her property, notwithstanding the contract of separation, and for that reason and for the purpose of shielding herself from the consequences of the apprehended suit, that she and her mother executed the document Exhibit A.”

Counsel relies on the provisions of article 1218 of the Civil Code, which provides that “Public instruments are evidence, even against a third person, of the fact which gave rise to their execution and of the date of the latter.” The effect of this article has been announced in numerous decisions of the Supreme Court of Spain and of this Court. (See Hijos de I. de la Rama vs. Robles and Robles [1907], 8 Phil., 712.) But in conjunction with article 1218 of the Civil Code, there should always be read section 285 of the Code of Civil Procedure which provides that:

When the terms of an agreement have been reduced to writing by the parties, it is to be considered as containing all those terms, and therefore there can be, between the parties and their representatives or successors in interest, no evidence of the terms of agreement other than contents of the writing, except in the following cases:

1. Where a mistake or imperfection of the writing, or its failure to express the true intent and agreement of the parties, is put in issue by the pleadings;

2. Where the validity of the agreement is the fact in dispute. But this section does not exclude other evidence of the circumstances under which the agreement was made, or to which it relates, or to explain an intrinsic ambiguity, or to establish its illegality or fraud. The term `agreement’ includes deeds and intruments conveying real estate, and wills as well as contracts between parties.

While thus as the law well says “public instruments are evidence of the fact which gave rise to their execution” and are to be considered as containing all the terms of the agreement, yet, if the validity of the agreement is the issue, parole evidence may be introduced to establish illegality or fraud. Evidence to establish illegality or fraud, is expressly permitted under section 285 of the Code of Civil Procedure, and may be proved by circumstantial evidence, aided by legitimate inferences from the direct facts. (Camacho vs. Municipality of Baliuag [1914], 28 Phil., 466; Maulini vs. Serrano [1914], 28 Phil., 640; Union Mut. Life Insurance Co. vs. Wilkinson [1872], 13 Wall, 222; Maxon vs. Llewelyn [1898], 122 Cal., 195, construing section 1856 of the Code of Civil Procedrue of California, identical with section 285 of the Code of Civil Procedure of the Philippines.)

We hold that parole evidence was properly admitted to show the illegality of the contract of sale introduced as Exhibit A.

3. The third point raised by appellant is, that the defendant, having accepted the donation expressed in the instrument Exhibit 1, is now estopped from denying the consideration set forth therein. A sufficient answer is, that it having been established that Exhibit A is invalid, such an instrument cannot be made the basis of an estoppel.

We hold that the so-called donation in favor of Matilde Cantiveros did not operate to create an estoppel.

4. The last question which is propounded by appellant relates to the effect of the illegality of the instant contract.

It is rudimentary that contracting parties may not establish pacts, clauses, and conditions, which conflict with the laws, morals, or public order; “public order” signifies “the public weal” ? public policy (Article 1255, Civil Code; Manresa, Comentarios al Codigo Civil, Vol. 8, p. 574.) It is further well settled, that a party to an illegal contract cannot come into a court of law and ask to have his illegal objects carried out. The rule is expressed in the maxims: “Ex dolo malo non oritur actio,” and “In pari delicto potior est conditio defendentis.” The law will not aid either party to an illegal agreement; it leaves the parties where it finds them. (Article 1306, Civil Code; Perez vs. Herranz [1907], 7 Phil., 693.) Where, however, the parties to an illegal contract are not equally guilty, and where public policy is considered as advanced by allowing the more excusable of the two to sue for relief against the transaction, relief is given to him. Cases of this character are, where they conveyance was wrongfully induced by the grantee through imposition or overreaching, or by false representations, especially by one in a confidential relation. (13 C. J., 497-499; Pride vs. Andrew [1894], 51 Ohio State, 405.)

As corroborative examples of these principles, we may cite the following:

Where a husband falsely represented to his wife that she was liable for certain debts, and that the creditors would take her property and influenced by this, and intending to defraud such creditors, she transferred her property to him, it was held that the deed would be set aside. (Boyd vs. De la Montagnie [1878], 73 N.Y., 498.)

Where a party has given a conveyance of his property with intent to defraud a creditor, the law will allow him no relief against such conveyance, but will leave him in the situation in which he has placed himself. But where there is no creditor in fact, but only an imaginary one, through fear of whom the grantor, encouraged by the grantee, makes the conveyance, a fraudulent intent will not be imputed to the grantor, and where the conveyance of the property has been without consideration, he may recover the same or its value. (Kervick vs. Mitchell [1885], 68 Iowa, 273.)

Where a son falsely represented to his mother that a suit was about to be brought against her for slander which would result in her losing all her property, and thereby induced her to convey all her property to him, it was held that the conveyance would be set aside at her suit. (Harper vs. Harper & Co. [1887], 85 Ky., 160.)

Where a woman seventy years of age and illiterate was induced by her son-in-law and the sureties on his bond to execute a mortgage to the sureties to indemnify them on a defalcation by the son-in-law, by holding out to her the anticipated punishment of the latter, without allowing her a chance to consult any disinterested friend, it was held that the mortgage would be set aside. (Bell vs. Campbell [1894], 123 Mo., 1.)

One who executes a bill of sale at the instance of the grantee for the purpose of putting his property beyond the reach of a third person whom the grantee represented was about to institute suit against the grantor, is entitled to recover the value of the property, where such third person had no valid claim against the grantor, but had been settled with in full, and his receipt taken. (Kervick vs. Mitchell [1885], 68 Iowa, 273.)

A brother who conveyed property to his sister on a secret trust for his benefit, to defeat any claim for alimony which his wife, who had instituted a suit for divorce, might make against him, is entitled to enforce the trust upon which the conveyance was made, where it does not appear that any claim for alimony was ever set up by his wife, or allowed, or that facts existed entitling her to such an allowance. The court said: `It does not appear that there was any creditor whose rights or interests could be prejudiced by the conveyance, and the question is whether or not the mere motive which impelled the party to make the deed will preclude him from enforcing the trust upon which it was executed. We think that where there is no creditor, there is no fraud, and therefore no policy of the law to prevent the enforcement of the trust. (Rivera vs. White [1901], 94 Tex., 538.)

A conveyance made by a mother to a daughter in consequence of false representations that her property might otherwise be taken from her to satisfy a claim for alimony arising from a suit for divorce about to be brought against her son by his wife will be cancelled. The Court said: “If the conveyance was made for the purpose of protecting the property from such claim, such representations being untrue, and such apprehensions in fact groundless, then she is entitled to have the deeds set aside.” (Kleeman vs. Peltzer [1885], 17 Neb., 381.)

In this instance, the grantor, reposing faith in the integrity of the grantee, and relying on a suggested occurrence, which did not in fact take place, was made the dupe of the grantee, and led into an agreement against public policy. The party asking to be relieved from the agreement which she was induced to enter into by means of fraud, was thus in delicto, but not in pari delicto with the other party. The deed was procured by misrepresentation and fraud sufficient to vitiate the transaction. The rights of creditors are not affected. We feel that justice will be done if we place the grantor in the position in which she was before these transactions were entered into.

The facts of this case are not greatly dissimilar from those to be found in Hibberd vs. Rohde and McMillian ([1915], 32 Phil., 476), relating to the defenses permissible where an instrument was submitted by the plaintiff, and not denied under oath by the defendant, and to the subject of contracts against public policy. The doctrine there announced need not be incorporated in this decision.

We resolve each assignment of error against the appellants, and having done so, affirm the judgment of the trial court, with costs of this instance against the appellants. So ordered.

Arellano, C.J., Torres, Johnson, Araullo, Street, Avanceña and Moir, JJ., concur .

Batas Pinas