GR 171035; (August, 2009) (Digest)
G.R. No. 171035 ; August 24, 2009
WILLIAM ONG GENATO, Petitioner, vs. BENJAMIN BAYHON, et al., Respondents.
FACTS
Respondent Benjamin Bayhon obtained a loan of PhP 1,000,000.00 from petitioner William Ong Genato. To secure the loan, Bayhon executed a Real Estate Mortgage over a property covered by TCT No. 38052. Petitioner later presented a Dacion en Pago, allegedly executed by Bayhon, conveying the same property in satisfaction of the debt. Respondents, including Bayhon’s heirs, filed an action to declare the Dacion en Pago null and void, claiming it was a forgery and that Bayhon’s wife, a co-owner, had died years before its execution and thus could not have consented. Petitioner, in a separate action, sought specific performance to enforce the Dacion en Pago. The trial court consolidated the cases, upheld the loan’s validity, and ordered Bayhon to pay over PhP 5.6 million in principal and stipulated interest.
The Court of Appeals reversed the trial court. It declared both the Real Estate Mortgage and the Dacion en Pago void. The appellate court found that Bayhon’s wife was deceased at the time of both transactions, making her purported participation impossible. It ruled the contracts were simulated or fictitious under Article 1409 of the Civil Code. While recognizing the principal loan obligation as valid, the CA held it was extinguished by Bayhon’s death during the appeal and could not be enforced against his heirs.
ISSUE
Whether the Dacion en Pago and Real Estate Mortgage are valid and enforceable, and whether the loan obligation survives against the estate of Benjamin Bayhon.
RULING
The Supreme Court affirmed the Court of Appeals’ declaration that the Dacion en Pago is null and void, but modified the ruling regarding the loan obligation. The legal logic is twofold. First, on the contracts’ validity: The property was co-owned by Benjamin Bayhon and his wife. At the time of the mortgage and the dacion, the wife had already been dead for three years. Her consent, essential for the valid alienation or encumbrance of the conjugal property, was impossible to obtain. Therefore, both the Real Estate Mortgage and the Dacion en Pago, which purported to convey full ownership, were absolutely simulated contracts. They produced no legal effect, as they reflected a transaction that could not have legally occurred.
Second, on the loan obligation: The nullity of the accessory contracts (mortgage and dacion) does not invalidate the principal loan obligation, which remains valid and subsisting. The death of the debtor, Benjamin Bayhon, does not extinguish the debt; it merely transfers the obligation to his estate, to be settled in accordance with the rules on succession. The Court rejected the stipulated 5% monthly interest as unconscionable and reduced it to the legal rate of 12% per annum from the date of extrajudicial demand. Consequently, the estate of Benjamin Bayhon is liable for the unpaid principal, less partial payments made, plus the computed legal interest. The obligation is enforceable against the estate, not against the heirs in their personal capacity.