HEIRS OF POLICRONIO URETA V.

HEIRS OF LIBERATO URETA

Facts:
• Alfonso Ureta begot 14 children, namely, Policronio, Liberato, Narciso, Prudencia, Vicente,
Francisco, Inocensio, Roque, Adela, Wenefreda, Merlinda, Benedicto, Jorge, and Andres.
• Alfonso and four of his children, namely, Policronio, Liberato, Prudencia, and Francisco, met at
the house of Liberato. Francisco, who was then a municipal judge, suggested that in order to
reduce the inheritance taxes, their father should make it appear that he had sold some of his lands
to his children.
• Alfonso executed 4 Deeds of Sale covering several parcels of land in favor of Policronio,
Liberato, Prudencia, and his common-law wife, Valeriana Dela Cruz.
• The Deed of Sale executed on Oct 25, 1969, in favor of Policronio, covered six parcels of land,
which are the properties in dispute in this case.
• Since the sales were only made for taxation purposes and no monetary consideration was given,
Alfonso continued to own, possess and enjoy the lands and their produce.
• Policronio died on Nov 22, 1974. Except for the said portion of parcel 5, neither Policronio nor
his heirs ever took possession of the subject lands.
• Alfonso’s heirs executed a Deed of Extrajudicial Partition, which included all the lands that were
covered by the 4 deeds of sale.
• Conrado, Policronio’s eldest son, representing heirs of Policronio, signed the Deed of
extrajudicial partition in behalf of his co-heirs.
• Heirs of Policronio found tax declarations in his name covering the six parcels of land. They
obtained a copy of the Deed of Sale executed on Oct 25, 1969 by Alfonso in favor of Policronio.
• Believing that the six parcels of land belonged to their late father as such, excluded from the
Partition, Heirs of Policronio sought to amicably settle the matter with the Heirs of Alfonso.
• Heirs of Policronio filed a Complaint for Declaration of Ownership, Recovery of Possession,
Annulment of Docs, Partition against the other Heirs of Alfonso before the RTC where the ff
issues on validity of Deed of Sale and Deed of Extrajudicial Partition were submitted.

RTC: Deed of sale was void since no consideration was involved in the sale. Even granting that there
was, the amount was grossly inadequate (P2K). Heirs of Policronio only paid real estate taxes in 1996
and 1997. Policronio must have been aware that the transfer was merely for taxation purposes because
he did not subsequently take possession of the properties even after the death of his father. However,
court ruled that Deed of Extrajudicial Partition was valid as all the Heirs of Policronio were
represented and received equal shares and all the requirements of a valid EJP were met.

CA: Deed of Sale is ABSOLUTELY SIMULATED based on the testimony of Amparo Castillo, thus
it is void. Annulled the Deed of Extrajudicial Partition due to the incapacity of one of the parties
to give his consent to the contract. Without a SPA, it was held that Conrado lacked the legal capacity
to give the consent of his co-heirs. Court also remanded to the RTC for the proper partition of the
estate, with the option that the parties may still voluntarily effect the partition by executing another
agreement.

Petitioners Heirs of Policronio claims that RTC violated the Evidence Rule in giving credence to the
testimony of Amparo Castillo with regard to the simulation of the Deed of Sale, and that prescription
had set in precluding any question on the validity of the contract.
CA held that the oral testimony was admissible under Rule 130, Sec 9 (b) and (c), which provides
that evidence aliunde may be allowed to explain the terms of the written agreement if the same failed
to express the true intent and agreement of the parties thereto, or when the validity of the written
agreement was put in issue.

Issue: Whether the Deed of Sale is valid.

Held: Deed of sale was absolutely simulated, thus void.
 2 veritable legal presumptions bear on the validity of the Deed of Sale:
(1) that there was sufficient consideration for the contract; and
(2) that it was the result of a fair and regular private transaction.

If shown to hold, these presumptions infer prima facie the transaction’s validity, except that
it must yield to the evidence adduced. The Deed of Sale was not a fair and regular private transaction
because it was absolutely simulated. It was made only for tax purposes. Even Policronio did not
disclose the sale to his heirs. For lack of consideration, the Deed of Sale is once again found to be
void. It states that Policronio paid, and Alfonso received, the ₱2K purchase price on the date of the
signing of the contract. Although, on its face, the Deed of Sale appears to be supported by valuable
consideration, the RTC found that there was no money involved in the sale.

A simulated contract of sale is without any cause or consideration, and is, therefore, null and
void; in such case, no independent action to rescind or annul the contract is necessary, and it may be
treated as non-existent for all purposes. A void contract produces no effect whatsoever either against
or in favor of anyone; it does not create, modify or extinguish the juridical relation to which it refers.
It was not necessary for the Heirs of Policronio to first file an action to declare the nullity of the Deed
of Sale prior to executing the Deed of EJP.

The Court also ruled that the right to set up the nullity of a void or non-existent contract is not
limited to the parties, as in the case of annullable or voidable contracts; it is extended to third persons
who are directly affected by the contract. Heirs of Alfonso are clearly his heirs and successors-in-
interest and, as such, their interests are directly affected, thereby giving them the right to question the
legality of the Deed of Sale.

The court ruled the inapplicability of Art 842 in the present case. Art refers to the principle of
freedom of disposition by will. What is involved in the case at bench is not a disposition by will but
by Deed of Sale. Heirs of Policronio need not first prove that the disposition substantially diminished
their successional rights or unduly prejudiced their legitimes.

Art 1412 is not applicable to fictitious or simulated contracts, because they refer to contracts
with an illegal cause or subject-matter. This Art presupposes the existence of a cause, it cannot refer
to fictitious or simulated contracts which are in reality non-existent.

As the Deed of Sale is a void contract, the action for the declaration of its nullity, even if filed
21 years after its execution, cannot be barred by prescription for it is imprescriptible. Furthermore,
the right to set up the defense of inexistence or absolute nullity cannot be waived or renounced.

Succession
Issue: Whether the Deed of Extrajudicial Partition is valid.

Heirs of Alfonso claims that CA was mistaken in annulling the Deed of EJP due to the incapacity of
Conrado to give the consent of his co-heirs for lack of a SPA. They argue that the Deed of EJP is not
a voidable or an annullable contract, but rather, it is an unenforceable or, more specifically, an
unauthorized contract under Arts 1403 (1) and 1317 of the Civil Code. As such, the Deed of EJP
should not be annulled but only be rendered unenforceable against the siblings of Conrado. NCC
1317 when the persons represented without authority have ratified the unauthorized acts, the contract
becomes enforceable and binding. Team P ratified the Deed of EJP when Conrado took possession
of 1 of the parcels of land adjudicated to him and his siblings. The Deed of EJP having been ratified
and its benefits accepted, the same thus became enforceable and binding upon them.
On the other hand, Heirs of Policronio claims that subject properties should not have been included
in the estate of Alfonso, and because Conrado lacked the written authority to represent his siblings.
Heirs of Policronio also denied that they ratified the Deed of Extrajudicial Partition.

Held: Deed of Extrajudicial Partition is valid.

Partition among heirs is not legally deemed a conveyance of real property resulting in change
of ownership. Hence, a special power of attorney is not necessary. Conrado’s failure to obtain
authority from his co-heirs to sign the Deed of EJP in their behalf did not result in his incapacity to
give consent so as to render the contract voidable, but rather, it rendered the contract valid but
unenforceable against Conrado’s co-heirs for having been entered into without their authority.

The Deed of Extrajudicial Partition is not unenforceable but, in fact, valid, binding and
enforceable against all Heirs of Policronio for having proven by preponderance of evidence that they
had given their consent to the contract. Deed was executed on April 19, 1989, and Heirs of Policronio
claim that they only came to know of its existence on July 30, 1995 through an issue of the Aklan
Reporter. However, the court proved otherwise that they had actual knowledge of the aforesaid deed.
In fact, some of Heirs of Policronio executed a SPA in favor of their sister Gloria Gonzales,
authorizing her to obtain a loan from a bank and to mortgage 1 of the parcels of land adjudicated to
them in the Deed of EJP to secure payment of the loan. Also inn the letter sent by the counsel of Heirs
of Policronio to the Heirs of Alfonso there was no mention that Conrado’s consent to the Deed of EJP
was vitiated by mistake and undue influence. The allegation of Conrado’s vitiated consent and lack
of authority to sign in behalf of his co-heirs was a mere afterthought on the part of Heirs of Policronio.

Regarding preterion, the Heirs of Alfonso were of the position that the absence of Heirs of
Policronio in the partition at the very least, in their preterition and not in the invalidity of the entire
deed of partition. Preterition is thus a concept of testamentary succession and requires a will. In the
case at bench, there is no will involved. Therefore, preterition cannot apply.

Court also ruled that remanding the case to the RTC is unnecessary. Considering that the Deed
of Sale has been found void and the Deed of EJP valid, with the consent of all Team P duly given,
there is no need to remand the case to the court of origin for partition.

HEIRS OF LEANDRO NATIVIDAD vs JUANA MAURICIO-NATIVIDAD

Facts:
• Leandro and Juliana alleged that sometime in 1974, Sergio Natividad (Sergio), husband of
respondent Juana Mauricio-Natividad (Juana) and father of respondent Jean Natividad-Cruz
(Jean), obtained a loan from the Development Bank of the Philippines (DBP).
• As security for the loan, Sergio mortgaged two parcels of land, one of which is co-owned and
registered in his name and that of his siblings namely, Leandro, Domingo and Adoracion.
• Sergio's siblings executed a Special Power of Attorney authorizing him to mortgage the said
property.
• The other mortgaged parcel of land was registered in the name of Sergio and Juana.
• Subsequently, Sergio died without being able to pay his obligations with DBP.
• Since the loan was nearing its maturity and the mortgaged properties were in danger of being
foreclosed, Leandro paid Sergio's loan obligations.
• Considering that respondents were unable to reimburse Leandro for the advances he made in
Sergio's favor, respondents agreed that Sergio's share in the lot which he co-owned with his
siblings and the other parcel of land in the name of Sergio and Juana, shall be assigned in favor
of Leandro and Juliana.
 • Leandro's and Sergio's brother, Domingo, was tasked to facilitate the transfer of ownership of the
subject properties in favor of Leandro and Juliana. However, Domingo died without being able
to cause such transfer.
• Subsequently, despite demands and several follow-ups made by petitioners, respondents failed
and refused to honor their undertaking.

Respondents denied the allegations and claimed that (1) respondents are not parties to the contract
between Sergio and DBP; (2) there is neither verbal nor written agreement between petitioners and
respondents that the latter shall reimburse whatever payment was made by the former or their
predecessor-in-interest; (3) Jean was only a minor during the execution of the alleged agreement and
is not a party thereto; (4) that whatever liability or obligation of respondents is already barred by
prescription, laches and estoppel; (5) that the complaint states no cause of action as respondents are
not duty-bound to reimburse whatever alleged payments were made by petitioners; and (6) there is
no contract between the parties to the effect that respondents are under obligation to transfer
ownership in petitioners' favor as reimbursement for the alleged payments made by petitioners to
DBP.

RTC: Ordered to transfer the ownership of said property to the petitioners.

CA: Modified the ruling and ordered instead to reimburse the amount of the loan.

Issue: Whether the verbal agreement on transferring the subject properties to the petitioner is valid
Held: No. CA did not commit any error in ruling that the assignment of the shares of Sergio in the
subject properties in petitioners' favor as payment of Sergio's obligation cannot be enforced if there
is no written contract to such effect. Under the Statute of Frauds, an agreement to convey real
properties shall be unenforceable by action in the absence of a written note or memorandum thereof
and subscribed by the party charged or by his agent. As earlier discussed, the pieces of evidence
presented by petitioners, consisting of respondents' acknowledgment of Sergio's loan obligations with
DBP as embodied in the Extrajudicial Settlement Among Heirs, as well as the cash voucher which
allegedly represents payment for taxes and transfer of title in petitioners' name do not serve as written
notes or memoranda of the alleged verbal agreement.

The foregoing, notwithstanding, the Court finds it proper to reiterate the CA ruling that, in any case,
since respondents had already acknowledged that Sergio had, in fact, incurred loan obligations with
the DBP, they are liable to reimburse the amount paid by Leandro for the payment of the said
obligation even if such payment was made without their knowledge or consent.

Article 1236 of the Civil Code clearly provides that:

The creditor is not bound to accept payment or performance by a third person who has
no interest in the fulfillment of the obligation, unless there is a stipulation to the
contrary.

Whoever pays for another may demand from the debtor what he has paid, except that if
he paid without the knowledge or against the will of the debtor, he can recover only
insofar as the payment has been beneficial to the debtor. (Emphasis supplied)

Neither can respondents evade liability by arguing that they were not parties to the
contract between Sergio and the DBP. As earlier stated, the fact remains that, in the
Extrajudicial Settlement Among Heirs, respondents clearly acknowledged Sergio's loan
obligations with the DBP. Being Sergio's heirs, they succeed not only to the rights of
Sergio but also to his obligations.
 The following provisions of the Civil Code are clear on this matter, to wit:

Art. 774. Succession is a mode of acquisition by virtue of which the property, rights and
obligations to the extent of the value of the inheritance, of a person are transmitted
through his death to another or others either by will or by operation of law.

Art. 776. The inheritance includes all the property, rights and obligations of a person
which are not extinguished by his death.

Art. 781. The inheritance of a person includes not only the property and the
transmissible rights and obligations existing at the time of his death, but also those
which have accrued thereto since the opening of the succession.

In the present case, respondents, being heirs of Sergio, are now liable to settle his
transmissible obligations, which include the amount due to petitioners, prior to the distribution of
the remainder of Sergio's estate to them, in accordance with Section I,10 Rule 90 of the Rules of
Court.

Court also provides the award of interest in the concept of actual and compensatory damages,
the rate of interest, as well as the accrual thereof, is imposed, as follows:

1. When the obligation is breached, and it consists in the payment of a sum of money,
i.e., a loan or forbearance of money, the interest due should be that which may have
been stipulated in writing. Furthermore, the interest due shall itself earn legal interest
from the time it is judicially demanded. In the absence of stipulation, the rate of interest
shall be 6% per annum to be computed from default, i.e., from judicial or
extrajudicial demand under and subject to the provisions of Article 1169 of the Civil
Code.

2. When an obligation, not constituting a loan or forbearance of money, is breached,

an interest on the amount of damages awarded may be imposed at the discretion, of
the court at the rate of 6% per annum. No interest, however, shall be adjudged on
unliquidated claims or damages, except when or until the demand can be established
with reasonable certainty. Accordingly, where the demand is established with
reasonable certainty, the interest shall begin to run from the time the claim is made
judicially or extrajudicially (Art. 1169, Civil Code), but when such certainty cannot be
so reasonably established at the time the demand is made, the interest shall begin to run
only from the date the judgment of the court is made (at which time the quantification
of damages may be deemed to have been reasonably ascertained). The .actual base for
the computation of legal interest shall, in any case, be on the amount finally adjudged.

3. When the judgment of the court awarding a sum of money becomes final and
executory, the rate of legal interest, whether the case falls under paragraph 1 or
paragraph 2, above, shall be 6% per annum from such finality until its satisfaction, this
interim period being deemed to be by then an equivalent to a forbearance of credit.
(Emphasis supplied)

PUNO vs PUNO ENTERPRISES

Facts:
• Carlos L. Puno, who died on June 25, 1963, was an incorporator of respondent Puno
Enterprises, Inc.
• On March 14, 2003, petitioner Joselito Musni Puno, claiming to be an heir of Carlos L.
Puno, initiated a complaint for specific performance against respondent.
 • Petitioner averred that he is the son of the deceased with the latter’s common-law wife, Amelia
Puno, and as surviving heir, he claimed entitlement to the rights and privileges of his late
father as stockholder of respondent.
• The complaint thus prayed that respondent allow petitioner to inspect its corporate book,
render an accounting of all the transactions it entered into from 1962, and give petitioner
all the profits, earnings, dividends, or income pertaining to the shares of Carlos L. Puno.

RTC: upon submission of petitioner’s certification of live birth and baptismal, the court ordered to
allow Joselito Musni Puno to inspect the company’s corporate books.

CA: Reversed and ordered the dismissal of the complaint. The Court ruled that the petitioner had no
right to demand since it is still premature and the proper action to be taken was to prove the paternity
of and his filiation to Carlos L. Puno in a petition for the settlement of the estate of the latter.

Issue: Whether or not Joselito Musni Puno as an heir is automatically entitled for the stocks upon the
death of a shareholder.

Held: Upon the death of a shareholder, the heirs do not automatically become stockholders
of the corporation and acquire the rights and privileges of the deceased as shareholder of the
corporation. The stocks must be distributed first to the heirs in estate proceedings, and the transfer of
the stocks must be recorded in the books of the corporation. Section 63 of the Corporation Code
provides that no transfer shall be valid, except as between the parties, until the transfer is
recorded in the books of the corporation. During such interim period, the heirs stand as the
equitable owners of the stocks, the executor or administrator duly appointed by the court being vested
with the legal title to the stock.Until a settlement and division of the estate is effected, the stocks
of the decedent are held by the administrator or executor. Consequently, during such time, it
is the administrator or executor who is entitled to exercise the rights of the deceased as stockholder.

Thus, even if petitioner has sufficient evidence to establish that he is the son of Carlos Puno,
Sec 63 must be complied first indicating that a transfer of shares was recorded in company’s book.
Corollary to this doctrine is that a determination of whether person, claiming proprietary rights over
estate of deceased person is an heir of deceased must be ventilated in a special proceeding instituted
precisely for the purpose of settling the estate of the latter.

REYES vs RTC of Makati

Facts:
• Oscar (petitioner) and Rodrigo (respondent) are 2 of the 4 children of Spouses Pedro and
Anastacia Reyes.
• Pedro, Anastacia, Oscar and Rodrigo each owned shares of stock in Zenith Insurance Corporation
established by their family.
• When Pedro died, his estate was judicially partitioned among his heirs, however, no similar
settlement and partition were made when Anastacia died, which includes her company’s
shareholding.
• Oscar and Rodrigo owned 8,712,637 and 4,250 shares, respectively.
• Zenith Corporation and Rodrigo filed a complaint in RTC against Oscar to obtain an accounting
of the funds and assets of Zenith Corporation which is within the control of Oscar and to
determine the shares of stock of deceased spouses Pedro and Anastacia.

• Respondent Rodrigo claims that the said shares were arbitrarily and fraudulently appropriated
by Oscar himself and which were not collated and taken into account in the partition, distribution
 and settlement. Allegations in the complaint principally invoke Section 5 Par. (a) and (b) of PD
No. 902-A as basis of special court jurisdiction
• Petitioner Oscar denied all the allegations and contended that he bought all his shares from his
own account. Additionally, he filed a motion to declare the complaint as nuisance or
harassment suit and not a bonfire derivative suit, but is in fact in the nature of a petition for
settlement of estate, hence, it is outside the jurisdiction of RTC as special commercial court.

RTC and CA dismissed the claims of Oscar in part and ruled that the cause of action in which the
complaint is a derivative suit for accounting of the funds and assets were upheld and within the
jurisdiction of the special commercial court. However, it also ruled that an action for determination
of the shares of stock of deceased spouses allegedly taken by Oscar is not a derivative suit and should
properly be threshed out in a petition for settlement of estate.

Mercantile Law
(1) Whether or not Rodrigo may be considered a stockholder of Zenith with respect to the
shareholdings originally belonging to Anastacia.

HELD: No. Rodrigo must, hurdle two obstacles before he can be considered a stockholder of Zenith
with respect to the shareholdings originally belonging to Anastacia. First, he must prove that there
are shareholdings that will be left to him and his co-heirs, and this can be determined only in a
settlement of the decedent’s estate. No such proceeding has been commenced to date. Second, he
must register the transfer of the shares allotted to him to make it binding against the corporation. He
cannot demand that this be done unless and until he has established his specific allotment (and prima
facie ownership) of the shares. Without the settlement of Anastacia’s estate, there can be no definite
partition and distribution of the estate to the heirs. Without the partition and distribution, there can
be no registration of the transfer. And without the registration, we cannot consider the transferee-heir
a stockholder who may invoke the existence of an intra-corporate relationship as premise for an intra-
corporate controversy within the jurisdiction of a special commercial court. The subject shares of
stock (i.e., Anastacia’s shares) are concerned – Rodrigo cannot be considered a stockholder of Zenith.

Mercantile/Succession
(1) Whether or not there is an intra-corporate relationship between the parties that would characterize
the case as an intra-corporate dispute?

HELD: No. Court cannot declare that an intra-corporate relationship exists that would serve as basis
to bring this case within the special commercial court’s jurisdiction under Section 5(b) of PD 902-A,
as amended because Rodrigo’s complaint failed the relationship test above. The Court ruled that
Rodrigo’s interest is not as a shareholder of company but an heir to his predecessor.

Article 777 of the Civil Code declares that the successional rights are transmitted from the
moment of death of the decedent. Accordingly, upon Anastacia’s death, her children acquired
legal title to her estate (which title includes her shareholdings in Zenith), and they are, prior to
the estates partition, deemed co-owners thereof. This status as co-owners, however, does not
immediately and necessarily make them stockholders of the corporation. Unless and until there
is compliance with Section 63 of the Corporation Code in which the transfer must be registered
in the books of the corporation, the heirs do not become registered stockholders of the
corporation.

Remedial Law
(1) Whether or not the complaint is a mere nuisance or harassment suit that should be dismissed
under the Interim Rules of Procedure of Intra-Corporate Controversies;
HELD: Yes. The rule is that a complaint must contain a plain, concise, and direct statement of the
ultimate facts constituting the plaintiff’s cause of action and must specify the relief sought. Section
5, Rule 8 of the Revised Rules of Court provides that in all averments of fraud or mistake, the
circumstances constituting fraud or mistake must be stated with particularity. These rules find
specific application to Section 5(a) of P.D. No. 902-A which speaks of corporate devices or schemes
that amount to fraud or misrepresentation detrimental to the public and/or to the stockholders.

Allegations of deceit, machination, false pretenses, misrepresentation, and threats are largely
conclusions of law that, without supporting statements of the facts to which the allegations of fraud
refer, do not sufficiently state an effective cause of action. Fraud and mistake are required to be
averred with particularity in order to enable the opposing party to controvert the particular facts
allegedly constituting such fraud or mistake. Tested against these standards, charges of fraud against
Oscar were not properly supported by the required factual allegations. While the complaint contained
allegations of fraud purportedly committed by him, these allegations are not particular enough to
bring the controversy within the special commercial court’s jurisdiction; they are not statements of
ultimate facts, but are mere conclusions of law: how and why the alleged appropriation of shares can
be characterized as “illegal and fraudulent” were not explained nor elaborated on. The case must be
dismissed.

(2) Whether or not the complaint is a derivative suit within the jurisdiction of the RTC acting as a
special commercial court.

HELD: No. The allegations of the present complaint do not amount to a derivative suit. First, as
already discussed above, Rodrigo is not a shareholder with respect to the shareholdings originally
belonging to Anastacia; he only stands as a transferee-heir whose rights to the share are inchoate and
unrecorded. Second, in order that a stockholder may show a right to sue on behalf of the corporation,
he must allege with some particularity in his complaint that he has exhausted his remedies within the
corporation by making a sufficient demand upon the directors or other officers for appropriate relief
with the expressed intent to sue if relief is denied. Lastly, Court found no injury, actual or threatened,
alleged to have been done to the corporation due to Oscar’s acts. If indeed he illegally and
fraudulently transferred Anastacia’s shares in his own name, then the damage is not to the corporation
but to his co-heirs; the wrongful transfer did not affect the capital stock or the assets of Zenith.

In summary, whether as an individual or as a derivative suit, the RTC – sitting as special commercial
court – has no jurisdiction to hear Rodrigo’s complaint since what is involved is the determination
and distribution of successional rights to the shareholdings of Anastacia Reyes. Rodrigo’s proper
remedy, under the circumstances, is to institute a special proceeding for the settlement of the estate
of the deceased Anastacia Reyes, a move that is not foreclosed by the dismissal of his present
complaint.