In a complex property dispute, the Supreme Court addressed the liabilities arising from a voided deed of sale and a building constructed on the contested land. The Court clarified that a loan obligation was the responsibility of the conjugal partnership, not the heirs directly, and specified how to handle improvements made in bad faith by both parties. This decision provides a framework for resolving property disputes where both parties acted with knowledge of defects, emphasizing the importance of good faith in property transactions.

When a Forged Deed Leads to Construction Chaos: Who Pays the Price?

This case, Erlinda Dinglasan Delos Santos v. Alberto Abejon, revolves around a property in Makati City initially owned by Erlinda and her late husband, Pedro Delos Santos. In 1988, Erlinda and Pedro borrowed P100,000 from Teresita Dinglasan-Abejon, Erlinda’s sister, securing it with a mortgage on their property. After Pedro’s death, Erlinda purportedly agreed to sell the land to Teresita for P150,000. A Deed of Sale was executed, and Teresita constructed a three-story building on the land. However, Erlinda later contested the sale, claiming Pedro’s signature on the deed was forged since he had already passed away three years prior. This led to a legal battle over the ownership of the land and the building erected on it.

The Regional Trial Court (RTC) declared the Deed of Sale null and void and ordered Erlinda and her daughters to pay Alberto Abejon and the Estate of Teresita Dinglasan-Abejon the loan amount, the cost of the building, and attorney’s fees. The Court of Appeals (CA) affirmed this decision with modifications, prompting the petitioners to elevate the case to the Supreme Court. The core issue before the Supreme Court was whether Erlinda and her daughters should be held liable for the loan, the building’s construction cost, and attorney’s fees, given the forged Deed of Sale and the construction that took place on the property.

The Supreme Court began by reiterating the importance of pre-trial stipulations. In this case, the parties had agreed that the Deed of Sale and Release of Mortgage were forged and should be cancelled. This agreement limited the scope of the trial to determining liability for damages and attorney’s fees. The Court emphasized that parties are bound by their admissions during pre-trial, which aims to streamline the legal process and expedite the resolution of cases. The Court then addressed the liabilities arising from the voided sale and subsequent construction, focusing on the loan obligation, the additional consideration paid for the sale, and the cost of the three-story building.

Regarding the P100,000 loan, the Court clarified that the obligation was the responsibility of the conjugal partnership between Erlinda and her deceased husband, Pedro, not the heirs directly. The Court cited Article 121 of the Family Code, which states that debts contracted during the marriage are chargeable to the conjugal partnership. Therefore, the heirs could not be held directly liable. The Court pointed out that the respondents could choose to foreclose the mortgage on the property as an alternative to collecting the sum. This ruling underscores the principle that marital debts are primarily the responsibility of the conjugal partnership, protecting the heirs from direct liability.

Concerning the voided Deed of Sale, the Supreme Court invoked the principle that the nullification of a contract restores things to their original state. This means that Erlinda and her daughters were entitled to the return of the land, while Alberto Abejon and the Estate of Teresita Dinglasan-Abejon were entitled to a refund of the P50,000 additional consideration paid for the sale. The Court clarified that only Erlinda, who was involved in the sale, was liable for the refund. The amount was also subjected to a legal interest of six percent per annum from the finality of the decision until fully paid, in accordance with Nacar v. Gallery Frames. This portion of the ruling reinforces the principle of restitution in contract law, ensuring that parties are returned to their original positions when a contract is declared void.

The most complex aspect of the case involved the three-story building constructed on the land. The Supreme Court determined that the rules on accession with respect to immovable property should apply, specifically concerning builders, planters, and sowers. The Court considered whether both parties acted in good faith or bad faith. According to the Civil Code, a builder in good faith believes they have the right to build on the land, unaware of any defect in their title. However, the Court found that Teresita was aware of Pedro’s death and the forged signature on the Deed of Sale. Therefore, the court ruled that Teresita acted in bad faith when constructing the building.

Conversely, Erlinda and her daughters also knew of the defect in the Deed of Sale but allowed the construction to proceed. Consequently, the Court deemed them landowners in bad faith as well. Since both parties acted in bad faith, Article 453 of the Civil Code dictates that their rights should be treated as if both had acted in good faith. In such cases, the landowner has two options: (1) appropriate the improvements after reimbursing the builder for necessary and useful expenses, or (2) sell the land to the builder, unless its value is considerably more than that of the improvements. The Supreme Court remanded the case to the lower court to determine the appropriate indemnity and implement these provisions.

The Court also addressed the issue of attorney’s fees, stating that they are generally not recoverable as part of damages. Attorney’s fees are not awarded every time a party wins a suit. The power of the court to award attorney’s fees under Article 2208 of the Civil Code requires factual, legal, and equitable justification, which the Court found lacking in this case. Therefore, the award of attorney’s fees was deleted. The Court emphasized that attorney’s fees are an exception rather than the rule and require specific justification based on the circumstances of the case.

FAQs

What was the key issue in this case?	The central issue was determining the liabilities of parties involved in a voided Deed of Sale and the subsequent construction of a building on the property, focusing on loan obligations and good faith.
Who was responsible for the P100,000 loan?	The Supreme Court clarified that the P100,000 loan was the liability of the conjugal partnership between Erlinda Dinglasan Delos Santos and her deceased husband, Pedro Delos Santos. The heirs were not directly responsible for the obligation.
What happened to the additional consideration paid for the voided sale?	Petitioner Erlinda Dinglasan Delos Santos was ordered to return the amount of P50,000, representing the additional consideration Teresita D. Abejon paid for the sale, with legal interest.
How did the Court address the three-story building constructed on the land?	The Court applied the rules on accession, finding both the builder (Teresita) and the landowner (Erlinda) to be in bad faith. The case was remanded to determine the proper indemnity.
What options did the landowner have regarding the building?	The landowner could either appropriate the building after reimbursing the builder for necessary and useful expenses or sell the land to the builder, unless the land’s value was considerably more than the building.
Why was the award for attorney’s fees deleted?	The Court found no justification for the award of attorney’s fees, as they are generally not recoverable as part of damages unless there is factual, legal, and equitable justification.
What does it mean to be a builder in good faith versus bad faith?	A builder in good faith believes they have the right to build on the land, unaware of any defect in their title. A builder in bad faith is aware of the defect but proceeds with construction anyway.
What is the significance of pre-trial stipulations?	Pre-trial stipulations are binding agreements made by the parties during the pre-trial process, which streamline the legal process and expedite the resolution of cases.
What is accession in property law?	Accession refers to the right by virtue of which the owner of a thing becomes the owner of everything which is produced thereby, or which is incorporated or attached thereto, either naturally or artificially.

This case serves as a reminder of the importance of conducting thorough due diligence in real estate transactions and acting in good faith. The Supreme Court’s decision provides a framework for resolving complex property disputes where both parties have acted with knowledge of defects in title. Understanding these principles can help property owners and builders navigate similar situations and protect their rights.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: ERLINDA DINGLASAN DELOS SANTOS VS. ALBERTO ABEJON, G.R. No. 215820, March 20, 2017