In Dr. Rico Vargas v. Jose F. Acsayan, Jr., the Supreme Court clarified that when a property has been validly assigned, the original owner is not liable for subsequent transactions made by the assignee. The Court emphasized that contracts bind only the parties who enter into them, and a valid assignment transfers rights and obligations to the assignee. This ruling protects original owners from liabilities arising from dealings they were not a part of, reinforcing the importance of due diligence in property transactions.

When Deeds Speak Louder: Unraveling Contractual Obligations After Property Assignment

This case revolves around a land deal gone awry in Sariaya, Quezon, entangling multiple parties in a web of claims and counterclaims. Jose F. Acsayan, Jr. sought to purchase land from the Spouses Tabangcora, who claimed ownership through a Deed of Assignment from the Spouses Vargas. Acsayan paid a substantial sum towards the property, but later discovered the land was mortgaged. He then sued the Spouses Tabangcora, the Spouses Vargas, and Stardiamond International Trading, Inc., alleging conspiracy to deprive him of the land. The central legal question is: Who bears the responsibility when a property is sold based on an assignment, and the transaction subsequently falls apart?

The factual backdrop reveals a series of transactions. The Spouses Tabangcora offered to sell a parcel of land to Acsayan for P5,950,000.00. Acsayan made a down payment by settling the Spouses Tabangcora’s debt with Land Bank of the Philippines (LBP), amounting to P4,617,293.88. Acsayan was presented with a Deed of Assignment indicating that the Spouses Vargas had ceded the property to Tavar Farm & Marketing, represented by the Spouses Tabangcora. However, Acsayan later discovered that the property was mortgaged to Stardiamond. He believed all parties conspired to defraud him and filed a complaint seeking ownership of the land, nullification of the mortgage agreement with Stardiamond, and damages.

The Regional Trial Court (RTC) initially ruled in favor of Acsayan, declaring him the absolute owner of the property and nullifying the agreement between the Spouses Tabangcora and Stardiamond. The RTC also ordered the defendants to pay moral and exemplary damages, as well as attorney’s fees. However, the Court of Appeals (CA) reversed the RTC’s decision, declaring the Spouses Vargas as the registered owners, subject to Acsayan’s attachment lien. The CA held the Spouses Vargas and Tabangcora jointly liable to pay Acsayan P4,717,293.88 plus interest. The appellate court also annulled the Agreement and Real Estate Mortgage with Stardiamond, but entitled Stardiamond to compensation for improvements made on the land.

The Supreme Court, in its analysis, delved into the validity of the Deed of Assignment. Article 1624 of the Civil Code stipulates that an assignment of rights is akin to a sale, perfected when there is a meeting of minds on the object and the price. The Court emphasized that the meeting of minds should occur between the assignor and assignee. Here, the CA invalidated the Deed of Assignment because it found no evidence of valuable consideration between the Spouses Tabangcora and Vargas. However, the Supreme Court referred to Article 1354 of the Civil Code which states that consideration is presumed unless proven otherwise. The Court emphasized that a mere assertion that there was no consideration is insufficient to overturn this presumption.

The Court noted that the Deed of Assignment explicitly stated that the Spouses Vargas assigned the property to Tavar Farm & Marketing for valuable consideration. It was incumbent upon Acsayan to prove that no consideration was exchanged. The Court found that Acsayan failed to provide sufficient evidence to rebut the presumption of consideration. Acsayan argued that the Deed of Assignment was executed so that Maximino Tabangcora could apply for a loan. The Supreme Court clarified that the motives of the parties are distinct from the cause of the contract as stated in Article 1331 of the Civil Code. Since the admitted purpose was not contrary to law or public policy, it did not invalidate the Deed of Assignment.

Acsayan also argued that the lack of registration of the Deed of Assignment indicated that the parties did not intend to be bound by it. The Court dismissed this argument, stating that the parties may have had various reasons for not registering the Deed, and that this alone did not invalidate it. The Court further addressed Acsayan’s argument regarding the Special Power of Attorney (SPA) executed by the Spouses Vargas in favor of the Spouses Tabangcora. Acsayan contended that if the Spouses Tabangcora were indeed the owners by virtue of the Deed of Assignment, there would be no need for the SPAs. The Court explained that since the title was yet to be issued in the name of Tavar Farm and Marketing, it was still necessary for the assignor to execute a SPA.

The Court highlighted a critical point: Acsayan transacted with the Spouses Tabangcora while the property was still registered under the names of the Spouses Vargas. Acsayan relied on the Deed of Assignment, which ceded the rights and interest of the registered owner to the Spouses Tabangcora. Therefore, he could not now attack the validity of the Deed of Assignment. As the Deed of Assignment was deemed valid, the subject property was effectively transferred to Tavar Farm & Marketing, represented by Maximino Tabangcora. Consequently, the contract between the Spouses Tabangcora and Acsayan was binding only between them. Since there was no privity of contract between the Spouses Vargas and Acsayan, the Spouses Vargas could not be held liable to Acsayan for any amount or interest.

Addressing the nature of the transaction between the Spouses Tabangcora and Acsayan, the Court concurred with the CA that it was not a sale. Acsayan knew from the outset that the money he provided was intended to settle the Spouses Tabangcora’s loan with LBP. Furthermore, Acsayan’s ready agreement to loan a substantial amount without collateral, enticed by the promise of a 2% monthly interest, further indicated a loan rather than a sale. Citing a precedent, the Court stated that in cases of doubt, the contract must be presumed to impose the lesser obligation. Thus, the agreement was deemed a loan contract.

Consequently, the Court ruled that Acsayan was entitled to be paid the amount the Spouses Tabangcora borrowed, including the principal and legal interest. The Court stipulated that the interest on the loan would be fixed at 12% per annum from the date of default, June 20, 2000, until June 30, 2013, and at 6% per annum from July 1, 2013, until satisfaction, in accordance with prevailing jurisprudence. The Court stated that Acsayan did not have a vested right over the property that was superior to that of Stardiamond, Libarnes, and Paranis. There was also no basis to award Acsayan moral and exemplary damages or attorney’s fees. Acsayan was only entitled to the legal interest that accrued from the loan to the Spouses Tabangcora.

FAQs

What was the key issue in this case?	The key issue was determining who is liable when a property is transacted based on a Deed of Assignment, and the subsequent transaction falls apart. The Court needed to clarify the extent of liability for the original owner after a valid assignment.
What is a Deed of Assignment?	A Deed of Assignment is a legal document that transfers rights or interests in property from one party (the assignor) to another (the assignee). It is similar to a sale, transferring ownership rights.
When is a Deed of Assignment considered valid?	A Deed of Assignment is valid when there is a meeting of minds between the assignor and assignee regarding the object (the property) and the price or consideration. Consideration is presumed unless proven otherwise.
What is the significance of consideration in a contract?	Consideration is the value or benefit that each party receives in exchange for their part of the agreement. It’s an essential element for the validity of a contract, ensuring that the agreement is not gratuitous.
Who is liable for transactions made after a valid Deed of Assignment?	After a valid Deed of Assignment, the assignee (the party receiving the rights) becomes responsible for subsequent transactions related to the property. The assignor (original owner) is generally not liable.
What was the Court’s ruling on the nature of the transaction between the Spouses Tabangcora and Acsayan?	The Court ruled that the transaction was a loan, not a sale, based on the intent of the parties and the circumstances surrounding the payment made by Acsayan. This determination affected the remedies available to Acsayan.
What interest rate was applied to the loan?	The Court applied a legal interest rate of 12% per annum from the date of judicial demand (June 20, 2000) until June 30, 2013, and 6% per annum from July 1, 2013, until full payment, consistent with prevailing jurisprudence.
What damages were awarded in this case?	The Court did not award moral or exemplary damages, or attorney’s fees. Acsayan was only entitled to the repayment of the loan principal plus legal interest.
What is privity of contract?	Privity of contract means that only the parties to a contract are bound by it and can enforce it. A third party cannot enforce a contract unless they are directly involved in the agreement.

This case serves as a reminder of the importance of thoroughly investigating property titles and ensuring proper documentation in real estate transactions. It clarifies the liability of parties involved in property assignments, emphasizing that contractual obligations primarily bind the transacting parties. It underscores the need for due diligence and understanding the nature of agreements before entering into them, especially when dealing with assignments and transfers of property 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: Dr. Rico Vargas v. Jose F. Acsayan, Jr., G.R. No. 206780, March 20, 2019