Pago Allegedly Executed by Respondent Benjamin Bayhon in Favor of Petitioner

11.
Genato vs. Bayhon, et al. (G.R. No. 171035 dated August 24, 2009)
Civil Case No. Q-90-7012

 Respondents Benjamin M. Bayhon, Melanie Bayhon, Benjamin Bayhon Jr.,
Brenda Bayhon, Alina Bayhon-Campos, Irene Bayhon-Tolosa and the minor Gino
Bayhon, as represented by his mother Jesusita M. Bayhon, filed an action before
the RTC, Quezon City, Branch 76, docketed as Civil Case No. Q-90-7012. In their
Complaint, respondents sought the declaration of nullity of a dacion en
pago allegedly executed by respondent Benjamin Bayhon in favor of petitioner
William Ong Genato.[2]
 Respondent Benjamin Bayhon alleged that on July 3, 1989, he obtained from the
petitioner a loan amounting to PhP 1,000,000.00;[3] that to cover the loan, he
executed a Deed of Real Estate Mortgage over the property covered by Transfer
Certificate of Title (TCT) No. 38052; that, however, the execution of the Deed of
Real Estate Mortgage was conditioned upon the personal assurance of the
petitioner that the said instrument is only a private memorandum of indebtedness
and that it would neither be notarized nor enforced according to its tenor.[4]
Respondent further alleged that he filed a separate proceeding for the

reconstitution of TCT No. 38052 before the RTC, Quezon City, Branch 87.
[5]
Petitioner William Ong Genato filed an Answer in Intervention in the said
proceeding and attached a copy of an alleged dacion en pago covering said lot.
[6]
Respondent assailed the dacion en pago as a forgery alleging that neither he nor
his wife, who had died 3 years earlier, had executed it.
In his Answer, petitioner Genato denied the claim of the respondent regarding the
death of the latter's wife.[8] He alleged that on the date that the real estate mortgage
was to be signed, respondent introduced to him a woman as his wife. [9] He alleged
that the respondent signed the dacion en pago and that the execution of the
instrument was above-board.[10]
Civil Case No. Q-90-7551
On December 20, 1990, petitioner William Ong Genato filed Civil Case No. Q-90-7551,
an action for specific performance, before the RTC, Quezon City, Branch 79. In his
Complaint, petitioner alleged that respondent obtained a loan from him in the amount of
PhP 1,000,000.00. Petitioner alleged further that respondent failed to pay the loan and
executed on October 21, 1989 a dacion en pago in favor of the petitioner. The dacion en
pago was inscribed and recorded with the Registry of Deeds of Quezon City. [11]
Petitioner further averred that despite demands, respondent refused to execute the
requisite documents to transfer to him the ownership of the lot subject of the dacion en
pago. Petitioner prayed, inter alia, for the court to order the respondent to execute the
final deed of sale and transfer of possession of the said lot.[12]
ISSUE
Whether or not Benjamin Bayhon is liable to Mr. Genato in the amount of Php
5,647,130.00 in principal and interest as of October 3, 1997 and 5% monthly interest
thereafter until the account shall have been fully paid.[24]
HELD
The Court of Appeals erred in declaring the Real Estate Mortgage dated July 3, 1989 and
the Dacion en Pago dated October 21, 1989, null and void.[25]
We shall first tackle the nullity of the dacion en pago.
We affirm the ruling of the appellate court that the subject dacion en pago is a simulated
or fictitious contract, and hence void. The evidence shows that at the time it was
allegedly signed by the wife of the respondent, his wife was already dead. This finding of
fact cannot be reversed.
We now go to the ruling of the appellate court extinguishing the obligation of respondent.
As a general rule, obligations derived from a contract are transmissible. Article 1311,
par.1 of the Civil Code provides:
Contracts take effect only between the parties, their assigns and heirs, except in case
where the rights and obligations arising from the contract are not transmissible by their
nature, or by stipulation or by provision of law. The heir is not liable beyond the value of
the property he received from the decedent.
In Estate of Hemady v. Luzon Surety Co., Inc.,[26] the Court, through Justice JBL
Reyes, held:
While in our successional system the responsibility of the heirs for the debts of their
decedent cannot exceed the value of the inheritance they receive from him, the principle
remains intact that these heirs succeed not only to the rights of the deceased but also
to his obligations. Articles 774 and 776 of the New Civil Code (and Articles 659 and
661 of the preceding one) expressly so provide, thereby confirming Article 1311 already
quoted.
"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 his 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."[27] (Emphasis supplied)
The Court proceeded further to state the general rule:
Under our law, therefore, the general rule is that a party's contractual rights and
obligations are transmissible to the successors. The rule is a consequence of the
progressive "depersonalization" of patrimonial rights and duties that, as observed by
Victorio Polacco, has characterized the history of these institutions. From the Roman
concept of a relation from person to person, the obligation has evolved into a relation
from patrimony to patrimony, with the persons occupying only a representative position,
barring those rare cases where the obligation is strictly personal, i.e., is contracted intuitu
personae, in consideration of its performance by a specific person and by no other. The
transition is marked by the disappearance of the imprisonment for debt.[28] (Emphasis
supplied)
The loan in this case was contracted by respondent. He died while the case was pending
before the Court of Appeals. While he may no longer be compelled to pay the loan, the
debt subsists against his estate. No property or portion of the inheritance may be
transmitted to his heirs unless the debt has first been satisfied. Notably, throughout the
appellate stage of this case, the estate has been amply represented by the heirs of the
deceased, who are also his co-parties in Civil Case No. Q-90-7012.
The procedure in vindicating monetary claims involving a defendant who dies before
final judgment is governed by Rule 3, Section 20 of the Rules of Civil Procedure, to wit:
When the action is for recovery of money arising from contract, express or implied, and
the defendant dies before entry of final judgment in the court in which the action was
pending at the time of such death, it shall not be dismissed but shall instead be allowed to
continue until entry of final judgment. A favorable judgment obtained by the plaintiff
therein shall be enforced in the manner especially provided in these Rules for prosecuting
claims against the estate of a deceased person.
Pursuant to this provision, petitioner's remedy lies in filing a claim against the estate of
the deceased respondent.
We now go to the interest awarded by the trial court. We note that the interest has been
pegged at 5% per month, or 60% per annum. This is unconscionable, hence cannot be
enforced.[29] In light of this, the rate of interest for this kind of loan transaction has been
fixed in the case of Eastern Shipping Lines v. Court of Appeals,[30] at 12% per annum,
calculated from October 3, 1989, the date of extrajudicial demand. [31]
Following this formula, the total amount of the obligation of the estate of Benjamin
Bayhon is as follows:
Principal Php 1,000,000.00

Less: Partial Payments 27,870.00
55,00000
20,000.00
897,130.00
Plus : Interest
(12% per annum x 20 2,153,552.00
years)
TOTAL: Php 3,050,682.00
IN VIEW WHEREOF, the decision of the Court of Appeals dated September 16, 2005
is AFFIRMED with the MODIFICATION that the obligation to pay the principal loan
and interest contracted by the deceased Benjamin Bayhon subsists against his estate and
is computed at PhP 3,050,682.00.

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11.

Civil Case No. Q-90-7012

Respondent further alleged that he filed a separate proceeding for the

Civil Case No. Q-90-7551

We shall first tackle the nullity of the dacion en pago.

The Court proceeded further to state the general rule:

Principal Php 1,000,000.00

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