FIRST DIVISION

[G.R. No. 113725. June 29, 2000.]

JOHNNY S. RABADILLA, 1, Petitioner, v. COURT OF APPEALS AND MARIA MARLENA 2

COSCOLUELLA Y BELLEZA VILLACARLOS, Respondents.

DECISION

PURISIMA, J.:

This is a petition for review of the decision of the Court of Appeals, 3 dated December 23, 1993, in
CA-G.R. No. CV-35555, which set aside the decision of Branch 52 of the Regional Trial Court in
Bacolod City, and ordered the defendants-appellees (including herein petitioner), as heirs of Dr.
Jorge Rabadilla, to reconvey title over Lot No. 1392, together with its fruits and interests, to the
estate of Aleja Belleza.

The antecedent facts are as follows:chanrob1es virtual 1aw library

In a Codicil appended to the Last Will and Testament of testatrix Aleja Belleza, Dr. Jorge Rabadilla,
predecessor-in-interest of the herein petitioner, Johnny S. Rabadilla, was instituted as a devisee of
511,855 square meters of that parcel of land surveyed as Lot No. 1392 of the Bacolod Cadastre. The
said Codicil, which was duly probated and admitted in Special Proceedings No. 4046 before the
then Court of First Instance of Negros Occidental, contained the following
provisions:jgc:chanrobles.com.ph

"FIRST

I give, leave and bequeath the following property owned by me to Dr. Jorge Rabadilla resident of
141 P. Villanueva, Pasay City:chanrob1es virtual 1aw library

(a) Lot No. 1392 of the Bacolod Cadastre, covered by Transfer Certificate of Title No. RT-4002
(10942), which is registered in my name according to the records of the Register of Deeds of Negros
Occidental.

(b) That should Jorge Rabadilla die ahead of me, the aforementioned property and the rights which
I shall set forth hereinbelow, shall be inherited and acknowledged by the children and spouse of
Jorge Rabadilla.

x       x       x

FOURTH

(a) It is also my command, in this my addition (Codicil), that should I die and Jorge Rabadilla shall
have already received the ownership of the said Lot No. 1392 of the Bacolod Cadastre, covered by
Transfer Certificate of Title No. RT-4002 (10942), and also at the time that the lease of Balbinito G.
Guanzon of the said lot shall expire, Jorge Rabadilla shall have the obligation until he dies, every
year to give Maria Marlina Coscolluela y Belleza, Seventy (75) (sic) piculs of Export sugar and
Twenty Five (25) piculs of Domestic sugar, until the said Maria Marlina Coscolluela y Belleza
dies.chanrobles virtua| |aw |ibrary

FIFTH

(a) Should Jorge Rabadilla die, his heir to whom he shall give Lot No. 1392 of the Bacolod Cadastre,
covered by Transfer Certificate of Title No. RT-4002 (10492), shall have the obligation to still give
yearly, the sugar as specified in the Fourth paragraph of his testament, to Maria Marlina Coscolluela
y Belleza on the month of December of each year.

SIXTH

I command, in this my addition (Codicil) that the Lot No. 1392, in the event that the one to whom I
have left and bequeathed, and his heir shall later sell, lease, mortgage this said Lot, the buyer,
lessee, mortgagee, shall have also the obligation to respect and deliver yearly ONE HUNDRED (100)
piculs of sugar to Maria Marlina Coscolluela y Belleza, on each month of December, SEVENTY FIVE
(75) piculs of Export and TWENTY FIVE (25) piculs of Domestic, until Maria Marlina shall die, lastly
should the buyer, lessee or the mortgagee of this lot, not have respected my command in this my
addition (Codicil), Maria Marlina Coscolluela y Belleza, shall immediately seize this Lot No. 1392
from my heir and the latter’s heirs, and shall turn it over to my near desendants, (sic) and the latter
shall then have the obligation to give the ONE HUNDRED (100) piculs of sugar until Maria Marlina
shall die. I further command in this my addition (Codicil) that my heir and his heirs of this Lot No.
1392, that they will obey and follow that should they decide to sell, lease, mortgage, they cannot
negotiate with others than my near descendants and my sister." 4

Pursuant to the same Codicil, Lot No. 1392 was transferred to the deceased, Dr. Jorge Rabadilla, and
Transfer Certificate of Title No. 44498 thereto issued in his name.

Dr. Jorge Rabadilla died in 1983 and was survived by his wife Rufina and children Johnny
(petitioner), Aurora, Ofelia and Zenaida, all surnamed Rabadilla.

On August 21, 1989, Maria Marlena Coscolluela y Belleza Villacarlos brought a complaint, docketed
as Civil Case No. 5588, before Branch 52 of the Regional Trial Court in Bacolod City, against the
above-mentioned heirs of Dr. Jorge Rabadilla, to enforce the provisions of subject Codicil. The
Complaint alleged that the defendant-heirs violated the conditions of the Codicil, in that:chanrob1es
virtual 1aw library

1. Lot No. 1392 was mortgaged to the Philippine National Bank and the Republic Planters Bank in
disregard of the testatrix’s specific instruction to sell, lease, or mortgage only to the near
descendants and sister of the testatrix.

2. Defendant-heirs failed to comply with their obligation to deliver one hundred (100) piculs of
sugar (75 piculs export sugar and 25 piculs domestic sugar) to plaintiff Maria Marlena Coscolluela y
Belleza from sugar crop years 1985 up to the filing of the complaint as mandated by the Codicil,
despite repeated demands for compliance.

3. The banks failed to comply with the 6th paragraph of the Codicil which provided that in case of
the sale, lease, or mortgage of the property, the buyer, lessee, or mortgagee shall likewise have the
obligation to deliver 100 piculs of sugar per crop year to herein private Respondent.
The plaintiff then prayed that judgment be rendered ordering defendant-heirs to reconvey/return
Lot No. 1392 to the surviving heirs of the late Aleja Belleza, the cancellation of TCT No. 44498 in the
name of the deceased, Dr. Jorge Rabadilla, and the issuance of a new certificate of title in the names
of the surviving heirs of the late Aleja Belleza.

On February 26, 1990, the defendant-heirs were declared in default but on March 28, 1990 the
Order of Default was lifted, with respect to defendant Johnny S. Rabadilla, who filed his Answer,
accordingly.

During the pre-trial, the parties admitted that:chanrob1es virtual 1aw library

On November 15, 1998, the plaintiff (private respondent) and a certain Alan Azurin, son-in-law of
the herein petitioner who was lessee of the property and acting as attorney-in-fact of defendant
heirs, arrived at an amicable settlement and entered into a Memorandum of Agreement on the
obligation to deliver one hundred piculs of sugar, to the following effect:jgc:chanrobles.com.ph

"That for crop year 1988-89, the annuity mentioned in Entry No. 49074 of TCT No. 44489 will be
delivered not later than January of 1989, more specifically, to wit:chanrob1es virtual 1aw library

75 piculs of ‘A’ sugar, and 25 piculs of ‘B’ sugar, or then existing in any of our names, Mary Rose
Rabadilla y Azurin or Alan Azurin, during December of each sugar crop year; in Azucar Sugar
Central; and, this is considered compliance of the annuity as mentioned, and in the same manner
will compliance of the annuity be in the next succeeding crop years.

That the annuity above stated for crop year 1985-86, 1986-87, and 1987-88, will be complied in
cash equivalent of the number of piculs as mentioned therein and which is as herein agreed upon,
taking into consideration the composite price of sugar during each sugar crop year, which is in the
total amount of ONE HUNDRED FIVE THOUSAND PESOS (P105,000.00).

That the above-mentioned amount will be paid or delivered on a staggered cash installment,
payable on or before the end of December of every sugar crop year, to wit:chanrob1es virtual 1aw
library

For 1985-86, TWENTY SIX THOUSAND TWO HUNDRED FIFTY (P26,250.00) Pesos, payable on or
before December of crop year 1988-89;

For 1986-87, TWENTY SIX THOUSAND TWO HUNDRED FIFTY (P26,250.00) Pesos, payable on or
before December of crop year 1989-90;

For 1987-88, TWENTY SIX THOUSAND TWO HUNDRED FIFTY (P26,250.00) Pesos, payable on or
before December of crop year 1990-91; and

For 1988-89, TWENTY SIX THOUSAND TWO HUNDRED FIFTY (P26,250.00) Pesos, payable on or
before December of crop year 1991-92." 5

However, there was no compliance with the aforesaid Memorandum of Agreement except for a
partial delivery of 50.80 piculs of sugar corresponding to sugar crop year 1988-1989.

On July 22, 1991, the Regional Trial Court came out with a decision, dismissing the complaint and
disposing as follows:jgc:chanrobles.com.ph

"WHEREFORE, in the light of the aforegoing findings, the Court finds that the action is prematurely
filed as no cause of action against the defendants has as yet arose in favor of plaintiff. While there
maybe the non-performance of the command as mandated exaction from them simply because they
are the children of Jorge Rabadilla, the title holder/owner of the lot in question, does not warrant
the filing of the present complaint. The remedy at bar must fall. Incidentally, being in the category
as creditor of the left estate, it is opined that plaintiff may initiate the intestate proceedings, if only
to establish the heirs of Jorge Rabadilla and in order to give full meaning and semblance to her
claim under the Codicil.

In the light of the aforegoing findings, the Complaint being prematurely filed is DISMISSED without
prejudice.chanrobles.com : virtual law library

SO ORDERED." 6

On appeal by plaintiff, the First Division of the Court of Appeals reversed the decision of the trial
court; ratiocinating and ordering thus:jgc:chanrobles.com.ph

"Therefore, the evidence on record having established plaintiff-appellant’s right to receive 100
piculs of sugar annually out of the produce of Lot No. 1392; defendants-appellee’s obligation under
Aleja Belleza’s codicil, as heirs of the modal heir, Jorge Rabadilla, to deliver such amount of sugar to
plaintiff-appellant; defendants-appellee’s admitted non-compliance with said obligation since 1985;
and, the punitive consequences enjoined by both the codicil and the Civil Code, of seizure of Lot No.
1392 and its reversion to the estate of Aleja Belleza in case of such non-compliance, this Court
deems it proper to order the reconveyance of title over Lot No. 1392 from the estates of Jorge
Rabadilla to the estate of Aleja Belleza. However, plaintiff-appellant must institute separate
proceedings to re-open Aleja Belleza’s estate, secure the appointment of an administrator, and
distribute Lot No. 1392 to Aleja Belleza’s legal heirs in order to enforce her right, reserved to her by
the codicil, to receive her legacy of 100 piculs of sugar per year out of the produce of Lot No. 1392
until she dies.

Accordingly, the decision appealed from is SET ASIDE and another one entered ordering
defendants-appellees, as heirs of Jorge Rabadilla, to reconvey title over Lot No. 1392, together with
its fruits and interests, to the estate of Aleja Belleza.

SO ORDERED." 7

Dissatisfied with the aforesaid disposition by the Court of Appeals, petitioner found his way to this
Court via the present petition, contending that the Court of Appeals erred in ordering the reversion
of Lot 1392 to the estate of the testatrix Aleja Belleza on the basis of paragraph 6 of the Codicil, and
in ruling that the testamentary institution of Dr. Jorge Rabadilla is a modal institution within the
purview of Article 882 of the New Civil Code.

The petition is not impressed with merit.

Petitioner contends that the Court of Appeals erred in resolving the appeal in accordance with
Article 882 of the New Civil Code on modal institutions and in deviating from the sole issue raised
which is the absence or prematurity of the cause of action. Petitioner maintains that Article 882
does not find application as there was no modal institution and the testatrix intended a mere simple
substitution — i.e. the instituted heir, Dr. Jorge Rabadilla, was to be substituted by the testatrix’s
"near descendants" should the obligation to deliver the fruits to herein private respondent be not
complied with. And since the testatrix died single and without issue, there can be no valid
substitution and such testamentary provision cannot be given any effect.

The petitioner theorizes further that there can be no valid substitution for the reason that the
substituted heirs are not definite, as the substituted heirs are merely referred to as "near
descendants" without a definite identity or reference as to who are the "near descendants" and
therefore, under Articles 843 8 and 845 9 of the New Civil Code, the substitution should be deemed
as not written.

The contentions of petitioner are untenable. Contrary to his supposition that the Court of Appeals
deviated from the issue posed before it, which was the propriety of the dismissal of the complaint
on the ground of prematurity of cause of action, there was no such deviation. The Court of Appeals
found that the private respondent had a cause of action against the petitioner. The disquisition
made on modal institution was, precisely, to stress that the private respondent had a legally
demandable right against the petitioner pursuant to subject Codicil; on which issue the Court of
Appeals ruled in accordance with law.

It is a general rule under the law on succession that successional rights are transmitted from the
moment of death of the decedent 10 and compulsory heirs are called to succeed by operation of
law. The legitimate children and descendants, in relation to their legitimate parents, and the widow
or widower, are compulsory heirs. 11 Thus, the petitioner, his mother and sisters, as compulsory
heirs of the instituted heir, Dr. Jorge Rabadilla, succeeded the latter by operation of law, without
need of further proceedings, and the successional rights were transmitted to them from the
moment of death of the decedent, Dr. Jorge Rabadilla.chanrobles.com.ph : red

Under Article 776 of the New Civil Code, inheritance includes all the property, rights and
obligations of a person, not extinguished by his death. Conformably, whatever rights Dr. Jorge
Rabadilla had by virtue of subject Codicil were transmitted to his forced heirs, at the time of his
death. And since obligations not extinguished by death also form part of the estate of the decedent;
corollarily, the obligations imposed by the Codicil on the deceased Dr. Jorge Rabadilla, were
likewise transmitted to his compulsory heirs upon his death.

In the said Codicil, testatrix Aleja Belleza devised Lot No. 1392 to Dr. Jorge Rabadilla, subject to the
condition that the usufruct thereof would be delivered to the herein private respondent every year.
Upon the death of Dr. Jorge Rabadilla, his compulsory heirs succeeded to his rights and title over
said property, and they also assumed his (decedent’s) obligation to deliver the fruits of the lot
involved to herein private Respondent. Such obligation of the instituted heir reciprocally
corresponds to the right of private respondent over the usufruct, the fulfillment or performance of
which is now being demanded by the latter through the institution of the case at bar. Therefore,
private respondent has a cause of action against petitioner and the trial court erred in dismissing
the complaint below.

Petitioner also theorizes that Article 882 of the New Civil Code on modal institutions is not
applicable because what the testatrix intended was a substitution — Dr. Jorge Rabadilla was to be
substituted by the testatrix’s near descendants should there be non-compliance with the obligation
to deliver the piculs of sugar to private Respondent.

Again, the contention is without merit.

Substitution is the designation by the testator of a person or persons to take the place of the heir or
heirs first instituted. Under substitutions in general, the testator may either (1) provide for the
designation of another heir to whom the property shall pass in case the original heir should die
before him/her, renounce the inheritance or be incapacitated to inherit, as in a simple substitution,
12 or (2) leave his/her property to one person with the express charge that it be transmitted
subsequently to another or others, as in a fideicommissary substitution. 13 The Codicil sued upon
contemplates neither of the two.

In simple substitutions, the second heir takes the inheritance in default of the first heir by reason of
incapacity, predecease or renunciation. 14 In the case under consideration, the provisions of
subject Codicil do not provide that should Dr. Jorge Rabadilla default due to predecease, incapacity
or renunciation, the testatrix’s near descendants would substitute him. What the Codicil provides is
that, should Dr. Jorge Rabadilla or his heirs not fulfill the conditions imposed in the Codicil, the
property referred to shall be seized and turned over to the testatrix’s near descendants.

Neither is there a fideicommissary substitution here and on this point, petitioner is correct. In a
fideicommissary substitution, the first heir is strictly mandated to preserve the property and to
transmit the same later to the second heir. 15 In the case under consideration, the instituted heir is
in fact allowed under the Codicil to alienate the property provided the negotiation is with the near
descendants or the sister of the testatrix. Thus, a very important element of a fideicommissary
substitution is lacking; the obligation clearly imposing upon the first heir the preservation of the
property and its transmission to the second heir. "Without this obligation to preserve clearly
imposed by the testator in his will, there is no fideicommissary substitution." 16 Also, the near
descendants’ right to inherit from the testatrix is not definite. The property will only pass to them
should Dr. Jorge Rabadilla or his heirs not fulfill the obligation to deliver part of the usufruct to
private Respondent.

Another important element of a fideicommissary substitution is also missing here. Under Article
863, the second heir or the fideicommissary to whom the property is transmitted must not be
beyond one degree from the first heir or the fiduciary. A fideicommissary substitution is therefore,
void if the first heir is not related by first degree to the-second heir. 17 In the case under scrutiny,
the near descendants are not at all related to the instituted heir, Dr. Jorge Rabadilla.

The Court of Appeals erred not in ruling that the institution of Dr. Jorge Rabadilla under subject
Codicil is in the nature of a modal institution and therefore, Article 882 of the New Civil Code is the
provision of law in point. Articles 882 and 883 of the New Civil Code provide:chanrob1es virtual
1aw library

ARTICLE 882. The statement of the object of the institution or the application of the property left by
the testator, or the charge imposed on him, shall not be considered as a condition unless it appears
that such was his intention.

That which has been left in this manner may be claimed at once provided that the instituted heir or
his heirs give security for compliance with the wishes of the testator and for the return of anything
he or they may receive, together with its fruits and interests, if he or they should disregard this
obligation.

ARTICLE 883. When without the fault of the heir, an institution referred to in the preceding article
cannot take effect in the exact manner stated by the testator, it shall be complied with in a manner
most analogous to and in conformity with his wishes.

The institution of an heir in the manner prescribed in Article 882 is what is known in the law of
succession as an institucion sub modo or a modal institution. In a modal institution, the testator
states (1) the object of the institution, (2) the purpose or application of the property left by the
testator, or (3) the charge imposed by the testator upon the heir. 18 A "mode" imposes an
obligation upon the heir or legatee but it does not affect the efficacy of his rights to the succession.
19 On the other hand, in a conditional testamentary disposition, the condition must happen or be
fulfilled in order for the heir to be entitled to succeed the testator. The condition suspends but does
not obligate; and the mode obligates but does not suspend. 20 To some extent, it is similar to a
resolutory condition. 21

From the provisions of the Codicil litigated upon, it can be gleaned unerringly that the testatrix
intended that the subject property be inherited by Dr. Jorge Rabadilla. It is likewise clearly worded
that the testatrix imposed an obligation on the said instituted heir and his successors-in-interest to
deliver one hundred piculs of sugar to the herein private respondent, Marlena Coscolluela Belleza,
during the lifetime of the latter. However, the testatrix did not make Dr. Jorge Rabadilla’s
inheritance and the effectivity of his institution as a devisee, dependent on the performance of the
said obligation. It is clear, though, that should the obligation be not complied with, the property
shall be turned over to the testatrix’s near descendants. The manner of institution of Dr. Jorge
Rabadilla under subject Codicil is evidently modal in nature because it imposes a charge upon the
instituted heir without, however, affecting the efficacy of such institution.

Then too, since testamentary dispositions are generally acts of liberality, an obligation imposed
upon the heir should not be considered a condition unless it clearly appears from the Will itself that
such was the intention of the testator. In case of doubt, the institution should be considered as
modal and not conditional. 22

Neither is there tenability in the other contention of petitioner that the private respondent has only
a right of usufruct but not the right to seize the property itself from the instituted heir because the
right to seize was expressly limited to violations by the buyer, lessee or mortgagee.

In the interpretation of Wills, when an uncertainty arises on the face of the Will, as to the
application of any of its provisions, the testator’s intention is to be ascertained from the words of
the Will, taking into consideration the circumstances under which it was made. 23 Such
construction as will sustain and uphold the Will in all its parts must be adopted. 24

Subject Codicil provides that the instituted heir is under obligation to deliver One Hundred (100)
piculs of sugar yearly to Marlena Belleza Coscuella. Such obligation is imposed on the instituted
heir, Dr. Jorge Rabadilla, his heirs, and their buyer, lessee, or mortgagee should they sell, lease,
mortgage or otherwise negotiate the property involved. The Codicil further provides that in the
event that the obligation to deliver the sugar is not respected, Marlena Belleza Coscuella shall seize
the property and turn it over to the testatrix’s near descendants. The non-performance of the said
obligation is thus with the sanction of seizure of the property and reversion thereof to the
testatrix’s near descendants. Since the said obligation is clearly imposed by the testatrix, not only
on the instituted heir but also on his successors-in-interest, the sanction imposed by the testatrix in
case of non-fulfillment of said obligation should equally apply to the instituted heir and his
successors-in-interest.

Similarly unsustainable is petitioner’s submission that by virtue of the amicable settlement, the said
obligation imposed by the Codicil has been assumed by the lessee, and whatever obligation
petitioner had become the obligation of the lessee; that petitioner is deemed to have made a
substantial and constructive compliance of his obligation through the consummated settlement
between the lessee and the private respondent, and having consummated a settlement with the
petitioner, the recourse of the private respondent is the fulfillment of the obligation under the
amicable settlement and not the seizure of subject property.

Suffice it to state that a Will is a personal, solemn, revocable and free act by which a person
disposes of his property, to take effect after his death. 25 Since the Will expresses the manner in
which a person intends how his properties be disposed, the wishes and desires of the testator must
be strictly followed. Thus, a Will cannot be the subject of a compromise agreement which would
thereby defeat the very purpose of making a Will.

WHEREFORE, the petition is hereby DISMISSED and the decision of the Court of Appeals, dated
December 23, 1993, in CA-G.R. No. CV-35555 AFFIRMED. No Pronouncement as to costs.chanrobles
virtuallawlibrary

SO ORDERED.

Melo, J., I concur as well in the separate opinion of Justice Vitug.

Gonzaga-Reyes, J., took no part.

FIRST DIVISION

G.R.No. 202324, June 04, 2018

CONCHITA GLORIA AND MARIA LOURDES GLORIA-PAYDUAN, Petitioners, v. BUILDERS

SAVINGS AND LOAN ASSOCIATION, INC., Respondent.

DECISION

DEL CASTILLO, J.:

This Petition for Review on Certiorari1 assails the March 13, 2012 Decision2 and June 18, 2012
Resolution3 of the Court of Appeals (CA) in CA-G.R. CV No. 82774, which respectively reversed the
March 12, 2004 Order4 of the Quezon City Regional Trial Court, Branch 224 (RTC) in Civil Case No.
Q-93-16621 and denied herein petitioner' Motion for Reconsideration. 5

Factual Antecedents

Spouses Juan and herein petitioner Conchita Gloria (Conchita) are registered owners of a parcel of
land located in Kamuning, Quezon City covered by Transfer Certificate of Title No. 35814 (TCT
35814).6  Petitioner Maria Lourdes Gloria-Payduan (Lourdes) is their daughter. 7

On August 14, 1987, Juan passed away.8

On December 7, 1993, Conchita and Lourdes filed before the RTC a Second Amended
Complaint9 against respondent Builders Savings and Loan Association, Inc. (Builders Savings),
Benildo Biag (Biag), and Manuel F. Lorenzo for "declaration of null and void real estate mortgage,
promissory note, cancellation of notation in the transfer certificate of title, and damages" 10 with
prayer for injunctive relief. The case was docketed as Civil Case No. Q-93-16621. Petitioners
claimed that Biag duped them into surrendering TCT 35814 to him under the pretense that Biag
would verify the title, which he claimed might have been fraudulently transferred to another on
account of a fire that gutted the Quezon City Registry of Deeds; that Biag claimed that the title might
need to be reconstituted; that Biag instead used the title to mortgage the Kamuning property to
respondent Builders Savings; that Conchita was fraudulently made to sign the subject loan and
mortgage documents by Biag, who deceived Conchita into believing that it was actually Lourdes
who requested that these documents be signed; that the subject Mortgage 11 and Promissory
Note12 contained the signature not only of Conchita, but of Juan, who was by then already long
deceased, as mortgagor and co-maker; that at the time the loan and mortgage documents were
supposedly executed, Conchita was already sickly and senile, and could no longer leave her house;
that Biag and Builders Savings conspired in the execution of the forged loan and mortgage
documents, that the forged loan and mortgage documents were not signed/affirmed before a
notary public; that on account of Biag and Builders Savings' collusion, the subject property was
foreclosed and sold at auction to the latter; and that the loan and mortgage documents, as well as
the foreclosure and sale proceedings, were null and void and should he annulled. Petitioners thus
prayed that the Mortgage and Promissory Note be declared null and void; that the
encumbrances/annotations in the subject title be cancelled; that the certificate of title be returned
to them; and that they be awarded P500,000.00 moral damages, P50,000.00 exemplary damages,
P20,000.00 actual damages, P20,000.00 attorney's fees and other legal expenses, and costs of suit.

On the other hand, Builders Savings claimed that –

x x x Lourdes Payduan had neither the capacity to sue nor the authority and interest to file the
case a quo. She was merely an "ampon" or "palaki" of the Spouses Juan and Conchita Gloria and was
not legally adopted by them. Moreover, Conchita neither signed the verification attached to the
complaint nor executed a special power of attorney to authorize her daughter Maria Lourdes to
pursue the case a quo. Further, Conchita never appeared in court to testify during trial. BLSA
presented its Credit Investigator Danilo Reyes who testified that he personally met Spouses Juan
and Conchita Gloria, Maria Lourdes and her husband, and Benildo Biag when they went to their
office to apply for a loan. He also saw the identification card presented by Juan to verify and confirm
his identity. Likewise, Conchita was a retired public school teacher who could not be cajoled by
Benildo to execute a real estate mortgage on her property against her will. In the same vein, the fact
that Conchita submitted floor plans of her house and its tax declarations only signified that she
voluntarily mortgaged her property.13

Ruling of the Regional Trial Court

On September 26, 2003, the RTC issued its Decision in Civil Case No. Q-93-16621 dismissing
petitioners' complaint for lack of merit. The counterclaims and crossclaims were likewise
dismissed.

Petitioners moved to reconsider.

On March 12, 2004, the RTC issued its Order granting petitioners' motion for reconsideration. The
trial court held:
When plaintiff Marides Gloria Payduan testified, she told the Court that Benildo Biag was
introduced to her by her husband for the purpose or reconstituting TCT No. 35814 because it was
one of those burned. Benildo Biag told them that he [knows] of someone who could help them
reconstitute the title. This happened sometime [in] June of 1988. So, they gave him the original copy
of the title on June 26 at their residence at 161 K-3rd Street, Kamuning, Quezon City. Mr. Benildo
Biag promised to return the title to them, but failed to [do so] until they knew that it has already
been mortgaged. (TSN April 25, 1997, pp. 21 to 26).

xxxx

[Thus, when p]laintiff Conchita Gloria x x x signed the promissory note and the real estate
mortgage[, she] was not acting freely and with all her faculties functioning. She signed the papers
given to her by Benildo Biag under the thought that this will be used in the reconstitution of her
original certificate of title but it turned out however that Benildo Biag used them to secure the loan
proceeds from the defendant Builders.

Under Article 1330 of the Civil Code, a contract where consent is given through mistake, violence,
intimidation, undue influence or fraud is voidable.

xxxx

Under the circumstances, defendant Builders should have exerted extra diligence before it
approved the loan application of Benildo Biag and had it [exerted] extra effort in investigating the
factual circumstances of the loan application, it could have discovered that plaintiff Conchita
Gloria's signature in the promissory note x x x and the deed of real estate mortgage x x x were not
authorized and that her husband Juan Gloria had died x x x before the filing of the loan application.
These are factual milieu which militates against Builders. As held in Gatioan vs. Gaffud (27 SCRA
706), before a bank grants a loan on the security of land, it must undertake a careful examination of
the title of the applicant as well as a physical and on the spot investigation of the land offered as a
security. There is a dearth of proof in the Builders evidence that it has investigated the person of
plaintiff Conchita Gloria and the land offered as a collateral.

The case of Rural Bank of Caloocan City vs. CA (104 SCRA 151) is also four square. It was held
therein that 'A contract may be annulled on the ground of vitiated consent, if deceit by a third
person, even without connivance or complicity with one of the contracting parties, resulted in
mutual error on the part of the parties to the contract. x x x The possibility of her not knowing that
she signed the promissory note as co-maker x x x, and that her property was mortgaged to secure
the x x x loans, in view of her personal circumstances - ignorance, lack of education and old age -
should have placed the Bank on prudent inquiry to protect its interest and that of the public it
serves. With the recent occurrence of events that have supposedly affected adversely our banking
system, attributable to laxity in the conduct of bank business by its bank officials, the need [for]
extreme caution and prudence by said officials and employees in the discharge of their functions
cannot be overemphasized.'

Art. 2085 of the Civil Code, is also appropriate. It provides that:

xxxx

3. The mortgagor should have the free disposal of the property mortgaged and in the absence
thereof, he should be authorized for the purpose.
Thus, it is settled that if a forger mortgages another's property, the mortgage is void. (De Lara vs.
Ayroso, 95 Phil. 185)

xxxx

Similarly, in Parqui vs. PNB (96 Phil. 157), the Court said, there can be no question that the
mortgage under consideration is a nullity the same having been executed by an impostor without
the authority of the owner of the interest mortgaged. Its registration under the Land Registration
Law lends no validity because, according to the last proviso to the second paragraph of Section 55
of that law, registration procured by the presentation of a forged deed is null and void.'

The evidence extant in the records being preponderant to establish the negligence of Builders, the
Court next looks at plaintiffs' claim tor damages. x x x

xxxx

Under Article 2217 of the New Civil Code, moral damages include physical suffering, mental
anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, social
humiliation, and similar injury. Though incapable of pecuniary estimation, moral damages may be
recovered if they are the proximate result of the defendant's wrongful act or omission. An amount
of P200,000.00 to answer for her sufferings, anguish and fright appears to be reasonable and fair.

On the other hand, the Court has to deny plaintiffs' prayer for actual damages since plaintiffs failed
to substantiate the same, either by testimonial or documentary evidence. It is a basic rule that one
is entitled to an adequate compensation only for such pecuniary loss suffered by him as he has duly
proved. (Art. 2219, NCC). x x x

The Court likewise finds it proper to award an attorney's fees in the amount of P20,000.00 in favor
of the plaintiffs as they were compelled to litigate the instant case through their counsel. x x x

xxxx

Accordingly, therefore, the decision of the Court dated September 26, 2003 is hereby reconsidered
and set aside and a new one is entered in favor of the plaintiff[s] and as against the defendant:

a) declaring the real estate mortgage dated June 26, 2001 and the promissory note dated June 28,
2001 null and void;

b) directing the cancellation of the annotations in the TCT No. 35814 of Conchita Gloria;

c) directing the defendant Builders Savings and Loan Association, Inc. to return to plaintiffs TCT No.
35814 of the Registry of Deeds of Quezon City free from all liens and encumbrances;

d) directing the defendant Builders to pay plaintiffs moral damages in the amount of P200,000.00;
and

e) directing the defendant Builders to pay plaintiffs attorney's fees in the amount of P20,000.00.

SO ORDERED.14
Ruling of the Court of Appeals

Respondent interposed an appeal before the CA. On March 13, 2012, the CA issued the assailed
Decision, decreeing as follows:

In fine, BSLA asserts that x x x Conchita voluntarily executed the real estate mortgage who
submitted supporting documents to secure the loan of Benildo Biag. The testimony of Maria
Lourdes assailing the contract was merely hearsay and could not be used as evidence and basis for
the nullification of the contract.

xxxx

The appeal is impressed with merit.

xxxx

Here, after a careful perusal of the records, this Court finds that there are procedural infirmities
that warrant the dismissal of the complaint a quo.

First, the complaint sought for the nullification of real estate mortgage contract and promissory
note executed by Conchita to secure the loan of Benildo with BSLA on the ground that Conchita's
signature was obtained through fraud, without her full knowledge of the import of her act.

The parties to a contract are the real parties in interest in an action upon it. Thus, Rule 3 of the
Rules of Court defines a real party in interest, thus:

Sec. 2. Parties in interest. - A real party in interest is the party who stands to be benefited or injured
by the judgment in the suit, or the party entitled to the avails of the suit. Unless otherwise
authorized by law or these Rules, every action must be prosecuted or defended in the name of the
real party in interest.
The aforestated provision has two (2) requirements: 1) to institute an action, the plaintiff must be
the real party in interest, and 2) the action must be prosecuted in the name of the real party in
interest. x x x When the plaintiff is not the real party in interest, the case is dismissible on the
ground of lack of cause of action. Accordingly, only the contracting parties are bound by the
stipulations in the contract since they are the ones who would benefit from and could violate it.
Hence, one who is not a party thereto, and for whose benefit it was not expressly made, cannot
maintain an action on it. x x x In the case at bar, the real party in interest was Conchita being the
person who executed the real estate mortgage contract. It was she who would stand to suffer by the
fulfillment of its terms because she obligated herself as a mortgagor who would answer to BSLA
upon the default of Benildo.

On the other hand, Maria Lourdes claimed that she is a real party in interest because she is a co-
owner of the property for having inherited a portion thereof from her deceased father, Juan.

We are not persuaded.

When an alleged heir [sues] to nullify a document which would impair her interest as such heir, her
successional rights must first be determined in a special proceeding. x x x

xxxx

Thus, in order that Maria Lourdes be clothed with personality to institute the complaint a quo, she
must show that she has a real interest which would suffer any detriment by its performance or
annulment. This she must do only after establishing that she is a legal heirs of Juan and that she
inherited the property subject of the mortgage and accordingly, a co-owner thereof This, however,
Maria failed to do. Nothing in the records appear that a judicial or extrajudicial partition was made
by Juan's heirs. Neither does it appear that the only property left by Juan is the same property
subject of the mortgage. Further, Maria Lourdes did not present any evidence to establish her rights
as heir or prove that Juan had no other heirs who are not parties in this case. Apparently, there is
yet a need to first determine Maria Lourdes' rights through a special proceeding. Clearly, then,
Maria Lourdes could not be considered a real party in interest to institute the action in the court a
quo to nullify the real estate mortgage executed by Conchita absent any proof to show that she has
an interest over the subject property.

On this note, this brings us to the second point in issue. A careful perusal of the record shows that
plaintiffs-appellees' Second Amended Complaint appears to have been accompanied with a defective
verification which was signed by Maria Lourdes only and not Conchita, with no reasonable
justification for the omission whatsoever. It was likewise not accompanied by a certification against
non-forum shopping [sic] with no justification presented by plaintiffs-appellees. x x x

xxxx

It is true that defect in the verification will not render the pleading fatally detective. This, however,
does not hold true for a certification against forum shopping which must be signed by all the
plaintiffs. Failure to do so will result to the dropping of the parties who did not sign. Here, the
failure of Conchita to sign the certification against non-forum shopping [sic], not once, but thrice,
[in] the Complaint, Amended Complaint, and Second Amended Complaint, would result to dropping
her from the case as plaintiff therein. She was not able to provide any justification for this omission
to warrant the relaxation of the rules. Moreover, Conchita and Maria Lourdes do not hold a common
interest because Conchita was the party who executed the real estate mortgage contract and the
registered owner of the subject property, while as above-discussed, Maria Lourdes's interest was
not established.

Assuming arguendo that Conchita will not be dropped as party to the case, the evidence presented
by plaintiffs-appellees are not sufficient to support the grant of their complaint. The allegations of
fraud were established only through the testimony of Maria Lourdes who had no personal
knowledge of the circumstances that would constitute the fraud allegedly committed by BSLA. She
merely relied on the statement made by Conchita that she was misled into signing the contract
making her believe that it was for the reconstitution of her title with the Register of Deeds. Thus,
Maria Lourdes' statement has no probative value absent any showing that the evidence falls within
the exception to the hearsay evidence rule.

Based on the foregoing, this Court is constrained to dismiss plaintiffs-appellees' complaint.

WHEREFORE, the Order dated March 12, 2004 of the Regional Trial Court (RTC), National Capital
Judicial Region, Branch 224, Quezon City, in Civil Case No. Q-93-16621, entitled "Conchita Gloria, et
al., Plaintiffs, versus Builders Savings and Loan Association Inc., et al., Defendants, is REVERSED
AND SET ASIDE. The Second Amended Complaint dated December 3, 1993 filed by plaintiffs-
appellees Conchita Gloria and Maria Lourdes Payduan is DISMISSED.

SO ORDERED.15

Petitioners moved to reconsider, but in a June 18, 2012 Resolution, the CA held its ground. Hence,
the present Petition.

Issues

Petitioners submit the following issues to be resolved:

1. WHETHER x x x PETITIONER MARIA LOURDES GLORIA-PAYDUAN AS CO-OWNER OF SUBJECT

REAL PROPERTY, IS A REAL PARTY IN INTEREST IN THIS CASE.

2. WHETHER x x x IT IS APPROPRIATE FOR THE APPELLATE COURT TO PASS UPON ISSUE NOT
RAISED BY APPELLANT IN ITS APPELLANT'S BRIEF'S ASSIGNMENT OF ERRORS. 16

Petitioners' Arguments

Petitioners contend that Lourdes had proved that she was the daughter of Conchita and Juan; that
the subject property was conjugal property belonging to both Juan and Conchita; that when Juan
died in 1987, Lourdes became a co-owner of the subject property by virtue of her being a
compulsory heir of Juan; that as co-owner of the subject property, she has the required interest to
prosecute Civil Case No. Q-93-16621; that the CA erred in declaring that Lourdes must first obtain a
declaration of heirship, since Article 777 of the Civil Code specifically provides that successional
rights are transmitted from the decedent to his/her heirs from the moment of death of the former;
that even if there were no pending settlement proceedings for the distribution of a decedent's
estate, there was no need for a prior declaration of heirship before the heirs may commence an
action arising from any right of the deceased, such as the right to bring an action to annul a
sale;17 that the issue of lack or improper verification was never raised by the respondent at any
stage of the proceedings, yet the CA unduly took cognizance thereof that even if Conchita failed to
sign the amended complaint, this could not affect the same since both she and Lourdes shared a
common interest in the subject property as co-owners thereof; and that the subject real estate
mortgage and promissory note were null void for being simulated, since they were supposedly
signed and executed by Juan in 1991, when he actually passed away in 1987.

Petitioners pray that the CA dispositions be annulled and in lieu thereof, the RTC's March 12, 2004
Order be reinstated.

Respondent's Arguments

Respondent, on the other hand, failed to comment on the Petition despite repeated directives from
the Court.

Our Ruling
The Petition is granted.

The evidence reveals that Lourdes is the daughter of Juan and Conchita. There is on record a
Certification of Birth18 issued by the Lipa City Office of the Local Civil Registrar indicating that
Lourdes was born to Juan and Conchita; this document was marked as Exhibit "H" during the
proceedings below, and remains uncontested. Moreover, Lourdes categorically testified during trial
that she was the natural child of Juan and Conchita, thus:

Being the daughter of the deceased Juan and Conchita, Lourdes has an interest in the subject
property as heir to Juan and co-owner with Conchita. The fact that she was not judicially declared
as heir is of no moment, for, as correctly argued by petitioners, there was no need for a prior
declaration of heirship before heirs may commence an action arising from any right of their
predecessor, such as one for annulment of mortgage. "[N]o judicial declaration of heirship is
necessary in order that an heir may assert his or her right to the property of the deceased." 20

x x x. A prior settlement of the estate is not essential before the heirs can commence any action
originally pertaining to the deceased as we explained in Quison v. Salud –

Claro Quison died in 1902. It was proven at the trial that the present plaintiffs are next of kin and
heirs, but it is said by the appellants that they [were] not entitled to maintain this action because
there [was] no evidence that any proceedings [had] been taken in court for the settlement of the
estate of Claro Quison; and that without such settlement, the heirs cannot maintain this action.
There is nothing in this point. [Under] the Civil Code [and/or] Code of Civil Procedure, the title to
the property owned by a person who dies intestate passes at once to his heirs. Such transmission is,
under the present law, subject to the claims of administration and the property may be taken from
the heirs for the purpose of paying debts and expenses, but this does not prevent an immediate
passage of the title, upon the death of the intestate, from himself to his heirs. Without some
showing that a judicial administrator had been appointed in proceedings to settle the estate of
Claro Quison, the right of the plaintiffs to maintain this action is established.

Conformably with the foregoing and taken in conjunction with Arts. 777 and 494 of the Civil Code,
from the death of Lourdes Sampayo her rights as a co-owner, incidental to which is the light to ask
for partition at any time or to terminate the co-ownership, were transmitted to her rightful heirs. In
so demanding partition private respondents merely exercised the right originally pertaining to the
decedent, their predecessor-in-interest.21(Citations omitted)

As regards the supposed defective verification occasioned by Conchita's failure to sign the amended
complaint with its concomitant verification and certification against forum shopping the Court has
repeatedly held that in a case involving co-owners of property where said property is the subject
matter of the suit, the failure of the other co-owners to sign the verification and certification against
forum shopping is not fatal, as the signing by only one or some of them constitutes substantial
compliance with the rule.

Finally, we find no merit in respondents' argument that the present petition should be dismissed
for failure of the other co-heirs/co-petitioners to sign the verification and certification against
forum-shopping as required by Sections 4 and 5, Rule 7 of the 1997 Rules of Civil Procedure.
In the case of Iglesia  Ni Cristo  v. Judge  Ponferrada we expounded on the purpose and sufficiency
of compliance with the verification and certification against forum shopping requirements, viz.:

The issue in the present case is not the lack of verification but the sufficiency of one executed by
only one of [the] plaintiffs. This Court held in Ateneo de  Naga University v. Manalo, that the
verification requirement is deemed substantially complied with when, as in the present case, only
one of the heirs-plaintiffs, who has sufficient knowledge and belief to swear to the truth of the
allegations in the petition (complaint), signed the verification attached to it. Such verification is
deemed sufficient assurance that the matters alleged in the petition have been made in good faith
or are true and correct, not merely speculative.

The same liberality should likewise be applied to the certification against forum shopping. The
general rule is that the certification must be signed by all plaintiffs in a case and the signature of
only one of them is insufficient. However, the Court has also stressed in a number of cases that the
rules on forum shopping were designed to promote and facilitate the orderly administration of
justice and thus should not be interpreted with such absolute literalness as to subvert its own
ultimate and legitimate objective. The rule of substantial compliance may be availed of with respect
to the contents of the certification. This is because the requirement of strict compliance with the
provisions merely underscores its mandatory nature in that the certification cannot be altogether
dispensed with or its requirements completely disregarded.

The substantial compliance rule has been applied by this Court in a number of cases: Cavile v. Heirs
of Cavile, where the Court sustained the validity of the certification signed by only one of
petitioners because he is a relative of the other petitioner and co-owner of the properties in
dispute; Heirs of Agapito T. Olarte v. Office of the President of the Philippines, where the Court
allowed a certification signed by only two petitioners because the case involved a family home in
which all the petitioners shared a common interest; Gudoy v.  Guadalquiver, where the Court
considered as valid the certification signed by only four of the nine petitioner because all
petitioners filed as co-owners pro indiviso a complaint against respondents for quieting of title and
damages, as such, they all have joint interest in the undivided whole; and Dar v. Alonzo-
Legasto, where the Court sustained the certification signed by only one of the spouses as they were
sued jointly involving a property in which they had a common interest.

It is noteworthy that in all of the above cases, the Court applied the rule on substantial compliance
because of the commonality of interest of all the parties with respect to the subject of the
controversy.22 (Citations omitted)

"As such co-owners, each of the heirs may properly bring an action for ejectment, forcible entry and
detainer, or any kind of action for the recovery of possession of the subject properties. Thus, a co-
owner may bring such an action, even without joining all the other co-owners as co-plaintiffs,
because the suit is deemed to be instituted for the benefit of all." 23

Finally, the Court finds the trial court to be correct in issuing the March 12, 2004 Order granting
petitioners' motion for reconsideration and declaring the mortgage and promissory note as null
and void. The evidence indicates that these documents were indeed simulated; as far as petitioners
were concerned, they merely entrusted the title to the subject property to Biag for the purpose of
reconstituting the same as he claimed that the title on file with the Registrar of Deeds of Quezon
City may have been lost by fire. Petitioners did not intend for Biag to mortgage the subject property
in 1991 to secure a loan; yet the latter, without petitioners' knowledge and consent, proceeded to
do just that, and in the process, he falsified the loan and mortgage documents and the
accompanying promissory note by securing Conchita's signatures thereon through fraud and
misrepresentation and taking advantage of her advanced age and naivete and forged Juan's
signature and made it appear that the latter was still alive at the time, when in truth and in fact, he
had passed away in 1987. A Certificate of Death24 issue d by the Quezon City Local Civil Registrar
and marked as Exhibit "D" and admitted by the trial court proves this fact. Under the Civil Code,

Art. 1346. An absolutely simulated or fictitious contract is void. x x x

Art. 1409. The following contracts are in existent and void from the beginning:

(1) x x x;

(2) Those which are absolutely simulated or fictitious;

In the case of Spouses Solivel v. Judge Francisco,25 the Court made the following pronouncement:

x x x Thus, in Ayroso, this Court annulled a mortgage executed by an impostor who had

unauthorizedly gained possession of the certificate of title thru the owner's daughter and forged
said owner's name to the deed of mortgage which was subsequently registered. In so doing, the
Court found more applicable the case of Ch. Veloso vs. La Urbana and Del Mar, which also voided a
mortgage of real property owned by plaintiff Veloso constituted by her brother-in-law, the
defendant Del Mar, using two powers-of-attorney to which he had forged the signatures of said
plaintiff and her husband, and which mortgage was later registered with the aid of the certificate of
title that had come into Del Mar's possession by unknown means. x x x

Even more in point and decisive or the issue here raised, however, is the much later case of Joaquin
vs. Madrid, where the spouses Abundio Madrid and Rosalinda Yu, owners of a residential lot in
Makati, seeking a building construction loan from the then Rehabilitation Finance Corporation,
entrusted their certificate of title for surrender to the RFC to Rosalinda's godmother, a certain
Carmencita de Jesus, who had offered to expedite the approval of the loan. Later having obtained a
loan from another source, the spouses decided to withdraw the application they had filed with the
RFC and asked Carmencita to retrieve their title and return it to them. Carmencita failed to do so,
giving the excuse that the employee in charge of keeping the title was on leave. It turned out,
however, that through the machinations of Carmencita, the property had been mortgaged to
Constancio Joaquin in a deed signed by two persons posing as the owners and that after said deed
had been registered, the amount for which the mortgage was constituted had been given to the
person who had passed herself off as Rosalinda Yu. x x x (Citations omitted)

As a consequence of Biag's fraud and forgery of the loan and mortgage documents, the same were
rendered null and void. This proceeds from the fact that Biag was not the Owner of the subject
property and may not thus validly mortgage it, as well as the well-entrenched rule that a forged or
fraudulent deed is a nullity and conveys no title.  "In a real estate mortgage contract, it is essential
that the mortgagor be the absolute owner of the property to be mortgaged; otherwise, the mortgage
is void."26 And "when the instrument presented for registration is forged, even if accompanied by
the owner's duplicate certificate of title, the registered owner does not thereby lose his title, and
neither does the mortgagee acquire any right or title to the property. In such a case, the mortgagee
under the forged instrument is not a mortgagee protected by Law."27 Lastly, when "the person
applying for the loan is other than the registered owner of the real property being mortgaged[,it]
should have already raised a red flag and x x x should have induced the [mortgagee] to make
inquiries into and confirm [the authority of the mortgagor]." 28

WHEREFORE, the Petition is GRANTED. The assailed March 13, 2012 Decision and June 18, 2012
Resolution of the Court of Appeals in CA-G.R. CV No. 82774 are ANNULLED and SET ASIDE. The
March 12, 2004 Order of the Quezon City Regional Trial Court Branch 224 in Civil Case No. Q-93-
16621 is REINSTATED.

SO ORDERED.