Spouses Pailano, Jr. v. Court of Appeals
REITERATIONFacts
The Antecedents: Antonio Pailano, Jr. (Antonio) purchased a 220-square meter share in Lot No. 569. Subsequently, Antonio executed a Deed of Absolute Sale over this lot in favor of his brother, Mariano Pailano (Mariano), for P650.00. Eight days later, Mariano executed a Deed of Acknowledgment of Ownership, stating that the sale was for his accommodation, no purchase price was paid, and Antonio remained the true owner, with an undertaking to reconvey upon demand. Mariano later consolidated the lots, secured a Transfer Certificate of Title (TCT) No. T-7785 in his name for the combined area of 441 square meters (Lot No. 569-H), and mortgaged it to the Philippine National Bank (PNB) for two loans. When Antonio demanded reconveyance, Mariano refused. Procedural History: Petitioners filed a complaint for recovery of property based on the Deed of Acknowledgment. The Regional Trial Court (RTC) dismissed the complaint, upholding Mariano's claim that the Deed of Sale was valid and the Deed of Acknowledgment was for accommodation to help Antonio secure a loan. The Court of Appeals (CA) reversed the RTC, declaring petitioners and private respondents as co-owners of Lot No. 569-H, but did not order reconveyance. The CA denied petitioners' motion for reconsideration, stating that partition and reconveyance were contingent on the mortgage being discharged, and denied damages due to the brothers' initially cordial relationship. The Petition: Petitioners sought modification of the CA decision to include the affirmative reliefs of reconveyance, partition, moral and exemplary damages, attorney's fees, and payment of the mortgage debt affecting their portion.
Issue(s)
Whether the Court of Appeals erred in not ordering the reconveyance and partition of Lot No. 569-H. Whether petitioners are entitled to moral and exemplary damages and attorney's fees. Whether private respondents should be ordered to pay the PNB loan affecting petitioners' portion or reimburse petitioners in case of foreclosure.
Ruling
The Supreme Court granted the petition in part, modifying the Court of Appeals' decision. It ordered private respondents to execute a deed of reconveyance in favor of petitioners for the 220-square meter northern portion of Lot No. 569-H, and for the lot to be subdivided. Private respondents were also ordered to pay petitioners P10,000.00 as moral damages and P2,000.00 as attorney's fees. The Court affirmed the CA's ruling that the parties are co-owners but modified the dispositive portion to include the specific reliefs prayed for. The Court denied the claims for exemplary damages and the alternative prayers regarding the PNB mortgage.
Ratio Decidendi
On the issue of reconveyance and partition: The Supreme Court agreed with the petitioners that the Court of Appeals erred in merely declaring co-ownership without ordering the reconveyance and partition. The Court held that the Deed of Acknowledgment of Ownership, which explicitly stated the sale was for accommodation and that Antonio remained the true owner, effectively nullified the Deed of Absolute Sale and created a clear obligation to reconvey. The Court emphasized that the reconveyance necessarily includes the segregation and subdivision of the property. The existence of a mortgage on the entire lot in favor of the PNB was deemed not a legal obstacle to partition, as the mortgage lien is inseparable from the property and would simply be annotated on the new titles issued after subdivision, in accordance with Article 2126 of the Civil Code. The Court found that the CA's refusal to grant the full relief sought encouraged multiplicity of suits, which is contrary to the spirit of the Rules of Court and public policy. On the issue of damages and attorney's fees: The Supreme Court found merit in the claim for moral damages and attorney's fees. The Court reasoned that private respondent Mariano Pailano acted in gross and evident bad faith by refusing to reconvey the property after acknowledging Antonio's ownership and insisting on the validity of the Deed of Absolute Sale. This bad faith was the proximate result of Mariano's wrongful act of refusing to fulfill his obligation under the Deed of Acknowledgment. Consequently, moral damages were awarded at P10,000.00. Attorney's fees were also granted under Article 2208(5) of the Civil Code, as Mariano's refusal to satisfy a plainly valid and demandable claim was characterized by gross and evident bad faith. However, exemplary damages were denied due to the lack of sufficient showing of wanton, fraudulent, reckless, oppressive, or malevolent conduct. On the issue of PNB mortgage: The Supreme Court denied the petitioners' alternative prayers concerning the PNB mortgage. The Court explained that compelling private respondents to pay a proportionate amount of the loan to release petitioners' portion would violate the rule on the indivisibility of mortgage (Article 2089, Civil Code) and would require the PNB, a non-party, to accept partial payment and release collateral. Furthermore, ordering reimbursement for redemption costs in case of foreclosure was deemed a conditional order, dependent on a future event that might not occur, and thus not a definitive judgment capable of execution, citing Jaucian v. Querol.
Main Doctrine
A deed of acknowledgment of ownership, executed after a deed of absolute sale, where the former explicitly states that the sale was for accommodation and that the seller remains the true owner, effectively negates the absolute sale and creates an obligation to reconvey. The existence of a mortgage on the property does not preclude its partition, as the mortgage lien attaches to the partitioned portions.