Adorable v. Court of Appeals
REITERATIONFacts
The Antecedents: Private respondent Saturnino Bareng was the registered owner of two parcels of land. Petitioners were lessees of a portion of one lot. On April 29, 1985, Saturnino and his son, Francisco Bareng, obtained a loan of P26,000.00 from petitioners, promising to transfer possession and enjoyment of the fruits of Lot No. 661-E. On August 3, 1986, Saturnino sold 18,500 sq. m. of Lot No. 661-D-5-A to Francisco, which was annotated on the title. Francisco then sold 3,000 sq. m. of this lot to private respondent Jose Ramos on August 27, 1986, including the portion leased by petitioners. These deeds of sale were not registered. Procedural History: Due to the Barengs' failure to pay the loan, a compromise agreement was executed where Francisco acknowledged an indebtedness of P56,385.00. Francisco failed to pay this amount. Petitioners, learning of the sale to Jose Ramos, filed a complaint for annulment or rescission of the sale, alleging fraudulent preparation and execution. During trial, petitioners' counsel failed to appear on the scheduled hearing dates. The trial court terminated the presentation of petitioners' evidence and allowed private respondents to present evidence ex parte. The Regional Trial Court (RTC) dismissed the complaint for lack of cause of action, declared the sale between Francisco and Jose Ramos valid, and ordered Francisco to pay petitioners. The Court of Appeals (CA) affirmed the RTC decision, with modification as to the debt amount. The Petition: Petitioners seek review of the CA decision, raising issues on whether the CA erred in dismissing the complaint for lack of cause of action, whether they enjoyed a legal preference to purchase the leased lots, and whether the CA erred in sustaining the trial court's order terminating their presentation of evidence.
Issue(s)
Whether the Court of Appeals erred in dismissing the complaint for lack of cause of action. Whether petitioners enjoyed legal preference to purchase the lots they lease. Whether the Court of Appeals erred in sustaining the lower court's order terminating petitioners' presentation of evidence and allowing private respondents to present their evidence ex parte.
Ruling
The petition is denied, and the decision of the Court of Appeals is affirmed.
Ratio Decidendi
On the issue of lack of cause of action: The Court held that petitioners, as creditors, do not possess the material interest required to sue for rescission of the contract of sale. Their right against Francisco Bareng is a personal right to receive payment for the loan, not a real right over the lot. Furthermore, the Court emphasized that an action for rescission based on fraud of creditors (accion pauliana) is a subsidiary remedy. Petitioners failed to exhaust the properties of the debtor through attachment and execution, nor did they exercise the debtor's transmissible rights (accion subrogatoria) before filing the action for rescission. The Civil Code (Art. 1177) mandates these successive measures. Petitioners' failure to show that they had no other legal means to obtain reparation for their damage, as required by Article 1383 of the Civil Code, rendered their action for rescission premature and without cause of action. On the issue of legal preference to purchase: The Court ruled that petitioners do not enjoy any preference to buy the property. Commonwealth Act No. 539, which authorizes the President to acquire private lands for subdivision and resale to bona fide tenants or occupants, does not apply. The statute was enacted to implement a constitutional provision regarding expropriation of lands for subdivision, and the preference granted is only for bona fide tenants after government acquisition. Petitioners are not tenants of the land in question, nor has the land been acquired by the government for their benefit. Therefore, they cannot claim a preferential right to purchase under C.A. No. 539. On the issue of terminating presentation of evidence: The Court found no error in the CA affirming the trial court's order. Petitioners' counsel, duly notified of the hearing dates, failed to appear. The excuse that counsel "comes from Makati" was deemed insufficient to justify the absence, especially since it was not a matter of being late but of complete non-appearance. The Court reiterated that the absence of a party during trial constitutes a waiver of their right to present evidence and cross-examine witnesses. A court's refusal to postpone a hearing, when a party fails to appear without valid justification, does not constitute grave abuse of discretion unless it is arbitrary or capricious. In this case, the trial court acted within its discretion.
Main Doctrine
A creditor cannot sue for rescission of a contract executed by their debtor in fraud of creditors without first exhausting the debtor's properties through attachment and execution, or subrogating themselves into the debtor's transmissible rights and actions, as rescission is a subsidiary remedy.