Castillo vs. Galvan

An action to declare a contract void ab initio for lack of consideration is imprescriptible; the four-year prescriptive period for annulment of voidable contracts under Article 1391 of the Civil Code does not govern where the complaint’s core theory is that no consideration was paid, even if fraud in the procurement of consent is pleaded as the means by which the vendors were induced to sign.

Paulino Galvan, a widower who remarried, owned an undivided one-half interest in two contiguous residential lots in Dagupan City, where the family home stood; his daughters Josefa and Natividad Galvan from the first marriage owned the other half. In 1953, Josefa asked Paulino and his second wife, Maria Encarnacion Castillo, to sign a document, representing that it was necessary to obtain separate tax declarations for their respective shares. The spouses, neither well-educated nor proficient in English, signed. Paulino died on February 10, 1961. When his widow and their children later examined the records at the Registry of Deeds, they discovered that the document was a “Deed of Absolute Sale” dated August 3, 1955, conveying Paulino’s half to Josefa and Natividad for a stated price of P500.00—an amount they claimed was never paid and grossly inadequate given the property’s actual value of approximately P22,500.00.

• Ownership and Family Relations: Paulino Galvan married twice. From his first marriage, he had two daughters—defendants Josefa Galvan and Natividad Galvan. His second marriage was to plaintiff Maria Encarnacion Castillo, with whom he had three children—plaintiffs Elisea and Patrocinio Galvan, and another child named Florangel. Paulino was the registered owner of an undivided one‑half share in two contiguous lots (Lot Nos. 4541 and 4542 of the Dagupan Cadastre, covered by OCT Nos. 38131 and 39317); the other undivided half belonged to Josefa and Natividad. The family home stood on the lots.

• Signing of the Deed: Sometime in 1953, Josefa Galvan asked Paulino, then about 78 years old, and Encarnacion Castillo to sign a document. She represented that it was needed to obtain separate tax declarations for the co‑owners’ respective shares so they could pay real estate taxes separately. The spouses, who had little education and did not know English, signed the document as requested.

• Discovery and Allegations: Paulino Galvan died on February 10, 1961. His widow and children waited for the defendants to initiate settlement of the estate; when none was forthcoming, they examined the records at the Office of the Register of Deeds of Dagupan City. They discovered that the document signed in 1953 was a “Deed of Absolute Sale” dated August 3, 1955, wherein Paulino Galvan and Encarnacion Castillo purportedly sold Paulino’s undivided half-interest in the lots to Josefa Galvan and Natividad Galvan for P500.00. The deed had been registered on August 4, 1955. Plaintiffs alleged that no consideration was ever paid, the stated price was fictitious, and the real value of Paulino’s half-share was approximately P22,500.00 in 1961. They further claimed that the signatures were obtained through fraudulent misrepresentation and that Paulino had no reason to sell his only residential property, especially at a grossly inadequate price.

• Procedural Context: Plaintiffs filed a complaint on August 1, 1961, praying that the deed be declared null and void, that they be declared owners of four‑sixths of Paulino’s half‑share, and that defendants pay attorney’s fees and costs. Defendants originally answered with a specific denial and an affirmative defense of valid conveyance and absolute ownership. More than three years later, before trial commenced, defendants sought to amend their answer to add the defense of prescription; the amendment was admitted despite plaintiffs’ objections. Subsequently, defendants moved to dismiss on the ground that the action for annulment based on fraud was filed beyond the four‑year period running from the deed’s registration.

• Waiver of Prescription Defense: Plaintiffs argued that defendants, by failing to plead the statute of limitations in their original answer, had waived the defense altogether under Section 2, Rule 9 of the Rules of Court, and could not revive it by amendment.

• Substantial Alteration of Defense: Plaintiffs contended that the original answer rested on a specific denial of the alleged fraud, whereas the defense of prescription impliedly admitted the truth of the fraud, thus effecting a substantial alteration of the defense in contravention of the rules on amendments.

• Imprescriptibility of Action: Plaintiffs maintained that their action was not to annul a voidable contract but to declare the deed void ab initio for total lack of consideration, which, under Articles 1409 and 1410 of the Civil Code, is an imprescriptible cause of action. The allegation of fraud was merely incidental, explaining how the signatures were procured.

• Prescription of Annulment Action: Defendants asserted that the complaint was one for annulment on the ground of fraud, which must be brought within four years from discovery under Article 1391 of the Civil Code. Because the deed was registered on August 4, 1955, the filing on August 1, 1961 was time‑barred.

• Constructive Notice by Registration: Defendants argued that registration of the deed constituted constructive notice to the whole world, including the plaintiffs, and that fraud is deemed discovered from the date of registration, following the rulings in Diaz v. Gorricho and Mauricio v. Villanueva.

• Admission of Amended Answer: Whether the trial court erred in allowing defendants to amend their answer to plead the statute of limitations after the case had been set for trial, given plaintiffs’ objections on grounds of waiver and substantial alteration of the defense.

• Prescription of the Action: Whether the complaint stated a cause of action for annulment of a voidable contract based on fraud, subject to the four‑year prescriptive period, or one for declaration of nullity of a void ab initio contract, which is imprescriptible.

• Admission of Amended Answer: The amendment was properly permitted. Under Sections 2 and 3 of Rule 10 of the Rules of Court, substantial amendments may be made with leave of court after the case is set for trial, and leave may be refused only when the motion is made with intent to delay or when the cause of action or defense is substantially altered. The addition of the prescription defense did not substantially alter the defendants’ position; it merely supplemented the existing defense of valid ownership and conveyancing. The Rules allow a party to set forth alternative or inconsistent defenses, and plaintiffs were not placed at a disadvantage because they had already anticipated the issue of timing by alleging in the complaint that they discovered the deed only in 1961.

• Prescription of the Action: The dismissal on the ground of prescription was erroneous. The complaint’s allegations went beyond fraud: it expressly averred that no consideration was ever paid for the sale, that the stated price was fictitious, and that the transaction was a simulated one. These averments framed an action for a judicial declaration that the deed of sale was void ab initio under Articles 1409(3) (contracts without cause) and 1410 of the Civil Code, an action that does not prescribe. The incidental mention of fraud as the means by which the parties were induced to sign did not convert the nature of the suit into one for annulment of a voidable contract; the core theory remained that the contract produced no legal effect whatever. Accordingly, the four‑year period under Article 1391 did not apply.

• Imprescriptibility of nullity actions for void contracts — A contract whose cause or consideration did not exist at the time of execution is inexistent and void ab initio under Article 1409(3) of the Civil Code, and the action or defense to declare its inexistence is imprescriptible pursuant to Article 1410. Where the gravamen of a complaint is the total absence of consideration, the suit is for nullity ab initio and not for annulment of a voidable contract, even if fraud in obtaining signatures is also alleged; the fraud merely supplies the explanation for how the null instrument came to be executed. The four‑year prescriptive period for annulment under Article 1391 does not govern such an action.

• Amendment to plead prescription — A defendant who fails to raise the statute of limitations in the original answer is not absolutely precluded from later amending the pleading, provided leave of court is obtained and the amendment does not substantially alter the defense or cause delay. The rule against waiver of unpleaded defenses operates subject to the court’s discretion to allow amendments in the interest of justice. A party may simultaneously plead alternative or inconsistent defenses under Section 2, Rule 8 of the Rules of Court.

• “The allegations of the complaint show, however, that the plaintiffs' action is to declare void and inexistent the deed of sale … upon the grounds that (a) there is fraud in securing the signatures of the vendors in said deed of sale: and (b) there was no consideration given at the time of the transaction. In other words, the plaintiffs are seeking a judicial declaration that the deed of sale in question is void ab initio, which action is inprescriptible.”

• “A contract of sale is void and produces no effect whatsoever where the price, which appears thereon as paid, has in fact never been paid by the purchaser to the vendor.” (Aquino, J., concurring, citing Mapalo v. Mapalo)

• Mapalo vs. Mapalo, L-21489, May 19, 1966, 17 SCRA 114 — Followed and applied. This case held that a deed of sale procured through fraud but entirely without consideration is void ab initio, not merely voidable, and that the action to declare its nullity is imprescriptible. The Court found the factual and legal context controlling on all fours.

• Mauricio vs. Villanueva, L-11072, September 24, 1959, and Diaz vs. Gorricho, L-11229, March 29, 1964 — Cited by defendants and the trial court but distinguished. These cases applied the four‑year prescriptive period to voidable contracts where fraud was the principal ground for annulment, inapplicable where the contract was void for lack of consideration.

• Articles 1409(3) and 1410, Civil Code — A contract whose consideration did not exist at the time of the transaction is inexistent and void from the beginning; the action or defense to declare its inexistence does not prescribe.

• Section 2, Rule 8, Rules of Court — A defendant may set forth as many defenses and counterclaims as he may have, regardless of whether they are consistent with one another.

• Sections 2 and 3, Rule 10, Rules of Court — A party may amend a pleading once as a matter of course before a responsive pleading is served; thereafter, substantial amendments require leave of court, which may be refused only upon a showing of intent to delay the action or that the cause of action or defense is substantially altered.

Justices Fernando (Chairman), Antonio, Aquino, and Santos concurred. Justice Barredo filed a separate concurrence, expressing support for a liberalized application of the rule on waiver of defenses in order to promote substantial justice. Justice Aquino also authored a separate concurring opinion underscoring that a sale with fictitious or unpaid consideration is void ab initio, relying on Mapalo v. Mapalo, and that the action to declare such nullity is imprescriptible.