De Braganza vs. De Villa Abrille

Minors who sign a promissory note without actively misrepresenting their age may later invoke minority as a defense, because mere silence or failure to disclose incapacity does not constitute the actual fraud required to bind them; however, they must make restitution of benefits actually received under Article 1304 of the Civil Code.

Rosario L. de Braganza and her sons Rodolfo and Guillermo borrowed money from Fernando F. de Villa Abrille during the Japanese occupation of the Philippines. The loan was documented in a written promissory note promising repayment in Philippine legal currency two years after the cessation of hostilities. At the time of signing, Rodolfo was 18 years old and Guillermo was 16. The dispute centers on whether the minority of the two sons exempts them from liability on the note, and if so, whether they must nonetheless restore the value of funds they received.

On October 30, 1944, during the Japanese occupation of the Philippines, Rosario L. de Braganza and her sons Rodolfo and Guillermo received from Fernando F. de Villa Abrille the sum of P70,000 in Japanese war notes as a loan. In consideration thereof, they executed a written promissory note (Exhibit A) promising to pay Villa Abrille P10,000 "in legal currency of the P. I. two years after the cessation of the present hostilities or as soon as International Exchange has been established in the Philippines," plus 2% per annum. At the time of signing, Rodolfo was 18 years old and Guillermo was 16. The promissory note did not contain any statement regarding their ages.

No payment having been made, Villa Abrille filed suit against all three in March 1949. In their answer before the Manila Court of First Instance, defendants claimed to have received only P40,000 instead of P70,000 as plaintiff asserted, and averred that Guillermo and Rodolfo were minors when they signed Exhibit A. The trial court rendered judgment against defendants, which the Court of Appeals affirmed, holding the minors liable because they had not disclosed their minority to the creditor and had "pretended to be of legal age." The Court of Appeals relied on Mercado vs. Espiritu, 37 Phil. 215, in reaching its conclusion.

The Supreme Court found that the minors' failure to disclose their age in the promissory note did not constitute the actual fraud required to bind them. The Court distinguished Mercado, where the minor had specifically stated in the document that he was of age, from the present case, where Exhibit A contained no such representation. The Court also noted that the funds delivered to the minors were used for their support during the Japanese occupation, and that the value of the Japanese war notes received could be computed according to the Ballantine Schedule, under which P40.00 in Japanese notes were equivalent to P1.00 of current Philippine money in October 1944.

• Minority as Defense: Petitioners argued that Rodolfo and Guillermo Braganza were minors — aged 18 and 16 respectively — at the time they signed the promissory note, and therefore could not be legally bound by their signatures.
• Amount Actually Received: Petitioners claimed that the amount actually received was P40,000, not P70,000 as asserted by the respondent.
• No Active Misrepresentation: Petitioners implicitly maintained that the minors had not actively misrepresented their age, since the promissory note contained no statement that they were of legal age, distinguishing their situation from cases where minors had expressly declared themselves to be of age.

• Estoppel by Silence: Respondent argued that the minors should have apprised the creditor of their incapacity, and having failed to do so, should not later be permitted to excuse themselves from fulfilling the obligation.
• Prescription of Defense: Respondent contended that the defense of minority was interposed too late, since it was raised only in 1951 and more than four years had elapsed after Rodolfo reached the age of majority in 1947, citing Article 1301 of the Civil Code requiring an action to annul a contract by reason of minority to be filed within four years.

• Minority as Defense: Whether minors who failed to disclose their age in the promissory note they signed may later invoke minority as a defense against liability on the contract.
• Timeliness of Defense: Whether the defense of minority was interposed too late under Article 1301 of the Civil Code.
• Restitution of Benefits: Whether the minors, though absolved from liability on the promissory note, must make restitution of benefits they received.

• Minority as Defense: Yes. The minors could invoke minority as a defense because their mere silence about their age did not constitute the actual fraud required to bind them; the Court distinguished Mercado vs. Espiritu, where the minor had actively stated in the document that he was of age.
• Timeliness of Defense: No. The defense was not interposed too late, because when it was raised in June 1951, four years had not yet completely elapsed from October 1947, when Rodolfo reached majority; furthermore, the four-year period under Article 1301 was doubtful in applicability where minority was raised only as a defense, not in an action for annulment.
• Restitution of Benefits: Yes. Although the promissory note was unenforceable against the minors, they were required to make restitution to the extent they profited from the funds received, pursuant to Article 1304 of the Civil Code, with the value computed according to the Ballantine Schedule.

• Minority as Defense: The Court rejected the Court of Appeals' conclusion that the minors' failure to disclose their age in the promissory note estopped them from later asserting minority. The Court found no juridical duty on the part of the minors to disclose their incapacity. Citing Corpus Juris Secundum and American Jurisprudence, the Court held that the fraud for which an infant may be held liable must be actual, not constructive, and that mere silence when making a contract as to age does not constitute fraud. The Court distinguished Mercado vs. Espiritu on the ground that in Mercado, the minor had specifically stated in the document that he was of age — active misrepresentation — whereas in the present case, Exhibit A contained no such statement, amounting at most to passive or constructive misrepresentation. The Court noted a growing sentiment in favor of limiting the scope of Mercado, observing that the very minority which incapacitates from contracting should likewise exempt the minors from the results of misrepresentation. Accordingly, Rodolfo and Guillermo could not be legally bound by their signatures on Exhibit A.

• Timeliness of Defense: The Court found that the respondent's argument based on Article 1301's four-year prescriptive period was unpersuasive. Based on the undisputed fact that Rodolfo was 18 in October 1944, he turned 21 in October 1947 and 25 in October 1951. When the defense was interposed in June 1951, four years had not yet completely elapsed from October 1947. The Court further doubted the pertinency of the four-year period where minority is set up only as a defense to an action, without the minors seeking any positive relief from the contract, since they had not filed an action for annulment but merely interposed an excuse from liability.

• Restitution of Benefits: Although absolved from liability on the promissory note, the minors could not be entirely absolved from monetary responsibility. Under Article 1304 of the Civil Code, even if a written contract is unenforceable because of non-age, the contracting parties must make restitution to the extent they have profited from the money received. The Court found testimony that the funds were used for the minors' support during the Japanese occupation, establishing that they had profited from the money. The value was computed according to the Ballantine Schedule, under which P40.00 in Japanese notes were equivalent to P1.00 of current Philippine money in October 1944. Since the minors' share was two-thirds of P70,000 (P46,666.66), divided by 40, they were required to return P1,166.67. Their liability was declared without regard to Exhibit A, but solely pursuant to Article 1304. Rosario Braganza, whose liability was unquestionable, was held liable for one-third of P10,000 (P3,333.33) plus 2% interest from October 1944, consistent with the terms of Exhibit A which she was willing to honor.

• Actual Fraud Required to Bind Minors — The fraud for which an infant may be held liable to one who contracts with him in the belief that he is of full age must be actual, not constructive. Mere silence or failure of the infant to disclose his age when making a contract does not constitute fraud sufficient to bind him. The Court applied this doctrine by distinguishing Mercado vs. Espiritu, where the minor actively stated in the document that he was of age (active misrepresentation), from the present case, where the promissory note contained no such statement (at most passive or constructive misrepresentation). Only active misrepresentation estops a minor from later asserting minority as a defense.

• Restitution of Benefits by Minors — Even where a contract is unenforceable due to the minority of a party, the minor must make restitution to the extent he has profited from what he received. The Court applied Article 1304 of the Civil Code, holding that because the funds were used for the minors' support, they had profited and were required to return the value thereof, computed according to the Ballantine Schedule conversion rate.

• Minority as Defense vs. Action for Annulment — The four-year prescriptive period under Article 1301 of the Civil Code for an action to annul a contract by reason of minority is of doubtful applicability where minority is raised only as a defense to an action, without the minor seeking any positive relief or filing an action for annulment. The Court noted this distinction without definitively resolving it, finding it unnecessary because the defense was interposed within the four-year period in any event.

• Joint Liability Presumption — Where multiple debtors are bound, they are presumed to be bound jointly, not solidarily, pursuant to Articles 1137 and 1138 of the Civil Code. The Court applied this presumption to the minors' restitutionary liability, ordering them to pay jointly.

• "We cannot agree to above conclusion. From the minors' failure to disclose their minority in the same promissory note they signed, it does not follow as a legal proposition, that they will not be permitted thereafter to assert it. They had no juridical duty to disclose their inability." — This passage states the ratio decidendi on the minority defense: silence about age does not estop a minor from later asserting incapacity, because there is no legal duty to disclose minority.

• "The fraud of which an infant may be held liable to one who contracts with him in the belief that he is of full age must be actual not constructive, and mere failure of the infant to disclose his age is not sufficient." — This is the canonical formulation of the actual-fraud requirement, drawn from American Jurisprudence and adopted by the Court as the controlling standard for binding minors on contracts.

• "In the Mercado case, the minor was guilty of active misrepresentation; whereas in this case, if the minors were guilty at all, which we doubt it is of passive (or constructive) misrepresentation." — This passage articulates the distinction between active and passive misrepresentation that determines whether a minor is estopped from asserting incapacity, and signals the Court's inclination to limit the scope of the Mercado ruling.

• Mercado vs. Espiritu, 37 Phil. 215 — Distinguished. In Mercado, the minor had specifically stated in the document he signed that he was of age, constituting active misrepresentation. In the present case, the promissory note contained no such statement, amounting at most to passive misrepresentation. The Court expressed a growing sentiment to limit the scope of Mercado.

• Un Pak Leung vs. Negora, 9 Phil. 381 — Cited for the presumption that debtors are bound jointly, not solidarily, when the obligation does not expressly state otherwise.

• Flaviano vs. Delgado, 11 Phil. 154 — Cited for the same presumption of joint, not solidary, liability.

• Compania General vs. Obed, 13 Phil. 391 — Cited for the same presumption of joint, not solidary, liability.

• Article 1148, Civil Code — Cited for the principle that the minority of co-signers does not release a party from liability, since minority is a personal defense of the minors; however, such defense benefits the non-minor to the extent of the shares for which the minors may be responsible.

• Article 1301, Civil Code — Provides that an action to annul a contract by reason of minority must be filed within four years after the minor reaches majority age. The Court found the defense was interposed within this period and further doubted its applicability where minority is raised only as a defense rather than in an action for annulment.

• Article 1304, Civil Code — Provides that even if a contract is unenforceable due to non-age, the contracting parties must make restitution to the extent they have profited from what they received. This provision formed the sole basis for the minors' monetary liability, independent of the promissory note.

• Articles 1137 and 1138, Civil Code — Establish the presumption that debtors are bound jointly, not solidarily, unless expressly stipulated otherwise. Applied to the minors' restitutionary obligation.

Paras, C.J., Padilla, Montemayor, Reyes, A., Bautista Angelo, Labrador, Concepcion, and Endencia, JJ., concurred.