Mindanao Academy, Inc. vs. Yap

A sale purporting to convey entire properties owned partly in common by non-consenting co-owners and partly by a non-consenting corporation is null and void ab initio where the prestation is indivisible and the buyer would not have purchased less than the whole. Nullity required full restitution of the properties, rents from service of summons, and denial of enforcement of the contract's warranty, while unsupported awards for attorney's fees in the rescission action and for nominal and exemplary damages to pro forma stockholder-plaintiffs were eliminated.

Rosenda A. de Nuqui, widow of Sotero Dionisio, Sr., and her six children were owners pro-indiviso of residential lands in Oroquieta, Misamis Occidental and Ozamis City. Mindanao Academy, Inc., a corporation operating the Mindanao Academy in Oroquieta and the Misamis Academy in Ozamis City, owned the school buildings, laboratory equipment, books, furniture, fixtures and records used in those schools.

Rosenda A. de Nuqui and her son Sotero Dionisio, Jr., together with Adelaida Dionisio-Nuesa named as co-vendor, were described in a deed entitled Mutual Agreement as owners pro-indiviso of three parcels of residential land in Oroquieta, Misamis Occidental and another parcel in Ozamis City, with buildings, laboratory equipment, books, furniture and fixtures used by the Mindanao Academy and Misamis Academy. The deed, stated in the decision as executed on May 10, 1964 and elsewhere referred to as dated May 10, 1954, expressed an aggregate price of P100,700.00 payable under specified terms, and was signed only by Rosenda and Sotero, Jr., Adelaida not having taken part personally or through her supposed attorney-in-fact Restituto Abuton. In truth the lands were co-owned also by Rosenda's other children Erlinda D. Diaz, Ester Aida D. Bas, Rosalinda D. Belleza and Luz Minda D. Dajao, while the school buildings, equipment, books, furniture and fixtures were owned by Mindanao Academy, Inc.

Thereafter buyer Ildefonso D. Yap obtained possession by virtue of the sale, took over operation of the two schools and changed their names to Harvardian Colleges. According to the record, Erlinda D. Diaz had filed an action on July 10, 1954 against Yap and Rosenda Nuqui, among others, asserting her rights as co-owner, docketed as Case No. 1646. On May 6, 1956, after the annulment action was filed, the four non-participating children besides Erlinda ceded and quitclaimed their shares in the litigated properties in favor of Erlinda through an extrajudicial partition.

Two actions followed and were tried jointly. Civil Case No. 1774, filed May 3, 1955, sought annulment, rents and damages, while Civil Case No. 1907, filed July 17, 1956, sought rescission for alleged non-compliance with undertakings on payment of the price. The trial court found the vendors' shares in the four parcels to consist only of 7/12, 6/12 for Rosenda and 1/12 for Sotero, Jr., with no participation in the school properties owned by the corporation, and found the prestation indivisible because Yap admitted he would not have entered the transaction except to acquire all the properties. It further found that Mindanao Academy, Inc. had been paying P300.00 monthly for occupancy of the lands before the sale, that no part of the purchase price appeared paid, and that Yap claimed to have introduced a new building worth P8,000.00, a toilet costing P800.00, and additional equipment, books and furniture.

• Total Nullity of Mutual Agreement: Appellant argued that the lower court erred in declaring the agreement dated May 10, 1954 entirely void and legally non-existent merely because vendors ceded interests belonging to non-parties, contending that Erlinda D. Diaz, owner of 5/12 including 4/12 ceded by her sisters, acted in bad faith by failing to demand that defendant vacate despite notice and thus could not seek annulment.
• Rents and Attorney's Fees in Rescission Case: Appellant argued that liability for P300.00 monthly rents from July 31, 1956 and P1,000.00 attorney's fees in Civil Case No. 1907 was erroneous after the court found all plaintiffs therein acted in bad faith.
• Recovery of All Lands and Improvements: Appellant argued that plaintiffs in Civil Case No. 1907 were not entitled to recover all lands, buildings and permanent improvements described in the agreement, and claimed reimbursement for improvements allegedly introduced, consisting of a new P8,000.00 building, P800.00 toilet, laboratory equipment, furniture, fixtures and library books.
• Nominal, Exemplary Damages and Attorney's Fees to Stockholders: Appellant argued that the awards in Civil Case No. 1774 of P10,000.00 nominal damages, P3,000.00 exemplary damages and P2,000.00 attorney's fees to plaintiff-stockholders of Mindanao Academy, Inc. were erroneous.
• Vendor's Warranty: Appellant insisted on enforcement of the warranty in clause VI of the deed, by which vendors held themselves answerable if any claim were filed against the properties or interests transferred to the vendee, in view of claims by non-participating co-owners.

• Validity of Sale: Whether the Mutual Agreement selling co-owned lands and corporation-owned school properties by only some co-owners is entirely void and legally non-existent where the prestation is indivisible.
• Restitution, Rents and Attorney's Fees in Rescission Case: Whether plaintiffs in Civil Case No. 1907 are entitled to recovery of all lands, buildings and permanent improvements, to P300.00 monthly rents from July 31, 1956, and to P1,000.00 attorney's fees, notwithstanding findings of bad faith.
• Reimbursement for Improvements: Whether the buyer is entitled to reimbursement for a new building, toilet, equipment, furniture and books allegedly introduced after taking possession.
• Damages to Corporate Stockholders: Whether plaintiff-stockholders of Mindanao Academy, Inc. in Civil Case No. 1774 are entitled to nominal and exemplary damages and attorney's fees.
• Enforcement of Warranty: Whether clause VI warranty against claims by co-owners may be enforced notwithstanding annulment.

• Validity of Sale: Yes. Nullity ab initio was sustained, the vendors having sold 5/12 interests of non-consenting co-owners and corporate properties in which they had no participation under an indivisible prestation.
• Restitution, Rents and Attorney's Fees in Rescission Case: Yes in part. Restitution and P300.00 monthly rents from filing of the first pleading were sustained, but the P1,000.00 attorney's fees to Erlinda D. Diaz and husband were eliminated for lack of cause to litigate that action.
• Reimbursement for Improvements: No. Reimbursement was denied, construction after filing of the annulment action constituting building in bad faith and brought-in movables being outside the judgment.
• Damages to Corporate Stockholders: No in part. Nominal and exemplary damages were eliminated in toto, while P2,000.00 attorney's fees were upheld for the corporation itself, not the stockholders.
• Enforcement of Warranty: No. Enforcement was precluded, nullity on grounds of mutual fault barring reliance on any stipulation.

• Validity of Sale: The vendors owned only 7/12 of the lands and nothing in the buildings, equipment, books, furniture and fixtures owned by Mindanao Academy, Inc., yet purported to sell the whole, while the buyer admitted he would not have purchased less than all, rendering the prestation indivisible and incapable of partial annulment. The quitclaim of 4/12 to Erlinda after filing did not cure nullity, the other non-consenting plaintiffs being free of bad-faith imputation, and the imputation against Erlinda rested on oversight of her July 10, 1954 co-ownership suit in Case No. 1646. In any event, alleged bad faith by Erlinda could not validate a sale including corporate property transferred without authority of its Board of Trustees.
• Restitution, Rents and Attorney's Fees in Rescission Case: Both vendors and vendee acted in bad faith, the former selling as sole owners and the latter purchasing with knowledge of other co-owners, and thus were to be treated vis-a-vis each other as if in good faith, making return of properties upon annulment necessary with no restitution of price where none was shown paid. The fiction of good faith ceased upon service of judicial summons, so liability for P300.00 monthly, the proven pre-sale rental paid by the corporation, from July 31, 1956 when the first pleading was filed, was correct pursuant to Arts. 544 and 1123 on fruits and interruption of possession. Attorney's fees were erroneous because Civil Case No. 1907 sought resolution for non-payment to which Erlinda, a non-party already suing in the annulment case, had no cause of action and was not constrained to litigate against appellant.
• Reimbursement for Improvements: The judgment ordered delivery only of buildings and grounds described in the agreement with permanent improvements thereon, and a new building erected after filing of the annulment action made the builder one in bad faith denied reimbursement by law. Equipment, books, furniture and fixtures brought in by defendant were not awarded to plaintiffs, the award being limited to items described in the agreement and inventory or P23,500.00 in default, and hence could be retained by him without separate reimbursement.
• Damages to Corporate Stockholders: No compensatory damages were proven, the schools having operated at a loss before and after the sale, and stockholders joined merely pro forma for moral damages for mental anguish, a claim rejected without appeal, leaving no separate cause of action apart from the corporation as proper party plaintiff. Nominal and exemplary damages therefore lacked basis and were eliminated in toto, while P2,000.00 attorney's fees were retained as payable for the account of Mindanao Academy, Inc. to common counsel as prayed.
• Enforcement of Warranty: Passing on clause VI was unnecessary because total annulment on grounds involving fault of both contracting parties left no enforceable stipulation surviving.

• Sale of property of another; indivisible prestation — A contract purporting to sell as vendors' own the undivided shares of non-consenting co-owners and properties wholly owned by a non-consenting corporation is null and void ab initio where the buyer would not have contracted except for the whole, precluding partial annulment. Applied to sustain total nullity although vendors owned 7/12 of the lands, since corporate school properties and remaining 5/12 were included in one indivisible transaction.
• Mutual bad faith treated as good faith inter se — Where both vendors and vendee acted in bad faith, their rights as between themselves are determined as if both had acted in good faith at the time of transaction. Applied to require restitution of properties upon annulment without inequitable advantage to either at-fault party.
• Fruits of possession and judicial interruption — A possessor in good faith is entitled to fruits only until possession is legally interrupted, which occurs upon service of judicial summons. Applied to hold Yap liable for P300.00 monthly rents from July 31, 1956, when his first pleading was filed, the legal fiction of good faith having then ceased.
• Builder in bad faith — One who builds after filing of an action assailing his title builds in bad faith and is denied reimbursement for improvements. Applied to deny recovery for the alleged P8,000.00 building and P800.00 toilet constructed after the annulment suit.
• Corporation as proper party; pro forma stockholders — Interests in corporate property are represented by the corporation itself, and stockholders joined merely pro forma without a separate cause of action cannot recover damages accruing to the corporation. Applied to eliminate nominal and exemplary damages to stockholder-plaintiffs and to charge attorney's fees to Mindanao Academy, Inc.
• Effect of nullity on contractual stipulations — Total annulment for mutual fault precludes enforcement of any stipulation, including warranty against claims. Applied to deny reliance on clause VI of the Mutual Agreement.

• "The lower court correctly found that both vendors and vendee in the sale acted in bad faith and therefore must be treated, vis-a-vis each other, as having acted in good faith." — States the rule governing restitution between mutually at-fault vendors and vendee upon annulment.
• "A possessor in good faith is entitled to the fruits only so long as his possession is not legally interrupted, and such interruption takes place upon service of judicial summons (Arts. 544 and 1123, Civil Code)." — Provides the canonical basis for awarding rents from filing of the pleading despite initial treatment as in good faith.
• "The nullity of the contract precludes enforcement of any of its stipulations." — States the ratio for refusing to enforce the warranty clause after total annulment.

• Arts. 544 and 1123, Civil Code — Provide that a possessor in good faith retains fruits only until legal interruption, effected by judicial summons. Applied to terminate Yap's deemed good faith upon filing of the complaint and to sustain monthly rents thereafter.
• Laws on co-ownership and corporate authority (implied) — Require consent of co-owners for disposition beyond one's share and action through the Board of Trustees for corporate property. Applied to void a sale by 7/12 owners of lands and by non-owners of corporation-owned school facilities.

Bengzon, C.J., Bautista Angelo, Concepcion, Reyes, J.B.L., Paredes and Bengzon, J.P., JJ., concur. Barrera, Dizon, Regala and Zaldivar, JJ., took no part.