Spouses Reyes vs. Heirs of Malance

A defective notarization strips a document of its public character and the presumption of regularity; the document is then tested as a private document under the preponderance-of-evidence standard. A contract of antichresis, meanwhile, gives the creditor the right to receive the fruits of the debtor's immovable and apply them to interest, if owing, then to the principal, with no interest due absent stipulation.

Benjamin Malance owned a 1.4017-hectare agricultural land covered by Emancipation Patent No. 615124 in Dulong Malabon, Pulilan, Bulacan. The Magtalas sisters, Charito M. Reyes and Vilma M. Maravillo, are his distant relatives. The dispute concerns a Kasulatan Ng Ukol sa Utang executed during Benjamin's lifetime and the legal characterization of the arrangement it embodied. The Civil Code provisions on antichresis and the 2004 Rules on Notarial Practice supply the governing framework.

Benjamin Malance owned a 1.4017-hectare parcel of agricultural land covered by Emancipation Patent No. 615124 situated at Dulong Malabon, Pulilan, Bulacan. During his lifetime, he obtained a loan of ₱600,000.00 from the Magtalas sisters, Charito M. Reyes and Vilma M. Maravillo, who are distant relatives, as evidenced by a Kasulatan Ng Ukol sa Utang dated June 26, 2006. Under the Kasulatan, the Magtalas sisters were given the right to the fruits of the subject land for six years or until the loan was fully paid.

Benjamin died on September 29, 2006. His siblings, the Malance heirs — Rosalina M. Malance, Bernabe M. Malance, Bienvenido M. Malance, and Dominga M. Malance, represented by Bienvenido — inspected the subject land and discovered that the Magtalas sisters, their respective husbands Roberto Reyes and Domingo Maravillo, Jr., and their father Fidel G. Magtalas were cultivating it on the basis of the Kasulatan. Doubting the authenticity of the Kasulatan, the Malance heirs filed a Complaint for Recovery of Possession, Declaration of Nullity of the Kasulatan and Damages with Prayer for Writ of Preliminary Injunction and Temporary Restraining Order against petitioners before the Regional Trial Court of Malolos City, Bulacan, Branch 84, docketed as Civil Case No. 748-M-2006, which they subsequently amended.

The Malance heirs claimed that during his lifetime Benjamin had accumulated enough wealth to sustain himself, was unmarried, and had no children to support; that the Kasulatan was executed when Benjamin was seriously ill and mentally incapacitated due to illness and advanced age; and that the Kasulatan was simulated because the signature appearing thereon was not Benjamin's. Petitioners denied these claims and averred that when Benjamin became sickly in 2000, he leased the subject land to different people who cultivated it with petitioners' help; that the Kasulatan was executed before a notary public when Benjamin was of sound mind, though sickly; that they were cultivating the land in accordance with the Kasulatan; that the case involved an agrarian conflict within the jurisdiction of the Department of Agrarian Reform Adjudication Board; and that the Malance heirs must pay Benjamin's indebtedness before recovering possession. The complaint was initially dismissed for lack of jurisdiction but was later reinstated and re-raffled to Branch 9 of the same RTC.

At the notarization, the Kasulatan did not reflect any competent evidence of Benjamin's identity, such as an identification card issued by an official agency bearing his photograph and signature, but merely indicated his Community Tax Certificate Number. The notary public, Atty. Cenon Navarro, did not require an ID when he notarized the Kasulatan; however, when confronted with Benjamin's Senior Citizen ID issued by the Office of Senior Citizens Affairs of Pulilan, Bulacan, he identified the person in the picture as the person who signed the Kasulatan and received money from the Magtalas sisters in his presence. Atty. Navarro also testified that he prepared the Kasulatan according to the agreement of the parties and witnessed the exchange of money between them. On the other hand, respondent Bienvenido Malance gave self-serving and uncorroborated testimony that Benjamin's signature on the Kasulatan was forged because Benjamin did not know how to write, but this was contradicted by the Malance heirs' own manifestation that Benjamin had a Senior Citizen ID and that the signature thereon was different from his signature on the Kasulatan; the ID was not offered in evidence.

The RTC found that the Malance heirs failed to substantiate their claim that Benjamin's signature was forged and that the Kasulatan was a notarized document enjoying the presumption of regularity. On appeal, the CA likewise found that the mere allegation of forgery would not overcome the Kasulatan, but it found that only ₱218,106.84 was actually received by Benjamin as expenses for his medical treatment and funeral service/memorial lot, while the rest was kept in the custody of the Magtalas sisters' father, Fidel. The CA also considered evidence that the subject land had an average annual production of 107 cavans of palay valued at ₱600.00 per cavan, with half of the income expended for costs, and that petitioners had cultivated the land for 6.66 years; on this basis, it found the outstanding loan to be ₱4,320.84.

• Loan Proceeds: Petitioners maintained that the CA erred in ruling that only ₱218,106.84, representing duly receipted expenses for Benjamin's medical treatment and funeral service/memorial lot, was the only proceeds received from the ₱600,000.00 loan obligation; the receipts were offered merely to show proof of expenses incurred by Benjamin relative to his sickness and where he spent the loan he obtained, not to establish the total amount he received.
• Interest: Petitioners argued that the CA should have imposed interest on Benjamin's loan despite the absence of express stipulation, and should have applied the fruits from the subject land to the interest and thereafter to the principal.
• Possession and Antichresis: Petitioners averred that they were cultivating the subject land in accordance with the Kasulatan, that the case involved an agrarian conflict within the jurisdiction of the DARAB, and that the Malance heirs must pay Benjamin's indebtedness prior to recovery of possession.
• Counterclaim: Petitioners sought payment of Benjamin's principal debt, including interest, by way of counterclaim.

• Forgery and Simulation: Respondents claimed that the Kasulatan was simulated and that Benjamin's signature appearing thereon was not his signature; Bienvenido Malance testified that Benjamin's signature was forged because he did not know how to write.
• Mental Incapacity: Respondents claimed that the Kasulatan was executed during the time when Benjamin was seriously ill and mentally incapacitated due to his illness and advanced age.
• Financial Independence: Respondents claimed that during his lifetime Benjamin had accumulated enough wealth to sustain himself, was unmarried, and had no children to support.
• Recovery of Possession: Respondents sought recovery of possession and nullity of the Kasulatan, maintaining that the document was invalid.

• Loan Proceeds: Whether the CA committed reversible error in ruling that the amount of ₱218,106.84, representing the duly receipted expenses for Benjamin's medical treatment and the cost of the funeral service/memorial lot, was the only proceeds received from the ₱600,000.00 loan obligation.
• Legal Interest: Whether legal interest is due despite the absence of express stipulation.
• Nature of the Kasulatan and Possession: Whether the Kasulatan is a valid contract of antichresis and whether petitioners, as antichretic creditors, are entitled to retain enjoyment of the subject land until the debt is totally paid.
• Counterclaim Prematurity: Whether petitioners' counterclaim for payment of Benjamin's principal debt, including interest, was prematurely filed.

• Loan Proceeds: Yes. The CA committed reversible error in ruling that only ₱218,106.84 was received. The Kasulatan was irregularly notarized and thus treated as a private document; its authenticity and due execution were proved by preponderance of evidence, including Atty. Navarro's testimony and the exchange of ₱600,000.00.
• Legal Interest: No. Legal interest is not due absent express stipulation. The Kasulatan contained no interest stipulation, and the fruits were to be applied to the principal only.
• Nature of the Kasulatan and Possession: Yes. The Kasulatan is a contract of antichresis under Article 2132 of the Civil Code. Petitioners, as antichretic creditors, are entitled to retain enjoyment of the subject land until the debt is totally paid under Article 2136. The unpaid balance is ₱273,648.93.
• Counterclaim Prematurity: Yes. The counterclaim was prematurely filed on January 4, 2007, within the six-year payment period under the Kasulatan; it was dismissed without prejudice to petitioners' rights under Article 2137.

• Loan Proceeds: The CA committed reversible error. Although appeal by certiorari under Rule 45 is limited to questions of law, the Court recognized an exception where the inference from the facts is manifestly mistaken. The CA had upheld the Kasulatan as a notarized document with the presumption of regularity, but the Court found the notarization defective because the Kasulatan did not reflect any competent evidence of Benjamin's identity, such as an official ID bearing his photograph and signature, and merely indicated his Community Tax Certificate Number despite the express requirement of the 2004 Rules on Notarial Practice. A defective notarization strips the document of its public character and reduces it to a private document; the clear and convincing standard is dispensed with, and the document is tested by preponderance of evidence under Section 20, Rule 132 of the Rules of Court. The burden fell on petitioners to prove authenticity and due execution, which they discharged: Atty. Navarro did not require an ID but, when shown Benjamin's Senior Citizen ID, identified the person in the picture as the signer and confirmed receiving money from the Magtalas sisters in his presence; he also testified that he prepared the Kasulatan according to the parties' agreement and witnessed the exchange of money. Bienvenido Malance's uncorroborated testimony that Benjamin's signature was forged because he did not know how to write was contradicted by the Malance heirs' own manifestation that Benjamin had a Senior Citizen ID and that the signature thereon differed from the Kasulatan, yet the ID was not offered in evidence. A finding of forgery does not depend exclusively on expert witnesses; judges must use their own judgment through independent examination of the questioned signature. Thus, the evidence of genuineness and due execution preponderated in favor of petitioners, who also proved Benjamin's receipt of ₱600,000.00. The CA therefore erred in treating the ₱218,106.84 in receipted medical and funeral expenses as the only proceeds; the formal offer of those receipts was merely to show expenses incurred by Benjamin relative to his sickness and where he spent the loan.
• Legal Interest: The Court concurred with the RTC and CA that the Kasulatan is a contract of antichresis. Article 2132 provides that by antichresis the creditor acquires the right to receive the fruits of an immovable of the debtor, with the obligation to apply them to the payment of interest, if owing, and thereafter to the principal. The elements are: (a) the creditor has possession of the debtor's real property given as security; (b) the creditor applies the fruits to interest owed, if any, then to the principal; (c) the creditor retains enjoyment until the debtor has totally paid; and (d) upon payment, the contract is automatically extinguished because of its accessory character. The Kasulatan showed that Benjamin received ₱600,000.00 as a loan, promised to pay within six years, and pledged his ani from the land; if paid within the period, the document would lose effect, but if not, it would remain effective. The CA observed that the language left no doubt the loan was secured by the fruits, that the Magtalas sisters were authorized to receive the fruits and apply them to the principal for six years, and that there was no accessory stipulation as to interest; no mention of interest was made by the creditors when they testified. The Court therefore held that no interest was intended, and the fruits were to be applied to the principal only.
• Nature of the Kasulatan and Possession: Although the Kasulatan did not expressly provide for transfer of possession, the contemporaneous and subsequent acts of the parties showed that possession was intended to be transferred. Atty. Navarro testified that while the Kasulatan only showed that the harvest and fruits would answer for Benjamin's indebtedness, the parties agreed that the lenders would take possession of the land to get the harvest. This arrangement was reasonable because Benjamin's medical condition necessitated hospitalization and left him physically unable to cultivate and harvest. As antichretic creditors, the Magtalas sisters were entitled to retain enjoyment of the subject land until the debt was totally paid under Article 2136. The CA's valuation—₱600.00 per cavan, 107 cavans annual harvest, gross income of ₱64,200.00, half for expenses, net income of ₱32,100.00—was not refuted by either party. From June 2006 to August 2016, only ₱326,351.07 was deemed paid, leaving an unpaid balance of ₱273,648.93. Because the debt was not totally paid, petitioners were entitled to retain enjoyment, and the Malance heirs' complaint for recovery of possession, declaration of nullity, and damages had to be dismissed.
• Counterclaim Prematurity: The Court dismissed petitioners' counterclaim for payment of Benjamin's principal debt, including interest, because it was not yet due and demandable when filed. The counterclaim was filed on January 4, 2007, well within the six-year payment period under the Kasulatan, and was therefore premature. The dismissal was without prejudice to the proper exercise of the Magtalas sisters' rights under Article 2137 of the Civil Code now that the debt is due and demandable. In the meantime, the Magtalas sisters, as antichretic creditors, were directed to render an annual accounting to the Malance heirs, represented by Bienvenido Malance, of the annual net yield from the subject land until they completely collected the outstanding balance.

• Defective Notarization and Presumption of Regularity — Notarized documents generally carry the presumption of regularity and due execution, rebuttable only by clear and convincing evidence. However, the presumption applies only if the notarization is regular. A defective notarization strips the document of its public character and reduces it to a private document; the clear and convincing standard is dispensed with, and the document is tested by preponderance of evidence under Section 20, Rule 132. Applied: the Kasulatan indicated only a Community Tax Certificate Number instead of competent evidence of identity required by the 2004 Rules on Notarial Practice; the presumption did not apply, but petitioners proved authenticity by preponderance.
• Contract of Antichresis — Under Article 2132, antichresis is a contract by which the creditor acquires the right to receive the fruits of an immovable of the debtor, with the obligation to apply them to interest, if owing, and thereafter to the principal. Its elements are: (a) the creditor has possession of the debtor's real property as security; (b) the creditor applies the fruits to interest, if any, then to the principal; (c) the creditor retains enjoyment until the debtor has totally paid; and (d) the contract is extinguished upon payment because of its accessory character. Applied: the Kasulatan secured the ₱600,000.00 loan with the fruits of Benjamin's land, the Magtalas sisters took possession and cultivated it, and the debt remained unpaid.
• No Interest Absent Stipulation in Antichresis — In antichresis, the fruits are applied first to interest, if owing, and then to the principal. Where the contract contains no stipulation on interest and the creditors made no mention of interest, no interest is due; the fruits are applied to the principal only. Applied: the Kasulatan was silent on interest, so the CA correctly did not impose interest.
• Retention of Possession by Antichretic Creditor — Under Article 2136, the debtor cannot reacquire enjoyment of the immovable without first having totally paid what he owes the creditor. Applied: because the unpaid balance was ₱273,648.93, the Magtalas sisters were entitled to retain possession and the complaint for recovery was dismissed.
• Prematurity of Counterclaim — A counterclaim for payment of a debt is premature if filed before the obligation is due and demandable. Applied: the counterclaim filed on January 4, 2007 was within the six-year payment period and was dismissed without prejudice.
• Annual Accounting by Antichretic Creditor — An antichretic creditor may be required to render an annual accounting of the net yield from the property until the debt is fully collected. Applied: the Magtalas sisters were directed to render annual accounting to the Malance heirs.

• "A defective notarization will strip the document of its public character and reduce it to a private document. Consequently, when there is a defect in the notarization of a document, the clear and convincing evidentiary standard normally attached to a duly-notarized document is dispensed with, and the measure to test the validity of such document is preponderance of evidence." — This passage states the ratio on the evidentiary effect of defective notarization and the standard applied to the Kasulatan.
• "Art. 2132. By the contract of antichresis the creditor acquires the right to receive the fruits of an immovable of his debtor, with the obligation to apply them to the payment of the interest, if owing, and thereafter to the principal of his credit." — This is the statutory definition of antichresis relied upon to characterize the Kasulatan.
• "Art. 2136. The debtor cannot reacquire the enjoyment of the immovable without first having totally paid what he owes the creditor." — This provision grounds the Magtalas sisters' right to retain possession until full payment.
• "The debt not having been totally paid, petitioners are entitled to retain enjoyment of the subject land. Consequently, the Malance heirs' complaint for recovery of possession, declaration of nullity of the Kasulatan, and damages against petitioners must be dismissed." — This passage states the operative conclusion from the unpaid balance and the antichretic relationship.

• Rural Bank of Cabadbaran, Inc. vs. Melecio-Yap, G.R. No. 178451, July 30, 2014, 731 SCRA 244 — Cited for the rule that a defective notarization strips a document of its public character and reduces it to a private document, dispensing with the clear and convincing standard and applying preponderance of evidence; also cited on the burden of proving authenticity.
• Belgica vs. Belgica, 558 Phil. 67 (2007) — Cited for the rule that a finding of forgery does not depend exclusively on expert witnesses; judges must use their own judgment through an independent examination of the questioned signature.
• Cotoner-Zacarias vs. Revilla, G.R. No. 190901, November 12, 2014, 740 SCRA 51 — Cited in support of the elements of a contract of antichresis.
• Acme Shoe, Rubber & Plastic Corporation vs. CA, 329 Phil. 531 (1996) — Cited for the accessory character of antichresis and its extinguishment upon payment of the obligation.
• Cosio vs. Palileo, 121 Phil. 959 (1965) — Cited in connection with the annual accounting required of an antichretic creditor.
• Macapinlac vs. Repide, 43 Phil. 770 (1955) — Cited together with Cosio vs. Palileo on the annual accounting obligation.
• Almagro vs. Sps. Amaya, Sr., 711 Phil. 493 (2013) — Cited for the rule that appeal by certiorari under Rule 45 is limited to questions of law and for the recognized exceptions, including when the inference from the facts is manifestly mistaken.

• Section 12, Rule II, 2004 Rules on Notarial Practice (A.M. No. 02-8-13-SC) — Defines "competent evidence of identity" as identification based on at least one current identification document issued by an official agency bearing the photograph and signature of the individual, or the oath or affirmation of one credible witness not privy to the instrument, or of two credible witnesses under the stated conditions. The Kasulatan merely indicated Benjamin's Community Tax Certificate Number, not competent evidence of identity, rendering the notarization defective.
• Section 20, Rule 132, Rules of Court — Provides that before a private document offered as authentic is received in evidence, its due execution and authenticity must be proved either by anyone who saw the document executed or written, or by evidence of the genuineness of the signature or handwriting of the maker. Applied because the defective notarization reduced the Kasulatan to a private document.
• Article 2132, Civil Code — Defines the contract of antichresis: the creditor acquires the right to receive the fruits of an immovable of the debtor, with the obligation to apply them to the payment of interest, if owing, and thereafter to the principal. Applied to characterize the Kasulatan.
• Article 2136, Civil Code — Provides that the debtor cannot reacquire the enjoyment of the immovable without first having totally paid what he owes the creditor. Applied to allow the Magtalas sisters to retain possession until full payment.
• Article 2137, Civil Code — Provides that the creditor does not acquire ownership for non-payment, but may petition the court for payment of the debt or sale of the real property, with the Rules of Court on foreclosure of mortgages applying. Applied to dismiss the counterclaim without prejudice to the Magtalas sisters' rights.
• Rule 45, Rules of Court — Governs appeal by certiorari, which contemplates only questions of law. The Court recognized an exception because the inference drawn from the facts was manifestly mistaken.

The named concurring justices are Chief Justice Maria Lourdes P.A. Sereno (Chairperson), Justice Teresita J. Leonardo-De Castro, and Justice Lucas P. Bersamin. No separate concurring opinions with additional reasoning are summarized in the text.