Vitug vs. Court of Appeals

A survivorship agreement in a joint and several bank account between spouses is a valid aleatory contract under Article 2010 of the Civil Code, not a conveyance mortis causa requiring will formalities nor a prohibited donation inter vivos, provided it is not shown to be a cloak for an inofficious donation, fraud of creditors, or defeat of a forced heir's legitime.

This case is a chapter in an earlier suit involving the probate of two wills of Dolores Luchangco Vitug, who died in New York, U.S.A., on November 10, 1980, naming Rowena Faustino-Corona executrix. In that earlier decision (Corona vs. Court of Appeals, No. 59821, August 30, 1982), the Supreme Court upheld the appointment of Nenita Alonte as co-special administrator of Mrs. Vitug's estate with her widower, petitioner Romarico G. Vitug, pending probate. The spouses had not executed a marriage settlement before marriage, so their property relationship was that of conjugal partnership governed by the Civil Code. At the center of this dispute is a survivorship agreement executed on June 19, 1970 between the spouses and the Bank of America over savings account No. 35342-038, stipulating that the balance upon the death of either spouse would belong to the survivor.

Dolores Luchangco Vitug and Romarico G. Vitug were spouses whose property relationship, in the absence of a marriage settlement, was the conjugal partnership of gains governed by the Civil Code. On June 19, 1970, the spouses executed a survivorship agreement with the Bank of America over savings account No. 35342-038 in Makati, Metro Manila. The agreement stipulated that all money deposited in their joint savings account would be the property of both, payable to and collectible by either during their lifetime, and that after the death of either, the balance would belong solely to the survivor. Dolores Vitug died in New York on November 10, 1980, and her wills named Rowena Faustino-Corona as executrix.

On January 13, 1985, Vitug filed a motion before the probate court seeking authority to sell certain shares of stock and real properties belonging to the estate to reimburse himself for advances allegedly made from his personal funds, totaling P667,731.66. These advances consisted of P58,147.40 for estate tax, P518,834.27 for deficiency estate tax, and P90,749.99 as "increment thereto." Vitug claimed to have withdrawn the latter two sums from savings account No. 35342-038, which he asserted was his exclusive property by virtue of the survivorship agreement.

On April 12, 1985, Corona opposed the motion, contending that the funds withdrawn from the account were conjugal partnership properties forming part of the estate, thus negating any ground for reimbursement. She further sought Vitug's ouster as co-administrator for failing to include the sums in the estate inventory and for "concealment of funds belonging to the estate." Vitug maintained that the funds were his exclusive property, acquired through the survivorship agreement executed with his late wife and the bank.

The trial court, presided by Judge (later Justice) Asaali S. Isnani, upheld the validity of the survivorship agreement and granted the motion to sell estate properties to reimburse Vitug's personal funds. On certiorari, the Court of Appeals reversed, holding that the agreement constituted a conveyance mortis causa that did not comply with the formalities of a valid will under Article 805 of the Civil Code, and alternatively, that assuming it was a donation inter vivos, it was a prohibited donation under Article 133. The appellate court directed the provisional inclusion of the deposits in the estate inventory. The Supreme Court found that the funds in the account were conjugal in nature, there being no showing they exclusively belonged to either spouse, and that the survivorship agreement was a valid aleatory contract imposing a mere obligation with a term—the term being death.

• Exclusive Property Claim: Petitioner maintained that the funds in savings account No. 35342-038 were his exclusive property, having acquired them through the survivorship agreement executed with his late wife and the bank on June 19, 1970.
• Validity of Survivorship Agreements: Petitioner argued, relying on Rivera vs. People's Bank and Trust Co. and Macam vs. Gatmaitan, that survivorship agreements are valid aleatory contracts sanctioned by the Civil Code, and that the agreement in question did not constitute a conveyance mortis causa or a prohibited donation.

• Conjugal Funds: Respondent Corona countered that the funds withdrawn from savings account No. 35342-038 were conjugal partnership properties forming part of the estate, and thus there was no ground for reimbursement.
• Concealment and Ouster: Respondent sought petitioner's ouster as co-administrator for failure to include the sums in the estate inventory and for "concealment of funds belonging to the estate."
• Conveyance Mortis Causa: The Court of Appeals, siding with respondent's position, held that the survivorship agreement constituted a conveyance mortiscausa that did not comply with the formalities of a valid will under Article 805 of the Civil Code.
• Prohibited Donation: The appellate court alternatively held that, assuming the agreement was a donation inter vivos, it was a prohibited donation under Article 133 of the Civil Code, and that allowing it as an aleatory contract would sanction an unlawful modification of the conjugal partnership by mere stipulation.

• Nature of the Agreement: Whether the survivorship agreement constitutes a conveyance mortis causa requiring compliance with the formalities of a will.
• Prohibited Donation: Whether the survivorship agreement constitutes a prohibited donation inter vivos between spouses under Article 133 of the Civil Code.
• Modification of Conjugal Partnership: Whether the agreement constitutes an unlawful modification of the conjugal partnership by mere stipulation.
• Validity as Aleatory Contract: Whether the survivorship agreement is a valid aleatory contract under Article 2010 of the Civil Code.

• Nature of the Agreement: No. The survivorship agreement is not a conveyance mortis causa because the monies subject of the account were conjugal funds, not the separate property of the decedent, and a will must pertain to the testator's own property.
• Prohibited Donation: No. The agreement is not a donation inter vivos because it was to take effect after death, and it involved no conveyance of a spouse's own exclusive property to the other, the funds being conjugal.
• Modification of Conjugal Partnership: No. The spouses merely invested conjugal property in a joint and several bank account, which is not prohibited by law and does not constitute a modification of the conjugal partnership or a cloak to circumvent the law.
• Validity as Aleatory Contract: Yes. The survivorship agreement is a valid aleatory contract under Article 2010 of the Civil Code, imposing a mere obligation with a term—the term being death—with the element of risk present.

• Nature of the Agreement: A will is defined as a personal, solemn, revocable, and free act by which a capacitated person disposes of his property and rights to take effect after death; the bequest must pertain to the testator. Here, the monies in savings account No. 35342-038 were conjugal funds, not the separate property of Dolores Vitug. In Rivera vs. People's Bank and Trust Co., the Court rejected claims that a survivorship agreement purports to deliver one party's separate properties in favor of the other, but rather their joint holdings. In the absence of clear proof that the funds exclusively belonged to one party, they must be presumed conjugal under Article 160 of the Civil Code, having been acquired during the marriage. Since the funds were not the decedent's exclusive property, the agreement could not be a will or conveyance mortis causa.

• Prohibited Donation: The agreement is not a donation inter vivos because it was to take effect after the death of one party, not during lifetime. Moreover, it is not a donation between spouses because it involved no conveyance of a spouse's own exclusive property to the other—the funds were conjugal. Since the funds belonged to both spouses jointly, neither could be said to have donated separate property to the other. The element of a donation—transfer of one's own property—is absent.

• Modification of Conjugal Partnership: The Court rejected the appellate court's characterization of the agreement as an unlawful modification of the conjugal partnership by "mere stipulation" or as a "cloak" to circumvent the law on conjugal property relations. Spouses are not prohibited from investing conjugal property in a joint and several bank account, commonly known in banking parlance as an "and/or" account. When the spouses opened the account, they merely placed what rightfully belonged to them in a money-making venture. They did not dispose of it in favor of the other, which would have been sanctionable as a prohibited donation. Since the funds were conjugal, one spouse could not have pressured the other in placing deposits in the account. No vice—such as an inofficious donation, fraud of creditors, or defeat of a forced heir's legitime—was imputed or established against the agreement.

• Validity as Aleatory Contract: The "survivor-take-all" feature imposes a mere obligation with a term, the term being death, which is permitted by the Civil Code. Under Article 2010, by an aleatory contract, one or both parties reciprocally bind themselves to give or do something in consideration of what the other shall give or do upon the happening of an event which is uncertain or which is to occur at an indeterminate time. A survivorship agreement falls under the first category—an uncertain event—because the risk is the death of one party and the survivorship of the other. In Macam vs. Gatmaitan, the Court held a similar agreement to be an aleatory contract whereby the parties reciprocally assigned their respective property conditioned upon who might die first. Because Dolores Vitug predeceased her husband, Romarico Vitug acquired upon her death a vested right over the amounts in the account, which therefore did not form part of the estate.

• Survivorship Agreement as Aleatory Contract — A survivorship agreement in a joint and several bank account, stipulating that the balance upon the death of either party belongs to the survivor, is a valid aleatory contract under Article 2010 of the Civil Code. The fulfillment of the obligation depends on the happening of an uncertain event—the death of one party and the survival of the other. The agreement imposes a mere obligation with a term, the term being death. The Court applied this doctrine to hold that the surviving spouse acquired a vested right over the conjugal funds in the joint account upon the other spouse's death, and those funds did not form part of the decedent's estate.

• Presumption of Conjugality — Under Article 160 of the Civil Code, all property acquired during the marriage is presumed to belong to the conjugal partnership, absent clear proof to the contrary. The Court applied this presumption to the funds in the joint bank account, finding no showing that the funds exclusively belonged to one party, and accordingly presuming them conjugal.

• Limitations on Survivorship Agreements — Although a survivorship agreement is per se not contrary to law, its operation or effect may be violative of law if shown to be a mere cloak to hide an inofficious donation, to transfer property in fraud of creditors, or to defeat the legitime of a forced heir. No such vice was imputed or established in this case.

• "The conveyance in question is not, first of all, one of mortis causa, which should be embodied in a will." — This passage states the ratio decidendi on the first issue, distinguishing the survivorship agreement from a will because the funds were conjugal, not the decedent's separate property.

• "By virtue of Exhibit C, Juana would become the owner of the house in case Leonarda died first, and Leonarda would become the owner of the automobile and the furniture if Juana were to die first." — Quoted from Macam vs. Gatmaitan, this passage defines the essential mechanism of a survivorship agreement as an aleatory contract, illustrating the reciprocal assignment conditioned on who dies first.

• "But although the survivorship agreement is per se not contrary to law its operation or effect may be violative of the law." — This passage articulates the caveat that survivorship agreements, while valid in principle, may be assailed if used as a cloak for unlawful purposes such as inofficious donation, fraud of creditors, or defeat of a forced heir's legitime.

• "Being the separate property of petitioner, it forms no more part of the estate of the deceased." — This passage states the dispositive conclusion that the funds in the joint account, having vested in the surviving spouse through the valid aleatory contract, are his separate property and excluded from the estate inventory.

• Rivera vs. People's Bank and Trust Co., 73 Phil. 546 (1942) — Controlling precedent followed. The Court had sustained the validity of a survivorship agreement as involving joint holdings, not the transfer of one party's separate property. The Court relied on this case to hold that the survivorship agreement did not purport to deliver one spouse's exclusive property to the other, but rather concerned their joint holdings, and to articulate the caveat that such agreements may be assailed if shown to be a cloak for unlawful purposes.

• Macam vs. Gatmaitan, 64 Phil. 187 (1937) — Controlling precedent followed. The Court had held that a survivorship agreement was an aleatory contract under Article 1790 of the Civil Code, whereby the parties reciprocally assigned their respective property conditioned upon who might die first. The Court relied on this case to classify the survivorship agreement as a valid aleatory contract.

• Corona vs. Court of Appeals, No. 59821, August 30, 1982, 116 SCRA 316 — Prior related litigation. The earlier Supreme Court decision involving the same probate proceeding, which upheld the appointment of Nenita Alonte as co-special administrator with Romarico Vitug pending probate.

• Article 2010, Civil Code — Defines aleatory contracts as those whereby one or both parties reciprocally bind themselves to give or do something in consideration of what the other shall give or do upon the happening of an event which is uncertain or which is to occur at an indeterminate time. The Court applied this provision to classify the survivorship agreement as a valid aleatory contract, with the uncertain event being the death of one party and the survival of the other.

• Article 160, Civil Code — Presumes all property acquired during the marriage to belong to the conjugal partnership absent clear proof to the contrary. The Court applied this presumption to the funds in the joint bank account, finding no showing that they exclusively belonged to one party.

• Article 133, Civil Code — Prohibits donations between spouses during the marriage, except those taking effect after the donor's death, which must comply with the formalities of a will. Now Article 87 of the Family Code. The Court found this provision inapplicable because the agreement involved no conveyance of a spouse's own exclusive property to the other, the funds being conjugal.

• Article 805, Civil Code — Prescribes the formalities of a valid will. The Court found this provision inapplicable because the survivorship agreement was not a conveyance mortis causa requiring will formalities.

• Article 1193, Civil Code — Governs obligations with a term. The Court referenced this provision in holding that the survivorship agreement imposed a mere obligation with a term, the term being death.

• Article 52, Civil Code — Provides that the nature, consequences, and incidents of marriage are governed by law and not subject to stipulation. The appellate court invoked this provision to argue that allowing the survivorship agreement would sanction an unlawful modification of the marriage property regime by mere stipulation; the Supreme Court rejected this argument.

Melencio-Herrera (Chairperson), Paras, Padilla, and Regalado, JJ., concurred.