RICHARD JUAN v. GABRIEL YAP

FACTS:

This case involves a petition for review of the ruling of the Court of Appeals (CA), which found petitioner Richard Juan as a trustee of an implied trust over a mortgage contract in favor of respondent Gabriel Yap, Sr. The contract, prepared and notarized by Atty. Antonio Solon, pertains to the mortgage of two parcels of land in Talisay, Cebu by the Cañeda spouses to petitioner Richard Juan. This mortgage served as security for a loan.

On June 30, 1998, petitioner initiated extrajudicial foreclosure proceedings and participated in the auction sale where he successfully bid on the properties. However, no certificate of sale was issued to him due to his failure to pay the sale's commission.

Subsequently, on February 15, 1999, respondent and the Cañeda spouses executed a memorandum of agreement (MOA), recognizing respondent as the "real mortgagee-creditor" while petitioner is recognized merely as a trustee. They also agreed to initiate a judicial action to annul or reform the contract or compel petitioner to reconvey the mortgagee's rights to respondent.

Three days later, respondent and the Cañeda spouses sued petitioner, seeking a declaration that respondent is the trustee of petitioner in relation to the contract, annulment of petitioner's bid for the foreclosed properties, declaration of the contract as superseded or novated by the MOA, and a requirement for petitioner to pay damages, attorney's fees, and costs.

The trial court ruled in favor of petitioner, but the CA granted the petition, declared respondent as the mortgagee under the contract, and ordered petitioner to pay damages and attorney's fees. Petitioner filed a petition seeking the reversal of the CA's ruling, while respondent questions the propriety of the petition for raising only factual questions.

ISSUES:

  1. Whether petitioner Richard Juan is a trustee of an implied trust over a mortgage contract in favor of respondent Gabriel Yap, Sr.

  2. Whether the Court of Appeals was correct in finding that the Memorandum of Agreement (MOA) served as a correction done by the parties to reveal their true intent.

RULING:

  1. The trial court ruled against respondent and declared petitioner as the "true and real" mortgagee. This ruling was based on the terms of the Contract and the fact that respondent failed to assert beneficial interest over the mortgaged properties for nearly four years.

  2. The Court of Appeals granted respondent's appeal and declared him as the mortgagee based on certain pieces of parol evidence, such as the testimony of the lawyer who prepared the Contract and the acknowledgment by Dulcisima Cañeda that respondent was the creditor. The Court of Appeals also held that reformation was the proper remedy, with the MOA serving as the correction done by the parties to reveal their true intent.

PRINCIPLES:

  • Contracts should be interpreted in accordance with their clear and unequivocal terms. The terms of the Contract were given primacy by the trial court in ruling against respondent.

  • Parol evidence may be admitted to prove a resulting trust or to show the true intent of the parties in cases where the contract is ambiguous or incomplete. In this case, the Court of Appeals relied on parol evidence to find that respondent was the mortgagee.

  • Reformation of a contract may be granted when there is clear and convincing evidence that there was a meeting of the minds between the parties, but the contract fails to express the true intent of the parties. The Court of Appeals held that reformation was the proper remedy in this case.