FACTS:

Hayari Trading Corporation borrowed P2,500,000.00 from Manphil Investment Corporation through a Loan Agreement for the benefit of Filtex. Hayari's president and his wife, as well as Terry's uncle, executed an Assumption of Joint and Solidary Liability, assuming joint and solidary liability for the loan. Valiant Realty and Development Corporation, represented by Terry's uncle, and Sierra Grande Realty Corporation, represented by Terry, executed a Third Party Real Estate Mortgage in favor of Manphil. Filtex also constituted real estate and chattel mortgages to secure payment of the loan. Sierra Grande executed a Contract to Sell the Roberts property to Golden Apple Realty and Rosvibon Realty Corporation. The purchase price was to be paid to Manphil. Sierra Grande executed a Deed of Sale of Lots 1, 2, and 3 to Golden Apple and a Deed of Sale of Lot 4 to Rosvibon. Sierra Grande revoked Bernardino Villanueva's authority to sell the Roberts property. Elmer Tan paid an amortization to Manphil for Hayari's account. Sierra Grande discovered that Bernardino Villanueva attempted to secure the duplicate original title of the Roberts property without authorization. Golden Apple and Rosvibon filed a complaint against Sierra Grande and Manphil. The trial court ruled in favor of the plaintiffs. Sierra Grande appealed to the CA which reversed the trial court's decision. The CA denied the motion for reconsideration filed by the plaintiffs. The petitioners raised several assignment of errors, but the CA found them unmeritorious.

ISSUES:

1. Whether or not the contracts in question were valid.

2. Whether or not Article 1602 of the Civil Code is applicable to the case at bar.

3. Whether or not the concept of "badges of fraud" includes lack of capacity, notarial infirmity, and conflict of interest.

4. Whether or not the contracts should be invalidated on the grounds of insufficiency of consideration, lack of legal personality, irregularity in execution, and conflict of interest.

5. Whether or not the damages awarded by the trial court should be disallowed.

6. Whether the lack of corporate personality of Rosbivon at the time of the execution of the Contract to Sell constitutes a badge of fraud.

7. Whether the contracts were invalidated on the ground of notarial infirmity and ante-dating.

8. Whether the contracts were invalidated on the ground of insufficiency of consideration or price.

9. Whether inadequacy of price can invalidate a contract.

10. Whether fraud was present in the subject contracts.

RULING:

1. The contracts in question were deemed invalid by the Court of Appeals, which reversed the decision of the trial court. However, the Supreme Court found that the CA's ruling was contrary to the factual findings of the trial court. The Supreme Court held that it is not a trier of facts, but exceptions apply when the findings of the appellate court are contrary to those of the trial court or when such findings are not supported by the evidence or based on a misapprehension of facts. As a result, the Supreme Court re-examined some of the facts raised in the petition.

2. Regarding the applicability of Article 1602 of the Civil Code, the petitioners argued that the CA misused the term "badges of fraud" and that Article 1602 is not applicable because it refers to a sale with a right to repurchase, while the contracts in question were absolute sales. However, the Supreme Court found that the CA used the phrase "badges of fraud" to refer to certain fraudulent acts that attended the execution of the contracts, which were antedated, simulated, and fraudulent. The Supreme Court agreed with the CA's conclusion that the contracts were invalid based on these fraudulent acts.

3. The Supreme Court also rejected the argument that the contracts should not be invalidated based on insufficiency of consideration, lack of legal personality, irregularity in execution, and conflict of interest. The Court found that there were indeed irregularities and fraudulent acts present in the execution of the contracts, such as the lack of legal personality of one of the vendees at the time of execution and the antedating of the deeds of absolute sale. These circumstances, along with the insufficient consideration and conflict of interest, justified the invalidation of the contracts.

4. n relation to the damages awarded by the trial court, the Supreme Court did not address this issue specifically in the provided text.

5. The lack of corporate personality of Rosbivon at the time of the execution of the Contract to Sell is considered a badge of fraud.

6. The contracts were invalidated on the ground of notarial infirmity and ante-dating. The absence of residence certificates and failure to comply with the requirements of the Notarial Law constitute defects in the notarial requirement of the transaction.

7. The contracts were invalidated on the ground of insufficiency of consideration or price. The payment made by Elmer Tan on behalf of Hayari, which was not for the benefit of Respondent Sierra Grande, cannot be considered as part of the consideration for the sale of the property. The only consideration paid for the sale of the property was determined to be inadequate.

8. Inadequacy of price can invalidate a contract, except in cases specified by law, such as when there has been fraud, mistake, or undue influence.

9. The Court of Appeals (CA) found fraud in the subject contracts, and the inadequacy of price was merely one of the circumstances used to support the existence of fraud. Therefore, the CA invalidated the contracts.

PRINCIPLES:

• The lack of corporate personality at the time of executing a contract can be considered a badge of fraud.

• Defects in the notarial requirement, such as the absence of residence certificates and failure to comply with the Notarial Law, can invalidate contracts.

• Inadequacy of consideration or price can be a ground for invalidating contracts.

• Lesion or inadequacy of cause does not automatically invalidate a contract, unless there has been fraud, mistake, or undue influence. (Civil Code, Art. 1355)