The Supreme Court, in Spouses Victor and Edna Binua v. Lucia P. Ong, affirmed that a mortgage contract is not voidable due to duress if the alleged intimidation stems from a threat to enforce a legal claim. The Court emphasized that for intimidation to vitiate consent, the threat must be unjust or unlawful, and the fear induced must be reasonable and well-grounded. This decision clarifies the boundaries of what constitutes duress in contract law, particularly in the context of mortgage agreements, ensuring that valid claims are not undermined by unsubstantiated allegations of coercion.

Mortgage Under Pressure: When Does Fear Nullify a Contract?

This case revolves around spouses Victor and Edna Binua, who sought to nullify real estate mortgages they executed in favor of Lucia P. Ong. The Binuas claimed that the mortgages were signed under duress, specifically because Edna faced imprisonment following an estafa conviction. Initially, Edna was found guilty and ordered to pay Ong P2,285,000.00. To avoid criminal liability, the spouses mortgaged Victor’s properties worth P7,000,000.00. Later, a motion for a new trial was granted, and the court revised its decision, ordering Edna to pay the same amount as actual damages based on a promissory note that novated the original agreement into a purely civil obligation. Despite this, Edna failed to pay, leading Ong to foreclose the mortgages. The spouses then filed a case to declare the mortgage contracts null, arguing they were executed under duress due to Edna’s initial conviction. The lower courts ruled against the Binuas, prompting them to elevate the case to the Supreme Court.

The petitioners contended that the Court of Appeals (CA) erred in sustaining the findings of the Regional Trial Court (RTC), arguing that the promissory note did not change Edna’s obligation and that the threat of criminal conviction constituted duress. They relied on Article 1335 of the Civil Code, claiming that the respondent’s actions fell outside its coverage. Furthermore, they questioned the legality of the ten percent (10%) monthly interest rate imposed on Edna’s loan obligation. However, the Supreme Court emphasized that it primarily reviews questions of law and that the CA’s factual findings, when supported by substantial evidence, are generally conclusive. Here, the petitioners’ arguments were essentially repetitions of those raised in the CA, and they failed to provide compelling reasons to alter the lower court’s resolution.

A critical aspect of the case was the final and executory nature of the RTC-Branch 2 decision, which overturned Edna’s estafa conviction and established her civil liability based on the promissory note. The Supreme Court reiterated the principle that a final decision becomes the law of the case, preventing the rehash of issues already decided. As such, the existence and implications of the promissory note were no longer open for debate. The Court stated,

“once a decision attains finality, it becomes the law of the case regardless of any claim that it is erroneous. Having been rendered by a court of competent jurisdiction acting within its authority, the judgment may no longer be altered even at the risk of occasional legal infirmities or errors it may contain.”

This principle effectively barred the petitioners from contesting the basis of Edna’s exoneration or the nature of her obligation.

The Supreme Court then addressed the core issue of whether the mortgage contracts were executed under duress. Article 1390(2) of the Civil Code provides that contracts where consent is vitiated by intimidation are voidable. Article 1335 defines intimidation as being compelled by a reasonable and well-grounded fear of an imminent and grave evil. However, it also explicitly states that,

“[a] threat to enforce one’s claim through competent authority, if the claim is just or legal, does not vitiate consent.”

In this context, the petitioners argued that the threat of Edna’s imprisonment coerced them into signing the mortgages. The Court, however, found this argument unpersuasive.

The Court cited De Leon v. Court of Appeals, outlining the requisites for intimidation to invalidate a contract: (1) the intimidation must be the determining cause of the contract; (2) the threatened act must be unjust or unlawful; (3) the threat must be real and serious; and (4) the threat must produce a reasonable and well-grounded fear. Applying these requisites, the Court found that the respondent’s actions did not constitute unjust or unlawful intimidation. Informing the petitioners of Edna’s conviction and the potential consequences was not inherently wrong. The Court noted that the petitioners failed to demonstrate how this information was used to coerce them into signing the mortgages. The prospect of Edna’s imprisonment was a legal consequence of her conviction, a result of a valid judicial process.

This view aligns with the ruling in Callanta v. National Labor Relations Commission, where the Court held that a threat to prosecute for estafa, being a valid act to enforce a claim, does not constitute intimidation. In the Binua case, the CA correctly pointed out that no proof was presented to show that Ong used force, duress, or threat to make Victor execute the mortgages. The petitioners’ argument rested solely on the fact of Edna’s conviction, which was insufficient to nullify the mortgage contracts. This underscores the necessity of proving that the consent was vitiated by unlawful and unjust acts, rather than merely asserting that fear or apprehension existed.

Finally, the Supreme Court declined to address the issue of the ten percent (10%) monthly interest rate, citing the final and executory nature of the RTC-Branch 2 decision. Addressing this issue would undermine the principle of immutability of final judgments, which is a cornerstone of the Philippine judicial system. The Court emphasized that once a judgment becomes final, it can no longer be altered, even if errors are alleged. Thus, the petition was denied for lack of merit, reinforcing the validity of the mortgage contracts and the subsequent foreclosure.

FAQs

What was the key issue in this case?	The key issue was whether the real estate mortgages executed by the Binuas were voidable due to duress or intimidation, stemming from the threat of imprisonment following Edna’s estafa conviction.
What is the legal definition of intimidation in contract law?	Intimidation, under Article 1335 of the Civil Code, is when one contracting party is compelled by a reasonable and well-grounded fear of an imminent and grave evil upon their person or property. However, a threat to enforce a just and legal claim does not vitiate consent.
What are the requisites for intimidation to invalidate a contract?	The requisites are: (1) the intimidation must be the determining cause of the contract; (2) the threatened act must be unjust or unlawful; (3) the threat must be real and serious; and (4) the threat must produce a reasonable and well-grounded fear.
Did the threat of imprisonment constitute duress in this case?	No, the Court ruled that the threat of imprisonment did not constitute duress because it was a legal consequence of Edna’s conviction, a result of a valid judicial process. There was no unjust or unlawful act on the part of the respondent.
What role did the promissory note play in the Supreme Court’s decision?	The promissory note novated Edna’s obligation from criminal to civil, and the RTC decision establishing this was final and executory. This meant the nature of her obligation could not be re-litigated, and it supported the claim that the mortgages were to secure a civil debt.
What is the significance of a final and executory court decision?	A final and executory decision becomes the law of the case and cannot be altered, even if errors are alleged. This principle of immutability prevents the rehash of decided issues and ensures the stability of judicial decisions.
How does this case relate to Article 1335 of the Civil Code?	This case interprets Article 1335, specifically the provision that a threat to enforce a legal claim does not vitiate consent. The Court found that the respondent’s actions fell within this exception, as they were enforcing a legitimate claim arising from Edna’s debt.
What kind of evidence is needed to prove duress in mortgage contracts?	A preponderance of evidence is needed to establish the invalidity of a mortgage, and clear and convincing proof is necessary to show fraud, duress, or undue influence. Mere allegations are not sufficient; specific acts of coercion must be demonstrated.

In conclusion, the Supreme Court’s decision in Spouses Binua v. Ong provides important clarification on the application of duress in contract law, particularly regarding mortgage agreements. It underscores the necessity of proving unjust or unlawful threats to invalidate a contract and reinforces the principle that enforcing a legal claim does not constitute duress. The ruling provides a clear framework for evaluating claims of intimidation and ensures that legitimate contractual obligations are upheld.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: Spouses Victor and Edna Binua, vs. Lucia P. Ong, G.R. No. 207176, June 18, 2014