G.R. No. 29512 - Ong Chua vs. Carr

The dispute concerns the deed of sale for lots Nos. 135, 136, and 137 of cadastral case No. 8695, West Extension, and for a house of strong materials constructed on lot No. 132 of the same case.
Originally, lots Nos. 136 and 137 and the house belonged to Henry E. Teck, while lot No. 135 was owned by his wife, Magdalena Lim.
Prior to June 20, 1923, Henry E. Teck and his wife sold the property to plaintiff Ong Chua.
On June 17, 1923, Ong Chua executed a public document granting Magdalena Lim the right to repurchase lot 135 for P6,500 within four years.
On June 20, 1923, he executed another public document agreeing to sell lots Nos. 136, 137 and the house on lot 132 to Henry E. Teck for P13,500 within four years.
Notably, neither document was recorded with the register of deeds.

In July 1925, Edward Carr arrived in Zamboanga with letters of introduction and consulted with attorney P. J. Moore regarding the purchase of coconut lands.
During consultations, Moore pointed out the property in question and informed Carr of the existing rights of repurchase held by Teck and Lim, which were set to expire in June 1927.
Carr entered into negotiations with Ong Chua, during which discussions emphasized that the sale was subject to the repurchase rights, and Carr was made fully aware of these rights.
The agreed purchase price was P20,000, with the understanding that while Carr had only P13,500 in cash, he would secure a loan for P6,500.

On December 14, 1925, Ong Chua and Carr met with attorney Moore to prepare the deed of sale.
Despite Ong Chua’s oral statement that the sale should be subject to the rights of repurchase, Moore, under instructions and later by his clerk C. E. Darlucio, prepared a deed that omitted any reference to such conditions.
The deed, executed in English—a language the plaintiff did not understand—was signed by Ong Chua in Moore’s presence and duly acknowledged by Moore acting as notary public.
Ong Chua, relying on Moore’s assurance that the document contained the necessary conditions, was unaware of the omission.

It was disclosed that lot No. 137 was mortgaged by Ong Chua to the Bank of the Philippine Islands for P6,500 at an interest rate of 10% per annum.
Moore explained that allowing the deed to reflect an absolute title (without the repurchase condition) could facilitate a reduced interest loan from the Zamboanga Mutual Building and Loan Association.
To enable the transaction, it was agreed that the deed and other documents would be retained in escrow by Moore until the expiration of the repurchase term.

In September 1926, attorney Moore became critically ill and was admitted to the Zamboanga Hospital.
Taking advantage of Moore’s condition, Carr repeatedly demanded the delivery of the documents.
Eventually, to avoid further harassment, Moore surrendered the deed to Carr.
Carr then promptly presented the deed for registration, thereby obtaining certificates of title that appeared to show an absolute conveyance of the property.

In July 1926, when Henry E. Teck offered to exercise the repurchase right, Ong Chua insisted on reconveying the property to Teck and Lim.
Carr refused, asserting that his title was absolute, and Ong Chua discovered that the deed lacked any mention of the repurchase rights.
Ong Chua subsequently filed an action demanding the reformation of the deed (Exhibit A) in alignment with the original understanding of the transaction.

On appeal, the defendant (and later, the estate of Carr represented by Manuel Igual) raised six assignments of error, which can be summarized into two main propositions:

Whether the trial court erred in allowing Ong Chua to testify on events prior to Carr’s death, conflicting with procedural rules.
Whether the evidence established was sufficient to justify the reformation of the deed.

The issue of allowing testimony regarding pre-death events was addressed in light of established principles permitting such testimony when the purpose is to unearth fraud.
The appellate review scrutinized the fraudulent behavior by Carr (and his estate) in contravening the escrow agreement and hastily registering the deed.

Whether the trial court erred in permitting Ong Chua to testify regarding facts that occurred before the death of defendant Carr, in potential violation of subsection 7 of Section 383 of the Code of Civil Procedure.

Whether the proven facts, including the omission of the repurchase clause in the deed and Carr’s fraudulent conduct in obtaining and prematurely registering the deed, justify the reformation of the deed.

Whether parol evidence is admissible to prove the existence of an escrow agreement that imposed conditions which were not included in the written deed.

Whether Carr’s conduct—pressuring Moore to deliver the deed in contravention of their prior agreement and then registering the deed—amounts to fraud sufficient to warrant reformation of the deed.