G.R. No.

109355 October 29, 1999 excess of jurisdiction; and (4) whether or not only three-fourths of subject lots should be returned to the
private respondent.

SERAFIN MODINA, petitioner,

vs. Anent the first issue, petitioner theorizes that the sale in question is null and void for being violative of
COURT OF APPEALS AND ERNESTO HONTARCIEGO, PAUL FIGUEROA, TEODORO HIPALLA AND Article 1490 3 of the New Civil Code prohibiting sales between spouses. Consequently, what is applicable
RAMON CHIANG, MERLINDA CHIANG, respondents. is Article 1412 4 supra on the principle of in pari delicto, which leaves both guilty parties where they are,
and keeps undisturbed the rights of third persons to whom the lots involved were sold; petitioner
stressed.1âwphi1.nêt
The parcels of land in question are those under the name of Ramon Chiang (hereinafter referred to as
CHIANG) covered by TCT Nos. T-86912, T-86913, and T-86914. He theorized that subject properties
were sold to him by his wife, Merlinda Plana Chiang (hereinafter referred to as MERLINDA), as evidenced Petitioner anchors his submission on the following statements of the Trial Court which the Court of Appeals
by a Deed of Absolute Sale dated December 17, 1975, 1 and were subsequently sold by CHIANG to the upheld, to wit:
petitioner Serafin Modina (MODINA), as shown by the Deeds of Sale, dated August 3, 1979 and August Furthermore, under Art. 1490, husband and wife are prohibited to sell properties to each other. And
24, 1979, respectively. where, as in this case, the sale is inexistent for lack of consideration, the principle of in pari delicto non
oritur actio does not apply. (Vasquez vs. Porta, 98 Phil 490), (Emphasis ours) Thus, Art. 1490 provides:
Art. 1490. The husband and the wife cannot sell property to each other, except:
MODINA brought a Complaint for Recovery of Possession with Damages against the private respondents,
(1) when a separation of propety was agreed upon in the marriage settlements; or
Ernesto Hontarciego, Paul Figueroa and Teodoro Hipalla, docketed as Civil Case No. 13935 before the
(2) when there has been a judicial separation of property under Art. 191.
Regional Trial Court of Iloilo City.
The exception to the rule laid down in Art. 1490 of the New Civil Code not having existed with respect
to the property relations of Ramon Chiang and Merlinda Plana Chiang, the sale by the latter in favor of
Upon learning the institution of the said case, MERLINDA presented a Complaint-in-intervention, seeking the former of the properties in question is invalid for being prohibited by law. Not being the owner of
the declaration of nullity of the Deed of Sale between her husband and MODINA on the ground that the subject properties, Ramon Chiang could not have validly sold the same to plaintiff Serafin Modina. The
titles of the parcels of land in dispute were never legally transferred to her husband. Fraudulent acts were sale by Ramon Chiang in favor of Serafin Modina is, likewise, void and inexistent.
allegedly employed by him to obtain a Torrens Title in his favor. However, she confirmed the validity of
the lease contracts with the other private respondents.
The Court of Appeals, on the other hand, adopted the following findings a quo: that there is no sufficient
evidence establishing fault on the part of MERLINDA, and therefore, the principle of in pari delicto is
MERLINDA also admitted that the said parcels of land were those ordered sold by Branch 2 of the then inapplicable and the sale was void for want of consideration. In effect, MERLINDA can recover the lots
Court of First Instance of Iloilo in Special Proceeding No. 2469 in "Intestate Estate of Nelson Plana" where sold by her husband to petitioner MODINA. However, the Court of Appeals ruled that the sale was void
she was appointed as the administratix, being the widow of the deceased, her first husband. An Authority for violating Article 1490 of the Civil Code, which prohibits sales between spouses.
to Sell was issued by the said Probate Court for the sale of the same properties. 2

The principle of in pari delicto non oritur actio 6 denies all recovery to the guilty parties inter se. It applies
After due hearing, the Trial Court decided in favor of MERLINDA, disposing thus: to cases where the nullity arises from the illegality of the consideration or the purpose of the
WHEREFORE, judgment is hereby rendered (1) declaring as void and inexistent the sale of Lots 10063, 10088, 10085
contract. 7 When two persons are equally at fault, the law does not relieve them. The exception to this
and 10089 of the Cadastral Survey of Sta. Barbara by Merlinda Plana in favor of Ramon Chiang as evidenced by the
deed of definite sale dated December 17, 1975 (Exhibits "H"; "3"-Chiang; "9" Intervenor) as well as the Certificates of
general rule is when the principle is invoked with respect to inexistent contracts. 8
Title Nos. T-86912, T-86913, T-86914 and T-86915 in the name of Ramon Chiang; (2) declaring as void and inexistent
the sale of the same properties by Ramon Chiang in favor of Serafin Modina as evidenced by the deeds of sale (Exhibits
In the petition under consideration, the Trial Court found that subject Deed of Sale was a nullity for lack
"A", "B", "6" — Chiang and "7" — Chiang) dated August 3, and 24, 1979, as well as Certificates of Title Nos. T-102631,
102630, 102632 and 102890 in the name of Serafin Modina; (3) ordering the Register of Deeds of Iloilo to cancel said
of any consideration. 9 This finding duly supported by evidence was affirmed by the Court of Appeals.
certificates of title in the names of Ramon Chiang and Serafin Modina and to reinstate the Certificates of Title Nos. T- Well-settled is the rule that this Court will not disturb such finding absent any evidence to the contrary. 10
57960, T-57962, T-57963 and T-57864 in the name of Nelson Plana; (4) ordering Serafin Modina to vacate and restore
possession of the lots in question to Merlinda Plana Chiang; (5) ordering Ramon Chiang to restitute and pay to Serafin
Modina the sum of P145,800.00 and; (6) ordering Serafin Modina to pay Ernesto Hontarciego the sum of P44,500.00 as
Under Article 1409 11 of the New Civil Code, enumerating void contracts, a contract without consideration
actual and compensatory damages plus the sum of P5,000.00, for and as attorney's fees, with costs in favor of said is one such void contract. One of the characteristics of a void or inexistent contract is that it produces no
defendants against the plaintiff. effect. So also, inexistent contracts can be invoked by any person whenever juridical effects founded
thereon are asserted against him. A transferor can recover the object of such contract by accion
reivindicatoria and any possessor may refuse to deliver it to the transferee, who cannot enforce the
On appeal; the Court of Appeals affirmed the aforesaid decision in toto.
transfer. 12

Dissatisfied therewith, petitioner found his way to this Court via the present Petition for Review under the
Thus, petitioner's insistence that MERLINDA cannot attack subject contract of sale as she was a guilty
Rule 45 seeking to set aside the assailed decision of the Court of Appeals.
party thereto is equally unavailing.

Raised for resolution here are: (1) whether the sale of subject lots should be nullified, (2) whether
But the pivot of inquiry here is whether MERLINDA is barred by the principle of in pari delicto from
petitioner was not a purchaser in good faith, (3) whether the decision of the trial court was tainted with
questioning subject Deed of Sale.
It bears emphasizing that as the contracts under controversy are inexistent contracts within legal In the case under scrutiny, petitioner cannot claim that he was a purchaser in good faith. There are
contemplation. Articles 1411 and 1412 of the New Civil Code are inapplicable. In pari delicto doctrine circumstances which are indicia of bad faith on his part, to wit: (1) He asked his nephew, Placido Matta,
applies only to contracts with illegal consideration or subject matter, whether the attendant facts to investigate the origin of the property and the latter learned that the same formed part of the properties
constitute an offense or misdemeanor or whether the consideration involved is merely rendered illegal. 13 of MERLINDA's first husband; (2) that the said sale was between the spouses; (3) that when the property
was inspected, MODINA met all the lessees who informed that subject lands belong to MERLINDA and
they had no knowledge that the same lots were sold to the husband.
The statement below that it is likewise null and void for being violative of Article 1490 should just be
treated as a surplusage or an obiter dictum on the part of the Trial Court as the issue of whether the
parcels of land in dispute are conjugal in nature or they fall under the exceptions provided for by law, It is a well-settled rule that a purchaser cannot close his eyes to facts which would put a reasonable man
was neither raised nor litigated upon before the lower Court. Whether the said lots were ganancial upon his guard to make the necessary inquiries, and then claim that he acted in good faith. His mere
properties was never brought to the fore by the parties and it is too late to do so now. refusal to believe that such defect exists, or his wilful closing of his eyes to the possibility of the existence
of a defect in his vendor's title, will not make him an innocent purchaser for value, if it afterwards develops
that the title was in fact defective, and it appears that he had such notice of the defect as would have led
Furthermore, if this line of argument be followed, the Trial Court could not have declared subject contract
to its discovery had he acted with that measure of precaution which may reasonably be required of a
as null and void because only the heirs and the creditors can question its nullity and not the spouses
prudent man in a like situation. 15
themselves who executed the contract with full knowledge of the prohibition. 14

Thus, petitioner cannot claim that the sale between him and MODINA falls under the exception provided
Records show that in the complaint-in-intervention of MERLINDA, she did not aver the same as a ground
for by law.
to nullify subject Deed of Sale. In fact, she denied the existence of the Deed of Sale in favor of her
husband. In the said Complaint, her allegations referred to the want of consideration of such Deed of
Sale. She did not put up the defense under Article 1490, to nullify her sale to her husband CHIANG With regard to the third issue posed by petitioner — whether the Trial Court's decision allowing recovery
because such a defense would be inconsistent with her claim that the same sale was on the part of Merlinda Chiang of subject properties was void — petitioner's contention is untennable. It
inexistent.1âwphi1.nêt is theorized that as the sale by MERLINDA was by virtue of an Order to Sell issued in the Intestate Estate
Proceedings of her late husband, Nelson Plana — to allow recovery will defeat the said order of the Probate
Court. Petitioner equated the aforesaid Order to Sell as a judgment, which another court in a regular
The Trial Court debunked petitioner's theory that MERLINDA intentionally gave away the bulk of her and
proceeding has no jurisdiction to reverse.
her late husband's estate to defendant CHIANG as his exclusive property, for want of evidentiary anchor.
They insist on the Deed of Sale wherein MERLINIDA made the misrepresentation that she was a widow
and CHIANG was single, when at the time of execution thereof, they were in fact already married. Petitioner is under the mistaken impression that as the Order to Sell had become a judgment in itself as
Petitioner insists that this document conclusively established bad faith on the part of MERLINDA and to the validity of the sale of the properties involved, any question as to its nullity should have been
therefore, the principle of in pari delicto should have been applied. brought before the Court of Appeals on appeal when the said Order was issued.

These issues are factual in nature and it is not for this Court to appreciate and evaluate the pieces of It is a well-settled rule that a Court of First Instance (now Regional Trial Court) has jurisdiction over a
evidence introduced below. An appellate court defers to the factual findings of the Trial Court, unless case brought to rescind a sale made upon prior authority of a Probate Court. This does not constitute an
petitioner can show a glaring mistake in the appreciation of relevant evidence. interference or review of the order of a co-equal Court since the Probate Court has no jurisdiction over
the question of title to subject properties. Consequently, a separate action may be brought to determine
the question of ownership. 16
Since one of the characteristics of a void or inexistent contract is that it does not produce any effect,
MERLINDA can recover the property from petitioner who never acquired title thereover.
Lastly, on the issue of whether only three-fourths of the property in question should have been returned
to MERLINDA, petitioner's stance is equally unsustainable. It is a settled doctrine that an issue which was
As to the second issue, petitioner stresses that his title should have been respected since he is a purchaser
neither averred in the Complaint nor raised during the trial before the lower court cannot be raised for
in good faith and for value. The Court of Appeals, however, opined that he (petitioner) is not a purchaser
the first time on appeal, as such a recourse would be offensive to the basic rules of fair play, justice, and
in good faith. It found that there were circumstances known to MODINA which rendered their transaction
due process. 17
fraudulent under the attendant circumstances.

The issue of whether only three-fourths of subject property will be returned was never an issue before the lower court and
As a general rule, in a sale under the Torrens system, a void title cannot give rise to a valid title. The therefore, the petitioner cannot do it now. A final word. In a Petition for Review, only questions of law may be raised. It is
exception is when the sale of a person with a void title is to a third person who purchased it for value and perceived by the Court that what petitioner is trying to, albeit subtly, is for the Court to examine the probative value or
in good faith. evidentiary weight of the evidence presented below 18. The Court cannot do that unless the appreciation of the pieces of
evidence on hand is glaringly erroneous. But this is where petitioner utterly failed.1âwphi1.nêt

A purchaser in good faith is one who buys the property of another without notice that some other person
has a right to or interest in such property and pays a full and fair price at the time of the purchase or WHEREFORE, the Petition is DENIED and the decision of the Court of Appeals, dated September 30, 1992, in CA-G.R. CV
No. 26051 AFFIRMED. No pronouncement as to costs.
before he has notice of the claim or interest of some other person in the property.
[G.R. No. L-1411. September 29, 1953.] the effect of the law governing rescission of contracts? Our answer must of necessity be in the negative
following the doctrine laid down in the case of Trinidad Gonzaga de Cabauatan, et al. vs. Uy Hoo, et al.,
DIONISIO RELLOSA, Petitioner, vs. GAW CHEE HUN, Respondent. 88 Phil. 103, wherein we made the following pronouncement: "We can, therefore, say that even if the
plaintiffs can still invoke the Constitution, or the doctrine in the Krivenko Case, to set aside the sale in
On February 2, 1944, Dionisio Rellosa sold to Gaw Chee Hun a parcel of land, together with the house
question, they are now prevented from doing so if their purpose is to recover the lands that they have
erected thereon, situated in the City of Manila, Philippines, for the sum of P25,000. The vendor remained voluntarily parted with, because of their guilty knowledge that what they were doing was in violation of
in possession of the property under a contract of lease entered into on the same date between the same
the Constitution. They cannot escape this conclusion because they are presumed to know the law. As this
parties. Alleging that the sale was executed subject to the condition that the vendee, being a Chinese
court well said: 'A party to an illegal contract cannot come into a court of law and ask to have his illegal
citizen, would obtain the approval of the Japanese Military Administration in accordance with (seirei) No.
objects carried out. The law will not aid either party to an illegal agreement; it leaves the parties where
6 issued on April 2, 1943, by the Japanese authorities, and said approval has not been obtained, and
it finds them.' The rule is expressed in the maxims: 'Ex dolo malo non oritur actio,' and 'In pari delicto
that, even if said requirement were met, the sale would at all events be void under article XIII, section
potior est conditio defendentis.' (Bough and Bough vs. Cantiveros and Hanopol, 40 Phil., 210, 216.)"
5, of our Constitution, the vendor instituted the present action in the Court of First Instance of Manila
seeking the annulment of the sale as well as the lease covering the land and the house above mentioned, The doctrine above adverted to is the one known as In Pari Delicto. This is well known not only in this
and praying that, once the sale and the lease are declared null and void, the vendee be ordered to return jurisdiction but also in the United States where common law prevails. In the latter jurisdiction, the
to vendor the duplicate of the title covering the property, and be restrained from in any way dispossessing doctrine is stated thus: "The proposition is universal that no action arises, in equity or at law, from an
the latter of said property. illegal contract; no suit can be maintained for its specific performance, or to recover the property agreed
to be sold or delivered, or the money agreed to be paid, or damages for its violation. The rule has
Defendant answered the complaint setting up as special defense that the sale referred to in the complaint
sometimes been laid down as though it were equally universal, that where the parties are in pari delicto,
was absolute and unconditional and was in every respect valid and binding between the parties, it being
no affirmative relief of any kind will be given to one against the other." (Pomeroy's Equity Jurisprudence,
not contrary to law, morals and public order, and that plaintiff is guilty of estoppel in that, by having
Vol. 3, 5th ed., p. 728.)
executed a deed of lease over the property, he thereby recognized the title of defendant to that property.
It is true that this doctrine is subject to one important limitation, namely, "whenever public policy is
Issues having been joined, and the requisite evidence presented by both parties, the court declared both
considered as advanced by allowing either party to sue for relief against the transaction" (idem, p. 733).
the sale and the lease valid and binding and dismissed the complaint. The court likewise ordered plaintiff
But not all contracts which are illegal because opposed to public policy come under this limitation. The
to turn over the property to defendant and to pay a rental of P50 a month from August 1, 1945 until the
cases in which this limitation may apply only "include the class of contracts which are intrinsically contrary
property has been actually delivered. As this decision was affirmed in toto by the Court of Appeals, plaintiff
to public policy, contracts in which the illegality itself consists in their opposition to public policy, and any
sued out the present petition for review.
other species of illegal contracts in which, from their particular circumstances, incidental and collateral
motives of public policy require relief." Examples of this class of contracts are usurious contracts,
One of the issues raised by petitioner refers to the validity of Seirei No. 6 issued on April 2, 1943 by the
marriage-brokerage contracts and gambling contracts. (Idem. pp. 735-737.)
Japanese authorities which prohibits an alien from acquiring any private land not agricultural in nature
during the occupation unless the necessary approval is obtained from the Director General of the Japanese
In our opinion, the contract in question does not come under this exception because it is not intrinsically
Military Administration. Petitioner contends that the sale in question cannot have any validity under the
contrary to public policy, nor one where the illegality itself consists in its opposition to public policy. It is
above military directive in view of the failure of respondent to obtain the requisite approval and it was
illegal not because it is against public policy but because it is against the Constitution. Nor may it be
error for the Court of Appeals to declare said directive without any binding effect because the occupation
contended that to apply the doctrine of pari delicto would be tantamount to contravening the fundamental
government could not have issued it under article 43 of the Hague Regulations which command that laws
policy embodied in the constitutional prohibition in that it would allow an alien to remain in the illegal
that are municipal in character of an occupied territory should be respected and cannot be ignored unless
possession of the land, because in this case the remedy is lodged elsewhere. To adopt the contrary view
prevented by military necessity.
would be merely to benefit petitioner and not to enhance public interest.

We do not believe it necessary to consider now the question relative to the validity of Seirei No. 6 of the
The danger foreseen by counsel in the application of the doctrine above adverted to is more apparent
Japanese Military Administration for the simple reason that in our opinion the law that should govern the
than real. If we go deeper in the analysis of our situation we would not fail to see that the best policy
particular transaction is not the above directive but the Constitution adopted by the then Republic of the
would be for Congress to approve a law laying down the policy and the procedure to be followed in
Philippines on September 4, 1943, it appearing that the aforesaid transaction was executed on February
connection with transactions affected by our doctrine in the Krivenko case. We hope that this should be
2, 1944. Said Constitution, in its article VIII, section 5, provides that "no private agricultural land shall done without much delay. And even if this legislation be not forthcoming in the near future, we do not
be transferred or assigned except to individuals, corporations, or associations qualified to acquire or hold
believe that public interest would suffer thereby if only our executive department would follow a more
lands of the public domain in the Philippines", which provisions are similar to those contained in our
militant policy in the conservation of our natural resources as or dained by our Constitution. And we say
present Constitution. As to whether the phrase "private agricultural land" employed in said Constitution
so because there are at present two ways by which this situation may be remedied, to wit, (1) action for
includes residential lands, as the one involved herein, there can be no doubt because said phrase has
reversion, and (2) escheat to the state. An action for reversion is slightly different from escheat
already been interpreted in the affirmative sense by this court in the recent case of Krivenko vs. Register
proceeding, but in its effects they are the same. They only differ in procedure. Escheat proceedings may
of Deeds, 79 Phil. 461, wherein this court held that "under the Constitution aliens may not acquire private
be instituted as a consequence of a violation of article XIII, section 5 of our Constitution, which prohibits
or public agricultural lands, including residential lands." This matter has been once more submitted to
transfers of private agricultural lands to aliens, whereas an action for reversion is expressly authorized
the court for deliberation, but the ruling was reaffirmed. This ruling fully disposes of the question touching
by the Public Land Act (sections 122, 123, and 124 of Commonwealth Act No. 141).
on the validity of the sale of the property herein involved.
In the United States, as almost everywhere else, the doctrine which imputes to the sovereign or to the
The sale in question having been entered into in violation of the Constitution, the next question to be
government the ownership of all lands and makes such sovereign or government the original source of
determined is, can petitioner have the sale declared null and void and recover the property considering
private titles, is well recognized (42 Am. Jur., 785). This doctrine, which was expressly affirmed in original grant or title, and this is so for in the event of such annulment or cancellation no one else could
Lawrence vs. Garduo, G. R. No. 16542, and which underlies all titles in the Philippines, (See Ventura, legitimately claim the property except its original owner or grantor the state.
Land Registration and Mortgages, 2nd ed., pp. 2-3) has been enshrined in our Constitution (article XIII).
The doctrine regarding the course of all titles being the same here as in the United States, it would seem We repeat. There are two ways now open to our government whereby it could implement the doctrine of
that if escheat lies against aliens holding lands in those states of the Union where common law prevails this Court in the Krivenko case thereby putting in force and carrying to its logical conclusion the mandate
or where similar constitutional or statutory prohibitions exist, no cogent reason is perceived why similar of our Constitution. By following either of these remedies, or by approving an implementary law as above
proceedings may not be instituted in this jurisdiction. suggested, we can enforce the fundamental policy of our Constitution regarding our natural resources
without doing violence to the principle of pari delicto. With these remedies open to us, we see no justifiable
"Escheat is an incident or attribute of sovereignty, and rests on the principle of the ultimate ownership reason for pursuing the extreme unusual remedy now vehemently urged by the amici curiae.
by the state of all property within its jurisdiction.' (30 C.J.S., 1164.)
". . . America escheats belong universally to the state or some corporation thereof as the ultimate In view of the foregoing, we hold that the sale in question is null and void, but plaintiff is barred from
proprietor of land within its Jurisdiction." (19 Am. Jur., 382.) taking the present action under the principle of pari delicto.
"An escheat is nothing more or less than the reversion of property to the state, which takes place when
The decision appealed from is hereby affirmed without pronouncement as to costs.
the title fails." (Delany vs. State, 42 N. D., 630, 174 N.W., 290, quoted in footnote 6, 19 Am. Jur.,
381.)
"As applied to the right of the state to lands purchased by an alien, it would more properly be termed
a 'forfeiture' at common law." (19 Am. Jur., 381.)
"In modern law escheat denotes a falling of the estate into the general property of the state because
the tenant is an alien or because he has died intestate without lawful heirs to take his estate by
succession, or because of some other disability to take or hold property imposed by law." (19 Am. Jur.,

With regard to an action for reversion, the following sections of Commonwealth Act No. 141 are pertinent:

"SEC. 122. No land originally acquired in any manner under the provisions of this Act, nor any
permanent improvement on such land, shall be encumbered, alienated, or transferred, except to
persons, corporations, associations, or partnerships who may acquire lands of the public domain under
this Act or to corporations organized in the Philippines authorized therefor by their charters."

"SEC. 123. No land originally acquired in any manner under the provisions of any previous Act,
ordinance, royal decree, royal order, or any other provision of law formerly in force in the Philippines
with regard to public lands, terrenos baldios y realenqos, or lands of any other denomination that were
actually or presumptively of the public domain or by royal grant or in any other form, nor any permanent
improvement on such land, shall be encumbered, alienated, or conveyed, except to persons,
corporations or associations who may acquire land of the public domain under this Act or to corporate
bodies organized in the Philippines whose charters authorize them to do so: Provided, however, That
this prohibition shall not be applicable to the conveyance or acquisition by reason of hereditary
succession duly acknowledged and legalized by competent courts; Provided, further, That in the event
of the ownership of the lands and improvements mentioned in this section and in the last preceding
section being transferred by judicial decree to persons, corporations or associations not legally
capacitated to acquire the same under the provisions of this Act, such persons, corporation, or
associations shall be obliged to alienate said lands or improvements to others so capacitated within the
precise period of five years; otherwise, such property shall revert to the Government."

"SEC. 124. Any acquisition, conveyance, alienation, transfer, or other contract made or executed in
violation of any of the provisions of sections one hundred and eighteen, one hundred and twenty, one
hundred and twenty-one, one hundred and twenty-two, and one hundred and twenty-three of this Act
shall be unlawful and null and void from its execution and shall produce the effect of annulling and
cancelling the grant, title, patent, or permit originally issued, recognized or confirmed, actually or
presumptively, and cause the reversion of the property and its improvements to the State."

Note that the last quoted provision declared any prohibited conveyance not only unlawful but null and
void ab initio. More important yet, it expressly provides that such conveyances will produce "the effect of
annulling and cancelling the grant, title, patent, or permit, originally issued, recognized of confirmed,
actually or presumptively", and of causing "the reversion of the property and its improvements to the
State." The reversion would seem to be but a consequence of the annulment and cancellation of the
G.R. No. 215014 3. That the SECOND PARTY hereby grants the FIRST PARTY, the absolute and irrevocable right, to
reside in the residential building so constructed during his lifetime, or any time said FIRST PARTY
REBECCA FULLIDO, Petitioner, may so desire;
vs.
GINO GRILLI, Respondent. 4. That in the event the common-law relationship terminates, or when the SECOND PARTY marries
another, or enters into another common-law relationship with another, said SECOND PARTY shall be
Sometime in 1994, Grilli, an Italian national, met Fullido in Bohol and courted her. In 1995, Grilli decided obliged to execute a DEED OF ABSOLUTE SALE over the above-stated parcel of land and residential
to build a residential house where he and Fullido would to stay whenever he would be vacationing in the building, in favor of whomsoever the FIRST PARTY may so desire, and be further obliged to turn over
country. Grilli financially assisted Fullido in procuring a lot located in Biking I, Dauis, Bohol, from her the entire consideration of the said sale to the FIRST PARTY , or if the law shall allow, the FIRST
parents which was registered in her name under Transfer Certificate of Title (TCT) No. 30626.5 On the PARTY shall retain ownership of the said land, as provided for in paragraph 7 below;
said property, they constructed a house, which was funded by Grilli. Upon completion, they maintained
a common-law relationship and lived there whenever Grilli was on vacation in the Philippines twice a year. 7. That if the cases referred to in paragraph 4 shall occur and in the event that a future law shall be
passed allowing foreigners to own real properties in the Philippines, the ownership of the above-
In 1998, Grilli and Fullido executed a contract of lease, 6 a memorandum of agreement7 (MOA) and a described real properties shall pertain to the FIRST PARTY, and the herein undersigned SECOND
special power of attorney8 (SPA), to define their respective rights over the house and lot. PARTY undertakes to execute all the necessary deeds, documents, and contracts to effect the transfer
of title in favor of the FIRST PARTY;
The lease contract stipulated, among others, that Grilli as the lessee, would rent the lot, registered in the
name of Fullido, for a period of fifty (50) years, to be automatically renewed for another fifty (50) years Lastly, the SPA allowed Grilli to administer, manage, and transfer the house and lot on behalf of Fullido.
upon its expiration in the amount of P10,000.00 for the whole term of the lease contract; and that Fullido Initially, their relationship was harmonious, but it turned sour after 16 years of living together. Both
as the lessor, was prohibited from selling, donating, or encumbering the said lot without the written charged each other with infidelity. They could not agree who should leave the common property, and
consent of Grilli. The pertinent provisions of the lease contract over the house and lot are as follows: Grilli sent formal letters to Fullido demanding that she vacate the property, but these were unheeded. On
September 8, 2010, Grilli filed a complaint for unlawful detainer with prayer for issuance of preliminary
That for and in consideration of the total amount of rental in the amount of TEN THOUSAND (P10,000.00)
injunction against Fullido before the MCTC, docketed as Civil Case No. 244.
PESOS, Philippine Currency, paid by the LESSEE to the LESSOR, receipt of which is hereby acknowledged,
the latter hereby leases to the LESSEE a house and lot, and all the furnishings found therein, land situated Grilli’s Position
at Biking I, Dauis, Bohol, Philippines, absolutely owned and belonging to the LESSOR and particularly
described as follows, to wit: The complaint stated that the common-law relationship between Grilli and Fullido began smoothly, until
Grilli discovered that Fullido was pregnant when he arrived in the Philippines in 2002. At first, she told
That the LESSOR and the LESSEE hereby agree as they have agreed to be bound by the following terms him that the child she was carrying was his. After the delivery of the child, however, it became apparent
and conditions, to wit: that the child was not his because of the discrepancy between the child’s date of birth and his physical
presence in the Philippines and the difference between the baby’s physical features and those of Grilli.
1. That the term of the lease shall be FIFTY (50) YEARS from August 16, 1998 to August 15, 2048,
Later on, she admitted that the child was indeed sired by another man.
automatically renewed for the same term upon the expiration thereof;
Grilli further claimed that he was so devastated that he decided to end their common-law relationship.
7. That the LESSOR is strictly prohibited to sell, donate, encumber, or in any manner convey the
Nevertheless, he allowed Fullido to live in his house out of liberality and generosity, but this time, using
property subject of this lease to any third person, without the written consent of the LESSEE. 9
another room. He did not demand any rent from Fullido over the use of his property.

The said lease contract was duly registered in the Register of Deeds of Bohol.
After a year, Fullido became more hostile and difficult to handle. Grilli had to make repairs with his house
every time he arrived in the Philippines because she was not maintaining it in good condition. Fullido also
The MOA, on the other hand, stated, among others, that Grilli paid for the purchase price of the house
let her two children, siblings and parents stay in his house, which caused damage to the property. He
and lot; that ownership of the house and lot was to reside with him; and that should the common-law
even lost his personal belongings inside his house on several occasions. Grilli verbally asked Fullido to
relationship be terminated, Fullido could only sell the house and lot to whomever Grilli so desired.
move out of his house because they were not getting along anymore, but she refused. He could no longer
Specifically, the pertinent terms of the MOA read:
tolerate the hostile attitude shown to him by Fullido and her family, thus, he filed the instant complaint.
NOW WHEREFORE, FOR AND IN CONSIDERATION of the foregoing premises, the parties hereto agree
Fullido’s Position
as they hereby covenant to agree that the FIRST PARTY (Grilli) shall permanently reside on the property
as above-mentioned, subject to the following terms and conditions: Fullido countered that she met Grilli sometime in 1993 when she was still 17 years old working as a
cashier in Alturas Supermarket. Grilli was then a tourist in Bohol who persistently courted her.
1. That ownership over the above-mentioned properties shall reside absolutely with herein FIRST
PARTY, and the SECOND PARTY (Fullido) hereby acknowledges the same;
At first, Fullido was hesitant to the advances of Grilli because she could not yet enter into a valid marriage.
When he assured her and her parents that they would eventually be married in three years, she eventually
2. That the SECOND PARTY is expressly prohibited to sell the above-stated property, except if said
agreed to have a relationship with him and to live as common-law spouses. Sometime in 1995, Grilli
sale is with the conformity of the FIRST PARTY;
offered to build a house for her on a parcel of land she exclusively owned which would become their
conjugal abode. Fullido claimed that their relationship as common-law spouses lasted for more than 18
years until she discovered that Grilli had found a new and younger woman in his life. Grilli began to Fullido filed a motion for reconsideration,13 but she failed to attach the proofs of service of her motion.
threaten and physically hurt her by knocking her head and choking her. For said reason, it was denied by the CA in its assailed resolution, dated September 24, 2014.

When Fullido refused to leave their house even after the unlawful detainer case was filed, Grilli again Hence, this present petition raising the following:
harassed, intimidated and threatened to hurt her and her children. Thus, she filed a petition for Temporary
Protection Order (TPO) and Permanent Protection Order (PPO) against Grilli under Republic Act (R.A.) No. ISSUES
9262 before the Regional Trial Court, Branch 3, Bohol (RTC-Branch 3). In an Order,11 dated February 23,
I. THE HONORABLE COURT OF APPEALS GRAVELY ERRED AND DEPARTED FROM ESTABLISHED LAW
2011, the RTC-Branch 3 granted the TPO in favor of Fullido and directed that Grilli must be excluded from
AND JURISPRUDENCE IN DENYING THE PETITION FOR REVIEW AND IN AFFIRMING THE DECISION OF
their home.
RTC BOHOL BRANCH 47 EJECTING PETITIONER FROM THE SUBJECT PROPERTIES, WHICH EJECTMENT
Fullido finally asserted that, although it was Grilli who funded the construction of the house, she ORDER IS ANCHORED ON PATENTLY NULL AND VOID CONTRACTS.
exclusively owned the lot and she contributed to the value of the house by supervising its construction
II. THE HONORABLE COURT OF APPEALS GRAVELY ERRED AND DEPARTED FROM ESTABLISHED LAW
and maintaining their household.
IN AFFIRMING THE DECISION OF THE RTC BOHOL BRANCH 47 EJECTING PETITIONER FROM THEIR
The MCTC Ruling CONJUGAL ABODE WHERE RESPONDENT HAS BEEN EARLIER ORDERED TO VACATE BY VIRTUE OF A
PERMANENT PROTECTION ORDER THUS EFFECTIVELY SETTING ASIDE, NEGATING AND/OR VIOLATING
In its decision, dated March 31, 2011, the MCTC dismissed the case after finding that Fullido could not AN ORDER ISSUED BY A COURT OF CO-EQUAL JURISDICTION.
be ejected from their house and lot. The MCTC opined that she was a co-owner of the house as she
contributed to it by supervising its construction. Moreover, the MCTC respected the TPO issued by RTC- III. THE HONORABLE COURT OF APPEALS LIKEWISE ERRED AND DEPARTED FROM ESTABLISHED LAW
Branch 3 which directed that Grilli be removed from Fullido’s residence. The dispositive portion of the AND JURISPRUDENCE IN DENYING THE PETITIONER’S MOTION FOR RECONSIDERATION, AMONG
MCTC decision reads: OTHERS, FOR NONCOMPLIANCE WITH SECTION 1 RULE 52 VIS-À-VIS SECTION 13, RULE 13 OF THE
WHEREFORE, judgment is hereby rendered: 1997 RULES OF CIVIL PROCEDURE.14
1. Dismissing the instant case;
2. Ordering the Plaintiff to pay to Defendant the amount of Fifty Thousand Pesos (P50,000.00) as moral Fullido argues that she could not be ejected from her own lot based on the contract of lease and the MOA
because those documents were null and void for being contrary to the Constitution, the law, public policy,
damages, and Twenty Thousand Pesos (P20,000.00) as exemplary damages, and Twenty Thousand
morals and customs; that the MOA prevented her from disposing or selling her own land, while the
Pesos (P20,000.00) as Attorney’s Fees; and
contract of lease favoring Grilli, a foreigner, was contrary to the Constitution as it was a for a period of
3. Denying the prayer for the issuance of Preliminary Mandatory Injunction.
fifty (50) years, and, upon termination, was automatically renewable for another fifty (50) years; that
Not in conformity, Grilli elevated the matter before the RTC. the TPO, which became a PPO by virtue of the July 5, 2011 Decision 15 of RTC-Branch 3, should not be
defeated by the ejectment suit; and that the CA should have liberally applied its procedural rules and
The RTC Ruling allowed her motion for reconsideration.

In its decision, dated April 26, 2012, the RTC reversed and set aside the MCTC decision. The RTC was of In his Comment,16 Grilli countered that he was the rightful owner of the house because a foreigner was
the view that Grilli had the exclusive right to use and possess the house and lot by virtue of the contract not prohibited from owning residential buildings; that the lot was no longer registered in the name of
of lease executed by the parties. Since the period of lease had not yet expired, Fullido, as lessor, had the Fullido as it was transferred to Guibone, covered by TCT No. 101-2011000335; that if Fullido wanted to
obligation to respect the peaceful and adequate enjoyment of the leased premises by Grilli as lessee. The assail the lease contract, she should have first filed a separate action for annulment of the said contract,
RTC opined that absent a judicial declaration of nullity of the contract of lease, its terms and conditions which she did in Civil Case No. 8094, pending before the Regional Trial Court of Bohol; and that by signing
were valid and binding. As to the TPO, the RTC held that the same had no bearing in the present case the contracts, Fullido fully agreed with their terms and must abide by the same.
which merely involved the possession of the leased property.
In her Reply,17 Fullido insisted that the contract of lease and the MOA were null and void, thus, these
Aggrieved, Fullido instituted an appeal before the CA alleging that her land was unlawfully transferred by could not be the source of Grilli’s de facto possession.
Grilli to a certain Jacqueline Guibone (Guibone), his new girlfriend, by virtue of the SPA earlier executed
by Fullido. The Court’s Ruling

The CA Ruling The Court finds the petition meritorious.

In its assailed decision, dated May 31, 2013, the CA upheld the decision of the RTC emphasizing that in Unlawful detainer is an action to recover possession of real property from one who unlawfully withholds
an ejectment case, the only issue to be resolved would be the physical possession of the property. The possession thereof after the expiration or termination of his right to hold possession under any contract,
CA was also of the view that as Fullido executed both the MOA and the contract of lease, which gave Grilli express or implied. The possession of the defendant in unlawful detainer is originally legal but became
the possession and use of the house and lot, the same constituted as a judicial admission that it was Grilli illegal due to the expiration or termination of the right to possess. The only issue to be resolved in an
who had the better right of physical possession. The CA stressed that, if Fullido would insist that the said unlawful detainer case is the physical or material possession of the property involved, independent of any
documents were voidable as her consent was vitiated, then she must institute a separate action for claim of ownership by any of the parties.18
annulment of contracts. Lastly, the CA stated that the TPO issued by the RTC-Branch 3 under Section 21
In this case, Fullido chiefly asserts that Grilli had no right to institute the action for unlawful detainer
of R.A. No. 9262 was without prejudice to any other action that might be filed by the parties.
because the lease contract and the MOA, which allegedly gave him the right of possession over the lot,
were null and void for violating the Constitution. Contrary to the findings of the CA, Fullido was not
only asserting that the said contracts were merely voidable, but she was consistently invoking in favor of a foreigner for a period of ninety-nine (99) years with an option to buy the land for fifty (50)
that the same were completely void.19 Grilli, on the other hand, contends that Fullido could not years. Where a scheme to circumvent the Constitutional prohibition against the transfer of lands to aliens
question the validity of the said contracts in the present ejectment suit unless she instituted a separate is readily revealed as the purpose for the contracts, then the illicit purpose becomes the illegal cause
action for annulment of contracts. Thus, the Court is confronted with the issue of whether a contract rendering the contracts void. Thus, if an alien is given not only a lease of, but also an option to
could be declared void in a summary action of unlawful detainer. buy, a piece of land by virtue of which the Filipino owner cannot sell or otherwise dispose of
his property, this to last for 50 years, then it becomes clear that the arrangement is a virtual
Under the circumstances of the case, the Court answers in the affirmative. transfer of ownership whereby the owner divests himself in stages not only of the right to enjoy the
land but also of the right to dispose of it — rights which constitute ownership. If this can be done, then
A void contract cannot be the source of any right; it cannot be utilized in an ejectment suit
the Constitutional ban against alien landholding in the Philippines, is indeed in grave peril. 29

A void or inexistent contract may be defined as one which lacks, absolutely either in fact or in law, one
In Llantino v. Co Liong Chong,30 however, the Court clarified that a lease contract in favor of aliens for a
or some of the elements which are essential for its validity.20 It is one which has no force and effect from
reasonable period was valid as long as it did not have any scheme to circumvent the constitutional
the very beginning, as if it had never been entered into; it produces no effect whatsoever either against
prohibition, such as depriving the lessors of their right to dispose of the land. The Court explained that
or in favor of anyone.21 Quod nullum est nullum producit effectum. Article 1409 of the New Civil Code
"[a]liens are not completely excluded by the Constitution from use of lands for residential purposes. Since
explicitly states that void contracts also cannot be ratified; neither can the right to set up the defense of
their residence in the Philippines is temporary, they may be granted temporary rights such as a lease
illegality be waived.22 Accordingly, there is no need for an action to set aside a void or inexistent
contract which is not forbidden by the Constitution. Should they desire to remain here forever and share
contract.23
our fortune and misfortune, Filipino citizenship is not impossible to acquire." 31 The lessee-foreigner
therein eventually acquired Filipino citizenship.
A review of the relevant jurisprudence reveals that the Court did not hesitate to set aside a void contract
even in an action for unlawful detainer. In Spouses Alcantara v. Nido,24 which involves an action for
Consequently, Presidential Decree (P.D.) No. 471 was enacted to regulate the lease of lands to
unlawful detainer, the petitioners therein raised a defense that the subject land was already sold to them
aliens.1avvphi1 It provides that the maximum period allowable for the duration of leases of private lands
by the agent of the owner. The Court rejected their defense and held that the contract of sale was void
to aliens or alien-owned corporations, associations, or entities not qualified to acquire private lands in the
because the agent did not have the written authority of the owner to sell the subject land.
Philippines shall be twenty-five (25) years, renewable for another period of twenty-five (25) years upon
mutual agreement of both lessor and lessee.32 It also provides that any contract or agreement made
Similarly, in Roberts v. Papio,25 a case of unlawful detainer, the Court declared that the defense of
or executed in violation thereof shall be null and void ab initio.33
ownership by the respondent therein was untenable. The contract of sale invoked by the latter was void
because the agent did not have the written authority of the owner. A void contract produces no effect
Based on the above-cited constitutional, legal and jurisprudential limitations, the Court finds that the
either against or in favor of anyone.
lease contract and the MOA in the present case are null and void for virtually transferring the reigns of
the land to a foreigner.
In Ballesteros v. Abion,26 which also involves an action for unlawful detainer, the Court disallowed the
defense of ownership of the respondent therein because the seller in their contract of sale was not the
As can be gleaned from the contract, the lease in favor of Grilli was for a period of fifty (50) years,
owner of the subject property. For lacking an object, the said contract of sale was void ab initio.
automatically extended for another fifty (50) years upon the expiration of the original period. Moreover,
it strictly prohibited Fullido from selling, donating, or encumbering her land to anyone without the written
Clearly, contracts may be declared void even in a summary action for unlawful detainer because,
consent of Grilli. For a measly consideration of P10,000.00, Grilli would be able to absolutely occupy the
precisely, void contracts do not produce legal effect and cannot be the source of any rights. To emphasize,
land of Fullido for 100 years, and she is powerless to dispose the same. The terms of lease practically
void contracts may not be invoked as a valid action or defense in any court proceeding, including an
deprived Fullido of her property rights and effectively transferred the same to Grilli.
ejectment suit. The next issue that must be resolved by the Court is whether the assailed lease contract
and MOA are null and void.
Worse, the dominion of Grilli over the land had been firmly cemented by the terms of the MOA as it
reinforced Grilli’s property rights over the land because, first, it brazenly dictated that ownership of the
<>The lease contract and the MOA circumvent the constitutional restraint against foreign ownership of
land and the residential building resided with him. Second, Fullido was expressly prohibited from
lands.
transferring the same without Grilli’s conformity. Third, Grilli would permanently reside in the residential
Under Section 1 of Article XIII of the 1935 Constitution, natural resources shall not be alienated, except building. Fourth, Grilli may capriciously dispose Fullido’s property once their common-law relationship is
with respect to public agricultural lands and in such cases, the alienation is limited to Filipino citizens. terminated. This right was recently exercised when the land was transferred to Guibone. Lastly, Fullido
Concomitantly, Section 5 thereof states that, save in cases of hereditary succession, no private shall be compelled to transfer the land to Grilli if a law would be passed allowing foreigners to own real
agricultural land shall be transferred or assigned except to individuals, corporations, or associations properties in the Philippines.
qualified to acquire or hold lands of the public domain in the Philippines. The prohibition on the transfer
Evidently, the lease contract and the MOA operated hand-in-hand to strip Fullido of any dignified right
of lands to aliens was adopted in the present 1987 Constitution, under Sections 2, 3 and 7 of Article XII
over her own property. The term of lease for 100 years was obviously in excess of the allowable periods
thereof. Agricultural lands, whether public or private, include residential, commercial and industrial lands.
under P.D. No. 471. Even Grilli admitted that "this is a case of an otherwise valid contract of lease that
The purpose of prohibiting the transfer of lands to foreigners is to uphold the conservation of our national
went beyond the period of what is legally permissible."34 Grilli had been empowered to deprive Fullido
patrimony and ensure that agricultural resources remain in the hands of Filipino citizens.27
of her land’s possession, control, disposition and even its ownership. The jus possidendi, jus utendi, jus
The prohibition, however, is not limited to the sale of lands to foreigners. It also covers leases of lands fruendi, jus abutendi and, more importantly, the jus disponendi – the sum of rights which composes
amounting to the transfer of all or substantially all the rights of dominion. In the landmark case ownership – of the property were effectively transferred to Grilli who would safely enjoy the same for
of Philippine Banking Corporation v. Lui She,28 the Court struck down a lease contract of a parcel of land over a century. The title of Fullido over the land became an empty and useless vessel, visible only in
paper, and was only meant as a dummy to fulfill a foreigner’s desire to own land within our soils. It is
disturbing how these documents were methodically formulated to circumvent the constitutional In the present case, both Grilli and Fullido were undoubtedly parties to a void contract. Fullido, however,
prohibition against land ownership by foreigners. The said contracts attempted to guise themselves as a was not barred from filing the present petition before the Court because the matters at hand involved an
lease, but a closer scrutiny of the same revealed that they were intended to transfer the dominion of a issue of public policy, specifically the Constitutional prohibition against land ownership by aliens. As
land to a foreigner in violation of Section 7, Article XII of the 1987 Constitution. Even if Fullido voluntary pronounced in Philippine Banking Corporation v. Lui She, the said constitutional provision would be
executed the same, no amount of consent from the parties could legalize an unconstitutional agreement. defeated and its continued violation sanctioned if the lands continue to remain in the hands of a
The lease contract and the MOA do not deserve an iota of validity and must be rightfully struck down as foreigner.40 Thus, the doctrine of in pari delicto shall not be applicable in this case.
null and void for being repugnant to the fundamental law. These void documents cannot be the source of
rights and must be treated as mere scraps of paper. WHEREFORE, the petition is GRANTED. The May 31, 2013 Decision of the Court of Appeals and its
September 24, 2014 Resolution in CA-G.R. CEB-SP No. 06946 are hereby REVERSED and SET
Grilli does not have a cause of action for unlawful detainer ASIDE. The complaint filed by Gino Grilli before the Municipal Circuit Trial Court, Dauis-Panglao, Dauis,
Bohol, docketed as Civil Case No. 244, is DISMISSED for lack of cause of action.
Ultimately, the complaint filed by Grilli was an action for unlawful detainer. Section 1 of Rule 70 of the
Rules of Court lays down the requirements for filing a complaint for unlawful detainer, to wit:
Who may institute proceedings, and when. – Subject to the provision of the next succeeding section, a
person deprived of the possession of any land or building by force, intimidation, threat, strategy, or
stealth, or a lessor, vendor, vendee, or other person against whom the possession of any land
or building is unlawfully withheld after the expiration or termination of the right to hold possession,
by virtue of any contract, express or implied, or the legal representatives or assigns of any such lessor,
vendor, vendee, or other person, may, at any time within one (1) year after such unlawful deprivation
or withholding of possession, bring an action in the proper Municipal Trial Court against the person or
persons unlawfully withholding or depriving of possession, or any person or persons claiming under
them, for the restitution of such possession, together with damages and costs.

A complaint sufficiently alleges a cause of action for unlawful detainer if it recites the following: (1)
initially, possession of property by the defendant was by contract with or by tolerance of the plaintiff; (2)
eventually, such possession became illegal upon notice by plaintiff to defendant of the termination of the
latter’s right of possession; (3) thereafter, the defendant remained in possession of the property and
deprived the plaintiff of the enjoyment thereof; and (4) within one year from the last demand on
defendant to vacate the property, the plaintiff instituted the complaint for ejectment. 35

The Court rules that Grilli has no cause of action for unlawful detainer against Fullido. As can be gleaned
from the discussion above, the complainant must either be a lessor, vendor, vendee, or other person
against whom the possession of any land or building is unlawfully withheld. In other words, the
complainant in an unlawful detainer case must have some right of possession over the property.

In the case at bench, the lease contract and the MOA, from which Grilli purportedly drew his right of
possession, were found to be null and void for being unconstitutional. A contract that violates the
Constitution and the law is null and void ab initio and vests no rights and creates no obligations. It
produces no legal effect at all.36 Hence, as void contracts could not be the source of rights, Grilli had no
possessory right over the subject land. A person who does not have any right over a property from the
beginning cannot eject another person possessing the same. Consequently, Grilli’s complaint for unlawful
detainer must be dismissed for failure to prove his cause of action.

In Pari Delicto Doctrine is not applicable

On a final note, the Court deems it proper to discuss the doctrine of in pari delicto. Latin for "in equal
fault," in pari delicto connotes that two or more people are at fault or are guilty of a crime. Neither courts
of law nor equity will interpose to grant relief to the parties, when an illegal agreement has been made,
and both parties stand in pari delicto.37

The application of the doctrine of in pari delicto is not always rigid. An accepted exception arises when
its application contravenes well-established public policy. In this jurisdiction, public policy has been
defined as that principle of the law which holds that no subject or citizen can lawfully do that which has
a tendency to be injurious to the public or against the public good. 38 Thus, whenever public policy is
advanced by either party, they may be allowed to sue for relief against the transaction. 39
G.R. No. 182252, August 03, 2016 had bought the two parcels of land and constructed the apartment doors thereon at her own expense.
Thus, she alleged that there was an implied trust over the properties in question.24 She thereafter prayed
JOSE NORBERTO ANG, Petitioner, v. THE ESTATE OF SY SO, Respondent. for the following reliefs:
[Orders be] issued to the Register of Deeds of Caloocan City, ordering the removal or cancellation of
Sometime in the late 1930s, respondent Sy So, a Chinese citizen, was married to a certain Jose Ang.4
the name of Jose Norberto Ang as owner in TCT No. 73396 in the value of P375,000.00 more or less
Sy So maintained a sari-sari store, while her husband maintained a foundry shop. Testimonial evidence which includes improvements, and placing, instead, the name of Tony Ang as the owner and trustee;
showed that, by virtue of her business, she was financially well-off on her own.5chanrobleslaw
To declare null and void the fraudulent sale made to Benjamin Lee as per Annex "C" of the complaint;
Ordering the defendant to pay moral damages in the amount of at least P50,000.00;
The couple was childless. In 1941, when a woman approached respondent Sy So and offered a seven- or
eight-month-old infant for adoption, respondent immediately accepted the offer.6 No formal adoption
Plaintiff prays for such other relief or reliefs as may be just, proper and equitable under the premises.
papers were processed, but the child was christened as Jose Norberto Ang (Jose Norberto), the present
petitioner.7 Respondent subsequently "adopted" three other wards: Mary Ang, Tony Ang, and Teresita In his Answer, Jose Norberto countered that respondent Sy So was a plain housewife; that the two subject
Tan.8chanrobleslaw parcels of land were acquired through the money given to him by his foster father, Jose Ang; and that
the apartments were built using funds derived from the sale of the latter's other properties. Jose Norberto
Jose Ang died in 1943 during the Pacific War.9 After his death, respondent Sy So maintained her store
further alleged that when he came of age, he took possession of the properties and allowed respondent
and engaged in cigarette trading.10chanrobleslaw
Sy So to stay thereon without paying rent. However, he shouldered the real estate taxes on the
land.26chanrobleslaw
Later, respondent Sy So acquired a property described as a 682.5 square meter lot located at 10th
Avenue, Grace Park, Caloocan City. She registered it under TCT No. 73396 (the 10th Avenue lot) in the
After trial, the RTC rendered a Decision on 23 May 2005 dismissing respondent Sy So's Complaint. The
name of petitioner Jose Norberto, who was then three years old, in keeping with the Chinese tradition of
dispositive portion reads:
registering properties in the name of the eldest male son or ward. Respondent Sy So subsequently
WHEREFORE, above premises considered, this Court hereby deems it proper to dismiss Plaintiffs
acquired the other subject property with an area of 1,977 square meters, located at 11th Avenue, Grace
Complaint, as well as Defendant's counterclaim, as the same are hereby DISMISSED for failure of the
Park, Caloocan City and registered under TCT No. 10425 (the 11th Avenue lot) on 24 July 1944, likewise
parties to prove their respective claims by preponderance of evidence.
under Jose Norberto's name.11chanrobleslaw Likewise, the titles under the name of the Defendants are hereby confirmed and affirmed with all the
attributes of ownership.
Between 1940 and 1950, a six-door apartment building on the 10th Avenue lot was constructed at
respondent Sy So's expense.12 Later on, two more apartment doors were built on the property, bringing
In so ruling, the trial court found that there was no implied trust because, under Art. 1448 of the New
the total to eight apartment doors. For over 30 years, respondent Sy So, along with petitioner and her
Civil Code, "[tjhere is an implied trust when property is sold, and the legal estate is granted to one party
other wards, lived there.13chanrobleslaw
but the price is paid by another for the purpose of having the beneficial interest of the property." In this
case, the trial court reasoned that respondent Sy So did not intend to have the beneficial interest of the
Respondent Sy So alleged that she kept the titles to the two properties under lock and key and never
properties, but to make her wards the beneficiaries thereof.28chanrobleslaw
showed them to anyone.14 However, she gave Jose Norberto a photocopy of TCT No. 10425, so that he
could show it to prospective tenants.15chanrobleslaw Moreover, the RTC cited Article 1448 of the New Civil Code which states: "[i]f the person to whom the
title is conveyed is a child, legitimate or illegitimate, of the one paying the price of the sale, no trust is
Unbeknownst to respondent Sy So, Jose Norberto filed Petitions for the Issuance of Second Owner's
implied by law, it being disputably presumed that there is a gift in favor of the child." Applying this
Duplicate Certificate of Title for TCT Nos. 73396 and 10425.16 In 1971, he sold the 11th Avenue lot,
provision to the present case, the trial court ruled that when Sy So gave the subject properties to Jose
which was covered by TCT No. 10425.17chanrobleslaw
Norberto - who was her child, though not legally adopted - no implied trust was created pursuant to law.
On 5 April 1974, Jose Norberto's counsel wrote respondent Sy So, demanding a monthly payment of P500
Finally, the RTC ruled that the action was a collateral attack on Jose Norberto's Torrens title; and that, in
as her contribution for real estate taxes on the 10lh Avenue lot.18chanrobleslaw
any event, respondent Sy So's cause of action was barred by laches, having been instituted 49 years
On 14 March 1989, said counsel wrote another letter to respondent Sy So, formally demanding that she after the titles had been issued in petitioner's name.30chanrobleslaw
vacate the 10th Avenue lot within a period of three months, and informing her that she would be charged
Aggrieved by the trial court's Decision, respondent Sy So appealed to the CA.
¥5,000 as monthly rent.19chanrobleslaw
In her Plaintiff-Appellant's Brief, Sy So argued that Jose Norberto could not be considered as her child in
On 25 July 1989, Jose Norberto filed an ejectment suit against respondent Sy So on the ground of
the absence of any formal adoption proceedings.31 This being so, under Article 1448 of the New Civil
nonpayment of rentals on the 10th Avenue lot.20 The ejectment case was dismissed on 30 October 1989
Code, there could be no disputable presumption that the properties had been given to him as gifts.32
by the Metropolitan Trial Court.21chanrobleslaw
She also argued that laches had not set in, because there is no prescriptive period for an action to compel
On 14 November 1996, Jose Norberto filed a second ejectment?case against respondent Sy So, but the a trustee to convey the property registered in the latter's name for the benefit of the cestui que trust.33
case was dismissed by the MTC on 30 October 1997. The dismissal was affirmed by this Court on 4 June Furthermore, she alleged that the trust was repudiated on 25 July 1989 when the first ejectment suit was
2001,22chanrobleslaw filed by petitioner, and that when the present case was instituted against him, only three years, 10
months and 14 days had elapsed.34chanrobleslaw
Meanwhile, on 9 June 1993, respondent Sy So filed with the RTC a case for "Transfer of Trusteeship from
the Defendant Jose Norberto Ang to the New Trustee, Tony Ang, with Damages.23 Citing Jose Norberto's For his part, petitioner argued in his Appellee's Brief that Sy So had acknowledged that Jose Norberto
gross ingratitude, disrespectfulness, dishonesty and breach of trust, respondent Sy So argued that she was one of her wards or adopted children; hence, Sy So could no longer claim that he was not her child.35
He further argued that the instant case should have been dismissed outright because respondent, being The purchase of the subject parcels of land was made sometime in 1944,50 during the effectivity of the
a Chinese citizen, could not own real property in the Philippines under the 1987 Constitution which 1935 Constitution. The relevant sections of Article XIII thereof provide:ChanRoblesVirtualawlibrary
prohibits aliens from owning private lands save in cases of hereditary succession.36 He alleged that the
present case involved a prohibited collateral attack against his title and claimed that, as the Complaint SECTION 1. All agricultural timber, and mineral lands of the public domain, waters, minerals, coal,
was filed almost 50 years after the issuance of the title in his name, the action was already barred by petroleum, and other mineral oils, all forces of potential energy and other natural resources of the
laches. Philippines belong to the State, and their disposition, exploitation, development, or utilization shall be
limited to citizens of the Philippines or to corporations or associations at least sixty per centum of the
The appellate court partially granted respondent Sy So's appeal in a Decision dated 25 July 2007, the capital of which is owned by such citizens, subject to any existing right, grant, lease, or concession at the
decretal portion of which reads: time of the inauguration of the Government established under this Constitution. Natural resources, with
WHEREFORE, premises considered, the Appeal is PARTIALLY GRANTED in the sense that Appellant's the exception of public agricultural land, shall not be alienated, and no license, concession, or lease for
claim for reimbursement of the purchase price over the lot covered by TCT No. 10425 is DENIED on the exploitation, development, or utilization of any of the natural resources shall be granted for a period
the ground of prescription whereas with respect to Appellant's action re the subject property covered exceeding twenty-five years, renewable for another twenty-five years, except as to water rights for
by TCT No. 73396, the Appellant is declared as the true, absolute and lawful owner of the property irrigation, water supply, fisheries, or industrial uses other than the development of water power, in which
under TCT No. 73396 and ordering the Appellee to RECONVEY said property to the Appellant within ten cases beneficial use may be the measure and limit of the grant.
(10) days from notice and to pay the costs of the suit.
SECTION 5. Save in cases of hereditary succession, no private agricultural land shall be transferred or
The CA upheld the applicability of Article 144839 of the New Civil Code and the existence of an implied assigned except to individuals, corporations, or associations qualified to acquire or hold lands of the public
trust.40 Moreover, it found that petitioner had not been legally adopted by respondent41 and thus, there domain in the Philippines.
being no legal relationship between the parties, the disputable presumption under Article 1448 did not
arise.42chanrobleslaw As early as Krivenko v. Register of Deeds,51 We have interpreted the foregoing to mean that, under the
Constitution then in force, aliens may not acquire residential lands: "One of the fundamental principles
As to the issue of whether there was a collateral attack on Jose Norberto's title, the CA ruled that the underlying the provision of Article XIII of the Constitution x x x is 'that lands, minerals, forests, and other
legal doctrine of indefeasibility of a Torrens title was inapplicable. It explained that respondent did not natural resources constitute the exclusive heritage of the Filipino nation. They should, therefore, be
question the validity of petitioner's title, but merely prayed for the transfer thereof, as the instant action preserved for those under the sovereign authority of that nation and for their posterity.'"
was actually one of reconveyance.
These provisions have been substantially carried over to the present Constitution, and jurisprudence
Finally, the CA found that laches had set in as regards the 11th Avenue lot covered by TCT No. 10425, confirms that aliens are disqualified from acquiring lands of the public domain. In Ting Ho v. Teng Gui,52
but not with respect to the 10th Avenue lot covered by TCT No. 73396. Since respondent Sy So was in Muller v. Muller53Frenzel v. Catito,54 and Cheesman v. Intermediate Appellate Court,55 all cited in
possession of the 10th Avenue lot, the CA reasoned that the action for reconveyance was imprescriptible. Matthews v. Sps. Taylor56 We upheld the constitutional prohibition on aliens acquiring land in the
Philippines. We have consistently ruled thus in line with constitutional intent to preserve and conserve
However, the CA did not pass upon petitioner's contention that under the Constitution, respondent Sy So the national patrimony. Our Constitution clearly reserves for Filipino citizens or corporations at least sixty
was disqualified from owning private lands in the Philippines. percent of the capital of which is owned by Filipinos the right to acquire lands of the public domain.57
The prohibition against aliens owning lands in the Philippines is subject only to limited constitutional
After unsuccessfully praying for a reconsideration of the CA Decision,45 Jose Norberto filed the instant
exceptions, and not even an implied trust can be permitted on equity considerations.58chanrobleslaw
Rule 45 petition for review before this Court.
Much as We sympathize with the plight of a mother who adopted an infant son, only to have her ungrateful
On 9 October 2008, We received notice of the death of Sy So pending the resolution of the instant case.46 ward eject her from her property during her twilight years, We cannot grant her prayer. Applying the
Counsel for respondent likewise notified this Court that Tony Ang, one of the foster sons and allegedly
above rules to the present case, We find that she acquired the subject parcels of land in violation of the
the trustee-designate of the deceased, should substitute in her stead.47chanrobleslaw
constitutional prohibition against aliens owning real property in the Philippines. Axiomatically, the
properties in question cannot *be legally reconveyed to one who had no right to own them in the first
In a Reply dated 17 December 2008, petitioner Jose Norberto vehemently opposed the substitution. He
place. This being the case, We no longer find it necessary to pass upon the question of respondent Sy
argued that the original action for transfer of trusteeship was an action in personam; thus, it was
So's substitution in these proceedings.
extinguished by the death of respondent.48 Moreover, he contended that Tony Ang had no legal
personality to represent Sy So as her alleged trustee, because there was as yet no final judgment The Solicitor General, however, may initiate an action for reversion or escheat of the land to the State.59
validating the change of trusteeship between the parties.49chanrobleslaw
In sales of real estate to aliens incapable of holding title thereto by virtue of the provisions of the
Constitution, both the vendor and the vendee are deemed to have committed the constitutional violation.
We grant the Petition.
Being in pari delicto the courts will not afford protection to either party. The proper party who could assail
Respondent Sy So would have this Court declare that she is the true owner of the real properties in the sale is the Solicitor General.60chanrobleslaw
question and that as owner, she has the right to have the land titles transferred from the name of Jose
WHEREFORE, the instant petition for review is GRANTED. The assailed Decision and Resolution of the
Norberto to that of Tony Ang, Sy So's trustee-designate. On the other hand, petitioner Jose Norberto
Court of Appeals in CA-G.R. CV No. 85444 dated 25 July 2007 and 27 March 2008, respectively, insofar
counters that reconveyance does not lie, because respondent Sy So is a Chinese citizen.
as petitioner was ordered to reconvey the property covered by TCT No. 73396 to respondent and to pay
Sy So's Chinese citizenship is undisputedly shown by the records, and even supported by documentary the costs of suit, are hereby REVERSED.
evidence presented by the representative of respondent Sy So herself.
G.R. No. L-17587 September 12, 1967 In two wills executed on August 24 and 29, 1959 (Def Exhs. 285 & 279), she bade her legatees to respect
the contracts she had entered into with Wong, but in a codicil (Plff Exh. 17) of a later date (November 4,
1959) she appears to have a change of heart. Claiming that the various contracts were made by her
PHILIPPINE BANKING CORPORATION, representing the estate of JUSTINA SANTOS Y CANON
because of machinations and inducements practiced by him, she now directed her executor to secure the
FAUSTINO, deceased, plaintiff-appellant,
annulment of the contracts.
vs.
LUI SHE in her own behalf and as administratrix of the intestate estate of Wong Heng,
deceased, defendant-appellant. On November 18 the present action was filed in the Court of First Instance of Manila. The complaint
alleged that the contracts were obtained by Wong "through fraud, misrepresentation, inequitable conduct,
undue influence and abuse of confidence and trust of and (by) taking advantage of the helplessness of
Justina Santos y Canon Faustino and her sister Lorenzo were the owners in common of a piece of land in
the plaintiff and were made to circumvent the constitutional provision prohibiting aliens from acquiring
Manila. This parcel, with an area of 2,582.30 square meters, is located on Rizal Avenue and opens into
lands in the Philippines and also of the Philippine Naturalization Laws." The court was asked to direct the
Florentino Torres street at the back and Katubusan street on one side. In it are two residential houses
Register of Deeds of Manila to cancel the registration of the contracts and to order Wong to pay Justina
with entrance on Florentino Torres street and the Hen Wah Restaurant with entrance on Rizal Avenue.
Santos the additional rent of P3,120 a month from November 15, 1957 on the allegation that the
The sisters lived in one of the houses, while Wong Heng, a Chinese, lived with his family in the restaurant.
reasonable rental of the leased premises was P6,240 a month.
Wong had been a long-time lessee of a portion of the property, paying a monthly rental of P2,620.

In his answer, Wong admitted that he enjoyed her trust and confidence as proof of which he volunteered
On September 22, 1957 Justina Santos became the owner of the entire property as her sister died with
the information that, in addition to the sum of P3,000 which he said she had delivered to him for
no other heir. Then already well advanced in years, being at the time 90 years old, blind, crippled and an
safekeeping, another sum of P22,000 had been deposited in a joint account which he had with one of her
invalid, she was left with no other relative to live with. Her only companions in the house were her 17
maids. But he denied having taken advantage of her trust in order to secure the execution of the contracts
dogs and 8 maids. Her otherwise dreary existence was brightened now and then by the visits of Wong's
in question. As counterclaim he sought the recovery of P9,210.49 which he said she owed him for
four children who had become the joy of her life. Wong himself was the trusted man to whom she
advances.
delivered various amounts for safekeeping, including rentals from her property at the corner of Ongpin
and Salazar streets and the rentals which Wong himself paid as lessee of a part of the Rizal Avenue
property. Wong also took care of the payment; in her behalf, of taxes, lawyers' fees, funeral expenses, Wong's admission of the receipt of P22,000 and P3,000 was the cue for the filing of an amended
masses, salaries of maids and security guard, and her household expenses. complaint. Thus on June 9, 1960, aside from the nullity of the contracts, the collection of various amounts
allegedly delivered on different occasions was sought. These amounts and the dates of their delivery are
P33,724.27 (Nov. 4, 1957); P7,344.42 (Dec. 1, 1957); P10,000 (Dec. 6, 1957); P22,000 and P3,000 (as
"In grateful acknowledgment of the personal services of the lessee to her," Justina Santos executed on
admitted in his answer). An accounting of the rentals from the Ongpin and Rizal Avenue properties was
November 15, 1957 a contract of lease (Plff Exh. 3) in favor of Wong, covering the portion then already
also demanded.
leased to him and another portion fronting Florentino Torres street. The lease was for 50 years, although
the lessee was given the right to withdraw at any time from the agreement; the monthly rental was
P3,120. The contract covered an area of 1,124 square meters. Ten days later (November 25), the contract In the meantime as a result of a petition for guardianship filed in the Juvenile and Domestic Relations
was amended (Plff Exh. 4) so as to make it cover the entire property, including the portion on which the Court, the Security Bank & Trust Co. was appointed guardian of the properties of Justina Santos, while
house of Justina Santos stood, at an additional monthly rental of P360. For his part Wong undertook to Ephraim G. Gochangco was appointed guardian of her person.
pay, out of the rental due from him, an amount not exceeding P1,000 a month for the food of her dogs
and the salaries of her maids.
In his answer, Wong insisted that the various contracts were freely and voluntarily entered into by the
parties. He likewise disclaimed knowledge of the sum of P33,724.27, admitted receipt of P7,344.42 and
On December 21 she executed another contract (Plff Exh. 7) giving Wong the option to buy the leased P10,000, but contended that these amounts had been spent in accordance with the instructions of Justina
premises for P120,000, payable within ten years at a monthly installment of P1,000. The option, written Santos; he expressed readiness to comply with any order that the court might make with respect to the
in Tagalog, imposed on him the obligation to pay for the food of the dogs and the salaries of the maids sums of P22,000 in the bank and P3,000 in his possession.
in her household, the charge not to exceed P1,800 a month. The option was conditioned on his obtaining
Philippine citizenship, a petition for which was then pending in the Court of First Instance of Rizal. It
The case was heard, after which the lower court rendered judgment as follows:
appears, however, that this application for naturalization was withdrawn when it was discovered that he
[A]ll the documents mentioned in the first cause of action, with the exception of the first which is the
was not a resident of Rizal. On October 28, 1958 she filed a petition to adopt him and his children on the
lease contract of 15 November 1957, are declared null and void; Wong Heng is condemned to pay unto
erroneous belief that adoption would confer on them Philippine citizenship. The error was discovered and
plaintiff thru guardian of her property the sum of P55,554.25 with legal interest from the date of the
the proceedings were abandoned.
filing of the amended complaint; he is also ordered to pay the sum of P3,120.00 for every month of his
occupation as lessee under the document of lease herein sustained, from 15 November 1959, and the
On November 18, 1958 she executed two other contracts, one (Plff Exh. 5) extending the term of the moneys he has consigned since then shall be imputed to that; costs against Wong Heng.
lease to 99 years, and another (Plff Exh. 6) fixing the term of the option of 50 years. Both contracts are
written in Tagalog.
From this judgment both parties appealed directly to this Court. After the case was submitted for decision,
both parties died, Wong Heng on October 21, 1962 and Justina Santos on December 28, 1964. Wong
was substituted by his wife, Lui She, the other defendant in this case, while Justina Santos was substituted inheritance, subject to the result of the pending administration, in no wise stands in the way of such
by the Philippine Banking Corporation. administration.6

Justina Santos maintained — now reiterated by the Philippine Banking Corporation — that the lease It is next contended that the lease contract was obtained by Wong in violation of his fiduciary relationship
contract (Plff Exh. 3) should have been annulled along with the four other contracts (Plff Exhs. 4-7) with Justina Santos, contrary to article 1646, in relation to article 1941 of the Civil Code, which disqualifies
because it lacks mutuality; because it included a portion which, at the time, was in custodia legis; because "agents (from leasing) the property whose administration or sale may have been entrusted to them." But
the contract was obtained in violation of the fiduciary relations of the parties; because her consent was Wong was never an agent of Justina Santos. The relationship of the parties, although admittedly close
obtained through undue influence, fraud and misrepresentation; and because the lease contract, like the and confidential, did not amount to an agency so as to bring the case within the prohibition of the law.
rest of the contracts, is absolutely simulated.

Just the same, it is argued that Wong so completely dominated her life and affairs that the contracts
Paragraph 5 of the lease contract states that "The lessee may at any time withdraw from this agreement." express not her will but only his. Counsel for Justina Santos cites the testimony of Atty. Tomas S. Yumol
It is claimed that this stipulation offends article 1308 of the Civil Code which provides that "the contract who said that he prepared the lease contract on the basis of data given to him by Wong and that she told
must bind both contracting parties; its validity or compliance cannot be left to the will of one of them." him that "whatever Mr. Wong wants must be followed." 7

We have had occasion to delineate the scope and application of article 1308 in the early case of Taylor v. The testimony of Atty. Yumol cannot be read out of context in order to warrant a finding that Wong
Uy Tieng Piao.1 We said in that case: practically dictated the terms of the contract. What this witness said was:
Article 1256 [now art. 1308] of the Civil Code in our opinion creates no impediment to the insertion in Q Did you explain carefully to your client, Doña Justina, the contents of this document before she signed it?
A I explained to her each and every one of these conditions and I also told her these conditions were quite onerous for her, I don't really know
a contract for personal service of a resolutory condition permitting the cancellation of the contract by if I have expressed my opinion, but I told her that we would rather not execute any contract anymore, but to hold it as it was before, on a verbal
one of the parties. Such a stipulation, as can be readily seen, does not make either the validity or the month to month contract of lease.
Q But, she did not follow your advice, and she went with the contract just the same?
fulfillment of the contract dependent upon the will of the party to whom is conceded the privilege of
A She agreed first . . .
cancellation; for where the contracting parties have agreed that such option shall exist, the exercise of Q Agreed what?
the option is as much in the fulfillment of the contract as any other act which may have been the subject A Agreed with my objectives that it is really onerous and that I was really right, but after that, I was called again by her and she told me to
follow the wishes of Mr. Wong Heng.
of agreement. Indeed, the cancellation of a contract in accordance with conditions agreed upon Q So, as far as consent is concerned, you were satisfied that this document was perfectly proper?
beforehand is fulfillment.2 A Your Honor, if I have to express my personal opinion, I would say she is not, because, as I said before, she told me — "Whatever Mr. Wong
wants must be followed."8

And so it was held in Melencio v. Dy Tiao Lay 3 that a "provision in a lease contract that the lessee, at
Wong might indeed have supplied the data which Atty. Yumol embodied in the lease contract, but to say
any time before he erected any building on the land, might rescind the lease, can hardly be regarded as
this is not to detract from the binding force of the contract. For the contract was fully explained to Justina
a violation of article 1256 [now art. 1308] of the Civil Code."
Santos by her own lawyer. One incident, related by the same witness, makes clear that she voluntarily
consented to the lease contract. This witness said that the original term fixed for the lease was 99 years
The case of Singson Encarnacion v. Baldomar 4 cannot be cited in support of the claim of want of but that as he doubted the validity of a lease to an alien for that length of time, he tried to persuade her
mutuality, because of a difference in factual setting. In that case, the lessees argued that they could to enter instead into a lease on a month-to-month basis. She was, however, firm and unyielding. Instead
occupy the premises as long as they paid the rent. This is of course untenable, for as this Court said, "If of heeding the advice of the lawyer, she ordered him, "Just follow Mr. Wong Heng." 9 Recounting the
this defense were to be allowed, so long as defendants elected to continue the lease by continuing the incident, Atty. Yumol declared on cross examination:
payment of the rentals, the owner would never be able to discontinue it; conversely, although the owner Considering her age, ninety (90) years old at the time and her condition, she is a wealthy woman, it is
should desire the lease to continue the lessees could effectively thwart his purpose if they should prefer just natural when she said "This is what I want and this will be done." In particular reference to this
to terminate the contract by the simple expedient of stopping payment of the rentals." Here, in contrast, contract of lease, when I said "This is not proper," she said — "You just go ahead, you prepare that, I
the right of the lessee to continue the lease or to terminate it is so circumscribed by the term of the am the owner, and if there is any illegality, I am the only one that can question the illegality."10
contract that it cannot be said that the continuance of the lease depends upon his will. At any rate, even
if no term had been fixed in the agreement, this case would at most justify the fixing of a period 5 but not
Atty. Yumol further testified that she signed the lease contract in the presence of her close friend,
the annulment of the contract.
Hermenegilda Lao, and her maid, Natividad Luna, who was constantly by her side.11 Any of them could
have testified on the undue influence that Wong supposedly wielded over Justina Santos, but neither of
Nor is there merit in the claim that as the portion of the property formerly owned by the sister of Justina them was presented as a witness. The truth is that even after giving his client time to think the matter
Santos was still in the process of settlement in the probate court at the time it was leased, the lease is over, the lawyer could not make her change her mind. This persuaded the lower court to uphold the
invalid as to such portion. Justina Santos became the owner of the entire property upon the death of her validity of the lease contract against the claim that it was procured through undue influence.
sister Lorenzo on September 22, 1957 by force of article 777 of the Civil Code. Hence, when she leased
the property on November 15, she did so already as owner thereof. As this Court explained in upholding
Indeed, the charge of undue influence in this case rests on a mere inference 12 drawn from the fact that
the sale made by an heir of a property under judicial administration:
Justina Santos could not read (as she was blind) and did not understand the English language in which
That the land could not ordinarily be levied upon while in custodia legis does not mean that one of the
the contract is written, but that inference has been overcome by her own evidence.
heirs may not sell the right, interest or participation which he has or might have in the lands under
administration. The ordinary execution of property in custodia legis is prohibited in order to avoid
interference with the possession by the court. But the sale made by an heir of his share in an
Nor is there merit in the claim that her consent to the lease contract, as well as to the rest of the contracts Taken singly, the contracts show nothing that is necessarily illegal, but considered collectively, they reveal
in question, was given out of a mistaken sense of gratitude to Wong who, she was made to believe, had an insidious pattern to subvert by indirection what the Constitution directly prohibits. To be sure, a lease
saved her and her sister from a fire that destroyed their house during the liberation of Manila. For while to an alien for a reasonable period is valid. So is an option giving an alien the right to buy real property
a witness claimed that the sisters were saved by other persons (the brothers Edilberto and Mariano Sta. on condition that he is granted Philippine citizenship. As this Court said in Krivenko v. Register of Deeds:20
Ana)13 it was Justina Santos herself who, according to her own witness, Benjamin C. Alonzo, said "very [A]liens are not completely excluded by the Constitution from the use of lands for residential purposes.
emphatically" that she and her sister would have perished in the fire had it not been for Wong. 14 Hence Since their residence in the Philippines is temporary, they may be granted temporary rights such as a
the recital in the deed of conditional option (Plff Exh. 7) that "[I]tong si Wong Heng ang siyang nagligtas lease contract which is not forbidden by the Constitution. Should they desire to remain here forever
sa aming dalawang magkapatid sa halos ay tiyak na kamatayan", and the equally emphatic avowal of and share our fortunes and misfortunes, Filipino citizenship is not impossible to acquire.
gratitude in the lease contract (Plff Exh. 3).

But if an alien is given not only a lease of, but also an option to buy, a piece of land, by virtue of which
As it was with the lease contract (Plff Exh. 3), so it was with the rest of the contracts (Plff Exhs. 4-7) — the Filipino owner cannot sell or otherwise dispose of his property, 21 this to last for 50 years, then it
the consent of Justina Santos was given freely and voluntarily. As Atty. Alonzo, testifying for her, said: becomes clear that the arrangement is a virtual transfer of ownership whereby the owner divests himself
[I]n nearly all documents, it was either Mr. Wong Heng or Judge Torres and/or both. When we had in stages not only of the right to enjoy the land ( jus possidendi, jus utendi, jus fruendi and jus abutendi)
conferences, they used to tell me what the documents should contain. But, as I said, I would always but also of the right to dispose of it ( jus disponendi) — rights the sum total of which make up ownership.
ask the old woman about them and invariably the old woman used to tell me: "That's okay. It's all It is just as if today the possession is transferred, tomorrow, the use, the next day, the disposition, and
right."15 so on, until ultimately all the rights of which ownership is made up are consolidated in an alien. And yet
this is just exactly what the parties in this case did within the space of one year, with the result that
Justina Santos' ownership of her property was reduced to a hollow concept. If this can be done, then the
But the lower court set aside all the contracts, with the exception of the lease contract of November 15,
Constitutional ban against alien landholding in the Philippines, as announced in Krivenko v. Register of
1957, on the ground that they are contrary to the expressed wish of Justina Santos and that their
Deeds,22 is indeed in grave peril.
considerations are fictitious. Wong stated in his deposition that he did not pay P360 a month for the
additional premises leased to him, because she did not want him to, but the trial court did not believe
him. Neither did it believe his statement that he paid P1,000 as consideration for each of the contracts It does not follow from what has been said, however, that because the parties are in pari delicto they will
(namely, the option to buy the leased premises, the extension of the lease to 99 years, and the fixing of be left where they are, without relief. For one thing, the original parties who were guilty of a violation of
the term of the option at 50 years), but that the amount was returned to him by her for safekeeping. the fundamental charter have died and have since been substituted by their administrators to whom it
Instead, the court relied on the testimony of Atty. Alonzo in reaching the conclusion that the contracts would be unjust to impute their guilt.23 For another thing, and this is not only cogent but also important,
are void for want of consideration. article 1416 of the Civil Code provides, as an exception to the rule on pari delicto, that "When the
agreement is not illegal per se but is merely prohibited, and the prohibition by law is designed for the
protection of the plaintiff, he may, if public policy is thereby enhanced, recover what he has paid or
Atty. Alonzo declared that he saw no money paid at the time of the execution of the documents, but his
delivered." The Constitutional provision that "Save in cases of hereditary succession, no private
negative testimony does not rule out the possibility that the considerations were paid at some other time
agricultural land shall be transferred or assigned except to individuals, corporations, or associations
as the contracts in fact recite. What is more, the consideration need not pass from one party to the other
qualified to acquire or hold lands of the public domain in the Philippines"24 is an expression of public policy
at the time a contract is executed because the promise of one is the consideration for the other. 16
to conserve lands for the Filipinos. As this Court said in Krivenko:
It is well to note at this juncture that in the present case we have no choice. We are construing the
With respect to the lower court's finding that in all probability Justina Santos could not have intended to Constitution as it is and not as we may desire it to be. Perhaps the effect of our construction is to
part with her property while she was alive nor even to lease it in its entirety as her house was built on it, preclude aliens admitted freely into the Philippines from owning sites where they may build their homes.
suffice it to quote the testimony of her own witness and lawyer who prepared the contracts (Plff Exhs. 4- But if this is the solemn mandate of the Constitution, we will not attempt to compromise it even in the
7) in question, Atty. Alonzo: name of amity or equity . . . .
The ambition of the old woman, before her death, according to her revelation to me, was to see to it For all the foregoing, we hold that under the Constitution aliens may not acquire private or public
that these properties be enjoyed, even to own them, by Wong Heng because Doña Justina told me that agricultural lands, including residential lands, and, accordingly, judgment is affirmed, without costs.25
she did not have any relatives, near or far, and she considered Wong Heng as a son and his children
her grandchildren; especially her consolation in life was when she would hear the children reciting
That policy would be defeated and its continued violation sanctioned if, instead of setting the contracts
prayers in Tagalog.17
aside and ordering the restoration of the land to the estate of the deceased Justina Santos, this Court
She was very emphatic in the care of the seventeen (17) dogs and of the maids who helped her much,
should apply the general rule of pari delicto. To the extent that our ruling in this case conflicts with that
and she told me to see to it that no one could disturb Wong Heng from those properties. That is why
laid down in Rellosa v. Gaw Chee Hun 26 and subsequent similar cases, the latter must be considered
we thought of the ninety-nine (99) years lease; we thought of adoption, believing that thru adoption
as pro tanto qualified.
Wong Heng might acquire Filipino citizenship; being the adopted child of a Filipino citizen. 18

The claim for increased rentals and attorney's fees, made in behalf of Justina Santos, must be denied for
This is not to say, however, that the contracts (Plff Exhs. 3-7) are valid. For the testimony just quoted,
lack of merit.
while dispelling doubt as to the intention of Justina Santos, at the same time gives the clue to what we
view as a scheme to circumvent the Constitutional prohibition against the transfer of lands to aliens. "The
illicit purpose then becomes the illegal causa"19 rendering the contracts void. And what of the various amounts which Wong received in trust from her? It appears that he kept two
classes of accounts, one pertaining to amount which she entrusted to him from time to time, and another
pertaining to rentals from the Ongpin property and from the Rizal Avenue property, which he himself was G.R. No. 143958 July 11, 2003
leasing.
ALFRED FRITZ FRENZEL, petitioner,
With respect to the first account, the evidence shows that he received P33,724.27 on November 8, 1957 vs.
(Plff Exh. 16); P7,354.42 on December 1, 1957 (Plff Exh. 13); P10,000 on December 6, 1957 (Plff Exh. EDERLINA P. CATITO, respondent.
14) ; and P18,928.50 on August 26, 1959 (Def. Exh. 246), or a total of P70,007.19. He claims, however,
that he settled his accounts and that the last amount of P18,928.50 was in fact payment to him of what Petitioner Alfred Fritz Frenzel is an Australian citizen of German descent. He is an electrical engineer by
in the liquidation was found to be due to him. profession, but worked as a pilot with the New Guinea Airlines. He arrived in the Philippines in 1974,
started engaging in business in the country two years thereafter, and married Teresita Santos, a Filipino
citizen. In 1981, Alfred and Teresita separated from bed and board without obtaining a divorce.
He made disbursements from this account to discharge Justina Santos' obligations for taxes, attorneys'
fees, funeral services and security guard services, but the checks (Def Exhs. 247-278) drawn by him for
this purpose amount to only P38,442.84.27 Besides, if he had really settled his accounts with her on Sometime in February 1983, Alfred arrived in Sydney, Australia for a vacation. He went to King's Cross,
August 26, 1959, we cannot understand why he still had P22,000 in the bank and P3,000 in his a night spot in Sydney, for a massage where he met Ederlina Catito, a Filipina and a native of Bajada,
possession, or a total of P25,000. In his answer, he offered to pay this amount if the court so directed Davao City. Unknown to Alfred, she resided for a time in Germany and was married to Klaus Muller, a
him. On these two grounds, therefore, his claim of liquidation and settlement of accounts must be German national. She left Germany and tried her luck in Sydney, Australia, where she found employment
rejected. as a masseuse in the King's Cross nightclub. She was fluent in German, and Alfred enjoyed talking with
her. The two saw each other again; this time Ederlina ended up staying in Alfred's hotel for three days.
Alfred gave Ederlina sums of money for her services. 4
After subtracting P38,442.84 (expenditures) from P70,007.19 (receipts), there is a difference of P31,564
which, added to the amount of P25,000, leaves a balance of P56,564.35 28 in favor of Justina Santos.
Alfred was so enamored with Ederlina that he persuaded her to stop working at King's Cross, return to
the Philippines, and engage in a wholesome business of her own. He also proposed that they meet in
As to the second account, the evidence shows that the monthly income from the Ongpin property until its sale in Rizal Manila, to which she assented. Alfred gave her money for her plane fare to the Philippines. Within two
Avenue July, 1959 was P1,000, and that from the Rizal Avenue property, of which Wong was the lessee, was P3,120.
weeks of Ederlina's arrival in Manila, Alfred joined her. Alfred reiterated his proposal for Ederlina to stay
Against this account the household expenses and disbursements for the care of the 17 dogs and the salaries of the 8 maids
of Justina Santos were charged. This account is contained in a notebook (Def. Exh. 6) which shows a balance of P9,210.49 in the Philippines and engage in business, even offering to finance her business venture. Ederlina was
in favor of Wong. But it is claimed that the rental from both the Ongpin and Rizal Avenue properties was more than enough delighted at the idea and proposed to put up a beauty parlor. Alfred happily agreed.
to pay for her monthly expenses and that, as a matter of fact, there should be a balance in her favor. The lower court did
not allow either party to recover against the other. Said the court:
Alfred told Ederlina that he was married but that he was eager to divorce his wife in Australia. Alfred
[T]he documents bear the earmarks of genuineness; the trouble is that they were made only by Francisco Wong and
proposed marriage to Ederlina, but she replied that they should wait a little bit longer.
Antonia Matias, nick-named Toning, — which was the way she signed the loose sheets, and there is no clear proof that
Doña Justina had authorized these two to act for her in such liquidation; on the contrary if the result of that was a deficit
as alleged and sought to be there shown, of P9,210.49, that was not what Doña Justina apparently understood for as Ederlina found a building at No. 444 M.H. del Pilar corner Arquiza Street, Ermita, Manila, owned by one
the Court understands her statement to the Honorable Judge of the Juvenile Court . . . the reason why she preferred to Atty. Jose Hidalgo who offered to convey his rights over the property for P18,000.00. Alfred and Ederlina
stay in her home was because there she did not incur in any debts . . . this being the case, . . . the Court will not
accepted the offer. Ederlina put up a beauty parlor on the property under the business name Edorial
adjudicate in favor of Wong Heng on his counterclaim; on the other hand, while it is claimed that the expenses were
much less than the rentals and there in fact should be a superavit, . . . this Court must concede that daily expenses are Beauty Salon, and had it registered with the Department of Trade and Industry under her name. Alfred
not easy to compute, for this reason, the Court faced with the choice of the two alternatives will choose the middle paid Atty. Hidalgo P20,000.00 for his right over the property and gave P300,000.00 to Ederlina for the
course which after all is permitted by the rules of proof, Sec. 69, Rule 123 for in the ordinary course of things, a person purchase of equipment and furniture for the parlor. As Ederlina was going to Germany, she executed a
will live within his income so that the conclusion of the Court will be that there is neither deficit nor superavit and will special power of attorney on December 13, 19835 appointing her brother, Aser Catito, as her attorney-
let the matter rest here. in-fact in managing the beauty parlor business. She stated in the said deed that she was married to Klaus
Muller. Alfred went back to Papua New Guinea to resume his work as a pilot.
Both parties on appeal reiterate their respective claims but we agree with the lower court that both claims should be
denied. Aside from the reasons given by the court, we think that the claim of Justina Santos totalling P37,235, as rentals
When Alfred returned to the Philippines, he visited Ederlina in her Manila residence and found it unsuitable
due to her after deducting various expenses, should be rejected as the evidence is none too clear about the amounts spent
by Wong for food29 masses30 and salaries of her maids.31 His claim for P9,210.49 must likewise be rejected as his averment
for her. He decided to purchase a house and lot owned by Victoria Binuya Steckel in San Francisco del
of liquidation is belied by his own admission that even as late as 1960 he still had P22,000 in the bank and P3,000 in his Monte, Quezon City, covered by Transfer Certificate of Title No. 218429 for US$20,000.00. Since Alfred
possession. knew that as an alien he was disqualified from owning lands in the Philippines, he agreed that only
Ederlina's name would appear in the deed of sale as the buyer of the property, as well as in the title
ACCORDINGLY, the contracts in question (Plff Exhs. 3-7) are annulled and set aside; the land subject-matter of the
covering the same. After all, he was planning to marry Ederlina and he believed that after their marriage,
contracts is ordered returned to the estate of Justina Santos as represented by the Philippine Banking Corporation; Wong the two of them would jointly own the property. On January 23, 1984, a Contract to Sell was entered into
Heng (as substituted by the defendant-appellant Lui She) is ordered to pay the Philippine Banking Corporation the sum of between Victoria Binuya Steckel as the vendor and Ederlina as the sole vendee. Alfred signed therein as
P56,564.35, with legal interest from the date of the filing of the amended complaint; and the amounts consigned in court a witness.6 Victoria received from Alfred, for and in behalf of Ederlina, the amount of US$10,000.00 as
by Wong Heng shall be applied to the payment of rental from November 15, 1959 until the premises shall have been partial payment, for which Victoria issued a receipt. 7 When Victoria executed the deed of absolute sale
vacated by his heirs. Costs against the defendant-appellant.
over the property on March 6, 1984,8 she received from Alfred, for and in behalf of Ederlina, the amount
of US$10,000.00 as final and full payment. Victoria likewise issued a receipt for the said amount. 9 After
Victoria had vacated the property, Ederlina moved into her new house. When she left for Germany to visit The couple decided to put up a beach resort on a four-hectare land in Camudmud, Babak, Davao, owned
Klaus, she had her father Narciso Catito and her two sisters occupy the property. by spouses Enrique and Rosela Serrano. Alfred purchased the property from the spouses for P90,000.00,
and the latter issued a receipt therefor.25 A draftsman commissioned by the couple submitted a sketch of
Alfred decided to stay in the Philippines for good and live with Ederlina. He returned to Australia and sold the beach resort.26 Beach houses were forthwith constructed on a portion of the property and were
his fiber glass pleasure boat to John Reid for $7,500.00 on May 4, 1984. 10 He also sold his television and eventually rented out by Ederlina's father, Narciso Catito. The rentals were collected by Narciso, while
video business in Papua New Guinea for K135,000.00 to Tekeraoi Pty. Ltd. 11 He had his personal Ederlina kept the proceeds of the sale of copra from the coconut trees in the property. By this time, Alfred
properties shipped to the Philippines and stored at No. 14 Fernandez Street, San Francisco del Monte, had already spent P200,000.00 for the purchase, construction and upkeep of the property.
Quezon City. The proceeds of the sale were deposited in Alfred's account with the Hong Kong Shanghai
Banking Corporation (HSBC), Kowloon Branch under Bank Account No. 018-2-807016.12 When Alfred was Ederlina often wrote letters to her family informing them of her life with Alfred. In a Letter dated January
in Papua New Guinea selling his other properties, the bank sent telegraphic letters updating him of his 21, 1985, she wrote about how Alfred had financed the purchases of some real properties, the
account.13 Several checks were credited to his HSBC bank account from Papua New Guinea Banking establishment of her beauty parlor business, and her petition to divorce Klaus. 27
Corporation, Westpac Bank of Australia and New Zealand Banking Group Limited and Westpac Bank-PNG-
Limited. Alfred also had a peso savings account with HSBC, Manila, under Savings Account No. 01-725- Because Ederlina was preoccupied with her business in Manila, she executed on July 8, 1985, two special
183-01.14 powers of attorney28 appointing Alfred as attorney-in-fact to receive in her behalf the title and the deed
of sale over the property sold by the spouses Enrique Serrano.
Once, when Alfred and Ederlina were in Hong Kong, they opened another account with HSBC, Kowloon,
this time in the name of Ederlina, under Savings Account No. 018-0-807950.15 Alfred transferred his In the meantime, Ederlina's petition for divorce was denied because Klaus opposed the same. A second
deposits in Savings Account No. 018-2-807016 with the said bank to this new account. Ederlina also petition filed by her met the same fate. Klaus wanted half of all the properties owned by Ederlina in the
opened a savings account with the Bank of America Kowloon Main Office under Account No. 30069016. 16 Philippines before he would agree to a divorce. Worse, Klaus threatened to file a bigamy case against
Ederlina.29
On July 28, 1984, while Alfred was in Papua New Guinea, he received a Letter dated December 7, 1983
from Klaus Muller who was then residing in Berlin, Germany. Klaus informed Alfred that he and Ederlina Alfred proposed the creation of a partnership to Ederlina, or as an alternative, the establishment of a
had been married on October 16, 1978 and had a blissful married life until Alfred intruded therein. Klaus corporation, with Ederlina owning 30% of the equity thereof. She initially agreed to put up a corporation
stated that he knew of Alfred and Ederlina's amorous relationship, and discovered the same sometime in and contacted Atty. Armando Dominguez to prepare the necessary documents. Ederlina changed her
November 1983 when he arrived in Manila. He also begged Alfred to leave Ederlina alone and to return mind at the last minute when she was advised to insist on claiming ownership over the properties acquired
her to him, saying that Alfred could not possibly build his future on his (Klaus') misfortune. 17 by them during their coverture.

Alfred had occasion to talk to Sally MacCarron, a close friend of Ederlina. He inquired if there was any Alfred and Ederlina's relationship started deteriorating. Ederlina had not been able to secure a divorce
truth to Klaus' statements and Sally confirmed that Klaus was married to Ederlina. When Alfred confronted from Klaus. The latter could charge her for bigamy and could even involve Alfred, who himself was still
Ederlina, she admitted that she and Klaus were, indeed, married. But she assured Alfred that she would married. To avoid complications, Alfred decided to live separately from Ederlina and cut off all contacts
divorce Klaus. Alfred was appeased. He agreed to continue the amorous relationship and wait for the with her. In one of her letters to Alfred, Ederlina complained that he had ruined her life. She admitted
outcome of Ederlina's petition for divorce. After all, he intended to marry her. He retained the services of that the money used for the purchase of the properties in Davao were his. She offered to convey t he
Rechtsanwaltin Banzhaf with offices in Berlin, as her counsel who informed her of the progress of the properties deeded to her by Atty. Mardoecheo Camporedondo and Rodolfo Morelos, asking Alfred to
proceedings.18 Alfred paid for the services of the lawyer. prepare her affidavit for the said purpose and send it to her for her signature. 30 The last straw for Alfred
came on September 2, 1985, when someone smashed the front and rear windshields of Alfred's car and
In the meantime, Alfred decided to purchase another house and lot, owned by Rodolfo Morelos covered damaged the windows. Alfred thereafter executed an affidavit-complaint charging Ederlina and Sally
by TCT No. 92456 located in Peña Street, Bajada, Davao City. 19 Alfred again agreed to have the deed of MacCarron with malicious mischief.31
sale made out in the name of Ederlina. On September 7, 1984, Rodolfo Morelos executed a deed of
absolute sale over the said property in favor of Ederlina as the sole vendee for the amount of On October 15, 1985, Alfred wrote to Ederlina's father, complaining that Ederlina had taken all his life
P80,000.00.20 Alfred paid US$12,500.00 for the property. savings and because of this, he was virtually penniless. He further accused the Catito family of acquiring
for themselves the properties he had purchased with his own money. He demanded the return of all the
Alfred purchased another parcel of land from one Atty. Mardoecheo Camporedondo, located in Moncado, amounts that Ederlina and her family had "stolen" and turn over all the properties acquired by him and
Babak, Davao, covered by TCT No. 35251. Alfred once more agreed for the name of Ederlina to appear Ederlina during their coverture.32
as the sole vendee in the deed of sale. On December 31, 1984, Atty. Camporedondo executed a deed of
sale over the property for P65,000.00 in favor of Ederlina as the sole vendee. 21 Alfred, through Ederlina, Shortly thereafter, Alfred filed a Complaint33 dated October 28, 1985, against Ederlina, with the Regional
paid the lot at the cost of P33,682.00 and US$7,000.00, respectively, for which the vendor signed Trial Court of Quezon City, for recovery of real and personal properties located in Quezon City and Manila.
receipts.22 On August 14, 1985, TCT No. 47246 was issued to Ederlina as the sole owner of the said In his complaint, Alfred alleged, inter alia, that Ederlina, without his knowledge and consent, managed
property.23 to transfer funds from their joint account in HSBC Hong Kong, to her own account with the same bank.
Using the said funds, Ederlina was able to purchase the properties subject of the complaints. He also
Meanwhile, Ederlina deposited on December 27, 1985, the total amount of US$250,000 with the HSBC alleged that the beauty parlor in Ermita was established with his own funds, and that the Quezon City
Kowloon under Joint Deposit Account No. 018-462341-145.24 property was likewise acquired by him with his personal funds.34
Ederlina failed to file her answer and was declared in default. Alfred adduced his evidence ex parte. g) To pay the costs of this suit;
Plaintiff prays other reliefs just and equitable in the premises. 37
In the meantime, on November 7, 1985, Alfred also filed a complaint 35 against Ederlina with the Regional
Trial Court, Davao City, for specific performance, declaration of ownership of real and personal properties, In her answer, Ederlina denied all the material allegations in the complaint, insisting that she acquired
sum of money, and damages. He alleged, inter alia, in his complaint: the said properties with her personal funds, and as such, Alfred had no right to the same. She alleged
that the deeds of sale, the receipts, and certificates of titles of the subject properties were all made out
4. That during the period of their common-law relationship, plaintiff solely through his own efforts and in her name.38 By way of special and affirmative defense, she alleged that Alfred had no cause of action
resources acquired in the Philippines real and personal properties valued more or less at P724,000.00; against her. She interposed counterclaims against the petitioner. 39
The defendant's common-law wife or live-in partner did not contribute anything financially to the
acquisition of the said real and personal properties. These properties are as follows: In the meantime, the petitioner filed a Complaint dated August 25, 1987, against the HSBC in the Regional
Trial Court of Davao City40 for recovery of bank deposits and damages.41 He prayed that after due
I. Real Properties proceedings, judgment be rendered in his favor, thus:
a. TCT No. T-92456 located at Bajada, Davao City, consisting of 286 square meters, (with residential WHEREFORE, plaintiff respectfully prays that the Honorable Court adjudge defendant bank, upon
house) registered in the name of the original title owner Rodolfo M. Morelos but already fully paid by hearing the evidence that the parties might present, to pay plaintiff:
plaintiff. Valued at P342,000.00; 1. ONE HUNDRED TWENTY SIX THOUSAND TWO HUNDRED AND THIRTY U.S. DOLLARS AND NINETY
b. TCT No. T-47246 (with residential house) located at Babak, Samal, Davao, consisting of 600 square EIGHT CENTS (US$126,230.98) plus legal interests, either of Hong Kong or of the Philippines, from
meters, registered in the name of Ederlina Catito, with the Register of Deeds of Tagum, Davao del 20 December 1984 up to the date of execution or satisfaction of judgment, as actual damages or in
Norte valued at P144,000.00; restoration of plaintiffs lost dollar savings;
c. A parcel of agricultural land located at Camudmud, Babak, Samal, Davao del Norte, consisting of 2. The same amount in (1) above as moral damages;
4.2936 hectares purchased from Enrique Serrano and Rosela B. Serrano. Already paid in full by 3. Attorney's fees in the amount equivalent to TWENTY FIVE PER CENT (25%) of (1) and (2) above;
plaintiff. Valued at P228,608.32; 4. Litigation expenses in the amount equivalent to TEN PER CENT (10%) of the amount in (1) above;
II. Personal Properties: and
a. Furniture valued at P10,000.00. 5. For such other reliefs as are just and equitable under the circumstances.42

On April 28, 1986, the RTC of Quezon City rendered its decision in Civil Case No. Q-46350, in favor of Alfred, the decretal
5. That defendant made no contribution at all to the acquisition, of the above-mentioned properties as
portion of which reads as follows:
all the monies (sic) used in acquiring said properties belonged solely to plaintiff;36
WHEREFORE, premises considered, judgment is hereby rendered ordering the defendant to perform the following:
(1) To execute a document waiving her claim to the house and lot in No. 14 Fernandez St., San Francisco Del Monte,
Alfred prayed that after hearing, judgment be rendered in his favor: Quezon City in favor of plaintiff or to return to the plaintiff the acquisition cost of the same in the amount of
WHEREFORE, in view of the foregoing premises, it is respectfully prayed that judgment be rendered in $20,000.00, or to sell the said property and turn over the proceeds thereof to the plaintiff;
(2) To deliver to the plaintiff the rights of ownership and management of the beauty parlor located at 444 Arquiza St.,
favor of plaintiff and against defendant:
Ermita, Manila, including the equipment and fixtures therein;
a) Ordering the defendant to execute the corresponding deeds of transfer and/or conveyances in favor (3) To account for the earnings of rental of the house and lot in No. 14 Fernandez St., San Francisco Del Monte,
of plaintiff over those real and personal properties enumerated in Paragraph 4 of this complaint; Quezon City, as well as the earnings in the beauty parlor at 444 Arquiza St., Ermita, Manila and turn over one-half of
b) Ordering the defendant to deliver to the plaintiff all the above real and personal properties or their the net earnings of both properties to the plaintiff;
money value, which are in defendant's name and custody because these were acquired solely with (4) To surrender or return to the plaintiff the personal properties of the latter left in the house at San Francisco Del
plaintiffs money and resources during the duration of the common-law relationship between plaintiff Monte, to wit:
"(1) Mamya automatic camera
and defendant, the description of which are as follows:
(1) 12 inch "Sonny" T.V. set, colored with remote control.
(1) TCT No. T-92456 (with residential house) located at Bajada, Davao City, consisting of 286 square (1) Micro oven
meters, registered in the name of the original title owner Rodolfo Morelos but already fully paid by (1) Electric fan (tall, adjustable stand)
plaintiff. Valued at P342,000.00; (1) Office safe with (2) drawers and safe
(2) TCT No. T-47246 (with residential house) located at Babak, Samal, Davao, consisting of 600 (1) Electric Washing Machine
square meters, registered in the name of Ederlina Catito, with the Register of Deeds of Tagum, Davao (1) Office desk and chair
(1) Double bed suits
del Norte, valued at P144,000.00;
(1) Mirror/dresser
(3) A parcel of agricultural land located at Camudmud, Babak, Samal, Davao del Norte, consisting of (1) Heavy duty voice/working mechanic
4.2936 hectares purchased from Enrique Serrano and Rosela B. Serrano. Already fully paid by (1) "Sony" Beta-Movie camera
plaintiff. Valued at P228,608.32; (1) Suitcase with personal belongings
c) Declaring the plaintiff to be the sole and absolute owner of the above-mentioned real and personal (1) Cardboard box with belongings
properties; (1) Guitar Amplifier
(1) Hanger with men's suit (white)."
d) Awarding moral damages to plaintiff in an amount deemed reasonable by the trial court;
To return to the plaintiff, (1) Hi-Fi Stereo equipment left at 444 Arquiza Street, Ermita, Manila, as well as the Fronte
e) To reimburse plaintiff the sum of P12,000.00 as attorney's fees for having compelled the plaintiff to Suzuki car.
litigate; (4) To account for the monies (sic) deposited with the joint account of the plaintiff and defendant (Account No. 018-
f) To reimburse plaintiff the sum of P5,000.00 incurred as litigation expenses also for having compelled 0-807950); and to restore to the plaintiff all the monies (sic) spent by the defendant without proper authority;
the plaintiff to litigate; and (5) To pay the amount of P5,000.00 by way of attorney's fees, and the costs of suit.
However, after due proceedings in the RTC of Davao City, in Civil Case No. 17,817, the trial court rendered auction. Applying by analogy Republic Act No. 133 49 as amended by Rep. Act No. 4381 and Rep. Act No.
judgment on September 28, 1995 in favor of Ederlina, the dispositive portion of which reads: 4882, the proceeds of the sale would be remitted to him, by way of refund for the money he used to
WHEREFORE, the Court cannot give due course to the complaint and hereby orders its dismissal. The purchase the said properties. To bar the petitioner from recovering the subject properties, or at the very
counterclaims of the defendant are likewise dismissed. least, the money used for the purchase thereof, is to allow the respondent to enrich herself at the expense
of the petitioner in violation of Article 22 of the New Civil Code.
The trial court ruled that based on documentary evidence, the purchaser of the three parcels of land
subject of the complaint was Ederlina. The court further stated that even if Alfred was the buyer of the The petition is bereft of merit.
properties; he had no cause of action against Ederlina for the recovery of the same because as an alien,
he was disqualified from acquiring and owning lands in the Philippines. The sale of the three parcels of Section 14, Article XIV of the 1973 Constitution provides, as follows:
land to the petitioner was null and void ab initio. Applying the pari delicto doctrine, the petitioner was Save in cases of hereditary succession, no private land shall be transferred or conveyed except to
precluded from recovering the properties from the respondent. individuals, corporations, or associations qualified to acquire or hold lands in the public domain. 50

Alfred appealed the decision to the Court of Appeals 45 in which the petitioner posited the view that Lands of the public domain, which include private lands, may be transferred or conveyed only to
although he prayed in his complaint in the court a quo that he be declared the owner of the three parcels individuals or entities qualified to acquire or hold private lands or lands of the public domain. Aliens,
of land, he had no intention of owning the same permanently. His principal intention therein was to be whether individuals or corporations, have been disqualified from acquiring lands of the public domain.
declared the transient owner for the purpose of selling the properties at public auction, ultimately enabling Hence, they have also been disqualified from acquiring private lands. 51
him to recover the money he had spent for the purchase thereof.

Even if, as claimed by the petitioner, the sales in question were entered into by him as the real vendee,
On March 8, 2000, the CA rendered a decision affirming in toto the decision of the RTC. The appellate the said transactions are in violation of the Constitution; hence, are null and void ab initio.52 A contract
court ruled that the petitioner knowingly violated the Constitution; hence, was barred from recovering that violates the Constitution and the law, is null and void and vests no rights and creates no obligations.
the money used in the purchase of the three parcels of land. It held that to allow the petitioner to recover It produces no legal effect at all.53 The petitioner, being a party to an illegal contract, cannot come into
the money used for the purchase of the properties would embolden aliens to violate the Constitution, and a court of law and ask to have his illegal objective carried out. One who loses his money or property by
defeat, rather than enhance, the public policy. 46 knowingly engaging in a contract or transaction which involves his own moral turpitude may not maintain
an action for his losses. To him who moves in deliberation and premeditation, the law is unyielding. 54 The
Hence, the petition at bar. law will not aid either party to an illegal contract or agreement; it leaves the parties where it finds
them.55 Under Article 1412 of the New Civil Code, the petitioner cannot have the subject properties
The petitioner assails the decision of the court contending that: deeded to him or allow him to recover the money he had spent for the purchase thereof. 56 Equity as a
THE HONORABLE COURT OF APPEALS ERRED IN APPLYING THE RULE OF IN PARI DELICTO IN THE rule will follow the law and will not permit that to be done indirectly which, because of public policy,
INSTANT CASE BECAUSE BY THE FACTS AS NARRATED IN THE DECISION IT IS APPARENT THAT THE cannot be done directly.57 Where the wrong of one party equals that of the other, the defendant is in the
PARTIES ARE NOT EQUALLY GUILTY BUT RATHER IT WAS THE RESPONDENT WHO EMPLOYED FRAUD stronger position . . . it signifies that in such a situation, neither a court of equity nor a court of law will
AS WHEN SHE DID NOT INFORM PETITIONER THAT SHE WAS ALREADY MARRIED TO ANOTHER administer a remedy.58 The rule is expressed. in the maxims: EX DOLO ORITUR ACTIO and IN PARI
GERMAN NATIONAL AND WITHOUT SUCH FRAUDULENT DESIGN PETITIONER COULD NOT HAVE DELICTO POTIOR EST CONDITIO DEFENDENTIS.59
PARTED WITH HIS MONEY FOR THE PURCHASE OF THE PROPERTIES. 47
and The petitioner cannot feign ignorance of the constitutional proscription, nor claim that he acted in good
THE HONORABLE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE INTENTION OF THE faith, let alone assert that he is less guilty than the respondent. The petitioner is charged with knowledge
PETITIONER IS NOT TO OWN REAL PROPERTIES IN THE PHILIPPINES BUT TO SELL THEM AT PUBLIC of the constitutional prohibition.60 As can be gleaned from the decision of the trial court, the petitioner
AUCTION TO BE ABLE TO RECOVER HIS MONEY USED IN PURCHASING THEM. 48 was fully aware that he was disqualified from acquiring and owning lands under Philippine law even before
he purchased the properties in question; and, to skirt the constitutional prohibition, the petitioner had
Since the assignment of errors are intertwined with each other, the Court shall resolve the same the deed of sale placed under the respondent's name as the sole vendee thereof:
simultaneously. Such being the case, the plaintiff is subject to the constitutional restrictions governing the acquisition
of real properties in the Philippines by aliens.
From the plaintiff's complaint before the Regional Trial Court, National Capital Judicial Region, Branch
The petitioner contends that he purchased the three parcels of land subject of his complaint because of
84, Quezon City in Civil Case No. Q-46350 he alleged:
his desire to marry the respondent, and not to violate the Philippine Constitution. He was, however,
deceived by the respondent when the latter failed to disclose her previous marriage to Klaus Muller. It
cannot, thus, be said that he and the respondent are "equally guilty;" as such, the pari delicto doctrine x x x "That on account that foreigners are not allowed by the Philippine laws to acquire real properties
is not applicable to him. He acted in good faith, on the advice of the respondent's uncle, Atty. Mardoecheo in their name as in the case of my vendor Miss Victoria Vinuya (sic) although married to a foreigner,
Camporedondo. There is no evidence on record that he was aware of the constitutional prohibition against we agreed and I consented in having the title to subject property placed in defendant's name alone
aliens acquiring real property in the Philippines when he purchased the real properties subject of his although I paid for the whole price out of my own exclusive funds." (paragraph IV, Exhibit "W.")
complaint with his own funds. The transactions were not illegal per se but merely prohibited, and under
Article 1416 of the New Civil Code, he is entitled to recover the money used for the purchase of the and his testimony before this Court which is hereby quoted:
properties. At any rate, the petitioner avers, he filed his complaint in the court a quo merely for the ATTY. ABARQUEZ:
Q. In whose name the said house and lot placed, by the way, where is his house and lot located?
purpose of having him declared as the owner of the properties, to enable him to sell the same at public A. In 14 Fernandez St., San Francisco, del Monte, Manila.
 Q. In whose name was the house placed? mortgaged property except after default and for the sole purpose of foreclosure, receivership,
A. Ederlina Catito because I was informed being not a Filipino, I cannot own the property. (tsn, p. 11, August 27, 1986).
COURT: enforcement or other proceedings and in no case for a period of more than five years from actual
Q. So you understand that you are a foreigner that you cannot buy land in the Philippines? possession and shall not bid or take part in any sale of such real property in case of
A. That is correct but as she would eventually be my wife that would be owned by us later on. (tsn, p. 5, September 3, 1986)
foreclosure: Provided, That said mortgagee or successor-in-interest may take possession of said
Q. What happened after that?
A. She said you foreigner you are using Filipinos to buy property. property after default in accordance with the prescribed judicial procedures for foreclosure and
Q. And what did you answer? receivership and in no case exceeding five years from actual possession. 65
A: I said thank you very much for the property I bought because I gave you a lot of money (tsn., p. 14, ibid).

From the evidence on record, the three parcels of land subject of the complaint were not mortgaged to
It is evident that the plaintiff was fully aware that as a non-citizen of the Philippines, he was disqualified
the petitioner by the owners thereof but were sold to the respondent as the vendee, albeit with the use
from validly purchasing any land within the country.61
of the petitioner's personal funds.

The petitioner's claim that he acquired the subject properties because of his desire to marry the
Futile, too, is petitioner's reliance on Article 22 of the New Civil Code which reads:
respondent, believing that both of them would thereafter jointly own the said properties, is belied by his
Art. 22. Every person who through an act of performance by another, or any other means, acquires or
own evidence. It is merely an afterthought to salvage a lost cause. The petitioner admitted on cross-
comes into possession of something at the expense of the latter without just or legal ground, shall
examination that he was all along legally married to Teresita Santos Frenzel, while he was having an
return the same to him.66
amorous relationship with the respondent:
ATTY. YAP:
Q When you were asked to identify yourself on direct examination you claimed before this Honorable Court that your status is that of being
The provision is expressed in the maxim: "MEMO CUM ALTERIUS DETER DETREMENTO PROTEST" (No
married, do you confirm that?
A Yes, sir. person should unjustly enrich himself at the expense of another). An action for recovery of what has been
Q To whom are you married? paid without just cause has been designated as an accion in rem verso.67 This provision does not apply
A To a Filipina, since 1976.
Q Would you tell us who is that particular person you are married since 1976?
if, as in this case, the action is proscribed by the Constitution or by the application of the pari
A Teresita Santos Frenzel. delicto doctrine. 68 It may be unfair and unjust to bar the petitioner from filing an accion in rem
Q Where is she now?
verso over the subject properties, or from recovering the money he paid for the said properties, but, as
A In Australia.
Q Is this not the person of Teresita Frenzel who became an Australian citizen? Lord Mansfield stated in the early case of Holman vs. Johnson:69 "The objection that a contract is immoral
A I am not sure, since 1981 we were separated. or illegal as between the plaintiff and the defendant, sounds at all times very ill in the mouth of the
Q You were only separated, in fact, but not legally separated?
A Thru my counsel in Australia I filed a separation case.
defendant. It is not for his sake, however, that the objection is ever allowed; but it is founded in general
Q As of the present you are not legally divorce[d]? principles of policy, which the defendant has the advantage of, contrary to the real justice, as between
A I am still legally married.62
him and the plaintiff."

The respondent was herself married to Klaus Muller, a German citizen. Thus, the petitioner and the
IN LIGHT OF ALL THE FOREGOING, the petition is DISMISSED. The decision of the Court of Appeals is
respondent could not lawfully join in wedlock. The evidence on record shows that the petitioner in fact
AFFIRMED in toto.
knew of the respondent's marriage to another man, but nonetheless purchased the subject properties
under the name of the respondent and paid the purchase prices therefor. Even if it is assumed gratia
Costs against the petitioner.
arguendi that the respondent and the petitioner were capacitated to marry, the petitioner is still
disqualified to own the properties in tandem with the respondent. 63

The petitioner cannot find solace in Article 1416 of the New Civil Code which reads:
Art. 1416. When the agreement is not illegal per se but is merely prohibited, and the prohibition by the
law is designed for the protection of the plaintiff, he may, if public policy is thereby enhanced, recover
what he has paid or delivered.64

The provision applies only to those contracts which are merely prohibited, in order to benefit private
interests. It does not apply to contracts void ab initio. The sales of three parcels of land in favor of the
petitioner who is a foreigner is illegal per se. The transactions are void ab initio because they were entered
into in violation of the Constitution. Thus, to allow the petitioner to recover the properties or the money
used in the purchase of the parcels of land would be subversive of public policy.

Neither may the petitioner find solace in Rep. Act No. 133, as amended by Rep. Act No. 4882, which
reads:
SEC. 1. Any provision of law to the contrary notwithstanding, private real property may be mortgaged
in favor of any individual, corporation, or association, but the mortgagee or his successor-in-interest,
if disqualified to acquire or hold lands of the public domain in the Philippines, shall not take possession
of the mortgaged property during the existence of the mortgage and shall not take possession of
G.R. No. L-35702 May 29, 1973 31, 1934, whereby he was issued a plan Psu-99791 (Exhibit "B"). (The land claimed contained an
area of 171:3561 hectares.)
DOMINGO D. RUBIAS, plaintiff-appellant,
vs. 2. Before the war with Japan, Francisco Militante filed with the Court of First Instance of Iloilo an
ISAIAS BATILLER, defendant-appellee. application for the registration of the title of the land technically described in psu-99791 (Exh.
"B") opposed by the Director of Lands, the Director of Forestry and other oppositors. However,
In this appeal certified by the Court of Appeals to this Court as involving purely legal questions, we affirm during the war with Japan, the record of the case was lost before it was heard, so after the war
the dismissal order rendered by the Iloilo court of first instance after pre-trial and submittal of the Francisco Militante petitioned this court to reconstitute the record of the case. The record was
pertinent documentary exhibits. reconstituted on the Court of the First Instance of Iloilo and docketed as Land Case No. R-695,
GLRO Rec. No. 54852. The Court of First Instance heard the land registration case on November
Such dismissal was proper, plaintiff having no cause of action, since it was duly established in the record
14, 1952, and after the trial this court dismissed the application for registration. The appellant,
that the application for registration of the land in question filed by Francisco Militante, plaintiff's vendor
Francisco Militante, appealed from the decision of this Court to the Court of Appeals where the case
and predecessor interest, had been dismissed by decision of 1952 of the land registration court as
was docketed as CA-GR No. 13497-R..
affirmed by final judgment in 1958 of the Court of Appeals and hence, there was no title or right to the
land that could be transmitted by the purported sale to plaintiff. 3. Pending the disposal of the appeal in CA-GR No. 13497-R and more particularly on June 18,
1956, Francisco Militante sold to the plaintiff, Domingo Rubias the land technically described in psu-
As late as 1964, the Iloilo court of first instance had in another case of ejectment likewise upheld by final
99791 (Exh. "A"). The sale was duly recorded in the Office of the Register of Deeds for the province
judgment defendant's "better right to possess the land in question . having been in the actual possession
of Iloilo as Entry No. 13609 on July 11, 1960 (Exh. "A-1").
thereof under a claim of title many years before Francisco Militante sold the land to the plaintiff."
(NOTE: As per deed of sale, Exh. A, what Militante purportedly sold to plaintiff-appellant, his son-
Furthermore, even assuming that Militante had anything to sell, the deed of sale executed in 1956 by
in-law, for the sum of P2,000.00 was "a parcel of untitled land having an area Of 144.9072 hectares
him in favor of plaintiff at a time when plaintiff was concededly his counsel of record in the land
... surveyed under Psu 99791 ... (and) subject to the exclusions made by me, under (case) CA-
registration case involving the very land in dispute (ultimately decided adversely against Militante by the
i3497, Land Registration Case No. R-695, G.L.R.O. No. 54852, Court of First Instance of the
Court of Appeals' 1958 judgment affirming the lower court's dismissal of Militante's application for province of Iloilo. These exclusions referred to portions of the original area of over 171 hectares
registration) was properly declared inexistent and void by the lower court, as decreed by Article 1409 in
originally claimed by Militante as applicant, but which he expressly recognized during the trial to
relation to Article 1491 of the Civil Code.
pertain to some oppositors, such as the Bureau of Public Works and Bureau of Forestry and several
other individual occupants and accordingly withdrew his application over the same. This is expressly
The appellate court, in its resolution of certification of 25 July 1972, gave the following backgrounder of
made of record in Exh. A, which is the Court of Appeals' decision of 22 September 1958
the appeal at bar:
confirming the land registration court's dismissal of Militante's application for registration.)
On August 31, 1964, plaintiff Domingo D. Rubias, a lawyer, filed a suit to recover the ownership and
4. On September 22,1958 the Court of appeals in CA-G.R. No. 13497-R promulgated its judgment
possession of certain portions of lot under Psu-99791 located in Barrio General Luna, Barotac Viejo,
confirming the decision of this Court in Land Case No. R-695, GLRO Rec. No. 54852 which dismissed
Iloilo which he bought from his father-in-law, Francisco Militante in 1956 against its present occupant
the application for Registration filed by Francisco Militante (Exh. "I").
defendant, Isaias Batiller, who illegally entered said portions of the lot on two occasions — in 1945 and
in 1959. Plaintiff prayed also for damages and attorneys fees. (pp. 1-7, Record on Appeal). In his
5. Domingo Rubias declared the land described in Exh. 'B' for taxation purposes under Tax Dec.
answer with counter-claim defendant claims the complaint of the plaintiff does not state a cause of
No. 8585 (Exh. "C") for 1957; Tax Dec. Nos. 9533 (Exh. "C-1") and 10019 (Exh. "C-3")for the year
action, the truth of the matter being that he and his predecessors-in-interest have always been in 1961; Tax Dec. No. 9868 (Exh. "C-2") for the year 1964, paying the land taxes under Tax Dec. No.
actual, open and continuous possession since time immemorial under claim of ownership of the portions
8585 and 9533 (Exh. "D", "D-1", "G-6").
of the lot in question and for the alleged malicious institution of the complaint he claims he has suffered
moral damages in the amount of P 2,000.00, as well as the sum of P500.00 for attorney's fees. ... 6. Francisco Militante immediate predecessor-in-interest of the plaintiff, has also declared the land
for taxation purposes under Tax Dec. No. 5172 in 1940 (Exh. "E") for 1945; under Tax Dec. No. T-
On December 9, 1964, the trial court issued a pre-trial order, after a pre-trial conference between the
86 (Exh. "E-1") for 1948; under Tax Dec. No. 7122 (Exh. "2"), and paid the land taxes for 1940
parties and their counsel which order reads as follows..
(Exhs. "G" and "G-7"), for 1945 46 (Exh. "G-1") for 1947 (Exh. "G-2"), for 1947 & 1948 (Exh. "G-
3"), for 1948 (Exh. "G-4"), and for 1948 and 1949 (Exh. "G-5").
'When this case was called for a pre-trial conference today, the plaintiff appeared assisted by himself
and Atty. Gregorio M. Rubias. The defendant also appeared, assisted by his counsel Atty. Vicente R. 7. Tax Declaration No. 2434 in the name of Liberato Demontaño for the land described therein
Acsay.
(Exh. "F") was cancelled by Tax. Dec. No. 5172 of Francisco Militante (Exh. "E"). Liberato
Demontaño paid the land tax under Tax Dec. No. 2434 on Dec. 20, 1939 for the years 1938 (50%)
A. During the pre-trial conference, the parties have agreed that the following facts are attendant in
and 1959 (Exh. "H").
this case and that they will no longer introduced any evidence, testimonial or documentary to prove
them:
8. The defendant had declared for taxation purposes Lot No. 2 of the Psu-155241 under Tax Dec.
Not. 8583 for 1957 and a portion of Lot No. 2, Psu-155241, for 1945 under Tax Dec. No. 8584
1. That Francisco Militante claimed ownership of a parcel of land located in the Barrio of General
(Exh. "2-A" Tax No. 8583 (Exh. "2") was revised by Tax Dec. No. 9498 in the name of the defendant
Luna, municipality of Barotac Viejo province of Iloilo, which he caused to be surveyed on July 18-
(Exh. "2-B") and Tax Dec. No. 8584 (Exh. "2-A") was cancelled by Tax Dec. No. 9584 also in the
name of the defendant (Exh. "2-C"). The defendant paid the land taxes for Lot 2, Psu-155241, on
 Nov. 9, 1960 for the years 1945 and 1946, for the year 1950, and for the year 1960 as shown by The appellate court further related the developments of the case, as follows:
the certificate of the treasurer (Exh. "3"). The defendant may present to the Court other land taxes On August 17, 1965, defendant's counsel manifested in open court that before any trial on the merit of
receipts for the payment of taxes for this lot. the case could proceed he would file a motion to dismiss plaintiff's complaint which he did, alleging
that plaintiff does not have cause of action against him because the property in dispute which he
9. The land claimed by the defendant as his own was surveyed on June 6 and 7,1956, and a (plaintiff) allegedly bought from his father-in-law, Francisco Militante was the subject matter of LRC
plan approved by Director of Land on November 15, 1956 was issued, identified as Psu 155241 No. 695 filed in the CFI of Iloilo, which case was brought on appeal to this Court and docketed as CA-
(Exh. "5"). G.R. No. 13497-R in which aforesaid case plaintiff was the counsel on record of his father-in-law,
Francisco Militante. Invoking Arts. 1409 and 1491 of the Civil Code which reads:
10. On April 22, 1960, the plaintiff filed forcible Entry and Detainer case against Isaias Batiller in
'Art. 1409. The following contracts are inexistent and void from the beginning:
the Justice of the Peace Court of Barotac Viejo Province of Iloilo (Exh. "4") to which the defendant
(7) Those expressly prohibited by law.
Isaias Batiller riled his answer on August 29, 1960 (Exh. "4-A"). The Municipal Court of Barotac
'ART. 1491. The following persons cannot acquire any purchase, even at a public auction, either in
Viejo after trial, decided the case on May 10, 1961 in favor of the defendant and against the
person of through the mediation of another: .
plaintiff (Exh. "4-B"). The plaintiff appealed from the decision of the Municipal Court of Barotac
Viejo which was docketed in this Court as Civil Case No. 5750 on June 3, 1961, to which the (5) Justices, judges, prosecuting attorneys, clerks of superior and inferior courts, and other officers and
defendant, Isaias Batiller, on June 13, 1961 filed his answer (Exh. "4-C"). And this Court after the employees connected with the administration of justice, the property and rights of in litigation or levied
trial. decided the case on November 26, 1964, in favor of the defendant, Isaias Batiller and against upon an execution before the court within whose jurisdiction or territory they exercise their respective
the plaintiff (Exh. "4-D"). functions; this prohibition includes the act of acquiring an assignment and shall apply to lawyers, with
respect to the property and rights which may be the object of any litigation in which they may take
(NOTE: As per Exh. 4-B, which is the Iloilo court of first instance decision of 26 November
part by virtue of their profession.'
1964 dismissing plaintiff's therein complaint for ejectment against defendant, the iloilo court
expressly found "that plaintiff's complaint is unjustified, intended to harass the defendant" and defendant claims that plaintiff could not have acquired any interest in the property in dispute as the
"that the defendant, Isaias Batiller, has a better right to possess the land in question described in contract he (plaintiff) had with Francisco Militante was inexistent and void. (See pp. 22-31, Record on
Psu 155241 (Exh. "3"), Isaias Batiller having been in the actual physical possession thereof under Appeal). Plaintiff strongly opposed defendant's motion to dismiss claiming that defendant can not invoke
a claim of title many years before Francisco Militante sold the land to the plaintiff-hereby dismissing Articles 1409 and 1491 of the Civil Code as Article 1422 of the same Code provides that 'The defense
plaintiff's complaint and ordering the plaintiff to pay the defendant attorney's fees ....") of illegality of contracts is not available to third persons whose interests are not directly affected' (See
pp. 32-35 Record on Appeal).
B. During the trial of this case on the merit, the plaintiff will prove by competent evidence the following:
On October 18, 1965, the lower court issued an order disclaiming plaintiffs complaint (pp. 42-49,
1. That the land he purchased from Francisco Militante under Exh. "A" was formerly owned and
Record on Appeal.) In the aforesaid order of dismissal the lower court practically agreed with
possessed by Liberato Demontaño but that on September 6, 1919 the land was sold at public auction defendant's contention that the contract (Exh. A) between plaintiff and Francism Militante was null and
by virtue of a judgment in a Civil Case entitled "Edw J. Pflieder plaintiff vs. Liberato Demontaño
void. In due season plaintiff filed a motion for reconsideration (pp. 50-56 Record on Appeal) which was
Francisco Balladeros and Gregorio Yulo, defendants", of which Yap Pongco was the purchaser (Exh. "1-
denied by the lower court on January 14, 1966 (p. 57, Record on Appeal).
3"). The sale was registered in the Office of the Register of Deeds of Iloilo on August 4, 1920, under
Primary Entry No. 69 (Exh. "1"), and a definite Deed of Sale was executed by Constantino A. Canto, Hence, this appeal by plaintiff from the orders of October 18, 1965 and January 14, 1966.
provincial Sheriff of Iloilo, on Jan. 19, 1934 in favor of Yap Pongco (Exh. "I"), the sale having been
registered in the Office of the Register of Deeds of Iloilo on February 10, 1934 (Exh. "1-1"). Plaintiff-appellant imputes to the lower court the following errors:
'1. The lower court erred in holding that the contract of sale between the plaintiff-appellant and his
2. On September 22, 1934, Yap Pongco sold this land to Francisco Militante as evidenced by a notarial father-in-law, Francisco Militante, Sr., now deceased, of the property covered by Plan Psu-99791, (Exh.
deed (Exh. "J") which was registered in the Registry of Deeds on May 13, 1940 (Exh. "J-1"). "A") was void, not voidable because it was made when plaintiff-appellant was the counsel of the latter
in the Land Registration case.
3. That plaintiff suffered damages alleged in his complaint.
'2. The lower court erred in holding that the defendant-appellee is an interested person to question the
validity of the contract of sale between plaintiff-appellant and the deceased, Francisco Militante, Sr.
C. Defendants, on the other hand will prove by competent evidence during the trial of this case the
'3. The lower court erred in entertaining the motion to dismiss of the defendant-appellee after he had
following facts:
already filed his answer, and after the termination of the pre-trial, when the said motion to dismiss
1. That lot No. 2 of the Psu-1552 it (Exh. '5') was originally owned and possessed by Felipe Batiller,
raised a collateral question.
grandfather of the defendant Basilio Batiller, on the death of the former in 1920, as his sole heir. Isaias
'4. The lower court erred in dismissing the complaint of the plaintiff-appellant.'
Batiller succeeded his father , Basilio Batiller, in the ownership and possession of the land in the year
1930, and since then up to the present, the land remains in the possession of the defendant, his
The appellate court concluded that plaintiffs "assignment of errors gives rise to two (2) legal posers —
possession being actual, open, public, peaceful and continuous in the concept of an owner, exclusive of
(1) whether or not the contract of sale between appellant and his father-in-law, the late Francisco
any other rights and adverse to all other claimants.
Militante over the property subject of Plan Psu-99791 was void because it was made when plaintiff was
2. That the alleged predecessors in interest of the plaintiff have never been in the actual possession of
counsel of his father-in-law in a land registration case involving the property in dispute; and (2) whether
the land and that they never had any title thereto.
or not the lower court was correct in entertaining defendant-appellee's motion to dismiss after the latter
3. That Lot No. 2, Psu 155241, the subject of Free Patent application of the defendant has
had already filed his answer and after he (defendant) and plaintiff-appellant had agreed on some matters
been approved.
in a pre-trial conference. Hence, its elevation of the appeal to this Court as involving pure questions of
4. The damages suffered by the defendant, as alleged in his counterclaim."'1
law.
It is at once evident from the foregoing narration that the pre-trial conference held by the trial court at These two antecedent cases thus cited in Abagat clearly superseded (without so expressly stating the previous ruling
which the parties with their counsel agreed and stipulated on the material and relevant facts and in Wolfson:
The spouses, Juan Soriano and Vicente Macaraeg, were the owners of twelve parcels of land. Vicenta Macaraeg died in
submitted their respective documentary exhibits as referred to in the pre-trial order, supra,2 practically
November, 1909, leaving a large number of collateral heirs but no descendants. Litigation between the surviving
amounted to a fulldress trial which placed on record all the facts and exhibits necessary for adjudication husband, Juan Soriano, and the heirs of Vicenta immediately arose, and the herein appellant Sisenando Palarca acted
of the case. as Soriano's lawyer. On May 2, 1918, Soriano executed a deed for the aforesaid twelve parcels of land in favor of
Sisenando Palarca and on the following day, May 3, 1918, Palarca filed an application for the registration of the land in
The three points on which plaintiff reserved the presentation of evidence at the-trial dealing with the the deed. After hearing, the Court of First Instance declared that the deed was invalid by virtue of the provisions of
source of the alleged right and title of Francisco Militante's predecessors, supra,3 actually are already article 1459 of the Civil Code, which prohibits lawyers and solicitors from purchasing property rights involved in any
made of record in the stipulated facts and admitted exhibits. The chain of Militante's alleged title and litigation in which they take part by virtue of their profession. The application for registration was consequently denied,
and upon appeal by Palarca to the Supreme Court, the judgement of the lower court was affirmed by a decision
right to the land as supposedly traced back to Liberato Demontaño was actually asserted by Militante
promulgated November 16,1925. (G.R. No. 24329, Palarca vs. Director of Lands, not reported.)
(and his vendee, lawyer and son-in-law, herein plaintiff) in the land registration case and rejected by the
In the meantime cadastral case No. 30 of the Province of Tarlac was instituted, and on August 21, 1923, Eleuteria
Iloilo land registration court which dismissed Militante's application for registration of the land. Such Macaraeg, as administratrix of the estate of Vicente Macaraeg, filed claims for the parcels in question. Buenaventura
dismissal, as already stated, was affirmed by the final judgment in 1958 of the Court of Appeals.4 Lavitoria administrator of the estate of Juan Soriano, did likewise and so did Sisenando Palarca. In a decision dated June
21, 1927, the Court of First Instance, Judge Carballo presiding, rendered judgment in favor of Palarea and ordered the
The four points on which defendant on his part reserved the presentation of evidence at the trial dealing registration of the land in his name. Upon appeal to this court by the administration of the estates of Juan Soriano and
with his and his ancestors' continuous, open, public and peaceful possession in the concept of owner of Vicente Macaraeg, the judgment of the court below was reversed and the land adjudicated to the two estates as conjugal
the land and the Director of Lands' approval of his survey plan thereof, supra,5 are likewise already duly property of the deceased spouses. (G.R. No. 28226, Director of Lands vs. Abagat, promulgated May 21, 1928, not
reported.)9
established facts of record, in the land registration case as well as in the ejectment case wherein the
Iloilo court of first instance recognized the superiority of defendant's right to the land as against plaintiff. In the very case of Abagat itself, the Court, again affirming the invalidity and nullity of the lawyer's
purchase of the land in litigation from his client, ordered the issuance of a writ of possession for the return
No error was therefore committed by the lower court in dismissing plaintiff's complaint upon defendant's
of the land by the lawyer to the adverse parties without reimbursement of the price paid by him and
motion after the pre-trial.
other expenses, and ruled that "the appellant Palarca is a lawyer and is presumed to know the law. He
1. The stipulated facts and exhibits of record indisputably established plaintiff's lack of cause of action must, therefore, from the beginning, have been well aware of the defect in his title and is, consequently,
and justified the outright dismissal of the complaint. Plaintiff's claim of ownership to the land in question a possessor in bad faith."
was predicated on the sale thereof for P2,000.00 made in 1956 by his father-in- law, Francisco Militante,
As already stated, Wolfson and Abagat were decided with relation to Article 1459 of the Civil Code of
in his favor, at a time when Militante's application for registration thereof had already been dismissed by
Spain then adopted here, until it was superseded on August 30, 1950 by the Civil Code of the Philippines
the Iloilo land registration court and was pending appeal in the Court of Appeals.
whose counterpart provision is Article 1491.
With the Court of Appeals' 1958 final judgment affirming the dismissal of Militante's application for
Article 1491 of our Civil Code (like Article 1459 of the Spanish Civil Code) prohibits in its six paragraphs
registration, the lack of any rightful claim or title of Militante to the land was conclusively and decisively
certain persons, by reason of the relation of trust or their peculiar control over the property, from
judicially determined. Hence, there was no right or title to the land that could be transferred or sold by
acquiring such property in their trust or control either directly or indirectly and "even at a public or judicial
Militante's purported sale in 1956 in favor of plaintiff.
auction," as follows: (1) guardians; (2) agents; (3) administrators; (4) public officers and employees;
Manifestly, then plaintiff's complaint against defendant, to be declared absolute owner of the land and to judicial officers and employees, prosecuting attorneys, and lawyers; and (6) others especially disqualified
be restored to possession thereof with damages was bereft of any factual or legal basis. by law.

2. No error could be attributed either to the lower court's holding that the purchase by a lawyer of the In Wolfson which involved the sale and assignment of a money judgment by the client to the lawyer,
property in litigation from his client is categorically prohibited by Article 1491, paragraph (5) of the Wolfson, whose right to so purchase the judgment was being challenged by the judgment debtor, the
Philippine Civil Code, reproduced supra;6 and that consequently, plaintiff's purchase of the property in Court, through Justice Moreland, then expressly reserved decision on "whether or not the judgment in
litigation from his client (assuming that his client could sell the same since as already shown above, his question actually falls within the prohibition of the article" and held only that the sale's "voidability can
client's claim to the property was defeated and rejected) was void and could produce no legal effect, by not be asserted by one not a party to the transaction or his representative," citing from Manresa 10 that
virtue of Article 1409, paragraph (7) of our Civil Code which provides that contracts "expressly prohibited "(C)onsidering the question from the point of view of the civil law, the view taken by the code, we must
or declared void by law' are "inexistent and that "(T)hese contracts cannot be ratified. Neither can the limit ourselves to classifying as void all acts done contrary to the express prohibition of the statute. Now
right to set up the defense of illegality be waived." then: As the code does not recognize such nullity by the mere operation of law, the nullity of the acts
hereinbefore referred to must be asserted by the person having the necessary legal capacity to do so and
The 1911 case of Wolfson vs. Estate of Martinez7 relied upon by plaintiff as holding that a sale of property decreed by a competent court." 11
in litigation to the party litigant's lawyer "is not void but voidable at the election of the vendor" was
correctly held by the lower court to have been superseded by the later 1929 case of Director of Lands vs. The reason thus given by Manresa in considering such prohibited acquisitions under Article 1459 of the
Abagat.8 In this later case of Abagat, the Court expressly cited two antecedent cases involving the same Spanish Civil Code as merely voidable at the instance and option of the vendor and not void — "that the
transaction of purchase of property in litigation by the lawyer which was expressly declared invalid under Code does not recognize such nullity de pleno derecho" — is no longer true and applicable to our own
Article 1459 of the Civil Code of Spain (of which Article 1491 of our Civil Code of the Philippines is the Philippine Civil Code which does recognize the absolute nullity of contracts "whose cause, object, or
counterpart) upon challenge thereof not by the vendor-client but by the adverse parties against whom purpose is contrary to law, morals, good customs, public order or public policy" or which are "expressly
the lawyer was to enforce his rights as vendee thus acquired. prohibited or declared void by law" and declares such contracts "inexistent and void from the
beginning." 12
The Supreme Court of Spain and modern authors have likewise veered from Manresa's view of the Spanish G.R. No. L-25891 November 29, 1977
codal provision itself. In its sentencia of 11 June 1966, the Supreme Court of Spain ruled that the
prohibition of Article 1459 of the Spanish Civil Code is based on public policy, that violation of the BENEDICTO M. JAVIER, as administrator of the Estate of Eusebio Cruz, petitioner,
prohibition contract cannot be validated by confirmation or ratification, holding that: vs.
DOMINGA VDA. DE CRUZ, and LEONILA, ROMAN, ELISEO, LIBERATA, and MELECIO, all
The criterion of nullity of such prohibited contracts under Article 1459 of the Spanish Civil Code (Article surnamed CRUZ, respondents.
1491 of our Civil Code) as a matter of public order and policy as applied by the Supreme Court of Spain
to administrators and agents in its above cited decision should certainly apply with greater reason to This is an appeal by the plaintiff from the decision of the Court of First Instance of Rizal in Civil Case No. 5996
entitled "Benedicto M. Javier, etc. vs. Dominga Vda. de Cruz, et al." the dispositive part of which reads:
judges, judicial officers, fiscals and lawyers under paragraph 5 of the codal article.
IN VIEW OF THE FOREGOING, judgment is hereby rendered one in favor of the defendants and against the plaintiff
dismissing the two above-entitled cases, dissolving the writ of preliminary injunction, ordering the plaintiff to pay
It is noteworthy that Caltan's rationale for his conclusion that fundamental consideration of public policy attorney's fees in the sum of One Thousand Pesos (P1,000.00) and condemning the said plaintiff to pay the costs of suit.
render void and inexistent such expressly prohibited purchase (e.g. by public officers and employees of IT IS ORDERED. Pasig, Rizal, August 29, 1962. (Sgd.) Andres Reyes
government property intrusted to them and by justices, judges, fiscals and lawyers of property and rights ( /t/ ) ANDRES REYES Judge 1
in litigation and submitted to or handled by them, under Article 1491, paragraphs (4) and (5) of our Civil
Code) has been adopted in a new article of our Civil Code, viz, Article 1409 declaring such prohibited The Court of Appeals, in a resolution promulgated on March 19, 1966 certified to the Supreme Court the case because "the
value of the property in question is more than half a million pesos ..." hence "is beyond the jurisdiction of this Court." 2
contracts as "inexistent and void from the beginning." 18
On February 1, 1960 Benedicto M. Javier, as administrator of the Estate of Eusebio Cruz, instituted against
Indeed, the nullity of such prohibited contracts is definite and permanent and cannot be cured by
Dominga Vda. de Cruz and her children Civil Case No. 5996 to declare null and void a deed of sale of a
ratification. The public interest and public policy remain paramount and do not permit of compromise or
part of a parcel of land located in Barrio San Isidro, Taytay, Rizal containing an area of 182,959 square
ratification. In his aspect, the permanent disqualification of public and judicial officers and lawyers
meters and assessed at P4,310.00 under Tax No. 9136 under Tax No. 9136 in the name of Estate of E.
grounded on public policy differs from the first three cases of guardians, agents and administrators
Cruz.
(Article 1491, Civil Code), as to whose transactions it had been opined that they may be "ratified" by
means of and in "the form of a new contact, in which cases its validity shall be determined only by the The amended complaint stated that Eusebio Cruz, who died on February 2, 1941 at the age of 100 years
circumstances at the time the execution of such new contract. The causes of nullity which have ceased
without leaving any will nor compulsory heirs, was the absolute and exclusive owner of a parcel of
to exist cannot impair the validity of the new contract. Thus, the object which was illegal at the time of mountainous and unimproved land situated in sitio Matogalo, Taytay, Rizal which he inherited from his
the first contract, may have already become lawful at the time of the ratification or second contract; or forebears, described therein; that during his lifetime, Eusebio Cruz had been living with one Teodora
the service which was impossible may have become possible; or the intention which could not be Santos 'without the sanction of marriage"; that Teodora Santos had with her as distant relatives and
ascertained may have been clarified by the parties. The ratification or second contract would then be valid
protegees the brothers Gregorio Cruz and Justo Cruz; that Gregorio Cruz was the father of Delfin Cruz,
from its execution; however, it does not retroact to the date of the first contract." 19 deceased husband of defendant Dominga Vda. de Cruz and father of defendants Leonila, Roman, Eliseo,
Leberata and Melecio, all surnamed Cruz; that on January 16, 1941 Delfin Cruz, by means of deceit and
As applied to the case at bar, the lower court therefore properly acted upon defendant-appellant's motion
in collusion with persons among them his father Gregorio Cruz made Eusebio Cruz, who could read and
to dismiss on the ground of nullity of plaintiff's alleged purchase of the land, since its juridical effects and
write, stamp his thumbmark on a deed of sale of a portion of the land described in the complaint consisting
plaintiff's alleged cause of action founded thereon were being asserted against defendant-appellant. The
of 26,577 square meters for the sum of P700.00 in favor of said Delfin Cruz; that at that time Delfin Cruz
principles governing the nullity of such prohibited contracts and judicial declaration of their nullity have
did not have theithin thirty days from submittal of the case for decision, but the validity of the law cannot
been well restated by Tolentino in his treatise on our Civil Code, as follows:
be seriously challenged." 14
Parties Affected. — Any person may invoke the in existence of the contract whenever juridical effects
Petitioner fiscal, as already stated, filed the informations in the ten cases with the Circuit Criminal Court
founded thereon are asserted against him. Thus, if there has been a void transfer of property, the
rather than with the respondent judge's court to mitigate the latter court's caseload in accordance with
transferor can recover it by the accion reinvindicatoria; and any prossessor may refuse to deliver it to
the purpose of the Circuit Criminal Court law or at the request of the offended parties and complainants.
the transferee, who cannot enforce the contract. Creditors may attach property of the debtor which has
Since the filing of the information or complaint "supplies -the occasion for the exercise of jurisdiction
been alienated by the latter under a void contract; a mortgagee can allege the inexistence of a prior
vested by law in a particular court" 15 and the law confers concurrent jurisdiction in the Circuit Criminal
encumbrance; a debtor can assert the nullity of an assignment of credit as a defense to an action by
Court, the said court properly assumed jurisdiction over the said cases and there is no lawful basis for
the assignee.
respondent judge's prayer that said cases be returned to his court "for the lawful actions which are needed
Action On Contract. — Even when the contract is void or inexistent, an action is necessary to declare on them" and to set at naught the judgments of conviction already rendered by the Circuit Criminal Court
its inexistence, when it has already been fulfilled. Nobody can take the law into his own hands; hence, in some of the cases and the other proceedings therein.
the intervention of the competent court is necessary to declare the absolute nullity of the contract and
For administrative and record purposes, however, petitioner fiscal should have promptly and in due course advised the
to decree the restitution of what has been given under it. The judgment, however, will retroact to the clerk of respondent judge's court that the informations had been filed with the Circuit Criminal Court. Petitioner fiscal
very day when the contract was entered into. recognized this oversight and duly "apologized humbly" to respondent judge and pleaded an "acute lack of personnel in
his office" in extenuation. Under the circumstances and considering that petitioner was only discharging his duty according
If the void contract is still fully executory, no party need bring an action to declare its nullity; but if any to his best lights, and could not be said to have in any way acted arbitrarily or in bad faith in filing the informations with
party should bring an action to enforce it, the other party can simply set up the nullity as a defense. 20 the Circuit Criminal Court, his apology could have been graciously accepted by respondent judge with an admonition to
exercise greater care in the future, in lieu of the unwarranted imposition of punitive fines in the total sum of P 1,000.00.
ACCORDINGLY, the order of dismissal appealed from is hereby affirmed, with costs in all instances against
ACCORDINGLY, the questioned contempt orders and fines imposed therein are annulled and set aside. Without costs.
plaintiff-appellant. So ordered.
G.R. No. L-43668-69 July 31, 1978 after the rehearing of which the said court affirmed the joint judgment dated June 13, 1970, but dismissed
Civil Case No. 1816 insofar as the Development Bank of the Philippines was concerned.
POTENCIANO MENIL and wife CRISPINA NAYVE, petitioners,
vs. Private respondents appealed to the Court of Appeals. The appellate court in its Decision dated April 18,
COURT OF APPEALS, AGUEDA GARAN, FRANCISCO CALANIAS, MIGUEL NAYVE, JR., and 1975 dismissed the appeal and affirmed the decision of the lower court, with a declaration that the
DEVELOPMENT BANK OF THE PHILIPPINES, respondents. decision in Civil Case No. 1692 was res judicata to Civil Case No. 1810 and Civil Case No. 1816. On a
motion for reconsideration filed by private respondents, the appellate court set aside its Decision and
On November 3, 1955, Agueda Garan obtained a homestead patent over the land in question. rendered the Resolution dated September 3, 1975 which declared the sale of the homestead in question
to petitioners as nun and void, ordered the cancellation of Transfer Certificate of Title No. T-60 and the
On February 4, 1956, Original Certificate of Title No. 220 was issued by the Register of Deeds of Surigao
mortgage in favor of the Development Bank of the Philippines, the re-issuance of Original Certificate of
in her name pursuant to the homestead patent.
Title No. 220 in favor of homesteader Agueda Garan, and ordered Garan to reimburse Menil the sum of
P415.00, the price of the sale, the interest thereon being declared compensated by the fruits Menil
On May 7, 1960, within the prohibitive 5-year period, Agueda Garan sold the land to movant Patenciano
received from their possession of the properties. Petitioners and the Development Bank of the Philippines
Manil for P415.00, as evidenced by a deed of sale bearing the same date. But, for reasons not revealed
respectively moved to reconsider the said Resolution. Acting to said Motion for Reconsideration, the
in the records, the contracting parties did not registered the deed of sale in the Registry of Deeds in
appellate court in its Resolution dated January 16, 1976 affirmed the Resolution dated September 3,
Surigao. Original Certificate of Title No. 220 was not cancelled and the land remained registered in the
1975, denied petitioners' motion for reconsideration, but granted that of the Development Bank of the
name of Agueda Garan.
Philippines by declaring the mortgage executed by petitioners over the land in favor of said bank as valid.
On August 30, 1964, Agueda Garan executed another deeds of sale over the same parcel of land in favor
Petitioners now filed this appeal by way of certiorari seeking that the Resolutions of the Court of Appeals
of the same vendee, Potenciano Menil, and for the same price P415.00.
dated September 3, 1975 and January 16, 1976 be set aside and that the Decision of the same court
On August 30, 1965, the contracting parties registered the second deed of sale in the Registry of Deeds dated April 18, 1975 be revived.
in Surigao. Original Certificate of Title No. 220 was cancelled, and Transfer Certificate of Title No. T-60,
In the Resolution of September 3, 1975 which petitioners seek to set aside, the Court of Appeals said:
in lieu thereof, was issued in the name of Potenciano Menil.
In Our above-said decision. We expressed the view that the decision in Civil Case No. 1692 was on the
On February 28, 1966, Potenciano Menil mortgaged the land to the Development Bank of the Philippines merits because it was rendered after trial on the merits and therefore res judicata to the subsequent
to secure an agricultural loan which the former obtained fromthe latter. herein cases. After a thorough reading and review of the said decision in Civil Case No. 1692, however,
We have voted to revise that view. The discussion in the latter decision is replete with unequivocal (sic)
... in the 1st Indorsement, dated May 26, 1965, of the Acting Chief, land Management Division of the and contradictory opinions that it is quite difficult to comprehend what the trial judge's conclusion is.
Bureau of Lands to the Secretary of Agriculture and Natural Resources, (that) the former recommended The main part of the dispositive portion, however, provides:
to the latter the approval of the sale dated March 3, 1964; and the Officer-in-Charge, for and in the WHEREFORE, in view of all the foregoing, judgment is hereby rendered in favor of the defendant,
absence of the Undersecretary for Natural Resources, in his 2nd Indorsement, dated June 23, 1965, Potenciano Menil, and against the herein plaintiffs dismissing the latter's complaint.
approved the same. Movant Potenciano Menil was notified on July 12, 1965 of the approval of the sale to To paraphrase, what was dismissed in said judgment was plaintiffs' complaint, not the action itself, as
Mm of the tract of land covered by OCT No. 220. according to the discussion the action was not the proper one availed of. From this, it may be inferred
that the intention of said trial judge was just to dismiss the complaint without prejudice to the filing of
Petitioners were in possession of the land in question until sometime in 1967 when private respondents the proper action.
Agueda Garan, Francisco Calanias, Miguel Nayve, Jr., Rufo Nayve, and Lucio Calanias forcibly took
possession of the said land, and filed against petitioners Civil Case No. 1692 for "Quieting of Title" before We agree with the appellate court that the decision rendered in Civil Case No. 1692 was not res judicata to
Branch 11 of the Court of First Instance of Surigao del Norte. The said court dismissed the complaint, the subsequent cases, Civil Case No. 1810 and Civil Case No. 1816. The issue of the validity of the sale
awarded damages to the petitioners, and granted the writ of execution prayed for by the latter. of the homestead land within the 5 year prohibitory period under Section 118 of the Public Land Act was
not squarely raised and decided in said Civil Case No. 1692 which was brought only for "Quieting of Title."
However, upon the claim that the above decision was silent on the issue of who are entitled to the
possession of the land under litigation, the private respondents refused to vacate the land, thus, forcing The more fundamental issue presented for Our resolution is: Who are entitled to the land under litigation?
petitioners to file on July 8, 1968 Civil Case No. 1810 for "Recovery of Possession" of the said land before
Branch 1 of the same Court of First Instance of Surigao del Norte. On the other hand, during the pendency It is not disputed by the parties that the contract of sale executed on May 7, 1960, having been executed
of Civil Case No. 1810, private respondents filed against the petitioners Civil Case No. 1816 for the less than 5 years from May 7, 1960, the date the homestead patent was awarded to private respondent
reconveyance of the land litigated in Civil Case No. 1692 and Civil Case No. 1810 before the same court. Agueda Garan, is null and void for being violative of Section 118 of C.A. 141 [Public Land Act] which
provides:
By agreement of the parties, Civil Case No. 1810 and Civil Case No. 1816 were jointly heard by the Court Sec. 118. Except in favor of the government or any of its branches, units, or institutions, lands acquired
of First Instance of Surigao del Norte, Branch I. A joint judgment dated June 13. 1970 was rendered under free patent or homestead provisions shall not be subject to encumbrance or alienation from the
declaring that the decision in Civil Case No. 1692 clearly stated that the spouses Menil were legally date of the approval of the application and for a term of five years from and after the date of issuance
entitled to the possession of the land, ordering private respondents to restore possession of the land in of the patent or grant, nor shall they become liable to the satisfaction of any debt contracted prior to
litigation to petitioners, and dismissing Civil Case No. 1816 for insufficiency of evidence. On a motion for the expiration of said period, but the improvements or crops on the land may be mortgaged or pledged
reconsideration filed by the private respondents, the lower court ordered the reopening of the two cases, to qualified persons, associations, or corporations.
Petitioners contend, however, that the subsequent approval thereof by the Secretary of Agriculture and These contracts cannot be ratified. Neither can the right to set up the defense of illegality be waived.
Natural Resources, and the execution of the confirmatory deed of sale on August 10, 1965, cured any
defect that the first sale may have suffered. Further, noteworthy is the fact that the second contract of sale over the said homestead in favor of the
same vendee, petitioner Potenciano Menil, is for the same price of P415.00. Clearly, the unvarying term
In finding such contention without merit, the appellate court in its Resolution dated September 3, 1975, of the said contract is ample manifestation that the same is simulated and that no object or consideration
which was substantially affirmed by its Resolution dated January 16, 1975, declared: passed between the parties to the contract. It is evident from the whole record of the case that the
homestead had long been in the possession of the vendees upon the execution of the first contract of
This case is almost Identical with Manzano vs. Ocampo (I SCRA 69 1) where it was held; sale on May 7, 1960; likewise, the amount of P415.00 had long been paid to Agueda Garan on that same
occasion. We find no evidence to the contrary.
We therefore, hold that the sale in question is illegal and void for having been made within five years
from the date of Manzano's patent, in violation of Section 118 of the Public Land Law, Being void from With respect to the Resolution of January 16, 1976 of the respondent appellate court, likewise assailed
its inception, the approval thereof by the undersecretary of Agriculture and Natural Resources after the by petitioners, which granted the motion for reconsideration of the Development Bank of the Philippines
lapse of five years from Manzano's patent did not legalize the sale. (Santander v. Villanueva, G.R. No. and declared the mortgage executed by Potenciano Menil over the land in favor of said Bank to be valid,
L-6184, Feb. 28, 1958; Cadiz v. Nicolas, G.R. No. L-9198, Feb. 13, 1958). The result is that the We hold that petitioners are liable for the payment of the agricultural loan obtained by them from the
homestead in question must be returned to Manzano's heirs, petitioners herein, who are, in turn, bound Bank for which the land was mortgaged by them as security.
to restore to appellee Ocampo the sum of P3,000.00 received by Manzano as the price thereof. (Medel
v. Eliazo, G.R. No. L-12617, Aug. 27, 1959, Santander vs. Villanueva, supra; Feb. 28, 1958). The fruits IN VIEW OF THE FOREGOING, the Resolution of September 3, 1975 as modified by the Resolution of
of the land should equitable compensate the interest on the price. January 16, 1976 is affirmed. Judgment is hereby rendered:
(1) Declaring null and void the sale of the homestead under litigation to petitioners Potenciano Menil
As to the execution of the confirmatory deed of sale, by proper analogy, the Supreme Court in the said and wife, Crispina Nayve;
case said: (2) Ordering the Register of Deeds of Surigao del Norte to cancel Transfer Certificate of Title No. T-60,
and to re-issue Original Certificate of Title No. 220 in the name of private respondent Agueda Garan,
The law prohibiting any transfer or alienation of homestead land within five years from the issuance of
subject to the mortgage executed by petitioner Potenciano Menil in favor of private respondent
the patent does not distinguish between executory and consummated sales; and it would hardly be in Development Bank of the Philippines which is hereby declared valid, and ordered to be annotated on
keeping with the primordial aim of this prohibition to preserve and keep in the family of the
said Original Certificate of Title by the said Register of Deeds;
homesteader the piece of land that the state had gratuitously given to them, to hold valid a homestead
(3) Ordering petitioners Potenciano Menil and wife, Crispina Nayve, to reimburse respondent Agueda
sale actually perfected during the period of prohibition but with the execution of the formal deed of
Garan the sum of P415.00, the price of the sale, the interest thereon being compensated by the fruits
conveyance and the the delivery of possession of the land sold to the buyer deferred until after the
petitioners Potenciano Menil and wife, Crispina Nayve, received from their possession of the homestead;
expiration of the prohibitory period, purposely to circumvent the very law that prohibits and declares
(4) Ordering petitioners to pay the agricultural loan obtained by them from the Development Bank of
invalid such transaction to protect the homesteader and his family. To hold valid such arrangements the Philippines for which the land had been mortgaged as collateral. This judgment is without prejudice
would be to throw the door wide open to an possible fraudulent subterfuges and schemes that persons
to any appropriate action the Government may take against private respondent Agueda Garan pursuant
interested in land given to homesteaders may devise to circumvent and defeat the legal provision
to Section 124 of C. A. 141. No pronouncement as to costs.
prohibiting their alienation within five years from the issuance of the homestead's patent.

We are fully in accord with the conclusion of the appellate court that the issue presented in the case at
bar is squarely resolved by the doctrine enunciated in the aforecited case of Manzano v.
Ocampo, supra. Indeed, We cannot discern in the case at bar any new element or matter which may
possibly bar the application of the ruling in Manzano v. Ocampo as contended by the petitioners.

It cannot be claimed that there are two contracts: one which is undisputably null and void, and another,
having been executed after the lapse of the 5-year prohibitory period, which is valid. The second contract
of sale executed on March 3, 1964 is admittedly a confirmatory deed of sale. Even the petitioners concede
this point. 3 Inasmuch as the contract of sale executed on May 7, 1960 is void for it is expressly prohibited
or declared void by law [CA- 141, Section 118], it therefore cannot be confirmed nor ratified. Article 1409
of the New Civil Code states:
Art. 1409. The following contracts are inexistent and void from the beginning:
(1) Those whose cause, object, or purpose is contrary to law, morals, good customs, public order or
public policy;
(2) Those which are absolutely simulated or fictitious;
(3) Those whose cause or object did not exist at the time of the transaction;
(4) Those whose object is outside the commerce of men;
(5) Those which contemplate an impossible service;
(6) Those where the intention of the parties relative to the principal object of the contract cannot be
ascertained;
(7) Those expressly prohibited or declared void by law.
G.R. No. L-26096 February 27, 1979 Subsequently, Transfer Certificate of Title No. 31841 was issued on May 19,1965 in the name of Maximo
Abarquez, married to Anastacia Cabigas, over his adjudged share in Lots Nos. 5600 and 5602 containing
an area of 4,085 square meters (p. 110, ROA; p. 13, rec.). These parcels of land later by the subject
THE DIRECTOR OF LANDS, petitioner,
matter of the adverse claim filed by the claimant.
vs.
SILVERETRA ABABA, ET AL., claimants, JUAN LARRAZABAL, MARTA C. DE LARRAZABAL,
MAXIMO ABAROQUEZ and ANASTACIA CABIGAS, petitioners-appellants, ALBERTO The case having been resolved and title having been issued to petitioner, adverse claimant waited for
FERNANDEZ, adverse claimant-appellee. petitioner to comply with ha obligation under the document executed by him on June 10, 1961 by
delivering the one-half (½) portion of the said parcels of land.
The adverse claimant, Atty. Alberto B. Fernandez was retained as counsel by petitioner, Maximo
Abarquez, in Civil Case No. R-6573 of the Court of First Instance of Cebu, entitled "Maximo Abarquez vs. Petitioner refused to comply with his obligation and instead offered to sell the whole parcels of land
Agripina Abarquez", for the annulment of a contract of sale with right of repurchase and for the recovery covered by TCT No. 31841 to petitioner-spouses Juan Larrazabal and Marta C. de Larrazabal. Upon being
of the land which was the subject matter thereof. The Court of First Instance of Cebu rendered a decision informed of the intention of the petitioner, adverse t claimant immediately took stops to protect his
on May 29, 1961 adverse to the petitioner and so he appealed to the Court of Appeals. interest by filing with the trial court a motion to annotate Ins attorney's lien on TCT No. 31841 on June
10, 1965 and by notifying the prospective buyers of his claim over the one-half portion of the parcels of
land.
Litigating as a pauper in the lower court and engaging the services of his lawyer on a contingent basis,
petitioner, liable to compensate his lawyer whom he also retained for his appeal executed a document on
June 10, 1961 in the Cebuano-Visayan dialect whereby he obliged himself to give to his lawyer one-half Realizing later that the motion to annotate attorney's lien was a wrong remedy, as it was not within the
(1/2) of whatever he might recover from Lots 5600 and 5602 should the appeal prosper. The contents of purview of Section 37, rule 138 of the Revised Rule of Court, but before the same was by the trial court,
the document as translated are as follows: adverse t by an affidavit of adverse claim on July 19, 1965 with the Register of Deeds of Cebu (p. 14,
AGREEMENT ROA; p. 13, rec.). By virtue of the petition of mid affidavit the adverse claim for one-half (½) of the lots
KNOW ALL MEN BY THESE PRESENTS: covered by the June 10, 1961 document was annotated on TCT No. 31841.
That I, MAXIMO ABARQUEZ, Plaintiff in Case No. R-6573 of the Court of First Instance of Cebu, make
known through this agreement that for the services rendered by Atty. Alberto B. Fernandez who is my
Notwithstanding the annotation of the adverse claim, petitioner-spouse Maximo Abarquez and Anastacia
lawyer in this case, if the appeal is won up to the Supreme Court, I Promise and will guarantee that I
Cabigas conveyed by deed of absolute sale on July 29, 1965 two-thirds (2/3) of the lands covered by TCT
win give to said lawyer one-half (1/2) of what I may recover from the estate of my father in Lots No.
No. 31841 to petitioner-spouses Juan Larrazabal and Marta C. de Larrazabal. When the new transfer
5600 and 5602 which are located at Bulacao Pardo, City of Cebu. That with respect to any money which
certificate of title No. 32996 was issued, the annotation of adverse claim on TCT No. 31841 necessarily
may be adjudged to me from Agripina Abarquez, except 'Attorney's Fees', the same shall pertain to me
had to appear on the new transfer certificate of title. This adverse claim on TCT No. 32996 became the
and not to said lawyer.
subject of cancellation proceedings filed by herein petitioner-spouses on March 7, 1966 with the Court of
IN WITNESS WHEREOF, I have caused my right thumb. mark to be affixed hereto this 10th of June,
First Instance of Cebu (p. 2 ROA; p. 13, rec.). The adverse claimant, Atty. Alberto B. Fernandez, filed his
1961, at the City of Cebu.
opposition to the petition for cancellation on March 18, 1966 (p. 20, ROA; p. 13 rec.). The trial court
resolved the issue on March 19, 1966, when it declared that:
The real Property sought to be recovered in Civil Case No. R6573 was actually the share of the petitioner ...the petition to cancel the adverse claim should be denied. The admission by the petitioners that the
in Lots 5600 and 5602, which were part of the estate of his deceased parents and which were partitioned lawyers (Attys. Fernandez and Batiguin) are entitled to only one-third of the lot described in Transfer
the heirs which included petitioner Maximo Abarquez and his elder sister Agripina Abarquez, the Certificate of Title No. 32966 is the best proof of the authority to maintain said adverse claim
defendant in said civil case.

Petitioner-spouses decided to appeal the order of dismissal to this Court and correspondingly filed the
This partition was made pursuant to a project of partition approved by the Court which provided am other notice of appeal on April 1, 1966 with the trial court. On April 2, 1966, petitioner-spouses filed the appeal
that Lots Nos. 5600 and 5602 were to be divided into three equal Parts, one third of which shall be given bond and subsequently filed the record on appeal on April 6, 1966. The records of the case were forwarded
to Maximo Abarquez. However, Agripina Abarquez the share of her brother stating that the latter executed to this Court through the Land Registration Commission of Manila and were received by this Court on May
an instrument of pacto de retro prior to the partition conveying to her any or all rights in the estate of 5, 1966.
their parents. Petitioner discovered later that the claim of his sister over his share was based on an
instrument he was believe all along to be a mere acknowledgment of the receipt of P700.00 which his
Counsel for the petitioner-spouses filed the printed record on appeal on July 12, 1966. Required to file
sister gave to him as a consideration for g care of their father during the latter's illness and never an
the appellants' brief, counsel filed one on August 29, 1966 while that of the appellee was filed on October
instrument of pacto de retro. Hence, he instituted an action to annul the alleged instrument of pacto de
1, 1966 after having been granted an extension to file his brief.
retro.

The case was submitted for decision on December 1, 1966. Counsel for the petitioners filed a motion to
The Court of Appeals in a decision promulgated on August 27, 1963 reversed the decision of the lower
expunge appellees' brief on December 8, 1966 for having been filed beyond the reglementary period, but
court and annulled the dead of pacto de retro. Appellee Agripina Abarquez filed a motion for
the same was denied by this Court in a resolution dated February 13, 1967.
reconsideration but the same was denied in a resolution dated January 7, 1964 (p. 66, Record on Appeal;
p. 13, Rec.) and the judgment became final and executory on January 22,1964.
The pivotal issue to be resolved in the instant case is the validity or nullity of the registration of the Dr. Tolentino merely restated the views of Castan and Manresa as well as the state of jurisprudence in
adverse claim of Atty. Fernandez, resolution of which in turn hinges on the question of whether or not Spain, as follows:
the contract for a contingent fee, basis of the interest of Atty. Fernandez, is prohibited by the Article 1491 Attorneys-at-law—Some writers, like Goyena, Manresa and Valverde believe that this article covers
of the New Civil Code and Canon 13 of the Canons of Professional Ethics. quota litis agreements, under which a lawyer is to be given an aliquot part of the property or amount
in litigation if he should win the case for his client. Scaevola and Castan, however, believe that such a
contract does not involve a sale or assignment of right but it may be void under other articles of the
Petitioners contend that a contract for a contingent fee violates Article 1491 because it involves an
Code, such as those referring to illicit cause- On the other hand the Spanish Supreme Court has held
assignment of a property subject of litigation. That article provides:
that this article is not applicable to a contract which limits the fees of a lawyer to a certain percentage
Article 1491. The following persons cannot acquire by purchase even at a public or judicial auction,
of what may be recovered in litigation, as this is not contrary to moral or to law. (Tolentino, Civil Code
either in person or through the petition of another.
of the Philippines, p. 35, Vol. V [1959]; Castan, supra, Emphasis supplied).
(5) Justices, judges, prosecuting attorneys, clerks of superior and inferior and other o and employees
connected with the administration of justice, the property and rights in litigation or levied upon an
execution before the court within whose jurisdiction or territory they exercise their respective Petitioners her contend that a contract for a contingent fee violates the Canons of Professional Ethics.
functions; this prohibition includes the act of acquiring by assignment and shall apply to lawyers, with this is likewise without merit This posture of petitioners overlooked Canon 13 of the Canons which
respect to the property and rights which may be the object of any litigation in which they may take expressly contingent fees by way of exception to Canon 10 upon which petitioners relied. For while Canon
part by virtue of their profession (Emphasis supplied). 10 prohibits a lawyer from purchasing ...any interest in the subject matter of the litigation which he is
conducting", Canon 13, on the other hand, allowed a reasonable contingent fee contract, thus: "A contract
for a con. tangent fee where sanctioned by law, should be reasonable under all the circumstances of the
This contention is without merit. Article 1491 prohibits only the sale or assignment between the lawyer
ca including the risk and uncertainty of the compensation, but should always be subject to the supervision
and his client, of property which is the subject of litigation. As WE have already stated. "The prohibition
of a court, as to its reasonableness." As pointed out by an authority on Legal Ethics:
in said article a only to applies stated: " The prohibition in said article applies only to a sale or assignment
Every lawyer is intensely interested in the successful outcome of his case, not only as affecting his
to the lawyer by his client of the property which is the subject of litigation. In other words, for the
reputation, but also his compensation. Canon 13 specifically permits the lawyer to contract for a con
prohibition to operate, the sale or t of the property must take place during the pendency of the litigation
tangent fee which of itself, negatives the thought that the Canons preclude the lawyer's having a stake
involving the property" (Rosario Vda. de Laig vs. Court of Appeals, et al., L-26882, November 21, 1978).
in his litigation. As pointed out by Professor Cheatham on page 170 n. of his Case Book, there is an
inescapable conflict of interest between lawyer and client in the matter of fees. Nor despite some
Likewise, under American Law, the prohibition does not apply to "cases where after completion of statements to the con in Committee opinions, is it believed that, particularly in view of Canon 13, Canon
litigation the lawyer accepts on account of his fee, an interest the assets realized by the litigation" "There 10 precludes in every case an arrangement to make the lawyer's fee payable only out of the results of
is a clear distraction between such cases and one in which the lawyer speculates on the outcome of the the litigation. The distinction is between buying an interest in the litigation as a speculation which Canon
matter in which he is employed" 10 condemns and agreeing, in a case which the lawyer undertakes primarily in his professional capacity,
to accept his compensation contingent on the outcome
A contract for a contingent fee is not covered by Article 1491 because the tranfer or assignment of the
property in litigation takes effect only after the finality of a favorable judgment. In the instant case, the These Canons of Professional Ethics have already received "judicial recognition by being cited and applied
attorney's fees of Atty. Fernandez, consisting of one-half (1/2) of whatever Maximo Abarquez might by the Supreme Court of the Philippines in its opinion" Malcolm, Legal and Judicial Ethics, p. 9 [1949]).
recover from his share in the lots in question, is contingent upon the success of the appeal. Hence, the And they have likewise been considered sources of Legal Ethics. More importantly, the American Bar
payment of the attorney's fees, that is, the transfer or assignment of one-half (1/2) of the property in Association, through Chairman Howe of the Ethics Committee, opined that "The Canons of Professional
litigation will take place only if the appeal prospers. Therefore, the tranfer actually takes effect after the Ethics are legislative expressions of professional opinion ABA Op. 37 [1912])" [See footnote 25, Drinker,
finality of a favorable judgment rendered on appeal and not during the pendency of the litigation involving Legal Ethics, p. 27]. Therefore, the Canons have some binding effect
the property in question. Consequently, the contract for a contingent fee is not covered by Article 1491.

Likewise, it must be noted that this Court has already recognized this type of a contract as early as the
While Spanish civilists differ in their views on the above issue — whether or not a contingent fee contract case of Ulanday vs. Manila Railroad Co. (45 PhiL 540 [1923]), where WE held that "contingent fees are
(quota litis agreement) is covered by Article 1491 — with Manresa advancing that it is covered, thus: not prohibited in the Philippines, and since impliedly sanctioned by law 'Should be under the supervision
of the court in order that clients may be protected from unjust charges' (Canons of Profession 1 Ethics)".
The Supreme Court of Spain, in its sentencia of 12 November 1917, has ruled that Article 1459 of the
Spanish Civil Code (Article 1491 of our Civil Code) does not apply to a contract for a contingent fee In the 1967 case of Albano vs. Ramos (20 SCRA 171 [19671), the attorney was allowed to recover in a
because it is not contrary to morals or to law, holding that: separate action her attomey's fee of one-third (1/3) of the lands and damages recovered as stipulated in
the contingent fee contract. And this Court in the recent case of Rosario Vda de Laig vs. Court of Appeals,
In the Philippines, among the Filipino commentators, only Justice Capistrano ventured to state his view et al. (supra), which involved a contingent fee of one-half (½) of the property in question, held than
on the said issue, thus: ,contingent fees are recognized in this i jurisdiction (Canon 13 of the Canons of Professional Ethics
The incapacity to purchase or acquire by assignment, which the law also extends to lawyers with t to adopted by the Philippine Bar association in 1917 [Appendix B, Revised Rules of Court)), which contingent
the property and rights which may be the object of any litigation in which they may take part by virtue fees may be a portion of the property in litigation."
of their profession, also covers contracts for professional services quota litis. Such contracts, however,
have been declared valid by the Supreme Court"
Contracts of this nature are permitted because they redound to the benefit of the poor client and the In resolving now the issue of the validity or nullity for the registration of the adverse claim, Section 110
lawyer "especially in cases where the client has meritorious cause of action, but no means with which to of the Land Registration Act (Act 496) should be considered. Under d section, an adverse claim may be
pay for legal services unless he can, with the sanction of law, make a contract for a contingent fee to be registered only by..
paid out of the proceeds of the litigation" (Francisco, Legal Ethics, p. 294 [1949], citing Lipscomb vs. Whoever claims any part or interest in registered land adverse to the registered owner, arising
Adams 91 S.W. 1046, 1048 [1949]). Oftentimes, contingent fees are the only means by which the poor subsequent to the date of the o registration ... if no other provision is made in this Act for registering
and helpless can redress for injuries sustained and have their rights vindicated. Thus: the same ...
The reason for allowing compensation for professional services based on contingent fees is that if a
person could not secure counsel by a promise of large fees in case of success, to be derived from the
The contract for a contingent fee, being valid, vested in Atty Fernandez an interest or right over the lots
subject matter of the suit, it would often place the poor in such a condition as to amount to a practical
in question to the extent of one-half thereof. Said interest became vested in Atty. Fernandez after the
denial of justice. It not infrequently happens that person are injured through the negligence or willful
case was won on appeal because only then did the assignment of the one-half (½) portion of the lots in
misconduct of others, but by reason of poverty are unable to employ counsel to assert their rights. In
question became effective and binding. So that when he filed his affidavit of adverse claim his interest
such event their only means of redress lies in gratuitous service, which is rarely given, or in their ability
was already an existing one. There was therefore a valid interest in the lots to be registered in favor of
to find some one who will conduct the case for a contingent fee. That relations of this king are often
Atty. Fernandez adverse to Mo Abarquez.
abused by speculative attorneys or that suits of this character are turned into a sort of commercial
traffic by the lawyer, does not destroy the beneficial result to one who is so poor to employ counsel (id,
at p. 293, citing Warvelle, Legal Ethics, p. 92, Emphasis supplied). Moreover, the interest or claim of Atty. Fernandez in the lots in question arose long after the original
petition which took place many years ago. And, there is no other provision of the Land Registration Act
under which the interest or claim may be registered except as an adverse claim under Section 110 thereof.
Justice George Malcolm, writing on contingent fees, also stated that:
The interest or claim cannot be registered as an attorney's charging lien. The lower court was correct in
... the system of contingent compensation has the merit of affording to certain classes of persons the
denying the motion to annotate the attomey's lien. A charging lien under Section 37, Rule 138 of the
opportunity to procure the prosecution of their claims which otherwise would be beyond their means. In
Revised Rules of Court is limited only to money judgments and not to judgments for the annulment of a
many cases in the United States and the Philippines, the contingent fee is socially necessary (Malcolm,
contract or for delivery of real property as in the instant case. Said Section provides that:
Legal and Judicial Ethics, p. 55 [1949], emphasis supplied).
Section 37. An attorney shall have a lien upon the funds, documents and papers of his client which
have lawfully come into his oppossession and may retain the same until his lawful fees and
Stressing further the importance of contingent fees, Professor Max Radin of the University of California, disbursements have been paid, and may apply such funds to the satisfaction thereof. He shall also have
said that: a lien to the same extent upon all judgments, for the payment of money, and executions issued in
The contingent fee certainly increases the possibility that vexatious and unfounded suits will be brought. pursuance of such judgments, which he has secured in a litigation of his client ... (emphasis supplied).
On the other hand, it makes possible the enforcement of legitimate claims which otherwise would be
abandoned because of the poverty of the claimants. Of these two possibilities, the social advantage
Therefore, as an interest in registered land, the only adequate remedy open to Atty. Fernandez is to
seems clearly on the side of the contingent fee. It may in fact be added by way of reply to the first
register such interest as an adverse claim. Consequently, there being a substantial compliance with
objection that vexations and unfounded suits have been brought by men who could and did pay
Section 110 of Act 496, the registration of the adverse claim is held to be valid. Being valid, its registration
substantial attorney's fees for that purpose.
should not be cancelled because as WE have already stated, "it is only when such claim is found
unmeritorious that the registration thereof may be cancelled" (Paz Ty Sin Tei vs. Jose Lee Dy Piao 103
Finally, a contingent fee contract is always subject to the supervision of the courts with respect to the Phil. 867 [1958]).
stipulated amount and may be reduced or nullified. So that in the event that there is any undue influence
or fraud in the execution of the contract or that the fee is excessive, the client is not without remedy
The one-half (½) interest of Atty. Fernandez in the lots in question should therefore be respected. Indeed,
because the court will amply protect him. As held in the case of Grey vs. Insular Lumber Co., supra, citing
he has a better right than petitioner-spouses, Juan Larrazabal and Marta C. de Larrazabal. They purchased
the case of Ulanday vs. Manila Railroad Co., supra:
their two-thirds (2/3) interest in the lots in question with the knowledge of the adverse claim of Atty.
Where it is shown that the contract for a contingent fee was obtained by any undue influence of the
Fernandez. The adverse claim was annotated on the old transfer certificate of title and was later annotated
attorney over the client, or by any fraud or imposition, or that the compensation is so clearly excessive
on the new transfer certificate of title issued to them. As held by this Court:
as to amount to extortion, the court win in a proper case protect the aggrieved party.
The annotation of an adverse claim is a measure designed to protect the interest of a person over a
piece of real property where the registration of such interest or right is not otherwise provided for by
In the present case, there is no iota of proof to show that Atty. Fernandez had exerted any undue influence the Land Registration Act, and serves as a notice and warning to third parties dealing with said property
or had Perpetrated fraud on, or had in any manner taken advantage of his client, Maximo Abarquez. And, that someone is claiming an interest on the same or a better right than the registered owner thereof .
the compensation of one-half of the lots in question is not excessive nor unconscionable considering the
contingent nature of the attorney's fees. Having purchased the property with the knowledge of the adverse claim, they are therefore in bad faith. Consequently,
they are estopped from questioning the validity of the adverse claim. WHEREFORE, THE DECISION OF THE LOWER COURT
DENYING THE PETITION FOR THE CANCELLATION OF THE ADVERSE CLAIM SHOULD BE, AS IT IS HEREBY AFFIRMED,
With these considerations, WE find that the contract for a contingent fee in question is not violative of
WITH COSTS AGAINST PETITIONER-APPELLANTS JUAN LARRAZABAL AND MARTA C. DE LARRAZABAL.
the Canons of Professional Ethics. Consequently, both under the provisions of Article 1491 and Canons
10 and 13 of the Canons of Profession Ethics, a contract for a contingent fee is valid
G.R. No. L-45645 June 28, 1983 of an Assignment of Rights (Exh. 4 or Z) in favor of Luis D. Tongoy by the Pacific Commercial Company
as judgment lien-holder (subordinate to the PNB mortgage) of Jose Tongoy's share in Hacienda Pulo. On
FRANCISCO A. TONGOY, for himself and as Judicial Administrator of the Estate of the Late Luis the basis of the foregoing documents, Hacienda Pulo was placed on November 8, 1935 in the name of
D. Tongoy and Ma. Rosario Araneta Vda. de Tongoy, petitioners, Luis D. Tongoy, married to Maria Rosario Araneta, under Transfer Certificate of "Title No. 20154 (Exh.
vs. 20). In the following year, the title of the adjacent Cuaycong property also came under the name of Luis
THE HONORABLE COURT OF APPEALS, MERCEDES T. SONORA, JUAN T. SONORA, JESUS T. D. Tongoy, married to Maria Rosario Araneta, per Transfer Certificate of Title No. 21522, by virtue of an
SONORA, TRINIDAD T. SONORA, RICARDO P. TONGOY, CRESENCIANO P. TONGOY, AMADO P. "Escritura de Venta" (Exh. 6) executed in his favor by the owner Basilisa Cuaycong on June 22, 1936
TONGOY, and NORBERTO P. TONGOY, respondents. purportedly for P4,000.00. On June 26, 1936, Luis D. Tongoy executed a real estate mortgage over the
Cuaycong property in favor of the PNB, Bacolod Branch, as security for loan of P4,500.00. Three days
The case is basically an action for reconveyance respecting two (2) parcels of land in Bacolod City. The
thereafter, on June 29, 1936, he also executed a real estate mortgage over Hacienda Pulo in favor of the
first is Lot No. 1397 of the Cadastral Survey of Bacolod, otherwise known as Hacienda Pulo, containing
same bank to secure an indebtedness of P21,000.00, payable for a period of fifteen (15) years at 8% per
an area of 727,650 square meters and originally registered under Original Certificate of Title No. 2947 in
annum. After two decades, on April 17, 1956, Luis D. Tongoy paid off all his obligations with the PNB,
the names of Francisco Tongoy, Jose Tongoy, Ana Tongoy, Teresa Tongoy and Jovita Tongoy in pro-
amounting to a balance of P34,410.00, including the mortgage obligations on the Cuaycong property and
indiviso equal shares. Said co-owners were all children of the late Juan Aniceto Tongoy. The second is Lot
Hacienda Pulo. However, it was only on April 22, 1958 that a release of real estate mortgage was executed
No. 1395 of the Cadastral Survey of Bacolod, briefly referred to as Cuaycong property, containing an area
by the bank in favor of Luis D. Tongoy. On February 5, 1966, Luis D. Tongoy died at the Lourdes Hospital
of 163,754 square meters, and formerly covered by Original Certificate of Title No. 2674 in the name of
in Manila, leaving as heirs his wife Maria Rosario Araneta and his son Francisco A. Tongoy. Just before
Basilisa Cuaycong.
his death, however, Luis D. Tongoy received a letter from Jesus T. Sonora, dated January 26, 1966,
demanding the return of the shares in the properties to the co-owners.
Of the original registered co-owners of Hacienda Pulo, three died without issue, namely: Jose Tongoy,
who died a widower on March 11, 1961; Ama Tongoy, who also died single on February 6, 1957, and
Not long after the death of Luis D. Tongoy, the case now before Us was instituted in the court below on
Teresa Tongoy who also died single on November 3, 1949. The other two registered co-owners, namely, complaint filed on June 2, 1966 by Mercedes T. Sonora, Juan T. Sonora ** , Jesus T. Sonora, Trinidad T.
Francisco Tongoy and Jovita Tongoy, were survived by children. Francisco Tongoy, who died on
Sonora, Ricardo P. Tongoy and Cresenciano P. Tongoy. Named principally as defendants were Francisco
September 15, 1926, had six children; Patricio D. Tongoy and Luis D. Tongoy by the first marriage;
A. Tongoy, for himself and as judicial administrator of the estate of the late Luis D. Tongoy, and Maria
Amado P. Tongoy, Ricardo P. Tongoy; Cresenciano P. Tongoy and Norberto P. Tongoy by his second wife
Rosario Araneta Vda. de Tongoy. Also impleaded as defendants, because of their unwillingness to join as
Antonina Pabello whom he subsequently married sometime after the birth of their children. For her part,
plaintiffs were Amado P. Tongoy, Norberto P. Tongoy ** and Fernando P. Tongoy. Alleging in sum that
Jovita Tongoy (Jovita Tongoy de Sonora), who died on May 14, 1915, had four children: Mercedes T.
plaintiffs and/or their predecessors transferred their interests on the two lots in question to Luis D. Tongoy
Sonora, Juan T. Sonora, Jesus T. Sonora and Trinidad T. Sonora.
by means of simulated sales, pursuant to a trust arrangement whereby the latter would return such
interests after the mortgage obligations thereon had been settled, the complaint prayed that 'judgment
By the time this case was commenced, the late Francisco Tongoy's aforesaid two children by his first
be rendered in favor of the plaintiffs and against the defendants-
marriage, Patricio D. Tongoy and Luis D. Tongoy, have themselves died. It is claimed that Patricio D.
(a) Declaring that the HACIENDA PULO, Lot 1397-B-3 now covered by T.C.T. No. 29152, Bacolod
Tongoy left three acknowledged natural children named Fernando, Estrella and Salvacion, all surnamed
City, and the former Cuaycong property, Lot 1395 now covered by T.C.T. No. T-824 (RT-4049)
Tongoy. On the other hand, there is no question that Luis D. Tongoy left behind a son, Francisco A.
(21522), Bacolod City, as trust estate belonging to the plaintiffs and the defendants in the proportion
Tongoy, and a surviving spouse, Ma. Rosario Araneta Vda. de Tongoy.
set forth in Par. 26 of this complaint;
The following antecedents are also undisputed, though by no means equally submitted as the complete (b) Ordering the Register of Deeds of Bacolod City to cancel T.C.T. No. 29152 and T.C.T. No. T-824
facts, nor seen in Identical lights: On April 17, 1918, Hacienda Pulo was mortgaged by its registered co- (RT-4049) (21522), Bacolod City, and to issue new ones in the names of the plaintiffs and defendants
owners to the Philippine National Bank (PNB), Bacolod Branch, as security for a loan of P11,000.00 in the proportions set forth in Par. 26 thereof, based on the original area of HACIENDA PULO;
payable in ten (10) years at 8% interest per annum. The mortgagors however were unable to keep up (c) Ordering the defendants Francisco A. Tongoy and Ma. Rosario Araneta Vda. de Tongoy to render
with the yearly amortizations, as a result of which the PNB instituted judicial foreclosure proceedings over an accounting to the plaintiffs of the income of the above two properties from the year 1958 to the
Hacienda Pulo on June 18, 1931. To avoid foreclosure, one of the co-owners and mortgagors, Jose present and to deliver to each plaintiff his corresponding share with legal interest thereon from 1958
Tongoy, proposed to the PNB an amortization plan that would enable them to liquidate their account. But, and until the same shall have been fully paid;
on December 23, 1932, the PNB Branch Manager in Bacolod advised Jose Tongoy by letter that the latter's (d) Ordering the defendants Francisco Tongoy and Ma. Rosario Araneta Vda. de Tongoy to pay to the
proposal was rejected and that the foreclosure suit had to continue. As a matter of fact, the suit was plaintiffs as and for attorney's fees an amount equivalent to twenty-four per cent (24%) of the rightful
pursued to finality up to the Supreme Court which affirmed on July 31, 1935 the decision of the CFI giving shares of the plaintiffs over the original HACIENDA PULO and the Cuaycong property, including the
the PNB the right to foreclose the mortgage on Hacienda Pulo. In the meantime, Patricio D. Tongoy and income thereof from 1958 to the present; and
Luis Tongoy executed on April 29, 1933 a Declaration of Inheritance wherein they declared themselves (e) Ordering the defendants Francisco A. Tongoy and Ma. Rosario Vda. de Tongoy to pay the costs of
as the only heirs of the late Francisco Tongoy and thereby entitled to the latter's share in Hacienda Pulo. this suit.
On March 13, 1934, Ana Tongoy, Teresa Tongoy, Mercedes Sonora, Trinidad Sonora, Juan Sonora and
Plaintiffs also pray for such other and further remedies just and equitable in the premises.
Patricio Tongoy executed an "Escritura de Venta" (Exh. 2 or Exh. W), which by its terms transferred for
consideration their rights and interests over Hacienda Pulo in favor of Luis D. Tongoy. Thereafter, on
Defendants Francisco A. Tongoy and Ma. Rosario Vda. de Tongoy filed separate answers, denying in effect
October 23, 1935 and November 5, 1935, respectively, Jesus Sonora and Jose Tongoy followed suit by
plaintiffs' causes of action, and maintaining, among others, that the sale to Luis D. Tongoy of the two lots
each executing a similar "Escritura de Venta" (Exhs. 3 or DD and 5 or AA) pertaining to their corresponding
in question was genuine and for a valuable consideration, and that no trust agreement of whatever nature
rights and interests over Hacienda Pulo in favor also of Luis D. Tongoy. In the case of Jose Tongoy, the
existed between him and the plaintiffs. As affirmative defenses, defendants also raised laches,
execution of the "Escritura de Venta" (Exh. 5 or AA) was preceded by the execution on October 14, 1935
prescription, estoppel, and the statute of frauds against plaintiffs. Answering defendants counter claimed 2) To reconvey to Ricardo P. Tongoy, Cresenciano P. Tongoy, Amado P. Tongoy and Norberto P.
for damages against plaintiffs for allegedly bringing an unfounded and malicious complaint. Tongoy as substituted and represented by his heirs each a 14/135th portion of both Hacienda Pulo
and the Cuaycong property, also based on their original shares; provided that the 12 hectares already
For their part, defendants Norberto Tongoy and Amado Tongoy filed an answer under oath, admitting reconveyed to them by virtue of the Order for execution pending appeal of the judgment shall be
every allegation of the complaint. On the other hand, defendant Fernando Tongoy originally joined duly deducted;
Francisco A. Tongoy in the latter's answer, but after the case was submitted and was pending decision, 3) To render an accounting to the parties named in pars. 1 and 2 above with respect to the income
the former filed a verified answer also admitting every allegation of the complaint. of Hacienda Pulo and the Cuaycong property from May 5, 1958 up to the time the reconveyances as
herein directed are made; and to deliver or pay to each of said parties their proportionate shares of
Meanwhile, before the case went to trial, a motion to intervene as defendants was filed by and was
the income, if any, with legal interest thereon from the date of filing of the complaint in this case,
granted to Salvacion Tongoy and Estrella Tongoy, alleging they were sisters of the full blood of Fernando
January 26, 1966, until the same is paid;
Tongoy. Said intervenors filed an answer similarly admitting every allegation of the complaint.
4) To pay unto the parties mentioned in par. 1 above attorney's fees in the sum of P 20,000.00; and
5) To pay the costs.
After trial on the merits, the lower court rendered its decision on October 15, 1968 finding the existence
of an implied trust in favor of plaintiffs, but at the same time holding their action for reconveyance barred
Petitioners Francisco A. Tongoy and Ma. Rosario Araneta Vda. de Tongoy (defendants-appellants) have
by prescription, except in the case of Amado P. Tongoy, Ricardo P. Tongoy, Cresenciano P. Tongoy, and
come before Us on petition for review on certiorari with the following assignments of errors (pp. 23-24,
Norberto P. Tongoy, who were adjudged entitled to reconveyance of their corresponding shares in the
Brief for Petitioners):
property left by their father Francisco Tongoy having been excluded therefrom in the partition had during
I. The Court of Appeals erred in finding that there was a trust constituted on Hacienda Pulo.
their minority, and not having otherwise signed any deed of transfer over such shares. The dispositive
II. The Court of Appeals erred in finding that the purchase price for the Cuaycong property was paid by
portion of the decision reads:
Jose Tongoy and that said property was also covered by a trust in favor of respondents.
IN VIEW OF ALL THE FOREGOING considerations, judgment is hereby rendered dismissing the
III. Conceding, for the sake of argument, that respondents have adequately proven an implied trust in
complaint, with respect to Mercedes, Juan, Jesus and Trinidad, all surnamed Sonora. The defendants their favor, the Court of Appeals erred in not finding that the rights of respondents have prescribed, or
Francisco Tongoy and Rosario Araneta Vda. de Tongoy are hereby ordered to reconvey the
are barred by laches.
proportionate shares of Ricardo P., Cresenciano P., Amado P., and Norberto P., all surnamed Tongoy in
IV. The Court of Appeals erred in finding that the respondents Tongoy are the legitimated children of
Hda. Pulo and the Cuaycong property. Without damages and costs.
Francisco Tongoy.
V. Granting arguendo that respondents Tongoy are the legitimated children of Francisco Tongoy, the
Upon motion of plaintiffs, the foregoing dispositive portion of the decision was subsequently clarified by
Court of Appeals erred in not finding that their action against petitioners has prescribed.
the trial court through its order of January 9, 1969 in the following tenor:
VI. The Court of Appeals erred in ordering petitioners to pay attorney's fees of P 20,000.00.
Considering the motion for clarification of decision dated November 7, 1968 and the opposition thereto,
VII. The Court of Appeals erred in declaring that execution pending appeal in favor of respondents
and with the view to avoid further controversy with respect to the share of each heir, the dispositive
Tongoys was justified.
portion of the decision is hereby clarified in the sense that, the proportionate legal share of Amado P.
Tongoy, Ricardo P. Tongoy, Cresenciano P. Tongoy and the heirs of Norberto P. Tongoy, in Hda. Pulo
I. It appears to US that the first and second errors assigned by petitioners are questions of fact which
and Cuaycong property consist of 4/5 of the whole trust estate, leaving 1/5 of the same to the heirs of
are beyond OUR power to review.
Luis D. Tongoy.
Thus, as found by the respondent Court of Appeals:
Both parties appealed the decision of the lower court to respondent appellate court. Plaintiffs-appellants
We shall consider first the appeal interposed by plaintiffs-appellants. The basic issues underlying the
Mercedes T. Sonora, Jesus T. Sonora, Trinidad T. Sonora and the heirs of Juan T. Sonora questioned the
disputed errors raised suggest themselves as follows: 1) whether or not the conveyance respecting the
lower court's decision dismissing their complaint on ground of prescription, and assailed it insofar as it
questioned lots made in favor of Luis D. Tongoy in 1934 and 1935 were conceived pursuant to a trust
held that the agreement created among the Tongoy-Sonora family in 1931 was an implied, and not an
agreement among the parties; 2) if so, whether the trust created was an express or implied trust; and
express, trust; that their action had prescribed; that the defendants-appellants were not ordered to
3) if the trust was not an express trust, whether the action to enforce it has prescribed.
render an accounting of the fruits and income of the properties in trust; and that defendants were not
ordered to pay the attorney's fees of plaintiffs- appellants. For their part, defendants-appellants Francisco The first two issues indicated above will be considered together as a matter of logical necessity, being so
A. Tongoy and Ma. Rosario Araneta Vda. de Tongoy not only refuted the errors assigned by plaintiffs- closely interlocked. To begin with, the trial court found and ruled that the transfers made in favor of Luis
appellants, but also assailed the findings that there was preponderance of evidence in support of the D. Tongoy were clothed with an implied trust, arriving at this conclusion as follows:
existence of an implied trust; that Ricardo P. Tongoy, Amado P. Tongoy and Norberto P. Tongoy are the The Court finds that there is preponderance of evidence in support of the existence of constructive,
legitimate half-brothers of the late Luis D. Tongoy; that their shares in Hacienda Pulo and Cuaycong implied or tacit trust. The hacienda could have been leased to third persons and the rentals would have
property should be reconveyed to them by defendants-appellants; and that an execution was ordered been sufficient to liquidate the outstanding obligation in favor of the Philippine National Bank. But the
pending appeal. co-owners agreed to give the administration of the property to Atty. Luis D. Tongoy, so that the latter
can continue giving support to the Tongoy-Sonora family and at the same time, pay the amortization
On December 3, 1975, respondent court rendered the questioned decision, the dispositive portion of
in favor of the Philippine National Bank, in the same manner that Jose Tongoy did. And of course, if the
which is as follows:
administration is successful, Luis D. Tongoy would benefit with the profits of the hacienda. Simulated
WHEREFORE, judgment is hereby rendered modifying the judgment and Orders appealed from by
deeds of conveyance in favor of Luis D. Tongoy were executed to facilitate and expedite the transaction
ordering Maria Rosario Araneta Vda. de Tongoy and Francisco A. Tongoy. —
with the Philippine National Bank. Luis D. Tongoy supported the Tongoy-Sonora family, defrayed the
1) To reconvey to Mercedes T. Sonora, Juan T. Sonora (as substituted and represented by his heirs),
expenses of Dr. Jesus Sonora and Atty. Ricardo P. Tongoy, in their studies. Luis Tongoy even gave
Jesus T. Sonora and Trinidad T. Sonora each a 7/60th portion of both Hacienda Pulo and the Cuaycong
Sonoras their shares in the "beneficacion" although the "beneficacion" were included in the deeds of
property, based on their original shares;
sale. The amount of consideration of the one-fifth (15) share of Jose Tongoy is one hundred (P 100,00) her son were in the house of Atty. Arboleda, in compliance with his invitation for the supposed friendly
pesos only. Likewise the consideration of the sale of the interests of the Pacific Commercial Company settlement of the case, Atty. Arboleda did not even submit proposals for equitable arbitration of the
is only P100.00 despite the fact that Jose Tongoy paid in full his indebtedness in favor of said company. case. On the other hand, according to Mrs. Tongoy, Mrs. Arboleda intimated her desire to have Atty.
The letter of Luis D. Tongoy dated November 5, 1935 (Exhibit 'BB-1') is very significant, the tenor of Arboleda be taken in. The Court refuses to believe that Judge Arboleda was aware of the alleged
which is quoted hereunder: intimations of Mrs. Arboleda, otherwise he would not have tolerated or permitted her to indulge in such
an embarrassing and uncalled for intrusion. The plaintiffs evidently took such ungainly insinuations with
Dear Brother Jose: levity so much so that they did not think it necessary to bring Mrs. Arboleda to Court to refute this fact.
Herewith is the deed which the bank sent for us to sign. The bank made me pay the Pacific the sum
of P100.00 so as not to sell anymore the land in public auction. This deed is for the purpose of The parties, on either side of this appeal take issue with the conclusion that there was an implied trust,
dispensing with the transfer of title to the land in the name of the bank, this way we will avoid many one side maintaining that no trust existed at all, the other that the trust was an express trust.
expenses.
Yours, To begin with, We do not think the trial court erred in its ultimate conclusion that the transfers of the
Luis D. Tongoy two lots in question made in favor of the late Luis D. Tongoy by his co-owners in 1933 and 1934 created
an implied trust in favor of the latter. While, on one hand, the evidence presented by plaintiffs-
Jose Tongoy signed the deed because he incurred the obligation with the Pacific and paid it. In releasing appellants to prove an express trust agreement accompanying the aforesaid transfers of the lots are
the second mortgage, Luis Tongoy paid only P100.00 and the deed was in favor of Luis Tongoy. This incompetent, if not inadequate, the record bears sufficiently clear and convincing evidence that the
was done in order "to avoid many expenses " of both Jose and Luis as obviously referred to in the word transfers were only simulated to enable Luis D. Tongoy to save Hacienda Pulo from foreclosure for the
"WE". benefit of the co-owners, including himself. Referring in more detail to the evidence on the supposed
express trust, it is true that plaintiffs- appellants Jesus T. Sonora, Ricardo P. Tongoy, Mercedes T.
Those two transactions with nominal considerations are irrefutable and palpable evidence of the Sonora and Trinidad T. Sonora have testified with some vividness on the holding of a family conference
existence of constructive or implied trust. in December 1931 among the co-owners of Hacienda Pulo to decide on steps to be taken vis-a-vis the
impending foreclosure of the hacienda by the PNB upon the unpaid mortgage obligation thereon.
Another significant factor in support of the existence of constructive trust is the fact that in 1933-34,
Accordingly, the co-owners had agreed to entrust the administration and management of Hacienda Pulo
when proposals for amicable settlement with the Philippine National Bank were being formulated and
to Luis D. Tongoy who had newly emerged as the lawyer in the family. Thereafter, on the representation
considered, Luis D. Tongoy was yet a neophite (sic) in the practice of law, and he was still a bachelor.
of Luis D. Tongoy that the bank wanted to deal with only one person it being inconvenient at time to
It was proven that it was Jose Tongoy, the administrator of Hda. Pulo, who provided for his expenses
transact with many persons, specially when some had to be out of town the co-owners agreed to make
when he studied law, when he married Maria Araneta, the latter's property were leased and the rentals
simulated transfers of their participation in Hacienda Pulo to him. As the evidence stands, even if the
were not sufficient to cover all the considerations stated in the deeds of sale executed by the co-owners
same were competent, it does not appear that there was an express agreement among the co-owners
of Hda. Pulo, no matter how inadequate were the amounts so stated. These circumstances fortified the
for Luis D. Tongoy to hold Hacienda Pulo in trust, although from all the circumstances just indicated
assertion of Judge Arboleda that Luis D. Tongoy at that time was in no condition to pay the purchase such a trust may be implied under the law (Art. 1453, Civil Code; also see Cuaycong vs. Cuaycong, L-
price of the property sold,
21616, December 11, 1967, 21 SCRA 1192, 1197-1198). But, whatever may be the nature of the trust
suggested in the testimonies adverted to, the same are incompetent as proof thereof anent the timely
But the Court considers the evidence of execution of express trust agreement insufficient. Express trust
objections of defendants-appellees to the introduction of such testimonial evidence on the basis of the
agreement was never mentioned in the plaintiffs' pleadings nor its existence asserted during the pre-
survivorship rule. The witnesses being themselves parties to the instant case, suing the representatives
trial hearings. It was only during the trial on the merits when Atty. Eduardo P. Arboleda went on to
of the deceased Luis D. Tongoy upon a demand against the latter's estate, said witnesses are barred
testify that he prepared the deed of trust agreement.
by the objections of defendants-appellees from testifying on matters of fact occurring before the death
Indeed the most formidable weapon the plaintiff could have used in destroying the "impregnable walls of the deceased (Sec. 20[a], Rule 130), more particularly where such occurrences consist of verbal
of the defense castle consisting of public documents" is testimony of Atty. Eduardo P. Arboleda. He is agreements or statements made by or in the presence of the deceased.
most qualified and in a knowable position to testify as to the truth of the existence of the trust
Neither has the existence of the alleged contra-documento-- by which Luis D. Tongoy supposedly
agreement, because he was not only the partner of the late Luis D. Tongoy in their practice of law
acknowledged the transfers to be simulated and bound himself to return the shares of his co-owners
especially during the time he prepared and/or notarized the deeds of sale but he was also his colleague
after the mortgage on the Hacienda had been discharged-been satisfactorily established to merit
in the City Council. But however forceful would be the impact of his testimony, it did not go beyond the
consideration as proof of the supposed express trust. We can hardly add to the sound observations of
establishment of constructive or implied trust agreement. In the first place, if it is true that written
the trial court in rejecting the evidence to the effect as insufficient, except to note further that at least
trust agreement was prepared by him and signed by Luis D. Tongoy for the security of the vendor, why
plaintiffs-appellants Mercedes T. Sonora and Trinidad T. Sonora have testified having been apprised of
is it that only two copies of the agreement were prepared, one copy furnished Jose Tongoy and the
the document and its contents when Luis D. Tongoy supposedly delivered one copy to Jose Tongoy.
other kept by Luis Tongoy, instead of making five copies and furnished copy to each co-owner, or at
And yet as the trial court noted, no express trust agreement was ever mentioned in plaintiffs-appellants'
least one copy would have been kept by him? Why is it that when Atty. Arboleda invited Mrs. Maria
pleadings or at the pre-trial.
Rosario Araneta Vda. de Tongoy and her son to see him in his house, Atty. Arboleda did not reveal or
mention the fact of the existence of a written trust agreement signed by the late Luis D. Tongoy? The
Nevertheless, there is on record enough convincing evidence not barred by the survivorship rule, that
revelation of the existence of a written trust agreement would have been a vital and controlling factor
the transfers made by the co-owners in favor of Luis D. Tongoy were simulated and that an implied or
in the amicable settlement of the case, which Atty. Arboleda would have played an effective role as an
resulting trust thereby came into existence, binding the latter to make reconveyance of the co-owners'
unbiased mediator. Why did not Atty. Arboleda state the precise context of the written agreement; its
shares after the mortgage indebtedness on Hacienda Pulo has been discharged. Thus it appears beyond
form and the language it was written, knowing as he should, the rigid requirements of proving the
doubt that Hacienda Pulo has been the source of livelihood to the co-owners and their dependents,
contents of a lost document. It is strange that when Mrs. Maria Rosario Araneta Vda. de Tongoy and
when the subject transfers were made. It is most unlikely that all of the several other co-owners should Furthermore, the tenor of the letter from Luis D. Tongoy to Jose Tongoy, dated November 5, 1935
have come at the same time to one mind about disposing of their participation in the hacienda, when (Exhibit Bb-1), as heretofore quoted with portions of the decision on appeal, is very revealing of the
the same counted so much in their subsistence and self-esteem. Only extreme necessity would have fact that the steps taken to place Hacienda Pulo in the name of Luis D. Tongoy were made for the
forced the co-owners to act in unison towards earnestly parting with their shares, taking into account benefit not only of himself but for the other co-owners as well. Thus, the letter ends with the clause-
the meager considerations mentioned in the deeds of transfer which at their most generous gave to "this way we will avoid many expenses.
each co-owner only P2,000.00 for a 1/5 part of the hacienda. As it appears to Us, the impending
foreclosure on the mortgage for P11,000.00 could not have created such necessity. Independent of Finally, it is not without significance that the co-owners and their dependents continued to survive
testimony to the effect, it is not hard to surmise that the hacienda could have been leased to others on apparently from the sustenance from Hacienda Pulo for a long time following the alleged transfers in
terms that would have satisfied the mortgage obligation. Moreover, as it turned out, the PNB was favor of Luis D. Tongoy. In fact, it does not appear possible that Jesus T. Sonora and Ricardo P. Tongoy
amenable, and did actually accede, to a restructuring of the mortgage loan in favor of Luis D. Tongoy, could have finished medicine and law, respectively, without support from Luis D. Tongoy as
thereby saving the hacienda from foreclosure. As a matter of fact, the co-owners must have been administrator of the common property.
posted on the attitude of the bank regarding the overdue mortgage loan, and its willingness to renew
All the foregoing, considered together, constitute clear and convincing evidence that the transfers made
or restructure the same upon certain conditions. Under such circumstances, it is more reasonable to
in favor of Luis D. Tongoy by his co- owners were only simulated, under circumstances giving rise to
conclude that there was no compelling reason for the other co-owners to sell out their birthrights to
an implied or resulting trust whereby Luis D. Tongoy is bound to hold title in trust for the benefit of his
Luis D. Tongoy, and that the purported transfers were, as claimed by them in reality simulated pursuant
co-owners.
to the suggestion that the bank wanted to deal with only one person. In fact, as recited in the Escritura
de Venta (Exh. AA) executed between Luis. D. Tongoy and Jose Tongoy, it appears that the series of
The Court of Appeals found enough convincing evidence not barred by the aforecited survivorship rule to
transfers made in favor of the former by the co-owners of Hacienda Pulo followed and was made
the effect that the transfers made by the co- owners in favor of Luis D. Tongoy were simulated.
pursuant to a prior arrangement made with the PNB by Luis D. Tongoy to redeem the shares or
participation of his co-owners. That this was readily assented to in the anxiety to save and preserve All these findings of fact, as a general rule, are conclusive upon US and beyond OUR power to review. It
Hacienda Pulo for all its co-owners appears very likely anent undisputed evidence that the said co- has been well-settled that the jurisdiction of the Supreme Court in cases brought to IT from the Court of
owners had been used to entrusting the management thereof to one among them, dating back to the Appeals is limited to reviewing and revising errors of law imputed to it, its findings of fact being conclusive
time of Francisco Tongoy who once acted as administrator, followed by Jose Tongoy, before Luis D. as a matter of general principle (Chan vs. C.A., 33 SCRA 737, 744; Alquiza vs. Alquiza, 22 SCRA 494,
Tongoy himself took over the hacienda. 497).

Strongly supported the theory that the transfers were only simulated to enable Luis D. Tongoy (to) The proofs submitted by petitioners do not place the factual findings of the Court of Appeals under any
have effective control and management of the hacienda for the benefit of all the co-owners is of the recognized exceptions to the aforesaid general rule.
preponderant evidence to the effect that he was in no financial condition at the time to purchase the
hacienda. Witness Eduardo Arboleda who was a law partner of Luis D. Tongoy when the transfers were I
made, and who is not a party in this case, emphatically testified that Luis D. Tongoy could not have
produced the money required for the purchase from his law practice then. On the other hand, the The initial crucial issue therefore is-whether or not the rights of herein respondents over subject
suggestion that his wife Ma. Rosario Araneta had enough income from her landed properties to properties, which were the subjects of simulated or fictitious transactions, have already prescribed.
sufficiently augment Luis D. Tongoy's income from his practice is belied by evidence that such properties
were leased, and the rentals collected in advance, for eleven (11) crop years beginning 1931 (Exh. The negative answer to the aforesaid query is found in Articles 1409 and 1410 of the New Civil Code.
EEE), when they were not yet married. Said provisions state thus:
Art. 1409. The following contracts are inexistent and void from the beginning:
The financial incapacity of Luis D. Tongoy intertwines, and together gains strength, with proof that the 2) Those which are absolutely simulated or fictitious;
co-owners as transferors in the several deeds of sale did not receive the considerations stated therein. These contracts cannot be ratified. Neither can the right to set up the defense of illegality be waived.
In addition to the testimony of the notary public, Eduardo P. Arboleda, that no consideration as recited Art. 1410. The action or defense for the declaration of the inexistence of a contract does not prescribe.
in the deeds of transfer were ever paid in his presence, all the transferors who testified including Jesus
T. Sonora, Mercedes T. Sonora and Trinidad T. Sonora-all denied having received the respective The characteristic of simulation is the fact that the apparent contract is not really desired nor intended to
considerations allegedly given them. While said transferors are parties in this case, it has been held produce legal effects nor in any way alter the juridical situation of the parties. Thus, where a person, in
that the survivorship rule has no application where the testimony offered is to the effect that a thing order to place his property beyond the reach of his creditors, simulates a transfer of it to another, he
did not occur (Natz vs. Agbulos, CA-G.R. No. 4098-R, January 13, 1951; Mendoza v. C. Vda. de Goitia, does not really intend to divest himself of his title and control of the property; hence, the deed of transfer
54 Phil. 557, cited by Mora, Comments on the Rules of Court, 1970 ed., Vol. 5, p. 174). is but a sham. This characteristic of simulation was defined by this Court in the case of Rodriguez vs.
Rodriguez, No. L-23002, July 31, 1967, 20 SCRA 908.
Also of some significance is the fact that the deeds of transfer executed by Ana Tongoy, Teresa Tongoy,
Mercedes Sonora, Trinidad Sonora, Juan Sonora, and Patricio Tongoy (Exh. W) as well as that by Jesus A void or inexistent contract is one which has no force and effect from the very beginning, as if it had
Sonora (Exh. DD) did not even bother to clarify whether Luis D. Tongoy as transferee of his co-owners' never been entered into, and which cannot be validated either by time or by ratification (p. 592, Civil
share was assuming the indebtedness owing to the PNB upon the mortgage on Hacienda Pulo. In an Code of the Philippines, Vol. IV, Tolentino, 1973 Ed.).
honest-to-goodness sale, it would have been most unlikely that the transferors would have paid no
Avoid contract produces no effect whatsoever either against or in favor of anyone; hence, it does not
attention to this detail, least of all where, as in this case, the transfers were apparently prompted by
create, modify or extinguish the juridical relation to which it refers (p. 594, Tolentino, supra).
the inability of the co-owners to discharge the mortgage obligation and were being pressed for payment.
The following are the most fundamental characteristics of void or inexistent contracts:
 1) As a general rule, they produce no legal effects whatsoever in accordance with the principle "quod Petitioners maintain that, even conceding that respondents have adequately proven an implied trust in
nullum est nullum producit effectum." their favor, their rights have already prescribed, since actions to enforce an implied trust created under
2) They are not susceptible of ratification. the old Civil Code prescribes in ten years.
3) The right to set up the defense of inexistence or absolute nullity cannot be waived or renounced. Under Act No. 190, whose statute of limitation would apply if there were an implied trust as in this
4) The action or defense for the declaration of their inexistence or absolute nullity is imprescriptible. case, the longest period of extinctive prescription was only ten years (Salao vs. Salao, 70 SCRA 84;
5) The inexistence or absolute nullity of a contract cannot be invoked by a person whose interests are Diaz vs. Gorricho and Aguado, 103 Phil. 261, 226).
not directly affected (p. 444, Comments and Jurisprudence on Obligations and Contracts, Jurado, 1969
Ed.; emphasis supplied). On the other hand, private respondents contend that prescription cannot operate against the cestui
que trust in favor of the trustee, and that actions against a trustee to recover trust property held by him
The nullity of these contracts is definite and cannot be cured by ratification. The nullity is permanent, are imprescriptible (Manalang vs. Canlas, 50 OG 1980). They also cite other pre-war cases to bolster this
even if the cause thereof has ceased to exist, or even when the parties have complied with the contract contention, among which are: Camacho vs. Municipality of Baliwag, 28 Phil. 46; Uy vs. Cho Jan Ling, 19
spontaneously (p. 595, Tolentino, supra). Phil. 202 [pls. see pp. 258-259, Brief for Respondents, p. 398, rec.]. They further allege that possession
of a trustee is, in law, possession of the cestui que trust and, therefore, it cannot be a good ground for
In Eugenio vs. Perdido, et al., No. L-7083, May 19, 1955, 97 Phil. 41, this Court thus reiterated: title by prescription (Laguna vs. Levantino, 71 Phil. 566; Cortez vs. Oliva, 33 Phil. 480, cited on p. 261,
Under the existing classification, such contract would be "inexisting" and the "action or defense for Brief for Respondents, supra).
declaration' of such inexistence "does not prescribe' (Art. 14 10 New Civil Code). While it is true that
this is a new provision of the New Civil Code, it is nevertheless a principle recognized since Tipton vs. The rule now obtaining in this jurisdiction is aptly discussed in the case of Bueno vs. Reyes (27 SCRA
Velasco, 6 Phil. 67 that "mere lapse of time cannot give efficacy to contracts that are null and void. 1179, 1183), where the Court through then Mr. Justice Makalintal, held:
While there are some decisions which hold that an action upon a trust is imprescriptible, without
Consistently, this Court held that 11 where the sale of a homestead is nun and void, the action to recover distinguishing between express and implied trusts, the better rule, as laid down by this Court in other
the same does not prescribe because mere lapse of time cannot give efficacy to the contracts that are decisions, is that prescription does supervene where the trust is merely an implied one. The reason has
null and void and inexistent" (Angeles, et al. vs. Court of Appeals, et al., No. L-11024, January 31, 1958, been expressed by Mr. Justice J.B.L. Reyes in J.M. Tuazon and Co., Inc. vs. Magdangal, 4 SCRA 84, 88,
102 Phil. 1006). as follows:
Under Section 40 of the Old Code of Civil Procedure, all actions for recovery of real property prescribe
In the much later case of Guiang vs. Kintanar (Nos. L-49634-36, July 25, 1981, 106 SCRA 49), this Court
in ten years, excepting only actions based on continuing or subsisting trusts that were considered by
enunciated thus:
section 38 as imprescriptible. As held in the case of Diaz vs. Gorricho, L-11229, March 29, 1958,
It is of no consequence, pursuant to the same article, that petitioners, the Guiang spouses, executed
however, the continuing or subsisting trusts contemplated in Sec. 38 of the Code of Civil Procedure
on August 21, 1975, apparently in ratification of the impugned agreement, the deeds of sale covering
referred only to express unrepudiated trusts, and did not include constructive trusts (that are imposed
the two lots already referred to and that petitioners actually received in part or in whole the money
by law) where no fiduciary relation exists and the trustee does not recognize the trust at all.
consideration stipulated therein, for according to the same Article 1409, contracts contemplated
therein, as the one We are dealing with, "cannot be ratified nor the defense of its illegality be waived." This doctrine has been reiterated in the latter case of Escay vs. C.A. (61 SCRA 370, 387), where WE held
Neither it it material, much less decisive, that petitioners had not earlier judicially moved to have the that implied or constructive trusts prescribe in ten years. "The prescriptibility of an action for
same annulled or set aside. Under Article 1410 of the Civil Code, (t)he action or defense for declaration reconveyance based on implied or constructive trust, is now a settled question in this jurisdiction. It
of the inexistence of a contract does not prescribe. prescribes in ten years" (Boñaga vs. Soler, et al., 2 SCRA 755; J.M. Tuazon and Co., Inc. vs. Magdangal,
4 SCRA 88, special attention to footnotes).
Evidently, therefore, the deeds of transfer executed in favor of Luis Tongoy were from the very beginning
absolutely simulated or fictitious, since the same were made merely for the purpose of restructuring the Following such proposition that an action for reconveyance such as the instant case is subject to
mortgage over the subject properties and thus preventing the foreclosure by the PNB. prescription in ten years, both the trial court and respondent appellate court are correct in applying the
ten-year prescriptive period.
Considering the law and jurisprudence on simulated or fictitious contracts as aforestated, the within action
for reconveyance instituted by herein respondents which is anchored on the said simulated deeds of The question, however, is, from what time should such period be counted?
transfer cannot and should not be barred by prescription. No amount of time could accord validity or
efficacy to such fictitious transactions, the defect of which is permanent. The facts of the case at bar reveal that the title to Hacienda Pulo was registered in the name of Luis D.
Tongoy with the issuance of TCT No. 20154 on November 8, 1935; that the title to the adjacent Cuaycong
There is no implied trust that was generated by the simulated transfers; because being fictitious or property was transferred to Luis D. Tongoy with the issuance of TCT No. 21522 on June 22, 1936. The
simulated, the transfers were null and void ab initio-from the very beginning and thus vested no rights properties were mortgaged in the year 1936 by said Luis D. Tongoy for P4,500.00 and P 21,000.00,
whatsoever in favor of Luis Tongoy or his heirs. That which is inexistent cannot give life to anything at respectively, for a period of fifteen years; that the mortgage obligations to the PNB were fully paid on
all. April 17, 1956; that the release of mortgage was recorded in the Registry of Deeds on May 5, 1958; and
that the case for reconveyance was filed in the trial court on June 2, 1966.
II.
Considering that the implied trust resulted from the simulated sales which were made for the purpose of
But even assuming arguendo that such an implied trust exists between Luis Tongoy as trustee and the
enabling the transferee, Luis D. Tongoy, to save the properties from foreclosure for the benefit of the co-
private respondents as cestui que trust, still the rights of private respondents to claim reconveyance is
owners, it would not do to apply the theory of constructive notice resulting from the registration in the
not barred by prescription or laches.
trustee's name. Hence, the ten-year prescriptive period should not be counted from the date of
registration in the name of the trustee, as contemplated in the earlier case of Juan vs. Zuñiga (4 SCRA
1221). Rather, it should be counted from the date of recording of the release of mortgage in the Registry Tongoy and Patricio D. Tongoy executed an Extra-Judicial Declaration of Heirs, leaving out their half-
of Deeds, on which date May 5, 1958 — the cestui que trust were charged with the knowledge of the brothers Amado, Ricardo, Cresenciano, and Norberto, who were then still minors; that respondents
settlement of the mortgage obligation, the attainment of the purpose for which the trust was constituted. Amado, Ricardo, Cresenciano and Norberto were known and accepted by the whole clan as children of
Francisco; that they had lived in Hacienda Pulo with their parents, but when they went to school, they
Indeed, as respondent Court of Appeals had correctly held: stayed in the old family home at Washington Street, Bacolod, together with their grandmother, Agatona
... as already indicated, the ten-year prescriptive period for bringing the action to enforce the trust or Tongoy, as well as with the Sonoras and with Luis and Patricio Tongoy; that everybody in Bacolod knew
for reconveyance of plaintiffs-appellants" shares should be toned from the registration of the release of them to be part of the Tongoy-Sonora clan; and that Luis D. Tongoy as administrator of Hacienda Pulo,
the mortgage obligation, since only by that time could plaintiffs-appellants be charged with constructive also spent for the education of Ricardo Tongoy until he became a lawyer; and that even petitioners admit
knowledge of the liquidation of the mortgage obligations, when it became incumbent upon them to the fact that they were half-brothers of the late Luis D. Tongoy.
expect and demand the return of their shares, there being no proof that plaintiffs-appellants otherwise
learned of the payment of the obligation earlier. More precisely then the prescriptive period should be The bone of contention, however, hinges on the absence of an acknowledgment through any of the modes
reckoned from May 5, 1958 when the release of the mortgage was recorded in the Registry of Deeds, recognized by the Old Civil Code (please see Articles 131 and 135 of the Old Civil Code), such that
which is to say that the present complaint was still filed within the period on June 4, 1966. legitimation could not have taken place in view of the provisions of Art. 121 of the same Code which
states that "children shall be considered legitimated by a subsequent marriage only when they have been
Consequently, petitioner Francisco A. Tongoy as successor-in-interest and/or administrator of the estate acknowledged by the parents before or after the celebration thereof."
of the late Luis D. Tongoy, is under obligation to return the shares of his co-heirs and co-owners in the
subject properties and, until it is done, to render an accounting of the fruits thereof from the time that Of course, the overwhelming evidence found by respondent Court of Appeals conclusively shows that
the obligation to make a return arose, which in this case should be May 5, 1958, the date of registration respondents Amado, Ricardo, Cresenciano and Norberto have been in continuous possession of the status
of the document of release of mortgage. of natural, or even legitimated, children. Still, it recognizes the fact that such continuous possession of
status is not, per se, a sufficient acknowledgment but only a ground to compel recognition (Alabat vs.
Hence, WE find no evidence of abuse of discretion on the part of respondent Court of Appeals when it Alabat, 21 SCRA 1479; Pua vs. Chan, 21 SCRA 753; Larena vs. Rubio, 43 Phil. 1017).
ordered such accounting from May 5, 1958, as well as the imposition of legal interest on the fruits and
income corresponding to the shares that should have been returned to the private respondents, from the Be that as it may, WE cannot but agree with the liberal view taken by respondent Court of Appeals when
date of actual demand which has been determined to have been made on January 26, 1966 by the it said:
demand letter (Exh. TT) of respondent Jesus T. Sonora to deceased Luis D. Tongoy.
... It does seem equally manifest, however, that defendants-appellants stand on a purely technical
III point in the light of the overwhelming evidence that appellees were natural children of Francisco Tongoy
and Antonina Pabello, and were treated as legitimate children not only by their parents but also by the
With respect to the award of attorney's fees in the sum of P20,000.00, the same appears to have been entire clan. Indeed, it does not make much sense that appellees should be deprived of their hereditary
properly made, considering that private respondents were unnecessarily compelled to litigate (Flordelis rights as undoubted natural children of their father, when the only plausible reason that the latter could
vs. Mar, 114 SCRA 41; Sarsosa Vda. de Barsobin vs. Cuenco, 113 SCRA 547; Phil. Air Lines vs. C.A., 106 have had in mind when he married his second wife Antonina Pabello just over a month before his death
SCRA 393). As pointed out in the questioned decision of the Court of Appeals: was to give legitimate status to their children. It is not in keeping with the more liberal attitude taken
by the New Civil Code towards illegitimate children and the more compassionate trend of the New
As for the claim for attorney's fees, the same appears to be well taken in the light of the findings WE
Society to insist on a very literal application of the law in requiring the formalities of compulsory
have made considering that prevailing plaintiffs- appellants were forced to litigate to enforce their rights,
acknowledgment, when the only result is to unjustly deprive children who are otherwise entitled to
and that equity under all the circumstances so dictate, said plaintiffs-appellants should recover attorney's
hereditary rights. From the very nature of things, it is hardly to be expected of appellees, having been
fees in a reasonable amount. We deem P20,000.00 adequate for the purpose.
reared as legitimate children by their parents and treated as such by everybody, to bring an action to
compel their parents to acknowledge them. In the hitherto cited case of Ramos vs. Ramos, supra, the
IV
Supreme Court showed the way out of patent injustice and inequity that might result in some cases
The remaining assignement of error dwells on the question of whether or not respondents Amado, simply because of the implacable insistence on the technical amenities for acknowledgment. Thus, it
Ricardo, Cresenciano and Norberto, all surnamed Tongoy, may be considered legitimated by virtue of the held —
marriage of their parents, Francisco Tongoy and Antonina Pabello, subsequent to their births and shortly
Unacknowledged natural children have no rights whatsoever (Buenaventura vs. Urbano, 5 Phil. 1;
before Francisco died on September 15, 1926. Petitioners maintain that since the said respondents were
Siguiong vs. Siguiong, 8 Phil. 5, 11; Infante vs. Figueras, 4 Phil. 738; Crisolo vs. Macadaeg, 94 Phil.
never acknowledged by their father, they could not have been legitimated by the subsequent marriage
862). The fact that the plaintiffs, as natural children of Martin Ramos, received shares in his estate
of their parents, much less could they inherit from the estate of their father, the predecessor-in-interest
implied that they were acknowledged. Obviously, defendants Agustin Ramos and Granada Ramos and
of Luis D. Tongoy, who is admittedly the half brother of the said respondents.
the late Jose Ramos and members of his family had treated them as his children. Presumably, that fact
Both the trial court and the respondent appellate court have found overwhelming evidence to sustain the was well-known in the community. Under the circumstances, Agustin Ramos and Granada Ramos and
following conclusions: that Amado P. Tongoy, Ricardo P. Tongoy, Cresenciano P. Tongoy and Norberto P. the heirs of Jose Ramos, are estopped from attacking plaintiffs' status as acknowledged natural children
Tongoy were born illegitimate to Antonina Pabello on August 19, 1910 (Exh. A), August 12,1914 (Exh. (See Arts. 283 [4] and 2666 [3], New Civil Code). [Ramos vs. Ramos, supra].
B), December 1, 1915 (Exhs. C and C- 1) and August 4, 1922 (Exh. D), respectively; that Francisco
With the same logic, estoppel should also operate in this case in favor of appellees, considering, as
Tongoy was their father; that said Francisco Tongoy had before them two legitimate children by his first
already explained in detail, that they have always been treated as acknowledged and legitimated
wife, namely, Luis D. Tongoy and Patricio D. Tongoy; that Francisco Tongoy and Antonina Pabello were
children of the second marriage of Francisco Tongoy, not only by their presumed parents who raised
married sometime before his death on September 15, 1926 (Exh. H); that shortly thereafter, Luis D.
them as their children, but also by the entire Tongoy-Sonora clan, including Luis D. Tongoy himself who
 had furnished sustenance to the clan in his capacity as administrator of Hacienda Pulo and had in fact 1935 of an Assignment of Rights [4 or Z) in favor of Luis D. Tongoy by the Pacific Commercial Company
supported the law studies of appellee Ricardo P. Tongoy in Manila, the same way he did with Jesus T. as judgment lien-holder [subordinate of the PNB mortgage] of Jose Tongoy on Hacienda Pulo
Sonora in his medical studies. As already pointed out, even defendants-appellants have not questioned November 5, 1935 — Hacienda Pulo was placed in the name of Luis D. Tongoy married to Ma. Rosario
the fact that appellees are half-brothers of Luis D. Tongoy. As a matter of fact, that are really children Araneta with the issuance of TCT 20154 (Exh. 20);
of Francisco Tongoy and Antonina Pabello, and only the technicality that their acknowledgment as June 22, 1936 — An Escritura de Venta was executed by Basilisa Cuaycong over the Cuaycong property
natural children has not been formalized in any of the modes prescribed by law appears to stand in the in favor of Luis D. Tongoy, thereby resulting in the issuance of TCT No. 21522 in the name of Luis D.
way of granting them their hereditary rights. But estoppel, as already indicated, precludes defendants- Tongoy married to Ma. Rosario Araneta;
appellants from attacking appellees' status as acknowledged natural or legitimated children of Francisco June 26, 1936 — Luis D. Tongoy executed a real estate mortgage over the Cuaycong property in favor
Tongoy. In addition to estoppel, this is decidedly one instance when technicality should give way to of the PNB to secure a loan of P4,500.00; and
conscience, equity and justice. June 29, 1936 — Luis D. Tongoy executed a real estate mortgage over Hacienda Pulo to secure a loan
of P21,000.00 payable for fifteen years.
It is time that WE, too, take a liberal view in favor of natural children who, because they enjoy the
blessings and privileges of an acknowledged natural child and even of a legitimated child, found it rather When the mortgages were constituted, respondents Cresenciano Tongoy and Norberto Tongoy were still
awkward, if not unnecessary, to institute an action for recognition against their natural parents, who, minors, while respondent Amado Tongoy became of age on August 19, 1931, and Ricardo Tongoy attained
without their asking, have been showering them with the same love, care and material support as are majority age on August 12, 1935. Still, considering that such transfer of the properties in the name of
accorded to legitimate children. The right to participate in their father's inheritance should necessarily Luis D. Tongoy was made in pursuance of the master plan to save them from foreclosure, the said
follow. respondents were precluded from doing anything to assert their rights. It was only upon failure of the
herein petitioner, as administrator and/or successor-in-interest of Luis D. Tongoy, to return the properties
The contention that the rights of the said respondents — Tongoys have prescribed, is without merit. The that the prescriptive period should begin to run.
death of Francisco Tongoy having occurred on September 15, 1926, the provisions of the Spanish Civil
Code is applicable to this case, following the doctrine laid down in Villaluz vs. Neme (7 SCRA 27) where As above demonstrated, the prescriptive period is ten year-from the date of recording on May 5, 1958 of
this Court, through Mr. Justice Paredes, held: the release of mortgage in the Registry of Deeds.
Considering that Maria Rocabo died (on February 17, 1937) during the regime of the Spanish Civil Code,
the distribution of her properties should be governed by said Code, wherein it is provided that between WHEREFORE, THE JUDGMENT APPEALED FROM IS HEREBY AFFIRMED IN TOTO.
co-heirs, the act to demand the partition of the inheritance does not prescribe (Art. 1965 [Old Civil
Code]; Baysa, et al. vs. Baysa, 53 Off. Gaz. 7272). Verily, the 3 living sisters were possessing the
property as administratices of the other co-heirs, plaintiffs-appellants herein, who have the right to
vindicate their inheritance regardless of the lapse of time (Sevilla vs. De los Angeles, L- 7745, 51 Off.
Gaz. 5590, and cases cited therein).

Even following the more recent doctrine enunciated in Gerona vs. de Guzman (11 SCRA 153) that "an
action for reconveyance of real property based upon a constructive or implied trust, resulting from fraud,
may be barred by the statute of limitations" (Candelaria vs. Romero, L-12149, Sept. 30, 1960; Alzona
vs. Capunita, L-10220, Feb. 28, 1962)", and that "the action therefor may be filed within four years from
the discovery of the fraud x x x", said period may not be applied to this case in view of its peculiar
circumstances. The registration of the properties in the name of Luis D. Tongoy on November 8, 1935
cannot be considered as constructive notice to the whole world of the fraud.

It will be noted that the foreclosure on the original mortgage over Hacienda Pulo was instituted by PNB
as early as June 18, 1931, from which time the members of the Tongoy-Sonora clan had been in constant
conference to save the property. At that time all the respondents-Tongoys were still minors (except
Amado, who was already 23 years old then), so that there could be truth to the allegation that their
exclusion in the Declaration of Inheritance executed by Patricio and Luis Tongoy on April 29, 1933 was
made to facilitate matters-as part of the general plan arrived at after the family conferences to transfer
the administration of the property to the latter. The events that followed were obviously in pursuance of
such plan, thus:

March 13, 1934 — An Escritura de Venta (Exh. 2 or W) was executed in favor of Luis D. Tongoy by Ana
Tongoy, Teresa Tongoy, Mercedes Sonora, Trinidad Sonora, Juan Sonora and Patricio Tongoy,
transferring their rights and interests over Hacienda Pulo to the former.
October 23, 1935 — An Escritura de Venta (Exh. 3 or DD) was executed by Jesus Sonora, likewise
transferring his rights and interests over Hacienda Pulo to Luis D. Tongoy;
November 5, 1935 — An Escritura de Venta (Exh. 5 or AA) was also executed by Jose Tongoy in favor
of Luis D. Tongoy for the same purpose; (Note: This was preceded by the execution on October 14,
G.R. No. L-64693 April 27, 1984 In the event the condition of the three Toyota rears will no longer serve the purpose of the deed of
conveyance because of their deterioration, or because they are no longer serviceable, or because they
LITA ENTERPRISES, INC., petitioner, are no longer available, then Lita Enterprises, Inc. is ordered to pay the plaintiffs their fair market value
vs. as of July 22, 1975. (Annex "D", p. 167, Rollo.)
SECOND CIVIL CASES DIVISION, INTERMEDIATE APPELLATE COURT, NICASIO M. OCAMPO and
FRANCISCA P. GARCIA, respondents. Its first and second motions for reconsideration having been denied, petitioner came to Us, praying
that: têñ.£îhqwâ£
"Ex pacto illicito non oritur actio" [No action arises out of an illicit bargain] is the tune-honored maxim 2. ... after legal proceedings, decision be rendered or resolution be issued, reversing, annulling or
that must be applied to the parties in the case at bar. Having entered into an illegal contract, neither can amending the decision of public respondent so that:
seek relief from the courts, and each must bear the consequences of his acts. (a) the additional paragraph added by the public respondent to the DECISION of the lower court (CFI)
be deleted;
The factual background of this case is undisputed.
(b) that private respondents be declared liable to petitioner for whatever amount the latter has paid
or was declared liable (in Civil Case No. 72067) of the Court of First Instance of Manila to Rosita
Sometime in 1966, the spouses Nicasio M. Ocampo and Francisca Garcia, herein private respondents,
Sebastian Vda. de Galvez, as heir of the victim Florante Galvez, who died as a result ot the gross
purchased in installment from the Delta Motor Sales Corporation five (5) Toyota Corona Standard cars to
negligence of private respondents' driver while driving one private respondents' taxicabs.
be used as taxicabs. Since they had no franchise to operate taxicabs, they contracted with petitioner Lita
Enterprises, Inc., through its representative, Manuel Concordia, for the use of the latter's certificate of
Unquestionably, the parties herein operated under an arrangement, comonly known as the "kabit
public convenience in consideration of an initial payment of P1,000.00 and a monthly rental of P200.00
system", whereby a person who has been granted a certificate of convenience allows another person who
per taxicab unit. To effectuate Id agreement, the aforesaid cars were registered in the name of petitioner
owns motors vehicles to operate under such franchise for a fee. A certificate of public convenience is a
Lita Enterprises, Inc, Possession, however, remained with tile spouses Ocampo who operated and
special privilege conferred by the government . Abuse of this privilege by the grantees thereof cannot be
maintained the same under the name Acme Taxi, petitioner's trade name.
countenanced. The "kabit system" has been Identified as one of the root causes of the prevalence of graft
and corruption in the government transportation offices. In the words of Chief Justice Makalintal, 1 "this
About a year later, on March 18, 1967, one of said taxicabs driven by their employee, Emeterio Martin,
is a pernicious system that cannot be too severely condemned. It constitutes an imposition upon the goo
collided with a motorcycle whose driver, one Florante Galvez, died from the head injuries sustained
faith of the government.
therefrom. A criminal case was eventually filed against the driver Emeterio Martin, while a civil case for
damages was instituted by Rosita Sebastian Vda. de Galvez, heir of the victim, against Lita Enterprises,
Although not outrightly penalized as a criminal offense, the "kabit system" is invariably recognized as
Inc., as registered owner of the taxicab in the latter case, Civil Case No. 72067 of the Court of First
being contrary to public policy and, therefore, void and inexistent under Article 1409 of the Civil Code, It
Instance of Manila, petitioner Lita Enterprises, Inc. was adjudged liable for damages in the amount of
is a fundamental principle that the court will not aid either party to enforce an illegal contract, but will
P25,000.00 and P7,000.00 for attorney's fees.
leave them both where it finds them. Upon this premise, it was flagrant error on the part of both the trial
and appellate courts to have accorded the parties relief from their predicament. Article 1412 of the Civil
This decision having become final, a writ of execution was issued. One of the vehicles of respondent
Code denies them such aid. It provides:têñ.£îhqwâ£
spouses with Engine No. 2R-914472 was levied upon and sold at public auction for 12,150.00 to one
ART. 1412. if the act in which the unlawful or forbidden cause consists does not constitute a criminal
Sonnie Cortez, the highest bidder. Another car with Engine No. 2R-915036 was likewise levied upon and
offense, the following rules shall be observed;
sold at public auction for P8,000.00 to a certain Mr. Lopez.
(1) when the fault, is on the part of both contracting parties, neither may recover what he has given
Thereafter, in March 1973, respondent Nicasio Ocampo decided to register his taxicabs in his name. He by virtue of the contract, or demand the performance of the other's undertaking.
requested the manager of petitioner Lita Enterprises, Inc. to turn over the registration papers to him, but
The defect of inexistence of a contract is permanent and incurable, and cannot be cured by ratification or
the latter allegedly refused. Hence, he and his wife filed a complaint against Lita Enterprises, Inc., Rosita
by prescription. As this Court said in Eugenio v. Perdido, 2 "the mere lapse of time cannot give efficacy
Sebastian Vda. de Galvez, Visayan Surety & Insurance Co. and the Sheriff of Manila for reconveyance of
to contracts that are null void."
motor vehicles with damages, docketed as Civil Case No. 90988 of the Court of First Instance of Manila.
Trial on the merits ensued and on July 22, 1975, the said court rendered a decision, the dispositive portion
The principle of in pari delicto is well known not only in this jurisdiction but also in the United States
of which reads: têñ.£îhqwâ£
where common law prevails. Under American jurisdiction, the doctrine is stated thus: "The proposition is
WHEREFORE, the complaint is hereby dismissed as far as defendants Rosita Sebastian Vda. de Galvez,
universal that no action arises, in equity or at law, from an illegal contract; no suit can be maintained for
Visayan Surety & Insurance Company and the Sheriff of Manila are concerned.
its specific performance, or to recover the property agreed to be sold or delivered, or damages for its
Defendant Lita Enterprises, Inc., is ordered to transfer the registration certificate of the three Toyota
property agreed to be sold or delivered, or damages for its violation. The rule has sometimes been laid
cars not levied upon with Engine Nos. 2R-230026, 2R-688740 and 2R-585884 [Exhs. A, B, C and D]
down as though it was equally universal, that where the parties are in pari delicto, no affirmative relief
by executing a deed of conveyance in favor of the plaintiff.
of any kind will be given to one against the other." 3 Although certain exceptions to the rule are provided
Plaintiff is, however, ordered to pay Lita Enterprises, Inc., the rentals in arrears for the certificate of
by law, We see no cogent reason why the full force of the rule should not be applied in the instant case.
convenience from March 1973 up to May 1973 at the rate of P200 a month per unit for the three cars.
WHEREFORE, all proceedings had in Civil Case No. 90988 entitled "Nicasio Ocampo and Francisca P.
Petitioner Lita Enterprises, Inc. moved for reconsideration of the decision, but the same was denied by
Garcia, Plaintiffs, versus Lita Enterprises, Inc., et al., Defendants" of the Court of First Instance of Manila
the court a quo on October 27, 1975. (p. 121, Ibid.)
and CA-G.R. No. 59157-R entitled "Nicasio Ocampo and Francisca P. Garica, Plaintiffs-Appellees, versus
Lita Enterprises, Inc., Defendant-Appellant," of the Intermediate Appellate Court, as well as the decisions
On appeal by petitioner, docketed as CA-G.R. No. 59157-R, the Intermediate Appellate Court modified
rendered therein are hereby annuleled and set aside. No costs.
the decision by including as part of its dispositive portion another paragraph, to wit: têñ.£îhqwâ£
G.R. No. L-45038 April 30, 1987 The private respondent was one of the many occupants who refused to vacate the lots they were
occupying, so that on April 26, 1968, the petitioner filed the action below to recover the said lot.
MANOTOK REALTY, INC., petitioner,
vs. The trial court dismissed the petitioner's action after finding that the Identity of the parcel of land
THE HON. COURT OF APPEALS and FELIPE MADLANGAWA, respondents. described in the complaint had not been sufficiently established as the very same piece of land in the
material and physical possession of the private respondent.
The private respondent Felipe Madlangawa claims that he has been occupying a parcel of land in the Clara
de Tambunting de Legarda Subdivision since 1949 upon permission being obtained from Andres Ladores, On appeal, the respondent Court of Appeals found the Identity of the lot sought to be recovered by the
then an overseer of the subdivision, with the understanding that the respondent would eventually buy petitioner to be the same as that in the physical possession of the private respondent and ruled that the
the lot. only right remaining to the petitioner is to enforce the collection of the balance because accordingly, it
stepped into the shoes of its predecessor; and that since the area now in possession of the petitioner
On April 2, 1950, the owner of the lot, Clara Tambunting, died and her entire estate, including her which is that involved in the present case is only 115 square meters, the balance after deducting the
paraphernal properties which covered the lot occupied by the private respondent were placed deposit of P1,500.00 is P2,551.85, and as per order of the Court of First Instance of Manila, the said
under custodia legis. balance should be paid in 18 equal monthly installments.

On April 22, 1950, the private respondent made a deposit for the said lot in the sum of P1,500.00 which In this petition, the petitioner maintains that the Court of Appeals committed a reversible error in holding
was received by Vicente Legarda, husband of the late owner. As evidenced by the receipt issued by that the sale by Don Vicente Legarda in favor of the private respondent is valid, binding, and enforceable
Vicente Legarda, the lot consisted of an area of 240 square meters and was sold at P30.00 per square against the petitioner.
meter. There, thus, remained an unpaid balance of P5,700.00 but the private respondent did not pay or
was unable to pay this balance because after the death of the testatrix, Clara Tambunting de Legarda, The petitioner contends that since there is no dispute that the property in question was the paraphernal
her heirs could not settle their differences. Apart from the initial deposit, no further payments were made property of Clara Tambunting, who died on April 2, 1950, Vicente Legarda had no authority whatsoever
from 1950. to sell the said property to the private respondent on May 12, 1950 since the former was appointed as
administrator of the estate of Clara Tambunting only on August 28, 1950. Therefore, the questioned sale
On April 28, 1950, Don Vicente Legarda was appointed as a special administrator of the estate. Meanwhile could not have bound Clara Tambunting's estate because the vendor Vicente Legarda neither acted as
the private respondent remained in possession of the lot in question. the owner nor the administrator of the subject property when the alleged sale took place. As regards the
provision in the deed of sale which it executed with the Philippine Trust Company wherein it bound itself
Subsequently, the petitioner became the successful bidder and vendee of the Tambunting de Legarda
to respect the contracts of sale or promises to sell that may have been executed by Vicente Legarda and
Subdivision consisting of 44 parcels of land spread out in the districts of Tondo and Sta. Cruz, Manila,
renounced the right to warranty in case of eviction, the petitioner argues that this re-required respect
pursuant to the deeds of sale executed in its favor by the Philippine Trust Company on March 13 and 20,
only for those valid sales executed by the deceased Clara Tambunting and by persons vested with
1959, as administrator of the Testate Estate of Clara Tambunting de Legarda, in Special Proceeding No.
authority to act on behalf of the estate.
10809 of the Manila probate court. The lot in dispute was one of those covered by the sale. The Deed of
Sale, among others, provided for the following terms and conditions: On the other hand, the private respondent contends that the aforequoted provisions of the deed of sale
are a declaration or admission against the interest of the petitioner, and shows that the acts of Vicente
1. — The VENDEE assumes the risk and expenses of ejecting the tenants or squatters on the said
Legarda had been ratified by the Philippine Trust Company and approved by the probate court. The
parcels of land if it decides to eject them. Any rentals or damages that may be due or collectible from
petitioner, therefore, is allegedly estopped from questioning the authority of Vicente Legarda in selling
the said tenants or squatters for the period subsequent to the date of this deed of sale shall belong to
the property in dispute.
the VENDEE but rentals due from the said tenants or squatters prior to the execution of this deed of
sale shall belong to the VENDOR. It is an undisputed fact that the lot in dispute is the paraphernal property of Dona Clara Tambunting and
that at the time of the sale thereof, the owner was already dead. Thus, the only question to be resolved
3. — The VENDEE renounces the right to warranty in case of eviction with the knowledge of the risks
in this petition is: in what capacity did the husband of the deceased, Don Vicente Legarda, dispose of the
of eviction and assumes its consequences with respect not only to the lots subject-of the above
lot?
mentioned cases and claims but also with respect to any other lots subject of contracts of sale or
promises to sell that may have been executed by the deceased, Clara Tambunting de Legarda and/or Articles 136 and 137 of the Civil Code of the Philippines provide:
Vicente L. Legarda, and it hereby relieves the estate of Clara Tambunting de Legarda and the Philippine Art. 136. The wife retains the ownership of the paraphernal property.
Trust Company, in its capacity as Administrator thereof, of any and all liability with respect thereto in Art. 137. The wife shall have the administration of the paraphernal property, unless she delivers the
case of eviction. All sums of money that have been paid to the deceased Clara Tambunting de Legarda same to the husband by means of a public instrument empowering him to administer it.
and/or Vicente L. Legarda and/or the administrator of Clara Tambunting de Legarda on account of the In this case, the public instrument shall be recorded in the Registry of Property. As for the movables,
purchase price of said lots shall belong to the estate, but any sums of money that are or may be due the husband shall give adequate security.
as the balance of the purchase price of said lots shall belong to the VENDEE. (pp. 27-28, Rollo).
There is nothing in the records that wig show that Don Vicente Legarda was the administrator of the
In its effort to clear the Tambunting Subdivision of its squatters and occupants, the petitioner caused the paraphernal properties of Dona Clara Tambunting during the lifetime of the latter. Thus, it cannot be said
publication of several notices in the Manila Times issues of January 1, 1966 and the Taliba issues of that the sale which was entered into by the private respondent and Don Vicente Legarda had its inception
January 2, and March 16, 1966, advising the occupants to vacate their respective premises, otherwise, before the death of Dona Clara Tambunting and was entered into by the former for and on behalf of the
court action with damages would follow. In addition to these notices by publication, the petitioner sent latter, but was only consummated after her death. Don Vicente Legarda, therefore, could not have validly
circulars to the occupants to vacate.
disposed of the lot in dispute as a continuing administrator of the paraphernal properties of Dona Clara G.R. No. 73564 March 25, 1988
Tambunting.
CORNELIA CLANOR VDA. DE PORTUGAL, FRANCISCO C. PORTUGAL, PETRONA C. PORTUGAL,
It is also undisputed that the probate court appointed Don Vicente Legarda as administrator of the estate CLARITA PORTUGAL, LETICIA PORTUGAL, and BENEDICTO PORTUGAL, JR., petitioners,
only on August 28, 1950, more than three months after the questioned sale had taken place. vs.
INTERMEDIATE APPELLATE COURT and HUGO C. PORTUGAL, respondents.
We are, therefore, led to the inevitable conclusion that the sale between Don Vicente Legarda and the
private respondent is void ab initio, the former being neither an owner nor administrator of the subject Petitioner Cornelia Clanor and her late husband Pascual Portugal, during the lifetime of the latter, were
property. Such being the case, the sale cannot be the subject of the ratification by the Philippine Trust able to accumulate several parcels of real property. Among these were a parcel of residential land situated
Company or the probate court. As was held in the case of Arsenal v. Intermediate Appellate Court (143 in Poblacion, Gen. Trias, Cavite, designated as Lot No. 3201, consisting of 2,069 square meters, more or
SCRA 40, 49): less, and covered by T.C.T. No. RT-9355, in their names, and an agricultural land located at Pasong
Under the provisions of the Civil Code, a void contract is inexistent from the beginning. It cannot be Kawayan, Gen. Trias, Cavite, with an area of 43,587 square meters, more or less, known as Lot No. 2337,
ratified neither can the right to set up the defense of its illegality be waived. (Art. 1409, Civil Code . and also registered in their names under T.C.T. No. RT-9356 of the Registry of Deeds for the Province of
To further distinguish this contract from the other kinds of contract, a commentator has stated that. Cavite.
The right to set up the nullity of a void or non-existent contract is not limited to the parties as in the
case of annuable or voidable contracts, it is extended to third persons who are directly affected by Sometime in January, 1967, the private respondent Hugo Portugal, a son of the spouses, borrowed from
the contract. (Tolentino, Civil Code of the Philippines, Vol. IV, p. 604, [1973]). his mother, Cornelia, the certificates of title to the above-mentioned parcels of land on the pretext that
Any person may invoke the inexistence of the contract whenever juridical affects founded thereon he had to use them in securing a loan that he was negotiating. Cornelia, the loving and helpful mother
are asserted against him. (Id. P. 595). that she was, assented and delivered the titles to her son. The matter was never again brought up until
after Pascual Portugal died on November 17, 1974. (Cornelia herself died on November 12, 1987.) When
Section 1, Rule 89 of the Revised Rules of Court provides for the procedure on how a property in custodia the other heirs of the deceased Pascual Portugal, the petitioners herein, for the purposes of executing an
legis can be disposed of by sale: extra-judicial partition of Pascual's estate, wished to have all the properties of the spouses collated,
Order of sale of personalty. — Upon the application of the executor or administrator, and on written Cornelia asked the private respondent for the return of the two titles she previously loaned, Hugo
notice to the heirs and other persons interested, the court may order the whole or a part of the personal manifested that the said titles no longer exist. When further questioned, Hugo showed the petitioners
estate to be sold, if it appears necessary for the purpose of paying debts, expenses of administration, Transfer Certificate of Title T.C.T. No. 23539 registered in his and his brother Emiliano Portugal's names,
or legacies, or for the preservation of the property. and which new T.C.T. cancelled the two previous ones. This falsification was triggered by a deed of sale
by which the spouses Pascual Portugal and Cornelia Clanor purportedly sold for P8,000.00 the two parcels
After the appointment of Don Vicente Legarda as administrator of the estate of Dona Clara Tambunting, of land adverted to earlier to their two sons, Hugo and Emiliano. Confronted by his mother of this fraud,
he should have applied before the probate court for authority to sell the disputed property in favor of the Emiliano denied any participation. And to show his good faith, Emiliano caused the reconveyance of Lot
private respondent. If the probate court approved the request, then Don Vicente Legarda would have No. 2337 previously covered by TCT No. RT-9356 and which was conveyed to him in the void deed of
been able to execute a valid deed of sale in favor of the respondent. Unfortunately, there was no effort sale. Hugo, on the other hand, refused to make the necessary restitution thus compelling the petitioners,
on the part of the administrator to comply with the above-quoted rule of procedure nor on that of the his mother and his other brothers and sisters, to institute an action for the annulment of the controversial
respondent to protect his interests or to pay the balance of the installments to the court appointed deed of sale and the reconveyance of the title over Lot No. 3201 (the residential land). After hearing, the
administrator. trial court rendered its decision, the dispositive portion of which reads:
WHEREFORE, under our present perspectives, judgment is hereby rendered; and the Court hereby
As was held in Kline v. Shoup (226 Pacific Reporter 729, 731), which we find applicable in the case at
declares inoperative the Deed of Sale (Exhibit A and Exhibit 1) and all its appertaining and subsequent
bar:
documents corresponding with Transfer Certificate of Title No. T-23539 of the Register of Deeds for the
There are, however, certain steps to be taken in the administration of an estate which the law deems
Province of Cavite, as well as all subsequent Transfer Certificates of Title which may have been produced
of sufficient importance to have placed without the power of the probate court to effect under the
corresponding to the parcels of land, subject matter hereof.
jurisdiction acquired over the general subject matter by law and over the estate and those interested
therein, by the filing and due service of the petition for the appointment of an administrator and the The issues raised by the petitioners are:
order of appointment and issuance of letters, and at least one of such steps is the sale of the real 1. Whether or not the present action has prescribed;
property of an estate for the payment of the debts of the deceased. C.S. 7603, provides that — 2. Whether or not the respondent court was justified in disturbing the trial court's findings on the credibility of the
witnesses presented during the trial; and
No sale of any property of an estate of a decedent is valid unless made under order of the probate
3. Whether or not the appellate court could entertain the defense of prescription which was not raised by the private
court. ...
respondents in their answer to the complaint nor in a motion to dismiss.
From the foregoing, it cannot be denied that the law recognizes the issuance of an order of sale as an
indispensable requisite in effecting a valid sale of the property of a decedent's estate. ... There is really nothing novel in this case as an the issues raised had been, on several occasions, ruled
upon by the Court. Apropos the first issue, which is the timeliness of the action, the trial court correctly
Considering the location of the disputed lot, we find a monthly rental of Twenty Centavos (P0.20) per ruled that the action instituted by the petitioners has not yet prescribed. Be that as it may, the conclusion
square meter to be more than fair to the private respondent for his use of the premises. The petitioner, was reached through an erroneous rationalization, i.e., the case is purely for reconveyance based on an
however, should return the P 1,500.00 received by Mr. Legarda, with legal interest, to the respondent. implied or constructive trust. Obviously, the trial court failed to consider the lack of consideration or cause
WHEREFORE, IN VIEW OF THE FOREGOING, the decision appealed from is hereby REVERSED and SET ASIDE. The private respondent is ordered
in the purported deed of sale by which the residential lot was allegedly transferred to the private
to SURRENDER the material and physical possession of Lot No. 277, Block I to the petitioner and to pay the latter the rentals as stated above from respondent by his parents. On the other hand, the respondent Intermediate Appellate Court held that
May, 1950 until he surrenders the said lot. The petitioner shall reimburse the private respondent the amount of P1,500.00 with legal interest from
since the action for reconveyance was fathered by a fraudulent deed of sale, Article 1391 of the Civil
May, 1950 or offset said amount from the rentals due to it. Costs against the private respondent.
Code which lays down the rule that an action to annul a contract based on fraud prescribes in four years, G.R. No. 110053 October 16, 1995
applies. Hence, according to the respondent court, as more than four years had elapsed from January
23, 1967 when the assailed deed was registered and the petitioners' cause of action supposedly accrued, DEVELOPMENT BANK OF THE PHILIPPINES, petitioner,
the suit has already become stale when it was commenced on October 26, 1976, in the Court of First vs.
Instance of Cavite. For reasons shortly to be shown, we can not give our imprimatur to either view. COURT OF APPEALS, CELEBRADA MANGUBAT and ABNER MANGUBAT, respondents.

The case at bar is not purely an action for reconveyance based on an implied or constructive trust. Neither On July 20, 1981, herein petitioner Development Bank of the Philippines (DBP) executed a "Deed of
is it one for the annullment of a fraudulent contract. A closer scrutiny of the records of the case readily Absolute Sale" in favor of respondent spouses Celebrada and Abner Mangubat over a parcel of
supports a finding that fraud and mistake are not the only vices present in the assailed contract of sale unregistered land identified as Lot 1, PSU-142380, situated in the Barrio of Toytoy, Municipality of
as held by the trial court. More than these, the alleged contract of sale is vitiated by the total absence of Garchitorena, Province of Camarines Sur, containing an area of 55.5057 hectares, more or less.
a valid cause or consideration. The petitioners in their complaint, assert that they, particularly Cornelia,
The land, covered only by a tax declaration, is known to have been originally owned by one Presentacion
never knew of the existence of the questioned deed of sale. They claim that they came to know of the
Cordovez, who, on February 4, 1937, donated it to Luciano Sarmiento. On June 8, 1964, Luciano
supposed sale only after the private respondent, upon their repeated entreaties to produce and return
Sarmiento sold the land to Pacifico Chica.
the owner's duplicate copy of the transfer certificate of title covering the two parcels of land, showed to
them the controversial deed. And their claim was immeasurably bolstered when the private respondent's
On April 27, 1965, Pacifico Chica mortgaged the land to DBP to secure a loan of P6,000.00. However, he
co-defendant below, his brother Emiliano Portugal, who was allegedly his co-vendee in the transaction,
defaulted in the payment of the loan, hence DBP caused the extrajudicial foreclosure of the mortgage. In
disclaimed any knowledge or participation therein. If this is so, and this is not contradicted by the
the auction sale held on September 9, 1970, DBP acquired the property as the highest bidder and was
decisions of the courts below, the inevitable implication of the allegations is that contrary to the recitals
issued a certificate of sale on September 17, 1970 by the sheriff. The certificate of sale was entered in
found in the assailed deed, no consideration was ever paid at all by the private respondent. Applying the
the Book of Unregistered Property on September 23, 1970. Pacifico Chica failed to redeem the property,
provisions of Articles 1350, 1352, and 1409 of the new Civil Code in relation to the indispensable requisite
and DBP consolidated its ownership over the same.
of a valid cause or consideration in any contract, and what constitutes a void or inexistent contract, we
rule that the disputed deed of sale is void ab initio or inexistent, not merely voidable. And it is provided On October 14, 1980, respondent spouses offered to buy the property for P18,599.99. DBP made a
in Article 1410 of the Civil Code, that '(T)he action or defense for the declaration of the inexistence of a counter-offer of P25,500.00 which was accepted by respondent spouses. The parties further agreed that
contract does not prescribe. payment was to be made within six months thereafter for it to be considered as cash payment. On July
20, 1981, the deed of absolute sale, which is now being assailed herein, was executed by DBP in favor of
But even if the action of the petitioners is for reconveyance of the parcel of land based on an implied or
respondent spouses. Said document contained a waiver of the seller's warranty against eviction. 2
constructive trust, still it has been seasonably filed. For as heretofore stated, it is now settled that actions
of this nature prescribe in ten years, the point of reference being the date of registration of the deed or Thereafter, respondent spouses applied for an industrial tree planting loan with DBP. The latter required
the date of the issuance of the certificate of titIe over the property. 4 In this case, the petitioner the former to submit a certification from the Bureau of Forest Development that the land is alienable and
commenced the instant action for reconveyance in the trial court on October 26, 1976, or less than ten disposable. However, on October 29, 1981, said office issued a certificate attesting to the fact that the
years from January 23, 1967 when the deed of sale was registered with the Register of Deeds. 5 Clearly, said property was classified as timberland, hence not subject to disposition. 3
even on this basis alone, the present action has not yet prescribed.
The loan application of respondent spouses was nevertheless eventually approved by DBP in the sum of
On the credibility of witnesses presented in court, there is no doubt that the trial court's findings on this P140,000.00, despite the aforesaid certification of the bureau, on the understanding of the parties that
score deserves full respect and we do not have any reason to disturb it here now. 6 After all, the trial DBP would work for the release of the land by the former Ministry of Natural Resources. To secure
court judge is in a better position to make that appreciation for having heard personally the witnesses payment of the loan, respondent spouses executed a real estate mortgage over the land on March 17,
and observed their deportment and manner of testifying during the trial. 7 The exceptions to this time 1982, which document was registered in the Registry of Deeds pursuant to Act No. 3344.
honored policy are: when the trial court plainly overlooked certain facts of substantial import and value
which if only correctly considered by the court might change the outcome of the case; 8 and, if the judge The loan was then released to respondent spouses on a staggered basis. After a substantial sum of
who rendered the decision was not the one who heard the evidence. 9 Neither of these exceptions is P118,540.00 had been received by private respondents, they asked for the release of the remaining
present here. Therefore, the respondent appellate court's ruling questioning the credibility of petitioner amount of the loan. It does not appear that their request was acted upon by DBP, ostensibly because the
Cornelia Clanor Vda. de Portugal must be reversed. release of the land from the then Ministry of Natural Resources had not been obtained.

Anent the last issue raised by the petitioner, we have already ruled that the defense of prescription On July 7, 1983, respondent spouses, as plaintiffs, filed a complaint against DBP in the trial court 4 seeking
although not raised by the defendant may nevertheless be passed upon by the court when its presence the annulment of the subject deed of absolute sale on the ground that the object thereof was verified to
is plainly apparent on the face of the complaint itself. 10 At any rate, in view of our earlier finding that the be timberland and, therefore, is in law an inalienable part of the public domain. They also alleged that
deed of sale in controversy is not simply fraudulent but void ab initio or inexistent our ruling on this third petitioner, as defendant therein, acted fraudulently and in bad faith by misrepresenting itself as the
issue would not have any material bearing on the overall outcome of this petition. The petitioner's action absolute owner of the land and in incorporating the waiver of warranty against eviction in the deed of
remains to be seasonably instituted. sale.5

WHEREFORE, the petition is hereby GRANTED; the Decision dated October 21, 1985 and the Resolution dated January 24, In its answer, DBP contended that it was actually the absolute owner of the land, having purchased it for
1986 of the Intermediate Appellate Court are hereby REVERSED and SET ASIDE; the deed of sale dated January 23, 1967
value at an auction sale pursuant to an extrajudicial foreclosure of mortgage; that there was neither
evidencing the sale of Lot No. 3201 to private respondent Hugo Portugal is declared VOID AB INITIO; and the private
malice nor fraud in the sale of the land under the terms mutually agreed upon by the parties; that
respondent is ORDERED to reconvey to petitioners the title over the said Lot No. 3201 which is now under TCT No. T-
23539. Costs against the private respondent. assuming arguendo that there was a flaw in its title, DBP can not be held liable for anything inasmuch as
respondent spouses had full knowledge of the extent and nature of DBP's rights, title and interest over has either a certain title in property transferred in consideration of the payment or a certain authority to
the land. receive the money paid, when in fact he has no such title or authority, then, although there be no fraud
or intentional misrepresentation on his part, yet there is no consideration for the payment, the money
It further averred that the annulment of the sale and the return of the purchase price to respondent remains, in equity and good conscience, the property of the payer and may be recovered back by him."
spouses would redound to their benefit but would result in petitioner's prejudice, since it had already
released P118,540.00 to the former while it would be left without any security for the P140,000.00 loan; Therefore, the purchaser is entitled to recover the money paid by him where the contract is set aside by
and that in the remote possibility that the land is reverted to the public domain, respondent spouses reason of the mutual material mistake of the parties as to the identity or quantity of the land sold. 15 And
should be made to immediately pay, jointly and severally, the total amount of P118,540.00 with interest where a purchaser recovers the purchase money from a vendor who fails or refuses to deliver the title,
at 15% per annum, plus charges and other expenses.6 he is entitled as a general rule to interest on the money paid from the time of payment. 16

On May 25, 1990, the trial court rendered judgment annulling the subject deed of absolute sale and A contract which the law denounces as void is necessarily no contract whatever, and the acts of the
ordering DBP to return the P25,500.00 purchase price, plus interest; to reimburse to respondent spouses parties in an effort to create one can in no wise bring about a change of their legal status. The parties
the taxes paid by them, the cost of the relocation survey, incidental expenses and other damages in the and the subject matter of the contract remain in all particulars just as they did before any act was
amount of P50,000.00; and to further pay them attorney's fees and litigation expenses in the amount of performed in relation thereto. 17
P10,000.00, and the costs of suit.7
An action for money had and received lies to recover back money paid on a contract, the consideration
In its recourse to the Court of Appeals, DBP raised the following assignment of errors: of which has failed. 18 As a general rule, if one buys the land of another, to which the latter is supposed
1. The trial court erred in declaring the deed of absolute sale executed between the parties canceled and annulled on to have a good title, and, in consequence of facts unknown alike to both parties, he has no title at all,
the ground that therein defendant-appellant had no title over the property subject of the sale.
equity will cancel the transaction and cause the purchase money to be restored to the buyer, putting both
2. The trial court erred in finding that defendant-appellant DBP acted fraudulently and in bad faith or that it had
misrepresented facts since it had prior knowledge that subject property was part of the public domain at the time of sale
parties in status quo. 19
to therein plaintiffs-appellees.
3. The trial court erred in finding said plaintiffs-appellees' waiver of warranty against eviction void. Thus, on both local and foreign legal principles, the return by DBP to respondent spouses of the purchase
4. The trial court erred awarding to therein plaintiffs-appellees damages arising from an alleged breach of contract. price, plus corresponding interest thereon, is ineluctably called for.
5. The trial court erred in not ordering said plaintiffs-appellees to pay their loan obligation to defendant-appellant DBP
in the amount of P118,540. 8 Petitioner likewise contends that the trial court and respondent Court of Appeals erred in ordering the
reimbursement of taxes and the cost of the relocation survey, there being no factual or legal basis
As substantially stated at the outset, respondent Court of Appeals rendered judgment modifying the therefor. It argues that private respondents merely submitted a "list of damages" allegedly incurred by
disposition of the court below by deleting the award for damages, attorney's fees, litigation expenses and them, and not official receipts of expenses for taxes and said survey. Furthermore, the same list has
the costs, but affirming the same in all its other aspects.9 On April 7, 1993, said appellate court also allegedly not been identified or even presented at any stage of the proceedings, since it was vigorously
denied petitioner's motion for reconsideration. 10 objected to by DBP.

Not satisfied therewith, DBP interposed the instant petition for review on certiorari, raising the following Contrary to the claim of petitioner, the list of damages was presented in the trial court and was
issues: correspondingly marked as "Exhibit P." 20 The said exhibit was, thereafter, admitted by the trial court but
1. Whether or not private respondent spouses Celebrada and Abner Mangubat should be ordered to only as part of the testimonial evidence for private respondents, as stated in its Order dated August 16,
pay petitioner DBP their loan obligation due under the mortgage contract executed between them and 1988.21
DBP; and
2. Whether or not petitioner should reimburse respondent spouses the purchase price of the property However, despite that admission of the said list of damages as evidence, we agree with petitioner that
and the amount of P11,980.00 for taxes and expenses for the relocation Survey. 11 the same cannot constitute sufficient legal basis for an award of P4,000.00 and P7,980.00 as
reimbursement for land taxes and expenses for the relocation survey, respectively. The list of damages
Considering that neither party questioned the legality and correctness of the judgment of the court a quo, was prepared extrajudicially by respondent spouses by themselves without any supporting receipts as
as affirmed by respondent court, ordering the annulment of the deed of absolute sale, such decreed bases thereof or to substantiate the same. That list, per se, is necessarily self-serving and, on that
nullification of the document has already achieved finality. We only need account, should have been declared inadmissible in evidence as the factum probans.

The Court of Appeals, after an extensive discussion, found that there had been no bad faith on the part In order that damages may be recovered, the best evidence obtainable by the injured party must be
of either party, and this r, therefore, to dwell on the effects of that declaration of nullity.emains presented. Actual or compensatory damages cannot be presumed, but must be duly proved, and so
uncontroverted as a fact in the case at bar. Correspondingly, respondent court correctly applied the rule proved with a reasonable degree of certainty. A court cannot rely on speculation, conjecture or guesswork
that if both parties have no fault or are not guilty, the restoration of what was given by each of them to as to the fact and amount of damages, but must depend upon competent proof that they have been
the other is consequently in order. 12 This is because the declaration of nullity of a contract which is suffered and on evidence of the actual amount thereof. If the proof is flimsy and unsubstantial, no
void ab initio operates to restore things to the state and condition in which they were found before the damages will be awarded. 22
execution thereof. 13
Turning now to the issue of whether or not private respondents should be made to pay petitioner their
We also find ample support for said propositions in American jurisprudence. The effect of an application loan obligation amounting to P118,540.00, we answer in the affirmative.
of the aforequoted rule with respect to the right of a party to recover the amount given as consideration
has been passed upon in the case of Leather Manufacturers National Bank vs. Merchants National In its legal context, the contract of loan executed between the parties is entirely different and discrete
Bank 14 where it was held that: "Whenever money is paid upon the representation of the receiver that he from the deed of sale they entered into. The annulment of the sale will not have an effect on the existence
and demandability of the loan. One who has received money as a loan is bound to pay to the creditor an G.R. No. L-33048 April 16, 1982
equal amount of the same kind and quality. 23
EPIFANIA SARSOSA VDA. DE BARSOBIA and PACITA W. VALLAR, petitioners,
The fact that the annulment of the sale will also result in the invalidity of the mortgage does not have an vs.
effect on the validity and efficacy of the principal obligation, for even an obligation that is unsupported VICTORIANO T. CUENCO, respondent.
by any security of the debtor may also be enforced by means of an ordinary action. Where a mortgage
is not valid, as where it is executed by one who is not the owner of the property, or the consideration of The lot in controversy is a one-half portion (on the northern side) of two adjoining parcels of coconut land
the contract is simulated 25 or false, 26 the principal obligation which it guarantees is not thereby rendered located at Barrio Mancapagao, Sagay, Camiguin, Misamis Oriental (now Camiguin province), with an area
null and void. That obligation matures and becomes demandable in accordance with the stipulations of 29,150 square meters, more or less. 2
pertaining to it.
The entire land was owned previously by a certain Leocadia Balisado, who had sold it to the spouses
Under the foregoing circumstances, what is lost is only the right to foreclose the mortgage as a special Patricio Barsobia (now deceased) and Epifania Sarsosa, one of the petitioners herein. They are Filipino
remedy for satisfying or settling the indebtedness which is the principal obligation. In case of nullity, the citizens.
mortgage deed remains as evidence or proof of a personal obligation of the debtor, and the amount due
On September 5, 1936, Epifania Sarsosa then a widow, sold the land in controversy to a Chinese, Ong
to the creditor may be enforced in an ordinary personal action. 27
King Po, for the sum of P1,050.00 (Exhibit "B"). Ong King Po took actual possession and enjoyed the
It was likewise incorrect for the Court of Appeals to deny the claim of petitioner for payment of the loan fruits thereof.
on the ground that it failed to present the promissory note therefor. While respondent court also made
On August 5, 1961, Ong King Po sold the litigated property to Victoriano T. Cuenco (respondent herein),
the concession that its judgment was accordingly without prejudice to the filing by petitioner of a separate
a naturalized Filipino, for the sum of P5,000.00 (Exhibit "A"). Respondent immediately took actual
action for the collection of that amount, this does not detract from the adverse effects of that erroneous
possession and harvested the fruits therefrom.
ruling on the proper course of action in this case.

On March 6, 1962, Epifania "usurped" the controverted property, and on July 26, 1962, Epifania (through
The fact is that a reading of the mortgage contract 28 executed by respondent spouses in favor of
petitioner, dated March 17, 1982, will readily show that it embodies not only the mortgage but the her only daughter and child, Emeteria Barsobia), sold a one-half (1/2) portion of the land in question to
Pacita W. Vallar, the other petitioner herein (Exhibit "2"). Epifania claimed that it was not her intention
complete terms and conditions of the loan agreement as well. The provisions of said contract, specifically
to sell the land to Ong King Po and that she signed the document of sale merely to evidence her
paragraphs 16 and 28 thereof, are so precise and clear as to thereby render unnecessary the introduction
indebtedness to the latter in the amount of P1,050.00. Epifania has been in possession ever since except
of the promissory note which would merely serve the same purpose.
for the portion sold to the other petitioner Pacita.
Furthermore, respondent Celebrada Mangubat expressly acknowledged in her testimony that she and her
On September 19, 1962, respondent filed a Forcible Entry case against Epifania before the Municipal
husband are indebted to petitioner in the amount of P118,000.00, more or less. 29 Admissions made by
Court of Sagay, Camiguin. The case was dismissed for lack of jurisdiction since, as the laws then stood,
the parties in the pleadings or in the course of the trial or other proceedings do not require proof and can
the question of possession could not be properly determined without first settling that of ownership.
not be contradicted unless previously shown to have been made through palpable mistake. 30

On December 27, 1966, respondent instituted before the Court of First Instance of Misamis Oriental a
Thus, the mortgage contract which embodies the terms and conditions of the loan obligation of
Complaint for recovery of possession and ownership of the litigated land, against Epifania and Pacita
respondent spouses, as well as respondent Celebrada Mangubat's admission in open court, are more than
Vallar (hereinafter referred to simply as petitioners).
adequate evidence to sustain petitioner's claim for payment of private respondents' aforestated
indebtedness and for the adjudication of DBP's claim therefor in the very same action now before us.
In their Answer below, petitioners insisted that they were the owners and possessors of the litigated land;
that its sale to Ong King Po, a Chinese, was inexistent and/or void ab initio; and that the deed of sale
It is also worth noting that the adjustment and allowance of petitioner's demand by counterclaim or set-
between them was only an evidence of Epifania's indebtedness to Ong King Po.
off in the present action, rather than by another independent action, is favored or encouraged by law.
Such a practice serves to avoid circuitry of action, multiplicity of suits, inconvenience, expense, and
The trial Court rendered judgment:
unwarranted consumption of the time of the court. The trend of judicial decisions is toward a liberal
1. Dismissing the complaint with costs against plaintiff (respondent herein).
extension of the right to avail of counterclaims or set-offs. 31
2. Declaring the two Deeds of Sale, Exhibits A and B, respectively, inexistent and void from the
beginning; and
The rules on counterclaim are designed to achieve the disposition of a whole controversy of the conflicting
3. Declaring defendant Pacita W. Vallar as the lawful owner and possessor of the portion of land she
claims of interested parties at one time and in one action, provided all parties can be brought before the
bought from Emeteria Barsobia (pp. 57, 67, Record.) 3
court and the matter decided without prejudicing the rights of any party. 32

On appeal, the Court of Appeals reversed the aforementioned Decision and decreed instead that
WHEREFORE, the judgment appealed from is hereby MODIFIED, by deleting the award of P11,980.00 as
respondent was the owner of the litigated property, thus:
reimbursement for taxes and expenses for the relocation survey, and ordering respondent spouses
In view of all the foregoing considerations, the judgment appealed from is hereby reversed. In lieu
Celebrada and Abner Mangubat to pay petitioner Development Bank of the Philippines the amount of
thereof, we render judgment:
P118,540.00, representing the total amount of the loan released to them, with interest of 15% per
(a) Declaring the plaintiff-appellant Victoriano T. Cuenco the absolute owner of the land in question,
annum plus charges and other expenses in accordance with their mortgage contract. In all other respects,
with the right of possession thereof;
the said judgment of respondent Court of Appeals is AFFIRMED.
(b) Ordering the defendants-appellees to restore the possession of said land to the plaintiff;
 (c) Dismissing the defendants' counterclaim; While, strictly speaking, Ong King Po, private respondent's vendor, had no rights of ownership to transmit,
(d) Condemning the defendants to pay to the plaintiff the sum of it is likewise inescapable that petitioner Epifania had slept on her rights for 26 years from 1936 to 1962.
P10,000.00 representing the latter's share from the sale of copra which he failed to receive since By her long inaction or inexcusable neglect, she should be held barred from asserting her claim to the
March, 1962 when he was deprived of his possession over the land, and which defendants illegally litigated property (Sotto vs. Teves, 86 SCRA 157 [1978]).
appropriated it to their own use and benefit, plus legal interest from the filing of the complaint until Laches has been defined as the failure or neglect, for an unreasonable and unexplained length of time,
fully paid; plus P2,000.00 representing expenses and attorney's fees; to do that which by exercising due diligence could or should have been done earlier; it is negligence or
(e) Sentencing the defendants to pay the costs. omission to assert a right within a reasonable time, warranting a presumption that the party entitled
to assert it either has abandoned it or declined to assert it. (Tijam, et al. vs. Sibonghanoy, et al., No.
Following the denial of their Motion for Reconsideration, petitioners filed the instant Petition for Review L-21450, April 15, 1968, 23 SCRA 29, 35). (cited in Sotto vs. Teves, 86 SCRA 154 [1978]).
on certiorari with this Court on January 21, 1971. Petitioners claim that the Court of Appeals erred:
I. ... when it reversed the judgment of the trial court declaring petitioner Pacita W. Vallar as the lawful Respondent, therefore, must be declared to be the rightful owner of the property.
possessor and owner of the portion of land she purchased from Emeteria Barsobia, not a party to this
case, there being no evidence against her. The award of actual damages in respondent's favor of P10,000.00, as well as of attorney's fees and
II ... when it included petitioner Pacita W. Vallar to pay P10,000.00, with legal interest from the filing expenses of litigation of P2,000.00, is justified. Respondent was deprived of the possession of his land
of the complaint, representing respondent's share in the harvest and to pay the costs, there being no and the enjoyment of its fruits from March, 1962. The Court of Appeals fixed respondent's share of the
evidence against her. sale of copra at P10,000.00 for eight years at four (4) harvests a year. The accuracy of this finding has
III. ... when it condemned petitioners to pay P2,000.00 representing expenses and attorney's fees, not been disputed.
there being no factual, legal and equitable justification.
However, we find merit in the assigned error that petitioner, Pacita Vallar, should not be held also liable
IV. ... in not applying the rule on pari delicto to the facts of the case or the doctrine enunciated ... in
for actual damages to respondent. In the absence of contrary proof, she, too, must be considered as a
the case of Philippine Banking Corporation vs. Lui She, L-17587, September 12, 1967, to ... Petitioner
Epifania Sarsosa Vda. de Barsobia. vendee in good faith of petitioner Epifania.
V. ... in denying, for lack of sufficient merits, petitioners' motion for rehearing or reconsideration of its
The award of attorney's fees and litigation expenses in the sum of P2,000.00 in respondent's favor is in
decision. 5
order considering that both petitioners compelled respondent to litigate for the protection of his interests.
Moreover, the amount is reasonable. 10
As the facts stand, a parcel of coconut land was sold by its Filipino owner, petitioner Epifania, to a Chinese,
Ong King Po, and by the latter to a naturalized Filipino, respondent herein. In the meantime, the Filipino
WHEREFORE, except for that portion holding petitioner, Pacita W. Vallar, also liable for damages of
owner had unilaterally repudiated the sale she had made to the Chinese and had resold the property to
P10,000.00, the appealed judgment is hereby affirmed.
another Filipino. The basic issue is: Who is the rightful owner of the property?
Costs against petitioners.
There should be no question that the sale of the land in question in 1936 by Epifania to Ong King Po was
inexistent and void from the beginning (Art. 1409 [7], Civil Code) 6 because it was a contract executed
against the mandatory provision of the 1935 Constitution, which is an expression of public policy to
conserve lands for the Filipinos. Said provision reads:
Save in cases of hereditary succession, no private agricultural land shall be transferred or assigned
except to individuals, corporations, or associations, qualified to acquire or hold lands of the public
domain. 7

Had this been a suit between Epifania and Ong King Po, she could have been declared entitled to the
litigated land on the basis, as claimed, of the ruling in Philippine Banking Corporation vs. Lui
She, 8 reading:
... For another thing, and this is not only cogent but also important. Article 1416 of the Civil Code
provides as an exception to the rule on pari delicto that when the agreement is not illegal per se but is
merely prohibited, and the prohibition by the law is designed for the protection of the plaintiff, he may,
if public policy is thereby enhanced, recover what he has sold or delivered. ...

But the factual set-up has changed. The litigated property is now in the hands of a naturalized Filipino. It
is no longer owned by a disqualified vendee. Respondent, as a naturalized citizen, was constitutionally
qualified to own the subject property. There would be no more public policy to be served in allowing
petitioner Epifania to recover the land as it is already in the hands of a qualified person. Applying by
analogy the ruling of this Court in Vasquez vs. Giap and Li Seng Giap & Sons: 9
... if the ban on aliens from acquiring not only agricultural but also urban lands, as construed by this
Court in the Krivenko case, is to preserve the nation's lands for future generations of Filipinos, that aim
or purpose would not be thwarted but achieved by making lawful the acquisition of real estate by aliens
who became Filipino citizens by naturalization.
G.R. No. L-36731 January 27, 1983 alleged document of sale executed by Jose Godinez on November 27, 1941, conveyed the property to
defendant Fong Pak Luen as a result of which a title was issued to said defendant; that under Article 1144
VICENTE GODINEZ, ET AL., plaintiffs-appellants, (1) of the Civil Code, an action based upon a written contract must be brought within 10 years from the
vs. time the right of action accrues; that the right of action accrued on November 27, 1941 but the complaint
FONG PAK LUEN ET AL., defendants, TRINIDAD S. NAVATA, defendant-appellee. was filed only on September 30, 1966, beyond the 10 year period provided for by law; that the torrens
title in the name of defendant Navata is indefeasible who acquired the property from defendant Fong Pak
The plaintiffs filed this case to recover a parcel of land sold by their father, now deceased, to Fong Pak
Luen who had been in possession of the property since 1941 and thereafter defendant Navata had
Luen, an alien, on the ground that the sale was null and void ab initio since it violates applicable provisions
possessed the same for the last 25 years including the possession of Fong Pak Luen; that the complaint
of the Constitution and the Civil Code.
is intended to harass the defendant as a civic leader and respectable member of the community as a
result of which she suffered moral damages of P100,000.00, P2,500.00 for attorney's fees and P500.00
The order of the Court of First Instance of Sulu dismissing the complaint was appealed to the Court of
expenses of litigation, hence, said defendant prays that the complaint be dismissed and that her
Appeals but the latter court certified the appeal to us since only pure questions of law were raised by the
counterclaim be granted, with costs against the plaintiffs. On November 24, 1967, the plaintiffs filed an
appellants.
answer to the affirmative defenses and counter-claim. As the defendants Fong Pak Luen and Kwan Pun
The facts of the case were summarized by the Court of Appeals as follows: Ming are residing outside the Philippines, the trial court upon motion issued an order of April 17, 1967,
for the service of summons on said defendants by publication. No answer has been filed by said
On September 30, 1966, the plaintiffs filed a complaint in the Court of First Instance of Sulu alleging defendants.
among others that they are the heirs of Jose Godinez who was married to Martina Alvarez Godinez
sometime in 1910; that during the marriage of their parents the said parents acquired a parcel of land On December 2, 196 7, the court issued an order as follows:
lot No. 94 of Jolo townsite with an area of 3,665 square meters as evidenced by Original Certificate of Both parties having agreed to the suggestion of the Court that they submit their supplemental pleadings
Title No. 179 (D -155) in the name of Jose Godinez; that their mother died sometime in 1938 leaving the to support both motion and opposition and after submittal of the same the said motion to dismiss which
plaintiffs as their sole surviving heirs; that on November 27, 1941, without the knowledge of the plaintiffs, is an affirmative defense alleged in the complaint is deemed submitted. Failure of both parties or either
the said Jose Godinez, for valuable consideration, sold the aforesaid parcel of land to the defendant Fong party to submit their supplemental pleadings on or about December 9, the Court will resolve the case.
Pak Luen, a Chinese citizen, which transaction is contrary to law and in violation of the Civil Code because
On November 29, 1968, the trial court issued an order missing the complaint without pronouncement as
the latter being an alien who is inhibited by law to purchase real property; that Transfer Certificate Title
to costs. (Record on Appeal, pp. 31- 37). A motion for reconsideration of this order was filed by the
No. 884 was then issued by the Register of Deeds to the said defendant, which is null and void ab
plaintiffs on December 12, 196F, which was denied by the trial court in an order of July 11, 1969, (Rec.
initio since the transaction constituted a non-existent contract; that on January 11, 1963, said defendant
on Appeal, pp. 38, 43, 45, 47). The plaintiffs now interpose this appeal with the following assignments of
Fong Pak Luen executed a power of attorney in favor of his co-defendant Kwan Pun Ming, also an alien,
errors:
who conveyed and sold the above described parcel of land to co-defendant Trinidad S. Navata, who is
I. The trial court erred in dismissing plaintiffs-appellants' complaint on the ground of prescription of
aware of and with full knowledge that Fong Pak Luen is a Chinese citizen as well as Kwan Pun Ming, who
action, applying Art. 1144 (1) New Civil Code on the basis of defendant Trinidad S. Navata's affirmative
under the law are prohibited and disqualified to acquire real property in this jurisdiction; that defendant
defense of prescription in her answer treated as a motion to dismiss.
Fong Pak Luen has not acquired any title or interest in said parcel of land as the purported contract of
II. The trial court erred in denying plaintiffs-appellants' motion for reconsideration of the order of
sale executed by Jose Godinez alone was contrary to law and considered non- existent, so much so that
dismissal.
the alleged attorney-in-fact, defendant Kwan Pun Ming had not conveyed any title or interest over said
III. The trial court erred in not ordering this case to be tried on the merits."
property and defendant Navata had not acquired anything from said grantor and as a consequence
Transfer Certificate of Title No. 1322, which was issued by the Register of Deeds in favor of the latter is
The appellants contend that the lower court erred in dismissing the complaint on the ground that their
null and void ab initio,- that since one-half of the said property is conjugal property inherited by the
cause of action has prescribed. While the issue raised appears to be only the applicability of the law
plaintiffs from their mother, Jose Godinez could -not have legally conveyed the entire property; that
governing prescription, the real question before us is whether or not the heirs of a person who sold a
notwithstanding repeated demands on said defendant to surrender to plaintiffs the said property she
parcel of land to an alien in violation of a constitutional prohibition may recover the property if it had, in
refused and still refuses to do so to the great damage and prejudice of the plaintiffs; and that they were
the meantime, been conveyed to a Filipino citizen qualified to own and possess it.
constrained to engage the services of counsel in the sum of P2,000.00.1äwphï1.ñët The plaintiffs thus
pray that they be adjudged as the owners of the parcel of land in question and that Transfer Certificate The question is not a novel one. Judicial precedents indicate fairly clearly how the question should be
of Title RT-90 (T-884) issued in the name of defendant Fong Pak Luen be declared null and void ab initio; resolved.
and that the power of attorney issued in the name of Kwan Pun Ming, as well as Transfer Certificate of
Title No. 'L322 issued in the name of defendant Navata be likewise declared null and void, with costs There can be no dispute that the sale in 1941 by Jose Godinez of his residential lot acquired from the
against defendants. Bureau of Lands as part of the Jolo townsite to Fong Pak Luen, a Chinese citizen residing in Hongkong,
was violative of Section 5, Article XIII of the 1935 Constitution which provided:
On August 18, 1966, the defendant Register of Deeds filed an answer claiming that he was not yet the Sec. 5. Save in cases of hereditary succession, no private agricultural land will be transferred or
register of deeds then; that it was only the ministerial duty of his office to issue the title in favor of the assigned except to individuals, corporations, or associations qualified to acquire or hold lands of the
defendant Navata once he was determined the registerability of the documents presented to his office. public domain in the Philippines.

On October 20, 1966, the defendant Navata filed her answer with the affirmative defenses and The meaning of the above provision was fully discussed in Krivenko v. Register of Deeds of Manila (79
counterclaim alleging among others that the complaint does not state a cause of action since it appears Phil. 461) which also detailed the evolution of the provision in the public land laws, Act No. 2874 and
from the allegation that the property is registered in the name of Jose Godinez so that as his sole property Commonwealth Act No. 141. The Krivenko ruling that "under the Constitution aliens may not acquire
he may dispose of the same; that the cause of action has been barred by the statute of limitations as the private or agricultural lands, including residential lands" is a declaration of an imperative constitutional
policy. Consequently, prescription may never be invoked to defend that which the Constitution prohibits. . . . (I)f the ban on aliens from acquiring not only agricultural but, also urban lands, as construed by
However, we see no necessity from the facts of this case to pass upon the nature of the contract of sale this Court in the Krivenko case, is to preserve the nation's land for future generations of Filipinos, that
executed by Jose Godinez and Fong Pak Luen whether void ab initio, illegal per se or merely pro- aim or purpose would not be thwarted but achieved by making lawful the acquisition of real estate by
exhibited.** It is enough to stress that insofar as the vendee is concerned, prescription is unavailing. aliens who became Filipino citizens by naturalization. The title to the parcel of land of the vendee, a
But neither can the vendor or his heirs rely on an argument based on imprescriptibility because the land naturalized Filipino citizen, being valid that of the domestic corporation to which the parcel of land has
sold in 1941 is now in the hands of a Filipino citizen against whom the constitutional prescription was been transferred, must also be valid, 96.67 per cent of its capital stock being owned by Filipinos.
never intended to apply. The lower court erred in treating the case as one involving simply the application
of the statute of limitations. Herrera v. Luy Kim Guan (SCRA 406) reiterated the above ruling by declaring that where land is sold to
a Chinese citizen, who later sold it to a Filipino, the sale to the latter cannot be impugned.
From the fact that prescription may not be used to defend a contract which the Constitution prohibits, it
does not necessarily follow that the appellants may be allowed to recover the property sold to an alien. The appellants cannot find solace from Philippine Banking Corporation v. Lui She (21 SCRA 52) which
As earlier mentioned, Fong Pak Luen, the disqualified alien vendee later sold the same property to Trinidad relaxed the pari delicto doctrine to allow the heirs or successors-in-interest, in appropriate cases, to
S. Navata, a Filipino citizen qualified to acquire real property. recover that which their predecessors sold to aliens.

In Vasquez v. Li Seng Giap and Li Seng Giap & Sons (96 Phil. 447), where the alien vendee later sold the Only recently, in Sarsosa vda. de Barsobia v. Cuenco (113 SCRA 547) we had occasion to pass upon a
property to a Filipino corporation, this Court, in affirming a judgment dismissing the complaint to rescind factual situation substantially similar to the one in the instant case. We ruled:
the sale of real property to the defendant Li Seng Giap on January 22, 1940, on the ground that the
But the factual set-up has changed. The litigated property is now in the hands of a naturalized Filipino.
vendee was an alien and under the Constitution incapable to own and hold title to lands, held:
It is no longer owned by a disqualified vendee. Respondent, as a naturalized citizen, was constitutionally
In Caoile vs. Yu Chiao 49 Qff Gaz., 4321; Talento vs. Makiki 49 Off. Gaz., 4331; Bautista vs. Uy 49 Off. qualified to own the subject property. There would be no more public policy to be served in allowing
Gaz., 4336; Rellosa vs. Gaw Chee 49 Off. Gaz., 4345 and Mercado vs. Go Bio, 49 Off. Gaz., 5360, the petitioner Epifania to recover the land as it is already in the hands of a qualified person. Applying by
majority of this Court has ruled that in sales of real estate to aliens incapable of holding title thereto analogy the ruling of this Court in Vasquez vs. Giap & Sons: (.96 Phil. 447 [1955])
by virtue of the provisions of the Constitution (Section 5, Article XIII Krivenko vs. Register of Deeds, 44
Off. Gaz., 471) both the vendor and the vendee are deemed to have committed the constitutional ... if the ban on aliens from acquiring not only agricultural but also urban lands, as construed by this
Court in the Krivenko case, is to preserve the nation's lands for future generations of Filipinos, that aim
violation and being thus in pari delicto the courts will not afford protection to either party. (Article 1305,
or purpose would not be thwarted but achieved by making lawful the acquisition of real estate by aliens
old Civil Code; Article 1411, new Civil Code) From this ruling three Justices dissented. (Mr. Justice
who became Filipino citizens by naturalization.
Pablo, Mr. Justice Alex. Reyes and the writer. See Caoile vs. Yu Chiao Talento vs. Makiki Bautista us.
Uy, Rellosa vs. Gaw Chee and Mercado vs. Go Bio). supra.
While, strictly speaking, Ong King Po, private respondent's vendor, had no rights of ownership to
transmit, it is likewise in escapable that petitioner Epifania had slept on her rights for 26 years from
The action is not of rescission because it is not postulated upon any of the grounds provided for in
1936 to 1962. By her long inaction or inexcusable neglect, she should be held barred from asserting
Article 1291 of the old Civil Code and because the action of rescission involves lesion or damage and
her claim to the litigated property (Sotto vs. Teves, 86 SCRA 157 [1978])
seeks to repair it. It is an action for annulment under Chapter VI, Title II, Book 11, on nullity of
contracts, based on a defect in the contract which invalidates it independently of such lesion or
Laches has been defined as the failure or neglect, for an unreasonable and unexplained length of time,
damages. (Manresa, Commentarios al Codigo Civil Espanol Vol. VIII, p. 698, 4th ed.) It is very likely
to do that which by exercising due diligence could or should have been done earlier; it is negligence or
that the majority of this Court proceeded upon that theory when it applied the in pari delicto rule
ommission to assert a right within a reasonable time, warranting a presumption that the party entitled
referred to above.
to assert it either has abandoned it or declined to assert it. (Tijam, et al. vs. Sibonghanoy, et al., No.
L-21450, April 15, 1968, 23 SCRA 29, 35).' (Cited in Sotto vs. Teves, 86 SCRA 154 [1978]).
In the United States the rule is that in a sale of real estate to an alien disqualified to hold title thereto
the vendor divests himself of the title to such real estate and has no recourse against the vendee
Respondent, therefore, must be declared to be the rightful owner of the property.
despite the latter's disability on account of alienage to hold title to such real estate and the vendee may
hold it against the whole world except as against the State. It is only the State that is entitled by In the light of the above considerations, we find the second and third assignments of errors without merit.
proceedings in the nature of office found to have a forfeiture or escheat declared against the vendee Respondent Navata, the titled owner of the property is declared the rightful owner.
who is incapable of holding title to the real estate sold and conveyed to him. Abrams vs. State, 88 Pac.
327; Craig vs. Leslie et al., 4 Law, Ed. 460; 3 Wheat, 563, 589590; Cross vs. Del Valle, 1 Wall, [U.S.] WHEREFORE, the instant appeal is hereby denied. The orders dismissing the complaint and denying the
513; 17 Law. Ed., 515; Governeur vs. Robertson, 11 Wheat, 332, 6 Law. Ed., 488.) motion for reconsideration are affirmed.

However, if the State does not commence such proceedings and in the meantime the alien becomes
naturalized citizen, the State is deemed to have waived its right to escheat the real property and the
title of the alien thereto becomes lawful and valid as of the date of its conveyance or transfer to him.
(Osterman vs. Baldwin, 6 Wall, 116, 18 Law. ed. 730; Manuel vs. Wulff, 152 U.S. 505, 38 Law. ed.
532; Pembroke vs. Houston, 79, SW 470; Fioerella vs. Jones, 259 SW 782. The rule in the United States
that in a sale of real estate to an alien disqualified to hold title thereto, the vendor divests himself of
the title to such real estate and is not permitted to sue for the annulment Of his Contract, is also the
rule under the Civil Code. ... Article 1302 of the old Civil Code provides: ... Persons sui juris cannot,
however, avail themselves of the incapacity of those with whom they contracted; ...
G.R. No. L-11240 December 18, 1957 1955, like the Supreme Court of Spain in its decision of 16 Feb. 1899, has ruled that bonuses granted to
employees to excite their zeal and efficiency, with consequent benefit for the employer, do not constitute
CONCHITA LIGUEZ, petitioner, donation having liberality for a consideration.
vs.
THE HONORABLE COURT OF APPEALS, MARIA NGO VDA. DE LOPEZ, ET AL., respondents. Here the facts as found by the Court of Appeals (and which we can not vary) demonstrate that in making
the donation in question, the late Salvador P. Lopez was not moved exclusively by the desire to benefit
The case began upon complaint filed by petitioner-appellant against the widow and heirs of the late appellant Conchita Liguez, but also to secure her cohabiting with him, so that he could gratify his sexual
Salvador P. Lopez to recover a parcel of 51.84 hectares of land, situated in barrio Bogac-Linot, of the impulses. This is clear from the confession of Lopez to the witnesses Rodriguez and Ragay, that he was
municipality of Mati, Province of Davao. Plaintiff averred to be its legal owner, pursuant to a deed of in love with appellant, but her parents would not agree unless he donated the land in question to her.
donation of said land, executed in her favor by the late owner, Salvador P. Lopez, on 18 May 1943. The Actually, therefore, the donation was but one part of an onerous transaction (at least with appellant's
defense interposed was that the donation was null and void for having an illicit causa or consideration, parents) that must be viewed in its totality. Thus considered, the conveyance was clearly predicated upon
which was the plaintiff's entering into marital relations with Salvador P. Lopez, a married man; and that an illicit causa.
the property had been adjudicated to the appellees as heirs of Lopez by the court of First Instance, since
1949. Appellant seeks to differentiate between the alleged liberality of Lopez, as causa for the donation in her
favor, and his desire for cohabiting with appellant, as motives that impelled him to make the donation,
The Court of Appeals found that the deed of donation was prepared by the Justice of the Peace of Mati, and quotes from Manresa and the jurisprudence of this Court on the distinction that must be maintained
Davao, before whom it was signed and ratified on the date aforesaid. At the time, the appellant Liguez between causa and motives (De Jesus vs. Urrutia and Co., 33 Phil. 171). It is well to note, however that
was a minor, only 16 years of age. While the deed recites— Manresa himself (Vol. 8, pp. 641-642), while maintaining the distinction and upholding the
That the DONOR, Salvador P. Lopez, for and in the consideration of his love and affection for the said inoperativeness of the motives of the parties to determine the validity of the contract, expressly excepts
DONEE, Conchita Liguez, and also for the good and valuable services rendered to the DONOR by the from the rule those contracts that are conditioned upon the attainment of the motives of either party.
DONEE, does by these presents, voluntarily give grant and donate to the said donee, etc.
The same view is held by the Supreme Court of Spain, in its decisions of February 4, 1941, and December
the Court of Appeals found that when the donation was made, Lopez had been living with the parents of 4, 1946, holding that the motive may be regarded as causa when it predetermines the purpose of the
appellant for barely a month; that the donation was made in view of the desire of Salvador P. Lopez, a contract.
man of mature years, to have sexual relations with appellant Conchita Liguez; that Lopez had confessed
to his love for appellant to the instrumental witnesses, with the remark that her parents would not allow In the present case, it is scarcely disputable that Lopez would not have conveyed the property in question
Lopez to live with her unless he first donated the land in question; that after the donation, Conchita had he known that appellant would refuse to cohabit with him; so that the cohabitation was an implied
Liguez and Salvador P. Lopez lived together in the house that was built upon the latter's orders, until condition to the donation, and being unlawful, necessarily tainted the donation itself.
Lopez was killed on July 1st, 1943, by some guerrillas who believed him to be pro-Japanese.
The Court of Appeals rejected the appellant's claim on the basis of the well- known rule "in pari delicto non oritur actio" as
It was also ascertained by the Court of Appeals that the donated land originally belonged to the conjugal embodied in Article 1306 of 1889 (reproduced in Article 1412 of the new Civil Code):
ART. 1412. If the act in which the unlawful or forbidden cause consists does not constitute a criminal offense, the
partnership of Salvador P. Lopez and his wife, Maria Ngo; that the latter had met and berated Conchita
following rules shall be observed:
for living maritally with her husband, sometime during June of 1943; that the widow and children of Lopez (1) When the fault is on the part of both contracting parties, neither may recover what he has given by virtue of the
were in possession of the land and made improvements thereon; that the land was assessed in the tax contract, or demand the performance of the other's undertaking;
rolls first in the name of Lopez and later in that of his widow.; and that the deed of donation was never (2) When only one of the contracting parties is at fault, he cannot recover, what he has given by reason of the contract,
recorded. or ask for fulfillment of what has been promised him. The other, who is not at fault, may demand the return of what
he has given without any obligation to comply with his promise.
Upon these facts, the Court of Appeals held that the deed of donation was inoperative, and null and void (1) because the
husband, Lopez, had no right to donate conjugal property to the plaintiff appellant; and (2) because the donation was In our opinion, the Court of Appeals erred in applying to the present case the pari delicto rule. First,
tainted with illegal cause or consideration, of which donor and donee were participants. because it can not be said that both parties here had equal guilt when we consider that as against the
deceased Salvador P. Lopez, who was a man advanced in years and mature experience, the appellant
Appellant vigorously contends that the Court of First Instance as well as the Court of Appeals erred in was a mere minor, 16 years of age, when the donation was made; that there is no finding made by the
holding the donation void for having an illicit cause or consideration. It is argued that under Article 1274 Court of Appeals that she was fully aware of the terms of the bargain entered into by and Lopez and her
of the Civil Code of 1889 (which was the governing law in 1948, when the donation was executed), "in parents; that, her acceptance in the deed of donation (which was authorized by Article 626 of the Old
contracts of pure beneficence the consideration is the liberality of the donor", and that liberality per se Civil Code) did not necessarily imply knowledge of conditions and terms not set forth therein; and that
can never be illegal, since it is neither against law or morals or public policy. the substance of the testimony of the instrumental witnesses is that it was the appellant's parents who
insisted on the donation before allowing her to live with Lopez. These facts are more suggestive of
The flaw in this argument lies in ignoring that under Article 1274, liberality of the do or is deemed causa in
seduction than of immoral bargaining on the part of appellant. It must not be forgotten that illegality is
those contracts that are of "pure" beneficence; that is to say, contracts designed solely and exclusively
not presumed, but must be duly and adequately proved.
to procure the welfare of the beneficiary, without any intent of producing any satisfaction for the donor;
contracts, in other words, in which the idea of self-interest is totally absent on the part of the transferor. In the second place, the rule that parties to an illegal contract, if equally guilty, will not be aided by the
For this very reason, the same Article 1274 provides that in remuneratory contracts, the consideration is law but will both be left where it finds them, has been interpreted by this Court as barring the party from
the service or benefit for which the remuneration is given; causa is not liberality in these cases because pleading the illegality of the bargain either as a cause of action or as a defense. Memo auditor propriam
the contract or conveyance is not made out of pure beneficence, but "solvendi animo." In consonance turpitudinem allegans. Said this Court in Perez vs. Herranz, 7 Phil. 695-696:
with this view, this Supreme Court in Philippine Long Distance Co. vs. Jeturian * G.R. L-7756, July 30,
 It is unnecessary to determine whether a vessel for which a certificate and license have been To determine the prejudice to the widow, it must be shown that the value of her share in the property
fraudulently obtained incurs forfeiture under these or any other provisions of this act. It is enough for donated can not be paid out of the husband's share of the community profits. The requisite data, however,
this case that the statute prohibits such an arrangement as that between the plaintiff and defendant so are not available to us and necessitate a remand of the records to the court of origin that settled the
as to render illegal both the arrangement itself and all contracts between the parties growing out of it. estate of the late Salvador P. Lopez.

It does not, however, follow that the plaintiff can succeed in this action. There are two answers to his The situation of the children and forced heirs of Lopez approximates that of the widow. As privies of their
claim as urged in his brief. It is a familiar principle that the courts will not aid either party to enforce parent, they are barred from invoking the illegality of the donation. But their right to a legitime out of his
an illegal contract, but will leave them both where it finds them; but where the plaintiff can establish a estate is not thereby affected, since the legitime is granted them by the law itself, over and above the
cause of action without exposing its illegality, the vice does not affect his right to recover. The American wishes of the deceased. Hence, the forced heirs are entitled to have the donation set aside in so far as in
authorities cited by the plaintiff fully sustain this doctrine. The principle applies equally to a defense. officious: i.e., in excess of the portion of free disposal (Civil Code of 1889, Articles 636, 654) computed
The law in those islands applicable to the case is found in article 1305 of the Civil Code, shutting out as provided in Articles 818 and 819, and bearing in mind that "collationable gifts" under Article 818 should
from relief either of the two guilty parties to an illegal or vicious contract. include gifts made not only in favor of the forced heirs, but even those made in favor of strangers, as
decided by the Supreme Court of Spain in its decisions of 4 May 1899 and 16 June 1902. So that in
In the case at bar the plaintiff could establish prima facie his sole ownership by the bill of sale from computing the legitimes, the value of the property to herein appellant, Conchita Liguez, should be
Smith, Bell and Co. and the official registration. The defendant, on his part, might overthrow this title considered part of the donor's estate. Once again, only the court of origin has the requisite date to
by proof through a certain subsequent agreement between him and the plaintiff, dated March 16, 1902, determine whether the donation is inofficious or not.
that they had become owners in common of the vessel, 'the agreement not disclosing the illegal motive
for placing the formal title in the plaintiff. Such an ownership is not in itself prohibited, for the United With regard to the improvements in the land in question, the same should be governed by the rules of
States courts recognize the equitable ownership of a vessel as against the holder of a legal title, where accession and possession in good faith, it being undisputed that the widow and heirs of Lopez were
the arrangement is not one in fraud of the law. (Weston vs. Penniman, Federal Case 17455; Scudder unaware of the donation in favor of the appellant when the improvements were made.
vs. Calais Steamboat Company, Federal Case 12566.).
The appellees, relying on Galion vs. Garayes, 53 Phil. 43, contend that by her failure to appear at the
On this proof, the defendant being a part owner of the vessel, would have defeated the action for its liquidation proceedings of the estate of Salvador P. Lopez in July 1943, the appellant has forfeited her
exclusive possession by the plaintiff. The burden would then be cast upon the plaintiff to show the right to uphold the donation if the prejudice to the widow Maria Ngo resulting from the donation could be
illegality of the arrangement, which the cases cited he would not be allowed to do. made good out of the husband's share in the conjugal profits. It is also argued that appellant was guilty
of laches in failing to enforce her rights as donee until 1951. This line of argument overlooks the capital
The situation confronting us is exactly analogous. The appellant seeks recovery of the disputed land on fact that in 1943, appellant was still a minor of sixteen; and she did not reach the age of majority until
the strength of a donation regular on its face. To defeat its effect, the appellees must plead and prove 1948. Hence, her action in 1951 was only delayed three years. Nor could she be properly expected to
that the same is illegal. But such plea on the part of the Lopez heirs is not receivable, since Lopez, himself, intervene in the settlement of the estate of Lopez: first, because she was a minor during the great part
if living, would be barred from setting up that plea; and his heirs, as his privies and successors in interest, of the proceedings; second, because she was not given notice thereof ; and third, because the donation
can have no better rights than Lopez himself. did not make her a creditor of the estate. As we have ruled in Lopez vs. Olbes, 15 Phil. 547-548:

Appellees, as successors of the late donor, being thus precluded from pleading the defense of immorality The prima facie donation inter vivos and its acceptance by the donees having been proved by means
or illegal causa of the donation, the total or partial ineffectiveness of the same must be decided by of a public instrument, and the donor having been duly notified of said acceptance, the contract is
different legal principles. In this regard, the Court of Appeals correctly held that Lopez could not donate perfect and obligatory and it is perfectly in order to demand its fulfillment, unless an exception is proved
the entirety of the property in litigation, to the prejudice of his wife Maria Ngo, because said property which is based on some legal reason opportunely alleged by the donor or her heirs.
was conjugal in character and the right of the husband to donate community property is strictly limited
by law. So long as the donation in question has not been judicially proved and declared to be null, inefficacious,
or irregular, the land donated is of the absolute ownership of the donees and consequently, does not
ART. 1409. The conjugal partnership shall also be chargeable with anything which may have been given or promised by form a part of the property of the estate of the deceased Martina Lopez; wherefore the action instituted
the husband alone to the children born of the marriage in order to obtain employment for them or give then, a profession
demanding compliance with the contract, the delivery by the deforciant of the land donated, or that it
or by both spouses by common consent, should they not have stipulated that such expenditures should be borne in
whole or in part by the separate property of one of them.". be, prohibited to disturb the right of the donees, should not be considered as incidental to the probate
proceedings aforementioned.
ART. 1415. The husband may dispose of the property of the conjugal partnership for the purposes mentioned in Article
1409.) The case of Galion vs. Gayares, supra, is not in point. First, because that case involved a stimulated
transfer that case have no effect, while a donation with illegal causa may produce effects under certain
ART. 1413. In addition to his powers as manager the husband may for a valuable consideration alienate and encumber
circumstances where the parties are not of equal guilt; and again, because the transferee in the Galion
the property of the conjugal partnership without the consent of the wife.
case took the property subject to lis pendens notice, that in this case does not exist.
The text of the articles makes it plain that the donation made by the husband in contravention of law is
In view of the foregoing, the decisions appealed from are reversed and set aside, and the appellant
not void in its entirety, but only in so far as it prejudices the interest of the wife. In this regard, as
Conchita Liguez declared entitled to so much of the donated property as may be found, upon proper
Manresa points out (Commentaries, 5th Ed., pp. 650-651, 652-653), the law asks no distinction between
liquidation, not to prejudice the share of the widow Maria Ngo in the conjugal partnership with Salvador
gratuitous transfers and conveyances for a consideration.
P. Lopez or the legitimes of the forced heirs of the latter. The records are ordered remanded to the court
of origin for further proceedings in accordance with this opinion. Costs against appellees. So ordered.
G.R. No. L-65510 March 9, 1987 boundary fee beginning October 1976 when the motorcycle was impounded by the LTC for not being
registered.
TEJA MARKETING AND/OR ANGEL JAUCIAN, petitioner,
vs. The defendant disputed the claim of the plaintiff that he was hiding from the plaintiff the motorcycle
HONORABLE INTERMEDIATE APPELLATE COURT * AND PEDRO N. NALE, respondents. resulting in its not being registered. The truth being that the motorcycle was being used for transporting
passengers and it kept on travelling from one place to another. The motor vehicle sold to him was
"'Ex pacto illicito' non oritur actio" (No action arises out of illicit bargain) is the time-honored maxim that mortgaged by the plaintiff with the Rural Bank of Camaligan without his consent and knowledge and the
must be applied to the parties in the case at bar. Having entered into an illegal contract, neither can seek defendant was not even given a copy of the mortgage deed. The defendant claims that it is not true that
relief from the courts, and each must bear the consequences of his acts." (Lita Enterprises vs. IAC, 129 the motorcycle was mortgaged because of re-discounting for rediscounting is only true with Rural Banks
SCRA 81.) and the Central Bank. The defendant puts the blame on the plaintiff for not registering the motorcycle
with the LTC and for not giving him the registration papers inspite of demands made. Finally, the evidence
The factual background of this case is undisputed. The same is narrated by the respondent court in its
of the defendant shows that because of the filing of this case he was forced to retain the services of a
now assailed decision, as follows:
lawyer for a fee on not less than P1,000.00.

On May 9, 1975, the defendant bought from the plaintiff a motorcycle with complete accessories and a
... it also appears and the Court so finds that defendant purchased the motorcycle in question, particularly
sidecar in the total consideration of P8,000.00 as shown by Invoice No. 144 (Exh. "A"). Out of the total
for the purpose of engaging and using the same in the transportation business and for this purpose said
purchase price the defendant gave a downpayment of P1,700.00 with a promise that he would pay plaintiff
trimobile unit was attached to the plaintiffs transportation line who had the franchise, so much so that in
the balance within sixty days. The defendant, however, failed to comply with his promise and so upon his
the registration certificate, the plaintiff appears to be the owner of the unit. Furthermore, it appears to
own request, the period of paying the balance was extended to one year in monthly installments until
have been agreed, further between the plaintiff and the defendant, that plaintiff would undertake the
January 1976 when he stopped paying anymore. The plaintiff made demands but just the same the
yearly registration of the unit in question with the LTC. Thus, for the registration of the unit for the year
defendant failed to comply with the same thus forcing the plaintiff to consult a lawyer and file this action
1976, per agreement, the defendant gave to the plaintiff the amount of P82.00 for its registration, as
for his damage in the amount of P546.21 for attorney's fees and P100.00 for expenses of litigation. The
well as the insurance coverage of the unit.
plaintiff also claims that as of February 20, 1978, the total account of the defendant was already
P2,731.06 as shown in a statement of account (Exhibit. "B"). This amount includes not only the balance Eventually, petitioner Teja Marketing and/or Angel Jaucian filed an action for "Sum of Money with
of P1,700.00 but an additional 12% interest per annum on the said balance from January 26, 1976 to Damages" against private respondent Pedro N. Nale in the City Court of Naga City. The City Court
February 27, 1978; a 2% service charge; and P 546.21 representing attorney's fees. rendered judgment in favor of petitioner, the dispositive portion of which reads:
WHEREFORE, decision is hereby rendered dismissing the counterclaim and ordering the defendant to
In this particular transaction a chattel mortgage (Exhibit 1) was constituted as a security for the payment
pay plaintiff the sum of P1,700.00 representing the unpaid balance of the purchase price with legal rate
of the balance of the purchase price. It has been the practice of financing firms that whenever there is a
of interest from the date of the filing of the complaint until the same is fully paid; to pay plaintiff the
balance of the purchase price the registration papers of the motor vehicle subject of the sale are not sum of P546.21 as attorney's fees; to pay plaintiff the sum of P200.00 as expenses of litigation; and to
given to the buyer. The records of the LTC show that the motorcycle sold to the defendant was first
pay the costs.
mortgaged to the Teja Marketing by Angel Jaucian though the Teja Marketing and Angel Jaucian are one
and the same, because it was made to appear that way only as the defendant had no franchise of his On appeal to the Court of First Instance of Camarines Sur, the decision was affirmed in toto. Private
own and he attached the unit to the plaintiff's MCH Line. The agreement also of the parties here was for respondent filed a petition for review with the Intermediate Appellate Court and on July 18, 1983 the said
the plaintiff to undertake the yearly registration of the motorcycle with the Land Transportation Court promulgated its decision, the pertinent portion of which reads —
Commission. Pursuant to this agreement the defendant on February 22, 1976 gave the plaintiff P90.00, However, as the purchase of the motorcycle for operation as a trimobile under the franchise of the
the P8.00 would be for the mortgage fee and the P82.00 for the registration fee of the motorcycle. The private respondent Jaucian, pursuant to what is commonly known as the "kabit system", without the
plaintiff, however failed to register the motorcycle on that year on the ground that the defendant failed prior approval of the Board of Transportation (formerly the Public Service Commission) was an illegal
to comply with some requirements such as the payment of the insurance premiums and the bringing of transaction involving the fictitious registration of the motor vehicle in the name of the private
the motorcycle to the LTC for stenciling, the plaintiff saying that the defendant was hiding the motorcycle respondent so that he may traffic with the privileges of his franchise, or certificate of public
from him. Lastly, the plaintiff explained also that though the ownership of the motorcycle was already convenience, to operate a tricycle service, the parties being in pari delicto, neither of them may bring
transferred to the defendant the vehicle was still mortgaged with the consent of the defendant to the an action against the other to enforce their illegal contract [Art. 1412 (a), Civil Code].
Rural Bank of Camaligan for the reason that all motorcycle purchased from the plaintiff on credit was WHEREFORE, the decision under review is hereby set aside. The complaint of respondent Teja Marketing
rediscounted with the bank. and/or Angel Jaucian, as well as the counterclaim of petitioner Pedro Nale in Civil Case No. 1153 of the
Court of First Instance of Camarines Sur (formerly Civil Case No. 5856 of the City Court of Naga City)
On his part the defendant did not dispute the sale and the outstanding balance of P1,700. 00 still payable
are dismissed. No pronouncement as to costs.
to the plaintiff. The defendant was persuaded to buy from the plaintiff the motorcycle with the side car
because of the condition that the plaintiff would be the one to register every year the motorcycle with The decision is now before Us on a petition for review, petitioner Teja Marketing and/or Angel Jaucian
the Land Transportation Commission. In 1976, however, the plaintfff failed to register both the chattel presenting a lone assignment of error — whether or not respondent court erred in applying the doctrine
mortgage and the motorcycle with the LTC notwithstanding the fact that the defendant gave him P90.00 of "pari delicto."
for mortgage fee and registration fee and had the motorcycle insured with La Perla Compana de Seguros
(Exhibit "6") as shown also by the Certificate of cover (Exhibit "3"). Because of this failure of the plaintiff We find the petition devoid of merit.
to comply with his obligation to register the motorcycle the defendant suffered damages when he failed
to claim any insurance indemnity which would amount to no less than P15,000.00 for the more than two Unquestionably, the parties herein operated under an arrangement, commonly known as the "kabit
times that the motorcycle figured in accidents aside from the loss of the daily income of P15.00 as system" whereby a person who has been granted a certificate of public convenience allows another person
who owns motor vehicles to operate under such franchise for a fee. A certificate of public convenience is G.R. No. L-23559 October 4, 1971
a special privilege conferred by the government. Abuse of this privilege by the grantees thereof cannot
be countenanced. The "kabit system" has been Identified as one of the root causes of the prevalence of AURELIO G. BRIONES, plaintiff-appellee,
graft and corruption in the government transportation offices. vs.
PRIMITIVO P. CAMMAYO, ET AL., defendants-appellants.
Although not outrightly penalized as a criminal offense, the kabit system is invariably recognized as being
contrary to public policy and, therefore, void and in existent under Article 1409 of the Civil Code. It is a On February 22, 1962, Aurelio G. Briones filed an action in the Municipal Court of Manila against Primitivo,
fundamental principle that the court will not aid either party to enforce an illegal contract, but will leave Nicasio, Pedro, Hilario and Artemio, all surnamed Cammayo, to recover from them, jointly and severally,
both where it finds then. Upon this premise it would be error to accord the parties relief from their the amount of P1,500.00, plus damages, attorney's fees and costs of suit. The defendants answered the
predicament. Article 1412 of the Civil Code denies them such aid. It provides: complaint with specific denials and the following special defenses and compulsory counterclaim:
Art. 1412. If the act in which the unlawful or forbidden cause consists does not constitute a criminal
By way of — SPECIAL DEFENSES
offense, the following rules shall be observed:
1. When the fault is on the part of both contracting parties, neither may recover that he has given
Defendants allege:
by virtue of the contract, or demand, the performance of the other's undertaking.
4. Defendants executed the real estate mortgage, Annex "A" of the complaint, as security for the loan of
The defect of in existence of a contract is permanent and cannot be cured by ratification or by prescription.
P1,200.00 given to defendant Primitivo P. Cammayo upon the usurious agreement that defendant pays
The mere lapse of time cannot give efficacy to contracts that are null and void.
to the plaintiff and that the plaintiff reserve and secure, as in fact plaintiff reserved and secured himself,
out of the alleged loan of P1,500.00 as interest the sum of P300.00 for one year;
WHEREFORE, the petition is hereby dismissed for lack of merit. The assailed decision of the Intermediate
Appellate Court (now the Court of Appeals) is AFFIRMED. No costs.
5. That although the mortgage contract, Annex "A" was executed for securing the payment of P1,500.00
for a period of one year, without interest, the truth and the real fact is that plaintiff delivered to the
defendant Primitivo P. Cammayo only the sum of P1,200.00 and withheld the sum of P300.00 which was
intended as advance interest for one year;

6. That on account of said loan of P1,200.00, defendant Primitivo P. Cammayo paid to the plaintiff during
the period from October 1955 to July 1956 the total sum of P330.00 which plaintiff, illegally and unlawfully
refuse to acknowledge as part payment of the account but as in interest of the said loan for an extension
of another term of one year;

7. That said contract of loan entered into between plaintiff and defendant Primitivo P. Cammayo is a
usurious contract and is contrary to law, morals, good customs, public order or public policy and is,
therefore, in existent and void from the beginning (Art. 1407 Civil Code);

And as — COMPULSORY COUNTERCLAIM

Defendants replead all their allegations in the preceding paragraphs;

8. That plaintiff, by taking and receiving interest in excess of that allowed by law, with full intention to
violate the law, at the expense of the defendants, committed a flagrant violation of Act 2655, otherwise
known as the Usury Law, causing the defendants damages and attorney's fees, the amount of which will
be proven at the trial;

9. That this is the second time this same case is filed before this court, the first having been previously
filed and docketed in this court as Civil Case No. 75845 (Branch VII) and the same was dismissed by the
Court of First Instance of Manila on July 13, 1961 in Civil Case No. 43121 (Branch XVII) and for repeatedly
bringing this case to the court, harassing and persecuting defendants in that manner, defendants have
suffered mental anguish and anxiety for which they should be compensated for moral damages.

On September 7, 1962, Briones filed an unverified reply in which he merely denied the allegations of the
counterclaim. Thereupon the defendants moved for the rendition of a summary judgment on the ground
that, upon the record, there was no genuine issue of fact between the parties. The Municipal Court granted
the motion and rendered judgment sentencing the defendants to pay the plaintiff the sum of P1,500.00,
with interests thereon at the legal rate from February 22, 1962, plus the sum of P150.00 as attorney's
fees. From this judgment, the defendants appealed to the Court of First Instance of Manila where,
according to the appealed decision, "defendant has asked for summary judgment and plaintiff has agreed
to the same." (Record on Appeal p. 21). Having found the motion for summary judgment to be in order, The meaning and scope of our ruling in the cases mentioned heretofore is clearly stated, and the view
the court then, proceeded to render judgment as follows: referred to in the preceding paragraph is adequately answered, in Angel Jose, etc. vs. Chelda Enterprises,
Judgment is, therefore, rendered, ordering Defendant to pay plaintiff the sum of P1,180.00 with interest et al. (L-25704, April 24, 1968). On the question of whether a creditor in a usurious contract may or may
thereon at the legal rate from October 16, 1962 until fully paid. This judgment represents Defendant's not recover the principal of the loan, and, in the affirmative, whether or not he may also recover interest
debt of P1,500.00 less usurious interest of P120.00 and the additional sum of P200.00 as attorney's thereon at the legal rate, We said the following:
fees or a total deduction of P320.00. Plaintiff shall pay the costs.
The court found that there remained due from defendants an unpaid principal amount of P20,287.50;
In the present appeal defendants claim that the trial court erred in sentencing them to pay the principal that plaintiff charged usurious interests, of which P1,048.15 had actually been deducted in advance by
of the loan notwithstanding its finding that the same was tainted with usury, and erred likewise in not plaintiff from the loan; that said amount of P1,048.15 should therefore be deducted from the unpaid
dismissing the case. principal of P20,287.50, leaving a balance of P19,247.35 still payable to the plaintiff. Said court held
that notwithstanding the usurious interests charged, plaintiff is not barred from collecting the principal
It is not now disputed that the contract of loan in question was tainted with usury. The only questions to of the loan or its balance of P19,247.35. Accordingly, it stated in the dispositive portion of the decision,
be resolved, therefore, are firstly, whether the creditor is entitled to collect from the debtor the amount thus:
representing the principal obligation; secondly, in the affirmative, if he is entitled to collect interests
thereon, and if so, at what rate. WHEREFORE, judgment is hereby rendered, ordering the defendant partnership to pay to the plaintiff
the amount of P19,247.35, with legal interest thereon from May 29, 1964 until paid, plus an additional
The Usury Law penalizes any person or corporation who, for any loan or renewal thereof or forbearance, sum of P2,000.00 as damages for attorney's fee; and, in case the assets of defendant partnership be
shall collect or receive a higher rate or greater sum or value than is allowed by law, and provides further insufficient to satisfy this judgment in full, ordering the defendant David Syjueco to pay to the plaintiff
that, in such case, the debtor may recover the whole interest, commissions, premiums, penalties and one-half (½) of the unsatisfied portion of this judgment.
surcharges paid or delivered, with costs and attorney's fees, in an appropriate action against his creditor,
within two (2) years after such payment or delivery With costs against the defendants.

Construing the above provision, We held in Go Chioco vs. Martinez, 45 Phil. 256 that even if the contract Appealing directly to Us, defendants raise two questions of law: (1) In a loan with usurious interest,
of loan is declared usurious the creditor is entitled to collect the money actually loaned and the legal may the creditor recover the principal of the loan? (2) Should attorney's fees be awarded in plaintiff's
interest due thereon. favor?

In Gui Jong & Co. vs. Rivera, et al., 45 Phil. 778, this Court likewise declared that, in any event, the Great reliance is made by appellants on Art. 1411 of the New Civil Code which states:
debtor in a usurious contract of loan should pay the creditor the amount which he justly owes him citing
in support of this ruling its previous decisions in Go Chioco Supra, Aguilar vs. Rubiato, et al., 40 Phil. 570, ART. 1411. When the nullity proceeds from the illegality of the cause or object of the contract, and the
and Delgado vs. Duque Valgona, 44 Phil. 739. act constitutes a criminal offense, both parties being in pari delicto, they shall have no action against
each other, and both shall be prosecuted. Moreover, the provisions of the Penal Code relative to the
In all the above cited cases it was recognized and held that under Act 2655 a usurious contract is void; disposal of effects or instruments of a crime shall be applicable to the things or the price of the contract.
that the creditor had no right of action to recover the interest in excess of the lawful rate; but that this
did not mean that the debtor may keep the principal received by him as loan — thus unjustly enriching This rule shall be applicable when only one of the parties is guilty; but the innocent one may claim what
himself to the damage of the creditor. he has given, and shall not be bound to comply with his promise.

Then in Lopez and Javelona vs. El Hogar Filipino, 47 249, We also held that the standing jurisprudence Since, according to the appellants, a usurious loan is void due to illegality of cause or object, the rule
of this Court on the question under consideration was clearly to the effect that the Usury Law, by its letter of pari delicto expressed in Article 1411, supra, applies, so that neither party can bring action against
and spirit, did not deprive the lender of his right to recover from the borrower the money actually loaned each other. Said rule, however, appellants add, is modified as to the borrower, by express provision of
to and enjoyed by the latter. This Court went further to say that the Usury Law did not provide for the the law (Art. 1413, New Civil Code), allowing the borrower to recover interest paid in excess of the
forfeiture of the capital in favor of the debtor in usurious contracts, and that while the forfeiture might interest allowed by the Usury Law. As to the lender, no exception is made to the rule; hence, he cannot
appear to be convenient as a drastic measure to eradicate the evil of usury, the legal question involved recover on the contract. So — they continue — the New Civil Code provisions must be upheld as against
should not be resolved on the basis of convenience. the Usury Law, under which a loan with usurious interest is not totally void, because of Article 1961 of
the New Civil Code, that: "Usurious contracts shall be governed by the Usury Law and other special
Other cases upholding the same principle are Palileo vs. Cosio, 97 Phil. 919 and Pascua vs. Perez, L- laws, so far as they are not inconsistent with this Code. (Emphasis ours.) .
19554, January 31, 1964, 10 SCRA 199, 200-202. In the latter We expressly held that when a contract
is found to be tainted with usury "the only right of the respondent (creditor) ... was merely to collect the We do not agree with such reasoning, Article 1411 of the New Civil Code is not new; it is the same as
amount of the loan, plus interest due thereon." Article 1305 of the Old Civil Code. Therefore, said provision is no warrant for departing from previous
interpretation that, as provided in the Usury Law (Act No. 2655, as amended), a loan with usurious
The view has been expressed, however, that the ruling thus consistently adhered to should now be interest is not totally void only as to the interest.
abandoned because Article 1957 of the new Civil Code — a subsequent law — provides that contracts and
stipulations, under any cloak or device whatever, intended to circumvent the laws against usury, shall be True, as stated in Article 1411 of the New Civil Code, the rule of pari delicto applies where a contract's
void, and that in such cases "the power may recover in accordance with the laws on usury." From this nullity proceeds from illegality of the cause or object of said contract.
the conclusion is drawn that the whole contract is void and that, therefore, the creditor has no right to
recover — not even his capital.
 However, appellants fail to consider that a contract of loan with usurious interest consists of principal In arriving at the above conclusion We also considered our decision in Mulet vs. The People of the
and accessory stipulations; the principal one is to pay the debt; the accessory stipulation is to pay Philippines (73 Phil. p. 60), but found that the same does not apply to the present case. The facts therein
interest thereon. involved were as follows:
On July 25, 1929, Alejandra Rubillos and Espectacion Rubillos secured from petitioner Miguel Mulet a
And said two stipulations are divisible in the sense that the former can still stand without the latter. loan of P550, payable within 5 years at 30 per cent interest per annum. In the deed of mortgage
Article 1273, Civil Code, attests to this: "The renunciation of the principal debt shall extinguish the executed by the Rubillos as a security; the sum of P1,375 was made to appear as the capital of the
accessory obligations; but the waiver of the latter shall leave the former in force." loan. This amount obviously represented the actual loan of P550 and the total interest of P825 computed
at 30 per cent per annum for 5 years. Within four years of following the execution of the mortgage, the
The question therefore to resolve is whether the illegal terms as to payment of interest likewise renders
debtors made partial payments aggregating P278.27, on account of interest. Thereafter, the debtors
a nullity the legal terms as to payments of the principal debt. Article 1420 of the New Civil Code provides
paid the whole capital of P550, due to petitioner's promise to condone the unpaid interest upon payment
in this regard: "In case of a divisible contract, if the illegal terms can be separated from the legal ones,
of such capital. But to their surprise, petitioner informed them that they were still indebted in the sum
the latter may be enforced."
of P546.73 which represented the balance of the usurious interest. And in consideration of this amount,
petitioner pressed upon the debtors to execute in October, 1933, in his favor, a deed of sale with pacto
In simple loan with stipulation of usurious interest, the prestation of the debtor to pay the principal
de retro of a parcel of land, in substitution of the original mortgage which was cancelled. From the date
debt, which is the cause of the contract (Article 1350, Civil Code), is not illegal. The illegality lies only
of the execution of the new deed up to 1936, petitioner received, as his share of the products of the
as to the prestation to pay the stipulated interest; hence, being separable, the latter only should be
land, the total sum of P480. Prosecuted on November 18, 1936, for the violation of the Usury Law,
deemed void, since it is the only one that is illegal.
petitioner was convicted by the trial court, and on appeal, the judgment was affirmed by the Court of
Neither is there a conflict between the New Civil Code and the Usury Law. Under the latter, in Sec. 6, Appeals. The instant petition for certiorari is directed at that portion of the decision of the appellate
any person who for a loan shall have paid a higher rate or greater sum or value than is allowed in said court ordering petitioner to return to the offended parties the sum of P373.27, representing interests
law, may recover the whole interest paid. The New Civil Code, in Article 1413 states: "Interest paid in received by him in excess of that allowed by law.
excess of the interest allowed by the usury laws may be recovered by the debtor, with interest thereon
It was Mulet's claim that, as the amount of P373.27 had been paid more than two years prior to the filing
from the date of payment." Article 1413, in speaking of "interest paid in excess of the interest allowed
of the complaint for usury against him, its return could no longer be ordered in accordance with the
by the usury laws" means the whole usurious interest; that is, in a loan of P1,000, with interest of 20%
prescriptive period provided therefor in Section 6 of the Usury Law. Said amount was made up of the
per annum or P200 for one year, if the borrower pays said P200, the whole P200 is the usurious interest,
usurious interest amounting to P278.27 paid to Mulet, in cash, and the sum of P480.00 paid to him in
not just that part thereof in excess of the interest allowed by law. It is in this case that the law does
kind, from the total of which two amounts 14% interest allowed by law — amounting to P385.85 — was
not allow division. The whole stipulation as to interest is void, since payment of said interest is illegal.
deducted. Our decision was that Mulet should return the amount of P480.00 which represented the value
The only change effected, therefore, by Article 1413, New Civil Code, is not to provide for the recovery
of the produce of the land sold to him under pacto de retro which, with the unpaid balance of the usurious
of the interest paid in excess of that allowed by law, which the Usury Law already provided for, but to
interest, was the consideration of the transaction — meaning the pacto de retro sale. This Court then
add that the same can be recovered "with interest thereon from the date of payment."
said:
The foregoing interpretation is reached with the philosophy of usury legislation in mind; to discourage ... . This last amount is not usurious interest on the capital of the loan but the value of the produce of
stipulations on usurious interest, said stipulations are treated as wholly void, so that the loan becomes the land sold to petitioner under pacto de retro with the unpaid balance of the usurious interest
one without stipulation as to payment of interest. It should not, however, be interpreted to mean (P546.73) as the consideration of the transaction. This consideration, because contrary to law, is illicit,
forfeiture even of the principal, for this would unjustly enrich the borrower at the expense of the lender. and the contract which results therefrom, null and void. (Art. 1275, Civil Code). And, under the
Furthermore, penal sanctions are available against a usurious lender, as a further deterrence to usury. provisions of article 1305, in connection with article 1303, of the Civil Code, when the nullity of a
contract arises from the illegality of the consideration which in itself constitutes a felony, the guilty
The principal debt remaining without stipulation for payment of interest can thus be recovered by party shall be subject to criminal proceeding while the innocent party may recover whatever he has
judicial action. And in case of such demand, and the debtor incurs in delay, the debt earns interest from given, including the fruits thereof. (emphasis supplied).
the date of the demand (in this case from the filing of the complaint). Such interest is not due to
stipulation, for there was none, the same being void. Rather, it is due to the general provision of law It is clear, therefore, that in the Mulet case, the principal of the obligation had been fully paid by the
that in obligations to pay money, where the debtor incurs in delay, he has to pay interest by way of debtor to the creditor; that the latter was not sentenced to pay it back to the former, and that what this
damages (Art. 2209, Civil Code). The court a quo therefore, did not err in ordering defendants to pay Court declared recoverable by the debtor were only the usurious interest paid as well as the fruits of the
the principal debt with interest thereon at the legal rate, from the date of filing of the complaint. property sold under pacto de retro.

In answer to the contention that the forfeiture of the principal of the usurious loan is necessary to punish IN VIEW OF THE FOREGOING, the decision, appealed from is modified in the sense that appellee may
the usurer, We say this: Under the Usury Law there is already provision for adequate punishment for the recover from appellant the principal of the loan (P1,180.00) only, with interest thereon at the legal rate
usurer namely, criminal prosecution where, if convicted, he may be sentence to pay a fine of not less of 6% per annum from the date of the filing of the complaint. With costs.
than P50 nor more than P500, or imprisonment of not less than 30 days nor more than one year, or both,
in the discretion of the court. He may further be sentenced to return the entire sum received as interest,
with subsidiary imprisonment in case of non-payment thereof. lt is, of course, to be assumed that this
last penalty may be imposed only if the return of the entire sum received as interest had not yet been
the subject of judgment in a civil action involving the usurious contract of load.
G.R. No. 226213, September 27, 2017 1. The obligation of FPI to G. Holdings amounting to P50,366,926.71 (as of December 31,
2002) shall be covered by assignment of certain FPI assets sufficient to cover the obligations
G. HOLDINGS, INC., Petitioner, v. CAGAYAN ELECTRIC POWER AND LIGHT COMPANY, INC. even at today's depressed metal prices.
(CEPALCO) AND FERROCHROME PHILIPPINES, INC., Respondents.
2. The right to the work process owned by FPI shall be made available to G. Holdings under the
From March 1990, Cagayan Electric Power and Light Company, Inc. (CEPALCO), which operates a light following options[:]
and power distribution system in Cagayan de Oro City, supplied power to the ferro-alloy smelting plant
of Ferrochrome Philippines, Inc. 6 (FPI) at the PfflVIDEC Industrial Estate in Tagoloan, Misamis Option A
Oriental.7 When FPI defaulted in the payment of its electric power bills amounting to P16,301,588.06 as As soon as metal prices and major costs justify, FPI shall at its capital and expense operate the
of March 1996, CEPALCO demanded payment thereof. 8 FPI paid CEPALCO on three separate dates the plant including the assets transferred to G. Holdings. Revenue shall be shared with G.
total amount of P13,161,916.44, leaving a balance of P2,899,859.15. 9 FPI failed again to pay its Holdings at the rate of 20% of EBITDA (Earnings Before Interest[,] Taxes,
subsequent electricity bills, thereby increasing its unpaid electric bills to P29,509,240.89 as of May Depreciation and Amortization.)
1996.10 For failure to pay FPI's outstanding bills, CEPALCO disconnected the electric power supply to FPI A minimum of P10.0 million annually shall be shared by G. Holdings. The [c]ost of
in May 1996.11 After sending a statement of account with P30,147,835.65 unpaid bills plus 2% monthly maintenance and upkeep of assets shall be covered by FPI.
surcharge, CEPALCO filed a collection suit (Civil Case No. 65789) against FPI in July 1996 before the
Regional Trial Court of Pasig City, Branch 264 (RTC-Pasig).12 Option B
[G.] Holdings shall be the entity to operate the plant and business with its capital and
RTC-Pasig rendered a Decision (Partial Summary Judgment) dated April 22, 1999 in favor of CEPALCO,
expense.
ordering FPI to pay CEPALCO P25,608,579.98.13 On January 19, 2004, RTC-Pasig rendered its
As owner of the rights to the work process, FPI shall be entitled to a share of 10% in
Decision14 in favor of CEPALCO, affirming the P25,608,579.98 award for basic cost of energy consumed
the EBITDA with a minimum of P7.5 million per year.
(given in the Partial Summary Judgment), and ordering the payment of P2,364,703.80 for contracted This arrangement shall be for a minimum of 8 years after which G. Holdings can acquire the
energy or energy differential and surcharges, PHIVIDEC royalty and franchise tax. 15
rights for an amount equal to P36.0 M.
All financial requirements shall be shouldered by G. Holdings x x x.
On February 27, 2004, FPI appealed the Decision of the RTC-Pasig to the CA (CA G.R. CV No. 86228
[CEPALCO collection case]).16
3. The option shall be decided by G. Holdings within a three[-]year period beyond which the
17
CEPALCO moved for execution pending appeal, which was granted by RTC-Pasig. The writ of execution choice shall be made by FPI within a 3[-] year period. The cycle will be repeated if the plant
was issued on March 30, 2004.18 FPI filed before the CA a certiorari petition with prayer for temporary has not operated for six years from assignment.27
restraining order (TRO) and preliminary injunction (CA G.R. SP No. 83224 [CEPALCO execution case]).19
The letter bears the conformity of GHI.28
In the meantime, Sheriff Renato B. Baron (Baron) of RTC-Pasig issued notices of levy upon personal and
CEPALCO filed its answer with compulsory counterclaim and cross-claim.29 In its counterclaim, CEPALCO
real properties dated April 1 and 2, 2004 and notices of sale on execution of personal and real properties
assailed the validity of the Deed of Assignment executed by FPI in favor of GHI in payment of alleged
dated April 1, 2004.20
advances from GHI (sister company of FPI) from 1998 to 2002 amounting to £50,366,926.71, inclusive
In CA G.R. SP No. 83224 (CEPALCO execution case), the CA issued an initial TRO in its Resolution dated of interest, as of December 2002. CEPALCO contended that the Deed of Assignment was null and void for
April 6, 2004 and then a writ of preliminary injunction in its Resolution dated June 11, 2004, enjoining being absolutely simulated and, as a dacion en pago, it did not bear the conformity of the creditor. GHI
the implementation of the Order granting execution pending appeal. 21 and FPI have substantially the same directors. The Deed of Assignment was in fraud of FPFs creditors as
it was made after the RTC-Pasig had already rendered a partial judgment in favor of CEPALCO and was,
On April 5, 2004, GHI filed a case (Civil Case No. 2004-111) against Sheriff Baron, CEPALCO and FPI for therefore, rescissible.30
Nullification of Sheriffs Levy on Execution and Auction Sale, Recovery of Possession of Properties and
Damages before the RTC-CDO.22 GHI claimed that the levied ferro-alloy smelting facility, properties and In the meantime, the CA rendered its Decision dated August 14, 2008 in CA G.R. CV No. 86228 (CEPALCO
equipment are owned by it as evidenced by a Deed of Assignment 23 dated March 11, 2003 (the Deed of collection case) granting FPFs appeal in part and the RTC-Pasig Decision was affirmed but modified by
Assignment) executed by FPI in consideration of P50,366,926.71. 24 deleting the award of the PHIVIDEC royalty of 1%. 31 FPI elevated the CA Decision to the Court and was
docketed as G.R. No. 185892.32 In April 2010, the Court denied FPI's petition in its Resolution dated April
In the unilateral Deed of Assignment, FPI, as the assignor, through its stockholders and Board of 21, 2010 for failure of FPI to sufficiently show that the CA committed any reversible error in the challenged
Directors' duly authorized representative and Acting President, Juanito E. Figueroa, in consideration of decision and resolution to warrant the Court's discretionary appellate jurisdiction. 33
obligations amounting to P50,366,926.71 as of December 31, 2002, inclusive of the interest charges,
assigned, transferred, ceded and conveyed absolutely in favor of GHI, as the assignee, "all of the In CA G.R. SP No. 83224 (CEPALCO execution case), the CA dismissed FPI's petition for lack of merit and
[assignor's! properties, equipment and facilities, located in Phividec Industrial Estate, affirmed the assailed orders of the RTC-Pasig, and FPI's motion for reconsideration was likewise denied. 34
Tagoloan, Misamis Oriental and more particularly described in the attached schedules as Annexes
'I', 'II', 'III', 'IV['] and 'V'."25 The RTC-CDO Ruling

Prior to the Deed of Assignment, FPI sent to GFII a letter 26 dated February 28, 2003 wherein the manner Going back to the RTC-CDO case (Civil Case No. 2004-111), the origin of the present case, a
by which the obligation of FPI amounting to P50,366,926.71 (as of December 31, 2002) would be Decision35 dated July 22, 2013 was rendered in favor of CEPALCO and against GHI: (1) rescinding the
addressed per their earlier discussions was confirmed, to wit:
Deed of Assignment; (2) ordering GHI to pay CEPALCO actual and exemplary damages as well as Issues
attorney's fees; and (3) lifting the writ of preliminary injunction.36 Whether the CA erred in not dismissing CEPALCO's permissive counterclaim for non-payment of docket
fees.
The rescission of the Deed of Assignment by the RTC-CDO was anchored on the presence of several
badges of fraud, to wit: (a) the consideration of the assignment was P50 million while the value of the Whether the CA erred in holding that the Deed of Assignment was absolutely simulated.
assets of FPI amounted to P280 million; (b) the existence of the "Outokumpo" work process of smelting Whether the CA erred in rescinding the Deed of Assignment absent an independent action for rescission.
(which was allegedly more valuable than the smelting facility subject of the assignment and without which Whether the CA erred in holding that the Deed of Assignment was done in fraud of creditors and badges
the smelting facility could not be operated), as well as its value, were not sufficiently established; (c) the of fraud accompanied its execution.
assignment of all or substantially all of FPI's assets was made when FPI was suffering financially and after Whether GHI is entitled to its claims for damages.46
the rendition of the partial judgment in favor of CEPALCO; and (d) GHI did not take exclusive possession
of the assets assigned to it.37 The Court's Ruling

The dispositive portion of the RTC-CDO Decision states: Filing Fees of CEPALCO's Counterclaim

WHEREFORE, judgment is hereby rendered in favor of defendant CEPALCO against G Holdings Inc. as In justifying the non-payment of filing fees on the counterclaim of CEPALCO, the CA ruled:
follows: As for the absence of filing fees, it is noteworthy that CEPALCO filed its Answer with Compulsory
1. Rescinding the Deed of Assignment dated March 11, 2003 between G Holdings Inc. in favor of Counterclaim and Cross-Claim on 26 April 2004. At that time, CEPALCO was not yet liable to pay filing
Ferrochrome Philippines Inc.; fees. The Supreme Court stressed, however, that effective 16 August 2004 under Rule 141, Section 7,
2. Ordering G [HJoldings Inc. to pay defendant CEPALCO the following: as amended by A.M. No. 04-2-04-SC, docket fees are required to be paid for compulsory counterclaims
2.a Actual damages in the amount of Php256,587.48; and cross-claims.47
2.b Exemplary damages in the amount of Php1,000,000.00; and
2.c Attorney's Fees in the amount of Php500,000.00 As to the cause of action of GHI in its Complaint in Civil Case No. 2004-111 (RTC-CDO case), the caption
3. Lifting the Writ of Preliminary Injunction and finding G. [H]oldings Inc. and Oriental Assurance states that it is for: "FOR INJUNCTION AND NULLIFICATION OF SHERIFF'S LEVY ON EXECUTION AND
Corporation liable on the Phpl Million Preliminary Injunction Bond to partially satisfy the AUCTION SALE; RECOVERY OF POSSESSION OF PROPERTIES; AND DAMAGES, WITH PRAYER FOR
foregoing sums. ISSUANCE OF TEMPORARY RESTRAINING ORDER AND WRIT OF PRELIMINARY INJUNCTION."48 In its
4. Costs against G Holdings, Inc. second cause of action, GHI alleges that it is "entitled to the immediate return and restitution of said
[transportation and] mobile equipment." 49 In the Complaint's prayer, GHI seeks the return of the
GHI appealed the RTC-CDO Decision to the CA.39 The appeal was docketed as CA-G.R. CV No. 03366- possession of such properties to GHI, "the rightful owner thereof."50 As basis of its claim of ownership,
MIN.40 GHI alleges in the Complaint that:
x x x The smelter facility/properties subject of sheriffs Notice of Levy Upon Personal Property and Notice
The CA Ruling of Levy Upon Real Property are owned by GHI, having acquired the same through a Deed of Assignment
of March 11, 2003 executed by FPI in favor of GHI, in consideration of x x x [P]50,366,926.71 x x x
In its Decision41 dated April 14, 2016, the CA denied the appeal and affirmed the RTC-CDO Decision. The paid by GHI. x x x51
CA ruled that the RTC-CDO correctly found the existence of fraud or deliberate intent on the part of FPI
and GHI to defraud CEPALCO. The agreement between GHI and FPI where GHI was given the option to In light of the foregoing, CEPALCO's counterclaim and prayer for rescission of the Deed of Assignment
operate the smelting facility using the alleged "Outokumpo" work process which FPI retained, subject to can only be viewed, as it is indeed, a compulsory counterclaim because it "arises out of or is connected
payment of an agreed amount to FPI as owner of the rights of the work process, was designed to keep with the transaction or occurrence constituting the subject matter of the opposing party's claim and does
the smelting facility intact and insulated against execution in satisfaction of CEPALCO's judgment credit. not require for its adjudication the presence of third parties of whom the court cannot acquire
The CA also ruled that the Deed of Assignment was absolutely simulated and having been executed after jurisdiction."52 Being a compulsory counterclaim, the CA was correct when it ruled that as of the filing of
the Partial Summary Judgment rendered by the RTC-Pasig, it was done in anticipation of the adverse final CEPALCO's Answer with Compulsory Counterclaim and Cross-Claim on April 26, 2004, it was not liable to
outcome of the RTC-Pasig case. Regarding GHI's contention that CEPALCO failed to pay the filing fees, pay filing fees on its compulsory counterclaim. Thus, on the first issue, the CA committed no reversible
the CA noted that CEPALCO filed its Answer with Compulsory Counterclaim and Cross-claim on April 26, error when it did not order the dismissal of CEPALCO's counterclaim, which is compulsory, for non-
2004. At that time, the CA reasoned that CEPALCO was not yet liable to pay filing fees. Under Rule 141, payment of docket fees.
Section 7, as amended by A.M. No. 04-2-04-SC, docket fees were required to be paid for compulsory
counterclaims and cross-claims effective only on August 16, 2004.42 Efficacy of the Deed of Assignment

The dispositive portion of the CA Decision states: Since the second, third and fourth issues concern the legal effect or efficacy, if any, of the Deed of
WHEREFORE, the instant appeal is DENIED. The Decision dated 22 July 2013 of the Regional Trial Assignment between GHI and FPI, they will be discussed together. It is noted, however, that the legality
Court, 10th Judicial Region, Branch 38, Cagayan de Oro City, in Civil Case No. 2004-111 is or efficacy of the Deed of Assignment is attacked in the second issue as being absolutely simulated, while,
hereby AFFIRMED. in the third and fourth issues, it is claimed to be rescissible for having been undertaken in fraud of
creditors, given the presence of badges of fraud in its execution.
GHI filed a motion for reconsideration, which was denied in a Resolution 44 dated July 25, 2016.
Under the Civil Code, there are four defective contracts, namely: (1) rescissible contracts; (2) voidable
Hence, this Petition. CEPALCO filed its Comment45 dated May 12, 2017. contracts; (3) unenforceable contracts; and (4) void or inexistent contracts. However, it has been opined
that, strictly speaking, only the voidable and unenforceable contracts are defective contracts and are the
only ones susceptible of ratification unlike the rescissible ones which suffer from no defect and the void In the first, the action for rescission may prescribe; while in the latter, the action for declaration of nullity
or inexistent contracts which do not exist and are absolute nullity. 53 Thus, the four may be more or inexistence or the defense of nullity or inexistence does not prescribe; (4) As to susceptibility of
appropriately categorized as species or forms of the inefficacy of contracts.54 ratification: The first are not susceptible of ratification, but are susceptible of convalidation; while the
latter are not susceptible of ratification; (5) As to who may assail contracts: The first may be assailed not
Since the Deed of Assignment is being questioned for being both rescissible and, at the same time, an only by a contracting party but even by a third person who is prejudiced or damaged by the contract;
absolute simulation, it may be apropos to compare rescissible contracts with void or inexistent contracts. while the latter may be assailed not only by a contracting party but even by a third party whose interest
is directly affected; (6) As to how contracts may be assailed: the first may be assailed directly, and not
Rescission has been defined as a remedy to make ineffective a contract validly entered into and which is collaterally; while the latter may be assailed directly or collaterally. 60
obligatory under normal conditions by reason of external causes resulting in a pecuniary prejudice to one
of the contracting parties or their creditors. 55 Rescission, which is a specie or form of the inefficacy of The enumerations and distinctions above indicate that rescissible contracts and void or inexistent
contracts and operates by law and not through the will of the parties, requires the following: (1) a contract contracts belong to two mutually exclusive groups. A void or inexistent contract cannot at the same time
initially valid and (2) a lesion or pecuniary prejudice to someone. 56 be a rescissible contract, and vice versa. The latter, being valid and until rescinded, is efficacious while
the former is invalid. There is, however, a distinction between inexistent contracts and void ones as to
Under Article 1381 of the Civil Code, the following contracts are rescissible: (1) those which are entered their effects. Inexistent contracts produce no legal effect whatsoever in accordance with the principle
into by guardians whenever the wards whom they represent suffer lesion by more than one-fourth of the "quod nullum est nullum producit effectum"61 In case of void contracts where the nullity proceeds from
value of the things which are the object thereof; (2) those agreed upon in representation of absentees, the illegality of the cause of object, when executed (and not merely executory) they have the effect of
if the latter suffer the lesion stated in the preceding number; (3) those undertaken in fraud of creditors barring any action by the guilty to recover what he has already given under the contract. 62
when the latter cannot in any manner collect the claims due them; (4) those which refer to things under
litigation if they have been entered into by the defendant without the knowledge and approval of the The RTC-CDO ruled the Deed of Assignment as a rescissible contract and ordered its rescission. However,
litigants or of competent judicial authority; and (5) all other contracts specially declared by law to be the CA, while affirming the RTC-CDO Decision, stated that it "agree[d] with the RTC[-CDO] that the Deed
subject to rescission. of Assignment was absolutely simulated"63 and, at the same time, noted that "the RTC-CDO correctly
found the existence of fraud or deliberate intent on the part of FPI and GHI to defraud
It is further provided under Article 1383 that the action for rescission is a subsidiary one, and cannot thus CEPALCO."64 Unfortunately, however, and contrary to what the CA declared, nowhere is it ruled in the
be instituted except when the party suffering damage has no other legal means to obtain reparation for RTC-CDO Decision that the Deed of Assignment was absolutely simulated.
the same.
Given a seemingly conflicting finding or ruling by the RTC-CDO and the CA as to the classification of the
On the other hand, void or inexistent contracts are those which are ipso jure prevented from producing Deed of Assignment — whether rescissible or inexistent, it behooves the Court to resolve the conflict.
their effects and are considered as inexistent from the very beginning because of certain imperfections. 57
Under Article 1345 of the Civil Code, simulation of a contract may be absolute, when the parties do not
Under Article 1409 of the Civil Code, the following contracts are inexistent and void from the beginning: intend to be bound at all, or relative, when the parties conceal their true agreement. The former is known
(1) those whose cause, object or purpose is contrary to law, morals, good customs, public order or public as contracto simulado while the latter is known as contracto disimulado.65 An absolutely simulated or
policy; (2) those which are absolutely simulated or fictitious; (3) those whose cause or object did not fictitious contract is void while a relatively simulated contract when it does not prejudice a third person
exist at the time of the transaction; (4) those whose object is outside the commerce of men; (5) those and is not intended for any purpose contrary to law, morals, good customs, public order or public policy
which contemplate an impossible service; (6) those where the intention of the parties relative to the binds the parties to their real agreement.66
principal object of the contract cannot be ascertained; and (7) those expressly prohibited or declared void
by law. In Vda. de Rodriguez v. Rodriguez,67 the Court, speaking through the renowned civilist, Justice J.B.L.
Reyes, stated that:
These contracts cannot be ratified and the right to set up the defense of illegality cannot be x x x the characteristic of simulation is the fact that the apparent contract is not really desired or
waived.58 Further, the action or defense for the declaration of the inexistence of a contract does not intended to produce legal effects or in any way alter the juridical situation of the parties. Thus, where
prescribe. a person, in order to place his property beyond the reach of his creditors, simulates a transfer of it to
another, he does not really intend to divest himself of his title and control of the property; hence, the
Rescission and nullity can be distinguished in the following manner: (a) by reason of the basis — rescission deed of transfer is but a sham. x x x68
is based on prejudice, while nullity is based on a vice or defect of one of the essential elements of a
contract; (2) by reason of purpose — rescission is a reparation of damages, while nullity is a sanction; The Court, in Heirs of Spouses Intac v. CA,69 reiterated that:
(3) by reason of effects — rescission affects private interest while nullity affects public interest; (4) by In absolute simulation, there is a colorable contract but it has no substance as the parties have no
reason of nature of action — rescission is subsidiary while nullity is a principal action; (5) by reason of intention to be bound by it. "The main characteristic of an absolute simulation is that the apparent
the party who can bring action — rescission can be brought by a third person while nullity can only be contract is not really desired or intended to produce legal effect or in any way alter the juridical situation
brought by a party; and (6) by reason of susceptibility to ratification — rescissible contracts need not be of the parties." "As a result, an absolutely simulated or fictitious contract is void, and the parties may
ratified while void contracts cannot be ratified.59 recover from each other what they may have given under the contract." 70

They can likewise be distinguished as follows: (1) as to defect: In rescissible contracts, there is damage In the Deed of Assignment, did FPI intend to divest itself of its title and control of the properties assigned
or injury either to one of the contracting parties or to third persons; while in void or inexistent contracts, therein?
one or some of the essential requisites of a valid contract are lacking in fact or in law; (2) As to effect:
The first are considered valid and enforceable until they are rescinded by a competent court; while the The lack of intention on the part of FPI to divest its ownership and control of "all of [its] properties,
latter do not, as a general rule, produce any legal effect; (3) As to prescriptibility of action or defense: equipment and facilities, located in Phividec Industrial Estate, Tagoloan, Misamis Oriental" 71 — in spite of
the wordings in the Deed of Assignment that FPI "assigned, transferred, ceded and conveyed [them] x x WHEREFORE, the Petition is hereby DENIED for lack of merit. The Court of Appeals' Decision dated
x absolutely in favor of [GHI]"72 — is evident from the letter dated February 28, 2003 which April 14, 2016 and Resolution dated July 25, 2016 in CA-G.R. CV No. 03366-MIN as well as the Decision
reveals the true intention of FPI and GHI. dated July 22, 2013 of the Regional Trial Court of Cagayan de Oro City, Branch 38 in Civil Case No. 2004-
111 are hereby AFFIRMED with MODIFICATIONS. The Deed of Assignment dated March 11, 2003
In the letter dated February 28, 2003, it is there provided that the right to the work process, otherwise executed by respondent Ferrochrome Philippines, Inc. in favor of petitioner G. Holdings, Inc. is declared
known as "Outokumpo," was to be retained by FPI and would only be made available to GHI under two inexistent for being absolutely simulated; the complaint of petitioner G. Holdings, Inc. is dismissed for
options. One option even gave FPI the option to operate the assigned assets with the obligation to pay lack of cause of action; and pursuant to Nacar v. Gallery Frames,79 the total amount awarded in the RTC-
GHI a guaranteed revenue. While GHI was given the first crack to choose which of the two options to CDO Decision shall earn 6% interest per year from the date of finality of this Decision until fully paid.
take, such chosen option would only last for three years, and subsequently, FPI would make the choice
and the option chosen by FPI would last for the next three years. The cycle would then be repeated if the
ferro-alloy plant would not be operated for six years from assignment. 73 What is evident, therefore, in
the delineation of the different options available to FPI and GHI in the settlement of FPI's obligations to
the latter is that FPI did not intend to really assign its assets "absolutely" to GHI. Stated differently, this
letter belies the wordings of the Deed of Assignment that, it should be emphasized, was executed a mere
11 days after the letter, that is, on March 11, 2003.

That there was no intention to absolutely assign to GHI all of FPI's assets was confirmed by the finding
of the RTC-CDO that, according to FPI's Acting President, Juanito E. Figueroa, "GHI cannot operate the
[equipment, machinery and smelting facilities] without the patented 'Outokumpo' process and GHI has
not been operating the same."74 Moreover, the equipment and machinery remain physically in the plant
premises, slowly depreciating with the passage of time, and, worse, there also appears to be no effective
delivery as the premises on which these are located remain under the control of FPI which continues to
employ the security and skeletal personnel in the plant premises. 75

Thus, in executing the Deed of Assignment, FPI's intention was not to transfer absolutely the assigned
assets (admittedly valued at about P280 Million 76) to GHI in payment of FPI's obligations to GHI
amounting to P50,366,926.71.77 FPI, as shown above, did not really intend to divest itself of its title and
control of the assigned properties. FPI's real intention was, borrowing the words of Justice J.B.L Reyes
in Rodriguez, to place them beyond the reach of its creditor CEPALCO. This was astutely observed by the
CA Decision, viz.:
x x x The Deed of Assignment was executed while Civil Case No. 65789 was already pending with the
RTC-Pasig and after the Partial Summary Judgment was rendered on 22 April 1999. In anticipation of
the adverse final outcome of Civil Case No. 65789 as promulgated in the 19 January 2004 Decision of
the RTC-Pasig, GHI and FPI executed the Deed of Assignment. Hence, the presumption of fraud set in
by operation of the law against the sister companies, FPI, then already the judgment debtor, and GHI.78

As to the presence of badges of fraud, which the RTC-CDO found to have existed and affirmed by the CA,
they do, in fact, confirm the intention of FPI to defraud CEPALCO. But these findings do not thereby
render as rescissible the Deed of Assignment under Article 1381(3). Rather, they fortify the finding that
the Deed of Assignment was "not really desired or intended to produce legal effects or in any way alter
the juridical situation of the parties" or, put differently, that the Deed of Assignment was a sham, or
a contracto simulado.

Thus, given the foregoing, the Deed of Assignment is declared inexistent for being absolutely simulated
or fictitious. Accordingly, the CA correctly ruled that the Deed of Assignment was absolutely simulated,
although it was in error in affirming the rescission ordered by the RTC-CDO because, as explained above,
rescissible contracts and void or inexistent contracts belong to two mutually exclusive groups. This error,
however, does not justify the granting of the Petition.

Entitlement to Damages

The Court's declaration of the inexistence of the Deed of Assignment renders the resolution of the fifth
issue — on GHI's entitlement to damages — superfluous. Instead, the dismissal of its complaint for lack
of cause of action is warranted.