PNB

v. The Philippine Vegetable Oil Co., Inc.

January 14, 1927 | Malcolm | Contracts covered by Statute of Frauds how ratiAied
PLAINTIFF-APPELLEE: The Philippine National Bank
DEFENDANT-APPELLEE: The Philippine Vegetable Oil Company, Inc.
INTERVENOR-APPELLANT: Phil Whitaker
DOCTRINE: The broad view is that the Statute of Frauds applies only to agreements not to be performed on either side within a year from
the making thereof. Agreements to be fully performed on one side within the year are taken out of the operation of the statute. In this case,
as Whitakers theory proceeds on the assumption that he has entirely performed his part of the agreement, equity would argue that all
evidence be admitted to prove the alleged agreement. Surely since the Statute of Frauds was enacted for the purpose of preventing frauds,
it should not be made the instrument to further them.

FACTS:

1. In 1920, PVO, on the brink of insolvency, owed its creditors P30M.

a. PNB was its largest creditor. The P17M debt to the bank was secured principally by two chattel mortgages
for P3.5M and P4M, respectively.

2. In 1921, Whitaker, as general manager of PVO, offered to pledge his private properties to secure the creditors. At his
instance, a receiver for the company was also appointed by the court.

3. During the period of receivership (March 11, 1921 Feb. 28, 1922), several important events took place:
a. Between PVO and its creditors = creditors transferred part of their claims against the company to Whitaker in
consideration of a trust deed of Ws property

b. Between PNB and PVO = bank obtained a new mortgage from the company (Feb. 20 mortgage)
4. Receivership terminated shortly thereafter. The bank suspended the companys operation in May 1922, and closed its plant
in August 1922.

5. PNB sought judicial foreclosure of its mortgage on the PVOs property.

a. Trial court ruled in favor of PNB; ordered PVO to pay P15,787,454 and other costs.
6. The trial courts decision resolved three questions: (1) whether execution of the mortgage was the free act of PVO; (2)

whether this mortgage was null and without force because at the time of its execution, PVOs properties were under
receivership; and (3) whether PNB failed to comply with its undertaking to furnish funds to PVO for the latter to continue
operating.

ISSUES:
1. Whether the new/latest mortgage was valid NO (voidable)

2. Whether PNB obligated itself to furnish the necessary operating capital to PVO NO
RULING: PNB entitled to money judgment for P14M with legal interest against PVO. Case remanded.
RATIO:

1. PNB could not legally secure a new mortgage by the accomplishment of documents between its ofQicers and the ofQicers

of PVO while PVOs property was in custodia legis. The receiver was not party to the mortgage, and the court had not
authorized the receiver to consent to the same.
Mortgage was executed on Feb. 20, 1922. The receivership ended on Feb. 28, 1922. The mortgage was executed by the
PNB through its GM, and PVO before the termination of the receivership of PVO, though not acknowledged and registered
until after termination of receivership.
Property was in custodia legis. Receiver was neither party to the mortgage, nor was it authorized by the court to give
consent to the mortgage. It is also doubtful whether the court could/would give such authorization considering the desire
to protect the rights of all creditors and not just those of only one creditor.
While the mortgage could not have been executed without the dissolution of the receivership, the same took place
because the banks counsel made it appear that PNB would continue to Qinance PVOs operations, which it didnt do.
Instead, the bank, within less than two months after recording of the mortgage, withdrew its support from the PVO and
closed its establishment.
The mortgage was deQinitely perfect prior to the lifting of receivership pursuant to implied promises that PNB would
sustain operations of PVO. The mortgage was accomplished when PNB was a dominating inQluence in the companys
affairs. It would be unconscionable to allow PNB, after tying the hands of other creditors, to appropriate to itself virtually
all of PVOs properties.
The mortgage is voidable, whether based on its not having expressed PVOs free will, as disclosing undue inQluence, or
constituting deceit on the part of PNB.
The Court noted that prior to this mortgage, the PNB already held three mortgages on PVOs property. These mortgages
remain in effect and may be foreclosed.

2.

The evidence, documentary and oral, disclose no binding promise, tacit or express, made by PNB to continue
indeQinitely its backing of PVO.
The Court noted that the PNB Charter provides that the General Manager can make, with the advice and consent of the
board of directors, all contracts on behalf of the said bank,

2.

The evidence, documentary and oral, disclose no binding promise, tacit or express, made by PNB to continue
indeQinitely its backing of PVO.
The Court noted that the PNB Charter provides that the General Manager can make, with the advice and consent of the
board of directors, all contracts on behalf of the said bank,
The minutes of the Board of Directors of the PNB shows that the GM was authorized to Qinance the operation of PVO to the
extent of P500,000, to be secured by copra and oil and to be further secured by P500,000 pledged by Whitaker in his
creditors agreement.
The release of an additional P200,000 for the purchase of more copra was approved by the Board.
The GM was also ordered to report and secure the approval of the Board for necessary credits from time to time. Another
portion of the minutes disclosed that advances to the extent of P1M were authorized by the Board.
At this point, the Courts review of the evidence provides no indication in any action taken by the Board that it had ever
consented to an agreement for unlimited backing of the PVO.
Whitakers letter to HSB conQirmed his undertaking to assume an obligation to pledge and mortgage certain personal
property on the further condition that the banks parties to the proposed arrangement will supply, per approval of their
representatives on the PVO Board, funds to enable PVO to continue operating. The condition related to all banks and did
not specify PNB.
Whitakers trust deed in favor of H.C. Sanford secured the PNB only to the extent of P500k. It was general as to further
advances, and PNB was not party to the document.
Power of attorney from the Roman Catholic Archbishop of Manila to Whitaker mentioned Whitakers arrangement with
PNB for funds to sustain operations, but the same was not binding on the ofQicials of PNB.
Letters of Wilson as PNB GM to Whitaker were mere friendy warnings and expressions of gratiQication regarding the
additional mortgage and emphasis on the P500k guarantee.
Oral testimony by Whitaker and Gibbs provided no deQinite agreement binding on the bank, but merely general
intimations by the GM in conference with the bank that it contemplated Qinancing operations of PVO.

Dissenting opinion (Johnson, J.)

Mortgage in question was executed by the PVO to the PNB, and is a valid and subsisting contract.

Statement that the mortgage was executed upon property in custodia legis is not supported by the facts.
The property was under receivership when the document was signed, but the document, at that time, wasnt a mortgage but a
mere evidence of indebtedness. It was not a public document at that time, and it had not been registered in the registry of
property, which is a prereq to becoming a mortgage. Even when it was notarized, it wasnt a mortgage because it hadnt been
registered as such. It was registered nearly a month after the property had ceased to be in custodia legis.
Said mortgage expressed the free will of PVO. PVO signed the mortgage voluntarily, before witnesses, and ratiAied its due
execution before a notary public three weeks later. PVO later recognized the validity of the document by making payments
thereon.
Record clearly shows that the mortgage was given to secure payment of preexisting indebtedness. PVO had recognized the
validity of the mortgage by making payments thereon, and nothing in the record shows that it had intimated that the mortgage
was illegal and void. PVOs failure to appeal the decision is additional proof of its belief that the defense of illegality is baseless.
At the time Whitaker entered into an alleged contract with PNB for the latter to furnish adequate funds to sustain the
operations of PVO, all parties to the agreement fully understood and believed that such contract had been entered into with full
and sufAicient consideration.
Whitaker honestly believed that PNB had entered into a valid contract with him to sustain the operations of PVO, and such
fact was one of the precedent conditions upon which Whitaker had obligated his private property to the extent of P4M.
Other creditors also believed that such a contract existed between Whitaker and PNB, as evidenced by the creditors
agreement (re: creation of a fund of P500k by PNB).
Whitaker should be given opportunity to show that he is entitled to recover some damages. Whitaker only promised to pay
out of his private property for the debts of PVO because of the contract with PNB to Ainance the operation of PVO.

Carbonnel v Poncio
May 12, 1958| Concepcion, J | Unenforceable Contracts> How RatiAied
PETITIONER: ROSARIO CARBONNEL
RESPONDENT: JOSE PONCIO, RAMON INFANTE, and EMMA INFANTE
SUMMARY: Carbonnel alleged that she purchased a parcel of land from Poncio. Carbonnel paid the price of P247.26 and assumed Poncio's
obligation with the Republic Savings Bank amounting to P1,177.48, with the understanding that the balance would be payable upon
execution of the corresponding deed of conveyance. Despite repeated demands, however, Poncio refused to execute the corresponding
deed of sale and instead, conveyed the land to the spouses Infante. On the other hand, Poncio moved to dismiss the complaint upon the
ground that plaintiff's claim is unenforceable under the Statute of Frauds. After trial, the lower court issued an order dismissing plaintiff's
complaint, without costs, upon the ground that her cause of action is unenforceable under the Statute of Frauds. When the case was
brought to the Supreme Court, the Court ruled that there are in the case at bar several circumstances indicating that plaintiff's claim might
not be entirely devoid of factual basis. Hence, she is entitled, legally as well as from the viewpoint of equity, to an opportunity to introduce
parol evidence in support of the allegations of her second amended complaint.
DOCTRINE: When the party concerned has pleaded partial performance, such party is entitled to a reasonable chance to; establish by
parol evidence the truth of this allegation, as well as the contract itself. "The recognition of the exceptional effect of part performance in
taking an oral contract out of the statute of frauds involves the principle that oral evidence is admissible in such cases to prove both the
contract and the part performance of the contract" (49 Am. Jur., 927).

FACTS:

1. In her second amended Ailed with the Court of First Instance of Rizal, plaintiff Rosario Carbonnel alleges that, on January 27, 1955,
she purchased from defendant Jose Poncio, at P9.50 a square meter, a parcel of land of about 195 square meters, more or less,
located in San Juan del Monte, Rizal.

2. Plaintiff paid P247.26 on account of the price and assumed Poncio's obligation with the Republic Savings Bank amounting to

P1,177.48, with the understanding that the balance would be payable upon execution of the corresponding deed of conveyance.
Despite repeated demands, however, Poncio refuses to execute the corresponding deed of sale. As a result, plaintiff suffered
damages in the sum of P5,000, aside from attorney's fees amounting to P1,000. Worst, contrary to their agreement, it appears that
Poncio has conveyed the same property to defendants Ramon R. Infante and Emma L. Infante, who knew, of the Airst sale to plaintiff.

3. Plaintiff prayed, therefore, that she be declared owner of the land in question; that the sale to the Infantes be annulled; that Poncio be

required to execute the corresponding deed of conveyance in plaintiff's favor; that the Register of Deeds of Rizal be directed to issue
the corresponding title in plaintiff's name; and that defendants be sentenced to pay damages.

4. Defendants moved to dismiss said complaint upon the ground that plaintiff's claim is unenforceable under the Statute of Frauds, and
that said pleading does not state facts sufAicient to constitute a cause of action.

5. The motion was denied, without prejudice to considering, when this case is decided on the merits, whether the same falls under the
Statute of Frauds."

6. Thereafter, the Infantes Ailed an answer denying, most of the allegations of said complaint and alleged, by way of special defense, that
they purchased the land in question in good faith, for value, and without knowledge of the alleged sale to plaintiff; and that
plaintiff's claim is unenforceable under the Statute of Frauds. They, likewise, set up counterclaims for damages.

7. In his answer, Poncio denied speciAically some allegations of said complaint and alleged that he had no knowledge sufAicient to form a
belief as to the truth of the other averments therein.

8. During the trial, the plaintiff introduced the testimony of one Constancio Meonada. Constatancio testiAied that he was the one who

typed the agreement between the plaintiff and Poncion (Exhibit A) in Batanes dialect. He said that after he read the contents of the
agreement to Poncio and given him a copy thereof, Poncio signed Exhibit A and so did the plaintiff. Meonada likewise signed at the
foot of Exhibit A, as attesting witness.

9. Then, taking the witness stand, plaintiff testiAied that she has known Poncio since childhood, he being related to her mother; that

Poncio's lot adjoins her lot, in San Juan, Rizal; that one day Poncio told her that he wanted to sell his property; that, after both had
agreed on its price, he said that his lot is mortgaged to the Republic savings Bank; and that at noon time, on the same day, he came
back stating that both would "go to the bank to pay the balance in arrears."

10. At this juncture, defense counsel moved to strike out the statement of the witness, invoking, in support of the motion, the Statute of
Frauds. After an extended discussion, the parties agreed to submit memoranda and the hearing was suspended. Later on, the lower
court issued an order dismissing plaintiff's complaint, without costs, upon the ground that her cause of action is unenforceable
under the Statute of Frauds. The counterclaims were, also, dismissed.

11. Hence, this appeal by plaintiff.

ISSUE/S:
I. Whether the Statute of Frauds is applicable in this case
RULING: The order appealed from is hereby SET ASIDE, and let this case be REMANDED to the lower court for further proceedings

ISSUE/S:
I. Whether the Statute of Frauds is applicable in this case
RULING: The order appealed from is hereby SET ASIDE, and let this case be REMANDED to the lower court for further proceedings

RATIO:
It is well settled in this jurisdiction that the Statute of Frauds is applicable only to executory contracts, not to contracts that are totally
or partially performed. In the words of former Chief Justice Moran: "The reason is simple. In executory contracts there is a wide
Aield for fraud because unless they be in writing there is no palpable evidence of the intention of the contracting parties. The statute
has precisely been enacted to prevent fraud." However, if a contract has been totally or partially performed, the exclusion of parol
evidence would promote fraud or bad faith, for it would enable the defendant to keep the beneAits already denied by him from the
transaction in litigation, and, at the same time, evade the obligations, responsibilities or liabilities assumed or contracted by him
thereby.
It is not enough for a party to allege partial performance in order to hold that there has been such performance and to render a
decision declaring that the Statute of Frauds is inapplicable. But neither is such party required to establish such partial performance
by documentary proof before he could have the opportunity to introduce oral testimony on the transaction. Indeed, such oral
testimony would usually be unnecessary if there were documents proving partial performance. Thus, the rejection of any and all
testimonial evidence on partial performance, would nullify the rule that the Statute of Frauds is inapplicable to contracts which
have been partly executed, and lead to the very evils that the statute seeks to prevent.
The true basis of the doctrine of part performance according to the overwhelming weight of authority, is that it would be a fraud upon
the plaintiff if the defendant were permitted to escape performance of his part of the oral agreement after he has permitted the
plaintiff to perform in reliance upon the agreement. The oral contract is enforced in harmony with the principle that courts of
equity will not allow the statute of frauds to be used as an instrument of fraud. In other words, the doctrine of part performance was
established for the same purpose for which, the statute of frauds itself was enacted, namely, for the prevention of fraud, and arose from
the necessity of preventing the statute from becoming an agent of fraud for it could not have been the intention of the statue to
enable any party to commit a fraud with impunity. (49 Am. Jur., 725-726)
When the party concerned has pleaded partial performance, such party is entitled to a reasonable chance to; establish by parol
evidence the truth of this allegation, as well as the contract itself. "The recognition of the exceptional effect of part performance in
taking an oral contract out of the statute of frauds involves the principle that oral evidence is admissible in such cases to prove both
the contract and the part performance of the contract" (49 Am. Jur., 927).
Upon submission of the case for decision on the merits, the Court should determine whether said allegation is true, bearing in mind
that parol evidence is easier to concoct and more likely to be colored or inaccurate than documentary evidence. If the evidence of
record fails to prove clearly that there has been partial performance, then the Court should apply the Statute of Frauds, if the cause
of action involved falls within the purview thereof. If the Court is, however, convinced that the obligation in question has been partly
executed and that the allegation of partial performance was not resorted to as a devise to circumvent the Statute, then the same
should not be applied.
There are in the case at bar several circumstances indicating that plaintiff's claim might not be entirely devoid of factual basis. Thus,
for instance, Poncio admitted in his answer that plaintiff had offered several times to purchase his land.
Without expressing any opinion on the merits of plaintiff's claim, it is clear, therefore, that she is entitled, legally as well as from the
viewpoint of equity, to an opportunity to introduce parol evidence in support of the allegations of her second amended complaint.

First Philippine International Bank v. CA

Jan 24, 1996 | Panganiban, J. | Unenforceable Contracts-How RatiAied (Art. 1405)

PETITIONERS: FIRST PHILIPPINE INTERNATIONAL BANK (Formerly Producers Bank of the Phil.) and MERCURIO RIVERA
RESPONDENTS: CA, CARLOS EJERCITO, in substitution of DEMETRIO DEMETRIA, and JOSE JANOLO
SUMMARY: Producers Bank (now First Philippine International Bank), which has been under conservatorship since 1984, is the owner of
6 parcels of land. The Bank had an agreement with Demetrio Demetria and Jose Janolo for the two to purchase the parcels of land for a
purchase price of P5.5 million pesos. The said agreement was made by Demetria and Janolo with the Banks manager, Mercurio Rivera.
Later however, the Bank, through its conservator, Leonida Encarnacion, sought the repudiation of the agreement as it alleged that Rivera
was not authorized to enter into such an agreement, hence there was no valid contract of sale. Subsequently, Demetria and Janolo sued
Producers Bank. During the pendency of the proceedings in the CA, Henry Co and several other stockholders of the Bank Ailed an action-
purportedly a derivative suit. SC afAirmed CA and held that there was a perfected contract of sale, FPIB committed forum shopping and that
the contract is enforceable because, the banks letters, taken together with plaintiffs letter dated September 30, 1987, constitute in law a
sufAicient memorandum of a perfected contract of sale.
DOCTRINE: Contracts infringing the Statute of Frauds, referred to in No. 2 of Article 1403, are ratiAied by the failure to object to the
presentation of oral evidence to prove the same, or by the acceptance of beneAits under them [Art. 1405]

FACTS:

Petitioner Mercurio Rivera is the Head Manager of the Property Management Department of the petitioner Bank.
Respondent Carlos Ejercito is the assignee of original plaintiffs-appellees Demetrio Demetria and Jose Janolo.

Defendant Producers Bank of the Philippines acquired six parcels of land with a total area of 101 hectares located at Don
Jose, Sta. Rosa, Laguna. The property used to be owned by BYME Investment and Development Corporation which had
them mortgaged with the bank as collateral for a loan. The original plaintiffs, Demetrio Demetria and Jose O. Janolo,
wanted to purchase the property and thus initiated negotiations for that purpose.

In the early part of August 1987 said plaintiffs, upon the suggestion of BYME Investments legal counsel, Jose Fajardo, met
with defendant Mercurio Rivera, Manager of the defendant bank. After the meeting, plaintiff Janolo, following the advice of
Rivera, made a formal purchase offer to the bank through a letter dated August 30, 1987. His offer is 3.54 M.

On September 1, 1987, Rivera made on behalf of the bank a formal reply by letter which stated that the banks counter-offer is
at P5.5M. Janolo amended his previous offer and proposed to buy the said lot at P4.25M in cash.

There was no reply to Janolos foregoing letter of September 17, 1987. What took place was a meeting on September 28,
1987 between the plaintiffs and Luis Co, the SVP of defendant bank. Rivera as well as Fajardo, the BYME lawyer, attended
the meeting. Two days later, or on September 30, 1987, plaintiff Janolo sent to the bank, through Rivera, a letter: Pursuant
to our discussion last 28 September 1987, we are pleased to inform you that we are accepting your offer for us to purchase
the property at Sta. Rosa, Laguna, formerly owned by Byme In-vestment, for a total price of PESOS: FIVE MILLION FIVE
HUNDRED THOUSAND (P5,500,000.00).

On October 12, 1987, the conservator of the bank (which has been placed under conservatorship by the Central Bank since
1984) was replaced by an Acting Conservator in the person of defendant Leonida T. Encarnacion. On November 4, 1987,
defendant Rivera wrote plaintiff Demetria that his proposal to buy the properties. is under study yet as of this time by the
newly created committee for submission to the newly designated Acting Conservator of the bank.

What thereafter transpired was a series of demands by the plaintiffs for compliance by the bank with what plaintiff
considered as a perfected contract of sale, which demands were in one form or another refused by the bank.

On November 17, 1987, plaintiffs through a letter to defendant tendered payment of the amount of P5.5 million pursuant to
the perfected sale agreement. Defendants refused to receive both the payment and the letter.

Instead, the parcels of land involved in the transaction were advertised by the bank for sale to any interested buyer. Plaintiffs
formally demanded the execution by the bank of the documents on what was considered as a perfected agreement.

Defendant bank, through Rivera, acknowledged receipt of the foregoing letter and stated that said letter has been referred to
the ofAice of the Conservator for proper disposition. However, no response came from the Acting Conservator.

On December 14, 1987, the plaintiffs made a second tender of payment this time through the Acting Conservator, defendant
Encarnacion. Plaintiffs letter reads: We are sending you herewith, in-behalf of our client, Mr. JOSE O. JANOLO, MBTC Check
No. 258387 in the amount of P5.5 million as our agreed purchase price of the 101-hectare lot

The foregoing letter drew no response for more than four months. Then, on May 3, 1988, plaintiff, through counsel, made a
Ainal demand for compliance by the bank with its obligations under the considered perfected contract of sale.

In a reply letter dated May 12, 1988, the defendants through Acting Conservator Encarnacion repudiated the authority of
defendant Rivera and claimed that his dealings with the plaintiffs, particularly his counter-offer of P5.5 Million are
unauthorized or illegal. On that basis, the defendants justiAied the refusal of the tenders of payment and the non-
compliance with the obligations under what the plaintiffs considered to be a perfected contract of sale.

On May 16, 1988, plaintiffs Qiled a suit for speciQic performance with damages against the bank, its Manager Rivera
and Acting Conservator Encarnacion. The basis of the suit was that the transaction had with the bank resulted in a
perfected contract of sale. The defendants took the position that there was no such perfected sale because the defendant
Rivera is not authorized to sell the property, and that there was no meeting of the minds as to the price.

Rivera is not authorized to sell the property, and that there was no meeting of the minds as to the price.

On March 14, 1991, Henry L. Co (bro of Luis Co) Ailed a motion to intervene in the trial court, alleging that as owner of 80%
of the Banks outstanding shares of stock, he had a substantial interest in resisting the complaint. Court denied.

In the course of the proceedings in the respondent Court, Carlos Ejercito was substituted in place of Demetria and Janolo.
On July 11, 1992, during the pendency of the proceedings in the CA, Henry Co and several other stockholders of the Bank,
through counsel Angara Abello Concepcion Regala and Cruz, Ailed an action (hereafter, the Second Case) -purportedly a
derivative suit - with the RTC of Makati against Encarnacion, Demetria and Janolo to declare any perfected sale of the
property as unenforceable and to stop Ejercito from enforcing or implementing the sale.

In his answer, Janolo argued that the Second Case was barred by litis pendentia by virtue of the case then pending in the
Court of Appeals.

CA ruled in favor of respondents, ordering FPIB, upon Ainality of this decision and receipt from the plaintiffs the amount of
P5.5 Million, to execute in favor of said plaintiffs a deed of absolute sale and deliver the TCTs. FPIB to pay moral,
exemplary, actual and moderate damages as well as attorneys fees.
RULING: WHEREFORE, Ainding no reversible error in the questioned Decision and Resolution, the Court hereby DENIES the petition. The
assailed Decision is AFFIRMED. Moreover, petitioner Bank is REPRIMANDED for engaging in forum-shopping and WARNED that a repetition
of the same or similar acts will be dealt with more severely. Costs against petitioners.
ISSUES+RATIO:

1. WON there was forum-shopping on the part of petitioner Bank? YES

Applying the foregoing principles in the case before us and comparing it with the Second Case, it is obvious that there exist
identity of parties or interests represented, identity of rights or causes and identity of reliefs sought.

In brief, the objective or the relief being sought, though worded differently, is the same, namely, to enable the petitioner Bank
to escape from the obligation to sell the property to respondent.

In the instant case before us, there is also identity of parties, or at least, of interests represented. Although the plaintiffs in
the Second Case (Henry Co. et al.) are not name parties in the First Case, they represent the same interest and entity,
namely, petitioner Bank, because:

They are not suing in their personal capacities, for they have no direct personal interest in the matter in
controversy. In the caption itself, petitioners claim to have brought suit for and in behalf of the Producers Bank of
the Philippines.

An individual stockholder is permitted to institute a derivative suit on behalf of the corporation wherein he holds
stock in order to protect or vindicate corporate rights, whenever the ofAicials of the corporation refuse to sue, or
are the ones to be sued or hold the control of the corporation. In such actions, the suing stockholder is regarded
as a nominal party, with the corporation as the real party in interest.

2. WON there was a perfected contract of sale between the parties? YES
Article 1318 of the Civil Code enumerates the requisites of a valid and perfected contract as follows: (1) Consent of the
contracting parties; (2) Object certain which is the subject matter of the contract; (3) Cause of the obligation which is
established. The 3 are present in this case

The procedure in the sale of acquired assets as well as the nature and scope of the authority of Rivera on the matter is clearly
delineated in the testimony of Rivera himself, which testimony was relied upon by both the bank and by Rivera in their
appeal briefs.

The plaintiffs, therefore, at that meeting of August 1987 regarding their purpose of buying the property, dealt with and
talked to the right person. Necessarily, the agenda was the price of the property, and plaintiffs were dealing with the bank
ofAicial authorized to entertain offers, to accept offers and to present the offer to the Committee before which the said
ofAicial is authorized to discuss information relative to price determination. Necessarily, too, it being inherent in his
authority, Rivera is the ofAicer from whom ofAicial information regarding the price, as determined by the Committee and
approved by the Conservator, can be had. And Rivera conAirmed his authority when he talked with the plaintiff in August
1987.

At any rate, the bank placed its ofAicial, Rivera, in a position of authority to accept offers to buy and negotiate the sale by
having the offer ofAicially acted upon by the bank. The bank cannot turn around and later say, as it now does, that what
Rivera states as the banks action on the matter is not in fact so. It is a familiar doctrine, the doctrine of ostensible authority

The authority of a corporate ofAicer in dealing with third persons may be actual or apparent. From the evidence found by
respondent Court, it is obvious that petitioner Rivera has apparent or implied authority to act for the Bank in the matter of
selling its acquired assets. Indeed, we see no reason to disturb the lower courts (both the RTC and the CA) common
Ainding that private respondents evidence is more in keeping with truth and logic - that during the meeting on September
28, 1987, Luis Co and Rivera conAirmed that the P5.5 million price has been passed upon by the Committee and could no
longer be lowered

Hence, assuming arguendo that the counter-offer of P4.25 million extinguished the offer of P5.5 million, Luis Cos reiteration
of the said P5.5 million price during theSeptember 28, 1987 meeting revived the said offer. And by virtue of the September
30, 1987 letter accepting this revived offer, there was a meeting of the minds, as the acceptance in said letter was absolute
and unqualiAied.

and unqualiAied.

Taken together, the factual Aindings of the respondent Court point to an implied admission on the part of the petitioners that
the written offer made on September 1, 1987 was carried through during the meeting of September 28, 1987. This is the
conclusion consistent with human experience, truth and good faith

3. [RELEVANT TO THE TOPIC ] WON the contract is enforceable under the statute of frauds- YES
According to FPIB, assuming that Luis Co or Rivera did relay a verbal offer to sell at P5.5 million during the meeting of 28
September 1987, and it was this verbal offer that Demetria and Janolo accepted with their letter of 30 September 1987,
the contract produced thereby would be unenforceable by action - there being no note, memorandum or writing
subscribed by the Bank to evidence such contract.

Stated simply, the banks letters, taken together with plaintiffs letter dated September 30, 1987, constitute in law a
sufQicient memorandum of a perfected contract of sale, since they include the names of the parties, the terms and
conditions of the contract, the price and a description of the property as the object of the contract.

Assuming arguendo that the counter-offer during the meeting on September 28, 1987 did constitute a new offer which was
accepted by Janolo on September 30, 1987. Still, the statute of frauds will not apply by reason of the failure of
petitioners to object to oral testimony proving petitioner Banks counter-offer of P5.5 million. Hence, petitioners - by
such utter failure to object - are deemed to have waived any defects of the contract under the statute of frauds, pursuant to
Article 1405 of the Civil Code: Contracts infringing the Statute of Frauds, referred to in No. 2 of Article 1403, are
rati=ied by the failure to object to the presentation of oral evidence to prove the same, or by the acceptance of
bene=its under them

4. WON the bank conservator have the unilateral power to repudiate the authority of the bank ofQicers and/or to
revoke the said perfected and enforceable contract- NO

In the Airst place, this issue of the Conservators alleged authority to revoke or repudiate the perfected contract of sale was
raised for the Airst time in this Petition. Issues not raised and/or ventilated in the trial court, let alone in CA cannot be
raised for the Airst time on appeal

In the second place, there is absolutely no evidence that the Conservator, at the time the contract was perfected, actually
repudiated or overruled said contract of sale. The Banks acting conservator at the time, Rodolfo Romey, never objected to
the sale of the property to Demetria and Janolo. What petitioners are really referring to is the letter of Conservator
Encarnacion, who took over from Romey after the sale was perfected on September 30, 1987 (Annex V, petition) which
unilaterally repudiated - not the contract - but the authority of Rivera to make a binding offer - and which unarguably
came months after the perfection of the contract. Said letter dated May 12, 1988 is reproduced hereunder:

Such powers, enormous and extensive as they are, cannot extend to the post-facto repudiation of perfected transactions,
otherwise they would infringe against the non-impairment clause of the Constitution. If the legislature itself cannot
revoke an existing valid contract, how can it delegate such non-existent powers to the conservator under Section 28-A of
said law [RA 265 (otherwise known as the Central Bank Act)]? Obviously, therefore, Section 28-A merely gives the
conservator power to revoke contracts that are, under existing law, deemed to be defective - i.e., void, voidable,
unenforceable or rescissible. Hence, the conservator merely takes the place of a banks board of directors. What the said
board cannot do - such as repudiating a contract validly entered into under the doctrine of implied authority - the
conservator cannot do either.

Ineluctably, his power is not unilateral and he cannot simply repudiate valid obligations of the Bank. His authority would be
only to bring court actions to assail such contracts - as he has already done so in the instant case.

Tongoy v CA
21 Nov 2001 | Panginiban, J | Void
PETITIONER: Francisco Tongoy, for himself and as Judicial Administrator of the Estate of the late Luis D. Tongoy and Ma.
Rosario Araneta Vda de Tongoy
RESPONDENT: CA, Mercedes, Juan, Jesus, Trinidad Sonora and Ricardo, Cresencio, Amado and Norberto Tongoy
SUMMARY: Siblings Tongoy owned Hacienda Pulo in Bacolod. The property was about to be foreclosed by PNB, they had a
family conference whereupon they decided to transfer their rights to LUIS to facilitate the restructuring of the mortgage. LUIS
executed 2 real estate mortgages (Hacienda Pulo and Cuaycong property) in favor of PNB and he was able to pay off his obligations
in two decades. Just before his death, LUS received a letter from Jesus, one of the RESPs, demanding their shares in the properties
as co-owners. Thus, an action for reconveyance was instituted. SC held that the deeds of transfer in favor of LUIS were from the
very beginning absolutely simulated or fictitious, since they were merely made for the purpose of restructuring the mortgage over
the 2 properties and thus preventing the foreclosure by the PNB.
DOCTRINE: see RATIO I

FACTS:
1.
2. The case is an action for reconveyance respecting 2 parcels of land in Bacolod City:
a. Hacienda Pulo=727, 000 sqm originally registered in the names of the Tongoy Siblings (FRANCISCO, JOSE,
ANA, TERESA & JOVITA[DE SONORA])
b. Cuaycong property=163,754 sqm in the name of Basilisa Cuaycong
3. Hacienda Pulo was mortgaged to Philippine National Bank (PNB) as security for a loan of 11,000 payable in 10 years at 8%
interest per annum. The Tongoys were unable to pay their yearly amortizations; as a result, PNB instituted judicial foreclosure
proceedings on June 18, 1931.
4. To avoid foreclosure, one of the co-owners, JOSE, proposed an amortization plan that would enable them to liquidate their account.
This was rejected by PNB. The suit continued up to the SC (held that PNB had the right to foreclose Hacienda Pulo).
5. In the meantime:
April 29, 1933-PATRICIO & LUIS Tongoy executed a Declaration of Inheritance wherein they declared
themselves as the only heirs of the late FRANCISCO TONGOY and thereby entitled to the latters share in
Hacienda Pulo.
March 13, 1934-ANA & TERESA TONGOY, MERCEDES, TRINIDAD, JUAN SONORA & PATRICIO
TONGOY executed an Escritura de Venta transferring their rights and interest over the Hacienda, for a
consideration, to LUIS
JESUS SONORA followed suit and executed a similar Escritura de Venta in favor of LUIS
JOSE TONGOY likewise executed an Escritura de Venta however this was preceded by the execution of an
Assignment of Rights in favor of LUIS by the Pacific Commercial Company as judgment lien holder
(subordinate to the PNB mortgage)
On the basis of the foregoing documents, Hacienda Pulo was in the name of LUIS, married to Maria Rosario
Araneta, on Nov 8, 1935.
The following year, the title of the adjacent Cuaycong property also came under the name of LUIS
(Cuaycong purportedly sold it to LUIS for 4,000)
6. LUIS executed a real estate mortgage (REM) over the Cuaycong property in favor of PNB as security for a loan of 4,500 on
June 29, 1936. Three days later, he also executed a REM over Hacienda Pulo as security for a loan of 21,000 payable in 15
years at 8% interest per annum.
7. After two decades (April 1956), LUIS was able to pay off all obligations to PNB. However, it was only on April 1958 that a
release of the REM was executed by PNB in favor of LUIS.
8. Just before LUIS death, he received a letter from JESUS SONORA demanding the shares in the properties to the co-owners.
9. Not long after the death of LUIS, the RESP filed this case alleging that the 2 lots were sold by means of simulated sales,
pursuant to a trust arrangement whereby the latter would return such interests after the mortgage obligations thereon settled.
10. TC: there exists an implied trust in favor of the plaintiffs, but at the same time holding the RESPs action for reconveyance is
barred by prescription except for the kids of Luis in the 2nd marriage (since they were excluded in the partition).
11. CA: modified TC, plaintiffs were ordered to reconvey to the SONORAs and to the rest of the TONGOYS their respective
portions of the 2 properties
ISSUE:
WON the rights of the RESPs over the 2 properties, which were subjects of simulated or fictitious transactions, have already

WON the rights of the RESPs over the 2 properties, which were subjects of simulated or fictitious transactions, have already
prescribed? NO
RULING: Judgment appealed from is affirmed
RATIO:
I. 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 nullum
est nullum producit effectum.
2. They are not susceptible of ratification.
3. The right to set up the defense of inexistence or absolute nullity cannot be waived or renounced.
4. The action or defense for the declaration of their inexistence or absolute nullity is imprescriptible.
5. The inexistence or absolute nullity of a contract cannot be invoked by a person whose interests are not
directly affected.
The nullity is permanent, even if the cause thereof has ceased to exist, or even when the parties have complied with the contract
spontaneously.

II. The deeds of transfer executed in favor of LUIS were from the very beginning absolutely simulated or fictitious, since
they were merely made for the purpose of restructuring the mortgage over the 2 properties and thus preventing the
foreclosure by the PNB.
Findings of the CA:
LUIS wrote a letter to JOSE: Herewith is the deed which the bank sent for us to sign. The bank made me pay
the Pacific the sum of 100 so as not to sell anymore the land in public auction. This deed is for the purpose of
dispensing with the transfer of title to the land in the name of the bank, this way we will avid many expenses.
The tenor of the letter reveals the fact that the steps taken to place Hacienda Pulo in the name of
LUIS were made for the benefit of not only himself but for the other co-owners as well.
LUIS at that time was in no condition to pay the purchase price of the property sold. He was a neophyte in the
practice of law. When got married, his property was leased and the rentals were not sufficient to cover all the
considerations stated in the deeds of sale executed by the co-owners of the Hacienda.
The Sonoras testified that they had a family conference on December 1931 to decide on steps to be taken
regarding the impending foreclosure of the hacienda. Accordingly, there agreed to entrust the administration
and management to LUIS.
LUIS told the co-owners that the bank only wanted to deal with one person (since it was inconvenient as some
of them as always out of town), the co-owners agreed to make simulated transfers of their participation in the
properties.
The hacienda has been the source of livelihood to the co-owners and their dependents, when the subject
transfers were made. Only extreme necessity would have forced them to act in unison towards earnestly parting
with their share, taking into account the meager considerations mentioned in the deeds of transfer (2,000 for a
1/5 part of the hacienda). The impending foreclosure could not have created such necessity. They could have
leased it and that would have satisfied the mortgage obligation.
PNB was amenable, as did actually accede, to a restructuring of the mortgage, thereby saving the hacienda
from foreclosure
The co-owners and their dependents continued to survive from the sustenance from the Hacienda. It would not
have been possible for Jesus Sonora to finish medicine and for Ricardo Tongoy to finish law school without the
support of LUIS as administrator of the common property.

No amount of time could accord validity or efficacy to such fictitious transactions, the defect of which is permanent.
There is no implied trust that was generated by the simulated transfers; because being fictitious or simulated, the transfers were null
and void ab initio-from the very beginning-and thus vested no rights whatsoever in favor of LUIS or his heirs. That which is
inexistent cannot give life to anything.
Other topicsjust in case Sir will ask.
III. From which time should the period be counted?
All actions for recovery of real property prescribe in ten years, excepting only actions based on continuing or subsisting trusts that
were considered by section 38 as imprescriptible.
It should be counted from the date of recording of the release of mortgage in the Registry of Deeds, on which date-May 5 1958,
the cestui que trust were charged with the knowledge of the settlement of the mortgage obligation, the attainment of the purpose for
which the trust was constituted.

IIII. The sum of 20k is proper since the RESPs were unnecessarily compelled to litigate.
V. Regarding the status of the kids of Francisco in his 2nd marriage, the Court takes a liberal view in favor of the natural children
who, because they enjoy the blessing and privileges of an acknowledged natural child and even of a legitimated child, found it
rather awkward, if not unnecessary, to institute an action for recognition against their natural parents, who, without asking, have
been showering them with some love, care and material support as are accorded legitimate children. The right to participate in
their fathers inheritance should necessarily follow.

Siblings owned Hacienda Pulo in pro-indiviso equal shares.

Of the original registered co-owners, three died without issue: Jose died a widower and Ana and Teresa died
single.

Cui v. Arellano
May 30, 1961 | Concepcion | Characteristics of Void and Inexistent Contracts
PETITIONER: Emeterio Cui
RESPONDENT: Arellano University
SUMMARY: Cui studied law in Arellano University and was awarded scholarship grants during his stay. He transferred to Abad Santos
University for his last semester in law school where he graduated. When he applied to take the bar exam, he petitioned Arellano to issue him his
transcripts which was denied by the latter until he paid back the amount returned to him due to a stipulation in his scholarship contract whereby it is
stated that he waives his right to transfer to another school unless he pays the equivalent amount of his scholarship. The Court ruled that the
provision in the contract is not valid.

DOCTRINE: Void contracts do not bind the parties. In this case, the declaration of the contract as void reversed the effects
of the contract.

FACTS:

1. Cui studied law in Arellano University up until the first semester of his fourth year. Incidentally, the dean of Arellano law school during his
stay was Dean Francisco R. Capistrano, the brother of his mother.

2. During his stay in Arellano, Cui was awarded scholarship grants. Stipulated in his contract was a term stating a waiver for the right to

transfer to another school without having refunded the Unviversity of the cose of the scholarship in consideration of the scholarship grant.

3. Dean Capistrano left Arellano and became the dean of the law school of Abad Santos Univeristy. Likewise, Cui also left Arellano during the
second semester of his fourth year and enrolled in Abad Santos University where he also graduated.

4. When Cui was about to take the bar, he requested for a copy of the transcripts from Arellano University. Arellano refused, citing the
stipulation on the waiver of the right to transfer.

5. Around the time the issue was happening, the Director of Private Schools issued Memorandum No. 38, series of 1949, on the subject of

Scholarship," which denounced the practice of charging recipients of such scholarships when they decide to quit school or to transfer to
another institution. When the plaintiff asked the Bureau of Private Schools to pass upon the issue, they ruled in his favor. Still, Arellano
refused to issue the plaintiff his transcript.
Thus, Cui paid the cost of the scholarship grants which amounted to P1,033.87 and instituted a complaint against Arellano University.

6.
7. RTC: In favor of Arellano.

ISSUE/S:
W/N the provision of the contract between plaintiff and the defendant whereby the former waived his right to transfer to
another school without refunding to the latter the equivalent of his scholarships in cash, is valid or not NO
RULING: Wherefore, the decision appealed from is hereby reversed and another one shall be entered sentencing the defendant to pay
to the plaintiff the sum of P1033.87, with interest thereon at the legal rate from September 1, 1954, date of the institution of this case,
as well as the costs, and dismissing defendants counterclaim. It is so ordered.
RATIO:
1. The contract was against public policy as it was prejudicial to sound morality and civic honesty. Under the principles relating to

the doctrine of public policy, as applied to the law of contracts, courts of justice will not recognize or uphold a transaction which its object,
operation, or tendency is calculated to be prejudicial to the public welfare, to sound morality or to civic honesty.

2. The real essence of scholarship was stated by the issuance of the Director of Private Schools. The contract was repugnant to

sound policy and good morals because scholarship are awareded in recognition of merit, not to keep outstanding students in
school to bolster its prestige. The policy is a business scheme to increase the business potential of the educational institution.
3. Morals was defined by Manresa as good customs or those generally accepted principles of morality which have received some
kind of social and practical confirmation. Thus, the practice of awarding scholarship attract students and keep them in the
institution is not good cutoms nor has it received some knd of social and practice confirmation except in some private
institutions. Scholarship should be granted to merit or help gifted students in whom society has an established interest or first
lien.

Chavez vs. PCGG

May 19, 1999 | Panganiban, J. | Void or Inexistent Contracts
PETITIONER: Francisco I. Chavez
RESPONDENT: Presidential Commission on Good Government (PCGG), Magtanggol Guinigundo (Chairman of PCGG)
PETITIONERS-IN-INTERVENTION: Gloria, Celnan, Scarlet and Teresa all surnamed Jopson
SUMMARY: Ma. Imelda Marcos-Manotoc, Ferdinand R. Marcos II and Irene Marcos-Araneta filed a motion to intervene and to
partially reconsider the decision of the SC nullifying the General and Supplemental Agreements between them and the PCGG
regarding their alleged ill-gotten wealth. They allege that their constitutional right to due process and equal protection was violated.
SC ruled that there is no violation of due process because the Agreement is void for being contrary to law and the Constitution.
Hence, no rights or interests was violated by the nullification of the Agreements.
DOCTRINE: A void agreement will not be rendered operative by the parties alleged performance (partial or full) of their
respective prestations. 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. (#2 in the Ratio)

FACTS:
1. Motions to intervene and for partial reconsideration as well as their corresponding motions for leave was filed before SC.
2. Movants Ma. Imelda Marcos-Manotoc, Ferdinand R. Marcos II and Irene Marcos-Araneta allege that they are parties and
signatories to the General and Supplemental Agreements dated December 28, 1993, which the SC, in its Decision promulgated on
December 9, 1998, declared "NULL AND VOID for being contrary to law and the Constitution."
3. The movants allege that their exclusion from the instant case resulted in a denial of their constitutional rights to due process and to
equal protection of the laws. They also raise the "principle of hierarchical administration of justice" to impugn the Courts cognizance
of petitioners direct action before it.
4. Summary of the Main Decision dated December 9, 1998: Francisco I. Chavez filed an original action seeking (1) to prohibit and "
[e]njoin respondents [PCGG and its chairman] from privately entering into, perfecting and/or executing any agreement with the heirs
of the late President Ferdinand E. Marcos x x x relating to and concerning the properties and assets of Ferdinand Marcos located in the
Philippines and/or abroad -- including the so-called Marcos gold hoard"; and (2) to "[c]ompel respondent[s] to make public all
negotiations and agreement, be they ongoing or perfected, and all documents related to or relating to such negotiations and agreement
between the PCGG and the Marcos heirs."
Respondents, on the other hand, do not deny forging a compromise agreement with the Marcos heirs. They claim, though, that
petitioners action is premature, because there is no showing that he has asked the PCGG to disclose the negotiations and the
Agreements. And even if he has, PCGG may not yet be compelled to make any disclosure, since the proposed terms and conditions of
the Agreements have not become effective and binding.
SC ruled that the General and Supplemental Agreements entered into between the Heirs of Ferdinand Marcos and the PCGG is void
for being contrary to law and the Constitution. The ruling was based on the following: 1) the agreement provided criminal immunity to
the Marcoses which is only accorded to witnesses and not to principal defendants and thus contrary to law; 2) the agreement exempts
from tax the properties to be retained by the Marcoses which is contrary to the Constitution because the PCGG has no power to grant
tax exemptions; 3) the agreement binds the government to dismiss the case pending in Sandiganbayan over which the judicial branch
has alaready acquired jurisdiction; 4) the government waives all claims and counterclaims against the Marcoses which is contrary to
law on the proscription against future fraud; 5) the agreement does not provide a definite and determinable period within which the
parties shall fulfill their respective prestations; 6) the Agreements do not state with specificity the standards for determining which
assets shall be forfeited by the government and which shall be retained by the Marcoses; and 7) The absence of President Ramos
approval of the principal Agreement, an express condition therein, renders the compromise incomplete and unenforceable.
ISSUE/S:
1. WON the motions are meritorious NO
RULING: Motions are denied for lack of merit.
RATIO:
1. Intervention Not Allowed After Final Judgment: First, Section 2, Rule 19 of the Rules of Court, provides that a motion to intervene
should be filed "before rendition of judgment . . ." Intervention can no longer be allowed in a case already terminated by final
judgment. Second, they do not even offer any valid plausible excuse for such late quest to assert their alleged rights. Movants have

judgment. Second, they do not even offer any valid plausible excuse for such late quest to assert their alleged rights. Movants have
long been back in the mainstream of Philippine political and social life. Indeed, they could not (and in fact did not) even feign
unawareness of the petition prior to its disposition. Third, the assailed Decision has become final and executory; the original parties
have not filed any motion for reconsideration, and the period for doing so has long lapsed.

2. No Denial of Due Process: The movants are merely incidental, not indispensable, parties to the instant case. Being contractors to the
General and Supplemental Agreements involving their supposed properties, they claim that their interests are affected by the petition.
However, the Agreements undeniably contain terms and conditions that are clearly contrary to the Constitution and the laws
and are not subject to compromise. Such terms and conditions cannot be granted by the PCGG to anyone, not just to movants. Being
so, no argument of the contractors will make such illegal and unconstitutional stipulations pass the test of validity. The void
agreement will not be rendered operative by the parties alleged performance (partial or full) of their respective prestations. 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. In legal terms, the movants have really no interest to protect or right to assert in this proceeding.
Contrary to their allegations, no infraction upon their rights has been committed.

3. Petition Treated as an Exception to the Principle of Hierarchical Administration of Justice: Movants have not raised any new
argument that has not been taken up. In any event, the principle of the hierarchy of the courts generally applies to cases involving
factual questions. The oft-repeated justification for invoking it is that such cases do not only impose upon the precious time of the
Court but, more important, inevitably result in their delayed adjudication. Often, such cases have to be remanded or referred to the
lower court as the proper forum or as better equipped to resolve the issues, since the Supreme Court is not a trier of facts. 6 Inasmuch
as the petition at bar involves only constitutional and legal questions concerning public interest, the Court resolved to exercise primary
jurisdiction on the matter.

Castillo vs. Galvan

1978 | Concepcion Jr.|Void or Inexistent Contracts
PLAINTIFFS-APPELANTS: Maria Encarnacion Castillo, Elisea Galvan and Patrocinio Galvan
DEFENDANT-APPELLEES: Josefa Galvan, Emilio Samson and Natividad Galvan
SUMMARY: In this case, the plaintiffs instituted an action to declare void ab initio the sale of a land, which had alleged fraud and
no consideration in it. The SC held that the TC made a mistake in applying the prescriptive period of 4 years as a judicial
declaration to render a deed void ab initio is imprescriptible in this scenario
DOCTRINE: the plaintiffs are seeking a judicial declaration that the deed of sale in question is void ab initio, which
action is imprescriptible.

FACTS:
- Paulino Galvan the predecessor-in-interest of plaintiffs and defendants
- Maria Encarnacion- 2nd wife
- Lots No 451 and 4542 of Dagupan Cadastre
o Undivided Paulino Galvan during his lifetime was the registered
o Other undivided owned by his two daughters by his first marriage (Josefa Galvan and Natividad Galvan)

- Feb, 1961- Paulino Galvan died,

- Plaintiffs complaint, filed on August 1, 1961, for the annulment of a document, denominated DEED OF ABSOLUTE

SALE. They allege

o After Paulinos death, his predecessors from the second marriage waited for the defendants to initiate the move for the
settlement of Paulinos estate.
o After awhile, the plaintiffs went to the registry of deeds and were surprised to find out that there was a deed of sale signed
by Paulino and Maria Castillo where their half was sold in favor of the defendants for P500.
o But, after waiting for some time and finding that none was forthcoming, the plaintiffs became apprehensive,
began to go over the papers.
o In the Register of Deeds of Dagupan City, they were surprised to find a deed of sale, signed by the late Paulino
nd
and the 2 wife Maria Encarnacion, whereby they had purportedly sold for P500.00 the undivided 1/2 portion of
Paulino over said lots in favor of defendants.
o When apprised of the existence of a deed of sale, plaintiff Maria Encarnacion remembered that way back in
1953, she and her husband
were made to sign a certain document by Josefa Galvan upon the fraudulent
misrepresentation that the document was only for the purpose of enabling them, the co-owners of the land to have their
separate tax declarations for the portions owned by them and not ot knowing that the said document is a deed of
sale for which no consideration was even paid.
o Paulino could not have sold the land since he did not have any other house to line in and these is no necessity for him to
sell, as they had sufficient infome. Beside its worth around P22,500 so he could not have sold it for P500 only.
Plaintiffs prayed:
1. Deed of sale be declared null and void
2. plaintiffs be declared the owners of foursixths (4/6) of the undivided half share pertaining to Paulino Gaivan
3. defendants be ordered to pay the amount of P1,500.00, as attorneys fees and to pay the costs of suit
Defendants answer with counterclaim: that they obtained the land legally.
Three years later, filed an amended answer with the corresponding motion to admit it, which amended answer contained an
allegation that the action of plaintiffs is barred by the statute of limitations.
Plaintiffs filed objections
TC: permitted amendemts
Defendants filed a motion to dismiss stating the action is barred by the statute of limitations for the reason that the present action for
annulment is based on fraud and should be brought within 4 years from time of discovery of the same. (Considering deed of sale
was registered Aug 1955 and action was brought only during Aug 1961)
TC: sustained defendants contention and dismissed the complaint.

ISSUES:
WoN the trial court improperly dismissed the complaint on the ground of prescription. YES
WON the TC erred in admitting the amended answer which incorporated a defense of prescription not heretofore pleaded in the
original answer? NO
RULING: the judgment appealed from is reversed and the order of September 22. 1966, dismissing the complaint, is hereby
set aside. Let this case be remanded to the court of origin for further proceedings. Without costs

set aside. Let this case be remanded to the court of origin for further proceedings. Without costs
RATIO:
WoN the trial court improperly dismissed the complaint on the ground of prescription.
Yes. An action for judicial declaration that the deed of sale in question is void ab initio is imprescriptible.
The allegations of the complaint show, however, that the plaintiffs action is to declare void and inexistent the deed of
sale executed by Paulino Galvan and Encarnacion Castillo on August 3, 1955 in favor of Josefa and Natividad Galvan,
upon the grounds that:
a. there is fraud in securing the signatures of the vendors in said deed of sale and
b. there was no consideration given at the time of the transaction.
In other words, the plaintiffs are seeking a judicial declaration that the deed of sale in question is void ab initio, which
action is imprescriptible.
The trial court erred, therefore, in dismissing the complaint for the reasons stated.
Other ISSUE:
[procedure] Sorry I didnt bother to understand, it might an old rule, different from the revised ROC.
WON the TC erred in admitting the amended answer which incorporated a defense of prescription not heretofore pleaded
in the original answer?
The plaintiffs have apparently ignored the rule that a party may amend his pleadings once as a matter of course at any
time before a responsive pleading is served, or, if the pleading is one to which no responsive pleading is
permitted and the action has not been placed upon the trial calendar, hemay so amend it at any time within
ten (10) days after it is served. After the case is set for hearing, substantial amendments may be made only
upon leave of court. But such leave may be refused if it appears to the court that the motion was made
withintent to delay the action or that the cause of action or defense is substantially altered. Here, leave to file
an amended answer was sought after the case had been set for trial but before the trial thereof, so that it is
well within the ambit of the rule aforementioned. Indeed, if the plaintiffs believed that the trial court gravely
abused its discretion in allowing the amendments to the answer, they should have filed the proper corrective action
earlier.
The inclusion of the defense of statute of limitations is also claimed to have substantially altered the defense, in
that in the original answer, the defendants invoked only specific denial as their defense, which means that
they deny the truth of the allegations of fact constituting the fraud as alleged in the complaint, whereas the
defense of statute of limitations impliedly admits the truth of facts alleged in the complaint as constituting the
fraud, and, therefore, inadmissible.
The alteration pointed to by the plaintiffs is but nominal, and can not he considered a substantial alteration in the
defense within the meaning of the rule. Comparing the original answer with amendments made thereto, there are no
allegations in the amended answer wholly different from those which are stated in the original answer, except
for the addition of the allegation that the action of the plaintiffs is barred by the statute of limitations. Even the
prayer is the same, It is a sound estimate that the defense of prescription was interposed to strengthen their
previous defense of estoppel or laches. The plaintiffs could not have been placed at a disadvantage for as a
matter of fact, the plaintiffs had anticipated the defense of prescription in their complaint, by pleading that they
came to know of the existence of the deed of sale only after they went over the papers concerning the land
in the office of the Register of Deeds of Dagupan City in 1961, after the death of Paulino Galvan. At any
rate, under Section 2, Rule 8 of the Rules of Court, a party is allowed to set forth in his pleading two or
more statements or a claim or defense alternatively or hypothetically either in one cause of action or defense
or in separate causes of action or defenses. And a defendant may set forth by his answer as many defenses and
counterclaim as he may whatever be their nature regardless of consistency, provided, that each is consistent with
itself.
Barredo, J., concur.
- Because I am in favor of liberalizing the rule on waiver of defenses in order to promote substantial justice: The main
opinion as well as that of Justice Concepcion Jr., have that tendency.
Aquino, J., concurring:
- A contract of sale is void and produces no effect whatsoever where the price, which appears thereon as paid, has in fact
never been paid by the purchaser to the vendor. Such a sale is nonexistent and cannot be considered consummated.

PETITIONER: Jose Menchavez, Juan Menchavez Jr., Simeon Menchavez, Rodolfo Menchavez, Cesar Menchavez, et al.
RESPONDENT: Florentino Teves;
SUMMARY: Petitioners executed a Contract of Lease with Teves over a fishpond. Petitioners failed to inform Teves about a prior
civil case regarding the fishpond dikes, leading to demolition of Respondents own dikes, prompting him to file a case against
Petitioner. HOWEVER, TC found fisheries according to law are considered owned by the government, thus there was no contract to
begin with. Furthermore, Petitioner and Respondent were found in pari delicto, hence were made to bear their own faults. CA
Reversed. SC Ruled that there was in fact, in pari delicto; Respondents claim of the exception has to have been substantiated by a
preponderance of evidence, which he failed to do. Evidence points to the contrary.
DOCTRINE: Parties to a void agreement cannot expect the aid of the law; the courts leave them as they are, because they are
deemed in pari delicto or "in equal fault." To this rule, however, there are exceptions that permit the return of that which may have
been given under a void contract. One of the exceptions is found in Article 1412(2) of the Civil Code. HOWEVER, such must be
proven with a preponderance of evidence.

Menchavez v Teves
Jan. 26,2005 | Panganiban, J. | In Pari Delicto

FACTS:
1. Feb. 28 Petitioners executed a Contract of Lease with Respondent Teves as lessee over an area covered by a Fishpond
Application, which spanned 10.0 hectares and located at Tabuelan, Cebu. The lease was for 5 years from and after the
execution of this Contract of Lease, renewable at the option of the lessors, for the annual price of 40,000 pesos.

2. The Petitioners warranted that the lessee can and shall enjoy the intended use of the leased premises as a fishpond for the
entire duration of the contract, and that any violation of the terms more particularly the warranties above-mentioned, the
parties of this Contract responsible thereof shall pay liquidated damages in the amount of not less than P50,000.00 to the
offended party of this Contract.

3. June 2,1988 Cebu RTC sheriffs demolished the fishpond dikes constructed by respondent and delivered possession of the
subject property to other parties. As a result, Respondent filed a complaint for damages, alleging that lessors had violated
their Contract of Lease, specifically the peaceful and adequate enjoyment of the property for the entire duration of the
Contract. He claimed P157,184.40 as consequential damages for the demolition of the fishpond dikes, P395,390.00 as
unearned income, and an amount not less than P100,000.00 for rentals paid.

4. Respondent likewise asserted that lessors withheld from him the TC finding in Civil Case 510-T, where the Menchavez
spouses were ordered to remove the dikes illegally constructed and to pay damages and attorneys fees.

5. RTC ruled using Sec 24 of PD No. 704, as well as Sections 2 and 3 of the 1987 constitution, and found that the lease contract
between Florentino Teves, Jr. and Juan Menchavez Sr. and his family is a patent nullity, since technically the property in
litigation belonged to the State and not the Petitioners.

6. The Trial Court likewise found that the parties were in pari delicto, thus the Court must leave them to bear their own damages,
as no one can assert their claim. Petitioners ought to have known that they cannot lease what does not belong to them, as they
themselves are still applying for a lease of the same property under litigation from the government. Likewise Respondent,
fully aware that petitioners did not actually own the same, likewise had assumed the risks and under the principle He who
voluntarily assumes a risk, does not suffer damage thereby. As a consequence, when Teves leased the fishpond area from
[petitioners]- who were mere holders or possessors thereof, he took the risk that it may turn out later that his application for
lease may not be approved.

7. On the third issue of whether the third party defendants are liable for demolishing the dikes pursuant to a writ of execution
issued by the lower court, the Court found that the third party defendants are not liable, as they were mere agents of party in
Civil Case 510, and acted pursuant to an order of the Court. TC ultimately dismissed the appeal.

8. CA however, disregarded the finding that there was mutual fault. While there was negligence on the part of respondent for
failing to verify the ownership of the subject property, there was no evidence that he had knowledge of petitioners lack of
ownership, hence the current appeal.
ISSUE/S:
1. WON the Respondent and Petitioners are in pari delicto? YES
RULING: Petition is GRANTED and the assailed Decision and Resolution SET ASIDE. The Decision of the trial court is hereby
REINSTATED.

RATIO:
1. Parties do not dispute the finding of the trial and the appellate courts that the Contract of Lease was void. RTC correctly held that it
was the State, not petitioners, that owned the fishpond. No matter how long, Possession cannot ripen into ownership. The issue of
whether respondent was at fault or whether the parties were in pari delicto.
2. Being merely applicants for the lease of the fishponds, petitioners had no transferable right over them. And even if the State were to
grant their application, the law expressly disallowed sublease of the fishponds to respondent. Parties to a void agreement cannot
expect the aid of the law; the courts leave them as they are, because they are deemed in pari delicto or "in equal fault.". To this
rule, however, there are exceptions that permit the return of that which may have been given under a void contract. One of the
exceptions is found in Article 1412(2) of the Civil Code,.; is it under this which Respondent contends he can recover from the
petitioners, as he was induced via serious misrepresentation.
3. The issue of whether respondent was at fault or whether the parties were in pari delicto is a question of fact not normally taken up
under Rule 45, but nevertheless falls under the exceptions that CAs factual findings are (1) contrary to those of the TC; and (2)
premised on an absence of evidence, hence it may review the same.
4. Respondent himself admitted that he was aware that the petitioners lease application for the fishpond had not yet been approved.
Thus, he knowingly entered into the Contract with the risk that the application might be disapproved. Noteworthy is the fact that
the existence of a fishpond lease application necessarily contradicts a claim of ownership. That respondent did not know of
petitioners lack of ownership is therefore incredible.
5. Evidence of respondent himself shows that he negotiated the lease of the fishpond with both Juan Menchavez Sr. and Juan
Menchavez Jr. in the office of his lawyer, Atty. Jorge Esparagoza. His counsels presence during the negotiations, prior to the
parties meeting of minds, further debunks his claim of lack of knowledge. Lawyers are expected to know that fishponds belong to
the State and are inalienable, and thus counsel should have told him.
6. CA erred in finding that petitioners had failed to prove actual knowledge of respondent of the ownership status of the property that
had been leased to him. On the contrary, as the party alleging the fact, it was he who had the burden of proving through a
preponderance of evidence, that he was misled. As both parties are equally at fault, neither may recover against the other.
7. CA erred in awarding liquidated damages, notwithstanding its finding that the Contract of Lease was void. Even if it was assumed
that respondent was entitled to reimbursement as provided under paragraph 1 of Article 1412 of the Civil Code, the award of
liquidated damages was contrary to established legal principles. Since the principal obligation was void, there was no contract that
could have been breached by petitioners; thus, the stipulation on liquidated damages was inexistent.

Angel vs. Aledo

January 22, 2004 | Carpio-Morales, J. | Void Contracts
PETITIONER: Sps. Rufino Angel and Emerita Angel
RESPONDENT: Simplicio Aledo and Felixberto Modales
SUMMARY: Sps. Angel engaged the services of Modales to construct a two-storey residential building. The parties made it appear
that Aledo was the contractor. Aledo filed a complaint for collection of sum of money from the Sps. The Sps. claimed that Aledo
had no cause of action. The Sps. then filed a third party complaint against Modales for failure to comply with his obligation.
Modales alleged that The Sps. had no cause of action. The TC ruled in favor of the Sps. CA reversed and set aside TC decision and
dismissed the third party complaint and held that the contracts were contrary to law and public policy.
DOCTRINE: Ex dolo malo non oritur actio. In pari delicto potior est conditio defendentis (No right of action arises from fraud. In
equal fault, the condition of the defendant is better).

FACTS:
1. In November 1984, the spouses Rufino and Emerita Angel (spouses Angel or the Angels), herein petitioners, engaged the services
of respondent Felixberto Modales (Modales) to construct a two-storey residential building at GSIS La Mesa Homesite in Novaliches,
Quezon City
2. In their November 22, 1984 contract denominated Construction Agreement, since Modales was at the time an engineer under the
employ of the Department of Public Works and Highways, the parties made it appear that the contractor was Modales father-in-law,
his herein correspondent Simplicio Aledo (Aledo). The said agreement was for the construction of the building up to its rough finish
stage.
3. After the completion of the building in its rough finish stage another Construction Agreement dated February 11, 1985 was
forged by the spouses Angel and Aledo for effecting the finishing touches of the building. Completion of the finishing touches
was certified to by Mrs. Angel on April 31, 1985.
4. On September 27, 1988, Aledo filed before the Quezon City Regional Trial Court (RTC) a Complaint for collection of sum of
money against the spouses Angel, alleging that despite the completion of the construction of their building and their acceptance
thereof, they failed to pay the amount of P22,850.00.
5. The spouses Angel claimed that Aledo has no cause of action as he is only a dummy of his son-in-law Modales who was the actual
contractor.
6. In July 1989, the spouses Angel filed a Third Party Complaint against Modales, alleging that he failed to comply with his obligation
under the Construction Agreements as, among other things, the building had a lot of defects, to correct or remedy which would cost
them the amount of P85,000.00 Pesos
7. Modales alleged that the Angels have no cause of action against him as he had nothing to do with the contracts; and that he never
acted as a dummy and, in any event, the Angels never complained of any defect in the construction, hence, they are in estoppel and
are guilty of laches.
8. The trial court declared the plaintiff Aledo non-suited and accordingly dismissed his complaint by Order made in open court on
March 1, 1991.
9. By Order of April 16, 1991, the trial court clarified its Order of March 1, 1991, stating that the latter order shall be for the
dismissal of the original complaint but reserving to the defendant[s] third party plaintiffs the right to prove their counterclaim and third
party complaint against the plaintiff and third party defendant, respectively.
10. The trial court ruled in favor of defendants-third party plaintiffs Angels.
11. The CA reversed and set aside the TC decision and dismissed Angels counterclaim and third party complaint and held that the
Construction Agreements, which were entered into by the parties with the knowledge that Modales was prohibited from
contracting without the requisite permission from the proper government authorities, were contrary to law and public policy.
ISSUE/S:
1. WON the contract is contrary to law and public policy YES

RULING: WHEREFORE, the petition is, in light of the foregoing discussions, hereby DISMISSED. SO ORDERED.

RATIO:
1. Since admittedly it was with respondent Modales that petitioners contracted to construct their residential building but that his fatherin-law correspondent Aledo, his mere dummy, was named in the Construction Agreements, the Court of Appeals did not err in
holding that said agreements were contrary to law and public policy, hence, petitioners and respondents Aledo and Modales were in
pari delicto, and in accordingly pronouncing the dismissal of petitioners Counterclaim and dismissing their Third Party Complaint. Ex
dolo malo non oritur actio. In pari delicto potior est conditio defendentis (No right of action arises from fraud. In equal fault, the
condition of the defendant is better).

Liguez v. CA
Dec. 18, 1957 | Reyes, JBL, J. | Void contracts
PETITIONER: Conchita Liguez
RESPONDENT: CA, Maria Ngo, et al.
SUMMARY: Through a deed of donation, Salvador Lopez donated a parcel of land to Conchita Liguez, who was then 16. In an action commenced
by Conchita to recover the same, the CA found that the deed was null and void for having an illegal causa and for Salvadors lack of right to donate
conjugal property. This was based upon the finding that Salvador donated the land in order to cohabit with and have sexual relations with Conchita.
The CA also rejected the claim based on the in pari delicto rule. The SC found that the conveyance was indeed predicated on an illegal causa.
However, the pari delicto rule does not apply since at the time of the donation, Salvador was a man advanced in years and Conchita was only 16.
Furthermore, Salvadors forced heirs are barred from invoking the illegality of the causa, and are thereby only entitled to a declaration of the
donation as inofficious.
DOCTRINE: The rule that parties to an illegal contract, if equally guilty, will not be aided by the law but will both be left where it finds them, has
been interpreted by this Court as barring the party from pleading the illegality of the bargain either as a cause of action or as a defense.

A donation with illegal causa may produce effects under certain circumstances where the parties are not of equal guilt.

FACTS:

1. Conchita Liguez filed a complaint against the widow and heirs of Salvador Lopez to recover a parcel of 51.84 hectares of
land in Davao. She averred to be its legal owner, pursuant to a deed of donation executed in her favor by Salvador.

2. At the time the deed was executed, Conchita was 16. She had also been living with Salvadors parents for barely a month.
3. The deed of donation recites that the donor Salvador, for and in consideration of his love and affection for Conchita,
4.
5.
6.
7.
8.

and also for the good and valuable services rendered to [Salvador] by [Conchita], does by these presents, voluntarily
give, grant and donate
The donation was made in view of Salvadors desire to have sexual relations with Conchita. Furthermore, Conchitas
parents would not allow Conchita to live with him unless he first donated the subject land.
The donated land originally belonged to the conjugal partnership of Salvador and his wife, Maria Ngo.
CA: The deed of donation was inoperative, and null and void because:
a. Lopez had no right to donate conjugal property to Conchita;
b. The donation was tainted with illegal causa or consideration.
The CA also rejected Conchitas claim based on the rule in pari delicto non oritur actio, as embodied in Art. 1306 of the
1889 Civil Code (as reproduced in Art. 1412 in the new Civil Code).
Conchita: under Art. 1274 (of the 1889 Civil Code), in contracts of pure beneficence the consideration is the liberality
of the donor, and liberality per se can never be illegal, since it is neither against law or morals or public policy.

ISSUE/S:
1. WON the conveyance was predicated on illegal causa YES
2. WON the in pari delicto rule applies NO
3. WON the alienation of conjugal property was void only insofar as it prejudices Maria Ngo
RULING: Decisions appealed from reversed and set aside. Conchita Liguez entitled to so much of the donated property as may be
found, upon proper liquidation, not to prejudice the share of the widow Maria Ngo in the conjugal partnership or the legitimes of
Salvadors forced heirs. The records are remanded to the court of origin for further proceedings.
RATIO:
1. Under the cited Art. 1274, liberality of the donor is deemed causa only in contracts that are of pure beneficence, or
contracts designed solely and exclusively to procure the welfare of the beneficiary, without any intent of producing any
satisfaction for the donor.

2. In this case, Salvador was not moved exclusively by the desire to benefit Conchita, but also to secure her cohabiting with him, and
so that he could gratify his sexual impulses. This is clear from Salvadors confession to two witnesses that he was in love with
her.

3. Lopez would not have conveyed the property in question had he known that Conchita would refuse to cohabit with him. The
cohabitation was an implied condition to the donation and being unlawful, necessarily tainted the donation.

4. Therefore, the donation was but one part of an onerous transaction (with Conchitas parents) that must be viewed in its totality.
5. The CA erred in applying the pari delicto rule. The facts are more suggestive of seduction than of immoral bargaining.

a. It cannot be said that both parties had equal guilt. Salvador was a man advanced in years and mature experience, and
Conchita was only 16 when the donation was made.

b. The CA did not find that she was fully aware of the terms of the bargain entered into by her parents.
c. Her acceptance of the deed does not imply knowledge of conditions and terms not set forth therein.
d. Witnesses testified that it was Conchitas parents who insisted on the donation.
6. The rule that parties to an illegal contract, if equally guilty, will not be aided by the law but will both be left where it finds
them, has been interpreted by this Court as barring the party from pleading the illegality of the bargain either as a cause
of action or as a defense. But where the plaintiff can establish a cause of action without exposing its illegality, the vice does not
affect the right to recover.

7. Applied to the case: Conchita seeks recovery of the land based on the strength of a donation regular on its face. To defeat its effect,
the heirs must plead and prove that the same is illegal, which they cannot do, since Lopez himself, if living, would be barred from
setting up that plea.

8. Lopez could not donate the entirety of the property to the prejudice of his wife. The donation is void only insofar as it
prejudices the interest of his wife.

a. FC 1409: The conjugal partnership can be charged anything given or promised by the husband in order to obtain employment
for his children, or give them a profession.

b. 1415: The husband may dispose of the property of the conjugal partnership for purposes in Art. 1409.
c. 1413: The husband may for a valuable consideration alienate and encumber the property of the conjugal partnership without
the consent of the wife.

9. To determine the prejudice to the widow, it must be shown that the value of her share in the property donated cannot be paid out of
the husbands share of the community profits. However, the requisite data are not available to the court. The records need to be
remanded to the court of origin that settled Salvadors estate.

10. Salvadors forced heirs cannot invoke the illegality of the donation, but are entitled to have the donation set aside insofar
as inofficious, based on their rights to a legitime out of his estate. However, only the court of origin has the requisite data to
determine whether or not it is inofficious.

11. Re: improvements in the land governed by rules of accession and possession in good faith, since Maria and Salvadors heirs
were unaware of the donation to Conchita when the improvements were made.

12. Re: laches Conchita only enforced her right as donee in 1951. But the Court highlights that in 1943, she was still sixteen; she
only reached the age of majority in 1948. Her action 1951 was only delayed three years. Furthermore, she couldnt have
intervened in Salvadors estate proceedings because she was a minor for its great part. Also, the donation did not make her a
creditor of the estate.

13. A donation with illegal causa may produce effects under certain circumstances where the parties are not of equal guilt.

Rellosa v. Gaw Cheen Hun

Sept. 29, 1953 | J. Bautista-Angelo| Void Contracts - When the purpose is illegal and money is paid or property delivered therefore
PETITIONER: Dionisio Rellosa
RESPONDENT: Gaw Chee Hun
SUMMARY: Rellosa sold Gaw a parcel of land. Later, Rellosa alleged that the sale is void under the premises of not being
approved by the Japanese Military Administration and under the 1943 Constitution. While the CFI and CA ruled that the sale was
valid in favor of Gaw, the SC ruled that while the sale is null and void under the 1943 Constitution, Rellosa cannot recover his
property under the doctrine of in pari delicto, which states that no action can arise from an illegal contract. In this case, Rellosa was
guilty in knowing that selling land to Gaw, an alien, was illegal under the Constitution.
DOCTRINE: NCC Art. 1414 states that if the property is delivered for an illegal purpose, the contract may be repudiated before the
purpose has been accomplished. In this case, the courts did NOT allow Rellosa to have the sale declared void because to allow
Rellosa to recover the property would only benefit him, and not public interest as stated in Art. 1414.
NCC 1414: When money is paid or property delivered for an illegal purpose, the contract may be repudiated by one of the
parties before the purpose has been accomplished, or before any damage has been caused to a third person. In such case, the
courts may,
if the public interest will thus be subserved, allow the party repudiating the contract to recover the money or property.

FACTS:
1. Feb. 2, 1944 - Petitioner Rellosa sold to Gaw Chee Hun a parcel of land, together with the house that stands on it for P25k. Rellosa
remained in possession of the property under a contract of lease, which was entered into on the same date between him and Gaw.
2. Rellosa alleges that the sale was executed, subject to the condition that Gaw, being a Chinese citizen, would obtain the approval of
the Japanese Military Administration in accordance with Seirei No. 6. Since the approval by the Japanese was not obtained by Gaw,
and even if Gaw obtained it, the sale would be void under Art. 8, Sec. 5 of the 1943 Constitution:
1943 Constitution, Art. 8, Sec. 5: "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 in the Philippines, or to persons entitled
by law [to inherit in case of intestate succession]."
3. Rellosa then sought to annul the sale as well as the lease covering the land and the house in the CFI Manila. Rellosa prayed that
once the sale and lease were declared null and void, Gaw should return to him the duplicate of the title covering the property and be
restrained from in any way dispossessing Rellosa of the property.
4. Gaw answered that the sale was absolute and unconditional by way of special defense. Hence, it is valid and binding between him
and Rellosa, since it was not contrary to law, morals, and public order. Gaw also avers that Rellosa is guilty of estoppel in that he
executed a deed of lease over the property and thus recognized Gaw's title to the property.
5. CFI Manila: Declared the sale and lease as valid and binding, dismissed complaint. CA affirmed this in toto.
Hence this present petition for review.
RULING: Sale in question is null and void, but Rellosa is barred from pursuing the present action for the annulment of the
sale and the return of the duplicate of the title back to him, under the principle of in pari delicto.
In this case, the SC suggested 2 ways in which the Philippine Government could solve the issue. Note that the SC did not give the land
back to Rellosa and instead wanted it to go back to the Philippine Government.
ISSUES AND RATIO :
1. WON the sale is valid under the Japanese military directive (Seirei No. 6) in view of the failure of Gaw to obtained the
requisite approval? + WON CA errred to declare Seirei No. 6 as without any binding effect?
NO, sale is INVALID. Seirei No. 6 is not considered in the case, because it is the 1943 Consti which is controlling.
-It is not necessary to consider the validity of Seirei No. 6 of the Japanese Military Administration because the law that should govern
the sale should be the 1943 Constitution. (See Footnote 1) In short, CA did not err.
-"Agricultural land" includes residential land, as interpreted by the SC in the case of Krivenko v. Register of Deeds, where the SC held
that under the Consti, aliens may NOT acquire private or public agricultural lands, including residential lands. Hence, the sale
of Rellosa to Gaw of the land in question is INVALID.
2. WON Rellosa can have the sale declared null and void and recover the property, considering the effect of the law governing
the rescission of contracts? NO.
-Trinidad Gonzaga de Cabautan v. Uy Hoo: The vendor of the sale is now prevented from invoking the Constitution to recover their
land because of their guilty knowledge that what they were doing was in violation of the constitution. They cannot escape this
conclusion, because they are presumed to know the law. A party to an illegal contract cannot come into a court of law and ask to have
his illegal objects carried out.

-Doctrine of "in pari delicto": "No action arises, in equity or at law, from an 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 sometimes been laid down as though it were equally universal, that where the parties are in pari delicto, no affirmative
relief of any kind will be given to one against the other."

Exception to this doctrine is that whenever public policy is considered as advanced by allowing either party to sue
for relief against the transaction.

Exception to the exception: Only includes class of contracts which are intrinsically contrary to public plicy,
contracts in which the illegality itself consists in their oopposition to public policy, and any other species of illegal
contracts.

- IN THIS CASE: The contract does not come under the exception to "in pari delicto" because it is NOT intrinsically contrary to
public policy, nor one where the illegality itself consists in its opposition to public policy. It is illegal, not because it is against public
policy, but because it is against the Constitution. It cannot be contended that to apply the doctrine of in pari delicto would be
tantamount to contraveneing the fundamental policy embodied in the Constitutional prohibiton in that it would allow an alien to
remain in the illegal possession of the land, because in this case, the remedy is lodged elsewhere. To adopt the contrary view would be
merely to benefit Rellosa and not to enhance public interest.
-In the SC's opinion, there are 2 ways for the Philippine Government resolve the problem. (Note that in either case, the land will NOT
go back to Rellosa.) Both are essentially the same concept (in that they transfer the property back to the State) but are different in their
methods of doing it.
Through escheat: 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."

Through an action for reversion: Will declare any prohibited conveyance not only unlawful but null and void ab
initio. 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."

PH Banking Corp vs Lui She

September 12, 1967| Castro | When the agreement is not per sel illegal but prohibited (Art. 1416)
PETITIONER: PHILIPPINE BANKING CORPORATION, representing the estate of JUSTINA SANTOS Y CANON
FAUSTINO, deceased
RESPONDENT: LUI SHE in her own behalf and as administratrix of the intestate estate of Wong Heng, deceased
SUMMARY:
Petitioner Justina, who is old, blind, and invalid, owned property with two houses and restaurant. She leased the property to
respondent Hen Wah, foreign citizen, with option to buy said property. When she died, her estate filed for annulment of lease and
option contracts. Supreme Court said while contracts, while not per se illegal, were contrary to the public policy in the Constitution
to conserve lands for Filipinos.
DOCTRINE:
Arts 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 delivered

FACTS:
1. Deceased petitioner Justina Santos y Canon Faustino and her sister Lorenzo were the owners of a piece of land in Manila
which had two houses and the Hen Wah restaurant. Deceased respondent Hen Wah was leasing portion of restaurant for
P2,620.

2. Sister Lorenzo died and so petitioner Justina became sole owner of property. Justine being 90 years old, crippled, blind, and
invalid, she had no other relative to live with. Her only companions were 17 dogs and 8 maids. Her dreary existence were
brightened by respondent Wongs four children who were the joy of her life. Wong became trusted man who handled the
property rentals as well as payment of salaries of maids, taxes, household expenses

3. "In grateful acknowledgment of the personal services of the lessee to her," Justina Santos executed on a contract of lease (Plff
Exh. 3) in favor of Wong covering the entire property.

4. She executed another contract (Plff Exh. 7) giving Wong the option to buy the leased premises for P120,000, payable within
ten years at a monthly installment of P1,000. The option, written in Tagalog, imposed on him the obligation to pay for the
food of the dogs and the salaries of the maids 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. This was withdrawn when they discovered he wasnt resident of Rizal. Justina tried to adopt Wong but stopped when
found out adoption wouldnt give him Filipino citizenship.
5. She executed two other contracts, one (Plff Exh. 5) extending the term of the lease to 99 years, and another (Plff Exh. 6) fixing
the term of the option of 50 years. Both contracts are written in Tagalog.
6. In two wills(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 she appears to have a change of heart. Claiming that the various contracts were made by her because of
machinations and inducements practiced by him, she now directed her executor to secure the annulment of the contracts.
4. Action filed against Wong for annulment of contract based on 1) fraud, undue influence, and abuse of confidence and 2) taking
advantage of helplessness of plaintiff and and were made to circumvent prohibition on aliens owning land.
5. In his answer, Wong admitted that he enjoyed her trust and confidence as proof of which he volunteered the information that, in
addition to the sum of P3,000 which he said she had delivered to him for safekeeping, another sum of P22,000 had been deposited in a
joint account which he had with one of her maids. But he denied having taken advantage of her trust.
6. Trial court said all contracts except first lease null and void.
ISSUE/S:
1. WON first lease contract should be annulled on ground of offending mutuality NO
2. WON Contracts are void for being contrary to public policy YES

RULING: All contracts null and void. Land returned to estate of Justina. Wonhee owes balance of P56,564 to Justina.
RATIO:
1. Lease contract states that "The lessee may at any time withdraw from this agreement." Petitioner claims that stipulation offends art.
1308 of the Civil Code which provides "the contract must bind both contracting parties; its validity or compliance cannot be left to the
will of one of them."
It was held in Melencio v. Dy Tiao Lay that a "provision in a lease contract that the lessee, at any time before he erected any building
on the land, might rescind the lease, can hardly be regarded as a violation of art 1308 of the Civil Code.

No merit in claim that since deceased sisters estate was still in the process of settlement in the probate court at the time it was leased,
the lease is invalid as to such portion. Justina Santos became the owner of the entire property upon the death of her sister
Lorenzo on September 22, 1957 by force of article 777 of the Civil Code.

It iscontended that the lease contract was obtained by Wong in violation of his fiduciary relationship with Justina Santos, contrary to
Civil Code, which disqualifies "agents (from leasing) the property whose administration or sale may have been entrusted to them." But
Wong was never an agent of Justina Santos. The relationship of the parties, although admittedly close and confidential, did not amount
to agency.
It is argued that Wong so completely dominated her life and affairs that the contracts express not her will but only his. Counsel for
Justina Santos cites the testimony of Atty. Tomas S. Yumol who said that he prepared the lease contract on the basis of data given to
him by Wong and that she told him that "whatever Mr. Wong wants must be followed.
Even if Wong supplied data, the contract was fully explained to Justina Santos by her own lawyer. One incident makes clear that she
voluntarily consented to the lease contract. Her lawyer said that the original term fixed for the lease was 99 years but that as he
doubted the validity of a lease to an alien for that length of time, he tried to persuade her to enter instead into a lease on a month-tomonth basis. She was, however, firm and unyielding. Instead of heeding the advice of the lawyer, she ordered him, "Just follow Mr.
Wong Heng."
Atty. Yumol further testified that she signed the lease contract in the presence of her close friend, Hermenegilda Lao, and her maid,
Natividad Luna, who was constantly by her side. Any of them could have testified on the undue influence that Wong supposedly
wielded over Justina Santos, but neither of them was presented as a witness.
The ambition of the old woman, before her death, according to her revelation to me, was to see to it that these properties be
enjoyed, even to own them, by Wong Heng because Doa Justina told me that she did not have any relatives, near or far, and she
considered Wong Heng as a son and his children her grandchildren..

2. This is not to say that the contracts (Plff Exhs. 3-7) are valid. For said testimony 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"
rendering the contracts void.

Taken singly, the contracts show nothing that is necessarily illegal, but considered collectively, they reveal an insidious pattern
to subvert by indirection what the Constitution directly prohibits. To be sure, a lease to an alien for a reasonable period is valid.
So is an option giving an alien the right to buy real property on condition that he is granted Philippine citizenship.

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 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 transfer of
ownership whereby the owner divests himself in stages not only of the right to enjoy the land ( jus possidendi, jus utendi, jus fruendi
and jus abutendi) but also of the right to dispose of it ( jus disponendi) rights the sum total of which make up ownership. It is just as
if today the possession is transferred, tomorrow, the use, the next day, the disposition, and 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
Constitutional ban against alien landholding in the Philippines is in grave peril.

It does not follow from what has been said, however, that because the parties are in pari delicto they will be left where they are,
without relief. For one thing, the original parties who were guilty of a violation of the fundamental charter have died and have since
been substituted by their administrators to whom it would be unjust to impute their guilt.
Arts 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 delivered."

The Constitutional provision that "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 in the Philippines" is an
expression of public policy to conserve lands for the Filipinos
That policy would be defeated and its continued violation sanctioned if, instead of setting the contracts aside and ordering the
restoration of the land to the estate of the deceased Justina Santos, this Court should apply the general rule of pari delicto
Wong had two accounts. First account was regarding money Justina trusted Wong with. Wong had 70,007.19 (receipts) which
subtracting P38,442.84 (expenditures) added to P25,000 leaves balance of P56,564.35 in favor of Justina Santos.

Second account had rentals from Rizal and Ongpin property. This account is contained in a notebook (Def. Exh. 6), which paid for dog
food and maid salary, shows a balance of P9,210.49 in favor of Wong but there shouldnt be a balance since rentals should be more
than enough to pay for expenses.

Acabal and Nicolas vs. Acabal

March 31, 2005 | Carpio-Morales | When the agreement is not per se illegal but prohibited Art 1416
PETITIONERS: Leonardo Acabal and Ramon Nicolas
RESPONDENTS: Villaner, Eduardo, Solomon, Grace, Melba, Evelyn, Armin, Ramil and Byron all surnamed Acabal
SUMMARY: Villaner sold conjugal property to Leonardo but claims that the document he executed was only a contract of lease. He
says that in any case, the sale would be void for violating the retention limits in the CARL. Court says even assuming that the sale is
void, he would still have no remedy since he and Leonardo were in pari delicto, hence not entitled to affirmative relief.
DOCTRINE: The principle of pari delicto, however, is not absolute, admitting an exception under Art 1416. Under this article,
recovery for what has been paid or delivered pursuant to an existent contract is allowed only when the following requisites are met:
(1) the contract is not illegal per se but merely prohibited; (2) the prohibition is for the protection of the plaintiffs; and (3) if public
policy is enhanced thereby.

FACTS:
1. Villaners parents owned a parcel of land (~18 hectares) in Negros Oriental. Ownership was transferred to Villaner for 2k via a
Deed of Absolute Sale. He was then married but sometime thereafter, he became a widower.
2. Villaner executed a Deed conveying the same land to his godson-nephew Leonardo. Leonardo in turn conveyed the land to Ramon
Nicolas.
3. Villaner filed a complaint for annulment of the deed of sale. He asserts that what he signed wasnt a Deed of Absolute Sale but
merely a Lease Contract.
4. Villaner (on the witness stand): he had an agreement with Leonardo not to sell the land but merely to lease; that he didnt know
why he signed the deed of sale; that he didnt even read it but only saw the title Lease Contract; that 2 women employees of a
Judge in Bais City witnessed the signing; but that the signatures of these witnesses on the deed of sale werent theirs; that he
didnt appear before a notary public to have the deed notarized; that he hasnt received the 10k which was the purchase price as
per the deed; that Leonardo probably requested a certain Carmelo Cadalin to prepare the papers; that he gave some papers to
Leonardo for the preparantion of the contract of lease; that Carmelos testimony that what he prepared was a deed of sale was a
lie; that the copies of the deed of sale were PROBABLY placed by Carmelo under the documents which he signed; that he was
surprised that the documents he now signed are witnessed by Carmelo Cadalin and his wife when the witnesses were really the
employees of the judge
5. Leonardo (on the witness stand): Villaner executed a deed of sale for 10k which he has already paid; that he has become the
owner and has validly transferred it to Nicolas
6. Carmelo (on the witness stand): that he prepared the deed of absolute sale and that he appeared as a witness; that Villaner
requested him to prepare the deed; that Villaner read and signed the document; that the signatures on the document was his and
his wife as witnesses
7. The complaint was amended to include Villaners eight children as plaintiffs being heirs of his deceased wife
8. RTC: found for Villaner; CA: reversed
ISSUE: What is the nature of the document which Villaner executed in favor of Leonardo that of a SALE, not lease
RULING: Petition GRANTED. CA decision REVERSED. Sale in favor of Leonardo and subsequent sale to Ramon is valid only
insofar as 5/9 of the property is concerned.
RATIO:
[Procedural]
Petitioners: CA should have applied S8,R8,ROC as Villaner failed to deny under oath the genuineness and due execution of the
Deed of Absolute Sale
Failure to deny genuiness and due execution of actionable document doesnt preclude a party from arguing against it by
evidence of fraud, mistake, compromise, payment, statute of limitations, estoppel want of consideration.

[Substantive]
Burden of proof lies on party who makes the allegations. Allegations of defect in or lack of valid consent by reason of fraud
or undue influence are never presumed and must be estatblished not by preponderance of evidence by by CLEAR AND CONVICING

or undue influence are never presumed and must be estatblished not by preponderance of evidence by by CLEAR AND CONVICING
evidence.
Villaner failed to prove that he was deceived. His conjecture that perhaps the copies of the deed of sale were place by
Carmelo under the documents which he signed the contract of lease fails. Facts and not conjectures decide cases.
Atty. Real who notarized the document was presented as Villaners witness. He corroborated Villaners claim that the
documuent was brought to him for notarization. However, he conceded that it was impossible to remember every person who would
ask him to notarize such that Villaner might have come back at a later time to have the documents notarized and he woulent have
recognized him.

Villaner: two women employees of a Judge signed as witnesses but the signatures on the deed arent those of said witnesses
Claim discredited as he didnt present these women.

Villaner: the 10k purchase price is unusually low if the transaction is really one of sale; presented Tax Dec and Declaration of
Real Property for 1994
He failed to present any evidence on the fair market value of the property as of April 1990 (date of execution of deed).
Inadequacy of price must be proven.
In fact, as per the report of Victor Ragay who was appointed by the RTC to conduct an ocular inspection of the property, the
purchase price of 10k is actually more than reasonable. An adjoining 6 hectare property was sold for only 1,600 (266.67/hect).
Following that, Villaners lot would only have been worth P4,800.
Even assuming the price was below the fair market value, mere inadequacy will not rule out transaction as one of sale. Price
must be grossly inadequate / shocking to the conscience that the mind revolts at it and such that a reasonable man would neither
directly nor indirectly be likely to consent to it.

Villaner: Leonardos transfer of the property to Nicolas in a span of one month for 30k reflects Leonardos fraudulent intent
Non sequitur.

Villaner: sale to Leonardo and subsequent sale to Nicolas is void for being violative of the retention limits imposed by the
Comprehensive Agrarian Reform Law
Only those private lands devoted to or suitable for agriculture are covered. Remember Victor Ragays observations in
footnote 1. The property wasnt suitable for agricultural purposes. In any case, since the area devoted to planting of sugarcane, thus
suitable for agricultural purposes, comprises only 4 hectares, its less than the maximum retention limit of 5 hectares.
Assuming disposition was contrary to law, Villaner would still have no remedy under the law as he and Leonardo were in pari
delicto, hence, he is not entitled to afirmative relief one who seeks equity and justice must come to court with clean hands.
No action arises, in equity or at law, from an 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.
Principle of pari delicto is grounded on two premises: (a) that courts should not lend their good offices to mediating disputes
among wrongdoers; and (b) that denying judicial relief to an admitted wrongdoer is an effective means of deterring illegality.Doctrine
is not a principle of justice but one of policy.
SEE DOCTRINE. Exception doesnt apply here since the prohibition is clearly not for the protection of the plaintifflandowners but for the beneficiary farmers.
Villaners stopped. He cant feign ignorance of the law, nor claim he acted in good faith let alone assert that hes less guilty
than Leonardo. Art 3 ignorance excuses no one.

Villaners co heirs: as co-owners, the deed of sale executed by Villaner doesnt bind them as they didnt consent.
No doubt the property was conjugal property. The presumption in Art 160 applies to all properties during marriage. The
property was acquired during Villaners marriage. Presumption stands even though the tax declarations were solely in the name of

property was acquired during Villaners marriage. Presumption stands even though the tax declarations were solely in the name of
Villaner. Registration in the name of the husband alone doesnt destroy the conjugal nature of the parties. What is material is the time
when the land was acquired. Petitioners failed to disprove this presumption.
As the property was conjugal, upon Justinianas death, the conjugal partnership was terminated. Her right to the half portion
vested upon her death to her heirs including Villaner. A regime of co-ownership arose.
With respect to Justinianas one-half share, her eight children and Villaner each receives 1/9. Having inherited 1/9 of his
wifes share in the conjugal partnership or 1/18 of the entire conjugal partnership and is himself already the owner of or 9/18,
Villaners total interest amounts to 10/18 or 5/9.
He cant claim title to any definite portion until its actual partition. Prior to partition, all that he has is an ideal or abstract
quota or proportionate share in the property. However, as a co-owner, he has the right to sell his undivided share as per Art 493.
However, he sold the entire property without his co-onwers consent. The disposition affects only his share pro indiviso and
the transferee only gets what corresponds to his grantors share.
The proper action in cases like this is not for the nullification of the sale or the recovery of possession of the thing owned in
common from the third person who substituted the co-owner or co-owners who alienated their shares, but the DIVISION of the
common property as if it continued to remain in the possession of the co-owners who possessed and administered it.

Nicolas: good faith buyer!

Cruz v. Leis isnt applicable since the property here is unregistered. Issue of good/bad faith of a buyer is relevant only where
the subject of the sale is registered. One who purchases unregistered land does so at his peril.

Fomaran v. Ong
July 8, 2013 | Perez, J. | Inexistent Contracts (Absolutely Simulated; Articles 1345 & 1346)
PETITIONER: DR. LORNA C. FORMARAN
RESPONDENTS: DR. GLENDA B. ONG AND SOLOMON S. ONG
SUMMARY: Petitioner was the beneficiary of a land donated to her by her uncle and aunt. Upon the
proddings of respondent Glenda, that she badly needed a collateral for a loan which she was applying
from a bank to equip her dental clinic, petitioner made it appear that she sold one-half of the aforedescribed parcel of land to Glenda. Sale was totally without any consideration and fictitious. Contrary to
plaintiffs agreement with defendant Glenda for the latter to return the land, defendant Glenda filed a case
for unlawful detainer against the petitioner. To protect petitioners rights and interest over the land in
question, she filed the instant case. RTC decided in favour of petitioner. CA reversed. SC reinstated RTC
decision finding absolute simulation of the deed.

FACTS:

1. According to petitioner's complaint, she owns the afore-described parcel of land which was
donated to her intervivos by her uncle and aunt, spouses Melquiades Barraca and Praxedes
Casidsid.
2. Glenda and her father, Melquiades Barraca, petitioners uncle, came to her residence asking
for help. They were borrowing one-half of land donated to her so that defendant Glenda could
obtain a loan from the bank to buy a dental chair. They proposed that she signs an alleged
sale over the said portion of land.
3. Petitioner signed a prepared Deed of Absolute Sale on August 12, 1967 which they brought
along with them, covering the land in question without any money involved. There was no
monetary consideration in exchange for executing such deed.
4. A month later, petitioner inquired from her uncle, Melquiades Barracca if they obtained the
loan. He informed her that they did not push through with the loan because the banks
interest was high. She inquired about the deed and he replied that they crampled (kinumos) it
and threw it away. Because of this, petitioner did not bother anymore about the document.
She thought that there was no more transaction. Besides, she is also in actual possession of
the land and have even mortgaged the same.
5. On May 30, 1996, Glenda filed a case for unlawful detainer against Petitioner.
6. Following the filing of the ejectment case, she learned for the first time that the Deed of
Absolute Sale was registered on May 25, 1991 and was not thrown away contrary to what
Melquiades Barraca told her.
7. To protect petitioners rights and interest over the land in question, she was constrained to file
case of annulment of the Deed of Sale in RTC.
8. In her answer, Glenda insisted on her ownership over the land in question on account of a
Deed of Absolute Sale executed by the petitioner in her favor and petitioners claim of
ownership was virtually rejected by the Municipal Circuit Trial Court when it decided in her
favor the unlawful detainer case she filed against petitioner.
9. According to respondents testimonies, Glenda was able to declare in her name the land in
question for taxation purposes and paid the realty taxes. She also was able to possess the
land in question.
10. Glenda maintained that there was money involved affecting the sale of the land in her favor.
The sale was not to enable her to buy a dental chair for she already had one at the time.
Besides, the cost of a dental chair in 1967 was only P2,000.00 which she can readily afford.
11. Sale affecting the land in question was not immediately registered after its execution in 1967
but only on May 25, 1991 in order to accommodate the plaintiff who mortgaged the land to
Aklan Development Bank on May 18, 1978.
12. Realty taxes of the afore-described parcel of land, including the land in question, have been
paid by the plaintiff since 1967. However, defendant Glenda paid for the first time the realty
taxes of the land in question on January 9, 1995 and up to the present time.
13. RTC decided in favor of petitioner by declaring the Deed of Absolute Sale null and void for
being an absolutely simulated contract and for want of consideration.
14. CA reversed RTC decision; ordered petitioner to vacate the land in question and restore the

14. CA reversed RTC decision; ordered petitioner to vacate the land in question and restore the
same to respondents.

ISSUE: WON the Deed of Absolute Sale is null and void for being absolutely simulated? YES.
RULING: Petition is GRANTED. The Decision of the Court of Appeals is hereby REVERSED and SET
ASIDE. The Decision of the Regional Trial Court is REINSTATED.
RATIO:

(1) The deed was totally devoid of consideration;

(2) It was executed on August 12, 1967, less than two months from the time the subject land was
(3)
(4)
(5)
(6)
(7)
(8)

donated to petitioner on June 25, 1967 by no less than the parents of respondent Glenda
Ong;
On May 18, 1978, petitioner mortgaged the land to the Aklan Development Bank for a
P23,000.00 loan;
From the time of the alleged sale, petitioner has been in actual possession of the subject
land;
The alleged sale was registered on May 25, 1991 or about twenty four (24) years after
execution;
Respondent Glenda Ong never introduced any improvement on the subject land;
Petitioners house stood on a part of the subject land. These are facts and circumstances
which may be considered badges of bad faith that tip the balance in favor of petitioner.
While the Deed of Absolute Sale was notarized, it cannot justify the conclusion that the sale is
a true conveyance to which the parties are irrevocably and undeniably bound. Although the
notarization of Deed of Absolute Sale, vests in its favor the presumption of regularity, it does
not validate nor make binding an instrument never intended, in the first place, to have any
binding legal effect upon the parties thereto