Case Digests for Obligations and Contracts: Void/Inexistent Contracts

De Leon v Court of Appeals, G.R. No. 80965, June 6, 1990

Facts: Private respondent Jose Vicente De Leon and petitioner Sylvia

Lichauco De Leon we’re married on October 18, 1969. Their union was
blessed with a child named Susana L. De Leon.

Sometime in October, 1972, a de facto separation between the

spouses occurred due to irreconcilable marital differences, with Sylvia
leaving the conjugal home. She then went to the United States where she
obtained American citizenship.

Sylvia filed with the Superior Court of California a petition for

dissolution of marriage against Jose Vicente. She also filed claims for support
and distribution of properties. However, since Jose Vicente was then a
Philippine resident and did not have any assets in the United States, she
chose to hold in abeyance the divorce proceedings and concentrated her
efforts to obtain some sort of property settlements with him in the
Philippines.

On March 16, 1977, Sylvia succeeded in entering into a Letter-

Agreement with her mother-in-law, private respondent Macaria De Leon. On
the same date, Macaria made cash payments to Sylvia in the amount of
P100,000 and US$35,000.00 or P280,000.00, in compliance with her
obligations as stipulated in the aforestated Letter-Agreement.

On March 30, 1977, Sylvia and Jose Vicente filed before the then Court
of First Instance of Rizal a joint petition for judicial approval of dissolution of
their conjugal partnership.

Issue: 1. Whether or not the Letter-Agreement is valid.

2. Whether or not the pair delicto rule should be applied.
Ruling: 1. No. The Court finds and holds that the cause or consideration for
the intervenor Macaria De Leon in having executed the Letter-Agreement
was the termination of the marital relationship between her son Jose Vicente
De Leon and Sylvia Lichauco de Leon.

"Article 1306 of the New Civil Code provides:

'Art. 1306. The contracting parties may establish such stipulations, clauses,
terms, and conditions as they may be deem convenient, provided they are
not contrary to law, morals, good customs, public order or public policy.'
'If the stipulation is contrary to law, morals or public policy, the contract is
void and inexistent from the beginning.

"Art. 1409. The following contracts are inexistent and void from the
beginning:

'(1) Those whose cause, object or purpose is contrary to law, morals, good
customs, public order or public policy;

xxx xxx xxx

'(7) Those expressly prohibited or declared void by law.

'These contracts cannot be ratified. Neither can the right to set up the
defense of illegality be waived.'

"But marriage is not a mere contract but a sacred social institution.

Thus, Art. 52 of the Civil Code provides:

'Art. 52. Marriage is not a mere contract but an inviolable social institution.
Its nature, consequences and incidents are governed by law and not subject
to stipulations . . .'

From the foregoing provisions of the New Civil Code, the Court held
that the intervenor's undertaking under the Letter-Agreement premised on
the termination of marital relationship is not only contrary to Filipino morals
and public policy, and it should be deemed null and void.
2. No. In the ultimate analysis, therefore, both parties acted in violation of
the laws. However, the pari delicto rule, expressed in the maxims "Ex dolo
malo non oritur actio" and "In pari delicto potior est conditio defendentis,"
which refuses remedy to either party to an illegal agreement and leaves them
where they are, does not apply in this case. Contrary to the ruling of the
respondent Court.

Article 1414 of the Civil Code, which is an exception to the pari delicto
rule, is the proper law to be applied. It provides:

"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."

Since the Letter-Agreement was repudiated before the purpose has

been accomplished and to adhere to the pari delicto rule in this case is to
put a premium to the circumvention of the laws, positive relief should be
granted to Macaria. Justice would be served by allowing her to be placed in
the position in which she was before the transaction was entered into.

Peña v Delos Santos, G.R. No. 202223, March 2, 2016

Facts: Jesus Delos Santos and Rosita Delos Santos Flores were the
judgement awardees of the two-thirds portion or 9,915 square meters of
four adjoining lots designated as lots 393-A, 393-B, 394-D and 394-E, located
in Boracay Island, Malay, Aklan, representing as their shares in the intestate
estate of Leonardo delos Santos.

Peña averred that he is the transferee of Jesus and Rosita's adjudged

allotments over the subject lots. He claimed that he bought the same from
Atty. Romeo Robiso who acquired the properties from Jesus and Rosita
through assignment and sale. This was opposed by Vicente Delos Santos,
et. al. (plaintiffs) through a motion claiming that the conveyance made by
Jesus and Rosita in favor of Atty. Robiso was null and void for being a
prohibited transaction because the latter was their counsel in the case.

The RTC upheld that the conveyance made by Jesus and Rosita in
favor of Atty. Robiso is valid since it was not made during the pendency of
litigation but after judgment has been rendered. The CA reversed the
decision of the RTC.

Issue: Whether the deeds of conveyance between Atty. Robiso and Jesus
and Rosita were void.

Ruling: Yes. Article 1491(5) of the New Civil Code expressly prohibits lawyers
from acquiring property or rights that may be the object of any litigation in
which they may take part by virtue of their profession.

A property is in litigation if there is a contest or litigation over it in court

or when it is subject of a judicial action. Records show that the judicial action
over the subject lots was still in the appellate proceedings stage when they
were conveyed to Atty.Robiso.

Clearly then, since the property conveyed to Atty. Robiso by Jesus and
Rosita was still the object of litigation, the deeds of conveyance executed by
the latter are deemed inexistent. Under Article 1409 of the New Civil Code,
contracts which are expressly prohibited or declared void by law, are
considered inexistent and void from the beginning.

Prudential Bank v Panis, G.R. No. L-5008, August 31, 1987

Facts: laintiffs-spouses Fernando A. Magcale and Teodula Baluyut Magcale

secured a loan in the sum of P70,000.00 from the defendant Prudential Bank.
To secure payment of this loan, plaintiffs executed in favor of defendant on
the aforesaid date a deed of Real Estate Mortgage over a 2-stores, semi-
concrete, residential building.

For failure of plaintiffs to pay their obligation to defendant Bank after

it became due, and upon application of said defendant, the deeds of Real
Estate Mortgage were extrajudicially foreclosed. Consequent to the
foreclosure was the sale of the properties therein mortgaged to defendant.

Issue: Whether or not a valid real estate mortgage can be constituted on the
building erected on the land belonging to another.

Ruling: Yes. The Court held that while it is true that a mortgage of land
necessarily includes, in the absence of stipulation of the improvements
thereon, buildings, still a building by itself may be mortgaged apart from the
land on which it has been built. Such a mortgage would be still a real estate
mortgage for the building would still be considered immovable property even
if dealt with separately and apart from the land (Leung Yee vs. Strong
Machinery Co., 37 Phil. 644).

Cui v Arellano University, G.R. No. L-15127, May 30, 1961

Facts: Emetrio Cui took his preparatory law course at Arellano University.
He then enrolled in its College of Law from the first year until the first
semester of his 4th year. During these years, he was awarded scholarship
grants of the said university amounting to a total of P1,033.87. He then
transferred and took his last semester as a law student at Abad Santos
University. To secure permission to take the bar, he needed his transcript
of records from Arellano University. The defendant refused to issue the TOR
until he had paid back the P1,033.87 scholarship grant which Emetrio
refunded as he could not take the bar without Arellano’s issuance of his TOR.

On August 16, 1949, the Director of Private Schools issued

Memorandum No. 38 addressing all heads of private schools, colleges, and
universities. Part of the memorandum states that “the amount in tuition and
other fees corresponding to these scholarships should not be subsequently
charged to the recipient students when they decide to quit school or to
transfer to another institution. Scholarships should not be offered merely to
attract and keep students in a school”.

Issue: Whether or not the provision on 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 scholarship in
cash, is valid or not.

Ruling: No. Memorandum No. 38 issued by the Director of Private Schools

provides that “When students are given a full or partial scholarship, it is
understood that such scholarship is merited and earned. The amount in
tuition and other fees corresponding to these scholarships should not be
subsequently charged to recipient students when they decide to quit school
or to transfer to another institution.” Scholarship should not be offered
merely to attract and keep students in a school.

Memorandum No. 38 merely incorporates a sound principle of public

policy. The defendant uses the scholarship as a business scheme designed
to increase the business potential of an educational institution. Thus,
conceived, it is not only inconsistent with sound policy but also, good morals.
The practice of awarding the scholarship to attract students and keep them
in school is not a good custom nor has it received some kind of social and
practical confirmation except in some private institution as in Arellano
University. Any contract entered into between parties which is against the
law, morals, good custom, public policy, or public order is void.

Spouses Jonsay v Solidbank Corporation, G.R. No. 206459, April 6,

2016

Facts: Momarco, controlled and owned by the Spouses Jonsay, is an

importer, manufacturer and distributor of animal health and feed mill
products catering to cattle, hog and poultry producers. On November 9,
1995, and again on April 28, 1997, Momarco obtained loans of
P40,000,000.00 and P20,000,000.00, respectively, from Solidbank for which
the Spouses Jonsay executed a blanket mortgage over three parcels of land
they owned in Calamba City, Laguna. The loans were consolidated under
one promissory note 7 for the combined amount of P60,000,000.00, signed
by Florante as President of Momarco, with his wife Luzviminda also signing
as co-maker. 8 The stipulated rate of interest was 18.75% per annum, along
with an escalation clause tied to increases in pertinent Central Bank-declared
interest rates, by which Solidbank was eventually able to unilaterally increase
the interest charges up to 30% per annum.
 Momarco religiously paid the monthly interests charged by Solidbank
from November 1995 10 until January 1998, when it paid P1,370,321.09.
Claiming business reverses brought on by the 1997 Asian financial crisis,
Momarco tried unsuccessfully to negotiate a moratorium or suspension in its
interest payments. Due to persistent demands by Solidbank, Momarco made
its next, and its last, monthly interest payment in April 1998 in the amount
of P1,000,000.00. Solidbank applied the said payment to Momarco's accrued
interest for February 1998.

Solidbank proceeded to extrajudicially foreclose on the mortgage, and

at the auction sale held on March 5, 1999, it submitted the winning bid of
P82,327,249.54, 12 representing Momarco's outstanding loans, interests and
penalties, plus attorney's fees. But Momarco now claims that on the date of
the auction the fair market value of their mortgaged lots had increased
sevenfold to P441,750,000.00.

A month before the expiration of the period to redeem the lots, the
petitioners filed a Complaint 15 against Solidbank, Sheriff Perocho and the
Register of Deeds of Calamba, Laguna, for Annulment of the Extrajudicial
Foreclosure of Mortgage, Injunction, Accounting and Damages with Prayer
for the Immediate Issuance of a Writ of Preliminary Prohibitory Injunction.
They averred that: (a) the amount claimed by Solidbank as Momarco's total
loan indebtedness is bloated; (b) Solidbank's interest charges are illegal for
exceeding the legal rate of 12% per annum; (c) the filing fee it charged has
no legal and factual basis; (d) the attorney's fees of P3,600,000.00 it billed
the petitioners is excessive and unconscionable; (e) their previous payments
from 1995 to 1997 were not taken into account in computing their principal
indebtedness; (f) Sheriff Perocho's certificate of posting was invalid; and (g)
the publication of the notice of the auction sale was defective because the
Morning Chronicle which published the said notice was not a newspaper of
general circulation in Calamba, Laguna.

The RTC ruled in favor of the petitioners.

The CA in its amended decision: (a) upheld the validity of the

extrajudicial foreclosure proceedings, the consolidation of the titles of
Solidbank in the foreclosed properties, and the dismissal of Solidbank's
counterclaim; (b) ordered the reduction of the interest rates on the
petitioners' indebtedness to the legal rate of 12% per annum, thereby
affirming that the unilateral increases in the monthly interest rates, which
averaged 2.19% per month or 26.25% per annum, "without notice to the
mortgagors," are void for being iniquitous, excessive and unconscionable;
and (c) upheld the collection by the Solidbank of attorney's fees and filing
fee.

Issue: 1. Whether or not an escalation clause in a loan agreement granting

the lending bank authority to unilaterally increase the interest rate without
prior notice to and consent of the borrower is void.

2. Whether or not Solidbank must refund any excess interest to the

petitioners.

Ruling: 1. Yes. In Philippine National Bank v. CA, 74 the Court declared void
the escalation clause in a credit agreement whereby the "bank reserves the
right to increase the interest rate within the limits allowed by law at any time
depending on whatever policy it may adopt in the future . . . ." The Court
said:

It is basic that there can be no contract in the true sense in the absence
of the element of agreement, or of mutual assent of the parties. If this assent
is wanting on the part of one who contracts, his act has no more efficacy
than if it had been done under duress or by a person of unsound mind.

Similarly, contract changes must be made with the consent of the

contracting parties. The minds of all the parties must meet as to the
proposed modification, especially when it affects an important aspect of the
agreement. In the case of loan contracts, it cannot be gainsaid that the rate
of interest is always a vital component, for it can make or break a capital
venture. Thus, any change must be mutually agreed upon, otherwise, it is
bereft of any binding effect.

We cannot countenance petitioner bank's posturing that the escalation

clause at bench gives it unbridled right to unilaterally upwardly adjust the
interest on private respondents' loan. That would completely take away from
private respondents the right to assent to an important modification in their
agreement, and would negate the element of mutuality in contracts. . . . .

2. Yes. The CA agreed with the RTC that the loans should earn only
12% for Solidbank, which would result in a drastic reduction in the interest
which the petitioners would be obliged to pay to Solidbank. Notwithstanding
what this Court has said concerning the invalidity of the unilateral increases
in the interest rates, the ruling nonetheless violates the contractual
agreement of the parties imposing an interest of 18.75% per annum, besides
the fact that an interest of 18.75% per annum cannot per se be deemed as
unconscionable back in 1995 or in 1997.

The court held that the stipulated interest rate on the loan obligation
of 18.75% shall be applied. Thus, Solidbank Corporation (now Metropolitan
Bank and Trust Company) is ORDERED to PAY to the petitioners the amount
of P14,100,271.05, representing the excess of its auction bid over the total
loan obligation due from the petitioners, plus interest at six percent (6%)per
annum computed from the date of filing of the complaint or March 15, 2000
up to finality; and thereafter, both the excess of the auction proceeds and
the cumulative interest shall earn six percent (6%) per annum until fully
paid.

Callanta v NLRC, G.R. No. 105083, August 20, 1993

Facts: From June 18, 1986 to December 31, 1986, petitioner was appointed
as sub-agent by respondent company under the supervision of Edgar
Rodriguez with specific assignment at Iligan City and Lanao Province.

In October of 1986, or before the expiration of his appointment,

petitioner was promoted to the position of national promoter salesman of
respondent company for Iligan City, Lanao del Norte and Lanao del Sur. On
28 April 1987, however, a "spot audit" was conducted and petitioner was
found to have a tentative shortage in the amount of P49,005.59.

On 30 April 1987, petitioner tendered his resignation to private

respondent Julius T. Limpe, effective on the same date.
 Seven months thereafter, petitioner wrote a letter to private
respondent Limpe complaining about his false resignation and demanding
for the refund of the amount of P76,465.81 as well as reinstatement to his
former position.

Respondent company ignored the above demands and on March 21,

1988, petitioner filed a complaint against respondent company before the
NLRC Regional Arbitration Branch No. X for illegal dismissal, unpaid
commission and receivable and/or claims due, non-payment of vacation
leaves, holiday pays, 13th month pay, COLA and other company benefits and
damages.

The Labor Arbiter rendered a decision declaring the termination of

petitioner's services illegal.

Aggrieved by the decision, respondent company appealed the same to

the Fifth Division of the NLRC in Cagayan de Oro City on March 20, 1989.
On October 16, 1989 respondent NLRC issued an order requiring private
respondent company as appellant therein, to post a cash or surety bond in
the amount equal to the monetary award in the Labor Arbiter's judgment.
Pursuant to the provisions of the then newly promulgated Republic At No.
6715, the NLRC also ordered immediate reinstatement of petitioner to his
former position either physically or in the payroll, at the option of respondent
company. Two (2) months from the date of the Order, private respondent
filed the required bond but did not reinstate petitioner.

Meanwhile, petitioner filed with respondent NLRC a Motion for Writ of

Execution pending appeal dated November 22, 1990 praying for the
immediate execution of the reinstatement aspect of the Labor Arbiter's
decision in accordance with the October 16, 1989 Order of the NLRC as well
as Article 223 of the Labor Code as amended by R.A. 6715. The motion for
writ of execution was not acted upon up to the time when public respondent
NLRC decided the appeal on September 10, 1991, which as aforesaid, set
aside the decision of the Labor Arbiter and dismissed the complaint of
petitioner for lack of merit.

Issue: Whether or not the resignation by petitioner was valid and effective.
Ruling: Yes. Court believes and so holds that the resignation tendered by
petitioner was voluntary, and therefore valid, in the absence of any evidence
of coercion and intimidation on the part of private respondent company.

Petitioner claims that private respondent company thru private

respondent Julius Limpe showed him an alleged "spot audit" report wherein
petitioner appeared to be short of P49,005.59. He was then handed a ready
made resignation letter and ordered to sign the same otherwise an estafa
case will be filed against him. The only evidence presented by petitioner to
support his contention of coercion was a letter written by himself and
addressed to private respondent Limpe.

We agree with public respondent NLRC that petitioner "failed to adduce

evidence that may prove that said resignation was obtained by means of
coercion and intimidation.” The aforequoted letter depicting the coercion
allegedly imposed upon him as well as the reason therefore, was nothing but
a self-serving assertion which has so little or no value at all as evidence for
the petitioner.

Moreover, it is a well-settled principle that for intimidation to vitiate

consent, petitioner must have been compelled by a reasonable and well-
grounded fear of an imminent and grave evil upon his person or property,
or upon the person or property of his spouse, descendants or ascendants
(Article 1335, par. 2 New Civil Code). In the present case, what allegedly
constituted the "intimidation" was the threat by private respondent company
to file a case for estafa against petitioner unless the latter resigns.

In asserting that the above-described circumstance constituted

intimidation, petitioner missed altogether the essential ingredient that would
qualify the act complained of as intimidation, i.e. that the threat must be of
an unjust act. In the present case, the threat to prosecute for estafa not
being an unjust act (P.P. Agustinos vs. Del Rey, 56 Phil. 512 [1932]), but
rather a valid and legal act to enforce a claim, cannot at all be considered as
intimidation. A threat to enforce one's claim through competent authority, if
the claim is just or legal, does not vitiate consent (Article 1335, par. 4 New
Civil Code).

Irao v By The Bay, Inc., G.R. No. 177120, July 14, 2008
Facts: The Estate of Doña Trinidad de Leon Roxas represented by Ruby
Roxas as lessor, and herein respondent represented by Ronald M. Magbitang
as lessee, forged a contract of lease 4 over a three-storey building with an
area of 662 square meters, located at Roxas Boulevard corner Salud Street,
Pasay City, for a term of five (5) years commencing on July 1, 2002 until
June 30, 2007, for a monthly rental of P200,000.00, to be increased annually
by P50,000.00.

It appears that in November 2003, respondent's restaurant business

at the leased premises was "closed down by the City Government".

Respondent defaulted in the payment of rentals which, as of January

2004, totaled P2,517,333.36 inclusive of interest and penalty charges.
Despite demands to pay the amount and comply with the terms and
conditions of the contract, respondent failed and refused to do so.

The lessor's counsel thereupon demanded, by letter of January 16,

2004, the payment by respondent of P2,517,333.36 within five (5) days from
notice "otherwise the Contract of Lease would be terminated without notice."
It appears that the letter to respondent was received on January 23, 2004.

Respondent failed to heed the demand, however, drawing the lessor

to terminate the contract without notice, in accordance with Section 31 of
the contract.

Subsequently or on February 4, 2004, the lessor executed a lease

contract over the same property with herein petitioner, Paul T. Irao, effective
February 1, 2004 until January 30, 2009. Paragraph 6 of this contract
empowers petitioner to enter and take over the possession of the leased
premises.

Consequently, on or about February 6, 2004, petitioner, accompanied

by a Barangay Kagawad and some security guards from the Spy Master
Security Agency, entered and took possession of the leased premises.

Respondent thereupon filed with the Metropolitan Trial Court (MeTC)

of Pasay City a complaint for forcible entry with prayer for preliminary
mandatory injunction and damages against petitioner and all persons
claiming rights under him.

In its complaint, respondent alleged that its lease contract had not
been terminated because the lessor's demand letter was merely a demand
to pay the rental arrears, without a notice to terminate the contract, hence,
it "has the right to occupy the leased premises until June 30, 2007", the
expiry date of the lease; and that, therefore, petitioner's taking over the
possession of the leased premises on February 6, 2004 was illegal.

By Decision of May 21, 2004, Branch 44 of the MeTC dismissed

respondent's complaint, it holding that by respondent's failure to pay
monthly rentals, it "violated its contractual obligations and therefore come
to Court with unclean hands."

On appeal, the Regional Trial Court (RTC) of Pasay City, Branch 108,
by Decision dated August 16, 2004, dismissed respondent's appeal and
affirmed the MeTC Decision.

Respondent elevated the case via petition for review to the Court of
Appeals.

In reversing the RTC decision, the appellate court held that "while the
contract with respondent provided that in case of default, the parties
stipulated that the lessor (or its authorized representative) could take over
the physical possession of the leased premises 'without resorting to court
action', [t]his empowerment, however, comes into play only 'after due notice
has been given to the LESSEE of the cancellation of the lease'", citing the
second paragraph of Section 31 of respondent's lease contract, quoted
earlier. Finding that a termination notice and a demand to vacate the leased
premises were not incorporated in the lessor's demand letter, the appellate
court ruled that respondent's eviction was improper.

Issue: Whether or not the lessor's demand letter to respondent contains a

notice of termination of the lease contract and a demand to vacate the leased
premises to justify the taking over of possession thereof by the lessor and/or
its representative–herein petitioner.
Ruling: Yes. The pertinent portions of the demand letter read:

Our client, the lessor, has informed us that since June 2003, you failed
to pay and refused to pay your monthly rentals including the interest due
thereon, which to date amounts to Php1,450,000. In addition, you also owe
our client the amount of Php567,333.36 by way of penalty and interest for
late payment of your rentals from January 2003 to January 2004. A
statement of account is attached herewith for your guidance and
information.

xxx xxx xxx

In view of the foregoing, formal demand is hereby made on you to pay

our client the full amount of Php2,517,333.36 within five (5) days from
receipt hereof, otherwise we shall be constrained, much to our regret, to
terminate your Contract of Lease and take the necessary legal measures
against you to protect our client's interest, without further notice.

The language and intent of the abovequoted portions of the demand

letter are unambiguous. The lessor demanded from respondent the full
payment of its unpaid rentals of P2,517,333.36 within five days from notice.
The phrase "otherwise we shall be constrained, much to our regret" in the
letter sends a clear warning that failure to settle the amount within the stated
period would constrain the lessor to "terminate the Contract of Lease" and
"take the necessary legal measures against respondent to protect its interest
without further notice".

The letter made it clear to respondent that the therein stated adverse
consequences would ensue "without further notice", an unmistakable
warning to respondent that upon its default, the lease contract would be
deemed terminated and that its continued possession of the leased premises
would no longer be permitted.

The notice of impending termination was not something strange to

respondent since it merely implemented the stipulation in Section 31 of their
contract that "if default or breach be made of any of such covenants and
conditions, then this lease, at the discretion of the LESSOR, may be
terminated and cancelled forthwith".
 Contractual stipulations empowering the lessor and/or his
representative to repossess the leased property extrajudicially from a
deforciant lessee, as in the present case, have been held to be valid. Being
the law between the parties, they must be respected. Respondent cannot
thus feign ignorance that the repossession of the leased property by the
lessor and/or its representative-herein petitioner was the appropriate legal
measure it (respondent) itself authorized under their contract.

Republic v Register of Deeds, G.R. No. 158230, July 16, 2008

Facts: In March 1936, Lee Liong, a Chinese citizen, bought Lot No. 398 from
Vicenta Arcenas, Francisco, Carmen Ramon, Mercedes, Concepcion,
Mariano, Jose, and Manuel, all surnamed Dinglasan. Lot No. 398, with an
area of 1,574 square meters, is located at the corner of Roxas Avenue and
Pavia Street in Roxas City. In February 1944, Lee Liong died intestate and
was survived by his widow Ang Chia, and his sons Lee Bing Hoo and Lee Bun
Ting. On 30 June 1947, the surviving heirs of Lee Liong extrajudicially settled
the estate of the deceased and partitioned among themselves Lot No. 398.
When Lee Bing Hoo and Lee Bun Ting died, Lot No. 398 was transferred by
succession to their respective wives, Elizabeth Lee (Elizabeth) and Pacita Yu-
Lee (Pacita).

In the 1956 case of Dinglasan v. Lee Bun Ting, involving Lot No. 398, the
Court held that even if the sale of the property was null and void for violating
the constitutional prohibition on the sale of land to an alien, still the doctrine
of in pari delicto barred the sellers from recovering the title to the property.
Eleven years later, in the case of Lee Bun Ting v. Judge Aligaen, the Court
ordered the trial court to dismiss the complaint of the Dinglasans for the
recovery of Lot No. 398. Applying the doctrine of res judicata, the Court held
that the case was a mere relitigation of the same issues previously adjudged
with finality in the Dinglasan case, involving the same parties or their privies
and concerning the same subject matter.

On 7 September 1993, Elizabeth and Pacita (private respondents) filed

a petition for reconstitution of title of Lot No. 398 because the records of the
Register of Deeds, Roxas City were burned during the war. On 3 October
2001, the Court held that the trial court's order of reconstitution was void for
lack of factual support because it was based merely on the plan and technical
description approved by the Land Registration Authority.

Meanwhile, on 26 January 1995, petitioner Republic of the Philippines

(petitioner), through the Office of the Solicitor General (OSG), filed with the
Regional Trial Court of Roxas City a Complaint 6 for Reversion of Title against
private respondents and the Register of Deeds of Roxas City, praying that
(1) the sale of Lot No. 398 to Lee Liong be set aside for being null and void
ab initio; and (2) Lot No. 398 be reverted to the public domain for the State's
disposal in accordance with law.

On 7 May 1996, the trial court rendered a decision ordering the

reversion of Lot No. 398 to the State.

On appeal, the Court of Appeals rendered its Decision7 dated 12 July

2002, reversing the trial court's decision and declaring private respondents
as the absolute and lawful owners of Lot No. 398. Petitioner moved for
reconsideration, which the Court of Appeals denied in its Resolution 8 dated
9 May 2003.

Issue: Whether or not the private respondents can be declared the absolute
and lawful owners and possessors of Lot No. 398 despite the constitutional
prohibition of aliens owning real property in the Philippines.

Ruling: Yes. Similarly, in this case, upon the death of the original vendee
who was a Chinese citizen, his widow and two sons extrajudicially settled his
estate, including Lot No. 398. When the two sons died, Lot No. 398 was
transferred by succession to their respective spouses, herein private
respondents who are Filipino citizens.

We now discuss whether reversion proceedings is still viable

considering that Lot No. 398 has already been transferred to Filipino citizens.
In the reconstitution case of Lee v. Republic of the Philippines involving Lot
No. 398, this Court explained that the OSG may initiate an action for
reversion or escheat of lands which were sold to aliens disqualified from
acquiring lands under the Constitution. However, in the case of Lot No. 398,
the fact that it was already transferred to Filipinos militates against escheat
proceedings.
 In this case, subsequent circumstances militate against escheat
proceedings because the land is now in the hands of Filipinos. The original
vendee, Lee Liong, has since died and the land has been inherited by his
heirs and subsequently their heirs, petitioners herein [Elizabeth Lee and
Pacita Yu Lee]. Petitioners are Filipino citizens, a fact the Solicitor General
does not dispute.

Since Lot No. 398 has already been transferred to Filipino citizens, the
flaw in the original transaction is considered cured.

Clearly, since Lot No. 398 has already been transferred to private
respondents who are Filipino citizens, the prior invalid sale to Lee Liong can
no longer be assailed. Hence, reversion proceedings will no longer prosper
since the land is now in the hands of Filipino citizens.

Heirs of Avila v Court of Appeals, G.R. No. L-45255, November 14,

1986

Facts: In 1939, the Court of First Instance of Misamis Oriental, as a cadastral

court, adjudicated Lots 594 and 828 of the Castral Survey of Cagayan to Paz
Chavez. But because Paz Chavez failed to pay the property taxes of Lot 594,
the government offered the same for sale at a public auction. Marciana G.
Avila, a teacher, wife of Leonardo Avila and the mother of the herein
petitioners, participated in and won the bidding. Despite the provision of
Section 579 of the Revised Administrative Code prohibiting public school
teachers from buying delinquent properties, nobody, not even the
government questioned her participation in said auction sale. In fact on
February 20, 1940, after the expiration of the redemption period, the
Provincial Treasurer executed in her favor the final bill of sale.

Sometime in 1947, OCT Nos. 100 and 101, covering said Lots 594 and
828, were issued in favor of Paz Chavez. In opposition thereto, private
respondents filed a petition for review of the decrees on August 25, 1947 at
the Court of First Instance of Misamis Oriental.

After hearing on the merits, the Cadastral Court set aside its decision
which adjudicated the lots in question in favor of respondent Paz Chavez. It
also rendered judgment adjudicating said Lot No. 594 to the heirs of the late
Marciana G. Avila.

Paz Chavez appealed the said decision with the Court of Appeals. The
CA disallowed the registration of Lot No. 594 in the name of Marciana G.
Avila.

Upon remand of the record to the Court below, Avila moved for
execution, and a writ of possession which was opposed by Paz Chavez, who
was succeeded by the herein private respondent Aladino Ch. Bacarrisas on
the alleged ground that he has the actual and physical possession of Lot 594
where his residential house has stood since 1946.

Petitioners filed a motion for reconsideration but the same was denied
by the Court of Appeals.

Issue: Who has the right of possession of the land in question?

Ruling: While it is true that Marciana Avila, their mother and predecessor-in-
interest, purchased the questioned property at a public auction conducted
by the government; paid the purchase price; and was issued a final bill of
sale after the expiration of the redemption period, it is however Undisputed
that such purchase was prohibited under Section 579 of the Revised
Administrative Code.

Thus, the sale to her of Lot 594 is void.

On the other hand, under Article 1409 of the Civil Code, a void contract
is inexistent from the beginning. It cannot be ratified neither can the right
to set up the defense of its illegality be waived. (Arsenal, et al. vs. The
Intermediate Appellate Court, et al., G.R. No. 66696, July 14, 1986).
Moreover, Marciana Avila was a party to an illegal transaction, and therefore,
under Art. 1412 of the Civil Code, she cannot recover what she has given by
reason of the contract or ask for the fulfillment of what has been promised
her.

Under the circumstances, possession cannot be claimed by petitioners,

because their predecessor-in-interest besides being at fault is not the
successful claimant in the registration proceedings and hence not entitled to
a writ of possession.

Much less can possession be claimed by private respondents as it is

undisputed that the land in question has been the subject of a tax sale of
delinquent property with a final bill of sale.

Neither did the government file any claim for possession; nor appear
to be impleaded in any of the actions or petitions before the Courts. Its only
interest in the land in question appears to be in the collection of taxes.

Consequently, the situation is evidently one of failure of ownership

because of the violation of Section 579 of the Administrative Code. Otherwise
stated, the property apparently has no owner.

Under the principle that the State is the ultimate proprietor of land
within its jurisdiction, subject land may be escheated in favor of the
government upon of appropriate actions for reversion or escheat under
Section 5, Rule 91 of the Rules of Court relative to properties alienated in
violation of any statute.

Ras v Sua, G.R No. L-23302, September 25, 1968

Facts: To secure recovery of possession of a parcel of land which he leased

to the spouses Ramon and Estela Sua, Alejandro Ras filed a complaint dated
6 May 1963 1 in the Court of First Instance of Basilan City, alleging, among
other things, that on 25 February 1958 plaintiff, while in need of money and
unaware of the provisions of Republic Act 477, leased to the defendants a
four-hectare parcel of land he acquired from the National Abaca and Other
Fibers Corporation (NAFCO) 2 3 entered into by the parties, by virtue of
which the lease was extended to a total period of 10 years; that the lessees
failed to pay the taxes on the land and the installments due to the NAFCO;
and when defendants refused to pay said dues to the government, as agreed
upon, and to return to plaintiff possession of the subject parcel of land
notwithstanding demand therefor, the latter filed the present action.
Claiming further that defendants had harvested from the land since 1958 no
less than 120,000 coconuts, plaintiff prayed for judgment declaring as null
and void the lease-contract of 25 February 1958 and the contracts executed
subsequent thereto; and ordering the defendants to deliver to him
possession of the land, together with the value of the harvested nuts
amounting to P7,200.00, and to pay him damages and attorney's fees for
P3,000.00 and P1,500.00, respectively.

Answering the complaint, the defendants spouses denied having

violated any condition of the lease and, in turn, contested the jurisdiction of
the court to order the return of the land to plaintiff, as well as the latter's
right to reacquire possession of the same property. As counterclaim, they
asked for damages and attorney's fees.

After trial on the merits, defendants, with proper leave of court, moved
for the dismissal of the case, on the grounds that the cause of action has
prescribed and that plaintiff was not able to prove his case. It was their
contention that plaintiff's action, which is for rescission of contract under
Article 1191 of the Civil Code, prescribes in 4 years; that since the contract
of lease was entered into on 25 February 1958, the present action,
commenced on 6 May 1963, was already barred by prescription.

Issue: Whether or not the right to declare inexistence of a contract is

imprescriptible.

Ruling: Yes. The contracts, Exhibits D, E, F and G did not just modify the
original lease by extending the period originally agreed upon. By themselves,
they constitute individual contracts, distinct from the agreement of 25
February 1958, each to be effective within the period specifically mentioned
therein. Thus, the lifetime of Exhibit D was only from 2 April 1961 to 2 April
1963; Exhibit E, from 2 April 1963 to 2 April 1964; Exhibit F, from 2 April
1964 to 2 April 1966; and Exhibit G, from 2 April 1966 to 2 April 1968. It
follows, therefore, that even where the action filed on 6 May 1963 be treated
as one for rescission, insofar as Exhibits F and G are concerned, the cause
of action still subsists. It is for this reason that the lower court annulled only
these two contracts yet unenforced. Of course, there is stronger ground for
affirming the ruling of the court below if the action were considered as one
for annulment of the agreement as one prohibited by law. The right to seek
the declaration of the inexistence of a contract, for being in violation of law,
is imprescriptible.