ANGEL JOSE WAREHOUSING CO., INC.

, plaintiff-appellee,
vs.
CHELDA ENTERPRISES and DAVID SYJUECO, defendants-appellants.

Facts:

 Plaintiff corporation filed suit in the Court of First Instance of Manila on May
29, 1964 against the partnership Chelda Enterprises and David Syjueco, its
capitalist partner, for recovery of alleged unpaid loans in the total amount of
P20,880.00, with legal interest from the filing of the complaint, plus attorney's
fees of P5,000.00.
 Alleging that post dated checks issued by defendants to pay said account
were dishonored, that defendants' industrial partner, Chellaram I. Mohinani,
had left the country, and that defendants have removed or disposed of their
property, or are about to do so, with intent to defraud their creditors,
preliminary attachment was also sought.
 Answering, defendants averred that they obtained four loans from plaintiff in
the total amount of P26,500.00, of which P5,620.00 had been paid, leaving a
balance of P20,880.00; that plaintiff charged and deducted from the loan
usurious interests thereon, at rates of 2% and 2.5% per month, and,
consequently, plaintiff has no cause of action against defendants and should
not be permitted to recover under the law.
 A counterclaim for P2,000.00 attorney's fees was interposed. Plaintiff filed on
June 25, 1964 an answer to the counterclaim, specifically denying under oath
the allegations of usury.

Issue:
Whether or not the creditor may recover the principal of the loan in a loan
with usurious interest.

Held:
Great reliance is made by appellants on Art. 1411 of the New Civil Code
which states: When the nullity proceeds from the illegality of the cause or object of
the contract, and the act constitutes criminal offense, both parties being in pari
delicto, they shall have no action against each other, and both shall be prosecuted.
Moreover, the provisions of the Penal Code relative to the disposal of effects or
instruments of a crime shall be applicable to the things or the price of the contract.

This rule shall be applicable when only one of the parties is guilty; but the
innocent one may claim what he has given, and shall not be bound to comply with
his promise. The Supreme Court do not agree with such reasoning. Article 1411 of
the New Civil Code is not new; it is the same as Article 1305 of the Old Civil Code.
Therefore, said provision is no warrant for departing from previous interpretation that,
as provided in the Usury Law (Act No. 2655, as amended), a loan with usurious
interest is not totally void only as to the interest. True, as stated in Article 1411 of the
New Civil Code, the rule of pari delicto applies where a contract's nullity proceeds
from illegality of the cause or object of said contract. However, appellants fail to
consider that a contract of loan with usurious interest consists of principal and
accessory stipulations; the principal one is to pay the debt; the accessory stipulation
is to pay interest thereon. And said two stipulations are divisible in the sense that the
former can still stand without the latter. Article 1273, Civil Code, attests to this: "The
renunciation of the principal debt shall extinguish the accessory obligations; but the
waiver of the latter shall leave the former in force."
ALFONSO ANGELES, ET AL., petitioners,
vs.
THE COURT OF APPEALS, GREGORIO STA. INES and ANASTACIA
DIVINO, respondents.

Facts:
 On March 12, 1935, homestead patent No. 31613 was issued for a parcel of
land in the municipality of Santo Domingo, Nueva Ecija, containing an area of
13.6696 hectares more or less.
 Pursuant to the issuance of this homestead patent, original certificate of title
No. 4906 was... issued to the patentee Juan Angeles on March 28, 1935.
 On May 28, 1937, Juan Angeles sold the above land to defendants Gregorio
Santa Ines and Anastacia Divino, who thereupon took possession thereof.
 Juan Angeles died in the year 1938, and thereafter his heirs, the petitioners...
herein, sought to recover the land from the defendants on the ground that the
sale was null and void (Sec. 116, Act No. 2874). The defendants refused to
return the land, so said heirs, petitioners herein, brought this action in the
Court of First Instance of Nueva Ecija the amended complaint filed by the
plaintiffs the allegation is made that defendants' possession of the land was
by virtue of a sale which is against the law and therefore did not convey title to
them. It is also alleged that the homestead produces an average of 200
cavans per year as share for the owner.
 Defendants answered the amended complaint alleging that the purchase was
for a valuable consideration, in utmost good faith, and that the defendants
took possession of the land with the knowledge, consent and acquiescence of
plaintiffs. They... denied that the harvest of the land is 200 cavans per year for
the owner and that the alleged price is P12 per cavan they alleged that the
plaintiffs are guilty of laches for having allowed 12 years to pass, after the
death of the original homesteader,... before they brought the action; that the
plaintiff's right of action had prescribed; that more than five years had elapsed
from the date of the final approval of the homestead, when the sale was made
on May 28, 1937; etc.
Issues:

whether the doctrine of in pari delicto is applicable to sales of homesteads.

whether the return of the value of the products gathered from the land by the
defendants and the expenses incurred in the construction of the dike all useful and
necessary expenses should be ordered to be returned by the defendants to the
plaintiffs.

Ruling:

That trial court found that when the sale was made by the deceased Angeles,
five years had not passed from the issuance of the certificate of title to the
homestead... that both vendor and vendee knew that the sale was void because the
five-year period prescribed by law had not... yet elapsed... as a consequence of this
bad faith of both parties, they should be considered as having acted in good faith
(Art. 364, Civil Code of Spain), and that defendants are entitled to the fruits of the
land.
The court further held that the right of action of plaintiffs had... already prescribed
before the complaint was filed on June 12, 1950, in accordance with Section 40 of
Act No. 190.

Wherefore, the court declared that the sale of the homestead is null and void and
ordered plaintiffs to return the price of the land of P2,500.00 to the defendants and to
reimburse the latter in the amount of P3,000, for expenses... incurred in levelling the
land and the construction of the dike thereon.

The case having been appealed to the Court of Appeals, the latter held that Article
1306, paragraph 1 of the Spanish Civil Code, which provides:

"When both parties are guilty, neither of them can recover what he may have given
by virtue of the contract, or enforce the performance of the undertaking of the other
party;"... which legal provision is founded on the principle of in pari delicto, is
applicable. In accordance with said principle, it. held that none of the parties should
be given any remedy due to the fact that they did not only violate the prohibition
contained in the Public Land Law but because they knowingly tried to cheat the
prohibition (by the insertion of a provision for the execution of another deed of sale
after five years). The decision of the lower court was, therefore, reversed and the
action dismissed.

In this Court it is claimed by the petitioners that the application of Article 1306, par. 1,
of the Spanish Civil Code is null and void; and that the heirs of the homesteader
should be declared entitled to the possession of the homestead and the fruits of the
same.

Consistent with the above decisions, we must hold that in the case at bar the sale of
the homestead by the deceased homesteader was null and void and his heirs have
the right to recover the homestead illegally disposed of having found that the sale of
the homestead is null and void, and that the action to recover the same does not
prescribe, we now come to the effects of these rulings on the price paid for the sale
and the value of the improvements made on the homestead and of the products
realized from the homestead by the buyer.

While we believe that the rule of in pari delicto should not apply to the sale of the
homestead, because such sale is contrary to the public policy enunciated in the
homestead law, the loss of the products realized by the defendants and the value of
the... necessary improvements made by them on the land should not be excepted
from the application of the said rule because no cause or reason can be cited to
justify an exception. It has been held that the rule of in pari delicto is inapplicable
only where the same violates a... well-established public policy.
We are constrained to hold that the heirs of the homesteader should be declared to
have lost and forfeited the value of the products gathered from the land, and so
should the defendants lose the value of the necessary improvements that they have
made thereon.
With respect to the price that the defendants had paid for the land P2,500, in view of
the rule that no one should enrich himself at the expense of another, the return of the
said amount by the plaintiffs should be decreed, before the plaintiffs may be allowed
to recover back the possession of the homestead, subject to the action.

The decision of the Court of Appeals is hereby reversed and judgment is hereby
entered declaring the sale of the homestead null and void, ordering the defendants
to return the same to the plaintiffs upon payment by the latter to them of the sum of
P2,500.

Principles:
In that case we held that the principle of in pari delicto is not applicable to a
homestead which has been illegally sold, in violation of the homestead law. Reason
for the rule is that the policy of the law is to give... land to a family for home and
cultivation and the law allows the homesteader to reacquire the land even if it has
been sold; hence the right may not be waived.

"Under the existing classification, such contract would be 'inexistent' and 'the action
or defense for declaration' of such inexistence 'does not prescribe'. (Art. 1410 New
Civil Code).

While it is true that this is a new provision of the New Civil Code, it is nevertheless
a... principle recognized since Tipton v. Velasco, 6 Phil. 67 that 'mere lapse of time
cannot give efficacy to contracts that are null and void'.
ABACUS SECURITIES CORPORATION, Petitioner,
vs.
RUBEN U. AMPIL, Respondent.

Facts:

 “Evidence adduced by the petitioner has established the fact that petitioner is
engaged in business as a broker and dealer of securities of listed companies
at the Philippine Stock Exchange Center.
 “Sometime in April 1997, respondent opened a cash or regular account with
petitioner for the purpose of buying and selling securities as evidenced by
the Account Application Form. The parties’ business relationship was
governed by the terms and conditions stated therein.
 “Since April 10, 1997, respondent actively traded his account, and as a
result of such trading activities, he accumulated an outstanding obligation
in favor of petitioner in the principal sum of P6,617,036.22 as of April 30,
1997.
 “Despite the lapse of the period within which to pay his account as well as
sufficient time given by petitioner for respondent to comply with his proposal
to settle his account, the latter failed to do so. Such that petitioner
thereafter sold respondent’s securities to set off against his unsettled
obligations.
 “After the sale of respondent’s securities and application of the proceeds
thereof against his account, respondent’s remaining unsettled obligation to
petitioner was P3,364,313.56. Petitioner then referred the matter to its
legal counsel for collection purposes.
 “In a letter dated August 15, 1997, petitioner through counsel demanded that
respondent settle his obligation plus the agreed penalty charges accruing
thereon equivalent to the average 90- day Treasury Bill rate plus 2% per
annum (200 basis points).
 “In a letter dated August 26, 1997, respondent acknowledged
receipt of petitioner’s demand letter and admitted his unpaid obligation
and at the same time requested for 60 days to raise funds to pay the same,
which was granted by petitioner.
 “Despite said demand and the lapse of said requested extension, respondent
failed and/or refused to pay his accountabilities to petitioner.

Issue

Whether or not the Court of Appeal’s ruling that petitioner and respondent are in pari
delicto which allegedly bars any recovery, is in accord with law and applicable
jurisprudence considering that respondent was the first one who violated the terms of
the Account Opening Form, which was the agreement between the parties.

Ruling:
The Petition is partly meritorious.

Applicability of the Pari Delicto Principle

Sections 23 and 25 and Rule 25-1, otherwise known as the “mandatory close-out
rule,” clearly vested an obligation, not just a right, in petitioner. That obligation was to
cancel or otherwise liquidate a customer’s order, if payment was not received within
three days from the date of purchase. Subsequent to an unpaid order, the broker
should require its customer to deposit funds in the account sufficient to cover each
purchase, prior to the execution of the transaction. These duties were imposed upon
the broker to ensure faithful compliance with the margin requirements of the law,
which forbade the broker from extending undue credit to a “cash” customer.

Respondent Liable for the First Respondent Liable for the First
But Not for the Subsequent Trade But Not for the Subsequent Trade

Nonetheless, these margin requirements were applicable only to transactions

entered into by the parties subsequent to the initial trades of April 10 and 11, 1997.
Thus, petitioner could still collect from respondent to the extent of the difference
between his outstanding obligation as of April 11, 1997, less the proceeds from the
mandatory sellout of the shares pursuant to the RSA Rules. Its right to collect was
justified under the general law on obligations and contracts. Petitioner could not be
denied the right to collect, as the initial transactions had been entered into pursuant
to the instructions of respondent. His obligation for stock transactions made and
entered into on April 10 and 11, 1997, remained outstanding.
Those transactions were valid, and the obligations he incurred in regard to his stock
purchases on those dates subsisted. At the time, there was yet no violation of the
RSA. Petitioner committed a fault only when it failed 1) to liquidate the transactions
on April 14 and 15, 1997, or the fourth day following the stock purchases; and 2) to
complete its liquidation no later than ten days after, by applying the proceeds as
payment for his outstanding obligation. Elucidating further, since the buyer was not
able to pay for the transactions that had taken and the broker was duty-bound to
advance the payment to the settlement banks, without prejudice to its right to collect
from the client later on. It should be clear that Congress had imposed the margin
requirements to protect the general economy, not to give the customer a free ride at
the expense of the broker. Not to require respondent to pay for his April 10 and 11
trades would put a premium on his circumvention of the laws and would enable him
to enrich himself unjustly at the expense of petitioner. By failing to ensure his
payment of his first purchase transactions within the period prescribed by law,
thereby allowing him to make subsequent purchases, petitioner effectively converted
his cash account into a credit account. The extension or maintenance of credits on
non-margin transactions, however, were specifically prohibited under Section 23(b).
Thus, petitioner was remiss in its duty and could not be said to have come to court
with “clean hands,” insofar as it intended to collect on transactions subsequent to the
initial trades of April 10 and 11, 1997.

Respondent Equally Guilty Respondent Equally Guilty

for Subsequent Trades for Subsequent Trades

On the other hand, respondent was found to be equally guilty of entering into
transactions in violation of the RSA and RSA Rules. The Court was not prepared to
accept his self-serving assertions of being an “innocent victim” in all the transactions.
Obviously, he knowingly speculated on the market by taking advantage of the
“nocash-out” arrangement extended to him by petitioner. It was respondent’s
privilege to gamble or speculate, as he apparently did by asking for extensions of
time and refraining from giving orders to his broker to sell, in the hope that the prices
would rise. Sustaining his argument would have amounted to relieving him of the
risks of his own speculation and saddling petitioner with the consequences after the
result turned out to be unfavorable.[6] His conduct as an investor was precisely the
sort deplored by the law. Thus, with respect to his counterclaim for damages for
having been allegedly induced by petitioner to generate additional purchases despite
his outstanding obligations, the Court held that he deserved no legal or equitable
relief.

In the final analysis, both parties had acted in violation of the law and did not come to
court with clean hands as regards the transactions subsequent to the initial one
made on April 10 and 11, 1997. In this case, the pari delicto rule applied only to
transactions entered into after those initial trades. Pursuant to RSA Rule 25-1,
petitioner should have liquidated the transactions (sold the stocks) on the fourth day
after (at T+4) and completed its liquidation not later than ten days following the last
day for the customer to pay (effectively at T+14). Respondent’s outstanding
obligation, therefore, was to be determined on the basis of the closing prices -- at
T+14 -- of the stocks purchased.