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Limketkai Sons Milling, Inc. vs. CA, G.R. No.

L-23351, March 13, 1968, 22 SCRA


1000

LIMKETKAI SONS MILLING,


INC., petitioner,
G.R. No. 118509
vs.
arch 29, 1996
COURT OF APPEALS, ET. AL., respondents.

FACTS:
Phil.Remnants Co. constituted BPI to manage, administer and sell
its real property located in Pasig, Metro Manila.
BPI gave authority to real estate broker Pedro Revilla Jr. to sell the
lot for P1000 per square meter.
Revilla contacted Alfonso Lim of petitioner company who agreed
to buy the land and thereafter was allowed to view the land.
Lim and Alfonso LImketkai went to BPI to confirm the sale and
both finally agreed that the land would be sold for P1000 per
square meter. Notwithstanding the agreement, Alfonso asked BPI
if it was possible to pay in terms provided that in case the term is
disapproved, the price shall be paid in cash.
Two or three days later, petitioner learned that its offer to pay on
terms had been frozen. Alfonso Lim went to BPI on July 18,
1988 and tendered the full payment of P33,056,000.00 to Albano.
The payment was refused because Albano stated that the
authority to sell that particular piece of property in Pasig had
been withdrawn from his unit
An action for specific performance with damages was thereupon
filed on August 25, 1988 by petitioner against BPI. In the course of
the trial, BPI informed the trial court that it had sold the property
under litigation to NBS
ISSUE:
WON there was a perfected contract of sale between Limketkai
Co. and BPI.
HELD:

There was already a perfected contract of sale because both


parties already agreed to the sale of P1000/sq.m. Even if Lim tried
to negotiate for a payment in terms, it is clear that if it be
disapproved, the payment will be made in cash.
The perfection of the contract took place when Aromin
and Albano, acting for BPI, agreed to sell and Alfonso Lim with
Albino Limketkai, acting for petitioner Limketkai, agreed to buy
the disputed lot at P1,000.00 per square meter. Aside from this
there was the earlier agreement between petitioner and the
authorized broker. There was a concurrence of offer and
acceptance, on the object, and on the cause thereof.
The phases that a contract goes through may be summarized as
follows:
a. preparation, conception or generation, which is the period of
negotiation and bargaining, ending at the moment of agreement
of the parties;
b. perfection or birth of the contract, which is the moment when
the parties come to agree on the terms of the contract; and
c. consummation or death, which is the fulfillment or performance
of the terms agreed upon in the contract

Babao vs. Perez, G.R. No. L-8334, December 28, 1957, 102 Phil. 756

Bienvenido Babao vs. Florencio Perez (Article 1324; statute of fraud)


Held: Contracts which by their terms are not to be performed within one year,
may be taken out of the statute through performance by one party thereto. All
that is required in such case is complete performance within the year by one
party, however many tears may have to elapse before the agreement is
performed by the other party. But nothing less than full performance by one
party will suffice, and it has been held that, if anything remains to be done
after the expiration of the year besides the mere payment of money, the statute
will apply. It is not therefore correct to state that Santiago Babao has fully
complied with his part within the year from the alleged contract in question.

Having reached the conclusion that all the parol evidence of appellee was
submitted in violation of the Statute of Frauds, or of the rule which prohibits
testimony against deceased persons, we find unnecessary to discuss the other
issues raised in appellants' brief.
The case is dismissed, with costs against appellee.

Facts: Santiago Babao married the niece of Celestina Perez. 1924, Santi and
Celestina allegedly had a verbal agreement where Santi was bound to improve
the land of Celestina by leveling, clearing, planting fruits and other crops; that
he will act as the administrator of the land; that all expenses for labor and
materials will be at his cost, in consideration of which Celestina in turn bound
herself to convey to Santi or his wife of the land,, with all the improvements
after the death of Celestina. But, shortly before Celestinas death, she sold the
land to another part. Thus, Santi filed this complaint alleging the sale of the
land as fraudulent and fictitious and prays to recover the land or the
expenses he incurred in improving the land.
Issue: whether or not the verbal agreement falls within the Stature of Frauds
Paterno vs. Jao Yan, G.R. No. L-12218, February 28, 1961, 1 SCRA 631

Paterno v Jao Yan (Obligations and contracts)


Paterno v Jao Yan
GR No. L-12218
February 28, 1961
FACTS:
(1) By a notarized contract under date 3 of June 1948, the appellees,
represented by their attorney-in-fact, Martina Paterno, leased to the
appellant Jao Yan a parcel of land situated at a corner of Escolta Street
and Plaza Moraga, of the City of Manila, covered by Transfer Certificate of
Title No. 7768. The lease was to be for a period of seven (7) years,
commencing on the 15th of July, 1948. The leasee bound himself to
construct a building "to be made of strong wooden materials" on the
leased premises, which would become property of the lessors at the

termination of the lease; to pay P5,500,00 monthly rental, and all taxes,
charges, and assessments on the building.
(2) By complaint dated 20 May 1955, subsequently amended on 20
September 1955, the lessors filed action to recover from the lessee
rentals in the sum P23,250.00 due for the months of March to June, 1955
and the first days of July, 1955; P7,680 for real estate taxes and
penalties due on the building for the years 1953 to 1955; P2,500.00
attorney's fees; and for the recovery of the building constructed on the
leased land..
(3) Defendant lessee averred, in his answer, that the original written
contract had been orally extended from seven (7) to ten (10) years, in
consideration of his constructing a semi-concrete building (instead of the
wooden one originally contemplated), as he actually had done, at a cost
of P13,000.00, higher than the original wooden structure would have
cost; that the rentals due had been retained by him because of plaintiff's
refusal to recognize the modified contract; that [plaintiff's refusal to
recognize the modified contract; that plaintiffs maliciously garnished the
rents due from his sub-lessees; and prayed for judgment compelling
plaintiffs to recognize the modified contract and to pay him damages,
material and moral..
Applicable law:
Art. 1403. The following contracts are unenforceable, unless they are
ratified:
(1) Those entered into in the name of another person by one who has
been given no authority or legal representation, or who has acted beyond
his powers;
(2) Those that do not comply with the Statute of Frauds as set forth in
this number. In the following cases an agreement hereafter made shall be
unenforceable by action, unless the same, or some note or
memorandum, thereof, be in writing, and subscribed by the party
charged, or by his agent; evidence, therefore, of the agreement cannot
be received without the writing, or a secondary evidence of its contents:
(a) An agreement that by its terms is not to be performed within a year
from the making thereof;
(b) A special promise to answer for the debt, default, or miscarriage of
another;

(c) An agreement made in consideration of marriage, other than a mutual


promise to marry;
(d) An agreement for the sale of goods, chattels or things in action, at a
price not less than five hundred pesos, unless the buyer accept and
receive part of such goods and chattels, or the evidences, or some of
them, of such things in action or pay at the time some part of the
purchase money; but when a sale is made by auction and entry is made
by the auctioneer in his sales book, at the time of the sale, of the amount
and kind of property sold, terms of sale, price, names of the purchasers
and person on whose account the sale is made, it is a sufficient
memorandum;
(e) An agreement of the leasing for a longer period than one year, or for
the sale of real property or of an interest therein;
(f) A representation as to the credit of a third person.
(3) Those where both parties are incapable of giving consent to a
contract.
ISSUE: WON the Statute of Frauds is applicable to the lease agreement
(oral extension)
RTC: Yes, the contract is unenforceable. At the trial, defendant offered
testimonial evidence to support his claim that the original written contract
had been subsequently modified by oral agreement between the parties
in the manner alleged in the answer; he also submitted documents filed
with the City Engineer's office, regarding the semi-concrete building,
conformably to the modificatory oral agreement.
The RTC dismissed such testimony.
HELD: No because there has already been partial performance.
RATIO:
(1) Partial performance takes an oral contract out of the scope of the
Statute Frauds. "The taking of possession by the lessee and the making
of valuable improvement, and the like, on the faith of the oral agreement,
may operate to the case out of the prohibition of the statute, for it would
be gross fraud to permit the lessor in such a case to avoid the lease ."

(49 Am. Jur. p. 809, sec. 106, case cited) The expenditure of money by a
tenant in making improvement on the premises on the faith of an oral
agreement for a lease for a further term, may be viewed not only as
constituting in itself an act of part performance but as furnishing strong if
not conclusive evidence that possession is continued under the oral
contract and not as a tenant holding over under the original lease. (49
Am. Jur. 810; 33 A.L.R.. 1489, 1501).

Paul
Reiss, et al. vs. Jose M. Memije, G.R. No. 5447, March 1, 1910, 15 Phil. 167

Republic of the Philippines


SUPREME COURT
Manila
EN BANC
G.R. No. L-5447

March 1, 1910

PAUL REISS, ET AL., plaintiffs-appellees,


vs.
JOSE M. MEMIJE, defendant-appellant.
Jose Valera y Calderon, for appellant.
Gibbs & Gale, for appellees.
CARSON, J.:
Defendant appellant entered into a contract with one Buenaventura Kabalsa
for the repair of a house in the city of Manila. The contractor undertook to
furnish the necessary materials, including a considerable amount of lumber, to
be used in the repairs. The contractor being a man of no commercial standing
in the community was unable to secure credit therefor, and was compelled to
pay cash for all purchases. Having no money and no credit he was unable to
continue the purchase of the necessary lumber, plaintiffs, with whom he was
dealing, absolutely refusing to allow any lumber to leave their yard without

payment in advance. The work on the house being delayed for the lack of the
necessary materials, defendant accompanied the contractor to plaintiffs'
lumber yard, and after satisfying plaintiffs as to his own financial responsibility,
and that as a property owner and an attorney in active practice in the city of
Manila, he was good for the amount of lumber needed in the repair of his
house, he entered into an agreement with them whereby they were to deliver
the necessary lumber to the contractor for use in the repair of his house.
In pursuance of and in accordance with the directions of the defendant,
plaintiffs delivered to Kabalsa a considerable amount of lumber which was
used in the repairs upon defendant's house, and judgment in this action was
rendered in favor of the plaintiffs for the proven amount of the unpaid balance
of the purchase price of this lumber.
Appellant makes various assignments of error, and contends: First, that the
trial court erred in declining to allow an amendment to defendant's answer for
the purpose of formally denying plaintiff's allegations as to defendant's
guaranty of payment of the purchase price of the lumber; second, that the trial
court erred in failing to set out in its decision the finding of facts upon which
the judgment rests; third, that the evidence of record does not sustain a
finding that the defendant did in fact assume responsibility for the payment of
the purchase price of the lumber delivered to his contractor; and forth, that
even if it be held that he did so, then since the alleged promise, as set up by
plaintiffs in their evidence, merely guaranteed payment for the lumber and
was not in writing, proof thereof was not admissible in evidence, and
defendant was not bound thereby, under the provisions of section 335 of the
Code of Civil Procedure.
The alleged errors of procedures may be dismissed without much discussion.
We think a reading of the judgment itself clearly discloses that the trial judge
did in fact make the necessary findings of fact, and that he expressly held
that, admitting all the evidence offered by both parties, the evidence of record
establishes the existence of defendant's promise to pay for the lumber, and
discloses the existence of a balance due on account of the lumber delivered
to defendant's contractor. Without considering whether, under the pleadings,
the defendant's evidence should have been stricken out of the record and his
motion to amend his answer denied, as appears to have been the opinion of

the trial court, we agree with the trial court that even if the evidence be
admitted and the complaint amended, the weight of all the evidence, including
the evidence, thus admitted, supports the plaintiffs' allegation touching
defendants' promise to pay for the lumber in question, and establishes his
contention that this lumber was in fact delivered to the defendant's contractor,
and by him used in the construction of the house under the direction of the
defendant, and that the amount for which the judgment was given in the court
below was the amount of the unpaid purchase price of the lumber thus
delivered. If, therefore, it was error of the trial court to rule that defendant's
evidence should be stricken from the record and that defendant's answer
should not be amended in accordance with a motion for that purpose made
three weeks after judgment was rendered, it was at most error without
prejudice.
The only question that remains is defendant's contention that his alleged
guaranty of payment of the purchase price of the lumber furnished at his
request to his contractor Kabalsa not being in writing, it is unenforceable in
this action.
Section 335 of Act No. 190 is as follows:
In the following cases an agreement hereafter made shall be
unenforceable by action unless the same, or some note or
memorandum thereof, by in writing, and subscribed by the party
charged, or by his agent; evidence, therefore, of the agreement can not
be received without the writing, or secondary evidence of its contents:
xxx

xxx

xxx

2 A special promise to answer for the debt, default, or miscarriage of


another;
xxx

xxx

xxx

An immense amount of litigation has arisen in England and the United States
over the construction of similar provisions which are found in most, if not all, of
the so-called statutes of fraud which have been enacted in those jurisdictions,

and many courts and text writer have acknowledged their inability to find
anything like uniform rules of construction in the conflicting decisions which
have been rendered, applying the statute to the infinite variety of facts which
have presented themselves; so that it has been said by some that the law
upon the subject is in a state of hopeless confusion.
The true test as to whether a promise is within the statute had been said to lie
in the answer to the question whether the promise is an original or a collateral
one. If the promise is an original or an independent one; that is, if the promisor
becomes thereby primarily liable for the payment of the debt, the promise is
not within the statute. But, on the other hand, if the promise is collateral to the
agreement of another and the promisor becomes thereby merely a surety, the
promise must be in writing. (Gull vs. Lindsay, 4 Exch. 45; and other cases
cited under note 2, p. 906, Encyclopedia of Law, vol. 29.)
Just what is the character of a promise as original or collateral is a
question of law and fact which must in each case be determined from
the evidence as to the language used in making the promise, and the
circumstances under which the promise was made; and, since as a
general rule the parties making a promise of this nature rarely
understand the legal and technical difference between an original and a
collateral promise, the precise form of words used, even when
established by undisputed testimony is not always conclusive. So that it
is said that "While, as a matter of law, a promise, absolute in form, to
pay or to be 'responsible' or to be the 'paymaster,' is an original promise,
and while, on the other hand, if the promisor says, 'I will see you paid,'
or 'I will pay if he does not,' or uses equivalent words, the promise
standing alone is collateral, yet under all the circumstances of the case,
an absolute promise to pay, or a promise to be 'responsible,' may be
found to be collateral, or promises deemed prima facie collateral may be
adjudged original." (Encyclopedia of Law, 2d ed., vol. 29, p. 907, and
many cases there cited.)
If goods are sold upon the sole credit and responsibility of the party who make
the promise, then, even though they be delivered to a third person, there is no
liability of the third person to which that of the party promising can be
collateral, and consequently such a promise to pay does not require a

memorandum in writing; and on the same principle it has been held that when
one advances money at the request of another (on his promise to repay it) to
pay the debt of a third party, as the payment creates no debt against such
third party, not being made at all upon his credit, the liability of the party on
whose request and promise it was made is original and not collateral, and not
with the Statute of Frauds. (Pearse vs. Blagrave, 3 Com. Law, 338; Prop'rs. of
Upper Locks vs.Abbott, 14 N. H., 157.) But it has been said that if the person
for whose benefit the promise is made was himself liable at all, the promise of
the defendant must be in writing. (Matson vs. Wharam, 2 T. R., 80.) And the
text writers point out that if this rule be understood as confined to cases where
a third party and the defendant are liable in the same way, and to do the same
thing, one as principal and the other as surety, it may be accepted as the
uniform doctrine of all the cases both in England and in the United States.
(Browse on the Statute of Frauds, par. 197, and cases there cited.) In such
cases, the defendant is said to come in aid to procure the credit to be given to
the principal debtor, and the question, therefore, ultimate is "upon whose
credit the goods were sold or the money advanced, or whatever other thing
done which the defendant by his promise procured to be done;" and where the
defendant stands in the relation to the third party of surety to principal "if any
credit at all be given to the third party, the defendant's promise is required to
be in writing as collateral." (Browne on the Statute of Frauds, p. 227, and
notes 2 and 4.) But it must be clearly recognized that these principles are
applicable only where the parties are liable in the same way to do the same
thing, one as principal and the other as surety, for if the credit is given to both
jointly, since neither can be said to be surety for the other to the creditor, their
engagement need not be in writing.
As has been said before, it is frequently a matter of difficulty to determine to
whom the credit has actually been given, whether to the defendant alone, in
which case the debt is his own and his promise is good without writing; or in
part to the third party, in which case the defendant's promise being collateral
to and in aid of the third party's liability, requires a writing to support it, or to
both jointly, in which case as has been said their engagement need not be in
writing. This must be determined from the language and expressions used by
the parties promising, and from an examination of the circumstance showing
the understanding of the parties. The unexplained fact that charges were

made against a third party on the plaintiffs' books, or that the bill was
presented to the original debtor in the first instance, unqualified by special
circumstances, tends to prove that the credit was given in whole or in part to
him, and that the defendant's promise is a collateral one. (Larson vs. Wyman,
14 Wend. (N.Y.), 246; Pennell vs. Pentz, 4 E. D. Smith (N. Y.), 639.) But it is
evidently quite impossible to specify any one fact or set of facts on which the
question as to whom the plaintiff gave credit is to be determined. In the
language of Buchanan, C.J., in Elder vs. Warfield (7 Harris & (Md.), 397), "the
extent of the understaking, the express in used, the situation of the parties,
and all the circumstances of the case should be taken into consideration."
Application of these principles has been made in many cases where owners
of buildings going up under contract enter into agreements upon the faith of
which subcontractors or other have continued to supply labor or material after
the principle contractor has become either actually or probably unable to pay.
In these cases, the question is whether the services for which the action is
brought against the owner of the building were performed solely upon the
credit of his promise, to be himself responsible and to pay for the materials
and labor furnished, or whether the subcontractors and laborers continued to
furnish labor and materials to the principal contractor relying upon his
obligation guaranteed by the promise of the owner. (Gill vs. Herrick, 11 Mass.,
501; Walker vs. Hill, 119 Mass., 249; Clifford vs. Luhring, 69 Ill., 401;
Rawson vs. Springsteen, 2 Thomp. & C. (N. Y.), 416; Belknap vs. Bender, 6
Thomp. & C. (N.Y.), 611; Jefferson County vs. Slagle, 66 Pa. St., 202. See
Eshleman vs. Harnish, 76 Pa. St., 97; Harvey vs. Mercur, 78 Pa. St., 257;
Weyland vs. Critchfield, 3 Grant (Pa.), 113; Lakeman vs. Mountstephen, L.R. 7
H. L., 17.)
Taking into consideration all the circumstances of the case at bar, we are
satisfied that the credit for the lumber delivered by the plaintiffs to defendant's
contractor was extended solely and exclusively to the defendant under the
verbal agreement had with him, and therefore, that the provisions of the statue
did not require that it should be made in writing. Defendant admitted on the
stand that his contractor had no commercial credit or standing in the
community, and it appears that plaintiffs, after investigation, absolutely refused
to extent him any credit whatever upon any conditions and that the defendant

was well aware of that fact. From the testimony of the contractor himself, it
seems clear that when the agreement for the delivery of lumber was made,
the credit was extended not to the contractor but to the defendant. It appears
that both plaintiffs and defendant exercised especial precautions to see that
all the lumber was delivered on defendant's lot, and that before each bill of
lumber was delivered, defendant carefully examined the invoice, which the
agreement was submitted to him, and that no lumber was delivered without
his approval. The precise language in which the verbal agreement was made
does not appear from the evidence, and while it is true that one of the plaintiffs
in his disposition, made in the United States, refers to the agreement as one
whereby defendant "guaranteed" payment for the lumber, we are satisfied
from all the evidence that the word was not used by this witness in its
technical sense, and that he did not mean thereby to say that defendant
guaranteed payment by the contractor, but rather that after satisfying plaintiffs
as to his own financial responsibility, he obligated himself to pay for the lumber
delivered to his contractor for use in his house. The only evidence in the
whole record which tends to put our conclusion in this regard in doubt, is the
testimony of plaintiffs' acting manager during plaintiffs' absence in the United
States who stated that he sent a statement of account and a bill for the lumber
to the contractor; but this fact, which under ordinary circumstances would be
strong evidence that the credit was originally extended to the contractor and
merely guaranteed by the defendant, was satisfactorily and sufficiently
explained by proof that plaintiffs were compelled to leave for the United States
quite unexpectedly, with no opportunity to go over the accounts with their
acting manager, who was left in charge, so that the latter having no
knowledge whatever as to plaintiffs' agreement with defendant, and learning
that the lumber had been delivered to the contractor, supposed that it had
been sold to him, and only discovered his mistake on later investigation and
correspondence with his principals, after the contractor had notified him as to
the true nature of the transaction.
The judgment appealed from should be affirmed with the costs of this instance
against the appellant. So ordered.
Arellano, C.J., Torres, Mapa, Johnson and Moreland, JJ., concur.

Gonzalo vs. Tarnate, Jr., G.R. No. 160600, January 15, 2014

What is "In Pare Delicto"?


"In pare delicto" is a doctrine which stipulates that the guilty parties to an illegal
contract are not entitled to any relief. It literally means that both parties are in equal
fault and it follows that both of them can't recover from each of them any damages
or any other relief from law.

Photo credits to www.ramirezlaw.blogspot.com

In a recent decided case from the Supreme Court of the Philippines, particularly the
case of Gonzalo vs. Tarnate, Jr. (G.R. No. 160600), the doctrine of "in pare delicto"
was put to a test. This case sprung out from a prohibited subcontracting of a
contract with a DPWH pursuant to Sec. 6 of PD 1594. However, Gonzalo as a
contractor of DPWH subcontracted Tarnate, Jr. As a consequence, Gonzalo and
Tarnate, Jr. entered into a deed of assignment contract in favor of the latter.
However, later on, Tarnate learned that Gonzalo unilaterally rescinded the deed of
assignment. Hence, Tarnate, Jr. filed a case in the Regional Trial Court.
The initial finding of RTC was in favor of Tarnate, Jr. Gonzalo was ordered to
comply with his obligations under the deed of assignment but without the award of
exemplary damages in favor of Tarnate, Jr. for failure to show that the defendant
Gonzalo acted in wanton, fraudulent, reckless, oppressive or malevolent manner.
Gonzalo appealed the case to the Court of Appeals (CA). The CA did not apply the
doctrine of "in pare delicto" to the case explaining that the said doctrine is only

applicable if the fault of one party was more or less equivalent to the fault of the
other party. The CA ruled in favor of Tarnate, Jr. again this time. It found that
Gonzalo is more guilty than Tarnate, Jr to the extent of violating the deed of
assignment. It declared Gonzalo to pay Tarnate, Jr. the agreed 10% retention fee
(based from the deed of assignment) for the said amount had unjustly enriched
Gonzalo. It was noted that Gonzalo made use of the equipment of Tarnate, Jr. for
the DPWH project.
Gonzalo filed a petition for review of the decision of the CA before the Supreme
Court. The SC denied Gonzalo's petition. Below are the very significant provisions
(most are based from the Civil Code of the Philippines) and findings of the Supreme
Court on this case:
1.
Illegal subcontract - The SC ruled that the subcontract was illegal because it
did not comply with the requirements of PD 1594. It is clear from the provisions of
PD 1594 that every contractor is prohibited from subcontracting with or assigning to
another person any contract or project that he has with DPWH unless the DPWH
Secretary has approved the subcontracting assignment.
2.
Illegal deed of assignment - The deed of assignment is also illegal because it
sprung from an illegal subcontract. Since there was no legal subcontract that
existed, there will be no legal deed of assignment to speak of.
3.
Article 1409 of the Civil Code - This provides that "a contract whose cause,
object or purpose is contrary to law is void or not existing." A void contract can not
produce a valid one.
4.
Article 1422 of the Civil Code - This also provides that "a contract which is the
direct result of a previous illegal contract is also void and inexistent."
5.
Article 1412 of the Civil Code - This provides that the guilty parties to an illegal
contract cannot recover from one another and are not entitled to an affirmative relief
because they are "in pare delicto" or in equal fault.
6.
Article 22 of the Civil Code - This provision states that "every person who
through an act of performance by another, or any other means, acquires or comes
into possession of something at the expense of the latter without just or legal
ground, shall return the same to him."
The final decision of SC is in favor of Tarnate, Jr. The previous decision of the RTC
and CA to properly adjudged Gonzalo to be liable for Tarnate, Jr. in the amount of
10% retention fee are confirmed as correct. Gonzalo's defense of his payment of
the 10% retention fee was conditioned that Tarnate has to pay his personal debt to
Congressman Dominguez was set aside. Burdening Tarnate to pay his personal
debt would constitute an another unjust enrichment case. However, there was no
damages in favor of Tarnate, Jr. since the contract was void. A void and nonexistent
contract produces no juridical tie between the parties involved.

The doctrine of "in pare delicto" as in this case, can not prevent a recovery if doing
so violates the public policy against unjust enrichment. Gonzalo's unjust enrichment
overcome the doctrine of "in pare delicto". In addition, the illegality of their contract
should not be allowed to deprive Tarnate, Jr. from being fully compensated what is
recoverable including the imposition of a legal interest of 6% per annum. But, this is
without the award for moral damages, attorney's fees and litigation expenses.
Gonzalo as the petitioner has been ordered to pay for costs of the suit.
Full Case:

Republic of the Philippines


SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 160600

January 15, 2014

DOMINGO GONZALO, Petitioner,


vs.
JOHN TARNATE, JR., Respondent.
DECISION
BERSAMIN, J.:
The doctrine of in pari delicto which stipulates that the guilty parties to an
illegal contract are not entitled to any relief, cannot prevent a recovery if doing
so violates the public policy against unjust enrichment.
Antecedents
After the Department of Public Works and Highways (DPWH) had awarded on
July 22, 1997 the contract for the improvement of the Sadsadan-Maba-ay
Section of the Mountain Province-Benguet Road in the total amount of 7 014
963 33 to his company, Gonzalo Construction, petitioner Domingo Gonzalo
(Gonzalo) subcontracted to respondent John Tarnate, Jr. (Tarnate) on October
15, 1997, the supply of materials and labor for the project under the latter s
business known as JNT Aggregates. Their agreement stipulated, among
1

others, that Tarnate would pay to Gonzalo eight percent and four percent of
the contract price, respectively, upon Tarnate s first and second billing in the
project.
2

In furtherance of their agreement, Gonzalo executed on April 6, 1999 a deed


of assignment whereby he, as the contractor, was assigning to Tarnate an
amount equivalent to 10% of the total collection from the DPWH for the
project. This 10% retention fee (equivalent to P233,526.13) was the rent for
Tarnates equipment that had been utilized in the project. In the deed of
assignment, Gonzalo further authorized Tarnate to use the official receipt of
Gonzalo Construction in the processing of the documents relative to the
collection of the 10% retention fee and in encashing the check to be issued by
the DPWH for that purpose. The deed of assignment was submitted to the
DPWH on April 15, 1999. During the processing of the documents for the
retention fee, however, Tarnate learned that Gonzalo had unilaterally
rescinded the deed of assignment by means of an affidavit of cancellation of
deed of assignment dated April 19, 1999 filed in the DPWH on April 22,
1999; and that the disbursement voucher for the 10% retention fee had then
been issued in the name of Gonzalo, and the retention fee released to him.
3

Tarnate demanded the payment of the retention fee from Gonzalo, but to no
avail. Thus, he brought this suit against Gonzalo on September 13, 1999 in
the Regional Trial Court (RTC) in Mountain Province to recover the retention
fee of P233,526.13, moral and exemplary damages for breach of contract, and
attorneys fees.
6

In his answer, Gonzalo admitted the deed of assignment and the authority
given therein to Tarnate, but averred that the project had not been fully
implemented because of its cancellation by the DPWH, and that he had then
revoked the deed of assignment. He insisted that the assignment could not
stand independently due to its being a mere product of the subcontract that
had been based on his contract with the DPWH; and that Tarnate, having
been fully aware of the illegality and ineffectuality of the deed of assignment
from the time of its execution, could not go to court with unclean hands to
invoke any right based on the invalid deed of assignment or on the product of
such deed of assignment.
7

Ruling of the RTC


On January 26, 2001, the RTC, opining that the deed of assignment was a
valid and binding contract, and that Gonzalo must comply with his obligations
under the deed of assignment, rendered judgment in favor of Tarnate as
follows:
WHEREFORE, premises considered and as prayed for by the plaintiff, John
Tarnate, Jr. in his Complaint for Sum of Money, Breach of Contract With
Damages is hereby RENDERED in his favor and against the above-named
defendant Domingo Gonzalo, the Court now hereby orders as follows:
1. Defendant Domingo Gonzalo to pay the Plaintiff, John Tarnate, Jr.,
the amount of TWO HUNDRED THIRTY THREE THOUSAND FIVE
HUNDRED TWENTY SIX and 13/100 PESOS (P233,526.13)
representing the rental of equipment;
2. Defendant to pay Plaintiff the sum of THIRTY THOUSAND
(P30,000.00) PESOS by way of reasonable Attorneys Fees for having
forced/compelled the plaintiff to litigate and engage the services of a
lawyer in order to protect his interest and to enforce his right. The claim
of the plaintiff for attorneys fees in the amount of FIFTY THOUSAND
PESOS (P50,000.00) plus THREE THOUSAND PESOS (P3,000.00)
clearly appears to be unconscionable and therefore reduced to Thirty
Thousand Pesos (P30,000.00) as aforestated making the same to be
reasonable;
3. Defendant to pay Plaintiff the sum of FIFTEEN THOUSAND PESOS
(P15,000.00) by way of litigation expenses;
4. Defendant to pay Plaintiff the sum of TWENTY THOUSAND PESOS
(P20,000.00) for moral damages and for the breach of contract; and
5. To pay the cost of this suit.
Award of exemplary damages in the instant case is not warranted for there is
no showing that the defendant acted in a wanton, fraudulent, reckless,

oppressive or malevolent manner analogous to the case of Xentrex


Automotive, Inc. vs. Court of Appeals, 291 SCRA 66.
8

Gonzalo appealed to the Court of Appeals (CA).


Decision of the CA
On February 18, 2003, the CA affirmed the RTC.

Although holding that the subcontract was an illegal agreement due to its
object being specifically prohibited by Section 6 of Presidential Decree No.
1594; that Gonzalo and Tarnate were guilty of entering into the illegal contract
in violation of Section 6 of Presidential Decree No. 1594; and that the deed of
assignment, being a product of and dependent on the subcontract, was also
illegal and unenforceable, the CA did not apply the doctrine of in pari delicto,
explaining that the doctrine applied only if the fault of one party was more or
less equivalent to the fault of the other party. It found Gonzalo to be more
guilty than Tarnate, whose guilt had been limited to the execution of the two
illegal contracts while Gonzalo had gone to the extent of violating the deed of
assignment. It declared that the crediting of the 10% retention fee equivalent
to P233,256.13 to his account had unjustly enriched Gonzalo; and ruled,
accordingly, that Gonzalo should reimburse Tarnate in that amount because
the latters equipment had been utilized in the project.
Upon denial of his motion for reconsideration, Gonzalo has now come to the
Court to seek the review and reversal of the decision of the CA.
10

Issues
Gonzalo contends that the CA erred in affirming the RTC because: (1) both
parties were in pari delicto; (2) the deed of assignment was void; and (3) there
was no compliance with the arbitration clause in the subcontract.
Gonzalo submits in support of his contentions that the subcontract and the
deed of assignment, being specifically prohibited by law, had no force and
effect; that upon finding both him and Tarnate guilty of violating the law for
executing the subcontract, the RTC and the CA should have applied the rule
of in pari delicto, to the effect that the law should not aid either party to

enforce the illegal contract but should leave them where it found them; and
that it was erroneous to accord to the parties relief from their predicament.

11

Ruling
We deny the petition for review, but we delete the grant of moral damages,
attorneys fees and litigation expenses.
There is no question that every contractor is prohibited from subcontracting
with or assigning to another person any contract or project that he has with
the DPWH unless the DPWH Secretary has approved the subcontracting or
assignment. This is pursuant to Section 6 of Presidential Decree No. 1594,
which provides:
Section 6. Assignment and Subcontract. The contractor shall not assign,
transfer, pledge, subcontract or make any other disposition of the contract or
any part or interest therein except with the approval of the Minister of Public
Works, Transportation and Communications, the Minister of Public Highways,
or the Minister of Energy, as the case may be. Approval of the subcontract
shall not relieve the main contractor from any liability or obligation under his
contract with the Government nor shall it create any contractual relation
between the subcontractor and the Government.
Gonzalo, who was the sole contractor of the project in question,
subcontracted the implementation of the project to Tarnate in violation of the
statutory prohibition. Their subcontract was illegal, therefore, because it did
not bear the approval of the DPWH Secretary. Necessarily, the deed of
assignment was also illegal, because it sprung from the subcontract. As aptly
observed by the CA:
x x x. The intention of the parties in executing the Deed of Assignment was
merely to cover up the illegality of the sub-contract agreement. They knew for
a fact that the DPWH will not allow plaintiff-appellee to claim in his own name
under the Sub-Contract Agreement.
Obviously, without the Sub-Contract Agreement there will be no Deed of
Assignment to speak of. The illegality of the Sub-Contract Agreement

necessarily affects the Deed of Assignment because the rule is that an illegal
agreement cannot give birth to a valid contract. To rule otherwise is to
sanction the act of entering into transaction the object of which is expressly
prohibited by law and thereafter execute an apparently valid contract to
subterfuge the illegality. The legal proscription in such an instance will be
easily rendered nugatory and meaningless to the prejudice of the general
public.
12

Under Article 1409 (1) of the Civil Code, a contract whose cause, object or
purpose is contrary to law is a void or inexistent contract. As such, a void
contract cannot produce a valid one. To the same effect is Article 1422 of the
Civil Code, which declares that "a contract, which is the direct result of a
previous illegal contract, is also void and inexistent."
13

We do not concur with the CAs finding that the guilt of Tarnate for violation of
Section 6 of Presidential Decree No. 1594 was lesser than that of Gonzalo,
for, as the CA itself observed, Tarnate had voluntarily entered into the
agreements with Gonzalo. Tarnate also admitted that he did not participate in
the bidding for the project because he knew that he was not authorized to
contract with the DPWH. Given that Tarnate was a businessman who had
represented himself in the subcontract as "being financially and
organizationally sound and established, with the necessary personnel and
equipment for the performance of the project," he justifiably presumed to be
aware of the illegality of his agreements with Gonzalo. For these reasons,
Tarnate was not less guilty than Gonzalo.
14

15

16

According to Article 1412 (1) of the Civil Code, the guilty parties to an illegal
contract cannot recover from one another and are not entitled to an affirmative
relief because they are in pari delicto or in equal fault. The doctrine of in pari
delicto is a universal doctrine that holds that 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; and where the parties
are in pari delicto, no affirmative relief of any kind will be given to one against
the other.
17

Nonetheless, the application of the doctrine of in pari delicto is not always


rigid. An accepted exception arises when its application contravenes wellestablished public policy. In this jurisdiction, public policy has been defined as
"that principle of the law which holds that no subject or citizen can lawfully do
that which has a tendency to be injurious to the public or against the public
good."
1wphi1

18

19

Unjust enrichment exists, according to Hulst v. PR Builders, Inc., "when a


person unjustly retains a benefit at the loss of another, or when a person
retains money or property of another against the fundamental principles of
justice, equity and good conscience." The prevention of unjust enrichment is a
recognized public policy of the State, for Article 22 of the Civil Code explicitly
provides that "[e]very person who through an act of performance by another,
or any other means, acquires or comes into possession of something at the
expense of the latter without just or legal ground, shall return the same to
him." It is well to note that Article 22 "is part of the chapter of the Civil Code on
Human Relations, the provisions of which were formulated as basic principles
to be observed for the rightful relationship between human beings and for the
stability of the social order; designed to indicate certain norms that spring from
the fountain of good conscience; guides for human conduct that should run as
golden threads through society to the end that law may approach its supreme
ideal which is the sway and dominance of justice."
20

21

There is no question that Tarnate provided the equipment, labor and materials
for the project in compliance with his obligations under the subcontract and
the deed of assignment; and that it was Gonzalo as the contractor who
received the payment for his contract with the DPWH as well as the 10%
retention fee that should have been paid to Tarnate pursuant to the deed of
assignment. Considering that Gonzalo refused despite demands to deliver to
Tarnate the stipulated 10% retention fee that would have compensated the
latter for the use of his equipment in the project, Gonzalo would be unjustly
enriched at the expense of Tarnate if the latter was to be barred from
recovering because of the rigid application of the doctrine of in pari delicto.
The prevention of unjust enrichment called for the exception to apply in
Tarnates favor. Consequently, the RTC and the CA properly adjudged
22

Gonzalo liable to pay Tarnate the equivalent amount of the 10% retention fee
(i.e., P233,526.13).
Gonzalo sought to justify his refusal to turn over the P233,526.13 to Tarnate
by insisting that he (Gonzalo) had a debt of P200,000.00 to Congressman
Victor Dominguez; that his payment of the 10% retention fee to Tarnate was
conditioned on Tarnate paying that debt to Congressman Dominguez; and that
he refused to give the 10% retention fee to Tarnate because Tarnate did not
pay to Congressman Dominguez. His justification was unpersuasive,
however, because, firstly, Gonzalo presented no proof of the debt to
Congressman Dominguez; secondly, he did not competently establish the
agreement on the condition that supposedly bound Tarnate to pay to
Congressman Dominguez; and, thirdly, burdening Tarnate with Gonzalos
personal debt to Congressman Dominguez to be paid first by Tarnate would
constitute another case of unjust enrichment.
23

24

The Court regards the grant of moral damages, attorneys fees and litigation
expenses to Tarnate to be inappropriate. We have ruled that no damages may
be recovered under a void contract, which, being nonexistent, produces no
juridical tie between the parties involved. It is notable, too, that the RTC and
the CA did not spell out the sufficient factual and legal justifications for such
damages to be granted.
25

Lastly, the letter and spirit of Article 22 of the Civil Code command Gonzalo to
make a full reparation or compensation to Tarnate. The illegality of their
contract should not be allowed to deprive Tarnate from being fully
compensated through the imposition of legal interest. Towards that end,
interest of 6% per annum reckoned from September 13, 1999, the time of the
judicial demand by Tarnate, is imposed on the amount of P233,526.13. Not to
afford this relief will make a travesty of the justice to which Tarnate was
entitled for having suffered too long from Gonzalos unjust enrichment.
WHEREFORE, we AFFIRM the decision promulgated on February 18, 2003,
but DELETE the awards of moral damages, attorneys fees and litigation
expenses; IMPOSE legal interest of 6% per annum on the principal
oLP233,526.13 reckoned from September 13, 1999; and DIRECT the
petitioner to pay the costs of suit.

SO ORDERED.

Rana vs. Wong, et al., G.R. No. 192861, June 30, 2014

Republic of the Philippines


SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 192861

June 30, 2014

LINDA RANA, Petitioner,


vs.
TERESITA LEE WONG, SPS. SHIRLEY LEE ONG and RUBEN ANG ONG,
represented by their Attorney-in-fact WILSON UY, and SPS. ROSARIO
and.WILSON UY, Respondents.
x-----------------------x
G.R. No. 192862
SPS. ROSARIO and WILSON UY, WILSON UY as attorney-in-fact of
TERESITA LEE WONG, and SPS. SHIRLEY LEE ONG and RUBEN ANG
ONG, Petitioners,
vs.
SPS. REYNALDO. and LINDA RANA, Respondents.
DECISION
PERLAS-BERNABE, J.:
Assailed in these consolidated petitions for review on certiorari are the
Decision dated July 13, 2005 and the Resolution dated June 18, 2010 of the
Court of Appeals (CA) in CA-G.R. CV No. 78463 which affirmed the
Decision dated December 20, 2002 of the Regional Trial Court of Cebu City,
7th Judicial Region, Branch 22 (RTC) in Civil Case Nos. CEB-20893 and
CEB-21296.
1

The Facts

Teresita Lee Wong (Wong) and Spouses Shirley and Ruben Ang Ong (Sps.
Ong) are co-owners pro-indivisoof a residential land situated in Peace Valley
Subdivision, Lahug, Cebu City, covered by Transfer Certificate of Title (TCT)
No. 139160 (Wong-Ong property), abutting a 10-meter wide subdivision road
(subject road).
5

On the opposite side of the subject road, across the Wong-Ong property, are
the adjacent lots of Spouses Wilson and Rosario Uy (Sps. Uy) and Spouses
Reynaldo and Linda Rana (Sps. Rana), respectively covered by TCT Nos.
124095 (Uy property) and T-115569 (Rana property). The said lots follow a
rolling terrain with the Rana property standing about two (2) meters higher
than and overlooking the Uy property, while the Wong-Ong property is at the
same level with the subject road.
8

10

11

12

Sometime in 1997, Sps. Rana elevated and cemented a portion of the subject
road that runs between the Rana and Wong-Ong properties (subject portion)
in order to level the said portion with their gate. Sps. Rana likewise backfilled
a portion (subject backfilling) of the perimeter fence separating the Rana and
Uyproperties without erecting a retaining wall that would hold the weight of the
added filling materials. The matter was referred to the Office of the Barangay
Captain of Lahug as well as the Office of the Building Official of Cebu City
(OBO), but to no avail.
13

14

15

16

The RTC Proceedings


On September 19, 1997, Wong, Sps. Ong, and Sps. Uy (Wong, et al.) filed a
Complaint for Abatement of Nuisance with Damages against Sps. Rana
before the RTC, docketed as Civil Case No. CEB-20893, seeking to: (a)
declare the subject portion as a nuisance which affected the ingress and
egress of Wong and Sps. Ong to their lot "in the usual and [normal] manner,
such that they now have to practically jump from the elevated road to gain
access to their lot and scale the same elevation in order to get out"; (b)
declare the subject backfilling as a nuisance considering that it poses a clear
and present danger to the life and limb of the Uy family arising from the
premature weakening of Sps. Uys perimeter fence due to the seeping of rain
water from the Rana property that could cause its sudden collapse; (c)
compel Sps. Rana to restore the subject portion to its original condition; (d)
compel Sps. Rana to remove the backfilling materials along Sps. Uys
perimeter fence and repair the damage to the fence; and (e) pay moral and
exemplary damages, attorneys fees, litigation expenses, and costs of suit.
17

18

19

20

In their Answer dated October 23, 1997, Sps. Rana countered that prior to
the construction of their residence, there was no existing road and they merely
developed the subject portion which abuts their gate in view of the rolling
terrain. They claimed thatWong and Sps. Ong do not have any need for the
subject portion because their property is facing an existing road, i.e., Justice
Street. They likewise denied having undertaken any backfilling along the
boundary of the Uy property considering the natural elevation of their own
property, which renders backfilling unnecessary.
21

22

After the filing of Sps. Ranas Answer, Wong, et al., in turn, filed a Motion for
Leave to be Allowed to Bring in Heavy Equipment for the intermediate
development of the Wong-Ong property with a view to the use of the subject
road as access to their lot. Notwithstanding Sps. Ranas opposition, the RTC
granted Wong,et al.s motion in an Order dated November 27, 1997
(November 27, 1997 Order), the dispositive portion of which reads as follows:
WHEREFORE, as prayed for, the motion is hereby GRANTED. Consequently,
the plaintiffs are hereby allowed to use heavy equipments/machineries in
order to develop the area and make use of the right of way which is located
between the [Wong-Ong and Rana properties]. (Emphasis supplied)
23

24

Despite the limited tenor of the November 27, 1997 Order, Wong, et al., on
May 23 and 24, 1998, proceeded to level the subject portion, which, in the
process, hampered Sps. Ranas ingress and egress to their residence,
resulting too to the entrapment of their vehicle inside their garage. Feeling
aggrieved, Sps. Rana, on June 19, 1998, filed a Supplemental
Answer, praying for: (a) the restoration of the soil, boulders, grade, contour,
and level of the subject portion; and (b) payment of moral damages, actual
and consequential damages, and exemplary damages.
25

26

Meanwhile, on December 8, 1997, Sps. Rana filed with another branch of the
same trial court a Complaint for Recovery of Property and Damages against
Sps. Uy, docketed as Civil Case No. CEB-21296. They alleged that in October
1997, theycaused a resurvey of their property which purportedly showed that
Sps. Uyencroached upon an11-square meter (sq. m.) portion along the
common boundary of their properties. Their demands for rectification as well
as barangay conciliation efforts were, however, ignored. Thus, they prayed
that Sps. Uy be ordered to remove their fence along the common boundary
and return the encroached portion, as well as to pay moral damages,
attorneys fees, and litigation expenses. After the filing of Sps. Ranas
complaint, Civil Case No. CEB-21296 was consolidated with Civil Case No.
CEB-20893.
27

28

In response thereto, Sps. Uy filed an Answer with Counterclaim, averring that


prior to putting up their fence, they caused a relocation survey of their property
and were, thus, confident that their fence did not encroach upon the Rana
property. In view of Sps.Ranas complaint, they then caused another
relocation survey which allegedly showed, however, that while they
encroached around 3 sq. m. of the Rana property, Sps. Rana intruded into 7
sq. m. of their property. Hence, theyposited that they had "a bigger cause than
that of [Sps. Rana] in [so] far as encroachment is concerned." Accordingly,
they prayed for the dismissal of Sps. Ranas complaint with counterclaim for
damages, attorneys fees, and litigation expenses.
29

30

In light of the foregoing, the RTC appointed three (3) commissioners to


conduct a resurvey of the Uy and Rana properties for the purpose of
determining if any encroachment occurred whatsoever.
31

The RTC Ruling


On December 20, 2002, the RTC rendered a Decision in the consolidated
cases.
32

In Civil Case No. CEB-20893, the RTC found that: (a) Sps. Rana, without prior
consultation with the subdivision owner or their neighbors, developed to their
sole advantage the subject portion consisting of one-half of the width of the
10-meter subject road by introducing filling materials, and rip rapping the side
of the road; (b) the said act denied Wong and Sps. Ong the use of the subject
portion and affected the market value of their property; (c) Sps. Uy have no
intention of using the subject portion for ingress or egress considering that
theybuilt a wall fronting the same; and (d) Wong, et al.s manner of enforcing
the November 27, 1997 Order caused damage and injury to Sps. Rana and
amounted to bad faith. In view of these findings, the RTC declared that the
parties all acted in bad faith, and, therefore, no relief can be granted to them
against each other.
33

Separately, however, the RTC found that the backfilling done by Sps. Rana on
their property exerted pressure on the perimeter fence of the Uy property,
thereby constituting a nuisance. As such, the former were directed to
construct a retaining wall at their own expense. Meanwhile, in Civil Case No.
CEB-21296, the RTC, despite having adopted the findings of Atty. Reuel T.
Pintor (Atty. Pintor) a court-appointed commissioner who determined that
Sps. Uy encroached the Rana property by 2 sq. m dismissed both the
complaint and counterclaim for damages because of the failure ofboth parties
to substantiate their respective claims of bad faith against each other.
34

35

36

Dissatisfied with the RTCs verdict, the parties filed separate appeals with the
CA.
The CA Ruling
On July 13, 2005, the CA rendered a Decision affirming the RTC.
37

With respect to Civil Case No. CEB-20893, the CA found that (a) Sps. Ranas
act of elevating and cementing the subject portion curtailed the use and
enjoyment by Wong and Sps. Ong of their properties; (b) the undue demolition
of the subject portion by Wong, et al.hampered Sps. Ranas ingress and
egress to their residence and deprived them of the use of their vehicle which
was entrapped in their garage; and (c) both parties were equally at fault in
causingdamage and injury to each other and, thus, are not entitled to the
reliefs sought for.
38

On the other hand, the CA found that the backfilling done by Sps. Rana on
their property requires necessary works to prevent it from jeopardizing
someones life or limb.
39

As for Civil Case No. CEB-21296, the CA sustained the dismissal of the
complaint as well as the parties respective claims for damages for lack of
legal and factual bases.
40

The parties filed separate motions for reconsideration which were, however,
denied in the Resolution dated June 18, 2010, hence, the instant petitions.
41

42

The Issues Before the Court


In G.R. No. 192861, petitioner Linda Rana (Linda Rana) faults the RTC in (a)
not finding Wong and Sps. Uyguilty of malice and bad faith both in instituting
Civil Case No. CEB-20893 and in erroneously implementing the November
27, 1997 Order, and (b) failing or refusing to grant the reliefs initially prayed
for,among others, the reconveyance of the encroached property.
43

44

On the other hand, in G.R. No. 192862, petitioners Wong, et al. fault the RTC
in (a) applying the in pari delictodoctrine against them and failing to abate the
nuisance which still continues and actually exists as Sps. Rana caused the
same to be reconstructed and restored to their prejudice, and (b) not finding
Sps. Rana guilty of bad faith in instituting Civil Case No. CEB-21296 and
ordering them to pay damages to petitioners Wong, et al.
45

46

47

The Courts Ruling


The petitions are partly meritorious.
As both petitions traverse the issues intersectingly, the Court deems it apt to
proceed with its disquisition according to the subject matters of the cases as
originally filed before the RTC.
A. Civil Case No. CEB-20893
For Abatement of Nuisance and Damages.
Under Article 694 of the Civil Code, a nuisance is defined as "any act,
omission, establishment, business, condition of property, or anything else
which: (1) Injures or endangers the healthor safety of others; or (2) Annoys or
offends the senses; or(3) Shocks, defies or disregards decency or morality; or
(4) Obstructs or interferes with the free passage of any public highway or
street, or any body of water;or (5) Hinders or impairs the use of property."
Based on case law, however, the term "nuisance" is deemed to be "so
comprehensive that it has been applied to almost all ways which have
interfered with the rights of the citizens, either in person, property, the
enjoyment of his property, or his comfort."
48

Article 695 of the Civil Code classifies nuisances with respect to the object or
objects that they affect. In this regard, a nuisance may either be: (a) a public
nuisance (or one which "affects a community or neighborhood or any
considerable number of persons, although the extent of the annoyance,
danger or damage upon individuals may be unequal"); or (b) a private
nuisance (or one "that is not included in the foregoing definition" [or, as case
law puts it, one which "violates only private rights and produces damages to
but one or a few persons"]).
49

Jurisprudence further classifies nuisances in relation to their legal


susceptibility to summary abatement (that is, corrective action without prior
judicial permission). In this regard, a nuisance may either be: (a) a nuisance
per se(or one which "affects the immediate safety of persons and property and
may be summarily abated under the undefined law of necessity"); or (b) a
nuisance per accidens(or that which "depends upon certain conditions and
circumstances, and its existence being a question of fact, it cannot be abated
without due hearing thereon ina tribunal authorized to decide whether such a
thing does in law constitute a nuisance.")
50

51

It is a standing jurisprudentialrule that unless a nuisance is a nuisance per se,


it may not be summarily abated. In Lucena Grand Central Terminal, Inc. v. Jac
Liner, Inc., the Court, citing other cases on the matter, emphasized the need
for judicial intervention when the nuisance is not a nuisance per se, to wit:
52

In Estate of Gregoria Francisco v. Court of Appeals, this Court held:


Respondents can not seek cover under the general welfare clause authorizing
the abatement of nuisances without judicial proceedings. That tenet applies to
a nuisance per se, or one which affects the immediate safety of persons and
property and may be summarily abated under the undefined law of necessity.
The storage of copra in the quonset building is a legitimate business. By its
nature, it can not be said to be injurious to rights of property, of health or of
comfort of the community. If it be a nuisance per accidensit may be so proven
in a hearing conducted for thatpurpose. It is not per sea nuisance warranting
its summary abatement without judicial intervention.
In Pampanga Bus Co., Inc. v. Municipality of Tarlacwhere the appellantmunicipality similarly argued that the terminal involved therein is a nuisance
that may be abated by the Municipal Council viaan ordinance, this Court held:
"Suffice it to say that in the abatement of nuisances the provisions of the Civil
Code (Articles 694-707) must be observed and followed. This appellant failed
to do." (Emphases supplied; citations omitted)
53

Aside from the remedy of summary abatement which should be taken under
the parameters stated in Articles 704 (for public nuisances) and 706 (for
private nuisances) of the Civil Code, a private person whose property right
was invaded or unreasonably interfered with by the act, omission,
establishment, business or condition of the property of another may file a civil
action to recover personal damages. Abatement may be judicially sought
through a civil action therefor if the pertinent requirements under the Civil
Code for summary abatement, or the requisite that the nuisance is a nuisance
per se, do not concur. To note, the remedies of abatement and damages are
cumulative; hence, both may be demanded.
54

55

56

57

58

In the present cases, Wong, et al. availed of the remedy of judicial abatement
and damages against Sps.Rana, claiming that both the elevated and
cemented subject portionand the subject backfillingare "nuisances"
caused/created by the latter which curtailed their use and enjoyment of their
properties.

With respect to the elevated and cemented subject portion, the Court finds
that the same is not a nuisance per se. By its nature, it is not injurious to the
health or comfort of the community. It was built primarily to facilitate the
ingress and egress of Sps. Rana from their house which was admittedly
located on a higher elevation than the subject road and the adjoining Uy and
Wong-Ong properties.Since the subject portion is not a nuisance per se(but
actually a nuisance per accidensas will be later discussed) it cannot be
summarily abated. As such, Wong, et al.s demolition of Sps. Ranas subject
portion, which was not sanctioned under the RTCs November 27, 1997
Order,remains unwarranted. Resultantly, damages ought to be awarded in
favor of Sps. Rana particularly that of (a) nominal damages for the
vindication and recognition of Sps. Ranas right to be heard before the court
prior to Wong, et al.sabatement of the subject portion (erroneously perceived
as a nuisance per se) and (b) temperate damages for the pecuniary loss
owing to the demolition of the subject portion, which had been established
albeit uncertain as to the actual amount of loss.
59

60

Sps. Ranas entitlement to the above-mentioned damages, however, only


stands in theory. This is because the actual award thereof is precluded by the
damage they themselves have caused Wong, et al. in view of their
construction of the subject portion. As the records establish, Sps. Rana,
without prior consultation with Wong, et al. and to their sole advantage,
elevated and cemented almost half of the 10-meter wide subject road. As
homeowners of Peace Valley Subdivision, Wong, et al. maintain the rights to
the unobstructed use of and free passage over the subject road. By
constructing the subject portion, Sps. Rana introduced a nuisance per
accidensthat particularly transgressed the aforesaid rights. Thus, for the
vindication and recognition of Wong, et al.srights, Sps. Rana should be
similarly held liable for nominal damages. Under Article 2216 of the Civil
Code, courts have the discretion to determine awards of nominal and
temperate damages without actual proof of pecuniary loss, as in this case.
Assessing the respective infractions of the parties herein, the Court finds it
prudent to sustain the CAs verdict offsetting the damage caused by said
parties against each other. The Court can, however, only concur with the CA in
result since the latter inaccurately applied, as basis for its ruling, the in pari
delictoprinciple enunciated in the case of Yu Bun Guan v. Ong (Yu Guan).In
said case, the Court discussed the in pari delicto principle with respect to the
subject matter ofinexistent and void contracts, viz.:
1wphi1

61

62

63

64

Inapplicability of the in Pari Delicto Principle

The principle of in pari delictoprovides that when two parties are equally at
fault, the law leaves them as they are and denies recovery by either one of
them. However, this principle does not apply with respect to inexistent and
void contracts. Said this Court in Modina v. Court of Appeals:
"The principle of in pari delicto non oritur actio denies all recovery to the guilty
parties inter se. It applies to cases where the nullity arises from the illegality of
the consideration orthe purpose of the contract. When two persons are
equally at fault, the law does not relieve them. The exception to this general
rule is when the principle is invoked with respect to inexistent
contracts." (emphasis supplied; citations omitted)
65

Clearly, no void or inexistent contract is hereinat issue, hence, the Courts


disagreement with the CAs invocation of Yu Guanin this respect.
As for the subject backfillingtouching the perimeter fence of the Uy property,
records show that the said fence was not designed to act as a retaining
wall but merely to withhold windload and its own load. Both the RTC and the
CA found the subject backfilling to have added pressure on the
fence, consequently endangering the safety of the occupants of the Uy
property, especially considering the higher elevation of the Rana property.
With these findings, the Court thus agrees with the courts a quothat there is a
need for Linda Rana to construct a retaining wall which would bear the
weight and pressure of the filling materials introduced on their property. The
Court, however, observed that neither the RTC nor the CA specified in their
respective decisions the backfilled areas which would require the retaining
wall. Due to the technicality of the matter, and considering that the due
authenticity and genuineness of the findings/recommendation of the OBO
and the accompanying sketch thereto were not specifically denied by Sps.
Rana, the required retaining wall shall beconstructed in accordance with the
said sketch which showed the area backfilled.
66

67

68

69

70

71

72

B. Civil Case No. CEB-21296


For Recovery of Property.
Now, with respect to Civil Case No. CEB-21296, the Court finds that the CA
erred in affirming the RTCs dismissal thereof considering that it was
determined that Sps. Uy had actually encroached upon the Rana property to
the extent of 2 sq. m.

Settled is the rule that in order that an action for the recovery of property may
prosper, the party prosecuting the same need only prove the identity of the
thing and his ownership thereof. In the present cases, the Report of the
court-appointed commissioner, Atty. Pintor, who conducted a relocation
survey of the Rana and Uy properties identified and delineated the
boundaries of the two properties and showed that Sps. Uys perimeter fence
intruded on 2 sq. m.of the Rana property. Both the RTC and the CA relied
upon the said report; thus, absent any competent showing that the said finding
was erroneous, the Court sees no reason to deviate from the conclusions
reached by the courts a quo. Having sufficiently proven their claim, Sps. Rana
are, therefore entitled to the return of the 2 sq.m. encroached portion.
Corollary thereto, compliance by Linda Rana with the directive in Civil Case
No. CEB-20893to build a retaining wall on their property shall be held in
abeyance pending return of the encroached portion.
73

74

75

76

C. Claims Common to Both Civil Case No. CEB-20893 and Civil Case No.
CEB-21296: Malicious Prosecution of Both Cases, Moral and Exemplary
Damages, Attorneys Fees, and Litigation
Expenses.
As a final matter, the Court resolvesthe claims common to both Civil Case No.
CEB-20893 and Civil Case No. CEB-21296, particularly those on malicious
prosecution, as well asmoral and exemplary damages, attorneys fees, and
litigation expenses.
As the Court sees it, the filing bythe parties of their respective complaints
against each other was notclearly and convincingly shown to have been
precipitated by any maliceor bad faith, sufficient enough to warrant the
payment of damages in favor of either party. As correctly pointed out by the
CA, malicious prosecution, both in criminal and civil cases, requires the
presence oftwo (2) elements, namely: (a) malice; and (b) absence of probable
cause. Moreover, there must be proof that the prosecution was prompted by a
sinister design to vex and humiliate a person; and that it was initiated
deliberately knowing that the charge was false and baseless. Hence, the
mere filing of a suitwhich subsequently turns out to be unsuccessful does not
render a person liable for malicious prosecution, for the law could not have
meant toimpose a penalty on the right to litigate. As the aforementioned
elements were not duly proven, the claims for malicious prosecution are
hereby denied.
77

78

With respect to the claims for moral damages, although the Court found the
parties to have sustained nominal damages as a result of the other parties
acts, an award of moral damages would nonetheless be improper in this case.
Article 2217 of the Civil Code states that "[m]oral damages include physical
suffering, mental anguish, fright, serious anxiety, besmirched reputation,
wounded feelings, moral shock, social humiliation, and similar injury. Though
incapable of pecuniary computation, moral damages may be recovered if they
are the proximate result of the defendant's wrongful act for omission."
Corollary thereto, Article 2219 of the same code (Article 2219) states that
"[m]oral damages may be recovered in the following and analogous cases: (1)
A criminal offense resulting in physical injuries; (2) Quasi-delicts causing
physical injuries; (3) Seduction, abduction, rape, or other lascivious acts; (4)
Adultery or concubinage; (5) Illegal or arbitrary detention or arrest; (6) Illegal
search; (7) Libel, slander or any other form of defamation; (8) Malicious
prosecution; (9) Acts mentioned in Article 309; [and] (10) Actsand actions
referred to in Articles 21, 26, 27, 28, 29, 30, 32, 34, and 35."
Here, it was not proven thatthe damage caused by (a) Sps. Rana against
Wong, et al., arising from the elevation and cementing of the subject portion
and the subject backfilling, and (b) Sps. Uy against Sps. Rana, by virtue of
their 2 sq. m. encroachment, could be characterized as a form of or had
resulted in physical suffering, mental anguish, fright, serious anxiety,
besmirched reputation, wounded feelings, moral shock, social humiliation, or
any other similar injury. Neitherwas it convincingly shown that the present
controversies fall within the class of cases enumerated under Article 2219.
Therefore, no moral damages should be awarded.
Similarly, the Court deems that an award of exemplary damages would be
inappropriate since these damages are imposed only "by way of example or
correction for the publicgood, in addition to the moral, temperate, liquidated or
compensatory damages." Bluntly placed, the Court does not view the present
matters of such caliber. Hence, there is no reason to grant the parties claims
for the same.
79

Lastly, considering that neither of the parties was able to successfully prove
(a) their claims for malicious prosecution, (b) their entitlement to moral and
exemplary damages, and (c) the attendance of any of the circumstances
under Article 2208 of the Civil Code, their respective claims for attorneys
fees and litigation expensesagainst each other are also denied.
WHEREFORE, the Decision dated July 13, 2005 and the Resolution dated
80

81

82

June 18, 2010 in CA-G.R. CV No. 78463 are SET ASIDE and a new one is
entered as follows:
In Civil Case No. CEB-20893:
(a) The awards of damages in favor of each party are OFFSETagainst
each other as herein discussed;
(b) Linda Rana is hereby ORDEREDto build, at her own expense, a
retaining wall on the property covered by TCT No. 124095 in
accordance with the sketch of the Office of the Building Official of Cebu
City attached to the records of the case, subject to the condition as shall
be hereunder set; and
(c) All other claims and counterclaims are DISMISSED for lack of legal
and factual bases.
In Civil Case No. CEB-21296:
(a) Spouses Rosario and Wilson Uy are DIRECTED to return to Linda
Rana the 2-square meter encroached portion as reflected in the
relocation survey conducted by court-appointed commissioner Atty.
Reuel T. Pintor, after which Linda Rana shall be OBLIGED to build the
retaining wall as directed by the Court; and
(b) All other claims and counterclaims are DISMISSED for lack of merit.
SO ORDERED.
ESTELA M. PERLAS-BERNABE
Associate Justice
WE CONCUR:
ARTURO D. BRION*
Associate Justice
Acting Chairperson
DIOSDADO M. PERALTA**
Associate Justice

MARIANO C. DEL CASTILLO


Associate Justice

JOSE CATRAL MENDOZA***


Associate Justice
AT T E S TAT I O N
I attest that the conclusions in the above Decision had been reached in
consultation before the cases were assigned to the writer of the opinion of the
Court's Division.
ARTURO D. BRION
Associate Justice
Acting Chairperson, Second Division
C E R T I F I C AT I O N
Pursuant to Section 13, Article VIII of the Constitution, and the Division Acting
Chairperson's Attestation, I certify that the conclusions in the above Decision
had been reached in consultation before the cases were assigned to the
writer of the opinion of the Court's Division.
MARIA LOURDES P. A. SERENO
Chief Justice

Footnotes
* Designated Acting Chairperson per Special Order No. 1699 dated
June 13, 2014.
** Designated Acting Member per Special Order No. 1712 dated June
23, 2014 .
*** Designated Acting Member per Special Order No. 1696 dated June
13, 2014.
1

Rollo (G.R. No. 192861), pp. 5-26; rollo (G.R. No. 192862), pp. 3-32.

Rollo (G.R. No. 192861), pp. 72-90; rollo (G.R. No. 192862), pp. 38-55.
Penned by Executive Justice Mercedes Gozo-Dadole, with Associate
JusticesSesinando E. Villon and Ramon M. Bato, Jr., concurring.
2

Rollo (G.R. No. 192861), pp. 102-105; rollo (G.R. No. 192862), pp. 5760. Penned by Associate Justice Agnes Reyes Carpio, with Associate
Justices Edgardo L. delos Santos and Eduardo B. Peralta, Jr.,
concurring.
3

Rollo (G.R. No. 192861), pp. 63-70; rollo (G.R. No. 192862), pp. 130137. Penned by Judge (now Court of Appeals Justice) Pampio A.
Abarintos.
4

Rollo (G.R. No. 192861), p. 35 (including the dorsal portion); rollo (G.R.
No. 192862), pp. 119-120.
5

Rollo (G.R. No. 192861), p. 63.

See RTC Order in Civil Case No. CEB-20893; rollo (G.R. No. 192861),
p. 50.
7

Rollo (G.R. No. 192861), p. 37 (including the dorsal portion); rollo (G.R.
No. 192862), pp. 123.
8

Rollo (G.R. No. 192861), p. 36; rollo (G.R. No. 192862), pp. 121-122.

10

Rollo (G.R. No. 192861), p. 64; rollo (G.R. No. 192862), p. 40.

11

Rollo (G.R. No. 192861), p. 50.

12

Rollo (G.R. No. 192861), p. 74; rollo(G.R. No. 192862), p. 40.

Rollo (G.R. No. 192861), pp. 64 and 74; rollo(G.R. No. 192862), p.
131.
13

14

Rollo (G.R. No. 192861), p. 38.

See Certification to file action [in court] issued by OBO; rollo (G.R. No.
192862), p. 124.
15

Rollo (G.R. No. 192861), pp. 74-75; rollo (G.R. No. 192862), pp. 4041.
16

Rollo (G.R. No. 192861), pp. 28-34; rollo (G.R. No. 192862), pp. 112118.
17

18

Rollo (G.R. No. 192861), p. 30; rollo (G.R. No. 192862), p. 114.

19

Rollo (G.R. No. 192861), p. 31; rollo (G.R. No. 192862), p. 115.

Rollo (G.R. No. 192861), pp. 32-33; rollo (G.R. No. 192862), pp. 116117.
20

Rollo (G.R. No. 192861), pp. 39-43; rollo (G.R. No. 192862), pp. 125129.
21

Rollo (G.R. No. 192861), pp. 38-40; rollo (G.R. No. 192862), pp. 125126.
22

23

Rollo (G.R. No. 192861), pp. 46-47.

24

Id. at 51.

25

Rollo (G.R. No. 192861), p. 84; rollo (G.R. No. 192862), p. 49.

26

Rollo (G.R. No. 192861), pp. 52-55.

27

Id. at 57-60.

See RTC Order dated April 6, 1998 signed by Judge Ireneo Lee Gako,
Jr.; id. at 61-62.
28

29

Records, pp. 154-156.

30

Id. at 155.

See RTC Order dated February 21, 2000 signed by Judge Pampio A.
Abarintos; id. at 246.
31

Rollo (G.R. No. 192861), pp. 63-70; rollo (G.R. No. 192862), pp. 130137.
32

Rollo (G.R. No. 192861), pp. 68-69; rollo (G.R. No. 192862), pp. 135136.
33

34

Id.

35

Rollo (G.R. No. 192861), p. 67; rollo (G.R. No. 192862), p. 134.

Rollo (G.R. No. 192861), pp. 69-70; rollo (G.R. No. 192862), pp. 136137.
36

Rollo (G.R. No. 192861), pp. 72-90; rollo (G.R. No. 192862), pp. 3855.
37

38

Rollo (G.R. No. 192861), p. 84; rollo (G.R. No. 192862), p. 49.

39

Rollo (G.R. No. 192861), p. 85; rollo (G.R. No. 192862), p. 50.

Rollo (G.R. No. 192861), pp. 88-89; rollo (G.R. No. 192862), pp. 5354.
40

See Separate Motions filed by Sps. Rana and Wong, Sps. Ong and
Sps. Uy; rollo(G.R. No. 192861), pp. 92-100 and rollo(G.R. No.
192862), pp. 61-79, respectively.
41

Rollo (G.R. No. 192861), pp. 102-105; rollo (G.R. No. 192862), pp. 5760.
42

During the pendency of the proceedings before the RTC, Linda Ranas
husband, Reynaldo Rana, passed away, thus, the petition in G.R. No.
192861 was instituted by her solely. (See Notice of Death; records, pp.
247-249.)
43

44

Rollo (G.R. No. 192861), pp. 14-15.

45

Rollo (G.R. No. 192862), p. 17.

46

Id. at 22.

47

Id. at 27-28.

AC Enterprises, Inc. v. Frabelle Properties Corp., 537 Phil. 114, 143


(2006).
48

49

Id.

Perez v. Madrona, G.R. No. 184478, March 21, 2012, 668 SCRA 696,
706-707.
50

51

Salao v. Santos, 67 Phil. 547, 550-551 (1939).

52

492 Phil 314 (2005).

53

Id. at 327.

ART. 704. Any private person may abate a public nuisance which is
specially injurious to himby removing or, if necessary, by destroying the
thing which constitutes the same, without committing a breach of the
peace, or doing unnecessary injury. But it is necessary:
54

(1) That demand be first made upon the owner or possessor of


the property to abate the nuisance;
(2) That such demand has been rejected;
(3) That the abatement be approved by the district health officer
and executed with the assistance of the local police; and
(4) That the value of the destruction does not exceed three
thousand pesos. (Emphasis supplied)
ART. 706. Any person injured by a private nuisance may abateit by
removing or, if necessary, by destroying the thing which constitutes the
nuisance, without committing a breach of the peace, or doing
unnecessary injury. However, it is indispensable that the procedure for
extrajudicial abatement of a public nuisance by private person be
followed. (Emphases supplied)
55

See AC Enterprises, Inc. v. Frabelle Properties Corp.,supra note 48, at


144-145.
56

57

Articles 699 and 705 of the Civil Code provide as follows:


ART. 699. The remedies against a public nuisance are:
(1) A prosecution under the Penal Code or any local ordinance: or
(2) A civil action; or
(3) Abatement, without judicial proceedings.
ART. 705. The remedies against a private nuisance are:
(1) A civil action; or
(2) Abatement, without judicial proceedings. (Emphases supplied)

See Article 697 of the Civil Code. See also Paras,Edgardo L., Civil
Code of the Philippines Annotated (16th Ed., 2008), Vol. 2, p. 747.
58

Civil Code, ART. 2221. Nominal damages are adjudicated in order that
a right of the plaintiff, which has been violated or invaded by the
defendant, may be vindicated or recognized, and not for the purpose of
indemnifying the plaintiff for any loss suffered by him.
59

Civil Code ART. 2224. Temperate or moderate damages, which are


more than nominal but less than compensatory damages, may be
recovered when the court finds that some pecuniary loss has been
suffered but its amount can not, from the nature of the case, be provided
with certainty.
60

61

Rollo(G.R. No. 192861), p. 50.

ART. 2216. No proof of pecuniary loss is necessary in order that


moral, nominal, temperate, liquidated or exemplary damages may be
adjudicated. The assessment of such damages, except liquidated ones,
is left to the discretion of the court, according to the circumstances of
each case.
62

See pages 13 and 14, as well as footnote 5 of CA Decision, rollo(G.R.


No. 192861), pp. 84-85.
63

64

419 Phil. 845 (2001).

65

Id. at 856.

See Annex "A" of Presidential Decree No. (PD) 1096 (1977), entitled
"ADOPTING A NATIONAL BUILDING CODE OF THE PHILIPPINES
(NBCP) THEREBY REVISING REPUBLIC ACT NUMBERED SIXTYFIVE HUNDRED FORTY-ONE (R.A. NO. 6541),"on "Words, Terms and
Phrases" which defines "retaining wall" as "[a]ny wall used to resist the
lateral displacement of any material; a subsurface wall built to resist the
lateral pressure of internal loads.
66

67

Transcript of Stenographic Notes, June 1, 1999, pp. 7, 11.

Rollo, (G.R. No. 192861), pp. 69 and 80; rollo(G.R. No. 192862), p.
135.
68

Under Section 1202(c)(2) of PD 1096, amending R.A. No. 6541,


otherwise known as the "National Building Code of the Philippines."
69

SEC. 1202. Excavation, Foundation and Retaining Walls.


xxxx
(c) Footings, Foundations and Retaining Walls
x x x x (2) Whenever or wherever there exists in the site of the
construction an abrupt change in the ground levels or level of the
foundation such that instability of the soil could result, retaining
walls shall be provided and such shall be of adequate design and
type of construction as prescribed by the Secretary [of the then
Public Works, Transportation and Communications].
Records, p. 205. Issued by Engineering Assistant Cresercia F. Alcuizar
dated June 2, 1997.
70

71

Id. at 206.

See paragraph 9 of the Complaint in Civil Case No. CEB-20893; id. at


4. See also paragraphs 7 and 8 of the answer; id. at 19-20.
72

73

See Articles 428 and 434 of the Civil Code which respectively read:
ART. 428. The owner has the right to enjoy and dispose of a thing,
without other limitations than those established by law.
The owner has also a right of action against the holder and
possessor of the thing in order to recover it.
ART. 434. In an action to recover, the property must be identified,
and the plaintiff must rely on the strength of his title and not on the
weakness of the defendant's claim.

See Commissioners Report dated November 22, 2000; records, pp.


304-306.
74

75

Id. at 311.

76

Id. at 304-306.

77

Rollo(G.R. No. 192861), p. 88; rollo(G.R. No. 192862), p. 53.

Premiere Devt. Bank v. Central Surety & Insurance Co.,Inc., 598 Phil.
827, 861 (2009); citation omitted.
78

79

CIVIL CODE, Art. 2229.

See Premiere Devt. Bank v. Central Surety & Insurance Co., Inc.,
supra note 78.
80

See Equitable PCI Bank v. Ng Sheung Ngor, 565 Phil. 520, 543
(2007).
81

ART. 2208. In the absence of stipulation, attorneys fees and expenses


of litigation, other than judicial costs, cannot be recovered, except:
82

(1) When exemplary damages are awarded;


(2) When the defendants act or omission has compelled the
plaintiff to litigate with third persons or to incur expenses to protect
his interest;
(3) In criminal cases of malicious prosecution against the plaintiff;
(4) In case of a clearly unfounded civil action or proceeding
against the plaintiff;
(5) Where the defendant acted in gross and evident bad faith in
refusing to satisfy the plaintiffs plainly valid, just and demandable
claim;
(6) In actions for legal support;
(7) In actions for the recovery of wages of household helpers,
laborers and skilled workers;
(8) In actions for indemnity under workmens compensation and
employers liability laws;
(9) In a separate civil action to recover civil liability arising from a
crime;
(10) When at least double judicial costs are awarded; or

(11) In any other case where the court deems it just and equitable
that attorneys fees and expenses of litigation should be
recovered.
In all cases, the attorneys fees and expenses oflitigation must be
reasonable. (Emphases supplied)

Pedro T. Bercero vs. Capitol Development Corporation, G.R. No. 154765, March
29, 2007

Republic of the Philippines


Supreme Court
Manila

THIRD DIVISION

PEDRO T. BERCERO,

G.R. No. 154765

Petitio
ner,
Present:

YNARES-SANTIAGO, J.,
Chairperson,
- versus -

AUSTRIA-MARTINEZ,

CALLEJO, SR.,
CHICO-NAZARIO, and
NACHURA, JJ.
CAPITOL
DEVELOPMENT
CORPORATION,[1]

Promulgated:

Respo

March 29, 2007

ndent.
x-----------------------------------------------x

DECISION

AUSTRIA-MARTINEZ, J.:

Before the Court is a Petition for Review on Certiorari under


Rule

45

of

the

Revised

Rules

of

Court

assailing

the

Decision[2] dated February 11, 2002 of the Court of Appeals (CA) in


CA-G.R. CV No. 56484 which set aside the Decision [3] dated May
27, 1996 of the Regional Trial Court, Branch 88, Quezon City (RTCBranch

88)

in

Civil

Case

No.

Q-92-11732,

and

the

CA

Resolution[4] dated August 29, 2002 which denied petitioners


Motion for Reconsideration.

The factual background of the case is as follows:

On January 31, 1983, Capitol Development Corporation


(respondent) leased its commercial building and lot located at
1194 EDSA, Quezon City to R.C. Nicolas Merchandising, Inc., (R.C.
Nicolas) for a 10-year period or until January 31, 1993 with the
option for the latter to make additional improvements in the
property to suit its business and to sublease portions thereof to
third parties.[5]

R.C. Nicolas converted the space into a bowling and billiards


center and subleased separate portions thereof to Midland
Commercial Corporation, Jerry Yu, Romeo Tolentino, Julio Acuin,
Nicanor Bas, and Pedro T. Bercero (petitioner). Petitioners
sublease contract with R.C. Nicolas was for a three-year period or
until August 16, 1988.[6]

Meanwhile, for failure to pay rent, respondent filed an


ejectment case against R.C. Nicolas before the Metropolitan Trial
Court, Branch 41, Quezon City (MeTC-Branch 41), docketed as

Civil Case No. 52933. Respondent also impleaded the sub-lessees


of R.C. Nicolas as parties-defendants.

During the pendency of Civil Case No. 52933, several sublessees

including

petitioner,

entered

into

compromise

settlement with respondent.[7] In the compromise settlement, the


sub-lessees recognized respondent as the lawful and absolute
owner of the property and that the contract between respondent
and R.C. Nicolas had been lawfully terminated because of the
latters non-payment of rent; and that the sub-lessees voluntarily
surrendered possession of the premises to respondent; that the
sub-lessees directly executed lease contracts with respondent
considering the termination of leasehold rights of R.C. Nicolas.

Petitioner entered into a lease contract with respondent for a


three-year period, from August 16, 1988 to August 31, 1991. [8]

On October 21, 1988, respondent and petitioner, as well as


several

other

sub-lessees

of

R.C.

Nicolas,

filed

Joint

Manifestation and Motion in Civil Case No. 52933, manifesting to


the MeTC-Branch 41 that they entered into a compromise
settlement and moved that the names of the sub-lessees as
parties-defendants be dropped and excluded. [9]

On November 14, 1988, R.C. Nicolas filed a complaint for


ejectment and collection of unpaid rentals against petitioner
before the Metropolitan Trial Court, Branch 39, Quezon City
(MeTC-Branch 39), docketed as Civil Case No. 0668. [10] On April
18, 1989, MeTC-Branch 39 rendered a Decision in favor of R.C.
Nicolas and ordered the eviction of petitioner from the leased
premises.[11]

Dissatisfied, petitioner filed an appeal before the Regional


Trial Court, Branch 78, Quezon City (RTC-Branch 78). R.C. Nicolas
filed a Motion for Execution Pending Appeal which was opposed
by petitioner.

In an Order dated October 4, 1990, RTC-Branch 78 directed


the issuance of a writ of execution pending appeal since petitioner
failed to file a
supersedeas bond and periodically deposit the rentals due during
the pendency of the appeal. [12] Accordingly, on October 22, 1990
a writ of execution was issued. [13] Sometime in November 1990,
petitioner was evicted from the leased premises. [14]

Petitioner assailed the Order dated October 4, 1990 in a


petition for certiorari with the CA, docketed as CA-G.R. SP No.
23275, but the petition was denied due course and dismissed by
the CA in a Decision dated December 28, 1990. [15]

On September 3, 1991, respondent filed a Manifestation in


Civil Case No. 52933 urging MeTC-Branch 41 to order R.C. Nicolas
to desist from harassing respondent and petitioner, and to
confirm respondents right of possession to the premises in the
light of the ejectment case filed by R.C. Nicolas against petitioner.
[16]

Two months later, or on November 13, 1991, MeTC-Branch


41 rendered a Decision in Civil Case No. 52933 in favor of
respondent and ordered R.C. Nicolas to pay its unpaid rentals
from September 1986 until October 1988.[17]

Meanwhile, since his eviction in November 1990, petitioner


made repeated demands on respondent for the restoration of his
possession of the commercial space leased to him to no avail. [18]

Thus, on March 24, 1992, petitioner filed a complaint for sum


of money with attachment and mandatory injunction with
damages against the respondent before the RTC-Branch 88,
docketed as Civil Case No. Q-92-11732.[19]

On May 27, 1996, RTC-Branch 88 rendered its Decision [20] in


favor of petitioner, the dispositive portion of which reads:

WHEREFORE, premises rendered, this Court finds for


the plaintiff and orders the defendant:

1) to restore plaintiffs possession of the rented


building located at 1194 EDSA, Quezon City for the next
three years effective from receipt of the copy of this
decision;

2) to pay the plaintiff the following:


a. P480,000.00 actual damages
b. P 50,000.00 moral damages
c. P 50,000.00 exemplary damages
d. P 50,000.00 attorneys fees

3) to pay the costs.

Accordingly, the counterclaim filed by the defendant


Capitol Development Corporation is hereby DISMISSED.

SO ORDERED.[21]

The RTC held that respondent miserably failed to comply


with its obligation under Article 1654 of the New Civil Code due to
its apathy and failure to extend any assistance to the petitioner

and was, therefore, liable for the restoration of petitioners


possession and the payment of actual damages corresponding to
lost profit, cash, generator, and other items petitioner lost due to
the eviction, as well as moral and exemplary damages and
attorneys fees.

Dissatisfied, respondent filed an appeal with the CA,


docketed as CA-G.R. CV No. 56484.

On February 11, 2002, the CA rendered its Decision [22] setting


aside the Decision of RTC-Branch 88, to wit:

WHEREFORE, premises considered, the Decision


dated May 27, 1996 of the Regional Trial Court of Quezon
City, Branch 88, in Civil Case No. Q-92-11732, is hereby
REVERSED and SET ASIDE. No pronouncement as to
costs.

Applying the equitable principle of estoppel, the CA held that


although respondent as lessor failed to ensure the peaceful
possession of petitioner as its lessee in the subject premises, the
latter is not entitled to damages since he was aware of the facts
which led to his ouster from the subject premises; and that
petitioner was well aware that respondent had a 10-year lease
contract with R.C. Nicolas which was subject of an ejectment suit

that was still pending litigation when petitioner executed a lease


contract with respondent.

On

March

5,

2002,

petitioner

filed

his

Motion

for

Reconsideration.[23] On August 29, 2002, the CA issued its


Resolution denying petitioners Motion for Reconsideration. [24]

Hence, the present Petition anchored on the following


grounds:

I.

THE
HONORABLE
COURT
OF
APPEALS
CLEARLY
COMMITTED GRAVE ERROR AND ABUSE OF DISCRETION
IN APPLYING THE
PRINCIPLE OF ESTOPPEL TO PETITIONER

II.

THE HONORABLE COURT OF APPEALS COMMITTED GRAVE


ERROR BY DISREGARDING THE LAW, JURISPRUDENCE AND
EVIDENCE IN DELETING THE AWARD MADE BY THE LOWER
COURT OF DAMAGES AND REVERSING THE THREE (3)
YEAR POSSESSION OF THE SUBJECT PROPERTY GIVEN TO
THE PETITIONER[25]

Petitioner argues that the principle of estoppel is inapplicable


because he dealt with respondent in good faith and relied upon
the latters representations that the lease of R.C. Nicolas was
already terminated at the time he contracted with the latter; that
respondent assured him that it had a valid and legal right to enter
into a new lease contract with him; that he is entitled to damages
since respondent did not even lift a finger to protect him when
R.C. Nicolas filed an ejectment case against him; and that
respondent acted in utter bad faith when it still refused to restore
his

possession

after

he

was

evicted

in

November

1990,

notwithstanding that his lease contract with respondent was valid


until August 31, 1991.

Respondent, on the other hand, counters that the CA


correctly applied the principle of estoppel since petitioner
voluntarily entered into a lease agreement with respondent
despite full knowledge that the latters lease with R.C. Nicolas
over the subject premise had yet to be judicially terminated; and
that petitioner knew that at the time he contracted with
respondent, he still had existing obligations to R.C. Nicolas
relating to their sub-lease agreement.

Under Article 1654 (3) of the New Civil Code, to wit:

Art. 1654. The lessor is obliged:

xxxx

(3) To maintain the lessee in the peaceful and


adequate enjoyment of the lease for the entire duration of
the contract.

it is the duty of the lessor to place the lessee in the legal


possession of the premises and to maintain the peaceful
possession thereof during the entire term of the lease. [26] To fully
appreciate the importance of this provision, the comment of
Manresa on said article is worth mentioning:

The lessor must see that the enjoyment is not


interrupted or disturbed, either by others acts x x x or by
his own. By his own acts, because, being the person
principally obligated by the contract, he would openly
violate it if, in going back on his agreement, he should
attempt to render ineffective in practice the right in the
thing he had granted to the lessee; and by others acts,
because he must guarantee the right he created, for he is
obligated to give warranty in the manner we have set
forth in our commentary on article 1553, and, in this
sense, it is incumbent upon him to protect the lessee in
the latters peaceful enjoyment.[27]

The obligation of the lessor arises only when acts, termed as


legal trespass (perturbacion de derecho), disturb, dispute, object
to, or place difficulties in the way of the lessees peaceful
enjoyment of the premises that in some manner or other cast
doubt upon the right of the lessor by virtue of which the lessor
himself executed the lease, in which case the lessor is obligated
to answer for said act of trespass. [28] The lessee has the right to
be respected in his possession and should he be disturbed
therein, he shall be restored to said possession by the means
established by the law or by the Rules of Court. [29] Possession is
not protection against a right but against the exercise of a right
by ones own authority.[30]

Petitioner claims that respondent as lessor was obliged to


restore

his

possession

following

his

eviction

from

the

premises. The Court disagrees.

Void are all contracts in which the cause or object does not
exist at the time of the transaction. [31] In the present case, the
lease contract between petitioner and respondent is void for
having an inexistent cause - respondent did not have the right to
lease the property to petitioner considering that its lease contract
with R.C. Nicolas was still valid and subsisting, albeit pending
litigation. Having granted to R.C. Nicolas the right to use and
enjoy its property from 1983 to 1993, respondent could not grant
that same right to petitioner in 1988. When petitioner entered

into a lease contract with respondent, the latter was still obliged
to maintain R.C. Nicolass peaceful and adequate possession and
enjoyment of its lease for the 10-year duration of the contract.

Respondents unilateral rescission of its lease contract with


R.C. Nicolas, without waiting for the final outcome of the
ejectment case it filed against the latter, is unlawful. A lease is a
reciprocal contract and its continuance, effectivity or fulfillment
cannot be made to depend exclusively upon the free and
uncontrolled choice of just one party to a lease contract. [32] Thus,
the

lease

contract

entered

into

between

petitioner

and

respondent, during the pendency of the lease contract with R.C.


Nicolas, is void.

There is no merit to petitioners claim of good faith in dealing


with respondent. Good faith is ordinarily used to describe that
state of mind denoting honesty of intention, and freedom from
knowledge of circumstances which ought to put the holder upon
inquiry;[33] an

honest intention

unconscientious

advantage

to
of

abstain

from

another,

taking

even

any

through

technicalities of law, together with absence of all information,


notice, or benefit or belief of facts which render the transaction
unconscientious.[34] Being

privy

to

the

pendency

of

the

ejectment case involving the leasehold rights of R.C. Nicolas since


he was impleaded as a party-defendant in said ejectment case,
petitioner

cannot

feign

innocence

of

the

existence

thereof. Petitioner was fully aware that R.C. Nicolas had a lease
contract with respondent which was subject of a pending
litigation.

It is well-settled that 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.[35] 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, and no affirmative relief of
any kind will be given to one against the other. [36] Each must bear
the consequences of his own acts. [37] They will be left where they
have placed themselves since they did not come into court with
clean hands.

In sum, the underlying case for sum of money filed by


petitioner against respondent cannot prosper, his right of action
being anchored on a contract which, for all intents and purposes,
has no legal existence and effect from the start. A void or
inexistent contract is equivalent to nothing; it is absolutely
wanting in civil effects; it cannot be the basis of actions to enforce
compliance.[38]

WHEREFORE, the present petition is DENIED for lack of


merit. The assailed Decision and Resolution of the Court of

Appeals in CA-G.R. CV No. 56484 are AFFIRMED. Petitioners


Complaint and respondents Counterclaim in Civil Case No. Q-9211732 are DISMISSED. Costs against petitioner.

SO ORDERED.

Campos, et al. vs. Pastrana, et al., G.R. No. 175994, December 8, 2009

Republic of the Philippines


Supreme Court
Manila
SECOND DIVISION
JESUS CAMPOS and ROSEMARIE
CAMPOS-BAUTISTA,
Petitioners,
- versus NENITA BUENVENIDA PASTRANA,
ROGER BUENVENIDA,
SONIA BUENVENIDA,
TEDDY BUENVENIDA,
VICTOR BUENVENIDA,
HARRY BUENVENIDA,
MILDRED BUENVENIDA,
MANOLITO BUENVENIDA
and DAISY BUENVENIDA,
represented by their Attorney-in-Fact

G.R. No. 175994

Present:
CARPIO, J., Chairperson,
LEONARDO-DE CASTRO,
BRION,
DEL CASTILLO, and
ABAD, JJ.

Promulgated:

CARLITO BUENVENIDA,
Respondents.
December 8, 2009
x--------------------------------------------- -------------x

DECISION
DEL CASTILLO, J.:
It sometimes happens that a creditor, after securing a judgment against a debtor,
finds that the debtor had transferred all his properties to another leaving nothing to satisfy
the obligation to the creditor. In this petition for review on certiorari,[1] petitioners ask us
to set aside the November 23, 2005 Decision[2] of the Court of Appeals (CA) in CA-G.R.
CV No. 68731 declaring as null the sale of several parcels of land made by their parents
in their favor, for being absolutely simulated transactions. Also assailed is the November
21, 2006 Resolution.[3]
Factual antecedents
This is the third case between essentially the same parties and the second among
those cases to reach this Court on appeal, spanning a period of close to three decades.
The first case arose from the refusal of Carlito Campos (Carlito), the father of
herein petitioners, to surrender the possession of a fishpond he leased from respondents
mother, Salvacion Buenvenida, despite the expiration of their contract of lease in
1980. Alleging that he was an agricultural lessee, Carlito filed an agrarian case docketed
as CAR

Case

No.

1196

(Agrarian

Case) against

his

lessor. After

trial,

the Regional Trial Court of Roxas City, Branch 14, found that Carlito was not an

agricultural tenant. He then appealed to the CA and subsequently to this Court, but was
unsuccessful.
While the appeal in the Agrarian Case was pending before the CA, herein
respondents filed the second case, Civil Case No. V-5417, against Carlito for Recovery
of Possession and Damages with Preliminary Mandatory Injunction (Possession Case)
involving the same fishpond subject of the earlier agrarian case. On November 27, 1990,
the Regional Trial Court of Roxas City, Branch 16, rendered a Decision[4] finding Carlito
to have retained possession of the fishpond notwithstanding the expiration of the contract
of lease and ordering him to pay rentals, the value of the produce and damages to the
herein respondents. The Decision became final and executory and a Writ of
Execution[5] was issued on February 7, 1995. Subsequently, on September 19, 1995, an
Alias Writ of Execution[6] was also issued. Both were returned unsatisfied as per
Sheriffs Return of Service dated November 14, 1995.

During the pendency of the Agrarian Case, as well as prior to the filing of the
Possession Case, Carlito was the registered owner of the following properties:

1.

Residential Lots 3715-A and 3715-B-2 covered by Transfer Certificates of

Title Nos. 18205[7] and 18417,[8] respectively and


2.

Agricultural Lots 850 and 852 covered by Original Certificates of Title

Nos. P-9199[9] and P-9200,[10] respectively.

When the respondents were about to levy these properties to satisfy the judgment
in the Possession Case, they discovered that spouses Carlito and Margarita Campos

transferred these lots to their children Rosemarie and Jesus Campos, herein petitioners,
by virtue of Deeds of Absolute Sale dated October 18, 1985 [11] and November 2, 1988.
[12]

Specifically, spouses Campos sold the residential lots (Lots 3715-A and 3715-B-2),

with a total area of 1,393 square meters, to their daughter Rosemarie for P7,000.00 and
the agricultural lots (Lots 850 and 852) with a combined area of 7,972 square meters, to
their son Jesus for P5,600.00.
Proceedings before the Regional Trial Court
Civil Case No. V-7028

On February 18, 1997, respondents instituted the third case, Civil Case No.
V-7028 (Nullity of Sale Case),[13] subject of this appeal, seeking to declare as null the
aforesaid deeds of sale and the transfer certificates of title issued pursuant thereto. They
alleged that the contracts of sale between spouses Campos and petitioners were
simulated for the sole purpose of evading the levy of the abovementioned properties in
satisfaction of a money judgment that might be rendered in the Possession Case.

In their Answer with Counterclaim,[14] spouses Campos and petitioners averred


that Rosemarie and Jesus Campos acquired the lots in question in good faith and for
value because they were sold to them before they had any notice of the claims or interests
of other persons thereover.

On August 21, 2000, the Regional Trial Court of Roxas City, Branch 14,
dismissed the complaint.[15] It held that

In the Resolution of this case the issue is whether or not the spouses Carlito
Campos and Margarita Arduo, sensing that an unfavorable judgment might be rendered
against them in Civil Case No. V-5417 filed in Branch 16 on July 17, 1987 by the same
plaintiffs for Recovery of Possession and Damages with Preliminary Mandatory
Injunction, in evident bad faith and wanton disregard of the law, maliciously and
fraudulently, executed a purely fictitious and simulated sale of their properties thereby
ceding and transferring their ownership thereto to their children Rosemarie CamposBautista and Jesus Campos.
A close scrutiny of the defendants documentary exhibits and testimonies showed
that as early as 1981 defendant Jesus Campos was already leasing a fishpond in Brgy.
Majanlud, Sapi-an, Capiz from Victorino Jumpay and defendant Rosemarie Campos was
engaged in the sari-sari store business starting 1985 so that they were able to purchase the
properties of their parents out of their profits derived therefrom.
The Deed of Absolute Sale (Exh. 6 & 10) executed by the spouses Carlito
Campos and Margarita Arduo to Rosemarie Campos and Jesus Campos were
dated October 17, 1985 and November 2, 1988, respectively.
It can readily [be] gleaned from the records that Civil Case No. V-5417 was filed
on July 7, 1987 and was decided on November 27, 1990. Furthermore, the alias writ of
execution was issued only on July 5, 1995for which the Sheriffs Return of Service was
returned unsatisfied on November 14, 1995.
WHEREFORE, the complaint of the plaintiffs against the defendants is
DISMISSED. Their claim for damages is likewise DISMISSED. The counter-claim of
the defendants must also be DISMISSED as the case was not filed in evident bad faith
and with malicious intent.
SO ORDERED.[16]

Proceedings before the Court of Appeals

Upon review of the evidence presented, the CA found that the conveyances were
made in 1990, and not in 1985 or 1988, or just before their actual registration with the
Registry of Deeds, evidently to avoid the properties from being attached or levied upon
by the respondents. The CA likewise noted that the zonal value of the subject properties
were much higher than the value for which they were actually sold. The appellate court

further observed that despite the sales, spouses Campos retained possession of the
properties in question. Finally, the CA took note of the fact that the writ of execution and
alias writ issued in the Possession Case remained unsatisfied as the lower court could not
find any other property owned by the spouses Campos that could be levied upon to
satisfy its judgment, except the parcels of land subject of the assailed transactions.

On these bases, the CA ruled that the assailed contracts of sale were indeed
absolutely simulated transactions and declared the same to be void ab initio. The
dispositive portion of the Decision of the CA reads:
WHEREFORE, the instant appeal is GRANTED. The decision of
the Regional Trial Court of Roxas City, Branch 14, dated August 21, 2000 in
Civil Case No. V-7028 is REVERSED and SET ASIDE. Let a copy of this
Decision be furnished to the Register of Deeds of the Province of Capiz who
is hereby ordered to cancel Transfer Certificates of Title Nos. T-26092 and T26093 in the name of Rosemarie Campos, and Transfer Certificates of Title
Nos. T-23248 and 23249 in the name of Jesus Campos and restore said titles in
the name of the previous owner, Carlito Campos.
SO ORDERED.

Only petitioners moved for reconsideration[17] but the CA denied the same.[18]

Issues
Hence, this petition for review on certiorari raising the following errors:
I.
THE COURT OF APPEALS COMMITTED AN ERROR OF LAW IN APPLYING
ARTICLE 1409, CIVIL CODE, INSTEAD OF ARTICLE 1381 (3), CIVIL CODE,

AND IN SPECULATING THAT A CAUSE OF ACTION OF SUPPOSED SALE IN


FRAUD OF CREDITORS EXISTS DESPITE NON-EXHAUSTION OF REMEDIES
TO ENFORCE THE JUDGMENT IN CIVIL CASE NO. V-5417.
II.
THE COURT OF APPEALS COMMITTED AN ERROR OF LAW OVERLOOKING
THAT THE CAUSE OF ACTION HAD PRESCRIBED, THE COMPLAINT
HAVING BEEN FILED AFTER SEVEN (7) YEARS OR ONLY ON 14 OCTOBER
1997, FROM THE TIME THE TITLES WERE ISSUED IN 1990.
III.
THE COURT OF APPEALS ERRONEOUSLY ANCHORED ITS IMPUGNED
JUDGMENT ON MISAPPREHENSION OF FACTS THAT THE SALE WERE
ANTEDATED, HENCE SIMULATED DESPITE GLARING ABSENCE OF
EVIDENCE IN SUPPORT THEREOF.
IV.
THE COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION IN
CASTING ASIDE OVERWHELMING EVIDENCE DULY APPRECIATED BY THE
TRIAL COURT THAT PETITIONERS ARE BUYERS IN GOOD FAITH AND FOR
VALUE, WHO EXERCISED DOMINION OVER THE SUBJECT LOTS, WHICH IF
PROPERLY CONSIDERED, SHALL WARRANT THE SINGULAR CONCLUSION
THAT THE SALE AND TRANSFER OF TITLES ARE VALID.[19]

Petitioners arguments

Petitioners assail the application of Article 1409[20] of the Civil Code on void
contracts as against Article 1381(3)[21] of the Civil Code on rescissible contracts in fraud
of creditors, considering that the questioned conveyances executed by the
spouses Campos to their children were allegedly done to evade the enforcement of the
writ of execution in the Possession Case. [22] In addition, petitioners allege that the CA
misappreciated the facts of this case when it found that the questioned transactions were
tainted with badges of fraud.[23]

Respondents arguments

Respondents argue that the application of Article 1409 on void contracts was a
natural and logical consequence of the CAs finding that subject deeds of sale were
absolutely simulated and fictitious, consistent with the nature of the respondents cause of
action which was for declaration of nullity of said contracts and the transfer certificates of
titles issued pursuant thereto.[24] Respondents also stressed that the CAs finding is
conclusive upon us and that only questions of law may be raised in a petition for review
on certiorari under Rule 45 of the Rules of Court.[25]

Our Ruling

The petition lacks merit.

Well-settled is the rule that this Court is not a trier of facts. When supported by
substantial evidence, the findings of fact of the CA are conclusive and binding, and are
not reviewable by this Court, unless the case falls under any of the following recognized
exceptions:
(1)

When the conclusion is a finding grounded entirely on speculation, surmises

and conjectures;
(2)

When the inference made is manifestly mistaken, absurd or impossible;

(3)

Where there is a grave abuse of discretion;

(4)

When the judgment is based on a misappreciation of facts;

(5)

When the findings of fact are conflicting;

(6)

When the CA in making its findings, went beyond the issues of the case and

the same is contrary to the admissions of both appellant and appellee;


(7)

When the findings are contrary to those of the trial court;

(8)

When the findings of fact are conclusions without citation of specific

evidence on which they are based;


(9)

When the facts set forth in the petition as well as in the petitioners main and

reply briefs are not disputed by the respondents; and


(10) When the findings of fact of the CA are premised on the supposed absence of
evidence and contradicted by the evidence on record.

None of these exceptions is present in this case. We find that the Decision of the
CA is supported by the required quantum of evidence.
The
subject
Deeds
of
Absolute Sale executed
by
the
Spouses Campos to
their
children
(herein petitioners) are absolutely
simulated and fictitious.

The CA correctly held that the assailed Deeds of Absolute Sale were executed
when the Possession Case was already pending, evidently to avoid the properties subject
thereof from being attached or levied upon by the respondents. While the sales in
question transpired on October 18, 1985 and November 2, 1988, as reflected on the
Deeds of Absolute Sale, the same were registered with the Registry of Deeds only
on October 25, 1990 and September 25, 1990.
We also agree with the findings of the CA that petitioners failed to explain the
reasons for the delay in the registration of the sale, leading the appellate court to conclude
that the conveyances were made only in 1990 or sometime just before their actual
registration and that the corresponding Deeds of Absolute Sale were antedated. This
conclusion is bolstered by the fact that the supposed notary public before whom the deeds
of sale were acknowledged had no valid notarial commission at the time of the
notarization of said documents.[26]

Indeed, the Deeds of Absolute Sale were executed for the purpose of putting the
lots in question beyond the reach of creditors. First, the Deeds of Absolute Sale were
registered exactly one month apart from each other and about another one month from
the time of the promulgation of the judgment in the Possession Case. The Deeds of
Absolute Sale were antedated and that the same were executed when the Possession Case
was already pending.
Second, there was a wide disparity in the alleged consideration specified in the
Deeds of Absolute Sale and the actual zonal valuation of the subject properties as per the
BIR Certification, as follows:

Residential Lots:
From Spouses
Campos to daughter,
Rosemarie Campos
Agricultural Lots:
From Spouses
Campos to son,
Jesus Campos

Consideration
specified in Deed
of Absolute Sale

Market Value
as per Tax
Declaration

Computed Zonal
Valuation (BIR
Certification)

P 7,000.00

P 83,580.00[27]

P 417,900.00[28]

P 5,600.00

P 25,000.19[29]

P 39,860.00[30]

As correctly noted by the CA, the appraised value of the properties subject of this
controversy may be lower at the time of the sale in 1990 but it could not go lower
than P7,000.00 and P5,600.00. We likewise find the considerations involved in the
assailed contracts of sale to be inadequate considering the market values presented in the
tax declaration and in the BIR zonal valuation.

Third, we cannot believe that the buyer of the 1,393-square meter [31] residential
land could not recall the exact area of the two lots she purchased. In her crossexamination, petitioner Rosemarie Campos stated:
Q:
you?
A:

Can you tell us the total area of those two (2) lots that they sold to
It consists of One Thousand (1,000) Square Meters.[32]

xxxx
Q:
A:

By the way, for how much did you buy this [piece] of land
consisting of 1,000 square meters?
Seven Thousand Pesos (P7,000.00) Your Honor.[33]

Fourth, it appears on record that the money judgment in the Possession Case has
not been discharged with. Per Sheriffs Service Return dated November 14, 1995, the
Alias Writ of Execution and Sheriffs Demand for Payment dated September 19,
1995 remain unsatisfied.
Finally, spouses Campos continue to be in actual possession of the properties in
question. Respondents have established through the unrebutted testimony of Rolando
Azoro that spouses Camposhave their house within Lot 3715-A and Lot 3715-B-2 and
that they reside there together with their daughter Rosemarie. [34] In addition,
spouses Campos continued to cultivate the rice lands which they purportedly sold to their
son Jesus.[35] Meantime, Jesus, the supposed new owner of said rice lands, has relocated
to Bulacan[36] where he worked as a security guard.[37] In other words, despite the transfer
of the said properties to their children, the latter have not exercised complete dominion
over the same. Neither have the petitioners shown if their parents are paying rent for the
use of the properties which they already sold to their children.

In Suntay v. Court of Appeals,[38] we held that:


The failure of the late Rafael to take exclusive possession of the property
allegedly sold to him is a clear badge of fraud. The fact that, notwithstanding the title
transfer, Federico remained in actual possession, cultivation and occupation of the
disputed lot from the time the deed of sale was executed until the present, is a
circumstance which is unmistakably added proof of the fictitiousness of the said transfer,
the same being contrary to the principle of ownership.

While in Spouses Santiago v. Court of Appeals,[39] we held that the failure of


petitioners to take exclusive possession of the property allegedly sold to them, or in the

alternative, to collect rentals from the alleged vendor x x x is contrary to the principle of
ownership and a clear badge of simulation that renders the whole transaction void and
without force and effect, pursuant to Article 1409 of the Civil Code.
The issuance of transfer certificates of
title to petitioners did not vest upon them
ownership of the properties.

The fact that petitioners were able to secure titles in their names did not operate to
vest upon them ownership over the subject properties. That act has never been
recognized as a mode of acquiring ownership.[40] The Torrens system does not create or
vest title. It only confirms and records title already existing and vested. It does not
protect a usurper from the true owner. It cannot be a shield for the commission of fraud.
[41]

In the instant case, petitioner Rosemarie Campos supposedly bought the


residential properties in 1985 but did not have the assailed Deed of Absolute Sale
registered with the proper Registry of Deeds for more than five years, or until a month
before the promulgation of the judgment in the Possession Case. Hence, we affirm the
finding of the CA that the purported deed was antedated. Moreover, her failure to take
exclusive possession of the property allegedly sold, or, alternatively, to collect rentals is
contrary to the principle of ownership and a clear badge of simulation. On these
grounds, we cannot hold that Rosemarie Campos was an innocent buyer for value.

Likewise, petitioner Jesus Campos supposedly bought the rice land from his
parents in 1988 but did not have the assailed Deed of Absolute Sale registered with the
proper Registry of Deeds for more than two years, or until two months before the
promulgation of the judgment in the Possession Case. Thus, we likewise affirm the
finding of the CA that the purported deed was antedated. In addition, on cross, he
confirmed that he had knowledge of the prior pending cases when he supposedly
purchased his parents rice land stating that:
Q:
A:
Q:

A:

You never knew that your parents and the plaintiffs in this case have
cases in the past prior to this case now, is that right?
Yes, sir. I knew about it.
And in spite of your knowledge, that there was a pending case
between your parents and the plaintiffs here, you still purchased these
two (2) lots 850 and 852 from your parents, is that what you are telling
us?
All I knew was that, that case was a different case from the subject
matter then [sic] the lot now in question.[42]

On these findings of fact, petitioner Jesus Campos cannot be considered as an


innocent buyer and for value.

Since both the transferees, Rosemarie and Jesus Campos, are not innocent
purchasers for value, the subsequent registration procured by the presentation of the void
deeds of absolute sale is likewise null and void.
The action for the declaration of the
inexistence of the assailed Deeds of
Absolute Sale does not prescribe.

Petitioners argue that respondents cause of action had prescribed when they filed
the Nullity of the Sale Case on October 14, 1997, or seven years after the registration of
the questioned sales in 1990.

We cannot agree. As discussed above, the sale of subject properties to herein


petitioners are null and void. And under Article 1410 of the Civil Code, an action or
defense for the declaration of the inexistence of a contract is imprescriptible. Hence,
petitioners contention that respondents cause of action is already barred by prescription
is without legal basis.
Since the assailed Deeds of
Absolute Sale are null and void, the
Civil Code provisions on rescission have
no application in the instant case.

Finally, petitioners argument that the applicable law in this case is Article 1381(3)
of the Civil Code on rescissible contracts and not Article 1409 on void contracts is not a
question of first impression. This issue had already been settled several decades ago
when we held that an action to rescind is founded upon and presupposes the existence of
a contract.[43] A contract which is null and void is no contract at all and hence could not
be the subject of rescission.[44]

In the instant case, we have declared the Deeds of Absolute Sale to be fictitious
and inexistent for being absolutely simulated contracts. It is true that the CA cited
instances that may constitute badges of fraud under Article 1387 of the Civil Code on

rescissible contracts. But there is nothing else in the appealed decision to indicate that
rescission was contemplated under the said provision of the Civil Code. The
aforementioned badges must have been considered merely as grounds for holding that
the sale is fictitious. Consequently, we find that the CA properly applied the governing
law over the matter under consideration which is Article 1409 of the Civil Code on void
or inexistent contracts.

WHEREFORE, the petition is DENIED. Costs against petitioners.

SO ORDERED.
MARIANO C. DEL CASTILLO
Associate Justice
WE CONCUR:

Marin, et al. vs. Abdil, G.R. No. L-47986, July 16, 1984, 15 Phil. 167

MARIN V. ADIL G.R. NO. 47986


Facts:
The Armadas were expecting to inherit some lots from their uncle. Marin had
hereditary rights in the estates of her parents. A deed of exchange was executed

wherein it was stipulated that both parties acknowledge that the exchange operates
to their individual and mutual benefit and advantage, for the reason that the property
being ceded, transferred, conveyed and unclaimed by one party to the other is
situated in the place where either is a resident resulting in better administration of
the properties. But the expected land was adjudicated to Soledad, sister of Marin.
So, the Armadas and other heirs sued Soledad for claiming to be the sole heir of
their uncle, but ended in a compromise where the Armadas were awarded two
lots. Marin waived, renounced and quitclaimed her share in her parents estate in
favour of her another sister Aurora. She cannot anymore fulfil her obligations in her
signed deed of exchange with the Armadas. The Armadas filed a rescisorry action
against Marin.
Issue:
Did Armadas action prescribe?
Held:
No. The action to declare contracts void and inexistent does not prescribe. It is
evident from the deed of exchange that the intention of the parties relative to the lots
cannot be definitely ascertained. This circumstance renders the exchange void.