Swedish Match v.

Court of Appeals
GR No. 128120, 20 October 2004
FACTS:
Swedish Match, AB (SMAB) is a corporation organized under the laws of Sweden,
however, had 3 subsidiary corporations in the Philippines organized under Philippine
laws: Phimco, Provident Tree Farms, Inc, and OTT/Louie (Phils,), Inc.
In 1988, STORA, its parent company, decided to sell SMAB and the latters worldwide
match, lighter and shaving products operation to Swedish Match NV (SMNV). Enriquez,
VP of SMSA (management company of SMAB), was held under special instructions that
the sale of Phimco shares should be executed on or before June 30, 1990. Respondent
GM Antonio Litonjua of ALS Management and Development Corp. was one of the
interested parties to acquire Phimco shares, offering US$36 million. After an exchange
of information between CEO Rossi of SMAB and Litonjua, the latter informed that they
may not be able to submit their final bid on the given deadline considering that the
acquisition audit of Phimco and the review of the draft agreements have not been
completed.
In a letter dated July 3, 1990, Rossi informed Litonjua that on July 2, SMAB signed a
conditional contract with a local group for the disposal of Phimco and that the latters bid
would no longer be considered unless the local group would fail to consummate the
transaction on or before September 15, 1990. Irked by SMABs decision to junk his bid,
Litonjua asserted that the US$36 million bid was final, thus finalizing the terms of the
sale.
After 2 months from receipt of Litonjuas letter, Enriquez informed the former that the
proposed sale with the local buyers did not materialize and invited to resume
negotiations for the sale of Phimco shares based on a new set of conditions, as to
reducing the period of sale from 30-day to 15, to which Litonjua expressed objections
and emphasized that the new offer constituted an attempt to reopen the already
perfected contract of sale.
Traversing the complaint filed by Litonjua, petitioners alleged that respondents have no
cause of action, contending that no perfected contract, whether verbal or written, existed
between them. Petitioners added that respondents cause of action, if any, was barred by
the Statute of Frauds since there was no written instrument or document evidencing the
alleged sale of the Phimco shares to respondents.
ISSUE:
1. Whether or not the appellate court erred in reversing the trial courts decision
dismissing the complaint for being unenforceable under the Statute of Frauds.
2. Whether or not there was a perfected contract of sale between petitioners and
respondents, with respect to the Phimco shares.
HELD:
1. YES

2. NO
RATIO:
1. Contrary to the Court of Appeals conclusion, the exchange of correspondence
between the parties hardly constitutes the note or memorandum within the
context of Article 1403 of the Civil Code. Rossis letter dated 11 June 1990,
heavily relied upon by respondents, is not complete in itself. First, it does not
indicate at what price the shares were being sold. In paragraph (5) of the letter,
respondents were supposed to submit their final offer in U.S. dollar terms, at that
after the completion of the due diligence process. The paragraph undoubtedly
proves that there was as yet no definite agreement as to the price. Second, the
letter does not state the mode of payment of the price. In fact, Litonjua was
supposed to indicate in his final offer how and where payment for the shares was
planned to be made.
The Statute of Frauds is applicable only to contracts, which are executory, and
not to those which have been consummated either totally or partially. If a contract
has been totally or partially performed, the exclusion of parol evidence would
promote fraud or bad faith, for it would enable the defendant to keep the benefits
already derived by him from the transaction in litigation, and at the same time,
evade the obligations, responsibilities or liabilities assumed or contracted by him
thereby. This rule, however, is predicated on the fact of ratification of the contract
within the meaning of Article 1405 of the Civil Code either (1) by failure to object
to the presentation of oral evidence to prove the same, or (2) by the acceptance
of benefits under them. In the instant case, respondents failed to prove that there
was partial performance of the contract within the purview of the Statute.
2. There was no perfected contract of sale since Litonjuas letter of proposing
acquisition of the Phimco shares for US$36 million was merely an offer. The
meeting of the offer and acceptance upon the thing and the cause should
manifest consent in a contract of sale, which are to constitute the contract. The
lack of a definite offer on the part of the respondents could not possibly serve as
the basis of their claim that the sale of the Phimco shares in their favour was
perfected, for one essential element of a contract of sale needed to be certain --the price in money or its equivalent. Obviously, there can be no sale without a
price. Respondents attempt to prove the alleged verbal acceptance of their
US$36 million bid becomes futile since there was in the first place no meeting of
the minds with respect to the price, and such was merely a preliminary offer.
Respondents failure to submit their final bid on the deadline set by the petitioners
prevented the perfection of the contract of sale.

Spouses Torcuator v. Spouses Bernabe

GR No. 134219, 8 June 2005
FACTS:
The subject of this action is Lot 17, Block 5 of the Ayala Alabang Village, Muntinlupa,
Metro-Manila, with an area of 569 square meters and covered by TCT No. S-79773. The
Salvador spouses purchased the above parcel of land from the developers of Ayala
Alabang subject, among others, to the following conditions:
It is part of the condition of buying a lot in Ayala Alabang Village (a) that the lot buyer
shall deposit with Ayala Corporation a cash bond (about P17,000.00 for the Salvadors)
which shall be refunded to him if he builds a residence thereon within two (2) years of
purchase, otherwise the deposit shall be forfeited, (b) architectural plans for any
improvement shall be approved by Ayala Corporation, and (c) no lot may be resold by
the buyer unless a residential house has been constructed thereon (Ayala Corporation
keeps the Torrens Title in their [sic] possession).
Salvadors sold the parcel of land to Bernabe spouses. Salvadors executed a special
power of attorney authorizing the Bernabes to construct a residential house on the lot
and to transfer the title in their names. Bernabes, on the other hand, without making any
improvement, contracted to sell the parcel of land to Torcuator spouses. Confronted by
the Ayala Alabang restrictions, the parties agreed to cause the sale between the
Salvadors and the Bernabes cancelled, in favor of (a) a new deed of sale from the
Salvadors directly to the Torcuators; (b) a new Irrevocable Special Power of Attorney
executed by the Salvadors to the Torcuators in order for the latter to build a house on the
land in question; and (c) an Irrevocable Special Power of Attorney from the Salvadors to
the Bernabes authorizing the latter to sell, transfer and
convey, with power of substitution, the subject lot.
The deed of sale was never consummated nor was payment on the said sale ever
effected. Subsequently, Bernabes sold to Angeles, a brother-in-law, however the
document was not notarized. Torcuators filed an action against the Bernabes and
Salvadors for Specific Performance or Rescission with Damages. TC dismissed petition.
CA also dismissed the appeal, ruling that the sale between the Bernabes and the
Torcuators was tainted with serious irregularities and bad faith. The appellate court
agreed with the trial courts conclusion that the parties entered into the contract with the
intention of reneging on the stipulation disallowing the sale or transfer of vacant lots in
Ayala Alabang Village. It also ruled that the parties deprived the government of taxes
when they made it appear that the property was sold directly by the Salvadors to the
Torcuators. Since there were actually two sales, i.e., the first sale between the Salvadors
and the Bernabes and the second between the Bernabes and Torcuators, taxes should
have been paid for both transfers.
ISSUE:
1.
2.

Whether or not the agreement between the parties is a contract of sale.

Whether or not the contract complies with the Statute of Frauds.

HELD:
1. YES

2. NO
RATIO:
1. In a contract to sell, ownership is retained by the seller and is not to pass to the
buyer until full payment of the price or the fulfillment of some other conditions
either of which is a future and uncertain event the non-happening of which is not
a breach, casual or serious, but simply an event that prevents the obligation of
the vendor to convey title from acquiring binding force.
We have carefully examined the agreement between the parties and are far from
persuaded that it was a contract of sale.
2. In the instant case, petitioners present as written evidence of the agreement the
special power of attorney executed in their favor by the Salvadors and the
summary of agreement allegedly initialed by respondent Remigio Bernabe.
These documents do not suffice as notes or memoranda as contemplated by
Article 1403 of the Civil Code.
Conformably with Article 1405 of the Civil Code, however, respondents
acceptance of the agreement foisted by petitioners on them is deemed to have
arisen from their failure to object to the testimony of petitioner Mario Torcuator on
the matter and their cross-examination of said petitioner thereon.
The special power of attorney does not contain the essential elements of the
purported contract and, more tellingly, does not even refer to any agreement for
the sale of the property. In any case, it was rendered virtually inoperable as a
consequence of the Salvadors adamant refusal to part with their title to the
property.

Averia v. Averia
GR No. 141877, 13 August 2004
FACTS:
Macaria Francisco (Macaria) was married to Marcos Averia in which they had six
children namely: petitioners Gregorio and Teresa and respondents Domingo, Angel,
Felipe and Felimon. Upon the death of Marcos, Macaria contracted a second marriage
with Roberto Romero in which they had no children. Upon the death of Roberto, he left
three adjoining residential lots. In a Deed of Extrajudicial Partition and Summary
Settlement of the Estate of Romero, a house and lot (Extremadura property) was
apportioned to Macaria.
Macaria then filed an action for annulment of title and damages alleging that fraud was
employed by her co-heirs in which she was represented by Atty. Mario C.R. Domingo.
The case lasted for 10 years until the Court of Appeals (CA) decided in favor of Macaria
entitling her to an additional 30 square meters of the estate of Romero. Her son Gregorio
and his family and Teresas family lived with her in the Extremadura property until her
death. After six years, respondents Domingo, Angel, Felipe and Filemon filed an action
for judicial partition against petitioners Gregorio and Teresa.
In their defense Gregorio contends that Macaria verbally sold of her Extramadura
property to him and his wife Agripina because they were the ones who spent for the
litigation expenses in the former civil case and that Agripina took care of her. Gregorio
and co-petitioner Sylvana claimed that Domingo sold to Gregorio and Agripina his 1/6
share in the remaining portion of the property. Upon hearing, Gregorio presented oral
evidence to establish their claim of the sale of the property to them by Macaria and also
the sale of Domingo of his share. The Regional Trial Court of (RTC) decided in favor of
Gregorio. The CA however, reversed the decision of the RTC on the ground that since
the sale executed by Macaria in favor of Gregorio was in violation of the statute of frauds
and it cannot be proven by oral evidence.
ISSUE:
Whether or not parol evidence may be admitted in proving partial performance.
HELD:
YES
RATIO:
With respect to the application by the appellate court of the Statute of Frauds, Gregorio
contends that the same refers only to purely executory contracts and not to partially or
completely executed contracts as in the instant case. The finding of the CA that the
testimonies of Gregorios witnesses were timely objected to by Domingo is not, as
Gregorio insist, borne out in the records of the case except with respect to his testimony.
Indeed, except for the testimony of petitioner Gregorio bearing on the verbal sale to him
by Macaria of the property, the testimonies of Gregorios witnesses Sylvanna Vergara
Clutario and Flora Lazaro Rivera bearing on the same matter were not objected to by
respondents. Just as the testimonies of Gregorio, Jr. and Veronica Bautista bearing on

the receipt by respondent Domingo on July 23, 1983 from Gregorios wife of P5,000.00
representing partial payment of the P10,000.00 valuation of his (Domingos) 1/6 share in
the property, and of the testimony of Felimon Dagondon bearing on the receipt by
Domingo of P5,000.00 from Gregorio were not objected to. Following Article 1405 of the
Civil Code, the contracts which infringed the Statute of Frauds were ratified by the failure
to object to the presentation of parol evidence, hence, enforceable.
Contrary then to the finding of the CA, the admission of parol evidence upon which the
trial court anchored its decision in favor of respondents is not irregular and is not
foreclosed by Article 1405.
In any event, the Statute of Frauds applies only to executory contracts and not to
contracts which are either partially or totally performed. In the case at bar, petitioners
claimed that there was total performance of the contracts, full payment of the objects
thereof having already been made and the vendee Gregorio having, even after
Macarias death in 1983, continued to occupy the property until and after the filing on
January 19, 1989 of the complaint subject of the case at bar as in fact he is still
occupying it.
However it is not enough for a party to allege partial performance in order to render the
Statute of Frauds inapplicable; such partial performance must be duly proved. But
neither is such party required to establish such partial performance by documentary
proof before he could have the opportunity to introduce oral testimony on the
transaction. The partial performance may be proved by either documentary or oral
evidence.

Ching v. Goyanko, Jr.

GR No. 165879, 10 November 2006
FACTS:
On December 30, 1947, Joseph Goyanko (Goyanko) and Epifania dela Cruz (Epifania)
were married. Out of the union were born respondents Joseph, Jr., Evelyn, Jerry, Imelda,
Julius, Mary Ellen and Jess, all surnamed Goyanko.
Respondents claim that in 1961, their parents acquired a 661 square meter property
located at 29 F. Cabahug St., Cebu City but that as they (the parents) were Chinese
citizens at the time, the property was registered in the name of their aunt, Sulpicia
Ventura (Sulpicia).
On May 1, 1993, Sulpicia executed a deed of sale over the property in favor of
respondents father Goyanko. In turn, Goyanko executed on October 12, 1993 a deed of
sale over the property in favor of his common-law-wife-herein petitioner Maria B. Ching.
Transfer Certificate of Title (TCT) No. 138405 was thus issued in petitioners name.
After Goyankos death on March 11, 1996, respondents discovered that ownership of the
property had already been transferred in the name of petitioner. Respondents thereupon
had the purported signature of their father in the deed of sale verified by the Philippine
National Police Crime Laboratory, which found the same to be a forgery.
Respondents thus filed with the Regional Trial Court of Cebu City a complaint for
recovery of property and damages against petitioner, praying for the nullification of the
deed of sale and of TCT No. 138405 and the issuance of a new one in favor of their
father Goyanko.
In defense, petitioner claimed that she is the actual owner of the property as it was she
who provided its purchase price. To disprove that Goyankos signature in the questioned
deed of sale is a forgery, she presented as witness the notary public who testified that
Goyanko appeared and signed the document in his presence.
ISSUE:
Whether or not the deed of sale in favour of petitioner is null and void?
HELD:
YES
RATIO:
The proscription against sale of property between spouses applies even to common law
relationships. So this Court ruled in Calimlim- Canullas v. Hon. Fortun, etc., et al, that the
contract of sale was null and void for being contrary to morals and public policy. The
sale was made by a husband in favor of a concubine after he had abandoned his
family and left the conjugal home where his wife and children lived and from
whence they derived their support. The sale was subversive of the stability of the
family, a basic social institution which public policy cherishes and protects. Article

1409 of the Civil Code states inter alia that: contracts whose cause, object, or purposes
is contrary to law, morals, good customs, public order, or public policy are void and
inexistent from the very beginning. Article 1352 also provides that: Contracts without
cause, or with unlawful cause, produce no effect whatsoever. The cause is unlawful if it
is contrary to law, morals, good customs, public order, or public policy.
Additionally, the law emphatically prohibits the spouses from selling property to
each other subject to certain exceptions. Similarly, donations between spouses
during marriage are prohibited. And this is so because if transfers or conveyances
between spouses were allowed during marriage, that would destroy the system of
conjugal partnership, a basic policy in civil law. It was also designed to prevent the
exercise of undue influence by one spouse over the other, as well as to protect the
institution of marriage, which is the cornerstone of family law. The prohibitions apply to
a couple living as husband and wife without benefit of marriage, otherwise, the
condition of those who incurred guilt would turn out to be better than those in
legal union. Those provisions are dictated by public interest and their criterion must be
imposed upon the will of the parties.

E. Razon, Inc. v. Philippine Ports Authority

GR No. 75197, 22 June 1987
FACTS:

In 1977 and early 1978, petitioner Razon allegedly initiated negotiations with
respondent PPA either for the renewal of the management contract or for an
immediate public bidding, if necessary, but respondent PPA, which was
represented in the negotiations by the then General Manager, co-respondent
Primitivo Solis, Jr., did not act on the request, reportedly due to the unconcealed
desire of people close to then President Marcos to take over petitioner ERI.

Thereafter, in late 1978, petitioner Razon, who was then owner of about 93% of
ERI's equity, was allegedly coerced by emissaries from then President Marcos
into endorsing in blank ERI's stock certificates covering 60% equity. It is further
alleged that Razon did not receive a single centavo for these shares of stock as
the checks purportedly payable to him as payment of the shares were
immediately endorsed by Razon to and taken by unnamed parties close to
President Marcos. The party close to President Marcos was later identified as
Alfredo "Bejo" Romualdez, the president's brother-in-law.

After the transfer, a new group reportedly took over the active control and
management of Petitioner Company. PetitionerRazon, was, however, retained as
President, allegedly because of his acceptability and rapport with the shipping
lines, customs brokers and the unions, but without real powers as ERI's By-Laws
were amended to make the office of the executive vice-president more powerful
than the president's which was vested with mere recommendatory functions.
Petitioner ERI's corporate name was also changed to Metro Port Service, Inc.
(MPSI).

On the same day, July 19, 1986, respondent PPA informed petitioner ERI/MPSI
thru a letter of even date that it was cancelling the management contract and
taking over the cargo handling operations as well as the equipment of petitioner
"effective immediately".

ISSUE:
Whether or not respondents has the right to terminate the contract.
HELD:
YES
RATIO:
Elementary in the law of contracts is the principle that no judicial action is necessary for

the annulment of a void contract. Any such action would be merely declaratory. Thus, it
was well within the rights of respondent PPA to unilaterally cancel and treat as avoided
the Management Contract and no arbitrariness may be attached to its exercise of this
right.
The transfer of the control of petitioner E. Razon, Inc. from petitioner Enrique Razon to
Alfredo "Bejo" Romualdez, which we have resolved to be null and void, served as the
direct link to Petitioner Companys obtaining the Management Contract. Being the direct
consequence and result of a previous illegal contract, the Management Contract itself is
null and void as provided in Article 1422 of the Civil Code. Besides, even if the
Management Contract were valid and subsisting, the violations of the contract committed
by its predecessor, Metro Port Services, Inc. which, except for the bare allegation that
these were untrue, were not specifically denied by petitioners, but on the contrary,
unwittingly admitted with the allegation that Metro Port Services Inc. mismanaged the
arrastre operations, were grave and serious to justify immediate termination of the
contract. As a general principle, the motive or particular purpose of a party in entering
into a contract does not affect the validity nor existence of the contract; an exception is
when the realization of such motive or particular purpose has been made a condition
upon which the contract is made to depend.

Spouses Litonjua v. L&R Corp.

GR No. 130722, 27 March 2000
FACTS:
This stems from loans obtained by the spouses Litonjua from L&R Corporation in the
aggregate sum of P400,000.00; P200,000.00 of which was obtained on August 6, 1974
and the remaining P200,000.00 obtained on March 27, 1978. The loans were secured by
a mortgage constituted by the spouses upon their two parcels of land and the
improvements thereon. The mortgage was duly registered with the Register of Deeds.
Spouses Litonjua sold to Philippine White House Auto Supply, Inc. (PWHAS) the parcels
of land they had previously mortgaged to L & R Corporation for the sum of P430,000.00.
Meanwhile, with the spouses Litonjua having defaulted in the payment of their loans, L &
R Corporation initiated extrajudicial foreclosure proceedings with the Ex-Oficio Sheriff of
Quezon City. The mortgaged properties were sold at public auction to L & R Corporation
as the only bidder for the amount of P221,624.58.
On April 22, 1981, L & R Corporation wrote a letter to the Sheriff, copy furnished to the
Register of Deeds, stating: (1) that the sale of the mortgaged properties to PWHAS was
without its consent, in contravention of paragraphs 8 and 9 of their Deed of Real Estate
Mortgage; and (2) that it was not the spouses Litonjua, but PWHAS, who was seeking to
redeem the foreclosed properties, when under Articles 1236 and 1237 of the New Civil
Code, the latter had no legal personality or capacity to redeem the same.
Paragraphs 8 and 9 of the subject Deed of Real Estate Mortgage read as follows
8. That the MORTGAGORS shall not sell, dispose of, mortgage, nor in any other
manner encumber the real property/properties subject of this mortgage without
the prior written consent of the MORTGAGEE;
9. That should the MORTGAGORS decide to sell the real property/properties
subject of this mortgage, the MORTGAGEE shall be duly notified thereof by the
MORTGAGORS, and should the MORTGAGEE be interested to purchase the
same, the latter shall be given priority over all the other prospective buyers;
On the other hand, the spouses Litonjua asked the Register of Deeds to annotate their
Certificate of Redemption as an adverse claim on the titles of the subject properties on
account of the refusal of L & R Corporation to surrender the owners duplicate copies of
the titles to the subject properties. With the refusal of the Register of Deeds to annotate
their Certificate of Redemption, the Litonjua spouses filed a Petition on July 17, 1981
against L & R Corporation for the surrender of the owners duplicate of Transfer
Certificates of Title No. 197232 and 197233 before the then CFI.
ISSUE:
Whether or not the provision of paragraph no. 9 of the subject mortgage contract is null
and void ab initio.
HELD:

NO
RATIO:
At any rate, even if we were to entertain petitioners objections, the same will still be held
as without merit. To be sure, paragraphs 8 and 9 are separate provisions of the subject
contract and the invalidity of one does not automatically render the other invalid. Indeed,
Article 1420 of the New Civil Code holds that (I)n case of a divisible contract, if the
illegal terms can be separated from the legal ones, the latter may be enforced. Contrary
to the suppositions of petitioners, the invalid stipulation is independent from the rest of
the terms of the agreement and can easily be separated therefrom without doing
violence to the manifest intention of the parties. This being so, the legal terms of the
contract, including paragraph 9, can be enforced.

Ramirez v. Ramirez
GR No. 165088, 17 March 2006
FACTS:
On October 8, 1996, petitioner filed a complaint against respondent Ma. Cecilia Ramirez
before the Regional Trial Court of Olongapo City (RTC) for annulment of a Deed of
Donation, a waiver of possessory rights, and Transfer of Certificate of Titles. Petitioner
claimed that respondent caused the execution of the Deed of Donation and Waiver of
Possessory Rights to acquire ownership over the land and improvements.
Using the Deed of Donation, respondent allegedly succeeded in having the TCTs
cancelled and issued in her name. Furthermore, petitioner alleged that with the Waiver of
Possessory Rights, respondent was able to cause the Office of the City Assessor to
transfer to her name the tax declarations on the improvements in the land.
The Deed of Donation and Waiver of Possessory Rights were allegedly executed by
petitioner and his wife, Dolores Ramirez, on January 29, 1993 and October 24, 1995,
respectively. However, the death certificate presented showed that Dolores died on April
5, 1991 and, consequently, could not have executed the assailed documents.
After trial, the RTC ruled that the signature of Dolores on the Deed of Donation was a
forgery while her signature on the Waiver of Possessory Rights was genuine. It also
found petitioners signatures on both documents to be genuine. It then held petitioner
and respondent in pari delicto, as participants to the forgery, and ruled that they must
bear the consequences of their acts without cause of action against each other in
accordance with Article 1412 of the Civil Code. The RTC dismissed the complaint.
Petitioner went to the CA, which held that Dolores signatures on the Deed of Donation
as well as her alleged signature appearing in the Waiver of Possessory Rights were
forgeries.
ISSUE:
Whether or not petitioner and respondent are in pari delicto?
HELD:
YES
RATIO:
As one of the modes of acquiring ownership, Title 3, Book III, of the Civil Code, governs
donations. Donations inter vivos are additionally governed by the general provisions on
obligations and contracts in all that is not determined by the title governing donations.
Hence, the rule on pari delicto under the general provisions of contracts is applicable to
the present case.
Where the act involved constitutes a criminal offense, the applicable provision is Article
1411: Petitioner alleged that the signatures of Dolores on the Deed of Donation and on
the Waiver of Possessory Rights are a forgery. Respondent does not deny this

allegation. Forging a persons signature corresponds to the felony of falsification under

Section 4, Title IV of the Revised Penal Code. Hence, the act of forging Dolores
signature constitutes a criminal offense under the terms of Article 1411 of the Civil Code.
The Court now proceeds to determine if there is ground to hold the parties in pari delicto
under Article 1411 of the Civil Code. Under this article, it must be shown that the nullity
of the contract proceeds from an illegal cause or object, and the act of executing said
contract constitutes a criminal offense. The second requirement has already been
discussed and is found to be present.
Object and cause are two separate elements of a donation and the illegality of either
element gives rise to the application of the doctrine of pari delicto. Object is the subject
matter of the donation, while cause is the essential reason, which moves the parties to
enter into the transaction. Petitioner wrongly asserts that the donated real properties are
both the object and cause of the donation. In fact, the donated properties pertain only to
the object. Therefore, while he is correct in stating that the object of the donation is legal,
his argument misses the point insofar as the cause is concerned. The cause, which
moved the parties to execute the Deed of Donation and the Waiver of Possessory
Rights, the motive behind the forgery, is the desire to evade the payment of publication
expenses and inheritance taxes, which became due upon the death of Dolores.
Undeniably, the Deed of Donation and the Waiver of Possessory Rights were executed
for an illegal cause, thus completing all the requisites for the application of Article 1411.

Huist v. PR Builders
GR No. 156364, 3 September 2007
FACTS:
The Petitioner and his spouse, both Dutch Nationals, entered into a Contract to Sell with
PR Builders, Inc. to purchase a 210-sq m residential unit in the respondent's townhouse
project in Batangas. When PR Builder's failed to comply with their verbal promise to
complete the project, the spouses Hulst filed a complaint for rescission of contract with
interest, damages and attorney's fees before the Housing and Land Regulatory Board
(HLURB), which then was granted. A Writ of Execution was then addressed to the ExOfficio Sheriff of the RTC of Tanauan, Batangas, but upon the complaint of the
respondent, the levy was set aside, leaving only the respondent's personal properties to
be levied first. The Sheriff set a public auction of the said levied properties, however, the
respondent filed a motion to quash Writ of levy on the ground that the sheriff made an
over levy since the aggregate appraised value of the properties at P6,500 per sq m is
P83,616,000. Instead of resolving the objection of the respondent's regarding the
auction, the Sheriff proceeded with the auction since there was no restraining order from
the HLURB. The 15 parcels of land was then awarded to Holly Properties Realty at a bid
of P5,450,653.
On the same day, the Sheriff remitted the legal fees and submitted to contracts of sale to
HLURB, however, he then received orders to suspend proceedings on the auction for
the reason that the market value of the properties was not fair. There was disparity
between the appraised value and the value made by the petitioner and the Sheriff, which
should've been looked into by the Sheriff before making the sale. While an inadequacy in
price is not a ground to annul such sale, the court is justified to such intervention where
the price shocks the conscience.
ISSUE:
Whether or not the spouses Hulst's request for damages is actionable?
HELD:
NO
RATIO:
Under Article 12, Sec.7 of the 1987 Constitution, foreign nationals, the spouses Hulst,
are disqualified form owning real property. However, under article 1414 of the Civil Code,
one who repudiates the agreement and demands his money before the illegal act has
taken place is entitled to recover. Petitioner is therefore entitled to recover what he has
paid, although the basis of his claim for rescission, which was granted by the HLURB,
was not the fact that he is not allowed to acquire private land under the Philippine
Constitution. But petitioner is entitled to the recovery only of the amount of
P3,187,500.00, representing the purchase price paid to respondent. No damages may
be recovered on the basis of a void contract; being nonexistent, the agreement produces
no juridical tie between the parties involved. Further, petitioner is not entitled to actual as
well as interests thereon, moral and exemplary damages and attorney's fees.

Frenzel v. Catito
GR No. 143958, 11 July 2003
FACTS:

Petitioner Alfred Fritz Frenzel is an Australian citizen of German descent. He

arrived in the Philippines and engaged in businesses. After two years, he married
Teresita Santos, a Filipino citizen. In 1981, Alfred and Teresita separated from
bed and board without obtaining a divorce.
Sometime in 1983 he arrived in Sydney and met Ederlina Catito, a Filipina and a
native of Bajada, Davao City. Unknown to Alfred, she was married to Klaus Muller
when she was in Germany.
Alfred was so enamored with Ederlina that he persuaded her to stop working,
move to the Philippines and get married.
They bought several properties in Manila and Davao using the money of Alfred.
He also sold all his properties in Australia before moving in the country. They also
opened an HSBC Savings Account in Hong Kong in the name of Ederlina.
Ederlina went to Germany to file a divorce however Ederlina had not been able to
secure a divorce from Klaus. The latter could charge her for bigamy and could
even involve Alfred, who himself was still married.
Alfred and Ederlinas relationship started deteriorating. They lived separately.
Alfred filed a Complaint dated October 28, 1985, against Ederlina, with the
Regional Trial Court of Quezon City, for recovery of real and personal properties
located in Quezon City and Manila. Alfred alleged, inter alia, that Ederlina,
without his knowledge and consent, managed to transfer funds from their joint
account in HSBC Hong Kong, to her own account with the same bank.
In the meantime, on November 7, 1985, Alfred also filed a complaint against
Ederlina with the Regional Trial Court, Davao City, for specific performance,
declaration of ownership of real and personal properties, sum of money, and
damages.
Quezon City Trial Court decided in favor of Alfred but the Davao Trial Court is in
favor of Ederlina. The trial court ruled that based on documentary evidence, the
purchaser of the three parcels of land subject of the complaint was Ederlina. The
court further stated that even if Alfred was the buyer of the properties, he had no
cause of action against Ederlina for the recovery of the same because as an
alien, he was disqualified from acquiring and owning lands in the Philippines. The
sale of the three parcels of land to the petitioner was null and void ab initio.
Applying the pari delicto doctrine, the petitioner was precluded from recovering
the properties from the respondent.
CA affirmed the decision of Davao City Court.

ISSUE:
Whether or not both parties are in pari delicto?
HELD:
NO

RATIO:
Section 14, Article XIV of the 1973 Constitution provides, as follows:
Save in cases of hereditary succession, no private land shall be transferred or conveyed
except to individuals, corporations, or associations qualified to acquire or hold lands in
the public domain.
Lands of the public domain, which include private lands, may be transferred or conveyed
only to individuals or entities qualified to acquire or hold private lands or lands of the
public domain. Aliens, whether individuals or corporations, have been disqualified from
acquiring lands of the public domain. Hence, they have also been disqualified from
acquiring private lands.
Even if, as claimed by the petitioner, the sales in question were entered into by him as
the real vendee, the said transactions are in violation of the Constitution; hence, are null
and void ab initio. A contract that violates the Constitution and the law is null and void
and vests no rights and creates no obligations. It produces no legal effect at all. The
petitioner, being a party to an illegal contract, cannot come into a court of law and ask to
have his illegal objective carried out. One who loses his money or property by knowingly
engaging in a contract or transaction, which involves his own moral turpitude, may not
maintain an action for his losses. To him who moves in deliberation and premeditation,
the law is unyielding. The law will not aid either party to an illegal contract or agreement;
it leaves the parties where it finds them. Under Article 1412 of the New Civil Code, the
petitioner cannot have the subject properties deeded to him or allow him to recover the
money he had spent for the purchase thereof. Equity as a rule will follow the law and will
not permit that to be done indirectly which, because of public policy, cannot be done
directly. Where the wrong of one party equals that of the other, the defendant is in the
stronger position it signifies that in such a situation, neither a court of equity nor a
court of law will administer a remedy. The rule is expressed in the maxims: EX DOLO
MALO NON ORITUR ACTIO and IN PARI DELICTO POTIOR EST CONDITIO
DEFENDENTIS

Acabal v. Acabal
GR No. 148376, 31 March 2005
FACTS:
Alejandro Acabal and Felicidad Balasbas executed a Deed of Absolute Sale over a
parcel of land in favor of their son, respondent Villaner Acabal (Villaner). Villaner was
then married to Justiniana Lipajan. When he became a widower, he executed a deed
conveying the same parcel of land in favor of petitioner Leonardo Acabal
(Leonardo). However, Villaner later claims that the document he signed was a document
captioned Lease Contract, wherein he leased for the property for 3 years to Leonardo.
Villaner filed a complaint with the Regional Trial Court (RTC) against Leonardo and
Ramon Nicolas to whom Leonardo in turn conveyed the property for annulment of the
deeds of sale.
The RTC ruled in favor of Acabal and dismissed the complaint. The Court of Appeals
(CA) however reversed the decision of RTC and held that the Deed of Absolute Sale
executed by Villaner in favor of Leonardo was simulated and fictitious.
ISSUE:
Whether or not the petitioner and the respondent are in pari delicto.
HELD:
YES
RATIO:
Even assuming that the disposition of the property by Villaner was contrary to law, he
would still have no remedy under the law as he and Leonardo were in pari delicto,
hence, he is not entitled to affirmative relief, one who seeks equity and justice must
come to court with clean hands. In pari delicto potior est conditio defendentis. The
proposition is universal 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. The
rule has sometimes been laid down as though it were equally universal, that where the
parties are in pari delicto, no affirmative relief of any kind will be given to one against the
other.
The principle of pari delicto, however, is not absolute, admitting an exception under
Article 1416 of the Civil Code. ART. 1416. When the agreement is not illegal per se but is
merely prohibited, and the prohibition by the law is designed for the protection of the
plaintiff, he may, if public policy is thereby enhanced, recover what he has paid or
delivered. Under this article, recovery for what has been paid or delivered pursuant to an
inexistent contract is allowed only when the following requisites are met: (1) the contract
is not illegal per se but merely prohibited; (2) the prohibition is for the protection of the
plaintiffs; and (3) if public policy is enhanced thereby. The exception is unavailing in the
instant case, however, since the prohibition is clearly not for the protection of the plaintifflandowner but for the beneficiary farmers.

Angel Jose v. Chelda Enterprises

GR No. L-25704, 24 April 1968
FACTS:
Plaintiff corporation filed suit in the Court of First Instance of Manila on May 29, 1964
against the partnership Chelda Enterprises and David Syjueco, its capitalist partner, for
recovery of alleged unpaid loans in the total amount of P20,880.00, with legal interest
from the filing of the complaint, plus attorney's fees of P5,000.00.
Alleging that post dated checks issued by defendants to pay said account were
dishonored, that defendants' industrial partner, Chellaram I. Mohinani, had left the
country, and that defendants have removed or disposed of their property, or are about to
do so, with intent to defraud their creditors, preliminary attachment was also sought.
Answering, defendants averred that they obtained four loans from plaintiff in the total
amount of P26,500.00, of which P5,620.00 had been paid, leaving a balance of
P20,880.00; that plaintiff charged and deducted from the loan usurious interests thereon,
at rates of 2% and 2.5% per month, and, consequently, plaintiff has no cause of action
against defendants and should not be permitted to recover under the law.
A counterclaim for P2,000.00 attorney's fees was interposed. Plaintiff filed on June 25,
1964 an answer to the counterclaim, specifically denying under oath the allegations of
usury.
ISSUE:
In a loan with usurious interest, may the creditor recover the principal of the loan?
HELD:
YES
RATIO:
Art. 1411. When the nullity proceeds from the illegality of the cause or object of the
contract, and the act constitutes criminal offense, both parties being in pari delicto, they
shall have no action against each other, and both shall be prosecuted. Moreover, the
provisions of the Penal Code relative to the disposal of effects or instruments of a crime
shall be applicable to the things or the price of the contract.
This rule shall be applicable when only one of the parties is guilty; but the innocent one
may claim what he has given, and shall not be bound to comply with his promise.
The Supreme Court does not agree with such reasoning. Article 1411 of the New Civil
Code is not new; it is the same as Article 1305 of the Old Civil Code. Therefore, said
provision is no warrant for departing from previous interpretation that, as provided in the
Usury Law (Act No. 2655, as amended), a loan with usurious interest is not totally void
only as to the interest.

True, as stated in Article 1411 of the New Civil Code, the rule of pari delicto applies
where a contract's nullity proceeds from illegality of the cause or object of said contract.
However, appellants fail to consider that a contract of loan with usurious interest consists
of principal and accessory stipulations; the principal one is to pay the debt; the
accessory stipulation is to pay interest thereon. And said two stipulations are divisible in
the sense that the former can still stand without the latter. Article 1273, Civil Code,
attests to this: "The renunciation of the principal debt shall extinguish the accessory
obligations; but the waiver of the latter shall leave the former in force."