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Republic of the Philippines


G.R. No. 107069 July 21, 1994

REMOQUILLO, petitioners,
Rosendo O. Chaves for petitioners.
Emmanuel P. Leonardo for private resondent.

This is a petition for review on certiorari of: (1) the Decision 1 of respondent Court Appeals in
CA-G.R. CV No. 26735, entitled "Heirs of Leandro Oliver, represented by Purita Oliver and
Pedro Remoquillo, Plaintiffs-Appellants, versus Jose Seradilla and National Housing Authority,
Defendants-Appellees," which affirmed the Decision 2 of the Regional Trial Court of Bian,
Laguna; and (2) the Resolution 3 denying the motion for reconsideration, for lack of merit.
The findings of fact by the trial court which were adopted by respondent Court of Appeals
are as follows:
In August, 1939, the Republic of the Philippines acquired from Colegio de San
Jose the whole of the Tunasan Homesite.
In that same year, Engineer Honorato Maria, authorized by the Bureau of
Lands, conducted a resurvey of the whole Tunasan Homesite, San Pedro,
Laguna on the basis of the Bureau's 1939 Master List (Exhibit "20-A"; p. 13
TSN, June 22, 1989).
On the basis of the 1939 resurvey, the relative positions of Lots 19, 20, 22, 23,
24, 25, 26 and 27 were plotted with the vacant lot adjoining the Landayan
Creek having been designated as the Lot 24.
On July 21, 1955, the government through Zoilo Castrillo, then Director of
Lands, entered into and executed an Agreement to Sell (KASUNDUAN SA
PAGBIBILI) with Patricio Seradilla, married to Rosa Catalan, covering several
parcels of land denominated as Lots 9, 9-A, 22, 23, 25 and 26 of Blocks 61 and
87 of the Tunasan Homesite, San Pedro, Laguna (Exh. "1").
During these times, Leandro Oliver, predecessor of plaintiffs and brother of
Patricio Seradilla and thus an uncle of defendant Jose Seradilla, was said to
have been occupying Lot 24, Block 87.
On September 15, 1955, Patricio Seradilla died.

On November 6, 1959, the heirs of Patricio Seradilla namely: Soledad, Paz,

Esperanza, Pilar, all surnamed Seradilla, but without the participation of Jose
Seradilla, allegedly for the good location and valuability of Lot 24, Block 87 to
the use of Lots 25, 26 and 27, Block 87, entered into an agreement with their
uncle Leandro Oliver, consolidating the latter's Lot 24 Block 87 with the lots
left by Patricio Seradilla Lots 22, 23, 25 and 26 Block 87 of the Tunasan
Homesite, San Pedro, Laguna, and dividing the same equally among them
without, however, touching the part occupied by heir Jose Seradilla.
On July 9, 1961, a sketch representing the agreed partition of the mentioned
lots with the respective designation of each was executed and signed by all
the heirs including Jose Seradilla and Leandro Oliver (Exh. "E-2").
Apparently, pursuant to the Agreement of November 6, 1959 and the
supplemental sketch drafted on July 9, 1961 (Exh. "E-2"), Leandro Oliver
vacated his Lot 24, Block 87 and occupied portion of Lot 22, Block 87. This
same lot was later designated as new Lot 26, Block 87 which was subdivided
into two lots designated as Lots 26 and 30, Block 21 (Exh. "7").
On September 19, 1961, relying on the Agreement of 1959, Leandro Oliver for
a consideration of P500.00, sold to plaintiff Pedro Remoquillo one-half (1/2)
portion of Lot 26, Block 87 (portion of old Lot 22 Block 87) which was
henceforth designated as Lot 30 Block 21. This lot, therefore, originated and
was a portion of old Lot 22, Block 87 (Exhs. "7" and "8").
In May 1983, (sic 1963) and upon the request of the heirs of Patricio Seradilla,
Engineer Honorato Sta. Maria made a resurvey of the lots recorded in the
name of Patricio Seradilla (Exh. "18").
On June 30, 1963, visibly discontented, Jose Seradilla urged his co-heirs to
execute a new sketch based on the 1983 (sic 1963) resurvey of Engineer Sta.
Maria excluding Leandro Oliver from the partition and adjudicating upon
defendant Jose Seradilla Lots 14, 14-A Block 61, and Lots 26 and 29 Block 87.
Thus, on July 5, 1963, the heirs of Patricio Seradilla formalized their agreement
and executed an Agreement of Partition revoking the Agreement of 1959 and
subdividing the parcels of land left by their parents in the following manner
(Exhibit "18"):
To Soledad Lot 24, Block 87
Paz Lot 25, Block 87
Jose Lots 14, 14-A
Block 61
Lots 26 and 29,
Block 87
Rosario Lots 10 and 10-A
Block 61
Lot 22, Block 87
Esperanza Lots 23, Block 87
Pilar (deceased) Lot 27, Block 87
On July 6, 1966, pursuant to the survey conducted on September 2, 1951 to
March 4, 1952, September 1, 1956 and July 31, 1958 to April 10, 1962, the
Director of Lands approved the Subdivision Plan of the Tunasan Homesite and
Block 87 was designated as Block 21 (Exh. "20-B").
Several years later, on August 13, 1970, the heirs of Patricio Seradilla again
executed an Extra-judicial Partition of the same parcels of land duly published
for three (3) consecutive times in a newspaper (sic) of general circulation

(Exh. "N-5") but omitted to include Lots 26 and 30 Block 21 (Exhs. "N"; "N-1"
to "N-4") due to an alleged typographical error and they being unaware of the
existence of Lot 30 (pp. 9 to 12, TSN, October 20, 1988).
On January 16, 1980, on the basis of the representation of Jose Seradilla that
Lots 26 and 30, Block 21 were included in the partition (Exh. "M"), the National
Housing Authority through J.S. de Vera, Manager, Estate Management
Department, sold to Jose Seradilla Lots 26 and 30, Block 21, Psd 74516 of
the Tunasan Homesite, San Pedro, Laguna (Exh. "Q"; "Q-1" to "Q-5", inclusive,
Exhs. "4"; "4-A"; "5" and "5-A").
On January 25, 1980, Transfer of Certificates Title No. T-67081 and T-67082
covering Lots 30 and 26, respectively, were issued in favor of herein
defendant Jose Seradilla (Exhs. "R" and "S"). 4
On June 4, 1982, petitioners filed a complaint for Annulment of Title with Damages against
respondents before the Regional Trial Court of Bian, Laguna, Branch XXV, docketed as Civil
Case No. B-1863. They sought to annul two (2) administrative patents issued by respondent
National Housing Authority (NHA) to respondent Jose Seradilla. They asserted preferential
rights over the same as heirs and vendees of Leandro Oliver, respectively. These parcels of
land were duly registered in the name of Jose Seradilla and recorded as Transfer Certificates
of Title No. T-67081 and T-67082 in the Registry of Deeds of Calamba, Laguna. 5
Respondents answered the complaint. On February 16, 1990, the court rendered judgment
against petitioners, the dispositive portion of which reads:
IN THE LIGHT OF THE FOREGOING, judgment is hereby rendered in favor of the
defendants and against the plaintiffs dismissing the complaint and upholding
the validity of Transfer of Certificates of Title No. T-67081 and T-67082 of the
Registry of Deeds of Laguna covering Lots 30 and 26, respectively, of the
Tunasan Homesite San Pedro, Laguna in the name of Jose Seradilla.
Consequently, plaintiffs or their assigns are directed to vacate and surrender
to defendant Seradilla possession of Lots 26 and 30, Block 21 of the Tunasan
Homesite, San Pedro, Laguna covered by the above mentioned Transfer
Certificates of Title.
It appearing that the case was not filed with any malicious intention on the
part of the plaintiffs, defendants' counterclaims are likewise dismissed for lack
of merits. (sic)

On appeal, the respondent Court of Appeals affirmed the controverted decision of the trial
court. On September 11, 1992, petitioners' motion for reconsideration was denied for lack of
Hence, this petition.
Petitioners raise the following issues, viz:


We rule for private respondents.
The petition at bench can succeed only by a showing that the Consolidation and Partition
Agreement dated November 6, 1959 is valid. We uphold the respondent court in ruling that it
is void on the ground that it was made within the five (5) year period prohibiting the sale,
assignment, encumbrance, mortgage, or transfer of land acquired under free patent or
homestead as mandated by C.A. 141, section 118, as amended by C.A. 496. 7Indeed, this
legal prohibition is expressly recited in the Agreement to Sell dated July 21, 1955 8 between
the government and the late Patricio Seradilla, viz:
12. The Applicant shall not sell, assign, encumber, mortgage, transfer, or in
any other manner affect his rights under this contract or in the property
subject hereof without first obtaining the written consent of the Administration
and this condition shall subsist until the lapse of five (5) years from the date of
the execution of the final deed of sale in his favor and shall be annotated as
an encumbrance on the certificate of title of the property that may be issued
in his favor.
13. This Agreement shall be binding upon the heirs, executors, administrators,
successors, and assigns of the respective parties hereto.
As the Consolidation and Partition Agreement contravened section 118, C.A. 141, as
amended by C.A. 496, it is null and void pursuant to paragraph 7, Article 1409 of the Civil
Code. 9
In this light, the reliance of the petitioners on the sketch of July 9, 1961 signed by private
respondent Jose Seradilla allegedly confirming the Consolidation and Partition Agreement
dated November 6, 1959 is hardly of any moment. As Article 1409 of the Civil Code, op.
cit., expressly states that void contracts cannot be ratified. Needless to state, the July 5,
1963 Agreement of the heirs of Patricio Seradilla revoking the void Consolidation and
Partition Agreement dated November 6, 1959 cannot be faulted.
Next, petitioners further allege that Lots 26 and 30 were not among those properties left by
decedent Patricio Seradilla to his heirs. The grant of patents in favor of private respondent
Seradilla covering these lots was therefore erroneous, it is urged.
Again, we are not persuaded for as correctly observed by the respondent court:


The omission to specifically mention Lots 26 and Lot 30, Block 21, is more
apparent than real, because, as we explained above, said Lots 26 and 30,
Block 21 were the subdivided lots of new Lot 26, Block 87, which was formerly
Lot 22, Block 21, as mentioned. Besides, said Lot 22, Block 87, was among the
Lots which were awarded to Patricio Seradilla or were subject of the Contract

to Sell of July 21, 1955 between Patricio and the government (Exhibit 1). Block
21 was formerly Block 87 (Exhibits 7 and 8).
Lastly, petitioners contend that private respondent is disqualified from being a patentee of
the lots in question. They contend that their predecessor-in-interest, Leandro Oliver, has
better qualifications. This submission was rejected by the trial court which found and
ruled: 11
FIRSTLY, Leandro Oliver failed to file the requisite application over either Lot
24 where he allegedly stayed originally but which was later identified as the
vacant lot adjacent to the Landayan creek (Exh. "20-A") and was during the
1951-1962 survey, eroded by the Landayan creek (Exh. "20-B", p. 30, TSN,
June 22, 1989; or Lot 26, Blocks 87) where he supposedly transferred in
exchange for Lot 24 per the Agreement of 1959.
xxx xxx xxx
SECONDLY, the lots subject matter of the Agreement of November 6, 1959
were awarded to Patricio Seradilla, pursuant to an Agreement to Sell dated
July 21, 1955 whereby the latter agreed to buy the parcels of land therein
mentioned restricted by the conditions laid down in such contract, pertinent of
which are paragraphs 12 and 13 (Exh. "1").
xxx xxx xxx
THIRDLY, Leandro Oliver died on December 23, 1976, 13 years from the time
he had learned of the revocation of their original agreement. Yet, he chose to
remain silent; he did not move to protest his right and slept thereon. He must,
therefore, suffer the ultimate effects of laches. The right of defendant
Seradilla over Lots 26 and 30 (portion of lot 22) must be put to rest and be
Obviously, petitioners are grasping on questions of fact. Our unbending jurisprudence
forbids us to entertain questions of fact in a petition for review on certiorari under Rule 45 of
the Rules of Court. 12 This rule finds stronger application in the petition at bench considering
that it involves facts established in administrative proceedings and confirmed by both trial
court and the respondent court.
IN VIEW WHEREOF, the petition is DENIED there being no showing of any reversible error
committed by the respondent court. Costs against petitioners.
Republic of the Philippines

G.R. No. 97785 March 29, 1996

COURT OF APPEALS and RORY W. LIM, respondents.

This is a petition for review on certiorari seeking the reversal of the Decision of the Court of
Appeals in CA-G.R. No. 18843 promulgated on July 30, 1990, and the Resolution dated March
11, 1991, affirming with modification the judgment of the Regional Trial Court of Gingoog
City which held petitioner Philippine Commercial International Bank (PCIB) liable for
damages resulting from its breach of contract with private respondent Rory W. Lim.
Disputed herein is the validity of the stipulation embodied in the standard application
form/receipt furnished by petitioner for the purchase of a telegraphic transfer which relieves
it of any liability resulting from loss caused by errors or delays in the course of the discharge
of its services.
The antecedent facts are as follows:
On March 13, 1986, private respondent Rory Lim delivered to his cousin Lim Ong Tian PCIB
Check No. JJJ 24212467 in the amount of P200,000.00 for the purpose of obtaining a
telegraphic transfer from petitioner PCIB in the same amount. The money was to be
transferred to Equitable Banking Corporation, Cagayan de Oro Branch, and credited to
private respondent's account at the said bank. Upon purchase of the telegraphic transfer,
petitioner issued the corresponding receipt dated March 13, 1986 [T/T No. 284] 1 which
contained the assailed provision, to wit:
xxx xxx xxx
In case of fund transfer, the undersigned hereby agrees that such transfer will be made
without any responsibility on the part of the BANK, or its correspondents, for any loss
occasioned by errors, or delays in the transmission of message by telegraph or cable
companies or by the correspondents or agencies, necessarily employed by this BANK in the
transfer of this money, all risks for which are assumed by the undersigned.
Subsequent to the purchase of the telegraphic transfer, petitioner in turn issued and
delivered eight (8) Equitable Bank checks 2 to his suppliers in different amounts as payment
for the merchandise that he obtained from them. When the checks were presented for
payment, five of them bounced for insufficiency of funds, 3 while the remaining three were
held overnight for lack of funds upon presentment. 4 Consequent to the dishonor of these
checks, Equitable Bank charged and collected the total amount of P1,100.00 from private
respondent. The dishonor of the checks came to private respondent's attention only on April
2, 1986, when Equitable Bank notified him of the penalty charges and after receiving letters
from his suppliers that his credit was being cut-off due to the dishonor of the checks he
Upon verification by private respondent with the Gingoog Branch Office of petitioner PCIB, it
was confirmed that his telegraphic transfer (T/T No. 284) for the sum of P200,000.00 had not
yet been remitted to Equitable Bank, Cagayan de Oro branch. In fact, petitioner PCIB made
the corresponding transfer of funds only on April 3, 1986, twenty one (21) days after the
purchase of the telegraphic transfer on March 13, 1986.
Aggrieved, private respondent demanded from petitioner PCIB that he be compensated for
the resulting damage that he suffered due to petitioner's failure to make the timely transfer
of funds which led to the dishonor of his checks. In a letter dated April 23, 1986, PCIB's
Branch Manager Rodolfo Villarmia acknowledged their failure to transmit the telegraphic
transfer on time as a result of their mistake in using the control number twice and the
petitioner bank's failure to request confirmation and act positively on the disposition of the
said telegraphic transfer. 5

Nevertheless, petitioner refused to heed private respondent's demand prompting the latter
to file a complaint for damages with the Regional Trial Court of Gingoog City 6 on January 16,
1987. In his complaint, private respondent alleged that as a result of petitioner's total
disregard and gross violation of its contractual obligation to remit and deliver the sum of Two
Hundred Thousand Pesos (P200,000.00) covered by T/T No. 284 to Equitable Banking
Corporation, Cagayan de Oro Branch, private respondent's checks were dishonored for
insufficient funds thereby causing his business and credit standing to suffer considerably for
which petitioner should be ordered to pay damages. 7
Answering the complaint, petitioner denied any liability to private respondent and
interposed as special and affirmative defense the lack of privity between it and private
respondent as it was not private respondent himself who purchased the telegraphic transfer
from petitioner. Additionally, petitioner pointed out that private respondent is nevertheless
bound by the stipulation in the telegraphic transfer application/form receipt 8 which provides:
. . . . In case of fund transfer, the undersigned hereby agrees that such transfer will be made
without any responsibility on the part of the BANK, or its correspondents, for any loss
occasioned by errors or delays in the transmission of message by telegraph or cable
companies or by correspondents or agencies, necessarily employed by this BANK in the
transfer of this money, all risks for which are assumed by the undersigned.
According to petitioner, they utilized the services of RCPI-Gingoog City to transmit the
message regarding private respondent's telegraphic transfer because their telex machine
was out of order at that time. But as it turned out, it was only on April 3, 1986 that
petitioner's Cagayan de Oro Branch had received information about the said telegraphic
transfer. 9
In its decision dated July 27, 1988 10 the Regional Trial Court of Gingoog City held petitioner
liable for breach of contract and struck down the aforecited provision found in petitioner's
telegraphic transfer application form/receipt exempting it from any liability and declared the
same to be invalid and unenforceable. As found by the trial court, the provision amounted to
a contract of adhesion wherein the objectionable portion was unilaterally inserted by
petitioner in all its application forms without giving any opportunity to the applicants to
question the same and express their conformity thereto. 11 Thus, the trial court adjudged
.petitioner liable to private respondent for the following amounts:
WHEREFORE, judgment is hereby rendered in favor of plaintiff and against the defendant,
ordering the latter to pay the former as follows:
P 960,000.00 as moral damages;
P 50,000.00 as exemplary damages;
P 40,000.00 as attorney's fees; and
P 1,100.00 as reimbursement for the surcharges paid by plaintiff to the Equitable Banking
Corporation, plus costs, all with legal interest of 6% per annum from the date of this
judgment until the same shall have been paid in full. 12
Upon appeal by petitioner to the Court of Appeals, respondent court affirmed with
modifications the judgment of the trial court and ordered as follows:
WHEREFORE, premises considered, judgment is hereby rendered affirming the appealed
decision with modification, as follows:
The defendant-appellant is ordered to pay to the plaintiff-appellee the following:
1. The sum of Four Hundred Thousand (P400,000.00) Pesos as/for moral damages;
2. The sum of Forty Thousand (P40,000.00) Pesos as exemplary damage to serve as an
example for the public good;

3. The sum of Thirty Thousand (P30,000.00) Pesos representing attorney's fees;

4. The sum of One Thousand One Hundred (P1,100.00) Pesos as actual damage, and
5. To pay the costs.
A motion for reconsideration was filed by petitioner but respondent Court of Appeals denied
the same. 14
Still unconvinced, petitioner elevated the case to this Court through the instant petition for
review on certiorariinvoking the validity of the assailed provision found in the application
form/receipt exempting it from any liability in case of loss resulting from errors or delays in
the transfer of funds.
Petitioner mainly argues that even assuming that the disputed provision is a contract of
adhesion, such fact alone does not make it invalid because this type of contract is not
absolutely prohibited. Moreover, the terms thereof are expressed clearly, leaving no room
for doubt, and both contracting parties understood and had full knowledge of the same.
Private respondent however contends that the agreement providing non-liability on
petitioner's part in case of loss caused by errors or delays despite its recklessness and
negligence is void for being contrary to public policy and interest. 15
A contract of adhesion is defined as one in which one of the parties imposes a ready-made
form of contract, which the other party may accept or reject, but which the latter cannot
modify. 16 One party prepares the stipulation in the contract, while the other party merely
affixes his signature or his "adhesion" thereto, 17 giving no room for negotiation and
depriving the latter of the opportunity to bargain on equal footing. 18 Nevertheless, these
types of contracts have been declared as binding as ordinary contracts, the reason being
that the party who adheres to the contract is free to reject it entirely. 19 It is equally
important to stress, though, that the Court is not precluded from ruling out blind adherence
to their terms if the attendant facts and circumstances show that they should be ignored for
being obviously too one-sided. 20
On previous occasions, it has been declared that a contract of adhesion may be struck down
as void and unenforceable, for being subversive to public policy, only when the weaker party
is imposed upon in dealing with the dominant bargaining party and is reduced to the
alternative of taking it or leaving it, completely deprived of the opportunity to bargain on
equal footing. 21 And when it has been shown that the complainant is knowledgeable enough
to have understood the terms and conditions of the contract, or one whose stature is such
that he is expected to be more prudent and cautious with respect to his transactions, such
party cannot later on be heard to complain for being ignorant or having been forced into
merely consenting to the contract. 22
The factual backdrop of the instant case, however, militates against applying the aforestated
pronouncements. That petitioner failed to discharge its obligation to transmit private
respondent's telegraphic transfer on time in accordance with their agreement is already a
settled matter as the same is no longer disputed in this petition. Neither is the finding of
respondent Court of Appeals that petitioner acted fraudulently and in bad faith in the
performance of its obligation, being contested by petitioner. Perforce, we are bound by these
factual considerations.
Having established that petitioner acted fraudulently and in bad faith, we find it implausible
to absolve petitioner from its wrongful acts on account of the assailed provision exempting it
from any liability. In Geraldez vs. Court of Appeals, 23 it was unequivocally declared that
notwithstanding the enforceability of a contractual limitation, responsibility arising from a

fraudulent act cannot be exculpated because the same is contrary to public policy. Indeed,
Article 21 of the Civil Code is quite explicit in providing that "[a]ny person who willfully
causes loss or injury to another in a manner that is contrary to morals, good customs or
public policy shall compensate the latter for the damage". Freedom of contract is subject to
the limitation that the agreement must not be against public policy and any agreement or
contract made in violation of this rule is not binding and will not be enforced. 24
The prohibition against this type of contractual stipulation is moreover treated by law as void
which may not be ratified or waived by a contracting party. Article 1409 of the Civil Code
Art. 1409. The following contracts are inexistent and void from the beginning:
(1) Those whose cause, object or purpose is contrary to law, morals, good customs, public
order or public policy;
xxx xxx xxx
These contracts cannot be ratified. Neither can the right to set up the defense of illegality be
Undoubtedly, the services being offered by a banking institution like petitioner are imbued
with public interest. 25 The use of telegraphic transfers have now become commonplace
among businessmen because it facilitates commercial transactions. Any attempt to
completely exempt one of the contracting parties from any liability in case of loss
notwithstanding its bad faith, fault or negligence, as in the instant case, cannot be
sanctioned for being inimical to public interest and therefore contrary to public policy.
Resultingly, there being no dispute that petitioner acted fraudulently and in bad faith, the
award of moral 26 and exemplary damages were proper.
But notwithstanding petitioner's liability for the resulting loss and damage to private
respondent, we find the amount of moral damages adjudged by respondent court in the sum
of P400,000.00 exorbitant. Bearing in mind that moral damages are awarded, not to penalize
the wrongdoer, but rather to compensate the claimant for the injuries that he may have
suffered, 27 we believe that an award of Two Hundred Thousand Pesos (P200,000.00) is
reasonable under the circumstances.
WHEREFORE, subject to the foregoing modification reducing the amount awarded as moral
damages to the sum of Two Hundred Thousand Pesos (P200,000.00), the appealed decision
is hereby AFFIRMED.
Republic of the Philippines
G.R. No. 111448

January 16, 2002



Petition for review on certiorari assailing the Decision dated December 10, 1992 and the
Resolution (Amending Decision) dated August 5, 1993 of the Court of Appeals in CA-G.R. CV
No. 30133.
Dieselman Freight Service Co. (Dieselman for brevity) is a domestic corporation and a
registered owner of a parcel of commercial lot consisting of 2,094 square meters, located at
104 E. Rodriguez Avenue, Barrio Ugong, Pasig City, Metro Manila. The property is covered by
Transfer Certificate of Title No. 39849 issued by the Registry of Deeds of the Province of
On May 10, 1988, Manuel C. Cruz, Jr., a member of the board of directors of Dieselman,
issued a letter denominated as "Authority To Sell Real Estate"2 to Cristeta N. Polintan, a real
estate broker of the CNP Real Estate Brokerage. Cruz, Jr. authorized Polintan "to look for a
buyer/buyers and negotiate the sale" of the lot at P3,000.00 per square meter, or a total of
P6,282,000.00. Cruz, Jr. has no written authority from Dieselman to sell the lot.
In turn, Cristeta Polintan, through a letter3 dated May 19, 1988, authorized Felicisima
("Mimi") Noble4 to sell the same lot.
Felicisima Noble then offered for sale the property to AF Realty & Development, Inc. (AF
Realty) at P2,500.00 per square meter.5 Zenaida Ranullo, board member and vice-president
of AF Realty, accepted the offer and issued a check in the amount of P300,000.00 payable to
the order of Dieselman. Polintan received the check and signed an "Acknowledgement
Receipt"6 indicating that the amount of P300,000.00 represents the partial payment of the
property but refundable within two weeks should AF Realty disapprove Ranullo's action on
the matter.
On June 29, 1988, AF Realty confirmed its intention to buy the lot. Hence, Ranullo asked
Polintan for the board resolution of Dieselman authorizing the sale of the property. However,
Polintan could only give Ranullo the original copy of TCT No. 39849, the tax declaration and
tax receipt for the lot, and a photocopy of the Articles of Incorporation of Dieselman. 7
On August 2, 1988, Manuel F. Cruz, Sr., president of Dieselman, acknowledged receipt of the
said P300,000.00 as "earnest money" but required AF Realty to finalize the sale
at P4,000.00 per square meter.8 AF Realty replied that it has paid an initial down payment
of P300,000.00 and is willing to pay the balance.9
However, on August 13, 1988, Mr. Cruz, Sr. terminated the offer and demanded from AF
Realty the return of the title of the lot earlier delivered by Polintan. 10
Claiming that there was a perfected contract of sale between them, AF Realty filed with the
Regional Trial Court, Branch 160, Pasig City a complaint for specific performance (Civil Case
No. 56278) against Dieselman and Cruz, Jr.. The complaint prays that Dieselman be ordered
to execute and deliver a final deed of sale in favor of AF Realty. 11 In its amended
complaint,12 AF Realty asked for payment of P1,500,000.00 as compensatory damages;
P400,000.00 as attorney's fees; and P500,000.00 as exemplary damages.
In its answer, Dieselman alleged that there was no meeting of the minds between the
parties in the sale of the property and that it did not authorize any person to enter into such
transaction on its behalf.
Meanwhile, on July 30, 1988, Dieselman and Midas Development Corporation (Midas)
executed a Deed of Absolute Sale13 of the same property. The agreed price was P2,800.00
per square meter. Midas delivered to Dieselman P500,000.00 as down payment and
deposited the balance of P5,300,000.00 in escrow account with the PCIBank.
Constrained to protect its interest in the property, Midas filed on April 3, 1989 a Motion for
Leave to Intervene in Civil Case No. 56278. Midas alleged that it has purchased the property

and took possession thereof, hence Dieselman cannot be compelled to sell and convey it to
AF Realty. The trial court granted Midas' motion.
After trial, the lower court rendered the challenged Decision holding that the acts of Cruz, Jr.
bound Dieselman in the sale of the lot to AF Realty. 14 Consequently, the perfected contract of
sale between Dieselman and AF Realty bars Midas' intervention. The trial court also held that
Midas acted in bad faith when it initially paid Dieselman P500,000.00 even without seeing
the latter's title to the property. Moreover, the notarial report of the sale was not submitted
to the Clerk of Court of the Quezon City RTC and the balance of P5,300,000.00 purportedly
deposited in escrow by Midas with a bank was not established.1wphi1.nt
The dispositive portion of the trial court's Decision reads:
"WHEREFORE, foregoing considered, judgment is hereby rendered ordering
defendant to execute and deliver to plaintiffs the final deed of sale of the property
covered by the Transfer Certificate of Title No. 39849 of the Registry of Deed of Rizal,
Metro Manila District II, including the improvements thereon, and ordering defendants
to pay plaintiffs attorney's fees in the amount of P50,000.00 and to pay the costs.
"The counterclaim of defendants is necessarily dismissed.
"The counterclaim and/or the complaint in intervention are likewise dismissed
Dissatisfied, all the parties appealed to the Court of Appeals.
AF Realty alleged that the trial court erred in not holding Dieselman liable for moral,
compensatory and exemplary damages, and in dismissing its counterclaim against Midas.
Upon the other hand, Dieselman and Midas claimed that the trial court erred in finding that a
contract of sale between Dieselman and AF Realty was perfected. Midas further averred that
there was no bad faith on its part when it purchased the lot from Dieselman.
In its Decision dated December 10, 1992, the Court of Appeals reversed the judgment of the
trial court holding that since Cruz, Jr. was not authorized in writing by Dieselman to sell the
subject property to AF Realty, the sale was not perfected; and that the Deed of Absolute Sale
between Dieselman and Midas is valid, there being no bad faith on the part of the latter. The
Court of Appeals then declared Dieselman and Cruz, Jr. jointly and severally liable to AF
Realty for P100,000.00 as moral damages; P100,000.00 as exemplary damages; and
P100,000.00 as attorney's fees.16
On August 5, 1993, the Court of Appeals, upon motions for reconsideration filed by the
parties, promulgated an Amending Decision, the dispositive portion of which reads:
"WHEREFORE, The Decision promulgated on October 10, 1992, is hereby AMENDED in
the sense that only defendant Mr. Manuel Cruz, Jr. should be made liable to pay the
plaintiffs the damages and attorney's fees awarded therein, plus the amount of
P300,000.00 unless, in the case of the said P300,000.00, the same is still deposited
with the Court which should be restituted to plaintiffs.
AF Realty now comes to this Court via the instant petition alleging that the Court of Appeals
committed errors of law.
The focal issue for consideration by this Court is who between petitioner AF Realty and
respondent Midas has a right over the subject lot.

The Court of Appeals, in reversing the judgment of the trial court, made the following
"From the foregoing scenario, the fact that the board of directors of Dieselman never
authorized, verbally and in writing, Cruz, Jr. to sell the property in question or to look
for buyers and negotiate the sale of the subject property is undeniable.
"While Cristeta Polintan was actually authorized by Cruz, Jr. to look for buyers and
negotiate the sale of the subject property, it should be noted that Cruz, Jr. could not
confer on Polintan any authority which he himself did not have. Nemo dat quod non
habet. In the same manner, Felicisima Noble could not have possessed authority
broader in scope, being a mere extension of Polintan's purported authority, for it is a
legal truism in our jurisdiction that a spring cannot rise higher than its source.
Succinctly stated, the alleged sale of the subject property was effected through
persons who were absolutely without any authority whatsoever from Dieselman.
"The argument that Dieselman ratified the contract by accepting the P300,000.00 as
partial payment of the purchase price of the subject property is equally untenable.
The sale of land through an agent without any written authority is void.



"On the contrary, anent the sale of the subject property by Dieselman to intervenor
Midas, the records bear out that Midas purchased the same from Dieselman on 30
July 1988. The notice of lis pendens was subsequently annotated on the title of the
property by plaintiffs on 15 August 1988. However, this subsequent annotation of the
notice of lis pendens certainly operated prospectively and did not retroact to make
the previous sale of the property to Midas a conveyance in bad faith. A subsequently
registered notice of lis pendens surely is not proof of bad faith. It must therefore be
borne in mind that the 30 July 1988 deed of sale between Midas and Dieselman is a
document duly certified by notary public under his hand and seal. x x x. Such a deed
of sale being public document acknowledged before a notary public is admissible as
to the date and fact of its execution without further proof of its due execution and
delivery (Bael vs. Intermediate Appellate Court, 169 SCRA617; Joson vs. Baltazar, 194
SCRA 114) and to prove the defects and lack of consent in the execution thereof, the
evidence must be strong and not merely preponderant x x x."18
We agree with the Court of Appeals.
Section 23 of the Corporation Code expressly provides that the corporate powers of all
corporations shall be exercised by the board of directors. Just as a natural person may
authorize another to do certain acts in his behalf, so may the board of directors of a
corporation validly delegate some of its functions to individual officers or agents appointed
by it.19 Thus, contracts or acts of a corporation must be made either by the board of
directors or by a corporate agent duly authorized by the board.20 Absent such valid
delegation/authorization, the rule is that the declarations of an individual director relating to
the affairs of the corporation, but not in the course of, or connected with, the performance of
authorized duties of such director, are held not binding on the corporation. 21
In the instant case, it is undisputed that respondent Cruz, Jr. has no written authority from
the board of directors of respondent Dieselman to sell or to negotiate the sale of the lot,
much less to appoint other persons for the same purpose. Respondent Cruz, Jr.'s lack of such
authority precludes him from conferring any authority to Polintan involving the subject
realty. Necessarily, neither could Polintan authorize Felicisima Noble. Clearly, the collective
acts of respondent Cruz, Jr., Polintan and Noble cannot bind Dieselman in the purported
contract of sale.
Petitioner AF Realty maintains that the sale of land by an unauthorized agent may be ratified
where, as here, there is acceptance of the benefits involved. In this case the receipt by

respondent Cruz, Jr. from AF Realty of the P300,000.00 as partial payment of the lot
effectively binds respondent Dieselman.22
We are not persuaded.
Involved in this case is a sale of land through an agent. Thus, the law on agency under the
Civil Code takes precedence. This is well stressed in Yao Ka Sin Trading vs. Court of
"Since a corporation, such as the private respondent, can act only through its officers
and agents, all acts within the powers of said corporation may be performed by
agents of its selection; and, except so far as limitations or restrictions may be
imposed by special charter, by-law, or statutory provisions, the same general
principles of law which govern the relation of agency for a natural person
govern the officer or agent of a corporation, of whatever status or rank, in
respect to his power to act for the corporation; and agents when once
appointed, or members acting in their stead, are subject to the same rules,
liabilities, and incapacities as are agents of individuals and private
persons." (Emphasis supplied)
Pertinently, Article 1874 of the same Code provides:
"ART. 1874. When a sale of piece of land or any interest therein is through an
agent, the authority of the latter shall be in writing; otherwise, the sale shall
be void." (Emphasis supplied)
Considering that respondent Cruz, Jr., Cristeta Polintan and Felicisima Ranullo were not
authorized by respondent Dieselman to sell its lot, the supposed contract is void. Being a
void contract, it is not susceptible of ratification by clear mandate of Article 1409 of the Civil
Code, thus:
"ART. 1409. The following contracts are inexistent and void from the very
(7) Those expressly prohibited or declared void by law.
"These contracts cannot be ratified. Neither can the right to set up the defense
of illegality be waived." (Emphasis supplied)
Upon the other hand, the validity of the sale of the subject lot to respondent Midas is
unquestionable. As aptly noted by the Court of Appeals,24 the sale was authorized by a board
resolution of respondent Dieselman dated May 27, 1988.1wphi1.nt
The Court of Appeals awarded attorney's fees and moral and exemplary damages in favor of
petitioner AF Realty and against respondent Cruz, Jr.. The award was made by reason of a
breach of contract imputable to respondent Cruz, Jr. for having acted in bad faith. We are no
persuaded. It bears stressing that petitioner Zenaida Ranullo, board member and vicepresident of petitioner AF Realty who accepted the offer to sell the property, admitted in her
testimony25that a board resolution from respondent Dieselman authorizing the sale is
necessary to bind the latter in the transaction; and that respondent Cruz, Jr. has no such
written authority. In fact, despite demand, such written authority was not presented to
her.26 This notwithstanding, petitioner Ranullo tendered a partial payment for the
unauthorized transaction. Clearly, respondent Cruz, Jr. should not be held liable for damages
and attorney's fees.

WHEREFORE, the assailed Decision and Resolution of the Court of Appeals are
hereby AFFIRMED withMODIFICATION in the sense that the award of damages and
attorney's fees is deleted. Respondent Dieselman is ordered to return to petitioner AF Realty
its partial payment of P300,000.00. Costs against petitioners.
On January 5, 1993, respondent Rebecca Salud, joined by her husband Rolando Salud,
instituted a suit for foreclosure of real estate mortgage with damages against petitioner
Mansueto Cuaton and his mother, Conchita Cuaton, with the Regional Trial Court of General
Santos City, Branch 35, docketed as SPL. Civil Case No. 359. The trial court rendered a
decision declaring the mortgage constituted on October 31, 1991 as void, because it was
executed by Mansueto Cuaton in favor of Rebecca Salud without expressly stating that he
was merely acting as a representative of Conchita Cuaton, in whose name the mortgaged lot
was titled. The court ordered petitioner to pay Rebecca Salud, inter alia, the loan secured by
the mortgage in the amount of One Million Pesos plus a total P610,000.00 representing
interests of 10% and 8% per month for the period February 1992 to August 1992.
ISSUE: whether the 8% and 10% monthly interest rates imposed on the one-million-peso
loan obligation of petitioner to respondent Rebecca Salud are valid? NO.
In Ruiz v. Court of Appeals, we declared that the Usury Law was suspended by Central Bank
Circular No. 905, s. 1982, effective on January 1, 1983, and that parties to a loan agreement
have been given wide latitude to agree on any interest rate. However, nothing in the said
Circular grants lenders carte blanche authority to raise interest rates to levels which will
either enslave their borrowers or lead to a hemorrhaging of their assets. The stipulated
interest rates are illegal if they are unconscionable.
Thus, in Medel v. Court of Appeals, and Spouses Solangon v. Salazar, the Court annulled a
stipulated 5.5% per month or 66% per annum interest on a P500,000.00 loan and a 6% per
month or 72% per annum interest on a P60,000.00 loan, respectively, for being excessive,
iniquitous, unconscionable and exorbitant. In both cases, the interest rates were reduced to
12% per annum.
In the present case, the 10% and 8% interest rates per month on the one-million-peso loan
of petitioner are even higher than those previously invalidated by the Court in the above
cases. Accordingly, the reduction of said rates to 12% per annum is fair and reasonable.
Stipulations authorizing iniquitous or unconscionable interests are contrary to morals
(contra bonos mores), if not against the law. Under Article 1409 of the Civil Code, these
contracts are inexistent and void from the beginning. They cannot be ratified nor the right to
set up their illegality as a defense be waived.
The point of the controversy of this case is a parcel of land situated in Cebu registered in the
name of the Development Bank of the Philippines (DBP). Adjoining the said Lot are lands
belonging to PR Echavez and P, Ouano. What will have to be resolved are the conflicting
claims over this lot by the vendee thereof, Echavez, and Ouano.
The property was offered for sale by public bidding by the RFC. . Actually this was the second
public bidding scheduled for the property. The first in which both Ouano and Echavez
participated, together with others was nullified on account of a protest by Ouano.
Now, it appears that prior to the second bidding, Ouano and Echavez orally agreed that only
Echavez would make a bid, and that if it was accepted, they would divide the property in
proportion to their adjoining properties. To ensure success of their enterprise, they also

agreed to induce the only other party known to be interested in the property-a group headed
by a Mrs. Bonsucan to desist from presenting a bid. They broached the matter to Mrs.
Bonsucan's group. The latter agreed to withdraw, as it did in fact withdraw from the sale;
and Ouano's wife paid it P2,000 as reimbursement for its expenses.
As expected, the highest bid submitted, and thus accepted by the RFC, was that of Francisco
Echavez, who offered P27,826.00 for the land . Echavez paid the sum of P5,565.00
representing 20% deposit of the prefferred price.
A week later, Echavez sent a letter to Ouano regarding the P2,000.00 paid by the latter's
wife to the Bonsucan group. The content of the letter stated that Echavez will give a 250sq.
m. lot to Ouano in lieu of the 2k. Thereafter, the parties agreed and executed an
However, the RFC never approved the sharing agreement between Echavez and Ouano
concerning Lot 3-A-1. It approved the sale of the lot to Echavez only, on May 9, 1958, on the
condition that the purchase price of P27,825.00 be paid in cash. Apparently Echavez found
great initial difficulty in complying with this condition. It took all of four years, and patient
negotiation and diligent effort on his part, for him ultimately to acquire title to the property,
which came about in December, 1963.
Ouano, in his turn, tried to have DBP either accept and implement his sharing agreement
with Echavez, or allow him to pay the full price of the lot in Echavez's behalf. By his own
account, he sent a letter to the DBP, "handcarried by his wife," "requesting among others,
that he be permitted to pay immediately either for his share but the Bank turned down his
Shortly after his representation with the DBP were rebuffed more precisely on June 24, 1963,
months before the deed of absolute sale was executed by the DBP in Echavez's favor
Paterno J. Ouano filed suit for "specific performance and reconveyance" in the Court of First
Instance of Cebu against Francisco Echavez and the Development Bank of the Philippines
Two material facts, however, about which Ouano and Echavez are in agreement, render
these questions of academic interest only, said facts being determinative of this dispute on
an altogether different ground. These facts are:
1) that they bad both orally agreed that only Echavez would make a bid at the second
bidding called by the RFC, and that if it was accepted, they would divide the property in
proportion to their adjoining properties; and
2) that to ensure success of their scheme, they had also agreed to induce the only other
party known to be interested in the property a group headed by a Mrs. Bonsucan to desist
from presenting a bid, as they did succeed in inducing Mrs. Bonsucan's group to withdraw
from the sale, paying said group P2,000 as reimbursement for its expenses.
These acts constitute a crime, as the Trial Court has stressed. Ouano and Echavez had
promised to share in the property in question as a consideration for Ouano's refraining from
taking part in the public auction, and they had attempted to cause and in fact succeeded in
causing another bidder to stay away from the auction. in order to cause reduction of the
price of the property auctioned In so doing, they committed the felony of machinations in
public auctions defined and penalized in Article 185 of the Revised Penal Code, supra.
That both Ouano and Echavez did these acts is a matter of record, as is the fact that thereby
only one bid that of Echavez was entered for the 'land in consequence of which Echavez
eventually acquired it. The agreement therefore being criminal in character, the parties not
only have no action against each other but are both liable to prosecution and the things and

price of their agreement subject to disposal according to the provisions of the criminal code.
This, in accordance with the so-called pari delicto principle set out in the Civil Code.
Article 1409 of said Code declares as "inexistent and void from the beginning" those
contracts, among others, "whose cause, object or purpose is contrary to law, morals, good
customs, public order or public policy," or "expressly prohibited ... by law." Such contracts
"cannot be ratified "the right to set up the defense of illegality (cannot) be waived;" and,
Article 1410 adds, the "action or defense for the declaration of the inexistence ... (thereof)
does not prescribe." Furthermore, according to Article 1411 of the same Code
... When the nullity proceeds from the illegality of the cause or object of the
contract, and the act constitutes a 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.
xxx xxx xxx
The dismissal of Ouano's action by both the Trial Court and the Court of Appeals was thus
correct, being plainly in accord with the Civil Code provisions just referred to. Article 1411
also dictates the proper disposition of the land involved, i.e., "the forfeiture of the proceeds
of the crime and the instruments or tools with which it was committed," as mandated by the
provisions of Article 45 of the Revised Penal Code, this being obviously the provision "of the
Penal Code relative to the disposal of effects or instruments of a crime" that Article 1411
makes "applicable to the things or the price of the contract."
The subject lot was forfeited in favor of the government.

Julian Caia, was the occupant and tenant of a parcel of land, owned by the Republic of the
Philippines but administered at first by the then Rural Progress Administration and later by
the Peoples Homesite and Housing Corporation (PHHC).
The Republic of the Philippines acquired the aforesaid lot, together with other lots in the
Gonzales Estate by Expropriation to be resold to qualified and bonafide tenants-occupants
and, to achieve this end, the President of the Philippines, designated the PHHC with the task
of selling and transferring the said lots to qualified tenants concerned and/or their lawful
Julian Caia had a brother, Justo Caia. The latter had three children, namely, Emeteria
Buenaventura, Lorenzo Caia and Francisca Caia. Emeteria Buenaventura died and was
survived by Maria Buenaventura and Narciso Buenaventura, the Private Respondents in this
On November 4, 1965, the People Homesite and Housing Corporation executed a 'Deed of
Absolutes Sale' over the said lot to Lorenzo Caia and Francisca Caia-Rivera, as the sole
heirs and successor-in-interest of Julian Caia for and in consideration of the purchase price
of P96,048.80. The following day Title were issued in the name of the latter.
On January 26, 1966, Lorenzo Caia and Francisca Caia-Rivera executed a 'Deed of
Absolutes Sale' over the said lot in favor of Francisco M. Custodio after which the latter was
issued on January 26, 1966 a new TCT issued in his name as the owner.
On January 26, 1966, Francisco Custodio executed a 'Deed of Absolute Sale' over the said lot
in favor of the Petitioner for which the latter was issued on January 26, 1966.

On December 24, 1976, Petitioner filed a complaint for Annulment of Titles, Contracts and/or
Sales. Reconveyance and Damages.
RTC ruled in favor of the PR. Aggrieved by the rules of the trial court, herein private
respondents filed a petition with the Court of Appeals which later granted and ordered the
dismissal of the complaint of then private respondents, now herein petitioners, on the
ground that their action has already prescribed.
ISSUE: WON Art. 1410 is applicable in the instant case? NO.
The Court of Appeals, in directing the dismissal of the complaint filed by the petitioners in
the court of origin, held that Article 1410 of the Civil Code on imprescriptibility of actions is
not applicable because fraud in the transfer of the property was alleged in petitioner's
Petitioners' allegation in their complaint filed in the court of origin, that fraud was employed
in the execution of a deed of sale and subsequently, in the issuance of a transfer certificate
of title, renders their action for reconveyance susceptible to prescription either within 4
years or 10 years.
In the present case, even if one bends backwards and considers the circumstances alleged
as having created an implied or constructive trust, such that the action for reconveyance
would prescribed in the longer period of 10 years, still petitioners' action is plainly timebarred. Considering that the deed of sale executed by the Philippine Homesite and Housing
Corporation in favor of Lorenzo Caia and Francisca Caia-Rivera was executed on
November 4, 1965 and on the following day, Transfer Certificate of Title No. 21484 was
issued in favor of the vendees (private respondents), the party allegedly defrauded in the
transaction, herein petitioners, had only 10 years or until September 5, 1975 within which to
file the appropriate action. In the instant case, the action was filed only on December 28,
1976, which was beyond the prescribed period set by law.
Verily, the principle on prescription of actions is designed to cover situations such as the
case at bar, where there have been a series of transfers to innocent purchasers for value. To
set aside these transactions only to accommodate a party who has slept on his rights is
anathema to good order.
The facts show that Lot No. 3537, a conjugal property of spouses Raymundo Baba and
Dorotea Inot. After Raymundos demise in 1947, an extrajudicial settlement of his estate,
including Lot No. 3537, was executed among the heirs of Raymundo, namely, Dorotea Inot
and his 2 children, Victoriano Baba and Gregorio Baba.
One-half undivided portion of the lot was adjudicated in favor of Dorotea, and the other half
divided between Victoriano and Gregorio.
On December 28, 1966, Dorotea, Victoriano and Gregorio, in consideration of the amount of
P2,346.70, sold Lot No. 3537 to petitioner Felix Gochan and Sons Realty Corporation (Gochan
Sometime in 1995, Gocahn Realty entered into a joint venture agreement with Sta. Lucia
Realty and Development Corporation Inc. for the development, among others, of Lot No.
3537, into a subdivision.
On June 13, 1996, respondents Bestra, Maricel, Crecencia, Antonio and Petronila, all
surnamed Baba, filed a complaint for quieting of title and reconveyance with damages

against petitioners with the RTC of Lapu-Lapu City, they alleged that they are among the 7
children of Dorotea Inot and Raymundo Baba; that petitioners connived with Dorotea Inot,
Victoriano and Gregorio Baba in executing the extrajudicial settlement and deed of sale
which fraudulently deprived them of their hereditary share in Lot No. 3537; and that said
transactions are void insofar as their respective shares are concerned because they never
consented to the said sale and extrajudicial settlement, which came to their knowledge
barely a year prior to the filing of the complaint.
In its answer, petitioner Gochan Realty averred that respondents have no personality to sue
because they are not children of Dorotea Inot and Raymundo Baba; that even assuming they
are lawful heirs of the spouses, their action is barred by estoppel, laches and prescription for
having been filed more than 28 years after the issuance of the transfer certificate of title in
its name.
ISSUE: Whether or not respondents complaint is dismissible on the ground of prescription?
Under Article 1318 of the Civil Code, there is no contract unless the following requisites
concur: (1) consent of the contracting parties; (2) object certain which is the subject matter
of the contract; and (3) cause of the obligation. The absence of any of these essential
requisites renders the contract inexistent and an action or defense to declare said contract
void ab initio does not prescribe, pursuant to Article 1410 of the same Code.
In actions for reconveyance of property predicated on the fact that the conveyance
complained of was null and void ab initio, a claim of prescription of action would be
unavailing. The action or defense for the declaration of the inexistence of a contract does
not prescribe
Likewise, in the cases of Solomon v. Intermediate Appellate Court, Vda. De Portugal v.
Intermediate Appellate Court, Garanciang v. Garanciang, and Lacsamana v. Court of
Appeals, the Court ruled that conveyances by virtue of a forged signature or a fictitious deed
of sale are void ab initio. The absence of the essential requites of consent and cause or
consideration in these cases rendered the contract inexistent and the action to declare their
nullity is imprescriptible.
The Court summarized the facts of the case in this manner:
Dr. Jorge B. Neri filed a criminal complaint for adultery before the Regional
Trial Court (RTC) of Benguet against his wife, Ruby Vera Neri, and Eduardo
The RTC convicted petitioner and Mrs. Ruby Vera Neri of adultery as defined
under Article 333 of the Revised Penal Code.
The essential facts of the case, as found by the trial court and the Court of
Appeals, are as follows:
... On November 2, 1982, accused, Mrs. Ruby Vera Neri in the
company of Mrs. Linda Sare and witness Jabunan, took the
morning plane to Baguio. Arriving at around 11:00 a.m., they
dropped first at the house of Mrs. Vera, mother of Ruby Vera at
Crystal Cave, Baguio City then proceeded to the Mines View
Park Condominium of the Neri spouses. At around 7:00 o' clock
in the evening, accused Eduardo Arroyo arrived at the Neris'

condominium. Witness opened the door for Arroyo who entered,

he went down to and knocked at the master's bedroom where
accused Ruby Vera Neri and her companion Linda Sare were. On
accused Ruby Vera Neri's request, Linda Sare left the master's
bedroom and went upstairs to the sala leaving the two accused.
About forty-five minutes later, Arroyo Jr. came up and told Linda
Sare that she could already come down. Three of them,
thereafter, went up to the sala then left the condominium.
Petitioner Arroyo filed a Motion for Reconsideration of the Court of Appeals' Decision.
Petitioner Ruby Vera Neri also moved for reconsideration or a new trial, contending that a
pardon had been extended by her husband, private complainant Dr. Jorge B. Neri, and that
her husband had later con traded marriage with another woman with whom he is presently
co-habiting. Both motions were denied by the Court of Appeals.
ISSUE: Whether or not Dr. Neri's extra-marital affair precludes him from filing the criminal
complaint on the ground of pari delicto? NO.
We turn to the contention that pari-delicto "is a valid defense to a prosecution for adultery
and concubinage and that in such a case "it would be only a hypocritical pretense for such
spouse to appear in court as the offended spouse."
In the first place, the case cited does not support petitioner Neri's position. In
the Guinucud case, the Court found that the complaining husband, by entering into an
agreement with his wife that each of them were to live separately and could marry other
persons and by filing complaint only about a year after discovering his wife's infidelity, had
"consented to, and acquiesced in, the adulterous relations existing between the accused,
and he is, therefore, not authorized by law to institute the criminal proceedings." In fine,
the Guinucud case refers not to the notion of pari delicto but to consent as a bar to the
institution of the criminal proceedings.
In the present case, no such acquiescence can be implied: the accused did not enter into
any agreement with Dr. Neri allowing each other to marry or cohabit with other persons; and
Dr. Neri promptly filed his complaint after discovering the illicit affair.
Moreover, the concept of pari delicto is not found in the Revised Penal Code, but only in
Article 1411 of the Civil Code. The Court notes that Article 1411 of the Civil Code relates only
to contracts with illegal consideration. The case at bar does not involve any illegal contract
which either of the contracting parties is now seeking to enforce.
In June 1979, petitioner Pajuyo paid P400 to a certain Pedro Perez for the rights over a 250square meter lot in Barrio Payatas, Quezon City. Pajuyo then constructed a house made of
light materials on the lot. Pajuyo and his family lived in the house from 1979 to 7 December
On 8 December 1985, Pajuyo and private respondent Eddie Guevarra executed
a Kasunduan or agreement. Pajuyo, as owner of the house, allowed Guevarra to live in the
house for free provided Guevarra would maintain the cleanliness and orderliness of the
house. Guevarra promised that he would voluntarily vacate the premises on Pajuyos
In September 1994, Pajuyo informed Guevarra of his need of the house and demanded that
Guevarra vacate the house. Guevarra refused.
Pajuyo filed an ejectment case against Guevarra with the MTC of Quezon City.

In his Answer, Guevarra claimed that Pajuyo had no valid title or right of possession over the
lot where the house stands because the lot is within the 150 hectares set aside by
Proclamation No. 137 for socialized housing. Guevarra pointed out that from December 1985
to September 1994, Pajuyo did not show up or communicate with him. Guevarra insisted
that neither he nor Pajuyo has valid title to the lot.
ISSUE: WON the parties are in pari delicto being both squatters, therefore, illegal occupants
over the contested parcel of land? NO.

The principle of pari delicto will not apply to this case.
Articles 1411 and 1412 of the Civil Code embody the principle of pari delicto. We explained
the principle of pari delicto in these words:
The rule of pari delicto is expressed in the maxims ex dolo malo non eritur actio and
in pari delicto potior est conditio defedentis. The law will not aid either party to an
illegal agreement. It leaves the parties where it finds them.
The application of the pari delicto principle is not absolute, as there are exceptions to its
application. One of these exceptions is where the application of the pari delicto rule would
violate well-established public policy.
In Drilon v. Gaurana, the SC reiterated the basic policy behind the summary actions of
forcible entry and unlawful detainer. The application of the principle of pari delicto to a case
of ejectment between squatters is fraught with danger. To shut out relief to squatters on the
ground of pari delicto would openly invite mayhem and lawlessness. A squatter would oust
another squatter from possession of the lot that the latter had illegally occupied,
emboldened by the knowledge that the courts would leave them where they are. Nothing
would then stand in the way of the ousted squatter from re-claiming his prior possession at
all cost.
Petty warfare over possession of properties is precisely what ejectment cases or actions for
recovery of possession seek to prevent. Even the owner who has title over the disputed
property cannot take the law into his own hands to regain possession of his property. The
owner must go to court.
Courts must resolve the issue of possession even if the parties to the ejectment suit are
squatters. The determination of priority and superiority of possession is a serious and urgent
matter that cannot be left to the squatters to decide. To do so would make squatters receive
better treatment under the law. The law restrains property owners from taking the law into
their own hands. However, the principle of pari delicto as applied by the Court of Appeals
would give squatters free rein to dispossess fellow squatters or violently retake possession of
properties usurped from them. Courts should not leave squatters to their own devices in
cases involving recovery of possession.


A Deed of Donation was executed where it stated that the private respondent donated to the
City of Angeles, 51 parcels of land situated in Barrio Pampang, City of Angeles, with an
aggregate area of 50,676 square meters, more or less, part of a bigger area also belonging
to private respondent. The pertinent consitionds in the deed provided, among others, that:
2. The properties donated shall be devoted as a Sports Complex.

3. No commercial building, commercial complex, market or any other similar

complex, mass or tenament (sic) housing/building(s) shall be constructed in
the properties donated nor shall cockfighting, be allowed in the premises.
8. Any substantial breach of the foregoing provisos shall entitle the DONOR to
revoke or rescind this Deed of Donation, and in such eventuality, the DONEE
agrees to vacate and return the premises, together with all improvements, to
the DONOR peacefully without necessity of judicial action.
On July 19, 1988, petitioners started the construction of a drug rehabilitation center on a
portion of the donated land. Upon learning thereof, private respondent protested such action
for being violative of the terms and conditions of the amended deed and prejudicial to its
interest and to those of its clients and residents. Private respondent also offered another site
for the rehabilitation center. However, petitioners ignored the protest, maintaining that the
construction was not violative of the terms of the donation. The alternative site was rejected
because, according to petitioners, the site was too isolated and had no electric and water
On August 8, 1988, private respondent filed a complaint with the RTC in Angeles City against
the petitioners, alleging breach of the conditions imposed in the amended deed of donation
and seeking the revocation of the donation and damages, with preliminary injunction and/or
temporary restraining order to halt the construction of the said center.
ISSUE: WON revocation of the donated property will prosper? NO.
PRS DEFENSE: The private respondent contends that the building of said drug
rehabilitation center is violative of the Deed of Donation. Therefore, under Article 764 of the
New Civil Code and stipulation no. 8 of the deed, private respondent is empowered to revoke
the donation when the donee has failed to comply with any of the conditions imposed in the
We disagree. Article 1412 of the Civil Code which provides that:
If the act in which the unlawful or forbidden cause consists does not constitute
a criminal offense, the following rules shall be observed:
(1) When the fault is on the part of both contracting parties, neither may
recover what he has given by virtue of the contract, or demand the
performance of the other's undertaking;
comes into play here. Both petitioners and private respondents are in violation of P.D.
957 as amended, for donating and accepting a donation of open space less than that
required by law, and for agreeing to build and operate a sports complex on the nonbuildable open space so donated; and petitioners, for constructing a drug
rehabilitation center on the same non-buildable area.
Moreover, since the condition to construct a sport complex on the donated land has
previously been shown to be contrary to law, therefore, stipulation no. 8 of the amended
deed cannot be implemented because (1) no valid stipulation of the amended deed had
been breached, and (2) it is highly improbable that the decree would have allowed the
return of the donated land for open space under any circumstance, considering the nonalienable character of such open space, in the light of the second Whereas clause of P.D.
1216 which declares that . . . such open spaces, roads, alleys and sidewalks in residential
subdivisions are for public use and are, therefore, beyond the commerce of men.

Further, as a matter of public policy, private respondent cannot be allowed to evade its
statutory obligation to donate the required open space through the expediency of invoking
petitioners breach of the aforesaid condition. It is a familiar principle that the courts will not
aid either party to enforce an illegal contract, but will leave them both where they find them.
Neither party can recover damages from the other arising from the act contrary to law, or
plead the same as a cause of action or as a defense. Each must bear the consequences of
his own acts.
There is therefore no legal basis whatsoever to revoke the donation of the subject open
space and to return the donated land to private respondent. The donated land should remain
with the donee as the law clearly intended such open spaces to be perpetually part of the
public domain, non-alienable and permanently devoted to public use as such parks,
playgrounds or recreation areas.


Petitioners Cavite Development Bank (CDB) and Far East Bank and Trust Company (FEBTC)
are banking institutions duly organized and existing under Philippine laws.
On or about June 15, 1983, a certain Rodolfo Guansing obtained a loan in the amount of
P90,000.00 from CDB, to secure which he mortgaged a parcel of land registered in his name.
As Guansing defaulted in the payment of his loan, CDB foreclosed the mortgage. At the
foreclosure sale the mortgaged property was sold to CDB as the highest bidder. Guansing
failed to redeem, and on March 2, 1987, CDB consolidated title to the property in its name.
On June 16, 1988, private respondent Lolita Chan Lim, assisted by a broker named Remedios
Gatpandan, offered to purchase the property from CDB. The written Offer to Purchase,
signed by Lim and Gatpandan, states in part:
We hereby offer to purchase your property at #63 Calavite and Retiro Sts., La Loma,
Quezon City for P300,000.00 under the following terms and conditions:
(1) 10% Option Money;
(2) Balance payable in cash;
(3) Provided that the property shall be cleared of illegal occupants or tenants.
Pursuant to the foregoing terms and conditions of the offer, Lim paid CDB P30,000.00 as
Option Money. However, after some time following up the sale, Lim discovered that the
subject property was originally registered in the name of Perfecto Guansing, father of
mortgagor Rodolfo Guansing. Rodolfo succeeded in having the property registered in his
name, the same title he mortgaged to CDB and from which the latter's title was derived. It
appears, however, that the father, Perfecto, instituted Civil Case No. Q-39732 in the Regional
Trial Court, Branch 83, Quezon City, for the cancellation of his son's title.
On March 23, 1984, the trial court rendered a decision 2 restoring Perfecto's previous title
(TCT No. 91148) and cancelling TCT No. 300809 on the ground that the latter was
fraudulently secured by Rodolfo. This decision has since become final and executory.

Aggrieved by what she considered a serious misrepresentation by CDB and its mothercompany, FEBTC, on their ability to sell the subject property, Lim, joined by her husband,
filed an action for specific performance and damages against petitioners in the Regional Trial
Court of Quezon City.
RTC ruled in favor of the Lim spouses and further ordered to pay the petitioners for

CA affirmed the decision of the RTC in toto.

ISSUE: WON the Court of Appeals erred in ordering petitioners to pay moral damages,
exemplary damages, attorney's fees and costs of suit? NO.
In this case, the sale by CDB to Lim of the property mortgaged by Rodolfo Guansing is
deemed a nullity for CDB did not have a valid title to the said property. CDB never acquired a
valid title to the property because the foreclosure sale, by virtue of which, the property had
been awarded to CDB as highest bidder, is likewise void since the mortgagor was not the
owner of the property foreclosed.

We now come to the civil effects of the void contract of sale between the parties. Article
1412(2) of the Civil Code provides:
If the act in which the unlawful or forbidden cause consists does not constitute a
criminal offense, the following rules shall be observed:



(2) When only one of the contracting parties is at fault, he cannot recover what he
has given by reason of the contract, or ask for the fulfillment of what has been
promised him. The other, who is not at fault, may demand the return of what he has
given without any obligation to comply with his promise.
Private respondents are thus entitled to recover the P30,000,00 option money paid by them.
Moreover, since the filing of the action for damages against petitioners amounted to a
demand by respondents for the return of their money, interest thereon at the legal rate
should be computed from August 29, 1989, the date of filing of Civil Case No. Q-89-2863, not
June 17, 1988, when petitioners accepted the payment. This is in accord with our ruling in
Castillo v. Abalayan that in case of a void sale, the seller has no right whatsoever to keep the
money paid by virtue thereof and should refund it, with interest at the legal rate, computed
from the date of filing of the complaint until fully paid. Indeed, Art. 1412(2) which provides
that the non-guilty party "may demand the return of what he has given" clearly implies that
without such prior demand, the obligation to return what was given does not become legally
Considering CDB's negligence, we sustain the award of moral damages on the basis of Arts.
21 and 2219 of the Civil Code and our ruling in Tan v. Court of Appeals that moral damages
may be recovered even if a bank's negligence is not attended with malice and bad faith.

On October 18, 1969, private respondent Jose Vicente De Leon and petitioner Sylvia
Lichauco De Leon were united in wedlock before the Municipal Mayor of Binangonan, Rizal.
On August 28, 1971, a child named Susana L. De Leon was born from this union.
Sometime in October, 1972, a de facto separation between the spouses occured due to
irreconcilable marital differences, with Sylvia leaving the conjugal home. Sometime in March,
1973, Sylvia went to the United States where she obtained American citizenship.
On November 23, 1973, Sylvia filed with the Superior Court of California, a petition for
dissolution of marriage against Jose Vicente. In the said divorce proceedings, Sylvia also filed
claims for support and distribution of properties. It appears, however, that since Jose Vicente
was then a Philippine resident and did not have any assets in the United States, Sylvia chose

to hold in abeyance the divorce proceedings, and in the meantime, concentrated her efforts
to obtain some sort of property settlements with Jose Vicente in the Philippines.
Thus, on March 16, 1977, Sylvia succeeded in entering into a Letter-Agreement with her
mother-in-law, private respondent Macaria De Leon.
On the same date, Macaria made cash payments to Sylvia in the amount of P100,000 and
US$35,000.00 or P280,000.00, in compliance with her obligations as stipulated in the
aforestated Letter-Agreement.
On March 30, 1977, Sylvia and Jose Vicente filed before the then Court of First Instance of
Rizal a joint petition for judicial approval of dissolution of their conjugal partnership.
After ex-parte hearings, the trial court issued an Order dated February 19, 1980 approving
the petition.
On March 17, 1980, Sylvia moved for the execution of the above-mentioned order. However,
Jose Vicente moved for a reconsideration of the order alleging that Sylvia made a verbal
reformation of the petition as there was no such agreement for the payment of P4,500.00
monthly support to commence from the alleged date of separation and that there was no
notice given to him that Sylvia would attempt verbal reformation of the agreement
contained in the joint petition.

While the said motion for reconsideration was pending resolution, Macaria filed with the trial
court a motion for leave to intervene alleging that she is the owner of the properties
involved in the case. The motion was granted.
On October 29, 1980, Macaria assisted by her husband filed her complaint in intervention.
She assailed the validity and legality of the Letter-Agreement which had for its purpose,
according to her, the termination of marital relationship between Sylvia and Jose Vicente.
ISSUE: WON the Letter-Agreement is valid? NO.
Article 1306 of the New Civil Code provides:
Art. 1306. The contracting parties may establish such stipulations, clauses,
terms, and conditions as they may deem convenient, provided they are not
contrary to law, morals, good customs, public order or public policy.
If the stipulation is contrary to law, morals or public policy, the contract is void
and inexistent from the beginning.
Art. 1409. The following contracts are inexistent and void from the beginning:
Those whose cause, object or purpose is contrary to law, morals, good
customs, public order or public policy;
xxx xxx xxx
(7) Those expressly prohibited or declared void by law.
These contracts cannot be ratified. Neither can the right to set up the defense
of illegality be waived.

From the foregoing provisions of the New Civil Code, this court is of the considered opinion
and so holds that the Letter-Agreement premised on the termination of marital relationship
is not only contrary to law but contrary to Filipino morals and public Policy. As such, any
agreement or obligations based on such unlawful consideration and which is contrary to
public policy should be deemed null and void.
In the ultimate analysis, therefore, both parties acted in violation of the laws. However,
the pari delicto rule, expressed in the maxims "Ex dolo malo non oritur actio" and "In pari
delicto potior est conditio defendentis," which refuses remedy to either party to an illegal
agreement and leaves them where they are, does not apply in this case.
Article 1414 of the Civil Code, which is an exception to the pari delicto rule, is the proper law
to be applied. It provides:
When money is paid or property delivered for an illegal purpose, the contract
may be repudiated by one of the parties before the purpose has been
accomplished, or before any damage has been caused to a third person. In
such case, the courts may, if the public interest wig thus be subserved, allow
the party repudiating the contract to recover the money or property.
Since the Letter-Agreement was repudiated before the purpose has been accomplished and
to adhere to the pari delicto rule in this case is to put a premium to the circumvention of the
laws, positive relief should be granted to Macaria. Justice would be served by allowing her to
be placed in the position in which she was before the transaction was entered into.

Republic of the Philippines

G.R. No. 143958

July 11, 2003


EDERLINA P. CATITO, respondent.
Before us is a petition for review of the Decision1 of the Court of Appeals in CA-G.R. CV No.
53485 which affirmed the Decision2 of the Regional Trial Court of Davao City, Branch 14, in
Civil Case No. 17,817 dismissing the petitioner's complaint, and the resolution of the Court
of Appeals denying his motion for reconsideration of the said decision.
The Antecedents3
As gleaned from the evidence of the petitioner, the case at bar stemmed from the following
factual backdrop:
Petitioner Alfred Fritz Frenzel is an Australian citizen of German descent. He is an electrical
engineer by profession, but worked as a pilot with the New Guinea Airlines. He arrived in the
Philippines in 1974, started engaging in business in the country two years thereafter, and
married Teresita Santos, a Filipino citizen. In 1981, Alfred and Teresita separated from bed
and board without obtaining a divorce.
Sometime in February 1983, Alfred arrived in Sydney, Australia for a vacation. He went to
King's Cross, a night spot in Sydney, for a massage where he met Ederlina Catito, a Filipina
and a native of Bajada, Davao City. Unknown to Alfred, she resided for a time in Germany

and was married to Klaus Muller, a German national. She left Germany and tried her luck in
Sydney, Australia, where she found employment as a masseuse in the King's Cross
nightclub. She was fluent in German, and Alfred enjoyed talking with her. The two saw each
other again; this time Ederlina ended up staying in Alfred's hotel for three days. Alfred gave
Ederlina sums of money for her services.4
Alfred was so enamored with Ederlina that he persuaded her to stop working at King's Cross,
return to the Philippines, and engage in a wholesome business of her own. He also proposed
that they meet in Manila, to which she assented. Alfred gave her money for her plane fare to
the Philippines. Within two weeks of Ederlina's arrival in Manila, Alfred joined her. Alfred
reiterated his proposal for Ederlina to stay in the Philippines and engage in business, even
offering to finance her business venture. Ederlina was delighted at the idea and proposed to
put up a beauty parlor. Alfred happily agreed.
Alfred told Ederlina that he was married but that he was eager to divorce his wife in
Australia. Alfred proposed marriage to Ederlina, but she replied that they should wait a little
bit longer.
Ederlina found a building at No. 444 M.H. del Pilar corner Arquiza Street, Ermita, Manila,
owned by one Atty. Jose Hidalgo who offered to convey his rights over the property for
P18,000.00. Alfred and Ederlina accepted the offer. Ederlina put up a beauty parlor on the
property under the business name Edorial Beauty Salon, and had it registered with the
Department of Trade and Industry under her name. Alfred paid Atty. Hidalgo P20,000.00 for
his right over the property and gave P300,000.00 to Ederlina for the purchase of equipment
and furniture for the parlor. As Ederlina was going to Germany, she executed a special power
of attorney on December 13, 19835appointing her brother, Aser Catito, as her attorney-infact in managing the beauty parlor business. She stated in the said deed that she was
married to Klaus Muller. Alfred went back to Papua New Guinea to resume his work as a pilot.
When Alfred returned to the Philippines, he visited Ederlina in her Manila residence and
found it unsuitable for her. He decided to purchase a house and lot owned by Victoria Binuya
Steckel in San Francisco del Monte, Quezon City, covered by Transfer Certificate of Title No.
218429 for US$20,000.00. Since Alfred knew that as an alien he was disqualified from
owning lands in the Philippines, he agreed that only Ederlina's name would appear in the
deed of sale as the buyer of the property, as well as in the title covering the same. After all,
he was planning to marry Ederlina and he believed that after their marriage, the two of them
would jointly own the property. On January 23, 1984, a Contract to Sell was entered into
between Victoria Binuya Steckel as the vendor and Ederlina as the sole vendee. Alfred
signed therein as a witness.6 Victoria received from Alfred, for and in behalf of Ederlina, the
amount of US$10,000.00 as partial payment, for which Victoria issued a receipt. 7 When
Victoria executed the deed of absolute sale over the property on March 6, 1984, 8 she
received from Alfred, for and in behalf of Ederlina, the amount of US$10,000.00 as final and
full payment. Victoria likewise issued a receipt for the said amount. 9 After Victoria had
vacated the property, Ederlina moved into her new house. When she left for Germany to
visit Klaus, she had her father Narciso Catito and her two sisters occupy the property.
Alfred decided to stay in the Philippines for good and live with Ederlina. He returned to
Australia and sold his fiber glass pleasure boat to John Reid for $7,500.00 on May 4,
1984.10 He also sold his television and video business in Papua New Guinea for K135,000.00
to Tekeraoi Pty. Ltd.11 He had his personal properties shipped to the Philippines and stored at
No. 14 Fernandez Street, San Francisco del Monte, Quezon City. The proceeds of the sale
were deposited in Alfred's account with the Hong Kong Shanghai Banking Corporation
(HSBC), Kowloon Branch under Bank Account No. 018-2-807016. 12 When Alfred was in Papua
New Guinea selling his other properties, the bank sent telegraphic letters updating him of
his account.13 Several checks were credited to his HSBC bank account from Papua New
Guinea Banking Corporation, Westpac Bank of Australia and New Zealand Banking Group
Limited and Westpac Bank-PNG-Limited. Alfred also had a peso savings account with HSBC,
Manila, under Savings Account No. 01-725-183-01.14

Once, when Alfred and Ederlina were in Hong Kong, they opened another account with
HSBC, Kowloon, this time in the name of Ederlina, under Savings Account No. 018-0807950.15 Alfred transferred his deposits in Savings Account No. 018-2-807016 with the said
bank to this new account. Ederlina also opened a savings account with the Bank of America
Kowloon Main Office under Account No. 30069016.16
On July 28, 1984, while Alfred was in Papua New Guinea, he received a Letter dated
December 7, 1983 from Klaus Muller who was then residing in Berlin, Germany. Klaus
informed Alfred that he and Ederlina had been married on October 16, 1978 and had a
blissful married life until Alfred intruded therein. Klaus stated that he knew of Alfred and
Ederlina's amorous relationship, and discovered the same sometime in November 1983
when he arrived in Manila. He also begged Alfred to leave Ederlina alone and to return her to
him, saying that Alfred could not possibly build his future on his (Klaus') misfortune. 17
Alfred had occasion to talk to Sally MacCarron, a close friend of Ederlina. He inquired if there
was any truth to Klaus' statements and Sally confirmed that Klaus was married to Ederlina.
When Alfred confronted Ederlina, she admitted that she and Klaus were, indeed, married.
But she assured Alfred that she would divorce Klaus. Alfred was appeased. He agreed to
continue the amorous relationship and wait for the outcome of Ederlina's petition for divorce.
After all, he intended to marry her. He retained the services of Rechtsanwaltin Banzhaf with
offices in Berlin, as her counsel who informed her of the progress of the proceedings. 18 Alfred
paid for the services of the lawyer.
In the meantime, Alfred decided to purchase another house and lot, owned by Rodolfo
Morelos covered by TCT No. 92456 located in Pea Street, Bajada, Davao City. 19 Alfred again
agreed to have the deed of sale made out in the name of Ederlina. On September 7, 1984,
Rodolfo Morelos executed a deed of absolute sale over the said property in favor of Ederlina
as the sole vendee for the amount of P80,000.00.20 Alfred paid US$12,500.00 for the
Alfred purchased another parcel of land from one Atty. Mardoecheo Camporedondo, located
in Moncado, Babak, Davao, covered by TCT No. 35251. Alfred once more agreed for the
name of Ederlina to appear as the sole vendee in the deed of sale. On December 31, 1984,
Atty. Camporedondo executed a deed of sale over the property for P65,000.00 in favor of
Ederlina as the sole vendee.21 Alfred, through Ederlina, paid the lot at the cost of P33,682.00
and US$7,000.00, respectively, for which the vendor signed receipts. 22 On August 14, 1985,
TCT No. 47246 was issued to Ederlina as the sole owner of the said property. 23
Meanwhile, Ederlina deposited on December 27, 1985, the total amount of US$250,000 with
the HSBC Kowloon under Joint Deposit Account No. 018-462341-145. 24
The couple decided to put up a beach resort on a four-hectare land in Camudmud, Babak,
Davao, owned by spouses Enrique and Rosela Serrano. Alfred purchased the property from
the spouses for P90,000.00, and the latter issued a receipt therefor. 25 A draftsman
commissioned by the couple submitted a sketch of the beach resort. 26 Beach houses were
forthwith constructed on a portion of the property and were eventually rented out by
Ederlina's father, Narciso Catito. The rentals were collected by Narciso, while Ederlina kept
the proceeds of the sale of copra from the coconut trees in the property. By this time, Alfred
had already spent P200,000.00 for the purchase, construction and upkeep of the property.
Ederlina often wrote letters to her family informing them of her life with Alfred. In a Letter
dated January 21, 1985, she wrote about how Alfred had financed the purchases of some
real properties, the establishment of her beauty parlor business, and her petition to divorce
Because Ederlina was preoccupied with her business in Manila, she executed on July 8, 1985,
two special powers of attorney28 appointing Alfred as attorney-in-fact to receive in her behalf
the title and the deed of sale over the property sold by the spouses Enrique Serrano.

In the meantime, Ederlina's petition for divorce was denied because Klaus opposed the
same. A second petition filed by her met the same fate. Klaus wanted half of all the
properties owned by Ederlina in the Philippines before he would agree to a divorce. Worse,
Klaus threatened to file a bigamy case against Ederlina.29
Alfred proposed the creation of a partnership to Ederlina, or as an alternative, the
establishment of a corporation, with Ederlina owning 30% of the equity thereof. She initially
agreed to put up a corporation and contacted Atty. Armando Dominguez to prepare the
necessary documents. Ederlina changed her mind at the last minute when she was advised
to insist on claiming ownership over the properties acquired by them during their coverture.
Alfred and Ederlina's relationship started deteriorating. 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. To avoid complications, Alfred decided to live separately from
Ederlina and cut off all contacts with her. In one of her letters to Alfred, Ederlina complained
that he had ruined her life. She admitted that the money used for the purchase of the
properties in Davao were his. She offered to convey the properties deeded to her by Atty.
Mardoecheo Camporedondo and Rodolfo Morelos, asking Alfred to prepare her affidavit for
the said purpose and send it to her for her signature.30 The last straw for Alfred came on
September 2, 1985, when someone smashed the front and rear windshields of Alfred's car
and damaged the windows. Alfred thereafter executed an affidavit-complaint charging
Ederlina and Sally MacCarron with malicious mischief.31
On October 15, 1985, Alfred wrote to Ederlina's father, complaining that Ederlina had taken
all his life savings and because of this, he was virtually penniless. He further accused the
Catito family of acquiring for themselves the properties he had purchased with his own
money. He demanded the return of all the amounts that Ederlina and her family had "stolen"
and turn over all the properties acquired by him and Ederlina during their coverture. 32
Shortly thereafter, Alfred filed a Complaint33 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. In his complaint, 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. Using the said funds, Ederlina was able
to purchase the properties subject of the complaints. He also alleged that the beauty parlor
in Ermita was established with his own funds, and that the Quezon City property was
likewise acquired by him with his personal funds.34
Ederlina failed to file her answer and was declared in default. Alfred adduced his
evidence ex parte.
In the meantime, on November 7, 1985, Alfred also filed a complaint 35 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. He alleged, inter alia, in his
4. That during the period of their common-law relationship, plaintiff solely through his
own efforts and resources acquired in the Philippines real and personal properties
valued more or less at P724,000.00; The defendant's common-law wife or live-in
partner did not contribute anything financially to the acquisition of the said real and
personal properties. These properties are as follows:
I. Real Properties
a. TCT No. T-92456 located at Bajada, Davao City, consisting of 286 square
meters, (with residential house) registered in the name of the original title
owner Rodolfo M. Morelos but already fully paid by plaintiff. Valued at

b. TCT No. T-47246 (with residential house) located at Babak, Samal, Davao,
consisting of 600 square meters, registered in the name of Ederlina Catito,
with the Register of Deeds of Tagum, Davao del Norte valued at P144,000.00;
c. A parcel of agricultural land located at Camudmud, Babak, Samal, Davao
del Norte, consisting of 4.2936 hectares purchased from Enrique Serrano and
Rosela B. Serrano. Already paid in full by plaintiff. Valued at P228,608.32;
II. Personal Properties:
a. Furniture valued at P10,000.00.
5. That defendant made no contribution at all to the acquisition, of the abovementioned properties as all the monies (sic) used in acquiring said properties
belonged solely to plaintiff;36
Alfred prayed that after hearing, judgment be rendered in his favor:
WHEREFORE, in view of the foregoing premises, it is respectfully prayed that
judgment be rendered in favor of plaintiff and against defendant:
a) Ordering the defendant to execute the corresponding deeds of transfer and/or
conveyances in favor of plaintiff over those real and personal properties enumerated
in Paragraph 4 of this complaint;
b) Ordering the defendant to deliver to the plaintiff all the above real and personal
properties or their money value, which are in defendant's name and custody because
these were acquired solely with plaintiffs money and resources during the duration of
the common-law relationship between plaintiff and defendant, the description of
which are as follows:
(1) TCT No. T-92456 (with residential house) located at Bajada, Davao City,
consisting of 286 square meters, registered in the name of the original title
owner Rodolfo Morelos but already fully paid by plaintiff. Valued at
(2) TCT No. T-47246 (with residential house) located at Babak, Samal, Davao,
consisting of 600 square meters, registered in the name of Ederlina Catito,
with the Register of Deeds of Tagum, Davao del Norte, valued at P144,000.00;
(3) A parcel of agricultural land located at Camudmud, Babak, Samal, Davao
del Norte, consisting of 4.2936 hectares purchased from Enrique Serrano and
Rosela B. Serrano. Already fully paid by plaintiff. Valued at P228,608.32;
c) Declaring the plaintiff to be the sole and absolute owner of the above-mentioned
real and personal properties;
d) Awarding moral damages to plaintiff in an amount deemed reasonable by the trial
e) To reimburse plaintiff the sum of P12,000.00 as attorney's fees for having
compelled the plaintiff to litigate;
f) To reimburse plaintiff the sum of P5,000.00 incurred as litigation expenses also for
having compelled the plaintiff to litigate; and

g) To pay the costs of this suit;

Plaintiff prays other reliefs just and equitable in the premises. 37
In her answer, Ederlina denied all the material allegations in the complaint, insisting that she
acquired the said properties with her personal funds, and as such, Alfred had no right to the
same. She alleged that the deeds of sale, the receipts, and certificates of titles of the subject
properties were all made out in her name.38 By way of special and affirmative defense, she
alleged that Alfred had no cause of action against her. She interposed counterclaims against
the petitioner.39
In the meantime, the petitioner filed a Complaint dated August 25, 1987, against the HSBC
in the Regional Trial Court of Davao City40 for recovery of bank deposits and damages.41 He
prayed that after due proceedings, judgment be rendered in his favor, thus:
WHEREFORE, plaintiff respectfully prays that the Honorable Court adjudge defendant
bank, upon hearing the evidence that the parties might present, to pay plaintiff:
AND NINETY EIGHT CENTS (US$126,230.98) plus legal interests, either of Hong Kong
or of the Philippines, from 20 December 1984 up to the date of execution or
satisfaction of judgment, as actual damages or in restoration of plaintiffs lost dollar
2. The same amount in (1) above as moral damages;
3. Attorney's fees in the amount equivalent to TWENTY FIVE PER CENT (25%) of (1)
and (2) above;
4. Litigation expenses in the amount equivalent to TEN PER CENT (10%) of the
amount in (1) above; and
5. For such other reliefs as are just and equitable under the circumstances. 42
On April 28, 1986, the RTC of Quezon City rendered its decision in Civil Case No. Q-46350, in
favor of Alfred, the decretal portion of which reads as follows:
WHEREFORE, premises considered, judgment is hereby rendered ordering the
defendant to perform the following:
(1) To execute a document waiving her claim to the house and lot in No. 14
Fernandez St., San Francisco Del Monte, Quezon City in favor of plaintiff or to return
to the plaintiff the acquisition cost of the same in the amount of $20,000.00, or to sell
the said property and turn over the proceeds thereof to the plaintiff;
(2) To deliver to the plaintiff the rights of ownership and management of the beauty
parlor located at 444 Arquiza St., Ermita, Manila, including the equipment and
fixtures therein;
(3) To account for the earnings of rental of the house and lot in No. 14 Fernandez St.,
San Francisco Del Monte, Quezon City, as well as the earnings in the beauty parlor at
444 Arquiza St., Ermita, Manila and turn over one-half of the net earnings of both
properties to the plaintiff;
(4) To surrender or return to the plaintiff the personal properties of the latter left in
the house at San Francisco Del Monte, to wit:
"(1) Mamya automatic camera

(1) 12 inch "Sonny" T.V. set, colored with remote control.

(1) Micro oven
(1) Electric fan (tall, adjustable stand)
(1) Office safe with (2) drawers and safe
(1) Electric Washing Machine
(1) Office desk and chair
(1) Double bed suits
(1) Mirror/dresser
(1) Heavy duty voice/working mechanic
(1) "Sony" Beta-Movie camera
(1) Suitcase with personal belongings
(1) Cardboard box with belongings
(1) Guitar Amplifier
(1) Hanger with men's suit (white)."
To return to the plaintiff, (1) Hi-Fi Stereo equipment left at 444 Arquiza Street, Ermita,
Manila, as well as the Fronte Suzuki car.
(4) To account for the monies (sic) deposited with the joint account of the plaintiff and
defendant (Account No. 018-0-807950); and to restore to the plaintiff all the monies
(sic) spent by the defendant without proper authority;
(5) To pay the amount of P5,000.00 by way of attorney's fees, and the costs of suit.
However, after due proceedings in the RTC of Davao City, in Civil Case No. 17,817, the trial
court rendered judgment on September 28, 1995 in favor of Ederlina, the dispositive portion
of which reads:
WHEREFORE, the Court cannot give due course to the complaint and hereby orders
its dismissal. The counterclaims of the defendant are likewise dismissed.
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.
Alfred appealed the decision to the Court of Appeals45 in which the petitioner posited the
view that although he prayed in his complaint in the court a quo that he be declared the

owner of the three parcels of land, he had no intention of owning the same permanently. His
principal intention therein was to be declared the transient owner for the purpose of selling
the properties at public auction, ultimately enabling him to recover the money he had spent
for the purchase thereof.
On March 8, 2000, the CA rendered a decision affirming in toto the decision of the RTC. The
appellate court ruled that the petitioner knowingly violated the Constitution; hence, was
barred from recovering the money used in the purchase of the three parcels of land. It held
that to allow the petitioner to recover the money used for the purchase of the properties
would embolden aliens to violate the Constitution, and defeat, rather than enhance, the
public policy.46
Hence, the petition at bar.
The petitioner assails the decision of the court contending that:
Since the assignment of errors are intertwined with each other, the Court shall resolve the
same simultaneously.
The petitioner contends that he purchased the three parcels of land subject of his complaint
because of his desire to marry the respondent, and not to violate the Philippine Constitution.
He was, however, deceived by the respondent when the latter failed to disclose her previous
marriage to Klaus Muller. It cannot, thus, be said that he and the respondent are "equally
guilty;" as such, the pari delicto doctrine is not applicable to him. He acted in good faith, on
the advice of the respondent's uncle, Atty. Mardoecheo Camporedondo. There is no evidence
on record that he was aware of the constitutional prohibition against aliens acquiring real
property in the Philippines when he purchased the real properties subject of his complaint
with his own funds. The transactions were not illegal per se but merely prohibited, and under
Article 1416 of the New Civil Code, he is entitled to recover the money used for the purchase
of the properties. At any rate, the petitioner avers, he filed his complaint in the courta
quo merely for the purpose of having him declared as the owner of the properties, to enable
him to sell the same at public auction. Applying by analogy Republic Act No. 133 49 as
amended by Rep. Act No. 4381 and Rep. Act No. 4882, the proceeds of the sale would be
remitted to him, by way of refund for the money he used to purchase the said properties. To
bar the petitioner from recovering the subject properties, or at the very least, the money
used for the purchase thereof, is to allow the respondent to enrich herself at the expense of
the petitioner in violation of Article 22 of the New Civil Code.
The petition is bereft of merit.
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.50
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
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.52 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. 53 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.54 The law will not aid either party to an illegal contract or agreement; it leaves
the parties where it finds them.55 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.56 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. 57 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.58 The rule is expressed. in the maxims: EX DOLO ORITUR ACTIO and IN PARI
The petitioner cannot feign ignorance of the constitutional proscription, nor claim that he
acted in good faith, let alone assert that he is less guilty than the respondent. The petitioner
is charged with knowledge of the constitutional prohibition. 60 As can be gleaned from the
decision of the trial court, the petitioner was fully aware that he was disqualified from
acquiring and owning lands under Philippine law even before he purchased the properties in
question; and, to skirt the constitutional prohibition, the petitioner had the deed of sale
placed under the respondent's name as the sole vendee thereof:
Such being the case, the plaintiff is subject to the constitutional restrictions
governing the acquisition of real properties in the Philippines by aliens.
From the plaintiff's complaint before the Regional Trial Court, National Capital Judicial
Region, Branch 84, Quezon City in Civil Case No. Q-46350 he alleged:
x x x "That on account that foreigners are not allowed by the Philippine laws
to acquire real properties in their name as in the case of my vendor Miss
Victoria Vinuya (sic) although married to a foreigner, we agreed and I
consented in having the title to subject property placed in defendant's name
alone although I paid for the whole price out of my own exclusive funds."
(paragraph IV, Exhibit "W.")
and his testimony before this Court which is hereby quoted:
In whose name the said house and lot placed, by the way, where is his house
and lot located?

In 14 Fernandez St., San Francisco, del Monte, Manila.


In whose name was the house placed?

Ederlina Catito because I was informed being not a Filipino, I cannot own the
property. (tsn, p. 11, August 27, 1986).



So you understand that you are a foreigner that you cannot buy land in the
That is correct but as she would eventually be my wife that would be owned
by us later on. (tsn, p. 5, September 3, 1986)




What happened after that?


She said you foreigner you are using Filipinos to buy property.


And what did you answer?

I said thank you very much for the property I bought because I gave you a lot
of money (tsn., p. 14,ibid).
It is evident that the plaintiff was fully aware that as a non-citizen of the Philippines, he was
disqualified from validly purchasing any land within the country. 61
The petitioner's claim that he acquired the subject properties because of his desire to marry
the respondent, believing that both of them would thereafter jointly own the said properties,
is belied by his own evidence. It is merely an afterthought to salvage a lost cause. The
petitioner admitted on cross-examination that he was all along legally married to Teresita
Santos Frenzel, while he was having an amorous relationship with the respondent:
When you were asked to identify yourself on direct examination you claimed
before this Honorable Court that your status is that of being married, do you confirm

Yes, sir.

To whom are you married?

To a Filipina, since 1976.

Would you tell us who is that particular person you are married since 1976?

Teresita Santos Frenzel.

Where is she now?

In Australia.

Is this not the person of Teresita Frenzel who became an Australian citizen?

I am not sure, since 1981 we were separated.

You were only separated, in fact, but not legally separated?

Thru my counsel in Australia I filed a separation case.

As of the present you are not legally divorce[d]?

I am still legally married.62

The respondent was herself married to Klaus Muller, a German citizen. Thus, the petitioner
and the respondent could not lawfully join in wedlock. The evidence on record shows that
the petitioner in fact knew of the respondent's marriage to another man, but nonetheless
purchased the subject properties under the name of the respondent and paid the purchase
prices therefor. Even if it is assumed gratia arguendi that the respondent and the petitioner
were capacitated to marry, the petitioner is still disqualified to own the properties in tandem
with the respondent.63
The petitioner cannot find solace in Article 1416 of the New Civil Code which reads:
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. 64
The provision applies only to those contracts which are merely prohibited, in order to benefit
private interests. It does not apply to contracts void ab initio. The sales of three parcels of
land in favor of the petitioner who is a foreigner is illegal per se. The transactions are
void ab initio because they were entered into in violation of the Constitution. Thus, to allow
the petitioner to recover the properties or the money used in the purchase of the parcels of
land would be subversive of public policy.
Neither may the petitioner find solace in Rep. Act No. 133, as amended by Rep. Act No.
4882, which reads:
SEC. 1. Any provision of law to the contrary notwithstanding, private real property
may be mortgaged in favor of any individual, corporation, or association, but the
mortgagee or his successor-in-interest, if disqualified to acquire or hold lands of the
public domain in the Philippines, shall not take possession of the mortgaged property
during the existence of the mortgage and shall not take possession of mortgaged
property except after default and for the sole purpose of foreclosure, receivership,
enforcement or other proceedings and in no case for a period of more than five years
from actual possession and shall not bid or take part in any sale of such real property
in case of foreclosure: Provided, That said mortgagee or successor-in-interest may
take possession of said property after default in accordance with the prescribed
judicial procedures for foreclosure and receivership and in no case exceeding five
years from actual possession.65
From the evidence on record, the three parcels of land subject of the complaint were not
mortgaged to the petitioner by the owners thereof but were sold to the respondent as the
vendee, albeit with the use of the petitioner's personal funds.
Futile, too, is petitioner's reliance on Article 22 of the New Civil Code which reads:
Art. 22. 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.66
The provision is expressed in the maxim: "MEMO CUM ALTERIUS DETER DETREMENTO
PROTEST" (No person should unjustly enrich himself at the expense of another). An action
for recovery of what has been paid without just cause has been designated as an accion in

rem verso.67 This provision does not apply if, as in this case, the action is proscribed by the
Constitution or by the application of the pari delicto doctrine. 68 It may be unfair and unjust
to bar the petitioner from filing an accion in rem verso over the subject properties, or from
recovering the money he paid for the said properties, but, as Lord Mansfield stated in the
early case of Holman vs. Johnson:69"The objection that a contract is immoral or illegal as
between the plaintiff and the defendant, sounds at all times very ill in the mouth of the
defendant. It is not for his sake, however, that the objection is ever allowed; but it is founded
in general principles of policy, which the defendant has the advantage of, contrary to the
real justice, as between him and the plaintiff."
IN LIGHT OF ALL THE FOREGOING, the petition is DISMISSED. The decision of the Court of
Appeals is AFFIRMED in toto.
Costs against the petitioner.