Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-11622 January 28, 1961

THE COLLECTOR OF INTERNAL REVENUE, petitioner,

vs.
DOUGLAS FISHER AND BETTINA FISHER, and the COURT OF TAX
APPEALS, respondents.

x---------------------------------------------------------x

G.R. No. L-11668 January 28, 1961.

DOUGLAS FISHER AND BETTINA FISHER, petitioner,

vs.
THE COLLECTOR OF INTERNAL REVENUE, and the COURT OF TAX
APPEALS, respondents.

BARRERA, J.:

This case relates to the determination and settlement of the hereditary estate left by the
deceased Walter G. Stevenson, and the laws applicable thereto. Walter G. Stevenson
(born in the Philippines on August 9, 1874 of British parents and married in the City of
Manila on January 23, 1909 to Beatrice Mauricia Stevenson another British subject)
died on February 22, 1951 in San Francisco, California, U.S.A. whereto he and his wife
moved and established their permanent residence since May 10, 1945. In his will
executed in San Francisco on May 22, 1947, and which was duly probated in the
Superior Court of California on April 11, 1951, Stevenson instituted his wife Beatrice as
his sole heiress to the following real and personal properties acquired by the spouses
while residing in the Philippines, described and preliminary assessed as follows:

Gross Estate
Real Property 2 parcels of land in
Baguio, covered by T.C.T. Nos. 378
and 379 P43,500.00
Personal Property
(1) 177 shares of stock of Canacao
Estate at P10.00 each 1,770.00
(2) 210,000 shares of stock of
Mindanao Mother Lode Mines, Inc.
at P0.38 per share 79,800.00
 (3) Cash credit with Canacao Estate
Inc. 4,870.88
(4) Cash, with the Chartered Bank of
India, Australia & China 851.97
Total Gross Assets P130,792.85

On May 22, 1951, ancillary administration proceedings were instituted in the Court of
First Instance of Manila for the settlement of the estate in the Philippines. In due time
Stevenson's will was duly admitted to probate by our court and Ian Murray Statt was
appointed ancillary administrator of the estate, who on July 11, 1951, filed a preliminary
estate and inheritance tax return with the reservation of having the properties declared
therein finally appraised at their values six months after the death of Stevenson.
Preliminary return was made by the ancillary administrator in order to secure the waiver
of the Collector of Internal Revenue on the inheritance tax due on the 210,000 shares of
stock in the Mindanao Mother Lode Mines Inc. which the estate then desired to dispose
in the United States. Acting upon said return, the Collector of Internal Revenue
accepted the valuation of the personal properties declared therein, but increased the
appraisal of the two parcels of land located in Baguio City by fixing their fair market
value in the amount of P52.200.00, instead of P43,500.00. After allowing the deductions
claimed by the ancillary administrator for funeral expenses in the amount of P2,000.00
and for judicial and administration expenses in the sum of P5,500.00, the Collector
assessed the state the amount of P5,147.98 for estate tax and P10,875,26 or
inheritance tax, or a total of P16,023.23. Both of these assessments were paid by the
estate on June 6, 1952.

On September 27, 1952, the ancillary administrator filed in amended estate and
inheritance tax return in pursuance f his reservation made at the time of filing of the
preliminary return and for the purpose of availing of the right granted by section 91 of
the National Internal Revenue Code.

In this amended return the valuation of the 210,000 shares of stock in the Mindanao
Mother Lode Mines, Inc. was reduced from 0.38 per share, as originally declared, to
P0.20 per share, or from a total valuation of P79,800.00 to P42,000.00. This change in
price per share of stock was based by the ancillary administrator on the market notation
of the stock obtaining at the San Francisco California) Stock Exchange six months from
the death of Stevenson, that is, As of August 22, 1931. In addition, the ancillary
administrator made claim for the following deductions:

Funeral expenses ($1,04326) P2,086.52

Judicial Expenses:
(a) Administrator's Fee P1,204.34
(b) Attorney's Fee 6.000.00
(c) Judicial and Administration
expenses as of August 9, 1952 1,400.05
 8,604.39
Real Estate Tax for 1951 on
Baguio real properties (O.R.
No. B-1 686836) 652.50
Claims against the estate:
($5,000.00) P10,000.00 P10,000.00
Plus: 4% int. p.a. from Feb. 2 to
22, 1951 22.47 10,022.47
Sub-Total P21,365.88

In the meantime, on December 1, 1952, Beatrice Mauricia Stevenson assigned all her
rights and interests in the estate to the spouses, Douglas and Bettina Fisher,
respondents herein.

On September 7, 1953, the ancillary administrator filed a second amended estate and
inheritance tax return (Exh. "M-N"). This return declared the same assets of the estate
stated in the amended return of September 22, 1952, except that it contained new
claims for additional exemption and deduction to wit: (1) deduction in the amount of
P4,000.00 from the gross estate of the decedent as provided for in Section 861 (4) of
the U.S. Federal Internal Revenue Code which the ancillary administrator averred was
allowable by way of the reciprocity granted by Section 122 of the National Internal
Revenue Code, as then held by the Board of Tax Appeals in case No. 71 entitled
"Housman vs. Collector," August 14, 1952; and (2) exemption from the imposition of
estate and inheritance taxes on the 210,000 shares of stock in the Mindanao Mother
Lode Mines, Inc. also pursuant to the reciprocity proviso of Section 122 of the National
Internal Revenue Code. In this last return, the estate claimed that it was liable only for
the amount of P525.34 for estate tax and P238.06 for inheritance tax and that, as a
consequence, it had overpaid the government. The refund of the amount of P15,259.83,
allegedly overpaid, was accordingly requested by the estate. The Collector denied the
claim. For this reason, action was commenced in the Court of First Instance of Manila
by respondents, as assignees of Beatrice Mauricia Stevenson, for the recovery of said
amount. Pursuant to Republic Act No. 1125, the case was forwarded to the Court of Tax
Appeals which court, after hearing, rendered decision the dispositive portion of which
reads as follows:

In fine, we are of the opinion and so hold that: (a) the one-half () share of the
surviving spouse in the conjugal partnership property as diminished by the
obligations properly chargeable to such property should be deducted from the net
estate of the deceased Walter G. Stevenson, pursuant to Section 89-C of the
National Internal Revenue Code; (b) the intangible personal property belonging
to the estate of said Stevenson is exempt from inheritance tax, pursuant to the
provision of section 122 of the National Internal Revenue Code in relation to the
California Inheritance Tax Law but decedent's estate is not entitled to an
exemption of P4,000.00 in the computation of the estate tax; (c) for purposes of
estate and inheritance taxation the Baguio real estate of the spouses should be
 valued at P52,200.00, and 210,000 shares of stock in the Mindanao Mother Lode
Mines, Inc. should be appraised at P0.38 per share; and (d) the estate shall be
entitled to a deduction of P2,000.00 for funeral expenses and judicial expenses
of P8,604.39.

From this decision, both parties appealed.

The Collector of Internal Revenue, hereinafter called petitioner assigned four errors
allegedly committed by the trial court, while the assignees, Douglas and Bettina Fisher
hereinafter called respondents, made six assignments of error. Together, the assigned
errors raise the following main issues for resolution by this Court:

(1) Whether or not, in determining the taxable net estate of the decedent, one-half ()
of the net estate should be deducted therefrom as the share of tile surviving spouse in
accordance with our law on conjugal partnership and in relation to section 89 (c) of the
National Internal revenue Code;

(2) Whether or not the estate can avail itself of the reciprocity proviso embodied in
Section 122 of the National Internal Revenue Code granting exemption from the
payment of estate and inheritance taxes on the 210,000 shares of stock in the
Mindanao Mother Lode Mines Inc.;

(3) Whether or not the estate is entitled to the deduction of P4,000.00 allowed by
Section 861, U.S. Internal Revenue Code in relation to section 122 of the National
Internal Revenue Code;

(4) Whether or not the real estate properties of the decedent located in Baguio City and
the 210,000 shares of stock in the Mindanao Mother Lode Mines, Inc., were correctly
appraised by the lower court;

(5) Whether or not the estate is entitled to the following deductions: P8,604.39 for
judicial and administration expenses; P2,086.52 for funeral expenses; P652.50 for real
estate taxes; and P10,0,22.47 representing the amount of indebtedness allegedly
incurred by the decedent during his lifetime; and

(6) Whether or not the estate is entitled to the payment of interest on the amount it
claims to have overpaid the government and to be refundable to it.

In deciding the first issue, the lower court applied a well-known doctrine in our civil law
that in the absence of any ante-nuptial agreement, the contracting parties are presumed
to have adopted the system of conjugal partnership as to the properties acquired during
their marriage. The application of this doctrine to the instant case is being disputed,
however, by petitioner Collector of Internal Revenue, who contends that pursuant to
Article 124 of the New Civil Code, the property relation of the spouses Stevensons
ought not to be determined by the Philippine law, but by the national law of the
decedent husband, in this case, the law of England. It is alleged by petitioner that
English laws do not recognize legal partnership between spouses, and that what
obtains in that jurisdiction is another regime of property relation, wherein all properties
acquired during the marriage pertain and belong Exclusively to the husband. In further
support of his stand, petitioner cites Article 16 of the New Civil Code (Art. 10 of the old)
to the effect that in testate and intestate proceedings, the amount of successional rights,
among others, is to be determined by the national law of the decedent.

In this connection, let it be noted that since the mariage of the Stevensons in the
Philippines took place in 1909, the applicable law is Article 1325 of the old Civil Code
and not Article 124 of the New Civil Code which became effective only in 1950. It is true
that both articles adhere to the so-called nationality theory of determining the property
relation of spouses where one of them is a foreigner and they have made no prior
agreement as to the administration disposition, and ownership of their conjugal
properties. In such a case, the national law of the husband becomes the dominant law
in determining the property relation of the spouses. There is, however, a difference
between the two articles in that Article 1241 of the new Civil Code expressly provides
that it shall be applicable regardless of whether the marriage was celebrated in the
Philippines or abroad while Article 13252 of the old Civil Code is limited to marriages
contracted in a foreign land.

It must be noted, however, that what has just been said refers to mixed marriages
between a Filipino citizen and a foreigner. In the instant case, both spouses are
foreigners who married in the Philippines. Manresa,3 in his Commentaries, has this to
say on this point:

La regla establecida en el art. 1.315, se refiere a las capitulaciones otorgadas en

Espana y entre espanoles. El 1.325, a las celebradas en el extranjero cuando
alguno de los conyuges es espanol. En cuanto a la regla procedente cuando dos
extranjeros se casan en Espana, o dos espanoles en el extranjero hay que
atender en el primer caso a la legislacion de pais a que aquellos pertenezean, y
en el segundo, a las reglas generales consignadas en los articulos 9 y 10 de
nuestro Codigo. (Emphasis supplied.)

If we adopt the view of Manresa, the law determinative of the property relation of the
Stevensons, married in 1909, would be the English law even if the marriage was
celebrated in the Philippines, both of them being foreigners. But, as correctly observed
by the Tax Court, the pertinent English law that allegedly vests in the decedent husband
full ownership of the properties acquired during the marriage has not been proven by
petitioner. Except for a mere allegation in his answer, which is not sufficient, the record
is bereft of any evidence as to what English law says on the matter. In the absence of
proof, the Court is justified, therefore, in indulging in what Wharton calls "processual
presumption," in presuming that the law of England on this matter is the same as our
law.4

Nor do we believe petitioner can make use of Article 16 of the New Civil Code (art. 10,
old Civil Code) to bolster his stand. A reading of Article 10 of the old Civil Code, which
incidentally is the one applicable, shows that it does not encompass or contemplate to
govern the question of property relation between spouses. Said article distinctly speaks
of amount of successional rights and this term, in speaks in our opinion, properly refers
to the extent or amount of property that each heir is legally entitled to inherit from the
estate available for distribution. It needs to be pointed out that the property relation of
spouses, as distinguished from their successional rights, is governed differently by the
specific and express provisions of Title VI, Chapter I of our new Civil Code (Title III,
Chapter I of the old Civil Code.) We, therefore, find that the lower court correctly
deducted the half of the conjugal property in determining the hereditary estate left by the
deceased Stevenson.

On the second issue, petitioner disputes the action of the Tax Court in the exempting
the respondents from paying inheritance tax on the 210,000 shares of stock in the
Mindanao Mother Lode Mines, Inc. in virtue of the reciprocity proviso of Section 122 of
the National Internal Revenue Code, in relation to Section 13851 of the California
Revenue and Taxation Code, on the ground that: (1) the said proviso of the California
Revenue and Taxation Code has not been duly proven by the respondents; (2) the
reciprocity exemptions granted by section 122 of the National Internal Revenue Code
can only be availed of by residents of foreign countries and not of residents of a state in
the United States; and (3) there is no "total" reciprocity between the Philippines and the
state of California in that while the former exempts payment of both estate and
inheritance taxes on intangible personal properties, the latter only exempts the payment
of inheritance tax..

To prove the pertinent California law, Attorney Allison Gibbs, counsel for herein
respondents, testified that as an active member of the California Bar since 1931, he is
familiar with the revenue and taxation laws of the State of California. When asked by the
lower court to state the pertinent California law as regards exemption of intangible
personal properties, the witness cited article 4, section 13851 (a) and (b) of the
California Internal and Revenue Code as published in Derring's California Code, a
publication of the Bancroft-Whitney Company inc. And as part of his testimony, a full
quotation of the cited section was offered in evidence as Exhibits "V-2" by the
respondents.

It is well-settled that foreign laws do not prove themselves in our jurisdiction and our
courts are not authorized to take judicial notice of them.5 Like any other fact, they must
be alleged and proved.6

Section 41, Rule 123 of our Rules of Court prescribes the manner of proving foreign
laws before our tribunals. However, although we believe it desirable that these laws be
proved in accordance with said rule, we held in the case of Willamette Iron and Steel
Works v. Muzzal, 61 Phil. 471, that "a reading of sections 300 and 301 of our Code of
Civil Procedure (now section 41, Rule 123) will convince one that these sections do not
exclude the presentation of other competent evidence to prove the existence of a
foreign law." In that case, we considered the testimony of an attorney-at-law of San
Francisco, California who quoted verbatim a section of California Civil Code and who
stated that the same was in force at the time the obligations were contracted, as
sufficient evidence to establish the existence of said law. In line with this view, we find
no error, therefore, on the part of the Tax Court in considering the pertinent California
law as proved by respondents' witness.

We now take up the question of reciprocity in exemption from transfer or death taxes,
between the State of California and the Philippines.F

Section 122 of our National Internal Revenue Code, in pertinent part, provides:

... And, provided, further, That no tax shall be collected under this Title in respect
of intangible personal property (a) if the decedent at the time of his death was a
resident of a foreign country which at the time of his death did not impose a
transfer of tax or death tax of any character in respect of intangible personal
property of citizens of the Philippines not residing in that foreign country, or (b) if
the laws of the foreign country of which the decedent was a resident at the time
of his death allow a similar exemption from transfer taxes or death taxes of every
character in respect of intangible personal property owned by citizens of the
Philippines not residing in that foreign country." (Emphasis supplied).

On the other hand, Section 13851 of the California Inheritance Tax Law, insofar as
pertinent, reads:.

"SEC. 13851, Intangibles of nonresident: Conditions. Intangible personal property

is exempt from the tax imposed by this part if the decedent at the time of his
death was a resident of a territory or another State of the United States or of a
foreign state or country which then imposed a legacy, succession, or death tax in
respect to intangible personal property of its own residents, but either:.

(a) Did not impose a legacy, succession, or death tax of any character in respect
to intangible personal property of residents of this State, or

(b) Had in its laws a reciprocal provision under which intangible personal property
of a non-resident was exempt from legacy, succession, or death taxes of every
character if the Territory or other State of the United States or foreign state or
country in which the nonresident resided allowed a similar exemption in respect
to intangible personal property of residents of the Territory or State of the United
States or foreign state or country of residence of the decedent." (Id.)

It is clear from both these quoted provisions that the reciprocity must be total, that is,
with respect to transfer or death taxes of any and every character, in the case of the
Philippine law, and to legacy, succession, or death taxes of any and every character, in
the case of the California law. Therefore, if any of the two states collects or imposes and
does not exempt any transfer, death, legacy, or succession tax of any character, the
reciprocity does not work. This is the underlying principle of the reciprocity clauses in
both laws.
In the Philippines, upon the death of any citizen or resident, or non-resident with
properties therein, there are imposed upon his estate and its settlement, both an estate
and an inheritance tax. Under the laws of California, only inheritance tax is imposed. On
the other hand, the Federal Internal Revenue Code imposes an estate tax on non-
residents not citizens of the United States,7 but does not provide for any exemption on
the basis of reciprocity. Applying these laws in the manner the Court of Tax Appeals did
in the instant case, we will have a situation where a Californian, who is non-resident in
the Philippines but has intangible personal properties here, will the subject to the
payment of an estate tax, although exempt from the payment of the inheritance tax. This
being the case, will a Filipino, non-resident of California, but with intangible personal
properties there, be entitled to the exemption clause of the California law, since the
Californian has not been exempted from every character of legacy, succession, or death
tax because he is, under our law, under obligation to pay an estate tax? Upon the other
hand, if we exempt the Californian from paying the estate tax, we do not thereby entitle
a Filipino to be exempt from a similar estate tax in California because under the Federal
Law, which is equally enforceable in California he is bound to pay the same, there being
no reciprocity recognized in respect thereto. In both instances, the Filipino citizen is
always at a disadvantage. We do not believe that our legislature has intended such an
unfair situation to the detriment of our own government and people. We, therefore, find
and declare that the lower court erred in exempting the estate in question from payment
of the inheritance tax.

We are not unaware of our ruling in the case of Collector of Internal Revenue vs.
Lara (G.R. Nos. L-9456 & L-9481, prom. January 6, 1958, 54 O.G. 2881) exempting the
estate of the deceased Hugo H. Miller from payment of the inheritance tax imposed by
the Collector of Internal Revenue. It will be noted, however, that the issue of reciprocity
between the pertinent provisions of our tax law and that of the State of California was
not there squarely raised, and the ruling therein cannot control the determination of the
case at bar. Be that as it may, we now declare that in view of the express provisions of
both the Philippine and California laws that the exemption would apply only if the law of
the other grants an exemption from legacy, succession, or death taxes of every
character, there could not be partial reciprocity. It would have to be total or none at all.

With respect to the question of deduction or reduction in the amount of P4,000.00 based
on the U.S. Federal Estate Tax Law which is also being claimed by respondents, we
uphold and adhere to our ruling in the Lara case (supra) that the amount of $2,000.00
allowed under the Federal Estate Tax Law is in the nature of a deduction and not of an
exemption regarding which reciprocity cannot be claimed under the provision of Section
122 of our National Internal Revenue Code. Nor is reciprocity authorized under the
Federal Law. .

On the issue of the correctness of the appraisal of the two parcels of land situated in
Baguio City, it is contended that their assessed values, as appearing in the tax rolls 6
months after the death of Stevenson, ought to have been considered by petitioner as
their fair market value, pursuant to section 91 of the National Internal Revenue Code. It
should be pointed out, however, that in accordance with said proviso the properties are
required to be appraised at their fair market value and the assessed value thereof shall
be considered as the fair market value only when evidence to the contrary has not been
shown. After all review of the record, we are satisfied that such evidence exists to justify
the valuation made by petitioner which was sustained by the tax court, for as the tax
court aptly observed:

"The two parcels of land containing 36,264 square meters were valued by the
administrator of the estate in the Estate and Inheritance tax returns filed by him
at P43,500.00 which is the assessed value of said properties. On the other hand,
defendant appraised the same at P52,200.00. It is of common knowledge, and
this Court can take judicial notice of it, that assessments for real estate taxation
purposes are very much lower than the true and fair market value of the
properties at a given time and place. In fact one year after decedent's death or in
1952 the said properties were sold for a price of P72,000.00 and there is no
showing that special or extraordinary circumstances caused the sudden increase
from the price of P43,500.00, if we were to accept this value as a fair and
reasonable one as of 1951. Even more, the counsel for plaintiffs himself admitted
in open court that he was willing to purchase the said properties at P2.00 per
square meter. In the light of these facts we believe and therefore hold that the
valuation of P52,200.00 of the real estate in Baguio made by defendant is fair,
reasonable and justified in the premises." (Decision, p. 19).

In respect to the valuation of the 210,000 shares of stock in the Mindanao Mother Lode
Mines, Inc., (a domestic corporation), respondents contend that their value should be
fixed on the basis of the market quotation obtaining at the San Francisco (California)
Stock Exchange, on the theory that the certificates of stocks were then held in that
place and registered with the said stock exchange. We cannot agree with respondents'
argument. The situs of the shares of stock, for purposes of taxation, being located here
in the Philippines, as respondents themselves concede and considering that they are
sought to be taxed in this jurisdiction, consistent with the exercise of our government's
taxing authority, their fair market value should be taxed on the basis of the price
prevailing in our country.

Upon the other hand, we find merit in respondents' other contention that the said shares
of stock commanded a lesser value at the Manila Stock Exchange six months after the
death of Stevenson. Through Atty. Allison Gibbs, respondents have shown that at that
time a share of said stock was bid for at only P.325 (p. 103, t.s.n.). Significantly, the
testimony of Atty. Gibbs in this respect has never been questioned nor refuted by
petitioner either before this court or in the court below. In the absence of evidence to the
contrary, we are, therefore, constrained to reverse the Tax Court on this point and to
hold that the value of a share in the said mining company on August 22, 1951 in the
Philippine market was P.325 as claimed by respondents..

It should be noted that the petitioner and the Tax Court valued each share of stock of
P.38 on the basis of the declaration made by the estate in its preliminary return.
Patently, this should not have been the case, in view of the fact that the ancillary
administrator had reserved and availed of his legal right to have the properties of the
estate declared at their fair market value as of six months from the time the decedent
died..

On the fifth issue, we shall consider the various deductions, from the allowance or
disallowance of which by the Tax Court, both petitioner and respondents have
appealed..

Petitioner, in this regard, contends that no evidence of record exists to support the
allowance of the sum of P8,604.39 for the following expenses:.

1) Administrator's fee P1,204.34

2) Attorney's fee 6,000.00
3) Judicial and Administrative expenses 2,052.55
Total Deductions P8,604.39

An examination of the record discloses, however, that the foregoing items were
considered deductible by the Tax Court on the basis of their approval by the probate
court to which said expenses, we may presume, had also been presented for
consideration. It is to be supposed that the probate court would not have approved said
items were they not supported by evidence presented by the estate. In allowing the
items in question, the Tax Court had before it the pertinent order of the probate court
which was submitted in evidence by respondents. (Exh. "AA-2", p. 100, record). As the
Tax Court said, it found no basis for departing from the findings of the probate court, as
it must have been satisfied that those expenses were actually incurred. Under the
circumstances, we see no ground to reverse this finding of fact which, under Republic
Act of California National Association, which it would appear, that while still living,
Walter G. Stevenson obtained we are not inclined to pass upon the claim of
respondents in respect to the additional amount of P86.52 for funeral expenses which
was disapproved by the court a quo for lack of evidence.

In connection with the deduction of P652.50 representing the amount of realty taxes
paid in 1951 on the decedent's two parcels of land in Baguio City, which respondents
claim was disallowed by the Tax Court, we find that this claim has in fact been allowed.
What happened here, which a careful review of the record will reveal, was that the Tax
Court, in itemizing the liabilities of the estate, viz:

1) Administrator's fee P1,204.34

2) Attorney's fee 6,000.00
3) Judicial and Administration expenses as of
August 9, 1952 2,052.55
Total P9,256.89
added the P652.50 for realty taxes as a liability of the estate, to the P1,400.05 for
judicial and administration expenses approved by the court, making a total of
P2,052.55, exactly the same figure which was arrived at by the Tax Court for judicial
and administration expenses. Hence, the difference between the total of P9,256.98
allowed by the Tax Court as deductions, and the P8,604.39 as found by the probate
court, which is P652.50, the same amount allowed for realty taxes. An evident oversight
has involuntarily been made in omitting the P2,000.00 for funeral expenses in the final
computation. This amount has been expressly allowed by the lower court and there is
no reason why it should not be. .

We come now to the other claim of respondents that pursuant to section 89(b) (1) in
relation to section 89(a) (1) (E) and section 89(d), National Internal Revenue Code, the
amount of P10,022.47 should have been allowed the estate as a deduction, because it
represented an indebtedness of the decedent incurred during his lifetime. In support
thereof, they offered in evidence a duly certified claim, presented to the probate court in
California by the Bank of California National Association, which it would appear, that
while still living, Walter G. Stevenson obtained a loan of $5,000.00 secured by pledge
on 140,000 of his shares of stock in the Mindanao Mother Lode Mines, Inc. (Exhs. "Q-
Q4", pp. 53-59, record). The Tax Court disallowed this item on the ground that the local
probate court had not approved the same as a valid claim against the estate and
because it constituted an indebtedness in respect to intangible personal property which
the Tax Court held to be exempt from inheritance tax.

For two reasons, we uphold the action of the lower court in disallowing the deduction.

Firstly, we believe that the approval of the Philippine probate court of this particular
indebtedness of the decedent is necessary. This is so although the same, it is averred
has been already admitted and approved by the corresponding probate court in
California, situs of the principal or domiciliary administration. It is true that we have here
in the Philippines only an ancillary administration in this case, but, it has been held, the
distinction between domiciliary or principal administration and ancillary
administration serves only to distinguish one administration from the other, for the two
proceedings are separate and independent.8 The reason for the ancillary administration
is that, a grant of administration does not ex proprio vigore, have any effect beyond the
limits of the country in which it was granted. Hence, we have the requirement that
before a will duly probated outside of the Philippines can have effect here, it must first
be proved and allowed before our courts, in much the same manner as wills originally
presented for allowance therein.9 And the estate shall be administered under letters
testamentary, or letters of administration granted by the court, and disposed of
according to the will as probated, after payment of just debts and expenses of
administration.10 In other words, there is a regular administration under the control of the
court, where claims must be presented and approved, and expenses of administration
allowed before deductions from the estate can be authorized. Otherwise, we would
have the actuations of our own probate court, in the settlement and distribution of the
estate situated here, subject to the proceedings before the foreign court over which our
courts have no control. We do not believe such a procedure is countenanced or
contemplated in the Rules of Court.

Another reason for the disallowance of this indebtedness as a deduction, springs from
the provisions of Section 89, letter (d), number (1), of the National Internal Revenue
Code which reads:

(d) Miscellaneous provisions (1) No deductions shall be allowed in the case of

a non-resident not a citizen of the Philippines unless the executor, administrator
or anyone of the heirs, as the case may be, includes in the return required to be
filed under section ninety-three the value at the time of his death of that part of
the gross estate of the non-resident not situated in the Philippines."

In the case at bar, no such statement of the gross estate of the non-resident Stevenson
not situated in the Philippines appears in the three returns submitted to the court or to
the office of the petitioner Collector of Internal Revenue. The purpose of this
requirement is to enable the revenue officer to determine how much of the indebtedness
may be allowed to be deducted, pursuant to (b), number (1) of the same section 89 of
the Internal Revenue Code which provides:

(b) Deductions allowed to non-resident estates. In the case of a non-resident

not a citizen of the Philippines, by deducting from the value of that part of his
gross estate which at the time of his death is situated in the Philippines

(1) Expenses, losses, indebtedness, and taxes. That proportion of the

deductions specified in paragraph (1) of subjection (a) of this section11 which the
value of such part bears the value of his entire gross estate wherever situated;"

In other words, the allowable deduction is only to the extent of the portion of the
indebtedness which is equivalent to the proportion that the estate in the Philippines
bears to the total estate wherever situated. Stated differently, if the properties in the
Philippines constitute but 1/5 of the entire assets wherever situated, then only 1/5 of the
indebtedness may be deducted. But since, as heretofore adverted to, there is no
statement of the value of the estate situated outside the Philippines, no part of the
indebtedness can be allowed to be deducted, pursuant to Section 89, letter (d), number
(1) of the Internal Revenue Code.

For the reasons thus stated, we affirm the ruling of the lower court disallowing the
deduction of the alleged indebtedness in the sum of P10,022.47.

In recapitulation, we hold and declare that:

(a) only the one-half (1/2) share of the decedent Stevenson in the conjugal
partnership property constitutes his hereditary estate subject to the estate and
inheritance taxes;
 (b) the intangible personal property is not exempt from inheritance tax, there
existing no complete total reciprocity as required in section 122 of the National
Internal Revenue Code, nor is the decedent's estate entitled to an exemption of
P4,000.00 in the computation of the estate tax;

(c) for the purpose of the estate and inheritance taxes, the 210,000 shares of
stock in the Mindanao Mother Lode Mines, Inc. are to be appraised at P0.325 per
share; and

(d) the P2,000.00 for funeral expenses should be deducted in the determination
of the net asset of the deceased Stevenson.

In all other respects, the decision of the Court of Tax Appeals is affirmed.

Respondent's claim for interest on the amount allegedly overpaid, if any actually results
after a recomputation on the basis of this decision is hereby denied in line with our
recent decision in Collector of Internal Revenue v. St. Paul's Hospital (G.R. No. L-
12127, May 29, 1959) wherein we held that, "in the absence of a statutory provision
clearly or expressly directing or authorizing such payment, and none has been cited by
respondents, the National Government cannot be required to pay interest."

WHEREFORE, as modified in the manner heretofore indicated, the judgment of the

lower court is hereby affirmed in all other respects not inconsistent herewith. No costs.
So ordered.

G.R. No. L-39670 March 20, 1934

In the matter of the intestate estate of the deceased Crispulo Javillo.

ROSARIO OAS, oppositor-appellant,
vs.
CONSOLACION JAVILLO, ET AL., petitioners-appellees.

Pedro Malveda for appellant.

Santiago Abella for appellees.

GODDARD, J.:

This is an appeal from an order of the Court of First Instance of Capiz approving a
project of partition of the property belonging to the estate of the deceased Crispulo
Javillo valued at P16,000 more or less.

Crispulo Javillo died intestate on the 18th of May, 1927, in the municipality of Sigma,
Province of Capiz, Philippine Islands. On the 25th day of July, 1927, a petition was filed
in the Court of First Instance of that province praying that an administrator of this estate
be appointed, and after hearing Santiago Andrada was named administrator. He
submitted two projects of partition. The first was disapproved by the lower court and
from that order some of the heirs appealed to this court which appeal was
dismissed. 1The second project of partition dated September 9, 1931, is the one now on
appeal in this case.

Crispulo Javillo contracted two marriages. The first, with Ramona Levis. To this
marriage five children were born, to wit, Consolacion, Mercedes, Caridad, Soledad and
Jose Javillo, the appellees in this case. After the death of Ramona Levis, Crispulo
Javillo married Rosario Oas. To this marriage four children were born, to wit, Joaquin,
Ana, Bernardo and Porillana. Rosario Oas the appellant in this case.

The parties entered into the following agreement as to the property acquired during the
first and second marriages:

CONVENIO: Ambas partes convienen que 109 terrenos designados como

parcelas 1., 2., 3., 4.., 5., 6., 7., 8., 9.., 10., 11. del inventario de los
commisionados de avaluo y reclamaciones obrantes a folios 40 al 43 del
expediente han sido encontrados durante la vida marital de Crispulo Javillo con
su primera esposa, madre de Consolacion, Mercedes, Caridad, Soledad y Jose
Javillo; y que las parcelas 12., 13., 14., 15., 16., 17., 18., 19., 20, 21, 22,
23, 24, 25, 26, 27, 28, 29, 30 y 31 de dicho inventario fueron comprados o
encontrados durante la vida marital de Crispulo Javillo con Rosario Oas. Que
durante el primer matrimonio fueron adquiridos cinco carabaos y el resto de los
carabaos asi como los vacunos fueron encontrados durante el matrimonio de
Crispulo Javillo con Rosario Oas.

The appellant alleges that the lower court committed the following errors:

I. The lower court erred in holding that all the properties acquired during the
second marriage of Crispulo Javillo with Rosario Oas were acquired with the
products of the properties of the first marriage of said Crispulo Javillo with
Ramona Levis, and in approving the manner of distributing the estates among
the heirs of the first and second marriages, as indicated in the project of partition
now in question.

II. The lower court erred in approving the second project of partition dated
September 9, 1931, notwithstanding that the same did not include all the
properties of the deceased Crispulo Javillo.

The first assignment of error is well taken. Crispulo Javillo lived for about twenty years
after his second marriage and during that marriage acquired twenty parcels of land.
Only eleven parcels were acquired during the first marriage. It would take a person with
a very vivid imagination to believe that the product of eleven parcels of land acquired
during the first marriage supplied all of the capital used in acquiring the twenty parcels
of the second marriage. Such a claim is preposterous.
Some Spanish commentators have suggested that upon the death of the
husband or wife, the community continues between the survivor and the heirs of
the deceased until partition has actually taken place, and that the latter are
entitled to share in its acquisitions during its continuance. . . . But this view was
never generally accepted by the Spanish jurists, and an examination of the
provisions of the Civil Code makes it clear that the authors of that body of laws
did not contemplate any such extension of the life of the community. Gutierrez
adopting the views of Matienzo says:

"The community partnership being as permanent as the state that produces it,
there can be no doubt that the same causes influence it as marriage. The first of
them is death. Some have believed that the community might continue to exist
between the surviving spouse and the heirs of the deceased husband or wife;
but, in the opinion of Matienzo, which appears to us to be well-founded, there are
reasons for believing otherwise, to wit: (1) When the marriage is dissolved, the
cause that brought about the community ceases, for the principles of an ordinary
partnership are not applicable to this community, which is governed by special
rules. (2) In the absence of the reasons that induced the legislator to establish it,
the provisions of law governing the subject should cease to have any effect for
the community of property is admissible and proper in so far as it conforms to
unity of life, to the mutual affection between husband and wife, and serves as a
recompense for the care of preserving and increasing the property; all of which
terminates by the death of one of the partners. (3) The partnership having been
created by law, it has no object and it is unsafe to extend it on pretext of tacit
consent." (Gutierrez, 3rd ed., vol. 1. p. 579.)

Manresa, discussing the status of the community (sociedad) after dissolution of

the conjugal relations makes the following comment:

". . . The community terminates when the marriage is dissolved or annulled, or

when during the marriage, an agreement is entered into to divide the conjugal
property. The conjugal partnership exists therefore so long as the spouses are
legally united; the important thing is not exactly the bond, the tie formed by the
marriage, but, the existence in the eyes of the law of the life in common. It is this
life in common that creates common necessities and represents common efforts,
the result of which should be that both partners should share in the profits.

"When, for any cause, the conjugal partnership established upon the basis of the
system of community property is dissolved, all the provisions of articles 1401 to
1416, based upon the existence of that partnership, cease to apply.

"Consequently, whatever is acquired by the surviving spouse on the dissolution

of the partnership by death or presumption of death, or by either of the spouse on
termination of the partnership for other reasons and when this latter no longer
exists, whether the acquisition be made by his or her labor or industry, or
whether by onerous or by lucrative title, it forms a a part of his or her own capital,
 in which the other consort, or his or her heirs, can claim no share. The fruits, as
an accessory, follow the property; the buildings, the soil; the plantings, the land
all according to the general rules of accession." (Nable Jose vs. Nable Jose,
41 Phil., 713, 717-719.)1vvphi1.ne+

. . . it may fairly be deduced that prior to the liquidation, the interest of the wife,
and in case of her death, of her heirs, is an interest inchoate, a mere expectancy,
which constitutes neither a legal nor an equitable estate, and does not ripen into
title until it appears that there are assets in the community as a result of the
liquidation and settlement. . . . Nable Jose vs. Nable Jose, supra.)

In this case it does not appear that there was a liquidation of the partnership property of
the first marriage nor does it appear that they asked for such a liquidation.

The project of partition approved by the lower court is based on the above-mentioned
absurd claim and furthermore is not in conformity to law. One-half of all the conjugal
property of both marriages corresponds to the deceased Crispulo Javillo and must be
divided share and share alike among all the children of both marriages. One-half of the
conjugal property pertaining to the first marriage should be divided share and share
alike among the five children of that marriage. One-half of the conjugal property of the
second marriage must be adjudicated to the widow Rosario Oas and furthermore she
has a right of usufruct over the property of her deceased husband equal to one-ninth of
the two thirds of that property which constitutes the legitime of the children of both
marriages which is two-twenty-sevenths of the property corresponding to her husband.
This usufruct should be taken from the property pertaining to the second marriage.

The property corresponding to the first marriage consists of parcels 1 to 11, inclusive,
and 5 carabaos. The property of the second marriage consists of parcels 12 to 31,
inclusive, and the remainder of the carabaos and large cattle mentioned in the
agreement copied above.

If it is true as alleged by the appellant that there are houses on any of these parcels of
land, it is to be presumed that they were included in the valuation made by the
committee on claims and appraisal and therefore they would belong to the person to
whom the land, upon which they are built, is adjudicated.

The judgment of the lower court is reversed and this case is remanded for further
proceedings in conformity with this decision without pronouncements as to costs.

G.R. No 176556 July 4, 2012

BRIGIDO B. QUIAO, Petitioner,

vs.
RITA C. QUIAO, KITCHIE C. QUIAO, LOTIS C. QUIAO, PETCHIE C. QUIAO,
represented by their mother RITA QUIAO, Respondents.
 DECISION

REYES, J.:

The family is the basic and the most important institution of society. It is in the family
where children are born and molded either to become useful citizens of the country or
troublemakers in the community. Thus, we are saddened when parents have to
separate and fight over properties, without regard to the message they send to their
children. Notwithstanding this, we must not shirk from our obligation to rule on this case
involving legal separation escalating to questions on dissolution and partition of
properties.

The Case

This case comes before us via Petition for Review on Certiorari1 under Rule 45 of the
Rules of Court. The petitioner seeks that we vacate and set aside the Order2 dated
January 8, 2007 of the Regional Trial Court (RTC), Branch 1, Butuan City. In lieu of the
said order, we are asked to issue a Resolution defining the net profits subject of the
forfeiture as a result of the decree of legal separation in accordance with the provision
of Article 102(4) of the Family Code, or alternatively, in accordance with the provisions
of Article 176 of the Civil Code.

Antecedent Facts

On October 26, 2000, herein respondent Rita C. Quiao (Rita) filed a complaint for legal
separation against herein petitioner Brigido B. Quiao (Brigido).3 Subsequently, the RTC
rendered a Decision4 dated October 10, 2005, the dispositive portion of which provides:

WHEREFORE, viewed from the foregoing considerations, judgment is hereby rendered

declaring the legal separation of plaintiff Rita C. Quiao and defendant-respondent
Brigido B. Quiao pursuant to Article 55.

As such, the herein parties shall be entitled to live separately from each other, but the
marriage bond shall not be severed.

Except for Letecia C. Quiao who is of legal age, the three minor children, namely,
Kitchie, Lotis and Petchie, all surnamed Quiao shall remain under the custody of the
plaintiff who is the innocent spouse.

Further, except for the personal and real properties already foreclosed by the RCBC, all
the remaining properties, namely:

1. coffee mill in Balongagan, Las Nieves, Agusan del Norte;

2. coffee mill in Durian, Las Nieves, Agusan del Norte;

 3. corn mill in Casiklan, Las Nieves, Agusan del Norte;

4. coffee mill in Esperanza, Agusan del Sur;

5. a parcel of land with an area of 1,200 square meters located in Tungao,

Butuan City;

6. a parcel of agricultural land with an area of 5 hectares located in Manila de

Bugabos, Butuan City;

7. a parcel of land with an area of 84 square meters located in Tungao, Butuan

City;

8. Bashier Bon Factory located in Tungao, Butuan City;

shall be divided equally between herein [respondents] and [petitioner] subject to the
respective legitimes of the children and the payment of the unpaid conjugal liabilities of
[]45,740.00.

[Petitioners] share, however, of the net profits earned by the conjugal partnership is
forfeited in favor of the common children.

He is further ordered to reimburse [respondents] the sum of []19,000.00 as attorney's

fees and litigation expenses of []5,000.00[.]

SO ORDERED.5

Neither party filed a motion for reconsideration and appeal within the period provided for
under Section 17(a) and (b) of the Rule on Legal Separation.6

On December 12, 2005, the respondents filed a motion for execution7 which the trial
court granted in its Order dated December 16, 2005, the dispositive portion of which
reads:

"Wherefore, finding the motion to be well taken, the same is hereby granted. Let a writ
of execution be issued for the immediate enforcement of the Judgment.

SO ORDERED."8

Subsequently, on February 10, 2006, the RTC issued a Writ of Execution9 which reads
as follows:

NOW THEREFORE, that of the goods and chattels of the [petitioner] BRIGIDO B.
QUIAO you cause to be made the sums stated in the afore-quoted DECISION [sic],
together with your lawful fees in the service of this Writ, all in the Philippine Currency.
But if sufficient personal property cannot be found whereof to satisfy this execution and
your lawful fees, then we command you that of the lands and buildings of the said
[petitioner], you make the said sums in the manner required by law. You are enjoined to
strictly observed Section 9, Rule 39, Rule [sic] of the 1997 Rules of Civil Procedure.

You are hereby ordered to make a return of the said proceedings immediately after the
judgment has been satisfied in part or in full in consonance with Section 14, Rule 39 of
the 1997 Rules of Civil Procedure, as amended.10

On July 6, 2006, the writ was partially executed with the petitioner paying the
respondents the amount of 46,870.00, representing the following payments:

(a) 22,870.00 as petitioner's share of the payment of the conjugal share;

(b) 19,000.00 as attorney's fees; and

(c) 5,000.00 as litigation expenses.11

On July 7, 2006, or after more than nine months from the promulgation of the Decision,
the petitioner filed before the RTC a Motion for Clarification,12 asking the RTC to define
the term "Net Profits Earned."

To resolve the petitioner's Motion for Clarification, the RTC issued an Order13 dated
August 31, 2006, which held that the phrase "NET PROFIT EARNED" denotes "the
remainder of the properties of the parties after deducting the separate properties of
each [of the] spouse and the debts."14 The Order further held that after determining the
remainder of the properties, it shall be forfeited in favor of the common children because
the offending spouse does not have any right to any share of the net profits earned,
pursuant to Articles 63, No. (2) and 43, No. (2) of the Family Code.15 The dispositive
portion of the Order states:

WHEREFORE, there is no blatant disparity when the sheriff intends to forfeit all the
remaining properties after deducting the payments of the debts for only separate
properties of the defendant-respondent shall be delivered to him which he has none.

The Sheriff is herein directed to proceed with the execution of the Decision.

IT IS SO ORDERED.16

Not satisfied with the trial court's Order, the petitioner filed a Motion for
Reconsideration17 on September 8, 2006. Consequently, the RTC issued another
Order18 dated November 8, 2006, holding that although the Decision dated October 10,
2005 has become final and executory, it may still consider the Motion for Clarification
because the petitioner simply wanted to clarify the meaning of "net profit
earned."19 Furthermore, the same Order held:
ALL TOLD, the Court Order dated August 31, 2006 is hereby ordered set aside. NET
PROFIT EARNED, which is subject of forfeiture in favor of [the] parties' common
children, is ordered to be computed in accordance [with] par. 4 of Article 102 of the
Family Code.20

On November 21, 2006, the respondents filed a Motion for Reconsideration, 21 praying
for the correction and reversal of the Order dated November 8, 2006. Thereafter, on
January 8, 2007,22 the trial court had changed its ruling again and granted the
respondents' Motion for Reconsideration whereby the Order dated November 8, 2006
was set aside to reinstate the Order dated August 31, 2006.

Not satisfied with the trial court's Order, the petitioner filed on February 27, 2007 this
instant Petition for Review under Rule 45 of the Rules of Court, raising the following:

Issues

IS THE DISSOLUTION AND THE CONSEQUENT LIQUIDATION OF THE COMMON

PROPERTIES OF THE HUSBAND AND WIFE BY VIRTUE OF THE DECREE OF
LEGAL SEPARATION GOVERNED BY ARTICLE 125 (SIC) OF THE FAMILY CODE?

II

WHAT IS THE MEANING OF THE NET PROFITS EARNED BY THE CONJUGAL

PARTNERSHIP FOR PURPOSES OF EFFECTING THE FORFEITURE AUTHORIZED
UNDER ARTICLE 63 OF THE FAMILY CODE?

III

WHAT LAW GOVERNS THE PROPERTY RELATIONS BETWEEN THE HUSBAND

AND WIFE WHO GOT MARRIED IN 1977? CAN THE FAMILY CODE OF THE
PHILIPPINES BE GIVEN RETROACTIVE EFFECT FOR PURPOSES OF
DETERMINING THE NET PROFITS SUBJECT OF FORFEITURE AS A RESULT OF
THE DECREE OF LEGAL SEPARATION WITHOUT IMPAIRING VESTED RIGHTS
ALREADY ACQUIRED UNDER THE CIVIL CODE?

IV

WHAT PROPERTIES SHALL BE INCLUDED IN THE FORFEITURE OF THE SHARE

OF THE GUILTY SPOUSE IN THE NET CONJUGAL PARTNERSHIP AS A RESULT
OF THE ISSUANCE OF THE DECREE OF LEGAL SEPARATION?23

Our Ruling
While the petitioner has raised a number of issues on the applicability of certain laws,
we are well-aware that the respondents have called our attention to the fact that the
Decision dated October 10, 2005 has attained finality when the Motion for Clarification
was filed.24 Thus, we are constrained to resolve first the issue of the finality of the
Decision dated October 10, 2005 and subsequently discuss the matters that we can
clarify.

The Decision dated October 10, 2005 has become final and executory at the time
the Motion for Clarification was filed on July 7, 2006.

Section 3, Rule 41 of the Rules of Court provides:

Section 3. Period of ordinary appeal. - The appeal shall be taken within fifteen (15) days
from notice of the judgment or final order appealed from. Where a record on appeal is
required, the appellant shall file a notice of appeal and a record on appeal within thirty
(30) days from notice of the judgment or final order.

The period of appeal shall be interrupted by a timely motion for new trial or
reconsideration. No motion for extension of time to file a motion for new trial or
reconsideration shall be allowed.

In Neypes v. Court of Appeals,25 we clarified that to standardize the appeal periods

provided in the Rules and to afford litigants fair opportunity to appeal their cases, we
held that "it would be practical to allow a fresh period of 15 days within which to file the
notice of appeal in the RTC, counted from receipt of the order dismissing a motion for a
new trial or motion for reconsideration."26

In Neypes, we explained that the "fresh period rule" shall also apply to Rule 40
governing appeals from the Municipal Trial Courts to the RTCs; Rule 42 on petitions for
review from the RTCs to the Court of Appeals (CA); Rule 43 on appeals from quasi-
judicial agencies to the CA and Rule 45 governing appeals by certiorari to the Supreme
Court. We also said, "The new rule aims to regiment or make the appeal period uniform,
to be counted from receipt of the order denying the motion for new trial, motion for
reconsideration (whether full or partial) or any final order or resolution." 27 In other words,
a party litigant may file his notice of appeal within a fresh 15-day period from his receipt
of the trial court's decision or final order denying his motion for new trial or motion for
reconsideration. Failure to avail of the fresh 15-day period from the denial of the motion
for reconsideration makes the decision or final order in question final and executory.

In the case at bar, the trial court rendered its Decision on October 10, 2005. The
petitioner neither filed a motion for reconsideration nor a notice of appeal. On December
16, 2005, or after 67 days had lapsed, the trial court issued an order granting the
respondent's motion for execution; and on February 10, 2006, or after 123 days had
lapsed, the trial court issued a writ of execution. Finally, when the writ had already been
partially executed, the petitioner, on July 7, 2006 or after 270 days had lapsed, filed his
Motion for Clarification on the definition of the "net profits earned." From the foregoing,
the petitioner had clearly slept on his right to question the RTCs Decision dated
October 10, 2005. For 270 days, the petitioner never raised a single issue until the
decision had already been partially executed. Thus at the time the petitioner filed his
motion for clarification, the trial courts decision has become final and executory. A
judgment becomes final and executory when the reglementary period to appeal lapses
and no appeal is perfected within such period. Consequently, no court, not even this
Court, can arrogate unto itself appellate jurisdiction to review a case or modify a
judgment that became final.28

The petitioner argues that the decision he is questioning is a void judgment. Being such,
the petitioner's thesis is that it can still be disturbed even after 270 days had lapsed from
the issuance of the decision to the filing of the motion for clarification. He said that "a
void judgment is no judgment at all. It never attains finality and cannot be a source of
any right nor any obligation."29 But what precisely is a void judgment in our jurisdiction?
When does a judgment becomes void?

"A judgment is null and void when the court which rendered it had no power to grant the
relief or no jurisdiction over the subject matter or over the parties or both." 30 In other
words, a court, which does not have the power to decide a case or that has no
jurisdiction over the subject matter or the parties, will issue a void judgment or a coram
non judice.31

The questioned judgment does not fall within the purview of a void judgment. For sure,
the trial court has jurisdiction over a case involving legal separation. Republic Act (R.A.)
No. 8369 confers upon an RTC, designated as the Family Court of a city, the exclusive
original jurisdiction to hear and decide, among others, complaints or petitions relating to
marital status and property relations of the husband and wife or those living
together.32 The Rule on Legal Separation33 provides that "the petition [for legal
separation] shall be filed in the Family Court of the province or city where the petitioner
or the respondent has been residing for at least six months prior to the date of filing or in
the case of a non-resident respondent, where he may be found in the Philippines, at the
election of the petitioner."34 In the instant case, herein respondent Rita is found to reside
in Tungao, Butuan City for more than six months prior to the date of filing of the petition;
thus, the RTC, clearly has jurisdiction over the respondent's petition below.
Furthermore, the RTC also acquired jurisdiction over the persons of both parties,
considering that summons and a copy of the complaint with its annexes were served
upon the herein petitioner on December 14, 2000 and that the herein petitioner filed his
Answer to the Complaint on January 9, 2001.35 Thus, without doubt, the RTC, which has
rendered the questioned judgment, has jurisdiction over the complaint and the persons
of the parties.

From the aforecited facts, the questioned October 10, 2005 judgment of the trial court is
clearly not void ab initio, since it was rendered within the ambit of the court's jurisdiction.
Being such, the same cannot anymore be disturbed, even if the modification is meant to
correct what may be considered an erroneous conclusion of fact or law.36 In fact, we
have ruled that for "[as] long as the public respondent acted with jurisdiction, any error
committed by him or it in the exercise thereof will amount to nothing more than an error
of judgment which may be reviewed or corrected only by appeal." 37 Granting without
admitting that the RTC's judgment dated October 10, 2005 was erroneous, the
petitioner's remedy should be an appeal filed within the reglementary period.
Unfortunately, the petitioner failed to do this. He has already lost the chance to question
the trial court's decision, which has become immutable and unalterable. What we can
only do is to clarify the very question raised below and nothing more.

For our convenience, the following matters cannot anymore be disturbed since the
October 10, 2005 judgment has already become immutable and unalterable, to wit:

(a) The finding that the petitioner is the offending spouse since he cohabited with
a woman who is not his wife;38

(b) The trial court's grant of the petition for legal separation of respondent Rita; 39

(c) The dissolution and liquidation of the conjugal partnership;40

(d) The forfeiture of the petitioner's right to any share of the net profits earned by
the conjugal partnership;41

(e) The award to the innocent spouse of the minor children's custody; 42

(f) The disqualification of the offending spouse from inheriting from the innocent
spouse by intestate succession;43

(g) The revocation of provisions in favor of the offending spouse made in the will
of the innocent spouse;44

(h) The holding that the property relation of the parties is conjugal partnership of
gains and pursuant to Article 116 of the Family Code, all properties acquired
during the marriage, whether acquired by one or both spouses, is presumed to
be conjugal unless the contrary is proved;45

(i) The finding that the spouses acquired their real and personal properties while
they were living together;46

(j) The list of properties which Rizal Commercial Banking Corporation (RCBC)
foreclosed;47

(k) The list of the remaining properties of the couple which must be dissolved and
liquidated and the fact that respondent Rita was the one who took charge of the
administration of these properties;48
 (l) The holding that the conjugal partnership shall be liable to matters included
under Article 121 of the Family Code and the conjugal liabilities totaling
503,862.10 shall be charged to the income generated by these properties; 49

(m) The fact that the trial court had no way of knowing whether the petitioner had
separate properties which can satisfy his share for the support of the family; 50

(n) The holding that the applicable law in this case is Article 129(7);51

(o) The ruling that the remaining properties not subject to any encumbrance shall
therefore be divided equally between the petitioner and the respondent without
prejudice to the children's legitime;52

(p) The holding that the petitioner's share of the net profits earned by the
conjugal partnership is forfeited in favor of the common children;53 and

(q) The order to the petitioner to reimburse the respondents the sum of
19,000.00 as attorney's fees and litigation expenses of 5,000.00.54

After discussing lengthily the immutability of the Decision dated October 10, 2005, we
will discuss the following issues for the enlightenment of the parties and the public at
large.

Article 129 of the Family Code applies to the present case since the parties'
property relation is governed by the system of relative community or conjugal
partnership of gains.

The petitioner claims that the court a quo is wrong when it applied Article 129 of the
Family Code, instead of Article 102. He confusingly argues that Article 102 applies
because there is no other provision under the Family Code which defines net profits
earned subject of forfeiture as a result of legal separation.

Offhand, the trial court's Decision dated October 10, 2005 held that Article 129(7) of the
Family Code applies in this case. We agree with the trial court's holding.

First, let us determine what governs the couple's property relation. From the record, we
can deduce that the petitioner and the respondent tied the marital knot on January 6,
1977. Since at the time of the exchange of marital vows, the operative law was the Civil
Code of the Philippines (R.A. No. 386) and since they did not agree on a marriage
settlement, the property relations between the petitioner and the respondent is the
system of relative community or conjugal partnership of gains.55 Article 119 of the Civil
Code provides:

Art. 119. The future spouses may in the marriage settlements agree upon absolute or
relative community of property, or upon complete separation of property, or upon any
other regime. In the absence of marriage settlements, or when the same are void, the
system of relative community or conjugal partnership of gains as established in this
Code, shall govern the property relations between husband and wife.

Thus, from the foregoing facts and law, it is clear that what governs the property
relations of the petitioner and of the respondent is conjugal partnership of gains. And
under this property relation, "the husband and the wife place in a common fund the fruits
of their separate property and the income from their work or industry." 56 The husband
and wife also own in common all the property of the conjugal partnership of gains.57

Second, since at the time of the dissolution of the petitioner and the respondent's
marriage the operative law is already the Family Code, the same applies in the instant
case and the applicable law in so far as the liquidation of the conjugal partnership
assets and liabilities is concerned is Article 129 of the Family Code in relation to Article
63(2) of the Family Code. The latter provision is applicable because according to Article
256 of the Family Code "[t]his Code shall have retroactive effect insofar as it does not
prejudice or impair vested or acquired rights in accordance with the Civil Code or other
law."58

Now, the petitioner asks: Was his vested right over half of the common properties of the
conjugal partnership violated when the trial court forfeited them in favor of his children
pursuant to Articles 63(2) and 129 of the Family Code?

We respond in the negative.

Indeed, the petitioner claims that his vested rights have been impaired, arguing: "As
earlier adverted to, the petitioner acquired vested rights over half of the conjugal
properties, the same being owned in common by the spouses. If the provisions of the
Family Code are to be given retroactive application to the point of authorizing the
forfeiture of the petitioner's share in the net remainder of the conjugal partnership
properties, the same impairs his rights acquired prior to the effectivity of the Family
Code."59 In other words, the petitioner is saying that since the property relations
between the spouses is governed by the regime of Conjugal Partnership of Gains under
the Civil Code, the petitioner acquired vested rights over half of the properties of the
Conjugal Partnership of Gains, pursuant to Article 143 of the Civil Code, which provides:
"All property of the conjugal partnership of gains is owned in common by the husband
and wife."60 Thus, since he is one of the owners of the properties covered by the
conjugal partnership of gains, he has a vested right over half of the said properties,
even after the promulgation of the Family Code; and he insisted that no provision under
the Family Code may deprive him of this vested right by virtue of Article 256 of the
Family Code which prohibits retroactive application of the Family Code when it will
prejudice a person's vested right.

However, the petitioner's claim of vested right is not one which is written on stone.
In Go, Jr. v. Court of Appeals,61we define and explained "vested right" in the following
manner:
A vested right is one whose existence, effectivity and extent do not depend upon events
foreign to the will of the holder, or to the exercise of which no obstacle exists, and which
is immediate and perfect in itself and not dependent upon a contingency. The term
"vested right" expresses the concept of present fixed interest which, in right reason and
natural justice, should be protected against arbitrary State action, or an innately just and
imperative right which enlightened free society, sensitive to inherent and irrefragable
individual rights, cannot deny.

To be vested, a right must have become a titlelegal or equitableto the present or

future enjoyment of property.62(Citations omitted)

In our en banc Resolution dated October 18, 2005 for ABAKADA Guro Party List Officer
Samson S. Alcantara, et al. v. The Hon. Executive Secretary Eduardo R. Ermita,63 we
also explained:

The concept of "vested right" is a consequence of the constitutional guaranty of due

process that expresses a present fixed interest which in right reason and natural justice
is protected against arbitrary state action; it includes not only legal or equitable title to
the enforcement of a demand but also exemptions from new obligations created after
the right has become vested. Rights are considered vested when the right to enjoyment
is a present interest, absolute, unconditional, and perfect or fixed and
irrefutable.64 (Emphasis and underscoring supplied)

From the foregoing, it is clear that while one may not be deprived of his "vested right,"
he may lose the same if there is due process and such deprivation is founded in law
and jurisprudence.

In the present case, the petitioner was accorded his right to due process. First, he was
well-aware that the respondent prayed in her complaint that all of the conjugal
properties be awarded to her.65 In fact, in his Answer, the petitioner prayed that the trial
court divide the community assets between the petitioner and the respondent as
circumstances and evidence warrant after the accounting and inventory of all the
community properties of the parties.66 Second, when the Decision dated October 10,
2005 was promulgated, the petitioner never questioned the trial court's ruling forfeiting
what the trial court termed as "net profits," pursuant to Article 129(7) of the Family
Code.67 Thus, the petitioner cannot claim being deprived of his right to due process.

Furthermore, we take note that the alleged deprivation of the petitioner's "vested right"
is one founded, not only in the provisions of the Family Code, but in Article 176 of the
Civil Code. This provision is like Articles 63 and 129 of the Family Code on the forfeiture
of the guilty spouse's share in the conjugal partnership profits. The said provision says:

Art. 176. In case of legal separation, the guilty spouse shall forfeit his or her share of the
conjugal partnership profits, which shall be awarded to the children of both, and the
children of the guilty spouse had by a prior marriage. However, if the conjugal
partnership property came mostly or entirely from the work or industry, or from the
wages and salaries, or from the fruits of the separate property of the guilty spouse, this
forfeiture shall not apply.

In case there are no children, the innocent spouse shall be entitled to all the net profits.

From the foregoing, the petitioner's claim of a vested right has no basis considering that
even under Article 176 of the Civil Code, his share of the conjugal partnership profits
may be forfeited if he is the guilty party in a legal separation case. Thus, after trial and
after the petitioner was given the chance to present his evidence, the petitioner's vested
right claim may in fact be set aside under the Civil Code since the trial court found him
the guilty party.

More, in Abalos v. Dr. Macatangay, Jr.,68 we reiterated our long-standing ruling that:

[P]rior to the liquidation of the conjugal partnership, the interest of each spouse in the
conjugal assets is inchoate, a mere expectancy, which constitutes neither a legal nor an
equitable estate, and does not ripen into title until it appears that there are assets in the
community as a result of the liquidation and settlement. The interest of each spouse is
limited to the net remainder or "remanente liquido" (haber ganancial) resulting from the
liquidation of the affairs of the partnership after its dissolution. Thus, the right of the
husband or wife to one-half of the conjugal assets does not vest until the dissolution and
liquidation of the conjugal partnership, or after dissolution of the marriage, when it is
finally determined that, after settlement of conjugal obligations, there are net assets left
which can be divided between the spouses or their respective heirs. 69 (Citations
omitted)

Finally, as earlier discussed, the trial court has already decided in its Decision dated
October 10, 2005 that the applicable law in this case is Article 129(7) of the Family
Code.70 The petitioner did not file a motion for reconsideration nor a notice of appeal.
Thus, the petitioner is now precluded from questioning the trial court's decision since it
has become final and executory. The doctrine of immutability and unalterability of a final
judgment prevents us from disturbing the Decision dated October 10, 2005 because
final and executory decisions can no longer be reviewed nor reversed by this Court.71

From the above discussions, Article 129 of the Family Code clearly applies to the
present case since the parties' property relation is governed by the system of relative
community or conjugal partnership of gains and since the trial court's Decision has
attained finality and immutability.

The net profits of the conjugal partnership of gains are all the fruits of the
separate properties of the spouses and the products of their labor and industry.

The petitioner inquires from us the meaning of "net profits" earned by the conjugal
partnership for purposes of effecting the forfeiture authorized under Article 63 of the
Family Code. He insists that since there is no other provision under the Family Code,
which defines "net profits" earned subject of forfeiture as a result of legal separation,
then Article 102 of the Family Code applies.

What does Article 102 of the Family Code say? Is the computation of "net profits"
earned in the conjugal partnership of gains the same with the computation of "net
profits" earned in the absolute community?

Now, we clarify.

First and foremost, we must distinguish between the applicable law as to the property
relations between the parties and the applicable law as to the definition of "net profits."
As earlier discussed, Article 129 of the Family Code applies as to the property relations
of the parties. In other words, the computation and the succession of events will follow
the provisions under Article 129 of the said Code. Moreover, as to the definition of "net
profits," we cannot but refer to Article 102(4) of the Family Code, since it expressly
provides that for purposes of computing the net profits subject to forfeiture under Article
43, No. (2) and Article 63, No. (2), Article 102(4) applies. In this provision, net profits
"shall be the increase in value between the market value of the community property at
the time of the celebration of the marriage and the market value at the time of its
dissolution."72 Thus, without any iota of doubt, Article 102(4) applies to both the
dissolution of the absolute community regime under Article 102 of the Family Code, and
to the dissolution of the conjugal partnership regime under Article 129 of the Family
Code. Where lies the difference? As earlier shown, the difference lies in the processes
used under the dissolution of the absolute community regime under Article 102 of the
Family Code, and in the processes used under the dissolution of the conjugal
partnership regime under Article 129 of the Family Code.

Let us now discuss the difference in the processes between the absolute community
regime and the conjugal partnership regime.

On Absolute Community Regime:

When a couple enters into a regime of absolute community, the husband and the wife
becomes joint owners of all the properties of the marriage. Whatever property each
spouse brings into the marriage, and those acquired during the marriage (except those
excluded under Article 92 of the Family Code) form the common mass of the couple's
properties. And when the couple's marriage or community is dissolved, that common
mass is divided between the spouses, or their respective heirs, equally or in the
proportion the parties have established, irrespective of the value each one may have
originally owned.73

Under Article 102 of the Family Code, upon dissolution of marriage, an inventory is
prepared, listing separately all the properties of the absolute community and the
exclusive properties of each; then the debts and obligations of the absolute community
are paid out of the absolute community's assets and if the community's properties are
insufficient, the separate properties of each of the couple will be solidarily liable for the
unpaid balance. Whatever is left of the separate properties will be delivered to each of
them. The net remainder of the absolute community is its net assets, which shall be
divided between the husband and the wife; and for purposes of computing the net
profits subject to forfeiture, said profits shall be the increase in value between the
market value of the community property at the time of the celebration of the marriage
and the market value at the time of its dissolution.74

Applying Article 102 of the Family Code, the "net profits" requires that we first find the
market value of the properties at the time of the community's dissolution. From the
totality of the market value of all the properties, we subtract the debts and obligations of
the absolute community and this result to the net assets or net remainder of the
properties of the absolute community, from which we deduct the market value of the
properties at the time of marriage, which then results to the net profits.75

Granting without admitting that Article 102 applies to the instant case, let us see what
will happen if we apply Article 102:

(a) According to the trial court's finding of facts, both husband and wife have no
separate properties, thus, the remaining properties in the list above are all part of
the absolute community. And its market value at the time of the dissolution of the
absolute community constitutes the "market value at dissolution."

(b) Thus, when the petitioner and the respondent finally were legally separated,
all the properties which remained will be liable for the debts and obligations of the
community. Such debts and obligations will be subtracted from the "market value
at dissolution."

(c) What remains after the debts and obligations have been paid from the total
assets of the absolute community constitutes the net remainder or net asset. And
from such net asset/remainder of the petitioner and respondent's remaining
properties, the market value at the time of marriage will be subtracted and the
resulting totality constitutes the "net profits."

(d) Since both husband and wife have no separate properties, and nothing
would be returned to each of them, what will be divided equally between them is
simply the "net profits." However, in the Decision dated October 10, 2005, the
trial court forfeited the half-share of the petitioner in favor of his children. Thus, if
we use Article 102 in the instant case (which should not be the case), nothing is
left to the petitioner since both parties entered into their marriage without bringing
with them any property.

On Conjugal Partnership Regime:

Before we go into our disquisition on the Conjugal Partnership Regime, we make it clear
that Article 102(4) of the Family Code applies in the instant case for purposes only of
defining "net profit." As earlier explained, the definition of "net profits" in Article 102(4)
of the Family Code applies to both the absolute community regime and conjugal
partnership regime as provided for under Article 63, No. (2) of the Family Code, relative
to the provisions on Legal Separation.

Now, when a couple enters into a regime of conjugal partnership of gains under
Article 142 of the Civil Code, "the husband and the wife place in common fund the fruits
of their separate property and income from their work or industry, and divide equally,
upon the dissolution of the marriage or of the partnership, the net gains or benefits
obtained indiscriminately by either spouse during the marriage." 76 From the foregoing
provision, each of the couple has his and her own property and debts. The law does not
intend to effect a mixture or merger of those debts or properties between the spouses.
Rather, it establishes a complete separation of capitals.77

Considering that the couple's marriage has been dissolved under the Family Code,
Article 129 of the same Code applies in the liquidation of the couple's properties in the
event that the conjugal partnership of gains is dissolved, to wit:

Art. 129. Upon the dissolution of the conjugal partnership regime, the following
procedure shall apply:

(1) An inventory shall be prepared, listing separately all the properties of the
conjugal partnership and the exclusive properties of each spouse.

(2) Amounts advanced by the conjugal partnership in payment of personal debts

and obligations of either spouse shall be credited to the conjugal partnership as
an asset thereof.

(3) Each spouse shall be reimbursed for the use of his or her exclusive funds in
the acquisition of property or for the value of his or her exclusive property, the
ownership of which has been vested by law in the conjugal partnership.

(4) The debts and obligations of the conjugal partnership shall be paid out of the
conjugal assets. In case of insufficiency of said assets, the spouses shall be
solidarily liable for the unpaid balance with their separate properties, in
accordance with the provisions of paragraph (2) of Article 121.

(5) Whatever remains of the exclusive properties of the spouses shall thereafter
be delivered to each of them.

(6) Unless the owner had been indemnified from whatever source, the loss or
deterioration of movables used for the benefit of the family, belonging to either
spouse, even due to fortuitous event, shall be paid to said spouse from the
conjugal funds, if any.

(7) The net remainder of the conjugal partnership properties shall constitute the
profits, which shall be divided equally between husband and wife, unless a
 different proportion or division was agreed upon in the marriage settlements or
unless there has been a voluntary waiver or forfeiture of such share as provided
in this Code.

(8) The presumptive legitimes of the common children shall be delivered upon
the partition in accordance with Article 51.

(9) In the partition of the properties, the conjugal dwelling and the lot on which it
is situated shall, unless otherwise agreed upon by the parties, be adjudicated to
the spouse with whom the majority of the common children choose to remain.
Children below the age of seven years are deemed to have chosen the mother,
unless the court has decided otherwise. In case there is no such majority, the
court shall decide, taking into consideration the best interests of said children.

In the normal course of events, the following are the steps in the liquidation of the
properties of the spouses:

(a) An inventory of all the actual properties shall be made, separately listing the
couple's conjugal properties and their separate properties.78 In the instant
case, the trial court found that the couple has no separate properties when
they married.79 Rather, the trial court identified the following conjugal properties,
to wit:

1. coffee mill in Balongagan, Las Nieves, Agusan del Norte;

2. coffee mill in Durian, Las Nieves, Agusan del Norte;

3. corn mill in Casiklan, Las Nieves, Agusan del Norte;

4. coffee mill in Esperanza, Agusan del Sur;

5. a parcel of land with an area of 1,200 square meters located in Tungao,

Butuan City;

6. a parcel of agricultural land with an area of 5 hectares located in Manila

de Bugabos, Butuan City;

7. a parcel of land with an area of 84 square meters located in Tungao,

Butuan City;

8. Bashier Bon Factory located in Tungao, Butuan City.80

(b) Ordinarily, the benefit received by a spouse from the conjugal partnership
during the marriage is returned in equal amount to the assets of the conjugal
partnership;81 and if the community is enriched at the expense of the separate
 properties of either spouse, a restitution of the value of such properties to their
respective owners shall be made.82

(c) Subsequently, the couple's conjugal partnership shall pay the debts of the
conjugal partnership; while the debts and obligation of each of the spouses shall
be paid from their respective separate properties. But if the conjugal partnership
is not sufficient to pay all its debts and obligations, the spouses with their
separate properties shall be solidarily liable.83

(d) Now, what remains of the separate or exclusive properties of the husband
and of the wife shall be returned to each of them.84 In the instant case, since it
was already established by the trial court that the spouses have no
separate properties,85 there is nothing to return to any of them. The listed
properties above are considered part of the conjugal partnership. Thus,
ordinarily, what remains in the above-listed properties should be divided equally
between the spouses and/or their respective heirs.86 However, since the trial
court found the petitioner the guilty party, his share from the net profits of the
conjugal partnership is forfeited in favor of the common children, pursuant to
Article 63(2) of the Family Code. Again, lest we be confused, like in the absolute
community regime, nothing will be returned to the guilty party in the conjugal
partnership regime, because there is no separate property which may be
accounted for in the guilty party's favor.

In the discussions above, we have seen that in both instances, the petitioner is not
entitled to any property at all. Thus, we cannot but uphold the Decision dated October
10, 2005 of the trial court. However, we must clarify, as we already did above, the Order
dated January 8, 2007.

WHEREFORE, the Decision dated October 10, 2005 of the Regional Trial Court,
Branch 1 of Butuan City is AFFIRMED. Acting on the Motion for Clarification dated July
7, 2006 in the Regional Trial Court, the Order dated January 8, 2007 of the Regional
Trial Court is hereby CLARIFIED in accordance with the above discussions.

G.R. No. 149615 August 29, 2006

IN RE: PETITION FOR SEPARATION OF PROPERTY ELENA BUENAVENTURA

MULLER, Petitioner,
vs.
HELMUT MULLER, Respondent.

DECISION

YNARES-SANTIAGO, J.:

This petition for review on certiorari 1 assails the February 26, 2001 Decision 2 of the
Court of Appeals in CA-G.R. CV No. 59321 affirming with modification the August 12,
1996 Decision 3 of the Regional Trial Court of Quezon City, Branch 86 in Civil Case No.
Q-94-21862, which terminated the regime of absolute community of property between
petitioner and respondent, as well as the Resolution 4 dated August 13, 2001 denying
the motion for reconsideration.

The facts are as follows:

Petitioner Elena Buenaventura Muller and respondent Helmut Muller were married in
Hamburg, Germany on September 22, 1989. The couple resided in Germany at a house
owned by respondents parents but decided to move and reside permanently in the
Philippines in 1992. By this time, respondent had inherited the house in Germany from
his parents which he sold and used the proceeds for the purchase of a parcel of land in
Antipolo, Rizal at the cost of P528,000.00 and the construction of a house amounting to
P2,300,000.00. The Antipolo property was registered in the name of petitioner under
Transfer Certificate of Title No. 219438 5 of the Register of Deeds of Marikina, Metro
Manila.

Due to incompatibilities and respondents alleged womanizing, drinking, and

maltreatment, the spouses eventually separated. On September 26, 1994, respondent
filed a petition 6 for separation of properties before the Regional Trial Court of Quezon
City.

On August 12, 1996, the trial court rendered a decision which terminated the regime of
absolute community of property between the petitioner and respondent. It also decreed
the separation of properties between them and ordered the equal partition of personal
properties located within the country, excluding those acquired by gratuitous title during
the marriage. With regard to the Antipolo property, the court held that it was acquired
using paraphernal funds of the respondent. However, it ruled that respondent cannot
recover his funds because the property was purchased in violation of Section 7, Article
XII of the Constitution. Thus

However, pursuant to Article 92 of the Family Code, properties acquired by gratuitous

title by either spouse during the marriage shall be excluded from the community
property. The real property, therefore, inherited by petitioner in Germany is excluded
from the absolute community of property of the herein spouses. Necessarily, the
proceeds of the sale of said real property as well as the personal properties purchased
thereby, belong exclusively to the petitioner. However, the part of that inheritance used
by the petitioner for acquiring the house and lot in this country cannot be recovered by
the petitioner, its acquisition being a violation of Section 7, Article XII of the Constitution
which provides that "save in cases of hereditary succession, no private lands shall be
transferred or conveyed except to individuals, corporations or associations qualified to
acquire or hold lands of the public domain." The law will leave the parties in the situation
where they are in without prejudice to a voluntary partition by the parties of the said real
property. x x x

xxxx
As regards the property covered by Transfer Certificate of Title No. 219438 of the
Registry of Deeds of Marikina, Metro Manila, situated in Antipolo, Rizal and the
improvements thereon, the Court shall not make any pronouncement on constitutional
grounds. 7

Respondent appealed to the Court of Appeals which rendered the assailed decision
modifying the trial courts Decision. It held that respondent merely prayed for
reimbursement for the purchase of the Antipolo property, and not acquisition or transfer
of ownership to him. It also considered petitioners ownership over the property in trust
for the respondent. As regards the house, the Court of Appeals ruled that there is
nothing in the Constitution which prohibits respondent from acquiring the same. The
dispositive portion of the assailed decision reads:

WHEREFORE, in view of the foregoing, the Decision of the lower court dated August
12, 1996 is hereby MODIFIED. Respondent Elena Buenaventura Muller is hereby
ordered to REIMBURSE the petitioner the amount of P528,000.00 for the acquisition of
the land and the amount of P2,300,000.00 for the construction of the house situated in
Atnipolo, Rizal, deducting therefrom the amount respondent spent for the preservation,
maintenance and development of the aforesaid real property including the depreciation
cost of the house or in the alternative to SELL the house and lot in the event respondent
does not have the means to reimburse the petitioner out of her own money and from the
proceeds thereof, reimburse the petitioner of the cost of the land and the house
deducting the expenses for its maintenance and preservation spent by the respondent.
Should there be profit, the same shall be divided in proportion to the equity each has
over the property. The case is REMANDED to the lower court for reception of evidence
as to the amount claimed by the respondents for the preservation and maintenance of
the property.

SO ORDERED. 8

Hence, the instant petition for review raising the following issues:

THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT THE

RESPONDENT HEREIN IS ENTITLED TO REIMBURSEMENT OF THE AMOUNT
USED TO PURCHASE THE LAND AS WELL AS THE COSTS FOR THE
CONSTRUCTION OF THE HOUSE, FOR IN SO RULING, IT INDIRECTLY ALLOWED
AN ACT DONE WHICH OTHERWISE COULD NOT BE DIRECTLY x x x DONE,
WITHOUT DOING VIOLENCE TO THE CONSTITUTIONAL PROSCRIPTION THAT AN
ALIEN IS PROHIBITED FROM ACQUIRING OWNERSHIP OF REAL PROPERTIES
LOCATED IN THE PHILIPPINES.

II
THE COURT OF APPEALS GRAVELY ERRED IN SUSTAINING RESPONDENTS
CAUSE OF ACTION WHICH IS ACTUALLY A DESPERATE ATTEMPT TO OBTAIN
OWNERSHIP OVER THE LOT IN QUESTION, CLOTHED UNDER THE GUISE OF
CLAIMING REIMBURSEMENT.

Petitioner contends that respondent, being an alien, is disqualified to own private lands
in the Philippines; that respondent was aware of the constitutional prohibition but
circumvented the same; and that respondents purpose for filing an action for separation
of property is to obtain exclusive possession, control and disposition of the Antipolo
property.

Respondent claims that he is not praying for transfer of ownership of the Antipolo
property but merely reimbursement; that the funds paid by him for the said property
were in consideration of his marriage to petitioner; that the funds were given to
petitioner in trust; and that equity demands that respondent should be reimbursed of his
personal funds.

The issue for resolution is whether respondent is entitled to reimbursement of the funds
used for the acquisition of the Antipolo property.

The petition has merit.

Section 7, Article XII of the 1987 Constitution states:

Save in cases of hereditary succession, no private lands shall be transferred or

conveyed except to individuals, corporations, or associations qualified to acquire or hold
lands of the public domain.

Aliens, whether individuals or corporations, are disqualified from acquiring lands of the
public domain. Hence, they are also disqualified from acquiring private lands. 9 The
primary purpose of the constitutional provision is the conservation of the national
patrimony. In the case of Krivenko v. Register of Deeds, 10 the Court held:

Under section 1 of Article XIII of the Constitution, "natural resources, with the exception
of public agricultural land, shall not be alienated," and with respect to public agricultural
lands, their alienation is limited to Filipino citizens. But this constitutional purpose
conserving agricultural resources in the hands of Filipino citizens may easily be
defeated by the Filipino citizens themselves who may alienate their agricultural lands in
favor of aliens. It is partly to prevent this result that section 5 is included in Article XIII,
and it reads as follows:

"Sec. 5. Save in cases of hereditary succession, no private agricultural land will be

transferred or assigned except to individuals, corporations, or associations qualified to
acquire or hold lands of the public domain in the Philippines."
This constitutional provision closes the only remaining avenue through which
agricultural resources may leak into aliens hands. It would certainly be futile to prohibit
the alienation of public agricultural lands to aliens if, after all, they may be freely so
alienated upon their becoming private agricultural lands in the hands of Filipino citizens.
xxx

xxxx

If the term "private agricultural lands" is to be construed as not including residential lots
or lands not strictly agricultural, the result would be that "aliens may freely acquire and
possess not only residential lots and houses for themselves but entire subdivisions, and
whole towns and cities," and that "they may validly buy and hold in their names lands of
any area for building homes, factories, industrial plants, fisheries, hatcheries, schools,
health and vacation resorts, markets, golf courses, playgrounds, airfields, and a host of
other uses and purposes that are not, in appellants words, strictly agricultural."
(Solicitor Generals Brief, p. 6.) That this is obnoxious to the conservative spirit of the
Constitution is beyond question.

Respondent was aware of the constitutional prohibition and expressly admitted his
knowledge thereof to this Court.11 He declared that he had the Antipolo property titled in
the name of petitioner because of the said prohibition. 12His attempt at subsequently
asserting or claiming a right on the said property cannot be sustained.

The Court of Appeals erred in holding that an implied trust was created and resulted by
operation of law in view of petitioners marriage to respondent. Save for the exception
provided in cases of hereditary succession, respondents disqualification from owning
lands in the Philippines is absolute. Not even an ownership in trust is allowed. Besides,
where the purchase is made in violation of an existing statute and in evasion of its
express provision, no trust can result in favor of the party who is guilty of the fraud. 13 To
hold otherwise would allow circumvention of the constitutional prohibition.

Invoking the principle that a court is not only a court of law but also a court of equity, is
likewise misplaced. It has been held that 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. 14 He who seeks equity must do equity, and he who comes into equity must
come with clean hands. The latter is a frequently stated maxim which is also expressed
in the principle that he who has done inequity shall not have equity. It signifies that a
litigant may be denied relief by a court of equity on the ground that his conduct has
been inequitable, unfair and dishonest, or fraudulent, or deceitful as to the controversy
in issue. 15

Thus, in the instant case, respondent cannot seek reimbursement on the ground of
equity where it is clear that he willingly and knowingly bought the property despite the
constitutional prohibition.
Further, the distinction made between transfer of ownership as opposed to recovery of
funds is a futile exercise on respondents part. To allow reimbursement would in effect
permit respondent to enjoy the fruits of a property which he is not allowed to own. Thus,
it is likewise proscribed by law. As expressly held in Cheesman v. Intermediate
Appellate Court: 16

Finally, the fundamental law prohibits the sale to aliens of residential land. Section 14,
Article XIV of the 1973 Constitution ordains that, "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 of the public domain."
Petitioner Thomas Cheesman was, of course, charged with knowledge of this
prohibition. Thus, assuming that it was his intention that the lot in question be
purchased by him and his wife, he acquired no right whatever over the property by
virtue of that purchase; and in attempting to acquire a right or interest in land,
vicariously and clandestinely, he knowingly violated the Constitution; the sale as to him
was null and void. In any event, he had and has no capacity or personality to question
the subsequent sale of the same property by his wife on the theory that in so doing he is
merely exercising the prerogative of a husband in respect of conjugal property. To
sustain such a theory would permit indirect controversion of the constitutional
prohibition. If the property were to be declared conjugal, this would accord to the alien
husband a not insubstantial interest and right over land, as he would then have a
decisive vote as to its transfer or disposition. This is a right that the Constitution does
not permit him to have.

As already observed, the finding that his wife had used her own money to purchase the
property cannot, and will not, at this stage of the proceedings be reviewed and
overturned. But even if it were a fact that said wife had used conjugal funds to make the
acquisition, the considerations just set out to militate, on high constitutional grounds,
against his recovering and holding the property so acquired, or any part thereof. And
whether in such an event, he may recover from his wife any share of the money used
for the purchase or charge her with unauthorized disposition or expenditure of conjugal
funds is not now inquired into; that would be, in the premises, a purely academic
exercise. (Emphasis added)

WHEREFORE, in view of the foregoing, the instant petition is GRANTED. The Decision
dated February 26, 2001 of the Court of Appeals in CA-G.R. CV No. 59321 ordering
petitioner Elena Buenaventura Muller to reimburse respondent Helmut Muller the
amount of P528,000 for the acquisition of the land and the amount of P2,300,000 for the
construction of the house in Antipolo City, and the Resolution dated August 13, 2001
denying reconsideration thereof, are REVERSED and SET ASIDE. The August 12,
1996 Decision of the Regional Trial Court of Quezon City, Branch 86 in Civil Case No.
Q-94-21862 terminating the regime of absolute community between the petitioner and
respondent, decreeing a separation of property between them and ordering the partition
of the personal properties located in the Philippines equally, is REINSTATED.

SO ORDERED.
G.R. No. 175303 April 11, 2012

PACIFIC ACE FINANCE LTD. (PAFIN), Petitioner,

vs.
EIJI* YANAGISAWA, Respondent.

DECISION

DEL CASTILLO, J.:

An undertaking not to dispose of a property pending litigation, made in open court and
embodied in a court order, and duly annotated on the title of the said property, creates a
right in favor of the person relying thereon. The latter may seek the annulment of
actions that are done in violation of such undertaking.

Before us is a Petition for Review1 of the August 1, 2006 Decision2 of the Court of
Appeals (CA) in CA-G.R. CV No. 78944, which held:

WHEREFORE, the Decision dated April 20, 2003 of the RTC, Branch 258, Paraaque
City, is hereby ANNULLEDand SET ASIDE and a new one entered annulling the Real
Estate Mortgage executed on August 25, 1998 in favor of defendant Pacific Ace
Finance Ltd.

SO ORDERED.3

Factual Antecedents

Respondent Eiji Yanagisawa (Eiji), a Japanese national, and Evelyn F. Castaeda

(Evelyn), a Filipina, contracted marriage on July 12, 1989 in the City Hall of Manila. 4

On August 23, 1995, Evelyn purchased a 152 square-meter townhouse unit located at
Bo. Sto. Nio, Paraaque, Metro Manila (Paraaque townhouse unit). 5 The Registry of
Deeds for Paraaque issued Transfer Certificate of Title (TCT) No. 99791 to "Evelyn P.
Castaeda, Filipino, married to Ejie Yanagisawa, Japanese citizen[,] both of legal age." 6

In 1996, Eiji filed a complaint for the declaration of nullity of his marriage with Evelyn on
the ground of bigamy (nullity of marriage case). The complaint, docketed as Civil Case
No. 96-776, was raffled to Branch 149 of the Regional Trial Court of Makati (Makati
RTC). During the pendency of the case, Eiji filed a Motion for the Issuance of a
Restraining Order against Evelyn and an Application for a Writ of a Preliminary
Injunction. He asked that Evelyn be enjoined from disposing or encumbering all of the
properties registered in her name.

At the hearing on the said motion, Evelyn and her lawyer voluntarily undertook not to
dispose of the properties registered in her name during the pendency of the case, thus
rendering Eijis application and motion moot. On the basis of said commitment, the
Makati RTC rendered the following Order dated October 2, 1996:

ORDER

In view of the commitment made in open court by Atty. Lupo Leyva, counsel for the
defendant [Evelyn], together with his client, the defendant in this case, that the
properties registered in the name of the defendant would not be disposed of, alienated
or encumbered in any manner during the pendency of this petition, the Motion for the
Issuance of a Restraining Order and Application for a Writ of a Preliminary Injunction
scheduled today is hereby considered moot and academic.

SO ORDERED.7 (Emphasis supplied.)

The above Order was annotated on the title of the Paraaque townhouse unit or TCT
No. 99791, thus:

Entry No. 8729 Order issued by Hon. Josefina Guevara Salonga, Judge, RTC,
Branch 149, Makati City, ordering the defendant in Civil Case No. 96-776 entitled
Eiji Yanagisawa, Plaintiff-versus-Evelyn Castaeda Yanagisawa, that the properties
registered in the name of the defendant would not be disposed of, alienated or
encumbered in any manner during the pendency of the petition, the Motion for the
Issuance of a Restraining Order and Application for a Writ of Preliminary Injunction is
hereby considered moot and academic.

Date of Instrument October 2, 1996

Date of Inscription March 17, 1997 11:21 a.m.8 (Emphasis supplied.)

Sometime in March 1997, Evelyn obtained a loan of 500,000.00 from petitioner Pacific
Ace Finance Ltd. (PAFIN).9To secure the loan, Evelyn executed on August 25, 1998 a
real estate mortgage (REM)10 in favor of PAFIN over the Paraaque townhouse unit
covered by TCT No. 99791. The instrument was submitted to the Register of Deeds of
Paraaque City for annotation on the same date.11

At the time of the mortgage, Eijis appeal in the nullity of marriage case was pending
before the CA.12 The Makati RTC had dissolved Eiji and Evelyns marriage,13 and had
ordered the liquidation of their registered properties, including the Paraaque
townhouse unit, with its proceeds to be divided between the parties. 14 The Decision of
the Makati RTC did not lift or dissolve its October 2, 1996 Order on Evelyns
commitment not to dispose of or encumber the properties registered in her name.

Eiji learned of the REM upon its annotation on TCT No. 99791. Deeming the mortgage
as a violation of the Makati RTCs October 2, 1996 Order, Eiji filed a complaint for the
annulment of REM (annulment of mortgage case) against Evelyn and PAFIN. 15 The
complaint, docketed as Civil Case No. 98-0431, was raffled to Branch 258 of the
Regional Trial Court of Paraaque City (Paraaque RTC).

For its defense, PAFIN denied prior knowledge of the October 2, 1996 Order against
Evelyn. It admitted, however, that it did not conduct any verification of the title with the
Registry of Deeds of Paraaque City "because x x x Evelyn was a good, friendly and
trusted neighbor."16 PAFIN maintained that Eiji has no personality to seek the annulment
of the REM because a foreign national cannot own real properties located within the
Philippines.17

Evelyn also denied having knowledge of the October 2, 1996 Order.18 Evelyn asserted
that she paid for the property with her own funds19 and that she has exclusive ownership
thereof. 20

Paraaque Regional Trial Court Decision21

The Paraaque RTC determined that the only issue before it is "whether x x x [Eiji] has
a cause of action against the defendants and x x x is entitled to the reliefs prayed for
despite the fact that he is not the registered owner of the property being a Japanese
national."22

The Paraaque RTC explained that Eiji, as a foreign national, cannot possibly own the
mortgaged property. Without ownership, or any other law or contract binding the
defendants to him, Eiji has no cause of action that may be asserted against
them.23 Thus, the Paraaque RTC dismissed Eijis complaint:

WHEREFORE, premises considered, for failure of the plaintiff to state a cause of action
against defendants, EVELYN CASTAEDA YANAGISAWA and Pacific Ace Finance
Ltd. (PAFIN), this case is DISMISSED.

The counterclaim and cross-claim are likewise DISMISSED.

SO ORDERED.24

Eiji appealed the trial courts decision arguing that the trial court erred in holding that his
inability to own real estate property in the Philippines deprives him of all interest in the
mortgaged property, which was bought with his money. He added that the Makati RTC
has even recognized his contribution in the purchase of the property by its declaration
that he is entitled to half of the proceeds that would be obtained from its sale.

Eiji also emphasized that Evelyn had made a commitment to him and to the Makati RTC
that she would not dispose of, alienate, or encumber the properties registered in her
name while the case was pending. This commitment incapacitates Evelyn from entering
into the REM contract.

Court of Appeals Decision25

The CA found merit in Eijis appeal.

The CA noted that the Makati RTC ruled on Eijis and Evelyns ownership rights over the
properties that were acquired during their marriage, including the Paraaque townhouse
unit. It was determined therein that the registered properties should be sold at public
auction and the proceeds thereof to be divided between Eiji and Evelyn. 26

Contrary to this ruling, the Paraaque RTC ruled that Eiji has no ownership rights over
the Paraaque townhouse unit in light of the constitutional prohibition on foreign
ownership of lands and that the subject property is Evelyns exclusive property.27

The appellate court determined that the Paraaque RTCs Decision was improper
because it violated the doctrine of non-interference. Courts of equal jurisdiction, such as
regional trial courts, have no appellate jurisdiction over each other.28 For this reason, the
CA annulled and set aside the Paraaque RTCs decision to dismiss Eijis complaint.29

The CA then proceeded to resolve Eijis complaint.30 The CA noted that Eiji anchored
his complaint upon Evelyns violation of her commitment to the Makati RTC and to Eiji
that she would not dispose of, alienate, or encumber the properties registered in her
name, including the Paraaque townhouse unit.1wphi1 This commitment created a
right in favor of Eiji to rely thereon and a correlative obligation on Evelyns part not to
encumber the Paraaque townhouse unit. Since Evelyns commitment was annotated
on TCT No. 99791, all those who deal with the said property are charged with notice of
the burdens on the property and its registered owner.31

On the basis of Evelyns commitment and its annotation on TCT No. 99791, the CA
determined that Eiji has a cause of action to annul the REM contract. Evelyn was aware
of her legal impediment to encumber and dispose of the Paraaque townhouse unit.
Meanwhile, PAFIN displayed a wanton disregard of ordinary prudence when it admitted
not conducting any verification of the title whatsoever. The CA determined that PAFIN
was a mortgagee in bad faith.32

Thus, the CA annulled the REM executed by Evelyn in favor of PAFIN.

The parties to the annulled mortgage filed separate motions for reconsideration on
August 22, 2006,33 which were both denied for lack of merit by the appellate court in its
November 7, 2006 Resolution.34

PAFIN filed this petition for review.

Petitioners Arguments

Petitioner seeks a reversal of the CA Decision, which allegedly affirmed the

Makati RTC ruling that Eiji is a co-owner of the mortgaged property. PAFIN insists that
the CA sustained a violation of the constitution with its declaration that an alien can
have an interest in real property located in the Philippines.35

Petitioner also seeks the reinstatement of the Paraaque RTCs Decision dated April
20, 200336 and prays that this Court render a decision that Eiji cannot have ownership
rights over the mortgaged property and that Evelyn enjoys exclusive ownership thereof.
As the sole owner, Evelyn can validly mortgage the same to PAFIN without need of
Eijis consent. Corollarily, Eiji has no cause of action to seek the REMs annulment.37

Respondents Arguments

Respondent argues that he has an interest to have the REM annulled on two grounds:
First, Evelyn made a commitment in open court that she will not encumber the
Paraaque townhouse unit during the pendency of the case. Second, the Makati RTCs
decision declared that he is entitled to share in the proceeds of the Paraaque
townhouse unit.38

Respondent also insists that petitioner is in bad faith for entering into the mortgage
contract with Evelyn despite the annotation on TCT No. 99791 that Evelyn committed
herself not to encumber the same.39

Issues

Petitioner raises the following issues:40

1. Whether a real property in the Philippines can be part of the community

property of a Filipina and her foreigner spouse;

2. Whether a real property registered solely in the name of the Filipina wife is
paraphernal or conjugal;

3. Who is entitled to the real property mentioned above when the marriage is
declared void?

4. Whether the Paraaque RTC can rule on the issue of ownership, even as the
same issue was already ruled upon by the Makati RTC and is pending appeal in
the CA.

Our Ruling

The petition has no merit.

Contrary to petitioners stance, the CA did not make any disposition as to who between
Eiji and Evelyn owns the Paraaque townhouse unit. It simply ruled that the Makati RTC
had acquired jurisdiction over the said question and should not have been interfered
with by the Paraaque RTC. The CA only clarified that it was improper for the
Paraaque RTC to have reviewed the ruling of a co-equal court.

The Court agrees with the CA. The issue of ownership and liquidation of properties
acquired during the cohabitation of Eiji and Evelyn has been submitted for the resolution
of the Makati RTC, and is pending41 appeal before the CA. The doctrine of judicial
stability or non-interference dictates that the assumption by the Makati RTC over the
issue operates as an "insurmountable barrier" to the subsequent assumption by the
Paraaque RTC.42 By insisting on ruling on the same issue, the Paraaque RTC
effectively interfered with the Makati RTCs resolution of the issue and created the
possibility of conflicting decisions. Cojuangco v. Villegas43 states: "The various branches
of the [regional trial courts] of a province or city, having as they have the same or equal
authority and exercising as they do concurrent and coordinate jurisdiction, should not,
cannot and are not permitted to interfere with their respective cases, much less with
their orders or judgments. A contrary rule would obviously lead to confusion and
seriously hamper the administration of justice." The matter is further explained thus:

It has been held that "even in cases of concurrent jurisdiction, it is, also, axiomatic that
the court first acquiring jurisdiction excludes the other courts."

In addition, it is a familiar principle that when a court of competent jurisdiction acquires

jurisdiction over the subject matter of a case, its authority continues, subject only to the
appellate authority, until the matter is finally and completely disposed of, and that no
court of co-ordinate authority is at liberty to interfere with its action. This doctrine is
applicable to civil cases, to criminal prosecutions, and to courts-martial. The principle is
essential to the proper and orderly administration of the laws; and while its observance
might be required on the grounds of judicial comity and courtesy, it does not rest upon
such considerations exclusively, but is enforced to prevent unseemly, expensive, and
dangerous conflicts of jurisdiction and of the process.44

Petitioner maintains that it was imperative for the Paraaque RTC to rule on the
ownership issue because it was essential for the determination of the validity of the
REM.45

The Court disagrees. A review of the complaint shows that Eiji did not claim ownership
of the Paraaque townhouse unit or his right to consent to the REM as his bases for
seeking its annulment. Instead, Eiji invoked his right to rely on Evelyns commitment not
to dispose of or encumber the property (as confirmed in the October 2, 1996 Order of
the Makati RTC), and the annotation of the said commitment on TCT No. 99791.

It was Evelyn and PAFIN that raised Eijis incapacity to own real property as their
defense to the suit.1wphi1 They maintained that Eiji, as an alien incapacitated to own
real estate in the Philippines, need not consent to the REM contract for its validity. But
this argument is beside the point and is not a proper defense to the right asserted by
Eiji. This defense does not negate Eijis right to rely on the October 2, 1996 Order of the
Makati RTC and to hold third persons, who deal with the registered property, to the
annotations entered on the title. Thus, the RTC erred in dismissing the complaint based
on this defense.

Petitioner did not question the rest of the appellate courts ruling, which held that Evelyn
and PAFIN executed the REM in complete disregard and violation of the October 2,
1996 Order of the Makati RTC and the annotation on TCT No. 99791. It did not dispute
the legal effect of the October 2, 1996 Order on Evelyns capacity to encumber the
Paraaque townhouse unit nor the CAs finding that petitioner is a mortgagee in bad
faith.

The October 2, 1996 Order, embodying Evelyns commitment not to dispose of or

encumber the property, is akin to an injunction order against the disposition or
encumbrance of the property. Jurisprudence holds that all acts done in violation of a
standing injunction order are voidable as to the party enjoined and third parties who are
not in good faith.46 The party, in whose favor the injunction is issued, has a cause of
action to seek the annulment of the offending actions.47 The following is instructive:

An injunction or restraining order must be obeyed while it remains in full force and effect
until the injunction or restraining order has been set aside, vacated, or modified by the
court which granted it, or until the order or decree awarding it has been reversed on
appeal. The injuction must be obeyed irrespective of the ultimate validity of the order,
and no matter how unreasonable and unjust the injunction may be in its terms. 48

In view of the foregoing discussion, we find no need to discuss the other issues raised
by the petitioner.

WHEREFORE, premises considered, the Petition is DENIED for lack of merit. The
August 1, 2006 Decision of the Court of Appeals in CA-G.R. CV No. 78944
is AFFIRMED.

SO ORDERED.

G.R. No. 195670 December 3, 2012

WILLEM BEUMER, Petitioner,

vs.
AVELINA AMORES, Respondent.

DECISION

PERLAS-BERNABE, J.:

Before the Court is a Petition for Review on Certiorari1 under Rule 45 of the Rules of
CoLlli assailing the October 8, 2009 Decision2 and January 24, 2011 Resolution3 of the
court of Appeals (CA) in CA-G.R. CV No. 01940, which affirmed the February 28, 2007
Decision4 of the Regional Trial Court (RTC) of Negros Oriental, Branch 34 in Civil Case
No. I 2884. The foregoing rulings dissolved the conjugal partnership of gains of Willem
Beumer (petitioner) and Avelina Amores (respondent) and distributed the properties
forming part of the said property regime.

The Factual Antecedents

Petitioner, a Dutch National, and respondent, a Filipina, married in March 29, 1980.
After several years, the RTC of Negros Oriental, Branch 32, declared the nullity of their
marriage in the Decision5 dated November 10, 2000 on the basis of the formers
psychological incapacity as contemplated in Article 36 of the Family Code.

Consequently, petitioner filed a Petition for Dissolution of Conjugal Partnership6 dated

December 14, 2000 praying for the distribution of the following described properties
claimed to have been acquired during the subsistence of their marriage, to wit:

By Purchase:

a. Lot 1, Block 3 of the consolidated survey of Lots 2144 & 2147 of the
Dumaguete Cadastre, covered by Transfer Certificate of Title (TCT) No. 22846,
containing an area of 252 square meters (sq.m.), including a residential house
constructed thereon.

b. Lot 2142 of the Dumaguete Cadastre, covered by TCT No. 21974, containing
an area of 806 sq.m., including a residential house constructed thereon.

c. Lot 5845 of the Dumaguete Cadastre, covered by TCT No. 21306, containing
an area of 756 sq.m.

d. Lot 4, Block 4 of the consolidated survey of Lots 2144 & 2147 of the
Dumaguete Cadastre, covered by TCT No. 21307, containing an area of 45
sq.m.

By way of inheritance:

e. 1/7 of Lot 2055-A of the Dumaguete Cadastre, covered by TCT No. 23567,
containing an area of 2,635 sq.m. (the area that appertains to the conjugal
partnership is 376.45 sq.m.).

f. 1/15 of Lot 2055-I of the Dumaguete Cadastre, covered by TCT No. 23575,
containing an area of 360 sq.m. (the area that appertains to the conjugal
partnership is 24 sq.m.).7

In defense,8 respondent averred that, with the exception of their two (2) residential
houses on Lots 1 and 2142, she and petitioner did not acquire any conjugal properties
during their marriage, the truth being that she used her own personal money to
purchase Lots 1, 2142, 5845 and 4 out of her personal funds and Lots 2055-A and
2055-I by way of inheritance.9 She submitted a joint affidavit executed by her and
petitioner attesting to the fact that she purchased Lot 2142 and the improvements
thereon using her own money.10 Accordingly, respondent sought the dismissal of the
petition for dissolution as well as payment for attorneys fees and litigation expenses. 11

During trial, petitioner testified that while Lots 1, 2142, 5845 and 4 were registered in the
name of respondent, these properties were acquired with the money he received from
the Dutch government as his disability benefit12 since respondent did not have sufficient
income to pay for their acquisition. He also claimed that the joint affidavit they submitted
before the Register of Deeds of Dumaguete City was contrary to Article 89 of the Family
Code, hence, invalid.13

For her part, respondent maintained that the money used for the purchase of the lots
came exclusively from her personal funds, in particular, her earnings from selling
jewelry as well as products from Avon, Triumph and Tupperware.14 She further asserted
that after she filed for annulment of their marriage in 1996, petitioner transferred to their
second house and brought along with him certain personal properties, consisting of
drills, a welding machine, grinders, clamps, etc. She alleged that these tools and
equipment have a total cost of P500,000.00.15

The RTC Ruling

On February 28, 2007, the RTC of Negros Oriental, Branch 34 rendered its Decision,
dissolving the parties conjugal partnership, awarding all the parcels of land to
respondent as her paraphernal properties; the tools and equipment in favor of petitioner
as his exclusive properties; the two (2) houses standing on Lots 1 and 2142 as co-
owned by the parties, the dispositive of which reads:

WHEREFORE, judgment is hereby rendered granting the dissolution of the conjugal

partnership of gains between petitioner Willem Beumer and respondent Avelina Amores
considering the fact that their marriage was previously annulled by Branch 32 of this
Court. The parcels of land covered by Transfer Certificate of Titles Nos. 22846, 21974,
21306, 21307, 23567 and 23575 are hereby declared paraphernal properties of
respondent Avelina Amores due to the fact that while these real properties were
acquired by onerous title during their marital union, Willem Beumer, being a foreigner, is
not allowed by law to acquire any private land in the Philippines, except through
inheritance.

The personal properties, i.e., tools and equipment mentioned in the complaint which
were brought out by Willem from the conjugal dwelling are hereby declared to be
exclusively owned by the petitioner.

The two houses standing on the lots covered by Transfer Certificate of Title Nos. 21974
and 22846 are hereby declared to be co-owned by the petitioner and the respondent
since these were acquired during their marital union and since there is no prohibition on
foreigners from owning buildings and residential units. Petitioner and respondent are,
thereby, directed to subject this court for approval their project of partition on the two
houses aforementioned.

The Court finds no sufficient justification to award the counterclaim of respondent for
attorneys fees considering the well settled doctrine that there should be no premium on
the right to litigate. The prayer for moral damages are likewise denied for lack of merit.

No pronouncement as to costs.

SO ORDERED.16

It ruled that, regardless of the source of funds for the acquisition of Lots 1, 2142, 5845
and 4, petitioner could not have acquired any right whatsoever over these properties as
petitioner still attempted to acquire them notwithstanding his knowledge of the
constitutional prohibition against foreign ownership of private lands.17 This was made
evident by the sworn statements petitioner executed purporting to show that the subject
parcels of land were purchased from the exclusive funds of his wife, the herein
respondent.18 Petitioners plea for reimbursement for the amount he had paid to
purchase the foregoing properties on the basis of equity was likewise denied for not
having come to court with clean hands.

The CA Ruling

Petitioner elevated the matter to the CA, contesting only the RTCs award of Lots 1,
2142, 5845 and 4 in favor of respondent. He insisted that the money used to purchase
the foregoing properties came from his own capital funds and that they were registered
in the name of his former wife only because of the constitutional prohibition against
foreign ownership. Thus, he prayed for reimbursement of one-half (1/2) of the value of
what he had paid in the purchase of the said properties, waiving the other half in favor
of his estranged ex-wife.19

On October 8, 2009, the CA promulgated a Decision20 affirming in toto the judgment

rendered by the RTC of Negros Oriental, Branch 34. The CA stressed the fact that
petitioner was "well-aware of the constitutional prohibition for aliens to acquire lands in
the Philippines."21 Hence, he cannot invoke equity to support his claim for
reimbursement.

Consequently, petitioner filed the instant Petition for Review on Certiorari assailing the
CA Decision due to the following error:

UNDER THE FACTS ESTABLISHED, THE COURT ERRED IN NOT SUSTAINING

THE PETITIONERS ATTEMPT AT SUBSEQUENTLY ASSERTING OR CLAIMING A
RIGHT OF HALF OR WHOLE OF THE PURCHASE PRICE USED IN THE PURCHASE
OF THE REAL PROPERTIES SUBJECT OF THIS CASE.22 (Emphasis supplied)

The Ruling of the Court

The petition lacks merit.

The issue to be resolved is not of first impression. In In Re: Petition For Separation of
Property-Elena Buenaventura Muller v. Helmut Muller23 the Court had already denied a
claim for reimbursement of the value of purchased parcels of Philippine land instituted
by a foreigner Helmut Muller, against his former Filipina spouse, Elena Buenaventura
Muller. It held that Helmut Muller cannot seek reimbursement on the ground of equity
where it is clear that he willingly and knowingly bought the property despite the
prohibition against foreign ownership of Philippine land24enshrined under Section 7,
Article XII of the 1987 Philippine Constitution which reads:

Section 7. Save in cases of hereditary succession, no private lands shall be transferred

or conveyed except to individuals, corporations, or associations qualified to acquire or
hold lands of the public domain.

Undeniably, petitioner openly admitted that he "is well aware of the above-cited
constitutional prohibition"25 and even asseverated that, because of such prohibition, he
and respondent registered the subject properties in the latters name.26 Clearly,
petitioners actuations showed his palpable intent to skirt the constitutional prohibition.
On the basis of such admission, the Court finds no reason why it should not apply the
Muller ruling and accordingly, deny petitioners claim for reimbursement.

As also explained in Muller, the time-honored principle is that he who seeks equity must
do equity, and he who comes into equity must come with clean hands. Conversely
stated, he who has done inequity shall not be accorded equity. Thus, a litigant may be
denied relief by a court of equity on the ground that his conduct has been inequitable,
unfair and dishonest, or fraudulent, or deceitful.27

In this case, petitioners statements regarding the real source of the funds used to
purchase the subject parcels of land dilute the veracity of his claims: While admitting to
have previously executed a joint affidavit that respondents personal funds were used to
purchase Lot 1,28 he likewise claimed that his personal disability funds were used to
acquire the same. Evidently, these inconsistencies show his untruthfulness. Thus, as
petitioner has come before the Court with unclean hands, he is now precluded from
seeking any equitable refuge.

In any event, the Court cannot, even on the grounds of equity, grant reimbursement to
petitioner given that he acquired no right whatsoever over the subject properties by
virtue of its unconstitutional purchase. It is well-established that 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.29 Surely, a contract that violates the Constitution and the
law is null and void, vests no rights, creates no obligations and produces no legal effect
at all.30 Corollary thereto, under Article 1412 of the Civil Code,31 petitioner cannot have
the subject properties deeded to him or allow him to recover the money he had spent for
the purchase thereof. The law will not aid either party to an illegal contract or
agreement; it leaves the parties where it finds them.32 Indeed, one cannot salvage any
rights from an unconstitutional transaction knowingly entered into.

Neither can the Court grant petitioners claim for reimbursement on the basis of unjust
enrichment.33 As held in Frenzel v. Catito, a case also involving a foreigner seeking
monetary reimbursement for money spent on purchase of Philippine land, the provision
on unjust enrichment does not apply if the action is proscribed by the Constitution, to
wit:

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.1wphi1

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. 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. 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 v. Johnson: "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."34(Citations omitted)

Nor would the denial of his claim amount to an injustice based on his foreign
citizenship.35 Precisely, it is the Constitution itself which demarcates the rights of citizens
and non-citizens in owning Philippine land. To be sure, the constitutional ban against
foreigners applies only to ownership of Philippine land and not to the improvements built
thereon, such as the two (2) houses standing on Lots 1 and 2142 which were properly
declared to be co-owned by the parties subject to partition. Needless to state, the
purpose of the prohibition is to conserve the national patrimony36 and it is this policy
which the Court is duty-bound to protect.

WHEREFORE, the petition is DENIED. Accordingly, the assailed October 8, 2009

Decision and January 24, 2011 Resolution of the Court of Appeals in CA-G.R. CV No.
01940 are AFFIRMED.

SO ORDERED.

G.R. No. 164584 June 22, 2009

PHILIP MATTHEWS, Petitioner,
vs.
BENJAMIN A. TAYLOR and JOSELYN C. TAYLOR, Respondents.

DECISION

NACHURA, J.:

Assailed in this petition for review on certiorari are the Court of Appeals (CA) December
19, 2003 Decision1 and July 14, 2004 Resolution2 in CA-G.R. CV No. 59573. The
assailed decision affirmed and upheld the June 30, 1997 Decision 3 of the Regional Trial
Court (RTC), Branch 8, Kalibo, Aklan in Civil Case No. 4632 for Declaration of Nullity of
Agreement of Lease with Damages.

On June 30, 1988, respondent Benjamin A. Taylor (Benjamin), a British subject, married
Joselyn C. Taylor (Joselyn), a 17-year old Filipina.4 On June 9, 1989, while their
marriage was subsisting, Joselyn bought from Diosa M. Martin a 1,294 square-meter lot
(Boracay property) situated at Manoc-Manoc, Boracay Island, Malay, Aklan, for and in
consideration of 129,000.00.5 The sale was allegedly financed by Benjamin.6 Joselyn
and Benjamin, also using the latters funds, constructed improvements thereon and
eventually converted the property to a vacation and tourist resort known as the Admiral
Ben Bow Inn.7 All required permits and licenses for the operation of the resort were
obtained in the name of Ginna Celestino, Joselyns sister.8

However, Benjamin and Joselyn had a falling out, and Joselyn ran away with Kim
Philippsen. On June 8, 1992, Joselyn executed a Special Power of Attorney (SPA) in
favor of Benjamin, authorizing the latter to maintain, sell, lease, and sub-lease and
otherwise enter into contract with third parties with respect to their Boracay property. 9

On July 20, 1992, Joselyn as lessor and petitioner Philip Matthews as lessee, entered
into an Agreement of Lease10(Agreement) involving the Boracay property for a period of
25 years, with an annual rental of 12,000.00. The agreement was signed by the
parties and executed before a Notary Public. Petitioner thereafter took possession of
the property and renamed the resort as Music Garden Resort.1avvphi1

Claiming that the Agreement was null and void since it was entered into by Joselyn
without his (Benjamins) consent, Benjamin instituted an action for Declaration of Nullity
of Agreement of Lease with Damages11 against Joselyn and the petitioner. Benjamin
claimed that his funds were used in the acquisition and improvement of the Boracay
property, and coupled with the fact that he was Joselyns husband, any transaction
involving said property required his consent.

No Answer was filed, hence, the RTC declared Joselyn and the petitioner in defeault.
On March 14, 1994, the RTC rendered judgment by default declaring the Agreement
null and void.12 The decision was, however, set aside by the CA in CA-G.R. SP No.
34054.13 The CA also ordered the RTC to allow the petitioner to file his Answer, and to
conduct further proceedings.

In his Answer,14 petitioner claimed good faith in transacting with Joselyn. Since Joselyn
appeared to be the owner of the Boracay property, he found it unnecessary to obtain
the consent of Benjamin. Moreover, as appearing in the Agreement, Benjamin signed
as a witness to the contract, indicating his knowledge of the transaction and, impliedly,
his conformity to the agreement entered into by his wife. Benjamin was, therefore,
estopped from questioning the validity of the Agreement.

There being no amicable settlement during the pre-trial, trial on the merits ensued.

On June 30, 1997, the RTC disposed of the case in this manner:

WHEREFORE, premises considered, judgment is hereby rendered in favor of the

plaintiff and against the defendants as follows:

1. The Agreement of Lease dated July 20, 1992 consisting of eight (8) pages
(Exhibits "T", "T-1", "T-2", "T-3", "T-4", "T-5", "T-6" and "T-7") entered into by and
between Joselyn C. Taylor and Philip Matthews before Notary Public Lenito T.
Serrano under Doc. No. 390, Page 79, Book I, Series of 1992 is hereby declared
NULL and VOID;

2. Defendants are hereby ordered, jointly and severally, to pay plaintiff the sum of
SIXTEEN THOUSAND (16,000.00) PESOS as damages representing
unrealized income for the residential building and cottages computed monthly
from July 1992 up to the time the property in question is restored to plaintiff; and

3. Defendants are hereby ordered, jointly and severally, to pay plaintiff the sum of
TWENTY THOUSAND (20,000.00) PESOS, Philippine Currency, for attorneys
fees and other incidental expenses.

SO ORDERED.15

The RTC considered the Boracay property as community property of Benjamin and
Joselyn; thus, the consent of the spouses was necessary to validate any contract
involving the property. Benjamins right over the Boracay property was bolstered by the
courts findings that the property was purchased and improved through funds provided
by Benjamin. Although the Agreement was evidenced by a public document, the trial
court refused to consider the alleged participation of Benjamin in the questioned
transaction primarily because his signature appeared only on the last page of the
document and not on every page thereof.

On appeal to the CA, petitioner still failed to obtain a favorable decision. In its December
19, 2003 Decision,16 the CA affirmed the conclusions made by the RTC. The appellate
court was of the view that if, indeed, Benjamin was a willing participant in the
questioned transaction, the parties to the Agreement should have used the phrase "with
my consent" instead of "signed in the presence of." The CA noted that Joselyn already
prepared an SPA in favor of Benjamin involving the Boracay property; it was therefore
unnecessary for Joselyn to participate in the execution of the Agreement. Taken
together, these circumstances yielded the inevitable conclusion that the contract was
null and void having been entered into by Joselyn without the consent of Benjamin.

Aggrieved, petitioner now comes before this Court in this petition for review on certiorari
based on the following grounds:

4.1. THE MARITAL CONSENT OF RESPONDENT BENJAMIN TAYLOR IS NOT

REQUIRED IN THE AGREEMENT OF LEASE DATED 20 JULY 1992.
GRANTING ARGUENDO THAT HIS CONSENT IS REQUIRED, BENJAMIN
TAYLOR IS DEEMED TO HAVE GIVEN HIS CONSENT WHEN HE AFFIXED
HIS SIGNATURE IN THE AGREEMENT OF LEASE AS WITNESS IN THE
LIGHT OF THE RULING OF THE SUPREME COURT IN THE CASE OF
SPOUSES PELAYO VS. MELKI PEREZ, G.R. NO. 141323, JUNE 8, 2005.

4.2. THE PARCEL OF LAND SUBJECT OF THE AGREEMENT OF LEASE IS

THE EXCLUSIVE PROPERTY OF JOCELYN C. TAYLOR, A FILIPINO CITIZEN,
IN THE LIGHT OF CHEESMAN VS. IAC, G.R. NO. 74833, JANUARY 21, 1991.

4.3. THE COURTS A QUO ERRONEOUSLY APPLIED ARTICLE 96 OF THE

FAMILY CODE OF THE PHILIPPINES WHICH IS A PROVISION REFERRING
TO THE ABSOLUTE COMMUNITY OF PROPERTY. THE PROPERTY REGIME
GOVERNING THE PROPERTY RELATIONS OF BENJAMIN TAYLOR AND
JOSELYN TAYLOR IS THE CONJUGAL PARTNERSHIP OF GAINS BECAUSE
THEY WERE MARRIED ON 30 JUNE 1988 WHICH IS PRIOR TO THE
EFFECTIVITY OF THE FAMILY CODE. ARTICLE 96 OF THE FAMILY CODE
OF THE PHILIPPINES FINDS NO APPLICATION IN THIS CASE.

4.4. THE HONORABLE COURT OF APPEALS IGNORED THE PRESUMPTION

OF REGULARITY IN THE EXECUTION OF NOTARIAL DOCUMENTS.

4.5. THE HONORABLE COURT OF APPEALS FAILED TO PASS UPON THE

COUNTERCLAIM OF PETITIONER DESPITE THE FACT THAT IT WAS NOT
CONTESTED AND DESPITE THE PRESENTATION OF EVIDENCE
ESTABLISHING SAID CLAIM.17

The petition is impressed with merit.

In fine, we are called upon to determine the validity of an Agreement of Lease of a

parcel of land entered into by a Filipino wife without the consent of her British husband.
In addressing the matter before us, we are confronted not only with civil law or conflicts
of law issues, but more importantly, with a constitutional question.
It is undisputed that Joselyn acquired the Boracay property in 1989. Said acquisition
was evidenced by a Deed of Sale with Joselyn as the vendee. The property was also
declared for taxation purposes under her name. When Joselyn leased the property to
petitioner, Benjamin sought the nullification of the contract on two grounds: first, that he
was the actual owner of the property since he provided the funds used in purchasing the
same; and second, that Joselyn could not enter into a valid contract involving the
subject property without his consent.

The trial and appellate courts both focused on the property relations of petitioner and
respondent in light of the Civil Code and Family Code provisions. They, however, failed
to observe the applicable constitutional principles, which, in fact, are the more decisive.

Section 7, Article XII of the 1987 Constitution states:18

Section 7. Save in cases of hereditary succession, no private lands shall be transferred

or conveyed except to individuals, corporations, or associations qualified to acquire or
hold lands of the public domain.1avvphi1

Aliens, whether individuals or corporations, have been disqualified from acquiring lands
of the public domain. Hence, by virtue of the aforecited constitutional provision, they are
also disqualified from acquiring private lands.19The primary purpose of this constitutional
provision is the conservation of the national patrimony.20 Our fundamental law cannot
be any clearer. The right to acquire lands of the public domain is reserved only to
Filipino citizens or corporations at least sixty percent of the capital of which is owned by
Filipinos.21

In Krivenko v. Register of Deeds,22 cited in Muller v. Muller,23 we had the occasion to

explain the constitutional prohibition:

Under Section 1 of Article XIII of the Constitution, "natural resources, with the exception
of public agricultural land, shall not be alienated," and with respect to public agricultural
lands, their alienation is limited to Filipino citizens. But this constitutional purpose
conserving agricultural resources in the hands of Filipino citizens may easily be
defeated by the Filipino citizens themselves who may alienate their agricultural lands in
favor of aliens. It is partly to prevent this result that Section 5 is included in Article XIII,
and it reads as follows:

"Section 5. Save in cases of hereditary succession, no private agricultural land will be

transferred or assigned except to individuals, corporations, or associations qualified to
acquire or hold lands of the public domain in the Philippines."

This constitutional provision closes the only remaining avenue through which
agricultural resources may leak into aliens hands. It would certainly be futile to prohibit
the alienation of public agricultural lands to aliens if, after all, they may be freely so
alienated upon their becoming private agricultural lands in the hands of Filipino citizens.
xxx
xxxx

If the term "private agricultural lands" is to be construed as not including residential lots
or lands not strictly agricultural, the result would be that "aliens may freely acquire and
possess not only residential lots and houses for themselves but entire subdivisions, and
whole towns and cities," and that "they may validly buy and hold in their names lands of
any area for building homes, factories, industrial plants, fisheries, hatcheries, schools,
health and vacation resorts, markets, golf courses, playgrounds, airfields, and a host of
other uses and purposes that are not, in appellants words, strictly agricultural."
(Solicitor Generals Brief, p. 6) That this is obnoxious to the conservative spirit of the
Constitution is beyond question.24

The rule is clear and inflexible: aliens are absolutely not allowed to acquire public or
private lands in the Philippines, save only in constitutionally recognized
exceptions.25 There is no rule more settled than this constitutional prohibition, as more
and more aliens attempt to circumvent the provision by trying to own lands through
another. In a long line of cases, we have settled issues that directly or indirectly involve
the above constitutional provision. We had cases where aliens wanted that a particular
property be declared as part of their fathers estate;26 that they be reimbursed the funds
used in purchasing a property titled in the name of another;27 that an implied trust be
declared in their (aliens) favor;28 and that a contract of sale be nullified for their lack of
consent.29

In Ting Ho, Jr. v. Teng Gui,30 Felix Ting Ho, a Chinese citizen, acquired a parcel of land,
together with the improvements thereon. Upon his death, his heirs (the petitioners
therein) claimed the properties as part of the estate of their deceased father, and sought
the partition of said properties among themselves. We, however, excluded the land and
improvements thereon from the estate of Felix Ting Ho, precisely because he never
became the owner thereof in light of the above-mentioned constitutional prohibition.

In Muller v. Muller,31 petitioner Elena Buenaventura Muller and respondent Helmut

Muller were married in Germany. During the subsistence of their marriage, respondent
purchased a parcel of land in Antipolo City and constructed a house thereon. The
Antipolo property was registered in the name of the petitioner. They eventually
separated, prompting the respondent to file a petition for separation of property.
Specifically, respondent prayed for reimbursement of the funds he paid for the
acquisition of said property. In deciding the case in favor of the petitioner, the Court held
that respondent was aware that as an alien, he was prohibited from owning a parcel of
land situated in the Philippines. He had, in fact, declared that when the spouses
acquired the Antipolo property, he had it titled in the name of the petitioner because of
said prohibition. Hence, we denied his attempt at subsequently asserting a right to the
said property in the form of a claim for reimbursement. Neither did the Court declare
that an implied trust was created by operation of law in view of petitioners marriage to
respondent. We said that to rule otherwise would permit circumvention of the
constitutional prohibition.
In Frenzel v. Catito,32 petitioner, an Australian citizen, was married to Teresita Santos;
while respondent, a Filipina, was married to Klaus Muller. Petitioner and respondent met
and later cohabited in a common-law relationship, during which petitioner acquired real
properties; and since he was disqualified from owning lands in the Philippines,
respondents name appeared as the vendee in the deeds of sale. When their
relationship turned sour, petitioner filed an action for the recovery of the real properties
registered in the name of respondent, claiming that he was the real owner. Again, as in
the other cases, the Court refused to declare petitioner as the owner mainly because of
the constitutional prohibition. The Court added that being a party to an illegal contract,
he could not come to court and ask to have his illegal objective carried out. One who
loses his money or property by knowingly engaging in an illegal contract may not
maintain an action for his losses.

Finally, in Cheesman v. Intermediate Appellate Court,33 petitioner (an American citizen)

and Criselda Cheesman acquired a parcel of land that was later registered in the latters
name. Criselda subsequently sold the land to a third person without the knowledge of
the petitioner. The petitioner then sought the nullification of the sale as he did not give
his consent thereto. The Court held that assuming that it was his (petitioners) intention
that the lot in question be purchased by him and his wife, he acquired no right whatever
over the property by virtue of that purchase; and in attempting to acquire a right or
interest in land, vicariously and clandestinely, he knowingly violated the Constitution;
thus, the sale as to him was null and void.

In light of the foregoing jurisprudence, we find and so hold that Benjamin has no right to
nullify the Agreement of Lease between Joselyn and petitioner. Benjamin, being an
alien, is absolutely prohibited from acquiring private and public lands in the Philippines.
Considering that Joselyn appeared to be the designated "vendee" in the Deed of Sale of
said property, she acquired sole ownership thereto. This is true even if we sustain
Benjamins claim that he provided the funds for such acquisition. By entering into such
contract knowing that it was illegal, no implied trust was created in his favor; no
reimbursement for his expenses can be allowed; and no declaration can be made that
the subject property was part of the conjugal/community property of the spouses. In any
event, he had and has no capacity or personality to question the subsequent lease of
the Boracay property by his wife on the theory that in so doing, he was merely
exercising the prerogative of a husband in respect of conjugal property. To sustain such
a theory would countenance indirect controversion of the constitutional prohibition. If the
property were to be declared conjugal, this would accord the alien husband a
substantial interest and right over the land, as he would then have a decisive vote as to
its transfer or disposition. This is a right that the Constitution does not permit him to
have.34

In fine, the Agreement of Lease entered into between Joselyn and petitioner cannot be
nullified on the grounds advanced by Benjamin. Thus, we uphold its validity.

With the foregoing disquisition, we find it unnecessary to address the other issues
raised by the petitioner.
WHEREFORE, premises considered, the December 19, 2003 Decision and July 14,
2004 Resolution of the Court of Appeals in CA-G.R. CV No. 59573, are REVERSED
and SET ASIDE and a new one is entered DISMISSING the complaint against petitioner
Philip Matthews.

SO ORDERED.

G.R. No. 142913. August 9, 2005

ESTATE OF SALVADOR SERRA SERRA (SPEC. PROC. NO. 242) AND ESTATE OF
GREGORIO SERRA SERRA (SPEC. PROC. NO. 240), BOTH REPRESENTED BY
THE JUDICIAL CO-ADMINISTRATOR LUIS ISASI, MARGARITA SERRA SERRA,
FRANCISCA TERESA SERRA SERRA and FRANCISCO JOSE SERRA
SERRA,Petitioners,
vs.
HEIRS OF PRIMITIVO HERNAEZ, REPRESENTED BY PRESENTACION HERNAEZ
BELBAR, HEIRS OF LUISA HERNAEZ, REPRESENTED BY WILFREDO GAYARES,
LOLITA GAYARES, JULIETA FORTALEZA AND ROSAURO FORTALEZA, HEIRS
OF ROGACIANA HERNAEZ, REPRESENTED BY LOURDES
MONCERA,Respondent.

DECISION

YNARES-SANTIAGO, J.:

This petition for review on certiorari under Rule 45 of the 1997 Revised Rules of Civil
Procedure assails the March 3, 2000 decision of the Court of Appeals in CA-G.R. SP
No. 52817, and its April 17, 2000 resolution denying reconsideration thereof.

The factual antecedents are as follows:

On December 27, 1967, a petition for reconstitution of alleged lost original certificates of
title (OCT) and owners duplicate copies in the name of Eleuterio Hernaez covering Lot
No. 1316 of Kabankalan Cadastre and Lot Nos. 2685 and 717 of Ilog Cadastre, in the
Province of Negros Occidental, was filed by his successors-in-interest Primitivo,
Rogaciana and Luisa, all surnamed Hernaez (Hernaez) with then Court of First Instance
(CFI) of Bacolod City.

On April 6, 1968, the CFI granted the petition and ordered the reconstitution of the
subject OCTs and its duplicate copies.1 Accordingly, the Register of Deeds of Negros
Occidental issued reconstituted OCT Nos. RO-10173, RO-10174, and RO-10175, for
Lot Nos. 1316, 2685, and 717, respectively. These reconstituted OCTs were cancelled
on May 29, 1969 upon presentation by Hernaez of a "declaration of heirship" and in lieu
thereof, Transfer Certificate of Title (TCT) Nos. T-51546, T-51547, and T-51548 were
issued in their names.
Upon learning of the existence of the above TCTs, Salvador Serra Serra, for and in
behalf of his co-heirs, registered their adverse claim and moved for the cancellation of
the reconstituted titles. They averred that they are holders of valid and existing
certificates of title over the subject properties and have been in continuous and actual
possession thereof.

The trial court denied petitioners motion to cancel the reconstituted titles and granted
instead Hernaez prayer that they be placed in possession of the subject properties,
which petitioners challenged before the Court of Appeals in a petition
for certiorari docketed as CA-G.R. No. SP-00139.2

On June 7, 1971, the appellate court issued a writ of preliminary injunction 3 which was
ordered lifted in a resolution dated August 3, 1971. Petitioners motion for
reconsideration was denied, hence they filed before this Court a petition for certiorari,
prohibition and mandamus, docketed as G.R. No. L-34080 and consolidated with G.R.
No. L-34693,4 seeking to annul the resolution lifting the writ of preliminary injunction.

On March 22, 1991, this Court rendered judgment the decretal portion of which reads:

ACCORDINGLY, the petitions are GRANTED. The questioned order of the respondent
Court of Appeals lifting the writ of preliminary injunction is SET ASIDE. The writ of
possession issued in Cadastral Case No. 17, GLRO Records No. 163 is declared NULL
and VOID. The records of this case and of CA-G.R. No. 00139 are remanded to the trial
court for hearing of the motion for cancellation of the reconstituted titles. Private
respondents are ordered to return to petitioners the possession of the properties in
question. The temporary restraining order issued by this Court on February 15, 1972,
enjoining private respondents from interfering in any manner, with petitioners right of
possession of the properties in question, shall remain effective until the issue of
ownership and/or possession of the properties is finally settled by a competent court.

SO ORDERED.5

Pursuant thereto, the trial court heard petitioners motion for cancellation of certificates
of title and on November 25, 1998, rendered judgment the dispositive portion of which
reads:

WHEREFORE, based on the foregoing premises and considerations, the court hereby
renders judgment in favor of the oppositors and hereby orders the following:

1) The petition filed by movants Serra Serra dated November 4, 1968 is hereby
DISMISSED for lack of merit;

2) Declaring the Transfer Certificate of Title No. T-27644 covering Lot No. 1316,
Kabankalan Cadastre and Lot No. 2685, Ilog Cadastre, Transfer Certificate of Title No.
T-22344 covering Lot No. 717-A, and Transfer Certificate of Title No. T-22351, Ilog
Cadastre, all issued in the name of movants Serra Serra NULL and VOID for being
issued to foreigners;

3) Declaring the oppositors Hernaez as owners of Lot No. 1316, Kabankalan Cadastre,
covered by Transfer Certificate of Title No. 51546; Lot No. 2685, Ilog Cadastre, covered
by Transfer Certificate of Title No. T-51547; and Lot No. 717, Ilog Cadastre, covered by
Transfer Certiticate of Title No. T-51548; and

4) Ordering the movants Serra Serra to return possession of said lots to the oppositors
Hernaez.

SO ORDERED.6

Without filing a motion for reconsideration, petitioners assailed the lower courts
decision before the Court of Appeals via a petition for certiorari. On March 3, 2000, the
appellate court rendered the herein assailed judgment which dismissed the petition for
lack of merit, pertinent portion of which reads:

In the case at bench, We find no cogent reason to disturb the assailed decision denying
petitioners motion for cancellation of the reconstituted titles, especially after the court a
quo found that the evidence presented is sufficient and proper to uphold the
reconstituted certificates of title in question. A perusal of the assailed order shows
that the trial court correctly applied the established legal principle that in cases of
annulment and/or reconveyance of title, a party seeking it should establish not merely
by a preponderance of evidence but by clear and convincing evidence that the land
sought to be reconveyed is his.

Petitioners (Serra Serra), however, as noted by the court a quo in its Order dated
November 25, 1998, failed to present in court as evidence the original certificates of
title of the aforementioned lots, Lot No. 1316, Lot No. 2685 and Lot No. 717. Petitioners
were also found to be of Spanish citizenship and, hence, as aliens, disqualified to
acquire lands in the Philippines under the 1935 Constitution.7

Petitioners motion for reconsideration was subsequently denied, hence the instant
petition based on the following assigned errors:

THE COURT OF APPEALS HAS ... DEPARTED FROM THE ACCEPTED AND USUAL
COURSE OF JUDICIAL PROCEEDINGS AS TO CALL FOR THE EXERCISE OF THE
POWER OF SUPERVISION BY THIS HONORABLE COURT, IN THAT:

THE RULE THAT THE PETITIONER SHOULD HAVE PREVIOUSLY FILED A MOTION
FOR RECONSIDERATION WITH THE LOWER COURT BEFORE HE MAY AVAIL
HIMSELF OF THE WRIT OF CERTIORARI UNDER RULE 65 OF THE RULES OF
COURT IS SUBJECT TO WELL-SETTLED EXCEPTIONS ...
 ...

II

THE COURT OF APPEALS ... HAS DECIDED A QUESTION OF SUBSTANCE IN A

WAY PROBABLY NOT IN ACCORD WITH LAW, REPUBLIC ACT NO. 26, OR WITH
THE APPLICABLE DECISION OF THIS HONORABLE COURT IN SERRA VS. COURT
OF APPEALS, G.R. NO. L-34080, MARCH 22, 1991.8

Petitioners assail the dismissal of their petition on the ground that they failed to file a
motion for reconsideration with the lower court before filing a petition for certiorari before
the Court of Appeals. While admitting procedural lapse on their part, they argue that the
rule is subject to well-settled exceptions, such as, when the questions raised before the
Supreme Court are the same as those which have been squarely raised and passed
upon by the trial court, or when the petitioner has been deprived of due process of law,
or when the writ is urgent under the circumstances.9

The petition is denied. Other than citing general exceptions to the rule requiring a
motion for reconsideration as a pre-condition to instituting a petition for certiorari, the
petitioners did not offer valid reason why their particular case fall under any of the
specified exceptions.

The settled rule is that a motion for reconsideration is a sine qua non condition for the
filing of a petition for certiorari. The purpose is to grant an opportunity to public
respondent to correct any actual or perceived error attributed to it by the re-examination
of the legal and factual circumstances of the case.10 Petitioners failure to file a motion
for reconsideration deprived the trial court of the opportunity to rectify an error
unwittingly committed or to vindicate itself of an act unfairly imputed. Besides, a motion
for reconsideration under the present circumstances is the plain, speedy and adequate
remedy to the adverse judgment of the trial court.

Granting arguendo that certiorari is the proper remedy, the Court of Appeals
nevertheless did not err in dismissing the petition.

Both the trial court and the Court of Appeals found that petitioners are Spanish citizens
and as such, disqualified from acquiring lands in the Philippines. As a rule, only a
Filipino citizen can acquire private lands in the Philippines and the only instances when
a foreigner can own private lands are by hereditary succession and if he was formerly a
natural-born Filipino citizen who lost his Philippine citizenship. The records are bereft of
any showing that petitioners derived their title by any mode which would qualify them to
acquire private lands in the country. Petitioners bare allegation that they acquired the
subject lots from Salvador Serra Serra has no probative value lacking sufficient proof
that the latter is not disqualified to own or hold private property and was able to legally
transmit to petitioners title thereto.
Petitioners alleged possession of TCTs and actual possession of the subject lands,
although strong proof of ownership, are not necessarily conclusive where the assertion
of proprietary rights is founded on dubious claim of ownership. They claimed that their
title over the subject properties emanated from Salvador Serra Serra; yet they failed to
present in evidence the OCT in the name of the latter. Since petitioners impugn the
proprietary claim of Hernaez over the properties, the burden rests on them to establish
their superior right over the latter. To recall, the trial court found that the evidence they
presented have not established superior proprietary rights over the respondents on the
subject lots. It held that the non-presentation of the OCTs cast doubt on the veracity of
their claim. He who asserts must prove.

It is also undisputed that petitioners are all Spanish citizens. Under Philippine law,
foreigners can acquire private lands only by hereditary succession or when they were
formerly natural-born Filipinos who lost their Philippine citizenship. In this case,
petitioners did not present proof that they acquired the properties by inheritance. Neither
did they claim to be former natural-born Filipinos. On the contrary, they declare in this
petition that they are all Spanish citizens residing in Mallorca, Spain.

It is axiomatic that factual findings of trial courts, when adopted and confirmed by the
Court of Appeals, are binding and conclusive and will not be disturbed on appeal. This
Court is not a trier of facts. It is not its function to examine and determine the weight of
the evidence supporting the assailed decision. Moreover, well entrenched is the
prevailing jurisprudence that only errors of law and not of facts are reviewable by this
Court in a petition for review on certiorari under Rule 45 of the Revised Rules of Court,
which applies with greater force to the petition under consideration because the factual
findings of the Court of Appeals are in full agreement with what the trial court found. 11

WHEREFORE, the petition is DENIED. The March 3, 2000 decision and the April 17,
2000 resolution of the Court of Appeals in CA-G.R. SP No. 52817 are AFFIRMED.

SO ORDERED.

G.R. No. 152317 November 10, 2004

VICTORIA MOREO-LENTFER,* GUNTER LENTFER and JOHN CRAIGIE YOUNG

CROSS, petitioners,
vs.
HANS JURGEN WOLFF, respondent.

DECISION
QUISUMBING, J.:

For review on certiorari are the Decision1 dated June 14, 2001, and Resolution2 dated
February 22, 2002, of the Court of Appeals in CA-G.R. CV No. 48272. The decision
reversed the judgment3 of the Regional Trial Court of Calapan City, Oriental Mindoro,
Branch 39, in Civil Case No. R-4219.

The facts are as follows:

The petitioners are Gunter Lentfer, a German citizen; his Filipina wife, Victoria Moreo-
Lentfer; and John Craigie Young Cross, an Australian citizen, all residing in Sabang,
Puerto Galera, Oriental Mindoro. Respondent Hans Jurgen Wolff is a German citizen,
residing in San Lorenzo Village, Makati City.

Petitioners alleged that with respondent, on March 6, 1992, they engaged the notarial
services of Atty. Rodrigo C. Dimayacyac for: (1) the sale of a beach house owned by
petitioner Cross in Sabang, Puerto Galera, Oriental Mindoro, and (2) the assignment of
Cross' contract of lease on the land where the house stood. The sale of the beach
house and the assignment of the lease right would be in the name of petitioner Victoria
Moreo-Lentfer, but the total consideration of 220,000 Deutschmarks (DM) would be
paid by respondent Hans Jurgen Wolff. A promissory note was executed by said
respondent in favor of petitioner Cross.

According to respondent, however, the Lentfer spouses were his confidants who held in
trust for him, a time deposit account in the amount of DM 200,000 4 at Solid Bank
Corporation. Apprised of his interest to own a house along a beach, the Lentfer couple
urged him to buy petitioner Cross' beach house and lease rights in Puerto Galera.
Respondent agreed and through a bank-to-bank transaction, he paid Cross the amount
of DM 221,7005 as total consideration for the sale and assignment of the lease rights.
However, Cross, Moreo-Lentfer and Atty. Dimayacyac surreptitiously executed a deed
of sale whereby the beach house was made to appear as sold to Moreo-Lentfer for
only P100,000.6 The assignment of the lease right was likewise made in favor of
Moreo-Lentfer.7 Upon learning of this, respondent filed a Complaint docketed as Civil
Case No. R-4219 with the lower court for annulment of sale and reconveyance of
property with damages and prayer for a writ of attachment.

After trial, the court a quo dismissed the complaint for failure to establish a cause of
action, thus:

ACCORDINGLY, judgment is hereby rendered in favor of the defendants and

against the plaintiff, dismissing the complaint for the reason that plaintiff has not
established a cause of action against the defendants with costs against the
plaintiff.

SO ORDERED.8
Aggrieved, respondent appealed to the Court of Appeals. 9

But in its Decision10 dated June 14, 2001, the appellate court reversed the decision of
the trial court, thus:

WHEREFORE, the judgment appealed from is hereby REVERSED and a new one is
hereby rendered, as follows:

1. Defendants-appellees spouses Genter11 and Victoria Moreno-Lentfer

and John Craigie Young Cross are jointly and severally held liable to pay
plaintiff-appellant the amount of 220,000.00 DM German Currency or its
present peso equivalent plus legal interest starting from March 8, 1993,
the date of the last final demand letter;

2. The above defendants-appellees are jointly and severally held liable to

pay plaintiff-appellant the amount of P200,000.00 Philippine Currency,
representing the amount of expenses incurred in the repairs and
maintenance of the property plus legal interest starting from October 28,
1992, the date the amount was received by defendant-appellee Victoria
Moreno-Lentfer; and

3. The case against defendant-appellee Rodrigo Dimayacyac is

dismissed.

SO ORDERED.12

Hence, the instant petition raising the following issues:

1) DOES ARTICLE 1238 OF THE NEW CIVIL CODE APPLY IN THE CASE AT
BAR?13

2) DOES THE PRINCIPLE OF SOLUTIO INDEBITI UNDER ARTICLE 2154 OF

THE NEW CIVIL CODE, THE PRINCIPLE OF JUSTICE AND EQUITY, APPLY
IN THE CASE AT BAR?14

Article 1238 of the New Civil Code provides:

ART. 1238. Payment made by a third person who does not intend to be
reimbursed by the debtor is deemed to be a donation, which requires the debtor's
consent. But the payment is in any case valid as to the creditor who has
accepted it.

Petitioners posit that in a contract of sale, the seller is the creditor, who in this case is
Cross, and the buyer is the debtor, namely Moreo-Lentfer in this case. Respondent is
the third person who paid the consideration on behalf of Moreo-Lentfer, the debtor.
Petitioners insist that respondent did not intend to be reimbursed for said payment and
debtor Moreo-Lentfer consented to it. Thus, by virtue of Article 1238, payment by
respondent is considered a donation.

Respondent counters that Article 1238 bears no relevance to the case since it applies
only to contracts of loan where payment is made by a third person to a creditor in favor
of a debtor of a previously incurred obligation. The instant case, in contrast, involves a
contract of sale where no real creditor-debtor relationship exists between the parties.
Further, respondent argues his conduct never at any time intimated any intention to
donate in favor of petitioner Moreo-Lentfer.

Moreover, respondent contends that the alleged donation is void for non-compliance
with the formal requirements set by law. Citing Article 74815 of the New Civil Code,
respondent avers that since the amount involved exceeds P5,000, both the donation
and its acceptance must be in writing for the donation to be valid. Respondent further
says there was no simultaneous delivery of the money as required by Art. 748 for
instances of oral donation. Respondent also calls our attention to the sudden change in
petitioners' theory. Previously, before the Court of Appeals, the petitioners claimed that
what was donated were the subject properties. But before this Court, they insist that
what was actually donated was the money used in the purchase of subject properties.

On this point, we find petitioners' stance without merit. Article 1238 of the New Civil
Code is not applicable in this case.

Trying to apply Art. 1238 to the instant case is like forcing a square peg into a round
hole. The absence of intention to be reimbursed, the qualifying circumstance in Art.
1238, is negated by the facts of this case. Respondent's acts contradict any intention to
donate the properties to petitioner Moreo-Lentfer. When respondent learned that the
sale of the beach house and assignment of the lease right were in favor of Victoria
Moreo-Lentfer, he immediately filed a complaint for annulment of the sale and
reconveyance of the property with damages and prayer for a writ of attachment.
Respondent Moreo-Lentfer at that time claimed the beach house, together with the
lease right, was donated to her. Noteworthy, she had changed her theory, to say that it
was only the money used in the purchase that was donated to her. But in any event,
respondent actually stayed in the beach house in the concept of an owner and
shouldered the expenses for its maintenance and repair amounting to P200,000 for the
entire period of his stay for ten weeks. Moreover, the appellate court found that
respondent is not related or even close to the Lentfer spouses. Obviously, respondent
had trusted the Lentfer spouses to keep a time deposit account for him with Solid Bank
for the purpose of making the purchase of the cited properties.

Petitioner Moreo-Lentfer's claim of either cash or property donation rings hollow. A

donation is a simple act of liberality where a person gives freely of a thing or right in
favor of another, who accepts it.16 But when a large amount of money is involved,
equivalent to P3,297,800, based on the exchange rate in the year 1992, we are
constrained to take the petitioners' claim of liberality of the donor with more than a grain
of salt.
Petitioners could not brush aside the fact that a donation must comply with the
mandatory formal requirements set forth by law for its validity. Since the subject of
donation is the purchase money, Art. 748 of the New Civil Code is applicable.
Accordingly, the donation of money equivalent to P3,297,800 as well as its acceptance
should have been in writing. It was not. Hence, the donation is invalid for non-
compliance with the formal requisites prescribed by law.

Anent the second issue, petitioners insist that since the deed of sale in favor of Moreo-
Lentfer was neither identified or marked nor formally offered in evidence, the same
cannot be given any evidentiary value. They add that since it was not annulled, it
remains valid and binding. Hence, petitioners argue, the principle of solutio indebiti
under Article 215417 of the New Civil Code should be the applicable provision in the
resolution of this controversy. If so, the parties unjustly enriched would be liable to the
other party who suffered thereby by being correspondingly injured or damaged.

The quasi-contract of solutio indebiti harks back to the ancient principle that no one
shall enrich himself unjustly at the expense of another.18 It applies where (1) a payment
is made when there exists no binding relation between the payor, who has no duty to
pay, and the person who received the payment, and (2) the payment is made through
mistake, and not through liberality or some other cause.19

In the instant case, records show that a bank-to-bank payment was made by
respondent Wolff to petitioner Cross in favor of co-petitioner Moreo-Lentfer.
Respondent was under no duty to make such payment for the benefit of Moreo-
Lentfer. There was no binding relation between respondent and the beneficiary,
Moreo-Lentfer. The payment was clearly a mistake. Since Moreo-Lentfer received
something when there was no right to demand it, she had an obligation to return it. 20

Following Article 2221 of the New Civil Code, two conditions must concur to declare that
a person has unjustly enriched himself or herself, namely: (a) a person is unjustly
benefited, and (b) such benefit is derived at the expense of or to the damage of
another.22

We are convinced petitioner Moreo-Lentfer had been unjustly enriched at the expense
of respondent. She acquired the properties through deceit, fraud and abuse of
confidence. The principle of justice and equity does not work in her favor but in favor of
respondent Wolff. Whatever she may have received by mistake from and at the
expense of respondent should thus be returned to the latter, if the demands of justice
are to be served.

The Court of Appeals held that respondent was not entitled to the reconveyance of the
properties because, inter alia, of the express prohibition under the Constitution23 that
non-Filipino citizens cannot acquire land in the Philippines. We note, however, that
subject properties consist of a beach house and the lease right over the land where the
beach house stands. The constitutional prohibition against aliens from owning land in
the Philippines has no actual bearing in this case. A clear distinction exists between the
ownership of a piece of land and the mere lease of the land where the foreigner's house
stands. Thus, we see no legal reason why reconveyance could not be allowed.

Since reconveyance is the proper remedy, respondent's expenses for the maintenance
and repair of the beach house is for his own account as owner thereof. It need not be an
issue for now.

However, we deem it just and equitable under the circumstances to award respondent
nominal damages in the amount of P50,000,24 pursuant to Articles 222125 and 222226 of
the New Civil Code, since respondent's property right has been invaded through
defraudation and abuse of confidence committed by petitioners.

WHEREFORE, the petition is hereby DENIED. The assailed Decision, dated June 14,
2001 and Resolution dated February 22, 2002, of the Court of Appeals in CA-G.R. CV
No. 48272 reversing the lower court's judgment are AFFIRMED with MODIFICATION.
Petitioners--particularly the spouses Gunter Lentfer and Victoria Moreo-Lentfer--are
hereby ORDERED to:

1. RECONVEY to respondent Hans Jurgen Wolff the beach house and the lease
right over the land on which it is situated; and

2. PAY respondent Wolff nominal damages in the amount of P50,000.00.

Costs against petitioners.

SO ORDERED.