A Special Lecture on Contracts Law

By: Atty. Eduardo T. Reyes, III

30 March 2019

CONTRACTS
Part 2

Preliminary Statement:

The following discussion on Rescissible, Voidable, Unenforceable

and Void Contracts, had been said to be an order arranged according to
degree of defectiveness of contracts starting with the least defective,
i.e., Rescissible to worst, i.e, Void Contracts. Fundamentally, it may be said
that what is common among Rescissible, Voidable, Unenforceable
contracts, is that they are capable of being ratified; while as to void
contracts, being inexistent in the legal dimension, they cannot be
ratified.

CHAPTER 6
Rescissible Contracts

Article 1380. Contracts validly agreed upon may be

rescinded in the cases established by law. (1290)

Comments:

1. Should be distinguished from MUTUAL DISSENT or MUTUAL

BACKING-OUT. In mutual dissent, return of the fruits or restoration
is subject to parties agreement or non-agreement. In real
rescission, restoration is a necessary legal consequence.

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2. Art. 1380 is really known as Rescission and should be distinguished
from Art. 1191 (Resolution).

Article 1191. The power to rescind obligations is implied

in reciprocal ones, in case one of the obligors should
not comply with what is incumbent upon him.

The injured party may choose between the fulfillment

and the rescission of the obligation, with the payment
of damages in either case. He may also seek rescission,
even after he has chosen fulfillment, if the latter
should become impossible.

The court shall decree the rescission claimed, unless

there be just cause authorizing the fixing of a period.

This is understood to be without prejudice to the rights

of third persons who have acquired the thing, in
accordance with articles 1385 and 1388 and the
Mortgage Law. (1124)

3. Comments:

“Reciprocal obligations” meaning, must have arisen from the same

cause.

-As a rule, Article 1191 refers to a JUDICIAL RESCISSION ( properly

RESOLUTION). The default should be remedied via a court action.
This can be judged from 3rd paragraph of Art. 1191 which mentions
that “ the court shall decree the rescission x x x”.

4. However, “there is nothing in Article 1191 which prohibits the parties

from entering into an agreement that a violation of the terms of the
contract would cause its cancellation even without court
intervention[10]”.

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 Art. 1380 Art. 1191
Technically Known as: Rescission Resolution
Ground for Rescission “lesion” or economic Default by one party in
Damage as provided a reciprocal obligation
for under Art. 1381
Remedy Judicial Rescission Gen. Rule: Judicial
Rescission;
Exception: Parties
agree that violation of
the other will warrant
the other to extra-
judicially rescind (Heirs
of the Late Justice
J.B.L. Reyes v. Court of
Appeals, 338 SCRA 282
(2000); Pangilinan v.
Court of Appeals, 279
SCRA 590 (1997); Jison
v. Court of Appeals,
164 SCRA 339)

Article 1381. The following contracts are rescissible:

(1) Those which are entered into by guardians whenever

the wards whom they represent suffer lesion by more
than one-fourth of the value of the things which are the
object thereof;
(2) Those agreed upon in representation of absentees, if
the latter suffer the lesion stated in the preceding
number;

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(3) Those undertaken in fraud of creditors when the
latter cannot in any other manner collect the claims due
them;
(4) Those which refer to things under litigation if they
have been entered into by the defendant without the
knowledge and approval of the litigants or of competent
judicial authority;
(5) All other contracts specially declared by law to be
subject to rescission. (1291a)

Article 1382. Payments made in a state of insolvency for

obligations to whose fulfillment the debtor could not be
compelled at the time they were effected, are also
rescissible. (1292)

Article 1383. The action for rescission is subsidiary; it

cannot be instituted except when the party suffering
damage has no other legal means to obtain reparation
for the same. (1294)

Article 1384. Rescission shall be only to the extent

necessary to cover the damages caused. (n)

Article 1385. Rescission creates the obligation to return

the things which were the object of the contract,
together with their fruits, and the price with its interest;
consequently, it can be carried out only when he who
demands rescission can return whatever he may be
obliged to restore.

Neither shall rescission take place when the things

which are the object of the contract are legally in the
possession of third persons who did not act in bad faith.

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In this case, indemnity for damages may be demanded
from the person causing the loss. (1295)

Article 1386. Rescission referred to in Nos. 1 and 2 of

article 1381 shall not take place with respect to
contracts approved by the courts. (1296a)

Article 1387. All contracts by virtue of which the debtor

alienates property by gratuitous title are presumed to
have been entered into in fraud of creditors, when the
donor did not reserve sufficient property to pay all debts
contracted before the donation.

Alienations by onerous title are also presumed

fraudulent when made by persons against whom some
judgment has been rendered in any instance or some
writ of attachment has been issued. The decision or
attachment need not refer to the property alienated, and
need not have been obtained by the party seeking the
rescission.

In addition to these presumptions, the design to defraud

creditors may be proved in any other manner
recognized by the law of evidence. (1297a)

Article 1388. Whoever acquires in bad faith the things

alienated in fraud of creditors, shall indemnify the latter
for damages suffered by them on account of the
alienation, whenever, due to any cause, it should be
impossible for him to return them.

If there are two or more alienations, the first acquirer

shall be liable first, and so on successively. (1298a)

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Article 1389. The action to claim rescission must be
commenced within four years.

For persons under guardianship and for absentees, the

period of four years shall not begin until the termination
of the former's incapacity, or until the domicile of the
latter is known. (1299)

CHAPTER 7
Voidable Contracts

Article 1390. The following contracts are voidable or

annullable, even though there may have been no
damage to the contracting parties:

(1) Those where one of the parties is incapable of giving

consent to a contract;
(2) Those where the consent is vitiated by mistake,
violence, intimidation, undue influence or fraud.

These contracts are binding, unless they are annulled

by a proper action in court. They are susceptible of
ratification. (n)

Comment:

Par. (1) Art. 1390 is a defective contract because one of the parties to the
contract lacks legal capacity, i.e., the power to perform acts with legal
effect.

Article 37. New Civil Code.

II. Juridical Capacity v. Capacity to Act

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 Juridical Capacity- the FITNESS to be the subject of legal relations, is
inherent in every natural person and is lost only through death.

Capacity to Act- which is the POWER to do acts with legal effect, is

acquired and may be lost.

Restrictions on Capacity to Act.

1) Minority
2) Insanity or imbecility
3) The state of being a deaf-mute;
4) Prodigality; and,
5) Civil Interdiction

Circumstances that MODIFY or LIMIT Capacity to Act

1) Age
2) Insanity
3) Imbecility
4) The state of being a deaf-mute
5) Penalty
6) Prodigality
7) Family relations
8) Alienage
9) Absence
10) Insolvency; and
11) Trusteeship

Article 1391. The action for annulment shall be brought

within four years.

This period shall begin:

In cases of intimidation, violence or undue influence,

from the time the defect of the consent ceases.

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In case of mistake or fraud, from the time of the
discovery of the same.

And when the action refers to contracts entered into by

minors or other incapacitated persons, from the time the
guardianship ceases. (1301a)

Article 1392. Ratification extinguishes the action to

annul a voidable contract. (1309a)

Article 1393. Ratification may be effected expressly or

tacitly. It is understood that there is a tacit ratification if,
with knowledge of the reason which renders the
contract voidable and such reason having ceased, the
person who has a right to invoke it should execute an
act which necessarily implies an intention to waive his
right. (1311a)

Article 1394. Ratification may be effected by the

guardian of the incapacitated person. (n)

Article 1395. Ratification does not require the conformity

of the contracting party who has no right to bring the
action for annulment. (1312)

Article 1396. Ratification cleanses the contract from all

its defects from the moment it was constituted. (1313)

Article 1397. The action for the annulment of contracts

may be instituted by all who are thereby obliged
principally or subsidiarily.

However, persons who are capable cannot allege the

incapacity of those with whom they contracted; nor can

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those who exerted intimidation, violence, or undue
influence, or employed fraud, or caused mistake base
their action upon these flaws of the contract. (1302a)

Note: The guilty party cannot seek annulment. He who comes to equity
must come with clean hands.

Article 1398. An obligation having been annulled, the

contracting parties shall restore to each other the things
which have been the subject matter of the contract, with
their fruits, and the price with its interest, except in
cases provided by law.

In obligations to render service, the value thereof shall

be the basis for damages. (1303a)

Article 1399. When the defect of the contract consists in

the incapacity of one of the parties, the incapacitated
person is not obliged to make any restitution except
insofar as he has been benefited by the thing or price
received by him.

Ex. A, a minor, enters into a 4-year contract of board and lodging with B,
a 65 year old owner of a rat-infested boarding house. The rent is for
P300.00/ month. A stayed at his boarding house for three (3) months but
has only paid P300.00. When A’s parents got wind of A staying in a rat-
infested boarding house, they sued in court for annulment of the
contract of board and lodging.

a) If the court annuls the contract, how much must A pay B?

b) What if A got sick of leptospirosis caused by the rats tucked in the
maze of holes in his boarding house and he incurred medical
expenses of P600.00? Would your answer in (a) still be the same?

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Article 1400. Whenever the person obliged by the decree
of annulment to return the thing can not do so because
it has been lost through his fault, he shall return the
fruits received and the value of the thing at the time of
the loss, with interest from the same date. (1307a)

Article 1401. The action for annulment of contracts shall

be extinguished when the thing which is the object
thereof is lost through the fraud or fault of the person
who has a right to institute the proceedings.

If the right of action is based upon the incapacity of any

one of the contracting parties, the loss of the thing shall
not be an obstacle to the success of the action, unless
said loss took place through the fraud or fault of the
plaintiff. (1314a)

Article 1402. As long as one of the contracting parties

does not restore what in virtue of the decree of
annulment he is bound to return, the other cannot be
compelled to comply with what is incumbent upon him.

Note: This is predicated on the principle of “reciprocity of obligations”

pursuant to Article 1191.

CHAPTER 8
Unenforceable Contracts (n)

Article 1403. The following contracts are unenforceable,

unless they are ratified:

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(1) Those entered into in the name of another
person by one who has been given no authority or
legal representation, or who has acted beyond his
powers;

(2) Those that do not comply with the Statute of

Frauds as set forth in this number. In the following
cases an agreement hereafter made shall be
unenforceable by action, unless the same, or some
note or memorandum, thereof, be in writing, and
subscribed by the party charged, or by his agent;
evidence, therefore, of the agreement cannot be
received without the writing, or a secondary
evidence of its contents:

(a) An agreement that by its terms is not to

be performed within a year from the
making thereof;
Ex. A and B promised to enter into a
contract for plumbing works to be done
by B, a plumber, one year after.
(b) A special promise to answer for the debt,
default, or miscarriage of another;
Ex. Co-maker, suretyship, insurance
(c) An agreement made in consideration of
marriage, other than a mutual promise to
marry;
Ex. Marriage settlements, pre-nuptial agreement; while donation
propter nuptias must comply with law on donation.

TRIVIA:

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General Rule: The IMPETUS or DRIVING FORCE is the “celebration
of the marriage”. If no marriage celebration takes place, is
Donation propter nuptias deemed void by operation of law?
• If contained in separate deed of donation?
• If embodied in marriage settlement?

(d) An agreement for the sale of goods,

chattels or things in action, at a price not
less than five hundred pesos, unless the
buyer accept and receive part of such
goods and chattels, or the evidences, or
some of them, of such things in action or
pay at the time some part of the purchase
money; but when a sale is made by
auction and entry is made by the
auctioneer in his sales book, at the time
of the sale, of the amount and kind of
property sold, terms of sale, price, names
of the purchasers and person on whose
account the sale is made, it is a sufficient
memorandum;

Note: Sale of movables with a value of P500 or more;

unless partially executed or when sale is made by
auction. In the latter cases, they are not covered by
Statute of Frauds.

(e) An agreement for the leasing for a longer

period than one year, or for the sale of
real property or of an interest therein;

Note: Lease must be longer than a year. Sale of real

property or any interest therein regardless of price.

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 ( f ) A representation as to the credit of a third
person.
Ex. Guarantor.

(3) Those where both parties are incapable of

giving consent to a contract.

Article 1404. Unauthorized contracts are governed by

article 1317 and the principles of agency in Title X of this
Book.

Article 1405. Contracts infringing the Statute of Frauds,

referred to in No. 2 of article 1403, are ratified by the
failure to object to the presentation of oral evidence to
prove the same, or by the acceptance of benefit under
them.

Note: Two (2) Ways of Ratification: (1) Waiver or failure to

object to presentation of oral evidence; and (2) Estoppel by
acceptance of benefits or by partial, let alone, full execution.

Article 1406. When a contract is enforceable under the

Statute of Frauds, and a public document is necessary
for its registration in the Registry of Deeds, the parties
may avail themselves of the right under Article 1357.

Article 1407. In a contract where both parties are

incapable of giving consent, express or implied
ratification by the parent, or guardian, as the case may
be, of one of the contracting parties shall give the
contract the same effect as if only one of them were
incapacitated.

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If ratification is made by the parents or guardians, as the
case may be, of both contracting parties, the contract
shall be validated from the inception.

Article 1408. Unenforceable contracts cannot be

assailed by third persons.

(Again, principle of privity of contracts (binding only between the

parties), apply).

Comments:

1. Important features of Statute of Frauds

a. Ground for dismissal per Sec.1 (i) Rule 16, Rules of Court
b. It is a RULE OF ADMISSIBILITY under Rules of Parol evidence
c. Only bars oral evidence to enforce action for damages but not an
action to reform or to annul or to declare void as long as agreement is
not covered by Statute of Frauds- See Cayugan v. Santos[1]
d. Concerns the admissibility of evidence and not necessarily its weight
or probative value
e. Note the doctrine of partial or full execution of contracts remove the
case from application of Statute of Frauds.

Statute of Frauds Inapplicable

to Partially Executed Contracts

“It is undisputed that Gabriel Sr., during his lifetime, sold

the subject property to Antonita, the purchase price
payable on installment basis. Gabriel Sr. appeared to have
been a recipient of some partial payments. After his
death, his son duly recognized the sale by accepting
payments and issuing what may be considered as
receipts therefor. Gabriel Jr., in a gesture virtually
acknowledging the petitioners dominion of the property,
authorized them to construct a fence around it. And no

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less than his wife, Teresita, testified as to the fact of sale
and of payments received.

Pursuant to such sale, Antonita and her two sons

established their residence on the lot, occupying the
house they earlier constructed thereon. They later
declared the property for tax purposes, as evidenced by
the issuance of TD 96-04012-111087 in their or Antonitas
name, and paid the real estates due thereon, obviously as
sign that they are occupying the lot in the concept of
owners.

Given the foregoing perspective, Eduardo’s assertion in

his Answer that persons appeared in the property[27] only
after he initiated ejectment proceedings[28] is clearly
baseless. If indeed petitioners entered and took
possession of the property after he (Eduardo) instituted
the ejectment suit, how could they explain the fact that
he sent a demand letter to vacate sometime in May 2000?

With the foregoing factual antecedents, the question to

be resolved is whether or not the Statute of Frauds bars
the enforcement of the verbal sale contract between
Gabriel Sr. and Antonita.

The CA, just as the RTC, ruled that the contract is

unenforceable for non-compliance with the Statute of
Frauds.

We disagree for several reasons. Foremost of these is

that the Statute of Frauds expressed in Article 1403, par.
(2),[29] of the Civil Code applies only to executory
contracts, i.e., those where no performance has yet been
made. Stated a bit differently, the legal consequence of
non-compliance with the Statute does not come into play
where the contract in question is completed, executed,
or partially consummated.[30]

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The Statute of Frauds, in context, provides that a
contract for the sale of real property or of an interest
therein shall be unenforceable unless the sale or some
note or memorandum thereof is in writing and
subscribed by the party or his agent. However, where the
verbal contract of sale has been partially executed
through the partial payments made by one party duly
received by the vendor, as in the present case, the
contract is taken out of the scope of the Statute.

The purpose of the Statute is to prevent fraud and

perjury in the enforcement of obligations depending for
their evidence on the unassisted memory of witnesses,
by requiring certain enumerated contracts and
transactions to be evidenced by a writing signed by the
party to be charged.[31] The Statute requires certain
contracts to be evidenced by some note or
memorandum in order to be enforceable. The
term Statute of Frauds is descriptive of statutes that
require certain classes of contracts to be in writing. The
Statute does not deprive the parties of the right to
contract with respect to the matters therein involved,
but merely regulates the formalities of the contract
necessary to render it enforceable.[32]

Since contracts are generally obligatory in whatever form

they may have been entered into, provided all the
essential requisites for their validity are present,[33] the
Statute simply provides the method by which the
contracts enumerated in Art. 1403 (2) may be proved but
does not declare them invalid because they are not
reduced to writing. In fine, the form required under the
Statute is for convenience or evidentiary purposes only.

There can be no serious argument about the partial

execution of the sale in question. The records show that

16
petitioners had, on separate occasions, given Gabriel Sr.
and Gabriel Jr. sums of money as partial payments of the
purchase price. These payments were duly receipted by
Gabriel Jr. To recall, in his letter of May 1, 1997, Gabriel, Jr.
acknowledged having received the aggregate payment of
PhP 65,000 from petitioners with the balance of PhP
60,000 still remaining unpaid. But on top of the partial
payments thus made, possession of the subject of the
sale had been transferred to Antonita as buyer. Owing
thus to its partial execution, the subject sale is no longer
within the purview of the Statute of Frauds.

Lest it be overlooked, a contract that infringes the

Statute of Frauds is ratified by the acceptance of benefits
under the contract.[34] Evidently, Gabriel, Jr., as his father
earlier, had benefited from the partial payments made by
the petitioners. Thus, neither Gabriel Jr. nor the other
respondentssuccessive purchasers of subject lotscould
plausibly set up the Statute of Frauds to thwart
petitioners efforts towards establishing their lawful right
over the subject lot and removing any cloud in their
title. As it were, petitioners need only to pay the
outstanding balance of the purchase price and that
would complete the execution of the oral sale.” -
Anthony Ordua et al v. Eduardo J. Fuentebella et al., G.R.
No. 176841, June 29, 2010

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 CHAPTER 9
Void and Inexistent Contracts

Article 1409. The following contracts are inexistent and

void from the beginning:

(1) Those whose cause, object or purpose is contrary to

law, morals, good customs, public order or public
policy;
(2) Those which are absolutely simulated or fictitious;
(3) Those whose cause or object did not exist at the time
of the transaction;
(4) Those whose object is outside the commerce of men;
(5) Those which contemplate an impossible service;
(6) Those where the intention of the parties relative to
the principal object of the contract cannot be
ascertained;
(7) Those expressly prohibited or declared void by law.

These contracts cannot be ratified. Neither can the right

to set up the defense of illegality be waived.

COMMENTS:

Article 1409, NCC

Void Sales

In this case, it is undisputed that respondent is a Canadian citizen.75

Respondent neither denied this, nor alleged that he became a Filipino
citizen.

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Being an alien, he is absolutely prohibited from acquiring private and
public lands in the Philippines. Concomitantly, respondent is also
prohibited from participating in the execution sale, which has for its
object, the transfer of ownership and title of property to the highest
bidder. What cannot be legally done directly cannot be done indirectly.

In light of this, we nullify the auction sales conducted on June 23, 2004
and November 29, 2006 where respondent was declared the highest
bidder, as the proceedings which led to the acquisition of ownership by
respondent over the lands involved. Article 1409(1) and (7) of the Civil
Code states that all contracts whose cause, object, or purpose is contrary
to law or public policy, and those expressly prohibited or declared void
by law are inexistent and void from the beginning. We thus remand the
case back to Branch 72 of the RTC of Olongapo City, to conduct anew the
auction sale of the levied properties, and to exclude respondent from
participating as bidder.

- Mateo Encarnacion v. Thomas Johnson, G.R. No. 192285, July 11, 2018

The “In Pari delicto rule”. Means both parties are mutually guilty.

As a rule, in cases of in pari delicto, courts will not afford relief to either
party. The law will leave the parties where they are. “{t}he 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.”
(WILLEM BEUMER v. AVELINA AMORES, G.R. No. 195670, DEC 03, 2012)

EXCEPTION to In Pari Delicto rule: Cases when there can be recovery:

a) Interest paid in excess allowed by usury laws[2]

b) One of the parties to an illegal contract is incapable of giving
consent[3]

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 c) Money is paid or property is delivered for an illegal purpose, the
contract may be repudiated by one of the parties before the purpose has
been accomplished, or before damage has been caused to a third
person.[4]
d) When agreement is not illegal per se but merely prohibited and
the prohibition by the law is designated for the protection of the
plaintiff[5]
e) When the price of any commodity or article is determined by
statute or by authority of law , any person paying any amount in excess of
the maximum price allowed may recover the excess[6]
f) When the law fixes or authorizes the fixing of the maximum
number of hours of labor and a contract is entered into whereby a labourer
undertakes to work longer than the maximum thus fixed, he may demand
additional compensation for service rendered beyond the time limit[7]
g) When the law sets, or authorizes the setting of a minimum wage
for labourers, and a contract is agreed upon which a laborer accepts a
lower wage, he shall be entitled to recover the deficiency[8]
h) Where the application of the in pari delicto rule contravenes public
policy such as the policy against unjust enrichment[9]
i) Superior public policy is involved[10]

If a contract is ABSOLUTELY SIMULATED, and both parties are guilty,

(1) will the “In Pari Delicto Rule” apply?

(2) Is recovery of price or things given allowed?

- – Does not apply to ABSOLUTELY SIMULATED CONTRACTS.

- VOID pursuant to Par. 2, Art. 1409 in relation to Art. 1346, New Civil Code.
- The doctrine can be applied if there is an object or consideration but said
consideration or object is illegal.
-
Article 1346. An absolutely simulated or fictitious
contract is void. A relative simulation, when it does
not prejudice a third person and is not intended for
any purpose contrary to law, morals, good customs,

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 public order or public policy binds the parties to
their real agreement. (n)
-
- Comments: x x x
-
- “If parties state a false cause in the contract to conceal their real
agreement, the contract is only relatively simulated and the parties are still
bound by their real agreement. Hence, where the essential requisites of a
contract are present and the simulation refers only to the content or terms
of the contract, the agreement is absolutely binding and the enforceable
between the parties and their successors-in-interest.
-
- In absolute simulation, there is a colorable contract but it has no substance
as the parties have no intention to be bound by it. “The main characteristic
of an absolute simulation is that the apparent contract is not really desired
or intended to produce legal effect or in any way alter the juridical situation
of the parties.”. As a result, an absolutely simulated or fictitious contract
is void, and the parties may recover from each other what they have given
under the contract”. Robert and Nenita De Leon v. Gilbert and Analyn De
la Llana, G.R. No. 212277, February 11, 2015

Read Teresita I. Buenaventura v. Metropolitan Bank and Trust Company,

G.R. No. 167082, August 03, 2016
-
- “The burden of showing that a contract is simulated rests on the party
impugning the contract. This is because of the presumed validity of the
contract that has been duly executed. The proof required to overcome
the presumption of validity must be convincing and preponderant.”
- Robert and Nenita De Leon v. Gilbert and Analyn De la Llana, G.R. No.
212277, February 11, 2015

- Void Contract; Free Patent sold within 5-Year Prohibited Period

“ The contract of sale entered into between petitioner Anastacio and
respondent-spouses on March 28, 1977 is null and void from inception for

21
 being contrary to law and public policy. As a void contract, it is
imprescriptible and not susceptible of ratification.

Sec. 118 of Public Land Act prohibits such sale.

(here, a clause was integrated in the Deed of Sale to the effect that the
seller will obtain consent from Secretary of DENR and failure to do so, the
sale will take effect after five years. Still VOID.)

Court’s resolution: Land shall be returned to Patentee or his family but they
should return the purchase price plus interest.”

-Anastacio Tingalan v. Sps. Ronaldo and Winona Melliza, G.R. No. 195247, June
29, 2015

(Note: Very Interestingly, The Tingalan case illustrates one where the law
and public policy were violated but the court granted relief by ordering
the return of land to patentee and corresponding return of purchase
price to buyer. In contrast, the following case of a foreigner Beumer, had
a different result. And then the Supreme Court went further in the Heirs
of Donton case {below}).

A Foreigner Husband Connives with his Filipina Wife

To Purchase a Tract of Land in The Philippines and
Build a House Thereon Even if They Know that
Foreigners are Not Allowed to Own Lands

No Entitlement to Reimbursement under Article 22, forViolation of

Prohibition on Aliens from Owning Lands
Prohibition However, Does not Apply to Improvements;
Conjugal Partnership
Dissolution

“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

22
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
land24 enshrined 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 latter’s name.26 Clearly, petitioner’s 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 petitioner’s 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, petitioner’s 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 respondent’s personal funds were used to purchase Lot 128 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

23
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. 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. 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 petitioner’s 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.

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

24
 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.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 patrimony 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, 201I Resolution of the Court of
Appeals in CA-G.R. CV No. 01940 are AFFIRMED.

-WILLEM BEUMER v. AVELINA AMORES, G.R. No. 195670, DEC 03, 2012

IN PARI DELICTO RULE (EQUALLY MUTUALLY GUILTY)

Forgery; How Proved

Furthermore, forgery, as a rule, cannot be presumed and must be proved

by clear, positive and convincing evidence, and the burden of proof lies
on the party alleging forgery - in this case, petitioners. The fact of forgery
can only be established by a comparison between the alleged forged
signature and the authentic and genuine signature of the person whose
signature is theorized to have been forged. 57 Pertinently, Section 22,
Rule 132 of the Revised Rules of Court provides: Section. 22. How

25
genuineness of handwriting proved. - The handwriting of a person may
be proved by any witness who believes it to be the handwriting of such
person because he has seen the person write, or has seen writing
purporting to be his upon which the witness has acted or 54 Spouses
Ramos v. Obispo and Far East Bank and Trust Company, 705 Phil. 221, 232
(2013). 55 Records, Vol. I, p. 197. 56 Id. at 2, paragraph 6. 57 Gepu/le-
Garbo v. Spouses Garabato, 750 Phil. 846, 855-856 (2015). ) Decision 8
G.R. No. 216491 been charged, and has thus acquired knowledge of the
handwriting of such person. Evidence respecting the handwriting may
also be given by a comparison, made by the witness or the court, with
writings admitted or treated as genuine by the party against whom the
evidence is offered, or proved to be genuine to the satisfaction of the
judge. (Emphasis supplied) In Gepulle-Garbo v. Spouses Garabato, 58 the
Court explained the factors involved in the examination and comparison
of handwritings in this wise: x x x [T]he authenticity of a questioned
signature cannot be determined solely upon its general characteristics,
similarities or dissimilarities with the genuine signature. Dissimilarities as
regards spontaneity, rhythm, pressure of the pen, loops in the strokes,
signs of stops, shades, etc., that may be found between the questioned
signature and the genuine one are not decisive on the question of the
former's authenticity. The result of examinations of questioned
handwriting, even with the benefit of aid of experts and scientific
instruments, is, at best, inconclusive. There are other factors that must
be taken into consideration. The position of the writer, the condition of
the surface on which the paper where the questioned signature is
written is placed, his state of mind, feelings and nerves, and the kind of
pen and/or paper used, play an important role on the general appearance
of the signature. Unless, therefore, there is, in a given case, absolute
absence, or manifest dearth, of direct or circumstantial competent
evidence on the character of a questioned handwriting, much weight
should not be given to characteristic similarities, or dissimilarities,
between that questioned handwriting and an authentic one. 59 To prove
forgery, petitioners offered in evidence the findings and testimony given
by expert witness Perez, who declared that she found "significant
divergences in the manner of execution, line quality, stroke structure and
other individual handwriting characteristics" between the signature that
appears on the Deed of Absolute Sale and the standard signatures of

26
Donton, thereby concluding that they were not written by one and the
same person. 60 On cross-examination, however, Perez admitted that
she had no actual knowledge of the source of the specimen signatures
given to her for examination, as it was the CIDG personnel who provided
her with the same. 61 Thus, as the CA correctly observed, Perez's findings
deserve little or no probative weight at all, considering that the
signatures which she used for comparison came from an unverified
source. Perforce, petitioners are left with no conclusive evidence to
prove their allegation that Donton's signature on the Deed of Absolute
Sale was forged. It bears stressing that the opinion of handwriting
experts are not necessarily binding upon the court, the expert's function
being to place 58 Supra note 57. 59 Id. at 856, citing Jimenez v.
Commission on Ecumenical Mission, United Presbyterian Church, USA,
432 Phil. 895, 908-909 (2002). 60 See Questioned Document Report No.
153-02; records, Vol. I, pp. 203-204. 61 TSN, March 26, 2003, pp. 23-24. ~
Decision 9 G.R. No. 216491 before the court data upon which the court
can form its own opinion. This principle holds true especially when the
question involved is mere handwriting similarity or dissimilarity, which
can be determined by a visual comparison of specimens of the
questioned signatures with those of the currently existing ones. A
finding of forgery does not depend entirely on the testimonies of
handwriting experts, because the judge must conduct an independent
examination of the questioned signature in order to arrive at a
reasonable conclusion as to its authenticity.62 In fine, the Court,
therefore, upholds the findings of the courts a quo in this respect. Be
that as it may, the Court, however, differs from the findings of the courts
a quo with respect to Stier's citizenship. More than the Certification63
issued by the BOI, which clearly states that Stier is an American citizen,
the records contain other documents validating the information. For
instance, in paragraph 1 64 of respondents' Answer with Counterclaim,
65 they admitted paragraphs 1, 2, and 3 of the Complaint insofar as their
personal circumstances are concerned, and paragraph 2 of the Complaint
states: "2. Defendant DUANE STIER is of legal age, married, an American
citizen, a non-resident alien with postal address at Blk. 5, Lot 27, A, B,
Phase 1, St. Michael Home Subd., Binangonan, Rizal; xx x"66 (Emphases
supplied) Similarly, one of the attachments to the Manifestation 67 filed
by respondents before the RTC is an Affidavit68 executed by Stier

27
himself, stating: "I, DUANE STIER, of legal age, married, American citizen
x x x"69 (Emphasis supplied) The foregoing statements made by Stier
are admissions against interest and are therefore binding upon him. An
admission against interest is the best evidence which affords the
greatest certainty of the facts in dispute since no man would declare
anything against himself unless such declaration is true. Thus, an
admission against interest binds the person who makes the same, and
absent any showing that this was made through palpable mistake, 62
Supra note 57, at 856-857. 63 Records, Vol. I, p. 202. 64 Id. at 35. 65 Id. at
35-40. 66 Id. at 2. 67 Id. at 223-226. 68 Id. at 242-244. 69 Id. at 242. ' v
Decision 10 G.R. No. 216491 no amount of rationalization can offset it,70
especially so in this case where respondents failed to present even one
piece of evidence in their defense. 71 Hence, the courts a quo erred in
ruling that Stier' s American citizenship was not established in this case,
effectively rendering the sale of the subject property as to him void ab
initio, in light of the clear proscription under Section 7, Article XII of the
Constitution against foreigners acquiring real property in the Philippines,
to wit: 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. Thus,
lands of the public domain, which include private lands, may be
transferred or conveyed only to individuals or entities qualified to acquire
or hold private lands or lands of the public domain. Aliens, whether
individuals or corporations, have been disqualified from acquiring lands
of the public domain as well as private lands.72 In light of the foregoing,
even if petitioners failed to prove that Donton's signature on the Deed of
Absolute Sale was a forgery, the sale of the subject property to Stier is in
violation of the Constitution; hence, null and void ab initio. A contract
that violates the Constitution and the law is null and void and vests no
rights and creates no obligations. It produces no legal effect at all.
Furthermore, Stier is barred from recovering any amount that he paid
for the subject property, the action being proscribed by the
Constitution. Nevertheless, considering that petitioners failed to prove
their allegation that Maggay, the other vendee, had no capacity to
purchase the subject property, the sale to her remains valid but only up
to the extent of her undivided one-half share therein. 75 Meanwhile, the
other undivided one-half share, which pertained to Stier, shall revert to

28
Donton, the original owner, for being the subject of a transaction void ab
initio. Consequently, the Deed of Absolute Sale, together with TCT No. N-
225996 issued in respondents' favor, must be annulled only insofar as
Stier is concerned, without prejudice, however, to the rights of any
subsequent purchasers for value of the subject property.

WHEREFORE, the petition is PARTLY GRANTED. The Decision dated June

13, 2014 and the Resolution dated January 21, 2015 of the Court of
Appeals in CA-G.R. CV No. 97138, which affirmed the dismissal of the
complaint filed by petitioners on the ground of insufficiency of evidence,
are hereby REVERSED and SET ASIDE, and a NEW ONE is entered: (1)
annulling the Deed of Absolute Sale dated July 16, 2001 insofar as
respondent Duane Stier is concerned; (2) annulling Transfer Certificate of
Title No. N-225996 insofar as respondent Duane Stier is concerned; and
(3) directing the Registry of Deeds of Quezon City to issue a new title in
the name of Peter Donton and Emily Maggay, all without prejudice to the
rights of any subsequent purchasers for value of the subject property.

- THE HEIRS OF PETER DONTON, through their legal representative,

FELIPE G. CAPULONG, - versus - DUANE STIER and EMILY MAGGAY,
G.R. No. 216491, 23 August 2017

Article 1410. The action or defense for the declaration of

the inexistence of a contract does not prescribe.

Void Transactions Produce No Legal Effect

We grant the Petition. Indeed, the RTC did not comply with our ruling in
Urban Bank when it refused to restore to petitioner the actual ownership
of his club shares on the mere pretext that these had already been sold
by Pefia to his successor-in-interest. 9 Id. at 289-298. 10 Id. at 330-335. 11
Id. at 337; Proof of Service of the Resolution of this Court dated 28 June
2016 reiterating compliance with the requirement to file a separate
comment per Resolution dated 23 February 2015. r Resolution 5 G.R. No.
214303 As stated in this Court's Decision dated 19 October 2011, the RTC
was bound to comply with this relevant directive: 12 b. If the property

29
levied or garnished has been sold on execution pending appeal and Atty.
Magdaleno Pena is the winning bidder or purchaser, he must fully restore
the property to Urban Bank or respondent bank officers, and if actual
restitution of the property is impossible, then he shall pay the full value
of the property at the time of its seizure, with interest; (Emphasis
supplied) There is no factual dispute that Pefia acquired the ACCI shares
of petitioner by virtue of a winning bid in an execution sale that had
already been declared by this Court, with finality, as null and void. In no
uncertain terms, we declared that the "concomitant execution pending
appeal is likewise without any effect. x x x. Consequently, all levies,
garnishment and sales executed pending appeal are declared null and
void, with the concomitant duty of restitution xx x." 13 Void transactions
do not produce any legal or binding effect, and any contract directly
resulting from that illegality is likewise void and inexistent. 14 Therefore,
Peña could not have been a valid transferee of the property. As a
consequence, his successor-in-interest, Vera, could not have validly
acquired those shares. 15 The RTC thus erred in refusing to restore the
actual ACCI shares to petitioner on the basis of their void transfer to
Vera. Neither was the RTC correct in its characterization of the actual
restitution of the ACCI shares to petitioner as "impossible." For the
obligation to be considered impossible under Article 1266 of the Civil
Code, its physical or legal impossibility must first be proven. 16 Here, the
RTC did not make any finding on whether or not it was physically
impossible to effect the actual restitution of the property. On the other
hand, petitioner correctly points out that since the shares are movable
by nature, the same can be transferred back to Gonzalez, Jr. by recording
the transaction in the stock and transfer book of the club. 17 12 Urban
Bank, Inc. v. Pena, 675 Phil. 474, 584(2011 ). 13 Urban Bank, Inc. v. Pena,
675 Phil. 474, 555(2011 ). 14 Conjugal Partnership
Xxx

As regards legal impossibility, the RTC appears to have jumped to the

conclusion that because of the perfected sale of the shares to Vera,
petitioner can no longer claim actual restitution of the property.
However, Article 1505 of the Civil Code instructs that "x x x where goods
are sold by a person who is not the owner thereof, and who does not sell
them under authority or with the consent of the owner, the buyer

30
acquires no better title to the goods than the seller had, unless the owner
of the goods is by his conduct precluded from denying the seller's
authority to sell. xx x." The Court itself settled that Peña acquired the
properties by virtue of a null and void execution sale. In effect, his buyers
acquired no better title to the goods than he had. Therefore, the RTC
erred in appreciating the existence of legal impossibility in this case on
the mere pretext that the properties had already been transferred to
third parties. By virtue of Article 1505, the true owners of the goods are
definitely not legally precluded from claiming the ownership of their
actual properties. All told, given the encompassing and overarching
declaration of this Court nullifying the acquisition by Pefia of the
properties of Urban Bank and its directors, and considering that actual
restitution of the movable properties is neither physically nor legally
impossible, this Court finds that the refusal of the RTC to restore the
actual shares on the mere pretext that these had been transferred by
Peña to third persons as utterly devoid of basis. Consequently, pursuant
to our final ruling in Urban Bank. petitioner must be restored as owner of
the actual ACCl shares, and not just be paid the full value of the property.
WHEREFORE, premises considered, this Court resolves to: A. REVERSE
the Omnibus Resolution dated 30 April 2014 and Resolution dated 17
September 2014 issued in Civil Case No. 12-758 by the Regional Trial Court
of Makati City, Branch 65, insofar as these rulings refused to restore to
the original owners the actual ownership of their club shares on the
mere pretext that these had already been sold by Magdaleno Pefia to his
successor-in-interest, and thus SET ASIDE the following pronouncements
by the Regional Trial Comi in the Omnibus Resolution dated 30 April 2014
as affirmed in the Resolution dated 17 September 2014: I. PROPERTIES
SUBJECT OF RESTITUTION OR REPARATION OF DAMAGES WITH
RESPECT TO URBAN BANK (NOW EXPORT INDUSTRY BANK): xx xx b.
Regarding the three (3) shares of Urban Bank in Tagaytay Highlands
International Golf Club previously covered by Certificate Nos. 3027, 3166,
and 3543 which are now in the names of third parties under Certificate
Nos. 3848, 3847, and 3837, respectively, Magdaleno Pena r Resolution 7
G.R. No. 214303 must pay Urban Bank the amount realized from the
sheriff's sale of these three (3) shares, with interest from the time these
properties were seized; xx xx II. PROPERTIES SUBJECT OF RESTITUTION
OR REPARATION OF DAMAGES WITH RESPECT TO ERIC L. LEE: xx xx b.

31
Regarding the Manila Golf and Country Club previously in the name of
Eric Lee which was validly and timely transferred in the name of Jose
Singson, Magdaleno Pena must pay Eric Lee the amount realized from
the sheriff's sale thereof with interest from the time the said share was
seized; c. As to the share in Sta. Elena Golf Club (previously Certificate
No. M099A), the title thereto having been validly and timely transferred
in the name of Oscar Reyes and later to his assignee, Christian Osmond
Reyes, Magdaleno Peña must pay Eric Lee the amount realized from the
sheriff's sale, with interest from the time the property was seized; xx xx
IV. PROPERTIES SUBJECT OF RESTITUTION OR REPARATION OF
DAMAGES WITH RESPECT TO DELFIN C. GONZALEZ, JR.: xx xx c. The title
to the share in Alabang Country Club having been validly and timely
transferred to the name of Arsenia Vera, Magdaleno Pei'ia shall pay
Delfin C. Gonzalez, Jr. the full value of the property at the time of its
seizure with interest counted as of said date. B. ORDER the presiding
judge of the Regional Trial Court of Makati City, Branch 65 to EXECUTE
FULLY AND WITH DISPATCH, WITH RESPECT TO ALL PERSONS AND
PROPERTIES COVERED, the Decision of this Court dated 19 October 2011
in G.R. Nos. 145817, 145822, and 162562 to restore and deliver to Urban
Bank and its directors the full ownership and possession of all their
actual prope1iies executed pending appeal. SO ORDERED. MARIA
LOURDES P. A. SERENO Chie

-DELFIN C. GONZALEZ, JR., G.R. No. 214303 - versus - MAGDALENO M.

PEñA, COUNTRY CLUB, INC., JAN 3 0 2017

Article 1411. When the nullity proceeds from the

illegality of the cause or object of the contract, and the
act constitutes a criminal offense, both parties being in
pari delicto, they shall have no action against each
other, and both shall be prosecuted. Moreover, the
provisions of the Penal Code relative to the disposal of

32
effects or instruments of a crime shall be applicable to
the things or the price of the contract.

This rule shall be applicable when only one of the

parties is guilty; but the innocent one may claim what he
has given, and shall not be bound to comply with his
promise. (1305)

Article 1412. If the act in which the unlawful or forbidden

cause consists does not constitute a criminal offense,
the following rules shall be observed:

(1) When the fault is on the part of both contracting

parties, neither may recover what he has given by virtue
of the contract, or demand the performance of the
other's undertaking;

(2) When only one of the contracting parties is at fault,

he cannot recover what he has given by reason of the
contract, or ask for the fulfillment of what has been
promised him. The other, who is not at fault, may
demand the return of what he has given without any
obligation to comply his promise. (1306)

Article 1413. Interest paid in excess of the interest

allowed by the usury laws may be recovered by the
debtor, with interest thereon from the date of the
payment.

Article 1414. When money is paid or property delivered

for an illegal purpose, the contract may be repudiated by
one of the parties before the purpose has been
accomplished, or before any damage has been caused
to a third person. In such case, the courts may, if the
public interest will thus be subserved, allow the party

33
repudiating the contract to recover the money or
property.

Article 1415. Where one of the parties to an illegal

contract is incapable of giving consent, the courts may,
if the interest of justice so demands allow recovery of
money or property delivered by the incapacitated
person.

Article 1416. When the agreement is not illegal per se

but is merely prohibited, and the prohibition by the law
is designed for the protection of the plaintiff, he may, if
public policy is thereby enhanced, recover what he has
paid or delivered.

Article 1417. When the price of any article or commodity

is determined by statute, or by authority of law, any
person paying any amount in excess of the maximum
price allowed may recover such excess.

Article 1418. When the law fixes, or authorizes the fixing

of the maximum number of hours of labor, and a
contract is entered into whereby a laborer undertakes to
work longer than the maximum thus fixed, he may
demand additional compensation for service rendered
beyond the time limit.

Article 1419. When the law sets, or authorizes the

setting of a minimum wage for laborers, and a contract
is agreed upon by which a laborer accepts a lower wage,
he shall be entitled to recover the deficiency.

Article 1420. In case of a divisible contract, if the illegal

terms can be separated from the legal ones, the latter
may be enforced.

34
Article 1421. The defense of illegality of contract is not
available to third persons whose interests are not
directly affected.

Article 1422. A contract which is the direct result of a

previous illegal contract, is also void and inexistent.

TITLE III
NATURAL OBLIGATIONS

Article 1423. Obligations are civil or natural. Civil

obligations give a right of action to compel their
performance. Natural obligations, not being based on
positive law but on equity and natural law, do not grant
a right of action to enforce their performance, but after
voluntary fulfillment by the obligor, they authorize the
retention of what has been delivered or rendered by
reason thereof. Some natural obligations are set forth in
the following articles.

Article 1424. When a right to sue upon a civil obligation

has lapsed by extinctive prescription, the obligor who
voluntarily performs the contract cannot recover what
he has delivered or the value of the service he has
rendered.

Article 1425. When without the knowledge or against the

will of the debtor, a third person pays a debt which the
obligor is not legally bound to pay because the action

35
thereon has prescribed, but the debtor later voluntarily
reimburses the third person, the obligor cannot recover
what he has paid.

Article 1426. When a minor between eighteen and

twenty-one years of age who has entered into a contract
without the consent of the parent or guardian, after the
annulment of the contract voluntarily returns the whole
thing or price received, notwithstanding the fact that he
has not been benefited thereby, there is no right to
demand the thing or price thus returned.

Article 1427. When a minor between eighteen and

twenty-one years of age, who has entered into a
contract without the consent of the parent or guardian,
voluntarily pays a sum of money or delivers a fungible
thing in fulfillment of the obligation, there shall be no
right to recover the same from the obligee who has
spent or consumed it in good faith. (1160A)

Article 1428. When, after an action to enforce a civil

obligation has failed the defendant voluntarily performs
the obligation, he cannot demand the return of what he
has delivered or the payment of the value of the service
he has rendered.

Article 1429. When a testate or intestate heir voluntarily

pays a debt of the decedent exceeding the value of the
property which he received by will or by the law of
intestacy from the estate of the deceased, the payment
is valid and cannot be rescinded by the payer.

Note: Recall Art. 1311, NCC

36
 Article 1311. Contracts take effect only between the
parties, their assigns and heirs, except in case where
the rights and obligations arising from the contract
are not transmissible by their nature, or by stipulation
or by provision of law. The heir is not liable beyond
the value of the property he received from the
decedent.

Article 1430. When a will is declared void because it has

not been executed in accordance with the formalities
required by law, but one of the intestate heirs, after the
settlement of the debts of the deceased, pays a legacy
in compliance with a clause in the defective will, the
payment is effective and irrevocable.

TITLE IV
ESTOPPEL (n)

Article 1431. Through estoppel an admission or

representation is rendered conclusive upon the person
making it, and cannot be denied or disproved as against
the person relying thereon.

Article 1432. The principles of estoppel are hereby

adopted insofar as they are not in conflict with the
provisions of this Code, the Code of Commerce, the
Rules of Court and special laws.

Article 1433. Estoppel may in pais or by deed.

Article 1434. When a person who is not the owner of a

thing sells or alienates and delivers it, and later the

37
seller or grantor acquires title thereto, such title passes
by operation of law to the buyer or grantee.

Article 1435. If a person in representation of another

sells or alienates a thing, the former cannot
subsequently set up his own title as against the buyer or
grantee.

Article 1436. A lessee or a bailee is estopped from

asserting title to the thing leased or received, as against
the lessor or bailor.

Article 1437. When in a contract between third persons

concerning immovable property, one of them is misled
by a person with respect to the ownership or real right
over the real estate, the latter is precluded from
asserting his legal title or interest therein, provided all
these requisites are present:

(1) There must be fraudulent representation or wrongful

concealment of facts known to the party estopped;
(2) The party precluded must intend that the other
should act upon the facts as misrepresented;
(3) The party misled must have been unaware of the true
facts; and
(4) The party defrauded must have acted in accordance
with the misrepresentation.

Article 1438. One who has allowed another to assume

apparent ownership of personal property for the
purpose of making any transfer of it, cannot, if he
received the sum for which a pledge has been
constituted, set up his own title to defeat the pledge of
the property, made by the other to a pledgee who
received the same in good faith and for value.

38
Article 1439. Estoppel is effective only as between the
parties thereto or their successors in interest.

Comments:

Facts: If A and B are brothers and they inherit a parcel of land from their
parents, but B, being more knowledgeable in titling, obtains a title over
the common lot, and it takes more than ten (10) years for A to discover it,
can A still ask that the property be reconveyed back to him at least in so
far as his ½ share is concerned?

Estoppel by Laches.

Prescription; Laches

Prescription has not set in

We find it proper to delve into the more important issue to be resolved,

that is, whether the action for annulment of title and partition has
already prescribed. It must be pointed out that the issue of prescription
had already been raised by petitioner in his Motion to Dismiss dated
August 5, 1992. This motion was granted by the trial court in its Order
dated January 21, 1994. However, respondent appealed this Order with
the Court of Appeals in CA-G.R. CV No. 45121. The CA then rendered a
Decision26 dated March 30, 2001, nullifying the order of dismissal of the
trial court.

The CA essentially ruled that the case for partition and annulment of title
did not prescribe. The CA Decision was eventually affirmed by the Second
Division of this Court in G.R. No. 149287 by virtue of a minute dated
September 5, 2001, which became final and executory and was entered
into the Book of Entries of Judgments on October 16, 2001.

39
Accordingly, the resolution in G.R. No. 149287 should have written finis to
the issue of prescription. Nonetheless, to finally put to rest this
bothersome issue, it behooves this Court to further elucidate why the
respondent's action and right of partition is not barred by prescription.
The CA explained that prescription is inapplicable. While the appellate
court's observation is proper, it is inadequate as it fails to sufficiently
explain why the rule on the imprescriptibility and indefeasibility of
Torrens titles do not apply.

In the recent case of Pontigon v. Sanchez, We explained thus:

Under the Torrens System as enshrined in P.D. No. 1529, the decree of
registration and the certificate of title issued become incontrovertible
upon the expiration of one (1) year from the date of entry of the decree
of registration, without prejudice to an action for damages against the
applicant or any person responsible for the fraud. However, actions for
reconveyance based on implied trusts may be allowed beyond the one-
year period. As elucidated in Walstrom v. Mapa, Jr.: [N]otwithstanding
the irrevocability of the Torrens title already issued in the name of
another person, he can still be compelled under the law to reconvey the
subject property to the rightful owner.

The property registered is deemed to be held in trust for the real owner
by the person in whose name it is registered. After all, the Torrens
system was not designed to shield and protect one who had committed
fraud or misrepresentation and thus holds title in bad faith. In an action
for reconveyance, the decree of registration is respected as
incontrovertible. What is sought instead is the transfer of the property,
in this case the title thereof, which has been wrongfully or erroneously
registered in another person's name, to its rightful and legal owner, or
to one with a better right. This is what reconveyance is all about. Yet,
the right to seek reconveyance based on an implied or constructive trust
is not absolute nor is it imprescriptible. An action for reconveyance based
on an implied or constructive trust must perforce prescribe in ten years
from the issuance of the Torrens title over the property. (Emphasis
supplied)

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Thus, an action for reconveyance of a parcel of land based on implied or
constructive trust prescribes in ten (10) years, the point of reference
being the date of registration of the deed or the date of the issuance of
the certificate of title over the property.

By way of additional exception, the Court, in a catena of cases, has

permitted the filing of an action for reconveyance despite the lapse of
more than ten (10) years from the issuance of title. The common
denominator of these cases is that the plaintiffs therein were in actual
possession of the disputed land, converting the action from
reconveyance of property into one for quieting of title.

lmprescriptibility is accorded to cases for quieting of title since the

plaintiff has the right to wait until his possession is disturbed or his title is
questioned before initiating an action to vindicate his right.28 (Emphasis
supplied; citations omitted)

Given the falsity of the ESW, it becomes apparent that petitioner

obtained the registration through fraud. This wrongful registration gives
occasion to the creation of an implied or constructive trust under Article
1456 of the New Civil Code.29 An action for reconveyance based on an
implied trust generally prescribes in ten years. However, if the plaintiff
remains in possession of the property, the prescriptive period to
recover title of possession does not run against him. In such case, his
action is deemed in the nature of a quieting of title, an action that is
imprescriptible.

In the case before us, the certificate of title over the subject property
was issued on November 24, 1970. Yet, the complaint for partition and
annulment of the title was only filed on July 1, 1992, more than twenty
(20) years since the assailed title was issued. Respondent's complaint
before the RTC would have been barred by prescription. However, based
on respondent's submission before the trial court, both petitioner and
respondent were residing at the subject property at the time the
complaint was filed. The complaint states:

1) That Plaintiff is of legal age, married, Filipino and presently residing

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at 2227 Romblon St., G. Tuazon, Sampaloc, Manila; while defendant
is likewise of legal age, married, Filipino and residing at 2227
Romblon St., G. Tuazon, Sampaloc, Manila, where he may be served
with summons and other processes of this Honorable Court;32

This was unqualifiedly admitted by petitioner in his Amended Answer and

no denial was interposed therefrom. 33 Petitioner's failure to refute
respondent's possession of the subject property may be deemed as a
judicial admission. A party may make judicial admissions in (a) the
pleadings, (b) during the trial, either by verbal or written
manifestations or stipulations, or ( c) in other stages of the judicial
proceeding. 34 A judicial admission conclusively binds the party making
it and he cannot thereafter take a position contradictory to or
inconsistent with his pleadings. Acts or facts admitted do not require
proof and cannot be contradicted, unless it is shown that the admission
was made through palpable mistake or that no such admission was
made. 35

If property is acquired through mistake or fraud, the person obtaining it

is, by force of law, considered a trustee of an implied trust for the benefit
of the person from whom the property comes.

Considering that respondent was in actual possession of the disputed

land at the time of the filing of the complaint, the present case may be
treated as an action for quieting of title.

Quieting of title is a common law remedy for the removal of any cloud,
doubt, or uncertainty affecting title to real property. 36 In Heirs of
Delfin and Maria Tappa v. Heirs of Jose Bacud,37 this Court reiterated
the requisites for an action for quieting of title: The action filed by
Spouses Tappa was one for quieting of title and recovery of possession.
In Baricuatro, Jr. v. Court of Appeals, an action for quieting of title is
essentially a common law remedy grounded on equity, to wit:

x x x Originating in equity jurisprudence, its purpose is to secure an

adjudication that a claim of title to or an interest in property, adverse to
that of the complainant, is invalid, so that the complainant and those

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claiming under him may be forever afterward free from any danger of
hostile claim. 11 In an action for quieting of title, the competent court is
tasked to determine the respective rights of the complainant and other
claimants, not only to place things in their proper place, to make the one
who has no rights to said immovable respect and not disturb the other,
but also for the benefit of both, so that he who has the right would see
every cloud of doubt over the property dissipated, and he could
afterwards without fear introduce the improvements he may desire, to
use, and even to abuse the property as he deems best. x x x. 11 (Emphasis
in the original.)

In our jurisdiction, the remedy is governed by Article 476 and 477 of the
Civil Code, which state:

Art. 476. Whenever there is a cloud on title to real

property or any interest therein, by reason of any
instrument, record, claim, encumbrance or
proceeding which is apparently valid or effective but
is in truth and in fact invalid, ineffective, voidable, or
unenforceable, and may be prejudicial to said title, an
action may be brought to remove such cloud or to
quiet the title.

An action may also be brought to prevent a cloud

from being cast upon title to real property or any
interest therein.

Art. 477. The plaintiff must have legal or equitable

title to, or interest in the real property which is the
subject-matter of the action. He need not be in
possession of said property.

From the foregoing provisions, we reiterate the rule that for an action to
quiet title to prosper, two indispensable requisites must concur, namely:
(1) the plaintiff or complainant has a legal or an equitable title to or
interest in the real property subject of the action; and (2) the deed,
claim, encumbrance or proceeding claimed to be casting cloud on his

43
title must be shown to be in fact invalid or inoperative despite its prima
facie appearance of validity or legal efficacy.
xx xx

A cloud on a title exists when (1) there is an instrument (deed, or

contract) or record or claim or encumbrance or proceeding; (2) which is
apparently valid or effective; (3) but is, in truth and in fact, invalid,
ineffective, voidable, or unenforceable or extinguished (or terminated)
or barred by extinctive prescription; and (4) and may be prejudicial to
the title.

Since it was already established that respondent's signature on the ESW,

which was the basis of petitioner's title over the property, was forged,
then it is only necessary for the cloud on respondent's title to be
removed. Thus, the trial court's order to cancel TCT No. 102822 and
uphold the parties' co-ownership was proper.

The present action is not barred by

laches

We also find no merit in petitioner's argument that the case is barred by

laches.

Jurisprudence has defined laches as the failure or neglect, for an

unreasonable and unexplained length of time, to do that which-by the
exercise of due diligence-could or should have been done earlier. It is
the negligence or omission to assert a right within a reasonable period,
warranting the presumption that the party entitled to assert it has
either abandoned or declined to assert it. 38

Based on the facts presented before us, it appears that respondent did
not sleep on his rights, as claimed by petitioner. It is undeniable that
respondent had filed several cases to assert his rights over the property.

Aside from the present complaint, respondent also filed, on separate

occasions, three criminal complaints for: 1) falsification of public
document, 2) estafa through falsification of public documents, and 3)

44
forgery, all against herein petitioner. To Our mind, the filing of these
cases at different times negates the claim of laches. Time and again, this
Court has ruled that courts, under the principle of equity, will not be
guided or bound strictly by the statute of limitations or the doctrine of
laches when to do so, manifest wrong or injustice would result. 39

IN VIEW OF THE FOREGOING, the petition is DENIED. The Decision dated

September 3 0, 2011 of the Regional Trial Court, Branch 5 5, Manila in Civil
Case No. 92-61716, as affirmed by the Court of Appeals in its Decision
dated June 28, 2016 in CA-G.R. CV No. 99908, is hereby AFFIRMED. The
Regional Trial Court shall proceed with the partition of the
subject lot with dispatch.

- JOSE S. OCAMPO, v. RICARD0 S. OCAMPO, SR., G.R. No. 227894, July 5,

2017

“A trustee who obtains a Torrens title over a property held in trust for him
by another cannot repudiate the trust by relying on the registration.”1
Heirs of Feliciano Yambao, etc v. Heirs of Hermogenes Yambao, G.R. No.
194260, April 16, 2016

1 Heirs of Feliciano Yambao, etc v. Heirs of Hermogenes Yambao, G.R. No. 194260,
April 16, 2016

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