Philippine Banking Corporation v.

Lui She
G.R. No. L-17587 | September 12, 1967 | J. Castro |
Void Contract: When the agreement is not illegal per se but is prohibited

DOCTRINE & SUMMARY: Justina Santos, who was then 90 years old and physically ill executed contracts (related to lease of
property) in favor of Wong Heng. However, she later claimed that they were obtained through machinations and inducements,
and asked her executor to annul the contracts. Wong claims that they were freely and voluntarily entered into. However, SC
ruled that they are void as they appear to be a scheme wherein Wong (Chinese), as an alien, would be able to eventually buy
the land. This puts the Constitutional ban against aliens owning land in the Philippines, in grave peril.

FACTS:
 Justina and Lorenza Santos (sisters) were the owners of a piece of land in Manila. In it are two residential houses and
the Hen Wah Restaurant. The sisters lived in one of the houses while Wong Heng (Chinese), a long-time lessee, lived
with his family in the restaurant.
 Lorenza died so Justina, as the sole heir, became the sole owner of the entire property. At the time, she was 90 years
old, blind, crippled, and an invalid, left with no one to live with. Her only companions were 17 dogs and 8 maids.
 Justina was only visited by Wong’s four children, and Wong himself was the trusted man to whom she delivered
various amounts for safekeeping. In grateful acknowledgment of Wong,
 Justina executed a series of contracts in favor of Wong:
1. A contract of lease for 50 years covering the portion leased to him and another portion. Wong was given the
right to withdraw at any time from the agreement. This was later amended to cover the entire property.
2. A contract giving Wong the option to buy the leased premises on the condition that he first obtain a Philippine
citizenship. However, his application for naturalization was withdrawn.
3. 2 other contracts, one extending the term of the lease to 99 years, and another fixing the term of the option of
50 years. Both contracts are written in Tagalog. (Note: Justina did not know how to speak in English.)
 In two wills, she asked her legatees to respect the contracts with Wong. However, Justina later had a change of heart
and claimed (through a codicil) that the contracts were obtained by Wong through fraud, misrepresentation,
inequitable conduct, undue influence and abuse of confidence by taking advantage of her helplessness and were made
to circumvent the constitutional provision prohibiting aliens from acquiring lands in the Philippines and of
Naturalization Laws.
 Wong admitted that he enjoyed her trust and confidence, but he denied having taken advantage of her trust in order to
secure the contracts. He claims that the contracts were freely and voluntarily entered into.
 CFI declared the contracts null and void, except the lease contract. Both appealed to SC.
 After the case was submitted for decision, both parties died. Wong was substituted by his wife, Lui She, while Justina
was substituted by the Philippine Banking Corp.

ISSUE: W/N the contracts are valid – NO, they are void.

RULING:
 The contracts appear to be a scheme to circumvent the Constitutional prohibition against transfer of lands to aliens.
The illicit purpose then becomes the illegal causa rendering the contracts void. Taken singly, the contracts show
nothing illegal, but considered collectively, they reveal an insidious pattern to subvert the Constitution.
 Krivenko v. Register of Deeds : A lease to an alien for a reasonable period is valid. So is an option to buy real property
on condition that he is granted Philippine citizenship. But if an alien is given an option to buy a piece of land, by virtue
of which the Filipino owner cannot sell or dispose of his property, this to last for 50 years, then it becomes clear that
the arrangement is a virtual transfer of ownership, i.e. right to enjoy and dispose of the land.
 It does not follow that because the parties are in pari delicto they will be left where they are, without relief. The
original parties have died and substituted by their administrators, to whom it would be unjust to impute their guilt.
o The Constitutional provision is an expression of public policy to conserve lands for the Filipinos.
o That policy would be defeated if SC applies the general rule of in pari delicto instead of setting the contracts
aside and ordering the restoration of the land to Santos’ estate.
o SC ruled in conflict with Rellosa vs. Gaw Chee Hun and subsequent similar cases, the latter must be considered
as pro tanto qualified.
DISPOSITION: Contracts annulled and set aside. Land to be returned to petitioners, with payment of interest.