Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-11240 December 18, 1957

CONCHITA LIGUEZ, petitioner,

vs.
THE HONORABLE COURT OF APPEALS, MARIA NGO VDA. DE LOPEZ, ET AL., respondents.

Ruiz, Ruiz and Ruiz for appellant.

Laurel Law Offices for appellees.

REYES, J.B.L., J.:

From a decision of the Court of Appeals, affirming that of the Court of First Instance of Davao
dismissing her complaint for recovery of land, Conchita Liguez has resorted to this Court, praying
that the aforesaid decision be reversed on points of law. We granted certiorari on October 9, 1956.

The case began upon complaint filed by petitioner-appellant against the widow and heirs of the late
Salvador P. Lopez to recover a parcel of 51.84 hectares of land, situated in barrio Bogac-Linot, of
the municipality of Mati, Province of Davao. Plaintiff averred to be its legal owner, pursuant to a deed
of donation of said land, executed in her favor by the late owner, Salvador P. Lopez, on 18 May
1943. The defense interposed was that the donation was null and void for having an illicit causa or
consideration, which was the plaintiff's entering into marital relations with Salvador P. Lopez, a
married man; and that the property had been adjudicated to the appellees as heirs of Lopez by the
court of First Instance, since 1949.

The Court of Appeals found that the deed of donation was prepared by the Justice of the Peace of
Mati, Davao, before whom it was signed and ratified on the date aforesaid. At the time, the appellant
Liguez was a minor, only 16 years of age. While the deed recites—

That the DONOR, Salvador P. Lopez, for and in the consideration of his love and affection
for the said DONEE, Conchita Liguez, and also for the good and valuable services rendered
to the DONOR by the DONEE, does by these presents, voluntarily give grant and donate to
the said donee, etc. (Paragraph 2, Exhibit "A")

the Court of Appeals found that when the donation was made, Lopez had been living with the
parents of appellant for barely a month; that the donation was made in view of the desire of Salvador
P. Lopez, a man of mature years, to have sexual relations with appellant Conchita Liguez; that
Lopez had confessed to his love for appellant to the instrumental witnesses, with the remark that her
parents would not allow Lopez to live with her unless he first donated the land in question; that after
the donation, Conchita Liguez and Salvador P. Lopez lived together in the house that was built upon
the latter's orders, until Lopez was killed on July 1st, 1943, by some guerrillas who believed him to
be pro-Japanese.
It was also ascertained by the Court of Appeals that the donated land originally belonged to the
conjugal partnership of Salvador P. Lopez and his wife, Maria Ngo; that the latter had met and
berated Conchita for living maritally with her husband, sometime during June of 1943; that the widow
and children of Lopez were in possession of the land and made improvements thereon; that the land
was assessed in the tax rolls first in the name of Lopez and later in that of his widow.; and that the
deed of donation was never recorded.

Upon these facts, the Court of Appeals held that the deed of donation was inoperative, and null and
void (1) because the husband, Lopez, had no right to donate conjugal property to the plaintiff
appellant; and (2) because the donation was tainted with illegal cause or consideration, of which
donor and donee were participants.

Appellant vigorously contends that the Court of First Instance as well as the Court of Appeals erred
in holding the donation void for having an illicit cause or consideration. It is argued that under Article
1274 of the Civil Code of 1889 (which was the governing law in 1948, when the donation was
executed), "in contracts of pure beneficence the consideration is the liberality of the donor", and that
liberality per se can never be illegal, since it is neither against law or morals or public policy.

The flaw in this argument lies in ignoring that under Article 1274, liberality of the do or is
deemed causa in those contracts that are of "pure" beneficence; that is to say, contracts designed
solely and exclusively to procure the welfare of the beneficiary, without any intent of producing any
satisfaction for the donor; contracts, in other words, in which the idea of self-interest is totally absent
on the part of the transferor. For this very reason, the same Article 1274 provides that in
remuneratory contracts, the consideration is the service or benefit for which the remuneration is
given; causa is not liberality in these cases because the contract or conveyance is not made out of
pure beneficence, but "solvendi animo." In consonance with this view, this Supreme Court in
Philippine Long Distance Co. vs. Jeturian * G.R. L-7756, July 30, 1955, like the Supreme Court of
Spain in its decision of 16 Feb. 1899, has ruled that bonuses granted to employees to excite their
zeal and efficiency, with consequent benefit for the employer, do not constitute donation having
liberality for a consideration.

Here the facts as found by the Court of Appeals (and which we can not vary) demonstrate that in
making the donation in question, the late Salvador P. Lopez was not moved exclusively by the desire
to benefit appellant Conchita Liguez, but also to secure her cohabiting with him, so that he could
gratify his sexual impulses. This is clear from the confession of Lopez to the witnesses Rodriguez
and Ragay, that he was in love with appellant, but her parents would not agree unless he donated
the land in question to her. Actually, therefore, the donation was but one part of an onerous
transaction (at least with appellant's parents) that must be viewed in its totality. Thus considered, the
conveyance was clearly predicated upon an illicit causa.

Appellant seeks to differentiate between the alleged liberality of Lopez, as causa for the donation in
her favor, and his desire for cohabiting with appellant, as motives that impelled him to make the
donation, and quotes from Manresa and the jurisprudence of this Court on the distinction that must
be maintained between causa and motives (De Jesus vs. Urrutia and Co., 33 Phil. 171). It is well to
note, however that Manresa himself (Vol. 8, pp. 641-642), while maintaining the distinction and
upholding the inoperativeness of the motives of the parties to determine the validity of the contract,
expressly excepts from the rule those contracts that are conditioned upon the attainment of the
motives of either party.

. . . distincion importantisima, que impide anular el contrato por la sola influencia de los
motivos a no ser que se hubiera subordinando al cumplimiento de estos como condiciones
la eficacia de aquel.
The same view is held by the Supreme Court of Spain, in its decisions of February 4, 1941, and
December 4, 1946, holding that the motive may be regarded as causa when it predetermines the
purpose of the contract.

In the present case, it is scarcely disputable that Lopez would not have conveyed the property in
question had he known that appellant would refuse to cohabit with him; so that the cohabitation was
an implied condition to the donation, and being unlawful, necessarily tainted the donation itself.

The Court of Appeals rejected the appellant's claim on the basis of the well- known rule "in pari
delicto non oritur actio" as embodied in Article 1306 of 1889 (reproduced in Article 1412 of the new
Civil Code):

ART. 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 fulfillment of what has been promised him. The other,
who is not at fault, may demand the return of what he has given without any obligation to
comply with his promise.

In our opinion, the Court of Appeals erred in applying to the present case the pari delicto rule. First,
because it can not be said that both parties here had equal guilt when we consider that as against
the deceased Salvador P. Lopez, who was a man advanced in years and mature experience, the
appellant was a mere minor, 16 years of age, when the donation was made; that there is no finding
made by the Court of Appeals that she was fully aware of the terms of the bargain entered into by
and Lopez and her parents; that, her acceptance in the deed of donation (which was authorized by
Article 626 of the Old Civil Code) did not necessarily imply knowledge of conditions and terms not
set forth therein; and that the substance of the testimony of the instrumental witnesses is that it was
the appellant's parents who insisted on the donation before allowing her to live with Lopez. These
facts are more suggestive of seduction than of immoral bargaining on the part of appellant. It must
not be forgotten that illegality is not presumed, but must be duly and adequately proved.

In the second place, the rule that parties to an illegal contract, if equally guilty, will not be aided by
the law but will both be left where it finds them, has been interpreted by this Court as barring the
party from pleading the illegality of the bargain either as a cause of action or as a defense. Memo
auditor propriam turpitudinem allegans. Said this Court in Perez vs. Herranz, 7 Phil. 695-696:

It is unnecessary to determine whether a vessel for which a certificate and license have been
fraudulently obtained incurs forfeiture under these or any other provisions of this act. It is
enough for this case that the statute prohibits such an arrangement as that between the
plaintiff and defendant so as to render illegal both the arrangement itself and all contracts
between the parties growing out of it.

It does not, however, follow that the plaintiff can succeed in this action. There are two
answers to his claim as urged in his brief. It is a familiar principle that the courts will not aid
either party to enforce an illegal contract, but will leave them both where it finds them; but
where the plaintiff can establish a cause of action without exposing its illegality, the vice does
not affect his right to recover. The American authorities cited by the plaintiff fully sustain this
doctrine. The principle applies equally to a defense. The law in those islands applicable to
 the case is found in article 1305 of the Civil Code, shutting out from relief either of the two
guilty parties to an illegal or vicious contract.

In the case at bar the plaintiff could establish prima facie his sole ownership by the bill of sale
from Smith, Bell and Co. and the official registration. The defendant, on his part, might
overthrow this title by proof through a certain subsequent agreement between him and the
plaintiff, dated March 16, 1902, that they had become owners in common of the vessel, 'the
agreement not disclosing the illegal motive for placing the formal title in the plaintiff. Such an
ownership is not in itself prohibited, for the United States courts recognize the equitable
ownership of a vessel as against the holder of a legal title, where the arrangement is not one
in fraud of the law. (Weston vs. Penniman, Federal Case 17455; Scudder vs. Calais
Steamboat Company, Federal Case 12566.).

On this proof, the defendant being a part owner of the vessel, would have defeated the
action for its exclusive possession by the plaintiff. The burden would then be cast upon the
plaintiff to show the illegality of the arrangement, which the cases cited he would not be
allowed to do.

The rule was reaffirmed in Lima vs. Lini Chu Kao, 51 Phil. 477.

The situation confronting us is exactly analogous. The appellant seeks recovery of the disputed land
on the strength of a donation regular on its face. To defeat its effect, the appellees must plead and
prove that the same is illegal. But such plea on the part of the Lopez heirs is not receivable, since
Lopez, himself, if living, would be barred from setting up that plea; and his heirs, as his privies and
successors in interest, can have no better rights than Lopez himself.

Appellees, as successors of the late donor, being thus precluded from pleading the defense of
immorality or illegal causa of the donation, the total or partial ineffectiveness of the same must be
decided by different legal principles. In this regard, the Court of Appeals correctly held that Lopez
could not donate the entirety of the property in litigation, to the prejudice of his wife Maria Ngo,
because said property was conjugal in character and the right of the husband to donate community
property is strictly limited by law (Civil Code of 1889, Arts. 1409, 1415, 1413; Baello vs. Villanueva,
54 Phil. 213).

ART. 1409. The conjugal partnership shall also be chargeable with anything which may have
been given or promised by the husband alone to the children born of the marriage in order to
obtain employment for them or give then, a profession or by both spouses by common
consent, should they not have stipulated that such expenditures should be borne in whole or
in part by the separate property of one of them.".

ART. 1415. The husband may dispose of the property of the conjugal partnership for the
purposes mentioned in Article 1409.)

ART. 1413. In addition to his powers as manager the husband may for a valuable
consideration alienate and encumber the property of the conjugal partnership without the
consent of the wife.

The text of the articles makes it plain that the donation made by the husband in contravention of law
is not void in its entirety, but only in so far as it prejudices the interest of the wife. In this regard, as
Manresa points out (Commentaries, 5th Ed., pp. 650-651, 652-653), the law asks no distinction
between gratuitous transfers and conveyances for a consideration.
 Puede la mujer como proprietaria hacer anular las donaciones aun durante el matrimonio?
Esta es, en suma, la cuestion, reducida a determinar si la distinta naturaleza entre los actos
a titulo oneroso y los actos a titulo lucrativo, y sus especiales y diversas circunstancias,
pueden motivar una solucion diferente en cuanto a la epoca en que la mujer he de reclamar
y obtener la nulidad del acto; cuestion que no deja de ser interesantisima. lawphi 1.net

El Codigo, a pesar de la variacion que ha introducido en el proyecto de 1851, poniendo

como segundo parrafo del articulo 1.413, o como limitacion de las enajenaciones u
obligaciones a titulo oneroso, lo que era una limitacion general de todos los actos del
marido, muestra, sin embargo, que no ha variado de criterio y que para el las donaciones
deben en todo equipararse a cualquier otro acto ilegal o frraudulento de caracter oneroso, al
decir en el art. 1.419: "Tambien se traera a colacion en el inventario de la sociedad— el
importe de las donaciones y enajenaciones que deban considerarse ilegales o fraudulentas,
con sujecion al art. 1.413.' (Debio tambien citarse el articulo 1.415, que es el que habla de
donaciones.) lawphi1.net

"En resumen: el marido solo puede donar los bienes gananciales dentro de los limites
marcados en el art. 1.415. Sin embargo, solo la mujer o sus herederos pueden reclamar
contra la valides de la donacion, pues solo en su interes establece la prohibicion. La mujer o
sus herederos, para poder dejar sin efecto el acto, han de sufrir verdadero perjuicio,
entendiendose que no le hay hasta, tanto que, terminada por cualquier causa la sociedad de
gananciales, y hecha su liquidacion, no pueda imputarse lo donado al haber por cualquier
concepto del marido, ni obtener en su consecuencia la mujer la dibida indemnizacion. La
donacioni reviste por tanto legalmente, una eficacia condicional, y en armonia con este
caracter, deben fijarse los efectos de la misma con relacion a los adquirentes y a los
terceros poseedores, teniendo, en su caso, en cuenta lo dispuesto en la ley Hipotecaria.
Para prevenir todo perjuicio, puede la mujer, durante el matrimonio inmediatamente al acto,
hacer constar ante los Tribunales su existencia y solicitor medidas de precaucion, como ya
se ha dicho. Para evitarlo en lo sucesivo, y cuando las circunstancias lo requieran, puede
instar la declaracion de prodigalidad.

To determine the prejudice to the widow, it must be shown that the value of her share in the property
donated can not be paid out of the husband's share of the community profits. The requisite data,
however, are not available to us and necessitate a remand of the records to the court of origin that
settled the estate of the late Salvador P. Lopez.

The situation of the children and forced heirs of Lopez approximates that of the widow. As privies of
their parent, they are barred from invoking the illegality of the donation. But their right to a legitime
out of his estate is not thereby affected, since the legitime is granted them by the law itself, over and
above the wishes of the deceased. Hence, the forced heirs are entitled to have the donation set
aside in so far as in officious: i.e., in excess of the portion of free disposal (Civil Code of 1889,
Articles 636, 654) computed as provided in Articles 818 and 819, and bearing in mind that
"collationable gifts" under Article 818 should include gifts made not only in favor of the forced heirs,
but even those made in favor of strangers, as decided by the Supreme Court of Spain in its
decisions of 4 May 1899 and 16 June 1902. So that in computing the legitimes, the value of the
property to herein appellant, Conchita Liguez, should be considered part of the donor's estate. Once
again, only the court of origin has the requisite date to determine whether the donation is inofficious
or not.

With regard to the improvements in the land in question, the same should be governed by the rules
of accession and possession in good faith, it being undisputed that the widow and heirs of Lopez
were unaware of the donation in favor of the appellant when the improvements were made.
The appellees, relying on Galion vs. Garayes, 53 Phil. 43, contend that by her failure to appear at
the liquidation proceedings of the estate of Salvador P. Lopez in July 1943, the appellant has
forfeited her right to uphold the donation if the prejudice to the widow Maria Ngo resulting from the
donation could be made good out of the husband's share in the conjugal profits. It is also argued that
appellant was guilty of laches in failing to enforce her rights as donee until 1951. This line of
argument overlooks the capital fact that in 1943, appellant was still a minor of sixteen; and she did
not reach the age of majority until 1948. Hence, her action in 1951 was only delayed three years.
Nor could she be properly expected to intervene in the settlement of the estate of Lopez: first,
because she was a minor during the great part of the proceedings; second, because she was not
given notice thereof ; and third, because the donation did not make her a creditor of the estate. As
we have ruled in Lopez vs. Olbes, 15 Phil. 547-548:

The prima facie donation inter vivos and its acceptance by the donees having been proved
by means of a public instrument, and the donor having been duly notified of said acceptance,
the contract is perfect and obligatory and it is perfectly in order to demand its fulfillment,
unless an exception is proved which is based on some legal reason opportunely alleged by
the donor or her heirs.

So long as the donation in question has not been judicially proved and declared to be null,
inefficacious, or irregular, the land donated is of the absolute ownership of the donees and
consequently, does not form a part of the property of the estate of the deceased Martina
Lopez; wherefore the action instituted demanding compliance with the contract, the delivery
by the deforciant of the land donated, or that it be, prohibited to disturb the right of the
donees, should not be considered as incidental to the probate proceedings aforementioned.

The case of Galion vs. Gayares, supra, is not in point. First, because that case involved a stimulated
transfer that case have no effect, while a donation with illegal causa may produce effects under
certain circumstances where the parties are not of equal guilt; and again, because the transferee in
the Galion case took the property subject to lis pendens notice, that in this case does not exist.

In view of the foregoing, the decisions appealed from are reversed and set aside, and the appellant
Conchita Liguez declared entitled to so much of the donated property as may be found, upon proper
liquidation, not to prejudice the share of the widow Maria Ngo in the conjugal partnership with
Salvador P. Lopez or the legitimes of the forced heirs of the latter. The records are ordered
remanded to the court of origin for further proceedings in accordance with this opinion. Costs against
appellees. So ordered.

Paras, C.J., Bengzon, Padilla, Montemayor, Reyes, A., Bautista Angelo, Labrador, Concepcion, and
Endencia, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. L-27841 October 20, 1978

MARIA ENCARNACION CASTILLO, ELISEA GALVAN, and PATROCINIO GALVAN, plaintiffs-

appellants,
vs.
JOSEFA GALVAN, EMILIO SAMSON, and NATIVIDAD GALVAN, defendants-appellees.
CONCEPCION, JR., J.:

Appeal from the order of the Court of First Instance of Pangasinan dismissing the complaint filed in
Civil Case No. D1227 and the order denying the motion for the reconsideration of said order.

The complaint, filed on August 1, 1961, is for the annulment of a document, denominated "DEED OF
ABSOLUTE SALE", executed on August 3, 1955, by and between Paulino Galvan, professedly the
predecessor in interest of herein plaintiffs, and defendants Josefa Galvan and Natividad S. Galvan,
and for damages and attorney's fees. The plaintiffs therein alleged that Paulino Galvan, during his
lifetime, was the registered owner of an undivided one- half (1/2) interest over two parcels of land,
known as Lot Nos. 4541 and 4542 of the Dagupan Cadastre and covered by OCT Nos. 38131 and
39317. respectively, of the Register of Deeds of Dagupan City. The other undivided half is owned by
his two daughters by a first marriage. herein defendants Josefa Galvan and Natividad Galvan. On
these lots, which are contiguous, is built the family home. On February 10, 1961, Paulino Galvan
died and the plaintiffs, out of "delicadeza" waited for the defendants to initiate the move for the
settlement of his estate. But, after waiting for some time and finding that none was forthcoming, the
plaintiffs became apprehensive, so that they began to go over the papers concerning the properties
of the decedent. In the office of the Register of Deeds of Dagupan City, they were surprised to find a
deed of sale, signed by the late Paulino Galvan and the plaintiff, Maria Encarnacion Castillo,
whereby they had purportedly sold for P500.00 the one-half undivided portion of Paulino Galvan
over said lots in favor of defendants. When apprised of the existence of a deed of sale, plaintiff Maria
Encarnacion Castillo remembered that way back in 1953, she and her husband Paulino Galvan were
made to sign a certain document by Josefa Galvan "upon the fraudulent misrepresentation that the
said document was only for the purpose of enabling them, the co-owners of the parcels of land in
question, to have their separate tax declarations for the respective portions owned by them so that
they can pay their respective real estate taxes separately, the said spouses not knowing that the
said document is a deed of sale for which no consideration was even paid." The plaintiffs further
alleged that Paulino Galvan could not have intended to sell his share and participation over the lots
in question during his lifetime as he had no other residential lot to live in and there is no necessity for
him to sell the same as he and his wife had sufficient income to sustain them. Besides, the undivided
halt share of Paulino Galvan was worth around P22,500.00 so that he could not have sold it for only
P500.00. Wherefore, they prayed that the deed of sale be declared null and void; that the plaintiffs
be declared the owners of four-sixths (4/6) of the undivided half share pertaining to Paulino Galvan;
that the defendants be ordered to pay the amount of P1,500.00, as attorney's fees; and to pay the
costs of suit. 1

The defendants filed their answer with counterclaim on August 23, 1961 wherein they interposed
negative and affirmative defenses. As their affirmative defense, the defendants claim that "they are
the absolute and exclusive owners of whole parcels of land described iii the complaint for having
acquired the portions belonging to their late partner Paulino Galvan through legal and valid
conveyance and this fact is known to the plaintiffs long before the filing of the complaint," 2

Three years thereafter, or on August 24, 1964, but before the case was tried, the defendants filed an
amended answer with the corresponding motion to admit it, which amended answer contained an
allegation that "the action of plaintiffs is barred by the statute of limitations." 3

The plaintiffs filed objections to the defendants' motion to amend their answer. Plaintiffs' principal
objection was their contention that the defendants had waived the right to plead the statute of
stations and were estopped from pleading it by reason of the fact that they had tried to do so after
the filing of their answer to the complaint The plaintiff further contend that the inclusion of the
defense of prescription substantially altered the defense. 4

Over plaintiffs objections, the trial court permitted the defendants to amend their answer by adding
the defense of statute of limitations. 5

Then two more years later or on August 27, 1966, the defendants filed a motion to dismiss the
complaint upon the ground that the action is barred by the statute of stations for the reason that the
present action for the annulment of the instrument of sale is based upon fraud which should be
brought within four (4) years from the time of the discovery of the same in accordance with Article
1391 of the Civil Code; and fraud, as a ground for annulment, shall be deemed to be discovered
from the date of the registration of the alleged fraudulent documents; and considering that the deed
of sale in question was registered on August 4, 1955, while the action for its annulment was
commenced only on August 1, 1961, or after the lapse of more than four (4) years from its
registration with the Register of Deeds, the action for annulment had prescribed. 6

The trial court sustained the defendants' contention, and, consequently, dismissed the complaint
without costs, on September 22, 1966. 7 A motion for the reconsideration of this order having been
denied on November 2, 1966, 8 the plaintiffs interposed the present appeal.

The appeal raises two issues for determination, the first of which is whether or not the trial court
erred in admitting the amended answer which incorporated a defense of prescription not heretofore
pleaded in the original answer.

The plaintiffs insist that the defendants, by their commission to plead the statute of limitations in their
original answer, waived W relinquished that plea for all time, and that it was therefore error for the
trial court to permit the plea. On this contention, plaintiffs direct our attention to Sec. 2, Rule 9, of the
Rules of Court which reads as follows:

Section 2. Defenses and objections not pleaded deemed waived.— Defenses and
objections not pleaded either in a motion to dismiss or in the answer are deemed
waived; except the failure to state a cause of action which may be alleged in a later
pleading, if one is permitted, or by motion for judgment on the pleadings, or at the
trial on the merits; but in the last instance. the motion shall be disposed of as
provided in Section 5 of Rule 10 in the light of any evidence which may have been
received. Whenever it appears that the court has no jurisdiction over the-subject-
matter, it shall dismiss the action.

The plaintiffs have apparently ignored the rule that a party may amend his pleading once as a matter
of course at any time before a responsive pleading is served, or, if the pleading is one to which no
responsive pleading is permitted and the action has not been placed upon the trial calendar, he may
so amend it at any time within ten (10) days after it is served. After the case is set for hearing,
substantial amendments may be made only upon leave of court. But such leave may be refused if it
appears to the court that the motion was made with intent to delay the action or that the cause of
action or defense is substantially altered. 9

Here, leave to file an amended answer was sought after the case had been set for trial but before
the trial thereof, 10 so that it is wen within the ambit of the rule aforementioned. Indeed, if the plaintiffs
believed that the trial court gravely abused its discretion in allowing the amendments to the answer, they
should have filed the proper corrective action earlier. The inclusion of the defense of statute of limitations
is also claimed to have substantially altered the defense, in that in the original answer, the defendants
invoked only "specific denial" as their defense, which means that they deny the truth of the allegations of
fact constituting the fraud as alleged in the complaint, whereas the defense of statute of limitations
impliedly admits the truth of facts alleged in the complaint as constituting the fraud, and, therefore,
inadmissible.

The alteration pointed to by the plaintiffs is but nominal, and can not be considered a substantial
alteration in the defense within the meaning of the rule. Comparing the original answer with
amendments made thereto. there are no allegations in the amended answer wholly different from
those which were stated in the original answer, except for the addition of the allegation that "the
action of' the plaintiff's is barred by the statute of limitations." As in their original answer, the
defendants have maintained that "they are absolute and exclusive owners of whole parcels of land
described in the complaint for having acquired the portions belonging to their late father Paulino
Galvan through legal and valid conveyance and this fact is known to plaintiffs long before the filing of
the complaint." Even the prayer is the same. It is a sound estimate that the defense of prescription
was, interposed to strengthen Their previous defense of estoppel or laches The plaintiffs could not
have been placed at a disadvantage for as a Matter of fact, the plaintiffs had anticipated the defense
of prescription in their complaint by pleading that they came to know of the existence of the deed of
sale only after the went over the papers concerning the land in the office of the register of Deeds of
Dagupan City in 196 1, after the death of Paulino Galvan. 11

At any rate, under Section 2, Rule 8 of the Rules of Court, a party is allowed to set forth in his
pleading two or more statements or a claim or defense alternatively or hypothetically either in one
cause of action or defense or in separate causes of action or defenses. And a defendant may set
forth by his answer as many defenses and counterclaim as he may whatever be their nature
regardless of consistency, provided, that each is consisted with itself. 12

The other issue raised is whether or not the trial court improperly dismissed the complaint on the
ground of prescription. In its order dated September 22, 1966, dismissing the complaint, the trial
court said:

The complaint, among others. prays for the annulment of document, which is a deed
of sale dated August 3. 1955, purporting conveyance of the two parcels described in
the complaint in favor of defendants Josefa Galvan and Natividad Galvan and Emilio
Sam son. Said document (Exh. I for defendants) was registered on August 1, 1955
(Exhs. I-A and I-B). It is the contention of the defendants that plaintiffs' action has
prescribed as the same was not presented within four years from the registration of
the document.

The court sustains defendants' contention. The basis of the annulment is alleged
fraud, and the action for the. annulment of the document should be brought within 4
years from the discovery of fraud (Mauricio vs. Villanueva, L-11072, September 24,
1959), and that such discovery of fraud is deemed to have taken place when the
instrument was filed and registered with the Register of Deeds and new transfer
certificate of title is issued in the name of the vendee for the registration of the deed
constitutes Constructive notice to the whole world (Diaz vs. Gorricho, L-11229,
March 29, 1964).

In view of the foregoing, the court resolves to dismiss as it hereby dismisses, the
complaint without cost. 13

The allegations of the complaint show, however, that the plaintiffs' action is to declare void and
inexistent the deed of sale executed by Paulino Galvan and Encarnacion Castillo on August 3. 1955
in favor of Josefa and Natividad Galvan, upon 'he grounds that (a) there is fraud in securing the
signatures of the vendors in said deed of sale: and (b) there was no consideration given at the time
of the transaction. In other words, the plaintiffs are seeking a judicial declaration that the deed of
sale in question is void ab initio, which action is inprescriptible. 14 The trial court erred, therefore, in
dismissing the complaint for the reasons stated.

WHEREFORE, the judgment appealed from is reversed and the order of September 22. 1966,
dismissing the complaint is hereby set aside. Let this case be remanded to the court of origin for
further proceedings. Without costs.

SO ORDERED.

Fernando (Chairman), Antonio, Aquino, and Santos JJ., concur.

Separate Opinions

BARREDO, J., concurring:

Because I am in favor of liberalizing the rule on waiver of defenses in order to promote substantial
justice: The main opinion as well as that of Justice Concepcion Jr., have that tendency. See
attached concurring opinion.

AQUINO, J., concurring:

I concur. The trial court committed a grievous error in dismissing the complaint on the ground of
prescription. It erroneously assumed that plaintiffs' cause of action is for the annulment of a deed of
sale on the ground of fraud.

In reality, plaintiffs' action is to declare void or inexistent the fictitious deed of sale of August 3, 1955
on the ground that its consideration did not exist at the time of the transaction. That action
is imprescriptible (Arts. 1409[3] and 1410, Civil Code).

Fraud was alleged in the complaint merely to show why the alleged vendor (the septuagenarian
father of the vendees signed the deed of sale.

The plaintiffs categorically alleged in paragraph 9 of the complaint that no consideration was paid for
the sale. They prayed that the sale "be declared null and void" (pp. 4-6, Record on Appeal). The
thrust of the action is to a judicial declaration that the sale is void ab initio.

A contract of sale is void and produces no effect whatsoever where the price, which appears thereon
as paid, has in fact never been paid by the purchaser to the vendor (Arts. 1352 and 1353, Civil
Code; Ocejo Perez and Co. vs. Flores and Bas 40 Phil 921; Mapalo vs. Mapalo, L-21489, May 19,
1966, 17 SCRA 114,122).
Such a sale is nonexistent and cannot be considered consummated (Borromeo vs. Borromeo, 98
Phil. 432; Cruzado vs. Bustos and Escaler 34 Phil 17; Garanciang vs. Garanciang, 2235 1. May 21,
1969, 28 SCRA 229).

Plaintiffs' cause of action is supported by the following ultimate facts alleged in their complaint:

Paulino Galvan married twice. By his first marriage, he begot two daughters, defendants Josefa
Galvan and Natividad Galvan. His second wife was Encarnacion Castillo with whom he begot three
children named E Patrocinio and Florangel

Paulino Galvan was the owner of a one proindiviso share in two parcels of land located at Burgos
Street, Dagupan City with a total area of 1, 1 15 square meters. The other one half share is owned
by Natividad Galvan and Josefa Galvan, his two daughters of the first marriage.

Existing on those two tots in the conjugal house of the spouse Paulino Galvan and Encarnacion
Castro. The house is made of wood with galvanized iron roofing.

On August 3, 1955, when Paulino Galvan, who did not have much education, was already seventy-
eight years old, not daughter, Josefa, asked him and his wife, Encarnacion, also old and not highly
educated, to sign a document which, according to Josefa, was necessary in order to have separate
tax declarations for their respective one-half portions of the two lots.

The Galvan spouses signed the document, Paulino Galvan died on February 10, 1961 at the age of
eighty-four years. He was survived by his second wife and his five above-named children.

It was only after the death of Paulino Galvan that his widow and their three children discovered that
the document, which Josefa had asked her father to sign, was a deed of sale, which is in English, a
language not known to the Galvan spouses.

Paulino Galvan could not have sold his one-half share in the two lots for a measly sum of P500, the
price stated in the deed of sale, because in 1961 the two lots were worth P45,000, at forty pesos a
square meter, Paulino Galvan's one-half share was worth at least P22,500.

The action to declare the sale void was filed on August 1, 1961 against Natividad Galvan and Josefa
Galvan, They pleaded as a defense that the sale was valid. Later, they amended their answer by
pleading prescription. The trial court dismissed the complaint on that ground.

The trial court overlooked the fact that the fraudulent manner by which the signatures of the Galvan
spouses in the deed were obtained strengthens plaintiffs' theory that the sale is void or inexistent
because it would appear that the said spouses did not Consent at. a to the sale.

In the Mapalo case. supra. the spouses, Miguel Mapalo and Candida Quiba, illiterate farmers
decided to donate to Maximo Mapalo The brother of Miguel, the eastern halt of their 1,635-square
meter residential land located in Manaoag, Pangasinan.

However. they were deceived into signing on October 15, 1936 a deed of absolute sale for the entire
land in favor of Miguel Mapalo Their signatures were procured by fraud. They were made to believe
by Maximo and the notary public that r tie document was a deed of covering the eastern halt t their
land.
Although the deed of sale stated a consideration of P500 (as in the instant case) the said spouses
did not receive anything value for land The spouses remained in possession of the western hail of
the land.

On March 15, 1938 Maximo Mapalo registered the sale and obtained a Torres obtained for the entire
land. On October 20, 1951 Maximo sold the entire land to Evaristo, Petronila Pacifico and Miguel, all
surnamed Narciso. A transfer certificate of title was issued to the Narciso's for the whole land. they
took possession of the eastern halt of the land.

On February 7, 1952 the Narciso's sued the Mapalo spouses. They prayed that they be declared the
owners of the entire land. They sought to recover possession of its western portion. The Mapalo
spouses filed a counterclaim, wherein they prayed that the western half o the land be conveyed to
them. They alleged that their signatures to the deed of sale were obtained through fraud. They sued
the Narciso's in 1957. They asked that the 1936 and 1951 deeds of sale be declared void as to the
western portion.

The Court of Appeals held that the sale was merely voidable on the ground of fraud; that the action
for annulment should have been brought within four years from the registration of the sale, and that,
as that period had already expired, the action had also prescribed.

This Court, reversing the decision of the Court of Appeals, held that the 1936 sale was not merely
voidable but was void or inexistent and that the "inexistence of a contract is permanent and incurable
and cannot be the subject of prescription". The holding of the trial court that the Mapalo spouses
should be issued a Torrens title for the western half of the land was affirmed.

The ruling in the Mapalo case is squarely applicable to this case.

In the instant case, the plaintiffs, the widow and a child of the first marriage, as compulsory heirs of
Paulino Galvan, the victim of the alleged fraud, have the right to sue to declare the sale void
because they were deprived of their legitimate in the estate of Paulino Galvan (Art. 221[4], Civil
Code; Reyes vs. Court of Appeals, 95 Phil. 952; Armentia vs. Patriarca, L-18210, December 29,
1966, 18 SCRA 1253, 1258-1260).

Separate Opinions

BARREDO, J., concurring:

Because I am in favor of liberalizing the rule on waiver of defenses in order to promote substantial
justice: The main opinion as well as that of Justice Concepcion Jr., have that tendency. See
attached concurring opinion.

AQUINO, J., concurring:

I concur. The trial court committed a grievous error in dismissing the complaint on the ground of
prescription. It erroneously assumed that plaintiffs' cause of action is for the annulment of a deed of
sale on the ground of fraud.
In reality, plaintiffs' action is to declare void or inexistent the fictitious deed of sale of August 3, 1955
on the ground that its consideration did not exist at the time of the transaction. That action
is imprescriptible (Arts. 1409[3] and 1410, Civil Code).

Fraud was alleged in the complaint merely to show why the alleged vendor (the septuagenarian
father of the vendees signed the deed of sale.

The plaintiffs categorically alleged in paragraph 9 of the complaint that no consideration was paid for
the sale. They prayed that the sale "be declared null and void" (pp. 4-6, Record on Appeal). The
thrust of the action is to a judicial declaration that the sale is void ab initio.

A contract of sale is void and produces no effect whatsoever where the price, which appears thereon
as paid, has in fact never been paid by the purchaser to the vendor (Arts. 1352 and 1353, Civil
Code; Ocejo Perez and Co. vs. Flores and Bas 40 Phil 921; Mapalo vs. Mapalo, L-21489, May 19,
1966, 17 SCRA 114,122).

Such a sale is nonexistent and cannot be considered consummated (Borromeo vs. Borromeo, 98
Phil. 432; Cruzado vs. Bustos and Escaler 34 Phil 17; Garanciang vs. Garanciang, 2235 1. May 21,
1969, 28 SCRA 229).

Plaintiffs' cause of action is supported by the following ultimate facts alleged in their complaint:

Paulino Galvan married twice. By his first marriage, he begot two daughters, defendants Josefa
Galvan and Natividad Galvan. His second wife was Encarnacion Castillo with whom he begot three
children named E Patrocinio and Florangel

Paulino Galvan was the owner of a one proindiviso share in two parcels of land located at Burgos
Street, Dagupan City with a total area of 1, 1 15 square meters. The other one half share is owned
by Natividad Galvan and Josefa Galvan, his two daughters of the first marriage.

Existing on those two tots in the conjugal house of the spouse Paulino Galvan and Encarnacion
Castro. The house is made of wood with galvanized iron roofing.

On August 3, 1955, when Paulino Galvan, who did not have much education, was already seventy-
eight years old, not daughter, Josefa, asked him and his wife, Encarnacion, also old and not highly
educated, to sign a document which, according to Josefa, was necessary in order to have separate
tax declarations for their respective one-half portions of the two lots.

The Galvan spouses signed the document, Paulino Galvan died on February 10, 1961 at the age of
eighty-four years. He was survived by his second wife and his five above-named children.

It was only after the death of Paulino Galvan that his widow and their three children discovered that
the document, which Josefa had asked her father to sign, was a deed of sale, which is in English, a
language not known to the Galvan spouses.

Paulino Galvan could not have sold his one-half share in the two lots for a measly sum of P500, the
price stated in the deed of sale, because in 1961 the two lots were worth P45,000, at forty pesos a
square meter, Paulino Galvan's one-half share was worth at least P22,500.
The action to declare the sale void was filed on August 1, 1961 against Natividad Galvan and Josefa
Galvan, They pleaded as a defense that the sale was valid. Later, they amended their answer by
pleading prescription. The trial court dismissed the complaint on that ground.

The trial court overlooked the fact that the fraudulent manner by which the signatures of the Galvan
spouses in the deed were obtained strengthens plaintiffs' theory that the sale is void or inexistent
because it would appear that the said spouses did not Consent at. a to the sale.

In the Mapalo case. supra. the spouses, Miguel Mapalo and Candida Quiba, illiterate farmers
decided to donate to Maximo Mapalo The brother of Miguel, the eastern halt of their 1,635-square
meter residential land located in Manaoag, Pangasinan.

However. they were deceived into signing on October 15, 1936 a deed of absolute sale for the entire
land in favor of Miguel Mapalo Their signatures were procured by fraud. They were made to believe
by Maximo and the notary public that r tie document was a deed of covering the eastern halt t their
land.

Although the deed of sale stated a consideration of P500 (as in the instant case) the said spouses
did not receive anything value for land The spouses remained in possession of the western hail of
the land.

On March 15, 1938 Maximo Mapalo registered the sale and obtained a Torres obtained for the entire
land. On October 20, 1951 Maximo sold the entire land to Evaristo, Petronila Pacifico and Miguel, all
surnamed Narciso. A transfer certificate of title was issued to the Narciso's for the whole land. they
took possession of the eastern halt of the land.

On February 7, 1952 the Narciso's sued the Mapalo spouses. They prayed that they be declared the
owners of the entire land. They sought to recover possession of its western portion. The Mapalo
spouses filed a counterclaim, wherein they prayed that the western half o the land be conveyed to
them. They alleged that their signatures to the deed of sale were obtained through fraud. They sued
the Narciso's in 1957. They asked that the 1936 and 1951 deeds of sale be declared void as to the
western portion.

The Court of Appeals held that the sale was merely voidable on the ground of fraud; that the action
for annulment should have been brought within four years from the registration of the sale, and that,
as that period had already expired, the action had also prescribed.

This Court, reversing the decision of the Court of Appeals, held that the 1936 sale was not merely
voidable but was void or inexistent and that the "inexistence of a contract is permanent and incurable
and cannot be the subject of prescription". The holding of the trial court that the Mapalo spouses
should be issued a Torrens title for the western half of the land was affirmed.

The ruling in the Mapalo case is squarely applicable to this case.

In the instant case, the plaintiffs, the widow and a child of the first marriage, as compulsory heirs of
Paulino Galvan, the victim of the alleged fraud, have the right to sue to declare the sale void
because they were deprived of their legitimate in the estate of Paulino Galvan (Art. 221[4], Civil
Code; Reyes vs. Court of Appeals, 95 Phil. 952; Armentia vs. Patriarca, L-18210, December 29,
1966, 18 SCRA 1253, 1258-1260).
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-23002 July 31, 1967

CONCEPCION FELIX VDA. DE RODRIGUEZ, plaintiff-appellant,

vs.
GERONIMO RODRIGUEZ., ET AL., defendants-appellees.

Ozaeta, Gibbs and Ozaeta for plaintiff-appellant.

Sycip, Salazar, Luna and Associates and Carolina C. Griño-Aquino for defendants-appellees.

REYES, J.B.L., J.:

This is an appeal by Concepcion Felix Vda. de Rodriguez from the decision of the Court of First
Instance of Bulacan in Civil Case No. 2565, which she commenced on May 28, 1962, to secure
declaration, of nullity of two contracts executed on January 24, 1934 and for recovery of certain
properties.

The facts of this case may be briefly stated as follows:

Concepcion Felix, widow of the late Don Felipe Calderon and with whom she had one living child,
Concepcion Calderon, contracted a second marriage on June 20, 1929, with Domingo Rodriguez,
widower with four children by a previous marriage, named Geronimo, Esmeragdo, Jose and
Mauricio, all surnamed Rodriguez. There was no issue in this second marriage.

Prior to her marriage to Rodriguez, Concepcion Felix was the registered owner of 2 fishponds
located in the barrio of Babañgad, municipality of Bulacan, Bulacan province. with a total area of
557,711 square meters covered by OCT Nos. 605 and 807. Under date of January 24, 1934,
Concepcion Felix appeared to have executed a deed of sale conveying ownership of the aforesaid
properties to her daughter, Concepcion Calderon, for the sum of P2,500.00, which the latter in turn
appeared to have transferred to her mother and stepfather by means of a document dated January
27, 1934. Both deeds, notarized by Notary Public Jose D. Mendoza, were registered in the office of
the Register of Deeds of Bulacan on January 29, 1934, as a consequence of which, the original titles
were cancelled and TCT Nos. 13815 and 13816 were issued in the names of the spouses Domingo
Rodriguez and Concepcion Felix.

On March 6, 1953, Domingo Rodriguez died intestate, survived by the widow, Concepcion Felix, his
children Geronimo Esmeragdo and Mauricio and grandchildren Oscar, Juan and Ana, surnamed
Rodriguez, children of a son, Jose, who had predeceased him.

On March 16, 1953, the above-named widow, children and grandchildren of the deceased entered
into an extra-judicial settlement of his (Domingo's) estate, consisting of one-half of the properties
allegedly belonging to the conjugal partnership. Among the properties listed as conjugal were the
two parcels of land in Bulacan, Bulacan, which, together with another piece of property, were divided
among the heirs in this manner:
 WHEREAS, the parties have furthermore agreed that the fishpond covered by TCT Nos.
13815, 13816 and 24109 of the Office of the Register of Deeds of Bulacan, containing an
area of 557,971 sq. m., which is likewise the conjugal property of the deceased and his
surviving spouse; 1/2 of the same or 278,985.5 sq. m. belongs to said Concepcion Felix Vda.
de Rodriguez, as her share in the conjugal property; and 3/4 of the remaining half or
209,239.125 sq. m. are transferred in full ownership to Geronimo Rodriguez, Esmeragdo
Rodriguez and Mauricio Rodriguez, share and share alike, while the other 1/4 or 69,746.375
sq. m. of the said remaining half goes in equal shares to Oscar Rodriguez, Juan Rodriguez
and Ana Rodriguez.

As a result of this partition, TCT Nos. 13815 and 13816 were cancelled and TCT Nos. T-11431 and
T-14432 were issued in the names of the said heirs of the deceased.

On March 23, 1953, in a power of attorney executed by the children and grandchildren of Domingo
Rodriguez, Concepcion Felix Vda. de Rodriguez was named their attorney in-fact, authorized to
manage their shares in the fishponds (Exh. 4).

On July 2, 1954, the heirs ended their co-ownership by executing a deed of partition, dividing and
segregating their respective shares in the properties, pursuant to a consolidation and subdivision
plan (PCS-3702), in accordance with which, Concepcion Felix Vda. de Rodriguez obtained TCT No.
T-12910, for the portion pertaining to her (Exh. L), while TCT No. T-12911 was issued to the other
heirs, for their shares. This latter title was subsequently replaced by TCT No. 16660 (Exh. M).

On October 12, 1954, the Rodriguez children executed another document granting unto the widow
lifetime usufruct over one-third of the fishpond which they received as hereditary share in the estate
of Domingo Rodriguez, which grant was accepted by Concepcion Felix Vda. de Rodriguez.

Then, in a contract dated December 15, 1961, the widow appeared to have leased from the
Rodriguez children and grandchildren the fishpond (covered by TCT No. 16660) for a period of 5
years commencing August 16, 1962, for an annual rental of P7,161.37 (Exh. 5). 1äwphï1.ñët

At about this time, it seemed that the relationship between the widow and her stepchildren had
turned for the worse. Thus, when she failed to deliver to them the balance of the earnings of the
fishponds, in the amount of P3,000.00, her stepchildren endorsed the matter to their lawyer who, on
May 16, 1962, sent a letter of demand to the widow for payment thereof. On, May 28, 1962,
Concepcion Felix Vda. de Rodriguez filed the present action in the Court of First Instance of Manila
naming as defendants, Geronimo Rodriguez, Esmeragdo Rodriguez, Oscar Rodriguez, Concepcion
Bautista Vda. de Rodriguez, as guardian of the minors Juan and Ana Rodriguez, and Antonio Diaz
de Rivera and Renato Diaz de Rivera, as guardians of the minors Maria Ana, Mercedes, Margarita,
Mauricio, Jr. and Domingo (Children of Mauricio Rodriguez who had also died).

The action to declare null and void the deeds of transfer of plaintiff's properties to the conjugal
partnership was based on the alleged employment or exercise by plaintiff's deceased husband of
force and pressure on her; that the conveyances of the properties — from plaintiff to her daughter
and then to the conjugal partnership of plaintiff and her husband — are both without consideration;
that plaintiff participated in the extrajudicial settlement of estate (of the deceased Domingo
Rodriguez) and in other subsequent deeds or instruments involving the properties in dispute, on the
false assumption that the said properties had become conjugal by reason of the execution of the
deeds of transfer in 1934; that laboring under the same false assumption, plaintiff delivered to
defendants, as income of the properties from 1956 to 1961, the total amount of P56,976.58. As
alternative cause of action, she contended that she would claim for her share, as surviving widow, of
1/5 of the properties in controversy, should such properties be adjudged as belonging to the conjugal
partnership. Thus, plaintiff prayed that the deeds of transfer mentioned in the complaint be declared
fictitious and simulated; that the "Extrajudicial Settlement of Estate" be also declared null and void;
that TCT No. 16660 of the Registry of Deeds of Bulacan be cancelled and another one be issued in
the name of plaintiff, Concepcion Felix Vda. de Felix; that defendants be ordered to pay plaintiff the
sum of P56,976.58, with legal interest thereon from the date of the filing of the complaint, and for
appropriate relief in connection with her alternative cause of action.

In their separate answers, defendants not only denied the material allegations of the complaint, but
also set up as affirmative defenses lack of cause of action, prescription, estoppel and laches. As
counterclaim, they asked for payment by the plaintiff of the unpaid balance of the earnings of the
land up to August 15, 1962 in the sum of P3,000.00, for attorney's fees and expenses of litigation.

On October 5, 1963, judgment was rendered for the defendants. In upholding the validity of the
contracts, the court found that although the two documents, Exhibits A and B, were executed for the
purpose of converting plaintiff's separate properties into conjugal assets of the marriage with
Domingo Rodriguez, the consent of the parties thereto was voluntary, contrary to the allegations of
plaintiff and her witness. The court also ruled that having taken part in the questioned transactions,
plaintiff was not the proper party to plead lack of consideration to avoid the transfers; that contracts
without consideration are not inexistent, but are only voidable, following the ruling in the case
of Concepcion vs. Sta. Ana (87 Phil. 787); that there was ratification or confirmation by the plaintiff of
the transfer of her property, by her execution (with the other heirs) of the extrajudicial settlement of
estate; that being a voluntary party to the contracts, Exhibits A and B, plaintiff cannot recover the
properties she gave thereunder. Plaintiff's alternative cause of action was also rejected on the
ground that action for rescission of the deed of extrajudicial settlement should have been filed within
4 years from its execution (on March 16, 1953).

From the decision of the Court of First Instance, plaintiff duly appealed to this Court, insisting that the
conveyances in issue were obtained through duress, and were inexistent, being simulated and
without consideration.

We agree with the trial Court that the evidence is not convincing that the contracts of transfer from
Concepcion Felix to her daughter, and from the latter to her mother and stepfather were executed
through violence or intimidation. The charge is predicated solely upon the improbable and biased
testimony of appellant's daughter, Concepcion C. Martelino, whom the trial court, refused to believe,
considering that her version of violence and harassment was contradicted by Bartolome Gualberto
who had lived with the Rodriguez spouses from 1917 to 1953, and by the improbability of Rodriguez
threatening his stepdaughter in front of the Notary Public who ratified her signature. Furthermore, as
pointed out by the appealed decision, the charge of duress should be treated with caution
considering that Rodriguez had already died when the suit was brought, for duress, like fraud, is not
to be lightly paid at the door of men already dead. (Cf. Prevost vs. Gratz, 6 Wheat. [U.S.] 481, 498;
Sinco vs. Longa, 51 Phil. 507).

What is more decisive is that duress being merely a vice or defect of consent, an action based upon
it must be brought within four years after it has ceased;1 and the present action was instituted only in
1962, twenty eight (28) years after the intimidation is claimed to have occurred, and no less than
nine (9) years after the supposed culprit died (1953). On top of it, appellant entered into a series of
subsequent transactions with appellees that confirmed the contracts that she now tries to set aside.
Therefore, this cause of action is clearly barred.

Appellant's main stand in attacking the conveyances in question is that they are simulated or
fictitious, and inexistent for lack of consideration. We shall examine each purported defect
separately.
The charge of simulation is untenable, for the characteristic of simulation is the fact that the apparent
contract is not really desired or intended to produce legal effects or in way alter the juridical situation
of the parties. Thus, where a person, in order to place his property beyond the reach of his creditors,
simulates a transfer of it to another, he does not really intend to divest himself of his title and control
of the property; hence, the deed of transfer is but a sham. But appellant contends that the sale by
her to her daughter, and the subsequent sale by the latter to appellant and her husband, the late
Domingo Rodriguez, were done for the purpose of converting the property from paraphernal to
conjugal, thereby vesting a half interest in Rodriguez, and evading the prohibition against donations
from one spouse to another during coverture (Civil Code of 1889, Art. 1334). If this is true, then the
appellant and her daughter must have intended the two conveyance to be real and effective; for
appellant could not intend to keep the ownership of the fishponds and at the same time vest half of
them in her husband. The two contracts of sale then could not have been simulated, but were real
and intended to be fully operative, being the means to achieve the result desired.

Nor does the intention of the parties to circumvent by these contracts the law against donations
between spouses make them simulated ones.

Ferrara, in his classic book, "La Simulacion de los Negocios Juridicos" (Sp. trans, 1926), pp. 95,
105, clearly explains the difference between simulated transactions and transactions in fraudem
legis:

Otra figura que debe distinguirse de la simulacion es el fraus legis. Tambien aqui se da una
gran confusion que persiste aun en la jurisprudencia, apegada tenazmente a antiguos
errores. Se debe a Bahr el haber defendido con vigor la antitesis teorica que existe entre
negocio fingido y negocio fraudulento y haber atacado la doctrina comun que hacia una
mescolanza con los dos conceptos.

Se confunde — dice (2) —, el negocio in fraudem legis con el negocio simulado; aunque la
naturaleza de ambos sea totalmente diversa. El negocio fraudulento no es, en absolute, un
negocio aparente. Es perfectamente serio: se quiere realmente. Es mas, se quiere tal como
se ha realizado, con todas las consecuencias que correspondent a la forma juridica elegida.
Muchas veces, estas consecuencias con incomodas para una u otra de las partes, aunque
serian mucho mas incomodas las consecuencias que lievaria consigo el acto prohibido.

xxx xxx xxx

El resultado de las precedentes investigaciones es el siguiente el negocio simulado quiere

producir una apariencia; el negocio fraudulente, una realidad; los negocios simulados son
ficticios, no queridos; los negocios in fraudem son serios, reales, y realizados en tal forma
por las partes para consequir un resultado prohibido: la simulacion nunca es un medio para
eludir la ley sino para ocultar su violation. La transgresion del contenido verbal e inmediato
de la norma se encubre bajo el manto de un negocio licito, lo cual no altera el caracter
del contra legem agere. Tan verdad es, que si se ha redactado una contra-escritura que
documentary y declara la verdadera naturaleza del negocio realizado, no queda mas que
aplicar pura y simplementela prohibicion.

Tambien el fraude quiere perjudicar la ley, pero emplea para ello medios diversos y sigue
distintos caminus. No oculta el acto exterior, sino que lo deja claro y visible, tratando de huir
sesgadamente de la aplicacion de la ley merced a una artistica y sabia combinacion de
varios medios juridicos no reprobados.
Appellant invokes our decision in Vasquez vs. Porta, 98 Phil. 490, but to no purpose. The mortgage
and foreclosure sale involved in that case were typical simulations merely apparent but not really
intended to produce legal effects, as approved by the Court's finding that the alleged creditor and
buyer at the foreclosure sale "Porta himself ostensibly acknowledged by his inertia in allowing the
doctor (alleged mortgagor debtor) to exercise dominical power thereon without any protest on his
part." (cas. cit., p. 495). Not only this, but the mortgagor's wife, when her husband died, "found
among his papers Porta's cancellation of the mortgage in his favor and the draft of the complaint for
foreclosure." Plainly, the precedent cited is here inapplicable.

Were the two conveyances from appellant to her daughter and from the latter to the spouses
Rodriguez void ab initio or inexistent for lack of consideration? We do not find them to be so. In the
first transaction, the price of P2,500.00 is recited in the deed itself (Exh. A); in the second (Exh. B),
the consideration set forth is P3,000.00. Now, Article 1274 of the Civil Code of 1889 (in force when
the deeds were executed) provided that —

In onerous contracts the cause is understood to be, for each contracting party, the
prestation or promise of a thing or service by the other. (emphasis supplied.)

Since in each conveyance the buyer became obligated to pay a definite price in money, such
undertaking constituted in themselves actual causa or consideration for the conveyance of the
fishponds. That the prices were not paid (assuming ad arguendo that Concepcion Martelino's
testimony, to this effect is true) does not make the sales inexistent for want of causa. As ruled
in Enriquez de la Cavada vs. Diaz, 37 Phil. 982, "the consideration (causa) need not pass from one
(party) to the other at the time the contract is entered into x x x . The consideration need not be paid
at the time of the promise. The one promise is a consideration for the other."

What would invalidate the conveyances now under scrutiny is the fact that they were resorted to in
order to circumvent the legal prohibition against donations between spouses contained in Article
1334, paragraph 1, of the Civil Code of 1889, then prevailing. That illegal purpose tainted the
contracts, for as held by the Spanish Tribunal Supreme in its decision of 2 April 1941.

ha de ser reputado ineficaz, por exigencias includibles del caracter social y moral del
Derecho, todo contrato que persiga un fin ilicito o immoral, sea cualquiera el medio
empleado por los contratantes para lograr esa finalidad, no justificada por un interes digno
de ser socialmente protegido.

The illicit purpose then becomes illegal causa within the terms of the old Civil Code, for as declared
by the same Spanish Court in its decision of 14 December 1940 —

toda vez que lo que caracteriza fundamentalmente la ilicitud de la causa es la lesion de un

interos general juridica 6 moral.

a ruling reiterated in the decision of 2 April 1941 when the Court ruled:

El concepto de la causa ilicita, tal como la desenvuelve y aplica con gran amplitud y
flexibilidad la doctrina moderna, permite cobijar, no solo las convenciones ilicitas por razon
de su objeto o de su motivo ... sino tambien multiples convenciones que no encerrando en si
ningun elemento de directa antijuricidad son ilicitas por el matiz immoral que reviste la
operation en su conjunto x x x .

Unfortunately for herein appellant, in contracts invalidated by illegal subject matter or illegal causa,
Articles 1305 and 1306 of the Civil Code then in force apply rigorously the rule in pari delicto non
oritur action, denying all recovery to the guilty parties inter se. And appellant is clearly as guilty as
her husband in the attempt to evade the legal interdiction of Article 1334 of the Code, already cited.
Wherefore, her present action to reivindicate the, conveyed properties was correctly repulsed by the
Court below.

Art. 1306. If the act which constitutes the illicit consideration is neither a crime nor a
misdemeanor, the following rules shall be observed:

1. When both parties are guilty, neither of them can recover what he may have given by
virtue of the contract, or enforce the performance of the undertaking of the other party;

xxx xxx xxx

That Article 1306 applies to cases where the nullity arises from the illegality of the consideration or
the purpose of the contract was expressly recognized by this Supreme Court in Gustilo vs. Maravilla,
48 Phil. 449-450.2

Finally, it cannot be denied that plaintiff-appellant had knowledge of the nullity of the contract for the
transfer of her properties in 1934, because she was even a party thereto. And yet, her present action
was filed only on May 28, 1962 and after the breaking up of friendly relations between her and
defendants-appellees. Appellant's inaction to enforce her right, for 28 years, cannot be justified by
the lame excuse that she assumed that the transfer was valid. Knowledge of the effect of that
transaction would have been obtained by the exercise of diligence. Ignorance which is the effect of
inexcusable negligence, it has been said, is no excuse for laches. (Go Chi Gun, etc., et al. vs. Co
Cho, et al., G.R. No. L-5208, Feb. 28, 1955). Even assuming for the sake of argument that appellant
held her peace, during the lifetime of her husband, out of legitimate fear for her life, there is no
justification for her future to bring the proper action after his death in 1953. Instead, she entered into
a series of agreements with herein appellees, the children of her husband by a prior marriage, of
partition, usufruct and lease of their share in the fishponds, transactions that necessarily assumed
that Rodriguez had acquired one-half of the litigated fishponds. In the circumstances, appellant's
cause has become a stale demand and her conduct placed her in estoppel to question the Validity of
the transfer of her properties. (Manila, et al. vs. Galvan, et al., G.R. No. L-23507, May 24, 1967;
Perez vs. Herranz, 7 Phil. 695-696).

In view of the foregoing, the decision appealed from is affirmed. Costs against appellant Concepcion
Felix Vda. de Rodriguez. So ordered.

Makalintal, Bengzon, J.P., Zaldivar, Sanchez, Castro, Angeles and Fernando, JJ., concur.
Concepcion, C.J. and Dizon, J., are on leave.

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-25704 April 24, 1968

ANGEL JOSE WAREHOUSING CO., INC., plaintiff-appellee,

vs.
CHELDA ENTERPRISES and DAVID SYJUECO, defendants-appellants.
Luis A. Guerrero for plaintiff-appellee.
Burgos and Sarte for defendants-appellants.

BENGZON, J.P., J.:

Plaintiff corporation filed suit in the Court of First Instance of Manila on May 29, 1964 against the
partnership Chelda Enterprises and David Syjueco, its capitalist partner, for recovery of alleged
unpaid loans in the total amount of P20,880.00, with legal interest from the filing of the complaint,
plus attorney's fees of P5,000.00. Alleging that post dated checks issued by defendants to pay said
account were dishonored, that defendants' industrial partner, Chellaram I. Mohinani, had left the
country, and that defendants have removed or disposed of their property, or are about to do so, with
intent to defraud their creditors, preliminary attachment was also sought.

Answering, defendants averred that they obtained four loans from plaintiff in the total amount of
P26,500.00, of which P5,620.00 had been paid, leaving a balance of P20,880.00; that plaintiff
charged and deducted from the loan usurious interests thereon, at rates of 2% and 2.5% per month,
and, consequently, plaintiff has no cause of action against defendants and should not be permitted
to recover under the law. A counterclaim for P2,000.00 attorney's fees was interposed.

Plaintiff filed on June 25, 1964 an answer to the counterclaim, specifically denying under oath the
allegations of usury.

After trial, decision was rendered, on November 10, 1965. The court found that there remained due
from defendants an unpaid principal amount of P20,287.50; that plaintiff charged usurious interests,
of which P1,048.15 had actually been deducted in advance by plaintiff from the loan; that said
amount of P1,048.15 should therefore be deducted from the unpaid principal of P20,287.50, leaving
a balance of P19,247.351 still payable to the plaintiff. Said court held that notwithstanding the
usurious interests charged, plaintiff is not barred from collecting the principal of the loan or its
balance of P19,247.35. Accordingly, it stated, in the dispositive portion of the decision, thus:

WHEREFORE, judgment is hereby rendered, ordering the defendant partnership to pay to

the plaintiff the amount of P19,247.35, with legal interest thereon from May 29, 1964 until
paid, plus an additional sum of P2,000.00 as damages for attorney's fee; and, in case the
assets of defendant partnership be insufficient to satisfy this judgment in full, ordering the
defendant David Syjueco to pay to the plaintiff one-half (1/2) of the unsatisfied portion of this
judgment.

With costs against the defendants. 1äw phï1.ñët

Appealing directly to Us, defendants raise two questions of law: (1) In a loan with usurious interest,
may the creditor recover the principal of the loan? (2) Should attorney's fees be awarded in plaintiff's
favor?

To refute the lower court's decision which is based on the doctrine laid down by this Court in Lopez
v. El Hogar Filipino, 47 Phil. 249, holding that a contract of loan with usurious interest is valid as to
the loan but void as to the usurious interest, appellants argue that in light of the New Civil Code
provisions said doctrine no longer applies. In support thereof, they cite the case decided by the
Court of Appeals in Sebastian v. Bautista, 58 O.G. No. 15, p. 3146.

The Sebastian case was an action for recovery of a parcel of land. The Court of First Instance
therein decided in plaintiff's favor, on the ground that the so-called sale with pacto de retro of said
land was in fact only an equitable mortgage. In affirming the trial court, the writer of the opinion of the
Court of Appeals went further to state the view that the loan secured by said mortgage was usurious
in nature, and, thus, totally void. Such reasoning of the writer, however, was not concurred in by the
other members of the Court, who concurred in the result and voted for affirmance on the grounds
stated by the trial court. Furthermore, the affirmance of the existence of equitable mortgage
necessarily implies the existence of a valid contract of loan, because the former is an accessory
contract to the latter.

Great reliance is made by appellants on Art. 1411 of the New Civil Code which states:

Art. 1411. When the nullity proceeds from the illegality of the cause or object of the contract,
and the act constitutes criminal offense, both parties being in pari delicto, they shall have no
action against each other, and both shall be prosecuted. Moreover, the provisions of the
Penal Code relative to the disposal of effects or instruments of a crime shall be applicable to
the things or the price of the contract.

This rule shall be applicable when only one of the parties is guilty; but the innocent one may
claim what he has given, and shall not be bound to comply with his promise.

Since, according to the appellants, a usurious loan is void due to illegality of cause or object, the rule
of pari delicto expressed in Article 1411, supra, applies, so that neither party can bring action against
each other. Said rule, however, appellants add, is modified as to the borrower, by express provision
of the law (Art. 1413, New Civil Code), allowing the borrower to recover interest paid in excess of the
interest allowed by the Usury Law. As to the lender, no exception is made to the rule; hence, he
cannot recover on the contract. So — they continue — the New Civil Code provisions must be
upheld as against the Usury Law, under which a loan with usurious interest is not totally void,
because of Article 1961 of the New Civil Code, that: "Usurious contracts shall be governed by the
Usury Law and other special laws, so far as they are not inconsistent with this Code." (Emphasis
ours.)

We do not agree with such reasoning. Article 1411 of the New Civil Code is not new; it is the same
as Article 1305 of the Old Civil Code. Therefore, said provision is no warrant for departing from
previous interpretation that, as provided in the Usury Law (Act No. 2655, as amended), a loan with
usurious interest is not totally void only as to the interest.

True, as stated in Article 1411 of the New Civil Code, the rule of pari delicto applies where a
contract's nullity proceeds from illegality of the cause or object of said contract.

However, appellants fail to consider that a contract of loan with usurious interest consists of principal
and accessory stipulations; the principal one is to pay the debt; the accessory stipulation is to pay
interest thereon.2

And said two stipulations are divisible in the sense that the former can still stand without the latter.
Article 1273, Civil Code, attests to this: "The renunciation of the principal debt shall extinguish the
accessory obligations; but the waiver of the latter shall leave the former in force."

The question therefore to resolve is whether the illegal terms as to payment of interest likewise
renders a nullity the legal terms as to payments of the principal debt. Article 1420 of the New Civil
Code provides in this regard: "In case of a divisible contract, if the illegal terms can be separated
from the legal ones, the latter may be enforced."

In simple loan with stipulation of usurious interest, the prestation of the debtor to pay the principal
debt, which is the cause of the contract (Article 1350, Civil Code), is not illegal. The illegality lies only
as to the prestation to pay the stipulated interest; hence, being separable, the latter only should be
deemed void, since it is the only one that is illegal.

Neither is there a conflict between the New Civil Code and the Usury Law. Under the latter, in Sec.
6, any person who for a loan shall have paid a higher rate or greater sum or value than is allowed in
said law, may recover the whole interest paid. The New Civil Code, in Article 1413 states: "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 payment." Article 1413, in speaking of "interest paid in excess of the
interest allowed by the usury laws" means the whole usurious interest; that is, in a loan of P1,000,
with interest of P20% per annum P200 for one year, if the borrower pays said P200, the whole
P200 is the usurious interest, not just that part thereof in excess of the interest allowed by law. It is in
this case that the law does not allow division. The whole stipulation as to interest is void, since
payment of said interest is the cause or object and said interest is illegal. The only change effected,
therefore, by Article 1413, New Civil Code, is not to provide for the recovery of the interest paid in
excess of that allowed by law, which the Usury Law already provided for, but to add that the same
can be recovered "with interest thereon from the date of payment."

The foregoing interpretation is reached with the philosophy of usury legislation in mind; to
discourage stipulations on usurious interest, said stipulations are treated as wholly void, so that the
loan becomes one without stipulation as to payment of interest. It should not, however, be
interpreted to mean forfeiture even of the principal, for this would unjustly enrich the borrower at the
expense of the lender. Furthermore, penal sanctions are available against a usurious lender, as a
further deterrence to usury.

The principal debt remaining without stipulation for payment of interest can thus be recovered by
judicial action. And in case of such demand, and the debtor incurs in delay, the debt earns interest
from the date of the demand (in this case from the filing of the complaint). Such interest is not due
to stipulation, for there was none, the same being void. Rather, it is due to the general provision of
law that in obligations to pay money, where the debtor incurs in delay, he has to pay interest by way
of damages (Art. 2209, Civil Code). The court a quo therefore, did not err in ordering defendants to
pay the principal debt with interest thereon at the legal rate, from the date of filing of the complaint.

As regards, however, the attorney's fees, the court a quo stated no basis for its award, beyond
saying that as a result of defendants' refusal to pay the amount of P19,247.35 notwithstanding
repeated demands, plaintiff was obliged to retain the services of counsel. The rule as to attorney's
fees is that the same are not recoverable, in the absence of stipulation. Several exceptions to this
rule are provided (Art. 2208, Civil Code). Unless shown to fall under an exception, the act of plaintiff
in engaging counsel's services due to refusal of defendants to pay his demand, does not justify
award of attorney's fees (Estate of Buan v. Camaganacan, L-21569, Feb. 28, 1966). Defendants,
moreover, had reason to resist the claim, since there was yet no definite ruling of this Court on the
point of law involved herein in light of the New Civil Code. Said award should therefore be deleted.

WHEREFORE, with the modification that the award of attorney's fees in plaintiff's favor is deleted
therefrom, and the correction of the clerical error as to the principal still recoverable, from
P19,247.35 to P19,239.35, the appealed judgment is hereby affirmed. No costs. So ordered.

Reyes, J.B.L., Dizon, Makalintal, Sanchez, Castro, Angeles and Fernando, JJ., concur.
Zaldivar, J., took no part.
Concepcion, C.J., is on leave.

SECOND DIVISION
 [G.R. No. 148541. November 11, 2004]

DEVELOPMENT BANK OF THE PHILIPPINES, petitioner, vs. BONITA O.

PEREZ and ALFREDO PEREZ, respondents.

DECISION
CALLEJO, SR., J.:

This is a petition for review on certiorari seeking to reverse and set aside the
Decision[1] of the Court of Appeals (CA) dated February 28, 2001, and to reinstate the
Decision of the Regional Trial Court (RTC), Makati City, Branch 145, in Civil Case No.
12057, as modified by trial courts Order dated June 11, 1993.

The Antecedents

On April 28, 1978, petitioner Development Bank of the Philippines (DBP) sent a letter
to respondent Bonita Perez, informing the latter of the approval of an industrial loan
amounting to P214,000.00 for the acquisition of machinery and equipment and for
working capital, and an additional industrial loan amounting to P21,000.00 to cover
unforeseen price escalation.[2]
On May 18, 1978, the respondents were made to sign four promissory notes covering
the total amount of the loan, P235,000.00. Three promissory notes
for P24,000.00, P48,000.00, and P142,000.00, respectively, were executed,
totaling P214,000.00. These promissory notes were all due on August 31, 1988. [3] A
fourth promissory note due on September 19, 1988 was, likewise, executed to cover the
additional loan of P21,000.00.[4] The promissory notes were to be paid in equal quarterly
amortizations and were secured by a mortgage contract covering real and personal
properties.[5]
On September 6, 1978, the petitioner sent a letter[6] to the respondents informing
them of the terms for the payment of the P214,000.00 industrial loan. On November 8,
1978, the petitioner sent another letter[7] to the respondents informing them about the
terms and conditions of their additional P21,000.00 industrial loan.
Due to the respondents' failure to comply with their amortization payments, the
petitioner decided to foreclose the mortgages that secured the obligation. However, in a
Letter[8] dated October 7, 1981, Mrs. Perez requested for a restructuring of their account
due to difficulties they were encountering in collecting receivables.
On April 1, 1982, the petitioner informed the respondents that it had approved the
restructuring of their accounts.[9] The loan was restructured, and on May 6, 1982, the
respondents signed another promissory note in the amount of P231,000.00 at eighteen
percent (18%) interest per annum, payable quarterly at P12,553.27, over a period of ten
years. The promissory note stated in part:

PROMISSORY NOTE

P231,000.00 Makati, Metro Manila, May 6, 1982

On or before May 7, 1992, for value received, I/we, jointly and severally,
promise to pay the DEVELOPMENT BANK OF THE PHILIPPINES, or
order at its office at Makati, Metro Manila, Philippines, the sum of TWO
HUNDRED THIRTY-ONE THOUSAND PESOS (P231,000.00), Philippine
Currency, with interest at the rate of EIGHTEEN per centum (18%) per
annum. Before the date of maturity, we hereby bind ourselves to make partial
payments, the first payment to be made on August 7, 1982 and the
subsequent payments on the 7th day of every three (3) months thereafter, and
each of all such payments shall be TWELVE THOUSAND FIVE
HUNDRED FIFTY-THREE and 27/100 PESOS (P12,553.27) which shall
cover amortizations on the principal and interest at the above-mentioned rate.

This loan shall be subject to penalty charges and additional interest as

follows:

On loan with amortizations or

portions thereof in arrears
irrespective of age.

Additional interest at the basic

loan interest rate per annum
computed on total amortizations
past due irrespective of age.
PLUS
Penalty charge of 8% per annum
computed on total amortizations in
arrears irrespective of age.

The DBP further reserves the right to increase, with notice to the mortgagor,
the rate of interest on the loan as well as all other fees and charges on loans
and advances pursuant to such policy as it may adopt from time to time
during the period of the loan; Provided that the rate of interest on the loan
shall be reduced in the event that the applicable maximum rate of interest is
reduced by law or by the Monetary Board; Provided, further, that the
adjustment in the rate of interest shall take effect on or after the effectivity of
the increase or decrease in the maximum rate of interest.

In case of non-payment of the amount of this note or any portion of it on

demand, when due, or any other amount or amounts due on account of this
note, the entire obligation shall become due and demandable, and if, for the
enforcement of the payment thereof, the DEVELOPMENT BANK OF THE
PHILIPPINES, is constrained to entrust the case to its attorneys, I/we, jointly
and severally, bind myself/ourselves to pay for attorney's fees, as provided
for in the mortgage contract, in addition to the legal fees and other incidental
expenses. In the event of foreclosure of the mortgage securing this note, I/we
further bind myself/ourselves, jointly and severally, to pay the deficiency , if
any.

SIGNED IN THE PRESENCE OF:

illegible SGD. SGD.

illegible BONITA ANG ORDIALES ALFREDO PEREZ
(Bonita O. Perez)

This Promissory Note supersedes the Promissory Note dated May 18, 1978
and stands secured by a mortgage contract executed by the above parties on
the same date, subject to the following terms and conditions.[10]

As stated in the promissory note, the first amortization was due on August 7, 1982,
and the succeeding amortizations, every quarter thereafter. However, the respondents
made their first payment amounting to P15,000.00[11] only on April 20, 1983 or after the
lapse of three quarters.[12] Their second payment, which should have been paid on
November 7, 1982, was made on December 2, 1983 and only in the amount of P5,000.00.
The third payment was then made at the time when the ninth quarterly amortization should
have been paid. After this, the respondents completely stopped paying. [13] The total
payments they made after the restructure of the loan amounted to P35,000.00 only.[14]
This failure to meet the quarterly amortization of the loan prompted the petitioner to
institute foreclosure proceedings on the mortgages. The sale of the properties covered
by the mortgage contract was scheduled on October 30, 1985.[15]
On October 24, 1985, the respondents filed a Complaint [16] for the nullification of the
new promissory note with damages and preliminary prohibitory injunction. The complaint
alleged that the petitioner restructured the respondents obligation in bad faith by requiring
them to sign another promissory note for P231,000.00 without considering the total
payments made on the loan amounting to P224,383.43. The respondents claimed that
the petitioner failed to explain to them how it had arrived at the amount of the restructured
loan. The respondents also alleged that the petitioner failed to furnish them with a
disclosure statement as required by Rep. Act No. 3765, also known as the Truth in
Lending Act, prior to the consummation of the transaction. They averred that the interest
imposed on the said transaction was usurious. They, likewise, alleged that the new
promissory note constituted a novation of the previous obligations.
In its answer, the petitioner denied the allegations and averred that the claim for
violation of the disclosure requirement under Rep. Act No. 3765 was not within the
jurisdiction of the RTC and was barred by prescription. By way of compulsory
counterclaim, the petitioner prayed that the respondents be ordered to pay their
obligation, plus exemplary damages and costs.[17] During trial, the petitioner presented a
Statement of Account dated September 14, 1990, showing that the total amount of the
obligation as of September 15, 1990 was P1,384,465.71.[18]
On October 25, 1985, the trial court ordered the petitioner to desist from holding the
public auction of the respondents properties. The trial court issued an Order on April 25,
1986 to maintain the status quo.
In its Decision dated May 10, 1993, the court a quo upheld the validity of the new
promissory note and ordered the respondents to pay their obligation. The dispositive
portion reads:

WHEREFORE, judgment is rendered dismissing the complaint for failure of

plaintiffs to prove their causes of action by clear preponderance of evidence,
with costs against them.

The order issued on April 25, 1986, ordering the defendant Bank to maintain
the status quo and suspending the auction sale, is hereby set aside.

Defendant Bank's counterclaim is hereby granted, and plaintiffs are hereby

ordered to pay the former the sum of One Million Three Hundred Eighty-four
Thousand Four Hundred Sixty-five Pesos and Seventy-one Centavos
(P1,384,465.71), representing the latter's obligation as of September 15, 1990,
with interest thereon at the legal rate of twelve (12%) percent per annum
pursuant to Sec. 2 of CB Circular No. 905; (Sagrador vs. Valderrama, supra),
from September 15, 1990 up to full payment of said sum. The other
counterclaim for exemplary damages is hereby dismissed.

SO ORDERED.[19]

Upon the petitioners motion for reconsideration, the trial court issued an
order[20] amending the dispositive portion of its decision by changing the rate of interest
to eighteen percent (18%) per annum.
Dissatisfied, the respondents appealed to the CA. On February 28, 2001, the CA
rendered a decision, the dispositive portion of which reads:
WHEREFORE, premises considered, the Decision dated May 10, 1993, docketed as
Civil Case No. 12057 by the Regional Trial Court of Makati, Branch 145, is hereby
MODIFIED in the sense that the amount of P1,384,465.71 as of September 1990 is
SET ASIDE and the formula mandated by Central Bank Circular No. 158 should be
applied by the trial court in computing the total obligation and liability of appellants.
All the other parts of the assailed decision are AFFIRMED in toto.

SO ORDERED.[21]

The CA found that the respondents did not voluntarily sign the restructured
promissory note as they were only forced to sign it for fear of having their mortgaged
property foreclosed by the bank. It ruled that the restructured promissory note which was
prepared by the petitioner alone was a contract of adhesion which violates the rule on
mutuality of contracts.
Nonetheless, the CA held that the trial court should have used the formula prescribed
by paragraph 3,[22] Sec. 2(i), Central Bank (CB) Circular No. 158, Rules and Regulations
Implementing Rep. Act No. 3765, in computing the total obligation of the respondents
considering that Sec. 3(a) thereof provides that it applies to any loans, mortgages, deeds
of trust, advances and discounts.[23] The CA also held that since the loan is secured by a
mortgage contract, the eighteen percent (18%) interest rate was excessive and usurious
under CB Circular No. 817. According to the appellate court, CB Circular No. 905, series
of 1982, simply suspended the effectivity of the Usury Law; it did not authorize either party
to unilaterally raise the interest without the other party's consent. [24] Finally, the CA
concluded that there was neither basis nor explanation as to how the measly amount
of P214,000.00 in 1972, restructured to P231,000.00 in 1982, ballooned
to P1,384,465.71 as of September 15, 1990.[25]
Both parties moved to reconsider the said decision. The CA denied the said motions
in a Resolution dated May 31, 2001.

The Present Petition

The petitioner raises the following grounds in the instant petition:

1. Whether or not the Honorable Court of Appeals had decided this instant case in
a way not in accord with the spirit and intent of Republic Act No. 3765, otherwise
known as the Truth in Lending Act, when it declared that "the trial court should
have applied the formula provided by Central Bank Circular No. 158, series of
1963, as provided above to arrive at the total obligations of appellants less the
amounts paid by appellants as evidenced by the vouchers and receipts attached
to the records;"
2. Whether or not the conclusion of the Honorable Court of Appeals stating that the
private respondents did not voluntarily sign the restructured promissory note is
entirely grounded on speculations and/or surmises or conjectures;
 3. Whether or not the Honorable Court of Appeals failed to notice certain relevant
facts which if it had been considered would change its finding that the
restructured promissory note was prepared by the appellee Bank alone;
4. Whether or not the Honorable Court of Appeals failed to notice certain relevant
facts which if it had been considered would change its finding that the amount
of P1,384,465.71 as of September 15, 1990 has neither basis at all nor any
explanation how this amount came to existence;
5. Whether or not the conclusion of the Honorable Court of Appeals stating that
petitioner DBP failed to follow Central Bank Circular No. 158 is grounded entirely
on speculation and surmises or conjecture. And whether or not this finding is
contradicted by another finding of the same court; and
6. Whether or not this Honorable Court of Appeals committed grave abuse of
discretion when it ruled that pursuant to Central Bank Circular No. 817 the 18%
interest per annum agreed upon by the parties in the restructured promissory
note is usurious, and that the same should be reduced to 12% being the legal
rate of interest.[26]
In a nutshell, the issues in this case are as follows: (1) whether the new promissory
note is voidable for not having been voluntarily signed by the respondents and for being
a contract of adhesion; (2) whether the interest rate agreed upon by the parties in the new
promissory note is usurious; (3) whether Central Bank Circular No. 158 should be applied
in computing the total obligations of the respondents; and (4) the amount of the total
obligation of the respondents.
The petition is partly meritorious.
Anent the first issue, the petitioner points out that the respondents admitted to having
signed the new promissory note. It avers that there was no evidence on record showing
that the signing of the new promissory note was attended by mistake, violence,
intimidation, undue influence, or fraud. The petitioner posits that the respondents claim of
having been forced to sign the restructured note for fear of having their mortgaged
property foreclosed cannot serve as legal basis to conclude that the respondents did not
voluntarily sign the new promissory note.[27] The petitioner maintains that a perusal of the
evidence would reveal that the new promissory note was the result of the mutual
agreement of the parties and, as such, is not a contract of adhesion.[28]
On the other hand, the respondents argue that this is a question of fact which is not
subject to review by this Court. According to the respondents, the fact that the restructured
loan proved disadvantageous to them belies the petitioners claim that they voluntarily
signed the new promissory note.
We agree with the petitioner.
In petitions for review on certiorari as a mode of appeal under Rule 45 of the Rules
of Court, the petitioner can raise only questions of law the Supreme Court is not the proper
venue to consider a factual issue as it is not a trier of facts.[29] A departure from the general
rule may be warranted where the findings of fact of the Court of Appeals are contrary to
the findings and conclusions of the trial court, or when the same is unsupported by the
evidence on record.[30]
 In the instant case, there was no evidence showing that the respondents signed the
new promissory note through mistake, violence, intimidation, undue influence, or fraud.
The respondents merely alleged that they were forced to restructure their loan for fear of
having their mortgaged properties foreclosed. However, it is axiomatic that this would not
amount to vitiated consent. The last paragraph of Article 1335 of the New Civil Code
specifically states that a threat to enforce ones claim through competent authority, if the
claim is just or legal, does not vitiate consent. Foreclosure of mortgaged properties in
case of default in payment of a debtor is a legal remedy afforded by law to a creditor.
Hence, a threat to foreclose the mortgage would not, per se, vitiate consent.
The CA noted that the petitioner prepared the new promissory note on its own and
that the only participation of the respondents was to sign the same. The CA concluded,
therefore, that the new promissory note was a contract of adhesion.
A contract of adhesion is so-called because its terms are prepared by only one party
while the other party merely affixes his signature signifying his adhesion thereto.[31] While
we accede to the appellate courts conclusion that the new promissory note was in the
nature of a contract of adhesion, we cannot fathom how this can further the respondents
case. In discussing the consequences of a contract of adhesion, we held in Rizal
Commercial Banking Corporation v. Court of Appeals:[32]

It bears stressing that a contract of adhesion is just as binding as ordinary

contracts. It is true that we have, on occasion, struck down such contracts as
void when the weaker party is imposed upon in dealing with the dominant
bargaining party and is reduced to the alternative of taking it or leaving it,
completely deprived of the opportunity to bargain on equal footing.
Nevertheless, contracts of adhesion are not invalid per se; they are not entirely
prohibited. The one who adheres to the contract is in reality free to reject it
entirely; if he adheres, he gives his consent.[33]

On the second issue, the CA held that under CB Circular No. 817, if the loan is
secured by a registered real estate, the interest of eighteen percent (18%) is usurious.
The petitioner, however, argues that usury has become legally inexistent with the
promulgation of CB Circular No. 905.[34] It contends that the interest rate should be
eighteen percent (18%), the interest rate they agreed upon.[35] For their part, the
respondents argue that the Central Bank engaged in self-legislation in enacting CB
Circular No. 905.
We agree with the ruling of the CA. It is elementary that the laws in force at the time
the contract was made generally govern the effectivity of its provision.[36] We note that the
new promissory note was executed on May 6, 1982, prior to the effectivity of CB Circular
No. 905 on January 1, 1983. At that time, The Usury Law, Act No. 2655, as amended by
Presidential Decree No. 116, was still in force and effect.
Under the Usury Law, no person shall receive a rate of interest, including
commissions, premiums, fines and penalties, higher than twelve percent (12%) per
annum or the maximum rate prescribed by the Monetary Board for a loan secured by a
mortgage upon real estate the title to which is duly registered.[37]
In this case, by specific provision in the new promissory note, the restructured loan
continued to be secured by the same mortgage contract executed on May 18, 1978 which
covered real and personal properties of the respondents. We, therefore, find the eighteen
percent (18%) interest rate plus the additional interest and penalty charges of eighteen
percent (18%) and eight percent (8%), respectively, to be highly usurious.
In usurious loans, the entire obligation does not become void because of an
agreement for usurious interest; the unpaid principal debt still stands and remains valid,
but the stipulation as to the usurious interest is void. Consequently, the debt is to be
considered without stipulation as to the interest.[38] In the absence of an express
stipulation as to the rate of interest, the legal rate at twelve percent (12%) per annum shall
be imposed.[39]
Neither is the contention of the respondents that the Central Bank engaged in self-
legislation correct. As we held in First Metro Investment Corporation v. Este Del Sol
Mountain Reserve, Inc.: [40]

Central Bank Circular No. 905 did not repeal nor in any way amend the Usury
Law but simply suspended the latter's effectivity. The illegality of usury is
wholly the creature of legislation. A Central Bank Circular cannot repeal a law.
Only a law can repeal another law. Thus, retroactive application of a Central
Bank Circular cannot, and should not, be presumed.[41]

On the third issue, the petitioner argues that CB Circular No. 158 does not prescribe
a formula in computing a debtor's monetary obligation, but merely provides for the formula
in computing the simple annual rate. It contends that the amount of the debtor's obligation
must be computed in accordance with the interest rate, charges, and manner of
computation agreed upon by the parties.[42]
We agree. The total obligation of the respondents must be computed according to
the terms and conditions agreed upon. The formula provided under paragraph 3, Sec.
2(i), CB Circular No. 158 cannot be used in computing the total obligation of the
respondents because it merely applies to the computation of the simple annual rate.
Simple annual rate is the uniform percentage which represents the ratio, on an annual
basis, between the finance charges and the amount to be financed. [43] It is one of the
items required to be disclosed under the Truth in Lending Act pursuant to the States policy
to protect its citizens from lack of awareness of the true cost of credit. [44]
Finally, we find that the records are insufficient to enable us to determine the total
amount of the respondents obligation. It is not even clear how much the respondents
have already paid on the restructured loans and when such payments were made. The
receipts presented in evidence by the respondents only showed that they
paid P15,000.00 on April 20, 1983 and P5,000.00 on December 2, 1983.[45] On the other
hand, Mr. Roberto Balarao, who is assigned to the Traffic and Processing Department of
the petitioner, testified that a third payment was made, but failed to state the
amount.[46] Another witness, Carmen Chamen, an account officer of the petitioner,
testified that after the restructuring of the account, the total payment made
was P35,000.00.[47]
Moreover, considering our previous conclusion that the interest rates prescribed
under the new promissory note are usurious, the statement of account presented by the
petitioner is no longer pertinent. It must be stressed that such statement of account was
arrived at based on the usurious interest rates. Hence, the total amount of the obligation
must necessarily be recomputed.
IN LIGHT OF ALL THE FOREGOING, the assailed Decision dated February 28,
2001 of the Court of Appeals and Order dated June 11, 1993 of the Regional Trial Court,
Makati City, Branch 145, are AFFIRMED WITH MODIFICATION. The case is hereby
REMANDED to the trial court for determination of the total amount of the respondents'
obligation according to the reduced interest rate of twelve percent (12%) per annum.
SO ORDERED.
Austria-Martinez and Chico-Nazario, JJ., concur
Puno, J., on official leave
Tinga,J., on leave

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-23302 September 25, 1968

ALEJANDRO RAS, plaintiff-appellee,

vs.
ESTELA SUA and RAMON SUA, defendants-appellants.

Roseller V. Martinez for plaintiff-appellee.

Nicolas B. Enriquez for defendants-appellants.

REYES, J.B.L., J.:

Appeal from the decision of the Court of First Instance of Basilan City (in its Civil Case No. 425).

To secure recovery of possession of a parcel of land which he leased to the spouses Ramon and
Estela Sua, Alejandro Ras filed a complaint dated 6 May 1963 1 in the Court of First Instance of
Basilan City, alleging, among other things, that on 25 February 1958 plaintiff, while in need of money
and unaware of the provisions of Republic Act 477, leased to the defendants a four-hectare parcel of
land he acquired from the National Abaca and Other Fibers Corporation (NAFCO), 2 designated as
Lot No. 52 and situated at Balactasan, Lamitan District, Basilan City, for a period of 3 years (from 1
April 1958 to 1 April 1961) upon a consideration of P2,500.00; that under the said contract the
lessees assumed the obligation to pay to the government the yearly installments on the land when
they fall due, as well as the taxes thereon, for the duration of the lease; that these obligations were
again embodied in subsequent contracts 3 entered into by the parties, by virtue of which the lease
was extended to a total period of 10 years; that the lessees failed to pay the taxes on the land and
the installments due to the NAFCO; and when defendants refused to pay said dues to the
government, as agreed upon, and to return to plaintiff possession of the subject parcel of land
notwithstanding demand therefor, the latter filed the present action. Claiming further that defendants
had harvested from the land since 1958 no less than 120,000 coconuts, plaintiff prayed for judgment
declaring as null and void the lease-contract of 25 February 1958 and the contracts executed
subsequent thereto; and ordering the defendants to deliver to him possession of the land, together
with the value of the harvested nuts amounting to P7,200.00, and to pay him damages and
attorney's fees for P3,000.00 and P1,500.00, respectively.

Answering the complaint, the defendants spouses denied having violated any condition of the lease
and, in turn, contested the jurisdiction of the court to order the return of the land to plaintiff, as well
as the latter's right to reacquire possession of the same property. As counterclaim, they asked for
damages and attorney's fees.

After trial on the merits, defendants, with proper leave of court, moved for the dismissal of the case,
on the ground that the cause of action has prescribed and that plaintiff was not able to prove his
case. It was their contention that plaintiff's action, which is for rescission of contract under Article
1191 of the Civil Code, prescribes in 4 years; that since the contract of lease was entered into on 25
February 1958, the present action, commenced on 6 May 1963, was already barred by prescription.
Defendants, likewise, claimed that plaintiff had failed to establish violation by the defendants of the
terms of the lease, that, if there was any, the breach is casual and slight that would not warrant a
rescission thereof.

On 3 April 1964, judgment was rendered for the plaintiff, the lower court ruling not only that there
had been violation of the contract, by defendants' failure to pay the taxes on the land, but also that
the lease of the property was prohibited under Section 8 of Republic Act 477. Consequently, the
contracts executed on 29 July 1960 (Exhibit F) and 26 January 1962 (Exhibit G) were declared
annulled, and defendants were ordered to pay to plaintif the sum of P110.00 a month from 2 April
1964 until possession of the land is restored to the latter. On the other hand, said plaintiff was
ordered to return to the defendants the sum of P1,200.00, the consideration of the two invalidated
contracts, with legal interest thereon until the amount shall have been paid.

Defendants instituted the present appeal, reiterating the claim that the cause of action in this case is
barred by prescription and that plaintiff has no right to the repossession of the land involved in the
dispute.

In support of the allegation that appellee's cause had prescribed, appellants belabored the point that
the averments of the complaint were for rescission and not for annulment of contract, pointing to the
caption and paragraphs 5, 7 and 9 thereof which refer to the action as one to rescind plaintiff's
contract with defendants.

For the purpose of resolving this issue of prescription raised by appellants, there is no need for the
distinction. Whether the case was filed to rescind or to annul the lease would not improve appellants'
position, which we find to be untenable. For while it is true that the original lease agreement (Exhibit
C) was executed on 25 February 1958, whereas the case was instituted on 6 May 1963, or more
than 4 years thereafter, yet it also appears that the contracts of lease (Exhibits D, E, F and G)
subsequently entered into by the parties uniformly contain the following provisions, to wit:
 NOW, THEREFORE, in consideration of the herein premises and the amount of ONE
THOUSAND PESOS, Philippine Currency, paid by the Lessee to the Lessor, the Lessor
extends and grants in favor of the lessee extension of two (2) more years of the lease
contract they entered which extension shall take effect on 2 April 1961 and terminates on 2
April 1963;

The parties also agree to incorporate as part of this amended and extended lease contract
all the stipulations, namely, numbers 1 to 5 of the contract of lease they entered in 25
February 1958. (Exhibit D);

with the only difference that in Exhibit E, the consideration was P400.00 and the contract (to extend
the lease period) was to "take effect on 2 April 1963 and terminates on 2 April 1964"; Exhibit F,
executed on 29 July 1960, was for P600.00, to "take effect on 2 April 1964 and terminates on 2 April
1966; and Exhibit G, executed on 26 January 1962, was for P600.00, to "take effect on 2 April 1966
and terminates on 2 April 1968."

In other words, these contracts Exhibits D, E, F and G did not just modify the original lease by
extending the period originally agreed upon. By themselves, they constitute individual contracts,
distinct from the agreement of 25 February 1958, each to be effective within the period specifically
mentioned therein. Thus, the lifetime of Exhibit D was only from 2 April 1961 to 2 April 1963; Exhibit
E, from 2 April 1963 to 2 April 1964; Exhibit F, from 2 April 1964 to 2 April 1966; and Exhibit G, from
2 April 1966 to 2 April 1968. It follows, therefore, that even were the action filed on 6 May 1963 be
treated as one for rescission, insofar as Exhibits F and G are concerned, the cause of action still
subsists. It is for this reason that the lower court annulled only these two contracts yet unenforced.
Of course, there is stronger ground for affirming the ruling of the court below if the action were
considered as one for annulment of the agreement as one prohibited by law. The right to seek the
declaration of the inexistence of a contract, for being in violation of law, is imprescriptible. 4

In reality, there can be no mistake about plaintiff's cause of action. Although the complaint was
captioned "for rescission of contract with damages," and that there were allegations to the effect that
defendants had failed to "live up with the conditions of the contract," and that plaintiff filed the action
"to rescind" the same, the complaint also averred that plaintiff leased the subject parcel of land to
defendants "while in need of money and unaware of the provisions of Republic Act No. 477." With
such averment, plaintiff definitely put the issue of the legality of the lease, 5 and this sufficiently
informed the defendants of the nature of his claims and enabled them to prepare their defense. 1awphîl.nèt

That the case was captioned "for rescission" does not materially alter the situation. The rule is well-
settled that it is not the caption of the pleading, but the allegations thereof that determines the nature
of the action; 6 that even without the prayer for a specific remedy, proper relief may nevertheless be
granted by the court if the facts alleged in the complaint and the evidence introduced so warrant. 7 In
this case, the violation of Section 8 of Republic Act 477 has been established with the presentation
by plaintiff of the deed of sale covering the subject land, executed in his favor on 31 August 1951
(Exhibit A), and of the contracts for the lease thereof (Exhibits C, D, E, F and G) entered into within
the prohibited 10-year period.

Appellants also contend that if the case were for annulment, as we have ruled it is, then plaintiff-
appellee has no personality to bring the action, the proper party being the Republic of the
Philippines; that the jurisdiction to order the return to plaintiff of the land belongs, not to the courts,
but to the Board of Liquidators; and that plaintiff may no longer recover the land from defendants
under the pari delicto doctrine.
The above contentions are without merit; they being premised on the assumption that upon the
plaintiff's violation of Republic Act 477 he automatically loses his rights over the land and said rights
immediately revert to the State. That is not correct.

In the first place, it is worthwhile to note that, unlike in a transfer of the applicant's rights made before
the award or signing of the contract of sale, which is specifically declared null and void and
disqualifies such applicant from further acquiring any land from the NAFCO, 7a Republic Act 477 is
silent as to the consequence of the alienation or encumbering of the land after the execution of the
contract of sale, but within 10 years from the issuance of the corresponding certificate of title.
Considering that the aim of the government in allowing the distribution or sale of disposable public
lands to deserving applicants is to enable the landless citizens to own the land they could work on,
and the reversion of these lands to the government is penal in character, reversion cannot be
construed to be implied from the provision making certain acts prohibited. Where, as in this case, the
interest of the individual outweighs the interest of the public, strict construction of a penal provision is
justified. 8 Article 1416 of the Civil Code of the Philippines prescribes as follows:

Art. 1416. When the agreement is not illegal per se but is merely prohibited, and the
prohibition by the law is designed for the protection of the plaintiff, he may, if public policy is
thereby enhanced, recover what he has paid or delivered.

Secondly, under Section 9 of Republic Act No. 477, the disposition of lands by the NAFCO is to be
governed by the Public Land Act (C.A. 141); and it has been ruled, in connection with the same, that
a disregard or violation of the conditions of the land grant does not produce automatic reversion of
the property to the State, nor work to defeat the grantee's right to recover the property he had
previously disposed of or encumbered. This was made clear by this Court when it said:

. . . Similar contentions were made in the case of Catalina de los Santo vs. Roman Catholic
Church of Midsayap, et al., 94 Phil. 405, 50 Off. Gaz. 1588, but they were there over-ruled,
this Court holding that the pari delicto doctrine may not be invoked in a case of this kind
since it would run counter to an avowed fundamental policy of the State that the forfeiture of
the homestead is a matter between the State and the grantee or his heirs, and that until the
State has taken steps to annul the grant and asserts title to the homestead, the purchaser is,
as against the vendor or his heirs, "no more entitled to keep the land than any intruder."
(Acierto vs. De los Santos, 95 Phil. 887) 9

Clearly, until and unless an appropriate proceeding for reversion is instituted by the State, and its
reacquisition of the ownership and possession of the land decreed by a competent court, the grantee
can not be said to have been divested of whatever right that he may have over the same property.

With the conclusions thus arrived at, the discussion of the other issues raised by appellants
becomes unnecessary.

WHEREFORE, the decision appealed from is hereby affirmed, with costs against appellants.

Concepcion, C.J., Dizon, Makalintal, Sanchez, Castro, Angeles and Fernando, JJ., concur.
Zaldivar J., took no part.

Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION
G.R. No. L-47986 July 16, 1984

AQUILINA P. MARIN and ANTONIO S. MARIN, SR., petitioners,

vs.
JUDGE MIDPANTAO L. ADIL, Branch 11, CFI, Iloilo; PROVINCIAL SHERIFF, CFI, South
Cotabato; REGISTER OF DEEDS, General Santos City; MANUEL, P. ARMADA and ARISTON
P. ARMADA, now substituted by his heirs, respondents.

G.R. No. L-49018 July 16, 1984

AQUILINA P. MARIN, petitioner,

vs.
JUDGE MIDPANTAO L. ADIL, CFI of Iloilo, MANUEL P. ARMADA and ARISTON P. ARMADA,
now substituted by his heirs, EVA SALAZAR VDA. DE ARMADA, ARISTON, JR., DONALD and
CRISTINA, all surnamed ARMADA, and Heirs of MARGARITA M. ARMADA-
HONORIO, respondents.

M.R. Flores and D. Marin-Flores for petitioners.

Renato D. Munez for private respondents.

AQUINO, J.:

This case is about the rescission of a deed of exchange. In a 1963 document, Aquiline P. Marin
assigned to the brothers Manuel P. Armada and Ariston P. Armada her hereditary share in the
testate estate of her deceased mother, Monica Pacificar Vda. de Provido, situated in January,
Iloilo in exchange for the land of the Armadas located in Cotabato covered by TCT No. 7252 and
other properties in that province.

The exchange would be rescindible when it is definitely ascertained that the parties have
respectively no right to the properties sought to be exchanged. The exchange did not mean that the
parties were definitely entitled to the properties being exchanged but it was executed "in anticipation
of a declaration of said right". The deed of exchange reads as follows:

DEED OF EXCHANGE WITH QUITCLAIM

KNOW ALL MEN BY THESE PRESENTS:

This DEED OF EXCHANGE WITH QUITCLAIM, made and entered into by and
between:

AQUILINA P. MARIN, of legal age, Filipino, married, to Antonio S.

Marin, with residence and postal address at Bo. 8, Marbel,
Koronadal, Province of Cotabato, hereinafter designated as MARIN;

— and —

MANUEL P. ARMADA, Filipino, of legal age, single, with residence

and postal address at the Municipality of January, Province of Iloilo,
 Philippines, for him and in behalf of his brother, ARISTON P.
ARMADA, likewise Filipino, of legal age, single, with residence and
postal address at Stockton, California, U.S.A., hereinafter designated
as the ARMADAS;

WITNESSETH:

WHEREAS, AQUILINA P. MARIN, is one of the legitimate children and compulsory

heirs of the deceased MONICA PACIFICAR VDA DE PROVIDO, who died testate in
the Municipality of January, Province of Iloilo Philippines, on June 3, 1960;

WHEREAS, AQUILINA P. MARIN was named as an heir in that certain LAST WILL
AND TESTAMENT executed by the said MONICA PACIFICAR VDA DE PROVIDO,
on October 20, 1959, and duly acknowledged on the same date, before Sr. MANUEL
B. LAURO, Notary Public for and in the Province of Iloilo, as per Doc. No. 262, Page
No. 95, Book No. 1, Series of 1959, of his Notarial Register, a photostatic copy of
which is hereto attached and made an integral part of this AGREEMENT as Annex A;

WHEREAS, it is specifically provided in the attached LAST WILL AND TESTAMENT

OF MONICA PACIFICAR VDA DE PROVIDO that AQUILINA P. MARIN will share
equally with her co-heirs the estate of the decedent consisting of personal properties
and registered and unregistered lands situated in the Municipality of January,
Province of Iloilo Philippines:

WHEREAS, the ARMADAS desire to acquire all the rights, interests, titles and
participations that AQUILINA P. MARIN may have over the real and personal
properties of MONICA PACIFICAR VDA DE PROVIDO aforementioned because of
the proximity of the said properties to them, being residents of January, Iloilo, while
AQUILINA P. MARIN is presently residing in Cotabato, Philippines;

WHEREAS, AQUILINA P. MARIN does by these presents hereby WAGE and

QUITCLAIM all her rights, interests, titles and participations in all the real and
personal properties of her deceased mother, MONICA PACIFICAR VDA DE
PROVIDO, in favor of the ARMADAS, in exchange for whatever rights, interests,
titles and participations the latter may have or could have in any real or personal
properties situated at Cetabato, Philippines;

NOW, THEREFORE,, for and ii consideration of the foregoing premises, and for such
other good and valuable considerations, the parties hereto hereby covenant and
stipulate as follows, to wit:

1. That AQUILINA P. MARIN hereby transfers, assigns, cede conveys and quitclaims
unto the said ARMADAS, their heirs, successors and assigns, all her rights, titles,
interests and participations in any and all real and personal properties representing
her legitimate share in the estate of her deceased mother, the late MONICA
PACIFICAR VDA DE PROVIDO, situated at the Municipality of January, Iloilo;

2. That the ARMADAS by virtue of these presents hereby likewise cede, transfer,
assign, convey and quitclaim in favor of the said AQUILINA P. MARIN by way of
exchange, all their rights, interests, titles and participations, that they may have or
could have in any and all real and personal properties situated at the Province of
Cotabato, Philippines, more particularly in that parcel of land formerly covered by
TCT No. V-2354 and now covered by TCT No. 252 of the Cotabato Registry:

3. That, the ARMADAS know for a fact that the properties being assigned and quit-
claimed in their favor by AQUILINA P. MARIN have long been and continue to be
productive and are more valuable than the properties which they are exchange in
under this document;

4. That both parties hereto hereby acknowledge that the e exchange contained
herein operates to their individual and mutual benefit and advantage, for the reason
that the property being ceded, transferred, conveyed and unclaimed by one party to
the other is situated in the place where either is a resident resulting in better
administration of the aforementioned properties;

5. That both parties furthermore acknowledge that the exchange contemplated

herein is made in perfect good faith, and not attended by fraud, mistake,
misrepresentation or the like and that they have no further claim for additional price
or consideration against each other, both declaring that the properties received by
way of exchange under this document is adequate consideration for the properties
quit-claimed;

6. That the parties hereto intend this AGREEMENT to be absolute and irrevocable,
except only when it is eventually ascertained and finally determined that they have
respectively no right, interest, title or participation in any property, real or personal,
which they have assigned or quitclaimed in favor of each other, and in the event of
mutual restitution by reason of the above eventuality, the parties hereto are not ,
liable for any fruits or benefits which they may have received from the
aforementioned properties during the existence and efficacy of this AGREEMENT
and that no damage could be claimed by one against the other

7. That it is specifically understood and agreed that the execution of this document
by parties parties hereto shall in no way be construed as an acknowledgment on his
or part that the other is or are entitled in the properties heretofore quit-claimed but
only in anticipation of a declaration of said right;

8. That the parties hereto shall take possession of and make use of the properties
subject of this DEED OF EXCHANGE AND QUITCLAIM upon the signing of the
same;

9. That the parties hereto hereby agree that the lawful ownership and possession of
each shall be protected by the other against any and all claims of any person or
persons;

10. That to make this AGREEMENT valid, binding and effective Live, both parties
hereby authorize each other the registration of this document with the register of
Deeds of Iloilo, and the ARMADAS likewise grant a similar authority to MARIN

IN WITNESS WHEREOF, the parties hereto have affixed their hand this 13 th day of
June, 1963.

(SGD.) AQUILINA P. MARIN (SGD.) MANUEL P. ARMADA

(For himself and in behalf
 of his brother, Ariston P.
Armada)

(SGD.) ANTONIO S. MARIN (Witness and Notarial Acknowledgement are omitted)

As background, it should be stated that the Armadas and Mrs. Marin are first cousins. The Armadas
in 1963 expected to inherit some lots in General Santos City from their uncle, Proceso Pacificar, who
died in 1954. Mrs. Marin, who resided in Koronadal, Cotabato, had hereditary rights in the estates of
her parents, the deceased spouses, Francisco Provido and Monica Pacificar, of Janiuay Iloilo, where
died in 1938 and 1960, respectively. Manuel P. Armada resided in Janiuay.

In 1963, when the deed of exchange was executed, the estate of Proceso Pacificar, in which the
Armadas expected to inherit a part, had been adjudicated to Soledad Pronido- Elevencionado a
sister of Mrs. Marin and a first cousin also of the Armadas. Soledad claimed to be the sole heir of
Proceso. So, the Armadas and the other heirs had to sue Soledad.

The protracted litigation ended in a compromise in 1976 when the Armadas were awarded Lots 906-
A-2 and 906-A-3, located in Barrio lagao, General Santos City with a total area of 8,124 square
meters, Mrs. Marin never possessed these two lots. They were supposed to be exchange for
her proindiviso share in her parents' estate in Janiuay.

Did Mrs. Marin inherit actually anything from her parents? The answer is nothing. She chose to
forget the deed. Her conduct showed that she considered herself not bound by it. Five years after
that deed, or on November 14, 1968, she agreed to convey to her sister, Aurora Provido-Collado,
her interest in two lots in January in payment of her obligation amounting to P1,700.

Then, in the extra-judicial partition of her parents' estate on June 25, 1977 (where the instant case
for rescission was already pending), her share with a total area of 9,010 square meters, was formally
adjudicated to Aurora. It was stated therein that Mrs. Marin "has waived, renounced and quit-claimed
her share" in favor of Aurora. As already stated, that share was supposed to be exchanged for the
two lots in General Santos City which the Armadas received in 1976 after a pestiferous litigation.

The Armadas filed the instant rescissory action against Mrs. Marin on December 7, 1976. They
overlooked the fact that Ariston P. Armada was not bound at all by the deed since Manuel. who
signed the deed for aim, had no authority to do so Manuel was not the attorney-in-fact of Ariston
(See Art. 1403 [1], Civil Code).

There was no trial. The case was submitted on the pleadings. The sole issue resolved by the trial
court was prescription. It held that the Armadas' action had not prescribed because their right to
rescind accrued only in 1976 when they discovered that Mrs. Marin could not perform her obligation
under the deed since she had assigned her hereditary rights to her sister.

Judge Midpantao L. Adil rescinded the deed of exchange, ordered restitution of whatever might have
been received by
Mrs. Marin, released the Armadas from their obligation under said deed and ordered Mrs. Marin to
pay the Armadas P10,000 as moral and exemplary damages and P3,000 as attorney's fees. Mrs.
Marin appealed to this Court on legal issues (L-49018).

Judge Adil issued an order of execution pending appeal which Mrs. Marin assailed by certiorari in
this Court. The enforcement of the execution was restrained by this Court (L-47986). The two related
cases have been consolidated.
It is evident from the deed of exchange that the intention of the parties relative to the lots, which are
the objects of the exchange, cannot be definitely ascertained. We hold that this circumstance
renders the exchange void or inexistent (Art. 1378, 2nd par. and Art. 1409 [6], Civil Code).

Thus, as already noted, it is provided in paragraph 7 that the deed should not be construed as an
acknowledgment by the Armadas and Mrs. Marin that they are entitled to the properties involved
therein and that it was executed "in anticipation of a declaration of" their rights to the properties.

Then, it is stipulated in paragraph 8 that the parties should take possession and make use of the
properties involved in the deed.

The two provisions are irreconcilable because paragraph contemplates that the properties are still to
be awarded or adjudicated to the parties whereas paragraph 8 envisages a situation where the
parties have already control and possession thereof.

It should be noted that in paragraph 7 of Mrs. Marin's answer with affirmative defense she avers
therein that her 1968 agreement with her sister means that she would convey her properties to the
latter (Aurora) when the Armadas should be "adjudged to be without rights or interests to any
properties in General Santos City" (p. 47, Rollo of L-49018). Such a qualifications is not found in her
agreement with her sister.

The instant rescissory action may be treated as an action to declare void the deed of exchange. The
action to declare the inexistence of a contract does not prescribe (Art. 1410, Civil Code).

The properties covered by the deed should have been specified and described. A perusal of the
deed gives the impression that it involves many properties. In reality, it refers only to 8,124 square
meters of land, which the Armadas would inherit from their uncle in General Santos City, and to the
9,000 square meters representing the proindiviso share of Mrs. Marin in her parents' estate. As we
have seen, Mrs. Marin rendered impossible the performance of her obligation under the deed.

Because of that impossibility, the Armadas could rescind extrajudicially the deed of exchange (Art.
1191 Civil Code; 4 Tolentino, civil Code, 1973 Ed., pp. 171-172). If Mrs. Marin should sue the
Armadas, her action would be barred under the rule of exceptio non adimpleti contractus (plaintiff is
not entitled to sue because he has not performed his part of the agreement).

As no evidence was presented in this case, we cannot sustain the award of P10,000 as moral and
exemplary damages and P3,000 as attorney's fees.

WHEREFORE, the trial court's judgment and the order of execution pending appeal are set aside.
The deed of exchange is hereby declared void and inexistent. The annotation thereof on TCT Nos.
10833 and 10834 should be cancelled. The Armadas' claim for damages and attorney's fees is
denied. Aquilina Provido-Mrin's counterclaim is dismissed. No costs.

SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION
G.R. No. 101974* July 12, 2001

VICTORIA P. CABRAL, petitioner,

vs.
THE HONORABLE COURT OF APPEALS, HON. ELIGIO P. PACIS, REGIONAL DIRECTOR,
REGION III, DEPARTMENT OF AGRARIAN REFORM, FLORENCIO ADOLFO, GREGORIO
LAZARO, GREGORIA ADOLFO and ELIAS POLICARPIO, respondents.

KAPUNAN, J.:

On January 16, 1990, petitioner Victoria Cabral filed a petition before the Barangay Agrarian Reform
Council (BARC) for the cancellation of the Emancipation Patents and Torrens Titles issued in favor
of private respondents. The patents and titles covered portions of the property owned and registered
in the name of petitioner.

Petitioner alleged therein that she was the registered owner of several parcels of land covered by
Original Certificate of Title (OCT) No. 0-1670 of the Registry of Deeds of Bulacan,1 among which is a
parcel of land described therein as Lot 4 of Plan Psu-164390. The petition further averred that as
early as July 1973, petitioner applied with the Department of Agrarian Reform (DAR) for the
reclassification or conversion of the land for residential, commercial or industrial purposes. The
application for conversion, however, was not acted upon. Instead, on April 25, 1988, Emancipation
Patents, and, thereafter, Transfer Certificates of Title, were issued in favor of private respondents.

Petitioner sought the cancellation of the TCTs on the grounds that: petitioner had a pending
application for conversion and reclassification; the lots covered by the emancipation patents included
areas not actually tilled by private respondents; private respondents had illegally transferred their
rights over the parcels of land covered by the emancipation patents; private respondents are
deemed to have abandoned their rights over the properties; and the subject property was taken
without just compensation.

On January 19, 1990, petitioner filed with the DAR itself another petition for the cancellation of the
same Emancipation Patents and Torrens Titles.

On January 29, 1990, petitioner received a letter from the Municipal Agrarian Reform Office (MARO)
of Sta. Maria, Bulacan, stating, among other things, that in order "that your petition be given due
process by this Office, your petition will be forwarded to the legal section of this office for legal
action."

On February 11, 1990, Regional Director Eligio Pacis issued an order dismissing the petition2 for
cancellation of Emancipation Patents, thus:

WHEREFORE, premises considered, this Office hereby orders the DISMISSAL of the
petition of Victoria P. Cabral for lack of legal and factual basis' likewise, this office request[s]
that the annotation of the notice of lis pendens on the original copies of Emancipation
Patents issued to petitioners covering the subject landholdings be CANCELLED by the
Office of the Register of Deeds concerned.

SO ORDERED.3

The Regional Director likewise denied petitioner's motion for reconsideration dated July 11, 1990.
Consequently, petitioner filed a petition for certiorari in the Court of Appeals questioning the
jurisdiction of the Regional Director and claiming denial of due process. On January 8, 1991, the
appellate court dismissed the petition for lack of merit. Petitioner's motion for reconsideration was
likewise denied, prompting petitioner to turn to this Court for relief, alleging that:

(a) THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT THE DAR
REGIONAL DIRECTOR OF REGION III ACTED WITH JURISDICTION WHEN IT TOOK
COGNIZANCE OF AND RESOLVED THE CONVERSION APPLICATION AND/OR
CANCELLATION OF CLT/EP PETITION OF PETITIONER-APPELLANT;

(b) THE HONORABLE COURT OF APPEALS ERRED IN NOT HOLDING THAT OUTSIDE
OF THE BARANGAY AGRARIAN REFORM COMMITTEE (BARC), IT IS THE
DEPARTMENT OF AGRARIAN REFORM ADJUDICATION BOARD (DARAB) THAT HAS
JURISDICTION OVER AGRARIAN REFORM CASES, DISPUTES OR CONTROVERSIES;

(c) THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER

WAS NOT DENIED DUE PROCESS AS ALLEGEDLY SHE LOST HER OPPORTUNITY TO
BE HEARD AFTER THE JUNE 27, 1990 HEARING.4 -

On April 21, 1993, petitioner filed with this Court an urgent motion for the issuance of a temporary
restraining order. Petitioner alleged that private respondent Gregoria Adolfo had conveyed the land
awarded to her to the Aqualand Development Corporation and the Sta. Rita Steel Resources
Corporation. These corporations, in turn,

x x x converted the parcel of land from agricultural to commercial and industrial and have
constructed high adobe stone walls[,] commenced the construction of a steel finishing plant
and other structures for the manufacture of steel products[,] and are putting in place more
installations to complete all facilities necessary for their business. As a matter of fact, they
have just applied for a building permit for the construction of a two (2) storey office
condominium/business office building. xxx5

In a Resolution dated May 17, 1993, the Court issued the temporary restraining order prayed for.
The Court enjoined Sta. Rita Steel Resources and Aqualand Development Corporation, its officers,
agents, representatives and/or persons acting in their place or stead from continuing the
construction of building and the like on the landholding of petitioner, pending final resolution of the
petition.6

Petitioner contended before the Court of Appeals that jurisdiction over the case pertained to the
Department of Agrarian Reform Agrarian Board (DARAB), not the Regional Director. Addressing this
argument, the Court of Appeals held in its Decision:

Relevant to the issue raised is Ministry Administrative Order No. 2-85, Series of 1985,
effective July 24, 1985 (Annex 2, Comment) which empowers all DAR Regional Directors to
hear and decide cases which include the issuance of Decisions/Resolutions, the recall and
cancellation of Certificates of Land Transfers (CLTs) if such is the necessary consequence of
the facts and circumstances of the case.

A later directive, DAR Memo Cir. No. 5, Series of 1987 (Annex 3, Comment), clothed the
Regional Directors as titular regional heads, with powers to hear and resolve cases involving
lands in their respective jurisdiction in order to achieve the expanded and comprehensive
agrarian reform program of the present administration, and to tackle the issue of huge
number and increasing backlog or unresolved cases in the DAR Central Office.
 Additionally, a memorandum dated September 14, 1987 (Annex 4, Comment) addressed to
the Director, Bureau of Land Acquisition Development, by the then Director, Bureau of
Agrarian Legal Assistance, contains a decisive opinion regarding the question on order of
cancellation issued by the Regional Director, DAR Region III, to wit:

"The Regional Director is now authorized to hear/investigate and hereby resolve

cases arising from the implementation of CLT pursuant to PD 27 and amendatory
and related decrees and letter of instructions, rules and regulations as well as conflict
of claim in landed estates and resettlement areas and such other lands as have been
placed under the administration and disposition of this Department."7

In its Resolution dated September 17, 1991, the Court of Appeals also made reference to Section 13
of Executive Order No. 129-A, which authorized the delegation of the adjudication of agrarian reform
cases to regional offices. It further cited certain provisions of the DARAB Revised Rules of
Procedure providing for, among others, delegated jurisdiction, and concluded that:

x x x the Regional Director cannot be faulted with assuming jurisdiction over the case,
considering that the powers and functions of the DARAB may be delegated to the regional
office x x x.

While it is true that the jurisdiction is vested with the DARAB, the Regional Director took
cognizance of the instant case invoking the delegated powers and functions upon him.8

Evidently, the DARAB, in the Court of Appeals' view, had concurrent jurisdiction with the Regional
Director over the case. Petitioner, on the other hand, maintains that the jurisdiction of the DARAB
is exclusive of the DAR Regional Director.

Petitioner is correct. Whatever jurisdiction the Regional Director may have had over the cancellation
of emancipation patents, it lost with the passage of subsequent laws.

Section 17 of Executive Order No. 229 (Providing for the Mechanism for the Implementation of the
Comprehensive Agrarian Reform Program)9 granted DAR quasi-judicial powers to adjudicate
agrarian reform matters, thus:

Section 50. Quasi-Judicial Powers of the DAR. — The DAR is hereby vested with quasi-
judicial powers to determine and adjudicate agrarian reform matters, and shall have
exclusive original jurisdiction over all matters involving implementation of agrarian reform,
except those falling under the exclusive jurisdiction of the Department of Agriculture (DA)
and the Department of Environment and Natural Resources (DENR).

xxx

Executive Order No. 129-A (Modifying Executive Order No. 129 Reorganizing and Strengthening
Department of Agrarian Reform and for other purposes) subsequently provided for the creation of
the Agrarian Reform Adjudicatory Board, granting it the powers and functions with respect to the
adjudication of agrarian reform cases:

SECTION 13. Agrarian Reform Adjudication Board. There is hereby created an Agrarian
Reform Adjudication Board under the Office of the Secretary. The Board shall be composed
of the Secretary as Chairman, two (2) Undersecretaries as may be designated by the
Secretary, the Assistant Secretary for Legal Affairs, and three (3) others to be appointed by
 the President upon recommendation of the Secretary as members. A Secretariat shall be
constituted to support the Board. The Board shall assume the powers and functions with
respect to the adjudication of agrarian reform cases under Executive Order No. 229 and this
Executive Order. These powers and functions may be delegated to the regional office of the
Department in accordance with the rules and regulations promulgated by the Board.

Congress substantially reiterated Section 17 of E.O. No. 229 in Republic Act No. 6657, otherwise
known as the Comprehensive Agrarian Law of 1988 (CARL).11 Section 50 thereof states:

Section 50. Quasi-Judicial Powers of the DAR. — The DAR is hereby vested with primary
jurisdiction to determine and adjudicate agrarian reform matters and shall have exclusive
original jurisdiction over all matters involving the implementation of agrarian reform, except
those falling under the exclusive jurisdiction of the Department of Agriculture (DA) and the
Department of Environment and Natural Resources (DENR).

xxx

CARL took effect on June 15, 1988, after it was published in two newspapers of general circulation.

In order "to achieve a just, expeditious and inexpensive determination of every action or proceeding
before it," the DAR is mandated "to adopt a uniform rule of procedure" (Second par., Section 50,
R.A. No. 6657), which is, at present, the DARAB Revised Rules.12 The Rules were promulgated on
December 26, 1988.

The provisions of Rule II (Jurisdiction of the Adjudication Board) of the Revised Rules read:

SECTION 1. Primary, Original and Appellate Jurisdiction. – The Agrarian Reform

Adjudication Board shall have primary jurisdiction, both original and appellate, to determine
and adjudicate all agrarian disputes, cases, controversies, and matters or incidents involving
the implementation of the Comprehensive Agrarian Reform Program under Republic Act No.
6657, Executive Order Nos. 229, 228 and 129-A, Republic Act No. 3844 as amended by
Republic Act No. 6389, Presidential Decree No. 27 and other agrarian laws and their
implementing rules and regulations.

Specifically, such jurisdiction shall extend over but not be limited to the following:

a) Cases involving the rights and obligations of persons engaged in the cultivation
and use of agricultural land covered by the Comprehensive Agrarian Reform
Program (CARP) and other agrarian laws;

b) Cases involving the valuation of land, and determination and payment of just
compensation, fixing and collection of lease rentals, disturbance compensation,
amortization payments, and similar disputes concerning the function of the Land
Bank;

c) Cases involving the annulment or cancellation of orders or decisions of DAR

officials other than the Secretary, lease contracts or deeds of sale or their
amendments under the administration and disposition of the DAR and LBP;
 d) Cases arising from, or connected with membership or representation in compact
farms, farmers' cooperatives and other registered farmers' associations or
organizations, related to land covered by the CARP and other agrarian laws;

e) Cases involving the sale, alienation, mortgage, foreclosure, pre-emption and

redemption of agricultural lands under the coverage of the CARP or other agrarian
laws;

f) Cases involving the issuance of Certificate of Land Transfer (CLT), Certificate of

Land Ownership Award (CLOA) and Emancipation Patent (EP) and the
administrative correction thereof;

g) And such other agrarian cases, disputes, matters or concerns referred to it by the
Secretary of the DAR.

Provided, however, that matters involving strictly the administrative implementation of the
CARP and other agrarian laws and regulations, shall be the exclusive prerogative of and
cognizable by the Secretary of the DAR.

SECTION 2. Delegated Jurisdiction. – The Regional Agrarian Reform Adjudicators (RARAD)

and the Provincial Agrarian Reform Adjudicators (PARAD) are empowered and authorized to
receive, hear, determine and adjudicate all agrarian cases and disputes, and incidents in
connection therewith, arising within their respective territorial jurisdiction.

SECTION 3. Functional Relationships. – The Board shall exercise functional supervision

over the RARADs; and the PARADs. For administrative purposes, however, the RARADs
and the PARADs are deemed to form part of the DAR Regional Office where they are
stationed, and as such, shall be given administrative support by their respective Regional
and Provincial offices, in terms of office space, personal services, equipment and supply,
and other facilities.

SECTION 4. Role of the RARAD. – The RARAD shall be the Executive Adjudicator in his
region directly responsible to the Board. As such, he shall coordinate and monitor the work of
the PARADs in his region and see to it that their dockets do not remain clogged. He shall
receive, hear, and adjudicate the following cases:

a) Cases that cannot be handled by the PARAD on account of inhibition or

disqualification;

b) Cases brought directly before him which for some cogent reason, cannot be
properly handled by the PARAD concerned;

c) Cases of such complexity and sensitivity that the decision thereof would constitute
an important precedent affecting regional or national interest; and

d) Such other cases which the Board may assign to him.

SECTION 5. Appellate Jurisdiction. – The Board shall have exclusive appellate jurisdiction to
review, reverse, modify, alter or affirm resolutions, orders, decisions, and other dispositions
of its RARAD and PARAD.
 SECTION 6. Enforcement Powers. – The members of the Board and its RARADs and
PARADs are empowered to summon witnesses, administer oaths, take testimony, require
submission of reports, compel production of books and documents and answers to
interrogatories, and to issue subpoena, subpoena duces tecum, writs of possession, writs of
execution and other writs to enforce its orders and decisions thru sheriffs or duly deputized
officers.

For such purpose, whenever necessary, it may call upon the police and military authorities
for assistance in the enforcement and execution of its decisions, orders, writs and other
processes.

In Department of Agrarian Reform Adjudication Board vs. Court of Appeals,13 this Court observed
that:

x x x the DAR's exclusive original jurisdiction [as set forth in Section 50 of the CARL] is
exercised through hierarchically arranged agencies, namely, the DARAB, RARAD and
PARAD. The latter two exercise "delegated authority," while the first exercises appellate
jurisdiction over resolutions, orders, decisions and other dispositions of the RARAD and the
PARAD.

On the other hand, Executive Order 129-A, in Section 24 thereof, defines the functions of the
Regional Offices as follows:

SECTION 24. Regional Offices. The Department shall have twelve (12) Regional Offices.
Each Regional Office shall be headed by a Regional Director who shall be assisted by an
Assistant Regional Director for Operations and an Assistant Regional Director for
Administration.

The Regional Offices shall be responsible for the implementation of laws, policies, plans,
programs, projects, rules and regulations of the Department in its administrative region. For
such purposes, it shall have the following functions.

a) Prepare and submit plans and programs for the regions on:

1) Land acquisition and distribution;

2) Information and education;

3) Land use management and land development;

4) Agrarian reform beneficiaries development;

b) Provide technical assistance to Provincial Offices and Municipal Agrarian Reform

Offices in the implementation of approved plans and programs;

c) Conduct operations research and evaluation of agrarian reform implementation

within the region;

d) Coordinate with other government and private agencies and farmers and farm
workers' organizations at the regional level, to carry out programs/projects for the
general welfare of agrarian reform beneficiaries;
 e) Maintain an information system in coordination with the established monitoring
system;

f) Review and evaluate reports and other documents submitted by the Provincial
Offices and Municipal Agrarian Reform Offices and agrarian reform clientele;

g) Submit periodic feedback as may be necessary in the service of the Department's

clientele.

In addition, the Revised Administrative Code of 1987, in Chapter 5 (Field Offices), Book IV (The
Executive Branch) thereof, provides:

SEC. 26. Functions of a Regional Office. – (1) A regional office shall:

(a) Implement laws, policies, plans, programs, rules and regulations of the
department or agency in the regional area;

(b) Provide economical, efficient and effective service to the people in the area;

(c) Coordinate with regional offices of other departments, bureaus and agencies in
the area;

(d) Coordinate with local government units in the area; and

(e) Perform such other functions as may be provided by law.

(2) x x x

SEC. 27. Duties of a Regional Director. – The Regional Director shall:

(1) Implement laws, policies, rules and regulations within the responsibility of the
agency;

(2) Implement agency programs in the region;

(3) Exercise the management functions of planning, organizing, directing and

controlling;

(4) Appoint personnel to positions in the first level and casual and seasonal
employees; and exercise disciplinary actions over them in accordance with the Civil
Service Law;

(5) Approve sick, vacation and maternity leaves of absence with or without pay, for a
period not beyond one year;

(6) Prepare and submit budget proposals for the region to the central office,
administer the budget of the regional office, authorize disbursement of funds
pursuant to approved financial and work programs, and administer the budget control
machinery in the region;
 (7) Approve requisition for supplies, materials and equipment, as well as books and
periodicals, and other items for the region, in accordance with the approved supply
procurement program;

(8) Negotiate and enter into contracts for services or furnishing supplies, materials
and equipment to the regional office involving an amount not exceeding fifty
thousand pesos (P50,000.00) within a given quarter, provided that authority in
excess of fifty thousand pesos (P50,000.00) may be further authorized by the proper
department or agency head;

(9) Approve claims for benefits under existing laws;

(10) Approve requests for overtime services;

(11) Promote coordination among regional offices, and between his regional office
and local government units in the region;

(12) Provide housekeeping services for the regional office;

(13) Approve application of personnel for permission to teach, exercise a profession,

or engage in business outside of office hours, in accordance with standards and
guidelines of the Civil Service Commission;

(14) Issue travel vouchers authorizing employees to travel on official days within the
region for a period not exceeding thirty days;

(15) Approve attendance of personnel in conferences, seminars, and non-degree

training programs within the region;

(16) Authorize the allocation of funds to provincial/district offices; and

(17) Perform such other duties and functions as may be provided by law or further
delegated by the head of agency or other proper authorities concerned.

Title XI of Book IV of the same Code, dealing specifically with the Department of Agrarian Reform,
provides:

SEC. 18. Regional Office. – The Regional Office shall be responsible for supporting the field
units and supervising program implementation of the Department within the region. It shall:

(1) Implement laws, policies, plans, rules and regulations of the Department in the
regional area;

(2) Develop and implement a regional personnel management program;

(3) Prepare, submit, execute and control the budget of the region;

(4) Prepare and properly maintain books of accounts;

(5) Pay salaries and wages and other approved vouchers;

 (6) Provide administrative services to the regional and provincial offices;

(7) Prepare and submit plans and programs for the region on:

a. land tenure development

b. information and education

c. land use management and land development

d. legal services

e. agrarian reform beneficiaries development

(8) Provide technical assistance to the provincial offices and agrarian reform teams in
the implementation of approved plans and programs;

(9) Extend effective legal assistance, advice or service to agrarian reform

beneficiaries;

(10) Conduct operations research and evaluation of agrarian reform program

implementation within the region;

(11) Coordinate with other government and private agencies and farmer
organizations at the Regional level through the Agrarian Reform Coordinating
Council, to carry out programs/projects for the general welfare of the agrarian reform
beneficiaries;

(12) Coordinate para-legal services;

(13) Maintain a data-based information system in coordination with the established

monitoring system;

(14) Review documents submitted by the Provincial and Team Offices or by the
clientele;

(15) Submit periodic feedback and recommend policy changes and/or modification of
procedures on program implementation; and

(16) Perform such other functions as may be necessary in the service of the
clientele.

The foregoing provisions were already in effect when petitioner filed her petition in the BARC in
1990. And it is amply clear from these provisions that the function of the Regional Office concerns
the implementation of agrarian reform laws while that of the DARAB/RARAD/PARAD is
the adjudication of agrarian reform cases.

The first is essentially executive. It pertains to the enforcement and administration of the laws,
carrying them into practical operation and enforcing their due observance.14 Thus, the Regional
Director is primarily tasked with "[i]mplement[ing] laws, policies, rules and regulations within the
responsibility of the agency," as well as the "agency program in the region."15

The second is judicial in nature, involving as it does the determination of rights and obligations of
the parties. To aid the DARAB in the exercise of this function, the Rules grant the Board and
Adjudicators the powers to issue subpoenas16 and injunctions,17 to cite and punish for
contempt,18 and to order the execution of its orders and decision,19 among other powers. The Rules
also contain very specific provisions to ensure the orderly procedure before the DARAB, RARADs
and PARADs. These provisions govern the commencement of actions, venue and cause of
action,20 the service of pleadings,21 the presentation of evidence,22 motions,23 appeals24 and judicial
review.25 Notable are provisions intended to prevent multiplicity of suits such as the rules on one suit
for one cause of action,26 the joinder of causes of action,27 and the assignment of all incidents of a
case to the Adjudicator to whom the case is assigned.28 No such powers were granted or provisions
adopted when the purported delegation was made to the Regional Director or since. The DARAB
Rules grant broader powers to the Board and the Adjudicators and contain more detailed rules on
procedure than those provided by the orders, circulars, memoranda and opinions cited by the Court
of Appeals delegating jurisdiction to the Regional Director.

The Court of Appeals has underscored the fact that Section 13 of E.O. No. 129-A authorizes the
DARAB to delegate its powers and functions to the regional office in accordance with the rules and
regulations promulgated by the Board. The authority purportedly provides additional justification for
the Regional Office's jurisdiction over the case. Precisely, however, the DARAB, through its Revised
Rules, has delegated such powers and functions to the RARADs and the PARADs, which, under
Section 3 of the Rules, "are deemed to form part of the DAR Regional Office where they are
stationed."

It is evident from the foregoing that the DAR, like most administrative agencies, is granted with a
fusion of governmental powers, in this case, a commingling of the quasi-judicial and the executive.
The growing complexity of modern life, the multiplication of the subjects of governmental regulation
and the increased difficulty of administering the laws have impelled this constantly growing tendency
toward such delegation.29

In delegating these powers, it would hardly seem practical to allow a duplication of functions
between agencies. Duplication results in confusion between the various agencies upon whom these
powers are reposed, and in the public that the agencies are supposed to serve. It divides the
agencies' resources and prevents them from devoting their energy to similarly important tasks. The
intention to avoid this very situation is evident in the various laws' distinct delineation of the functions
of the DARAB/RARAD/PARAD and the DAR Regional Office. Accordingly, the Court must reject the
theory of concurrent jurisdiction between the former and the latter. We hold that the DAR Regional
Office has no jurisdiction over the subject case.

In view of this conclusion, we need not resolve the issue of deprivation of due process allegedly
suffered by petitioner in the proceedings before the Regional Director.

WHEREFORE, the petition is given DUE COURSE and GRANTED. The Decision and Resolution of
the Court of Appeals is REVERSED and SET ASIDE. The restraining order issued per this Court's
Resolution dated May 17, 1993 is hereby made permanent. 1âwphi1.nêt

SO ORDERED.
 EN BANC

June 22, 1987

G.R. No. 75197

E. RAZON, INC. and ENRIQUE RAZON, petitioners,

vs.
PHILIPPINE PORTS AUTHORITY, PRIMITIVO S. SOLIS, JR. and VICENTE T. SUAZO, JR.,
respondents. MARINA PORT SERVICES, INC., intervenor.

FERNAN, J.:

Assailed in this petition for certiorari with prayer for a writ of preliminary injunction and/or restraining
order as violative of petitioners' right to due process is the unilateral cancellation by respondent
Philippine Ports Authority (PPA) of the Management Contract of petitioner E. Razon, Inc. (ERI) to
operate the arrastre service in all the ports at South Harbor, Manila and the subsequent appointment
by respondent PPA of intervenor Marina Port Services, Inc. (Marina, for brevity) as interim operator
of said arrastre service.

Petitioner E. Razon, Inc., also known as Metro Port Service, Inc. (MPSI), is a Philippine corporation
organized on June 21, 1962 for the main purpose of bidding for the contract to manage all the piers
in South Harbor, Manila. Co-petitioner Enrique Razon was allegedly the 100% equity owner, having
paid for the subscriptions of the other incorporators who were mere nominees.

After a public bidding, petitioner ERI was awarded in 1966 a five-year contract to operate the
arrastre service for Piers 3 and 5 at the South Harbor. Thereafter, it allegedly invested millions of
pesos in acquiring port-handling equipment upon assurance from the government that its contract
would be renewed without public bidding. Thus, when the Bureau of Customs informed petitioner
ERI in 1971 of its decision to call for a new bidding and accordingly issued an invitation to bid for the
operation of the arrastre service for any and all piers in South Harbor, including Piers 3 and 5,
petitioner ERI instituted a special civil action for certiorari, prohibition, mandamus and injunction with
preliminary and mandatory injunction and/or restraining order before the then Court of First Instance
of Manila against the Secretary of Finance, Commissioner of Customs and members of the Bidding
Committee to enjoin them from proceeding with the bidding and to compel them to renew petitioner
ERI's contract. The Court of First Instance, presided by Judge Juan Bocar, issued the writ prayed
for, whereupon then Secretary of Finance Cesar Virata elevated the case before this Court in G.R.
No. 33426 entitled, "Cesar Virata, et al. vs. Hon. Juan Bocar, et al.
In a resolution dated May 13, 1971, this Court ordered the holding of a public bidding for all the
piers, conditioned that no final award should be given until further orders from the court.

An actual bidding was conducted for all the piers, with ERI emerging as the Bidding Committee's
unanimous choice. The selection was confirmed by this Court in Virata v. Bocar, 50 SCRA 468,489,
thus:

IN VIEW OF ALL THE FOREGOING, herein petitioners are hereby directed to make the final
award in favor of E. Razon, Inc., as the best and most advantageous bidder of the contract to
operate the arrastre service for all the piers in the Manila South Harbor; ...

The management contract covering all the piers in the South Harbor was executed between
petitioner ERI and the government on January 18, 1974 for a term of five years effective January 1,
1974, renewable for another five years. In August of the same year, petitioner ERI increased its
capitalization from P2 Million to 20 Million.

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

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

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

On December 31, 1978, the contract of petitioner ERI/MPSI expired. It was extended in 1979 to
June 31, 1980, during which month respondent PPA executed a new contract in favor of ERI for a
term of eight (8) years, beginning July 1, 1980.

It is alleged that on February 26, 1986, after the ouster of the former government administration,
petitioner Razon went to South Harbor and took active control, supervision and management of
MPSI. He called a special stockholders' meeting whereby he was able to re-organize the Board of
Directors by seating therein his own nominees and to restore the powers of the President as well as
the company's name through corresponding amendments of the By-Laws. He was likewise able to
convince the nominee company, Maximum Trading and Industrial Corporation (MATICO), in whose
name the 60% equity appeared to have been registered, to return the same to him under a "Deed of
Reconveyance with Irrevocable Power of Attorney" (Annex "B", Petition, pp. 54-55, Rollo). He
caused the books of accounts to be audited by the accounting firm of Sycip, Gorres and Velayo and
exerted utmost efforts to improve service and revenue as well as to restore harmonious relations
with the unions. He further undertook ways and means to restore to working condition the cargo-
handling equipment in order to check delay in the delivery of cargoes, which efforts were
acknowledged by respondent PPA in a letter dated July 9, 1986 (Annex "C", Petition, p. 56, Rollo).

On July 18, 1986, some truckers staged a demonstration at the main gate of South Harbor to
complain about Razon's management of the arrastre operations. The demonstration lasted until
noon of the same day.

At about 5:30 in the afternoon of July 18, 1986, a Friday, respondent PPA sent to petitioner
ERI/MPSI a letter signed by a co-respondent Solis, demanding explanation and reply to the
complaints from shippers and others enumerated in said letter and to the various violations of the
management contract not later than 9:00 A.M. of the following day, July 19, 1986, (Annex "D",
Petition, pp. 57-60, Rollo). In a television newscast in the evening of July 18, 1986, then Minister of
Transportation and Communications Hernando Perez was quoted to have given respondent PPA
until Wednesday of the following week, July 23, 1986, within which to investigate the complaints
against MPSI and to submit its findings and recommendations.

Apparently relying on the time frame announced by Minister Perez and finding the deadline set by
respondent PPA in its letter of July 18, 1986 too short, apart from the fact that it had no staff, it being
a week-end, petitioner ERI prepared a letter dated July 19, 1986, addressed to respondent PPA,
stating that it would "reply early next week" (Annex "F", p. 61, Rollo). It appears that this letter was
never delivered to respondent PPA because there was allegedly no one in its office to receive the
same.

On the same day, July 19, 1986, respondent PPA informed petitioner ERI/MPSI thru a letter of even
date that it was canceling the management contract and taking over the cargo handling operations
as well as the equipment of petitioner "effective immediately" (Annex "G", Petition, p. 62, Rollo . On
July 21, 1986, respondent PPA appointed Marina Port Services, Inc. as interim operator of the
arrastre service at South Harbor.

Meanwhile, at 10:05 A.M. of July 21, 1986, herein petitioners, thru counsels Atty. Rafael T. Durian
and Florentino Tuason, Jr. of Cruz, Agabin, Atienza and Alday Law firm, instituted the instant petition
for certiorari with prayer for the issuance of a preliminary restraining order and/or injunction. Less
than an hour later or at 11:00 A.M., they filed a similar complaint before the Regional Trial Court of
Manila, which issued a temporary restraining order against respondent PPA at 3:00 P.M. of the
same day. Earlier, at 11:58 A.M., petitioners filed a "Withdrawal of Petition" with this Court. The
"Withdrawal of Petition" was vigorously opposed by the Solicitor-General in behalf of respondents
who denounced petitioners' filing of the two petitions in this Court and in the Regional Trial Court as
proscribed "forum-shopping and double-dealing."

Pending action by the court on the "Withdrawal of Petition," petitioners filed a supplemental
complaint with the RTC of Manila to implead Manila Port Services, Inc. as correspondent therein.
They likewise filed motu proprio a comment on the Opposition to the Withdrawal of Petition, stating
in the main that they intended to withdraw the instant petition before filing the petition in the RTC but
that there was a miscommunication between counsels and their messenger; that there was no
intention to forum-shop and that they deeply apologize for the delayed filing of the "Withdrawal of
Petition. "

Finding the explanation proferred by petitioners to be "feeble and untenable", the Court resolved on
July 31, 1986 to:

... a) DENY the motion to withdraw the instant petition; b) summarily DISMISS both the
petition at bar as well as the complaint in Civil Case No. 86-36754 of the Regional Trial Court
 of Manila and to SET ASIDE effective immediately the temporary restraining order and any
other orders or processes issued in the latter case as void and of no effect; and c)
SUSPEND Atty. Rafael T. Durian and Florentino Tuason, Jr. from the practice of law
effective immediately and until further orders. Said Attys. Durian and Tuason Jr. are hereby
REQUIRED to show cause within ten (10) days from notice hereof why the suspension
should not stand, why no disbarment proceedings should be instituted against them and why
no other liability should attach to them by reason of their above-described acts of deceit,
malpractice and gross misconduct (p. 122, Rollo).

On August 6, 1986, petitioners, assisted by Atty. Angel C. Cruz of the same Cruz, Agabin, Atienza
and Alday Law Firm, filed a Manifestation that they were abiding by the resolution of July 31, 1986
but "with express reservation to their filing a new ordinary civil action before the competent RTC and
the legal remedy to be availed of by Attys. Durian and Tuason, Jr. on the matter of the disciplinary
action taken against them." (pp. 147-148, Rollo).

On the same day, petitioners filed a third Identical complaint before the RTC of Manila, docketed as
Civil Case No. 8637006. Upon motion of the Solicitor-General, this Court issued on August 14, 1986
a temporary restraining order enjoining judge Alfin S. Vicencio, RTC, Branch 50, Manila from acting
on Civil Case No. 86-37006 and the petitioners from instituting further action elsewhere without
leave of court. The Cruz, Agabin, Atienza and Alday Law Firm and Judge Vicencio were likewise
required to show cause why they should not be severally held in contempt of court and/or be held
administratively liable for malpractice (p. 233, Rollo). Both complied with this resolution, as did Attys.
Durian and Tuason, Jr. with the resolution of July 31, 1986 by filing a "Compliance with Urgent Plea
for Immediate Lifting of Suspension" (p. 150, Rollo).

Meanwhile, on August 18, 1986, petitioners thru new counsel N. J. Quisumbing and Associates, filed
a motion for reconsideration of the resolution of August 14, 1986 and for leave to file suit whether in
the Supreme Court or any court for judicial review of PPA's cancellation of Petitioner ERIs
management contract. This was again opposed by the Solicitor-General.

On September 13, 1986, Marina Port Services, Inc. filed a motion for intervention, which was in turn
opposed by Petitioners.

On October 30, 1986, the Court resolved to: a) make permanent the temporary restraining order
issued on August 14, 1986 inasmuch as this Court has resolved to entertain the instant petition to
accord petitioners access to the courts: b) allow the intervention of Marina Port Services, Inc. in the
present case; and c) to lift the suspension of Attys. Rafael T. Durian and Florentino A. Tuason, Jr.
effective immediately. (p. 435-A, Rollo).

Petitioners contend that they were denied their right to due process when respondent PPA cancelled
the Management Contract without prior hearing and investigation. In support of this contention, they
advance the theory that the management contract is not an ordinary commercial contract, but more
in the nature of a franchise or license, which, in this case, has been impressed with property rights
by reason of the length of time petitioners have been enjoying it, and hence cannot be cancelled
without according petitioners the opportunity to be heard on the alleged complaints and contract
violations. As a corollary, petitioners further assert that respondent PPA was not exercising
proprietary functions, i.e., as a party to a contract exercising its right to rescission or resolution when
it cancelled petitioners' contract, but as a regulatory body exercising adjudicatory powers in finding
and concluding that petitioner ERI/MPSI had violated the management contract. Hence, their
contention that since said findings and conclusions were reached in violation of petitioners' right to
due process, the resultant cancellation is null and void.
Respondents PPA, et al. and intervenor Marina, on the other hand, submit in their joint
memorandum the following arguments:

1. Contrary to petitioners' assertion, the cancelled arrastre contract was previously awarded,
not to petitioner Enrique Razon or his old company, E. Razon, Inc., but to Metro Port
Services, Inc. that President Marcos' brother-in-law, Alfredo 'Bejo" Romualdez, admittedly
controlled.

2. Since the cancelled contract was the fruit of corruption in the Marcos government, it is a
nullity and petitioners cannot sue for its enforcement;

3. With his admission that he agreed to front for Romualdez with respect to the latter's illegal
dealings with the Philippine Port Authority, Razon forfeits his claim as having been a victim of
the Marcos rule;

4. Besides, since petitioners themselves admit the existence of sufficient grounds for PPA's
cancellation of Metro Port's arrastre contract, they cannot complain;

5. Under the circumstances, respondent PPA was not required to hear petitioners prior to its
cancellation of the contract;

6. Given the validity of PPA's cancellation of that contract and its takeover of the arrastre
operations, the designation of respondent Marina Port Services, Inc. to assist PPA in the
operations is not for petitioner to question; and,

7. At all events, respondent MARINA is qualified to handle the limited task PPA assigned to
it. (pp. 546-547, Rollo)

The Management Contract under consideration was executed by and between petitioner E. Razon,
Inc. represented by its President, herein co-petitioner Enrique Razon, and respondent PPA,
represented by its then General Manager, E.S. Baclig, Jr. on June 27, 1980 (Annex "A", Petition, p.
18, Rollo). By petitioners' own admission, at the time of the execution of the Management Contract,
petitioner E. Razon, Inc. later known as Metro Port Services, Inc. was controlled by Alfredo "Bejo"
Romualdez, brother-in-law of deposed President Marcos. Under Section 5 of the Anti-Graft and
Corrupt Practices Act (R.A. No. 3019) Romualdez, by reason of his relationship with the then
President of the Philippines, was prohibited from intervening, directly or indirectly, in any transaction
or business with the government. Thus, the Management Contract, entered into by E. Razon, Inc.,
ostensibly owned by petitioner Enrique Razon, but in fact controlled by Alfredo Romualdez as 60%
equity owner thereof, is null and void and of no effect, being one expressly prohibited by law (par.
[7], Art. 1409, Civil Code of the Philippines). Furthermore, as will be shown later, the Management
Contract is the direct result of a previous illegal contract and, therefore, is itself null and void under
Article 1422 of the Civil Code.

Petitioners attempt to evade the consequence of the Romualdez connection by alleging that the 60%
equity of petitioner E. Razon, Inc. was obtained thru force and duress and without any monetary
consideration whatsoever. Otherwise stated, the transfer of the shares of stock to persons close to
President Marcos, later disclosed to be Alfredo "Bejo" Romualdez was, at the very least, voidable for
lack of consent, or altogether void for being absolutely fictitious or simulated.

Verily, the transfer of the shares of stock of petitioner E. Razon, Inc. representing 60% equity to
persons fronting for Alfredo "Bejo" Romualdez was null and void. The invalidity springs not from
vitiated consent nor absolute want of monetary consideration, but for its having had an unlawful
cause — that of obtaining a government contract in violation of law. While the general rule is that
the causa of the contract must not be confused with the motives of the parties, this case squarely fits
into the exception that the motive may be regarded as causa when it predetermines the purpose of
the contract. (Liguez v. Court of Appeals, 102 Phil. 577). On the part of Romualdez, the motive was
to be able to contract with the government which he was then prohibited by law from doing, and on
petitioner Razon's part, to be able to renew his management contract. For it is scarcely disputable
that Enrique Razon would not have transferred said shares of stock to Romualdez without an
assurance from the latter that he would be unduly favored with a renewal of the Management
Contract. Thus, it came to pass that by transferring 60% of the shares in his company to Romualdez,
petitioner Enrique Razon was able to secure an eight-year contract with respondent PPA and for six
years before its cancellation benefit from the proceeds thereof.

Petitioners' attempt to dissociate or divorce themselves from the illegality of the transfer and,
consequently, of the management contract, as well as their claim of innocence or being a victim of
the Marcos regime must fail for the "view has been taken ... that a party is a participant in the
unlawful intention where we knows and intends that the subject matter will be u for an illegal purpose
and there would seem to be no doubt that one may be deemed to be a participant in the other's
unlawful design if he shares in the benefits of the violation of law. However, whether he is to derive
any benefit from the unlawful use of the subject matter is not the sole test. A test which has been
said to be more confortable to sound morality is whether he intends to aid the other in the unlawful
object. He may be deemed to be a participant in the unlawful purpose if, with knowledge thereof, he
does anything which facilitates the carrying out of such purpose." (17 Am Jur 2d 515-516).

The transfer of the control of petitioner E. Razon, Inc. from petitioner Enrique Razon to Alfredo
"Bejo" Romualdez, which We have resolved to be null and void, served as the direct link to petitioner
company's obtaining the Management Contract. Being the direct consequence and result of a
previous illegal contract, the Management Contract itself is null and void as provided in Article 1422
of the Civil Code.

Elementary in the law of contracts is the principle that no judicial action is necessary for the
annulment of a void contract. Any such action would be merely declaratory. (Tolentino, Civil Code of
the Philippines, Vol. IV, 1973 ed., p. 594). Thus, it was well within the rights of respondent PPA to
unilaterally cancel and treat as avoided the Management Contract and no arbitrariness may be
attached to its exercise of this right.

Besides, even if the Management Contract were valid and subsisting, the violations * of the contract
committed by its predecessor, Metro Port Services, Inc. which, except for the bare allegation that
these were untrue, were not specifically denied by petitioners, but on the contrary, unwittingly
admitted with the allegation that Metro Port Services Inc. mismanaged the arrastre operations, were
grave and serious to justify immediate termination of the contract.

Respondent PPA is the government agency charged with the specific duty of supervising,
controlling, regulating, constructing, maintaining, operating and providing such facilities or services
as are necessary in the ports vested in, or belonging to it (Sec. 6, [ii], P.D. 857). It has the expertise
to determine whether or not Marina Port Services Inc. has the capability of discharging the tasks
assigned to it as interim operator of arrastre service in South Harbor. Except in cases of clear grave
abuse of discretion, which has not been shown in the instant petition, the Court will not disturb such
judgment and substitute its own. (Meralco Securities Corp. v. Savellano, 117 SCRA 804; Anglo-Fil
Trading Corp. v. Lazaro, 124 SCRA 494.)

WHEREFORE, the instant petition is hereby DISMISSED. Costs against petitioners.

SO ORDERED.

Teehankee, C.J., Yap, Narvasa, Melencio-Herrera, Gutierrez, Jr., Cruz, Paras, Feliciano, Gancayco,
Padilla, Bidin, Sarmiento, ** and Cortes, JJ., concur.

Footnotes

*
Quoted in full is the Memorandum addressed to the Port Manager On Metro Port's
Violations of the Management Contract and PPA Regulations, attached to the letter dated
July 18, 1986 of respondent PPA to petitioner ERI/MPSI:

30 June 1986

MEMORANDUM-

FOR : THE PORT MANAGER

FROM : THE APM-SH

SUBJECT : REPORT ON METRO PORT'S VIOLATIONS

OF THE MANAGEMENT CONTRACT AND PPA

REGULATIONS :

-------------------------------------------------------

Metro Port Service, Inc. has been violating some PPA regulations and certain provisions of
its Management Contract with the Port Authority. Although the violations are numerous, the
following enumerations are the only ones presented as these are supported by documents.

1. Operation of stevedoring services beyond the authority granted by the PPA. On many
occasions, Metro Port undertook stevedoring work on board some vessels berthed outside
Pier 3, Berths 3 and 4, resulting in complaints from the stevedoring Contractor and problems
with the shipping lines involved.

2. Equipment Requirement. Despite the requirement in the Contract that the Contractor shall
submit to the Authority a program of equipment renewal and modernization for approval, no
such program has been submitted. Existing equipment for containerization has been so
inadequate and unmaintained that complaints from the port users on operational delays have
always been received. It is worth mentioning that nowhere in the Philippine ports except in
the Port of Manila can be found an additional charge for container terminal handling. This
was, however, allowed by the Bureau of Customs in the initial stages of containerization only
because of an understanding that the cargo handler would need extra revenue to invest in
container equipment,

To date, however, the only two (2) tango cranes at Pier 3 and the four (4) shifters at Pier 13--
Muene de San Francisco are owned by the shipping lines; the two (2) snifters at Cy-01 are
owned by the PPA while one (1) is owned by Metro Port the last one is not even operational.
 In short, the major container equipment in the harbor are not owned by the cargo handler.
The purpose for allowing a container terminal handling fee was not attained as envisioned.

A visit inside the MPSI motorpool will show a large number of unserviceable forklifts and
other related equipment but these cannot be of operational assistance because of poor
maintenance. Meantime, port users continue to complain about non-availability of equipment
and delays in cargo receipt and deliveries.

3. Submission of Reports. Metro Port has not been very cooperative in the submission of
required reports. Some are submitted late while others are not submitted at all. Those not
submitted at all include: Out-Turn Report per Vessel, Bad Order Cargo Certificates, Export
Cargo Receipts, Discharging/Loading Tally, Cargo Location System, Shut-Out Reports and
Master Van Lists.

4. Compliance with Port Regulations. Some port rules are not always complied with.
Examples of these are those that pertain to stuffing, stripping, billing, tariff-system and other
operational requirements. Non-observance of these regulations have only added to the
confusion in the port, not to mention losses in revenues due to the Port Authority.

5. Safety Requirements. Contrary to relevant provisions in the Contract, there is no full-time

Safety Officer employed by Metro Port. Its safety gears and equipment are far from
complete.

6. Claims. An audit of Metro Port's records will show no payment for claims filed with its
Office.

For your information,

Sgd. Benjamin B, Cecilio

BENJAMIN B. CECILIO

(Annex "E", Petition, pp. 59-60, Rollo).

**
No part for being counsel of petitioner before appointment to the Supreme Court.

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. 13300 September 29, 1919

BASILIA BOUGH and GUSTAVUS BOUGH, plaintiffs-appellants,

vs.
MATILDE CANTIVEROS and PRESBITERA HANOPOL, defendants-appellees.

P. E. del Rosario and William F. Mueller for appellants.

Sison and Veloso for appellees.
MALCOLM, J.:

This action was begun in the Court of First Instance of Leyte, pursuant to a complaint by means of
which the plaintiffs Basilia Bough and Gustavus Bough sought to have themselves put in possession
of the property covered by the deed of sale quoted in the complaint, and to require the defendant
Matilde Cantiveros to pay the plaintiffs the sum of five hundreds pesos by way of damages, and to
pay the costs. Matilde Cantiveros answered with a general denial and a special defense, not sworn
to, in which she asked that judgment be rendered declaring the contract of sale theretofore made
between herself and Basilia Bough null. The plaintiffs, thereupon, denied under oath the
genuineness and due execution of the so-called donation intervivos set forth in the answer.
Presbitera Hanopol was permitted to intervene as a defendant. After trial, judgment was rendered by
the Honorable W. E. McMahon, judge of first instance, in favor of the defendants, declaring the deed
of sale, Exhibit A, fictitious, null, and without effect, and absolving the defendants from the complaint,
with costs against the plaintiffs. It is from this judgment through the ordinary means of perfection of a
bill of exceptions that the case is brought to this court for decision.

The facts are these: Matilde Cantiveros is reputed to be the richest resident of the municipality of
Carigara, Leyte. In the latter part of the year 1913, she was the owner of various parcels of realty of
the value of thirty thousand pesos or more. On December 24, 1912, Matilde Cantiveros and her
husband Jose Vasquez, signed a marital contract of separation. At this time there lived with Matilde
Cantiveros, Basilia Hanopol, a cousin and protege since childhood, who was married to Gustavus
Bough. For this reason, Gustavus Bough was regarded by Matilde Cantiveros with great confidence,
even as her child. Through the influence of Gustavus Bough, who brought a story to Matilde
Cantiveros that her husband Jose Vasquez was in town and might contest the contract for the
separation of the conjugal property, Matilde Cantiveros was induced to sign a fictitious contract of
sale of all her property to Basilia Bough. This document, introduced in evidence as Exhibit A, was
prepared in due from and acknowledged before a notary public, the amount of the consideration, ten
thousand pesos, being last inserted with a pen. By this deed, Matilde Cantiveros purported to
convey sixty-three parcels of land, the real value of which was over thirty thousand pesos, for ten
thousand pesos, although no evidence that any such sum ever passed between the parties was
introduced, to her cousin, Basilia Bough. In order to reassure Matilde Cantiveros that they would not
take advantage of the fictitious sale, Gustavus Bough and Basilia Bough prepared and signed
another document, introduced in evidence as Exhibit 1, which is a donation by them to Matilde
Cantiveros of all the property mentioned in Exhibit A, to be effective in case of the death of
themselves and their children before the death of Matilde Cantiveros. The defendant, Matilde
Cantiveros, has remained in possession of the property.

These facts, which, it may be said, are mainly derived from the findings of the trial court, merely
repeat the threadbare story of a conveyance of property entered into with a fraudulent intention and
for a fraudulent purpose, in order to defeat recovery in a suit at law by a third party.

Plaintiffs and appellants assign six errors of the trial court. In so far as these assignments concern
the facts, they need no discussion. Plaintiff's declarations have not been corroborated, while
defendant's story has been corroborated by reliable witnesses. All the reason — all the equity — of
the case, is in favor of the defendants. As far as necessary for the disposition of the appeal, we
resolve plaintiff's points in order.

1. The first assignment of error reads: "The lower Court erred in permitting the defendants to present
evidence, over the objections of the plaintiff, tending to impugn the genuineness and due execution
of the document, Exhibit A, and in admitting them to show the circumstances under which it was
executed.
It is undeniable that this was an action brought upon a written instrument, and that the complaint
contained a copy of the instrument, but that its genuineness and due execution were not specifically
denied under oath in the answer. Is this fatal to the defense?

Section 103 of the Philippine Code of Civil Procedure provides:

When an action is brought upon a written instrument and the complaint contains or has
annexed a copy of such instrument, the genuineness and due execution of the instrument
shall be deemed admitted, unless specifically denied under oath in the answer; and when the
defense to an action, or a counterclaim stated in an answer, is founded upon a written
instrument and the copy thereof is contained in or annexed to the answer, the genuineness
and due execution of such instrument shall be deemed admitted, unless specifically denied
under oath by the plaintiff in his pleadings.

This section is derived from sections 448 and 449 of the Code of Civil Procedure of California, and is
to be found in varying form in the statutes of practically all the states of the American Union. The
meaning of this portion of the Code, and the intention of the Legislature in enacting it, are easily
found. The law says that the genuineness and due execution of a written instrument properly
pleaded shall be deemed admitted unless the plaintiff or defendant, as the case may be, shall
specifically deny the same under oath. When the law makes use of the phrase "genuineness and
due execution of the instrument" it means nothing more than that the instrument is not spurious,
counterfeit, or of different import on its face from the one executed. As an example, where the name
of a corporation is signed to the document which is the basis of an action, the failure of the
defendant corporation to put in issue, by denial under oath, the due execution of the instrument, as
required in section 103 of the Code of Civil Procedure, operates as an admission of the authority of
the officer to execute the contract, since the authority of the officer to bind the company is essential
to the due execution of its contract. (Ramirez vs. Orientalist Co. and Fernandez [1918], 38 Phil.,
634.) But the failure of the party to file an affidavit denying the genuineness and due execution of the
document does not estop him from controverting it by evidence of fraud, mistake, compromise,
payment, statute of limitations, estoppel, and want of consideration. As section 285 of our Code of
Civil Procedure permits a writing to be impeached because of its illegality or fraud, such a defense
would not be barred by the provisions of section 103. (Moore vs. Copp [1897], 119 Cal., 429
Brooks vs. Johnson [1898], 122 Cal., 569; Hibberd vs. Rohde and McMillian [1915], 32 Phil., 476.)

We hold that although the defendants did not deny the genuineness and due execution of the
contract of sale of December 9, 1913, under oath, yet the defendants could properly set up the
defenses of fraud and want of consideration.

2. The second assignment of error reads: "The lower Court erred in finding that the plaintiff Gustavus
Bough, having prepared a contract of separation between the defendant Matilde Cantiveros and her
husband, Jose Vasquez, sought to cause her to believe that she exposed herself to a suit by her
husband regarding her property, notwithstanding the contract of separation, and for that reason and
for the purpose of shielding herself from the consequences of the apprehended suit, that she and
her mother executed the document Exhibit A."

Counsel relies on the provisions of article 1218 of the Civil Code, which provides that "Public
instruments are evidence, even against a third person, of the fact which gave rise to their execution
and of the date of the latter." The effect of this article has been announced in numerous decisions of
the Supreme Court of Spain and of this Court. (See Hijos de I. de la Rama vs. Robles and Robles
[1907], 8 Phil., 712.) But in conjunction with article 1218 of the Civil Code, there should always be
read section 285 of the Code of Civil Procedure which provides that:
 When the terms of an agreement have been reduced to writing by the parties, it is to be
considered as containing all those terms, and therefore there can be, between the parties
and their representatives or successors in interest, no evidence of the terms of agreement
other than contents of the writing, except in the following cases:

1. Where a mistake or imperfection of the writing, or its failure to express the true intent and
agreement of the parties, is put in issue by the pleadings;

2. Where the validity of the agreement is the fact in dispute. But this section does not
exclude other evidence of the circumstances under which the agreement was made, or to
which it relates, or to explain an intrinsic ambiguity, or to establish its illegality or fraud. The
term `agreement' includes deeds and intruments conveying real estate, and wills as well as
contracts between parties.

While thus as the law well says "public instruments are evidence of the fact which gave rise to their
execution" and are to be considered as containing all the terms of the agreement, yet, if the validity
of the agreement is the issue, parole evidence may be introduced to establish illegality or fraud.
Evidence to establish illegality or fraud, is expressly permitted under section 285 of the Code of Civil
Procedure, and may be proved by circumstantial evidence, aided by legitimate inferences from the
direct facts. (Camacho vs. Municipality of Baliuag [1914], 28 Phil., 466; Maulini vs. Serrano [1914],
28 Phil., 640; Union Mut. Life Insurance Co. vs. Wilkinson [1872], 13 Wall, 222; Maxon vs. Llewelyn
[1898], 122 Cal., 195, construing section 1856 of the Code of Civil Procedrue of California, identical
with section 285 of the Code of Civil Procedure of the Philippines.)

We hold that parole evidence was properly admitted to show the illegality of the contract of sale
introduced as Exhibit A.

3. The third point raised by appellant is, that the defendant, having accepted the donation expressed
in the instrument Exhibit 1, is now estopped from denying the consideration set forth therein. A
sufficient answer is, that it having been established that Exhibit A is invalid, such an instrument
cannot be made the basis of an estoppel.

We hold that the so-called donation in favor of Matilde Cantiveros did not operate to create an
estoppel.

4. The last question which is propounded by appellant relates to the effect of the illegality of the
instant contract.

It is rudimentary that contracting parties may not establish pacts, clauses, and conditions, which
conflict with the laws, morals, or public order; "public order" signifies "the public weal" — public
policy (Article 1255, Civil Code; Manresa, Comentarios al Codigo Civil, Vol. 8, p. 574.) It is further
well settled, that a party to an illegal contract cannot come into a court of law and ask to have his
illegal objects carried out. The rule is expressed in the maxims: "Ex dolo malo non oritur actio,"
and "In pari delicto potior est conditio defendentis." The law will not aid either party to an illegal
agreement; it leaves the parties where it finds them. (Article 1306, Civil Code; Perez vs. Herranz
[1907], 7 Phil., 693.) Where, however, the parties to an illegal contract are not equally guilty, and
where public policy is considered as advanced by allowing the more excusable of the two to sue for
relief against the transaction, relief is given to him. Cases of this character are, where they
conveyance was wrongfully induced by the grantee through imposition or overreaching, or by false
representations, especially by one in a confidential relation. (13 C. J., 497-499; Pride vs. Andrew
[1894], 51 Ohio State, 405.)
As corroborative examples of these principles, we may cite the following:

Where a husband falsely represented to his wife that she was liable for certain debts, and
that the creditors would take her property and influenced by this, and intending to defraud
such creditors, she transferred her property to him, it was held that the deed would be set
aside. (Boyd vs. De la Montagnie [1878], 73 N.Y., 498.)

Where a party has given a conveyance of his property with intent to defraud a creditor, the
law will allow him no relief against such conveyance, but will leave him in the situation in
which he has placed himself. But where there is no creditor in fact, but only an imaginary
one, through fear of whom the grantor, encouraged by the grantee, makes the conveyance,
a fraudulent intent will not be imputed to the grantor, and where the conveyance of the
property has been without consideration, he may recover the same or its value. (Kervick vs.
Mitchell [1885], 68 Iowa, 273.)

Where a son falsely represented to his mother that a suit was about to be brought against
her for slander which would result in her losing all her property, and thereby induced her to
convey all her property to him, it was held that the conveyance would be set aside at her suit.
(Harper vs. Harper & Co. [1887], 85 Ky., 160.)

Where a woman seventy years of age and illiterate was induced by her son-in-law and the
sureties on his bond to execute a mortgage to the sureties to indemnify them on a
defalcation by the son-in-law, by holding out to her the anticipated punishment of the latter,
without allowing her a chance to consult any disinterested friend, it was held that the
mortgage would be set aside. (Bell vs. Campbell [1894], 123 Mo., 1.)

One who executes a bill of sale at the instance of the grantee for the purpose of putting his
property beyond the reach of a third person whom the grantee represented was about to
institute suit against the grantor, is entitled to recover the value of the property, where such
third person had no valid claim against the grantor, but had been settled with in full, and his
receipt taken. (Kervick vs. Mitchell [1885], 68 Iowa, 273.)

A brother who conveyed property to his sister on a secret trust for his benefit, to defeat any
claim for alimony which his wife, who had instituted a suit for divorce, might make against
him, is entitled to enforce the trust upon which the conveyance was made, where it does not
appear that any claim for alimony was ever set up by his wife, or allowed, or that facts
existed entitling her to such an allowance. The court said: `It does not appear that there was
any creditor whose rights or interests could be prejudiced by the conveyance, and the
question is whether or not the mere motive which impelled the party to make the deed will
preclude him from enforcing the trust upon which it was executed. We think that where there
is no creditor, there is no fraud, and therefore no policy of the law to prevent the enforcement
of the trust. (Rivera vs. White [1901], 94 Tex., 538.)

A conveyance made by a mother to a daughter in consequence of false representations that

her property might otherwise be taken from her to satisfy a claim for alimony arising from a
suit for divorce about to be brought against her son by his wife will be cancelled. The Court
said: "If the conveyance was made for the purpose of protecting the property from such
claim, such representations being untrue, and such apprehensions in fact groundless, then
she is entitled to have the deeds set aside." (Kleeman vs. Peltzer [1885], 17 Neb., 381.)

In this instance, the grantor, reposing faith in the integrity of the grantee, and relying on a suggested
occurrence, which did not in fact take place, was made the dupe of the grantee, and led into an
agreement against public policy. The party asking to be relieved from the agreement which she was
induced to enter into by means of fraud, was thus in delicto, but not in pari delicto with the other
party. The deed was procured by misrepresentation and fraud sufficient to vitiate the transaction.
The rights of creditors are not affected. We feel that justice will be done if we place the grantor in the
position in which she was before these transactions were entered into.

The facts of this case are not greatly dissimilar from those to be found in Hibberd vs. Rohde and
McMillian ([1915], 32 Phil., 476), relating to the defenses permissible where an instrument was
submitted by the plaintiff, and not denied under oath by the defendant, and to the subject of
contracts against public policy. The doctrine there announced need not be incorporated in this
decision.

We resolve each assignment of error against the appellants, and having done so, affirm the
judgment of the trial court, with costs of this instance against the appellants. So ordered.

Arellano, C.J., Torres, Johnson, Araullo, Street, Avanceña and Moir, JJ., concur .

Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. L-32749 January 22, 1988

SABAS H. HOMENA and ILUMINADA JUANEZA, plaintiffs-appellants,

vs.
DIMAS CASA AND MARIA CASTOR and the REGISTER OF DEEDS FOR THE PROVINCE OF
COTABATO, defendants-appellees.

YAP, J.:

This is an appeal from the order of the Court of Flint Instance of Cotabato dated January 4,1968
dismissing plaintiffs-appellants' complaint and from its order dated May 8,1968, denying their motion
for reconsideration.

The complaint, filed by plaintiffs-appellants against the spouses Dimas Casa and Maria Castor, the
defendants-appellees herein, was for alleged unlawful acts of dispossession disturbing plaintiffs
peaceful, continuous, open, uninterrupted adverse and public possession of the property in question.
In their complaint, plaintiffs also sought to annull the original certificate of title issued by the Register
of Deeds for the province of Cotabato in favor of defendant spouses pursuant to a Homestead
Patent on the ground that said patent was obtained by defendant spouses through fraud and
misrepresentation by stating, among others, in their application, that the lot was not claimed and
occupied by another person. Plaintiffs alleged that on June 15, 1967, they purchased from the
defendants two (2) hectares of the aforementioned parcel of land, it being agreed in the deed of sale
that the said portion would be reconveyed to plaintiffs after the five-year prohibitory period, as
provided for in the Homestead Patent Law, shall have elapsed, and that defendants failed to abide
by said agreement.
The defendants moved to dismiss the complaint, based on the following grounds: (1) the complaint
is barred by prescription, since thirteen years had elapsed from the issuance of the homestead
patent before the action was filed; (2) plaintiff has no cause of action, since the deed of sale
executed on June 15, 1952 or prior to the approval of the application and issuance of the homestead
patent was null and void and inoperative to convey the land in question, which was at that time still
public land; and (3) plaintiff is not the proper party to institute the action to annul the homestead
patent.

In their opposition to the motion to dismiss, plaintiffs averred that they were not assailing the validity
of the patent as a whole, but only with respect to that portion of two (2) hectares owned by them
which defendants, through fraud, were able to register in their name. Because of such fraud, the
action of the plaintiffs cannot be deemed to have prescribed, since such action can be brought within
four (4) years from discovery of the fraud. Moreover, the defense of prescription can not be set up in
an action to recover property held in trust by a person for another. On January 4, 1968, the court a
quo issued the questioned order dismissing the complaint. The plaintiffs appealed the case to the
Court of Appeals, assigning the following errors:

1. The lower court erred in holding that the allegations in the complaint do not
conform with the terms and conditions of the contract as to amount to a justifiable
cause of action.

2. The lower court erred in holding that the plaintiffs-appellants have no personality to
bring the present action as they do not seek the land for themselves but for the
government.

3. The lower court erred in holding that the present action based on fraud is barred
by the statute of limitations.

4. Finally, the lower court erred in holding that the deed of sale is not lawful as the
same was made to circumvent the provisions of the Public Land Act.

The Court of Appeals certified the case to this Court as it involved only questions of law.

We find no merit in the petition. The lower court committed no reversible error in dismissing the
complaint.

Basically, the plaintiffs' supposed cause of action rests upon the deed of sale executed by
defendants in their favor on June 15, 1962 wherein the latter sold a two-hectare portion of the
homestead which they were applying for to the plaintiffs on the understanding that the actual
conveyance of the said portion to plaintiffs would be made only after the lapse of the five-year period
during which, under the Public Land Act, the homestead owner was prohibited from transferring his
rights. The agreement is clearly illegal and void ab initio; it is intended to circumvent and violate the
law. As parties to a void contract, the plaintiffs have no rights which they can enforce and the court
can not lend itself to its enforcement. Plaintiffs can neither invoke the doctrine of implied trust based
on an illegal contract. The issue of prescription or laches becomes irrelevant in a case such as this,
where plaintiffs clearly have no cause of action.

WHEREFORE, the petition is hereby DENIED and the orders appealed from are AFFIRMED.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 181508 October 2, 2013

OSCAR CONSTANTINO, MAXIMA CONSTANTINO and CASIMIRA MATURINGAN, Petitioners,

vs.
HEIRS OF PEDRO CONSTANTINO, JR., represented by ASUNCION
LAQUINDANUM, Respondents.

DECISION

PEREZ, J.:

Before the Court is a Petition for Review on Certiorari under Rule 45 of the Rules of Court assailing
the 31 May 2007 Decision1 of the Court of Appeals in CA-G.R. CV No. 81329, which reversed the 27
October 2003 Decision2of the Regional Trial Court (RTC), Branch 18 of Malolos City, Bulacan, in a
complaint for Declaration of Nullity of "Pagmamana sa Labas ng Hukuman," Tax Declaration Nos.
96-10022-02653 & 1002655, With Prayer for a Writ of Preliminary Injunction & Damages docketed
as Civil Case No. 630-M-99.

The facts

This involves a controversy over a parcel of land claimed to be part of an estate which needed to be
proportionally subdivided among heirs.

Pedro Constantino, Sr., (Pedro Sr.) ancestors of the petitioners and respondents, owned several
parcels of land, one of which is an unregistered parcel of land declared for taxation purposes under
Tax Declaration 208143consisting of 240 square meters situated at Sta. Monica, Hagonoy, Bulacan.
Pedro, Sr., upon his death, was survived by his six (6) children, namely: 1) PEDRO CONSTANTINO,
JR. (Pedro Jr.), the grandfather of the respondents; 2) ANTONIA CONSTANTINO, who later died
without issue; 3) CLARA CONSTANTINO, who also later died without issue; 4)
BRUNOCONSTANTINO, who was survived by his 6 children including petitioner Casimira
Constantino-Maturingan; 5) EDUARDO CONSTANTINO, who is survived by his daughter Maura;
and 6) SANTIAGO CONSTANTINO, who was survived by his five (5) children which includes
petitioner Oscar Constantino.4

On 17 June 1999, respondents Asuncion Laquindanum (Asuncion)and Josefina Cailipan (Josefina),

great grandchildren of Pedro Sr., in representation of Pedro, Jr. filed a complaint5

against petitioners Oscar Constantino, Maxima Constantino and Casimira Maturingan, grandchildren
of Pedro Sr., for the nullification of a document denominated as "Pagmamana sa Labas ng
Hukuman" dated 10 August 1992,6Tax Declaration Nos. 96-10022 (02653)7 and 96-10022
(02655)8 and reinstatement of Tax Declaration No. 208149 in the name of Pedro Sr.

In the said complaint, respondents alleged that sometime in October 1998, petitioners asserted their
claim of ownership over the whole parcel of land (240 sq m) owned by the late Pedro Sr., to the
exclusion of respondents who are occupying a portion thereof. Upon verification, respondents
learned that a Tax Declaration No. 02010-2170-33235 in the name of petitioner Oscar Constantino
and his cousin Maxima Constantino was unlawfully issued, which in effect canceled Tax Declaration
No. 20814 in the name of their ancestor Pedro Sr. The issuance of the new tax declaration was
allegedly due to the execution of a simulated, fabricated and fictitious document denominated as
"Pagmamana sa Labas ng Hukuman," wherein the petitioners misrepresented themselves as the
sole and only heirs of Pedro Sr. It was further alleged that subsequently, the subject land was
divided equally between petitioners Oscar and Maxima resulting in the issuance of Tax Declaration
No. 96-10022-0265310 in the name of Oscar, with an area of 120sq m and the other half in the name
of Maxima covered by Tax Declaration No. 96-10022-02652.11 The share of Maxima was eventually
conveyed to her sister, petitioner Casimira in whose name a new Tax Declaration No. 96-10022-
0265512 was issued.

Thus, respondents sought to annul the "Pagmamana sa Labas ngHukuman" as well as the Tax
Declarations that were issued on the basis of such document.

The petitioners, on the other hand, averred in their Answer With Counterclaim13 that Pedro Sr., upon
his death, left several parcels of land, namely: 1) a lot with an area of 240 sq m covered by Tax
Declaration No.20814; 2) a lot with an area of 192 sq m also situated at Sta. Monica,Hagonoy,
Bulacan, previously covered by Tax Declaration No. 9534; and 3)an agricultural land with an area of
Four (4) hectares, more or less. The petitioners claimed that the document "Pagmamana sa Labas
ng Hukuman" pertaining to the 240 sq m lot was perfectly valid and legal, as it was a product of
mutual and voluntary agreement between and among the descendants of the deceased Pedro Sr.

Further, petitioners alleged that the respondents have no cause of action against them considering
that the respondents’ lawful share over the estate of Pedro Sr., had already been transferred to them
as evidenced by the Deed of Extrajudicial Settlement with Waiver14 dated 5 December
1968,executed by Angelo Constantino, Maria Constantino (mother of respondent Asuncion), Arcadio
Constantino and Mercedes Constantino, all heirs of Pedro Jr. In the said deed, respondents
adjudicated unto themselves to the exclusion of other heirs, the parcel of land with an area of 192 sq
m by misrepresenting that they were "the only legitimate heirs of Pedro Sr. Thus, petitioners claimed
that in the manner similar to the assailed "Pagmamana sa Labas ng Hukuman," they asserted their
rights and ownership over the subject 240 sq m lot without damage to the respondents.

In essence, petitioners position was that the Deed of Extrajudicial Settlement with Waiver which led
to the issuance of Tax Declaration No.9534 was acquiesced in by the other heirs of Pedro Sr.,
including the petitioners, on the understanding that the respondent heirs of Pedro Jr. would no
longer share and participate in the settlement and partition of the remaining lot covered by the "

Pagmamana sa Labas ng Hukuman."

On 15 August 2000, pre-trial conference15 was conducted wherein the parties entered into
stipulations and admissions as well as identification of the issues to be litigated. Thereupon, trial on
the merits ensued.

On 27 October 2003, the RTC rendered a Decision16 in favor of the respondents finding that:

As a result of execution of "Extrajudicial Settlement with Waiver" dated December 5, 1968 (Exh. "2")
executed by the heirs of Pedro Constantino, Jr., a son of Pedro Constantino, Sr. and the subsequent
execution of another deed denominated as "Pagmamana sa Labas ng Hukuman" dated August 10,
1992 (Exh. "E") executed by the heirs of Santiago and Bruno Constantino, also other sons of Pedro
Constantino, Sr., to the exclusion of the other heirs, namely, those of ANTONIA, CLARA, and
EDUARDO CONSTANTINO, both plaintiffs and defendants acted equally at fault. They are in pari
delicto, whereby the law leaves them as they are and denies recovery by either one of them.
(See:Yu Bun Guan v. Ong, 367 SCRA 559). Parties who are equally guilty cannot complain against
each other. (Sarmiento v. Salud, 45 SCRA 213.)

Supplementing the law on the matter, that is, the provision of Article 19 of the New Civil Code
whereby every person must, in the exercise of his rights and in the performance of his duties, act
with justice, give everyone his due, and observe honesty and good faith, is the legal maxim that "he
who comes to court to demand equity must come with clean hands." (LBC Express, Inc. v. Court of
Appeals, 236 SCRA 602).

Although, plaintiffs-heirs of Pedro Constantino, Jr., including Asuncion Laquindanum and Josefina
Cailipan, are not parties or signatories to the "Extrajudicial Settlement with Waiver" dated December
5, 1968, they are successors-in-interest of Pedro Constantino, Jr. They areconsidered "privies" to
said deed, and are bound by said extrajudicial settlement. (See: Cabresos v. Tiro, 166 SCRA 400).
In other words, they are "PRIVIES IN ESTATE". (Correa v. Pascual, 99 Phil. 696, 703).

Consequently, plaintiffs are now estopped from claiming otherwise. (See: PNB v. CA, 94 SCRA
357). They are estopped to share in the real property subject matter of this case. In fine, they are not
entitled to the reliefs prayed for. (Communication Materials & Design, Inc. v. CA, 260 SCRA 673).
1âwphi1

With respect to alleged damages claimed by plaintiffs against defendants in their Complaint and
counterclaim for damages by defendants against plaintiffs in their Answer, both claims are hereby
dismissed for lack of valid factual and legal foundations.

Disposition

WHEREFORE, in view of the foregoing premises and disquisition, the deed denominated as
"Pagmamana sa Labas ng Hukuman" of August10, 1992 and Tax Declaration No. 96-10022-02653
in the name of Oscar Constantino and Tax Declaration No. 96-10022-02655 in the name of Casimira
C. Maturingan (from Maxima Constantino to Casimira C. Maturingan) stand. Plaintiffs’ Complaint for
nullification thereof with damages is hereby DISMISSED.17

Not convinced, the respondents appealed the afore quoted decision to the Court of Appeals (CA)
raising, among others, the erroneous application by the trial court of the doctrine of "in pari delicto" in
declaring the validity of the document "Pagmamana sa Labas ng Hukuman."

In its 31 May 2007 Decision,18 the CA ruled in favor of the respondents heirs of Pedro, Jr., declaring
that the "Extrajudicial Settlement with Waiver" dated 5 December 1968 they executed covering the
192 sq mlot actually belongs to Pedro Jr., hence, not part of the estate of Pedro Sr. The CA
rationated in this wise:

The 192 square meters lot which was adjudicated in the "Extrajudicial Settlement with Waiver" dated
5 December 1968 among the heirs of Pedro Jr. namely Angelo, Maria, Arcadio and Mercedes is a
property belonging to Pedro Jr. although there is a typographical error in that the name of Pedro Jr.
was inadvertently typed only as Pedro Constantino. It is clear from the reading of the document that
a typographical error was committed because the four (4) children of PedroJr. by Felipa dela Cruz
were specifically identified. Further, during the presentation of evidence of the plaintiffs-appellants, it
was rebutted that Pedro Sr. had six (6) legitimate children namely: Pedro Jr., Antonia, Clara,
Santiago, Bruno and Eduardo19 and Pedro Jr. had four (4).20

Thus, the CA went on to state that the respondents, heirs of Pedro Jr., did not adjudicate the 192 sq
m lot unto themselves to the exclusion of all the other heirs of Pedro Sr. Rather, the adjudication in
the document entitled "Extrajudicial Settlement with Waiver dated 5 December 1968 pertains to a
different property and is valid absent any evidence to the contrary. Hence, it is erroneous for the trial
court to declare the parties in pari delicto.

The Issue

The petitioners now question the said ruling assigning as error, among others, the failure of the CA
to appreciate the existence of misrepresentation in both documents, thereby ignoring the propriety of
the application of the in pari delicto doctrine. Likewise assailed is the erroneous disregard by the CA
of stipulations and admissions during the pre-trial conference on which the application of the doctrine
of in pari delicto was based.

Our Ruling

Latin for "in equal fault," in pari delicto connotes that two or more people are at fault or are guilty of a
crime. Neither courts of law nor equity will interpose to grant relief to the parties, when an illegal
agreement has been made, and both parties stand in pari delicto.21 Under the pari delicto doctrine,
the parties to a controversy are equally culpable or guilty, they shall have no action against each
other, and it shall leave the parties where it finds them. This doctrine finds expression in the maxims
"ex dolo malo nonoritur actio" and "in pari delicto potior est conditio defendentis."22

When circumstances are presented for the application of such doctrine, courts will take a hands off
stance in interpreting the contract for or against any of the parties. This is illustrated in the case of
Packaging Products Corporation v. NLRC,23 where this Court pronounced that:

This Court cannot give positive relief to either petitioner or respondent because we are asked to
interpret and enforce an illegal and immoral arrangement. (See Articles 1409, 1411, and 1412 of the
Civil Code). Kickback arrangements in the purchase of raw materials, equipment, supplies and other
needs of offices, manufacturers, and industrialists are so widespread and pervasive that nobody
seems to know how to eliminate them. x x x.

Both the petitioners and the private respondent are in pari delicto. Neither one may expect positive
relief from courts of justice in the interpretation of their contract. The courts will leave them as they
were at the time the case was filed.24

As a doctrine in civil law, the rule on pari delicto is principally governed by Articles 1411 and 1412 of
the Civil Code, which state that:

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.

xxx xxx

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:

xxx xxx

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;
 xxx xxx.

The petition at bench does not speak of an illegal cause of contract constituting a criminal offense
under Article 1411. Neither can it be said that Article 1412 finds application although such provision
which is part of Title II, Book IV of the Civil Code speaks of contracts in general, as well as contracts
which are null and void ab initio pursuant to Article 1409 of the Civil Code – such as the subject
contracts, which as claimed, are violative of the mandatory provision of the law on legitimes.

We do not dispute that herein parties, through the Deeds they separately executed deprived each
other of rightful shares in the two lots subject of the separate contracts – that is, if the two (2) parcels
of land subject matter thereof, form part of the estate of the late Pedro Sr.

It is asserted by the petitioners that their execution in 1992 of the contract denominated as
"Pagmamana sa Labas ng Hukuman" which excluded other heirs of Pedro Sr., was with an
underlying agreement with the other heirs including Maria Constantino, daughter of Pedro Jr. and
grandmother of respondents.25 The agreement was for the other heirs to recognize the 192 square
meters lot subject matter of the "Extrajudicial Settlement with Waiver" executed in 1968 as the share
of the heirs of Pedro Sr. in the estate of Pedro Sr., Petitioners respected such agreement, as in fact,
Maria Laquindanum and that of her heirs, herein respondents, were not disturbed in their possession
or ownership over the said parcel of land; thus, the heirs of Pedro Jr. were said to have
acquiesced26 to the "Pagmamana sa Labas ng Hukuman" and the underlying agreement and
therefore they have no recourse or reason to question it taking cue from the doctrine of in paridelicto.
This was the basis of the trial court’s findings that respondents are now estopped from claiming
otherwise.27

We find that the trial court erroneously applied the doctrine.

This is not to say, however, that the CA was correct in upholding the validity of the contract
denominated as "Pagmamana sa Labas ng Hukuman." The CA decision being, likewise, based on
pari delicto, is also incorrect.

Finding the inapplicability of the in pari delicto doctrine, We find occasion to stress that Article 1412
of the Civil Code that breathes life to the doctrine speaks of the rights and obligations of the parties
to the contract with an illegal cause or object which does not constitute a criminal offense. It applies
to contracts which are void for illegality of subject matter and not to contracts rendered void for being
simulated,28 or those in which the parties do not really intend to be bound thereby. Specifically, in
pari delicto situations involve the parties in one contract who are both at fault, such that neither can
recover nor have any action against each other.

In this case, there are two Deeds of extrajudicial assignments unto the signatories of the portions of
the estate of an ancestor common to them and another set of signatories likewise assigning unto
themselves portions of the same estate. The separate Deeds came into being out of an identical
intention of the signatories in both to exclude their co-heirs of their rightful share in the entire estate
of Pedro Sr. It was, in reality, an assignment of specific portions of the estate of Pedro Sr., without
resorting to a lawful partition of estate as both sets of heirs intended to exclude the other heirs.

Clearly, the principle of in pari delicto cannot be applied. The inapplicability is dictated not only by
the fact that two deeds, not one contract, are involved, but because of the more important reason
that such an application would result in the validation of both deeds instead of their nullification as
necessitated by their illegality. It must be emphasized that the underlying agreement resulting in the
execution of the deeds is nothing but a void agreement. Article 1409 of the Civil Code provides that:
ART. 1409. The following contracts are in existent and void from the beginning:

(1) Those whose cause, object or purpose is contrary to law; morals, good customs, public order or
public policy;

xxx xxx xxx

Corollarily, given the character and nature of the deeds as being void and in existent, it has, as a
consequence, of no force and effect from the beginning, as if it had never been entered into and
which cannot be validated either by time or ratification.29

That said, we cannot give credence to the contention of respondents that no fault can be attributed
to them or that they are free from the effects of violation of any laws arising from the supposed
unlawful agreement entered into between Maria Laquindanum, their predecessor-in-interest, and the
other heirs, including petitioners herein, based on the fact that they are not signatories to said
agreement, thus, the lack of any binding effect to them. Respondents argued and set forth as an
issue during the trial that they were not signatories to any of the contract or privies to such an
arrangement. It is not disputed, however, that respondents are successors-in-interest of Maria
Laquindanum, one of the signatories in the Extrajudicial Settlement with Waiver who was also
allegedly in agreement with the petitioners.

On this note, We agree with the trial court that respondents are "privies" to Maria Laquindanum. By
the term "privies" is meant those between whom an action is deemed binding although they are not
literally parties to the said action.30 This Court, in Correa v. Pascual,31 had occasion to explain that
"privity in estate denotes the privity between assignor and assignee, donor and donee, grantor and
grantee, joint tenant for life and remainderman or reversioner and their respective assignees, vendor
by deed of warranty and a remote vendee or assignee. A privy in estate is one, it has been said, who
derives his title to the property in question by purchase; one who takes by conveyance." In fine,
respondents, as successors-in-interest, derive their right from and are in the same position as their
predecessor in whose shoes they now stand. As such successors, respondents’ situation is
analogous to that of a transferee pendente lite illustrated in Santiago Land Development Corporation
v. Court of Appeals,32reiterating Fetalino v. Sanz33 where this Court held:

As such, he stands exactly in the shoes of his predecessor in interest, the original defendant, and is
bound by the proceedings had in the case before the property was transferred to him. He is a
proper, but not an indispensable, party as he would, in any event, have been bound by the judgment
against his predecessor.34

Thus, any condition attached to the property or any agreement precipitating the execution of the
Deed of Extrajudicial Settlement with Waiver which was binding upon Maria Laquindanum is
applicable to respondents who merely succeeded Maria.

This notwithstanding, it must however be shown that the Deed of Extrajudicial Settlement with
Waiver, referred to a property owned by Pedro Sr. There is such basis from the facts of this case.

The records show that apart from respondent Asuncion Laquindanums’s statement that the parcel of
land subject matter of the Deed of Extrajudicial Settlement with Waiver is not part of the estate of
Pedro Sr., their common ancestor, no other evidence was offered to support it. The CA in giving
credence to the respondents’ claim, merely relied on the alleged typographical error in the Deed.
The basis for the CA’s conclusion was the inclusion of the wife of Pedro Jr. and that of their children,
which the CA considered as proof that the property was owned by Pedro Jr. and not part of the
estate of Pedro Sr. As pointed out by the petitioners, the mention of the names of the children of
Pedro Jr. in the Extrajudicial Settlement is not proof that the subject of the deed is the property of
Pedro Jr. Meant to exclude all the other heirs of Pedro Sr., only the children of Pedro Jr. appeared in
the Extrajudicial Settlement as heirs.

Weak as the reasoning is, the CA actually contradicted the admissions made no less by the
respondents during the pre-trial conference where they stipulated that the land covered by Tax
Declaration No. 9534 consisting of 192 sq. m belongs to Pedro Sr.35

A portion of the admission and stipulations made by both parties during the pre-trial is hereunder
quoted, thus:

Respondents’ admissions:

"1. That the land covered by Tax Declaration No. 9534 previously owned by Pedro Constantino, Sr.
was transferred to Maria Constantino under Tax Declaration No. 9535; (highlighting ours)

1. The existence of Extrajudicial Settlement with Waiver per Doc. No.319, Page No. 44, Book No.
11, Series of 1968 by Notary Public Romerico Flores, Jr."

Clearly, the above stipulation is an admission against respondents’ interest of the fact of ownership
by Pedro Sr. of the 192 sq m lot covered by Tax Declaration No. 9534, which was transferred to
respondents’ mother, the daughter of Pedro Jr. Such that, in one of the issues submitted to be
resolved by the trial court, this was included: "Whether or not the "Deed of Extrajudicial Settlement
with Waiver" is enforceable against the plaintiffs, thus curing the legal infirmities, if any, of the
"Pagmamana sa Labas ng Hukuman"36 – an issue earlier mentioned.

Judicial admissions are legally binding on the party making the admissions. Pre-trial admission in
civil cases is one of the instances of judicial admissions explicitly provided for under Section 7, Rule
18 of the Rules of Court, which mandates that the contents of the pre-trial order shall control the
subsequent course of the action, thereby, defining and limiting the issues to be tried. In Bayas, et. al.
v. Sandiganbayan, et. al.,37 this Court emphasized that:

Once the stipulations are reduced into writing and signed by the parties and their counsels, they
become binding on the parties who made them. They become judicial admissions of the fact or facts
stipulated.38 Even if placed at a disadvantageous position, a party may not be allowed to rescind
them unilaterally, it must assume the consequences of the disadvantage.39 (Highlighting ours)

Moreover, in Alfelor v. Halasan,40 this Court declared that:

A party who judicially admits a fact cannot later challenge the fact as judicial admissions are a
waiver of proof; production of evidence is dispensed with. A judicial admission also removes an
admitted fact from the field of controversy. Consequently, an admission made in the pleadings
cannot be controverted by the party making such admission and are conclusive as to such party,
and all proofs to the contrary or inconsistent therewith should be ignored, whether objection is
interposed by the party or not. The allegations, statements or admissions contained in a pleading are
conclusive as against the pleader. A party cannot subsequently take a position contrary of or
inconsistent with what was pleaded.41 (Citations omitted)

We are aware that the last paragraph of Section 7, Rule 18 of the Rules of Court serves as a caveat
for the rule of conclusiveness of judicial admissions – for, in the interest of justice, issues that may
arise in the course of the proceedings but which may not have been taken up in the pre-trial can still
be taken up.

Section 7, Rule 18 of the Rules of Court reads:

Section 7. Record of pre-trial. – The proceedings in the pre-trial shall be recorded. Upon the
1awp++i1

termination thereof, the court shall issue an order which shall recite in detail the matters taken up in
the conference, the action taken thereon, the amendments allowed to the pleadings, and the
agreements or admissions made by the parties as to any of the matters considered. Should the
action proceed to trial, the order shall, explicitly define and limit the issues to be tried. The contents
of the order shall control the subsequent course of the action, unless modified before trial to prevent
injustice.

In addition, Section 4 of Rule 129 of the Rules of Court, provides that:

An admission, verbal or written, made by a party in the course of the proceedings in the same case,
does not require proof. The admission may be contradicted only by showing that it was made
through palpable mistake or that no such admission was made.

As contemplated in the aforementioned provision of the Rules of Court, the general rule regarding
conclusiveness of judicial admission upon the party making it and the dispensation of proof admits of
two exceptions: 1) when it is shown that the admission was made through palpable mistake, and 2)
when it is shown that no such admission was in fact made. The latter exception allows one to
contradict an admission by denying that he made such an admission.42

However, respondents failed to refute the earlier admission/stipulation before and during the trial.
While denying ownership by Pedro Sr. of the 192 sq m lot, respondent Asuncion Laquindanum,
when placed on the stand, offered a vague explanation as to how such parcel of land was acquired
by Pedro Jr. A portion of her testimony43is hereto reproduced as follows:

"ATTY. DOMINGO:

Q: Do you know if as part of the estate of the late Pedro Constantino, Sr. is another parcel of land
also situated at Sta. Maria, Hagonoy, Bulacan with an area of 192 square meters?

A: It is not owned by Pedro Constantino, Sr., sir. It is our property owned by Pedro Constantino, Jr.
that was inherited by my mother Maria Constantino.

Q: And do you know how Pedro Constantino, Jr. acquired that parcel of land, the one that you
mentioned a while ago?

A: Kinagisnan ko na po yong lupang yon pagkabata pa na yon e amin." (Highlighting ours)

The above assertion of denial is simply a self-serving declarationunsupported by evidence. This

renders conclusive the stipulations made during the pre-trial conference. Consequently, respondents
are bound by the infirmities of the contract on which they based their right over the property subject
matter thereof. Considering that the infirmities in the two deeds relate to exclusion of heirs, a
circumvention of an heir’s right to his or her legitime, it is apt to reiterate our ruling in Neri v. Heirs of
Hadji Yusop Uy,44 disposing that:
Hence, in the execution of the Extra-Judicial Settlement of the Estate with Absolute Deed of Sale in
favour of spouses Uy, all the heirs of Annunciation should have participated. Considering that
Eutropia and Victoria were admittedly excluded and that then minors Rosa and Douglas were not
properly represented therein, the settlement was not valid and binding upon them and consequently,
a total nullity. (Highlighting ours)

Further highlighting the effect of excluding the heirs in the settlement of estate, the case of Segura v.
Segura,45elucidated thus:

It is clear that Section 1 of Rule 74 does not apply to the partition in question which was null and void
as far as the plaintiffs were concerned. The rule covers only partition. The partition in the present
case was invalid because it excluded six of the nine heirs who were entitled to equal shares in the
partitioned property. Under the rule "no extrajudicial settlement shall be binding upon any person
who has not participated therein or had no notice thereof." As the partition was a total nullity and did
not affect the excluded heirs, it was not correct for the trial court to hold that their right to challenge
the partition had prescribed after two years from its execution x x x.

In light of the foregoing, while both parties acted in violation of the law on legitimes, the pari delicto
rule, expressed in the maxims "Ex dolo malo non oritur action" and "in pari delicto potior est
condition defendentis," which refuses remedy to either party to an illegal agreement and leaves them
where they are, does not apply in this case. (Underline supplied)46 As held in De Leon v. CA:47

In the ultimate analysis, therefore, both acted in violation of laws. However, the pari delicto rule
expressed in the maxims "Ex dolo malo non oritur action" and "In pari delicto potior est condition
defendentis," which refuses remedy to either party to an illegal agreement and leaves them where
they are does not apply in this case.

xxx xxx xxx

Since the Letter-Agreement was repudiated before the purpose has been accomplished and to
adhere to the pari delicto rule in this case is to put a premium to the circumvention or the laws,
positive relief should be granted to Macaria. Justice would be served by allowing her to be placed in
the position in which she was before the transaction was entered into.

Accordingly, in order not to put a premium to the circumvention or the laws as contemplated by the
parties in the instant case, we must declare both contracts as void. Indeed, any circumvention of the
law cannot be48countenanced.

WHEREFORE, the 31 May 2007 Decision of the Court of Appeals in CA-G.R. CV No. 81329 is
hereby REVERSED. The Pagmamana sa Lahas ng Hukuman and Extrajudicial Settlement with
Waiver are hereby declared void without prejudice to the partition of the estate of Pedro Constantino
Sr. with the full participation of all the latter's heirs.

SO ORDERED.