Sargasso v.

PPA (GRN 170530, 5 July 2010) PPA contended that the Notice of Award was
properly revoked when the Board denied approval
Facts: of the Supplemental Agreement.

Petitioner Sargasso Construction and The Regional Trial Court (RTC) ruled in favor of
Development Corporation/Pick & Shovel, Petitioner, finding a perfected contract existed and
Inc./Atlantic Erectors, Inc. (Joint Venture) was ordering PPA to execute the contract. The RTC
awarded a contract by Respondent Philippine Ports believed the General Manager had authority to
Authority (PPA) for the construction of Pier 2 and bind PPA and that the Board's disapproval did not
a rock causeway in San Fernando, La Union. negate this.

Petitioner offered to undertake the reclamation The Court of Appeals (CA) reversed the RTC
between the Timber Pier and Pier 2 of the same decision and dismissed Petitioner's complaint,
port as an extra work for a price of concluding that no perfected contract existed. The
₱36,294,857.03. CA reasoned that the General Manager's authority
to bind PPA must stem from law, not just the
PPA, through its Assistant General Manager, Notice of Award, and found no evidence of valid
responded that the initial offer was not acceptable delegation for this specific contract.
but might be favorably considered at a reduced
price of ₱30,794,230.89, subject to the approval Petitioner appealed the CA decision to the
of higher authority. Supreme Court.

Subsequently, PPA General Manager Rogelio Issue:

Dayan sent Petitioner a Notice of Award for the
Phase I Reclamation Contract at the price of Whether a contract for the reclamation project was
₱30,794,230.89, instructing Petitioner to execute perfected between Sargasso (Petitioner) and PPA
the contract agreement and furnish required (Respondent). This depends on whether the PPA
documents. The Notice of Award included General Manager was vested with the authority to
conditions, such as the completion of fendering of enter into such a contract on behalf of PPA.
Pier 2 and the Port of Tabaco before contract
approval. Ruling:

At a meeting on September 9, 1994, the PPA The Supreme Court DENIED the petition, affirming
Board of Directors decided not to approve the the CA's decision that no perfected contract
contract proposal. The Board noted there was no existed for the reclamation project.
strong legal basis to award the supplemental
contract through negotiation because the original The Court held that while government contracts
Pier 2 project was different from the reclamation are similar to private contracts in requiring
project. consent, object, and cause, a government contract
is perfected only upon approval by a competent
PPA did not formally inform Petitioner of the authority, where such approval is required.
Board's decision. Petitioner learned of the Board's
position and requested reconsideration, but The PPA General Manager, as a government
received no reply. contracting officer, possesses only actual agency
authority, which must be based on an express
Petitioner filed a complaint for specific provision of law or valid delegation of authority.
performance and damages, arguing that PPA's He can only make contracts he is authorized to
refusal to proceed based on the Notice of Award make. Acts beyond this actual authority do not
was unjustified and caused harm. bind the government.
Applicable laws, such as Executive Order No. 380 Laws and regulations governing government
and the Revised Administrative Code, require contracts are deemed part of the contract.
approval by the governing boards of government
corporations for contracts, especially negotiated Negotiated government contracts are exceptions
ones above certain amounts. P.D. 857 places to the general rule of public bidding and must
corporate powers, including the power to make strictly comply with legal requirements.
contracts, with the PPA Board of Directors, while
the General Manager has the power to sign Emphasis on Doctrine in the Civil Code:
contracts and perform duties assigned by the
Board. The Court acknowledges the three essential
elements of a contract under the Civil Code:
The Court found that Petitioner failed to present consent, object certain, and cause.
competent evidence proving the General Manager
possessed actual authority to enter into this Crucially, the ruling hinges on the concept of
specific supplemental contract. agency as found in the Civil Code, specifically
Article 1881, which states that the agent must act
The absence of the phrase "approval of higher within the scope of his authority to bind his
authority" in the Notice of Award does not change principal.
the legal requirement for necessary approvals, as
applicable laws are read into the contract. In the context of government contracts, the Court
The Board's decision not to approve the negotiated emphasizes that the agent (contracting officer)
contract was legally justified because negotiated must be legally empowered to bind the
contracts are only allowed in exceptional cases, government (the principal), and his actions must
and the Board found no basis to award this fall within the ambit of his authority.
contract through negotiation as it was significantly
different from the original project. The Court found that the PPA General Manager
lacked the necessary actual authority from the PPA
The Court also ruled that the doctrine of apparent Board or statute to enter into the supplemental
authority does NOT apply to bind the government contract for reclamation. Without this valid
by the unauthorized acts of its agents. Apparent authority from the principal (PPA, acting through
authority arises from the principal's actions, not its Board), the General Manager could not provide
the agent's, and Petitioner failed to show any act the necessary consent to perfect the contract on
by the PPA Board that clothed the General behalf of PPA. This is a fundamental application of
Manager with apparent authority for this contract. agency principles under the Civil Code – a contract
entered into by an agent without authority does
Doctrine: not bind the principal.

A government contract is perfected only upon Furthermore, the Court explicitly addresses the
approval by a competent authority where such doctrine of apparent authority, which is also a
approval is required by law or regulation. concept rooted in the Civil Code's principles of
agency. However, the Court clarifies that in the
Government contracting officers are agents of the specific realm of government contracts, this
government and only possess actual agency doctrine is generally not applied to bind the
authority derived from law or valid delegation; government to unauthorized acts. While apparent
acts outside this authority do not bind the authority in private law arises from the principal's
government. misleading conduct, the government is not bound
by the apparent authority of its agents if they lack
The doctrine of apparent authority generally does actual authority, particularly when legal
not apply in government contracts to bind the requirements mandate specific approval processes
government to unauthorized acts of its agents.
Tiu v. Platinum Plans (GRN 163512, 28 Petitioner countered that the non-involvement
February 2007) clause was unenforceable as being against public
order or public policy, arguing it was an
Facts: unreasonable restraint of trade, disproportionate
to necessary protection, that the respondent did
Respondent Platinum Plans Philippines, Inc. is a not invest in her training, and that it deprived her
domestic corporation engaged in the pre-need of her only work
industry.
The Regional Trial Court (RTC) upheld the validity
Petitioner Daisy B. Tiu was initially a Division of the non-involvement clause, finding the two-
Marketing Director for Respondent from 1987 to year restriction reasonable, and ordered Petitioner
1989. to pay ₱100,000 as damages for the breach.

On January 1, 1993, Respondent re-hired The Court of Appeals (CA) affirmed the RTC's
Petitioner as Senior Assistant Vice-President and decision, reasoning that Petitioner voluntarily
Territorial Operations Head for its Hongkong and entered the contract and was bound by its
Asean operations under a five-year contract of stipulations, and that the two-year non-
employment. employment prohibition was valid considering the
nature of the business6.
The employment contract included a non-
involvement clause stating that "during his/her Petitioner appealed to the Supreme Court.
engagement with EMPLOYER and in case of
separation from the Company, whether voluntary Issue:
or for cause, he/she shall not, for the next TWO
(2) years thereafter, engage in or be involved with Whether the non-involvement clause in
any corporation, association or entity, whether Petitioner's contract of employment is valid and
directly or indirectly, engaged in the same enforceable, specifically whether the two-year
business or belonging to the same pre-need restriction is void for being offensive to public
industry as the EMPLOYER". policy or an unreasonable restraint of trade4....

The clause also stipulated that any breach would Whether the award of ₱100,000 as liquidated
render the employee liable for ₱100,000.00 as damages is excessive, iniquitous, or
liquidated damages2. unconscionable7.

Petitioner stopped reporting for work on Ruling:

September 16, 19951.
The Supreme Court DENIED the petition and
In November 1995, Petitioner became the Vice- AFFIRMED the decision of the Court of Appeals,
President for Sales of Professional Pension Plans, holding that the non-involvement clause is valid
Inc., a company also engaged in the pre-need and enforceable.
industry1.
The Court reviewed previous cases on contracts in
Respondent sued Petitioner for damages, alleging restraint of trade, noting that while some early
that her employment with Professional Pension cases found broad restraints unreasonable10...,
Plans, Inc. violated the non-involvement clause2. later jurisprudence upheld such stipulations if they
Respondent sought various damages, including had reasonable limitations as to time, trade, and
₱100,000 as compensatory damages (later place, and were not greater than the protection
treated as liquidated damages), moral damages, required by the employer.
exemplary damages, and attorney's fees
Applying these principles, the Court found the
non-involvement clause valid because it contained
reasonable limitations: a time limit of two may establish stipulations, clauses, terms,
years from separation and a trade limit, only and conditions as they deem convenient,
prohibiting involvement in a pre-need business provided they are not contrary to law,
akin to respondent's. It did not prohibit her from morals, good customs, public order, or public
marketing other service plans. policy. The Court found that the non-involvement
clause, with its reasonable limitations, was not
The Court emphasized that Petitioner, as Senior contrary to public policy
Assistant Vice-President and Territorial Operations
Head, had access to confidential and highly The ruling also relies on Article 1159 of the Civil
sensitive marketing strategies. Allowing her to join Code, which mandates that obligations arising
a rival soon after leaving would make from contracts have the force of law between
Respondent's trade secrets vulnerable in a the contracting parties and should be
competitive environment. Therefore, the restraint complied with in good faith. Since the non-
was deemed necessary and reasonable involvement clause was not contrary to public
protection for the employer and not contrary to policy, it had the force of law between Tiu and
public welfare. Platinum Plans and should be complied with in
good faith17. The Court emphasizes that courts
Regarding the liquidated damages, the Court should not alter the agreement if it is not contrary
upheld the award of ₱100,0008. While to law, morals, good customs, public order, or
acknowledging that liquidated damages can be public policy.
equitably reduced if iniquitous or
unconscionable16, the Court declined to do so in Finally, the Court refers to the Civil Code
this case, stating that Petitioner had not shown the provisions on Liquidated Damages (Articles
least intention to fulfill the clause in good faith. 2226 and 2227). Article 2226 defines liquidated
damages as those agreed upon for breach16,
Doctrine: while Article 2227 allows for their equitable
reduction if they are iniquitous or
A contract in restraint of trade, such as a non- unconscionable16. While the Court cited the
involvement clause in an employment contract, is possibility of reduction under Article 2227, it
not necessarily void. Its validity depends on ultimately decided against it based on the
whether there are reasonable limitations as to circumstances of the case.
time, trade, and place. In essence, the Court applied fundamental Civil
Code principles – freedom of contract within the
The restraint upon one party must not be greater bounds of public policy and the binding force of
than the protection the other party requires valid contracts – to uphold the enforceability of the
and must not be contrary to public welfare. non-involvement clause, considering its specific
terms were reasonably limited and necessary for
Liquidated damages agreed upon by the parties the protection of the employer's legitimate
are to be paid in case of breach. However, under business interests.
Article 2227 of the Civil Code, liquidated damages
can be equitably reduced if they are iniquitous or
unconscionable. Tankeh v. DBP (GRN 171428, 11 November
2013)
Emphasis on Doctrine in the Civil Code:
Facts: Petitioner Dr. Alejandro V. Tankeh was
The Supreme Court explicitly anchors its ruling on approached by his younger brother, respondent
the principles of the Civil Code, particularly Ruperto V. Tankeh, regarding a new shipping
regarding the validity and force of contracts. business, Sterling Shipping Lines, Inc. Ruperto
allegedly promised Alejandro 1,000 shares worth
The Court invokes Article 1306 of the Civil ₱1,000,000.00, a directorship, and involvement in
Code, which states that contracting parties the administration and operations of the company,
including a position for Alejandro's son. Alejandro vitiated, and declared the promissory note and
claimed he never invested any money; Ruperto mortgage contract void as to petitioner. The Court
provided the funds. of Appeals (CA) reversed the RTC, finding no clear
and convincing evidence of fraud or deceit and
To secure a $3.5 million loan from respondent holding that petitioner, a seasoned businessman,
Development Bank of the Philippines (DBP) for a signed voluntarily. Petitioner appealed to the
vessel, DBP required, among other conditions, Supreme Court.
that Ruperto V. Tankeh, petitioner Dr.
Alejandro V. Tankeh, Jose Marie Vargas, Issue:
Sterling Shipping Lines, Inc., and respondent
Vicente Arenas be jointly and severally liable Whether there was fraud (dolo causante) sufficient
for the loan. DBP also required an assignment of to vitiate petitioner's consent and annul the
67% of the company's voting shares and future promissory note as to him.
earnings of the vessel. Petitioner signed the
Assignment of Shares of Stock with Voting Rights Whether there was incidental fraud (dolo
on May 12, 1981, and the promissory note in incidente) committed by any of the respondents.
December 1981.
Whether petitioner is entitled to damages.
Petitioner alleged that despite being made a
stockholder, director, and Vice-President, he was Ruling:
deliberately excluded from participating in the
corporation's affairs, only attended one board The Supreme Court PARTIALLY GRANTED the
meeting, was never compensated, and was not petition. The Court AFFIRMED the Court of
given access to corporate data. The promises Appeals' finding that there was no causal fraud
regarding administration and a position for his son (dolo causante) sufficient to annul the
were not fulfilled. On June 16, 1983, petitioner promissory note as to the petitioner. Petitioner,
wrote to Ruperto expressing his decision to sever described as a doctor and a seasoned
ties and terminating his involvement with Sterling businessman with experience in other ventures,
Shipping Lines, Inc. He requested a board had the opportunity to know the facts and
resolution releasing him from all liabilities, understand the implications of signing the loan
particularly the DBP loan, and that DBP be notified agreement.
of his severance. Sterling Shipping Lines, Inc.'s
accounts were transferred from DBP to respondent His admission that his share contributions were
Asset Privatization Trust (APT) on June 30, 1986. provided by Ruperto and his later actions of
The M/V Sterling Ace was sold in Singapore on seeking settlement belied his claim of complete
January 29, 1987. unawareness or vitiated consent. The required
standard of proof for dolo causante, clear and
Petitioner learned of the sale through the convincing evidence, was not met.
newspapers and questioned the adequacy of the
price, alleging it was undervalued. Petitioner filed However, the Court found the existence of
complaints seeking to annul the promissory note incidental fraud (dolo incidente) committed by
as to him and be absolved from liability, alleging respondent Ruperto V. Tankeh. This was based
fraud and deceit by Ruperto in causing him to bind on Ruperto's failure to allow petitioner to
himself to the loan. He also alleged DBP was participate in the management of the business,
inexcusably negligent. Respondents denied fraud. despite promises of involvement, and his lack of
Ruperto claimed petitioner signed voluntarily and transparency, particularly regarding the sale of the
with full knowledge. DBP argued petitioner was vessel. This exclusion constituted fraud incidental
liable by signing and was in pari delicto. APT to the performance of the contract. The Court
asserted it was mandated to manage the assets. found no basis to hold Sterling Shipping Lines,
The Regional Trial Court (RTC) found fraud by Inc., Arenas, DBP, or APT liable for incidental
Ruperto, ruling that petitioner's consent was fraud. The Court held Ruperto V. Tankeh liable for
damages. This liability arose not only from personal conditions of the victim. "Usual
incidental fraud but also from an abuse of right exaggerations in trade" are not fraudulent if the
(Articles 19 and 21 of the Civil Code). Ruperto other party had an opportunity to know the facts
abused his right by failing to act in good faith and (Article 1340).
transparency regarding the business operations
and by refusing efforts towards compromise after Obligations and Damages (Civil Code):
petitioner discovered the sale of the vessel. This
caused damage and injury to petitioner, who Obligations arise from law, contracts, quasi-
remained solidarily liable for the loan. The Court contracts, delicts, and quasi-delicts (Article 1157).
awarded petitioner ₱500,000.00 as moral Incidental fraud under Article 1344 creates an
damages, finding the elements for such an award obligation to pay damages.
present due to the mental duress and financial
burden suffered by petitioner as a result of Abuse of Right (Articles 19 and 21): Acting
Ruperto's bad faith and culpable actions. The contrary to justice, honesty, and good faith
Court also awarded petitioner ₱200,000.00 as (Article 19) or willfully causing loss or injury
exemplary damages to serve as a deterrent for contrary to morals, good customs, or public policy
similar wanton and fraudulent conduct. (Article 21) constitutes an abuse of right. Such
abuse can be a source of legal wrong and give rise
Doctrine (Civil Code Focus): to an obligation to compensate for damages.

Fraud in Contracts (Articles 1338, 1339, Moral Damages (Article 2219): Can be
1340, 1341, 1342, 1343, 1344): recovered in cases analogous to those specifically
enumerated, including acts referred to in Article
The Civil Code distinguishes between dolo 21. Requires proof of injury, a culpable act,
causante (causal fraud) and dolo incidente proximate causation, and a basis under Article
(incidental fraud). 2219. Bad faith in breach of contract can justify
moral damages, but bad faith must be proven by
Dolo causante (Article 1338, 1344): This is clear and convincing evidence.
deception serious enough that without it, a party
would not have entered the contract. It is the Exemplary/Corrective Damages (Articles
essential cause of the consent. If proven by clear 2229, 2233, 2234): May be imposed for the
and convincing evidence, it vitiates consent and public good, in addition to other damages. They
makes the contract voidable. are discretionary and not recoverable as a matter
of right. They require the party to be entitled to
Dolo incidente (Article 1344): This is deception other damages and are justified when the wrongful
not serious enough to determine consent but act involves bad faith, wantonness, fraud,
which refers only to some particular or accident of recklessness, or malevolence, serving as a
the obligation. It does not annul the contract but deterrent.
obliges the person employing it to pay This case highlights the distinction between the
damages. two types of fraud recognized in the Civil Code,
their effects on a contract, and the requisite
Proof of Fraud: Whether alleging dolo causante standard of proof. It also underscores that
or dolo incidente, fraud must be established by damages can be awarded not only for incidental
clear and convincing evidence, not merely by fraud but also for actions constituting an abuse of
a preponderance of evidence. Mere allegations are right, as defined by the Civil Code's principles on
insufficient. human relations. The necessity of proving fraud by
clear and convincing evidence applies to both
Assessment of Dolo Causante: To vitiate causal and incidental fraud.
consent, the deceit must be serious enough to
impress or lead an ordinarily prudent person
into error, considering the circumstances and
Guerrero v. Bravo (GRN 1526587, 29 July to authorize the sale under Article 1878. The CA
2005) also found insufficient proof that the vendees
made the mortgage payments. The CA declared
Facts: Spouses Mauricio Bravo ("Mauricio") and the Deed of Sale null and void and ordered the
Simona Andaya Bravo ("Simona") owned two partition of the properties. Petitioners (including
parcels of conjugal land in Makati City, registered the vendees and other heirs) appealed the CA
under TCT Nos. 58999 and 59000 issued on May decision to the Supreme Court.
23, 1958. Simona executed a General Power of
Attorney (GPA) on June 17, 1966, appointing Issues:
Mauricio as her attorney-in-fact and authorizing
him to "mortgage or otherwise hypothecate, sell, Whether the Court of Appeals erred in not
assign and dispose of any and all of my property, upholding the validity and enforcement of the
real, personal or mixed, of any kind whatsoever Deed of Sale with Assumption of Mortgage.
and wheresoever situated, or any interest
therein". Whether the Court of Appeals erred in ordering the
partition of the property.
Mauricio subsequently mortgaged the properties
to PNB and DBP. On October 25, 1970, Mauricio Whether the sale of the properties was simulated
executed a Deed of Sale with Assumption of Real or is void for gross inadequacy of price.
Estate Mortgage ("Deed of Sale") conveying the
properties to "Roland A. Bravo, Ofelia A. Bravo and Ruling:
Elizabeth Bravo" ("vendees") for ₱1,000 and the The Supreme Court PARTIALLY GRANTED the
assumption of the PNB and DBP mortgages. The petition. The Court REVERSED the Court of
Deed of Sale was notarized on October 28, 1970. Appeals' finding that the Deed of Sale was void for
It was not annotated on the titles and was not lack of Simona's consent. The Court held that
presented to PNB and DBP, and mortgage Article 166 of the Civil Code, which requires
payments continued to be in Mauricio's name even spousal consent for alienation of conjugal real
after his death on November 20, 1973. Simona property, does not apply if the properties were
died in 1977. acquired before the effectivity of the Civil Code
(August 30, 1950), as was the case under the old
In 1997, Edward P. Bravo ("Edward"), a grandson Spanish Civil Code where the husband could
of Mauricio and Simona and son of Roland A. alienate conjugal property for valuable
Bravo, filed an action for judicial partition of the consideration without the wife's consent. While the
properties, claiming co-ownership by succession. exact acquisition date was not stipulated, the
He later amended his complaint to include a prayer parties proceeded assuming acquisition after
to annul the Deed of Sale, alleging it was 1950. Even if acquired after 1950, contracts
simulated to prejudice other heirs. David B. Diaz, alienating conjugal real property without the wife's
Jr. ("David Jr."), another grandchild, intervened, consent are merely voidable under the Civil Code,
also impugning the validity of the Deed of Sale and not void ab initio.
praying for partition. The Regional Trial Court
(RTC) upheld the validity of the Deed of Sale, Under Article 173 of the Civil Code, only the wife
finding it was for valuable consideration, duly can ask for the annulment of such a contract, and
notarized, and had not been questioned for many she must file the action during the marriage and
years. The RTC denied judicial partition. Edward within ten years from the transaction. If she fails
and David Jr. appealed to the Court of Appeals to do so, she or her heirs can only demand the
(CA). value of the property if they prove the husband
fraudulently alienated it, which requires clear and
The CA reversed the RTC, declaring the Deed of convincing evidence. Respondents' action to annul
Sale void for lack of Simona's consent, citing the Deed of Sale, filed long after Mauricio's death
Article 166 of the Civil Code, and ruling that the (dissolving the marriage in 1973) and more than
GPA was not a special power of attorney sufficient ten years after the 1970 sale, was filed out of time.
Furthermore, as Simona's heirs, respondents are owners, and any co-owner can demand partition
not the proper parties to invoke Article 166; only at any time, which action does not prescribe and
Simona had that right. Simona never questioned is not subject to laches. The Court modified the
the sale during her lifetime. The Court also found partition scheme ordered by the CA. Lily Elizabeth
that Simona authorized Mauricio to dispose of the Bravo-Guerrero and Ofelia Bravo-Quiestas are
properties through the GPA she executed. each entitled to one-third (1/3) of the properties
as original vendees. The remaining one-third (1/3)
While Article 1878 requires a special power of belongs to Roland Bravo, Sr.'s estate and should
attorney for an agent to sell immovable property, be divided equally among his children (including
this refers to the nature of the authorization, not Edward). The other heirs of Roland Bravo must
its form. A general power of attorney can contain reimburse Roland Bravo, Jr. for expenses incurred
a special power to sell if it includes a clear mandate in paying for and securing the mortgage release.
specifically authorizing the act. Simona's GPA
expressly authorized Mauricio to "sell, assign and Doctrine (Civil Code Focus):
dispose of any and all of my property". This
specific provision was sufficient for the purposes Alienation of Conjugal Property: Under the Civil
of Article 1878 and indicated Simona's consent to Code (effective August 30, 1950), a contract
the sale. On the issue of simulation, the Court alienating conjugal real property without the wife's
explained that simulation of contract (where consent is not void ab initio, but merely voidable.
parties don't intend to be bound) renders a
contract void, while gross inadequacy of price does Annulment of Voidable Conjugal Property Sale
not invalidate a sale unless it signifies a defect in (Article 173): The right to ask for annulment of
consent or intent to donate. such a contract for lack of spousal consent is
reserved exclusively to the wife. The action must
The concepts are incompatible. Respondents failed be filed during the marriage and within ten years
to prove simulation. Respondents also failed to from the transaction. If the wife fails to do so
establish that the consideration (₱1,000 cash + within the period, her or her heirs' only remedy is
assumption of ₱15,000 mortgage, totaling to demand the value of the property if they can
₱16,000) was grossly inadequate in 1970, prove fraudulent alienation by clear and
especially considering the 1967 tax declarations convincing evidence. Heirs do not have the right
valued the properties at ₱16,160. Later valuations to seek annulment based on Article 166; this right
from 1979 and 1997 were deemed irrelevant. belongs solely to the wife.
Even if the vendees failed to pay the full price
(assuming they didn't fully cover the mortgage Special Power of Attorney to Sell Immovables
payments), this would be a breach of (Article 1878): This requirement pertains to the
performance, not lack of consideration, and would nature of the authorization, not its form. A power
not void the sale. Failure to pay goes into the to sell immovable property may be included in a
performance of the contract, while lack of document titled as a general power of attorney,
consideration prevents a valid contract. The provided there is a clear and specific mandate
mortgage was fully paid by 1974. The notarized authorizing the agent to sell the subject property.
Deed of Sale enjoys the presumption of regularity Express authority "to sell, assign and dispose of
and due execution, which respondents failed to any and all of my property, real, personal or
overcome with clear and convincing evidence. mixed" in a general power of attorney is sufficient
for the purposes of Article 1878.
However, the Court GRANTED judicial partition.
While the Deed of Sale was valid, "Roland A. Simulation of Contracts: A contract is simulated
Bravo" (Roland Bravo, Sr.), one of the vendees, is and void when the parties do not really intend to
also the father of respondent Edward Bravo. Thus, be bound by it. A simulated contract has no legal
Edward is a compulsory heir of Roland Bravo, Sr. effect because there is no real agreement.
and is entitled to a share of his father's portion of Simulation requires clear and convincing evidence.
the properties. Edward and petitioners are co- ◦
Gross Inadequacy of Price: Gross inadequacy of Zamora v. Zamora. (GRN 162930, 5
price by itself does not result in a void contract. It December 2012)
does not affect the validity of a contract of sale
unless it indicates a defect in consent (fraud, Facts:
mistake, or undue influence - Article 1355) or that Petitioner Lagrimas de Jesus Zamora is the widow
the parties intended a donation or other contract. of Fernando Zamora, son of Alberto Zamora. The
Simulation is incompatible with inadequacy of dispute involves a parcel of land in Davao City,
price when the parties agree on the price as the originally registered under Transfer Certificate of
actual consideration. Title (TCT) No. 1594 in the name of respondent
Beatriz Miranda, who resided in Manila. Petitioner
Failure to Pay Price vs. Lack of Consideration: claimed that in October 1972, Beatriz Miranda sold
Failure to pay the price goes into the performance the property to her for P50,000, evidenced by a
of a valid contract and gives rise to a right to receipt dated October 23, 1972.
demand fulfillment or cancellation. Lack of
consideration prevents the existence of a valid According to the petitioner, Alberto Zamora,
contract. through an encargado named Eduardo Cecilio, was
in possession of the property, and in 1952,
Presumption of Regularity of Notarized petitioner was designated as his assistant on land
Documents: A document acknowledged before a matters, taking over possession and being
notary public enjoys the presumption of regularity introduced to Cecilio. After the alleged 1972 sale,
and due execution. This presumption must be petitioner claimed she rented out portions of the
upheld absent clear, convincing, and more than property, with Cecilio allegedly continuing as her
merely preponderant evidence to the contrary. encargado. In 1996, petitioner learned that
occupants were being harassed and told to vacate
Burden of Proof: The party alleging simulation or by new parties. She discovered that Beatriz
challenging the regularity of a notarized document Miranda, through her daughter Rose Marie
has the burden of proving these charges. Miranda-Guanio acting as attorney-in-fact, had
sold the property to respondents Ang.
Legitime: The law on legitime does not bar the
disposition of property for valuable consideration Respondents Ang purchased the property after
to descendants or compulsory heirs in a sale verifying the title with the Register of Deeds,
because cash of equivalent value replaces the finding no encumbrance, inspecting the property,
property, resulting in no diminution of the estate. and providing financial assistance to the
occupants, including Eduardo Cecilio, to vacate.
Co-ownership and Partition: Any co-owner may Petitioner then filed an action for specific
demand at any time the partition of the common performance, annulment of sale and certificate of
property. An action for partition does not prescribe title, and damages, seeking to be declared the
and is not subject to laches. owner and compel Beatriz Miranda to execute a
This case clarifies the effects of lack of spousal deed of sale in her favor, while nullifying the sale
consent on the alienation of conjugal property to respondents Ang.
under the Civil Code regime, particularly the
prescriptive period and the parties who can invoke Respondent Rose Marie Miranda-Guanio disputed
annulment. It also distinguishes simulation from the 1972 transaction, the petitioner's visit to her
inadequacy of price and reinforces the mother in 1972, and asserted that the signature
requirements for a valid special power of attorney on the receipt was not her mother's. An NBI
and the presumption of regularity for notarized handwriting expert was presented and concluded
documents. that the signature on the receipt dated October 23,
1972, and the genuine signatures of Beatriz
Miranda were NOT WRITTEN by one and the same
person, indicating forgery.
 creation, transmission... of real rights over
Issue: immovable property must appear in a public
The main issue before the Supreme Court was document, this requirement is generally
whether the Court of Appeals erred in affirming the considered only for convenience. Non-compliance
trial court's decision to dismiss the complaint. This with this form does not adversely affect the
essentially hinged on whether the receipt dated validity of the contract between the parties, but it
October 23, 1972, which was a private document, does affect its binding effect against third parties
could serve as a valid basis for the petitioner's and its registrability.
claim of ownership over the subject property.
However, in this case, the dismissal was not
Ruling: primarily due to the lack of a public document but
The Supreme Court denied the petition and because the private document presented (the
affirmed the decision of the Court of Appeals, receipt) was found to be based on a forged
which had affirmed the trial court's dismissal of the signature.
complaint.
A document with a forged signature has no
The Court ruled that the receipt dated October 23, evidentiary value and cannot be the basis of a
1972, could not prove ownership over the subject claim.
property. This was because the signature of
respondent Beatriz Miranda appearing on the The factual findings of the Court of Appeals,
receipt was found to be forged by the NBI especially when affirming those of the trial court,
handwriting expert, as well as by both the trial are generally final and conclusive and not subject
court and the Court of Appeals. The Court to review by the Supreme Court on appeal, unless
emphasized that the factual finding of forgery, certain recognized exceptions exist. The finding of
affirmed by the Court of Appeals from the trial forgery in this case fell under this principle of
court, is considered final and conclusive upon the finality of factual findings.
Supreme Court unless certain specific exceptions
apply, which were not present in this case. Iglesia v. Heirs of Taeza (GRN 179597, 3
February 2014)
Since the receipt, the sole evidence presented by
the petitioner to prove her claim of ownership, was Facts:
found to have a forged signature, it was deemed a Petitioner Iglesia Filipina Independiente (IFI), a
worthless piece of paper and had no evidentiary registered religious corporation, was the owner of
value. Consequently, the petitioner's complaint a parcel of land in Tuguegarao, Cagayan, covered
had no factual or legal basis and was properly by Original Certificate of Title No. P-8698. A
dismissed by the trial court and affirmed by the portion of this land, specifically Lot Nos. 3653-A
Court of Appeals. The Court stated that there was and 3653-B (totaling 10,000 square meters), was
no need to discuss the other issues raised by the sold by the then Supreme Bishop of the IFI, Rev.
petitioner, as they were based on the assumption Macario Ga, to Bernardino Taeza in February 1976
of a valid claim, which the Court found was for ₱100,000.00, with a deed of sale with
lacking. mortgage. Bernardino Taeza allegedly completed
the payments.
Doctrine:
The relevant doctrine discussed and applied in this Prior attempts were made to annul the sale, first
case pertains to the evidentiary value of by the Parish Council of Tuguegarao in 1977, but
documents, particularly in transactions involving the complaint was dismissed due to lack of
real property, and the binding nature of factual personality to sue. Later, in 1987, the IFI,
findings by lower courts. represented by a different Supreme Bishop, filed
another complaint for annulment, which was
While Article 1358 of the Civil Code requires that dismissed without prejudice pending resolution of
acts and contracts which have for their object the a leadership dispute within the church by the
Securities and Exchange Commission (SEC). The Code allows a corporation sole to sell real property
SEC resolved the leadership issue against Rev. upon obtaining a court order, it also provides that
Macario Ga in February 1988. if the rules and regulations of the religious
denomination regulate the method of selling
Meanwhile, Bernardino Taeza registered the property, those rules shall control and court
parcels of land, and Transfer Certificates of Title intervention is unnecessary. The IFI's own
(TCT) Nos. T-77995 and T-77994 were issued in Constitution and Canons, specifically Article IV (a),
his name. He occupied a portion of the land. require that all real properties of the Church... can
In January 1990, the IFI, represented by its then be disposed of only with the approval and
Supreme Bishop Most Rev. Tito Pasco, filed the conformity of the laymen's committee, the parish
complaint for annulment of sale against priest, the Diocesan Bishop, with sanction of the
Bernardino Taeza, which is the subject of this Supreme Council, and finally with the approval of
Supreme Court case. The Regional Trial Court the Supreme Bishop, as administrator of all the
(RTC) rendered judgment in favor of the IFI, temporalities of the Church.
declaring the Deed of Sale and the resulting TCTs
null and void, and ordering Taeza and his heirs to The Court found that the CA erred in ignoring the
vacate and surrender the premises. fact that the laymen's committee had made its
objection to the sale known to the Supreme
The Court of Appeals (CA), however, reversed the Bishop. The Canons require the approval and
RTC decision, holding that the Supreme Bishop, as conformity of all the listed church entities.
administrator and official representative of the Therefore, when the Supreme Bishop executed the
church, had the authority to transfer ownership, contract of sale despite the opposition from the
and that his authority could not be assailed as the laymen's committee, he acted beyond his powers.
church's constitution and canons did not give such Applying the Civil Code, the Court held that this
authority to any other person or entity. situation falls under the category of unenforceable
contracts as provided in Article 1403, paragraph
The IFI then elevated the case to the Supreme (1) of the Civil Code, which states that contracts
Court, arguing that the sale was null and void or, entered into in the name of another person by one
alternatively, unenforceable, because the who has acted beyond his powers are
Supreme Bishop acted without the required unenforceable, unless ratified.
approval and conformity of other church entities
as mandated by their Canons. However, since Bernardino Taeza had already
obtained a transfer certificate of title over the
Issue: property, the Court deemed that the property had
The main issue before the Supreme Court was been acquired by mistake, applying Article 1456 of
whether the Court of Appeals erred in not finding the Civil Code. This article states that if property
the February 5, 1976 Deed of Sale with Mortgage is acquired through mistake or fraud, the person
null and void or unenforceable. This essentially obtaining it is considered a trustee of an implied
boiled down to the question of whether the then trust (specifically, a constructive trust) for the
Supreme Bishop, Rev. Ga, was authorized to enter benefit of the person from whom the property
into the contract of sale on behalf of the IFI. comes.

Ruling: The Court further clarified that in constructive

The Supreme Court granted the petition and implied trusts, the trustee may acquire the
reversed and set aside the Decision of the Court of property through prescription even without
Appeals. repudiating the trust, but the beneficiary must
bring an action for reconveyance before
The Court ruled that the Deed of Sale with prescription bars it. The prescriptive period for an
Mortgage executed by Rev. Macario Ga in favor of action for reconveyance based on an implied or
Bernardino Taeza was unenforceable. The Court constructive trust is ten years. This ten-year
found that while Section 113 of the Corporation period begins to run from the date of registration
of the deed or the issuance of the certificate of title Heirs of Sofia Quirong vs. Development Bank
over the property. of the Philippines (GRN 173441, 3 Dec. 2009)

In this case, the action was filed on January 19, Facts:

1990, while the TCTs were issued to Bernardino
Taeza on February 7, 1990. Thus, the complaint The late Emilio Dalope left an untitled lot to his
was filed well within the ten-year prescriptive wife, Felisa Dalope, and their nine children. Felisa
period. sold the entire lot to her daughter Rosa Dalope-
Funcion and her husband Antonio Funcion (the
Therefore, the Court concluded that the subject Funcions) to help them obtain a loan from the
property should be returned to the IFI as its Development Bank of the Philippines (DBP). The
rightful owner, and ordered the respondents (heirs Funcions mortgaged the lot with the DBP. When
of Taeza) to execute a deed reconveying the lots the Funcions failed to pay their loan, DBP
to the petitioner. foreclosed on the mortgage and consolidated
ownership in its name in 1981.
Doctrine:
The relevant Civil Code doctrines highlighted and In September 1983, DBP conditionally sold the lot
applied in this case are: to Sofia Quirong. The contract included a waiver
by Sofia Quirong of any warranty against eviction,
Unenforceable Contracts (Article 1403(1) of the stating that DBP did not guarantee possession or
Civil Code): A contract entered into in the name of liability for liens or encumbrances. Sofia Quirong
another by one who has acted beyond their powers made a down payment.
is unenforceable, unless ratified. In this case, the
Supreme Bishop, in selling church property In November 1983, Felisa and eight of her children
without securing the required approvals from (the Dalopes) filed an action for partition and
other church entities as mandated by the IFI's own declaration of nullity of documents against DBP
Canons, acted beyond his powers, rendering the and the Funcions.
contract unenforceable.
In December 1984, despite the ongoing suit, DBP
Constructive Trust (Article 1456 of the Civil Code): executed a deed of absolute sale in favor of Sofia
If property is acquired through mistake or fraud, Quirong, which contained a similar waiver of
the person obtaining it is considered a trustee of warranty.
an implied trust for the benefit of the person from
whom the property comes. This applies when a Sofia Quirong died, and her heirs (petitioners in
person acquires property from someone who was this case) intervened in the Dalopes' suit. They
not authorized to transfer ownership, creating a asked the court to award them the lot or, if
constructive trust by operation of law to prevent awarded to the Dalopes, to allow them to recover
unjust enrichment. the value from DBP. However, they failed to
formally offer evidence, so the trial court did not
Prescription of Action for Reconveyance Based on rule on their claim.
Constructive Trust (Article 1144 of the Civil Code):
An action for reconveyance based on an implied or On December 16, 1992, the trial court decided the
constructive trust prescribes in ten years. The ten- Dalopes' case, declaring the DBP's sale to Sofia
year period commences from the date of Quirong valid only regarding the shares of Felisa
registration of the deed or the issuance of the and Rosa Funcion. The sale, mortgage, and
certificate of title over the property. subsequent sale were declared void insofar as they
prejudiced the shares of the other eight children
(each entitled to a tenth share).

DBP failed to appeal this decision, which became

final on January 28, 1993. An incident regarding
the writ of execution of this decision reached the due to eviction. It held that this type of action,
Supreme Court but did not affect the finality of the being based on injury to the plaintiff's economic
main decision. interests similar to the rescissible contracts under
Article 1381, is subject to the four-year
On June 10, 1998, the Quirong heirs filed the prescriptive period provided under Article 1389 of
present action against DBP, seeking rescission of the Civil Code.
the contract of sale between Sofia Quirong and
DBP and praying for reimbursement of the The Court rejected the argument that the action
purchase price plus damages. They alleged was "upon a written contract" subject to a 10-year
entitlement to rescission because the decision in period under Article 1144. It explained that while
the Dalopes' case stripped them of nearly the Article 1191 allows "rescission" (more accurately,
whole lot Sofia Quirong bought. "resolution") for breach of reciprocal obligations,
which action based on a written contract
The trial court granted rescission and ordered DBP prescribes in 10 years under Article 1144, the
to return the P78,000.00 price plus interest. On present case involved rescission due to eviction, a
appeal, the Court of Appeals reversed, dismissing remedy specifically addressed by Article 1556, and
the action based on prescription, applying the governed by the prescriptive period for rescissible
four-year period under Article 1389 of the Civil contracts under Article 1389.
Code, reckoned from the finality of the December
16, 1992 RTC decision. The Court established that the cause of action
accrued on January 28, 1993, the date the RTC
Issue: decision in Civil Case D-7159 became final and
The primary issue before the Supreme Court was executory, as this was when the heirs were
whether the Quirong heirs' action for rescission of effectively ousted from a substantial portion of the
the sale between DBP and Sofia Quirong was lot. Applying the four-year prescriptive period
already barred by prescription. from this date, the Quirong heirs had until January
28, 1997, to file their action. Since they filed their
Ruling: action on June 10, 1998, it was filed beyond the
The Supreme Court DENIED the petition and four-year period.
AFFIRMED the Court of Appeals' decision, finding Therefore, the Court concluded that the action was
the action barred by prescription. barred by prescription.

The Court clarified the distinction between the two Doctrine:

types of "rescission" under the Civil Code. It noted The relevant Civil Code doctrines discussed and
that while the complaint sought "rescission," the applied in this case are:
cause of action actually arose from the heirs being
ousted by final judgment from the ownership of Warranty Against Eviction (Article 1548 of the Civil
the lot sold by DBP, which violated the warranty Code): Eviction occurs when a vendee is deprived
against eviction provided in Article 1548 of the of the whole or part of the purchased thing by a
Civil Code. Losing 80% of the lot to the Dalopes final judgment based on a right prior to the sale or
due to the judgment gave the Quirong heirs the an act imputable to the vendor. This is an inherent
right to demand rescission of the contract under warranty in a contract of sale.
Article 1556 of the Civil Code, which applies when
the vendee loses a part of the thing sold of such Remedy for Partial Eviction (Article 1556 of the
importance that they would not have bought it Civil Code): Should the vendee lose a part of the
without that part. thing sold of such importance by reason of eviction
that they would not have bought it without that
The Court then determined the applicable part, they may demand the rescission of the
prescriptive period for an action for rescission contract. This is the specific remedy invoked by
under Article 1556, which is based on a the Quirong heirs.
subsequent economic loss suffered by the buyer
Prescriptive Period for Rescission based on a complaint with the Housing and Land Use
Economic Loss (Article 1389 of the Civil Code): An Regulatory Board (HLURB), seeking annulment of
action to claim rescission, particularly referring to the contract, return of payments, and damages.
rescissible contracts enumerated in Article 1381 The HLURB ENCRFO, the HLURB Board of
and actions based on subsequent economic loss Commissioners, and the Office of the President all
like rescission due to partial eviction under Article dismissed Mandap's complaint, finding that she
1556, must be commenced within four years. The failed to prove fraudulent intent and that the
period begins from the time the action accrues, written Contract to Sell, stating the correct
which in this case was the finality of the judgment location, should govern. The Court of Appeals
causing the eviction. reversed these decisions, annulled the contract,
and ordered the refund of payments, finding that
Distinction between "Rescission" under Article ECE Realty employed fraud and expressing doubt
1381/1556 and "Resolution" under Article 1191: about the contract's due execution. ECE Realty
The Court clarified that "rescission" under Articles appealed this CA decision to the Supreme Court.
1381 and 1556 is a subsidiary action based on
injury to economic interests and subject to a four- Issue:
year prescriptive period. This is distinct from The basic issue before the Supreme Court was
"resolution" (often also translated as "rescission") whether ECE Realty was guilty of fraud sufficient
under Article 1191 for breach of reciprocal to nullify the Contract to Sell with Mandap.
obligations, which, being an action upon a written
contract, generally prescribes in 10 years under Ruling:
Article 1144. The case falls under the former The Supreme Court GRANTED the petition filed by
category. ECE Realty, REVERSED and SET ASIDE the
Decision and Resolution of the Court of Appeals,
ECE Realty and Development Inc. vs. Rachel and REINSTATED the September 30, 2005
Mandap (GRN 196182, 1 September 2014) Decision of the HLURB ENCRFO. The Court found
that while ECE Realty's misrepresentation in its
Facts: advertisements was deplorable, it did not
Petitioner ECE Realty and Development Inc. is a constitute the type of fraud that would warrant
corporation involved in building condominium annulling the Contract to Sell.
units. In 1995, ECE Realty began constructing a
condominium project in Pasay City. However, the The Court held that Mandap failed to prove that
project's printed advertisements represented its the location of the project in Makati City was the
location as Makati City. In December 1995, causal consideration or the principal inducement
respondent Rachel G. Mandap, relying on these for her to buy the unit. Crucially, Mandap signed
advertisements, agreed to purchase a unit and the Contract to Sell on June 18, 1996, which
made payments including a reservation fee, clearly stated the project's location was Pasay
downpayment, and monthly installments. On June City. Despite this knowledge, she continued to
18, 1996, Mandap and ECE Realty executed a make payments for over two years before raising
Contract to Sell, which correctly indicated the the issue.
condominium project's location as Pasay City.
The Court upheld the presumption of regularity
More than two years after signing the Contract to accorded to the notarized Contract to Sell.
Sell, on October 30, 1998, Mandap, through her Mandap's allegation that she signed the contract
counsel, demanded the return of her payments with blank spaces and without the location
totaling P422,500.00, alleging that she had only indicated was not supported by clear and
recently discovered the project was located in convincing proof sufficient to overcome this
Pasay City and not Makati City as advertised. presumption.
Instead of returning the money, ECE Realty
informed her the unit was ready for inspection and Furthermore, the Court stated that even assuming
occupancy. Treating this as a denial, Mandap filed the initial misrepresentation constituted fraud,
Mandap's act of affixing her signature to the The Court suggested that Mandap's action of
Contract to Sell, after gaining knowledge of the signing the contract despite knowing the correct
property's actual location, could be construed as location, and continuing payments, could be
an implied ratification of the contract. considered such an act implying an intention to
waive her right to challenge the contract based on
Doctrine: the location misrepresentation.
The relevant Civil Code doctrines applied in this
case pertain to fraud in contracts and ratification Effect of Ratification (Article 1392 and 1396): The
of voidable contracts: Court referenced Article 1392, stating that
"ratification extinguishes the action to annul a
Fraud (Article 1338): The Court cited Article 1338, voidable contract," and Article 1396, providing
which provides that "[t]here is fraud when through that "ratification cleanses the contract from all its
insidious words or machinations of one of the defects from the moment it was constituted".
contracting parties, the other is induced to enter These articles reinforce the consequence of
into a contract which, without them, he would not Mandap's actions potentially amounting to
have agreed to". ratification.

Voidable Contracts (Article 1390): The Court noted Presumption of Regularity: While not a specific
that a contract is voidable or annullable "where the Civil Code article, the case strongly relied on the
consent is vitiated by mistake, violence, established doctrine that notarized documents
intimidation, undue influence or fraud". enjoy a presumption of regularity and are
conclusive as to the truthfulness of their contents
Serious Fraud (Article 1344): To make a contract absent clear and convincing contrary evidence.
voidable, the fraud must be serious and not This presumption supported the validity of the
employed by both parties. Contract to Sell which correctly stated the
location.
Causal Fraud (Dolo Causante): The Court
emphasized that the fraud must be dolo causante Knowledge of Contract Contents: The Court also
or causal fraud, meaning it must be serious and reiterated the principle that one who signs a
the primary factor in obtaining the consent of the contract is presumed to know its contents and has
party. The deceit must be sufficient to impress or a duty to understand it, even if unable to read,
lead an ordinarily prudent person into error. The which can lead to estoppel if they later claim
Court found that the misrepresentation in the ignorance. This doctrine undermined Mandap's
advertisement, while a "false representation," did claim that she was unaware of the location stated
not constitute causal fraud in this instance in the notarized contract.
because the respondent still proceeded to sign the
contract explicitly stating the correct location and Fullido v. Grilli (GRN 215014, 29 February
continued payments thereafter. 2016)

Proof of Fraud: Fraud must be proven by clear and Facts:

convincing evidence, not merely by a In 1994, Gino Grilli, an Italian national, met
preponderance. The Court found that Mandap Rebecca Fullido in Bohol, Philippines. Grilli courted
failed to meet this standard. Fullido, and in 1995, he financially assisted her in
procuring a lot from her parents, which was
Ratification (Article 1393): The Court cited Article registered in her name under TCT No. 30626. They
1393, defining tacit ratification: "It is understood constructed a house on this property, also funded
that there is a tacit ratification if, with knowledge by Grilli, and subsequently maintained a common-
of the reason which renders the contract voidable law relationship, living there when Grilli visited the
and such reason having ceased, the person who Philippines.
has a right to invoke it should execute an act which
necessarily implies an intention to waive his right".
In 1998, Grilli and Fullido executed a contract of annul the contracts. Fullido appealed to the
lease, a memorandum of agreement (MOA), and a Supreme Court, arguing the contracts were null
special power of attorney (SPA) to define their and void and could not be the basis for ejection.
rights over the property. The lease contract
stipulated that Grilli would rent the lot, owned by Issue:
Fullido, for fifty (50) years, automatically The primary issue before the Supreme Court was
renewable for another fifty (50) years for a total whether the lease contract and the Memorandum
rental amount of P10,000.00 for the whole term. of Agreement (MOA) between Fullido and Grilli
It also prohibited Fullido from selling, donating, or were null and void for violating the constitutional
encumbering the lot without Grilli's written prohibition against foreign land ownership, and if
consent. This lease contract was registered. The so, whether they could be invoked as a valid basis
MOA stated that Grilli paid for the house and lot, for Grilli's action for unlawful detainer.
that ownership was to reside absolutely with him,
and that Fullido was prohibited from selling the Ruling:
property without Grilli's conformity. It also granted The Supreme Court GRANTED Fullido's petition,
Grilli the irrevocable right to reside in the house REVERSED and SET ASIDE the decisions of the CA
for his lifetime and obliged Fullido to execute a and RTC, and DISMISSED Grilli's complaint for
deed of sale in favor of someone designated by unlawful detainer.
Grilli or transfer ownership to Grilli himself if a
future law allowed foreigners to own land, should The Court found that the lease contract and the
their relationship terminate. The SPA allowed Grilli MOA were null and void for circumventing the
to administer, manage, and transfer the property constitutional prohibition against land ownership
on Fullido's behalf. by foreigners. The combination of the extremely
long lease period (100 years), the restriction on
After 16 years, their relationship deteriorated, Fullido's right to dispose of the property without
marked by accusations of infidelity. Grilli claimed Grilli's consent, and the provisions in the MOA
he allowed Fullido to stay out of liberality but suggesting Grilli's absolute ownership and control
eventually demanded she vacate due to her effectively amounted to a virtual transfer of
alleged hostility, failure to maintain the property, dominion over the land to a foreigner. These terms
and damage caused by her family. Fullido counter- were deemed repugnant to Section 7, Article XII
claimed that she solely owned the lot, contributed of the 1987 Constitution and exceeded the
to the house by supervision and maintenance, allowable lease period for aliens under Presidential
their relationship lasted 18 years, and Grilli later Decree (P.D.) No. 471 (25 years, renewable for
threatened and physically harmed her, leading her another 25).
to obtain a Temporary Protection Order (TPO) and
later a Permanent Protection Order (PPO) under Since the contracts were void ab initio, they
R.A. No. 9262, which excluded Grilli from the produced no legal effect and could not be the
home. source of any rights, including Grilli's purported
right of possession. A void contract cannot be
Grilli filed an unlawful detainer case against utilized as a valid action or defense in any court
Fullido. The Municipal Circuit Trial Court (MCTC) proceeding, including an ejectment suit. Thus,
dismissed the case, finding Fullido a co-owner of Grilli, having no valid right of possession derived
the house and respecting the TPO. The Regional from the void contracts, had no cause of action for
Trial Court (RTC) reversed the MCTC, upholding unlawful detainer against Fullido.
the lease contract as valid and binding, granting
Grilli the right to possession. The Court of Appeals The Court also held that the doctrine of in pari
(CA) affirmed the RTC, stating that in ejectment delicto was not applicable because the issue
cases, only physical possession is the issue, and involved a matter of public policy, specifically
the contracts constituted a judicial admission of upholding the constitutional prohibition against
Grilli's better right to physical possession. The CA alien land ownership. Allowing the foreigner to
also held that Fullido must file a separate action to
retain possession based on the void contracts residential) by aliens, except in cases of hereditary
would defeat this public policy. succession or specific entities qualified to acquire
public domain lands. This prohibition serves to
Doctrine (Civil Code and related concepts): conserve national patrimony.
The relevant doctrines highlighted in this case are
primarily centered on the nature and effects of Leases Amounting to Virtual Ownership: A long-
void or inexistent contracts under the Civil Code, term lease combined with restrictions on the
particularly when they contravene public policy or owner's rights (like disposal) can be deemed a
the Constitution: virtual transfer of ownership and constitutes a
scheme to circumvent the constitutional
Void Contracts (Article 1409, Civil Code): A void or prohibition, rendering such arrangements void.
inexistent contract lacks essential elements and
has no force and effect from the very beginning, Statutory Limits on Alien Leases (P.D. No. 471):
as if it had never been entered into. It produces P.D. No. 471 limits leases of private lands to aliens
no effect whatsoever either against or in favor of to a maximum of twenty-five (25) years,
anyone (Quod nullum est nullum producit renewable for another twenty-five (25) years. Any
effectum). contract violating this is null and void ab initio. The
100-year term in this case clearly exceeded this
Characteristics of Void Contracts: Void contracts limit.
cannot be ratified. The right to set up the defense
of illegality cannot be waived. There is no need for In Pari Delicto Doctrine and Exception: The
an action to set aside a void or inexistent contract. doctrine states that courts will not grant relief to
parties who are equally at fault in an illegal
Effect of Void Contracts in Court Proceedings: Void agreement. However, an accepted exception
contracts may not be invoked as a valid action or applies when its application contravenes or is
defense in any court proceeding, including an outweighed by public policy. In this case, allowing
ejectment suit. They cannot be the source of any the foreigner to keep the property via void
rights. The Court reiterated its jurisprudence contracts would violate the public policy protecting
setting aside void contracts even in unlawful national patrimony from alien landholding, so the
detainer actions where they were raised as a doctrine was not applied against Fullido.
defense or basis for possession. In essence, the Court reinforced the fundamental
principle that void contracts are legal nullities from
Contracts Violating the Constitution/Law: A inception and cannot be the source of any rights
contract that violates the Constitution and the law or obligations between parties, especially when
is null and void ab initio and vests no rights and they are used to subvert fundamental laws and
creates no obligations. public policy like the restriction on foreign land
ownership.
Circumvention of Law/Public Policy (Relates to
Cause/Object): While not explicitly citing the
articles on cause or object (Arts. 1352, 1409(1)),
the Court's finding that the contracts were a
"scheme to circumvent the Constitutional
prohibition" and that the "illicit purpose becomes
the illegal cause rendering the contracts void"
aligns with the Civil Code principle that contracts
with illegal causes or objects are void.

Constitutional Limitations on Foreign Landholding:

The case strongly emphasizes the Constitutional
prohibition against the transfer or acquisition of
public and private agricultural lands (including