135. Heirs of Ureta vs Heirs of Liberato Ureta G.R.
165748 Weldon sued the private respondent Manuel Cancio in the CFI Manila to
TOPIC: Contracts; simulation
Facts:
 parties entered into a contract of supervision of construction which the
Alfonso was financially welloff during his lifetime. He has 14 children. He
owned several fishpens, a fishpond, a sarisari store, a passenger jeep, and was
engaged in the buying and selling of copra. In order to reduce inheritance tax
Alfonso made it appear that he sold some of his lands to his children.
Accordingly, Alfonso executed four (4) Deeds of Sale covering several parcels of
land in favor of Policronio, Liberato, Prudencia, and his commonlaw wife,
Valeriana Dela Cruz. The Deed of Sale executed on October 25, 1969, in favor
of Policronio, covered six parcels of land, which are the properties in dispute in
this case.
Since the sales were only made for taxation purposes and no monetary
consideration was given, Alfonso continued to own, possess and enjoy the
lands and their produce.
Believing that the six parcels of land belonged to their late father, and as such,
excluded from the Deed of ExtraJudicial Partition, the Heirs of Policronio
sought to amicably settle the matter with the Heirs of Alfonso. Earnest efforts
proving futile, the Heirs of Policronio filed a Complaint for Declaration of
Ownership, Recovery of Possession, Annulment of Documents, Partition, and
Damages against the Heirs of Alfonso before the RTC on November 17, 1995
Issue: Whether or not the Deed of Sale was valid.
Ruling:
 Petitioner Lao Sok promised to give his employees their separation pay, as
The Deed of Sale was void because it is simulated as the parties did not intend
to be legally bound by it. As such, it produced no legal effects and did not alter
the juridical situation of the parties. It is only made to avoid tax purposes. The
CA also noted that Alfonso continued to exercise all the rights of an owner even
after the execution of the Deed of Sale, as it was undisputed that he remained
in possession of the subject parcels of land and enjoyed their produce until his
death.
Two veritable legal presumptions bear on the validity of the Deed of Sale: (1)
that there was sufficient consideration for the contract; and (2) that it was the
result of a fair and regular private transaction. If shown to hold, these
presumptions infer prima facie the transaction's validity, except that it must
yield to the evidence adduced.


136. Weldon Construction Corporation vs Court of Appeals G.R.
L-35721
FACTS:
recover P62,378.82 which was 10% of total cost of construction of the building,
as commission, and P23,788.32 as cost of additional works thereon. Both
petitioner is trying to enforce. Private respondent refused to pay the amounts
demanded by petitioners on the ground that they were already fully paid.
Cancio resisted the petitioner's claims for commission and for the cost of "extra
works" by producing a building contract providing for the construction of the
building in question for the stipulated price of P600,000.00 which said private
respondent had already paid to Weldon Construction
ISSUE:
WON parties are bound by the first proposal or by the second proposal
HELD:
Parties are bound by the second proposal, building contract, as the first
proposal containing the provisions on commission was never perfected. In fact,
the subsequent payments of Cancio were only made after the signing of the
second proposal; thus it was the intention of the parties to enforce such
contract. Only an absolute acceptance of a definite offer manifests consent
necessary to a perfec contract. The mere payment of 10k was not an
unqualified acceptance of the offer of the first proposal. Second proposal
signed by both was already consummated when the building was finished.
Therefore, its validity and binding effect cannot be disputed by the contracting
parties. Petitioner has no right to demand for the commission.
137. Lao Sok vs Sabaysabay G.R. L-61898
soon as he receives the insurance proceeds for his burned building, but
contends that the contract was orally made hence unenforceable since it does
not comply with the Statute of Frauds.
Issue: W/N petitioner’s contention is correct?
Contracts in whatever form they may have been entered into are binding on the
parties unless form is essential for the validity and enforceability of that
particular contract.
It is true that Article 1358 of the Civil Code provides that contracts involving
more than P500.00 must appear in writing, but nothing is said therein that
such requirement is necessary for their validity or enforceability. It has been
held that the writing required under Article 1358 is merely for convenience,
and so the agreement alleged in the amended complaint in the present case can
be enforced even if it may not be in writing.
The requirement of writing for the offer made by Lao Sok is only for
convenience and not enforceability. In fact, the petitioner could be compelled
to put the offer in writing, a step no longer necessary now because of this
petition.


138. Gallardo vs Honorable Intermediate Appellate Court G.R.
L-67742
FACTS: On August 10, 1937, petitioner claimed that the a parcel of land was
sold to them in a private document, an unnotarized deed of sale written in
Tagalog that was allegedly signed by the late Pedro Villanueva conveying and
transferring the property in question in favor of the petitioners. When
petitioners learned of an Affidavit of Adverse Claim, attempts were made to
settle said controversy amicably, but they failed. Hence this case.
Issue: whether or not the unnotarized deed of sale can be considered as a valid
instrument for effecting the alienation by way of sale of a parcel of land
registered under the Torrens System.
Ruling: No.
The general rule enunciated in said Art. 1356 is that contracts are obligatory, in
whatever form they may have been entered, provided all the essential
requisites for their validity are present, except when the law so requires
requiring a contract to be in some form for validity or enforceability.
Said law is Section 127 of Act 496 which requires, among other things, that the
conveyance be executed "before the judge of a court of record or clerk of a court
of record or a notary public or a justice of the peace, who shall certify such
acknowledgment substantially in form next hereinafter stated."
Such law was violated in this case. The action of the Register of Deeds of
Laguna in allowing the registration of the private deed of sale was
unauthorized and did not lend a bit of validity to the defective private
document of sale.
139. Bugatti vs Court of Appeals G.R. 138113
Facts: The present case traces its origins to an action for recovery of
possession and damages filed by respondents Ben and Maria Baguilat on 11
July 1989, with the RTC of Lagawe, Ifugao against petitioner Emilio Bugatti. In
their complaint, respondents alleged that they are the owners of a parcel of
land situated in Lagawa, Ifugao and that sometime in December 1987,
petitioner offered to lease their land. According to respondents, they discussed
the terms and conditions of the lease with petitioner, particularly that
petitioner will lease a portion of respondents land for a period of nine (9) years
in return for a monthly rental of P500.00; that petitioner will construct a
building on such land, the cost of which shall not exceed P40,000.00; that
respondents shall reimburse petitioner for the cost of the building by applying
the rentals thereto; that after petitioner is fully reimbursed for the costs of
construction in the amount of P40,000.00, he shall continue to pay the
monthly rental of P500.00 for the duration of the lease; that upon the
termination of the lease, the building shall belong to respondents. It was
agreed by petitioner and respondents that the aforesaid terms and conditions
should be included in a written contract of lease to be prepared by petitioner
and presented to respondents for their approval. However, even before
preparing the contract of lease, petitioner occupied respondents land and
began construction on January 18, 1988. Immediately objecting to the
construction, respondent Maria Baguilat demanded that the contract of lease
should first be signed. However, petitioner assured respondents that he was
preparing the contract. Sometime in March, 1988, petitioner finally presented
the lease contract to respondents but it did not contain the terms and
conditions previously agreed upon. Respondents insisted that petitioner re-
draft the contract in accordance with their discussions. The revised document,
presented to respondents sometime in April, 1988, contained counter-
proposals. Respondents refused to accede to such counter-proposals. Despite
the fact that no contract was signed by the parties, petitioner continued to
occupy respondents land.
Issue: Whether there was a perfection of the contract of lease?
Held: Petitioner is undoubtedly a builder in bad faith for despite the absence
of a perfected contract of lease and in utter disregard of respondents numerous
protests, he continued his construction activities upon respondents land.
A contract undergoes three distinct stages – preparation or negotiation, its
perfection, and finally, its consummation. Negotiation begins from the time the
prospective contracting parties manifest their interest in the contract and ends
at the moment of agreement of the parties. The perfection or birth of the
contract takes place when the parties agree upon the essential elements of the
contract. The last stage is the consummation of the contract wherein the
parties fulfill or perform the terms agreed upon in the contract, culminating in
the extinguishment thereof.
140. Tong Brothers Co vs IAC G.R. 73918
Facts:
On December 1974, the Juliano and Comp. brought the Zamboanga-J to the
defendant-appellant's backyard. The defendant-appellant asked for a deposit of
15,000 but even it was not yet paid, they dry-docked the vessel. The payment of
the 15,000 was paid in the form of 2 checks as initial deposit for the said
repair. On the ground that the petitioner did not complete all the work
necessary, essential and indespensable to rendering the vessel seaworthy
resulting in its deterioration and total loss, the respondent filed a complaint
against the petitioner . The CFI of Cotabato held in favor of the private
respondent.
It was appealed on the higher court , petioner contended that before accepting
the job, it wanted to have the respondent sign a written contract with an initial
down payment of 50,000. Moreover, the removal of the rudders and pulling
out of the tail shafts with propellers were standard operating procedures to
inspect the condition. It did not amount to the commencement of the repair of
the vessel or partial compliance with a contract to repair the vessel. The series
of their communication from Jan. 14 to 28 1975 through telegrams showed that
there was no perfected contract to repair the vessel.
Issue: Whether or not there was a perfected contract between the petioner and
the respondent to repair the vessel of Zamboanga-J.
Ruling: There was not yet meeting of the minds as to the cause of contract. The
SC ruled that the lower court committed revisible error. It was shown through
the telegram that the petitioner had not yet consented to the contract and the
fact that the private respondent ignored the telegram, confirms that there was
no perfected contract to repair Zamboanga-J.
Art. 1319 of CC provides that: "Consent is manifested by the meeting of the
offer and the acceptance upon the thing and the cause which are to constitute
the contract. The offer must be certain and the acceptance absolute. A qualified
acceptance constitutes a counter offer."


141. Lim Yhi Luya vs Court of Appeals G.R. L-40258
Facts:
Petitioner contends that the appellate court erred, first in holding that the
contract of sale of sugar executed by and between petitioner and respondent is
not evidence that payment of the sugar had been made by the petitioner to
respondent upon the signing of said contract;
Issue: W/N petitioner’s contention is correct?
Ruling:
Yes.
At this juncture, it is well to lay down cardinal rules in the interpretation of
contracts as provided in the New Civil Code, thus —
Art. 1370. If the terms of a contract are Clear and leave no doubt upon the
intention of the contracting parties. the literal meaning of its stipulation shall
control.
If the words appear to be contrary to the evident intention of the parties, the
latter shall prevail over the former.
Art. 1371. In order to judge the intention. Of the contracting parties, their
contemporaneous and subsequent acts shall be principally considered.
Art. 1375. Words which may have different significations shall be understood in
that which is most in keeping with the nature and object of the contract.
Art. 1377. The interpretation of obscure words or stipulations in a contract
shall not favor the party who caused the obscurity.
In truth the stipulation in the contract which reads: "Terms: Cash upon signing
of this contract" is very clear and simple in its meaning, leaving no doubt in
Our minds upon the intention of the contracting parties, hence, the first rule of
contract interpretation that the literal meaning of its stipulation shall control,
is the governing rule at hand. Resorting to Webster's Third New International
Dictionary, p. 2515, for the definition of the word "upon" which literally means,
among others, "10a (1): immediately following on; very soon after; ... b: on the
occasion of at the time of; ... " the clear import of the stipulation is that
payment was made on the occasion of or at the time of the signing of the
contract and not that payment will follow the signing. We must adopt the
former meaning because it is such an interpretation that would most
adequately render the contract effectual, following Article 1373 of the New Civil
Code which provides:
Art. 1373. If some stipulation of any contract should admit of several meanings,
it shall be understood as bearing that import which is most adequate to render
it effectua.
The evidence for the petitioner establishes that after paying the cash
consideration to Cashier Garcia and Manager Abalos, the parties signed the
contract and thereafter a signed copy of said contract was given to petitioner
and also the four (4) delivery orders covering the 4,085 piculs of sugar sold.
The questioned stipulation recites exactly the act of payment which is the
paying of the money on the occasion of or at the time of the signing.
Respondent would have Us believe that the stipulation does not mean what it
conveys because petitioner has not paid cash after the signing of the contract
nor at any time thereafter. We cannot agree with the respondent for otherwise
the sanctity of the written contract can easily be violated and impugned, for
otherwise oral testimony would prevail over a written document to vary, alter
or modify the written terms, and most importantly, respondent's interpretation
would render the stipulation ineffectual as a mere agreement.
142. Briones vs Cammayo Et al G.R. L-23559
FACTS: Plaintiff filed an action against the defendants to recover from them
the amount of P1,500.00, plus damages, attorney’s fees and costs of suit. The
defendants answered that a mortgage contract was executed for securing the
payment of P1,500.00 for a period of one year, without interest, but the
plaintiff delivered to the defendant Primitivo only the sum of P1,200.00 and
withheld the sum of P300.00 which was intended as advance interest for one
year: that on account of said loan of P1,200.00, defendant Primitivo paid to the
plaintiff the total sum of P330.00 which plaintiff, illegally and unlawfully
refuse to acknowledge as part payment of the account but as interest of the said
loan for an extension of another term of one year; and that said contract of loan
entered into between plaintiff and defendant Primitivo is a usurious contract.
Briones denied the allegations of the counterclaim. The Municipal Court
rendered judgment sentencing the defendants to pay the plaintiff with interest
thereon plus attorney’s fees. The Court of First Instance of Manila also ordered
the defendants to pay the plaintiff. Defendants claim that the trial court erred
in sentencing them to pay the principal of the loan notwithstanding its finding
that the same was tainted with usury. It is not now disputed that the contract
of loan in question was tainted with usury.
ISSUE: Whether or not the creditor is entitled to collect from the debtor the
amount representing the principal obligation in a contract of loan tainted with
usury.
HELD: Yes. Under the Usury Law a usurious contract is void and the creditor
had no right of action to recover the interest in excess of the lawful rate but this
did not mean that the debtor may keep the principal received by him as loan-
thus unjustly enriching himself to the damage of the creditor. The Usury Law,
by its letter and spirit, did not deprive the lender of his right to recover from
the borrower the money actually loaned to and enjoyed by the latter. 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, 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. The principal debt remaining without stipulation for payment of
interest can 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.
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.
Or just:
Stipulations authorizing the imposition of iniquitous or unconscionable
interest are contrary to morals, if not against the law for these contracts are
inexistent and void from the beginning.


143. Asian Cathay Finance and Leasing Corporation vs Spouses
Avador G.R. 186550
Asian Cathay Finance and Leasing Corporation (ACFLC) extended a loan of
P800,00.00 to respondent Cesario Gravador with respondents Norma de Vera
and Emma Concepcion Dumigpi as his co-makers, which was secured by a real
estate mortgage executed by Cesario over his property.
Respondents averred that the mortgage did not make reference to the
promissory note and contained a provision on the waiver of the mortgagor’s
right of redemption, which is contrary to law and public policy.
Issue: WON the provision in the real estate mortgage on the mortgagor’s
waiver of right of redemption should be voided for being against public policy;
Ruling:
The Court agreed with the CA’s explanation in invalidating the waiver: The
supposed waiver was in fine print and in the form and language prepared by
ACFLC, partaking of the nature of a contract of adhesion. Doubts in the
interpretation of stipulations in contracts of adhesion should be resolved
against the party that prepared them. This principle especially holds true with
regard to waivers, which are not presumed, but which must be clearly and
convincingly shown. ACFLC failed to show the efficacy of this waiver.
Moreover, to say that the mortgagor’s right of redemption may be waived
through a fine print in a mortgage contract is, in the last analysis, tantamount
to placing at the mortgagee’s absolute disposal the property foreclosed. It
would render practically nugatory this right that is provided by law for the
mortgagor for reasons of public policy. A contract of adhesion may be struck
down as void and unenforceable for being subversive to public policy, when the
weaker party is completely deprived of the opportunity to bargain on equal
footing.


144. Tiu vs Platinum Plans Phil G.R. 163512
FACTS
Daisy B. Tiu was re-hired by Platinum Plans Phil., Inc. as a Senior Assistant
Vice-President and Territorial Operations Head. A contract of employment,
valid for 5 years, was executed by both parties on January 1, 1993 and
contained a non-involvement clause stating that the employee (Tiu) may not be
involved in any corporation engaged in the same business or industry as that of
the employer 2 years after the employee’s separation from the company. Tiu
became Vice-President for Sales of another corporation also engaged in the
same pre-need industry on November 1995. Respondent sued for damages,
while petitioner countered by saying that such non-involvement clause was
unenforceable for being against public order or public policy since it does not
allow her to engage in the only line of work she knows.
ISSUE
Whether or not the non-involvement clause is contrary to public policy
RULING
No. Art. 1306 of the Civil Code provides that,
The contracting parties may establish such stipulations, clauses, terms
and conditions as they may deem convenient, provided they are not
contrary to law, morals, good customs, public order, or public policy.
Also, Art. 1159 of the same Code provides that,
Obligations arising from contracts have the force of law between the
contracting parties and should be complied with in good faith.
The Court has ruled that “a non-involvement clause is not necessarily void for
being in restraint of trade as long as there are reasonable limitations as to time,
trade, and place.” Also, by virtue of the position she once held, where she was
privy to highly confidential information regarding respondent’s business, such
non-involvement clause provides sufficient protection for the respondent and
is thus not contrary to public welfare. Therefore, such agreement must be
complied with by both parties in good faith.


145. Carino vs Court of Appeals G.R. L-47661
Essentially, both parties in LTA Case No. 490 (Encabo and the spouses Cariño)
claimed the right to purchase the lot in question from the LTA. After the
submission of their respective pleadings and evidence, the LTA rendered a
decision holding that the status quo should be maintained. It reasoned out that
"the authenticity of the alleged deed (Exh. "D-1") is not for this office to decide,
as only the courts have that prerogative."
Issue: Whether the Deed of Sale of House and Transfer of Rights on which the
petitioners have based their application over the questioned lot, is simulated
and therefore an inexistent deed of sale.
The circumstances surrounding the execution of the document Exhibit "D-1" as
recounted by the petitioners are bereft of credence. They are so weak that they
lead to the conclusion that indeed, there was no real and actual Deed of Sale
entered into. The petitioners herein have nothing else to support their claim
over the disputed lot except for the Deed of Sale, Exhibit "D-1" which is even
unnotarized, and the exact date of execution, unknown. Whereas, on the other
hand, the private respondents clearly have a preponderance of evidence
negating the validity of such deed.
Contracts of sale are void and produce no effect whatsoever where the price,
which appears therein as paid, has in fact never been paid by the vendee to the
vendor. A sale of land without consideration, but intended merely to protect a
party to a joint venture for the cash advances he was to make for the realty
subdivision that the parties wanted to put up, is null and void. The law is clear
on this matter.  been opined that they may be "ratified" by means of and in "the form of a


146. Rubias vs Batiller G.R. L-35702
Facts:
Before the war with Japan, Francisco Militante filed an application for
registration of the parcel of land in question. After the war, the petition was
heard and denied. Pending appeal, Militante sold the land to petitioner, his
son-in-law. Plaintiff filed an action for forcible entry against respondent.
Defendant claims the complaint of the plaintiff does not state a cause of action,
the truth of the matter being that he and his predecessors-in-interest have
always been in actual, open and continuous possession since time immemorial
under claim of ownership of the portions of the lot in question.
Issue:
Whether or not the contract of sale between appellant and his father-in-law
was void because it was made when plaintiff was counsel of his father-in-law in
a land registration case involving the property in dispute
Held:
The stipulated facts and exhibits of record indisputably established plaintiff's
lack of cause of action and justified the outright dismissal of the complaint.
Plaintiff's claim of ownership to the land in question was predicated on the sale
thereof made by his father-in- law in his favor, at a time when Militante's
application for registration thereof had already been  dismissed  by the Iloilo
land registration court and was pending appeal in the Court of Appeals.
Article 1491 of our Civil Code (like Article 1459 of the Spanish Civil Code)
prohibits in its six paragraphs certain persons, by reason of the relation of trust
or their peculiar control over the property, from acquiring such property in
their trust or control either directly or indirectly and "even at a public or
judicial auction," as follows: (1) guardians; (2) agents; (3) administrators; (4)
public officers and employees; judicial officers and employees, prosecuting
attorneys, and lawyers; and (6) others especially disqualified by law.
Fundamental consideration of public policy render void and inexistent such
expressly prohibited purchase (e.g. by public officers and employees of
government property intrusted to them and by justices, judges, fiscals and
lawyers of property and rights in litigation and submitted to or handled by
them, under Article 1491, paragraphs (4) and (5) of our Civil Code) has been
adopted in a new article of our Civil Code, viz, Article 1409 declaring such
prohibited contracts as "inexistent and void from the beginning."
Indeed, the nullity of such prohibited contracts is definite and permanent and
cannot be cured by ratification. The public interest and public policy remain
paramount and do not permit of compromise or ratification. In his aspect, the
permanent disqualification of public and judicial officers and lawyers
grounded on public policy differs from the first three cases of guardians, agents
and administrators (Article 1491, Civil Code), as to whose transactions it had
new  contact, in which cases its validity shall be determined only by the
circumstances at the time the execution of such new contract. The causes of
nullity which have ceased to exist cannot impair the validity of the new
contract. Thus, the object which was illegal at the time of the first contract, may
have already become lawful at the time of the ratification or second contract; or
the service which was impossible may have become possible; or the intention
which could not be ascertained may have been clarified by the parties. The
ratification or second contract would then be valid from its execution; however,
it does not retroact to the date of the first contract."
147. Tongoy vs the Honorable Court of Appeals - G.R. L-45645
Facts:
This case is an action for reconveyance of the 2 parcels of land in Bacolod City.
The 1st land is Hacienda Pulo which title was registered in the name of Luis D.
Tongoy and the 2nd is Cuaycong property which title was transferred to Luis D.
Tongoy. The properties were mortgaged in the year 1936 by said Luis D.
Tongoy for a period of 15 years; that the mortgage obligations to the PNB were
fully paid on April 17, 1956; that the release of mortgage was recorded in the
Registry of Deeds on May 5, 1958; and that the case for reconveyance was filed
in the trial court on June 2, 1966.
Issue:
1) W/N the rights of herein respondents over subject properties, which were
the subjects of simulated or fictitious transactions, have already prescribed.
2) W/N the 10-year prescriptive period should not be counted from the date of
registration in the name of the trustee.
Ruling:
Evidently, the deeds of transfer executed in favor of Luis Tongoy were from the
very beginning absolutely simulated or fictitious, since the same were made
merely for the purpose of restructuring the mortgage over the subject
properties and thus preventing the foreclosure by the PNB. As stated in
Articles 1409 and 1410 of the New Civil Code, the within action for
reconveyance instituted by the respondents which is anchored on the said
simulated deeds of transfer cannot and should not be barred by prescription.
There is no implied trust that was generated by the simulated transfers;
because being fictitious or simulated, the transfers were null and void ab initio-
from the very beginning and thus vested no rights whatsoever in favor of Luis
Tongoy or his heirs.
When the mortgages were constituted, respondents Cresenciano Tongoy and
Norberto Tongoy were still minors, while respondent Amado Tongoy became
of age on August 19, 1931, and Ricardo Tongoy attained majority age on August
12, 1935. Still, considering that such transfer of the properties in the name of
Luis D. Tongoy was made in pursuance of the master plan to save them from
foreclosure, the said respondents were precluded from doing anything to assert
their rights. It was only upon failure of the herein petitioner, as administrator
and/or successor-in- interest of Luis D. Tongoy, to return the properties that
the prescriptive period should begin to run. The prescriptive period is ten year-
from the date of recording on May 5, 1958 of the release of mortgage in the
Registry of Deeds.
148. Lita Enterprises Inc vs IAC G.R. L-64693
Facts:
Ocampo and Garcia purchased in installment, from the Delta Motor Sales
Corporation, 5 Toyota Corona Standard cars to be used as taxicabs. They had
no franchise to operate taxicabs, so they contracted with Lita Enterprises for
the use of the latter’s certificate of public convenience in consideration of an
initial payment of P1,000 and a monthly rental of P200 per taxicab unit. The
aforesaid cars were then registered in the name of Lita Enterprises. One of the
taxicabs driven by Ocampo and Garcia’s employee, Emeterio Martin, collided
with a motorcycle whose driver, Florante Galvez, died from the head injuries
sustained therefrom. A criminal case was filed against the driver Martin, while
a civil case for damages was instituted by heir of the victim against Lita
Enterprises.
Issue:
WON Lita Enterprises is liable to the heir of the victim who died as a result of
the gross negligence of Ocampo and Garcia’s driver while driving one private
respondents’ taxicabs.
Ruling:
Yes. A kabit system whereby a person who has been granted a certificate of
convenience allows another person who owns motors vehicles to operate under
such franchise for a fee. Contrary to public policy and, therefore, void and
inexistent under Article 1409 of the Civil Code. As a result, the court will not
aid either party to enforce an illegal contract, but will leave them both where it
finds them (pari delicto rule). The defect of inexistence of a contract is
permanent and incurable, and cannot be cured by ratification or by
prescription.
149. Arsenal vs IAC G.R. L-66696
The petitioners rely heavily on the nullity of the contract of sale executed in
1957 between the respondents Palaos and Suralta. They allege that because the
previous sale was void from the beginning, it cannot be ratified and "No
amount of bad faith on the part of the petitioners could make it valid and
enforceable in the courts of law."
Issue: W/N petitioner’s contention is correct?
A contract which purports of alienate, transfer, convey or encumber any
homestead within the prohibitory period of five years from the date of the
issuance of the patent is void from its execution. In a number of cases, this
Court has held that such provision is mandatory.
Under the provisions of the Civil Code, a void contract is inexistent from the
beginning. It cannot be ratified neither can the right to set up the defense of its
illegality be waived. (Art. 1409, Civil Code).
To further distinguish this contract from the other kinds of contract, a
commentator has stated that:
The right to set up the nullity of a void or non-existent contract
is not limited to the parties as in the case of annullable or
voidable contracts; it is extended to third persons who are
directly affected by the contract. (Tolentino, Civil Code of the
Philippines, Vol. IV, p. 604, [1973]).
Any person may invoke the inexistence of the contract
whenever juridical effects founded thereon are asserted
against him. (Id. p. 595).
Concededly, the contract of sale executed between the respondents Palaos and
Suralta in 1957 is void. It was entered into three (3) years and eight (8) months
after the grant of the homestead patent to the respondent Palaos in 1954.