THIRD DIVISION
|
JOAQUIN VILLEGAS and EMMA
M. VILLEGAS, Petitioners, - versus - RURAL BANK OF TANJAY, INC., Respondent. |
G.R.
No. 161407
Present: YNARES-SANTIAGO, J.,
Chairperson, CARPIO,* NACHURA, and LEONARDO-DE CASTRO,***
JJ. Promulgated: June 5,
2009 |
x------------------------------------------------------------------------------------x
DECISION
NACHURA, J.:
This
petition for review on certiorari under
Rule 45 of the Rules of Court assails the Court of Appeals (CA) Decision[1] in
CA-G.R. CV No. 40613 which affirmed with modification the Regional Trial Court
(RTC) Decision in Civil Case No. 9570.[2]
The
facts, as summarized by the CA, follow.
Sometime
in June, 1982, [petitioners], spouses Joaquin and Emma Villegas, obtained an
agricultural loan of P350,000.00 from [respondent] Rural Bank of Tanjay,
Inc. The loan was secured by a real estate mortgage on [petitioners’]
residential house and 5,229 – sq.m. lot situated in Barrio Bantayan,
For failure of [petitioners] to pay
the loan upon maturity, the mortgage was extrajudicially foreclosed. At the
foreclosure sale, [respondent], being the highest bidder, purchased the
foreclosed properties for P367,596.16. Thereafter, the Sheriff executed
in favor of [respondent] a certificate of sale, which was subsequently
registered with the Registry of Deeds of Dumaguete City.
[Petitioners] failed to redeem the properties within the one-year redemption period.
In May, 1987, [respondent] and
[petitioner] Joaquin Villegas, through his attorney-in-fact[,] Marilen
Victoriano, entered into an agreement denominated as “Promise to Sell,” whereby
[respondent] promised to sell to [petitioners] the foreclosed properties for a
total price of P713,312.72, payable within a period of five (5) years.
The agreement reads in part:
PROMISE TO SELL
x x x x
WITNESSETH:
x x x x
2) That for and in consideration of SEVEN
HUNDRED THIRTEEN THOUSAND AND THREE HUNDRED TWELVE & 72/100 PESOS (P713,312.72),
the VENDOR do hereby promise to sell, transfer, and convey unto the VENDEE,
their heirs, successors and assigns, all its rights, interests and
participations over the above parcel of land with all the improvements thereon
and a residential house.
3) That upon signing of this Promise To
Sell, the VENDEE shall agree to make payment of P250,000.00 (Philippine
Currency) and the balance of P463,312.72 payable in equal yearly
installments plus interest based on the prevailing rate counting from the date of
signing this Promise to Sell for a period of five (5) years.
x x x x
5) Provided further, that in case of a delay in any yearly installment for a period of ninety (90) days, this sale will become null and void and no further effect or validity; and provided further, that payments made shall be reimbursed (returned) to the VENDEE less interest on the account plus additional 15% liquidated damages and charges.
Upon the signing of the agreement,
[petitioners] gave [respondent] the sum of P250,000.00 as down payment.
[Petitioners], however, failed to pay the first yearly installment, prompting
[respondent] to consolidate its ownership over the properties. Accordingly, TCT
No. 12389 was cancelled and a new one, TCT No. 19042, (Exh. 14) was issued in
[respondent’s] name on November 8, 1989. Thereafter, [respondent] took
possession of the properties. Hence, the action by [petitioners for declaration
of nullity of loan and mortgage contracts, recovery of possession of real
property, accounting and damages and, in the alternative, repurchase of real
estate] commenced on January 15, 1990.
In resisting the complaint, [respondent] averred that [petitioners] have absolutely no cause of action against it, and that the complaint was filed only to force it to allow [petitioners] to reacquire the foreclosed properties under conditions unilaterally favorable to them.
x x x x
After trial on the merits, the [RTC] rendered a Decision dismissing the complaint, disposing as follows:
“In the light of the foregoing, it is
considered opinion of this Court, that [petitioners] failed to prove by
preponderance of evidence their case and therefore the herein complaint is
ordered dismissed. [Petitioners] are ordered to pay [respondent] the sum of P3,000.00
as attorney’s fees and to pay costs without pronouncement as to counterclaim.
SO ORDERED.”[3]
On
appeal by both parties, the CA affirmed with modification the RTC’s ruling,
thus:
WHEREFORE,
the appealed Decision is hereby MODIFIED
by (a) ORDERING [respondent] to
reimburse [petitioners] their down payment of P250,000.00 and (b) DELETING the award of attorney’s fees
to [respondent].
SO ORDERED.[4]
Hence, this appeal by certiorari raising the following issues:
(1) The Court of Appeals erred in not holding that the loan and mortgage contracts are null and void ab initio for being against public policy;
(2) The Court of Appeals erred in not holding that, by reason of the fact that the loan and mortgage contracts are null and void ab initio for being against public policy, the doctrine of estoppel does not apply in this case;
(3) The Court of Appeals erred in not finding that the addendum on the promissory notes containing an escalation clause is null and void ab initio for not being signed by petitioner Emma M. Villegas, wife of petitioner Joaquin Villegas, there being a showing that the companion real estate mortgage involves conjugal property. x x x.
(4) The Court of Appeals erred in not finding that the addendum on the promissory notes containing an escalation clause is null and void ab initio for being so worded that the implementation thereof would deprive petitioners due process guaranteed by [the] constitution, the petitioners not having been notified beforehand of said implementation.[5]
Notwithstanding
petitioners’ formulation of the issues, the core issue for our resolution is
whether petitioners may recover possession of the mortgaged properties.
The
petition deserves scant consideration and ought to have been dismissed
outright. Petitioners are precluded from seeking a declaration of nullity of
the loan and mortgage contracts; they are likewise barred from recovering
possession of the subject property.
Petitioners
insist on the nullity of the loan and mortgage contracts. Unabashedly,
petitioners admit that the loan (and mortgage) contracts were made to appear as
several sugar crop loans not exceeding P50,000.00 each – even if they
were not – just so the respondent rural bank could grant and approve the same pursuant
to Republic Act (R.A.) No. 720, the Rural Banks Act. Petitioners boldly
enumerate the following circumstances that show that these loans were obtained
in clear contravention of R.A. No. 720:
(a) The petitioners never planted sugar cane on any parcel of agricultural land;
(b) The mortgaged real estate is
residential, with a house, located in the heart of
(c) Petitioners never planted any sugar cane on this one-half (1/2) hectare parcel of land;
(d) Petitioners were never required to execute any chattel mortgage on standing crops;
(e) To make it appear that the petitioners
were entitled to avail themselves of loan benefits under Republic Act No. 720,
Rural Banks Act, respondent made them sign promissory notes for P350,000.00
in split amounts not exceeding P50,000.00 each.[6]
In short, petitioners aver that the
sugar crop loans were merely simulated contracts and, therefore, without any force
and effect.
Articles
1345 and 1346 of the Civil Code are the applicable laws, and they unmistakably
provide:
Art. 1345. Simulation of a contract may be absolute or relative. The former takes place when the parties do not intend to be bound at all; the latter, when the parties conceal their true agreement.
Art. 1346. An absolutely simulated or fictitious contract is void. A relative simulation, when it does not prejudice a third person and is not intended for any purpose contrary to law, morals, good customs, public order or public policy binds the parties to their real agreement.
Given
the factual antecedents of this case, it is obvious that the sugar crop loans
were relatively simulated contracts and that both parties intended to be bound
thereby. There are two juridical acts involved in relative simulation— the ostensible act and the hidden act.[7]
The ostensible act is the contract
that the parties pretend to have executed while the hidden act is the true agreement between the parties.[8] To
determine the enforceability of the actual agreement between the parties, we must
discern whether the concealed or hidden act is lawful and the essential
requisites of a valid contract are present.
In this case, the juridical act which
binds the parties are the loan and mortgage contracts, i.e., petitioners’ procurement of a loan from respondent. Although
these loan and mortgage contracts were concealed and made to appear as sugar
crop loans to make them fall within the purview of the Rural Banks Act, all the
essential requisites of a contract[9]
were present. However, the purpose thereof is illicit, intended to circumvent
the Rural Banks Act requirement in the procurement of loans.[10]
Consequently, while the parties intended to be bound thereby, the agreement is
void and inexistent under Article 1409[11]
of the Civil Code.
In
arguing that the loan and mortgage contracts are null and void, petitioners would
impute all fault therefor to respondent. Yet, petitioners’ averments evince an
obvious knowledge and voluntariness on their part to enter into the simulated
contracts. We find that fault for the
nullity of the contract does not lie at respondent’s feet alone, but at petitioners’
as well. Accordingly, neither party can maintain an action against the other,
as provided in Article 1412 of the Civil Code:
Art. 1412. If the act in which the unlawful or forbidden cause consists does not constitute a criminal offense, the following rules shall be observed:
(1) When the fault is on the part of both contracting parties, neither may recover what he has given by virtue of the contract, or demand the performance of the other’s undertaking;
(2) When only one of the contracting parties is at fault, he cannot recover what he has given by reason of the contract, or ask for the fulfillment of what has been promised him. The other, who is not at fault, may demand the return of what he has given without any obligation to comply with his promise.
Petitioners
did not come to court with clean hands.
They admit that they never planted sugarcane on any property, much less
on the mortgaged property. Yet, they eagerly accepted the proceeds of the simulated
sugar crop loans. Petitioners readily participated in the ploy to circumvent
the Rural Banks Act and offered no objection when their original loan of P350,000.00
was divided into small separate loans not exceeding P50,000.00 each. Clearly,
both petitioners and respondent are in
pari delicto, and neither should be accorded affirmative relief as against
the other.
In
Tala Realty Services Corp. v. Banco
Filipino Savings and Mortgage Bank,[12]
we held that when the parties are in pari
delicto, neither will obtain relief from the court, thus:
The Bank should not be allowed to dispute the sale of its lands to Tala nor should Tala be allowed to further collect rent from the Bank. The clean hands doctrine will not allow the creation or the use of a juridical relation such as a trust to subvert, directly or indirectly, the law. Neither the bank nor Tala came to court with clean hands; neither will obtain relief from the court as one who seeks equity and justice must come to court with clean hands. By not allowing Tala to collect from the Bank rent for the period during which the latter was arbitrarily closed, both Tala and the Bank will be left where they are, each paying the price for its deception.[13]
Petitioners
stubbornly insist that respondent cannot invoke the pari delicto doctrine, ostensibly because of our obiter in Enrique T. Yuchengco, Inc.,
et al. v. Velayo.[14]
In
Yuchengco, appellant sold 70% of the
subscribed and outstanding capital stock of a Philippine corporation, duly licensed
as a tourist operator, to appellees without the required prior notice and
approval of the Department of Tourism (DOT). Consequently, the DOT cancelled
the corporation’s Local Tour Operator’s License. In turn, appellees asked for a
rescission of the sale and demanded the return of the purchase price.
We
specifically ruled therein that the pari
delicto doctrine is not applicable, because:
The obligation to secure prior Department of Tourism approval devolved upon the defendant (herein appellant) for it was he as the owner vendor who had the duty to give clear title to the properties he was conveying. It was he alone who was charged with knowing about rules attendant to a sale of the assets or shares of his tourist-oriented organization. He should have known that under said rules and regulations, on pain of nullity, shares of stock in his company could not be transferred without prior approval from the Department of Tourism. The failure to secure this approval is attributable to him alone.[15]
Thus, we declared that even assuming
both parties were guilty of the violation, it does not always follow that both
parties, being in pari delicto,
should be left where they are. We recognized as an exception a situation when
courts must interfere and grant relief to one of the parties because public
policy requires their intervention, even if it will result in a benefit derived
by a plaintiff who is in equal guilt with defendant.[16]
In
stark contrast to Yuchengco, the
factual milieu of the present case does not compel us to grant relief to a
party who is in pari delicto. The
public policy requiring rural banks to give preference to bona fide small farmers in the grant of loans will not be served if
a party, such as petitioners, who had equal participation and equal guilt in
the circumvention of the Rural Banks Act, will be allowed to recover the
subject property.
The following circumstances reveal
the utter poverty of petitioners’ arguments and militate against their bid to
recover the subject property:
1. As previously adverted to, petitioners
readily and voluntarily accepted the proceeds of the loan, divided into small
loans, without question.
2. After failing to redeem the mortgaged
subject property, thereby allowing respondent to consolidate title thereto,[17] petitioners
then entered into a Promise to Sell and made a down payment of P250,000.00.
3. Failing anew to comply with the terms of
the Promise to Sell and pay the first yearly installment, only then did
petitioners invoke the nullity of the loan and mortgage contracts.
In
all, petitioners explicitly recognized respondent’s ownership over the subject
property and merely resorted to the void contract argument after they had failed
to reacquire the property and a new title thereto in respondent’s name was issued.
We
are not unmindful of the fact that the Promise to Sell ultimately allows
petitioners to recover the subject property which they were estopped from
recovering under the void loan and mortgage contracts. However, the Promise to
Sell, although it involves the same parties and subject matter, is a separate
and independent contract from that of the void loan and mortgage contracts.
To
reiterate, under the void loan and mortgage contracts, the parties, being in pari delicto, cannot recover what they
each has given by virtue of the contract.[18]
Neither can the parties demand performance of the contract. No remedy or
affirmative relief can be afforded the parties because of their presumptive
knowledge that the transaction was tainted with illegality.[19]
The courts will not aid either party to an illegal agreement and will instead leave
the parties where they find them.[20]
Consequently,
the parties having no cause of action against the other based on a void
contract, and possession and ownership of the subject property being ultimately
vested in respondent, the latter can enter into a separate and distinct
contract for its alienation. Petitioners recognized respondent’s ownership of
the subject property by entering into a Promise to Sell, which expressly designates
respondent as the vendor and petitioners as the vendees. At this point,
petitioners, originally co-owners and mortgagors of the subject property,
unequivocally acquiesced to their new status as buyers thereof. In fact, the
Promise to Sell makes no reference whatsoever to petitioners’ previous
ownership of the subject property and to the void loan and mortgage contracts.[21]
On the whole, the Promise to Sell, an independent contract, did not purport to
ratify the void loan and mortgage contracts.
By
its very terms, the Promise to Sell simply intended to alienate to petitioners
the subject property according to the terms and conditions contained therein.
Article 1370 of the Civil Code reads:
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 stipulations shall control.
If the words appear to be contrary to the evident intention of the parties, the latter shall prevail over the former.
Thus, the terms and conditions of the
Promise to Sell are controlling.
Paragraph
5 of the Promise to Sell provides:
5) Provided further, that in case of a delay in any yearly installment for a period of ninety (90) days, this sale will become null and void [without] further effect or validity; and provided further, that payments made shall be reimbursed (returned to the VENDEE less interest on the account plus additional 15% liquidated damages and charges.[22]
As
stipulated in the Promise to Sell, petitioners are entitled to reimbursement of
the P250,000.00 down payment. We agree with the CA’s holding on this
score:
We note, however, that there is no basis for the imposition of interest and additional 15% liquidated damages and charges on the amount to be thus reimbursed. The “Promise to Sell” is separate and distinct from the loan and mortgage contracts earlier executed by the parties. Obviously, after the foreclosure, there is no more loan or account to speak of to justify the said imposition.[23]
Finally, contrary to petitioners’
contention, the CA, in denying petitioners’ appeal, did not commit an error; it
did not ratify a void contract because void contracts cannot be ratified. The
CA simply refused to grant the specific relief of recovering the subject
property prayed for by petitioners. Nonetheless, it ordered respondent to
reimburse petitioners for their down payment of P250,000.00 and
disallowed respondent’s claim for actual, moral and exemplary damages and
attorney’s fees.
WHEREFORE, premises considered, the
petition is hereby DENIED. The
Decision of the Court of Appeals in CA-G.R. CV No. 40613 is hereby AFFIRMED. Costs against petitioners.
SO ORDERED.
ANTONIO
EDUARDO B. NACHURA
Associate
Justice
WE CONCUR:
CONSUELO YNARES-SANTIAGO
Associate
Justice
Chairperson
|
ANTONIO T. CARPIO Associate
Justice |
RENATO C. CORONA Associate
Justice |
TERESITA J. LEONARDO-DE CASTRO
Associate
Justice
A T T E S T A T I O N
I attest that the conclusions in the above Decision were
reached in consultation before the case was assigned to the writer of the
opinion of the Court’s Division.
CONSUELO
YNARES-SANTIAGO
Associate
Justice
Chairperson,
Third Division
C E R T I F I C A T I O N
Pursuant to Section 13, Article VIII of the Constitution
and the Division Chairperson's Attestation, I certify that the conclusions in
the above Decision had been reached in consultation before the case was
assigned to the writer of the opinion of the Court’s Division.
REYNATO
S. PUNO
Chief
Justice
* Additional member in lieu of Associate Justice Conchita Carpio Morales per Special Order No. 646 dated May 15, 2009.
** Additional member per Raffle dated September 1, 2008.
*** Additional member in lieu of Associate Justice Minita V. Chico-Nazario per Special Order No. 651 dated May 29, 2009.
[1] Penned by Associate Justice Ruben T. Reyes (now a retired member of this Court), with Associate Justices Mariano M. Umali and Rebecca de Guia-Salvador, concurring; rollo, pp. 19-29.
[2] Penned by Judge Teofisto L. Calumpang, CA rollo, pp. 58-68.
[3] Rollo, pp. 20-23.
[4]
[5] Petitioners’ Memorandum, id. at 79.
[6] Rollo, pp. 76-77.
[7] See Tolentino, Civil Code of the
[8]
[9] See CIVIL CODE, Art. 1318: There is no contract unless the following requisites concur:
(1) Consent of the contracting parties;
(2) Object certain which is the subject matter of the contract;
(3) Cause of the obligation which is established.
[10] See Rural Banks Act, Secs. 5 and 6.
Sec. 5. Loans or advances extended by Rural Banks organized and operated under this Act, shall be primarily for the purpose of meeting the normal credit needs of farmers or farm families owning or cultivating land dedicated to agricultural production as well as the normal credit needs of cooperatives and merchants. In the granting of loans, the Rural Bank shall give credit preference to the application of farmers and merchants whose cash requirements are small.
Sec. 6. With the view to insuring balanced rural economic growth and expansion, Rural Banks, may within limits and conditions fixed by the Monetary Board, devote a portion of their loanable funds to meeting the normal credit needs of small business enterprise whose capital investment does not exceed fifty thousand pesos and of essential rural enterprises or industries other than those which are strictly agricultural in nature.
[11] Art. 1409. The following contracts are inexistent and void from the beginning:
(1) Those whose cause, object or purpose is contrary to law, morals, good customs, public order or public policy;
(2) Those which are absolutely simulated or fictitious;
(3) Those whose cause or object did not exist at the time of the transaction;
(4) Those whose object is outside the commerce of men;
(5) Those which contemplate an impossible service;
(6) Those where the intention of the parties relative to the principal object of the contract cannot be ascertained;
(7) Those expressly prohibited or declared void by law.
These contracts cannot be ratified. Neither can the right to set up the defense of illegality be waived.
[12] 441 Phil. 1 (2002). (Citations omitted.)
[13] Tala Realty Services Corp. v. Banco Filipino Savings and Mortgage Bank, id. at 45.
[14] 200 Phil. 703 (1982).
[15] Yuchengco, Inc. v. Velayo, id. at 710-711.
[16]
[17] After the lapse of the redemption period, the mortgagor is now considered to have lost interest in the foreclosed property. See Yulienco v. Court of Appeals, 441 Phil. 397, 406 (2002).
[18] CIVIL CODE, Art. 1412, par. 1.
[19] Top-Weld
Manufacturing, Inc. v.
[20]
[21] Paragraph 1 of the Promise to Sell provides:
1) That the Vendor is the present owner of the following properties:
a) A parcel
of land (Lot No. 8-A-5 of the subdivision plan (LRC) Psd-49727, being a portion
of Lot No. 8-A (LRC) Psd-31929, L.R.C. Cad. Rec. No. 152) with the improvements
thereon, situated in the Barrio of Bantayan, City of
b) A
semi-concrete residential house with a ground floor area of 680 sq.m. of two
(2) storey in height constructed of concrete hallow blocks under galvanished
iron roof constructed on Lot No. 8-A-5 as per Transfer Certificate of Title No.
12389 situated in Rovera Extension, Bantayan,
all having been acquired under Sheriff’s Certificate of Sale dated March 19, 1986. (Records, p. 6.)
[22] Records, pp. 6-7.
[23] Rollo, p. 26.