606 Phil. 427
NACHURA, J.:
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, Dumaguete City and covered by TCT No. 12389.On appeal by both parties, the CA affirmed with modification the RTC's ruling, thus:
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: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.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.
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 xAfter 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]
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].Hence, this appeal by certiorari raising the following issues:
SO ORDERED.[4]
(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;Notwithstanding petitioners' formulation of the issues, the core issue for our resolution is whether petitioners may recover possession of the mortgaged properties.
(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]
In short, petitioners aver that the sugar crop loans were merely simulated contracts and, therefore, without any force and effect.
(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 Dumaguete City, with an area of only one-half (1/2) hectare; (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]
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.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.
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.
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: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.
(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.
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]
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]
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.
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:
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]
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.
(1) Those whose cause, object or purpose is contrary to law, morals, good customs, public order or public policy;These contracts cannot be ratified. Neither can the right to set up the defense of illegality be waived.
(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.
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 Dumaguete, Island of Negros. Bounded on the S., points 1 to 2 by Lot No. 8-A-3 of the subdivision plan; on the W., and N., points 3 to 4 by Lot No. 1593 of the Cadastral Survey of Dumaguete; and on the E., points 4 to 1 by Lot No. 8-A-4 of the subdivision plan. Containing an area of FIVE THOUSAND TWO HUNDRED TWENTY NINE (5,229) SQUARE METERS, more or less. |
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, Dumaguete City belonging to the mortgagor is covered by this mortgage. For which they are responsible of the entire duration of this mortgage. Covered with fire insurance having a mortgage clause in favor of the bank. |