Case Digest (G.R. No. 156643)
Facts:
PHILIPPINE BANKING CORPORATION, REPRESENTING THE ESTATE OF JUSTINA SANTOS Y CANON FAUSTINO, DECEASED, PLAINTIFF AND APPELLANT, sued LUI SHE, IN HER OWN BEHALF AND AS ADMINISTRATRIX OF THE INTESTATE OF WONG HENG, DECEASED, DEFENDANT AND APPELLANT, to annul a series of contracts (Plff Exhs. 3–7) by which Justina Santos leased and granted options over a Manila parcel to Wong Heng, a Chinese lessee, and to recover entrusted funds and unpaid rentals; the trial court voided all but the first lease and awarded accounting relief, and both parties appealed to the Supreme Court. The parties died during the appeal and were substituted; the Court heard disputes over mutuality, custodia legis, fiduciary influence, undue influence, circumvention of the constitutional ban on alien landholding, and accounting of monies entrusted to Wong.
Issues:
- Are the contracts (Plff Exhs. 3–7) void for want of mutuality, procurement by undue influence, or violation of a fiduciary prohibition?
- Do the contracts amount to a scheme to circumvent Const. art. XIII, sec. 5 prohibiting alien acquisition of land, thereby rendering them void?
- May the estate recover entrusted funds and rentals, and were claims for increased rentals and attorney’s fees proper?
Ruling:
The Court affirmed in part and reversed in part: it held that the lease clause on unilateral withdrawal did not vitiate mutuality and that custodia legis and the asserted agency/fiduciary disqualification did not invalidate the contracts. However, the Court annulled and set aside Plff Exhs. 3–7 as constituting a scheme to circumvent the constitutional ban on alien landholding. The land was ordered returned to the estate as represented by PHILIPPINE BANKING CORPORATION, and Wong Heng (substituted by LUI SHE) was ordered to pay P56,564.35 with legal interest; claims for increased rentals and attorney’s fees were denied, and both parties’ other accounting claims were largely rejected.
Ratio:
The Court found the lease’s rescissory clause consistent with Article 1308 jurisprudence and held that the portion formerly in custodia legis did not bar an heir who became owner under article 777 from leasing. Testimony showed the contracts were explained and consent was voluntary, defeating undue influence and agency disqualification under Art. 1646. Considered together, however, the successive leases, extensions and long-term options effectively transferred the substantive incidents of ownership to an alien and thus contravened the constitutional prohibition as interpreted in Krivenko vs. Register of Deeds; that illicit common purpose rendered the agreements void. Applying Article 1416 as an exception to pari delicto, the Court protected the estate and ordered restitution and accounting, finding a net balance due the estate after reconciling entrusted sums and disbursements.
Doctrine:
- A contractual clause permitting one party to withdraw does not necessarily violate Article 1308 when the option is a consensual term of the agreement.
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