Rellosa v.

Gaw Cheen Hun

Sept. 29, 1953 | J. Bautista-Angelo| Void Contracts - When the purpose is illegal and money is paid or property delivered therefore

PETITIONER: Dionisio Rellosa

RESPONDENT: Gaw Chee Hun
SUMMARY: Rellosa sold Gaw a parcel of land. Later, Rellosa alleged that the sale is void under the premises of not being
approved by the Japanese Military Administration and under the 1943 Constitution. While the CFI and CA ruled that the sale was
valid in favor of Gaw, the SC ruled that while the sale is null and void under the 1943 Constitution, Rellosa cannot recover his
property under the doctrine of in pari delicto, which states that no action can arise from an illegal contract. In this case, Rellosa was
guilty in knowing that selling land to Gaw, an alien, was illegal under the Constitution.
DOCTRINE: NCC Art. 1414 states that if the property is delivered for an illegal purpose, the contract may be repudiated before
the purpose has been accomplished. In this case, the courts did NOT allow Rellosa to have the sale declared void because to allow
Rellosa to recover the property would only benefit him, and not public interest as stated in Art. 1414.
NCC 1414: When money is paid or property delivered for an illegal purpose, the contract may be repudiated by one of the parties
before the purpose has been accomplished, or before any damage has been caused to a third person. In such case, the courts may,
if the public interest will thus be subserved, allow the party repudiating the contract to recover the money or property.

FACTS: RULING: Sale in question is null and void, but Rellosa is

1. Feb. 2, 1944 - Petitioner Rellosa sold to Gaw Chee Hun a
parcel of land, together with the house that stands on it for
P25k. Rellosa remained in possession of the property under a
contract of lease, which was entered into on the same date
between him and Gaw.
2. Rellosa alleges that the sale was executed, subject to the
condition that Gaw, being a Chinese citizen, would obtain the
approval of the Japanese Military Administration in
accordance with Seirei No. 6. Since the approval by the
Japanese was not obtained by Gaw, and even if Gaw obtained
it, the sale would be void under Art. 8, Sec. 5 of the 1943
Constitution:
1943 Constitution, Art. 8, Sec. 5: "No private
agricultural land shall be transferred or assigned
except to individuals, corporations, or associations
qualified to acquire or hold lands of the public
domain in the Philippines, or to persons entitled by
law [to inherit in case of intestate succession]."
3. Rellosa then sought to annul the sale as well as the lease
covering the land and the house in the CFI Manila. Rellosa
prayed that once the sale and lease were declared null and
void, Gaw should return to him the duplicate of the title
covering the property and be restrained from in any way
dispossessing Rellosa of the property.
4. Gaw answered that the sale was absolute and unconditional
by way of special defense. Hence, it is valid and binding
between him and Rellosa, since it was not contrary to law,
morals, and public order. Gaw also avers that Rellosa is guilty
of estoppel in that he executed a deed of lease over the
property and thus recognized Gaw's title to the property.
5. CFI Manila: Declared the sale and lease as valid and
binding, dismissed complaint. CA affirmed this in toto.
Hence this present petition for review.
barred from pursuing the present action for the annulment
of the sale and the return of the duplicate of the title back
to him, under the principle of in pari delicto.
In this case, the SC suggested 2 ways in which the Philippine
Government could solve the issue. Note that the SC did not
give the land back to Rellosa and instead wanted it to go back
to the Philippine Government.
ISSUES AND RATIO :
1. WON the sale is valid under the Japanese military
directive (Seirei No. 6) in view of the failure of Gaw to
obtained the requisite approval? + WON CA errred to
declare Seirei No. 6 as without any binding effect?1
NO, sale is INVALID. Seirei No. 6 is not considered in the
case, because it is the 1943 Consti which is controlling.
-It is not necessary to consider the validity of Seirei No. 6 of
the Japanese Military Administration because the law that
should govern the sale should be the 1943 Constitution. (See
Footnote 1) In short, CA did not err.
-"Agricultural land" includes residential land, as interpreted by
the SC in the case of Krivenko v. Register of Deeds, where the
SC held that under the Consti, aliens may NOT acquire
private or public agricultural lands, including residential
lands. Hence, the sale of Rellosa to Gaw of the land in
question is INVALID.
2. WON Rellosa can have the sale declared null and void
1 Because the Japanese government couldn't have issued it
under Art. 43 of the Hague Regulations, which commands that
laws that are municipal in character of an occupied territory
should be respected and cannot be ignored unless prevented by
military necessity.
and recover the property, considering the effect of the law
governing the rescission of contracts? NO.
-Trinidad Gonzaga de Cabautan v. Uy Hoo: The vendor of
the sale is now prevented from invoking the Constitution to
recover their land because of their guilty knowledge that what
they were doing was in violation of the constitution. They
cannot escape this conclusion, because they are presumed to
know the law. A party to an illegal contract cannot come into a
court of law and ask to have his illegal objects carried out.
-Doctrine of "in pari delicto": "No action arises, in equity or
at law, from an illegal contract; no suit can be maintained for
its specific performance, or to recover the property agreed to
be sold or delivered, or the money agreed to be paid, or
damages for its violation. The rule has sometimes been laid
down as though it were equally universal, that where the
parties are in pari delicto, no affirmative relief of any kind will
be given to one against the other."
Exception to this doctrine is that whenever public
policy is considered as advanced by allowing either
party to sue for relief against the transaction.
Exception to the exception: Only includes class of
contracts which are intrinsically contrary to public
plicy, contracts in which the illegality itself consists
in their oopposition to public policy, and any other
species of illegal contracts.
- IN THIS CASE: The contract does not come under the
exception to "in pari delicto" because it is NOT intrinsically
contrary to public policy, nor one where the illegality itself
consists in its opposition to public policy. It is illegal, not
because it is against public policy, but because it is against
the Constitution. It cannot be contended that to apply the
doctrine of in pari delicto would be tantamount to
contraveneing the fundamental policy embodied in the
Constitutional prohibiton in that it would allow an alien to
remain in the illegal possession of the land, because in this
case, the remedy is lodged elsewhere. To adopt the contrary
view would be merely to benefit Rellosa and not to enhance
public interest.
-In the SC's opinion, there are 2 ways for the Philippine
Government resolve the problem. (Note that in either case, the
land will NOT go back to Rellosa.) Both are essentially the
same concept (in that they transfer the property back to the
State) but are different in their methods of doing it.
Through escheat: In modern law, escheat denotes a
falling of the estate into the general property of the
state because the tenant is an alien or because he has
died intestate without lawful heirs to take his estate
by succession, or because of some other disability to
take or hold property imposed by law."
Through an action for reversion: Will declare any
prohibited conveyance not only unlawful but null and
void ab initio. It expressly provides that such
conveyances will produce "the effect of annulling and
cancelling the grant, title, patent, or permit, originally
issued, recognized of confirmed, actually or
presumptively", and of causing "the reversion of the
property and its improvements to the State."