Arakor Construction and Development Corporation vs. Sta. Maria

A contract of sale purportedly executed by a person who had already died at the time of its execution is void ab initio and simulated, conveying no title to the buyer and being susceptible to attack at any time as the action for declaration of inexistence does not prescribe; furthermore, a buyer dealing with conjugal property must exercise diligence not only in verifying the title but also in inquiring into the seller's capacity to sell and the genuineness of the signatures, failure of which negates good faith.

The Spouses Fernando Gaddi, Sr. and Felicidad Nicdao Gaddi owned five parcels of land in Hermosa, Bataan, registered in their names as conjugal property. Felicidad died intestate on November 18, 1985, survived by her husband and eight children. The heirs did not partition the estate, leaving the properties registered in the names of the Spouses Gaddi. Fernando Sr. died on February 7, 1996, followed by the death of his son Efren on May 8, 1998. Thereafter, Atty. Greli Legaspi, president of Arakor Construction and Development Corporation, informed the remaining heirs that the properties had been sold to Arakor in 1992 for P400,000.00 and that the titles had been transferred to the corporation's name.

• The Contested Properties: The Spouses Fernando Gaddi, Sr. and Felicidad Nicdao Gaddi were the registered owners of five parcels of land located in Hermosa, Bataan, covered by Transfer Certificate of Title (TCT) Nos. T-92141, T-92142, T-92143, T-92144, and T-100713. Felicidad died intestate on November 18, 1985, survived by her husband Fernando Sr. and their eight children: Teresita, Alfredo, Fernando Jr., Marilyn, Evangeline, Efren, Lilian, and Lilibeth. Despite her death, the heirs did not initiate partition proceedings, and the properties remained registered in the names of the Spouses Gaddi.
• The Alleged Sale: On September 8, 1992, two undated Deeds of Absolute Sale purportedly executed by the Spouses Gaddi were delivered to Atty. Greli Legaspi, president of Arakor Construction and Development Corporation, by Fernando Sr. and his son Efren. These documents purported to sell the five parcels to Arakor for P400,000.00. The deeds were notarized, and the titles were subsequently transferred to Arakor's name. Fernando Sr. died on February 7, 1996, and Efren died on May 8, 1998. After their deaths, Atty. Legaspi informed the remaining Gaddi heirs of the sale.
• The Waivers: Arakor claimed that prior to or after the sale, several heirs executed waivers assigning their rights to Fernando Sr. Teresita and Evangeline executed a Joint Waiver of Claim dated February 1992 (notarized March 4, 1992) covering TCT No. T-100713, with an undated, unnotarized Addendum including the other properties. Marilyn and Lilibeth executed a similar waiver dated February 1992 (acknowledged March 6, 1992) covering TCT No. T-100713, with an Addendum dated November 1992 (after the sale) covering the remaining properties. Efren, Fernando Jr., Alfredo, and Lilian executed a Joint Waiver dated October 28, 1992 (after the sale), which was unnotarized.
• Forgery Allegations: The respondents alleged that the Deeds of Absolute Sale were forged and fraudulent because Felicidad had been dead for seven years at the time of the alleged execution in 1992, making her signature impossible. The acknowledgment portion of the deeds also indicated the name "Felicitas N. Gaddi/Felicitas Nicdao" instead of "Felicidad." Arakor admitted that Felicidad was already dead at the time of the sale but claimed it was a victim of fraud perpetrated by Fernando Sr. and Efren, and that the waivers had consolidated full ownership in Fernando Sr.
• Possession: Atty. Legaspi took possession of the properties after payment, hiring watchers but allowing Fernando Sr. and Efren to continue harvesting crops. The respondents claimed they executed the waivers merely to facilitate the transfer of properties to a family corporation, not to authorize the sale to Arakor.

• Validity of the Sale: Arakor maintained that the contracts were valid as they were supported by valuable consideration and identified the object of the sale. It argued that at the time of the sale, Fernando Sr. owned the properties in his own right and through the waivers executed by the respondents in his favor, rendering Felicidad's signature immaterial.
• Relative Simulation: Arakor contended that the deeds should be considered relatively simulated contracts, which should be deemed valid and binding as the parties intended to create obligations different from those stated in the instrument.
• Good Faith Purchaser: Arakor asserted that it was an innocent purchaser for value, having relied on the face of the titles which showed no irregularities and on the assurances of Fernando Sr. that the signatures were genuine. It argued that as a lawyer, Atty. Legaspi had no duty to go beyond the certificates of title.
• Consolidation of Ownership: Arakor argued that Fernando Sr. owned one-half of the conjugal property by operation of law upon Felicidad's death, and that the respondents' waivers consolidated the remaining half in his favor, giving him full capacity to sell.
• Estoppel and Lack of Cause of Action: Arakor claimed that the respondents were estopped from questioning the sale by virtue of their waivers and their inaction for six years, and that they had no material interest in the properties.
• In Pari Delicto: Arakor posited that the principle of in pari delicto barred recovery, alleging the contract was entered into to evade estate taxes, and that even if the respondents were not guilty, they should not be rewarded for their inaction.

• Questions of Fact: The respondents countered that Arakor raised questions of fact regarding the forgery and simulation of the deeds, which were already passed upon by the Court of Appeals and should not be entertained in a petition for review.
• Lack of Good Faith: The respondents argued that Arakor could not be considered a buyer in good faith because Atty. Legaspi, being a lawyer, failed to exercise the diligence required of a prudent buyer by investigating the personal circumstances of the sellers and the genuineness of the signatures, particularly when the titles were still in the names of the Spouses Gaddi.
• Invalidity of Waivers: The respondents questioned the validity of the waivers, noting that most were unnotarized, undated, or executed after the sale, and that they were intended merely for the formation of a family corporation, not for the sale to Arakor.
• Imprescriptibility: The respondents maintained that the action to declare the inexistence of a void contract does not prescribe under Article 1410 of the Civil Code, and that laches does not apply to imprescriptible actions.

• Nullity of the Deeds: Whether the Deeds of Absolute Sale are void ab initio for being simulated and forged, considering that one of the purported vendors was already deceased at the time of execution.
• Good Faith Purchase: Whether Arakor qualifies as an innocent purchaser for value despite the forged signatures and the failure to investigate the capacity of the sellers.
• Effect of Waivers: Whether the waivers executed by the respondents effectively consolidated full ownership in Fernando Sr., thereby validating the sale of the entire property.
• Prescription and Laches: Whether the respondents' action is barred by prescription or laches.
• In Pari Delicto: Whether the principle of in pari delicto applies to bar the respondents from recovering the properties.

• Nullity of the Deeds: The Deeds of Absolute Sale are null and void ab initio for being simulated and false. A contract purportedly executed by a person who was already dead at the time of its execution is physically and legally impossible, rendering the instrument void. The admission by Arakor that Felicidad died in 1985, coupled with her death certificate, constituted clear and convincing evidence of forgery. Pursuant to the principle of nemo dat quod non habet, the seller could not transfer rights he did not possess, and the forged documents conveyed no title to Arakor.
• Good Faith Purchase: Arakor cannot claim to be an innocent purchaser for value. A buyer of conjugal property must observe two kinds of diligence: (a) diligence in verifying the validity of the title; and (b) diligence in inquiring into the authority of the transacting spouse to sell. Atty. Legaspi, despite being a lawyer, merely relied on Fernando Sr.'s representations without verifying Felicidad's personal circumstances or the genuineness of her signature. The acknowledgment portion contained the wrong name ("Felicitas"), and the presumption of regularity of notarization was rebutted by the impossibility of Felicidad's appearance before the notary public.
• Effect of Waivers: The waivers failed to establish that full ownership was consolidated in Fernando Sr. prior to the sale. Most waivers were unnotarized, undated, or executed after the sale in September 1992. The addenda to the waivers expanding the scope to include all five parcels were either undated or dated after the sale, casting doubt on their validity and effectivity. The respondents consistently maintained that the waivers were intended for the formation of a family corporation, not for the sale to Arakor.
• Prescription and Laches: The action to declare the inexistence of a void contract does not prescribe under Article 1410 of the Civil Code. An action predicated on a void ab initio conveyance is imprescriptible. Consequently, the defense of laches cannot prosper against an imprescriptible action.
• In Pari Delicto: The doctrine of in pari delicto does not apply to prevent recovery where doing so would result in unjust enrichment. Arakor failed to prove that the respondents had knowledge of the fraud or that the waivers were executed to evade estate taxes. To allow Arakor to retain the properties would unjustly enrich it at the respondents' expense.

• Void Ab Initio Contracts and Simulation — A contract wherein one of the purported parties was already dead at the time of execution is simulated and false, and therefore null and void from the beginning. Such contracts convey no title and all subsequent transactions based thereon are likewise void. The action or defense for the declaration of the inexistence of a contract does not prescribe.
• Nemo Dat Quod Non Habet — No one can give what one does not have; one can sell only what one owns or is authorized to sell, and the buyer can acquire no more right than what the seller can transfer legally.
• Diligence Required of Buyers of Conjugal Property — A buyer dealing with conjugal property must exercise two kinds of requisite diligence: (a) diligence in verifying the validity of the title covering the property; and (b) diligence in inquiring into the authority of the transacting spouse to sell conjugal property on behalf of the other spouse. Mere reliance on the certificate of title is insufficient when circumstances impel a reasonably cautious man to make further inquiry.
• Presumption of Regularity of Notarization — While a notarized document carries the evidentiary weight of due execution and a presumption of regularity, this presumption is not absolute and may be rebutted by clear and convincing evidence to the contrary, such as the impossibility of the signatory's physical presence or existence.
• In Pari Delicto and Unjust Enrichment — The doctrine of in pari delicto, which bars guilty parties to an illegal contract from obtaining relief, cannot prevent a recovery if doing so would violate the public policy against unjust enrichment. Unjust enrichment exists when a person unjustly retains a benefit at the loss of another, or retains money or property of another against the fundamental principles of justice, equity, and good conscience.

• "If any one party to a supposed contract was already dead at the time of its execution, such contract is undoubtedly simulated and false, and, therefore, null and void by reason of its having been made after the death of the party who appears as one of the contracting parties therein." — Establishes the absolute nullity of contracts executed in the name of deceased persons.
• "No one can give what one does not have; nemo dat quod non habet. One can sell only what one owns or is authorized to sell, and the buyer can acquire no more right than what the seller can transfer legally." — Reiterates the fundamental principle limiting the transfer of rights to those actually possessed by the transferor.
• "In Bautista v. Silva, the Court erected a standard to determine the good faith of the buyers dealing with a seller who had title to and possession of the land but whose capacity to sell was restricted... the buyers must show that they inquired not only into the title of the seller but also into the seller's capacity to sell." — Defines the dual diligence required of purchasers of conjugal property.
• "The doctrine of in pari delicto, which stipulates that the guilty parties to an illegal contract are not entitled to any relief, cannot prevent a recovery if doing so violates the public policy against unjust enrichment." — Limits the application of in pari delicto where unjust enrichment would result.

• Spouses Aggabao v. Spouses Parulan, Jr., 644 Phil. 26 (2010) — Cited for the standard of diligence required of buyers of conjugal property, specifically that buyers must inquire into both the title and the seller's capacity to sell.
• Bautista v. Silva, 533 Phil. 627 (2006) — Established the standard for determining good faith in buyers dealing with sellers whose capacity to sell is restricted.
• Nacar v. Gallery Frames, 716 Phil. 267 (2013) — Applied for the modified guidelines on the computation of legal interest rates (12% per annum until June 30, 2013; 6% per annum thereafter until finality; and 6% per annum from finality until satisfaction).
• Heirs of Arao v. Heirs of Eclipse, G.R. No. 211425, November 19, 2018 — Cited for the principle that an action predicated on a void ab initio conveyance is imprescriptible.
• Tolentino v. Spouses Latagan, 761 Phil. 108 (2015) — Cited for the rule that forgery cannot be presumed and must be proved by clear, positive, and convincing evidence, and for the principle of nemo dat quod non habet.

• Article 1410, Civil Code — Provides that the action or defense for the declaration of the inexistence of a contract does not prescribe. The Court applied this to hold that the respondents could assail the void deeds at any time.
• Article 22, Civil Code — Defines unjust enrichment and establishes the policy against it. The Court invoked this to prevent Arakor from retaining the properties despite the void contracts.
• Article 1169, Civil Code — Cited in conjunction with the Nacar guidelines regarding the accrual of interest from the time of judicial demand.
• Section 2, Rule 2, Rules of Court — Defines cause of action; cited to establish that the respondents, as heirs, had the right to assail the sale affecting their hereditary property.

Leonen (Chairperson), Inting, Delos Santos, and Rosario, JJ.