Lichauco De Leon vs. De Leon

A contract whose consideration is the termination of a marital relationship is void and inexistent from the beginning because it is contrary to law, morals, good customs, public order, and public policy, and marriage is not a mere contract but an inviolable social institution whose nature, consequences, and incidents are governed by law and not subject to stipulations.

The petitioner, Sylvia Lichauco De Leon, was married to private respondent Jose Vicente De Leon, whose mother was private respondent Macaria De Leon. The parties entered into a Letter-Agreement in which Macaria bound herself jointly and severally to answer for the undertakings of her son, in consideration for a "peaceful and amicable termination of relations" between Sylvia and Jose Vicente. The agreement contemplated both a judicial separation of property under Philippine law and the continuation of divorce proceedings in the United States. The Civil Code provisions on marriage as an inviolable social institution, void contracts, and illegal considerations form the statutory backdrop against which the validity of the agreement was assessed.

Sylvia Lichauco De Leon and Jose Vicente De Leon were married on October 18, 1969, and a daughter, Susana, was born from the union on August 28, 1971. A de facto separation occurred in October 1972 due to irreconcilable marital differences, with Sylvia leaving the conjugal home. In March 1973, Sylvia went to the United States and obtained American citizenship. On November 23, 1973, she filed a petition for dissolution of marriage against Jose Vicente with the Superior Court of California, County of San Francisco, including claims for support and distribution of properties. Because Jose Vicente was a Philippine resident without assets in the United States, Sylvia held the divorce proceedings in abeyance and instead sought property settlements in the Philippines.

On March 16, 1977, Sylvia entered into a Letter-Agreement with her mother-in-law, Macaria De Leon, who bound herself jointly and severally to answer for the undertakings of her son. The agreement provided for the delivery to Sylvia of several properties, including Suite 11-C of the Avalon Condominium, Apartment 702 of the Wack Wack Condominium, rights to two Ayala lots in Alabang, a property in South San Francisco, California, and cash amounts of P100,000, $30,000, and $5,000. The agreement also provided for monthly support for the minor daughter Susana, and for Sylvia to agree to a judicial separation of property and to amend her complaint in the United States so that the divorce proceedings would continue. The stated consideration was "a peaceful and amicable termination of relations between the undersigned and her lawfully wedded husband." On the same date, Macaria made cash payments to Sylvia in the amount of P100,000 and US$35,000, or P280,000.

On March 30, 1977, Sylvia and Jose Vicente filed a joint petition before the Court of First Instance of Rizal for judicial approval of the dissolution of their conjugal partnership, which included the adjudication of the same properties to Sylvia. After ex-parte hearings, the trial court issued an Order dated February 19, 1980, approving the petition and declaring the conjugal partnership dissolved. Sylvia moved for execution of the order, but Jose Vicente moved for reconsideration, alleging that Sylvia made a verbal reformation of the petition regarding monthly support. While the motion was pending, Macaria filed a motion for leave to intervene, claiming ownership of the properties involved. Her complaint in intervention assailed the validity of the Letter-Agreement, alleging that its purpose was the termination of the marital relationship between Sylvia and Jose Vicente.

The trial court rendered judgment on December 29, 1983, declaring the Letter-Agreement null and void, ordering Sylvia to restore P380,000.00 plus legal interest to Macaria, and awarding P100,000.00 attorney's fees. The trial court found that the consideration for Macaria's execution of the agreement was the termination of the marital relationship between her son and Sylvia, which is contrary to law, morals, and public policy. The trial court also found that Macaria's consent was vitiated by intimidation and mistake. The Court of Appeals affirmed the decision in toto, and the motion for reconsideration was denied.

• Consideration of the Letter-Agreement: Petitioner argued that the consideration for her execution of the Letter-Agreement was the termination of property relations with her husband, not the termination of the marital relationship, and that the trial court erred in finding that the cause or consideration was the termination of marital relations.
• Intimidation and Mistake: Petitioner argued that the trial court failed to appreciate testimonial and documentary evidence proving that Macaria's claims of threat, intimidation, and mistake were baseless.
• Breach of Agreement: Petitioner argued that the trial court erred in finding that she committed breach of the Letter-Agreement and failed to appreciate evidence proving Macaria's material breach thereof.
• Pari Delicto Rule: Petitioner argued that since the nullity of the Letter-Agreement proceeds from the unlawful consideration solely of Macaria, applying the pari delicto rule, Macaria cannot recover what she had given by reason of the Letter-Agreement nor ask for the fulfillment of what had been promised her.

• Intimidation: Macaria argued that her signing of the Letter-Agreement was due to fear of an unpeaceful and troublesome separation of her son with Sylvia, testifying that Sylvia threatened to bring Jose Vicente to court for support, to scandalize the family by baseless suits, and to have Jose Vicente imprisoned if she did not sign.
• Mistake: Macaria argued that she was mistaken in having signed the Letter-Agreement because she believed that Sylvia would eliminate her inheritance rights from her son's properties, and that she was not properly advised by any American lawyer on whether Sylvia, as an American citizen, could rightfully do so.

• Validity of the Letter-Agreement: Whether the Letter-Agreement dated March 16, 1977 is valid and enforceable.
• Vitiating Factors: Whether Macaria's consent to the Letter-Agreement was vitiated by intimidation or mistake.
• Recovery Under Pari Delicto: Whether Macaria is entitled to recover the amounts she paid under the void Letter-Agreement, notwithstanding the pari delicto rule.

• Validity of the Letter-Agreement: No. The Letter-Agreement is void and inexistent from the beginning because its consideration was the termination of the marital relationship between Sylvia and Jose Vicente, which is contrary to law, morals, good customs, public order, and public policy under Articles 1306, 1409, and 52 of the Civil Code.
• Vitiating Factors: No. Macaria's claim of intimidation was not the intimidation referred to by law under Article 1335, and her alleged mistake was not the mistake referred to in Article 1331, as the condition that Sylvia would eliminate her inheritance rights was but an incident of the consideration, not the principal cause that moved Macaria to enter the contract.
• Recovery Under Pari Delicto: Yes. Article 1414 of the Civil Code, an exception to the pari delicto rule, applies because the Letter-Agreement was repudiated before the purpose was accomplished, and to adhere to the pari delicto rule would put a premium on the circumvention of the laws.

• Validity of the Letter-Agreement: The Court found that the word "relations" in the Letter-Agreement is ambiguous and subject to interpretation. Considering the general scope and purpose of the instrument, and applying Article 1374 of the Civil Code, the Court sustained the trial court's conclusion that the parties contemplated not only the termination of property relationship but likewise of marital relationship in its entirety. The last sentence of paragraph 2 under "Obligations of the Wife" unequivocally states that the divorce proceedings in the United States would continue, and the trial court found credible Macaria's testimony that she wanted to buy peace for herself and the whole family and to secure freedom for her son. The Court held that an undertaking premised on the termination of marital relationship is contrary to law, Filipino morals, and public policy, and thus void under Articles 1306 and 1409 of the Civil Code. The Court also noted that even if the consideration were the termination of property relations, the agreement would still be void under Article 221 of the Civil Code, which voids any contract for personal separation between husband and wife and every extra-judicial agreement during marriage for the dissolution of the conjugal partnership. Additionally, the ambiguity in the contract was construed contra proferentem against Sylvia, who prepared it, under Article 1377.
• Vitiating Factors: The Court rejected the trial court's finding of intimidation, applying the requisites under Article 1335: the intimidation must be the determining cause of the contract, the threatened act must be unjust or unlawful, the threat must be real and serious, and it must produce a reasonable and well-grounded fear. The Court found that Sylvia's threats to bring Jose Vicente to court for support, to scandalize the family by baseless suits, and to pardon Jose Vicente for possible crimes of adultery and/or concubinage subject to the transfer of properties were not the intimidation referred to by law. With respect to mistake, the Court held that Macaria's alleged belief that Sylvia would eliminate inheritance rights did not principally move her to enter the contract; rather, such condition was but an incident of the consideration, which was the termination of marital relations.
• Recovery Under Pari Delicto: The Court held that the pari delicto rule does not apply in this case. Instead, Article 1414 of the Civil Code, which is an exception to the pari delicto rule, is the proper law to be applied. Since the Letter-Agreement was repudiated before the purpose had been accomplished, and to adhere to the pari delicto rule would put a premium on the circumvention of the laws, positive relief should be granted to Macaria. Justice would be served by allowing her to be placed in the position in which she was before the transaction was entered into.

• Pari Delicto Rule and its Exception under Article 1414 — The pari delicto rule, expressed in the maxims "Ex dolo malo non oritur actio" and "In pari delicto potior est conditio defendentis," refuses remedy to either party to an illegal agreement and leaves them where they are. However, Article 1414 of the Civil Code provides an exception: 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, and the courts may, if the public interest will thus be subserved, allow the party repudiating the contract to recover the money or property. The Court applied this exception because the Letter-Agreement was repudiated before the purpose was accomplished, and adherence to the pari delicto rule would put a premium on the circumvention of the laws.
• Contra Proferentem Rule — Under Article 1377 of the Civil Code, the interpretation of obscure words or stipulations in a contract shall not favor the party who caused the obscurity. The Court applied this rule because the Letter-Agreement showed on its face that it was prepared by Sylvia, and the ambiguity regarding the meaning of "relations" was to be construed against her.
• Intimidation as a Vice of Consent — Under Article 1335 of the Civil Code, there is intimidation when one of the contracting parties is compelled by a reasonable and well-grounded fear of an imminent and grave evil upon his person or property, or upon the person or property of his spouse, descendants, or ascendants, to give his consent. The requisites are: (1) the intimidation must be the determining cause of the contract; (2) the threatened act must be unjust or unlawful; (3) the threat must be real and serious; and (4) it must produce a reasonable and well-grounded fear. A threat to enforce one's claim through competent authority, if the claim is just or legal, does not vitiate consent. The Court found that Sylvia's threats did not constitute intimidation under these requisites.
• Mistake as a Vice of Consent — Under Article 1331 of the Civil Code, in order that mistake may invalidate consent, it should refer to the substance of the thing which is the object of the contract, or to those conditions which have principally moved one or both parties to enter into a contract. The Court held that Macaria's alleged mistake regarding Sylvia's inheritance rights did not principally move her to enter the contract; rather, such condition was but an incident of the consideration, which was the termination of marital relations.

• "In consideration for a peaceful and amicable termination of relations between the undersigned and her lawfully wedded husband, Jose Vicente De Leon, your son, the following are agreed upon: (emphasis supplied)" — This is the pivotal provision of the Letter-Agreement whose interpretation determined the validity of the entire contract; the Court found the word "relations" ambiguous and subject to interpretation.
• "It is readily apparent that the use of the word 'relations' is ambiguous, perforce, it is subject to interpretation. There being a doubt as to the meaning of this word taken by itself, a consideration of the general scope and purpose of the instrument in which it occurs and Article 1374 of the Civil Code which provides that the various stipulations of a contract shall be interpreted together, attributing to the doubtful ones that sense which may result from all of them taken jointly, is necessary." — This passage establishes the interpretive framework the Court used to determine that the consideration of the Letter-Agreement was the termination of the marital relationship.
• "But marriage is not a mere contract but a sacred social institution. Thus, Art. 52 of the Civil Code provides: Art. 52. Marriage is not a mere contract but an inviolable social institution. Its nature, consequences and incidents are governed by law and not subject to stipulations..." — This passage articulates the fundamental public policy ground for declaring the Letter-Agreement void, as the consideration was contrary to law, morals, and public policy.
• "Since the Letter-Agreement was repudiated before the purpose has been accomplished and to adhere to the pari delicto rule in this case is to put a premium to the circumvention of the laws, positive relief should be granted to Macaria. Justice would be served by allowing her to be placed in the position in which she was before the transaction was entered into." — This passage states the Court's application of Article 1414 of the Civil Code as an exception to the pari delicto rule, allowing Macaria to recover what she had paid under the void agreement.

• Germann and Co. vs. Donaldson, Sim and Co., 1 Phil. 63 — Cited as authority for the rule that the general scope and purpose of an instrument must be considered when interpreting an ambiguous word or stipulation in a contract.
• Equitable Banking Corp. vs. IAC, G.R. No. 74451, May 25, 1988, 161 SCRA 518 — Cited as authority for the contra proferentem rule under Article 1377 of the Civil Code, that the interpretation of obscure words or stipulations in a contract shall not favor the party who caused the obscurity.

• Article 1306, Civil Code — Provides that contracting parties may establish such stipulations, clauses, terms, and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy. The Court applied this provision to hold that the Letter-Agreement, whose consideration was the termination of the marital relationship, is void.
• Article 1409, Civil Code — Provides that contracts whose cause, object, or purpose is contrary to law, morals, good customs, public order, or public policy are inexistent and void from the beginning, and cannot be ratified. The Court applied this provision to declare the Letter-Agreement void.
• Article 52, Civil Code — Provides that marriage is not a mere contract but an inviolable social institution, and its nature, consequences, and incidents are governed by law and not subject to stipulations. The Court relied on this provision to hold that an undertaking premised on the termination of marital relationship is contrary to law and public policy.
• Article 191, Civil Code — Contemplates properties belonging to the spouses in a dissolution of conjugal partnership, not those belonging to a third party. The Court noted that the properties in question were proven to be owned by Macaria, not conjugal in nature.
• Article 221, Civil Code — Provides that any contract for personal separation between husband and wife, and every extra-judicial agreement during marriage for the dissolution of the conjugal partnership of gains or of the absolute community of property between husband and wife, shall be void and of no effect. The Court applied this provision to hold that even if the consideration were the termination of property relations, the agreement would still be void.
• Article 1374, Civil Code — Provides that the various stipulations of a contract shall be interpreted together, attributing to the doubtful ones that sense which may result from all of them taken jointly. The Court applied this provision in interpreting the ambiguous word "relations" in the Letter-Agreement.
• Article 1377, Civil Code — Provides that the interpretation of obscure words or stipulations in a contract shall not favor the party who caused the obscurity. The Court applied this rule against Sylvia, who prepared the Letter-Agreement.
• Article 1330, Civil Code — Provides that a contract where consent is given through mistake, violence, intimidation, undue influence, or fraud is voidable. The Court considered this provision in addressing Macaria's defenses.
• Article 1331, Civil Code — Provides that in order that mistake may invalidate consent, it should refer to the substance of the thing which is the object of the contract, or to those conditions which have principally moved one or both parties to enter into a contract. The Court applied this provision to reject Macaria's defense of mistake.
• Article 1335, Civil Code — Defines intimidation and provides that a threat to enforce one's claim through competent authority, if the claim is just or legal, does not vitiate consent. The Court applied this provision to reject Macaria's defense of intimidation.
• Article 1347, Civil Code — Provides that no contract may be entered into upon future inheritance. The Court noted that even if Sylvia had confirmed that she would undertake to eliminate her hereditary rights, such a contract would likewise be voidable under this provision.
• Article 1414, Civil Code — Provides that 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, and the courts may, if the public interest will thus be subserved, allow the party repudiating the contract to recover the money or property. The Court applied this provision as an exception to the pari delicto rule to allow Macaria to recover the amounts she had paid.

Narvasa (Chairman), Cruz, and Gancayco, JJ., concurred. Griño-Aquino, J., was on leave.