Modina vs. Court of Appeals

The in pari delicto doctrine applies only to contracts with illegal consideration or subject matter and does not apply to inexistent contracts; consequently, a party to an inexistent contract may recover the property transferred thereunder. Because the contract was inexistent for lack of consideration under Article 1409 of the Civil Code, the transferor could recover the property by accion reivindicatoria, and the transferee could not enforce the transfer.

The subject parcels of land were originally part of the intestate estate of Nelson Plana. His widow, Merlinda Plana Chiang, was appointed administratrix and obtained authority from the probate court to sell the properties. Merlinda subsequently executed a Deed of Absolute Sale purporting to convey the lots to her second husband, Ramon Chiang. Chiang later sold the same properties to Serafin Modina. Modina filed a complaint for recovery of possession against the lessees occupying the land. Merlinda intervened, seeking the nullification of the sale to Chiang on the ground that the titles were never legally transferred to him and that the deed of sale lacked consideration, while admitting the validity of the existing lease contracts.

• The Probate Sale and Transfer to Chiang: The subject properties were covered by titles in the name of Nelson Plana. Following his death, the Court of First Instance of Iloilo, acting as a probate court in Special Proceeding No. 2469, appointed his widow, Merlinda, as administratrix and issued an Authority to Sell. Instead of a public sale pursuant to the probate order, Merlinda executed a Deed of Absolute Sale on December 17, 1975, conveying the properties to her second husband, Ramon Chiang.
• The Sale to Modina: Chiang subsequently sold the properties to Serafin Modina via Deeds of Sale dated August 3, 1979, and August 24, 1979.
• Intervention and Allegations of Nullity: Upon learning of Modina's complaint for recovery of possession against the lessees, Merlinda filed a Complaint-in-Intervention. She sought the nullification of the sale to Chiang, alleging that the titles were never legally transferred to him and that fraudulent acts were employed to obtain the Torrens titles. She denied the existence of a valid sale for lack of consideration and confirmed the validity of the lease contracts with the occupying respondents.
• Lower Court Findings: The trial court found that the Deed of Sale between Merlinda and Chiang was a nullity for lack of consideration and for violating Article 1490 of the Civil Code, which prohibits sales between spouses. Consequently, it declared the subsequent sale to Modina void, ordered the cancellation of the titles of Chiang and Modina, reinstated the titles in the name of Nelson Plana, and ordered Modina to vacate and restore possession to Merlinda. The Court of Appeals affirmed these findings in toto.

• Petitioner argued that the sale between Merlinda and Chiang was void under Article 1490 of the Civil Code, which prohibits sales between spouses; consequently, the principle of in pari delicto under Article 1412 should apply, leaving the guilty parties where they are and protecting the rights of third persons like Modina.
• Petitioner maintained that he was a purchaser in good faith and for value, and thus his title should be respected.
• Petitioner contended that the trial court acted with excess of jurisdiction by effectively reversing the probate court's order authorizing the sale, which he equated to a judgment that another court cannot review.
• Petitioner asserted that only three-fourths of the subject lots should be returned to Merlinda.

• Respondent Merlinda countered that there was no sufficient evidence establishing fault on her part, rendering the in pari delicto principle inapplicable.
• Respondent argued that the sale was void for want of consideration, which justified the recovery of the properties.
• Respondents maintained that Modina was not a purchaser in good faith due to circumstances indicating his awareness of defects in his vendor's title.

• Procedural Issues:
  • Whether the trial court had jurisdiction to nullify the sale and effectively review the probate court's order authorizing the sale.
  • Whether the issue of returning only three-fourths of the property can be raised for the first time on appeal.
• Substantive Issues:
  • Whether the in pari delicto doctrine bars Merlinda from questioning the deed of sale and recovering the property.
  • Whether Modina is a purchaser in good faith and for value.

• Procedural:
  • The Court held that the Regional Trial Court has jurisdiction to rescind a sale made upon prior authority of a probate court. A probate court has no jurisdiction over questions of title to properties; thus, a separate action to determine ownership is proper and does not constitute an interference with the order of a co-equal court.
  • The Court ruled that the issue of returning only three-fourths of the property cannot be raised for the first time on appeal, as such a recourse is offensive to the basic rules of fair play, justice, and due process.
• Substantive:
  • The Court held that the in pari delicto doctrine does not apply to inexistent contracts. Because the contract was found to be inexistent for lack of consideration under Article 1409 of the Civil Code, Articles 1411 and 1412 (which govern in pari delicto) are inapplicable. A void or inexistent contract produces no effect and can be invoked by any person whenever juridical effects founded thereon are asserted against them; thus, Merlinda could recover the property. The trial court's reliance on Article 1490 was treated as obiter dictum because the nature of the property and the exceptions were neither raised nor litigated, and Merlinda herself denied the sale's existence rather than invoking the prohibition.
  • The Court held that Modina was not a purchaser in good faith. A purchaser in good faith buys without notice of another's right or interest in the property. Modina had circumstances indicating bad faith: he asked his nephew to investigate and learned the property formed part of the estate of Merlinda's first husband; he knew the sale was between spouses; and he met the lessees who informed him the lands belonged to Merlinda. A purchaser cannot close his eyes to facts that would put a reasonable man on guard and then claim good faith.

• In pari delicto non oritur actio — Denies all recovery to guilty parties inter se and applies when the nullity arises from the illegality of the consideration or purpose of the contract. The Court held that this doctrine does not apply to inexistent contracts, such as those lacking consideration under Article 1409, allowing a transferor to recover the object of the contract.
• Inexistent contracts — Produce no effect and can be invoked by any person whenever juridical effects founded thereon are asserted against them. The Court applied this to allow Merlinda to recover the properties from Modina, who never acquired valid title.
• Purchaser in good faith — One who buys property without notice that some other person has a right to or interest in such property and pays a full and fair price before having notice of the claim. The Court held that a purchaser cannot close his eyes to facts that would put a reasonable man on guard and then claim good faith; Modina's knowledge of the property's origins and the lessees' assertions disqualified him.
• Jurisdiction of probate courts — Probate courts have no jurisdiction over questions of title to properties. The Court applied this to affirm that the RTC could hear a separate action to rescind a sale authorized by a probate court without interfering with a co-equal court.

• "When two persons are equally at fault, the law does not relieve them. The exception to this general rule is when the principle is invoked with respect to inexistent contracts."
• "It is a well-settled rule that a purchaser cannot close his eyes to facts which would put a reasonable man upon his guard to make the necessary inquiries, and then claim that he acted in good faith."

• Gonzales v. Trinidad, 67 Phil 682 (1939) — Cited as controlling authority for the exception to the in pari delicto doctrine when applied to inexistent contracts.
• Pizarro v. Court of Appeals, 99 SCRA 72 — Followed in holding that a Regional Trial Court has jurisdiction to rescind a sale made upon authority of a probate court, as probate courts lack jurisdiction over title questions.
• Roman Catholic Archbishop of Manila v. Court of Appeals, 269 SCRA 145 — Followed for the rule that issues not raised in the trial court cannot be raised for the first time on appeal.
• Leung Yee v. Frank L. Strong Machinery Co., 37 Phil 644 — Followed for the principle that a purchaser cannot willfully close their eyes to defects in their vendor's title and claim good faith.

• Article 1409, Civil Code — Enumerates void and inexistent contracts, including those whose cause or object did not exist at the time of the transaction (lack of consideration). Applied to classify the sale between Merlinda and Chiang as inexistent, rendering in pari delicto inapplicable.
• Articles 1411 and 1412, Civil Code — Govern the in pari delicto doctrine for contracts with illegal cause or object. Held inapplicable because the contract in question was inexistent for lack of consideration, not illegal in its cause or object.
• Article 1490, Civil Code — Prohibits sales between husband and wife. The Court held that the trial court's reliance on this provision was obiter dictum because the issue of whether the properties were conjugal or fell under exceptions was neither raised nor litigated.

Melo and Gonzaga-Reyes, JJ., concur. Vitug and Panganiban, JJ., in the result.