TANAY RECREATION CENTER AND DEVELOPMENT CORP. vs. CATALINA MATIENZO FAUSTO G.R. No. 140182.

April 12, 2005 FACTS:Petitioner Tanay Recreation Center and Development Corp. (TRCDC) is the les see of a 3,090-square meter property located in Sitio Gayas, Tanay, Rizal, owned by Catalina Matienzo Fausto, under a Contract of Lease. On this property stands the Tanay Coliseum Cockpit operated by petitioner. The lease contract provided for a 20-year term, subject to renewal within sixty days prior to its expiration . The contract also provided that should Fausto decide to sell the property, pet itioner shall have the priority right to purchase the same. On June 17, 1991, petitioner wrote Fausto informing her of its intention to rene w the lease. However, it was Fausto s daughter, respondent Anunciacion F. Pacunaye n, who replied, asking that petitioner remove the improvements built thereon, as she is now the absolute owner of the property. It appears that Fausto had earli er sold the property to Pacunayen and title has already been transferred in her name. Petitioner filed an Amended Complaint for Annulment of Deed of Sale, Speci fic Performance with Damages, and Injunction. In her Answer, respondent claimed that petitioner is estopped from assailing the validity of the deed of sale as the latter acknowledged her ownership when it m erely asked for a renewal of the lease. According to respondent, when they met t o discuss the matter, petitioner did not demand for the exercise of its option t o purchase the property, and it even asked for grace period to vacate the premis es. ISSUE:The contention in this case refers to petitioner s priority right to purchase , also referred to as the right of first refusal. RULING:When a lease contract contains a right of first refusal, the lessor is und er a legal duty to the lessee not to sell to anybody at any price until after he has made an offer to sell to the latter at a certain price and the lessee has f ailed to accept it. The lessee has a right that the lessor's first offer shall b e in his favor. Petitioner s right of first refusal is an integral and indivisible part of the contract of lease and is inseparable from the whole contract. The c onsideration for the lease includes the consideration for the right of first ref usal and is built into the reciprocal obligations of the parties. It was erroneous for the CA to rule that the right of first refusal does not app ly when the property is sold to Fausto s relative. When the terms of an agreement have been reduced to writing, it is considered as containing all the terms agree d upon. As such, there can be, between the parties and their successors in inter est, no evidence of such terms other than the contents of the written agreement, except when it fails to express the true intent and agreement of the parties. I n this case, the wording of the stipulation giving petitioner the right of first refusal is plain and unambiguous, and leaves no room for interpretation. It sim ply means that should Fausto decide to sell the leased property during the term of the lease, such sale should first be offered to petitioner. The stipulation d oes not provide for the qualification that such right may be exercised only when the sale is made to strangers or persons other than Fausto s kin. Thus, under the terms of petitioner s right of first refusal, Fausto has the legal duty to petiti oner not to sell the property to anybody, even her relatives, at any price until after she has made an offer to sell to petitioner at a certain price and said o ffer was rejected by petitioner. SPS. FELIPE AND LETICIA CANNU vs. SPS. GIL AND FERNANDINA GALANG AND NATIONAL HO ME MORTGAGE FINANCE CORPORATION, G.R. No. 139523. May 26, 2005 Facts: Gil and Fernandina Galang obtained a loan from Fortune Savings & Loan Ass

ociation for P173, 800.00 to purchase a house and lot located at Pulang Lupa, La s Pias, To secure payment, a real estate mortgage was constituted on the said hou se and lot in favor of Fortune Savings & Loan Association. In early 1990, NHMFC purchased the mortgage loan of respondents-spouses from Fortune Savings & Loan A ssociation for P173, 800.00. Petitioner Leticia Cannu agreed to buy the property for P120, 000.00 and to assume the balance of the mortgage obligations with the NHMFC and with CERF Realty. Of the P120, 000. 00, several payments were made le aving a balance of P45, 000.00. A Deed of Sale with Assumption of Mortgage Oblig ation was made and entered into by and between spouses Fernandina and Gil Galang and spouses Leticia and Felipe Cannu over the house and lot. Petitioners immedi ately took possession and occupied the house and lot. Despite requests from Adel ina R. Timbang and Fernandina Galang to pay the balance of P45,000.00 or in the alternative to vacate the property in question, petitioners refused to do so. Is sues: 1) Whether or not the breach of the obligation is substantial. 2) Whether or not there was substantial compliance with the obligation to pay th e monthly amortization with NHMFC. 3) Whether or not respondents-spouses Galang demanded from petitioners a strict and/or faithful compliance of the Deed of Sale with Assumption of Mortgage. 4. W hether or not the action for rescission is subsidiary. Held: 1) Rescission may be had only for such breaches that are substantial and f undamental as to defeat the object of the parties in making the agreement. The q uestion of whether a breach of contract is substantial depends upon the attendin g circumstances and not merely on the percentage of the amount not paid. In the case at bar, we find petitioners failure to pay the remaining balance of P45,000. 00 to be substantial. Taken together with the fact that the last payment made wa s on 28 November 1991, eighteen months before the respondent Fernandina Galang p aid the outstanding balance of the mortgage loan with NHMFC, the intention of pe titioners to renege on their obligation is utterly clear. 2) The petitioners were not religious in paying the amortization with the NHMFC. As admitted by them, in the span of three years from 1990 to 1993, their paymen ts covered only thirty months. This, indeed, constitutes another breach or viola tion of the Deed of Sale with Assumption of Mortgage. On top of this, there was no formal assumption of the mortgage obligation with NHMFC because of the lack o f approval by the NHMFC on account of petitioners non-submission of requirements in order to be considered as assignees/successors-in-interest over the property covered by the mortgage obligation. 3) There is sufficient evidence showing that demands were made from petitioners to comply with their obligation. Adelina R. Timbang, attorney-in-fact of respond ents-spouses, per instruction of respondent Fernandina Galang, made constant fol low-ups after the last payment made on 28 November 1991, but petitioners did not pay. Sometime in March 1993, due to the fact that full payment has not been pai d and that the monthly amortizations with the NHMFC have not been fully updated, she made her intentions clear with petitioner Leticia Cannu that she will resci nd or annul the Deed of Sale with Assumption of Mortgage. 4. The subsidiary char acter of the action for rescission applies to contracts enumerated in Articles 1 381 of the Civil Code. The contract involved in the case before us is not one of those mentioned therein. The provision that applies in the case at bar is Artic le 1191.As a consequence of the rescission or, more accurately, resolution of th e Deed of Sale with Assumption of Mortgage, it is the duty of the court to requi re the parties to surrender whatever they may have received from the other. The parties should be restored to their original situation. Topic: Art. 1393. Ratification may be effected expressly or tacitly. It is under stood that there is a tacit ratification if, with knowledge of the reason which renders the contract voidable and such reason having ceased, the person who has a right to invoke it should execute an act which necessarily implies an intentio n to waive his right.

Title: Metropolitan Waterworks and Sewerage System (MWSS) vs CA, Hon. Lopez, Aya la Corporation and Ayala Land, Inc. Facts: - 1965, MWSS (formerly known as NAWASA) leased around 128 hectares of its land t o CHGCCI (formerly the International Sports Development Corporation) for 25 year s, renewable for 15 years or until 2005, with a stipulation allowing CHGCCI a ri ght of first refusal should the property be made open for sale, the terms and co nditions of the sale to be subject to presidential approval. - 1976, Letter of Instruction (LOI) No. 440 was issued by the President Marcos d irecting MWSS to negotiate the cancellation of the said lease agreement for its disposition. Oscar Illustre, then General Manager of MWSS, informed CHGCCI, thro ugh its president Pablo Roman Jr., of its preferential right to buy the property . January 1981, Asian Appraisal Co., the appraisal company of MWSS' choice, pegg ed a fair market value of P40 per square meter or a total of P53,800,000.00 for the whole property. December 20, 1982, MWSS and CHGCCI agreed in principle on th e purchase of the property and President Marcos expressed his approval of the sa le. - The Board of Trustees of MWSS passed Resolution 36-83 approving the sale of th e subject property to Silhouette Trading Co., as assignee of CHGCCI. The sales a greement pushed through, P 25M to be paid upon approval of Marcos of the contrac t and the balance to be paid within one year from the transfer of the title to S ilhouette with 12% interest per annum. The balance was secured by an irrevocable letter of credit. A supplemental Agreement was made between MWSS and Silhouette to accurately identify the property. - Silhouette, under a deed of sale, sold to AYALA about 67 hectares of the prope rty at P110 per square meter, for a total of P 74M. P 25M was to be paid by AYAL A directly to MWSS for Silhouette's account and P 2M directly to Silhouette. P 1 1.6M was to be paid upon issuance of title in favor of AYALA, and the remaining balance payable within one year with 12% interest per annum. - AYALA developed the land into a prime residential area (Ayala Heights Subdivis ion). - March 26, 1993, MWSS filed an action seeking for the declaration of nullity if the MWSS-Silhouette sales agreement and all subsequent conveyances, and recover y of damages. AYALA filed its answer pleading the defenses of prescription, lach es, waiver/estoppel/ratification, no cause of action, non-joinder of indispensab le parties, and non-jurisdiction. - RTC dismissed the case: prescription, laches, estoppel and non-joinder of indi spensable parties. MWSS' Motion for Reconsideration was also denied. CA affirmed the decision of RTC. Issue: Whether the sale of the property is valid Held: SC dismissed the case. The sale was valid due to both express and implied ratifi cation by the Board of Trustees of MWSS. Ratio: - MWSS claims that the sale is invalid because Mr. Illustre was not given the au thority by the Board of Trustees to enter into the agreement. However, this issu e can be cured be ratification. Ratification can be made expressly or impliedly. In this case, there was both. There was express ratification when the Board pas sed Resolution 36-83 approving the sale. There was implied ratification from th e acts of MWSS in sending three demand letters for the payment of the purchase p rice, for accepting the down payment of P 25M, and for accepting the letter of c redit for balance. Neither did MWSS return the amounts paid to them. MWSS' accep tance and retention of the benefits from the sale is another form of implied rat ification.

Other issues: *Prescription: - MWSS consented to the sale, although they may have been unduly influenced by P resident Marcos. The vitiation of consent did not make the contract void, but me rely voidable. The prescriptive period for voidable contracts under the New Civi l Code is four years from the time the defect of the consent ceases. If Pres Mar cos unduly influenced the sale, the prescriptive period would have begun on Feb 26, 1986 when Marcos was deposed, and prescribed by Feb 26, 1990, more than thre e years before the filing of the complaint. - However, if the consent was vitiated by fraud, the prescriptive period begins upon discovery; either from the date of execution of the sale documents wherein the period would have begun in 1983 as MWSS knew of the sale, or from the date o f registration of the deeds (as registration is constructive notice to the world ) wherein the period would have begun in 1984. At the latest, the action would h ave prescribed in 1988, five years before the filing of the complaint. *Laches and Non-Joinder of Indispensable Parties: - Laches is distinguished from prescription, wherein prescription is concerned w ith the fact of delay and laches is concerned with the effect of delay. Laches i s a question of inequity of permitting a claim to be enforced. Laches is not sta tutory. The elements of laches: conduct on the part of the defendant giving rise to the situation that led to the complaint, delay in asserting the complainant' s rights, lack of knowledge or notice of the defendant that the complaint would assert the right on which he bases his suit, and injury or prejudice to the defe ndant in the event relief is accorded to the complainant. All elements were pres ent in this case. - The lot owners of the residential area are indispensable parties in the case, without whom no relief is available and without whom the court can render no val id judgment. The absence of the parties renders all subsequent actions of the tr ial court null and void, and warrants the dismissal of the case. G.R. No. 156437. March 1, 2004 NATIONAL HOUSING AUTHORITY vs. GRACE BAPTIST CHURCH and COURT OF APPEALS FACTS: On June 13, 1986, Respondent Grace Baptist Church wrote a letter to NHA manifesting their intent to purchase Lot 4 and 17 of the General Mariano Alvarez Resettlement Project in Cavite. The latter granted request hence respondent ent ered into possession of the lots and introduced improvements thereon. On Febru ary 22, 1991, NHA passed a resolution approving the sale of the subject lots to respondent Church for 700 per square meter, a total of P430,500. respondents wer e duly informed. On April 8, 1991, respondent church tendered a check amounting to P55,35 0 contending that this was the agreed price. NHA avers stating that the price no w (1991) is different from before (1986). The trial court rendered a decision in favour of NHA stating that there was no contract of sale, ordering to return the said lots to NHA and to pay NHA rent of 200 pesos from the time it took possession of the lot. Respondent Church appealed to the CA which affirms the decision of RTC r egarding no contract of sale but modifying it by ordering NHA to execute the sale of the said lots to Church for 700 per square, with 6% interest per annum from M arch 1991. Petitioner NHA filed a motion for reconsideration which was denied. H ence this petition for review on certiorari ISSUE: WON NHA can be compelled to sell the lots under market value? HELD: No, because the contract has not been perfected. The Church despite knowledge that its intended contract of sale with the

NHA had not been perfected proceeded to introduce improvements on the land. On the other hand, NHA knowingly granted the Church temporary use of the subject pr operties and did not prevent the Church from making improvements thereon. Thus t he Church and NHA, who both acted in bad faith shall be treated as if they were both in good faith. In this connection Art 448 provides: the owner of the land in which anything has been built, sown or planted in good faith, shall have the ri ght to appropriate as his own the works, sowing or planting, after payment of th e indemnity provided for in articles 546 and 548, or to oblige the one who built or planted to pay the price of the land, and the one who sowed, the proper rent . However, the builder or planter cannot be obliged to buy the land and if its v alue is considerably more than that of the building or trees. In such case, he s hall pay reasonable rent, if the owner of the land does not choose to appropriat e the building or trees after proper indemnity. The parties shall agree, on case of disagreement, court shall fix. JOSE MENCHAVEZ, JUAN MENCHAVEZ JR., SIMEON MENCHAVEZ, RODOLFO MENCHAVEZ, CESAR M ENCHAVEZ, REYNALDO, MENCHAVEZ, ALMA MENCHAVEZ, ELMA MENCHAVEZ, CHARITO M. MAGA, FE M. POTOT, THELMA M. REROMA, MYRNA M. YBAEZ, and SARAH M. VILLABER, petitioners , vs. FLORENTINO TEVES JR., respondent. D E C I S I O N PANGANIBAN, J.: A void contract is deemed legally nonexistent. It produces no legal effect. As a g eneral rule, courts leave parties to such a contract as they are, because they a re in pari delicto or equally at fault. Neither party is entitled to legal protec tion. The Case Before us is a Petition for Review[1] under Rule 45 of the Rules of Court, assai ling the February 28, 2001 Decision[2] and the April 16, 2002 Resolution[3] of t he Court of Appeals (CA) in CA-GR CV No. 51144. The challenged Decision disposed as follows: WHEREFORE, the assailed decision is hereby MODIFIED, as follows: 1. Ordering [petitioners] to jointly and severally pay the [respondent] the amount of P128,074.40 as actual damages, and P50,000.00 as liquidated damages; 2. Dismissing the third party complaint against the third party defendants; 3. Upholding the counterclaims of the third party defendants against the [petitioners . Petitioners] are hereby required to pay [the] third party defendants the sum of P30,000.00 as moral damages for the clearly unfounded suit; 4. Requiring the [petitioners] to reimburse the third party defendants the sum of P10 ,000.00 in the concept of attorney s fees and appearance fees of P300.00 per appea rance; 5. Requiring the [petitioners] to reimburse the third party defendants the sum of P10 ,000.00 as exemplary damages pro bono publico and litigation expenses including costs, in the sum of P5,000.00. [4] The assailed Resolution denied petitioners Motion for Reconsideration. The Facts On February 28, 1986, a Contract of Lease was executed by Jose S. Menchavez, Juan S. Menchavez Sr., Juan S. Menchavez Jr., Rodolfo Menchavez, Simeon Menchavez, Re ynaldo Menchavez, Cesar Menchavez, Charito M. Maga, Fe M. Potot, Thelma R. Rerom a, Myrna Ybaez, Sonia S. Menchavez, Sarah Villaver, Alma S. Menchavez, and Elma S . Menchavez, as lessors; and Florentino Teves Jr. as lessee Of an area covered by FISHPOND APPLICATION No. VI-1076 of Juan Menchavez, Sr., covering an area of 10 .0 hectares more or less located at Tabuelan, Cebu; On June 2, 1988, Cebu RTC Sheriffs Gumersindo Gimenez and Arturo Cabigon demolis hed the fishpond dikes constructed by respondent and delivered possession of the subject property to other parties.[6] As a result, he filed a Complaint for dam ages with application for preliminary attachment against petitioners. In his Comp laint, he alleged that the lessors had violated their Contract of Lease, As a consequence of these provisions, and the declared public policy of the State under the Regalian Doctrine, the lease contract between Florentino Teves, Jr. a nd Juan Menchavez Sr. and his family is a patent nullity. Being a patent nullity,

[petitioners] could not give any rights to Florentino Teves, Jr. under the prin ciple: NEMO DAT QUOD NON HABET - meaning ONE CANNOT GIVE WHAT HE DOES NOT HAVE, co nsidering that this property in litigation belongs to the State and not to [peti tioners]. Therefore, the first issue is resolved in the negative, as the court de clares the contract of lease as invalid and void ab-initio. On the issue of whether [respondent] and [petitioners] are guilty of mutual fraud , the court rules that the [respondent] and [petitioners] are in pari-delicto. As a consequence of this, the court must leave them where they are found. x x x. x x x x x x x x x x x x. Why? Because the defendants ought to have known that they cannot lease what does not belong to them for as a matter of fact, they themselves are still appl ying for a lease of the same property under litigation from the government. On the other hand, Florentino Teves, being fully aware that [petitioners were] no t yet the owner[s], had assumed the risks and under the principle of VOLENTI NON FIT INJURIA NEQUES DOLUS - He who voluntarily assumes a risk, does not suffer d amage[s] thereby. As a consequence, when Teves leased the fishpond area from [pet itioners]- who were mere holders or possessors thereof, he took the risk that it may turn out later that his application for lease may not be approved. After the court has ruled that the contract of lease is null and void ab-initio, there is no right of the [respondent] to protect and therefore[,] there is no b asis for questioning the Sheriff s authority to demolish the dikes in order to res tore the prevailing party, under the principle VIDETUR NEMO QUISQUAM ID CAPERE Q UOD EI NECESSE EST ALII RESTITUERE - He will not be considered as using force wh o exercise his rights and proceeds by the force of law. The court hereby renders judgment as follows: 1. Dismissing the x x x complaint by the [respondent] against the [petitioners]; 2. Dismissing the third party complaint against the third party defendants; Respondent elevated the case to the Court of Appeals, where it was docketed as C A-GR CV No. 51144. Ruling of the Court of Appeals The CA disagreed with the RTC s finding that petitioners and respondent were in pa ri delicto. It contended that while there was negligence on the part of responden t for failing to verify the ownership of the subject property, there was no evid ence that he had knowledge of petitioners lack of ownership.[11] Hence, this Petition.[15] The Issues Were the Parties in Pari Delicto? The Court shall discuss the two issues simultaneously. In Pari Delicto Rule on Void Contracts The parties do not dispute the finding of the trial and the appellate courts tha t the Contract of Lease was void.[17] Indeed, the RTC correctly held that it was the State, not petitioners, that owned the fishpond. The 1987 Constitution speci fically declares that all lands of the public domain, waters, fisheries and othe r natural resources belong to the State.[18] Included here are fishponds, which may not be alienated but only leased.[19] Possession thereof, no matter how long , cannot ripen into ownership.[20] Being merely applicants for the lease of the fishponds, petitioners had no trans ferable right over them. And even if the State were to grant their application, t he law expressly disallowed sublease of the fishponds to respondent.[21] Void ar e all contracts in which the cause, object or purpose is contrary to law, public order or public policy.[22] Finding of In Pari Delicto: A Question of Fact Unquestionably, petitioners leased out a property that did not belong to them, o ne that they had no authority to sublease. The trial court correctly observed tha t petitioners still had a pending lease application with the State at the time t hey entered into the Contract with respondent.[33] Respondent, on the other hand, claims that petitioners misled him into executing the Contract.[34] He insists that he relied on their assertions regarding their ownership of the property. His own evidence, however, rebuts his contention that he did not know that they lacked ownership. At the very least, he had notice of

their doubtful ownership of the fishpond. Respondent himself admitted that he was aware that the petitioners lease applicat ion for the fishpond had not yet been approved.[35] Thus, he knowingly entered i nto the Contract with the risk that the application might be disapproved. Notewor thy is the fact that the existence of a fishpond lease application necessarily c ontradicts a claim of ownership. That respondent did not know of petitioners lack of ownership is therefore incredible. A cursory examination of the Contract suggests that it was drafted to favor the lessee. It can readily be presumed that it was he or his counsel who prepared it -- a matter supported by petitioners evidence.[39] The ambiguity should therefore be resolved against him, being the one who primarily caused it.[40] The CA erred in finding that petitioners had failed to prove actual knowledge of respondent of the ownership status of the property that had been leased to him. it reveals his fault in entering into a void Contract. As both parties are equall y at fault, neither may recover against the other.[42] Since there is no contract, the injured party may only recover through other sou rces of obligations such as a law or a quasi-contract.[47] A party recovering th rough these other sources of obligations may not claim liquidated damages, which is an obligation arising from a contract. WHEREFORE, the Petition is GRANTED and the assailed Decision and Resolution SET ASIDE. The Decision of the trial court is hereby REINSTATED. No pronouncement as to costs. SO ORDERED. JEFFERSON LIM vs. QUEENSLAND TOKYO COMMODITIES, INC. G.R. No. 136031. January 4, 2002 FACTS:Sometime in 1992, Benjamin Shia, a market analyst and trader of Queensland, was introduced to petitioner Jefferson Lim by Marissa Bontia, one of his employ ees. Marissa s father was a former employee of Lim s father. Shia suggested that Lim invest in the Foreign Exchange Market, trading U.S. dollar against the Japanese yen, British pound, Deutsche Mark and Swiss Franc. Before investing, Lim requested Shia for proof that the foreign exchange was rea lly lucrative. They conducted mock tradings without money involved. As the mock trading showed profitability, Lim decided to invest with a marginal deposit of U S$5,000 in manager s check. The marginal deposit represented the advance capital f or his future tradings. It was made to apply to any authorized future transactio ns, and answered for any trading account against which the deposit was made, for any loss of whatever nature, and for all obligations, which the investor would incur with the broker. Petitioner ed through nished Lim ced by the Lim was then allowed to trade with respondent company which was cours Shia by virtue of blank order forms all signed by Lim. Respondent fur with the daily market report and statements of transactions as eviden receiving forms, some of which were received by Lim.

Meanwhile, on October 22, 1992, respondent learned that it would take seventeen (17) days to clear the manager s check given by petitioner. Shia returned the chec k to petitioner who informed Shia that petitioner would rather replace the manag er s check with a traveler s check. Shia noticed that the traveler s check was not ind orsed but Lim told Shia that Queensland could sign the endorsee portion. Because Shia trusted the latter s good credit rating, and out of ignorance, he brought th e check back to the office unsigned. Inasmuch as that was a busy Friday, the che ck was kept in the drawer of respondent s consultant. Later, the traveler s check wa s deposited with Citibank. On October 27, 1992, Citibank informed respondent that the traveler s check could not be cleared unless it was duly signed by Lim, the original purchaser of the t raveler s check. A Miss Arajo, from the accounting staff of Queensland, returned t he check to Lim for his signature, but the latter, aware of his P44,465 loss, de

manded for a liquidation of his account and said he would get back what was left of his investment. ISSUE:Whether or not the CA erred in reversing the decision of the RTC which dism issed the respondent s complaint RULING:The essential elements of estoppel are: (1) conduct of a party amounting t o false representation or concealment of material facts or at least calculated t o convey the impression that the facts are otherwise than, and inconsistent with , those which the party subsequently attempts to assert; (2) intent, or at least expectation, that this conduct shall be acted upon by, or at least influence, t he other party; and (3) knowledge, actual or constructive, of the real facts. er e, it is uncontested that petitioner had in fact signed the Customer s Agreement i n the morning of October 22, 1992, knowing fully well the nature of the contract he was entering into. The Customer s Agreement was duly notarized and as a public document it is evidence of the fact, which gave rise to its execution and of th e date of the latter. Next, petitioner paid his investment deposit to respondent in the form of a mana ger s check in the amount of US$5,000 as evidenced by PCI Bank Manager s Check No. 6 9007, dated October 22, 1992. All these are indicia that petitioner treated the Customer s Agreement as a valid and binding contract.