Vasquez v. Li Seng Giap
REITERATIONFacts
The Antecedents: Plaintiff Socorro Vasquez sold a parcel of land with improvements to defendant Li Seng Giap, a Chinese citizen, on January 22, 1940, for P14,500. On August 21, 1940, Li Seng Giap sold the same property to defendant Li Seng Giap & Sons, Inc., whose shareholdings were then owned by Chinese citizens, for the same amount. The sale to the corporation was registered on August 23, 1940. Li Seng Giap was naturalized as a Filipino citizen on May 10, 1941. Li Seng Giap & Sons, Inc. later became a Filipino corporation with 96.67% of its stock owned by Filipinos. Several individuals, including Li Seng Giap and Henry Lee, Thomas J. Lee, and William Lee, were naturalized as Filipino citizens at various dates. Sofia Lee Teehankee and Julian M. Lee were also identified as Filipino citizens. Procedural History: Plaintiff filed an action to rescind the sale on the ground that the vendee was an alien incapable of owning land under the Constitution. The trial court rendered judgment dismissing the complaint. Plaintiff appealed. The Petition: The plaintiff-appellant argued that the contract of sale was null and void due to the vendee's alienage at the time of conveyance, and that subsequent naturalization could not retroact to validate the sale.
Issue(s)
Whether the plaintiff-appellant, as vendor, can seek rescission of the sale of real property to an alien incapable of holding title thereto. Whether the subsequent naturalization of the alien vendee can retroact to validate the sale of real property made during his alienage. Whether the sale to a domestic corporation, whose shareholdings were initially owned by aliens but later by a majority of Filipinos, is valid.
Ruling
The Supreme Court affirmed the judgment of the lower court dismissing the complaint, holding that the sale was not subject to rescission by the vendor. The Court ruled that the alien vendee's subsequent naturalization validated the title, and consequently, the title of the domestic corporation to which the property was transferred was also valid.
Ratio Decidendi
On the issue of rescission and the vendor's right to annul the sale: The Court reiterated the ruling in several previous cases, such as Caoile vs. Yu Chiao, that in sales of real estate to aliens incapable of holding title, both the vendor and the vendee are considered in pari delicto. Consequently, the courts will not afford protection to either party, meaning the vendor cannot sue for the annulment of the contract. This is consistent with the rule in the United States and under the Civil Code, specifically Article 1302 of the old Civil Code, which states that persons sui juris cannot avail themselves of the incapacity of those with whom they contracted. The action for rescission is not applicable as it requires lesion or damage, which is not the basis here; rather, the action is for annulment based on a defect invalidating the contract. The plaintiff, being sui juris, cannot invoke the incapacity of the alien vendee. On the effect of subsequent naturalization: The Court held that if the alien vendee becomes naturalized as a Filipino citizen before the State initiates proceedings for escheat, the State is deemed to have waived its right to escheat. The alien's title then becomes lawful and valid from the date of its conveyance or transfer to him. The Court reasoned that the aim of preserving the nation's lands for future generations of Filipinos, as established in cases like Krivenko, would not be thwarted but achieved by making lawful the acquisition of real estate by aliens who subsequently become Filipino citizens. Therefore, the subsequent naturalization of Li Seng Giap on May 10, 1941, validated his title to the land acquired on January 22, 1940. On the validity of the sale to the corporation: Since the original vendee, Li Seng Giap, became a naturalized Filipino citizen, his subsequent transfer of the property to Li Seng Giap & Sons, Inc. was valid. Furthermore, the corporation itself became a Filipino corporation with 96.67% of its capital stock owned by Filipinos. The Court found this ownership sufficient to authorize the corporation to own, acquire, or dispose of real properties, thus validating its title to the parcel of land.
Main Doctrine
A contract for the sale of real estate to an alien disqualified to hold title thereto is not subject to rescission by the vendor, as both parties are deemed in pari delicto. The alien vendee may hold the title against all except the State, and if the alien subsequently becomes a naturalized citizen, the State is deemed to have waived its right to escheat, rendering the alien's title lawful and valid from the date of conveyance.