Yuchengco, Inc. v. Velayo
REITERATIONFacts
The Antecedents: Defendant-appellant Conrado M. Velayo offered to sell 2,265 shares of common stock of RIC Tours Philippines, Inc. (Ric Tours Phil.), representing 70% of its capital stock, to plaintiffs-appellees for P367,500.00. Appellees paid the full price and received the shares and possession of Ric Tours Phil.'s assets. Subsequently, Ric Tours Phil. received a letter from the Department of Tourism (DOT) directing it to explain why its Local Tour Operator's License should not be canceled for selling shares without prior DOT approval, a violation of its rules. Velayo claimed ignorance of the rule requiring prior approval. The DOT later canceled Ric Tours Phil.'s license. Velayo's request for reconsideration was denied, and his appeal to the Office of the President was also affirmed. Procedural History: Plaintiffs-appellees filed a complaint for annulment of contract, return of the purchase price, and damages. The parties agreed to submit the case for decision based on a Joint Stipulation of Facts. The Court of First Instance of Rizal declared the Stock Purchase Agreement null and void ab initio and ordered Velayo to return the P367,500.00 with interest, plus attorney's fees and costs. The Petition: Defendant-appellant appealed the decision of the Court of First Instance, which was certified to the Supreme Court by the Court of Appeals as it involved a pure question of law.
Issue(s)
Whether the Stock Purchase Agreement should be annulled or declared void ab initio. Whether the doctrine of res suo domino perit applies to the appellees as buyers in a consummated sale. Whether the parties are in pari delicto and thus the law should not aid either party.
Ruling
The Supreme Court affirmed the decision of the Court of First Instance, declaring the Stock Purchase Agreement null and void ab initio and ordering the defendant-appellant to return the purchase price with legal interest, attorney's fees, and costs.
Ratio Decidendi
On whether the Stock Purchase Agreement should be annulled or declared void ab initio: The Court held that Section 4, Part IV of the Rules and Regulations Governing the Business of Tour Operators and Tour Guides, which requires prior approval from the Department of Tourism for any transfer of rights to a license or ownership of shares in a tour agency, is clear and mandatory. Since the Stock Purchase Agreement was made without such prior approval, it is inexistent and null and void from the beginning, pursuant to Article 1409, paragraph 7 of the New Civil Code. A void agreement produces no legal effect, meaning no valid transfer of ownership of Ric Tours Phil. took place. Therefore, the appellees, who paid for shares in a corporation whose license was subsequently canceled due to a violation they did not cause, should not suffer the loss. On whether the doctrine of res suo domino perit applies: The Court ruled that the doctrine of res suo domino perit (the thing perishes to its owner) cannot be applied because no valid transfer of ownership occurred. Since the agreement was void ab initio, the appellant, as the vendor, retained ownership of the shares and the consequences of the license cancellation should not be borne by the appellees, who parted with their money without receiving anything of value. The appellant's contention that ownership transferred upon delivery of shares is incorrect in the context of a void contract. On whether the parties are in pari delicto: The Court found no merit in the contention that both parties were in pari delicto. The appellant, as the vendor, has the obligation under Article 1495 of the New Civil Code to warrant the thing sold, which includes delivering clear title. Therefore, the appellant, not the appellees, was charged with the knowledge of the rule requiring prior DOT approval for the validity of the sale of shares of a tour operator. The failure to secure this approval was attributable to him alone. Even if both parties were considered in pari delicto, the Court may still intervene when public policy requires it, which is the case here to protect the public interest in the tourism industry.
Main Doctrine
A stock purchase agreement for shares in a tour operator corporation is null and void ab initio if executed without the prior approval of the Department of Tourism, as required by its regulations, and the vendor is obligated to return the purchase price.