Hulst v. PR Builders
REITERATIONFacts
The Antecedents: Jacobus Bernhard Hulst and his wife, Ida Johanna Hulst-Van Ijzeren (Dutch nationals), entered into a Contract to Sell with PR Builders, Inc. (respondent) for a residential unit. Respondent failed to complete the project by the promised date, prompting the spouses Hulst to file a complaint for rescission of contract with damages before the Housing and Land Use Regulatory Board (HLURB). Procedural History: The HLURB Arbiter rendered a decision in favor of the spouses Hulst, ordering the rescission of the contract and directing respondent to reimburse the purchase price with interest, and to pay damages and attorney's fees. The spouses Hulst divorced, and Ida assigned her rights to Jacobus, who pursued the case alone. A writ of execution was issued, but an initial levy was set aside by the Court of Appeals (CA) upon respondent's petition, requiring the sheriff to first levy on personal properties. The writ was returned unsatisfied. An alias writ of execution was issued, and the sheriff levied on 15 parcels of land owned by respondent. A notice of sale was issued for April 28, 2000. Two days prior, respondent filed an Urgent Motion to Quash Writ of Levy, alleging overlevy due to the appraised value of the levied properties (P83,616,000.00) far exceeding the judgment award (around P6,000,000.00). On the auction date, respondent's counsel objected to the sale due to the pending motion. Despite the objection and absent a restraining order, the sheriff proceeded with the auction sale, with Holly Properties Realty Corporation as the winning bidder for P5,450,653.33. The sum of P5,313,040.00 was turned over to petitioner. Later that day, the sheriff received an order from the HLURB Arbiter to suspend proceedings. Subsequently, the HLURB Arbiter and Director issued an Order setting aside the levy, citing the egregious disparity in valuations and the fact that the levy might have been in excess of the judgment award, referencing Barrozo v. Macaraeg and Buan v. Court of Appeals. Petitioner filed a Petition for Certiorari and Prohibition with the CA, which dismissed his petition. The CA affirmed the HLURB Order, finding that the inadequacy of the price shocked the senses and that Buan v. Court of Appeals applied. The Petition: Petitioner filed a Petition for Review on Certiorari with the Supreme Court, assailing the CA's decision affirming the HLURB Order setting aside the levy. The Supreme Court noted that petitioner and his wife, being Dutch nationals, were constitutionally disqualified from owning real property in the Philippines, rendering the Contract to Sell void.
Issue(s)
Whether the Court of Appeals gravely erred in affirming the HLURB Order setting aside the levy made by the Sheriff on the subject properties. Whether the Contract to Sell entered into by foreign nationals is void. Whether the petitioner is entitled to recover the purchase price paid under the void contract. Whether the petitioner is entitled to damages, interests, attorney's fees, and costs of suit, and whether the petitioner was unjustly enriched at the expense of the respondent. Whether the HLURB Arbiter and Director committed grave abuse of discretion in setting aside the levy and auction sale.
Ruling
The Supreme Court GRANTED the petition, REVERSED and SET ASIDE the Court of Appeals Decision, and declared the HLURB Order dated August 28, 2000 NULL and VOID. The HLURB Arbiter and Director were directed to issue the corresponding certificates of sale to the winning bidder. Petitioner was ordered to return P2,125,540.00 to respondent, representing the excess proceeds of the auction sale, with 6% interest until fully paid.
Ratio Decidendi
On the setting aside of the levy and auction sale: The Court ruled that the HLURB Arbiter and Director, as well as the CA, committed grave abuse of discretion in setting aside the levy. The HLURB Arbiter lost jurisdiction to act on the motion to quash the levy once the auction sale was consummated, especially in the absence of a restraining order. The sheriff rightfully proceeded with the auction sale, the winning bidder had paid, legal fees were remitted, and the judgment award was turned over to the petitioner. The issuance of certificates of sale was a purely ministerial act. The Court found the reliance on Barrozo v. Macaraeg and Buan v. Court of Appeals misplaced. Barrozo involved a right to redeem, making inadequacy of price immaterial, and concerned the auction sale itself, not the levy. Buan involved a levy on a second parcel of land when the first was sufficient to satisfy the judgment. In this case, the sheriff complied with Rule 39, Section 9 of the Rules of Court by selling only sufficient portions of the levied properties until the judgment debt and fees were satisfied. The rules do not require the value of levied property to exactly match the debt, and the sheriff is allowed reasonable discretion in levying property. The appraisal report submitted by the respondent was based on assumptions and projected values of unconstructed units, rendering it unreliable as proof of fair market value. The Court emphasized that the sheriff acted without error in proceeding with the auction sale in the absence of a restraining order. On the validity of the Contract to Sell: The Court held that the Contract to Sell entered into by foreign nationals (petitioner and his wife) who are constitutionally disqualified from owning real property in the Philippines is void ab initio under Article 1409(1) and (7) of the Civil Code, as its object or purpose is contrary to law and public policy. On the petitioner's right to recover the purchase price: Applying Article 1414 of the Civil Code, which provides an exception to the in pari delicto doctrine, the petitioner, who repudiated the void contract before the illegal purpose was accomplished or damage was caused, is entitled to recover what he has paid. Thus, petitioner is entitled to recover the purchase price of P3,187,500.00. On the issue of damages, interests, attorney's fees, costs of suit, and unjust enrichment: The Court clarified that no damages, interests, moral and exemplary damages, or attorney's fees may be recovered based on a void contract, as it produces no juridical effect. The HLURB decision, being final and executory, could not be modified except for recognized exceptions, none of which were present. The Court also found that the petitioner was unjustly enriched at the expense of the respondent. The HLURB decision had long become final and executory, granting petitioner more than what he was entitled to recover under the circumstances of a void contract. Applying Article 22 of the Civil Code, which embodies the principle against unjust enrichment, the Court exercised its equity jurisdiction to prevent the petitioner from benefiting from his act of entering into a contract that violates the constitutional proscription. The petitioner received P5,313,040.00 from the auction sale, but was only entitled to P3,187,500.00. Therefore, the petitioner was ordered to return the excess amount of P2,125,540.00 to the respondent. On the setting aside of the levy and auction sale and grave abuse of discretion: The Court ruled that the HLURB Arbiter and Director, as well as the CA, committed grave abuse of discretion in setting aside the levy.
Main Doctrine
A contract to sell entered into by foreign nationals who are constitutionally disqualified from owning real property is void. However, a party who repudiates the void contract before the illegal purpose is accomplished or damage is caused to a third person, and if public interest is subserved by allowing recovery, is entitled to recover what has been paid. Furthermore, a levy on execution that is grossly excessive and shocks the conscience may be set aside, but the execution sale itself, conducted without a restraining order, should generally proceed, especially when the judgment debtor has the right of redemption.