Nicolas v. Mariano
REITERATIONFacts
The Antecedents: Respondent Leonora Mariano obtained a land grant from the National Housing Authority (NHA) for a parcel of land on which she built a five-unit apartment. The grant was subject to a mortgage and a proviso prohibiting transfer or encumbrance within five years from the mortgage release without NHA consent. Mariano obtained a loan from petitioner Luz Nicolas, securing it with a mortgage on the property. She later executed a second mortgage (Sanglaan ng Lupa at Bahay) for a higher amount, which included a stipulation that if not paid, the property would be considered sold to Nicolas without further payment. Mariano defaulted again, and executed a Deed of Absolute Sale of Real Property conveying the property to Nicolas for ₱600,000.00. Nicolas collected rentals from Mariano's apartment tenants from June 1999 to June 2004, amounting to ₱600,000.00. Procedural History: Mariano sued Nicolas, seeking to be released from the second mortgage, stop rental collection, and claim damages, alleging full payment of her debt. Nicolas denied collecting rentals and asserted ownership via the deed of sale. The Regional Trial Court (RTC) declared the Deed of Absolute Sale void for lack of consideration and flaws, canceled the mortgages, ordered Nicolas to stop collecting rentals, and awarded moral damages to Mariano. The Court of Appeals (CA) affirmed the invalidity of the Deed of Absolute Sale but on the ground that Mariano was not the owner, thus she could not sell the property. The CA also declared the mortgages void ab initio and deleted the award of moral damages, stating both parties were in pari delicto. Nicolas filed a petition for review. The Petition: Petitioner Nicolas assails the CA's decision, arguing that Mariano was the absolute owner evidenced by the Transfer Certificate of Title (TCT) and had the right to sell the property. Nicolas also contends that the proviso prohibiting transfer was void and that Republic Act No. 6552 (Maceda Law) should apply. Respondent Mariano, in her comment, agrees with the CA's ruling that she was not the owner and could not sell the property, but seeks modification to include damages for excess rental collections and other claims.
Issue(s)
Whether the Court of Appeals erred in applying the rulings in Heirs of Salvador Hermosilla v. Remoquillo and Magoyag v. Maruhom; and whether the proviso in the Transfer Certificate of Title prohibiting transfer or encumbrance is contrary to law and yields to R.A. 6552. Whether Respondent Leonora C. Mariano validly alienated the property when she was not the absolute owner, considering the principle of nemo dat quod non habet. Whether the Transfer Certificate of Title issued in favor of Respondent Mariano is conclusive evidence of her ownership, and the nature of a Certificate of Title. Whether Article 1477 of the New Civil Code bolsters Respondent's ownership and capacity to alienate the property, and the effect of Petitioner Nicolas's diligence. Whether the Deed of Sale over the subject property between the parties is valid and binding, and the consequences of the parties being in pari delicto. Whether the Court needs to delve into the specific arguments regarding the proviso in the TCT and the applicability of R.A. 6552.
Ruling
The Supreme Court denied the petition, affirming the Court of Appeals' Decision and Resolution. It held that both parties were in pari delicto and thus left as they were, with no party entitled to positive relief. The Deed of Absolute Sale and the mortgages were declared void ab initio.
Ratio Decidendi
On the applicability of the proviso in the TCT and R.A. 6552, and the Court of Appeals' rulings: The Court found it unnecessary to delve into the specific arguments regarding the proviso in the TCT and the applicability of R.A. 6552 (Maceda Law). The core issue of ownership and the resulting void nature of the transactions rendered these other issues moot. The fundamental principle that one cannot transfer what they do not own was determinative of the case. On the validity of the alienation: The Court affirmed the CA's ruling that the Deed of Absolute Sale was invalid because Respondent Mariano was not the owner of the subject property. The principle of nemo dat quod non habet (one cannot give what he does not own) applies. Consequently, she could not validly mortgage or sell it. On the nature of a Certificate of Title: The Court clarified that a TCT is merely the best proof of ownership but does not vest title itself. Ownership is distinct from the certificate of title. The Torrens system confirms ownership but does not create it, and cannot be used to divest lawful owners of their title. Therefore, the existence of a TCT in Mariano's name did not automatically make her the absolute owner, especially when she admitted to not having fully paid her obligations to the NHA, the original grantor. On Article 1477 and Petitioner Nicolas's diligence: The Court noted that Nicolas should have exercised diligence. The fact that she was given only a photocopy of the TCT and that there was an inscription on the dorsal side of the title regarding the mortgage to the NHA should have alerted her to the property's condition. A prudent mortgagee or buyer would demand the original owner's copy of the title and investigate any encumbrances or restrictions, which would have revealed Mariano's delinquency in her payments to the NHA. On the validity of the Deed of Absolute Sale and the parties being in pari delicto: Since both the Deed of Absolute Sale and the mortgages were declared void, all rights and obligations created thereunder were rendered ineffective. The Court reiterated the principle that parties to a void agreement cannot expect the aid of the law and are left as they were at the time the case was filed because they are deemed in pari delicto or in equal fault. On the need to delve into the specific arguments regarding the proviso in the TCT and the applicability of R.A. 6552: The Court's conclusion that both parties were in pari delicto and that the transactions were void ab initio superseded the need to analyze the validity of the contractual stipulations or the application of specific real estate laws in this context.
Main Doctrine
When both parties are in pari delicto or in equal fault, none of them may expect positive relief from the courts in the interpretation of their agreement; instead, they shall be left as they were at the time the case was filed. A void contract produces no civil effect and does not create, modify, or extinguish a juridical relation.