Villareal, Jr. v. Jugo

FIRST DIVISION

[G.R. No. 238649. June 23, 2021.]

RUPERTO VILLAREAL, JR., ERLINDA V. CORCINO, HECTOR VILLAREAL AND VICTOR VILLAREAL, petitioners,vs. SUSAN JUGO AND CAGAY DEVELOPMENT CORPORATION, REPRESENTED HEREIN BY ITS PRESIDENT, SUSAN JUGO, respondents.

NOTICE

Sirs/Mesdames :

Please take notice that the Court, First Division, issued a Resolution dated June 23, 2021 which reads as follows:

"G.R. No. 238649 — RUPERTO VILLAREAL, JR., ERLINDA V. CORCINO, HECTOR VILLAREAL and VICTOR VILLAREAL, petitioners,versus SUSAN JUGO and CAGAY DEVELOPMENT CORPORATION, represented herein by its president, SUSAN JUGO, respondents.

This is a petition 1 for review on certiorari (petition) under Rule 45 which seeks a reversal of the May 18, 2017 Decision 2 and the March 2, 2018 Resolution 3 of the Court of Appeals Twentieth Division (CA) in CA-G.R. CV No. 01001, and prays, thus:

WHEREFORE, it is most respectfully prayed that a Decision be rendered amending the Decision of the Court of Appeals by ordering respondent Susan Jugo to pay petitioners the amount of P2,000,000.00 with legal interest from August 28, 1997 until fully paid, or to remand the case to the Regional Trial Court for determination of the liability of Susan Jugo in her personal capacity. 4

The facts that gave rise to the present controversy are unambiguous and involve the imbedded but unmistakable commission of fraud in the undervaluation of a sold property for purposes of minimizing the tax base for assessment, and the inevitably resulting application of the pari delicto rule, which, apart from exposure to potential prosecution, must leave both parties where they are.

Facts

Siblings Ruperto Villareal, Jr., Erlinda V. Corcino (petitioner Corcino), Hector Villareal and Victor A. Villareal (collectively, petitioners) are the lawful owners of Lot Nos. 1881-B and 1881-C, both located in Dinginan, Roxas City. They came to know Susan Jugo (respondent Jugo) when she, as President of Cagay Development Corporation (respondent CDC), represented the latter in the earlier purchase by said corporation of petitioners' other lot, Lot No. 1906-A, for P20,000,000.00. 5

Respondent Jugo, as representative of respondent CDC, thereafter negotiated with petitioners for the sale of the latter's two other lots, Lot No. 1881-B and Lot No. 1881-C, and the parties agreed, as evidenced by a "Contract to Sell" dated September 6, 1996, the pertinent portions of which provide: TIADCc

Whereas, the First Party are desirous to sell and the Second Party is willing to buy two (2) parcels of land designated as Lot Nos. 1881-B and 1881-C;

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The purchase price shall be payable by installment in accordance with the following schedule:

1. The amount of Four Million Seven Hundred Ninety-Six Thousand Seven Hundred Fifty Pesos (4,796,750.00) to be paid in cash on or before September 1, 1997.

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3. The parties agree that payments by the Second Party to the First Party shall be in cash and shall be paid to Mrs. Erlinda V. Corcino, one of the First Party;

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The parties hereby agree that after payment of the amount of Four Million Seven Hundred Ninety-Six Thousand Seven Hundred Fifty Pesos (P4,796,750.00) by the Second Party, Susan Jugo, the Deed of Absolute Sale respecting Lot 1881-B shall be executed in favor of the Second Party and the Second Party shall take possession of said lot. 6

In addition, petitioners also executed a "Guaranty on Exclusivity" which gave respondent Jugo the exclusive right to purchase both Lot Nos. 1881-B and 1881-C, with said Guaranty reading in part:

WE, ERLINDA CORCINO, HECTOR VILLAREAL, and RUPERTO VILLAREAL, JR., all of legal ages, Filipinos, married, except Ruperto Villareal, Jr., widower, and all residents of Mambusao, Capiz, subscribing under oath, guaranty that the promise to sell vested upon SUSAN JUGO and/or her assigns/successors-in-interest respecting Lots (sic) Nos. 1881-B and 1881-C, covered by T.C.T. Nos. T-24206 and T-24207, Register of Deeds, Roxas City, per the Contract to Sell dated SEPT. 6, 1996 shall be exclusive to Susan Jugo and/or her assigns/successors-in-interests within the four (4)-year period set forth in the subject Contract to Sell, in consideration for the Deed of Absolute Sale dated SEPT. 6, 1996 of Lot 1906-A, covered by T.C.T. No. T-33534, Register of Deeds, Roxas City.

In witness whereof, the parties have signed these presents this SEPT. 6, 1996 at Roxas City. 7

In view of the "Contract to Sell," petitioners acknowledged that on August 27, 1997, respondent Jugo paid them the amount of P2,796,750.00 by way of a manager's check, and that she gave them four Far East Bank and Trust Co. (FEBTC) postdated checks (PDCs), all dated October 29, 1997 (October 29, 1997 PDCs) for the balance of P2,000,000.00. Petitioner Corcino accepted the payments alongside respondent Jugo's assurance that she would pay the balance of P2,000,000.00 within two months, through a "Promissory Note" dated August 28, 1997, which partly reads:

I, SUSAN JUGO, promise to pay to the order of RUPERTO A. VILLAREAL, JR., HECTOR A. VILLAREAL, ERLINDA V. CORCINO, VICTOR A. VILLAREAL, the sum of Two Million (P2,000,000.00) Pesos Only [which] shall be paid on or before October 29, 1997, as per evidence by the following checks:

 

October 29, 1997	FEBTC	823757	P500,000.00
October 29, 1997		823758	500,000.00
October 29, 1997		823759	500,000.00
October 29, 1997		823760	500,000.00. 8

 

In furtherance of the acceptance of payments, the parties executed two Deeds of Absolute Sale, with one reflecting the true purchase price of P4,796,750.00, and the other indicating a lower purchase price of P1,300,000.00, with its under-declaration undertaken for tax purposes, so that except for the selling price and the date of execution, the two Deeds of Sale commonly read:

WHEREAS, the SELLERS are the registered co-owners of Lot No. 1906-B situated at Barrio Cagay, Roxas City, Capiz, with an aggregate area of THIRTEEN THOUSAND SEVEN HUNDRED FIVE (13,705) SQUARE METERS, more or less, together with all improvements thereon, and covered by and more particularly described in Transfer Certificate of Title No. T-33538 of the Registry of Deeds of Roxas City.

WHEREAS, the SELLERS are willing to sell, dispose of, cede, transfer and convey all their rights, title and interest to and in the Subject Property.

NOW THEREFORE, for and in consideration of the sum of FOUR MILLION SEVEN HUNDRED NINETY-SIX THOUSAND SEVEN HUNDRED FIFTY (P4,796,750.00) PESOS (hereinafter the Purchase Price), the SELLERS hereby convey and transfer by way of ABSOLUTE SALE the Subject Property in favor of the BUYER.

1. The parties hereby agree that payments of the Purchase Price shall be made to ERLINDA V. CORCINO, in cash, who shall receive the Purchase Price for and in behalf of the other SELLERS.

2. Upon execution of this Deed of Absolute Sale, the SELLERS shall deliver to (sic) the originals of: (a) the owner's duplicate copy of the TCT No. T-33538; and (b) the Tax Declaration covering the Subject Property.

3. Expenses for documentary stamps, capital gains taxes as well as registration fees and other charges for the transfer of the Subject Property in favor of the SELLER[S] shall be for the account of the BUYER. 9

Petitioner Corcino, for her part and in behalf of all petitioners, signed a Receipt acknowledging the receipt of the amount of P4,796,750.00 as full payment for the lot covered by TCT No. T-33538, thus: AIDSTE

RECEIVED from CAGAY DEVELOPMENT CORPORATION the sum of FOUR MILLION SEVEN HUNDRED NINETY-SIX THOUSAND SEVEN HUNDRED FIFTY (P4,796,750.00) PESOS as full payment of the Purchase price of Lot 1906-B situated at Cagay, Roxas City, covered [by] T.C.T. No. T-33538. 10

Two months after respondent Jugo's issuance of the Promissory Note, the remaining P2,000,000.00 balance remained unpaid, and with the consent of petitioner Corcino, respondent Jugo replaced the October 29, 1997 PDCs she issued in favor of petitioner Corcino with four new FEBTC PDCs, all dated December 31, 1997, also for a total amount of P2,000,000.00. 11

However, when petitioner Corcino deposited the latter four checks upon their maturity, they were dishonored on account of a "Stop Payment" order from respondent Jugo. Despite subsequent demands, respondent Jugo failed to make good on her promise of payment in the weeks that followed. 12 Upon petitioner Corcino's later discovery that TCT No. T-33538 which covered Lot No. 1881-B had already been cancelled and that TCT No. T-35901 had been issued in the name of respondent CDC, 13 she, along with the other petitioners, instituted a "Complaint for Cancellation of Deed of Absolute Sale, TCT No. T-35901, Recovery of Possession and Damages" against respondents dated October 1, 2001, docketed as Civil Case No. V-086-10-2001. 14

In their Answer, 15 respondents countered that they had already paid the full purchase price for the sale of Lot No. 1881-B, as evidenced by the Deed of Absolute Sale executed in favor of respondent CDC, in accordance with the terms of the earlier Contract to Sell. 16 Respondent Jugo, for her part, claimed that the Promissory Note and the FEBTC PDCs she issued were to guarantee her exclusive right to purchase Lot No. 1881-C which did not materialize. 17 The respondents likewise sought the dismissal of the complaint on the ground of lack of cause of action against respondent CDC with respect to the sale of Lot No. 1881-B. 18

RTC Ruling

On July 15, 2005, Branch 15, Regional Trial Court of Roxas City (RTC) rendered its Order 19 which ruled for respondent CDC, with its dispositive reading thus:

WHEREFORE, foregoing premises considered, this case is ordered DISMISSED insofar as defendant CAGAY DEVELOPMENT CORPORATION is concerned.

The prayer for the cancellation of the Deed of Absolute Sale dated August 27, 1997 and TCT No. T-35091 is DENIED.

No pronouncement as to costs.

SO ORDERED. 20

In ruling to dismiss the complaint against respondent CDC, the RTC mainly determined that respondent CDC is considered and conclusively presumed to have already paid the full purchase price of the sale of Lot No. 1881-B, as evidenced by the Receipt of the amount of P4,796,750.00 as issued by petitioner Corcino in favor of respondent CDC. The RTC found that since petitioner Corcino did not dispute that it was in fact her signature appearing on said Receipt, the same could be considered as a proper acknowledgment receipt of respondent CDC's payment of the full consideration. 21

The RTC also held that as far as the Promissory Note and dishonored FEBTC PDCs were concerned, they were all issued by and for the account of respondent Jugo alone, 22 and in her personal capacity, to wit:

As earlier stated and assuming arguendo that the P2 Million in four (4) checks was the balance of the purchase price of Lot 1881-B, the plaintiffs were not prudent and circumspect in allowing defendant Susan Jugo to pay them with her personal checks obviously from her own personal bank account. Such actuation of defendant Susan Jugo could have immediately sent signals to them to at least investigate a little further on whether or not she was duly authorized by the corporation to pay the consideration of the sale out of her own bank account, or, that she had sufficient deposit to back the postdated checks. In that manner, plaintiffs could have easily found that Susan Jugo's act was ultra vires and therefore unauthorized and they could have easily backed out from the deal or brought the matter up to the Corporate Management or to the Corporation's higher officials themselves. 23

Proceeding from the premise that the complaint sued respondent Jugo in her capacity as the President of CDC, the RTC added that persuasive as well of the idea that it was only respondent Jugo who owed petitioners was the fact that petitioners did not demand from respondent CDC when respondent Jugo defaulted payment. 24 It therefore found no reason to nullify the Deed of Absolute Sale over Lot No. 1881-B in favor of respondent CDC, or otherwise cancel the TCT No. T-35091 which resulted therefrom. 25

However, the RTC clarified that petitioners may still demand fulfillment of the obligation from respondent Jugo alone, for the P2,000,000.00 which she undoubtedly still owed them in her personal capacity. 26

Petitioners filed their Motion for Reconsideration 27 of the RTC's Order, but the same was summarily denied by the RTC in its Order 28 dated August 26, 2005.

CA Ruling

The CA, through its Decision dated May 18, 2017 affirmed the RTC, to wit:

WHEREFORE, in view of all the foregoing, WeDENY the appeal. The assailed 15 July 2005 and 26 August 2005 Orders of the Regional Trial Court, Branch 15 of Roxas City in Civil Case No. V-086-1-2001 are AFFIRMED in toto.

SO ORDERED. 29

In support of its ruling, the CA held that with regard to the primordial issue of whether respondent Jugo, as representative of respondent CDC, has paid the full purchase price of Lot No. 1881-B in favor of petitioners, the documentary evidence submitted show that respondents have proven, by preponderance of evidence, that they have indeed paid the full purchase price m the amount of P4,796,750.00 for Lot No. 1881-B. 30

The CA noted that the undated Deed of Absolute Sale and the Receipt dated August 28, 1997 both indicate so. 31 In sorting the confusion as to which lot was the subject of the purchase, the CA observed that although the aforementioned documents referred to "Lot No. 1906-B" and not "Lot No. 1881-B," the unclarity was nevertheless settled when the same documents indicated that the subject lot was covered by TCT No. T-33538, which is the subject Lot No. 1881-B. 32

The CA also observed that the undated Deed of Absolute Sale covering Lot No. 1881-B is consistent with the terms of the Contract to Sell executed between the parties, where they agreed that said lot would be sold for P4,796,750.00. 33 It also held that although the other Deed of Absolute Sale which reflected a lower purchase price for tax purposes nevertheless affirmed the allegation that the real purchase price amount of P4,796,750.00 had already been paid. 34

With respect to the Promissory Note which petitioners claim is proof of respondents' undertaking to pay the outstanding balance of P2,000,000.00 for Lot No. 1881-B, the CA held that the said Promissory Note, on its face, was ambiguous as to which transaction it was undertaken for. The CA reasoned that since said Promissory Note was far from specific, and since it was only respondent Jugo who executed the same, it stood to reason that the same may have been executed for an entirely different transaction in which only respondent Jugo, and not respondent CDC, was party to. 35 AaCTcI

With regard to the FEBTC PDCs, the CA found that since they were drawn from the personal account of respondent Jugo, they could not have been issued as respondent CDC's payment for Lot No. 1881-B. It closed by ruling that since respondent CDC has proven by preponderance of evidence the fact of full payment of the purchase price for Lot No. 1881-B, no more ground supports the prayer for the cancellation of the Deed of Absolute Sale or the nullification of TCT No. 35901. 36

Finally, the CA made the observation that although the execution of the two Deeds of Absolute Sale to undervalue Lot No. 1881-B for tax purposes would have occasioned the application of the pari delicto rule which would have justified it to leave the parties as they are, it nonetheless held that since the RTC already ruled extensively on the merits of both parties' claims, the application of said rule would only unduly favor respondents over petitioners. On this premise, it grounded its resolution of the appeal on the merits and denied the same. 37

Petitioners filed a Motion for Reconsideration 38 of the CA's Decision, but the same was denied by the latter through its Resolution dated March 2, 2018.

Hence, this petition.

Herein petitioners now come before the Court chiefly arguing that: (i) the CA erred in affirming the RTC's dismissal of the complaint against respondent CDC as a dismissal of the case against respondent Jugo, who was allegedly likewise sued as a co-defendant in her personal capacity; and (ii) the CA should have ordered respondent Jugo to pay petitioners the outstanding balance of P2,000,000.00. 39

In the interest of clarity, the Court notes that petitioners here are no longer questioning the findings of the lower courts with respect to the payment of respondent CDC of the full purchase price of Lot No. 1881-B. 40 The only points that petitioners seek the Court's resolution in the instant petition are the reversal of the dismissal of the complaint with respect to respondent Jugo, and the order upon respondent Jugo to pay to them the amount of P2,000,000.00.

With respect to the first point, petitioners submit that the RTC's dismissal was explicit in that it was only insofar as respondent CDC was concerned. 41 They aver that the RTC never exculpated respondent Jugo from her liability for the FEBTC PDCs in the amount of P2,000,000.00. 42 They assert that since the RTC's Decision was only a partial judgment, the issue with respect to respondent Jugo's liability subsists and should therefore have been either resolved by the CA, or otherwise remanded to the RTC for further court determination as to respondent Jugo's liability. 43 They also argue that respondent Jugo never disputed their claim over the unpaid P2,000,000.00, and could only be considered as her admission of liability.

In her Comment, 44 respondent Jugo counters that the RTC's finding of full payment of the obligation on the part of respondent CDC effectively also extinguished any allegation of liability on her part. 45 She added that petitioners' action in the RTC was not one for collection of money based on the Promissory Note or the FEBTC PDCs, but one for rescission of the Deed of Absolute Sale pursuant to Article 1191 of the Civil Code, so that the RTC's finding that there was no basis for rescission fully resolved said action. 46

Finally, in their Reply, 47 petitioners maintain that the RTC's dismissal of their complaint was only insofar as respondent CDC was concerned, and did not, in any way, extinguish the liability of respondent Jugo. 48

Issue

The threshold issue for the Court's resolution is whether the CA committed reversible error in affirming the RTC's Decision and denying the petitioners' appeal thereof. EcTCAD

The Court's Ruling

The Court finds the petition unimpressed with merit, but the CA Decision warranting modification with respect to its ruling on the application of the pari delicto rule.

Preliminarily, the Court discerns that the issue of whether petitioners were at fault or whether both parties were inpari delicto is a question of fact that is not normally taken up in a petition for review on certiorari under Rule 45 of the Rules of Court. However, the present case falls within the recognized exceptions to this rule, 49 and the Court is now compelled to review the facts since the inference of the lower courts from their findings of fact is manifestly mistaken. The Court takes principal issue with the lower courts' undisputed finding that the parties executed two Deeds of Absolute Sale in order to evade the imposition of the proper taxes, and the evident lack of legal consequence of said crucial undisputed fact.

Once more, the Court here finds the occasion to make salient the undesirable consequences that are but inevitable when parties to a sale of a property cooperate to commit a fraudulent undervaluation of the property sold and bought, for purposes of evading the proper tax assessment on said property. Specifically, the Court finds that petitioners and respondents are in pari delicto for having knowingly cooperated to grossly undervalue Lot No. 1881-B through the execution of the two Deeds of Absolute Sale, and for having declared for purposes of tax assessment that the consideration was only P1,300,000.00, when the real consideration of the said sale was P4,796,750.00. 50 With both parties' intentional failure to disclose the true consideration of Lot No. 1881-B for tax and registration purposes, petitioners here may not now be allowed to backpedal and claim the supposed unpaid balance in accordance with the true consideration that they earlier purposefully concealed. To allow petitioners to claim upon a consideration they formerly had no intentions of declaring would be tantamount to condoning the deliberate machination that the parties undertook in order to evade the payment of the taxes and fees correctly due on Lot No. 1881-B.

It is important to note that the fact of the execution of two Deeds of Absolute Sale with the end of undervaluing Lot No. 1881-B for tax purposes remains undisputed. Petitioners' very own petition flippantly admits this before the Court, to wit:

The parties executed two (2) Deeds of Absolute Sale, one with the true purchase price of PhP4,796,750.00, and one indicating a lower purchase price of PhP1,300,000.00 for tax purposes. Except for the variance in the selling price and the date, the Deeds commonly read:

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First, how petitioners are able to make this incriminating admission so plainly escapes the Court. Contrary to the benign manner with which petitioners mentioned it, this unrebutted fact is no less than an admission of tax evasion as defined under Section 254 of the National Internal Revenue Code (NIRC) which provides thus:

SEC. 254. Attempt to Evade or Defeat Tax. — Any person who willfully attempts in any manner to evade or defeat any tax imposed under this Code or the payment thereof shall, in addition to other penalties provided by law, upon conviction thereof, be punished by a fine not less than Five hundred thousand pesos (P500,000) but not more than Ten million pesos (P10,000,000) and suffer imprisonment of not less than six (6) years but not more than Ten (10) years: Provided, That the conviction or acquittal obtained under this Section shall not be a bar to the filing of a civil suit for the collection of taxes. 52

Clearly, the admissions of petitioners that they executed two Deeds of Absolute Sale with respondents, and purposefully registered the Deed which reflected the grossly undervalued purchase price for Lot No. 1881-B, demonstrably fall squarely within the broad definition of tax evasion under Section 254 of "attempts in any manner to evade or defeat any tax" which should have been paid on the said real property transaction had the true value and price been truthfully declared.

What is more, this tax evasion as admitted would have been entirely successful, were it not for the subsequent allegation of non-payment of the balance of the purchase price by respondents which forced petitioners to litigate. The Court notes that the registered Deed of Absolute Sale which became the basis for the cancellation of TCT T-33538 and the issuance of TCT No. T-35901 in the name of respondent CDC reflected the grossly undervalued amount of P1,300,000.00 which, even by petitioners' own narration, is well below the amount of P2,796,750.00 which they say respondents have already paid. In other words, both parties would have effectively evaded the payment of the proper taxes due had it not been for the alleged unpaid balance of P2,000,000.00, by virtue of which petitioners had little choice but to disclose that the unpaid balance they have yet to collect is based on the unregistered Deed of Absolute Sale which reflected the true purchase price.

The Court is not unaware that the scheme of undervaluing real properties in sale transactions in order to minimize taxes imposed on them is pervasive, and often appears to be the unwritten norm for some property dealers. However, it also recognizes that for petitioners here to now be allowed to assert their right over a Deed of Absolute Sale they purposefully failed to disclose and register to evade proper taxes is to condone said illegal practices. This the Court cannot be prevailed upon to do.

As the Court has held in B.H. Berkenkotter & Co. v. Court of Appeals, 53 parties who do not indicate the real consideration for their transactions cannot be allowed to profit from their own deception, to wit:

The petitioner now submits that the consideration mentioned in deeds of sale is not a reliable index of just compensation because the parties "tend to undervalue the cost of the property to lower the expenses they would have to pay for the documents." The expenses presumably refer to the cost of the documentary stamps for the registration of the property and the capital gains tax to be paid by the vendor to the government. The suggestion is revealing. There is practically an admission here that the parties to the three transactions did not indicate the real consideration therefor so they could evade the legitimate taxes and fees that were due the government on the basis of the correct purchase price.

If this was the purpose of the petitioner when it executed Exhibits 1, 2 and 3, then it is surely hoist now by its own petard. And rightly so, for it cannot be allowed to profit from its own deception and claim that the subject property should be assessed at the higher rate it clandestinely agreed upon with the buyers.54

To be sure, although the object of the Deed of Absolute Sale, i.e., Lot No. 1881-B is legal, the cause for which petitioners and respondents executed the Deed of Absolute Sale with the grossly undervalued property purchase price upon which they seek to collect the alleged unpaid balance is illegal, i.e., to evade the payment of the proper taxes that could have been imposed on the real property sale had its true value been indicated. On this score, the case of Ramirez v. Ramirez55 is illustrative of how the execution of documents to evade proper taxes and fees brings the parties thereto within the reach of the pari delicto doctrine, thus: HSAcaE

The Court now proceeds to determine if there is ground to hold the parties in pari delicto under Article 1411 of the Civil Code. Under this article, it must be shown that the nullity of the contract proceeds from an illegal cause or object, and the act of executing said contract constitutes a criminal offense. The second requirement has already been discussed and is found to be present.

On the first element, petitioner claims that the "object or cause" of the Deed of Donation and of the Waiver of Possessory Rights is the transferred real properties and that there is nothing illegal about them. He maintains that the illegality instead stems from the act of forgery which pertains to consent, which is not material to the application of Article 1411. The argument is untenable. Object and cause are two separate elements of a donation and the illegality of either element gives rise to the application of the doctrine of pari delicto. Object is the subject matter of the donation, while cause is the essential reason which moves the parties to enter into the transaction. Petitioner wrongly asserts that the donated real properties are both the object and cause of the donation. In fact, the donated properties pertain only to the object. Therefore, while he is correct in stating that the object of the donation is legal, his argument misses the point insofar as the cause is concerned. The cause which moved the parties to execute the Deed of Donation and the Waiver of Possessory Rights, the motive behind the forgery, is the desire to evade the payment of publication expenses and inheritance taxes, which became due upon the death of Dolores. Undeniably, the Deed of Donation and the Waiver of Possessory Rights were executed for an illegal cause, thus completing all the requisites for the application of Article 1411.

Both petitioner and respondent are, therefore, in pari delicto. Neither one may expect positive relief from the courts from their illegal acts and transactions. Consequently, they will be left as they were at the time the case was filed. 56

As applied to the facts of the instant case, petitioners and respondents have both been shown to have satisfied the elements for the application of the pari delicto rule under Article 1411 of the Civil Code. Specifically: (1) both petitioners and respondents executed the second Deed of Absolute Sale with the grossly undervalued purchase price of Lot No. 1881-B in order to register the same without having to pay the correct taxes and fees due on the real purchase price, as reflected in the first Deed of Absolute Sale; and (2) both petitioners and respondents executed this second Deed of Absolute Sale in order to evade the payment of the proper taxes, as defined under Section 254 of the NIRC.

Although the Court acknowledges that in the 2004 case of Heirs of Balite v. Lim, 57 where it held that that a contract of sale that does not indicate the actual purchase price is nevertheless binding on the parties and is sufficient basis for the government's collection of the proper taxes due on the parties' true consideration, it makes salient the important distinctions of that case with the instant petition, i.e., (1) the doctrine of pari delicto was never raised in the said case, and (2) there was an undisputed admission in the instant petition of effective tax evasion through the execution of two nearly identical Deeds of Absolute Sale, save for the undervaluation of the purchase price in one.

Based on the foregoing, the Court finds that both petitioners and respondents are in pari delicto or equally at fault for having knowingly executed two Deeds of Absolute Sale to evade the payment of the proper taxes and fees, and such illicit cooperation is precisely within the contemplation of the pari delicto rule under Article 1411 of the Civil Code.

Second, the Court disagrees with the CA's rationale that the application of the pari delicto is but a mere technicality that may no longer be applied after an extensive ruling on the merits was made by the RTC. 58 On the contrary, the pari delicto rule connotes how if two parties before the court are in equal fault or are equally guilty of a crime or an unlawful act, they forfeit their rights to a redress as a consequence thereof. To be sure, this is a substantive forfeiture of relief before the courts, and may not be overridden as a technicality that can be simply done away with. AcICHD

The doctrine of pari delicto was developed to preserve the decorum of the courts, and ensure that the law would not be a tool for enforcing illegal agreements, 59 with its quintessential illustration that of a highway robber who sues his criminal partner for a withheld share of their ill-gotten loot. 60 As a rule of civil law, the principle of pari delicto is provided for under Articles 1411 and 1412 of the Civil Code, with the former referring to an act which constitutes a criminal offense, and the latter pertaining to those which are not criminal per se but nevertheless unlawful, viz.:

ARTICLE 1411. When the nullity proceeds from the illegality of the cause or object of the contract, and the act constitutes a criminal offense, both parties being in pari delicto, they shall have no action against each other, and both shall be prosecuted. Moreover, the provisions of the Penal Code relative to the disposal of effects or instruments of a crime shall be applicable to the things or the price of the contract.

This rule shall be applicable when only one of the parties is guilty; but the innocent one may claim what he has given, and shall not be bound to comply with his promise.

ARTICLE 1412. If the act in which the unlawful or forbidden cause consists does not constitute a criminal offense, the following rules shall be observed:

(1) When the fault is on the part of both contracting parties, neither may recover what he has given by virtue of the contract, or demand the performance of the other's undertaking;

(2) When only one of the contracting parties is at fault, he cannot recover what he has given by reason of the contract, or ask for the fulfillment of what has been promised him. The other, who is not at fault, may demand the return of what he has given without any obligation to comply with his promise.

In Constantino v. Heirs of Constantino, 61 the Court explained the rule of pari delicto thus:

Latin for "in equal fault," inpari delicto connotes that two or more people are at fault or are guilty of a crime. Neither courts of law nor equity will interpose to grant relief to the parties, when an illegal agreement has been made, and both parties stand inpari delicto. Under the pari delicto doctrine, the parties to a controversy are equally culpable or guilty, they shall have no action against each other, and it shall leave the parties where it finds them. This doctrine finds expression in the maxims "ex dolo malo non oritur actio" and "in pari delicto potior est conditio defendentis."

When circumstances are presented for the application of such doctrine, courts will take a hands off stance in interpreting the contract for or against any of the parties.62

Conceptually, the principle of pari delicto was elucidated in the early 1919 case of Bough v. Cantiveros, 63 where the Court, speaking through Justice Malcolm, explained:

x x x The last question which is propounded by appellant relates to the effect of the illegality of the instant contract.

It is rudimentary that contracting parties may not establish pacts, clauses, and conditions, which conflict with the laws, morals, or public order; "public order" signifies "the public weal" — public policy (Article 1255, Civil Code; Manresa, Comentarios al Codigo Civil, Vol. 8, p. 574.) It is further well settled, that a party to an illegal contract cannot come into a court of law and ask to have his illegal objects carried out. The rule is expressed in the maxims: "Ex dolo malo non oritur actio," and "In pari delicto potior est conditio defendentis." The law will not aid either party to an illegal agreement; it leaves the parties where it finds them. (Article 1306, Civil Code; Perez vs. Herranz [1907], 7 Phil., 693.) Where, however, the parties to an illegal contract are not equally guilty, and where public policy is considered as advanced by allowing the more excusable of the two to sue for relief against the transaction, relief is given to him. Cases of this character are, where the conveyance was wrongfully induced by the grantee through imposition or overreaching, or by false representations, especially by one in a confidential relation. (13 C. J., 497-499; Pride vs. Andrew [1894], 51 Ohio State, 405.)

xxx xxx xxx

In this instance, the grantor, reposing faith in the integrity of the grantee, and relying on a suggested occurrence, which did not in fact take place, was made the dupe of the grantee, and led into an agreement against public policy. The party asking to be relieved from the agreement which she was induced to enter into by means of fraud, was thus in delicto, but not in pari delicto with the other party. The deed was procured by misrepresentation and fraud sufficient to vitiate the transaction. The rights of creditors are not affected. We feel that justice will be done if we place the granter in the position in which she was before these transactions were entered into. 64

Given the above definition of pari delicto, the Court here holds that petitioners and respondents are both equally at fault for having executed the grossly undervalued Deed of Absolute Sale. Consequently, petitioners, to their deserved disadvantage, may not now be allowed to raise a claim for the collection of the unpaid balance which they have knowingly concealed entitlement to until such concealment no longer served their interests. Both parties are in pari delicto, and they shall have no action against each other.

The Court reminds that consistent with the very spirit of a court of law, it will not allow itself to be instrumental to the parties' perpetuation of illegal acts, or otherwise be passively complicit to their condonation by permitting an utter lack of consequence. Courts cannot view with nonchalance admitted crimes or violations of laws, and parties before it must ensure that they are not, pursuant to their need of a remedy, founding their claim on a clear concession of guilt or liability therefor.

WHEREFORE, premises considered, the petition is hereby DENIED. The Court of Appeals Twentieth Division dated May 18, 2017 and its Resolution dated March 2, 2018 in CA-G.R. CV No. 01001, are hereby AFFIRMED with MODIFICATION. Herein petitioners Ruperto Villareal, Jr., Erlinda V. Corcino, Hector Villareal and Victor Villareal are hereby found to be in pari delicto with respondent Susan Jugo. Therefore, the Court leaves the parties where they are, irrespective of petitioners' claim against respondents. TAIaHE

Finally, the instant denial is without prejudice the right of the government to collect the proper taxes and fees due on the true purchase price of Four Million Seven Hundred Ninety-Six Thousand Seven Hundred Fifty Pesos (P4,796,750.00), as well as its right to prosecute herein parties for any violation they may be shown to have committed under Section 254 of the National Internal Revenue Code and other relevant laws.

SO ORDERED."

By authority of the Court:

(SGD.) LIBRADA C. BUENADivision Clerk of Court

by:

MARIA TERESA B. SIBULODeputy Division Clerk of Court

 

Footnotes

1.Rollo, pp. 10-34.

2.Id. at 35-50. Penned by Associate Justice Gabriel T. Robeniol, and concurred in by Associate Justices Pamela Ann Abella Maxino and Pablito A. Perez.

3.Id. at 51-53. Penned by Associate Justice Gabriel T. Robeniol, and concurred in by Associate Justices Gabriel T. Ingles and Pamela Ann Abella Maxino.

4.Id. at 30.

5.Id. at 20.

6.Id. at 37. Emphasis supplied.

7.Id. at 38.

8.Id. at 39.

9.Id. at 71-72.

10.Id. at 40-41.

11.Id. at 62.

12.Id. at 63.

13.Id.

14.Id. at 59-67.

15.Id. at 79-86.

16.Id. at 83.

17.Id. at 85.

18.Id. at 84.

19.Id. at 89-103. Penned by Judge Juliana C. Azarraga.

20.Id. at 103.

21.Id. at 101.

22.Id. at 102.

23.Id. at 101.

24.Id. at 102.

25.Id.

26.Id. at 102-103.

27.Id. at 105-109.

28.Id. at 110-111.

29.Id. at 49.

30.Id. at 46.

31.Id.

32.Id. at 47.

33.Id.

34.Id.

35.Id. at 48.

36.Id.

37.Id. at 47-48.

38.Id. at 54-56.

39.Id. at 25-26.

40.Id. at 26.

41.Id. at 27.

42.Id. at 28.

43.Id. at 29.

44.Id. at 155-159.

45.Id. at 158.

46.Id.

47. Reply to Respondent's Comment, id. at 192-195.

48.Id. at 193.

49.Mighty Corp. v. E. & J. Gallo Winery, G.R. No. 154342, July 14, 2004, 434 SCRA 473, 489-490.

50. Section 24 (C) of the NIRC provides:

SEC. 24. Income Tax Rates. —

xxx xxx xxx

(C) Capital Gains from Sale of Shares of Stock not Traded in the Stock Exchange. — The provisions of Section 39 (B) notwithstanding, a final tax at the rates prescribed below is hereby imposed upon the net capital gains realized during the taxable year from the sale, barter, exchange or other disposition of shares of stock in a domestic corporation, except shares sold, or disposed of through the stock exchange.

Not over P100,000 — 5%

On any amount in excess of P100,000 —10%

51.Rollo, p. 23.

52. As amended by Republic Act No. 10963, otherwise known as the "Tax Reform for Acceleration and Inclusion (TRAIN)."

53. G.R. No. 89980, December 14, 1992, 216 SCRA 584.

54.Id. at 591-592. Emphasis supplied.

55. G.R. No. 165088, March 17, 2006, 485 SCRA 92.

56.Id. at 96-97. Emphasis supplied.

57.See 487 Phil. 281 (2004).

58.Rollo, pp. 47-48.

59.Matthew D. Menghini, The Availability of the In Pari Delicto Defense in Tippee-Tipper Rule 10b-5 Actions After Dirks v. SEC, 62 Wash. Univ. L. Rev. Q. 519, 519 (1984), including note 4.

60.Williams Elecs. Games, Inc. v. Garrity, 366 F.3d 569, 574 (7th Cir. 2004).

61. 718 Phil. 575 (2013).

62.Id. at 584-585. Emphasis supplied.

63. 40 Phil. 209 (1919).

64.Id. at 216-218. Emphasis supplied.