G.R. No. 172733 ; August 20, 2008
SPS. CORNELIO JOEL I. ORDEN and MARIA NYMPHA V. ORDEN, and REGISTER OF DEEDS OF NEGROS ORIENTAL, petitioners, vs. SPS. ARTURO AUREA and MELODIA C. AUREA, SPS. ERNESTO P. COBILE and SUSANA M. COBILE, and FRANKLIN M. QUIJANO, respondents.

FACTS

Petitioners Sps. Orden owned two parcels of land and a house in Negros Oriental. On September 29, 1994, they executed a Deed of Absolute Sale over the properties for P1.9 million. The named vendees were respondents Sps. Aurea. Simultaneously, Sps. Aurea executed a Joint Affidavit stating that the true and real purchasers were respondents Sps. Cobile, who are American citizens. This arrangement was allegedly upon the advice of petitioners’ counsel, Atty. Hernando, who opined that foreign nationals could not own land. Sps. Cobile made partial payments totaling P738,596.28 but subsequently failed to pay the balance.
Petitioners Sps. Orden filed a complaint for rescission of the contract and recovery of possession. The Regional Trial Court dismissed the complaint and instead ordered petitioners to refund the partial payments to Sps. Cobile with interest. The Court of Appeals affirmed this decision.

ISSUE

Whether the contract of sale is void for violating the constitutional prohibition against foreign ownership of land, thereby precluding Sps. Cobile from recovering their partial payments.

RULING

No, the contract is not void, and Sps. Cobile are entitled to a refund. The Supreme Court affirmed the lower courts’ decisions. The legal logic proceeds from a distinction between an illegal or void contract and a valid contract breached by a party. The constitutional prohibition applies to natural-born Filipino citizens who lost their citizenship. However, the law ( Commonwealth Act No. 63 , as amended) allows former natural-born Filipino citizens to acquire private land, subject to limitations. The Court found that Sps. Cobile were former natural-born Filipino citizens; thus, the contract was not inherently illegal. The named vendees were Sps. Aurea, but the true vendees were Sps. Cobile, as evidenced by the Joint Affidavit and receipts. The arrangement was a contract to sell, where ownership is retained until full payment. Since petitioners, as vendors, sought to rescind due to non-payment, they are obligated to return the partial payments received. Under Article 1385 of the Civil Code, mutual restitution is required upon rescission. The Court rejected the argument that allowing recovery would unjustly enrich Sps. Cobile, as the enrichment resulted from a valid contractual arrangement, not an illegal one. The contract’s validity meant the payments were made for a lawful cause, obligating petitioners to return them upon rescission.