GR 153201; (January, 2005) (Digest)
G.R. No. 153201 ; January 26, 2005
JOSE MENCHAVEZ, ET AL., petitioners, vs. FLORENTINO TEVES JR., respondent.
FACTS
Petitioners, the Menchavez family, entered into a five-year Contract of Lease with respondent Florentino Teves Jr. on February 28, 1986, leasing a 10-hectare fishpond in Tabuelan, Cebu. The contract contained warranties from the lessors that the property was fit for use as a fishpond and that the lessee would enjoy peaceful and adequate possession for the entire lease term. However, on June 2, 1988, sheriffs demolished the fishpond dikes constructed by Teves and delivered possession to other parties, rendering him unable to use the property.
It was subsequently revealed that the subject property was the same land involved in a prior litigation, Civil Case No. 510-T, wherein the Menchavez spouses were ordered to remove illegally constructed dikes and pay damages. Petitioners had not disclosed this litigation to Teves. Respondent filed a complaint for damages against petitioners for violating their contractual warranties.
ISSUE
The core issue is whether the Contract of Lease is valid and enforceable, and if not, whether respondent is entitled to recover the payments he made under the contract.
RULING
The Supreme Court declared the Contract of Lease void ab initio. The property, a public land covered by a fishpond application, could not be legally leased by private individuals as the lessors did not possess a perfected fishpond lease agreement from the government; they only held a mere application. Consequently, they had no transferable rights over the property. A void contract produces no legal effect, and as a general rule, parties are left as they are (in pari delicto), with neither entitled to relief.
However, the Court applied an exception to the in pari delicto rule. Respondent, the lessee, is allowed to recover what he has paid under the void contract. The law intends to protect one party—here, the lessee—who is not in equal fault with the other. Petitioners, as lessors, actively misrepresented their ownership and lawful authority to lease the property through express warranties in the contract. This misrepresentation induced respondent to enter the agreement. Allowing recovery serves public policy by discouraging such deceitful practices. Therefore, respondent is entitled to a refund of the rentals he paid, amounting to ₱128,074.40. The award of liquidated damages is deleted, as a void contract cannot stipulate a valid penal clause.