G.R. No. 179743; August 2, 2010
Hadja Fatima Gaguil Magoyag, joined by her husband, Hadji Hasan Madlawi Magoyag, Petitioners, vs. Hadji Abubacar Maruhom, Respondent.

FACTS

Respondent Hadji Abubacar Maruhom was awarded a market stall by the Islamic City of Marawi. On December 1, 1985, he orally sold his rights to the stall to petitioners for ₱20,000.00. This sale was later formalized in a December 10, 1985 Deed of Assignment, which also contained a leaseback agreement where respondent would lease the stall from petitioners. Respondent paid rentals until June 1993, after which he stopped. Petitioners filed a complaint for recovery of possession and damages in the RTC.
In his Answer, respondent admitted receiving ₱20,000.00 but claimed the true agreement was a sale with a right to repurchase, not an absolute sale. He argued the Deed of Assignment did not reflect this true agreement and was procured through fraud, as he was illiterate. He further contended the stall was owned by the City Government and he had no authority to sell it. The RTC ruled for petitioners, ordering respondent to vacate and pay unpaid rentals and damages. The Court of Appeals reversed, declaring the Deed of Assignment void.

ISSUE

Whether the Deed of Assignment conveying the market stall is valid and enforceable.

RULING

The Supreme Court affirmed the Court of Appeals’ ruling that the Deed of Assignment is void ab initio. The legal logic rests on the principle of nemo dat quod non habet (no one can give what he does not have). The certification from the City Government explicitly stated the awarded stall could not be sold, donated, or alienated without the City’s consent. Respondent, therefore, had no alienable ownership rights to convey. A contract for the sale of a thing that is not within the commerce of man is void from the beginning under Article 1409(3) of the Civil Code.
The Court rejected the application of the pari delicto doctrine, which would have prevented both parties from recovering from each other due to mutual fault. The exception applies because petitioners are not in equal fault with respondent; there was no allegation or proof petitioners knew of the legal restrictions on the stall’s alienation when they entered the contract. Consequently, while the contract is void, petitioners are entitled to restitution. Respondent cannot unjustly retain the purchase price. The Court modified the CA decision, ordering respondent to return the ₱20,000.00 to petitioners with legal interest from the filing of the complaint.