GR L 50439; (July, 1982) (Digest)
G.R. No. L-50439 July 20, 1982
ENRIQUE T. YUCHENGCO, INC., A. T. YUCHENGCO, INC., ANNABELLE Y. PUEY and MONA LISA Y. ABAYA, plaintiffs-appellees, vs. CONRADO M. VELAYO, defendant-appellant.
FACTS
Defendant-appellant Conrado M. Velayo offered to sell to plaintiffs-appellees 2,265 shares (70%) of Ric Tours Philippines, Inc., a licensed tourist operator. The appellees paid the full purchase price of P367,500.00, and Velayo delivered the stock certificates. The appellees subsequently took possession of the corporation’s assets. However, the Department of Tourism (DOT) later directed Velayo to explain why the company’s license should not be cancelled for selling the shares without prior DOT approval, as required by its rules.
The DOT ultimately cancelled Ric Tours’ license for violating the rule mandating prior approval for any transfer of shares in a tour operator. The appellees then demanded rescission of the contract and a refund of the purchase price. After Velayo refused, the appellees filed a complaint for annulment. The parties submitted a Joint Stipulation of Facts, and the trial court declared the Stock Purchase Agreement null and void, ordering Velayo to return the purchase price with interest.
ISSUE
Whether the Stock Purchase Agreement is merely annulable or is null and void ab initio.
RULING
The Supreme Court affirmed the trial court’s decision, ruling the agreement null and void ab initio. The legal logic rests on the mandatory and prohibitory nature of the applicable administrative rule. Section 4, Part IV of the Rules and Regulations Governing the Business of Tour Operators explicitly states: “No transfer of rights to a license of a tour operator or ownership of shares or interests in the agency shall be valid unless made with the prior approval of the Department.”
The Court emphasized that this rule is clear and mandatory. Since both parties admitted the transfer was executed without the prior approval of the DOT, the agreement violated a specific legal requirement. Pursuant to Article 1409(7) of the Civil Code, contracts expressly prohibited or declared void by law are inexistent and void from the beginning. The agreement, being contrary to law, produced no legal effects whatsoever. Consequently, no valid transfer of ownership occurred, and Velayo acquired no right to the purchase money. The obligation to return the sum received arises from the principle that one cannot unjustly enrich oneself at another’s expense under a void contract.