The evil of undervaluation
Joe and Mila bought their love nest, a beautiful house amid a bucolic setting. But the picturesque setting did not help the rekindling of a lost love.
Mila sold to Tom their house and lot. The sale was evidenced by a deed of sale executed by Mila herself and as attorney-in-fact of Jose, by virtue of a Special Power of Attorney (SPA) executed by Jose in her favor.
The Deed of Sale stated that the purchase price for the lot was P200,000.
All is not well after all.
Joe sought the annulment and cancellation of the sale before the Regional Trial Court. He claimed that the sale was without his consent and knowledge, and that his signature on the SPA was forged.
In the answer he filed in court, Tom maintained that he was a buyer in good faith and for value. Mila, on the other hand, did not file an answer to Joe’s complaint and Tom’s cross-claim. Consequently, the court declared her in default.
During the trial, Joe presented his brother, Boni, as his sole witness. Boni testified that: (a) Mila admitted to him that she sold the property without the consent of Joe because she needed money; and that (b) Joe’s signature in the SPA was forged.
On the other hand, Tom testified that, through a phone call by Mila to Joe, his agent was able to confirm that Joe was aware of the sale and had given his wife authority to proceed with the sale. With the assurance that all the documents were in order, Tom made a partial payment of P350,000 and another P350,000 upon the execution of the Deed of Absolute Sale. Tom noticed that the consideration written by Mila on the Deed of Sale was only P200,000—he inquired why the written consideration was lower than the actual consideration paid. Mila explained then that it was done to save on taxes.
The RTC decided in favor of Jose and nullified the sale of the subject property to Tomas. The RTC held that the SPA was actually null and void. Tom and Mila were ordered to jointly and severally indemnify Joe the amount of P20,000 as temperate damages.
On appeal, the Court of Appeals affirmed the RTC ruling that the deed of sale and the SPA were void. However, the CA modified the judgment of the RTC: first, by deleting the award of temperate damages; and second, by directing Joe and Mila to reimburse Tom the purchase price of P200,000, with interest, under the principle of unjust enrichment.
Despite Tom’s allegation that he paid P700,000 for the subject lot, the CA found that there was no convincing evidence that established this claim.
Q: Were the courts correct in declaring the deed of absolute sale void?
A: Yes. The deed of sale was correctly declared null and void by the positive provision of the law prohibiting the sale of the conjugal property without the spouse’s consent.
Q: What does it mean when a deed of absolute sale is a void contract?
A: A void or inexistent contract has no force and effect from the very beginning. This rule applies to contracts that are declared void by positive provision of law, as in the case of a sale of conjugal property without the other spouse’s written consent.
A void contract is equivalent to nothing and is absolutely wanting in civil effects. It cannot be validated either by ratification or prescription.
When, however, any of the terms of a void contract have been performed, an action to declare its inexistence is necessary to allow restitution of what has been given under it.
Q: Did the CA erroneously rely on the consideration stated in the deed of sale as basis for the reimbursable amount despite its earlier declaration that the deed of sale is null and void?
A: No. If a void contract has already been performed, the restoration of what has been given is in order.
This principle springs from Article 22 of the New Civil Code which states that “every person who through an act of performance by another, or any other means, acquires or comes into possession of something at the expense of the latter without just or legal ground, shall return the same.” Hence, the restitution of what each party has given is a consequence of a void and inexistent contract.
Q: Can the deed of absolute that was declared a void contract by the court still be admitted in evidence?
A: Yes. There is no provision in the Rules of Evidence which excludes the admissibility of a void document. The Rules only require that the evidence is relevant and not excluded by the Rules for its admissibility.
Hence, a void document is admissible as evidence because the purpose of introducing it as evidence is to ascertain the truth respecting a matter of fact, not to enforce the terms of the document itself.
While the terms and provisions of a void contract cannot be enforced since it is deemed inexistent, it does not preclude the admissibility of the contract as evidence to prove matters that occurred in the course of executing the contract, i.e., what each party has given in the execution of the contract.
In this case, the deed of sale as documentary evidence may be used as a means to ascertain the truthfulness of the consideration stated and its actual payment. The purpose of introducing the deed of sale as evidence is not to enforce the terms written in the contract, which is an obligatory force and effect of a valid contract.
The deed of sale, rather, is used as a means to determine matters that occurred in the execution of such contract, i.e., the determination of what each party has given under the void contract to allow restitution and prevent unjust enrichment.
Q: What then is the value of a void contract?
A: The fact that the sale was declared null and void does not prevent the court from relying on consideration stated in the deed of sale to determine the actual amount paid by the buyer for the purpose of preventing unjust enrichment.
In this case, given that the deed of sale is a notarized deed of sale, then the deed constitutes prima facie evidence of the amount paid by Tom for the transfer of the property to his name. Only the amount as stated in the deed of absolute sale can be ordered returned to Tom since there is no documentary or testimonial evidence to prove that he paid more than the amount stated in the deed, apart from his own testimony.
Q: What does unjust enrichment exist?
A: Unjust enrichment exists when a person unjustly retains a benefit at the loss of another, or when a person retains money or property of another against the fundamental principles of justice, equity, and good conscience.
Here, the principle of unjust enrichment requires Jose to return what he or Milagros received under the void contract which presumably benefitted their conjugal partnership.
(Source: Tan vs. Hosana, G.R. No. 190846, February 3, 2016)
Ma. Soledad Deriquito-Mawis is Dean, Lyceum of the Philippines University; Chairman, Philippines Association of Law Schools; and founder of Mawis Law Office
