DAVID INCO, ET AL., PETITIONERS, VS. GODOFREDO ENRIQUEZ, RESPONDENT.

This is a petition for certiorari to review the decision of the Court of Appeals in CA—G. R. No. 19207-R.

For several years prior to 1944, Eduvigis Aquino was the lessee of
Lots Nos. 16-B and 17, Block 3, of the “Cappellania de Concepcion”,
better known as the Tambobong Estate, and the owner of a house of
strong materials built thereon. On April 10, 1944, she (Aquino) sold
the, said house, together with the leasehold rights, to the spouses
David Inco and Leonor Constantino, petitioners herein. In the contract
of sale, it further appears that on the aforementioned lots, Andres
Ochanco, Julio Sanchez, Narciso Cruz, Moises Mangali and Florentino
Magkalas had their own respective residential houses as sub-tenants of
Aquino. In 1946, respondent Godofredo Enriquez purchased from Narciso
Cruz the latter’s house which he thenceforth occupied to the present.

Sometime in 1947, the landed property constituting the Tambobong
Estate was acquired by the National Government for subdivision and
resale to tenants pursuant to Republic Act 1400. Both petitioners and
respondent seem to have been desirous of purchasing the lots
afore-described from the Government. On May 6, 1952, however,
petitioner David Inco, as Party, of the First Part, and respondent
Godofredo Enriquez and Acasia Santos, as Parties of the Second Part,
entered into a contract of lease and waiver (Exhibit C or 3), whereby
petitioner Inco agreed to allow respondent Enriquez to continue
occupying the area possessed by him as long as respondent paid to Inco
the sum of P1.00 a month or P12.00 a year as rental. In exchange,
respondent Enriquez executed an affidavit (Exhibit D or 4) whereby he
renounced whatever rights he had to buy the portion of the lot occupied
by him in order that Inco might acquire the entire lot.

As a result of the agreement, Transfer Certificate of Title No.
36877 was thereafter issued to Inco and his wife. Informed of this
fact, respondent Enriquez sought to have the contract of lease
annotated at the back of the title. The Register of Deeds, however,
refused to effect the annotation, on the ground that it did not bear
the approval of the Department Secretary. Awakened by that action of
the Registrar, petitioners declined to accept further payment of
rentals, and on May 16, 1955, initiated an action in the Court of First
Instance of Rizal to have the lease contract declared null and void or
else to have the court fix the duration of the same.

From the decision of the trial court adjudging the contract of lease
to be a nullity, respondent Enriquez appealed to the Court of Appeals.
The latter modified the judgment by upholding the validity of the lease
and fixing a term of ten years, counted from May 16, 1955, for its
duration.

The spouses Inco, in their petition for certiorari, aver that the
contract of lease is a nullity, and that the Court of Appeals had no
authority to fix a period.

Petitioners base their first contention on the propositions that (1)
the contract of lease lacks the written consent and approval of the
Secretary of Agriculture and Natural Resources; and that (2) it is void
without the consent of the wife of David Inco.

Reliance is placed on paragraph 16 of Administrative Order No. R-3
on Landed Estates (which took effect on November 15, 1951, having been
published in the Official Gazette for December, 1951, Vol. 47, No. 12,
p. 6275) providing:

“Prohibition to Alienate.—The applicant
shall not sell, assign, encumber, mortgage, or transfer, his right
under the agreement to sell or in the property subject thereof without
first obtaining the written consent of the Secretary of Agriculture and
Natural Resources and this condition shall subsist until the lapse of 5
years from the date of the execution of the final deed of sale in his
favor and shall be annotated as an encumbrance on the certificate of
title of the property that may be issued in his favor.”

And also upon paragraph 18 of the same order:

“Any sale, assignment, encumbrance, mortgage, or
transfer made in violation of the provisions of the next two preceding
paragraphs hereof is null and void, and shall be sufficient ground for
the Secretary of Agriculture and Natural Resources to cancel the deed
of sale and to order the reversion of the land to the government and
the forfeiture of whatever payments made on account thereof. In case,
however, a deed of sale has already been issued, the violation of the
said provisions shall be sufficient ground for the Secretary of
Agriculture and Natural Resources to take appropriate action in court
with a view to obtaining the reversion of the land involved to the
government. All lands reverted to the government shall be disposed of
as vacant lot.”

But the Court of Appeals held, that said paragraphs notwithstanding
the action for annulment could not prosper because the parties are in pari delicto
and hence, the contract cannot be set aside or enforced by either
party; for under the said doctrine, the courts will leave the parties
where it finds them.

Petitioner Inco, however, urges that the application of the pari delicto
doctrine is not unlimited, in that whenever public policy is considered
as advanced by allowing either party to sue for relief against the
transaction, the rule does not apply.

It may well be argued that the contract did not violate the
administrative regulations invoked, since it was concluded before the
government recognized Inco’s preferential right to the lot. But even
disregarding this aspect of the case, we believe that the Court of
Appeals correctly Applied the pari delicto rule, and that
petitioner Inco and his wife cannot invoke furtherance of the public
policy in order to escape from it. Undeniably, petitioners would not
have obtained a certificate of title over the entire lot, at least
without protracted litigation, had not the spouses Enriquez agreed to
give up their own claims over the portion they occupied. It is equally
obvious that the sole consideration for the withdrawal of the
Enriquezes from the field was Inco’s promise to allow them to remain in
possession at a nominal rental. To annul this covenant now would
deprive the Enriquezes of any benefit thereunder, after the Incos had
reaped full advantages from it. Without any possibility of a return to
the status quo ante, the annulment would practically amount
to a fraud upon the respondents Enriquez. Such a result would not
further public policy but defy all justice and equity. The interests of
society demand that bad faith and fraud be severely repressed, and the
Courts cannot consent to their furtherance, directly or indirectly.

It is noteworthy that the prohibition against alienations of the
lots in the Tambobong estate is primarily designed to protect the
occupants from being rendered homeless through improvidence, ignorance,
or sheer necessity. These dangers do not flow from the maintenance of
the contract now before us. Neither party will be deprived of a
homestead, their respective houses being erected on different portions
of the lot. Furthermore, the decision of the Court of Appeals limits
the tenure of respondent Enriquez to ten years, and the ultimate
reversion of the entire lot to the registered owner is thereby assured.
Thus construed, the, contract is not ultimately violative of the
purposes of the statute and there is no reason, therefore, why equity
should not prevail.

The pari delicto rule applies equally well to the wife,
Leonora Constantino. Although not a signatory to the contract of lease
and waiver, she has sufficiently manifested by affirmative acts her
unequivocal concurrence to the contract in controversy (See
Montederamas vs. Ynonoy, 56 Phil., 457; La Urbana vs.
Villamor, 59 Phil, 644). She and her husband benefited from the
transaction and continuously received the agreed rentals paid by the
respondent from the execution of the contract until 1955. Acceptance of
benefits raises a strong presumption of knowledge and consent.

Appellants argue that Article 1687 of the new Civil Code does not
authorize the Court to fix a term where the rental is payable yearly.
The mere absence of a provision under Article 1687 does not prevent the
court of power to fix periods under the general rule of Article 1197,
since this contract was basically a compromise to settle contradictory
claims and not an ordinary lease.

Wherefore, we find no error in the judgment of the Court of Appeals,
and hereby affirm it, with costs against petitioners David Inco and his
wife, Leonora Constantino.

Paras, C. J., Bengzon, Montemayor, Bautista Angelo, Labrador, Concepcion, Endencia, and Barrera, JJ., concur.
Padilla, J., on leave, did not take part.
Gutierrez David, J., did not take part.