SYLVIA LICHAUCO DE LEON, PETITIONER, VS. THE HON. COURT OF APPEALS, MACARIA DE LEON AND JOSE VICENTE DE LEON, RESPONDENTS.

This is a petition for review on certiorari of the
decision of the Court of Appeals in CA-G.R. CV No. 06649 dated June 30, 1987 affirming the decision
of the Regional Trial Court of Pasig in SP Proc. No.
8492 dated December 29, 1983;
and its resolution dated November 24,
1987 denying the motion for reconsideration.

The antecedent facts are as follows:

On October 18, 1969,
private respondent Jose Vicente De Leon and petitioner Sylvia Lichauco De Leon were united in wedlock before the
Municipal Mayor of Binangonan, Rizal.  On August
28, 1971, a child named Susana L. De Leon
was born from this union.

Sometime in October, 1972, a de facto separation
between the spouses occurred due to irreconcilable marital differences, with
Sylvia leaving the conjugal home. 
Sometime in March, 1973, Sylvia went
to the United States
where she obtained American citizenship.

On November 23, 1973,
Sylvia filed with the Superior Court of California, County
of San Francisco, a petition for dissolution of marriage against Jose
Vicente.  In the said divorce
proceedings, Sylvia also filed claims for support and distribution of
properties.  It appears, however, that
since Jose Vicente was then a Philippine resident and did not have any assets
in the United States,
Sylvia chose to hold in abeyance the divorce proceedings, and in the meantime,
concentrated her efforts to obtain some sort of property settlements with Jose
Vicente in the Philippines.

Thus, on March 16, 1977,
Sylvia succeeded in entering into a Letter-Agreement with her mother-in-law,
private respondent Macaria De Leon, which We
quote in full, as follows (pp.
40-42, Rollo):

“March 16, 1977

“Mrs. Macaria
Madrigal de Leon

12 Jacaranda, North
Forbes Park

Makati,
Metro Manila

Dear Doña Macaria:

This letter represents a contractual undertaking among (A) the
undersigned, (B) your son, Mr. Jose Vicente de Leon, represented by you, and
(C) yourself in your personal capacity.

You hereby bind yourself jointly and severally to answer for the
undertakings of Joe Vincent under this contract.

In consideration for a peaceful and amicable termination of
relations between the undersigned and her lawfully wedded husband, Jose Vicente
de Leon, your son, the following are agreed upon:

Obligations
of Jose Vicente de Leon and/or yourself in a joint and several capacity:

1.   To deliver with clear title free from all
liens and encumbrances and subject to no claims in any form whatsoever the
following properties to Sylvia Lichauco-de Leon
hereinafter referred to as the
wife:

A.  Suite 11-C, Avalon Condominium, Ortigas Ave., corner Xavier
St., Mandaluyong, Rizal, Philippines.

B.  Apartment 702, Wack Wack Condominium, Mandaluyong, Rizal, Philippines.

C.  The rights to assignment of 2 Ayala lots in Alabang, Rizal (Corner lots, 801
sq. meters each).  (Fully
paid).

D.  2470 Wexford Ave., South
San Francisco, California, U.S.A.
(Lot 18 Block 22 Westborough
Unit No. 2).  (Fully paid).

E.  1) The sum of One Hundred Thousand Pesos (P100,000)

2)   $30,000

3)   $5,000

2.   To give monthly support payable six (6)
months in advance every year to any designated assignee of the wife for the
care and upbringing of Susana Lichauco de Leon which
is hereby pegged at the exchange rate of 7.50 to the dollar subject to
adjustments in the event of monetary exchange fluctuations.  Subsequent increase on
actual need upon negotiation.

3.   To respect the custody of said minor daughter
as pertaining exclusively to the wife except as herein provided.

Obligations of the wife:

1.    To agree to a judicial separation of
property in accordance with Philippine law
and in this connection to do all that may be necessary to secure said
separation of property including her approval in writing of a joint petition or
consent decree.

2.    To amend her complaint in the United
States before the Federal Court of
California, U.S.A. entitled “Sylvia Lichauco de Leon
vs. Jose V. de Leon” in a manner compatible with the objectives of this herein
agreement.  It is the stated objective of
this agreement that said divorce proceedings will continue.

3.    All the properties herein described for assignment
to the wife must be assigned to Sylvia Lichauco de
Leon upon the decree of the Court of First Instance in the Joint Petition for
Separation of Property; except for the P100,000,
$30,000 and $5,000 which will be paid immediately.

4.    This contract is intended to be applicable
both in the Republic of the Philippines
and in the United States of America.  It is agreed that this will constitute an
actionable document in both jurisdictions and the parties herein waive their
right to object to the use of this document in the event a legal issue should
arise relating to the validity of this document.  In the event of a dispute, this letter is
subject to interpretation under the laws of California,
U.S.A.

5.    To allow her daughter to spend two to three
months each year with the father upon mutual convenience.

Very truly yours,

(Sgd) Sylvia de Leon

t/
SYLVIA L. DE LEON

CONFORME:

s/t/ MACARIA
M. DE LEON

with my
marital consent:

s/t/ JUAN L.
DE LEON”

On the same date, Macaria made cash
payments to Sylvia in the amount of P100,000.00 and US
$35,000.00 or P280,000.00, in compliance with her obligations as stipulated in
the aforestated Letter-Agreement.

On March 30, 1977,
Sylvia and Jose Vicente filed before the then Court of First Instance of Rizal a joint petition for judicial approval of dissolution
of their conjugal partnership, the main part of which reads as follows (pp.
37-38, Rollo):

“5.     For the best interest
of each of them and of their minor child, petitioners have agreed to dissolve
their conjugal partnership and to partition the assets thereof, under the
following terms and conditions – this document, a pleading being intended by
them to embody and evidence their agreement:

x x x

“(c)    The following
properties shall be adjudicated to petitioner Sylvia Lichauco
De Leon.  These properties will be free
of any and all liens and encumbrances, with clear title and subject to no
claims by third parties.  Petitioner Jose
Vicente De Leon
fully assumes all responsibility and liability in the event these properties
shall not be as described in the previous sentence:

Sedan (1972 model)

Suite
11-C, Avalon Condominium, Ortigas Ave., corner Xavier
St., Mandaluyong, Rizal, Philippines

Apt.
702, Wack-Wack Condominium, Mandaluyong, Rizal,
Philippines

The rights to
assignment of 2 Ayala lots in Alabang Rizal (corner lots, 801 sq. meters each) (Fully
paid)

2470
Wexford Ave., South San Francisco, California,
U.S.A. (Lot
18, Block 22 Westborough Unit 2) (Fully paid)

The sum of One
Hundred Thousand Pesos (100,000.00)

$30,000.00 at current exchange rate

$5,000.00 at current exchange rate”

After ex-parte hearings, the
trial court issued an Order dated February
19, 1980 approving the petition, the dispositive portion of which reads (p.
143, Rollo):

“WHEREFORE, it is hereby declared that the conjugal partnership of
the Spouses is DISSOLVED henceforth, without prejudice to the terms of their
agreement that each spouse shall own, dispose of, possess, administer and enjoy
his or her separate estate, without the consent of the other, and all earnings
from any profession, business or industries shall likewise belong to each
spouse.”

On March 17, 1980,
Sylvia moved for the execution of the
above-mentioned order.  However, Jose
Vicente moved for a reconsideration of the order alleging that Sylvia
made a verbal reformation of the petition as there was no such agreement for
the payment of P4,500.00
monthly support to commence from
the alleged date of separation
in April, 1973 and that there
was no notice given to him that Sylvia would attempt verbal reformation of the
agreement contained in the joint petition.

While the said motion for reconsideration was pending resolution,
on April 20, 1980, Macaria filed with the trial court a motion for leave to
intervene alleging that she is the owner of the properties involved in the
case.  The motion was granted.  On October
29, 1980, Macaria, assisted by her
husband Juan De Leon, filed her complaint in intervention.  She assailed the validity and legality of the
Letter-Agreement which had for its purpose, according to her, the termination
of marital relationship between Sylvia and Jose Vicente.  However, before any hearing could be had, the
judicial reorganization took place and the case was transferred to the Regional
Trial Court of Pasig. 
On December 29, 1983,
the trial court rendered judgment, the dispositive
portion of which reads (pp.
35-36, Rollo):

“WHEREFORE, judgment is hereby rendered on the complaint in
intervention in favor of the intervenor, declaring null and void the letter
agreement dated March 16, 1977 (Exhibits ‘E’ to ‘E-2’, and ordering petitioner
Sylvia Lichauco De Leon to restore to intervenor the
amount of P380,000.00 plus legal interest from date of complaint, and to pay intervenor the amount of P100,000.00 as and for attorney’s
fees, and to pay the costs of suit.

“Judgment is likewise rendered affirming the order of the Court dated February 19, 1980 declaring the
conjugal partnership of the spouses Jose Vicente De Leon and Sylvia Lichauco De Leon DISSOLVED; and adjudicating to each of
them his or her share of the properties and assets of said conjugal partnership
in accordance with the agreement embodied in paragraph 5 of the petition, except insofar as the
adjudication to petitioner
Sylvia L. De leon of the properties belonging
to and owned by Intervenor Macaria
De Leon is concerned.

“Henceforth, (a) each spouse shall own, dispose of, possess,
administer and enjoy his or her separate estate, present and future
without the consent of the other; (b) all earnings from any profession,
business or industry shall likewise belong to each of them separately; (c) the
minor child Susana De Leon shall stay with petitioner Sylvia Lichauco De Leon for two to three months every year – the
transportation both ways of the child for the trip to the Philippines to be at
the expense of the petitioner Jose Vicente De Leon; and (d) petitioner Jose
Vicente De Leon shall give petitioner Sylvia Lichauco
De Leon the sum of P4,500.00 as monthly support for the minor child Susana to
commence from February 19, 1980.

Sylvia appealed to the respondent Court of Appeals raising the
following errors:

1) The trial court erred in
finding that the cause or consideration of the Letter-Agreement is the
termination of marital relations;

2) The trial court failed to
appreciate testimonial and documentary evidence proving that Macaria de Leon’s claims of threat, intimidation and mistake
are baseless; and

3) The trial court erred in
finding that Sylvia Lichauco de Leon committed breach
of the Letter-Agreement; and further, failed to appreciate evidence proving Macaria de Leon’s material breach thereof.

The respondent court affirmed the decision in toto.  The
motion for reconsideration was denied.  Hence, the present
petition.

The only basis by which
Sylvia may lay claim to the properties which are the subject matter of the Letter-Agreement, is the Letter-Agreement itself.  The main
issue, therefore, is whether or not the Letter-Agreement is valid.

The third
paragraph of the Letter-Agreement, supra, reads:

“In consideration for a peaceful and amicable termination of relations
between the undersigned and her lawfully wedded husband, Jose Vicente De Leon,
your son, the following are agreed upon:”  (underscoring supplied)

It is readily apparent that the use of the word “relations” is
ambiguous, perforce, it is subject to interpretation.  There being a doubt as to the meaning of this
word taken by itself, a consideration of the general scope and purpose of the
instrument in which it occurs (see Germann and Co. v. Donaldson, Sim
and Co., 1 Phil. 63) and Article 1374 of the Civil Code which provides that the
various stipulations of a contract shall be interpreted together, attributing
to the doubtful ones that sense which may result from all of them taken
jointly, is necessary.

Sylvia insists that the consideration for her execution of the
Letter-Agreement was the termination of property relations with her
husband.  Indeed, Sylvia and Jose Vicente
subsequently filed a joint petition for judicial approval of the dissolution of
their conjugal partnership, sanctioned by Article 191 of the Civil Code.  On the other hand, Macaria
and Jose Vicente assert that the consideration was the termination of marital
relationship.

We sustain the observations and conclusion made by the trial
court, to wit (pp. 44-46, Rollo):

“On page two of the letter agreement
(Exhibit ‘E’), the parties contemplated not only to agree to a judicial
separation of property of the spouses but likewise to continue with divorce proceedings (paragraphs 1 and
2, Obligations of the Wife, Exhibit ‘E-1’). 
If taken with the apparently ambiguous
provisions in Exhibit ‘E’
regarding termination of ‘relations’,
the parties clearly contemplated not only
the termination of property relationship but
likewise of marital relationship in its
entirety.  Furthermore, it
would be safe to assume that the parties in Exhibit
‘E’ not having specified the particular
relationship which they wanted to peacefully
and amicably
terminate had intended to terminate
all kinds of relations, both marital and
property.  While there
could be inherent benefits to a termination
of conjugal property relationship between the
spouses, the court could not clearly perceive
the underlying benefit for the intervenor insofar as termination
of property relationship between petitioners
is concerned,
unless the underlying consideration for intervenor
is the termination
of marital relationship by divorce proceedings
between her son Jose Vicente and his
wife petitioner Sylvia. 
The last sentence of paragraph 2 under “Obligations of the Wife” unequivocally states:  “It is the stated objective of this agreement
that said divorce proceedings (in the United States) will continue.” There is merit in
concluding that the consideration by which intervenor
executed Exhibit ‘E’ to ‘E-2’ was to secure freedom for her son petitioner Jose Vicente De Leon, especially
if Exhibit ‘R’ – Intervenor, which is (sic) agreement
signed by petitioner Sylvia to consent to and pardon Jose Vicente De Leon for
adultery and concubinage (among others) would be
considered.  In the light, therefore, of
the foregoing circumstances, this Court finds credible the testimony of intervenor as follows:

“Q    Will you please go over the Exhibit ‘E’ to
‘E-2’ – intervenor consisting of three pages and inform us whether or not this is the letter of March 16, 1977 which you just
referred to?

“A    Yes, this is the letter.

“Q    Why did you affix your
signature to this Exh. ‘E’ – intervenor
(sic)?

“A    Because at that
time when I signed it I want to buy peace for myself and for the whole family.

“Q    From whom did you want to buy peace and/or
what kind of peace?

“A    I wanted to buy
peace from Sylvia Lichauco whom I knew was kind of ‘matapang;’ so I want peace for me and primarily for the
peaceful and amicable termination of marital relationship between my son, Joe
Vincent and Sylvia.” (Deposition dated September 6, 1983 – Macaria
de Leon, p. 6-7)

“This court, therefore, finds and holds
that the cause or consideration for the intervenor Macaria De Leon in having executed Exhibits ‘E’ to ‘E-2’
was the termination of the marital relationship between her son Jose Vicente De
Leon and Sylvia Lichauco De Leon.

“Article 1306 of the New Civil Code provides:

‘Art. 1306.  The contracting
parties may establish such stipulations, clauses, terms, and conditions as they
may deem convenient, provided they are not contrary to law, morals, good
customs, public order or public policy.’

‘If the stipulation is contrary to law, morals or public policy,
the contract is void and inexistent from the beginning.

“Art. 1409.  The following
contracts are inexistent and void from the beginning:

‘(1)         Those whose cause,
object or purpose is contrary to law, morals, good customs, public order or
public policy;

xxx

‘(7)         Those expressly
prohibited or declared void by law.

‘These contracts cannot be ratified.  Neither can the right to set up the defense
of illegality be waived.’

“But marriage is not a mere contract but a sacred social
institution.  Thus,
Art. 52 of the Civil Code
provides:

‘Art. 52.  Marriage is not a mere contract but an inviolable social
institution.  Its nature, consequences
and incidents are governed by law and not subject to stipulations…’

“From the foregoing
provisions of the New Civil Code, this court is of the considered opinion and so holds
that intervenor’s undertaking under Exhibit ‘E’
premised on the termination of marital relationship is not only contrary to law
but contrary to Filipino morals and public policy.  As such, any agreement or obligations based
on such unlawful consideration and which is contrary to public policy should be
deemed null and void.” (underscoring supplied)

Additionally, Article 191 of the Civil Code contemplates
properties belonging to the spouses and not those belonging to a third party,
who, in the case at bar, is Macaria.  In the petition for the dissolution of the
conjugal partnership, it was made to appear that the said properties are conjugal in nature. 
However, Macaria was able to prove that the
questioned properties are owned by her. 
Neither Sylvia nor Jose Vicente adduced any contrary evidence.

Granting, in gratia argumenti, that the consideration of the
Letter-Agreement was the termination of property relations, We
agree with the respondent court that (pp. 46-47, Rollo):

“x x x the
agreement nevertheless is void because it contravenes the following provisions
of the Civil Code:

‘Art. 221.  The following
shall be void and of no effect:

‘(1)         Any contract for personal separation between husband and
wife;

‘(2)         Every
extra-judicial agreement, during marriage, for the dissolution of the conjugal
partnership of gains or of the absolute community of property between husband
and wife;”

Besides, the Letter-Agreement shows on its face that it was
prepared by Sylvia, and in this regard, the ambiguity in a contract is to be taken contra proferentem, i.e., construed against the party who
caused the ambiguity and could have also avoided it by the exercise of a little
more care.  Thus, Article 1377 of the
Civil Code provides:  “The interpretation
of obscure words or stipulations in a contract shall not favor the party who
caused the obscurity” (see Equitable Banking Corp. vs. IAC, G.R. No. 74451, May
25, 1988, 161 SCRA 518).

Sylvia alleges further that since the nullity of the
Letter-Agreement proceeds from the unlawful consideration solely of Macaria, applying the pari
delicto rule, it is clear that she cannot recover
what she has given by reason of
the Letter-Agreement nor ask for the fulfillment of what has been promised her.  On her part, Macaria
raises the defenses of intimidation and mistake which led her to execute the
Letter?Agreement.  In resolving this issue, the trial court said
(pp. 148-151, Rollo):

“In her second cause of action, intervenor
claims that her signing of Exhibits
‘E’ to ‘E-2’ was due to a fear of an unpeaceful and
troublesome separation of her son with petitioner Sylvia Lichauco
de Leon.  In support of her claim, intervenor testified as follows:

‘Q     Will you please inform us how did Sylvia Lichauco disturb or threaten your son or yourself?

‘A      Despite the fact that Sylvia Lichauco voluntarily left my son Joe Vincent and abandoned
him, she unashamedly nagged Joe and me to get money and when her demands were
not met she resorted to threats like, she threatened to bring Joe to court for
support.  Sylvia threatened to scandalize
our family by these baseless suits; in fact she caused the service of summons
to Joe when he went to the United States.’
(Intervenor’s deposition dated
Sept. 6, 1983, p. 8).

“On the other hand, petitioner Sylvia
claims that it was intervenor and petitioner Jose
Vicente who initiated the move to convince her to agree to a
dissolution of their conjugal partnership due to the alleged
extra-marital activities of petitioner Jose Vicente De Leon.  She testified as follows:

‘Q     Now in her testimony, Macaria
Madrigal De Leon also said that you threatened her by demanding money and nagged
her until she agreed to the letter agreement of March 1977, what can you say
about that?

‘A      I think with all the people sitting around
with Atty. Quisumbing, Atty. Chuidian,
my father-in-law, my sister-in-law and I, you know, it can be shown that this
was a friendly amicable settlement that they were much really interested in
settling down as I was.  I think there were certain reasons that they wanted to get done or
planned, being at that time Jose was already remarried and had a child.  That since she then found out that since she
was worried about what might be, you know, involved in any future matters.  She just wanted to do what she could.  She just want me out
of the picture.  So in no way, it cannot
be said that I nagged and threatened her.’ (TSN dated December 8, 1983, p.
137-138)

“In resolving this issue, this Court leans heavily on Exhibit ‘R’ – intervenor, which was not controverted
by petitioner Sylvia.  A reading of Exhibit ‘R’ would show that petitioner Sylvia
would consent to and pardon petitioner Jose Vicente, son of intervenor,
for possible crimes of adultery and/or concubinage,
with a string attached; that is, the transfer of the properties subject herein
to her.  There appears some truth to the
apprehensions of intervenor for in petitioner
Sylvia’s testimony she confirms the worry of intervenor
as follows:  “. . . being at that time
Jose (De Leon)
was already remarried and had a child. 
That since she (intervenor) found out that,
she was worried about what might be, you know, involved in any future
matters.  She just want
me out of the picture.” The aforesaid fear of intervenor
was further corroborated by her witness Concepcion Tagudin who testified as follows:

‘Q     Now, you mentioned that you were present
when Mrs. Macaria De Leon signed this Exhibit ‘E?2,’ will you inform us whether there was
anything unusual which you noticed when Mrs. Macaria
M. De Leon signed this Exhibit ‘E-2’?

‘A      Mrs.
Macaria M. De Leon was in a state of tension and anger.  She was so mad that she remarked:  ‘Puñetang Sylvia ito bakit ba
niya ako ginugulo.  Ipakukulong daw niya si Joe Vincent kung hindi ko
pipirmahan ito.  Sana matapos
na itong problemang ito pagkapirmang ito,’ sabi niya.’ (Deposition – Concepcion
Tagudin, Oct. 21, 1983, pp. 10­-11)

“In her third cause of action, intervenor
claims mistake or error in having signed Exhibits ‘1’ to ‘E-2’ alleging in her
testimony as follows:

‘Q     Before you were told such by your lawyers
what if any were your basis to believe that Sylvia would no longer have
inheritance rights from your son, Joe Vincent?

‘A      Well, that was what Sylvia told me.  That she will eliminate any inheritance
rights from me or my son Joe Vincent’s properties if I sign the document
amicably.  x x x’ (Intervenor’s
deposition – Sept. 6, 1983, pp. 9-10).

“On the other hand, petitioner Sylvia
claims that intervenor could not have been mistaken
in her having signed the document as she was under advice of counsel during the
time that Exhibits ‘E’ to ‘E-2’ was negotiated. 
To support such claims by Sylvia Lichauco De Leon,
the deposition testimony of Atty. Vicente Chuidian
was presented before this Court:

‘Atty.
Herbosa:          Now
you mentioned Atty. Norberto Ouisumbing, would you be
able to tell us in what capacity he was present in that negotiation?

‘Atty.
Chuidian:         He
was counsel for Doña Macaria
and for Joe Vincent, the spouse of Sylvia.’ (Deposition of V. Chuidian, December 16, 1983, p. 8)

“The New Civil Code provides:

‘Art. 1330.   A contract where consent is given through
mistake, violence, intimida­tion, undue influence or fraud is voidable.’

‘Art. 1331.   In order that mistake may invalidate consent,
it should refer to the substance of the thing which is the object of the
contract, or to those conditions which have principally moved one or both
parties to enter into a contract.  x x x’

“The preponderance of evidence leans in
favor of intervenor who even utilized the statement
of the divorce lawyer of petitioner Sylvia (Mr. Penrod)
in support of the fact that intervenor was mistaken
in having signed Exhibits ‘E’ to ‘E-2’ because when she signed said Exhibits
she believed that fact that petitioner Sylvia
would eliminate her inheritance rights and there is no showing that said
intervenor was properly advised by any American
lawyer on the fact whether petitioner Sylvia, being an American citizen, could
rightfully do the same.  Transcending,
however, the issue of whether there was mistake of fact on the part of intervenor or not, this Court could not see a valid cause
or consideration in favor of intervenor Macaria De Leon having signed Exhibits ‘E’ to ‘E-2.’ For
even if petitioner Sylvia had confirmed Mr. Penrod’s
statement during the divorce proceedings in the United States that she would
undertake to eliminate her hereditary rights in the event of the property
settlement, under Philippine laws, such contract would likewise be voidable, for under Art. 1347 of the New
Civil Code ‘no contract may be entered into upon future inheritance.’”

We do not subscribe to the aforestated
view of the trial court.  Article 1335 of
the Civil Code provides:

“x x x.

“There is intimidation when one of the contracting parties is
compelled by a reasonable and
well-grounded fear of an imminent and grave evil upon his person or property,
or upon the person or property of his spouse, descendants or ascendants,
to give his consent.

“To determine the degree of the intimidation, the age, sex and
condition of the person shall be borne in mind.

“A threat to enforce one’s claim through competent authority, if the claim is just or legal, does not
vitiate consent.”

In
order that intimidation may vitiate consent and render the contract invalid,
the following requisites must concur:  (1)
that the intimidation must be the
determining cause of the contract, or must have caused the consent to be given; (2) that the
threatened act be unjust or unlawful; (3) that the threat be real and serious, there being an evident
disproportion between the evil and the resistance which all men can offer,
leading to the choice of the contract as the lesser evil; and (4) that it produces a reasonable and well-grounded
fear from the fact that the person from whom it comes has the necessary means
or ability to inflict the threatened injury. 
Applying the foregoing to the present case, the claim of Macaria that Sylvia threatened her to bring Jose Vicente to
court for support, to scandalize their family by baseless suits and that Sylvia
would pardon Jose Vicente for possible crimes of adultery and/or concubinage subject to
the transfer of certain properties to her, is obviously not the
intimidation referred to by law.  With
respect to mistake as a vice of consent, neither is Macaria’s
alleged mistake in having signed the Letter-Agreement because of her belief
that Sylvia will thereby eliminate inheritance rights from her and Jose
Vicente, the mistake referred to in Article 1331 of the Civil Code, supra.  It does not appear that the condition that
Sylvia “will eliminate her inheritance rights” principally moved Macaria to enter into the contract.  Rather, such condition was but an incident of
the consideration thereof which,
as discussed earlier, is the termination of marital relations.

In the ultimate analysis, therefore, both parties acted in
violation of the laws.  However, the pari delicto rule,
expressed in the maxims “Ex dolo malo
non oritur actio” and “In pari delicto potior
est conditio defendentis,” which refuses remedy to either party to an
illegal agreement and leaves them where they are, does not apply in this
case.  Contrary to the ruling of the
respondent Court that (pp. 47-48, Rollo):

“x x x.  [C]onsequently, intervenor appellees’ obligation under the said agreement having been
annulled, the contracting parties shall restore to each other that things which
have been subject matter of the contract, their fruits and the price or its
interest, except as provided by law (Art. 1398, Civil Code).”

Article 1414 of the
Civil Code, which is an exception to the pari delicto rule, is the proper law to be applied.  It provides:

“When money is paid or property delivered for an illegal purpose,
the contract may be repudiated by one of the parties before the purpose has
been accomplished, or before any damage has been caused to a third person.  In such case, the courts may, if the public
interest will thus be subserved, allow the party
repudiating the contract to recover the money or property.”

Since the Letter-Agreement was repudiated before the purpose has
been accomplished and to adhere to the pari delicto rule in this case is
to put a premium to the circumvention of the laws, positive relief should be
granted to Macaria. 
Justice would be served by allowing her to be placed in the position in
which she was before the transaction was entered into.

With the conclusions thus reached, We
find it unnecessary to discuss the other issues raised.

ACCORDINGLY, the petition is hereby DENIED.  The decision of the respondent Court of
Appeals dated June 30, 1987
and its resolution dated November 24,
1987 are AFFIRMED.

SO ORDERED.

Narvasa, (Chairman), Cruz, and Gancayco, JJ., concur.

Griño-Aquino, J., on leave.