Philippine Banking Corp. v. Lui She

Chapter III, Original Registration (1935 Constitution, Art. XIII, Sec. 5; Civil Code Art. 1416) — 3.1.A.a.i.1.a.A, Requisites for Confirmation of Title under Sec. 14(1): First Requisite (Applicant Must Be a Filipino Citizen) — General Rule

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Case DigestWeek 3–4 — The Registries of Deeds and Original Registration

Philippine Banking Corp. v. Lui She

G.R. No. L-17587 · September 12, 1967 · Supreme Court — En Banc

Gist

This case is DIRECT to the Topic/Subtopic on the Filipino-citizenship general rule. Justina Santos, elderly and infirm, executed five contracts within about a year — a lease, its extension to the whole property, an option to buy, and extensions of both terms — favoring Wong Heng, a Chinese national. Her estate sought annulment; the trial court struck down four but sustained the first lease. The Supreme Court annulled all five. The doctrine extends Krivenko: although a reasonable lease to an alien, or an option conditioned on future naturalization, is independently valid, contracts that together progressively transfer every incident of ownership to an alien constitute a void, disguised circumvention of the constitutional prohibition, and Civil Code Article 1416 excepts such cases from pari delicto, permitting restitution to the Filipino party's estate.

Core Doctrine

Individually lawful contracts will be struck down where, together, they progressively transfer all rights constituting ownership to an alien, since this circumvents the constitutional prohibition as effectively as an outright sale; a reasonable lease or citizenship-conditioned option, standing alone, remains valid. Article 1416 excepts from pari delicto agreements merely prohibited, not illegal per se, where the prohibition protects the plaintiff's class and public policy favors recovery, permitting restitution of land involved in an unconstitutional alien-landholding scheme to the Filipino party's estate.

Facts

Justina Santos and her sister co-owned a Manila property on Rizal Avenue.
Wong Heng, a long-time Chinese lessee, lived there with his family and had become her trusted companion and financial custodian.
Upon her sister's death in September 1957, Justina became sole owner.
On November 15, 1957, "in grateful acknowledgment" of Wong's services, she leased him his existing portion plus more, for fifty years.
Ten days later, the lease was amended to cover the entire property, including her own residence.
On December 21, 1957, she granted him an option to buy the premises for P120,000 over ten years, conditioned on his becoming a Filipino citizen — a naturalization petition then pending but later withdrawn.
She also filed, then abandoned, a petition to adopt Wong and his children, mistakenly believing this would confer citizenship. On November 18, 1958, two further contracts extended the lease to ninety-nine years and the option to fifty years.
In a 1959 codicil, reversing her earlier wills, she directed her executor to seek annulment, alleging undue influence.
The suit sought cancellation of all five contracts and an accounting.
The trial court annulled four but sustained the first lease, ordering Wong to pay P55,554.25 plus ongoing rent.
Both parties appealed; both died pending appeal and were substituted by Lui She (Wong's widow) and the Philippine Banking Corporation (Justina's estate).

Arguments of the Parties

Petitioner-Appellant (Estate of Justina Santos). The estate argued the first lease should likewise be annulled for lack of mutuality, because part of the property was in custodia legis, for breach of fiduciary duty, and because consent was procured through undue influence and fraud; it also sought increased rentals and a full accounting.

Respondent-Appellant (Estate of Wong Heng). Wong's estate argued all five contracts were freely executed, adequately supported by consideration, and represented a lawful, gradual reward to a trusted companion; it counterclaimed for advances allegedly made to Justina.

Common Ground / Stipulations (if any). Both sides agreed Wong held specific, admitted sums in trust for Justina; neither questioned her mental capacity, only her consent's voluntariness and the contracts' validity.

Issue

MAIN ISSUE (Topic/Subtopic-Centered). Whether the lease and option contracts, together, constituted a scheme circumventing the constitutional prohibition against alien land acquisition, voiding them even though any one, alone, might be valid.

SECONDARY ISSUES. Whether the first lease was independently invalid for lack of mutuality, custodia legis, breach of fiduciary duty, or vitiated consent; and whether pari delicto barred the Filipino party's estate from recovering the property given her own participation.

ANCILLARY / INCIDENTAL ISSUES (if any). The proper accounting of sums Wong held in trust and of accrued rentals.

Ruling

On the MAIN ISSUE: YES — collectively, the five contracts revealed an insidious pattern effecting a virtual, staged transfer of full ownership to an alien, void as a circumvention of the Constitution, even though the first lease, standing alone, showed nothing illegal. Secondary issues: NO to each individual attack on the first lease — mutuality, custodia legis, fiduciary duty, and undue influence were all resolved in its favor — but this was immaterial once the constitutional-circumvention finding voided all five contracts together; and NO, pari delicto did not bar recovery, Article 1416 applying instead. Ancillary issue: the Court fixed the estate's monetary liability at P56,564.35 and directed consigned rentals applied going forward. The dispositive portion reads verbatim: "ACCORDINGLY, the contracts in question (Plff Exhs. 3-7) are annulled and set aside; the land subject-matter of the contracts is ordered returned to the estate of Justina Santos as represented by the Philippine Banking Corporation; Wong Heng (as substituted by the defendant-appellant Lui She) is ordered to pay the Philippine Banking Corporation the sum of P56,564.35, with legal interest from the date of the filing of the amended complaint; and the amounts consigned in court by Wong Heng shall be applied to the payment of rental from November 15, 1959 until the premises shall have been vacated by his heirs. Costs against the defendant-appellant."

Ratio

The Court held: "Taken singly, the contracts show nothing that is necessarily illegal, but considered collectively, they reveal an insidious pattern to subvert by indirection what the Constitution directly prohibits. To be sure, a lease to an alien for a reasonable period is valid. So is an option giving an alien the right to buy real property on condition that he is granted Philippine citizenship," quoting Krivenko's recognition that aliens "may be granted temporary rights such as a lease contract which is not forbidden by the Constitution."
"But if an alien is given not only a lease of, but also an option to buy, a piece of land... this to last for 50 years, then it becomes clear that the arrangement is a virtual transfer of ownership whereby the owner divests himself in stages not only of the right to enjoy the land (jus possidendi, jus utendi, jus fruendi and jus abutendi) but also of the right to dispose of it (jus disponendi)... this is just exactly what the parties in this case did within the space of one year, with the result that Justina Santos' ownership of her property was reduced to a hollow concept... the Constitutional ban against alien landholding in the Philippines... is indeed in grave peril."
On remedy, the Court invoked Article 1416 of the Civil Code, an exception to pari delicto where "the agreement is not illegal per se but is merely prohibited, and the prohibition by law is designed for the protection of the plaintiff," who "may, if public policy is thereby enhanced, recover what he has paid or delivered."
Since the provision "is an expression of public policy to conserve lands for the Filipinos," ordinary pari delicto "would be defeated" were the parties left as they stood.
The Court also noted the original guilty parties had died, "to whom it would be unjust to impute their guilt."

Doctrine

Doctrines / Rules / Principles Laid Down.

Individually lawful contracts will be struck down where, together, they progressively transfer all rights constituting ownership to an alien, since this circumvents the constitutional prohibition as effectively as an outright sale; a reasonable lease or citizenship-conditioned option, standing alone, remains valid.
Article 1416 excepts from pari delicto agreements merely prohibited, not illegal per se, where the prohibition protects the plaintiff's class and public policy favors recovery, permitting restitution of land involved in an unconstitutional alien-landholding scheme to the Filipino party's estate.

Distinctions / Limitations / Qualifications.

The ruling does not forbid aliens from leasing land or holding a citizenship-conditioned option; it is the combination of a virtually unconditional option to buy with a near-permanent lease, executed within a short span, that crosses into void circumvention.

Topic/Subtopic Integration (Mandatory).

DIRECT: Lui She extends Krivenko's general rule by supplying a totality-of-rights, anti-circumvention test for disguised transfers to aliens, and by clarifying that restitution under Article 1416, not pari delicto, is the applicable remedy.

Separate Opinions

Fernando, J., concurred in the result and reasoning, but wrote separately to criticize the pari delicto treatment of sales made before the 1947 Krivenko decision clarified that "agricultural land" included residential and commercial land; he argued Filipino vendors who sold to aliens in good faith before that clarification should recover their land upon repaying the price received, rather than being deemed equally guilty, and welcomed the majority's pro tanto qualification of the contrary Rellosa v. Gaw Chee Hun line as a step toward that result.

Full Digest — Recitation Format

Full-length digest in the format required by the course digest prompt.

Classification: DIRECT · G.R. No. L-17587, September 12, 1967

TOPIC/SUBTOPIC FOCUS: First. Applicant must be a Filipino citizen (under 1987 Constitution) — General Rule

I. Gist and Central Doctrine

The relationship of the case of Philippine Banking Corp. v. Lui She, G.R. No. L-17587, September 12, 1967, to the requested topic of the citizenship requirement for land registration under Section 14, paragraph 1 of Presidential Decree No. 1529 is DIRECT [15, 1027, 1036]. The triggering controversy arose when Justina Santos, a Filipino citizen, executed a series of contracts in favor of Wong Heng, a Chinese citizen, consisting of a fifty-year lease, an option to purchase the land conditioned on obtaining citizenship, a subsequent extension of the lease to ninety-nine years, and an option to purchase spanning fifty years, which prohibited Justina Santos from selling or encumbering the land [1024, 1025, 1026]. After Justina Santos died, the executor of the estate of Justina Santos, the Philippine Banking Corporation, pursued the annulment of the contracts on the ground that the contracts were designed to circumvent the constitutional ban against alien land acquisition [1026, 1027, 1028]. The Supreme Court of the Philippines reversed the ruling of the Court of First Instance in part, declaring all the subject contracts null and void and ordering the return of the land to the estate of Justina Santos [1038]. The Supreme Court of the Philippines ruled that while an alien may enter into temporary lease contracts or conditional options, the execution of a series of agreements that collectively deprives the Filipino owner of all attributes of ownership for a prolonged period constitutes an illicit circumvention of the constitutional ban on alien land acquisition under Section 5, Article XIII of the 1935 Constitution, thereby making the citizenship requirement for land registration absolute and non-evadable [15, 1034, 1035].

II. Chronological Narration of Material Facts

Justina Santos y Canon Faustino and the sister of Justina Santos, Lorenzo, co-owned a parcel of private land in Manila with an area of 2,582.30 square meters, located on Rizal Avenue [1024].
Wong Heng, a Chinese citizen, lived with the family of Wong Heng in the Hen Wah Restaurant situated on the subject property and operated as a long-time lessee of a portion of the property, paying a monthly rental of P2,620 [1024].
On November 15, 1957, Justina Santos executed a lease contract in favor of Wong Heng for a term of fifty years, with a monthly rental of P3,120 [1024, 1028].
On December 21, 1957, Justina Santos executed another contract giving Wong Heng the option to purchase the leased premises for P120,000, payable within ten years at a monthly installment of P1,000, on the condition that Wong Heng obtain Philippine citizenship [1025].
The option contract also obligated Wong Heng to pay for the food of the dogs and the salaries of the maids in the household of Justina Santos, not exceeding P1,800 a month [1025].
Wong Heng subsequently withdrew the petition for naturalization pending in the Court of First Instance of Rizal after the discovery that Wong Heng was not a resident of Rizal province [1025].
On October 28, 1958, Justina Santos filed a petition to adopt Wong Heng and the children of Wong Heng under the mistaken belief that adoption would confer Philippine citizenship upon Wong Heng and the children [1025].
Upon the discovery of the legal error that adoption does not confer citizenship, the adoption proceedings were abandoned [1025].
On November 18, 1958, Justina Santos executed two additional contracts written in Tagalog: one contract extending the term of the lease to ninety-nine years, and another contract fixing the term of the option to purchase at fifty years [1026].
The fifty-year option contract explicitly prohibited Justina Santos from selling, donating, mortgaging, or encumbering the subject property in favor of other persons during the fifty-year period [1050].
On August 24, 1959, and August 29, 1959, Justina Santos executed two separate wills instructing the legatees of Justina Santos to respect the contracts entered into with Wong Heng [1026].
On November 4, 1959, Justina Santos executed a codicil claiming that the contracts were executed by Justina Santos due to the machinations and inducements of Wong Heng, and directing the executor of the estate of Justina Santos to secure the annulment of the contracts [1026].
On November 18, 1959, Justina Santos filed an action for annulment of the contracts in the Court of First Instance of Manila on the ground of fraud, undue influence, and circumvention of the constitutional prohibition against alien land ownership [1027, 1028].
The Court of First Instance of Manila rendered a judgment declaring the four contracts (the option to purchase, the extension of the lease, and the options) null and void, but declaring the original lease contract of November 15, 1957, valid [1028, 1032].
Both Justina Santos and Wong Heng appealed the judgment of the Court of First Instance directly to the Supreme Court of the Philippines [1028].
During the pendency of the appeal, Wong Heng died on October 21, 1962, and was subsequently substituted by the wife of Wong Heng, Lui She, in the capacity of Lui She as the administratrix of the intestate estate of Wong Heng [1024, 1028].
On December 28, 1964, Justina Santos died and was subsequently substituted in the action by the Philippine Banking Corporation, representing the estate of Justina Santos [1024, 1028].
On September 12, 1967, the Supreme Court of the Philippines promulgated the Decision in G.R. No. L-17587 [1024].

III. Arguments of the Parties

A. Petitioner/Prosecution (Philippine Banking Corporation / Estate of Justina Santos):

The estate of Justina Santos argues that the lease contract is void for lack of mutuality, was obtained in violation of fiduciary relations, was secured through undue influence, fraud, and misrepresentation, and was absolutely simulated [1028].
The estate of Justina Santos contends that the lease contract, the ninety-nine-year extension, and the fifty-year option contract must all be considered collectively rather than in isolation [1034, 1035].
The estate of Justina Santos asserts that the collective arrangement was a virtual transfer of ownership that divested Justina Santos of the rights to enjoy, use, possess, and dispose of the private property, thereby constituting an illicit scheme to circumvent Section 5, Article XIII of the 1935 Constitution [1035, 1145].
The estate of Justina Santos maintains that the doctrine of in pari delicto does not apply because the original parties have died and the action is pursued by the administrators, and because Article 1416 of the Civil Code permits recovery of property to enhance and preserve the avowed public policy of conserving land for Filipino citizens [1036, 1137].

B. Respondent/Defense (Lui She / Estate of Wong Heng):

The estate of Wong Heng argues that the lease contract of November 15, 1957, was fully valid and voluntary, having been explained to Justina Santos by the lawyer of Justina Santos, and cannot be annulled [1028, 1030].
The estate of Wong Heng contends that the option contract did not violate the Constitution because the option was expressly conditioned on Wong Heng obtaining Philippine citizenship [1025, 1034].
The estate of Wong Heng asserts that even if the transactions are found to be unconstitutional, the parties are in pari delicto because Justina Santos willingly executed the agreements out of gratitude [1031, 1036, 1041].
The estate of Wong Heng maintains that under the doctrine of in pari delicto, the courts must leave the parties exactly where the courts find the parties, thereby preventing the estate of Justina Santos from recovering the property [1036, 1041].

C. Common Ground:

Both parties agree that Justina Santos executed the lease contract on November 15, 1957, and subsequently executed the other agreements in favor of Wong Heng [1024, 1025, 1026].
Both parties admit that Wong Heng was a Chinese citizen at all times material to the execution of the contracts and never obtained Philippine citizenship [1024, 1025].
Both parties agree that both Justina Santos and Wong Heng died during the pendency of the appeal, leaving the respective estates as the substituted parties in interest [1028].

IV. Issues

A. MAIN ISSUE:

Whether the contracts of lease, extension of lease, and options to purchase, executed by Justina Santos in favor of the alien Wong Heng, when considered collectively, constitute a valid transaction or whether the contracts represent an illicit scheme to circumvent the absolute constitutional prohibition against the transfer of private agricultural or residential land to aliens under Section 5, Article XIII of the 1935 Constitution, thereby rendering the contracts null and void [1034, 1035, 1145].

B. SECONDARY ISSUES:

Whether the doctrine of in pari delicto applies to bar the recovery of the land by the estate of Justina Santos, or whether the public policy of conserving lands for Filipino citizens, as expressed in the constitutional prohibition, creates an exception under Article 1416 of the Civil Code that permits the recovery of the property [1036, 1041].
Whether the lease contract of November 15, 1957, is void for lack of mutuality under Article 1308 of the Civil Code or if the contract was obtained through undue influence, fraud, and misrepresentation [1028, 1029, 1031].

V. Ruling / Disposition

A. RULING ON THE MAIN ISSUE:

NO. The Supreme Court of the Philippines ruled to annul and set aside the contracts in question because the contracts collectively constituted an illicit scheme to circumvent the constitutional ban on alien land ownership [1035, 1038]. The Court explained that while an alien may lease private land for a reasonable period or hold a conditional option, the cumulative effect of a ninety-nine-year lease and a fifty-year option that prohibits the Filipino owner from selling or encumbering the property is to strip the Filipino owner of all rights of ownership, resulting in a virtual transfer of ownership to a disqualified alien in violation of Section 5, Article XIII of the 1935 Constitution [1035, 1145].

B. RULING ON SECONDARY ISSUE NO. 1:

NO. The Supreme Court of the Philippines ruled that the doctrine of in pari delicto does not bar the recovery of the land by the estate of Justina Santos [1036]. The Court reasoned that the original parties to the unconstitutional transaction had already died, meaning that guilt could not be imputed to the substituted administrators [1036]. Furthermore, the Court held that under Article 1416 of the Civil Code, a party may recover what was delivered under a prohibited contract if public policy is thereby enhanced, and since the constitutional ban is designed to conserve land for Filipinos, allowing recovery of the property directly advances and preserves this public policy [15, 1036].

C. RULING ON SECONDARY ISSUE NO. 2:

YES. The Supreme Court of the Philippines ruled that the lease contract of November 15, 1957, must also be annulled along with the other contracts, not because of a lack of mutuality or fraud, but because the lease contract formed an inseparable part of the same unconstitutional scheme to transfer land to an alien [1028, 1034, 1038]. The Court found that the allegations of fraud and undue influence were not supported by the evidence since Justina Santos voluntarily executed the lease contract out of a sincere sense of gratitude and affection toward Wong Heng [1030, 1031]. However, because the lease contract was part of the collective arrangement to bypass the constitutional prohibition, the illicit purpose became the illegal cause of the contract, rendering the lease contract void [1034, 1035].

VERBATIM DISPOSITIVE PORTION:

"ACCORDINGLY, the contracts in question (Plff Exhs. 3-7) are annulled and set aside; the land subject-matter of the contracts is ordered returned to the estate of Justina Santos as represented by the Philippine Banking Corporation; Wong Heng (as substituted by the defendant-appellant Lui She) is ordered to pay the Philippine Banking Corporation the sum of P56,564.35, with legal interest from the date of the filing of the amended complaint; and the amounts consigned in court by Wong Heng shall be applied to the payment of rental from November 15, 1959 until the premises shall have been vacated by his heirs. Costs against the defendant-appellant." [1038]

VI. Ratio Decidendi and Doctrines

A. Ratio Decidendi:

Section 5, Article XIII of the 1935 Constitution (now Section 7, Article XII of the 1987 Constitution) absolutely prohibits the transfer or assignment of private agricultural or residential lands to individuals, corporations, or associations that are not qualified to acquire or hold lands of the public domain, save in cases of hereditary succession [14, 1145].
The constitutional ban on alien land acquisition is a fundamental public policy designed to conserve the national patrimony and lands of the Philippines exclusively for Filipino citizens [15, 1036].
Although a temporary lease of land to an alien or an option to purchase real property conditioned on the acquisition of Philippine citizenship may be individually valid, the validity of such contracts must not be evaluated in isolation when the contracts are part of a series of transactions between the same parties [1034, 1035].
The execution of a lease contract for ninety-nine years, combined with a fifty-year option to purchase that completely prohibits the Filipino owner from selling, donating, mortgaging, or encumbering the property, effectively divests the Filipino owner of all elements of ownership, including the right to possess, use, enjoy the fruits, and dispose of the property [1035].
This collective arrangement constitutes a virtual transfer of ownership to an alien, thereby representing an insidious and unlawful scheme to circumvent the constitutional prohibition on alien land acquisition [1035].
Under Article 1352 and Article 1409, paragraph 1 of the Civil Code, contracts with an illegal cause or those contrary to the Constitution and public policy are void ab initio and produce no legal effect [156, 1034, 1038].
The illegal purpose of bypassing the constitutional ban on alien landholdings serves as the illegal cause (causa) of the contracts, thereby rendering all the contracts, including the original lease contract of November 15, 1957, null and void [1034, 1035].
While Article 1411 and Article 1412 of the Civil Code establish the doctrine of in pari delicto, which generally leaves the parties to an illegal contract without any judicial remedy, this doctrine is subject to the explicit exception provided under Article 1416 of the Civil Code [15, 1036, 1137].
Article 1416 of the Civil Code provides that when an agreement is not illegal per se but is merely prohibited, and the prohibition is designed for the protection of the plaintiff, the plaintiff may recover what was paid or delivered if public policy is thereby enhanced [1036, 1137].
Since the constitutional prohibition against alien land ownership is designed to protect Filipino citizens and preserve lands in Filipino hands, allowing the estate of Justina Santos to recover the property directly advances and enhances the public policy of the State [15, 1036].
Additionally, the doctrine of in pari delicto cannot be applied to bar recovery because both Justina Santos and Wong Heng died during the pendency of the appeal, and the respective interests of Justina Santos and Wong Heng are now represented by the administrators, to whom no personal guilt or unconstitutional intent can be legally imputed [1036].

B. Doctrines/Rules:

The Absolute Character of the Constitutional Prohibition on Alien Landholding: Non-Filipinos are strictly disqualified from acquiring or holding private agricultural, residential, or commercial lands in the Philippines, except in cases of hereditary succession [14, 75, 1145]. This constitutional edict cannot be bypassed or diluted by lease agreements of excessive duration or restrictive options [1035]. As the Court ruled verbatim:

"Save in cases of hereditary succession, no private agricultural land shall be transferred or assigned except to individuals, corporations or associations qualified to acquire or hold lands of the public domain in the Philippines, the Constitution makes no exception in favor of religious associations." [1145]
The Evasion of Constitutional Ban via Cumulative Contracts: When an alien is granted a lease of land for an unconscionable period (such as ninety-nine years) alongside an option to purchase lasting fifty years that prevents the owner from disposing of the property, the cumulative effect of these contracts is a virtual transfer of ownership [1035]. This constitutes an illegal circumvention of the Constitution [1035]. As the Court declared verbatim:

"But if an alien is given not only a lease of, but also an option to buy, a piece of land, by virtue of which the Filipino owner cannot sell or otherwise dispose of his property, this to last for 50 years, then it becomes clear that the arrangement is a virtual transfer of ownership whereby the owner divests himself in stages not only of the right to enjoy the land ( jus possidendi, jus utendi, jus fruendi and jus abutendi ) but also of the right to dispose of it ( jus disponendi ) rights the sum total of which make up ownership. It is just as if today the possession is transferred, tomorrow, the use, the next day, the disposition, and so on, until ultimately all the rights of which ownership is made up are consolidated in an alien." [1035]
The Exception to the Pari Delicto Doctrine in Constitutional Violations: The principle of in pari delicto is not absolute and must yield when the application of the principle would run counter to an avowed public policy or fundamental interest of the State [15, 1036, 1137]. Under Article 1416 of the Civil Code, recovery of property is allowed if public policy is enhanced by returning the land to Filipino hands [1036, 1137]. As the Court ruled verbatim, citing Article 1416:

"... when the agreement is not illegal per se but is merely prohibited, and the prohibition by law is designed for the protection of the plaintiff, he may, if public policy is thereby enhanced, recover what he has paid or delivered." [1036]

C. Limitations/Exceptions:

Temporary Leases Permitted: The Supreme Court explicitly recognized that temporary lease agreements of a reasonable duration in favor of aliens are valid and do not violate the Constitution, as the presence of aliens in the Philippines is generally temporary [1035]. However, this exception does not apply when the lease is of an excessive duration (such as ninety-nine years) or is coupled with options that restrict the owner's right of disposal [1035].
Conditional Options to Buy: An option to purchase granted to an alien is not invalid per se if the option is explicitly conditioned on the alien obtaining Philippine citizenship, as citizenship is not impossible to acquire [1025, 1034, 1035]. However, such an option becomes unconstitutional and void when the option is part of a broader scheme to tie up the property for several decades, effectively preventing the Filipino owner from selling the property to qualified citizens [1035, 1050].
In Pari Delicto Inapplicable to Substituted Administrators: The in pari delicto bar does not apply to the executors or administrators of the estates of the deceased parties, as the unconstitutional intent or guilt of the original contracting parties cannot be imputed to the substituted legal representatives [1036].

D. Topic Integration:

Philippine Banking Corp. v. Lui She is the leading authority on the citizenship requirement for land ownership and registration, which directly integrates with the general rule under Section 14, paragraph 1 of Presidential Decree No. 1529 [6, 15, 1035]. Section 14, paragraph 1 requires that any applicant for original land registration must be a Filipino citizen. G.R. No. L-17587 illustrates that the citizenship requirement is a fundamental public policy of the State that cannot be circumvented, evaded, or diluted by sophisticated contract drafting [1035, 1145]. By annulling the ninety-nine-year lease and the fifty-year option, the Supreme Court shut the door on any attempts to indirectly grant land ownership rights to disqualified aliens [1035]. The case establishes that the capacity to acquire, hold, and register lands is strictly limited to Filipino citizens, and any transaction that attempts to vest virtual ownership in an alien is void ab initio and will result in the restoration of the property to the Filipino owner to ensure that land remains in Filipino hands [15, 1035, 1036, 1145].

VII. Separate Opinions

Concurring Opinion of Justice Enrique M. Fernando:

Justice Fernando expressed full agreement with the main opinion but wrote a separate concurring opinion to address the unfortunate consequences of applying the in pari delicto doctrine to previous cases involving alien landholdings [1039].
Justice Fernando pointed out that in several post-Krivenko cases, such as Rellosa v. Gaw Chee Hun, the Supreme Court had barred Filipino vendors from recovering lands sold to aliens on the ground of in pari delicto, which left the properties in alien hands and frustrated the constitutional ban [1041, 1046].
Justice Fernando argued that since those sales took place before the Krivenko decision clarified that residential lots were covered by the ban, the parties could not have been in in pari delicto because mistake on a difficult question of law can be the basis of good faith under Article 526 of the Civil Code [1040, 1042, 1051].
Justice Fernando maintained that allowing the Filipino vendor to recover the land upon returning the purchase price is the only solution that aligns with the Constitution, as the Constitution frowns upon land remaining in alien hands [1046, 1047].

Cited Laws & Provisions

Every statute, rule, and issuance the decision turns on — the text as written, and the work it does in this case.

Constitution

Article XIII, Section 5, 1935 Constitution

Conservation and Utilization of Natural Resources

1935 Constitution of the Philippines, Article XIII

Save in cases of hereditary succession, no private agricultural land shall be transferred or assigned except to individuals, corporations, or associations qualified to acquire or hold lands of the public domain in the Philippines.

Why it is cited here

The prohibition, and the most instructive attempt ever made to work around it.

"No private agricultural land shall be transferred or assigned except to individuals, corporations, or associations qualified to acquire or hold lands of the public domain."

Wong Heng never took title. Instead, five instruments in about a year gave him a lease, then an extension covering the whole property, then an option to buy, then extensions of both terms — and with them possession, control, the power to dispose, and the enjoyment of the fruits, for a period exceeding any owner's likely life.

Taken singly, each was defensible: a lease to an alien is lawful, and an option conditioned on future naturalization is independently valid. The Court refused to take them singly. What the arrangement achieved was the transfer of every incident of ownership, and the section is defeated as surely by that as by a deed.

The doctrine to carry is a method rather than a rule: test the transaction by its total effect, not by the validity of its parts. Where the incidents of ownership have all moved to a disqualified holder, the prohibition applies whatever the instruments are called.

Civil Code

Article 1416, Civil Code

Civil Code of the Philippines (R.A. No. 386), Book IV (Obligations and Contracts), Title II (Contracts), Chapter 9 (Void and Inexistent Contracts)

When the agreement is not illegal per se but is merely prohibited, and the prohibition by the law is designed for the protection of the plaintiff, he may, if public policy is thereby enhanced, recover what he has paid or delivered.

Why it is cited here

What happens to the money and the land once the contracts are void — and why the usual rule did not apply.

"When the agreement is not illegal per se but is merely prohibited, and the prohibition by the law is designed for the protection of the plaintiff, he may, if public policy is thereby enhanced, recover what he has paid or delivered."

The ordinary consequence of an illegal contract is pari delicto — the law leaves the parties where it finds them and neither may recover. Applied here, that would have left Wong's estate in possession of the property, which is the opposite of what the Constitution wants.

Article 1416's three conditions are all met, and it is worth checking them one at a time. The contracts were prohibited, not intrinsically immoral; the prohibition exists to keep land in Filipino hands, so the Filipino party is the protected one; and returning the land to Justina Santos' estate enhances that policy rather than merely undoing a bargain.

So the article is the remedial half of Krivenko. Without it the prohibition would punish the Filipino vendor and reward the alien holder — the exact result it exists to prevent.

Constitution

Article XII, Section 7, 1987 Constitution

National Economy and Patrimony

1987 Constitution of the Republic of the Philippines, Article XII (National Economy and Patrimony)

Save in cases of hereditary succession, no private lands shall be transferred or conveyed except to individuals, corporations, or associations qualified to acquire or hold lands of the public domain.

Why it is cited here

The prohibition today, and the reason this case remains the leading authority on evasion.

"Save in cases of hereditary succession, no private lands shall be transferred or conveyed except to individuals, corporations, or associations qualified to acquire or hold lands of the public domain."

The wording is broader than the 1935 text — "private lands" rather than "private agricultural land" — so the anti-circumvention holding applies, if anything, more readily.

Its modern field is well known: long-term leases with renewal options, dummy arrangements, and structures giving an alien spouse or investor practical control of Philippine land. The analysis is unchanged. Count the incidents of ownership that have moved; if they have all moved, the arrangement is void however it is documented.

What the case does not hold is equally worth keeping straight, because it is often overstated. A genuine lease to an alien remains valid. It is the accumulation — indefinite duration, an option to buy, control of disposition and fruits — that converts a lawful arrangement into a prohibited one.

Source: Philippine Banking Corp. v. Lui She, G.R. No. L-17587, September 12, 1967

Cited laws & provisions

Article XIII, Section 5, 1935 Constitution

Constitution

Conservation and Utilization of Natural Resources

1935 Constitution of the Philippines, Article XIII

Why it is cited here

The prohibition, and the most instructive attempt ever made to work around it.

"No private agricultural land shall be transferred or assigned except to individuals, corporations, or associations qualified to acquire or hold lands of the public domain."

Full entry below ↓

Article 1416, Civil Code

Civil Code

Civil Code of the Philippines (R.A. No. 386), Book IV (Obligations and Contracts), Title II (Contracts), Chapter 9 (Void and Inexistent Contracts)

Why it is cited here

What happens to the money and the land once the contracts are void — and why the usual rule did not apply.

So the article is the remedial half of Krivenko. Without it the prohibition would punish the Filipino vendor and reward the alien holder — the exact result it exists to prevent.

Full entry below ↓

Article XII, Section 7, 1987 Constitution

Constitution

National Economy and Patrimony

1987 Constitution of the Republic of the Philippines, Article XII (National Economy and Patrimony)

Save in cases of hereditary succession, no private lands shall be transferred or conveyed except to individuals, corporations, or associations qualified to acquire or hold lands of the public domain.

Why it is cited here

The prohibition today, and the reason this case remains the leading authority on evasion.

The wording is broader than the 1935 text — "private lands" rather than "private agricultural land" — so the anti-circumvention holding applies, if anything, more readily.

Full entry below ↓

Facts

Justina Santos and her sister co-owned a Manila property on Rizal Avenue.
Wong Heng, a long-time Chinese lessee, lived there with his family and had become her trusted companion and financial custodian.
Upon her sister's death in September 1957, Justina became sole owner.
On November 15, 1957, "in grateful acknowledgment" of Wong's services, she leased him his existing portion plus more, for fifty years.
Ten days later, the lease was amended to cover the entire property, including her own residence.
On December 21, 1957, she granted him an option to buy the premises for P120,000 over ten years, conditioned on his becoming a Filipino citizen — a naturalization petition then pending but later withdrawn.
She also filed, then abandoned, a petition to adopt Wong and his children, mistakenly believing this would confer citizenship. On November 18, 1958, two further contracts extended the lease to ninety-nine years and the option to fifty years.
In a 1959 codicil, reversing her earlier wills, she directed her executor to seek annulment, alleging undue influence.
The suit sought cancellation of all five contracts and an accounting.
The trial court annulled four but sustained the first lease, ordering Wong to pay P55,554.25 plus ongoing rent.
Both parties appealed; both died pending appeal and were substituted by Lui She (Wong's widow) and the Philippine Banking Corporation (Justina's estate).

Arguments of the Parties

Issue

ANCILLARY / INCIDENTAL ISSUES (if any). The proper accounting of sums Wong held in trust and of accrued rentals.

Ruling

Ratio

The Court held: "Taken singly, the contracts show nothing that is necessarily illegal, but considered collectively, they reveal an insidious pattern to subvert by indirection what the Constitution directly prohibits. To be sure, a lease to an alien for a reasonable period is valid. So is an option giving an alien the right to buy real property on condition that he is granted Philippine citizenship," quoting Krivenko's recognition that aliens "may be granted temporary rights such as a lease contract which is not forbidden by the Constitution."
"But if an alien is given not only a lease of, but also an option to buy, a piece of land... this to last for 50 years, then it becomes clear that the arrangement is a virtual transfer of ownership whereby the owner divests himself in stages not only of the right to enjoy the land (jus possidendi, jus utendi, jus fruendi and jus abutendi) but also of the right to dispose of it (jus disponendi)... this is just exactly what the parties in this case did within the space of one year, with the result that Justina Santos' ownership of her property was reduced to a hollow concept... the Constitutional ban against alien landholding in the Philippines... is indeed in grave peril."
On remedy, the Court invoked Article 1416 of the Civil Code, an exception to pari delicto where "the agreement is not illegal per se but is merely prohibited, and the prohibition by law is designed for the protection of the plaintiff," who "may, if public policy is thereby enhanced, recover what he has paid or delivered."
Since the provision "is an expression of public policy to conserve lands for the Filipinos," ordinary pari delicto "would be defeated" were the parties left as they stood.
The Court also noted the original guilty parties had died, "to whom it would be unjust to impute their guilt."

Doctrine

Doctrines / Rules / Principles Laid Down.

Individually lawful contracts will be struck down where, together, they progressively transfer all rights constituting ownership to an alien, since this circumvents the constitutional prohibition as effectively as an outright sale; a reasonable lease or citizenship-conditioned option, standing alone, remains valid.
Article 1416 excepts from pari delicto agreements merely prohibited, not illegal per se, where the prohibition protects the plaintiff's class and public policy favors recovery, permitting restitution of land involved in an unconstitutional alien-landholding scheme to the Filipino party's estate.

Distinctions / Limitations / Qualifications.

The ruling does not forbid aliens from leasing land or holding a citizenship-conditioned option; it is the combination of a virtually unconditional option to buy with a near-permanent lease, executed within a short span, that crosses into void circumvention.

Topic/Subtopic Integration (Mandatory).

DIRECT: Lui She extends Krivenko's general rule by supplying a totality-of-rights, anti-circumvention test for disguised transfers to aliens, and by clarifying that restitution under Article 1416, not pari delicto, is the applicable remedy.

Separate Opinions

Full Digest — Recitation Format

Full-length digest in the format required by the course digest prompt.

Classification: DIRECT · G.R. No. L-17587, September 12, 1967

TOPIC/SUBTOPIC FOCUS: First. Applicant must be a Filipino citizen (under 1987 Constitution) — General Rule

I. Gist and Central Doctrine

II. Chronological Narration of Material Facts

Justina Santos y Canon Faustino and the sister of Justina Santos, Lorenzo, co-owned a parcel of private land in Manila with an area of 2,582.30 square meters, located on Rizal Avenue [1024].
Wong Heng, a Chinese citizen, lived with the family of Wong Heng in the Hen Wah Restaurant situated on the subject property and operated as a long-time lessee of a portion of the property, paying a monthly rental of P2,620 [1024].
On November 15, 1957, Justina Santos executed a lease contract in favor of Wong Heng for a term of fifty years, with a monthly rental of P3,120 [1024, 1028].
On December 21, 1957, Justina Santos executed another contract giving Wong Heng the option to purchase the leased premises for P120,000, payable within ten years at a monthly installment of P1,000, on the condition that Wong Heng obtain Philippine citizenship [1025].
The option contract also obligated Wong Heng to pay for the food of the dogs and the salaries of the maids in the household of Justina Santos, not exceeding P1,800 a month [1025].
Wong Heng subsequently withdrew the petition for naturalization pending in the Court of First Instance of Rizal after the discovery that Wong Heng was not a resident of Rizal province [1025].
On October 28, 1958, Justina Santos filed a petition to adopt Wong Heng and the children of Wong Heng under the mistaken belief that adoption would confer Philippine citizenship upon Wong Heng and the children [1025].
Upon the discovery of the legal error that adoption does not confer citizenship, the adoption proceedings were abandoned [1025].
On November 18, 1958, Justina Santos executed two additional contracts written in Tagalog: one contract extending the term of the lease to ninety-nine years, and another contract fixing the term of the option to purchase at fifty years [1026].
The fifty-year option contract explicitly prohibited Justina Santos from selling, donating, mortgaging, or encumbering the subject property in favor of other persons during the fifty-year period [1050].
On August 24, 1959, and August 29, 1959, Justina Santos executed two separate wills instructing the legatees of Justina Santos to respect the contracts entered into with Wong Heng [1026].
On November 4, 1959, Justina Santos executed a codicil claiming that the contracts were executed by Justina Santos due to the machinations and inducements of Wong Heng, and directing the executor of the estate of Justina Santos to secure the annulment of the contracts [1026].
On November 18, 1959, Justina Santos filed an action for annulment of the contracts in the Court of First Instance of Manila on the ground of fraud, undue influence, and circumvention of the constitutional prohibition against alien land ownership [1027, 1028].
The Court of First Instance of Manila rendered a judgment declaring the four contracts (the option to purchase, the extension of the lease, and the options) null and void, but declaring the original lease contract of November 15, 1957, valid [1028, 1032].
Both Justina Santos and Wong Heng appealed the judgment of the Court of First Instance directly to the Supreme Court of the Philippines [1028].
During the pendency of the appeal, Wong Heng died on October 21, 1962, and was subsequently substituted by the wife of Wong Heng, Lui She, in the capacity of Lui She as the administratrix of the intestate estate of Wong Heng [1024, 1028].
On December 28, 1964, Justina Santos died and was subsequently substituted in the action by the Philippine Banking Corporation, representing the estate of Justina Santos [1024, 1028].
On September 12, 1967, the Supreme Court of the Philippines promulgated the Decision in G.R. No. L-17587 [1024].

III. Arguments of the Parties

A. Petitioner/Prosecution (Philippine Banking Corporation / Estate of Justina Santos):

The estate of Justina Santos argues that the lease contract is void for lack of mutuality, was obtained in violation of fiduciary relations, was secured through undue influence, fraud, and misrepresentation, and was absolutely simulated [1028].
The estate of Justina Santos contends that the lease contract, the ninety-nine-year extension, and the fifty-year option contract must all be considered collectively rather than in isolation [1034, 1035].
The estate of Justina Santos asserts that the collective arrangement was a virtual transfer of ownership that divested Justina Santos of the rights to enjoy, use, possess, and dispose of the private property, thereby constituting an illicit scheme to circumvent Section 5, Article XIII of the 1935 Constitution [1035, 1145].
The estate of Justina Santos maintains that the doctrine of in pari delicto does not apply because the original parties have died and the action is pursued by the administrators, and because Article 1416 of the Civil Code permits recovery of property to enhance and preserve the avowed public policy of conserving land for Filipino citizens [1036, 1137].

B. Respondent/Defense (Lui She / Estate of Wong Heng):

The estate of Wong Heng argues that the lease contract of November 15, 1957, was fully valid and voluntary, having been explained to Justina Santos by the lawyer of Justina Santos, and cannot be annulled [1028, 1030].
The estate of Wong Heng contends that the option contract did not violate the Constitution because the option was expressly conditioned on Wong Heng obtaining Philippine citizenship [1025, 1034].
The estate of Wong Heng asserts that even if the transactions are found to be unconstitutional, the parties are in pari delicto because Justina Santos willingly executed the agreements out of gratitude [1031, 1036, 1041].
The estate of Wong Heng maintains that under the doctrine of in pari delicto, the courts must leave the parties exactly where the courts find the parties, thereby preventing the estate of Justina Santos from recovering the property [1036, 1041].

C. Common Ground:

Both parties agree that Justina Santos executed the lease contract on November 15, 1957, and subsequently executed the other agreements in favor of Wong Heng [1024, 1025, 1026].
Both parties admit that Wong Heng was a Chinese citizen at all times material to the execution of the contracts and never obtained Philippine citizenship [1024, 1025].
Both parties agree that both Justina Santos and Wong Heng died during the pendency of the appeal, leaving the respective estates as the substituted parties in interest [1028].

IV. Issues

A. MAIN ISSUE:

B. SECONDARY ISSUES:

Whether the doctrine of in pari delicto applies to bar the recovery of the land by the estate of Justina Santos, or whether the public policy of conserving lands for Filipino citizens, as expressed in the constitutional prohibition, creates an exception under Article 1416 of the Civil Code that permits the recovery of the property [1036, 1041].
Whether the lease contract of November 15, 1957, is void for lack of mutuality under Article 1308 of the Civil Code or if the contract was obtained through undue influence, fraud, and misrepresentation [1028, 1029, 1031].

V. Ruling / Disposition

A. RULING ON THE MAIN ISSUE:

B. RULING ON SECONDARY ISSUE NO. 1:

C. RULING ON SECONDARY ISSUE NO. 2:

VERBATIM DISPOSITIVE PORTION:

"ACCORDINGLY, the contracts in question (Plff Exhs. 3-7) are annulled and set aside; the land subject-matter of the contracts is ordered returned to the estate of Justina Santos as represented by the Philippine Banking Corporation; Wong Heng (as substituted by the defendant-appellant Lui She) is ordered to pay the Philippine Banking Corporation the sum of P56,564.35, with legal interest from the date of the filing of the amended complaint; and the amounts consigned in court by Wong Heng shall be applied to the payment of rental from November 15, 1959 until the premises shall have been vacated by his heirs. Costs against the defendant-appellant." [1038]

VI. Ratio Decidendi and Doctrines

A. Ratio Decidendi:

Section 5, Article XIII of the 1935 Constitution (now Section 7, Article XII of the 1987 Constitution) absolutely prohibits the transfer or assignment of private agricultural or residential lands to individuals, corporations, or associations that are not qualified to acquire or hold lands of the public domain, save in cases of hereditary succession [14, 1145].
The constitutional ban on alien land acquisition is a fundamental public policy designed to conserve the national patrimony and lands of the Philippines exclusively for Filipino citizens [15, 1036].
Although a temporary lease of land to an alien or an option to purchase real property conditioned on the acquisition of Philippine citizenship may be individually valid, the validity of such contracts must not be evaluated in isolation when the contracts are part of a series of transactions between the same parties [1034, 1035].
The execution of a lease contract for ninety-nine years, combined with a fifty-year option to purchase that completely prohibits the Filipino owner from selling, donating, mortgaging, or encumbering the property, effectively divests the Filipino owner of all elements of ownership, including the right to possess, use, enjoy the fruits, and dispose of the property [1035].
This collective arrangement constitutes a virtual transfer of ownership to an alien, thereby representing an insidious and unlawful scheme to circumvent the constitutional prohibition on alien land acquisition [1035].
Under Article 1352 and Article 1409, paragraph 1 of the Civil Code, contracts with an illegal cause or those contrary to the Constitution and public policy are void ab initio and produce no legal effect [156, 1034, 1038].
The illegal purpose of bypassing the constitutional ban on alien landholdings serves as the illegal cause (causa) of the contracts, thereby rendering all the contracts, including the original lease contract of November 15, 1957, null and void [1034, 1035].
While Article 1411 and Article 1412 of the Civil Code establish the doctrine of in pari delicto, which generally leaves the parties to an illegal contract without any judicial remedy, this doctrine is subject to the explicit exception provided under Article 1416 of the Civil Code [15, 1036, 1137].
Article 1416 of the Civil Code provides that when an agreement is not illegal per se but is merely prohibited, and the prohibition is designed for the protection of the plaintiff, the plaintiff may recover what was paid or delivered if public policy is thereby enhanced [1036, 1137].
Since the constitutional prohibition against alien land ownership is designed to protect Filipino citizens and preserve lands in Filipino hands, allowing the estate of Justina Santos to recover the property directly advances and enhances the public policy of the State [15, 1036].
Additionally, the doctrine of in pari delicto cannot be applied to bar recovery because both Justina Santos and Wong Heng died during the pendency of the appeal, and the respective interests of Justina Santos and Wong Heng are now represented by the administrators, to whom no personal guilt or unconstitutional intent can be legally imputed [1036].

B. Doctrines/Rules:

The Absolute Character of the Constitutional Prohibition on Alien Landholding: Non-Filipinos are strictly disqualified from acquiring or holding private agricultural, residential, or commercial lands in the Philippines, except in cases of hereditary succession [14, 75, 1145]. This constitutional edict cannot be bypassed or diluted by lease agreements of excessive duration or restrictive options [1035]. As the Court ruled verbatim:

"Save in cases of hereditary succession, no private agricultural land shall be transferred or assigned except to individuals, corporations or associations qualified to acquire or hold lands of the public domain in the Philippines, the Constitution makes no exception in favor of religious associations." [1145]
The Evasion of Constitutional Ban via Cumulative Contracts: When an alien is granted a lease of land for an unconscionable period (such as ninety-nine years) alongside an option to purchase lasting fifty years that prevents the owner from disposing of the property, the cumulative effect of these contracts is a virtual transfer of ownership [1035]. This constitutes an illegal circumvention of the Constitution [1035]. As the Court declared verbatim:

"But if an alien is given not only a lease of, but also an option to buy, a piece of land, by virtue of which the Filipino owner cannot sell or otherwise dispose of his property, this to last for 50 years, then it becomes clear that the arrangement is a virtual transfer of ownership whereby the owner divests himself in stages not only of the right to enjoy the land ( jus possidendi, jus utendi, jus fruendi and jus abutendi ) but also of the right to dispose of it ( jus disponendi ) rights the sum total of which make up ownership. It is just as if today the possession is transferred, tomorrow, the use, the next day, the disposition, and so on, until ultimately all the rights of which ownership is made up are consolidated in an alien." [1035]
The Exception to the Pari Delicto Doctrine in Constitutional Violations: The principle of in pari delicto is not absolute and must yield when the application of the principle would run counter to an avowed public policy or fundamental interest of the State [15, 1036, 1137]. Under Article 1416 of the Civil Code, recovery of property is allowed if public policy is enhanced by returning the land to Filipino hands [1036, 1137]. As the Court ruled verbatim, citing Article 1416:

"... when the agreement is not illegal per se but is merely prohibited, and the prohibition by law is designed for the protection of the plaintiff, he may, if public policy is thereby enhanced, recover what he has paid or delivered." [1036]

C. Limitations/Exceptions:

Temporary Leases Permitted: The Supreme Court explicitly recognized that temporary lease agreements of a reasonable duration in favor of aliens are valid and do not violate the Constitution, as the presence of aliens in the Philippines is generally temporary [1035]. However, this exception does not apply when the lease is of an excessive duration (such as ninety-nine years) or is coupled with options that restrict the owner's right of disposal [1035].
Conditional Options to Buy: An option to purchase granted to an alien is not invalid per se if the option is explicitly conditioned on the alien obtaining Philippine citizenship, as citizenship is not impossible to acquire [1025, 1034, 1035]. However, such an option becomes unconstitutional and void when the option is part of a broader scheme to tie up the property for several decades, effectively preventing the Filipino owner from selling the property to qualified citizens [1035, 1050].
In Pari Delicto Inapplicable to Substituted Administrators: The in pari delicto bar does not apply to the executors or administrators of the estates of the deceased parties, as the unconstitutional intent or guilt of the original contracting parties cannot be imputed to the substituted legal representatives [1036].

D. Topic Integration:

Philippine Banking Corp. v. Lui She is the leading authority on the citizenship requirement for land ownership and registration, which directly integrates with the general rule under Section 14, paragraph 1 of Presidential Decree No. 1529 [6, 15, 1035]. Section 14, paragraph 1 requires that any applicant for original land registration must be a Filipino citizen. G.R. No. L-17587 illustrates that the citizenship requirement is a fundamental public policy of the State that cannot be circumvented, evaded, or diluted by sophisticated contract drafting [1035, 1145]. By annulling the ninety-nine-year lease and the fifty-year option, the Supreme Court shut the door on any attempts to indirectly grant land ownership rights to disqualified aliens [1035]. The case establishes that the capacity to acquire, hold, and register lands is strictly limited to Filipino citizens, and any transaction that attempts to vest virtual ownership in an alien is void ab initio and will result in the restoration of the property to the Filipino owner to ensure that land remains in Filipino hands [15, 1035, 1036, 1145].

VII. Separate Opinions

Concurring Opinion of Justice Enrique M. Fernando:

Justice Fernando expressed full agreement with the main opinion but wrote a separate concurring opinion to address the unfortunate consequences of applying the in pari delicto doctrine to previous cases involving alien landholdings [1039].
Justice Fernando pointed out that in several post-Krivenko cases, such as Rellosa v. Gaw Chee Hun, the Supreme Court had barred Filipino vendors from recovering lands sold to aliens on the ground of in pari delicto, which left the properties in alien hands and frustrated the constitutional ban [1041, 1046].
Justice Fernando argued that since those sales took place before the Krivenko decision clarified that residential lots were covered by the ban, the parties could not have been in in pari delicto because mistake on a difficult question of law can be the basis of good faith under Article 526 of the Civil Code [1040, 1042, 1051].
Justice Fernando maintained that allowing the Filipino vendor to recover the land upon returning the purchase price is the only solution that aligns with the Constitution, as the Constitution frowns upon land remaining in alien hands [1046, 1047].