CHAPTER 20: PROPERTY
PRINCIPLES AND CASES IN PRIVATE INTERNATIONAL LAW:
A PROCEDURAL APPROACH
-oOo-
MARK ANGELO S. DELA PEÑA
To cite this online book, please use the following:
Dela Peña. 2023. "Principles and Cases in Private International Law: A Procedural Approach." Published by Project Jurisprudence - Philippines. Published: September 17, 2023. Link: [Insert link] Last accessed: [Insert date of access].
x---------------------------------------------x
CHAPTER 20:
PROPERTY
Real property as well as personal property is subject to the law of the country where it is stipulated. However, intestate and testamentary successions, both with respect to the order of succession and to the amount of successional rights and to the intrinsic validity of testamentary provisions, shall be regulated by the national law of the person whose succession is under consideration, whatever may be the nature of the property and regardless of the country wherein said property may be found.[1]
In private international law, real or personal property is governed by the law of the place where it is situated. This is known as the doctrine of lex rei sitae or lex loci rei sitae.
Thus, the ownership of property, its use and enjoyment, whether it is real or personal property, whether it is licit or illicit, and whether it is state property or personal property, among others, are governed by the law of its location. This is a reasonable rule because, if property is located within the Canadian State, it would be absurd for Philippine laws to determine the aspects of property as enumerated above.
IMMOVABLE OR
MOVABLE THINGS
In the Philippines, for example, Article 415 of the New Civil Code of the Philippines declares that the following are immovable property: (a) land, buildings, roads and constructions of all kinds adhered to the soil; (b) trees, plants, and growing fruits, while they are attached to the land or form an integral part of an immovable; (c) everything attached to an immovable in a fixed manner, in such a way that it cannot be separated therefrom without breaking the material or deterioration of the object; (d) statues, reliefs, paintings or other objects for use or ornamentation, placed in buildings or on lands by the owner of the immovable in such a manner that it reveals the intention to attach them permanently to the tenements; (e) machinery, receptacles, instruments or implements intended by the owner of the tenement for an industry or works which may be carried on in a building or on a piece of land, and which tend directly to meet the needs of the said industry or works; (f) animal houses, pigeon-houses, beehives, fish ponds or breeding places of similar nature, in case their owner has placed them or preserves them with the intention to have them permanently attached to the land, and forming a permanent part of it; the animals in these places are included; (g) fertilizer actually used on a piece of land; (h) mines, quarries, and slag dumps, while the matter thereof forms part of the bed, and waters either running or stagnant; (i) docks and structures which, though floating, are intended by their nature and object to remain at a fixed place on a river, lake, or coast; (j) contracts for public works, and servitudes and other real rights over immovable property.
Notice that, in (e) above, “machinery, receptacles, instruments or implements,” whether or not they are actually capable of being moved from one place to another, are considered real or immovable property. A different state, of course, may classify the same as personal or immovable property. These classifications are not merely for semantic purposes but they have real and substantial consequences in other fields of law such as but not limited to succession and taxation.
On the other hand, the same Code’s Article 416 and Article 417 declare the following as movable property: (a) those movables susceptible of appropriation which are not included in the preceding article; (b) real property which by any special provision of law is considered as personalty; (c) forces of nature which are brought under control by science; (d) in general, all things which can be transported from place to place without impairment of the real property to which they are fixed; (e) obligations and actions which have for their object movables or demandable sums; and (f) shares of stock of agricultural, commercial and industrial entities, although they may have real estate.
Again, in (b) above, “real property which by any special provision of law is considered as personalty” is classified as immovable property. The term “special provision of law” here refers to Philippine law insofar as the property in question is located within its territory.
LEX REI SITAE, ONLY
A GENERAL RULE
While lex rei sitae is the general rule, an exception to this is clear from the text of Article 16 of the New Civil Code of the Philippines. In said provision, successions, whether testate or intestate,[2] both with respect to the order of succession and to the amount of successional rights and to the intrinsic validity of testamentary provisions, shall be regulated by the national law of the person whose succession is under consideration, whatever may be the nature of the property and regardless of the country wherein said property may be found. Also, the heirs’ capacity to succeed is governed by the law of the nation of the decedent.[3]
Notice that, while a person’s capacity is generally governed by his/her own national law under Article 15, the New Civil Code of the Philippines also specifically takes away a person’s capacity to succeed from a decedent from the purview of the said legal provision. Hence, as to a person’s family rights and duties, status, condition, and legal capacity – except the legal capacity to succeed or inherit – are still governed by a person’s national law.
Following this rule, Section 4 of Rule 77 of the Rules of Court[4] states: “When a will is thus allowed, the court shall grant letters testamentary, or letters of administration with the will annexed, and such letters testamentary or of administration, shall extend to all the estate of the testator in the Philippines. Such estate, after the payment of just debts and expenses of administration, shall be disposed of according to such will, so far as such will may operate upon it; and the residue, if any, shall be disposed of as is provided by law in cases of estates in the Philippines belonging to persons who are inhabitants of another state or country.”[5]
This being the rule, if a Florida man made dies leaving a last will in the Philippines, in the probate of such will in a Philippine forum, said forum cannot insist on the application of Philippine law on compulsory heirs and legitimes if, under Florida law, the decendent is not compelled to reserve a portion of his estate to certain persons such as his wife or children. In another example, if under Florida law, a person cannot inherit from the decedent whole is a Florida citizen if s/he has no master’s degree, Philippine courts must abide by the foreign law if there is sufficient proof to show the existence of said law.
In all contractual, property or other relations, when one of the parties is at a disadvantage on account of his moral dependence, ignorance, indigence, mental weakness, tender age or other handicap, the courts must be vigilant for his protection.[6]
Article 24 of the New Civil Code of the Philippines as stated in the preceding paragraph emphasizes the equity jurisdiction of Philippine courts. The tendency is toward the protection of those who have less in life. Hence, in a conflicts case involving property relations, courts must be vigilant for the weak party’s protection.
CHEESMAN V. IAC
In Cheesman v. Intermediate Appellate Court,[7] Thomas Cheesman and Criselda P. Cheesman were married on December 4, 1970 but have been separated since February 15, 1981. On July 1, 1981, Criselda Cheesman sold a parcel of land with house erected, allegedly covered by their matrimonial community of property, to Estelita M. Padilla, without the knowledge or consent of Thomas Cheesman. Thirty days later, or on July 31, 1981, Thomas Cheesman brought suit in a court in Olongapo City against his wife, Criselda, and Estelita Padilla, praying for the annulment of the sale on the ground that the transaction had been executed without his knowledge and consent.
In resolving the question, the Supreme Court relied on the fundamental law which prohibits the sale to aliens of residential land.[8] Petitioner Thomas Cheesman was, of course, charged with knowledge of this prohibition. He had no capacity or personality to question the subsequent sale of the same property by his wife on the theory that in so doing he was merely exercising the prerogative of a husband in respect of conjugal property. To sustain such a theory would permit indirect controversion of the constitutional prohibition. If the property were to be declared conjugal, this would accord to the alien husband a not insubstantial interest and right over land, as he would then have a decisive vote as to its transfer or disposition. This is a right that the Constitution does not permit him to have.
JACOBUS HULST V. PR BUILDERS
In Hulst v. PR Building, Inc.,[9] Jacobus Bernhard Hulst (Hulst) and his spouse Ida Johanna Hulst-Van Ijzeren (Ida), Dutch nationals, entered into a Contract to Sell with PR Builders, Inc. (respondent), for the purchase of a 210-sq m residential unit in respondent's townhouse project in Barangay Niyugan, Laurel, Batangas.
When respondent failed to comply with its oral promise to complete the project by June 1995, the spouses Hulst filed before the Housing and Land Use Regulatory Board (HLURB) a complaint for rescission of contract with interest, damages and attorney’s fees. The HRLURB Arbiter ruled in favor of the Hulst spouses.
Meanwhile, spouses Hulst divorced. Ida assigned her rights over the purchased property to petitioner. From then on, petitioner alone pursued the case.
According to the Supreme Court, petitioner and his wife were foreign nationals who are disqualified under the Constitution from owning real property in their names.
Section 7 of Article XII of the 1987 Constitution provides:
“Section 7. 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 capacity to acquire private land is made dependent upon the capacity to acquire or hold lands of the public domain. Private land may be transferred or conveyed only to individuals or entities “qualified to acquire lands of the public domain,” thus reserving the right to participate in the disposition, exploitation, development and utilization of lands of the public domain to Filipino citizens or corporations at least 60 percent of the capital of which is owned by Filipinos. On this score, Section 2 and Section 3 of Article XII of the 1987 Constitution provide:
“Section 2. All lands of the public domain, waters, minerals, coal, petroleum, and other mineral oils, all forces of potential energy, fisheries, forests or timber, wildlife, flora and fauna, and other natural resources are owned by the State. With the exception of agricultural lands, all other natural resources shall not be alienated. The exploration, development, and utilization of natural resources shall be under the full control and supervision of the State. The State may directly undertake such activities, or it may enter into co-production, joint venture, or production-sharing agreements with Filipino citizens, or corporations or associations at least sixty per centum of whose capital is owned by such citizens.”
“Section 3. Lands of the public domain are classified into agricultural, forest or timber, mineral lands, and national parks. Agricultural lands of the public domain may be classified by law according to the uses to which they may be devoted. Alienable lands of the public domain shall be limited to agricultural lands. Private corporations or associations may not hold such alienable lands of the public domain except by lease, for a period not exceeding twenty-five years, renewable for not more than twenty-five years, and not to exceed one thousand hectares in area. Citizens of the Philippines may lease not more than five hundred hectares, or acquire not more than twelve hectares thereof by purchase, homestead, or grant.”
Aliens, whether individuals or corporations, have been disqualified from acquiring public lands; hence, they have also been disqualified from acquiring private lands.[10] Since Hulst and his wife, being Dutch nationals, are prohibited under the Constitution from acquiring and owning real property, it is a consequence that the contract to sell entered into by Hulst together with his wife and respondent is void.
Under Article 1409 (1) and (7) of the Civil Code, all contracts whose cause, object or purpose is contrary to law or public policy and those expressly prohibited or declared void by law are inexistent and void from the beginning. Article 1410 of the same Code provides that the action or defense for the declaration of the inexistence of a contract does not prescribe. A void contract is equivalent to nothing; it produces no civil effect,[11] thus creating, modifying or extinguishing no juridical relation along its way.
Generally, parties to a void contract cannot expect any help from the law. The courts leave them as they are, because they are deemed in pari delicto or “in equal fault.”[12] In pari delicto is “a universal doctrine which holds that no action arises, in equity or at law, from an illegal contract; no suit can be maintained for its specific performance, or to recover the property agreed to be sold or delivered, or the money agreed to be paid, or damages for its violation; and where the parties are in pari delicto, no affirmative relief of any kind will be given to one against the other.”[13]
This rule, however, is subject to exceptions[14] that permit the return of that which may have been given under a void contract to the following:
(a) The innocent party. Thus, Article 1411 and Article 1412 of the New Civil Code provide:
“When the nullity proceeds from the illegality of the cause or object of the contract, and the act constitutes a criminal offense, both parties being in pari delicto, they shall have no action against each other, and both shall be prosecuted. Moreover, the provisions of the Penal Code relative to the disposal of effects or instruments of a crime shall be applicable to the things or the price of the contract. This rule shall be applicable when only one of the parties is guilty; but the innocent one may claim what he has given, and shall not be bound to comply with his promise.
“If the act in which the unlawful or forbidden cause consists does not constitute a criminal offense, the following rule shall be observed”;
(b) The debtor who pays usurious interest. Thus, Article 1413 of the New Civil Code provides:
“Interest paid in excess of the interest allowed by the usury laws may be recovered by the debtor, with interest thereon from the date of the payment”;
(c) The party repudiating the void contract before the illegal purpose is accomplished or before damage is caused to a third person and if public interest is subserved by allowing recovery. Thus, Article 1414 of the New Civil Code 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”;
(d) The incapacitated party if the interest of justice so demands. Thus, Article 1415 of the New Civil Code provides:
“Where one of the parties to an illegal contract is incapable of giving consent, the courts may, if the interest of justice so demands, allow recovery of money or property delivered by the incapacitated person”;
(e) The party for whose protection the prohibition by law is intended if the agreement is not illegal per se but merely prohibited and if public policy would be enhanced by permitting recovery. Thus, Article 1416 of the New Civil Code provides:
“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”; and
(f) The party for whose benefit the law has been intended such as in price ceiling laws and labor laws. For example, Article 1417, Article 1418 and Article 1419 of the Civil Code provide:
“Article 1417. When the price of any article or commodity is determined by statute, or by authority of law, any person paying any amount in excess of the maximum price allowed may recover such excess.”
“Article 1418. When the law fixes, or authorizes the fixing of the maximum number of hours of labor, and a contract is entered into whereby a laborer undertakes to work longer than the maximum thus fixed, he may demand additional compensation for service rendered beyond the time limit.”
“Article 1419. When the law sets, or authorizes the setting of a minimum wage for laborers, and a contract is agreed upon by which a laborer accepts a lower wage, he shall be entitled to recover the deficiency.”
In the Hulst case, It is significant to note that the agreement executed by the parties in this case was a contract to Sell and not a contract of sale. A distinction between the two is material in the determination of when ownership is deemed to have been transferred to the buyer or vendee and, ultimately, the resolution of the question on whether the constitutional proscription has been breached.
Since the contract involved in this case was a contract to sell, ownership had not yet transferred to the Hulst when he filed the suit for rescission. While the intent to circumvent the constitutional proscription on aliens owning real property was evident by virtue of the execution of the contract to sell, such violation of the law did not materialize because Hulst caused the rescission of the contract before the execution of the final deed transferring ownership. Hence, Article 1414 of the New Civil Code should be made to apply.
Under Article 1414, one who repudiates the agreement and demands his money before the illegal act has taken place is entitled to recover. Hulst therefore should be entitled to recover what he had paid, although the basis of his claim for rescission, which was granted by the HLURB, was not the fact that he was not allowed to acquire private land under the Philippine Constitution. Hulst should be allowed to recover only of the amount representing the purchase price paid to respondent. No damages may be recovered on the basis of a void contract; being nonexistent, the agreement produced no juridical tie between the parties involved.[15] Further, Hulst was adjudged not entitled to actual as well as interests thereon,[16] moral and exemplary damages and attorney’s fees.
LLANTINO V. CHONG
The case of Llantino v. Chong[17] started from an action to quiet title with damages. The trial court issued an order dismissing the complaint and declaring the contract of lease entered into between the plaintiffs and the defendant valid and legal.
Plaintiffs were the owners of a commercial-residential in Catanduanes. Defendant was a Chinese national who went by the name of Co Liong Chong. The property was leased to defendant for a period of 13 years. Later, the contract was allegedly extended for a period of 60 years. This came as a surprise to the plaintiffs because they could not remember having agreed to a 60-year lease agreement as that would virtually make Chong the owner of the realty which, as a Chinese national, even though there was a claim of naturalization.
During the pre-trial of the case, it was also admitted that Chong had in fact constructed a building of strong materials on the land worth Php40,000.00; and that Chong had become a naturalized Filipino citizen in 1961 and that his name was no longer Co Liong Chong but Juan Molina.
Stripping the case of irrelevant allegations, the pivotal issue in this case was whether or not the contract of lease entered into by and between the plaintiffs and the defendant for a period of 60 years was valid. The Supreme Court agreed with the lower court that Chong had, at the time of the execution of the contract, the right to hold by lease the property involved in the case although at the time of the execution of the contract, he was still a Chinese national. In fact, there was no option to buy the leased property in favor of Chong. Hence, there was no scheme to circumvent the Constitution’s prohibition against aliens owning land in the Philippines.
The Court ruled that a lease to an alien over land for a reasonable period may be considered valid. The same is true for an option giving an alien the right to buy real property on condition that s/he obtains Philippine citizenship. Aliens are not completely excluded by the Constitution from use of lands for residential purposes. Since their residence in the Philippines is temporary, they may be granted temporary rights such as a lease contract which is not forbidden by the Constitution. Should they desire to remain here forever and share our fortune and misfortune, Filipino citizenship is not impossible to acquire.[18] The only instance where a contract of lease may be considered invalid is if there are circumstances attendant to its execution, which are used as a scheme to circumvent the constitutional prohibition.
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 but also jus possidendi, jus utendi, jus fruendi and jus abutendi, the sum 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.[19]
Despite all these, even assuming arguendo that the subject contract of lease was prohibited, the same can no longer be questioned because of the acquisition by defendant of Filipino citizenship. Even the sale of a residential land to an alien, which is now in the hands of a naturalized Filipino citizen, is considered valid.[20] In other words, the case of Llantino v. Chong ended up in ditch of mootness.
MR HOLDINGS V. BAJAR[21]
Petitioner MR Holdings, Ltd. is a non-resident foreign corporation, organized and existing under the laws of Cayman Island with business address at Codan Trust Company (Cayman), Ltd., Zephyr House, Mary Street, George Town, Grand Cayman, British West Indies. It is a subsidiary corporation of Placer Dome, Inc. (Placer Dome), a foreign corporation which owns 40% of respondent Marcopper Mining Corporation (Marcopper). Petitioner is a foreign corporation engaged only in isolated transactions and not “doing business” in the Philippines.
Marcopper and Asian Development Bank (ADB) entered into a loan agreement and Marcopper executed in favor of ADB a “Deed of Real Estate and Chattel Mortgage” over all of its property, personal or real, icnluding the Manila Golf Club. These instruments were registered with the Register of Deeds. ADB and Placer Dome executed a “Support and Standby Credit Agreement” whereby Placer Dome agreed to provide Marcopper with cash flow support for the payment of its obligations to ADB. Later, Marcopper had to stop operations and defaulted on its loan obligations to ADB. Petitioner assumed Marcopper’s obligations to ADB through an “Assignment Agreement.”
On account of its inability to meet production targets, Marcopper was sued by one of its creditors, Solidbank Corporation (Solidbank), on the foreign currency loans granted by the latter. Solidbank filed a civil complaint before the Regional Trial Court. A writ of preliminary attachment was issued by the trial court on, pursuant to which respondent Sheriff Carlos P. Bajar levied upon the properties of Marcopper such as personal properties consisting of club membership shares, including the subject Manila Golf Club shares. A notice of lis pendens was sought by petitioner against the membership certificates of the Manila Golf Club, which was denied by the trial court on the ground that such remedy is available only against real property. Does the lis pendens rule apply to personal property such as shares of stock and membership certificates? The answer is no.
Lis pendens literally means pending suit. It refers to the jurisdiction, power or control which a court acquires over property involved in a suit, pending the continuance of the action, and until final judgment. Founded upon public policy and necessity, lis pendens is intended (a) to keep the properties in litigation within the power of the court until the litigation is terminated and to prevent the defeat of the judgment or decree by subsequent alienation; and (b) to announce to the whole world that a particular property is in litigation and serves as a warning that one who acquires an interest over said property does so at his own risk, or that he gambles on the result of the litigation over said property.[22]
In an action affecting the title or the right of possession of real property, the plaintiff and the defendant, when affirmative relief is claimed in his answer, may record in the office of the registry of deeds of the province in which the property is situated a notice of the pendency of the action. Said notice shall contain the names of the parties and the object of the action or defense, and a description of the property in that province affected thereby. Only from the time of filing such notice for record shall a purchaser, or encumbrancer of the property affected thereby, be deemed to have constructive notice of the pendency of the action, and only of its pendency against the parties designated by their real names
Hence, a notice of lis pendens is availed of mainly in real actions. As a general rule, these actions are: (a) an action to recover possession of real estate; (b) an action for partition; and (c) any other court proceedings that directly affect the title to the land or the building thereon or the use or the occupation thereof. Additionally, the annotation of lis pendens also applies to suits seeking to establish a right to, or an equitable estate or interest in, a specific real property, or to enforce a lien, a charge or an encumbrance against it.[23] The remedy is also available in guardianship proceedings which involve real property.[24] Clearly, in this jurisdiction, a notice of lis pendens does not apply to actions involving title to or any right or interest in, personal property, such as the subject membership shares in a private non-stock corporation.
x---------------------------------------------x
[1] Article 16 of the New Civil Code of the Philippines.
[2] “Testate” is the term used when there is a last will and testament. Otherwise, “intestate” is used.
[3] Article 1039 of the New Civil Code of the Philippines.
[4] Allowance of Will Proved Outside the Philippines and Administration of Estate Thereunder.
[5] See Ancheta v. Dalaygon, G.R. No. 139868, June 8, 2006.
[6] Article 24 of the New Civil Code of the Philippines.
[7] G.R. No. 74833, January 21, 1991, 271 Phil. 89.
[8] Note that this case was governed by Section 14 of Article XIV of the 1973 Constitution. Note also Section 7 of Article XII of the 1987 Constitution.
[9] 558 Phil. 683 [ G.R. No. 156364. September 03, 2007 ].
[10] Muller v. Muller, G.R. No. 149615, August 29, 2006, 500 SCRA 65, 71; Frenzel v. Catito, G.R. No. 143958, July 11, 2003, 406 SCRA 55, 69; Ong Ching Po v. Court of Appeals, G.R. No. 113472-73, December 20, 1994, 239 SCRA 341, 346.
[11] Tolentino, Civil Code of the Philippines (1991), Vol. IV, p. 629; Tongoy v. Court of Appeals, 208 Phil. 95, 113 (1983).
[12] Sodhi, Latin Words and Phrases for Lawyers (1980), p. 115.
[13] Moreno, Philippine Law Dictionary (1988), p. 451, citing Rellosa v. Gaw Chee Hun, 93 Phil. 827, 831, (1953).
[14] Vitug, Civil Law Annotated, Vol. III (2003), pp. 159-160.
[15] Menchavez v. Teves, Jr., G.R. No. 153201, January 26, 2005.
[16] Eastern Shipping Lines, Inc. v. Court of Appeals, G.R. No. 97412, July 12, 1994.
[17] 266 Phil. 645 [ G.R. No. L-29663. August 20, 1990 ].
[18] Philippine Banking Corporation vs. Lui She, 21 SCRA 52 (1967); citing Krivenko vs. Register of Deeds, 79 Phil. 461 (1947).
[19] Philippine Banking Corporation vs. Lui She, 21 SCRA 52 (1967).
[20] De Castro vs. Tan, 129 SCRA 85 (1984).
[21] 697 Phil. 10 [ G.R. No. 153478. October 10, 2012 ].
[22] St. Mary of the Woods School, Inc. v. Office of the Registry of Deeds of Makati City, G.R. Nos. 174290 & 176116, January 20, 2009.
[23] Lu v. Lu Ym, Sr., G.R. Nos. 153690, 157381 & 170889, August 4, 2009.
[24] Diaz v. Hon. Perez 103 Phil. 1023 (1958), [G.R. No. L-12053. May 30, 1958. ]
