The Supreme Court ruled that a lease agreement and a Memorandum of Agreement (MOA) effectively transferred land ownership to a foreigner, violating the Philippine Constitution’s restrictions on foreign land ownership. The Court emphasized that contracts circumventing these restrictions are void and cannot be the basis for legal claims, such as unlawful detainer actions. This decision reinforces the principle that constitutional prohibitions against foreign land ownership cannot be bypassed through cleverly disguised contractual arrangements, ensuring that land resources remain in the hands of Filipino citizens.

Can a Long-Term Lease Become a Virtual Land Grab? The Grilli-Fullido Case

The case revolves around Gino Grilli, an Italian national, and Rebecca Fullido, a Filipina. In 1995, Grilli assisted Fullido in purchasing a lot in Bohol, which was registered under her name. They constructed a house on the property, funded by Grilli, and lived there as common-law partners. To define their rights, they executed a lease contract, a Memorandum of Agreement (MOA), and a Special Power of Attorney (SPA) in 1998. The lease contract stipulated that Grilli would lease the lot for 50 years, automatically renewable for another 50 years, for a total of P10,000. The MOA stated that ownership of the house and lot resided with Grilli, and Fullido could only sell the property with his consent. The SPA allowed Grilli to manage and transfer the property on Fullido’s behalf.

Their relationship soured after 16 years, leading Grilli to file an unlawful detainer complaint against Fullido in 2010, seeking to eject her from the property. Grilli argued that he allowed Fullido to live in the house out of generosity after their relationship ended. Fullido countered that the agreements were invalid because they violated constitutional restrictions on foreign land ownership. The Municipal Circuit Trial Court (MCTC) dismissed the case, but the Regional Trial Court (RTC) reversed the decision, favoring Grilli based on the lease contract. The Court of Appeals (CA) affirmed the RTC’s decision, stating that the only issue was physical possession. Fullido appealed to the Supreme Court, asserting the nullity of the contracts.

The Supreme Court addressed the core issue: whether a contract could be declared void in a summary action of unlawful detainer. The Court emphasized that void contracts create no rights and can be challenged in any proceeding, including ejectment cases. Citing Article 1409 of the New Civil Code, the court noted that void contracts cannot be ratified, and the defense of illegality cannot be waived. The Court referenced several precedents where it had invalidated contracts in unlawful detainer cases due to illegality or lack of consent, like in Spouses Alcantara v. Nido and Roberts v. Papio.

The Supreme Court then scrutinized the lease contract and MOA, finding that they circumvented the constitutional prohibition against foreign ownership of lands. The 1935 Constitution, and subsequent iterations, restricts land ownership to Filipino citizens. The Court relied on the principle that the prohibition on land transfer to aliens extends to leases that transfer all or substantially all rights of dominion, citing the landmark case of Philippine Banking Corporation v. Lui She, where a 99-year lease with an option to buy was struck down. While temporary leases to aliens are permissible, the Court highlighted that the contracts in question exceeded reasonable limits and effectively transferred ownership.

The Court noted that Presidential Decree (P.D.) No. 471 regulates land leases to aliens, limiting them to 25 years, renewable for another 25 years. Contracts violating this decree are void ab initio. In this case, the 50-year lease, automatically renewable for another 50 years, coupled with restrictions on Fullido’s ability to sell or encumber the land, effectively transferred ownership to Grilli. The Court found the MOA even more egregious, as it explicitly stated that ownership of the land and building resided with Grilli, prohibited Fullido from transferring the property without his consent, and allowed Grilli to dispose of the property if their relationship ended.

“Evidently, the lease contract and the MOA operated hand-in-hand to strip Fullido of any dignified right over her own property. The term of lease for 100 years was obviously in excess of the allowable periods under P.D. No. 471. Even Grilli admitted that ‘this is a case of an otherwise valid contract of lease that went beyond the period of what is legally permissible.’” The Court stated that this arrangement enabled Grilli to deprive Fullido of her land’s possession, control, disposition, and ownership. The jus possidendi, jus utendi, jus fruendi, jus abutendi and, more importantly, the jus disponendi, were all effectively transferred to Grilli.

The Court concluded that Grilli did not have a valid cause of action for unlawful detainer because the lease contract and MOA were void. To have a cause of action for unlawful detainer, the complainant must be a lessor, vendor, vendee, or other person against whom possession is unlawfully withheld, meaning they must have a right of possession. Since the contracts were void ab initio, Grilli never acquired any possessory rights over the land. Regarding the doctrine of in pari delicto, which generally prevents courts from granting relief to parties equally at fault, the Court found it inapplicable because the case involved a matter of public policy—the constitutional prohibition against foreign land ownership. Allowing the foreigner to retain possession would defeat the constitutional provision.

FAQs

What was the key issue in this case?	The key issue was whether a lease agreement and MOA effectively transferred land ownership to a foreigner, violating constitutional restrictions. The Court examined whether these contracts could be declared void in an unlawful detainer action.
Why did the Supreme Court rule against Grilli?	The Supreme Court ruled against Grilli because the lease agreement and MOA were deemed to be in violation of the constitutional prohibition against foreign ownership of land. The terms of the contracts effectively transferred ownership to Grilli.
What is the significance of Presidential Decree No. 471?	Presidential Decree No. 471 limits the duration of land leases to aliens to 25 years, renewable for another 25 years. The lease in this case exceeded this limit, contributing to the finding that it was a scheme to circumvent the Constitution.
What is the ‘in pari delicto’ doctrine and why didn’t it apply?	The ‘in pari delicto’ doctrine prevents courts from granting relief to parties equally at fault in an illegal agreement. The Court did not apply it because the case involved public policy – the constitutional ban on foreign land ownership.
What does the decision mean for foreigners seeking to lease land in the Philippines?	Foreigners can lease land in the Philippines, but the lease terms must comply with legal limits (currently 25 years, renewable for another 25 years). The lease cannot effectively transfer ownership or control of the land to the foreigner.
What is an unlawful detainer case?	An unlawful detainer case is a legal action to recover possession of property from someone who initially had legal possession but whose right to possess has expired or been terminated. The key issue is physical possession, not ownership.
How did the MOA contribute to the court’s decision?	The MOA solidified Grilli’s control over the property by stating he owned the land and building, restricting Fullido’s ability to sell without his consent, and granting him permanent residency. These terms reinforced the transfer of ownership rights.
Can void contracts be the basis for legal claims?	No, void contracts have no legal effect and cannot be the source of any rights or obligations. They cannot be used as a basis for legal claims or defenses in court proceedings.

This ruling underscores the importance of adhering to constitutional limitations on foreign land ownership and ensures that such limitations are not circumvented through contractual schemes. The Supreme Court’s decision serves as a reminder that Philippine courts will closely scrutinize agreements involving land and foreign nationals to protect national patrimony.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: REBECCA FULLIDO vs. GINO GRILLI, G.R. No. 215014, February 29, 2016