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1

Obligations and Contracts


Simulation of Contracts

Article 1345. Simulation of a contract may be 2) That for and in consideration of SEVEN
absolute or relative. The former takes place when the HUNDRED THIRTEEN THOUSAND AND
parties do not intend to be bound at all; the latter, THREE HUNDRED TWELVE & 72/100
when the parties conceal their true agreement. (n) PESOS (P713,312.72), the VENDOR do
hereby promise to sell, transfer, and convey
Article 1346. An absolutely simulated or fictitious unto the VENDEE, their heirs, successors
contract is void. A relative simulation, when it does and assigns, all its rights, interests and
not prejudice a third person and is not intended for participations over the above parcel of land
any purpose contrary to law, morals, good customs, with all the improvements thereon and a
public order or public policy binds the parties to their residential house.
real agreement. (n)
3) That upon signing of this Promise To Sell,
THIRD DIVISION the VENDEE shall agree to make payment
of P250,000.00 (Philippine Currency) and the
balance of P463,312.72 payable in equal
G.R. No. 161407 June 5, 2009
yearly installments plus interest based on the
prevailing rate counting from the date of
JOAQUIN VILLEGAS and EMMA M. signing this Promise to Sell for a period of
VILLEGAS, Petitioners, five (5) years.
vs.
RURAL BANK OF TANJAY, INC., Respondent.
xxxx

DECISION
5) Provided further, that in case of a delay in
any yearly installment for a period of ninety
NACHURA, J.: (90) days, this sale will become null and void
and no further effect or validity; and provided
This petition for review on certiorari under Rule 45 of further, that payments made shall be
the Rules of Court assails the Court of Appeals (CA) reimbursed (returned) to the VENDEE less
Decision1 in CA-G.R. CV No. 40613 which affirmed interest on the account plus additional 15%
with modification the Regional Trial Court (RTC) liquidated damages and charges.
Decision in Civil Case No. 9570.2
Upon the signing of the agreement, [petitioners] gave
The facts, as summarized by the CA, follow. [respondent] the sum of P250,000.00 as down
payment. [Petitioners], however, failed to pay the first
Sometime in June, 1982, [petitioners], spouses yearly installment, prompting [respondent] to
Joaquin and Emma Villegas, obtained an agricultural consolidate its ownership over the properties.
loan of P350,000.00 from [respondent] Rural Bank of Accordingly, TCT No. 12389 was cancelled and a
Tanjay, Inc. The loan was secured by a real estate new one, TCT No. 19042, (Exh. 14) was issued in
mortgage on [petitioners] residential house and [respondents] name on November 8, 1989.
5,229 sq.m. lot situated in Barrio Bantayan, Thereafter, [respondent] took possession of the
Dumaguete City and covered by TCT No. 12389. properties. Hence, the action by [petitioners for
declaration of nullity of loan and mortgage contracts,
For failure of [petitioners] to pay the loan upon recovery of possession of real property, accounting
maturity, the mortgage was extrajudicially foreclosed. and damages and, in the alternative, repurchase of
At the foreclosure sale, [respondent], being the real estate] commenced on January 15, 1990.
highest bidder, purchased the foreclosed properties
for P367,596.16. Thereafter, the Sheriff executed in In resisting the complaint, [respondent] averred that
favor of [respondent] a certificate of sale, which was [petitioners] have absolutely no cause of action
subsequently registered with the Registry of Deeds of against it, and that the complaint was filed only to
Dumaguete City. force it to allow [petitioners] to reacquire the
foreclosed properties under conditions unilaterally
[Petitioners] failed to redeem the properties within the favorable to them.
one-year redemption period.
xxxx
In May, 1987, [respondent] and [petitioner] Joaquin
Villegas, through his attorney-in-fact[,] Marilen After trial on the merits, the [RTC] rendered a
Victoriano, entered into an agreement denominated Decision dismissing the complaint, disposing as
as "Promise to Sell," whereby [respondent] promised follows:
to sell to [petitioners] the foreclosed properties for a
total price of P713,312.72, payable within a period of "In the light of the foregoing, it is considered opinion
five (5) years. The agreement reads in part: of this Court, that [petitioners] failed to prove by
preponderance of evidence their case and therefore
PROMISE TO SELL the herein complaint is ordered dismissed.
[Petitioners] are ordered to pay [respondent] the sum
xxxx of P3,000.00 as attorneys fees and to pay costs
without pronouncement as to counterclaim.
WITNESSETH:
SO ORDERED."3
xxxx
2
Obligations and Contracts
Simulation of Contracts

On appeal by both parties, the CA affirmed with (b) The mortgaged real estate is residential,
modification the RTCs ruling, thus: with a house, located in the heart of
Dumaguete City, with an area of only one-
WHEREFORE, the appealed Decision is hereby half (1/2) hectare;
MODIFIED by (a) ORDERING [respondent] to
reimburse [petitioners] their down payment (c) Petitioners never planted any sugar cane
of P250,000.00 and (b) DELETING the award of on this one-half (1/2) hectare parcel of land;
attorneys fees to [respondent].
(d) Petitioners were never required to
SO ORDERED.4 execute any chattel mortgage on standing
crops;
Hence, this appeal by certiorari raising the following
issues: (e) To make it appear that the petitioners
were entitled to avail themselves of loan
(1) The Court of Appeals erred in not holding benefits under Republic Act No. 720, Rural
that the loan and mortgage contracts are null Banks Act, respondent made them sign
and void ab initio for being against public promissory notes for P350,000.00 in split
policy; amounts not exceeding P50,000.00 each.6

(2) The Court of Appeals erred in not holding In short, petitioners aver that the sugar crop loans
that, by reason of the fact that the loan and were merely simulated contracts and, therefore,
mortgage contracts are null and void ab initio without any force and effect.
for being against public policy, the doctrine of
estoppel does not apply in this case; Articles 1345 and 1346 of the Civil Code are the
applicable laws, and they unmistakably provide:
(3) The Court of Appeals erred in not finding
that the addendum on the promissory notes Art. 1345. Simulation of a contract may be absolute
containing an escalation clause is null and or relative. The former takes place when the parties
void ab initio for not being signed by do not intend to be bound at all; the latter, when the
petitioner Emma M. Villegas, wife of parties conceal their true agreement.
petitioner Joaquin Villegas, there being a
showing that the companion real estate Art. 1346. An absolutely simulated or fictitious
mortgage involves conjugal property. x x x. contract is void. A relative simulation, when it does
not prejudice a third person and is not intended for
(4) The Court of Appeals erred in not finding any purpose contrary to law, morals, good customs,
that the addendum on the promissory notes public order or public policy binds the parties to their
containing an escalation clause is null and real agreement.
void ab initio for being so worded that the
implementation thereof would deprive Given the factual antecedents of this case, it is
petitioners due process guaranteed by [the] obvious that the sugar crop loans were relatively
constitution, the petitioners not having been simulated contracts and that both parties intended to
notified beforehand of said implementation.5 be bound thereby. There are two juridical acts
involved in relative simulation the ostensible act
Notwithstanding petitioners formulation of the issues, and the hidden act.7 The ostensible act is the contract
the core issue for our resolution is whether petitioners that the parties pretend to have executed while the
may recover possession of the mortgaged properties. hidden act is the true agreement between the
parties.8 To determine the enforceability of the actual
The petition deserves scant consideration and ought agreement between the parties, we must discern
to have been dismissed outright. Petitioners are whether the concealed or hidden act is lawful and the
precluded from seeking a declaration of nullity of the essential requisites of a valid contract are present.
loan and mortgage contracts; they are likewise
barred from recovering possession of the subject In this case, the juridical act which binds the parties
property.lavvphil are the loan and mortgage contracts, i.e., petitioners
procurement of a loan from respondent. Although
Petitioners insist on the nullity of the loan and these loan and mortgage contracts were concealed
mortgage contracts. Unabashedly, petitioners admit and made to appear as sugar crop loans to make
that the loan (and mortgage) contracts were made to them fall within the purview of the Rural Banks Act,
appear as several sugar crop loans not all the essential requisites of a contract9 were
exceeding P50,000.00 each even if they were not present. However, the purpose thereof is illicit,
just so the respondent rural bank could grant and intended to circumvent the Rural Banks Act
approve the same pursuant to Republic Act (R.A.) requirement in the procurement of
No. 720, the Rural Banks Act. Petitioners boldly loans.10 Consequently, while the parties intended to
enumerate the following circumstances that show be bound thereby, the agreement is void and
that these loans were obtained in clear contravention inexistent under Article 140911 of the Civil Code.
of R.A. No. 720:
In arguing that the loan and mortgage contracts are
(a) The petitioners never planted sugar cane null and void, petitioners would impute all fault
on any parcel of agricultural land; therefor to respondent. Yet, petitioners averments
evince an obvious knowledge and voluntariness on
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Obligations and Contracts
Simulation of Contracts

their part to enter into the simulated contracts. We asked for a rescission of the sale and demanded the
find that fault for the nullity of the contract does not lie return of the purchase price.
at respondents feet alone, but at petitioners as well.
Accordingly, neither party can maintain an action We specifically ruled therein that the pari delicto
against the other, as provided in Article 1412 of the doctrine is not applicable, because:
Civil Code:
The obligation to secure prior Department of Tourism
Art. 1412. If the act in which the unlawful or forbidden approval devolved upon the defendant (herein
cause consists does not constitute a criminal offense, appellant) for it was he as the owner vendor who had
the following rules shall be observed: the duty to give clear title to the properties he was
conveying. It was he alone who was charged with
(1) When the fault is on the part of both knowing about rules attendant to a sale of the assets
contracting parties, neither may recover what or shares of his tourist-oriented organization. He
he has given by virtue of the contract, or should have known that under said rules and
demand the performance of the others regulations, on pain of nullity, shares of stock in his
undertaking; company could not be transferred without prior
approval from the Department of Tourism. The failure
(2) When only one of the contracting parties to secure this approval is attributable to him alone.15
is at fault, he cannot recover what he has
given by reason of the contract, or ask for the Thus, we declared that even assuming both parties
fulfillment of what has been promised him. were guilty of the violation, it does not always follow
The other, who is not at fault, may demand that both parties, being in pari delicto, should be left
the return of what he has given without any where they are. We recognized as an exception a
obligation to comply with his promise. situation when courts must interfere and grant relief
to one of the parties because public policy requires
Petitioners did not come to court with clean hands. their intervention, even if it will result in a benefit
They admit that they never planted sugarcane on any derived by a plaintiff who is in equal guilt with
property, much less on the mortgaged property. Yet, defendant.16
they eagerly accepted the proceeds of the simulated
sugar crop loans. Petitioners readily participated in In stark contrast to Yuchengco, the factual milieu of
the ploy to circumvent the Rural Banks Act and the present case does not compel us to grant relief to
offered no objection when their original loan a party who is in pari delicto. The public policy
of P350,000.00 was divided into small separate loans requiring rural banks to give preference to bona fide
not exceeding P50,000.00 each. Clearly, both small farmers in the grant of loans will not be served
petitioners and respondent are in pari delicto, and if a party, such as petitioners, who had equal
neither should be accorded affirmative relief as participation and equal guilt in the circumvention of
against the other. the Rural Banks Act, will be allowed to recover the
subject property.
In Tala Realty Services Corp. v. Banco Filipino
Savings and Mortgage Bank,12 we held that when the The following circumstances reveal the utter poverty
parties are in pari delicto, neither will obtain relief of petitioners arguments and militate against their bid
from the court, thus: to recover the subject property:

The Bank should not be allowed to dispute the sale of 1. As previously adverted to, petitioners
its lands to Tala nor should Tala be allowed to further readily and voluntarily accepted the proceeds
collect rent from the Bank. The clean hands doctrine of the loan, divided into small loans, without
will not allow the creation or the use of a juridical question.
relation such as a trust to subvert, directly or
indirectly, the law. Neither the bank nor Tala came to 2. After failing to redeem the mortgaged
court with clean hands; neither will obtain relief from subject property, thereby allowing
the court as one who seeks equity and justice must respondent to consolidate title
come to court with clean hands. By not allowing Tala thereto,17 petitioners then entered into a
to collect from the Bank rent for the period during Promise to Sell and made a down payment
which the latter was arbitrarily closed, both Tala and of P250,000.00.
the Bank will be left where they are, each paying the
price for its deception.13
3. Failing anew to comply with the terms of
the Promise to Sell and pay the first yearly
Petitioners stubbornly insist that respondent cannot installment, only then did petitioners invoke
invoke the pari delicto doctrine, ostensibly because of the nullity of the loan and mortgage
our obiter in Enrique T. Yuchengco, Inc., et al. v. contracts.
Velayo.14
In all, petitioners explicitly recognized respondents
In Yuchengco, appellant sold 70% of the subscribed ownership over the subject property and merely
and outstanding capital stock of a Philippine resorted to the void contract argument after they had
corporation, duly licensed as a tourist operator, to failed to reacquire the property and a new title thereto
appellees without the required prior notice and in respondents name was issued.
approval of the Department of Tourism (DOT).
Consequently, the DOT cancelled the corporations
We are not unmindful of the fact that the Promise to
Local Tour Operators License. In turn, appellees
Sell ultimately allows petitioners to recover the
4
Obligations and Contracts
Simulation of Contracts

subject property which they were estopped from We note, however, that there is no basis for the
recovering under the void loan and mortgage imposition of interest and additional 15% liquidated
contracts. However, the Promise to Sell, although it damages and charges on the amount to be thus
involves the same parties and subject matter, is a reimbursed. The "Promise to Sell" is separate and
separate and independent contract from that of the distinct from the loan and mortgage contracts earlier
void loan and mortgage contracts. executed by the parties. Obviously, after the
foreclosure, there is no more loan or account to
To reiterate, under the void loan and mortgage speak of to justify the said imposition.23
contracts, the parties, being in pari delicto, cannot
recover what they each has given by virtue of the Finally, contrary to petitioners contention, the CA, in
contract.18 Neither can the parties demand denying petitioners appeal, did not commit an error;
performance of the contract. No remedy or affirmative it did not ratify a void contract because void contracts
relief can be afforded the parties because of their cannot be ratified. The CA simply refused to grant the
presumptive knowledge that the transaction was specific relief of recovering the subject property
tainted with illegality.19 The courts will not aid either prayed for by petitioners. Nonetheless, it ordered
party to an illegal agreement and will instead leave respondent to reimburse petitioners for their down
the parties where they find them.20 payment of P250,000.00 and disallowed
respondents claim for actual, moral and exemplary
Consequently, the parties having no cause of action damages and attorneys fees.
against the other based on a void contract, and
possession and ownership of the subject property WHEREFORE, premises considered, the petition is
being ultimately vested in respondent, the latter can hereby DENIED. The Decision of the Court of
enter into a separate and distinct contract for its Appeals in CA-G.R. CV No. 40613 is hereby
alienation. Petitioners recognized respondents AFFIRMED. Costs against petitioners.
ownership of the subject property by entering into a
Promise to Sell, which expressly designates SO ORDERED.
respondent as the vendor and petitioners as the
vendees. At this point, petitioners, originally co- ANTONIO EDUARDO B. NACHURA
owners and mortgagors of the subject property,
Associate Justice
unequivocally acquiesced to their new status as
buyers thereof. In fact, the Promise to Sell makes no
Footnotes
reference whatsoever to petitioners previous *
Additional member in lieu of Associate Justice Conchita Carpio
ownership of the subject property and to the void loan Morales per Special Order No. 646 dated May 15, 2009.
and mortgage contracts.21 On the whole, the Promise **
Additional member per Raffle dated September 1, 2008.
to Sell, an independent contract, did not purport to
***
Additional member in lieu of Associate Justice Minita V. Chico-
Nazario per Special Order No. 651 dated May 29, 2009.
ratify the void loan and mortgage contracts. law phi1
1
Penned by Associate Justice Ruben T. Reyes (now a retired
member of this Court), with Associate Justices Mariano M. Umali
By its very terms, the Promise to Sell simply intended and Rebecca de Guia-Salvador, concurring; rollo, pp. 19-29.
2
Penned by Judge Teofisto L. Calumpang, CA rollo, pp. 58-68.
to alienate to petitioners the subject property 3
Rollo, pp. 20-23.
according to the terms and conditions contained 4
Id. at 29.
therein. Article 1370 of the Civil Code reads: 5
Petitioners Memorandum, id. at 79.
6
Rollo, pp. 76-77.
7
See Tolentino, Civil Code of the Philippines (1991), Vol. IV, p.
Art. 1370. If the terms of a contract are clear and 516.
leave no doubt upon the intention of the contracting 8
Id.
9
See CIVIL CODE, Art. 1318: There is no contract unless the
parties, the literal meaning of its stipulations shall
following requisites concur:
control. (1) Consent of the contracting parties;
(2) Object certain which is the subject matter of the contract;
(3) Cause of the obligation which is established.
If the words appear to be contrary to the evident 10
See Rural Banks Act, Secs. 5 and 6.
intention of the parties, the latter shall prevail over the Sec. 5. Loans or advances extended by Rural Banks organized
former. and operated under this Act, shall be primarily for the purpose of
meeting the normal credit needs of farmers or farm families owning
or cultivating land dedicated to agricultural production as well as
Thus, the terms and conditions of the Promise to Sell the normal credit needs of cooperatives and merchants. In the
are controlling. granting of loans, the Rural Bank shall give credit preference to the
application of farmers and merchants whose cash requirements
are small.
Paragraph 5 of the Promise to Sell provides: Sec. 6. With the view to insuring balanced rural economic growth
and expansion, Rural Banks, may within limits and conditions fixed
by the Monetary Board, devote a portion of their loanable funds to
5) Provided further, that in case of a delay in any meeting the normal credit needs of small business enterprise
yearly installment for a period of ninety (90) days, this whose capital investment does not exceed fifty thousand pesos
sale will become null and void [without] further effect and of essential rural enterprises or industries other than those
or validity; and provided further, that payments made which are strictly agricultural in nature.
11
Art. 1409. The following contracts are inexistent and void from
shall be reimbursed (returned to the VENDEE less the beginning:
interest on the account plus additional 15% liquidated (1) Those whose cause, object or purpose is contrary to law,
damages and charges.22 morals, good customs, public order or public policy;
(2) Those which are absolutely simulated or fictitious;
(3) Those whose cause or object did not exist at the time of the
As stipulated in the Promise to Sell, petitioners are transaction;
entitled to reimbursement of the P250,000.00 down (4) Those whose object is outside the commerce of men;
payment. We agree with the CAs holding on this (5) Those which contemplate an impossible service;
(6) Those where the intention of the parties relative to the principal
score: object of the contract cannot be ascertained;
(7) Those expressly prohibited or declared void by law.
5
Obligations and Contracts
Simulation of Contracts

These contracts cannot be ratified. Neither can the right to set up covered by Transfer Certificate of Title (TCT) No. T-
the defense of illegality be waived.
12
441 Phil. 1 (2002). (Citations omitted.)
236168,6 located in Echague, Isabela, having an area
13
Tala Realty Services Corp. v. Banco Filipino Savings and of 971 square meters and described as Lot 8412-B of
Mortgage Bank, id. at 45. the Subdivision Plan Psd-93948. On April 17, 1995,
14
200 Phil. 703 (1982). she mortgaged the lot to the Philippine National Bank
15
Yuchengco, Inc. v. Velayo, id. at 710-711.
(PNB) of Santiago City to secure a loan of P600,000.
16
Id. at 711.
17
After the lapse of the redemption period, the mortgagor is now In order to secure a bigger loan to finance a business
considered to have lost interest in the foreclosed property. See venture, De Guzman asked Milagros Villaceran to
Yulienco v. Court of Appeals, 441 Phil. 397, 406 (2002). obtain an additional loan on her behalf. She executed
18
CIVIL CODE, Art. 1412, par. 1.
a Special Power of Attorney in favor of Milagros.
19
Top-Weld Manufacturing, Inc. v. ECED, S.A., G.R. No. L-44944,
August 9, 1985, 138 SCRA 118, 131-132. Considering De Guzmans unsatisfactory loan record
20
Id. at 131. with the PNB, Milagros suggested that the title of the
21
Paragraph 1 of the Promise to Sell provides: property be transferred to her and Jose Villaceran
1) That the Vendor is the present owner of the following properties:
a) A parcel of land (Lot No. 8-A-5 of the subdivision plan (LRC)
and they would obtain a bigger loan as they have a
Psd-49727, being a portion of Lot No. 8-A (LRC) Psd-31929, credit line of up to P5,000,000 with the bank.
L.R.C. Cad. Rec. No. 152) with the improvements thereon,
situated in the Barrio of Bantayan, City of Dumaguete, Island of
Negros. Bounded on the S., points 1 to 2 by Lot No. 8-A-3 of the
On June 19, 1996, De Guzman executed a simulated
subdivision plan; on the W., and N., points 3 to 4 by Lot No. 1593 Deed of Absolute Sale7 in favor of the spouses
of the Cadastral Survey of Dumaguete; and on the E., points 4 to 1 Villaceran. On the same day, they went to the PNB
by Lot No. 8-A-4 of the subdivision plan. Containing an area of and paid the amount of P721,891.67 using the
FIVE THOUSAND TWO HUNDRED TWENTY NINE (5,229)
SQUARE METERS, more or less.
money of the spouses Villaceran. The spouses
b) A semi-concrete residential house with a ground floor area of Villaceran registered the Deed of Sale and secured
680 sq.m. of two (2) storey in height constructed of concrete TCT No. T-2574168 in their names. Thereafter, they
hallow blocks under galvanished iron roof constructed on Lot No. mortgaged the property with FEBTC Santiago City to
8-A-5 as per Transfer Certificate of Title No. 12389 situated in
Rovera Extension, Bantayan, Dumaguete City belonging to the
secure a loan of P1,485,000. However, the spouses
mortgagor is covered by this mortgage. For which they are Villaceran concealed the loan release from De
responsible of the entire duration of this mortgage. Covered with Guzman. Later, when De Guzman learned of the loan
fire insurance having a mortgage clause in favor of the bank. release, she asked for the loan proceeds less the
all having been acquired under Sheriffs Certificate of Sale dated
March 19, 1986. (Records, p. 6.)
amount advanced by the spouses Villaceran to pay
22
Records, pp. 6-7. the PNB loan. However, the spouses Villaceran
23
Rollo, p. 26. refused to give the money stating that they are
already the registered owners of the property and
that they would reconvey the property to De Guzman
FIRST DIVISION
once she returns the P721,891.67 they paid to PNB.9
G.R. No. 169055 February 22, 2012
De Guzman offered to pay P350,000 provided that
the spouses Villaceran would execute a deed of
SPOUSES JOSE and MILAGROS VILLACERAN reconveyance of the property. In view of the
and FAR EAST BANK & TRUST simulated character of their transaction, the spouses
COMPANY, Petitioners, Villaceran executed a Deed of Absolute Sale10 dated
vs. September 6, 1996 in favor of De Guzman. They also
JOSEPHINE DE GUZMAN, Respondent. promised to pay their mortgage debt with FEBTC to
avoid exposing the property to possible foreclosure
DECISION and auction sale. However, the spouses Villaceran
failed to settle the loan and subsequently the property
VILLARAMA, JR., J.: was extrajudicially foreclosed. A Sheriffs Certificate
of Sale was issued in favor of FEBTC for the amount
Before us is a petition for review on certiorari of P3,594,000. De Guzman asserted that the
assailing the November 26, 2004 Decision1 and June spouses Villaceran should be compelled to redeem
29, 2005 Resolution2 of the Court of Appeals (CA) in their mortgage so as not to prejudice her as the real
CA-G.R. CV No. 71831. The CA had affirmed with owner of the property.11
modification the Decision3 of the Regional Trial Court
(RTC), Branch 24, of Echague, Isabela, in Civil Case On the other hand, the spouses Villaceran and
No. 24-0495 entitled "Josephine De Guzman vs. FEBTC, in their Amended Answer,12 averred that in
Spouses Jose and Milagros Villaceran, et al." 1996 De Guzman was introduced to Milagros by a
certain Digna Maranan. Not long afterwards, De
The antecedent facts follow: Guzman requested Milagros to help her relative who
had a loan obligation with the PNB in the amount
of P300,000. As a consideration for the
Josephine De Guzman filed a Complaint4 with the accommodation, De Guzman would convey her
RTC of Echague, Isabela against the spouses Jose property located at Maligaya, Echague, Isabela which
and Milagros Villaceran and Far East Bank & Trust was then being held in trust by her cousin, Raul
Company (FEBTC), Santiago City Branch, for Sison. Because of this agreement, Milagros paid De
declaration of nullity of sale, reconveyance,
Guzmans obligation with the PNB in the amount
redemption of mortgage and damages with of P300,000.
preliminary injunction. The complaint was later
amended to include annulment of foreclosure and
Sheriffs Certificate of Sale. When Milagros asked for the title of the lot, De
Guzman explained that her cousin would not part
with the property unless he is reimbursed the amount
In her Amended Complaint,5 De Guzman alleged that of P200,000 representing the amount he spent tilling
she is the registered owner of a parcel of land the land. Milagros advanced the amount of P200,000
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Obligations and Contracts
Simulation of Contracts

but De Guzmans cousin still refused to reconvey the by the spouses Villaceran although De Guzman was
property. In order for De Guzman to settle her able to pay only P350,000, which amount was stated
obligation, she offered to sell her house and lot in in said deed of sale as the purchase price. The RTC
Echague, Isabela. At first, Milagros signified her non- additionally said that the spouses Villaceran deceived
interest in acquiring the same because she knew that De Guzman when the spouses Villaceran mortgaged
it was mortgaged with the PNB Santiago the subject property with the understanding that the
for P600,000. De Guzman proposed that they will just proceeds would go to De Guzman less the amounts
secure a bigger loan from another bank using her the spouses had paid to PNB. Hence, according to
house and lot as security. The additional amount will the RTC, the spouses Villaceran should return to De
be used in settling De Guzmans obligation with PNB. Guzman (1) the P350,000 which she paid to them in
Later, De Guzman proposed that she borrow an consideration of the September 6, 1996 Deed of
additional amount from Milagros which she will use to Sale, which sale did not materialize because the title
settle her loan with PNB. To this request, Milagros was in the possession of FEBTC; and (2) the amount
acceded. Hence, they went to the PNB and paid in of P763,108.33 which is the net proceeds of the loan
full De Guzmans outstanding obligation with PNB after deducting the P721,891.67 that the spouses
which already reached P880,000.13 paid to PNB. Thus, the decretal portion of the RTC
decision reads:
Since De Guzmans total obligation already
reached P1,380,000, the spouses Villaceran WHEREFORE, judgment is hereby rendered as
requested her to execute a deed of absolute sale follows:
over the subject property in their favor. Thus, the
Deed of Absolute Sale is supported by a valuable a) declaring the Deed of Sale, dated June
consideration, and the spouses Villaceran became 1996 (Exhibit "B") as valid and binding;
the lawful owners of the property as evidenced by
TCT No. 257416 issued by the Office of the Register b) ordering defendants Villaceran to pay to
of Deeds of Isabela. Later, they mortgaged the plaintiff the amount of P763,108.33 and
property to FEBTC for P1,485,000.
P350,000.00 or the total amount of
P1,113,108.33 plus the legal rate of interest
The spouses Villaceran denied having executed a starting from the date of the filing of this
deed of conveyance in favor of De Guzman relative case;
to the subject property and asserted that the
signatures appearing on the September 6, 1996
c) declaring the Extrajudicial Foreclosure and
Deed of Sale, which purported to sell the subject
the Certificate of Sale as valid;
property back to De Guzman, are not genuine but
mere forgeries.14
d) ordering defendants Villaceran to pay
attorneys fees in the amount of P20,000.00
After due proceedings, the trial court rendered its
and to pay the costs of suit.
decision on September 27, 2000.
SO ORDERED.15
The RTC ruled that the Deed of Sale dated June 19,
1996 executed by De Guzman in favor of the
spouses Villaceran covering the property located in Aggrieved, the spouses Villaceran appealed to the
Echague, Isabela was valid and binding on the CA arguing that the trial court erred in declaring the
parties. The RTC ruled that the said contract was a June 19, 1996 Deed of Sale as a simulated contract
relatively simulated contract, simulated only as to the and ordering them to pay De Guzman P1,113,108.33
purchase price, but nonetheless binding upon the plus legal rate of interest and attorneys fees.16
parties insofar as their true agreement is concerned.
The RTC ruled that De Guzman executed the Deed On November 26, 2004, the CA rendered its
of Absolute Sale dated June 19, 1996 so that the Decision, the dispositive portion of which reads as
spouses Villaceran may use the property located in follows:
Echague, Isabela as collateral for a loan in view of
De Guzmans need for additional capital to finance IN VIEW OF ALL THE FOREGOING, the judgment
her business venture. The true consideration for the appealed from is hereby AFFIRMED with
sale, according to the RTC, was the P300,000 the MODIFICATION, to read as follows:
spouses Villaceran gave to De Guzman plus
the P721,891.67 they paid to PNB in order that the WHEREFORE, judgment is hereby rendered as
title to the subject property may be released and follows:
used to secure a bigger loan in another bank.
1. Declaring the Deed of Sale dated June 16,
The RTC also found that although the spouses 1996 (Exh. "B") and September 6, 1996, as
Villaceran had already mortgaged the subject not reflective of the true intention of the
property with FEBTC and the title was already in the parties, as the same were merely executed
possession of FEBTC -- which facts were known to for the purpose of the loan accommodation in
De Guzman who even knew that the loan proceeds favor of the plaintiff-appellee by the
amounting to P1,485,000 had been released -- the defendants-appellants;
spouses Villaceran were nonetheless still able to
convince De Guzman that they could still reconvey
2. Ordering defendants-appellants Villaceran
the subject property to her if she pays the amount
to pay plaintiff-appellee the difference
they had paid to PNB. The RTC found that the Deed
between the FEBTC loan of P1,485,000.00
of Sale dated September 6, 1996 was actually signed
less P721,891.67 (used to redeem
7
Obligations and Contracts
Simulation of Contracts

the PNB loan), plus legal interest thereon AND NOT OTHERWISE, IN DIRECT
starting from the date of the filing of this CONTRAVENTION OF THE RULES ON
case; EVIDENCE AND OF THE ADMISSIONS OF
THE PARTIES AND THE HONORABLE
3. Declaring the extrajudicial foreclosure and COURTS RULINGS OR JURISPRUDENCE
certificate of sale in favor of FEBTC, as valid; ON THE MATTER; AND
and
2. THE RESPONDENT COURT OF
4. For the appellants to pay the costs of the APPEALS ERRED AND GRAVELY ABUSED
suit. ITS DISCRETION IN ORDERING
PETITIONERS VILLACERAN TO PAY
RESPONDENT DE GUZMAN THE
SO ORDERED.17
DIFFERENCE BETWEEN THE FAR EAST
BANK AND TRUST COMPANY (FEBTC)
The CA ruled that the RTC was correct in declaring LOAN OF PHP1,485,000.00 LESS
that there was relative simulation of contract because P721,891.67 (USED TO PAY THE
the deeds of sale did not reflect the true intention of PHILIPPINE NATIONAL BANK [PNB] LOAN)
the parties. It found that the evidence established that PLUS LEGAL INTEREST THEREON AND
the documents were executed for the purpose of an TO PAY THE COSTS OF SUIT.18
agency to secure a higher loan whereby the spouses
Villaceran only accommodated De Guzman.
Essentially, the issue for our resolution is whether the
However, the CA did not find any evidence to prove
CA erred in ruling that the Deed of Sale dated June
that De Guzman actually parted away with
19, 1996 is a simulated contract and not a true sale
the P350,000 as consideration of the reconveyance
of the property. Thus, it held the trial court erred in of the subject property.
ordering the spouses Villaceran to return
the P350,000 to De Guzman. Petitioners contend that the previous loans they
extended to De Guzman in the amounts
of P300,000, P600,000 and P200,000 should have
Furthermore, the CA observed that the spouses
Villaceran were the ones who redeemed the property been considered by the CA. When added to
the P721,891.67 used to settle the PNB loan, De
from the mortgage with PNB by paying P721,891.67
Guzmans total loan obtained from them would
so that De Guzmans title could be released. Once
amount to P1,821,891.67. Thus, it would clearly show
registered in their name, the spouses Villaceran
that the Deed of Sale dated June 19, 1996, being
mortgaged the property with FEBTC
for P1,485,000. With the loan proceeds supported by a valuable consideration, is not a
of P1,485,000, there was no need for the spouses simulated contract.
Villaceran to demand for the return of
the P721,891.67 they paid in releasing the PNB loan We do not agree.
before the property is reconveyed to De Guzman. All
they had to do was to deduct the amount Article 134519 of the Civil Code provides that the
of P721,891.67 from the P1,485,000 FEBTC loan simulation of a contract may either be absolute or
proceeds. Hence, the CA ruled that only the balance relative. In absolute simulation, there is a colorable
of the P1,485,000 loan proceeds from FEBTC minus contract but it has no substance as the parties have
the P721,891.67 used to redeem the PNB loan no intention to be bound by it. The main characteristic
should be paid by the spouses Villaceran to De of an absolute simulation is that the apparent contract
Guzman. The CA also deleted the grant of attorneys is not really desired or intended to produce legal
fees for lack of factual, legal or equitable justification. effect or in any way alter the juridical situation of the
parties.20 As a result, an absolutely simulated or
On December 22, 2004, the spouses Villaceran filed fictitious contract is void, and the parties may recover
a motion for reconsideration of the foregoing from each other what they may have given under the
decision. Said motion, however, was denied for lack contract. However, if the parties state a false cause in
of merit by the CA in its Resolution dated June 29, the contract to conceal their real agreement, the
2005. Hence, this appeal. contract is only relatively simulated and the parties
are still bound by their real agreement. Hence, where
the essential requisites of a contract are present and
In their petition for review on certiorari, the spouses
Villaceran allege that: the simulation refers only to the content or terms of
the contract, the agreement is absolutely binding and
enforceable between the parties and their successors
1. THE RESPONDENT COURT OF in interest.21
APPEALS ERRED AND GRAVELY ABUSED
ITS DISCRETION IN DECLARING THE
DEED OF SALE DATED JUNE 19, 1996 AS The primary consideration in determining the true
SIMULATED AND THAT THE SAME WAS nature of a contract is the intention of the parties. If
the words of a contract appear to contravene the
MERELY EXECUTED FOR THE PURPOSE
evident intention of the parties, the latter shall prevail.
OF THE LOAN ACCOMODATION OF
Such intention is determined not only from the
PETITIONERS VILLACERAN IN FAVOR OF
express terms of their agreement, but also from the
THE RESPONDENT DE GUZMAN INSTEAD
OF DECLARING SAID DEED AS A VALID contemporaneous and subsequent acts of the
DEED OF ABSOLUTE SALE, THE parties.22 In the case at bar, there is a relative
simulation of contract as the Deed of Absolute Sale
CONTENTS OF WHICH ARE CLEARLY
dated June 19, 1996 executed by De Guzman in
REFLECTIVE OF THEIR TRUE INTENTION
TO ENTER INTO A CONTRACT OF SALE
8
Obligations and Contracts
Simulation of Contracts

favor of petitioners did not reflect the true intention of Footnotes


*
Designated additional member per Special Order No. 1203 dated
the parties. February 17, 2012.
1
Rollo, pp. 27-36. Penned by Associate Justice Conrado M.
It is worthy to note that both the RTC and the CA Vasquez, Jr. with Associate Justices Josefina Guevara-Salonga
and Fernanda Lampas Peralta concurring.
found that the evidence established that the aforesaid 2
Id. at 37.
document of sale was executed only to enable 3
Id. at 74-78. Penned by Judge Bonifacio T. Ong.
petitioners to use the property as collateral for a 4
Records, pp. 1-6.
bigger loan, by way of accommodating De Guzman. 5
Id. at 69-74.
6
Id. at 123.
Thus, the parties have agreed to transfer title over 7
Id. at 125.
the property in the name of petitioners who had a 8
Id. at 126.
good credit line with the bank. The CA found it 9
Id. at 70.
inconceivable for De Guzman to sell the property 10
Id. at 127.
11
Id. at 70-71.
for P75,000 as stated in the June 19, 1996 Deed of 12
Id. at 81-89.
Sale when petitioners were able to mortgage the 13
Id. at 84-86.
property with FEBTC for P1,485,000. Another 14
Id. at 86-87.
indication of the lack of intention to sell the property is 15
Rollo, p. 78.
16
Id. at 80-93.
when a few months later, on September 6, 1996, the 17
Id. at 35.
same property, this time already registered in the 18
Id. at 14.
name of petitioners, was reconveyed to De Guzman 19
Art. 1345. Simulation of a contract may be absolute or relative.
allegedly for P350,000. The former takes place when the parties do not intend to be bound
at all; the latter, when the parties conceal their true agreement.
20
Loyola v. Court of Appeals, G.R. No. 115734, February 23, 2000,
As regards petitioners assertion that De Guzmans 326 SCRA 285, 293.
previous loans should have been considered to prove 21
Lopez v. Lopez, G.R. No. 161925, November 25, 2009, 605
SCRA 358, 367, citing Valerio v. Refresca, G.R. No. 163687,
that there was an actual sale, the Court finds the March 28, 2006, 485 SCRA 494, 500-501; Heirs of the Late
same to be without merit. Petitioners failed to present Spouses Aurelio and Esperanza Balite v. Lim, G.R. No. 152168,
any evidence to prove that they indeed extended December 10, 2004, 446 SCRA 56, 68.
loans to De Guzman in the amounts 22
Ramos v. Heirs of Honorio Ramos, Sr., G.R. No. 140848, April
25, 2002, 381 SCRA 594, 601.
of P300,000, P600,000 and P200,000. We note that 23
Pascual v. Coronel, G.R. No. 159292, July 12, 2007, 527 SCRA
petitioners tried to explain that on account of their 474, 483.
close friendship and trust, they did not ask for any 24
Spouses Lopez v. Court of Appeals, 379 Phil. 743, 752 (2000).
promissory note, receipts or documents to evidence
the loan. But in view of the substantial amounts of the
THIRD DIVISION
loans, they should have been duly covered by
receipts or any document evidencing the transaction.
Consequently, no error was committed by the CA in G.R. No. 188417 September 24, 2012
holding that the June 19, 1996 Deed of Absolute Sale
was a simulated contract. MILAGROS DE BELEN VDA. DE CABALU,
MELITON CABALU, SPS. ANGELA CABALU and
The issue of the genuineness of a deed of sale is RODOLFO TALAVERA, and PATRICIO
essentially a question of fact. It is settled that this
1w phi1
ABUS, Petitioners,
Court is not duty-bound to analyze and weigh again vs.
the evidence considered in the proceedings below. SPS. RENATO DOLORES TABU and LAXAMANA,
This is especially true where the trial courts factual Municipal Trial Court in Cities, Tarlac City,
findings are adopted and affirmed by the CA as in the Branch II, Respondents.
present case. Factual findings of the trial court,
affirmed by the CA, are final and conclusive and may DECISION
not be reviewed on appeal.23
MENDOZA, J.:
The Court has time and again ruled that conclusions
and findings of fact of the trial court are entitled to This is a "Petition for Review on Certiorari (under
great weight and should not be disturbed on appeal, Rule 45)" of the Rules of Court assailing the June 16,
unless strong and cogent reasons dictate otherwise. 2009 Decision1 of the Court of Appeals (CA) in CA-
This is because the trial court is in a better position to GR. CV No. 81469 entitled "Milagros De Belen Vda
examine the real evidence, as well as to observe the de Cabalu v. Renato Tabu."
demeanor of the witnesses while testifying in the
case.24 In sum, the Court finds that there exists no The Facts
reason to disturb the findings of the CA.
The property subject of the controversy is a 9,000
WHEREFORE, the petition for review on certiorari is square meter lot situated in Mariwalo, Tarlac, which
DENIED. The Decision dated November 26, 2004 was a portion of a property registered in the name of
and Resolution dated June 29, 2005 of the Court of the late Faustina Maslum (Faustina) under Transfer
Appeals in CA-G.R. CV No. 71831 are AFFIRMED. Certificate of Title (TCT) No. 16776 with a total area
of 140,211 square meters.2
With costs against the petitioners.
On December 8, 1941, Faustina died without any
SO ORDERED. children. She left a holographic will, dated July 27,
1939, assigning and distributing her property to her
MARTIN S. VILLARAMA, JR. nephews and nieces. The said holographic will,
Associate Justice however, was not probated. One of the heirs was the
father of Domingo Laxamana (Domingo), Benjamin
9
Obligations and Contracts
Simulation of Contracts

Laxamana, who died in 1960. On March 5, 1975, the owner of the property only on August 1, 1994, by
Domingo allegedly executed a Deed of Sale of virtue of the Deed of Extra-Judicial Succession with
Undivided Parcel of Land disposing of his 9,000 Partition executed by the forced heirs of Faustina. In
square meter share of the land to Laureano Cabalu. 3 addition, they averred that Domingo was of unsound
mind having been confined in a mental institution for
On August 1, 1994, to give effect to the holographic a time.9
will, the forced and legitimate heirs of Faustina
executed a Deed of Extra-Judicial Succession with On September 30, 2003, the RTC dismissed the
Partition. The said deed imparted 9,000 square complaint as it found the Deed of Absolute Sale,
meters of the land covered by TCT No. 16776 to dated March 5, 1975, null and void for lack of
Domingo. Thereafter, on December 14, 1995, capacity to sell on the part of Domingo. Likewise, the
Domingo sold 4,500 square meters of the 9,000 Deed of Absolute Sale, dated October 8, 1996,
square meters to his nephew, Eleazar Tabamo. The covering the remaining 4,500 square meters of the
document was captioned Deed of Sale of a Portion of subject property was declared ineffective having
Land. On May 7, 1996, the remaining 4,500 square been executed by Domingo two months after his
meters of Domingos share in the partition was death on August 4, 1996. The fallo of the
registered under his name under TCT No. 281353.4 Decision10reads:

On August 4, 1996, Domingo passed away. WHEREFORE, in view of the foregoing, the
complaint is hereby DISMISSED, and the decision is
On October 8, 1996, two months after his death, hereby rendered by way of:
Domingo purportedly executed a Deed of Absolute
Sale of TCT No. 281353 in favor of respondent 1. declaring null and void the Deed of
Renato Tabu (Tabu). The resultant transfer of title Absolute Sale dated March 5, 1975,
was registered as TCT No. 286484. Subsequently, executed by Domingo Laxamana in favor of
Tabu and his wife, Dolores Laxamana (respondent Laureano Cabalu;
spouses), subdivided the said lot into two which
resulted into TCT Nos. 291338 and 291339.5 2. declaring null and void the Deed of
Absolute Sale dated October 8, 1996,
On January 15, 1999, respondent Dolores executed by Domingo Laxamana in favor of
Laxamana-Tabu, together with Julieta Tubilan- Renato Tabu, and that TCT Nos. 293338 and
Laxamana, Teresita Laxamana, Erlita Laxamana, 291339, both registered in the name of
and Gretel Laxamana, the heirs of Domingo, filed an Renato Tabu, married to Dolores Laxamana
unlawful detainer action, docketed as Civil Case No. be cancelled;
7106, against Meliton Cabalu, Patricio Abus, Roger
Talavera, Jesus Villar, Marcos Perez, Arthur Dizon, 3. restoring to its former validity, TCT No.
and all persons claiming rights under them. The heirs 16770 in the name of Faustina Maslum
claimed that the defendants were merely allowed to subject to partition by her lawful heirs.
occupy the subject lot by their late father, Domingo,
but, when asked to vacate the property, they refused Costs de oficio.
to do so. The case was ruled in favor of Domingos
heirs and a writ of execution was subsequently
issued.6 SO ORDERED.11

On February 4, 2002, petitioners Milagros de Belen Not in conformity, both parties appealed to the CA.
Vda. De Cabalu, Meliton Cabalu, Spouses Angela Petitioners contended that the RTC erred in declaring
Cabalu and Rodolfo Talavera, and Patricio Abus void the Deed of Absolute Sale, dated March 5, 1975.
(petitioners), filed a case for Declaration of Nullity of They claimed that Domingo owned the property,
Deed of Absolute Sale, Joint Affidavit of Nullity of when it was sold to Laureano Cabalu, because he
Transfer Certificate of Title Nos. 291338 and 291339, inherited it from his father, Benjamin, who was one of
Quieting of Title, Reconveyance, Application for the heirs of Faustina. Being a co-owner of the
Restraining Order, Injunction and Damages (Civil property left by Benjamin, Domingo could dispose of
Case No. 9290) against respondent spouses before the portion he owned, notwithstanding the will of
the Regional Trial Court, Branch 63, Tarlac City Faustina not being probated.
(RTC).7
Respondent spouses, on the other hand, asserted
In their complaint, petitioners claimed that they were that the Deed of Sale, dated March 5, 1975, was
the lawful owners of the subject property because it spurious and simulated as the signature, PTR and
was sold to their father, Laureano Cabalu, by the document number of the Notary Public were
Domingo, through a Deed of Absolute Sale, dated different from the latters notarized documents. They
March 5, 1975. Hence, being the rightful owners by added that the deed was without consent, Domingo
way of succession, they could not be ejected from the being of unsound mind at the time of its execution.
subject property.8 Further, they claimed that the RTC erred in canceling
TCT No. 266583 and insisted that the same should
be restored to its validity because Benjamin and
In their Answer, respondent spouses countered that Domingo were declared heirs of Faustina.
the deed of sale from which the petitioners anchored
their right over the 9,000 square meter property was
null and void because in 1975, Domingo was not yet On June 16, 2009, the CA rendered its decision and
the owner of the property, as the same was still disposed as follows:
registered in the name of Faustina. Domingo became
10
Obligations and Contracts
Simulation of Contracts

WHEREFORE, in the light of the foregoing, the COURT SHOULD STAY BECAUSE THE
instant appeal is partially GRANTED in that the HONORABLE COURT OF APPEALS DID
decision of the trial court is AFFIRMED WITH NOT DISCUSS THE ISSUE AND DID NOT
MODIFICATION that sub-paragraphs 2 & 3 of the STATE THE LEGAL BASIS WHY SAID
disposition, which reads: PARAGRAPH SHOULD BE DELETED
FROM THE SEPTEMBER 30, 2003
"2. declaring null and void the Deed of Absolute Sale DECISION OF THE REGIONAL TRIAL
dated October 8, 1996, executed by Domingo COURT.14
Laxamana in favor of Renato Tabu, and that TCT
Nos. 291338 and 291339, both registered in the The core issues to be resolved are 1) whether the
name of Renato Tabu, married to Dolores Laxamana Deed of Sale of Undivided Parcel of Land covering
be cancelled; the 9,000 square meter property executed by
Domingo in favor of Laureano Cabalu on March 5,
3. restoring to its former validity, TCT No. 16776 in 1975, is valid; and 2) whether the Deed of Sale,
the name of Faustina Maslum subject to partition by dated October 8, 1996, covering the 4,500 square
her lawful heirs," are DELETED. meter portion of the 9,000 square meter property,
executed by Domingo in favor of Renato Tabu, is null
and void.
IT IS SO ORDERED.12

Petitioners contend that the Deed of Absolute Sale


In finding Domingo as one of the heirs of Faustina,
executed by Domingo in favor of Laureano Cabalu on
the CA explained as follows:
March 5, 1975 should have been declared valid
because it enjoyed the presumption of regularity.
It appears from the records that Domingo was a son According to them, the subject deed, being a public
of Benjamin as apparent in his Marriage Contract and document, had in its favor the presumption of
Benjamin was a nephew of Faustina as stated in the regularity, and to contradict the same, there must be
holographic will and deed of succession with clear, convincing and more than preponderant
partition. By representation, when Benjamin died in evidence, otherwise, the document should be upheld.
1960, Domingo took the place of his father in They insist that the sale transferred rights of
succession. In the same vein, the holographic will of ownership in favor of the heirs of Laureano Cabalu.
Faustina mentioned Benjamin as one of her heirs to
whom Faustina imparted 9,000 square meters of her
They further argue that the CA, in modifying the
property. Likewise, the signatories to the Deed of
decision of the RTC, should not have deleted the
Extra-judicial Succession with Partition, heirs of
Faustina, particularly declared Domingo as their co- portion declaring null and void the Deed of Absolute
heir in the succession and partition thereto. Sale, dated October 8, 1996, executed by Domingo
in favor of Renato Tabu, because at the time of
Furthermore, the parties in this case admitted that the
execution of the said deed of sale, the seller,
relationship was not an issue.13
Domingo was already dead. Being a void document,
the titles originating from the said instrument were
Although the CA found Domingo to be of sound mind also void and should be cancelled.
at the time of the sale on March 5, 1975, it sustained
the RTCs declaration of nullity of the sale on the
Respondent spouses, in their Comment15 and
ground that the deed of sale was simulated.
Memorandum,16 counter that the issues raised are not
questions of law and call for another calibration of the
The CA further held that the RTC erred in canceling whole evidence already passed upon by the RTC and
TCT No. 266583 in the name of Domingo and in the CA. Yet, they argue that petitioners reliance on
ordering the restoration of TCT No. 16770, registered the validity of the March 5, 1975 Deed of Sale of
in the name of Faustina, to its former validity, Undivided Parcel of Land, based on presumption of
Domingo being an undisputed heir of Faustina. regularity, was misplaced because both the RTC and
the CA, in the appreciation of evidence on record,
Hence, petitioners interpose the present petition had found said deed as simulated.
before this Court anchored on the following:
It is well to note that both the RTC and the CA found
GROUNDS that the evidence established that the March 5, 1975
Deed of Sale of Undivided Parcel of Land executed
(A) by Domingo in favor of Laureano Cabalu was a
fictitious and simulated document. As expounded by
THE DEED OF SALE OF UNDIVIDED the CA, viz:
PARCEL OF LAND EXECUTED ON MARCH
5, 1975 BY DOMINGO LAXAMANA IN Nevertheless, since there are discrepancies in the
FAVOR OF LAUREANO CABALU IS VALID signature of the notary public, his PTR and the
BECAUSE IT SHOULD BE ACCORDED document number on the lower-most portion of the
THE PRESUMPTION OF REGULARITY document, as well as the said deed of sale being
AND DECLARED VALID FOR ALL found only after the plaintiffs-appellants were ejected
PURPOSES AND INTENTS. by the defendants-appellants; that they were
allegedly not aware that the said property was bought
(B) by their father, and that they never questioned the
other half of the property not occupied by them, it is
apparent that the sale dated March 5, 1975 had the
THE SUBPARAGRAPH NO. 2 OF THE
earmarks of a simulated deed written all over it. The
DECISION OF THE REGIONAL TRIAL
11
Obligations and Contracts
Simulation of Contracts

lower court did not err in pronouncing that it be dated October 8, 1996, readily shows that it was
declared null and void.17 executed on August 4, 1996 more than two months
after the death of Domingo. Contracting parties must
Petitioners, in support of their claim of validity of the be juristic entities at the time of the consummation of
said document of deed, again invoke the legal the contract. Stated otherwise, to form a valid and
presumption of regularity. To reiterate, the RTC and legal agreement it is necessary that there be a party
later the CA had ruled that the sale, dated March 5, capable of contracting and a party capable of being
1975, had the earmarks of a simulated deed, hence, contracted with. Hence, if any one party to a
the presumption was already rebutted. Verily and as supposed contract was already dead at the time of its
aptly noted by the respondent spouses, such execution, such contract is undoubtedly simulated
presumption of regularity cannot prevail over the and false and, therefore, null and void by reason of
facts proven and already established in the records of its having been made after the death of the party who
this case. appears as one of the contracting parties therein. The
death of a person terminates contractual capacity. 19
Even on the assumption that the March 5, 1975 deed
was not simulated, still the sale cannot be deemed The contract being null and void, the sale to Renato
valid because, at that time, Domingo was not yet the Tabu produced no legal effects and transmitted no
owner of the property. There is no dispute that the rights whatsoever. Consequently, TCT No. 286484
original and registered owner of the subject property issued to Tabu by virtue of the October 8, 1996 Deed
covered by TCT No. 16776, from which the subject of Sale, as well as its derivative titles, TCT Nos.
9,000 square meter lot came from, was Faustina, 291338 and 291339, both registered in the name of
who during her lifetime had executed a will, dated Rena to Tabu, married to Dolores Laxamana, are
July 27, 1939. In the said will, the name of Benjamin, likewise void.
father of Domingo, appeared as one of the heirs.
Thus, and as correctly found by the RTC, even if The CA erred in deleting that portion in the RTC
Benjamin died sometime in 1960, Domingo in 1975 decision declaring the Deed of Absolute Sale, dated
could not yet validly dispose of the whole or even a October 8, 1996, null and void and canceling TCT
portion thereof for the reason that he was not the sole Nos. 291338 and 291339.
heir of Benjamin, as his mother only died sometime in
1980. WHEREFORE, the petition is partially GRANTED.
The decretal portion of the June 16, 2009 Decision of
Besides, under Article 1347 of the Civil Code, "No the Court of Appeals is hereby MODIFIED to read as
contract may be entered into upon future inheritance follows:
except in cases expressly authorized by law."
Paragraph 2 of Article 1347, characterizes a contract 1. The Deed of Absolute Sale, dated March
entered into upon future inheritance as void. The law 5, 1975, executed by Domingo Laxamana in
applies when the following requisites concur: (1) the favor of Laureano Cabalu, is hereby declared
succession has not yet been opened; (2) the object of as null and void.
the contract forms part of the inheritance; and (3) the
promissor has, with respect to the object, an 2. The Deed of Absolute Sale, dated October
expectancy of a right which is purely hereditary in 8, 1996, executed by Domingo Laxamana in
nature.18
favor of Renato Tabu, and TCT No. 286484
as well as the derivative titles TCT Nos.
In this case, at the time the deed was executed, 291338 and 291339, both registered in the
Faustinas will was not yet probated; the object of the name of Renato Tabu, married to Dolores
contract, the 9,000 square meter property, still Laxamana, are hereby declared null and void
formed part of the inheritance of his father from the and cancelled.
estate of Faustina; and Domingo had a mere
inchoate hereditary right therein.
3. TCT No. 281353 in the name of Domingo
1wphi 1

Laxamana is hereby ordered restored subject


Domingo became the owner of the said property only to the partition by his lawful heirs.
on August 1, 1994, the time of execution of the Deed
of Extrajudicial Succession with Partition by the heirs
SO ORDERED.
of Faustina, when the 9,000 square meter lot was
adjudicated to him.
JOSE CATRAL MENDOZA
Associate Justice
The CA, therefore, did not err in declaring the March
5, 1975 Deed of Sale null and void.
Footnotes
*
Designated acting member, per Special Order No. 1299-E, dated
Domingos status as an heir of Faustina by right of August 28, 2012.
representation being undisputed, the RTC should
**
Designated additional member, in lieu of Associate Justice
Diosdado M. Peralta, per Raffle dated August 31, 2011.
have maintained the validity of TCT No. 266583 ***
Designated additional member, in lieu of Associate Justice
covering the 9,000 square meter subject property. As Roberto A. Abad, per Special Order No. 1320, dated September
correctly concluded by the CA, this served as the 21, 2012.
inheritance of Domingo from Faustina.
1
Annex "A" of Petition, rollo, pp. 13-23. Penned by Associate
Justice Apolinario D. Bruselas, Jr., with Associate Justice Andres
B. Reyes, Jr. and Associate Justice Fernanda Lampas Peralta,
Regarding the deed of sale covering the remaining concurring.
4,500 square meters of the subject property executed
2
Id. at 14.
3
Id. at 14-15.
in favor of Renato Tabu, it is evidently null and void. 4
Id. at 15.
The document itself, the Deed of Absolute Sale, 5
Id. at 15-16.
12
Obligations and Contracts
Simulation of Contracts

6
Id. at 16. The controversy arose when respondents sought the
7
Id. at 16-17.
8
Id. at 25.
cancellation of TCT No. 242655, claiming that the
9
Id. sale was only simulated and, therefore, void.
10
Id. at 24-34. Spouses Intac resisted, claiming that it was a valid
11
Id. at 32-33. sale for a consideration.
12
Id. at 22.
13
Id. at 19-20.
14
Id. at 89-90. On February 22, 1994, respondents filed the
15
Dated December 7, 2009, id. 41-43. Complaint for Cancellation of Transfer Certificate of
16
Dated December 30, 2010, id. at 70-81.
17
Id. at 21.
Title (TCT) No. 2426555 against Spouses Intac before
18
Arrogante v. Deliarte, G.R. No. 152132, July 24, 2007, 528 the RTC. The complaint prayed not only for the
SCRA 63, 69-70, citing Tolentino, Civil Code of the Philippines cancellation of the title, but also for its reconveyance
Commentaries and Jurisprudence, Vol. IV, p. 525, 1985. to them. Pending litigation, Mario died on May 20,
19
Gochan and Sons Realty Corp. v. Heirs of Raymundo Baba, 456
Phil. 569, 578, (2003).
1995 and was substituted by his heirs, his surviving
spouse, Angelina, and their children, namely, Rafael,
Kristina, Ma. Tricia Margarita, Mario, and Pocholo, all
THIRD DIVISION surnamed Intac (petitioners).

G.R. No. 173211 October 11, 2012 Averments of the Parties

HEIRS OF DR. MARIO S. INTAC and ANGELINA In their Complaint, respondents alleged, among
MENDOZA-INTAC, Petitioners, others, that when Ireneo was still alive, Spouses
vs. Intac borrowed the title of the property (TCT No.
COURT OF APPEALS and SPOUSES MARCELO 106530) from him to be used as collateral for a loan
ROY, JR. and JOSEFINA MENDOZA-ROY and from a financing institution; that when Ireneo
SPOUSES DOMINADOR LOZADA and MARTINA informed respondents about the request of Spouses
MENDOZA-LOZADA, Respondents. Intac, they objected because the title would be placed
in the names of said spouses and it would then
DECISION appear that the couple owned the property; that
Ireneo, however, tried to appease them, telling them
MENDOZA, J.: not to worry because Angelina would not take
advantage of the situation considering that he took
care of her for a very long time; that during his
This is a Petition for Review on Certiorari under Rule
lifetime, he informed them that the subject property
45 assailing the February 16, 2006 Decision1 of the
would be equally divided among them after his death;
Court of Appeals (CA), in CA G.R. CV No. 75982,
and that respondents were the ones paying the real
which modified the April 30, 2002 Decision2 of the
estate taxes over said property.
Regional Trial Court, Branch 220, Quezon City (
RTC), in Civil Case No. Q-94-19452, an action for
cancellation of transfer certificate of title and It was further alleged that after the death of Ireneo in
reconveyance of property. 1982, a conference among relatives was held
wherein both parties were present including the
widow of Ireneo, Salvacion; his nephew, Marietto
The Facts
Mendoza (Marietto); and his brother, Aurelio
Mendoza (Aurelio). In the said conference, it was
From the records, it appears that Ireneo Mendoza said that Aurelio informed all of them that it was
(Ireneo), married to Salvacion Fermin (Salvacion), Ireneos wish to have the property divided among his
was the owner of the subject property, presently heirs; that Spouses Intac never raised any objection;
covered by TCT No. 242655 of the Registry of Deeds and that neither did they inform all those present on
of Quezon City and situated at No. 36, Road 8, that occasion that the property was already sold to
Bagong Pag-asa, Quezon City, which he purchased them in 1977.6
in 1954. Ireneo had two children: respondents
Josefina and Martina (respondents), Salvacion being
Respondents further alleged that sometime in 1993,
their stepmother. When he was still alive, Ireneo, also
after the death of Salvacion, rumors spread in the
took care of his niece, Angelina, since she was three
neighborhood that the subject property had been
years old until she got married. The property was
registered in the names of Spouses Intac; that upon
then covered by TCT No. 106530 of the Registry of
verification with the Office of the Register of Deeds of
Deeds of Quezon City. On October 25, 1977, Ireneo,
Quezon City, respondents were surprised to find out
with the consent of Salvacion, executed a deed of
that TCT No. 106530 had indeed been cancelled by
absolute sale of the property in favor of Angelina and
virtue of the deed of absolute sale executed by
her husband, Mario (Spouses Intac). Despite the
Ireneo in favor of Spouses Intac, and as a result, TCT
sale, Ireneo and his family, including the
No. 242655 was issued in their names; that the
respondents, continued staying in the premises and
cancellation of TCT No. 106530 and the subsequent
paying the realty taxes. After Ireneo died intestate in
issuance of TCT No. 242655 were null and void and
1982, his widow and the respondents remained in the
had no legal effect whatsoever because the deed of
premises.3 After Salvacion died, respondents still
absolute sale was a fictitious or simulated document;
maintained their residence there. Up to the present,
that the Spouses Intac were guilty of fraud and bad
they are in the premises, paying the real estate taxes
faith when said document was executed; that
thereon, leasing out portions of the property, and
Spouses Intac never informed respondents that they
collecting the rentals.4
were already the registered owners of the subject
property although they had never taken possession
The Dispute thereof; and that the respondents had been in
13
Obligations and Contracts
Simulation of Contracts

possession of the subject property in the concept of On appeal, the CA modified the decision of the RTC.
an owner during Ireneos lifetime up to the present. The CA ruled that the RTC erred in first declaring the
deed of absolute sale as null and void and then
In their Answer,7 Spouses Intac countered, among interpreting it to be an equitable mortgage. The CA
others, that the subject property had been transferred believed that Ireneo agreed to have the title
to them based on a valid deed of absolute sale and transferred in the name of the Spouses Intac to
for a valuable consideration; that the action to annul enable them to facilitate the processing of the
the deed of absolute sale had already prescribed; mortgage and to obtain a loan. This was the exact
that the stay of respondents in the subject premises reason why the deed of absolute sale was executed.
was only by tolerance during Ireneos lifetime Marietto testified that Ireneo never intended to sell
because they were not yet in need of it at that time; the subject property to the Spouses Intac and that the
and that despite respondents knowledge about the deed of sale was executed to enable them to borrow
sale that took place on October 25, 1977, from a bank. This fact was confirmed by Angelina
respondents still filed an action against them. herself when she testified that she and her husband
mortgaged the subject property sometime in July
1978 to finance the construction of a small hospital in
Ruling of the RTC
Sta. Cruz, Laguna.
On April 30, 2002, the RTC rendered judgment in
favor of respondents and against Spouses Intac. The The CA further observed that the conduct of Spouses
dispositive portion of its Decision reads: Intac belied their claim of ownership. When the deed
of absolute sale was executed, Spouses Intac never
asserted their ownership over the subject property,
WHEREFORE, premises considered, judgment is either by collecting rents, by informing respondents of
hereby rendered: their ownership or by demanding possession of the
land from its occupants. It was not disputed that it
(1) Declaring the Deed of Absolute Sale was respondents who were in possession of the
executed by Ireneo Mendoza in favor of subject property, leasing the same and collecting
Mario and Angelina Intac dated October 25, rentals. Spouses Intac waited until Ireneo and
1977 as an equitable mortgage; Salvacion passed away before they disclosed the
transfer of the title to respondents. Hence, the CA
(2) Ordering the Register of Deeds of was of the view that the veracity of their claim of
Quezon City to cancel Transfer Certificate ownership was suspicious.
Title No. 242655 and, in lieu thereof, issue a
new Transfer Certificate of Title in the name Moreover, wrote the CA, although Spouses Intac
of Ireneo Mendoza; and claimed that the purchase of the subject property was
for a valuable consideration (P60,000.00), they
(3) Ordering defendants to pay plaintiffs the admitted that they did not have any proof of payment.
amount of Thirty Thousand Pesos Marietto, whose testimony was assessed by the RTC
(Php30,000.00) as and for attorneys fees. to be credible, testified that there was no such
payment because Ireneo never sold the subject
The other claims for damages are hereby denied for property as he had no intention of conveying its
lack of merit. ownership and that his only purpose in lending the
title was to help Spouses Intac secure a loan. Thus,
the CA concluded that the deed of absolute sale was
SO ORDERED.8
a simulated document and had no legal effect.

The RTC ruled, among others, that the sale between


Finally, the CA stated that even assuming that there
Ireneo and Salvacion, on one hand, and Spouses
was consent, the sale was still null and void because
Intac was null and void for being a simulated one
of lack of consideration. The decretal portion of the
considering that the said parties had no intention of
CA Decision reads:
binding themselves at all. It explained that the
questioned deed did not reflect the true intention of
the parties and construed the said document to be an WHEREFORE, in view of the foregoing premises, the
equitable mortgage on the following grounds: 1 the decision of the Regional Trial Court of Quezon City,
signed document did not express the real intention of Branch 220, is AFFIRMED with modifications, as
the contracting parties because Ireneo signed the follows:
said document only because he was in urgent need
of funds; 2 the amount of 60,000.00 in 1977 was too 1. The Deed of Absolute Sale dated October
inadequate for a purchase price of a 240-square 25, 1977 executed by Ireneo Mendoza and
meter lot located in Quezon City; 3 Josefina and Salvacion Fermen in favor of Spouses Mario
Martina continued to be in possession of the subject and Angelina Intac is hereby declared NULL
property from 1954 and even after the alleged sale AND VOID;
took place in 1977 until this case was filed in 1994;
and 4 the Spouses Intac started paying real estate 2. the Register of Deed[s] of Quezon City is
taxes only in 1999. The RTC added that the Spouses ordered to cancel TCT No. 242655 and, in
Intac were guilty of fraud because they effected the lieu thereof, issue a new one and reinstate
registration of the subject property even though the Ireneo Mendoza as the registered owner;
execution of the deed was not really intended to
transfer the ownership of the subject property. 3. The defendant appellants are hereby
ordered to pay the plaintiff appellees the
Ruling of the CA amount of thirty thousand pesos
14
Obligations and Contracts
Simulation of Contracts

(Php30,000.00) as and for attorneys fees; Ireneo and Salvacion had no intention of selling the
and subject property. The true intention rather was that
Spouses Intac would just borrow the title of the
4. The other claims for damages are denied subject property and offer it as a collateral to secure
for lack of merit. a loan. No money actually changed hands.

SO ORDERED.9 According to respondents, there were several


circumstances which put in doubt the validity of the
deed of absolute sale. First, the parties were not on
Not in conformity, petitioners filed this petition for
equal footing because Angelina was a doctor by
review anchored on the following
profession while Ireneo and Salvacion were less
educated people who were just motivated by their
ASSIGNMENT OF ERRORS trust, love and affection for her whom they
considered as their own child. Second, if there was
I really a valid sale, it was just and proper for Spouses
Intac to divulge the conveyance to respondents,
THE HONORABLE COURT OF APPEALS being compulsory heirs, but they did not. Third,
GRAVELY ERRED WHEN IT AFFIRMED Ireneo and Salvacion did nothing to protect their
THE DECISION OF THE REGIONAL TRIAL interest because they banked on the representation
COURT DATED FEBRUARY 16, 2006 of Spouses Intac that the title would only be used to
WHICH WAS CONTRARY TO THE facilitate a loan with a bank. Fourth, Ireneo and
APPLICABLE LAWS AND EXISTING Salvacion remained in possession of the subject
JURISPRUDENCE. property without being disturbed by Spouses Intac.
Fifth, the price of the sale was inadequate and
II inequitable for a prime property located in Pag-asa,
Quezon City. Sixth, Ireneo and Salvacion had no
intention of selling the subject property because they
THE HONORABLE COURT OF APPEALS
had heirs who would inherit the same. Seventh, the
GRAVELY ERRED WHEN IT CLEARLY
Spouses Intac abused the trust and affection of
OVERLOOKED, MISUNDERSTOOD
Ireneo and Salvacion by arrogating unto themselves
AND/OR MISAPPLIED THE EVIDENCE
the ownership of the subject property to the prejudice
PRESENTED IN THE COURT A QUO.10
of his own children, Josefina and Martina.

Petitioners position
Finally, petitioners could not present a witness to
rebut Mariettos testimony which was straightforward
Petitioners primarily argue that the subject deed of and truthful.
sale was a valid and binding contract between the
parties. They claim that all the elements of a valid
The Courts Ruling
contract of sale were present, to wit: [a] consent or
meeting of the minds, that is, consent to transfer
ownership in exchange of price; [b] determinate Basically, the Court is being asked to resolve the
subject matter; and [c] price certain in money or its issue of whether the Deed of Absolute Sale,11 dated
equivalent. October 25, 1977, executed by and between Ireneo
Mendoza and Salvacion Fermin, as vendors, and
Mario Intac and Angelina Intac, as vendees, involving
Petitioners claim that respondents have validly gave
the subject real property in Pagasa, Quezon City,
their consent to the questioned sale of the subject
was a simulated contract or a valid agreement.
property. In fact, it was Ireneo and Salvacion who
approached them regarding their intention to sell the
subject property. Ireneo and Salvacion affixed their The Court finds no merit in the petition.
signatures on the questioned deed and never
brought any action to invalidate it during their lifetime. A contract, as defined in the Civil Code, is a meeting
They had all the right to sell the subject property of minds, with respect to the other, to give something
without having to inform their children of their or to render some service. Article 1318 provides:
intention to sell the same. Ordinary human
experience dictates that a party would not affix his or Art. 1318. There is no contract unless the following
her signature on any written instrument which would requisites concur:
result in deprivation of ones property right if there
was really no intention to be bound by it. A party (1) Consent of the contracting parties;
would not keep silent for several years regarding the
validity and due execution of a document if there was
(2) Object certain which is the subject matter
an issue on the real intention of the vendors. The
of the contract;
signatures of Ireneo and Salvacion meant that they
had knowingly and willfully entered into such
agreement and that they were prepared for the (3) Cause of the obligation which is
consequences of their act. established.

Respondents Position Accordingly, for a contract to be valid, it must have


three essential elements: (1) consent of the
Respondents are of the position that the RTC and the contracting parties; (2) object certain which is the
CA were correct in ruling that the questioned deed of subject matter of the contract; and (3) cause of the
obligation which is established.12
absolute sale was a simulated one considering that
15
Obligations and Contracts
Simulation of Contracts

All these elements must be present to constitute a testimony. They claimed that they actually paid
valid contract. Consent is essential to the existence P150,000.00 for the subject property. They, however,
of a contract; and where it is wanting, the contract is failed to adduce proof, even by circumstantial
non-existent. In a contract of sale, its perfection is evidence, that they did, in fact, pay it. Even for the
consummated at the moment there is a meeting of consideration of P60,000.00 as stated in the contract,
the minds upon the thing that is the object of the petitioners could not show any tangible evidence of
contract and upon the price. Consent is manifested any payment therefor. Their failure to prove their
by the meeting of the offer and the acceptance of the payment only strengthened Mariettos story that there
thing and the cause, which are to constitute the was no payment made because Ireneo had no
contract. intention to sell the subject property.

In this case, the CA ruled that the deed of sale Angelinas story, except on the consideration, was
executed by Ireneo and Salvacion was absolutely consistent with that of Marietto. Angelina testified that
simulated for lack of consideration and cause and, she and her husband mortgaged the subject property
therefore, void. Articles 1345 and 1346 of the Civil sometime in July 1978 to finance the construction of
Code provide: a small hospital in Sta. Cruz, Laguna. Angelina
claimed that Ireneo offered the property as he was in
Art. 1345. Simulation of a contract may be absolute deep financial need.
or relative. The former takes place when the parties
do not intend to be bound at all; the latter, when the Granting that Ireneo was in financial straits, it does
parties conceal their true agreement. not prove that he intended to sell the property to
Angelina. Petitioners could not adduce any proof that
Art. 1346. An absolutely simulated or fictitious they lent money to Ireneo or that he shared in the
contract is void. A relative simulation, when it does proceeds of the loan they had obtained. And, if their
not prejudice a third person and is not intended for intention was to build a hospital, could they still afford
any purpose contrary to law, morals, good customs, to lend money to Ireneo? And if Ireneo needed
public order or public policy binds the parties to their money, why would he lend the title to Spouses Intac
real agreement. when he himself could use it to borrow money for his
needs? If Spouses Intac took care of him when he
If the parties state a false cause in the contract to was terminally ill, it was not surprising for Angelina to
reciprocate as he took care of her since she was
conceal their real agreement, the contract is only
three (3) years old until she got married. Their caring
relatively simulated and the parties are still bound by
acts for him, while they are deemed services of
their real agreement. Hence, where the essential
value, cannot be considered as consideration for the
requisites of a contract are present and the
simulation refers only to the content or terms of the subject property for lack of quantification and the
contract, the agreement is absolutely binding and Filipino culture of taking care of their elders.
enforceable between the parties and their successors
in interest.13 Thus, the Court agrees with the courts below that the
questioned contract of sale was only for the purpose
In absolute simulation, there is a colorable contract of lending the title of the property to Spouses Intac to
but it has no substance as the parties have no enable them to secure a loan. Their arrangement was
only temporary and could not give rise to a valid sale.
intention to be bound by it. "The main characteristic
Where there is no consideration, the sale is null and
of an absolute simulation is that the apparent contract
void ab initio. In the case of Lequin v. Vizconde,16 the
is not really desired or intended to produce legal
Court wrote:
effect or in any way alter the juridical situation of the
parties."14 "As a result, an absolutely simulated or
fictitious contract is void, and the parties may recover There can be no doubt that the contract of sale or
from each other what they may have given under the Kasulatan lacked the essential element of
contract."15 consideration. It is a well-entrenched rule that where
the deed of sale states that the purchase price has
In the case at bench, the Court is one with the courts been paid but in fact has never been paid, the deed
of sale is null and void ab initio for lack of
below that no valid sale of the subject property
consideration. Moreover, Art. 1471 of the Civil Code,
actually took place between the alleged vendors,
which provides that "if the price is simulated, the sale
Ireneo and Salvacion; and the alleged vendees,
is void," also applies to the instant case, since the
Spouses Intac. There was simply no consideration
and no intent to sell it. price purportedly paid as indicated in the contract of
sale was simulated for no payment was actually
made.
Critical is the testimony of Marietto, a witness to the
execution of the subject absolute deed of sale. He
Consideration and consent are essential elements in
testified that Ireneo personally told him that he was
going to execute a document of sale because a contract of sale. Where a partys consent to a
1w phi 1

Spouses Intac needed to borrow the title to the contract of sale is vitiated or where there is lack of
consideration due to a simulated price, the contract is
property and use it as collateral for their loan
null and void ab initio. [Emphases supplied]
application. Ireneo and Salvacion never intended to
sell or permanently transfer the full ownership of the
subject property to Spouses Intac. Marietto was More importantly, Ireneo and his family continued to
characterized by the RTC as a credible witness. be in physical possession of the subject property
after the sale in 1977 and up to the present. They
even went as far as leasing the same and collecting
Aside from their plain denial, petitioners failed to
rentals. If Spouses Intac really purchased the subject
present any concrete evidence to disprove Mariettos
16
Obligations and Contracts
Simulation of Contracts

property and claimed to be its true owners, why did Laguna. Clearly, the subject contract was absolutely
they not assert their ownership immediately after the simulated and, therefore, void.
alleged sale took place? Why did they have to assert
their ownership of it only after the death of Ireneo and In view of the foregoing, the Court finds it hard to
Salvacion? One of the most striking badges of believe the claim of the Spouses Intac that the stay of
absolute simulation is the complete absence of any Ireneo and his family in the subject premises was by
attempt on the part of a vendee to assert his right of their mere tolerance as they were not yet in need of
dominion over the property. 17 it. As earlier pointed out, no convincing evidence,
written or testimonial, was ever presented by
On another aspect, Spouses Intac failed to show that petitioners regarding this matter. It is also of no
they had been paying the real estate taxes of the moment that TCT No. 106530 covering the subject
subject property. They admitted that they started property was cancelled and a new TCT (TCT No.
paying the real estate taxes on the property for the 242655)21 was issued in their names. The Spouses
years 1996 and 1997 only in 1999. They could only Intac never became the owners of the property
show two (2) tax receipts (Real Property Tax Receipt despite its registration in their names. After all,
No. 361105, dated April 21, 1999, and Real Property registration does not vest title.
Tax Receipt No. 361101, dated April 21,
1999).18 Noticeably, petitioners tax payment was just As a logical consequence, petitioners did not become
an afterthought. The non-payment of taxes was also the owners of the subject property even after a TCT
taken against the alleged vendees in the case of had been issued in their names. After all, registration
Lucia Carlos Alio v. Heirs of Angelica A. does not vest title. Certificates of title merely confirm
Lorenzo.19 Thus, or record title already existing and vested. They
cannot be used to protect a usurper from the true
Furthermore, Lucia religiously paid the realty taxes owner, nor can they be used as a shield for the
on the subject lot from 1980 to 1987.While tax commission of fraud, or to permit one to enrich
receipts and declarations of ownership for taxation oneself at the expense of others. Hence,
purposes are not, in themselves, incontrovertible reconveyance of the subject property is warranted.22
evidence of ownership, they constitute at least proof
that the holder has a claim of title over the property, The Court does not find acceptable either the
particularly when accompanied by proof of actual argument of the Spouses Intac that respondents
possession. They are good indicia of the possession action for cancellation of TCT No. 242655 and the
in the concept of owner, for no one in his right mind reconveyance of the subject property is already
would be paying taxes for a property that is not in his barred by the Statute of Limitations. The reason is
actual or at least constructive possession. The that the respondents are still in actual possession of
voluntary declaration of a piece of property for the subject property. It is a well-settled doctrine that
taxation purposes manifests not only one's sincere "if the person claiming to be the owner of the property
and honest desire to obtain title to the property and is in actual possession thereof, the right to seek
announces his adverse claim against the State and reconveyance, which in effect seeks to quiet title to
all other interested parties, but also the intention to the property, does not prescribe."23 In Lucia Carlos
contribute needed revenues to the Government. Alio, it was also written:
Such an act strengthens one's bona fide claim of
acquisition of ownership. The lower courts fault Lucia for allegedly not taking
concrete steps to recover the subject lot, demanding
On the other hand, respondent heirs failed to present its return only after 10 years from the registration of
evidence that Angelica, during her lifetime, paid the the title. They, however, failed to consider that Lucia
realty taxes on the subject lot. They presented only was in actual possession of the property.
two tax receipts showing that Servillano, Sr. belatedly
paid taxes due on the subject lot for the years 1980-
It is well-settled that an action for reconveyance
1981 and part of year 1982 on September 8, 1989, or
prescribes in 10 years, the reckoning point of which is
about a month after the institution of the complaint on
the date of registration of the deed or the date of
August 3, 1989, a clear indication that payment was
issuance of the certificate of title over the property. In
made as an afterthought to give the semblance of an action for reconveyance, the decree of registration
truth to their claim.
is highly regarded as incontrovertible. What is sought
instead is the transfer of the property or its title, which
Thus, the subsequent acts of the parties belie the has been erroneously or wrongfully registered in
intent to be bound by the deed of sale. [Emphases another person's name, to its rightful or legal owner
supplied] or to one who has a better right.

The primary consideration in determining the true However, in a number of cases in the past, the Court
nature of a contract is the intention of the parties. If has consistently ruled that if the person claiming to
the words of a contract appear to contravene the he the owner of the property is in actual possession
evident intention of the parties, the latter shall prevail. thereof, the right to seek reconveyance, which in
Such intention is determined not only from the effect seeks to quiet title to the property, does not
express terms of their agreement, but also from the prescribe. The reason for this is that one who is in
contemporaneous and subsequent acts of the actual possession of a piece of land claiming to be
parties.20 As heretofore shown, the contemporaneous the owner thereof may wait until his possession is
and subsequent acts of both parties in this case, disturbed or his title is attacked before taking steps to
point to the fact that the intention of Ireneo was just to vindicate his right. The reason being, that his
lend the title to the Spouses Intac to enable them to undisturbed possession gives him the continuing right
borrow money and put up a hospital in Sta. Cruz, to seek the aid of a court of equity to ascertain the
17
Obligations and Contracts
Simulation of Contracts

nature of the adverse claim of a third party and its Certificate of Title (TCT) Nos. 517683 and 519014 in
effect on his title, which right can be claimed only by the names of respondents Arturo Dy and Bernardo
one who is in possession. Thus, considering that Dy (Dys) and to issue the corresponding TCTs in the
Lucia continuously possessed the subject lot, her name of respondent Cipriana Delgado (Cipriana).
right to institute a suit to clear the cloud over her title
cannot he barred by the statute of The Factual Antecedents
limitations.:24[Emphases supplied]
Cipriana was the registered owner of a 58,129-
WHEREFORE, the petition is DENIED. square meter (sq.m.) lot, denominated as Lot No.
6966, situated in Barrio Tongkil, Minglanilla, Cebu,
SO ORDERED. covered by TCT No. 18568. She and her husband,
respondent Jose Delgado (Jose), entered into an
JOSE CATRAL MENDOZA agreement with a certain Cecilia Tan (buyer) for the
Associate Justice sale of the said property for a consideration of
P10.00/sq.m. It was agreed that the buyer shall make
Footnotes partial payments from time to time and pay the
*
Designated additional member, per Special Order No. 1299, balance when Cipriana and Jose (Sps. Delgado) are
dated August 28, 2012. ready to execute the deed of sale and transfer the
1
Rollo, pp. 40-48 (Penned by Associate Justice Eliezer R. De Los title to her.
Santos and concurred in by Associate Justice Jose C. Reyes, Jr.
and Associate Justice Arturo G. Tayag).
2
Id. at 130-137. At the time of sale, the buyer was already occupying
3
As manifested by both parties (id. at 160 to 165 and 204), despite
a portion of the property where she operates a
the fact that the MeTC, Quezon City, had ordered the ejectment of
the respondents in its Decision, dated November 17, 1994, (id. at noodle (bihon) factory while the rest was occupied by
49-53) which was affirmed by the RTC, Quezon City on July 21, tenants which Sps. Delgado undertook to clear prior
1995 (id. at 54-56). to full payment. After paying the total sum of
4
Id. at 41-42. P147,000.00 and being then ready to pay the
5
Annex "E" of Petition; id. at 57-63.
6
Id. at 59. balance, the buyer demanded the execution of the
7
Annex "F;" id. at 64-70. deed, which was refused. Eventually, the buyer
8
Id. at 137. learned of the sale of the property to the Dys and its
9
Id. at 47-48. subsequent mortgage to petitioner Philippine Banking
10
Id. at 17.
11
Id. at 279-280. Corporation (Philbank), prompting the filing of the
12
Sps. Ramon Lequin and Virginia Lequin v. Sps. Raymundo Complaint5 for annulment of certificate of title, specific
Vizconde and Salome Requin Vizconde, G.R. No. 177710, performance and/or reconveyance with damages
October 12, 2009, 603 SCRA 407, 417.
against Sps. Delgado, the Dys and Philbank.
13
Spouses Villaceran v. De Guzman, G.R. No. 169055, February
22, 2012.
14
Id., citing Loyola v. Court of Appeals, G.R. No. 115734, February In their Answer, Sps. Delgado, while admitting receipt
23, 2000, 326 SCRA 285, 293.
of the partial payments made by the buyer, claimed
15
Id.
16
G.R. No. 177710, October 12, 2009, 603 SCRA 407, 422. that there was no perfected sale because the latter
17
Gaudencio Valerio v. Vicenta Refresca, G.R. No. 163687, March was not willing to pay their asking price of
28, 2006, 485 SCRA 494, 501-502. P17.00/sq.m. They also interposed a cross-claim
18
Rollo, p. 132.
against the Dys averring that the deeds of absolute
19
G.R. No. 159550, June 27, 2008, 556 SCRA 139, 150-151.
20
Spouses Villaceran v. De Guzman, supra note 13, citing Ramos sale in their favor dated June 28, 19826 and June 30,
v. Heirs of Honorio Ramos, Sr., G.R. No. 140848, April 25, 2002, 19827 covering Lot No. 6966 and the adjoining Lot
381 SCRA 594, 601. No. 4100-A (on which Sps. Delgado's house stands),
21
Rollo, pp. 281-282.
22
Sps. Exequiel Lopez and Eusebia Lopez v. Sps. Eduardo Lopez
were fictitious and merely intended to enable them
and Marcelina R. Lopez, G.R. No. 161925, November 25, 2009, (the Dys) to use the said properties as collateral for
605 SCRA 358, 365. their loan application with Philbank and thereafter,
23
Lucia Carlos Alino v. Heirs of Angelica A. Lorenzo, G.R. No. pay the true consideration of P17.00/sq.m. for Lot No.
159550, June 27, 2008, 556 SCRA 139, 151-153.
6966. However, after receiving the loan proceeds, the
24
Id.
Dys reneged on their agreement, prompting Sps.
Delgado to cause the annotation of an adverse claim
SECOND DIVISION on the Dys' titles and to inform Philbank of the
simulation of the sale. Sps. Delgado, thus, prayed for
G.R. No. 183774 November 14, 2012 the dismissal of the complaint, with a counterclaim for
damages and a cross-claim against the Dys for the
PHILIPPINE BANKING CORPORATION, Petitioner, payment of the balance of the purchase price plus
vs. damages.
ARTURO DY, BERNARDO DY, JOSE DELGADO
AND CIPRIANA DELGADO, Respondents. For their part, the Dys denied knowledge of the
alleged transaction between cross-claimants Sps.
DECISION Delgado and buyer. They claimed to have validly
acquired the subject property from Sps. Delgado and
paid the full consideration therefor as the latter even
PERLAS-BERNABE, J.:
withdrew their adverse claim and never demanded
for the payment of any unpaid balance.
This Petition for Review on Certiorari assails the
January 30, 2008 Decision1 of the Court of Appeals
On the other hand, Philbank filed its
(CA) in CA-G.R. CV No. 51672, which set aside the
Answer8 asserting that it is an innocent mortgagee for
October 5, 1994 Decision2 of the Regional Trial Court
value without notice of the defect in the title of the
of Cebu City, Branch 22 (RTC) and directed the
Dys. It filed a cross-claim against Sps. Delgado and
Register of Deeds of Cebu City to cancel Transfer
18
Obligations and Contracts
Simulation of Contracts

the Dys for all the damages that may be adjudged The Petition
against it in the event they are declared seller and
purchaser in bad faith, respectively. In the present petition, Philbank insists that it is a
mortgagee in good faith. It further contends that Sps.
In answer to the cross-claim, Sps. Delgado insisted Delgado are estopped from denying the validity of the
that Philbank was not a mortgagee in good faith for mortgage constituted over the two lots since they
having granted the loan and accepted the mortgage participated in inducing Philbank to grant a loan to
despite knowledge of the simulation of the sale to the the Dys.
Dys and for failure to verify the nature of the buyers
physical possession of a portion of Lot No. 6966. On the other hand, Sps. Delgado maintain that
They thereby prayed for the cancellation of the Philbank was not an innocent mortgagee for value for
mortgage in Philbank's favor. failure to exercise due diligence in transacting with
the Dys and may not invoke the equitable doctrine of
Subsequently, Sps. Delgado amended their cross- estoppel to conceal its own lack of diligence.
claim against the Dys to include a prayer for the
nullification of the deeds of absolute sale in the For his part, Arturo Dy filed a Petition-in-
latter's favor and the corresponding certificates of Intervention13 arguing that while the deeds of absolute
title, and for the consequent reinstatement of sale over the two properties were admittedly
Ciprianas title.9 simulated, the simulation was only a relative one
involving a false statement of the price. Hence, the
The complaints against the Dys and Philbank were parties are still bound by their true agreement. The
subsequently withdrawn. On the other hand, both the same was opposed/objected to by both
buyer and Sps. Delgado never presented any Philbank14 and Sps. Delgado15 as improper,
evidence in support of their respective claims. Hence, considering that the CA judgment had long become
the RTC limited itself to the resolution of the claims of final and executory as to the Dys who neither moved
Sps. Delgado, Philbank and the Dys against one for reconsideration nor appealed the CA Decision.
another.
The Ruling of the Court
The RTC Ruling
The petition is meritorious.
In the Decision10 dated October 5, 1994, the RTC
dismissed the cross-claims of Sps. Delgado against At the outset, the Court takes note of the fact that the
the Dys and Philbank. It noted that other than Sps. CA Decision nullifying the questioned contracts of
Delgado's bare allegation of the Dys' supposed non- sale between Sps. Delgado and the Dys had become
payment of the full consideration for Lot Nos. 6966 final and executory. Accordingly, the Petition-in-
and 4100-A, they failed to adduce competent Intervention filed by Arturo Dy, which seeks to
evidence to support their claim. On the other hand, maintain the subject contracts' validity, can no longer
the Dys presented a cash voucher11 dated April 6, be entertained. The cancellation of the Dys'
1983 duly signed by Sps. Delgado acknowledging certificates of title over the disputed properties and
receipt of the total consideration for the two lots. the issuance of new TCTs in favor of Cipriana must
therefore be upheld.
The RTC also observed that Sps. Delgado notified
Philbank of the purported simulation of the sale to the However, Philbank's mortgage rights over the subject
Dys only after the execution of the loan and mortgage properties shall be maintained. While it is settled that
documents and the release of the loan proceeds to a simulated deed of sale is null and void and
the latter, negating their claim of bad faith. Moreover, therefore, does not convey any right that could ripen
they subsequently notified the bank of the Dys' full into a valid title,16it has been equally ruled that, for
payment for the two lots mortgaged to it. reasons of public policy,17 the subsequent nullification
of title to a property is not a ground to annul the
The CA Ruling contractual right which may have been derived by a
purchaser, mortgagee or other transferee who acted
However, on appeal, the CA set aside12 the RTC's in good faith.18
decision and ordered the cancellation of the Dys'
certificates of title and the reinstatement of Cipriana's The ascertainment of good faith or lack of it, and the
title. It ruled that there were no perfected contracts of determination of whether due diligence and prudence
sale between Sps. Delgado and the Dys in view of were exercised or not, are questions of fact19 which
the latter's admission that the deeds of sale were are generally improper in a petition for review on
purposely executed to facilitate the latter's loan certiorari under Rule 45 of the Rules of Court (Rules)
application with Philbank and that the prices indicated where only questions of law may be raised. A
therein were not the true consideration. Being merely recognized exception to the rule is when there are
simulated, the contracts of sale were, thus, null and conflicting findings of fact by the CA and the
void, rendering the subsequent mortgage of the lots RTC,20 as in this case.
likewise void.
Primarily, it bears noting that the doctrine of
The CA also declared Philbank not to be a "mortgagee in good faith" is based on the rule that all
mortgagee in good faith for its failure to ascertain persons dealing with property covered by a Torrens
how the Dys acquired the properties and to exercise Certificate of Title are not required to go beyond what
greater care when it conducted an ocular inspection appears on the face of the title. This is in deference
thereof. It thereby canceled the mortgage over the to the public interest in upholding the indefeasibility of
two lots. a certificate of title as evidence of lawful ownership of
19
Obligations and Contracts
Simulation of Contracts

the land or of any encumbrance thereon.21 In the case annotated on the titles of Cipriana Delgado over the
of banks and other financial institutions, however, said properties.
greater care and due diligence are required since
they are imbued with public interest, failing which WHERFORE, the assailed January 30, 2008
renders the mortgagees in bad faith. Thus, before Decision of the Court of Appeals in CA-G.R. CV No.
approving a loan application, it is a standard 51672 is hereby AFFIRMED with MODIFICATION
operating practice for these institutions to conduct an upholding the mortgage rights of petitioner Philippine
ocular inspection of the property offered for mortgage Banking Corporation over the subject properties.
and to verify the genuineness of the title to determine
the real owner(s) thereof.22 The apparent purpose of
SO ORDERED.
an ocular inspection is to protect the "true owner" of
the property as well as innocent third parties with a
right, interest or claim thereon from a usurper who ESTELA M. PERLAS-BERNABE
may have acquired a fraudulent certificate of title Associate Justice
thereto.23
Footnotes
1
Rollo, pp. 28-43. Penned by Associate Justice Antonio L.
In this case, while Philbank failed to exercise greater Villamor, with Associate Justices Stephen C. Cruz and Amy C.
care in conducting the ocular inspection of the Lazaro-Javier, concurring.
properties offered for mortgage,24 its omission did not
2
Id. at 45-55. Penned by Judge Pampio A. Abarintos.
3
Id. at 62.
prejudice any innocent third parties. In particular, the 4
Id. at 63.
buyer did not pursue her cause and abandoned her 5
Id. at 82-87.
claim on the property. On the other hand, Sps. 6
Id. at 60-61.
Delgado were parties to the simulated sale in favor of
7
Id. at 58-59.
8
Id. at 88-92.
the Dys which was intended to mislead Philbank into 9
Id. at 94-99.
granting the loan application. Thus, no amount of 10
Supra note 3.
diligence in the conduct of the ocular inspection could 11
"Exhibit 7," List of Exhibits for the Defendants, RTC Records, p.
have led to the discovery of the complicity between 537.
12
Supra note 1.
the ostensible mortgagors (the Dys) and the true 13
Rollo, pp. 238-253.
owners (Sps. Delgado). In fine, Philbank can hardly
1w phi 1
14
Id. at 258-260.
be deemed negligent under the premises since the 15
Id. at 330-332.
ultimate cause of the mortgagors' (the Dys') defective
16
Cruz v. Bancom Finance Corporation, G.R. No. 147788, March
19, 2002, 379 SCRA 490, 509.
title was the simulated sale to which Sps. Delgado 17
Erea v. Querrer-Kauffman, G.R. No. 165853, June 22, 2006,
were privies. 492 SCRA 298, 319, citing Cavite Development Bank v. Lim, 324
SCRA 346, 358 (2000).
18
Premiere Development Bank v. Court of Appeals, G.R. Nos.
Indeed, a finding of negligence must always be 128122, 128184 & 128229, March 18, 2005, 453 SCRA 630, 654.
contextualized in line with the attendant 19
Vide Philippine National Bank v. Heirs of Estanislao Militar, G.R.
circumstances of a particular case. As aptly held in Nos. 164801 & 165165, June 30, 2006, 494 SCRA 308, 319.
Philippine National Bank v. Heirs of Estanislao
20
Canadian Opportunities Unlimited, Inc. v. Dalangin, Jr., G.R. No.
172223, February 6, 2012, 665 SCRA 21, 31.
Militar,25 "the diligence with which the law requires the 21
Erea v. Querrer-Kauffman, supra note 17.
individual or a corporation at all times to govern a 22
Alano v. Planter's Development Bank, G.R. No. 171628, June
particular conduct varies with the nature of the 13, 2011, 651 SCRA 766, 774.
situation in which one is placed, and the importance
23
The fact that petitioners were able to secure titles in their names
did not operate to vest upon them ownership over the subject
of the act which is to be performed."26 Thus, without properties. Registration under the Torrens system does not create
diminishing the time-honored principle that nothing or vest title, but only confirms and records title already existing and
short of extraordinary diligence is required of banks vested. It does not protect a usurper from the true owner, and
whose business is impressed with public interest, cannot be a shield for the commission of fraud. See Campos v.
Pastrana, G.R. No. 175994, December 8, 2009, 608 SCRA 55, 68.
Philbank's inconsequential oversight should not and 24
Assailed January 30, 2008 Decision, rollo, p. 40.
cannot serve as a bastion for fraud and deceit. 25
Supra note 19.
26
Id. at 317.
27
Galvez v. Court of Appeals, G.R. Nos. 187919, 187979 &
To be sure, fraud comprises "anything calculated to 188030, April 25, 2012.
deceive, including all acts, omissions, and
concealment involving a breach of legal duty or
equitable duty, trust, or confidence justly reposed, SECOND DIVISION
resulting in damage to another, or by which an undue
and unconscientious advantage is taken of G.R. No. 186264 July 8, 2013
another."27 In this light, the Dys' and Sps. Delgado's
deliberate simulation of the sale intended to obtain DR. LORNA C. FORMARAN, Petitioner,
loan proceeds from and to prejudice Philbank clearly vs.
constitutes fraudulent conduct. As such, Sps. DR. GLENDA B. ONG AND SOLOMON S.
Delgado cannot now be allowed to deny the validity ONG, Respondents.
of the mortgage executed by the Dys in favor of
Philbank as to hold otherwise would effectively DECISION
sanction their blatant bad faith to Philbank's
detriment.
PEREZ, J.:
Accordingly, in the interest of public policy, fair
dealing, good faith and justice, the Court accords This is an Appeal by certiorari under Rule 45 of the
Philbank the rights of a mortgagee in good faith Revised Rules of Court of the Decision1 of the Court
whose lien to the securities posted must be of Appeals (CA) rendered on August 30, 2007, the
respected and protected. In this regard, Philbank is dispositive portion of which reads as follows:
entitled to have its mortgage carried over or
20
Obligations and Contracts
Simulation of Contracts

"WHEREFORE, in the (sic) light of the foregoing, the A month thereafter, plaintiff inquired from her uncle,
assailed Decision is REVERSED AND SET ASIDE. Melquiades Barracca if they have obtained the loan.
The Complaint of appellee Lorna C. Formaran is The latter informed her that they did not push through
DISMISSED. The appellee, her agents or with the loan because the banks interest therefore
representatives are ORDERED to vacate the land in was high. With her uncles answer, plaintiff inquired
question and to restore the same to appellants." about Exhibit C. Her uncle replied that they crampled
(kinumos) the Deed of Absolute Sale (Exhibit C) and
The facts adopted by both the trial court and the threw it away. Knowing that Exhibit C was already
Court of Appeals are summarized thus: thrown away, plaintiff did not bother anymore about
the document (TSN, p. 7, Ibid) she thought that there
was no more transaction. Besides, she is also in
"According to plaintiff (Petitioner)'s complaint, she
actual possession of the land and have even
owns the afore-described parcel of land which was
mortgaged the same.
donated to her intervivos by her uncle and aunt,
spouses Melquiades Barraca and Praxedes Casidsid
on June 25, 1967; that on August 12, 1967 upon the In 1974, plaintiff transferred her residence from
proddings and representation of defendant Nabas, Aklan, to Antipolo City where she has been
(Respondent) Glenda, that she badly needed a residing up to the present time. From the time she
collateral for a loan which she was applying from a signed the Deed of Absolute Sale (Exhibit C) in
bank to equip her dental clinic, plaintiff made it August, 1967 up to the present time of her change of
appear that she sold one-half of the afore-described residence to Antipolo City, defendant Glenda never
parcel of land to the defendant Glenda; that the sale demanded actual possession of the land in question,
was totally without any consideration and fictitious; except when the latter filed on May 30, 1996 a case
that contrary to plaintiffs agreement with defendant for unlawful detainer against her. Following the filing
Glenda for the latter to return the land, defendant of the ejectment case, she learned for the first time
Glenda filed a case for unlawful detainer against the that the Deed of Absolute Sale was registered on
plaintiff who consequently suffered anxiety, sleepless May 25, 1991 and was not thrown away contrary to
nights and besmirched reputation; and that to protect what Melquiades Barraca told her. Moreover, she
plaintiffs rights and interest over the land in question, and Melquiades Barraca did not talk anymore about
she was constrained to file the instant case, binding Exhibit C. That was also the first time she learned
herself to pay P50,000.00 as and for attorney's fees. that the land in question is now declared for taxation
purposes in the name of defendant Glenda.
In an answer filed on December 22, 1997, defendant
Glenda insisted on her ownership over the land in In closing her direct testimony, plaintiff declared that
question on account of a Deed of Absolute Sale the filing of the unlawful detainer case against her,
executed by the plaintiff in her favor; and that caused her some sleepless nights and humiliation.
plaintiffs claim of ownership therefore was virtually She also suffered hypertension.
rejected by the Municipal Circuit Trial Court of Ibaja-
Nabas, Ibajay, Aklan, when it decided in her favor the Upon the other hand, relevant matters that surfaced
unlawful detainer case she filed against the plaintiff, from the testimonies of the defendants shows that on
docketed therein as Civil Case No. 183. Defendants June 25, 1967, Melquiades Barraca, father of the
are also claiming moral damages and attorneys fees defendant Glenda, donated a parcel of land to her
in view of the filing of the present case against them. niece, plaintiff Lorna C. Formaran (Exhibit 3). At the
time of the donation, plaintiff was still single. She
Plaintiffs testimony tends to show that the land in married Atty. Formaran only in September, 1967.
question is part of the land donated to her on June
25, 1967 by spouses Melquiades Barraca and Subsequently, on August 12, 1967, Dr. Lorna B.
Praxedes Casidsid, plaintiffs uncle and aunt, Casidsid, herein plaintiff, executed a Deed of
respectively. As owner thereof, she declared the land Absolute Sale (Exhibit 1) over one-half portion of the
for taxation purposes (Exhibits A-1 to A-5, inclusive). land donated to her, in favor of defendant Glenda. On
She religiously paid its realty taxes (Exhibit A-6). She account of the Sale (Exhibit 1) defendant Glenda was
mortgaged the land to Aklan Development Bank to able to declare in her name the land in question for
secure payment of a loan. taxation purposes (Exhibit 4) and paid the realty
taxes (Exhibits 6, 6-A, 6-B and 6-C). She also was
In 1967, defendant Glenda and her father, able to possess the land in question.
Melquiades Barraca came to her residence asking for
help. They were borrowing one-half of land donated Defendant Glenda maintained that there was money
to her so that defendant Glenda could obtain a loan involved affecting the sale of the land in her favor.
from the bank to buy a dental chair. They proposed The sale was not to enable her to buy a dental chair
that she signs an alleged sale over the said portion of for she had already one at the time. Besides, the cost
land. of a dental chair in 1967 was only P2,000.00 which
she can readily afford.
Acceding to their request, she signed on August 12,
1967 a prepared Deed of Absolute Sale (Exhibit C) The document of sale (Exhibit 1) affecting the land in
which they brought along with them (TSN, p. 22, question was not immediately registered after its
Ibid), covering the land in question without any execution in 1967 but only on May 25, 1991 in order
money involved. There was no monetary to accommodate the plaintiff who mortgaged the land
consideration in exchange for executing Exhibit C. to Aklan Development Bank on May 18, 1978.
She did not also appear before the Notary Public
Edilberto Miralles when Exhibit C was allegedly Based on the admissions of the parties in their
acknowledged by her on November 9, 1967. pleadings, during the pre-trial and evidence on
21
Obligations and Contracts
Simulation of Contracts

record, there is no contention that on June 25, 1967, Petitioner filed on action for annulment of the Deed of
the afore-described parcel of land was donated Sale (Civil Case No. 5398) against respondents
intervivos (Exhibit 3) by spouses Melquiades Barraca before the Regional Trial Court (RTC), of Kalibo,
and Praxedes Casidsid to therein plaintiff, Dr. Lorna Aklan, Branch 5.
Casidsid Formaran who was yet single. She was
married to Atty. Formaran in September 1967. On December 3, 1999, the trial court rendered a
Praxedes was the aunt of Lorna as the latters father Decision in favor of petitioner and against the
was the brother of Praxedes. respondent by declaring the Deed of Absolute Sale
null and void for being an absolutely simulated
Following the donation, plaintiff immediately took contract and for want of consideration; declaring the
possession of the land wherein one-half (1/2) thereof petitioner as the lawful owner entitled to the
is the land in question. Since then up to the present possession of the land in question; as well as
time, is still in actual possession of the land, including ordering (a) the cancellation of respondent Glendas
the land in question. Tax Declaration No. 1031, and (b) respondents to
pay petitioner P25,000.00 for attorneys fees and
Indeed, on May 30, 1996, herein defendant Glenda litigation expenses.
filed a complaint for unlawful detainer against the
plaintiff before the 7th Municipal Circuit Trial Court of Respondents coursed an appeal to the CA. The CA,
Ibajay-Nabas, Ibajay, Aklan, docketed there in as on August 30, 2007, reversed and set aside the
Civil Case No. 183. The case was decided on Decision of the trial court and ordered petitioner to
September 2, 1997, (Exhibit 2) in favor of herein vacate the land in question and restore the same to
defendant Glenda; ordering the herein plaintiff to respondents.
vacate the land in question.
Hence, the present petition.
After the plaintiff acquired ownership by way of
donation over the afore-described parcel of land The petition sufficiently shows with convincing
which includes the land in question, she declared the arguments that the decision of the CA is based on a
same for taxation purposes under Tax Declaration misappreciation of facts.
No. 12533, effective 1969 (Exhibit A-1). Revision
caused the subsequent and successive cancellation
The Court believes and so holds that the subject
of Exhibit A-1 by Tax Declaration No. 177, effective
Deed of Sale is indeed simulated,2 as it is: (1) totally
1974 (Exhibit A-2);
devoid of consideration; (2) it was executed on
August 12, 1967, less than two months from the time
Tax Declaration No. 183 effective 1980 (Exhibit A-3); the subject land was donated to petitioner on June
Tax Declaration No. 187, effective 1985 (Exhibit A-4); 25, 1967 by no less than the parents of respondent
PIN-038-14-001-06-049, effective 1990 (Exhibit A-5); Glenda Ong; (3) on May 18, 1978, petitioner
and APP/TD No. 93-001-330, effective 1994 (Exhibit mortgaged the land to the Aklan Development Bank
A-6). for a P23,000.00 loan; (4) from the time of the alleged
sale, petitioner has been in actual possession of the
The last two Tax Declarations (Exhibits A-5 and A-6) subject land; (5) the alleged sale was registered on
no longer covered the land in question which was May 25, 1991 or about twenty four (24) years after
segregated therefrom when the Deed of Sale execution; (6) respondent Glenda Ong never
executed on August 12, 1967 (Exhibit C) was introduced any improvement on the subject land; and
registered for the first time on May 25, 1991. (7) petitioners house stood on a part of the subject
land. These are facts and circumstances which may
Realty taxes of the afore-described parcel of land, be considered badges of bad faith that tip the
including the land in question, have been paid by the balance in favor of petitioner.
plaintiff since 1967 up to the present time (Exhibit B).
However, defendant Glenda paid for the first time the The Court is in accord with the observation and
realty taxes of the land in question on January 9, findings of the (RTC,3 Kalibo, Aklan) thus:
1995 (Exhibit 6) and up to the present time (Exhibit 6-
A and 6-B). 1wphi 1

"The amplitude of foregoing undisputed facts and


circumstances clearly shows that the sale of the land
On account of the Deed of Absolute Sale (Exhibit C in question was purely simulated. It is void from the
or 1) signed by the plaintiff, during the cadastral very beginning (Article 1346, New Civil Code). If the
survey, the land in question was surveyed in the sale was legitimate, defendant Glenda should have
name of defendant and designated as Lot No. 188 immediately taken possession of the land, declared in
(Exhibit 5) and the other half on the western side was her name for taxation purposes, registered the sale,
designated as Lot No. 189. The land in question is paid realty taxes, introduced improvements therein
particularly described as follows: and should not have allowed plaintiff to mortgage the
land. These omissions properly militated against
A parcel of residential land (Lot No. 188, Cad. No. defendant Glendas submission that the sale was
758-D Nabas Cadastre) located at Poblacion Nabas, legitimate and the consideration was paid.
Aklan, Bounded on North by Lot No. 196; on the East
by Lot No. 187; on the West by Lot No. 189 all of While the Deed of Absolute Sale was notarized, it
Cad. No. 758-D; and on the South by Mabini St., cannot justify the conclusion that the sale is a true
containing an area of THREE HUNDRED FIFTY conveyance to which the parties are irrevocably and
SEVEN (357) SQUARE METERS, more or less." undeniably bound. Although the notarization of Deed
of Absolute Sale, vests in its favor the presumption of
regularity, it does not validate nor make binding an
22
Obligations and Contracts
Simulation of Contracts

instrument never intended, in the first place, to have


any binding legal effect upon the parties thereto
(Suntay vs. Court of Appeals, G.R. No. 114950,
December 19, 1995; cited in Ruperto Viloria vs. Court
of Appeals, et al., G.R. No. 119974, June 30, 1999)."

WHEREFORE, the petition is GRANTED. The


Decision of the Court of Appeals rendered on August
30, 2007 in CA G.R. CV No. 66187 is hereby
REVERSED and SET ASIDE. The Decision of the
Regional Trial Court, Branch 5, Kalibo, Aklan in Civil
Case No. 5398 dated December 3, 1999 is
REINSTATED.

SO ORDERED.

JOSE PORTUGAL PEREZ


Associate Justice

Footnotes
* Per Special Order No. 1484 dated 9 July 2013.
1
Penned by Associate Justice Agustin S. Dizon, with Associate
Justices Francisco P. Acosta and Stophen C. Cruz, concurring
Rollo, pp. 25-37.
2
ART. 1345. Simulation of a contract may be absolute or relative.
The former takes place when the parties do not intend to be bound
at all; the latter, when the parties conceal their true agreement.
ART. 1346. An absolutely simulated or fictitious contract is void. A
relative simulation, when it does not prejudice a third person and is
not intended for any purpose contrary to law, morals, good
customs, public order or public policy binds the parties to their real
agreement.
3
Id. at 46-47.