O B L I C O N ( S i m u l a t i o n o f C o n t r a c t s ) |1

209,239.125 sq. m. are transferred in full ownership to Geronimo Rodriguez, Esmeragdo

G.R. No. L-23002             July 31, 1967
Rodriguez and Mauricio Rodriguez, share and share alike, while the other 1/4 or
69,746.375 sq. m. of the said remaining half goes in equal shares to Oscar Rodriguez,
CONCEPCION FELIX VDA. DE RODRIGUEZ, plaintiff-appellant, 
Juan Rodriguez and Ana Rodriguez.
vs.
GERONIMO RODRIGUEZ., ET AL., defendants-appellees.
As a result of this partition, TCT Nos. 13815 and 13816 were cancelled and TCT Nos. T-11431 and
T-14432 were issued in the names of the said heirs of the deceased.
Ozaeta, Gibbs and Ozaeta for plaintiff-appellant.
Sycip, Salazar, Luna and Associates and Carolina C. Griño-Aquino for defendants-appellees.
On March 23, 1953, in a power of attorney executed by the children and grandchildren of Domingo
Rodriguez, Concepcion Felix Vda. de Rodriguez was named their attorney in-fact, authorized to
REYES, J.B.L., J.:
manage their shares in the fishponds (Exh. 4).
This is an appeal by Concepcion Felix Vda. de Rodriguez from the decision of the Court of First
On July 2, 1954, the heirs ended their co-ownership by executing a deed of partition, dividing and
Instance of Bulacan in Civil Case No. 2565, which she commenced on May 28, 1962, to secure
segregating their respective shares in the properties, pursuant to a consolidation and subdivision
declaration, of nullity of two contracts executed on January 24, 1934 and for recovery of certain
plan (PCS-3702), in accordance with which, Concepcion Felix Vda. de Rodriguez obtained TCT
properties.
No. T-12910, for the portion pertaining to her (Exh. L), while TCT No. T-12911 was issued to the
The facts of this case may be briefly stated as follows: other heirs, for their shares. This latter title was subsequently replaced by TCT No. 16660 (Exh. M).

Concepcion Felix, widow of the late Don Felipe Calderon and with whom she had one living child, On October 12, 1954, the Rodriguez children executed another document granting unto the widow
Concepcion Calderon, contracted a second marriage on June 20, 1929, with Domingo Rodriguez, lifetime usufruct over one-third of the fishpond which they received as hereditary share in the estate
widower with four children by a previous marriage, named Geronimo, Esmeragdo, Jose and of Domingo Rodriguez, which grant was accepted by Concepcion Felix Vda. de Rodriguez.
Mauricio, all surnamed Rodriguez. There was no issue in this second marriage.
Then, in a contract dated December 15, 1961, the widow appeared to have leased from the
Prior to her marriage to Rodriguez, Concepcion Felix was the registered owner of 2 fishponds Rodriguez children and grandchildren the fishpond (covered by TCT No. 16660) for a period of 5
located in the barrio of Babañgad, municipality of Bulacan, Bulacan province. with a total area of years commencing August 16, 1962, for an annual rental of P7,161.37 (Exh. 5).1äwphï1.ñët
557,711 square meters covered by OCT Nos. 605 and 807. Under date of January 24, 1934,
At about this time, it seemed that the relationship between the widow and her stepchildren had
Concepcion Felix appeared to have executed a deed of sale conveying ownership of the aforesaid
turned for the worse. Thus, when she failed to deliver to them the balance of the earnings of the
properties to her daughter, Concepcion Calderon, for the sum of P2,500.00, which the latter in turn
fishponds, in the amount of P3,000.00, her stepchildren endorsed the matter to their lawyer who, on
appeared to have transferred to her mother and stepfather by means of a document dated January
May 16, 1962, sent a letter of demand to the widow for payment thereof. On, May 28, 1962,
27, 1934. Both deeds, notarized by Notary Public Jose D. Mendoza, were registered in the office of
Concepcion Felix Vda. de Rodriguez filed the present action in the Court of First Instance of
the Register of Deeds of Bulacan on January 29, 1934, as a consequence of which, the original titles
Manila naming as defendants, Geronimo Rodriguez, Esmeragdo Rodriguez, Oscar Rodriguez,
were cancelled and TCT Nos. 13815 and 13816 were issued in the names of the spouses Domingo
Concepcion Bautista Vda. de Rodriguez, as guardian of the minors Juan and Ana Rodriguez, and
Rodriguez and Concepcion Felix.
Antonio Diaz de Rivera and Renato Diaz de Rivera, as guardians of the minors Maria Ana,
On March 6, 1953, Domingo Rodriguez died intestate, survived by the widow, Concepcion Felix, Mercedes, Margarita, Mauricio, Jr. and Domingo (Children of Mauricio Rodriguez who had also
his children Geronimo Esmeragdo and Mauricio and grandchildren Oscar, Juan and Ana, surnamed died).
Rodriguez, children of a son, Jose, who had predeceased him.
The action to declare null and void the deeds of transfer of plaintiff's properties to the conjugal
On March 16, 1953, the above-named widow, children and grandchildren of the deceased entered partnership was based on the alleged employment or exercise by plaintiff's deceased husband of
into an extra-judicial settlement of his (Domingo's) estate, consisting of one-half of the properties force and pressure on her; that the conveyances of the properties — from plaintiff to her daughter
allegedly belonging to the conjugal partnership. Among the properties listed as conjugal were the and then to the conjugal partnership of plaintiff and her husband — are both without consideration;
two parcels of land in Bulacan, Bulacan, which, together with another piece of property, were that plaintiff participated in the extrajudicial settlement of estate (of the deceased Domingo
divided among the heirs in this manner: Rodriguez) and in other subsequent deeds or instruments involving the properties in dispute, on the
false assumption that the said properties had become conjugal by reason of the execution of the
WHEREAS, the parties have furthermore agreed that the fishpond covered by TCT Nos. deeds of transfer in 1934; that laboring under the same false assumption, plaintiff delivered to
13815, 13816 and 24109 of the Office of the Register of Deeds of Bulacan, containing an defendants, as income of the properties from 1956 to 1961, the total amount of P56,976.58. As
area of 557,971 sq. m., which is likewise the conjugal property of the deceased and his alternative cause of action, she contended that she would claim for her share, as surviving widow,
surviving spouse; 1/2 of the same or 278,985.5 sq. m. belongs to said Concepcion Felix of 1/5 of the properties in controversy, should such properties be adjudged as belonging to the
Vda. de Rodriguez, as her share in the conjugal property; and 3/4 of the remaining half or conjugal partnership. Thus, plaintiff prayed that the deeds of transfer mentioned in the complaint be
 O B L I C O N ( S i m u l a t i o n o f C o n t r a c t s ) |2

declared fictitious and simulated; that the "Extrajudicial Settlement of Estate" be also declared null Appellant's main stand in attacking the conveyances in question is that they are simulated or
and void; that TCT No. 16660 of the Registry of Deeds of Bulacan be cancelled and another one be fictitious, and inexistent for lack of consideration. We shall examine each purported defect
issued in the name of plaintiff, Concepcion Felix Vda. de Felix; that defendants be ordered to pay separately.
plaintiff the sum of P56,976.58, with legal interest thereon from the date of the filing of the
complaint, and for appropriate relief in connection with her alternative cause of action. The charge of simulation is untenable, for the characteristic of simulation is the fact that the
apparent contract is not really desired or intended to produce legal effects or in way alter the
In their separate answers, defendants not only denied the material allegations of the complaint, but juridical situation of the parties. Thus, where a person, in order to place his property beyond the
also set up as affirmative defenses lack of cause of action, prescription, estoppel and laches. As reach of his creditors, simulates a transfer of it to another, he does not really intend to divest
counterclaim, they asked for payment by the plaintiff of the unpaid balance of the earnings of the himself of his title and control of the property; hence, the deed of transfer is but a sham. But
land up to August 15, 1962 in the sum of P3,000.00, for attorney's fees and expenses of litigation. appellant contends that the sale by her to her daughter, and the subsequent sale by the latter to
appellant and her husband, the late Domingo Rodriguez, were done for the purpose of converting
On October 5, 1963, judgment was rendered for the defendants. In upholding the validity of the the property from paraphernal to conjugal, thereby vesting a half interest in Rodriguez, and evading
contracts, the court found that although the two documents, Exhibits A and B, were executed for the the prohibition against donations from one spouse to another during coverture (Civil Code of 1889,
purpose of converting plaintiff's separate properties into conjugal assets of the marriage with Art. 1334). If this is true, then the appellant and her daughter must have intended the two
Domingo Rodriguez, the consent of the parties thereto was voluntary, contrary to the allegations of conveyance to be real and effective; for appellant could not intend to keep the ownership of the
plaintiff and her witness. The court also ruled that having taken part in the questioned transactions, fishponds and at the same time vest half of them in her husband. The two contracts of sale then
plaintiff was not the proper party to plead lack of consideration to avoid the transfers; that contracts could not have been simulated, but were real and intended to be fully operative, being the means to
without consideration are not inexistent, but are only voidable, following the ruling in the case achieve the result desired.
of Concepcion vs. Sta. Ana (87 Phil. 787); that there was ratification or confirmation by the
plaintiff of the transfer of her property, by her execution (with the other heirs) of the extrajudicial Nor does the intention of the parties to circumvent by these contracts the law against donations
settlement of estate; that being a voluntary party to the contracts, Exhibits A and B, plaintiff cannot between spouses make them simulated ones.
recover the properties she gave thereunder. Plaintiff's alternative cause of action was also rejected
on the ground that action for rescission of the deed of extrajudicial settlement should have been Ferrara, in his classic book, "La Simulacion de los Negocios Juridicos" (Sp. trans, 1926), pp. 95,
filed within 4 years from its execution (on March 16, 1953). 105, clearly explains the difference between simulated transactions and transactions in fraudem
legis:
From the decision of the Court of First Instance, plaintiff duly appealed to this Court, insisting that
the conveyances in issue were obtained through duress, and were inexistent, being simulated and Otra figura que debe distinguirse de la simulacion es el fraus legis. Tambien aqui se da
without consideration. una gran confusion que persiste aun en la jurisprudencia, apegada tenazmente a antiguos
errores. Se debe a Bahr el haber defendido con vigor la antitesis teorica que existe entre
We agree with the trial Court that the evidence is not convincing that the contracts of transfer from negocio fingido y negocio fraudulento y haber atacado la doctrina comun que hacia una
Concepcion Felix to her daughter, and from the latter to her mother and stepfather were executed mescolanza con los dos conceptos.
through violence or intimidation. The charge is predicated solely upon the improbable and biased
testimony of appellant's daughter, Concepcion C. Martelino, whom the trial court, refused to Se confunde — dice (2) —, el negocio in fraudem legis con el negocio simulado; aunque
believe, considering that her version of violence and harassment was contradicted by Bartolome la naturaleza de ambos sea totalmente diversa. El negocio fraudulento no es, en absolute,
Gualberto who had lived with the Rodriguez spouses from 1917 to 1953, and by the improbability un negocio aparente. Es perfectamente serio: se quiere realmente. Es mas, se quiere tal
of Rodriguez threatening his stepdaughter in front of the Notary Public who ratified her signature. como se ha realizado, con todas las consecuencias que correspondent a la forma juridica
Furthermore, as pointed out by the appealed decision, the charge of duress should be treated with elegida. Muchas veces, estas consecuencias con incomodas para una u otra de las partes,
caution considering that Rodriguez had already died when the suit was brought, for duress, like aunque serian mucho mas incomodas las consecuencias que lievaria consigo el acto
fraud, is not to be lightly paid at the door of men already dead. ( Cf. Prevost vs. Gratz, 6 Wheat. prohibido.
[U.S.] 481, 498; Sinco vs. Longa, 51 Phil. 507).
xxx     xxx     xxx
What is more decisive is that duress being merely a vice or defect of consent, an action based upon
it must be brought within four years after it has ceased; 1 and the present action was instituted only El resultado de las precedentes investigaciones es el siguiente el negocio simulado quiere
in 1962, twenty eight (28) years after the intimidation is claimed to have occurred, and no less than producir una apariencia; el negocio fraudulente, una realidad; los negocios simulados son
nine (9) years after the supposed culprit died (1953). On top of it, appellant entered into a series of ficticios, no queridos; los negocios in fraudem son serios, reales, y realizados en tal forma
subsequent transactions with appellees that confirmed the contracts that she now tries to set aside. por las partes para consequir un resultado prohibido: la simulacion nunca es un medio
Therefore, this cause of action is clearly barred. para eludir la ley sino para ocultar su violation. La transgresion del contenido verbal e
inmediato de la norma se encubre bajo el manto de un negocio licito, lo cual no altera el
caracter del contra legem agere. Tan verdad es, que si se ha redactado una contra-
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escritura que documentary y declara la verdadera naturaleza del negocio realizado, no a ruling reiterated in the decision of 2 April 1941 when the Court ruled:
queda mas que aplicar pura y simplementela prohibicion.
El concepto de la causa ilicita, tal como la desenvuelve y aplica con gran amplitud y
Tambien el fraude quiere perjudicar la ley, pero emplea para ello medios diversos y sigue flexibilidad la doctrina moderna, permite cobijar, no solo las convenciones ilicitas por
distintos caminus. No oculta el acto exterior, sino que lo deja claro y visible, tratando de razon de su objeto o de su motivo ... sino tambien multiples convenciones que no
huir sesgadamente de la aplicacion de la ley merced a una artistica y sabia combinacion encerrando en si ningun elemento de directa antijuricidad son ilicitas por el matiz
de varios medios juridicos no reprobados. immoral que reviste la operation en su conjunto x x x .

Appellant invokes our decision in Vasquez vs. Porta, 98 Phil. 490, but to no purpose. The mortgage Unfortunately for herein appellant, in contracts invalidated by illegal subject matter or illegal causa,
and foreclosure sale involved in that case were typical simulations merely apparent but not really Articles 1305 and 1306 of the Civil Code then in force apply rigorously the rule in pari delicto non
intended to produce legal effects, as approved by the Court's finding that the alleged creditor and oritur action, denying all recovery to the guilty parties inter se. And appellant is clearly as guilty as
buyer at the foreclosure sale "Porta himself ostensibly acknowledged by his inertia in allowing the her husband in the attempt to evade the legal interdiction of Article 1334 of the Code, already cited.
doctor (alleged mortgagor debtor) to exercise dominical power thereon without any protest on his Wherefore, her present action to reivindicate the, conveyed properties was correctly repulsed by the
part." (cas. cit., p. 495). Not only this, but the mortgagor's wife, when her husband died, "found Court below.
among his papers Porta's cancellation of the mortgage in his favor and the draft of the complaint for
foreclosure." Plainly, the precedent cited is here inapplicable. Art. 1306. If the act which constitutes the illicit consideration is neither a crime nor a
misdemeanor, the following rules shall be observed:
Were the two conveyances from appellant to her daughter and from the latter to the spouses
Rodriguez void ab initio or inexistent for lack of consideration? We do not find them to be so. In 1. When both parties are guilty, neither of them can recover what he may have given by
the first transaction, the price of P2,500.00 is recited in the deed itself (Exh. A); in the second (Exh. virtue of the contract, or enforce the performance of the undertaking of the other party;
B), the consideration set forth is P3,000.00. Now, Article 1274 of the Civil Code of 1889 (in force
when the deeds were executed) provided that — xxx     xxx     xxx

In onerous contracts the cause is understood to be, for each contracting party, the That Article 1306 applies to cases where the nullity arises from the illegality of the consideration or
prestation or promise of a thing or service by the other. (emphasis supplied.) the purpose of the contract was expressly recognized by this Supreme Court in  Gustilo vs.
Maravilla, 48 Phil. 449-450.2
Since in each conveyance the buyer became obligated to pay a definite price in money, such
undertaking constituted in themselves actual causa or consideration for the conveyance of the Finally, it cannot be denied that plaintiff-appellant had knowledge of the nullity of the contract for
fishponds. That the prices were not paid (assuming ad arguendo that Concepcion Martelino's the transfer of her properties in 1934, because she was even a party thereto. And yet, her present
testimony, to this effect is true) does not make the sales inexistent for want of causa. As ruled action was filed only on May 28, 1962 and after the breaking up of friendly relations between her
in Enriquez de la Cavada vs. Diaz, 37 Phil. 982, "the consideration (causa) need not pass from one and defendants-appellees. Appellant's inaction to enforce her right, for 28 years, cannot be justified
(party) to the other at the time the contract is entered into x x x . The consideration need not be paid by the lame excuse that she assumed that the transfer was valid. Knowledge of the effect of that
at the time of the promise. The one promise is a consideration for the other." transaction would have been obtained by the exercise of diligence. Ignorance which is the effect of
inexcusable negligence, it has been said, is no excuse for laches. (Go Chi Gun, etc., et al. vs. Co
What would invalidate the conveyances now under scrutiny is the fact that they were resorted to in Cho, et al., G.R. No. L-5208, Feb. 28, 1955). Even assuming for the sake of argument that appellant
order to circumvent the legal prohibition against donations between spouses contained in Article held her peace, during the lifetime of her husband, out of legitimate fear for her life, there is no
1334, paragraph 1, of the Civil Code of 1889, then prevailing. That illegal purpose tainted the justification for her future to bring the proper action after his death in 1953. Instead, she entered
contracts, for as held by the Spanish Tribunal Supreme in its decision of 2 April 1941. into a series of agreements with herein appellees, the children of her husband by a prior marriage,
of partition, usufruct and lease of their share in the fishponds, transactions that necessarily assumed
ha de ser reputado ineficaz, por exigencias includibles del caracter social y moral del that Rodriguez had acquired one-half of the litigated fishponds. In the circumstances, appellant's
Derecho, todo contrato que persiga un fin ilicito o immoral, sea cualquiera el medio cause has become a stale demand and her conduct placed her in estoppel to question the Validity of
empleado por los contratantes para lograr esa finalidad, no justificada por un interes the transfer of her properties. (Manila, et al. vs. Galvan, et al., G.R. No. L-23507, May 24, 1967;
digno de ser socialmente protegido. Perez vs. Herranz, 7 Phil. 695-696).

The illicit purpose then becomes illegal causa within the terms of the old Civil Code, for as In view of the foregoing, the decision appealed from is affirmed. Costs against appellant
declared by the same Spanish Court in its decision of 14 December 1940 — Concepcion Felix Vda. de Rodriguez. So ordered.

toda vez que lo que caracteriza fundamentalmente la ilicitud de la causa es la lesion de un

interos general juridica 6 moral.
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G.R. No. 114950 December 19, 1995 on this irregularity, Atty. Flores admitted that he failed to submit to the Clerk of Court a copy of the
second deed. Neither was he able to enter the same in his notarial register. 18 Even Federico himself
RAFAEL G. SUNTAY, substituted by his heirs, namely: ROSARIO, RAFAEL, JR., alleged in his Complaint that, when Rafael delivered the second deed to him, it was neither dated
APOLINARIO, RAYMUND, MARIA VICTORIA, MARIA ROSARIO and MARIA nor notarized. 19
LOURDES, all surnamed SUNTAY, petitioners, 
vs. Upon the execution and registration of the first deed, Certificate of Title No. 0-2015 in the name of
THE HON. COURT OF APPEALS and FEDERICO C. SUNTAY, respondents. Federico was cancelled and in lieu thereof, TCT No. T-36714 was issued in the name of Rafael.
Even after the execution of the deed, Federico remained in possession of the property sold in
  concept of owner. Significantly, notwithstanding the fact that Rafael became the titled owner of
said land and rice mill, he never made any attempt to take possession thereof at any time,  20 while
HERMOSISIMA, JR., J.: Federico continued to exercise rights of absolute ownership over the property. 21

Grave danger of destitution and ruin or irretrievable loss of property awaits those who practise or In a letter, 22 dated August 14, 1969, Federico, through his new counsel, Agrava & Agrava,
condone accommodation in order to circumvent the law or to hide from it. This case involving requested that Rafael deliver his copy of TCT No. T-36714 so that Federico could have the counter
Federico Suntay, a wealthy landowner from Bulacan, is in point. He is here pitted against his own deed of sale in his favor registered in his name. The request having been obviously turned down,
lawyer, unfortunately his own nephew, Rafael Suntay, in whose favor he signed and executed a Agrava & Agrava filed a petition 23 with the Court of First Instance of Bulacan 24 asking Rafael to
deed of sale of a parcel of valuable and productive real property for a measly P20,000.00. Federico surrender his owner's duplicate certificate of TCT No. T-36714. In opposition thereto, Rafael
claims that the sale was merely simulated and has been executed only for purposes of chronicled the discrepancy in the notarization of the second deed of sale upon which said petition
accommodation. Rafael Suntay, to the consternation or Federico, insists that the transaction was a was premised and ultimately concluded that said deed was a counterfeit or "at least not a public
veritable sale. Under what showing may the sale be deemed susceptible of nullification for being document which is sufficient to transfer real rights according to law." 25 On September 8, 1969,
simulated? Do we thereby abandon every reverence we have hitherto reposed on instruments Agrava & Agrava filed a motion 26 to withdraw said petition, and, on September 13, 1969, the Court
notarized before notaries public? granted the same. 27

Before us is a Petition for Review on Certiorari of the Amended Decision 1 of respondent Court of On July 8, 1970, Federico filed a complaint 28 for reconveyance and damages against Rafael. He
Appeals 2 and of its Resolution 3 denying petitioner's motion for reconsideration. alleged, among others, that:

These are the pertinent facts: xxx xxx xxx

Respondent Federico Suntay was the registered  4 owner of a parcel of land with an area of 5,118 2.2 Sometime around May, 1962, defendant approached plaintiff and asked plaintiff,
square meters, more or less, situated in Sto. Niño, Hagonoy, Bulacan. On the land may be found: a purely as an accommodation and in order only to help defendant in an application that
rice mill, a warehouse, and other improvements. A rice miller, Federico, in a letter, dated defendant had then filed or intended to file with the Rice and Corn Administration to be
September 30, 1960, applied as a miller-contractor of the then National Rice and Corn Corporation licensed as a rice dealer, to clause the title over the land and improvement described
(NARIC). He informed the NARIC that he had a daily rice mill output of 400 cavans of palay and above to be placed in defendant's name, but with the clear and express understanding that
warehouse storage capacity of 150,000 cavans of palay.  5 His application, although prepared by his ownership, possession, use, enjoyment and all other incidents of title would remain vested
nephew-lawyer, petitioner Rafael Suntay,  6 was disapproved, 7 obviously because at that time he in plaintiff; and that, at any time that plaintiff needed or desired that the title be restored
was tied up with several unpaid loans. For purposes of circumvention, he had thought of allowing to plaintiff's name, defendant would execute whatever deed and take whatever steps
Rafael to make the application for him. Rafael prepared  8an absolute deed of sale  9 whereby would be necessary to do so; to which request, in view of their relationship as uncle and
Federico, for and in consideration of P20,000.00 conveyed to Rafael said parcel of land with all its nephew, plaintiff acceded.
existing structures. Said deed was notarized as Document No. 57 and recorded on Page 13 of Book
1, Series of 1962, of the Notarial Register of Atty. Herminio V. Flores.  10 Less than three months 2.3 Accordingly, defendant prepared a deed entitled "Deed of Absolute Sale" over the
after this conveyance, a counter sale 11 was prepared 12 and signed 13 by Rafael who also caused its land and improvements . . . which purported to be a sale thereof by plaintiff to defendant
delivery 14 to Federico. Through this counter conveyance, the same parcel of land with all its in consideration of P20,000.00; which document plaintiff signed on or about May 19,
existing structures was sold by Rafael back to Federico for the same consideration of 1962. . . .
P20,000.00. 15 Although on its face, this second deed appears to have been notarized as Document
No. 56 and recorded on Page 15 of Book 1, Series of 1962, 16 of the notarial register of Atty. 2.4 Defendant never paid or delivered, and plaintiff never demanded or received, the sum
Herminio V. Flores, an examination thereof will show that, recorded as Document No. 56 on Page of P20,000.00 or any other valuable consideration for executing the aforesaid "Deed of
13, is not the said deed of sale but a certain "real estate mortgage on a parcel of land with TCT No. Absolute Sale", since the same was and is an absolutely simulated or fictitious
16157 to secure a loan of P3,500.00 in favor of the Hagonoy Rural Bank." Nowhere on page 13 of transaction, intended solely to accommodate and assist defendant . . .
the same notarial register could be found any entry pertaining to Rafael's deed of sale.  17 Testifying
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2.5 Defendant registered the "Deed of Absolute Sale" . . . with the Register of Deeds of and likewise, plaintiff admitted the validity, genuineness, valuable
Bulacan, and as a result, O.C.T. No. 0-2015 in plaintiff's name was cancelled and T.C.T. consideration and due execution of aforesaid Deed of Absolute Sale . . . as
No. 36714 was issued in defendant's name. evidenced by the letter of plaintiff's counsel, Attorneys Agrava and
Agrava . . .
2.6 After the Deed of Absolute Sale . . . had been registered, defendant prepared and
delivered to plaintiff a counter-deed likewise entitled "Deed of Absolute Sale", duly 3. . . . Sometime in 1962, plaintiff informed defendant that he would repurchase
signed by him, in which he purported to sell back to plaintiff the same land and aforesaid property and requested the defendant to prepare the necessary
improvements . . . for the same consideration of P20,000.00. . . . document. Considering the trust and confidence that defendant had in plaintiff
and pursuant to said request, defendant prepared the proposed Deed of Sale . . .
2.7 At the time defendant delivered the counter-deed . . . to plaintiff it was signed by signed the same and delivered it to the plaintiff with the clear and express
defendant, but not dated or notarized, as defendant told plaintiff that he was delivering the understanding that the owner's duplicate Transfer Certificate of Title would be
signed counter-deed as a recognition of the fictitious character of the Deed . . . and delivered to the plaintiff only upon full payment of the agreed repurchase price
authorized plaintiff to date the deed and cause it to be notarized at any time that plaintiff of P20,000.00 after which said proposed Deed of Sale would be duly notarized.
deemed it necessary or convenient to do so . . . The amount of P20,000.00 was stated in said proposed Deed of Sale upon
request of plaintiff in view of the fact that was the same amount appearing in
2.8 From the time plaintiff acquired the land and improvements the Deed of Absolute Sale, Annex "A" of the Complaint. The plaintiff; not only
. . . from his parents, continuously until the present, plaintiff has been in open, public failed to pay to defendant the agreed repurchase price of (sic) any portion
possession, use and enjoyment of the land, rice mill, warehouse and other improvements . thereof but even caused the falsification of the proposed Deed of Sale by
. . for his sole and exclusive benefit, and has paid all taxes thereon; and, in fact, from May making it appear, in connivance with Attorney Herminio Flores, that defendant
19, 1962, the date of the simulated "Deed of Absolute Sale" . . . until the present, acknowledged said document before said Attorney Flores, when in truth and in
defendant has not exercise a single act of ownership, possession, use or enjoyment of the fact as plaintiff and Attorney Flores very well knew at the time that defendant
said land and improvements. never appeared, much less acknowledged, before Attorney Flores said
document . . . 31
2.9 During the months of June to August, 1969, desiring to expand his rice mill and
warehouse business located on the land in question, because of government efforts to At the initial hearing on April 7, 1971, Federico took the stand and, when asked why title to the
stimulate rice production, plaintiff requested defendant to deliver to him the owner's property was no longer in his name, Rafael's counsel objected thereto upon the ground that
duplicate of the transfer certificate of title over the properties in question, in order that Federico, in the petition wherein he asked Rafael to surrender his owner's duplicate of TCT No. T-
plaintiff might register the counter-deed . . . and use the property as collateral in securing 36714, had alleged that he sold the land to Rafael, which allegation, Rafael contends, constitutes as
a bank loan to finance the expansion of the rice mill and warehouse facilities; but a judicial admission which may not be subject to contradiction, unless previously shown to have
defendant failed and refused, and continues to fail and refuse to do so, without just cause been made through palpable mistake. 32 Rafael's counsel, in effect, was assailing the admissibility
or legal reason. 29 of Federico's anticipated answer which would most likely tend to establish the simulated nature of
the sale executed by Federico in favor of Rafael. Judge Emmanuel Muñoz overruled the objection
In his answer, Rafael scoffed at the attack against the validity and genuineness of the sale to him of and reset the case for hearing on June 9, 1971.
Federico's land and rice mill. Rafael insisted that said property was "absolutely sold and
conveyed . . . for a consideration of P20,000.00, Philippine currency, and for other valuable On June 7, 1971, Rafael, obviously for the purpose of delay on account of its pettiness,
consideration". 30 Accordingly, he raised the following affirmative and/or special defenses: instituted certiorari proceedings in the Court of Appeals in order to have the aforecited ruling
nullified and set aside. Rafael was naturally rebuffed by the Appellate Court. Considering that the
xxx xxx xxx petition for Rafael to surrender his owner's duplicate of TCT No. T-36714 had been withdrawn
upon motion of Federico, the alleged admission of Federico as to the questioned deed's validity in
2.2 Plaintiff is now estopped from questioning the validity, genuineness, effect disappeared from the record and had ceased to have any standing as a judicial
valuable consideration and due execution of the Deed of Absolute Sale, Annex admission. 33 Dissatisfied with the ruling, Rafael elevated the matter to the Supreme Court via a
"A" of the Complaint, since he admitted the same in his Petition in L.R. Case petition for review on certiorari. This was summarily denied by us for lack of merit. 34
No. 1356 . . . . pertinent portions of which are quoted hereunder:
Whereupon, Rafael's counsel moved, as he often did previously, for continuation of trial of the
. . . On August 12, 1962, Rafael G. Suntay sold the property main case. 35 After a thirteen-year trial — with no less than six different Presiding
above-described to petitioner through a Deed of Absolute Judges; 36 numerous changes of lawyers; countless incidents; and a mountain-pile or pleadings — a
Sale . . . . decision in the case was finally rendered on April 30, 1984. Resolving the sole issue of whether or
not the deed of sale executed by Federico in favor of Rafael was simulated and without
consideration, the trial court ruled:
 O B L I C O N ( S i m u l a t i o n o f C o n t r a c t s ) |6

The following documents undisputedly show the admission of the plaintiff that property in question and paid taxes thereon because it was their express
the deed of absolute sale (Exh. A) is not a simulated or fictitious document but understanding that plaintiff would subsequently repurchase the property in
is a genuine deed of absolute sale he executed in favor of the defendant, to wit: question and all the fruits thus enjoyed by plaintiff and taxes thus paid by him
would be accounted for . . . This is borne out by the receipts of payment of
(a) . . . a demand letter of Attys. Agrava & Agrava, counsel of the plaintiff, the realty taxes which expressly show that plaintiff paid the taxes for and in the
pertinent portion of which is quoted as follows: name of defendant Rafael
Suntay. 37
"On May 19, 1972, our client, Federico C. Suntay sold to
your goodself for P20,000.00 a parcel of land situated at While the trial court upheld the validity and genuineness of the deed of sale executed by
Hagonoy, Bulacan . . ." Federico in favor of Rafael, which deed is referred to above as Exhibit A, it ruled that the
counter-deed, referred to as Exhibit B, executed by Rafael in favor of Federico, was
(b) . . . a Petition for the Surrender of Owner's Duplicate Certificate of Title simulated and without consideration, hence, null and void ab initio.
an/or Cancellation and Issuance of Substitute Owner's Copy of Transfer
Certificate of Title filed in Court on August 19, 1969 by the plaintiff against the The trial court ratiocinated that:
defendant docketed as LRC Case No. 1356 . . . hereby quoted as follows:
The Deed of Absolute Sale (Exh. B) which is a resale of the property in
"2. Petitioner is the vendee of a parcel of land, together question executed by the defendant in favor of the plaintiff was signed by the
with the improvements existing thereon situated in the defendant but at the time it was handed to the plaintiff it was not dated, not
Barrio of Sto. Niño, Hagonoy, Bulacan . . . title to which is notarized and above all it has no consideration because plaintiff did not pay
still . . . issued in the name of the vendor Rafael G. Suntay . defendant the consideration of the sale in the sum of P20,000.00. . . .
...
Although Exh. B was subsequently notarized, the fact remained that defendant
3. On August 12, 1962, Rafael G. Suntay sold the property . did not appear and acknowledge the same before the Notary Public . . . and did
. . to petitioner . . . ." not receive the consideration of the aforesaid Exh. B . . . Consequently (sic),
this Exh B for want of consideration and not having been acknowledged by
(c) . . . a notice of adverse claim filed by the plaintiff in the Registry of defendant before the Notary Public is therefore null and void and hence did not
Decision of Bulacan on the land in question . . . admitting the ownership of the transfer ownership of the property in question to the defendant.
defendant of said land, which is quoted as follows:
A contract of purchase and sale is void and produces no
"That the property has been sold to me by Rafael G. Suntay effect whatsoever where the same is without cause or
through an Absolute Deed of Sale . . . ." consideration in that the purchase price, which appears
thereon as paid, has in fact never been paid by the
These documents alone are more than sufficient evidence to conclude that purchaser to the vendor (Mapalo vs. Mapalo . . . 17 SCRA
Exhibit A is not a simulated Deed of Absolute Sale but a genuine Deed of 114). 38
Absolute Sale which transferred the ownership of the property in question from
the plaintiff to the defendant. The mere allegation of the plaintiff that the Deed While the trial court adjudged Rafael as the owner of the property in dispute, it did not go
of Sale (Exh. A) is simulated and without consideration cannot prevail over his to the extent of ordering Federico to pay back rentals for the use of the property as the
aforesaid admissions. court made the evidential finding that Rafael simply allowed his uncle to have continuous
possession of the property because or their understanding that Federico would
. . . In addition thereto is the fact that this Deed of Absolute Sale (Exh. A) was subsequently repurchase the same. The decretal portion of the decision of the trial court
duly recorded in the Notarial Registry of Notary Public Herminio V. Flores . . . reads:
thus showing the regularity and due execution of the aforesaid document . . . .
WHEREFORE, a decision is hereby rendered:
The mere fact that plaintiff is in continuous possession of the property in
question, pays realty taxes thereon and have introduced several improvements 1. Dismissing this complaint filed by plaintiff against herein defendant;
despite the execution of Deed of Absolute Sale (Exh. A) is not sufficient basis
to conclude that Exh. A is just a simulated sale in the light of the admissions of 2. Declaring the Deed absolute Sale (Exh. A) executed by the plaintiff in favor
fire plaintiff in the aforementioned documentary evidences and furthermore it of the defendant of a parcel of land covered by OCT No. 0-2015-Bulacan
was explained by the defendant that plaintiff has been in possession of the Registry as a genuine and valid document;
 O B L I C O N ( S i m u l a t i o n o f C o n t r a c t s ) |7

3. Ordering the defendant to pay the Government of the Republic of the repurchase the property and all the fruits thus enjoyed by the plaintiff and the
Philippines thru the Office of the Register of Deeds of Bulacan the true and taxes paid by him would be accounted for at the time of the repurchase . . .
correct registration fees for the Deed of Absolute Sale (Exh. A) on the basis of Indeed, the receipts of payment of realty taxes clearly show on their face that
the true consideration of the sale as admitted by the defendant which is Federico paid the taxes for and in behalf of Rafael . . . .
P20,000.00 as staled in the document plus his unpaid attorney's fees in the sum
of P114,000.00 within fifteen (15) days from the finality of this decision; Independent of the foregoing, documents are on record which are replete with
Federico's admissions showing that Exhibit "A" could not have been a
4. Declaring the Deed of Sale (Exh. B) executed by the defendant in favor of simulated or fictitious deed of sale. . . .
the plaintiff of a parcel of land covered by TCT No. T-36714-Bulacan Registry
as null and void ab initio; Finally, it is not disputed that Exhibit "A" was duly recorded in the Notarial
Register of Notary Public Herminio V. Flores . . . who testified on the due
5. The prayer for P500.00/month rental from May, 1962 is hereby denied for execution of the same . . .; Against this overwhelming evidence, Federico's self-
lack of merit; serving declaration that Exhibit "A" is a fictitious and simulated contract must
certainly fall.
6. With costs against the plaintiff. 39
This brings us to the Deed of Absolute Sale (Exh. "B") executed by Rafael in
From the aforecited decision of the trial court, both Federico and Rafael appealed. Before the Court favor of Federico over the same property.
of Appeals both pleaded invariably the same arguments which they had raised before the trial court.
On January 27, 1993, the Court of Appeals rendered judgment in affirmance of the trial court's We cannot add more to what the court a quo has said in declaring that Exhibit
decision, with a modification. Federico was ordered to surrender the possession of the disputed "B" is null and void, for which reason it could not have transferred the
property to Rafael. 40 ownership of the same property to Federico. . . . 41

The Court of Appeals ruled: Counsel of Federico filed a motion for reconsideration of the aforecited decision. While the motion
was pending resolution, Atty. Ricardo M. Fojas entered his appearance in behalf of the heirs of
After a careful examination of the evidence on record, we are inclined to agree Rafael who had passed away on November 23, 1988. Atty. Fojas prayed that said heirs be
with the lower court that Exhibit "A" is indeed a genuine deed of absolute sale substituted as defendants-appellants in the case. The prayer for substitution was duly noted by the
which transferred to Rafael the full ownership of the litigated property, court in a resolution dated April 6, 1993. Thereafter, Atty. Fojas filed in behalf of the heirs an
including the improvements found thereon. opposition to the motion for reconsideration. The parties to the case were heard on oral argument on
October 12, 1993.
For one, it immediately strikes us as rather unusual for Federico to wait until
1969, or after a period of more than seven (7) years from May 19, 1962 when On December 15, 1993, the Court of Appeals reversed itself and rendered an amended judgment,
he executed Exhibit "A", to seek the restoration of his title over the same pertinent portions of which read:
property. Were Federico to be believed, he executed Exhibit "A" simply to
accommodate his nephew in connection with the latter's alleged application as . . . this Court is convinced that the desired reconsideration is impressed with
rice dealer of RCA. There is nothing in the record, however, that Rafael ever compelling merit. For truly, certain premises stand out in the chain of evidence,
became a licensed rice dealer of RCA from 1962 to 1969. . . . the interplay of which supports the conclusion that the parties meant Exhibit
"A" to be a mere accommodation arrangement executed without any
. . . Prudence if not common sense should have cautioned Federico of the consideration and therefore simulated contract of sale. Consider the following:
dangers attendant to his inaction to assert immediately his alleged unaffected
ownership over the same property. It is simply unthinkable that Federico could 1. Two (2) instruments were executed closely one after the other involving
not have considered the possibility that an innocent purchaser for value may transfer and re-transfer of the same property at exactly the same price;
acquire the property from Rafael. Such a thought alone is enough reason for
Federico to be wary of the situation which he allowed to continue for seven (7) 2. The existing close relationship between the parties; and
years.
3. The value and location of the property purportedly sold, which project in
Nor can Federico draw comfort from his continued physical possession of the bold relief the gross inadequacy of the stated contractual consideration therefor.
property even after the same was sold to Rafael. As plausibly explained by
Rafael, he allowed Federico to remain in the premises and enjoy the fruits xxx xxx xxx
thereof because of their express understanding that Federico may subsequently
 O B L I C O N ( S i m u l a t i o n o f C o n t r a c t s ) |8

There is more. Similarly looming large to attest to the simulated character of scrutinize the case records and read and examined the pleadings and transcripts submitted before
Exhibit "A" which, in hindsight, was unjudiciously brushed aside is the the trial court 43 because the factual findings of the Court of Appeals and that of the trial court are
undisputed fact that the physical possession, enjoyment and use of the property contrary to each other. 44
in question remained through the years and up to the present in the hands of
Federico. Rafael, as records show, never assumed the benefits, let alone the The sole issue in this case concerns the validity and integrity of the aforedescribed deed of sale in
burden, of ownership. He did not even include the property in his statement of favor of Rafael Suntay. We necessarily begin with two veritable legal presumptions: first, that there
assets and liabilities . . . nor paid the taxes therefor. This factor, juxtaposed with was sufficient consideration for the contract 45 and, second, that it was the result of a fair and
Rafael's execution of the counter deed of sale (Exh. "B"), cannot but regular private transaction. 46 These presumptions if shown to hold, infer prima facie the
unmistakably indicate that the parties never meant to regard Exhibit "A" as transaction's validity, except that it must yield to the evidence adduced. 47
producing actual transfer of ownership and/or rights attached to ownership.
Doubtless, Exhibit "B" manifested, and is an affirmation of, such intention. In the aggregate, the evidence on record demonstrate a combination of circumstances from which
may be reasonably inferred certain badges of simulation that attach themselves to the deed of sale
We are thus inclined to agree with Federico's main submission that Exhibit "A" in question.
is merely a fragment of the intended transaction, that is, an accommodation
loan of title to Rafael and its subsequent return to Federico. The counter deed of I
sale executed by Rafael (Exh. "B"), completed it. Stated differently, the first
instrument merely recited a portion of the entire accommodation transaction; The late Rafael Suntay and private respondent Federico Suntay were relatives, undisputedly, whose
the second, as a complementary part, and, in addition to the first, integrated and blood relation was the foundation of their professional and business relationship. The late Rafael
made clear the simulated character of the entire agreement. testified that he had completely trusted Federico and so he signed and delivered the counter-deed of
sale even without prior payment of the alleged repurchase price of P20,000.00. Federico had such
It is true that in the Decision under consideration, this Court took stock, as faith and confidence in the late Rafael, as nephew and counsel, that he blindly signed and executed
Rafael urges, of Federico's admission in the letter dated August 14, 1969 of the the sale in question. He had recommended Rafael as legal counsel and corporate secretary of the
Agrava and Agrava Law office . . . in Federico's petition for registration . . . and Hagonoy Rural Bank of which he was founder and once President. He had entrusted to Rafael many
in his affidavit/notice of adverse claim. Viewed in its proper perspective, of his business documents and personal papers, the return of which he did not demand even upon
however, we are now inclined to consider such admission as no more than a termination of their professional relationship. It was precisely because of this relationship that
recognition on the part of Federico of the factual existence of Exhibit "A", by Federico consented to what he alleged as a loan of title over his land and rice mill in favor of the
virtue of which his OCT No. 0-2015 was cancelled and a new title (TCT No. T- late Rafael. We are all too familiar with the practice in the typical Filipino family where the
36714) issued in the name of Rafael. . . . patriarch with the capital and business standing takes into his fold the young, upcoming,
inexperienced but brilliant and brashly ambitious son, nephew or godchild who, in turn, becomes to
In fine, this Court rules and so holds that the Deed of Absolute Sale executed his father, uncle, or godparent, the jack of all trades, trouble shooter and most trusted liaison officer
on May 19, 1962 by plaintiff-appellant Federico Suntay in favor of his nephew cum adviser. He wittingly serves his patron without the security of a formal contract and without
Rafael G. Suntay (Exh. "A"), is absolutely simulated and fictitious. As such, it clarifying the matter of compensation.
is void and is not susceptible of ratification (Art. 1409, Civil Code), produces
no legal effects (Cariño vs. Court of Appeals, 152 SCRA 529), and does not The record is replete with circumstances that establish the closeness, mutual trust and business and
convey property rights nor in any way alter the juridical situation of the parties professional interdependence between the late Rafael and private respondent. When their
(Tongay vs. Court of Appeals, 100 SCRA 99). Along the same vein, the counter relationship turned sour, the late Rafael, in all probability knew where to hit Federico where it
deed of sale (Exh. "B"), executed by Rafael in favor of his uncle Federico, really hurt because he had been privy to most of Federico's business and personal dealings and
purportedly re-selling to the latter the very same property earlier fictitiously transactions. The documentary evidence alone proffered by the late Rafael showed the extent of
conveyed by Federico is likewise infected with the same infirmity that vitiates Rafael's knowledge and involvement in both the business and private affairs of Federico, his wife,
Exhibit "A". Like the latter document Exhibit "B" is also simulated and his son, and even his wife's relatives. Rafael admitted in open court that he had come into the
therefore it, too, is incapable of producing legal effects. In short, if was as if no possession thereof in the course of rendering legal services to his uncle. These documents on record
contract of sale was ever executed by Federico in favor of Rafael, on the one and the testimonies of the late Rafael and private respondent establish the existence of, not only the
hand, and by Rafael in favor of Federico, on the other hand, although the sad facts therein stated, but also the circumstance pertaining to the nature of the relationship between
reality must be acknowledged that on account of Exhibit "A", Federico's title to private respondent and the late Rafael. The Court of Appeals simply took a second look at the
the property was cancelled and replaced by a new one in the name of Rafael evidence on record as was its bounden duty upon the filing of a motion for reconsideration and
whose change of heart brought about Federico's travails. 42 could no longer ignore that the close relationship between the late Rafael and private respondent
was indeed a badge of simulation.
We cannot but uphold the foregoing findings and conclusions of the Court of Appeals. While the
rule is that factual findings of the Court of Appeals are binding on us, we endeavored, however, to
 O B L I C O N ( S i m u l a t i o n o f C o n t r a c t s ) |9

There are at least three distinguishable classes of so-called circumstances in Equally significant is the admission of the late Rafael that he did not inform Federico that he
evidence which, however, cannot safely be interpreted in the same way. One considered the transfer to be in consideration of his alleged unpaid attorney's fees.  51 Apparently, it
class of circumstances, often referred to in trials at law, includes all outside and is true, as Federico claimed, that no accounting was undertaken between uncle-client and nephew-
related incidents, conditions and happenings which are described by witnesses lawyer in order to arrive at the definite amount of the alleged unpaid attorney's fees. Strange and
and necessarily are subject to all of the dangers and defects of oral and memory irregular as this matter seems to be, the same may only become comprehensible when considered as
testimony. There are also circumstances which are admitted, or which arise or grave symptom of simulation.
from the nature of the case itself, which cannot be denied, and lastly there are
tangible and visible facts before  III
court . . . . which are the basis for a judgment . . . .
Indeed the most protuberant index of simulation is the complete absence of an attempt in any
. . . The law, as well as logic, makes a distinction between surroundings, manner on the part of the late Rafael to assert his rights of ownership over the land and rice mill in
conditions, and "circumstances" as compared with real and tangible facts. . . . A question. After the sale, he should have entered the land and occupied the premises thereof. He did
bungling, overwritten, traced signature, as well as a coat with a bullet-hole in not even attempt to. If he stood as owner, he would have collected rentals from Federico for the use
the breast are both . . . "silent circumstances" that do not commit perjury. and occupation of the land and its improvements. All that the late Rafael had was a title in his
Though silent they often are eloquent. . . . name.

All these quite distinct classes of evidence form the basis of legal verdicts and If is to be emphasized that the private respondents never parted with the
judgments. The great mass of legal evidence consists of testimony of oral ownership and possession of that portion of Lot No 785 . . . nor did the
witnesses which has force in proportion as it is believed, but in many important petitioners ever enter into possession thereof. As earlier stated, the issuance of
cases a verdict must be based mainly upon the second or the third class of TCT No. T-1346 did not operate to vest upon the latter ownership over the
evidence . . . Circumstances and facts must be interpreted and illustrated in private respondents' property. That act has never been recognized as a mode of
order to show whether a definite conclusion can be based on them. In many acquiring ownership. As a matter of fact, even the original registration of
cases a particular conclusion is immovable property does not vest title thereto; it is merely evidence of such
irresistible. 48 title over a particular property. The Torrens system of land registration should
not be used as a means to perpetrate fraud against the rightful owner of real
The history and relationship of trust, interdependence and intimacy between the late property. 52
Rafael and Federico is an unmistakable token of simulation. It has been observed that
fraud is generally accompanied by trust. 49Hardly is it inconsistent with practical The failure of the late Rafael to take exclusive possession of the property allegedly sold to
experience, especially in the context of the Filipino family's way of life, that Federico, the him is a clear badge of fraud. 53 The fact that, notwithstanding the title transfer, Federico
uncle, would almost naively lend his land title to his nephew and agree to its cancellation remained in actual possession, cultivation and occupation of the disputed lot from the
in his nephew's favor because Federico, in the first place, trusted his nephew; was well time the deed of sale was executed until the present, is a circumstance which is
aware of his power over him as uncle, client, and patron; and was actually in possession unmistakably added proof of the fictitiousness of the said transfer, 54 the same being
of the land and rice mill. No one could even conceive of the possibility of ejecting contrary to the principle of ownership. 55
Federico therefrom on the basis of the sham transaction. The late Rafael never attempted
to physically dispossess his uncle or actually take over the rice mill during his lifetime. Of course, according to the late Rafael, he allowed Federico to remain in the premises and
enjoy the fruits thereof because of their understanding that Federico may subsequently
II repurchase the property. Contrary to what Rafael thought, this in fact is added reason for
simulation. The idea of allowing a repurchase goes along the same lines posed by the
The late Rafael insisted that the sale to him of his uncle's property was in fact a "dacion en pago" in theory of Federico.
satisfaction of Federico's unpaid attorney's fees, 50 What prominently stands out from the mass of
records, however, is the fact that this claim of the late Rafael was only raised in 1976 when he If it were true that the first sale transaction was actually a "dacion en pago" in satisfaction
testified on direct examination. The answer that he filed in 1970 in response to Federico's complaint of Federico's alleged unpaid attorney's fees, it does strain the logical mind that Rafael had
never mentioned nor even alluded to any standing liability on the part of Federico as regards unpaid agreed to allow the repurchase of the property three months thereafter. Federico was
attorney's fees. Neither did the late Rafael deny or refute Federico's testimony that they did not have obviously financially liquid. Had he intended to pay attorney's fees, he would have paid
a clear-cut compensation scheme and that Federico gave him money at times, which compensation Rafael in cash and not part with valuable income-producing real property.
enabled the late Rafael to purchase his first car. The late Rafael even affirmed Federico's testimony
respecting his appointment as the legal counsel and corporate secretary of the Hagonoy Rural Bank IV
for which he received compensation as well.
 O B L I C O N ( S i m u l a t i o n o f C o n t r a c t s ) | 10

The late Rafael, at the very outset, made much of an uproar over the alleged admissions made by While the late Rafael vehemently upholds the validity and effectiveness of the deed of sale in
Federico in several documents executed by him or in his behalf. question, this posture is eroded by his admission, on cross-examination during trial that he never
declared his ownership of the subject property in his annual Statement Of Assets And Liabilities.
On the whole, it was the late Rafael's inflexible stand that Federico admitted in various The fact that the late Rafael denied both intention and knowledge involving the sham sale and
documents that he bad absolutely sold his land and rice mill to him and could not, thus, firmly maintained the validity and genuineness thereof has become incongruous because it is
subsequently deny or attack that sale. Upon our examination of such documents, irreconcilable with the circumstance that he apparently never considered the disputed property as
however, we find that neither the letter of Agrava & Agrava, nor the petition to compel one of his assets over which he had rights of absolute ownership.
delivery of the owner's duplicate of title and the notice of adverse claim, supports the late
Rafael's posture. Nowhere is it stated in the aforesaid petition and notice of adverse claim The allegation of Rafael that the lapse of seven (7) years before Federico sought the issuance of a
that Federico sold the subject properly to the late Rafael. What was alleged was that new title in his name necessarily makes Federico's claim stale and unenforceable does not hold
Rafael resold to Federico the said property, and not the other way around, precisely water. Federico's title was not in the hands of a stranger or mere acquaintance; it was in the
because both documents were assertions of remedies resorted to by Federico upon the possession of his nephew who, being his lawyer, had served him faithfully for many years. Federico
refusal by the late Rafael to tender his owner's duplicate title. had been all the while in possession of the land covered by his title and so there was no pressing
reason for Federico to have a title in his name issued. Even when the relationship between the late
V Rafael and Federico deteriorated, and eventually ended, it is not at all strange for Federico to have
been complacent and unconcerned about the status of his title over the disputed property since he
Neither does the undisputed fact that the deed of sale executed by Federico in favor of the late has been possessing the same actually, openly, and adversely, to the exclusion of Rafael. It was
Rafael, is a notarized document, justify the conclusion that said sale is undoubtedly a true only when Federico needed the title in order to obtain a collaterized loan  57 that Federico began to
conveyance to which the parties thereto are irrevocably and undeniably bound. attend to the task of obtaining a title in his name over the subject land and rice mill.

Conduct, to be given jural effects, must be jural in its subject . . .  i.e. must We, therefore, hold that the deed of sale executed by Federico in favor of his now deceased
concern jural relations, not relations of friendship or other non-jural relations. nephew, Rafael, is absolutely simulated and fictitious and, hence, null and void, said parties having
The father who promises to bring home a box of tools for his boy is not bound entered into a sale transaction to which they did not intend to be legally bound. As no property was
in contract, though the same promise to his neighbor may be binding. The validly conveyed under the deed, the second deed of sale executed by the late Rafael in favor of his
friend who invites one with an offer of a dinner is not legally liable, though he uncle, should be considered ineffective and unavailing.
who agrees with a restaurant-keeper for a banquet to be spread there is under a
contract of liability. . . . In all such cases, therefore, the conduct is jurally WHEREFORE, the Amended Decision promulgated by the Court of Appeals on December 15,
ineffective, or void. In the traditional phraseology of the parole evidence rule, 1993 in CA-G.R CV No. 08179 is hereby AFFIRMED IN TOTO. Petitioners, the heirs of Rafael G.
then, it may always be shown that the transaction was understood by the parties Suntay, are hereby ordered to reconvey to private respondent Federico G. Suntay the property
not to have jural effect. described in paragraph 2.1 of the complaint, within ten (10) days from the finality of this Decision,
and to surrender to him within the same period the owner's duplicate copy of Transfer Certificate of
(1) Ordinarily, the bearing of this principle is plain enough on the Title No. T-36714 of the Registry of Deeds of the Province of Bulacan. In the event that the
circumstances. It has been judicially applied to household services rendered by petitioners fail or refuse to execute the necessary deed of reconveyance as herein directed, the Clerk
a member of the family, and to a writing representing merely a family of Court of the Regional Trial Court of Bulacan is hereby ordered to execute the same at the
understanding. . . . expense of the aforesaid heirs.

When the document is to serve the purpose of a mere sham, this principle in Costs against petitioners.
strictness exonerates the makers. . . . 56
SO ORDERED.
The cumulative effect of the evidence on record as chronicled aforesaid identified badges of
simulation proving that the sale by Federico to his deceased nephew of his land and rice mill, was
not intended to have any legal effect between them. Though the notarization of the deed of sale in
question vests in its favor the presumption of regularity, it is not the intention nor the function of G.R. No. 89561 September 13, 1990
the notary public to validate and make binding an instrument never, in the first place, intended to
have any binding legal effect upon the parties thereto. The intention of the parties still and always is BUENAFLOR C. UMALI, MAURICIA M. VDA. DE CASTILLO, VICTORIA M.
the primary consideration in determining the true nature of a contract. CASTILLO, BERTILLA C. RADA, MARIETTA C. ABAÑEZ, LEOVINA C. JALBUENA
and SANTIAGO M. RIVERA, petitioners, 
VI vs.
 O B L I C O N ( S i m u l a t i o n o f C o n t r a c t s ) | 11

COURT OF APPEALS, BORMAHECO, INC. and PHILIPPINE MACHINERY PARTS CFI of Quezon (per Exhibit A) which intestate proceedings
MANUFACTURING CO., INC., respondents. was instituted by Mauricia Meer Vda. de Castillo, the
previous administratrix of the said proceedings prior to
Edmundo T. Zepeda for petitioners. 1970 (per exhibits A-1 and A-2) which case was filed in
Court way back in 1964;
Martin M. De Guzman for respondent BORMAHECO, Inc.
b) The four (4) parcels of land described in paragraph 3 of
Renato J. Robles for P.M. Parts Manufacturing Co., Inc. the Complaint were originally covered by TCT No. T-
42104 and Tax Dec. No. 14134 with assessed value of
  P3,100.00; TCT No. T 32227 and Tax Dec. No. 14132,
with assessed value of P5,130,00; TCT No. T-31762 and
REGALADO, J.: Tax Dec. No. 14135, with assessed value of P6,150.00; and
TCT No. T-42103 with Tax Dec. No. 14133, with assessed
This is a petition to review the decision of respondent Court of Appeals, dated August 3, 1989, in value of P3,580.00 (per Exhibits A-2 and B, B-1 to B-3 C,
CA-GR CV No. 15412, entitled "Buenaflor M. Castillo Umali, et al. vs. Philippine Machinery C-1 -to C3
Parts Manufacturing Co., Inc., et al.,"  1the dispositive portion whereof provides:
c) That the above-enumerated four (4) parcels of land were
WHEREFORE, viewed in the light of the entire record, the judgment appealed the subject of the Deed of Extra-Judicial Partition executed
from must be, as it is hereby REVERSED. In lieu thereof, a judgment is hereby by the heirs of Felipe Castillo (per Exhibit D) and by virtue
rendered- thereof the titles thereto has (sic) been cancelled and in lieu
thereof, new titles in the name of Mauricia Meer Vda. de
1) Dismissing the complaint, with cost against plaintiffs; Castillo and of her children, namely: Buenaflor, Bertilla,
Victoria, Marietta and Leovina, all surnamed Castillo has
2) Ordering plaintiffs-appellees to vacate the subject properties; and (sic) been issued, namely: TCT No. T-12113 (Exhibit E );
TCT No. T-13113 (Exhibit F); TCT No. T-13116 (Exhibit
3) Ordering plaintiffs-appellees to pay upon defendants' counterclaims: G ) and TCT No. T13117 (Exhibit H )
a) To defendant-appellant PM Parts: (i) damages consisting d) That mentioned parcels of land were submitted as
of the value of the fruits in the subject parcels of land of guaranty in the Agreement of Counter-Guaranty with
which they were deprived in the sum of P26,000.00 and (ii) Chattel-Real Estate Mortgage executed on 24 October 1970
attorney's fees of P15,000.00 between Insurance Corporation of the Philippines and
Slobec Realty Corporation represented by Santiago Rivera
b) To defendant-appellant Bormaheco: (i) expenses of (Exhibit 1);
litigation in the amount of P5,000.00 and (ii) attorney's fees
of P15,000.00. e) That based on the Certificate of Sale issued by the
Sheriff of the Province of Quezon in favor of Insurance
SO ORDERED. Corporation of the Philippines it was able to transfer to
itself the titles over the lots in question, namely: TCT No.
The original complaint for annulment of title filed in the court a quo by herein petitioners included T-23705 (Exhibit M), TCT No. T 23706 (Exhibit N ), TCT
as party defendants the Philippine Machinery Parts Manufacturing Co., Inc. (PM Parts), Insurance No. T-23707 (Exhibit 0) and TCT No. T 23708 (Exhibit P);
Corporation of the Philippines (ICP), Bormaheco, Inc., (Bormaheco) and Santiago M. Rivera
(Rivera). A Second Amended Complaint was filed, this time impleading Santiago M. Rivera as f) That on 10 April 1975, the Insurance Corporation of the
party plaintiff. Philippines sold to PM Parts the immovables in question
(per Exhibit 6 for PM Parts) and by reason thereof,
During the pre-trial conference, the parties entered into the following stipulation of facts: succeeded in transferring unto itself the titles over the lots
in dispute, namely: per TCT No. T-24846 (Exhibit Q ), per
As between all parties: Plaintiff Buenaflor M. Castillo is TCT No. T-24847 (Exhibit R ), TCT No. T-24848
the judicial administratrix of the estate of Felipe Castillo in (Exhibit), TCT No. T-24849 (Exhibit T );
Special Proceeding No. 4053, pending before Branch IX,
 O B L I C O N ( S i m u l a t i o n o f C o n t r a c t s ) | 12

g) On 26 August l976, Mauricia Meer Vda. de Castillo' n) That plaintiff and other heirs are harvest fruits of the
genther letter to Modesto N. Cervantes stating that she and property (daranghita) which is worth no less than Pl,000.00
her children refused to comply with his demands (Exhibit per harvest.
V-2);
As between plaintiffs and 
h) That from at least the months of October, November and defendant Bormaheco, Inc
December 1970 and January 1971, Modesto N. Cervantes
was the Vice-President of Bormaheco, Inc. later President o) That on 25 November 1970, at Makati, Rizal, Same
thereof, and also he is one of the Board of Directors of PM Rivera, in representation of the Slobec Realty &
Parts; on the other hand, Atty. Martin M. De Guzman was Development Corporation executed in favor of Bormaheco,
the legal counsel of Bormaheco, Inc., later Executive Vice- Inc., represented by its Vice-President Modesto N.
President thereof, and who also is the legal counsel of Cervantes a Chattel Mortgage concerning one unit model
Insurance Corporation of the Philippines and PM Parts; that CAT D7 Caterpillar Crawler Tractor as described therein as
Modesto N. Cervantes served later on as President of PM security for the payment in favor of the mortgagee of the
Parts, and that Atty. de Guzman was retained by Insurance amount of P180,000.00 (per Exhibit K) that Id document
Corporation of the Philippines specifically for foreclosure was superseded by another chattel mortgage dated January
purposes only; 23, 1971 (Exhibit 15);

i) Defendant Bormaheco, Inc. on November 25, 1970 sold p) On 18 December 1970, at Makati, Rizal, the Bormaheco,
to Slobec Realty and Development, Inc., represented by Inc., represented by its Vice-President Modesto Cervantes
Santiago Rivera, President, one (1) unit Caterpillar Tractor and Slobec Realty Corporation represented by Santiago
D-7 with Serial No. 281114 evidenced by a contract Rivera executed the sales agreement concerning the sale of
marked Exhibit J and Exhibit I for Bormaheco, Inc.; one (1) unit Model CAT D7 Caterpillar Crawler Tractor as
described therein for the amount of P230,000.00 (per
j) That the Surety Bond No. 14010 issued by co-defendant Exhibit J) which document was superseded by the Sales
ICP was likewise secured by an Agreement with Counter- Agreement dated January 23,1971 (Exhibit 16);
Guaranty with Real Estate Mortgage executed by Slobec
Realty & Development, Inc., Mauricia Castillo Meer, q) Although it appears on the document entitled Chattel
Buenaflor Castillo, Bertilla Castillo, Victoria Castillo, Mortgage (per Exhibit K) that it was executed on 25
Marietta Castillo and Leovina Castillo, as mortgagors in November 1970, and in the document entitled Sales
favor of ICP which document was executed and ratified Agreement (per Exhibit J) that it was executed on 18
before notary public Alberto R. Navoa of the City of December 1970, it appears in the notarial register of the
Manila on October 24,1970; notary public who notarized them that those two documents
were executed on 11 December 1970. The certified xerox
k) That the property mortgaged consisted of four (4) parcels copy of the notarial register of Notary Public Guillermo
of land situated in Lucena City and covered by TCT Nos. Aragones issued by the Bureau of Records Management is
T-13114, T13115,  hereto submitted as Exhibit BB That said chattel mortgage
T-13116 and T-13117 of the Register of Deeds of Lucena was superseded by another document dated January 23,
City; 1971;

l) That the tractor sold by defendant Bormaheco, Inc. to r) That on 23 January 1971, Slobec Realty Development
Slobec Realty & Development, Inc. was delivered to Corporation, represented by Santiago Rivera, received from
Bormaheco, Inc. on or about October 2,1973, by Mr. Bormaheco, Inc. one (1) tractor Caterpillar Model D-7
Menandro Umali for purposes of repair; pursuant to Invoice No. 33234 (Exhibits 9 and 9-A,
Bormaheco, Inc.) and delivery receipt No. 10368 (per
m) That in August 1976, PM Parts notified Mrs. Mauricia Exhibits 10 and 10-A for Bormaheco, Inc
Meer about its ownership and the assignment of Mr.
Petronilo Roque as caretaker of the subject property; s) That on 28 September 1973, Atty. Martin M. de Guzman,
as counsel of Insurance Corporation of the Philippines
 O B L I C O N ( S i m u l a t i o n o f C o n t r a c t s ) | 13

purchased at public auction for said corporation the four (4) and Slobec as principal, in favor of Bormaheco, as borne out by Exhibit '8' (p.
parcels of land subject of tills case (per Exhibit L), and 111, Record). The aforesaid surety bond was in turn secured by an Agreement
which document was presented to the Register of Deeds on of Counter-Guaranty with Real Estate Mortgage (Exhibit I, p. 24, Record)
1 October 1973; executed by Rivera as president of Slobec and Mauricia Meer Vda. de Castillo,
Buenaflor Castillo Umali, Bertilla Castillo-Rada, Victoria Castillo, Marietta
t) Although it appears that the realties in issue has (sic) Castillo and Leovina Castillo Jalbuena, as mortgagors and Insurance
been sold by Insurance Corporation of the Philippines in Corporation of the Philippines (ICP) as mortgagee. In this agreement, ICP
favor of PM Parts on 1 0 April 1975, Modesto N. guaranteed the obligation of Slobec with Bormaheco in the amount of
Cervantes, formerly Vice- President and now President of P180,000.00. In giving the bond, ICP required that the Castillos mortgage to
Bormaheco, Inc., sent his letter dated 9 August 1976 to them the properties in question, namely, four parcels of land covered by TCTs
Mauricia Meer Vda. de Castillo (Exhibit V), demanding in the name of the aforementioned mortgagors, namely TCT Nos. 13114,
that she and her children should vacate the premises; 13115, 13116 and 13117 all of the Register of Deeds for Lucena City.

u) That the Caterpillar Crawler Tractor Model CAT D-7 On the occasion of the execution on January 23, 1971, of the Sales Agreement
which was received by Slobec Realty Development Exhibit '16', Slobec, represented by Rivera received from Bormaheco the
Corporation was actually reconditioned and repainted. " 2 subject matter of the said Sales Agreement, namely, the aforementioned tractor
Caterpillar Model D-7 as evidenced by Invoice No. 33234 (Exhs. 9 and 9-A, p.
We cull the following antecedents from the decision of respondent Court of Appeals: 112, Record) and Delivery Receipt No. 10368 (Exhs. 10 and 10-A, p. 113).
This tractor was known by Rivera to be a reconditioned and repainted one
Plaintiff Santiago Rivera is the nephew of plaintiff Mauricia Meer Vda. de [Stipulation of Facts, Pre-trial Order, par. (u)].
Castillo. The Castillo family are the owners of a parcel of land located in
Lucena City which was given as security for a loan from the Development Meanwhile, for violation of the terms and conditions of the Counter-Guaranty
Bank of the Philippines. For their failure to pay the amortization, foreclosure of Agreement (Exh. 1), the properties of the Castillos were foreclosed by ICP As
the said property was about to be initiated. This problem was made known to the highest bidder with a bid of P285,212.00, a Certificate of Sale was issued by
Santiago Rivera, who proposed to them the conversion into subdivision of the the Provincial Sheriff of Lucena City and Transfer Certificates of Title over the
four (4) parcels of land adjacent to the mortgaged property to raise the subject parcels of land were issued by the Register of Deeds of Lucena City in
necessary fund. The Idea was accepted by the Castillo family and to carry out favor of ICP namely, TCT Nos. T-23705, T 23706, T-23707 and T-23708
the project, a Memorandum of Agreement (Exh. U p. 127, Record) was (Exhs. M to P, pp. 38-45). The mortgagors had one (1) year from the date of the
executed by and between Slobec Realty and Development, Inc., represented by registration of the certificate of sale, that is, until October 1, 1974, to redeem
its President Santiago Rivera and the Castillo family. In this agreement, the property, but they failed to do so. Consequently, ICP consolidated its
Santiago Rivera obliged himself to pay the Castillo family the sum of ownership over the subject parcels of land through the requisite affidavit of
P70,000.00 immediately after the execution of the agreement and to pay the consolidation of ownership dated October 29, 1974, as shown in Exh. '22'(p.
additional amount of P400,000.00 after the property has been converted into a 138, Rec.). Pursuant thereto, a Deed of Sale of Real Estate covering the subject
subdivision. Rivera, armed with the agreement, Exhibit U , approached Mr. properties was issued in favor of ICP (Exh. 23, p. 139, Rec.).
Modesto Cervantes, President of defendant Bormaheco, and proposed to
purchase from Bormaheco two (2) tractors Model D-7 and D-8 Subsequently, a On April 10, 1975, Insurance Corporation of the Phil. ICP sold to Phil.
Sales Agreement was executed on December 28,1970 (Exh. J, p. 22, Record). Machinery Parts Manufacturing Co. (PM Parts) the four (4) parcels of land and
by virtue of said conveyance, PM Parts transferred unto itself the titles over the
On January 23, 1971, Bormaheco, Inc. and Slobec Realty and Development, lots in dispute so that said parcels of land are now covered by TCT Nos. T-
Inc., represented by its President, Santiago Rivera, executed a Sales Agreement 24846, T-24847, T-24848 and T-24849 (Exhs. Q-T, pp. 46-49, Rec.).
over one unit of Caterpillar Tractor D-7 with Serial No. 281114, as evidenced
by the contract marked Exhibit '16'. As shown by the contract, the price was Thereafter, PM Parts, through its President, Mr. Modesto Cervantes, sent a
P230,000.00 of which P50,000.00 was to constitute a down payment, and the letter dated August 9,1976 addressed to plaintiff Mrs. Mauricia Meer Castillo
balance of P180,000.00 payable in eighteen monthly installments. On the same requesting her and her children to vacate the subject property, who (Mrs.
date, Slobec, through Rivera, executed in favor of Bormaheco a Chattel Castillo) in turn sent her reply expressing her refusal to comply with his
Mortgage (Exh. K, p. 29, Record) over the said equipment as security for the demands.
payment of the aforesaid balance of P180,000.00. As further security of the
aforementioned unpaid balance, Slobec obtained from Insurance Corporation of On September 29, 1976, the heirs of the late Felipe Castillo, particularly
the Phil. a Surety Bond, with ICP (Insurance Corporation of the Phil.) as surety plaintiff Buenaflor M. Castillo Umali as the appointed administratrix of the
 O B L I C O N ( S i m u l a t i o n o f C o n t r a c t s ) | 14

properties in question filed an action for annulment of title before the then null and void for being fictitious, spurious and without consideration.
Court of First Instance of Quezon and docketed thereat as Civil Case No. 8085. Consequently, Transfer Certificates of Title Nos. T 23705, T-23706, T23707
Thereafter, they filed an Amended Complaint on January 10, 1980 (p. 444, and T-23708 (Exhibits M, N, O and P) issued in the name of Insurance
Record). On July 20, 1983, plaintiffs filed their Second Amended Complaint, Corporation of the Philippines, are likewise null and void.
impleading Santiago M. Rivera as a party plaintiff (p. 706, Record). They
contended that all the aforementioned transactions starting with the Agreement The sale by Insurance Corporation of the- Philippines in favor of defendant
of Counter-Guaranty with Real Estate Mortgage (Exh. I), Certificate of Sale Philippine Machinery Parts Manufacturing Co., Inc., over Id four (4) parcels of
(Exh. L) and the Deeds of Authority to Sell, Sale and the Affidavit of land and Transfer Certificates of Title Nos. T 24846, T-24847, T-24848 and T-
Consolidation of Ownership (Annexes F, G, H, I) as well as the Deed of Sale 24849 subsequently issued by virtue of said sale in the name of Philippine
(Annexes J, K, L and M) are void for being entered into in fraud and without Machinery Parts Manufacturing Co., Inc., are similarly declared null and void,
the consent and approval of the Court of First Instance of Quezon, (Branch IX) and the Register of Deeds of Lucena City is hereby directed to issue, in lieu
before whom the administration proceedings has been pending. Plaintiffs pray thereof, transfer certificates of title in the names of the plaintiffs, except
that the four (4) parcels of land subject hereof be declared as owned by the Santiago Rivera.
estate of the late Felipe Castillo and that all Transfer Certificates of Title Nos.
13114,13115,13116,13117, 23705, 23706, 23707, 23708, 24846, 24847, 24848 Orders the defendants jointly and severally to pay the plaintiffs moral damages
and 24849 as well as those appearing as encumbrances at the back of the in the sum of P10,000.00, exemplary damages in the amount of P5,000.00, and
certificates of title mentioned be declared as a nullity and defendants to pay actual litigation expenses in the sum of P6,500.00.
damages and attorney's fees (pp. 71071 1, Record).
Defendants are likewise ordered to pay the plaintiffs, jointly and severally, the
In their amended answer, the defendants controverted the complaint and sum of P10,000.00 for and as attomey's fees. With costs against the defendants.
alleged, by way of affirmative and special defenses that the complaint did not
state facts sufficient to state a cause of action against defendants; that plaintiffs SO ORDERED. 4
are not entitled to the reliefs demanded; that plaintiffs are estopped or precluded
from asserting the matters set forth in the Complaint; that plaintiffs are guilty of As earlier stated, respondent court reversed the aforequoted decision of the trial court and rendered
laches in not asserting their alleged right in due time; that defendant PM Parts is the judgment subject of this petition-
an innocent purchaser for value and relied on the face of the title before it
bought the subject property (p. 744, Record). 3 Petitioners contend that respondent Court of Appeals erred:

After trial, the court a quo rendered judgment, with the following decretal 1. In holding and finding that the actions entered into between petitioner Rivera
portion: with Cervantes are all fair and regular and therefore binding between the parties
thereto;
WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and
against the defendants, declaring the following documents: 2. In reversing the decision of the lower court, not only based on erroneous
conclusions of facts, erroneous presumptions not supported by the evidence on
Agreement of Counter-Guaranty with Chattel-Real Estate record but also, holding valid and binding the supposed payment by ICP of its
Mortgage dated October 24,1970 (Exhibit 1); obligation to Bormaheco, despite the fact that the surety bond issued it had
already expired when it opted to foreclose extrajudically the mortgage executed
Sales Agreement dated December 28, 1970 (Exhibit J) by the petitioners;

Chattel Mortgage dated November 25, 1970 (Exhibit K) 3. In aside the finding of the lower court that there was necessity to pierce the
veil of corporate existence; and
Sales Agreement dated January 23, 1971 (Exhibit 16);
4. In reversing the decision of the lower court of affirming the same 5
Chattel Mortgage dated January 23, 1971 (Exhibit 17);
I. Petitioners aver that the transactions entered into between Santiago M. Rivera, as President of
Certificate of Sale dated September 28, 1973 executed by Slobec Realty and Development Company (Slobec) and Mode Cervantes, as Vice-President of
the Provincial Sheriff of Quezon in favor of Insurance Bormaheco, such as the Sales Agreement, 6 Chattel Mortgage 7 and the Agreement of Counter-
Corporation of the Philippines (Exhibit L); Guaranty with Chattel/Real Estate Mortgage, 8 are all fraudulent and simulated and should,
therefore, be declared nun and void. Such allegation is premised primarily on the fact that contrary
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to the stipulations agreed upon in the Sales Agreement (Exhibit J), Rivera never made any advance Rivera executed a Deed of Sale with Right of Repurchase of his car in favor of Bormaheco and
payment, in the alleged amount of P50,000.00, to Bormaheco; that the tractor was received by agreed that a part of the proceeds thereof shall be used to pay the premium for the bond. 11 In effect,
Rivera only on January 23, 1971 and not in 1970 as stated in the Chattel Mortgage (Exhibit K); and Bormaheco accepted the payment of the premium as an agent of ICP The execution of the deed of
that when the Agreement of Counter-Guaranty with Chattel/Real Estate Mortgage was executed on sale with a right of repurchase in favor of Bormaheco under such circumstances sufficiently
October 24, 1970, to secure the obligation of ICP under its surety bond, the Sales Agreement and establishes the fact that Rivera recognized Bormaheco as an agent of ICP Such payment to the
Chattel Mortgage had not as yet been executed, aside from the fact that it was Bormaheco, and not agent of ICP is, therefore, binding on Rivera. He is now estopped from questioning the validity of
Rivera, which paid the premium for the surety bond issued by ICP the suretyship contract.

At the outset, it will be noted that petitioners submission under the first assigned error hinges purely II. Under the doctrine of piercing the veil of corporate entity, when valid grounds therefore exist,
on questions of fact. Respondent Court of Appeals made several findings to the effect that the the legal fiction that a corporation is an entity with a juridical personality separate and distinct from
questioned documents are valid and binding upon the parties, that there was no fraud employed by its members or stockholders may be disregarded. In such cases, the corporation will be considered
private respondents in the execution thereof, and that, contrary to petitioners' allegation, the as a mere association of persons. The members or stockholders of the corporation will be
evidence on record reveals that petitioners had every intention to be bound by their undertakings in considered as the corporation, that is, liability will attach directly to the officers and
the various transactions had with private respondents. It is a general rule in this jurisdiction that stockholders. 12 The doctrine applies when the corporate fiction is used to defeat public
findings of fact of said appellate court are final and conclusive and, thus, binding on this Court in convenience, justify wrong, protect fraud, or defend crime, 13 or when it is made as a shield to
the absence of sufficient and convincing proof, inter alia, that the former acted with grave abuse of confuse the legitimate issues 14 or where a corporation is the mere alter ego or business conduit of a
discretion. Under the circumstances, we find no compelling reason to deviate from this long- person, or where the corporation is so organized and controlled and its affairs are so conducted as to
standing jurisprudential pronouncement. make it merely an instrumentality, agency, conduit or adjunct of another corporation. 15

In addition, the alleged failure of Rivera to pay the consideration agreed upon in the Sales In the case at bar, petitioners seek to pierce the V621 Of corporate entity of Bormaheco, ICP and
Agreement, which clearly constitutes a breach of the contract, cannot be availed of by the guilty PM Parts, alleging that these corporations employed fraud in causing the foreclosure and
party to justify and support an action for the declaration of nullity of the contract. Equity and fair subsequent sale of the real properties belonging to petitioners While we do not discount the
play dictates that one who commits a breach of his contract may not seek refuge under the possibility of the existence of fraud in the foreclosure proceeding, neither are we inclined to apply
protective mantle of the law. the doctrine invoked by petitioners in granting the relief sought. It is our considered opinion that
piercing the veil of corporate entity is not the proper remedy in order that the foreclosure
The evidence of record, on an overall calibration, does not convince us of the validity of petitioners' proceeding may be declared a nullity under the circumstances obtaining in the legal case at bar.
contention that the contracts entered into by the parties are either absolutely simulated or downright
fraudulent. In the first place, the legal corporate entity is disregarded only if it is sought to hold the officers and
stockholders directly liable for a corporate debt or obligation. In the instant case, petitioners do not
There is absolute simulation, which renders the contract null and void, when the parties do not seek to impose a claim against the individual members of the three corporations involved; on the
intend to be bound at all by the same. 9 The basic characteristic of this type of simulation of contrary, it is these corporations which desire to enforce an alleged right against petitioners.
contract is the fact that the apparent contract is not really desired or intended to either produce legal Assuming that petitioners were indeed defrauded by private respondents in the foreclosure of the
effects or in any way alter the juridical situation of the parties. The subsequent act of Rivera in mortgaged properties, this fact alone is not, under the circumstances, sufficient to justify the
receiving and making use of the tractor subject matter of the Sales Agreement and Chattel piercing of the corporate fiction, since petitioners do not intend to hold the officers and/or members
Mortgage, and the simultaneous issuance of a surety bond in favor of Bormaheco, concomitant with of respondent corporations personally liable therefor. Petitioners are merely seeking the declaration
the execution of the Agreement of Counter-Guaranty with Chattel/Real Estate Mortgage, conduce of the nullity of the foreclosure sale, which relief may be obtained without having to disregard the
to the conclusion that petitioners had every intention to be bound by these contracts. The aforesaid corporate fiction attaching to respondent corporations. Secondly, petitioners failed to
occurrence of these series of transactions between petitioners and private respondents is a strong establish by clear and convincing evidence that private respondents were purposely formed and
indication that the parties actually intended, or at least expected, to exact fulfillment of their operated, and thereafter transacted with petitioners, with the sole intention of defrauding the latter.
respective obligations from one another.
The mere fact, therefore, that the businesses of two or more corporations are interrelated is not a
Neither will an allegation of fraud prosper in this case where petitioners failed to show that they justification for disregarding their separate personalities, 16 absent sufficient showing that the
were induced to enter into a contract through the insidious words and machinations of private corporate entity was purposely used as a shield to defraud creditors and third persons of their rights.
respondents without which the former would not have executed such contract. To set aside a
document solemnly executed and voluntarily delivered, the proof of fraud must be clear and III. The main issue for resolution is whether there was a valid foreclosure of the mortgaged
convincing. 10 We are not persuaded that such quantum of proof exists in the case at bar. properties by ICP Petitioners argue that the foreclosure proceedings should be declared null and
void for two reasons, viz.: (1) no written notice was furnished by Bormaheco to ICP anent the
The fact that it was Bormaheco which paid the premium for the surety bond issued by ICP does failure of Slobec in paying its obligation with the former, plus the fact that no receipt was presented
not per se affect the validity of the bond. Petitioners themselves admit in their present petition that
 O B L I C O N ( S i m u l a t i o n o f C o n t r a c t s ) | 16

to show the amount allegedly paid by ICP to Bormaheco; and (b) at the time of the foreclosure of On the other hand, the Sales Agreement dated January 23, 1971 provides that the balance of
the mortgage, the liability of ICP under the surety bond had already expired. P180,000.00 shall be payable in eighteen (18) monthly installments. 20 The Promissory Note
executed by Slobec on even date in favor of Bormaheco further provides that the obligation shall be
Respondent court, in finding for the validity of the foreclosure sale, declared: payable on or before February 23, 1971 up to July 23, 1972, and that non-payment of any of the
installments when due shall make the entire obligation immediately due and demandable. 21
Now to the question of whether or not the foreclosure by the ICP of the real
estate mortgage was in the exercise of a legal right, We agree with the It is basic that liability on a bond is contractual in nature and is ordinarily restricted to the
appellants that the foreclosure proceedings instituted by the ICP was in the obligation expressly assumed therein. We have repeatedly held that the extent of a surety's liability
exercise of a legal right. First, ICP has in its favor the legal presumption that it is determined only by the clause of the contract of suretyship as well as the conditions stated in the
had indemnified Bormaheco by reason of Slobec's default in the payment of its bond. It cannot be extended by implication beyond the terms the contract. 22
obligation under the Sales Agreement, especially because Bormaheco
consented to ICPs foreclosure of the mortgage. This presumption is in Fundamental likewise is the rule that, except where required by the provisions of the contract, a
consonance with pars. R and Q Section 5, Rule 5, * New Rules of Court which demand or notice of default is not required to fix the surety's liability. 23 Hence, where the contract
provides that it is disputably presumed that private transactions have been fair of suretyship stipulates that notice of the principal's default be given to the surety, generally the
and regular. likewise, it is disputably presumed that the ordinary course of failure to comply with the condition will prevent recovery from the surety. There are certain
business has been followed: Second, ICP had the right to proceed at once to the instances, however, when failure to comply with the condition will not extinguish the surety's
foreclosure of the mortgage as mandated by the provisions of Art. 2071 Civil liability, such as a failure to give notice of slight defaults, which are waived by the obligee; or on
Code for these further reasons: Slobec, the principal debtor, was admittedly mere suspicion of possible default; or where, if a default exists, there is excuse or provision in the
insolvent; Slobec's obligation becomes demandable by reason of the expiration suretyship contract exempting the surety for liability therefor, or where the surety already has
of the period of payment; and its authorization to foreclose the mortgage upon knowledge or is chargeable with knowledge of the default. 24
Slobec's default, which resulted in the accrual of ICPS liability to Bormaheco.
Third, the Agreement of Counter-Guaranty with Real Estate Mortgage (Exh. 1) In the case at bar, the suretyship contract expressly provides that ICP shag not be liable for any
expressly grants to ICP the right to foreclose the real estate mortgage in the claim not filed in writing within thirty (30) days from the expiration of the bond. In its decision
event of 'non-payment or non-liquidation of the entire indebtedness or fraction dated May 25 1987, the court a quo categorically stated that '(n)o evidence was presented to show
thereof upon maturity as stipulated in the contract'. This is a valid and binding that Bormaheco demanded payment from ICP nor was there any action taken by Bormaheco on the
stipulation in the absence of showing that it is contrary to law, morals, good bond posted by ICP to guarantee the payment of plaintiffs obligation. There is nothing in the
customs, public order or public policy. (Art. 1306, New Civil Code). 17 records of the proceedings to show that ICP indemnified Bormaheco for the failure of the plaintiffs
to pay their obligation. " 25 The failure, therefore, of Bormaheco to notify ICP in writing about
1. Petitioners asseverate that there was no notice of default issued by Bormaheco to ICP which Slobec's supposed default released ICP from liability under its surety bond. Consequently, ICP
would have entitled Bormaheco to demand payment from ICP under the suretyship contract. could not validly foreclose that real estate mortgage executed by petitioners in its favor since it
never incurred any liability under the surety bond. It cannot claim exemption from the required
Surety Bond No. B-1401 0 which was issued by ICP in favor of Bormaheco, wherein ICP and written notice since its case does not fall under any of the exceptions hereinbefore enumerated.
Slobec undertook to guarantee the payment of the balance of P180,000.00 payable in eighteen (18)
monthly installments on one unit of Model CAT D-7 Caterpillar Crawler Tractor, pertinently Furthermore, the allegation of ICP that it has paid Bormaheco is not supported by any documentary
provides in part as follows: evidence. Section 1, Rule 131 of the Rules of Court provides that the burden of evidence lies with
the party who asserts an affirmative allegation. Since ICP failed to duly prove the fact of payment,
1. The liability of INSURANCE CORPORATION OF THE PHILIPPINES, the disputable presumption that private transactions have been fair and regular, as erroneously
under this BOND will expire Twelve (I 2) months from date hereof. relied upon by respondent Court of Appeals, finds no application to the case at bar.
Furthermore, it is hereby agreed and understood that the INSURANCE
CORPORATION OF THE PHILIPPINES will not be liable for any claim not 2. The liability of a surety is measured by the terms of his contract, and, while he is liable to the full
presented in writing to the Corporation within THIRTY (30) DAYS from the extent thereof, such liability is strictly limited to that assumed by its terms. 26 While ordinarily the
expiration of this BOND, and that the obligee hereby waives his right to bring termination of a surety's liability is governed by the provisions of the contract of suretyship, where
claim or file any action against Surety and after the termination of one (1) year the obligation of a surety is, under the terms of the bond, to terminate at a specified time, his
from the time his cause of action accrues. 18 obligation cannot be enlarged by an unauthorized extension thereof. 27 This is an exception to the
general rule that the obligation of the surety continues for the same period as that of the principal
The surety bond was dated October 24, 1970. However, an annotation on the upper part debtor. 28
thereof states: "NOTE: EFFECTIVITY DATE OF THIS BOND SHALL BE ON
JANUARY 22, 1971." 19 It is possible that the period of suretyship may be shorter than that of the principal obligation, as
where the principal debtor is required to make payment by installments. 29 In the case at bar, the
 O B L I C O N ( S i m u l a t i o n o f C o n t r a c t s ) | 17

surety bond issued by ICP was to expire on January 22, 1972, twelve (1 2) months from its and (4) Transfer Certificates of Title Nos. T-24846, T-24847, T-24848 and T24849 subsequently
effectivity date, whereas Slobec's installment payment was to end on July 23, 1972. Therefore, issued by virtue of said sale in the name of the latter corporation.
while ICP guaranteed the payment by Slobec of the balance of P180,000.00, such guaranty was
valid only for and within twelve (1 2) months from the date of effectivity of the surety bond, or The Register of Deeds of Lucena City is hereby directed to cancel Transfer Certificates of Title
until January 22, 1972. Thereafter, from January 23, 1972 up to July 23, 1972, the liability of Nos. T-24846, T-24847, T24848 and T-24849 in the name of Philippine Machinery Parts
Slobec became an unsecured obligation. The default of Slobec during this period cannot be a valid Manufacturing Co., Inc. and to issue in lieu thereof the corresponding transfer certificates of title in
basis for the exercise of the right to foreclose by ICP since its surety contract had already been the name of herein petitioners, except Santiago Rivera.
terminated. Besides, the liability of ICP was extinguished when Bormaheco failed to file a written
claim against it within thirty (30) days from the expiration of the surety bond. Consequently, the The foregoing dispositions are without prejudice to such other and proper legal remedies as may be
foreclosure of the mortgage, after the expiration of the surety bond under which ICP as surety has available to respondent Bormaheco, Inc. against herein petitioners.
not incurred any liability, should be declared null and void.
SO ORDERED.
3. Lastly, it has been held that where The guarantor holds property of the principal as collateral
surety for his personal indemnity, to which he may resort only after payment by himself, until he
has paid something as such guarantor neither he nor the creditor can resort to such collaterals. 30

The Agreement of Counter-Guaranty with Chattel/Real Estate Mortgage states that it is being
issued for and in consideration of the obligations assumed by the Mortgagee-Surety Company
under the terms and conditions of ICP Bond No. 14010 in behalf of Slobec Realty Development
Corporation and in favor of Bormaheco, Inc. 31 There is no doubt that said Agreement of Counter-
Guaranty is issued for the personal indemnity of ICP Considering that the fact of payment by ICP
has never been established, it follows, pursuant to the doctrine above adverted to, that ICP cannot
foreclose on the subject properties,

IV. Private respondent PM Parts posits that it is a buyer in good faith and, therefore, it acquired a
valid title over the subject properties. The submission is without merit and the conclusion is
specious

We have stated earlier that the doctrine of piercing the veil of corporate fiction is not applicable in
this case. However, its inapplicability has no bearing on the good faith or bad faith of private
respondent PM Parts. It must be noted that Modesto N. Cervantes served as Vice-President of
Bormaheco and, later, as President of PM Parts. On this fact alone, it cannot be said that PM Parts
had no knowledge of the aforesaid several transactions executed between Bormaheco and
petitioners. In addition, Atty. Martin de Guzman, who is the Executive Vice-President of
Bormaheco, was also the legal counsel of ICP and PM Parts. These facts were admitted without
qualification in the stipulation of facts submitted by the parties before the trial court. Hence, the
defense of good faith may not be resorted to by private respondent PM Parts which is charged with
knowledge of the true relations existing between Bormaheco, ICP and herein petitioners.
Accordingly, the transfer certificates of title issued in its name, as well as the certificate of sale,
must be declared null and void since they cannot be considered altogether free of the taint of bad
faith.

WHEREFORE, the decision of respondent Court of Appeals is hereby REVERSED and SET
ASIDE, and judgment is hereby rendered declaring the following as null and void: (1) Certificate of
Sale, dated September 28,1973, executed by the Provincial Sheriff of Quezon in favor of the
Insurance Corporation of the Philippines; (2) Transfer Certificates of Title Nos. T-23705, T-23706,
T-23707 and T-23708 issued in the name of the Insurance Corporation of the Philippines; (3) the
sale by Insurance Corporation of the Philippines in favor of Philippine Machinery Parts
Manufacturing Co., Inc. of the four (4) parcels of land covered by the aforesaid certificates of title;