Tongoy v CA

21 Nov 2001 | Panginiban, J | Void

PETITIONER: Francisco Tongoy, for himself and as Judicial Administrator of the Estate of the late Luis D. Tongoy and
Ma. Rosario Araneta Vda de Tongoy
RESPONDENT: CA, Mercedes, Juan, Jesus, Trinidad Sonora and Ricardo, Cresencio, Amado and Norberto Tongoy
SUMMARY: Siblings Tongoy owned Hacienda Pulo in Bacolod. The property was about to be foreclosed by PNB, they had a
family conference whereupon they decided to transfer their rights to LUIS to facilitate the restructuring of the mortgage. LUIS
executed 2 real estate mortgages (Hacienda Pulo and Cuaycong property) in favor of PNB and he was able to pay off his obligations
in two decades. Just before his death, LUS received a letter from Jesus, one of the RESPs, demanding their shares in the properties
as co-owners. Thus, an action for reconveyance was instituted. SC held that the deeds of transfer in favor of LUIS were from the
very beginning absolutely simulated or fictitious, since they were merely made for the purpose of restructuring the mortgage over
the 2 properties and thus preventing the foreclosure by the PNB.

DOCTRINE: see RATIO I

FACTS:
1. The case is an action for reconveyance respecting 2
parcels of land in Bacolod City:
a. Hacienda Pulo=727, 000 sqm originally registered in
the names of the Tongoy Siblings (FRANCISCO,
JOSE, ANA, TERESA & JOVITA[DE SONORA])
b. Cuaycong property=163,754 sqm in the name of
Basilisa Cuaycong
2. Hacienda Pulo was mortgaged to Philippine National
Bank (PNB) as security for a loan of 11,000 payable in 10
years at 8% interest per annum. The Tongoys were unable
to pay their yearly amortizations; as a result, PNB
instituted judicial foreclosure proceedings on June 18,
1931.
3. To avoid foreclosure, one of the co-owners, JOSE,
proposed an amortization plan that would enable them to
liquidate their account. This was rejected by PNB. The
suit continued up to the SC (held that PNB had the right
to foreclose Hacienda Pulo).
4. In the meantime:
 April 29, 1933-PATRICIO & LUIS Tongoy executed
a Declaration of Inheritance wherein they declared
themselves as the only heirs of the late FRANCISCO
TONGOY and thereby entitled to the latter’s share in
Hacienda Pulo.
 March 13, 1934-ANA & TERESA TONGOY,
MERCEDES, TRINIDAD, JUAN SONORA &
PATRICIO TONGOY executed an Escritura de Venta
transferring their rights and interest over the
Hacienda, for a consideration, to LUIS
 JESUS SONORA followed suit and executed a
similar Escritura de Venta in favor of LUIS
 JOSE TONGOY likewise executed an Escritura de
Venta however this was preceded by the execution of
an Assignment of Rights in favor of LUIS by the
Pacific Commercial Company as judgment lien
I. The following are the most fundamental characteristics of void
holder (subordinate to the PNB mortgage)
 On the basis of the foregoing documents, Hacienda
Pulo was in the name of LUIS, married to Maria
Rosario Araneta, on Nov 8, 1935.
 The following year, the title of the adjacent Cuaycong
property also came under the name of LUIS
(Cuaycong purportedly sold it to LUIS for 4,000)
5. LUIS executed a real estate mortgage (REM) over the
Cuaycong property in favor of PNB as security for a loan
of 4,500 on June 29, 1936. Three days later, he also
executed a REM over Hacienda Pulo as security for a loan
of 21,000 payable in 15 years at 8% interest per annum.
6. After two decades (April 1956), LUIS was able to pay off
all obligations to PNB. However, it was only on April
1958 that a release of the REM was executed by PNB in
favor of LUIS.
7. Just before LUIS’ death, he received a letter from JESUS
SONORA demanding the shares in the properties to the
co-owners.
8. Not long after the death of LUIS, the RESP filed this case
alleging that the 2 lots were sold by means of simulated
sales, pursuant to a trust arrangement whereby the latter
would return such interests after the mortgage obligations
thereon settled.
9. TC: there exists an implied trust in favor of the plaintiffs,
but at the same time holding the RESPs action for
reconveyance is barred by prescription except for the kids
of Luis in the 2nd marriage (since they were excluded in
the partition).
10. CA: modified TC, plaintiffs were ordered to reconvey to
the SONORAs and to the rest of the TONGOYS their
respective portions of the 2 properties
11. ISSUE:
12.WON the rights of the RESPs over the 2 properties, which
were subjects of simulated or fictitious transactions, have
already prescribed?– NO
13.
14. RULING: Judgment appealed from is affirmed
15.
16. RATIO:
or inexistent contracts:
1. As a general rule, they produce no legal effects
whatsoever in accordance with the principle “quod
nullum est nullum producit effectum.”
2. They are not susceptible of ratification.
 3. The right to set up the defense of inexistence or
absolute nullity cannot be waived or renounced.
4. The action or defense for the declaration of their
inexistence or absolute nullity is imprescriptible.
5. The inexistence or absolute nullity of a contract
cannot be invoked by a person whose interests are
not directly affected.
17.
18. The nullity is permanent, even if the cause thereof
has ceased to exist, or even when the parties have
complied with the contract spontaneously.
19.
II. The deeds of transfer executed in favor of LUIS were from
the very beginning absolutely simulated or fictitious,
since they were merely made for the purpose of
restructuring the mortgage over the 2 properties and
thus preventing the foreclosure by the PNB.
20. Findings of the CA:
 LUIS wrote a letter to JOSE: Herewith is the deed
which the bank sent for us to sign. The bank made me
pay the Pacific the sum of 100 so as not to sell
anymore the land in public auction. This deed is for
the purpose of dispensing with the transfer of title to
the land in the name of the bank, this way we will
avid many expenses.
 The tenor of the letter reveals the fact that the
steps taken to place Hacienda Pulo in the name
of LUIS were made for the benefit of not only
himself but for the other co-owners as well.
 LUIS at that time was in no condition to pay the
purchase price of the property sold. He was a
III.
neophyte in the practice of law. When got married,
his property was leased and the rentals were not
sufficient to cover all the considerations stated in the
deeds of sale executed by the co-owners of the
Hacienda.
 The Sonora’s testified that they had a family
conference on December 1931 to decide on steps to
be taken regarding the impending foreclosure of the
hacienda. Accordingly, there agreed to entrust the
administration and management to LUIS.
 LUIS told the co-owners that the bank only wanted to
deal with one person (since it was inconvenient as
some of them as always out of town), the co-owners
agreed to make simulated transfers of their
participation in the properties.
 The hacienda has been the source of livelihood to the
IV.
co-owners and their dependents, when the subject
transfers were made. Only extreme necessity would
V.
have forced them to act in unison towards earnestly
parting with their share, taking into account the
meager considerations mentioned in the deeds of
transfer (2,000 for a 1/5 part of the hacienda). The
impending foreclosure could not have created such
necessity. They could have leased it and that would
have satisfied the mortgage obligation.
 PNB was amenable, as did actually accede, to a
restructuring of the mortgage, thereby saving the
hacienda from foreclosure
 The co-owners and their dependents continued to
survive from the sustenance from the Hacienda. It
would not have been possible for Jesus Sonora to
finish medicine and for Ricardo Tongoy to finish law
school without the support of LUIS as administrator
of the common property.
21.
22.
23. No amount of time could accord validity or efficacy
to such fictitious transactions, the defect of which is
permanent.
24.
25. There is no implied trust that was generated by the
simulated transfers; because being fictitious or simulated,
the transfers were null and void ab initio-from the very
beginning-and thus vested no rights whatsoever in favor of
LUIS or his heirs. That which is inexistent cannot give life to
anything.
26.
27. Other topics…just in case Sir will ask.
From which time should the period be counted?
28. All actions for recovery of real property prescribe in
ten years, excepting only actions based on continuing or
subsisting trusts that were considered by section 38 as
imprescriptible.
29.
30. It should be counted from the date of recording of
the release of mortgage in the Registry of Deeds, on
which date-May 5 1958, the cestui que trust were charged
with the knowledge of the settlement of the mortgage
obligation, the attainment of the purpose for which the trust
was constituted.
31.
The sum of 20k is proper since the RESPs were unnecessarily
compelled to litigate.
Regarding the status of the kids of Francisco in his 2nd
marriage, the Court takes a liberal view in favor of the
natural children who, because they enjoy the blessing and
privileges of an acknowledged natural child and even of a
 legitimated child, found it rather awkward, if not 47.
unnecessary, to institute an action for recognition against
their natural parents, who, without asking, have been 48.
showering them with some love, care and material support
49.
as are accorded legitimate children. The right to participate
in their father’s inheritance should necessarily follow. 50.
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72. Siblings owned Hacienda Pulo in pro-indiviso equal shares.

73. Of the original registered co-owners, three died without issue: Jose died a widower and Ana and Teresa died
single.