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
CONCEPCION FELIX VDA. DE RODRIGUEZ, plaintiff-appellant, 
vs.
GERONIMO RODRIGUEZ., ET AL., defendants-appellees.
Ozaeta, Gibbs and Ozaeta for plaintiff-appellant.
Sycip, Salazar, Luna and Associates and Carolina C. Griño-Aquino for defendants-appellees.
REYES, J.B.L., J.:
This is an appeal by Concepcion Felix Vda. de Rodriguez from the decision of the Court of First
Instance of Bulacan in Civil Case No. 2565, which she commenced on May 28, 1962, to secure
declaration, of nullity of two contracts executed on January 24, 1934 and for recovery of certain
properties.
The facts of this case may be briefly stated as follows:
Concepcion Felix, widow of the late Don Felipe Calderon and with whom she had one living child,
Concepcion Calderon, contracted a second marriage on June 20, 1929, with Domingo Rodriguez,
widower with four children by a previous marriage, named Geronimo, Esmeragdo, Jose and
Mauricio, all surnamed Rodriguez. There was no issue in this second marriage.
Prior to her marriage to Rodriguez, Concepcion Felix was the registered owner of 2 fishponds
located in the barrio of Babañgad, municipality of Bulacan, Bulacan province. with a total area of
557,711 square meters covered by OCT Nos. 605 and 807. Under date of January 24, 1934,
Concepcion Felix appeared to have executed a deed of sale conveying ownership of the aforesaid
properties to her daughter, Concepcion Calderon, for the sum of P2,500.00, which the latter in turn
appeared to have transferred to her mother and stepfather by means of a document dated January
27, 1934. Both deeds, notarized by Notary Public Jose D. Mendoza, were registered in the office of
the Register of Deeds of Bulacan on January 29, 1934, as a consequence of which, the original titles
were cancelled and TCT Nos. 13815 and 13816 were issued in the names of the spouses Domingo
Rodriguez and Concepcion Felix.
On March 6, 1953, Domingo Rodriguez died intestate, survived by the widow, Concepcion Felix,
his children Geronimo Esmeragdo and Mauricio and grandchildren Oscar, Juan and Ana, surnamed
Rodriguez, children of a son, Jose, who had predeceased him.
On March 16, 1953, the above-named widow, children and grandchildren of the deceased entered
into an extra-judicial settlement of his (Domingo's) estate, consisting of one-half of the properties
allegedly belonging to the conjugal partnership. Among the properties listed as conjugal were the
two parcels of land in Bulacan, Bulacan, which, together with another piece of property, were
divided among the heirs in this manner:
WHEREAS, the parties have furthermore agreed that the fishpond covered by TCT Nos.
13815, 13816 and 24109 of the Office of the Register of Deeds of Bulacan, containing an
area of 557,971 sq. m., which is likewise the conjugal property of the deceased and his
surviving spouse; 1/2 of the same or 278,985.5 sq. m. belongs to said Concepcion Felix
Vda. de Rodriguez, as her share in the conjugal property; and 3/4 of the remaining half or
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,
Juan Rodriguez and Ana Rodriguez.
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.
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
manage their shares in the fishponds (Exh. 4).
On July 2, 1954, the heirs ended their co-ownership by executing a deed of partition, dividing and
segregating their respective shares in the properties, pursuant to a consolidation and subdivision
plan (PCS-3702), in accordance with which, Concepcion Felix Vda. de Rodriguez obtained TCT
No. T-12910, for the portion pertaining to her (Exh. L), while TCT No. T-12911 was issued to the
other heirs, for their shares. This latter title was subsequently replaced by TCT No. 16660 (Exh. M).
On October 12, 1954, the Rodriguez children executed another document granting unto the widow
lifetime usufruct over one-third of the fishpond which they received as hereditary share in the estate
of Domingo Rodriguez, which grant was accepted by Concepcion Felix Vda. de Rodriguez.
Then, in a contract dated December 15, 1961, the widow appeared to have leased from the
Rodriguez children and grandchildren the fishpond (covered by TCT No. 16660) for a period of 5
years commencing August 16, 1962, for an annual rental of P7,161.37 (Exh. 5).1äwphï1.ñët
At about this time, it seemed that the relationship between the widow and her stepchildren had
turned for the worse. Thus, when she failed to deliver to them the balance of the earnings of the
fishponds, in the amount of P3,000.00, her stepchildren endorsed the matter to their lawyer who, on
May 16, 1962, sent a letter of demand to the widow for payment thereof. On, May 28, 1962,
Concepcion Felix Vda. de Rodriguez filed the present action in the Court of First Instance of
Manila naming as defendants, Geronimo Rodriguez, Esmeragdo Rodriguez, Oscar Rodriguez,
Concepcion Bautista Vda. de Rodriguez, as guardian of the minors Juan and Ana Rodriguez, and
Antonio Diaz de Rivera and Renato Diaz de Rivera, as guardians of the minors Maria Ana,
Mercedes, Margarita, Mauricio, Jr. and Domingo (Children of Mauricio Rodriguez who had also
died).
The action to declare null and void the deeds of transfer of plaintiff's properties to the conjugal
partnership was based on the alleged employment or exercise by plaintiff's deceased husband of
force and pressure on her; that the conveyances of the properties — from plaintiff to her daughter
and then to the conjugal partnership of plaintiff and her husband — are both without consideration;
that plaintiff participated in the extrajudicial settlement of estate (of the deceased Domingo
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
deeds of transfer in 1934; that laboring under the same false assumption, plaintiff delivered to
defendants, as income of the properties from 1956 to 1961, the total amount of P56,976.58. As
alternative cause of action, she contended that she would claim for her share, as surviving widow,
of 1/5 of the properties in controversy, should such properties be adjudged as belonging to the
conjugal partnership. Thus, plaintiff prayed that the deeds of transfer mentioned in the complaint be

declared fictitious and simulated; that the "Extrajudicial Settlement of Estate" be also declared null
and void; that TCT No. 16660 of the Registry of Deeds of Bulacan be cancelled and another one be
issued in the name of plaintiff, Concepcion Felix Vda. de Felix; that defendants be ordered to pay
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.
In their separate answers, defendants not only denied the material allegations of the complaint, but
also set up as affirmative defenses lack of cause of action, prescription, estoppel and laches. As
counterclaim, they asked for payment by the plaintiff of the unpaid balance of the earnings of the
land up to August 15, 1962 in the sum of P3,000.00, for attorney's fees and expenses of litigation.
On October 5, 1963, judgment was rendered for the defendants. In upholding the validity of the
contracts, the court found that although the two documents, Exhibits A and B, were executed for the
purpose of converting plaintiff's separate properties into conjugal assets of the marriage with
Domingo Rodriguez, the consent of the parties thereto was voluntary, contrary to the allegations of
plaintiff and her witness. The court also ruled that having taken part in the questioned transactions,
plaintiff was not the proper party to plead lack of consideration to avoid the transfers; that contracts
without consideration are not inexistent, but are only voidable, following the ruling in the case
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
settlement of estate; that being a voluntary party to the contracts, Exhibits A and B, plaintiff cannot
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
filed within 4 years from its execution (on March 16, 1953).
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
without consideration.
We agree with the trial Court that the evidence is not convincing that the contracts of transfer from
Concepcion Felix to her daughter, and from the latter to her mother and stepfather were executed
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
believe, considering that her version of violence and harassment was contradicted by Bartolome
Gualberto who had lived with the Rodriguez spouses from 1917 to 1953, and by the improbability
of Rodriguez threatening his stepdaughter in front of the Notary Public who ratified her signature.
Furthermore, as pointed out by the appealed decision, the charge of duress should be treated with
caution considering that Rodriguez had already died when the suit was brought, for duress, like
fraud, is not to be lightly paid at the door of men already dead. ( Cf. Prevost vs. Gratz, 6 Wheat.
[U.S.] 481, 498; Sinco vs. Longa, 51 Phil. 507).
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
in 1962, twenty eight (28) years after the intimidation is claimed to have occurred, and no less than
nine (9) years after the supposed culprit died (1953). On top of it, appellant entered into a series of
subsequent transactions with appellees that confirmed the contracts that she now tries to set aside.
Therefore, this cause of action is clearly barred.
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
Appellant's main stand in attacking the conveyances in question is that they are simulated or
fictitious, and inexistent for lack of consideration. We shall examine each purported defect
separately.
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
juridical situation of the parties. Thus, where a person, in order to place his property beyond the
reach of his creditors, simulates a transfer of it to another, he does not really intend to divest
himself of his title and control of the property; hence, the deed of transfer is but a sham. But
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
the property from paraphernal to conjugal, thereby vesting a half interest in Rodriguez, and evading
the prohibition against donations from one spouse to another during coverture (Civil Code of 1889,
Art. 1334). If this is true, then the appellant and her daughter must have intended the two
conveyance to be real and effective; for appellant could not intend to keep the ownership of the
fishponds and at the same time vest half of them in her husband. The two contracts of sale then
could not have been simulated, but were real and intended to be fully operative, being the means to
achieve the result desired.
Nor does the intention of the parties to circumvent by these contracts the law against donations
between spouses make them simulated ones.
Ferrara, in his classic book, "La Simulacion de los Negocios Juridicos" (Sp. trans, 1926), pp. 95,
105, clearly explains the difference between simulated transactions and transactions in fraudem
legis:
Otra figura que debe distinguirse de la simulacion es el fraus legis. Tambien aqui se da
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
negocio fingido y negocio fraudulento y haber atacado la doctrina comun que hacia una
mescolanza con los dos conceptos.
Se confunde — dice (2) —, el negocio in fraudem legis con el negocio simulado; aunque
la naturaleza de ambos sea totalmente diversa. El negocio fraudulento no es, en absolute,
un negocio aparente. Es perfectamente serio: se quiere realmente. Es mas, se quiere tal
como se ha realizado, con todas las consecuencias que correspondent a la forma juridica
elegida. Muchas veces, estas consecuencias con incomodas para una u otra de las partes,
aunque serian mucho mas incomodas las consecuencias que lievaria consigo el acto
prohibido.
xxx     xxx     xxx
El resultado de las precedentes investigaciones es el siguiente el negocio simulado quiere
producir una apariencia; el negocio fraudulente, una realidad; los negocios simulados son
ficticios, no queridos; los negocios in fraudem son serios, reales, y realizados en tal forma
por las partes para consequir un resultado prohibido: la simulacion nunca es un medio
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-

escritura que documentary y declara la verdadera naturaleza del negocio realizado, no
queda mas que aplicar pura y simplementela prohibicion.
Tambien el fraude quiere perjudicar la ley, pero emplea para ello medios diversos y sigue
distintos caminus. No oculta el acto exterior, sino que lo deja claro y visible, tratando de
huir sesgadamente de la aplicacion de la ley merced a una artistica y sabia combinacion
de varios medios juridicos no reprobados.
Appellant invokes our decision in Vasquez vs. Porta, 98 Phil. 490, but to no purpose. The mortgage
and foreclosure sale involved in that case were typical simulations merely apparent but not really
intended to produce legal effects, as approved by the Court's finding that the alleged creditor and
buyer at the foreclosure sale "Porta himself ostensibly acknowledged by his inertia in allowing the
doctor (alleged mortgagor debtor) to exercise dominical power thereon without any protest on his
part." (cas. cit., p. 495). Not only this, but the mortgagor's wife, when her husband died, "found
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.
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
the first transaction, the price of P2,500.00 is recited in the deed itself (Exh. A); in the second (Exh.
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 —
In onerous contracts the cause is understood to be, for each contracting party, the
prestation or promise of a thing or service by the other. (emphasis supplied.)
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
fishponds. That the prices were not paid (assuming ad arguendo that Concepcion Martelino's
testimony, to this effect is true) does not make the sales inexistent for want of causa. As ruled
in Enriquez de la Cavada vs. Diaz, 37 Phil. 982, "the consideration (causa) need not pass from one
(party) to the other at the time the contract is entered into x x x . The consideration need not be paid
at the time of the promise. The one promise is a consideration for the other."
What would invalidate the conveyances now under scrutiny is the fact that they were resorted to in
order to circumvent the legal prohibition against donations between spouses contained in Article
1334, paragraph 1, of the Civil Code of 1889, then prevailing. That illegal purpose tainted the
contracts, for as held by the Spanish Tribunal Supreme in its decision of 2 April 1941.
ha de ser reputado ineficaz, por exigencias includibles del caracter social y moral del
Derecho, todo contrato que persiga un fin ilicito o immoral, sea cualquiera el medio
empleado por los contratantes para lograr esa finalidad, no justificada por un interes
digno de ser socialmente protegido.
The illicit purpose then becomes illegal causa within the terms of the old Civil Code, for as
declared by the same Spanish Court in its decision of 14 December 1940 —
toda vez que lo que caracteriza fundamentalmente la ilicitud de la causa es la lesion de un
interos general juridica 6 moral.
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 ) |3
a ruling reiterated in the decision of 2 April 1941 when the Court ruled:
El concepto de la causa ilicita, tal como la desenvuelve y aplica con gran amplitud y
flexibilidad la doctrina moderna, permite cobijar, no solo las convenciones ilicitas por
razon de su objeto o de su motivo ... sino tambien multiples convenciones que no
encerrando en si ningun elemento de directa antijuricidad son ilicitas por el matiz
immoral que reviste la operation en su conjunto x x x .
Unfortunately for herein appellant, in contracts invalidated by illegal subject matter or illegal causa,
Articles 1305 and 1306 of the Civil Code then in force apply rigorously the rule in pari delicto non
oritur action, denying all recovery to the guilty parties inter se. And appellant is clearly as guilty as
her husband in the attempt to evade the legal interdiction of Article 1334 of the Code, already cited.
Wherefore, her present action to reivindicate the, conveyed properties was correctly repulsed by the
Court below.
Art. 1306. If the act which constitutes the illicit consideration is neither a crime nor a
misdemeanor, the following rules shall be observed:
1. When both parties are guilty, neither of them can recover what he may have given by
virtue of the contract, or enforce the performance of the undertaking of the other party;
xxx     xxx     xxx
That Article 1306 applies to cases where the nullity arises from the illegality of the consideration or
the purpose of the contract was expressly recognized by this Supreme Court in  Gustilo vs.
Maravilla, 48 Phil. 449-450.2
Finally, it cannot be denied that plaintiff-appellant had knowledge of the nullity of the contract for
the transfer of her properties in 1934, because she was even a party thereto. And yet, her present
action was filed only on May 28, 1962 and after the breaking up of friendly relations between her
and defendants-appellees. Appellant's inaction to enforce her right, for 28 years, cannot be justified
by the lame excuse that she assumed that the transfer was valid. Knowledge of the effect of that
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
Cho, et al., G.R. No. L-5208, Feb. 28, 1955). Even assuming for the sake of argument that appellant
held her peace, during the lifetime of her husband, out of legitimate fear for her life, there is no
justification for her future to bring the proper action after his death in 1953. Instead, she entered
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
that Rodriguez had acquired one-half of the litigated fishponds. In the circumstances, appellant's
cause has become a stale demand and her conduct placed her in estoppel to question the Validity of
the transfer of her properties. (Manila, et al. vs. Galvan, et al., G.R. No. L-23507, May 24, 1967;
Perez vs. Herranz, 7 Phil. 695-696).
In view of the foregoing, the decision appealed from is affirmed. Costs against appellant
Concepcion Felix Vda. de Rodriguez. So ordered.

G.R. No. 114950 December 19, 1995
RAFAEL G. SUNTAY, substituted by his heirs, namely: ROSARIO, RAFAEL, JR.,
APOLINARIO, RAYMUND, MARIA VICTORIA, MARIA ROSARIO and MARIA
LOURDES, all surnamed SUNTAY, petitioners, 
vs.
THE HON. COURT OF APPEALS and FEDERICO C. SUNTAY, respondents.
 
HERMOSISIMA, JR., J.:
Grave danger of destitution and ruin or irretrievable loss of property awaits those who practise or
condone accommodation in order to circumvent the law or to hide from it. This case involving
Federico Suntay, a wealthy landowner from Bulacan, is in point. He is here pitted against his own
lawyer, unfortunately his own nephew, Rafael Suntay, in whose favor he signed and executed a
deed of sale of a parcel of valuable and productive real property for a measly P20,000.00. Federico
claims that the sale was merely simulated and has been executed only for purposes of
accommodation. Rafael Suntay, to the consternation or Federico, insists that the transaction was a
veritable sale. Under what showing may the sale be deemed susceptible of nullification for being
simulated? Do we thereby abandon every reverence we have hitherto reposed on instruments
notarized before notaries public?
Before us is a Petition for Review on Certiorari of the Amended Decision 1 of respondent Court of
Appeals 2 and of its Resolution 3 denying petitioner's motion for reconsideration.
These are the pertinent facts:
Respondent Federico Suntay was the registered  4 owner of a parcel of land with an area of 5,118
square meters, more or less, situated in Sto. Niño, Hagonoy, Bulacan. On the land may be found: a
rice mill, a warehouse, and other improvements. A rice miller, Federico, in a letter, dated
September 30, 1960, applied as a miller-contractor of the then National Rice and Corn Corporation
(NARIC). He informed the NARIC that he had a daily rice mill output of 400 cavans of palay and
warehouse storage capacity of 150,000 cavans of palay.  5 His application, although prepared by his
nephew-lawyer, petitioner Rafael Suntay,  6 was disapproved, 7 obviously because at that time he
was tied up with several unpaid loans. For purposes of circumvention, he had thought of allowing
Rafael to make the application for him. Rafael prepared  8an absolute deed of sale  9 whereby
Federico, for and in consideration of P20,000.00 conveyed to Rafael said parcel of land with all its
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
after this conveyance, a counter sale 11 was prepared 12 and signed 13 by Rafael who also caused its
delivery 14 to Federico. Through this counter conveyance, the same parcel of land with all its
existing structures was sold by Rafael back to Federico for the same consideration of
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.
Herminio V. Flores, an examination thereof will show that, recorded as Document No. 56 on Page
13, is not the said deed of sale but a certain "real estate mortgage on a parcel of land with TCT No.
16157 to secure a loan of P3,500.00 in favor of the Hagonoy Rural Bank." Nowhere on page 13 of
the same notarial register could be found any entry pertaining to Rafael's deed of sale.  17 Testifying
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 ) |4
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
alleged in his Complaint that, when Rafael delivered the second deed to him, it was neither dated
nor notarized. 19
Upon the execution and registration of the first deed, Certificate of Title No. 0-2015 in the name of
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
Federico continued to exercise rights of absolute ownership over the property. 21
In a letter, 22 dated August 14, 1969, Federico, through his new counsel, Agrava & Agrava,
requested that Rafael deliver his copy of TCT No. T-36714 so that Federico could have the counter
deed of sale in his favor registered in his name. The request having been obviously turned down,
Agrava & Agrava filed a petition 23 with the Court of First Instance of Bulacan 24 asking Rafael to
surrender his owner's duplicate certificate of TCT No. T-36714. In opposition thereto, Rafael
chronicled the discrepancy in the notarization of the second deed of sale upon which said petition
was premised and ultimately concluded that said deed was a counterfeit or "at least not a public
document which is sufficient to transfer real rights according to law." 25 On September 8, 1969,
Agrava & Agrava filed a motion 26 to withdraw said petition, and, on September 13, 1969, the Court
granted the same. 27
On July 8, 1970, Federico filed a complaint 28 for reconveyance and damages against Rafael. He
alleged, among others, that:
xxx xxx xxx
2.2 Sometime around May, 1962, defendant approached plaintiff and asked plaintiff,
purely as an accommodation and in order only to help defendant in an application that
defendant had then filed or intended to file with the Rice and Corn Administration to be
licensed as a rice dealer, to clause the title over the land and improvement described
above to be placed in defendant's name, but with the clear and express understanding that
ownership, possession, use, enjoyment and all other incidents of title would remain vested
in plaintiff; and that, at any time that plaintiff needed or desired that the title be restored
to plaintiff's name, defendant would execute whatever deed and take whatever steps
would be necessary to do so; to which request, in view of their relationship as uncle and
nephew, plaintiff acceded.
2.3 Accordingly, defendant prepared a deed entitled "Deed of Absolute Sale" over the
land and improvements . . . which purported to be a sale thereof by plaintiff to defendant
in consideration of P20,000.00; which document plaintiff signed on or about May 19,
1962. . . .
2.4 Defendant never paid or delivered, and plaintiff never demanded or received, the sum
of P20,000.00 or any other valuable consideration for executing the aforesaid "Deed of
Absolute Sale", since the same was and is an absolutely simulated or fictitious
transaction, intended solely to accommodate and assist defendant . . .

2.5 Defendant registered the "Deed of Absolute Sale" . . . with the Register of Deeds of
Bulacan, and as a result, O.C.T. No. 0-2015 in plaintiff's name was cancelled and T.C.T.
No. 36714 was issued in defendant's name.
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
signed by him, in which he purported to sell back to plaintiff the same land and
improvements . . . for the same consideration of P20,000.00. . . .
2.7 At the time defendant delivered the counter-deed . . . to plaintiff it was signed by
defendant, but not dated or notarized, as defendant told plaintiff that he was delivering the
signed counter-deed as a recognition of the fictitious character of the Deed . . . and
authorized plaintiff to date the deed and cause it to be notarized at any time that plaintiff
deemed it necessary or convenient to do so . . .
2.8 From the time plaintiff acquired the land and improvements
. . . from his parents, continuously until the present, plaintiff has been in open, public
possession, use and enjoyment of the land, rice mill, warehouse and other improvements .
. . for his sole and exclusive benefit, and has paid all taxes thereon; and, in fact, from May
19, 1962, the date of the simulated "Deed of Absolute Sale" . . . until the present,
defendant has not exercise a single act of ownership, possession, use or enjoyment of the
said land and improvements.
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
stimulate rice production, plaintiff requested defendant to deliver to him the owner's
duplicate of the transfer certificate of title over the properties in question, in order that
plaintiff might register the counter-deed . . . and use the property as collateral in securing
a bank loan to finance the expansion of the rice mill and warehouse facilities; but
defendant failed and refused, and continues to fail and refuse to do so, without just cause
or legal reason. 29
In his answer, Rafael scoffed at the attack against the validity and genuineness of the sale to him of
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
consideration". 30 Accordingly, he raised the following affirmative and/or special defenses:
xxx xxx xxx
2.2 Plaintiff is now estopped from questioning the validity, genuineness,
valuable consideration and due execution of the Deed of Absolute Sale, Annex
"A" of the Complaint, since he admitted the same in his Petition in L.R. Case
No. 1356 . . . . pertinent portions of which are quoted hereunder:
. . . On August 12, 1962, Rafael G. Suntay sold the property
above-described to petitioner through a Deed of Absolute
Sale . . . .
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 ) |5
and likewise, plaintiff admitted the validity, genuineness, valuable
consideration and due execution of aforesaid Deed of Absolute Sale . . . as
evidenced by the letter of plaintiff's counsel, Attorneys Agrava and
Agrava . . .
3. . . . Sometime in 1962, plaintiff informed defendant that he would repurchase
aforesaid property and requested the defendant to prepare the necessary
document. Considering the trust and confidence that defendant had in plaintiff
and pursuant to said request, defendant prepared the proposed Deed of Sale . . .
signed the same and delivered it to the plaintiff with the clear and express
understanding that the owner's duplicate Transfer Certificate of Title would be
delivered to the plaintiff only upon full payment of the agreed repurchase price
of P20,000.00 after which said proposed Deed of Sale would be duly notarized.
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
the Deed of Absolute Sale, Annex "A" of the Complaint. The plaintiff; not only
failed to pay to defendant the agreed repurchase price of (sic) any portion
thereof but even caused the falsification of the proposed Deed of Sale by
making it appear, in connivance with Attorney Herminio Flores, that defendant
acknowledged said document before said Attorney Flores, when in truth and in
fact as plaintiff and Attorney Flores very well knew at the time that defendant
never appeared, much less acknowledged, before Attorney Flores said
document . . . 31
At the initial hearing on April 7, 1971, Federico took the stand and, when asked why title to the
property was no longer in his name, Rafael's counsel objected thereto upon the ground that
Federico, in the petition wherein he asked Rafael to surrender his owner's duplicate of TCT No. T-
36714, had alleged that he sold the land to Rafael, which allegation, Rafael contends, constitutes as
a judicial admission which may not be subject to contradiction, unless previously shown to have
been made through palpable mistake. 32 Rafael's counsel, in effect, was assailing the admissibility
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
and reset the case for hearing on June 9, 1971.
On June 7, 1971, Rafael, obviously for the purpose of delay on account of its pettiness,
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
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
effect disappeared from the record and had ceased to have any standing as a judicial
admission. 33 Dissatisfied with the ruling, Rafael elevated the matter to the Supreme Court via a
petition for review on certiorari. This was summarily denied by us for lack of merit. 34
Whereupon, Rafael's counsel moved, as he often did previously, for continuation of trial of the
main case. 35 After a thirteen-year trial — with no less than six different Presiding
Judges; 36 numerous changes of lawyers; countless incidents; and a mountain-pile or pleadings — a
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:

The following documents undisputedly show the admission of the plaintiff that
the deed of absolute sale (Exh. A) is not a simulated or fictitious document but
is a genuine deed of absolute sale he executed in favor of the defendant, to wit:
(a) . . . a demand letter of Attys. Agrava & Agrava, counsel of the plaintiff, the
pertinent portion of which is quoted as follows:
"On May 19, 1972, our client, Federico C. Suntay sold to
your goodself for P20,000.00 a parcel of land situated at
Hagonoy, Bulacan . . ."
(b) . . . a Petition for the Surrender of Owner's Duplicate Certificate of Title
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
defendant docketed as LRC Case No. 1356 . . . hereby quoted as follows:
"2. Petitioner is the vendee of a parcel of land, together
with the improvements existing thereon situated in the
Barrio of Sto. Niño, Hagonoy, Bulacan . . . title to which is
still . . . issued in the name of the vendor Rafael G. Suntay .
...
3. On August 12, 1962, Rafael G. Suntay sold the property .
. . to petitioner . . . ."
(c) . . . a notice of adverse claim filed by the plaintiff in the Registry of
Decision of Bulacan on the land in question . . . admitting the ownership of the
defendant of said land, which is quoted as follows:
"That the property has been sold to me by Rafael G. Suntay
through an Absolute Deed of Sale . . . ."
These documents alone are more than sufficient evidence to conclude that
Exhibit A is not a simulated Deed of Absolute Sale but a genuine Deed of
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
of Sale (Exh. A) is simulated and without consideration cannot prevail over his
aforesaid admissions.
. . . In addition thereto is the fact that this Deed of Absolute Sale (Exh. A) was
duly recorded in the Notarial Registry of Notary Public Herminio V. Flores . . .
thus showing the regularity and due execution of the aforesaid document . . . .
The mere fact that plaintiff is in continuous possession of the property in
question, pays realty taxes thereon and have introduced several improvements
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
fire plaintiff in the aforementioned documentary evidences and furthermore it
was explained by the defendant that plaintiff has been in possession 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 ) |6
property in question and paid taxes thereon because it was their express
understanding that plaintiff would subsequently repurchase the property in
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
realty taxes which expressly show that plaintiff paid the taxes for and in the
name of defendant Rafael
Suntay. 37
While the trial court upheld the validity and genuineness of the deed of sale executed by
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
simulated and without consideration, hence, null and void ab initio.
The trial court ratiocinated that:
The Deed of Absolute Sale (Exh. B) which is a resale of the property in
question executed by the defendant in favor of the plaintiff was signed by the
defendant but at the time it was handed to the plaintiff it was not dated, not
notarized and above all it has no consideration because plaintiff did not pay
defendant the consideration of the sale in the sum of P20,000.00. . . .
Although Exh. B was subsequently notarized, the fact remained that defendant
did not appear and acknowledge the same before the Notary Public . . . and did
not receive the consideration of the aforesaid Exh. B . . . Consequently (sic),
this Exh B for want of consideration and not having been acknowledged by
defendant before the Notary Public is therefore null and void and hence did not
transfer ownership of the property in question to the defendant.
A contract of purchase and sale is void and produces no
effect whatsoever where the same is without cause or
consideration in that the purchase price, which appears
thereon as paid, has in fact never been paid by the
purchaser to the vendor (Mapalo vs. Mapalo . . . 17 SCRA
114). 38
While the trial court adjudged Rafael as the owner of the property in dispute, it did not go
to the extent of ordering Federico to pay back rentals for the use of the property as the
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
subsequently repurchase the same. The decretal portion of the decision of the trial court
reads:
WHEREFORE, a decision is hereby rendered:
1. Dismissing this complaint filed by plaintiff against herein defendant;
2. Declaring the Deed absolute Sale (Exh. A) executed by the plaintiff in favor
of the defendant of a parcel of land covered by OCT No. 0-2015-Bulacan
Registry as a genuine and valid document;

3. Ordering the defendant to pay the Government of the Republic of the
Philippines thru the Office of the Register of Deeds of Bulacan the true and
correct registration fees for the Deed of Absolute Sale (Exh. A) on the basis of
the true consideration of the sale as admitted by the defendant which is
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;
4. Declaring the Deed of Sale (Exh. B) executed by the defendant in favor of
the plaintiff of a parcel of land covered by TCT No. T-36714-Bulacan Registry
as null and void ab initio;
5. The prayer for P500.00/month rental from May, 1962 is hereby denied for
lack of merit;
6. With costs against the plaintiff. 39
From the aforecited decision of the trial court, both Federico and Rafael appealed. Before the Court
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
decision, with a modification. Federico was ordered to surrender the possession of the disputed
property to Rafael. 40
The Court of Appeals ruled:
After a careful examination of the evidence on record, we are inclined to agree
with the lower court that Exhibit "A" is indeed a genuine deed of absolute sale
which transferred to Rafael the full ownership of the litigated property,
including the improvements found thereon.
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
he executed Exhibit "A", to seek the restoration of his title over the same
property. Were Federico to be believed, he executed Exhibit "A" simply to
accommodate his nephew in connection with the latter's alleged application as
rice dealer of RCA. There is nothing in the record, however, that Rafael ever
became a licensed rice dealer of RCA from 1962 to 1969. . . .
. . . Prudence if not common sense should have cautioned Federico of the
dangers attendant to his inaction to assert immediately his alleged unaffected
ownership over the same property. It is simply unthinkable that Federico could
not have considered the possibility that an innocent purchaser for value may
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)
years.
Nor can Federico draw comfort from his continued physical possession of the
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
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 ) |7
repurchase the property and all the fruits thus enjoyed by the plaintiff and the
taxes paid by him would be accounted for at the time of the repurchase . . .
Indeed, the receipts of payment of realty taxes clearly show on their face that
Federico paid the taxes for and in behalf of Rafael . . . .
Independent of the foregoing, documents are on record which are replete with
Federico's admissions showing that Exhibit "A" could not have been a
simulated or fictitious deed of sale. . . .
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
execution of the same . . .; Against this overwhelming evidence, Federico's self-
serving declaration that Exhibit "A" is a fictitious and simulated contract must
certainly fall.
This brings us to the Deed of Absolute Sale (Exh. "B") executed by Rafael in
favor of Federico over the same property.
We cannot add more to what the court a quo has said in declaring that Exhibit
"B" is null and void, for which reason it could not have transferred the
ownership of the same property to Federico. . . . 41
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
Rafael who had passed away on November 23, 1988. Atty. Fojas prayed that said heirs be
substituted as defendants-appellants in the case. The prayer for substitution was duly noted by the
court in a resolution dated April 6, 1993. Thereafter, Atty. Fojas filed in behalf of the heirs an
opposition to the motion for reconsideration. The parties to the case were heard on oral argument on
October 12, 1993.
On December 15, 1993, the Court of Appeals reversed itself and rendered an amended judgment,
pertinent portions of which read:
. . . this Court is convinced that the desired reconsideration is impressed with
compelling merit. For truly, certain premises stand out in the chain of evidence,
the interplay of which supports the conclusion that the parties meant Exhibit
"A" to be a mere accommodation arrangement executed without any
consideration and therefore simulated contract of sale. Consider the following:
1. Two (2) instruments were executed closely one after the other involving
transfer and re-transfer of the same property at exactly the same price;
2. The existing close relationship between the parties; and
3. The value and location of the property purportedly sold, which project in
bold relief the gross inadequacy of the stated contractual consideration therefor.
xxx xxx xxx

There is more. Similarly looming large to attest to the simulated character of
Exhibit "A" which, in hindsight, was unjudiciously brushed aside is the
undisputed fact that the physical possession, enjoyment and use of the property
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
burden, of ownership. He did not even include the property in his statement of
assets and liabilities . . . nor paid the taxes therefor. This factor, juxtaposed with
Rafael's execution of the counter deed of sale (Exh. "B"), cannot but
unmistakably indicate that the parties never meant to regard Exhibit "A" as
producing actual transfer of ownership and/or rights attached to ownership.
Doubtless, Exhibit "B" manifested, and is an affirmation of, such intention.
We are thus inclined to agree with Federico's main submission that Exhibit "A"
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
sale executed by Rafael (Exh. "B"), completed it. Stated differently, the first
instrument merely recited a portion of the entire accommodation transaction;
the second, as a complementary part, and, in addition to the first, integrated and
made clear the simulated character of the entire agreement.
It is true that in the Decision under consideration, this Court took stock, as
Rafael urges, of Federico's admission in the letter dated August 14, 1969 of the
Agrava and Agrava Law office . . . in Federico's petition for registration . . . and
in his affidavit/notice of adverse claim. Viewed in its proper perspective,
however, we are now inclined to consider such admission as no more than a
recognition on the part of Federico of the factual existence of Exhibit "A", by
virtue of which his OCT No. 0-2015 was cancelled and a new title (TCT No. T-
36714) issued in the name of Rafael. . . .
In fine, this Court rules and so holds that the Deed of Absolute Sale executed
on May 19, 1962 by plaintiff-appellant Federico Suntay in favor of his nephew
Rafael G. Suntay (Exh. "A"), is absolutely simulated and fictitious. As such, it
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
convey property rights nor in any way alter the juridical situation of the parties
(Tongay vs. Court of Appeals, 100 SCRA 99). Along the same vein, the counter
deed of sale (Exh. "B"), executed by Rafael in favor of his uncle Federico,
purportedly re-selling to the latter the very same property earlier fictitiously
conveyed by Federico is likewise infected with the same infirmity that vitiates
Exhibit "A". Like the latter document Exhibit "B" is also simulated and
therefore it, too, is incapable of producing legal effects. In short, if was as if no
contract of sale was ever executed by Federico in favor of Rafael, on the one
hand, and by Rafael in favor of Federico, on the other hand, although the sad
reality must be acknowledged that on account of Exhibit "A", Federico's title to
the property was cancelled and replaced by a new one in the name of Rafael
whose change of heart brought about Federico's travails. 42
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 ) |8
scrutinize the case records and read and examined the pleadings and transcripts submitted before
the trial court 43 because the factual findings of the Court of Appeals and that of the trial court are
contrary to each other. 44
The sole issue in this case concerns the validity and integrity of the aforedescribed deed of sale in
favor of Rafael Suntay. We necessarily begin with two veritable legal presumptions: first, that there
was sufficient consideration for the contract 45 and, second, that it was the result of a fair and
regular private transaction. 46 These presumptions if shown to hold, infer prima facie the
transaction's validity, except that it must yield to the evidence adduced. 47
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
in question.
I
The late Rafael Suntay and private respondent Federico Suntay were relatives, undisputedly, whose
blood relation was the foundation of their professional and business relationship. The late Rafael
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
faith and confidence in the late Rafael, as nephew and counsel, that he blindly signed and executed
the sale in question. He had recommended Rafael as legal counsel and corporate secretary of the
Hagonoy Rural Bank of which he was founder and once President. He had entrusted to Rafael many
of his business documents and personal papers, the return of which he did not demand even upon
termination of their professional relationship. It was precisely because of this relationship that
Federico consented to what he alleged as a loan of title over his land and rice mill in favor of the
late Rafael. We are all too familiar with the practice in the typical Filipino family where the
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
his father, uncle, or godparent, the jack of all trades, trouble shooter and most trusted liaison officer
cum adviser. He wittingly serves his patron without the security of a formal contract and without
clarifying the matter of compensation.
The record is replete with circumstances that establish the closeness, mutual trust and business and
professional interdependence between the late Rafael and private respondent. When their
relationship turned sour, the late Rafael, in all probability knew where to hit Federico where it
really hurt because he had been privy to most of Federico's business and personal dealings and
transactions. The documentary evidence alone proffered by the late Rafael showed the extent of
Rafael's knowledge and involvement in both the business and private affairs of Federico, his wife,
his son, and even his wife's relatives. Rafael admitted in open court that he had come into the
possession thereof in the course of rendering legal services to his uncle. These documents on record
and the testimonies of the late Rafael and private respondent establish the existence of, not only the
facts therein stated, but also the circumstance pertaining to the nature of the relationship between
private respondent and the late Rafael. The Court of Appeals simply took a second look at the
evidence on record as was its bounden duty upon the filing of a motion for reconsideration and
could no longer ignore that the close relationship between the late Rafael and private respondent
was indeed a badge of simulation.

There are at least three distinguishable classes of so-called circumstances in
evidence which, however, cannot safely be interpreted in the same way. One
class of circumstances, often referred to in trials at law, includes all outside and
related incidents, conditions and happenings which are described by witnesses
and necessarily are subject to all of the dangers and defects of oral and memory
testimony. There are also circumstances which are admitted, or which arise
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 . . . .
. . . The law, as well as logic, makes a distinction between surroundings,
conditions, and "circumstances" as compared with real and tangible facts. . . . A
bungling, overwritten, traced signature, as well as a coat with a bullet-hole in
the breast are both . . . "silent circumstances" that do not commit perjury.
Though silent they often are eloquent. . . .
All these quite distinct classes of evidence form the basis of legal verdicts and
judgments. The great mass of legal evidence consists of testimony of oral
witnesses which has force in proportion as it is believed, but in many important
cases a verdict must be based mainly upon the second or the third class of
evidence . . . Circumstances and facts must be interpreted and illustrated in
order to show whether a definite conclusion can be based on them. In many
cases a particular conclusion is
irresistible. 48
The history and relationship of trust, interdependence and intimacy between the late
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
experience, especially in the context of the Filipino family's way of life, that Federico, the
uncle, would almost naively lend his land title to his nephew and agree to its cancellation
in his nephew's favor because Federico, in the first place, trusted his nephew; was well
aware of his power over him as uncle, client, and patron; and was actually in possession
of the land and rice mill. No one could even conceive of the possibility of ejecting
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.
II
The late Rafael insisted that the sale to him of his uncle's property was in fact a "dacion en pago" in
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
testified on direct examination. The answer that he filed in 1970 in response to Federico's complaint
never mentioned nor even alluded to any standing liability on the part of Federico as regards unpaid
attorney's fees. Neither did the late Rafael deny or refute Federico's testimony that they did not have
a clear-cut compensation scheme and that Federico gave him money at times, which compensation
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
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 ) |9
Equally significant is the admission of the late Rafael that he did not inform Federico that he
considered the transfer to be in consideration of his alleged unpaid attorney's fees.  51 Apparently, it
is true, as Federico claimed, that no accounting was undertaken between uncle-client and nephew-
lawyer in order to arrive at the definite amount of the alleged unpaid attorney's fees. Strange and
irregular as this matter seems to be, the same may only become comprehensible when considered as
or grave symptom of simulation.
Indeed the most protuberant index of simulation is the complete absence of an attempt in any
manner on the part of the late Rafael to assert his rights of ownership over the land and rice mill in
question. After the sale, he should have entered the land and occupied the premises thereof. He did
not even attempt to. If he stood as owner, he would have collected rentals from Federico for the use
and occupation of the land and its improvements. All that the late Rafael had was a title in his
name.
If is to be emphasized that the private respondents never parted with the
ownership and possession of that portion of Lot No 785 . . . nor did the
petitioners ever enter into possession thereof. As earlier stated, the issuance of
TCT No. T-1346 did not operate to vest upon the latter ownership over the
private respondents' property. That act has never been recognized as a mode of
acquiring ownership. As a matter of fact, even the original registration of
immovable property does not vest title thereto; it is merely evidence of such
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
property. 52
The failure of the late Rafael to take exclusive possession of the property allegedly sold to
him is a clear badge of fraud. 53 The fact that, notwithstanding the title transfer, Federico
remained in actual possession, cultivation and occupation of the disputed lot from the
time the deed of sale was executed until the present, is a circumstance which is
unmistakably added proof of the fictitiousness of the said transfer, 54 the same being
contrary to the principle of ownership. 55
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
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
theory of Federico.
If it were true that the first sale transaction was actually a "dacion en pago" in satisfaction
of Federico's alleged unpaid attorney's fees, it does strain the logical mind that Rafael had
agreed to allow the repurchase of the property three months thereafter. Federico was
obviously financially liquid. Had he intended to pay attorney's fees, he would have paid
Rafael in cash and not part with valuable income-producing real property.
IV

The late Rafael, at the very outset, made much of an uproar over the alleged admissions made by
Federico in several documents executed by him or in his behalf.
On the whole, it was the late Rafael's inflexible stand that Federico admitted in various
documents that he bad absolutely sold his land and rice mill to him and could not, thus,
subsequently deny or attack that sale. Upon our examination of such documents,
however, we find that neither the letter of Agrava & Agrava, nor the petition to compel
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
that Federico sold the subject properly to the late Rafael. What was alleged was that
Rafael resold to Federico the said property, and not the other way around, precisely
because both documents were assertions of remedies resorted to by Federico upon the
refusal by the late Rafael to tender his owner's duplicate title.
V Rafael and Federico deteriorated, and eventually ended, it is not at all strange for Federico to have
Neither does the undisputed fact that the deed of sale executed by Federico in favor of the late
Rafael, is a notarized document, justify the conclusion that said sale is undoubtedly a true
conveyance to which the parties thereto are irrevocably and undeniably bound.
Conduct, to be given jural effects, must be jural in its subject . . .  i.e. must
concern jural relations, not relations of friendship or other non-jural relations.
The father who promises to bring home a box of tools for his boy is not bound
in contract, though the same promise to his neighbor may be binding. The
friend who invites one with an offer of a dinner is not legally liable, though he
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
ineffective, or void. In the traditional phraseology of the parole evidence rule,
then, it may always be shown that the transaction was understood by the parties
not to have jural effect.
(1) Ordinarily, the bearing of this principle is plain enough on the
circumstances. It has been judicially applied to household services rendered by
a member of the family, and to a writing representing merely a family
understanding. . . .
When the document is to serve the purpose of a mere sham, this principle in
strictness exonerates the makers. . . . 56
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
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
the primary consideration in determining the true nature of a contract.
VI
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
While the late Rafael vehemently upholds the validity and effectiveness of the deed of sale in
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.
The fact that the late Rafael denied both intention and knowledge involving the sham sale and
firmly maintained the validity and genuineness thereof has become incongruous because it is
irreconcilable with the circumstance that he apparently never considered the disputed property as
one of his assets over which he had rights of absolute ownership.
The allegation of Rafael that the lapse of seven (7) years before Federico sought the issuance of a
new title in his name necessarily makes Federico's claim stale and unenforceable does not hold
water. Federico's title was not in the hands of a stranger or mere acquaintance; it was in the
possession of his nephew who, being his lawyer, had served him faithfully for many years. Federico
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
been complacent and unconcerned about the status of his title over the disputed property since he
has been possessing the same actually, openly, and adversely, to the exclusion of Rafael. It was
only when Federico needed the title in order to obtain a collaterized loan  57 that Federico began to
attend to the task of obtaining a title in his name over the subject land and rice mill.
We, therefore, hold that the deed of sale executed by Federico in favor of his now deceased
nephew, Rafael, is absolutely simulated and fictitious and, hence, null and void, said parties having
entered into a sale transaction to which they did not intend to be legally bound. As no property was
validly conveyed under the deed, the second deed of sale executed by the late Rafael in favor of his
uncle, should be considered ineffective and unavailing.
WHEREFORE, the Amended Decision promulgated by the Court of Appeals on December 15,
1993 in CA-G.R CV No. 08179 is hereby AFFIRMED IN TOTO. Petitioners, the heirs of Rafael G.
Suntay, are hereby ordered to reconvey to private respondent Federico G. Suntay the property
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
Title No. T-36714 of the Registry of Deeds of the Province of Bulacan. In the event that the
petitioners fail or refuse to execute the necessary deed of reconveyance as herein directed, the Clerk
of Court of the Regional Trial Court of Bulacan is hereby ordered to execute the same at the
expense of the aforesaid heirs.
Costs against petitioners.
SO ORDERED.
G.R. No. 89561 September 13, 1990
BUENAFLOR C. UMALI, MAURICIA M. VDA. DE CASTILLO, VICTORIA M.
CASTILLO, BERTILLA C. RADA, MARIETTA C. ABAÑEZ, LEOVINA C. JALBUENA
and SANTIAGO M. RIVERA, petitioners, 
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
MANUFACTURING CO., INC., respondents.
Edmundo T. Zepeda for petitioners.
Martin M. De Guzman for respondent BORMAHECO, Inc.
Renato J. Robles for P.M. Parts Manufacturing Co., Inc.
 
REGALADO, J.:
This is a petition to review the decision of respondent Court of Appeals, dated August 3, 1989, in
CA-GR CV No. 15412, entitled "Buenaflor M. Castillo Umali, et al. vs. Philippine Machinery
Parts Manufacturing Co., Inc., et al.,"  1the dispositive portion whereof provides:
WHEREFORE, viewed in the light of the entire record, the judgment appealed
from must be, as it is hereby REVERSED. In lieu thereof, a judgment is hereby
rendered-
1) Dismissing the complaint, with cost against plaintiffs;
2) Ordering plaintiffs-appellees to vacate the subject properties; and
3) Ordering plaintiffs-appellees to pay upon defendants' counterclaims:
a) To defendant-appellant PM Parts: (i) damages consisting
of the value of the fruits in the subject parcels of land of
which they were deprived in the sum of P26,000.00 and (ii)
attorney's fees of P15,000.00
b) To defendant-appellant Bormaheco: (i) expenses of
litigation in the amount of P5,000.00 and (ii) attorney's fees
of P15,000.00.
SO ORDERED.
The original complaint for annulment of title filed in the court a quo by herein petitioners included
as party defendants the Philippine Machinery Parts Manufacturing Co., Inc. (PM Parts), Insurance
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
party plaintiff.
During the pre-trial conference, the parties entered into the following stipulation of facts:
As between all parties: Plaintiff Buenaflor M. Castillo is
the judicial administratrix of the estate of Felipe Castillo in
Special Proceeding No. 4053, pending before Branch IX,
CFI of Quezon (per Exhibit A) which intestate proceedings
was instituted by Mauricia Meer Vda. de Castillo, the
previous administratrix of the said proceedings prior to
1970 (per exhibits A-1 and A-2) which case was filed in
Court way back in 1964;
b) The four (4) parcels of land described in paragraph 3 of
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
Tax Dec. No. 14135, with assessed value of P6,150.00; and
TCT No. T-42103 with Tax Dec. No. 14133, with assessed
value of P3,580.00 (per Exhibits A-2 and B, B-1 to B-3 C,
C-1 -to C3
c) That the above-enumerated four (4) parcels of land were
the subject of the Deed of Extra-Judicial Partition executed
by the heirs of Felipe Castillo (per Exhibit D) and by virtue
thereof the titles thereto has (sic) been cancelled and in lieu
thereof, new titles in the name of Mauricia Meer Vda. de
Castillo and of her children, namely: Buenaflor, Bertilla,
Victoria, Marietta and Leovina, all surnamed Castillo has
(sic) been issued, namely: TCT No. T-12113 (Exhibit E );
TCT No. T-13113 (Exhibit F); TCT No. T-13116 (Exhibit
G ) and TCT No. T13117 (Exhibit H )
d) That mentioned parcels of land were submitted as
guaranty in the Agreement of Counter-Guaranty with
Chattel-Real Estate Mortgage executed on 24 October 1970
between Insurance Corporation of the Philippines and
Slobec Realty Corporation represented by Santiago Rivera
(Exhibit 1);
e) That based on the Certificate of Sale issued by the
Sheriff of the Province of Quezon in favor of Insurance
Corporation of the Philippines it was able to transfer to
itself the titles over the lots in question, namely: TCT No.
T-23705 (Exhibit M), TCT No. T 23706 (Exhibit N ), TCT
No. T-23707 (Exhibit 0) and TCT No. T 23708 (Exhibit P);
f) That on 10 April 1975, the Insurance Corporation of the
Philippines sold to PM Parts the immovables in question
(per Exhibit 6 for PM Parts) and by reason thereof,
succeeded in transferring unto itself the titles over the lots
in dispute, namely: per TCT No. T-24846 (Exhibit Q ), per
TCT No. T-24847 (Exhibit R ), TCT No. T-24848
(Exhibit), TCT No. T-24849 (Exhibit T );

g) On 26 August l976, Mauricia Meer Vda. de Castillo'
genther letter to Modesto N. Cervantes stating that she and
her children refused to comply with his demands (Exhibit
V-2);
h) That from at least the months of October, November and
December 1970 and January 1971, Modesto N. Cervantes
was the Vice-President of Bormaheco, Inc. later President
thereof, and also he is one of the Board of Directors of PM
Parts; on the other hand, Atty. Martin M. De Guzman was
the legal counsel of Bormaheco, Inc., later Executive Vice-
President thereof, and who also is the legal counsel of
Insurance Corporation of the Philippines and PM Parts; that
Modesto N. Cervantes served later on as President of PM
Parts, and that Atty. de Guzman was retained by Insurance
Corporation of the Philippines specifically for foreclosure
purposes only;
i) Defendant Bormaheco, Inc. on November 25, 1970 sold
to Slobec Realty and Development, Inc., represented by
Santiago Rivera, President, one (1) unit Caterpillar Tractor
D-7 with Serial No. 281114 evidenced by a contract
marked Exhibit J and Exhibit I for Bormaheco, Inc.;
j) That the Surety Bond No. 14010 issued by co-defendant
ICP was likewise secured by an Agreement with Counter-
Guaranty with Real Estate Mortgage executed by Slobec
Realty & Development, Inc., Mauricia Castillo Meer,
Buenaflor Castillo, Bertilla Castillo, Victoria Castillo,
Marietta Castillo and Leovina Castillo, as mortgagors in
favor of ICP which document was executed and ratified
before notary public Alberto R. Navoa of the City of
Manila on October 24,1970;
k) That the property mortgaged consisted of four (4) parcels
of land situated in Lucena City and covered by TCT Nos.
T-13114, T13115,  hereto submitted as Exhibit BB That said chattel mortgage
T-13116 and T-13117 of the Register of Deeds of Lucena
City;
l) That the tractor sold by defendant Bormaheco, Inc. to
Slobec Realty & Development, Inc. was delivered to
Bormaheco, Inc. on or about October 2,1973, by Mr.
Menandro Umali for purposes of repair;
m) That in August 1976, PM Parts notified Mrs. Mauricia
Meer about its ownership and the assignment of Mr.
Petronilo Roque as caretaker of the subject property;
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
n) That plaintiff and other heirs are harvest fruits of the
property (daranghita) which is worth no less than Pl,000.00
per harvest.
As between plaintiffs and 
defendant Bormaheco, Inc
o) That on 25 November 1970, at Makati, Rizal, Same
Rivera, in representation of the Slobec Realty &
Development Corporation executed in favor of Bormaheco,
Inc., represented by its Vice-President Modesto N.
Cervantes a Chattel Mortgage concerning one unit model
CAT D7 Caterpillar Crawler Tractor as described therein as
security for the payment in favor of the mortgagee of the
amount of P180,000.00 (per Exhibit K) that Id document
was superseded by another chattel mortgage dated January
23, 1971 (Exhibit 15);
p) On 18 December 1970, at Makati, Rizal, the Bormaheco,
Inc., represented by its Vice-President Modesto Cervantes
and Slobec Realty Corporation represented by Santiago
Rivera executed the sales agreement concerning the sale of
one (1) unit Model CAT D7 Caterpillar Crawler Tractor as
described therein for the amount of P230,000.00 (per
Exhibit J) which document was superseded by the Sales
Agreement dated January 23,1971 (Exhibit 16);
q) Although it appears on the document entitled Chattel
Mortgage (per Exhibit K) that it was executed on 25
November 1970, and in the document entitled Sales
Agreement (per Exhibit J) that it was executed on 18
December 1970, it appears in the notarial register of the
notary public who notarized them that those two documents
were executed on 11 December 1970. The certified xerox
copy of the notarial register of Notary Public Guillermo
Aragones issued by the Bureau of Records Management is
was superseded by another document dated January 23,
1971;
r) That on 23 January 1971, Slobec Realty Development
Corporation, represented by Santiago Rivera, received from
Bormaheco, Inc. one (1) tractor Caterpillar Model D-7
pursuant to Invoice No. 33234 (Exhibits 9 and 9-A,
Bormaheco, Inc.) and delivery receipt No. 10368 (per
Exhibits 10 and 10-A for Bormaheco, Inc
s) That on 28 September 1973, Atty. Martin M. de Guzman,
as counsel of Insurance Corporation of the Philippines

purchased at public auction for said corporation the four (4)
parcels of land subject of tills case (per Exhibit L), and
which document was presented to the Register of Deeds on
1 October 1973;
t) Although it appears that the realties in issue has (sic)
been sold by Insurance Corporation of the Philippines in
favor of PM Parts on 1 0 April 1975, Modesto N.
Cervantes, formerly Vice- President and now President of
Bormaheco, Inc., sent his letter dated 9 August 1976 to
Mauricia Meer Vda. de Castillo (Exhibit V), demanding
that she and her children should vacate the premises;
u) That the Caterpillar Crawler Tractor Model CAT D-7
which was received by Slobec Realty Development
Corporation was actually reconditioned and repainted. " 2
We cull the following antecedents from the decision of respondent Court of Appeals:
Plaintiff Santiago Rivera is the nephew of plaintiff Mauricia Meer Vda. de
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
Bank of the Philippines. For their failure to pay the amortization, foreclosure of
the said property was about to be initiated. This problem was made known to
Santiago Rivera, who proposed to them the conversion into subdivision of the
four (4) parcels of land adjacent to the mortgaged property to raise the
necessary fund. The Idea was accepted by the Castillo family and to carry out
the project, a Memorandum of Agreement (Exh. U p. 127, Record) was
executed by and between Slobec Realty and Development, Inc., represented by
its President Santiago Rivera and the Castillo family. In this agreement,
Santiago Rivera obliged himself to pay the Castillo family the sum of
P70,000.00 immediately after the execution of the agreement and to pay the
additional amount of P400,000.00 after the property has been converted into a
subdivision. Rivera, armed with the agreement, Exhibit U , approached Mr.
Modesto Cervantes, President of defendant Bormaheco, and proposed to
purchase from Bormaheco two (2) tractors Model D-7 and D-8 Subsequently, a
Sales Agreement was executed on December 28,1970 (Exh. J, p. 22, Record).
On January 23, 1971, Bormaheco, Inc. and Slobec Realty and Development,
Inc., represented by its President, Santiago Rivera, executed a Sales Agreement
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
P230,000.00 of which P50,000.00 was to constitute a down payment, and the
balance of P180,000.00 payable in eighteen monthly installments. On the same
date, Slobec, through Rivera, executed in favor of Bormaheco a Chattel
Mortgage (Exh. K, p. 29, Record) over the said equipment as security for the
payment of the aforesaid balance of P180,000.00. As further security of the
aforementioned unpaid balance, Slobec obtained from Insurance Corporation of
the Phil. a Surety Bond, with ICP (Insurance Corporation of the Phil.) as surety
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
and Slobec as principal, in favor of Bormaheco, as borne out by Exhibit '8' (p.
111, Record). The aforesaid surety bond was in turn secured by an Agreement
of Counter-Guaranty with Real Estate Mortgage (Exhibit I, p. 24, Record)
executed by Rivera as president of Slobec and Mauricia Meer Vda. de Castillo,
Buenaflor Castillo Umali, Bertilla Castillo-Rada, Victoria Castillo, Marietta
Castillo and Leovina Castillo Jalbuena, as mortgagors and Insurance
Corporation of the Philippines (ICP) as mortgagee. In this agreement, ICP
guaranteed the obligation of Slobec with Bormaheco in the amount of
P180,000.00. In giving the bond, ICP required that the Castillos mortgage to
them the properties in question, namely, four parcels of land covered by TCTs
in the name of the aforementioned mortgagors, namely TCT Nos. 13114,
13115, 13116 and 13117 all of the Register of Deeds for Lucena City.
On the occasion of the execution on January 23, 1971, of the Sales Agreement
Exhibit '16', Slobec, represented by Rivera received from Bormaheco the
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.
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
[Stipulation of Facts, Pre-trial Order, par. (u)].
Meanwhile, for violation of the terms and conditions of the Counter-Guaranty
Agreement (Exh. 1), the properties of the Castillos were foreclosed by ICP As
the highest bidder with a bid of P285,212.00, a Certificate of Sale was issued by
the Provincial Sheriff of Lucena City and Transfer Certificates of Title over the
subject parcels of land were issued by the Register of Deeds of Lucena City in
favor of ICP namely, TCT Nos. T-23705, T 23706, T-23707 and T-23708
(Exhs. M to P, pp. 38-45). The mortgagors had one (1) year from the date of the
registration of the certificate of sale, that is, until October 1, 1974, to redeem
the property, but they failed to do so. Consequently, ICP consolidated its
ownership over the subject parcels of land through the requisite affidavit of
consolidation of ownership dated October 29, 1974, as shown in Exh. '22'(p.
138, Rec.). Pursuant thereto, a Deed of Sale of Real Estate covering the subject
properties was issued in favor of ICP (Exh. 23, p. 139, Rec.).
On April 10, 1975, Insurance Corporation of the Phil. ICP sold to Phil.
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
lots in dispute so that said parcels of land are now covered by TCT Nos. T-
24846, T-24847, T-24848 and T-24849 (Exhs. Q-T, pp. 46-49, Rec.).
Thereafter, PM Parts, through its President, Mr. Modesto Cervantes, sent a
letter dated August 9,1976 addressed to plaintiff Mrs. Mauricia Meer Castillo
requesting her and her children to vacate the subject property, who (Mrs.
Castillo) in turn sent her reply expressing her refusal to comply with his
demands.
On September 29, 1976, the heirs of the late Felipe Castillo, particularly
plaintiff Buenaflor M. Castillo Umali as the appointed administratrix of the

properties in question filed an action for annulment of title before the then
Court of First Instance of Quezon and docketed thereat as Civil Case No. 8085.
Thereafter, they filed an Amended Complaint on January 10, 1980 (p. 444,
Record). On July 20, 1983, plaintiffs filed their Second Amended Complaint,
impleading Santiago M. Rivera as a party plaintiff (p. 706, Record). They
contended that all the aforementioned transactions starting with the Agreement
of Counter-Guaranty with Real Estate Mortgage (Exh. I), Certificate of Sale
(Exh. L) and the Deeds of Authority to Sell, Sale and the Affidavit of
Consolidation of Ownership (Annexes F, G, H, I) as well as the Deed of Sale
(Annexes J, K, L and M) are void for being entered into in fraud and without
the consent and approval of the Court of First Instance of Quezon, (Branch IX)
before whom the administration proceedings has been pending. Plaintiffs pray
that the four (4) parcels of land subject hereof be declared as owned by the
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
and 24849 as well as those appearing as encumbrances at the back of the
certificates of title mentioned be declared as a nullity and defendants to pay
damages and attorney's fees (pp. 71071 1, Record).
In their amended answer, the defendants controverted the complaint and
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
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
laches in not asserting their alleged right in due time; that defendant PM Parts is
an innocent purchaser for value and relied on the face of the title before it
bought the subject property (p. 744, Record). 3
After trial, the court a quo rendered judgment, with the following decretal
portion:
WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and
against the defendants, declaring the following documents:
Agreement of Counter-Guaranty with Chattel-Real Estate
Mortgage dated October 24,1970 (Exhibit 1);
Sales Agreement dated December 28, 1970 (Exhibit J)
Chattel Mortgage dated November 25, 1970 (Exhibit K)
Sales Agreement dated January 23, 1971 (Exhibit 16);
Chattel Mortgage dated January 23, 1971 (Exhibit 17);
Certificate of Sale dated September 28, 1973 executed by
the Provincial Sheriff of Quezon in favor of Insurance
Corporation of the Philippines (Exhibit L);
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
null and void for being fictitious, spurious and without consideration.
Consequently, Transfer Certificates of Title Nos. T 23705, T-23706, T23707
and T-23708 (Exhibits M, N, O and P) issued in the name of Insurance
Corporation of the Philippines, are likewise null and void.
The sale by Insurance Corporation of the- Philippines in favor of defendant
Philippine Machinery Parts Manufacturing Co., Inc., over Id four (4) parcels of
land and Transfer Certificates of Title Nos. T 24846, T-24847, T-24848 and T-
24849 subsequently issued by virtue of said sale in the name of Philippine
Machinery Parts Manufacturing Co., Inc., are similarly declared null and void,
and the Register of Deeds of Lucena City is hereby directed to issue, in lieu
thereof, transfer certificates of title in the names of the plaintiffs, except
Santiago Rivera.
Orders the defendants jointly and severally to pay the plaintiffs moral damages
in the sum of P10,000.00, exemplary damages in the amount of P5,000.00, and
actual litigation expenses in the sum of P6,500.00.
Defendants are likewise ordered to pay the plaintiffs, jointly and severally, the
sum of P10,000.00 for and as attomey's fees. With costs against the defendants.
SO ORDERED. 4
As earlier stated, respondent court reversed the aforequoted decision of the trial court and rendered
the judgment subject of this petition-
Petitioners contend that respondent Court of Appeals erred:
1. In holding and finding that the actions entered into between petitioner Rivera
with Cervantes are all fair and regular and therefore binding between the parties
thereto;
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
record but also, holding valid and binding the supposed payment by ICP of its
obligation to Bormaheco, despite the fact that the surety bond issued it had
already expired when it opted to foreclose extrajudically the mortgage executed
by the petitioners;
3. In aside the finding of the lower court that there was necessity to pierce the
veil of corporate existence; and
4. In reversing the decision of the lower court of affirming the same 5
I. Petitioners aver that the transactions entered into between Santiago M. Rivera, as President of
Slobec Realty and Development Company (Slobec) and Mode Cervantes, as Vice-President of
Bormaheco, such as the Sales Agreement, 6 Chattel Mortgage 7 and the Agreement of Counter-
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

to the stipulations agreed upon in the Sales Agreement (Exhibit J), Rivera never made any advance
payment, in the alleged amount of P50,000.00, to Bormaheco; that the tractor was received by
Rivera only on January 23, 1971 and not in 1970 as stated in the Chattel Mortgage (Exhibit K); and
that when the Agreement of Counter-Guaranty with Chattel/Real Estate Mortgage was executed on
October 24, 1970, to secure the obligation of ICP under its surety bond, the Sales Agreement and
Chattel Mortgage had not as yet been executed, aside from the fact that it was Bormaheco, and not
Rivera, which paid the premium for the surety bond issued by ICP
At the outset, it will be noted that petitioners submission under the first assigned error hinges purely
on questions of fact. Respondent Court of Appeals made several findings to the effect that the
questioned documents are valid and binding upon the parties, that there was no fraud employed by
private respondents in the execution thereof, and that, contrary to petitioners' allegation, the
evidence on record reveals that petitioners had every intention to be bound by their undertakings in
the various transactions had with private respondents. It is a general rule in this jurisdiction that
findings of fact of said appellate court are final and conclusive and, thus, binding on this Court in
the absence of sufficient and convincing proof, inter alia, that the former acted with grave abuse of
discretion. Under the circumstances, we find no compelling reason to deviate from this long-
standing jurisprudential pronouncement.
In addition, the alleged failure of Rivera to pay the consideration agreed upon in the Sales
Agreement, which clearly constitutes a breach of the contract, cannot be availed of by the guilty
party to justify and support an action for the declaration of nullity of the contract. Equity and fair
play dictates that one who commits a breach of his contract may not seek refuge under the
protective mantle of the law.
The evidence of record, on an overall calibration, does not convince us of the validity of petitioners'
contention that the contracts entered into by the parties are either absolutely simulated or downright
fraudulent.
There is absolute simulation, which renders the contract null and void, when the parties do not
intend to be bound at all by the same. 9 The basic characteristic of this type of simulation of
contract is the fact that the apparent contract is not really desired or intended to either produce legal
effects or in any way alter the juridical situation of the parties. The subsequent act of Rivera in
receiving and making use of the tractor subject matter of the Sales Agreement and Chattel
Mortgage, and the simultaneous issuance of a surety bond in favor of Bormaheco, concomitant with
the execution of the Agreement of Counter-Guaranty with Chattel/Real Estate Mortgage, conduce
to the conclusion that petitioners had every intention to be bound by these contracts. The
occurrence of these series of transactions between petitioners and private respondents is a strong
indication that the parties actually intended, or at least expected, to exact fulfillment of their
respective obligations from one another.
Neither will an allegation of fraud prosper in this case where petitioners failed to show that they
were induced to enter into a contract through the insidious words and machinations of private
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
convincing. 10 We are not persuaded that such quantum of proof exists in the case at bar.
The fact that it was Bormaheco which paid the premium for the surety bond issued by ICP does
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 ) | 15
Rivera executed a Deed of Sale with Right of Repurchase of his car in favor of Bormaheco and
agreed that a part of the proceeds thereof shall be used to pay the premium for the bond. 11 In effect,
Bormaheco accepted the payment of the premium as an agent of ICP The execution of the deed of
sale with a right of repurchase in favor of Bormaheco under such circumstances sufficiently
establishes the fact that Rivera recognized Bormaheco as an agent of ICP Such payment to the
agent of ICP is, therefore, binding on Rivera. He is now estopped from questioning the validity of
the suretyship contract.
II. Under the doctrine of piercing the veil of corporate entity, when valid grounds therefore exist,
the legal fiction that a corporation is an entity with a juridical personality separate and distinct from
its members or stockholders may be disregarded. In such cases, the corporation will be considered
as a mere association of persons. The members or stockholders of the corporation will be
considered as the corporation, that is, liability will attach directly to the officers and
stockholders. 12 The doctrine applies when the corporate fiction is used to defeat public
convenience, justify wrong, protect fraud, or defend crime, 13 or when it is made as a shield to
confuse the legitimate issues 14 or where a corporation is the mere alter ego or business conduit of a
person, or where the corporation is so organized and controlled and its affairs are so conducted as to
make it merely an instrumentality, agency, conduit or adjunct of another corporation. 15
In the case at bar, petitioners seek to pierce the V621 Of corporate entity of Bormaheco, ICP and
PM Parts, alleging that these corporations employed fraud in causing the foreclosure and
subsequent sale of the real properties belonging to petitioners While we do not discount the
possibility of the existence of fraud in the foreclosure proceeding, neither are we inclined to apply
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
proceeding may be declared a nullity under the circumstances obtaining in the legal case at bar.
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
seek to impose a claim against the individual members of the three corporations involved; on the
contrary, it is these corporations which desire to enforce an alleged right against petitioners.
Assuming that petitioners were indeed defrauded by private respondents in the foreclosure of the
mortgaged properties, this fact alone is not, under the circumstances, sufficient to justify the
piercing of the corporate fiction, since petitioners do not intend to hold the officers and/or members
of respondent corporations personally liable therefor. Petitioners are merely seeking the declaration
of the nullity of the foreclosure sale, which relief may be obtained without having to disregard the
aforesaid corporate fiction attaching to respondent corporations. Secondly, petitioners failed to
establish by clear and convincing evidence that private respondents were purposely formed and
operated, and thereafter transacted with petitioners, with the sole intention of defrauding the latter.
The mere fact, therefore, that the businesses of two or more corporations are interrelated is not a
justification for disregarding their separate personalities, 16 absent sufficient showing that the
corporate entity was purposely used as a shield to defraud creditors and third persons of their rights.
III. The main issue for resolution is whether there was a valid foreclosure of the mortgaged
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
failure of Slobec in paying its obligation with the former, plus the fact that no receipt was presented

to show the amount allegedly paid by ICP to Bormaheco; and (b) at the time of the foreclosure of
the mortgage, the liability of ICP under the surety bond had already expired.
Respondent court, in finding for the validity of the foreclosure sale, declared:
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
appellants that the foreclosure proceedings instituted by the ICP was in the
exercise of a legal right. First, ICP has in its favor the legal presumption that it
had indemnified Bormaheco by reason of Slobec's default in the payment of its
obligation under the Sales Agreement, especially because Bormaheco
consented to ICPs foreclosure of the mortgage. This presumption is in
consonance with pars. R and Q Section 5, Rule 5, * New Rules of Court which
provides that it is disputably presumed that private transactions have been fair
and regular. likewise, it is disputably presumed that the ordinary course of
business has been followed: Second, ICP had the right to proceed at once to the
foreclosure of the mortgage as mandated by the provisions of Art. 2071 Civil
Code for these further reasons: Slobec, the principal debtor, was admittedly
insolvent; Slobec's obligation becomes demandable by reason of the expiration
of the period of payment; and its authorization to foreclose the mortgage upon
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)
expressly grants to ICP the right to foreclose the real estate mortgage in the
event of 'non-payment or non-liquidation of the entire indebtedness or fraction
thereof upon maturity as stipulated in the contract'. This is a valid and binding
stipulation in the absence of showing that it is contrary to law, morals, good
customs, public order or public policy. (Art. 1306, New Civil Code). 17
1. Petitioners asseverate that there was no notice of default issued by Bormaheco to ICP which
would have entitled Bormaheco to demand payment from ICP under the suretyship contract.
Surety Bond No. B-1401 0 which was issued by ICP in favor of Bormaheco, wherein ICP and
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
provides in part as follows:
1. The liability of INSURANCE CORPORATION OF THE PHILIPPINES,
under this BOND will expire Twelve (I 2) months from date hereof.
Furthermore, it is hereby agreed and understood that the INSURANCE
CORPORATION OF THE PHILIPPINES will not be liable for any claim not
presented in writing to the Corporation within THIRTY (30) DAYS from the
expiration of this BOND, and that the obligee hereby waives his right to bring
claim or file any action against Surety and after the termination of one (1) year
from the time his cause of action accrues. 18
The surety bond was dated October 24, 1970. However, an annotation on the upper part
thereof states: "NOTE: EFFECTIVITY DATE OF THIS BOND SHALL BE ON
JANUARY 22, 1971." 19
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
On the other hand, the Sales Agreement dated January 23, 1971 provides that the balance of
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
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
It is basic that liability on a bond is contractual in nature and is ordinarily restricted to the
obligation expressly assumed therein. We have repeatedly held that the extent of a surety's liability
is determined only by the clause of the contract of suretyship as well as the conditions stated in the
bond. It cannot be extended by implication beyond the terms the contract. 22
Fundamental likewise is the rule that, except where required by the provisions of the contract, a
demand or notice of default is not required to fix the surety's liability. 23 Hence, where the contract
of suretyship stipulates that notice of the principal's default be given to the surety, generally the
failure to comply with the condition will prevent recovery from the surety. There are certain
instances, however, when failure to comply with the condition will not extinguish the surety's
liability, such as a failure to give notice of slight defaults, which are waived by the obligee; or on
mere suspicion of possible default; or where, if a default exists, there is excuse or provision in the
suretyship contract exempting the surety for liability therefor, or where the surety already has
knowledge or is chargeable with knowledge of the default. 24
In the case at bar, the suretyship contract expressly provides that ICP shag not be liable for any
claim not filed in writing within thirty (30) days from the expiration of the bond. In its decision
dated May 25 1987, the court a quo categorically stated that '(n)o evidence was presented to show
that Bormaheco demanded payment from ICP nor was there any action taken by Bormaheco on the
bond posted by ICP to guarantee the payment of plaintiffs obligation. There is nothing in the
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
Slobec's supposed default released ICP from liability under its surety bond. Consequently, ICP
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
written notice since its case does not fall under any of the exceptions hereinbefore enumerated.
Furthermore, the allegation of ICP that it has paid Bormaheco is not supported by any documentary
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,
the disputable presumption that private transactions have been fair and regular, as erroneously
relied upon by respondent Court of Appeals, finds no application to the case at bar.
2. The liability of a surety is measured by the terms of his contract, and, while he is liable to the full
extent thereof, such liability is strictly limited to that assumed by its terms. 26 While ordinarily the
termination of a surety's liability is governed by the provisions of the contract of suretyship, where
the obligation of a surety is, under the terms of the bond, to terminate at a specified time, his
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
debtor. 28
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
effectivity date, whereas Slobec's installment payment was to end on July 23, 1972. Therefore,
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
until January 22, 1972. Thereafter, from January 23, 1972 up to July 23, 1972, the liability of
Slobec became an unsecured obligation. The default of Slobec during this period cannot be a valid
basis for the exercise of the right to foreclose by ICP since its surety contract had already been
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
foreclosure of the mortgage, after the expiration of the surety bond under which ICP as surety has
not incurred any liability, should be declared null and void.
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
and (4) Transfer Certificates of Title Nos. T-24846, T-24847, T-24848 and T24849 subsequently
issued by virtue of said sale in the name of the latter corporation.
The Register of Deeds of Lucena City is hereby directed to cancel Transfer Certificates of Title
Nos. T-24846, T-24847, T24848 and T-24849 in the name of Philippine Machinery Parts
Manufacturing Co., Inc. and to issue in lieu thereof the corresponding transfer certificates of title in
the name of herein petitioners, except Santiago Rivera.
The foregoing dispositions are without prejudice to such other and proper legal remedies as may be
available to respondent Bormaheco, Inc. against herein petitioners.
SO ORDERED.

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;