THE MANILA BANKING CORPORATION vs.

EDMUNDO SILVERIO
G.R. No. 132887 | August 11, 2005

Rescissible Contracts

KEYWORDS: absolute simulation para matanggal ang writ of attachment

FACTS:

● Purificacion Ver owned 2 parcels of land in Paranaque, which she sold for 1Mil to Ricardo Sr.
● The absolute deed of sale—which is evidence of the transaction, was not registered. In effect, the title
remained with the seller, Purificacion.

● The Manila Banking Corporation (TMBC) filed a case with the Makati City RTC for the collection of a sum
of money, along with an application for a writ of preliminary attachment against Ricardo Sr. and the Delta
Motors Corporation.

● By virtue of an Order of the RTC of Makati City, notice of levy on attachment of real property and writ of
attachment were inscribed on the said two parcels of land bought by Ricardo Sr.

● Respondent Silverio, the nephew of judgment Ricardo Sr. requested to have the orders on the properties
cancelled as the properties were no longer owned by his uncle Ricardo Sr.

● Silverio alleges that as early as 1989, the properties were already sold to him by Ricardo Sr. As such,
these properties could not be levied upon on 1990 to answer for the debt of Ricardo Sr. who no longer
owned the properties.

RTC Ruling

● Ruled that Silverio is not entitled to a cancellation of the orders and that the supposed deed of sale, in
favor of Silverio, is fictitious and simulated, and thus void ab initio.
● The all-important factor that what appears in the notarial register of the notary public, albeit in loose form, is
not a deed of sale but a mere affidavit of a different person – Maria J. Segismundo --, as shown in Exhibit
10-A, is sufficient to prove that no effective, valid and legal sale of the properties in question was executed
between the Silverio uncle and nephew..

CA Ruling

● CA reversed and set aside RTC’s decision.

● Court of Appeals reasoned that the sale between Ricardo Sr. and Silverio was not void and that assuming it
to be void, only the parties to the sale and/or their assigns can impugn or assail its validity. Moreover,
rescinding a contract of sale is a remedy of last resort, i.e., accion pauliana can be availed of only after the
creditor has had exhausted all the properties of the debtor not exempt from execution.
● ACCION PAULIANA – an action where the creditor files an action in court for the rescission of acts
or contracts entered into by the debtor designed to defraud the former.
ISSUE:
Whether or not the contract is simulated and thus void.

PETITIONER (GERMAN’S SON: RAMON) RESPONDENT (HDSJ)

● TMBC alleged, among other things, that the sale
in favor of Edmundo was void, therefore, the
properties levied upon were still owned by
Ricardo, Sr., the debtor.
● Respondent alleged that as early as 11 September
1989, the properties, subject matter of the case,
were already sold to him by Ricardo, Sr. As
such, these properties could not be levied upon
on 02 July 1990 to answer for the debt of
Ricardo, Sr. who was no longer the owner
thereof.
● It does not appear that TMBC sought other
properties of Ricardo, Sr. other than the subject
properties alleged to have been transferred in
fraud of creditors. Thus, as the sale of the subject
properties was not void, it rightfully transferred
ownership to Edmundo who is not a debtor of
TMBC.
●

RULING

YES, the contract is absolutely simulated and thus void.

Simulated contracts
An absolutely simulated contract, under Article 1346 of the Civil Code, is void. It takes place when the parties do
not intend to be bound at all. The characteristic of simulation is the fact that the contract is not really desired or
intended to produce legal effects or 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. Lacking,
therefore, in a fictitious and simulated contract is consent which is essential to a valid and enforceable contract.

In this case, badges of fraud and simulation permeate the whole transaction, thus, we cannot but refuse to give the
sale validity and legitimacy.

1) There is no proof that the said sale took place prior to the date of the attachment. The notarized deed of
sale, which would have served as the best evidence of the transaction, did not materialize until, or three (3) years
after TMBC caused the annotation of its lien on the titles subject matter of the alleged sale.

2) Respondent was very evasive when questioned regarding details of the alleged sale. The deed of sale
mentioned P3Mil as the contract price paid by hand during the execution of the contract, yet, when asked on cross-
examination, Silverio could not remember if he paid directly to Ricardo, Sr. Worse, he could not remember where
Ricardo, Sr. was at the time of the sale. Edmundo, as buyer, would definitely not have forgotten personally handing
₱3,109,425.00 to the seller, Ricardo, Sr. It goes against ordinary human experience for a person to simply forget the
details of the day when he became poorer by ₱3,109,425.00 cash. The only logical conclusion is that there was
actually no consideration for the said sale.

3) An indication of simulation of contract is the complete absence of an attempt in any manner on the part of the
ostensible buyer to assert rights of ownership over the subject properties. In the case at bar, respondent did not
attempt to have the 1989 deed of sale registered until 1993.

Taken together with the other circumstances surrounding the sale, respondent's failure to exercise acts of dominium
over the subject properties buttresses TMBC's position that the former did not at all intend to be bound by the
contract of sale.

Contrary to the position taken by the Court of Appeals, TMBC need not look farther than the subject properties
to protect its rights. The remedy of accion pauliana is available when the subject matter is a conveyance,
otherwise valid ̧ undertaken in fraud of creditors.

Such a contract is governed by the rules on rescission which prescribe, under Art. 1383 of the Civil Code, that
such action can be instituted only when the party suffering damage has no other legal means to obtain reparation for
the same.

Not just rescissible but void

The contract of sale before us, albeit undertaken as well in fraud of creditors, is not merely rescissible but is
void ab initio for lack of consent of the parties to be bound thereby. A void or inexistent contract is one which
has no force and effect from the very beginning, as if it had never been entered into; it produces no effect
whatsoever either against or in favor of anyone.

Rescissible contracts, on the other hand, are not void ab initio, and the principle, "quod nullum est nullum producit
effectum," in void and inexistent contracts is inapplicable. Until set aside in an appropriate action, rescissible
contracts are respected as being legally valid, binding, and in force.

Absolute simulation implies that there is no existing contract, no real act executed; while fraudulent alienation
means that there is a true and existing transfer or contract. The former can be attacked by any creditor, including
one subsequent to the contract; while the latter can be assailed only by the creditors before the alienation. In
absolute simulation, the insolvency of the debtor making the simulated transfer is not a prerequisite to the nullity of
the contract; while in fraudulent alienation, the action to rescind, or accion pauliana, requires that the creditor
cannot recover in any other manner what is due him. Finally, the action to declare a contract absolutely simulated
does not prescribe ; while the accion pauliana to rescind a fraudulent alienation prescribes in four years.

IN SUM, considering that an absolutely simulated contract is not a recognized mode of acquiring ownership,
the levy of the subject properties pursuant to a writ of preliminary attachment issued by the RTC in favor of
TMBC and against its debtor, Ricardo, Sr., was validly made as the properties were invariably his.

Consequently, Edmundo, who has no legal interest in these properties, cannot cause the cancellation of the
annotation of such lien for the reasons stated in his petition.