Tongoy v.

CA
GR L-45645
June 28, 1983

JOYCE ARMILLO | GROUP 4 | VOID CONTRACTS

Facts:
The case is an action for reconveyance respecting 2 parcels of land in Bacolod City:
(1)Hacienda Pulo (727, 000 sqm) originally registered in the names of the Tongoy Siblings
(Francisco, Jose, Ana, Teresa and Jovita) and (2) Cuaycong property (163,754 sqm) in the
name of Basilisa Cuaycong. Hacienda Pulo was mortgaged to Philippine National Bank (PNB)
as security for a loan of 11,000 payable in 10 years at 8% interest per annum. The Tongoys
were unable to pay their yearly amortizations; as a result, PNB instituted judicial foreclosure
proceedings on June 18, 1931.
To avoid foreclosure, one of the co-owners, Jose, proposed an amortization plan that
would enable them to liquidate their account. This was rejected by PNB. The suit continued up
to the SC (held that PNB had the right to foreclose Hacienda Pulo).

JOYCE ARMILLO | GROUP 4 | VOID CONTRACTS

Facts:
In the meantime, on April 29, 1933, Patricio and Luis Tongoy executed a Declaration of
Inheritance wherein they declared themselves as the only heirs of the late Francisco Tongoy
and thereby entitled to the latter’s share in Hacienda Pulo. A year after, the other heirs executed
an Escritura de Venta transferring their rights and interest over the Hacienda, for a
consideration, to Luis Jesus Sonora followed suit and executed a similar Escritura de Venta in
favor of Luis Tongoy likewise executed an Escritura de Venta. However, this was preceded by
the execution of an Assignment of Rights in favor of Luis by the Pacific Commercial Company
as judgment lien holder (subordinate to the PNB mortgage).

JOYCE ARMILLO | GROUP 4 | VOID CONTRACTS

Facts:
On the basis of the foregoing documents, Hacienda Pulo was in the name of Luis, married
to Maria Rosario Araneta, on Nov 8, 1935. The following year, the title of the adjacent
Cuaycong property also came under the name of Luis (Cuaycong purportedly sold it to Luis
for 4,000). After two decades (April 1956), Luis was able to pay off all obligations to PNB.
However, it was only on April 1958 that a release of the REM was executed by PNB in favor
of Luis. Just before Luis’ death, he received a letter from Jesus Sonora demanding the shares in
the properties to the co-owners. Not long after the death of Luis, a case was filed alleging that
the 2 lots were sold by means of simulated sales, pursuant to a trust arrangement whereby the
latter would return such interests after the mortgage obligations thereon settled.

JOYCE ARMILLO | GROUP 4 | VOID CONTRACTS

Facts:
The Trial Court ruled that there exists an implied trust in favor of the plaintiffs, but at the same
time holding the RESPs action for reconveyance is barred by prescription except for the kids of
Luis in the 2nd marriage (since they were excluded in the partition). While Court of Appeals
modified Trial courts’ decision and plaintiffs were ordered to reconvey to the Sonoras and to
the rest of the Tongoys their respective portions of the 2 properties

JOYCE ARMILLO | GROUP 4 | VOID CONTRACTS

Issue:
Whether or not the rights of the respondents over the 2
properties, which were subjects of simulated or fictitious
transactions, have already prescribed?

JOYCE ARMILLO | GROUP 4 | VOID CONTRACTS

Rulings:
Whether or not the rights of the respondents over the 2
properties, which were subjects of simulated or fictitious
transactions, have already prescribed?

JOYCE ARMILLO | GROUP 4 | VOID CONTRACTS

Rulings:
The following are the most fundamental characteristics of void or inexistent contracts:
 As a general rule, they produce no legal effects whatsoever in accordance with the principle “quod
nullum est nullum producit effectum” or “what is null and void produces no legal effects and therefore
must be annulled ab initio”;
 They are not susceptible of ratification;
 The right to set up the defense of inexistence or absolute nullity cannot be waived or renounced;
 The action or defense for the declaration of their inexistence or absolute nullity is imprescriptible;
 The inexistence or absolute nullity of a contract cannot be invoked by a person whose interests are not
directly affected.

The nullity is permanent, even if the cause thereof has ceased to exist, or even when the parties have
complied with the contract spontaneously.

JOYCE ARMILLO | GROUP 4 | VOID CONTRACTS

Rulings:
Evidently, the deeds of transfer executed in favor of Luis Tongoy were from the very beginning
absolutely simulated or fictitious, since the same were made merely for the purpose of restructuring the
mortgage over the subject properties and thus preventing the foreclosure by the PNB. As stated in Articles
1409 and 1410 of the New Civil Code, the within action for reconveyance instituted by the respondents
which is anchored on the said simulated deeds of transfer cannot and should not be barred by prescription.
There is no implied trust that was generated by the simulated transfers; because being fictitious or
simulated, the transfers were null and void ab initio-from the very beginning and thus vested no rights
whatsoever in favor of Luis Tongoy or his heirs.

JOYCE ARMILLO | GROUP 4 | VOID CONTRACTS