23. Formaran vs. Ong (Myling) void from the very beginning (Article 1346, New Civil Code).

8 July 2013 | Perez, J | Simulated Contracts

Art. 1346. An absolutely simulated or fictitious contract is void. A relative
PETITIONER: Dr. Lorna C. Formaran simulation, when it does not prejudice a third person and is not intended for
RESPONDENTS: Dr. Glenda B. Ong and Solomon S. Ong any purpose contrary to law, morals, good customs, public order or public
policy binds the parties to their real agreement.
SUMMARY: Glenda’s parents donated land to Lorna in 1967. Less than
two months after the donation, Glenda requested Lorna to execute a Deed of
Absolute Sale (DAS) for half of the land she received. Glenda said that she
will use this to borrow money from the bank to buy a dental chair. There
was no monetary consideration in exchange for executing the DAS. A
month after, however, Glenda’s father assured Lorna that they did not
proceed with the loan with the interest rate being too high and thus they
threw away the DAS.

In 1996 or 29 years after the donation and the execution of the DAS, Glenda
filed a complaint for unlawful detainer against Lorna. Lorna discovered that
the DAS was registered on May 25, 1991. Glenda denied the claims of
Lorna and claimed that money was exchanged, that she did not need to
borrow from the bank to buy a dental chair, and that the delay in the
registration of the DAS was to accommodate the bank loan of Lorna.

Lorna filed an action for annulment of the DAS. The Court decided that the
DAS was simulated hence void. Among the reasons the Court stated
supported Lorna’s claims were: that there was no monetary consideration
for the sale, the belated registration of the DAS 24 years after execution, that
Lorna had actual possession of the property and her house stood on a part of
the lot, that Glenda never introduced improvements, and that Lorna was
able to mortgage the land.

DOCTRINE:
The Court is in accord with the observation and findings of the RTC thus:
The amplitude of foregoing undisputed facts and circumstances clearly
shows that the sale of the land in question was purely simulated. It is
FACTS:
1. On June 25, 1967, spouses Melquiades Barraca and Praxedes
Casidsid donated land intervivos to Dr. Lorna Casidsid Formaran. Praxedes
was the aunt of Lorna as the latter's father was the brother of Praxedes.

2. Less than two months after the donation, Glenda and her father,
Melquiades Barraca, came to Lorna’s residence asking for help. They were
borrowing one-half of the land donated to Lorna so that Glenda could
obtain a loan from the bank to buy a dental chair. They proposed that
Lorna sign an alleged sale over the said portion of land.
3. Acceding to their request, Lorna signed on August 12, 1967 a
prepared DAS which Glenda and her father brought along with them
covering the land in question without any money involved. There was no
monetary consideration in exchange for executing the Deed of Absolute
Sale. Lorna also did not appear before the Notary Public when the DAS was
allegedly acknowledged by her.
4. A month thereafter, Lorna inquired from her uncle, Melquiades
Barracca, if they have obtained the loan. Melquiades informed her that they
did not push through with the loan because the bank's interest rate was
high. Her uncle further replied that they crumpled the DAS and threw it
away. With this, Lorna no longer bothered about the document and thought
that there was no more transaction. Besides, she is also in actual possession
of the land and have even mortgaged the same.
5. As owner thereof, Lorna declared the land for taxation purposes. She
religiously paid its realty taxes. She mortgaged the land to Aklan
Development Bank to secure payment of a loan.
6. In 1974, Lorna transferred her residence from Aklan to Antipolo City
where she has been residing up to the present time. From the time she
signed the DAS in August 1967 up to the present time of her change of
residence to Antipolo City, Glenda never demanded actual possession of
the land in question, except when the Glenda filed on May 30, 1996 a
case for unlawful detainer against her.
7. Following the filing of the ejectment case, she learned for the first
time that the DAS was registered on May 25, 1991 and was not thrown
away contrary to what Melquiades Barraca told her. That was also the
first time she learned that the land in question is now declared for taxation
purposes in the name of Glenda.
8. The case for unlawful detainer was decided on September 2, 1997, in
favor of Glenda. Lorna was made to vacate the land in question.
9. Glenda maintained that there was money involved affecting the sale
of the land in her favor. The sale was not to enable her to buy a dental chair
for she had already one at the time. Besides, the cost of a dental chair in
1967 was only P2,000.00 which she can readily afford. She further alleged
that the DAS was only registered on May 25, 1991 in order to accommodate
Lorna who mortgaged the land to Aklan Development Bank.
10. Lorna filed an action for annulment of the DAS against Glenda before
the RTC of Kalibo, Aklan.
11. On December 3, 1999, the trial court rendered a decision in favor of
Lorna by declaring the DAS null and void for being an absolutely
simulated contract and for want of consideration; declaring Lorna as the
lawful owner entitled to the possession of the land in question; ordering the
cancellation of Glenda’s Tax Declaration; and payment to Lorna for
attorney’s fees and litigation expenses.
12. Glenda coursed an appeal to the Court of Appeals (CA). The CA, on
August 30, 2007, reversed and set aside the decision of the trial court and
ordered petitioner to vacate the land in question and restore the same to
respondents.
ISSUES:
13. Is the Deed of Absolute Sale between Lorna and Glenda
simulated? YES
RATIO:
14. The petition sufficiently shows with convincing arguments that the presumption of regularity, it does not validate nor make binding an
decision of the CA is based on a mis-appreciation of facts. The Court instrument never intended, in the first place, to have any binding legal effect
believes and so holds that the subject DAS is indeed simulated, as it is: upon the parties thereto (Suntay vs. Court of Appeals, G.R. No. 114950,
(1) Totally devoid of consideration; December 19, 1995; cited in Ruperto Viloria vs. Court of Appeals, et al.,
(2) It was executed on August 12, 1967, less than two months from G.R. No. 119974, June 30, 1999)."
the time the subject land was donated to Lorna on June 25, 1967 by no
less than the parents of Glenda Ong;
(3) On May 18, 1978, Lorna mortgaged the land to the Aklan
Development Bank for a P23,000.00 loan;
(4) From the time of the alleged sale, Lorna has been in actual
possession of the subject land;
(5) The alleged sale was registered on May 25, 1991 or about twenty-
four (24) years after execution;
(6) Glenda Ong never introduced any improvement on the subject
land; and
(7) Lorna's house stood on a part of the subject land.

These are facts and circumstances which may be considered badges of bad
faith that tip the balance in favor of Lorna.

15. The Court is in accord with the observation and findings of the RTC
thus: "The amplitude of foregoing undisputed facts and circumstances
clearly shows that the sale of the land in question was purely simulated.
It is void from the very beginning (Article 1346, New Civil Code).

16. If the sale was legitimate, Glenda should have immediately taken
possession of the land, declared in her name for taxation purposes,
registered the sale, paid realty taxes, introduced improvements therein and
should not have allowed Lorna to mortgage the land. These omissions
properly militated against Glenda's submission that the sale was legitimate
and the consideration was paid.

17. While the DAS was notarized, it cannot justify the conclusion that the
sale is a true conveyance to which the parties are irrevocably and
undeniably bound. Although the notarization of DAS, vests in its favor the