MILAGROS C. REYES, PETITIONER, VS. FELIX P. ASUNCION, RESPONDENT.

Reyes versus Asuncion

The Case

This is a petition for review on certiorari brought by Milagros C. Reyes against Felix P. Asuncion, asking the Supreme Court to reverse the dismissal of her complaint for the declaration of nullity of a contract. Reyes had executed a deed styled as a transfer of rights over a sugarcane land in favor of Asuncion, her former caretaker, and later claimed the deed was a mere simulation designed to keep the land out of a government resettlement program. The case matters because it gathers in one decision the rules on simulation of contracts, the burden of proving simulation, the nature of remuneratory donation, and the effect of non-compliance with the public document requirement.

Procedural History

Reyes filed her complaint for declaration of nullity of the contract before the Regional Trial Court of Capas, Tarlac. On January 17, 2007, the trial court rendered judgment in favor of Asuncion, finding no legal basis to nullify the contract and declaring the deed legal and binding. Reyes appealed to the Court of Appeals, which on July 9, 2010 dismissed the appeal for lack of merit and affirmed the trial court. The Court of Appeals denied her motion for reconsideration, so Reyes elevated the matter to the Supreme Court through a petition for review on certiorari under Rule 45 of the Rules of Court.

Facts

Since the early 1980s, Reyes and her late husband claimed ownership, with the right to occupy and possess, a parcel of sugarcane land of about three and a half hectares in Patling, Capas, Tarlac, forming part of a United States Military Reservation. In 1986, Reyes hired Asuncion as caretaker of the land. In 1997, the Bases Conversion and Development Authority launched a resettlement program for victims of the Mount Pinatubo eruption and considered the lot as a possible resettlement site.

According to Reyes, to prevent the conversion of her property into a resettlement site, she and Asuncion executed a contract, antedated June 15, 1993, transferring her rights over the land to him. The deed recited that she had bought the rights of one Reymundo Dailig, that she and her husband freely granted the land to Asuncion, and that after ten years of faithful service as caretaker of the sugarcane plantation and in handling money, they agreed that they would take charge of the finances while the sugarcane would be milled in her name, for as long as she wished.

Reyes claimed she remained the absolute owner and possessor, continued to mill the harvest for her own benefit, and that Asuncion's employment ended when she discovered he had sold her pigs and cows. In January 2000, Asuncion filed a complaint for estafa against Reyes for refusing to give him his share of the harvests from 1993 to 1999, using their contract as basis, but the complaint was dismissed for lack of probable cause. Reyes then filed the present complaint in October 2001.

Issues

• Whether or not the subject contract is void as an absolutely simulated contract, the parties never having intended to be bound by it.
• Whether or not the contract, being in the nature of a donation, is invalid for not having been made and accepted in a public document.
• Whether or not Reyes may transfer the subject land without the consent of the heirs of her late husband, in view of an alleged co-ownership.

Applicable Provisions

Article 1345 of the Civil Code provides:

Simulation of a contract may be absolute or relative. The former takes place when the parties do not intend to be bound at all; the latter, when the parties conceal their true agreement.

This provision supplies the test for classifying the deed Reyes executed, which she claims was a sham.

Article 1346 of the Civil Code provides:

An absolutely simulated or fictitious contract is void. A relative simulation, when it does not prejudice a third person and is not intended for any purpose contrary to law, morals, good customs, public order or public policy binds the parties to their real agreement.

This provision states the consequence of simulation and explains why the Court examined the parties' true intent.

Ruling

On the first issue, the Court held that Reyes failed to prove simulation. The trial court and the Court of Appeals found no evidence beyond her self-serving averments, and the Court agreed that the evidence was insufficient. The Court stressed that the burden of proving the alleged simulation falls on those who impugn the regularity and validity of a contract, and that failure to discharge this duty results in upholding the contract. The primary consideration is the intention of the parties as manifested by the express terms of the agreement and their contemporaneous and subsequent acts. The Court also noted that the most striking index of simulation is not the relationship between the parties but the complete absence of any attempt by the supposed buyer to assert rights of dominion over the property. It found no proof that Asuncion acted in bad faith or fraud in procuring Reyes's signature, and since the terms of the contract were clear, their literal meaning controlled.

On the second issue, the Court held that the contract was not an ordinary donation but a remuneratory donation, given to reward Asuncion's ten years of faithful service, with a burden imposed on the donee in the form of the profit-sharing arrangement. Because the contract and the evidence were silent as to the value of that burden, the donation was onerous, and the rules on contracts, not the law on donations, governed. The Court further held that a public instrument was not necessary even if the contract involved immovable property, since the requirement of Article 1358 of the Civil Code is only for convenience, and non-compliance does not affect the validity or enforceability of the acts of the parties as among themselves.

On the third issue, the Court held that Reyes could not raise co-ownership for the first time on appeal, as she had not raised it during trial, and she had not specified which heirs were affected or prejudiced by the contract.

Doctrine

An absolutely simulated or fictitious contract is void because it lacks consent, while a relative simulation binds the parties to their real agreement. The burden of proving simulation rests on the party impugning the contract, and failure to discharge it means the contract stands. The true nature of a contract is determined by the intention of the parties, gathered from its express terms and their contemporaneous and subsequent acts. A remuneratory donation burdened with a charge of undetermined value is onerous and is governed by the rules on contracts. The public document requirement for acts creating or modifying real rights over immovable property is for convenience only and does not affect validity as between the parties.

Disposition

The Supreme Court denied the petition for lack of merit and affirmed the decision of the Court of Appeals in its entirety, so Asuncion prevailed and the contract was upheld as legal and binding.

Remember This

Memorize this line: the burden of proving simulation of a contract lies on the one who impugns it, and failure to discharge that burden upholds the contract. Examiners use this case for simulation of contracts, remuneratory donation, and the rule that the public document requirement is only for convenience.