RENEE B. TANCHULING, AND THE HEIRS OF VICENTE N. Y. TANCHULING, NAMELY REBECCA TANCHULING-TAN, RITA TANCHULING-MAPA, ROSEMARIE TANCHULING-SALINAS, AND VINCENT RAYMOND B. TANCHUL…

Tanchuling versus Cantela

The Case

This is a petition for review on certiorari brought by Renee B. Tanchuling and the heirs of Vicente N. Y. Tanchuling against Sotero C. Cantela. The Tanchulings ask the Supreme Court to set aside the decision of the Court of Appeals and to restore the ruling of the Regional Trial Court of Legazpi City, which had declared a Deed of Absolute Sale over two parcels of land null and void for being absolutely simulated. The case matters because it gathers into one decision the classic badges of a simulated sale — no real consideration, no taking of possession, no effort to register the title, and a simultaneous counter-deed of reconveyance — and reminds the Bar candidate that an absolutely simulated contract is void from the start and produces no legal effect whatsoever.

Procedural History

On August 6, 2007, the Tanchulings filed a complaint for annulment of the deed of sale and delivery of the owner's duplicate copies of the transfer certificates of title, with prayer for injunction, before the Regional Trial Court of Legazpi City, Branch 5. In a decision dated March 23, 2010, the trial court granted the complaint and nullified the deed for being absolutely simulated. Cantela appealed to the Court of Appeals. In a decision dated August 30, 2013, the Court of Appeals reversed the trial court, finding that the contemporaneous and subsequent acts of the parties negated absolute simulation, that consideration existed because the deed acknowledged receipt of 400,000 pesos, and that the notarized deed should prevail over the undated, unnotarized reconveyance. The Tanchulings then filed the present petition for review on certiorari before the Supreme Court.

Facts

On March 17, 2005, Spouses Vicente and Renee Tanchuling executed a Deed of Absolute Sale in favor of Sotero C. Cantela, covering two parcels of land in Rawis, Legazpi City, each with an area of 192 square meters and covered by separate transfer certificates of title. On the face of the deed, the sum of 400,000 pesos appears as the consideration. After the signing, Vicente delivered the owner's copies of the titles to Cantela, although it is undisputed that none of the parties were in actual physical possession of the properties.

When the Tanchulings tried to recover the titles, Cantela refused despite earnest demands. The Tanchulings then sued, alleging that the deed was absolutely simulated: no consideration was actually paid; the deed was executed merely to show the neighbors that they were the true owners, because a certain John Mercado was illegally selling portions of the land to unsuspecting buyers; and Cantela simultaneously executed an undated Deed of Absolute Sale reconveying the properties back to them.

Cantela insisted the sale was valid and that he paid the 400,000 pesos. He claimed the undated deed was surreptitiously inserted into the copies he signed. He admitted, however, that when he tried to secure a tax declaration, he discovered the properties were posted as a property bond, and he later went to the Bureau of Internal Revenue to have the capital gains tax computed. Vicente testified that there was no cash consideration at all, and his testimony was corroborated by two witnesses present at the signing, Ma. Belleza Navarro and Jesus Botero, who both stated that no money was ever delivered. Cantela offered no evidence to convincingly refute them.

Issues

• Whether or not the Court may review the factual issue of simulation in a petition for review on certiorari under Rule 45.
• Whether or not the Deed of Absolute Sale between the Tanchulings and Cantela is absolutely simulated and therefore null and void.

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 is the test the Court applies: did the parties intend to be bound at all, or did they merely conceal a true agreement?

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 agreement.

This supplies the consequence: an absolutely simulated contract is void, which is exactly the relief the Tanchulings sought.

Ruling

On the first issue, the Court held that while simulation is a question of fact generally beyond the purview of a Rule 45 petition, the rule admits exceptions, among them that the factual findings of the trial court and the appellate court are at variance, as in this case. The Court therefore reviewed the facts.

On the second issue, the Court ruled in favor of the Tanchulings and agreed with the trial court that the deed was absolutely simulated. The parties never intended to be bound by any sale; the deed was a front to show the public that the Tanchulings owned the properties, to deter the group of John Mercado from illegally selling them. The Court recalled the rule that a contract of purchase and sale is null and void where it appears that the same is without cause or consideration, or where the purchase price appears as paid but was in fact never paid by the purchaser to the vendor. Although the deed stipulated 400,000 pesos, no money ever changed hands, as shown by Vicente's testimony and corroborated by Navarro and Botero, whom Cantela failed to refute.

The Court also treated Cantela's failure to secure a title in his own name as an indicium of simulation, quoting its earlier ruling that a true vendee would not brook any delay in registering the sale in his favor. His explanation that the properties were posted as a bond did not persuade, since the records did not show the steps he took to release them. Neither did he take possession of the properties, which the Court called a clear badge of simulation. Finally, the undated deed of reconveyance, simultaneously executed with the subject deed, unmistakably evinced absolute simulation. Cantela's claim that it was surreptitiously inserted was unsupported, and fraud is never presumed but must be proven by clear and convincing evidence. That the undated deed was not notarized was rendered irrelevant by his own admission of its execution.

Doctrine

First, simulation takes place when the parties do not really want the contract they have executed to produce the legal effects expressed by its wordings. It is absolute when the parties do not intend to be bound at all, and relative when they conceal their true agreement, under Article 1345 of the Civil Code.

Second, an absolutely simulated or fictitious contract is void under Article 1346 of the Civil Code. It has a colorable form but no substance, and the parties may recover from each other what they may have given under the contract.

Third, a sale is void where the price appears on its face as paid but was in fact never paid, because the contract is then without cause or consideration.

Fourth, the following are badges of simulation: the failure of the buyer to take possession of the property; the buyer's unexplained delay or failure to register the sale and secure a title in his name; and the simultaneous execution of a counter-deed of reconveyance to the seller.

Fifth, fraud is never presumed but must be proven by clear and convincing evidence by the party alleging it.

Disposition

The petition was granted; the decision of the Court of Appeals was reversed and set aside, and the decision of the Regional Trial Court of Legazpi City declaring the deed absolutely simulated and null and void was reinstated.

Remember This

Memorize the line: an absolutely simulated contract is void because the parties never intended to be bound at all, and no recited consideration that was never actually paid can give it life. Examiners use this case to test the badges of simulation — no payment, no possession, no registration, and a simultaneous reconveyance — and the Rule 45 exception allowing review of facts when the trial court and the appellate court disagree.