Ciacho vs. Spouses De Guia

A contract of sale by one who is not the owner of the property, or who lacks authority to sell, is void; the issuance of a certificate of title in the buyer's name does not cure the vendor's lack of title or authority, and the buyer cannot claim good faith where the certificate of title bears entries that should have prompted further inquiry into the vendor's right to transfer ownership.

Adolfo inherited two parcels of land in Tacloban City from Spouses Enrique and Andrea de Guia, previously covered by TCT No. T-68 (2,549 square meters) and TCT No. T-1815 (174 square meters). The properties were facing foreclosure on existing mortgages. Adolfo convinced Cerilla to invest in the properties to redeem them from their encumbrances, leading to a complex series of transactions involving deeds of sale, a memorandum of agreement, real estate mortgages, and ultimately a deed of absolute sale from Cerilla to Ciacho — the validity of which is the core dispute.

The properties subject of this case are two parcels of land in Tacloban City: one consisting of 2,549 square meters previously covered by TCT No. T-68 in the name of Andrea de Guia, and another consisting of 174 square meters previously covered by TCT No. T-1815 under the name of Rustico de Guia. Adolfo inherited these properties from Spouses Enrique and Andrea de Guia. In 1994, the properties were facing foreclosure on existing mortgages. Adolfo convinced Cerilla to invest in the properties and redeem them from their encumbrances. Deeds of Absolute Sale were executed by Adolfo in favor of Cerilla, and new titles — TCT No. T-40257 and TCT No. T-39792 — were issued in Cerilla's name on August 26, 1994 and July 24, 1994, respectively.

Thereafter, Cerilla executed another Deed of Absolute Sale selling the subject properties back to Adolfo, dated February 3, 1995. This subsequent deed was not notarized. Adolfo then made an Adverse Claim on both titles on the basis of that re-sale. Adolfo and Cerilla later entered into a Memorandum of Agreement providing that the properties would be sold to Cerilla for PHP 15 million, on the condition that Adolfo would bear the costs for the sale, including the ejectment of illegal settlers residing on the properties. Adolfo acknowledged receipt of PHP 1,675,660.07 as partial payment, with the remaining balance of PHP 13,324,340.00 to be paid in two years after the ejectment of the illegal settlers. The MOA also stipulated that if the properties were sold to other buyers, Cerilla would first inform Adolfo.

Adolfo failed to eject the illegal settlers as agreed. Cerilla took it upon himself to cause the ejectment but also failed, incurring significant costs that led him to obtain a PHP 700,000 loan from Far East Bank and Trust Company, secured by the property covered by TCT No. T-39792. Cerilla also sought financial assistance from Ciacho, who agreed to extend a loan secured by both subject properties through a Deed of Real Estate Mortgage. Because TCT No. T-39792 was encumbered with FEBTC and both titles carried Adverse Claims by Adolfo, Ciacho conditioned the loan on the removal of these encumbrances. Adolfo appeared before Ciacho to assure him that the adverse claims had been settled through an Affidavit dated December 4, 1995, and Cerilla's FEBTC loan was settled, cancelling the encumbrance on TCT No. T-39792. Ciacho then extended loans of PHP 500,000 secured by TCT No. T-40257 and PHP 800,000 secured by TCT No. T-39792. The Deed of Real Estate Mortgage, signed by Adolfo, stated that the loan was subject to 6% interest per month.

Despite repeated demands, Cerilla failed to pay the loaned amount. Ciacho prepared a Deed of Absolute Sale in his favor for the two mortgaged properties. To placate Ciacho, Cerilla signed the deed but requested that it not be registered. Adolfo later learned that the properties had been registered in Ciacho's name and instituted an action for Annulment of Deed of Sale of Real Property with Damages, docketed as Civil Case No. 99-07-105. Adolfo claimed that Cerilla tricked him and sold the properties without his knowledge or consent, leading to the transfer to Ciacho. Ciacho argued that Adolfo had repeatedly assured him that the adverse claims were cancelled and the titles were clean, and that it was Adolfo who transacted in bad faith. Cerilla, for his part, maintained that there was no actual transfer of ownership to him, as he was merely an accommodation party who helped Adolfo avoid foreclosure, and that Adolfo had full knowledge of the sale to Ciacho. The RTC and CA both found that Cerilla was a mere accommodation party, that he had no authority to sell the properties, and that Ciacho was not a buyer in good faith.

• Validity of Sale: Ciacho maintained that Cerilla was the owner of the subject properties covered by TCT Nos. T-40257 and T-39792, and therefore there was a valid sale of the subject properties between him and Cerilla.
• Good Faith: Ciacho argued that he was given repeated assurances by Adolfo that the adverse claim was already cancelled and that the titles were clean and free from encumbrances, and that it was Adolfo who transacted with them in bad faith.

• Accommodation Party: Cerilla agreed with the findings of the RTC and CA, maintaining that he was only an accommodation party when the properties were supposedly sold to him by Adolfo to save them from foreclosure, and that there was no actual transfer of ownership.
• Damages: Cerilla prayed that moral and exemplary damages be awarded in his favor.

• Validity of Contract: Whether the CA erred in ruling that there was no valid contract of sale between Ciacho and Cerilla.

• Validity of Contract: No. The sale between Cerilla and Ciacho was void because Cerilla was a mere accommodation party with no authority to sell the properties, and Ciacho was not a buyer in good faith, having been aware of the adverse claims and the sale-and-resale pattern between Adolfo and Cerilla.

• Validity of Contract: The Court found no reversible error in the CA's ruling. The issue was primarily factual, and questions of fact are not reviewable in a Rule 45 petition absent any exception, which Ciacho failed to demonstrate. On the merits, Cerilla's own testimony confirmed that there was no actual transfer of ownership to him, only "on paper," and that he considered himself "some sort of a tool they can use... an accommodation party." The contemporaneous and subsequent acts of the parties showed no intention to transfer ownership: Cerilla re-sold the properties to Adolfo only seven months after the titles were issued, and asked Ciacho not to register the sale. This constituted absolute simulation under Article 1345 of the Civil Code, rendering the contract void. Because Cerilla was not the lawful owner, he had no authority to sell under Article 1459 of the Civil Code, and the sale to Ciacho was void. The issuance of titles in Ciacho's name did not cure Cerilla's lack of title, as a certificate of title is merely evidence of ownership, not a grant thereof. Ciacho was not an innocent purchaser for value because he knew of the adverse claims and the sale-and-resale pattern between Adolfo and Cerilla, which should have prompted further inquiry. His own testimony showed his concern was the loan and interest, not the mortgaged properties. The factual findings of the RTC and CA, being congruent and supported by substantial evidence, were accorded great weight and finality.

• Essential Elements of a Valid Contract — A valid contract requires three essential elements: (1) consent of the contracting parties, (2) object certain which is the subject matter of the contract, and (3) cause of the obligation which is established. The absence of any element renders the contract void. In this case, consent was lacking because there was no real intention to transfer ownership between Adolfo and Cerilla, as the sale was absolutely simulated.

• Absolute Simulation of Contract — Under Article 1345 of the Civil Code, simulation may be absolute or relative. Absolute simulation occurs when the parties do not intend to be bound at all, rendering the contract void, and the parties may recover from each other what they may have given under the contract. The Court found that the sale from Adolfo to Cerilla was absolutely simulated, as both parties knew there was no real transfer of ownership — Cerilla re-sold the properties to Adolfo within seven months and asked Ciacho not to register the subsequent sale.

• Innocent Purchaser for Value — A buyer is an innocent purchaser for value when he has no notice of defect or irregularity as to the right or interest of the seller, and is without notice that a third party has a claim to the property. If anything on the certificate of title leads to suspicion or raises any cloud on the title, right, or ownership of the subject property, the buyer cannot be deemed an innocent purchaser for value. Ciacho failed this test because he knew of the adverse claims and the sale-and-resale pattern, yet proceeded with the loan without exercising the due diligence required.

• Certificate of Title as Evidence, Not Grant, of Ownership — The issuance of a certificate of title is not a grant of ownership over the property, but merely an evidence of such ownership or right thereon. It does not cure the vendor's lack of title or authority to transfer ownership. The titles issued in Ciacho's name did not validate the void sale from Cerilla, who never owned the properties.

• "To determine the parties' real intention, the contemporaneous and subsequent acts of the parties should be considered." — This passage states the controlling principle for ascertaining real intention in cases involving simulated contracts, applied here to conclude that the sale-and-resale pattern and Cerilla's request not to register the sale demonstrated absence of intent to transfer ownership.

• "The issuance of a certificate of title is not a grant of ownership over the property, but merely an evidence of such ownership or right thereon." — This defines the nature of a Torrens title and explains why the issuance of titles in Ciacho's name could not cure Cerilla's lack of authority to sell.

• "Thus, if there is anything on the certificate of title that leads to suspicion or raises any cloud on the title, right or ownership of the subject property, the buyer cannot be deemed as an innocent purchaser for value." — This articulates the standard for innocent purchaser for value status, applied to deny Ciacho's claim of good faith given the adverse claims and sale-and-resale pattern visible on the titles.

• Cabilao vs. Tampan, 921 Phil. 601 (2022) — Cited for the rule that questions of fact are not reviewable in petitions for review on certiorari under Rule 45 of the Rules of Court, and that factual findings of lower courts supported by substantial evidence are given great respect and finality.

• De Joya vs. Madlangbayan, 901 Phil. 153 (2021) — Cited for the three essential elements of a valid contract and the rule that the absence of any element renders the contract void.

• Pasco vs. Cuenca, 889 Phil. 68 (2020) — Cited for the doctrine on absolute simulation of contracts under Article 1345 of the Civil Code, and the consequence that the contract is void with the parties entitled to recover what they gave.

• Heirs of Gregorio Lopez vs. Development Bank of the Philippines, 747 Phil. 427 (2014) — Cited for the rule that a contract of sale by one who is not the owner or who lacks authority is void, and that a certificate of title is merely evidence of ownership, not a grant thereof.

• Guy vs. Tulfo, 851 Phil. 748 (2019) — Cited for the principle that issues on the amount of damages are factual questions that the Court may not resolve in a Rule 45 petition absent a clear showing that the trial court overlooked facts and circumstances.

• Article 1345, Civil Code — Provides that simulation of a contract may be absolute or relative; absolute simulation takes place when the parties do not intend to be bound at all, rendering the contract void. Applied to find the sale from Adolfo to Cerilla absolutely simulated, as there was no real intention to transfer ownership.

• Article 1458, Civil Code — Defines a contract of sale as one where a party obligates to transfer ownership and deliver a determinate thing, and the other to pay a price certain in money or its equivalent. Applied to determine whether a valid sale existed between Cerilla and Ciacho.

• Article 1459, Civil Code — Provides that the thing must be licit and the vendor must have a right to transfer ownership at the time it is delivered. Applied to find that Cerilla had no right to transfer ownership, rendering the sale to Ciacho void.

• Rule 45, Rules of Court — Governs petitions for review on certiorari; questions of fact are generally not reviewable. Applied to deny review of the lower courts' factual findings, Ciacho having failed to show any exception justifying review.

Inting, Gaerlan, and Dimaampao, JJ., concurred. Caguioa (Chairperson), J., filed a separate concurring opinion, the text of which is not provided in the source material.