Lequin vs. Vizconde

A contract of sale is null and void ab initio where a party's consent is vitiated by fraud or fraudulent machinations, and where the consideration is simulated or never actually paid. Both vitiated consent and lack of consideration, each independently, render the contract void; and a party who receives payment without just or legal ground must restore it to prevent unjust enrichment.

Petitioner Ramon Lequin is the brother of respondent Salome Lequin Vizconde and brother-in-law of respondent Raymundo Vizconde. In 1995, petitioners purchased a 10,115-square meter lot in Aliaga, Nueva Ecija from Carlito de Leon, with the sale negotiated by Raymundo Vizconde, who was thus fully aware of the extent and boundaries of what petitioners had bought. The dispute centers on respondents' claim that they had separately purchased a 1,012-square meter portion of the same property from de Leon—a claim that later proved false, as de Leon confirmed he had sold respondents only an adjacent dried-up canal.

In 1995, spouses Ramon and Virginia Lequin purchased a 10,115-square meter lot near the Sto. Rosario to Magsaysay road in Aliaga, Nueva Ecija from one Carlito de Leon. The sale was negotiated by respondent Raymundo Vizconde, who is married to Ramon's sister, Salome Lequin Vizconde. The title to the entire property was duly transferred to the Lequins' names. Adjacent to the subject lot and situated between it and the public road lies a dried-up canal, known locally as sapang patay.

In 1997, respondents represented to petitioners that they had also bought from de Leon a 1,012-square meter lot adjacent to petitioners' property and built a house thereon. Petitioners believed this representation, since it was Raymundo who had negotiated the sale of their lot with de Leon. With respondents' consent, petitioners constructed their own house on a 500-square meter half-portion of the 1,012-square meter lot claimed by respondents, as this portion was nearer the road. Respondents' residence stood on the remaining 512 square meters.

Because petitioners' house occupied a portion of the lot allegedly owned by respondents, petitioners consulted a notary public, who advised them to segregate the 1,012-square meter portion from their titled property and to make it appear that they were selling 512 square meters thereof to respondents. This arrangement was embodied in the February 12, 2000 Kasulatan ng Bilihang Tuluyan, which stated that respondents paid PhP 15,000 for the 512-square meter portion. In reality, the PhP 15,000 was never paid to petitioners. Instead, it was petitioners who paid respondents PhP 50,000 for the 500-square meter portion where petitioners had built their house, believing respondents' representation that the latter owned the 1,012-square meter lot.

In July 2000, petitioners attempted to develop the dried-up canal located between their 500-square meter lot and the public road, but respondents objected, claiming ownership of the canal. This prompted petitioners to investigate the ownership of both the canal and the 1,012-square meter lot claimed by respondents. De Leon informed petitioners that what he had sold to respondents was the dried-up canal, and that the 1,012-square meter lot claimed by respondents actually formed part of the 10,115-square meter lot sold to petitioners. De Leon's affidavit and court testimony confirmed these facts, which respondents failed to rebut with any countervailing evidence.

On July 13, 2001, petitioners filed a Complaint for Declaration of Nullity of Contract, Sum of Money and Damages against respondents with the RTC, Branch 28 in Cabanatuan City, docketed as Civil Case No. 4063. The RTC, after trial on the merits with petitioners presenting three witnesses and respondents presenting one, rendered a Decision on July 5, 2004 in favor of petitioners, finding the Kasulatan null and void due to vitiated consent and lack of consideration, and holding respondents guilty of fraudulent misrepresentation. Respondents appealed to the Court of Appeals, which reversed the RTC on July 20, 2006, declaring the Kasulatan valid and finding no simulation or fraud, while ordering the return of the PhP 50,000 without interest. The CA denied petitioners' Motion for Reconsideration on March 30, 2007.

• Failure to State Facts and Law: Petitioner argued that the CA erred in not clearly stating in its decision and resolution the facts and law on which they were based.
• Disregard of Trial Court's Factual Findings: Petitioner maintained that the CA erred in not giving due credence to the RTC's findings of fact and its appreciation of the witnesses' testimonies.
• Presence of Fraud: Petitioner argued that the CA erred in finding no fraud on the part of respondents, asserting that respondents employed fraudulent machinations and misrepresentations to induce them to execute the Kasulatan.
• Validity of the Kasulatan: Petitioner contended that the CA erred in considering the Kasulatan a valid contract of sale, asserting it was void for vitiated consent and lack of consideration.
• Respondents' Financial Capacity: Petitioner argued that the CA erred in not considering that respondents did not have the financial capacity to purchase the subject land from petitioners.

• Validity of the Kasulatan: Whether the Kasulatan ng Bilihang Tuluyan covering the 512-square meter lot is a valid contract of sale, or void for vitiated consent and lack of consideration.
• Ownership of the 500-Square Meter Lot: Who is the legal owner of the 500-square meter lot for which petitioners paid respondents PhP 50,000, and whether respondents must return that amount.

• Validity of the Kasulatan: No. The Kasulatan is null and void ab initio, petitioners' consent having been vitiated by respondents' fraud and fraudulent machinations, and the consideration of PhP 15,000 being simulated and never actually paid.
• Ownership of the 500-Square Meter Lot: Petitioners. The 500-square meter lot legally belongs to petitioners as part of the 10,115-square meter property they purchased from de Leon; respondents must return the PhP 50,000 to prevent unjust enrichment, with interest at 6% per annum from filing of complaint until finality, and 12% per annum thereafter.

• Validity of the Kasulatan: The Court reviewed the records despite the general rule that it is not a trier of facts, because the CA misapprehended the facts and ignored, misunderstood, or misinterpreted cogent facts that would change the outcome. The unrebutted testimony and affidavit of Carlito de Leon established that respondents bought only the dried-up canal and not the 1,012-square meter lot they claimed; the 1,012-square meter lot was part of the 10,115-square meter property sold to petitioners. Raymundo Vizconde, having negotiated petitioners' purchase from de Leon, was fully aware of these facts. His misrepresentation to petitioners that the 1,012-square meter lot was a separate and distinct lot purchased by respondents constituted fraud under Article 1330 of the Civil Code, rendering the contract voidable. Under Article 1338, fraud exists when through insidious words or machinations one party induces another to enter a contract which, without them, the latter would not have agreed to. Under Article 1339, failure to disclose facts when there is a duty to reveal them also constitutes fraud. Petitioners' consent was vitiated because, had they known the truth—which they eventually discovered in late 2000 or early 2001—they would not have signed the contract or paid PhP 50,000 for a portion of property they already owned. Independently of vitiated consent, the Kasulatan also lacked consideration. The deed stated that respondents paid PhP 15,000, but respondents never actually paid this amount. Under Section 9 of Rule 130 of the Revised Rules on Evidence, parol evidence is admissible to show the failure of the written agreement to express the true intent and agreement of the parties. Petitioners' evidence aliunde proved the simulated nature of the consideration. Respondents, who asserted the affirmative defense of purchase, bore the burden of proving payment but failed to adduce any proof thereof. Where a deed of sale states that the purchase price has been paid but in fact has never been paid, the deed is null and void ab initio for lack of consideration. Article 1471 of the Civil Code, providing that "if the price is simulated, the sale is void," also applies, since the purported price was simulated. Both vitiated consent and lack of consideration, each independently, render the contract null and void ab initio.

• Ownership of the 500-Square Meter Lot: The 500-square meter lot on which petitioners built their house is legally owned by petitioners, as established by de Leon's unrebutted testimony that the entire 10,115-square meter property was sold to petitioners and that respondents bought only the dried-up canal. Petitioners therefore had no legal obligation to pay PhP 50,000 for a lot they already owned. Article 22 of the Civil Code requires every person who acquires or comes into possession of something at the expense of another without just or legal ground to return the same. The Court declared petitioners' legal ownership over the 512-square meter lot on which respondents' house is located. The PhP 50,000 must be returned with interest at 6% per annum from the date of filing of the complaint up to finality of judgment, and 12% per annum thereafter, following the rule that a payment that is neither a loan nor a forbearance of credit earns legal interest at 6%, with the rate increasing to 12% after finality of judgment. Moral and exemplary damages were reinstated in view of the fraud employed by respondents, and attorney's fees of PhP 10,000 were maintained under Article 2208(2) of the Civil Code, petitioners having been compelled to incur litigation expenses to protect their interest.

• Vitiated Consent by Fraud (Articles 1330, 1338, 1339, Civil Code) — When consent to a contract is given through fraud, the contract is voidable. Fraud includes every kind of deception—insidious machinations, manipulations, concealments, or misrepresentations—employed to lead another party into error. Under Article 1338, fraud exists when through insidious words or machinations of one contracting party, the other is induced to enter a contract which without them he would not have agreed to. Under Article 1339, failure to disclose facts when there is a duty to reveal them, as when parties are bound by confidential relations, also constitutes fraud. In this case, Raymundo Vizconde's misrepresentation that respondents had purchased a separate 1,012-square meter lot from de Leon, when in fact they had bought only the dried-up canal, constituted fraud that vitiated petitioners' consent.

• Simulated or Absent Consideration Renders Sale Void (Article 1471, Civil Code) — Where a deed of sale states that the purchase price has been paid but in fact has never been paid, the deed is null and void ab initio for lack of consideration. Article 1471 provides that "if the price is simulated, the sale is void." The PhP 15,000 stated in the Kasulatan was never actually paid by respondents, rendering the consideration simulated and the sale void.

• Parol Evidence Exception (Section 9, Rule 130, Revised Rules on Evidence) — While the general rule is that a written agreement is presumed to contain all terms agreed upon, a party may present evidence to modify, explain, or add to the terms of the written agreement by putting in issue the failure of the written agreement to express the true intent and agreement of the parties, or the validity of the written agreement. Petitioners invoked this exception to prove, through evidence aliunde, that the Kasulatan did not express the true intent of the parties and that the consideration was simulated.

• Burden of Proof on Affirmative Defense — The party asserting an affirmative defense bears the burden of proving it. Respondents, who claimed to have purchased the 512-square meter portion under the Kasulatan, were bound to prove payment of the purchase price. Their failure to adduce any proof of payment resulted in the failure of their affirmative defense.

• Unjust Enrichment (Article 22, Civil Code) — Every person who through an act or performance by another, or any other means, acquires or comes into possession of something at the expense of the latter without just or legal ground shall return the same. Respondents received PhP 50,000 from petitioners for a lot that petitioners already owned; restitution was required to prevent unjust enrichment.

• Exception to the Rule That the Supreme Court Is Not a Trier of Facts — The Court may review factual findings when the appellate court ignored, misunderstood, or misinterpreted cogent facts and circumstances which, if considered, would change the outcome of the case; when its findings were totally devoid of support; or when its judgment was based on a misapprehension of facts. The CA misappreciated the evidence adduced during trial, warranting Supreme Court review.

• "From the above considerations, we conclude that the appellate court's finding that there was no fraud or fraudulent machinations employed by respondents on petitioners is bereft of factual evidentiary support. We sustain petitioners' contention that respondents employed fraud and machinations to induce them to enter into the contract of sale. As such, the CA's finding of fact must give way to the finding of the trial court that the Kasulatan has to be annulled for vitiated consent." — This passage states the Court's conclusion that fraud vitiated petitioners' consent, forming the primary ratio decidendi for annulling the Kasulatan.

• "There can be no doubt that the contract of sale or Kasulatan lacked the essential element of consideration. It is a well-entrenched rule that where the deed of sale states that the purchase price has been paid but in fact has never been paid, the deed of sale is null and void ab initio for lack of consideration." — This passage articulates the doctrine that a deed of sale with a simulated or unpaid price is void ab initio, independently establishing the second ground for nullity.

• "Consideration and consent are essential elements in a contract of sale. Where a party's consent to a contract of sale is vitiated or where there is lack of consideration due to a simulated price, the contract is null and void ab initio." — This passage synthesizes the two independent grounds for declaring the Kasulatan void, stating the controlling rule in compact form.

• Manila Banking Corporation vs. Silverio, G.R. No. 132887, August 11, 2005, 466 SCRA 438 — Cited by the CA for the definition of an absolutely simulated contract as one where the parties do not intend to be bound by it. The Supreme Court implicitly distinguished this case, finding that the Kasulatan was not merely simulated in the sense of lacking intent to be bound, but was void for vitiated consent and lack of consideration.

• De Jesus vs. Intermediate Appellate Court, G.R. No. 72282, July 24, 1989, 175 SCRA 559 — Cited for the proposition that intelligence in consent is vitiated by error, freedom by violence, intimidation, or undue influence, and spontaneity by fraud. Applied to establish that petitioners' consent was vitiated by fraud.

• Montecillo vs. Reynes, G.R. No. 138018, July 26, 2002, 385 SCRA 244 — Cited for the well-entrenched rule that where a deed of sale states the purchase price has been paid but in fact has never been paid, the deed is null and void ab initio for lack of consideration. Directly applied to the Kasulatan.

• Sunga-Chan vs. Court of Appeals, G.R. No. 164401, June 25, 2008, 555 SCRA 275 — Cited for the proper interest rates: 6% per annum from the date of filing of complaint until finality of judgment for obligations not constituting a loan or forbearance of credit, and 12% per annum after finality until fully paid. Applied to the PhP 50,000 restitution award.

• U-Bix Corporation vs. Bandiola, G.R. No. 157168, June 26, 2007, 525 SCRA 566 — Cited for the rule that the party asserting an affirmative defense bears the burden of proof, and failure to establish the facts on which the defense is predicated entitles the complainant to a decision in their favor. Applied to respondents' failure to prove payment of the PhP 15,000 purchase price.

• Article 1305, Civil Code — Defines a contract as a meeting of minds between two persons whereby one binds himself, with respect to the other, to give something or to render some service. Applied as the foundational definition for analyzing the validity of the Kasulatan.
• Article 1330, Civil Code — Provides that when consent is given through fraud, the contract is voidable. Applied to establish that the Kasulatan was voidable due to petitioners' vitiated consent.
• Article 1338, Civil Code — Provides that there is fraud when, through insidious words or machinations of one of the contracting parties, the other is induced to enter into a contract which without them he would not have agreed to. Applied to Raymundo Vizconde's misrepresentations to petitioners.
• Article 1339, Civil Code — Provides that failure to disclose facts when there is a duty to reveal them, as when the parties are bound by confidential relations, constitutes fraud. Applied to respondents' concealment of the true nature of their purchase from de Leon.
• Article 1471, Civil Code — Provides that "if the price is simulated, the sale is void." Applied to the Kasulatan, where the purported PhP 15,000 purchase price was simulated and never paid.
• Article 22, Civil Code — Provides that every person who through an act or performance by another acquires or comes into possession of something at the expense of the latter without just or legal ground shall return the same. Applied to require respondents to return the PhP 50,000.
• Article 2208(2), Civil Code — Authorizes recovery of attorney's fees when the defendant's act or omission has compelled the plaintiff to incur expenses to protect his interest. Applied to sustain the PhP 10,000 attorney's fees award.
• Section 9, Rule 130, Revised Rules on Evidence — Provides the general rule that a written agreement contains all terms agreed upon, with exceptions allowing parol evidence to show the failure of the written agreement to express the true intent and agreement of the parties, or the validity of the written agreement. Applied to permit petitioners' evidence aliunde proving the simulated consideration.

Antonio T. Carpio (Chairperson), Minita V. Chico-Nazario, Antonio Eduardo B. Nachura, and Diosdado M. Peralta concurred. No separate concurring opinions were noted.