Loyola vs. Court of Appeals

A notarized deed of absolute sale is presumed valid and regular, and the party alleging simulation, fraud, or undue influence must overcome this presumption with clear and convincing evidence; inadequacy of price is inconsistent with a claim of absolute simulation and cannot be raised for the first time on appeal. The validity of a contract of sale is not vitiated merely because the vendor was of advanced age or physically infirm, absent proof that her mental faculties were impaired to the extent that she could not intelligently protect her property rights.

Gaudencia Zarraga and her brother Mariano Zarraga co-owned a 753-square-meter parcel of land in Biñan, Laguna, inherited from their father and covered by TCT No. T-32007. Mariano predeceased Gaudencia, who died single and childless on August 5, 1983, at age 97. Mariano's children are the private respondents. Gaudencia's sisters, Victorina Zarraga vda. de Loyola and Cecilia Zarraga, were the original plaintiffs; upon their deaths during the litigation, they were substituted by their children and grandchildren, the petitioners. The property had been the subject of an earlier case, Civil Case No. B-1094, in which Romualdo Zarraga (one of the private respondents) sued Gaudencia and his own siblings. That case ended with a final judgment declaring Gaudencia owner of one-half of the lot.

• The Property and the Co-owners: A 753-square-meter parcel of land in Biñan, Laguna (Lot 115-A-1), covered by TCT No. T-32007, was originally owned in common by siblings Mariano and Gaudencia Zarraga, who inherited it from their father. Mariano predeceased Gaudencia. Gaudencia died single and without issue on August 5, 1983, at age 97. Victorina and Cecilia Zarraga were sisters of Gaudencia and Mariano. Private respondents are Mariano's children and the heirs of Jose Zarraga (Mariano's deceased son). Petitioners are the children and grandchildren of Victorina and Cecilia.

• The Prior Litigation: The property was the subject of Civil Case No. B-1094, filed by Romualdo Zarraga against his siblings and his aunt Gaudencia. That case ended with a final Supreme Court decision (G.R. No. 59529, denied March 17, 1982) adjudging Gaudencia the owner of one-half of Lot 115-A-1.

• The Alleged Sale: On August 24, 1980, while G.R. No. 59529 was pending, Gaudencia allegedly executed a notarized document titled "Bilihang Tuluyan ng Kalahati (1/2) ng Isang Lagay na Lupa," selling her one-half share to private respondents for P34,000.00. Romualdo was among the named vendees, along with his siblings Nieves, Romana, Guillermo, Lucia, Purificacion, Angeles, Roberto, Estrella, and Jose.

• Issuance of New Title: After the decision in Civil Case No. B-1094 became final, private respondents filed a motion for execution. On February 16, 1984, the sheriff executed a deed of reconveyance to Gaudencia. On July 23, 1984, the Register of Deeds of Laguna issued TCT No. T-116067 in favor of private respondents based on the August 24, 1980 sale.

• The Complaint: On January 31, 1985, Victorina and Cecilia filed Civil Case No. B-2194 seeking annulment of the sale and cancellation of the new TCT. They alleged the sale was absolutely simulated; that Gaudencia was 94, weak, and under the care of Romana Zarraga, one of the vendees; that the price of P34,000 was grossly inadequate for property worth P188,250 in 1980; that Jose Zarraga was already dead at the time of sale; and that Romualdo, Nieves, and Guillermo were unaware of the transaction.

• Evidence at Trial: The notary public who prepared the deed testified that he interviewed Gaudencia before drafting the document, that she answered his questions correctly, and that he was convinced she was mentally fit and knew what she was doing. The records showed Jose Zarraga died on July 29, 1981, nearly a year after the August 24, 1980 sale. Romana Zarraga testified that Romualdo had no knowledge of the transaction and was included only because he was a brother.

• The RTC Ruling: The trial court found the sale simulated and void, declared TCT No. T-116067 void, ordered reconveyance, and awarded P20,000 in attorney's fees to plaintiffs. The claim for moral and exemplary damages was dismissed, as was the second cause of action on ground of prescription.

• The CA Ruling: The Court of Appeals reversed the trial court in its entirety, dismissed the complaint, and declared the deed of sale and TCT No. T-116067 valid and effective.

• Simulation of the Deed of Sale: Petitioners argued that the deed of sale was absolutely simulated because it did not reflect the true intent of the parties. They contended that the notary public did not personally know Gaudencia, that one vendee (Jose Zarraga) was allegedly already dead, and that three vendees (Romualdo, Guillermo, and Nieves) were not present or aware of the transaction, all of which indicated the sale was fictitious.

• Fraud and Undue Influence: Petitioners maintained that Gaudencia, being 94 years old, weak, and living under the care of vendee Romana Zarraga, was dependent on Romana for her daily needs. Under these circumstances, fraud or undue influence was exerted to obtain Gaudencia's consent to the sale.

• Mental Incapacity: Petitioners claimed that Gaudencia, due to advanced age and senility, was incapable of giving independent and clear judgment, rendering her consent invalid.

• Gross Inadequacy of Price: Petitioners asserted that Gaudencia would never have sold property worth P188,250.00 in 1980 for only P34,000.00, and that such gross inadequacy vitiated the contract.

• Legal Personality to Sue: The issue of petitioners' legal standing as heirs of Victorina and Cecilia to challenge the sale was raised as a question for resolution.

• Validity of the Notarized Deed: Respondents relied on the deed of sale as a duly notarized document that carried the presumption of regularity in its execution. The sale was evidenced by a valid public instrument.

• Lawful Ownership: Respondents alleged they were lawful owners of Lot 115-A-1, consisting of the one-half share inherited from their father Mariano and the other half purchased from Gaudencia.

• Actual Transaction: Respondents maintained that the sale was a genuine transaction where the parties intended to be bound. The notary public testified that Gaudencia was alert and competent when she consented to the sale.

• Validity of the Sale: Whether the deed of absolute sale was absolutely simulated and therefore null and void.

• Fraud and Undue Influence: Whether the circumstances of Gaudencia's age, physical weakness, and residence with one of the vendees gave rise to a presumption of fraud or undue influence sufficient to annul the sale.

• Mental Capacity: Whether Gaudencia's advanced age of 94 years rendered her incapable of giving valid consent to the contract of sale.

• Inadequacy of Price: Whether the alleged gross inadequacy of the purchase price constituted a ground to annul the sale.

• Standing to Sue: Whether petitioners had the legal personality to institute the action.

• Validity of the Sale: The deed of sale was not simulated. The requisites of simulation — (a) an outward declaration of will different from the will of the parties, (b) the false appearance intended by mutual agreement, and (c) the purpose of deceiving third persons — were not present. The sale altered the juridical situation of the parties by converting co-owners into vendors and vendees, a result contrary to the nature of simulation where the apparent contract is not meant to produce any legal effect. The parties clearly intended to be bound by the contract, an intention they did not deny. The notarized deed carried a presumption of regularity in its due execution, and petitioners failed to rebut this presumption with clear and convincing evidence. The notary public testified that he interviewed Gaudencia before preparing the deed and was satisfied she was mentally fit. As to Jose Zarraga, records showed he died on July 29, 1981, nearly a year after the August 24, 1980 sale. Regarding Romualdo's lack of knowledge and participation, Article 1311 of the Civil Code provides that contracts are binding only upon the parties who execute them; Romualdo was a stranger to the transaction despite being named as a vendee, and his lack of knowledge did not render the contract simulated as to the other parties who did participate.

• Fraud and Undue Influence: Fraud is never presumed and must be both alleged and proved. Petitioners' allegations of fraud were unsupported. A disputable presumption exists that private transactions are fair and regular. For undue influence to justify cancellation of an instrument, three elements must concur: (a) a person who can be influenced, (b) the fact that improper influence was exerted, and (c) submission to the overwhelming effect of such unlawful conduct. No confidential or fiduciary relationship was established between Gaudencia and Romana merely because Gaudencia lived with and was cared for by her niece. To prove a confidential relationship from which undue influence may arise, the relationship must reflect a dominant, overmastering influence which controls the dependent person. Petitioners did not show that Romana used her aunt's reliance to dominate her or dictate the sale. Undue influence is not inferred from age, sickness, or debility of body if sufficient intelligence remains. The notary public's testimony that Gaudencia was alert and sharp was unrebutted.

• Mental Capacity: Advanced age and physical infirmities alone do not incapacitate a person to contract. Incapacity arises only when age or infirmities impair mental faculties to such an extent as to prevent the person from properly, intelligently, and fairly protecting property rights. The notary public's unrebutted testimony established that Gaudencia answered correctly and was mentally fit when she executed the deed. Petitioners presented no proof that Gaudencia had lost control of her mental faculties.

• Inadequacy of Price: The issue of lesion or inadequacy of price was not raised before the lower courts and could not be raised for the first time on appeal. Furthermore, the grounds of absolute simulation and inadequacy of price are irreconcilable. If there exists an actual consideration for the transfer, no matter how inadequate, the transaction cannot be a simulated sale.

• Standing to Sue: Although identified as an issue, the decision did not separately rule on the matter of standing, the petition having been resolved on the substantive merits. The petitioners, as heirs of Victorina and Cecilia (sisters of Gaudencia), were treated as proper parties to maintain the action challenging the sale by their aunt.

• Presumption of Regularity of Notarized Documents — A notarized document carries the evidentiary weight conferred upon it with respect to its due execution. Documents acknowledged before a notary public enjoy a presumption of regularity. The party challenging a notarized document must overcome this presumption with clear and convincing evidence; failing this, the challenger is estopped from questioning the regularity of execution.

• Requisites of Simulation — Simulation is the declaration of a fictitious will, deliberately made by agreement of the parties, to produce, for purposes of deception, the appearance of a juridical act that does not exist or is different from that which was really executed. Its requisites are: (a) an outward declaration of will different from the will of the parties; (b) the false appearance must have been intended by mutual agreement; and (c) the purpose is to deceive third persons. A contract that alters the juridical situation of the parties and where the parties intended to be bound is not simulated.

• Requisites of Undue Influence — Under Article 1337 of the Civil Code, undue influence exists when a person takes improper advantage of power over the will of another, depriving the latter of reasonable freedom of choice. To justify cancellation of an instrument on this ground, three elements must be present: (a) a person who can be influenced; (b) the fact that improper influence was exerted; and (c) submission to the overwhelming effect of such unlawful conduct. Undue influence is not presumed absent a confidential or fiduciary relationship. Mere age, sickness, or debility of body is insufficient if sufficient intelligence remains. Solicitation, argument, and persuasion do not constitute undue influence.

• Confidential or Fiduciary Relationship — A confidential or fiduciary relationship may include any relation between persons that allows one to dominate the other with the opportunity to use that superiority to the other's disadvantage. Recognized relationships include attorney-client, physician-patient, nurse-invalid, parent-child, guardian-ward, spiritual adviser-member of a sect, and a person and his confidential adviser. The fact that a niece cares for an elderly aunt does not, without more, establish a confidential relationship; there must be proof of a dominant, overmastering influence.

• Capacity to Contract Despite Advanced Age — A person is not incapacitated to contract merely because of advanced years or physical infirmities. Incapacity arises only when age or infirmities impair mental faculties to such an extent as to prevent the person from properly, intelligently, and fairly protecting property rights.

• Inadequacy of Price vs. Simulation — The grounds of absolute simulation and inadequacy of price are irreconcilable. If actual consideration for the transfer exists, no matter how inadequate, the transaction cannot be a simulated sale.

• "The rule is that a notarized document carries the evidentiary weight conferred upon it with respect to its due execution, and documents acknowledged before a notary public have in their favor the presumption of regularity. By their failure to overcome this presumption, with clear and convincing evidence, petitioners are estopped from questioning the regularity of the execution of the deed."

• "Simulation is 'the declaration of a fictitious will, deliberately made by agreement of the parties, in order to produce, for the purposes of deception, the appearances of a juridical act which does not exist or is different what that which was really executed.' Characteristic of simulation is that the apparent contract is not really desired or intended to produce legal effect or in any way alter the juridical situation of the parties."

• "The rule on fraud is that it is never presumed, but must be both alleged and proved. For a contract to be annulled on the ground of fraud, it must be shown that the vendor never gave consent to its execution."

• "A person is not incapacitated to contract merely because of advanced years or by reason of physical infirmities. Only when such age or infirmities impair his mental faculties to such extent as to prevent him from properly, intelligently, and fairly protecting his property rights, is he considered incapacitated."

• "Undue influence is not to be inferred from age, sickness, or debility of body, if sufficient intelligence remains."

• "If there exists an actual consideration for transfer evidenced by the alleged act of sale, no matter how inadequate it be, the transaction could not be a 'simulated sale.'"

• "Influence obtained by persuasion, argument, or by appeal to the affections is not prohibited either in law or morals, and is not obnoxious even in courts of equity."

• Garrido v. Court of Appeals, 236 SCRA 450 (1994) — Cited for the rule that a notarized document carries evidentiary weight with respect to its due execution.

• Ramirez v. Ner, 21 SCRA 207 (1967) — Cited for the presumption of regularity attaching to documents acknowledged before a notary public.

• Salame v. Court of Appeals, 239 SCRA 356 (1994) — Cited for the principle that failure to overcome the presumption of regularity with clear and convincing evidence estops the challenger from questioning the document's execution.

• Smith, Bell & Co., Inc. v. Court of Appeals, 267 SCRA 530 (1997) — Cited for the principle that contracts are binding only upon the parties who execute them.

• Cuizon v. Court of Appeals, 260 SCRA 645 (1996) — Cited for the rule that fraud is never presumed and must be both alleged and proved.

• Bañez v. Court of Appeals, 59 SCRA 15 (1974) — Cited for the doctrine that solicitation, importunity, argument, and persuasion do not constitute undue influence.

• Martinez v. Hongkong and Shanghai Bank, 15 Phil. 252 (1910) — Cited for the principle that influence obtained by persuasion, argument, or appeal to the affections is not prohibited in law or morals and is not obnoxious to courts of equity.

• Caster v. Miller, 39 F. Supp. 120 — Cited for the proposition that the grounds of absolute simulation and inadequacy of price are irreconcilable.

• Article 1311, Civil Code of the Philippines — Provides that contracts take effect only between the parties, their assigns, and heirs. Applied to explain that Romualdo, who had no knowledge of the sale and was not truly a party despite being named, did not affect the validity of the contract as among the actual contracting parties.

• Article 1337, Civil Code of the Philippines — Defines undue influence and enumerates circumstances to be considered: confidential, family, spiritual, and other relations between the parties, or the fact that the person alleged to have been unduly influenced was suffering from mental weakness, was ignorant, or was in financial distress. The Court found insufficient evidence to establish undue influence under this article.

• Rule 131, Section 3, paragraph (p), Rules of Court — Establishes the disputable presumption that private transactions have been fair and regular. Applied to uphold the presumption that the contract Gaudencia entered into was fair and regular.

Justices Bellosillo, Mendoza, and De Leon, Jr., concurred. Justice Buena was on official leave.

N/A — The decision was unanimous among the participating justices.