Nazareno vs. Court of Appeals

A notarized deed of sale is not guaranteed valid if it is simulated and lacks consideration; badges of simulation, such as the vendee's lack of financial means and a family practice of fictitious transfers to avoid taxes, render the contract void. The Court held that despite the nullity of the simulated sale, an implied trust is constituted under Article 1449 of the Civil Code when a donation is made but legal title is transmitted under the guise of sale, and the properties are subject to collation under Article 1061.

Maximino Nazareno, Sr. and Aurea Poblete were married and had five children: Natividad, Romeo, Jose, Pacifico, and Maximino, Jr. During their marriage, the spouses acquired several real properties in Quezon City and Cavite. On January 29, 1970, Maximino, Sr. executed a Deed of Absolute Sale conveying six Quezon City lots to Natividad for a total stated consideration of ₱47,800.00. Aurea died on April 15, 1970, and Maximino, Sr. died on December 18, 1980.

• The 1970 Deed of Absolute Sale: On January 29, 1970, Maximino, Sr. executed a Deed of Absolute Sale conveying six Quezon City lots to Natividad for a stated consideration of ₱47,800.00. Transfer certificates of title were subsequently issued in Natividad's name.
• Subsequent Transfers: Natividad sold Lots 13 and 14 to Ros-Alva Marketing Corp. on April 20, 1979. She sold Lot 3-B to Maximino, Jr. on July 31, 1982, for ₱175,000.00. Romeo and his wife Eliza were occupying Lot 3-B at the time and were not informed of the sale to Maximino, Jr.
• Prior Ejectment Case: Upon discovering the sale, Romeo and Eliza locked Maximino, Jr. out of the house on Lot 3-B. Maximino, Jr. sued for recovery of possession and won, with the CA upholding Natividad's ownership based on the notarized 1970 deed.
• The Annulment Suit: On June 15, 1988, Romeo filed the present action for annulment of sale on behalf of his father's estate, alleging that the sales to Natividad and Maximino, Jr. were void for lack of consideration.
• Romeo's Evidence: Romeo presented a 1962 Deed of Partition and Distribution, which allocated the lots differently. He testified that no consideration was ever paid for the transfers to Natividad or to himself; the deeds of sale were merely simulated to avoid inheritance taxes. Romeo admitted he did not pay for the lots transferred to him but claimed Natividad gave him the title to Lot 3 in 1981.
• Natividad's Evidence: Natividad claimed she bought the six lots because she was the only financially capable child. She insisted she paid the purchase price, purportedly to instill the value of hard work, and accused Romeo of filing the suit out of spite after losing the ejectment case.

• Petitioners argued that Romeo's uncorroborated testimony cannot overcome the presumption of validity accorded to a notarized document like the 1970 Deed of Absolute Sale.
• Petitioners contended that the CA misappreciated the facts by ignoring documentary evidence, the Extrajudicial Partition of 1975, Maximino, Sr.'s prior court testimony admitting sales to Natividad, Romeo's prior admissions in the ejectment case, and the Partial Project of Partition.
• Petitioners maintained that the 1970 Deed of Sale is an indivisible contract; thus, the estate of Maximino, Sr. alone cannot seek its annulment without joining the estate of Aurea Poblete.
• Petitioners argued that the sale of Lot 3 to Natividad is valid, and because Romeo admitted he did not pay for his own deed over Lot 3, Romeo's title should be cancelled in favor of Natividad.

• Respondent, through Romeo, countered that the sales were simulated and without consideration.
• Respondent asserted that the family practiced simulated transfers to avoid inheritance taxes, as evidenced by Romeo's admission that he paid nothing for the lots transferred to him.
• Respondent maintained that Natividad lacked the financial means to purchase the properties.

• Procedural Issues:
  • Whether the estate of Maximino, Sr. alone can seek the annulment of the 1970 Deed of Sale, which is allegedly an indivisible contract, without the estate of Aurea Poblete.
• Substantive Issues:
  • Whether the uncorroborated testimony of Romeo is sufficient to overturn the presumption of regularity of a notarized deed of sale.
  • Whether the 1970 Deed of Absolute Sale is a simulated contract void for lack of consideration.
  • Whether an implied trust was constituted over the properties in favor of the siblings despite the nullity of the sale.

• Procedural: The Court held that the estate of Maximino, Sr. alone can contest the validity of the sale. A void contract is inexistent from the beginning and can be questioned by anyone affected by it. The outcome of the suit will bind the estate of Aurea as if no sale took place. The indivisibility of a contract refers to the prestation, not the number of obligors.
• Substantive: The Court ruled that the lone testimony of a credible witness is sufficient to overturn the presumption of regularity of a notarized document. Notarization does not validate an instrument the parties never intended to be legally binding. The 1970 Deed of Sale was deemed simulated and void due to badges of simulation: Natividad had no means to pay, and the family practiced simulated transfers to avoid inheritance taxes. However, because the parents intended to give the lots to Natividad in trust for her siblings, an implied trust was constituted under Article 1449 of the Civil Code. The properties are subject to collation under Article 1061. The sale of Lots 13 and 14 to Ros-Alva Marketing Corp. was upheld, as it is an innocent purchaser for value that relied on Natividad's clean title.

• Simulated Contracts — A contract is simulated when the parties do not intend to be bound by it. The notarization of a deed of sale vests it with a presumption of regularity, but this does not validate an instrument never intended to have any binding legal effect. Badges of simulation, such as lack of consideration and the vendee's lack of financial means, render the deed void.
• Implied Trusts (Art. 1449, Civil Code) — An implied trust arises when a donation is made but legal title is transmitted under a different gratuitous title. If the legal estate is transmitted to the donee who has no beneficial interest or only part thereof, the donee holds the property in trust for the benefit of another.
• Innocent Purchaser for Value — Every person dealing with registered land may safely rely on the correctness of the certificate of title issued therefor. The law does not oblige the purchaser to go behind the certificate to determine the condition of the property.

• "Though the notarization of the deed of sale in question vests in its favor the presumption of regularity, it is not the intention nor the function of the notary public to validate and make binding an instrument never, in the first place, intended to have any binding legal effect upon the parties thereto. The intention of the parties still and always is the primary consideration in determining the true nature of a contract."
• "A void contract is inexistent from the beginning. Hence, even if the estate of Maximino, Sr. alone contests the validity of the sale, the outcome of the suit will bind the estate of Aurea as if no sale took place at all."

• Suntay v. Court of Appeals, 251 SCRA 430 (1995) — Followed. The Court cited this case to support the ruling that notarization does not validate a simulated contract and that badges of simulation render a deed of sale void.
• Limjoco v. Intestate Estate of Fragante, 80 Phil. 776 (1948) — Followed. The Court cited this case to establish that the estate of a deceased person is a juridical entity with a personality separate and distinct from its administrator or heirs.
• Cruz v. Court of Appeals, 281 SCRA 491 (1997) — Followed. The Court cited this case to uphold the rights of an innocent purchaser for value who relies on the certificate of title.

• Article 1449, Civil Code — Applied to constitute an implied trust. The Court found that although the sale was simulated, the parents intended to donate or entrust the properties to Natividad for the benefit of her siblings, making her a trustee of the legal estate.
• Article 1061, Civil Code — Applied to require collation. The Court held that the properties received by Natividad under the simulated sale, which is essentially a gratuitous transfer, must be brought into the mass of the estate to compute the legitime of each heir.

Bellosillo (Chairman), Quisumbing, and De Leon, Jr., JJ., concur.