Reyes vs. Asuncion

A party alleging absolute simulation of a contract must present clear and convincing evidence that the parties had no intention to be bound; failure to do so results in the contract being upheld according to its literal terms. A remuneratory donation that imposes a burden of undetermined value upon the donee is an onerous donation governed by the rules on contracts, and the requirement in Article 1358 of the Civil Code that a contract involving immovable property must appear in a public document is only for convenience and does not affect the validity or enforceability of the agreement between the parties.

Petitioner Milagros C. Reyes and her late husband owned and possessed a 3.5-hectare sugarcane plantation located in Patling, Capas, Tarlac, which formed part of a U.S. Military Reservation. In 1986, respondent Felix P. Asuncion was hired as caretaker of the land. In 1997, the Bases Conversion and Development Authority (BCDA) launched a resettlement program for victims of the Mount Pinatubo eruption and considered the subject lot as a possible resettlement site. To prevent the BCDA from converting her property, petitioner and respondent executed a contract, antedated June 15, 1993, transferring petitioner’s rights over the land to respondent. When petitioner later discovered that respondent had sold her pigs and cows, his employment was terminated. Respondent then filed a complaint for estafa based on an alleged profit-sharing arrangement in the contract, which was dismissed for lack of probable cause. Petitioner thereafter instituted a complaint to declare the contract void.

• Nature of the Action: Petitioner sought the declaration of nullity of a contract denominated “Paglilipat [ng] Karapatan sa Lupa,” alleging it was absolutely simulated and, alternatively, invalid as a donation not executed in a public instrument and made without the consent of her late husband’s heirs.

• The Property and Parties: Petitioner and her late husband were the owners and possessors of a 3.5-hectare sugarcane plantation situated within a U.S. Military Reservation in Patling, Capas, Tarlac. Respondent Felix P. Asuncion worked as caretaker of the plantation beginning in 1986.

• The Contract: In 1997, the BCDA considered the subject land for a resettlement program. To forestall government conversion, petitioner and respondent executed a contract antedated June 15, 1993, entitled “Paglilipat [ng] Karapatan sa Lupa.” The contract stated that petitioner, having observed respondent’s faithful service for ten years, was transferring her rights over the land to respondent. It further stipulated that petitioner would finance the planting, harvesting, and milling of sugarcane in her name, effectively retaining a profit-sharing arrangement for as long as she wished.

• Subsequent Events: Petitioner continued to occupy and cultivate the land, milling sugarcane at Central Azucarera de Tarlac for her own benefit. Respondent’s employment ended when petitioner discovered he had sold her livestock. In January 2000, respondent filed an Estafa complaint against petitioner over alleged unpaid shares from the harvests, relying on the contract; the complaint was dismissed for lack of probable cause.

• Petitioner’s Allegations: Petitioner claimed that the contract was purely simulated, executed merely to prevent BCDA takeover, with no genuine intent to transfer rights. She alleged that both parties agreed to the false appearance and that she remained the true owner and possessor. She further argued that the contract, if considered a donation, was void for lack of notarization and, because the land was conjugal, she could not alienate it without the consent of her husband’s heirs.

• Lower Court Findings: The RTC found no legal basis to nullify the contract and declared it binding. The CA affirmed, ruling that petitioner failed to adduce evidence of respondent’s bad faith or fraud and that the contract by its terms reflected a clear intention to transfer the land. The CA characterized the agreement as a remuneratory donation with an undetermined burden, governed by the law on contracts and not requiring a public document for validity between the parties. The issue of co-ownership was raised for the first time on appeal and not considered.

• Simulation of Contract: Petitioner argued that the contract was absolutely simulated because it was executed solely to prevent the BCDA from converting the property into a resettlement site, and both parties intended only a false appearance without any actual transfer of rights.

• Validity of Donation: Petitioner maintained that even if the contract were a donation, it was void because the donation of an immovable property must appear in a public document, which the contract was not.

• Consent of Co-owners: Petitioner contended that the subject land was conjugal property with her late husband, and she could not alienate it without the consent of his heirs; therefore, the contract was invalid.

• N/A (The decision merely states that respondent filed a Comment; its specific arguments are not summarised in the reported text.)

• Simulation: Whether the contract “Paglilipat [ng] Karapatan sa Lupa” is absolutely simulated and therefore void.

• Validity of Donation: Whether the contract is void as a donation because it was not executed in a public instrument.

• Co-ownership: Whether petitioner could validly transfer the land without the consent of the heirs of her late husband.

• Simulation: No absolute simulation was established. The party impugning a contract as simulated bears the burden of proving, by clear and convincing evidence, that the parties had no intention to be bound. Petitioner failed to present evidence of respondent’s bad faith or fraud, or any contemporaneous or subsequent acts proving a lack of genuine intent. The contract’s literal terms evinced a deliberate transfer of rights, remunerating respondent for ten years of faithful service while retaining a profit-sharing arrangement for petitioner. Lacking proof of vitiated consent, the allegations remained self-serving, and the contract was binding and enforceable according to its terms.

• Validity of Donation: The contract, while a remuneratory donation, imposed an undetermined burden upon the donee (the financing and profit-sharing arrangement), making it an onerous donation. Under Article 733 of the Civil Code, onerous donations are governed by the rules on contracts. Consequently, the requirement in Article 1358 that acts creating or transferring real rights over immovable property must appear in a public instrument is only for convenience; non-compliance does not affect the validity or enforceability of the agreement between the parties, as ruled in Pada-Kilario v. Court of Appeals.

• Co-ownership: The issue of co-ownership and the necessity of the heirs’ consent was not raised during trial and could not be presented for the first time on appeal. Moreover, petitioner did not identify any specific heirs allegedly prejudiced by the transfer.

• Simulation of Contract (Absolute vs. Relative) — An absolutely simulated contract is void because the parties have no intention to be bound and the apparent contract lacks consent. A relatively simulated contract, where parties conceal their true agreement, binds them to their real agreement if it does not prejudice third persons or contravene law, morals, good customs, public order, or public policy. The burden of proving simulation rests on the party impugning the contract’s regularity and validity; the primary index of simulation is the complete absence of any attempt by the alleged transferee to assert dominion over the property.

• Onerous Donation — A donation that imposes a burden on the donee is onerous. When the value of the burden is undetermined, the donation is governed by the rules on contracts under Article 733 of the Civil Code, not by the strict rules on pure or remuneratory donations.

• Article 1358 Public Document Requirement — The requirement that acts creating, transmitting, or extinguishing real rights over immovable property must appear in a public instrument is merely for convenience. Non-compliance does not affect the validity or enforceability of the act between the parties themselves.

• Belated Change of Theory — Issues not raised during trial cannot be raised for the first time on appeal.

• “The burden of proving the alleged simulation of a contract falls on those who impugn its regularity and validity. A failure to discharge this duty will result in the upholding of the contract. The primary consideration in determining whether a contract is simulated is the intention of the parties as manifested by the express terms of the agreement itself, as well as the contemporaneous and subsequent actions of the parties.” (citing Ramos v. Heirs of Honorio Ramos, Sr.)

• “The most striking index of simulation is not the filial relationship between the purported seller and buyer, but the complete absence of any attempt in any manner on the part of the latter to assert rights of dominion over the disputed property.” (citing Ramos v. Heirs of Honorio Ramos, Sr.)

• “It is a cardinal rule that if the terms of a contract are clear and leave no doubt as to the intention of the contracting parties, the literal meaning of its stipulation shall control.”

• “[T]he requirement of Article 1358 of the Civil Code that acts which have for their object the creation, transmission, modification or extinguishment of real rights over immovable property, must appear in a public document, is only for convenience, non-compliance with which does not affect the validity or enforceability of the acts of the parties as among themselves.” (citing Pada-Kilario v. Court of Appeals)

• Valerio v. Refresca, 520 Phil. 367 (2006) — Set forth the definitive characteristics of absolute and relative simulation, particularly that an absolutely simulated contract lacks consent and is void. Followed.

• Pada-Kilario v. Court of Appeals, 379 Phil. 515 (2000) — Established that the Article 1358 requirement of a public document is for convenience and does not affect validity between the parties. Followed.

• Ramos v. Heirs of Honorio Ramos, Sr., 431 Phil. 337 (2002) — Held that the absence of dominion assertion by the alleged transferee is the most striking index of simulation. Cited with approval.

• Spouses Lopez v. Spouses Lopez, 620 Phil. 368 (2009) — Reiterated that intention of the parties, determined from express terms and subsequent acts, prevails over words that appear to contravene it. Cited.

• Article 1345, Civil Code — Defines absolute and relative simulation. Applied to distinguish petitioner’s bare allegations of absolute simulation from the evident intent to transfer rights.

• Article 1346, Civil Code — Declares absolutely simulated contracts void; relative simulation binds parties to real agreement. Formed the basis for requiring proof of lack of consent to void the contract.

• Article 725, Civil Code — Defines donation as an act of liberality. Cited in characterizing the contract’s nature.

• Article 733, Civil Code — Provides that onerous donations are governed by the rules on contracts. Applied to subject the agreement to contract law rather than the stricter donation rules for public instruments.

• Article 750, Civil Code — Allows donation to comprehend the entire property of the donor. Mentioned to show that a donation of the entire land was possible.

• Article 1358, Civil Code — Requires acts creating real rights over immovable property to appear in a public document. Ruled not to affect validity between parties.

Velasco, Jr., (Chairperson), Villarama, Jr., Reyes, and Jardeleza, JJ., concurred.

• None.