Rosario vs. Court of Appeals

An absolutely simulated contract of sale is void, produces no legal effects, and conveys no ownership or co-ownership; consequently, the purported vendee cannot exercise the right of legal redemption under Article 1620 of the Civil Code. Where a person obtains registration of title through a simulated deed, a constructive trust arises by operation of law in favor of the true owner under Article 1447 to prevent unjust enrichment, and the Torrens title does not bar enforcement of that trust.

Spouses Emilio and Paulina Villahermosa owned a 745-square-meter lot in Talisay, Cebu. Paulina was the sister of Filomena Lariosa and petitioner Herminia Lariosa Rosario. In 1964, Filomena wanted to build a house using a GSIS housing loan, which required the land to be mortgaged in her name and a permanent teacher as co-borrower. The Villahermosas subdivided the lot and transferred Lot 77-A (372 sqm) to Filomena via a deed of sale. To meet the co-borrower requirement, Filomena executed a deed of sale over an undivided one‑half of Lot 77-A in favor of Herminia, a permanent school teacher, for P100. After Filomena’s death in 1976, a dispute erupted over whether Herminia could redeem the half-portion that Filomena had reconveyed to Emilio Villahermosa shortly before she died.

• Ownership and Subdivision of the Original Lot: Lot 77, with an area of 745 square meters, was originally owned by spouses Emilio Villahermosa and Paulina Lariosa Villahermosa under TCT No. 1258. It was subdivided into Lot 77-A (372 sqm) and Lot 77-B (373 sqm) at the request of Filomena Lariosa, who needed a titled lot to secure a GSIS housing loan.
• The Transfer to Filomena and the GSIS Loan: On June 6, 1964, Emilio Villahermosa and his children (private respondents) executed a Deed of Sale transferring Lot 77-A to Filomena Lariosa for P380.00. The conveyance was intended to enable Filomena to mortgage the lot and obtain a GSIS loan to build a house.
• The Alleged Sale to Herminia Rosario: On December 3, 1964, Filomena executed a Deed of Sale over an undivided one‑half interest in Lot 77-A in favor of her sister Herminia Lariosa Rosario for P100.00. TCT No. 12326 was subsequently issued in the names of Filomena Lariosa and Herminia Rosario as co‑owners. Herminia co‑signed the GSIS loan as a permanent teacher; Filomena was then only a temporary teacher.
• Filomena’s Exclusive Possession and Acts of Ownership: Filomena built her house on the middle of Lot 77‑A without objection from Herminia. She possessed the entire lot exclusively, paid all real property taxes, and never accounted for any share to Herminia. Herminia never demanded partition, paid no taxes during Filomena’s lifetime, and never exercised acts of ownership.
• The Reconveyance to Emilio Villahermosa: On July 28, 1976, shortly before her death on October 9, 1976, Filomena executed a Deed of Sale in favor of Emilio Villahermosa covering all of Lot 77‑A with its improvements, for P380.00. The deed explicitly stated that the sale was “in compliance with the VENDOR’S solemn promise to return or to sell back to the VENDEE Lot No. 77‑A.”
• Herminia’s Claim and Attempt to Redeem: After Filomena’s death, Herminia paid the balance of the GSIS loan, obtained release of the mortgage, and claimed ownership of the other one‑half share as Filomena’s heir. Private respondents presented the 1976 Deed of Sale. Herminia offered to redeem the half‑share and deposited P380.00 with the trial court, but the Villahermosas refused acceptance, asserting ownership of the entire lot. Barangay conciliation failed, prompting the legal redemption suit.

• Emilio Villahermosa as a Third Person: Petitioners contended that Emilio Villahermosa was a stranger to the co‑ownership between Filomena and Herminia, making him a “third person” under Article 1620 and triggering Herminia’s right of legal redemption upon the sale of Filomena’s share.
• Absence of an Implied Trust: Petitioners argued that no implied trust existed between Filomena and Emilio; Herminia had no knowledge of any such arrangement, and any admission regarding the 1976 deed of sale pertained only to the fact of conveyance, not to the truth of the recitals.
• Timeliness of Redemption: Petitioners maintained that they were never given written notice of the sale as required by Article 1623; thus the thirty‑day redemption period never commenced, and the action for redemption was filed within the prescriptive period.

• Prior Trust and Fulfillment: Private respondents countered that Lot 77‑A was held by Filomena under an implied trust in their favor, and the 1976 Deed of Sale fulfilled that trust; consequently, legal redemption never became available.
• Redemption Moot: They argued that even assuming redemption applied, Herminia had actual knowledge of the sale in 1977 but waited four years to file suit; moreover, the right should have been exercised while both contracting parties were alive, and respondents acquired ownership by succession, not purchase.
• Wrong Parties: Private respondents asserted that they were not parties to the documents and should not have been impleaded.

• Implied Trust Between Filomena and the Villahermosas: Whether an implied trust under Article 1453 of the Civil Code was created in favor of Emilio Villahermosa and his children when Lot 77‑A was transferred to Filomena Lariosa.
• Simulation and Co‑ownership: Whether the December 3, 1964 Deed of Sale between Filomena and Herminia gave rise to genuine co‑ownership or was an absolutely simulated contract.
• Constructive Trust and Torrens Title: Whether a constructive trust arose in favor of Filomena over the one‑half share registered under Herminia’s name, and whether the Torrens title barred such a trust.
• Right of Legal Redemption: Whether Herminia Rosario could validly exercise the right of legal redemption under Articles 1620 and 1623.

• Implied Trust Between Filomena and the Villahermosas: An implied trust under Article 1453 was established. The transfer to Filomena was made in reliance upon her declared intention to hold the lot for and eventually return it to Emilio and his children. The identical consideration of P380.00 after twelve years, the inclusion of improvements without additional payment, the uncontroverted testimony of Lourdes Villahermosa, and the express recital in the 1976 Deed of Sale collectively confirmed the trust relationship.
• Simulation and Co‑ownership: The 1964 Deed of Sale in favor of Herminia was an absolutely simulated contract — void and producing no legal effects. The sale was a mere accommodation to meet the GSIS co‑borrower requirement. Indicia of simulation included: Herminia was a permanent teacher needed to co‑sign; the nominal price of P100; Filomena’s exclusive physical possession and sole payment of taxes; the construction of a house on the entire lot without Herminia’s objection; and Herminia’s total inaction in asserting co‑ownership. Because the contract was simulated, Herminia acquired no title and never became a co‑owner.
• Constructive Trust and Torrens Title: A constructive trust under Article 1447 arose by operation of law in favor of Filomena, the true owner, to prevent unjust enrichment. Although TCT No. 12326 listed Herminia as co‑owner, the Torrens system merely confirms pre‑existing title; it does not protect a title acquired through a simulated transaction. The trust could be enforced notwithstanding the irrevocability of the Torrens title.
• Right of Legal Redemption: No right of legal redemption accrued. Article 1620 presupposes a genuine co‑ownership, which was never created. Herminia was not a co‑owner, and the conveyance from Filomena to Emilio Villahermosa was not a sale of a co‑owned share to a third person. The requirements of Article 1623 were not reached.

• Absolutely Simulated Contracts — An absolutely simulated or fictitious contract is void and inexistent; it produces no legal effects, conveys no property rights, and does not alter the juridical situation of the parties. The badges of simulation — nominal price, continued possession by the purported seller, lack of any exercise of ownership by the purported buyer — render the deed a nullity.
• Implied Trust under Article 1453, Civil Code — When property is conveyed to a person upon his declared intention to hold it for or transfer it to another or to the grantor, a resulting implied trust arises in favor of the person for whose benefit the property was intended. The trust may be proven by circumstantial evidence including the parties’ conduct and the documents’ recitals.
• Constructive Trust under Article 1447, Civil Code — A constructive trust is imposed by equity against one who, by fraud, abuse of confidence, or other unconscionable means, obtains legal title to property which in good conscience he ought not to hold. It is a remedial device to prevent unjust enrichment and does not require actual fraud; it suffices that retention of the legal title would be inequitable. It applies even to property registered under the Torrens system.
• Torrens System and Trusts — The Torrens system does not create or vest title; it only confirms and records a pre‑existing title. It cannot shield a usurper, sanction fraud, or permit unjust enrichment. A constructive trust may be enforced against a registered owner to compel reconveyance when the title was acquired through a simulated or otherwise void transaction.
• Legal Redemption under Article 1620, Civil Code — The right of legal redemption among co‑owners requires the existence of a genuine co‑ownership. Where the purported co‑owner’s title proceeds from a simulated contract, no co‑ownership ever arises, and the right of redemption is unavailable.

• “The cumulative effect of the evidence on record … identified badges of simulation showing that the sale of the 1/2 portion of the subject lot made by Filomena to Herminia was not intended to have a legal effect between them, said parties having entered into a sale transaction by which they did not intend to be legally bound. As such it is void and is not susceptible of ratification, produces no legal effects, and does not convey property rights nor in any way alter the juridical situation of the parties.”
• “The torrens system does not create or vest title. It only confirms and records title already existing and vested. It does not protect a usurper from the true owner. It cannot be a shield for the commission of fraud. It does not permit one to enrich himself at the expense of another. Where one does not have any rightful claim over a real property, the torrens system of registration can confirm or record nothing.”
• “A constructive trust is substantially an appropriate remedy against unjust enrichment. It is raised by equity in respect of property, which has been acquired by fraud, or where although acquired originally without fraud, it is against equity that it should be retained by the person holding it.”
• “Since the sale was a simulated conveyance of real property, the vendee, Herminia, acquired no title thereto and she merely became a trustee of the 1/2 portion of the subject property for the benefit of its real owner Filomena who held the entire property in trust for the Villahermosas. The beneficiary is entitled to enforce the trust notwithstanding the irrevocability of the torrens title. The torrens system was not intended to foment betrayal in the performance of a trust.”

• Sumaoang vs. Judge, RTC, Br. XXXI, Guimba, Nueva Ecija, 215 SCRA 136 — Followed to define a constructive trust as an equitable remedy against unjust enrichment; applied to impose a trust on the half‑share held by Herminia.
• Santiago vs. CA, 278 SCRA 98 — Cited for the principle that the Torrens system does not vest title but merely confirms existing title, and cannot be used to shield fraud or unjust enrichment.
• Carino vs. CA, 152 SCRA 529 — Cited in support of the rule that an absolutely simulated contract produces no legal effects.
• Tongoy vs. CA, 123 SCRA 99 — Followed for the same rule that simulated contracts are void and convey no rights.
• Beatty vs. Guggenheim Exploration Co., 122 N.E. 378 (1919) — Quoted with approval for the equitable maxim that when property is acquired in circumstances where the holder of legal title cannot in good conscience retain the beneficial interest, equity converts him into a trustee.

• Article 1453, Civil Code — “When property is conveyed to a person in reliance upon his declared intention to hold it for, or transfer it to another or to the grantor, there is an implied trust in favor of the person whose benefit is contemplated.” Applied to the transfer from the Villahermosas to Filomena.
• Article 1447, Civil Code — Recognizes that the enumeration of implied trusts does not exclude others established by the general law of trust. Used as the statutory anchor for the constructive trust over the half‑share held by Herminia.
• Article 1409, Civil Code — Voids absolutely simulated contracts. Applied to the 1964 Deed of Sale between Filomena and Herminia.
• Article 1620, Civil Code — Governs legal redemption among co‑owners. Held inapplicable because no genuine co‑ownership existed.
• Article 1623, Civil Code — Prescribes the written notice and thirty‑day period for legal redemption. The issue was not reached.

Romero, Vitug, Panganiban, and Purisima, JJ., concurred.