Taghoy vs. Tigol

A contract of sale is absolutely simulated and void when the parties’ contemporaneous sworn admissions manifest that no consideration was given and that the apparent transfer was executed solely to facilitate a bank loan, with a commitment to reconvey the property upon loan payment. Payment by one co-owner of a mortgage debt on the common property does not confer full ownership but merely entitles the payor to reimbursement with a lien on the co-owned property under Article 488 of the Civil Code.

Spouses Filomeno Taghoy and Margarita Amit owned an 11,067-square-meter parcel of land in Barrio Agus, Lapu-Lapu City, covered by TCT No. 6466. In August 1975, they constituted Felixberto Tigol, Jr. as attorney-in-fact; Felixberto then mortgaged the property to the Philippine National Bank (PNB) to secure a ₱22,000.00 loan intended for the shellcraft business of the spouses’ children. Filomeno died intestate in February 1976. The surviving spouse and their seven children later dealt with the property through a series of instruments whose true nature became the central dispute.

• The Deed of Extrajudicial Settlement and Sale: On July 27, 1979, Margarita Amit and the seven children of Filomeno executed a Deed of Extrajudicial Settlement and Sale, adjudicating Lot 3635-B to themselves as heirs and simultaneously selling it to Rosita (one of the children) and her husband Felixberto Tigol, Jr. (the respondents) for ₱1,000.00.

• The Deeds of Confirmation and Joint Affidavits: On September 7, 1981 and August 10, 1982, the heirs executed two Deeds of Confirmation of Sale confirming the sale for ₱1,000.00. However, on the same dates, the respondents executed sworn Joint Affidavits. The affidavits stated:

  • The sale was “without any consideration” or “without any purchase price or consideration”;
  • The documents were executed “for the purpose of securing a loan” in the respondents’ names, the proceeds of which would be divided equally among the heirs, each assuming his or her share of amortization;
  • The sale was “only for purposes of convenience in securing the loan and not for absolute conveyance or sale”;

  • The respondents undertook “to return the said land to the legal heirs … upon full payment of our intended loan” and “to resell, reconvey” the property in favor of the heirs.

  • Registration and Subsequent Loan: On March 9, 1983, TCT No. 13250 was issued in the respondents’ names. Four months later, the respondents obtained a ₱70,000.00 loan from the Philippine Banking Corporation secured by a real estate mortgage on the property.

  • The Complaint and the RTC Findings: In 1990, petitioners Anselmo and Vicenta, with others who later abandoned the complaint, sued for nullity of the respondents’ title and partition. They alleged the sale was fictitious, as proven by the respondents’ own affidavits. Respondents admitted executing the affidavits but claimed they did so “out of generosity,” expressing willingness to be reimbursed for their advance payment of the PNB loan; they contended that when the other heirs failed to reimburse them, they caused registration of title in their names. The RTC found absolute simulation, nullified the title, and ordered partition after reimbursement of whatever respondents paid on the PNB loan.

  • The CA Reversal: The CA, relying on Margarita’s testimony that respondents paid the bank loan, concluded the contract was relatively simulated — that the real consideration was the respondents’ payment of the loan — and thus valid.

• Lack of Consideration and Simulation: Petitioners argued that the heirs did not intend to divest themselves of their shares because the sale lacked consideration as affirmed by respondents’ own sworn admissions; the payment of the PNB loan could not constitute valid consideration since the loan was still unpaid and outstanding at the time the extrajudicial settlement was executed.

• Validity of Transfer and Real Consideration: Respondents maintained that the Extrajudicial Settlement and Sale lawfully transferred title; their payment of the PNB loan was the real consideration for the transfer. The joint affidavits were executed out of generosity and conditioned on reimbursement; when the other heirs failed to reimburse them, they were justified in causing registration of title in their own names.

• Simulation of Contract: Whether the contract of sale between the parties was absolutely simulated and void, or relatively simulated and therefore binding as the parties’ true agreement.

• Simulation of Contract: The sale was absolutely simulated and void. The two Joint Affidavits executed by the respondents contemporaneously with the Deeds of Confirmation constituted declarations against interest, which “afford the greatest certainty of the facts in dispute” based on the presumption that no person would declare anything against himself unless true. By their own sworn statements, the respondents admitted: (a) the sale was without any consideration; (b) the documents were executed merely to facilitate a bank loan; and (c) they undertook to reconvey the property upon payment of the loan. These admissions unequivocally proved that the parties never intended to be bound — the defining characteristic of absolute simulation under Article 1345 of the Civil Code. The Court of Appeals misappreciated Margarita’s testimony; the respondents’ advance payment of the PNB loan did not convert the simulated sale into a valid transfer. Under Article 488 of the Civil Code, such payment is a necessary expense for the preservation of the co-ownership, entitling the payor to reimbursement from the other co-owners with a lien on the property — not to full ownership. The failure of the other heirs to reimburse merely preserved the respondents’ right to demand contribution and to hold a lien until reimbursed.

• Simulation of contracts (Article 1345, Civil Code) — Simulation may be absolute or relative. Absolute simulation occurs when the contracting parties do not intend to be bound at all; the apparent contract produces no legal effect and is void. Relative simulation occurs when the parties conceal their true agreement; the concealed contract is valid and binds them as their real agreement. A hallmark of simulation is that the ostensible contract is not intended to produce legal effects or alter the juridical situation of the parties. In this case, the sworn declarations of the respondents that the deeds were without consideration and solely for loan convenience demonstrated a total absence of intent to be bound, rendering the sale absolutely simulated.

• Interpretation of contracts — contemporaneous and subsequent acts (Article 1371, Civil Code) — In determining the intention of contracting parties, their contemporaneous and subsequent acts are to be principally considered. The respondents’ simultaneous execution of the Joint Affidavits denying consideration and undertaking to reconvey furnished the clearest evidence of the parties’ real intention.

• Admissions against interest — A party’s declaration against his own interest is the best evidence that affords the greatest certainty of the facts in dispute. The rule rests on the presumption that no person would make a declaration contrary to his own interest unless it is true. Respondents’ sworn affidavits were treated as conclusive admissions that the sale was simulated.

• Right of a co-owner to reimbursement for preservation expenses (Article 488, Civil Code) — A co-owner who incurs necessary expenses for the preservation of the co-owned property is entitled to reimbursement from the other co-owners. Until reimbursed, the payor holds a lien on the property. Payment of a mortgage debt by one co-owner does not confer full ownership; it only gives rise to a personal right of reimbursement secured by a lien on the shares of the other co-owners.

• “Characteristic of simulation is that the apparent contract is not really desired or intended to produce legal effects, or in any way, alter the juridical situation of the parties.” — This statement encapsulates the test for simulation and was the lens through which the respondents’ affidavits were examined.

• From the September 7, 1981 Joint Affidavit: “…said sale was without any consideration, and that we executed this affidavit … for purposes of loan only but not for conveyance and transfer in our name absolutely and forever but during the duration of the terms of the loan; … [we] undertake to return the said land to the legal heirs … upon full payment of our intended loan.” — The dispositive admissions that drove the finding of absolute simulation.

• From the August 10, 1982 Joint Affidavit: “…said Lot No. 3635-B was sold without any purchase price or consideration … but for the purpose of securing a loan in our name … we shall obligate ourselves to resell, reconvey the said Lot … and … the deed of confirmation of sale is only for purposes of convenience in securing the loan and not for absolute conveyance or sale.”

• Heirs of Flores Restar v. Heirs of Dolores R. Cichon, G.R. No. 161720 (2005) — Cited for the rule that the Supreme Court may review factual findings when the appellate court’s inference is manifestly mistaken.

• Valeria v. Refresca, G.R. No. 163687 (2006) — Affirmed the primacy of the parties’ intention in contract interpretation and that simulation exists when the apparent contract is not desired to produce legal effects.

• Heirs of the late Spouses Halite v. Lim, 487 Phil. 281 (2004) — Reiterated the distinction between absolute and relative simulation and their respective legal consequences.

• Heirs of Miguel Franco v. Court of Appeals, 463 Phil. 417 (2003) — Established admissions against interest as the best evidence affording the greatest certainty of facts.

• Paulmitan v. Court of Appeals, G.R. No. 61584 (1992) — Applied to support that payment by one co-owner of a loan on the common property does not vest full ownership but only a right to reimbursement.

• Article 1345, Civil Code — Defines absolute and relative simulation. Applied to classify the sale as absolutely simulated because the parties’ contemporaneous affidavits conclusively showed no intent to be bound.

• Article 1371, Civil Code — Requires that the contemporaneous and subsequent acts of the parties be principally considered in determining contractual intent. The joint affidavits, executed simultaneously with the deeds of confirmation, were the controlling evidence of intent.

• Article 488, Civil Code — Governs the right of a co-owner to contribution for preservation expenses. Applied to limit the respondents’ remedy to reimbursement with a lien rather than ownership, upon the finding that their payment of the PNB loan was a preservation expense.

Carpio Morales, J. (Chairperson), Bersamin, J., Abad, J., and Villarama, Jr., J.