Tayco vs. Heirs of Tayco-Flores

A notarized deed of extrajudicial settlement may be declared simulated and void when the true intent of the parties was merely to use the property as loan collateral and not to transfer ownership, especially when the consideration is grossly disproportionate to the property's value.

Spouses Fortunato Tayco and Diega Regalado died, leaving three parcels of land in Aklan to their children: Francisco Tayco, Concepcion Tayco-Flores, and Consolacion Tayco. In September 1972, Francisco and Consolacion executed a "Deed of Extrajudicial Settlement of the Estate of the Deceased Diega Regalado with Confirmation of Sale of Shares," transferring their shares to Concepcion. On March 16, 1991, Concepcion and Consolacion executed a "Confirmation of Quitclaim of Shares in Three (3) Parcels of Land." Francisco claimed the 1972 deed was executed solely to allow Concepcion to mortgage the property as collateral for her son's wedding; because the loan never materialized due to the declaration of Martial Law, Concepcion assured him the document had no effect. Francisco alleged he discovered the transfer of titles only when he tried to survey the property for partition and Concepcion's heirs objected.

• Inheritance: Spouses Fortunato Tayco and Diega Regalado died, survived by children Francisco, Concepcion, and Consolacion, who inherited three parcels of land in Aklan.
• Execution of the Deed: In September 1972, Francisco and Consolacion executed a "Deed of Extrajudicial Settlement of the Estate of the Deceased Diega Regalado with Confirmation of Sale of Shares," transferring their shares to Concepcion. The document was notarized in Lezo, Aklan, approximately ten kilometers from the parties' residence in Kalibo.
• Alleged Purpose: Francisco claimed the deed was a simulation to allow Concepcion to use the properties as collateral for a loan for her son's marriage, as banks prefer titles to be in the mortgagor's name. The loan did not materialize due to the declaration of Martial Law.
• Execution of the Quitclaim: On March 16, 1991, Concepcion and Consolacion executed a "Confirmation of Quitclaim of Shares in Three (3) Parcels of Land" without Francisco's participation, leading to the transfer of tax declarations and titles to Concepcion.
• Discovery: Francisco discovered the transfers when he commissioned a survey of the property for partition and Concepcion's heirs objected.

• Simulated Contract: Petitioner maintained that the Deed of Extrajudicial Settlement was simulated, executed merely to accommodate Concepcion's need for loan collateral, and had no effect once the loan failed.
• Lack of Consideration: Petitioner argued that the consideration of ₱50.00 for a 1/3 share of approximately 16,000 square meters was grossly disproportionate to the market value, indicating no real intent to sell.
• Invalidity of Quitclaim: Petitioner contended that the Confirmation of Quitclaim was void because it was executed without his knowledge or consent, and its validity depended entirely on the first document.

• Validity of Notarized Document: Respondent countered that the genuineness and due execution of the Extrajudicial Settlement were undisputed, duly signed by the parties, and notarized, making it a public document binding on the parties.
• Proper Form of Mortgage: Respondent argued that if the intent was merely to mortgage the property, a Special Power of Attorney would have sufficed rather than an absolute transfer of title.

• Validity of Extrajudicial Settlement: Whether a notarized Deed of Extrajudicial Settlement with Confirmation of Sale of Shares can be declared null and void based on the alleged simulated intent of the parties and lack of consideration.
• Factual Findings of Trial Court: Whether the Court of Appeals erred in disregarding the trial court's factual findings regarding the simulation of the document.

• Validity of Extrajudicial Settlement: The deed was declared simulated and void. The true intent of the parties prevails over the literal meaning of the contract's stipulations if the contract appears contrary to their evident intentions. The grossly disproportionate consideration (₱50.00 for a 1/3 share of 16,000 sq. m.) and the unrebutted testimony that the transfer was for loan collateral proved the simulation. The denomination given by the parties to their contract is not conclusive of the nature of its contents.
• Factual Findings of Trial Court: The Court of Appeals erred in disregarding the trial court's factual findings. While the Supreme Court generally does not review factual issues in a petition for review on certiorari, an exception applies when the Court of Appeals' findings are contrary to those of the trial court. The trial court's findings on the lack of publication, the incredibility of the execution venue, and the true intent of the parties were supported by evidence and entitled to great weight, as the trial court is in a better position to examine the demeanor of the witnesses.

• Intent of the Parties in Contracts — If the terms of a contract are clear, the literal meaning of its stipulations shall control, but if the contract appears to be contrary to the evident intentions of the parties, the latter shall prevail over the former. The denomination given by the parties in their contract is not conclusive of the nature of the contents.
• Exceptions to the Rule on Questions of Fact in Rule 45 — The Supreme Court may review factual issues in a petition for review on certiorari when the findings of the Court of Appeals are contrary to those of the trial court.
• Trial Court Factual Findings — The findings of fact of the trial court are entitled to great weight on appeal and should not be disturbed because the trial court is in a better position to examine the demeanor of the witnesses while testifying.

• "If the contract appears to be contrary to the evident intentions of the parties, the latter shall prevail over the former."
• "The denomination given by the parties in their contract is not conclusive of the nature of the contents."
• "The consideration of ₱50.00 for a 1/3 share of about 16,000 sq. meters real property in Kalibo, Aklan even way back in 1972 is definitely way below the market value... It would appear, therefore, that Exhibit A is merely a simulated document to make it appear that Concepcion Tayco-Flores is the owner of the properties so that it will be easy for her to use the same as collateral for a prospective loan."

• Valdez v. Court of Appeals, 482 Phil. 250 (2004) — Followed for the principle that the intention of the parties is primordial in the interpretation of a contract, and if the contract is contrary to their evident intention, the latter prevails.
• Heirs of Joaquin Teves v. Court of Appeals, 375 Phil. 96 (1999) — Cited for the general doctrine that the law does not relieve a party from the effects of a contract entered into with full awareness, which was distinguished here by the finding of simulation.
• Arangote v. Maglunob, G.R. No. 178906 (2009) — Followed for the hornbook doctrine that trial court factual findings are entitled to great weight on appeal.

• Section 1, Rule 74 of the Rules of Court — Governs extrajudicial settlement by agreement among heirs, requiring publication in a newspaper of general circulation to bind non-participating parties. Applied to note the lack of proof of publication of the settlement.
• Article 1082 of the Civil Code — Defines partition as every act intended to put an end to indivision among co-heirs, regardless of the form the transaction takes. Applied to show that a co-owner's sale of an inchoate right expresses an intention to end indivision, though here the intent was simulated.
• Section 1, Rule 45 of the Rules of Court — Limits appeals by certiorari to the Supreme Court to questions of law, subject to recognized exceptions (e.g., when CA findings contradict trial court findings).
• Article 1370 of the Civil Code — Provides that if the terms of a contract are clear, the literal meaning controls, but intent prevails if the contract is contrary to it.

Antonio T. Carpio, Antonio Eduardo B. Nachura, Roberto A. Abad, Jose Catral Mendoza