Valerio vs. Refresca

A contract denominated as a sale but lacking monetary consideration, where the true intent of the parties is to transfer ownership out of liberality, is a relatively simulated contract and valid as a donation inter vivos, not an absolutely simulated and void contract.

Narciso Valerio owned a 6.5-hectare agricultural land in Calamba, Laguna, cultivated by his tenants, spouses Alejandro and Vicenta Refresca, since 1963. In 1975, Narciso executed a Deed of Sale apportioning the land among his heirs and granting a 511 sq m lot to Alejandro. Narciso died days later. The heirs and Alejandro subdivided the land and obtained individual titles. After Alejandro's death in 1994, his widow Vicenta succeeded him as tenant, a right recognized by the DAR. Petitioners subsequently demanded that respondents vacate, alleging the 511 sq m transfer was conditioned on the surrender of their tenancy rights.

• Tenancy Relationship: Since 1963, spouses Alejandro and Vicenta Refresca cultivated Narciso Valerio's 6.5-hectare agricultural land as tenants. A leasehold contract was formalized in 1974, allowing Alejandro to continue tilling the land in exchange for fixed rentals.
• The 1975 Deed of Sale: On February 10, 1975, Narciso Valerio executed a Deed of Sale conveying his 6.5-hectare landholding to his heirs and 511 sq m (Lot 428-A) to tenant Alejandro Refresca in recognition of his long service. No monetary consideration was paid by any of the vendees. Narciso died on February 15, 1975.
• Subdivision and Subsequent Acts: On December 13, 1982, the heirs and Alejandro, as co-owners, executed a Deed of Agreement of Subdivision, reiterating the 511 sq m grant to Alejandro. Individual titles were subsequently issued. Nieves Valerio, Narciso's widow, executed a leasehold agreement with the Refrescas for 1984-1985. Alejandro died in 1994; respondent Vicenta succeeded him as tenant, which the DAR recognized in 1995.
• Demand to Vacate: Petitioners demanded that respondents vacate the land, alleging the 511 sq m lot was granted on the condition that respondents surrender their tenancy rights over the entire landholding. Respondents refused, asserting the lot was given out of generosity. Petitioners filed a complaint for annulment of documents of transfer and title.

• Absolute Simulation: Petitioners argued that the 1975 Deed of Sale was absolutely simulated and fictitious, producing no legal effect, because no monetary consideration was involved.
• Voidness and Incapacity to Ratify: Petitioners maintained that as a void contract, the deed could not be ratified by the subsequent execution of a deed of partition among the parties.
• Prescription Error: Petitioners contended that the Court of Appeals erred in declaring that their action had already prescribed.

• Donation and Liberality: Respondents countered that the 511 sq m lot was granted out of the generosity of the Valerio spouses in recognition of Alejandro's long years of cultivation, constituting a contract of pure beneficence where the cause is the liberality of the benefactor.
• Estoppel: Respondents argued that petitioners were estopped from assailing the sale after explicitly recognizing the validity of the transfer by voluntarily partitioning the land as co-owners, which formed the basis for the issuance of separate titles.
• Prescription: Respondents invoked prescription, asserting that the action for breach of contract was filed thirteen years after the alleged breach, well beyond the ten-year prescriptive period.

• Simulation of Contract: Whether the 1975 Deed of Sale is absolutely simulated and void for lack of consideration, or relatively simulated and valid.
• Prescription: Whether petitioners' action for annulment had already prescribed.

• Simulation of Contract: The 1975 Deed of Sale is a relatively simulated contract, valid and binding between the parties. Absolute simulation requires that the parties have no intention to be bound or alter their juridical situation; here, Narciso clearly intended to transfer ownership, as evidenced by the parties taking possession of their respective lots and the subsequent subdivision agreement. The lack of monetary consideration does not render the contract void, as the true cause is the liberality of the grantor (donation inter vivos), not the surrender of tenancy rights. The alleged condition of surrendering tenancy rights is belied by the continued recognition of respondents' tenancy by Narciso's widow and the DAR.
• Prescription: The issue of prescription need not be resolved, the validity of the deed having been upheld.

• Absolute vs. Relative Simulation of Contracts — Absolute simulation occurs when parties do not intend to be bound at all, resulting in a void contract. Relative simulation occurs when parties conceal their true agreement; the contract is valid and binding according to the true intent. The primary consideration in determining the true nature of a contract is the intention of the parties, determined from the express terms and contemporaneous and subsequent acts. Applied: The deed was relatively simulated because the parties intended to transfer ownership; the false cause was the "sale" terminology, while the true agreement was a donation inter vivos.

• "The main characteristic of an absolute simulation is that the apparent contract is not really desired or intended to produce legal effect or in any way alter the juridical situation of the parties."
• "The primary consideration in determining the true nature of a contract is the intention of the parties. If the words of a contract appear to contravene the evident intention of the parties, the latter shall prevail."

• Loyola v. Court of Appeals, G.R. No. 115734, February 23, 2000 — Followed. Cited for the definition and characteristic of absolute simulation.
• Heirs of the late spouses Aurelio and Esperanza Balite v. Lim, G.R. No. 152168, December 10, 2004 — Followed. Cited for the rule that relatively simulated contracts are binding where essential requisites are present and simulation refers only to content or terms.
• Ramos v. Heirs of Honorio Ramos, Sr., G.R. No. 140848, April 25, 2002 — Followed. Cited for the rule that intention is determined from contemporaneous and subsequent acts, and for the badge of absolute simulation (absence of attempt to assert dominion).

• Article 1345, Civil Code — Defines absolute and relative simulation. Applied to classify the Deed of Sale as relatively simulated since the parties intended to be bound by the transfer of ownership, merely concealing the true agreement (donation).

Sandoval-Gutierrez, Corona, Azcuna, Garcia