Victoria vs. Pidlaoan

A deed of donation executed to avoid tax liabilities is relatively simulated when the parties' contemporaneous and subsequent acts demonstrate an intent to effect an absolute sale, and the parties are bound by their real agreement as disclosed by their conduct and admissions, notwithstanding the presumption of regularity attaching to notarized documents.

Elma Pidlaoan purchased a 201-square-meter lot in Lucena City in 1984, registered solely in her name under Transfer Certificate of Title (TCT) No. T-50282. Her partner, Rosario Victoria, constructed a house on the lot but subsequently left for Saudi Arabia. In 1989, Elma mortgaged the property to secure a loan. When foreclosure loomed, Elma sought financial assistance from her sister-in-law, Eufemia Pidlaoan, who arranged for her daughter, Normita Jacob Pidlaoan, to lend Elma the redemption amount. Unable to repay the loan, Elma offered to sell the property to Normita. The parties initially executed an unnotarized deed of sale, but upon a notary public's advice to avoid capital gains tax, they executed a deed of donation the following day, which was notarized and used to transfer title to Normita's name.

• The Property and Initial Ownership: In 1984, Elma Pidlaoan purchased a 201-square-meter parcel of land in Lucena City from previous owners. Transfer Certificate of Title (TCT) No. T-50282 was issued solely in Elma's name. Her partner, Rosario Victoria, caused the construction of a house on the lot but subsequently left for Saudi Arabia.

• The Mortgage and Impending Foreclosure: In 1989, Elma mortgaged the house and lot to Thi Hong Villanueva. When the property was about to be foreclosed, Elma sought assistance from her sister-in-law, Eufemia Pidlaoan, who arranged for her daughter, Normita Jacob Pidlaoan (then abroad), to lend Elma the funds necessary to redeem the property.

• The Unnotarized Deed of Sale: Elma initially sought to sell the land to third parties but failed. She then offered to sell it to Eufemia or Normita. On March 21, 1993, Elma executed a document entitled "Panananto ng Pagkatanggap ng Kahustuhang Bayad" (Deed of Sale) transferring ownership of the lot to Normita for consideration. The document contained a provision wherein Elma undertook to eject the person who erected the house on the lot and deliver the property to Normita. The document was signed by Elma, Normita, and two witnesses but was not notarized.

• The Simulated Deed of Donation: When Elma and Normita proceeded to have the deed of sale notarized, the notary public advised them to execute a deed of donation instead to avoid capital gains tax. The following day, Elma executed a deed of donation in Normita's favor, which was duly notarized. TCT No. T-50282 was cancelled and TCT No. T-70990 was issued in Normita's name. Normita subsequently paid the real property taxes on the lot, though Elma continued to occupy the house.

• The Complaint and Admissions: Upon learning of the transaction, Rosario (who had returned from Saudi Arabia) and Elma filed a complaint in 1997 seeking reformation of contract, cancellation of TCT No. T-70990, and damages. In their answer, the respondents admitted that the deed of donation was simulated and that the original transaction was intended to be a sale.

• Co-ownership: Petitioners maintained that Rosario co-owned the lot because both she and Elma contributed money to purchase it, and because Rosario constructed the house thereon, which had a higher market value than the land itself.

• Simulation: Petitioners argued that the deed of donation was simulated, having been executed solely upon the notary public's advice to avoid capital gains tax, and that the respondents admitted this simulation in their answer.

• Equitable Mortgage: Petitioners contended that the transaction constituted an equitable mortgage rather than a sale, citing the following circumstances: the consideration was grossly inadequate; they remained in possession of the property; they continuously paid water and electric bills; the respondents allowed Rosario to repay the "loan" within three months; and the petitioners paid taxes even after the sale.

• Factual Findings: Petitioners argued that the CA unduly disturbed the RTC's factual findings, particularly regarding co-ownership and the nature of the transaction.

• Nature of Transaction: Respondents countered that the CA correctly dismissed the complaint, insisting that the transaction was a valid sale, not an equitable mortgage. They emphasized that the petitioners themselves argued the deed of donation was simulated, but the CA correctly ruled that it was valid—a ruling they sought to uphold.

• Jurisdictional Limitation: Respondents argued that the petition involved questions of fact and law outside the province of the Supreme Court in a Rule 45 petition, which should be limited to questions of law.

• Co-ownership: Whether Rosario Victoria is a co-owner of the lot with Elma Pidlaoan by virtue of her financial contributions and construction of the house thereon.

• Simulation: Whether the deed of donation executed by Elma in favor of Normita was simulated.

• True Nature of Transaction: Whether the transaction between Elma and Normita was a sale, a donation, or an equitable mortgage.

• Co-ownership: Rosario is not a co-owner of the lot. Mere construction of a house on another's land does not create co-ownership. Under Article 484 of the Civil Code, co-ownership requires ownership of an undivided thing belonging to different persons; a house and lot are separately identifiable properties that can pertain to different owners. The fact that TCT No. T-50282 was issued solely in Elma's name, coupled with the lack of proof of Rosario's contributions to the purchase price, militates against the claim of co-ownership. Rosario's remedy is limited to that provided under Article 448 of the Civil Code for a builder in good faith.

• Simulation: The deed of donation was relatively simulated. The true nature of a contract is determined by the parties' intention, ascertained from their contemporaneous and subsequent acts. Elma and Normita initially executed a deed of sale and only disguised it as a donation upon the notary's advice to avoid taxes. The respondents' judicial admission in their answer that the deed of donation was simulated conclusively established its simulated nature, overriding the presumption of regularity attaching to notarized documents.

• True Nature of Transaction: The parties' real agreement was a contract of absolute sale, not an equitable mortgage. For Articles 1602 and 1604 of the Civil Code to apply (equitable mortgage), two requisites must concur: (1) the parties entered into a contract denominated as a sale; and (2) their intention was to secure an existing debt by way of mortgage. The unnotarized "Panananto ng Pagkatanggap ng Kahustuhang Bayad" shows an unconditional sale with no intention to secure a debt or grant a right to repurchase. None of the circumstances in Article 1602 were present: the price was not grossly inadequate (₱30,000.00 compared to market value of ₱32,160.00); the petitioners' continued occupation was coupled with demands to vacate; no document was executed for repurchase; and the respondents paid the real property taxes. The contract contained Elma's undertaking to remove Rosario's house, demonstrating an intent to transfer full ownership.

• Relative Simulation of Contracts — Under Article 1345 of the Civil Code, a contract is relatively simulated when the parties conceal their true agreement under the guise of another contract. The parties are bound by their real agreement as disclosed by their contemporaneous and subsequent acts, notwithstanding the form of the document executed. In this case, the Court applied this doctrine to hold that a deed of donation executed to avoid capital gains tax, but which the parties treated as a sale, was merely a relatively simulated contract binding them to the underlying sale.

• Equitable Mortgage Requisites — Articles 1602 and 1604 of the Civil Code establish that for a contract denominated as a sale to be presumed an equitable mortgage, two requisites must concur: (1) the parties entered into a contract denominated as a contract of sale; and (2) their intention was to secure an existing debt by way of mortgage. The mere existence of a loan relationship does not automatically convert a sale into an equitable mortgage; the parties must have intended the property to serve as security for the debt.

• Builder in Good Faith (Article 448) — A person who builds on another's land in good faith (believing himself to be the owner) does not acquire ownership of the land or create a co-ownership. The landowner has the option to: (a) appropriate the works after paying indemnity; or (b) oblige the builder to pay the price of the land. The law does not force the parties into co-ownership.

• Judicial Admissions — Judicial admissions made by a party in the course of proceedings are conclusive and do not require proof under Rule 129, Section 4 of the Rules of Court and Article 1431 of the Civil Code. Such admissions override the presumption of regularity attaching to public documents.

• "One who deals with property registered under the Torrens system has a right to rely on what appears on the face of the certificate of title and need not inquire further as to the property's ownership."

• "Mere construction of a house on another's land does not create a co-ownership. Article 484 of the Civil Code provides that co-ownership exists when the ownership of an undivided thing or right belongs to different persons. Verily, a house and a lot are separately identifiable properties and can pertain to different owners."

• "The true nature of a contract is determined by the parties' intention, which can be ascertained from their contemporaneous and subsequent acts."

• "Judicial admissions made by a party in the course of the proceedings are conclusive and do not require proof."

• "The presumption of regularity [of notarized documents] is overthrown in this case by the respondents' own admission in their answer that the deed of donation was simulated."

• Velario v. Refresco, G.R. No. 163687, March 28, 2006 — Cited for the principle that the true nature of a contract is determined by the parties' intention, ascertainable from their contemporaneous and subsequent acts.

• Heirs of Spouses Balite v. Lim, G.R. No. 152168, December 10, 2004 and San Pedro v. Lee, G.R. No. 156522, May 28, 2004 — Cited for the requisites of equitable mortgage under Articles 1602 and 1604 of the Civil Code.

• Spouses Aquino v. Spouses Aguilar, G.R. No. 182754, June 29, 2015 — Cited for the definition of a builder in good faith under Article 448 of the Civil Code.

• Josefa v. Manila Electric Company, G.R. No. 182705, July 18, 2014 — Cited for the rule that judicial admissions are conclusive and do not require proof.

• Article 484, Civil Code of the Philippines — Defines co-ownership as existing when ownership of an undivided thing or right belongs to different persons. Applied to reject the claim that construction of a house on another's land creates co-ownership.

• Article 448, Civil Code of the Philippines — Provides the rights of a landowner and a builder in good faith. Applied to hold that Rosario's construction of the house did not create co-ownership but gave her the remedies provided therein.

• Articles 1345 and 1346, Civil Code of the Philippines — Define absolute and relative simulation of contracts. Article 1345 provides that simulation exists when the parties do not intend to be bound by the contract (absolute) or when they conceal their true agreement (relative). Article 1346 provides that parties are bound by their real agreement in case of relative simulation.

• Articles 1602 and 1604, Civil Code of the Philippines — Provide for the presumption of equitable mortgage when specific circumstances attend a contract of sale. Applied to determine that the transaction was not an equitable mortgage because the requisite intent to secure a debt was absent.

• Rule 129, Section 4, Rules of Court — Provides that judicial admissions are conclusive and do not require proof. Applied to give effect to the respondents' admission that the deed of donation was simulated.

• Article 1431, Civil Code of the Philippines — Establishes that judicial admissions are conclusive upon the party making them.

Carpio (Chairperson), Del Castillo, Mendoza, and Leonen, JJ.