Yu Bun Guan vs. Ong

A simulated deed of sale is void and produces no legal effect, and the in pari delicto principle does not apply to such inexistent contracts.

Elvira Ong and Yu Bun Guan, married in 1961, acquired a parcel of land in 1968 registered solely in Ong's name. In 1992, prior to their separation, Ong executed a Deed of Absolute Sale transferring the property to Yu based on his promise to construct a commercial building for their children and pay a bank loan. The stated consideration of P200,000 was never paid by Yu, and Ong even paid the capital gains tax. Yu subsequently obtained a replacement owner's copy of the title after falsely claiming it was lost, prompting Ong to file an action for nullification of the sale.

• Acquisition of the Property: Respondent Elvira Ong purchased the JP Rizal property on March 20, 1968, using her personal funds, and the title (TCT No. 217614) was issued in her name. Petitioner Yu Bun Guan claimed he purchased the property using his own funds and merely used respondent as a dummy because he was still a Chinese national at the time.
• The Simulated Sale: Before their separation in 1992, petitioner importuned respondent to execute a Deed of Absolute Sale in his favor, promising to construct a commercial building for their children and pay his loan from Allied Bank. The deed stated a P200,000 consideration, which was never paid; respondent even paid the capital gains tax and other assessments. A new title (TCT No. 181033) was issued to petitioner, but respondent retained the owner's duplicate copy.
• Petition for Replacement: Petitioner filed a petition for replacement of the owner's duplicate title in 1993, submitting an Affidavit of Loss falsely claiming the copy was lost. A new owner's copy was issued to him. Upon discovering the fraud, respondent executed an Affidavit of Adverse Claim and filed the action for nullification.

• Nature of Property: Petitioner argued that the property should be deemed co-owned under Article 144 of the Civil Code, considering respondent testified that the funds used to purchase it came from her income and savings during the marriage, which are conjugal in nature.
• Validity of Sale: Petitioner maintained that a valid sale existed between the parties, with the consideration consisting of his promise to construct a commercial building for their children and to pay his Allied Bank loan.
• In Pari Delicto: Petitioner contended that respondent was in pari delicto for being a privy to the simulated sale, and thus barred from seeking relief.
• Cancellation of Title: Petitioner argued that the title could not be cancelled in the absence of actual fraud.

• Nature of Property: Respondent countered that the findings of the lower courts—that the property was acquired using her paraphernal funds—are binding and supported by evidence. She further argued that petitioner's defenses were contradictory, as he could not claim sole ownership if the property were indeed co-owned.

• Nature of Property: Whether the JP Rizal property is co-owned under Article 144 of the Civil Code.
• Validity of Sale: Whether the deed of sale was fictitious, simulated, and inexistent.
• In Pari Delicto: Whether the in pari delicto rule applies to the simulated sale.
• Cancellation of Title: Whether the transfer certificate of title can be cancelled absent actual fraud.

• Nature of Property: The property was correctly declared paraphernal. Factual findings of the trial court, affirmed by the Court of Appeals, are binding and conclusive on the Supreme Court. Petitioner's testimony regarding the source of his funds was vague and contradictory, while respondent's financial capacity was sufficiently established. The claim that respondent was a dummy was belied by the timeline of the property registration, which occurred before the alleged legal advice to use her name.
• Validity of Sale: The sale was completely simulated and void. No portion of the P200,000 consideration was ever paid, and neither party intended to pay it. The agreement to build a commercial building was a mere subterfuge and cannot be considered valid consideration.
• In Pari Delicto: The in pari delicto principle is inapplicable to inexistent and void contracts. It applies only when nullity arises from the illegality of the consideration or purpose, not when the contract is simulated or lacks consideration.
• Cancellation of Title: The cancellation of TCT No. 181033 was proper because the deed of sale was completely simulated and void, leaving no legal basis for the certificate's issuance.

• In Pari Delicto — The principle that denies recovery to guilty parties inter se when the nullity arises from the illegality of the consideration or purpose of the contract. The exception is when the principle is invoked with respect to inexistent or simulated contracts, where the in pari delicto rule does not apply.
• Simulated Contracts — A deed of sale stating a consideration that was never paid is null and void ab initio and produces no effect whatsoever. The lack of consideration renders the contract inexistent.

• "A simulated deed of sale has no legal effect, and the transfer certificate of title issued in consequence thereof should be cancelled. Pari delicto does not apply to simulated sales."
• "The principle of in pari delicto non oritur actio denies all recovery to the guilty parties inter se. It applies to cases where the nullity arises from the illegality of the consideration or the purpose of the contract. When two persons are equally at fault, the law does not relieve them. The exception to this general rule is when the principle is invoked with respect to inexistent contracts."

• Rongavilla v. Court of Appeals, 294 SCRA 289 — Followed. A deed of sale with a consideration that was never paid is null and void ab initio.
• Modina v. Court of Appeals, 317 SCRA 696 — Followed. Established the exception that in pari delicto does not apply to inexistent contracts.
• Ocejo, Perez & Co. v. Flores, 40 Phil. 921 — Cited with approval in Rongavilla. A contract of purchase and sale is null and void where the purchase price was never paid.
• Mars Construction Enterprises, Inc. v. Philippine National Construction Corporation, 325 SCRA 624 — Followed. Factual findings of the trial court, when affirmed by the Court of Appeals, are binding and conclusive on the Supreme Court.

• Articles 1411 and 1412, Civil Code — Govern the in pari delicto principle. Held inapplicable because the contract was inexistent/simulated, not merely illegal in cause or object.
• Article 144, Civil Code — Governs co-ownership. Petitioner invoked it to claim the property was co-owned, but the claim was rejected based on factual findings that the funds were paraphernal.
• Rule 45, Rules of Court — Governed the petition for review filed before the Supreme Court.

Melo, and Sandoval-Gutierrez, JJ. (Vitug, J. on official leave).