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Simulation of Contract Defined

Simulation of a contract is the process of intentionally deceiving others by creating the appearance of a contract that either does not exist or is different from the parties' true agreement. It is a deliberate act intended to mislead third persons by fabricating a juridical act.

Kinds of Simulated Contracts

There are two kinds of simulated contracts based on the parties' intent:

1. Absolutely Simulated Contracts: The parties do not intend to be bound by the contract at all. The apparent contract is fictitious.
2. Relatively Simulated Contracts: The parties conceal their true agreement behind the facade of another contract.

Effects of Simulation

• Absolutely Simulated Contracts: These contracts are void. They produce no legal effect.
• Relatively Simulated Contracts: The parties are bound by their true agreement. This hidden agreement is binding if it does not prejudice a third person and is not contrary to law, morals, good customs, public order, or public policy.

Requisites for Simulation

The requisites for simulation are:

• An outward declaration of a will that differs from the true intention of the parties.
• The false appearance is intended through mutual agreement.
• The purpose is to deceive third persons.