Olegario v. Court of Appeals
REITERATIONFacts
The Antecedents: Spouses Marciliano Olegario and Aurelia Rivera-Olegario owned a 91-square meter lot. They were childless but reared private respondents Manuel Rivera, Paz Olegario, and Socorro Olegario-Teves. After Aurelia's death, Marciliano, to preclude his heirs from inheriting and to avoid taxes, executed a Deed of Absolute Sale of the subject property in favor of the private respondents for P50,000.00. This sale was not registered. After Marciliano's death, petitioners Bonifacio Olegario and Adelaida Victorino, the sole heirs, executed an Extra-judicial Settlement of Estate covering the lot, which was registered, and subsequently obtained a new title in their names. They then sold the lot to Elena Adaon and Nestor Tejon for P200,000.00, who obtained a new title. Private respondents learned of the Extra-judicial Settlement and attempted to register their Deed of Absolute Sale, but were denied due to the property's transfer to Adaon and Tejon. Procedural History: Private respondents filed a Civil Case for Annulment of Extra-judicial Settlement and Damages. Petitioners assailed the Deed of Absolute Sale, while Adaon and Tejon claimed to be buyers in good faith. The trial court ruled in favor of private respondents, declaring the Extra-judicial Settlement and the subsequent sale to Adaon and Tejon null and void, and ordering the Register of Deeds to issue a new title in the names of the private respondents. The trial court also awarded damages and attorney's fees. The Court of Appeals affirmed the decision with modifications, declaring the Extra-judicial Settlement and subsequent sales null and void only with respect to the 3/4 portion pertaining to the private respondents, and ordering new titles to reflect this division. The appellate court also modified the damages and attorney's fees awarded. The Petition: Petitioners seek to reverse the Court of Appeals' decision, arguing that the Court of Appeals gravely abused its discretion by failing to resolve their assignment of error regarding the nullity of the Deed of Absolute Sale due to simulation and violation of the Family Code. They also contend that the appellate court erred in sustaining the unrecorded Deed of Absolute Sale over the registered Extra-judicial Settlement, contrary to Article 1544 of the Civil Code, and in holding that Adaon and Tejon were not buyers in good faith. Finally, they argue that the damages and attorney's fees awarded to private respondents were without basis.
Issue(s)
Whether the Deed of Absolute Sale executed by Marciliano Olegario in favor of private respondents is null and void for being simulated and fictitious, and for having an unlawful motive. Whether the unrecorded Deed of Absolute Sale has efficacy over the registered Extra-judicial Settlement of Estate. Whether Elena Adaon and Nestor Tejon are buyers in good faith and for value. Whether the award of nominal damages and attorney's fees to private respondents is proper.
Ruling
The Supreme Court REVERSED and SET ASIDE the Decision of the Court of Appeals and ordered the Complaint in Civil Case No. C-13973 DISMISSED. The Court declared the Deed of Absolute Sale between Marciliano Olegario and private respondents null and void.
Ratio Decidendi
On the nullity of the Deed of Absolute Sale: The Court found merit in the petition. It held that the primary motive of Marciliano in selling the lot was to illegally frustrate the petitioners' right of inheritance and to avoid payment of estate tax. This unlawful motive, as evidenced by the testimony of Susan Rivera, wife of private respondent Manuel Rivera, predetermined the purpose of the contract, rendering it null and void under Articles 1352 and 1409 of the Civil Code. The Court also noted the lack of proof that private respondents actually paid the P50,000.00 consideration, as their testimonies regarding the payment were inconsistent and evasive. The alleged spending of the money for the treatment of Marciliano, real estate tax, and burial of Aurelia further indicated that the sale was not a genuine transaction. On the efficacy of the unrecorded Deed of Absolute Sale over the registered Extra-judicial Settlement: The Court reiterated that the act of registration is the operative act to convey or affect the land insofar as third persons are concerned, as provided in Section 51 of Presidential Decree No. 1529. Even if the Deed of Absolute Sale were valid, its non-registration would prevent it from adversely affecting third persons, including the petitioners and the subsequent buyers, Elena Adaon and Nestor Tejon. However, since the Deed of Absolute Sale was found to be void from the beginning due to unlawful motive, its non-registration was a secondary reason for its lack of effect against third parties. On whether Elena Adaon and Nestor Tejon are buyers in good faith: The Court did not explicitly rule on whether Adaon and Tejon were buyers in good faith. However, by declaring the Deed of Absolute Sale void and the subsequent Extra-judicial Settlement also void (as it was based on a void sale), the Court effectively nullified the title of Adaon and Tejon. The reasoning that the unregistered sale could not adversely affect third persons implies that Adaon and Tejon, as third persons, should not be prejudiced by the void sale. However, the ultimate ruling dismissing the complaint means that the sale to Adaon and Tejon, which stemmed from the void Extra-judicial Settlement, was also invalidated. On the award of damages and attorney's fees: Since the Court dismissed the complaint filed by the private respondents and declared the Deed of Absolute Sale void, the basis for awarding nominal damages and attorney's fees to the private respondents was removed. Therefore, the award was deemed improper.
Main Doctrine
A contract of sale is void if its primary motive is to illegally frustrate the right of inheritance of heirs and to avoid payment of estate tax, as such unlawful motive predetermines the purpose of the contract. Furthermore, an unregistered deed of sale cannot adversely affect third persons.