Spouses Velasquez v. Court Of Appeals
REITERATIONFacts
The Antecedents: Private respondent Filomena Tejero filed an action for annulment of document and damages, alleging she resided in a lot in Quezon City since 1953 and applied to purchase it from the People’s Homesite and Housing Corporation (PHHC). To make final payment and secure title, she obtained a P5,000.00 loan from petitioners Spouses Bartimeo and Caridad Velasquez in May 1967, with P900.00 deducted as advance interest. A deed of mortgage was executed. After full payment to PHHC, Tejero received Transfer Certificate of Title No. 120513, which she delivered to the Velasquez spouses. In August 1967, Tejero obtained another P2,000.00 loan, with P1,260.00 deducted as advance interest, P429.76 for taxes, and P250.00 for attorney's fees. She signed another deed of mortgage for a total indebtedness of P7,000.00, with a three-month repayment period. Tejero admitted making small payments but failing to pay the loan in full. She alleged that at the suggestion of the Velasquez spouses, who claimed influence in securing bank loans, she signed a deed of sale over the lot in their favor. Tejero claimed she received no consideration, as the agreement was for the Velasquez spouses to secure a bank loan, reconvey the lot to her, and for her to assume the bank obligation, with her previous loan and interest deducted from the bank loan proceeds. On January 17, 1970, three documents were executed: a deed of cancellation of the August 18, 1967 mortgage (stating full payment of P7,000.00), a deed of absolute sale of the lot to the Velasquez spouses for P19,000.00, and an "Agreement" for the Velasquez spouses to resell the lot to Tejero upon payment of P19,000.00 within one year (by January 17, 1971), otherwise Tejero would vacate. The projected bank loan did not materialize. The Velasquez spouses registered the lot in their names (TCT No. 155273) and in 1973 sold it to their daughter, Grace Velasquez-Balingit, who registered it under her name and her husband's (TCT No. 19442). This led to the action for annulment of the deed of sale, the sale to Grace Velasquez-Balingit, and TCT No. 19442, plus damages. The Velasquez spouses claimed Tejero sold them the lot due to her inability to pay the mortgage loan and that they agreed to resell it within one year, with Tejero to pay rent if she failed to repurchase. They asserted Tejero failed to repurchase, leading to the sale to their daughter. Procedural History: After protracted proceedings presided over by four judges, the RTC rendered judgment on April 4, 1989, declaring the deed of sale in favor of the Velasquez spouses, TCT No. 155273, and TCT No. 19442 null and void. It ordered the Register of Deeds to issue a new title in favor of Tejero and ordered the defendants to pay attorney's fees and costs. The Velasquez spouses appealed, raising procedural issues: erroneous declaration of default, denial of due process, error in reinstating the case after dismissal, error in deciding without competent evidence, and non-compliance with an order to submit records from a previous judge. The Court of Appeals affirmed the RTC decision, holding that the procedural issues were mooted by the filing of the Answer with counterclaim and that the dismissal order was reinstated in the interest of justice. It found no merit in the contention regarding non-compliance with the order to submit records, stating the trial court found compliance. It also clarified that only a portion of Tejero's testimony was ordered stricken, not her entire testimony, and that the RTC had sufficient evidence. The Petition: Petitioners reiterated the procedural issues before the Supreme Court, arguing the dismissal order became final and subsequent proceedings void. They also contended Tejero's compliance with an order was made after the decision was rendered, and the complete records from a previous judge could not have been presented as they were burned. Private respondent Tejero prayed for affirmance, arguing the deed of sale was void, making the derived title void, and that the RTC decision was based on competent evidence.
Issue(s)
Whether the deed of sale executed by Tejero in favor of the Spouses Velasquez is a valid contract of sale or a simulated contract. Whether the subsequent transfer of title to Grace Velasquez-Balingit is valid. Whether the procedural issues raised by the petitioners warrant the remand of the case or render the proceedings void.
Ruling
The petition is denied for lack of merit. The Supreme Court affirmed the decision of the Court of Appeals, which upheld the Regional Trial Court's ruling declaring the deed of sale and subsequent titles void.
Ratio Decidendi
On the validity of the deed of sale: The Court held that the real nature of a contract is determined by the express terms and the contemporaneous and subsequent acts of the parties. In this case, the evidence supported Tejero's contention that the deed of sale was a sham agreement, not intended to divest her of ownership. The execution of three documents on the same day – a cancellation of mortgage, a deed of sale, and an agreement to resell – strongly indicated a simulated contract. Tejero's claim that the sale was intended to facilitate a loan and secure collateral, with the understanding of reconveyance, was found credible. The Court noted that the Velasquez spouses, being lawyers, would not have executed a cancellation of mortgage if the intent was a genuine sale, as they were the mortgagees. The fact that no loan was obtained and the property was not reconveyed, but instead transferred to their daughter, further supported the claim of fraudulent machination and bad faith. The Court reiterated that a contract without cause produces no effect whatsoever and is void. On the validity of the subsequent transfer of title: Since the deed of sale in favor of the Spouses Velasquez was declared void for being a simulated contract without valid consideration, their subsequent transfer of title to their daughter, Grace Velasquez-Balingit, also conveyed no valid title or right. The Court emphasized that a transferee cannot acquire a better title than that of the transferor. Grace Velasquez-Balingit could not feign ignorance of the irregularities surrounding her parents' title, especially considering the delay in filing an ejectment case and the circumstances surrounding the alleged lease agreement. Therefore, she could not invoke the doctrine favoring an innocent purchaser for value. On the procedural issues: The Court found that the procedural issues raised by the petitioners were correctly dismissed by the appellate court. The filing of an Answer with counterclaim by the Velasquez spouses mooted the arguments regarding their alleged erroneous declaration of default and denial of due process. The reinstatement of the case after dismissal was deemed proper in the interest of justice. Furthermore, the issue of whether Tejero complied with an order to submit records from a previous judge (Judge Tayag) was rendered inconsequential, as Judge Tayag had presided over an ejectment case, not the annulment case, and the Supreme Court's extensive examination of the records confirmed that the main issues could be resolved based on other evidence. The Court concluded that the trial court had sufficient competent evidence upon which its judgment was founded.
Main Doctrine
A contract of sale is considered simulated and void if the parties do not intend to be bound by it, especially when the execution of the deed of sale is merely a means to facilitate a loan and secure collateral, with the understanding of reconveyance, and no actual consideration is received by the seller.