Campos v. Pastrana
REITERATIONFacts
The Antecedents: This case concerns a dispute over the ownership of several parcels of land originally registered under Carlito Campos. The respondents, who had a prior judgment against Carlito for unpaid rentals and damages related to a leased fishpond, sought to levy these properties. However, they discovered that Carlito and his wife had transferred the residential lots to their daughter, Rosemarie Campos-Bautista, and the agricultural lots to their son, Jesus Campos, through Deeds of Absolute Sale executed in 1985 and 1988, respectively. The respondents alleged these transfers were simulated transactions intended to defraud creditors. Procedural History: The underlying dispute began with Carlito Campos's refusal to vacate a leased fishpond after his lease expired in 1980, leading to agrarian and possession cases. While these cases were ongoing, Carlito and his wife transferred their registered properties to their children, herein petitioners. When the respondents attempted to levy these properties to satisfy a judgment in the possession case, they filed a third case, Civil Case No. V-7028, seeking to declare the deeds of sale null and void. The Regional Trial Court initially dismissed the respondents' complaint. However, upon appeal, the Court of Appeals reversed the trial court's decision, declaring the sales as absolutely simulated and void ab initio. The appellate court's resolution was subsequently affirmed. The Petition: The petitioners, Jesus Campos and Rosemarie Campos-Bautista, seek a review on certiorari of the Court of Appeals' decision. They argue that the appellate court erred in applying Article 1409 of the Civil Code (void contracts) instead of Article 1381(3) (rescissible contracts in fraud of creditors), and that the cause of action had prescribed. They also contend that the appellate court misapprehended facts by finding the sales to be simulated and antedated, despite the trial court's appreciation of evidence that they were buyers in good faith and for value. The petitioners specifically question the CA's findings regarding the timing of the sales, the consideration paid, and the continued possession of the properties by their parents.
Issue(s)
Whether the Court of Appeals committed an error of law in applying Article 1409 of the Civil Code instead of Article 1381(3), and in speculating that a cause of action for sale in fraud of creditors exists despite non-exhaustion of remedies. Whether the Court of Appeals erred in overlooking that the cause of action had prescribed. Whether the Court of Appeals committed grave abuse of discretion in casting aside evidence that petitioners are buyers in good faith and for value.
Ruling
The petition is denied. The Court affirmed the Court of Appeals' decision declaring the deeds of absolute sale null and void ab initio.
Ratio Decidendi
On the applicability of Article 1409 vs. Article 1381(3) of the Civil Code and exhaustion of remedies: The Court held that the CA correctly applied Article 1409 of the Civil Code. The action was for the declaration of the nullity of simulated contracts, which are void ab initio. Article 1409 pertains to void or inexistent contracts, while Article 1381(3) pertains to rescissible contracts. A void contract cannot be the subject of rescission. The Court also noted that the issue of exhaustion of remedies was not a bar to the action, as the primary issue was the nullity of the simulated sale intended to defraud creditors. The CA's finding that the deeds of sale were simulated and fictitious was supported by substantial evidence, making the application of Article 1409 appropriate. On prescription of the cause of action: The Court ruled that the action for the declaration of the inexistence of the assailed Deeds of Absolute Sale does not prescribe. Under Article 1410 of the Civil Code, an action or defense for the declaration of the inexistence of a contract is imprescriptible. Therefore, the petitioners' contention that the respondents' cause of action was barred by prescription was without legal basis, as the simulated sales were considered void from the beginning. On the alleged misappreciation of facts and petitioners being buyers in good faith: The Court affirmed the CA's findings that the assailed Deeds of Absolute Sale were absolutely simulated and fictitious. Several badges of fraud were identified: (1) the deeds were registered only shortly before the promulgation of the judgment in the possession case, suggesting they were antedated; (2) there was a wide disparity between the stated consideration in the deeds and the actual zonal valuation of the properties; (3) petitioner Rosemarie Campos could not recall the exact area of the lots she purchased; (4) the money judgment in the possession case remained unsatisfied; and (5) the original owners, spouses Campos, continued to be in actual possession of the properties. These circumstances, particularly the continued possession by the vendors and the failure of the vendees to take exclusive possession or collect rent, are clear badges of simulation contrary to the principle of ownership. Consequently, the petitioners could not be considered innocent purchasers for value.
Main Doctrine
Deeds of absolute sale executed to defraud creditors are considered absolutely simulated and fictitious, rendering them void ab initio and imprescriptible. The failure of the transferees to take exclusive possession, the gross disparity between the sale price and zonal valuation, and the continued possession by the vendors are badges of fraud that negate claims of being innocent purchasers for value.