Villaceran v. De Guzman
REITERATIONFacts
The Antecedents: Josephine De Guzman (De Guzman) alleged that she mortgaged her property to PNB. She executed a Special Power of Attorney in favor of Milagros Villaceran (Villaceran) to secure a bigger loan. De Guzman then executed a simulated Deed of Absolute Sale in favor of the spouses Villaceran on June 19, 1996, to allow them to obtain a bigger loan. The spouses Villaceran registered the deed and obtained a new title. They then mortgaged the property to FEBTC for ₱1,485,000.00. De Guzman later learned of the loan and demanded the proceeds less the amount advanced by the spouses Villaceran to pay the PNB loan. The spouses Villaceran refused, claiming ownership and offering to reconvey upon payment of ₱721,891.67. De Guzman offered ₱350,000.00 for reconveyance, and the spouses Villaceran executed a Deed of Absolute Sale dated September 6, 1996. However, the spouses Villaceran failed to pay their mortgage debt with FEBTC, leading to extrajudicial foreclosure and a Sheriff's Certificate of Sale in favor of FEBTC. Procedural History: De Guzman filed a complaint for declaration of nullity of sale, reconveyance, redemption, damages, annulment of foreclosure, and Sheriff's Certificate of Sale. The RTC ruled that the June 19, 1996 Deed of Sale was valid and binding, albeit relatively simulated, with the true consideration being the ₱300,000.00 given to De Guzman plus ₱721,891.67 paid to PNB. The RTC ordered the spouses Villaceran to return ₱350,000.00 and ₱763,108.33 (net proceeds of the FEBTC loan), declaring the foreclosure and certificate of sale valid. The CA affirmed with modification, ruling that the deeds of sale were not reflective of the true intention and were executed for loan accommodation. It ordered the spouses Villaceran to pay the difference between the FEBTC loan and the PNB loan payment, plus legal interest, deleting the ₱350,000.00 reconveyance amount and attorney's fees. The Petition: The spouses Villaceran filed a petition for review on certiorari, arguing that the CA erred in declaring the June 19, 1996 Deed of Sale as simulated and in ordering them to pay the difference of the loan proceeds.
Issue(s)
Whether the Deed of Sale dated June 19, 1996, is a simulated contract. Whether the spouses Villaceran should be ordered to pay De Guzman the difference between the FEBTC loan and the amount used to pay the PNB loan, plus legal interest.
Ruling
The petition is denied. The Decision of the Court of Appeals dated November 26, 2004, and its Resolution dated June 29, 2005, are affirmed. The Deed of Sale dated June 19, 1996, is declared a simulated contract. The spouses Villaceran are ordered to pay De Guzman the difference between the FEBTC loan of ₱1,485,000.00 and the ₱721,891.67 used to pay the PNB loan, plus legal interest.
Ratio Decidendi
On the issue of the simulated contract: The Court affirmed the CA's ruling that the Deed of Sale dated June 19, 1996, was a relatively simulated contract. The Court reiterated that simulation occurs when parties conceal their true agreement. In relative simulation, the parties conceal their true agreement, and they are bound by their real agreement. The primary consideration in determining the true nature of a contract is the intention of the parties, which can be gleaned not only from the express terms but also from their contemporaneous and subsequent acts. Both the RTC and CA found that the deed was executed to enable the spouses Villaceran to use the property as collateral for a bigger loan, acting as an accommodation for De Guzman. The CA found it inconceivable for De Guzman to sell the property for ₱75,000.00 when it was mortgaged for ₱1,485,000.00. Furthermore, the subsequent reconveyance of the property to De Guzman for ₱350,000.00 further indicated the lack of genuine intent to sell. The petitioners' assertion that previous loans should be considered to prove a valid sale was rejected due to the lack of evidence, such as promissory notes or receipts, to substantiate these alleged loans. On the issue of payment of loan proceeds: The Court upheld the CA's modification of the RTC's award. The CA correctly reasoned that the spouses Villaceran, having paid ₱721,891.67 to redeem the PNB loan and subsequently mortgaging the property with FEBTC for ₱1,485,000.00, should account for the difference. The CA found it logical that the spouses Villaceran should deduct the amount they paid to PNB from the FEBTC loan proceeds before remitting the balance to De Guzman. The CA's deletion of the ₱350,000.00 reconveyance amount was also justified as there was no evidence that De Guzman actually paid this sum. The deletion of attorney's fees was also affirmed for lack of legal basis.
Main Doctrine
A contract is relatively simulated when the parties conceal their true agreement, and in such cases, they are bound by their real agreement. The primary consideration in determining the true nature of a contract is the intention of the parties, which can be determined from their express terms as well as their contemporaneous and subsequent acts.