MAXRIO LOUEL ROLLINAS SIMBAJON December 09, 2016

Obligations and Contracts (LAW 111-B) ATTY. SILVIA JO G. SABIO

ASSIGNED CASES DIGEST IN OBLIGATIONS AND CONTRACTS

CASE NO. 349
FRANCISCO A. TONGOY ET.AL. VS. COURT OF APPEALS ET.AL.
123 SCRA 99
JUNE 28, 1983; PONENTE: JUSTICE MAKASIAR

Topic: Void or Inexistent Contracts (Art. 1409-1422)

Facts of the Case

This is a case anchored on action for reconveyance of titled land from a simulated
contract of conveyance.
Hacienda Pulo were owned by five co-owners who had succeeded it from their
late father, three of whom died without issues, Jose, Ana, and Teresa while the other two,
Francisco (have six children from two wives) and Jovita (have four children) have their
own.
In 1918, the hacienda was mortgaged by the registered co-owners above
mentioned to Phil. Natl Bank (PNB) for a loan payable in ten years. In 1935 after having
been in default of the loan, the Hacienda was judicially declared by the Supreme Court
for foreclosure in favor of the PNB. Consequently, the co-owners had agreed in a meeting
that to avoid actual seceding from them the hacienda by PNB at their disadvantage, made
a simulated transfer of their rights as co-owners to the newly lawyer Luis Tongoy
(legitimate son of Francisco, one of the co-owners), of which was favored by PNB.
Thereafter, Luis Tongoy in twenty years was able to pay off all the obligations
with PNB. In 1958, PNB officially released the hacienda from the mortgage. In February
1966, Luis died leaving as his heirs, his son Francisco and his wife.
However, in a month before Luis death, Jesus Tongoy Sonora (son of Jovita)
demanded from him the return of the shares to all co-owners. Therefore, not long after
Luis death the heirs of Jovita (the Sonoras) and Luis brothers and illegitimate siblings
filed complaints against his son Francisco, as administrator of the estate of Luis, and his
wife pertaining to the interests of the shares and its interests in Hacienda Pulo.
Issue
Is the simulated act of assignment (transfer) of rights of co-ownership made by
the co-owners in favor of Luis Tongoy, can be considered as binding between the parties?
Court Ruling
No. The deeds of transfer executed in favor of Luis Tongoy, were from the
beginning is absolutely simulated or fictitious, since the same were made merely for
purpose of restructuring mortgage over the subject properties and thus preventing
foreclosure by the PNB.
The law and jurisprudence on simulated or fictitious contracts for reconveyance
instituted by respondents is anchored on the said simulated deeds of transfer cannot and
should not be barred by prescription. No amount of time could accord validity or efficacy
to such fictitious transactions, the defect of which is permanent.
There is no implied trust that was generated by the simulated transfers because
being fictitious or simulated, the transfers were null and void ab initio from the very
beginning and thus vested no rights whatsoever in favor of Luis Tongoy or his heirs. That
which is inexistent cannot give life to anything at all.

Ratio Decidendi
Contracts that are inexistent and void from the beginning include those which are
absolutely simulated or fictitious. These contracts cannot be ratified. Neither can the right
to set up the defense of illegality be waived (Article 1409, New Civil Code). In addition,
the action or defense for the declaration of the inexistence of a contract does not prescribe
(Art. 1410, same code).
The characteristic of simulation is the fact that the apparent contract is not really
desired nor intended to produce legal effects, nor in any way alter the juridical situation
of the parties. Thus, where a person, in order to place his property beyond the reach of his
creditors, simulates a transfer of it to another, he does not really intend to divest himself
of his title and control of the property; hence, the deed of transfer is but a sham
(Rodriguez vs. Rodriguez, No. L-23002, July 31, 1967, 20 SCRA 908).
The most fundamental characteristics of void or inexistent contracts are as a
general rule, 1) they produce no legal effects whatsoever (quod nullum est nullum
producit effectum); 2) they are not susceptible of ratification; 3) the right to set up the
defense of inexistence or absolute nullity cannot be waived or renounced; 4) the action or
defense for the declaration of their inexistence or absolute nullity is imprescriptible; 5)
the inexistence or absolute nullity of a contract cannot be invoked by a person whose
interests are not directly affected (p. 444, Comments and Jurisprudence on Obligations
and Contracts, Jurado, 1969 Ed.).