G.R. No. 133148, 17 November 1999


Mary Ruth C. Elizalde was an American national who owned a house and lot situated on a 2,500 square-meter parcel of land in Forbes Park, Makati. On May 22, 1975, she entered into a Deed of Sale over the property in favor of Parex Realty Corporation, for and in consideration of the amount of P625,000.00payable in 25 equal annual installments of P25,000.00 commencing on May 22, 1975 and ending on May 22, 1999. Also on May 22, 1975, Parex executed a Contract of Lease with Elizalde, whereby the same parcel of land was leased to the latter for a term of 25 years for a monthly rental of $2,083.34 orP25,000.08 a year. The rental payments shall be credited to and applied in reduction of the agreed yearly installments of the purchase price of the property. A transfer of title was made in 1975. Despite the transfer of title, she continued to pay the Forbes Park Association dues and garbage fees until her demise in 1990. Likewise, she undertook to pay the realty taxes on the property during the term of the lease. Petitioner, the special administrator of Elizalde’s estate, by letter dated June 13, 1990, demanded from respondents, the individual stockholders and directors of Parex, the reconveyance of the title to the property to the estate of Elizalde or, in the alternative, to assign all shares of Parex to said estate. Respondents ignored the demand. Petitioner brought the action to the court and alleged that the sale of the property was absolutely simulated and fictitious and, therefore, null and void.


Whether or not the sale-lease-back agreement of the parties is void being simulated or fictitious.


Valid. The simulation of a contract may be absolute or relative. The former takes place when the parties do not intend to be bound at all; the latter, when the parties conceal their true agreement. The former is null and void, while the latter is binding to the parties if it does not prejudice a third person and is not intended for any purpose contrary to law, morals, good customs, public order or public policy.

Petitioner cannot correctly claim that there was no consideration for the contracts of sale and lease only because the amount of the annual installments of the purchase price dovetails with the rate of rentals stipulated in the lease contract. Elizalde’s continued occupancy of the premises even after she sold it to Parex constitutes valuable consideration which she received as compensation for the sale. The contract is valid and binding upon the parties.

 * Case digest by Immanuel Y. Granada, LLB-1, Andres Bonifacio Law School, SY 2017-2018