G.R. No. 144576, 28 May 2004, 430 SCRA 210

FACTS:

Eduardo Mendoza was the registered owner of a two hundred square meter parcel of land. Mendoza mortgaged the parcel of land to the Meralco Employees Savings and Loan Association (MESALA) to secure a loan in the amount of P81,700.00. The mortgage was duly annotated on the title. Subsequently, Mendoza executed a Deed of Sale with Assumption of Mortgage over the parcel of land together with all the improvements thereon in favor of petitioners in consideration of ₱50,000.00. However, Mendoza, without the knowledge of petitioners, mortgaged the same property to MESALA to secure a loan in the amount of ₱758,000.00. On even date, the second mortgage was duly annotated on Mendoza’s title.

Mendoza then executed a Deed of Absolute Sale over still the same property in favor of respondents in consideration of ₱50,000.00. The sale was duly annotated on Mendoza’s title. On even date, MESALA issued a Cancellation of Mortgage acknowledging that for sufficient and valuable consideration which it received from Mendoza, it was cancelling and releasing the real estate mortgage over the property. The cancellation was annotated on Mendoza’s title. Respondents caused the cancellation of Mendoza’s title and the issuance of Transfer Certificate Title in their name. Petitioners then filed for the annulment of deed of absolute sale and transfer certificate of title with recovery of possession and damages against Mendoza, his wife Sally Mendoza, and respondents.

In their complaint, petitioners alleged that the spouses Mendoza maliciously sold to respondents the property which was priorly sold to them and that respondents acted in bad faith in acquiring it, the latter having had knowledge of the existence of the Deed of Absolute Sale with Assumption of Mortgage between them (petitioners) and Mendoza. The decision was rendered in favor of the respondent. Hence this petition.

ISSUE:

Whether the Deed of Sale executed by Eduardo Mendoza in favor of Private Respondents was simulated and therefore null and void.

RULING:

No, the sale was not simulated and was therefore valid.

Simulation occurs when an apparent contract is a declaration of a fictitious will, deliberately made by agreement of the parties, in order to produce, for the purpose of deception, the appearance of a juridical act which does not exist or is different from that which was really executed. Its requisites are: a) an outward declaration of will different from the will of the parties; b) the false appearance must have been intended by mutual agreement; and c) the purpose is to deceive third persons The basic characteristic then of a simulated contract is that it is not really desired or intended to produce legal effects or does not in any way alter the juridical situation of the parties.

The cancellation of Mendoza’s certificate of title over the property and the procurement of one in its stead in the name of respondents, which acts were directed towards the fulfillment of the purpose of the contract, unmistakably show the parties’ intention to give effect to their agreement. Further, Article 1544 of the Civil Code provides that: “……Should it be immovable property, the ownership shall belong to the person acquiring it who in good faith first recorded it in the Registry of Property….” Thus, the court gives preferential rights to respondents who had the sale registered in their favor.

It is a well-established principle that a person dealing with registered land may safely rely on the correctness of the certificate of title issued therefor and the law will in no way oblige him to go behind the certificate to determine the condition of the property. He is charged with notice only of such burdens and claims as are annotated on the title. He is considered in law as an innocent purchaser for value or one who buys the property of another without notice that some other person has a right to or interest in such property and pays a full and fair price for the same at the time of such purchase or before he has notice of the claim of another person.

Therefore, the claim of simulation does not thus lie. Respondents did indeed purchase the property in good faith and accordingly acquired valid and indefeasible title thereto.

*Case Digest by Doreena Pauline V. Aranal, JD – 4, Andres Bonifacio College, SY 2019 – 2020