The effects of an absolutely simulated contract

First of two parts

“There is nothing more likely to start disagreement among people or countries than an agreement,” said American writer E.B. White.

In this regard, nothing could be more true than when the parties do not intend to be bound by their agreement, as seen in Candelario S. Dela Cruz, et al. v. Alejandro Dumasig and Rosalinda Epe, which the Supreme Court recently decided on.

In this case, Eniego and Silvestra Dela Cruz (spouses Dela Cruz) were the registered owners of agricultural land, through an emancipation patent. They obtained a loan and secured it with their properties, including the said land, with the local bank. But they were unable to pay this loan, which constrained the bank to foreclose the mortgage.

Fearing that they would lose their properties, spouses Dela Cruz sought the help of their daughter, respondent Rosalinda Epe, in redeeming them and paying the loan. They offered that, for Rosalinda’s help, she would receive these properties as her share in the inheritance.

Rosalinda agreed to pay the loan, after which the bank returned the titles to the redeemed properties. In turn, spouses Dela Cruz gave Rosalinda these titles and executed with her a deed of sale with assumption of mortgage concerning the properties.

Nevertheless, spouses Dela Cruz remortgaged the land to a certain Erlito Llanes. In the meantime, Rosalinda possessed the land for only one cropping season, after which she returned it to spouses Dela Cruz, who resumed their possession thereof until their respective deaths.

Rosalinda then used the disputed land to secure as mortgage her loan agreement with co-respondent Alejandro Dumasig. The proceeds of this loan were used to pay off, among others, the loan made by Erlito.

Meanwhile, petitioners Candelario Dela Cruz, Lubita Lantapon, Diego Dela Cruz, Mauricia Epe, Rodrigo Dela Cruz, and Ariston Dela Cruz (collectively, “Dela Cruz’s siblings”), who were spouses Dela Cruz’ other children, claimed that their parents had tilled, cultivated, and planted rice on the disputed land in their lifetime.

After the death of their father Eniego, the Dela Cruz siblings entrusted to Rosalinda the management and cultivation of the land. They subsequently discovered that the land had been occupied by Alejandro, who claimed that Rosalinda had mortgaged it to him.

The Dela Cruz siblings demanded that Alejandro return the physical possession and ownership of the disputed land, which the latter refused. This constrained the Dela Cruz siblings to file a complaint for accion reivindicatoria before the Regional Trial Court (RTC).

In its decision, the RTC granted the complaint, declaring the Dela Cruz siblings co-owners of the disputed land, ordering its partition, and directing Alejandro to vacate and surrender the possession of the portion of the land mortgaged to him. In so doing, it found that spouses Dela Cruz’ sale of the disputed land to Rosalinda was void since they did not intend to be bound by its terms.

It was likewise void since it violated Presidential Decree (P.D.) No. 27, which prohibited the transfer of land acquired pursuant to the law, except by hereditary succession or to the government pursuant to the relevant provisions and other pertinent laws and regulations.

Upon appeal, the Court of Appeals reversed and set aside the RTC’s findings and dismissed the Dela Cruz siblings’ complaint. It held that the fact of the spouses Dela Cruz’s continued tilling of the land did not negate the fact of sale between them and Rosalinda since it was consistent with traditional Filipino family values for a daughter to help her parents retain their source of livelihood.

Moreover, the deed of sale they had executed was notarized, and thus enjoyed the presumption of regularity.

Meanwhile, the assailed sale did not violate P.D. No. 27 since the disputed land was sold to Rosalinda, one of the spouses Dela Cruz’s heirs, thus falling within the exceptions to the prohibition of transfer of lands covered therein. Therefore, the subsequent transfer of the disputed land to Alejandro was likewise valid.

(To be continued)