Facts
The subject properties are two parcels of land in Tacloban City: (1) a 2,549-square-meter lot formerly covered by TCT No. T-68 in the name of Andrea de Guia, and (2) a 174-square-meter lot formerly under TCT No. T-1815 in the name of Rustico de Guia. Both were inherited by Adolfo T. De Guia (Adolfo) from Spouses Enrique and Andrea de Guia.
In 1994, Adolfo persuaded Bayani S. Cerilla (Bayani) to invest in the properties, which were facing foreclosure. Bayani agreed to redeem them, prompting Adolfo to execute Deeds of Absolute Sale in his favor. As a result, TCT Nos. T-68 and T-1815 were cancelled and replaced with TCT Nos. T-40257 and T-39792 in Bayani’s name.
Later, Bayani executed another Deed of Absolute Sale in favor of Adolfo, but it was unnotarized. Based on this, Adolfo filed an Adverse Claim on both titles. The parties eventually entered into a Memorandum of Agreement (MOA) wherein the properties would be sold to Bayani for Php15 million, with Adolfo shouldering the cost of the sale, including the removal of illegal settlers.
Adolfo acknowledged partial payment of Php1,675,660.07, with the remaining Php13,324,340.00 to be paid within two years after the ejectment of illegal settlers. They agreed that Bayani would inform Adolfo in case of any sale to third parties.
Adolfo failed to evict the settlers, so Bayani attempted to do so himself but was unsuccessful. This led him to incur substantial expenses and secure a Php700,000 loan from FEBTC using TCT No. T-39792 as collateral.
Bayani also borrowed from Edward C. Ciacho (Edward), securing the loan with both properties. Because TCT No. T-39792 was encumbered, and both titles had Adverse Claims, Edward required the removal of all encumbrances before releasing the loan. Adolfo later assured Edward, through a December 4, 1995 Affidavit, that his adverse claims were settled. Bayani also settled his FEBTC loan, and the encumbrance on TCT No. T-39792 was cancelled.
Subsequently, Edward released Php500,000 to Bayani secured by TCT No. T-40257 and Php800,000 secured by TCT No. T-39792. The Deed of Real Estate Mortgage, signed by Adolfo, provided for a 6% monthly interest.
Despite repeated demands, Bayani failed to repay Edward, who then prepared a Deed of Absolute Sale covering both mortgaged properties. Bayani signed it to appease Edward but requested that it not be registered. However, Adolfo later discovered that the properties had been registered in Edward’s name.
Adolfo then filed Civil Case No. 99-07-105 before the RTC, entitled Spouses Adolfo T. De Guia and Fe Alma V. De Guia v. Bayani S. Cerilla and Edward Ciacho, for annulment of the Deed of Sale with damages. He alleged that, while the properties had temporarily transferred to Bayani, they were ultimately sold back to him. He claimed Bayani deceived him and sold the properties to Edward without his knowledge or consent.
Edward, in his defense, contended that Adolfo had assured him the titles were clean and that the adverse claims had been lifted. He maintained that it was Adolfo, not him, who acted in bad faith during the transaction.
Bayani, in his Answer, claimed that he never truly owned the properties and only served as an accommodation party to help Adolfo avoid foreclosure. He stated that Adolfo prepared a document indicating a conditional sale to reinforce Adolfo’s claim of ownership. Bayani also insisted that Adolfo knew of, and consented to, the sale to Edward to cover mounting debts and interest.
The RTC ruled in favor of Sps. De Guia. The RTC held that Bayani was a mere accommodation party as there was no real agreement for the sale of the subject properties in favor of Bayani; that Bayani had no authority to sell the subject properties; and that the totality of evidence shows that Edward was not a buyer in good faith as he knew the existing claims of Adolfo over the subject properties.
The CA denied the appeal of Edward’s, and affirmed the RTC ruling. The CA gave probative weight to Bayani’s testimony during trial and affirmed that Bayani was a mere accommodation party when Adolfo asked the former to redeem the subject properties to avoid their foreclosure. That being the case, the CA ruled that the subsequent sale of Bayani to Edward was not valid, considering that Bayani was not the lawful owner of the subject properties. Further, as to the title issued in favor of Edward, the CA held that the issuance thereof does not cure Bayani’s lack of title or authority to transfer the ownership of the subject properties, as the title is merely evidence of ownership. As to Edward’s claims that he was a buyer in good faith, the CA held that he cannot be considered a buyer in good faith since Edward was well aware that there existed two inscriptions of adverse claim by Adolfo on the TCTs of the subject properties. Edward moved for reconsideration, but the CA denied the same.
ISSUE: Whether or not the CA erred in ruling that there was no valid contract of sale between Edward and Bayani.
Ruling
No, the CA did not err in affirming the RTC Decision.
To be a valid contract, three essential elements must be present: (1) consent of the contracting parties; (2) object certain which is the subject matter of the contract; and (3) cause of the obligation which is established. The absence of any of the foregoing elements renders the contract void.
Article 1345 of the Civil Code provides that a “[s]imulation 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.” Thus, in an absolute simulation, the contract is void and the parties may recover from each other what they may have given under the contract.
In this case, the core issue is rooted in the validity of Bayani’s sale to Edward of the two subject properties covered by TCT Nos. T-40257 and T- 39792.
The Court gives credence to the RTC and CA rulings, finding that Bayani was an “accommodation party” for Adolfo in order to avoid the foreclosure of the subject properties. Thus, as correctly found by the RTC and CA, there was no intention between Bayani and Adolfo to enter into a contract of sale and transfer the ownership of the subject properties to Bayani. Most telling is the fact that Bayani resold to Adolfo the subject properties only seven months after TCT Nos. T-39792 and T-40257 were issued on July 24, 1994, and August 26, 1994. respectively. As aptly found by the RTC, this resale by Bayani to Adolfo within a short period of time, coupled with the fact that Bayani asked Edward not to register their sale of the subject properties, indicates that there was indeed no intention on the part of Adolfo to transfer the ownership of the subject properties to Bayani.
The Court finds no reversible error in the finding of the CA ruling that Bayani was an accommodation party for the redemption of the subject properties to avoid their foreclosure:
To determine the parties’ real intention, the contemporaneous and subsequent acts of the parties should be considered. The records reveal that right from the start of their dealings with each other, there was no agreement between de Guia [Adolfo] and Cerilla to transfer ownership over the subject properties to the latter. Tellingly, Cerilla did not consider himself at any time owner of the subject properties despite the fact that the titles were transferred in his name. It appears that de Guia [Adolfo] intended the easy facilitation of the sale of the lots to prospective buyers by cancelling his title and issuing new ones in favor of the accommodation party. In this way, Cerilla could easily mortgage the subject properties and obtain money from the executed had prospective the buyers. In fact, Cerilla was unaware that de Guia [Adolfo] had executed the Deeds of Sale in his favor which resulted to the issuance of new titles in the former’s name. The titles were issued on July 24, 1994 (for TCT [NJo. T-39792) and August 26, 1994 (for TCT No, T-40257). In fact, in the Memorandum of Agreement which they executed, it was stated therein that there will be no real transfer of ownership of the subject properties in Cerilla’s favor. And, it would be contrary to ordinary human behavior that the new owner would immediately resell to the previous owner the subject lots. In a Deed of Absolute Sale dated February 3, 1995, the subject properties were sold back to de Guia [Adolfo]. This re-sale just shows the real intention of the parties for de Guia [Adolfo] to retain lawful ownership over the subject properties. Even at the time of the supposed sale of these subject lots to Ciacho, Cerilla was mindful that he was not the real owner thereof. Cerilla asked Ciacho not to register the subject properties in his name. Notably, we take into consideration the fact that de Guia [Adolfo] gave his conformity to the Real Estate Mortgage executed between Cerilla as mortgagor and Ciacho as mortgagee. Although he did not signify in what capacity he participated in the said contract was, it shows that Ciacho, himself, believed that de Guia [ Adolfo] was still the lawful owner of the subject properties.
Thus, there was no valid sale between Bayani and Adolfo. Therefore, the ownership of the subject properties remained with Adolfo. Consequently, there was no valid transfer of ownership by Bayani in favor of Edward. Article 1458 of the Civil Code provides that “[‘b]y the contract of sale, one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing, and the other party to pay therefor a price certain in money or its equivalent. Corollarily, Article 1459 provides that “[the thing must be licit and the vendor must have a right to transfer the ownership thereof at the time it is delivered. Thus, a contract for the sale of property by a person who was not the owner thereof, or by an unauthorized person, is void.
In this case, as discussed, Bayani had no authority to sell the subject properties precisely because Adolfo remained the owner thereof. It is also undeniable that Adolfo cannot be deemed to have ratified the sale by Bayani to Edward as Adolfo instituted the case for the Annulment of the Deed of Absolute Sale between Bayani and Edward, docketed as Civil Case No. 99-07- 105. Hence, as correctly ruled by the RTC and the CA, there was no valid transfer of ownership of the subject properties to Edward.
Neither did the issuance of titles for the subject properties registered under the name of Edward cure the lack of title or authority of Bayani to transfer the ownership of the subject properties. As correctly found by the CA, settled is the rule that the issuance of a certificate of title is not a grant of ownership over the property, but merely evidence of such ownership or right thereon.
Further, Edward cannot be considered an innocent purchaser for value. Generally, to be considered an innocent purchaser for value, the buyer does not have any notice of defect or irregularity as to the right or interest of the seller, and the buyer is without notice that a third party has a claim to the subject property,’ thus, if there is anything on the certificate of title that leads to suspicion or raises any cloud on the title, right or ownership of the subject property, the buyer cannot be deemed as an innocent purchaser for value.
Here, the Court gives credence to the factual findings of the RTC and CA:
True, de Guia [ Adolfo] was called to shed light on the existence of his Adverse Claim. De Guia [Adolfo] and Cerilla assured Ciacho that their problem was already settled. In fact, the adverse claim was cancelled and de Guia [Adolfo] was made to sign the Deed of Mortgage to show his conformity thereto. While it may be correct to say, that with the cancellation of the Adverse Claim and the conformity of Adolfo T. De Guia to the Deed of Real Estate Mortgage might have assured Ciacho to proceed with the grant of the loan without any further fear of impediment of title, yet the fact remains that Ciacho cannot feign ignorance of the nature of the adverse claim which is indeed anchored on a Deed of Absolute Sale expected by Cerilla in favor of De Guia [Adolfo]. Equally, Ciacho must have known that Cerilla’s title came from the De Guias and should have been extra-inquisitive why the re-sale. If these were not known to Ciacho, or that he failed to know or did not bother to know these glaring facts despite the appearance of De Guia [Adolfo] before him, this Court believes that Ciacho had not exercised the due diligence required to qualify him as a mortgagee in good faith. Having known the sale and re-sale between De Guia [Adolfo] and Cerilla, Ciacho should have exercised extra prudence in extending the loan with mortgage. The matter of sale and re-sale is a clear indicator of an apparent flaw of Cerilla’s titles which should have buoyed up more JO Ciacho’s caution in dealing with the said certificates of title. Yet, Ciacho turned his back away from his evident fact of sale and re-sale, and instead proceeded with the loan. In fact, he admitted from his own testimony that his concern was not so much on the mortgaged properties but more with the loan and the agreed interest.
Considering the foregoing, the Court finds no reason to disturb the factual findings and rulings of the RTC and the CA. Undoubtedly, the sale of the subject properties to Edward is void as Adolfo remained the true owner thereof.