G.R. No. L-59952 August 31, 1984
Ruby H. Gardner and Frank Gardner, Jr., petitioners, vs. Court of Appeals, Deogracias R. Natividad and Juanita A. Sanchez, respondents.

FACTS

Petitioners Ruby and Frank Gardner, Jr., were the registered owners of two parcels of land in Calamba, Laguna. On November 27, 1961, they entered into a transaction with spouses Ariosto and Cirila Santos, executing three documents: an Absolute Deed of Sale, a Subdivision Joint Venture Agreement, and a Supplemental Agreement. The true agreement, as evidenced by the latter two documents, was a joint venture for subdivision where the Santos spouses would provide cash advances and development funds. The Absolute Deed of Sale was executed merely “in trust” to secure the Santos spouses’ advances. Titles were transferred to the Santos spouses.
Subsequently, without the Gardners’ knowledge, the Santos spouses sold the lots to the Cuenca spouses (Second Transfer). Upon discovering this, Ruby Gardner annotated an Adverse Claim on the new titles on December 2, 1965, detailing the true trust agreement. The lots were then successively transferred to Michael Verroya (Third Transfer), then to respondents Deogracias Natividad and Juanita Sanchez (Fourth Transfer), and finally to Ignacio Bautista and Encarnacion de los Santos (Fifth Transfer). The Gardners’ Adverse Claim was carried over on the titles up to the Natividads’ titles, and the Gardners remained in physical possession of the properties throughout.

ISSUE

Whether the series of transfers of the subject properties, culminating with the transfer to respondents Natividad and Sanchez, are valid and binding against the petitioners.

RULING

No. The Supreme Court reversed the Court of Appeals’ resolutions and reinstated the trial court’s judgment declaring the transfers null and void. The legal logic proceeds from the nature of the initial transaction. The Absolute Deed of Sale to the Santos spouses was simulated, executed merely as security for advances under the joint venture agreement. Being a simulated or fictitious sale, it is void ab initio under Article 1409 of the Civil Code. A void contract produces no legal effect whatsoever; it is as if it never existed. Consequently, the Santos spouses acquired no valid title to the properties.
Since the Santos spouses had no valid title, they could transmit none to their successors-in-interest. The principle of “nemo dat quod non habet” (no one can give what he does not have) applies. All subsequent transfers, including the one to respondents Natividad and Sanchez, are therefore also void. The annotation of the Adverse Claim by the Gardners served as constructive notice to the world of their interest, protecting their rights. Respondents, as purchasers, were charged with knowledge of this claim on the title and assumed the risk of the vendor’s defective title. The Gardners’ continuous physical possession further bolstered the conclusion that the transfers were invalid.