G.R. No. 136857 ; November 22, 2000
SPOUSES BARTIMEO and CARIDAD VELASQUEZ and SPOUSES JOHN and GRACE VELASQUEZ-BALINGIT, petitioners, vs. COURT OF APPEALS and FILOMENA TEJERO, respondents.

FACTS

Private respondent Filomena Tejero filed an action for annulment of document and damages. She alleged that after obtaining loans from petitioner spouses Velasquez, secured by a mortgage over her lot, she was persuaded to execute a Deed of Absolute Sale over the property in favor of the Velasquez spouses on January 17, 1970. This was accompanied by an “Agreement” where the Velasquez spouses agreed to re-sell the lot to Tejero within one year. Tejero claimed the sale was simulated, as the true agreement was merely to secure a bank loan using the property as collateral, with the understanding the lot would be reconveyed to her. She received no consideration for the sale.
The projected bank loan did not materialize. The Velasquez spouses registered the property in their name and subsequently sold it to their daughter, Grace Velasquez-Balingit, who obtained a new title. The trial court declared the Deed of Sale and the subsequent titles null and void, ordering the reissuance of the title in Tejero’s name. The Court of Appeals affirmed this decision. Petitioners raised procedural errors and argued the sale was genuine.

ISSUE

Whether the Deed of Absolute Sale dated January 17, 1970, was a valid contract or a simulated one that should be annulled.

RULING

The Supreme Court denied the petition, affirming the lower courts’ rulings. The legal logic centered on the nature of a simulated contract. The Court found the January 17, 1970 transaction was a relative simulation under Articles 1345 and 1346 of the Civil Code. The parties did not intend a true sale but used the deed as security for Tejero’s loan, with a concealed agreement for reconveyance. Critical evidence supporting simulation included the simultaneous execution of a deed of cancellation of the mortgage (declaring the loan paid) and the “Agreement” to re-sell, despite no evidence of actual loan payment. The lack of consideration for the sale and Tejero’s continued possession of the property further evidenced the absence of a true transfer of ownership.
Consequently, the simulated sale was void. The subsequent sale to the daughter, Grace Velasquez-Balingit, did not confer the status of an innocent purchaser for value, as she was aware of the circumstances, being the Velasquezes’ daughter and the ejectment case’s history. The procedural issues raised were correctly dismissed by the appellate court as without merit, not affecting the substantive resolution of the case. The titles derived from the void sale were likewise declared void.