G.R. No. 161223 September 12, 2005
Virgilio A. Cadungog vs. Jocelyn O. Yap

FACTS

Petitioner Virgilio Cadungog executed a Deed of Sale with Right of Repurchase in 1979, selling six parcels of land to his cousin, Franklin Ong, for ₱7,144.28, with a ten-year redemption period. Virgilio failed to redeem the properties. Subsequently, upon Franklin’s prodding, Virgilio executed a Deed of Absolute Sale dated September 30, 1991, in favor of Franklin’s sister, respondent Jocelyn Yap, covering three of those parcels (Parcel Nos. 1, 2, and 3) for a stated price of ₱5,000. Franklin signed as a witness. Years later, Virgilio and his uncle, Cresenciano Ong (who claimed ownership of Parcel No. 2), sold Parcel Nos. 1 and 2 to a third party, APC Group, Inc.
When Jocelyn discovered the sale to APC, she filed a criminal complaint for estafa against Virgilio. In response, Virgilio filed a civil action seeking the declaration of nullity of the 1991 Deed of Absolute Sale. He alleged the deed was fictitious, executed only to help reduce Jocelyn’s tax liability in Canada, and that no actual consideration was paid. Jocelyn countered that the deed was genuine and supported by consideration, noting it was a notarized document.

ISSUE

The core issue is whether the Deed of Absolute Sale dated September 30, 1991, executed by Virgilio in favor of Jocelyn, is valid and supported by a true cause or consideration.

RULING

The Supreme Court ruled in favor of the petitioner, declaring the 1991 Deed of Absolute Sale null and void. The legal logic centers on the absence of a true cause or consideration, which is essential for the validity of a contract under Article 1352 of the Civil Code. The Court found that the purported consideration of ₱5,000 was never actually paid by Jocelyn to Virgilio. This fact was substantiated by Jocelyn’s own admission during trial that she did not pay the amount and by the testimony of Franklin Ong, who stated the deed was executed merely to facilitate the transfer of title without monetary payment.
The Court emphasized that a contract of sale is void if the price is simulated. The notarized nature of the deed does not preclude proof of its invalidity, as notarization merely converts it into a public document with evidentiary weight regarding its due execution, but does not sanctify a void contract. The evidence clearly established a lack of causa, rendering the sale inexistent. Furthermore, the subsequent acts of the parties, including the sales to APC and the issuance of checks by Cresenciano to Franklin, which were acknowledged as a “refund,” corroborated the conclusion that the 1991 deed was a sham transaction. Therefore, the Deed of Absolute Sale was correctly nullified by the trial court.