G.R. No. 133148 November 17, 1999
J.R. BLANCO, as the Administrator of the Intestate Estate of MARY RUTH C. ELIZALDE, petitioner, vs. WILLIAM H. QUASHA, CIRILO F. ASPERILLA, JR., SYLVIA E. MARCOS, DELFIN A. MANUEL, JR., CIRILO E. DORONILA and PAREX REALTY CORPORATION, respondents.

FACTS

Mary Ruth C. Elizalde, an American national, owned a house and lot in Forbes Park, Makati. On May 22, 1975, through her attorney-in-fact, she executed a Deed of Sale over the land (excluding the house) in favor of Parex Realty Corporation for P625,000.00, payable in 25 equal annual installments. Simultaneously, Parex executed a Contract of Lease with Elizalde, leasing the same land back to her for 25 years at an annual rental of P25,000.08, which was to be credited against the annual installment payments. Title was transferred to Parex. Elizalde later ratified the sale. She continued to pay association dues and realty taxes until her death in 1990.
After Elizalde’s demise, the estate’s administrator, J.R. Blanco, demanded reconveyance of the property from Parex and its individual stockholders/directors (who were lawyers from the Quasha firm). The estate filed an action for reconveyance, alleging the sale was an absolutely simulated or fictitious transaction. Petitioner contended the sale was a scheme devised by Elizalde’s lawyers to circumvent the ruling in Republic v. Quasha, which declared that American citizens and corporations could no longer own private agricultural lands after July 3, 1974. Petitioner argued the sale-leaseback arrangement was a sham because the annual rental and installment amounts were identical, resulting in no net payment to Elizalde.

ISSUE

Whether the Deed of Sale and Contract of Lease between Mary Ruth Elizalde and Parex Realty Corporation constituted an absolutely simulated or fictitious transaction, thereby warranting the reconveyance of the property to her estate.

RULING

The Supreme Court denied the petition and affirmed the Court of Appeals’ dismissal of the complaint for reconveyance. The Court held that the transaction was not an absolutely simulated sale. An absolutely simulated or fictitious contract is one where the parties do not intend to be bound at all, and it produces no legal effect. In contrast, a relatively simulated contract conceals the true agreement of the parties. The petitioner failed to prove that the sale was absolutely simulated.
The Court emphasized that the determination of simulation involves a question of fact, requiring an inquiry into the parties’ true intention. The factual findings of the Court of Appeals, which found the sale to be genuine, are generally binding. The evidence showed that the parties intended to be bound: the sale was duly notarized, title was transferred, and Elizalde ratified the transaction. The leaseback with offsetting payments constituted valuable consideration for the sale; it was essentially a financing arrangement where the rental payments served as the method of paying the purchase price. The fact that the annual rental and installment amounts were equal did not negate the reality of the sale. The Court also found the allegation of influence peddling by the respondent lawyers to be speculative and based on hearsay. Consequently, the estate failed to establish that the sale was void for absolute simulation.