G.R. No. 177710; October 12, 2009
SPS. RAMON LEQUIN and VIRGINIA LEQUIN, Petitioners, vs. SPS. RAYMUNDO VIZCONDE and SALOME LEQUIN VIZCONDE, Respondents.

FACTS

Petitioners, spouses Lequin, bought a 10,115-square meter lot from Carlito de Leon, a sale negotiated by respondent Raymundo Vizconde. In 1997, respondents represented to petitioners that they had also purchased an adjacent 1,012-square meter lot from de Leon and built a house thereon. Believing this, petitioners constructed their own house on a 500-square meter portion of that lot. Upon later verification, de Leon confirmed the 1,012-square meter lot was actually part of the property already sold to petitioners. To resolve the impasse where petitioners’ house stood on land supposedly owned by respondents, petitioners, on legal advice, executed a “Kasulatan ng Bilihang Tuluyan ng Lupa” dated February 12, 2000. This document simulated a sale where petitioners ostensibly sold a 512-square meter portion to respondents for PhP 15,000, which was never paid. In reality, petitioners paid respondents PhP 50,000 for the 500-square meter portion their house occupied. A dispute later arose over an adjacent dried-up canal, prompting petitioners to file an action for declaration of nullity of the Kasulatan and recovery of the PhP 50,000.

ISSUE

Whether the Kasulatan ng Bilihang Tuluyan ng Lupa is a simulated contract and therefore void.

RULING

Yes, the Supreme Court declared the Kasulatan null and void. The Court found the contract to be absolutely simulated. A contract is absolutely simulated when the parties do not intend to be bound by it at all, and it is not intended to produce legal effects. Here, the evidence clearly showed a lack of intent to be bound by the terms of the Kasulatan. The purported consideration of PhP 15,000 was never paid by respondents to petitioners. Conversely, petitioners actually paid respondents PhP 50,000 for the portion they occupied. This reciprocal payment structure contradicts a genuine sale. The execution of the document was merely a scheme, based on legal advice, to formalize a pre-existing arrangement stemming from respondents’ misrepresentation, not to effect a true conveyance of ownership. Since the parties did not intend the Kasulatan to have any binding legal effect regarding a sale of the land, it is an absolutely simulated or fictitious contract. Under Article 1409 of the Civil Code, such contracts are inexistent and void from the beginning. Consequently, the Court reversed the Court of Appeals, reinstated the Regional Trial Court’s decision nullifying the Kasulatan, and ordered respondents to return the PhP 50,000 to petitioners with legal interest.