G.R. No. 133749 August 23, 2001 consideration of P2,000,000.00.

Although the second

deed was originally dated "August 1988",
HERNANDO R. PEÑALOSA alias "HENRY superimposed upon the same was the date
PEÑALOSA," petitioner, "September 12, 1988". This second deed was signed
vs. by both parties and duly notarized. It states that
SEVERINO C. SANTOS (deceased), Substituted Severino sells and transfers the house and lot to
by his heirs: OLIVER SANTOS and ADYLL M. Henry, who had paid the full price of P2,000,000.00
SANTOS, and ADELA DURAN MENDEZ therefor.
SANTOS, respondents.
Severino explained that his initial asking price for the
QUISUMBING, J.: property was only P1,800,000.00 as shown in the first
deed. But he later asked for a higher price because
Henry could not give the money as soon as expected.
Petitioner appeals by certiorari from the decision of
However, Severino claimed that he made it clear to
the Court of Appeals, which affirmed the judgment of
Henry that he agreed to sell the property under the
the Regional Trial Court of Quezon City, Branch 78, in
second deed for P2,000,000.00, provided that
Civil Case No. Q-92-13531, declaring the deed of
payment be immediately effected. Severino said that
absolute sale entered into between petitioner and
he wanted to use the money to invest in another
respondents as void and inexistent and ordering
property located in Alabang and told Henry that if
petitioner to vacate the subject property and to pay
payment was made at a later date, the price would be
reasonable compensation for its use.
the current market value at the time of payment.

The facts, as revealed by the records, are as follows:

Henry then gave Severino P300,000.00 as "earnest
money", purportedly with the understanding that the
Respondents Severino C. Santos (deceased) and former was to pay the balance within 60 days.
Adela Mendez Santos are registered owners of a Otherwise, said amount would be forfeited in favor of
residential house and lot located at No. 113 Scout Severino.8 The latter also maintained that he signed
Rallos Street, Quezon City under TCT No. PT-23458 the second deed only for the purpose of facilitating
(54434).1 In 1988, Severino and Adela decided to sell Henry's acquisition of a bank loan to finance payment
their property and for this purpose, negotiated with of the balance of the purchase price9 and added that
petitioner Hernando (or Henry) Peñalosa. The execution of the second deed was necessary to
property was then occupied by a lessee, Eleuterio enable Henry to file a court action for ejectment of
Perez, who was given preference to buy it under the the tenant.10
same terms offered by the buyer.2 Perez proposed
less favorable terms3 and expectedly, Severino
After execution of the second deed, Henry filed a loan
rejected his offer.
application with the Philippine American Life
Insurance Company (Philam Life) for the amount of
On August 1, 1988, petitioner Henry Peñalosa and P2,500,000.00.11 According to Henry, he had agreed
respondent Severino Santos attempted to enter into with Severino during the signing of the second deed,
an agreement whereby the latter, for a consideration that the balance of P1,700,000.00 would be paid by
of P1,800.000.00, would sell to the former the means of a loan, with the property itself given as
property subject of the instant case. The deed of collateral.12
absolute sale4 (first deed) evidencing this transaction
was signed by Henry but not by Severino, because
Meanwhile, on the strength of the first deed and as
according to the latter, Henry "took time to decide"
new "owner" of the property, Henry wrote a
on the matter.5
letter13 dated August 8, 1988 to the lessee, Eleuterio
Perez, demanding that the latter vacate the premises
On August 15, 1988, Henry signed a within 10 days. Failing in this effort, Henry brought a
document6 stating that the first deed was executed complaint for ejectment14 against Perez before the
between him and Severino, for the sole purpose of Office of the Barangay Captain.
helping the latter eject Perez, the occupant of the
property. Henry acknowledged in said document that
On September 1, 1988, a Certification To File
although Severino had agreed to sell the property to
Action15 was issued by the barangay lupon. This led to
him, he had not paid the consideration stated in the
the subsequent filing of Civil Case No. 88 0439 for
first deed.
unlawful detainer, before the Metropolitan Trial Court
of Quezon City, Branch 43, entitled "Henry Peñalosa,
Thereafter, Henry and Severino executed another Plaintiff vs. Eleuterio Perez, Defendant". Claiming that
deed of absolute sale7 (second deed) for a higher he still had a subsisting contract of lease over the
property, Perez countersued and brought Civil Case Court of Quezon City, Branch 78, on September 28,
No. Q-88-1062 before the Regional Trial Court of 1992. Severino alleged in his complaint22 that there
Quezon City, Branch 96, entitled "Eleuterio Perez, was a cloud over the title to the property, brought
Plaintiffs vs. Severino Santos, et. al, Defendants". In about by the existence of the second deed of sale.
this latter case, Perez assailed the validity of the sale
transaction between Henry and Severino and Essentially, Severino averred that the second deed
impleaded the former as co-defendant of Severino. was void and inexistent because: a) there was no
cause or consideration therefor, since he did not
While the aforesaid court cases were pending receive the P2,000,000.00 stated in the deed; b) his
resolution, Philam Life informed Severino through a wife, Adela, in whose name the property was titled,
letter,16 that Henry's loan application had been did not consent to the sale nor sign the deed; c) the
approved by the company on January 18, 1989. deed was not registered with the Register of Deeds;
Philam Life stated in the letter that of the total d) he did not acknowledge the deed personally before
purchase price of P2,500,000.00, the amount of the notary public; e) his residence certificate, as
P1,700,000.00 would be paid directly to Severino by appearing in the deed, was falsified; and f) the deed
Philam Life, while P800,000.00 would be paid by is fictitious and simulated because it was executed
Henry. only for the purpose of placing Henry in possession of
the property because he tendered "earnest money".
The release of the loan proceeds was made subject to Severino also claimed that there was no meeting of
the submission of certain documents in Severino's minds with respect to the cause or consideration,
possession, one of which is the owner's duplicate of since Henry's varied offers of P1,800,000.00,
the Transfer Certificate of Title (TCT) pertaining to P2,000,000.00, and P2,500,000.00, were all rejected
the property. However, when Henry and Severino met by him.
with officials of Philam Life to finalize the
loan/mortgage contract, Severino refused to For his part, Henry asserted that he was already the
surrender the owner's duplicate title and insisted on owner of the property being claimed by Severino, by
being paid immediately in cash.17 As a consequence, virtue of a final agreement reached with the latter.
the loan/mortgage contract with Philam Life did not Contrary to Severino's claim, the price of the property
materialize. was pegged at P2,000,000.00, as agreed upon by the
parties under the second deed. Prior to the filing of
Subsequently, on April 28, 1989, judgment18 was the action, his possession of the property remained
rendered by the MTC-QC, Branch 43, in Civil Case No. undisturbed for three (3) years. Nevertheless, he
0439, ordering the tenant Perez to vacate and admitted that since the signing of the second deed,
surrender possession of the property to Henry. In said he has not paid Severino the balance of the purchase
judgment, Henry was explicitly recognized as the new price. He, however, faulted the latter for the non-
owner of the property by virtue of the contract of sale payment, since according to him, Severino refused to
dated September 12, 1988, after full payment of the deliver the owner's duplicate title to the financing
purchase price of P2,000,000.00, receipt of which was company.
duly acknowledged by Severino.
On Aug. 20, 1993, the trial court rendered judgment
Upon finality of said judgment, Henry and his family in favor of Severino and disposed:
moved into the disputed house and lot on August
1989, after making repairs and WHEREFORE, judgment is rendered as
improvements.19 Henry spent a total of P700,000.00 follows:
for the renovation, as evidenced by receipts.20
1) DECLARING the "Deed of Absolute Sale"
On July 27, 1992, Severino sent a letter21 to Henry, which was signed by the plaintiff Severino C.
through counsel, demanding that Henry vacate the Santos as vendor and the defendant as
house and lot, on the ground that Henry did not vendee and which was entered in the
conclusively offer nor tender a price certain for the notarial register of notary public Dionilo
purchase of the property. The letter also stated that Marfil of Quezon City as Doc. No. 474, Page
Henry's alleged offer and promise to buy the property No. 95, Book No. 173, Series of 1988, as
has since been rejected by Severino. inexistent and void from the beginning; and
consequently, plaintiff's title to the property
When Henry refused to vacate the property, Severino under T.C.T. No. PT-23458 (54434) issued
brought this action for quieting of title, recovery of by the Register of Deeds of Quezon City is
possession and damages before the Regional Trial quieted, sustained and maintained;
 2) ORDERING the defendant to pay plaintiffs THE HONORABLE COURT OF APPEALS GRIEVOUSLY
the amount of P15, 000.00 a month as ERRED IN REFUSING TO RECOGNIZE THAT
reasonable compensation for the use of the OWNERSHIP OF THE SUBJECT PROPERTY HAD BEEN
House and Lot located at No. 113 Scout EFFECTIVELY VESTED UPON PETITIONER HENRY R.
Rallos St., Quezon City, beginning on the PEÑALOSA WHEN ACTUAL POSSESSION THEREOF
month of August, 1993, until the premises is HAD LAWFULLY TRANSFERRED TO PETITIONER
fully vacated, (the compensation for the use HENRY R. PEÑALOSA BY VIRTUE OF THE COURT
thereof from the time the defendant had JUDGMENT IN THE EJECTMENT SUIT AGAINST THE
occupied the premises up to July, 1993, is FORMER LESSEE.27
recompensed for the repairs made by him);
and The pivotal issue presented before us is whether or
not the second deed is valid and constitutes evidence
3) ORDERING the plaintiffs to reimburse the of the final agreement between the parties regarding
defendant the amount of P300,000.00 after the sale transaction entered into by them.
defendant had vacated the premises in
question, and the reasonable compensation Petitioner maintains that the existence of a perfected
for the use thereof had been paid. contract of sale in this case is beyond doubt, since
there clearly was a meeting of minds between the
All other claims and counterclaims are parties as to the object and consideration of the
DENIED for lack of legal and factual bases. contract. According to petitioner, the agreement of
No pronouncement as to costs. the parties is evidenced by provisions contained in the
second deed, which cannot possibly be simulated or
SO ORDERED.23 fictitious. Subsequent and contemporaneous acts
indubitably point to the fact that the parties truly
intended to be bound by the second deed.
Both Henry and Severino appealed the above decision
Accordingly, the P2,000,000.00 stated therein was the
to the Court of Appeals. Before the appellate court
actual price agreed upon by the parties as
could decide the same, Severino passed away and
consideration for the sale.
was substituted by his wife and children as
respondents. Henry filed a motion for leave to be
allowed to deposit P1,700,000.00 in escrow with the On the other hand, in their memorandum,
Landbank of the Philippines to answer for the money respondents insist that the second deed is a complete
portion of the decision.24 This motion was granted. nullity because, as found by both the appellate and
trial court: a) the consideration stated in the deed
was not paid; b) Severino's passport showed that he
On December 29, 1997, the appellate court
was in the U.S. when said deed was notarized; c)
affirmed25 the judgment of the trial court and
Severino did not surrender a copy of the title at the
thereafter, denied Henry's motion for
time of the alleged sale; d) petitioner did not pay real
reconsideration.26 Thus, Henry brought this petition,
estate taxes on the property; e) it was executed only
citing the following as alleged errors:
for the purpose of helping Severino eject the tenant;
f) Severino's wife, Adela, did not sign the deed; and
I. g) the various documentary exhibits proved that there
was no price certain accepted or paid.
THE HONORABLE COURT OF APPEALS GRIEVOUSLY
ERRED IN CONCLUDING THAT THERE WAS NO Respondents additionally argue that petitioner merely
PERFECTED CONTRACT OF SALE BETWEEN seeks a review of the aforesaid factual findings of the
SEVERINO C. SANTOS AND PETITIONER HENRY R. lower court and that consequently, we should deny
PEÑALOSA. the petition on the ground that it raises only factual
questions.
II.
Considering the pivotal issue presented after close
THE HONORABLE COURT OF APPEALS GRIEVOUSLY scrutiny of the assigned errors as well as the
ERRED IN CONSIDERING NON-PAYMENT OF THE arguments of the parties, we are unable to agree with
FULL PURCHASE PRICE AS CAUSE FOR DECLARING A respondents and we must give due course to the
PERFECTED CONTRACT OF SALE AS NULL AND VOID. petition.

III. First of all, the petition filed before this Court

explicitly questions "the legal significance and
consequences of the established facts"28 and not the stipulated price. After making extensive repairs with
findings of fact themselves. As pointed out by the knowledge of Severino, petitioner moved into the
petitioner, he submits to the factual findings of the premises and actually occupied the same for three
lower court, but maintains that its legal conclusions years before this action was brought. Moreover,
are irreconcilable and inconsistent therewith. He also simultaneous with the execution of the second deed,
states that the grounds relied upon in this petition do petitioner gave Severino P300,000.00 in earnest
not call for the weighing of conflicting evidence money, which under Article 148231 of the New Civil
submitted by the parties. Rather, he merely asks the Code, is part of the purchase price and proof of
Court to give due significance to certain undisputed perfection of the contract.
and admitted facts spread throughout the record,
which, if properly appreciated, would justify a What may have led the lower courts into incorrectly
different conclusion. believing that the second deed was simulated is
Exhibit D — a document in which petitioner declared
At any rate, in Baricuatro, Jr. vs. Court of Appeals, that the deed was executed only for the purpose of
325 SCRA 137, 145 (2000), we reiterated the doctrine helping Severino eject the tenant. However, a perusal
that findings of fact of the Court of Appeals are of this document reveals that it made reference to the
binding and conclusive upon this Court, subject to first deed and not the second deed, which was
certain exceptions, one of which is when the executed only after Exhibit D. So that while the first
judgment is based on a misapprehension of facts. In deed was qualified by stipulations contained in Exhibit
this case, after carefully poring over the records, we D, the same cannot be said of the second deed which
are convinced that the lower courts misappreciated was signed by both parties.
the evidence presented by the parties and that,
indeed, a reversal of the assailed judgment is in Further, the fact that Severino executed the two
order. deeds in question, primarily so that petitioner could
eject the tenant and enter into a loan/mortgage
It should have been readily apparent to the trial court contract with Philam Life, is to our mind, a strong
that the circumstances it cited in its decision are not indication that he intended to transfer ownership of
proper grounds for holding that the second deed is the property to petitioner. For why else would he
simulated. Simulation is a declaration of a fictitious authorize the latter to sue the tenant for ejectment
will, deliberately made by agreement of the parties, in under a claim of ownership, if he truly did not intend
order to produce, for purposes of deception, the to sell the property to petitioner in the first place?
appearance of a juridical act which does not exist or Needless to state, it does not make sense for
is different from that which was really executed. Its Severino to allow petitioner to pursue the ejectment
requisites are: a) an outward declaration of will case, in petitioner's own name, with petitioner
different from the will of the parties; b) the false arguing that he had bought the property from
appearance must have been intended by mutual Severino and thus entitled to possession thereof, if
agreement; and c) the purpose is to deceive third petitioner did not have any right to the property.
persons.29 None of these requisites is present in this
case. Also worth noting is the fact that in the case filed by
Severino's tenant against Severino and petitioner in
The basic characteristic of an absolutely simulated or 1989, assailing the validity of the sale made to
fictitious contract is that the apparent contract is not petitioner, Severino explicitly asserted in his sworn
really desired or intended to produce legal effects or answer to the complaint that the sale was a legitimate
alter the juridical situation of the parties in any transaction. He further alleged that the ejectment
way.30 However, in this case, the parties already case filed by petitioner against the tenant was a
undertook certain acts which were directed towards legitimate action by an owner against one who
fulfillment of their respective covenants under the refuses to turn over possession of his property.32
second deed, indicating that they intended to give
effect to their agreement. Our attention is also drawn to the fact that the
genuineness and due execution of the second deed
In particular, as early as August 8, 1988, after was not denied by Severino. Except to allege that he
execution of the first deed, Severino authorized was not physically present when the second deed was
petitioner to bring an action for ejectment against the notarized before the notary public, Severino did not
overstaying tenant and allowed petitioner to pursue assail the truth of its contents nor deny that he ever
the ejectment case to its final conclusion, presumably signed the same. As a matter of fact, he even
to secure possession of the property in petitioner's admitted that he affixed his signature on the second
favor. Petitioner also applied for a loan, which was deed to help petitioner acquire a loan. This can only
approved by Philam Life, to complete payment of the signify that he consented to the manner proposed by
petitioner for payment of the balance and that he However, it is well-settled that non-payment of the
accepted the stipulated price of P2,000,000.00 as purchase price is not among the instances where the
consideration for the sale. law declares a contract to be null and void. It should
be pointed out that the second deed specifically
Since the genuineness and due execution of the provides:
second deed was not seriously put in issue, it should
be upheld as the best evidence of the intent and true That for and in consideration of' the sum of
agreement of the parties. Oral testimony, depending TWO MILLION PESOS (P2,000,000.00),
as it does exclusively on human memory, is not as Philippine Currency paid in full by HENRY R.
reliable as written or documentary evidence.33 PEÑALOSA, receipt of which is hereby
acknowledged by me to my full satisfaction,
It should be emphasized that the non-appearance of I hereby by these presents, sells (sic), cede,
the parties before the notary public who notarized the convey and otherwise dispose of the above
deed does not necessarily nullify nor render the described parcel of land, unto HENRY R.
parties' transaction void ab initio. We have held PEÑALOSA, his heirs, successors and
previously that the provision of Article 135834 of the assigns, free from all liens and
New Civil Code on the necessity of a public document encumbrances.
is only for convenience, not for validity or
enforceability. Failure to follow the proper form does xxx xxx xxx
not invalidate a contract. Where a contract is not in
the form prescribed by law, the parties can merely
(SGD.)
compel each other to observe that form, once the
contract has been perfected.35 This is consistent with
the basic principle that contracts are obligatory in SEVERINO C. SANTOS
whatever form they may have been entered into, VENDOR
provided all essential requisites are present.36
xxx xxx xxx42
The elements of a valid contract of sale under Art.
1458 of the Civil Code are: (1) consent or meeting of As can be seen from above, the contract in this case
the minds; (2) determinate subject matter; and (3) is absolute in nature and is devoid of any proviso that
price certain in money or its equivalent.37 In the title to the property is reserved in the seller until full
instant case, the second deed reflects the presence of payment of the purchase price. Neither does the
all these elements and as such, there is already a second deed give Severino a unilateral right to resolve
perfected contract of sale. the contract the moment the buyer fails to pay within
a fixed period.43 At most, the non-payment of the
Respondent's contention that the second deed was contract price merely results in a breach of contract
correctly nullified by the lower court because for non-performance and warrants an action for
Severino's wife, Adela, in whose name the property rescission or specific performance under Article 1191
was titled, did not sign the same, is unavailing. The of the Civil Code.44
records are replete with admissions made by Adela
that she had agreed with her husband to sell the Be that as it may, we agree with petitioner that
property38 which is conjugal in nature39and that she although the law allows rescission as a remedy for
was aware of this particular transaction with breach of contract, the same may not be availed of by
petitioner. She also said that it was Severino who respondents in this case. To begin with, it was
actually administered their properties with her Severino who prevented full payment of the stipulated
consent, because she did not consider this as her price when he refused to deliver the owner's original
responsibility.40 duplicate title to Philam Life. His refusal to cooperate
was unjustified, because as Severino himself
We also observe that Severino's testimony in court admitted, he signed the deed precisely to enable
contained (1) admissions that he indeed agreed to petitioner to acquire the loan. He also knew that the
sell the property and (2) references to petitioner's property was to be given as security therefor. Thus, it
failure to pay the purchase price.41 He did not cannot be said that petitioner breached his obligation
mention that he did not intend at all to sell the towards Severino since the former has always been
property to petitioner and instead, stressed the fact willing to and could comply with what was incumbent
that the purchase price had not yet been paid. Why upon him.
would Severino stress non-payment if there was no
sale at all?
In sum, the only conclusion which can be deduced
from the aforesaid circumstances is that ownership of
the property has been transferred to petitioner.
Article 1477 of the Civil Code states that ownership of
the thing sold shall be transferred to the vendee upon
the actual or constructive delivery thereof. It is
undisputed that the property was placed in the
control and possession of petitioner45 when he came
into material possession thereof after judgment in the
ejectment case. Not only was the contract of sale
perfected, but also actual delivery of the property
effectively consummated the sale.

WHEREFORE, the petition is GRANTED. The decision

of the Court of Appeals dated December 29, 1997 and
its resolution dated April 15, 1998 in CA-G.R. CV No.
45206 which had affirmed the judgment of the
Regional Trial Court of Quezon City, Branch 78, are
REVERSED and SET ASIDE. A new judgment is hereby
rendered UPHOLDING the validity of Exhibit B, the
Deed of Absolute Sale dated September 12, 1988,
entered into between the parties. The Landbank of
the Philippines is further ordered to RELEASE to
respondents the amount of P1,700,000.00 held in
escrow, representing the balance of the purchase
price agreed upon by the parties under the deed of
absolute sale. Finally, the respondents are ordered to
DELIVER to petitioner the owner's duplicate copy of
TCT No. PT-23458 after said release, with the
corresponding payment of taxes due. Costs against
respondents.

SO ORDERED.