Simulated Sales: When Continued Possession Trumps a Deed of Sale

In a significant ruling on simulated contracts, the Supreme Court declared a deed of absolute sale null and void because the seller remained in possession of the property and continued paying its taxes. The case of Aliño v. Heirs of Lorenzo (G.R. No. 159550, June 27, 2008) clarifies when a written deed of sale will be disregarded in favor of the parties' actual conduct.

The Facts of the Case

Lucia Carlos Aliño owned a 1,745-square meter lot in Cotabato City. In 1979, she executed a Deed of Absolute Sale in favor of her daughter, Angelica Lorenzo, for P10,000.00. The title was transferred to Angelica's name, and the property was declared for taxation in her name.

Despite the sale, Lucia continued to possess the property. In 1984, she designated a caretaker who built a house on the lot and delivered the fruits of its trees to Lucia every harvest season. Lucia also paid the real property taxes from 1980 to 1987.

When Angelica died in 1985, her heirs executed an extra-judicial settlement, adjudicating the lot to three of her children. In 1989, Lucia demanded the return of the property. When refused, she filed a complaint seeking to nullify the deed of sale, claiming it was simulated—executed only to accommodate Angelica's housing loan application.

The Issue

The core question was whether the Deed of Absolute Sale dated April 2, 1979 was valid and binding, or whether it was a simulated contract that should be declared void.

The Ruling

The Supreme Court ruled in favor of Lucia, declaring the deed of sale null and void ab initio. The Court held that the most telling indicator of simulation is the complete absence of any attempt by the buyer to assert rights of ownership over the disputed property. Here, Angelica and her heirs never took possession of the lot, never occupied it, and never exercised any act of dominion over it from 1979 until the complaint was filed in 1989.

In contrast, Lucia remained in actual possession through her caretaker, who built a house and maintained the property. The Court noted that possession by a caretaker who recognizes the owner's rights constitutes possession by the owner himself.

Lucia's payment of realty taxes from 1980 to 1987 further supported her claim. While tax receipts are not conclusive proof of ownership, they are strong evidence of a claim of title, particularly when accompanied by actual possession. As the Court observed, no one in their right mind would pay taxes on property not in their actual or constructive possession.

Significantly, the heirs presented only two tax receipts showing that Angelica's husband paid taxes belatedly in September 1989—about a month after the complaint was filed—which the Court viewed as an afterthought to create the semblance of truth.

The Prescription Issue

The lower courts had faulted Lucia for waiting 10 years before demanding the property's return. The Supreme Court, however, applied an important exception: when the person claiming ownership is in actual possession of the property, the action for reconveyance does not prescribe. One who possesses land as owner may wait until possession is disturbed or title is attacked before seeking to vindicate their right.

Practical Takeaways

• Possession matters more than paper. A notarized deed of sale enjoys a presumption of regularity, but this presumption can be overcome by showing that the buyer never exercised acts of ownership.
• Continued possession and tax payments are powerful evidence of simulated sale. Paying real property taxes on a property you allegedly sold strongly suggests you still consider yourself the owner.
• Simulation is determined by intent. Under Article 1345 of the Civil Code, a contract is absolutely simulated when the parties do not intend to be bound at all. The Court looks at the parties' contemporaneous and subsequent acts to determine their true intent.
• Inadequate price alone does not prove simulation. If there is actual consideration, no matter how small, the sale is not simulated. The key question is whether the parties intended to be bound.
• An owner in possession can wait. The 10-year prescriptive period for reconveyance does not run against an owner who remains in actual possession of the property.

This article is general information and not legal advice. For your specific situation, consult a lawyer or ask ASG Legal AI.