Title

Olegario vs. Court of Appeals

Case Decision Date

G.R. No. 104892 14 Nov 1994

A disputed property sale by Marciliano to avoid taxes was deemed null;

unregistered sale lost to registered settlement, favoring petitioners and
buyers.

Jur.ph - Case Digest (G.R. No. 104892)

Reasoning Model - Advanced

Facts:

Background and Ownership of Property

Spouses Marciliano Olegario and Aurelia Rivera-Olegario were the registered

owners of a 91-square-meter parcel of land located at 198 J.P. Rizal corner
Antipolo Streets, Caloocan City, as evidenced by Transfer Certi!cate of Title
(TCT) No. 124222.

The property was originally part of the conjugal estate and upon the
dissolution of the conjugal partnership—following the death of Aurelia on
March 19, 1986—its division became a matter of inheritance and legal
interest.

Family Relationships and Inheritance Rights

The private respondents (Manuel Rivera, Paz Olegario, and Socorro Olegario-
Teves) were reared and educated by the Olegario couples despite being non-
biological children.

Petitioner Bonifacio Olegario is the brother of Marciliano Olegario, and

petitioner Adelaida Victorino is the niece of Aurelia Rivera-Olegario, thereby
holding a claim as lawful heirs.

Deed of Absolute Sale Executed in 1986

To prevent his heirs from inheriting the property and to avoid payment of
estate taxes, Marciliano, then 80 years old, executed a Deed of Absolute Sale
on April 15, 1986, in favor of the private respondents.

The purported consideration for this sale was stated as Fifty Thousand Pesos
 (P50,000.00); however, evidence later suggested discrepancies regarding the
source and amount of payment.

Deed of Extra-Judicial Settlement of Estate and Its Registration

Upon the intestate death of Marciliano on March 10, 1988, petitioners

Bonifacio Olegario and Adelaida Victorino, as the sole surviving legal heirs,
executed a Deed of Extra-Judicial Settlement of Estate on May 23, 1989,
covering the subject lot.

The settlement was published in a newspaper (Metropolitan Newsweek) for

three consecutive weeks and was subsequently recorded in the Register of
Deeds of Caloocan City on July 13, 1989, cancelling the earlier TCT No. 124222
and issuing a new TCT No. 190363 in the petitioners’ names.

Subsequent Sale of the Property

On August 1, 1989, petitioners sold the subject lot for Two Hundred Thousand
Pesos (P200,000.00) to Elena Adaon and Nestor Tejon, resulting in the
issuance of TCT No. 190132 in the vendees’ names.

Private respondents later claimed that the extra-judicial settlement was only
brought to their attention on August 21, 1989 and attempted to register their
earlier contract of sale, which was denied due to the subsequent transfer of
title.

Litigation and Trial Court Proceedings

Private respondents !led Civil Case No. C-13973 for the annulment of the
extra-judicial settlement of estate and for damages against the petitioners.

As a special and a"rmative defense, petitioners raised the issue regarding

the validity of the Deed of Absolute Sale executed by Marciliano.

Additionally, cross-claimants Elena Adaon and Nestor Tejon maintained that

they were buyers in good faith, further complicating the !ght over the
property.

Trial Court’s Ruling

The trial court ruled in favor of the private respondents, declaring both the
extra-judicial settlement and the corresponding transfer certi!cates (TCT
Nos. 190363 and 190132) null and void.

The order included the issuance of a new title in the name of the deceased
Marciliano for the portion before the cancellation of TCT No. 124222, along
with the awarding of nominal damages, attorney’s fees, and costs.

The trial court’s decision also resolved the cross-claim by awarding

 monetary relief to cross-claimants Adaon and Tejon, while dismissing their
counter-claims due to insu"cient evidence.

Court of Appeals Decision

On January 7, 1992, the Sixteenth Division of the Court of Appeals a"rmed

the trial court’s decision with modi!cations.

The modi!cations limited the annulment to speci!c portions of the property

—allocating 3/4 portion for the plainti#s-appellees and 1/4 for the cross-
claimants-appellants—while adjusting the quantum of damages and fees
awarded.

The Court of Appeals decision maintained that the extra-judicial settlement

and the unregistered Deed of Absolute Sale were pivotal to the dispute over
the inheritance rights.

Petitioner’s Assignments of Error on Appeal

Petitioners contended that the Court of Appeals failed to resolve their second
assignment of error regarding the validity of the Deed of Absolute Sale.

They argued that the purported Deed of Absolute Sale was absolutely
simulated and !ctitious, violating Article 130 of the Family Code.

Further allegations were made that the unregistered sale was erroneously
given precedence over the extra-judicial settlement.

Petitioners also disputed the ruling on the good faith of the buyers, Elena
Adaon and Nestor Tejon, and condemned the award of nominal damages and
attorney’s fees as lacking a factual basis.

Evidentiary Highlights

Testimonies, notably from witness Susan Rivera (wife of Manuel Rivera) and
other cross-examination proceedings, revealed that the primary motive in
executing the sale was to avoid estate tax and to defeat the legitimate
inheritance claims of petitioners.

The !nancial transactions underlying the sale were shown to be inconsistent

and dubious, particularly regarding the alleged payment of Fifty Thousand
Pesos, which was neither clearly evidenced nor fully corroborated during
cross-examination.

XI. Legal Framework and Concluding Findings

Issue:
 Validity of the Deed of Absolute Sale
Whether the deed executed on April 15, 1986, is null and void on the grounds
of being simulated and !ctitious.

If the primary motive—avoiding tax payment and prejudicing the petitioners'

right of inheritance—renders the deed void due to lack of valid and lawful
cause.

Unregistered Sale and Its Legal E!ects

Whether the unregistered nature of the sale (contrary to Section 51 of PD No.

1529) a#ects its legal e"cacy and its capacity to bind third parties.

How the lack of registration in$uences the rights of the petitioners and those
of subsequent bona !de purchasers.

Validity of the Extra-Judicial Settlement of Estate

Whether the extra-judicial settlement executed on May 23, 1989, properly

re$ected the rights of the lawful heirs under both the New Civil Code and the
Family Code.

The impact of the publication and registration of the settlement on the

subsequent transfer of title.

The Comparative E"cacy of Competing Transactions

Whether the unrecorded and $awed Deed of Absolute Sale can preempt or
a#ect the registration of the extra-judicial settlement executed by petitioners.

The dispute over whether commercial consideration or the illegal motive

drives the legal validity of a contract in the context of property transactions.

Assessment of Good Faith in the Transaction

Whether cross-claimants Elena Adaon and Nestor Tejon can be regarded as
buyers in good faith despite the evidence of an underlying fraudulent motive
by Marciliano.

How the allegations by petitioners regarding the inadequacy of the payment

evidence a#ect the claim of good faith.

Ruling:

On the Validity of the Deed of Absolute Sale

The court found merit in the petitioners’ challenge, determining that the
Deed of Absolute Sale executed on April 15, 1986, was void and without legal
 e!ect.

The "nding was based on the clear evidence that the sale was motivated
primarily by the intention to avoid estate tax and to defeat the rightful
inheritance claims of the petitioners.

On the E!ect of the Unregistered Nature of the Sale

The unregistered status of the sale, pursuant to Section 51 of PD No. 1529,

was held to be critical: an unregistered contract of sale cannot adversely
a!ect the rights of third parties or override the rights of rightful heirs.

This lack of registration meant that the purported sale did not legally transfer
the property against the rights of petitioners.

On the Extra-Judicial Settlement and Subsequent Transactions

The extra-judicial settlement of estate, though executed and recorded in good

faith by the petitioners, was later undermined by the discovery of the initial
fraudulent sale.

Consequently, the Court of Appeals’ partial modi"cation allocating portions

of the property was rendered without merit in light of the illegal motive
underlying the 1986 deed.

Final Outcome

The decision of the Court of Appeals dated January 7, 1992, was reversed and
set aside.

The Complaint in Civil Case No. C-13973 was ordered dismissed, thereby
a#rming that the fraudulent transactions could not displace the rights of the
lawful heirs.

Ratio:

Invalidity Arising from Unlawful Motive

The court emphasized that a contract’s cause must be lawful; when a sale is
executed primarily to avoid tax obligations and to defeat the lawful
inheritance rights of others, its underlying motive is illegal.

Such an unlawful motive not only vitiates the transaction but renders it null
and void ab initio, as established in prior jurisprudence and under Article
1352 of the Civil Code.

Distinction Between Consideration and Motive

The doctrine distinguishing between consideration (the actual price or

 bene"t conferred) and motive (the underlying reason for the transaction)
was applied.

Even if consideration is nominally present, an illegal or simulated motive

predetermining the contract’s purpose invalidates what would otherwise be
a binding agreement.

Requirement of Registration for Real Property Transactions

The decision underscored the principle that, under Section 51 of PD No. 1529,
registration is the operative act conveying title against third persons.

The failure to register the fraudulent sale barred it from adversely a!ecting
the rights of the petitioners or even bona "de purchasers.

Protection of Heirship Rights

The ruling rea#rms that the legal protection of inheritance rights,

particularly under the provisions of the New Civil Code and Family Code, is
paramount in disputes involving conjugal property.

The rightful heirs’ interests, as determined by their legal relationship and the
presumed nature of the property as conjugal, cannot be waived by a
fraudulent transaction.

Evidentiary Basis and Judicial Determination

The testimonies and cross-examination evidence, which admitted the

intention to avoid tax payment, played a determinative role in establishing
the void nature of the sale.

The overall ratio of the decision rested on balancing contractual principles

with public policy considerations, particularly in safeguarding lawful
inheritance.

Doctrine:

Contractual Validity and the Essential Role of Cause

The case reinforces the doctrine that for any contract to be valid, its cause
must be both present and lawful.

An illegal motive, even when masked by apparent consideration, renders a

contract void, as it subverts the foundational requirement of a valid cause.

Principle of Registration in Conveying Real Property

The decision highlights the importance of the Property Registration Decree

(PD No. 1529), which mandates that the registration act is what ultimately
 conveys and protects title in real property transactions.

Without registration, even a transaction initially supported by a purported

contract fails to a!ect third-party rights.

Simulation and Fraud in Conveyancing

The court’s reliance on the principles laid down in Article 130 of the Family
Code and related jurisprudence illustrates that simulated or "ctitious
transactions, orchestrated with the intent to defraud or avoid legal
obligations, are null from inception.

This doctrine is pivotal in preventing parties from escaping legal

responsibilities through fraudulent arrangements.

Judicial Protection of Inheritance Rights

The case serves as a leading example of how the judiciary protects the rights
of lawful heirs against transactions that are designed to circumvent statutory
and customary inheritance rules.

It underscores that measures aimed at defeating the statutory rights of heirs

—particularly in the context of conjugal property—will not be tolerated by the
courts.

Balancing Commercial Transactions with Public Policy

While commercial transactions are generally upheld if supported by

adequate consideration, this case illustrates that public policy considerations
(such as avoidance of tax and defrauding of heirs) prevail over contractual
formalities.

The doctrine thus articulated has far-reaching implications for any contract
tainted by an ulterior motive that subverts the intended public policy.