Mapalo vs. Mapalo

A contract of sale that states a consideration but in fact has absolutely no consideration — the price having never been paid nor intended to be paid — is an absolutely simulated or fictitious contract that is inexistent and void ab initio, not merely voidable for false cause, and the action or defense to declare its inexistence does not prescribe. The distinction under the Old Civil Code between a contract that expresses a false consideration (where some real, licit consideration exists but is not the one stated) and one utterly without consideration (where none exists at all) determines whether the contract is merely voidable subject to a four-year prescriptive period or absolutely void and imprescriptible.

The spouses Miguel Mapalo and Candida Quiba, simple illiterate farmers, owned a residential land in Manaoag, Pangasinan, covered by Original Certificate of Title No. 46503. Out of affection for Miguel’s brother Maximo, who was about to marry, they decided to donate the eastern half of the land to him. They delivered the certificate of title to Maximo but were deceived into signing, on October 15, 1936, a document that turned out to be a deed of absolute sale over the entire land in Maximo’s favor. The document recited a consideration of ₱500, but the spouses never received any payment. Maximo subsequently registered the deed and obtained a transfer certificate of title over the whole property. Years later, he sold the entire land to the Narciso spouses, who then sought to recover possession of the western half, which the Mapalo spouses had continuously occupied since erecting a dividing fence in 1936.

• The Property and the 1936 Transaction: The spouses Miguel Mapalo and Candida Quiba were registered owners of a 1,635-square-meter residential land under O.C.T. No. 46503. Intending to donate only the eastern half to Maximo Mapalo (Miguel’s brother) on the occasion of his marriage, they handed over the title. On October 15, 1936, they signed a document prepared by an attorney-notary public who, together with Maximo, led them to believe it was a deed of donation covering the eastern half. The document was in fact a deed of absolute sale over the entire land, reciting a consideration of ₱500. The spouses received nothing of value. The attorney-notary public was investigated but did not testify at trial to rebut the allegation of fraud.

• Continued Possession and Fence: Immediately after the execution, the Mapalo spouses built a permanent fence segregating the eastern half from the western half. They continuously possessed the western half up to the time of the litigation.

• Registration and Subsequent Sale: Unknown to the Mapalo spouses, Maximo Mapalo registered the deed of sale on March 15, 1938, obtaining Transfer Certificate of Title No. 12829 over the entire land. On October 20, 1951, Maximo sold the entire land to Evaristo, Petronila, Pacifico, and Miguel, all surnamed Narciso, for ₱2,500. The sale was registered on November 5, 1951, and T.C.T. No. 11350 was issued in the Narcisos’ names. The Narcisos took possession only of the eastern half in 1951.

• Finding of Bad Faith: The trial court found that the Narcisos were not purchasers in good faith. Pacifico Narciso admitted staying on the western side before being removed by the Mapalo spouses in 1940; that Miguel Mapalo was in possession of the western part when they bought the property; and crucially, that before buying, Pacifico went to the Mapalo spouses to ask if they would permit Maximo to sell the land. The trial court concluded this act demonstrated prior knowledge of the Mapalo spouses’ ownership over the western half and of the flaw in Maximo’s title. The Court of Appeals indicated that, barring prescription, the trial court’s judgment could have been upheld, effectively sustaining the finding of bad faith.

• Inexistence of the Contract: Petitioners (the Mapalo spouses) argued that the deed of October 15, 1936, insofar as it purported to sell the western portion, was absolutely simulated or fictitious because there was a total absence of consideration. They maintained that the document was not merely voidable for fraud or false cause but was void ab initio and produced no legal effect whatsoever. Consequently, the action to declare its nullity could not be barred by prescription.

• Prescription Inapplicable: Petitioners contended that prescription does not run against void and inexistent contracts, and that mere lapse of time cannot validate a contract that is null and void from the beginning.

• Respondents’ Bad Faith: Petitioners asserted that the Narcisos were purchasers in bad faith who had actual knowledge of the Mapalo spouses’ ownership and possession of the western portion, and thus could not rely on the Torrens title.

• Voidable Contract and Prescription: Respondents (the Narcisos and Maximo Mapalo) maintained that the consent of the Mapalo spouses to the 1936 deed was obtained by fraud, rendering the contract voidable under the Old Civil Code. They argued that the action to annul a voidable contract on the ground of fraud prescribes in four years from the discovery of the fraud, which the Court of Appeals correctly reckoned from the date of registration of the sale on March 15, 1938. On this basis, the action was time-barred.

• Validity of Title: Respondents claimed to be purchasers for value and in good faith, relying on the clean Torrens title of Maximo Mapalo, and thus their title over the entire land was indefeasible.

• Nature of the Contract: Whether the deed of sale of October 15, 1936, as it concerned the western half of the land, was absolutely void ab initio for lack of consideration or merely voidable for fraud and/or false cause.

• Prescription: Whether the action to annul the deed of sale and the titles derived from it had prescribed under the Old Civil Code.

• Good Faith of the Purchasers: Whether the Narcisos were purchasers in good faith who could rely on the Torrens title.

• Nature of the Contract: The contract was void ab initio and inexistent as to the western portion. Although consent was present (albeit vitiated by fraud), the element of cause or consideration was completely absent. The Mapalo spouses never received the stated ₱500 consideration and never intended to donate the western half. Under Articles 1261 and 1275 of the Old Civil Code, a contract without cause produces no effect whatsoever. The deed stated a consideration of ₱500 that in fact never existed, making it not merely a case of a false cause under Article 1276 — which presupposes that some real and licit consideration exists behind the false one — but a case of total absence of cause. Accordingly, the contract was absolutely simulated and void, not voidable. The ruling applied the distinction clarified by Spanish commentators Manresa and Castán and followed the precedent in Ocejo, Perez & Co. vs. Flores, 40 Phil. 921.

• Prescription: The action to declare the inexistence of the contract did not prescribe. The inexistence of a contract is permanent and incurable; it cannot be the subject of confirmation or prescription. The principle, now codified in Article 1410 of the New Civil Code, was recognized as early as Tipton vs. Velasco, 6 Phil. 67: “mere lapse of time cannot give efficacy to contracts that are null and void.” The Court of Appeals erred in applying the four-year prescriptive period for voidable contracts.

• Good Faith of the Purchasers: The trial court’s finding that the Narcisos were purchasers in bad faith was undisturbed by the Court of Appeals and was sustained. Pacifico Narciso’s act of asking the Mapalo spouses for permission before buying revealed his knowledge of their ownership and possession, defeating any claim of good faith.

• Distinction Between False Cause and Absence of Cause — Under the Old Civil Code (and carried into the New Civil Code), a contract that states a false consideration is one where some real and licit consideration exists but is not the one expressed; such a contract is voidable under Article 1276 unless the real consideration is proved. By contrast, a contract that has absolutely no consideration — where the stated consideration is entirely fictional and never existed — is inexistent and void ab initio under Article 1275. The statement of a fictitious consideration cannot convert an inexistent contract into a merely voidable one.

• Imprescriptibility of Action to Declare Inexistence — An action or defense to declare the inexistence of a contract does not prescribe. The inexistence of a void contract is permanent and incurable, not susceptible to ratification or prescription. This principle, recognized in early jurisprudence and later codified in Article 1410 of the New Civil Code, applies even to contracts governed by the Old Civil Code.

• Effect of Total Absence of Consideration in a Sale — A contract of purchase and sale is null and void and produces no effect whatsoever where the purchase price stated as paid has in fact never been paid by the buyer to the seller. (Ocejo, Perez & Co. vs. Flores, 40 Phil. 921, applied.)

• “…the inexistence of a contract is permanent and incurable and cannot be the subject of prescription. ‘La inexistencia es perpetua e insubsanable no pudiendo ser objecto de confirmacion ni prescripcion’ (Castán).”

• “…where, as in this case, there was in fact no consideration, the statement of one in the deed will not suffice to bring it under the rule of Article 1276 of the Old Civil Code as stating a false consideration.”

• “…mere lapse of time cannot give efficacy to contracts that are null and void.” (Citing Tipton vs. Velasco, 6 Phil. 67)

• Ocejo, Perez & Co. vs. Flores, 40 Phil. 921 — Applied as controlling precedent: a contract of sale is null and void and produces no effect where the purchase price stated as paid was never actually paid, establishing total absence of consideration.

• Eugenio v. Perdido, 97 Phil. 41, 42-43 — Cited for the proposition that an inexistent contract under the present classification does not prescribe, a principle recognized since early jurisprudence.

• Tipton vs. Velasco, 6 Phil. 67 — Cited for the foundational principle that mere lapse of time cannot give efficacy to null and void contracts.

• Article 1261, Old Civil Code — Essential requisites of a contract: consent, object, and cause. Applied to determine that cause was absent despite the presence of consent and object.

• Article 1275, Old Civil Code — Contracts without cause produce no effect whatsoever. Applied to declare the contract inexistent and void ab initio.

• Article 1276, Old Civil Code — A statement of a false cause renders a contract voidable unless founded on another real and licit cause. Distinguished; the statement of a fictional price when no consideration existed at all did not fall under this provision but under Article 1275.

• Article 1301, Old Civil Code — The action for annulment on the ground of falsity of consideration prescribes in four years from consummation of the contract. Held inapplicable because the contract was void for absence of cause, not voidable for false cause.

• Article 1410, New Civil Code — An action or defense to declare the inexistence of a contract does not prescribe. Applied as a codification of a pre-existing principle.

Chief Justice Bengzon, and Justices Bautista Angelo, Concepcion, Reyes, J.B.L., Barrera, Dizon, Regala, Makalintal, Zaldivar, and Sanchez.