Heirs of Ureta Sr VS Heirs of Ureta

Facts:
In his lifetime, Alfonso Ureta (Alfonso) begot 14 children, namely, Policronio, Liberato,
Narciso, Prudencia, Vicente, Francisco, Inocensio, Roque, Adela, Wenefreda, Merlinda,
Benedicto, Jorge, and Andres. The children of Policronio (Heirs of Policronio), are opposed to
the rest of Alfonsos children and their descendants (Heirs of Alfonso).
Alfonso was financially well-off during his lifetime. He owned several fishpens, a
fishpond, a sari-sari store, a passenger jeep, and was engaged in the buying and selling of copra.
Policronio, the eldest, was the only child of Alfonso who failed to finish schooling and instead
worked on his fathers lands.

Sometime in October 1969, Alfonso and four of his children, namely, Policronio,
Liberato, Prudencia, and Francisco, met at the house of Liberato. Francisco, who was then a
municipal judge, suggested that in order to reduce the inheritance taxes, their father should make
it appear that he had sold some of his lands to his children. Accordingly, Alfonso executed four
(4) Deeds of Sale covering several parcels of land in favor of Policronio, 1[4] Liberato,2[5]
Prudencia,3[6] and his common-law wife, Valeriana Dela Cruz. 4[7] The Deed of Sale executed on
October 25, 1969, in favor of Policronio, covered six parcels of land, which are the properties in
dispute in this case.

Since the sales were only made for taxation purposes and no monetary consideration was given,
Alfonso continued to own, possess and enjoy the lands and their produce.

When Alfonso died on October 11, 1972, Liberato acted as the administrator of his fathers
estate. He was later succeeded by his sister Prudencia, and then by her daughter, Carmencita
Perlas. Except for a portion of parcel 5, the rest of the parcels transferred to Policronio were

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tenanted by the Fernandez Family. These tenants never turned over the produce of the lands to
Policronio or any of his heirs, but to Alfonso and, later, to the administrators of his estate.

Policronio died on November 22, 1974. Except for the said portion of parcel 5, neither
Policronio nor his heirs ever took possession of the subject lands.

On April 19, 1989, Alfonsos heirs executed a Deed of Extra-Judicial Partition, 5[8] which
included all the lands that were covered by the four (4) deeds of sale that were previously
executed by Alfonso for taxation purposes. Conrado, Policronios eldest son, representing the
Heirs of Policronio, signed the Deed of Extra-Judicial Partition in behalf of his co-heirs.

After their fathers death, the Heirs of Policronio found tax declarations in his name covering the
six parcels of land. On June 15, 1995, they obtained a copy of the Deed of Sale executed on
October 25, 1969 by Alfonso in favor of Policronio.

Not long after, on July 30, 1995, the Heirs of Policronio allegedly learned about the Deed
of Extra-Judicial Partition involving Alfonsos estate when it was published in the July 19, 1995
issue of the Aklan Reporter.
CONFLICT:

Believing that the six parcels of land belonged to their late father, and as such, excluded
from the Deed of Extra-Judicial Partition, the Heirs of Policronio sought to amicably settle the
matter with the Heirs of Alfonso. Earnest efforts proving futile, the Heirs of Policronio filed a
Complaint for Declaration of Ownership, Recovery of Possession, Annulment of Documents,
Partition, and Damages6[9] against the Heirs of Alfonso.

ISSUE:
(1) whether or not the Deed of Sale was valid;
(2) whether or not the Deed of Extra-Judicial Partition was valid

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HELD:
The Court finds no cogent reason to deviate from the finding of the CA that the Deed of Sale is
null and void for being absolutely simulated. The Civil Code provides:

Art. 1345. Simulation of a contract may be absolute or relative. The former takes place when the
parties do not intend to be bound at all; the latter, when the parties conceal their true agreement.
Art. 1346. An absolutely simulated or fictitious contract is void. A relative simulation, when it
does not prejudice a third person and is not intended for any purpose contrary to law, morals,
good customs, public order or public policy binds the parties to their real agreement.

In absolute simulation, there is a colorable contract but it has no substance as the parties have no
intention to be bound by it. The main characteristic of an absolute simulation is that the apparent
contract is not really desired or intended to produce legal effect or in any way alter the juridical
situation of the parties. As a result, an absolutely simulated or fictitious contract is void, and the
parties may recover from each other what they may have given under the contract. However, if
the parties state a false cause in the contract to conceal their real agreement, the contract is
relatively simulated and the parties are still bound by their real agreement. Hence, where the
essential requisites of a contract are present and the simulation refers only to the content or terms
of the contract, the agreement is absolutely binding and enforceable between the parties and their
successors in interest.

Lacking, therefore, in an absolutely simulated contract is consent which is essential to a valid and
enforceable contract.7[14] Thus, where a person, in order to place his property beyond the reach
of his creditors, simulates a transfer of it to another, he does not really intend to divest himself of
his title and control of the property; hence, the deed of transfer is but a sham. 8[15] Similarly, in
this case, Alfonso simulated a transfer to Policronio purely for taxation purposes, without
intending to transfer ownership over the subject lands.

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 The primary consideration in determining the true nature of a contract is the intention of
the parties. If the words of a contract appear to contravene the evident intention of the parties, the
latter shall prevail. Such intention is determined not only from the express terms of their
agreement, but also from the contemporaneous and subsequent acts of the parties. 9[16] The true
intention of the parties in this case was sufficiently proven by the Heirs of Alfonso.

The Heirs of Alfonso established by a preponderance of evidence 10[17] that the Deed of Sale was
one of the four (4) absolutely simulated Deeds of Sale which involved no actual monetary
consideration, executed by Alfonso in favor of his children, Policronio, Liberato, and Prudencia,
and his second wife, Valeriana, for taxation purposes.

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