Adamson University

College of Law

Obligations and Contracts

Simulation of Contracts
Pangadil et al. vs Court of First Instance,G.R. No. L-32437
FACTS
Sometime in 1941, a parcel of land owned by petitioner's father was conveyed to the private respondents
in an oral transaction. In 1946, petitioner Salandang Pangadil filed in respondent court an action praying
for her appointment as guardian of her minor brothers and sisters who are the other petitioners in this
case, to enable her to execute the necessary document to formalize the verbal sale executed by their
father. The petition was granted and subsequently the questioned document, entitled "Ratification De Una
Venta", acknowledging the sale made by their deceased father in favor of private respondent for the
consideration of P750.00 was presented to court for approval. Upon approval of the document, the
guardianship proceeding was declared closed. On January 7, 1969, petitioners filed Civil Case No. 2187
seeking the annulment of the aforementioned document and the declaration of the nullity of the court
order approving said document. They contended that the transaction was a mortgage and not a sale as
claimed by private respondents. Petitioner also alleges that the document is inexistent and void ab initio
for being a simulated or fictitious contract.

ISSUE
Whether or not there the questioned document is a simulated contract

RULING
No. The Supreme Court held here is less legal basis to hold that the questioned document is inexistent
and void ab initio for being supposedly a simulated or fictitious contract. Under the law, the simulation of a
contract may either be absolute or relative. It is only when the contract is absolutely simulated or fictitious
that it is deemed void.  There is absolute simulation "when the parties do not intend to be bound at all." In
case the parties merely conceal their true agreement, the simulation is relative, and the contract with that
defect is binding upon the parties unless it prejudices a third person and is intended for a purpose
contrary to law, morals, good customs, public order or public policy.

The document in question may not be deemed absolutely simulated or fictitious. By petitioners' own
admission, they intended to be bound thereby; they merely contend that they thought it was to ratify a
contract of oral mortgage, instead of an oral sale of land. In short, it is not a contract wherein the parties
do not intend to be bound at all which would thereby make it absolutely simulated and, therefore, void.
Petitioners, accordingly, may not seek umbrage under the provision that an action to annul an inexistent
contract is imprescriptible.

Umali vs Court of Appeals, 189 SCRA 529

FACTS:

Plaintiff Santiago Rivera is the nephew of plaintiff Mauricia Mur Vda. de Castillo. The Castillo family are
the owners of parcel of land located in Lucena City which was given as security for a loan from the
development Bank of the Philippines (DBP) for their failure to pay the amortization, foreclosure of the said
property was about to be initiated. This problem was made known to Santiago Rivera, who proposed to
them the conversion into subdivision of the four parcels of land adjacent to the mortgaged property to
raise the necessary fund. The idea was accepted by the Castillo family and to carry out the project, a
memorandum of agreement was executed by and between Slobec Realty and Development Inc.
represented by its president Santiago Rivera and Castillo family. In this agreement, Santiago Rivera
obliged himself to pay the Castillo family the sum of P70,000 immediately after the execution of the
agreement and to pay additional amount of P40,000 after the property has been converted into a
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subdivision. Rivera, with agreement approached Mr. Modesto Cervantes, president of defendant
Bormaheco and proposed to purchase from Bormaheco two tractors. In 1971, Slobec, through Rivera,
executed in favor of Bormaheco a chattel mortgage over the said equipment as security for the payment
of the aforesaid balance of P180,000 among others. Meanwhile, for violation of the terms and conditions
of the counter-guaranty agreement, the properties of the Castillos were foreclosed. In 1976, the
petitioners filed an action for annulment of title in the CFI. Petitioners contend that all the transactions are
void for being entered into in fraud and without the consent and approval of the Court of First Instance of
Quezon, (Branch IX) before whom the administration proceedings has been pending. CFI declared the
contracts as void for being fictitious and simulated. CA reversed decision. Petitioners appealed.

ISSUE:

Whether or not there the transactions entered by the parties are absolutely simulated

RULING:

No. There is absolute simulation, which renders the contract null and void, when the parties do not intend
to be bound at all by the same.  The basic characteristic of this type of simulation of contract is the fact
that the apparent contract is not really desired or intended to either produce legal effects or in any way
alter the juridical situation of the parties. The subsequent act of Rivera in receiving and making use of the
tractor subject matter of the Sales Agreement and Chattel Mortgage, and the simultaneous issuance of a
surety bond in favor of Bormaheco, concomitant with the execution of the Agreement of Counter-
Guaranty with Chattel/Real Estate Mortgage, conduce to the conclusion that petitioners had every
intention to be bound by these contracts. The occurrence of these series of transactions between
petitioners and private respondents is a strong indication that the parties actually intended, or at least
expected, to exact fulfillment of their respective obligations from one another.

Neither will an allegation of fraud prosper in this case where petitioners failed to show that they were
induced to enter into a contract through the insidious words and machinations of private respondents
without which the former would not have executed such contract. To set aside a document solemnly
executed and voluntarily delivered, the proof of fraud must be clear and convincing.  We are not
persuaded that such quantum of proof exists in the case at bar.

Object : Impossible things or Services

FACTS:

Simeon Blas contracted a first marriage with Marta Cruz sometime before 1898. They had three children,
only one of whom, Eulalio, left children, namely, Maria Gervacio Blas, one of the plaintiffs, Marta Gervacio
Blas, one of the defendants, and LazaroGervacio Blas. Lazaro died in 1950, and is survived by three
legitimate children who are plaintiffs herein, namely, Manuel Gervacio Blas, Leoncio Gervacio Blas and
Loida Gervacio Blas. Marta Cruz died in 1898, and the following year, Simeon Blas contracted a second
marriage with Maxima Santos. At the time of this second marriage, no liquidation of the properties
required by Simeon Blas and Marta Cruz was made. Three of the properties left are fishponds located in
Obando, Bulacan.

On December 26, 1936, only over a week before his death on January 9, 1937, Simeon Blas executed a
last will and testament. In the said testament Simeon Blas gave to Maxima Santos de Blas one half of all
her properties. MAXIMA SANTOS DE BLAS on the other hand made a document giving one half of all her
inheritance to the children of maximo in the first marriage, labelled as exhibit “A”. As a result, the children
of Simeon by his first marriage brought an action against the estate of Maxima asking for the enforcement
of the promise contained in the document. It is contended that the promise is not enforceable because it
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lacks a sufficient cause or consideration and that, being a contract with respect to future inheritance, it
falls within the purview of the prohibition under Art. 1347.

ISSUE:

Whether or not the contract involving future inheritance should be declared void

RULING:

NO. Exhibit “A” is not a contract on future inheritance. it is an obligation or promise made by the maker to
transmit one-half of her share in the conjugal properties acquired with her husband, which properties are
stated or declared to be conjugal properties in the will of the husband. The conjugal properties were in
existence at the time of the execution of Exhibit “A” on December 26, 1936. As a matter of fact, Maxima
Santos included these properties in her inventory of her husband’s estate of June 2, 1937. The promise
does not refer to any properties that the maker would inherit upon the death of her husband, because it is
her share in the conjugal assets. That the kind of agreement or promise contained in Exhibit “A” is not
void under Article 1271(now Art 1347) of the old Civil Code, has been decided by the Supreme Court of
Spain, thus: It will be noted that what is prohibited to be the subject matter of a contract under Article
1271 of the Civil Code is “future inheritance.”

The Supreme Court held that future inheritance is any property or right not in existence or capable of
determination at the time of the contract, that a person may in the future acquire by succession. The
properties subject of the contract Exhibit “A” are well defined properties, existing at the time of the
agreement, which Simeon Blas declares in his statement as belonging to his wife as her share in the
conjugal partnership. Certainly his wife’s actual share in the conjugal properties may not be considered as
future inheritance because they were actually in existence at the time Exhibit “A” was executed.