Contracts (2) Flashcards
SIMULATION OF CONTRACTS
[a]
What are the two types of Simulation of Contracts?
[b] define
ABSOLUTE simulated contracts
RELATIVE simulated contracts
[b]
ABS - intentionally deceiving others by producing the appearance of a contract that really does not exist - VOID
REL - a contract different from the true agreement - TRUE AGREEMENT is VALID between the parties [unless] it
a. prejudices 3rd persons, or
b. for illegal purpose
a Deed of Absolute Sale executed by the Seller in favor of Buyer B. In the DAS, it says, “S is selling this property unconditionally…in hand paid by B for 10 mil”. The contract really states that an amount of 10 mil had been paid as a consideration for the sale but in reality, there was no money involved
[a] what kind of contract is involved. why?
[b] is the contract valid?
the contract is an absolutely simulated contract because there is no real consideration which is an essential element of contracts (COC)
[b] a contract without all the essential requisites is VOID.
S was really selling his land for 10 mil to B. But, upon advice of a lawyer, probably because of some tax implications, S instead executed a Deed of Donation in favor of B
so you notice that there is really a real agreement here and that is the sale but the other contract, the Deed of Donation, is considered as relatively simulated contract. Here, they have a real agreement but they simply entered into a different one in order to hide the real agreement.
[a]
What kind of contract is this. Why?
[b] is it valid?
The deed of donation here is a relative simulated contract which is a contract different from the true agreement in order to hide the real agreement.
[b] ⚠️
the deed of donation being a relative simulated contract is VALID [and] BINDING provided that it does not prejudice third person nor is it for illegal purposes
S sold his property for 10 mil but since they wanted to hide their true agreement, they instead executed a Deed of Donation. If S now wants to demand payment, B cannot say that why would I pay you 10 mil when we executed a Deed of Donation, so you are giving the property for free
Can S demand payment in spite of the execution of the deed of donation?
Yes, S can demand the payment of 10 million against B because they are bound by their true agreement and not the relative simulation of the contract
X executed a Loan Agreement in favor of Y Whereby X lends Y the amount of P10M which X would deliver after three (3) days.
Just to assure his promise, X executed a Deed of Absolute Sale (DOS1) of a parcel of land in favor of Y, but without receiving any amount from Y.
Unknown to Y, however, X sold the same parcel of land to Z (DOS2) who paid the amount of P12M and who immediately took possession of the same.
When X failed to lend Y P10M, and after discovering the sale (DOS2) made by X to Z, Y now wants to recover the property from Z on the strength of the prior sale to him (DOS1).
Will the case prosper?
No, the DOS is an absolutely simulated contract
There was never a valid title(ownership) transferred to Y as there was no consideration.
The SC ruled in Gardner v. CA & Ladanga v. CA stating that:
“Sale Transaction WITHOUT CONSIDERATION is fictitious, inexistent and therefore VOID. It is therefore not a consummated sale that can validly transfer title to the supposed buyer and it cannot transfer title to third persons because a void title cannot give rise to a valid one”
best evidence of title or ownership over a property?
Transfer Certificate of Title (TCT)
⚠️ ⚠️ ⚠️
What is the general rule on void titles
what is the EXC to void titles
GEN
- **A void title cannot give rise to a valid one
EXC
- Mirror Doctrine or Buyer in Good Faith Doctrine
- A DEFECTIVE TITLE may be a source of a completely legal and valid title provide that the BUYER is:
a. an innocent third person
b. who, in good faith relied on the correctness of the certificate of TITLE or
c. an innocent purchaser for value
⚠️⚠️
What if, Y after receiving the DOS1, sold the property of X it to Mr. A?
A can never really be considered as owner of the property as the sale from Y was invalid.
Can Mr. A validly recover the property from Mr. Z?
“through a void title cannot give rise to a valid one ”HOWEVER,. “IN THE HANDS OF AN INNOCENT PURCHASER FOR VALUE” a void title can actually give rise to a valid one.
(Locsin v. Hizon)
note
Mirror Doctrine or Buyer in Good Faith Doctrine is only applicable to properties covered by a CERTIFICATE OF TITLE (registered property)
What is the right provided for in the Mirror Doctrine?
Mirror Doctrine which echoes the doctrinal rule that every person dealing with
- REGISTERED LAND
- may safely rely on the correctness of the certificate of title issued therefor [and]
- is in no way obliged to go beyond the certificate to determine the condition of the property
(Locsin v. Hizon)
note
if certificate title says Mr. Y is the owner, then I can safely rely that Mr. Y is the owner.
Legal basis for the Mirror Doctrine or Innocent Purchaser for value
PD 1529 s. 55 of Land Registration Act
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[Gen Rule: Void title does not give rise to a valid one]»_space;»
Exc A Void title does give rise to a valid one in the hands of an innocent purchaser for value»_space;»
Exc to the Exc
the party has ACTUAL KNOWLEDGE of facts and circumstances that would impel a reasonably cautious man to make such inquiry
|or|
the purchaser has KNOWLEDGE of a DEFECT [or] the lack of title
- in his vendor or
- of sufficient facts
to induce a reasonably prudent man to inquire into the STATUS OF THE TITEL of the property in litigation.
if so, he is not a buyer in good faith.
Mr. X appears to be the registered owner, but there is annotated on the title an adverse claim - that has not yet been canceled so it is really a defective adverse claim, in fact it had just been annotated few days ago.
The adverse claim says that it is not Mr. X who owns this property but Mr. Y. In fact, the adverse claim attaches not just the affidavit but also the proof of the claim of Mr. Y.
Y sold the Mr. X’s land to A.
is the transfer of the title from Y to A be valid?
No, it will not be valid.
The transfer of a void title cannot give rise to a valid one and the doctrine of buyer in good faith does not apply because annotated on the title is an adverse claim
That is sufficient for Mr. A to investigate further and check the true status of the property.
Mr. X is registered as the owner of a piece of land with title T-1234. However, an adverse claim has been lodged against the property by Mr. Y, asserting that he is the true owner of the land. The adverse claim is supported by documentation suggesting that Mr. Y’s claim predates Mr. X’s registration.
Despite the adverse claim, Buyer Z enters into a purchase agreement with Mr. X to buy the property for fair market value. Buyer Z conducts a cursory check of the title and notices the adverse claim but assumes it to be a minor issue that can be resolved easily. Buyer Z is unaware of the full extent of the documentation supporting Mr. Y’s claim.
After completing the purchase and taking possession of the property, Buyer Z discovers that Mr. Y’s claim is valid, and Mr. Y indeed has a superior title to the land compared to Mr. X. Mr. Y demands that Buyer Z vacate the property and return it to him.
However, Buyer Z asserts that they are an innocent purchaser for value. They argue that they acted in good faith, believing Mr. X to be the rightful owner, and paid a fair price for the property. Buyer Z insists that they should be protected by law and allowed to retain ownership of the property despite Mr. Y’s superior title.
Mr. Y initiates legal proceedings to reclaim the property, arguing that his superior title entitles him to ownership. The court must now determine whether Buyer Z qualifies as an innocent purchaser for value and whether they should be protected from losing the property to Mr. Y, the true owner.
[a] what is the effect if the mirror doctrine applies on part of Buyer Z?
[b] would your answer be the same if buyer Z cannot validly invoke the mirror doctrine?
[a]
Buyer Z, who validly invoke Mirror Doctrine shall be afforded with the protection of the law thus making his purchase from Mr. X valid
This means that even if Mr. Y is confirmed to be the true owner of the property, he may not be able to recover it from Buyer Z
Thus the property cannot be recovered by the true owner
[B]
No, buyer Z who cannot validly claim purchaser in good faith or mirror doctrine does not afford him the protection of the law as a reasonable and cautious prudent man would investigate further as to the adverse claim of the title.
In that case, Y, being the true owner, can recover the property from Mr. A.
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A forged B’s signature in a Deed of Absolute Sale whereby it appears that B sold lot No. 1234 to A for 10m.
Armed with the Deed of Absolute sale purportedly signed by B, A negotiated with C, who was unaware of the forgery, and sold Lot. No. 1234 to C who paid 12m. May B recover the property from C? Why or why not?
There is no mention in the problem, that when C purchased the property from A, the latter was already the registered owner
Since, there was no mention of a title in the name of A in this problem, C therefore, who was dealing with Mr. A could not rely on anything because the property has not been mentioned to be under the name of Mr. A in the problem
So, even if he paid 12 million, even if he was not aware of the forgery, he cannot say that he is a buyer in good faith. Therefore, B can recover the property from C. When that happens, C may now recover the 12 million he paid to Mr. A, because A is not really the owner
This is an example of a void title which will not give rise to a valid one. The void title is the title of A. it is a void title because the deed of sale is a forgery, and it cannot give rise to a valid one in favour of C.
A forged B’s signature in a Deed of Absolute Sale whereby it appears that B sold Lot No. 1234 to A for 10m. B’s certificate of Title was then canceled and a new one was issued to A. Armed with this TCT, A negotiated with C, who was unaware of the forgery, and sold Lot No. 1234 to C, who paid 12m.
[A]
May B recover the property from C? Why or Why not?
[B]
What are the remedies of B?
[A]
B cannot recover the property from C.
Mr. A registered the forged deed of absolute sale and the register of deeds issued a new transfer certificate of title in favour of A
C is an innocent purchaser for value and most likely. AND THEREFORE HE IS PROTECTED BY THE MIRROR DOCTRINE - therefore he can rely on what appears on the title. So his possession of the property will be protected by law
[B]
B can file a case against A for forgery, either criminal or claim for the value of the property.
