In the Philippines, a deed of sale remains binding even if it states a price lower than the actual amount agreed upon, particularly between the involved parties and their inheritors. The Supreme Court has affirmed this principle, emphasizing that such contracts are valid as long as there is a clear intent to transfer ownership, irrespective of the stated price. Moreover, selling a specific portion of a jointly-owned property is permissible, effectively transferring the seller’s share in the co-ownership, despite lacking consent from other co-owners. This ruling provides clarity on the rights and obligations in property sales involving misstated values and co-owned lands, ensuring contractual stability and predictability in property transactions.

The Case of the Undervalued Land: Can a ‘False’ Price Void a Sale?

The case revolves around a parcel of land originally owned by the spouses Aurelio and Esperanza Balite. Following Aurelio’s death, Esperanza and their children inherited the property, becoming co-owners. Esperanza, needing funds for medical expenses, sold a portion of her share to Rodrigo Lim. While the deed of sale indicated a price of P150,000, a separate agreement revealed the actual price to be P1,000,000. Several of Esperanza’s children contested the sale, arguing that the falsified price rendered the deed invalid and that they did not give their consent to the sale. The dispute reached the Supreme Court, which was tasked with determining the validity of the deed and the extent of Rodrigo Lim’s rights to the property.

The Court addressed the claim that the undervalued consideration invalidated the sale by explaining the concept of simulated contracts. According to Article 1345 of the Civil Code, a contract’s simulation can be absolute, where parties have no intention to be bound, or relative, where they conceal their true agreement. In the Balite case, the Court found a relative simulation. Despite the false price, both Esperanza and Rodrigo intended to transfer ownership of the land. As such, the agreement remained valid and enforceable. All the essential elements for the validity and perfection of contracts were present.

Article 1353 of the Civil Code states: “The statement of a false cause in contracts shall render them void, if it should not be proved that they were founded upon another cause which is true and lawful.”

Building on this principle, the Court emphasized that a relatively simulated contract is binding, and the parties are governed by their true agreement. While the deed stated a lower price, the actual consideration was P1,000,000, as evidenced by their Joint Affidavit. The Court also clarified that while the contract remains enforceable, the government retains the right to collect taxes based on the actual sale price. The motives for undervaluing the sale price do not negate the consideration or make the contract unlawful.

Petitioners also argued that the sale should be considered an equitable mortgage due to the allegedly inadequate price, citing Articles 1602 and 1604 of the Civil Code. However, the Court clarified that for Articles 1602 and 1604 to apply, the contract must merely *purport* to be a sale, while the actual intent of the parties should be that the transaction is, in fact, one of mortgage.

The Court ruled out the existence of an equitable mortgage. There was no evidence suggesting that Esperanza and Rodrigo agreed to secure an existing debt. On the contrary, the records strongly indicated that they intended to enter into an absolute sale. Their voluntary, written acceptance of the contract terms also supported this finding. It showed no signs of coercion. Ultimately, the sale could not be deemed an equitable mortgage. Thus, the principle of interpretation dictates that where the terms of a contract are clear and unambiguous, they should be interpreted literally. This adherence maintains legal certainty and respects the parties’ intentions.

In examining the issue of co-ownership, the Court affirmed that a co-owner has the right to sell their undivided interest in a property, as provided under Article 493 of the Civil Code. This is irrespective of the consent of the other co-owners. This right, however, is limited to their aliquot share and does not extend to specific, physically defined portions of the property. The sale made by Esperanza was, therefore, valid only in respect to her pro indiviso share. It’s subject to the outcome of a partition of the co-owned property.

Article 493 of the Civil Code states: “Each co-owner shall have the full ownership of his part and of the fruits and benefits pertaining thereto, and he may therefore alienate, assign or mortgage it, and even substitute another person in its enjoyment, except when personal rights are involved.”

Additionally, the Court held that the transfer of property occurred on April 16, 1996. This corresponds to the execution date of the Deed of Absolute Sale, and not on the date of its registration. By selling her share during her lifetime, Esperanza effectively removed it from her estate; hence, her heirs could not claim it upon her death. This distinction is crucial for understanding when property rights transfer in sales transactions.

In determining the outstanding liability of Rodrigo, the Court deferred to the factual findings of the Court of Appeals. The CA had relied on an August 24, 1996, receipt signed by Antonio Balite, one of Esperanza’s children, which stated that the remaining balance was P350,000. Subsequent payments reduced this amount to P120,000. The Supreme Court clarified its role as an appellate court, which does not generally review the factual determinations of lower courts unless there is a clear error of law or misapprehension of facts. As such, the CA’s decision was upheld. Its finding on the remaining unpaid balance was determined to be accurate, and based on the documentary evidence presented.

FAQs

What was the key issue in this case?	The key issue was the validity of a deed of sale with an allegedly falsified price and its effect on co-owned property. The Court needed to determine whether the contract could be considered void.
Is a deed of sale valid if it states a price lower than the actual price?	Yes, the Supreme Court held that the deed is still valid as a relatively simulated contract if the parties intended to transfer ownership, regardless of the misstated price. The parties will be bound by their actual agreement, and the government can collect appropriate taxes based on the correct purchase price.
What is a simulated contract, and how does it affect the validity of a sale?	A simulated contract is one where the parties do not intend to be bound (absolute simulation) or where they conceal their true agreement (relative simulation). Only absolutely simulated contracts are void, while relatively simulated contracts remain valid and enforceable.
Can a co-owner sell their share of a co-owned property without the consent of other co-owners?	Yes, a co-owner has the right to sell their undivided interest in the property. The sale is valid, but only with respect to the seller’s aliquot share in the co-ownership.
When does the transfer of property rights occur in a sale?	The transfer of property rights occurs on the date the Deed of Absolute Sale is executed, not on the date of its registration. This distinction affects inheritance claims and other legal implications.
What is an equitable mortgage, and how does it differ from an absolute sale?	An equitable mortgage is a transaction that appears to be a sale. However, the parties’ intention is to secure an existing debt. The Court clarified that to consider a contract to be an equitable mortgage, the parties must actually intend the transaction to secure a debt, and should not simply purport to be a contract of sale.
What happens if the purchase price in a Deed of Sale is inadequate or unconscionably low?	Even if the purchase price is allegedly low, it does not automatically render the transaction an equitable mortgage unless there’s clear evidence that the intent was to secure a debt. Additionally, government still has the right to collect the correct taxes based on actual sale price.
What was the remaining amount that the respondent had to pay the petitioners?	The appellate court’s findings showed that the respondent’s remaining balance was P120,000. This was based on the August 24, 1996, receipt and subsequent payments made by the respondent.

In conclusion, the Supreme Court’s decision in this case underscores the importance of clear contractual intent and adherence to established legal principles. The ruling provides valuable guidance on the validity of deeds of sale with misstated prices and sales involving co-owned properties. In addition, it re-iterates a number of other principles, clarifying rights and obligations in real estate transactions.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: Heirs of Balite v. Lim, G.R. No. 152168, December 10, 2004