YU BUN GUAN V.

ONG
(G.R. No. 144735, October 18, 2001)

DOCTRINE: A simulated deed of sale has no legal effect, and the transfer certificate of title issued in
consequence thereof should be cancelled. Pari delicto does not apply to simulated sales.

FACTS:

Yu Bun Guan and Elvira Ong were married and had 3 children. During their marriage, Ong
purchased out of her personal funds a parcel of land (JP Rizal Property). Before they got separated,
Ong reluctantly agreed to Guan’s badgering that she execute a Deed of Sale on said property in his
favor, but on the promise that he would construct a commercial building for the benefit of the
children. The consideration for the simulated sale was the execution of a Deed of Sale in favor of the
3 children and payment of Ong’s loan from Allied Bank. The supposed valuable consideration in the
Deed of Sale, which was P200,000, was not paid. To ensure that Guan keeps his promise, Ong did
not deliver the owner’s copy to him. Guan filed with RTC Makati a Petition for Replacement of an
owner’s duplicate title which falsely claiming that the owner’s copy was lost. RTC granted. When
Ong learned of this, she filed an Affidavit of Adverse Claim asking the court to declare the sale as
null and void. Guan claimed that the JP Rizal property was being offered to him for sale when he
was still a Chinese citizen so he used Ong as his dummy and agreed to have the sale executed in her
name, although the consideration was his own and from his personal funds. He averred that Ong
was in pari delicto being privy to a simulated sale.

RTC Makati declared that the Deed of Sale was void and that the in pari delicto rule only applies to
existing contracts with an illegal cause or object, not to simulated or fictitious contracts or those
that were inexistent due to lack of an essential requisite such as cause or consideration.
Furthermore, it was void for having been simulated & executed during their marriage. CA affirmed.

ISSUE: WON the Deed of Sale was fictitious, simulated and inexistent. WON in pari delicto applies.

HELD:

Yes, the Deed of Sale was completely simulated and hence, void and without effect. A contract of
sale is null and void and produces no effect whatsoever where the same is without cause or
consideration in that the purchase price which appears thereon as paid has in fact never been paid
by the purchaser to the vendor. In this case, no portion of the P200,000 consideration stated in the
Deed was ever paid and neither party had any intention whatsoever to pay that amount. Instead,
the Deed was executed merely to facilitate the transfer of the property to Guan pursuant to an
agreement between the parties to enable him to construct a commercial building and to sell the
Juno property to their children. Being merely a subterfuge, that agreement cannot be taken as a
consideration for the sale.

The principle of in pari delicto, which leaves parties who are equally at fault and denies recovery by
either of them, does not apply with respect to inexistent and void contracts. It applies to cases
where the nullity arises from the illegality of the consideration or the purpose of the contract.

Hence, the title must be cancelled because the Deed of Sale transferring ownership to Guan was
completely simulated, void and without effect.