A.C. No. 12415 - Lampas-Peralta vs. Ramon

Petitioners are the legitimate children and descendants of the late Marcelo Castillo, Sr., who was married twice; the petitioners come from his previous marriage.
Respondent is Macaria Pasco, the surviving spouse of Marcelo Castillo, Jr. and the widow of Marcelo Castillo, Sr.’s second marriage.
The dispute centers on the ownership of a fishpond in San Roque, Paombong, Bulacan, covered by Transfer Certificate of Title No. 9928.

In December 1932, Gabriel Gonzales, co-owner of the fishpond, executed a deed of sale conveying the property to spouses Marcelo Castillo, Sr. and Macaria Pasco for a total purchase price of P6,000.
The purchase price was to be paid in three installments:

First installment: P1,000 payable upon execution of the deed; this amount was actually composed of P600 (related to a debt owed by one of the vendors to Macaria Pasco) and P400 in cash from the sale proceeds of her nipa land.
Second installment: P2,000 payable on January 25, 1933, made with funds from a loan obtained from Dr. Nicanor Jacinto.
Third installment: P3,000, payable within one year thereafter, with 11% interest (from February 1, 1933, extendible for another year), financed by a loan secured by a mortgage on parcels of land in the name of Macaria Pasco.

Macaria Pasco was already a woman of means prior to her marriage to Marcelo Castillo, Sr., who had a modest income as a provincial treasurer earning only P80 a month.
The funds used for the first installment were derived exclusively from Macaria Pasco’s private assets.
The funds for the second and third installments came from loans:

Although the loans were taken jointly by the spouses, the security for the transactions involved properties that were part of Macaria Pasco’s paraphernal estate.
The involvement of joint liabilities and mortgages raised the question of whether these funds should be classified as conjugal.

The Court of First Instance of Bulacan had dismissed the complaint for partition and accounting filed by the petitioners.
The Court of Appeals affirmed that decision, basing its reasoning on the nature of the funds:

The initial payment was made with Macaria Pasco’s exclusive funds, thus designating that portion as her paraphernal property.
The subsequent payments, being financed by loans and secured by mortgages on property solely in the wife’s name, were deemed to have been paid with conjugal funds due to the joint liability incurred.

The applicable law under the Spanish Civil Code of 1889 was instrumental in the determination, particularly:

Article 1396, which lists property acquired with money belonging exclusively to one spouse as separate (paraphernal).
Article 1401, which defines conjugal property, stressing that property acquired with the common fund is considered the conjugal partnership’s property.

Precedent cases such as Palanca vs. Smith Bell & Co. and Lim Queco vs. Cartagena were cited in discussing the nature of funds and mortgage obligations.

The fishpond was purchased partly with Macaria Pasco’s exclusive funds (1/6 of the purchase price) and partly with conjugal funds (the remaining 5/6 of the purchase price).
Even though payments after the husband’s death were made by the widow to settle the mortgage debt, these did not increase her separate share; rather, they established a lien over the conjugal share for reimbursement purposes.
As a result, the property was held to be undivided, with a mixed ownership reflecting both paraphernal and conjugal contributions.

Whether the fishpond, acquired during the marriage of Marcelo Castillo, Sr. and Macaria Pasco, is to be regarded solely as paraphernal property of the widow or as a mixture of paraphernal and conjugal property.

The issue centers on the proper characterization of the funds used for the purchase:

The first installment was allegedly paid with funds exclusively belonging to Macaria Pasco.
The second and third installments were funded by loans, which raised questions regarding whether these monies were conjugal because of the joint obligation incurred by both spouses during the marriage.

How the mixed nature of the funds affects the rights of the heirs of Marcelo Castillo, Sr., particularly regarding:

The partition of the property.
The determination of each party’s share based on the proportional contribution.
The effect of subsequent payments made by the widow on the mortgage debt and the resulting lien.