G.R. No. 156125 - Munoz, Jr. vs. Ramirez

The disputed property is a 77‐square meter residential house and lot located at 170 A. Bonifacio Street, Mandaluyong City.
It is covered by Transfer Certificate of Title (TCT) No. 7650 in the name of petitioner Francisco Muaoz, Jr.
Previously, the property was covered by TCT No. 1427 in the name of Erlinda Ramirez, who is married to Eliseo Carlos (the respondents).

On April 6, 1989, Eliseo (a Bureau of Internal Revenue employee) mortgaged TCT No. 1427—with Erlinda’s consent—to the Government Service Insurance System (GSIS) to secure a P136,500.00 housing loan payable over twenty years via monthly salary deductions of P1,687.66.
The respondents later constructed a 36‐square meter, two-story residential house on the lot covered by TCT No. 1427.

On July 14, 1993, the title to the property was transferred to the petitioner by virtue of a Deed of Absolute Sale dated April 30, 1992, executed by Erlinda (in her own name and as attorney-in-fact for Eliseo) for a stated consideration of P602,000.00.
On September 24, 1993, the respondents filed a complaint with the RTC for annulment of the deed, contending that no valid sale occurred but only a mortgage transaction and that the documents were falsified.

The petitioner extended a P600,000.00 loan to them to cancel the GSIS mortgage secured by TCT No. 1427.
Erlinda received a P200,000.00 advance to settle the GSIS mortgage, which was then applied to pay an amount of P176,445.27 to GSIS.
Erlinda executed documents (purporting to be a mortgage contract and an affidavit of waiver of rights) that were later alleged to be signed with forged signatures by Eliseo.

There was a valid contract of sale with an implied promise to repurchase within one year and a subsequent lease agreement for a monthly rent of P500.00 during the repurchase period.
Upon non-compliance with the agreement (failure to repurchase and pay rentals), he proceeded with the title transfer and later filed an ejectment case.

At the RTC (January 23, 1997), the complaint for annulment was dismissed on the grounds that the property was Erlinda’s exclusive paraphernal property inherited from her father and that the sale was valid even without Eliseo’s consent.
The respondents elevated the case to the Court of Appeals (CA) where, on June 25, 2002, the CA held:

The subject property, originally Erlinda’s paraphernal property, became conjugal property when improvements were made using conjugal funds (via Eliseo’s salary deductions).
Accordingly, the sale or mortgage transaction required Eliseo’s consent.
The CA declared the deed of absolute sale void and set aside the RTC decision, later denying the petitioner’s motion for reconsideration.

The petitioner filed a petition for review on certiorari challenging the CA’s decision.
He argued that:

The CA misapplied Article 158 of the Civil Code and relevant jurisprudence (Calimlim-Canullas) by converting the paraphernal nature of the property into conjugal.
The respondents’ own admissions and evidentiary presentations favored a valid contract of sale rather than an equitable mortgage.

The property acquired during the marriage was conjugal and the transaction was essentially an equitable mortgage given the circumstances surrounding possession, partial payment, payment of real property taxes, and the retention of a partial purchase price.

Whether the subject property is to be treated as paraphernal or conjugal property.

The determination hinges on whether Erlinda’s inherited property remained her exclusive paraphernal property or converted into conjugal property through the construction of improvements funded by conjugal means.

Whether the transaction between the parties was a bona fide sale or an equitable mortgage.

The issue involves ascertaining if the transaction’s true nature was a sale with an implied repurchase agreement or an equitable mortgage designed to secure a debt, evidenced by the retention of possession, advanced payment, and non-fulfillment of stipulated conditions.