G.R. No. 122904 - Cruz vs. Court of Appeals

Case Summary (G.R. No. 122904)

Factual Background

Petitioners and Arnel E. Cruz were heirs of the estate of Delfin Cruz and were originally co-owners pro-indiviso of a number of parcels, one of which was then covered by TCT No. 495225. On August 22, 1977 the parties executed a Deed of Partial Partition that assigned specific parcels to each heir, with the disputed parcel adjudicated to Arnel E. Cruz. On August 23, 1977 they executed a Memorandum of Agreement providing that, notwithstanding partition and individual titling, they would share equally in the proceeds of any sale of the allotted lots. In May and June 1980 Arnel executed a Special Power of Attorney in favor of Nelson Tamayo and a real estate mortgage was constituted on the parcel in favor of Summit Financing Corporation to secure a P104,000 loan. After extrajudicial foreclosure, Summit was declared the highest bidder and, upon consolidation, the Register of Deeds cancelled TCT No. 495225 and issued TCT No. 514477 in Summit’s name.

Trial Court Proceedings and Ruling

Petitioners sued for annulment of the Special Power of Attorney, the mortgage, the foreclosure sale, the certificate of sale, the affidavit of consolidation, and the consolidation of ownership, asserting that the Memorandum of Agreement preserved co-ownership and that petitioners had not consented to the mortgage. The Regional Trial Court found that the Memorandum of Agreement evidenced an intent to keep the inherited properties in a state of co-ownership, held Summit negligent for failing to inquire into the limitations on Arnel’s title, and declared the challenged instruments null and void ab initio. The trial court ordered the Register of Deeds to cancel TCT No. 514477 and to issue a new title in the name of Arnel E. Cruz, awarded PHP 10,000 as attorneys’ fees, and dismissed counterclaims.

Appeal to the Court of Appeals

With the exception of Arnel E. Cruz, the defendants appealed to the Court of Appeals. The private respondents urged that the Deed of Partial Partition had already conferred exclusive ownership upon Arnel and that the Memorandum of Agreement did not proscribe the mortgage but only bound the parties to share in sale proceeds. The appellate court agreed and reversed the trial court, upholding the validity of the mortgage while observing that petitioners retained any direct cause of action against Arnel for recovery of their share of proceeds.

Issues on Review

The principal issue presented to the Supreme Court was whether the real estate mortgage on the property then covered by TCT No. 495225 was valid, which in turn required determination of whether the mortgaged property remained subject to pro-indiviso co-ownership at the time of the mortgage or whether Arnel E. Cruz had exclusive ownership as adjudicated in the Deed of Partial Partition.

Parties' Contentions

Petitioners contended that the Memorandum of Agreement expressly created and maintained a pro-indiviso co-ownership that precluded the execution of a mortgage on the property without their consent and that the mortgage and ensuing transfers were therefore void. The private respondents countered that the Deed of Partial Partition terminated co-ownership by adjudicating specific lots to each heir, that Arnel thereby became the exclusive owner of the disputed parcel and could validly mortgage it, and that the Memorandum of Agreement merely obligated the parties to share sale proceeds and did not reconvey or reconstitute co-ownership.

Supreme Court Ruling

The Supreme Court denied the petition and affirmed the Decision and Resolution of the Court of Appeals in CA-G.R. CV No. 41298. The Court concluded that the Deed of Partial Partition terminated co-ownership and that Arnel E. Cruz acquired exclusive ownership of the parcel adjudicated to him, such that he could validly encumber the property by mortgage without the consent of petitioners. Costs were taxed against petitioners.

Legal Basis and Reasoning

The Court relied on the Civil Code provisions governing partition and ownership and on settled jurisprudence holding that partition, whether judicial or extrajudicial, terminates indivision. The Court quoted Article 1079, Civil Code and Article 1082, Civil Code to explain that every act intended to put an end to indivision is a partition and that partition confers exclusive ownership of the adjudicated share under Article 1091, Civil Code. The Court examined the language of the Deed of Partial Partition and concluded that it concretely and definitively distributed specific lots, including the disputed lot to Arnel, thereby ending co-ownership with respect to that lot. The Court observed that contracts govern between the parties when their terms are clear, cited Carceller v. Court of Appeals and De la Cruz v. Cruz, and hel

Case Syllabus (G.R. No. 122904)

Parties and Procedural Posture

ADORACION E. CRUZ, THELMA DEBBIE E. CRUZ, GERRY E. CRUZ AND NERISSA CRUZ-TAMAYO filed Civil Case No. 49466 in the Regional Trial Court, Branch CLXIII, Pasig seeking annulment of various instruments affecting a parcel then covered by TCT No. 495225.
SUMMIT FINANCING CORPORATION, VICTOR S. STA. ANA, MAXIMO C. CONTRERAS, RAMON G. MANALASTAS, and VICENTE TORRES were impleaded as respondents in the RTC action, with Arnel E. Cruz named as a codefendant in the trial court.
The RTC rendered judgment in favor of the petitioners annulling the Special Power of Attorney, Real Estate Mortgage, auction sale documents, and consolidation of title, and directed cancellation of TCT No. 514477 and issuance of a new title in the name of Arnel E. Cruz.
The Court of Appeals, in CA-G.R. CV No. 41298, reversed the RTC decision and denied petitioners relief, and the Court of Appeals denied petitioners' motion for reconsideration.
Petitioners brought the present petition for review on certiorari under Rule 45, Rules of Civil Procedure, assailing the Court of Appeals' Decision and its Resolution denying reconsideration.

Key Factual Allegations

Petitioners and Arnel E. Cruz were heirs of the late Delfin Cruz and were originally co-owners of a mass of properties including the lot then under TCT No. 495225.
The parties executed a Deed of Partial Partition on August 22, 1977 that adjudicated specific lots to each heir and described mutual warranties of quiet and peaceful possession.
The parties signed a Memorandum of Agreement on August 23, 1977 binding them to share equally in the proceeds of sale of the partitioned lots, and its tenor was annotated on the back of TCT No. 495225 on September 1, 1977.
Arnel E. Cruz executed a Special Power of Attorney on May 16, 1980 in favor of Nelson Tamayo authorizing the latter to obtain a loan from Summit Financing Corporation secured by the parcel covered by TCT No. 495225.
A Real Estate Mortgage on the disputed parcel was constituted on June 4, 1980 to secure a loan of One Hundred Four Thousand Pesos (P104,000.00), and extrajudicial foreclosure proceedings culminated in a public auction where Summit Financing Corporation became the highest bidder.
The Acting Register of Deeds of Rizal cancelled TCT No. 495225 and issued TCT No. 514477 in the name of Summit Financing Corporation after presentation of the affidavit of consolidation of ownership.
Petitioners contested these instruments in the RTC on the ground that the property remained pro-indiviso among the heirs under the Memorandum of Agreement and that the mortgage was therefore void without their consent.

Issues Presented

Whether the real estate mortgage and the chain of transactions leading to TCT No. 514477 were valid.
Whether the subject property remained a pro-indiviso co-owned parcel requiring the consent of petitioners before encumbrance.
Whether the Memorandum of Agreement operated to preserve co-ownership in the face of the prior Deed of Partial Partition.

Contentions of the Parties

Petitioners contended