G.R. No. 17763 - People vs. Bustos

Case Summary (G.R. No. 17763)

Factual Background

The litigation involved a 277 square meter residential parcel registered originally in the name of Antonia R. Dela Pena under TCT No. N-32315 in Marikina City. On 7 May 1996 Antonia obtained a loan of P250,000.00 from A.C. Aguila & Sons, Co., secured by a notarized Deed of Real Estate Mortgage which stated the contract period as three months. On 4 November 1997 Antonia executed a notarized Deed of Absolute Sale in favor of Gemma Remilyn C. Avila, which enabled Gemma to procure title under TCT No. 337834. On 26 November 1997 Gemma constituted a real estate mortgage over the property in favor of Far East Bank & Trust Co. (FEBTC) to secure a credit facility with a P1,200,000.00 limit. From December 1997 to March 1998 Gemma executed promissory notes evidencing loans aggregating P1,200,000.00 from FEBTC. When Gemma failed to pay, FEBTC foreclosed extrajudicially and acquired the property at public auction, thereafter causing issuance of TCT No. 415392 in its name.

Procedural History

On 18 May 1998 Antonia and Alvin filed Civil Case No. 98-445-MK for annulment of the 4 November 1997 Deed of Absolute Sale, reconveyance, and damages, alleging the property was conjugal, that the mortgage to Aguila lacked the deceased husband’s consent, and that the sale was simulated or procured by fraud. Gemma answered and denied material allegations, asserted the property was Antonia’s exclusive property and that the sale and subsequent mortgage transactions were made to settle obligations and to secure loans used to pay Aguila. On 25 September 1999 the Dela Penas impleaded FEBTC alleging bad faith purchase at the auction. FEBTC answered asserting it was a mortgagee in good faith and alternatively filed cross-claims against Gemma. The RTC declared Gemma in default, received testimonial and documentary evidence, and on 18 December 2007 rendered judgment for the plaintiffs annulling the Deed of Absolute Sale, ordering reconveyance and awarding damages; the RTC also granted FEBTC’s cross-claim against Gemma. FEBTC appealed to the Court of Appeals. The CA reversed on 31 March 2009. The Dela Penas filed a petition for review under Rule 45 before the Supreme Court.

The Parties’ Contentions Before the Supreme Court

The Dela Penas argued that the CA erred in reversing the RTC on three principal points: that the property was conjugal; that the 4 November 1997 Deed of Absolute Sale was null and void for failure to liquidate the conjugal partnership under Article 130, Family Code; and that FEBTC was a mortgagee/purchaser in bad faith. Gemma maintained the sale was valid and that she obtained loans from FEBTC to settle Antonia’s obligation to Aguila and to extend Antonia additional funds. FEBTC asserted it was a mortgagee in good faith, that the mortgage to it predated any recorded adverse claim, and that it exercised its rights when it foreclosed upon nonpayment.

Trial Court Ruling

The RTC found the property conjugal and held that Antonia’s sale to Gemma was void for lack of liquidation under Article 130, Family Code after the termination of the marriage. The RTC rejected FEBTC’s good faith claim and ordered reconveyance to the Dela Penas, awarded moral damages and attorney’s fees, and on FEBTC’s cross-claim ordered Gemma to pay the mortgage indebtedness with interest.

Court of Appeals Decision

The CA reversed the RTC. It found the property was paraphernal because the Dela Penas failed to prove acquisition during the marriage, and therefore the property was Antonia’s exclusive property. The CA held Antonia was barred from annulling the sale because she had represented the property as hers and because the NBI Questioned Documents Report No. 482-802 indicated the signatures on the mortgage and on the deed of sale were written by the same person. The CA further held that FEBTC was a mortgagee in good faith because Gemma’s mortgage to it predated Antonia’s Affidavit of Adverse Claim and the subsequent Notice of Lis Pendens annotation.

Supreme Court Ruling

The Supreme Court denied the petition and affirmed the CA decision in toto. The Court held that the Dela Penas failed to prove the property was acquired during the marriage, so the presumption of conjugality under Article 160, Civil Code did not operate. The Court sustained the CA’s finding that the property was paraphernal and therefore Antonia validly executed the 4 November 1997 Deed of Absolute Sale to Gemma. The Court also upheld FEBTC as a mortgagee in good faith and confirmed the validity of the extrajudicial foreclosure.

Legal Basis and Reasoning

The Court applied Article 160, Civil Code and reiterated the settled rule that the presumption of conjugality presupposes proof that the property was acquired during the marriage; proof of the time of acquisition is a condition sine qua non for the presumption to operate, citing Francisco v. Court of Appeals and other authorities. The Court explained that mere registration in the name of the wife with the phrase “married to” does not establish conjugal character, citing Ruiz v. Court of Appeals. The Court found the Dela Penas produced no competent evidence fixing the time of acquisition; even the principal witness admitted his assertion rested solely on Antonia’s claim. The Court found Antonia’s credibility wanting, noting her contradictory pleadings and admissions in court that she had been misled, and relied on the NBI Questioned Documents Report No. 482-802, which concluded the contested signatures were written by one and the same person. The Court emphasized the evidentiary weight of notarized public documents and the presumption of regularity that attends them, which can be overcome only by clear, strong, and convincing evidence; the Dela Penas failed to meet that burden. On foreclosure and the status of FEBTC, the Court invoked Article 2126, Civil Code, and jurisprudence establishing that a mortgage subjects the property to satisfaction of the secured obligation and that foreclosure is the mortgagee’s right upon nonpayment. Because the mortgage to FEBTC was executed on 26 November 1997, it predated

Case Syllabus (G.R. No. 17763)

Parties and Procedural Posture

Antonia R. Dela Pena and Alvin John B. Dela Pena were the plaintiffs-appellants below and the petitioners in this Court.
Gemma Remilyn C. Avila was the original purchaser of the property and defendant in the trial court.
Far East Bank & Trust Co. (FEBTC), later identified with Bank of the Philippine Islands (FEBTC-BPI), was impleaded as mortgagee and purchaser at extrajudicial foreclosure.
The petition was filed pursuant to Rule 45, Rules of Court seeking reversal of the Court of Appeals decision which had reversed the Regional Trial Court.
The Court of Appeals had reversed the RTC and upheld the Deed of Absolute Sale to Gemma and the subsequent public auction sale to FEBTC-BPI.

Key Factual Allegations

The subject property was a 277 square meter residential lot previously registered under TCT No. N-32315 in the name of Antonia R. Dela Pena described as "married to Antegono A. Dela Pena."
On 7 May 1996 Antonia obtained a P250,000.00 loan from A.C. Aguila & Sons, Co. secured by a notarized Deed of Real Estate Mortgage and promissory note with a 7 July 1996 maturity and 5% monthly interest.
On 4 November 1997 Antonia executed a notarized Deed of Absolute Sale in favor of Gemma for P600,000.00, after which Gemma caused issuance of TCT No. 337834 in her name.
On 26 November 1997 Gemma constituted a real estate mortgage over the property in favor of FEBTC-BPI to secure loans with an aggregate credit limit of P1,200,000.00.
Gemma obtained promissory notes from December 1997 to March 1998 evidencing loans totaling P1,200,000.00 from FEBTC-BPI.
Antonia filed an Affidavit of Adverse Claim on 3 March 1998, which was inscribed on TCT No. 337834 on 10 March 1998.
Upon Gemma’s default, FEBTC-BPI foreclosed extrajudicially, purchased the property at public auction, and caused titling in its name under TCT No. 415392.
Antonia and Alvin filed Civil Case No. 98-445-MK for annulment of the sale, reconveyance, and damages on 18 May 1998 alleging conjugal character of the property and simulation of the sale.

Procedural History

Gemma answered and denied material allegations and filed counterclaims seeking dismissal and damages.
FEBTC-BPI was impleaded by supplemental complaint and answered asserting good faith mortgagee status and counterclaims and cross-claims against Gemma.
The RTC declared Gemma in default for failure to appear at pre-trial after counsel withdrawal and tried the case on the parties' evidence.
The RTC rendered judgment on 18 December 2007 declaring the Deed of Absolute Sale void for lack of liquidation under Article 130, Family Code, and ordered reconveyance and awarded damages to the Dela Penas while also awarding judgment on Gemma’s cross-claim in favor of FEBTC-BPI.
The Court of Appeals, Second Division, reversed the RTC on 31 March 2009 and upheld the Deed of Absolute Sale and the auction sale to FEBTC-BPI.
The petition for review under Rule 45 to this Court was denied and the CA decision was affirmed.

Issues Presented

Whether the Court of Appeals erred in reversing the RTC finding that the property was conjugal property of the spouses Antegono and Antonia Dela Pena.
Whether the Court of Appeals erred in reversing the RTC in declaring null and void the Deed of Absolute Sale executed by Antonia in favor of Gemma.
Whether the Court of Appeals erred in reversing the RTC holding that FEBTC-BPI was a mortgagee/purchaser in bad faith.

Ruling and Disposition

The petition was denied for lack of merit and the Court of Appeals Decision dated 31 March 2009 was affirmed in toto.