Case Summary (G.R. No. 156125)
Key Dates and Procedural Posture
- GSIS housing loan mortgage on TCT No. 1427: April 6, 1989.
- Alleged contract(s) between parties and related documents: April 29–30, 1992.
- Deed of Absolute Sale from Erlinda to petitioner: April 30, 1992; title transfer recorded July 14, 1993 (TCT No. 7650).
- RTC Decision dismissing respondents’ complaint: January 23, 1997.
- CA Decision setting aside RTC and declaring sale void: June 25, 2002; CA resolution denying reconsideration: November 13, 2002.
- Petition for review to the Supreme Court filed under Rule 45; Supreme Court decision affirmed CA with modifications: August 25, 2010.
Factual Summary
The lot forming part of the subject property was registered in the name of Erlinda and traced to her parents; it was alleged that she inherited the lot. Eliseo (a GSIS employee) mortgaged the title with GSIS in 1989 to secure a P136,500 housing loan to be paid via salary deductions. The respondents built a house on the lot. The petitioner contends that he purchased the property under a Deed of Absolute Sale (April 30, 1992) for P602,000; the respondents contend instead that the transaction was not a sale but a mortgage arrangement secured by the property, and that certain signatures (on a Special Power of Attorney and an affidavit of waiver by Eliseo) were forgeries. The petitioner admits advancing P200,000 to cancel the GSIS mortgage and claims a sale with a one-year repurchase agreement and leaseback; respondents claim the advance was part of an equitable mortgage arrangement and that they remained in possession and continued paying taxes.
RTC Ruling
The Regional Trial Court found the lot to be Erlinda’s exclusive paraphernal property by virtue of inheritance and upheld the deed of sale as genuine, rejecting the respondents’ forgery evidence as immaterial since Eliseo’s consent was deemed unnecessary for a sale of Erlinda’s paraphernal property. The RTC dismissed the respondents’ complaint for annulment of the sale.
Court of Appeals Ruling
The Court of Appeals reversed the RTC, applying the second paragraph of Civil Code Article 158 and the Court’s earlier decision in Calimlim-Canullas. The CA held that because improvements (the house) were constructed using conjugal funds (salary deductions of Eliseo applied to the GSIS loan), the lot became conjugal property and thus could not be validly sold or mortgaged without the spouse’s consent pursuant to Family Code Article 124. The CA declared the Deed of Absolute Sale void.
Issues Presented
- Whether the subject property is paraphernal (exclusive) to Erlinda or conjugal property of the spouses.
- Whether the Deed of Absolute Sale was a true sale or, in substance, an equitable mortgage.
Supreme Court Disposition and Overarching Ruling
The Supreme Court denied the petition for review but affirmed the CA decision for reasons different from the CA’s. The Court declined to act as primary trier of facts but reviewed whether the CA’s factual inferences were manifestly mistaken and corrected the factual and legal conclusions where appropriate.
First Issue — Paraphernal or Conjugal?
- Presumption and rebuttal: The Family Code presumes property acquired during marriage to be conjugal unless the contrary is proved (Art. 116). The Court found clear evidence that Erlinda acquired the lot by gratuitous title (inheritance from her father), which under Articles 92 and 109 of the Family Code makes the property her exclusive paraphernal property and thus rebuts the conjugal presumption.
- On Article 158 (Civil Code) vs. Family Code: The Supreme Court held that the CA erred in relying on Civil Code Article 158 and Calimlim-Canullas because the Family Code (effective August 3, 1989) superseded Civil Code rules on conjugal partnership and improvements. Article 120 of the Family Code governs improvements made on the separate property of a spouse at the expense of the conjugal partnership and prescribes the test comparing cost of improvement and resulting increase in value to the value of the property at the time of improvement.
- Application to the facts: The Court computed that Eliseo’s salary deductions (May 1989–April 1992: 36 months × P1,687.66) amounted to P60,755.76 paid toward the GSIS loan; petitioner advanced P176,445.27 which actually settled the GSIS mortgage. Given these figures and the GSIS loan amount (P136,500), the Court found it reasonable that the value of the lot exceeded the portion of the loan paid by conjugal funds (P60,755.76). Therefore, under Family Code Article 120 the lot remained Erlinda’s exclusive paraphernal property at the time she contracted with the petitioner, and Eliseo’s written consent to the transaction was not required. The Court also deemed the NBI finding of forgery of Eliseo’s signatures immaterial to the determination of ownership.
Second Issue — Sale or Equitable Mortgage?
- Legal standard: An equitable mortgage exists when a contract styled as an absolute sale, lacking some formal requisites, in substance embodies the parties’ intent to charge real property as security for a debt. Article 1602/1604 of the Civil Code and jurisprudence provide indicia for inferring an equitable mortgage: inadequacy of price, vendor remaining in possession, retention of part of purchase price by purchaser, vendor paying taxes, among other factors. Any one of the Article 1602 circumstances suffices to support the inference, provided the sale was in form but intended as security for a debt.
- Factors present in this case: The Court identified four compelling circumstances supporting an equitable mortgage:
- Respondents remained in possession as lessees under a one-year lease (May 1, 1992 to April 30, 1993).
- The petitioner retained part of the purchase price: he advanced P200,000 to cancel the GSIS mortgage but refused to remit the P402,000 balance when Eliseo did not submit a signed waiver.
- The respondents continued to pay real property taxes (July 8, 1993), a strong indicator of continued ownership or claim to ownership when coupled with continuous possession.
- The petitioner treated the transaction as securing a debt: he sent a Statement
Case Syllabus (G.R. No. 156125)
Case Caption and Procedural Posture
- Petition for review on certiorari filed under Rule 45 by petitioner Francisco Muñoz, Jr. challenging the Court of Appeals decision and resolution in CA-G.R. CV No. 57126.
- The Court of Appeals set aside the Regional Trial Court, Branch 166, Pasig City, Decision in Civil Case No. 63665 and denied petitioner’s motion for reconsideration; the petitioner elevated the case to the Supreme Court.
- The decision under review before the Supreme Court is dated June 25, 2002; the CA resolution denying reconsideration is dated November 13, 2002.
- The RTC Decision dismissed the respondents’ complaint on January 23, 1997.
- The present Supreme Court ruling was rendered by Justice Brion on August 25, 2010, Third Division, with Justices Carpio Morales (Chairperson), Bersamin, Villarama, Jr., and Sereno concurring.
Subject Property, Titles and Parties
- Subject property: a seventy-seven (77)-square meter residential house and lot located at 170 A. Bonifacio Street, Mandaluyong City.
- Title history:
- Previously registered under Transfer Certificate of Title (TCT) No. 1427 in the name of respondent Erlinda Ramirez (married to respondent Eliseo Carlos).
- Later covered by TCT No. 7650 issued in the name of petitioner Francisco Muñoz, Jr.
- Parties:
- Petitioner: Francisco Muñoz, Jr., registered owner per TCT No. 7650.
- Respondents: Erlinda Ramirez and Eliseo Carlos, alleged prior owners under TCT No. 1427.
Chronology of Key Facts
- April 6, 1989: Eliseo Carlos, a Bureau of Internal Revenue employee, obtained a GSIS housing loan of P136,500.00 secured by mortgage on TCT No. 1427 with Erlinda’s consent; payable over twenty (20) years by monthly salary deductions of P1,687.66.
- Respondents constructed a thirty-six (36)-square meter, two-story residential house on the lot.
- April 29–30, 1992 timeframe:
- Documents executed dated April 29 and April 30, 1992 include a Special Power of Attorney and an Affidavit of waiver of rights purportedly signed by Eliseo, and a Deed of Absolute Sale dated April 30, 1992 executed by Erlinda (for herself and as attorney-in-fact of Eliseo) transferring title to petitioner for a stated consideration of P602,000.00.
- Petitioner allegedly advanced P200,000.00 to Erlinda to cancel the GSIS mortgage and purportedly gave a P600,000.00 loan to respondents to be secured by a first mortgage; petitioner allegedly agreed to deliver the remaining P402,000.00 upon surrender of clean title and Eliseo’s signed affidavit waiving rights.
- May 1992: Erlinda allegedly surrendered clean TCT No. 1427 to petitioner but returned Eliseo’s affidavit unsigned; petitioner allegedly refused to pay the P402,000.00 balance or cancel any encumbrance, and retained the title.
- July 14, 1993: TCT No. 7650 issued in petitioner’s name; title transfer also noted as effected July 14, 1993.
- September 24, 1993: Respondents filed RTC complaint seeking annulment/nullification of the Deed of Absolute Sale alleging forgery and that the transaction was only a mortgage.
- September 8, 1993: Petitioner filed an ejectment case against respondents in MeTC, Branch 60, Mandaluyong City, sixteen days prior to the RTC annulment complaint.
- March 29, 1995: MeTC decided the ejectment case ordering respondents to vacate, surrender possession, and pay overdue rentals.
- July 8, 1993: Respondents paid real property taxes on the subject property (despite alleged sale on April 30, 1992).
- February 20, 1993: Petitioner sent a Statement of Account to Erlinda showing an outstanding balance of P384,660.00 and daily interest of P641.10 starting February 21, 1993.
Evidence Presented
- Respondents introduced scientific examination results by the National Bureau of Investigation (NBI) asserting that Eliseo’s purported signatures in the Special Power of Attorney and the Affidavit of waiver of rights dated April 29, 1992 were forgeries.
- Petitioner introduced evidence to establish:
- Paraphernal nature of the lot (title registered in Erlinda’s name; inheritance from parents Pedro Ramirez and Fructuosa Urcla; prior Civil Case No. 50141 resulting in compromise and transfer of shares to compulsory heirs including Erlinda).
- Existence of a sale with implied right to repurchase and an executed one-year lease effective May 1, 1992 to April 30, 1993, with monthly rental of P500.00.
- That petitioner had cause to cause transfer of title to his name on July 14, 1993 after respondents failed to repurchase.
- Documentary references include TCTs, Deed of Absolute Sale dated April 30, 1992, Memorandum of Encumbrances, partition/compromise records from Civil Case No. 50141, MeTC ejectment decision, statements of account, and testimony transcripts.
RTC Ruling (Trial Court)
- The RTC, in a Decision dated January 23, 1997, dismissed respondents’ complaint.
- Key RTC findings:
- The subject property was Erlinda’s exclusive paraphernal property inherited from her father.
- The Deed of Absolute Sale bore genuine signatures of Erlinda and petitioner; Eliseo’s consent was deemed unnecessary for a valid sale.
- The NBI finding of forgery of Eliseo’s signatures was considered immaterial given the RTC’s view that Eliseo’s consent was not required.
Court of Appeals Ruling
- The Court of Appeals, in its June 25, 2002 decision, reversed the RTC and declared the Deed of Absolute Sale void.
- CA’s reasoning:
- Applied the second paragraph of Article 158 of the Civil Code and the Supreme Court case Calimlim-Canullas v. Hon. Fortun.
- Held that land originally Erlinda’s paraphernal property became conjugal property when improvements (the house) were constructed using conjugal funds consisting of Eliseo’s salary deductions for the GSIS loan; therefore, the property could not be validly sold without Eliseo’s consent per Article 124 of the Family Code.
- The CA set aside the RTC decision and its denial of reconsideration was later sustained in a November 13, 2002 resolution.
Issues Presented to the Supreme Court
- Whether the subject property is paraphernal (exclusive to Erlinda) or conjugal (part of the conjugal partnership).
- Whether the transaction between the parties constituted a valid sale or an equitable mortgage (i.e., an absolute sale in form but intended to secure a debt).
Parties’ Principal Contentions on Appeal
- Petitioner’s contentions:
- CA misapplied Article 158 of the Civil Code and Calimlim-Canullas; the Family Code Article 120 is the applicable provision and, because the value of the house is less than the value of the lot, Erlinda retained owner