9/20/24, 9:26 PM G.R. No.

156125

Today is Friday, September 20, 2024

Constitution Statutes Executive Issuances Judicial Issuances Other Issuances Jurisprudence International Legal Resources AUSL Exclusive

Republic of the Philippines

SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 156125 August 25, 2010

FRANCISCO MUÑOZ, JR., Petitioner,

vs.
ERLINDA RAMIREZ and ELISEO CARLOS, Respondents.

DECISION

BRION, J.:

We resolve the present petition for review on certiorari1 filed by petitioner Francisco Muñoz, Jr. (petitioner) to
challenge the decision2 and the resolution3 of the Court of Appeals (CA) in CA-G.R. CV No. 57126.4 The CA
decision set aside the decision5 of the Regional Trial Court (RTC), Branch 166, Pasig City, in Civil Case No. 63665.
The CA resolution denied the petitioner’s subsequent motion for reconsideration.

FACTUAL BACKGROUND

The facts of the case, gathered from the records, are briefly summarized below.

Subject of the present case is a seventy-seven (77)-square meter residential house and lot located at 170 A.
Bonifacio Street, Mandaluyong City (subject property), covered by Transfer Certificate of Title (TCT) No. 7650 of the
Registry of Deeds of Mandaluyong City in the name of the petitioner.6

The residential lot in the subject property was previously covered by TCT No. 1427, in the name of Erlinda Ramirez,
married to Eliseo Carlos (respondents).7

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 ₱136,500.00 housing loan, payable within twenty
(20) years, through monthly salary deductions of ₱1,687.66.8 The respondents then constructed a thirty-six (36)-
square meter, two-story residential house on the lot.

On July 14, 1993, the title to the subject property was transferred to the petitioner by virtue of a Deed of Absolute
Sale, dated April 30, 1992, executed by Erlinda, for herself and as attorney-in-fact of Eliseo, for a stated
consideration of ₱602,000.00.9

On September 24, 1993, the respondents filed a complaint with the RTC for the nullification of the deed of absolute
sale, claiming that there was no sale but only a mortgage transaction, and the documents transferring the title to the
petitioner’s name were falsified.

The respondents alleged that in April 1992, the petitioner granted them a ₱600,000.00 loan, to be secured by a first
mortgage on TCT No. 1427; the petitioner gave Erlinda a ₱200,000.0010 advance to cancel the GSIS mortgage,
and made her sign a document purporting to be the mortgage contract; the petitioner promised to give the
₱402,000.00 balance when Erlinda surrenders TCT No. 1427 with the GSIS mortgage cancelled, and submits an
affidavit signed by Eliseo stating that he waives all his rights to the subject property; with the ₱200,000.00 advance,
Erlinda paid GSIS ₱176,445.2711 to cancel the GSIS mortgage on TCT No. 1427;12 in May 1992, Erlinda
surrendered to the petitioner the clean TCT No. 1427, but returned Eliseo’s affidavit, unsigned; since Eliseo’s
affidavit was unsigned, the petitioner refused to give the ₱402,000.00 balance and to cancel the mortgage, and
demanded that Erlinda return the ₱200,000.00 advance; since Erlinda could not return the ₱200,000.00 advance
because it had been used to pay the GSIS loan, the petitioner kept the title; and in 1993, they discovered that TCT
No. 7650 had been issued in the petitioner’s name, cancelling TCT No.1427 in their name.

[Link] 1/8
9/20/24, 9:26 PM G.R. No. 156125
The petitioner countered that there was a valid contract of sale. He alleged that the respondents sold the subject
property to him after he refused their offer to mortgage the subject property because they lacked paying capacity
and were unwilling to pay the incidental charges; the sale was with the implied promise to repurchase within one
year,13 during which period (from May 1, 1992 to April 30, 1993), the respondents would lease the subject property
for a monthly rental of ₱500.00;14 when the respondents failed to repurchase the subject property within the one-
year period despite notice, he caused the transfer of title in his name on July 14, 1993;15 when the respondents
failed to pay the monthly rentals despite demand, he filed an ejectment case16 against them with the Metropolitan
Trial Court (MeTC), Branch 60, Mandaluyong City, on September 8, 1993, or sixteen days before the filing of the
RTC case for annulment of the deed of absolute sale.

During the pendency of the RTC case, or on March 29, 1995, the MeTC decided the ejectment case. It ordered
Erlinda and her family to vacate the subject property, to surrender its possession to the petitioner, and to pay the
overdue rentals.17

In the RTC, the respondents presented the results of the scientific examination18 conducted by the National Bureau
of Investigation of Eliseo’s purported signatures in the Special Power of Attorney19 dated April 29, 1992 and the
Affidavit of waiver of rights dated April 29, 1992,20 showing that they were forgeries.

The petitioner, on the other hand, introduced evidence on the paraphernal nature of the subject property since it was
registered in Erlinda’s name; the residential lot was part of a large parcel of land owned by Pedro Ramirez and
Fructuosa Urcla, Erlinda’s parents; it was the subject of Civil Case No. 50141, a complaint for annulment of sale,
before the RTC, Branch 158, Pasig City, filed by the surviving heirs of Pedro against another heir, Amado Ramirez,
Erlinda’s brother; and, as a result of a compromise agreement, Amado agreed to transfer to the other compulsory
heirs of Pedro, including Erlinda, their rightful shares of the land.21

THE RTC RULING

In a Decision dated January 23, 1997, the RTC dismissed the complaint. It found that the subject property was
Erlinda’s exclusive paraphernal property that was inherited from her father. It also upheld the sale to the petitioner,
even without Eliseo’s consent as the deed of absolute sale bore the genuine signatures of Erlinda and the petitioner
as vendor and vendee, respectively. It concluded that the NBI finding that Eliseo’s signatures in the special power of
attorney and in the affidavit were forgeries was immaterial because Eliseo’s consent to the sale was not
necessary.22

The respondents elevated the case to the CA via an ordinary appeal under Rule 41 of the Revised Rules of Court.

THE CA RULING

The CA decided the appeal on June 25, 2002. Applying the second paragraph of Article 15823 of the Civil Code and
Calimlim-Canullas v. Hon. Fortun,24 the CA held that the subject property, originally Erlinda’s exclusive paraphernal
property, became conjugal property when it was used as collateral for a housing loan that was paid through conjugal
funds – Eliseo’s monthly salary deductions; the subject property, therefore, cannot be validly sold or mortgaged
without Eliseo’s consent, pursuant to Article 12425 of the Family Code. Thus, the CA declared void the deed of
absolute sale, and set aside the RTC decision.

When the CA denied26 the subsequent motion for reconsideration,27 the petitioner filed the present petition for
review on certiorari under Rule 45 of the Revised Rules of Court.

THE PETITION

The petitioner argues that the CA misapplied the second paragraph of Article 158 of the Civil Code and Calimlim-
Canullas28 because the respondents admitted in the complaint that it was the petitioner who gave the money used
to cancel the GSIS mortgage on TCT No. 1427; Article 12029 of the Family Code is the applicable rule, and since
the value of the house is less than the value of the lot, then Erlinda retained ownership of the subject property. He
also argues that the contract between the parties was a sale, not a mortgage, because (a) Erlinda did not deny her
signature in the document;30 (b) Erlinda agreed to sign a contract of lease over the subject property;31 and, (c)
Erlinda executed a letter, dated April 30, 1992, confirming the conversion of the loan application to a deed of sale.32

THE CASE FOR THE RESPONDENTS

The respondents submit that it is unnecessary to compare the respective values of the house and of the lot to
determine ownership of the subject property; it was acquired during their marriage and, therefore, considered
conjugal property. They also submit that the transaction between the parties was not a sale, but an equitable

[Link] 2/8
9/20/24, 9:26 PM G.R. No. 156125
mortgage because (a) they remained in possession of the subject property even after the execution of the deed of
absolute sale, (b) they paid the 1993 real property taxes due on the subject property, and (c) they received
₱200,000.00 only of the total stated price of ₱602,000.00.

THE ISSUE

The issues in the present case boil down to (1) whether the subject property is paraphernal or conjugal; and, (2)
whether the contract between the parties was a sale or an equitable mortgage.

OUR RULING

We deny the present Petition but for reasons other than those advanced by the CA.

This Court is not a trier of facts. However, if the inference, drawn by the CA, from the facts is manifestly mistaken, as
in the present case, we can review the evidence to allow us to arrive at the correct factual conclusions based on the
record.33

First Issue:

Paraphernal or Conjugal?

As a general rule, all property acquired during the marriage, whether the acquisition appears to have been made,
contracted or registered in the name of one or both spouses, is presumed to be conjugal unless the contrary is
proved.34

In the present case, clear evidence that Erlinda inherited the residential lot from her father has sufficiently rebutted
this presumption of conjugal ownership.35 Pursuant to Articles 9236 and 10937 of the Family Code, properties
acquired by gratuitous title by either spouse, during the marriage, shall be excluded from the community property
and be the exclusive property of each spouse.38 The residential lot, therefore, is Erlinda’s exclusive paraphernal
property.

The CA, however, held that the residential lot became conjugal when the house was built thereon through conjugal
funds, applying the second paragraph of Article 158 of the Civil Code and Calimlim-Canullas.39 Under the second
paragraph of Article 158 of the Civil Code, a land that originally belonged to one spouse becomes conjugal upon the
construction of improvements thereon at the expense of the partnership. We applied this provision in Calimlim-
Canullas,40 where we held that when the conjugal house is constructed on land belonging exclusively to the
husband, the land ipso facto becomes conjugal, but the husband is entitled to reimbursement of the value of the
land at the liquidation of the conjugal partnership.

The CA misapplied Article 158 of the

Civil Code and Calimlim-Canullas

We cannot subscribe to the CA’s misplaced reliance on Article 158 of the Civil Code and Calimlim-Canullas.

As the respondents were married during the effectivity of the Civil Code, its provisions on conjugal partnership of
gains (Articles 142 to 189) should have governed their property relations. However, with the enactment of the Family
Code on August 3, 1989, the Civil Code provisions on conjugal partnership of gains, including Article 158, have been
superseded by those found in the Family Code (Articles 105 to 133). Article 105 of the Family Code states:

xxxx

The provisions of this Chapter [on the Conjugal Partnership of Gains] shall also apply to conjugal partnerships of
gains already established between spouses before the effectivity of this Code, without prejudice to vested rights
already acquired in accordance with the Civil Code or other laws, as provided in Article 256.

Thus, in determining the nature of the subject property, we refer to the provisions of the Family Code, and not the
Civil Code, except with respect to rights then already vested.

Article 120 of the Family Code, which supersedes Article 158 of the Civil Code, provides the solution in determining
the ownership of the improvements that are made on the separate property of the spouses, at the expense of the
partnership or through the acts or efforts of either or both spouses. Under this provision, when the cost of the
improvement and any resulting increase in value are more than the value of the property at the time of the
improvement, the entire property of one of the spouses shall belong to the conjugal partnership, subject to
reimbursement of the value of the property of the owner-spouse at the time of the improvement; otherwise, said
property shall be retained in ownership by the owner-spouse, likewise subject to reimbursement of the cost of the
improvement.41

[Link] 3/8
9/20/24, 9:26 PM G.R. No. 156125
In the present case, we find that Eliseo paid a portion only of the GSIS loan through monthly salary deductions.
From April 6, 198942 to April 30, 1992,43 Eliseo paid about ₱60,755.76,44 not the entire amount of the GSIS housing
loan plus interest, since the petitioner advanced the ₱176,445.2745 paid by Erlinda to cancel the mortgage in 1992.
Considering the ₱136,500.00 amount of the GSIS housing loan, it is fairly reasonable to assume that the value of
the residential lot is considerably more than the ₱60,755.76 amount paid by Eliseo through monthly salary
deductions.

Thus, the subject property remained the exclusive paraphernal property of Erlinda at the time she contracted with
the petitioner; the written consent of Eliseo to the transaction was not necessary. The NBI finding that Eliseo’s
signatures in the special power of attorney and affidavit were forgeries was immaterial.

Nonetheless, the RTC and the CA apparently failed to consider the real nature of the contract between the parties.

Second Issue:
Sale or Equitable Mortgage?

Jurisprudence has defined an equitable mortgage "as one which although lacking in some formality, or form or
words, or other requisites demanded by a statute, nevertheless reveals the intention of the parties to charge real
property as security for a debt, there being no impossibility nor anything contrary to law in this intent."46

Article 1602 of the Civil Code enumerates the instances when a contract, regardless of its nomenclature, may be
presumed to be an equitable mortgage: (a) when the price of a sale with right to repurchase is unusually
inadequate; (b) when the vendor remains in possession as lessee or otherwise; (c) when upon or after the
expiration of the right to repurchase another instrument extending the period of redemption or granting a new period
is executed; (d) when the purchaser retains for himself a part of the purchase price; (e) when the vendor
binds himself to pay the taxes on the thing sold; and, (f) in any other case where it may be fairly inferred that
the real intention of the parties is that the transaction shall secure the payment of a debt or the performance
of any other obligation. These instances apply to a contract purporting to be an absolute sale.47

For the presumption of an equitable mortgage to arise under Article 1602 of the Civil Code, two (2) requisites must
concur: (a) that the parties entered into a contract denominated as a contract of sale; and, (b) that their intention
was to secure an existing debt by way of a mortgage. Any of the circumstances laid out in Article 1602 of the Civil
Code, not the concurrence nor an overwhelming number of the enumerated circumstances, is sufficient to support
the conclusion that a contract of sale is in fact an equitable mortgage.48

Contract is an equitable mortgage

In the present case, there are four (4) telling circumstances pointing to the existence of an equitable mortgage.

First, the respondents remained in possession as lessees of the subject property; the parties, in fact, executed a
one-year contract of lease, effective May 1, 1992 to April 30, 1993.49

Second, the petitioner retained part of the "purchase price," the petitioner gave a ₱200,000.00 advance to settle the
GSIS housing loan, but refused to give the ₱402,000.00 balance when Erlinda failed to submit Eliseo’s signed
affidavit of waiver of rights.

Third, respondents paid the real property taxes on July 8, 1993, despite the alleged sale on April 30, 1992;50
payment of real property taxes is a usual burden attaching to ownership and when, as here, such payment is
coupled with continuous possession of the property, it constitutes evidence of great weight that the person under
whose name the realty taxes were declared has a valid and rightful claim over the land.51

Fourth, Erlinda secured the payment of the principal debt owed to the petitioner with the subject property. The
records show that the petitioner, in fact, sent Erlinda a Statement of Account showing that as of February 20, 1993,
she owed ₱384,660.00, and the daily interest, starting February 21, 1993, was ₱641.10.52 Thus, the parties clearly
intended an equitable mortgage and not a contract of sale.

That the petitioner advanced the sum of ₱200,000.00 to Erlinda is undisputed. This advance, in fact, prompted the
latter to transfer the subject property to the petitioner. Thus, before the respondents can recover the subject
property, they must first return the amount of ₱200,000.00 to the petitioner, plus legal interest of 12% per annum,
computed from April 30, 1992.

We cannot sustain the ballooned obligation of ₱384,660.00, claimed in the Statement of Account sent by the
petitioner,53 sans any evidence of how this amount was arrived at. Additionally, a daily interest of ₱641.10 or
₱19,233.00 per month for a ₱200,000.00 loan is patently unconscionable. While parties are free to stipulate on the

[Link] 4/8
9/20/24, 9:26 PM G.R. No. 156125
interest to be imposed on monetary obligations, we can step in to temper the interest rates if they are
unconscionable.54

In Lustan v. CA,55 where we established the reciprocal obligations of the parties under an equitable mortgage, we
ordered the reconveyance of the property to the rightful owner therein upon the payment of the loan within ninety
(90) days from the finality of the decision.56

WHEREFORE, in light of all the foregoing, we hereby DENY the present petition. The assailed decision and
resolution of the Court of Appeals in CA-G.R. CV No. 57126 are AFFIRMED with the following MODIFICATIONS:

1. The Deed of Absolute Sale dated April 30, 1992 is hereby declared an equitable mortgage; and

2. The petitioner is obligated to RECONVEY to the respondents the property covered by Transfer Certificate
of Title No. 7650 of the Register of Deeds of Mandaluyong City, UPON THE PAYMENT OF ₱200,000.00, with
12% legal interest from April 30, 1992, by respondents within NINETY DAYS FROM THE FINALITY OF THIS
DECISION.

Costs against the petitioner.

SO ORDERED.

ARTURO D. BRION
Associate Justice

WE CONCUR:

CONCHITA CARPIO MORALES

Associate Justice

LUCAS P. BERSAMIN MARTIN S. VILLARAMA, JR.

Associate Justice Associate Justice

MARIA LOURDES P. A. SERENO

Associate Justice

ATTE STATI O N

I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned
to the writer of the opinion of the Court’s Division.

CONCHITA CARPIO MORALES

Associate Justice
Chairperson

C E RTI F I CATI O N

Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairperson’s Attestation, it is hereby
certified that the conclusions in the above Decision had been reached in consultation before the case was assigned
to the writer of the opinion of the Court’s Division.

RENATO C. CORONA
Chief Justice

Footnotes

1 Filed under Rule 45 of the Revised Rules of Court; rollo, pp. 11-16.

2
Dated June 25, 2002, penned by Associate Justice Juan Q. Enriquez, Jr., with the concurrence of Associate
Justices Eugenio S. Labitoria and Mariano C. del Castillo (now a member of this Court); id. at 21-28.

3 Dated November 13, 2002; id. at 31.

4 Entitled "Erlinda Ramirez and Eliseo Carlos v. Francisco E. Muñoz, Jr."

[Link] 5/8