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MUOZ vs.

G.R. No. 156125 August 25, 2010


Subject of this case is a residential house and lot located at Bonifacio Street, Manadaluyong
City covered by TCT No. 7650.The residential lot was previously covered by TCT 1427, in the name of
the respondents (Erlinda and Eliseo). Eliseo mortgaged TCT No. 1427, with Erlindas consent, to GSIS
to secure a P136,500 housing loan, payable within twenty years, through monthly salary deductions of
P1,687.66. The respondents then constructed a 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 P602,000. Then the respondents filed a complaint with the RTC for
nullification of the deed of sale, claiming that there was no sale but a mortgage transaction, and
documents transferring the title to the petitioners name were falsified.

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, during which period, the
respondents would lease the subject property for a monthly rental of P500.00;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; when the respondents failed to pay the monthly rentals
despite demand, he filed an ejectment case against them with the MeTC sixteen days before the filing
of the RTC case for annulment of the deed of absolute sale.

During the pendency of the RTC case, the MeTC ordered Erlinda and her family to vacate the
subject property, to surrender its possession to the petitioner, and to pay the overdue rentals.

RTC dismissed the complaint and found that the subject property was Erlindas exclusive
paraphernal property that was inherited from her father; upheld the sale to the petitioner, even
without Eliseos consent as the deed of absolute sale bore the genuine signatures of Erlinda and the
petitioner as vendor and vendee, respectively; concluded that the NBI finding that Eliseos signatures
were forgeries was immaterial because Eliseos consent to the sale was not necessary.

The respondents elevated the case to the CA, which declared void the deed of absolute sale,
and set aside the RTC decision. The CA held that the subject property, originally Erlindas exclusive
paraphernal property, became conjugal property when it was used as collateral for a housing loan that
was paid through conjugal funds Eliseos monthly salary deductions; the subject property, therefore,
cannot be validly sold or mortgaged without Eliseos consent, pursuant to Article 124of the Family
Code. When the CA denied the subsequent motion for reconsideration, the petitioner filed the present
petition for review on certiorari.


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



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

In the present case, we find that Eliseo paid a portion only of the GSIS loan 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 Eliseos 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.

2. Equitable Mortgage

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.

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.

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; Second, the petitioner retained part of the
purchase price, the petitioner gave a P200,000.00 advance to settle the GSIS housing loan, but
refused to give the P402,000.00 balance when Erlinda failed to submit Eliseos 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;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. 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 P384,660.00, and the daily
interest, starting February 21, 1993, was P641.10. Thus, the parties clearly intended an
equitable mortgage and not a contract of sale.