Munoz Jr. vs.

Ramirez
G.R. No. 156125 August 25, 2010

Brion, J.:

Procedural History:
This is a case of a present petition for a review on certiorari field by petitioner Fransisco Munoz
Jr. to challenge the decision and the resolution of the Court of Appeals that the paraphernal property of
the respondent became conjugal when it was used as collateral for a housing loan. The Court of Appeals
set aside the ruling of the Regional Trial Court Branch 116 of Pasig City which fully states that the subject
property is clearly paraphernal since respondent inherited the property from her father. The Court of
Appeals denied the petitioner’s subsequent motion for reconsideration hence this petition of certiorari
was filed.

Statement of Facts:
Respondent-spouses mortgaged a residential lot to the GSIS to secure a 200-thousand loan
which they used to construct a residential house on the said lot.
It was alleged that petitioner granted the spouses a 600-thousand loan which they used to pay
off their debts to GSIS. The balance of the loan which is 400 thousand will be given by Munoz upon the
surrender of the title of the property and the affidavit of their waiver of their rights over the said
property to be executed by the husband. Consequently, Munoz refused to give the 400 thousand
balance of the loan since the spouses were to turn-over the title but no affidavit was signed to waive
their rights over the property. Since the spouses could not anymore return the 200-thousand loan
because they already paid it to GSIS, Munoz kept the title over the property and subsequently cause the
issuance of a new one in his own name.
The spouses then filed a case for the annulment of the purported sale. The RTC ruled that the
property was the wife’s exclusive paraphernal property and as such, the sale is valid even without the
husband’s consent.
The Court of Appeals reversed the and ruled that while the property was paraphernal, it became
conjugal when it was used as collateral for a housing loan that was paid through conjugal funds. Hence,
the sale is void.

Issues:
1. Is the property conjugal or paraphernal?
2. Was the transaction a sale or equitable mortgage?

Answers:
1. It is paraphernal. It is clear in the case that the wife inherited the lot from her father and has
clear evidence that sufficiently rebutted the presumption of conjugal ownership.
2. Yes. Basing on the facts of the case, it presents the conditions of an equitable mortgage and
the spouses intended the same and not a contract of sale.

Reasoning:
1. According to Article 120 of the Family Code, when the cost of improvement and any
resulting increase in the value is more than the value of the property at the time of the
improvement, the entire property shall belong to the conjugal partnership subject to
reimbursement, otherwise the property shall be retained by the owner-spouse. In this case,
 the husband only paid a small portion of the GSIS loan approximately 60 thousand pesos.
Thus it is fairly reasonable to assume that the value of the residential lot is considerably
more than the contribution paid by the husband. Thus, the property is a paraphernal
property of the wife and the written consent of the husband is not necessary at the time she
contracted with Munoz.
2. Considering that the spouses remain in possession of the property and Munoz retained a
portion of the purchase price (200 thousand), it was also the spouses who paid the real
property taxes on the property and it was the wife who secured the payment of the
principal debt with the subject property, the parties clearly intended an equitable mortgage
and not a contract of sale. (Conditions are based on Art. 1602 of the Civil Code)

Holding:
The Court denied the present petition and affirmed the decision and resolutions of the Court of
Appeals with modifications: The deed of absolute sale will be declared equitable mortgage and
petitioner will reconvey the property of the respondents upon payment of 200 thousand pesos with 12%
legal interest from April 30, 1992 by respondents within 90 days from the finality of the decision.