Delos Santos vs. Abejon

Heirs are not directly liable for debts contracted by their decedent during marriage that are chargeable to the conjugal partnership; rather, the liability devolves upon the conjugal partnership assets first, then the spouses' separate properties, and only the estate of the deceased spouse is liable for the portion attributable to him. Additionally, where both the landowner and the builder act in bad faith regarding construction on another's land, they shall be treated as if both acted in good faith pursuant to Article 453 of the Civil Code, entitling the landowner to appropriate the improvements after paying indemnity or to sell the land to the builder.

Erlinda Dinglasan-Delos Santos and her late husband Pedro obtained a ₱100,000 loan from Erlinda's sister Teresita Dinglasan-Abejon in 1988, secured by a mortgage on their property in Makati covered by Transfer Certificate of Title (TCT) No. 131753. After Pedro died in 1989, a Deed of Sale dated July 8, 1992 purportedly transferred the property to Teresita for ₱150,000 (the loan plus ₱50,000 additional consideration), with Pedro's signature appearing thereon despite his death three years prior. Teresita caused the cancellation of the mortgage and the issuance of TCT No. 180286 in her name, then constructed a three-storey building worth ₱2,000,000 on the land. Petitioners, who remained in possession of the property, refused to recognize the sale and denied receiving the additional ₱50,000.

• The Loan and Mortgage: In 1988, Erlinda Dinglasan-Delos Santos and her husband Pedro Delos Santos executed a Promissory Note dated April 8, 1988 (though the decision text erroneously states 1998, the note requires payment by March 31, 1989) in favor of Erlinda's sister Teresita Dinglasan-Abejon for ₱100,000.00 with 12% interest per annum, secured by a mortgage on their property at 2986 Gen. Del Pilar Street, Bangkal, Makati City covered by TCT No. 131753.
• The Forged Sale: Pedro died in 1989. On July 8, 1992, a Deed of Sale was executed purporting to transfer the subject land to Teresita for ₱150,000.00 (the loan plus ₱50,000.00 additional consideration), bearing Pedro's signature despite his death three years prior. A Release of Mortgage was also executed. TCT No. 131753 was cancelled and TCT No. 180286 was issued in the name of "Teresita, Abejon, married to Alberto S. Abejon."
• Construction and Occupancy: Respondents constructed a three-storey building valued at ₱2,000,000.00 on the subject land. Petitioners remained the actual occupants of both the land and the building from 1992 until the present.
• Pre-Trial Stipulations: During pre-trial proceedings, the parties stipulated that: (a) the Deed of Sale and Release of Mortgage dated July 8, 1992 were forged and should be cancelled; (b) TCT No. 180286 should be cancelled and TCT No. 131753 reinstated; (c) petitioners have been the actual occupants of the land and improvements; (d) the ₱100,000.00 loan still subsists; and (e) respondents paid for the improvements. The RTC limited the issues to liability for damages and attorney's fees based on these stipulations.

• Conjugal Partnership Liability: Petitioner maintained that the ₱100,000.00 loan was contracted by Erlinda and Pedro during their marriage under the conjugal partnership of gains regime. The obligation is chargeable to the conjugal partnership, and only if insufficient are the spouses solidarily liable with their separate properties. Heirs cannot be held directly answerable for the decedent's portion; only Pedro's estate is liable.
• Alternative Remedy: Petitioner argued that respondents have the alternative remedy to foreclose the mortgage on the subject land rather than pursue a personal action for collection against the heirs.
• Application of Accession: Petitioner contended that the rules on accession (Articles 448 and 453 of the Civil Code) should apply to determine rights over the three-storey building, rather than simple reimbursement of the full construction cost.
• Attorney's Fees: Petitioner asserted that no factual, legal, or equitable justification exists for the award of attorney's fees under Article 2208 of the Civil Code.

• Solidary Liability of Heirs: Respondent countered that since petitioners admitted the indebtedness during pre-trial, they should be held liable for the loan. The children, having inherited from Pedro, are solidarily liable for his portion of the obligation.
• Reimbursement for Improvements: Respondent argued that petitioners, having knowingly allowed the construction and occupied the building for over two decades, should reimburse the full construction cost of ₱2,000,000.00.
• Attorney's Fees: Respondent maintained that attorney's fees were justified under Article 2208 for being forced to litigate to protect their interest.

• Liability for Conjugal Debt: Whether the Court of Appeals correctly held all petitioners personally liable for the ₱100,000.00 loan obligation contracted by Erlinda and her deceased husband Pedro.
• Mutual Restitution: Whether Erlinda should return the ₱50,000.00 additional consideration paid for the void sale.
• Accession and Indemnity: Whether the rules on accession (Articles 448, 453, 546, and 548 of the Civil Code) apply to determine the rights of the parties regarding the three-storey building constructed on the subject land.
• Attorney's Fees: Whether the award of attorney's fees was proper.

• Liability for Conjugal Debt: The CA erred in holding petitioners liable for the loan. Pursuant to Article 121 of the Family Code, the obligation is chargeable to the conjugal partnership of Erlinda and Pedro. Should the conjugal partnership assets be insufficient, Erlinda and Pedro's estate—not his heirs directly—are solidarily liable with their separate properties. Respondents retain the alternative remedy to foreclose the mortgage on the subject land.
• Mutual Restitution: Erlinda is ordered to return the ₱50,000.00 additional consideration paid by Teresita for the void sale, with legal interest of 6% per annum from the finality of the decision until fully paid, as the declaration of nullity operates to restore things to the state before execution.
• Accession and Indemnity: Both parties acted in bad faith—respondents as builders (knowing Pedro was dead when the deed was executed in 1992, rendering their title void) and petitioners as landowners (knowing of the forgery but allowing construction without opposition). Pursuant to Article 453 of the Civil Code, they are treated as if both acted in good faith. Under Article 448, petitioners may appropriate the building after paying indemnity under Articles 546 and 548, or sell the land to respondents unless the land value considerably exceeds the building value, in which case respondents pay reasonable rent. The case is remanded to the RTC to determine the proper indemnity.
• Attorney's Fees: The award of attorney's fees is deleted as no factual, legal, or equitable justification exists under Article 2208 of the Civil Code; no premium should be placed on the right to litigate.

• Pre-Trial Stipulations Bind Parties — Admissions and stipulations made during pre-trial proceedings are binding upon the parties and serve to limit the issues to be tried, clarifying and abbreviating the trial process.
• Liability of Conjugal Partnership vs. Direct Liability of Heirs — Debts contracted by both spouses during marriage under the conjugal partnership of gains are chargeable to the conjugal partnership. Only if the conjugal partnership assets are insufficient are the spouses solidarily liable with their separate properties. Heirs are not directly liable for the decedent's portion of such debts; liability devolves only upon the decedent's estate.
• Alternative Remedies of a Mortgagee — A mortgagee has the alternative remedy to either file a personal action for collection of the debt or a real action to foreclose the mortgage, but the choice of one precludes the other.
• Mutual Restitution for Void Contracts — The declaration of nullity of a contract void ab initio operates to restore things to the state and condition in which they were found before the execution thereof, requiring mutual restitution of what was received.
• Good Faith and Bad Faith in Accession — Good faith in accession consists of an honest belief in the validity of one's right, ignorance of a superior claim, and absence of intention to overreach another. Bad faith on the part of the landowner exists when the act of building is done with his knowledge and without opposition on his part.
• Article 453 Equitable Treatment — Where both the landowner and the builder, planter, or sower act in bad faith, they shall be treated as if both had acted in good faith, with the landowner retaining the options under Article 448 to appropriate the improvements or sell the land.
• Attorney's Fees Require Justification — Attorney's fees cannot be recovered as part of damages except in the enumerated instances under Article 2208 of the Civil Code and require factual, legal, and equitable justification; they are not to be awarded every time a party wins a suit.

• "A pre-trial is a procedural device intended to clarify and limit the basic issues raised by the parties and to take the trial of cases out of the realm of surprise and maneuvering."
• "The essence of good faith lies in an honest belief in the validity of one's right, ignorance of a superior claim, and absence of intention to overreach another."
• "Where both the landowner and the builder, planter, or sower acted in bad faith, they shall be treated as if both of them were in good faith."

• Nacar v. Gallery Frames, 716 Phil. 267 (2013) — Applied regarding the rate of legal interest (6% per annum from finality until fully paid) for the return of the ₱50,000.00 consideration.
• Development Bank of the Philippines v. CA, 319 Phil. 447 (1995) — Cited for the rule that the declaration of nullity of a contract void ab initio operates to restore things to the state before execution.
• Communities Cagayan, Inc. v. Spouses Nanol, 698 Phil. 648 (2012) — Applied for the rules on accession under Articles 448 and 453, and the options available to the landowner when both parties are in good faith (or treated as such).
• Stronghold Insurance Company, Inc. v. Republic-Asahi Glass Corporation, 525 Phil. 270 (2006) and Genato v. Bayhon, 613 Phil. 318 (2009) — Cited regarding the liability of the conjugal partnership and the estate versus direct liability of heirs.

• Article 121, Family Code — Governs the liability of the conjugal partnership for debts contracted during the marriage and the solidary liability of spouses with their separate properties if the partnership is insufficient.
• Articles 448, 453, 546, and 548, Civil Code — Govern the rights of landowners and builders in good faith and bad faith, indemnity for necessary and useful expenses, and the equitable treatment of parties when both act in bad faith.
• Article 2208, Civil Code — Enumerates the instances when attorney's fees and expenses of litigation may be recovered.

Maria Lourdes P.A. Sereno (Chief Justice), Teresita J. Leonardo-De Castro, Mariano C. Del Castillo, Alfredo Benjamin S. Caguioa.