Nayve-Pua vs. Union Bank of the Philippines

A property acquired by one spouse before marriage with exclusive funds and brought into a conjugal partnership of gains remains that spouse's separate property, and the other spouse's consent is not required for its mortgage, where no proof shows that it became conjugal or that it was actually the family home at the time of the mortgage.

Lani Nayve-Pua and Stephen Pua cohabited as husband and wife beginning December 1975 and married in July 1983; because the marriage preceded the Family Code, their property relations were governed by the Civil Code's conjugal partnership of gains. A Quezon City property was acquired in March 1978 and registered in Stephen's name as "single." Union Bank of the Philippines, then International Exchange Bank, later dealt with Spouses Cromwell and Catherine Uy, who were related to Stephen through Cromwell's father George Pua, in connection with a credit accommodation. The Family Code governed the January 1998 mortgage.

Lani Nayve-Pua and Stephen Pua began living together as husband and wife in December 1975. During their cohabitation, four children were born: Steven in November 1976, Brian in November 1978, Mark in January 1981, and Kristine in April 1982. In March 1978, Lani and Stephen bought a property inside a subdivision in Diliman, Quezon City, covered by Transfer Certificate of Title No. RT-117283 (275199). Lani claimed they acquired it through their joint efforts, but the title was registered in the name of Stephen Pua, "of legal age, Filipino, single." In July 1983, Lani and Stephen married. The house constructed on the property allegedly became their family home.

In January 2004, Lani learned that the property had been mortgaged to and foreclosed by Union Bank, which notified them that the redemption period would expire in February 2004. Upon verification, she discovered that Spouses Cromwell and Catherine Uy had mortgaged their family home in favor of Union Bank as collateral for their loan by way of credit accommodation. This arrangement arose because Cromwell Uy is the son of Stephen's brother, George Pua. When Spouses Uy failed to pay, Union Bank foreclosed the mortgage and the property was sold at public auction. Lani later learned that in executing the loan agreement and mortgage, Spouses Uy submitted a Special Power of Attorney indicating that Lani and Stephen had authorized them to mortgage the property. Lani denied affixing her name and signature on the SPA, claiming forgery, and maintained that she did not consent to the mortgage.

Union Bank averred that because Lani and Stephen married on July 20, 1983, their property regime under the Civil Code was conjugal partnership of gains. It asserted that the property was Stephen's exclusive property because it was acquired before the marriage and the title named "STEPHEN PUA, of legal age, Filipino, single" as registered owner. Union Bank also stressed that the duly notarized SPA presented by Spouses Uy bore both signatures of Lani and Stephen. The REM and SPA were annotated at the back of the title, including Spouses Uy's outstanding loan of PHP 9,259,277.96. Since Spouses Uy reneged on their payments, Union Bank foreclosed the REM. On February 10, 2003, a certificate of sale was issued to Union Bank as the highest bidder. Union Bank informed Stephen that he had until February 10, 2004 to redeem the property. A day before the redemption period expired, Lani filed a complaint against Union Bank and Spouses Uy seeking to annul the mortgage and foreclosure proceedings.

The RTC found that Lani failed to prove she was a co-owner. It reasoned that the property was acquired before the marriage and the certificate of title indicated Stephen as owner, creating a strong presumption that he was its exclusive owner. The CA likewise found that Lani failed to establish that she and Stephen lived exclusively as husband and wife without the benefit of marriage, and that Stephen's address in the Deed of Sale and the children's birth certificates indicated he was a resident of Cauayan, Isabela, where he ran a movie house business. The CA also found that Lani did not show she actually contributed to the purchase of the property. To prove the property was their family residence, Lani presented the birth certificates of their four children; three indicated that Stephen and Lani's address was the Quezon City property, but these only proved use from 1978 to 1982. No other evidence showed the family still resided there when the property was mortgaged in January 1998. The SPA executed by Stephen in 1997 showed his residence and postal address as Cauayan, Isabela, and his Community Tax Certificate was also issued in Isabela.

• Article 147 Co-Ownership: Petitioner argued that the CA erred in applying Article 147 of the Family Code, in relation to Articles 76 and 144 of the Civil Code, because the property was acquired during their cohabitation as husband and wife and they are therefore co-owners although the title named Stephen as sole owner.
• Article 124 Consent: Petitioner maintained that under Article 124 of the Family Code, the absence of the written consent of both spouses rendered the mortgage agreement void.
• Bank Diligence and Family Home: Petitioner argued that Union Bank failed to exercise the required diligence of a bank in accepting a third-party mortgage; had it inspected the mortgaged property, it would have known that the property was occupied as their family home.
• Forgery and Lack of Consent: Petitioner denied affixing her name and signature on the SPA, claiming forgery, and maintained that she did not consent to the mortgage.

• Family Home Not Proven: Respondent countered that the CA correctly ruled that Lani failed to establish that the mortgaged property was a family home, as she did not provide convincing evidence aside from the birth certificates of her children.
• Article 124 Irrelevant: Respondent argued that Article 124 of the Family Code is irrelevant because the property is not conjugal.
• Mortgagee in Good Faith: Respondent insisted that it was a "mortgagee in good faith" and that it inspected the property to appraise its fair market value as part of Spouses Uy's application for a loan.
• Duly Notarized SPA: Respondent stressed that the duly notarized SPA presented by Spouses Uy bore both signatures of Lani and Stephen, and that the REM and SPA were annotated at the back of the title.

• Conjugal Character of the Property: Whether the mortgaged property is conjugal partnership property or Stephen Pua's exclusive property.
• Family Home: Whether the mortgaged property was the family home at the time of the mortgage, such that Lani's consent was required.
• Necessity of Lani's Consent: Whether Lani's consent to the mortgage is necessary for the mortgage's validity.
• Annulment of Mortgage and Foreclosure: Whether the mortgage and foreclosure in favor of Union Bank should be annulled.
• Bank Diligence: Whether Union Bank exercised the required diligence in accepting the third-party mortgage.

• Conjugal Character of the Property: No. The property was acquired by Stephen before marriage using his personal funds and remained his exclusive property under the conjugal partnership of gains; Lani failed to prove it became conjugal.
• Family Home: No. Lani failed to prove the property was still the family home at the time of the mortgage; in any event, a family home may be mortgaged and foreclosed for a debt secured by mortgage.
• Necessity of Lani's Consent: No. Since the property belonged solely to Stephen, Lani's signature and consent in the SPA were not crucial to the validity of the mortgage and foreclosure.
• Annulment of Mortgage and Foreclosure: No. The mortgage and foreclosure should not be annulled; the property was Stephen's exclusive property and Lani failed to prove a ground for annulment.
• Bank Diligence: Yes. Union Bank appraised the property before approving the loan and conducted a complete appraisal without objection from the owner or occupant.

• Conjugal Character of the Property: Under Article 119 of the Civil Code, absent marriage settlements, the conjugal partnership of gains governs the property relations of spouses married before the Family Code. The property was acquired in 1978, before Lani and Stephen married in July 1983, and the title named "STEPHEN PUA, of legal age, Filipino, single." The presumption that property acquired during marriage is conjugal therefore did not apply. Under Article 148 of the Civil Code and Article 109 of the Family Code, property brought to the marriage as one's own and property purchased with exclusive money are exclusive property. The March 1978 Conditional Contract of Sale and July 1979 Deed of Absolute Sale showed that Stephen acquired the land with an existing two-story residential home using his personal funds. No proof showed the building was constructed at the expense of the conjugal partnership, so the conversion principle under Article 158 of the Civil Code did not apply. Even under Article 147 of the Family Code, the co-ownership presumption is only prima facie and yields to contrary proof, such as the Torrens title and sale documents naming Stephen alone; Lani failed to prove any contribution to the acquisition.
• Family Home: Under Article 223 of the Civil Code and Article 153 of the Family Code, a family home is the dwelling house where a person and family reside, including the land, and must be used and occupied as a family residence. Lani presented the birth certificates of their four children; three indicated the Quezon City property as the address, but these proved use only from 1978 to 1982. No evidence showed the family still resided there when the property was mortgaged in January 1998. The SPA executed by Stephen in 1997 listed his residence and postal address as Cauayan, Isabela, and his Community Tax Certificate was issued there. Thus, Lani failed to establish that the property was the family home at the time of mortgage. Even if it were, Articles 232 and 235 of the Civil Code and Articles 155, 158, and 160 of the Family Code allow a family home to be mortgaged and foreclosed for a debt secured by a mortgage; the applicable law is reckoned on the date of alienation or encumbrance, which was in 1998 during the Family Code's effectivity.
• Necessity of Lani's Consent: Because the property was Stephen's exclusive property, Article 124 of the Family Code, which governs encumbrance of conjugal partnership property, did not apply. Union Bank was not required to verify Lani's signature in the SPA. The RTC and CA correctly concluded that Lani's signature and consent were not crucial to the validity of the mortgage and foreclosure proceedings, as the subject property belonged solely to Stephen.
• Annulment of Mortgage and Foreclosure: The mortgage and foreclosure in favor of Union Bank were upheld because the property was Stephen's exclusive property and Lani failed to prove that it was the family home. Union Bank also exercised the required diligence. It appraised the property before approving Spouses Uy's loan and surveyed it to assess its market value. Its Vice President Ma. Christina Macaren and Credit Appraisal Team Manager Andres B. Alcantara, Jr. corroborated that a complete appraisal of the collateral, including the lot and building, was made. The records showed appraisals in November 1998 and July 2000, with no objection from the owner or occupant, and the fair market value increased. Lani's claim that her signature in the SPA was forged did not invalidate the mortgage because the bank was not required to verify her signature.
• Bank Diligence: The bank's appraisal and inspection of the property, including the lot and improvements, and the absence of any objection from the owner or occupant, showed that Union Bank exercised the diligence required of a bank in accepting the third-party mortgage. It was therefore a mortgagee in good faith.

• Conjugal Partnership of Gains and Exclusive Property — Under the Civil Code, absent marriage settlements, conjugal partnership of gains governs the property relations of spouses married before the Family Code. Property acquired during marriage is presumed conjugal, but property acquired before marriage and brought into the marriage as one's own remains exclusive. Article 148 of the Civil Code and Article 109 of the Family Code classify as exclusive property that which is brought to the marriage as one's own and that which is purchased with exclusive money. The Court applied this rule to hold that the property acquired by Stephen before marriage with his personal funds remained his exclusive property, and Lani failed to prove it became conjugal.
• Conversion of Paraphernal Property into Conjugal by Construction — Under Article 158 of the Civil Code, improvements or buildings constructed at the expense of the conjugal partnership on the separate land of one spouse belong to the conjugal partnership, but the value of the land is reimbursed to the owning spouse. The Court found no showing that the building was constructed at the expense of the conjugal partnership; the residential building already existed when Stephen purchased the property in 1978, so the conversion principle did not apply.
• Prima Facie Presumption of Co-Ownership under Article 147 — When a man and a woman capacitated to marry live exclusively as husband and wife without marriage, properties acquired during cohabitation are presumed obtained by their joint efforts and owned in equal shares, but the presumption is only prima facie and applies only if there is no proof to the contrary. The Court held that the Torrens title in Stephen's name and the sale documents naming him as single were contrary proof, and Lani failed to prove any contribution to the property's acquisition.
• Family Home; Not Absolutely Exempt from Mortgage and Foreclosure — A family home is the dwelling house where a person and family reside, including the land, and must be used and occupied as a family residence. Under Articles 232 and 235 of the Civil Code and Articles 155, 158, and 160 of the Family Code, a family home may be mortgaged and foreclosed for a debt secured by a mortgage. The Court held that Lani failed to prove the property was the family home at the time of mortgage; even if it were, foreclosure for a secured debt was not barred.
• Mortgagee in Good Faith and Bank Diligence — A bank must exercise the required diligence in accepting a third-party mortgage, but where the registered owner is the sole owner of the property, the bank is not required to verify the signature of the owner's spouse in a special power of attorney. The Court found that Union Bank appraised the property, conducted a complete appraisal of the lot and improvements, and encountered no objection from the owner or occupant, and that Lani's signature was not crucial because Stephen solely owned the property.

• "If a couple's property regime is conjugal partnership of gains and, before getting married, they cohabited as husband and wife without any legal impediment to marry, a property bought with the exclusive money of one party before the marriage and brought into the marriage will belong only to that party, as long as there is no proof that the other party contributed in any manner to the property's acquisition." — This passage states the core ratio decidendi on the exclusive character of property acquired before marriage with one party's exclusive funds.
• "Here, however, Lani admitted that the property was acquired before her marriage to Stephen in 1983. Consequently, the presumption that the property is conjugal shall not apply, especially since the property is under Stephen's name alone. Lani bears a heavier onus to prove that the property is indeed conjugal." — This passage applies the conjugal-presumption rule to the facts and explains why the burden shifted to Lani.
• "At any rate, we stress that a family home may still be mortgaged and foreclosed following Articles 232 and 235 of the Civil Code, which provide:" — This passage introduces the rule that a family home is not absolutely exempt from mortgage and foreclosure.
• "Indeed, since Stephen is the sole owner of the property, the bank was not required to verify Lani's signature in the SPA. The RTC and the CA correctly concluded that Lani's signature and consent in the SPA are not crucial to the validity of the mortgage and foreclosure proceedings, as the subject property belongs solely to Stephen." — This passage resolves the issue on the necessity of Lani's consent and the bank's duty to verify her signature.

• Malabanan vs. Malabanan, Jr., 848 Phil. 438 (2019) — Explained that property acquired during marriage is presumed conjugal and that it is unnecessary to prove the money used came from the conjugal fund; what must be established is that the property was acquired during the marriage. The Court cited it to distinguish the present case because the property was acquired before marriage.
• Alexander vs. Escalona, G.R. No. 256141, July 19, 2022 — Held that the conjugal presumption may be rebutted only by clear and convincing evidence and applies even if the property is under the name of only one spouse; also emphasized that the applicable law is reckoned on the date of alienation or encumbrance. The Court cited it for the burden of proof and for the law governing the family home.
• Heirs of Palomares vs. Vinzon, G.R. No. 194599, September 18, 2013 — Cited Article 158 of the Civil Code and held that paraphernal land becomes conjugal upon the construction of a building on it at the expense of the partnership. The Court distinguished it because the building already existed when Stephen acquired the property and no conjugal funds were used.
• Embrado vs. Court of Appeals, 303 Phil. 344 (1994) — Cited in Heirs of Palomares vs. Vinzon for the conversion principle under Article 158 of the Civil Code. The Court distinguished it on the same ground that the building was not constructed at the expense of the conjugal partnership.

• Article 119, Civil Code — Provides that absent marriage settlements, the conjugal partnership of gains governs the property relations of spouses. Applied because Lani and Stephen married in 1983 without any marriage settlement.
• Article 148, Civil Code — Lists the exclusive property of each spouse, including property brought to the marriage as one's own and property purchased with exclusive money. Applied to hold that the mortgaged property was Stephen's exclusive property.
• Article 158, Civil Code — Provides that improvements or buildings constructed on the separate property of a spouse at the expense of the conjugal partnership belong to the conjugal partnership. Applied and found inapplicable because the building already existed and was not constructed at conjugal expense.
• Article 160, Civil Code — Presumes all property of the marriage to belong to the conjugal partnership unless proved to pertain exclusively to one spouse. Applied to explain that the presumption did not arise because the property was acquired before marriage.
• Article 109, Family Code — Echoes the exclusive-property rules of the Civil Code. Applied suppletorily to confirm that the property was Stephen's exclusive property.
• Article 147, Family Code — Governs co-ownership for a man and woman capacitated to marry who live exclusively as husband and wife without marriage, with a prima facie presumption of joint acquisition. Applied and found insufficient because the Torrens title and sale documents named Stephen alone and Lani failed to prove contribution.
• Article 124, Family Code — Governs administration and encumbrance of conjugal partnership property and requires written consent of the other spouse for disposition or encumbrance. Applied and found irrelevant because the property was not conjugal.
• Articles 232 and 235, Civil Code — Provide that a family home is exempt from execution except for debts secured by a mortgage and may be sold or encumbered with the consent of the spouse and court approval. Applied to hold that a family home may be mortgaged and foreclosed for a secured debt.
• Articles 155, 158, and 160, Family Code — Reiterate the family home exemptions and rules on encumbrance. Applied because the mortgage transpired in 1998 during the effectivity of the Family Code.
• Articles 223, 227, and 228, Civil Code — Define the family home and govern its constitution. Applied to require proof that the property was used and occupied as a family residence.
• Article 153, Family Code — Provides that a family home is deemed constituted from the time it is occupied as a family residence and remains exempt from execution as provided by law. Applied to the family-home issue.
• Rule 45, Rules of Court — Governs the Petition for Review on Certiorari filed by Lani. Applied as the mode of review before the Supreme Court.

Justices Lazaro-Javier, Lopez, and Kho, Jr. concurred. Justice Leonen, SAJ (Chairperson), filed a separate opinion.