Spouses Castro vs. Miat

Property acquired by onerous title during the marriage at the expense of the common fund is conjugal partnership property regardless of whether the balance was paid after one spouse's death, and an oral partition among heirs is valid and enforceable without compliance with the formal requirements of a public document or registration, provided no creditors are involved; a buyer with actual knowledge of another person's adverse claim and possession of the property cannot be regarded as a purchaser in good faith.

Spouses Moises and Concordia Miat acquired two parcels of land during their coverture — one in Parañaque (covered by TCT No. S-33535) and another in Paco, Manila (covered by TCT No. 163863). The Paco property was purchased on installment basis on May 17, 1977. Concordia died on April 30, 1978, survived by two sons, Romeo and Alexander. Because the spouses were married before the effectivity of the Family Code, the provisions of the New Civil Code govern their property relations. After Concordia's death, Moises arranged for the disposition of the two properties between himself and his sons, leading to the dispute over the Paco property.

Spouses Moises and Concordia Miat acquired two parcels of land during their marriage. The first, located in Wawa La Huerta, Airport Village, Parañaque, was covered by TCT No. S-33535. The second, located in Paco, Manila, was covered by TCT No. 163863 and was purchased on installment basis on May 17, 1977, with a downpayment of ₱1,050.00. Concordia died on April 30, 1978, leaving two sons, Romeo and Alexander.

While in Dubai, Moises agreed that the Parañaque property would go to him and the Paco property to Romeo and Alexander. Upon his return to Manila in 1984, Moises renegotiated: he wanted the Parañaque property for himself but would leave the Paco property to both sons. They agreed. This arrangement was attested to by extended Miat family members, including Ceferino Miat, Moises' brother, who testified that the agreement existed before Concordia's death, was reiterated at her deathbed, and was affirmed before the extended family when Moises returned to Manila. The family members executed a sworn statement (Exhibit "D") on February 18, 1989, before Barangay Captain Reynaldo P. Wong, confirming the partition: the Parañaque land to Moises and the Paco land and house to Romeo and Alexander.

Moises paid the balance on the Paco property in installments after Concordia's death — ₱3,500.00 in 1981 and ₱8,500.00 in 1984 — and registered the title in his name as a widower. Romeo borrowed the owner's duplicate of the title, ostensibly to mortgage it to a friend. Romeo and Alexander took up residence on the Paco property, paying its realty taxes and fire insurance premiums. They orally divided the property between themselves. In April 1988, Alexander agreed to sell his share to Romeo for ₱42,750.00 and received a partial payment of ₱6,000.00, though he never executed a deed of assignment, claiming he had no time and that there was nothing to worry about since the title was in Romeo's possession.

Moises subsequently encountered financial difficulties and mortgaged the Paco property to the parents of Virgilio Castro for ₱30,000.00. He informed Romeo and Alexander that he would sell the property if they did not redeem the mortgage. In February 1988, Romeo learned from his godmother, Mrs. Rosalina Castro — Virgilio Castro's mother — that she had given Moises ₱30,000.00 as downpayment for the sale of the Paco property to Virgilio. On December 1, 1988, Virgilio Castro brought Romeo, Alexander, and Moises to the chambers of Judge Anunciacion of the Metropolitan Trial Court of Manila to consult on who had the right to the Paco property. Romeo told Castro that the property had been given to him by Moises. Castro admitted knowing that Romeo possessed the title and that Romeo insisted he was the owner. Notwithstanding this knowledge, Moises sold the Paco property to the spouses Castro by deed of sale dated December 5, 1988 for ₱95,000.00. After the sale, Alexander received two-thirds of the proceeds and Moises one-third; Romeo received nothing.

Romeo filed an action to nullify the sale, to compel Moises and Alexander to execute a deed of conveyance in his favor upon payment of the balance, and to claim damages. The trial court ordered Alexander to execute a deed of sale of his share upon Romeo's payment of ₱36,750.00 but recognized as valid the sale of Moises' share to the Castro spouses. The Court of Appeals modified the decision by nullifying the sale in its entirety, ordering both Moises and Alexander to execute a deed of conveyance to Romeo upon payment of the balance, and awarding attorney's fees of ₱30,000.00.

• Nature of Property: Petitioners contended that the Paco property was the capital property of Moises, stressing that while the spouses purchased it on installment in 1977, it was Moises who paid the balance of ₱12,000.00 in 1984, at which time Concordia had long been dead.
• Validity of Sale: Petitioners argued that the Court of Appeals erred in nullifying the deed of sale between Moises and the Castro spouses pertaining to Moises' share in the property, and in ordering Moises and Alexander to execute a deed of conveyance over the entire Paco property in favor of Romeo.
• Attorney's Fees: Petitioners argued that the Court of Appeals erred in ordering them to pay, jointly and severally, attorney's fees of ₱30,000.00 and the costs of suit.

• Nature of Property: Whether the Paco property is conjugal partnership property or the capital property of Moises.
• Validity of Oral Partition: Whether there was a valid oral partition covering the Paco property between Moises and his sons Romeo and Alexander.
• Good Faith of Buyers: Whether the spouses Castro were buyers in good faith.

• Nature of Property: The Paco property is conjugal partnership property. It was acquired by onerous title during the marriage at the expense of the common fund, and the presumption under Article 160 of the New Civil Code was not rebutted.
• Validity of Oral Partition: Yes. The oral partition was valid and enforceable, the Statute of Frauds being inapplicable to partition among heirs, and the partition having been ratified by acceptance of benefits and failure to object to oral evidence.
• Good Faith of Buyers: No. The spouses Castro had actual knowledge of Romeo's adverse claim and possession of both the title and the property, precluding good faith as a matter of law.

• Nature of Property: Article 153(1) of the New Civil Code (now Article 117(1) of the Family Code) provides that property acquired by onerous title during the marriage at the expense of the common fund is conjugal partnership property. Article 160 establishes the presumption that all property of the marriage belongs to the conjugal partnership unless proved to pertain exclusively to one spouse; this presumption applies even when the manner of acquisition does not appear and does not require proof that the property was acquired with partnership funds. The Paco property was acquired during the marriage — Moises did not bring it into the marriage. The balance paid by Moises after Concordia's death did not convert the property into his capital property. Petitioners' reliance on Lorenzo vs. Nicolas was misplaced because in that case the wife purchased and paid for the property in her own name before and during the marriage, with all receipts and the deed issued solely in her favor. Jovellanos vs. Court of Appeals was likewise inapposite because the property there was acquired during a second marriage, the husband having completed payment only during that second marriage. Here, the deed of sale with mortgage executed by Moises and Concordia was a contract of sale, and title passed to them upon delivery of the property during the conjugal partnership.

• Validity of Oral Partition: The oral partition was supported by Moises' own letter to Romeo expressing that the property was for his two sons, by the sworn statement of extended family members (Exhibit "D"), and by the testimony of Ceferino Miat and Pedro Miranda. The partition was not covered by the Statute of Frauds for two reasons: first, Alexander accepted ₱6,000.00 as downpayment for the sale of his share to Romeo, constituting acceptance of benefits under the contract; second, the testimonies of Ceferino Miat and Pedro Miranda regarding the oral partition were admitted without objection from petitioners' counsel, thereby ratifying the contract under Article 1405 of the New Civil Code. Citing Pada-Kilario vs. Court of Appeals, no law requires partition among heirs to be in writing and registered for validity. The requirement in Section 1, Rule 74 of the Rules of Court that partition be put in a public document and registered serves only to protect creditors and heirs against tardy claims; without creditors, the intrinsic validity of partition is not undermined by lack of formalities. Article 1358's requirement of a public instrument for acts involving real rights over immovable property is only for convenience. The Statute of Frauds under Article 1403 does not apply because partition among heirs is not a conveyance of real property but a confirmation or ratification of title or right that an heir renounces in favor of another who accepts and receives the inheritance.

• Good Faith of Buyers: A purchaser in good faith is one who buys property and pays a full and fair price at the time of purchase or before notice of another person's claim. The settled rule is that a buyer of real property in the possession of persons other than the seller must be wary and investigate the rights of those in possession; without such inquiry, the buyer cannot be regarded as a buyer in good faith. Virgilio Castro admitted that Romeo told him the property had been given to him by Moises. Castro, together with Romeo, Alexander, and Moises, consulted Judge Anunciacion to determine who had the right to the property. Castro knew that Romeo possessed the title and insisted on his ownership. Castro was further aware that Romeo was in actual possession of the property, they being neighbors. A purchaser fully aware of another's possession of the property purchased cannot successfully pretend to be an innocent purchaser for value.

• Presumption of Conjugal Property (Article 160, New Civil Code) — All property of the marriage is presumed to belong to the conjugal partnership unless it is proved that it pertains exclusively to the husband or the wife. The presumption does not require proof that the property was acquired with funds of the partnership and applies even when the manner of acquisition does not appear. In this case, the Paco property was acquired during the marriage by onerous title, and the presumption was not rebutted, notwithstanding that the surviving spouse paid the balance after the other spouse's death.

• Validity of Oral Partition Among Heirs — No law requires partition among heirs to be in writing and registered in order to be valid. The requirement in Section 1, Rule 74 of the Rules of Court that partition be in a public document and registered is for the protection of creditors and heirs against tardy claims. Without creditors, the intrinsic validity of partition is not undermined by lack of formalities. The Statute of Frauds under Article 1403 does not apply because partition among heirs is not a conveyance of real property but a confirmation or ratification of title or right that an heir renounces in favor of another. Article 1358's requirement of a public instrument is only for convenience and does not affect validity or enforceability as among the parties. In this case, the oral partition was further ratified by Alexander's acceptance of ₱6,000.00 as downpayment and by the failure of petitioners' counsel to object to oral evidence of the partition.

• Buyer in Good Faith — A purchaser in good faith is one who buys property and pays a full and fair price at the time of purchase or before any notice of some other person's claim on or interest in it. A buyer of real property in the possession of persons other than the seller must be wary and should investigate the rights of those in possession; without such inquiry, the buyer can hardly be regarded as a buyer in good faith. In this case, the Castro spouses had actual knowledge of Romeo's adverse claim, his possession of the title, and his physical possession of the property, and were therefore not buyers in good faith.

• "[N]o law requires partition among heirs to be in writing and be registered in order to be valid. The requirement in Sec. 1, Rule 74 of the Revised Rules of Court that a partition be put in a public document and registered, has for its purpose the protection of creditors and the heirs themselves against tardy claims." — This passage, quoting Pada-Kilario vs. Court of Appeals, articulates the controlling doctrine on the validity of oral partition among heirs and is the ratio decidendi on the second issue.

• "all property of the marriage is presumed to belong to the conjugal partnership, unless it be proved that it pertains exclusively to the husband or to the wife." — This is the Court's invocation of Article 160 of the New Civil Code, establishing the presumption that determined the conjugal character of the Paco property.

• "A purchaser who was fully aware of another person's possession of the lot he purchased cannot successfully pretend to be an innocent purchaser for value." — This statement, quoted from the Court of Appeals' decision and adopted by the Supreme Court, encapsulates the rule applied to defeat the Castro spouses' claim of good faith.

• Pada-Kilario vs. Court of Appeals, 322 SCRA 481 (2000) — Followed as controlling authority on the validity of oral partition among heirs, holding that no law requires partition to be in writing or registered, and that the Statute of Frauds does not apply to partition among heirs because it is not a conveyance but a confirmation of title or right.

• Lorenzo vs. Nicolas, 91 Phil. 686 (1952) — Distinguished. Involved property purchased by the wife before marriage, with all receipts and the deed of conveyance issued solely in her name; ruled paraphernal property. Distinguished because in the present case the property was purchased during the marriage by both spouses.

• Jovellanos vs. Court of Appeals, 210 SCRA 126 (1992) — Distinguished. Involved property acquired during a second marriage where the husband completed payment only during that marriage; ruled conjugal property of the second marriage. Distinguished because the property in the present case was acquired during the first marriage.

• Tan vs. Court of Appeals, 273 SCRA 229 (1997) — Cited in support of the presumption under Article 160 of the New Civil Code that all property of the marriage belongs to the conjugal partnership unless proved otherwise.

• Salazar vs. Court of Appeals, 258 SCRA 317 (1996) — Cited for the principle that a deed of sale with mortgage is a contract of sale and title passes upon delivery, establishing that title to the Paco property was gained during the conjugal partnership.

• Republic vs. De Guzman, 326 SCRA 267 (2000) — Cited for the rule that a buyer of real property in the possession of persons other than the seller must investigate the rights of those in possession.

• Article 153(1), New Civil Code (now Article 117(1), Family Code) — Defines conjugal partnership property as including property acquired by onerous title during the marriage at the expense of the common fund. Applied to classify the Paco property as conjugal, having been acquired during the marriage.

• Article 160, New Civil Code — Establishes the presumption that all property of the marriage belongs to the conjugal partnership unless proved to pertain exclusively to one spouse. Applied to reject petitioners' claim that the property was Moises' capital property.

• Article 1358, New Civil Code — Requires that acts involving the creation, transmission, modification, or extinguishment of real rights over immovable property appear in a public instrument, but only for convenience; non-compliance does not affect validity or enforceability as among the parties. Applied to uphold the oral partition despite lack of a public document.

• Article 1403, New Civil Code (Statute of Frauds) — Enumerates contracts that must be in writing to be enforceable. Held inapplicable to partition among heirs, which is not a conveyance of real property but a confirmation of title or right.

• Article 1405, New Civil Code — Provides that contracts infringing the Statute of Frauds are ratified by failure to object to the presentation of oral evidence or by acceptance of benefits. Applied because petitioners' counsel did not object to oral testimony of the partition, and Alexander accepted ₱6,000.00 as downpayment.

• Section 1, Rule 74, Rules of Court — Requires partition to be in a public document and registered. Held to be for the protection of creditors and heirs against tardy claims, not a requirement for intrinsic validity of partition where no creditors are involved.

Panganiban, Sandoval-Gutierrez, Corona, and Carpio-Morales, JJ., concur.