The Supreme Court ruled that a co-owner’s rights to inherited property are not extinguished when another co-owner mortgages the property without their consent. Even if the property is foreclosed and subsequently reacquired by the mortgaging co-owner, the co-ownership persists, and the non-consenting co-owner retains their rightful share. This decision underscores the importance of consent in property dealings and safeguards the interests of individuals who inherit property. It clarifies that a mortgage executed without the knowledge and consent of all co-owners is not binding on those who did not benefit from it, thus ensuring their ownership rights remain protected.

Mortgaged Inheritance: Can Co-ownership Survive Undisclosed Debts?

This case revolves around a dispute over a parcel of land originally owned by Cleto Macayanan and later inherited by his children, including Juliana Inalvez and Bayang Nool. The central legal question is whether a co-owner (Juliana), can mortgage the entire property without the consent of another co-owner (Bayang), and whether subsequent foreclosure and reacquisition of the property by the mortgaging co-owner extinguish the other’s rights. The heart of the matter is the protection of inherited property rights within the context of co-ownership, and the limits of one co-owner’s authority to act on behalf of all.

The narrative begins with the original ownership of the land by Cleto Macayanan. Upon his passing, the land was inherited by his heirs, including Juliana and Bayang. The title was eventually registered in the names of several individuals, including Spouses Nicolas and Francisca, Spouses Cornelio and Bayang, Zamora, and Spouses Primo and Juliana Inalvez, reflecting a co-ownership arrangement. This initial co-ownership is a critical element, as it establishes the foundation for the subsequent legal battles.

Over time, various transactions occurred, including sales and a real estate mortgage (REM) in favor of Tarlac Development Bank (TDB). Crucially, the respondents, particularly Bayang Nool, claimed they were unaware of the mortgage and that their signatures, or those of their deceased spouse, were forged on the REM. The property was eventually foreclosed, and TDB consolidated ownership before selling it to the petitioners, Spouses Inalvez, and Spouses Baluyot. The respondents, however, remained in possession of a portion of the land, leading to the legal conflict.

The petitioners initiated legal action, arguing that their purchase from TDB gave them sole ownership and the right to eject the respondents. The respondents countered that they were co-owners by inheritance and that the mortgage was invalid due to forgery and lack of consent. The DARAB initially dismissed the case, finding no tenancy relationship, but the RTC ruled in favor of the petitioners, ordering the respondents to vacate the property.

On appeal, the Court of Appeals (CA) reversed the RTC’s decision, finding that a co-ownership existed and that the mortgage without the respondents’ consent did not terminate their ownership rights. The CA emphasized that registration does not vest ownership but merely confirms it, and it gave credence to the respondents’ claim of forgery. The CA concluded that the petitioners could not profit from their own illegal act of mortgaging the respondents’ share without their knowledge and consent.

The Supreme Court upheld the CA’s decision, reinforcing the principle that co-ownership rights are preserved even when a co-owner mortgages the property without consent. The Court emphasized that the petitioners’ claim of exclusive ownership, based on their purchase from TDB, was insufficient to extinguish the respondents’ rights as co-owners. The Court highlighted that Bayang, as an heir and co-owner, was entitled to possession of the subject property.

The Supreme Court reaffirmed key principles relating to co-ownership. As stated in the decision, “Co-ownership is a form of trust and every co-owner is a trustee for the others.” This means that each co-owner has a responsibility to act in the best interests of the others. Furthermore, the Court cited Article 1451 of the Civil Code, stating that “when land passes by succession to any person and he causes the legal title to be put in the name of another, a trust is established by implication of law for the benefit of the true owner.” In this case, the initial registration of the title created a trust in favor of all the heirs, including Bayang.

The court addressed the issue of the mortgage, clarifying that “Should a co-owner alienate or mortgage the co-owned property itself, the alienation or mortgage shall remain valid but only to the extent of the portion which may be allotted to him in the division upon the termination of the co-ownership.” This means that the mortgage executed by the petitioners was only valid to the extent of their share in the property and could not affect the rights of the other co-owners.

The Supreme Court also addressed the argument that the respondents’ claim was a collateral attack on the petitioners’ title. The Court clarified that “what cannot be collaterally attacked is the certificate of title and not the title itself.” The Court emphasized that the certificates of title merely confirm or record title already existing and cannot be used as a shield for the commission of fraud. The ruling serves as a reminder that registration under the Torrens system does not automatically validate fraudulent transactions.

The Court highlighted the forgery of signatures on the REM, noting the disparities between Bayang’s purported signature on the REM and her signature on other documents. The Court emphasized that the respondents had been in possession of the subject property for an extended period, and their possession had not been disturbed by the petitioners. This undisturbed possession was considered a form of partial partition of the co-owned property, entitling the respondents to the portion they occupied.

This case provides valuable lessons on the importance of protecting the rights of co-owners, especially in the context of inherited property. It underscores the necessity of obtaining the consent of all co-owners before engaging in transactions that affect the property. The decision also serves as a reminder of the limitations of the Torrens system in protecting against fraud and the importance of due diligence in property transactions.

FAQs

What was the key issue in this case?	The central issue was whether a co-owner’s rights to inherited property were extinguished when another co-owner mortgaged the property without their consent, leading to foreclosure and subsequent reacquisition by the mortgaging co-owner.
What is co-ownership?	Co-ownership exists when two or more persons own a property jointly. Each co-owner has a proportionate share in the property, but no individual owner can claim ownership of a specific portion until the property is partitioned.
What happens if a co-owner mortgages the entire property without the consent of the other co-owners?	The mortgage is valid only to the extent of the mortgaging co-owner’s share in the property. It does not affect the rights of the other co-owners who did not consent to the mortgage.
What is the significance of the Torrens title in this case?	The Torrens title system aims to provide security of land ownership. However, the Court clarified that the certificate of title cannot be used to shield fraudulent transactions or to defeat the rights of co-owners.
What is a collateral attack on a title?	A collateral attack on a title occurs when the validity of a certificate of title is questioned in a proceeding where the primary issue is not the determination of the validity of the title. The Supreme Court clarified that the present case did not constitute a collateral attack.
What is the effect of forgery in a real estate mortgage?	If a signature on a real estate mortgage is proven to be forged, the mortgage is considered invalid and unenforceable against the person whose signature was forged.
Can long-term possession of a portion of co-owned property affect ownership rights?	Yes, if a co-owner is allowed to occupy a definite portion of the co-owned property for a long period without disturbance, it can be considered a partial partition, entitling the possessor to that specific portion.
What is the role of trust in co-ownership?	Co-ownership implies a trust relationship, where each co-owner is a trustee for the others. This means they have a duty to act in good faith and in the best interests of all co-owners.

This case highlights the intricacies of co-ownership and the importance of protecting the rights of all parties involved. It underscores the principle that consent is paramount in property transactions and that the Torrens system, while providing security, cannot be used to perpetrate fraud or deprive legitimate owners of their rights. Understanding these principles is crucial for anyone involved in co-ownership arrangements or property transactions.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: Spouses Primo Inalvez and Juliana Inalvez vs. Bayang Nool, Allan Nool and Celestino Nool, G.R. No. 188145, April 18, 2016