G.R. No. 122904 . April 15, 2005.
ADORACION E. CRUZ, THELMA DEBBIE E. CRUZ, GERRY E. CRUZ and NERISSA CRUZ-TAMAYO, Petitioners, vs. THE HONORABLE COURT OF APPEALS, SUMMIT FINANCING CORP., VICTOR S. STA. ANA, MAXIMO C. CONTRERAS, RAMON G. MANALASTAS, and VICENTE TORRES, Respondents.

FACTS

Petitioners, together with Arnel Cruz, were co-owners of a parcel of land in Taytay, Rizal, inherited from Delfin Cruz. The property was registered solely in Arnel Cruz’s name under TCT No. 495225. On August 22, 1977, they executed a Deed of Partial Partition, adjudicating specific lots to each heir, with the subject lot assigned to Arnel Cruz. The following day, August 23, 1977, they executed a Memorandum of Agreement (MOA) stipulating that they would share equally in the proceeds from the sale of any of the partitioned properties. This MOA was annotated on TCT No. 495225.
In 1980, Arnel Cruz, through a Special Power of Attorney granted to Nelson Tamayo (husband of petitioner Nerissa), obtained a loan from respondent Summit Financing Corporation, secured by a real estate mortgage on the subject lot. Upon default, Summit foreclosed the mortgage, acquired the property at auction, and consolidated its title, leading to the issuance of TCT No. 514477 in its name. Petitioners filed a complaint for annulment of the mortgage and related deeds, arguing they remained co-owners per the MOA and that the mortgage was void without their consent.

ISSUE

Whether the real estate mortgage executed by Arnel Cruz over the partitioned property is valid despite the subsequent Memorandum of Agreement providing for sharing of sale proceeds among the heirs.

RULING

The Supreme Court denied the petition and affirmed the Court of Appeals, upholding the validity of the mortgage. The legal logic is anchored on the effects of partition and the proper interpretation of the subsequent agreement. A partition legally terminates co-ownership, converting the respective shares of the co-owners into exclusive ownership of the specific properties adjudicated to them. The Deed of Partial Partition effectively dissolved the co-ownership, making Arnel Cruz the exclusive owner of the subject lot.
The subsequent Memorandum of Agreement did not re-establish co-ownership or create a lien on the title. The Court construed its clear terms, which only obligated the parties to share in the proceeds of a future sale. It did not prohibit the owner from mortgaging the property or restore a state of indivision. The agreement was a personal covenant among the heirs concerning the distribution of money, not a real right affecting the land’s ownership or encumbrance. Furthermore, the parties’ subsequent acts—such as petitioners separately selling their own adjudicated lots—confirmed their exclusive dominion, inconsistent with a continued co-ownership. Consequently, as the exclusive owner, Arnel Cruz had the right to mortgage the property. Summit, as mortgagee, had the right to rely on the clean title presented, which showed Arnel Cruz as the sole registered owner, with the MOA annotation merely indicating a promise to share proceeds, not a prohibition against encumbrance.