G.R. No. 163712 ; November 30, 2006
Metropolitan Bank and Trust Company and Rogelio T. Uy, Petitioners, vs. Jose B. Tan and Eliza Go Tan, Respondents.

FACTS

Petitioners Metropolitan Bank and Trust Company (Metrobank) initiated extra-judicial foreclosure proceedings on four mortgaged parcels of land, including one covered by TCT No. T-53267 registered in the name of respondent Jose B. Tan, described as married to Eliza Go Tan. A day before the scheduled auction, respondent spouses filed a complaint for removal of cloud on title and injunction. They alleged the mortgages were void because Eliza Go Tan never consented to encumber the subject conjugal property, and Jose B. Tan denied executing and signing the specific mortgage amendments that increased the loan obligation to ₱40 million, claiming the original loans had been fully paid.
The Regional Trial Court ruled in favor of the respondents, declaring all annotated mortgages null and void ab initio, nullifying the foreclosure proceedings, and ordering the cancellation of the mortgage annotations. The Court of Appeals affirmed this decision. Petitioners appealed, arguing the existence of a valid credit line agreement secured by the mortgage and presenting documents purportedly bearing the signatures of the respondents.

ISSUE

Whether the real estate mortgages annotated on TCT No. T-53267 are valid and enforceable, thereby justifying the extra-judicial foreclosure.

RULING

The Supreme Court DENIED the petition and AFFIRMED the lower courts’ decisions. The legal logic rests on two pillars: the absence of spousal consent and the failure to prove the existence and non-payment of the secured obligation. First, the subject property, acquired during the marriage, is presumed conjugal. Under Article 124 of the Family Code, the disposition or encumbrance of conjugal property requires the written consent of both spouses; otherwise, the act is void. Eliza Go Tan successfully proved she did not consent to the mortgages. Her denial, coupled with the questionable notarization of one mortgage document where the notary public testified the spouses did not appear before him, substantiated her claim. Consequently, the mortgages over the conjugal property are void.
Second, petitioners failed to discharge their burden of proving the existence and non-payment of the principal obligation secured by the mortgage. A real estate mortgage is an accessory contract; its validity depends on the validity of the principal obligation. The petitioners’ evidence, primarily consisting of debit memos, was deemed insufficient and unreliable. The Court found the memos did not convincingly establish that the specific loans secured by the contested mortgage amendments remained unpaid. The respondents’ evidence of payment, including receipts, created sufficient doubt regarding the outstanding obligation. Without a valid and unpaid principal debt, the foreclosure based on the accessory mortgage contract has no legal basis. The combined effect of a void mortgage over conjugal property and the unproven existence of a secured, unpaid debt rendered the foreclosure proceedings invalid.