G.R. No. 163744 ; February 29, 2008
METROPOLITAN BANK AND TRUST CO., petitioner, vs. NICHOLSON PASCUAL a.k.a. NELSON PASCUAL, respondent.

FACTS

Respondent Nicholson Pascual and Florencia Nevalga were married in 1985. During the marriage, Florencia purchased a lot in Makati, and the Transfer Certificate of Title (TCT) was issued in her name “married to Nelson Pascual.” In 1995, their marriage was declared null and void by the Regional Trial Court (RTC), which also ordered the liquidation of their conjugal partnership. The liquidation was not effected. In 1997, Florencia, along with other parties, obtained a loan from petitioner Metropolitan Bank and Trust Co. (Metrobank). To secure the loan, she executed a real estate mortgage over the Makati lot. Among the documents she presented was a purported “Waiver” from Nicholson, dated before the nullity decree, relinquishing his rights to certain conjugal properties, though this specific lot was not listed therein.
Upon default, Metrobank foreclosed the mortgage. Nicholson then filed a complaint to annul the mortgage, arguing the property was conjugal and mortgaged without his consent. The RTC ruled in his favor, declaring the mortgage null and void, finding the property conjugal and the waiver defective. The Court of Appeals affirmed but deleted the monetary awards. Metrobank appealed to the Supreme Court.

ISSUE

Whether the real estate mortgage executed by Florencia over the disputed property, which was acquired during the marriage, is valid.

RULING

The Supreme Court denied Metrobank’s petition and affirmed the appellate court’s decision with modification. The Court held that the property is presumed conjugal under Article 116 of the Family Code, as it was acquired during the marriage. Metrobank failed to rebut this presumption. Under Article 124 of the Family Code, the wife cannot encumber conjugal property without the husband’s consent. Since Nicholson did not consent, the mortgage was void as to his share.
However, applying the principle of “ut res magis valeat quam pereat” (that the thing may rather have effect than be destroyed), the Court ruled the mortgage valid with respect to Florencia’s one-half pro indiviso share in the conjugal property. The property, though conjugal, was held in co-ownership by the former spouses following the dissolution of their marriage pending liquidation. As a co-owner, Florencia could mortgage her undivided interest. Consequently, the foreclosure and auction sale are valid only insofar as her share is concerned. The Court upheld the deletion of moral damages and attorney’s fees, as Nicholson failed to prove Metrobank’s alleged bad faith in the mortgage approval process.