G.R. No. 108952 . January 26, 1995.
NILO A. MERCADO, petitioner, vs. THE COURT OF APPEALS AND AUREA A. MERCADO, respondents.

FACTS

Petitioner Nilo Mercado purchased a property in Quezon City in 1967. He claimed the purchase was funded by his personal savings and loans from family, including P20,000 from his sister, private respondent Aurea Mercado. The title was issued solely in his name. Aurea, who was working abroad, asserted she gave Nilo a substantial sum specifically to buy a property for her near the University of the Philippines. In 1973, Nilo executed a notarized affidavit explicitly stating he was a “co-owner” of the property with Aurea and that they shared it equally.
The property was mortgaged to the Social Security System (SSS) by Nilo, foreclosed, and later redeemed by him using insurance proceeds from another property. Aurea filed an action for partition and reconveyance of her alleged one-half share. The trial court dismissed her complaint, but the Court of Appeals reversed, declaring her a co-owner. Nilo appealed to the Supreme Court, arguing the foreclosure and redemption extinguished any co-ownership.

ISSUE

Did the mortgage, foreclosure, and subsequent redemption of the property by petitioner Nilo Mercado extinguish the co-ownership with his sister, Aurea Mercado?

RULING

No, the co-ownership was not extinguished. The Supreme Court affirmed the Court of Appeals’ decision. The foundation of the co-ownership was petitioner’s own 1973 affidavit, a solemn admission against interest that bound him. The legal logic proceeds from the nature of a co-owner’s act and the requirement of consent.
A mortgage constituted by one co-owner on the entire property, without the consent of the others, binds only the mortgagor’s share. Consequently, a foreclosure sale affects only that share. Here, Nilo mortgaged the property without Aurea’s knowledge or consent. Therefore, the foreclosure sale could only affect his undivided interest. His subsequent redemption of the property operated to benefit the co-ownership, as he effectively repurchased the property for the benefit of both owners. His act of redemption inured to the benefit of Aurea, preserving her pro-indiviso share.
The Court distinguished this case from Tan v. Court of Appeals, where co-heirs knowingly allowed the redemption period to lapse, leading to the extinction of their co-ownership. In contrast, Aurea was unaware of the mortgage and foreclosure. Thus, there was no voluntary relinquishment of her rights. The redemption by one co-owner effectively restored the property to the co-ownership, subject to reimbursement for the redemption price.