The Supreme Court ruled that a Mortgage Redemption Insurance (MRI) policy taken out by one spouse does not automatically cover the other spouse, even if the mortgaged property is considered conjugal. This means that in the event of death, the loan will only be extinguished if the deceased was the insured party under the MRI. This decision highlights the importance of understanding the specifics of insurance policies and marital property laws, which significantly impacts financial obligations and property rights within a marriage.

Whose Life is Insured? Untangling Mortgage Insurance and Marital Property Upon Death

In 2002, Fatima B. Gonzales-Asdala and her husband, Wynne B. Asdala, secured a loan from Metropolitan Bank and Trust Company (Metrobank) to renovate their home. As part of the loan agreement, they executed promissory notes and a real estate mortgage on their property. Metrobank required them to obtain a Mortgage Redemption Insurance (MRI). The bank later informed the couple of the MRI premium due date. Over the years, Fatima and Wynne were billed for MRI premiums. However, receipts were not consistently issued, and a formal policy wasn’t released, with payments documented only through a debit memo to Wynne’s account.

When Wynne passed away in 2008, Fatima requested that Metrobank discharge the mortgage, arguing that the MRI should cover the outstanding loan. Metrobank denied this request, stating that the MRI was solely in Fatima’s name, with premiums paid from her account. The bank then demanded payment for unpaid loan amortizations. Fatima then filed a complaint against Metrobank, seeking specific performance, injunction, and damages, contending that her husband’s death should activate the insurer’s commitment to cover the loan. She also claimed the mortgaged property was Wynne’s exclusive property, making him the sole mortgagor and insured under the MRI.

The Regional Trial Court (RTC) dismissed Fatima’s complaint, ruling that the property was presumed conjugal and that Fatima became a co-mortgagor when she signed the mortgage deed. The Court of Appeals (CA) affirmed the RTC’s decision, leading Fatima to appeal to the Supreme Court. The central questions before the Supreme Court were whether the mortgaged property was conjugal and whether Wynne was the insured party under the MRI.

The Supreme Court affirmed the lower courts’ decisions, emphasizing that a petition for review should generally address questions of law, not fact. The Court noted that both the RTC and CA had determined the property was acquired during the marriage, based on the Transfer Certificate of Title (TCT) issued in 1988, seven years after Fatima and Wynne’s marriage in 1981. The Court referenced Article 105 of the Family Code, which provides that the Family Code applies to conjugal partnerships established before its effectivity, without prejudice to vested rights acquired under the Civil Code.

This means properties acquired during marriage are presumed conjugal unless proven otherwise. The burden of proof lies with the party claiming the property is not conjugal. The Supreme Court rejected Fatima’s argument that Metrobank failed to prove the property was acquired during the marriage, stating that the TCT presented by Fatima herself served as sufficient evidence. Referencing Francisco v. Court of Appeals, the Court reiterated that the presumption of conjugality is rebuttable but requires strong, clear, and convincing evidence, which Fatima failed to provide.

Turning to the MRI, the Court agreed with the RTC and CA that Fatima, as a co-mortgagor, could secure an MRI on her own life, regardless of whether her husband did the same. Section 3 of the Insurance Code states that the consent of the spouse is not necessary for the validity of an insurance policy taken out by a married person on his or her life. The court highlighted that the documents for the MRI procurement were signed by Fatima, and the Certificate of Group Life Insurance was issued in her name. The Court further noted that the insurance premiums were paid from Fatima’s savings account.

The Supreme Court emphasized the purpose of an MRI, highlighting its dual protection for both the mortgagee and mortgagor. As explained in Great Pacific Life Assurance Corp. v. Court of Appeals:

Unless the policy provides, where a mortgagor of property effects insurance in his own name providing that the loss shall be payable to the mortgagee, or assigns a policy of insurance to a mortgagee, the insurance is deemed to be upon the interest of the mortgagor, who does not cease to be a party to the original contract.

Because Fatima was the sole mortgagor under the MRI, only she was party to the contract. Therefore, Wynne’s death did not give Metrobank any rights or interests under the insurance contract. The Supreme Court rejected Fatima’s claim that the promissory notes contemplated a separate life insurance policy, finding that the relevant clauses pertained to the mode of payment and the acceptable types of insurance, respectively.

In summary, the Court found no basis to reverse the CA’s judgment, emphasizing that Fatima could not now claim ignorance of the nature of the insurance contract she entered into. Her failure to present sufficient evidence undermined her claim. The Supreme Court’s decision clarified the distinct roles and responsibilities in mortgage agreements and insurance policies, particularly within the context of marital property.

FAQs

What was the key issue in this case?	The key issue was whether the Mortgage Redemption Insurance (MRI) taken out by one spouse covered the other spouse’s death, thereby extinguishing the mortgage on a conjugal property.
What is a Mortgage Redemption Insurance (MRI)?	An MRI is a type of insurance that pays off the outstanding mortgage balance in the event of the borrower’s death, protecting both the borrower’s family and the lender.
What does conjugal property mean?	Conjugal property refers to assets acquired during a marriage through the spouses’ work, industry, or from the fruits of their separate properties. It is co-owned by both spouses.
Who was insured under the MRI in this case?	Only Fatima B. Gonzales-Asdala was insured under the MRI, as evidenced by the insurance documents and the fact that the premiums were paid from her account.
What happens when a property is conjugal and one spouse dies?	Upon the death of one spouse, the conjugal property is typically divided equally between the surviving spouse and the deceased’s estate, subject to settlement of debts and legal procedures.
Can one spouse take out an insurance policy without the other spouse’s consent?	Yes, under Section 3 of the Insurance Code, a married person can take out an insurance policy on their own life without needing the consent of their spouse.
What evidence is needed to prove a property is paraphernal (exclusive)?	To prove a property is paraphernal, the spouse claiming exclusive ownership must present strong, clear, and convincing evidence, such as a deed of sale or donation proving acquisition before the marriage.
What is the effect of signing a mortgage deed as a co-mortgagor?	Signing a mortgage deed as a co-mortgagor makes you equally responsible for the debt, regardless of whether you are the sole owner of the property or not.

This case underscores the significance of carefully reviewing insurance policies and understanding their implications for financial security. It also highlights the complexities of marital property laws and the importance of proper documentation to establish property ownership and insurance coverage. Ensuring clarity in these matters can prevent disputes and protect the interests of all parties involved.

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: Fatima B. Gonzales-Asdala vs. Metropolitan Bank and Trust Company, G.R. No. 257982, February 22, 2023