Republic of the Philippines SUPREME COURT Manila SECOND DIVISION

G.R. No. 118305 February 12, 1998 AYALA INVESTMENT & DEVELOPMENT CORP. and ABELARDO MAGSAJO, petitioners, vs. COURT OF APPEALS and SPOUSES ALFREDO & ENCARNACION CHING, respondents.

MARTINEZ, J.: Under Article 161 of the Civil Code, what debts and obligations contracted by the husband alone are considered "for the benefit of the conjugal partnership" which are chargeable against the conjugal partnership? Is a surety agreement or an accommodation contract entered into by the husband in favor of his employer within the contemplation of the said provision? These are the issues which we will resolve in this petition for review. The petitioner assails the decision dated April 14, 1994 of the respondent Court of Appeals in "Spouses Alfredo and Encarnacion Ching vs. Ayala Investment and Development Corporation, et. al.," docketed as CA-G.R. CV No. 29632, 1 upholding the decision of the Regional Trial Court of Pasig, Branch 168, which ruled that the conjugal partnership of gains of respondents-spouses Alfredo and Encarnacion Ching is not liable for the payment of the debts secured by respondent-husband Alfredo Ching. A chronology of the essential antecedent facts is necessary for a clear understanding of the case at bar. Philippine Blooming Mills (hereinafter referred to as PBM) obtained a P50,300,000.00 loan from petitioner Ayala Investment and Development Corporation (hereinafter referred to as AIDC). As added security for the credit line extended to PBM, respondent Alfredo Ching, Executive Vice President of PBM, executed security agreements on December 10, 1980 and on March 20, 1981 making himself jointly and severally answerable with PBM's indebtedness to AIDC. PBM failed to pay the loan. Thus, on July 30, 1981, AIDC filed a case for sum of money against PBM and respondent-husband Alfredo Ching with the then Court of First Instance of Rizal (Pasig), Branch VIII, entitled "Ayala Investment and Development Corporation vs. Philippine Blooming Mills and Alfredo Ching," docketed as Civil Case No. 42228.

After trial, the court rendered judgment ordering PBM and respondenthusband Alfredo Ching to jointly and severally pay AIDC the principal amount of P50,300,000.00 with interests. Pending appeal of the judgment in Civil Case No. 42228, upon motion of AIDC, the lower court issued a writ of execution pending appeal. Upon AIDC's putting up of an P8,000,000.00 bond, a writ of execution dated May 12, 1982 was issued. Thereafter, petitioner Abelardo Magsajo, Sr., Deputy Sheriff of Rizal and appointed sheriff in Civil Case No. 42228, caused the issuance and service upon respondents-spouses of a notice of sheriff sale dated May 20, 1982 on three (3) of their conjugal properties. Petitioner Magsajo then scheduled the auction sale of the properties levied. On June 9, 1982, private respondents filed a case of injunction against petitioners with the then Court of First Instance of Rizal (Pasig), Branch XIII, to enjoin the auction sale alleging that petitioners cannot enforce the judgment against the conjugal partnership levied on the ground that, among others, the subject loan did not redound to the benefit of the said conjugal partnership. 2 Upon application of private respondents, the lower court issued a temporary restraining order to prevent petitioner Magsajo from proceeding with the enforcement of the writ of execution and with the sale of the said properties at public auction. AIDC filed a petition for certiorari before the Court of Appeals, 3 questioning the order of the lower court enjoining the sale. Respondent Court of Appeals issued a Temporary Restraining Order on June 25, 1982, enjoining the lower court 4 from enforcing its Order of June 14, 1982, thus paving the way for the scheduled auction sale of respondents-spouses conjugal properties. On June 25, 1982, the auction sale took place. AIDC being the only bidder, was issued a Certificate of Sale by petitioner Magsajo, which was registered on July 2, 1982. Upon expiration of the redemption period, petitioner sheriff issued the final deed of sale on August 4, 1982 which was registered on August 9, 1983. In the meantime, the respondent court, on August 4, 1982, decided CA-G.R. SP No. 14404, in this manner: WHEREFORE, the petition for certiorari in this case is granted and the challenged order of the respondent Judge dated June 14, 1982 in Civil Case No. 46309 is hereby set aside and nullified. The same petition insofar as it seeks to enjoin the respondent Judge from proceeding with Civil Case No. 46309 is, however, denied. No pronouncement is here made as to costs. . . . 5 On September 3, 1983, AIDC filed a motion to dismiss the petition for injunction filed before Branch XIII of the CFI of Rizal (Pasig) on the ground that the same had become moot and academic with the consummation of the sale. Respondents filed their opposition to the motion arguing, among others, that where a third party who claim is ownership of the property attached or levied upon, a different legal situation is

presented; and that in this case, two (2) of the real properties are actually in the name of Encarnacion Ching, a non-party to Civil Case No. 42228. The lower court denied the motion to dismiss. Hence, trial on the merits proceeded. Private respondents presented several witnesses. On the other hand, petitioners did not present any evidence. On September 18, 1991, the trial court promulgated its decision declaring the sale on execution null and void. Petitioners appealed to the respondent court, which was docketed as CA-G.R. CV No. 29632. On April 14, 1994, the respondent court promulgated the assailed decision, affirming the decision of the regional trial court. It held that: The loan procured from respondent-appellant AIDC was for the advancement and benefit of Philippine Blooming Mills and not for the benefit of the conjugal partnership of petitionersappellees. xxx xxx xxx As to the applicable law, whether it is Article 161 of the New Civil Code or Article 1211 of the Family Code-suffice it to say that the two provisions are substantially the same. Nevertheless, We agree with the trial court that the Family Code is the applicable law on the matter . . . . . . . Article 121 of the Family Code provides that "The conjugal partnership shall be liable for: . . . (2) All debts and obligations contracted during the marriage by the designated Administrator-Spouse for the benefit of the conjugal partnership of gains . . . ." The burden of proof that the debt was contracted for the benefit of the conjugal partnership of gains, lies with the creditor-party litigant claiming as such. In the case at bar, respondent-appellant AIDC failed to prove that the debt was contracted by appellee-husband, for the benefit of the conjugal partnership of gains. The dispositive portion of the decision reads: WHEREFORE, in view of all the foregoing, judgment is hereby rendered DISMISSING the appeal. The decision of the Regional Trial Court is AFFIRMED in toto. 6 Petitioner filed a Motion for Reconsideration which was denied by the respondent court in a Resolution dated November 28, 1994. 7 Hence, this petition for review. Petitioner contends that the "respondent court erred in ruling that the conjugal partnership of private respondents is not liable for the obligation by the respondent-husband."

Specifically, the errors allegedly committed by the respondent court are as follows: I. RESPONDENT COURT ERRED IN RULING THAT THE OBLIGATION INCURRED RESPONDENT HUSBAND DID NOT REDOUND TO THE BENEFIT OF THE CONJUGAL PARTNERSHIP OF THE PRIVATE RESPONDENT. II. RESPONDENT COURT ERRED IN RULING THAT THE ACT OF RESPONDENT HUSBAND IN SECURING THE SUBJECT LOAN IS NOT PART OF HIS INDUSTRY, BUSINESS OR CAREER FROM WHICH HE SUPPORTS HIS FAMILY. Petitioners in their appeal point out that there is no need to prove that actual benefit redounded to the benefit of the partnership; all that is necessary, they say, is that the transaction was entered into for the benefit of the conjugal partnership. Thus, petitioners aver that: The wordings of Article 161 of the Civil Code is very clear: for the partnership to be held liable, the husband must have contracted the debt "for the benefit of the partnership, thus: Art. 161. The conjugal partnership shall be liable for: 1) all debts and obligations contracted by the husband for the benefit of the conjugal partnership . . . . There is a difference between the phrases: "redounded to the benefit of" or "benefited from" (on the one hand) and "for the benefit of (on the other). The former require that actual benefit must have been realized; the latter requires only that the transaction should be one which normally would produce benefit to the partnership, regardless of whether or not actual benefit accrued. 8 We do not agree with petitioners that there is a difference between the terms "redounded to the benefit of" or "benefited from" on the one hand; and "for the benefit of" on the other. They mean one and the same thing. Article 161 (1) of the Civil Code and Article 121 (2) of the Family Code are similarly worded, i.e., both use the term "for the benefit of." On the other hand, Article 122 of the Family Code provides that "The payment of personal debts by the husband or the wife before or during the marriage shall not be charged to the conjugal partnership except insofar as they redounded to the benefit of the family." As can be seen, the terms are used interchangeably. Petitioners further contend that the ruling of the respondent court runs counter to the pronouncement of this Court in the case of Cobb-Perez vs. Lantin, 9 that the husband as head of the family and as administrator of the conjugal partnership is presumed to have contracted obligations for the benefit of the family or the conjugal partnership.

Contrary to the contention of the petitioners, the case of Cobb-Perez is not applicable in the case at bar. This Court has, on several instances, interpreted the term "for the benefit of the conjugal partnership." In the cases of Javier vs. Osmea, 10 Abella de Diaz vs. Erlanger & Galinger, Inc., 11 Cobb-Perez vs. Lantin 12and G-Tractors, Inc. vs. Court of Appeals, 13 cited by the petitioners, we held that: The debts contracted by the husband during the marriage relation, for and in the exercise of the industry or profession by which he contributes toward the support of his family, are not his personal and private debts, and the products or income from the wife's own property, which, like those of her husband's, are liable for the payment of the marriage expenses, cannot be excepted from the payment of such debts. (Javier) The husband, as the manager of the partnership (Article 1412, Civil Code), has a right to embark the partnership in an ordinary commercial enterprise for gain, and the fact that the wife may not approve of a venture does not make it a private and personal one of the husband. (Abella de Diaz) Debts contracted by the husband for and in the exercise of the industry or profession by which he contributes to the support of the family, cannot be deemed to be his exclusive and private debts. (Cobb-Perez). . . . if he incurs an indebtedness in the legitimate pursuit of his career or profession or suffers losses in a legitimate business, the conjugal partnership must equally bear the indebtedness and the losses, unless he deliberately acted to the prejudice of his family. (G-Tractors) However, in the cases of Ansaldo vs. Sheriff of Manila, Fidelity Insurance & Luzon Insurance Co., 14 Liberty Insurance Corporation vs. Banuelos, 15 and Luzon Surety Inc. vs. De Garcia, 16 cited by the respondents, we ruled that: The fruits of the paraphernal property which form part of the assets of the conjugal partnership, are subject to the payment of the debts and expenses of the spouses, but not to the payment of the personal obligations (guaranty agreements) of the husband, unless it be proved that such obligations were productive of some benefit to the family." (Ansaldo; parenthetical phrase ours.) When there is no showing that the execution of an indemnity agreement by the husband redounded to the benefit of his family, the undertaking is not a conjugal debt but an obligation personal to him. (Liberty Insurance) In the most categorical language, a conjugal partnership under Article 161 of the new Civil Code is liable only for such "debts and obligations contracted by the husband for the

benefit of the conjugal partnership." There must be the requisite showing then of some advantage which clearly accrued to the welfare of the spouses. Certainly, to make a conjugal partnership respond for a liability that should appertain to the husband alone is to defeat and frustrate the avowed objective of the new Civil Code to show the utmost concern for the solidarity and well-being of the family as a unit. The husband, therefore, is denied the power to assume unnecessary and unwarranted risks to the financial stability of the conjugal partnership. (Luzon Surety, Inc.) From the foregoing jurisprudential rulings of this Court, we can derive the following conclusions: (A) If the husband himself is the principal obligor in the contract, i.e., he directly received the money and services to be used in or for his own business or his own profession, that contract falls within the term . . . . obligations for the benefit of the conjugal partnership." Here, no actual benefit may be proved. It is enough that the benefit to the family is apparent at the time of the signing of the contract. From the very nature of the contract of loan or services, the family stands to benefit from the loan facility or services to be rendered to the business or profession of the husband. It is immaterial, if in the end, his business or profession fails or does not succeed. Simply stated, where the husband contracts obligations on behalf of the family business, the law presumes, and rightly so, that such obligation will redound to the benefit of the conjugal partnership. (B) On the other hand, if the money or services are given to another person or entity, and the husband acted only as a surety or guarantor, that contract cannot, by itself, alone be categorized as falling within the context of "obligations for the benefit of the conjugal partnership." The contract of loan or services is clearly for the benefit of the principal debtor and not for the surety or his family. No presumption can be inferred that, when a husband enters into a contract of surety or accommodation agreement, it is "for the benefit of the conjugal partnership." Proof must be presented to establish benefit redounding to the conjugal partnership. Thus, the distinction between the Cobb-Perez case, and we add, that of the three other companion cases, on the one hand, and that of Ansaldo, Liberty Insurance and Luzon Surety, is that in the former, the husband contracted the obligation for his own business; while in the latter, the husband merely acted as a surety for the loan contracted by another for the latter's business. The evidence of petitioner indubitably show that co-respondent Alfredo Ching signed as surety for the P50M loan contracted on behalf of PBM. petitioner should have adduced evidence to prove that Alfredo Ching's acting as surety redounded to the benefit of the conjugal partnership. The reason for this is as lucidly explained by the respondent court: The loan procured from respondent-appellant AIDC was for the advancement and benefit of Philippine Blooming Mills and not for the benefit of the conjugal partnership of petitioners-

appellees. Philippine Blooming Mills has a personality distinct and separate from the family of petitionersappellees this despite the fact that the members of the said family happened to be stockholders of said corporate entity. xxx xxx xxx . . . . The burden of proof that the debt was contracted for the benefit of the conjugal partnership of gains, lies with the creditor-party litigant claiming as such. In the case at bar, respondent-appellant AIDC failed to prove that the debt was contracted by appellee-husband, for the benefit of the conjugal partnership of gains. What is apparent from the facts of the case is that the judgment debt was contracted by or in the name of the Corporation Philippine Blooming Mills and appellee-husband only signed as surety thereof. The debt is clearly a corporate debt and respondent-appellant's right of recourse against appellee-husband as surety is only to the extent of his corporate stockholdings. It does not extend to the conjugal partnership of gains of the family of petitioners-appellees. . . . . . . 17 Petitioners contend that no actual benefit need accrue to the conjugal partnership. To support this contention, they cite Justice J.B.L. Reyes' authoritative opinion in the Luzon Surety Company case: I concur in the result, but would like to make of record that, in my opinion, the words "all debts and obligations contracted by the husband for the benefit of the conjugal partnership" used in Article 161 of the Civil Code of the Philippines in describing the charges and obligations for which the conjugal partnership is liable do not require that actual profit or benefit must accrue to the conjugal partnership from the husband's transaction; but it suffices that the transaction should be one that normally would produce such benefit for the partnership. This is the ratio behind our ruling in Javier vs. Osmea, 34 Phil. 336, that obligations incurred by the husband in the practice of his profession are collectible from the conjugal partnership. The aforequoted concurring opinion agreed with the majority decision that the conjugal partnership should not be made liable for the surety agreement which was clearly for the benefit of a third party. Such opinion merely registered an exception to what may be construed as a sweeping statement that in all cases actual profit or benefit must accrue to the conjugal partnership. The opinion merely made it clear that no actual benefits to the family need be proved in some cases such as in the Javier case. There, the husband was the principal obligor himself. Thus, said transaction was found to be "one that would normally produce . . . benefit for the partnership." In the later case of G-Tractors, Inc., the husband was also the principal obligor not merely the surety. This latter case, therefore, did not create any precedent. It did not also supersede the Luzon Surety Company case, nor any of the previous accommodation contract cases, where this Court ruled that they were for the benefit of third parties.

But it could be argued, as the petitioner suggests, that even in such kind of contract of accommodation, a benefit for the family may also result, when the guarantee is in favor of the husband's employer. In the case at bar, petitioner claims that the benefits the respondent family would reasonably anticipate were the following: (a) The employment of co-respondent Alfredo Ching would be prolonged and he would be entitled to his monthly salary of P20,000.00 for an extended length of time because of the loan he guaranteed; (b) The shares of stock of the members of his family would appreciate if the PBM could be rehabilitated through the loan obtained; (c) His prestige in the corporation would be enhanced and his career would be boosted should PBM survive because of the loan. However, these are not the benefits contemplated by Article 161 of the Civil Code. The benefits must be one directly resulting from the loan. It cannot merely be a by-product or a spin-off of the loan itself. In all our decisions involving accommodation contracts of the husband, 18 we underscored the requirement that: "there must be the requisite showing . . . of some advantage which clearly accrued to the welfare of the spouses" or "benefits to his family" or "that such obligations are productive of some benefit to the family." Unfortunately, the petition did not present any proof to show: (a) Whether or not the corporate existence of PBM was prolonged and for how many months or years; and/or (b) Whether or not the PBM was saved by the loan and its shares of stock appreciated, if so, how much and how substantial was the holdings of the Ching family. Such benefits (prospects of longer employment and probable increase in the value of stocks) might have been already apparent or could be anticipated at the time the accommodation agreement was entered into. But would those "benefits" qualify the transaction as one of the "obligations . . . for the benefit of the conjugal partnership"? Are indirect and remote probable benefits, the ones referred to in Article 161 of the Civil Code? The Court of Appeals in denying the motion for reconsideration, disposed of these questions in the following manner: No matter how one looks at it, the debt/credit respondentsappellants is purely a corporate debt granted to PBM, with petitioner-appellee-husband merely signing as surety. While such petitioner-appellee-husband, as such surety, is solidarily liable with the principal debtor AIDC, such liability under the Civil Code provisions is specifically restricted by Article 122 (par. 1) of the Family Code, so that debts for which the husband is liable may not be charged against conjugal partnership properties. Article 122 of the Family Code is explicit "The payment of personal debts contracted by the husband or the wife before or during the

marriage shall not be charged to the conjugal partnership except insofar as they redounded to the benefit of the family. Respondents-appellants insist that the corporate debt in question falls under the exception laid down in said Article 122 (par. one). We do not agree. The loan procured from respondent-appellant AIDC was for the sole advancement and benefit of Philippine Blooming Mills and not for the benefit of the conjugal partnership of petitioners-appellees. . . . appellee-husband derives salaries, dividends benefits from Philippine Blooming Mills (the debtor corporation), only because said husband is an employee of said PBM. These salaries and benefits, are not the "benefits" contemplated by Articles 121 and 122 of the Family Code. The "benefits" contemplated by the exception in Article 122 (Family Code) is that benefit derived directly from the use of the loan. In the case at bar, the loan is a corporate loan extended to PBM and used by PBM itself, not by petitioner-appellee-husband or his family. The alleged benefit, if any, continuously harped by respondents-appellants, are not only incidental but also speculative. 19 We agree with the respondent court. Indeed, considering the odds involved in guaranteeing a large amount (P50,000,000.00) of loan, the probable prolongation of employment in PBM and increase in value of its stocks, would be too small to qualify the transaction as one "for the benefit" of the surety's family. Verily, no one could say, with a degree of certainty, that the said contract is even "productive of some benefits" to the conjugal partnership. We likewise agree with the respondent court (and this view is not contested by the petitioners) that the provisions of the Family Code is applicable in this case. These provisions highlight the underlying concern of the law for the conservation of the conjugal partnership; for the husband's duty to protect and safeguard, if not augment, not to dissipate it. This is the underlying reason why the Family Code clarifies that the obligations entered into by one of the spouses must be those that redounded to the benefit of the family and that the measure of the partnership's liability is to "the extent that the family is benefited." 20 These are all in keeping with the spirit and intent of the other provisions of the Civil Code which prohibits any of the spouses to donate or convey gratuitously any part of the conjugal property. 21 Thus, when co-respondent Alfredo Ching entered into a surety agreement he, from then on, definitely put in peril the conjugal property (in this case, including the family home) and placed it in danger of being taken gratuitously as in cases of donation.

In the second assignment of error, the petitioner advances the view that acting as surety is part of the business or profession of the respondenthusband. This theory is new as it is novel. The respondent court correctly observed that: Signing as a surety is certainly not an exercise of an industry or profession, hence the cited cases of Cobb-Perez vs. Lantin; Abella de Diaz vs. Erlanger & Galinger; GTractors, Inc. vs. CA do not apply in the instant case. Signing as a surety is not embarking in a business. 22 We are likewise of the view that no matter how often an executive acted or was persuaded to act, as a surety for his own employer, this should not be taken to mean that he had thereby embarked in the business of suretyship or guaranty. This is not to say, however, that we are unaware that executives are often asked to stand as surety for their company's loan obligations. This is especially true if the corporate officials have sufficient property of their own; otherwise, their spouses' signatures are required in order to bind the conjugal partnerships. The fact that on several occasions the lending institutions did not require the signature of the wife and the husband signed alone does not mean that being a surety became part of his profession. Neither could he be presumed to have acted for the conjugal partnership. Article 121, paragraph 3, of the Family Code is emphatic that the payment of personal debts contracted by the husband or the wife before or during the marriage shall not be charged to the conjugal partnership except to the extent that they redounded to the benefit of the family. Here, the property in dispute also involves the family home. The loan is a corporate loan not a personal one. Signing as a surety is certainly not an exercise of an industry or profession nor an act of administration for the benefit of the family. On the basis of the facts, the rules, the law and equity, the assailed decision should be upheld as we now uphold it. This is, of course, without prejudice to petitioner's right to enforce the obligation in its favor against the PBM receiver in accordance with the rehabilitation program and payment schedule approved or to be approved by the Securities & Exchange Commission. WHEREFORE, the petition for review should be, as it is hereby, DENIED for lack of merit. SO ORDERED. Regalado, Melo, Puno and Mendoza, JJ., concur.

Footnotes 1 Penned by Hon. Associate Justice Asaali S. Isnani and concurred in by Associate Justices Nathanael P. de Pano, Jr. and Corona Ibay-Somera, Former Fourth Division, Decision, pp. 34-39,Rollo. 2 Annex "C," petition; pp. 43-52, rollo. 3 CA-G.R. No. SP-14404. 4 Branch VIII, CFI of Rizal. 5 Par. 4, 5, dispositive portion of the Decision in CA-G.R. No. SP- 14404; p. 36, rollo. 6 Decision in CA-G.R. CV No. 29632; p. 39, rollo. 7 See p. 41, rollo. 8 See p. 18, par. 3-6, rollo. 9 No. L-22320, May 22, 1968, 23 SCRA 637; 645. 10 No. 9984, March 23, 1916, 34 Phil. 336. 11 No. 38052, December 23, 1933, 59 Phil. 326. 12 No. L-22320, May 23, 1968, supra. 13 No. L-57402, February 28, 1995, 135 SCRA 193. 14 No. 43257, February 19, 1937, 64 Phil. 115. 15 59 OG No. 29, 4526. 16 No. L-2659, October 31, 1969, 30 SCRA 111. 17 See pp. 38-39, rollo. 18 Ansaldo, et. al., vs. Liberty Insurance Company Inc. & Luzon Surety Company, supra. 19 Court of Appeals Resolution of Nov. 28, 1994 denying the motion for reconsideration, pp. 1-2; Annex "B"; p. 41, rollo. 20 Article 121, Nos. 2 & 3, Family Code. 21 Article 174, Civil Code. 22 Denial of motion for reconsideration, supra.

Republic of the Philippines SUPREME COURT Manila FIRST DIVISION G.R. No. 157537 September 7, 2011

THE HEIRS OF PROTACIO GO, SR. and MARTA BAROLA, namely: LEONOR, SIMPLICIO, PROTACIO, JR., ANTONIO, BEVERLY ANN LORRAINNE, TITA, CONSOLACION, LEONORA and ASUNCION, all surnamed GO, represented by LEONORA B. GO, Petitioners, vs. ESTER L. SERVACIO and RITO B. GO, Respondents.

D E C I S I O N BERSAMIN, J.: The disposition by sale of a portion of the conjugal property by the surviving spouse without the prior liquidation mandated by Article 130 of the Family Code is not necessarily void if said portion has not yet been allocated by judicial or extrajudicial partition to another heir of the deceased spouse. At any rate, the requirement of prior liquidation does not prejudice vested rights. Antecedents On February 22, 1976, Jesus B. Gaviola sold two parcels of land with a total area of 17,140 square meters situated in Southern Leyte to Protacio B. Go, Jr. (Protacio, Jr.). Twenty three years later, or on March 29, 1999, Protacio, Jr. executed an Affidavit of Renunciation and Waiver,1 whereby he affirmed under oath that it was his father, Protacio Go, Sr. (Protacio, Sr.), not he, who had purchased the two parcels of land (the property). On November 25, 1987, Marta Barola Go died. She was the wife of Protacio, Sr. and mother of the petitioners.2On December 28, 1999, Protacio, Sr. and his son Rito B. Go (joined by Ritos wife Dina B. Go) sold a portion of the property with an area of 5,560 square meters to Ester L. Servacio (Servacio) for 5,686,768.00.3 On March 2, 2001, the petitioners demanded the return of the property,4 but Servacio refused to heed their demand. After barangay proceedings failed to resolve the dispute,5 they sued Servacio and Rito in the Regional Trial Court in Maasin City, Southern Leyte (RTC) for the annulment of the sale of the property. The petitioners averred that following Protacio, Jr.s renunciation, the property became conjugal property; and that the sale of the property to Servacio without the prior liquidation of the community property between Protacio, Sr. and Marta was null and void.6 Servacio and Rito countered that Protacio, Sr. had exclusively owned the property because he had purchased it with his own money.7 On October 3, 2002,8 the RTC declared that the property was the conjugal property of Protacio, Sr. and Marta, not the exclusive property of Protacio, Sr., because there were three vendors in the sale to Servacio (namely: Protacio, Sr., Rito, and Dina); that the participation of Rito and Dina as vendors had been by virtue of their being heirs of the late Marta; that under Article 160 of the Civil Code, the law in effect when the property was acquired, all property acquired by either spouse during the marriage was conjugal unless there was proof that the property thus acquired pertained exclusively to the husband or to the wife; and that Protacio, Jr.s renunciation was grossly insufficient to rebut the legal presumption.9 Nonetheless, the RTC affirmed the validity of the sale of the property, holding that: "xxx As long as the portion sold, alienated or encumbered will not be allotted to the other heirs in the final partition of the

property, or to state it plainly, as long as the portion sold does not encroach upon the legitimate (sic) of other heirs, it is valid."10Quoting Tolentinos commentary on the matter as authority,11 the RTC opined: In his comment on Article 175 of the New Civil Code regarding the dissolution of the conjugal partnership, Senator Arturo Tolentino, says" [sic] "Alienation by the survivor. After the death of one of the spouses, in case it is necessary to sell any portion of the community property in order to pay outstanding obligation of the partnership, such sale must be made in the manner and with the formalities established by the Rules of Court for the sale of the property of the deceased persons. Any sale, transfer, alienation or disposition of said property affected without said formalities shall be null and void, except as regards the portion that belongs to the vendor as determined in the liquidation and partition. Pending the liquidation, the disposition must be considered as limited only to the contingent share or interest of the vendor in the particular property involved, but not to the corpus of the property. This rule applies not only to sale but also to mortgages. The alienation, mortgage or disposal of the conjugal property without the required formality, is not however, null ab initio, for the law recognizes their validity so long as they do not exceed the portion which, after liquidation and partition, should pertain to the surviving spouse who made the contract." [underlining supplied] It seems clear from these comments of Senator Arturo Tolentino on the provisions of the New Civil Code and the Family Code on the alienation by the surviving spouse of the community property that jurisprudence remains the same - that the alienation made by the surviving spouse of a portion of the community property is not wholly void ab initio despite Article 103 of the Family Code, and shall be valid to the extent of what will be allotted, in the final partition, to the vendor. And rightly so, because why invalidate the sale by the surviving spouse of a portion of the community property that will eventually be his/her share in the final partition? Practically there is no reason for that view and it would be absurd. Now here, in the instant case, the 5,560 square meter portion of the 17,140 square-meter conjugal lot is certainly mush (sic) less than what vendors Protacio Go and his son Rito B. Go will eventually get as their share in the final partition of the property. So the sale is still valid. WHEREFORE, premises considered, complaint is hereby DISMISSED without pronouncement as to cost and damages. SO ORDERED.12 The RTCs denial of their motion for reconsideration13 prompted the petitioners to appeal directly to the Court on a pure question of law. Issue

The petitioners claim that Article 130 of the Family Code is the applicable law; and that the sale by Protacio, Sr., et al. to Servacio was void for being made without prior liquidation. In contrast, although they have filed separate comments, Servacio and Rito both argue that Article 130 of the Family Code was inapplicable; that the want of the liquidation prior to the sale did not render the sale invalid, because the sale was valid to the extent of the portion that was finally allotted to the vendors as his share; and that the sale did not also prejudice any rights of the petitioners as heirs, considering that what the sale disposed of was within the aliquot portion of the property that the vendors were entitled to as heirs.14 Ruling The appeal lacks merit. Article 130 of the Family Code reads: Article 130. Upon the termination of the marriage by death, the conjugal partnership property shall be liquidated in the same proceeding for the settlement of the estate of the deceased. If no judicial settlement proceeding is instituted, the surviving spouse shall liquidate the conjugal partnership property either judicially or extra-judicially within one year from the death of the deceased spouse. If upon the lapse of the six month period no liquidation is made, any disposition or encumbrance involving the conjugal partnership property of the terminated marriage shall be void. Should the surviving spouse contract a subsequent marriage without compliance with the foregoing requirements, a mandatory regime of complete separation of property shall govern the property relations of the subsequent marriage. Article 130 is to be read in consonance with Article 105 of the Family Code, viz: Article 105. In case the future spouses agree in the marriage settlements that the regime of conjugal partnership of gains shall govern their property relations during marriage, the provisions in this Chapter shall be of supplementary application. The provisions of this Chapter shall also apply to conjugal partnerships of gains already established between spouses before the effectivity of this Code, without prejudice to vested rights already acquired in accordance with the Civil Code or other laws, as provided in Article 256. (n) [emphasis supplied] It is clear that conjugal partnership of gains established before and after the effectivity of the Family Code are governed by the rules found in Chapter 4 (Conjugal Partnership of Gains) of Title IV (Property Relations Between Husband And Wife) of the Family Code. Hence, any disposition of the conjugal property after the dissolution of the

conjugal partnership must be made only after the liquidation; otherwise, the disposition is void. Before applying such rules, however, the conjugal partnership of gains must be subsisting at the time of the effectivity of the Family Code. There being no dispute that Protacio, Sr. and Marta were married prior to the effectivity of the Family Code on August 3, 1988, their property relation was properly characterized as one of conjugal partnership governed by the Civil Code. Upon Martas death in 1987, the conjugal partnership was dissolved, pursuant to Article 175 (1) of the Civil Code,15 and an implied ordinary co-ownership ensued among Protacio, Sr. and the other heirs of Marta with respect to her share in the assets of the conjugal partnership pending a liquidation following its liquidation.16 The ensuing implied ordinary co-ownership was governed by Article 493 of the Civil Code,17 to wit: Article 493. Each co-owner shall have the full ownership of his part and of the fruits and benefits pertaining thereto, and he may therefore alienate, assign or mortgage it, and even substitute another person in its enjoyment, except when personal rights are involved. But the effect of the alienation or the mortgage, with respect to the co-owners, shall be limited to the portion which may be allotted to him in the division upon the termination of the co-ownership. (399) Protacio, Sr., although becoming a co-owner with his children in respect of Martas share in the conjugal partnership, could not yet assert or claim title to any specific portion of Martas share without an actual partition of the property being first done either by agreement or by judicial decree. Until then, all that he had was an ideal or abstract quota in Martas share.18 Nonetheless, a co-owner could sell his undivided share; hence, Protacio, Sr. had the right to freely sell and dispose of his undivided interest, but not the interest of his coowners.19Consequently, the sale by Protacio, Sr. and Rito as co-owners without the consent of the other co-owners was not necessarily void, for the rights of the selling co-owners were thereby effectively transferred, making the buyer (Servacio) a co-owner of Martas share.20 This result conforms to the well-established principle that the binding force of a contract must be recognized as far as it is legally possible to do so (quando res non valet ut ago, valeat quantum valere potest).21 Article 105 of the Family Code, supra, expressly provides that the applicability of the rules on dissolution of the conjugal partnership is "without prejudice to vested rights already acquired in accordance with the Civil Code or other laws." This provision gives another reason not to declare the sale as entirely void. Indeed, such a declaration prejudices the rights of Servacio who had already acquired the shares of Protacio, Sr. and Rito in the property subject of the sale. In their separate comments,22 the respondents aver that each of the heirs had already received "a certain allotted portion" at the time of the sale, and that Protacio, Sr. and Rito sold only the portions adjudicated to and owned by them. However, they did not present any public document on the allocation among her heirs, including themselves, of specific shares in Martas estate. Neither did they aver that the conjugal properties had already been liquidated and partitioned. Accordingly, pending a partition among the heirs of Marta, the efficacy of the sale,

and whether the extent of the property sold adversely affected the interests of the petitioners might not yet be properly decided with finality. The appropriate recourse to bring that about is to commence an action for judicial partition, as instructed in Bailon-Casilao v. Court of Appeals,23 to wit: From the foregoing, it may be deduced that since a co-owner is entitled to sell his undivided share, a sale of the entire property by one co-owner without the consent of the other co-owners is not null and void. However, only the rights of the co-owner-seller are transferred, thereby making the buyer a co-owner of the property. The proper action in cases like this is not for the nullification of the sale or for the recovery of possession of the thing owned in common from the third person who substituted the co-owner or co-owners who alienated their shares, but the DIVISION of the common property as if it continued to remain in the possession of the co-owners who possessed and administered it [Mainit v. Bandoy, supra].1avvphi1 Thus, it is now settled that the appropriate recourse of co-owners in cases where their consent were not secured in a sale of the entire property as well as in a sale merely of the undivided shares of some of the co-owners is an action for PARTITION under Rule 69 of the Revised Rules of Court. xxx24 In the meanwhile, Servacio would be a trustee for the benefit of the coheirs of her vendors in respect of any portion that might not be validly sold to her. The following observations of Justice Paras are explanatory of this result, viz: xxx [I]f it turns out that the property alienated or mortgaged really would pertain to the share of the surviving spouse, then said transaction is valid. If it turns out that there really would be, after liquidation, no more conjugal assets then the whole transaction is null and void. But if it turns out that half of the property thus alienated or mortgaged belongs to the husband as his share in the conjugal partnership, and half should go to the estate of the wife, then that corresponding to the husband is valid, and that corresponding to the other is not. Since all these can be determined only at the time the liquidation is over, it follows logically that a disposal made by the surviving spouse is not void ab initio. Thus, it has been held that the sale of conjugal properties cannot be made by the surviving spouse without the legal requirements. The sale is void as to the share of the deceased spouse (except of course as to that portion of the husbands share inherited by her as the surviving spouse). The buyers of the property that could not be validly sold become trustees of said portion for the benefit of the husbands other heirs, the cestui que trust ent. Said heirs shall not be barred by prescription or by laches (See Cuison, et al. v. Fernandez, et al.,L-11764, Jan.31, 1959.)25 WHEREFORE, we DENY the petition for review on certiorari; and AFFIRM the decision of the Regional Trial Court. The petitioners shall pay the costs of suit.

SO ORDERED. LUCAS P. BERSAMIN Associate Justice WE CONCUR: RENATO C. CORONA Chief Justice Chairperson TERESITA J. LEONARDO-DE CASTRO Associate Justice MARIANO C. DEL CASTILLO Associate Justice

MARTIN S. VILLARAMA, JR. Associate Justice C E R T I F I C A T I O N Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Courts Division. RENATO C. CORONA Chief Justice

Footnotes
1

Original records, p. 20. Id., p.173.

Id., pp. 22-24 (the contract was denominated as "Deed of Absolute Sale of a Portion of Real Property").
4

Id., p. 26. Id., p. 27. Id., pp. 1-7. Id., pp. 31-43. Rollo, pp. 22-25. Id. Id.

10

11

Id. Id., pp. 24-25. Id., pp. 26- 27 Id., p. 65. Article 175. The conjugal partnership of gains terminates: 1. Upon the death of either spouse. xxx

12

13

14

15

16

Dael v. Intermediate Appellate Court, G.R. No. 68873, March 31, 1989, 171 SCRA 524, 532-533.
17

Metropolitan Bank and Trust Co. v. Pascual, G.R. No. 163744, February 29, 2008, 547 SCRA 246.
18

Acabal v. Acabal, G.R. No. 148376, March 31, 2005, 454 SCRA 555, 581.
19

Id., p. 582.

20

Aguirre v. Court of Appeals, G.R. No. 122249. January 29, 2004, 421 SCRA 310, 324, citing Fernandez v. Fernandez,G.R. No. 143256, August 28, 2001, 363 SCRA 811, 829.
21

Metrobank v. Pascual, supra, note 17, at p. 260, quoting from Aromin v. Floresca, G.R. No. 160994, July 27, 2006, 496 SCRA 785, 815.
22

Rollo, pp. 62-67, 79-83. No. L-78178, April 15, 1988, 160 SCRA 738. Id., p. 745.

23

24

25

I Paras , Civil Code of the Philippines Annotated, Sixteenth Ed., p. 592.

Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. 169900 March 18, 2010

MARIO SIOCHI, Petitioner, vs. ALFREDO GOZON, WINIFRED GOZON, GIL TABIJE, INTER-DIMENSIONAL REALTY, INC., and ELVIRA GOZON, Respondents. x - - - - - - - - - - - - - - - - - - - - - - -x G.R. No. 169977 INTER-DIMENSIONAL REALTY, INC., Petitioner, vs. MARIO SIOCHI, ELVIRA GOZON, ALFREDO GOZON, and WINIFRED GOZON, Respondents. R E S O L U T I O N CARPIO, J.: This is a consolidation of two separate petitions for review,1 assailing the 7 July 2005 Decision2 and the 30 September 2005 Resolution3 of the Court of Appeals in CA-G.R. CV No. 74447. This case involves a 30,000 sq.m. parcel of land (property) covered by TCT No. 5357.4 The property is situated in Malabon, Metro Manila and is registered in the name of "Alfredo Gozon (Alfredo), married to Elvira Gozon (Elvira)." On 23 December 1991, Elvira filed with the Cavite City Regional Trial Court (Cavite RTC) a petition for legal separation against her husband Alfredo. On 2 January 1992, Elvira filed a notice of lis pendens, which was then annotated on TCT No. 5357. On 31 August 1993, while the legal separation case was still pending, Alfredo and Mario Siochi (Mario) entered into an Agreement to Buy and Sell5 (Agreement) involving the property for the price of P18 million. Among the stipulations in the Agreement were that Alfredo would: (1) secure an Affidavit from Elvira that the property is Alfredos exclusive property and to annotate the Agreement at the back of TCT No. 5357; (2) secure the approval of the Cavite RTC to exclude the property from the legal separation case; and (3) secure the removal of the notice of lis pendens pertaining to the said case and annotated on TCT No. 5357. However, despite repeated demands from Mario, Alfredo failed to comply with these stipulations. After paying the P5 million earnest money as

partial payment of the purchase price, Mario took possession of the property in September 1993. On 6 September 1993, the Agreement was annotated on TCT No. 5357. Meanwhile, on 29 June 1994, the Cavite RTC rendered a decision6 in the legal separation case, the dispositive portion of which reads: WHEREFORE, judgment is hereby rendered decreeing the legal separation between petitioner and respondent. Accordingly, petitioner Elvira Robles Gozon is entitled to live separately from respondent Alfredo Gozon without dissolution of their marriage bond. The conjugal partnership of gains of the spouses is hereby declared DISSOLVED and LIQUIDATED. Being the offending spouse, respondent is deprived of his share in the net profits and the same is awarded to their child Winifred R. Gozon whose custody is awarded to petitioner. Furthermore, said parties are required to mutually support their child Winifred R. Gozon as her needs arises. SO ORDERED.7 As regards the property, the Cavite RTC held that it is deemed conjugal property. On 22 August 1994, Alfredo executed a Deed of Donation over the property in favor of their daughter, Winifred Gozon (Winifred). The Register of Deeds of Malabon, Gil Tabije, cancelled TCT No. 5357 and issued TCT No. M-105088 in the name of Winifred, without annotating the Agreement and the notice of lis pendens on TCT No. M-10508. On 26 October 1994, Alfredo, by virtue of a Special Power of Attorney9 executed in his favor by Winifred, sold the property to InterDimensional Realty, Inc. (IDRI) for P18 million.10 IDRI paid Alfredo P18 million, representing full payment for the property.11 Subsequently, the Register of Deeds of Malabon cancelled TCT No. M-10508 and issued TCT No. M-1097612 to IDRI. Mario then filed with the Malabon Regional Trial Court (Malabon RTC) a complaint for Specific Performance and Damages, Annulment of Donation and Sale, with Preliminary Mandatory and Prohibitory Injunction and/or Temporary Restraining Order. On 3 April 2001, the Malabon RTC rendered a decision,13 the dispositive portion of which reads: WHEREFORE, premises considered, judgment is hereby rendered as follows: 01. On the preliminary mandatory and prohibitory injunction: 1.1 The same is hereby made permanent by: 1.1.1 Enjoining defendants Alfredo Gozon, Winifred Gozon, Inter-Dimensional Realty, Inc. and Gil Tabije, their agents, representatives and all persons acting in

their behalf from any attempt of commission or continuance of their wrongful acts of further alienating or disposing of the subject property; 1.1.2. Enjoining defendant Inter-Dimensional Realty, Inc. from entering and fencing the property; 1.1.3. Enjoining defendants Alfredo Gozon, Winifred Gozon, Inter-Dimensional Realty, Inc. to respect plaintiffs possession of the property. 02. The Agreement to Buy and Sell dated 31 August 1993, between plaintiff and defendant Alfredo Gozon is hereby approved, excluding the property and rights of defendant Elvira Robles-Gozon to the undivided one-half share in the conjugal property subject of this case. 03. The Deed of Donation dated 22 August 1994, entered into by and between defendants Alfredo Gozon and Winifred Gozon is hereby nullified and voided. 04. The Deed of Absolute Sale dated 26 October 1994, executed by defendant Winifred Gozon, through defendant Alfredo Gozon, in favor of defendant Inter-Dimensional Realty, Inc. is hereby nullified and voided. 05. Defendant Inter-Dimensional Realty, Inc. is hereby ordered to deliver its Transfer Certificate of Title No. M-10976 to the Register of Deeds of Malabon, Metro Manila. 06. The Register of Deeds of Malabon, Metro Manila is hereby ordered to cancel Certificate of Title Nos. 10508 "in the name of Winifred Gozon" and M-10976 "in the name of Inter-Dimensional Realty, Inc.," and to restore Transfer Certificate of Title No. 5357 "in the name of Alfredo Gozon, married to Elvira Robles" with the Agreement to Buy and Sell dated 31 August 1993 fully annotated therein is hereby ordered. 07. Defendant Alfredo Gozon is hereby ordered to deliver a Deed of Absolute Sale in favor of plaintiff over his one-half undivided share in the subject property and to comply with all the requirements for registering such deed. 08. Ordering defendant Elvira Robles-Gozon to sit with plaintiff to agree on the selling price of her undivided one-half share in the subject property, thereafter, to execute and deliver a Deed of Absolute Sale over the same in favor of the plaintiff and to comply with all the requirements for registering such deed, within fifteen (15) days from the receipt of this DECISION. 09. Thereafter, plaintiff is hereby ordered to pay defendant Alfredo Gozon the balance of Four Million Pesos (P4,000,000.00) in his one-half undivided share in the property to be set off by the award of damages in plaintiffs favor.

10. Plaintiff is hereby ordered to pay the defendant Elvira RoblesGozon the price they had agreed upon for the sale of her one-half undivided share in the subject property. 11. Defendants Alfredo Gozon, Winifred Gozon and Gil Tabije are hereby ordered to pay the plaintiff, jointly and severally, the following: 11.1 Two Million Pesos (P2,000,000.00) as actual and compensatory damages; 11.2 One Million Pesos (P1,000,000.00) as moral damages; 11.3 Five Hundred Thousand Pesos (P500,000.00) as exemplary damages; 11.4 Four Hundred Thousand Pesos (P400,000.00) as attorneys fees; and 11.5 One Hundred Thousand Pesos (P100,000.00) as litigation expenses. 11.6 The above awards are subject to set off of plaintiffs obligation in paragraph 9 hereof. 12. Defendants Alfredo Gozon and Winifred Gozon are hereby ordered to pay Inter-Dimensional Realty, Inc. jointly and severally the following: 12.1 Eighteen Million Pesos (P18,000,000.00) which constitute the amount the former received from the latter pursuant to their Deed of Absolute Sale dated 26 October 1994, with legal interest therefrom; 12.2 One Million Pesos (P1,000,000.00) as moral damages; 12.3 Five Hundred Thousand Pesos (P500,000.00) as exemplary damages; and 12.4 One Hundred Thousand Pesos (P100,000.00) as attorneys fees. 13. Defendants Alfredo Gozon and Winifred Gozon are hereby ordered to pay costs of suit. SO ORDERED.14 On appeal, the Court of Appeals affirmed the Malabon RTCs decision with modification. The dispositive portion of the Court of Appeals Decision dated 7 July 2005 reads:

WHEREFORE, premises considered, the assailed decision dated April 3, 2001 of the RTC, Branch 74, Malabon is hereby AFFIRMED with MODIFICATIONS, as follows: 1. The sale of the subject land by defendant Alfredo Gozon to plaintiff-appellant Siochi is declared null and void for the following reasons: a) The conveyance was done without the consent of defendantappellee Elvira Gozon; b) Defendant Alfredo Gozons one-half () undivided share has been forfeited in favor of his daughter, defendant Winifred Gozon, by virtue of the decision in the legal separation case rendered by the RTC, Branch 16, Cavite; 2. Defendant Alfredo Gozon shall return/deliver to plaintiffappellant Siochi the amount of P5 Million which the latter paid as earnest money in consideration for the sale of the subject land; 3. Defendants Alfredo Gozon, Winifred Gozon and Gil Tabije are hereby ordered to pay plaintiff-appellant Siochi jointly and severally, the following: a) P100,000.00 as moral damages; b) P100,000.00 as exemplary damages; c) P50,000.00 as attorneys fees; d) P20,000.00 as litigation expenses; and e) The awards of actual and compensatory damages are hereby ordered deleted for lack of basis. 4. Defendants Alfredo Gozon and Winifred Gozon are hereby ordered to pay defendant-appellant IDRI jointly and severally the following: a) P100,000.00 as moral damages; b) P100,000.00 as exemplary damages; and c) P50,000.00 as attorneys fees. Defendant Winifred Gozon, whom the undivided one-half share of defendant Alfredo Gozon was awarded, is hereby given the option whether or not to dispose of her undivided share in the subject land. The rest of the decision not inconsistent with this ruling stands. SO ORDERED.15

Only Mario and IDRI appealed the decision of the Court of Appeals. In his petition, Mario alleges that the Agreement should be treated as a continuing offer which may be perfected by the acceptance of the other spouse before the offer is withdrawn. Since Elviras conduct signified her acquiescence to the sale, Mario prays for the Court to direct Alfredo and Elvira to execute a Deed of Absolute Sale over the property upon his payment of P9 million to Elvira. On the other hand, IDRI alleges that it is a buyer in good faith and for value. Thus, IDRI prays that the Court should uphold the validity of IDRIs TCT No. M-10976 over the property. We find the petitions without merit. This case involves the conjugal property of Alfredo and Elvira. Since the disposition of the property occurred after the effectivity of the Family Code, the applicable law is the Family Code. Article 124 of the Family Code provides: Art. 124. The administration and enjoyment of the conjugal partnership property shall belong to both spouses jointly. In case of disagreement, the husbands decision shall prevail, subject to the recourse to the court by the wife for a proper remedy, which must be availed of within five years from the date of the contract implementing such decision. In the event that one spouse is incapacitated or otherwise unable to participate in the administration of the conjugal properties, the other spouse may assume sole powers of administration. These powers do not include the powers of disposition or encumbrance which must have the authority of the court or the written consent of the other spouse. In the absence of such authority or consent, the disposition or encumbrance shall be void. However, the transaction shall be construed as a continuing offer on the part of the consenting spouse and the third person, and may be perfected as a binding contract upon the acceptance by the other spouse or authorization by the court before the offer is withdrawn by either or both offerors. (Emphasis supplied) In this case, Alfredo was the sole administrator of the property because Elvira, with whom Alfredo was separated in fact, was unable to participate in the administration of the conjugal property. However, as sole administrator of the property, Alfredo still cannot sell the property without the written consent of Elvira or the authority of the court. Without such consent or authority, the sale is void.16 The absence of the consent of one of the spouse renders the entire sale void, including the portion of the conjugal property pertaining to the spouse who contracted the sale.17 Even if the other spouse actively participated in negotiating for the sale of the property, that other spouses written consent to the sale is still required by law for its validity.18 The Agreement entered into by Alfredo and Mario was without the written consent of Elvira. Thus, the Agreement is entirely void. As regards Marios contention that the Agreement is a continuing offer which may be perfected by Elviras acceptance before the offer is withdrawn, the fact that the property was subsequently donated by Alfredo to Winifred and then sold to IDRI clearly indicates that the offer was already withdrawn.

However, we disagree with the finding of the Court of Appeals that the one-half undivided share of Alfredo in the property was already forfeited in favor of his daughter Winifred, based on the ruling of the Cavite RTC in the legal separation case. The Court of Appeals misconstrued the ruling of the Cavite RTC that Alfredo, being the offending spouse, is deprived of his share in the net profits and the same is awarded to Winifred. The Cavite RTC ruling finds support in the following provisions of the Family Code: Art. 63. The decree of legal separation shall have the following effects: (1) The spouses shall be entitled to live separately from each other, but the marriage bonds shall not be severed; (2) The absolute community or the conjugal partnership shall be dissolved and liquidated but the offending spouse shall have no right to any share of the net profits earned by the absolute community or the conjugal partnership, which shall be forfeited in accordance with the provisions of Article 43(2); (3) The custody of the minor children shall be awarded to the innocent spouse, subject to the provisions of Article 213 of this Code; and The offending spouse shall be disqualified from inheriting from the innocent spouse by intestate succession. Moreover, provisions in favor of the offending spouse made in the will of the innocent spouse shall be revoked by operation of law. Art. 43. The termination of the subsequent marriage referred to in the preceding Article shall produce the following effects: x x x (2) The absolute community of property or the conjugal partnership, as the case may be, shall be dissolved and liquidated, but if either spouse contracted said marriage in bad faith, his or her share of the net profits of the community property or conjugal partnership property shall be forfeited in favor of the common children or, if there are none, the children of the guilty spouse by a previous marriage or, in default of children, the innocent spouse; (Emphasis supplied) Thus, among the effects of the decree of legal separation is that the conjugal partnership is dissolved and liquidated and the offending spouse would have no right to any share of the net profits earned by the conjugal partnership. It is only Alfredos share in the net profits which is forfeited in favor of Winifred. Article 102(4) of the Family Code provides that "[f]or purposes of computing the net profits subject to forfeiture in accordance with Article 43, No. (2) and 63, No. (2), the said profits shall be the increase in value between the market value of the community property at the time of the celebration of the marriage and the market value at the time of its dissolution." Clearly, what is

forfeited in favor of Winifred is not Alfredos share in the conjugal partnership property but merely in the net profits of the conjugal partnership property. With regard to IDRI, we agree with the Court of Appeals in holding that IDRI is not a buyer in good faith. As found by the RTC Malabon and the Court of Appeals, IDRI had actual knowledge of facts and circumstances which should impel a reasonably cautious person to make further inquiries about the vendors title to the property. The representative of IDRI testified that he knew about the existence of the notice of lis pendens on TCT No. 5357 and the legal separation case filed before the Cavite RTC. Thus, IDRI could not feign ignorance of the Cavite RTC decision declaring the property as conjugal. Furthermore, if IDRI made further inquiries, it would have known that the cancellation of the notice of lis pendens was highly irregular. Under Section 77 of Presidential Decree No. 1529,19 the notice of lis pendens may be cancelled (a) upon order of the court, or (b) by the Register of Deeds upon verified petition of the party who caused the registration of the lis pendens. In this case, the lis pendens was cancelled by the Register of Deeds upon the request of Alfredo. There was no court order for the cancellation of the lis pendens. Neither did Elvira, the party who caused the registration of the lis pendens, file a verified petition for its cancellation. Besides, had IDRI been more prudent before buying the property, it would have discovered that Alfredos donation of the property to Winifred was without the consent of Elvira. Under Article 12520 of the Family Code, a conjugal property cannot be donated by one spouse without the consent of the other spouse. Clearly, IDRI was not a buyer in good faith.1avvphi1 Nevertheless, we find it proper to reinstate the order of the Malabon RTC for the reimbursement of the P18 million paid by IDRI for the property, which was inadvertently omitted in the dispositive portion of the Court of Appeals decision. WHEREFORE, we DENY the petitions. We AFFIRM the 7 July 2005 Decision of the Court of Appeals in CA-G.R. CV No. 74447 with the following MODIFICATIONS: (1) We DELETE the portions regarding the forfeiture of Alfredo Gozons one-half undivided share in favor of Winifred Gozon and the grant of option to Winifred Gozon whether or not to dispose of her undivided share in the property; and (2) We ORDER Alfredo Gozon and Winifred Gozon to pay InterDimensional Realty, Inc. jointly and severally the Eighteen Million Pesos (P18,000,000) which was the amount paid by Inter-Dimensional Realty, Inc. for the property, with legal interest computed from the finality of this Decision. SO ORDERED. ANTONIO T. CARPIO Associate Justice

WE CONCUR: ARTURO D. BRION Associate Justice MARIANO C. DEL CASTILLO Associate Justice ROBERTO A. ABAD Associate Justice

JOSE PORTUGAL PEREZ Associate Justice A T T E S T A T I O N I attest that the conclusions in the above Resolution had been reached in consultation before the case was assigned to the writer of the opinion of the Courts Division. ANTONIO T. CARPIO Associate Justice Chairperson C E R T I F I C A T I O N Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairpersons Attestation, I certify that the conclusions in the above Resolution had been reached in consultation before the case was assigned to the writer of the opinion of the Courts Division. REYNATO S. PUNO Chief Justice

Footnotes
1

Under Rule 45 of the 1997 Rules of Civil Procedure.

Rollo (G.R. No. 169900), pp. 65-128. Penned by Associate Justice Remedios A. Salazar-Fernando with Associate Justices Rosmari D. Carandang and Monina Arevalo-Zenarosa, concurring.
3

Id. at 153-154. Rollo (G.R. No. 169977), pp. 166-168. Rollo (G.R. No. 169900), pp. 163-168. Id. at 169-176. Id. at 175-176.

Rollo (G.R. No. 169977), pp. 169-170. Id. at 171-173.

10

See Deed of Absolute Sale dated 26 October 1994, rollo (G.R. No. 169977), pp. 174-177.
11

See Memorandum for Inter-Dimensional Realty, Inc., rollo (G.R. No. 169900), p. 588. In their joint memorandum, Alfredo and Winifred did not deny receipt of full payment from IDRI and in fact prays that IDRI be considered a buyer in good faith and for value, rollo, (G.R. No. 169900), pp. 421-440.
12

Rollo (G.R. No. 169977), pp. 178-179. Rollo (G.R. No. 169900), pp. 221-259. Id. at 257-259. Id. at 126-127. Spouses Guiang v. CA, 353 Phil. 578 (1998).

13

14

15

16

17

Alinas v. Alinas, G.R. No. 158040, 14 April 2008, 551 SCRA 154, citing Homeowners Savings and Loan Bank v. Dailo, 493 Phil. 436, 442 (2005).
18

Jader-Manalo v. Camaisa, 425 Phil. 346 (2002).

19

SEC. 77. Cancellation of lis pendens. - Before final judgment, a notice of lis pendens may be cancelled upon order of the court after proper showing that the notice is for the purpose of molesting the adverse party, or that it is not necessary to protect the rights of the party who caused it to be registered. It may also be cancelled by the Register of Deeds upon verified petition of the party who caused the registration thereof.
20

Art. 125. Neither spouse may donate any conjugal partnership property without the consent of the other. However, either spouse may, without the consent of the other, make moderate donations from the conjugal partnership property for charity or on occasions of family rejoicing or family distress.

Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. 164401 June 25, 2008

LILIBETH SUNGA-CHAN and CECILIA SUNGA, petitioners, vs. THE HONORABLE COURT OF APPEALS; THE HONORABLE PRESIDING JUDGE, Regional Trial Court, Branch 11, Sindangan, Zamboanga Del Norte; THE REGIONAL TRIAL COURT SHERIFF, Branch 11, Sindangan, Zamboanga Del Norte; THE CLERK OF COURT OF MANILA, as Ex-Officio Sheriff; and LAMBERTO T. CHUA, respondents. D E C I S I O N VELASCO, JR., J.: The Case Before us is a petition for review under Rule 45, seeking to nullify and set aside the Decision1 and Resolution dated November 6, 2003 and July 6, 2004, respectively, of the Court of Appeals (CA) in CA-G.R. SP No. 75688. The impugned CA Decision and Resolution denied the petition for certiorari interposed by petitioners assailing the Resolutions2 dated November 6, 2002 and January 7, 2003, respectively, of the Regional Trial Court (RTC), Branch 11 in Sindangan, Zamboanga Del Norte in Civil Case No. S-494, a suit for winding up of partnership affairs, accounting, and recovery of shares commenced thereat by respondent Lamberto T. Chua. The Facts In 1977, Chua and Jacinto Sunga formed a partnership to engage in the marketing of liquefied petroleum gas. For convenience, the business, pursued under the name, Shellite Gas Appliance Center (Shellite), was registered as a sole proprietorship in the name of Jacinto, albeit the partnership arrangement called for equal sharing of the net profit. After Jacintos death in 1989, his widow, petitioner Cecilia Sunga, and married daughter, petitioner Lilibeth Sunga-Chan, continued with the business without Chuas consent. Chuas subsequent repeated demands for accounting and winding up went unheeded, prompting him to file on June

22, 1992 a Complaint for Winding Up of a Partnership Affairs, Accounting, Appraisal and Recovery of Shares and Damages with Writ of Preliminary Attachment, docketed as Civil Case No. S-494 of the RTC in Sindangan, Zamboanga del Norte and raffled to Branch 11 of the court. After trial, the RTC rendered, on October 7, 1997, judgment finding for Chua, as plaintiff a quo. The RTCs decision would subsequently be upheld by the CA in CA-G.R. CV No. 58751 and by this Court per its Decision dated August 15, 2001 in G.R. No. 143340.3 The corresponding Entry of Judgment4 would later issue declaring the October 7, 1997 RTC decision final and executory as of December 20, 2001. The fallo of the RTCs decision reads: WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendants, as follows: (1) DIRECTING them to render an accounting in acceptable form under accounting procedures and standards of the properties, assets, income and profits of [Shellite] since the time of death of Jacinto L. Sunga, from whom they continued the business operations including all businesses derived from [Shellite]; submit an inventory, and appraisal of all these properties, assets, income, profits, etc. to the Court and to plaintiff for approval or disapproval; (2) ORDERING them to return and restitute to the partnership any and all properties, assets, income and profits they misapplied and converted to their own use and advantage that legally pertain to the plaintiff and account for the properties mentioned in pars. A and B on pages 4-5 of this petition as basis; (3) DIRECTING them to restitute and pay to the plaintiff shares and interest of the plaintiff in the partnership of the listed properties, assets and good will in schedules A, B and C, on pages 4-5 of the petition; (4) ORDERING them to pay the plaintiff earned but unreceived income and profits from the partnership from 1988 to May 30, 1992, when the plaintiff learned of the closure of the store the sum of P35,000.00 per month, with legal rate of interest until fully paid; (5) ORDERING them to wind up the affairs of the partnership and terminate its business activities pursuant to law, after delivering to the plaintiff all the interest, shares, participation and equity in the partnership, or the value thereof in money or moneys worth, if the properties are not physically divisible; (6) FINDING them especially Lilibeth Sunga-Chan guilty of breach of trust and in bad faith and hold them liable to the plaintiff the sum of P50,000.00 as moral and exemplary damages; and,

(7) DIRECTING them to reimburse and pay the sum of P25,000.00 as attorneys [fee] and P25,000.00 as litigation expenses. NO special pronouncements as to COSTS. SO ORDERED.5 (Emphasis supplied.) Via an Order6 dated January 16, 2002, the RTC granted Chuas motion for execution. Over a month later, the RTC, acting on another motion of Chua, issued an amended writ of execution.7 It seems, however, that the amended writ of execution could not be immediately implemented, for, in an omnibus motion of April 3, 2002, Chua, inter alia, asked the trial court to commission a certified public accountant (CPA) to undertake the accounting work and inventory of the partnership assets if petitioners refuse to do it within the time set by the court. Chua later moved to withdraw his motion and instead ask the admission of an accounting report prepared by CPA Cheryl A. Gahuman. In the report under the heading, Computation of Claims,8 Chuas aggregate claim, arrived at using the compounding-of-interest method, amounted to PhP 14,277,344.94. Subsequently, the RTC admitted and approved the computation of claims in view of petitioners failure and refusal, despite notice, to appear and submit an accounting report on the winding up of the partnership on the scheduled hearings on April 29 and 30, 2002.9 After another lengthy proceedings, petitioners, on September 24, 2002, submitted their own CPA-certified valuation and accounting report. In it, petitioners limited Chuas entitlement from the winding up of partnership affairs to an aggregate amount of PhP 3,154,736.65 only.10 Chua, on the other hand, submitted a new computation,11 this time applying simple interest on the various items covered by his claim. Under this methodology, Chuas aggregate claim went down to PhP 8,733,644.75. On November 6, 2002, the RTC issued a Resolution,12 rejecting the accounting report petitioners submitted, while approving the new computation of claims Chua submitted. The fallo of the resolution reads: WHEREFORE, premises considered, this Court resolves, as it is hereby resolved, that the Computation of Claims submitted by the plaintiff dated October 15, 2002 amounting to P8,733,644.75 be APPROVED in all respects as the final computation and accounting of the defendants liabilities in favor of the plaintiff in the abovecaptioned case, DISAPPROVING for the purpose, in its entirety, the computation and accounting filed by the defendants. SO RESOLVED.13 Petitioners sought reconsideration, but their motion was denied by the RTC per its Resolution of January 7, 2003.14 In due time, petitioners went to the CA on a petition for certiorari15 under Rule 65, assailing the November 6, 2002 and January 7,

2003 resolutions of the RTC, the recourse docketed as CA-G.R. SP No. 75688. The Ruling of the CA As stated at the outset, the CA, in the herein assailed Decision of November 6, 2003, denied the petition for certiorari, thus: WHEREFORE, the foregoing considered, the Petition is hereby DENIED for lack of merit. SO ORDERED.16 The CA predicated its denial action on the ensuing main premises: 1. Petitioners, by not appearing on the hearing dates, i.e., April 29 and 30, 2002, scheduled to consider Chuas computation of claims, or rendering, as required, an accounting of the winding up of the partnership, are deemed to have waived their right to interpose any objection to the computation of claims thus submitted by Chua. 2. The 12% interest added on the amounts due is proper as the unwarranted keeping by petitioners of Chuas money passes as an involuntary loan and forbearance of money. 3. The reiterative arguments set forth in petitioners pleadings below were part of their delaying tactics. Petitioners had come to the appellate court at least thrice and to this Court twice. Petitioners had more than enough time to question the award and it is now too late in the day to change what had become final and executory. Petitioners motion for reconsideration was rejected by the appellate court through the assailed Resolution17dated July 6, 2004. Therein, the CA explained that the imposition of the 12% interest for forbearance of credit or money was proper pursuant to paragraph 1 of the October 7, 1997 RTC decision, as the computation done by CPA Gahuman was made in "acceptable form under accounting procedures and standards of the properties, assets, income and profits of [Shellite]."18 Moreover, the CA ruled that the imposition of interest is not based on par. 3 of the October 7, 1997 RTC decision as the phrase "shares and interests" mentioned therein refers not to an imposition of interest for use of money in a loan or credit, but to a legal share or right. The appellate court also held that the imposition of interest on the partnership assets falls under par. 2 in relation to par. 1 of the final RTC decision as the restitution mentioned therein does not simply mean restoration but also reparation for the injury or damage committed against the rightful owner of the property. Finally, the CA declared the partnership assets referred to in the final decision as "liquidated claim" since the claim of Chua is ascertainable by mathematical computation; therefore, interest is recoverable as an element of damage. The Issues

Hence, the instant petition with petitioners raising the following issues for our consideration: I. Whether or not the Regional Trial Court can [impose] interest on a final judgment of unliquidated claims. II. Whether or not the Sheriff can enforce the whole divisible obligation under judgment only against one Defendant. III. Whether or not the absolute community of property of spouses Lilibeth Sunga Chan with her husband Norberto Chan can be lawfully made to answer for the liability of Lilibeth Chan under the judgment.19 Significant Intervening Events In the meantime, pending resolution of the instant petition for review and even before the resolution by the CA of its CA-G.R. SP No. 75688, the following relevant events transpired: 1. Following the RTCs approval of Chuas computation of claims in the amount of PhP 8,733,644.75, the sheriff of Manila levied upon petitioner Sunga-Chans property located along Linao St., Paco, Manila, covered by Transfer Certificate of Title (TCT) No. 208782,20 over which a building leased to the Philippine National Bank (PNB) stood. In the auction sale of the levied lot, Chua, with a tender of PhP 8 million,21emerged as the winning bidder. 2. On January 21, 2005, Chua moved for the issuance of a final deed of sale and a writ of possession. He also asked the RTC to order the Registry of Deeds of Manila to cancel TCT No. 208782 and to issue a new certificate. Despite petitioners opposition on the ground of prematurity, a final deed of sale22 was issued on February 16, 2005. 3. On February 18, 2005, Chua moved for the confirmation of the sheriffs final deed of sale and for the issuance of an order for the cancellation of TCT No. 208782. Petitioners again interposed an opposition in which they informed the RTC that this Court had already granted due course to their petition for review on January 31, 2005; 4. On April 11, 2005, the RTC, via a Resolution, confirmed the sheriffs final deed of sale, ordered the Registry of Deeds of Manila to cancel TCT No. 208782, and granted a writ of possession23 in favor of Chua.

5. On May 3, 2005, petitioners filed before this Court a petition for the issuance of a temporary restraining order (TRO). On May 24, 2005, the sheriff of Manila issued a Notice to Vacate24 against petitioners, compelling petitioners to repair to this Court anew for the resolution of their petition for a TRO. 6. On May 31, 2005, the Court issued a TRO,25 enjoining the RTC and the sheriff from enforcing the April 11, 2005 writ of possession and the May 24, 2005 Notice to Vacate. Consequently, the RTC issued an Order26 on June 17, 2005, suspending the execution proceedings before it. 7. Owing to the clashing ownership claims over the leased Paco property, coupled with the filing of an unlawful detainer suit before the Metropolitan Trial Court (MeTC) in Manila against PNB, the Court, upon the banks motion, allowed, by Resolution27 dated April 26, 2006, the consignation of the monthly rentals with the MeTC hearing the ejectment case. The Courts Ruling The petition is partly meritorious. First Issue: Interest Proper in Forbearance of Credit Petitioners, citing Article 221328 of the Civil Code, fault the trial court for imposing, in the execution of its final judgment, interests on what they considered as unliquidated claims. Among these was the claim for goodwill upon which the RTC attached a monetary value of PhP 250,000. Petitioners also question the imposition of 12% interest on the claimed monthly profits of PhP 35,000, reckoned from 1988 to October 15, 1992. To petitioners, the imposable rate should only be 6% and computed from the finality of the RTCs underlying decision, i.e., from December 20, 2001. Third on the petitioners list of unliquidated claims is the yet-to-be established value of the one-half partnership share and interest adjudicated to Chua, which, they submit, must first be determined with reasonable certainty in a judicial proceeding. And in this regard, petitioners, citing Eastern Shipping Lines, Inc. v. Court of Appeals,29 would ascribe error on the RTC for adding a 12% per annum interest on the approved valuation of the one-half share of the assets, inclusive of goodwill, due Chua. Petitioners are partly correct. For clarity, we reproduce the summary valuations and accounting reports on the computation of claims certified to by the parties respective CPAs. Chua claimed the following: A 50% share on assets (exclusive of goodwill) at fair market value (Schedule 1) B 50% share in the monetary value of goodwill (P500,000 x 50%)

P 1,613,550.00 250,000.00

C Legal interest on share of assets from June 1, 1992 to Oct. 15, 2002 at 12% interest per year (Schedule 2) D Unreceived profits from 1988 to 1992 and its corresponding interest from Jan. 1, 1988 to Oct. 15, 2002 (Schedule 3) E Damages F Attorneys fees G Litigation fees TOTAL AMOUNT

2,008,869.75

4,761,225.00 50,000.00 25,000.00 25,000.00 P 8,733,644.75

On the other hand, petitioners acknowledged the following to be due to Chua: Total Assets Schedule 1 50% due to Lamberto Chua Total Alleged Profit, Net of Payments Made, May 1992-Sch. 2 50% share in the monetary value of goodwill (500,000 x 50%) Moral and Exemplary Damages Attorneys Fee Litigation Fee TOTAL AMOUNT P2,431,956.35 P1,215,978.16 1,613,758.49 250,000.00 50,000.00 25,000.00 25,000.00 P3,154,736.65

As may be recalled, the trial court admitted and approved Chuas computation of claims amounting to PhP 8,733,644.75, but rejected that of petitioners, who came up with the figure of only PhP 3,154,736.65. We highlight the substantial differences in the accounting reports on the following items, to wit: (1) the aggregate amount of the partnership assets bearing on the 50% share of Chua thereon; (2) interests added on Chuas share of the assets; (3) amount of profits from 1988 through May 30, 1992, net of alleged payments made to Chua; and (4) interests added on the amount entered as profits. From the foregoing submitted valuation reports, there can be no dispute about the goodwill earned thru the years by Shellite. In fact, the parties, by their own judicial admissions, agreed on the monetary value, i.e., PhP 250,000, of this item. Clearly then, petitioners contradict themselves when they say that such amount of goodwill is without basis. Thus, the Court is loathed to disturb the trial courts approval of the amount of PhP 250,000, representing the monetary value of the goodwill, to be paid to Chua. Neither is the Court inclined to interfere with the CAs conclusion as to the total amount of the partnership profit, that is, PhP 1,855,000,

generated for the period January 1988 through May 30, 1992, and the total partnership assets of PhP 3,227,100, 50% of which, or PhP 1,613,550, pertains to Chua as his share. To be sure, petitioners have not adduced adequate evidence to belie the above CAs factual determination, confirmatory of the trial courts own. Needless to stress, it is not the duty of the Court, not being a trier of facts, to analyze or weigh all over again the evidence or premises supportive of such determination, absent, as here, the most compelling and cogent reasons. This brings us to the question of the propriety of the imposition of interest and, if proper, the imposable rate of interest applicable. In Reformina v. Tomol, Jr.,30 the Court held that the legal interest at 12% per annum under Central Bank (CB) Circular No. 416 shall be adjudged only in cases involving the loan or forbearance of money. And for transactions involving payment of indemnities in the concept of damages arising from default in the performance of obligations in general and/or for money judgment not involving a loan or forbearance of money, goods, or credit, the governing provision is Art. 2209 of the Civil Code prescribing a yearly 6% interest. Art. 2209 pertinently provides: Art. 2209. If the obligation consists in the payment of a sum of money, and the debtor incurs in delay, the indemnity for damages, there being no stipulation to the contrary, shall be the payment of the interest agreed upon, and in the absence of stipulation, the legal interest, which is six per cent per annum. The term "forbearance," within the context of usury law, has been described as a contractual obligation of a lender or creditor to refrain, during a given period of time, from requiring the borrower or debtor to repay the loan or debt then due and payable.31 Eastern Shipping Lines, Inc. synthesized the rules on the imposition of interest, if proper, and the applicable rate, as follows: The 12% per annum rate under CB Circular No. 416 shall apply only to loans or forbearance of money, goods, or credits, as well as to judgments involving such loan or forbearance of money, goods, or credit, while the 6% per annum under Art. 2209 of the Civil Code applies "when the transaction involves the payment of indemnities in the concept of damage arising from the breach or a delay in the performance of obligations in general,"32 with the application of both rates reckoned "from the time the complaint was filed until the [adjudged] amount is fully paid."33 In either instance, the reckoning period for the commencement of the running of the legal interest shall be subject to the condition "that the courts are vested with discretion, depending on the equities of each case, on the award of interest."34 Otherwise formulated, the norm to be followed in the future on the rates and application thereof is: I. When an obligation, regardless of its source, is breached, the contravenor can be held liable for damages. The provisions under Title XVIII on "Damages" of the Civil Code govern in determining the measure of recoverable damages.

II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of interest, as well as the accrual thereof, is imposed, as follows: 1. When the obligation breached consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code. 2. When an obligation not constituting loans or forbearance of money is breached, an interest on the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages except when or until the demand can be established with reasonable certainty. Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably established at the time the demand is made, the interest shall begin to run only from the date the judgment of the court is made (at which time the quantification of damages may be deemed to have been reasonably ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount finally adjudged. 3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit.35 Guided by the foregoing rules, the award to Chua of the amount representing earned but unremitted profits, i.e.. PhP 35,000 monthly, from January 1988 until May 30, 1992, must earn interest at 6% per annum reckoned from October 7, 1997, the rendition date of the RTC decision, until December 20, 2001, when the said decision became final and executory. Thereafter, the total of the monthly profits inclusive of the add on 6% interest shall earn 12% per annum reckoned from December 20, 2001 until fully paid, as the award for that item is considered to be, by then, equivalent to a forbearance of credit. Likewise, the PhP 250,000 award, representing the goodwill value of the business, the award of PhP 50,000 for moral and exemplary damages, PhP 25,000 attorneys fee, and PhP 25,000 litigation fee shall earn 12% per annum from December 20, 2001 until fully paid. Anent the impasse over the partnership assets, we are inclined to agree with petitioners assertion that Chuas share and interest on such assets partake of an unliquidated claim which, until reasonably determined, shall not earn interest for him. As may be noted, the legal norm for

interest to accrue is "reasonably determinable," not, as Chua suggested and the CA declared, determinable by mathematical computation. The Court has certainly not lost sight of the fact that the October 7, 1997 RTC decision clearly directed petitioners to render an accounting, inventory, and appraisal of the partnership assets and then to wind up the partnership affairs by restituting and delivering to Chua his onehalf share of the accounted partnership assets. The directive itself is a recognition that the exact share and interest of Chua over the partnership cannot be determined with reasonable precision without going through with the inventory and accounting process. In fine, a liquidated claim cannot validly be asserted without accounting. In net effect, Chuas interest and share over the partnership asset, exclusive of the goodwill, assumed the nature of a liquidated claim only after the trial court, through its November 6, 2002 resolution, approved the assets inventory and accounting report on such assets. Considering that Chuas computation of claim, as approved by the trial court, was submitted only on October 15, 2002, no interest in his favor can be added to his share of the partnership assets. Consequently, the computation of claims of Chua should be as follows: (1) 50% share on assets (exclusive of goodwill) at fair market value (2) 50% share in the monetary value of goodwill (PhP 500,000 x 50%) (3) 12% interest on share of goodwill from December 20, 2001 to October 15, 2000 [PhP 250,000 x 0.12 x 299/365 days] (4) Unreceived profits from 1988 to May 30, 1992 (5) 6% interest on unreceived profits from January 1, 1988 to December 20, 200136 (6) 12% interest on unreceived profits from December 20, 2001 to October 15, 2002 [PhP 3,215,362.50 x 12% x 299/365 days] (7) Moral and exemplary damages (8) Attorneys fee (9) Litigation fee (10) 12% interest on moral and exemplary damages, attorneys fee, and litigation fee from December 20, 2001 to October 15, 2002 [PhP 100,000 x 12% x 299/365 days] TOTAL AMOUNT

PhP 1,613,550.00

250,000.00

24,575.34 1,855,000.00 1,360,362.50

316,074.54 50,000.00 25,000.00 25,000.00

9,830.14 PhP 5,529,392.52

Second Issue: Petitioners Obligation Solidary Petitioners, on the submission that their liability under the RTC decision is divisible, impugn the implementation of the amended writ of execution, particularly the levy on execution of the absolute community property of spouses petitioner Sunga-Chan and Norberto Chan. Joint, instead of solidary, liability for any and all claims of Chua is obviously petitioners thesis. Under the circumstances surrounding the case, we hold that the obligation of petitioners is solidary for several reasons. For one, the complaint of Chua for winding up of partnership affairs, accounting, appraisal, and recovery of shares and damages is clearly a suit to enforce a solidary or joint and several obligation on the part of petitioners. As it were, the continuance of the business and management of Shellite by petitioners against the will of Chua gave rise to a solidary obligation, the acts complained of not being severable in nature. Indeed, it is well-nigh impossible to draw the line between when the liability of one petitioner ends and the liability of the other starts. In this kind of situation, the law itself imposes solidary obligation. Art. 1207 of the Civil Code thus provides: Art. 1207. The concurrence of two or more creditors or of two or more debtors in one and the same obligation does not imply that each one of the former has a right to demand, or that each of the latter is bound to render, entire compliance with the prestation. There is solidary liability only when the obligation expressly so states, or when the law or the nature of the obligation requires solidarity. (Emphasis ours.) Any suggestion that the obligation to undertake an inventory, render an accounting of partnership assets, and to wind up the partnership affairs is divisible ought to be dismissed. For the other, the duty of petitioners to remit to Chua his half interest and share of the total partnership assets proceeds from petitioners indivisible obligation to render an accounting and inventory of such assets. The need for the imposition of a solidary liability becomes all the more pronounced considering the impossibility of quantifying how much of the partnership assets or profits was misappropriated by each petitioner. And for a third, petitioners obligation for the payment of damages and attorneys and litigation fees ought to be solidary in nature, they having resisted in bad faith a legitimate claim and thus compelled Chua to litigate. Third Issue: Community Property Liable Primarily anchored as the last issue is the erroneous theory of divisibility of petitioners obligation and their joint liability therefor. The Court needs to dwell on it lengthily.

Given the solidary liability of petitioners to satisfy the judgment award, respondent sheriff cannot really be faulted for levying upon and then selling at public auction the property of petitioner Sunga-Chan to answer for the whole obligation of petitioners. The fact that the levied parcel of land is a conjugal or community property, as the case may be, of spouses Norberto and Sunga-Chan does not per se vitiate the levy and the consequent sale of the property. Verily, said property is not among those exempted from execution under Section 13,37 Rule 39 of the Rules of Court. And it cannot be overemphasized that the TRO issued by the Court on May 31, 2005 came after the auction sale in question. Parenthetically, the records show that spouses Sunga-Chan and Norberto were married on February 4, 1992, or after the effectivity of the Family Code on August 3, 1988. Withal, their absolute community property may be held liable for the obligations contracted by either spouse. Specifically, Art. 94 of said Code pertinently provides: Art. 94. The absolute community of property shall be liable for: (1) x x x x (2) All debts and obligations contracted during the marriage by the designated administrator-spouse for the benefit of the community, or by both spouses, or by one spouse with the consent of the other. (3) Debts and obligations contracted by either spouse without the consent of the other to the extent that the family may have been benefited. (Emphasis ours.) Absent any indication otherwise, the use and appropriation by petitioner Sunga-Chan of the assets of Shellite even after the business was discontinued on May 30, 1992 may reasonably be considered to have been used for her and her husbands benefit. It may be stressed at this juncture that Chuas legitimate claim against petitioners, as readjusted in this disposition, amounts to only PhP 5,529,392.52, whereas Sunga-Chans auctioned property which Chua acquired, as the highest bidder, fetched a price of PhP 8 million. In net effect, Chua owes petitioner Sunga-Chan the amount of PhP 2,470,607.48, representing the excess of the purchase price over his legitimate claims. Following the auction, the corresponding certificate of sale dated January 15, 2004 was annotated on TCT No. 208782. On January 21, 2005, Chua moved for the issuance of a final deed of sale (1) to order the Registry of Deeds of Manila to cancel TCT No. 208782; (2) to issue a new TCT in his name; and (3) for the RTC to issue a writ of possession in his favor. And as earlier stated, the RTC granted Chuas motion, albeit the Court restrained the enforcement of the RTCs package of orders via a TRO issued on May 31, 2005. Therefore, subject to the payment by Chua of PhP 2,470,607.48 to petitioner Sunga-Chan, we affirm the RTCs April 11, 2005 resolution,

confirming the sheriffs final deed of sale of the levied property, ordering the Registry of Deeds of Manila to cancel TCT No. 208782, and issuing a writ of possession in favor of Chua. WHEREFORE, this petition is PARTLY GRANTED. Accordingly, the assailed decision and resolution of the CA in CA-G.R. SP No. 75688 are hereby AFFIRMED with the following MODIFICATIONS: (1) The Resolutions dated November 6, 2002 and January 7, 2003 of the RTC, Branch 11 in Sindangan, Zamboanga Del Norte in Civil Case No. S-494, as effectively upheld by the CA, are AFFIRMED with the modification that the approved claim of respondent Chua is hereby corrected and adjusted to cover only the aggregate amount of PhP 5,529,392.52; (2) Subject to the payment by respondent Chua of PhP 2,470,607.48 to petitioner Sunga-Chan, the Resolution dated April 11, 2005 of the RTC, confirming the sheriffs final deed of sale of the levied property, ordering the Registry of Deeds of Manila to cancel TCT No. 208782, and issuing a writ of possession in favor of respondent Chua, is AFFIRMED; and The TRO issued by the Court on May 31, 2005 in the instant petition is LIFTED. No pronouncement as to costs. SO ORDERED. PRESBITERO J. VELASCO, JR. Associate Justice

WE CONCUR: LEONARDO A. QUISUMBING Associate Justice Chairperson ANTONIO T. CARPIO Associate Justice DANTE O. TINGA Associate Justice ARTURO D. BRION Associate Justice

ATTESTATION I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Courts Division.

LEONARDO A. QUISUMBING Associate Justice Chairperson CERTIFICATION Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairpersons Attestation, it is hereby certified that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Courts Division. REYNATO S. PUNO Chief Justice

Footnotes
1

Rollo, pp. 36-45. Penned by Associate Justice Romeo A. Brawner (Chairperson, now retired) and concurred in by Associate Justices Jose L. Sabio, Jr. and Jose C. Reyes, Jr.
2

Id. at 90-91. Penned by Judge Mariano S. Macias. Reported in 363 SCRA 249. Rollo, p. 69. Id. at 38. Id. at 72. Id. at 73-76. Id. at 78-81. Id. at 77. Id. at 40. Id. at 85-89. Id. at 90. Id. Id. at 91. Id. at 93-112. Supra note 1, at 45.

10

11

12

13

14

15

16

17

Rollo, pp. 47-55. Id. at 52. Id. at 175. Id. at 304-307. Id. at 92, Minutes of Sale. Id. at 256-257. Id. at 238-240. Id. at 264-265. Id. at 266-267. Id. at 276. Id. at 446A-446B.

18

19

20

21

22

23

24

25

26

27

28

Art. 2213. Interest cannot be recovered upon unliquidated claims or damages, except when the demand can be established with reasonable certainty.
29

G.R. No. 97412, July 12, 1994, 234 SCRA 78. No. L-59096, October 11, 1985, 139 SCRA 260.

30

31

Eastern Shipping Lines, Inc., supra note 29, at 93-94; citing Blacks Law Dictionary 644 (1990).
32

Id. at 94.

33

Id. at 92; citing Florendo v. Ruiz, G.R. No. 60225, May 8, 1992, 208 SCRA 542; Reformina, supra note 30.
34

Id. at 94-95. Id. at 95-97. Interest computed as follows: Interest Period Rate (months) 6% 167.5 6% 155.5 6% 143.5 6% 131.5 6% 119.5 Interest Earned 351,750.00 326,550.00 301,350.00 276,150.00 104,562.50

35

36

Year 1988 1989 1990 1991 1992

Principal 420,000.00 420,000.00 420,000.00 420,000.00 175,000.00

Balance 771,750.00 746,550.00 721,350.00 696,150.00 279,562.50

Totals 1,855,000.00

1,360,362.50

TOTAL (Principal plus Interest), as of December PhP 3,215,362.50 20, 2001

37

SEC. 13. Property exempt from execution.Except as otherwise expressly provided by law, the following property, and no other, shall be exempt from execution: (a) The judgment obligors family home as provided by law, or the homestead in which he resides, and the land necessarily used in connection therewith; (b) Ordinary tools and implements personally used by him in his trade, employment or livelihood; (c) Three horses x x x or other beasts of burden x x x; (d) His necessary clothing and articles for ordinary personal use, excluding jewelry; (e) Household furniture and utensils necessary for housekeeping x x x; (f) Provisions for individual or family use sufficient for four months; (g) The professional libraries and equipment of judges, lawyers, physicians x x x; (h) One fishing boat and accessories x x x; (i) So much of the salaries, wages, or earnings of the judgment obligor x x x; (j) Lettered gravestones; (k) Monies, benefits, privileges, or annuities accruing or x x x growing out of any life insurance; (l) The right to receive legal support, or money or property obtained as such support, or any pension or gratuity from the Government; (m) Properties specially exempted by law. But no article or species of property mentioned in this section shall be exempt from execution issued upon a judgment recovered for its price or upon a judgment of foreclosure of a mortgage thereon.

Republic of the Philippines SUPREME COURT Manila THIRD DIVISION

G.R. No. 70082 August 19, 1991 SPOUSES RICKY WONG and ANITA CHAN, LEONARDO JOSON, JUANITO SANTOS, EMERITO SICAT and CONRADO LAGMAN, petitioners, vs. HON. INTERMEDIATE APPELLATE COURT and ROMARICO HENSON, respondents. Feliciano C. Tumale for petitioners. Benjamin Dadios and Bausa, Ampil, Suarez, Paredes & Bausa for private respondent.

FERNAN, C.J.:p Submitted for adjudication in the instant petition for review on certiorari is the issue of whether or not the execution of a decision in an action for collection of a sum of money may be nullified on the ground that the real properties levied upon and sold at public auction are the alleged exclusive properties of a husband who did not participate in his wife's business transaction from which said action stemmed. Private respondent Romarico Henson married Katrina Pineda on January 6, 1964. 1 They have three children but even during the early years of their marriage, Romarico and Katrina had been most of the time living separately. The former stayed in Angeles City while the latter lived in Manila. During the marriage or on January 6, 1971, Romarico bought a 1,787 square-meter parcel of land in Angeles City for P11,492 from his father, Dr. Celestino L. Henson 2 with money borrowed from an officemate. His father need the amount for investments in Angeles City and Palawan. 3

Meanwhile, in Hongkong sometime in June 1972, Katrina entered into an agreement with Anita Chan whereby the latter consigned to Katrina pieces of jewelry for sale valued at 199,895 Hongkong dollars or P321,830.95. 4 When Katrina failed to return the pieces of jewelry within the 20-day period agreed upon, Anita Chan demanded payment of their value. On September 18, 1972, Katrina issued in favor of Anita Chan a check for P55,000 which, however, was dishonored for lack of funds. Hence, Katrina was charged with estafa before the then Court of First Instance of Pampanga and Angeles City, Branch IV. 5 After trial, the lower court rendered a decision dismissing the case on the ground that Katrina's liability was not criminal but civil in nature as no estafa was committed by the issuance of the check in payment of a pre-existing obligation. 6 In view of said decision, Anita Chan and her husband Ricky Wong filed against Katrina and her husband Romarico Henson, an action for collection of a sum of money also in the same branch of the aforesaid court. 7 The records of the case show that Atty. Gregorio Albino, Jr. filed an answer with counterclaim but only in behalf of Katrina. When the case was called for pre-trial, Atty. Albino once again appeared as counsel for Katrina only. While it is true that during subsequent hearings, Atty. Expedite Yumul, who collaborated with Atty. Albino, appeared for the defendants, it is not shown on record that said counsel also represented Romarico. In fact, a power of attorney which Atty. Albino produced during the trial, showed that the same was executed solely by Katrina. 8 After trial, the court promulgated a decisions 9 in favor of the Wongs. It ordered Katrina and Romarico Henson to pay the Wongs HK$199,895.00 or P321,830.95 with legal interest from May 27, 1975, the date of filing of the complaint, until fully paid; P20,000 as expenses for litigation; P15,000 as attorney's fees, and the costs of the suit. A writ of execution was thereafter issued. Levied upon were four lots in Angeles City covered by Transfer Certificates of Title Nos. 30950, 30951, 30952 and 30953 all in the name of Romarico Henson ... married to Katrina Henson. 10 The public auction sale was first set for October 30, 1977 but since said date was declared a public holiday, Deputy Sheriff Emerito Sicat reset the sale to November 11, 1977. On said date, the following properties registered in the name of Romarico Henson "married to Katrina Henson" were sold at public auction: (a) two parcels of land covered by Transfer Certificates of Title Nos. 30950 and 30951 with respective areas of 293 and 289 square meters at P145,000 each to Juanito L. Santos, 11 and (b) two parcels of land covered by Transfer Certificates of Title Nos. 30952 and 30953 with respective areas of 289 and 916 square meters in the amount of P119,000.00 to Leonardo B. Joson. 12 After the inscription on Transfer Certificate of Title No. 30951 of the levy on execution of the judgment in Civil Case No. 2224, the property covered by said title was extrajudicially foreclosed by the Rural Bank of Porac, Pampanga on account of the mortgage loan of P8,000 which Romarico and Katrina had obtained from said bank. The property was sold by the sheriff to the highest bidder for P57,000 on September 9, 1977. On

September 14, 1978, Juanito Santos, who had earlier bought the same property at public auction on November 11, 1977, redeemed it by paying the sum of P57,000 plus the legal interest of P6,840.00 or a total amount of P63,840.00. 13 About a month before such redemption or on August 8, 1 978, Romarico filed an action for the annulment of the decision in Civil Case No. 2224 as well as the writ of execution, levy on execution and the auction sale therein in the same Court of First Instance. 14 Romarico alleged that he was "not given his day in court" because he was not represented by counsel as Attys. Albino and Yumul appeared solely for Katrina; that although he did not file an answer to the complaint, he was not declared in default in the case; that while Atty. Albino received a copy of the decision, he and his wife were never personally served a copy thereof; that he had nothing to do with the business transactions of Katrina as he did not authorize her to enter into such transactions; and that the properties levied on execution and sold at public auction by the sheriff were his capital properties and therefore, as to him, all the proceedings had in the case were null and void. On November 10, 1978, the lower court issued an order restraining the Register of Deeds of Angeles City from issuing the final bill of sale of Transfer Certificates of Title Nos. 30950 and 30951 in favor of Juanito Santos and Transfer Certificates of Title Nos. 30952 and 30953 in favor of Leonardo Joson until further orders of the court. 15On January 22, 1979, upon motion of Romarico, the court issued a writ of preliminary injunction enjoining the sheriff from approving the final bill of sale of the land covered by the aforementioned certificates of title and the Register of Deeds of Angeles City from registering said certificates of title in the names of Santos and Joson until the final outcome of the case subject to Romarico's posting of a bond in the amount of P321,831.00. 16 After trial on the merits, the lower court 17 rendered a decision holding that Romarico was indeed not given his day in court as he was not represented by counsel nor was he notified of the hearings therein although he was never declared in default. Noting that the complaint in Civil Case No. 2224 as well as the testimonial and documentary evidence adduced at the trial in said case do not show that Romarico had anything to do with the transactions between Katrina and Anita Chan, the court ruled that the judgment in Civil Case No. 2224 "is devoid of legal or factual basis which is not even supported by a finding of fact or ratio decidendi in the body of the decision, and may be declared null and void ... pursuant to a doctrine laid down by the Supreme Court to the effect that the Court of First Instance or a branch thereof, has authority and jurisdiction to try and decide an action for annulment of a final and executory judgment or order rendered by another court of first instance or of a branch thereof (Gianan vs. Imperial, 55 SCRA 755)." 18 On whether or not the properties lenied upon and sold at public auction may be reconveyed to Romarico, the court, finding that there was no basis for holding the conjugal partnership liable for the personal indebtedness of Katrina, ruled in favor of reconveyance in view of the jurisprudence that the interest of the wife in the conjugal partnership property being inchoate and therefore merely an expectancy, the same may not be sold or

disposed of for value until after the liquidation and settlement of the community assets. The dispositive portion of the decision reads: WHEREFORE, and in view of the foregoing, judgment is hereby rendered in favor of the plaintiff and against all the defendants, as follows: (a) The Decision of the Court of First Instance of Pampanga and Angeles City, Branch IV, rendered in Civil Case No. 2224, entitled "RICKY WONG, ET AL. vs. KATRINA PINEDA HENSON and ROMARICO HENSON", is hereby declared null and void, only as far as it affects plaintiff herein Romarico Henson; (b) The Writ of Execution, levy in execution and auction sale of the conjugal property of the spouses Romarico Henson and Katrina Pineda Henson which were sold at public auction on November 11, 1977, without notice to plaintiff herein, by Deputy Sheriff Emerito Sicat, are likewise declared null and void and of no force and effect; (c) Defendants Emerito Sicat and Conrado Lagman, in their official capacity as Sheriff and Register of Deeds, respectively, are enjoined permanently from issuing and/or registering the corresponding deeds of sale affecting the property; (d) The aforementioned buyers are directed to reconvey the property they have thus purchased at public auction to plaintiff Romarico Henson; (e) As far as the claim for reimbursement filed by Juanito Santos concerning the redemption of the property covered by Transfer Certificate of Title No. 30951 from the Rural Bank of Porac, which foreclosed the same extrajudicially, is concerned, plaintiff Romarico Henson may redeem the same within the period and in the manner prescribed by law, after the corresponding deed of redemption shall have been registered in the Office of the Registry of Deeds for Angeles City; (f) Defendants Spouses Ricky Wong and Anita Chan are, with the exception of the defendants Juanito Santos, Leonardo Joson, Sheriff and Register of Deeds, are ordered jointly and severally, to pay the plaintiff Romarico Henson the sum of P10,000.00, corresponding to the expenses of litigation, with legal interest thereon from the time this suit was filed up to the time the same shall have been paid, plus P5,000.00 for and as attorney's fees, and the costs of suit; and (g) The counterclaims respectively filed on behalf of all the defendants in the above-entitled case are hereby DISMISSED. SO ORDERED.

The defendants appealed to the then Intermediate Appellate Court. In its decision of January 22, 1985 19 the said court affirmed in toto the decision of the lower court. It added that as to Romarico, the judgment in Civil Case No. 2224 had not attained finality as the decision therein was not served on him and that he was not represented by counsel. Therefore, estoppel may not be applied against him as, not having been served with the decision, Romarico did not know anything about it. Corollarily, there can be no valid writ of execution inasmuch as the decision had not become final as far as Romarico is concerned. On whether the properties may be levied upon as conjugal properties, the appellate court ruled in the negative. It noted that the properties are Romarico' s exclusive capital having been bought by him with his own funds. But granting that the properties are conjugal, they cannot answer for Katrina's obligations as the latter were exclusively hers because they were incurred without the consent of her husband, they were not for the daily expenses of the family and they did not redound to the benefit of the family. The court underscored the fact that no evidence has been submitted that the administration of the conjugal partnership had been transferred to Katrina either by Romarico or by the court before said obligations were incurred. The appellants filed a motion for reconsideration of the decision of the appellate court but the same was denied for lack of merit on February 6, 1985. 20 Hence, the instant petition for review on certiorari. Petitioners contend that, inasmuch as the Henson spouses were duly represented by Atty. Albino as shown by their affidavit of August 25, 1977 wherein they admitted that they were represented by said counsel until Atty. Yumul took over the actual management and conduct of the case and that Atty. Albino had not withdrawn as their counsel, the lower court "did not commit an error" in serving a copy of the decision in Civil Case No. 2224 only on Atty. Albino. Moreover, during the 2-year period between the filing of the complaint in Civil Case No. 2224 and the public auction sale on November 11, 1977, Romarico remained silent thereby making him in estoppel and guilty of laches. Petitioners further aver that there being sufficient evidence that the auction sale was conducted in accordance with law, the acts of the sheriffs concerned are presumed to be regular and valid. But granting that an irregularity consisting of the non-notification of Romarico attended the conduct of the auction sale, the rights of Santos and Joson who were "mere strangers who participated as the highest bidders" therein, may not be prejudiced. Santos and Joson bought the properties sincerely believing that the sheriff was regularly performing his duties and no evidence was presented to the effect that they acted with fraud or that they connived with the sheriff. However, should the auction sale be nullified, petitioners assert that Romarico should not be unduly enriched at the expense of Santos and Joson. The petitioners' theory is that Romarico Henson was guilty of laches and may not now belatedly assert his rights over the properties because he and Katrina were represented by counsel in Civil Case No. 2224. Said theory is allegedly founded on the perception that the Hensons were like any other ordinary couple wherein a spouse knows or should know the

transactions of the other spouse which necessarily must be in interest of the family. The factual background of this case, however, takes it out of said ideal situation. Romarico and Katrina had in fact been separated when Katrina entered into a business deal with Anita Wong. Thus, when that business transaction eventually resulted in the filing of Civil Case No. 2224, Romarico acted, or, as charged by petitioners, failed to act, in the belief that he was not involved in the personal dealings of his estranged wife. That belief was buttressed by the fact that the complaint itself did not mention or implicate him other than as the husband of Katrina. On whether Romarico was also represented by Atty. Albino, Katrina's counsel, the courts below found that: ... Atty. Albino filed an Answer with Counterclaims dated July 25, 1975 solely on behalf of defendant Katrina Henson. The salutary statement in that Answer categorically reads: ... COMES NOW THE DEFENDANT KATRINA HENSON by and through undersigned counsel, in answer to plaintiffs' complaint respectfully alleges: ... . That Answer was signed by GREGORIO ALBINO, JR., over the phrase COUNSEL FOR DEFENDANT KATRINA HENSON. Again, when Civil Case No. 2224 was called for pre-trial on November 27, 1975, before then Presiding Judge Bienvenido Ejercito, it is clearly stated on page 2 of the day's stenographic notes, under "APPEARANCES that Atty. Albino, Jr. appeared as COUNSEL FOR DEFENDANT KATRINA HENSON". And when the case was called, Atty. Jose Baltazar, Sr. appeared for the plaintiffs while Atty. Albino categorically appeared "FOR DEFENDANT KATRINA HENSON". It might be true that in subsequent hearings, Atty. Expedito Yumul 'appeared as counsel for the defendants,' but the whole trouble is that he never expressly manifested to the Court that he was likewise actually representing defendant "ROMARICO HENSON", for it cannot be disputed that Atty. Yumul only entered his appearance in collaboration with Atty. Albino (see p. 2 tsn, January 26, 1976, Espinosa), who in turn entered his initial appearance during the pre- trial, and through the filing of an Answer, for defendant KATRINA HENSON. As a matter of fact, the Power of Attorney which Atty. Albino produced during the pre-trial was executed solely by defendant KATRINA HENSON. Accordingly, as collaborating counsel, Atty. Yumul cannot, by any stretch of the imagination, be considered as duly authorized to formally appear likewise on behalf of defendant ROMARICO HENSON for whom principal counsel of record Atty. Gregorio Albino, Jr. never made any formal appearance. On this score, it is not amiss to state that "A spring cannot rise higher than its source:. Now, what about that statement in the aforementioned joint affidavit of the spouses KATRINA HENSON and ROMARICO HENSON,

to the effect that our first lawyer in said case was Atty. Gregorio Albino, Jr., and sometime later Atty. Expedito B. Yumul took over ... That statement which plaintiff ROMARICO HENSON was made to sign by Atty. Yumul on August 25,1977, after the filing of this case, allegedly for the purpose of dissolving the writ of execution, as claimed in paragraph XIV of the complaint herein, and is satisfactorily explained by both plaintiff herein and his wife, while on cross-examination by Atty. Baltazar, Sr., and We quote: Q So, the summons directed your filing of your Answer for both of you, your wife and your good self? A Yes, sir but may I add, I received the summons but I did not file an answer because my wife took a lawyer and that lawyer I think will protect her interest and my interest being so I did not have nothing to do in the transaction which is attached to the complaint.' (TSN, Jan. 14, 1980, pp. 52-53). That plaintiff never appeared in Civil Case No. 2224, nor was he therein represented by counsel was impliedly admitted by defendants' counsel of records thru a question he propounded on cross, and the answer given by Katrina Pineda, to wit: Q How about your husband, do you remember if he physically appeared in that Civil Case No. 2224, will you tell us if he was represented by counsel as a party defendant? A No, sir, he did not appear. Q You are husband and wife, please tell us the reason why you have your own counsel in that case whereas Romarico Henson did not appear nor a counsel did not appear in that proceedings (TSN, Feb. 25,1980, pp. 6-7). xxx xxx xxx A Because that case is my exclusive and personal case, he has nothing to do with that, sir. (TSN, Feb. 25, 1980, p. 9). (Rollo, pp. 17-20) Hence, laches may not be charged against Romarico because, aside from the fact that he had no knowledge of the transactions of his estranged wife, he was also not afforded an opportunity to defend himself in Civil Case No. 2224. 21 There is no laches or even finality of decision to speak of with respect to Romarico since the decision in Civil Case No. 2224 is

null and void for having been rendered without jurisdiction for failure to observe the notice requirements prescribed by law. 22 Failure to notify Romarico may not be attributed to the fact that the plaintiffs in Civil Case No. 2224 acted on the presumption that the Hensons were still happily married because the complaint itself shows that they did not consider Romarico as a party to the transaction which Katrina undertook with Anita Wong. In all likelihood, the plaintiffs merely impleaded Romarico as a nominal party in the case pursuant to the provisions of Rule 3, Section 4 of the Rules of Court. Consequently, the writ of execution cannot be issued against Romarico as he has not yet had his day in court 23and, necessarily, the public auction sale is null and void. 24 Moreover, the power of the court in the execution of judgments extends only over properties unquestionably belonging to the judgment debtor. 25 On the matter of ownership of the properties involved, however, the Court disagrees with the appellate court that the said properties are exclusively owned by Romarico. Having been acquired during the marriage, they are still presumed to belong to the conjugal partnership 26 even though Romarico and Katrina had been living separately. 27 The presumption of the conjugal nature of the properties subsists in the absence of clear, satisfactory and convincing evidence to overcome said presumption or to prove that the properties are exclusively owned by Romarico. 28 While there is proof that Romarico acquired the properties with money he had borrowed from an officemate, it is unclear where he obtained the money to repay the loan. If he paid it out of his salaries, then the money is part of the conjugal assets 29 and not exclusively his. Proof on this matter is of paramount importance considering that in the determination of the nature of a property acquired by a person during covertrue, the controlling factor is the source of the money utilized in the purchase. The conjugal nature of the properties notwithstanding, Katrina's indebtedness may not be paid for with them her obligation not having been shown by the petitioners to be one of the charges against the conjugal partnership. 30In addition to the fact that her rights over the properties are merely inchoate prior to the liquidation of the conjugal partnership, the consent of her husband and her authority to incur such indebtedness had not been alleged in the complaint and proven at the trial. 31 Furthermore, under the Civil Code (before the effectivity of the Family Code on August 3, 1988), a wife may bind the conjugal partnership only when she purchases things necessary for the support of the family or when she borrows money for the purpose of purchasing things necessary for the support of the family if the husband fails to deliver the proper sum; 32 when the administration of the conjugal partnership is transferred to the wife by the courts 33 or by the husband 34 and when the wife gives moderate donations for charity. 35 Having failed to establish that any of these circumstances occurred, the Wongs may not bind the conjugal assets to answer for Katrina's personal obligation to them.

Petitioners' contention that the rights of Santos and Joson as innocent buyers at the public auction sale may not be prejudiced, is, to a certain extent, valid. After all, in the absence of proof that irregularities attended the sale, the same must be presumed to have been conducted in accordance with law. There is, however, a peculiar factual circumstance that goes against the grain of that general presumption the properties levied upon and sold at the public auction do not exclusively belong to the judgment debtor. Thus, the guiding jurisprudence is as follows: The rule in execution sales is that an execution creditor acquires no higher or better right than what the execution debtor has in the property levied upon. The purchaser of property on sale under execution and levy takes as assignee, only as the judicial seller possesses no title other than that which would pass by an assignment by the owner. "An execution purchaser generally acquires such estate or interest as was vested in the execution debtor at the time of the seizure on execution, and only such interest, taking merely a quit-claim of the execution debtor's title, without warranty on the part of either the execution officer or of the parties, whether the property is realty or personalty. This rule prevails even if a larger interest in the property was intended to be sold. Accordingly, if the judgment debtor had no interest in the property, the execution purchaser acquires no interest therein." (Pacheco vs. Court of Appeals, L-48689, August 31, 1987, 153 SCRA 382, 388-389 quoting Laureano vs. Stevenson, 45 Phil. 252; Cabuhat vs. Ansery, 42 Phil. 170; Fore v. Manove, 18 Cal. 436 and 21 Am. Jur., 140141. Emphasis supplied.) Applying this jurisprudence, execution purchasers Santos and Joson possess no rights which may rise above judgment debtor Katrina's inchoate proprietary rights over the properties sold at public auction. After all, a person can sell only what he owns or is authorized to sell and the buyer can, as a consequence, acquire no more that what the seller can legally transfer. 36 But, inasmuch as the decision in Civil Case No. 2224 is void only as far as Romarico and the conjugal properties are concerned, the same may still be executed by the Spouses Wong against Katrina Henson personally and exclusively. The Spouses Wong must return to Juanito Santos and Leonardo Joson the purchase prices of P145,000 and P119,000 respectively, received by said spouse from the public auction sale. The redemption made by Santos in the foreclosure proceeding against Romarico and Katrina Henson filed by the Rural Bank of Porac, should, however, be respected unless Romarico exercises his right of redemption over the property covered by Transfer Certificate of Title No. 30951 in accordance with law. WHEREFORE, the decisions of the appellate court and the lower court in Civil Case No. 28-09 are hereby AFFIRMED subject to the modifications above stated. No costs. SO ORDERED.

Gutierrez, Jr., Feliciano, Bidin and Davide, Jr., JJ., concur.

Footnotes 1 TSN. January 14,1980. p. 54. 2 Exh. I. 3 TSN, January 14,1980, p. 14. 4 Decision in Civil Case No. 2224, Exh. K, pp. 1-2. 5 Presided by Judge Bienvenido Ejercito. 6 Decision in Criminal Case No. 3205, Exh, J, p. 11. 7 Civil Case No. 2224. 8 Decision in Civil Case No. 2859, pp. 12-15. 9 Penned by Judge Felisa de la Fuente-Samson. 10 Exhs. Nos. A to D. 11 Exh. 5-Juanito Santos. 12 Exh. 6-Joson. 13 Exh. 4-Santos . 14 Civil Case No. 2859. 15 Record on Appeal, p. 25. 16 Ibid., p. 54. 17 Presided by Judge Ignacio M. Capulong. The presiding judge of Branch IV had earlier inhibited himself from taking cognizance of the case. Hence, Civil Case No. 2859 was transferred to Branch V of the same court. 18 Pursuant to Section 9 (2) of Batas Pambansa Blg. 129, the Court of Appeals now exercises exclusive original jurisdiction over actions for annulment of judgments of the Regional Trial Courts (Islamic Da'Wah Council of the Philippines vs. Court of Appeals, G.R. No. 80892, September 29,1989,178 SCRA 178; Liwag vs. Court of Appeals, G.R. No. 86094, December 20,1989,180 SCRA 420).

19 Penned by Justice Eduardo P. Caguioa and concurred in by Justices Ramon G. Gaviola, Jr., Ma. Rosario Quetulio-Losa and Leonor Ines Luciano. 20 Rollo, p. 56. 21 Bailon-Casilao v. Court of Appeals, G.R. No. 78178, April 15, 1988,160 SCRA 738, 747. 22 Portugal v. Reantasa L-46078, November 24,1988,167 SCRA 712. 23 New Owners/Management of TML Garments, Inc. v. Zaragoza, G.R. No. 75866, February 23,1989,170 SCRA 563; Vda. de Medina v. Cruz, L-39272, May 4,1988,161 SCRA 36. 24 Ver v. Quetulio G.R. No. 77526, June 29,1988,163 SCRA 80. 25 Escovilla Jr. v. Court of Appeals, G.R. No. 84497, November 6, 1989, 179 SCRA 109; Ong v. Tating, G.R. No. 61042, April 15, 1987, 149 SCRA 265. 26 G.R. No. 72321, December Art. 160, Civil Code Cuenca v. Cuenca, December 8, 1988, 168 SCRA 335. 27 Art. 178, Ibid., Flores v. Escudero, 92 Phil. 786. 28 Ahern v. Julian, 39 Phil. 607. 29 Art, 153 (2), Civil Code. 30 Art. 161, Ibid.; Lacson v. Diaz, L-1 9346, May 31,1965,14 SCRA 183. 31 Art. 172, Ibid.; Manaois-Salonga v. Natividad, 107 Phil. 268. 32 Art. 115. 33 Arts. 196,167 & 178. 34 Art. 168. 35 Art. 174. 36 See: Segura v. Segura, L-29320. September 19, 1988,165 SCRA 368, 374.