G-Tractors, Inc. vs. Court of Appeals

A debt contracted by the husband in the legitimate pursuit of his business, which normally would benefit the conjugal partnership, is a conjugal debt under Article 161(1) of the New Civil Code, even if no actual profit accrued, and the conjugal partnership property may be levied and sold to satisfy a judgment against the husband alone. The wife need not be joined as party-defendant to bind the conjugal partnership properties.

Luis R. Narciso was a businessman engaged as a producer and exporter of Philippine mahogany logs, operating a logging concession at del Gallego, Camarines Sur, and was married to Josefina Salak Narciso. G-Tractors, Inc. was a domestic corporation engaged primarily in leasing heavy equipment such as tractors and bulldozers. The dispute required the SC to apply Article 161(1) of the New Civil Code, which makes the conjugal partnership liable for debts and obligations contracted by the husband for the benefit of the conjugal partnership.

Luis R. Narciso was a businessman engaged as a producer and exporter of Philippine mahogany logs, operating a logging concession at del Gallego, Camarines Sur, and was married to Josefina Salak Narciso. G-Tractors, Inc. was a domestic corporation engaged primarily in leasing heavy equipment such as tractors and bulldozers. On February 26, 1973, Luis entered into a Contract of Hire of Heavy Equipment with G-Tractors, under which G-Tractors leased tractors to him for constructing switchroads and hauling felled trees at the jobsite of his logging concession at del Gallego, Camarines Sur, with rental payment provided for in the contract.

Luis defaulted in his rental payments. On August 15, 1974, G-Tractors instituted an action against him before the CFI of Rizal, Quezon City, Branch IX, docketed as Civil Case No. Q-19173, to collect P155,410.25 with legal interest, representing unpaid rentals for the leased tractors, plus 25% thereof as liquidated damages, P30,000.00 as attorney’s fees, and costs. Luis was declared in default, but on his representations G-Tractors accepted his offer for a compromise agreement; the agreement was signed, and judgment thereon was rendered on October 10, 1974. The compromise agreement stipulated payment by Luis of G-Tractors’ total claim on an installment plan. Luis failed to comply, and on November 29, 1974, G-Tractors filed a motion for execution. Luis opposed it and asked for suspension of the writ on the ground that he allegedly had a pending loan with a banking institution; the CFI found the allegation without legal basis, denied the request, and ordered execution. The writ of execution was issued on February 7, 1975.

On February 12, 1975, the Sheriff of Quezon City levied on all rights, interest, title, and participation that Luis R. Narciso may have over a parcel of residential land covered by TCT No. 120923 of the Registry of Deeds of Quezon City, allegedly the conjugal property of the Narciso spouses. On February 19, 1975, the City Sheriff of Quezon City also levied on certain personal properties of the private respondents at their residence at 208 Retiro Street, Quezon City. On February 22, 1975, the Sheriff notified the general public, in his Notice of Sheriff’s Sale, that on March 25, 1975 he would sell at public auction to the highest bidder for cash the rights, interest, and participation of Luis R. Narciso in the real estate property covered by TCT No. 120923, together with all improvements, to satisfy the writ of execution. An auction sale of the personal properties was held on March 1, 1975, and G-Tractors, as highest bidder, was awarded all the personal properties listed under the levy for P4,090.00. On March 5, 1975, Luis offered to redeem and/or buy back the personal properties for the same amount of P4,090.00, G-Tractors agreed, and a Deed of Reconveyance was executed. On March 25, 1975, a Certificate of Sale was issued stating that by virtue of the writ of execution in Civil Case No. Q-19173, the ex-oficio Sheriff of Quezon City sold at public auction to G-Tractors, as highest bidder, for P180,000.00 the real estate property covered by TCT No. 120923, levied upon on February 12, 1975, together with all improvements. At that time, TCT No. 120923 was mortgaged to Mercantile Financing Corporation to guarantee an outstanding unpaid account of Luis and his wife in the amount of P74,327.52.

Soon after the issuance of the Certificate of Sale, Luis and G-Tractors executed a contract of lease over the property, under which Luis obligated himself to pay P1,000.00 monthly, and he paid P12,000.00 as rental for one year. On March 31, 1976, Josefina and Luis filed a complaint in the CFI of Quezon City for declaration of nullity of the levy on execution and auction sale of the conjugal property, with damages and injunction, docketed as Civil Case No. Q-21267. They alleged that whatever transpired in Civil Case No. Q-19173 could bind only Luis and could not affect Josefina, who was not a party; that the Sheriff’s sale stated that only the husband’s property may be sold to satisfy the money judgment; that the conjugal property could not be made liable because the subject matter of Civil Case No. Q-19173 was never used for the benefit of the conjugal partnership or the family; and that the levy of the wife’s share in the conjugal property was null and void. On April 5, 1976, the President of G-Tractors executed an affidavit of consolidation of ownership, and on April 6, 1976, the sheriff issued a Sheriff’s Final Deed of Sale. On April 12, 1976, G-Tractors filed in Civil Case No. Q-19173 a Motion for Entry and Issuance of New Torrens Certificate of Title asking the CFI to direct the Register of Deeds of Quezon City to cancel TCT No. 120923 and allow issuance of a new title in G-Tractors’ name. On April 22, 1976, Luis filed an opposition, calling attention to Civil Case No. Q-21267 and pointing out that the final deed and affidavit of consolidation would have no effect if the levy and auction sale were nullified. Civil Case No. Q-21267 was subsequently transferred to Branch IX of the same CFI which tried Civil Case No. Q-19173.

On April 26, 1976, Judge Sarmiento issued an Order cancelling TCT No. 120923 and directing the Register of Deeds of Quezon City to issue a new title in G-Tractors’ name. Luis moved to reconsider, and the Narciso spouses filed a motion for preliminary injunction in Civil Case No. Q-21267. Immediately after receiving a copy of the April 26, 1976 Order, G-Tractors caused the cancellation of TCT No. 120923 and the issuance of TCT No. 218552 in its name. On May 21, 1976, the CFI enjoined G-Tractors from transferring, conveying, or alienating the property covered by TCT No. 218552 until the motion for reconsideration of the April 26, 1976 Order was resolved. On July 12, 1976, the CFI issued two orders, one denying the motion for reconsideration and the other denying the motion for preliminary injunction; a motion to reconsider the order denying the preliminary injunction was likewise denied. The trial court found that Luis was a producer and exporter of Philippine mahogany logs and that the bulldozers leased to him were used for the construction of switchroads for logging, so the obligations were contracted in connection with his legitimate business as a producer and exporter of mahogany logs and certainly benefited the conjugal partnership.

• Scope of Levy: Petitioner argued that the CA erred in holding that a levy on a residential land does not include the residential house or any improvement erected and existing thereon.
• Conjugal Liability: Petitioner argued that the CA erred in holding that the judgment debt of Luis R. Narciso in Civil Case No. Q-19173 was not the conjugal debt of the Narciso spouses.
• Laches: Petitioner argued that the CA erred in not holding that there was laches and delay in the filing by the Narciso spouses of CA-G.R. No. SP-05920.
• Propriety of Certiorari: Petitioner argued that the CA erred in granting the writs applied for by the Narciso spouses because the petition itself was not the proper remedy.

• Wife’s Non-Party Status: Respondent spouses argued that whatever transpired in Civil Case No. Q-19173 could bind only Luis R. Narciso and could not affect Josefina Salak Narciso, who was not a party to that case.
• Scope of Sheriff’s Sale: Respondent spouses argued that the nature of the Sheriff’s sale clearly stated that only the property of the husband may be sold to satisfy the money judgment against him.
• Conjugal Liability: Respondent spouses argued that the conjugal property could not be made liable for the judgment in Civil Case No. Q-19173 because the subject matter of that case was never used for the benefit of the conjugal partnership or of the family.
• Levy of Wife’s Share: Respondent spouses argued that the levy of the wife’s share in the conjugal property to satisfy the money judgment against her husband was null and void.

• Conjugal Liability: Whether the judgment debt of Luis R. Narciso for unpaid rentals of tractors leased for his logging business is a conjugal debt for which the conjugal partnership property can be held answerable.
• Validity of Levy and Auction Sale: Whether the sale at public auction of TCT No. 120923 belonging to the conjugal partnership of the Narciso spouses, to satisfy the judgment debt of Luis R. Narciso, was valid and legal.
• Joinder of the Wife: Whether the wife must be joined as party-defendant in a suit against the husband to enforce an obligation chargeable against the conjugal partnership in order to bind conjugal partnership properties.

• Conjugal Liability: Yes. The unpaid rentals were contracted by Luis in the legitimate pursuit of his logging business, a commercial enterprise for gain that he had the right to embark the conjugal partnership; under Article 161(1) of the New Civil Code, the conjugal partnership must answer even if no actual profit accrued.
• Validity of Levy and Auction Sale: Yes. Since the judgment debt was conjugal, the sale at public auction of TCT No. 120923 belonging to the conjugal partnership to satisfy that debt was valid and legal.
• Joinder of the Wife: No. The wife need not be joined as party-defendant in a suit against the husband to enforce an obligation chargeable against the conjugal partnership; the husband is the administrator of the conjugal partnership.

• Conjugal Liability: Article 161(1) of the New Civil Code provides that the conjugal partnership shall be liable for all debts and obligations contracted by the husband for the benefit of the conjugal partnership. Luis was engaged in business as a producer and exporter of Philippine mahogany logs, operated a logging concession at del Gallego, Camarines Sur, and held office in the conjugal dwelling at 208 Retiro Street, Talayan Village, Quezon City. His account with G-Tractors represented rentals for tractors leased to construct switchroads and haul felled trees at the jobsite of the logging concession, which was not his exclusive property but that of his family. The SC therefore held that the account was brought about to enhance the productivity of the logging business, a commercial enterprise for gain which he had the right to embark the conjugal partnership. The trial court found this, and the SC found no cogent reason to deviate. The SC cited Luzon Surety Co., Inc. vs. de Garcia for the rule that the words “all debts and obligations contracted by the husband for the benefit of the conjugal partnership” do not require actual profit or benefit to accrue to the conjugal partnership; it suffices that the transaction is one that normally would produce such benefit. The SC also cited Cobb-Perez vs. Lantin, citing Abella de Diaz vs. Erlanger and Galinger and Javier vs. Osmena, for the rule that 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 his exclusive and private debts. The husband is the administrator of the conjugal partnership and, as long as he believes he is doing right to his family, he should not be made to suffer and answer alone; if he incurs 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 losses, unless he deliberately acted to the prejudice of his family. Such was the nature of Luis’s judgment debt, so the conjugal partnership of gains had to answer for it.
• Validity of Levy and Auction Sale: Because the judgment debt was conjugal, the SC held that the sale at public auction by the Sheriff of Quezon City of TCT No. 120923 belonging to the conjugal partnership of gains of the Narcisos, in order to satisfy Luis’s judgment debt with G-Tractors, was validly and legally made in accordance with law and not legally assailable, as held in Vda. de Sta. Romana vs. Philippine Commercial and Industrial Bank.
• Joinder of the Wife: The SC quoted Vda. de Sta. Romana vs. Philippine Commercial and Industrial Bank: the non-inclusion of the wife as party-defendant is immaterial; there is no rule or law requiring that in a suit against the husband to enforce an obligation, either pertaining to him alone or one chargeable against the conjugal partnership, the defendant husband must be joined by his wife. The contrary rule is prescribed in Section 4, Rule 3, Rules of Court and Article 113, Civil Code, but not the other way around, in recognition of the husband’s legal status as administrator of the conjugal partnership under Article 112, Civil Code. Thus, there was no need to include Josefina as a party in Civil Case No. Q-19173 to bind the conjugal partnership properties.

• Conjugal Partnership Liability for Husband’s Business Debts — Under Article 161(1) of the New Civil Code, the conjugal partnership is liable for all debts and obligations contracted by the husband for the benefit of the conjugal partnership. Actual profit or benefit need not accrue; it suffices that the transaction is one that normally would produce such benefit. The SC applied this to unpaid rentals for tractors used in Luis’s logging business, a commercial enterprise for gain he had the right to embark the conjugal partnership, and held the debt conjugal.
• Debts in the Exercise of Husband’s Industry or Profession — 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 his exclusive and private debts; the conjugal partnership must bear the indebtedness and losses in a legitimate business unless the husband deliberately acted to prejudice the family. The SC applied this because Luis incurred the rentals in his legitimate logging business.
• Husband as Administrator; Wife Need Not Be Joined — In a suit against the husband to enforce an obligation chargeable against the conjugal partnership, the wife need not be joined as party-defendant to bind conjugal partnership properties; the husband is the administrator of the conjugal partnership. The SC relied on this to uphold the levy and sale despite Josefina not being a party to Civil Case No. Q-19173.

• “There is no doubt then that his account with the petitioner was brought about in order to enhance the productivity of said logging business, a commercial enterprise for gain which he had the right to embark the conjugal partnership.” — The SC characterizes the unpaid rentals as a conjugal debt because they arose from Luis’s logging business.
• “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.” — The SC adopts the liberal interpretation of Article 161(1), rejecting the need for actual profit to the conjugal partnership.
• “The non-inclusion of the herein petitioner as a party-defendant in Civil Case No. 7678 is immaterial. There is no rule or law requiring that in a suit against the husband to enforce an obligation, either pertaining to him alone or one chargeable against the conjugal partnership, the defendant husband must be joined by his wife.” — The SC quotes Vda. de Sta. Romana vs. Philippine Commercial and Industrial Bank to reject the wife’s non-party argument and uphold the binding effect on conjugal partnership properties.
• “Necessarily the sale at public auction by the Sheriff of Quezon City of TCT No. 120923 belonging to the conjugal partnership of gains of the private respondents Narcisos in order to satisfy the judgment debt of the private respondent Luis R. Narciso with petitioner, was validly and legally made in accordance with law and not legally assailable as held in the analogous case of Vda. de Sta. Romana vs. Philippine Commercial and Industrial Bank” — The SC upholds the auction sale after finding the debt conjugal.

• Luzon Surety Co., Inc. vs. de Garcia, 30 SCRA 118 — Relied on for the rule that Article 161(1) does not require actual profit or benefit to accrue to the conjugal partnership; it suffices that the transaction normally would produce such benefit.
• Cobb-Perez vs. Lantin, 23 SCRA 637 — Relied on for the rule that debts contracted by the husband in the exercise of the industry or profession by which he contributes to the support of the family are not his exclusive and private debts.
• Abella de Diaz vs. Erlanger and Galinger, 56 Phil. 336 — Cited in Cobb-Perez vs. Lantin as supporting the rule on conjugal liability for debts incurred in the husband’s business.
• Javier vs. Osmena, 34 Phil. 336 — Cited in Cobb-Perez vs. Lantin as supporting the same rule.
• Tintigan vs. Tintigan, Sr., 100 SCRA 619 — Cited for the principle that the husband is the administrator of the conjugal partnership and should not be made to suffer and answer alone if he believes he is doing right to his family.
• Gelano vs. Hon. CA, 103 SCRA 90 — Cited for the consequence that the conjugal partnership of gains must answer for the judgment debt.
• Vda. de Sta. Romana vs. Philippine Commercial and Industrial Bank, 118 SCRA 330-339 — Relied on as analogous precedent upholding the levy and sale of conjugal property for an obligation contracted by the husband for the benefit of the conjugal partnership, and holding the wife’s non-inclusion as party-defendant immaterial.

• Article 161(1), New Civil Code — Makes the conjugal partnership liable for all debts and obligations contracted by the husband for the benefit of the conjugal partnership. The SC applied it to hold Luis’s unpaid rentals for tractors used in his logging business a conjugal debt.
• Article 112, Civil Code — Recognizes the husband as administrator of the conjugal partnership. The SC quoted it in Vda. de Sta. Romana to explain why the wife need not be joined in a suit against the husband to bind conjugal partnership properties.
• Article 113, Civil Code — Mentioned in the quoted Vda. de Sta. Romana discussion as prescribing the contrary rule on joinder, but not requiring the wife’s joinder when the suit is against the husband to enforce an obligation chargeable against the conjugal partnership.
• Section 4, Rule 3, Rules of Court — Mentioned in the same quoted discussion as prescribing the contrary rule on joinder, but not requiring the wife to be joined in a suit against the husband to enforce an obligation chargeable against the conjugal partnership.