Spouses Kelley vs. Planters Products, Inc.

A spouse who was not a party to the case in which the writ of execution issued is a stranger to that case and cannot be compelled to present her claim that the levied property is the family home before the court that issued the writ; she may vindicate that claim in a separate action before the Regional Trial Court of the place where the property is situated. The family home is generally exempt from execution provided it was duly constituted as such in accordance with the requisites and value limitations of the Family Code, and the question of constitution is one of fact to be established by evidence.

Respondent Planters Products, Inc. supplied agricultural chemical products to petitioner Auther G. Kelley, Jr. on consignment, while respondent Jorge A. Ragutana acted as the sheriff who conducted the execution sale. The Family Code supplies the governing statutory backdrop: it took effect on August 3, 1988 and dispensed with the need for judicial or extrajudicial constitution of a family home, providing that all family homes constructed after its effectivity are constituted as such by operation of law and that existing family residences as of that date are prospectively entitled to the benefits accorded to a family home. The case turns on the interaction between that regime and the procedural position of a spouse who was never impleaded in the collection suit that produced the writ of execution.

In 1989, Auther G. Kelley, Jr. acquired agricultural chemical products on consignment from Planters Products, Inc. (PPI). When he failed to pay despite demand, PPI filed an action for sum of money against him before the Regional Trial Court of Makati City, Branch 57, docketed as Civil Case No. 91-904. After trial on the merits, the RTC of Makati City decided in favor of PPI and issued a writ of execution.

Pursuant to that writ, respondent sheriff Jorge A. Ragutana sold on execution real property covered by TCT No. 15079 located in Naga City, and a certificate of sale was issued in favor of PPI as the highest bidder. Belatedly informed of the sale, Auther and his wife Doris A. Kelley filed a motion in the RTC of Makati City to dissolve or set aside the notice of levy, asserting that the subject property was their family home and therefore exempt from execution. The motion was denied for failure to comply with the three-day notice requirement.

Petitioners thereafter filed a complaint for declaration of nullity of the levy and sale of the alleged family home, with damages, against Ragutana and PPI before the Regional Trial Court of Naga City, Branch 19, docketed as Civil Case No. 2000-0188. The complaint was dismissed for lack of jurisdiction and lack of cause of action, and the Court of Appeals upheld that dismissal. No determination was reached on whether TCT No. 15079 was in fact a duly constituted family home, that question being the matter ultimately committed to the trial court on remand.

• Erroneous Dismissal of Civil Case No. 2000-0188: Petitioners contended that the Court of Appeals erred in upholding the dismissal of Civil Case No. 2000-0188 by the Regional Trial Court of Naga City.
• Doris Kelley as a Stranger to Civil Case No. 91-904: Petitioners claimed that Doris was a stranger to Civil Case No. 91-904 in the Regional Trial Court of Makati City who could not be forced to litigate therein.
• Family Home Exemption: Petitioners anchored their action in Civil Case No. 2000-0188 on their contention that TCT No. 15079 is the Kelley family home.

• Jurisdiction of the Regional Trial Court of Naga City: Whether the Court of Appeals erred in upholding the dismissal of Civil Case No. 2000-0188 for lack of jurisdiction, given that Doris A. Kelley was a stranger to Civil Case No. 91-904 in the Regional Trial Court of Makati City.
• Cause of Action Based on the Family Home Exemption: Whether the complaint for declaration of nullity of levy and sale states a cause of action on the claim that TCT No. 15079 is a duly constituted family home exempt from execution.

• Jurisdiction of the Regional Trial Court of Naga City: Yes. The dismissal for lack of jurisdiction cannot stand; the petition was granted to the extent of reinstating Civil Case No. 2000-0188, petitioners being strangers to the Makati case who could not be compelled to litigate their claim before the court that issued the writ.
• Cause of Action Based on the Family Home Exemption: The dismissal for lack of cause of action cannot stand. Whether the property is a duly constituted family home is a question of fact that the Regional Trial Court of Naga City must resolve on evidence, the exemption being available only upon proof of the requisites prescribed by the Family Code.

• Jurisdiction of the Regional Trial Court of Naga City: The Court applied Gomez vs. Sta. Ines, where the husband and children of the judgment debtor were not parties to the Pasig RTC case and became third-party claimants only after trial in the previous case had been terminated and the judgment therein had become final and executory. Neither indispensable nor necessary parties, they could not intervene in that case, and as strangers to the original case they could not be compelled to present their claim with the Pasig RTC which issued the writ of execution. In Gomez, the alleged family home had been sold on execution by the sheriff of the Pasig RTC, and the husband and children filed a complaint for annulment of the sale in Bayombong, Nueva Vizcaya, where the alleged family home was situated; the Court ruled that the Nueva Vizcaya RTC had jurisdiction over the complaint and that they could vindicate their alleged claim to the levied property there. Applying that ruling, Doris Kelley and her husband were strangers to Civil Case No. 91-904 and could not be forced to litigate their claim in the RTC of Makati City; the complaint in Naga City, where the property is located, was therefore improperly dismissed on jurisdictional grounds.

• Cause of Action Based on the Family Home Exemption: A family home is generally exempt from execution provided it was duly constituted as such. Proof is required that the alleged family home was constituted jointly by the husband and wife or by an unmarried head of a family; that it is the house where they and their family actually reside and the lot on which it is situated; that it forms part of the properties of the absolute community or the conjugal partnership, or of the exclusive properties of either spouse with the latter's consent, or of the property of the unmarried head of the family; and that its actual value does not exceed, at the time of its constitution, ₱300,000 in urban areas and ₱200,000 in rural areas. Under the Family Code, no judicial or extrajudicial constitution is required: all family homes constructed after its effectivity on August 3, 1988 are constituted as such by operation of law, and all existing family residences as of that date are considered family homes prospectively entitled to the benefits accorded to a family home. The exemption is effective from the time of the constitution of the family home as such and lasts as long as any of its beneficiaries actually resides therein. Debts for which the family home is made answerable must have been incurred after August 3, 1988; otherwise, the alleged family home must be shown to have been constituted either judicially or extrajudicially pursuant to the Civil Code. The exemption is not absolute. Article 155 of the Family Code excepts non-payment of taxes; debts incurred prior to the constitution of the family home; debts secured by a mortgage on the premises before or after such constitution; and debts due to laborers, mechanics, architects, builders, materialmen and others who have rendered service or furnished material for the construction of the building. Article 160 further allows a creditor whose claim is not among those mentioned in Article 155, and who has reasonable grounds to believe that the family home is actually worth more than the maximum amount fixed in Article 157, to apply to the court which rendered the judgment for an order directing the sale of the property under execution; the court shall so order if it finds that the actual value of the family home exceeds the maximum amount allowed by law as of the time of its constitution, and the same rule and procedure applies where the increased actual value results from subsequent voluntary improvements introduced by the person or persons constituting the family home, by the owner or owners of the property, or by any of the beneficiaries. Because these matters are factual and require evidence, the Court limited its grant to allowing petitioners to adduce proof in the trial court that TCT No. 15079 is in fact their family home as constituted in accordance with the requirements of law.

• Family home exemption from execution — A family home is generally exempt from execution provided it was duly constituted as such, and the exemption is effective from the time of its constitution and lasts as long as any of its beneficiariesactually resides therein. The exemption is not absolute: Article 155 of the Family Code excepts non-payment of taxes, debts incurred prior to the constitution of the family home, debts secured by a mortgage on the premises before or after such constitution, and debts due to laborers, mechanics, architects, builders, materialmen and others who rendered service or furnished material for the construction of the building. In this case, the Court held that the claim of exemption must be established by evidence and remanded the case for that purpose rather than resolving the claim on the pleadings.
• Requisites of a duly constituted family home — There must be proof that the alleged family home was constituted jointly by the husband and wife or by an unmarried head of a family; that it is the house where they and their family actually reside and the lot on which it is situated; that it is part of the properties of the absolute community or the conjugal partnership, or of the exclusive properties of either spouse with the latter's consent, or on the property of the unmarried head of the family; and that its actual value does not exceed, at the time of its constitution, ₱300,000 in urban areas and ₱200,000 in rural areas. These requisites were laid down as the standard against which the RTC of Naga City must test petitioners' claim on remand.
• Automatic constitution of the family home under the Family Code — Under the Family Code, there is no need to constitute the family home judicially or extrajudicially. All family homes constructed after the effectivity of the Family Code on August 3, 1988 are constituted as such by operation of law, and all existing family residences as of August 3, 1988 are considered family homes and are prospectively entitled to the benefits accorded to a family home under the Family Code. Where the debt was incurred prior to August 3, 1988, however, the alleged family home must be shown to have been constituted either judicially or extrajudicially pursuant to the Civil Code.
• Third-party claimant as a stranger to the case — A person who was not a party to the case in which the writ of execution issued, and who became a third-party claimant only after trial in that case had been terminated and the judgment therein had become final and executory, is neither an indispensable nor a necessary party and cannot intervene in that case. As a stranger to the original case, such claimant cannot be compelled to present the claim with the court which issued the writ of execution, and may instead file a separate action to vindicate the claim to the levied property before the Regional Trial Court of the place where the property is situated.
• Article 160 remedy of the creditor — A creditor whose claim is not among those mentioned in Article 155, and who has reasonable grounds to believe that the family home is actually worth more than the maximum amount fixed in Article 157, may apply to the court which rendered the judgment for an order directing the sale of the property under execution. The court shall so order if it finds that the actual value of the family home exceeds the maximum amount allowed by law as of the time of its constitution; the same rule and procedure applies where the increased actual value results from subsequent voluntary improvements introduced by the person or persons constituting the family home, by the owner or owners of the property, or by any of the beneficiaries.

• "[The husband and children] were not parties to the Pasig RTC case and are third-party claimants who became such only after trial in the previous case had been terminated and the judgment therein had become final and executory. Neither were they indispensable nor necessary parties in the Pasig RTC case, and they could not therefore intervene in said case. As strangers to the original case, respondents cannot be compelled to present their claim with the Pasig RTC which issued the writ of execution.xxx" — This passage, quoted from Gomez vs. Sta. Ines, supplies the ratio decidendi on jurisdiction: it establishes that a non-party claiming the levied property as the family home may litigate that claim in a separate action rather than before the court that issued the writ.
• "Under the Family Code, there is no need to constitute the family home judicially or extrajudicially. All family homes constructed after the effectivity of the Family Code (August 3, 1988) are constituted as such by operation of law. All existing family residences as of August 3, 1988 are considered family homes and are prospectively entitled to the benefits accorded to a family home under the Family Code." — This is the Court's canonical formulation of the automatic-constitution rule, which governs the threshold question of whether TCT No. 15079 may be claimed as a family home notwithstanding the absence of any recorded constitution.
• "Article 155. The family home shall be exempt from execution, forced sale or attachment except: (1) For non-payment of taxes; (2) For debts incurred prior to the constitution of the family home; (3) For debts secured by a mortgage on the premises before or after such constitution; and (4) For debts due to laborers, mechanics, architects, builders, materialmen and others who have rendered service or furnished material for the construction of the building." — The Court reproduced this provision to make clear that the family home exemption is not absolute, and that the trial court on remand must determine whether any of the enumerated exceptions applies to PPI's claim.
• "WHEREFORE, Civil Case No. 2000-0188 captioned Spouses Auther G. Kelley, Jr. and Doris A. Kelley v. Planters Products, Inc. and Jorge A. Ragutana is hereby REINSTATED and this case is hereby REMANDED to the Regional Trial Court of Naga City, Branch 19 for determination whether or not the property covered by TCT No. 15079 is a duly constituted family home and therefore exempt from execution." — The dispositive portion defines the precise scope of the relief granted: reinstatement of the complaint and remand for factual determination, not a declaration that the property is exempt.

• Gomez vs. Sta. Ines, G.R. No. 132537, 14 October 2005, 473 SCRA 25, 38 — Controlling precedent, expressly followed. The Court adopted its holding that a spouse and children who were not parties to the case in which the writ of execution issued are third-party claimants and strangers to the original case, cannot be compelled to present their claim before the court that issued the writ, and may file a complaint for annulment of the execution sale in the RTC of the place where the alleged family home is situated. The Court noted in a footnote that in Gomez the complaint was nonetheless dismissed because evidence showed that the alleged family home was not constituted as such before the debt was incurred.
• Manacop vs. CA, 342 Phil. 735, 742 (1997) — Cited in support of the rule that all family homes constructed after the effectivity of the Family Code are constituted as such by operation of law, in reference to Article 162 of the Family Code governing existing family residences.
• Modequillo vs. Breva, G.R. No. 86355, 31 May 1990, 185 SCRA 766, 771 — Cited for the rule that the exemption of the family home is effective from the time of its constitution as such and lasts as long as any of its beneficiaries actually resides therein.

• Article 152, Family Code — Defines the family home and supplies the requisites of constitution: it must be constituted jointly by the husband and wife or by an unmarried head of a family, and must be the house where they and their family actually reside and the lot on which it is situated. The Court invoked this provision in framing the factual showing petitioners must make on remand.
• Article 155, Family Code — Enumerates the exceptions to the exemption of the family home from execution, forced sale or attachment: non-payment of taxes; debts incurred prior to the constitution of the family home; debts secured by a mortgage on the premises before or after such constitution; and debts due to laborers, mechanics, architects, builders, materialmen and others who rendered service or furnished material for the construction of the building. The Court reproduced the provision to show that the exemption claimed by petitioners is not absolute.
• Article 156, Family Code — Provides that the family home must be part of the properties of the absolute community or the conjugal partnership, or of the exclusive properties of either spouse with the latter's consent, or on the property of the unmarried head of the family. Cited as one of the requisites of a duly constituted family home.
• Article 157, Family Code — Fixes the maximum actual value of the family home at ₱300,000 in urban areas and ₱200,000 in rural areas at the time of its constitution. Cited as the valuation ceiling against which the property must be measured.
• Article 160, Family Code — Authorizes a creditor whose claim is not among those mentioned in Article 155, and who has reasonable grounds to believe that the family home is actually worth more than the maximum amount fixed in Article 157, to apply to the court which rendered the judgment for an order directing the sale of the property under execution; the court shall so order upon a finding that the actual value exceeds the maximum allowed by law as of the time of constitution, and the same rule applies where the increased value results from subsequent voluntary improvements. Cited to describe the remedy available to a creditor such as PPI.
• Article 162, Family Code — Provides that the provisions governing the family home shall also govern existing family residences insofar as said provisions are applicable. Cited through Manacop vs. CA to support the automatic constitution of family homes under the Family Code.
• Rule 39, Section 13(a), Rules of Court — Cited for the general rule that the family home is exempt from execution.
• Section 13, Article VIII, 1987 Constitution — Cited in the Chief Justice's certification that the conclusions in the resolution had been reached in consultation before the case was assigned to the writer of the opinion of the Court's Division.

• Reynato S. Puno, Chief Justice (Chairperson)
• Antonio T. Carpio, Associate Justice
• Adolfo S. Azcuna, Associate Justice
• Teresita J. Leonardo-de Castro, Associate Justice