G.R. No. L-25775 April 26, 1968
TOMASITA BUCOY, plaintiff-appellant, vs. REYNALDO PAULINO, ET AL., defendants, REYNALDO PAULINO and EUFEMIA BERNARDO CRAMER, defendants-appellants, LEOPOLDO PAULINO, intervenor-appellant, PHILIPPINE COMMERCIAL and INDUSTRIAL BANK, intervenor-appellee, TINIO LUMBER CO., INC., intervenor-appellee.

FACTS

Plaintiff Tomasita Bucoy and defendant Reynaldo Paulino were married in 1956. With their savings from business, they acquired seven parcels of land in Angeles, Pampanga on installment: six lots (Lots 11-16) in 1960 and one lot (Lot 10) in 1962. They constructed “Pauline’s Motel” on the six lots, which opened in 1962. Funds were insufficient, so they incurred debts from Tinio Lumber Co., Inc. and from Reynaldo’s father, intervenor Leopoldo Paulino. Reynaldo also borrowed from defendant Eufemia Bernardo, with whom he had an intimate extramarital relationship since 1957, despite her knowledge of his marriage.
The Torrens title to the six lots was issued in Reynaldo’s name on August 23, 1962. With Eufemia’s help, Reynaldo obtained real estate mortgage loans from Philippine Commercial and Industrial Bank (PCIB) using the lots as collateral: P200,000 on December 12, 1962; P50,000 on January 2, 1963; and a third mortgage of P50,000 on Lot 10 on May 3, 1963. The proceeds of the third loan were credited to Eufemia to liquidate Reynaldo’s P105,000 debt to her.
In February 1963, Tomasita discovered Eufemia staying in the motel with Reynaldo’s consent and left for Cavite. Faced with financial troubles, Reynaldo decided to sell the properties. On June 18, 1963, he executed two deeds of absolute sale in favor of Eufemia covering all seven lots for a total consideration of P495,000, which included her assumption of existing obligations. Eufemia issued two checks as partial payment, but they were never countersigned or cashed.
Subsequently, on July 1, 1963, Eufemia executed a real estate mortgage on the lots in favor of PCIB for P195,000. Due to PCIB’s concerns about the assumption clause, a new deed of sale with assumption of mortgages was executed on July 5, 1963. This deed and the July 1 mortgage were registered on July 8, 1963, and new titles were issued to Eufemia. On that same day, Eufemia married Richard Cramer.
Tomasita Bucoy filed a complaint on September 19, 1963, seeking annulment of the July 5, 1963 deed and cancellation of Eufemia’s titles under Article 173 of the Civil Code. Reynaldo filed a cross-claim against Eufemia for her refusal to pay the consideration, seeking rescission. Intervenors included Leopoldo Paulino (claiming ownership interests), Tinio Lumber Co., Inc. (a judgment creditor), and PCIB (a mortgagee).
The lower court dismissed Tomasita’s complaint, granted Reynaldo’s cross-claim for P182,000, and ordered Eufemia to pay Tinio Lumber Co., Inc. P13,568. It further ordered rescission of the July 5, 1963 sale if Eufemia failed to pay within 30 days, without prejudice to PCIB’s mortgages.

ISSUE

The primary issue is whether the sale of the conjugal properties by the husband alone, without the wife’s consent, is valid or annullable under Article 173 of the Civil Code.

RULING

The Supreme Court reversed the lower court’s dismissal of Tomasita’s complaint. The sale executed by Reynaldo Paulino alone of the conjugal properties (the seven lots and the motel) is annullable under Article 173 of the Civil Code. The wife’s consent is indispensable for the alienation or encumbrance of conjugal real property. The registration of the properties under the husband’s name alone did not relieve them from rights incident to the conjugal partnership. Eufemia Bernardo was not a purchaser in good faith as she had full knowledge of the conjugal nature of the properties and of Reynaldo’s marital status. The Court also found the transaction between Reynaldo and Eufemia to be fraudulent, intended to defraud the conjugal partnership and creditors. The deed of sale dated July 5, 1963, was declared null and void. The titles issued in Eufemia’s name were ordered cancelled, and the original titles in Reynaldo’s name were ordered reinstated, subject to the mortgages in favor of PCIB. PCIB’s mortgages were declared valid as they were constituted with the wife’s implied consent, as she benefited from the loan proceeds used for the conjugal business. The case was remanded to the lower court for determination of the exact amount due to PCIB and for further proceedings regarding the cross-claim and other claims.