Arturo Flores vs Spouses Enrico and Edna Lindo

written by Howard

G.R. No. 183984 – 664 Phil. 210 – 648 SCRA 772 – Civil Law – Persons and Family Relations – Ownership, Administration, Enjoyment, and Disposition of Conjugal Property
Credit Transactions – Encumbrance on Conjugal Property; Mortgage of Real Property – Mutually Exclusive Remedies

In October 1995, Edna Lindo obtained a loan amounting to P400k from Arturo Flores. To secure the loan, Edna executed a deed of real estate mortgage on a property which is however part of the conjugal property (it was both in her name and her husband’s name Enrico Lindo). Only Edna signed the deed. But in November 1995, Enrico executed a special power of attorney authorizing Edna to mortgage the property.

Edna was not able to pay the loan despite repeated demands from Flores. Flores then filed an action to foreclose the mortgage.

The trial court (RTC Manila, Branch 33) ruled that the action for foreclosure cannot prosper because it appears that there was no valid mortgage between Edna and Flores. Edna mortgaged the property without the consent of her husband and the special power of attorney executed by Enrico a month after the execution of the deed did not cure the defect. The trial court however ruled that Flores can instead file a personal action (collection suit) against Edna.

Eventually, Flores filed a suit for collection of sum of money against Edna and Enrico (raffled to RTC Manila, Branch 42). The Lindo spouses filed a motion to dismiss on the ground of res judicata. The trial court denied the motion. The spouses then filed a petition for certiorari with the Court of Appeals.

The CA ruled in favor of the spouses. It ruled that when Flores filed an action for the foreclosure of the mortgage, he had abandoned the remedy of filing a personal action to collect the indebtedness. These remedies are mutually exclusive.

ISSUE: Whether or not the Court of Appeals is correct.

HELD: No. It is true that as a rule, a mortgagee-creditor has a single cause of action against a mortgagor-debtor, that is, to recover the debt; and that he has the option of either filing a personal action for collection of sum of money or instituting a real action to foreclose on the mortgage security. These remedies are indeed mutually exclusive. However, in this case, the Supreme Court made a pro hac vice decision (applicable only to this case and as an exception to the rule) which allows Flores to recover via a personal action despite his prior filing of a real action to recover the indebtedness. This procedural rule cannot be outweighed by the rule on unjust enrichment. Here, Edna admitted her liability of indebtedness.

Further, the ruling of the Manila RTC Branch 33 is erroneous when it ruled that the mortgage between Edna and Flores is invalid. It is true that a disposition (or in this case a mortgage, which is an act of strict dominion) of a conjugal property by one spouse without the consent of the other spouse is VOID. However, under the second paragraph of Article 124 of the Family Code:

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 disposition or encumbrance without 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)

Thus it is clear, the mortgage was void at the outset but it was ratified when a month later, Enrico executed a special power of attorney authorizing Edna to mortgage the subject property. (So I guess this is an exception to the rule that “no void act can be ratified.”)

Read full text.