The Supreme Court has affirmed that a real estate mortgage (REM) on conjugal property is void without the written consent of both spouses. This ruling underscores the importance of protecting the rights of each spouse in managing and disposing of conjugal assets, ensuring that both parties are fully aware of and agree to any encumbrances on their shared property. The decision emphasizes that the absence of spousal consent renders the mortgage invalid, safeguarding the family’s property rights and preventing unilateral financial decisions by one spouse from jeopardizing the entire conjugal estate. Although the two-bidder rule is not applicable during the public auction of mortgaged assets foreclosed pursuant to Act No. 3135, the necessity of spousal consent takes precedence in these cases.

The Conjugal Conundrum: When a Mortgage Lacks a Wife’s Consent

This case revolves around a real estate mortgage (REM) executed by Edgardo Del Rosario without the written consent of his wife, Rosie Gonzales Del Rosario. In 1999, Edgardo mortgaged six parcels of land to Boston Equity Resources, Inc., representing himself as single. Subsequently, he obtained additional loans, amending the original REM. When Edgardo failed to meet his obligations, Boston Equity initiated foreclosure proceedings, leading to a public auction where they were the sole bidder. Edgardo, along with Rosie and their children, filed a complaint seeking to nullify the REM, its amendment, and the subsequent foreclosure sale, arguing that Rosie’s lack of consent rendered the mortgage void. The Regional Trial Court (RTC) initially dismissed the complaint, but the Court of Appeals (CA) reversed this decision, declaring the REM and its amendment null and void due to the absence of Rosie’s written consent.

The Supreme Court addressed several key issues. First, it clarified that the **two-bidder rule** is not applicable to extrajudicial foreclosures under Act No. 3135, which governs the foreclosure of real estate mortgages. This means that the foreclosure sale is not invalidated simply because only one bidder (in this case, Boston Equity) participated. The Court emphasized that Act No. 3135 does not mandate a minimum number of bidders, distinguishing it from regulations applicable to government infrastructure projects where public interest necessitates stricter bidding requirements. The Court underscored that prior publication of the extrajudicial foreclosure sale in a newspaper of general circulation operates as constructive notice to the whole world.

Second, the Court addressed the publication of the notice of the foreclosure sale. The respondents argued that the publication in Maharlika Pilipinas was ineffectual because it was not a newspaper of general circulation. However, the Supreme Court found that the respondents failed to provide sufficient evidence to support this claim. They noted that while a previous case held that Maharlika Pilipinas was not a newspaper of general circulation in Mandaluyong City, there was no evidence to suggest that it was not a newspaper of general circulation in Quezon City, where the auction took place. Thus, the publication was presumed compliant with the requirements of Act No. 3135.

Third, the Court examined whether Edgardo was entitled to a “proper accounting” of his outstanding obligation before being considered in default. The CA had concluded that Boston Equity acted hastily in declaring Edgardo in default, given the discrepancy in the amounts demanded. However, the Supreme Court disagreed, citing that **_mora solvendi_** (debtor’s default) requires three conditions: the obligation is demandable and liquidated, the debtor delays performance, and the creditor judicially or extrajudicially requires performance. A debt is considered liquidated when the amount is known or can be determined by inspecting the terms and conditions of the relevant promissory notes and related documentation. Therefore, the failure to provide a detailed statement of account did not render Edgardo’s obligation unliquidated, as the terms were readily ascertainable from the REM and its amendment.

Despite these points, the Supreme Court ultimately upheld the CA’s decision on the critical issue of spousal consent. The petitioners argued that Rosie’s signature as a witness on the REM and its amendment indicated her consent, and that the loan’s proceeds benefited the family, thus making the conjugal properties liable. However, the Court rejected this argument because it was raised for the first time on appeal. Issues not raised before the trial court cannot be raised for the first time on appeal, as doing so would violate the adverse party’s right to due process. The Court clarified that although there are exceptions allowing a change of legal theory on appeal, this case did not meet the criteria, as the new theory would require the presentation of additional evidence by the respondents.

The Supreme Court reinforced that, according to Article 124 of the Family Code, the disposition or encumbrance of conjugal properties requires the written consent of both spouses. In the absence of such consent, the disposition or encumbrance is void. The Court emphasized that the invalidity of the REM applied to the entire mortgage, even the portion corresponding to Edgardo’s share in the conjugal estate. This is because the mortgage is an accessory agreement, and its validity is contingent upon compliance with the legal requirements for encumbering conjugal property. However, the nullification of the REM does not invalidate the principal contract of loan. Boston Equity can still pursue recovery of the loan from the conjugal partnership through a proper legal action. The mortgage deed remains as evidence of the debtor’s personal obligation, enforceable through an ordinary action.

FAQs

What was the key issue in this case?	The key issue was whether a real estate mortgage (REM) on conjugal property is valid without the written consent of both spouses. The Supreme Court ruled that it is not, emphasizing the need for both spouses to agree to encumber conjugal assets.
Is the two-bidder rule applicable in extrajudicial foreclosures?	No, the Supreme Court clarified that the two-bidder rule does not apply to extrajudicial foreclosures of private properties under Act No. 3135. The foreclosure sale is not automatically invalidated if only one bidder participates.
What happens if one spouse mortgages conjugal property without the other’s consent?	The mortgage is considered void, meaning it has no legal effect. This protects the non-consenting spouse’s interest in the conjugal property.
Does the lack of spousal consent invalidate the underlying loan agreement?	No, the Supreme Court clarified that while the mortgage is void, the underlying loan agreement remains valid. The creditor can still pursue other legal means to recover the debt.
Can a party raise a new legal argument on appeal?	Generally, no. Issues and arguments must be raised and addressed in the trial court. Raising them for the first time on appeal is typically not allowed, unless it falls under specific exceptions.
What is required for a debtor to be considered in default (_mora solvendi_)?	The obligation must be demandable and liquidated, the debtor must delay performance, and the creditor must judicially or extrajudicially demand performance.
What constitutes a ‘liquidated’ debt in this context?	A debt is liquidated when the amount is known or can be determined by inspecting the terms and conditions of the relevant promissory notes and related documentation.
Why was the publication in “Maharlika Pilipinas” deemed sufficient?	The respondents failed to prove that “Maharlika Pilipinas” was not a newspaper of general circulation in Quezon City, where the auction was held, thus the publication was presumed compliant.

In summary, this case highlights the critical importance of obtaining written spousal consent when mortgaging conjugal property. While the foreclosure process itself was deemed valid in terms of the number of bidders and the publication of notices, the absence of Rosie Del Rosario’s consent was fatal to the validity of the real estate mortgage. This underscores the protective measures afforded to spouses under the Family Code, ensuring that both parties are aware of and agree to any encumbrances on their shared assets.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: Boston Equity Resources, Inc. vs. Edgardo D. Del Rosario, G.R. No. 193228, November 27, 2017