Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 118305 February 12, 1998

AYALA INVESTMENT & DEVELOPMENT CORP. and ABELARDO MAGSAJO, petitioners,

vs.
COURT OF APPEALS and SPOUSES ALFREDO & ENCARNACION CHING, respondents.

MARTINEZ, J.:

Under Article 161 of the Civil Code, what debts and obligations contracted by the husband alone are
considered "for the benefit of the conjugal partnership" which are chargeable against the conjugal
partnership? Is a surety agreement or an accommodation contract entered into by the husband in
favor of his employer within the contemplation of the said provision?

These are the issues which we will resolve in this petition for review.

The petitioner assails the decision dated April 14, 1994 of the respondent Court of Appeals in
"Spouses Alfredo and Encarnacion Ching vs. Ayala Investment and Development Corporation, et.
al.," docketed as CA-G.R. CV No. 29632,1 upholding the decision of the Regional Trial Court of
Pasig, Branch 168, which ruled that the conjugal partnership of gains of respondents-spouses
Alfredo and Encarnacion Ching is not liable for the payment of the debts secured by respondent-
husband Alfredo Ching.

A chronology of the essential antecedent facts is necessary for a clear understanding of the case at
bar.

Philippine Blooming Mills (hereinafter referred to as PBM) obtained a P50,300,000.00 loan from
petitioner Ayala Investment and Development Corporation (hereinafter referred to as AIDC). As
added security for the credit line extended to PBM, respondent Alfredo Ching, Executive Vice
President of PBM, executed security agreements on December 10, 1980 and on March 20, 1981
making himself jointly and severally answerable with PBM's indebtedness to AIDC.

PBM failed to pay the loan. Thus, on July 30, 1981, AIDC filed a case for sum of money against
PBM and respondent-husband Alfredo Ching with the then Court of First Instance of Rizal (Pasig),
Branch VIII, entitled "Ayala Investment and Development Corporation vs. Philippine Blooming Mills
and Alfredo Ching," docketed as Civil Case No. 42228.

After trial, the court rendered judgment ordering PBM and respondent-husband Alfredo Ching to
jointly and severally pay AIDC the principal amount of P50,300,000.00 with interests.

Pending appeal of the judgment in Civil Case No. 42228, upon motion of AIDC, the lower court
issued a writ of execution pending appeal. Upon AIDC's putting up of an P8,000,000.00 bond, a writ
of execution dated May 12, 1982 was issued. Thereafter, petitioner Abelardo Magsajo, Sr., Deputy
Sheriff of Rizal and appointed sheriff in Civil Case No. 42228, caused the issuance and service upon
respondents-spouses of a notice of sheriff sale dated May 20, 1982 on three (3) of their conjugal
properties. Petitioner Magsajo then scheduled the auction sale of the properties levied.

On June 9, 1982, private respondents filed a case of injunction against petitioners with the then
Court of First Instance of Rizal (Pasig), Branch XIII, to enjoin the auction sale alleging that
petitioners cannot enforce the judgment against the conjugal partnership levied on the ground that,
among others, the subject loan did not redound to the benefit of the said conjugal
partnership. 2 Upon application of private respondents, the lower court issued a temporary restraining
order to prevent petitioner Magsajo from proceeding with the enforcement of the writ of execution
and with the sale of the said properties at public auction.

AIDC filed a petition for certiorari before the Court of Appeals,3 questioning the order of the lower
court enjoining the sale. Respondent Court of Appeals issued a Temporary Restraining Order on
June 25, 1982, enjoining the lower court4 from enforcing its Order of June 14, 1982, thus paving the
way for the scheduled auction sale of respondents-spouses conjugal properties.

On June 25, 1982, the auction sale took place. AIDC being the only bidder, was issued a Certificate
of Sale by petitioner Magsajo, which was registered on July 2, 1982. Upon expiration of the
redemption period, petitioner sheriff issued the final deed of sale on August 4, 1982 which was
registered on August 9, 1983.

In the meantime, the respondent court, on August 4, 1982, decided CA-G.R. SP No. 14404, in this
manner:

WHEREFORE, the petition for certiorari in this case is granted and the challenged
order of the respondent Judge dated June 14, 1982 in Civil Case No. 46309 is
hereby set aside and nullified. The same petition insofar as it seeks to enjoin the
respondent Judge from proceeding with Civil Case No. 46309 is, however, denied.
No pronouncement is here made as to costs. . . . 5

On September 3, 1983, AIDC filed a motion to dismiss the petition for injunction filed before Branch
XIII of the CFI of Rizal (Pasig) on the ground that the same had become moot and academic with the
consummation of the sale. Respondents filed their opposition to the motion arguing, among others,
that where a third party who claim is ownership of the property attached or levied upon, a different
legal situation is presented; and that in this case, two (2) of the real properties are actually in the
name of Encarnacion Ching, a non-party to Civil Case No. 42228.

The lower court denied the motion to dismiss. Hence, trial on the merits proceeded. Private
respondents presented several witnesses. On the other hand, petitioners did not present any
evidence.

On September 18, 1991, the trial court promulgated its decision declaring the sale on execution null
and void. Petitioners appealed to the respondent court, which was docketed as CA-G.R. CV No.
29632.

On April 14, 1994, the respondent court promulgated the assailed decision, affirming the decision of
the regional trial court. It held that:

The loan procured from respondent-appellant AIDC was for the advancement and
benefit of Philippine Blooming Mills and not for the benefit of the conjugal partnership
of petitioners-appellees.
 xxx xxx xxx

As to the applicable law, whether it is Article 161 of the New Civil Code or Article
1211 of the Family Code-suffice it to say that the two provisions are substantially the
same. Nevertheless, We agree with the trial court that the Family Code is the
applicable law on the matter . . . . . . .

Article 121 of the Family Code provides that "The conjugal partnership shall be liable
for: . . . (2) All debts and obligations contracted during the marriage by the
designated Administrator-Spouse for the benefit of the conjugal partnership of gains .
. . ." The burden of proof that the debt was contracted for the benefit of the conjugal
partnership of gains, lies with the creditor-party litigant claiming as such. In the case
at bar, respondent-appellant AIDC failed to prove that the debt was contracted by
appellee-husband, for the benefit of the conjugal partnership of gains.

The dispositive portion of the decision reads:

WHEREFORE, in view of all the foregoing, judgment is hereby rendered

DISMISSING the appeal. The decision of the Regional Trial Court is AFFIRMED in
toto.6

Petitioner filed a Motion for Reconsideration which was denied by the respondent court in a
Resolution dated November 28, 1994.7

Hence, this petition for review. Petitioner contends that the "respondent court erred in ruling that the
conjugal partnership of private respondents is not liable for the obligation by the respondent-
husband."

Specifically, the errors allegedly committed by the respondent court are as follows:

I. RESPONDENT COURT ERRED IN RULING THAT THE

OBLIGATION INCURRED RESPONDENT HUSBAND DID NOT
REDOUND TO THE BENEFIT OF THE CONJUGAL PARTNERSHIP
OF THE PRIVATE RESPONDENT.

II. RESPONDENT COURT ERRED IN RULING THAT THE ACT OF

RESPONDENT HUSBAND IN SECURING THE SUBJECT LOAN IS
NOT PART OF HIS INDUSTRY, BUSINESS OR CAREER FROM
WHICH HE SUPPORTS HIS FAMILY.

Petitioners in their appeal point out that there is no need to prove that actual benefit redounded to
the benefit of the partnership; all that is necessary, they say, is that the transaction was entered into
for the benefit of the conjugal partnership. Thus, petitioners aver that:

The wordings of Article 161 of the Civil Code is very clear: for the partnership to be
held liable, the husband must have contracted the debt "for the benefit of the
partnership, thus:

Art. 161. The conjugal partnership shall be liable for:

 1) all debts and obligations contracted by the husband
for the benefit of the conjugal partnership . . . .

There is a difference between the phrases: "redounded to the benefit of" or

"benefited from" (on the one hand) and "for the benefit of (on the other). The former
require that actual benefit must have been realized; the latter requires only that the
transaction should be one which normally would produce benefit to the partnership,
regardless of whether or not actual benefit accrued.8

We do not agree with petitioners that there is a difference between the terms "redounded to the
benefit of" or "benefited from" on the one hand; and "for the benefit of" on the other. They mean one
and the same thing. Article 161 (1) of the Civil Code and Article 121 (2) of the Family Code are
similarly worded, i.e., both use the term "for the benefit of." On the other hand, Article 122 of the
Family Code provides that "The payment of personal debts by the husband or the wife before or
during the marriage shall not be charged to the conjugal partnership except insofar as they
redounded to the benefit of the family." As can be seen, the terms are used interchangeably.

Petitioners further contend that the ruling of the respondent court runs counter to the pronouncement
of this Court in the case of Cobb-Perez vs. Lantin,9 that the husband as head of the family and as
administrator of the conjugal partnership is presumed to have contracted obligations for the benefit
of the family or the conjugal partnership.

Contrary to the contention of the petitioners, the case of Cobb-Perez is not applicable in the case at
bar. This Court has, on several instances, interpreted the term "for the benefit of the conjugal
partnership."

In the cases of Javier vs. Osmeña, 10 Abella de Diaz vs. Erlanger & Galinger, Inc., 11 Cobb-Perez
vs. Lantin 12 and G-Tractors, Inc. vs. Court of Appeals, 13 cited by the petitioners, we held that:

The debts contracted by the husband during the marriage relation, for and in the
exercise of the industry or profession by which he contributes toward the support of
his family, are not his personal and private debts, and the products or income from
the wife's own property, which, like those of her husband's, are liable for the payment
of the marriage expenses, cannot be excepted from the payment of such debts.
(Javier)

The husband, as the manager of the partnership (Article 1412, Civil Code), has a
right to embark the partnership in an ordinary commercial enterprise for gain, and the
fact that the wife may not approve of a venture does not make it a private and
personal one of the husband. (Abella de Diaz)

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 to be his
exclusive and private debts. (Cobb-Perez).

. . . if he incurs an 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 the losses, unless he deliberately acted to the prejudice of his
family. (G-Tractors)
However, in the cases of Ansaldo vs. Sheriff of Manila, Fidelity Insurance & Luzon Insurance
Co.,14 Liberty Insurance Corporation vs. Banuelos, 15 and Luzon Surety Inc. vs. De Garcia, 16 cited by
the respondents, we ruled that:

The fruits of the paraphernal property which form part of the assets of the conjugal
partnership, are subject to the payment of the debts and expenses of the spouses,
but not to the payment of the personal obligations (guaranty agreements) of the
husband, unless it be proved that such obligations were productive of some benefit
to the family." (Ansaldo; parenthetical phrase ours.)

When there is no showing that the execution of an indemnity agreement by the

husband redounded to the benefit of his family, the undertaking is not a conjugal debt
but an obligation personal to him. (Liberty Insurance)

In the most categorical language, a conjugal partnership under Article 161 of the new
Civil Code is liable only for such "debts and obligations contracted by the husband for
the benefit of the conjugal partnership." There must be the requisite showing then of
some advantage which clearly accrued to the welfare of the spouses. Certainly, to
make a conjugal partnership respond for a liability that should appertain to the
husband alone is to defeat and frustrate the avowed objective of the new Civil Code
to show the utmost concern for the solidarity and well-being of the family as a unit.
The husband, therefore, is denied the power to assume unnecessary and
unwarranted risks to the financial stability of the conjugal partnership. (Luzon Surety,
Inc.)

From the foregoing jurisprudential rulings of this Court, we can derive the following conclusions:

(A) If the husband himself is the principal obligor in the contract, i.e., he directly received the money
and services to be used in or for his own business or his own profession, that contract falls within the
term . . . . obligations for the benefit of the conjugal partnership." Here, no actual benefit may be
proved. It is enough that the benefit to the family is apparent at the time of the signing of the
contract. From the very nature of the contract of loan or services, the family stands to benefit from
the loan facility or services to be rendered to the business or profession of the husband. It is
immaterial, if in the end, his business or profession fails or does not succeed. Simply stated, where
the husband contracts obligations on behalf of the family business, the law presumes, and rightly so,
that such obligation will redound to the benefit of the conjugal partnership.

(B) On the other hand, if the money or services are given to another person or entity, and the
husband acted only as a surety or guarantor, that contract cannot, by itself, alone be categorized as
falling within the context of "obligations for the benefit of the conjugal partnership." The contract of
loan or services is clearly for the benefit of the principal debtor and not for the surety or his family.
No presumption can be inferred that, when a husband enters into a contract of surety or
accommodation agreement, it is "for the benefit of the conjugal partnership." Proof must be
presented to establish benefit redounding to the conjugal partnership.

Thus, the distinction between the Cobb-Perez case, and we add, that of the three other companion
cases, on the one hand, and that of Ansaldo, Liberty Insurance and Luzon Surety, is that in the
former, the husband contracted the obligation for his own business; while in the latter, the husband
merely acted as a surety for the loan contracted by another for the latter's business.

The evidence of petitioner indubitably show that co-respondent Alfredo Ching signed as surety for
the P50M loan contracted on behalf of PBM. petitioner should have adduced evidence to prove that
Alfredo Ching's acting as surety redounded to the benefit of the conjugal partnership. The reason for
this is as lucidly explained by the respondent court:

The loan procured from respondent-appellant AIDC was for the advancement and
benefit of Philippine Blooming Mills and not for the benefit of the conjugal partnership
of petitioners-appellees. Philippine Blooming Mills has a personality distinct and
separate from the family of petitioners-appellees — this despite the fact that the
members of the said family happened to be stockholders of said corporate entity.

xxx xxx xxx

. . . . The burden of proof that the debt was contracted for the benefit of the conjugal
partnership of gains, lies with the creditor-party litigant claiming as such. In the case
at bar, respondent-appellant AIDC failed to prove that the debt was contracted by
appellee-husband, for the benefit of the conjugal partnership of gains. What is
apparent from the facts of the case is that the judgment debt was contracted by or in
the name of the Corporation Philippine Blooming Mills and appellee-husband only
signed as surety thereof. The debt is clearly a corporate debt and respondent-
appellant's right of recourse against appellee-husband as surety is only to the extent
of his corporate stockholdings. It does not extend to the conjugal partnership of gains
of the family of petitioners-appellees. . . . . . .17

Petitioners contend that no actual benefit need accrue to the conjugal partnership. To support this
contention, they cite Justice J.B.L. Reyes' authoritative opinion in the Luzon Surety Company case:

I concur in the result, but would like to make of record that, in my opinion, the words
"all debts and obligations contracted by the husband for the benefit of the conjugal
partnership" used in Article 161 of the Civil Code of the Philippines in describing the
charges and obligations for which the conjugal partnership is liable 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. This is the ratio behind our ruling
in Javier vs. Osmeña, 34 Phil. 336, that obligations incurred by the husband in the
practice of his profession are collectible from the conjugal partnership.

The aforequoted concurring opinion agreed with the majority decision that the conjugal partnership
should not be made liable for the surety agreement which was clearly for the benefit of a third party.
Such opinion merely registered an exception to what may be construed as a sweeping statement
that in all cases actual profit or benefit must accrue to the conjugal partnership. The opinion merely
made it clear that no actual benefits to the family need be proved in some cases such as in the
Javier case. There, the husband was the principal obligor himself. Thus, said transaction was found
to be "one that would normally produce . . . benefit for the partnership." In the later case of G-
Tractors, Inc., the husband was also the principal obligor — not merely the surety. This latter case,
therefore, did not create any precedent. It did not also supersede the Luzon Surety Company case,
nor any of the previous accommodation contract cases, where this Court ruled that they were for the
benefit of third parties.

But it could be argued, as the petitioner suggests, that even in such kind of contract of
accommodation, a benefit for the family may also result, when the guarantee is in favor of the
husband's employer.
In the case at bar, petitioner claims that the benefits the respondent family would reasonably
anticipate were the following:

(a) The employment of co-respondent Alfredo Ching would be

prolonged and he would be entitled to his monthly salary of
P20,000.00 for an extended length of time because of the loan he
guaranteed;

(b) The shares of stock of the members of his family would appreciate
if the PBM could be rehabilitated through the loan obtained;

(c) His prestige in the corporation would be enhanced and his career
would be boosted should PBM survive because of the loan.

However, these are not the benefits contemplated by Article 161 of the Civil Code. The benefits must
be one directly resulting from the loan. It cannot merely be a by-product or a spin-off of the loan
itself.

In all our decisions involving accommodation contracts of the husband, 18 we underscored the
requirement that: "there must be the requisite showing . . . of some advantage which clearly accrued
to the welfare of the spouses" or "benefits to his family" or "that such obligations are productive of
some benefit to the family." Unfortunately, the petition did not present any proof to show: (a)
Whether or not the corporate existence of PBM was prolonged and for how many months or years;
and/or (b) Whether or not the PBM was saved by the loan and its shares of stock appreciated, if so,
how much and how substantial was the holdings of the Ching family.

Such benefits (prospects of longer employment and probable increase in the value of stocks) might
have been already apparent or could be anticipated at the time the accommodation agreement was
entered into. But would those "benefits" qualify the transaction as one of the "obligations . . . for the
benefit of the conjugal partnership"? Are indirect and remote probable benefits, the ones referred to
in Article 161 of the Civil Code? The Court of Appeals in denying the motion for reconsideration,
disposed of these questions in the following manner:

No matter how one looks at it, the debt/credit respondents-appellants is purely a

corporate debt granted to PBM, with petitioner-appellee-husband merely signing as
surety. While such petitioner-appellee-husband, as such surety, is solidarily liable
with the principal debtor AIDC, such liability under the Civil Code provisions is
specifically restricted by Article 122 (par. 1) of the Family Code, so that debts for
which the husband is liable may not be charged against conjugal partnership
properties. Article 122 of the Family Code is explicit — "The payment of personal
debts contracted by the husband or the wife before or during the marriage shall not
be charged to the conjugal partnership except insofar as they redounded to the
benefit of the family.

Respondents-appellants insist that the corporate debt in question falls under the
exception laid down in said Article 122 (par. one). We do not agree. The loan
procured from respondent-appellant AIDC was for the sole advancement and benefit
of Philippine Blooming Mills and not for the benefit of the conjugal partnership of
petitioners-appellees.

. . . appellee-husband derives salaries, dividends benefits from Philippine Blooming

Mills (the debtor corporation), only because said husband is an employee of said
 PBM. These salaries and benefits, are not the "benefits" contemplated by Articles
121 and 122 of the Family Code. The "benefits" contemplated by the exception in
Article 122 (Family Code) is that benefit derived directly from the use of the loan. In
the case at bar, the loan is a corporate loan extended to PBM and used by PBM
itself, not by petitioner-appellee-husband or his family. The alleged benefit, if any,
continuously harped by respondents-appellants, are not only incidental but also
speculative. 19

We agree with the respondent court. Indeed, considering the odds involved in guaranteeing a large
amount (P50,000,000.00) of loan, the probable prolongation of employment in PBM and increase in
value of its stocks, would be too small to qualify the transaction as one "for the benefit" of the
surety's family. Verily, no one could say, with a degree of certainty, that the said contract is even
"productive of some benefits" to the conjugal partnership.

We likewise agree with the respondent court (and this view is not contested by the petitioners) that
the provisions of the Family Code is applicable in this case. These provisions highlight the
underlying concern of the law for the conservation of the conjugal partnership; for the husband's duty
to protect and safeguard, if not augment, not to dissipate it.

This is the underlying reason why the Family Code clarifies that the obligations entered into by one
of the spouses must be those that redounded to the benefit of the family and that the measure of the
partnership's liability is to "the extent that the family is benefited." 20

These are all in keeping with the spirit and intent of the other provisions of the Civil Code which
prohibits any of the spouses to donate or convey gratuitously any part of the conjugal
property. 21 Thus, when co-respondent Alfredo Ching entered into a surety agreement he, from then
on, definitely put in peril the conjugal property (in this case, including the family home) and placed it
in danger of being taken gratuitously as in cases of donation.

In the second assignment of error, the petitioner advances the view that acting as surety is part of
the business or profession of the respondent-husband.

This theory is new as it is novel.

The respondent court correctly observed that:

Signing as a surety is certainly not an exercise of an industry or profession, hence

the cited cases of Cobb-Perez vs. Lantin; Abella de Diaz vs. Erlanger & Galinger; G-
Tractors, Inc. vs. CA do not apply in the instant