Nable Jose vs. Nable Jose

G.R. No. L-7397 December 11, 1916

AMPARO NABLE JOSE, ET AL., STANDARD OIL COMPANY OF NEW YORK and CARMEN CASTRO, plaintiffs-appellants, 
vs.
MARIANO NABLE JOSE, ET AL., defendants-appellees.

The husband-administrator of the affairs of the conjugal partnership with his first wife, long after her death and after he had married a second time, executed a mortgage in favor of the Standard Oil Company on certain property, real and personal, to assure the payment of certain obligations assumed by him as agent of the company after the death of his first wife. It appears that a large part of this property was acquired during the first marriage, in the exclusive possession of the husband as administrator of the affairs of the conjugal partnership which has never been liquidated. It appears also that the title to all this property was in the name of the husband, the title to the real estate being registered in his name. It appears also that the Standard Oil Company had no knowledge at the time of the execution of the mortgage of the existence of a prior marriage, or that the mortgaged property was held by the husband as administrator of the conjugal property acquired during the former marriage.

Issue: what is the determination of the power of the husband to sell or mortgage the conjugal property pending the liquidation of the conjugal partnership?

Held: Article 1393 of the Civil Code provides that:

The conjugal community shall always begin on the same day that the marriage is celebrated.

Any stipulation of the contrary shall be void.

Article 1417 of that Code provides that:

The conjugal community expires on the dissolution of the marriage or when it is declared null.

The consort who, on account of his or her bad faith, caused the nullity, shall not share any part of the property of the community.

The conjugal society shall also terminate in the cases specified in article 1433.

There is danger of confusion and error if any attempt is made to reason from a supposed analogy between his powers and those of an ordinary administrator or trustee. The only safe guide is the law which defines his duties and prescribes the mode in which they are to be performed. The law prescribes his duties with relation to the conjugal property, which consist substantially of the preparation of an inventory, the payment of the debts, and the distribution of the net remainder. But how the debts shall be paid and how the "net remainder" of the property shall be distributed the law does not attempt to direct. Articles 1418 to 1421, Civil Code. "The object to be accomplished is fixed, but the means of accomplishment," which "are as varied as the circumstances and discretion of men" are not indicated. To secure the object in view, he has the exclusive possession and control of the property, and in the performance of his duties, he is not subjected to the guidance or control of the courts (as is the ordinary administrator of the estate of a deceased person) except of course when fraud upon the rights of creditors or the heirs is alleged and proven.

The duty to pay debts and obligations of the partnership imposed in Article 1423 of the Code carries with it by necessary implication the right to realize the funds necessary for that purpose from the property charged with the debts. But the law nowhere prescribes how this shall be done or what property shall be sold or mortgaged, or in what order the debts shall be paid, or what compromises or settlements the liquidator may accept, or how the debts shall be ascertained. Since he is personally liable for the debts, he may pay all or any part of them from his personal funds, and reimburse himself from the partnership property. No judicial authorization or approval of such sales is required, whether the property sold is real or personal. In a word, the husband, as liquidator, is left absolutely free, in the exercise of his uncontrolled discretion, to provide for the payment of the debts from the partnership funds in such manner as he sees fit.

Such powers in the disposition of the partnership property necessarily carry with them the power to make a good and valid title to both real and personal property, otherwise the full value of the property sold would seldom be realized, and in many instances the power to sell would be wholly illusory.

We conclude therefore that the husband, acting as liquidator of the conjugal partnership, and charged with the payment of the community debts, may sell or mortgage all or any part of the conjugal property, real or personal, in the fulfillment of the duties imposed upon him and give good and valid title to the purchaser or mortgagee.

It would be inconsistent with the breadth and power of the discretion conferred upon the husband to hold that purchases from him of personal or real estate should be required, at their peril, to ascertain whether sales made by him are made in good faith for the purpose of the payment of the debts of the partnership, or to require such purchasers to see that the purchase price is in fact applied to the payment of such debts. The purchaser has the right to assume that in disposing of the property, the husband, as administrator, is proceeding according to law. And this is true even though the purchaser knows that the husband intends to apply the money for the payment of his own personal debts contracted after the dissolution of the partnership, because, as we have said already, the husband may pay the partnership debts out of his private funds and reimburse himself from the partnership property. So far as the purchaser is concerned, he has the right to assume that when the husband liquidates or sells partnership property and applies the proceeds to the payment of his personal debts, the transaction is merely the means adopted by the husband to reimburse himself for payments of partnership indebtedness theretofore made out of the husband's private funds.

It has been suggested that the power of the husband to sell real or personal property and to give good and valid title thereto may also be inferred from the uncontrolled discretion which is claimed for the husband in determining whether he will distribute the property in kind, or sell all the property, and after payment of debts, distribute the net remainder in cash. We do not deem it necessary, however, to discuss or decide the questions involved in this contention, because for the purposes of the case now pending before us, the power of the husband-administrator to sell the property for the payment of debts affords a sufficient foundation for the conclusion that he has the implied power to give good and valid title to any property in his possession and control as exclusive administrator of the community property.

But what are the effects upon the transactions of the husband with third parties of the perpetration of such frauds, or the attempt to perpetrate such frauds on the rights of the heirs? Manifestly, where third persons are in connivance with the husband-administrator or knowingly lend their aid or countenance, directly or indirectly, to the commission of such fraud, the court will see to it that they will not profit by their misconduct, and the fraud to which they are parties will vitiate and annul all such transaction.

The case is different, however, with innocent third person dealing with the husband in good faith, and with no knowledge of his misconduct in the discharge of his duties as administrator.

The law clothes the surviving husband with the exclusive possession and all the insignia of the power of disposal of the partnership property. It imposes upon him the duty and the right to sell all or any part of the property, which, in the exercise of his uncontrolled discretion, he may deem necessary in the performance of his duties as liquidator. It follows, that notwithstanding the possibility that the husband may have it in mind to make away with the proceeds of the sale and thus defraud the heirs, the purchaser in good faith must be held to take a good and valid title which cannot be set aside thereafter upon proof that in making the sale, or in the use made of the proceeds, the husband liquidator acted in fraud of the rights of the heirs. The heirs must seek their remedy against their father, who is accountable to them for their share of the "net remainder" of the partnership property, after the affairs of the partnership have been liquidated.

We think that it must be clear from what has been said already, that whatever claims the children of the deceased wife may have against their father, they cannot successfully challenge the validity of the mortgage to the Standard Oil Company.

In accepting the mortgage the company relied (as it had a right to do) upon the fact that the title to all of this property was in the name of the husband, and that he was clothed with all the insignia of power to dispose of it by sale or mortgage. The company had no means of ascertaining with certainty whether this property was or was not the individual property of the husband or conjugal property of the first or the second marriage. As a matter of fact, the company did not know that this property was a part of the conjugal property of the first marriage, but even had the company been advised of that fact, it had the right to assume, in the absence of any indication to the contrary, that the husband was acting within his rights as exclusive administrator and that he had authority to see, mortgage or otherwise dispose of it, either for the purpose of securing funds for the payment of the partnership debts, or to reimburse himself for the payment of such debts from his own personal funds.

The trial court recognized the right of the children to intervene in this action and to have the mortgage of the conjugal property declared invalid as to their interest therein, which he held to amount to a one-half undivided interest in the mortgage property. But from what has been said it is clear that the trial court erred in recognizing the claims of the heirs of the firs wife of Mariano Nable Jose to a one-half undivided share of the specific property mortgaged by him to the Standard Oil Company, which was alleged to be a part of the conjugal property acquired by the conjugal partnership composed of Mariano Nable Jose and his first wife; and further, that the trial court erred in declaring the mortgage invalid in so far as it affects the one-half undivided share of said property, which the court erroneously held to be the property of these heirs, and in rendering a money judgment in their favor for the sum of P750 on account of rents and the proceeds of the sale of a part of these properties as set forth in the final section of the judgment entered in the court below.