Wrong liquidation

Under the Family Code (Article 63 in relation to Article 43 [2]), in case of legal separation of the spouses, the conjugal partnership is dissolved and liquidated and the one-half undivided share of the offending spouse shall forfeited in favor of their common children or if there are none, to the children of the guilty spouse by a previous marriage or in default of children to the innocent spouse. What does this undivided one half share consist of? This is answered in this case of the spouses Freddy and Virgie.

During their marriage, Freddy and Virgie acquired a 30,000 square meter parcel of land covered by a Transfer Certificate of Title in the name of “Freddy married to Virgie”. They also begot a daughter, Winnie. Later on however, Virgie separated from Freddy and their daughter. The property was thus left under Freddy’s sole administration without Virgie’s participation.

To legalize their separation in fact Virgie filed before the Regional Trial Court a petition for legal separation against Freddy on December 23, 1991 and then caused the annotation of the Notice of Lis Pendens on the property.

While the petition for legal separation was still pending or on August 31, 1993, Freddy found a buyer of said property in the person of Andy with whom he entered into an Agreement to Buy and Sell it for P18 million. Under the Agreement Andy will take possession of the property upon payment of P5 million with the balance to be paid when Freddy has annotated the Agreement on the Title and had secured the following: (1) an affidavit from Virgie that the property is Freddy’s exclusive property; (2) an order from the RTC to exclude the property from the legal separation case; and (3) the removal of the notice of lis pendens.

So upon payment of the P5 million, Andy took possession of the property. Freddy on the other hand only had the Agreement annotated on the title but failed to secure the abovementioned three other requirements.

Meanwhile on June 29, 1999 the RTC already rendered a decision. It deemed the property a conjugal property, ordered the dissolution and liquidation of their conjugal partnership of gains and awarded to their child Winnie the undivided share of Freddy in the net profits because Freddy was the offending spouse. Custody of Winnie was also given to Virgie but both Freddy and Virgie were required to mutually support her.

Notwithstanding said decision and still insisting that the parcel of land is his exclusive property, Freddy executed a Deed of Donation over the property in favor of her daughter on August 22, 1994. Hence a new title was issued in the name of Winnie without annotating the Agreement and the notice of lis pendens.

Then on October 26, 1994, after Winnie executed a Special Power of Attorney in favor of Freddy, the land was sold by Freddy to a realty company (IDRI) for P18 million. After IDRI paid the purchase price, title was transferred in its name. This prompted Andy to file a complaint with the RTC for specific performance of the Agreement between him and Freddy, annulment of the Deed of Donation and of the Sale made to IDRI with prayers for Preliminary Injunction and damages.

On April 3, 2001, the RTC rendered decision, among others as follows: declaring as null and void the Deeds of Donation and of Absolute Sale executed by Freddy, the cancellation of title in the name of IDRI, the return of P18 million to IDRI, and the restoration of title in the name of “Freddy married to Virgie”; approving the Agreement to Buy and Sell between Freddy and Andy but excluding the property and rights of Virgie to the undivided one-half share in the conjugal property; ordering Freddy to execute a Deed of Absolute Sale in favor of Andy over his one half undivided share.

On appeal, the Court of Appeals (CA) modified said decision by also declaring as null and void the Agreement to Buy and Sell executed by Freddy in favor of Andy because it was without the consent of Virgie and because Freddy’s one half undivided share has already been forfeited in favor of his daughter Winnie by virtue of the RTC decision in the legal separation case. So the CA granted Winnie the option whether or not to dispose of her undivided share and ordered Freddy to return the P5 million paid by Andy. Was the CA correct?

The CA is partly correct. It is correct in declaring the sale made by Freddy to Andy as null and void because it was without Virgie’s consent. Even if Virgie who was already separated in fact from Freddy was unable to participate in the administration of the property, Freddy as sole administrator still cannot sell the property without Virgie’s consent or authority of the court. The absence of consent of one spouse renders the entire sale void including the portion of the conjugal property pertaining to the spouse who contracted the sale. The Agreement entered into by Freddy and Andy was without Virgie’s consent. Thus the Agreement is entirely void.

However the CA is wrong in finding that the one half undivided share of Freddy in the property was already forfeited in favor of his daughter. What is forfeited in Winnie’s favor is not Freddy’s share in the conjugal property but merely his share in the net profits of the conjugal partnership property. The net profits subject of forfeiture shall be the increase in value between the market value of the property at the time of the celebration of the marriage and the market value at the time of its dissolution (Article 102 [4] Family Code) (Siochi vs. Gozon, G.R. 169900 and 169977, March 18, 2010, 616 SCRA 87)

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