Homeowners Savings v. Dailo (2005): Mortgage Without Spouse

Miguela Dailo and her husband married in 1967, without a marriage settlement. During the marriage they bought a house and lot in San Pablo City, Laguna. The deed of sale named only the husband as the buyer.

In December 1993, the husband gave a special power of attorney to another person, who used it to borrow P300,000.00 from Homeowners Savings & Loan Bank. The loan was secured by a real estate mortgage on the couple's house and lot. All of this was done without Miguela's knowledge and consent.

The loan was not paid. The bank foreclosed the mortgage, bought the property at the auction and, after one year without redemption, consolidated its ownership. Miguela's husband died in December 1995. Miguela later found out that the bank had taken over the property. She sued the bank to declare the mortgage, the certificate of sale and the bank's documents of ownership void and to get the property back.

The Regional Trial Court of San Pablo City ruled for Miguela, declared the documents void and ordered the bank to return the property. The Court of Appeals agreed that the property was conjugal and that the mortgage was void under Article 124, but deleted the award of damages and attorney's fees. The bank appealed to the Supreme Court.

The bank raised two questions. Is the mortgage valid at least as to the husband's share, as a co-owner of the property? And is the conjugal partnership liable for the loan because it benefited the family?

The Supreme Court denied the bank's petition. The mortgage was void, and the conjugal partnership was not liable for the loan.

The Family Code governs this marriage. The couple married in 1967 without a marriage settlement, so their property relations were under the conjugal partnership of gains. The Court said the Family Code chapter on that regime, effective August 3, 1988, applies to conjugal partnerships already established before then, unless vested rights were already acquired under the Civil Code or other laws.

The mortgage is void as a whole. Under Article 124 of the Family Code, a disposition or encumbrance of conjugal property without court authority or the written consent of the other spouse is void. The bank argued that, like a co-owner under Article 493 of the Civil Code, the husband could at least mortgage his own share. The Court disagreed. Article 124 "does not qualify with respect to the share of the spouse who makes the disposition or encumbrance." Following an earlier ruling on sales, the absence of consent made the entire transaction void.

Co-ownership rules do not apply. The Court explained that a conjugal partnership of gains is a special kind of partnership. It is governed first by the Family Code chapter on conjugal partnership and, where that chapter is silent, by the Civil Code rules on partnership, not by the rules on co-ownership.

The creditor must prove the family benefited. Under Article 121(3) of the Family Code, the conjugal partnership is liable for debts contracted by one spouse without the other's consent only to the extent that the family may have benefited. The Court said "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." The bank offered only a bare claim that the loan financed housing units and helped the family. It had also argued at trial that the property was the husband's exclusive property, and it could not change its theory on appeal.

Under Article 124 of the Family Code, a mortgage or sale of conjugal property by one spouse without the written consent of the other or court authority is void in its entirety, including the share of the spouse who made it; the conjugal partnership answers for that spouse's debt only to the extent the family benefited, and the creditor must prove the benefit.

Dailo is a warning for buyers, lenders and spouses alike. When property belongs to the conjugal partnership, one spouse cannot validly mortgage or sell it alone, even if the title or deed names only that spouse. A lender or buyer that deals with only one spouse risks losing the property, as the bank did here. See can a spouse sell conjugal property without consent and the comparison of absolute community and conjugal partnership.

Dailo is about a transaction made during the marriage. What happens to conjugal property after a spouse dies, when the partnership has not yet been liquidated, is covered by a different rule: see Article 130 of the Family Code.

Made-up illustration: Ana and Ben married in 1985 without a prenuptial agreement. In 2024, Ben mortgages the house they bought in 1995 to get a business loan, without Ana's written consent. Under Dailo, the mortgage is void as a whole, even though the title is in Ben's name alone. If the lender claims the loan helped the family, it must prove that.

Read the full decision on the Supreme Court E-Library (link in the sources below). For a question about real property, see where to find legal help.