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SPECIAL PROCEEDINGS DIGESTED CASES-RULE 87 to 89

RULE 87 ACTIONS BY & AGAINST EXECUTORS & ADMINISTRATORS G.R. No. 144881 October 16, 2003 BETTY T. CHUA, ET AL. VS. ABSOLUTE MGT CORP, ET AL FACTS: Upon a petition for letters of administration filed by [herein petitioners] Jennifer T. Chua-Locsin, Benison T. Chua, and Baldwin T. Chua with the RTC of Pasay City, Betty T. Chua was appointed as administratrix of the intestate estate of the deceased Jose L. Chua. Thereafter, she submitted to the trial court an inventory of all the real and personal properties of the deceased. One of the creditors of the deceased, [herein respondent] Absolute Management Corporation, filed a claim on the estate in the amount of P63,699,437.74. In the interim, Absolute Management Corporation noticed that the deceaseds shares of stocks with Ayala Sales Corporation and Ayala Construction Supply, Inc. were not included in the inventory of assets. As a consequence, it filed a motion to require Betty T. Chua to explain why she did not report these shares of stocks in the inventory. Through a reply, Betty T. Chua alleged that these shares had already been assigned and transferred to other parties prior to the death of her husband, Jose L. Chua. She attached to her reply the deeds of assignment which allegedly constituted proofs of transfer. The judge accepted the explanation as meritorious. Absolute Management Corporation, suspecting that the documents attached to Betty T. Chuas reply were spurious and simulated, filed a motion for the examination of the supposed transferees. It premised its motion on Section 6, Rule 87, Revised Rules of Court, which states that when a person is suspected of having concealed, embezzled, or conveyed away any of the properties of the deceased, a creditor may file a complaint with the trial court and the trial court may cite the suspected person to appear before it and be examined under oath on the matter of such complaint. Private respondents opposed the motion on the ground that this provision bears no application to the case. RTC denied Absolute Management Corporations ("Absolute") Motion as it in effect seeks to engage in a fishing expedition for evidence to be used against the administratrix and others whom it seeks to examine. Absolute alleged that the trial court deprived it of the right to show that the documents presented by petitioners were fictitious to the prejudice of Absolute. During the hearing conducted before the CA, counsel for Absolute presented evidences to support its assertion that the transfers of the shares were spurious. Such as (1) Certification that the notary public who notarized the questioned Secretarys Certificate and Deeds of Assignment of Shares of Stock is not listed in the Roll of Notaries Public for the City of Pasay; (2) Certification that the questioned Secretarys Certificate and Deeds of Assignment of

ATTY. GERALDINE QUIMUSING-TIU LAKAS ATENISTA


Shares of Stock were not included in the Notarial Report of Atty. Lope M. Velasco for the years 1998-1999. In setting aside the trial courts order, the CA pointed out that the presentation of the deeds of assignment executed by the decedent in petitioners favor does not automatically negate the existence of concealment. The appellate court stated that it is a common occurrence in estate proceedings for heirs to execute simulated deeds of transfer which conceal and place properties of the decedent beyond the reach of creditors. ISSUE: WON the CA correctly ordered the trial court to give due course to the Motion for Examination. RULING: YES. Section 6, Rule 87 of the Rules of Court provides:

SEC. 6. Proceedings when property concealed, embezzled, or fraudulently conveyed . If an executor or administrator, heir, legatee, creditor, or other individual interested in the estate of the deceased, complains to the court having jurisdiction of the estate that a person is suspected of having concealed, embezzled, or conveyed away any of the money, goods, or chattels of the deceased, or that such person has in his possession or has knowledge of any deed, conveyance, bond, contract, or other writing which contains evidence of or tends to disclose the right, title, interest, or claim of the deceased, the court may cite such suspected person to appear before it and may examine him on oath on the matter of such complaint; and if the person so cited refuses to appear, or to answer on such examination or such interrogatories as are put to him, the court may punish him for contempt, and may commit him to prison until he submits to the order of the court. The interrogatories put to any such person, and his answers thereto, shall be in writing and shall be filed in the clerks office.
Section 6 of Rule 87 seeks to secure evidence from persons suspected of having possession or knowledge of the properties left by a deceased person, or of having concealed, embezzled or conveyed any of the properties of the deceased. The court which acquires jurisdiction over the properties of a deceased person through the filing of the corresponding proceedings has supervision and control over these properties. The trial court has the inherent duty to see to it that the inventory of the administrator lists all the properties, rights and credits which the law requires the administrator to include in his inventory. In compliance with this duty, the court also has the inherent power to determine what properties, rights and credits of the deceased the administrator should include or exclude in the inventory. An heir or person interested in the properties of a deceased may call the courts attention that certain properties, rights or credits are left out from the inventory. In such a case, it is likewise the courts duty to hear the observations of such party. The court has the power to determine if such observations deserve attention and if such properties belong prima facie to the estate. However, in such proceedings the trial court has no authority to decide whether the properties, real or personal, belong to the estate or to the persons examined. If after such examination there is good reason to believe that the person examined is keeping properties belonging to the estate, then the administrator should file an ordinary action in court to recover the same. Inclusion of
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SPECIAL PROCEEDINGS DIGESTED CASES-RULE 87 to 89


certain shares of stock by the administrator in the inventory does not automatically deprive the assignees of their shares. They have a right to be heard on the question of ownership, when that property is properly presented to the court. In the present case, some of the transferees of the shares of stock do not appear to be heirs of the decedent. Neither do they appear to be parties to the intestate proceedings. Third persons to whom the decedents assets had been conveyed may be cited to appear in court and examined under oath as to how they came into possession of the decedents assets. In case of fraudulent conveyances, a separate action is necessary to recover these assets. Taken in this light, there is no reason why the trial court should disallow the examination of the alleged transferees of the shares of stocks. This is only for purposes of eliciting information or securing evidence from persons suspected of concealing or conveying some of the decedents properties to the prejudice of creditors. Petitioners admission that these persons are the decedents assignees does not automatically negate concealment of the decedents assets on their part. The assignment might be simulated so as to place the shares beyond the reach of creditors. In case the shares are eventually included in the estate, this inventory is merely provisional and is not determinative of the issue of ownership. A separate action is necessary for determination of ownership and recovery of possession. Also, petitioners quote Arcega and Miranda v. Pecson and Arcega to question the propriety of filing a petition for certiorari before the CA: Without deciding whether the proceeding thus conducted complies with the provision of Section 6 of Rule 88 [Section 6, Rule 87 under the 1997 Rules of Civil Procedure], which says that "the court may cite such suspected person to appear before it and may examine him on oath on the matter of such complaint," and without deciding whether the duty of the judge to make the examination is or not mandatory, we are satisfied that certiorari is not an appropriate remedy under the aforecited rule. The facts in Arcega are not on all fours with the facts in the instant case. In Arcega , the judge granted the examination but only with respect to three of the several lots involved. In the present case, there was an absolute refusal by the trial court to conduct an examination on the ground that it would constitute a "fishing expedition" of evidence that could be used against the administratrix. In Arcega , the trial court issued an order in favor of the person suspected of having concealed properties of the estate and against the special administratrix and the judicial receiver. The special administratrix had the remedy of filing another case to recover such properties in the name of thee state. In the present case, Absolute as a creditor of the decedent filed the petition after the trial court denied its Motion for examination. Absolute questioned the ruling in favor of the administratrix and heirs of the decedent. Although as a creditor, Absolute does have the remedy of filing another case to recover such properties, its Motion for examination was intended merely to investigate and take testimony in preparation for an independent action. Aside from the administratrix and the heirs of the decedent, Absolute also sought to examine the supposed assignees of the decedents shares, who are third persons with respect to the probate

ATTY. GERALDINE QUIMUSING-TIU LAKAS ATENISTA


proceedings. The Motion was a preparatory move sanctioned by the Rules of Court. The denial of Absolutes Motion was an interlocutory order not subject to appeal. The order of denial may, however, be challenged before a superior court through a petition for certiorari under Rule 65. G.R. No. 129008 January 13, 2004 TEODORA A. RIOFERIO, ET AL. vs. CA, ET AL FACTS: On May 13, 1995, Alfonso P. Orfinada, Jr. died without a will in Angeles City leaving several personal and real properties located in Angeles City, Dagupan City and Kalookan City.3 He also left a widow, respondent Esperanza P. Orfinada, with whom he had seven children who are the herein respondents, namely: Lourdes, Alfonso "Clyde", Nancy, Alfonso James, Christopher, Alfonso Mike, and Angelo P. Orfinada.4 Apart from the respondents, the demise of the decedent left in mourning his paramour and their children. They are petitioner Teodora Riofero, who became a part of his life when he entered into an extra-marital relationship with her during the subsistence of his marriage to Esperanza, and co-petitioners Veronica, Alberto and Rowena. On November 14, 1995, respondents Alfonso James and Lourdes Orfinada discovered that petitioner Teodora Rioferio and her children executed an Extrajudicial Settlement of Estate of a Deceased Person with Quitclaim involving the properties of the estate of the decedent located in Dagupan City and that accordingly, the Registry of Deeds in Dagupan issued Certificates of Titles Nos. 63983, 63984 and 63985 in favor of petitioners. Respondents also found out that petitioners were able to obtain a loan of P700,000.00 from the Rural Bank of Mangaldan Inc. by executing a Real Estate Mortgage over the properties subject of the extra-judicial settlement. On December 1, 1995, respondent Alfonso "Clyde" P. Orfinada III filed a Petition for Letters of Administration before the RTC of Angeles City, praying that letters of administration encompassing the estate of Alfonso P. Orfinada, Jr. be issued to him. On December 4, 1995, respondents filed a Complaint for the Annulment/Rescission of Extra Judicial Settlement of Estate of a Deceased Person with Quitclaim, Real Estate Mortgage and Cancellation of Transfer Certificate of Titles with Nos. 63983, 63985 and 63984 and Other Related Documents with Damages against petitioners. Petitioners interposed the defense that the property subject of the contested deed of extra-judicial settlement pertained to the properties originally belonging to the parents of Teodora Riofero and that the titles thereof were delivered to her as an advance inheritance but the decedent had managed to register them in his name. Petitioners also argued that respondents are not the real parties-in-interest but rather the Estate of Alfonso O. Orfinada, Jr. in view of the pendency of the administration proceedings. Hence, petitioners filed a Motion to Set Affirmative Defenses for Hearing on the aforesaid ground. The lower court denied the motion on the ground that respondents, as heirs, are the real parties-in-interest especially in
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SPECIAL PROCEEDINGS DIGESTED CASES-RULE 87 to 89


the absence of an administrator who is yet to be appointed. The CA found that the lower court committed no grave abuse of discretion amounting to lack or excess of jurisdiction. ISSUE: WON the heirs have legal standing to prosecute the rights belonging to the deceased subsequent to the commencement of the administration proceedings. RULING: YES. Petitioners vehemently fault the lower court for denying their motion to set the case for preliminary hearing on their affirmative defense that the proper party to bring the action is the estate of the decedent and not the respondents. It must be stressed that the holding of a preliminary hearing on an affirmative defense lies in the discretion of the court. This is clear from the Rules of Court, thus: SEC. 5. Pleadings grounds as affirmative defenses.- Any of the grounds for dismissal provided for in this rule, except improper venue, may be pleaded as an affirmative defense, and a preliminary hearing may be had thereon as if a motion to dismiss had been filed. Certainly, the incorporation of the word "may" in the provision is clearly indicative of the optional character of the preliminary hearing. The word denotes discretion and cannot be construed as having a mandatory effect. Just as no blame of abuse of discretion can be laid on the lower courts doorstep for not hearing petitioners affirmative defense, it cannot likewise be faulted for recognizing the legal standing of the respondents as heirs to bring the suit. Pending the filing of administration proceedings, the heirs without doubt have legal personality to bring suit in behalf of the estate of the decedent in accordance with the provision of Article 777 of the New Civil Code "that (t)he rights to succession are transmitted from the moment of the death of the decedent." The provision in turn is the foundation of the principle that the property, rights and obligations to the extent and value of the inheritance of a person are transmitted through his death to another or others by his will or by operation of law. Even if administration proceedings have already been commenced, the heirs may still bring the suit if an administrator has not yet been appointed. This is the proper modality despite the total lack of advertence to the heirs in the rules on party representation, namely Section 3, Rule 326 and Section 2, Rule 87 of the Rules of Court. In fact, in the case of Gochan v. Young, this Court recognized the legal standing of the heirs to represent the rights and properties of the decedent under administration pending the appointment of an administrator. Thus: The above-quoted rules, while permitting an executor or administrator to represent or to bring suits on behalf of the deceased, do not prohibit the heirs from representing the deceased. These rules are easily applicable to cases in which an administrator has already been appointed. But no rule categoricall y addresses the situation in which special proceedings for the settlement of an estate have already been instituted, yet no administrator has been appointed . In such instances, the

ATTY. GERALDINE QUIMUSING-TIU LAKAS ATENISTA


heirs cannot be expected to wait for the appointment of an administrator; then wait further to see if the administrator appointed would care enough to file a suit to protect the rights and the interests of the deceased; and in the meantime do nothing while the rights and the properties of the decedent are violated or dissipated. Even if there is an appointed administrator, jurisprudence recognizes two exceptions, viz: (1) if the executor or administrator is unwilling or refuses to bring suit; 30 and (2) when the administrator is alleged to have participated in the act complained of and he is made a party defendant. 32 Evidently, the necessity for the heirs to seek judicial relief to recover property of the estate is as compelling when there is no appointed administrator, if not more, as where there is an appointed administrator but he is either disinclined to bring suit or is one of the guilty parties himself. All told, therefore, the rule that the heirs have no legal standing to sue for the recovery of property of the estate during the pendency of administration proceedings has three exceptions, the third being when there is no appointed administrator such as in this case. RULE 88 PAYMENT OF THE DEBTS OF THE ESTATE G.R. No. 157287 February 12, 2008

WT CONSTRUCTION, INC. vs. HON. ULRIC R. CAETE, Presiding Judge, RTC, Mandaue City, Branch 55, and the ESTATE OF ALBERTO CABAHUG, thru its Administratrix, JULIANA VDA. DE CABAHUG FACTS: Juliana vda. De Cabahug filed a case for the settlement of the estate of her deceased husband, Alberto Cabahug, before the RTC of Mandaue City. On January 10, 1992, Ciriaco Cabahug, the administrator of the estate and heir of Alberto, was granted the authority to sell one of the properties of the estate to defray the expenses for the payment of taxes due from the estate. The property to be sold was the parcel of land subject of the petition, situated in Looc, Mandaue City. Ciriaco entered into an Agreement for Sale of Land with Downpayment with petitioner for P8,691,000 on September 23, 1996. In accordance with the agreement, petitioner made a down payment of 50% of the purchase price or P4,431,600 [should be P4,345,500]. The balance of the purchase price was to be paid "immediately after the land is free from all occupants/obstructions." The contract likewise stipulated the following: 5. That the seller shall undertake the clearing of the land herein sold of its present occupants and/or eject the squatters therein within a period of one (1) year reckoned from the receipt of the advance payment, provided however, that if the buyer will be the one to handle the clearing or ejectment of occupants, all the expenses incurred thereto shall be charged to and be deducted from the remaining balance payable.
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Subsequently, petitioner took steps in clearing the property of its occupants by filing a complaint for ejectment in 1998 with the Municipal Trial Court in Cities, Mandaue City. It was later discovered that Ciriaco did not inform his co-heirs of the sale. He appropriated the amount paid by petitioner, so public respondent issued an Order, relieving Ciriaco of his functions as administrator and directing him to render an accounting of all the properties and assets of the estate. Consequently, Administrator Linda Cabahug-Antigue, along with her co-heirs, demanded from petitioner the payment of the balance of the purchase price. Referring to the provision of the agreement relating to the payment of the balance of the purchase price conditioned upon the removal of occupants and obstructions in the property, petitioner refused to pay the remaining balance. On July 6, 2000, public respondent issued an Order directing: WT Construction to manifest in court within 5 days from receipt of this order whether it wants the Contract of Sale rescinded. If no manifestation is filed within said period, WT Construction is further ordered to pay the estate of Alberto Cabahug the amount of P4,259,400.00 less expenses incurred in the ejectment case within a period of 15 days, otherwise, failure to do so will prompt the court to issue a writ of execution as prayed for by movant-administratrix. Petitioner filed a MFR and/or Extension of Time to Manifest Option to Rescind. The MFR was denied, and a Writ of Execution to implement the above Order was issued by public respondent to pay the estate of Alberto Cabahug minus the expenses incurred by WT Construction in ejecting the occupants of the land. Petitioner filed an Urgent Motion to Quash the Writ of Execution, which was likewise denied. Petitioner went to the CA on a petition for certiorari but the CA dismissed the petition. Petitioner argues as follows: (among others) 1. the writ of execution sought to be quashed by petitioner is inherently defective, as it gives the sheriff the authority to determine the amount to be levied in violation of the mandatory provision of Section 8(e), Rule 39 of the 1997 Rules of Civil Procedure; 2. the quashal of the writ of execution issued by public respondent is necessary and proper because, aside from being inherently defective, it is the product of a null and void proceedings because the jurisdiction to determine the rights and obligations of petitioner and private respondent under the "Agreement for Sale of Land with Downpayment" exclusively belongs to courts of general jurisdiction; 3. the writ of execution sought to be quashed by petitioner is not one of those allowed to be issued by probate courts under Section 6, Rule 88; Section 3, Rule 90 and Section 13, Rule 142 of the Revised Rules of Court;

ATTY. GERALDINE QUIMUSING-TIU LAKAS ATENISTA


ISSUE: WON a probate court has the jurisdiction to determine the rights and obligations of the parties in a contract, one of which is a private corporation. RULING: The petition is denied. As correctly held by the CA, there was no discretion given to the sheriff as to the amount to be paid or executed on under the writ of execution. While the writ of execution did say ". . . the sum of P4,259,400.00, . . . minus the expenses incurred by WT Construction in ejecting the occupants of the land," this simply means that petitioner was being given a chance by the court to reduce the aforementioned amount upon proof of said deductible expenses, after which an alias writ would be issued. In the absence of such proof, the sheriff would have to execute for the full amount. And as noted by the CA, petitioner failed to prove such expenses within the period given by the probate/estate court. The issue is, therefore, moot. As to petitioners argument that the probate/estate court cannot adjudicate the rights and obligations of the parties under the deed of sale, the CA rightly found that this was a new issue not raised in the probate/estate court. Furthermore, the deed of sale in question is the sale of the property of the estate to pay for taxes, a matter definitely within the power of the probate/estate court to order. It is but logical that probate/estate courts can enforce obligations under such a deed of sale. Otherwise, they would not be able to secure the proceeds to pay for the taxes and this would defeat the purpose of the proceedings to settle the estate. Stated otherwise, the power to enforce obligations under the deed of sale of a property ordered sold to pay debts of the estate is but a necessary incident of the power of a probate/estate court to order and effect such sale in the first place. Decision CA is hereby AFFIRMED.

RULE 89 SALES, MORTGAGES & OTHER ENCRUMBANCES OF PROPERTY OF DECEDENT G.R. No. 158566 September 20, 2005 JOSEPHINE OROLA, MYRNA OROLA, ANGELINE OROLA, MANUEL OROLA, ANTONIO OROLA and ALTHEA OROLA, vs. THE RURAL BANK OF

SPECIAL PROCEEDINGS DIGESTED CASES-RULE 87 to 89


PONTEVEDRA (CAPIZ), INC., EMILIO Q. OROLA, THE REGISTER OF DEEDS OF CAPIZ and THE EX-OFFICIO PROVINCIAL SHERIFF OF CAPIZ

ATTY. GERALDINE QUIMUSING-TIU LAKAS ATENISTA


agreed. The Estate of Trinidad Laserna, through its administrator, Emilio, as lessor, and Josephine, Manuel and Antonio, all surnamed Orola, as lessees, executed separate contracts of lease over the aforesaid property of the estate. On September 20, 1982, the intestate estate court issued an Order approving the contracts. However, it turned out that the lessees would not qualify for the loans; the bank required a lease period of at least 10 years from the time the court approved the same. On May 20, 1982, Emilio, Antonio, Manuel and Josephine Orola filed a Manifestation with the intestate estate court, praying that its order be amended to state that the periods of the leases were to commence from court approval of the said contracts. However, on December 15, 1982, the estate, through Emilio, as lessor, and Josephine, Antonio and Manuel Orola, executed separate Amended Contracts of Lease covering the same property. The periods of the lease were extended to 12 years, to commence from their approval by the intestate estate court. The lessees were also authorized to negotiate loans for the development of the leased premises not to exceed P200,000.00, and to bind the leased premises by way of real estate mortgage as security therefor. On December 15, 1982, Emilio filed an Ex Parte Motion in the intestate estate court for the approval of the amended contracts of lease appended thereto. On December 17, 1982, Angeline, Myrna and Althea Orola filed their Joint Affidavit of Conformity to the motion. On December 17, 1982, the court granted the motion of Emilio and approved the amended contracts of lease. On December 20, 1982, the Rural Bank notified Emilio that the loan applications of his children had been approved. Antonio, Manuel and Josephine signed separate Promissory Notes on March 21, 1983 in which they promised and bound themselves to pay their respective loans in 10 years in stated annual installments. Antonio Orola, for and in behalf of his father Emilio Orola, executed a Real Estate Mortgage over Lot 1088 as security for the payment of his loan. Manuel Orola, also as attorney-in-fact of the administrator of the estate, likewise, executed a real estate mortgage in favor of the Rural Bank over the said lots as security for his loan. Josephine Orola, as attorney-in-fact of the administrator of the estate, executed a separate real estate mortgage agreement over a portion of Lot 1088 and Lot 1071 as security for her loan. However, the real estate mortgage contracts were not submitted to the guardianship and intestate estate courts for approval. Neither were Myrna, Angeline and Althea aware of the said loans. The net proceeds of the loan, in the total amount of P582,000.00, were deposited in the Rural Bank on May 9, 1983 in Emilios account. From the said proceeds, the Rural Bank deducted the amount of P229,771.20, the accommodation loan Emilio secured from the Rural Bank. As of September 9, 1983, the balance of the said deposit amounted to only P4,292.79.Emilio, thereafter, failed to pay the amortizations of the loans to the Rural Bank. This prompted the Rural Bank to write separate letters of demand to Josephine, Manuel and Antonio, demanding payment of the balance of their accounts within seven days from the receipt thereof, otherwise the Rural Bank would cause the extrajudicial foreclosure of the real estate mortgages. Emilio Orola pleaded to the Rural Bank not to foreclose the mortgages. However, on June
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Facts: On July 16, 1969, Trinidad Laserna Orola died intestate. She was survived by her husband Emilio Orola and their six minor children, namely, 10-year-old Antonio, 12-year-old Josephine, 16-year-old Manuel, and other siblings, Myrna, Angeline and Althea. The estate consisted of property located in Pontevedra, Capiz. Portions of the property were devoted to the development and production of sugar. Some portions were riceland, while some parts of the property were swampy. Emilio Orola, who, in the meantime, had married anew, executed a waiver of all his rights and interests over the said property in favor of his children by Trinidad Laserna, namely, Josephine, Myrna, Angeline, Manuel, Antonio and Althea, all surnamed Orola. In 1973, Emilio Orola retired as cashier of the Philippine National Bank (PNB). He filed a petition for his appointment as guardian over the persons and property of his minor children. The case was docketed as Special Proceedings (Sp. Proc.) No. V-3526. The petition was granted, and Emilio Orola was appointed guardian not only over the persons of his minor children but also over their property. On November 6, 1973, Emilio filed a petition with the RTC for the settlement of the estate of his deceased spouse, Trinidad Laserna, and his appointment as administrator of her estate. The RTC issued an order appointing Emilio Orola as administrator of the estate of his deceased spouse. As such administrator of the estate, Emilio took possession of the said parcels of land. He opened an account in the name of the estate with the PNB. He embarked on a massive sugar production and, with prior approval of the court, negotiated with banking institutions for financing loans to purchase the required equipments. However, in 1976 and 1977, there was a sudden collapse of the sugar industry. Emilio Orola found it necessary to develop the swampy portion of the estate for the production of fish. To finance the endeavor, he needed at least P600,000.00. On September 11, 1980, Emilio Orola filed a motion in Sp. Proc. No. V-3639 for authority to negotiate a P600,000.00 loan from the Central Bank of the Philippines for the full and complete development of the fishpond portion of the estate, and to transfer the sugar account of the estate from the PNB to the Republic Planters Bank (RPB). On September 12, 1980, the court granted the motion of the administrator and authorized him to negotiate the loan through the Rural Bank of Capiz (Rural Bank of Pontevedra, Capiz) and to transfer the sugar account of the estate to the RPB in Roxas City. Emilio then filed an application with the Rural Bank for a financing loan of P600,000.00. The bank informed him that that there would be no need for the Central Bank to intervene if the loan of P600,000.00 would be broken down into three parts of P200,000.00, each to be applied for by three applicants to whom the property to be used as collateral would be leased by the estate. Emilio agreed and talked to his children, Josephine, Manuel and Antonio, about the banks proposal. The three siblings

SPECIAL PROCEEDINGS DIGESTED CASES-RULE 87 to 89


15, 1985, the Rural Bank filed an application with the Ex-Officio Provincial Sheriff for the extrajudicial foreclosure of the real estate mortgages over Lots 1071 and 1088. The lots were sold at public auction on April 14, 1986 with the Rural Bank as the winning bidder. The Ex-Officio Provincial Sheriff executed separate certificates of sale in favor of the Rural Bank. On September 1, 1987, the guardianship court terminated the guardianship and dismissed the case. On September 21, 1987, Josephine, Myrna, Manuel and Antonio Orola executed a Deed of Acceptance of Waiver or Donation in which they accepted their fathers waiver of his rights, interests and participation over their mothers estate. On October 1, 1987, Josephine Orola and her siblings, Myrna, Angeline, Manuel, Antonio and Althea, filed a Complaint against the Rural Bank, their father Emilio and the Ex-Officio Provincial Sheriff for the nullification of the Promissory Notes and Real Estate Mortgages executed by Josephine, Manuel and Antonio Orola, and the sale of the property subject of the said deed at public auction. They alleged therein that they became the sole owners of Lots 1088 and 1071 when their father executed a waiver of his rights over the said lots in their favor. They also alleged that the real estate mortgage contracts were null and void because the same were never submitted to and approved by the RTC in Sp. Proc. Nos. V-3526 and V-3639. Moreover, they were hoodwinked by their father into signing the contracts of lease and amended contracts of lease, promissory notes and deeds of real estate mortgages as security for the P600,000.00 loan on the assurance that they would be benefited therefrom; moreover, they did not receive the proceeds of the said loans. As such, the extrajudicial foreclosure of the real estate mortgages and the sale of the property covered by the said deeds were null and void. In its answer to the complaint, Rural Bank averred that the RTC in Sp. Proc. No. V-3639 authorized and even approved the amended contracts of sale executed by Antonio, Manuel and Josephine Orola and the defendant Emilio Orola. It further averred that the plaintiffs had agreed to the execution of the mortgages of the property subject of the said deeds, and conformed to the said amended contracts before the RTC in the intestate estate proceedings approved the same; they were also notified of the balance of their account, and of the extrajudicial foreclosure of the real estate mortgages, and the subsequent sale of the property covered by the said mortgages at public auction after they refused to pay their account despite demands. As such, the plaintiffs were estopped from assailing the real estate mortgages and the extrajudicial foreclosure thereof and the sale of the lots covered by the said deeds at public auction. In his answer to the complaint, Emilio Orola admitted that the guardianship proceedings terminated on September 1, 1987. He alleged that he executed the Waiver of Right on October 26, 1976 only because his brother and sister-in-law required him to do so as a condition to their signing the partition agreement, with their assurance that the said waiver would take effect only after his death. Moreover, the plaintiffs had agreed to the execution of the amended contracts of lease to facilitate the early release of the loans as required by the Rural Bank. He further alleged that the proceeds of the loans were used for the development of the estate; the non-submission of the real estate mortgages to the intestate estate and guardianship courts for approval was due to the fault of Rural Bank; and his failure to pay the amortizations of the loan was due to force majeure, namely, typhoon Undang.

ATTY. GERALDINE QUIMUSING-TIU LAKAS ATENISTA


On December 29, 1989, the Rural Bank presented the Real Estate Mortgage in the Office of the Register of Deeds. On April 19, 1991, the RTC rendered judgment in favor of the plaintiffs and declared the loans as well as the real estate mortgage null and void for failure to comply with the mandatory requirements of Section 7, Rule 89, Revised Rules of Court. The trial court held that although the intestate estate court authorized Emilio to negotiate a loan of P600,000.00 with Rural Bank, he was not authorized to mortgage the real property of the estate to the Rural Bank. The court ruled that the September 12, 1980 Order of the intestate estate court was null and void because the motion of the administrator for authority to negotiate a loan with the Rural Bank was made ex parte, that is, without notifying the plaintiffs who were the heirs of the deceased. The court also held that the plaintiffs were not estopped from assailing the real estate mortgage contracts, the same being null and void. It also declared that the issue of whether or not the plaintiffs were the co-owners of the property should be ventilated with the proper RTC in the exercise of its general jurisdiction in an ordinary action for the said purpose. Rural Banks motion for reconsideration of the decision was denied by the trial court. It then appealed the decision to the CA, where it alleged, among others that The non-presentation of the priorly authorized mortgages in question in court after their execution, does not nullify said mortgages, as what is required by Sec. 7, Rule 89 is only prior approval by the intestate court. The appellant bank averred that the amended contracts of lease, which contained provisions requiring the intestate estate courts approval, were approved by the intestate estate court and conformed to by the other heirs of the deceased. The bank posited that the court a quo had no jurisdiction to nullify the order of the estate court, which was co-equal in rank with the estate court in approving the amended contracts of lease. It further alleged that the administrator of the estate is not required under Section 7, Rule 89 of the Rules of Court to secure prior authority to mortgage the real properties or otherwise encumber the same. Rural Bank alleged that the appellees were estopped from assailing the real estate mortgages of the property after having been benefited by the P600,000.00 loan. The appellees failed to file their brief. On October 18, 2002, the CA rendered a Decision granting the appeal and reversing the appealed decision. The appellate court ruled that the intestate estate courts approval of the amended contracts of lease carried with it the approval of the real estate mortgages executed by Emilio Orola in favor of the Rural Bank. Angeline, Myrna and Althea even conformed to the amended contracts of lease; hence, were estopped from assailing them, as well as the real estate mortgage contracts. The petitioners reiterate their argument that respondent Emilio Orola, then administrator of the estate, failed to comply with Section 7, Rule 89 of the Rules of Court. They aver that this provision is mandatory in nature, including the fixing of a time and place for hearing of the motion for the approval of the amended contracts of lease. They point out that respondent Orola failed to file a motion for the approval of the real estate mortgages. The
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petitioners insist that even if it is assumed that the December 17, 1982 Order of the intestate estate court approving the amended contracts of lease authorized the constitution of real estate mortgages over the real property of the estate, such order is void, as it authorized petitioners Manuel, Antonio and Josephine Orola, and not the respondent Emilio Orola, to mortgage the said property. They insist that they are not estopped from assailing a void order issued by the intestate estate court. Respondent Rural Bank insists that the petitioners had been benefited by the loans granted to them; hence, are estopped from assailing the real estate mortgage contracts. Respondent Orola, for his part, avers that the one-half undivided portion of the property subject of the real estate mortgages was the exclusive property of the deceased, and partly the conjugal property of the respondent and the deceased. Moreover, respondent Orolas share in the conjugal property was not the subject of the intestate case, as it was not included as part of the property given as security for the loans of the petitioners-mortgagees. Issue # 1: W/N the subject mortgages constituted over the real estate properties are void for non compliance with the mandatory regulations of Section 7 Rule 89 Held: The CA decision is set aside. Section 2, Rule 89 of the Rules of Court provides that, upon application of the administrator and on written notice to the heirs, the court may authorize the administrator to mortgage so much as may be necessary of the real estate for the expenses of the administrator, or if it clearly appears that such mortgage would be beneficial to the persons interested: Sec. 2. When court may authorize sale, mortgage, or other encumbrance of realty to pay debts and legacies through personality not exhausted. When the personal estate of the deceased is not sufficient to pay the debts, expenses of administration, and legacies, or where the sale of such personal estate may injure the business or other interests of those interested in the estate, and where a testator has not, otherwise, made sufficient provision for the payment of such debts, expenses, and legacies, the court, on the application of the executor or administrator and on written notice to the heirs, devisees, and legatees residing in the Philippines, may authorize the executor or administrator to sell, mortgage, or otherwise, encumber so much as may be necessary of the real estate, in lieu of personal estate, for the purpose of paying such debts, expenses, and legacies, if it clearly appears that such sale, mortgage, or encumbrance would be beneficial to the persons interested; and if a part cannot be sold, mortgaged, or otherwise encumbered without injury to those interested in the remainder, the authority may be for the sale, mortgage, or other encumbrance of the whole of such real estate, or so much thereof as is necessary or beneficial under the circumstances. Section 7 of Rule 89 provides the rules to obtain court approval for such mortgage: (a) The executor or administrator shall file a written petition setting forth the debts due from the deceased, the expenses of administration, the legacies, the value of the personal estate, the situation of the estate to be sold, mortgaged, or

ATTY. GERALDINE QUIMUSING-TIU LAKAS ATENISTA


otherwise encumbered, and such other facts as show that the sale, mortgage, or other encumbrance is necessary or beneficial; (b) The court shall thereupon fix a time and place for hearing such petition, and cause notice stating the nature of the petition, the reason for the same, and the time and place of hearing, to be given personally or by mail to the persons interested, and may cause such further notice to be given, by publication or otherwise, as it shall deem proper; (c) If the court requires it, the executor or administrator shall give an additional bond, in such sum as the court directs, conditioned that such executor or administrator will account for the proceeds of the sale, mortgage, or other encumbrance; (d) If the requirements in the preceding subdivisions of this section have been complied with, the court, by order stating such compliance, may authorize the executor or administrator to sell, mortgage, or otherwise encumber, in proper cases, such part of the estate as is deemed necessary, and in case of sale the court may authorize it to be public or private, as would be most beneficial to all parties concerned. The executor or administrator shall be furnished with a certified copy of such order; (e) If the estate is to be sold at auction, the mode of giving notice of the time and place of the sale shall be governed by the provisions concerning notice of execution sale; (f) There shall be recorded in the registry of deeds of the province in which the real estate thus sold, mortgaged, or otherwise encumbered is situated, a certified copy of the order of the court, together with the deed of the executor or administrator for such real estate, which shall be as valid as if the deed had been executed by the deceased in his lifetime. After the real estate mortgage is executed in accordance with the foregoing regulations, the said deed must be submitted for the consideration and approval or disapproval of the court. The records show that respondent Emilio Orola notified the petitioners of his motion for the approval of the amended contracts of lease. Although the motion was ex parte, nonetheless, petitioners Angeline, Myrna and Althea Orola filed their Joint Affidavit of Conformity, in which they declared that: 7. That on December 15, 1982, the administrator, thru counsel, filed an ex parte motion for the admission and approval of the amended contracts of lease in favor of our brothers and sister changing the term from ten (10) to twelve (12) years, copy of the amended contracts of lease [were] shown to us; 8. That we have no objection and we voluntarily conform to the amendment of the term from ten (10) to twelve (12) years and freely give our consent to having the Lessees execute a real estate mortgage over the leased property in favor of the bank just to be able to avail with the CB: IBRD financing loan to develop the property;

SPECIAL PROCEEDINGS DIGESTED CASES-RULE 87 to 89


9. That we are jointly executing this affidavit for the purpose of facilitating the immediate admission and approval of the amended contracts of lease as prayed for in the ex parte motion dated December 5, 1982. However, the Court agrees with the petitioners contention that respondent Orola fail ed to secure an order from the intestate estate court authorizing him to mortgage the subject lots and execute a real estate mortgage contract in favor of respondent Rural Bank. What the intestate estate court approved in its December 17, 1982 Order was the authority incorporated in the amended contracts of lease respondent Orola gave to petitioners Josephine, Manuel and Antonio Orola so that the said lots could be mortgaged to the respondent Rural Bank as security for the P600,000.00 loan under their respective names. In fine, the intestate estate court authorized the petitioners, not respondent Orola, to mortgage the said lots to respondent Rural Bank. Moreover, under Section 7 of Rule 89 of the Rules of Court, only the executor or administrator of the estate may be authorized by the intestate estate court to mortgage real estate belonging to the estate; hence, the order of the estate court authorizing the petitioners to mortgage the realty of the estate to the respondent Rural Bank is a nullity. The respondents must have realized that the order of the intestate estate court authorizing petitioners Manuel, Antonio and Josephine Orola to mortgage the lots was void because respondent Emilio Orola caused the real estate mortgage contracts in favor of respondent Rural Bank to be executed by his children, petitioners Josephine, Manuel and Antonio Orola, acting as attorneys-in-fact of the administrator of the estate. However, the estate court had not appointed petitioners Antonio, Josephine and Manuel Orola as attorneys-in-fact of respondent Emilio Orola empowered to execute the said contracts. Hence, they had no authority to execute the said Real Estate Mortgage Contracts for and in behalf of respondent Orola, in the latters capacity as administrator of the estate. Worse, respondent Orola failed to submit the real estate mortgage contracts to the intestate estate court for its consideration and approval. To give approval means to confirm, ratify, or to consent to some act or thing done by another. Unless and until the said contracts are approved by the intestate estate court, the same cannot have any binding effect upon the estate; nor serve as basis for any action against the estate and against the parcels of land described in the said contracts belonging to it. Issue # 2: W/N the subject mortgages are void for lack of authority from the probate court, having been constituted by persons other than the administrator of the estate of Trinidad Laserna Held: It bears stressing that respondent Orola had no right or authority to mortgage the realty belonging to the estate. He derived his authority from the order of the estate court which had jurisdiction to authorize the real estate mortgage thereof under such terms and conditions and upon proper application. Any mortgage of realty of the estate without the appropriate authority of the estate court has no legal support and is void. The purchaser at public auction acquires no title over the realty. The real estate mortgage

ATTY. GERALDINE QUIMUSING-TIU LAKAS ATENISTA


contracts, as well as the extrajudicial foreclosure thereof and the sale of the property described therein at public auction, can thus be attacked directly and collaterally. Contrary to the contention of respondent Rural Bank, the petitioners were not estopped from assailing the real estate mortgage contracts, the extrajudicial foreclosure thereof and the sale of the property to respondent Rural Bank. Although the records show that petitioners Josephine, Manuel and Antonio Orola received the proceeds of the loan from respondent Rural Bank, the amount was deposited by respondent Emilio Orola in his savings account with respondent Rural Bank. He was obliged to deposit the said amount in the estates account with the Republic Planters Bank, as ordered by the intestate estate court. Worse, respondent Rural Bank applied P229,771.20 of the loan proceeds to liquidate the accommodation loan it granted to respondent Emilio Orola. There is no showing in the records that the intestate estate court ever authorized the use of the proceeds of the loan to pay respondent Emilio Orolas accommodation loan. The loan proceeds were to be used to develop property belonging to the estate into a fishpond from which income could be generated. Of the net proceeds of the P582,000.00 loan, only P4,292.79 remained as of September 9, 1983. Respondent Emilio Orola failed to pay the amortization of the loan for the respondent Rural Bank of the estate. Had the real estate mortgage contracts been submitted to the intestate estate court for consideration and approval after proper notice to the petitioners, the court would have been apprised of the terms and conditions contained therein, and that about onehalf of the loan would be used to pay the accommodation loan of respondent Emilio Orola. Petitioners Manuel, Josephine and Antonio Orola executed the amended contracts of lease, the promissory notes and the real estate mortgages upon the prodding of their father, respondent Emilio Orola, and upon the suggestion of respondent Rural Bank, solely to facilitate the speedy approval of the loan of the estate, which was to be the ultimate beneficiary thereof. The petitioners acted on the belief that the loan would be used to develop the swampy portion of the realty into an income-generating fishpond, impervious of the fact that almost one-half of the proceeds of the loan had been used to pay the accommodation loan of respondent Emilio Orola. G.R. No. 156403. March 31, 2005 JOSEPHINE PAHAMOTANG and ELEANOR PAHAMOTANG-BASA, petitioners, vs . THE PHILIPPINE NATIONAL BANK (PNB) and the HEIRS OF ARTURO ARGUNA, respondents. Facts: On July 1, 1972, Melitona Pahamotang died. She was survived by her husband Agustin Pahamotang , and their eight (8) children, namely: Ana, Genoveva, Isabelita, Corazon, Susana, Concepcion and herein petitioners Josephine and Eleon or , all surnamed Pahamotang . On September 15, 1972, Agustin filed with the then Court of First Instance of Davao City a petition for issuance of letters administration over the estate of his deceased wife. The petition,
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SPECIAL PROCEEDINGS DIGESTED CASES-RULE 87 to 89


docketed as Special Case No. 1792, was raffled to Branch VI of said court, hereinafter referred to as the intestate court . In his petition, Agustin identified petitioners Josephine and Eleonor as among the heirs of his deceased spouse. It appears that Agustin was appointed petitioners' judicial guardian in an earlier case - Special Civil Case No. 1785 also of the CFI of Davao City, Branch VI. On December 7, 1972, the intestate court issued an order granting Agustins petition. On July 6, 1973, respondent Philippine National Bank (PNB) and Agustin executed an Amendmen t of Real and Chattel Mortgages with Assumption of Obligation. It appears that earlier, or on December 14, 1972, the intestate court approved the mortgage to PNB of certain assets of the estate to secure an obligation in the amount of P570,000.00. Agustin signed the document in behalf of (1) the estate of Melitona; (2) daughters Ana and Corazon; and (3) a logging company named Pahamotang Logging Enterprises, Inc. (PLEI) which appeared to have an interest in the properties of the estate. Offered as securities are twelve (12) parcels of registered land, ten (10) of which are covered by transfer certificates of title, all of the Registry of Deeds of Davao City, while the remaining two (2) parcels by TCTs of the Registry of Deeds of Davao del Norte and Davao del Sur, respectively. On July 16, 1973, Agustin filed with the intestate court a Petition for Authority To Increase Mortgage on the above mentioned properties of the estate. In an Order dated July 18, 1973, the intestate court granted said petition. On October 5, 1974, Agustin again filed with the intestate court another petition, Petition for Declaration of Heirs And For Authority To Increase Indebtedness, whereunder he alleged the necessity for an additional loan from PNB to capitalize the business of the estate, the additional loan to be secured by additional collateral in the form of a parcel of land covered by Original Certificate of Title (OCT) No. P-7131 registered in the name of Heirs of Melitona Pahamotang. In the same petition, Agustin prayed the intestate court to declare him and Ana, Genoveva, Isabelita, Corazon, Susana, Concepcion and herein petitioners Josephine and Eleonor as the only heirs of Melitona. In an Order of October 19, 1974, the intestate court granted Agustin authority to seek additional loan from PNB in an amount not exceeding P5,000,000.00 to be secured by the land covered by OCT No. P-7131 of the Registry of Deeds of Davao Oriental, but denied Agustins prayer for declaration of heirs for being premature. On October 22, 1974, a real estate mortgage contract for P4,500,000.00 was executed by PNB and Agustin in his several capacities as: (1) administrator of the estate of his late wife; (2) general manager of PLEI; (3) attorney-in-fact of spouses Isabelita Pahamotang and Orlando Ruiz, and spouses Susana Pahamotang and Octavio Zamora; and (4) guardian of daughters Concepcion and Genoveva and petitioners Josephine and Eleonor. Offered as securities for the additional loan are three (3) parcels of registered land covered by TCTs No. T-21132, 37786 and 43264. On February 19, 1980, Agustin filed with the intestate court a Petition (Request for Judicial Authority To Sell Certain Properties of the Estate), therein praying for authority to sell to Arturo Arguna the properties of the estate covered by TCTs

ATTY. GERALDINE QUIMUSING-TIU LAKAS ATENISTA


of the Registry of Deeds of Davao City, and also TCT of the Registry of Deeds of Davao del Norte. On February 27, 1980, Agustin yet filed with the intestate court another petition, this time a Petition To Sell the Properties of the Estate, more specifically referring to the property covered by OCT No. P-7131, in favor of PLEI. In separate Orders both dated February 25, 1980, the intestate court granted Agustin authority to sell estate properties, in which orders the court also required all the heirs of Melitona to give their express conformity to the disposal of the subject properties of the estate and to sign the deed of sale to be submitted to the same court. Strangely, the two (2) orders were dated two (2) days earlier than February 27, 1980, the day Agustin supposedly filed his petition. In a motion for reconsideration, Agustin prayed the intestate court for the amendment of one of its February 25, 1980 Orders by canceling the requirement of express conformity of the heirs as a condition for the disposal of the aforesaid properties. In its Order of January 7, 1981 , the intestate court granted Agustins prayer. Hence, on March 4, 1981, estate properties covered by TCTs No. 7443,11465, 24326, 31226, 8035, (T-2947) 662 and (T-3918) T-1081, were sold to respondent Arturo Arguna, while the property covered by OCT No. P-7131 was sold to PLEI. Consequent to such sales, vendees Arguna and PLEI filed witt the intestate court a motion for the approval of the corresponding deeds of sale in their favor. And, in an Order dated March 9, 1981, the intestate court granted the motion. Thereafter, three (3) daughters of Agustin, namely, Ana, Isabelita and Corazon petitioned the intestate court for the payment of their respective shares from the sales of estate properties, which was granted by the intestate court. Meanwhile, the obligation secured by mortgages on the subject properties of the estate was never satisfied. Hence, on the basis of the real estate mortgage contracts dated July 6, 1973 and October 22, 1974, mortgagor PNB filed a petition for the extrajudicial foreclosure of the mortgage. Petitioner Josephine filed a motion with the intestate court for the issuance of an order restraining PNB from extrajudicially foreclosing the mortgage. In its Order dated August 19, 1983, the intestate court denied Josephines motion. Hence, PNB was able to foreclose the mortgage in its favor. Petitioners Josephine and Eleanor, together with their sister Susana Pahamatong-Zamora, filed motions with the intestate court to set aside its Orders of December 14, 1972 [Note: the order dated July 18, 1973 contained reference to an order dated December 14, 1972 approving the mortgage to PNB of certain properties of the estate], July 18, 1973, October 19, 1974 and February 25, 1980. In an Order dated September 5, 1983, the intestate court denied the motions, explaining: "Carefully analyzing the aforesaid motions and the grounds relied upon, as well as the opposition thereto, the Court holds that the supposed defects and/or irregularities complained of are mainly formal or procedural and not substantial, for which reason, the Court is not persuaded to still disturb all the orders, especially that interests of the parties to the various contracts already authorized or approved by the Orders sought to be set aside will be adversely affected.
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Such was the state of things when, on March 20, 1984, in the Regional Trial Court at Davao City, petitioners Josephine and Eleanor, together with their sister Susana, filed their complaint for Nullification of Mortgage Contracts and Forecl osure Proceedings and Damages against Agustin, PNB, Arturo Arguna, PLEI, the Provincial Sheriff of Mati, Davao Oriental, the Provincial Sheriff of Tagum, Davao del Norte and the City Sheriff of Davao City PNB moved to dismiss the complaint, which the trial court granted in its Order of January 11, 1985. However, upon motion of the plaintiffs, the trial court reversed itself and ordered defendant PNB to file its answer. Defendant PNB did file its answer with counterclaim, accompanied by a cross-claim against co-defendants Agustin and PLEI. In a Decis ion dated August 7, 1998, the trial court in effect rendered judgment for the plaintiffs, declaring the Mortgage Contracts of July 6, 1973 and October 22, 1974, as well as the foreclosure proceedings, void insofar as it affects the share, interests and property rights of the plaintiffs in the assets of the estate of Melitona Pahamotang, but valid with respect to the other parties. It also declaredhe deeds of sale in favor of defendants Pahamotang Logging Enterprises, Inc. and Arturo Arguna as void insofar as it affects the shares, interests and property rights of herein plaintiffs in the assets of the estate of Melitona Pahamotang but valid with respect to the other parties to the said deeds of sale. The Court of Appeals reversed and set aside the trial courts decision. Issue: W/N the orders of the intestate court granting Agustins petitions for mortgage and sale were null and void for lack of compliance with the mandatory requirements of Rule 89 of the Rules of Court, particularly Sections 2, 4, 7 thereof Held: Yes. The decision of the CA is set aside and trial courts decision reinstated. It bears emphasizing that the action filed by the petitioners before the trial court in Civil Case No. 16,802 is for the annulment of several contracts entered into by Agustin for and in behalf of the estate of Melitona, namely: (a) contract of mortgage in favor of respondent PNB, (b) contract of sale in favor of Arguna involving seven (7) parcels of land; and (c) contract of sale of a parcel of land in favor of PLEI. The trial court acquired jurisdiction over the subject matter of the case upon the allegations in the complaint that said contracts were entered into despite lack of notices to the heirs of the petition for the approval of those contracts by the intestate court. Contrary to the view of the Court of Appeals, the action which petitioners lodged with the trial court in Civil Case No. 16,802 is not an action to annul the orders of the intestate court, which, according to CA, cannot be done collaterally. It is the validity of the contracts of mortgage and sale which is directly attacked in the action. And, in the exercise of its jurisdiction, the trial court made a factual finding in its decision of August 7, 1998 that petitioners were, in fact, not notified by their father Agustin of the filing of his petitions for permission to mortgage/sell

ATTY. GERALDINE QUIMUSING-TIU LAKAS ATENISTA


the estate properties. The trial court made the correct conclusion of law that the challenged orders of the intestate court granting Agustins petitions were null and void for lack of compliance with the mandatory requirements of Rule 89 of the Rules of Court, particularly Sections 2, 4, 7 thereof, which respectively read: Sec. 2. When court may authorize sale, mortgage, or other encumbrance of realty to pay debts and legacies through personalty not exhausted. - When the personal estate of the deceased is not sufficient to pay the debts, expenses of administration, and legacies, or where the sale of such personal estate may injure the business or other interests of those interested in the estate, and where a testator has not otherwise made sufficient provision for the payment of such debts, expenses, and legacies, the court, on the application of the executor or administrator and on written notice to the heirs, devisees, and legatees residing in the Philippines, may authorize the executor or administrator to sell, mortgage, or otherwise encumber so much as may be necessary of the real estate, in lieu of personal estate, for the purpose of paying such debts, expenses, and legacies, if it clearly appears that such sale, mortgage, or encumbrance would be beneficial to the persons interested; and if a part cannot be sold, mortgaged, or otherwise encumbered without injury to those interested in the remainder, the authority may be for the sale, mortgage, or other encumbrance of the whole of such real estate, or so much thereof as is necessary or beneficial under the circumstances. Sec. 4. When court may authorize sale of estate as beneficial to interested persons. Disposal of proceeds. - When it appears that the sale of the whole or a part of the real or personal estate, will be beneficial to the heirs, devisees, legatees, and other interested persons, the court may, upon application of the executor or administrator and on written notice to the heirs, devisees and legatees who are interested in the estate to be sold, authorize the executor or administrator to sell the whole or a part of said estate, although not necessary to pay debts, legacies, or expenses of administration; but such authority shall not be granted if inconsistent with the provisions of a will. In case of such sale, the proceeds shall be assigned to the persons entitled to the estate in the proper proportions. Sec. 7. Regulations for granting authority to sell, mortgage, or otherwise encumber estate. - The court having jurisdiction of the estate of the deceased may authorize the executor or administrator to sell personal estate, or to sell, mortgage, or otherwise encumber real estate; in cases provided by these rules and when it appears necessary or beneficial, under the following regulations: (a) The executor or administrator shall file a written petition setting forth the debts due from the deceased, the expenses of administration, the legacies, the value of the personal estate, the situation of the estate to be sold, mortgaged, or otherwise encumbered, and such other facts as show that the sale, mortgage, or other encumbrance is necessary or beneficial; The court shall thereupon fix a time and place for hearing such petition, and cause notice stating the nature of the petition, the reason for the same, and the time and place of
10

(b)

SPECIAL PROCEEDINGS DIGESTED CASES-RULE 87 to 89


hearing, to be given personally or by mail to the persons interested, and may cause such further notice to be given, by publication or otherwise, as it shall deem proper; (Emphasis supplied). xxx xxx xxx

ATTY. GERALDINE QUIMUSING-TIU LAKAS ATENISTA


were ignorant of Agustins scheme to mortgage and sell the estate properties. Aside from merely quoting the orders of July 18, 1973 and October 19, 1974 of the intestate court, the Court of Appeals leaves us in the dark on its reason for disbelieving the trial court. The appellate court did not publicize its appraisal of the evidence presented by the parties before the trial court in the matter regarding the knowledge, or absence thereof, by the petitioners of Agustins petitions. The appellate court cannot casually set aside the findings of the trial court without stating clearly the reasons therefor. Findings of the trial court are entitled to great weight, and absent any indication to believe otherwise, we simply cannot adopt the conclusion reached by the Court of Appeals. Laches is negligence or omission to assert a right within a reasonable time, warranting the presumption that the party entitled to assert it has either abandoned or declined the right. The essential elements of laches are: (1) conduct on the part of the defendant, or of one under whom he claims, giving rise to the situation of which complaint is made and for which the complaint seeks a remedy; (2) delay in asserting the complainant's rights, the complainant having had knowledge or notice of the defendant's conduct and having been afforded an opportunity to institute a suit; (3) lack of knowledge or notice on the part of the defendant that the complainant would assert the right on which he bases his suit; and (4) injury or prejudice to the defendant in the event relief is accorded to the complainant, or the suit is not held barred.[17] In the present case, the appellate court erred in appreciating laches against petitioners. The element of delay in questioning the subject orders of the intestate court is sorely lacking. Petitioners were totally unaware of the plan of Agustin to mortgage and sell the estate properties. There is no indication that mortgagor PNB and vendee Arguna had notified petitioners of the contracts they had executed with Agustin. Although petitioners finally obtained knowledge of the subject petitions filed by their father, and eventually challenged the July 18, 1973, October 19, 1974, February 25, 1980 and January 7, 1981 orders of the intestate court, it is not clear from the challenged decision of the appellate court when they (petitioners) actually learned of the existence of said orders of the intestate court. Absent any indication of the point in time when petitioners acquired knowledge of those orders, their alleged delay in impugning the validity thereof certainly cannot be established. And the Court of Appeals cannot simply impute laches against them. NATALIA CARPENA OPULENCIA vs. COURT OF APPEALS, ALADIN SIMUNDAC and MIGUEL OLIVAN G.R. No. 125835 July 30, 1998 Facts: On February 3, 1989, ALADIN SIMUNDAC and MIGUEL OLIVAN (PR) and NATALIA CARPENA OPULENCIA (Pet) entered into a contract to sell involving a parcel of land situated in Sta. Rosa, Laguna. The price or consideration of the said sell is P150.00 per square meters where petitioner received the amount of P300,000.00. The parties have knowledge that the property subject of the contract to sell is subject of the probate proceedings. As of this time, the probate Court has not yet issued an order either approving or denying the said sale.
11

Settled is the rule in this jurisdiction that when an order authorizing the sale or encumbrance of real property was issued by the testate or intestate court without previous notice to the heirs, devisees and legatees as required by the Rules, it is not only the contract itself which is null and void but also the order of the court authorizing the same. Thus, in Manecl ang vs. Baun, the previous administrator of the estate filed a petition with the intestate court seeking authority to sell portion of the estate, which the court granted despite lack of notice of hearing to the heirs of the decedent. The new administrator of the estate filed with the Regional Trial Court an action for the annulment of the sales made by the previous administrator. After trial, the trial court held that the order of the intestate court granting authority to sell, as well as the deed of sale, were void. On appeal directly to this Court, We held that without compliance with Sections 2, 4 and 7 of Rule 89 of the Rules of Court, the authority to sell, the sale itself and the order approving it would be null and void ab initio. In Liu vs. Loy, Jr ., while the decedent was still living, his son and attorney-in-fact sold in behalf of the alleged decedent certain parcels of land to Frank Liu. After the decedent died, the son sold the same properties to two persons. Upon an ex parte motion filed by the 2nd set of buyers of estate properties, the probate court approved the sale to them of said properties. Consequently, certificates of title covering the estate properties were cancelled and new titles issued to the 2nd set of buyers. Frank Liu filed a complaint for reconveyance/ annulment of title with the Regional Trial Court. The trial court dismissed the complaint and the Court of Appeals affirmed the dismissal. When the case was appealed to us, we set aside the decision of the appellate court and declared the probate court's approval of the sale as completely void due to the failure of the 2nd set of buyers to notify the heir-administratrix of the motion and hearing for the sale of estate property. Clearly, the requirements of Rule 89 of the Rules of Court are mandatory and failure to give notice to the heirs would invalidate the authority granted by the intestate/probate court to mortgage or sell estate assets. Here, it appears that petitioners were never notified of the several petitions filed by Agustin with the intestate court to mortgage and sell the estate properties of his wife. According to the trial court, the [P]etition for Authority to Increase Mortgage and [P]etition for Declaration of Heirs and for Authority to Increas e Indebtedness , filed by Agustin on July 16, 1973 and October 5, 1974 , respectively, do not contain information that petitioners were furnished with copies of said petitions. Also, notices of hearings of those petitions were not sent to the petitioners. The trial court also found in Civil Case No. 16,802 that Agustin did not notify petitioners of the filing of his petitions for judicial authority to sell estate properties to Arturo Arguna and PLEI. As it were, the appellate court offered little explanation on why it did not believe the trial court in its finding that petitioners

SPECIAL PROCEEDINGS DIGESTED CASES-RULE 87 to 89


Private respondents submitted their evidence in support of the material allegations of the complaint. In addition to testimonies of witnesses, [private respondents] presented the following documentary evidences: (1) Contract to Sell (Exh A); (2) machine copy of the last will and testament of Demetrio Carpena (defendant's father) to show that the property sold by defendant was one of those devised to her in said will (Exh B); (3) receipts signed by defendant for the downpayment in the total amount of P300,000.00 (Exhs C, D & E); and (4) demand letters sent to defendant (Exhs F & G). It appears that [petitioner], instead of submitting her evidence, filed a Demurrer to Evidence. In essence, defendant maintained that the contract to sell was null and void for want of approval by the probate court. She further argued that the contract was subject to a suspensive condition, which was the probate of the will of defendant's father Demetrio Carpena. An Opposition was filed by [private respondents]. It appears further that in an Order dated December 15, 1992 the court a quo granted the demurrer to evidence and dismissed the complaint. It justified its action in dismissing the complaint in the following manner: It is noteworthy that when the contract to sell was consummated, no petition was filed in the Court with notice to the heirs of the time and place of hearing, to show that the sale is necessary and beneficial. A sale of properties of an estate as beneficial to the interested parties must comply with the requisites provided by law, (Sec. 7, Rule 89, Rules of Court) which are mandatory, and without them, the authority to sell, the sale itself, and the order approving it, would be null and void ab initio . (Arcilla vs. David, 77 Phil. 718, Gabriel, et al ., vs. Encarnacion, et al ., L-6736, May 4, 1954; Bonaga vs. Soler, 2 Phil. 755) Besides, it is axiomatic that where the estate of a deceased person is already the subject of a testate or intestate proceeding, the administrator cannot enter into any transaction involving it without prior approval of the probate Court. (Estate of Obave, vs. Reyes, 123 SCRA 767). Issue: Whether or not the Contract to Sell dated 03 February 1989 executed by the [p]etitioner and [p]rivate [r]espondent[s] without the requisite probate court approval is valid Ruling: 1. In a nutshell, petitioner contends that "where the estate of the deceased person is already the subject of a testate or intestate proceeding, the administrator cannot enter into any transaction involving it without prior approval of the Probate Court." 9 She maintains that the Contract to Sell is void because it was not approved by the probate court, as required by Section 7, Rule 89 of the Rules of Court. Insisting that the above rule should apply to this case, petitioner argues that the stipulations in the Contract to Sell require her to act in her capacity as an executrix or administratrix. She avers that her obligation to eject tenants pertains to the administratrix or executrix, the estate being the landlord of the said tenants. 10 Likewise demonstrating that she entered into the contract in her capacity as executor is the stipulation that she must effect the conversion of subject land from irrigated rice land to residential land and secure the necessary clearances from government offices. Petitioner alleges that these obligations can be undertaken

ATTY. GERALDINE QUIMUSING-TIU LAKAS ATENISTA


only by an executor or administrator of an estate, and not by an heir. Section 7 of Rule 89 of the Rules of Court is not applicable, because petition er entered into the Contract to Sell in her capacity as an heiress, not as an executrix or administratrix of the estate. In the contract, she represented herself as the "lawful owner" and seller of the subject parcel of land. She also explained the reason for the sale to be "difficulties in her living" conditions and consequent "need of cash." These representations clearly evince that she was not acting on behalf of the estate under probate when she entered into the Contract to Sell. Accordingly, the jurisprudence cited by petitioners has no application to the instant case. We emphasize that hereditary rights are vested in the heir or heirs from the moment of the decedent's death. Petitioner, therefore, became the owner of her hereditary share the moment her father died. Thus, the lack of judicial approval does not invalidate the Contract to Sell, because the petitioner has the substantive right to sell the whole or a part of her share in the estate of her late father. Thus, in Jakosalem vs. Rafols , the Court resolved an identical issue under the old Civil Code and held: Art. 440 of the Civil Code provides that "the possession of hereditary property is deemed to be transmitted to the heir without interruption from the instant of the death of the decedent, in case the inheritance be accepted." And Manresa with reason states that upon the death of a person, each of his heirs "becomes the undivided owner of the whole estate left with respect to the part or portion which might be adjudicated to him, a community of ownership being thus formed among the coowners of the estate while it remains undivided." . . . And according to article 399 of the Civil Code, every part owner may assign or mortgage his part in the common property, and the effect of such assignment or mortgage shall be limited to the portion which may be allotted him in the partition upon the dissolution of the community. Hen ce, where some of the heirs, without the concurrence of the oth ers, sold a property left by their deceased father, this Court, speaking thru its then Chief Justice Cayetan o Arellano, said that the sale was valid, but that the effect thereof was limited to the share which may be allotted to the vendors upon the partition of the estate.

Administration of the Estate Not Prejudiced by the Contract to Sell


2. Petitioner further contends that "[t]o sanction the sale at this stage would bring about a partial distribution of the decedent's estate pending the final termination of the testate proceedings." This becomes all the more significant in the light of the trial court's finding, as stated in its Order dated August 20, 1997, that "the legitimate of one of the heirs has been impaired." Petitioner's contention is not convincing. The Contract to Sell stipulates that petitioner's offer to sell is contingent on the "complete clearance of the court on the Last Will Testament of her father." Consequently, although the Contract to Sell was perfected between the petitioner and private respondents during the pendency of the probate proceedings, the consummation of the sale or the transfer of ownership over the parcel of land to the private respondents is subject to the full payment of the purchase price and to the termination and outcome of the testate proceedings. Therefore, there is no basis for petitioner's apprehension that the Contract to Sell may result in a premature
12

SPECIAL PROCEEDINGS DIGESTED CASES-RULE 87 to 89


partition and distribution of the properties of the estate. Indeed, it is settled that "the sale made by an heir of his share in an inheritan ce, subject to the pending administration, in no wise stands in the way of such administration."

ATTY. GERALDINE QUIMUSING-TIU LAKAS ATENISTA


February 16, 1983, the lower court in its Order granted the said motion. 3. On April 19, 1983, an Omnibus Pleading for motion to intervene and petition-in-intervention was filed by Movant Alex A. Lina alleging among others that on June 7, 1982, movant and Administrator Eliodoro P. Sandejas, in his capacity as seller, bound and obligated himself, his heirs, administrators, and assigns, to sell forever and absolutely and in their entirety four parcels of land which formed part of the estate of the late Remedios R. Sandejas with the Receipt of the Earnest Money with Promise to Sell and to Buy. 4. On July 17, 1984, the lower court issued an Order granting the intervention of Alex A. Lina. 5. On January 7, 1985, the counsel for Administrator Eliodoro P. Sandejas filed a Manifestation alleging among others that the administrator, Mr. Eliodoro P. Sandejas, died sometime in November 1984 in Canada and said counsel is still waiting for official word on the fact of the death of the administrator. He also alleged, among others that the matter of the claim of Intervenor Alex A. Lina becomes a money claim to be filed in the estate of the late Mr. Eliodoro P. Sandejas. 6. On February 15, 1985, the, lower court issued an Order directing, among others, that the counsel for the four (4) heirs and other heirs of Teresita R. Sandejas to move for the appointment of [a] new administrator within fifteen (15) days from receipt of this [O]rder. In the same manner, on November 4, 1985, the lower court again issued an order, because on October 2, 1985, all the heirs, Sixto, Roberto, Antonio, Benjamin all surnamed Sandejas who were ordered to move for the appointment of [a] new administrator did not appear for the Compliance of the said order which was set for October 30, 1985. The aforenamed heirs are hereby ordered to show cause within fifteen (15) days from receipt of this Order why this Petition for Settlement of Estate should not be dismissed for lack of interest and failure to comply with a lawful order of this Court. 7. On November 22, 1985, Alex A. Lina as petitioner filed with the Regional Trial Court of Manila an Omnibus Pleading for (1) petition for letters of administration [and] (2) to consolidate instant case with SP. Proc. No. R-83-15601 RTC-Branch XI-Manila, docketed therein as SP. Proc. No. 85- 33707 entitled 'IN RE: INTESTATE ESTATE OF ELIODORO P. SANDEJAS, SR., ALEX A. LINA PETITIONER", [for letters of administration]. On November 29, 1985, Branch XXXVI of the Regional Trial Court of Manila issued an [O]rder consolidating SP. Proc. No. 85-33707, with SP. Proc. No. R-83-15601 (Record, SP. Proc. No. 85-33707, p. 13). Likewise, on December 13, 1985, the Regional Trial Court of Manila, Branch XI, issued an [O]rder stating that 'this Court has no objection to the consolidation of Special proceedings No. 85-331707, now pending before Branch XXXVI of this Court, with the present proceedings now pending before this Branch' (Record, SP. Proc. No. R-8315601, p. 279). 8. On January 15, 1986, Intervenor Alex A. Lina filed [a] Motion for his appointment as a new administrator of the Intestate Estate of Remedios R. Sandejas. on the following reasons: '5.01. FIRST , as of this date, [i]ntervenor has not received any motion on the part of the heirs Sixto, Antonio, Roberto and Benjamin, all surnamed Sandejas, for the appointment of anew
13

Estoppel
3. Finally, petitioner is estopped from backing out of her representations in her valid Contract to Sell with private respondents, from whom she had already received P300,000 as initial payment of the purchase price. Petitioner may not renege on her own acts and representations, to the prejudice of the private respondents who have relied on them. Jurisprudence teaches us that neither the law nor the courts will extricate a party from an unwise or undesirable contract he or she entered into with all the required formalities and with full awareness of its consequences.

Heirs of Spouses REMEDIOS R. SANDEJAS and ELIODORO P. SANDEJAS SR. - ROBERTO R. SANDEJAS, ANTONIO R. SANDEJAS, CRISTINA SANDEJAS MORELAND, BENJAMIN R. SANDEJAS, REMEDIOS R. SANDEJAS, and heirs of SIXTO S. SANDEJAS II, RAMON R. SANDEJAS, TERESITA R. SANDEJAS, and ELIODORO R. SANDEJAS JR., all represented by ROBERTO R. SANDEJAS v. ALEX A. LINA - G.R. No. 141634 [2001] PHSC 1028 (5 February 2001)

A contract of sale is not invalidated by the fact that it is subject to probate court approval. The transaction remains binding on the seller-heir, but not on the other heirs who have not given their consent to it. In settling the estate of the deceased, a probate court has jurisdiction over matters incidental and collateral to the exercise of its recognized powers. Such matters include selling, mortgaging or otherwise encumbering realty belonging to the estate. Rule 89, Section 8 of the Rules of Court, deals with the conveyance of real property contracted by the decedent while still alive. In contrast with Sections 2 and 4 of the same Rule, the said provision does not limit to the executor or administrator the right to file the application for authority to sell, mortgage or otherwise encumber realty under administration. The standing to pursue such course of action before the probate court inures to any person who stands to be benefited or injured by the judgment or to be entitled to the avails of the suit.
Facts: 1. On February 17, 1981, Eliodoro Sandejas, Sr. filed a petition in the lower court praying that letters of administration be issued in his favor for the settlement of the estate of his wife, REMEDIOS R. SANDEJAS, who died on April 17, 1955. On July 1, 1981, Letters of Administration were issued by the lower court appointing Eliodoro Sandejas, Sr. as administrator of the estate of the late Remedios Sandejas. Likewise on the same date, Eliodoro Sandejas, Sr. took his oath as administrator. 2. On November 19, 1981, the 4th floor of Manila City Hall was burned and among the records burned were the records of Branch XI of the Court of First Instance of Manila. As a result, Administrator Eliodoro Sandejas, Sr. filed a Motion for Reconstitution of the records of the case on February 9, 1983. On

SPECIAL PROCEEDINGS DIGESTED CASES-RULE 87 to 89


[a]dministrator in place of their father, Mr. Eliodoro P. Sandejas, Sr.; '5.02. SECOND , since Sp. Proc. 85-33707, wherein the [p]etitioner is herein Intervenor Alex A. Lina and the instant Sp. PROC. R-8315601, in effect are already consolidated, then the appointment of Mr. Alex Lina as [a]dministrator of the Intestate Estate of Remedios R. Sandejas in instant Sp. Proc. R-83-15601, would be beneficial to the heirs and also to the Intervenor; '5.03. THIRD , of course, Mr. Alex A. Lina would be willing to give way at anytime to any [a]dministrator who may be proposed by the heirs of the deceased Remedios R. Sandejas, so long as such [a]dministrator is qualified.' (Record, SP. Proc. No. R-83-15601, pp. 281-283) 9. On May 15, 1986, the lower court issued an order granting the [M]otion of Alex A. Lina as the new [a]dministrator of the Intestate Estate of Remedios R. Sandejas in this proceeding. 10. On August 28,1986, heirs Sixto, Roberto, Antonio and Benjamin, all surnamed Sandejas, and heirs filed a M]otion for Reconsideration and the appointment of another administrator Mr. Sixto Sandejasl in lieu of Intervenor Alex A. Lina stating among others that it was only lately that Mr. Sixto Sandejas, a son and heir, expressed his willingness to act as a new administrator of the intestate estate of his mother, Remedios R. Sandejas (Record, SP. Proc. No. 85-33707, pp. 29-31). 11. On October 2, 1986, Intervenor Alex A. Lina filed his Manifestation and Counter Motion alleging that he had no objection to the appointment of Sixto Sandejas as administrator of the intestate estate of his mother Remedios R. Sandejas (Sp. Proc. No.85-15601), provided that Sixto Sandejas be also appointed as administrator of the intestate estate of his father, Eliodoro P . Sandejas, Sr. (Spec. Proc. No. 85-33707), which two (2) cases have been consolidated (Record, SP. Proc. No. 85-33707, pp. 3436). 12. On March 30, 1987, the lower court granted the said [M]otion and substituted Alex Lina with Sixto Sandejas as petitioner in the said Petitions (Record, SP. Proc. No. 85-33707, p. 52). After the payment of the administrator's bond (Record, SP. Proc. No. 8315601, pp. 348-349) and approval thereof by the court (Record, SP. Proc. No. 83-15601, p. 361), Administrator Sixto Sandejas on January 16, 1989 took his oath as administrator of the estate of the deceased Remedios R. Sandejas and Eliodoro P. Sandejas (Record, SP. Proc. No. 83-15601, p. 367) and was likewise issued Letters of Administration on the same day (Record, SP. Proc. No. 83-15601, p. 366). 13. On November 29, 1993, Intervenor filed an Omnibus Motion (a) to approve the deed of conditional sale executed between Plaintiff-in-lntervention Alex A. Lina and Elidioro Sandejas, Sr. on June 7, 1982; (b) to compel the heirs of Remedios Sandejas and Eliodoro Sandejas, Sr. thru their administrator, to execute a deed of absolute sale in favor of Intervenor Alex A. Lina pursuant to said conditional deed of sale to which the administrator filed a Motion to Dismiss and/or Opposition to said omnibus motion on December 13, 1993. 14. On January 13, 1995, the lower court rendered the questioned order granting intervenor's Motion for the Approval of the Receipt of Earnest Money with promise to buy between Plaintiff-in-

ATTY. GERALDINE QUIMUSING-TIU LAKAS ATENISTA


lntervention Alex A. Lina and Eliodoro Sandejas, Sr. dated June 7, 1982. The intervenor is directed to pay the balance of the purchase price amounting to P729,000.00 within thirty (30) days from receipt of this Order and the Administrator is directed to execute within thirty (30) days thereafter the necessary and proper deeds of conveyancing." 15. Overturning the RTC ruling, the CA held that the contract between Eliodoro Sandejas Sr. and respondent was merely a contract to sell, not a perfected contract of sale. It ruled that the ownership of the four lots was to remain in the intestate estate of Remedios Sandejas until the approval of the sale was obtained from the settlement court. That approval was a positive suspensive condition, the nonfulfillment of which was not tantamount to a breach. It was simply an event that prevented the obligation from maturing or becoming effective. If the condition did not happen, the obligation would not arise or come into existence. The CA held that Section 1, Rule 89 of the Rules of Court was inapplicable, because the lack of written notice to the other heirs showed the lack of consent of those heirs other than Eliodoro Sandejas Sr. For this reason, bad faith was imputed to him, for no one is allowed to enjoyed a claim arising from ones own wrongdoing. Thus, Eliodoro Sr. was bound, as a matter of justice and good faith, to comply with his contractual commitments as an owner and heir. When he entered into the agreement with respondent, he bound his conjugal and successional shares in the property. Hence, this Petition. Issue: Whether the CA erred in modifying the trial court's Decision and in obligating petitioners to sell 3/5 of the disputed properties to respondent, even if the suspensive condition had not been fulfilled Ruling: 1. In a contract to sell, the payment of the purchase price is a positive suspensive condition. The vendor's obligation to convey the title does not become effective in case of failure to pay. On the other hand, the agreement between Eliodoro Sr. and respondent is subject to a suspensive condition -- the procurement of a court approval, not full payment. There was no reservation of ownership in the agreement. In accordance with paragraph 1 of the Receipt, petitioners were supposed to deed the disputed lots over to respondent. This they could do upon the court's approval, even before full payment. Hence, their contract was a conditional sale, rather than a contract to sell as determined by the CA. When a contract is subject to a suspensive condition, its birth or effectivity can take place only if and when the condition happens or is fulfilled. Thus, the intestate court's grant of the Motion for Approval of the sale filed by respondent resulted in petitioners' obligation to execute the Deed of Sale of the disputed lots in his favor. The condition having been satisfied, the con tract was perfected. Hen ceforth, the parties were bound to fulfill what they had expressly agreed upon.
14

SPECIAL PROCEEDINGS DIGESTED CASES-RULE 87 to 89


Court approval is required in any disposition of the decedent's estate per Rule 89 of the Rules of Court. Reference to judicial approval, however, cannot adversely affect the substantive rights of heirs to dispose of their own pro indiviso shares in the coheirship or co-ownership. In other words, they can sell their rights, interests or participation in the property under administration. A stipulation requiring court approval does not affect the validity and the effectivity of the sale as regards the selling heirs. It merely implies that the property may be taken out of custodia legis, but only with the court's permission. It would seem that the suspensive condition in the present conditional sale was imposed only for this reason. Thus, we are not persuaded by petitioners' argument that the obligation was converted into a mere monetary claim. Paragraph 4 of the Receipt, which petitioners rely on, refers to a situation wherein the sale has not materialized. In such a case," the seller is bound to return to the buyer the earnest money paid plus interest at fourteen percent per annum. But the sale was approved by the intestate court; hence, the proviso does not apply. Because petitioners did not consent to the sale of their ideal shares in the disputed lots, the CA correctly limited the scope of the Receipt to the pro-indiviso share of Eliodoro Sr. Thus, it correctly modified the intestate court's ruling by excluding their shares from the ambit of the transaction. 2. Petitioners also fault the CA Decision by arguing, inter alia, (a) jurisdiction over ordinary civil action seeking not merely to enforce a sale but to compel performance of a contract falls upon a civil court, not upon an intestate court; and (b) that Section 8 of Rule 89 allows the executor or administrator, and no one else, to file an application for approval of a sale of the property under administration. Citing Gil v. Cancio and Acebedo v. Abesamis, petitioners contend that the CA erred in clothing the settlement court with the jurisdiction to approve the sale and to compel petitioners to execute the Deed of Sale. They allege factual differences between these cases and the instant case, as follows: in Gil, the sale of the realty in administration was a clear and an unequivocal agreement for the support of the widow and the adopted child of the decedent; and in Acebedo, a clear sale had been made, and all the heirs consented to the disposition of their shares in the realty in administration. We are not persuaded. We hold that Section 8 of Rule 89 allows this action to proceed. The factual differences alleged by petitioners have no bearing on the intestate court's jurisdiction over the approval of the subject conditional sale. Probate jurisdiction covers all matters relating to the settlement of estates (Rules 74 & 86-91) and the probate of wills (Rules 75-77) of deceased persons, including the appointment and the removal of administrators and executors (Rules 78-85). It also extends to matters incidental and collateral to the exercise of a probate court's recognized powers such as selling, mortgaging or otherwise encumbering realty belonging to the estate. Indeed, the rules on this point are intended to settle the estate in a speedy manner, so that the benefits that may flow from such settlement may be immediately enjoyed by the heirs and the beneficiaries. In the present case, the Motion for Approval was meant to settle the decedent's obligation to respondent; hence, that obligation clearly falls under the jurisdiction of the settlement court. To

ATTY. GERALDINE QUIMUSING-TIU LAKAS ATENISTA


require respondent to file a separate action -- on whether petitioners should convey the title to Eliodoro Sr.'s share of the disputed realty -- will unnecessarily prolong the settlement of the intestate estates of the deceased spouses. The suspensive condition did not reduce the conditional sale between Eliodoro Sr. and respondent to one that was "not a definite, clear and absolute document of sale," as contended by petitioners. Upon the occurrence of the condition, the conditional sale became a reciprocally demandable obligation that is binding upon the parties. That Acebedo also involved a conditional sale of real property proves that the existence of the suspensive condition did not remove that property from the jurisdiction of the intestate court. 3. Petitioners contend that under said Rule 89, only the executor or administrator is authorized to apply for the approval of a sale of realty under administration. Hence, the settlement court allegedly erred in entertaining and granting respondent's Motion for Approval. We read no such limitation. Section 8, Rule 89 of the Rules of Court, provides: "SEC. 8. When court may authorize conveyance of realty which deceased contracted to convey. Notice. Effect of deed. -- Where the deceased was in his lifetime under contract, binding in law, to deed real property, or an interest therein, the court having jurisdiction of the estate may, on application for that purpose, authorize the executor or administrator to convey such property according to such contract, or with such modifications as are agreed upon by the parties and approved by the court; and if the contract is to convey real property to the executor or administrator, the clerk of the court shall execute the deed. x x x." This provision should be differentiated from Sections 2 and 4 of the same Rule, specifically requiring only the executor or administrator to file the application for authority to sell, mortgage or otherwise encumber real estate for the purpose of paying debts, expenses and legacies (Section 2); or for authority to sell real or personal estate beneficial to the heirs, devisees or legatees and other interested persons, although such authority is not necessary to pay debts, legacies or expenses of administration (Section 4). Section 8 mentions only an application to authorize the conveyance of realty under a contract that the deceased entered into while still alive. While this Rule does not specify who should file the application, it stands to reason that the proper party must be one who is to be benefited or injured by the judgment, or one who is to be entitled to the avails of the suit. 4. Petitioners assert that Eliodoro Sr. was not in bad faith, because (a) he informed respondent of the need to secure court approval prior to the sale of the lots, and (2) he did not promise that he could obtain the approval. We agree. Eliodoro Sr. did not misrepresent these lots to respondent as his own properties to which he alone had a title in fee simple. The fact that he failed to obtain the approval of the conditional sale did not automatically imply bad faith on his part. The CA held him in bad faith only for the purpose of binding him to the conditional sale. This was unnecessary because his being bound to it is, as already shown, beyond cavil.

15

SPECIAL PROCEEDINGS DIGESTED CASES-RULE 87 to 89


5. Petitioners aver that the CA's computation of Eliodoro Sr.'s share in the disputed parcels of land was erroneous because, as the conjugal partner of Remedios, he owned one half of these lots plus a further one tenth of the remaining half, in his capacity as a one of her legal heirs. Hence, Eliodoro's share should be 11/20 of the entire property. Respondent poses no objection to this computation. On the other hand, the CA held that, at the very least, the conditional sale should cover the one half (1/2) pro indiviso conjugal share of Eliodoro plus his one tenth (1/10) hereditary share as one of the ten legal heirs of the decedent, or a total of three fifths (3/5) of the lots in administration. Petitioners' correct. The CA computed Eliodoro's share as an heir based on one tenth of the entire disputed property. It should be based only on the remaining half, after deducting the conjugal share. The proper determination of the seller-heir's shares requires further explanation. Succession laws and jurisprudence require that when a marriage is dissolved by the death of the husband or the wife, the decedent's entire estate - under the concept of conjugal properties of gains -- must be divided equally, with one half going to the surviving spouse and the other half to the heirs of the deceased. After the settlement of the debts and obligations, the remaining half of the estate is then distributed to the legal heirs, legatees and devices. We assume, however, that this preliminary determination of the decedent's estate has already been taken into account by the parties, since the only issue raised in this case is whether Eliodoro's share is 11/20 or 3/5 of the disputed lots.

ATTY. GERALDINE QUIMUSING-TIU LAKAS ATENISTA


When Frank Liu failed to reply, Teodoro Vao sent him another letter, dated 1 January 1955, reminding him of his outstanding balance. It appears that it was only after nine years that Frank Liu responded through a letter, dated 25 January 1964. In the letter, Frank Liu informed Teodoro Vao that he was ready to pay the balance of the purchase price of the seven lots. He requested for the execution of a deed of sale of the lots in his name and the delivery of the titles to him. On 22 April 1966, Benito Liu sold to Frank Liu the five lots (Lot Nos. 5, 6, 13, 14 and 15 of Block 12) which Benito Liu purchased from Teodoro Vao. Frank Liu assumed the balance of P1,000 for the five lots. Cirilo Pangalo likewise sold to Frank Liu the two lots (Lot Nos. 14 and 15 of Block 11) that Pangalo purchased from Teodoro Vao. Frank Liu likewise assumed the balance of P417 for the two lots. On 21 March 1968, Frank Liu reiterated in a letter his request for Teodoro Vao to execute the deed of sale covering the seven lots so he could secure the corresponding certificates of title in his name. He also requested for the construction of the subdivision roads pursuant to the original contract. In the letter, Frank Liu referred to another letter, dated 25 June 1966, which he allegedly sent to Teodoro Vao. According to Frank Liu, he enclosed PBC Check No. D-782290 dated 6 May 1966 for P1,417, which is the total balance of the accounts of Benito Liu and Cirilo Pangalo on the seven lots. However, Frank Liu did not offer in evidence the letter or the check. Frank Liu sent two other letters, dated 7 June 1968 and 29 July 1968, to Teodoro Vao reiterating his request for the execution of the deed of sale in his favor but to no avail. On 19 August 1968, Teodoro Vao sold Lot No. 6 to respondent Teresita Loy for P3,930. The Register of Deeds of Cebu City entered this sale in the Daybook on 24 February 1969. On 2 December 1968, Frank Liu filed a complaint against Teodoro Vao for specific performance, execution of deed of absolute sale, issuance of certificates of title and construction of subdivision roads, before the Court of First Instance of Davao. The case was docketed as Civil Case No. 6300. On 19 December 1968, Frank Liu filed with the Register of Deeds of Cebu City a notice of lis pendens on the seven lots due to the pendency of Civil Case No. 6300. However, the Register of Deeds denied the registration of the lis pendens "on the ground that the property is under administration and said claim must be filed in court." On 16 December 1969, Teodoro Vao sold Lot No. 5 to respondent Alfredo Loy for P3,910. The Register of Deeds of Cebu City entered this sale in the Daybook on 16 January 1970. On 3 October 1970, the Court of First Instance of Davao, on motion of Teodoro Vao, dismissed Civil Case No. 6300 on the ground that Frank Liu should have filed the claim with the probate court. Thus, on 17 February 1972, Frank Liu filed before the probate court a claim against the Estate of Jose Vao for "Specific Performance, Execution of Deed of Absolute Sale, Issuance of Certificate of Title, and Construction of Subdivision Roads." During the proceedings, Teodoro Vao died. His widow, Milagros Vao, succeeded as administratrix of the Estate of Jose Vao.

FRANK N. LIU, deceas ed, substituted by his surviving spouse Diana Liu, and children, namely: Walter, Milton, Frank, Jr., Henry and Jockson, all surnamed Liu, Rebecca Liu Shui and Pearl Liu Rodrigu ez v. ALFREDO LOY, JR., TERESITA A. LOY and ESTATE OF JOSE VAO - G.R. No. 145982 [2003] PHSC 787 (3 July 2003) Facts: On 13 January 1950, Teodoro Vao, as attorney-in-fact of Jose Vao, sold seven lots of the Banilad Estate located in Cebu City to Benito Liu and Cirilo Pangalo. Teodoro Vao dealt with Frank Liu, the brother of Benito Liu, in the sale of the lots to Benito Liu and Cirilo Pangalo. Meanwhile, Jose Vao passed away. Benito Liu subsequently paid installments totaling P2,900, leaving a balance of P1,000. Apparently, Benito Liu stopped further payments because Teodoro Vao admitted his inability to transfer the lot titles to Benito Liu. Later, in a letter dated 16 October 1954, Teodoro Vao informed Frank Liu that the Supreme Court had already declared valid the will of his father Jose Vao. Thus, Teodoro Vao could transfer the titles to the buyers names upon payment of the balance of the purchase price.

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SPECIAL PROCEEDINGS DIGESTED CASES-RULE 87 to 89


On 24 February 1976, the probate court approved the claim of Frank Liu. On 5 March 1976, Milagros Vao executed a deed of conveyance covering the seven lots in favor of Frank Liu, in compliance with the probate courts order. The deed of conveyance included Lot Nos. 5 and 6, the same lots Teodoro Vao sold respectively to Alfredo Loy, Jr. on 16 December 1969 and to Teresita Loy on 19 August 1968. On 19 March 1976, the probate court, upon an ex-parte motion filed by Teresita Loy, issued an Order approving the 16 August 1968 sale by Teodoro Vao of Lot No. 6 in her favor. Likewise, upon an ex-parte motion filed by Alfredo Loy, Jr., the probate court issued on 23 March 1976 an Order approving the 16 December 1969 sale of Lot No. 5 by Teodoro Vao in his favor. On 10 May 1976, the Register of Deeds of Cebu City cancelled TCT No. 44204 in the name of the Estate of Jose Vao covering Lot No. 5 and issued a new title, TCT No. 64522, in the name of Alfredo Loy, Jr. and Perfeccion V. Loy. Likewise, on the same date, the Register of Deeds cancelled TCT No. 44205 in the name of the Estate of Jose Vao covering Lot No. 6, and issued TCT No. 64523 in the name of Teresita A. Loy. On 3 June 1976, Milagros Vao, as administratrix of the estate, filed a motion for reconsideration of the Orders of the probate court dated 19 and 23 March 1976. She contended that she already complied with the probate courts Order dated 24 February 1976 to execute a deed of sale covering the seven lots, including Lot Nos. 5 and 6, in favor of Frank Liu. She also stated that no one notified her of the motion of the Loys, and if the Loys or the court notified her, she would have objected to the sale of the same lots to the Loys. On 4 June 1976, Frank Liu filed a complaint for reconveyance or annulment of title of Lot Nos. 5 and 6. Frank Liu filed the case in the Regional Trial Court of Cebu City, Branch 14, which docketed it as Civil Case No. R-15342. On 5 August 1978, the probate court denied the motion for reconsideration of Milagros Vao on the ground that the conflicting claims regarding the ownership of Lot Nos. 5 and 6 were already under litigation in Civil Case No. R-15342. On 8 April 1991, the Regional Trial Court of Cebu City ("trial court"), Branch 14, rendered judgment against Frank Liu (1) Dismissing the complaint at bar; and (2) Confirming the unilateral extrajudicial rescission of the contract Exhibit A by the late Teodoro Vao, conditioned upon the refund by the Estate of Jose Vao of one-half (1/2) of what the plaintiff had paid under that contract. Frank Liu appealed to the Court of Appeals, which affirmed in toto the decision of the trial court. Frank Liu filed a motion for reconsideration but the Court of Appeals denied the same. Hence, the instant petition. Issue: Whether prior approval of the probate court is necessary to validate the sale of Lot Nos. 5 and 6 to Loys Ruling: There was no valid cancellation of the contract to sell because there was no written notice of the cancellation to Benito Liu or Frank Liu. There was even no implied cancellation of the contract

ATTY. GERALDINE QUIMUSING-TIU LAKAS ATENISTA


to sell. The trial court merely "viewed" the alleged "unilateral extrajudicial rescission" from the letter of Teodoro Vao, dated 1 January 1955, addressed to Frank Liu, stating that: Two months, I believe, is ample for the allowance of delays caused by your (sic) either too busy, or having been some place else, or for consultations. These are the only reasons I can think of that could have caused the delay in your answer, unless you do not think an answer is necessary at all, as you are not the party concerned in the matter. I shall therefor (sic) appreciate it very much, if you will write me within ten days from receipt of this letter, or enterprete (sic) your silence as my mistake in having written to the wrong party, and therefor (sic) proceed to write Misters: B. Liu and C. Pangalo. 30 (Emphasis supplied) Obviously, we cannot construe this letter as a unilateral extrajudicial rescission of the contract to sell. As clearly stated in the letter, the only action that Teodoro Vao would take if Frank Liu did not reply was that Teodoro Vao would write directly to Benito Liu and Cirilo Pangalo. The letter does not mention anything about rescinding or cancelling the contract to sell. Although the law allows the extra-judicial cancellation of a contract to sell upon failure of one party to comply with his obligation, notice of such cancellation must still be given to the party who is at fault. 31 The notice of cancellation to the other party is one of the requirements for a valid cancellation of a contract to sell, aside from the existence of a lawful cause. Even the case cited by the trial court emphasizes the importance of such notice. The fact that Teodoro Vao advised Frank Liu to file his claim with the probate court is certainly not the conduct of one who supposedly unilaterally rescinded the contract with Frank Liu. In this case, there was prior delay or default by the seller. As admitted by Teodoro Vao, he could not deliver the titles because of a case questioning the authenticity of the will of his father. In a letter to Frank Liu dated 16 October 1954, Teodoro Vao stated: Some time last May, if I remember correctly, you offered to settle the whole balance of your account if I can have the Titles transferred immediately in your brothers name, and to that of Mr. Pangalos. I cannot blame you if you were disappointed then, to know that I could not have the titles transferred, even should you have paid in full. (Emphasis supplied) In the same letter of 16 October 1954, Teodoro Vao informed Frank Liu that the titles were ready for transfer, thus: However, last June 30, of this year, the Supreme Court, unanimously concurred in the reversal of the decision of the Court of First Instance, as regard the legality of the Will of my father. Now that the Will of my Father has been declared Legal, my opponents have lost their personality in the case, and with it their power to harass me in court. Also, sometime in the middle of July, also this year, the Supreme Court again declared that all the sales I have made of the properties of my Father, were Legal, and that I should be empowered to have the Titles transferred in the buyers names, should they have paid in full. A few have already received their Titles. And yours can be had too in two days time from the time you have paid in full.
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SPECIAL PROCEEDINGS DIGESTED CASES-RULE 87 to 89


Nevertheless, the subsequent approval by the probate court of the sale of Lot Nos. 5 and 6 to Frank Liu rendered moot any question on the continuing validity of the contract to sell. Whether the lis pendens in the Davao case served as notice to the Loys The lis pendens in the Davao case did not serve as notice to the Loys. The Register of Deeds of Cebu City denied registration of the lis pendens on 19 December 1968. Frank Liu did not appeal to the Land Registration Commission to keep alive the lis pendens. Frank Lius failure to appeal the denial of the registration rendered the lis pendens ineffective. The Court of First Instance of Davao City eventually dismissed Frank Lius complaint on 3 October 1970. Whether the registration by the Loys of their contracts of sale made them the first registrants in good faith to defeat prior buyers The registration by the Loys of their contracts of sale did not defeat the right of prior buyers because the person who signed the Loys contracts was not the registered owner. The registered owner of Lot Nos. 5 and 6 was the "Estate of Jose Vao." Teodoro Vao was the seller in the contract of sale with Alfredo Loy, Jr. The Estate of Jose Vao was the seller in the contract of sale with Teresita Loy. Teodoro Vao signed both contracts of sale. The rule is well-settled that "one who buys from a person who is not the registered owner is not a purchaser in good faith." As held in Toledo-Banaga v. Court of Appeals: To repeat, at the time of the sale, the person from whom petitioner Tan bought the property is neither the registered owner nor was the former authorized by the latter to sell the same. She knew she was not dealing with the registered owner or a representative of the latter. One who buys property with full knowledge of the flaws and defects in the title of his vendor is enough proof of his bad faith and cannot claim that he acquired title in good faith as against the owner or of an interest therein. When she nonetheless proceeded to buy the lot, petitioner Tan gambled on the result of litigation. She is bound by the outcome of her indifference with no one to blame except herself if she looses her claim as against one who has a superior right or interest over the property. x x x. The Loys were under notice to inquire why the land was not registered in the name of the person who executed the contracts of sale. They were under notice that the lots belonged to the "Estate of Jose Vao" and any sale of the lots required court approval. Any disposition would be subject to the claims of creditors of the estate who filed claims before the probate court. The contracts of the Loys did not convey ownership of the lots to them as against third persons. The contracts were binding only on the seller, Teodoro Vao. The contracts of the Loys would become binding against third persons only upon approval of the sale by the probate court and registration with the Register of Deeds. Registration of the contracts without court approval would be ineffective to bind third persons, especially creditors of the estate. Otherwise, this will open the door to fraud on creditors of the estate.

ATTY. GERALDINE QUIMUSING-TIU LAKAS ATENISTA


Whether the probate courts ex-parte approval of the contracts of the Loys was valid Section 8, Rule 89 of the 1964 Rules of Court specifically requires notice to all interested parties in any application for court approval to convey property contracted by the decedent in his lifetime. SECTION 8. When court may authorize conveyance of realty which deceased contracted to convey. Notice. Effect of deed. Where the deceased was in his lifetime under contract, binding in law, to deed real property, or an interest therein, the court having jurisdiction of the estate may, on application for that purpose, authorize the executor or administrator to convey such property according to such contract, or with such modifications as are agreed upon by the parties and approved by the court; and if the contract is to convey real property to the executor or administrator, the clerk of the court shall execute the deed. The deed executed by such executor, administrator, or clerk of court shall be as effectual to convey the property as if executed by the deceased in his lifetime; but no such conveyance shall be authorized until notice of the application for that purpose has been given personally or by mail to all persons interested, and such further notice has been given, by publication or otherwise, as the court deems proper; nor if the assets in the hands of the executor or administrator will thereby be reduced so as to prevent a creditor from receiving his full debt or diminish his dividend. (Rule 89, 1964 Rules of Court) (Emphasis supplied) Despite the clear requirement of Section 8 of Rule 89, the Loys did not notify the administratrix of the motion and hearing to approve the sale of the lots to them. The administratrix, who had already signed the deed of sale to Frank Liu as directed by the same probate court, objected to the sale of the same lots to the Loys. Thus, as found by the trial court: On June 3, 1976, Milagros H. Vao moved for the reconsideration of the Order issued by Judge Ramolete on March 19, 1976 and March 23, 1976, contending that she had not been personally served with copies of the motions presented to the Court by Alfredo Loy, Jr. and by Teresita Loy seeking the approval of the sales of the lots in their favor, as well as the Orders that were issued by the Court pursuant thereto; that the Court in its Order of February 24, 1976 had ordered her (Milagros H. Vao), to execute a deed of absolute sale in favor of the plaintiff, which sale had been approved by the Court; that she had not known of the sale of Lots 5 and 6 to any other person except to the plaintiff; that the sale of the two lots in favor of plaintiff was made earlier, when there was yet no litigation with the Bureau of Internal Revenue, while those in favor of the defendant Loys were made when there was already a prohibition by the Court against any sale thereof; that the sales in favor of the Loys were made without Court authority; and that if the approval of the sales had not been obtained ex-parte she would have informed the Court of the complication arising therefrom, and she would not have executed the sale in favor of plaintiff, and she would have asked the Court to decide first as to who had preference over said lots. 43 The failure to notify the administratrix and other interested persons rendered the sale to the Loys void. As explained by Justice J.B.L. Reyes in De Jesus v. De Jesus: 44 Section 9, Rule 90, however, provides that authority can be given by the probate court to the administrator to convey property held in trust by the deceased to the beneficiaries of the trust only "after
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SPECIAL PROCEEDINGS DIGESTED CASES-RULE 87 to 89


notice given as required in the last preceding section"; i.e., that "no such conveyance shall be authorized until notice of the application for that purpose has been given personally or by mail to all persons interested, and such further notice has been given, by publication or otherwise, as the court deems proper" (sec. 8, Rule 90). This rule makes it mandatory that notice be served on the heirs and other interested persons of the application for approval of any conveyance of property held in trust by the deceased, and where no such notice is given, the order authorizing the conveyance, as well as the conveyance itself, is completely void. (Emphasis supplied) In this case, the administratrix, the wife of the deceased Teodoro Vao, was not notified of the motion and hearing to approve the sale of the lots to the Loys. Frank Liu did not also receive any notice, although he obviously was an interested party. The issuance of new titles to the Loys on 10 May 1976 by the Registry of Deeds did not vest title to the Loys because the "conveyance itself" was "completely void." The consequences for the failure to notify the administratrix and other interested parties must be borne by the Loys. Necessity of court approval of sales Indisputably, an heir can sell his interest in the estate of the decedent, or even his interest in specific properties of the estate. However, for such disposition to take effect against third parties, the court must approve such disposition to protect the rights of creditors of the estate. What the deceased can transfer to his heirs is only the net estate, that is, the gross estate less the liabilities. As held in Baun v. Heirs of Baun: 45 The heir legally succeeds the deceased, from whom he derives his right and title, but only after the liquidation of the estate, the payment of the debts of the same, and the adjudication of the residue of the estate of the deceased; and in the meantime the only person in charge by law to attend to all claims against the estate of the deceased debtor is the executor or administrator appointed by the court. In Opulencia v. Court of Appeals, 46 an heir agreed to convey in a contract to sell her share in the estate then under probate settlement. In an action for specific performance filed by the buyers, the seller-heir resisted on the ground that there was no approval of the contract by the probate court. The Court ruled that the contract to sell was binding between the parties, but subject to the outcome of the testate proceedings. The Court declared: x x x Consequently, although the Contract to Sell was perfected between the petitioner (seller-heir) and private respondents (buyers) during the pendency of the probate proceedings, the consummation of the sale or the transfer of ownership over the parcel of land to the private respondents is subject to the full payment of the purchase price and to the termination and outcome of the testate proceedings. x x x Indeed, it is settled that the sale made by an heir of his share in an inheritance, subject to the pending administration, in no wise stands in the way of such administration. (Emphasis supplied) In Alfredo Loys case, his seller executed the contract of sale after the death of the registered owner Jose Vao. The seller was Teodoro Vao who sold the lot in his capacity as sole heir of the deceased Jose Vao. Thus, Opulencia applies to the sale of the lot to Alfredo Loy, Jr., which means that the contract of sale was

ATTY. GERALDINE QUIMUSING-TIU LAKAS ATENISTA


binding between Teodoro Vao and Alfredo Loy, Jr., but subject to the outcome of the probate proceedings. In Frank Lius case, as successor-in-interest of Benito Liu, his seller was Jose Vao, who during his lifetime executed the contract to sell through an attorney-in-fact, Teodoro Vao. This is a disposition of property contracted by the decedent during his lifetime. Section 8 of Rule 89 specifically governs this sale: SECTION 8. When court may authorize conveyance of realty which deceased contracted to convey. Notice. Effect of deed. Where the deceased was in his lifetime under contract, binding in law, to deed real property, or an interest therein, the court having jurisdiction of the estate may, on application for that purpose, authorize the executor or administrator to convey such property according to such contract, or with such modifications as are agreed upon by the parties and approved by the court; x x x Thus, Frank Liu applied to the probate court for the grant of authority to the administratrix to convey the lots in accordance with the contract made by the decedent Jose Vao during his lifetime. The probate court approved the application. In Teresita Loys case, her seller was the Estate of Jose Vao. Teodoro Vao executed the contract of sale in his capacity as administrator of the Estate of Jose Vao, the registered owner of the lots. The Court has held that a sale of estate property made by an administrator without court authority is void and does not confer on the purchaser a title that is available against a succeeding administrator. 47 Manotok Realty, Inc. v. Court of Appeals 48 emphasizes the need for court approval in the sale by an administrator of estate property. The Court held in Manotok Realty: We also find that the appellate court committed an error of law when it held that the sale of the lot in question did not need the approval of the probate court. Although the Rules of Court do not specifically state that the sale of an immovable property belonging to an estate of a decedent, in a special proceeding, should be made with the approval of the court, this authority is necessarily included in its capacity as a probate court. An administrator under the circumstances of this case cannot enjoy blanket authority to dispose of real estate as he pleases, especially where he ignores specific directives to execute proper documents and get court approval for the sales validity. Section 91 of Act No. 496 (Land Registration Act) specifically requires court approval for any sale of registered land by an executor or administrator, thus: SEC. 91. Except in case of a will devising the land to an executor to his own use or upon some trust or giving to the executor power to sell, no sale or transfer of registered land shall be made by an executor or by an administrator in the course of administration for the payment of debts or for any other purpose, except in pursuance of an order of a court of competent jurisdiction obtained as provided by law. (Emphasis supplied)

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SPECIAL PROCEEDINGS DIGESTED CASES-RULE 87 to 89


Similarly, Section 88 of Presidential Decree No. 1529 (Property Registration Decree) provides: SEC. 88. Dealings by administrator subject to court approval. After a memorandum of the will, if any, and order allowing the same, and letters testamentary or letters of administration have been entered upon the certificate of title as hereinabove provided, the executor or administrator may alienate or encumber registered land belonging to the estate, or any interest therein, upon approval of the court obtained as provided by the Rules of Court. (Emphasis supplied) Clearly, both the law and jurisprudence expressly require court approval before any sale of estate property by an executor or administrator can take effect. Moreover, when the Loys filed in March 1976 their ex-parte motions for approval of their contracts of sale, there was already a prior order of the probate court dated 24 February 1976 approving the sale of Lot Nos. 5 and 6 to Frank Liu. In fact, the administratrix had signed the deed of sale in favor of Frank Liu on 5 March 1976 pursuant to the court approval. This deed of sale was notarized on 5 March 1976, which transferred ownership of Lot Nos. 5 and 6 to Frank Liu on the same date. 49 Thus, when the probate court approved the contracts of the Loys on 19 and 23 March 1976, the probate court had already lost jurisdiction over Lot Nos. 5 and 6 because the lots no longer formed part of the Estate of Jose Vao. In Dolar v. Sundiam, 50 an heir sold parcels of land that were part of the estate of the decedent. The probate court approved the sale. Thereafter, the probate court authorized the administrator to sell again the same parcels of land to another person. The Court ruled that the probate court had already lost jurisdiction to authorize the further sale of the parcels of land to another person because such property no longer formed part of the estate of the decedent. The Court declared: In our opinion, where, as in this case, a piece of property which originally is a part of the estate of a deceased person is sold by an heir of the deceased having a valid claim thereto, and said piece of property is, by mistake, subsequently inventoried or considered part of the deceaseds estate subject to settlement, and, thereafter, with the authority and approval of the probate court, it sold once more to another person, a receiver of the property so sold may, during the pendency of a motion to set aside the second sale, be appointed by the court when in its sound judgment the grant of such temporary relief is reasonably necessary to secure and protect the rights of its real owner against any danger of loss or material injury to him arising from the use and enjoyment thereof by another who manifestly cannot acquire any right of dominion thereon because the approving surrogate court had already lost jurisdiction to authorize the further sale of such property. (Emphasis supplied) Similarly, in this case, the Loys cannot acquire any right of dominion over Lot Nos. 5 and 6 because the probate court had already lost jurisdiction to authorize the second sale of the same lots. Moreover, the probate courts approval of the sale to the Loys was completely void due to the failure to notify the administratrix of the motion and hearing on the sale.

ATTY. GERALDINE QUIMUSING-TIU LAKAS ATENISTA


Whether the Loys were in good faith when they built on the Lots. The Civil Code describes a possessor in good faith as follows: Art. 526. He is deemed a possessor in good faith who is not aware that there exists in his title or mode of acquisition any flaw which invalidates it. He is deemed a possessor in bad faith who possesses in any case contrary to the foregoing. Mistake upon a doubtful or difficult question of law may be the basis of good faith. Art. 1127. The good faith of the possessor consists in the reasonable belief that the person from whom he received the thing was the owner thereof, and could transmit his ownership. In Duran v. Intermediate Appellate Court, possession in good faith in this manner:
51

the Court explained

Guided by previous decisions of this Court, good faith consists in the possessors belief that the person from whom he received the thing was the owner of the same and could convey his title (Arriola vs. Gomez de la Serna, 14 Phil. 627). Good faith, while it is always presumed in the absence of proof to the contrary, requires a wellfounded belief that the person from whom title was received was himself the owner of the land, with the right to convey it (Santiago vs. Cruz, 19 Phil. 148). There is good faith where there is an honest intention to abstain from taking unconscientious advantage from another (Fule vs. Legare, 7 SCRA 351). The Loys were not in good faith when they built on the lots because they knew that they bought from someone who was not the registered owner. The registered owner on the TCTs of the lots was the "Estate of Jose Vao," clearly indicating that the sale required probate court approval. Teodoro Vao did not show any court approval to the Loys when they purchased the lots because there was none. To repeat, any one who buys from a person who is not the registered owner is not a purchaser in good faith. 52 If the Loys built on the lots before the court approval, then they took the risk. Contract to sell versus contract of sale A prior contract to sell made by the decedent prevails over the subsequent contract of sale made by the administrator without probate court approval. The administrator cannot unilaterally cancel a contract to sell made by the decedent in his lifetime. 53 Any cancellation must observe all legal requisites, like written notice of cancellation based on lawful cause. 54 It is immaterial if the prior contract is a mere contract to sell and does not immediately convey ownership. 55 If it is valid, then it binds the estate to convey the property in accordance with Section 8 of Rule 89 upon full payment of the consideration. Frank Lius contract to sell became valid and effective upon its execution. 56 The seller, Jose Vao, was then alive and thus there was no need for court approval for the immediate effectivity of the contract to sell. In contrast, the execution of the contracts of sale
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SPECIAL PROCEEDINGS DIGESTED CASES-RULE 87 to 89


of the Loys took place after the death of the registered owner of the lots. The law requires court approval for the effectivity of the Loys contracts of sale against third parties. The probate court did not validly give this approval since it failed to notify all interested parties of the Loys motion for court approval of the sale. Besides, the probate court had lost jurisdiction over the lots after it approved the earlier sale to Frank Liu. Clearly, Frank Lius contract to sell prevails over the Loys contracts of sale. Whether petitioners are entitled to award of moral damages and attorneys fees. The Court upholds the ruling of the trial and appellate courts that petitioners are not entitled to moral damages. Moral damages should not enrich a complainant at the expense of the defendant.
57

ATTY. GERALDINE QUIMUSING-TIU LAKAS ATENISTA

Likewise, as found by the trial court and the appellate court, there is no basis to award attorneys fees. The policy of the law is to put no premium on the right to litigate. 58 The court may award attorneys fees only in the instances mentioned in Article 2208 of the Civil Code. The award of attorneys fees is the exception rather than the rule. 59 None of the instances mentioned in Article 2208 apply to this case. Con clusion Since the Loys have no contract of sale validly approved by the probate court, while Frank Liu has a contract of sale approved by the probate court in accordance with Section 8 of Rule 89, Lot Nos. 5 and 6 belong to Frank Liu. The Estate of Jose Vao should reimburse the Loys their payments on Lot Nos. 5 and 6, with annual interest at 6% from 4 June 1976, the date of filing of the complaint, until finality of this decision, and 12% thereafter until full payment.

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