Estipona vs. Estate of Aquino

A contract providing that title to the subject property shall automatically pass to the vendee upon full payment of the purchase price is a contract to sell, not a contract of sale; non-payment of the purchase price on the stipulated date constitutes non-fulfillment of a positive suspensive condition, rendering the contract without obligatory force, and Article 1592 of the Civil Code — which allows the vendee to pay even after the expiration of the agreed period — does not apply to a contract to sell. Furthermore, a party claiming against the estate of a deceased person based on an oral transaction occurring before the decedent's death is barred by the Dead Man's Statute from testifying on such matter, and an oral sale of real property is unenforceable under the Statute of Frauds.

Decedent Anacleto Aquino died on April 26, 1997, leaving a will dated February 8, 1997, which was probated by the Regional Trial Court of Manila, Branch 7. His will devised a three-door apartment at No. 632, 632A and 634 E. Quintos Street, Sampaloc, Manila — covered by Transfer Certificate of Title No. 212562 under a 66.6% (2/3) ownership interest of the estate — to his four grandchildren. Before his death, Anacleto had entered into two transactions with claimants: a loan of ₱600,000 from spouses Rafael and Raquel Estipona and spouses Jessie and Roselyn Cacanando, secured by a real estate mortgage over the apartment units, and a sale of real estate on installment basis covering unit 632A in favor of spouses Estipona. After Anacleto's death, the estate's administratrix filed ejectment cases against the claimants, prompting them to file claims against the estate within the probate proceedings.

Anacleto Aquino died on April 26, 1997, leaving a last will and testament dated February 8, 1997. On May 16, 1997, Victor L. Espinosa filed a petition for probate of the will before the Regional Trial Court of Manila, which was docketed as Special Proceeding No. 97-83384 and raffled to Branch 7. The probate court approved the will through its Decision dated August 25, 1997, and appointed Victor Espinosa as administrator of the estate. Among the properties included in the inventory submitted by Victor Espinosa on May 23, 2000 was a property located at No. 632, 632A and 634 E. Quintos Street, Sampaloc, Manila, covered by Transfer Certificate of Title No. 212562, over which the estate held a 66.6% (2/3) ownership interest and on which three fully depreciated two-storey apartment units were erected. The probate court found the accounting deficient and ordered Victor Espinosa to submit a corrected inventory within ten days; he failed to comply, and was removed as administrator by Order dated July 6, 2000. Lorna Fe Espinosa was thereafter appointed special administrator on November 12, 2002, and later regular administrator on March 8, 2004.

Before his death, Anacleto had obtained two loans of ₱300,000 each — one from spouses Rafael and Raquel Estipona and another from spouses Jessie and Roselyn Cacanando — totaling ₱600,000, which he used to pay his loan with Rodriguez Rural Bank, Inc. As security, Anacleto executed a Real Estate Mortgage dated November 15, 1996, notarized on November 20, 1996, in favor of both sets of spouses, covering Apartment Unit No. 632 located at E. Quintos Street, Sampaloc, Manila, under TCT No. 212562. The mortgage contained a provision that, should Anacleto opt to sell the property, it would first be offered to the mortgagees at ₱800,000 per apartment unit, with the mortgagees required to signify acceptance in writing within thirty days from notice. The mortgagees waived their right to foreclose in case of default. The real estate mortgage was annotated on TCT No. 212562 on November 20, 1996.

Separately, on February 21, 1997, Anacleto sold to spouses Rafael and Raquel Estipona, on installment basis, Apartment Unit No. 632A, a portion of the lot covered by TCT No. 212562 with an area of fifty square meters, as evidenced by a notarized Sale of Real Estate on Installment. The total consideration was ₱800,000, payable in two installments: ₱200,000 upon signing and ₱600,000 on or before April 30, 1997. The SREI stipulated that title to the subject property would automatically and without further formality pass to the vendee upon payment of the full purchase price. Spouses Estipona paid the ₱200,000 first installment upon execution. The ₱600,000 balance was paid on October 23, 1997 — 173 days after the stipulated deadline — by means of UCPB Check No. 0282512 issued in the name of Victor Espinosa as court-appointed administrator, without the approval of the probate court or the heirs. Thereafter, Raquel occupied unit 632A and later sold it to spouses Alberto and Lulu Co for ₱800,000 under an Extrajudicial Settlement of Estate with Absolute Deed of Sale.

According to the claimants, on March 26, 1997, Anacleto orally informed Raquel of his option to sell unit 632 to her on installment basis for ₱800,000 pursuant to the real estate mortgage provision. Raquel agreed, on the condition that the ₱300,000 loan be deducted from the purchase price. She paid ₱20,000 on the same day and made successive payments through checks in Anacleto's name, totaling ₱544,000 including the loan amount, leaving a balance of ₱256,000. No such claim of ownership was made by spouses Cacanando with respect to unit 634. The administratrix, Lorna Fe Espinosa, questioned the validity of the payment of the ₱600,000 balance under the SREI on the grounds that it was late, was made by check payable to Victor Espinosa rather than the estate, was not approved by the probate court in violation of Section 8, Rule 89 and Section 91 of the Property Registration Decree, and was not approved by the devisees of unit 632A. Counsel for the estate repeatedly denied the sale of the apartment units to spouses Estipona.

After the project of partition was approved on July 26, 2005 — which included the three-door apartment devised to the decedent's four grandchildren — the claimants filed a motion for partial reconsideration seeking to exclude units 632 and 632A from the distribution. The probate court denied the claims by Order dated April 23, 2007, ruling that the claims sought consolidation of ownership and exclusion of properties from the estate, which were beyond the authority of a probate court. The claimants' motion for reconsideration was denied on July 3, 2007. Meanwhile, the administratrix had filed an unlawful detainer case against Raquel Estipona before the Metropolitan Trial Court of Manila, Branch 24, and a forcible entry case against spouses Co before Branch 29 of the same court.

• Money Claims Under Rule 86: Petitioners argued that the ₱600,000 loan secured by the Real Estate Mortgage constitutes a money claim against the estate pursuant to Section 5, Rule 86 of the Rules of Court, and should be recognized as such to avoid being barred forever.
• Conveyance Under Rule 89: Petitioners maintained that the Sale of Real Estate on Installment covering unit 632A is a conveyance of realty which the decedent contracted to convey during his lifetime, and is therefore covered by Section 8, Rule 89 of the Rules, which authorizes the probate court to direct the executor or administrator to convey the property according to the contract.
• Dead Man's Statute: Petitioners argued that the Dead Man's Statute under Section 23, Rule 130 of the Rules barred Raquel from testifying on the option to sell unit 632 orally communicated by Anacleto to her before his death.

• Invalidity of Payment Under SREI: Respondent administratrix countered that the payment of the ₱600,000 balance under the SREI was invalid because it was made 173 days after the stipulated deadline of April 30, 1997; it was in the form of a check payable to Victor Espinosa personally and not to the estate; it was not approved by the probate court in violation of Section 8, Rule 89 and Section 91 of the Property Registration Decree; and the devisees of unit 632A did not approve of the payment.
• Denial of Sale: Respondent maintained that the sale of the apartment units to spouses Estipona never materialized during Anacleto's lifetime, and counsel for the estate repeatedly denied the sale.
• Probate Jurisdiction Limitation: Respondent argued, as affirmed by the Court of Appeals, that the claims seek determination of ownership and exclusion of properties from the estate, which are beyond the special and limited jurisdiction of the probate court, and that the proper remedy is a separate ordinary action invoking the general jurisdiction of the court.

• Money Claims Jurisdiction: Whether the claims of petitioners are money claims pursuant to Section 5, Rule 86 of the Rules, over which the probate court has jurisdiction.
• Conveyance Under Rule 89: Whether the sale of apartment unit 632A in installment is a conveyance of realty covered by Section 8, Rule 89 of the Rules.
• Dead Man's Statute: Whether the Dead Man's Statute (Section 23, Rule 130 of the Rules) barred Raquel from testifying on the option to sell unit 632 orally communicated by Anacleto to her.

• Money Claims Jurisdiction: Yes, in part. The ₱600,000 loan secured by the Real Estate Mortgage and the payments made by Raquel in relation to units 632 and 632A are recognized as money claims against the estate under Section 5, Rule 86, the loan being a mutuum that constitutes a "debt" within the meaning of Section 1, Rule 87.
• Conveyance Under Rule 89: No. The SREI is a contract to sell in which full payment of the purchase price is a positive suspensive condition; because the balance was paid 173 days after the stipulated deadline, the suspensive condition was not fulfilled, the contract never attained obligatory force, and the first requisite of Section 8, Rule 89 — that the contract be "binding in law" — is absent.
• Dead Man's Statute: Yes. Raquel is barred from testifying on the purported oral option to sell unit 632, all four requisites of the Dead Man's Statute being present; with her testimony excluded and absent other competent evidence, the oral sale is unenforceable under the Statute of Frauds.

• Money Claims Jurisdiction: The ₱600,000 loan is a mutuum under Article 1933 of the Civil Code — a contract of loan where money is delivered upon the condition that the same amount of the same kind and quality shall be paid — and is undoubtedly included in the term "debt." Since there are two creditors who lent equal amounts, the obligation is joint and divided into two equal shares. The "Compliance (Submission of Inventory)" prepared by the former administrator Victor Espinosa correctly reflected the ₱600,000 as "Mortgage Payable." The filing of money claims against a decedent's estate in the probate court is mandatory pursuant to Section 5, Rule 86, the purpose being to protect the estate by informing the executor or administrator of claims against it and to ensure the speedy settlement of the estate's affairs. While the CA denied the claims on the ground that petitioners sought exclusion of real properties from the estate, this observation applies only to spouses Estipona's share (because Raquel claims ownership over unit 632) but not to spouses Cacanando's share, as no ownership claim is made over unit 634. Even as to spouses Estipona's share, the ₱300,000 credit should still be reflected as a money claim, subject to the resolution of the ownership issue. Furthermore, since unit 632 was devised in Anacleto's will and the REM was executed before the will, Article 934 of the Civil Code obliges the estate to pay the debt unless a contrary intention appears. The "successive payments" made by Raquel in relation to unit 632, and the payments made in relation to unit 632A, must likewise be included as money claims.

• Conveyance Under Rule 89: Section 8, Rule 89 requires that the contract be (1) binding in law, (2) entered into by the decedent during his lifetime, and (3) its object is real property or any interest therein. The SREI stipulated that "title to the subject property shall, automatically and without further formality, pass to and be transferred to the VENDEE upon payment of the full purchase price." This stipulation — where the vendor reserves title until full payment — characterizes the SREI as a contract to sell, not a contract of sale, consistent with the distinctions drawn in Nabus vs. Pacson, Coronel vs. Court of Appeals, and Chua vs. Court of Appeals. In a contract to sell, full payment of the purchase price is a positive suspensive condition; non-fulfillment is not a breach but an event that prevents the obligation to convey title from acquiring binding force. Article 1592 of the Civil Code, which allows a vendee to pay even after the expiration of the agreed period so long as no demand for rescission has been made judicially or by notarial act, applies only to a contract of sale of immovable property and not to a contract to sell, as held in Cabrera vs. Ysaac and Manuel vs. Rodriguez, Sr. Since Raquel paid the ₱600,000 balance on October 23, 1997 — 173 days after the stipulated deadline of April 30, 1997 — over the objection of the estate, the suspensive condition was not fulfilled and the SREI never attained obligatory force. The first requisite of Section 8, Rule 89 is therefore absent, and the probate court could not have authorized the administrator to execute a deed of absolute sale. Raquel was not without remedy: she could have tendered payment and effected consignation under Article 1256, and she could have enforced the SREI against Anacleto's heirs pursuant to Article 1311, the obligation being transmissible by nature. What Raquel acquired upon the constitution of the SREI was only a mere hope or expectancy under Article 1188. Additionally, the SREI was notarized on February 21, 1997, after the will was executed on February 8, 1997, potentially constituting an alienation of the thing bequeathed subsequent to the will under Article 957, although the SREI subsequently became inefficacious. Since the ₱600,000 paid by Raquel to Victor Espinosa is acknowledged in the inventory as having been received by the estate, the estate should be obligated to return the same in case the SREI is subsequently determined to be without obligatory force in the appropriate proceeding.

• Dead Man's Statute: The four requisites of the survivorship disqualification rule are all present: (1) the defendant is the administrator of the estate of the deceased; (2) the suit is upon a claim against the estate; (3) the witness is the claimant or a person in whose behalf the case is prosecuted; and (4) the subject of the testimony is a matter of fact occurring before the death of the deceased. Raquel is claiming against the estate based on the alleged exercise by Anacleto of his option to sell under the REM before his death. The policy of the law is to close the lips of the surviving party when death has closed the lips of the other, and to put the parties upon terms of equality. With Raquel's testimony excluded, her claim of ownership over unit 632 fails absent other convincing and competent evidence to prove the purported oral sale and to overcome the Statute of Frauds under Article 1403(2)(e) of the Civil Code, which requires an agreement for the sale of real property to be in writing to be enforceable. The "successive payments" made by Raquel in relation to unit 632 must therefore be included as money claims against the estate.

• Contract to Sell vs. Contract of Sale — A contract of sale is one where the vendor obligates himself to transfer ownership and deliver a determinate thing, and the vendee to pay a price certain; ownership passes upon delivery. A contract to sell is one where the prospective seller expressly reserves ownership until full payment of the purchase price, such payment being a positive suspensive condition, the non-fulfillment of which is not a breach but an event that prevents the obligation to convey title from acquiring binding force. The distinction is determined not by the title of the contract but by its express terms or stipulations. In this case, the SREI's stipulation that title shall automatically pass upon full payment of the purchase price made it a contract to sell.

• Inapplicability of Article 1592 to Contracts to Sell — Article 1592 of the Civil Code, which allows a vendee to pay even after the expiration of the agreed period so long as no demand for rescission has been made judicially or by notarial act, applies only to a contract of sale of immovable property and not to a contract to sell. In a contract to sell, non-payment of the purchase price on the stipulated date signals the non-fulfillment of the suspensive condition and renders the contract without obligatory force; payment beyond the stipulated period is not allowed over the objection of the vendor or his heirs.

• Dead Man's Statute (Survivorship Disqualification Rule) — Under Section 23, Rule 130 of the Rules of Court, a party or assignor of a party, or a person in whose behalf a case is prosecuted against an executor or administrator of a deceased person, cannot testify as to any matter of fact occurring before the death of such deceased person. The requisites are: (1) the defendant is the executor, administrator, or representative of the deceased; (2) the suit is upon a claim against the estate; (3) the witness is the plaintiff, an assignor of that party, or a person in whose behalf the case is prosecuted; and (4) the testimony concerns a matter of fact occurring before the death of the deceased. The rule guards against the temptation to give false testimony and puts the parties upon terms of equality. All four requisites being present, Raquel was barred from testifying on the oral option to sell.

• Provisional Determination of Ownership in Probate Proceedings — The probate court's jurisdiction is special and limited; the issue of ownership is an extraneous matter which the probate court cannot resolve with finality. For purposes of determining whether a property should be included in the inventory of estate properties, the probate court may pass upon title and ownership, but such determination is provisional, not conclusive, and is subject to the final decision in a separate action. All findings in this case regarding the validity of the SREI and the oral sale were expressly declared provisional and without prejudice to the filing of an appropriate action for final determination of ownership.

• Mandatory Filing of Money Claims in Probate — The filing of a money claim against a decedent's estate in the probate court is mandatory under Section 5, Rule 86. The purpose is to protect the estate by informing the executor or administrator of claims against it, enabling examination and determination of each claim, and ensuring the speedy settlement of the estate's affairs. A "money claim" is any claim for "money or debt or interest thereon" under Section 1, Rule 87, and includes every species of liability which an executor or administrator can be called on to pay out of the general fund of the estate.

• Revocation de Facto of Legacies and Devises (Article 957) — A legacy or devise is without effect if the testator, by any title or for any cause, alienates the thing bequeathed or any part thereof subsequent to the execution of the will. Even if the alienation subsequently becomes inefficacious, the legacy or devise does not thereafter become valid, unless the reacquisition is effected by virtue of the exercise of the right of repurchase.

• "Where the vendor promises to execute a deed of absolute sale upon the completion by the vendee of the payment of the price, the contract is only a contract to sell." — This formulation, drawn from Nabus vs. Pacson, articulates the controlling distinction between a contract of sale and a contract to sell based on whether title is reserved until full payment, and was applied to characterize the SREI as a contract to sell.

• "Since Article 1592 of the Civil Code where the vendee may pay, even after the expiration of the period agreed upon, as long as no demand for rescission of the contract has been made judicially or by a notarial act, is not applicable to a contract to sell or a promise to sell, the non-payment of Raquel of the balance of the purchase price on or before April 30, 1997 as stipulated in the SREI signaled the non-fulfillment of the suspensive condition and rendered without obligatory force or effect the SREI." — This passage states the ratio decidendi on the second issue: that Article 1592 does not apply to a contract to sell, and late payment over the objection of the vendor's estate constitutes non-fulfillment of the suspensive condition.

• "If death has closed the lips of one party, the policy of the law is to close the lips of the other." — This canonical statement of the rationale underlying the Dead Man's Statute was invoked to bar Raquel from testifying on the oral option to sell unit 632, and is frequently cited in subsequent evidence jurisprudence.

• "These findings in this case — (1) the SREI (with respect to unit 632A) being without obligatory force and (2) Raquel being barred from testifying on the purported option to sell unit 632 effected orally by Anacleto to her prior to his death to prove the existence and validity of the sale of the said unit to Raquel — are merely provisional, given the limited jurisdiction of the probate court to determine the issue of ownership." — This passage defines the scope and binding effect of the Court's adjudication, clarifying that the rulings on validity are provisional and do not preclude a separate action for final determination of ownership.

• Nabus vs. Pacson, G.R. No. 161318, November 25, 2009, 605 SCRA 334 — Controlling precedent on the distinction between a contract of sale and a contract to sell. The Court held that a deed entitled "Deed of Conditional Sale" was actually a contract to sell because the vendor promised to execute transfer documents only upon full payment. Followed and applied to the SREI in this case.

• Union Bank of the Philippines vs. Santibañez, G.R. No. 149926, February 23, 2005, 452 SCRA 228 — Cited for the doctrine that the filing of a money claim against a decedent's estate in the probate court is mandatory under Section 5, Rule 86, and for the purpose of the rule: to protect the estate and ensure speedy settlement.

• Tan vs. Court of Appeals, G.R. No. 125861, September 9, 1998, 295 SCRA 247 — Cited for the application of the Dead Man's Statute, where the private respondent relied on parol evidence of a sale with a deceased person, which could not be allowed without violating Section 23, Rule 130. Followed.

• Cabrera vs. Ysaac, G.R. No. 166790, November 19, 2014, 740 SCRA 612 — Cited for the ruling that Article 1592 of the Civil Code does not apply to a contract to sell, and that the law does not prescribe a form to rescind a contract to sell immovable property; mere nonpayment is sufficient to cancel. Followed.

• Manuel vs. Rodriguez, Sr., 109 Phil. 1 (1960) — Cited for the categorical statement that Article 1592 "does not apply to a contract to sell or promise to sell, where title remains with the vendor until fulfillment of a positive suspensive condition, such as full payment of the price." Followed.

• Coronel vs. Court of Appeals, 331 Phil. 294 (1996) — Cited for the distinction between a contract to sell and a contract of sale, particularly the absence of the element of consent to transfer ownership in a contract to sell. Followed.

• Chua vs. Court of Appeals, 449 Phil. 25 (2003) — Cited for the distinction that in a contract of sale, title passes upon delivery, whereas in a contract to sell, title is retained by the vendor until full payment. Followed.

• DKC Holdings Corp. vs. Court of Appeals, G.R. No. 118248, April 5, 2000, 329 SCRA 666 — Cited for the construction of Article 1311 of the Civil Code on the transmissibility of contractual rights and obligations to heirs, and the principle that heirs are bound by contracts entered into by their predecessors-in-interest except when the rights and obligations are intransmissible by nature, stipulation, or law. Followed.

• Py Eng Chong vs. Herrera, No. L-31229, March 25, 1976, 70 SCRA 130 — Cited through Union Bank vs. Santibañez for the principle that the prompt presentation and disposition of claims against a decedent's estate is strictly required to settle the affairs of the estate as soon as possible. Followed.

• Section 5, Rule 86, Rules of Court — Governs claims against the estate that must be filed within the time limited in the notice, otherwise barred forever. Applied to recognize the ₱600,000 loan and the payments made in relation to units 632 and 632A as money claims against Anacleto's estate.

• Section 1, Rule 87, Rules of Court — Defines "money claim" as any claim for "money or debt or interest thereon." Applied to characterize the loan as a debt constituting a money claim, and to distinguish money claims from claims seeking title or possession adverse to the estate.

• Section 8, Rule 89, Rules of Court — Authorizes the probate court to direct the executor or administrator to convey real property where the deceased was under contract, binding in law, to deed such property. Applied and found inapplicable because the SREI, being a contract to sell that never attained obligatory force, did not satisfy the requisite that the contract be "binding in law."

• Section 23, Rule 130, Rules of Court (Dead Man's Statute) — Disqualifies parties or assignors of parties from testifying against an executor or administrator on any matter of fact occurring before the death of the deceased. Applied to bar Raquel from testifying on the oral option to sell unit 632, all four requisites being present.

• Article 1592, Civil Code — Governs rescission of the sale of immovable property, allowing the vendee to pay even after the expiration of the agreed period so long as no demand for rescission has been made judicially or by notarial act. Held inapplicable to a contract to sell.

• Article 1181, Civil Code — Governs conditional obligations, classifying conditions into suspensive and resolutory. Applied to explain that the full payment of the purchase price in a contract to sell is a suspensive condition on which the birth of the obligation depends.

• Article 1933, Civil Code — Defines a mutuum as a contract of loan where money or other consumable thing is delivered upon condition that the same amount of the same kind and quality shall be paid. Applied to characterize the ₱600,000 loan as a debt included in the term "money claim."

• Article 934, Civil Code — Provides that if the testator devises something pledged or mortgaged to secure a recoverable debt before the execution of the will, the estate is obliged to pay the debt unless a contrary intention appears. Applied because the REM was executed before the will and unit 632 was devised therein.

• Article 957, Civil Code — Governs revocation de facto of legacies and devises, including alienation by the testator of the thing bequeathed subsequent to the execution of the will. Noted as potentially applicable because the SREI was notarized after the will was executed, although the SREI subsequently became inefficacious.

• Article 1403(2)(e), Civil Code (Statute of Frauds) — Requires an agreement for the sale of real property or of an interest therein to be in writing to be enforceable. Applied to render the oral sale of unit 632 unenforceable absent Raquel's barred testimony and other competent evidence.

• Article 1256, Civil Code — Governs consignation when the creditor refuses without just cause to accept tender of payment, or when the creditor is absent, unknown, incapacitated, or when two or more persons claim the same right. Noted as a remedy available to Raquel to preserve her rights under the SREI after Anacleto's death.

• Article 1311, Civil Code — Provides that contracts take effect between the parties, their assigns and heirs, except when rights and obligations are not transmissible by nature, stipulation, or law. Noted as the basis for enforcing the SREI against Anacleto's heirs, the obligation being transmissible by nature.

• Article 1188, Civil Code — Provides that the creditor may, before the fulfillment of the condition, bring the appropriate actions for the preservation of his right. Applied to explain that Raquel acquired only a mere hope or expectancy upon the constitution of the SREI but could bring actions to preserve her right.

Gesmundo, C.J. (Chairperson), Lazaro-Javier, J., M. Lopez, J., and J. Lopez, J. — concurred. No separate concurring opinions were written.