Manotok Realty, Inc. vs. Court of Appeals

A sale of paraphernal property executed by the deceased wife's husband after her death, before his appointment as administrator and without probate court approval, is void ab initio and cannot be ratified; the purchaser acquires no enforceable right against the estate or its vendee.

Clara Tambunting de Legarda owned a lot in the Clara de Tambunting de Legarda Subdivision as paraphernal property. Felipe Madlangawa occupied the lot and claimed an eventual right to purchase it from Clara's husband, Vicente Legarda. The lot later formed part of Clara's estate, which was placed under custodia legis and eventually sold to Manotok Realty, Inc. The governing backdrop includes Articles 136 and 137 of the Civil Code on paraphernal property and Section 1, Rule 89 of the Revised Rules of Court on the sale of property under probate administration.

Felipe Madlangawa occupied a parcel of land in the Clara de Tambunting de Legarda Subdivision beginning in 1949, having obtained permission from Andres Ladores, then an overseer of the subdivision, on the understanding that he would eventually buy the lot. On April 2, 1950, the owner, Clara Tambunting, died, and her entire estate, including the paraphernal properties covering the lot occupied by Madlangawa, was placed under custodia legis. On April 22, 1950, Madlangawa made a deposit of P1,500.00 for the lot, which Vicente Legarda, the husband of the late owner, received. The receipt described the lot as having an area of 240 square meters and a price of P30.00 per square meter, leaving an unpaid balance of P5,700.00. Madlangawa did not pay that balance because, after Clara's death, her heirs could not settle their differences, and apart from the initial deposit, no further payments were made from 1950. On April 28, 1950, Don Vicente Legarda was appointed as a special administrator of the estate, and Madlangawa remained in possession of the lot.

Subsequently, Manotok Realty, Inc. became the successful bidder and vendee of the Tambunting de Legarda Subdivision, consisting of 44 parcels of land in the districts of Tondo and Sta. Cruz, Manila, under deeds of sale executed in its favor by the Philippine Trust Company on March 13 and 20, 1959, as administrator of the Testate Estate of Clara Tambunting de Legarda in Special Proceeding No. 10809 of the Manila probate court. The lot in dispute was among those covered by the sale. The deed of sale provided that the vendee assumed the risk and expenses of ejecting tenants or squatters; that rentals or damages due from tenants or squatters after the sale belonged to the vendee, while those due before the sale belonged to the vendor; and that the vendee renounced the right to warranty in case of eviction, with knowledge of the risks, assuming the consequences not only as to lots subject of pending cases and claims but also as to any other lots subject of contracts of sale or promises to sell executed by the deceased Clara Tambunting de Legarda and/or Vicente L. Legarda, thereby relieving the estate and the Philippine Trust Company of liability. All sums paid to Clara Tambunting de Legarda and/or Vicente L. Legarda and/or the administrator on account of the purchase price belonged to the estate, but any sums due as the balance of the purchase price belonged to the vendee.

In its effort to clear the Tambunting Subdivision of squatters and occupants, Manotok caused the publication of notices in the Manila Times issues of January 1, 1966 and the Taliba issues of January 2 and March 16, 1966, advising occupants to vacate their premises or face court action with damages. It also sent circulars to the occupants to vacate. Madlangawa was one of the occupants who refused to vacate, and on April 26, 1968, Manotok filed the action below to recover the lot.

The trial court dismissed Manotok's action after finding that the identity of the parcel of land described in the complaint had not been sufficiently established as the very same piece of land in the material and physical possession of Madlangawa. On appeal, the Court of Appeals found the identity of the lot sought to be recovered to be the same as that in Madlangawa's physical possession. It also determined that the area involved was 115 square meters and that, after deducting the P1,500.00 deposit, the balance was P2,551.85, payable in 18 equal monthly installments as ordered by the Court of First Instance of Manila.

• Authority to Sell: Petitioner maintained that Vicente Legarda had no authority to sell the property to Madlangawa on May 12, 1950 because Clara Tambunting died on April 2, 1950, and Vicente was appointed administrator of her estate only on August 28, 1950; at the time of the sale, he was neither the owner nor the administrator of the property.
• Effect on the Estate: Petitioner argued that the sale could not have bound Clara Tambunting's estate since the vendor acted neither as owner nor as administrator when the sale took place.
• Scope of the Deed of Sale: Petitioner argued that the provision in its deed of sale with the Philippine Trust Company, by which it bound itself to respect contracts of sale or promises to sell executed by Vicente Legarda and renounced warranty in case of eviction, required respect only for valid sales executed by the deceased Clara Tambunting and by persons vested with authority to act on behalf of the estate.

• Ratification and Admission Against Interest: Private respondent contended that the provisions of the deed of sale are a declaration or admission against the interest of petitioner and show that Vicente Legarda's acts had been ratified by the Philippine Trust Company and approved by the probate court.
• Estoppel: Private respondent argued that petitioner is therefore estopped from questioning Vicente Legarda's authority to sell the property in dispute.

• Capacity to Sell: Whether Don Vicente Legarda validly disposed of the disputed paraphernal lot in favor of Felipe Madlangawa when the owner, Clara Tambunting, was already dead and Vicente had not yet been appointed administrator of her estate.
• Ratification and Estoppel: Whether the sale, if invalid, could be ratified by the Philippine Trust Company or the probate court, or whether Manotok Realty, Inc. is estopped from questioning Vicente Legarda's authority.
• Recovery and Rentals: Whether Manotok Realty, Inc. is entitled to recover possession of the lot and rentals from Madlangawa, and whether it must reimburse the P1,500.00 deposit.

• Capacity to Sell: No. The sale was void ab initio because Vicente Legarda was neither the owner nor the administrator of the paraphernal property at the time of the sale; Clara had died, and he was appointed administrator only on August 28, 1950, more than three months after the sale.
• Ratification and Estoppel: No. A void contract is inexistent from the beginning and cannot be ratified; the right to invoke its nullity extends to third persons directly affected, and the deed provisions did not validate the unauthorized sale.
• Recovery and Rentals: Yes. Manotok, as vendee of the estate, is entitled to possession and to rentals at P0.20 per square meter per month from May 1950 until surrender, but it must reimburse the P1,500.00 deposit with legal interest or offset it against the rentals.

• Capacity to Sell: The lot was the paraphernal property of Clara Tambunting. Under Articles 136 and 137 of the Civil Code, the wife retains ownership of paraphernal property and retains its administration unless she delivers it to the husband by a public instrument empowering him to administer it, which instrument must be recorded in the Registry of Property. Nothing in the records showed that Don Vicente Legarda was the administrator of Clara's paraphernal properties during her lifetime. The sale therefore could not be treated as having had its inception before Clara's death and as merely consummated afterward; Vicente could not have validly disposed of the lot as a continuing administrator of the paraphernal properties. The probate court appointed him administrator of the estate only on August 28, 1950, more than three months after the questioned sale. Because he was neither owner nor administrator, the sale was void ab initio. Section 1, Rule 89 of the Revised Rules of Court also required an administrator to apply to the probate court for authority to sell property in custodia legis; no such application or order was obtained. Kline vs. Shoup teaches that no sale of property of a decedent's estate is valid unless made under order of the probate court, and that the order of sale is an indispensable requisite.
• Ratification and Estoppel: Since the sale was void ab initio, it could not be the subject of ratification by the Philippine Trust Company or the probate court. Arsenal vs. Intermediate Appellate Court holds that a void contract is inexistent from the beginning and cannot be ratified, nor can the right to set up the defense of its illegality be waived under Article 1409 of the Civil Code. The right to set up the nullity of a void or non-existent contract is not limited to the parties, as in voidable contracts, but extends to third persons directly affected; any person may invoke the inexistence of the contract whenever juridical effects founded on it are asserted against him. Thus, the respondent's claim of ratification and estoppel failed. The provision in Manotok's deed of sale respecting contracts or promises to sell executed by Vicente Legarda did not convert the void sale into a valid one, because it could only apply to valid sales by Clara or by persons with authority to act for the estate.
• Recovery and Rentals: With the sale void, Madlangawa acquired no right to retain possession of the lot as against Manotok, which had acquired the property as vendee of the estate. Considering the location of the disputed lot, a monthly rental of P0.20 per square meter was fair for Madlangawa's use of the premises from May 1950 until he surrendered the lot. Manotok was required to return the P1,500.00 deposit received by Vicente Legarda, with legal interest from May 1950, or to offset that amount against the rentals due to it. Costs were assessed against the private respondent.

• Void contracts are inexistent from the beginning and cannot be ratified — Under Article 1409 of the Civil Code, a void contract is inexistent from the beginning; it cannot be ratified, and the right to set up the defense of its illegality cannot be waived. The Court applied this to hold that the sale by Vicente Legarda to Madlangawa, being void ab initio, could not be ratified by the Philippine Trust Company or the probate court.
• Nullity of a void contract may be invoked by third persons — The right to set up the nullity of a void or non-existent contract is not limited to the parties, as in voidable contracts, but extends to third persons directly affected by the contract; any person may invoke the contract's inexistence whenever juridical effects founded on it are asserted against him. This allowed Manotok Realty, Inc. to question the sale despite not being a party to it.
• Paraphernal property: ownership and administration — Under Articles 136 and 137 of the Civil Code, the wife retains ownership of paraphernal property and retains its administration unless she delivers it to the husband through a public instrument empowering him to administer it, recorded in the Registry of Property; for movables, the husband must give adequate security. Because no showing existed that Vicente Legarda administered Clara Tambunting's paraphernal properties during her lifetime, he could not validly sell the lot as a continuing administrator.
• Probate sale requires a court order — Section 1, Rule 89 of the Revised Rules of Court requires an executor or administrator to apply to the probate court, with notice to heirs and interested persons, for authority to sell estate property. Kline vs. Shoup further states that no sale of property of a decedent's estate is valid unless made under order of the probate court, the order of sale being an indispensable requisite. The absence of such an order rendered Vicente Legarda's sale invalid.

• "We are, therefore, led to the inevitable conclusion that the sale between Don Vicente Legarda and the private respondent is void ab initio, the former being neither an owner nor administrator of the subject property. Such being the case, the sale cannot be the subject of the ratification by the Philippine Trust Company or the probate court." — This is the Court's core holding that the sale was void and could not be ratified.
• "Under the provisions of the Civil Code, a void contract is inexistent from the beginning. It cannot be ratified neither can the right to set up the defense of its illegality be waived." — This states the Civil Code rule on void contracts that the Court applied to reject ratification.
• "The right to set up the nullity of a void or non-existent contract is not limited to the parties as in the case of annuable or voidable contracts, it is extended to third persons who are directly affected by the contract." — This defines the scope of the right to invoke nullity and supports Manotok's standing to challenge the sale.
• "From the foregoing, it cannot be denied that the law recognizes the issuance of an order of sale as an indispensable requisite in effecting a valid sale of the property of a decedent's estate." — This states the probate-sale requirement that the sale failed to satisfy.

• Arsenal vs. Intermediate Appellate Court, 143 SCRA 40, 49 — Cited as controlling authority that a void contract is inexistent from the beginning, cannot be ratified, and the right to set up its illegality cannot be waived.
• Kline vs. Shoup, 226 Pacific Reporter 729, 731 — Cited as applicable authority that no sale of property of a decedent's estate is valid unless made under order of the probate court, and that the order of sale is an indispensable requisite.

• Article 136, Civil Code — The wife retains ownership of paraphernal property. Applied to establish that Clara Tambunting remained the owner of the lot, so Vicente Legarda could not sell it as owner.
• Article 137, Civil Code — The wife has administration of paraphernal property unless she delivers it to the husband by a public instrument empowering him to administer it, recorded in the Registry of Property; for movables, the husband gives adequate security. Applied because no record showed Vicente was administrator of Clara's paraphernal properties during her lifetime.
• Article 1409, Civil Code — Void contracts are inexistent from the beginning and cannot be ratified; the right to set up the defense of illegality cannot be waived. Applied to hold that the void sale could not be ratified by the Philippine Trust Company or the probate court.
• Section 1, Rule 89, Revised Rules of Court — Provides the procedure for the sale of property in custodia legis: upon application of the executor or administrator and notice to heirs and interested persons, the court may order the sale of estate property if necessary for debts, expenses, legacies, or preservation. Applied because Vicente Legarda did not apply for or obtain probate court authority to sell the disputed lot.

Fernan (Chairman), Paras, Padilla, Bidin, and Cortes, JJ.