Neri vs. Heirs of Uy

An extrajudicial settlement that excludes compulsory heirs is a total nullity and not binding upon them, and a subsequent sale of the property is valid only with respect to the alienable pro indiviso shares of the participating co-owners, making the buyer a co-owner who holds the excluded heirs' shares in implied constructive trust.

Anunciacion Neri died intestate on September 21, 1977, survived by her husband Enrique Neri and seven children from two marriages: Eutropia and Victoria (from her first marriage with Gonzalo Illut), and Napoleon, Alicia, Visminda, Rosa, and Douglas (from her second marriage with Enrique). The spouses Enrique and Anunciacion had acquired several homestead properties totaling 296,555 square meters in Samal, Davao del Norte. On July 7, 1979, Enrique (in his personal capacity and as natural guardian of minors Rosa and Douglas), together with Napoleon, Alicia, and Visminda, executed an Extra-Judicial Settlement of the Estate with Absolute Deed of Sale, adjudicating the entire estate among themselves and immediately conveying it to spouses Hadji Yusop Uy and Julpha Ibrahim Uy for ₱80,000.00. Eutropia and Victoria were excluded from the settlement and sale.

• Anunciacion's Estate and Heirs: Anunciacion Neri died intestate on September 21, 1977, leaving homestead properties covered by OCT Nos. (P-7998) P-2128, (P-14608) P-5153, and P-20551 (P-8348). Her legitimate heirs included her husband Enrique and her seven children from two marriages: Eutropia and Victoria (first marriage), and Napoleon, Alicia, Visminda, Rosa, and Douglas (second marriage).
• The Extrajudicial Settlement and Sale: On July 7, 1979, Enrique (personally and as natural guardian of minors Rosa and Douglas), Napoleon, Alicia, and Visminda executed an Extra-Judicial Settlement of the Estate with Absolute Deed of Sale. They adjudicated the entire estate among themselves and sold it to spouses Hadji Yusop Uy and Julpha Ibrahim Uy for ₱80,000.00. Eutropia and Victoria were excluded from the transaction.
• Subsequent Action: On June 11, 1996, Enrique’s children filed a complaint for annulment of sale, alleging the sale occurred within the prohibited period. The complaint was amended to include Eutropia and Victoria, who claimed deprivation of their legitimes.
• Respondents' Defense: The heirs of Uy countered that the sale occurred beyond the 5-year prohibitory period, denied knowledge of Eutropia and Victoria’s exclusion, and invoked prescription and laches, citing their 17-year possession of the properties.
• Ratification by Rosa: While the case was pending before the RTC, Napoleon and Rosa executed a Manifestation (July 11, 1997) and a Joint-Affidavit (June 30, 1997), confirming that the sale was voluntary and acknowledging the validity of the extrajudicial settlement and deed of sale. Douglas did not execute any similar document.

• Validity of Settlement as to Excluded Heirs: Petitioner argued that the CA erred in upholding the validity of the extrajudicial settlement and sale concerning the shares of Eutropia and Victoria, thereby depriving them of their inheritance.
• Authority Over Minors' Shares: Petitioner maintained that the CA erred in not annulling the sale regarding the shares of minors Rosa and Douglas, as Enrique lacked judicial authority to dispose of their property.
• Prescription and Laches: Petitioner argued that the CA erred in finding that laches or prescription had set in, given that co-ownership rights are imprescriptible and the action for declaration of nullity does not prescribe.

• Prohibitory Period: Respondent countered that the sale took place beyond the 5-year prohibitory period from the issuance of the homestead patents.
• Knowledge of Exclusion: Respondent argued that they had no knowledge of Eutropia and Victoria’s exclusion from the extrajudicial settlement and sale.
• Prescription and Laches: Respondent interposed the defenses of prescription and laches, asserting that Eutropia and Victoria belatedly filed their action in 1997, more than two years after gaining knowledge of their exclusion in 1994 upon their stepfather's death, and that spouses Uy had possessed the properties for 17 years.

• Validity of Settlement as to Excluded Heirs: Whether the extrajudicial settlement and sale is valid and binding as to the shares of Eutropia and Victoria who were excluded therefrom.
• Validity of Sale as to Minors' Shares: Whether the extrajudicial settlement and sale should be annulled with respect to the shares of Rosa and Douglas, who were minors represented by their natural guardian without judicial authority.
• Prescription and Laches: Whether the action for annulment has prescribed or is barred by laches.

• Validity of Settlement as to Excluded Heirs: The extrajudicial settlement was declared null and void for excluding Eutropia and Victoria. Under Section 1, Rule 74 of the Rules of Court, no extrajudicial settlement shall be binding upon any person who has not participated therein or had no notice thereof. Because the settlement was a total nullity as to the excluded heirs, the 2-year prescriptive period under Rule 74 did not apply. However, the subsequent sale was declared valid only with respect to the proportionate shares of the participating co-owners (Enrique, Napoleon, Alicia, Visminda, and Rosa). Pursuant to Article 493 of the Civil Code, a co-owner may alienate his pro indiviso share, but the effect of the alienation is limited to the portion allotted to him upon termination of the co-ownership. Respondents were deemed pro indiviso co-owners, holding the 3/16 shares of Eutropia, Victoria, and Douglas under an implied constructive trust.
• Validity of Sale as to Minors' Shares: The sale of the minors' shares was ruled unenforceable for lack of judicial authority. Under Articles 320 and 326 of the Civil Code and Section 7, Rule 93 of the Rules of Court, a natural guardian has only powers of administration and cannot alienate or encumber the minor's property without court approval. A contract entered into without authority is unenforceable under Articles 1317 and 1403(1) of the Civil Code, unless ratified. Rosa ratified the sale upon reaching majority through her Manifestation and Joint-Affidavit, thereby purging the defect and legitimizing the conveyance of her 1/16 share. Douglas did not ratify, making the sale unenforceable as to his 1/16 share.
• Prescription and Laches: The action was held to have not prescribed. The 2-year prescriptive period under Section 1, Rule 74 finds no application to excluded heirs, and an action for declaration of inexistence of a contract does not prescribe under Article 1410 of the Civil Code. The action to recover property held in trust prescribes in 10 years under Article 1144 of the Civil Code, reckoned from the time of actual notice. Because Eutropia, Victoria, and Douglas learned of the settlement in 1994 and filed the complaint in 1997, the action was well within the 10-year period. Laches was likewise rejected.

• Implied Constructive Trust — If property is acquired through mistake or fraud, the person obtaining it is, by force of law, considered a trustee of an implied trust for the benefit of the person from whom the property comes. Applied to hold that respondents, as buyers of property subject to a void extrajudicial settlement, hold the excluded heirs' shares in implied constructive trust.
• Ratification of Unenforceable Contracts — Ratification is the voluntary adoption and sanction of an unauthorized act, which cleanses the contract of all defects from the moment it was constituted with retroactive effect. Applied to hold that Rosa's sworn statements acknowledging the sale constituted ratification, validating the conveyance of her share despite the initial lack of judicial authority.
• Natural Guardian's Limited Authority — A parent as natural guardian of a minor's property exceeding two thousand pesos has only powers of administration and cannot alienate or encumber the property without judicial authority; any act of disposition exceeds the limits of administration. Applied to render the sale of Rosa and Douglas's shares unenforceable absent court approval.

• "A person can only sell what he owns, or is authorized to sell and the buyer can as a consequence acquire no more than what the seller can legally transfer."
• "No extrajudicial settlement shall be binding upon any person who has not participated therein or had no notice thereof."
• "Administration includes all acts for the preservation of the property and the receipt of fruits according to the natural purpose of the thing. Any act of disposition or alienation, or any reduction in the substance of the patrimony of child, exceeds the limits of administration."

• Segura v. Segura, G.R. No. L-29320, September 19, 1988 — Followed. Established that Section 1, Rule 74 covers only valid partitions; a partition excluding heirs is a total nullity and does not bind them, and the two-year prescriptive period does not apply.
• Flora v. Prado, G.R. No. 156879, January 20, 2004 — Followed. Cited for the principle that co-owners acquire their respective shares from the moment of the decedent's death and can alienate their undivided shares in the estate.
• Ibañez v. Rodriguez, 47 Phil 554 (1925) — Followed. Cited for the rule that a sale entered into by a natural guardian without judicial authority is unenforceable unless ratified by the minor upon reaching the age of majority.
• Aznar Brothers Realty Company vs. Aying, G.R. No. 144773, May 16, 2005 — Followed. Cited for the rule that the prescriptive period for an action for reconveyance based on implied trust accrues from the time of actual notice in case of an unregistered deed.

• Article 979, Civil Code — Legitimate children succeed the parents and other ascendants, without distinction as to sex or age, and even if they should come from different marriages. Applied to entitle all seven children to inherit equally from Anunciacion.
• Article 980, Civil Code — Children of the deceased shall always inherit from him in their own right, dividing the inheritance in equal shares. Applied to determine the legitimes of the heirs.
• Section 1, Rule 74, Rules of Court — No extrajudicial settlement shall be binding upon any person who has not participated therein or had no notice thereof. Applied to declare the settlement void as against the excluded heirs.
• Articles 320 and 326, Civil Code — Limits the father or mother as legal administrator/guardian of the child's property, requiring court approval for acts beyond administration if property exceeds two thousand pesos. Applied to hold that Enrique had no authority to sell the minors' shares.
• Section 7, Rule 93, Rules of Court — Parents as guardians have duties and obligations of guardians under the Rules, requiring court appointment when property exceeds two thousand pesos. Applied to reinforce the need for judicial authority to sell.
• Articles 1317 and 1403(1), Civil Code — Contracts entered into in the name of another without authority or legal representation are unenforceable unless ratified. Applied to classify the sale of minors' shares as unenforceable.
• Article 493, Civil Code — Each co-owner has full ownership of his part and may alienate it, but the effect of the alienation is limited to the portion allotted to him in the division upon termination of the co-ownership. Applied to validate the sale of the participating co-owners' undivided shares.
• Article 1456, Civil Code — Creates an implied trust if property is acquired through mistake or fraud. Applied to hold respondents as trustees of the excluded heirs' shares.
• Article 1410, Civil Code — Action for declaration of inexistence of contract does not prescribe. Applied to rule out prescription on the action to annul the void settlement.
• Article 1144, Civil Code — Actions upon an obligation created by law prescribe in ten years. Applied to set the prescriptive period for the action to recover property held in trust.

Antonio T. Carpio (Chairperson), Arturo D. Brion, Mariano C. del Castillo, Jose Portugal Perez