COLLATION

FIRST DIVISION

[ G.R. NO. 128781, August 06, 2002 ]

TERESITA N. DE LEON, ZENAIDA C. NICOLAS AND THE HEIRS OF ANTONIO NICOLAS, PETITIONERS, VS. HON. COURT OF APPEALS, HON. PABLO P. INVENTOR AND RAMON NICOLAS, RESPONDENTS.

D E C I S I O N

AUSTRIA-MARTINEZ, J.:

Before us is a petition for review on certiorari under Rule 45 of the Rules of Court which prays that the Decision dated February 28, 1997 and the Resolution dated April 3, 1997 issued by the Court of Appeals in CA-G.R. SP No. 42958,^[1] be set aside; and, that another judgment be entered ordering the Presiding Judge of Branch 123 of the Regional Trial Court of Caloocan City to give due course to petitioners’ notice of appeal, to approve their record on appeal and to elevate the records of Sp. Proc. No. C-1679 to respondent appellate court for further proceedings.

The factual background:

Herein petitioner Teresita N. de Leon was appointed administratrix of the estate of Rafael C. Nicolas in Sp. Proc. No. C-1679, entitled, “In the Matter of the Intestate Estate of Rafael C. Nicolas”. Said case was subsequently consolidated with Sp. Proc No. C-1810^[2] and Civil Case No. C-17407.^[3] Deceased spouses Rafael and Salud Nicolas were the parents of petitioner Teresita N. de Leon, Estrellita N. Vizconde, Antonio Nicolas (deceased husband of petitioner Zenaida Nicolas and predecessor of the petitioners Heirs of Antonio Nicolas), Ramon Nicolas and Roberto Nicolas.

On September 19, 1994, private respondent Ramon G. Nicolas, an oppositor–applicant in the intestate proceedings, filed a “Motion for Collation,” claiming that deceased Rafael Nicolas, during his lifetime, had given the following real properties to his children by gratuitous title and that administratrix-petitioner Teresita failed to include the same in the inventory of the estate of the decedent:

“1. Title No. T-36734 located at Polo, Bulacan with an area of 14,119 sq. m. distributed as follows:

1.1 10,110 sq. m. given to daughter Estrellita N. Visconde –

1.2 4,009 sq. m. given to son Antonio Nicolas

2. Title No. T-40333 located at Polo, Bulacan with an area of 1,000 sq. m. given to son Antonio Nicolas

3. Title No. T-36989 located at Polo, Bulacan with an area of 4,000 sq. m. given to daughter Teresita N. de Leon (herein petitioner)

4. Title No. T-36987 located at Polo, Bulacan with an area of 283 sq. m. given to son Antonio Nicolas

5. T-33658 located at Polo, Bulacan with an area of 6,109 sq. m. given to daughter Teresita N. de Leon

6. T-68554 located at Caloocan City with an area of 690 sq. m. given to son Ramon (Oppositor-Applicant herein)

7. T-10907 located at Caloocan City with an area of 310 sq. m. given to son Ramon but was somehow transferred to Antonio Nicolas, and the property is now titled in the name of the latter’s widow, Zenaida Carlos Nicolas.”

x x x x x x x x x.”^[4]

On September 27, 1994, the RTC issued an Order directing Ramon “to submit pertinent documents relative to the transfer of the properties from the registered owners during their lifetime for proper determination of the court if such properties should be collated, and set it for hearing with notice to the present registered owners to show cause why their properties may not be included in the collation of properties.”^[5]

On October 10, 1994, respondent Ramon filed an Amended Motion for Collation specifying the properties to be collated and attaching to said motion, the documents in support thereof, to wit:

“3. A more complete list of the properties to be collated is as follows:

1. Title No. T-36734 located at Polo, Bulacan with an area of 14,119 sq. m., xerox copy hereto attached as Annex “A”, distributed as follows:

1.1 10,110 sq. m. given to daughter Estrellita N. Visconde, under TCT No. V-554 of Valenzuela Bulacan (Annex “B”), and later sold by Estrellita to Amelia Lim Sy for P3,405,612.00 and the Deed of Sale hereto attached as Annex “B-1”;

“1.2 4,009 sq. m. given to son Antonio Nicolas, xerox copy hereto attached as Annex “C”;

2. Two lots, covered by TCT No. T-36989 located at Polo, Bulacan with an area of 4,000 sq. m. and TCT No. T-33658 located at Polo, Bulacan with an area of 6,109 sq. m. “given to daughter Teresita N. de Leon by a Deed of Sale, xerox copies are hereto attached as Annex “D”, “D-1” and “D-2”;

The 4,000 sq. m. lot was sold by Petitioner Teresita for the amount of P1,888,000.00, xerox copy of the Deed of Sale is hereto attached as Annex “D-3”;

4. Son Antonio received additional properties under a Deed of Sale, hereto attached as Annex “E”, which are those covered by TCT No. T-36987 located at Polo, Bulacan with an area of 283 sq. m.; TCT No. T-40333 located at Polo, Bulacan with an area of 1,000 sq. m. and TCT No. T-10907 located at Caloocan City with an area of 310 sq. m., xerox copies hereto attached as Annexes “E-1”, “E-2” and “E-3”;

The lot with an area of 310 sq. m. is supposedly earmarked for Oppositor-applicant Ramon but was somehow included in the Deed of Sale to son Antonio, and the property is now titled in the name of the latter’s widow, Zenaida Carlos Nicolas;

5. TCT No. T-68554 located at Caloocan City with an area of 690 sq. m. where the ancestral home is presently located;

6. Son Antonio received another property with an area of 1,876 sq. m. and sold for P850,000.00, hereto attached as Annex “F”;

7. Son Antonio received another property with an area of 1,501 sq. m. and sold for P200,000.00, hereto attached as Annex “G”;

x x x x x x x x x.”^[6]

A comparison with the original motion for collation reveals that the amended motion refers to the same real properties enumerated in the original except Nos. 6 and 7 above which are not found in the original motion.

On November 11, 1994, the RTC issued an Order, to wit:

“Acting on the Amended Motion for Collation filed by oppositor-applicant Ramon G. Nicolas and the comment thereto filed by petitioner-administratrix, the Court finds the following properties to be collated to the estate properties under present administration, to wit:

(1). 4,009 sq. m. given to son Antonio Nicolas described in paragraph 1.2 of the Amended Motion For Collation, marked as Annex “C”; (the xerox copy of the transfer certificate of title in the name of Antonio Nicolas did not state “the number and the technical description of the property. The administratrix should get hold of a certified copy of the title of Antonio Nicolas about subject property;

(2). Two lots, covered by TCT No. T-36989 located at Polo, Bulacan with an area of 4,000 sq. m. and TCT No. T-33658 located at Polo, Bulacan with an area of 6,109 sq. m. given to daughter Teresita N. de Leon by a Deed of Sale;

(3). The property covered by TCT No. T-36987 located at Polo, Bulacan, with an area of 283 sq. m.; the property covered by TCT No. T-40333 located at Polo, Bulacan, with an area of 1,000 sq. m. and another property covered by TCT No. T-10907 located at Caloocan City with an area of 310 sq. m. xerox copies of which are attached to the Amended Motion For Collation, marked as Annexes “E’1”, “E-2” and “E-3”;

(4). The lot with an area of 310 sq. m. given to son Antonio Nicolas which property is now titled in the name of the latter’s widow, Zenaida Carlos Nicolas.

“Accordingly, the Administratrix is hereby ordered to include the foregoing properties which were received from the decedent for collation in the instant probate proceedings.

“SO ORDERED.”^[7]

We note that only those lots described under paragraphs 3.1.2, 3.2 and 4 of the “Amended Motion for Collation” were ordered included for collation.

On November 18, 1994, petitioner Teresita N. de Leon filed a Motion for Reconsideration alleging that the properties subject of the Order “were already titled in their names years ago”^[8] and that titles may not be collaterally attacked in a motion for collation. On February 23, 1995, the RTC issued an Order denying said motion, ruling that it is within the jurisdiction of the court to determine whether titled properties should be collated,^[9] citing Section 2, Rule 90 of the Rules of Court which provides that the final order of the court concerning questions as to advancements made shall be binding on the person raising the question and on the heir.

Petitioner Teresita N. de Leon filed a Motion for Reconsideration of the Order dated February 23, 1995^[10] which respondent opposed.^[11]

On July 18, 1995, the RTC issued an Order, pertinent portions of which read:

“x x x Foremost to be resolved is the issue of collation of the properties of the deceased Rafael Nicolas which were disposed by the latter long before his death. The oppositor-applicant Ramon Nicolas should prove to the satisfaction of the Court whether the properties disposed of by the late Rafael Nicolas before the latter’s death was gratuitous or for valuable consideration. The Court believes that he or she who asserts should prove whether the disposition of the properties was gratuitously made or for valuable consideration.

The Court has already set for hearing on July 21, 1995, at 8:30 a.m., the reception and/or presentation of evidence in the issue of collated properties disposed before the death of Rafael Nicolas.”^[12]

On November 4, 1996, the RTC removed petitioner from her position as administratrix on ground of conflict of interest considering her claim that she paid valuable consideration for the subject properties acquired by her from their deceased father and therefore the same should not be included in the collation;^[13] and, ordered the hearing on the collation of properties covered by TCT No. T-V-1211 and T-V-1210 only.^[14]

On November 28, 1996, acting on the impression that the collation of the real properties enumerated in the Order dated November 11, 1994 is maintained by the RTC, petitioner Teresita N. de Leon filed a Motion for Reconsideration praying that her appointment as administratrix be maintained; and that the properties covered by TCT Nos. T-36989, T-33658, T-36987, T-40333, T-10907 and a portion of TCT No. T-13206 described as Lot 4-A with 4,009 square meters be declared and decreed as the exclusive properties of the registered owners mentioned therein and not subject to collation.^[15]

The RTC denied said motion in its Order dated December 23, 1996.^[16]

Petitioners Teresita N. de Leon, Zenaida Nicolas (the surviving spouse of Antonio Nicolas) and the Heirs of Antonio Nicolas filed with the Court of Appeals a petition for certiorari, prohibition and mandamus with prayer for a temporary restraining order and writ of preliminary injunction claiming that:

"I

“RESPONDENT JUDGE HAS ACTED IN EXCESS OF HIS JURISDICTION AND WITH GRAVE ABUSE OF DISCRETION WHEN WITHOUT GIVING PETITIONERS OPPORTUNITY TO VENTILATE THEIR APPEAL HE INSISTED ON HEARING THE MATTERS ON THE APPOINTMENT OF A REGULAR ADMINISTRATOR AND COLLATION ON DECEMBER 24, 1996 AND RESETTING ITS CONTINUATION TO JANUARY 21 and 28, 1997 INSPITE OF THE PENDENCY OF THE NOTICE OF APPEAL AND/OR RE-AFFIRMATION OF THE NOTICE OF APPEAL FROM WHICH ACTS THERE IS NO APPEAL NOR ANY PLAIN, SPEEDY AND ADEQUATE REMEDY IN THE ORDINARY COURSE OF LAW.”

“II

“RESPONDENT JUDGE ACTED WITH GRAVE ABUSE OF DISCRETION WHEN HE DID NOT INCLUDE IN HIS ORDER-ANNEX J THE HEARING ON THE FINAL DETERMINATION OF TCT NOS. T-36734, T-36989, T-33658, T-36987, T-40333 and T-10907 (WHETHER THEY ARE STILL PART OF THE ESTATE OR SHOULD BE EXCLUDED FROM THE INVENTORY/ESTATE) THEREBY ASSUMING WITHOUT ANY BASIS THAT THESE PROPERTIES TO BE STILL PART OF THE ESTATE OF RAFAEL NICOLAS WHEN THEY ARE NOT BECAUSE THEY HAVE BEEN SOLD WAY BACK IN 1979 FOR VALUABLE CONSIDERATIONS TO PETITIONER TERESITA N. DE LEON AND ANTONIO NICOLAS HUSBAND OF PETITIONER ZENAIDA NICOLAS.”^[17]

After private respondent Ramon had filed his comment, and petitioners, their reply, and after hearing the oral arguments of the parties, the Special Fourth Division of the Court of Appeals found the petition devoid of merit, ruling that the Order dated November 11, 1994 directing the inclusion of the properties therein enumerated in the estate of the deceased Rafael Nicolas had already become final for failure of petitioners to appeal from the order of collation; that the appeal of the petitioner from the Orders dated November 4, 1996 and December 3, 1996 removing petitioner as administratrix is timely appealed; and, observing that the notice of appeal and record on appeal appear to be unacted upon by the RTC, the appellate court resolved:

“WHEREFORE, while finding no grave abuse of discretion on the part of respondent Judge, he is hereby ORDERED to act on petitioner’s appeal on the matter of the removal of petitioner as administratrix.

SO ORDERED.”^[18]

Hence, herein petition anchored on the following assignments of error:

“FIRST ASSIGNMENT OF ERROR

“RESPONDENT HONORABLE COURT ERRED WHEN IT DECLARED IN THE QUESTIONED DECISION THAT THE ORDER OF THE COURT A QUO DATED NOVEMBER 11, 1994 WAS FINAL.

“SECOND ASSIGNMENT OF ERROR

“RESPONDENT HONORABLE COURT ERRED WHEN IT DECLARED IN THE QUESTIONED RESOLUTION THAT THERE WAS NO COGENT OR COMPELLING REASON TO DISTURB THE QUESTIONED DECISION.”^[19]

Petitioners claim that: private respondent never presented any document to prove that the properties transferred by their deceased parents to petitioners are by gratuitous title; private respondent never notified petitioner of any hearing on said documents to give them opportunity to show cause why their properties should not be collated; the assailed Order dated November 11, 1994 is arbitrary, capricious, whimsical, confiscatory, depriving them of due process; the said order is interlocutory in nature and therefore non-appealable; the properties acquired by petitioner Teresita N. de Leon and her deceased brother Antonio Nicolas, married to petitioner Zenaida C. Nicolas and their children, were sold to them as evidenced by public documents; and, the properties were already titled in their respective names or sold to third persons.

Private respondent contends that: due process has been afforded the petitioners when the RTC resolved the issue of collation of the subject properties after hearing; petitioner deliberately omitted certain material facts in the petition to mislead the Court because petitioners were actually given at least three (3) times the opportunity to ventilate and oppose the issue of collation; as stated by the appellate court in the Resolution promulgated on February 10, 1997, both parties affirmed that the RTC had proceeded to conduct hearings on January 21 and 28, 1997 as originally scheduled; presentation of evidence had been terminated and the twin issues of the appointment of a new administratrix and the collation of two (2) properties covered by TCT No. T-V-1210 and T-V-1211 were already submitted for resolution to the court below;^[20] subject properties are collatable under Articles 1601 and 1071 of the Civil Code and Section 2 of Rule 90 of the Rules of Court and the ruling in Guinguing v. Abuton and Abuton, 48 Phil. 144; petitioner failed to present evidence that there was valuable consideration for these properties and failed to rebut the evidence that petitioners do not have the financial capability to pay for these properties as evidenced by the testimony of credible witnesses who are relatives of spouses decedents.

We find the petition partly meritorious.

Contrary to the finding of the Court of Appeals that the Order of November 11, 1994 had become final for failure of petitioners to appeal therefrom in due time, we hold that said Order is interlocutory in nature. Our pronouncement in Garcia v. Garcia supports this ruling:

“The court which acquires jurisdiction over the properties of a deceased person through the filing of the corresponding proceedings, has supervision and control over the said properties, and under the said power, it is its inherent duty to see that the inventory submitted by the administrator appointed by it contains all the properties, rights and credits which the law requires the administrator to set out in his inventory. In compliance with this duty the court has also inherent power to determine what properties, rights and credits of the deceased should be included in or excluded from the inventory. Should an heir or person interested in the properties of a deceased person duly call the court’s attention to the fact that certain properties, rights or credits have been left out in the inventory, it is likewise the court’s duty to hear the observations, with power to determine if such observations should be attended to or not and if the properties referred to therein belong prima facie to the intestate, but no such determination is final and ultimate in nature as to the ownership of the said properties.”^[21] (Emphasis supplied)

A probate court, whether in a testate or intestate proceeding,^[22] can only pass upon questions of title provisionally.^[23] The rationale therefor and the proper recourse of the aggrieved party are expounded in Jimenez v. Court of Appeals:

“The patent reason is the probate court’s limited jurisdiction and the principle that questions of title or ownership, which result in inclusion or exclusion from the inventory of the property, can only be settled in a separate action.

“All that the said court could do as regards said properties is determine whether they should or should not be included in the inventory or list of properties to be administered by the administrator. If there is a dispute as to the ownership, then the opposing parties and the administrator have to resort to an ordinary action for a final determination of the conflicting claims of title because the probate court cannot do so.”^[24]

Further, In Sanchez v. Court of Appeals, we held:

“[A] probate court or one in charge of proceedings whether testate or intestate cannot adjudicate or determine title to properties claimed to be a part of the estate and which are claimed to belong to outside parties. All that the said court could do as regards said properties is to determine whether they should or should not be included in the inventory or list of properties to be administered by the administrator. If there is no dispute, well and good, but if there is, then the parties, the administrator, and the opposing parties have to resort to an ordinary action for a final determination of the conflicting claims of title because the probate court cannot do so.”^[25]

Guided by the above jurisprudence, it is clear that the Court of Appeals committed an error in considering the assailed Order dated November 11, 1994 as final or binding upon the heirs or third persons who dispute the inclusion of certain properties in the intestate estate of the deceased Rafael Nicolas. Under the foregoing rulings of the Court, any aggrieved party, or a third person for that matter, may bring an ordinary action for a final determination of the conflicting claims.

Private respondent’s reliance on Section 2, Rule 90 of the Rules of Court, to wit:

“SEC. 2. Questions as to advancement to be determined. – Questions as to advancement made, or alleged to have been made, by the deceased to any heir may be heard and determined by the court having jurisdiction of the estate proceedings; and the final order of the court thereon shall be binding on the person raising the question and on the heir.”

in support of his claim that the assailed Order is a final order and therefore appealable and that due to petitioners’ failure to appeal in due time, they are now bound by said Order, is not feasible.

What seems to be a conflict between the above-quoted Rule and the afore–discussed jurisprudence that the Order in question is an interlocutory and not a final order is more apparent than real. This is because the questioned Order was erroneously referred to as an order of collation both by the RTC and the appellate court. For all intents and purposes, said Order is a mere order including the subject properties in the inventory of the estate of the decedent.

The Court held in Valero Vda. de Rodriguez v. Court of Appeals^[26] that the order of exclusion (or inclusion) is not a final order; that it is interlocutory in the sense that it did not settle once and for all the title to the subject lots; that the prevailing rule is that for the purpose of determining whether a certain property should or should not be included in the inventory, the probate court may pass upon the title thereto but such determination is not conclusive and is subject to the final decision in a separate action regarding ownership which may be instituted by the parties.

In the Rodriguez case, the Court distinguished between an order of collation and an order of exclusion from or inclusion in the estate’s inventory, thus:

“We hold further that the dictum of the Court of Appeals and the probate court that the two disputed lots are not subject to collation was a supererogation and was not necessary to the disposition of the case which merely involved the issue of inclusion in, or exclusion from, the inventory of the testator’s estate. The issue of collation was not yet justiciable at that early stage of the testate proceeding. It is not necessary to mention in the order of exclusion the controversial matter of collation.

“Whether collation may exist with respect to the two lots and whether Mrs. Rustia’s Torrens titles thereto are indefeasible are matters that may be raised later or may not be raised at all. How those issues should be resolved, if and when they are raised, need not be touched upon in the adjudication of this appeal.

“The intestate and testate proceedings for the settlement of the estates of the deceased Valero spouses were consolidated, as ordered by the lower court on November 21, 1974, so that the conjugal estate of the deceased spouses may be properly liquidated, as contemplated in section 2, Rule 73 of the Rules of Court and Act No. 3176.

“We have examined the expedientes of the two cases. We found that the proceedings have not yet reached the stage when the question of collation or advancement to an heir may be raised and decided. The numerous debts of the decedents are still being paid. The net remainder (remanente liquido) of their conjugal estate has not yet been determined. On the other hand, up to this time, no separate action has been brought by the appellants to nullify Mrs. Rustia’s Torrens titles to the disputed lots or to show that the sale was in reality a donation.

“In this appeal, it is not proper to pass upon the question of collation and to decide whether Mrs. Rustia’s titles to the disputed lots are questionable. The proceedings below have not reached the stage of partition and distribution when the legitimes of the compulsory heirs have to be determined.”^[27]

In the light of the foregoing, Section 2, Rule 90 should be interpreted in the context of Section 1 of the same Rule, to wit:

“Section 1. When order for distribution of residue made. – When the debts, funeral charges, and expenses of administration, the allowance to the widow, and inheritance tax, if any, chargeable to the estate in accordance with law, have been paid, the court, on the application of the executor or administrator, or of a person interested in the estate, and after hearing upon notice, shall assign the residue of the estate to the persons entitled to the same, naming them and the proportions, or parts, to which each is entitled, and such person may demand and recover their respective shares from the executor or administrator, or any other person having the same in his possession. If there is a controversy before the court as to who are the lawful heirs of the deceased person or as to the distributive shares to which each person is entitled under the law, the controversy shall be heard and decided as in ordinary cases.

No distribution shall be allowed until the payment of the obligations above mentioned has been made or provided for, unless the distributes, or any of them, give a bond, in a sum to be fixed by the court, conditioned for the payment of said obligations within such time as the court directs.”

Based thereon, we find that what the parties and the lower courts have perceived to be as an Order of Collation is nothing more than an order of inclusion in the inventory of the estate which, as we have already discussed, is an interlocutory order. The motion for collation was filed with the probate court at the early stage of the intestate estate proceedings. We have examined the records of the case and we found no indication that the debts of the decedents spouses have been paid and the net remainder of the conjugal estate have already been determined, and the estates of the deceased spouses at the time filing of the motion for collation were ready for partition and distribution. In other words, the issue on collation is still premature.

And even if we consider, en arguendo, that said assailed Order is a collation order and a final order, still, the same would have no force and effect upon the parties. It is a hornbook doctrine that a final order is appealable. As such, the Order should have expressed therein clearly and distinctly the facts and the laws on which it is based as mandated by Section 14, Article VIII of the 1987 Constitution of the Republic of the Philippines, which provides:

“SEC. 14. No decision shall be rendered by any court without expressing therein clearly and distinctly the facts and the law on which it is based.

No petition for review or motion for reconsideration of a decision of the court shall be refused due course or denied without stating the legal basis therefore.”

An examination of the subject Order as quoted earlier,^[28] readily reveals that the presiding Judge failed to comply with the said constitutional mandate. The assailed Order did not state the reasons for ordering the collation of the properties enumerated therein. The Order simply directed the inclusion of certain real properties in the estate of the deceased. It did not declare that the properties enumerated therein were given to the children of the deceased gratuitously, despite the title in the children’s names or deeds of sale in their favor. Moreover, in his Comment, private respondent makes mention of the testimonies of his witnesses but these were not even mentioned in the Order of November 11, 1994. Petitioner would have been deprived of due process as they would be divested of the opportunity of being able to point out in a motion for reconsideration or on appeal, any errors of facts and/or law considering that there were no facts or laws cited in support of the assailed Order of collation. As a final Order, it is, on its face patently null and void. It could have never become final. A void judgment is not entitled to the respect accorded to a valid judgment, but may be entirely disregarded or declared inoperative by any tribunal in which effect is sought to be given to it.^[29] For it to be considered as a valid final order, the RTC must then first rule and state in its order whether the properties covered by TCT Nos. T-36734, T-36989, T-33658, T-36987, T-40333, T-10907 and the 4,009 square meter lot were acquired by petitioners from the deceased parents of the parties by onerous or gratuitous title; and must specifically state in its order the reasons why it ordered the subject properties collated. It is only then that the order of collation may be the subject of a motion for reconsideration and/or appeal within the 15-day reglementary period. Until and unless the constitutional mandate is complied with, any appeal from said Order would have been premature.

Either way therefore, whether the Order in question is a final or interlocutory order, it is a reversible error on the part of the appellate court to rule that the so-called order of collation dated November 11, 1994 had already attained finality.

As to the prayer of petitioners that the RTC be ordered to give due course to their notice of appeal from the Orders dated November 4, 1996 and December 23, 1996 removing petitioner Teresita N. de Leon as administratrix of the estate of private parties’ deceased parents,^[30] to approve their record on appeal^[31] and to elevate the records of Special Proceeding No. C-1679 to the Court of Appeals – It is not disputed by the parties that said Orders are appealable. In fact, the Court of Appeals had correctly directed the RTC to give due course to petitioners’ appeal and this is not assailed by the private respondent.

But, the approval or disapproval of the record on appeal is not a proper subject matter of the present petition for review on certiorari as it is not even a subject-matter in CA-G.R. SP No. 42958. Whether or not the record on appeal should be approved is a matter that is subject to the sound discretion of the RTC, provided that Sections 6 to 9, Rule 41 of the Rules of Court are observed by appellant.

Finally, the elevation of the records of Special Proceedings No. C-1679 to the Court of Appeals for the purpose of petitioners’ appeal from the order removing the administratrix is unnecessary where a record on appeal is allowed under the Rules of Court. The court a quo loses jurisdiction over the subject of the appeal upon the approval of the record on appeal and the expiration of the time to appeal of the other parties; but retains jurisdiction over the remaining subject matter not covered by the appeal.^[32]

WHEREFORE, the petition is partly GRANTED. The assailed Decision dated February 28, 1997 and Resolution dated April 3, 1997 of the Court of Appeals are MODIFIED. The Order dated November 11, 1994 issued by the Regional Trial Court and all other orders of said court emanating from said Order which involve the properties enumerated therein are considered merely provisional or interlocutory, without prejudice to any of the heirs, administrator or approving parties to resort to an ordinary action for a final determination of the conflicting claims of title.

The Regional Trial Court of Caloocan City (Branch 123) is directed to immediately act, without further delay, on petitioners’ appeal from the Orders dated November 4, 1996 and December 23, 1996, subject to Sections 6 to 9, Rule 41 of the Rules of Court.

No costs.

SO ORDERED.

Davide, Jr., C.J., (Chairman), and Kapunan, JJ., concur.
Vitug, and Ynares-Santiago, JJ., in the result.

^[1] Entitled, “Teresita N. de Leon, et al. v. Hon. Pablo P. Inventor, as Judge RTC of Caloocan City Branch 123 and Ramon Nicolas.”

^[2] Entitled, “In the Matter of the Intestate Estate of Salud G. Nicolas, Teresita N. de Leon, Petitioner.”

^[3] Entitled, “Teresita N. de Leon as Administratrix of the Intestate Estate of Rafael C. Nicolas v. United Coconut Planters Bank and Ramon Nicolas”.

^[4] Petition, Annex “D”, Rollo, p. 36.

^[5] Petition, Annex “E”, Rollo, p. 38.

^[6] Comment, Annex “A”, Rollo, pp. 120-121.

^[7] Petition, Annex “K”, Rollo, pp. 39-40.

^[8] Petition, Annex “G”, Rollo, pp. 41-42.

^[9] Petition, Annex “H”, Rollo, p. 44.

^[10] Petition, Annex “I”, Rollo, p. 45.

^[11] Petition, Annex “J”, Rollo, p. 47.

^[12] Petition, Annex “K”, Rollo, p. 51.

^[13] Petition, Annex “L”, Rollo, p. 53.

^[14] Ibid.

^[15] Petition, Annex “M”, Rollo, p. 67.

^[16] Petition, Annex “N”, Rollo, p. 73.

^[17] CA Rollo, p. 9.

^[18] CA Rollo, p. 185.

^[19] Petition, Rollo, p. 4.

^[20] CA Rollo, p. 81.

^[21] 67 Phil. 353, 356-357 (1939).

^[22] IntestaTe Estate of the Late Don Mariano San Pedro y Esteban v. Court of Appeals, 265 SCRA 733, 749 (1996).

^[23] Jimenez v. Court of Appeals, 184 SCRA 367, 371 (1990).

^[24] Id., p. 372.

^[25] 279 SCRA 647, 672-673 (1997), citing Ortega v. Court of Appeals, 153 SCRA 96, 102-103, August 14, 1987, per Paras, J. See also Morales v. CFI of Cavite, Br. V, 146 SCRA 373, 381-383, December 29, 1986.

^[26] 91 SCRA 540, 545-546 (1979).

^[27] Id., 546.

^[28] See p. 5.

^[29] Republic v. Court of Appeals, 309 SCRA 110 (1999).

^[30] Petition, Annex “O”, Rollo, p. 75.

^[31] Petition, Annex “P”, Rollo, p. 76.

^[32] 1997 Rules of Civil Procedure, as amended, Annotated by Justice Jose T. Feria, p. 169.

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THIRD DIVISION

[ G.R. No. 118449, February 11, 1998 ]

LAURO G. VIZCONDE, PETITIONER, VS., COURT OF APPEALS, REGIONAL TRIAL COURT, BRANCH 120, CALOOCAN CITY, AND RAMON G. NICOLAS, RESPONDENTS.

D E C I S I O N

FRANCISCO, J.:

Petitioner Lauro G. Vizconde and his wife Estrellita Nicolas-Vizconde had two children, viz., Carmela and Jennifer. Petitioner’s wife, Estrellita, is one of the five siblings of spouses Rafael Nicolas and Salud Gonzales-Nicolas. The other children of Rafael and Salud are Antonio Nicolas; Ramon Nicolas; Teresita Nicolas de Leon, and Ricardo Nicolas, an incompetent. Antonio predeceased his parents and is now survived by his widow, Zenaida, and their four children.

On May 22, 1979, Estrellita purchased from Rafael a parcel of land with an area of 10,110 sq. m. located at Valenzuela, Bulacan (hereafter Valenzuela property) covered by TCT No. (T-36734) 13206 for One Hundred Thirty Five Thousand Pesos (P135,000.00), evidenced by a “Lubusang Bilihan ng Bahagi ng Lupa na Nasasakupan ng Titulo TCT NO. T-36734.”^[1] In view thereof, TCT No. V-554 covering the Valenzuela property was issued to Estrellita.^[2] On March 30, 1990, Estrellita sold the Valenzuela property to Amelia Lim and Maria Natividad Balictar Chiu for Three Million, Four Hundred Five Thousand, Six Hundred Twelve Pesos (P3,405,612.00).^[3] In June of the same year, Estrellita bought from Premiere Homes, Inc., a parcel of land with improvements situated at Vinzon St., BF Homes, Parañaque (hereafter Parañaque property) using a portion of the proceeds was used in buying a car while the balance was deposited in a bank.

The following year an unfortunate event in petitioner’s life occurred. Estrellita and her two daughters, Carmela and Jennifer, were killed on June 30, 1991, an incident popularly known as the “Vizconde Massacre”. The findings of the investigation conducted by the NBI reveal that Estrellita died ahead of her daughters.^[4] Accordingly, Carmela, Jennifer and herein petitioner succeeded Estrellita and, with the subsequent death of Carmela and Jennifer, petitioner was left as the sole heir of his daughters. Nevertheless, petitioner entered into an “Extra-Judicial Settlement of the Estate of Deceased Estrellita Nicolas-Vizconde With Waiver of Shares”,^[5] with Rafael and Salud, Estrellita’s parents. The extra-judicial settlement provided for the division of the properties of Estrellita and her two daughters between petitioner and spouses Rafael and Salud. The properties include bank deposits, a car and the Parañaque property. The total value of the deposits deducting the funeral and other related expenses in the burial of Estrellita, Carmela and Jennifer, amounts to Three Million Pesos (P3,000,000.00).^[6] The settlement gave fifty percent (50%) of the total amount of the bank deposits of Estrellita and her daughters to Rafael, except Saving Account No. 104-111211-0 under the name of Jennifer which involves a token amount. The other fifty percent (50%) was allotted to petitioner. The Parañaque property and the car were also given to petitioner with Rafael and Salud waiving all their “claims, rights, ownership and participation as heirs”^[7] in the said properties.

On November 18, 1992, Rafael died. To settle Rafael’s estate, Teresita instituted an intestate estate proceeding^[8] docketed as Sp. Proc. No. C-1679, with Branch 120 of the Regional Trial Court (RTC) of Caloocan City listing as heirs Salud, Ramon, Ricardo and the wife (Zenaida) and children of Antonio. Teresita prayed to be appointed Special Administratrix of Rafael’s estate. Additionally, she sought to be appointed as guardian ad litem of Salud, now senile, and Ricardo, her incompetent brother. Herein private respondent Ramon filed an opposition^[9] dated March 24, 1993, praying to be appointed instead as Salud and Ricardo’s guardian. Barely three weeks passed, Ramon filed another opposition^[10] alleging, among others, that Estrellita was given the Valenzuela property by Rafael which she sold for not les than Six Million Pesos (P6,000,000.00) before her gruesome murder. Ramon pleaded for court’s intervention “to determine the legality and validity of the intervivos distribution made by deceased Rafael to his children,”^[11] Estrellita included. On May 12, 1993, Ramon filed his own petition, docketed as Sp. Proc. No. C-1699, entitled “InMatter Of The Guardianship Of Salud G. Nicolas and Ricardo G. Nicolas” and averred that their legitime should come from the collation of all the properties distributed to his children by Rafael during his lifetime.^[12] Ramon stated that herein petitioner is one of Rafael’s children “by right of representation as the widower of deceased legitimate daughter of Estrellita.”^[13]

In a consolidated Order, dated November 9, 1993, the RTC appointed Ramon as the Guardian of Salud and Ricardo while Teresita, in turn, was appointed as the Special Administratrix of Rafael’s estate. The court’s Order did not include petitioner in the slate of Rafael’s heirs.^[14] Neither was the Parañaque property listed in its list of properties to be included in the estate.^[15] Subsequently, the RTC in an Order dated January 5, 1994, removed Ramon as Salud and Ricardo’s guardian for selling his ward’s property without the court’s knowledge and permission.^[16]

Sometime on January 13, 1994, the RTC released an Order giving petitioner “ten (10) days x x x within which to file any appropriate petition or motion related to the pending petition insofar as the case is concerned and to file any opposition to any pending motion that has been filed by both the counsels for Ramon Nicolas and Teresita de Leon.” In response, petitioner filed a Manifestation, dated January 19, 1994, stressing tha the was neither a compulsory heir nor an intestate heir of Rafael and he has no interest to participate in the proceedings. The RTC noted said Manifestation in its Order dated February 2, 1994.^[17] Despite the Manifestation, Ramon, through a motion dated February 14, 1994, moved to include petitioner in the intestate estate proceeding and asked that the Parañaque property, as well as the car and the balance of the proceeds of the sale of the Valenzuela property, be collated.^[18] Acting on Ramon’s motion, the trial court on March 10, 1994 granted the same in an Order which pertinently reads as follows:

x x x x x x x x x

“On the Motion To Include Lauro G. Vizconde In Intestate proceedings in instant case and considering the comment on hi Manifestation, the same is hereby granted.”^[19]

x x x x x x x x x

Petitioner filed its motion for reconsideration of the aforesaid Order which Ramon opposed.^[20] On August 12, 1994, the RTC rendered an Order denying petitioner’s motion for reconsideration. It provides:

x x x x x x x x x

“The centerpoint of oppositor-applicant’s argument is that spouses Vizconde were then financially incapable of having purchased or acquired for a valuable consideration the property at Valenzuela from the deceased Rafael Nicolas. Admittedly, the spouses Vizconde were then living with the deceased Rafael Nicolas in the latter’s ancestral home. In fact, as the argument further goes, said spouses were dependent for support on the deceased Rafael Nicolas. And Lauro Vizconde left for the United States in, de-facto separation, from the family for sometime and returned to the Philippines only after the occurrence of violent deaths of Estrellita and her two daughters.

“To dispute the contention that the spouses Vizconde were financially incapable to buy the property from the late Rafael Nicolas, Lauro Vizconde claims that they have been engaged in business venture such as taxi business, canteen concessions and garment manufacturing. However, no competent evidence has been submitted to indubitably support the business undertakings adverted to.

“In fine, there is no sufficient evidence to show that the acquisition of the property from Rafael Nicolas was for a valuable consideration.

“Accordingly, the transfer of the property at Valenzuela in favor of Estrellita by her father was gratuitous and the subject property in Parañaque which was purchased out of the proceeds of the said transfer of property by the deceased Rafael Nicolas in favor of Estrellita, is subject to collation.”

“WHEREFORE, the motion for reconsideration is hereby DENIED.”^[21] (Underscoring added)

Petitioner filed a petition for certiorari and prohibition with respondent Court of Appeals. In its decision of December 14, 1994, respondent Court of Appeals^[22] denied the petition stressing that the RTC correctly adjudicated the question on the title of the Valenzuela property as “the jurisdiction of the probate court extends to matters incidental and collateral to the exercise of its recognized powers in handling the settlement of the estate of the deceased (Cf.: Sec. 1, Rule 90, Revised Rules of Court).”^[23] Dissatisfied, petitioner filed the instant petition for review on certiorari. Finding prima facie merit, the Court on December 4, 1995, gave due course to the petition and required the parties to submit their respective memoranda.

The core issue hinges on the validity of the probate court’s Order, which respondent Court of Appeals sustained, nullifying the transfer of the Valenzuela property from Rafael to Estrellita and declaring the Parañaque property as subject to collation.

The appeal is well taken.

Basic principles of collation need to be emphasized at the outset. Article 1061 of the Civil Code speaks of collation. It states:

“Art. 1061. Every compulsory heir, who succeeds with other compulsory heirs, must bring into the mass of the estate any property or right which he may have received from the decedent, during the lifetime of the latter, by way of donation, or any other gratuitous title, in order that it may be computed in the determination of the legitime of each heir, and in the account of the partition.”

Collation is the act by virtue of which descendants or other forced heirs who intervene in the division of the inheritance of an ascendant bring into the common mass, the property which they received from him, so that the division may be made according to law and the will of the testator.^[24] Collation is only required of compulsory heirs succeeding with other compulsory heirs and involves property or rights received by donation or gratuitous title during the lifetime of the decedent.^[25] The purpose for it is presumed that the intention of the testator or predecessor in interest in making a donation or gratuitous transfer to a forced heir is to give him something in advance on account of his share in the estate, and that the predecessor’s will is to treat all his heirs equally, in the absence of any expression to the contrary.^[26] Collation does not impose any lien on the property or the subject matter of collationable donation. What is brought to collation is not the property donated itself, but rather the value of such property at the time it was donated,^[27] the rationale being that the donation is a real alienation which conveys ownership upon its acceptance, hence any increase in value or any deterioration or loss thereof is for the account of the heir or donee.^[28]

The attendant facts herein do no make a case of collation. We find that the probate court, as well as respondent Court of Appeals, committed reversible errors.

First: The probate court erred in ordering the inclusion of petitioner in the intestate estate proceeding. Petitioner, a son-in-law of Rafael, is one of Rafael’s compulsory heirs. Article 887 of the Civil Code is clear on this point:

“Art. 887. The following are compulsory heirs:

(1) Legitimate children and descendants, with respect to their legitimate parents and ascendants;

(2) In default of the following, legitimate parents and ascendants, with respect to their legitimate children and ascendants;

(3) The widow or widower;

(4) Acknowledged natural children, and natural children by legal fiction;

(5) Other illegitimate children referred to in article 287.

“Compulsory heirs mentioned in Nos. 3, 4, and 5 are not excluded by those in Nos 1 and 2; neither do they exclude one another.

“In all cases of illegitimate children, their filiation must be duly proved.

“The father or mother of illegitimate children of the three classes mentioned, shall inherit from them in the manner and to the extent established by this Code.”

With respect to Rafael’s estate, therefore, petitioner who was not even shown to be a creditor of Rafael is considered a third person or a stranger.^[29] As such, petitioner may not be dragged into the intestate estate proceeding. Neither may he be permitted or allowed to intervene as he has no personality or interest in the said proceeding,^[30] which petitioner correctly argued in his manifestation.^[31]

Second: As a rule, the probate court may pass upon and determine the title or ownership of a property which may or may not be included in the estate proceedings.^[32] Such determination is provisional in character and is subject to final decision in a separate action to resolve title.^[33] In the case at bench, however, we note that the probate court went beyond the scope of its jurisdiction when it proceeded to determine the validity of the sale of the Valenzuela property between Rafael and Estrellita and ruled that the transfer of the subject property between the concerned parties was gratuitous. The interpretation of the deed and the true intent of the contracting parties, as well as the presence or absence of consideration, are matter outside the probate court’s jurisdiction. These issues should be ventilated in an appropriate action. We reiterate:

“x x x we are of the opinion and so hold, that a court which takes cognizance of testate or intestate proceedings has power and jurisdiction to determine whether or not the properties included therein or excluded therefrom belong prima facie to the deceased, although such a determination is not final or ultimate in nature, and without prejudice to the right of the interested parties, in a proper action, to raise the question bearing on the ownership or existence of the right or credit.”^[34]

Third: The order of the probate court subjecting the Parañaque property to collation is premature. Records indicate that the intestate estate proceedings is still in its initiatory stage. We find nothing herein to indicate that the legitimate of any of Rafael’s heirs has been impaired to warrant collation. We thus advert to our ruling in Udarbe v. Jurado, 59 Phil. 11, 13-14, to wit:

“We are of the opinion that this contention is untenable. In accordance with the provisions of article 1035^[35] of the Civil Code, it was the duty of the plaintiffs to allege and prove that the donations received by the defendants were inofficious in whole or in part and prejudiced the legitimate or hereditary portion to which they are entitled. In the absence of evidence to that effect, the collation sought is untenable for lack of ground or basis therefor.”

Fourth: Even on the assumption that collation is appropriate in this case the probate court, nonetheless, made a reversible error in ordering collation of the Parañaque property. We note that what was transferred to Estrellita, by way of a deed of sale, is the Valenzuela property. The Parañaque property which Estrellita acquired by using the proceeds of the sale of the Valenzuela property does not become collationable simply by reason thereof. Indeed collation of the Parañaque property has no statutory basis.^[36] The order of the probate court presupposes that the Parañaque property was gratuitously conveyed by Rafael to Estrellita. Records indicate, however, that the Parañaque property was conveyed for and in consideration of P900,000.00,^[37] by Premier Homes, Inc., to Estrellita. Rafael, the decedent, has no participation therein, and petitioner who inherited and is now the present owner of the Parañaque property is not one of Rafael’s heirs. Thus, the probate court’s order of collation against petitioner is unwarranted for the obligation to collate is lodged with Estrellita, the heir, and not to herein petitioner who does not have any interest in Rafael’s estate. As it stands, collation of the Parañaque property is improper for, to repeat, collation covers only properties gratuitously given by the decedent during his lifetime to his compulsory heirs which fact does not obtain anent the transfer of the Parañaque property. Moreover, Rafael, in a public instrument, voluntarily and willfully waived any “claims, rights, ownership and participation as heir”^[38] in the Parañaque property.

Fifth: Finally, it is futile for the probate court to ascertain whether or not the Valenzuela property may be brought to collation. Estrellita, it should be stressed, died ahead of Rafael. In fact, it was Rafael who inherited from Estrellita an amount more than the value of the Valenzuela property.^[39] Hence, even assuming that the Valenzuela property may be collated collation may not be allowed as the value of the Valenzuela property has long been returned to the estate of Rafael. Therefore, any determination by the probate court on the matter serves no valid and binding purpose.

WHEREFORE, the decision of the Court of Appeals appealed from is hereby REVERSED AND SET ASIDE.

SO ORDERED.

Narvasa, C.J., (Chairman), Romero, Kapunan, and Purisima, JJ., concur.

^[1] Annex D, Rollo, pp. 142-142.

^[2] Annex E, Rollo, pp. 143-144.

^[3] Annex F, Deed of Absolute Sale; Rollo, pp. 145-147.

^[4] Petition, p.4; Rollo, p. 11; Memorandum of the Petitioner; p. 3; Rollo, p. 278.

^[5] Annex J; rollo, pp. 131-133.

^[6] Memorandum for the Petitioner, p. 3; Rollo, pl. 278. This averment of the Petitioner anent the amount of P3,000,000.00 was never disputed much less denied by the private respondent.

^[7] Annex J, p. 3; Rollo, p. 133.

^[8] Annex C, Rollo, p. 71.

^[9] Opposition To Petition For Appointment As Guardian Ad Litem With Petition For Oppositor-Applicant’s Appointment As Guardian, Rollo, pp. 75-78.

^[10] Opposition, dated April 12, 1993; Rollo, pp. 79-82.

^[11] Id., p. 3; Rollo, p. 81.

^[12] Petition, p. 2; rollo, p. 91

^[13] Id., p. 3; Rollo, p. 92.

^[14] Rollo, pp. 95-96.

^[15] Rollo, pp. 96, citing the list submitted by Teresita N. de Leon.

^[16] Order, dated January 5, 1994; Rollo, pp. 103-104.

^[17] Rollo, p. 111.

^[18] Motion To Include Lauro G. Vizconde In Intestate Proceedings In Instant Case; Rollo, pp. 112-113.

^[19] Rollo, p. 67.

^[20] Rollo, pp. 114-117; Records disclose that said parties have had an exchange of pleadings on whether or not to deny petitioner’s motion for reconsideration. See: Opposition To Motion For Reconsideration, Reply To Opposition to Motion For Reconsideration, Rejoinder, Rollo, pp. 123-130, 136-138.

^[21] Rollo, p. 69.

^[22] Eleventh Division: Canizares-Nye, Ponente; Imperial, and Salas, JJ., concurring.

^[23] Rollo, p. 44.

^[24] 7M. 575-576, cited in Padilla, III CIVIL CODE ANNOTATED 594.

^[25] Udarbe v. Jurado, 59 Phil. 11, citing 7 MANRESA, CIVIL CODE, p. 499, 1900 Ed.; Valero vda. De Rodriquez v. Court of Appeals, 91 SCRA 540, 547-548; PADILLA, III CIVIL CODE ANNOTATED 594; Article 1061, Civil Code

^[26] SINCO AND CAPISTRANO, II THE CIVIL CODE WITH ANNOTATIONS 558.

^[27] Id.; Article 1071, Civil Code; PADILLA, III CIVIL CODE ANNOTATED 606.

^[28] 6 Manresa 411, cited in TOLENTINO, III CIVIL CODE OF THE PHILIPPINES, 348-349.

^[29] Rosales v. Rosales, 148 SCRA 69; Lachenal v. Salas, 71 SCRA 262.

^[30] Rivera v. Intermediate Appellate Court, 182 SCRA 322

^[31] Manifestation, dated January 19, 1994; Rollo, pp. 108-110.

^[32] Pastor, Jr. v. Court of Appeals, 122 SCRA 885.

^[33] Id.

^[34] Garcia v. Garcia, et al., 67 Phil. 353, 357.

^[35] Now Article 1061, Civil Code.

^[36] Cf: Bk. III, Title IV, Chap. 4, Sec. 5, Civil Code.

^[37] Deed of Absolute Sale, Rollo, pp. 150-151.

^[38] Annex J, p. 3; Rollo, p. 133.

^[39] See: Extra-Judicial Settlement of the Estate of Deceased Estrellita Nicolas-Vizconde with Waiver of Shares, Rollo, pp. 131-133.

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THIRD DIVISION

[ G.R. No. 189776, December 15, 2010 ]

AMELIA P. ARELLANO, REPRESENTED BY HER DULY APPOINTED GUARDIANS, AGNES P. ARELLANO AND NONA P. ARELLANO, PETITIONER, VS. FRANCISCO PASCUAL AND MIGUEL PASCUAL, RESPONDENTS.

D E C I S I O N

CARPIO MORALES, J.:

Angel N. Pascual Jr. died intestate on January 2, 1999 leaving as heirs his siblings, namely: petitioner Amelia P. Arellano who is represented by her daughters^[1] Agnes P. Arellano (Agnes) and Nona P. Arellano, and respondents Francisco Pascual and Miguel N. Pascual.^[2]

In a petition for "Judicial Settlement of Intestate Estate and Issuance of Letters of Administration," docketed as Special Proceeding Case No. M-5034, filed by respondents on April 28, 2000 before the Regional Trial Court (RTC) of Makati, respondents alleged, inter alia, that a parcel of land (the donated property) located in Teresa Village, Makati, which was, by Deed of Donation, transferred by the decedent to petitioner the validity of which donation respondents assailed, "may be considered as an advance legitime" of petitioner.

Respondent's nephew Victor was, as they prayed for, appointed as Administrator of the estate by Branch 135 of the Makati RTC.^[3]

Respecting the donated property, now covered in the name of petitioner by Transfer Certificate of Title No. 181889 of the Register of Deeds of Makati, which respondents assailed but which they, in any event, posited that it "may be considered as an advance legitime" to petitioner, the trial court, acting as probate court, held that it was precluded from determining the validity of the donation.

Provisionally passing, however, upon the question of title to the donated property only for the purpose of determining whether it formed part of the decedent's estate,^[4] the probate court found the Deed of Donation valid in light of the presumption of validity of notarized documents. It thus went on to hold that it is subject to collation following Article 1061 of the New Civil Code which reads:^[5]

Every compulsory heir, who succeeds with other compulsory heirs, must bring into the mass of the estate any property or right which he may have received from the decedent, during the lifetime of the latter, by way of donation, or any other gratuitous title in order that it may be computed in the determination of the legitime of each heir, and in the account of the partition.

The probate court thereafter partitioned the properties of the intestate estate. Thus it disposed:

WHEREFORE, premises considered, judgment is hereby rendered declaring that:

1. The property covered by TCT No. 181889 of the Register of Deeds of Makati as part of the estate of Angel N. Pascual;
2. The property covered by TCT No. 181889 to be subject to collation;
3. 1/3 of the rental receivables due on the property at the mezzanine and the 3^rd floor of Unit 1110 Tanay St., Makati City form part of the estate of Angel N. Pascual;
4. The following properties form part of the estate of Angel N. Pascual:
1. 1/3 share in the House and Lot at 1110 Tanay St., Rizal Village Makati TCT No. 348341 and 1/3 share in the rental income thereon;
2. 1/3 share in the Vacant Lot with an area of 271 square meters located at Tanay St., Rizal Village, Makati City, TCT No. 119063;
3. Agricultural land with an area of 3.8 hectares located at Puerta Galera Mindoro covered by OCT No. P-2159;
4. Shares of stocks in San Miguel Corporation covered by the following Certificate Numbers: A0011036, A006144, A082906, A006087, A065796, A11979, A049521, C86950, C63096, C55316, C54824, C120328, A011026, C12865, A10439, A021401, A007218, A0371, S29239, S40128, S58308, S69309;
5. Shares of stocks in Paper Industries Corp. covered by the following Certificate Numbers: S29239, S40128, S58308, S69309, A006708, 07680, A020786, S18539, S14649;
6. ¼ share in Eduardo Pascual's shares in Baguio Gold Mining Co.;
7. Cash in Banco De Oro Savings Account No. 2 014 12292 4 in the name of Nona Arellano;
8. Property previously covered by TCT No. 119053 now covered by TCT No. 181889, Register of Deeds of Makati City;
9. Rental receivables from Raul Arellano per Order issued by Branch 64 of the Court on November 17, 1995.

5. AND the properties are partitioned as follows:
1. To heir Amelia P. Arellano-the property covered by TCT No. 181889;
2. To heirs Francisco N. Pascual and Miguel N. Pascual-the real properties covered by TCT Nos. 348341 and 119063 of the Register of Deeds of Makati City and the property covered by OCT No. 2159, to be divided equally between them up to the extent that each of their share have been equalized with the actual value of the property in 5(a) at the time of donation, the value of which shall be determined by an independent appraiser to be designated by Amelia P. Arellano, Miguel N. Pascual and Francisco N. Pascual. If the real properties are not sufficient to equalize the shares, then Francisco's and Miguel's shares may be satisfied from either in cash property or shares of stocks, at the rate of quotation. The remaining properties shall be divided equally among Francisco, Miguel and Amelia. (emphasis and underscoring supplied)

Before the Court of Appeals, petitioner faulted the trial court in holding that

I

. . . THE PROPERTY DONATED TO APPELLANT AMELIA PASCUAL ARELLANO IS PART OF THE ESTATE OF ANGEL PASCUAL, JR.

II

. . . THE PROPERTY DONATED TO APPELLANT IS SUBJECT TO COLLATION UNDER ARTICLE 1061 OF THE NEW CIVIL CODE.

III

. . . APPELLEES WHO ARE MERELY COLLATERAL RELATIVES OF DECEASED ANGEL N. PASCUAL JR. AS HIS COMPULSORY HEIRS ENTITLED TO LEGITIMES.

x x x x

and

V

. . . IN NOT PARTITIONING THE ESTATE OF ANGEL N. PASCUAL JR. EQUALLY AMONG HIS LEGAL OR INTESTATE HEIRS.^[6] (underscoring supplied)

By Decision^[7] of July 20, 2009, the Court of Appeals found petitioner's appeal "partly meritorious." It sustained the probate court's ruling that the property donated to petitioner is subject to collation in this wise:

Bearing in mind that in intestate succession, what governs is the rule on equality of division, We hold that the property subject of donation inter vivos in favor of Amelia is subject to collation. Amelia cannot be considered a creditor of the decedent and we believe that under the circumstances, the value of such immovable though not strictly in the concept of advance legitime, should be deducted from her share in the net hereditary estate. The trial court therefore committed no reversible error when it included the said property as forming part of the estate of Angel N. Pascual.^[8] (citation omitted; emphasis and underscoring supplied)

The appellate court, however, held that, contrary to the ruling of the probate court, herein petitioner "was able to submit prima facie evidence of shares of stocks owned by the [decedent] which have not been included in the inventory submitted by the administrator."

Thus, the appellate court disposed, quoted verbatim:

WHEREFORE, premises considered, the present appeal is hereby PARTLY GRANTED. The Decision dated January 29, 2008 of the Regional Trial Court of Makati City, Branch 135 in Special Proceeding Case No. M-5034 is hereby REVERSED and SET ASIDE insofar as the order of inclusion of properties of the Intestate Estate of Angel N. Pascual, Jr. as well as the partition and distribution of the same to the co-heirs are concerned.

The case is hereby REMANDED to the said court for further proceedings in accordance with the disquisitions herein.^[9] (underscoring supplied)

Petitioner's Partial Motion for Reconsideration^[10] having been denied by the appellate court by Resolution^[11] of October 7, 2009, the present petition for review on certiorari was filed, ascribing as errors of the appellate court its ruling

I

. . . THAT THE PROPERTY DONATED BY ANGEL N. PASCUAL, JR. TO PETITIONER AMELIA PASCUAL ARELLANO IS PART OF HIS ESTATE AT THE TIME OF HIS DEATH.

II

. . . THAT THE PROPERTY DONATED TO PETITIONER IS SUBJECT TO COLLATION UNDER ARTICLE 1061 OF THE NEW CIVIL CODE.

III

. . . THAT RESPONDENTS ARE COMPULSORY HEIRS OF THEIR DECEASED BROTHER ANGEL N. PASCUAL JR. AND ARE ENTITLED TO LEGITIMES.

IV

. . . IN NOT PARTITIONING THE ESTATE OF ANGEL N. PASCUAL, JR. EQUALLY AMONG PETITIONER AND RESPONDENTS, AS HIS LEGAL OR INTESTATE HEIRS.^[12] (underscoring supplied)

Petitioners thus raise the issues of whether the property donated to petitioner is subject to collation; and whether the property of the estate should have been ordered equally distributed among the parties.

On the first issue:

The term collation has two distinct concepts: first, it is a mere mathematical operation by the addition of the value of donations made by the testator to the value of the hereditary estate; and second, it is the return to the hereditary estate of property disposed of by lucrative title by the testator during his lifetime.^[13]

The purposes of collation are to secure equality among the compulsory heirs in so far as is possible, and to determine the free portion, after finding the legitime, so that inofficious donations may be reduced.^[14]

Collation takes place when there are compulsory heirs, one of its purposes being to determine the legitime and the free portion. If there is no compulsory heir, there is no legitime to be safeguarded.^[15]

The records do not show that the decedent left any primary, secondary, or concurring compulsory heirs. He was only survived by his siblings, who are his collateral relatives and, therefore, are not entitled to any legitime - that part of the testator's property which he cannot dispose of because the law has reserved it for compulsory heirs.^[16]

The compulsory heirs may be classified into (1) primary, (2) secondary, and (3) concurring. The primary compulsory heirs are those who have precedence over and exclude other compulsory heirs; legitimate children and descendants are primary compulsory heirs. The secondary compulsory heirs are those who succeed only in the absence of the primary heirs; the legitimate parents and ascendants are secondary compulsory heirs. The concurring compulsory heirs are those who succeed together with the primary or the secondary compulsory heirs; the illegitimate children, and the surviving spouse are concurring compulsory heirs.^[17]

The decedent not having left any compulsory heir who is entitled to any legitime, he was at liberty to donate all his properties, even if nothing was left for his siblings-collateral relatives to inherit. His donation to petitioner, assuming that it was valid,^[18] is deemed as donation made to a "stranger," chargeable against the free portion of the estate.^[19] There being no compulsory heir, however, the donated property is not subject to collation.

On the second issue:

The decedent's remaining estate should thus be partitioned equally among his heirs-siblings-collateral relatives, herein petitioner and respondents, pursuant to the provisions of the Civil Code, viz:

Art. 1003. If there are no descendants, ascendants, illegitimate children, or a surviving spouse, the collateral relatives shall succeed to the entire estate of the deceased in accordance with the following articles. (underscoring supplied)

Art. 1004. Should the only survivors be brothers and sisters of the full blood, they shall inherit in equal shares. (emphasis and underscoring supplied)

WHEREFORE, the petition is GRANTED. The Court of Appeals Decision ordering the collation of the property donated to petitioner, Amelia N. Arellano, to the estate of the deceased Angel N. Pascual, Jr. is set aside.

Let the records of the case be REMANDED to the court of origin, Branch 135 of the Makati Regional Trial Court, which is ordered to conduct further proceedings in the case for the purpose of determining what finally forms part of the estate, and thereafter to divide whatever remains of it equally among the parties.

SO ORDERED.

Peralta,^* Bersamin, Mendoza,^** and Sereno, JJ., concur.

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^* Additional member per raffle dated January 6, 2010.

^** Additional member per Special Order No. 921 dated December 13. 2010.

^[1] Records (Vol. II), p. 646.

^[2] Id. at 542.

^[3] Records (Vol. I), p. 137.

^[4] CA rollo at p. 29.

^[5] Id. at 30.

^[6] CA rollo at p. 47.

^[7] Penned by now Supreme Court Associate Justice Martin S. Villarama, Jr., and concurred in by Associate Justices Jose C. Reyes, Jr. and Normandie B. Pizarro, rollo, pp. 21-41.

^[8] Id. at 37.

^[9] Id. at 40-41.

^[10] CA rollo at p. 138.

^[11] Rollo at 43.

^[12] Id. at 13-14.

^[13] III TOLENTINO, 1992 Edition, p. 332, citing 10 Fabres 295-299 Colin & Capitant 526-528;2-11 Ruggiero 394; 5 Planiol & Ripert 67; De Buen; 8 Colin & Capitant 340.

^[14] III TOLENTINO, 1992 Edition, pp. 331-332, citing 6 Manresa 406.

^[15] III TOLENTINO, 1992 Edition, p. 337, citing 6 Manresa 413.

^[16] Article 886, Civil Code.

^[17] III TOLENTINO, 1992 Edition, p.252.

^[18] It appears that its validity is in issue in Sp. Proc. No. M-3893 (for guardianship over the person and estate of Angel N. Pascual, Jr.) before Br. 139 of the Makati RTC, vide petition, par. 6, Record, pp. 1-4.

^[19] Vide III TOLENTINO, 1992 Edition, p. 341.

---

FIRST DIVISION

[ G.R. No. 65800, October 03, 1986 ]

PARTENZA LUCERNA VDA. DE TUPAS, PETITIONER-APPELLANT, VS. BRANCH XLIII OF THE HON. REGIONAL TRIAL COURT OF NEGROS OCCIDENTAL, RESPONDENT, AND TUPAS FOUNDATION, INC., PRIVATE RESPONDENT-APPELLEE.

D E C I S I O N

NARVASA, J.:

Involved in this appeal is the question of whether or not a donation inter vivos by a donor now deceased is inofficious and should be reduced at the instance of the donor's widow.

Epifanio R. Tupas died on August 20, 1978 in Bacolod City, childless, leaving his widow, Partenza Lucerna, as his only surviving compulsory heir. He also left a will dated May 18, 1976, which was admitted to probate on September 30, 1980 in Special Proceedings No. 13994 of the Court of First Instance of Negros Occidental. Among the assets listed in his will were lots Nos. 837, 838 and 839 of the Sagay Cadastre, admittedly his private capital. However, at the time of his death, these lots were no longer owned by him, he having donated them the year before (on August 2, 1977) to the Tupas Foundation, Inc., which had thereafter obtained title to said lots.

Claiming that said donation had left her practically destitute of any inheritance, Tupas' widow brought suit against Tupas Foundation, Inc. in the same Court of First Instance of Negros Occidental (docketed as Civil Case No. 16089) to have the donation declared inofficious insofar as it prejudiced her legitime, therefore reducible "* * * by one-half or such proportion as * * * (might be deemed) justified * * *" and "* * * the resulting deduction * * *" restored and conveyed or delivered to her. The complaint also prayed for attorney's fees and such other relief as might be proper.

The Trial Court did not see things her way. Upon the facts above stated, on which the parties stipulated^[1], said Court dismissed the complaint for lack of merit, rejecting her claim on several grounds, viz.:

"* * * (1) Article 900 relied upon by plaintiff is not applicable because the properties which were disposed of by way of donation one year before the death of Epifanio Tupas were no longer part of his hereditary estate at the time of his death on August 20, 1978; (2) the donated properties were Epifanio's capital or separate estate; and (3) Tupas Foundation, Inc. being a stranger and not a compulsory heir, the donation inter vivos made in its favor was not subject to collation under Art. 1061, C.C."^[2]

The Trial Court is in error on all counts and must be reversed.

A person's prerogative to make donations is subject to certain limitations, one of which is that he cannot give by donation more than he can give by will (Art. 752, Civil Code)^[3]. If he does, so much of what is donated as exceeds what he can give by will is deemed inofficious and the donation is reducible to the extent of such excess, though without prejudice to its taking effect in the donor's lifetime or the donee's appropriating the fruits of the thing donated (Art. 771, Civil Code). Such a donation is, moreover, collationable, that is, its value is imputable into the hereditary estate of the donor at the time of his death for the purpose of determining the legitime of the forced or compulsory heirs and the freely disposable portion of the estate. This is true as well of donations to strangers as of gifts to compulsory heirs, although the language of Article 1061 of the Civil Code would seem to limit collation to the latter class of donations. And this has been held to be a long-established rule in Liguez vs. Honorable Court of Appeals, et al.,^[4], where this Court said:

"* * * Hence, the forced heirs are entitled to have the donation set aside in so far as inofficious: i.e., in excess of the portion of free disposal (Civil Code of 1889, Articles 636, 645), computed as provided in Articles 818 and 819, and bearing in mind that 'collationable gifts' under Article 818 should include gifts made not only in favor of the forced heirs, but even those made in favor of strangers, as decided by the Supreme Court of Spain in its decisions of 4 May 1899 and 16 June 1902. So that in computing the legitimes, the value of the property donated to herein appellant, Conchita Liguez, should be considered part of the donor's estate. Once again, only the court of origin has the requisite data to determine whether the donation is inofficious or not."^[5]

The fact, therefore, that the donated property no longer actually formed part of the estate of the donor at the time of his death cannot be asserted to prevent its being brought to collation. Indeed, it is an obvious proposition that collation contemplates and particularly applies to gifts inter vivos^[6]. The further fact that the lots donated were admittedly capital separate property of the donor is of no moment, because a claim of inofficiousness does not assert that the donor gave what was not his, but that he gave more than what was within his power to give.

Since it is clear that the questioned donation is collationable and that, having been made to a stranger (to the donor) it is, by law^[7] chargeable to the freely disposable portion of the donor's estate, to be reduced insofar as inofficious, i.e., it exceeds said portion and thus impairs the legitime of the compulsory heirs, in order to find out whether it is inofficious or not, recourse must be had to the rules established by the Civil Code for the determination of the legitime and, by extension, of the disposable portion. These rules are set forth in Articles 908, 909 and 910 of the Code, on the basis of which the following step-by-step procedure has been correctly outlined:

(1) determination of the value of the property which remains at the time of the testator's death;

(2) determination of the obligations, debts, and charges which have to be paid out or deducted from the value of the property thus left;

(3) the determination of the difference between the assets and the liabilities, giving rise to the hereditary estate;

(4) the addition to the net value thus found, of the value, at the time they were made, of donations subject to collation; and

(5) the determination of the amount of the legitimes by getting from the total thus found the portion that the law provides as the legitime of each respective compulsory heir.^[8]

Deducting the legitimes from the net value of the hereditary estate leaves the freely disposable portion by which the donation in question here must be measured. If the value of the donation at the time it was made does not exceed that difference, then it must be allowed to stand. But if it does, the donation is inofficious as to the excess and must be reduced by the amount of said excess. In this case, if any excess be shown, it shall be returned or reverted to the petitioner-appellant as the sole compulsory heir of the deceased Epifanio R. Tupas.

For obvious reasons, this determination cannot now be made, as it requires appreciation of data not before this Court and may necessitate the production of evidence in the Court a quo.

WHEREFORE, the appealed decision is reversed and petitioner-appellant Partenza Lucerna Vda. de Tupas is adjudged entitled to so much of the donated property in question, as may be found in excess of the freely disposable portion of the estate of Epifanio B. Tupas, determined in the manner above-indicated. Let the case be remanded to the Trial Court for further appropriate proceedings in accordance with this decision.

SO ORDERED.

Yap (Chairman), Melencio-Herrera, Cruz, and Feliciano, JJ., concur.

---

^[1] Decision in Civil Case No. 16089, p. 81 record, referring to a pre-trial order dated November 3, 1981

^[2] Decision, Civil Case No. 16089, supra

^[3] Other limitations are set out in Articles 750 and 751, Civil Code

^[4] 102 Phil. 577, 586

^[5] Articles cited are of the Old Civil Code. Articles 818 and 819 were rewritten, with some changes, into the present Code as Articles 908 and 909

^[6] Articles 1061-1069, Civil Code

^[7] Article 909, second and third paragraphs, and Article 911, No. (1), Civil Code

^[8] Caguioa, Comments & Cases on Civil Law, 3rd (1970) Ed., Vol. III, pp. 280-281; Tolentino, Civil Code of the Philippines 1979 ed., Vol. III, p. 341

---

THIRD DIVISION

[ G.R. No. 108947, September 29, 1997 ]

ROLANDO SANCHEZ, FLORIDA MIERLY SANCHEZ, ALFREDO T. SANCHEZ AND MYRNA T. SANCHEZ, PETITIONERS, VS. THE HONORABLE COURT OF APPEALS, ROSALIA S. LUGOD, ARTURO S. LUGOD, EVELYN LUGOD-RANISES AND ROBERTO S. LUGOD, RESPONDENTS.

D E C I S I O N

PANGANIBAN, J.:

Is a petition for certiorari, in lieu of appeal, the proper remedy to correct orders of a probate court nullifying certain deeds of sale and, thus, effectively passing upon title to the properties subject of such deeds? Is a compromise agreement partitioning inherited properties valid even without the approval of the trial court hearing the intestate estate of the deceased owner?

The Case

These questions are answered by this Court as it resolves the petition for review on certiorari before us assailing the November 23, 1992 Decision^[1] of the Court of Appeals^[2] in CA-G.R. SP No. 28761 which annulled the decision^[3] of the trial court^[4] and which declared the compromise agreement among the parties valid and binding even without the said trial court’s approval. The dispositive portion of the assailed Decision reads:

WHEREFORE, for the reasons hereinabove set forth and discussed, the instant petition is GRANTED and the challenged decision as well as the subsequent orders of the respondent court are ANNULLED and SET ASIDE. The temporary restraining order issued by this Court on October 14, 1992 is made PERMANENT. The compromise agreement dated October 30, 1969 as modified by the memorandum of agreement of April 13, 1970 is DECLARED valid and binding upon herein parties. And Special Proceedings No. 44-M and 1022 are deemed CLOSED and TERMINATED.

SO ORDERED.” ^[5]

The Antecedent Facts

The facts are narrated by the Court of Appeals as follows:

[Herein private respondent] Rosalia S. Lugod is the only child of spouses Juan C. Sanchez and Maria Villafranca while [herein private respondents] Arturo S. Lugod, Evelyn L. Ranises and Roberto S. Lugod are the legitimate children of [herein private respondent] Rosalia.

[Herein petitioners] Rolando, Florida Mierly, Alfredo and Myrna, all surnamed Sanchez, are the illegitimate children of Juan C. Sanchez.

Following the death of her mother, Maria Villafranca, on September 29, 1967, [herein private respondent] Rosalia filed on January 22, 1968, thru counsel, a petition for letters of administration over the estate of her mother and the estate of her father, Juan C. Sanchez, who was at the time in state of senility (Annex ‘B’, Petition).

On September 30, 1968, [herein private respondent] Rosalia, as administratrix of the intestate estate of her mother, submitted an inventory and appraisal of the real and personal estate of her late mother (Annex ‘C’, Petition).

Before the administration proceedings in Special Proceedings No. 44-M could formally be terminated and closed, Juan C. Sanchez, [herein private respondent] Rosalia’s father, died on October 21, 1968.

On January 14, 1969, [herein petitioners] as heirs of Juan C. Sanchez, filed a petition for letters of administration (Special Proceedings No. 1022) over the intestate estate of Juan C. Sanchez, which petition was opposed by (herein private respondent) Rosalia.^[6]

On October 30, 1969, however, [herein private respondent] Rosalia and [herein petitioners] assisted by their respective counsels executed a compromise agreement (Annex ‘D’, Petition) wherein they agreed to divide the properties enumerated therein of the late Juan C. Sanchez.

On November 3, 1969, petitioner Rosalia was appointed by [the trial court], and took her oath as the administratrix of her father’s intestate estate.

On January 19, 1970, [herein petitioners] filed a motion to require administratrix, [herein private respondent] Rosalia, to deliver deficiency of 24 hectares and or to set aside compromise agreement (Annex ‘E’, Petition).

Under date of April 13, 1970, (herein private respondent) Rosalia and [herein petitioners] entered into and executed a memorandum of agreement which modified the compromise agreement (Annex ‘F’. Petition)

On October 25, 1979, or nine years later, [herein petitioners] filed, thru counsel, a motion to require [herein private respondent] Rosalia to submit a new inventory and to render an accounting over properties not included in the compromise agreement (Annex ‘G’, Petition). They likewise filed a motion to defer the approval of the compromise agreement (Annex ‘H’, Ibid), in which they prayed for the annulment of the compromise agreement on the ground of fraud.

On February 4, 1980, however, counsel for [herein petitioners] moved to withdraw his appearance and the two motions he filed, Annex ‘G’ and ‘H’ (Annex ‘I’, Petition).

On February 28, 1980, the [trial] court issued an order directing [herein private respondent] Rosalia to submit a new inventory of properties under her administration and an accounting of the fruits thereof, which prompted [herein private respondent] Rosalia to file a rejoinder on March 31, 1980 (Annex ‘K’, Petition).

On May 12, 1980, [herein petitioners], thru new counsel, filed a motion to change administratrix (Annex ‘L’, Petition) to which [herein private respondent] Rosalia filed an opposition (Annex’M’, Ibid).

The parties were subsequently ordered to submit their respective position papers, which they did (Annexes ‘N’ and ‘O’, Petition). On September 14, 1989, former counsel of (herein petitioners) entered his re-appearance as counsel for (herein petitioners).

On the bases of memoranda submitted by the parties, the [trial court], this time presided by Judge Vivencio A. Galon, promulgated its decision on June 26, 1991, the dispositive portion of which states:

‘WHEREFORE, premises considered, judgment is hereby rendered as follows by declaring and ordering:

1.That the entire intestate estate of Maria Villafranca Sanchez under Special Proceedings No.44-M consists of all her paraphernal properties and one-half (1/2) of the conjugal properties which must be divided equally between Rosalia Sanchez de Lugod and Juan C. Sanchez;

2.That the entire intestate estate of Juan C. Sanchez under Special Proceedings No. 1022 consists of all his capital properties, one-half (1/2) from the conjugal partnership of gains and one-half (1/2) of the intestate estate of Maria Villafranca under Special Proceedings No. 44-M;

3.That one-half (1/2) of the entire intestate estate of Juan C. Sanchez shall be inherited by his only legitimate daughter, Rosalia V. Sanchez de Lugod while the other one-half (1/2) shall be inherited and be divided equally by, between and among the six (6) illegitimate children, namely: Patricia Alburo, Maria Ramuso Sanchez, Rolando Pedro T. Sanchez, Florida Mierly T. Sanchez, Alfredo T. Sanchez and Myrna T. Sanchez;

4.That all the Deed (sic) of Absolute Sales executed by Juan C. Sanchez and Maria Villafranca in favor of Rosalia Sanchez Lugod, Arturo S. Lugod, Evelyn S. Lugod and Roberto S. Lugod on July 26, 1963 and June 26, 1967 are all declared simulated and fictitious and must be subject to collation and partition among all heirs;

5.That within thirty (30) days from finality of this decision, Rosalia Sanchez Lugod is hereby ordered to prepare a project of partition of the intestate estate of Juan C. Sanchez under Special Proceedings No. 1022 and distribute and deliver to all heirs their corresponding shares. If she fails to do so within the said thirty (30) days, then a Board of Commissioners is hereby constituted, who are all entitled to honorarium and per diems and other necessary expenses chargeable to the estate to be paid by Administratrix Rosalia S. Lugod, appointing the Community Environment and Natural Resources Officer (CENRO) of Gingoog City as members thereof, with the task to prepare the project of partition and deliver to all heirs their respective shares within ninety (90) days from the finality of said decision;

6.That within thirty (30) days from receipt of this decision, Administratrix Rosalia Sanchez Vda. de Lugod is hereby ordered to submit two (2) separate certified true and correct accounting, one for the income of all the properties of the entire intestate estate of Maria Villafranca under Special Proceedings No. 44-M, and another for the properties of the entire intestate estate of Juan C. Sanchez under Special Proceedings No. 1022 duly both signed by her and both verified by a Certified Public Accountant and distribute and deliver to her six (6) illegitimate brothers and sisters in equal shares, one -half (1/2) of the net income of the estate of Juan C. Sanchez from October 21, 1968 up to the finality of this decision;

7.For failure to render an accounting report and failure to give cash advances to the illegitimate children of Juan C. Sanchez during their minority and hour of need from the net income of the estate of Juan C. Sanchez, which adversely prejudiced their social standing and pursuit of college education, (the trial court) hereby orders Rosalia Sanchez Vda. de Lugod to pay her six (6) illegitimate brothers and sisters the sum of Five Hundred Thousand (P500,000.00) Pesos, as exemplary damages, and also the sum of One Hundred Fifty Thousand (P150,000.00) Pesos for attorney’s fees;

8.Upon release of this decision and during its pendency, should appeal be made, the Register of Deeds and Assessors of the Provinces and Cities where the properties of Juan C. Sanchez and Maria Villafranca are located, are all ordered to register and annotate in the title and/or tax declarations, the dispositive portion of this decision for the protection of all heirs and all those who may be concerned.

SO ORDERED.’

[Herein private respondent] Rosalia filed a motion for reconsideration dated July 17, 1991 (Annex ‘P’, Petition) on August 6, 1991.

On August 13, 1991, [herein petitioners] filed a motion for execution and opposition to [herein private respondent] Rosalia’s motion for reconsideration (Annex ‘Q’, Petition).

On September 3, 1991, [the trial court] issued an Omnibus Order (Annex ‘S’, Petition) declaring, among other things, that the decision at issue had become final and executory.

[Herein private respondent] Rosalia then filed a motion for reconsideration of said Omnibus Order (Annex ‘T’, Petition). Said [herein private respondent] was allowed to file a memorandum in support of her motion (Annex ‘V’, Petition).

On June 26, 1991, [the trial court] issued and Order denying petitioner Rosalia’s motion for reconsideration (Annex ‘W’, Petition).”^[7]

Thereafter, private respondents elevated the case to the Court of Appeals via a petition for certiorari and contended:

“I

The [trial court] has no authority to disturb the compromise agreement.

II

The [trial court] has arbitrarily faulted [herein private respondent] Rosalia S. Lugod for alleged failure to render an accounting which was impossible.

III

The [trial court] acted without jurisdiction in derogation of the constitutional rights of [herein private respondents] Arturo S. Lugod, Evelyn L. Ranises and Roberto S. Lugod when [the trial court] decided to annul the deed of sale between the said [herein private respondents] and Juan C. Sanchez without affording them their day in court.

IV

[The trial court judge] defied without rhyme or reason well-established and entrenched jurisprudence when he determined facts sans any evidence thereon.

V

[The trial court] grossly misinterpreted [herein private respondent] Rosalia S. Lugod’s right to appeal.”^[8]

For clarity’s sake, this Court hereby reproduces verbatim the compromise agreement^[9] of the parties:

“COMPROMISE AGREEMENT

COME NOW, the parties in the above-entitled case, motivated by their mutual desire to preserve and maintain harmonious relations between and among themselves, for mutual valuable considerations and in the spirit of good will and fair play, and, for the purpose of this Compromise Agreement, agree to the following:

1. That the deceased Juan C. Sanchez who died intestate on October 21, 1968 was legally married to Maria Villafranca de Sanchez, who predeceased her on September 29, 1967, out of whose wedlock Rosalia Sanchez Lugod, Oppositor herein, was born, thus making her the sole and only surviving legitimate heir of her deceased parents;

2. That the said deceased Juan C. Sanchez, left illegitimate children, Intervenors-Oppositors and Petitioners, respectively, herein namely;

(1) Patricio Alburo, born out of wedlock on March 17, 1926 at Cebu City, Philippines, to Emilia Alburo;

(2) Maria Ramoso Sanchez, born out of wedlock on May 9, 1937 at Gingoog, Misamis Oriental, now, Gingoog City, to Alberta Ramoso;

(3) (a) Rolando Pedro Sanchez, born on May 19, 1947,

(b) Florida Mierly Sanchez, born on February 16, 1949,

(c) Alfredo Sanchez, born on July 21, 1950,and

(d) Myrna Sanchez, born on June 16, 1952, all born out of wedlock to Laureta Tampus in Gingoog City, Philippines.

3. That the deceased Juan C. Sanchez left the following properties, to wit:

I. SEPARATE CAPITAL OF JUAN C. SANCHEZ

NATURE, DESCRIPTION AND AREA ASSESSED VALUE

(1) Agricultural Land. Covered by Tax. Decl. No. 06458, Cad. Lot No. 1041 C-2, located at Murallon, Gingoog City and bounded on the North by Lot Nos. 1033, 1035, 1036, 1037, 1039, 1040, 1042 & 1043; South by Lot No. 1080, 1088, 1087 & 1084; East by Lot Nos. 1089, 1061 & 2319; West by Lot Nos. 954, 1038, 1057 & 1056, containing an area of ONE HUNDRED EIGHTY THREE THOUSAND SIX HUNDRED SEVENTY TWO (183, 672) sq. ms. more or less.

P21,690.00

II. CONJUGAL PROPERTY OF JUAN C. SANCHEZ AND MARIA VILLAFRANCA DE SANCHEZ

(1) Agricultural Land. Covered by Tax Decl. No. 06447, Cad. Lot No. 2745, C-7 located at Agay-ayan, Gingoog City and bounded on the North by Lot Nos. 2744, 2742, 2748; South by Lot No. 2739; East by Lot No. 2746; West by Lot No. 2741, containing an area of FOURTEEN THOUSAND SEVEN HUNDRED (14,700) sq. ms. more or less.

P1,900.00

(2) Agricultural Land. Covered by Tax Decl. No. 06449, Cad, Lot No. 3271 C-7 located at Panyangan, Lanao, Gingoog City and bounded on the North by Lot No. 3270; South by Lot Nos. 2900 & 3462; East by Panyangan River & F. Lumanao; and Part of Lot 3272; and West by Samay Creek, containing an area of ONE HUNDRED FOUR THOUSAND SIX HUNDRED (104,600) sq. ms. more or less.

P11,580.00

(3) Agricultural Land. Covered by Tax Decl. No. 06449, Cad. Lot No. 2319, Case 2, located at Murallon, Gingoog City and bounded on the North by Lot No. 1061; South by Hinopolan Creek; East by Lot No. 1044; and West by Lot No. 1041, containing an area of THREE THOUSAND TWO HUNDRED TWENTY FIVE (3,225) sq. ms. more or less.

(4) Agricultural Land. Covered by Tax Decl. No. 06452, Cad. Lot No. 3272, C-7 Part 4 located at Panyangan, Lunao, Gingoog City and bounded on the North by Lot Nos. 3270 & 3273; East by Panyangan River; South by Panyangan River; and West by Lot Nos. 3270 & 3271, containing an area of FIFTY FIVE THOUSAND SIX HUNDRED (55,600) sq. ms. more or less, being claimed by Damian Querubin.

P2.370.00

(5) Agricultural Land. Covered by Tax Decl. No. 06453, Cad. Lot No. 3270 Case 7, located at Sunog, Lunao, Gingoog City and bounded on the North by Samay Creek & Lot 3267; South by Lot Nos. 3271 & 3272; East by Lot Nos. 3269 & 3273; and West by Samay Creek, containing an area of FOUR HUNDRED EIGHT THREE THOUSAND SIX HUNDRED (483,600) sq. ms. more or less.

P61,680.00

(6) Agricultural Land. Covered by Tax Decl. No. 06457, Cad. Lot No. 3273, C-7 Part 2 located at Panyangan, Lunao, Gingoog City and bounded on the North by Lot No. 3269; South by Lot No. 3272; East by Panyangan River; and West by Lot No. 3270, contaning an area of THIRTY FOUR THOUSAND THREE HUNDRED (34,300) sq. ms. more or less, being claimed by Miguel Tuto.

P3,880.00

(7) Agricultural Land. Covered by Tax Decl. No. 12000, Cad. Lot No. 2806, Case 7 located at Agayayan, Gingoog City and bounded on the North by Agayayan River; South by Victoriano Barbac; East by Isabelo Ramoso; and West by Restituto Baol, contaning an area of SIX THOUSAND SIX HUNDRED SEVENTY SIX (6,676) sq. ms. more or less.

P380.00

(8) Agricultural Land. Covered by Tax Decl. No. 12924, Cad. Lot No. 1206 C-1 located at Cahulogan, Gingoog City and bounded on the NW., by Lot No. 1209; SW., by Lot No. 1207; East by National Highway; and West by Lot No. 1207; containing an area of FOUR THOUSAND FIVE HUNDRED THIRTEEN (4,513) sq. ms. more or less.

P740.00

(9) Agricultural Land. Covered by Tax Decl. No. 12925, Cad. Lot No. 5554, located at Tinaytayan, Pigsalohan, Gingoog City and bounded on the North by Lot Nos. 5559 & 5558; South by Lot No. 3486; East by Lot No. 5555; and West by Lot No. 5355, containing an area of EIGHTEEN THOUSAND FIVE HUNDRED TWENTY EIGHT (18,528) sq. ms. more or less.

P320.00

(10) Agricultural Land. Covered by Tax Decl. No. 12926, Cad. Lot No. 5555 C-7 located at Tinaytayan, Pigsalojan, Gingoog City and bounded on the North by Tinaytayan Creek & Lot Nos. 5557 & 5558; South by Lot Nos. 3486, 3487, 3488, 3491 & 3496; East by Cr. & Lot No. 3496; and West by Lot No. 5554, containing an area of SEVENTY SEVEN THOUSAND SEVEN HUNDRED SEVENTY SIX (77,776) sq. ms. more or less.

P1,350.00

(11) A Commercial Land. Covered by Tax Decl. No. 06454, Cad. Lot No. 61-C-1 located at Guno-Condeza Sts., Gingoog City and bounded on the North by Lot 64; South by Road-Lot 613 Condeza St; East by Lot Nos. 63, and 62; West by Road-Lot 614-Guno St., containing an area of ONE THOUSAND FORTY TWO (1,042) sq. ms. more or less.

P9,320.00

(12) A Commercial Land. Covered by Tax Decl. No. 06484, Lot No. 5, Block 2, located at Cabuyoan, Gingoog City and bounded on the North by Lot No. 4, block 2; South by Lot No. 8, block 2; East by Lot No. 6, block 2, West by Subdivision Road, containing an area of FOUR HUNDRED (400) sq. ms. more or less.

P12,240.00

(13) A Commercial Land. Covered by Tax Decl. No. 15798, Block No. 7-A-16-0 located at Cabuyoan, Gingoog City and bounded on the North by Lot No. 7-A-16-0; South by Lot No. 7-16-0; East by Lot No. 7-A-18-Road; West by Lot No. 8, PSU-120704-Julito Arengo vs. Restituto Baol, containing an area of TWO HUNDRED SIXTEEN (216) sq. ms. more or less.

P1,050.00

(14) Agricultural Land. Covered by Tax, Decl. No. 06789, Cad. Lot No. 5157-C-7, located at Kiogat, Agayayan, Gingoog City and bounded on the North by Lot No. 5158, 5159, 5156; South by SE-Steep Bank; East by NW, by Lot No. 5158, Villafranca, containing an area of NINETY SIX THOUSAND TWO HUNDRED (96,200) sq. ms. more or less.

P3,370.00

III. PERSONAL ESTATE (CONJUGAL)

NATURE AND DESCRIPTION LOCATION APPRAISAL

1. Fifty (50) shares of stock

Rural Bank of Gingoog, Inc.

at P100.00 per share P5,000.00

2. Four (4) shares of Preferred Stock

with San Miguel Corporation 400.00

4. That, the parties hereto have agreed to divide the above-enumerated properties in the following manner, to wit:

(a) To Patricio Alburo, Maria Ramoso Sanchez, Roland Pedro T. Sanchez, Florida Mierly Sanchez, Alfredo T. Sanchez and Myrna T. Sanchez, in equal pro-indiviso shares, considering not only their respective areas but also the improvements existing thereon, to wit:

Agricultural Land. Covered by Tax Decl. No. 06453, Cad. Lot No. 3270 Case 7, located at Sunog, Lunao, Gingoog City and bounded on the North by Samay Creek & Lot 3267; South by Lot Nos. 3271 and 3272; East by Lot Nos. 3269 & 3273; and West by Samay Creek, containing an area of FOUR HUNDRED EIGHTY THREE THOUSAND SIX HUNDRED (483,600) sq. ms. and assessed in the sum of P61,680.00.

(b) To Rosalia Sanchez Lugod all the rest of the properties, both real and personal, enumerated above with the exception of the following:

(1) Two Preferred Shares of Stock in the San Miguel Corporation, indicated in San Miguel Corporation Stock Certificate No. 30217, which two shares she is ceding in favor of Patricio Alburo;

(2) The house and lot designated as Lot No. 5, Block 2 together with the improvements thereon and identified as parcel No. II-12, lot covered by Tax Decl. No. 15798 identified as Parcel No. II-13 in the above enumerated, and Cad. Lot No. 5157-C-7 together with the improvements thereon, which is identified as parcel No. II-14 of the above-enumeration of properties, which said Rosalia S. Lugod is likewise ceding and renouncing in favor of Rolando Pedro, Florida Mierly, Alfredo and Myrna, all surnamed Sanchez, in equal pro-indiviso shares;

5. That Rolando Pedro, Florida Mierly, Alfredo and Myrna, all surnamed Sanchez hereby acknowledge to have received jointly and severally in form of advances after October 21, 1968 the aggregate sum of EIGHT THOUSAND FIVE HUNDRED THIRTY-THREE PESOS (P8,533.94) and NINETY-FOUR CENTAVOS;

6. That the parties hereto likewise acknowledge and recognize in the indebtedness of the deceased Juan G. Sanchez and his deceased wife Maria Villafranca Sanchez to the Lugod Enterprises, Inc., in the sum of P43,064.99;

7. That the parties hereto shall be responsible for the payment of the estate and inheritance taxes proportionate to the value of their respective shares as may be determined by the Bureau of Internal Revenue and shall likewise be responsible for the expenses of survey and segregation of their respective shares;

8. That Patricio Alburo, Maria Ramoso Sanchez, Roland Pedro Sanchez, Florida Mierly Sanchez, Alfredo Sanchez and Myrna Sanchez hereby waive, relinquish and renounce, jointly and individually, in a manner that is absolute and irrevocable, all their rights and interests, share and participation which they have or might have in all the properties, both real and personal, known or unknown and/or which may not be listed herein, or in excess of the areas listed or mentioned herein, and/or which might have been, at one time or another, owned by, registered or placed in the name of either of the spouses Juan C. Sanchez or Maria Villafranca de Sanchez or both, and which either one or both might have sold, ceded, transferred, or donated to any person or persons or entity and which parties hereto do hereby confirm and ratify together with all the improvements thereon, as well as all the produce and proceeds thereof, and particularly of the properties, real and personal listed herein, as well as demandable obligations due to the deceased spouses Juan C. Sanchez, before and after the death of the aforementioned spouses Juan C. Sanchez and Maria Villafranca de Sanchez, in favor of oppositor Rosalia S. Lugod;

9. That the expenses of this litigation including attorney’s fees shall be borne respectively by the parties hereto;

10. That Laureta Tampus for herself and guardian ad-litem of her minor children, namely: Florida Mierly, Alfredo, and Myrna, all surnamed Sanchez, hereby declare that she has no right, interest, share and participation whatsoever in the estate left by Juan C. Sanchez and/or Maria Villafranca de Sanchez, or both, and that she likewise waives, renounces, and relinquishes whatever rigid, share, participation or interest therein which she has or might have in favor of Rosalia S. Lugod;

11. That, the parties hereto mutually waive and renounce in favor of each other any whatever claims or actions, arising from, connected with, and as a result of Special Proceedings Nos. 44-M and 1022 of the Court of First Instance of Misamis Oriental, Rosalia S. Lugod, warranting that the parcel of land ceded to the other parties herein contains 48 hectares and 36 acres.

12. That, Rosalia S. Lugod shall assume as she hereby assumes the payment to Lugod Enterprises, Inc., of the sum of P51,598.93 representing the indebtedness of the estate of Juan C. Sanchez and Maria Villafranca de Sanchez and the advances made to Rolando Pedro, Mierly, Alfredo, and Myrna all surnamed Sanchez, mentioned in paragraphs 5 and 6 hereof and, to give effect to this Agreement, the parties hereto agree to have letters of administration issued in favor of Rosalia S. Lugod without any bond.

That Rosalia S. Lugod likewise agrees to deliver possession and enjoyment of the parcel of land herein ceded to petitioners and intervenors immediately after the signing of this agreement and that the latter also mutually agree among themselves to have the said lot subdivided and partitioned immediately in accordance with the proportion of one sixth (1/6) part for every petitioner and intervenor and that in the meantime that the partition and subdivision is not yet effected, the administrations of said parcel of land shall be vested jointly with Laureta Tampos, guardian ad litem of petitioners and Maria Ramoso, one of the intervenors who shall see to it that each petitioner and intervenor is given one sixth (1/6) of the net proceeds of all agricultural harvest made thereon.

WHEREFORE, it is most respectfully prayed that the foregoing compromise agreement be approved.

Medina, Misamis Oriental, October 30, 1969.

(Sgd.) (Sgd.)

PATRICIO ALBURO ROSALIA S. LUGOD

Intervenor-Oppositor Oppositor

(Sgd.)

MARIA RAMOSO SANCHEZ ASSISTED BY:

Intervenor-Oppositor

(Sgd.)

ASSISTED BY: PABLO S. REYES

R-101-Navarro Bldg.

(Sgd.) Don A. Velez St.

REYNALDO L. FERNANDEZ Cagayan de Oro City

Gingoog City

(Sgd.) (Sgd.)

ROLANDO PEDRO T. SANCHEZ ALFREDO T. SANCHEZ

Petitioner Petitioner

(Sgd.) (Sgd.)

FLORIDA MIERLY T. SANCHEZ MYRNA T. SANCHEZ

Petitioner Petitioner

(Sgd.)

LAURETA TAMPUS

For herself and as Guardian

Ad-Litem of the minors

Florida Mierly, Alfredo, and

Myrna, all surnamed Sanchez

ASSISTED BY:

TEOGENES VELEZ, JR.

Counsel for Petitioners

Cagayan de Oro City



The Clerk of Court

Court of First Instance

Branch III, Medina, Mis. Or.

Greetings:

Please set the foregoing compromise agreement for the approval of the Honorable Court today, Oct. 30, 1969.

(Sgd.) (Sgd.) (Sgd.)

PABLO S. REYES TEOGENES VELEZ, JR. REYNALDO L. FERNANDEZ”

The Memorandum of Agreement dated April 13, 1970, which the parties entered into with the assistance of their counsel, amended the above compromise. (It will be reproduced later in our discussion of the second issue raised by the petitioners.)

The Court of Appeals, in a Resolution^[10] dated September 4, 1992, initially dismissed private respondents’ petition. Acting, however, on a motion for reconsideration and a supplemental motion for reconsideration dated September 14, 1992 and September 25, 1992, respectively,^[11] Respondent Court thereafter reinstated private respondents’ petition in a resolution^[12] dated October 14, 1992.

In due course, the Court of Appeals, as earlier stated, rendered its assailed Decision granting the petition, setting aside the trial court’s decision and declaring the modified compromise agreement valid and binding.

Hence, this appeal to this Court under Rule 45 of the Rules of Court.

The Issues

In this appeal, petitioners invite the Court’s attention to the following issues:

“I

The respondent court grossly erred in granting the petition for certiorari under Rule 65 considering that the special civil action of certiorari may not be availed of as a substitute for an appeal and that, in any event, the grounds invoked in the petition are merely alleged errors of judgment which can no longer be done in view of the fact that the decision of the lower court had long become final and executory.

II

Prescinding from the foregoing, the respondent court erred in annulling the decision of the lower court for the reason that a compromise agreement or partition, as the court construed the same to be, executed by the parties on October 30, 1969 was void and unenforceable the same not having been approved by the intestate court and that the same having been seasonably repudiated by petitioners on the ground of fraud.

III

The respondent court grossly erred in ignoring and disregarding findings of facts of the lower court that the alleged conveyances of real properties made by the spouses Juan C. Sanchez and Maria Villafranca just before their death in favor of their daughter and grandchildren, private respondents herein, are tainted with fraud or made in contemplation of death, hence, collationable.

IV

In any event, the respondent court grossly erred in treating the lower court’s declaration of fictitiousness of the deeds of sale as a final adjudication of annulment.

V

The respondent court grossly erred in declaring the termination of the intestate proceedings even as the lower court had not made a final and enforceable distribution of the estate of the deceased Juan C. Sanchez.

VI

Prescinding from the foregoing, the respondent court grossly erred in not at least directing respondent Rosalia S. Lugod to deliver the deficiency of eight (8) hectares due petitioners under the compromise agreement and memorandum of agreement, and in not further directing her to include in the inventory properties conveyed under the deeds of sale found by the lower court to be part of the estate of Juan C. Sanchez.”^[13]

The salient aspects of some issues are closely intertwined; hence, they are hereby consolidated into three main issues specifically dealing with the following subjects: (1) the propriety of certiorari as a remedy before the Court of Appeals, (2) the validity of the compromise agreement, and (3) the presence of fraud in the execution of the compromise and/or collation of the properties sold.

The Court’s Ruling

The petition is not meritorious.

First Issue: Propriety of Certiorari

Before the Court of Appeals

Since private respondents had neglected or failed to file an ordinary appeal within the reglementary period, petitioners allege that the Court of Appeals erred in allowing private respondent’s recourse to Rule 65 of the Rules of Court. They contend that private respondents’ invocation of certiorari was “procedurally defective.”^[14] They further argue that private respondents, in their petition before the Court of Appeals, alleged errors of the trial court which, being merely errors of judgment and not errors of jurisdiction, were not correctable by certiorari.^[15] This Court disagrees.

Doctrinally entrenched is the general rule that certiorari is not a substitute for a lost appeal. However, Justice Florenz D. Regalado lists several exceptions to this rule, viz.: “(1) where the appeal does not constitute a speedy and adequate remedy (Salvadades vs. Pajarillo, et al., 78 Phil. 77), as where 33 appeals were involved from orders issued in a single proceeding which will inevitably result in a proliferation of more appeals (PCIB vs. Escolin, et al., L-27860 and 27896, Mar. 29, 1974); (2) where the orders were also issued either in excess of or without jurisdiction (Aguilar vs. Tan, L-23600, Jun 30, 1970, Cf. Bautista, et al. vs. Sarmiento, et al., L-45137, Sept. 231985); (3) for certain special consideration, as public welfare or public policy (See Jose vs. Zulueta, et al. -16598, May 31, 1961 and the cases cited therein); (4) where in criminal actions, the court rejects rebuttal evidence for the prosecution as, in case of acquittal, there could be no remedy (People vs. Abalos, L029039, Nov. 28, 1968); (5) where the order is a patent nullity (Marcelo vs. De Guzman, et al., L-29077, June 29, 1982); and (6) where the decision in the certiorari case will avoid future litigations (St. Peter Memorial Park, Inc. vs. Campos, et al., L-38280, Mar. 21, 1975).”^[16] Even in a case where the remedy of appeal was lost, the Court has issued the writ of certiorari where the lower court patently acted in excess of or outside its jurisdiction,^[17] as in the present case.

A petition for certiorari under Rule 65 of the Rules of Court is appropriate and allowable when the following requisites concur: (1) the writ is directed against a tribunal, board or officer exercising judicial or quasi-judicial functions; (2) such tribunal, board or officer has acted without or in excess of jurisdiction, or with grave abuse of discretion amounting to lack or excess of jurisdiction; and (3) there is no appeal or any plain, speedy and adequate remedy in the ordinary course of law.^[18] After a thorough review of the case at bar, we are convinced that all these requirements were met.

As a probate court, the trial court was exercising judicial functions when it issued its assailed resolution. The said court had jurisdiction to act in the intestate proceedings involved in this case with the caveat that, due to its limited jurisdiction, it could resolve questions of title only provisionally.^[19] It is hornbook doctrine that “in a special proceeding for the probate of a will, the question of ownership is an extraneous matter which the probate court cannot resolve with finality. This pronouncement no doubt applies with equal force to an intestate proceeding as in the case at bar.”^[20] In the instant case, the trial court rendered a decision declaring as simulated and fictitious all the deeds of absolute sale which, on July 26, 1963 and June 26, 1967, Juan C. Sanchez and Maria Villafranca executed in favor of their daughter, Rosalia Sanchez Lugod; and grandchildren, namely, Arturo S. Lugod, Evelyn S. Lugod and Roberto S. Lugod. The trial court ruled further that the properties covered by the said sales must be subject to collation. Citing Article 1409 (2) of the Civil Code, the lower court nullified said deeds of sale and determined with finality the ownership of the properties subject thereof. In doing so, it clearly overstepped its jurisdiction as a probate court. Jurisprudence teaches:

[A] probate court or one in charge of proceedings whether testate or intestate cannot adjudicate or determine title to properties claimed to be a part of the estate and which are claimed to belong to outside parties. All that the said court could do as regards said properties is to determine whether they should or should not be included in the inventory or list of properties to be administered by the administrator. If there is not dispute, well and good, but if there is, then the parties, the administrator, and the opposing parties have to resort to an ordinary action for a final determination of the conflicting claims of title because the probate court cannot do so.”^[21]

Furthermore, the trial court committed grave abuse of discretion when it rendered its decision in disregard of the parties’ compromise agreement.^[22] Such disregard, on the ground that the compromise agreement “was not approved by the court,”^[23] is tantamount to “an evasion of positive duty or to a virtual refusal to perform the duty enjoined or to act in contemplation and within the bounds of law.”^[24]

The foregoing issues clearly involve not only the correctness of the trial court’s decision but also the latter’s jurisdiction. They encompass plain errors of jurisdiction and grave abuse of discretion, not merely errors of judgment.^[25] Since the trial court exceeded its jurisdiction, a petition for certiorari is certainly a proper remedy. Indeed, it is well-settled that “(a)n act done by a probate court in excess of its jurisdiction may be corrected by certiorari.”^[26]

Consistent with the foregoing, the following disquisition by respondent appellate court is apt:

As a general proposition, appeal is the proper remedy of petitioner Rosalia here under Rule 109 of the Revised Rules of Court. But the availability of the ordinary course of appeal does not constitute sufficient ground to [prevent] a party from making use of the extraordinary remedy of certiorari where appeal is not an adequate remedy or equally beneficial, speedy and sufficient (Echauz vs. Court of Appeals, 199 SCRA 381). Here, considering that the respondent court has disregarded the compromise agreement which has long been executed as early as October, 1969 and declared null and void the deeds of sale with finality, which, as a probate court, it has no jurisdiction to do, We deem ordinary appeal is inadequate. Considering further the [trial court’s] granting of [herein petitioners’] motion for execution of the assailed decision,^[27] [herein private respondent] Rosalia’s resort to the instant petition [for review on certiorari] is all the more warranted under the circumstances.”^[28]

We thus hold that the questioned decision and resolutions of the trial court may be challenged through a special civil action for certiorari under Rule 65 of the Rules of Court. At the very least, this case is a clear exception to the general rule that certiorari is not a substitute for a lost appeal because the trial court’s decision and resolutions were issued without or in excess of jurisdiction, which may thus be challenged or attacked at any time. “A void judgment for want of jurisdiction is no judgment at all. It cannot be the source of any right nor the creator of any obligation. All acts performed pursuant to it and all claims emanating from it have no legal effect. Hence, it can never become final and any writ of execution based on it is void; ‘x x x it may be said to be a lawless thing which can be treated as an outlaw and slain at sight, or ignored wherever and whenever it exhibits its head.’ ”^[29]

Second Issue: Validity of Compromise Agreement

Petitioners contend that, because the compromise agreement was executed during the pendency of the probate proceedings, judicial approval is necessary to shroud it with validity. They stress that the probate court had jurisdiction over the properties covered by said agreement. They add that Petitioners Florida Mierly, Alfredo and Myrna were all minors represented only by their mother/natural guardian, Laureta Tampus.^[30]

These contentions lack merit. Article 2028 of the Civil Code defines a compromise agreement as “a contract whereby the parties, by making reciprocal concessions, avoid a litigation or put an end to one already commenced.” Being a consensual contract, it is perfected upon the meeting of the minds of the parties. Judicial approval is not required for its perfection.^[31] Petitioners’ argument that the compromise was not valid for lack of judicial approval is not novel; the same was raised in Mayuga vs. Court of Appeals,^[32] where the Court, through Justice Irene R. Cortes, ruled:

It is alleged that the lack of judicial approval is fatal to the compromise. A compromise is a consensual contract. As such, it is perfected upon the meeting of the minds of the parties to the contract. (Hernandez v. Barcelon, 23 Phil. 599 ^[1912]; see also De los Reyes v. de Ugarte, 75 Phil. 505 ^[1945].) And from that moment not only does it become binding upon the parties (De los Reyes v. De Ugarte, supra ), it also has upon them the effect and authority of res judicata (Civil Code, Art. 2037), even if not judicially approved (Meneses v. De la Rosa, 77 Phil. 34 ^[1946]; Vda. De Guilas v. David, 132 Phil. 241, L-24280, 23 SCRA 762 [May 27, 1968]; Cochingyan v. Cloribel, L-27070-71 [April 22, 1977], 76 SCRA 361).” (Italics found in the original.)

In the case before us, it is ineludible that the parties knowingly and freely entered into a valid compromise agreement. Adequately assisted by their respective counsels, they each negotiated its terms and provisions for four months; in fact, said agreement was executed only after the fourth draft. As noted by the trial court itself, the first and second drafts were prepared successively in July, 1969; the third draft on September 25, 1969; and the fourth draft, which was finally signed by the parties on October 30, 1969,^[33] followed. Since this compromise agreement was the result of a long drawn out process, with all the parties ably striving to protect their respective interests and to come out with the best they could, there can be no doubt that the parties entered into it freely and voluntarily. Accordingly, they should be bound thereby.^[34] To be valid, it is merely required under the law to be based on real claims and actually agreed upon in good faith by the parties thereto.^[35]

Indeed, compromise is a form of amicable settlement that is not only allowed but also encouraged in civil cases.^[36] Article 2029 of the Civil Code mandates that a “court shall endeavor to persuade the litigants in a civil case to agree upon some fair compromise.”

In opposing the validity and enforcement of the compromise agreement, petitioners harp on the minority of Florida Mierly, Alfredo and Myrna. Citing Article 2032 of the Civil Code, they contend that the court’s approval is necessary in compromises entered into by guardians and parents in behalf of their wards or children.^[37]

However, we observe that although denominated a compromise agreement, the document in this case is essentially a deed of partition, pursuant to Article 1082 of the Civil Code which provides that “[e]very act which is intended to put an end to indivision among co-heirs and legatees or devisees is deemed to be a partition, although it should purport to be a sale, an exchange, a compromise, or any other transaction.”

For a partition to be valid, Section 1, Rule 74 of the Rules of Court, requires the concurrence of the following conditions: (1) the decedent left no will; (2) the decedent left no debts, or if there were debts left, all had been paid; (3) the heirs and liquidators are all of age, or if they are minors, the latter are represented by their judicial guardian or legal representatives; and (4) the partition was made by means of a public instrument or affidavit duly filed with the Register of Deeds.^[38] We find that all the foregoing requisites are present in this case. We therefore affirm the validity of the parties’ compromise agreement/partition in this case.

In any event, petitioners neither raised nor ventilated this issue in the trial court. This new question or matter was manifestly beyond the pale of the issues or questions submitted and threshed out before the lower court which are reproduced below, viz.:

“I Are the properties which are the object of the sale by the deceased spouses to their grandchildren collationable?

II Are the properties which are the object of the sale by the deceased spouses to their legitimate daughter also collationable?

III The first and second issues being resolved, how much then is the rightful share of the four (4) recognized illegitimate children?”^[39]

Furthermore, the 27-page Memorandum dated February 17, 1990 filed by petitioners before the Regional Trial Court ^[40] readily reveals that they never questioned the validity of the compromise. In their comment before the Court of Appeals,^[41] petitioners based their objection to said compromise agreement on the solitary “reason that it was tainted with fraud and deception,” zeroing specifically on the alleged fraud committed by private respondent Rosalia S. Lugod.^[42] The issue of minority was first raised only in petitioners’ Motion for Reconsideration of the Court of Appeals’ Decision;^[43] thus, it “is as if it was never duly raised in that court at all.”^[44] Hence, this Court cannot now, for the first time on appeal, entertain this issue, for to do so would plainly violate the basic rule of fair play, justice and due process.^[45] We take this opportunity to reiterate and emphasize the well-settled rule that “(a)n issue raised for the first time on appeal and not raised timely in the proceedings in the lower court is barred by estoppel. Questions raised on appeal must be within the issues framed by the parties and, consequently, issues not raised in the trial court cannot be raised for the first time on appeal.”^[46]

The petitioners likewise assail as void the provision on waiver contained in No. 8 of the aforequoted compromise, because it allegedly constitutes a relinquishment by petitioners of “a right to properties which were not known.”^[47] They argue that such waiver is contrary to law, public policy, morals or good custom. The Court disagrees. The assailed waiver pertained to their hereditary right to properties belonging to the decedent’s estate which were not included in the inventory of the estate’s properties. It also covered their right to other properties originally belonging to the spouses Juan Sanchez and Maria Villafranca de Sanchez which have been transferred to other persons. In addition, the parties agreed in the compromise to confirm and ratify said transfers. The waiver is valid because, contrary to petitioners’ protestation, the parties waived a known and existing interest -- their hereditary right which was already vested in them by reason of the death of their father. Article 777 of the Civil Code provides that “(t)he rights to the succession are transmitted from the moment of death of the decedent.” Hence, there is no legal obstacle to an heir’s waiver of his/her hereditary share “even if the actual extent of such share is not determined until the subsequent liquidation of the estate.”^[48] At any rate, such waiver is consistent with the intent and letter of the law advocating compromise as a vehicle for the settlement of civil disputes.^[49]

Finally, petitioners contend that Private Respondent Rosalia T. Lugod’s alleged fraudulent acts, specifically her concealment of some of the decedent’s properties, attended the actual execution of the compromise agreement.^[50] This argument is debunked by the absence of any substantial and convincing evidence on record showing fraud on her part. As aptly observed by the appellate court:

[Herein petitioners] accuse [herein private respondent] Rosalia of fraud or deception by alleging, inter alia, that the parcel of land given to them never conformed to the stated area, i.e., forty-eight (48) hectares, as stated in the compromise agreement. We find this argument unconvincing and unmeritorious. [Herein petitioners’] averment of fraud on the part of [herein private respondent] Rosalia becomes untenable when We consider the memorandum of agreement they later executed with [herein private respondent] Rosalia wherein said compromise agreement was modified by correcting the actual area given to [herein petitioners] from forty-eight (48) hectares to thirty-six (36) hectares only. If the actual area allotted to them did not conform to the 48 hectare area stated in the compromise agreement, then why did they agree to the memorandum of agreement whereby their share in the estate of their father was even reduced to just 36 hectares? Where is fraud or deception there? Considering that [herein petitioners] were ably represented by their lawyers in executing these documents and who presumably had explained to them the import and consequences thereof, it is hard to believe their charge that they were defrauded and deceived by [herein private respondent] Rosalia.

If the parcel of land given to [herein petitioners], when actually surveyed, happened to be different in area to the stated area of 48 hectares in the compromise agreement, this circumstance is not enough proof of fraud or deception on [herein private respondent] Rosalia’s part. Note that Tax Declaration No. 06453 plainly discloses that the land transferred to [herein petitioners] pursuant to the compromise agreement contained an area of 48 hectares (Annex ‘A’, Supplemental Reply). And when [herein petitioners] discovered that the land allotted to them actually contained only 24 hectares, a conference between the parties took place which led to the execution and signing of the memorandum of agreement wherein [herein petitioners’] distributive share was even reduced to 36 hectares. In the absence of convincing and clear evidence to the contrary, the allegation of fraud and deception cannot be successfully imputed to [herein private respondent] Rosalia who must be presumed to have acted in good faith.”^[51]

The memorandum of agreement freely and validly entered into by the parties on April 13, 1970 and referred to above reads:

“MEMORANDUM OF AGREEMENT

The parties assisted by their respective counsel have agreed as they hereby agree:

1. To amend the compromise agreement executed by them on October 30, 1969 so as to include the following:

a. Correction of the actual area being given to the petitioners and intervenors, all illegitimate children of the late Juan C. Sanchez, forty-eight (48) hectares, thirty-six (36) acres as embodied in the aforementioned compromise agreement to thirty-six (36) hectares only, thus enabling each of them to get six (6) hectares each.

b. That the said 36-hectare area shall be taken from that parcel of land which is now covered by O.C.T. No. 146 (Patent No. 30012) and the adjoining areas thereof designated as Lot A and Lot C as reflected on the sketch plan attached to the record of this case prepared by Geodetic Engineer Olegario E. Zalles pursuant to the Court’s commission of March 10, 1970 provided, however, that if the said 36-hectare area could not be found after adding thereto the areas of said lots A and C, then the additional area shall be taken from what is designated as Lot B, likewise also reflected in the said sketch plan attached to the records;

c. That the partition among the six illegitimate children of the late Juan C. Sanchez (petitioners and intervenors) shall be effective among themselves in such a manner to be agreed upon by them, each undertaking to assume redemption of whatever plants found in their respective shares which need redemption from the tenants thereof as well as the continuity of the tenancy agreements now existing and covering the said shares or areas.

d. The subdivision survey shall be at the expense of the said petitioners and intervenors prorata.

e. That the administratrix agrees to deliver temporary administration of the area designated as Lot 5 of the Valles Sketch Plan pending final survey of the said 36-hectare area.

Cagayan de Oro City, April 13, 1970.

(Sgd.)

LAURETA TAMPOS

For herself and as Guardian

ad-litem of Rolando, Mierly,

Alfredo and Myrna, all

surnamed Sanchez

Assisted by:

(Sgd.)

TEOGENES VELEZ, Jr.

Counsel for Petitioners

(Sgd.)

ROSALIA S. LUGOD

Administratrix

Assisted by:

(Sgd.)

PABLO S. REYES

Counsel for Administratrix

(Sgd.)

MARIA RABOSO SANCHEZ

Intervenor”^[52]

Not only did the parties knowingly enter into a valid compromise agreement; they even amended it when they realized some errors in the original. Such correction emphasizes the voluntariness of said deed.

It is also significant that all the parties, including the then minors, had already consummated and availed themselves of the benefits of their compromise.^[53] This Court has consistently ruled that “a party to a compromise cannot ask for a rescission after it has enjoyed its benefits.”^[54] By their acts, the parties are ineludibly estopped from questioning the validity of their compromise agreement. Bolstering this conclusion is the fact that petitioners questioned the compromise only nine years after its execution, when they filed with the trial court their Motion to Defer Approval of Compromise Agreement, dated October 26, 1979.^[55] In hindsight, it is not at all farfetched that petitioners filed said motion for the sole reason that they may have felt shortchanged in their compromise agreement or partition with private respondents, which in their view was unwise and unfair. While we may sympathize with this rueful sentiment of petitioners, we can only stress that this alone is not sufficient to nullify or disregard the legal effects of said compromise which, by its very nature as a perfected contract, is binding on the parties. Moreover, courts have no jurisdiction to look into the wisdom of a compromise or to render a decision different therefrom.^[56] It is a well-entrenched doctrine that “the law does not relieve a party from the effects of an unwise, foolish, or disastrous contract, entered into with all the required formalities and with full awareness of what he was doing”^[57] and “a compromise entered into and carried out in good faith will not be discarded even if there was a mistake of law or fact, (McCarthy vs. Barber Steamship Lines, 45 Phil. 488) because courts have no power to relieve parties from obligations voluntarily assumed, simply because their contracts turned out to be disastrous deals or unwise investments.”^[58] Volenti non fit injuria.

Corollarily, the petitioners contend that the Court of Appeals gravely abused its discretion in deeming Special Proceedings Nos. 44-M and 1022 “CLOSED and TERMINATED,” arguing that there was as yet no order of distribution of the estate pursuant to Rule 90 of the Rules of Court. They add that they had not received their full share thereto.^[59] We disagree. Under Section 1, Rule 90 of the Rules of Court, an order for the distribution of the estate may be made when the “debts, funeral charges, and expenses of administration, the allowance to the widow, and inheritance tax, if any,” had been paid. This order for the distribution of the estate’s residue must contain the names and shares of the persons entitled thereto. A perusal of the whole record, particularly the trial court’s conclusion,^[60] reveals that all the foregoing requirements already concurred in this case. The payment of the indebtedness of the estates of Juan C. Sanchez and Maria Villafranca in the amount of P51,598.93 was shouldered by Private Respondent Rosalia, who also absorbed or charged against her share the advances of Rolando T. Lugod in the sum of P8,533.94, in compliance with Article 1061 of the Civil Code on collation.^[61] Furthermore, the compromise of the parties, which is the law between them, already contains the names and shares of the heirs to the residual estate, which shares had also been delivered. On this point, we agree with the following discussion of the Court of Appeals:

But what the (trial court) obviously overlooked in its appreciation of the facts of this case are the uncontroverted facts that (herein petitioners) have been in possession and ownership of their respective distributive shares as early as October 30, 1969 and they have received other properties in addition to their distributive shares in consideration of the compromise agreement which they now assail. Proofs thereof are Tax Declarations No. 20984, 20985, 20986, 20987, 20988, 20989 and 20990 (Annexes ‘B’ to ‘H’, Supplemental Reply) in the respective names of (herein petitioners), all for the year 1972. (Herein petitioners) also retained a house and lot, a residential lot and a parcel of agricultural land (Annexes ‘I’, ‘J’ and ‘K’, Ibid.) all of which were not considered in the compromise agreement between the parties. Moreover, in the compromise agreement per se, it is undoubtedly stated therein that cash advances in the aggregate sum of P8,533.94 were received by (herein petitioners) after October 21, 1968 (Compromise Agreement, par. 5)”^[62]

All the foregoing show clearly that the probate court had essentially finished said intestate proceedings which, consequently, should be deemed closed and terminated. In view of the above discussion, the Court sees no reversible error on the part of the Court of Appeals.

Third Issue: Fraud and Collation

Petitioners fault Respondent Court for not ordering Private Respondent Rosalia T. Lugod to deliver to them the deficiency as allegedly provided under the compromise agreement. They further contend that said court erred in not directing the provisional inclusion of the alleged deficiency in the inventory for purposes of collating the properties subject of the questioned deeds of sale.^[63] We see no such error. In the trial court, there was only one hearing conducted, and it was held only for the reception of the evidence of Rosalia S. Lugod to install her as administratix of the estate of Maria Villafranca. There was no other evidence, whether testimonial or otherwise, “received, formally offered to, and subsequently admitted by the probate court below”; nor was there “a trial on the merits of the parties’ conflicting claims.”^[64] In fact, the petitioners “moved for the deferment of the compromise agreement on the basis of alleged fraudulent concealment of properties -- NOT because of any deficiency in the land conveyed to them under the agreements.”^[65] Hence, there is no hard evidence on record to back up petitioners’ claims.

In any case, the trial court noted Private Respondent Rosalia’s willingness to reimburse any deficiency actually proven to exist. It subsequently ordered the geodetic engineer who prepared the certification and the sketch of the lot in question, and who could have provided evidence for the petitioners, “to bring records of his relocation survey.”^[66] However, Geodetic Engineer Idulsa did not comply with the court’s subpoena duces tecum and ad testificandum. Neither did he furnish the required relocation survey.^[67] No wonder, even after a thorough scrutiny of the records, this Court cannot find any evidence to support petitioners’ allegations of fraud against Private Respondent Rosalia.

Similarly, petitioners’ allegations of fraud in the execution of the questioned deeds of sale are bereft of substance, in view of the palpable absence of evidence to support them. The legal presumption of validity of the questioned deeds of absolute sale, being duly notarized public documents, has not been overcome.^[68] On the other hand, fraud is not presumed. It must be proved by clear and convincing evidence, and not by mere conjectures or speculations. We stress that these deeds of sale did not involve gratuitous transfers of future inheritance; these were contracts of sale perfected by the decedents during their lifetime.^[69] Hence, the properties conveyed thereby are not collationable because, essentially, collation mandated under Article 1061 of the Civil Code contemplates properties conveyed inter vivos by the decedent to an heir by way of donation or other gratuitous title.

In any event, these alleged errors and deficiencies regarding the delivery of shares provided in the compromise, concealment of properties and fraud in the deeds of sale are factual in nature which, as a rule, are not reviewable by this Court in petitions under Rule 45.^[70] Petitioners have failed to convince us that this case constitutes an exception to such rule. All in all, we find that the Court of Appeals has sufficiently addressed the issues raised by them. Indeed, they have not persuaded us that said Court committed any reversible error to warrant a grant of their petition.

WHEREFORE, the petition is hereby DENIED and the assailed Decision of the Court of Appeals is AFFIRMED.

SO ORDERED.
Narvasa, C.J. (Chairman), Romero, Melo and Francisco, JJ., concur.

---

^[1] Rollo, pp. 48-60.

^[2] Fourteenth Division, composed of J. Luis L. Victor, ponente, and JJ. Fidel P. Purisima and Oscar M. Herrera, acting chairman.

^[3] Rollo, pp. 85-117.

^[4] Penned by Judge Vivencio A. Galon.

^[5] Decision of the Court of Appeals, p. 13; rollo, p. 60.

^[6] Two other illegitimate children of Juan C. Sanchez, namely, Patricio Alburo and Maria Ramoso, intervened in the intestate proceedings. However, they are not parties in the present controversy before the Supreme Court.

^[7] Decision of the Court of Appeals, pp. 1-6; rollo, pp. 48-53.

^[8] Ibid., p. 6; rollo, p. 53.

^[9] Copied from the trial court’s decision, pp. 7-13; rollo, pp. 91-97; Annex “J”, petition. See also Annex “2”, Comment dated July 2, 1993; rollo, pp. 159-167.

^[10] Record of the Court of Appeals, pp. 161-163.

^[11] Ibid., pp. 169-191.

^[12] Ibid., pp. 250-252.

^[13] Petition, pp. 15-16; rollo, pp. 23-24. See Memorandum for Petitioners, pp. 12-14; rollo, pp. 444-446.

^[14] Memorandum for Petitioners, p. 17; rollo, p. 449.

^[15] Ibid., pp. 19-20; rollo, pp. 451-452.

^[16] Remedial Law Compendium, Volume One, p. 708, (1997).

^[17] Philippine National Bank vs. Florendo, 206 SCRA 582, 589, February 26, 1992. See also Heirs of Mayor Nemencio Galvez vs. Court of Appeals, 255 SCRA 672, 689, March 29, 1996.

^[18] Section 1, Rule 65, Rules of Court. See Cochingyan, Jr. vs. Cloribel, 76 SCRA 361, 385, April 22, 1977.

^[19] Jimenez vs. Intermediate Appellate Court, 184 SCRA 367, 371-372, April 17, 1990.

^[20] Ibid., p. 372.

^[21] Ortega vs. Court of Appeals, 153 SCRA 96, 102-103, August 14, 1987, per Paras, J. See also Morales vs. CFI of Cavite, Br. V, 146 SCRA 373, 381-383, December 29, 1986.

^[22] See Julieta V. Esguerra vs. Court of Appeals and Sureste Properties, Inc., G.R. No. 119310, p. 21, February 3, 1997; and Tac-an Dano vs. Court of Appeals, 137 SCRA 803, 813, July 29, 1985.

^[23] Decision of the Regional Trial Court, p. 14; rollo, p. 98.

^[24] Paredes vs. Civil Service Commission, 192 SCRA 84, 94, December 4, 1990, per Paras, J.; citing Carson et al. vs. Judge Pantamosos, Jr., 180 SCRA 151, December 15, 1989, Intestate Estate of Carmen de Luna vs. Intermediate Appellate Court, 170 SCRA 246, February 13, 1989, and People vs. Manuel, 11 SCRA 618, July 31, 1964. See also Cochingyan, Jr. vs. Cloribel, supra, pp. 387-388.

^[25] See Cochingyan, Jr. vs. Cloribel, supra, p. 386.

^[26] Maninang vs. Court of Appeals, 114 SCRA 478, 485, June 19, 1982, per Melencio-Herrera, J.; citing Llamas vs. Moscoso, 95 Phil. 599 (1954).

^[27] See Regional Trial Court’s Omnibus Order Denying Second Motion for Reconsideration and Denying Prayer for Voluntary Inhibition of Undersigned Trial Judge, Declaring Decision Dated June 26, 1991 as Final and Executory, p. 6; rollo, p. 123.

^[28] Decision of the Court of Appeals, p. 13; rollo, p. 60.

^[29] Leonor vs. Court of Appeals, 256 SCRA 69, April 2, 1996, per Panganiban, J.

^[30] Memorandum for the Petitioners, pp. 23-28; rollo, pp. 455-460.

^[31] See Domingo vs. Court of Appeals, 255 SCRA 189, 199, March 20, 1996, per Kapunan, J., and Go vs. Intermediate Appellate Court, 183 SCRA 82, 86-87, March 12, 1990, per Fernan, C.J.

^[32] 154 SCRA 309, 320, September 28, 1987.

^[33] Decision of the Regional Trial Court, p. 14; rollo, p. 98.

^[34] Republic vs. Sandiganbayan, 173 SCRA 72, 83, May 4, 1989

^[35] Landoil Resources Corporation vs. Tensuan, 168 SCRA 569, 579, December 20, 1988.

^[36] Ibid.

^[37] Petitioners’ Memorandum, pp. 26-27; rollo, pp. 458-459.

^[38] Santiago Esquivel, et al. vs. i, G.R. No. L 8825, p. 5, April 20, 1956, 98 Phil. 1008, Unrep., per Bautista Angelo, J. See also Gomez vs. Mariano, et al., 17 C.A.R. 1295, 1299, December 23, 1972, per Gaviola Jr., J.

^[39] Memorandum of Petitioners in the Regional Trial Court, p. 9; record of the Court of Appeals, p. 203.

^[40] See Record, pp. 195 to 221.

^[41] Record, pp. 355-374.

^[42] Petitioners’ Comment in the Court of Appeals, pp. 6-7; Record pp. 265-266.

^[43] Motion for Reconsideration, pp. 13-14; Record, pp. 366-367.

^[44] Manila Bay Club Corporation vs. Court of Appeals, 245 SCRA 715, 729, July 11, 1995, per Francisco, J.

^[45] Medida vs. Court of Appeals, 208 SCRA 887, 893, May 8, 1992, per Regalado, J.; citing Vencilao, et al. vs. Vano, et al., 182 SCRA 491, February 23, 1990, and Gevero, et al. vs. Intermediate Appellate Court, et al., 189 SCRA 201, August 30, 1990.

^[46] Caltex (Philippines), Inc. vs. Court of Appeals, 212 SCRA 448, 461, August 10, 1992, per Regalado, J.; citing Mejorada vs. Municipal Council of Dipolog, 52 SCRA 451, August 31, 1973, Sec. 18, Rule 46, Rules of Court, Garcia, et al. vs. Court of Appeals, et al., 102 SCRA 597, January 31, 1981, Matienzo vs. Servidad, 107 SCRA 276, September 10, 1981, Aguinaldo Industries Corporation, etc. vs. Commissioner of Internal Revenue, et al., 112 SCRA 136, February 25, 1982, Dulos Realty & Development Corporation vs. Court of Appeals, et al., 157 SCRA 425, January 28, 1988.

^[47] Memorandum for the Petitioners, pp. 28-30; rollo, pp. 460-462.

^[48] De Borja vs. Vda. de de Borja, 46 SCRA 577, 586, August 18, 1972, per Reyes, J.B.L., J.

^[49] See Republic vs. Sandiganbayan, 226 SCRA 314, 321-322, supra, and McCarthy vs. Sandiganbayan, 45 Phil. 488, 498, (1923).

^[50] Memorandum for Petitioners, pp. 30-31; rollo, pp. 462-463.

^[51] Decision of the Court of Appeals, pp. 8-9; rollo, pp. 55-56.

^[52] Annex “2”, Comment dated July 2, 1993; rollo, pp. 168-169.

^[53] Decision of the Court of Appeals, p. 9; rollo, p. 56. See also Memorandum of Private Respondents, pp. 21-22; rollo, pp. 319-320.

^[54] Republic vs. Sandiganbayan, supra.

^[55] Rollo, pp. 170-173. On said date, October 26, 1979, the minors had all well passed the age of majority. See petition before the trial court, dated January 14, 1969, showing the ages then of Florida Mierly at 19, Alfredo at 18 and Myrna at 16 (Rollo, p. 63).

^[56] Julieta V. Esguerra vs. Court of Appeals and Sureste Properties, Inc., supra, pp. 12-13, per Panganiban, J.

^[57] Ibid., p. 12. See also Tanda vs. Aldaya, 89 Phil. 497, 503, (1951), per Tuason, J.

^[58] Villacorte vs. Mariano, 89 Phil. 341, 349, (1951), per Bengzon, J.

^[59] Memorandum for the Petitioners, pp. 36-37; rollo, pp. 468-469.

^[60] Decision of the Regional Trial Court, pp. 26-33; rollo, pp. 110-117.

^[61] Memorandum for Rosalia S. Lugod, p. 4; Annex “O,” Court of Appeals Petition, Record, p. 106. See also Memorandum of Private Respondents, p. 21; rollo, p.319.

^[62] Decision of the Court of Appeals, p. 9; rollo, p. 56.

^[63] See Memorandum for the Petitioners, pp. 37-40; rollo, pp. 469-472.

^[64] See Memorandum for Private Respondents, pp. 32-36; rollo, pp. 329-333.

^[65] Reply Memorandum, pp. 2-3; rollo, pp. 479-480.

^[66] Ibid., p.5; rollo, p. 482.

^[67] Ibid., pp. 5-6; rollo, pp. 482-483. The Certification and Sketch Plan Geodetic Engineer Idulsa submitted to the trial court, pointed out by petitioners in their Memorandum dated March 17, 1994 (p. 12; rollo, p. 444), are not the relocation survey required of him by said court.

^[68] See Record of the Court of Appeals, pp. 150-154.

^[69] Favor vs. Court of Appeals, 194 SCRA 308, 313, February 21, 1991, per Cruz, J.

^[70] Maximino Fuentes vs. Court of Appeals, G.R. No. 109849, pp. 5-6, February 26, 1997.

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SECOND DIVISION

[ G.R. No. 165744, August 11, 2008 ]

OSCAR C. REYES, PETITIONER, VS. HON. REGIONAL TRIAL COURT OF MAKATI, BRANCH 142, ZENITH INSURANCE CORPORATION, AND RODRIGO C. REYES, RESPONDENTS.

D E C I S I O N

BRION, J.:

This Petition for Review on Certiorari under Rule 45 of the Rules of Court seeks to set aside the Decision of the Court of Appeals (CA)^[1] promulgated on May 26, 2004 in CA-G.R. SP No. 74970. The CA Decision affirmed the Order of the Regional Trial Court (RTC), Branch 142, Makati City dated November 29, 2002^[2] in Civil Case No. 00-1553 (entitled "Accounting of All Corporate Funds and Assets, and Damages") which denied petitioner Oscar C. Reyes' (Oscar) Motion to Declare Complaint as Nuisance or Harassment Suit.

BACKGROUND FACTS

Oscar and private respondent Rodrigo C. Reyes (Rodrigo) are two of the four children of the spouses Pedro and Anastacia Reyes. Pedro, Anastacia, Oscar, and Rodrigo each owned shares of stock of Zenith Insurance Corporation (Zenith), a domestic corporation established by their family. Pedro died in 1964, while Anastacia died in 1993. Although Pedro's estate was judicially partitioned among his heirs sometime in the 1970s, no similar settlement and partition appear to have been made with Anastacia's estate, which included her shareholdings in Zenith. As of June 30, 1990, Anastacia owned 136,598 shares of Zenith; Oscar and Rodrigo owned 8,715,637 and 4,250 shares, respectively.^[3]

On May 9, 2000, Zenith and Rodrigo filed a complaint^[4] with the Securities and Exchange Commission (SEC) against Oscar, docketed as SEC Case No. 05-00-6615. The complaint stated that it is "a derivative suit initiated and filed by the complainant Rodrigo C. Reyes to obtain an accounting of the funds and assets of ZENITH INSURANCE CORPORATION which are now or formerly in the control, custody, and/or possession of respondent [herein petitioner Oscar] and to determine the shares of stock of deceased spouses Pedro and Anastacia Reyes that were arbitrarily and fraudulently appropriated [by Oscar] for himself [and] which were not collated and taken into account in the partition, distribution, and/or settlement of the estate of the deceased spouses, for which he should be ordered to account for all the income from the time he took these shares of stock, and should now deliver to his brothers and sisters their just and respective shares."^[5] [Emphasis supplied.]

In his Answer with Counterclaim,^[6] Oscar denied the charge that he illegally acquired the shares of Anastacia Reyes. He asserted, as a defense, that he purchased the subject shares with his own funds from the unissued stocks of Zenith, and that the suit is not a bona fide derivative suit because the requisites therefor have not been complied with. He thus questioned the SEC's jurisdiction to entertain the complaint because it pertains to the settlement of the estate of Anastacia Reyes.

When Republic Act (R.A.) No. 8799^[7] took effect, the SEC's exclusive and original jurisdiction over cases enumerated in Section 5 of Presidential Decree (P.D.) No. 902-A was transferred to the RTC designated as a special commercial court.^[8] The records of Rodrigo's SEC case were thus turned over to the RTC, Branch 142, Makati, and docketed as Civil Case No. 00-1553.

On October 22, 2002, Oscar filed a Motion to Declare Complaint as Nuisance or Harassment Suit.^[9] He claimed that the complaint is a mere nuisance or harassment suit and should, according to the Interim Rules of Procedure for Intra-Corporate Controversies, be dismissed; and that it is not a bona fide derivative suit as it partakes of the nature of a petition for the settlement of estate of the deceased Anastacia that is outside the jurisdiction of a special commercial court. The RTC, in its Order dated November 29, 2002 (RTC Order), denied the motion in part and declared:

A close reading of the Complaint disclosed the presence of two (2) causes of action, namely: a) a derivative suit for accounting of the funds and assets of the corporation which are in the control, custody, and/or possession of the respondent [herein petitioner Oscar] with prayer to appoint a management committee; and b) an action for determination of the shares of stock of deceased spouses Pedro and Anastacia Reyes allegedly taken by respondent, its accounting and the corresponding delivery of these shares to the parties' brothers and sisters. The latter is not a derivative suit and should properly be threshed out in a petition for settlement of estate.

Accordingly, the motion is denied. However, only the derivative suit consisting of the first cause of action will be taken cognizance of by this Court.^[10]

Oscar thereupon went to the CA on a petition for certiorari, prohibition, and mandamus^[11] and prayed that the RTC Order be annulled and set aside and that the trial court be prohibited from continuing with the proceedings. The appellate court affirmed the RTC Order and denied the petition in its Decision dated May 26, 2004. It likewise denied Oscar's motion for reconsideration in a Resolution dated October 21, 2004.

Petitioner now comes before us on appeal through a petition for review on certiorari under Rule 45 of the Rules of Court.

ASSIGNMENT OF ERRORS

Petitioner Oscar presents the following points as conclusions the CA should have made:

1. that the complaint is a mere nuisance or harassment suit that should be dismissed under the Interim Rules of Procedure of Intra-Corporate Controversies; and
2. that the complaint is not a bona fide derivative suit but is in fact in the nature of a petition for settlement of estate; hence, it is outside the jurisdiction of the RTC acting as a special commercial court.

Accordingly, he prays for the setting aside and annulment of the CA decision and resolution, and the dismissal of Rodrigo's complaint before the RTC.

THE COURT'S RULING

We find the petition meritorious.

The core question for our determination is whether the trial court, sitting as a special commercial court, has jurisdiction over the subject matter of Rodrigo's complaint. To resolve it, we rely on the judicial principle that "jurisdiction over the subject matter of a case is conferred by law and is determined by the allegations of the complaint, irrespective of whether the plaintiff is entitled to all or some of the claims asserted therein."^[12]

Jurisdiction of Special Commercial Courts

P.D. No. 902-A enumerates the cases over which the SEC (now the RTC acting as a special commercial court) exercises exclusive jurisdiction:

SECTION 5. In addition to the regulatory and adjudicative functions of the Securities and Exchange Commission over corporations, partnership, and other forms of associations registered with it as expressly granted under existing laws and decrees, it shall have original and exclusive jurisdiction to hear and decide cases involving:

a) Devices or schemes employed by or any acts of the board of directors, business associates, its officers or partners, amounting to fraud and misrepresentation which may be detrimental to the interest of the public and/or of the stockholders, partners, members of associations or organizations registered with the Commission.

b) Controversies arising out of intra-corporate or partnership relations, between and among stockholders, members, or associates; between any or all of them and the corporation, partnership or association of which they are stockholders, members, or associates, respectively; and between such corporation, partnership or association and the State insofar as it concerns their individual franchise or right to exist as such entity; and

c) Controversies in the election or appointment of directors, trustees, officers, or managers of such corporations, partnerships, or associations.

The allegations set forth in Rodrigo's complaint principally invoke Section 5, paragraphs (a) and (b) above as basis for the exercise of the RTC's special court jurisdiction. Our focus in examining the allegations of the complaint shall therefore be on these two provisions.

Fraudulent Devices and Schemes

The rule is that a complaint must contain a plain, concise, and direct statement of the ultimate facts constituting the plaintiff's cause of action and must specify the relief sought.^[13] Section 5, Rule 8 of the Revised Rules of Court provides that in all averments of fraud or mistake, the circumstances constituting fraud or mistake must be stated with particularity.^[14] These rules find specific application to Section 5(a) of P.D. No. 902-A which speaks of corporate devices or schemes that amount to fraud or misrepresentation detrimental to the public and/or to the stockholders.

In an attempt to hold Oscar responsible for corporate fraud, Rodrigo alleged in the complaint the following:

3. This is a complaint...to determine the shares of stock of the deceased spouses Pedro and Anastacia Reyes that were arbitrarily and fraudulently appropriated for himself [herein petitioner Oscar] which were not collated and taken into account in the partition, distribution, and/or settlement of the estate of the deceased Spouses Pedro and Anastacia Reyes, for which he should be ordered to account for all the income from the time he took these shares of stock, and should now deliver to his brothers and sisters their just and respective shares with the corresponding equivalent amount of P7,099,934.82 plus interest thereon from 1978 representing his obligations to the Associated Citizens' Bank that was paid for his account by his late mother, Anastacia C. Reyes. This amount was not collated or taken into account in the partition or distribution of the estate of their late mother, Anastacia C. Reyes.

3.1. Respondent Oscar C. Reyes, through other schemes of fraud including misrepresentation, unilaterally, and for his own benefit, capriciously transferred and took possession and control of the management of Zenith Insurance Corporation which is considered as a family corporation, and other properties and businesses belonging to Spouses Pedro and Anastacia Reyes.

x x x x

4.1. During the increase of capitalization of Zenith Insurance Corporation, sometime in 1968, the property covered by TCT No. 225324 was illegally and fraudulently used by respondent as a collateral.

x x x x

5. The complainant Rodrigo C. Reyes discovered that by some manipulative scheme, the shareholdings of their deceased mother, Doña Anastacia C. Reyes, shares of stocks and [sic] valued in the corporate books at P7,699,934.28, more or less, excluding interest and/or dividends, had been transferred solely in the name of respondent. By such fraudulent manipulations and misrepresentation, the shareholdings of said respondent Oscar C. Reyes abruptly increased to P8,715,637.00 [sic] and becomes [sic] the majority stockholder of Zenith Insurance Corporation, which portion of said shares must be distributed equally amongst the brothers and sisters of the respondent Oscar C. Reyes including the complainant herein.

x x x x

9.1 The shareholdings of deceased Spouses Pedro Reyes and Anastacia C. Reyes valued at P7,099,934.28 were illegally and fraudulently transferred solely to the respondent's [herein petitioner Oscar] name and installed himself as a majority stockholder of Zenith Insurance Corporation [and] thereby deprived his brothers and sisters of their respective equal shares thereof including complainant hereto.

x x x x

10.1 By refusal of the respondent to account of his [sic] shareholdings in the company, he illegally and fraudulently transferred solely in his name wherein [sic] the shares of stock of the deceased Anastacia C. Reyes [which] must be properly collated and/or distributed equally amongst the children, including the complainant Rodrigo C. Reyes herein, to their damage and prejudice.

x x x x

11.1 By continuous refusal of the respondent to account of his [sic] shareholding with Zenith Insurance Corporation[,] particularly the number of shares of stocks illegally and fraudulently transferred to him from their deceased parents Sps. Pedro and Anastacia Reyes[,] which are all subject for collation and/or partition in equal shares among their children. [Emphasis supplied.]

Allegations of deceit, machination, false pretenses, misrepresentation, and threats are largely conclusions of law that, without supporting statements of the facts to which the allegations of fraud refer, do not sufficiently state an effective cause of action.^[15] The late Justice Jose Feria, a noted authority in Remedial Law, declared that fraud and mistake are required to be averred with particularity in order to enable the opposing party to controvert the particular facts allegedly constituting such fraud or mistake.^[16]

Tested against these standards, we find that the charges of fraud against Oscar were not properly supported by the required factual allegations. While the complaint contained allegations of fraud purportedly committed by him, these allegations are not particular enough to bring the controversy within the special commercial court's jurisdiction; they are not statements of ultimate facts, but are mere conclusions of law: how and why the alleged appropriation of shares can be characterized as "illegal and fraudulent" were not explained nor elaborated on.

Not every allegation of fraud done in a corporate setting or perpetrated by corporate officers will bring the case within the special commercial court's jurisdiction. To fall within this jurisdiction, there must be sufficient nexus showing that the corporation's nature, structure, or powers were used to facilitate the fraudulent device or scheme. Contrary to this concept, the complaint presented a reverse situation. No corporate power or office was alleged to have facilitated the transfer of the shares; rather, Oscar, as an individual and without reference to his corporate personality, was alleged to have transferred the shares of Anastacia to his name, allowing him to become the majority and controlling stockholder of Zenith, and eventually, the corporation's President. This is the essence of the complaint read as a whole and is particularly demonstrated under the following allegations:

5. The complainant Rodrigo C. Reyes discovered that by some manipulative scheme, the shareholdings of their deceased mother, Doña Anastacia C. Reyes, shares of stocks and [sic] valued in the corporate books at P7,699,934.28, more or less, excluding interest and/or dividends, had been transferred solely in the name of respondent. By such fraudulent manipulations and misrepresentation, the shareholdings of said respondent Oscar C. Reyes abruptly increased to P8,715,637.00 [sic] and becomes [sic] the majority stockholder of Zenith Insurance Corporation, which portion of said shares must be distributed equally amongst the brothers and sisters of the respondent Oscar C. Reyes including the complainant herein.

x x x x

9.1 The shareholdings of deceased Spouses Pedro Reyes and Anastacia C. Reyes valued at P7,099,934.28 were illegally and fraudulently transferred solely to the respondent's [herein petitioner Oscar] name and installed himself as a majority stockholder of Zenith Insurance Corporation [and] thereby deprived his brothers and sisters of their respective equal shares thereof including complainant hereto. [Emphasis supplied.]

In ordinary cases, the failure to specifically allege the fraudulent acts does not constitute a ground for dismissal since such defect can be cured by a bill of particulars. In cases governed by the Interim Rules of Procedure on Intra-Corporate Controversies, however, a bill of particulars is a prohibited pleading.^[17] It is essential, therefore, for the complaint to show on its face what are claimed to be the fraudulent corporate acts if the complainant wishes to invoke the court's special commercial jurisdiction.

We note that twice in the course of this case, Rodrigo had been given the opportunity to study the propriety of amending or withdrawing the complaint, but he consistently refused. The court's function in resolving issues of jurisdiction is limited to the review of the allegations of the complaint and, on the basis of these allegations, to the determination of whether they are of such nature and subject that they fall within the terms of the law defining the court's jurisdiction. Regretfully, we cannot read into the complaint any specifically alleged corporate fraud that will call for the exercise of the court's special commercial jurisdiction. Thus, we cannot affirm the RTC's assumption of jurisdiction over Rodrigo's complaint on the basis of Section 5(a) of P.D. No. 902-A.^[18]

Intra-Corporate Controversy

A review of relevant jurisprudence shows a development in the Court's approach in classifying what constitutes an intra-corporate controversy. Initially, the main consideration in determining whether a dispute constitutes an intra-corporate controversy was limited to a consideration of the intra-corporate relationship existing between or among the parties.^[19] The types of relationships embraced under Section 5(b), as declared in the case of Union Glass & Container Corp. v. SEC,^[20] were as follows:

a) between the corporation, partnership, or association and the public;

b) between the corporation, partnership, or association and its stockholders, partners, members, or officers;

c) between the corporation, partnership, or association and the State as far as its franchise, permit or license to operate is concerned; and

d) among the stockholders, partners, or associates themselves. [Emphasis supplied.]

The existence of any of the above intra-corporate relations was sufficient to confer jurisdiction to the SEC, regardless of the subject matter of the dispute. This came to be known as the relationship test.

However, in the 1984 case of DMRC Enterprises v. Esta del Sol Mountain Reserve, Inc.,^[21]the Court introduced the nature of the controversy test. We declared in this case that it is not the mere existence of an intra-corporate relationship that gives rise to an intra-corporate controversy; to rely on the relationship test alone will divest the regular courts of their jurisdiction for the sole reason that the dispute involves a corporation, its directors, officers, or stockholders. We saw that there is no legal sense in disregarding or minimizing the value of the nature of the transactions which gives rise to the dispute.

Under the nature of the controversy test, the incidents of that relationship must also be considered for the purpose of ascertaining whether the controversy itself is intra-corporate.^[22] The controversy must not only be rooted in the existence of an intra-corporate relationship, but must as well pertain to the enforcement of the parties' correlative rights and obligations under the Corporation Code and the internal and intra-corporate regulatory rules of the corporation. If the relationship and its incidents are merely incidental to the controversy or if there will still be conflict even if the relationship does not exist, then no intra-corporate controversy exists.

The Court then combined the two tests and declared that jurisdiction should be determined by considering not only the status or relationship of the parties, but also the nature of the question under controversy.^[23] This two-tier test was adopted in the recent case of Speed Distribution, Inc. v. Court of Appeals:^[24]

To determine whether a case involves an intra-corporate controversy, and is to be heard and decided by the branches of the RTC specifically designated by the Court to try and decide such cases, two elements must concur: (a) the status or relationship of the parties; and (2) the nature of the question that is the subject of their controversy.

The first element requires that the controversy must arise out of intra-corporate or partnership relations between any or all of the parties and the corporation, partnership, or association of which they are stockholders, members or associates; between any or all of them and the corporation, partnership, or association of which they are stockholders, members, or associates, respectively; and between such corporation, partnership, or association and the State insofar as it concerns their individual franchises. The second element requires that the dispute among the parties be intrinsically connected with the regulation of the corporation. If the nature of the controversy involves matters that are purely civil in character, necessarily, the case does not involve an intra-corporate controversy.

Given these standards, we now tackle the question posed for our determination under the specific circumstances of this case:

Application of the Relationship Test

Is there an intra-corporate relationship between the parties that would characterize the case as an intra-corporate dispute?

We point out at the outset that while Rodrigo holds shares of stock in Zenith, he holds them in two capacities: in his own right with respect to the 4,250 shares registered in his name, and as one of the heirs of Anastacia Reyes with respect to the 136,598 shares registered in her name. What is material in resolving the issues of this case under the allegations of the complaint is Rodrigo's interest as an heir since the subject matter of the present controversy centers on the shares of stocks belonging to Anastacia, not on Rodrigo's personally-owned shares nor on his personality as shareholder owning these shares. In this light, all reference to shares of stocks in this case shall pertain to the shareholdings of the deceased Anastacia and the parties' interest therein as her heirs.

Article 777 of the Civil Code declares that the successional rights are transmitted from the moment of death of the decedent. Accordingly, upon Anastacia's death, her children acquired legal title to her estate (which title includes her shareholdings in Zenith), and they are, prior to the estate's partition, deemed co-owners thereof.^[25] This status as co-owners, however, does not immediately and necessarily make them stockholders of the corporation. Unless and until there is compliance with Section 63 of the Corporation Code on the manner of transferring shares, the heirs do not become registered stockholders of the corporation. Section 63 provides:

Section 63. Certificate of stock and transfer of shares. - The capital stock of stock corporations shall be divided into shares for which certificates signed by the president or vice-president, countersigned by the secretary or assistant secretary, and sealed with the seal of the corporation shall be issued in accordance with the by-laws. Shares of stock so issued are personal property and may be transferred by delivery of the certificate or certificates indorsed by the owner or his attorney-in-fact or other person legally authorized to make the transfer. No transfer, however, shall be valid, except as between the parties, until the transfer is recorded in the books of the corporation so as to show the names of the parties to the transaction, the date of the transfer, the number of the certificate or certificates, and the number of shares transferred. [Emphasis supplied.]

No shares of stock against which the corporation holds any unpaid claim shall be transferable in the books of the corporation.

Simply stated, the transfer of title by means of succession, though effective and valid between the parties involved (i.e., between the decedent's estate and her heirs), does not bind the corporation and third parties. The transfer must be registered in the books of the corporation to make the transferee-heir a stockholder entitled to recognition as such both by the corporation and by third parties.^[26]

We note, in relation with the above statement, that in Abejo v. Dela Cruz^[27] and TCL Sales Corporation v. Court of Appeals^[28] we did not require the registration of the transfer before considering the transferee a stockholder of the corporation (in effect upholding the existence of an intra-corporate relation between the parties and bringing the case within the jurisdiction of the SEC as an intra-corporate controversy). A marked difference, however, exists between these cases and the present one.

In Abejo and TCL Sales, the transferees held definite and uncontested titles to a specific number of shares of the corporation; after the transferee had established prima facie ownership over the shares of stocks in question, registration became a mere formality in confirming their status as stockholders. In the present case, each of Anastacia's heirs holds only an undivided interest in the shares. This interest, at this point, is still inchoate and subject to the outcome of a settlement proceeding; the right of the heirs to specific, distributive shares of inheritance will not be determined until all the debts of the estate of the decedent are paid. In short, the heirs are only entitled to what remains after payment of the decedent's debts;^[29] whether there will be residue remains to be seen. Justice Jurado aptly puts it as follows:

No succession shall be declared unless and until a liquidation of the assets and debts left by the decedent shall have been made and all his creditors are fully paid. Until a final liquidation is made and all the debts are paid, the right of the heirs to inherit remains inchoate. This is so because under our rules of procedure, liquidation is necessary in order to determine whether or not the decedent has left any liquid assets which may be transmitted to his heirs.^[30] [Emphasis supplied.]

Rodrigo must, therefore, hurdle two obstacles before he can be considered a stockholder of Zenith with respect to the shareholdings originally belonging to Anastacia. First, he must prove that there are shareholdings that will be left to him and his co-heirs, and this can be determined only in a settlement of the decedent's estate. No such proceeding has been commenced to date. Second, he must register the transfer of the shares allotted to him to make it binding against the corporation. He cannot demand that this be done unless and until he has established his specific allotment (and prima facie ownership) of the shares. Without the settlement of Anastacia's estate, there can be no definite partition and distribution of the estate to the heirs. Without the partition and distribution, there can be no registration of the transfer. And without the registration, we cannot consider the transferee-heir a stockholder who may invoke the existence of an intra-corporate relationship as premise for an intra-corporate controversy within the jurisdiction of a special commercial court.

In sum, we find that - insofar as the subject shares of stock (i.e., Anastacia's shares) are concerned - Rodrigo cannot be considered a stockholder of Zenith. Consequently, we cannot declare that an intra-corporate relationship exists that would serve as basis to bring this case within the special commercial court's jurisdiction under Section 5(b) of PD 902-A, as amended. Rodrigo's complaint, therefore, fails the relationship test.

Application of the Nature of Controversy Test

The body rather than the title of the complaint determines the nature of an action.^[31] Our examination of the complaint yields the conclusion that, more than anything else, the complaint is about the protection and enforcement of successional rights. The controversy it presents is purely civil rather than corporate, although it is denominated as a "complaint for accounting of all corporate funds and assets."

Contrary to the findings of both the trial and appellate courts, we read only one cause of action alleged in the complaint. The "derivative suit for accounting of the funds and assets of the corporation which are in the control, custody, and/or possession of the respondent [herein petitioner Oscar]" does not constitute a separate cause of action but is, as correctly claimed by Oscar, only an incident to the "action for determination of the shares of stock of deceased spouses Pedro and Anastacia Reyes allegedly taken by respondent, its accounting and the corresponding delivery of these shares to the parties' brothers and sisters." There can be no mistake of the relationship between the "accounting" mentioned in the complaint and the objective of partition and distribution when Rodrigo claimed in paragraph 10.1 of the complaint that:

10.1 By refusal of the respondent to account of [sic] his shareholdings in the company, he illegally and fraudulently transferred solely in his name wherein [sic] the shares of stock of the deceased Anastacia C. Reyes [which] must be properly collated and/or distributed equally amongst the children including the complainant Rodrigo C. Reyes herein to their damage and prejudice.

We particularly note that the complaint contained no sufficient allegation that justified the need for an accounting other than to determine the extent of Anastacia's shareholdings for purposes of distribution.

Another significant indicator that points us to the real nature of the complaint are Rodrigo's repeated claims of illegal and fraudulent transfers of Anastacia's shares by Oscar to the prejudice of the other heirs of the decedent; he cited these allegedly fraudulent acts as basis for his demand for the collation and distribution of Anastacia's shares to the heirs. These claims tell us unequivocally that the present controversy arose from the parties' relationship as heirs of Anastacia and not as shareholders of Zenith. Rodrigo, in filing the complaint, is enforcing his rights as a co-heir and not as a stockholder of Zenith. The injury he seeks to remedy is one suffered by an heir (for the impairment of his successional rights) and not by the corporation nor by Rodrigo as a shareholder on record.

More than the matters of injury and redress, what Rodrigo clearly aims to accomplish through his allegations of illegal acquisition by Oscar is the distribution of Anastacia's shareholdings without a prior settlement of her estate - an objective that, by law and established jurisprudence, cannot be done. The RTC of Makati, acting as a special commercial court, has no jurisdiction to settle, partition, and distribute the estate of a deceased. A relevant provision - Section 2 of Rule 90 of the Revised Rules of Court - that contemplates properties of the decedent held by one of the heirs declares:

Questions as to advancement made or alleged to have been made by the deceased to any heir may be heard and determined by the court having jurisdiction of the estate proceedings; and the final order of the court thereon shall be binding on the person raising the questions and on the heir. [Emphasis supplied.]

Worth noting are this Court's statements in the case of Natcher v. Court of Appeals:^[32]

Matters which involve settlement and distribution of the estate of the decedent fall within the exclusive province of the probate court in the exercise of its limited jurisdiction.

x x x x

It is clear that trial courts trying an ordinary action cannot resolve to perform acts pertaining to a special proceeding because it is subject to specific prescribed rules. [Emphasis supplied.]

That an accounting of the funds and assets of Zenith to determine the extent and value of Anastacia's shareholdings will be undertaken by a probate court and not by a special commercial court is completely consistent with the probate court's limited jurisdiction. It has the power to enforce an accounting as a necessary means to its authority to determine the properties included in the inventory of the estate to be administered, divided up, and distributed. Beyond this, the determination of title or ownership over the subject shares (whether belonging to Anastacia or Oscar) may be conclusively settled by the probate court as a question of collation or advancement. We had occasion to recognize the court's authority to act on questions of title or ownership in a collation or advancement situation in Coca v. Pangilinan^[33] where we ruled:

It should be clarified that whether a particular matter should be resolved by the Court of First Instance in the exercise of its general jurisdiction or of its limited probate jurisdiction is in reality not a jurisdictional question. In essence, it is a procedural question involving a mode of practice "which may be waived."

As a general rule, the question as to title to property should not be passed upon in the testate or intestate proceeding. That question should be ventilated in a separate action. That general rule has qualifications or exceptions justified by expediency and convenience.

Thus, the probate court may provisionally pass upon in an intestate or testate proceeding the question of inclusion in, or exclusion from, the inventory of a piece of property without prejudice to its final determination in a separate action.

Although generally, a probate court may not decide a question of title or ownership, yet if the interested parties are all heirs, or the question is one of collation or advancement, or the parties consent to the assumption of jurisdiction by the probate court and the rights of third parties are not impaired, the probate court is competent to decide the question of ownership. [Citations omitted. Emphasis supplied.]

In sum, we hold that the nature of the present controversy is not one which may be classified as an intra-corporate dispute and is beyond the jurisdiction of the special commercial court to resolve. In short, Rodrigo's complaint also fails the nature of the controversy test.

DERIVATIVE SUIT

Rodrigo's bare claim that the complaint is a derivative suit will not suffice to confer jurisdiction on the RTC (as a special commercial court) if he cannot comply with the requisites for the existence of a derivative suit. These requisites are:

1. the party bringing suit should be a shareholder during the time of the act or transaction complained of, the number of shares not being material;
2. the party has tried to exhaust intra-corporate remedies, i.e., has made a demand on the board of directors for the appropriate relief, but the latter has failed or refused to heed his plea; and
3. the cause of action actually devolves on the corporation; the wrongdoing or harm having been or being caused to the corporation and not to the particular stockholder bringing the suit.^[34]

Based on these standards, we hold that the allegations of the present complaint do not amount to a derivative suit.

First, as already discussed above, Rodrigo is not a shareholder with respect to the shareholdings originally belonging to Anastacia; he only stands as a transferee-heir whose rights to the share are inchoate and unrecorded. With respect to his own individually-held shareholdings, Rodrigo has not alleged any individual cause or basis as a shareholder on record to proceed against Oscar.

Second, in order that a stockholder may show a right to sue on behalf of the corporation, he must allege with some particularity in his complaint that he has exhausted his remedies within the corporation by making a sufficient demand upon the directors or other officers for appropriate relief with the expressed intent to sue if relief is denied.^[35] Paragraph 8 of the complaint hardly satisfies this requirement since what the rule contemplates is the exhaustion of remedies within the corporate setting:

8. As members of the same family, complainant Rodrigo C. Reyes has resorted [to] and exhausted all legal means of resolving the dispute with the end view of amicably settling the case, but the dispute between them ensued.

Lastly, we find no injury, actual or threatened, alleged to have been done to the corporation due to Oscar's acts. If indeed he illegally and fraudulently transferred Anastacia's shares in his own name, then the damage is not to the corporation but to his co-heirs; the wrongful transfer did not affect the capital stock or the assets of Zenith. As already mentioned, neither has Rodrigo alleged any particular cause or wrongdoing against the corporation that he can champion in his capacity as a shareholder on record.^[36]

In summary, whether as an individual or as a derivative suit, the RTC - sitting as special commercial court - has no jurisdiction to hear Rodrigo's complaint since what is involved is the determination and distribution of successional rights to the shareholdings of Anastacia Reyes. Rodrigo's proper remedy, under the circumstances, is to institute a special proceeding for the settlement of the estate of the deceased Anastacia Reyes, a move that is not foreclosed by the dismissal of his present complaint.

WHEREFORE, we hereby GRANT the petition and REVERSE the decision of the Court of Appeals dated May 26, 2004 in CA-G.R. SP No. 74970. The complaint before the Regional Trial Court, Branch 142, Makati, docketed as Civil Case No. 00-1553, is ordered DISMISSED for lack of jurisdiction.

SO ORDERED.

Quisumbing, (Chairperson), Corona, Carpio Morales, and Velasco, Jr., JJ., concur.

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^* Designated Additional Member of the Second Division per Special Order No. 512 dated July 16, 2008.

^[1] Penned by Associate Justice Juan Q. Enriquez, Jr., with Associate Justice Romeo A. Brawner (deceased) and Associate Justice Aurora Santiago-Lagman, concurring; rollo, pp. 55-60.

^[2] Quoted in full in Petition, id., p. 18.

^[3] Id., p. 64.

^[4] Id., pp. 63-74.

^[5] Id., p. 65.

^[6] Id., pp. 92-115.

^[7] Section 5.2 thereof states: The Commission's jurisdiction over all cases enumerated under Section 5 of P.D. No. 902-A is hereby transferred to the courts of general jurisdiction or the appropriate Regional Trial Court: Provided, That the Supreme Court in the exercise of its authority may designate the Regional Trial Court branches that shall exercise jurisdiction over these cases. x x x.

^[8] Per A.M. No. 00-11-03 SC dated November 21, 2000.

^[9] Rollo, pp. 119-132.

^[10] Supra note 2.

^[11] Under Rule 65 of the Revised Rules of Court, rollo, pp. 11-49.

^[12] Speed Distributing Corp. v. Court of Appeals, G.R. No. 149351, March 17, 2004, 425 SCRA 691; Intestate Estate of Alexander Ty v. Court of Appeals, G.R. No. 112872, April 19, 2001, 356 SCRA 661.

^[13] See REVISED RULES OF COURT, Rule 6, Section 1; Rule 7 Section 2(c); and Rule 8, Section 1.

^[14] Abad v. CFI Pangasinan, G.R. No. 58507-08, February 26, 1992, 206 SCRA 567, 580.

^[15] Santos v. Liwag, G.R. No. L-24238, November 28, 1980, 101 SCRA 327.

^[16] Civil Procedure Annotated, Vol. 1 (2001 ed.), p. 303.

^[17] Rule 1, Section 8(2).

^[18] Referring specifically to corporate fraud; see quoted provision at page 5 hereof.

^[19] See Sunset View Condominium Corp. v. Campos, Jr., 104 SCRA 295; Philex Mining Corp. v. Reyes, 118 SCRA 502; Desa Enterprises, Inc. v. SEC, 117 SCRA 321.

^[20] G.R. No. 64013, November 28, 1983, 126 SCRA 31.

^[21] G.R. No. 57936, September 28, 1984, 132 SCRA 293.

^[22] PSBA v. Leaño, G.R. No. L-58468, February 24, 1984, 127 SCRA 778, 783.

^[23] CMH Agricultural Corporation v. Court of Appeals, G.R. No. 112625, March 7, 2002, 378 SCRA 545.

^[24] Speed Distributing Corp., v. Court of Appeals, supra note 12.

^[25] Article 1078 of the Civil Code states: Where there are two or more heirs, the whole estate of the decedent is, before its partition, owned in common by such heirs, subject to the payment of debts of the deceased.

^[26] Additionally, Section 97 of the National Internal Revenue Code requires a certification from the Commissioner of Internal Revenue that the estate taxes have been paid before any shares in a domestic corporation is transferred in the name of the new owner.

^[27] G.R. No. L-63558, May 19, 1987, 149 SCRA 654.

^[28] G.R. No. 129777, January 5, 2001, 349 SCRA 35.

^[29] Salvador v. Sta. Maria, G.R. No. L-25952, June 30, 1967, 20 SCRA 603.

^[30] Comments and Jurisprudence on Succession (1991 ed.), p. 5.

^[31] 13 Fletcher §5912.

^[32] G.R. 133000, October 2, 2001, 366 SCRA 385, 392.

^[33] G.R. No. L-27082, January 21, 1978, 81 SCRA 278.

^[34] Villanueva, C., Philippine Corporate Law (1998 ed.), p. 370.

^[35] 13 Fletcher §5963.

^[36] See 13 Fletcher §5915.

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Source: Supreme Court E-Library | Date created: 2008-09-22 15:32:33
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SECOND DIVISION

[ G.R. No. 118671, January 29, 1996 ]

THE ESTATE OF HILARIO M. RUIZ, EDMOND RUIZ, EXECUTOR, PETITIONER, VS. THE COURT OF APPEALS (FORMER SPECIAL SIXTH DIVISION), MARIA PILAR RUIZ-MONTES, MARIA CATHRYN RUIZ, CANDICE ALBERTINE RUIZ, MARIA ANGELINE RUIZ AND THE PRESIDING JUDGE OF THE REGIONAL TRIAL COURT OF PASIG, BRANCH 156, RESPONDENTS.

D E C I S I O N

PUNO, J.:

This petition for review on certiorari seeks to annul and set aside the decision dated November 10, 1994 and the resolution dated January 5, 1995 of the Court of Appeals in CA-G.R. SP No. 33045.

The facts show that on June 27, 1987, Hilario M. Ruiz^[1] executed a holographic will naming as his heirs his only son, Edmond Ruiz, his adopted daughter, private respondent Maria Pilar Ruiz Montes, and his three granddaughters, private respondents Maria Cathryn, Candice Albertine and Maria Angeline, all children of Edmond Ruiz. The testator bequeathed to his heirs substantial cash, personal and real properties and named Edmond Ruiz executor of his estate.^[2]

On April 12, 1988, Hilario Ruiz died. Immediately thereafter, the cash component of his estate was distributed among Edmond Ruiz and private respondents in accordance with the decedent’s will. For unbeknown reasons, Edmond, the named executor, did not take any action for the probate of his father’s holographic will.

On June 29, 1992, four years after the testator’s death, it was private respondent Maria Pilar Ruiz Montes who filed before the Regional Trial Court, Branch 156, Pasig, a petition for the probate and approval of Hilario Ruiz’s will and for the issuance of letters testamentary to Edmond Ruiz.^[3]Surprisingly, Edmond opposed the petition on the ground that the will was executed under undue influence.

On November 2, 1992, one of the properties of the estate - the house and lot at No. 2 Oliva Street, Valle Verde IV, Pasig which the testator bequeathed to Maria Cathryn, Candice Albertine and Maria Angeline^[4]-- was leased out by Edmond Ruiz to third persons.

On January 19, 1993, the probate court ordered Edmond to deposit with the Branch Clerk of Court the rental deposit and payments totalling P540,000.00 representing the one-year lease of the Valle Verde property. In compliance, on January 25, 1993, Edmond turned over the amount of P348,583.56, representing the balance of the rent after deducting P191,416.14 for repair and maintenance expenses on the estate.^[5]

In March 1993, Edmond moved for the release of P50,000.00 to pay the real estate taxes on the real properties of the estate. The probate court approved the release of P7,722.00.^[6]

On May 14, 1993, Edmond withdrew his opposition to the probate of the will. Consequently, the probate court, on May 18, 1993, admitted the will to probate and ordered the issuance of letters testamentary to Edmond conditioned upon the filing of a bond in the amount of P50,000.00. The letters testamentary were issued on June 23, 1993.

On July 28, 1993, petitioner Testate Estate of Hilario Ruiz as executor, filed an "Ex-Parte Motion for Release of Funds." It prayed for the release of the rent payments deposited with the Branch Clerk of Court. Respondent Montes opposed the motion and concurrently filed a "Motion for Release of Funds to Certain Heirs" and Motion for Issuance of Certificate of Allowance of Probate Will." Montes prayed for the release of the said rent payments to Maria Cathryn, Candice Albertine and Maria Angeline and for the distribution of the testator’s properties, specifically the Valle Verde property and the Blue Ridge apartments, in accordance with the provisions of the holographic will.

On August 26, 1993, the probate court denied petitioner’s motion for release of funds but granted respondent Montes’ motion in view of petitioner’s lack of opposition. It thus ordered the release of the rent payments to the decedent’s three granddaughters. It further ordered the delivery of the titleds to and possession of the properties bequeathed to the three granddaughters and respondent Montes upon the filing of a bond of P50,000.00.

Petitioner moved for reconsideration alleging that he actually filed his opposition to respondent Montes’ motion for release of rent payments which opposition the court failed to consider. Petitioner likewise reiterated his previous motion for release of funds.

On November 23, 1993, petitioner, through counsel, manifested that he was withdrawing his motion for release of funds in view of the fact that the lease contract over Valle Verde property had been renewed for another year.^[7]

Despite petitioner’s manifestation, the probate court, on December 22, 1993, ordered the release of the funds to Edmond but only "such amount as may be necessary to cover the espenses of administration and allowanceas for support" of the testator’s three granddaughters subject to collation and deductible from their share in the inheritance. The court, however, held in abeyance the release of the titles to respondent Montes and the three granddaughters until the lapse of six months from the date of firast publication of the notice to creditors.^[8] The Court stated thus:

"xxx xxx xxx

After consideration of the arguments set forth thereon by the parties, the court resolves to allow Administrator Edmond M. Ruiz to take possession of the rental payments deposited with the Clerk of Court, Pasig Regional Trial Court, but only such amount as may be necessary to cover the expenses of administration and allowances for support of Maria Cathryn Veronique, Candice Albertine and Maria Angeli, which are subject to collation and deductible from the share in the inheritance of said heirs and insofar as they exceed the fruits or rents pertaining to them.

As to the release of the titles bequeathed to petitioner Maria Pilar Ruiz-Montes and the above-named heirs, the same is hereby reconsidered and held in abeyance until the lapse of six (6) months from the date of first publication of Notice to Creditors.

WHEREFORE, Administrator Edmond M. Ruiz is hereby ordered to submit an accounting of the expenses necessary for administration including provisions for the support Of Maria Cathryn Veronique Ruiz, Candice Albertine Ruiz and Maria Angeli Ruiz before the amount required can be withdrawn and cause the publication of the notice to creditors with reasonable dispatch.^[9]

Petitioner assailed this order before the Court of Appeals. Finding no grave abuse of discretion on the part of respondent judge, the appellate court dismissed the petition and sustained the probate court’s order in a decision dated November 10, 1994^[10] and a resolution dated January 5, 1995.^[11]

Hence, this petition.

Petitioner claims that:

"THE PUBLIC RESPONDENT COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION IN AFFIRMING AND CONFIRMING THE ORDER OF RESPONDENT REGIONAL TRIAL COURT OF PASIG, BRANCH 156, DATED DECEMBER 22, 1993, WHICH WHEN GIVEN DUE COURSE AND IS EFFECTED WOULD: (1) DISALLOW THE EXECUTOR/ADMINISTRATOR OF THE ESTATE OF THE LATE HILARIO M. RUIZ TO TAKE POSSESSION OF ALL THE REAL AND PERSONAL PROPERTIES OF THE ESTATE; (2) GRANT SUPPORT, DURING THE PENDENCY OF THE SETTLEMENT OF AN ESTATE, TO CERTAIN PERSONS NOT ENTITLED THERETO; AND (3) PREMATURELY PARTITION AND DISTRIBUTE THE ESTATE PURSUANT TO THE PROVISIONS OF THE HOLOGRAPHIC WILL EVEN BEFORE ITS INTRINSIC VALIDITY HAS BEEN DETERMINED, AND DESPITE THE EXISTENCE OF UNPAID DEBTS AND OBLIGATIONS OF THE ESTATE."^[12]

The issue for resolution is whether the probate court, after admitting the will to probate but before payment of the estate’s debts and obligations, has the authority: (1) to grant an allowance from the funds of the estate for the support of the testator’s grandchildren; (2) to order the release of the titles to certain heirs; and (3) to grant possession of all properties of the estate to the executor of the will.

On the matter of allowance, Section 3 of Rule 83 of the Revised Rules of Court provides:

"Sec. 3. Allowance to widow and family. - The widow and minor or incapacitated children of a deceased person, during the settlement of the estate, shall receive therefrom under the direction of the court, such allowance as are provided by law."

Petitioner alleges that this provision only gives the widow and the minor or incapacitated children of the deceased the right to receive allowances for support during the settlement of estate proceedings. He contends that the testator’s three granddaughters do not qualify for an allowance because they are not incapacitated and are no longer minors but of legal age, married and gainfully employed. In addition, the provision expressly states "children" of the deceased which excludes the latter’s grandchildren.

It is settled that allowances for support under Section 3 of Rule 83 should not be limited to the "minor or incapacitated" children of the deceased. Article 188^[13]of the Civil Code of the Philippines, the substantive law in force at the time of the testator’s death, provides that during the liquidation of the conjugal partnership, the deceased’s legitimate spouse and children, regardless of their age, civil status or gainful employment, are entitled to provisional support from the funds of the estate.^[14] The law is rooted on the fact that the right and duty to support, especially the right to education, subsist even beyond the age of majority.^[15]

Be that as it may, grandchildren are not entitled to provisional support from the funds of the decedent’s estate. The law clearly limits the allowance to "widow and children" and does not extend it to the deceased’s grandchildren, regardless of their minority or incapacity.^[16] It was error, therefore, for the appellate court to sustain the probate court’s order granting an allowance to the grandchildren of the testator pending settlement of his estate.

Respondent courts also erred when they ordered the release of the titles of the bequeathed properties to private respondents six months after the date of first publication of notice to creditors. An order releasing titles to properties of the estate amounts to an advance distribution of the estate which is allowed only under the following conditions:

"Sec. 2. Advance distribution in special proceedings. - Nothwithstanding a pending controversy or appeal in proceedings to settle the estate of a decedent, the court may, in its discretion and upon such terms as it may deem proper and just, permit that such part of the estate as may not be affected by the controversy or appeal be distributed among the heirs or legatees, upon compliance with the conditions set forth in Rule 90 of these Rules."^[17]

And Rule 90 provides that:

"Sec. 1. When order for distribution of residue made. - When the debts, funeral charges, and expenses of administration, the allowance to the widow, and inheritance tax, if any, chargeable to the estate in accordance with law, have been paid, the court, on the application of the executor or administrator, or of a person interested in the estate, and after hearing upon notice, shall assign the residue of the estate to the persons entitled to the same, naming them and the proportions, or parts, to which each is entitled, and such persons may demand and recover their respective shares from the executor or administrator, or any other person having the same in his possession. If there is a controversy before the court as to who are the lawful heirs of the deceased person or as to the distributive shares to which each person is entitled under the law, the controversy shall be heard and decided as in ordinary cases.

No distribution shall be allowed until the payment of the obligations above-mentioned has been made or provided for, unless the distributees, or any of them, give a bond, in a sum to be fixed by the court, conditioned for the payment of said obligations within such time as the court directs.[18]

In settlement of estate proceedings, the distribution of the estate properties can only be made: (1) after all the debts, funeral charges, expenses of administration, allowance to the widow, and estate tax have been paid; or (2) before payment of said obligations only if the distributees or any of them gives a bond in a sum fixed by the court conditioned upon the payment of said obligations within such time as the court directs, or when provision is made to meet those obligations.^[19]

In the case at bar, the probate court ordered the release of the titles to the Valle Verde property and the Blue Ridge apartments to the private respondents after the lapse of six months from the date of first publication of the notice to creditors. The questioned order speaks of "notice" to creditors, not payment of debts and obligations. Hilario Ruiz allegedly left no debts when he died but the taxes on his estate had not hitherto been paid, much less ascertained. The estate tax is one of those obligations that must be paid before distribution of the estate. If not yet paid, the rule requires that the distributees post a bond or make such provisions as to meet the said tax obligation in proportion to their respective shares in the inheritance.^[20] Notably, at the time the order was issued the properties of the estate had not yet been inventoried and appraised.

It was also too early in the day for the probate court to order the release of the titles six months after admitting the will to probate. The probate of a will is conclusive as to its due execution and extrinsic validity^[21] and settles only the question of whether the testator, being of sound mind, freely executed it in accordance with the formalities prescribed by law.^[22] Questions as to the intrinsic validity and efficacy of the provisions of the will, the legality of any devise or legacy may be raised even after the will has been authenticated.^[23]

The intrinsic validity of Hilario’s holographic will was controverted by petitioner before the probate court in his Reply to Montes’ Opposition to his motion for release of funds^[24] and his motion for reconsideration of the August 26, 1993 order of the said court.^[25] Therein, petitioner assailed the distributive shares of the devisees and legatees inasmuch as his father’s will included the estate of his mother and allegedly impaired his legitime as an intestate heir of his mother. The Rules provide that if there is a controversy as to who are the lawful heirs of the decedent and their distributive shares in his estate, the probate court shall proceed to hear and decide the same as in ordinary cases.^[26]

Still and all, petitioner cannot correctly claim that the assailed order deprived him of his right to take possession of all the real and personal properties of the estate. The right of an executor or administrator to the possession and management of the real and personal properties of the deceased is not absolute and can only be exercised "so long as it is necessary for the payment of the debts and expenses of administration,"^[27] Section 3 of Rule 84 of the Revised Rules of Court explicitly provides:

"Sec. 3. Executor or administrator to retain whole estate to pay debts, and to administer estate not willed. - An executor or administrator shall have the right to the possession and management of the real as well as the personal estate of the deceased so long as it is necessary for the payment of the debts and expenses for administration."^[28]

When petitioner moved for further release of the funds deposited with the clerk of court, he had been previously granted by the probate court certain amounts for repair and maintenance expenses on the properties of the estate, and payment of the real estate taxes thereon. But petitioner moved again for the release of additional funds for the same reasons he previously cited. It was correct for the probate court to require him to submit an accounting of the necessary expenses for administration before releasing any further money in his favor.

It was relevantly noted by the probate court that petitioner had deposited with it only a portion of the one-year rental income from the Valle Verde property. Petitioner did not deposit its succeeding rents after renewal of the lease.^[29] Neither did he render an accounting of such funds.

Petitioner must be reminded that his right of ownership over the properties of his father is merely inchoate as long as the estate has not been fully settled and partitioned.^[30] As executor, he is a mere trustee of his father’s estate. The funds of the estate in his hands are trust funds and he is held to the duties and responsibilities of a trustee of the highest order.^[31] He cannot unilaterally assign to himself and possess all his parents’ properties and the fruits thereof without first submitting an inventory and appraisal of all real and personal properties of the deceased, rendering a true account of his administration, the expenses of administration, the amount of the obligations and estate tax, all of which are subject to a determination by the court as to their veracity, propriety and justness.^[32]

IN VIEW WHEREOF, the decision and resolution of the Court of Appeals in CA-G.R. SP No. 33045 affirming the order dated December 22, 1993 of the Regional Trial Court, Branch 156, Pasig in SP Proc. No. 10259 are affirmed with the modification that those portions of the order granting an allowance to the testator’s grandchildren and ordering the release of the titles to the private respondents upon notice to creditors are annulled and set aside.

Respondent judge is ordered to proceed with dispatch in the proceedings below.

SO ORDERED.

Regalado (Chairman), Romero, and Mendoza, JJ., concur.

^[1] Predeceased by his wife who died on August 4, 1986

^[2] Annex "D" to the Petition, Rollo, pp. 46-60.

^[3] SP Proc. No. 10259.

^[4] Holographic Will, p. 10; RoIlo, p. 55.

^[5] Comment to the Petition, pp. 8-9; rollo, pp. 97-98

^[6] Reply to Comment, p.2; rollo, p. 114.

^[7] Comment, Annex "1"; Rollo, p. 110.

^[8] Petition, Annex "C"; Rollo, p. 45.

^[9] Id.; Emphasis as copied.

^[10] CA-G.R. SP No. 33045, Annex "A" to the Petition; Rollo, pp. 36-42.

^[11] Id., Annex "B" to the Petition; Rollo, p. 44.

^[12] Petition, p. 8; Rollo, p. 17.

^[13] "Art. 188. From the common mass of property support shall be given to the surviving spouse and to the children during the liquidation of the inventoried property and until what belongs to them is delivered; but from this shall be deducted that amount received for support which exceeds fruits or rents pertaining to them."

Article 188 is now Article 133 of the Family Code.

^[14] Santero v. Court of First Instance of Cavite, 153 SCRA 728 [1987].

^[15] Id., pp. 733-734; Article 290, Civil Code of the Philippines.

^[16] Babao v. Villavicencio, 44 Phil. 921 [1922].

^[17] Revised Rules of Court, Rule 109, Section 2.

^[18] Emphasis supplied.

^[19] Castillo v. Castillo, 124 Phil. 485 [1966]; Edmands v. Philippine Trust Co., 87 Phil. 405 [1952].

^[20] Prieto v. Valdez, 95 Phil. 46 [1954].

^[21] Rule 75, Section 1.

^[22] Acain v. Intermediate Appellate Court, 155 SCRA 100 [1987]; Pastor v. Court of Appeals, 122 SCRA 885 [1983]; Maninang v. Court of Appeals, 114 SCRA 478 [1982].

^[23] Maninang v. Court of Appeals, supra; Sumilang v. Ramagosa, 21 SCRA 1369 [1967]; Cacho v. Udan, 13 SCRA 693 [1965]; Montanano v. Suesa, 14 Phil. 676, 679-680 [1909].

^[24] Reply to Opposition of Funds and Opposition to Omnibus Motion, pp. 1-3; Rollo, pp. 69-71.

^[25] Motion for Reconsideration, p. 14; Rollo, p. 66.

^[26] Rule 90, Section 1, paragraph 1; Pimentel v. Palanca, 5 Phil. 436 [1905]; II Regalado, Remedial Law Compendium 88 [1989].

^[27] Mananquil v. Villegas, 189 SCRA 335 [1990].

^[28] Emphasis supplied.

^[29] Comment to the Petition, p. 9; Rollo, p. 98.

^[30] Salvador v. Sta. Maria, 20 SCRA 603 [1967].

^[31] Noel v. Court qf Appeals, 240 SCRA 78,89 [1995]; 3 Martin, Rules of Court of the Philippines 545-546 [1986] citing 21 Am. Jur. 370-371.

^[32] Rule 81, Section 1; Rule 85, Sections ito 9.

---

FIRST DIVISION

[ G.R. No. 70722, July 03, 1991 ]

CANUTA PAGKATIPUNAN, FLORA VELASQUEZ, BENJAMIN VELASQUEZ, RODOLFO VELASQUEZ, ALFREDO VELASQUEZ, NAPOLEON VELASQUEZ, MANUEL VELASQUEZ, JULIO VELASQUEZ, VICTORIA VELASQUEZ, CARLOS VELASQUEZ, LEONOR VELASQUEZ, ELENA VELASQUEZ, PATROCINIO VELASQUEZ, PATRICIA VELASQUEZ, SANTIAGO ZAPANTA, HERMINIGILDO SISON, ALFREDO AGAPITO, MOISES SANTOS, MAGDALENA PAGKATIPUNAN, AGAPITO MANALO, MIGUEL ANGELES, MATIAS ALVAREZ, PATRICIO LAYSA, TEOFILO DE LUNA, ISIDRO ANINAO, APOLINAR CASAL, MOISES GALLARDO, BONIFACIO PEREZ, DELFIN LAYBA, AND HERMOGENES FLORES, PETITIONERS, VS. HON. INTERMEDIATE APPELLATE COURT, JOSE R. VELASQUEZ, JR., LOURDES VELASQUEZ, EDGARDO VELASQUEZ, LOLITA VELASQUEZ, MINERVA VELASQUEZ, CYNTHIA VELASQUEZ, CESAR GONZALES, ADOLFO GONZALES, EVELYN GONZALES, AMELITA GONZALES, RUBEN GONZALES, AND CARMENCITA GONZALES, RESPONDENTS.

D E C I S I O N

MEDIALDEA, J.:

This petition for certiorari seeks to nullify the decision of the Intermediate Appellate Court (now Court of Appeals) in AC-G.R. CV No. 68431 dated February 7, 1986, affirming the decision of the Court of First Instance (now Regional Trial Court) of Laguna, Branch II, Santa Cruz, Laguna, in Civil Case No. SC-894, the dispositive portion of which reads:

"WHEREFORE, the appealed decision of the lower court is affirmed, with the following modification:

"The entire house and lot on West Avenue, Quezon City, shall be divided as follows:

"One-half value of said house and lot to defendant-appellant Canuta Pagkatipunan and her 13 co-defendants-appellants children (now petitioners) to the extent of their respective proportional contributions as stated above; and

"The other one-half value of the said house and lot goes to the second conjugal partnership of the deceased husband and his second spouse Canuta Pagkatipunan to be partitioned one-fourth to Canuta Pagkatipunan and the other one-fourth appertaining to the deceased Jose Velasquez, Sr. to be divided equally among his 18 heirs as follows:

1/18 undivided portion to Canuta Pagkatipunan;

1/18 undivided portion to the plaintiff-appellee Lourdes Velasquez;

1/18 undivided portion to the plaintiffs-appellees Edgardo, Lolita, Minerva, Cynthia, and Jennifer, all surnamed Velasguez;

1/18 undivided portion to the plaintiffs-appellees Teresa Magtibay and her children, Ricardo, Lourdes, Celia and Aida, all surnamed Velasquez;

1/18 undivided portion to the plaintiffs-appellees Cesar, Adolfo, Evelyn, Angelita, Ruben, and Carmencita, all surnamed Gonzales;

1/18 undivided portion to each of the 13 defendants-appellants Flora, Leonor, Patrocinio, Benjamin, Rodolfo, Alfredo, Napoleon, Manuel, Julio, Elena, Patricia, Victoria, and Carlos, all surnamed Velasquez.

"SO ORDERED." (p. 55, Rollo)

The facts from the records are as follows:

The principal litigants in this case are the successors-in-interest of Jose Velasquez, Sr. who died intestate on February 24, 1961. Petitioner Canuta Pagkatipunan is the surviving spouse of Jose Velasquez, Sr. and the other 13 petitioners are their children namely: Flora, Leonor, Patrocinio, Julio, Benjamin, Rodolfo, Alfredo, Napoleon, Manuel, Elena, Patricia, Victoria and Carlos. On the other hand, the private respondents are the descendants of Jose Velasquez, Sr. with his first wife Victorina Real who died in 1920 at Santa Cruz, Laguna. Private respondents Jose Velasquez, Jr. (substituted after his death during the pendency of this suit by his surviving spouse Teresa Magtibay and their children Ricardo, Lourdes, Celia and Aida), and Lourdes Velasquez are two of the five children of Jose Velasquez, Sr. and Victorina Real. The other three, Amelia, Guillermo and Lutgarda, all surnamed Velasquez, all died before the commencement of this case. Amelia Velasquez died without any issue. Guillermo Velasquez was survived by private respondents Edgardo, Lolita, Minerva, Cynthia and Jennifer, all surnamed Velasquez, his children, forced heirs and lawful successors-in-­interest. Lutgarda Velasquez was survived by private respondents Cesar, Adolfo, Evelyn, Amelita, Ruben and Carmencita, all surnamed Gonzales, likewise her children, forced heirs and successors-in-interest.

This case was judicially instituted by the private respondents against the petitioners in 1969 in a complaint entitled "accion reivindicatoria, annulment of deeds of sale, partition and damages." However, both the trial and the appellate courts considered that the real controversy in this case is the liquidation of the conjugal partnership properties acquired by the deceased Jose Velasquez, Sr. in his two marriages, one with Victorina Real, who predeceased him, and the other with Canuta Pagkatipunan, as well as the partition of the estate of said Jose Velasquez, Sr. among his heirs.

It appears that after the death of Victorina Real in 1920, no dissolution of the first conjugal property has been made. Consequently, Jose Velasquez, Sr. enjoyed full possession, use, usufruct and administration of the whole conjugal property of the first marriage.

In 1930, Jose Velasquez, Sr. took Canuta Pagkatipunan as his second wife although they cohabited as early as 1921, when she was 16, soon after his first wife's death. From this marriage, the other 13 co-petitioners were born. Neither had there been any liquidation of the second conjugal partnership after the death of Jose Velasquez, Sr. in 1961. This situation gave rise to the controversies in the instant case spawned by the parties' conflicting claims from both sides of the two marriages.

The trial court appointed two sets of commissioners-one on January 31, 1975, for the purpose of making an inventory of the estate of Jose Velasquez, Sr., and the other on November 15, 1976, to determine which of the parcels of land listed in such inventory submitted by the first set of commissioners belong to the conjugal partnership of the first marriage or to the conjugal partnership of the second marriage.

Based on the Report and Inventory submitted on May 29, 1975, the commissioners listed the following properties as acquired by the late Jose Velasquez, Sr. during his marriage with Victorina Real:

1. Tax Declaration No. 2718. A riceland, located in Luya and with an area of 93,662 square meters;

2. Tax Declaration No. 3125. A Secano land located in Luya and with an area of 12,540 square meters;

3. Tax Declaration No. 2623. A Cocal and Forestal, situated in Salang-Bato (Macasipac) and with an area of 500,000 square meters;

4. Tax Declaration No. 2096. A riceland, situated in Islang Munti and with an area of 40,328 square meters;

5. A Cocal and Forestal land situated in Bankang Bato containing an area of 240,000 square meters;

6. Tax Declaration No. 4251. A Cocal, Secano and Cogonal land situated in Cambuja and containing an area of 163,121 square meters;

7. Tax Declaration No. 1342. A parcel of land situated in Bagumbayan and containing an area of 80,258 square meters;

8. Tax Declaration No. 3541. A Cocal and Secano land, situated in Bagumbayan and containing an area of 20 hectares;

(Total area as surveyed is 392,503 square meters. This includes the area of the land stated in Item 7 of the Inventory).

9. Tax Declaration No. 82. A Cogonal land situated in Tungkod (Ikalong Tuwid), containing an area of 385,324 square meters;

10. Tax Declaration No. 1500. A riceland, situated in Pague, containing an area of 9,228 square meters;

11. Tax Declaration No. 5688

a) A parcel of land situated in NAPSE (Masinao), containing an area of 24,725 square meters;

b) A parcel of land situated in NAPSE (Masinao), containing an area of 25,000 square meters;

12. Tax Declaration No. 543. A parcel of land situated in Gomez Street, containing an area of 755 square meters;

13. Tax Declaration No. 4139. A parcel of land situated in Caboan, containing an area of 367.2 square meters;

14. Tax Declaration No. 4139. A parcel of land situated in Caboan, containing an area of 367.2 square meters;

15. Tax Declaration No. 4139. A parcel of land situated in Caboan, containing an area of 367.2 square meters;

16. Tax Declaration No. 4139. A parcel of land situated in Caboan, containing an area of 367.2 square meters;

17. Tax Declaration No. 4139. A parcel of land situated in Caboan, containing an area of 1,275 square meters;

18. Tax Declaration No. 804-A. Three parcels of land situated in Salang Bato, containing an area of 450,000 square meters;

19. Tax Declaration No. 2560. A parcel of land situated in Salang Bato which area is included in item no. 18.

20. A parcel of land situated in Burgos St. (Papers cannot be located but subject lot is known to both parties).

21. A parcel of land situated in Burgos St., containing an area of 5,000 square meters. (Papers cannot be located but subject lot is known to both parties).

22. A parcel of land situated in Gomez St., containing an area of 300 square meters. (Papers cannot be located but subject lot is known to both parties).

23. A parcel of land situated in Gomez St., containing an area of 1,050 square meters. (Papers cannot be located but subject lot is known to both parties).

24. A parcel of land situated in Gomez St. (Papers cannot be located but subject lot is known to both parties).

25. A parcel of land situated in Zamora St., containing an area of 3,605. (Papers cannot be located but subject lot is known to both parties).

26. Tax Declaration No. 2412: A parcel of land situated in Coboan, containing an area of 12,867 square meters;

27. A parcel of land situated in Dra. Amelia St."

On the other hand, the commissioners listed the following properties as acquired by Jose Velasquez, Sr. on February 11, 1921 or after the death of Victorina Real:

28. Tax Declaration No. 2547. A parcel of land situated in Barandilla, containing an area of 21,566 square meters;

29. A parcel of land situated in Barandilla, containing an area of 93.191 square meters. (Commissioner's Inventory, Rollo, pp. 355-360)

Worth noting are the following findings of the commissioners:

"3) That among the properties acquired by the late Jose Velasquez, Sr. during his lifetime, only the one mentioned in Item 7 of the Inventory (Annex "A") is still intact. It is situated in Bagumbayan, Sta. Maria, Laguna, and is containing an area of 80,258 square meters, more or less;

"4) That Item 8 of the Inventory is only 200,000 square meters, more or less in Tax Declaration No. 3541, but as per Survey caused by the defendants (which is not yet approved) it contains an area of 330,345 square meters. That the Tax Declaration of said parcel of land is under the name of Canuta Pagkatipunan, but plaintiff Jose Velasquez, Jr. is the one in possession of said property. That the area as contained in the Survey includes the area of the land mentioned in Item 7 of the Inventory (80,258 sq. m.);

"5) That the other properties of the late Jose Velasquez Sr. were disposed of by the said decedent during his lifetime and some were sold and/or disposed of by the parties and heirs of the late Jose Velasquez, Sr;

"6) That the Barandilla properties, as evidenced by the Venta Absoluta dated February 11, 1921 executed by Pedro Villanueva in favor of Jose Velasquez Sr., were disposed of portion by portion. It was sold by the late Jose Velasquez who disposed of some portions and the rest by either the plaintiffs or defendants. An area of 11,200 square meters more or less was DONATED (donacion propter Nupcias) in favor of Canuta Pagkatipunan by the decedent Jose Velasquez, Sr. as evidenced by Kasulatan ng Panibaqong Documento Donacion Propter Nupcias notarized under Inst. 135; Page 47; Book I; Series of 1947 of Notary Public Bonifacio de Ramos;

“7) That the parcels of land appearing in Items 5 and 6 of the Inventory (Annex "A") were DONATED by the late Jose Velasquez Sr. to Guillermo Velasquez;

“8) That parcels of land mentioned in Items 18 and 19 of the Inventory (Annex "A") were DONATED by the late Jose Velasquez, Sr. to Jose Velasquez, Jr. Said properties were sold by the Donee to Sps. Santiago Recio and Filomena Dimaculangan;

“9) The property mentioned in Item 27, page 3 of the Inventory was given by the late Jose Velasquez, Sr. to one of his daughters, Dra. Amelia Velasquez while she was still living and now owned by her heirs;

“10) A residential lot at 7 West Avenue, Quezon City, titled in the name of Canuta Pagkatipunan, was acquired from the PHHC (People's Homesite and Housing Corporation, now National Housing Authority) and presently occupied by the defendants." (Rollo, pp. 351- 353)

There is divergence of findings and opinion among the three members of the second set of commissioners with respect to the properties covered by Items 7 and 8 and the property in the unnumbered item relating to Lot 2-A West Avenue, Quezon City and the house thereon of the Inventory submitted by the first set of commissioners. They refuse to make findings as to the nature of the properties because the petitioners had caused the issuance of titles covering said properties. However, all the commissioners were in agreement that all the other properties listed in the Inventory belonged to the conjugal partnership of the first marriage.

The records before Us will show that the properties covered by items 7 and 8 were originally declared for taxation purposes in the names of the spouses Real and Velasquez. This has been admitted by Canuta Pagkatipunan during the hearing before the Commissioner and is duly supported by documentary evidence.

After the death of Jose Velasquez, Sr. the full possession of said property was acquired by Canuta Pagkatipunan. On March 4, 1967, she sold the same property to the spouses Moises Santos and Magdalena Pagkatipunan, her brother-in-law and sister, respectively (they were previously impleaded in the trial court as party-defendants). Subsequently, Tax Declaration No. 4843 was issued in the names of the said spouses who later resold the same property to Canuta Pagkatipunan. Thereafter, tax declaration covering said property was issued in her name. During the pendency of this suit, this property was subdivided and assigned by Canuta Paqkatipunan in favor of her thirteen children. The latter caused the issuance of separate free patent titles in their favor covering the subdivided lots conveyed to them by their mother. Original Certificates of Title Nos. P-2000 to P-2012 were accordingly issued in their names.

With regard to the West Avenue property it is not disputed that said residential lot was purchased on installments from People's Homesite and Housing Corporation (now National Housing Authority) by the spouses Jose Velasquez Sr. and Canuta Pagkatipunan. The installments were paid by the said spouses until Jose Velasquez, Sr. died on February 24, 1961. Canuta Pagkatipunan, with the help of some of her children, shouldered the payment of the remaining installments until said property was fully paid in 1965. On February 23, 1968, the PHHC executed a deed of absolute sale conveying the said house and lot to Canuta Pagkatipunan.

On August 11, 1980, a judgment was rendered by the trial court:

"1) Declaring the properties listed in the Inventory submitted by the Commissioners on May 9, 1975, as belonging to the estate of the conjugal partnership of the deceased spouses Jose Velasquez, Sr. and Victorina Real;

"2) Confirming all the conveyances, either by way of sale or donation, executed by Jose Velasquez, Sr. during his lifetime;

"3) Declaring null and void, sham and fictitious, the following sales, transfers, assignments or conveyances: (a) the sale executed by Canuta Pagkatipunan in favor of her sister Magdalena Pagkatipunan in favor of Canuta Pagkatipunan (sic); (b) the deeds of assignments executed by Canuta Pagkatipunan in favor of her children, covering the properties listed in Items 7 and 8 of the Inventory; and ordering defendants (petitioners) to reconvey in favor of the plaintiffs (private respondents) the parcels of land covered by Patent Titles Nos. P-2000 to P-2012;

“4) Declaring as null, fictitious and fraudulent the sales by Canuta Pagkatipunan in favor of her children and her sister Magdalena Pagkatipunan and brother-in-law Moises Santos, listed in paragraph 13 of the Amended Complaint; declaring the plaintiffs owners of the said properties; and ordering the defendant Canuta Pagkatipunan and her children-defendants to deliver possession of said properties to the plaintiffs;

“5) Ordering the partition of the house and lot in West Avenue, Quezon City in the following manner:

"(a) One-half undivided portion to defendant Canuta Pagkatipunan; and the other half appertaining to Jose Velasquez, Sr. to be divided among his heirs, to wit:

1/18 undivided portion to Canuta Pagkatipunan;

1/18 undivided portion to Lourdes Velasquez;

1/18 undivided portion to the plaintiffs Edgardo, Lolita, Minerva, Cynthia and Jennifer, all surnamed Velasquez;

1/18 undivided portion to the plaintiffs Teresa Magtibay and her children Ricardo, Lourdes, Celia and Aida, all surnamed Velasquez;

1/18 undivided portion to the plaintiffs Cesar, Adolfo, Evelyn, Angelita, Ruben and Carmencita, all surnamed Gonzales;

1/18 undivided portion to each of the defendants Flora, Leonor, Patrocinio, Benjamin, Rodolfo, Alfredo, Napoleon, Manuel, Julio, Elena, Patricia, Victoria and Carlos, all surnamed Velasquez;

“6) Ordering the defendant Canuta Pagkatipunan and her children-defendants to pay to the plaintiffs the sum of P5,000.00, as reimbursement for attorney's fees;

“7) The defendant Canuta Pagkatipunan and her children-defendants are likewise ordered to pay the costs of this suit;

“8) The case against the other defendants, other than Canuta Pagkatipunan and her children and the spouses Moises Santos and Magdalena Pagkatipunan, is ordered dismissed." (pp. 614-617, Rollo)

Petitioners appealed to the respondent Intermediate Appellate Court.

On February 7, 1985, the Intermediate Appellate Court, Third Civil Cases Division promulgated a decision, affirming the decision of the trial court, with the modification that the entire house and lot in West Avenue, Quezon City be divided into two: one-half value to the petitioners Canuta Pagkatipunan and her 13 children to the extent of their respective proportional contributions and the other half value, to the second conjugal partnership of Jose Velasquez, Sr. and Canuta Pagkatipunan to be partitioned one-fourth to the wife and the other one-fourth appertaining to the deceased Jose Velasquez, Sr. to be divided equally among his heirs.

Hence, this instant petition for review pointing out the following four (4) assignments of error, to wit:

I

"THE TRIAL COURT ERRED IN HOLDING THAT THE ENTIRE ESTATE LISTED IN THE INVENTORY SUBMITTED BY THE COMMISSIONERS ON MAY 9, 1975 AS BELONGING TO THE DECEASED SPOUSES JOSE VELASQUEZ, SR. AND VICTORINA REAL.

II

"THAT THE LOWER COURT ERRED IN CONFIRMING ALL THE CONVEYANCES EITHER BY WAY OF SALE OR DONATION EXECUTED BY JOSE VELASQUEZ, SR. DURING HIS LIFETIME.

III

"THAT THE LOWER COURT ERRED IN DECLARING NULL AND VOID, SHAM AND FICTITIOUS THE FOLLOWING SALES: a) THE SALE EXECUTED BY CANUTA PAGKATIPUNAN IN FAVOR OF HER SISTER MAGDALENA PAGKATIPUNAN AND BROTHER-IN-LAW MOISES SANTOS; b) THE RESALE EXECUTED BY MOISES SANTOS AND MAGDALENA PAGKATIPUNAN IN FAVOR OF CANUTA PAGKATIPUNAN; c) THE DEEDS OF ASSIGNMENT EXECUTED BY CANUTA PAGKATIPUNAN IN FAVOR OF HER CHILDREN: COVERING THE PROPERTIES LISTED IN ITEMS 7 AND 8 OF THE INVENTORY; AND ORDERING DEFENDANT-APPELLANT CANUTA PAGKATIPUNAN AND HER CHILDREN DEFENDANTS-APPELLANTS TO RECONVEY IN FAVOR OF THE PLAINTIFFS-APPELLEES THE PARCELS OF LAND COVERED BY PATENT TITLES NOS. P-2000 TO P­-2012.

IV

"THAT THE TRIAL COURT ERRED IN ORDERING THE PARTITION OF THE HOUSE AND LOT IN WEST AVENUE, QUEZON CITY, ONE-HALF UNDIVIDED PORTION TO DEFENDANT-APPELLANT CANUTA PAGKATIPUNAN AND THE OTHER HALF TO JOSE VELASQUEZ, SR." (pp. 21-22, Rollo)

After a careful review of the records and the arguments presented by both parties, the Court finds that both the trial court and the respondent Intermediate Appellate Court failed to consider some basic principles observed in the law on succession. Such an oversight renders the appealed decision defective and hard to sustain.

It is a basic rule that before any conclusion about the legal share due to the heirs may be reached, it is necessary that certain steps be taken first. In the assailed decision, the respondent court affirmed the trial court's ruling, that Jose Velasquez, Sr. had already disposed of and exhausted his corresponding share in the conjugal partnership owned by him and Victorina Real, so that his heirs have nothing more to inherit from him, and that accordingly, whatever remaining portion of the conjugal property must necessarily appertain only to the private respondents as heirs of the deceased Victorina Real. Clearly, the trial court failed to consider among others, the following provisions of the Civil Code:

"ART. 908. To determine the legitime, the value of the property left at the death of the testator shall be considered, deducting all debts and charges, which shall not include those imposed in the will.

"To the net value of the hereditary estate, shall be added the value of all donations by the testator that are subject to collation, at the time he made them."

"ART. 1061. Every compulsory heir, who succeeds with other compulsory heirs, must bring into the mass of the estate any property or right which he may have received from the decedent, during the lifetime of the latter, by way of donation, or any other gratuitous title, in order that it may be computed in the determination of the legitime of each heir, and in the account of the partition."

It is undeniable that numerous donations inter vivos were made by Jose Velasquez, Sr. in favor of some of his compulsory heirs. They include among others, the donation made in favor of Guillermo Velasquez on February 26, 1953, consisting of 403,000 square meters (Items 5 and 6); the donation made in 1926 in favor of Jose Velasquez, Jr., consisting of 450,000 square meters (Item No. 18); the donation in favor of Amelia Velasquez (Item No. 27); and the donation in favor of Canuta Pagkatipunan, consisting of 11,000 square meters (part of Item No. 29) (Commissioner's Report, Rollo, pp. 355-360).

It appears that there was no determination whatsoever of the gross value of the conjugal properties of Jose Velasquez, Sr. and Victorina Real. Obviously, it is impossible to determine the conjugal share of Jose Velasquez, Sr. from the said property relationship. Likewise, no collation of the donations he executed during his lifetime was undertaken by the trial court. Thus, it would be extremely difficult to ascertain whether or not such donations trenched on the heirs' legitime so that the same may be considered subject to reduction for being inofficious.

Article 909 of the Civil Code provides:

"ART. 909. Donations given to children shall be charged to their legitime.

"Donations made to strangers shall be charged to that part of the estate of which the testator could have disposed by his last will.

"Insofar as they may be inofficious or may exceed the disposable portion, they shall be reduced according to the rules established by this Code."

With the avowed specific provisions of the aforesaid laws respecting collation, which are ruled controlling even in intestate succession, this Court finds that the lower court's ruling adjudicating the remaining portion of the conjugal estate to the private respondents is purely speculative and conjectural.

Relative to the sale executed by Canuta Pagkatipunan to the spouses Magdalena Pagkatipunan and Moises Santos; the resale of the same property to her; and the subsequent deeds of assignment she executed in favor of her children, the trial court had clearly established that Canuta Pagkatipunan employed fraudulent acts to acquire title over the said properties. Hence, the trial court, as well as the respondent court are correct in ruling that the said sales and assignments are null and void, sham and fictitious.

The pertinent portion of the trial court's decision reads as follows:

"From the evidence adduced by the parties during the hearing before this Court and before the Commissioners, these properties were acquired on November 19, 1918 by the spouses Jose Velasquez, Sr. and Victorina Real from Estanislao Balasoto (Exh. H-5, Commissioner). Said property was originally declared for taxation purposes in the names of said spouses. (Exh. H‑Commissioner). On March 4, 1967, defendant Canuta Pagkatipunan sold the same property to the Moises Santos and Magdalena Pagkatipunan (Exh. H-1-Commissioner). The vendee Magdalena Pagkatipunan is the sister of the defendant Canuta Pagkatipunan. Subsequently, Tax Declaration No. 4843 (Exh. H-2-Commissioner) was issued in the names of the spouses Moises Santos and Magdalena Pagkatipunan resold (sic) the same property to Canuta Pagkatipunan (Exh. H-3-Commissioner). Thereafter, tax declaration covering said property was issued in the name of Canuta Pagkatipunan (Exhibit H-4- Commissioner). During the pendency of this suit, this property was subdivided and assigned by Canuta Pagkatipunan in favor of her children, the defendants Flora, Leonor, Patrocinio, Benjamin, Rodolfo, Alfredo, Napoleon, Manuel, Elena, Patricia, Julio, Victoria and Carlos, all surnamed Velasquez. Said defendants-children of Canuta Pagkatipunan caused the issuance of free patent titles in their favor covering the subdivided lots conveyed to them respectively by their mother (Exh. 2, 2-A to 2-L).

"It is evident that the parcels of land under Items 7 and 8 of the Inventory belonged to the conjugal partnership of the spouses Jose Velasquez, Sr. and Victorina Real. Canuta Pagkatipunan had no right to alienate the same. Her conveyance of the same property to her brother-in-law and sister is fictitious or simulated. Ten (10) days after she executed her sale, the same property was resold to her by the vendees. She utilized said conveyance and reconveyance only for the purpose of securing a tax declaration in her name over said property. Her subsequent subdivision of said lot and transfer of the subdivided lots to each of her children further show her fraudulent intent to deprive the plaintiffs of their rightful shares in the disputed property." (Rollo, pp. 606-607)

Despite the several pleadings filed by the petitioners in this Court, they did not rebut the foregoing findings of the trial court but merely held on to their argument that since Free Patent Titles Nos. P-2000 to P-2012 were already issued in their names, their title thereto is indefeasible and incontrovertible. This is a misplaced argument.

The fact that they had succeeded in securing title over the said parcels of land does not warrant the reversal of the trial court's ruling that the above mentioned sales and assignments were sham and fictitious. A Torrens title does not furnish a shield for fraud notwithstanding the long-standing rule that registration is a constructive notice of title binding upon the whole world. The legal principle is that if the registration of the land is fraudulent and the person in whose name the land is registered thus holds it as a mere trustee, the real owner is entitled to file an action for reconveyance of the property within a period of ten years (Pajarillo v. Intermediate Appellate Court, G.R. No. 72908, August 11, 1969, 176 SCRA 340).

Since petitioners asserted claims of exclusive ownership over the said parcels of land but acted in fraud of the private respondents, the former may be held to act as trustees for the benefit of the latter, pursuant to the provision of Article 1456 of the Civil Code:

"ART. 1456. 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."

But while the trial court has the authority to order the reconveyance of the questioned titles, We cannot agree that the reconveyance should be made in favor of the private respondents. The reason is that it is still unproven whether or not the private respondents are the only ones entitled to the conjugal properties of Jose Velasquez, Sr. and Victorina Real. It is to be noted that as the lawful heirs of Jose Velasquez, Sr. the herein petitioners are also entitled to participate in his conjugal share. To reconvey said property in favor of the private respondents alone would not only be improper but will also make the situation more complicated. There are still things to be done before the legal share of all the heirs can be properly adjudicated.

Relative to the last assignment of error, We find the ruling made by the respondent appellate court proper and in accord with law insofar as it adjudicated the one-half (1/2) portion of the house and lot situated at West Avenue, Quezon City, as belonging to the petitioners to the extent of their respective proportional contributions, and the other half to the conjugal partnership of Jose Velasquez, Sr. and Canuta Paqkatipunan. We must modify it, however, as it readily partitioned the conjugal share of Jose Velasquez, Sr. (1/2 of the conjugal property or 1/4 of the entire house and lot) to his 18 heirs.

As already said, no conclusion as to the legal share due to the compulsory heirs can be reached in this case without (1) determining first the net value of the estate of Jose Velasquez, Sr.; (2) collating all the donations inter vivos in favor of some of the heirs; and (3) ascertaining the legitime of the compulsory heirs.

ACCORDINGLY, the decision of the trial court as modified by the respondent appellate court is hereby SET ASIDE except insofar as it:

a) declared the properties listed in the Inventory submitted by the commissioners on May 9, 1975 as belonging to the estate of the conjugal partnership of the spouses Jose Velasquez, Sr. and Victorina Real;

b) declared null and void, sham and fictitious, the following sales, transfers, assignments or conveyances:

1) the sale executed by Canuta Pagkatipunan in favor of her sister Magdalena Pagkatipunan; 2) the resale of the same property executed in favor of Canuta Pagkatipunan; and 3) the deeds of assignments executed by Canuta Pagkatipunan in favor of her 13 children; covering the properties listed in Items 7 and 8;

c) declared as null and void all the other conveyances made by Canuta Pagkatipunan with respect to Item No. 13 of the inventory; and

d) dismissed the case against the other defendants except Canuta Pagkatipunan and her children and the spouses Moises Santos and Magdalena Pagkatipunan.

Civil Case No. SC-894 is hereby remanded to the Regional Trial Court of Laguna, for further proceedings and the same Court is directed to:

a) follow the procedure for partition herein prescribed;

b) expand the scope of the trial to cover other possible illegal dispositions of the first conjugal partnership properties not only by Canuta Pagkatipunan but also by the other heirs as can be shown in the records;

c) include the one-fourth (1/4) share of Jose Velasquez, Sr. in the residential house in Quezon City with his conjugal share under his first marriage, if any, to determine his net estate at the time of his death.

The trial court's pronouncement as to cost and damages is hereby deleted.

SO ORDERED.

Narvasa, (Chairman), Cruz, and Grino-Aquino, JJ., concur.
Gancayco, J., on leave.

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