UA vs. VARGAS G.R. No.

156536 October 31, 2006 Rule 74, Extrajudicial Settlement

FACTS:

A parcel of residential land with an area of 99 square meters located in San Juan, Virac,
Catanduanes was left behind by the late Paulina Vargas. On February 4, 1994, a notarized Extra
Judicial Settlement Among Heirs was executed by and among Paulina Vargas' heirs, namely
Ester Vargas, Visitacion Vargas, Juan Vargas, Zenaida V. Matienzo, Rosario V. Forteza, Andres
Vargas, Gloria Vargas, Antonina Vargas and Florentino Vargas, partitioning and adjudicating
unto themselves the lot in question, each one of them getting a share of 11 square meters.
Florentino, Andres, Antonina and Gloria, however, did not sign the document. Only Ester,
Visitacion, Juan, Zenaida and Rosario signed it. The Extra Judicial Settlement Among Heirs was
published in the Catanduanes Tribune for three consecutive weeks.3

On November 15, 1994, an Extra Judicial Settlement Among Heirs with Sale 4 was again executed
by and among the same heirs over the same property and also with the same sharings. Once
more, only Ester, Visitacion, Juan, Zenaida and Rosario signed the document and their
respective shares totaling 55 square meters were sold to Joseph Cua, petitioner herein.

According to Gloria Vargas, the widow of Santiago Vargas and one of respondents herein, she
came to know of the Extra Judicial Settlement Among Heirs with Sale dated November 16, 1994
only when the original house built on the lot was being demolished sometime in May
1995.5 She likewise claimed she was unaware that an earlier Extra Judicial Settlement Among
Heirs dated February 4, 1994 involving the same property had been published in the
Catanduanes Tribune.6

After knowing of such sale to petitioner, Gloria Vargas tried to redeem the property.
When the offer to redeem was refused, Gloria Vargas and her children filed a case for
annulment of Extra Judicial Settlement and Legal Redemption of the lot with the MTC.
The MTC dismissed the complaint, declaring the Deed of Extra Judicial Settlement Among Heirs
with Sale valid and binding.
The RTC affirmed the MTC decision.
The CA reversed the ruling of both lower courts, declaring that the Extra Judicial Settlement
Among Heirs and the Extra Judicial Settlement Among Heirs with Sale were void and without
any legal effect.
The CA held that, pursuant to Section 1, Rule 74 of the Rules of Court, the extrajudicial
settlement made by the other co-heirs is not binding upon respondents considering the latter
never participated in it nor did they ever signify their consent to the same.
Petitioner argued among others, that the acquisition by petitioner of the subject property
subsequent to the extrajudicial partition was valid because the partition was duly published.
The publication of the same constitutes due notice to respondents and signifies their implied
acquiescence thereon. Respondents are therefore estopped from denying the validity of the
partition and sale at this late stage. Considering that the partition was valid, respondents no
longer have the right to redeem the property.
ISSUE:
1. Whether or not the heirs are deemed constructively notified and bound, regardless of
their failure to participate therein, by an extrajudicial settlement and partition of estate
when the extrajudicial settlement and partition has been duly published.
2. Assuming a published extrajudicial settlement and partition does not bind persons who
did not participate therein, whether the written notice required to be served by an heir
to his co-heirs in connection with the sale of hereditary rights to a stranger before
 partition under Article 1088 of the Civil Code17 can be dispensed with when such co-
heirs have actual knowledge of the sale such that the 30-day period within which a co-
heir can exercise the right to be subrogated to the rights of a purchaser shall commence
from the date of actual knowledge of the sale.

RULING:
The petition lacks merit. The procedure outlined in Section 1 of Rule 74 is an ex parte
proceeding. The rule plainly states, however, that persons who do not participate or had no
notice of an extrajudicial settlement will not be bound thereby. It contemplates a notice that
has been sent out or issued before any deed of settlement and/or partition is agreed upon (i.e.,
a notice calling all interested parties to participate in the said deed of extrajudicial settlement
and partition), and not after such an agreement has already been executed as what happened
in the instant case with the publication of the first deed of extrajudicial settlement among heirs.
The publication of the settlement does not constitute constructive notice to the heirs who had
no knowledge or did not take part in it because the same was notice after the fact of execution.
The requirement of publication is geared for the protection of creditors and was never intended
to deprive heirs of their lawful participation in the decedent’s estate.
Following Rule 74, these extrajudicial settlements do not bind respondents, and the partition
made without their knowledge and consent is invalid insofar as they are concerned.
This is not to say, though, that respondents’ co-heirs cannot validly sell their hereditary rights to
third persons even before the partition of the estate. The heirs who actually participated in the
execution of the extrajudicial settlements, which included the sale to petitioner of their pro
indiviso shares in the subject property, are bound by the same.
Nevertheless, respondents are given the right to redeem these shares pursuant to Article 1088
of the Civil Code. The right to redeem was never lost because respondents were never notified
in writing of the actual sale by their co-heirs. Based on the provision, there is a need for written
notice to start the period of redemption, thus:
Should any of the heirs sell his hereditary rights to a stranger before the partition, any or all of
the co-heirs may be subrogated to the rights of the purchaser by reimbursing him for the price
of the sale, provided they do so within the period of one month from the time they were
notified in writing of the sale by the vendor.
It bears emphasis that the period of one month shall be reckoned from the time that a co-heir
is notified in writing by the vendor of the actual sale. Written notice is indispensable and
mandatory, actual knowledge of the sale acquired in some other manner by the redemptioner
notwithstanding. It cannot be counted from the time advance notice is given of an impending
or contemplated sale. The law gives the co-heir thirty days from the time written notice of the
actual sale within which to make up his or her mind and decide to repurchase or effect the
redemption.
It should be kept in mind that the obligation to serve written notice devolves upon the vendor
co-heirs because the latter are in the best position to know the other co-owners who, under the
law, must be notified of the sale
Considering, therefore, that respondents’ co-heirs failed to comply with this requirement, there
is no legal impediment to allowing respondents to redeem the shares sold to petitioner.
SPOUSES EDUARDO ARENAS DOMINGO & JOSEFINA CHAVEZ DOMINGO, petitioners,
vs.
LILIA MONTINOLA ROCES, CESAR ROBERTO M. ROCES, ANA INES MAGDALENA ROCES
TOLENTINO, LUIS MIGUEL M. ROCES, JOSE ANTONIO M. ROCES and MARIA VIDA
PRESENTACION ROCES, respondents.

YNARES-SANTIAGO, J.:

Facts:

The spouses Cesar and Lilia Roces were the owners of two contiguous parcels of land located on
Arayat Street, Mandaluyong, the Government Service Insurance System (GSIS) caused the
annotation of an affidavit of adverse claim on the titles alleging that the spouses have
mortgaged the same to it.4

Subsequently, GSIS wrote a letter to Cesar Roces demanding the surrender of the owner's
duplicates of titles. When Roces failed to comply, GSIS filed a petition with the then Court of
First Instance of Rizal, praying that the owner's duplicates in Roces' possession be declared null
and void and that the Register of Deeds of Pasig be directed to issue new owner's duplicates to
GSIS.5 

The Court of First Instance issued an order granting the petition.6 The order became final and
executory, and TCT Nos. 57217 (11663) and 57218 (11664) were issued in the name of GSIS.7

Cesar Roces died intestate on January 26, 1980.8 He was survived by the respondents in this
case.

Reynaldo L. Montinola, a nephew of Lilia Roces, executed an affidavit of self-adjudication over

properties. He alleged that the properties were owned by the spouses Cesar and Lilia Roces,
both of whom died intestate and that the properties were acquired during the existence of
their marriage; that the spouses left no heirs except the brother of Lilia Roces, who was his
father; that neither of the spouses left any will nor any debts; and that he was the sole heir of
the Roces spouses.9

Montinola filed a petition against GSIS with the Regional Trial Court of Pasig, praying for the
cancellation of TCT Nos. 57217 (11663) and 57218 (11664).10 During the trial, GSIS failed to
produce any document evidencing the alleged real estate mortgage by Roces of the properties.
Hence, the trial court rendered judgment in favor of Montinola.

GSIS did not appeal the aforesaid judgment; thus, the same became final and executory.

Montinola executed a deed of absolute sale of the property covered by TCT No. 7299 in favor of
petitioner spouses Eduardo and Josefina Domingo.13 Thereafter, TCT No. 7673 was issued in the
names of petitioners.

Both TCT Nos. 7299 and 7673 contained the following annotation:

Subject to the provision of Section 4, Rule 74 of the Rules of Court with respect to the
inheritance left by the deceased SPS. CESAR ROCES & LILIA MONTINOLA.14

When respondents learned of the sale, they filed a complaint against Montinola and petitioners
with the Regional Trial Court of Pasig. They argued that the affidavit of self-adjudication was
fraudulent because Montinola was not an heir of the Roces spouses and it was not true that
Lilia Roces was dead. Therefore, the affidavit of self-adjudication, as well as the deed of
absolute sale, TCT No. 7299, and TCT No. 7673, all covering the subject property, were null and
void.15

In their answer, petitioners alleged that they were buyers in good faith and that their action
was barred by estoppel and laches.16

After trial, the court a quo rendered judgment in favor of respondents.

Respondents appealed to the Court of Appeals, The Decision of the Court a quo appealed from
is SET ASIDE AND REVERSED. Another Decision is hereby rendered in favor of the Appellants.as
follows:

Petitioners filed a Motion for Reconsideration,20 which was denied in a Resolution dated March
15, 2000.21 Hence this petition.

Issue:

Whether or not the Court of appeals erred in holding that the annotation in the title regarding
section 4, Rule 74 is an encumbrance which disqualifies petitioners from being innocent
purchaser for value.

Ruling:

The Petition lacks merit.

It is true that one who deals with property registered under the Torrens system need not go
beyond the same, but only has to rely on the title. He is charged with notice only of such
burdens and claims as are annotated on the title. However, this principle does not apply when
the party has actual knowledge of facts and circumstances that would impel a reasonably
cautious man to make such inquiry or when the purchaser has knowledge of a defect or the lack
of title in his vendor or of sufficient facts to induce a reasonably prudent man to inquire into
the status of the title of the property in litigation. One who falls within the exception can
neither be denominated an innocent purchaser for value nor a purchaser in good faith.23

As stated above, the titles, namely, TCT Nos. 7299 and 7673, contained annotations which
made reference to the provisions of Rule 74, Section 4 of the Rules of Court, viz:

SEC. 4. Liability of distributees and estate. — If it shall appear at any time within two (2)
years after the settlement and distribution of an estate in accordance with the
provisions of either of the first two sections of this rule, that an heir or other person has
been unduly deprived of his lawful participation in the estate, such heir or such other
person may compel the settlement of the estate in the courts in the manner hereinafter
provided for the purpose of satisfying such lawful participation. And if within the same
time of two (2) years, it shall appear that there are debts outstanding against the estate
which have not been paid, or that an heir or other person has been unduly deprived of
his lawful participation payable in money, the court having jurisdiction of the estate
may, by order for that purpose, after hearing, settle the amount of such debts or lawful
participation and order how much and in what manner each distributee shall contribute
in the payment thereof, and may issue execution, if circumstances require, against the
bond provided in the preceding section or against the real estate belonging to the
deceased, or both. Such bond and such real estate shall remain charged with a liability
to creditors, heirs, or other persons for the full period of two (2) years after such
distribution, notwithstanding any transfers of real estate that may have been made.24

The foregoing rule clearly covers transfers of real property to any person, as long as the
deprived heir or creditor vindicates his rights within two years from the date of the settlement
and distribution of estate. Contrary to petitioners' contention, the effects of this provision are
not limited to the heirs or original distributees of the estate properties, but shall
affect any transferee of the properties.
In David v. Malay,25 it was held that the buyer of real property the title of which contain an
annotation pursuant to Rule 74, Section 4 of the Rules of Court cannot be considered innocent
purchasers for value. In the same vein, the annotation at the back of TCT No. 7299 in this case
referring to Rule 74, Section 4 of the Rules of Court was sufficient notice to petitioners of the
limitation on Montinola's right to dispose of the property. The presence of an irregularity which
excites or arouses suspicion should prompt the vendee to look beyond the certificate and
investigate the title of the vendor appearing on the face thereof.26 Purchasers of registered land
are bound by the annotations found at the back of the certificate of title.27

Hence, petitioners cannot be considered buyers in good faith and cannot now avoid the
consequences brought about by the application of Rule 74, Section 4 of the Rules of Court.