SECOND DIVISION

G.R. No. 194366 : October 10, 2012

NAPOLEON D. NERI, ALICIA D. NERI-MONDEJAR, VISMINDA D. NERI-

CHAMBERS, ROSA D. NERI-MILLAN, DOUGLAS D. NERI, EUTROPIA D. ILLUT-
COCKINOS AND VICTORIA D. ILLUT-PIALA, Petitioners, v. HEIRS OF HADJI
YUSOP UY AND JULPHA* IBRAHIM UY, Respondents.

DECISION

PERLAS-BERNABE, J.:

In this Petition for Review on Certiorari1 under Rule 45 of the Rules of Court,
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petitioners Napoleon D. Neri (Napoleon), Alicia D. Neri-Mondejar (Alicia), Visminda D.

Neri-Chambers (Visminda), Rosa D. Neri-Millan (Rosa), Douglas D. Neri (Douglas),
Eutropia D. Illut-Cockinos (Eutropia), and Victoria D. Illut-Piala (Victoria) seek to
reverse and set aside the April 27, 2010 Decision2 and October 18, 2010 Resolution3 of
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the Court of Appeals (CA) in CA-G.R. CV No. 01031-MIN which annulled the October 25,
2004 Decision4 of the Regional Trial Court (RTC) of Panabo City, Davao del Norte and
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instead, entered a new one dismissing petitioners complaint for annulment of sale,
damages and attorneys feesagainst herein respondents heirs of spouses Hadji Yusop Uy
and Julpha Ibrahim Uy (heirs of Uy).

The Facts

During her lifetime, Anunciacion Neri (Anunciacion) had seven children, two (2) from
her first marriage with Gonzalo Illut (Gonzalo), namely: Eutropia and Victoria, and five
(5) from her second marriage with Enrique Neri (Enrique), namely: Napoleon, Alicia,
Visminda, Douglas and Rosa. Throughout the marriage of spouses Enrique and
Anunciacion, they acquired several homestead properties with a total area of 296,555
square meters located in Samal, Davao del Norte, embraced by Original Certificate of
Title (OCT) Nos. (P-7998) P-21285 , (P-14608) P-51536 and P-20551 (P-8348)7issued
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on February 15, 1957, August 27, 1962 and July 7, 1967, respectively.

On September 21, 1977, Anunciacion died intestate. Her husband, Enrique, in his
personal capacity and as natural guardian of his minor children Rosa and Douglas,
together with Napoleon, Alicia, and Vismindaexecuted an Extra-Judicial Settlement of
the Estate with Absolute Deed of Sale8 on July 7, 1979, adjudicating among
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themselves the said homestead properties, and thereafter, conveying themto the late
spouses Hadji Yusop Uy and Julpha Ibrahim Uy (spouses Uy)for a consideration
of P 80,000.00.

On June 11, 1996, the children of Enrique filed a complaint for annulment of saleof the
said homestead properties against spouses Uy (later substituted by their heirs)before
the RTC, docketed as Civil Case No.96-28, assailing the validity of the sale for having
been sold within the prohibited period. Thecomplaint was later amended to include
Eutropia and Victoriaas additional plaintiffs for having been excluded and deprived of
their legitimes as childrenof Anunciacion from her first marriage.
In their amended answer with counterclaim, the heirs of Uy countered that the sale
took place beyond the 5-year prohibitory period from the issuance of the homestead
patents. They also denied knowledge of Eutropia and Victorias exclusionfrom the
extrajudicial settlement and sale of the subject properties, and interposed further the
defenses of prescription and laches.

The RTC Ruling

On October 25, 2004, the RTC rendered a decision ordering, among others, the
annulment of the Extra-Judicial Settlement of the Estate with Absolute Deed of Sale. It
ruled that while the sale occurred beyond the 5-year prohibitory period, the sale is still
void because Eutropia and Victoria were deprived of their hereditary rights and that
Enrique had no judicial authority to sell the shares of his minor children, Rosa and
Douglas.

Consequently, it rejected the defenses of laches and prescription raised by spouses Uy,
who claimed possession of the subject properties for 17 years, holding that co-
ownership rights are imprescriptible.

The CA Ruling

On appeal, the CAreversed and set aside the ruling of the RTC in its April 27, 2010
Decision and dismissed the complaint of the petitioners. It held that, while Eutropia and
Victoria had no knowledge of the extrajudicial settlement and sale of the subject
properties and as such, were not bound by it, the CA found it unconscionable to permit
the annulment of the sale considering spouses Uys possession thereof for 17 years, and
thatEutropia and Victoriabelatedlyfiled their actionin 1997, ormore than two years
fromknowledge of their exclusion as heirs in 1994 when their stepfather died. It,
however, did not preclude the excluded heirs from recovering their legitimes from their
co-heirs.

Similarly, the CA declared the extrajudicial settlement and the subsequent saleas valid
and binding with respect to Enrique and hischildren, holding that as co-owners, they
have the right to dispose of their respective shares as they consider necessary or
fit.While recognizing Rosa and Douglas to be minors at that time, they were deemed to
have ratified the sale whenthey failed to question it upon reaching the age of
majority.Italso found laches to have set in because of their inaction for a long period of
time.

The Issues

In this petition, petitioners imputeto the CA the following errors:

I. WHEN IT UPHELDTHE VALIDITY OF THE "EXTRA JUDICIAL SETTLEMENT OF THE

ESTATE WITH ABSOLUTE DEED OF SALE" AS FAR AS THE SHARES OF EUTROPIA AND
VICTORIA WERE CONCERNED, THEREBY DEPRIVING THEM OF THEIR INHERITANCE;
II. WHEN IT DID NOT NULLIFY OR ANNUL THE "EXTRA JUDICIAL SETTLEMENT OF THE
ESTATE WITH ABSOLUTE DEED OF SALE" WITH RESPECT TO THE SHARESOF ROSA
AND DOUGLAS, THEREBY DEPRIVING THEM OF THEIR INHERITANCE; and

III. WHEN IT FOUND THAT LACHES OR PRESCRIPTION HAS SET IN.

The Ruling of the Court

The petitionis meritorious.

It bears to stress that all the petitioners herein are indisputably legitimate children of
Anunciacion from her first and second marriages with Gonzalo and Enrique,
respectively, and consequently, are entitled to inherit from her in equal shares,
pursuant to Articles 979 and 980 of the Civil Code which read:

ART. 979. Legitimate children and their descendants succeed the parents and other
ascendants, without distinction as to sex or age, and even if they should come from
different marriages.

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ART. 980. The children of the deceased shall always inherit from him in their own right,
dividing the inheritance in equal shares.

As such, upon the death of Anunciacion on September 21, 1977, her children and
Enrique acquired their respective inheritances,9 entitling them to their pro indiviso
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shares in her whole estate, as follows:

Enrique 9/16 (1/2 of the conjugal assets + 1/16)

Eutropia 1/16
Victoria 1/16
Napoleon 1/16
Alicia 1/16
Visminda 1/16
Rosa 1/16
Douglas 1/16

Hence, in the execution of the Extra-Judicial Settlement of the Estate with Absolute
Deed of Sale in favor of spouses Uy, all the heirs of Anunciacionshould have
participated. Considering that Eutropia and Victoria were admittedly excluded and that
then minors Rosa and Douglas were not properly represented therein, the settlement
was not valid and binding uponthem and consequently, a total nullity.

Section 1, Rule 74 of the Rules of Court provides: chanroblesvi rt uallawl ibra ry

SECTION 1. Extrajudicial settlement by agreement between heirs. x x x

The fact of the extrajudicial settlement or administration shall be published in a

newspaper of general circulation in the manner provided in the next succeeding section;
but no extrajudicial settlement shall be binding upon any person who has not
participated therein or had no notice thereof. (Underscoring added)

The effect of excluding the heirs in the settlement of estate was further elucidated
in Segura v. Segura,10 thus:
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It is clear that Section 1 of Rule 74 does not apply to the partition in question which
was null and void as far as the plaintiffs were concerned. The rule covers only valid
partitions. The partition in the present case was invalid because it excluded six of the
nine heirs who were entitled to equal shares in the partitioned property. Under the rule
"no extrajudicial settlement shall be binding upon any person who has not participated
therein or had no notice thereof." As the partition was a total nullity and did not affect
the excluded heirs, it was not correct for the trial court to hold that their right to
challenge the partition had prescribed after two years from its execution

However, while the settlement of the estate is null and void, the subsequent sale of the
subject propertiesmade by Enrique and his children, Napoleon, Alicia and Visminda, in
favor of the respondents isvalid but only with respect to their proportionate shares
therein.It cannot be denied that these heirs have acquired their respective shares in the
properties of Anunciacion from the moment of her death11and that, as owners thereof,
they can very well sell their undivided share in the estate.12
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With respect to Rosa and Douglas who were minors at the time of the execution of the
settlement and sale, their natural guardian and father, Enrique, represented them in
the transaction. However, on the basis of the laws prevailing at that time, Enrique was
merely clothed with powers of administration and bereft of any authority to dispose of
their 2/16 shares in the estate of their mother, Anunciacion.

Articles 320 and 326 of the Civil Code, the laws in force at the time of the execution of
the settlement and sale, provide:

ART. 320. The father, or in his absence the mother, is the legal administrator of the
property pertaining to the child under parental authority. If the property is worth more
than two thousand pesos, the father or mother shall give a bond subject to the
approval of the Court of First Instance.

ART. 326. When the property of the child is worth more than two thousand pesos, the
father or mother shall be considered a guardian of the childs property, subject to the
duties and obligations of guardians under the Rules of Court.

Corollarily, Section 7, Rule 93 of the Rules of Court also provides:

SEC. 7. Parents as Guardians. When the property of the child under parental authority
is worth two thousand pesos or less, the father or the mother, without the necessity of
court appointment, shall be his legal guardian. When the property of the child is worth
more than two thousand pesos, the father or the mother shall be considered guardian
of the childs property, with the duties and obligations of guardians under these Rules,
and shall file the petition required by Section 2 hereof. For good reasons, the court
may, however, appoint another suitable persons.

Administration includes all acts for the preservation of the property and the receipt of
fruits according to the natural purpose of the thing. Any act of disposition or alienation,
or any reduction in the substance of the patrimony of child, exceeds the limits of
administration.13 Thus, a father or mother, as the natural guardian of the minor under
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parental authority, does not have the power to dispose or encumber the property of the
latter. Such power is granted by law only to a judicial guardian of the wards property
and even then only with courts prior approval secured in accordance with the
proceedings set forth by the Rules of Court.14 ςrν ll

Consequently, the disputed sale entered into by Enrique in behalf of his minor children
without the proper judicial authority, unless ratified by them upon reaching the age of
majority,15 is unenforceable in accordance with Articles 1317 and 1403(1) of the Civil
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Code which provide:

ART. 1317. No one may contract in the name of another without being authorized by
the latter or unless he has by law a right to represent him.

A contract entered into in the name of another by one who has no authority or legal
representation, or who has acted beyond his powers, shall be unenforceable, unless it is
ratified, expressly or impliedly, by the person on whose behalf it has been executed,
before it is revoked by the other contracting party.

ART. 1403. The following contracts are unenforceable, unless they are ratified: chanroblesvi rtua llawli bra ry

(1) Those entered into the name of another person by one who has been given no
authority or legal representation, or who has acted beyond his powers;

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Ratification means that one under no disability voluntarily adopts and gives sanction to
some unauthorized act or defective proceeding, which without his sanction would not be
binding on him. It is this voluntary choice, knowingly made, which amounts to a
ratification of what was theretofore unauthorized, and becomes the authorized act of
the party so making the ratification.16 Once ratified, expressly or impliedly such as
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when the person knowingly received benefits from it, the contract is cleansed from all
its defects from the moment it was constituted,17 as it has a retroactive effect.
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Records, however, show that Rosa had ratified the extrajudicial settlement of the estate
with absolute deed of sale. In Napoleon and Rosas Manifestation18 before the RTC
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dated July 11, 1997,they stated:

"Concerning the sale of our parcel of land executed by our father, Enrique Neri
concurred in and conformed to by us and our other two sisters and brother (the other
plaintiffs), in favor of Hadji Yusop Uy and his spouse Hadja Julpa Uy on July 7,
1979, we both confirmed that the same was voluntary and freely made by all of us and
therefore the sale was absolutely valid and enforceable as far as we all plaintiffs in this
case are concerned;" (Underscoring supplied)

In their June 30, 1997 Joint-Affidavit,19 Napoleon and Rosa also alleged:
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"That we are surprised that our names are included in this case since we do not have
any intention to file a case against Hadji Yusop Uy and Julpha Ibrahim Uy and their
family and we respect and acknowledge the validity of the Extra-Judicial Settlement of
the Estate with Absolute Deed of Sale dated July 7, 1979;" (Underscoring supplied)

Clearly, the foregoing statements constitutedratification of the settlement of the estate

and the subsequent sale, thus, purging all the defects existing at the time of its
execution and legitimizing the conveyance of Rosas 1/16 share in the estate of
Anunciacion to spouses Uy. The same, however, is not true with respect to Douglas for
lack of evidence showing ratification.

Considering, thus, that the extrajudicial settlement with sale is invalid and therefore,
not binding on Eutropia, Victoria and Douglas, only the shares ofEnrique, Napoleon,
Alicia, Visminda and Rosa in the homestead properties have effectivelybeen disposed in
favor of spouses Uy. "A person can only sell what he owns, or is authorized to sell and
the buyer can as a consequence acquire no more than what the sellercan legally
transfer."20 On this score, Article 493 of the Civil Codeis relevant, which provides:
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Each co-owner shall have the full ownership of his part and of the fruits and benefits
pertaining thereto, and he may therefore alienate, assign or mortgage it, and even
substitute another person in its enjoyment, except when personal rights are involved.
But the effect of the alienation or the mortgage, with respect to the co-owners, shall be
limited to the portion which may be allotted to him in the division upon the termination
of the co-ownership.

Consequently, spouses Uy or their substituted heirs became pro indiviso co-owners of

the homestead properties with Eutropia, Victoria and Douglas, who retained title to
their respective 1/16 shares. They were deemed to be holding the 3/16 shares of
Eutropia, Victoria and Douglas under an implied constructive trust for the latters
benefit, conformably with Article 1456 of the Civil Code which states:"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." As such, it is only fair, just and equitable that the amount paid for
their shares equivalent to P 5,000.0021 each or a total of P 15,000.00 be returned to
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spouses Uy with legal interest.

On the issue of prescription, the Court agrees with petitioners that the present action
has not prescribed in so far as it seeks to annul the extrajudicial settlement of the
estate. Contrary to the ruling of the CA, the prescriptive period of 2 years provided in
Section 1 Rule 74 of the Rules of

Court reckoned from the execution of the extrajudicial settlement finds no application to
petitioners Eutropia, Victoria and Douglas, who were deprived of their lawful
participation in the subject estate. Besides, an "action or defense for the declaration of
the inexistence of a contract does not prescribe" in accordance with Article 1410 of the
Civil Code.

However, the action to recover property held in trust prescribes after 10 years from the
time the cause of action accrues,22 which is from the time of actual notice in case of
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unregistered deed.23 In this case, Eutropia, Victoria and Douglas claimed to have
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knowledge of the extrajudicial settlement with sale after the death of their father,
Enrique, in 1994 which spouses Uy failed to refute. Hence, the complaint filed in 1997
was well within the prescriptive period of 10 years.

WHEREFORE, the instant petition is GRANTED. The April 27, 2010 Decision and
October 18, 2010 Resolution of the Court of Appeals are REVERSED and SET
ASIDE and a new judgment is entered:

1. Declaring the Extra-Judicial Settlement of the Estate of Anunciacion

Neri NULL and VOID;

2. Declaring the Absolute Deed of Sale in favor of the late spouses Hadji Yusop Uy and
Julpha Ibrahim Uy as regards the 13/16 total shares of the late Enrique Neri, Napoleon
Neri, Alicia D. Neri-Mondejar, Visminda D. Neri-Chambers and Rosa D. Neri-
Millan VALID;

3. Declaring Eutropia D. Illut-Cockinos, Victoria D. Illut-Piala and Douglas D. Neri as

the LAWFUL OWNERS of the 3/16 portions of the subject homestead properties,
covered by Original Certificate of Title Nos. (P-7998) P-2128, (P-14608) P-5153 and P-
20551 (P-8348); and

4. Ordering the estate of the late Enrique Neri, as well as Napoleon Neri, Alicia D. Neri-
Mondejar, Visminda D. Neri-Chambers and Rosa D. Neri-Millan to return to the
respondents jointly and solidarily the amount paid corresponding to the 3/16 shares of
Eutropia, Victoria and Douglas in the total amount of P 15,000.00, with legal interest at
6% per annum computed from the time of payment until finality of this decision and
12% per annum thereafter until fully paid.

No pronouncement as to costs. ςrαlαωl ιb rαr

SO ORDERED.