THE HEIRS OF PEDRO ESCANLAR ET AL V. CA 281 SCRA 176 (1997)

FACTS: Spouses Guillermo Nombre and Victoriana Cari-an died without issue in 1924 and 1938, respectively. Nombre’s heirs include his nephews and grandnephews. Victoriana was succeeded by her late brother’s son, Gregorio Cari-an.

1.    After Gregorio’s death in 1971, his wife, Generosa Martinez and children (Rodolfo, Carmen, Leonardo and Fredisminda) were adjudged as heirs by representation to Victoriana’s estate. Leonardo passed away, leaving his widow, Nelly Chua vda. de Cari-an and minor Leonell as his heirs

2.    2 parcels of land, denominated by Lot 1616 and 1617, formed part of the estate of Guillermo Nombre and Victoriana Cari-an.

3.    In 1978, Gregorio’s heirs executed a deed of sale of rights, interests and participation in favor of Pedro Escanlar and Francisco Holgado over the ½ undivided share of Victoriana for P275,000  to be paid to the heirs, except the share of the minor Leonell Cari-an which shall be deposited to the Municipal Treasurer. Said contract of sale will be effective only upon approval of CFI

4.    Escanlar and Holgado, the vendees, were concurrently the lessees of the subject property. In a deed of agreement executed by both parties confirming and affirming the contract of sale, they stipulated the following:

a.    That the balance of the purchase price (P225,000) shall be paid on or before May 1979b.    Pending complete payment thereof, the vendees shall not assign, sell, lease or

mortgage the rights, interests and participation thereofc.    In the event of nonpayment of the balance of said purchase price, the sum of P50,000

(down payment) shall be deemed as damages5.    Escanlar and Holgado were unable to pay the individual shares of the Cari-an heirs,

amounting to P55,000 each, on the due date. However, said heirs received at least 12 installment payments from Escanlar and Holgado after May 1979. Rodolfo was fully paid by June 1979, Generosa Martinez, Carmen and Fredisminda were likewise fully compensated for their individual shares. The minor’s share was deposited with the RTC in September 1982.

6.    Being former lessees, Escanlar and Holgado continued in possession of Lots 1616 and Lots 1617. Interestingly, they continued to pay rent based on their lease contract.

7.    Subsequently, Escanlar and Holgado sought to intervene in the probate proceedings of Guillermo and Victoriana as buyers of Victoriana’s share. In 1982, the probate court approved the motion filed by the heirs of Guillermo and Victoriana to sell their respective shares in the estate. Thereafter, the Cari-ans, sold their shares in 8 parcels of land including lots 1616 and 1617 to spouses Chua for P1.85 million.

8.    The Cari-ans instituted a case for cancellation of sale against Escanlar and Holgado alleging the latter’s failure to pay the balance of the purchase price on the stipulated date and that they only received a total of P132,551 in cash and goods.

9.    Escanlar and Holgado averred that the Cari-ans, having been paid, had no right to resell the subject lots and that the spouses Chua were purchasers in bad faith.

10. The trial court held in favor of the heirs of Cari-an citing that the sale between the Cari-ans and Escanlar is void as it was not approved by the probate court which was required in the deed of sale.

11. CA affirmed the same and cited that the questioned deed of sale of rights is a contract to sell because it shall become effective only upon approval by the probate court and upon full payment of the purchase price.

ISSUE: WON the non-happening of a condition affects the validity of the contract itself

HELD: No, the non-happening of a condition only affects the effectivity and not the validity of the contract.

Under Art 1318 Civil Code, the essential requisites of a contract are:   consent of the contracting parties; object certain which is the subject matter of the contract and cause of the obligation which is established.     Absent one of the above, no contract can arise.   Conversely, where all are present, the result is a valid contract. However, some parties introduce various kinds of restrictions or modalities, the lack of which will not, however, affect the validity of the contract.In the instant case, the Deed of Sale, complying as it does with the essential requisites, is a valid one.  However, it did not bear the stamp of approval of the court.  The contract’s validity was not affected for in the words of the stipulation, “ …this Contract of Sale of rights, interests and participations shall become effective only upon the approval by the Honorable Court…”  In other words, only the effectivity and not the validity of the contract is affected.

CONTRACT TO SELL VS. CONTRACT TO SALEIn contracts to sell, ownership is retained by the seller and is not to pass until the full payment of the price. Such payment is a positive suspensive condition, the failure of which is not a breach of contract but simply an event that prevented the obligation of the vendor to convey title from acquiring binding force. To illustrate, although a deed of conditional sale is denominated as such, absent a proviso that title to the property sold is reserved in the vendor until full payment of the purchase price nor a stipulation giving the vendor the right to unilaterally rescind the contract the moment the vendee fails to pay within a fixed period, by its nature, it shall be declared a deed of absolute sale.

In a contract of sale, the non-payment of the price is a resolutory condition which extinguishes the transaction that, for a time, existed and discharges the obligations created thereunder. The remedy of an unpaid seller in a contract of sale is to seek either specific performance or rescission.

In the case at bar, the sale of rights, interests and participation as to ½ portion pro indiviso of the 2 subject lots is a contract of sale for the reasons that (1) the sellers did not reserve unto     themselves the ownership of the property until full payment of the unpaid balanceof P225,000.00; (2) there is no stipulation giving the sellers the right to unilaterally rescind the contract the moment the buyer fails to pay within the fixed period.

NEED OF PROBATE COURT’S APPROVAL EXISTS WHERE SPECIFIC PROPERTIES OF THE ESTATE ARE SOLD AND NOT WHEN IDEAL AND INDIVISIBLE SHARES OF AN HEIR ARE DISPOSED OF

The need for approval by the probate court exists only where specific properties of the estate are sold and not when only ideal and indivisible shares of an heir are disposed of. In Dillena v. Court of Appeals, the Court declared that it is within the jurisdiction of the probate court to approve the sale of properties of a deceased person by his prospective heirs before final adjudication. The probate court’s approval is necessary for the validity of any disposition of the decedent’s estate. However, reference to judicial approval cannot adversely affect the substantive rights of the heirs to dispose of their ideal share in the co-heirship and/or co-ownership among the heirs. It must be recalled that during the period of indivision of a decedent’s estate, each heir, being a co-owner, has full ownership of his part and may therefore alienate it. But the effect of the alienation 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.

CONTRACTUAL STIPULATIONS CONSIDERED LAW BETWEEN PARTIES; EXCEPTION: CONTEMPORANEOUS ACTS OF PARTIESAs a general rule, the pertinent contractual stipulation (requiring court approval) should be considered as the law between the parties. However, the presence of two factors militates against this conclusion: (1) the evident intention of the parties appears to be contrary to the mandatory character of said stipulation. Whoever crafted the document of conveyance, must have been of the belief that the controversial stipulation was a legal requirement for the validity of the sale. But the contemporaneous and subsequent acts of the parties reveal that the original objective of the parties was to give effect to the deed of sale even without court approval.

Receipt and acceptance of the numerous installments on the balance of the purchase price by the Cari-ans, although the period to pay the balance of the purchase price expired in May 1979, and leaving Escanlar and Holgado in possession of Lots 1616 and 1617 reveal their intention to effect the mutual transmission of rights and obligations. The Cari-ans did not seek judicial relief until late 1982 or three years later; (2) the requisite approval was virtually rendered impossible by the Cari-ans because they opposed the motion for approval of the sale filed by Escanlar and Holgado, and sued the latter for the cancellation of that sale. Having provided the obstacle and the justification for the stipulated approval not to be granted, the Cari-ans should not be allowed to cancel their first transaction with Escanlar and Holgado because of lack of approval by the probate court, the lack of which is of their own making.