G.R. No. L-35367. April 9, 1987.
MANOTOK REALTY, INC., petitioner, vs. THE HONORABLE COURT OF APPEALS and APOLONIO SIOJO, respondents.

FACTS

The case involves a dispute over a lot within the Legarda Tambunting Subdivision, part of a decedent’s estate under probate. In 1951, the probate court authorized co-administrator Vicente Legarda to sell the entire subdivision at P50.00 per square meter, requiring the execution of documents and court approval. In December 1952, Legarda allegedly sold a specific lot to Abelardo Lucero at P30.00 per square meter on installment, evidenced only by a receipt for a P200.00 down payment. Lucero took possession and later leased portions to tenants, including respondent Apolonio Siojo, who built a house. Lucero attempted further payments to the subsequent administrator, Philippine Trust Company, but was refused due to ongoing estate litigation. The petitioner, Manotok Realty, subsequently purchased the entire subdivision in 1959 under a court-approved deed and obtained titles.
In 1966, Manotok filed an ejectment suit against Siojo. After being served summons in March 1966, Lucero executed a deed assigning his rights to Siojo in May 1966. The trial court ruled for Manotok, but the Court of Appeals reversed, upholding the validity of the Legarda-Lucero sale, ruling court approval was unnecessary and a consummated sale existed.

ISSUE

Whether the Court of Appeals erred in upholding the validity of the contract of sale between Legarda and Lucero and in ruling that probate court approval was unnecessary.

RULING

The Supreme Court reversed the Court of Appeals and reinstated the trial court’s decision. The alleged sale by Legarda to Lucero was invalid and unenforceable against third parties like Manotok. First, the authority granted by the probate court explicitly required the execution of necessary documents and submission for court approval. Legarda’s act, evidenced only by a receipt, failed to comply with these mandatory terms. Second, contracts for the transmission of real rights over immovable property must be in a public document under Article 1358 of the Civil Code to be binding against third persons. The mere receipt and partial payment were insufficient, especially without registration.
Furthermore, Siojo could not claim rights as a possessor in good faith. Manotok had secured title in 1959, constituting constructive notice. Siojo, as a lessee, was aware of the ownership dispute, and his subsequent purchase from Lucero in May 1966 occurred after he had been served summons in Manotok’s ejectment case in March 1966, demonstrating bad faith. The Legarda-Lucero transaction, lacking proper documentation and court approval, did not bind the estate or defeat Manotok’s registered title acquired through a court-approved sale.