Prescription: When Can an Unduly Excluded Heir Seek a New Settlement of the Estate

General Rule:

An unduly excluded heir may seek a new settlement of the estate within two (2) years after the settlement and distribution of an estate.

This issue was complehensively tackled in the case: PEZA v. HON. RUMOLDO R. FERNANDEZ, Regional Trial Court of Lapu-Lapu City (Branch 54), et. al. (G.R. No. 138971, June 6, 2001). This case is very important since it tackles several matters involving prescription of actions involving properties and its registration.

Exemption:

When the title remains in the hands of the heirs who have fraudulently caused the partition of the subject property or in those of their transferees who cannot be considered innocent purchasers for value.

This is the relevant text in the said case that is relevant to the foregoing legal doctrines:

Petitioner avers that private respondents’ claim against the subject property has already prescribed, because the two-year period within which an unduly excluded heir may seek a new settlement of the estate had already lapsed by the time private respondents filed their action with the trial court. Petitioner further argues that private respondents received constructive notice in view of the registration of the extrajudicial partition with the Registry of Deeds. According to petitioner, the two-year period commenced from July 8, 1982, the date of inscription of the extrajudicial settlement on OCT No. 2537.

 

The pertinent provisions of Section 4, Rule 74 of the Rules of Court, are reproduced for easy reference, as follows:

 

"Section 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."

 

A perusal of the foregoing provision will show that persons unduly deprived of their lawful participation in a settlement may assert their claim only within the two-year period after the settlement and distribution of the estate. This prescription period does not apply, however, to those who had no part in or had no notice of the settlement. Section 4, Rule 74 of the Rules of Court, is not meant to be a statute of limitations. Moreover, by no reason or logic can one contend that an extrajudicial partition, being merely an ex parte proceeding, would affect third persons who had no knowledge thereof. Be that as it may, it cannot be denied, either, that by its registration in the manner provided by law, a transaction may be known actually or constructively.

 

In the present case, private respondents are deemed to have been constructively notified of the extrajudicial settlement by reason of its registration and annotation in the certificate of title over the subject lot. From the time of registration, private respondents had two (2) years or until July 8, 1984, within which to file their objections or to demand the appropriate settlement of the estate.

 

On the matter of constructive notice vis-à-vis prescription of an action to contest an extrajudicial partition, a leading authority on land registration elucidates as follows:

 

"While it may be true that an extrajudicial partition is an ex parte proceeding, yet after its registration under the Torrens system and the annotation on the new certificate of title of the contingent liability of the estate for a period of two years as prescribed in Rule 74, Section 4, of the Rules of Court, by operation of law a constructive notice is deemed made to all the world, so that upon the expiration of said period all third persons should be barred [from going] after the particular property, except where title thereto still remains in the names of the alleged heirs who executed the partition tainted with fraud, or their transferees who may not qualify as ‘innocent purchasers for value’. If the liability of the registered property should extend indefinitely beyond that period, then such constructive notice which binds the whole world by virtue of registration would be meaningless and illusory. x x x."

 

The only exception to the above-mentioned prescription is when the title remains in the hands of the heirs who have fraudulently caused the partition of the subject property or in those of their transferees who cannot be considered innocent purchasers for value.

 

In this regard, title to the property in the present case was no longer in the name of the allegedly fraudulent heirs, but already in that of an innocent purchaser for value – the government. Moreover, the government is presumed to have acted in good faith in the acquisition of the lot, considering that title thereto was obtained through a Compromise Agreement judicially approved in proper expropriation proceedings.

 

Even assuming that there was in fact fraud on the part of the other heirs, private respondents may proceed only against the defrauding heirs, not against petitioner which had no participation in or knowledge of the alleged fraud. The fact that the co-heirs’ title to the property was fraudulently secured cannot prejudice the rights of petitioner which, absent any showing that it had knowledge or participation in the irregularity, is considered a purchaser in good faith and for value.

 

The remedy of an owner alleged to have been prejudiced or fraudulently deprived of property that was subsequently sold to an innocent purchaser for value is an action for damages against the person or persons who perpetrated the fraud. (Emphasis and citations omitted)