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FIRST DIVISION

G.R. No. 145982. July 3, 2003

FRANK N. LIU, deceased, substituted by his surviving spouse Diana Liu, and children, namely: Walter, Milton, Frank, Jr., Henry and Jockson, all surnamed Liu, Rebecca Liu Shui and Pearl Liu Rodriguez, petitioners, vs. ALFREDO LOY, JR., TERESITA A. LOY and ESTATE OF JOSE VAO, respondents.

D E C I S I O N

CARPIO, J.:

The Case

This is a petition for review on certiorari of the Decision1 dated 13 June 2000 and the Resolution dated 14 November 2002 of the Court of Appeals which affirmed the Decision2 of the Regional Trial Court, Branch 14, Cebu City. The Court of Appeals agreed with the trial court that the sales by the late Teodoro Vao to respondents Alfredo Loy, Jr. and Teresita A. Loy of Lot Nos. 5 and 6, respectively, were valid. The Court of Appeals also agreed with the trial court that the unilateral extrajudicial rescission by the late Teodoro Vao of the contract to sell involving five lots, including Lot Nos. 5 and 6, between him and Benito Liu (predecessor-in-interest of Frank Liu) was valid.

The Facts

On 13 January 1950, Teodoro Vao, as attorney-in-fact of Jose Vao, sold seven lots of the Banilad Estate located in Cebu City to Benito Liu and Cirilo Pangalo.3 Teodoro Vao dealt with Frank Liu, the brother of Benito Liu, in the sale of the lots to Benito Liu and Cirilo Pangalo. The lots sold to Benito Liu were Lot Nos. 5, 6, 13, 14, and 15 of Block 12 for a total price of P4,900. Benito Liu gave a down payment of P1,000, undertaking to pay the balance of P3,900 in monthly installments of P100 beginning at the end of January 1950. The lots sold to Cirilo Pangalo were Lot Nos. 14 and 15 of Block 11 for a total price of P1,967.50. Cirilo Pangalo gave P400 as down payment, undertaking to pay the balance of P1,567.50 in monthly installments of P400 beginning at the end of January 1950. Meanwhile, Jose Vao passed away.

Benito Liu subsequently paid installments totaling P2,900, leaving a balance of P1,000.4 Apparently, Benito Liu stopped further payments because Teodoro Vao admitted his inability to transfer the lot titles to Benito Liu. Later, in a letter5 dated 16 October 1954, Teodoro Vao informed Frank Liu6 that the Supreme Court had already declared valid the will of his father Jose Vao. Thus, Teodoro Vao could transfer the titles to the buyers names upon payment of the balance of the purchase price.

When Frank Liu failed to reply, Teodoro Vao sent him another letter,7 dated 1 January 1955, reminding him of his outstanding balance. It appears that it was only after nine years that Frank Liu responded through a letter,8 dated 25 January 1964. In the letter, Frank Liu informed Teodoro Vao that he was ready to pay the balance of the purchase price of the seven lots. He requested for the execution of a deed of sale of the lots in his name and the delivery of the titles to him.

On 22 April 1966, Benito Liu sold to Frank Liu the five lots (Lot Nos. 5, 6, 13, 14 and 15 of Block 12) which Benito Liu purchased from Teodoro Vao.9 Frank Liu assumed the balance of P1,000 for the five lots. Cirilo Pangalo likewise sold to Frank Liu the two lots (Lot Nos. 14 and 15 of Block 11) that Pangalo purchased from Teodoro Vao. Frank Liu likewise assumed the balance of P417 for the two lots.

On 21 March 1968, Frank Liu reiterated in a letter10 his request for Teodoro Vao to execute the deed of sale covering the seven lots so he could secure the corresponding certificates of title in his name. He also requested for the construction of the subdivision roads pursuant to the original contract. In the letter, Frank Liu referred to another letter, dated 25 June 1966, which he allegedly sent to Teodoro Vao. According to Frank Liu, he enclosed PBC Check No. D-782290 dated 6 May 1966 for P1,417, which is the total balance of the accounts of Benito Liu and Cirilo Pangalo on the seven lots. However, Frank Liu did not offer in evidence the letter or the check. Frank Liu sent two other letters,11 dated 7 June 1968 and 29 July 1968, to Teodoro Vao reiterating his request for the execution of the deed of sale in his favor but to no avail.

On 19 August 1968, Teodoro Vao sold Lot No. 6 to respondent Teresita Loy for P3,930.12 The Register of Deeds of Cebu City entered this sale in the Daybook on 24 February 1969.13cräläwvirtualibräry

On 2 December 1968, Frank Liu filed a complaint against Teodoro Vao for specific performance, execution of deed of absolute sale, issuance of certificates of title and construction of subdivision roads, before the Court of First Instance of Davao. The case was docketed as Civil Case No. 6300.14cräläwvirtualibräry

On 19 December 1968, Frank Liu filed with the Register of Deeds of Cebu City a notice of lis pendens on the seven lots due to the pendency of Civil Case No. 6300.15 However, the Register of Deeds denied the registration of the lis pendens on the ground that the property is under administration and said claim must be filed in court.16cräläwvirtualibräry

On 16 December 1969, Teodoro Vao sold Lot No. 5 to respondent Alfredo Loy for P3,910.17 The Register of Deeds of Cebu City entered this sale in the Daybook on 16 January 1970.18cräläwvirtualibräry

On 3 October 1970, the Court of First Instance of Davao, on motion of Teodoro Vao, dismissed Civil Case No. 6300 on the ground that Frank Liu should have filed the claim with the probate court.19 Thus, on 17 February 1972, Frank Liu filed before the probate court a claim against the Estate of Jose Vao for Specific Performance, Execution of Deed of Absolute Sale, Issuance of Certificate of Title, and Construction of Subdivision Roads.20cräläwvirtualibräry

During the proceedings, Teodoro Vao died. His widow, Milagros Vao, succeeded as administratrix of the Estate of Jose Vao.

On 24 February 1976, the probate court approved the claim of Frank Liu. On 5 March 1976, Milagros Vao executed a deed of conveyance covering the seven lots in favor of Frank Liu, in compliance with the probate courts order.21 The deed of conveyance included Lot Nos. 5 and 6, the same lots Teodoro Vao sold respectively to Alfredo Loy, Jr. on 16 December 1969 and to Teresita Loy on 19 August 1968.

On 19 March 1976, the probate court, upon an ex-parte motion filed by Teresita Loy, issued an Order22 approving the 16 August 1968 sale by Teodoro Vao of Lot No. 6 in her favor. Likewise, upon an ex-parte motion filed by Alfredo Loy, Jr., the probate court issued on 23 March 1976 an Order23 approving the 16 December 1969 sale of Lot No. 5 by Teodoro Vao in his favor.

On 10 May 1976, the Register of Deeds of Cebu City cancelled TCT No. 44204 in the name of the Estate of Jose Vao covering Lot No. 5 and issued a new title, TCT No. 64522, in the name of Alfredo Loy, Jr. and Perfeccion V. Loy.24 Likewise, on the same date, the Register of Deeds cancelled TCT No. 44205 in the name of the Estate of Jose Vao covering Lot No. 6, and issued TCT No. 64523 in the name of Teresita A. Loy.25cräläwvirtualibräry

On 3 June 1976, Milagros Vao, as administratrix of the estate, filed a motion for reconsideration of the Orders of the probate court dated 19 and 23 March 1976. She contended that she already complied with the probate courts Order dated 24 February 1976 to execute a deed of sale covering the seven lots, including Lot Nos. 5 and 6, in favor of Frank Liu. She also stated that no one notified her of the motion of the Loys, and if the Loys or the court notified her, she would have objected to the sale of the same lots to the Loys.

On 4 June 1976, Frank Liu filed a complaint for reconveyance or annulment of title of Lot Nos. 5 and 6. Frank Liu filed the case in the Regional Trial Court of Cebu City, Branch 14, which docketed it as Civil Case No. R-15342.

On 5 August 1978, the probate court denied the motion for reconsideration of Milagros Vao on the ground that the conflicting claims regarding the ownership of Lot Nos. 5 and 6 were already under litigation in Civil Case No. R-15342.

On 8 April 1991, the Regional Trial Court of Cebu City (trial court), Branch 14, rendered judgment against Frank Liu as follows:

WHEREFORE, judgment is hereby rendered:

(1) Dismissing the complaint at bar; and

(2) Confirming the unilateral extrajudicial rescission of the contract Exhibit A by the late Teodoro Vao, conditioned upon the refund by the Estate of Jose Vao of one-half (1/2) of what the plaintiff had paid under that contract.

The counterclaims by the defendants Alfredo A. Loy, Jr. and Teresita A. Loy and by the defendant Estate of Jose Vao, not having been substantiated, are hereby denied.

Without special pronouncement as to costs.

SO ORDERED.26cräläwvirtualibräry

Frank Liu appealed to the Court of Appeals, which affirmed in toto the decision of the trial court. Frank Liu27 filed a motion for reconsideration but the Court of Appeals denied the same.

Hence, the instant petition.

The Trial Courts Ruling

The trial court held that the contract between Teodoro Vao and Benito Liu was a contract to sell. Since title to Lot Nos. 5 and 6 never passed to Benito Liu due to non-payment of the balance of the purchase price, ownership of the lots remained with the vendor. Therefore, the trial court ruled that the subsequent sales to Alfredo Loy, Jr. and Teresita Loy of Lot Nos. 5 and 6, respectively, were valid.

The trial court viewed the letter of Teodoro Vao dated 1 January 1995 addressed to Frank Liu as a unilateral extrajudicial rescission of the contract to sell. The trial court upheld the unilateral rescission subject to refund by the Estate of Jose Vao of one-half (1/2) of what Frank Liu paid under the contract.

The trial court ruled that Teodoro Vao, as administrator of the Estate of Jose Vao and as sole heir of Jose Vao, acted both as principal and as agent when he sold the lots to Alfredo Loy, Jr. and Teresita Loy. The probate court subsequently approved the sales. The trial court also found that Alfredo Loy, Jr. and Teresita Loy were purchasers in good faith.

The Court of Appeals Ruling

In affirming in toto the trial courts decision, the appellate court found no evidence of fraud or ill-motive on the part of Alfredo Loy, Jr. and Teresita Loy. The Court of Appeals cited the rule that the law always presumes good faith such that any person who seeks to be awarded damages due to the acts of another has the burden of proving that the latter acted in bad faith or ill-motive.

The Court of Appeals also held that the sales to Alfredo Loy, Jr. and Teresita Loy of Lot Nos. 5 and 6, respectively, were valid despite lack of prior approval by the probate court. The Court of Appeals declared that Teodoro Vao sold the lots in his capacity as heir of Jose Vao. The appellate court ruled that an heir has a right to dispose of the decedents property, even if the same is under administration, because the hereditary property is deemed transmitted to the heir without interruption from the moment of the death of the decedent.

The Court of Appeals held that there is no basis for the claim of moral damages and attorneys fees. The appellate court found that Frank Liu failed to prove that he suffered mental anguish due to the actuations of the Loys. The Court of Appeals likewise disallowed the award of attorneys fees. The fact alone that a party was compelled to litigate and incur expenses to protect his claim does not justify an award of attorneys fees. Besides, the Court of Appeals held that where there is no basis to award moral damages, there is also no basis to award attorneys fees.

The Issues

Petitioners28 raise the following issues:29cräläwvirtualibräry

1. Whether prior approval of the probate court is necessary to validate the sale of Lot Nos. 5 and 6 to Loys;

2. Whether the Loys can be considered buyers and registrants in good faith despite the notice of lis pendens;

3. Whether Frank Liu has a superior right over Lot Nos. 5 and 6;

4. Whether the Court of Appeals erred in not passing upon the trial courts declaration that the extra-judicial rescission by Teodoro Vao of the sale in favor of Frank Liu is valid;

5.Whether petitioners are entitled to moral damages and attorneys fees.

The Courts Ruling

The petition is meritorious.

Whether there was a valid cancellation of the

contract to sell

There was no valid cancellation of the contract to sell because there was no written notice of the cancellation to Benito Liu or Frank Liu. There was even no implied cancellation of the contract to sell. The trial court merely viewed the alleged unilateral extrajudicial rescission from the letter of Teodoro Vao, dated 1 January 1955, addressed to Frank Liu, stating that:

Two months, I believe, is ample for the allowance of delays caused by your (sic) either too busy, or having been some place else, or for consultations. These are the only reasons I can think of that could have caused the delay in your answer, unless you do not think an answer is necessary at all, as you are not the party concerned in the matter.

I shall therefor (sic) appreciate it very much, if you will write me within ten days from receipt of this letter, or enterprete (sic) your silence as my mistake in having written to the wrong party, and therefor (sic) proceed to write Misters: B. Liu and C. Pangalo.30 (Emphasis supplied)

Obviously, we cannot construe this letter as a unilateral extrajudicial rescission of the contract to sell. As clearly stated in the letter, the only action that Teodoro Vao would take if Frank Liu did not reply was that Teodoro Vao would write directly to Benito Liu and Cirilo Pangalo. The letter does not mention anything about rescinding or cancelling the contract to sell.

Although the law allows the extra-judicial cancellation of a contract to sell upon failure of one party to comply with his obligation, notice of such cancellation must still be given to the party who is at fault.31 The notice of cancellation to the other party is one of the requirements for a valid cancellation of a contract to sell, aside from the existence of a lawful cause. Even the case cited by the trial court emphasizes the importance of such notice:

Of course, it must be understood that the act of a party in treating a contract as cancelled or resolved on account of infractions by the other contracting party must be made known to the other and is always provisional, being ever subject to scrutiny and review by the proper court. If the other party denies that rescission is justified, it is free to resort to judicial action in its own behalf, and bring the matter to court. Then, should the court, after due hearing, decide that the resolution of the contract was not warranted, the responsible party will be sentenced to damages; in the contrary case, the resolution will be affirmed, and the consequent indemnity awarded to the party prejudiced.32 (Emphasis supplied)

The fact that Teodoro Vao advised Frank Liu to file his claim with the probate court is certainly not the conduct of one who supposedly unilaterally rescinded the contract with Frank Liu.33cräläwvirtualibräry

In this case, there was prior delay or default by the seller. As admitted by Teodoro Vao, he could not deliver the titles because of a case questioning the authenticity of the will of his father. In a letter34 to Frank Liu dated 16 October 1954, Teodoro Vao stated:

Some time last May, if I remember correctly, you offered to settle the whole balance of your account if I can have the Titles transferred immediately in your brothers name, and to that of Mr. Pangalos. I cannot blame you if you were disappointed then, to know that I could not have the titles transferred, even should you have paid in full. (Emphasis supplied)

In the same letter of 16 October 1954, Teodoro Vao informed Frank Liu that the titles were ready for transfer, thus:

However, last June 30, of this year, the Supreme Court, unanimously concurred in the reversal of the decision of the Court of First Instance, as regard the legality of the Will of my father. Now that the Will of my Father has been declared Legal, my opponents have lost their personality in the case, and with it their power to harass me in court. Also, sometime in the middle of July, also this year, the Supreme Court again declared that all the sales I have made of the properties of my Father, were Legal, and that I should be empowered to have the Titles transferred in the buyers names, should they have paid in full. A few have already received their Titles. And yours can be had too in two days time from the time you have paid in full.

Nevertheless, the subsequent approval by the probate court of the sale of Lot Nos. 5 and 6 to Frank Liu rendered moot any question on the continuing validity of the contract to sell.

Whether the lis pendens in the Davao case

served as notice to the Loys

The lis pendens in the Davao case did not serve as notice to the Loys. The Register of Deeds of Cebu City denied registration of the lis pendens on 19 December 1968.35 Frank Liu did not appeal to the Land Registration Commission36 to keep alive the lis pendens. Republic Act No. 1151,37 which took effect 17 June 1954, provides:

SEC. 4. Reference of doubtful matters to Commissioner of Land Registration. When the Register of Deeds is in doubt with regard to the proper step to be taken or memorandum to be made in pursuance of any deed, mortgage, or other instrument presented to him for registration, or where any party in interest does not agree with the Register of Deeds with reference to any such matter, the question shall be submitted to the Commissioner of Land Registration either upon the certification of the Register of Deeds, stating the question upon which he is in doubt, or upon the suggestion in writing by the party in interest; and thereupon the Commissioner, after consideration of the matter shown by the records certified to him, and in case of registered lands, after notice to the parties and hearing, shall enter an order prescribing the step to be taken or memorandum to be made. His decision in such cases shall be conclusive and binding upon all Registers of Deeds: Provided, however, That when a party in interest disagrees with a ruling or resolution of the Commissioner and the issue involves a question of law, said decision may be appealed to the Supreme Court within thirty days from and after receipt of the notice thereof. (Emphasis supplied)

Frank Lius failure to appeal38 the denial of the registration rendered the lis pendens ineffective. The Court of First Instance of Davao City eventually dismissed Frank Lius complaint on 3 October 1970.

Whether the registration by the Loys of their

contracts of sale made them the first registrants

in good faith to defeat prior buyers

The registration by the Loys of their contracts of sale did not defeat the right of prior buyers because the person who signed the Loys contracts was not the registered owner. The registered owner of Lot Nos. 5 and 6 was the Estate of Jose Vao. Teodoro Vao was the seller in the contract of sale with Alfredo Loy, Jr. The Estate of Jose Vao was the seller in the contract of sale with Teresita Loy. Teodoro Vao signed both contracts of sale. The rule is well-settled that one who buys from a person who is not the registered owner is not a purchaser in good faith.39 As held in Toledo-Banaga v. Court of Appeals:40cräläwvirtualibräry

To repeat, at the time of the sale, the person from whom petitioner Tan bought the property is neither the registered owner nor was the former authorized by the latter to sell the same. She knew she was not dealing with the registered owner or a representative of the latter. One who buys property with full knowledge of the flaws and defects in the title of his vendor is enough proof of his bad faith and cannot claim that he acquired title in good faith as against the owner or of an interest therein. When she nonetheless proceeded to buy the lot, petitioner Tan gambled on the result of litigation. She is bound by the outcome of her indifference with no one to blame except herself if she looses her claim as against one who has a superior right or interest over the property. x x x.

The Loys were under notice to inquire why the land was not registered in the name of the person who executed the contracts of sale. They were under notice that the lots belonged to the Estate of Jose Vao and any sale of the lots required court approval. Any disposition would be subject to the claims of creditors of the estate who filed claims before the probate court.41cräläwvirtualibräry

The contracts of the Loys did not convey ownership of the lots to them as against third persons. The contracts were binding only on the seller, Teodoro Vao. The contracts of the Loys would become binding against third persons only upon approval of the sale by the probate court and registration with the Register of Deeds. Registration of the contracts without court approval would be ineffective to bind third persons, especially creditors of the estate. Otherwise, this will open the door to fraud on creditors of the estate.

Whether the probate courts ex-parte

approval of the contracts of the Loys was valid

Section 8, Rule 89 of the 1964 Rules of Court42 specifically requires notice to all interested parties in any application for court approval to convey property contracted by the decedent in his lifetime. Thus:

SECTION 8. When court may authorize conveyance of realty which deceased contracted to convey. Notice. Effect of deed. Where the deceased was in his lifetime under contract, binding in law, to deed real property, or an interest therein, the court having jurisdiction of the estate may, on application for that purpose, authorize the executor or administrator to convey such property according to such contract, or with such modifications as are agreed upon by the parties and approved by the court; and if the contract is to convey real property to the executor or administrator, the clerk of the court shall execute the deed. The deed executed by such executor, administrator, or clerk of court shall be as effectual to convey the property as if executed by the deceased in his lifetime; but no such conveyance shall be authorized until notice of the application for that purpose has been given personally or by mail to all persons interested, and such further notice has been given, by publication or otherwise, as the court deems proper; nor if the assets in the hands of the executor or administrator will thereby be reduced so as to prevent a creditor from receiving his full debt or diminish his dividend. (Rule 89, 1964 Rules of Court) (Emphasis supplied)

Despite the clear requirement of Section 8 of Rule 89, the Loys did not notify the administratrix of the motion and hearing to approve the sale of the lots to them. The administratrix, who had already signed the deed of sale to Frank Liu as directed by the same probate court, objected to the sale of the same lots to the Loys. Thus, as found by the trial court:

On June 3, 1976, Milagros H. Vao moved for the reconsideration of the Order issued by Judge Ramolete on March 19, 1976 and March 23, 1976, contending that she had not been personally served with copies of the motions presented to the Court by Alfredo Loy, Jr. and by Teresita Loy seeking the approval of the sales of the lots in their favor, as well as the Orders that were issued by the Court pursuant thereto; that the Court in its Order of February 24, 1976 had ordered her (Milagros H. Vao), to execute a deed of absolute sale in favor of the plaintiff, which sale had been approved by the Court; that she had not known of the sale of Lots 5 and 6 to any other person except to the plaintiff; that the sale of the two lots in favor of plaintiff was made earlier, when there was yet no litigation with the Bureau of Internal Revenue, while those in favor of the defendant Loys were made when there was already a prohibition by the Court against any sale thereof; that the sales in favor of the Loys were made without Court authority; and that if the approval of the sales had not been obtained ex-parte she would have informed the Court of the complication arising therefrom, and she would not have executed the sale in favor of plaintiff, and she would have asked the Court to decide first as to who had preference over said lots.43cräläwvirtualibräry

The failure to notify the administratrix and other interested persons rendered the sale to the Loys void. As explained by Justice J.B.L. Reyes in De Jesus v. De Jesus:44

Section 9, Rule 90, however, provides that authority can be given by the probate court to the administrator to convey property held in trust by the deceased to the beneficiaries of the trust only after notice given as required in the last preceding section; i.e., that no such conveyance shall be authorized until notice of the application for that purpose has been given personally or by mail to all persons interested, and such further notice has been given, by publication or otherwise, as the court deems proper (sec. 8, Rule 90). This rule makes it mandatory that notice be served on the heirs and other interested persons of the application for approval of any conveyance of property held in trust by the deceased, and where no such notice is given, the order authorizing the conveyance, as well as the conveyance itself, is completely void. (Emphasis supplied)

In this case, the administratrix, the wife of the deceased Teodoro Vao, was not notified of the motion and hearing to approve the sale of the lots to the Loys. Frank Liu did not also receive any notice, although he obviously was an interested party. The issuance of new titles to the Loys on 10 May 1976 by the Registry of Deeds did not vest title to the Loys because the conveyance itself was completely void. The consequences for the failure to notify the administratrix and other interested parties must be borne by the Loys.

Necessity of court approval of sales

Indisputably, an heir can sell his interest in the estate of the decedent, or even his interest in specific properties of the estate. However, for such disposition to take effect against third parties, the court must approve such disposition to protect the rights of creditors of the estate. What the deceased can transfer to his heirs is only the net estate, that is, the gross estate less the liabilities. As held in Baun v. Heirs of Baun:45cräläwvirtualibräry

The heir legally succeeds the deceased, from whom he derives his right and title, but only after the liquidation of the estate, the payment of the debts of the same, and the adjudication of the residue of the estate of the deceased; and in the meantime the only person in charge by law to attend to all claims against the estate of the deceased debtor is the executor or administrator appointed by the court.

In Opulencia v. Court of Appeals,46 an heir agreed to convey in a contract to sell her share in the estate then under probate settlement. In an action for specific performance filed by the buyers, the seller-heir resisted on the ground that there was no approval of the contract by the probate court. The Court ruled that the contract to sell was binding between the parties, but subject to the outcome of the testate proceedings. The Court declared:

x x x Consequently, although the Contract to Sell was perfected between the petitioner (seller-heir) and private respondents (buyers) during the pendency of the probate proceedings, the consummation of the sale or the transfer of ownership over the parcel of land to the private respondents is subject to the full payment of the purchase price and to the termination and outcome of the testate proceedings. x x x Indeed, it is settled that the sale made by an heir of his share in an inheritance, subject to the pending administration, in no wise stands in the way of such administration. (Emphasis supplied)

In Alfredo Loys case, his seller executed the contract of sale after the death of the registered owner Jose Vao. The seller was Teodoro Vao who sold the lot in his capacity as sole heir of the deceased Jose Vao. Thus, Opulencia applies to the sale of the lot to Alfredo Loy, Jr., which means that the contract of sale was binding between Teodoro Vao and Alfredo Loy, Jr., but subject to the outcome of the probate proceedings.

In Frank Lius case, as successor-in-interest of Benito Liu, his seller was Jose Vao, who during his lifetime executed the contract to sell through an attorney-in-fact, Teodoro Vao. This is a disposition of property contracted by the decedent during his lifetime. Section 8 of Rule 89 specifically governs this sale:

SECTION 8. When court may authorize conveyance of realty which deceased contracted to convey. Notice. Effect of deed. Where the deceased was in his lifetime under contract, binding in law, to deed real property, or an interest therein, the court having jurisdiction of the estate may, on application for that purpose, authorize the executor or administrator to convey such property according to such contract, or with such modifications as are agreed upon by the parties and approved by the court; x x x

Thus, Frank Liu applied to the probate court for the grant of authority to the administratrix to convey the lots in accordance with the contract made by the decedent Jose Vao during his lifetime. The probate court approved the application.

In Teresita Loys case, her seller was the Estate of Jose Vao. Teodoro Vao executed the contract of sale in his capacity as administrator of the Estate of Jose Vao, the registered owner of the lots. The Court has held that a sale of estate property made by an administrator without court authority is void and does not confer on the purchaser a title that is available against a succeeding administrator.47cräläwvirtualibräry

Manotok Realty, Inc. v. Court of Appeals48 emphasizes the need for court approval in the sale by an administrator of estate property. The Court held in Manotok Realty:

We also find that the appellate court committed an error of law when it held that the sale of the lot in question did not need the approval of the probate court.

Although the Rules of Court do not specifically state that the sale of an immovable property belonging to an estate of a decedent, in a special proceeding, should be made with the approval of the court, this authority is necessarily included in its capacity as a probate court.

An administrator under the circumstances of this case cannot enjoy blanket authority to dispose of real estate as he pleases, especially where he ignores specific directives to execute proper documents and get court approval for the sales validity.

Section 91 of Act No. 496 (Land Registration Act) specifically requires court approval for any sale of registered land by an executor or administrator, thus:

SEC. 91. Except in case of a will devising the land to an executor to his own use or upon some trust or giving to the executor power to sell, no sale or transfer of registered land shall be made by an executor or by an administrator in the course of administration for the payment of debts or for any other purpose, except in pursuance of an order of a court of competent jurisdiction obtained as provided by law. (Emphasis supplied)

Similarly, Section 88 of Presidential Decree No. 1529 (Property Registration Decree) provides:

SEC. 88. Dealings by administrator subject to court approval. After a memorandum of the will, if any, and order allowing the same, and letters testamentary or letters of administration have been entered upon the certificate of title as hereinabove provided, the executor or administrator may alienate or encumber registered land belonging to the estate, or any interest therein, upon approval of the court obtained as provided by the Rules of Court. (Emphasis supplied)

Clearly, both the law and jurisprudence expressly require court approval before any sale of estate property by an executor or administrator can take effect.

Moreover, when the Loys filed in March 1976 their ex-parte motions for approval of their contracts of sale, there was already a prior order of the probate court dated 24 February 1976 approving the sale of Lot Nos. 5 and 6 to Frank Liu. In fact, the administratrix had signed the deed of sale in favor of Frank Liu on 5 March 1976 pursuant to the court approval. This deed of sale was notarized on 5 March 1976, which transferred ownership of Lot Nos. 5 and 6 to Frank Liu on the same date.49cräläwvirtualibräry

Thus, when the probate court approved the contracts of the Loys on 19 and 23 March 1976, the probate court had already lost jurisdiction over Lot Nos. 5 and 6 because the lots no longer formed part of the Estate of Jose Vao.

In Dolar v. Sundiam,50 an heir sold parcels of land that were part of the estate of the decedent. The probate court approved the sale. Thereafter, the probate court authorized the administrator to sell again the same parcels of land to another person. The Court ruled that the probate court had already lost jurisdiction to authorize the further sale of the parcels of land to another person because such property no longer formed part of the estate of the decedent. The Court declared:

In our opinion, where, as in this case, a piece of property which originally is a part of the estate of a deceased person is sold by an heir of the deceased having a valid claim thereto, and said piece of property is, by mistake, subsequently inventoried or considered part of the deceaseds estate subject to settlement, and, thereafter, with the authority and approval of the probate court, it sold once more to another person, a receiver of the property so sold may, during the pendency of a motion to set aside the second sale, be appointed by the court when in its sound judgment the grant of such temporary relief is reasonably necessary to secure and protect the rights of its real owner against any danger of loss or material injury to him arising from the use and enjoyment thereof by another who manifestly cannot acquire any right of dominion thereon because the approving surrogate court had already lost jurisdiction to authorize the further sale of such property. (Emphasis supplied)

Similarly, in this case, the Loys cannot acquire any right of dominion over Lot Nos. 5 and 6 because the probate court had already lost jurisdiction to authorize the second sale of the same lots. Moreover, the probate courts approval of the sale to the Loys was completely void due to the failure to notify the administratrix of the motion and hearing on the sale.

Whether the Loys were in good faith when they

built on the Lots.

The Civil Code describes a possessor in good faith as follows:

Art. 526. He is deemed a possessor in good faith who is not aware that there exists in his title or mode of acquisition any flaw which invalidates it.

He is deemed a possessor in bad faith who possesses in any case contrary to the foregoing.

Mistake upon a doubtful or difficult question of law may be the basis of good faith.

Art. 1127. The good faith of the possessor consists in the reasonable belief that the person from whom he received the thing was the owner thereof, and could transmit his ownership.

In Duran v. Intermediate Appellate Court,51 the Court explained possession in good faith in this manner:

Guided by previous decisions of this Court, good faith consists in the possessors belief that the person from whom he received the thing was the owner of the same and could convey his title (Arriola vs. Gomez de la Serna, 14 Phil. 627). Good faith, while it is always presumed in the absence of proof to the contrary, requires a well-founded belief that the person from whom title was received was himself the owner of the land, with the right to convey it (Santiago vs. Cruz, 19 Phil. 148). There is good faith where there is an honest intention to abstain from taking unconscientious advantage from another (Fule vs. Legare, 7 SCRA 351).

The Loys were not in good faith when they built on the lots because they knew that they bought from someone who was not the registered owner. The registered owner on the TCTs of the lots was the Estate of Jose Vao, clearly indicating that the sale required probate court approval. Teodoro Vao did not show any court approval to the Loys when they purchased the lots because there was none. To repeat, any one who buys from a person who is not the registered owner is not a purchaser in good faith.52 If the Loys built on the lots before the court approval, then they took the risk.

Contract to sell versus contract of sale

A prior contract to sell made by the decedent prevails over the subsequent contract of sale made by the administrator without probate court approval. The administrator cannot unilaterally cancel a contract to sell made by the decedent in his lifetime.53 Any cancellation must observe all legal requisites, like written notice of cancellation based on lawful cause.54cräläwvirtualibräry

It is immaterial if the prior contract is a mere contract to sell and does not immediately convey ownership.55 If it is valid, then it binds the estate to convey the property in accordance with Section 8 of Rule 89 upon full payment of the consideration.

Frank Lius contract to sell became valid and effective upon its execution.56 The seller, Jose Vao, was then alive and thus there was no need for court approval for the immediate effectivity of the contract to sell. In contrast, the execution of the contracts of sale of the Loys took place after the death of the registered owner of the lots. The law requires court approval for the effectivity of the Loys contracts of sale against third parties. The probate court did not validly give this approval since it failed to notify all interested parties of the Loys motion for court approval of the sale. Besides, the probate court had lost jurisdiction over the lots after it approved the earlier sale to Frank Liu. Clearly, Frank Lius contract to sell prevails over the Loys contracts of sale.

Whether petitioners are entitled to award of

moral damages and attorneys fees.

The Court upholds the ruling of the trial and appellate courts that petitioners are not entitled to moral damages. Moral damages should not enrich a complainant at the expense of the defendant.57cräläwvirtualibräry

Likewise, as found by the trial court and the appellate court, there is no basis to award attorneys fees. The policy of the law is to put no premium on the right to litigate.58 The court may award attorneys fees only in the instances mentioned in Article 2208 of the Civil Code. The award of attorneys fees is the exception rather than the rule.59 None of the instances mentioned in Article 2208 apply to this case.

Conclusion

Since the Loys have no contract of sale validly approved by the probate court, while Frank Liu has a contract of sale approved by the probate court in accordance with Section 8 of Rule 89, Lot Nos. 5 and 6 belong to Frank Liu. The Estate of Jose Vao should reimburse the Loys their payments on Lot Nos. 5 and 6, with annual interest at 6% from 4 June 1976, the date of filing of the complaint, until finality of this decision, and 12% thereafter until full payment.60cräläwvirtualibräry

WHEREFORE, the Decision of the Court of Appeals is SET ASIDE and a new one is RENDERED:

1. Declaring null and void the deeds of sale of Lot Nos. 5 and 6 executed by Teodoro Vao in favor of Alfredo Loy, Jr. and Teresita Loy, respectively.

2.Ordering the Register of Deeds of Cebu City to cancel TCT Nos. 64522 and 64523 and to issue a new one in the name of petitioner Frank N. Liu;

3. Ordering the Estate of Jose Vao to reimburse to respondent Loys the amounts paid on Lot Nos. 5 and 6, with interest at 6% per annum from 4 June 1976 until finality of this decision, and 12% per annum thereafter until full payment.

SO ORDERED.

Davide, Jr., C.J., (Chairman), Vitug, Ynares-Santiago, and Azcuna, JJ., concur.



Endnotes:

1 Penned by Associate Justice Jose L. Sabio, Jr., with Associate Justices Ramon Mabutas, Jr. and Demetrio G. Demetria concurring.

2 Penned by Judge Renato C. Dacudao.

3 Exhibit A, Records, pp. 6-9.

4 See Exhibits B and F, ibid., pp. 62-63 and 68.

5 Exhibit C, ibid., p. 64.

6 The contract between Teodoro Vao and Cirilo Pangalo provides that in case of death of the vendee, the contract shall be considered as fully paid and a final deed of sale shall be made in favor of the beneficiary, Frank N. Liu, provided vendee is not in arrears of not more than two months. Also, in his letter to Frank Liu, dated 1 January 1955, Teodoro Vao stated that: I have addressed my letter to you because ever since 1949, it has always been you I dealt with, and not Mr. B. Liu, neither with Mr. C. Pangalo, though the last two gentlemen were the ones who signed the agreements for the purchase of the lots.

7 Exhibit D, Records, p. 65.

8 Exhibit E, Ibid., pp. 66-67; Although the letter adverted to another letter dated 18 January 1955 which he allegedly sent to Teodoro Vao, no such letter was offered in evidence.

9 See Exhibit B, Ibid., pp. 62-63.

10 Exhibit F, ibid., p. 68.

11 Exhibits G and H, ibid., pp. 69 and 70.

12 Exhibit 4Teresita, Folder of Exhibits, p. 22.

13 Exhibit 5Teresita, ibid., p. 23.

14 Exhibit I, Records, pp. 71-75.

15 Exhibit J, ibid., pp. 77-78.

16 Exhibit J-3, ibid., back of p. 78.

17 Exhibit 3-Alfredo, Folder of Exhibits, p. 1.

18 Exhibits 4-Alfredo and 5-Teresita, ibid., pp. 2 and 23.

19 In Special Proceeding No. 619-R, In the Matter of the Last Will and Testament of Jose Vao, at the Court of First Instance of Cebu; Exhibit 2-Vao, ibid., p. 64.

20 Exhibit L, Records, pp. 81-83.

21 Exhibits 8-Vao and N, Folder of Exhibits, pp. 82-85 and Records, pp. 85-85A.

22 Exhibit 15-Teresita, ibid., p. 42.

23 Exhibit 12-Alfredo, Folder of Exhibits, p. 19.

24 Exhibit 9-Alfredo, ibid., p. 7.

25 Exhibit 11-Teresita, ibid., p. 29.

26 Rollo, p. 75.

27 Frank Liu died on 24 January 1992 and was substituted by his legal heirs. CA Rollo, pp. 209-212.

28 Petitioners are Frank Lius spouse and children, who substituted him upon his death.

29 Rollo, pp. 18-19.

30 Exhibit D, Records, p. 65.

32 Lim v. Court of Appeals, G.R. No. 85733, 23 February 1990, 182 SCRA 564, 571, citing University of the Philippines v. De Los Angeles, 146 Phil. 108, 114-115 (1970).

33 Civil Case No. 6300, instituted by Frank Liu against Teodoro Vao, was dismissed on motion of Teodoro Vao on the ground that the remedy of Frank Liu is to file his claim in the probate court; See Exhibits 2-Vao and 4-Vao, Folder of Exhibits, pp. 64 and 67.

34 Exhibit C, Records, p. 64.

35 See Exhibit J-3, Records, back of p. 78.

36 Now Land Registration Authority.

37 An Act Creating the Land Registration Commission, and Authorizing and Appropriating the Necessary Funds Therefor.

38 Under Section 117 of the Property Registration Decree (PD No. 1529), which took effect on 11 June 1978, the denial of the registration of a lis pendens must be appealed within 5 days from notice of the denial.

39 Samonte v. Court of Appeals, G.R. No. 104223, 12 July 2001, 361 SCRA 173; Egao v. Court of Appeals, G.R. No. 79787, June 29, 1989, 174 SCRA 484; Rivera v. Tirona, 109 Phil. 505 (1960); Revilla and Fajardo v. Galindez, 107 Phil. 481 (1960); Mirasol v. Gerochi, 93 Phil. 480 (1953); Mari v. Bonilla, 83 Phil. 137 (1949).

40 G.R. No. 127941, 28 January 1999, 302 SCRA 331, 345.

41 See Baun v. Heirs of Baun, 53 Phil. 654 (1929).

42 The Rules then prevailing.

43 Rollo, p. 188.

44 G.R. No. L-16553, 29 November 1961, 3 SCRA 548, 551.

45 Supra, see note 41.

46 355 Phil. 124 (1998).

47 Dillena v. Court of Appeals, G.R. No. L-77660, 28 July 1988, 163 SCRA 630; Estate of Amadeo Matute Olave, et al. v. Hon. Reyes, et al., 208 Phil. 678 (1983); Godoy v. Orellano, 42 Phil. 347 (1921).

48 G.R. No. L-35367, 9 April 1987, 149 SCRA 174, 179-180.

49 The Civil Code provides:

Art. 1477. The ownership of the thing sold shall be transferred to the vendee upon the actual or constructive delivery thereof.

Art. 1496. The ownership of the thing sold is acquired by the vendee from the moment it is delivered to him in any of the ways specified in Articles 1497 to 1501, or in any other manner signifying an agreement that the possession is transferred from the vendor to the vendee.

Art. 1498. When the sale is made through a public instrument, the execution thereof shall be equivalent to the delivery of the thing which is the object of the contract, if from the deed the contrary does not appear or cannot clearly be inferred.x x x

50 148 Phil. 630 (1971).

51 G.R. No. L-64159, 10 September 1985, 138 SCRA 489, 494.

52 See note 39.

53 Lim v. Court of Appeals, G.R. No. 85733, 23 February 1990, 182 SCRA 564.

54 Active Realty & Development Corporation v. Daroya, supra, see note 31.

55 See Adelfa Properties, Inc. v. Court of Appeals, 310 Phil. 623 (1995).

56 Article 1315 of the Civil Code provides:

Art. 1315. Contracts are perfected by mere consent, and from that moment the parties are bound not only to the fulfillment of what has been expressly stipulated but also to all the consequences which, according to their nature, may be in keeping with good faith, usage and law.

57 People v. Sanchez, G.R. Nos. 121039-45, 18 October 2001, 367 SCRA 520.

60 See Martinez v. Court of Appeals, G.R. No. 123547, 21 May 2001, 358 SCRA 38; Cavite Development Bank v. Lim, G.R. No. 131679, 1 February 2000, 324 SCRA 346; St. Dominic Corporation v. Intermediate Appellate Court, G.R. No. L-67207, 26 August 1985, 138 SCRA 242; Cruz v. Cabana, 214 Phil. 575 (1984); J.M. Tuason & Co., Inc. v. Court of Appeals, G.R. No. L-41233, 21 November 1979, 94 SCRA 413. See also Eastern Assurance and Surety Corp. v. Court of Appeals, 379 Phil. 84 (2000).




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