FIRST DIVISION
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,
G.R.
No.
145982
July 3, 2003
-versus-
ALFREDO LOY, JR.,
TERESITA A. LOY AND ESTATE OF JOSE VAÑO,
Respondents.
D E C I S I
O N
CARPIO,
J.:chanroblesvirtuallawlibrary
The
Case
This is a Petition for
Review on
Certiorari of the
decision[1]
dated 13 June 2000 and the Resolution dated 14 November 2002 of the
Court
of Appeals which affirmed the Decision[2]
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
Vaño
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
Vaño 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 Vaño, as attorney-in-fact of Jose Vaño, sold
seven
lots of the Banilad Estate located in Cebu City to Benito Liu and
Cirilo
Pangalo.[3]
Teodoro Vaño 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 Vaño passed away.cralaw:red
Benito Liu subsequently
paid installments totaling P2,900, leaving a balance of P1,000.[4]
Apparently, Benito Liu stopped further payments because Teodoro
Vaño
admitted his inability to transfer the lot titles to Benito Liu.
Later, in a letter[5]
dated 16 October 1954, Teodoro Vaño informed Frank Liu[6]
that the Supreme Court had already declared valid the will of his
father
Jose Vaño. Thus, Teodoro Vaño could transfer the
titles
to the buyers’ names upon payment of the balance of the purchase price.cralaw:red
When Frank Liu failed
to reply, Teodoro Vaño 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
Vaño
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.cralaw:red
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 Vaño.[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 Vaño. Frank
Liu likewise assumed the balance of P417 for the two lots.chanrobles virtual law library
On 21 March 1968, Frank
Liu reiterated in a letter[10]
his request for Teodoro Vaño 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 Vaño. 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 Vaño reiterating
his request for the execution of the deed of sale in his favor but to
no
avail.cralaw:red
On 19 August 1968, Teodoro
Vaño 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.[13]
On 2 December 1968,
Frank Liu filed a complaint against Teodoro Vaño 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.[14]
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."[16]
On 16 December 1969,
Teodoro Vaño 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.[18]
On 3 October 1970, the
Court of First Instance of Davao, on motion of Teodoro Vaño,
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 Vaño for "Specific Performance,
Execution
of Deed of Absolute Sale, Issuance of Certificate of Title, and
Construction
of Subdivision Roads."[20]
During the proceedings,
Teodoro Vaño died. His widow, Milagros Vaño, succeeded as
administratrix of the Estate of Jose Vaño.cralaw:red
On 24 February 1976,
the probate court approved the claim of Frank Liu. On 5 March 1976,
Milagros
Vaño executed a deed of conveyance covering the seven lots in
favor
of Frank Liu, in compliance with the probate court’s order.[21]
The deed of conveyance included Lot Nos. 5 and 6, the same lots Teodoro
Vaño sold respectively to Alfredo Loy, Jr. on 16 December 1969
and
to Teresita Loy on 19 August 1968.chanrobles virtual law library
On 19 March 1976, the
probate court, upon an ex-parte motion filed by Teresita Loy, issued an
Order[22]
approving the 16 August 1968 sale by Teodoro Vaño 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 Order[23]
approving the 16 December 1969 sale of Lot No. 5 by Teodoro Vaño
in his favor.cralaw:red
On 10 May 1976, the
Register of Deeds of Cebu City cancelled TCT No. 44204 in the name of
the
Estate of Jose Vaño 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 Vaño covering Lot No. 6, and
issued
TCT No. 64523 in the name of Teresita A. Loy.[25]
On 3 June 1976, Milagros
Vaño, 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 court’s 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.cralaw:red
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.cralaw:red
On 5 August 1978, the
probate court denied the motion for reconsideration of Milagros
Vaño
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.cralaw:red
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
Vaño, conditioned upon the refund by the Estate of Jose
Vaño
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 Vaño, not having been substantiated, are hereby
denied.
Without special
pronouncement
as to costs.
SO ORDERED.[26]
Frank Liu appealed to
the
Court of Appeals, which affirmed in toto the decision of the trial
court.
Frank Liu[27]
filed a motion for reconsideration but the Court of Appeals denied the
same.chanrobles virtual law library
Hence, the instant petition.
The Trial Court’s
Ruling
The trial court held
that the contract between Teodoro Vaño 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 cour ruled
that
the subsequent sales to Alfredo Loy, Jr. and Teresita Loy of Lot Nos. 5
and 6, respectively, were valid.cralaw:red
The trial court viewed
the letter of Teodoro Vaño 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 Vaño of one-half (1/2) of what Frank Liu paid
under
the contract.cralaw:red
The trial court ruled
that Teodoro Vaño, as administrator of the Estate of Jose
Vaño
and as sole heir of Jose Vaño, 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 court’s 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
Vaño
sold the lots in his capacity as heir of Jose Vaño. The
appellate
court ruled that an heir has a right to dispose of the decedent’s
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.cralaw:red
The Court of Appeals
held that there is no basis for the claim of moral damages and
attorney’s
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 attorney’s fees. The fact
alone
that a party was compelled to litigate and incur expenses to protect
his
claim does not justify an award of attorney’s fees. Besides, the
Court of Appeals held that where there is no basis to award moral
damages,
there is also no basis to award attorney’s fees.chanrobles virtual law library
The Issues
Petitioners[28]
raise the following issues:[29]
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 court’s declaration that
the extra-judicial rescission by Teodoro Vaño of the sale in
favor
of Frank Liu is valid;
5.Whether
petitioners
are entitled to moral damages and attorney’s fees. The Court’s
Ruling
The petition is meritorious.cralaw:red
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 Vaño, dated
1 January 1955, addressed to Frank Liu, stating that:chanrobles virtual law library
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.cralaw:red
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
Vaño would take if Frank Liu did not reply was that Teodoro
Vaño
would write directly to Benito Liu and Cirilo Pangalo. The letter
does not mention anything about rescinding or cancelling the contract
to
sell.cralaw:red
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
Vaño 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.[33]
In this case, there
was prior delay or default by the seller. As admitted by Teodoro
Vaño, he could not deliver the titles because of a case
questioning
the authenticity of the will of his father. In a letter[34]
to Frank Liu dated 16 October 1954, Teodoro Vaño 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
brother’s
name, and to that of Mr. Pangalo’s. 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 Vaño informed Frank Liu that the titles
were ready for transfer, thus:chanrobles virtual law library
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 buyer’s 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.cralaw:red
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.cralaw:red
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 Commission[36]
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 Liu’s failure
to appeal[38]
the denial of the registration rendered the lis pendens
ineffective.
The Court of First Instance of Davao City eventually dismissed Frank
Liu’s
complaint on 3 October 1970.chanrobles virtual law library
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 Vaño." Teodoro Vaño was the seller in the
contract
of sale with Alfredo Loy, Jr. The Estate of Jose Vaño was
the seller in the contract of sale with Teresita Loy. Teodoro
Vaño
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:[40]
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.cralaw:red
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 Vaño" 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.[41]
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
Vaño.
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.cralaw:red
Whether the probate
court’s ex-parte approval of the contracts of the Loys was valid
Section 8, Rule 89 of
the 1964 Rules of Court[42]
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)chanrobles virtual law library
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. Vaño 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. Vaño), 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.[43]
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 Vaño, 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.cralaw:red
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:[45]chanrobles virtual law library
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.cralaw:red
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)chanrobles virtual law library
In Alfredo Loy’s case,
his seller executed the contract of sale after the death of the
registered
owner Jose Vaño. The seller was Teodoro Vaño who
sold
the lot in his capacity as sole heir of the deceased Jose
Vaño.
Thus, Opulencia applies to the sale of the lot to Alfredo Loy, Jr.,
which
means that the contract of sale was binding between Teodoro Vaño
and Alfredo Loy, Jr., but subject to the outcome of the probate
proceedings.cralaw:red
In Frank Liu’s case,
as successor-in-interest of Benito Liu, his seller was Jose
Vaño,
who during his lifetime executed the contract to sell through an
attorney-in-fact,
Teodoro Vaño. 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
Vaño during his lifetime. The probate court approved the
application.
In Teresita Loy’s case,
her seller was the Estate of Jose Vaño. Teodoro
Vaño
executed the contract of sale in his capacity as administrator of the
Estate
of Jose Vaño, 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.[47]chanrobles virtual law library
Manotok Realty, Inc.
v. Court of Appeals[48]
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.cralaw:red
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.cralaw:red
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 sale’s
validity.cralaw:red
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.[49]
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 Vaño.cralaw:red
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:chanrobles virtual law library
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 deceased’s 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 court’s 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.chanrobles virtual law library
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 possessor’s 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).cralaw:red
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 Vaño," clearly
indicating
that the sale required probate court approval. Teodoro
Vaño
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.cralaw:red
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.[54]chanrobles virtual law library
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.cralaw:red
Frank Liu’s contract
to sell became valid and effective upon its execution.[56]
The seller, Jose Vaño, 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 Loy’s 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 Liu’s contract to sell prevails over the Loys’ contracts of sale.cralaw:red
Whether petitioners
are entitled to award of moral damages and attorney’s 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.[57]
Likewise, as found by
the trial court and the appellate court, there is no basis to award
attorney’s
fees. The policy of the law is to put no premium on the right to
litigate.[58]
The court may award attorney’s fees only in the instances mentioned in
Article 2208 of the Civil Code. The award of attorney’s fees is
the
exception rather than the rule.[59]
None of the instances mentioned in Article 2208 apply to this case.chanrobles virtual law library
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 Vaño 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.[60]
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
Vaño 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 Vaño 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.chanrobles virtual law library
[3]
Exhibit "A," Records, pp. 6-9.chanrobles virtual law library
[4]
See Exhibits "B" and "F," ibid., pp. 62-63 and 68.
[5]
Exhibit "C," ibid., p. 64.chanrobles virtual law library
[6]
The contract between Teodoro Vaño 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
Vaño
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."chanrobles virtual law library
[7]
Exhibit "D," Records, p. 65.chanrobles virtual law library
[8]
Exhibit "E," Ibid., pp. 66-67; Although the letter adverted to another
letter dated 18 January 1955 which he allegedly sent to Teodoro
Vaño,
no such letter was offered in evidence.
[9]
See Exhibit "B," Ibid., pp. 62-63.chanrobles virtual law library
[10]
Exhibit "F," ibid., p. 68.chanrobles virtual law library
[11]
Exhibits "G" and "H," ibid., pp. 69 and 70.
[12]
Exhibit "4 - Teresita," Folder of Exhibits, p. 22.
[13]
Exhibit "5 - Teresita," 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.chanrobles virtual law library
[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 Vaño," at the Court of First Instance
of Cebu; Exhibit "2-Vaño," ibid., p. 64.
[20]
Exhibit "L," Records, pp. 81-83.chanrobles virtual law library
[21]
Exhibits "8-Vaño" and "N," Folder of Exhibits, pp. 82-85 and
Records,
pp. 85-85A.
[22]
Exhibit "15-Teresita," ibid., p. 42.chanrobles virtual law library
[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.chanrobles virtual law library
[27]
Frank Liu died on 24 January 1992 and was substituted by his legal
heirs.
CA Rollo, pp. 209-212.
[28]
Petitioners are Frank Liu’s spouse and children, who substituted him
upon
his death.
[29]
Rollo, pp. 18-19.chanrobles virtual law library
[30]
Exhibit "D," Records, p. 65.chanrobles virtual law library
[31]
Active Realty & Development Corporation v. Daroya, G.R. No. 141205,
9 May 2002; Leaño v. Court of Appeals, G.R. No. 129018, 15
November
2001, 369 SCRA 36; Padilla v. Paredes, G.R. No. 124874, 17 March 2000,
328 SCRA 434.chanrobles virtual law library
[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
Vaño,
was dismissed on motion of Teodoro Vaño on the ground that the
remedy
of Frank Liu is to file his claim in the probate court; See Exhibits
"2-Vaño"
and "4-Vaño," Folder of Exhibits, pp. 64 and 67.
[34]
Exhibit "C," Records, p. 64.chanrobles virtual law library
[35]
See Exhibit "J-3," Records, back of p. 78.
[36]
Now Land Registration Authority.chanrobles virtual law library
[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.chanrobles virtual law library
[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.chanrobles virtual law library
[44]
G.R. No. L-16553, 29 November 1961, 3 SCRA 548, 551.
[45]
Supra, see note 41.chanrobles virtual law library
[46]
355 Phil. 124 (1998).chanrobles virtual law library
[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:chanroblesvirtuallawlibrarychanrobles virtual law library
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 xchanrobles virtual law library
[50]
148 Phil. 630 (1971).chanrobles virtual law library
[51]
G.R. No. L-64159, 10 September 1985, 138 SCRA 489, 494.
[52]
See note 39.chanrobles virtual law library
[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:chanroblesvirtuallawlibrarychanrobles virtual law library
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.chanrobles virtual law library
[58]
Country Bankers Ins. Corp. v. Lianga Bay and Community Multi-Purpose
Cooperative,
Inc. G.R. No. 136914, 25 January 2002; Padillo v. Court of Appeals,
G.R.
No. 119707, 29 November 2001, 371 SCRA 27.chanrobles virtual law library
[59]
Twin Towers Condominium Corporation v. Court of Appeals, G.R. No.
123552,
27 February 2003.chanrobles virtual law library
[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). |