Liu v. Loy
REITERATIONFacts
The Antecedents: Teodoro Vaño, as attorney-in-fact for Jose Vaño, sold seven lots of the Banilad Estate to Benito Liu and Cirilo Pangalo. Benito Liu purchased five lots (Lot Nos. 5, 6, 13, 14, and 15 of Block 12) for P4,900, paying P1,000 down and agreeing to pay the P3,900 balance in installments. Cirilo Pangalo purchased two lots (Lot Nos. 14 and 15 of Block 11) for P1,967.50, paying P400 down and agreeing to pay the P1,567.50 balance in installments. Benito Liu paid P2,900, leaving a P1,000 balance. Teodoro Vaño admitted inability to transfer titles due to a case questioning his father Jose Vaño's will. Later, upon clarification of the will's validity by the Supreme Court, Teodoro Vaño informed Frank Liu (Benito Liu's brother) that titles could be transferred upon full payment. Frank Liu, after a significant delay, expressed readiness to pay the balance and requested a deed of sale in his name. Benito Liu sold his five lots to Frank Liu, who assumed the P1,000 balance. Cirilo Pangalo sold his two lots to Frank Liu, who assumed the P417 balance. Frank Liu repeatedly requested Teodoro Vaño to execute the deed of sale and construct subdivision roads. Teodoro Vaño sold Lot No. 6 to Teresita Loy on August 19, 1968, and Lot No. 5 to Alfredo Loy on December 16, 1969. Frank Liu filed a complaint for specific performance on December 2, 1968, and a notice of lis pendens on December 19, 1968, which the Register of Deeds denied registration. The Court of First Instance dismissed Frank Liu's complaint, advising him to file a claim with the probate court. Frank Liu then filed a claim with the probate court against the Estate of Jose Vaño. Teodoro Vaño died, and his widow, Milagros Vaño, became administratrix. The probate court approved Frank Liu's claim on February 24, 1976, and Milagros Vaño executed a deed of conveyance for the seven lots to Frank Liu on March 5, 1976. Subsequently, on ex-parte motions by the Loys, the probate court approved the sales to Teresita Loy (Lot No. 6) on March 19, 1976, and Alfredo Loy, Jr. (Lot No. 5) on March 23, 1976. New Transfer Certificates of Title (TCT) were issued to the Loys on May 10, 1976. Milagros Vaño moved for reconsideration, stating she was not notified of the Loys' motions and would have objected. Frank Liu filed a complaint for reconveyance of Lot Nos. 5 and 6. The probate court denied Milagros Vaño's motion. Procedural History: The Regional Trial Court (RTC) dismissed Frank Liu's complaint, confirming the unilateral extrajudicial rescission by Teodoro Vaño, conditioned upon refund by the Estate of Jose Vaño of one-half of what Frank Liu paid. The Court of Appeals (CA) affirmed the RTC decision. The Petition: Frank Liu's heirs (petitioners) filed a petition for review on certiorari with the Supreme Court.
Issue(s)
Whether prior approval of the probate court is necessary to validate the sale of Lot Nos. 5 and 6 to the Loys; whether the Loys were in good faith when they built on the Lots; and on the necessity of court approval of sales. Whether the Loys can be considered buyers and registrants in good faith despite the notice of lis pendens. Whether Frank Liu has a superior right over Lot Nos. 5 and 6; and on the distinction between a contract to sell and a contract of sale. 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; and on the validity of the cancellation of the contract to sell. Whether petitioners are entitled to moral damages and attorney’s fees.
Ruling
The Supreme Court set aside the decision of the Court of Appeals and rendered a new one, declaring the deeds of sale of Lot Nos. 5 and 6 to Alfredo Loy, Jr. and Teresita Loy null and void. It ordered the Register of Deeds of Cebu City to cancel the TCTs in the Loys' names and issue new ones in the name of Frank N. Liu. The Estate of Jose Vaño was ordered to reimburse the Loys for their payments on Lot Nos. 5 and 6, with legal interest.
Ratio Decidendi
On whether prior approval of the probate court is necessary to validate the sale of Lot Nos. 5 and 6 to the Loys: The Court declared the ex-parte approval void, as Section 8, Rule 89 of the 1964 Rules of Court mandates notice to all interested parties. The Loys failed to notify the administratrix, Milagros Vaño, rendering the sale void. On whether the Loys were in good faith when they built on the Lots: The Court found the Loys were not in good faith because they knew they were buying from someone who was not the registered owner. On the necessity of court approval of sales: The Court explained that while an heir can sell their interest, such disposition requires court approval to be effective against third parties. The administrator cannot dispose of real estate without court authority. Section 91 of Act No. 496 and Section 88 of Presidential Decree No. 1529 explicitly require court approval for the sale of registered land by an executor or administrator. The probate court had already lost jurisdiction over Lot Nos. 5 and 6 when it approved the earlier sale to Frank Liu, making the subsequent ex-parte approval of the sales to the Loys void. On whether the Loys can be considered buyers and registrants in good faith despite the notice of lis pendens: The Court held that the lis pendens did not serve as notice to the Loys because its registration was denied by the Register of Deeds of Cebu City on December 19, 1968, and Frank Liu failed to appeal this denial. The subsequent dismissal of Frank Liu's complaint further rendered the lis pendens moot. On whether Frank Liu has a superior right over Lot Nos. 5 and 6: The Court ruled that the registration by the Loys 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 signed both contracts of sale, acting as seller in one and as administrator in the other. The Court reiterated the well-settled rule that one who buys from a person who is not the registered owner is not a purchaser in good faith. On the distinction between a contract to sell and a contract of sale: The Court clarified that a prior contract to sell made by the decedent prevails over a 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. It is immaterial if the prior contract is a mere contract to sell, as it binds the estate to convey the property upon full payment. Frank Liu's contract to sell was valid upon execution while Jose Vaño was alive, requiring no court approval at that stage. In contrast, the Loys' contracts were executed after the registered owner's death and required court approval, which was not validly obtained. On 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; and on the validity of the cancellation of the contract to sell: The Court ruled that there was no valid cancellation of the contract to sell because Teodoro Vaño's letter to Frank Liu dated January 1, 1955, did not constitute a unilateral extrajudicial rescission. The letter merely reminded Frank Liu of his outstanding balance and stated that Teodoro Vaño would write to Benito Liu and Cirilo Pangalo if Frank Liu did not respond. The letter did not mention rescission or cancellation of the contract. Furthermore, the law requires notice of cancellation to the party at fault for a valid cancellation, which was absent here. The Court also noted that Teodoro Vaño's subsequent advice for Frank Liu to file his claim with the probate court was inconsistent with a unilateral rescission. The Court also pointed out that Teodoro Vaño himself admitted prior delay or default as a seller because he could not deliver the titles due to a pending case questioning his father's will. On whether petitioners are entitled to award of moral damages and attorney’s fees: The Court upheld the rulings of the lower courts that the petitioners were not entitled to moral damages or attorney's fees, finding no basis for such claims under the Civil Code.
Main Doctrine
A prior contract to sell made by a decedent prevails over a subsequent contract of sale made by an administrator without probate court approval. The administrator cannot unilaterally cancel a contract to sell made by the decedent in his lifetime. Any cancellation must observe all legal requisites, including written notice of cancellation based on lawful cause. The failure to notify interested parties, including the administratrix, of a motion for court approval of a sale of estate property renders the sale void.