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.

DECISION
CARPIO, J.:

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 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 letter[5] dated 16
October 1954, Teodoro Vao informed Frank Liu [6] 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 letter [10] 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.[13]
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.[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 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.[18]
 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.[20]
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 Order[22] 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 Order [23] 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. [25]
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.[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.
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

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 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.[33]
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 letter[34] 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 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 Lius 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 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:[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.

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.[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 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 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)

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. [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 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:[45]

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. [47]
 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.

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. [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 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.[54]
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.[57]
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.[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
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.

[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.
[31]
Active Realty & Development Corporation v. Daroya, G.R. No. 141205, 9 May 2002; Leao 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.
[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.
[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.
[59]
Twin Towers Condominium Corporation v. Court of Appeals, G.R. No. 123552, 27 February 2003.
[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).