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LIU v. ALFREDO LOY

FACTS:

This case involves a dispute over the sale of several lots of the Banilad Estate located in Cebu City. Teodoro Vaño, as attorney-in-fact of Jose Vaño, sold seven lots to Benito Liu and Cirilo Pangalo in 1950. Benito Liu purchased Lot Nos. 5, 6, 13, 14, and 15 while Cirilo Pangalo purchased Lot Nos. 14 and 15. Benito Liu made a down payment and undertook to pay the balance in monthly installments. However, Teodoro Vaño admitted his inability to transfer the lot titles to Benito Liu, leading him to stop further payments.

In 1954, Teodoro Vaño informed Frank Liu, the brother of Benito Liu, that he could transfer the titles upon payment of the balance. Frank Liu did not respond until 1964 when he expressed his readiness to pay the outstanding balance. In 1966, Benito Liu sold the five lots he purchased from Teodoro Vaño to Frank Liu, who assumed the remaining balance. Cirilo Pangalo also sold his two lots to Frank Liu.

In 1968, Frank Liu requested Teodoro Vaño to execute a deed of sale for the seven lots and construct the subdivision roads. However, Teodoro Vaño did not respond to the requests. In the same year, Teodoro Vaño sold Lot Nos. 5 and 6 to respondents Alfredo Loy and Teresita Loy, respectively. Frank Liu then filed a complaint against Teodoro Vaño for specific performance and other reliefs. The case was later dismissed and Frank Liu filed a claim against the Estate of Jose Vaño for the same reliefs.

The probate court approved Frank Liu's claim and a deed of conveyance for the seven lots was executed by Milagros Vaño, Teodoro Vaño's widow and administratrix of the Estate of Jose Vaño. However, the said deed included Lot Nos. 5 and 6 which were already sold to Alfredo Loy and Teresita Loy, respectively.

Teodoro Vaño sold Lot No. 5 to Alfredo Loy, Jr. on December 16, 1969, and Lot No. 6 to Teresita Loy on August 19, 1968. On March 19, 1976, the probate court issued an order approving the sale of Lot No. 6 to Teresita Loy and on March 23, 1976, an order approving the sale of Lot No. 5 to Alfredo Loy, Jr. The Register of Deeds of Cebu City cancelled the titles of the Estate of Jose Vaño for Lot Nos. 5 and 6 and issued new titles in favor of Alfredo Loy, Jr. and Teresita Loy. Milagros Vaño, as the administratrix of the estate, filed a motion for reconsideration of the orders approving the sales, claiming that she had already complied with the court's order to execute a deed of sale of all lots, including Lot Nos. 5 and 6, in favor of Frank Liu. On June 4, 1976, Frank Liu filed a complaint for reconveyance or annulment of title for Lot Nos. 5 and 6. The trial court dismissed the complaint and upheld the unilateral rescission of the contract to sell by Teodoro Vaño. The Court of Appeals affirmed the trial court's decision.

This case involves a contract to sell between Teodoro Vaño and Frank Liu regarding two lots in Cebu City. Teodoro Vaño, as the seller, admitted that he was unable to deliver the titles of the lots due to a case questioning the authenticity of his father's will. However, he informed Frank Liu that the titles were ready for transfer after the Supreme Court declared the will as legal. Frank Liu paid in full for the lots and the probate court approved the sale.

Meanwhile, there was also a pending case in Davao involving the lots, resulting in the notation of a lis pendens. However, the lis pendens was denied registration by the Register of Deeds of Cebu City and Frank Liu did not appeal to the Land Registration Commission to keep it alive.

A letter from Teodoro Vaño to Frank Liu dated 1 January 1955 was presented, which stated that if Frank Liu did not reply within ten days, Teodoro Vaño would write directly to Benito Liu and Cirilo Pangalo. There was no mention of rescission or cancellation of the contract to sell in the letter.

The trial court held that there was a valid extrajudicial rescission of the contract, while the Court of Appeals upheld the trial court's ruling. The case was elevated to the Supreme Court for review.

Etc.

SYLLABUS:

"After the expiration of one year from the taking effect of this Act," i.e., the Land Registration Act, no instrument or deed shall be effective as a conveyance or bind the land, but shall be merely entitled to registration, when the deed or instrument is presented to the register of deeds, together with the owner's duplicate and a memorandum of encumbrances affecting the land, if any, on the Registry of Deeds where the real estate is situated, and the register of deeds shall then forthwith endorse upon the deed or instrument a certificate containing the title number, description of the land, and stating that it has been registered pursuant to this Act. (Sections 50, 51, 54, and 57.)

The Municipality of Cebu filed a petition in the Court of Land Registration for the registration of a certain parcel of land situated in the municipality. The Court of Land Registration issued a decree of registration for said land, confirming the title in fee simple in favor of the municipality. However, the decree contained the condition that the land could not be alienated or encumbered for a period of ten years from the date of registration.

After one year from the date the decree was issued, the municipality executed a deed of sale in favor of Leonardo Borromeo, conveying the land subject to the same condition of non-alienation for ten years. The deed of sale was presented to the register of deeds together with the owner's duplicate certificate and a memorandum of encumbrances, as required by the Land Registration Act.

The register of deeds endorsed a certificate of registration on the deed of sale, but omitted to include the condition of non-alienation for ten years. The omission by the register of deeds was due to an alleged mistake and inadvertence.

The lower court granted the petition of the municipality to correct the error and ordered the register of deeds to issue a new certificate of title for the land, incorporating the condition of non-alienation for ten years. Leonardo Borromeo appealed the decision to the Supreme Court.

Issue: Whether or not the order of the lower court is valid and should be upheld.

Ruling: The order of the lower court is valid and should be upheld.

ISSUES:

  1. Whether the lis pendens in the Davao case served as notice to the Loys.

  2. Whether the registration by the Loys of their contracts of sale made them the first registrants in good faith to defeat prior buyers.

  3. Whether the probate court's ex-parte approval of the contracts of the Loys was valid.

  4. Whether the sale of the lots to the Loys, without notice to the administratrix and other interested parties, is void.

  5. Whether court approval is necessary for the sale of an heir's interest in the estate.

  6. Whether the contract of sale between Teodoro Vaño and Alfredo Loy, Jr. is binding, subject to the outcome of the probate proceedings.

  7. Whether the probate court has jurisdiction to authorize the conveyance of real property contracted by the decedent during his lifetime.

  8. Whether the sale of estate property made by an administrator without court authority is void.

  9. Whether the Loys were in good faith when they built on the Lots.

  10. Whether a contract to sell made by the decedent prevails over a subsequent contract of sale made by the administrator without probate court approval.

  11. Whether the petitioners are entitled to an award of moral damages and attorney's fees.

  12. Whether or not the interest rate of 6% per annum from 4 June 1976 until finality of the decision is correct.

  13. Whether or not the interest rate of 12% per annum from finality of the decision until full payment is correct.

RULING:

  1. The lis pendens in the Davao case did not serve as notice to the Loys. The denial of registration by the Register of Deeds and the failure of Frank Liu to appeal rendered the lis pendens ineffective.

  2. The registration by the Loys of their contracts of sale did not defeat the right of prior buyers. The person who signed the contracts was not the registered owner, and as such, the Loys were not purchasers in good faith. They were under notice to inquire why the land was not registered in the name of the person who executed the contracts of sale.

  3. The probate court's ex-parte approval of the contracts of the Loys was not valid. Section 8, Rule 89 of the 1964 Rules of Court requires notice to all interested parties in any application for court approval to convey property contracted by the decedent in his lifetime.

  4. Yes, the sale of the lots to the Loys, without notice to the administratrix and other interested parties, is void. Section 8 of Rule 89 of the 1964 Rules of Court mandates that no conveyance shall be authorized until notice of the application for that purpose has been given personally or by mail to all persons interested. Failure to give notice renders the sale completely void.

  5. Yes, court approval is necessary for the sale of an heir's interest in the estate. While an heir can sell his interest in the estate, court approval is required to protect the rights of creditors of the estate. The court must approve such disposition to ensure that the creditors are paid and to determine the net estate that can be transferred to the heirs.

  6. PARTIAL DIGEST

  7. The contract of sale between Teodoro Vaño and Alfredo Loy, Jr. is binding but subject to the outcome of the probate proceedings.

  8. The probate court has jurisdiction to authorize the conveyance of real property contracted by the decedent during his lifetime.

  9. The sale of estate property made by an administrator without court authority is void.

  10. 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. Any one who buys from a person who is not the registered owner is not a purchaser in good faith.

  11. 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 in his lifetime. Frank Liu's contract to sell prevailed over the Loys' contracts of sale because the probate court did not validly give approval for the Loys' contracts of sale and because the probate court had lost jurisdiction over the lots after approving the earlier sale to Frank Liu.

  12. The petitioners are not entitled to an award of moral damages and attorney's fees because there is no basis for such awards.

  13. The interest rate of 6% per annum from 4 June 1976 until finality of the decision is correct.

  14. The interest rate of 12% per annum from finality of the decision until full payment is correct.

PRINCIPLES:

  • Failure to appeal the denial of registration renders a lis pendens ineffective.

  • One who buys from a person who is not the registered owner is not a purchaser in good faith.

  • Contracts of sale that have not been approved by the probate court and registered with the Register of Deeds do not convey ownership of the property to the buyers as against third persons.

  • The probate court's approval of contracts of sale requires notice to all interested parties.

  • The contract of sale between Teodoro Vaño and Alfredo Loy, Jr. is binding but subject to the outcome of the probate proceedings (Opulencia v. Court of Appeals).

  • The probate court has jurisdiction to authorize the conveyance of real property contracted by the decedent during his lifetime (Section 8 of Rule 89 of the Rules of Court).

  • The sale of estate property made by an administrator without court authority is void and does not confer a title against a succeeding administrator (Manotok Realty, Inc. v. Court of Appeals).

  • Court approval is required for any sale of registered land by an executor or administrator (Section 91 of Act No. 496 and Section 88 of Presidential Decree No. 1529).

  • Once property ceases to form part of the estate, the probate court loses jurisdiction over it (Dolar v. Sundiam).

  • A purchaser who buys from a person who is not the registered owner of the property is not deemed a possessor in good faith.

  • A contract to sell made by the decedent prevails over a subsequent contract of sale made by the administrator without probate court approval.

  • Moral damages should not enrich a complainant at the expense of the defendant.

  • Attorney's fees may be awarded only in the instances mentioned in Article 2208 of the Civil Code.

  • The court has the discretion to determine the interest rate to be imposed on a monetary award.

  • The interest rate of 6% per annum is generally imposed from the time of filing of the complaint until finality of the decision.

  • After finality of the decision, the interest rate may be increased to 12% per annum unless otherwise provided by the court.

  • The imposition of interest is meant to compensate the aggrieved party for the delay in the payment of the monetary award.