G.R. No. 145982. July 3, 2003.
* mandatory that notice be served on the heirs and other
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 VAÑO, respondents.
Civil Law; Contracts; Sales; Rescission; 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.—Although the law allows the
extra-judicial cancellation of a contract to sell upon failure
of one party to comply with
_______________
 In Re: Petition for Dismissal from Service and/or Disbarment of
19
Judge Baltazar R. Dizon, A.M. No. 3086, 31 May 1989, 173 SCRA 719.
 Dionisio v. Escaño, 362 Phil. 46; 302 SCRA 411 [1999].
20
 FIRST DIVISION.
* in his lifetime.—A prior contract to sell made by the
317
VOL. 405, JULY 3, 2003
Liu vs. Loy, Jr.
his obligation, notice of such cancellation must still
be given to the party who is at fault. 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.
Same; Same; Same; One who buys from a person
who is not the registered owner is not a purchaser in good
faith.—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 .”
Same; Same; Same; Registration of the contracts
without court approval would be ineffective to bind third
persons, especially creditors of the estate.—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.
Same; Same; Same; Trusts; It is 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 otherwise the order
authorizing the conveyance, as well as the conveyance
itself, is completely void.—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: 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
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)
318
Same; Same; Same; 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.—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.
Same; Same; Same; An administrator cannot
unilaterally cancel a contract to sell made by the decedent
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. Any cancellation must
observe all legal requisites, like written notice of
cancellation based on lawful cause.
PETITION for review on certiorari of the decision and
resolution of the Court of Appeals.
The facts are stated in the opinion of the Court.
     Loyola, Rodriguez, Delos Santos & Naidas
Law Office for petitioners.
     Diores Law Offices for private respondents
Loys.
CARPIO, J.:
The Case
This is a petition for review on certiorari of the
Decision  dated 13 June 2000 and the Resolution dated
1
14 November 2002 of the Court of Appeals which
affirmed the Decision  of the Regional Trial Court,
2
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
_______________
 Penned by Associate Justice Jose L. Sabio, Jr., with
1
Associate Justices Ramon Mabutas, Jr. and Demetrio G. Demetria
concurring.
 Penned by Judge Renato C. Dacudao.
2
319
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.  Teodoro Vaño dealt with Frank Liu, the
3
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.
Benito Liu subsequently paid installments totaling
P2,900, leaving a balance of P1,000.  Apparently, 4
Benito Liu stopped further payments because Teodoro
Vaño admitted his inability to transfer the lot titles to
Benito Liu. Later, in a letter  dated 16 October 1954,
5
Teodoro Vaño informed Frank Liu  that the Supreme
6
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.
When Frank Liu failed to reply, Teodoro Vaño
sent him another letter,  dated 1 January 1955,
7
reminding him of his outstanding
_______________
3
 Exhibit “A”, Records, pp. 6-9.
4
 See Exhibits “B” and “F”, ibid., pp. 62-63 and 68.
 Exhibit “C”, ibid., p. 64.
5
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.”
 Exhibit “D”, Records, p. 65.
7
320
balance. It appears that it was only after nine years
that Frank Liu responded through a letter,  dated 25 8 the Estate of Jose Vaño.
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.
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.  Frank Liu assumed the balance of P1,000 for
9 1968.
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.
On 21 March 1968, Frank Liu reiterated in a
letter  his request for Teodoro Vaño to execute the
10
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,  dated 7 June 1968 and 29 July
11
1968, to Teodoro Vaño reiterating his request for the
execution of the deed of sale in his favor but to no
avail.
On 19 August 1968, Teodoro Vaño sold Lot No. 6
to respondent Teresita Loy for P3,930.  The Register 12
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
_______________
8
 321
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.  However, the Register of Deeds
15
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.  The 17
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.  Thus, on 19
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
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.  The deed of conveyance
21
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
322
On 19 March 1976, the probate court, upon an ex-
parte motion filed by Teresita Loy, issued an
Order  approving the 16 August 1968 sale by Teodoro
22
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  approving 23
the 16 December 1969 sale of Lot No. 5 by Teodoro
Vaño 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 Vaño covering Lot No. 5 and issued a
new title, TCT No. 64522, in the name of Alfredo
Loy, Jr. and Perfeccion V. Loy.  Likewise, on the
24
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.
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 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.
On 8 April 1991, the Regional Trial Court of Cebu
City (“trial court”), Branch 14, rendered judgment
against Frank Liu as follows:
_______________
323
“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  filed a motion for reconsideration but the Court
27
of Appeals denied the same.
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 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 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.
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.
_______________
26
 Rollo, p. 75.
27
 Frank Liu died on 24 January 1992 and was substituted by
his legal heirs. CA Rollo, pp. 209-212.
324
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.
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.
The Issues
Petitioners  raise the following issues:
28 29
1. 1.Whether prior approval of the probate court
is necessary to validate the sale of Lot Nos. 5
and 6 to Loys;
2. 2.Whether the Loys can be considered buyers
and registrants in good faith despite the
notice of lis pendens;
3. 3.Whether Frank Liu has a superior right over
Lot Nos. 5 and 6;
_______________
 Petitioners are Frank Liu’s spouse and children, who
28
substituted him upon his death.
29
 Rollo, pp. 18-19.
325
1. 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;
2. 5.Whether petitioners are entitled to moral
damages and attorney’s fees.
The Court’s 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
Vaño, 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.  (Emphasis 30
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.
Although the law allows the extrajudicial
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
_______________
30
 Exhibit “D”, Records, p. 65.
326
fault.  The notice of cancellation to the other party is
31
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.  (Emphasis supplied)
32
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  to 34
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)
_______________
 Active Realty & Development Corporation v. Daroya, G.R.
31
No. 141205, 9 May 2002, 382 SCRA 152; 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.
 Lim v. Court of Appeals, G.R. No. 85733, 23 February
32
1990, 182 SCRA 564, 571, citing University of the Philippines v.
De Los Angeles, 146 Phil. 108, 114-115; 35 SCRA 102 (1970).
 Civil Case No. 6300, instituted by Frank Liu against
33
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.
 Exhibit “C”, Records, p. 64.
34
327
In the same letter of 16 October 1954, Teodoro Vaño
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 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.
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.  Frank Liu did not appeal to the Land
35
Registration Commission  to keep alive the lis
36
pendens. Republic Act No. 1151,  which took effect
37
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
_______________
 See Exhibit “J-3”, Records, back of p. 78.
35
 Now Land Registration Authority.
36
 An Act Creating the Land Registration Commission, and
37
Authorizing and Appropriating the Necessary Funds Therefor.
328
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  the denial of the
38
registration rendered the lis pendens ineffective. The
Court of First Instance of Davao City eventually
dismissed Frank Liu’s 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 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.”  As held in Toledo-Banaga v. Court of
39
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 ac-
_______________
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.
 Samonte v. Court of Appeals, G.R. No. 104223, 12 July 2001, 361
39
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.
329
quired 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 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.
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  specifically requires notice to all interested
42
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
_______________
 See Baun v. Heirs of Baun, 53 Phil. 654 (1929).
41
 The Rules then prevailing.
42
330
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. 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
_______________
 43
 Rollo, p. 188.
44
 G.R. No. L-16553, 29 November 1961, 3 SCRA 548, 551.
331
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.
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.
_______________
45
 Supra, see note 41.
332
In Opulencia v. Court of Appeals,  an heir agreed to
46
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 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.
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
_______________
 355 Phil. 124; 293 SCRA 385 (1998).
46
333
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
Manotok Realty, Inc. v. Court of
Appeals  emphasizes the need for court approval in the
48
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
sale’s 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)
_______________
 Dillena v. Court of Appeals, G.R. No. L-77660, 28 July
47
1988, 163 SCRA 630; Estate of Amadeo Matute Olave, v. Hon.
Reyes, 208 Phil. 678; 123 SCRA 167 (1983); Godoy v.
Orellano, 42 Phil. 347 (1921).
 G.R. No. L-35367, 9 April 1987, 149 SCRA 174, 179-180.
48
334
Similarly, Section 88 of Presidential Decree No. 1529
(PropertyRegistration 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.
_______________
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.
xxx
335
In Dolar v. Sundiam,  an heir sold parcels of land that
50
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
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.
_______________
 148 Phil. 630; 38 SCRA 616 (1971).
50
336
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,  the Court
51
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).
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.  If 52
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.  Any
cancellation must observe all legal requisites, like
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
53
date of filing of the complaint, until finality of this
decision, and 12% thereafter until full payment.
60

written notice of cancellation based on lawful cause. 54

WHEREFORE, the Decision of the Court of
_______________ Appeals is SET ASIDE and a new one is
RENDERED:
 G.R. No. L-64159, 10 September 1985, 138 SCRA 489, 494.
51

 See note 39.
52

 Lim v. Court of Appeals, G.R. No. 85733, 23 February

53
1990, 182 SCRA 564.
 Active Realty & Development Corporation v. Daroya,
54
supra, see note 31.
337
It is immaterial if the prior contract is a mere contract
to sell and does not immediately convey
ownership.  If it is valid, then it binds the estate to
55
convey the property in accordance with Section 8 of
Rule 89 upon full payment of the consideration.
Frank Liu’s contract to sell became valid and
effective upon its execution.  The seller, Jose Vaño,
56
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.
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.
1. 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. 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. 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.
_______________
339
Judgment set aside.
Note.—Mutual restitution is required in rescission,
but this presupposes that both parties may be restored
in their original situation. (Asuncion vs.
Evangelista, 316 SCRA 848 [1999])
——o0o——
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.  The court may award attorney’s
58

fees only in the instances mentioned in Article 2208 of

_______________

 See Adelfa Properties, Inc. v. Court of Appeals, 310 Phil.

55

623; 240 SCRA 565 (1995).

 Article 1315 of the Civil Code provides:
56

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.

 People v. Sanchez, G.R. Nos. 121039-45, 18 October

57

2001, 367 SCRA 520.

 Country Bankers Ins. Corp. v. Lianga Bay and Community
58

MultiPurpose Cooperative, Inc. G.R. No. 136914, 25 January

2002, 374 SCRA 653; Padillo v. Court of Appeals, G.R. No.
119707, 29 November 2001, 371 SCRA 27.

338
the Civil Code. The award of attorney’s fees is the
exception rather than the rule.  None of the instances
59

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