Liu vs. Loy

A contract to sell executed by a decedent during his lifetime prevails over a subsequent contract of sale executed by the estate administrator without probate court approval; and court approval is mandatory for any sale of estate property by an executor or administrator under Rule 89 of the Rules of Court, Section 91 of Act No. 496, and Section 88 of P.D. No. 1529, the absence of which renders the sale void.

Jose Vaño died on January 28, 1950. Prior to his death, he executed a power of attorney in favor of his son Teodoro Vaño. During Jose Vaño's lifetime, Teodoro Vaño as attorney-in-fact entered into an agreement to sell certain lots including Lot Nos. 5 and 6 to Benito Liu (predecessor-in-interest of Frank Liu). After Jose Vaño's death, Teodoro Vaño acted as administrator of the estate and subsequently sold the same lots to Alfredo Loy, Jr. and Teresita Loy without prior probate court approval, leading to a conflict over ownership.

• Jose Vaño died on January 28, 1950. Prior to his death, he executed a power of attorney in favor of his son, Teodoro Vaño.
• On January 13, 1950, Teodoro Vaño, acting as attorney-in-fact of Jose Vaño, entered into a contract to sell (agreement) with Benito Liu covering Lot Nos. 5 and 6, among others.
• Benito Liu paid P2,000 of the total purchase price, leaving a balance of P1,000, but stopped further payments when Teodoro Vaño admitted inability to transfer the titles.
• On October 16, 1954, Teodoro Vaño wrote to Frank Liu (the actual party dealing with him despite the contract being under Benito Liu's name) informing him that the Supreme Court had already declared valid the will of Jose Vaño and that titles could be transferred upon full payment.
• Frank Liu did not respond until January 25, 1964, when he wrote Teodoro Vaño expressing readiness to pay the balance and requesting execution of the deed of sale.
• On April 22, 1966, Benito Liu sold the five lots (including Lot Nos. 5 and 6) to Frank Liu, who assumed the unpaid balance of P1,000.
• Frank Liu sent letters dated March 21, 1968, June 7, 1968, and July 29, 1968 to Teodoro Vaño reiterating his request for execution of the deed of sale and offering payment, but to no avail.
• On August 19, 1968, Teodoro Vaño, as administrator of the Estate of Jose Vaño, sold Lot No. 6 to Teresita Loy.
• On December 16, 1969, Teodoro Vaño sold Lot No. 5 to Alfredo Loy, Jr.
• On February 24, 1976, the probate court approved the sale of Lot Nos. 5 and 6 to Frank Liu.
• On March 19 and 23, 1976, the probate court approved the contracts of sale in favor of the Loys, despite the prior approval in favor of Frank Liu.

• The prior contract to sell executed by Teodoro Vaño during Jose Vaño's lifetime prevails over the subsequent contracts of sale executed by Teodoro Vaño as administrator in favor of the Loys without probate court approval.
• The contracts of sale in favor of the Loys are void for lack of probate court approval as required by Section 8 of Rule 89, Section 91 of Act No. 496, and Section 88 of P.D. No. 1529.
• The probate court orders dated March 19 and 23, 1976 approving the Loys' contracts are void because the court had already lost jurisdiction over the lots when it approved Frank Liu's sale on February 24, 1976, and the lots no longer formed part of the estate.
• The Loys are not buyers in good faith because they purchased from a seller who was not the registered owner (titles were in the name of "Estate of Jose Vaño"), putting them on notice that court approval was required, and they belatedly sought court approval only in 1976.

• The transaction between Teodoro Vaño and Benito Liu was merely a contract to sell, not a contract of sale, and did not transfer ownership because it was subject to full payment of the consideration.
• Their transactions with Teodoro Vaño were contracts of sale with absolute conveyances that transferred ownership immediately.
• Teodoro Vaño, as administrator and sole heir of Jose Vaño, could validly sell the lots since the rights of an heir are transmitted from the moment of death of the testator.
• The probate court's subsequent approval in 1976 ratified their sales, curing any defect.
• They are buyers in good faith who registered the deeds of sale, paid taxes, and constructed improvements on the property.

• Procedural Issues:
  • Whether the Motion for Reconsideration should be granted in light of the issues having been previously considered and discussed in the assailed Decision.
• Substantive Issues:
  • Whether a prior contract to sell executed during the decedent's lifetime prevails over a subsequent contract of sale executed by the administrator without probate court approval.
  • Whether court approval is mandatory for sales of estate property by an administrator under Rule 89 of the Rules of Court and related statutes.
  • Whether the probate court's subsequent approval in 1976 ratified the Loys' sales despite the prior approval of Frank Liu's sale.
  • Whether the Loys are buyers in good faith.

• Procedural:
  • The Supreme Court denied the Motion for Reconsideration, finding that the issues raised were not new and had already been extensively discussed in the Decision dated July 3, 2003, and that no compelling reason existed to reconsider the assailed Decision.
• Substantive:
  • The Court affirmed that a prior contract to sell made by the decedent during his lifetime prevails over a subsequent contract of sale made by the administrator without probate court approval, regardless of whether the prior contract immediately conveys ownership. The contract to sell became valid and effective upon execution and bound the estate to convey the property upon full payment of the consideration.
  • Court approval is mandatory for sales of estate property by an administrator under Section 8 of Rule 89, Section 91 of Act No. 496, and Section 88 of P.D. No. 1529. Without such approval, the sale is void. The purpose of this requirement is to protect creditors, including Frank Liu.
  • The probate court orders dated March 19 and 23, 1976 approving the Loys' contracts are void because the court had already lost jurisdiction over Lot Nos. 5 and 6 when it approved Frank Liu's sale on February 24, 1976, and the lots no longer formed part of the Estate of Jose Vaño.
  • The Loys are not buyers in good faith because they bought from a seller who was not the registered owner (titles were in the name of "Estate of Jose Vaño"), which put them on notice that court approval was required. Their belated filing for court approval in 1976, seven or eight years after the sales, reveals less than honest actuation and constitutes an implied admission that their deeds of sale were ineffective without such approval.

• Prior Contract to Sell Prevails Over Subsequent Sale by Administrator — A contract to sell executed by the decedent or his agent during the decedent's lifetime, which creates a binding obligation to convey upon full payment, prevails over a subsequent contract of sale executed by the estate administrator without probate court approval, even if the prior contract does not immediately transfer ownership.
• Mandatory Court Approval for Sales by Administrator — Executors or administrators cannot sell or encumber estate property without prior court approval as required by Rule 89 of the Rules of Court, Section 91 of Act No. 496, and Section 88 of P.D. No. 1529. The absence of such approval renders the sale void ab initio.
• Good Faith of Buyers of Estate Property — Buyers of estate property are not in good faith if they purchase from an administrator without court approval when the certificate of title indicates that the property belongs to the estate, as this places them on constructive notice of the need for judicial sanction.

• "Well-settled is the rule that an administrator needs court approval to sell estate property, otherwise the sale is void."
• "The purpose of requiring court approval is to protect creditors. In this case, Frank Liu is a creditor, and he is the person the law seeks to protect."
• "The Loys are not buyers and registrants in good faith considering that they bought from a seller who was not a registered owner."
• "By asking for court approval, they necessarily admitted that without court approval, the sale to them was ineffectual."

• Dillena v. Court of Appeals — Cited for the rule that an administrator needs court approval to sell estate property, otherwise the sale is void.
• Manotok Realty, Inc. v. Court of Appeals — Cited for the same rule regarding court approval for sales by administrators.
• Estate of Amadeo Matute Olave v. Hon. Reyes — Cited for the same rule regarding court approval for sales by administrators.
• Godoy v. Orellano — Cited for the same rule regarding court approval for sales by administrators.
• Vaño v. Vda. de Garces — Cited to establish the date of death of Jose Vaño (January 28, 1950) and the probate of his will.

• Section 8, Rule 89 of the Rules of Court — Allows the court to authorize the executor or administrator to convey real property which the deceased contracted to convey during his lifetime.
• Section 7, Rule 89 of the Rules of Court — Provides the regulations for granting authority to sell, mortgage, or otherwise encumber estate property.
• Section 91, Act No. 496 (Land Registration Act) — Requires an order of court for any sale or transfer of registered land by an executor or administrator.
• Section 88, P.D. No. 1529 (Property Registration Decree) — Requires court approval for an executor or administrator to alienate or encumber registered land belonging to the estate.
• Article 1544 of the Civil Code — Cited in the dissenting opinion regarding double sales and ownership belonging to the first registrant in good faith.

• Ynares-Santiago and Azcuna, JJ. — Simply concurred with the Resolution without issuing separate opinions.

• Davide, Jr., C.J. — Argued that the contract to sell was validly rescinded due to failure of Benito Liu and Frank Liu to pay the balance for many years; that the sale by Benito Liu to Frank Liu was null and void because Benito Liu never became owner; that the Loys were buyers in good faith who registered the property, paid taxes, and constructed improvements; and that Frank Liu acted in bad faith by failing to respond to letters and failing to consign payment.