Unregistered but binding

Between the parties, it is enough that the donation of immovable property be made in a public document. But to bind third persons, the donation must be registered in the Registry of Property. In this case however, the unregistered donation was still considered binding against a third party. Let’s find out why.

The property subject of this case is a parcel of land with an area of 2,036 sq.m. covered by TCT No. 30591 located in a prime commercial area in Quezon City. It is one among the two other adjoining lands registered in the name of Dr. Ramon and his wife, a well known and beloved patriarch in their place. Dr. Ramon has three sons, Romy, Ed and Carlos, to whom he gave the three parcels of land by way of donation, as their inheritance.

The parcel of land covered by TCT No. 30591 was given to Ed by virtue of a deed of donation inter-vivos executed by his parents way back on December 26, 1978 in a public instrument duly acknowledged by the donor-spouses before a notary public and duly accepted on the same day by Ed before the notary public in the same instrument of donation. The title to the property however remained in the name of Dr. Ramon who continued to administer the property since Ed was residing in the United States. No special power of attorney was executed by Ed over the property in favor of his father.

Sometime in 1993, while Ed was still in the USA, a realty company (SPRDC) through its president, Mr. Alonso started negotiations with Dr. Ramon for the development of the property. During the negotiations, SPRDC was apprised of the fact that the subject property actually belonged to Ed to whom it was donated. Aware of such fact, SPRDC still entered into a 25 year lease contract with Dr. Ramon over the said parcel of land for which he was paid P250,000 as "reservation payment". Simultaneously, SPRDC and Dr. Ramon likewise entered into a memorandum of agreement for the construction, development and operation of a commercial building complex on the property. Conformably with the agreement SPRDC issued another check of P250,000 as down payment to Dr. Ramon.

The contract of lease and the memorandum of agreement, both notarized were to be annotated on TCT 30591 within sixty days, or until February 23, 1994. But they were never made because of the untimely demise of Dr. Ramon on February 10, 1994. So SPRDC had to deal with Ed who came back from the USA upon the death of his father. In the meantime, on May 11, 1994, Ed registered the deed of donation executed by his father way back on December 26, 1978 and obtained title in his name. The negotiations between Ed and SPRDC somehow broke down due to some disagreements. So Ed wrote SPRDC to desist from any attempt to enforce the lease contract and the MOA. Subsequently he filed a case for the annulment of said contracts with a prayer for preliminary injunction with the Regional Trial Court (RTC).

After trial however, during which the SPRDC president himself admitted that they were supplied information about the donation of the property to Ed, the RTC still dismissed Ed’s complaint. The trial court said that the registration of the deed of donation is important in binding third persons. Thus, according to the RTC, when the late Dr. Ramon entered into a lease contract with SPRDC, Ed could not assert the unregistered deed of donation and say that his father was no longer the owner of the subject property at the time its lease was agreed upon. The registration of the deed of donation after the execution of the lease contract did not affect the said contract since Ed already knew very well of its existence. And although the lease itself was not registered, it remains valid against Ed considering that he is not a third person but the successor-in-interest of his father.

Was the RTC correct?

No.

The Court of Appeals, as sustained by the Supreme Court, said that while a Deed of Donation would have to be registered in order to bind third persons, SPRDC is not a lessee in good faith having had prior knowledge of the donation in favor of Ed. Such actual knowledge had the effect of registration insofar as SPRDC is concerned. A person dealing with registered land may rely safely on the correctness of the certificate of title issued therefore and he is not required to go beyond the certificate to determine the condition of the property but, where such party has knowledge of a prior existing interest which is unregistered at the time he acquired a right thereto, his knowledge of that prior unregistered interest would have the effect of registration as regards to him.

So the Contract of Lease and the memorandum of agreement entered into between Dr, Ramon and SPRDC are not binding on Ed (Shopper’s Paradise Realty and development Corporation vs. Efren P. Roque G.R. 148775, January 13, 2004).