Shopper's Paradise Realty & Development Corporation vs. Efren P. Roque

A person dealing with registered land who has actual knowledge of a prior existing unregistered interest at the time he acquired a right thereto is not a purchaser in good faith, and such knowledge has the effect of registration as regards to him. The non-registration of a deed of donation does not affect its validity between the parties, but to bind third persons, the donation must be registered; actual knowledge of the unregistered donation by the third person is equivalent to registration insofar as that person is concerned.

Petitioner Shopper's Paradise Realty & Development Corporation is a corporation engaged in real estate development, represented by its president, Veredigno Atienza. Respondent Efren P. Roque is one of the surviving children of the late Dr. Felipe C. Roque, who was the registered owner of a 2,036-square-meter parcel of land at Plaza Novaliches, Quezon City, covered by TCT No. 30591. On 26 December 1978, Dr. Felipe Roque and his wife Elisa executed a deed of donation inter vivos in favor of respondent, made in a public instrument duly acknowledged before a notary public and accepted by respondent on the same day; however, the title to the property remained in the name of Dr. Felipe C. Roque. Respondent, who resided in the United States of America, delegated to his father the mere administration of the property.

On 23 December 1993, petitioner Shopper's Paradise Realty & Development Corporation, represented by its president Veredigno Atienza, entered into a twenty-five year lease with Dr. Felipe C. Roque over a parcel of land with an area of 2,036 square meters situated at Plaza Novaliches, Quezon City, covered by TCT No. 30591 in the name of Dr. Roque. Petitioner issued to Dr. Roque a check for P250,000.00 by way of "reservation payment." Simultaneously, petitioner and Dr. Roque entered into a memorandum of agreement for the construction, development and operation of a commercial building complex on the property, and petitioner issued another check for P250,000.00 as "downpayment" to Dr. Roque.

The contract of lease and the memorandum of agreement, both notarized, were to be annotated on TCT No. 30591 within sixty days from 23 December 1993 or until 23 February 1994. The annotations, however, were never made because of the untimely demise of Dr. Felipe C. Roque on 10 February 1994. The death of Dr. Roque constrained petitioner to deal with respondent Efren P. Roque, one of the surviving children of the late Dr. Roque, but the negotiations broke down due to some disagreements. In a letter dated 3 November 1994, respondent advised petitioner "to desist from any attempt to enforce the aforementioned contract of lease and memorandum of agreement."

On 15 February 1995, respondent filed a case for annulment of the contract of lease and the memorandum of agreement, with a prayer for the issuance of a preliminary injunction, before Branch 222 of the Regional Trial Court of Quezon City. Respondent alleged that he had long been the absolute owner of the subject property by virtue of a deed of donation inter vivos executed in his favor by his parents, Dr. Felipe Roque and Elisa Roque, on 26 December 1978, and that the late Dr. Felipe Roque had no authority to enter into the assailed agreements with petitioner. The donation was made in a public instrument duly acknowledged by the donor-spouses before a notary public and duly accepted on the same day by respondent before the notary public in the same instrument of donation. The title to the property, however, remained in the name of Dr. Felipe C. Roque, and it was only transferred to and in the name of respondent sixteen years later, or on 11 May 1994, under TCT No. 109754 of the Register of Deeds of Quezon City. Respondent, while he resided in the United States of America, delegated to his father the mere administration of the property. Respondent came to know of the assailed contracts with petitioner only after retiring to the Philippines upon the death of his father.

During the trial, the testimony of Veredigno Atienza on cross-examination revealed that petitioner, through its representatives, was apprised of the fact that the subject property actually belonged to respondent. Atienza testified that Architect Biglang-awa told them: "Yang mga yan pupunta sa mga anak. Yong kay Ruben pupunta kay Ruben. Yong kay Efren palibhasa nasa America sya, nasa pangalan pa ni Dr. Felipe C. Roque." This information was supplied to them before the execution of the Contract of Lease and Memorandum of Agreement, and Atienza confirmed that any information gathered by Biglang-awa was of the same effect as if received by him because they were members of the same team.

• Good Faith Presumption: Petitioner argued that the presumption of good faith it enjoys as a party dealing in registered land has not been overturned by the testimonial evidence, and that it was not required to go beyond the certificate of title to determine the condition of the property.
• Laches: Petitioner argued that respondent is barred by laches from denying the contracts, having failed or neglected for an unreasonable and unexplained length of time to assert his rights over the property.
• Estoppel: Petitioner argued that respondent is estopped from repudiating the contracts, having concealed the actual facts concerning the property and allowed his father to deal with it as if he were the owner.

• Invalidity of Contracts: Respondent argued that the contract of lease and memorandum of agreement are invalid and not binding on him because the late Dr. Felipe Roque had no authority to enter into the assailed agreements, the property having been donated to respondent in 1978.
• Lack of Good Faith: Respondent argued that petitioner was not a lessee in good faith, having had prior knowledge of the donation in favor of respondent, and that such actual knowledge had the effect of registration insofar as petitioner was concerned.
• No Laches or Estoppel: Respondent argued that he learned of the contracts only in February 1994 after the death of his father and assailed their validity in November of the same year, and that he never intended to conceal the actual facts concerning the property.

• Validity of Unregistered Donation: Whether the non-registration of the deed of donation affects its validity between the parties.
• Effect of Actual Knowledge: Whether petitioner's actual knowledge of the prior unregistered donation had the effect of registration insofar as petitioner was concerned, thereby making the contracts not binding on respondent.
• Authority of the Donor: Whether Dr. Felipe C. Roque had authority to enter into the lease contract and memorandum of agreement as an agent of respondent.
• Laches: Whether respondent is barred by laches from asserting his rights over the property.
• Estoppel: Whether respondent is estopped from repudiating the contracts.

• Validity of Unregistered Donation: No. The non-registration of a deed of donation does not affect its validity between the parties, as donation is itself a mode of acquiring ownership that results in an effective transfer of title from the donor to the donee. However, to bind third persons, the donation must be registered in the Registry of Property.
• Effect of Actual Knowledge: Yes. Petitioner's actual knowledge of the prior unregistered donation had the effect of registration insofar as petitioner was concerned, and the appellate court was not without substantial basis when it found petitioner to have had knowledge of the donation at the time it entered into the two agreements with Dr. Roque.
• Authority of the Donor: No. It was not shown that Dr. Felipe C. Roque had been an authorized agent of respondent, and a special power of attorney is necessary to lease any real property to another person for more than one year under Article 1878 of the Civil Code.
• Laches: No. Respondent learned of the contracts only in February 1994 after the death of his father and assailed their validity in November of the same year, so he cannot be said to have neglected to assert his case for an unreasonable length of time.
• Estoppel: No. It has not been shown that respondent intended to conceal the actual facts concerning the property, and petitioner has been shown not to be totally unaware of the real ownership of the subject property.

• Validity of Unregistered Donation: The Court reasoned that the existence, albeit unregistered, of the donation in favor of respondent is undisputed. The trial court and the appellate court have not erred in holding that the non-registration of a deed of donation does not affect its validity. As being itself a mode of acquiring ownership, donation results in an effective transfer of title over the property from the donor to the donee, pursuant to Article 712 of the New Civil Code. In donations of immovable property, the law requires for its validity that it should be contained in a public document, specifying therein the property donated and the value of the charges which the donee must satisfy, under Article 749 of the New Civil Code. The Civil Code provides, however, under Article 709, that "titles of ownership, or other rights over immovable property, which are not duly inscribed or annotated in the Registry of Property (now Registry of Land Titles and Deeds) shall not prejudice third persons." It is enough, between the parties to a donation of an immovable property, that the donation be made in a public document but, in order to bind third persons, the donation must be registered in the Registry of Property.

• Effect of Actual Knowledge: The Court cited Section 51 of P.D. No. 1529 (Property Registration Decree), which states that no deed, mortgage, lease, or other voluntary instrument purporting to convey or affect registered land shall take effect as a conveyance or bind the land, but shall operate only as a contract between the parties, and that "the act of registration shall be the operative act to convey or affect the land insofar as third persons are concerned." A person dealing with registered land may thus safely rely on the correctness of the certificate of title issued therefor, 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. The appellate court was not without substantial basis when it found petitioner to have had knowledge of the donation at the time it entered into the two agreements with Dr. Roque, as during their negotiation, petitioner, through its representatives, was apprised of the fact that the subject property actually belonged to respondent.

• Authority of the Donor: The Court held that it was not shown that Dr. Felipe C. Roque had been an authorized agent of respondent. In a contract of agency, the agent acts in representation or in behalf of another with the consent of the latter, under Article 1868 of the New Civil Code. Article 1878 of the Civil Code expresses that a special power of attorney is necessary to lease any real property to another person for more than one year. The lease of real property for more than one year is considered not merely an act of administration but an act of strict dominion or of ownership, and a special power of attorney is thus necessary for its execution through an agent.

• Laches: The Court defined laches as the failure or neglect, for an unreasonable and unexplained length of time, to do that which, by exercising due diligence, could or should have been done earlier; it is negligence or omission to assert a right within a reasonable time, warranting a presumption that the party entitled to assert it either has abandoned or declined to assert it. Respondent learned of the contracts only in February 1994 after the death of his father, and in the same year, during November, he assailed the validity of the agreements. Hardly could respondent then be said to have neglected to assert his case for an unreasonable length of time.

• Estoppel: The Court cited the essential elements of estoppel in pais, in relation to the party sought to be estopped: (1) a clear conduct amounting to false representation or concealment of material facts or, at least, calculated to convey the impression that the facts are otherwise than, and inconsistent with, those which the party subsequently attempts to assert; (2) an intent or, at least, an expectation, that this conduct shall influence, or be acted upon by, the other party; and (3) the knowledge, actual or constructive, by him of the real facts. With respect to the party claiming the estoppel, the conditions he must satisfy are: (1) lack of knowledge or of the means of knowledge of the truth as to the facts in question; (2) reliance, in good faith, upon the conduct or statements of the party to be estopped; and (3) action or inaction based thereon of such character as to change his position or status calculated to cause him injury or prejudice. It has not been shown that respondent intended to conceal the actual facts concerning the property; more importantly, petitioner has been shown not to be totally unaware of the real ownership of the subject property.

• Doctrine of Registration in Donation of Immovable Property — Between the parties to a donation of an immovable property, it is enough that the donation be made in a public document; however, in order to bind third persons, the donation must be registered in the Registry of Property. The Court applied this doctrine to hold that while the donation from Dr. Roque to respondent was valid between them despite non-registration, it could not prejudice third persons unless registered.

• Doctrine of Actual Knowledge Equivalent to Registration — A person dealing with registered land may safely rely on the correctness of the certificate of title issued therefor, and he is not required to go beyond the certificate to determine the condition of the property; however, 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. The Court applied this doctrine to hold that petitioner, having been apprised of the fact that the subject property actually belonged to respondent, was not a lessee in good faith.

• Doctrine of Laches — Laches is the failure or neglect, for an unreasonable and unexplained length of time, to do that which, by exercising due diligence, could or should have been done earlier; it is negligence or omission to assert a right within a reasonable time, warranting a presumption that the party entitled to assert it either has abandoned or declined to assert it. The Court applied this doctrine to hold that respondent, having learned of the contracts only in February 1994 and having assailed their validity in November of the same year, could not be said to have neglected to assert his case for an unreasonable length of time.

• Doctrine of Estoppel in Pais — The essential elements of estoppel in pais, in relation to the party sought to be estopped, are: (1) a clear conduct amounting to false representation or concealment of material facts or, at least, calculated to convey the impression that the facts are otherwise than, and inconsistent with, those which the party subsequently attempts to assert; (2) an intent or, at least, an expectation, that this conduct shall influence, or be acted upon by, the other party; and (3) the knowledge, actual or constructive, by him of the real facts. With respect to the party claiming the estoppel, the conditions he must satisfy are: (1) lack of knowledge or of the means of knowledge of the truth as to the facts in question; (2) reliance, in good faith, upon the conduct or statements of the party to be estopped; and (3) action or inaction based thereon of such character as to change his position or status calculated to cause him injury or prejudice. The Court applied this doctrine to hold that respondent was not estopped from repudiating the contracts, as it was not shown that he intended to conceal the actual facts, and petitioner was not totally unaware of the real ownership of the property.

• "A person dealing with registered land may thus safely rely 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." — This passage articulates the controlling doctrine that actual knowledge of an unregistered interest is equivalent to registration, which is the ratio decidendi of the case.

• "The lease of real property for more than one year is considered not merely an act of administration but an act of strict dominion or of ownership. A special power of attorney is thus necessary for its execution through an agent." — This passage states the rule that leasing real property for more than one year requires a special power of attorney, as it is an act of strict dominion or ownership, not mere administration.

• "Laches, in its real sense, is the failure or neglect, for an unreasonable and unexplained length of time, to do that which, by exercising due diligence, could or should have been done earlier; it is negligence or omission to assert a right within a reasonable time, warranting a presumption that the party entitled to assert it either has abandoned or declined to assert it." — This passage defines the doctrine of laches as applied by the Court in determining that respondent had not unreasonably delayed in asserting his rights.

• Gonzales vs. Court of Appeals, G.R. No. 110335, 18 June 2001, 358 SCRA 598 — Cited to support the proposition that in order to bind third persons, a donation of immovable property must be registered in the Registry of Property.
• Santos vs. Court of Appeals, G.R. No. 90380, 13 September 1990, 189 SCRA 550 — Cited to support the rule that a person dealing with registered land may safely rely on the correctness of the certificate of title and is not required to go beyond it.
• Lagandaon vs. Court of Appeals, G.R. No. 102526-31, 21 May 1998, 290 SCRA 330 — Cited to support the doctrine that actual knowledge of a prior unregistered interest has the effect of registration as regards to the person with such knowledge.
• Fernandez vs. Court of Appeals, G.R. No. 83141, 21 September 1990, 189 SCRA 780 — Cited to support the same doctrine that actual knowledge of a prior unregistered interest has the effect of registration.
• Kalalo vs. Luz, G.R. No. L-27782, 31 July 1970, 34 SCRA 337 — Cited for the essential elements of estoppel in pais.

• Article 712, New Civil Code — Provides that ownership and other real rights over property are acquired and transmitted by law, by donation, by testate or intestate succession, and in consequence of certain contracts, by tradition. The Court cited this to establish that donation is a mode of acquiring ownership.
• Article 749, New Civil Code — Requires that donations of immovable property be contained in a public document, specifying therein the property donated and the value of the charges which the donee must satisfy. The Court cited this to establish the formal validity of the donation.
• Article 709, New Civil Code — Provides that titles of ownership or other rights over immovable property which are not duly inscribed or annotated in the Registry of Property shall not prejudice third persons. The Court cited this to establish that registration is required to bind third persons.
• Section 51, P.D. No. 1529 (Property Registration Decree) — Provides that no deed, mortgage, lease, or other voluntary instrument purporting to convey or affect registered land shall take effect as a conveyance or bind the land, but shall operate only as a contract between the parties, and that the act of registration shall be the operative act to convey or affect the land insofar as third persons are concerned. The Court cited this to establish that registration is the operative act to bind third persons.
• Article 1868, New Civil Code — Defines agency as a contract whereby a person binds himself to render some service or to do something in representation or on behalf of another, with the consent of the latter. The Court cited this to establish that Dr. Roque was not an authorized agent of respondent.
• Article 1878, New Civil Code — Requires a special power of attorney to lease any real property to another person for more than one year. The Court cited this to establish that the lease of real property for more than one year is an act of strict dominion requiring special authority.

Sandoval-Gutierrez, Corona, and Carpio-Morales, JJ., concurred.