G.R. No. 148775; January 13, 2004
SHOPPER’S PARADISE REALTY & DEVELOPMENT CORPORATION, petitioner, vs. EFREN P. ROQUE, respondent.

FACTS

On December 23, 1993, petitioner Shopper’s Paradise entered into a 25-year lease and a related memorandum of agreement with Dr. Felipe C. Roque over a parcel of land in Quezon City. Petitioner issued checks totaling P500,000 as reservation and down payments. The agreements were to be annotated on the title within 60 days. Dr. Roque died on February 10, 1994, before the annotations were made. Petitioner subsequently negotiated with respondent Efren P. Roque, Dr. Roque’s son, but these negotiations failed. Respondent then filed a case for annulment of the contracts, asserting that he had been the absolute owner of the property since December 26, 1978, by virtue of a deed of donation inter vivos from his parents. However, the title remained in Dr. Roque’s name until it was transferred to respondent on May 11, 1994, after his father’s death.
The trial court dismissed the complaint, ruling that the unregistered donation could not bind petitioner as a third party. It held the lease contracts valid and binding on respondent as Dr. Roque’s successor-in-interest, ordering the annotation of the agreements on the title. The Court of Appeals reversed this decision, declaring the contracts invalid and not binding on respondent. It found that petitioner had prior actual knowledge of the donation to respondent, which equated to the effect of registration, and thus petitioner was not a lessee in good faith.

ISSUE

Whether the Contract of Lease and Memorandum of Agreement executed by Dr. Felipe C. Roque are valid and binding upon respondent Efren P. Roque as the donee of the property.

RULING

No, the contracts are not valid and binding upon respondent. The Supreme Court affirmed the decision of the Court of Appeals. The legal logic centers on the principles of property registration and the effects of actual knowledge. While a deed of donation inter vivos is valid between the parties even without registration, registration is crucial for binding third persons under the Torrens system. However, actual knowledge of a prior unregistered interest by a subsequent party produces the same effect as registration.
Here, the Court found that petitioner, through its president Veredigno Atienza, had prior actual knowledge that the property had been donated to respondent and was merely still registered under Dr. Roque’s name for administrative convenience while respondent resided abroad. This knowledge was established during cross-examination. Consequently, petitioner cannot be considered a third party in good faith protected by the lack of registration. Since Dr. Roque was no longer the owner at the time of the contract’s execution—ownership having passed to respondent upon the perfection of the donation in 1978—he had no authority to lease the property. The contracts, being entered into by one without title or authority, are invalid and cannot bind the true owner, respondent. The Court also rejected petitioner’s defenses of laches and estoppel, finding no unreasonable delay by respondent in asserting his rights and no concealment of facts upon which estoppel could be based.