Recently, I got an unnotarized Deed of Absolute Sale of a parcel of land in Lapu-Lapu City in Mactan Island, Cebu. Is the Deed of Absolute Sale valid? Let us discuss this issue in this blog.
I already discussed this topic in previous blogs but only in passing or related to some specific topics. In this blog, let us discuss the importance of the Contract of Sale, the use of Deed of Absolute Sale in the sales transaction of real estate properties, and the importance of the notarization of the Deed of Absolute Sale.
I. Contract of Sale
DEFINITION
Article 1458 of The New Civil Code of the Philippines (NCC) defines a contract of sale as follows:
By the contract of sale one of the contracting parties obligates himself to transfer the ownership and to deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent. (emphasis added)
Based on the definition of "Contract of Sale" by the New Civil Code there are at least two contracting parties, namely the seller and the buyer.
The Seller - transfers the ownership and delivers a determinate thing.
The Buyer - pays the price in money or its equivalent.
ESSENTIAL ELEMENTS
The Contract of Sale has three (3) essential elements.
Consent - when there is a meeting of minds to transfer ownership in exchange for the price;
Object - the determinate thing to be delivered;
Cause - the price certain in money or its equivalent.
Notes:
When we speak of "essential" it means that absence of one element, the Contract of Sale is void.
The validity of the Contract of Sale does not depend upon another contract.
Does it need to be written? As a general rule, the Contract of Sale need not be written. However, in the case of the sales of real property, the law requires that the Deed of Sale must be written otherwise the contract will be unenforceable. (See Art. 1403(2), NCC)
II. Deed of Absolute Sale
The Contract of Sale can be "Absolute" or "Conditional".
ABSOLUTE SALE
A sale is absolute when there is no condition and ownership passes to the vendee upon delivery of the thing subject of the sale.
In real estate sale, if the payment of the real property is FULL, the sale is ABSOLUTE and there is IMMEDIATE TRANSFER OF OWNERSHIP.
Legal Form: Deed of Absolute Sale.
CONDITIONAL SALE
A sale is conditional where there is a condition and ownership is transferred to the vendee only upon the fulfillment of the condition, that is, full payment of the thing sold.
In real estate sale, if the payment is INSTALLMENTS, the sale is CONDITIONAL and there is NO TRASFER OF OWNERSHIP. Upon fulfillment of the condition or full payment, there is now a transfer of ownership. There is no need to execute another document.
Legal Form: Deed of Conditional Sale
CONTRACT TO SELL
A variance of the Contract of Conditional Sale
A bilateral contract whereby the prospective seller - reserves the ownership of the property despite delivery of the said property - binds himself to exclusively sell the property to the prospective buyer, subject to the fulfillment of the condition or full payment of the agreed purchase price.
This is common in the sales of residential lot, house-and-lot, and condo units.
Contract of Sale versus Contract to Sell
In a contract of sale, title passes to the vendee upon the delivery of the thing sold; whereas in a contract to sell, by agreement the ownership is reserved in the vendor and is not to pass until the full payment of the price.
In a contract of sale, the vendor has lost and cannot recover ownership until and unless the contract is resolved or rescinded; whereas in a contract to sell, title is retained by the vendor until the full payment of the price,..
In the contract of absolute sale, there is absolute transfer of ownership upon delivery of the thing sold.
In the contract of conditional sale and contract to sell, the ownership of the real property shall not pass to the buyer until he has fully paid the price.
Contract of Conditional Sale versus Contract to Sell
In a contract to sell, the full payment of the purchase price does not automatically transfer the ownership to the buyer, even if the property is previously delivered to him. The prospective seller must still convey title to the prospective buyer by entering into a contract of absolute sale.
In a contract of conditional sale, the full payment of the purchase price renders the sale absolute and the previous delivery of the property has the effect of automatically transferring the seller’s ownership to the property to the buyer. No need to enter into a contract of absolute sale.
III. Notarization of the Deed of Absolute Sale
When the seller and the buyer signed the Deed of Absolute Sale, there is already a transfer of ownership of the real property. It deems that the buyer fully paid the purchase price, And the seller handed over the owner's certificate of title to the buyer.
Is the unnotarized Deed of Absolute Sale valid?
Answer: Yes.
Let us review what we learn above:
"Contracts shall be obligatory, in whatever form they may have been entered into, provided all the essential requisites for their validity are present." (Art 1356 of the Civil Code)
"There is no contract unless the following requisites concur: (1) Consent of the contracting parties; (2) Object certain which is the subject matter of the contract; and (3) Cause of the obligation which is established." (Art 1318 of the Civil Code)
For a Contract to Sale to be valid, only the above 3 essential elements are required. The notarization is not required for the contract to sale to be valid. The notarization is not for the purpose of rendering validity or invalidity upon the document, in our care, the contract to sale or the deed of absolute sale.
TWO PURPOSES OF NOTARIZATION OF THE DEED OF SALE
A. Conversion of the Deed of Sale into Public Document
The Deed of Sale is valid between two contracting parties - the seller and the buyer.
In case of dispute between the seller and the buyer, the Deed of Sale (either Absolute or Conditional) must be a public document for it to be admissible as evidence in the court.
If it remains a private document, you need to prove its due execution and authenticity. Whereas if it is notarized, it is now a public document and admissible in the court. You don't need to prove its due execution and authenticity by virtue of the notarization.
B. Registration of the Property in the Registry of Deeds
Section 112 of PD 1529 or Property Registration Decree states: "Deeds, conveyances, encumbrances, discharges, powers of attorney and other voluntary instruments, whether affecting registered or unregistered land, executed in accordance with law in the form of public instruments shall be registerable."
For the Deed of Absolute Sale to be registered, it must be notarized.
In the registration process, you get the Certification Authorizing Registration (CAR) and you need to submit a notarized Deed of Absolute Sale. Without a duly notarized Deed of Absolute Sale, the BIR will not issue tax clearance or CAR. Without tax clearance, you cannot get a new title under your name.
The Importance of Registering the Property to Your Name
Unless and until you register the property under your name, the property is still under the name of the previous owner or seller.
There is a danger that the seller, upon knowing that you did not register the property and he is still the registered owner can file for a restitution of title and once he is given a new title, he can sell it to other buyer. This is the common case of double or multiple sales of real property.
Now, the new buyer bought the property without his knowledge that the said property is already sold to you (he is a buyer with good faith). He obtained the Deed of Absolute Sale and notarized it before a notary public. Since his Deed of Absolute Sale is notarized, he was granted Certificate Authorizing Registration and registered the property under his name. He is now the registered owner of the property and has more rights over the property even if you have a Deed of Absolute Sale dated earlier.
It is to your best interest to notarize the Deed of Absolute Sale and register the property under your name.
The discussion is for educational purposes only. For your specific case, consult a lawyer. If you have some questions, you may ask us. If you are looking for a residential lot, house-and-lot, or condo unit in Cebu, contact us for free assistance.