Not a Fairy Tale Ending

We have heard the story so many times.  Foreigner goes to the Philippines.  Foreigner meets Filipina girl.

They fall in love. They get married (or live together). They buy a house and lot.

We wish it could always be a happy ending and they will live happily ever after. For some, the fairy tale becomes reality. For other couples, the ending is not what they have hoped for.

They fight. They go their separate ways. They fight over property.

Because the Philippine Constitution does not allow foreigners to own land in the Philippines, it is not unusual for title to parcels of land to be placed in the name of the Filipina wife or girlfriend. What are the rights of a foreigner (and his successor-in-interest) who acquired real properties in the Philippines as against his former Filipina girlfriend in whose sole name the properties were registered in the Transfer Certificate of Title (TCT) covering the properties?

In Borromeo vs. Descallar, G.R. No. 159310, February 24, 2009, Wilhelm Jambrich (the foreigner) and Antonietta Descallar (the Filipina girlfriend) were designated as buyers in a Contract to Sell a house and lot located in Agro-Macro subdivision, Mandaue City. They were also designated as buyers in the Deed of Absolute Sale over the property.

When the Deed of Absolute Sale was presented for registration before the Register of Deeds, the Register of Deeds refused registration on the ground that Wilhelm was an alien and could not acquire land. Consequently, Wilhelm’s name was erased from the Deed of Absolute Sale.  However, his signature remained on the left hand margin of page 1, beside Antonietta’s signature as buyer on page 3, and at the bottom of page 4 which is the last page of the deed. The Register of Deeds issued several TCTs in Antonietta’s name.

The couple parted ways.  Subsequently, Wilhelm became indebted to Camilo, a real estate dealer who repaired Wilhem’s speedboat.  To pay his debt, Wilhelm sold his rights and interests in the Agro-Macro property to Camilo for PhP250,000, as evidenced by a “Deed of Absolute Sale/Assignment.”

When Camilo sought to register the Deed of Absolute Sale/Assignment with the Register of Deeds, he discovered thatthe TCTs to the three lots have been transferred in the name of Antonietta, and that the property has already been mortgaged.

Camilo filed petitioner filed a complaint against Antonietta for recovery of real property before the Regional Trial Court of Mandaue City.   According to Camilo:

. . . the Contracts to Sell dated November 18, 1985 and March 10, 1986 and the Deed of Absolute Sale dated November 16, 1987 over the properties which identified both Jambrich and respondent as buyers do not reflect the true agreement of the parties since respondent did not pay a single centavo of the purchase price and was not in fact a buyer; that it was Jambrich alone who paid for the properties using his exclusive funds; that Jambrich was the real and absolute owner of the properties; and, that petitioner acquired absolute ownership by virtue of the Deed of Absolute Sale/Assignment dated July 11, 1991 which Jambrich executed in his favor.

On the other hand, Antonietta:

. . . belied the allegation that she did not pay a single centavo of the purchase price. On the contrary, she claimed that she “solely and exclusively used her own personal funds to defray and pay for the purchase price of the subject lots in question,” and that Jambrich, being an alien, was prohibited to acquire or own real property in the Philippines.

The regional trial court ruled in favor of Camilo.  On the other hand, the Court of Appeals ruled in favor of Antonietta.  The Court of Appeals ruled:

We disagree with the lower court’s conclusion. The circumstances involved in the case cited by the lower court and similar cases decided on by the Supreme Court which upheld the validity of the title of the subsequent Filipino purchasers are absent in the case at bar. It should be noted that in said cases, the title to the subject property has been issued in the name of the alien transferee (Godinez et al., vs. Fong Pak Luen et al., 120 SCRA 223 citing Krivenko vs. Register of Deeds of Manila, 79 Phils. 461; United Church Board for World Ministries vs. Sebastian, 159 SCRA 446, citing the case of Sarsosa Vda. De Barsobia vs. Cuenco, 113 SCRA 547; Tejido vs. Zamacoma, 138 SCRA 78). In the case at bar, the title of the subject property is not in the name of Jambrich but in the name of defendant-appellant. Thus, Jambrich could not have transferred a property he has no title thereto. . .

The Supreme Court reversed the Court of Appeals and agreed with the regional trial court.

With respect to the issue of who purchased the house and lot, the Court stated that the evidence presented before the trial court indicate that Wilhelm possessed the financial capacity to purchase the Agro-Macro property and that Wilhelm was the source of funds used to purchase the property.  On the other hand, Antonietta (who used to work as a waitress) was unemployed at the time of the purchase and did not substantiate her alleged source of income.

Thus, the Court ruled that Wilhelm “has all authority to transfer all his rights, interests and participation over the subject properties” to Camilo by virtue of the Deed of Absolute Sale/Assignment he executed on July 11, 1991.

Having found that Wilhelm is the true owner of the properties, the Court then addressed the issue of the effect of the registration of the property in the name of Antonietta.  The Court stated:

It is settled that registration is not a mode of acquiring ownership. It is only a means of confirming the fact of its existence with notice to the world at large. Certificates of title are not a source of right. The mere possession of a title does not make one the true owner of the property. Thus, the mere fact that respondent has the titles of the disputed properties in her name does not necessarily, conclusively and absolutely make her the owner. The rule on indefeasibility of title likewise does not apply to respondent. A certificate of title implies that the title is quiet, and that it is perfect, absolute and indefeasible. However, there are well-defined exceptions to this rule, as when the transferee is not a holder in good faith and did not acquire the subject properties for a valuable consideration. This is the situation in the instant case. Respondent did not contribute a single centavo in the acquisition of the properties. She had no income of her own at that time, nor did she have any savings. She and her two sons were then fully supported by Jambrich.

On the issue of Wilhelm’s ineligibility of acquire land, the Court reiterated its earlier rulings that the while the acquisition of land by a foreigner violates the Constitution, its subsequent transfer to a qualified Philippine national cured the defect in the original transaction.  According to the Court:

The transfer of land from Agro-Macro Development Corporation to Jambrich, who is an Austrian, would have been declared invalid if challenged, had not Jambrich conveyed the properties to petitioner who is a Filipino citizen. In United Church Board for World Ministries v. Sebastian, the Court reiterated the consistent ruling in a number of cases that if land is invalidly transferred to an alien who subsequently becomes a Filipino citizen or transfers it to a Filipino, the flaw in the original transaction is considered cured and the title of the transferee is rendered valid.

Lesson for the foreigner:  it was wise to keep proof that he used his funds to purchase the property.  It was also wise to sell the property.

Lesson for the Filipina:  it was unwise to offer no proof that she funded the purchase price of the property.

Lesson for the buyer:  he would have saved the cost of litigation if he checked the title to the property prior to executing the Deed of Assignment.