Property Transfer Despite an Adverse-Claim Annotation
(Philippine Torrens-title context)
1. Introduction
Under the Torrens system, the register of deeds (RD) is meant to mirror the exact state of real rights over registered land. An adverse claim under §§ 70–71 of Presidential Decree (PD) 1529 (Property Registration Decree) is one of the few entries that interrupt the picture by sounding an alarm that “someone else” asserts an interest. Buyers are therefore instinctively wary of a title bearing the notation “ADVERSE CLAIM”—yet the presence of that annotation does not make the land or condominium unit legally non-transferable. This article canvasses every doctrinal, statutory and practical point a Philippine practitioner should know about how and when property can still be transferred despite (and subject to) an adverse claim.
2. Statutory Framework
| Provision | Key Text | Effect on Transfers |
|---|---|---|
| § 70, PD 1529 | “Whoever claims any part or interest … may make a statement in writing … that he makes such claim…” | Adverse claim may be inscribed “at any time prior to the expiration of one year from the date of the instrument.” |
| § 71, PD 1529 | The annotation “shall be effective for a period of thirty (30) days from the date of registration.” It may be canceled upon court order or by the claimant. | After 30 days the entry remains on the face of the title but no longer has statutory force unless re-filed. |
| Rule 74, ROC | Affidavit of self-adjudication by a sole heir must be annotated; creditors have two years to contest. | Sale allowed but subject to potential claims within the two-year window. |
Indefeasibility v. Notice: The Torrens system protects innocent purchasers in good faith, but “constructive notice” of anything actually written on the face of the title defeats a buyer’s claim of good faith.¹
3. Nature and Purpose of an Adverse Claim
- Personal, inchoate notice – It is not a lien. It merely announces that the claimant will litigate.
- Provisional effect – 30-day “life” aimed at prompting the claimant to sue promptly; but in practice the annotation is seldom canceled and often remains for years, creating perpetual notice.
- Compare with Lis Pendens – Annotations of lis pendens (§ 76) arise after an action is already filed. An adverse claim may precede litigation.
4. Is Transfer Prohibited? — The Short Answer
No. Neither PD 1529 nor any other statute invalidates a voluntary deed of sale, donation, partition or mortgage executed while an adverse claim is on-record. The transfer, however, is subordinate to whatever rights the claimant may eventually prove. The buyer’s title will carry either:
- the same annotation, or
- a judicial order canceling it (if litigation ends in the buyer’s favor).
5. Effects on the Buyer or Mortgagee
Constructive Notice – Because the notation is visible on the certificate of title (CT), every transferee is deemed to have read it. He cannot later plead the “buyer in good faith” defense.
Hierarchy of Rights
- If the claimant wins his action (e.g., reconveyance, specific performance), the buyer’s title is ordered reconveyed or canceled.
- If the claimant loses, the RD or the court issues an order to remove the annotation, thereby “clearing” the buyer’s title.
Mortgagee’s Vulnerability – A bank that accepts the property as collateral is likewise in prior notice; the mortgage lien may be nullified if the claimant ultimately prevails (Development Bank of the Phils. v. CA, G.R. No. 97317, Jan. 19 1993).
6. Procedural Requirements for Transfer
Deed of Conveyance (e.g., Deed of Absolute Sale).
BIR Certificates – Capital Gains Tax (CGT) and Documentary Stamp Tax (DST) still assessed on the consideration or zonal value.
Transfer Tax and Registration – The RD will process the new CT but will carry over the adverse claim into the new certificate, indicating: “This entry is carried from TCT No. ______.”
Optional – Buyer may:
- a) require the seller to secure a court order canceling the claim as a condition precedent; or
- b) accept transfer “as-is” but with a price discount or escrow agreement.
7. Cancellation or Renewal of the Annotation
| Mode | Who May Initiate | Standard |
|---|---|---|
| By claimant § 71 (2) | Claimant files sworn notice of withdrawal | Ministerial for RD to cancel. |
| By court order § 71 (1) | Any interested party | Must show (a) claim is spurious or (b) 30-day period has lapsed and no renewal or lawsuit has been filed. |
| Automatic lapse | After 30 days w/o renewal | De jure effectivity ends; but entry remains unless deleted per above. |
Tip for buyers: Require the seller to obtain a freshly-dated certification from the RD that the claimant has not re-filed within 30 days after lapse; attach the certification to the deed of sale.
8. Key Supreme Court Decisions
| Case | G.R. No. / Date | Doctrine |
|---|---|---|
| Duran v. IAC | G.R. No. 63430, Oct 23 1984 | Adverse claim not a lien; property may still be sold; inscription signifies notice destroying good-faith defense. |
| United Overseas Bank Phils. v. DBP | G.R. No. 190455, Dec 5 2012 | Bank mortgage executed with notice of adverse claim binds bank; constructive notice bars mortgagee in good faith. |
| Chua v. Carpio | G.R. No. 207946, Jan 22 2020 | Annotation that had lapsed beyond 30 days but never canceled still constitutes notice; buyer cannot invoke indefeasibility. |
| Sps. Abiera v. Heirs of Abiera | G.R. No. 208325, Aug 7 2019 | Registration never cures a simulated sale even if buyer was not part of the simulation; adverse-claim annotation timely protects heirs. |
| Caltex v. IAC | G.R. No. 75781, May 8 1990 | § 71 language on 30-day period is mandatory; RD may cancel after lapse on proper showing. |
9. Special Situations
Transfers pendente lite
- If a lis pendens is already annotated in addition to the adverse claim, any sale is downright void as to the plaintiff (Art. 1385, Civil Code analog; § 76 PD 1529).
Corporate Sellers under Receivership
- RD will require SEC-appointed receiver’s written authority; adverse claim by other creditors does not per se block a valid sale if receiver consents.
Extra-Judicial Settlement among Heirs
- Title still passes to heirs; adverse-claim by third party can cloud—and later defeat—subsequent sales if heir’s title is overturned.
Reconstituted Titles
- The adverse claim must be re-annotated in the reconstituted CT; otherwise constructive notice is lost (Heirs of Malate v. Gamboa, G.R. No. 199811, Apr 8 2015).
10. Practical Advice for Practitioners
| Role | Recommended Step | Rationale |
|---|---|---|
| Buyer’s counsel | Demand an escrow provision: part of price released only after cancellation of annotation. | Shields client if claim prospers. |
| Seller’s counsel | File motion to cancel annotation concurrently with sale. | Accelerates clean title for subsequent flips. |
| Claimant’s counsel | File main action within 30 days and secure lis pendens thereafter. | Ensures continuous notice; adverse claim alone lapses. |
| Bank loan officer | Treat annotation as red-flag; require removal or bigger collateral margin. | Protects loan-to-value ratio. |
11. Interaction with Indefeasibility and “Mirror” Principles
Indefeasibility arises only after the expiration of the one-year contestability period counted from the issuance of the OCT or of the new Transfer Certificate of Title (TCT) as a result of registration of a voluntary instrument (De la Merced v. GSIS, G.R. No. 167068, Apr 18 2012). When an adverse claim exists and is later vindicated in court, the RD will issue a writ of reconveyance to restore the original owner despite the intervening registration of the buyer—because the buyer’s “good faith” was absent.
12. Drafting Samples
CLAUSE IN DEED OF SALE
“The BUYER acknowledges the annotation of Adverse Claim Entry No. ____ on TCT No. ____. The SELLER undertakes, at his sole expense, (a) to cause the cancellation of said adverse claim within 180 days from execution hereof and (b) to return the purchase price in full, plus legal interest, should said adverse claim be judicially upheld.”ESCROW INSTRUCTION
“Escrow Agent shall retain ₱_____ pending delivery of (i) a certified true copy of the TCT in the name of BUYER bearing no adverse claim annotations ***or*** a certified copy of a final and executory judgment dismissing Civil Case No. ____. Funds unreleased within twelve (12) months shall revert to BUYER unless both parties agree otherwise in writing.”13. Compliance Checklist for Register of Deeds
- Receive original owner’s duplicate CT and the notarized deed of conveyance.
- Verify payment of taxes.
- Carry forward the adverse claim to the new CT (unless a court order of cancellation is attached).
- Note date of original claim to monitor 30-day statutory life.
- If a petition to cancel is filed, require proof of notice to claimant.
14. Conclusion
An adverse-claim annotation is a statutory tool for warning, not for freezing property. The land remains alienable and can validly change hands, provided that every transferee takes it subject to the risk that the claimant may eventually win in court. Wise buyers price that risk in, secure escrow protection, or insist on cancellation before closing. Seasoned sellers, on the other hand, confront the annotation head-on—either by negotiating with the claimant or obtaining a prompt court order.
Ultimately, the Torrens system balances both mobility of property and protection of substantive rights by allowing transfers to proceed while flagging contested titles. Mastery of this balance is essential for any Philippine real-estate or banking lawyer.
¹ Chua v. Carpio, G.R. No. 207946, January 22 2020.