Requirements for Deed of Sale from Corporation to Individual in the Philippines

Introduction

In the Philippine legal system, a Deed of Sale (DOS) serves as the primary instrument for transferring ownership of property from one party to another. When the seller is a corporation and the buyer is an individual, the transaction must comply with specific corporate governance rules, civil law principles, and administrative requirements to ensure validity, enforceability, and proper taxation. This article provides a comprehensive overview of the requirements for executing a DOS in this context, drawing from the Civil Code of the Philippines (Republic Act No. 386), the Revised Corporation Code (Republic Act No. 11232), tax laws under the National Internal Revenue Code (NIRC), and related regulations from the Securities and Exchange Commission (SEC), Bureau of Internal Revenue (BIR), and Registry of Deeds (RD). It covers the essential elements, procedural steps, documentary prerequisites, potential pitfalls, and post-execution obligations.

While the DOS can apply to various assets such as real property, vehicles, or shares of stock, this discussion focuses primarily on real property transfers, as they are the most common and regulated. Variations for other assets are noted where relevant.

Legal Basis and Nature of the Transaction

Under Article 1458 of the Civil Code, a sale is a contract whereby one party (seller) obligates itself to transfer ownership of a thing to another (buyer) for a price certain in money or its equivalent. When the seller is a corporation, the transaction is governed by Section 36 of the Revised Corporation Code, which empowers corporations to sell or dispose of assets in the ordinary course of business, subject to board approval. For dispositions not in the usual course (e.g., substantial assets), stockholder approval may be required under Section 39.

The DOS must be in writing to be enforceable for amounts exceeding PHP 500 (Article 1403, Civil Code), and for real property, it must be in a public instrument (notarized) to bind third parties (Article 1358). Failure to comply renders the sale voidable or unenforceable against innocent third parties.

Parties to the Deed of Sale

1. Seller (Corporation): The corporation must be duly registered with the SEC and in good standing. It acts through its authorized representatives, typically the president or a designated officer. The corporation's capacity to sell must not be restricted by its Articles of Incorporation or By-Laws.

2. Buyer (Individual): The buyer must be of legal age (18 years or older), capacitated to contract (Article 1327, Civil Code), and not disqualified by law (e.g., not a public officer buying government property). Foreign individuals are restricted from owning land under the 1987 Constitution (Article XII, Section 7), except through hereditary succession or in cases of former natural-born citizens. For condominiums, foreigners may own up to 40% of the project under Republic Act No. 4726 (Condominium Act).

Both parties must provide identification: for the corporation, SEC registration documents; for the individual, government-issued IDs like passports or driver's licenses.

Essential Elements of the Deed of Sale

A valid DOS must include the following requisites under Articles 1318 and 1458 of the Civil Code:

1. Consent: Free and voluntary agreement. For the corporation, this is evidenced by a Board Resolution authorizing the sale and designating the signatory (e.g., the President). The resolution must be certified by the Corporate Secretary under the corporation's seal.

2. Object: The property being sold must be determinate or determinable. For real property, include:

   • Technical description (lot number, area in square meters, boundaries, title number from the Original Certificate of Title (OCT) or Transfer Certificate of Title (TCT)).
   • Location (barangay, city/municipality, province).
   • Any encumbrances (e.g., mortgages, liens).

   If the property is conjugal (for married sellers, though less applicable to corporations), spousal consent may be needed if the corporation's assets include such property.

3. Cause (Consideration): The price must be certain, in Philippine Pesos (or equivalent), and paid or promised. Modes include cash, installment, or assumption of debt. The DOS should specify payment terms, receipts, and any conditions (e.g., subject to bank financing).

Corporate Authorization Requirements

Since a corporation is a juridical person, it cannot act without proper authorization:

• Board Resolution: Mandatory under Section 22 of the Revised Corporation Code. It must state the property details, sale price, terms, and authorize a specific officer to sign. For sales exceeding 50% of corporate assets, stockholder approval (2/3 vote) is required (Section 39).

• Secretary's Certificate: Attests to the board resolution's authenticity, including quorum and voting details.

• Stockholder Approval: If the sale constitutes a "sale of all or substantially all assets," it requires ratification by stockholders owning at least 2/3 of outstanding capital stock (Section 39). This is filed with the SEC if it affects the corporation's operations significantly.

• SEC Compliance: For publicly listed corporations, additional disclosures under the Securities Regulation Code (Republic Act No. 8799) may apply, including material fact reporting.

Failure to secure these renders the DOS ultra vires (beyond powers), potentially voidable by stockholders or creditors.

Formalities and Execution

1. Form of the Deed: Must be in writing and notarized (Article 1358, Civil Code). Notarization requires appearance before a notary public commissioned in the jurisdiction where the property is located or where the parties reside.

2. Signatures:

   • Corporation: Signed by the authorized officer (e.g., "Juan Dela Cruz, President, ABC Corporation").
   • Individual: Personal signature, with marital consent if the buyer is married (Family Code, Article 77, for absolute community property).

3. Witnesses: At least two witnesses for notarization, though not strictly required by law for validity.

4. Language: Preferably in English or Filipino; if in another language, a translation may be needed for registration.

Tax and Fiscal Requirements

Taxes must be settled before registration to avoid penalties under the NIRC:

1. Capital Gains Tax (CGT): 6% of the selling price or zonal value (whichever is higher), paid by the seller (corporation). For corporations, this is final tax unless the property is ordinary asset (then subject to corporate income tax).

2. Documentary Stamp Tax (DST): 1.5% of the consideration or fair market value, paid by the seller or as agreed.

3. Withholding Tax: If applicable, e.g., for non-resident buyers, but typically not for local individuals.

4. Local Transfer Tax: Up to 0.75% in provinces or 0.50% in cities, paid to the local treasurer.

5. BIR Certification: Certificate Authorizing Registration (CAR) from the BIR, confirming tax payments.

For vehicles (if the DOS is for movable property), additional LTO (Land Transportation Office) fees apply.

Registration and Transfer of Title

To perfect the transfer against third parties:

1. Registry of Deeds: The notarized DOS, with tax receipts and CAR, is submitted to the RD where the property is located (Land Registration Authority under Republic Act No. 11573). This annotates the title and issues a new TCT in the buyer's name.

2. Timeline: Registration must occur within 30 days of execution to avoid surcharges.

3. Other Registrations: For shares of stock, endorsement on stock certificates and recording in the corporation's stock and transfer book. For vehicles, LTO transfer.

Special Considerations and Potential Issues

1. Encumbrances and Clear Title: The corporation must warrant clear title (free from liens). A title search at the RD is advisable. If mortgaged, bank consent and release are needed.

2. Agrarian Reform Properties: If agricultural land, compliance with Republic Act No. 6657 (Comprehensive Agrarian Reform Law) is required, including DAR (Department of Agrarian Reform) clearance.

3. Environmental Compliance: For industrial properties, ECC (Environmental Compliance Certificate) from DENR may be needed.

4. Foreign Ownership Restrictions: As noted, individuals must comply with constitutional limits.

5. Disputes and Remedies: If defective, remedies include rescission (Article 1380), specific performance, or damages. Corporate officers may face liability for unauthorized acts (Section 30, Revised Corporation Code).

6. Electronic Transactions: Under Republic Act No. 8792 (E-Commerce Act), electronic DOS may be valid if digitally signed, but traditional notarization is preferred for real property.

7. COVID-19 and Recent Amendments: Post-pandemic, remote notarization is allowed under Republic Act No. 11592 (Remote Notarization Act), but physical presence is still standard.

Steps in Executing the Deed of Sale

1. Negotiation and Due Diligence: Agree on terms; buyer verifies title and corporate authority.

2. Drafting the DOS: Prepared by a lawyer, incorporating all elements.

3. Board Approval: Corporation secures resolution.

4. Execution and Notarization: Signing before notary.

5. Tax Payments: Settle CGT, DST, etc., obtain CAR.

6. Registration: File with RD; transfer title.

7. Post-Transfer: Update real property tax declarations with the local assessor.

Conclusion

Executing a Deed of Sale from a corporation to an individual in the Philippines demands meticulous adherence to corporate, civil, and fiscal laws to ensure a seamless transfer of ownership. Non-compliance can lead to invalidation, tax penalties, or legal disputes. Parties are strongly advised to consult legal counsel, as requirements may vary by property type or jurisdiction-specific rules. This process not only protects the interests of both seller and buyer but also upholds the integrity of property transactions in the country.