Requirements for Notarized Deed of Donation on Land with Adverse Claim Philippines

Introduction

In the Philippines, the donation of land, as an immovable property, is governed by specific legal provisions to ensure its validity, enforceability, and protection against third-party claims. A Deed of Donation serves as the formal instrument for transferring ownership without consideration, but when the land is subject to an adverse claim, additional considerations arise to safeguard the interests of all parties involved. An adverse claim is a registered notice on the property's title indicating a potential dispute or competing interest, which does not invalidate the donation but affects the title's marketability and the donee's rights. This article comprehensively explores the requirements, procedures, implications, and related aspects of executing a notarized Deed of Donation for such land, drawing from Philippine civil law, property registration rules, and taxation guidelines.

Legal Basis for Donation of Land

The primary legal framework for donations in the Philippines is found in the Civil Code of the Philippines (Republic Act No. 386), particularly Articles 725 to 755. Article 725 defines donation as an act of liberality whereby a person disposes gratuitously of a thing or right in favor of another who accepts it. For immovable properties like land, Article 748 mandates that the donation must be made in a public document specifying the property donated and the value of any charges the donee must satisfy. Acceptance must also be in a public document, either in the same instrument or a separate one, as per Article 749.

Additionally, the Property Registration Decree (Presidential Decree No. 1529) regulates the annotation of adverse claims on land titles. Section 70 of PD 1529 allows any person claiming an interest in registered land adverse to the registered owner to file an adverse claim with the Register of Deeds, which is annotated on the certificate of title. This claim remains effective for 30 days unless extended by court order, but it serves as a caveat to potential transferees.

The notarization of the deed is essential under the Notarial Law (as amended by Republic Act No. 9645), ensuring the document's authenticity and admissibility in evidence. Revenue regulations from the Bureau of Internal Revenue (BIR) also impose documentary stamp taxes and donor's taxes on such transactions.

Essential Requirements for a Valid Deed of Donation

To be valid, a Deed of Donation for land must comply with substantive and formal requirements:

1. Capacity of the Parties:

   • The donor must be of legal age (at least 18 years old), of sound mind, and capable of disposing of their property. Minors or incapacitated persons require court approval or representation by a guardian.
   • The donee must also have the capacity to accept the donation. If the donee is a minor, acceptance may be made by parents or guardians.
   • Both parties must act voluntarily, without fraud, mistake, or undue influence, as these could render the donation voidable under Articles 1330-1390 of the Civil Code.

2. Subject Matter:

   • The land must be clearly identified, including its technical description (lot number, area, boundaries, and location) as per the title.
   • If the land has an adverse claim, the deed must explicitly disclose this to avoid claims of bad faith. Failure to disclose could lead to rescission or damages.

3. Form and Content:

   • The deed must be in writing and executed as a public instrument.
   • It should include:
     • Full names, civil status, residences, and identification details of the donor and donee.
     • A clear statement of the donor's intent to donate gratuitously.
     • Detailed description of the property, including any encumbrances like the adverse claim.
     • Value of the property (for tax purposes).
     • Acceptance clause by the donee.
     • Signatures of the parties and witnesses.
   • If the donation is inter vivos (effective during the donor's lifetime), it must comply with formalities to distinguish it from mortis causa transfers, which follow testamentary rules.

4. Consideration and Charges:

   • Donation is gratuitous, but the donor may impose charges or conditions (modo), such as the donee maintaining the property or paying certain debts, provided they do not exceed the property's value (Article 751).

Notarization Process

Notarization elevates the deed to a public document, making it prima facie evidence of its execution. The process involves:

1. Preparation of the Deed:

   • Drafted by a lawyer or the parties, ensuring compliance with legal formats. Templates are available but should be customized.

2. Execution Before a Notary Public:

   • The donor and donee must appear personally before a notary public commissioned under the Notarial Law.
   • They present valid government-issued IDs (e.g., passport, driver's license) to prove identity.
   • At least two witnesses (disinterested parties) must sign the deed.
   • The notary acknowledges the signatures, certifies the parties' capacity, and affixes their notarial seal.

3. Notarial Fees:

   • Fees are based on the property's value, typically ranging from P200 to P500 plus a percentage, as per the Rules on Notarial Practice.

Notarization alone does not transfer title; it merely authenticates the document for registration.

Handling the Adverse Claim in the Donation

An adverse claim, annotated under PD 1529, signals a potential dispute, such as a claim of ownership, easement, or lien by a third party. Key considerations include:

1. Impact on the Donation:

   • The donation is valid between the donor and donee, but the donee acquires the property subject to the adverse claim (Article 1544 of the Civil Code on double sales applies analogously).
   • The adverse claim binds the donee, who cannot ignore it. If the claim is upheld in court, the donee may lose title.

2. Disclosure and Due Diligence:

   • The donor must inform the donee of the adverse claim in the deed to prevent allegations of deceit (dolo) under Article 1338.
   • The donee should conduct due diligence, such as obtaining a certified true copy of the title from the Register of Deeds to verify the annotation.

3. Resolution of the Adverse Claim:

   • The claim lapses after 30 days unless the claimant files a court action and annotates a lis pendens (notice of pending litigation).
   • To clear the title before donation, the donor may petition the court for cancellation under Section 70 of PD 1529 if the claim is baseless.
   • If unresolved, the donee assumes the risk, but may seek warranties from the donor against eviction (similar to sales under Article 1548).

4. Special Cases:

   • If the land is titled under the Torrens system, the adverse claim does not affect the indefeasibility of title unless fraud is proven.
   • For agricultural lands, additional approvals from the Department of Agrarian Reform (DAR) may be needed under Republic Act No. 6657 to ensure compliance with land reform laws.

Registration of the Deed

For the donation to bind third parties, registration is crucial:

1. Procedure:

   • Submit the notarized deed to the Register of Deeds in the property's location.
   • Required documents: Original deed, owner's duplicate title, tax declarations, clearances (e.g., BIR tax clearance, real property tax clearance from the local assessor).
   • Pay registration fees based on the property's assessed value.

2. Effects:

   • Registration transfers title to the donee and annotates the donation on the title.
   • The adverse claim remains annotated on the new title issued to the donee.

3. Timeline:

   • Registration should occur promptly to avoid intervening rights of third parties.

Tax Implications

Donations are subject to taxes under the National Internal Revenue Code (Republic Act No. 8424, as amended by the TRAIN Law - Republic Act No. 10963):

1. Donor's Tax:

   • Imposed on the donor at 6% of the fair market value (FMV) exceeding P250,000 per year for donations to relatives, or 30% for strangers.
   • Computed based on the higher of zonal value (BIR) or assessed value (local government).

2. Documentary Stamp Tax (DST):

   • P15 per P1,000 of the property's value, paid upon execution.

3. Capital Gains Tax (CGT):

   • Generally not applicable to donations, but if deemed a sale in disguise, 6% CGT on FMV may apply.

4. Local Transfer Tax:

   • Up to 0.75% of FMV, paid to the local treasurer.

5. Exemptions:

   • Donations to government, accredited NGOs, or for educational/religious purposes may be exempt, subject to BIR certification.

Failure to pay taxes can result in penalties and invalidate the transfer for registration purposes.

Potential Issues, Remedies, and Revocation

Common issues include:

1. Ingratitude or Non-Fulfillment:

   • The donation may be revoked for ingratitude (Article 765) or failure to comply with charges (Article 764), within prescribed periods.

2. Illegitimate Children or Spousal Consent:

   • If the donor is married, spousal consent is required if the property is conjugal (Family Code, Article 98).
   • Donations exceeding one-fifth of the donor's property may be reducible if affecting legitimate heirs' legitime (Article 752).

3. Fraudulent Conveyances:

   • If the donation avoids creditors, it may be rescinded under Article 1381.

Remedies include judicial actions for revocation, quieting of title (under Rule 63 of the Rules of Court), or damages.

Conclusion

Executing a notarized Deed of Donation for land with an adverse claim in the Philippines requires meticulous adherence to civil law formalities, disclosure obligations, and registration procedures to ensure the transfer's integrity. While the adverse claim introduces risks, proper handling through disclosure and potential resolution can mitigate them. Parties are advised to consult legal professionals to navigate these complexities, ensuring the donation aligns with their intentions and complies with all regulatory requirements. This process not only facilitates gratuitous transfers but also upholds the principles of property rights protection in the Philippine legal system.