Key Takeaway: The Importance of Proper Cancellation of Contracts and the Limits of the Maceda Law

Star Asset Management ROPOAS, Inc., substituted by Dallas Energy and Petroleum Corporation v. Register of Deeds of Davao City and Foothills and Realty Development Corporation, G.R. No. 233737, February 03, 2021

Imagine purchasing a piece of land, only to find out that a previous agreement could jeopardize your ownership. This scenario is not uncommon in the Philippines, where property disputes can arise from unresolved claims and misunderstood legal agreements. In the case of Star Asset Management ROPOAS, Inc. versus Foothills Realty and Development Corporation, the Supreme Court tackled the intricacies of adverse claims and the applicability of the Maceda Law, shedding light on crucial aspects of property law that affect both buyers and sellers.

The case centered on three parcels of land in Davao City, initially owned by Star Asset Management ROPOAS, Inc., and later transferred to Dallas Energy and Petroleum Corporation. The dispute arose when Foothills Realty, claiming rights through a compromise agreement with the original owner, annotated an adverse claim on the titles. The central legal question was whether the adverse claim should be cancelled and whether the Maceda Law applied to the situation.

Understanding the Legal Landscape

In the Philippines, property rights are governed by a complex web of laws and regulations. Two key elements in this case are the concept of an adverse claim and the provisions of the Maceda Law.

An adverse claim is a legal tool used to assert an interest in a property against the registered owner. According to Section 70 of Presidential Decree No. 1529, known as the Property Registration Decree, an adverse claim is effective for 30 days and can be cancelled upon filing a verified petition. This mechanism is designed to protect the rights of parties who have a legitimate interest in a property but whose rights are not otherwise registered.

The Maceda Law, or Republic Act No. 6552, aims to protect buyers of real estate on installment payments. It provides specific rights to buyers who have paid at least two installments, including grace periods for payment and the right to a refund upon cancellation of the contract. However, the law explicitly excludes industrial lots and commercial buildings from its scope.

Here is the exact text from Section 3 of the Maceda Law:

“Sale or financing of real estate on installment payments, including residential condominium apartments but excluding industrial lots, commercial buildings and sales to tenants under R.A. 3844, as amended by R.A. 6389.”

This exclusion is crucial, as it determines the applicability of the law to different types of property transactions.

The Journey Through the Courts

The dispute began when Star Asset Management ROPOAS, Inc. sought to cancel an adverse claim annotated by Foothills Realty on the titles of the three parcels of land. Foothills Realty claimed rights based on a compromise agreement with the original owner, Davao Goldland Development Corporation, which allowed them to buy back the properties after foreclosure.

After Star Asset cancelled the compromise agreement due to non-payment by Goldland, Foothills Realty, as Goldland’s successor, annotated an adverse claim on the titles. Star Asset, later substituted by Dallas Energy, challenged this claim in court, arguing that the compromise agreement was no longer valid.

The Regional Trial Court (RTC) initially denied the petition for cancellation, citing the applicability of the Maceda Law. The Court of Appeals (CA) upheld this decision, affirming that the compromise agreement was a contract to sell covered by the Maceda Law.

However, the Supreme Court reversed these rulings. The Court held that the Maceda Law did not apply because the properties in question were commercial in nature, not residential. Furthermore, the Court found that the compromise agreement, which was a buy-back arrangement, had been properly cancelled due to non-compliance with its terms.

Here are two key quotes from the Supreme Court’s decision:

“The compromise agreement entered into between the parties involved a ‘buy-back of foreclosed property’ arrangement… In this case, Star Asset acquired the subject properties from the buyer thereof in the foreclosure sale and it was succeeded in its rights as such by Dallas Energy.”

“The Maceda Law was enacted to curb out the bad practices of real estate developers like Foothills Realty. For that reason, We find that Foothills Realty is taking an incongruous position by invoking the Maceda law in as much as the said law was enacted precisely to guard against its practice.”

The Supreme Court concluded that the cancellation of the compromise agreement invalidated the basis for the adverse claim, leading to its cancellation from the titles.

Practical Implications and Key Lessons

This ruling has significant implications for property transactions in the Philippines. It clarifies that the Maceda Law does not apply to commercial properties, which can affect how developers and buyers structure their agreements. It also underscores the importance of properly cancelling agreements to avoid lingering claims on property titles.

For businesses and property owners, this case serves as a reminder to:

• Understand the nature of the property involved in transactions, as it can determine the applicability of certain laws.
• Ensure that all contractual agreements are clear and that any cancellation is done in accordance with the terms of the agreement.
• Be aware of the procedures for filing and cancelling adverse claims to protect their property rights.

Key Lessons:

• Commercial properties are not covered by the Maceda Law, so buyers and sellers must rely on other legal protections.
• The validity of an adverse claim depends on the underlying agreement, and its cancellation can be sought through legal action if the basis is no longer valid.
• Proper documentation and adherence to contractual terms are essential to avoid disputes over property rights.

Frequently Asked Questions

What is an adverse claim in the context of Philippine property law?

An adverse claim is a legal statement made by someone claiming an interest in a property that is adverse to the registered owner. It is registered on the property’s title to warn third parties of the claimant’s interest.

How long is an adverse claim effective?

An adverse claim is effective for 30 days from the date of registration. After this period, it can be cancelled upon filing a verified petition.

What is the Maceda Law, and to whom does it apply?

The Maceda Law, or Republic Act No. 6552, protects buyers of real estate on installment payments. It applies to residential properties but excludes industrial lots and commercial buildings.

Can a compromise agreement be considered a contract to sell under the Maceda Law?

A compromise agreement can be considered a contract to sell if it involves the sale of residential property on installment payments. However, it must meet the criteria set by the Maceda Law.

What steps should be taken to cancel an adverse claim?

To cancel an adverse claim, a party in interest must file a verified petition with the court. The court will then determine the validity of the claim and order its cancellation if found to be invalid.

How can property owners protect their rights against adverse claims?

Property owners can protect their rights by ensuring that all agreements related to their property are properly documented and by promptly addressing any adverse claims through legal action if necessary.

What are the implications of this ruling for property developers?

Property developers must be aware that the Maceda Law does not apply to commercial properties. They should structure their agreements accordingly and ensure that any cancellations are done correctly to avoid disputes.

ASG Law specializes in property law and real estate transactions. Contact us or email hello@asglawpartners.com to schedule a consultation.