Two Sides of the Story

Here's the story of a prime property that recently appeared in the news. The facts are based on court records available online. I've broken down the story into two posts, so make sure to read both.

BUYER'S SIDE: Once upon a time, a BUYER bought a prime property from a "good" friend for P60 Mn.

Her friend was the company's CEO who owned the property (let's call the company "CORP"). Based on the deed of absolute sale (DOAS), the CORP was supposed to pay the Capital Gains Tax (CGT) and Documentary Stamp Tax (DST) for the sale. After the sale, the CEO surrendered the copy of the title but kept possession of the property.

Years pass, and the CEO has neither paid the taxes nor delivered the property despite numerous requests. One day, the CEO passed away.

Seventeen years after the sale, the BUYER discovered that the property was divided into two properties, and the original title (the one she has on hand) was canceled and broken up into two titles (derivative titles). "How can that be; for someone to subdivide a property, they'll have to surrender the original title to the Register of Deeds (RD)?" the BUYER thought.

Thus, she filed a case in court for the RD to cancel the derivative titles and reinstate the title she had in her possession. The court summoned the representatives of the CORP but to no avail. A different company was located at the listed office address. Thus, the court ordered the RD to grant the buyer's wishes to reinstate her title.

The RD canceled the derivative titles and created a new title with the BUYER as owner. The BUYER took possession of the property sometime in 2020.

Now for the other side of the story...

SELLER'S SIDE: Once upon a time, a company (CORP) peacefully owned a prime property they recently subdivided. Out of nowhere, the CORP discovered that a court ordered their (derivative) titles to be canceled because someone was claiming the land to be theirs (i.e., the BUYER). How can they lose a case when the CORP didn't even have their chance to defend themselves in court?

Meanwhile, when the court ordered the BUYER's title to be reinstated, the RD did its own investigation to determine whether there were lapses on their side. With the help of the BSP, the RD authenticated the CORP's canceled title (when it was subdivided) and deemed it was genuine. They wondered whether the BUYER's title was genuine...

Despite losing several times, the CORP continued to fight for their property, elevating their case to the Supreme Court (SC). In 2021, the CORP's prayers were granted. The SC ruled that the lower courts were wrong and declared their decision void.

The problem is the BUYER still possessed the property, and the RD still has to reinstate their derivative titles. The property is now worth over several billions of pesos.

Lessons:

Buyer: There's a reason why brokers recommend withholding the CGT from the seller's proceeds. Buyers will always bear the brunt of non-payment of such taxes. Sometimes, the seller has already received his proceeds, so he doesn't have the urgency to settle such taxes.

In more complex cases, if the BIR classifies the asset as an ordinary asset (used for business), the seller wouldn't agree and would refuse to pay the VAT/withholding tax (CWT). While the seller battles it out with the BIR, the buyer wouldn't be able to transfer the title to their name.

If, in this post, the buyer was telling the truth, I have a hunch the BIR imposed VAT and CWT. This is why years passed, and taxes remain unpaid. I don't understand why the parties presumed capital gains tax when it was apparent the seller was in the business of RE (stated in the CORP's name).

Seller: Update your records to reflect your current address. According to the court records, the wrong address was stated on the first page, while the correct address was written on the succeeding pages.

I recommend getting certified true copies of the titles of the property every so often (annually?). Because how else would you know if someone annotated an adverse claim on it?

It is not my intention to cast judgment and say who's fraudulent. I merely wish to derive lessons (for both sides) from this expensive experience.