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SHOPPER’S PARADISE REALTY v. EFREN P. ROQUE

FACTS:

On December 23, 1993, petitioner Shopper's Paradise Realty & Development Corporation leased a parcel of land from Dr. Felipe C. Roque in Plaza Novaliches, Quezon City. The lease contract included a memorandum of agreement for the construction, development, and operation of a commercial building complex. However, the lease contract and memorandum of agreement were not annotated on the title within the stipulated sixty days due to Dr. Roque's death on February 10, 1994.

After Dr. Roque's death, respondent Efren P. Roque, one of Dr. Roque's surviving children, claimed to be the owner of the property by virtue of a deed of donation inter vivos executed in his favor by his parents on December 26, 1978. However, the title remained in Dr. Roque's name until it was transferred to respondent on May 11, 1994.

Subsequently, on February 15, 1995, respondent filed a case seeking the annulment of the lease contract and memorandum of agreement. He argued that his father did not have the authority to enter into these agreements. Initially, the trial court dismissed respondent's complaint, but the Court of Appeals later reversed this decision. The Court of Appeals declared the lease contract and memorandum of agreement invalid, citing petitioner's prior knowledge of the donation in favor of respondent.

ISSUES:

  1. Whether or not the Contract of Lease and Memorandum of Agreement are valid and binding.

  2. Whether or not petitioner Shopper's Paradise Realty & Development Corporation is a lessee in good faith.

RULING:

  1. The trial court held that the Contract of Lease and Memorandum of Agreement are valid and binding. It ruled that the registration of the Deed of Donation after the execution of the lease contract did not affect the latter unless the respondent had knowledge thereof at the time of registration, which the respondent failed to establish. The trial court concluded that the lease contract remains valid considering that no third person is involved, and the respondent cannot be considered a third person since he is the successor-in-interest of the lessor, and therefore, the lease contract is conclusive on him.

  2. The Court of Appeals reversed the decision of the trial court and held the Contract of Lease and Memorandum of Agreement invalid. It found that petitioner was not a lessee in good faith because it had prior knowledge of the donation in favor of the respondent. The appellate court concluded that such actual knowledge had the effect of registration insofar as petitioner was concerned.

PRINCIPLES:

  • Contracts take effect not only between the parties themselves but also between their assigns and heirs (Article 1311, Civil Code).

  • Registration of a deed of donation is important in binding third persons.

  • Prior knowledge of a donation can affect the validity of contracts and can be considered as registration for the purposes of binding the party with knowledge.