Substantial compliance

This is a case involving a donation of a parcel of land subject to several conditions that may cause its revocation if violated.

The parcel of land here is owned by Artemio Santos with an area of 32 hectares covered by Transfer Certificate of Title (TCT) No. 8340. It was donated by Artemio to the Republic of the Philippines, Department of Health (RP) mainly for the purpose of putting up a mental hospital thereon to be named Don Artemio Memorial Mental Hospital to perpetuate his memory.

The hospital must be constructed and finished within two years from the date of the execution of the deed. It is also provided therein that title to the property shall remain with Artemio until all the conditions have been complied with and that violation or failure of RP to comply with any or all the conditions shall automatically render the deed of donation null and void ab initio.

About 40 years after the execution of the deed and when Artemio was already dead, a complaint was filed by the estate of Artemio represented by its attorney-in-fact Verzosa, against the RP for revocation of the donation and forfeiture of the improvements because the RP allegedly allowed a portion of the property to be used for residential and commercial purposes since only five hectares were used for the mental hospital and the remaining 27 hectares were used as residences or business places of the informal settlers.

In its answer the Republic alleged that the RTC has no jurisdiction over the complaint because an estate has no legal capacity to sue and could not be a party to a court action. In addition, the estate’s cause of action has already prescribed because only 10 years from the date of its execution can an action to enforce said deed be filed. Besides, the condition in the deed that the property cannot in any manner be leased, conveyed, disposed or encumbered without the prior and expressed knowledge and approval of the donor, Artemio, constitutes undue restriction on the rights arising from ownership.

After trial the RTC rendered a decision revoking and cancelling the Deed of Donation in so far as the 27 hectares of the 32 hectares donated, ordering the RP to execute a deed of reconveyance thereof because it failed to comply with the conditions within two years from its execution.

This ruling was reversed and set aside by the Court of Appeals (CA). The CA ruled that the failure of the Republic to utilize the 27 hectares for the mental hospital does not constitute substantial breach that warrants revocation of the donation. Besides, the absolute prohibition to lease, convey, dispose or encumber the subject land contrary to the clear intention of the donor to restrict the use of the land only for a mental hospital is void because it affects the rights of ownership of the Republic. Was the CA correct?

The Supreme Court (SC) ruled that the CA is correct. The SC declared that the failure of the Republic to utilize the 27 hectares for the mental hospital does not constitute substantial breach that warrants revocation of the donation. The construction of the hospital on the five hectares portion of the subject property constitutes substantial compliance with the condition of the donation. Thus, while the deed of donation states that the property donated shall be used exclusively as site for the mental hospital upon which the RP shall construct different concrete buildings of said hospital, the deed did not specifically restrict or specify the extent of the area wherein these concrete buildings of the hospital will be erected.

Under paragraph 3 of the Deed, the Republic is obliged only to commence and finish the various construction of the various concrete structures necessary for the operation of said hospital, which it successfully and faithfully complied with.

Furthermore, the prohibition in the deed of donation that the Republic cannot lease, let, convey, dispose or encumber the donated property without specifying the duration of the restriction is an illegal or impossible condition within the contemplation of Article 727 of the Civil Code as it is contrary to public policy. Hence the CA decision should be affirmed (Estate of Susano vs Republic. G.R. 214590, April 27, 2022).