An open deed of sale can go sideways on you in so many ways

So you are looking to make stark changes for 2024. That’s great! Maybe you want to eat healthier, spend more time with family, or even take a trip together.

If your New Year’s resolutions include a real shakedown of what is in the garage. Go ahead, swap that old faithful car for a newer one. Sell it. Trade it. And buy newer. But beware: there’s something you need to avoid, and it’s something called an “open” deed of sale.

Like all important things, it is essential to read the fine print, and in a vehicular transaction between two parties that means the deed of sale. But as you may well already be aware of, there’s a phrase tossed around called the “open” deed. And we are here to tell you why any deal with an “open” deed of sale should set off alarm bells and raise red flags to send you running the other way.

What is an Open Deed of Sale?

To establish a baseline, let us define a deed of sale. It is a confirmation that a property (automobile, house, etc.) has been purchased from the seller by the buyer. It must have all the pertinent information related to the sale. When it comes to cars, that includes the vehicle make, color, year, body type, plate number, model, engine number, price, and most importantly, data about the seller and buyer (full name, marital status, address, etc.).

What is an “open” deed of sale? Well, not only is it an illegal document, but it is also chockful of problems that may cause civil and criminal liability, not only for the buyers and sellers but also for the lawyer who notarizes it.

Why is it illegal? Because it lacks one significant detail: the information of the buyer.

An “open” deed of sale lists all the information about the vehicle, about the seller, and the purchase price, but instead of filling in the buyer’s details, it is left blank. And often the document is left un-notarized; a requirement for many legal documents.

Why is this practice prevalent?

The answer is simple: it’s to keep the illusion that the vehicle is “first-owned”.

There is this concept in the Philippines that if the vehicle is still under the name of the first owner, it’s better. Any person who knows cars will understand that such isn’t always the case (condition is king), but it can’t be denied that an open deed helps propagate this practice and the illusion that it’s a vehicle that is still from the first owner.

It also helps second-hand car dealers that engage in the practice of buy and sell or trade-in. It won’t do them well to have to go the fully legal route of transferring the vehicle to their name or the company record only for them to transfer it back to the customer who will eventually buy the vehicle later on.

Car Ownership 101: Just say no to an open deed of sale image

Why is it a problem?

If we are just speaking purely of compliance, what is clear is that an open deed does not meet the LTO’s (Land Transportation Office) requirement for the transfer of ownership of a vehicle. Any attorney who certifies it violates the 2004 Rules on Notarial Practice because the document is incomplete, which is why any open deed is often (if not always) un-notarized.

Think about it like this: an open deed is like an acknowledgment receipt (AR) while a properly completed and notarized deed of sale or deed of absolute sale is like an official receipt (OR). An AR does not hold any weight compared to an OR, and you may have difficulty reimbursing an expense or filing for tax with an AR.

If we are going on principle, the primary issue here is ownership and all the responsibilities that come with it like taxes, fees, registration, records, and most importantly, legal implications.

But what kind of trouble can you get yourself regarding an open deed of sale? Let’s look at it depending on your point of view.

As a Buyer

Buyer’s beware: this is the automotive equivalent of Russian roulette. The reason is that there are too many potentials for What-ifs.

The first issue is a lack of a track record. Remember the desire to keep the vehicle as “first owned” as possible? A vehicle that doesn’t undergo transfer processes masks when the change of ownership happens, or potentially multiple changes of ownership. There’s just no way to tell just by looking at the piece of paper nor will LTO have a record of it.

That in itself is the problem. Let’s say the car you bought last month with an open deed was involved in an accident maybe 2 years ago and the driver sped away, and then you were flagged down by the PNP Highway Patrol Group today. The PNP will not be able to know who owned the car at the time the accident happened; all they know is that you were driving it today. Try explaining all that at the precinct.

What if the vehicle was actually reported as stolen or was involved in a crime some time ago? Again. All the PNP would know is that you were the one driving it now, and that makes you a suspect. Maybe you weren’t flagged down, but try registering the car at LTO or getting a clearance at Camp Crame, and you might find yourself in handcuffs through no fault of your own. That will be your WTF moment.

Even if there were no incidents in the past that you may or may not know of, you cannot even insure it under your name. You also cannot go to the police if it was stolen because technically it is not yours because the deed of sale does not have your name on it as the legal owner or buyer.

As a Seller

If you are the seller who is exchanging the car with someone for a sum of money and the buyer/buy-and-sell trader/dealer wants to keep the deed open, then you should be concerned.

The idea here is responsibility: any major incident involving the car means you may (or will) be held liable.

In the best-case scenario, the buyer is a law-abiding citizen, and both of you live happily ever after. But if they have a lead foot and are prone to committing traffic violations, guess what? You will never know what it feels like to renew your driver’s license and get a 10-year validity. Oh, and before I forget, the seller will still be billed by the LTO, MMDA (Metropolitan Manila Development Authority), or LGU (local government unit) for fines and penalties for violating various rules and regulations.

If the vehicle figures in an accident and damages property or injures a pedestrian after you sell the vehicle, that is considered a civil liability on you because you’re still the registered owner. If the incident involves a person being maimed or killed, that is a criminal offense.

If the vehicle is (still) registered under your name, whose door do you think the police will knock down? There is a very recent precedent of this: a local lady who participated in pageants vanished, and the car was the only lead the police found. Law enforcement knocked on the door of the registered owner of the vehicle, only to learn that the car was sold years ago but never transferred to the buyer’s (or buyers’) name. Still, they will be named in the incident even though they had nothing to do with it.

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There are thousands of things that can go wrong beyond what we just stated, and that’s the problem. It’s all open-ended, just like the deed. What’s important is you protect yourself from any potential problems by not letting it happen in the first place.

The next time you are in the market, buying or selling a vehicle, make sure you are working with a proper and completed and notarized deed of sale. To make it legit, it must have the name, details, signature of both parties, and the following accompanying documents – original copy of Certificate of Registration (CR) and Official Receipt (OR) and photocopy of valid IDs with signature, Taxpayer’s Identification Number (TIN), Community Tax Certificate (CTC), Insurance Certificate, Emission Test Certificate, and Motor Vehicle Inspection Report (MVIR). It must be notarized and submitted to the LTO within 30 days from the date of sale to complete the transfer.

A real deed of sale does not have versions. It is neither open nor closed. Anything else is a potential minefield of problems.