The Supreme Court ruled that a seller’s failure to obtain a license does not automatically invalidate a contract of sale, but rather makes the seller liable under Presidential Decree No. 957. The court emphasized that sellers must deliver clean titles to buyers, even if the property is involved in ongoing litigation. If a seller fails to provide a clean title within a reasonable time, they must compensate the buyer for the current market value of the property.

Beyond the Contract: When Can Lot Buyers Demand Clear Titles?

In the case of Vicenta Cantemprate, et al. v. CRS Realty Development Corporation, et al., several lot buyers sought the delivery of certificates of title after fully paying for their properties in CRS Farm Estate. CRS Realty failed to deliver these titles, citing a pending legal dispute involving the land. This prompted the buyers to file a complaint with the Housing Land Use and Regulatory Board (HLURB), which initially dismissed the case for lack of jurisdiction. The central legal question was whether CRS Realty was obligated to deliver the titles despite the ongoing litigation, and whether HLURB had the authority to compel them to do so.

The Supreme Court addressed the issue of a seller’s responsibility when failing to obtain a license to sell. The court clarified that lacking a license does not invalidate sales agreements if there was a clear agreement between the seller and buyer regarding the property and its price. The absence of a license makes the seller liable under P.D. No. 957, a law aimed at regulating the sale of subdivision lots and condominiums. As the Court stated in Co Chien v. Sta. Lucia Realty and Development, Inc.:

A review of the relevant provisions of P.D. [No.] 957 reveals that while the law penalizes the selling subdivision lots and condominium units without prior issuance of a Certificate of Registration and License to sell by the HLURB, it does not provide that the absence thereof will automatically render a contract, otherwise validly entered, void.

Building on this principle, the Supreme Court also tackled HLURB’s jurisdiction over disputes involving specific performance of contractual obligations. Petitioners are correct in asserting that under Section 1 of P.D. No. 1344, an action for specific performance to compel respondents to comply with their obligations under the various contracts for the purchase of lots located in the subdivision owned, developed and/or sold by respondents CRS Realty, Casal and Salvador is within the province of the HLURB. Therefore, HLURB holds the power to hear and decide on actions compelling developers to fulfill their contractual and statutory duties. Specifically, HLURB can enforce the delivery of certificates of title after full payment, ensuring that developers do not neglect their obligations.

Further emphasizing the seller’s duty, the Court cited Section 25 of P.D. No. 957, which states: “The owner or developer shall deliver the title of the lot or unit to the buyer upon full payment of the lot or unit.” This provision clarifies that the obligation to provide title is a fundamental requirement in subdivision sales. As the Court highlighted, this responsibility is reciprocal, arising upon the buyer’s full payment of the agreed price. If respondents failed to provide clear titles, they must bear the financial consequences, potentially including the current market value of the property, as dictated by Article 1191 of the Civil Code.

Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him.

The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible.

The court determined that rescission creates the obligation to return the object of the contract. Also under Article 2199, actual or compensatory damages are those awarded in satisfaction of, or in recompense for, loss or injury sustained. Thus, in line with the aim of P.D. No. 957 to protect buyers from unscrupulous developers, the Supreme Court has clarified the duties of sellers regarding licenses and title delivery. While the absence of a license does not invalidate a sales agreement, it does not absolve the seller from legal responsibility. Also, the obligation to deliver clean titles remains, even if the property is subject to ongoing legal disputes. Failure to comply with these duties can result in significant financial liabilities for the seller, ensuring that buyers are adequately compensated for damages.

What was the key issue in this case?	The primary issue was whether a real estate developer could be compelled to deliver certificates of title to lot buyers despite a pending legal dispute involving the property.
Does lacking a license to sell automatically void sales contracts?	No, the Supreme Court clarified that lacking a license doesn’t automatically void contracts, but it does subject the seller to penalties under P.D. No. 957.
What does P.D. No. 957 state about title delivery?	P.D. No. 957 mandates that the developer or owner must deliver the title to the buyer once the lot or unit is fully paid for.
What happens if a seller cannot deliver a clean title?	If a seller can’t deliver a clean title, they must compensate the buyer, potentially including the current market value of the property.
What is HLURB’s role in these kinds of disputes?	HLURB has jurisdiction to hear cases about specific performance and can compel developers to fulfill contractual obligations like delivering titles.
Can a buyer demand rescission if the seller fails to deliver the title?	Yes, under Article 1191 of the Civil Code, the buyer can choose between fulfillment and rescission, with the right to damages in either case.
How does this ruling protect subdivision lot buyers?	This ruling protects buyers by ensuring that developers are held accountable for delivering titles and providing compensation for failures.
Who is liable if the real estate company has multiple officers?	The responsible officers of the real estate company are solidarily liable for the company’s failure to fulfill its obligations, meaning each can be held fully responsible.

In conclusion, the Supreme Court’s decision in Cantemprate v. CRS Realty underscores the importance of fulfilling contractual obligations in real estate sales. The ruling reinforces the principle that developers must act responsibly, deliver promised titles, and fairly compensate buyers for any failures. It serves as a stern warning against unsound business practices and empty promises in the real estate sector.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: Vicenta Cantemprate, et al. v. CRS Realty Development Corporation, et al., G.R. No. 171399, May 08, 2009