In the Philippines, a buyer’s right to rescind a contract for a condominium unit and demand a refund hinges on whether the developer failed to meet project completion deadlines. The Supreme Court, in G.G. Sportswear Mfg. Corp. v. World Class Properties, Inc., clarified that rescission is not automatically granted due to a developer’s initial lack of a license to sell, especially if the license is obtained before the complaint is filed. Furthermore, a buyer cannot demand rescission prematurely; it must be proven that the developer failed to complete the project within the agreed timeframe. This ruling underscores the importance of adhering to contractual obligations and statutory requirements in real estate transactions, providing clarity for both buyers and developers.

Delayed Dreams: Can Buyers Rescind Condominium Agreements Over Completion Concerns?

The case of G.G. Sportswear Mfg. Corp. v. World Class Properties, Inc. revolves around a dispute over a reservation agreement for a penthouse unit and parking slots in the Global Business Tower, later known as Antel Global Corporate Center. G.G. Sportswear sought to rescind the agreement, citing dissatisfaction with the project’s completion date and the absence of a formal Contract to Sell. World Class Properties countered that G.G. Sportswear had not fulfilled its payment obligations and that a license to sell had been secured before the complaint was filed. The central legal question is whether G.G. Sportswear had valid grounds to rescind the agreement and demand a refund of payments made.

The Housing and Land Use Regulatory Board (HLURB) initially ruled in favor of G.G. Sportswear, but this decision was later modified by the HLURB Board of Commissioners, which found that the absence of a Certificate of Registration and License to Sell (CR/LS) could no longer be grounds for rescission because World Class had obtained the necessary license before the complaint was filed. Despite this, the Board still awarded a refund, citing World Class’s implied admission that it would be unable to complete the project by the initial deadline. The Office of the President (OP) upheld the Board’s decision, but the Court of Appeals (CA) reversed the OP’s ruling, denying G.G. Sportswear’s claims for rescission and refund.

The Supreme Court affirmed the CA’s decision, emphasizing that the Board’s ruling on the non-rescissible character of the Agreement had become final because G.G. Sportswear did not appeal it. The Court also highlighted that G.G. Sportswear had no legal basis to demand rescission or a refund. Rescission is only allowed when a breach of contract is substantial and fundamental. The Court pointed out that a specific completion date was not a material consideration when G.G. Sportswear entered into the Agreement. The provisional Contract to Sell provided that the project would be ready for turnover no later than December 15, 1998. Furthermore, G.G. Sportswear had only paid 21% of the total contract price, falling short of the 30% required to trigger World Class’s obligation to execute a Contract to Sell.

The Supreme Court further examined the relevance of Presidential Decree (P.D.) No. 957, also known as the “Subdivision and Condominium Buyers’ Protective Decree.” According to Section 23 of P.D. No. 957:

Section 23. Non-Forfeiture of Payments. No installment payment made by a buyer in a subdivision or condominium project for the lot or unit he contracted to buy shall be forfeited in favor of the owner or developer when the buyer, after due notice to the owner or developer, desists from further payment due to the failure of the owner or developer to develop the subdivision or condominium project according to the approved plans and within the time limit for complying with the same. Such buyer may, at his option, be reimbursed the total amount paid including amortization interests but excluding delinquency interests, with interest thereon at the legal rate.

The Court underscored that a buyer’s cause of action against a developer for failure to develop ripens only when the developer fails to complete the project on the lapse of the completion period stated on the sale contract or the developer’s License to Sell. At the time G.G. Sportswear filed its complaint, the agreed completion date had not yet arrived, making any complaint for a refund premature. World Class completed the project in August 1999, within the time period granted by the HLURB under the second License to Sell.

The Court emphasized that G.G. Sportswear, not World Class, had substantially breached its obligations by being remiss in the timely payment of its obligations. A substantial breach of a reciprocal obligation, like failure to pay the price in the manner prescribed by the contract, entitles the injured party to rescind the obligation. The Court also reiterated its ruling in Co Chien v. Sta. Lucia Realty & Development, Inc., stating that the requirements of Sections 4 and 5 of P.D. No. 957 are intended merely for administrative convenience and do not automatically render a contract null and void.

The Court quoted the ruling in Co Chien v. Sta. Lucia Realty & Development, Inc.:

The lack of certificate and registration, without more, while penalized under the law, is not in and of itself sufficient to render a contract void.

The Supreme Court concluded that the Arbiter erred in declaring the Agreement void due to the absence of a CR/LS at the time the Agreement was executed.

FAQs

What was the key issue in this case?	The key issue was whether G.G. Sportswear had valid grounds to rescind its reservation agreement with World Class Properties and demand a refund of payments made, based on alleged dissatisfaction with the project’s completion date and the absence of a formal Contract to Sell.
What is a Certificate of Registration and License to Sell (CR/LS)?	A CR/LS is a document required by the HLURB for developers to legally sell subdivision lots or condominium units. It ensures that the developer meets certain regulatory standards and protects the interests of buyers.
When can a buyer rescind a contract under P.D. No. 957?	Under P.D. No. 957, a buyer can rescind a contract if the developer fails to develop the subdivision or condominium project according to the approved plans and within the time limit for complying with them. This is only a valid ground for rescission once the project is delayed beyond the agreed completion date.
What is the significance of a completion date in a real estate contract?	The completion date is a crucial element as it sets the timeline for the developer to finish the project and turn over the unit to the buyer. Failure to meet this deadline can trigger the buyer’s right to rescind the contract and demand a refund.
What happens if a developer obtains a license to sell after the reservation agreement is signed?	If a developer obtains a license to sell before the buyer files a complaint for rescission, the initial lack of a license may not be sufficient grounds for rescission. The HLURB and courts may consider the subsequent issuance of the license as a mitigating factor.
What is the effect of a buyer’s failure to make timely payments?	A buyer’s failure to make timely payments constitutes a breach of contract, which may entitle the developer to rescind the agreement and potentially forfeit the payments already made by the buyer, depending on the contract terms.
What is the difference between a Reservation Agreement and a Contract to Sell?	A Reservation Agreement is a preliminary agreement where the buyer pays a reservation fee to secure a unit, while a Contract to Sell is a more formal agreement outlining the terms and conditions of the sale, including payment terms and the developer’s obligations.
Can a buyer demand a Contract to Sell before paying a certain percentage of the total price?	Generally, a buyer cannot demand a Contract to Sell until they have paid the percentage of the total contract price specified in the Reservation Agreement, which in this case was 30%.

The Supreme Court’s decision in G.G. Sportswear Mfg. Corp. v. World Class Properties, Inc. provides essential guidance on the rights and obligations of both buyers and developers in condominium transactions. It clarifies the circumstances under which a buyer can rescind a contract and seek a refund, emphasizing the importance of adhering to contractual terms and statutory requirements. This ruling serves as a reminder that rescission is not a readily available remedy and that both parties must fulfill their respective obligations in good faith.

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: G.G. Sportswear Mfg. Corp. v. World Class Properties, Inc., G.R. No. 182720, March 02, 2010