The Supreme Court ruled that developers can be held criminally liable under Presidential Decree No. 957 if they sell condominium units without securing the required licenses and fail to complete projects on time. This decision clarifies the scope of P.D. 957, emphasizing its protective intent for condominium buyers. The court found that engaging in any form of sale, including reservation agreements, without proper licensing constitutes a violation. This ruling empowers buyers by reinforcing the obligations of developers and providing legal recourse for non-compliance, ultimately strengthening consumer protection in real estate transactions.

Megaworld’s Tower Troubles: Did Reservation Agreements Trigger Penalties for Unlicensed Sales and Project Delays?

In Julieta E. Bernardo v. Andrew (Chong Lujan) L. Tan, et al., the Supreme Court grappled with the extent of developer liability under Presidential Decree No. 957, also known as “The Subdivision and Condominium Buyers’ Protective Decree.” The case arose after Julieta Bernardo sought to purchase a condominium unit in Megaworld Corporation’s Paseo Parkview Suites Tower II project. A dispute ensued when Bernardo learned that Megaworld lacked the necessary licenses when the initial agreement was made and the project faced delays. This prompted her to file a criminal complaint against the company’s officers, alleging violations of Sections 5, 17, and 20 of P.D. 957. The central legal question was whether the actions of Megaworld constituted violations of the decree, specifically concerning unlicensed sales, failure to register contracts, and project completion delays.

The case hinges on whether Megaworld violated the law by entering into a Reservation Agreement with Bernardo before securing the necessary licenses. Section 5 of P.D. 957 explicitly states:

SECTION 5. License to sell. – Such owner or dealer to whom has been issued a registration certificate shall not, however, be authorized to sell any subdivision lot or condominium unit in the registered project unless he shall have first obtained a license to sell the project within two weeks from the registration of such project.

The law defines “sale” broadly, including “every disposition, or attempt to dispose, for a valuable consideration” and extends to “a contract to sell, a contract of purchase and sale, an exchange, an attempt to sell, an option of sale or purchase, a solicitation of a sale, or an offer to sell.” This broad definition is crucial because it clarifies that even preliminary agreements like reservation contracts can trigger the penalties under P.D. 957 if entered into without the requisite licenses.

Building on this principle, the Court emphasized the protective intent of P.D. 957, designed to shield buyers from unscrupulous developers. The Supreme Court cited its previous ruling, stating:

“One of the reasons behind the expanded meaning of the term “sale” was to deter the rising cases of swindling and fraudulent manipulations perpetrated by unscrupulous subdivision and condominium sellers and operators against unknowing buyers.”

Engaging in any form of “sale” without a license is a crime, irrespective of intent. This means that developers cannot claim good faith or argue that the subsequent acquisition of a license retroactively cures the violation. The Court underscored that these violations are malum prohibitum, meaning the act itself is prohibited, regardless of whether the conduct is inherently immoral or not.

Furthermore, the case addresses the issue of project completion deadlines under Section 20 of P.D. 957, which requires developers to complete projects within one year from the issuance of the license or within a time frame set by the HLURB. Section 20 states:

SECTION 20. Time of Completion. – Every owner or developer shall construct and provide the facilities, improvements, infrastructures and other forms of development, including water supply and lighting facilities, which are offered and indicated in the approved subdivision or condominium plans, brochures, prospectus, printed matters, letters or in any form of advertisement, within one year from the date of the issuance of the license for the subdivision or condominium project or such other period of time as may be fixed by the Authority.

The Court clarified that the HLURB, not the developer or the purchase agreement, has the authority to extend project completion dates. Therefore, failure to meet the HLURB-set deadline constitutes a violation, holding developers accountable for delays that impact buyers.

However, the Court also clarified that not all preliminary agreements trigger the registration requirements under Section 17 of P.D. 957, which mandates the registration of “all contracts to sell, deeds of sale and other similar instruments.” The Court held that an option contract, such as the Reservation Agreement in this case, does not fall under this requirement. The rationale is that an option contract merely grants the privilege to buy or sell property within a specified time and price, rather than constituting an actual sale or agreement to sell. The ruling distinguishes between instruments that definitively transfer property rights and those that merely create an option for future transactions.

The Supreme Court ultimately reversed the Court of Appeals’ decision regarding the violations of Sections 5 and 20, emphasizing that probable cause existed to indict the respondents. It found that the trial court committed grave abuse of discretion in granting the motion to withdraw the informations related to these sections. However, the Court affirmed the CA’s decision regarding the Section 17 violation, concluding that the Reservation Agreement did not require registration. The case was remanded to the Regional Trial Court for further proceedings, underscoring the importance of holding developers accountable for complying with P.D. 957.

This case has significant implications for both developers and condominium buyers. It reinforces the necessity of obtaining all required licenses before engaging in any form of property sale, including preliminary agreements such as reservation contracts. Developers must adhere to the HLURB-set project completion deadlines to avoid criminal liability. While option contracts do not require registration, any agreement that constitutes a sale or agreement to sell must be registered with the Register of Deeds. The decision emphasizes the protective nature of P.D. 957 and the state’s commitment to safeguarding the interests of condominium buyers.

FAQs

What was the key issue in this case?	The key issue was whether Megaworld violated P.D. 957 by selling condominium units without the necessary licenses, failing to register the reservation agreement, and not completing the project on time. The Supreme Court clarified the scope of developer liability under the decree.
What is Presidential Decree No. 957?	P.D. 957, also known as “The Subdivision and Condominium Buyers’ Protective Decree,” is a law designed to protect individuals who purchase subdivision lots or condominium units. It regulates the real estate industry and sets standards for developers to follow.
What does Section 5 of P.D. 957 prohibit?	Section 5 of P.D. 957 prohibits owners or dealers from selling subdivision lots or condominium units without first obtaining a license to sell from the HLURB. The term “sale” is broadly defined to include any disposition or attempt to dispose of property for valuable consideration.
Is a reservation agreement considered a ‘sale’ under P.D. 957?	Yes, the Supreme Court has interpreted the definition of “sale” under P.D. 957 to include reservation agreements. This means that a developer must have the necessary licenses even when entering into preliminary agreements with potential buyers.
What does Section 20 of P.D. 957 require?	Section 20 of P.D. 957 requires developers to complete the project, including facilities and infrastructure, within one year from the date of the license issuance or within a period set by the HLURB. Failure to meet this deadline constitutes a violation.
Can developers extend the project completion date on their own?	No, developers cannot unilaterally extend the project completion date. Only the HLURB has the authority to extend the completion date if justified by circumstances such as fortuitous events or legal orders.
Does Section 17 of P.D. 957 require the registration of all agreements?	No, Section 17 of P.D. 957 requires the registration of “contracts to sell, deeds of sale, and other similar instruments” but not option contracts like reservation agreements. These agreements must involve the actual transfer of ownership or the right to ownership.
What is the consequence of violating P.D. 957?	Violating P.D. 957 can lead to criminal penalties, including fines and imprisonment. In the case of corporations, the responsible officers, such as the president, manager, or administrator, can be held criminally liable.

In conclusion, the Supreme Court’s decision in Bernardo v. Tan serves as a reminder of the importance of strict compliance with P.D. 957. It empowers condominium buyers by holding developers accountable for securing proper licenses, adhering to project completion timelines, and registering relevant agreements. This decision reinforces consumer protection in real estate transactions.

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: JULIETA E. BERNARDO v. ANDREW (CHONG LUJAN) L. TAN, G.R. No. 185491, July 11, 2012