• Filing an action for rescission vs a real-estate developer

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    Persida Acosta

    Dear PAO,
    I purchased a condominium unit on installment. At present, I’m still paying for the unit. I heard from the news that the real-estate developer that sold the unit to me does not have a license to sell from the HLURB. May I know if I can annul our contract because of the company’s lack of authority or license to sell from the government?
    Kit

    Dear Kit,
    Presidential Decree (PD) 957 is a special law specifically created to regulate the sale of subdivisions and condominium units with the end in view of protecting the buying public from swindling and fraudulent manipulations perpetrated by unscrupulous subdivision and condominium sellers. A part of its regulatory structure is to require the project owners or dealers to acquire a license to sell before offering its units to the public. The license is issued by the government, through the Housing Land Use and Regulatory Board (HLURB), “after an examination of the registration statement filed by said owner or dealer and all the pertinent documents attached thereto, [it]is convinced that the owner or dealer is of good repute, that his business is financially stable, and that the proposed sale of the subdivision lots or condominium units to the public would not be fraudulent” (Sec. 5, PD 957).

    The lack of license to sell, by itself, however, does not invalidate a contract to sell entered into by the erring real estate owner or dealer. As declared by the Supreme Court in the case of Sps. Co Chien vs. Sta. Lucia Realty & Development Inc. (G.R. No. 162090, January 31, 2007; ponente, former Chief Justice Reynato Puno), “the requirements of Sections 4 and 5 of PD 957 [referring to registration of projects and license to sell]do not go into the validity of the contract, such that the absence thereof would automatically render the contract null and void. It is rather more of an administrative convenience in order to allow for a more effective regulation of the industry.”

    Based on the foregoing, it is clear that you cannot annul your contract with the real estate developer that sold the condominium unit to you because of its lack of license to sell. In order to challenge the validity of your contract, you must show the absence or defect on one of the essential requisites of contract, to wit: consent of the contracting parties, object certain which is the subject matter of the contract, and cause of the obligation which is established (Art. 1318, Civil Code). Alternatively, an action for rescission may be filed if it can be shown that the real-estate developer committed a substantial breach of its obligation. (Art. 1191, Id.)

    We hope that we were able to answer your queries. Please be reminded that this advice is based solely on the facts you have narrated and our appreciation of the same. Our opinion may vary when other facts are changed or elaborated.

    Editor’s note: Dear PAO is a daily column of the Public Attorney’s Office. Questions for Chief Acosta may be sent to dearpao@manilatimes.net.

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    1 Comment

    1. HLURB=Housing and Land Use Regulatory Board and not “Housing Land Use and Regulatory Board” as you have provided above.