Empire East Land Holdings, Inc. vs. Bautista

A developer's sales agent's representation to an individual buyer regarding the issuance of a Contract to Sell does not constitute "advertisement" under Section 19 of Presidential Decree No. 957, as the statutory enumeration is restricted to forms of mass media directed at the general public; however, the developer's failure to fulfill such representation constitutes a breach of a reciprocal obligation under Article 1191 of the Civil Code, entitling the buyer to rescission and a full refund of all amounts paid pursuant to Article 1385.

Empire East Land Holdings, Inc. is a real estate developer engaged in subdivision and condominium projects. John Edrem Bautista is an individual buyer who sought to purchase a residential unit from one of Empire East's projects. The transaction was governed by Presidential Decree No. 957 (the Subdivision and Condominium Buyers' Protective Decree), which regulates the conduct of subdivision and condominium developers and provides protective remedies for buyers, and by the Civil Code provisions on reciprocal obligations and rescission. The dispute arose from the reservation stage of the purchase, before any Contract to Sell was executed.

Sometime in September 2010, John Edrem Bautista paid a reservation fee of PHP 20,000.00 to Empire East Land Holdings, Inc. to purchase a residential unit from one of its projects. The payment was made on the basis of a representation by Empire East's sales agent that a Contract to Sell would be executed after such payment. Bautista subsequently paid an additional PHP 110,000.00, bringing his total payments to PHP 130,000.00.

Despite Bautista's payments, Empire East failed to release any Contract to Sell. Bautista attempted to contact the sales agent, but the latter failed to communicate with him. Bautista then stopped paying his monthly amortizations and filed a complaint with the Human Settlements Adjudication Commission seeking a refund of the PHP 130,000.00 he had paid.

Empire East, in response, contended that Bautista failed to state a cause of action, arguing that the failure to execute a Contract to Sell is not a ground for reimbursement. Empire East further alleged that it was not bound by the representations of its sales agent, pointing to stipulations in the Buyer's Information Sheet and Request for Reservation and Offer to Purchase (RROP) signed by Bautista stating that any representation made by the agent would not be binding on Empire East unless reduced into writing and confirmed by a duly authorized officer.

The HSAC Adjudicator, the HSAC, and the Court of Appeals uniformly found that the sales agent's representation was in fact made, and that Empire East was bound by it. These factual findings were adopted by the Supreme Court, which noted that the petition raised foundationally factual questions beyond its jurisdiction under Rule 45, and that no exception to the general rule against factual review was present.

• No Evidence of Representation: Petitioner argued that there was no evidence to prove Bautista's allegation that a promise to issue the Contract to Sell was in fact made by the sales agent.
• No Cause of Action: Petitioner maintained that Bautista failed to state a cause of action, since the failure on its part to execute a Contract to Sell is not a ground for reimbursement.
• Not Bound by Agent's Representations: Petitioner contended that it was not bound by the representations of its sales agent, as the Buyer's Information Sheet and RROP signed by Bautista stipulated that any representation made by the agent would not be binding on Empire East unless reduced into writing and confirmed by a duly authorized officer.
• Applicability of R.A. No. 6552: Petitioner claimed that Republic Act No. 6552, or the Realty Installment Buyer Act, should govern the refund of the amount paid by Bautista.

• Scope of Section 19, P.D. No. 957: Whether the CA erred in ruling that the representation made by Empire East's sales agent falls under Section 19 of Presidential Decree No. 957.
• Entitlement to Refund: Whether the CA erred in ruling that Bautista is entitled to a refund of the PHP 130,000.00 he paid to Empire East.

• Scope of Section 19, P.D. No. 957: Yes, the CA erred. A sales agent's individual representation to a buyer regarding the issuance of a Contract to Sell does not qualify as "advertisement" under Section 19 of P.D. No. 957, because the statutory enumeration — newspaper, radio, television, leaflets, circulars — are all forms of mass media directed at the general public, and the catch-all phrase "or any other form" must be restricted to the same class under the principle of ejusdem generis.
• Entitlement to Refund: No, the CA did not err. Bautista is entitled to a full refund of PHP 130,000.00 under Articles 1191 and 1385 of the Civil Code, because the reservation agreement created a reciprocal obligation and Empire East's failure to issue the Contract to Sell constituted a substantial breach warranting rescission and mutual restitution. Exemplary damages of PHP 260,000.00 were additionally awarded.

• Scope of Section 19, P.D. No. 957: Section 19 of P.D. No. 957 enumerates specific forms of advertisement — newspaper, radio, television, leaflets, circulars — followed by the general phrase "or any other form." Under the principle of ejusdem generis, where a general word or phrase follows an enumeration of particular and specific words of the same class, the general phrase must be construed to include only persons, things, or cases akin to or resembling those specifically mentioned. The enumerated forms share a common typifying characteristic: they are all forms of mass media directed at the public in general, not at a singular individual. The title of the provision, "Advertisements," further supports this interpretation, as advertisements are generally understood to be directed to the general public. Consequently, a sales agent's representation to an individual buyer regarding the issuance of a Contract to Sell does not fall under Section 19. The Court noted, however, that buyers remain protected through other provisions of P.D. No. 957 (suspension or revocation of the developer's registration certificate and license to sell) and through Civil Code provisions on agency, obligations, and contracts.

• Entitlement to Refund: The reservation agreement between Bautista and Empire East, effected through the latter's sales agent, created a reciprocal obligation: Bautista was obliged to pay the reservation fee, and Empire East was in return obliged to issue a Contract to Sell. Since it was undisputed that Empire East, despite the lapse of over a year and despite Bautista's payment of the reservation fee and additional installments totaling PHP 130,000.00, failed to issue the Contract to Sell, the reservation agreement could be rescinded under Article 1191 of the Civil Code. Article 1385 requires mutual restitution upon rescission, obliging each party to return what it received. The fact that the reservation agreement stipulated only PHP 20,000.00 as reservation payment while Bautista paid an additional PHP 110,000.00 was immaterial, as all payments were made in expectation that a Contract to Sell would be issued. Republic Act No. 6552 was inapplicable because the parties never executed a Contract to Sell and the transaction never progressed past the reservation stage. The Court additionally awarded exemplary damages of PHP 260,000.00 under Article 2229 of the Civil Code, finding that Empire East acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner by allowing the dispute to languish for nearly sixteen years over a modest claim of PHP 130,000.00, despite consistent affirmance of Bautista's claim by the HSAC Adjudicator, the HSAC, and the CA.

• Principle of Ejusdem Generis — Where a general word or phrase follows an enumeration of particular and specific words of the same class, the general word or phrase is to be construed to include, or to be restricted to, persons, things, or cases akin to, resembling, or of the same kind or class as those specifically mentioned. The purpose is to give effect to both the particular and general words by treating the particular words as indicating the class and the general words as including all that is embraced in said class. Applied in this case to Section 19 of P.D. No. 957, the Court held that the phrase "or any other form" following the enumeration of "newspaper, radio, television, leaflets, circulars" must be limited to similar forms of mass media directed at the general public, and cannot encompass a sales agent's individual representation to a single buyer.

• Rescission of Reciprocal Obligations (Article 1191, Civil Code) — Rescission is a remedy implied in all reciprocal obligations, available when one party fails to comply with its obligation. Its effect is to declare the contract void at its inception and to restore the parties to their original position, as though the contract never existed. It is not merely termination but abrogation from the beginning, requiring mutual restitution. Applied here, the reservation agreement constituted a reciprocal obligation, and Empire East's failure to issue the Contract to Sell entitled Bautista to rescind and recover the full PHP 130,000.00 paid.

• Exemplary Damages in Contracts and Quasi-Contracts (Article 2229, Civil Code) — In contracts and quasi-contracts, exemplary damages may be awarded in the court's discretion when a party has acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner. Such damages are imposed to deter socially undesirable conduct and to reshape behavior by acting as negative incentives. Applied here, the Court awarded PHP 260,000.00 — twice the claimed refund — because Empire East prolonged litigation for nearly sixteen years over a modest claim despite consistent adverse rulings from three lower tribunals.

• "Under the principle of ejusdem generis, 'where a general word or phrase follows an enumeration of particular and specific words of the same class or where the latter follow the former, the general word or phrase is to be construed to include, or to be restricted to persons, things or cases akin to, resembling, or of the same kind or class as those specifically mentioned.'" — This passage states the canonical formulation of the ejusdem generis doctrine as applied to statutory construction, and is the controlling rationale for the Court's holding that Section 19 of P.D. No. 957 does not cover individual sales agent representations.

• "Verily, newspaper, radio, television, leaflets, and circulars share a common typifying characteristic, in that they are all forms of mass media. As such, the phrase 'or any other form' must be limited to similar forms of mass media directed at the public in general, instead of a singular individual." — This passage articulates the Court's specific application of ejusdem generis to Section 19 of P.D. No. 957, defining the class characteristic (mass media directed at the general public) that constrains the catch-all phrase.

• "Rescission of the obligation under Article 1191 is a declaration that a contract is void at its inception. Its effect is to restore the parties to their original position, insofar as practicable." — This passage, quoted from Camp John Development Corp. vs. Charter Chemical and Coating Corp., defines the nature and effect of rescission under Article 1191, and is the basis for the Court's award of full restitution to Bautista.

• National Power Corporation vs. Angas, 284-A Phil. 39 (1992) — Cited for its exposition on the purpose and rationale of the principle of ejusdem generis, which the Court applied to construe the scope of Section 19 of P.D. No. 957.
• Camp John Development Corp. vs. Charter Chemical and Coating Corp., 858 Phil. 970 (2019) — Cited for the definition of rescission under Article 1191 as a declaration that a contract is void at its inception, with the effect of restoring the parties to their original position; the Court relied on this formulation to justify the full refund to Bautista.
• Pelizloy Realty Corporation vs. The Province of Benguet, 708 Phil. 466 (2013) — Cited for the definition of the ejusdem generis principle.
• Sulpicio Lines, Inc. vs. Karaan, 841 Phil. 239 (2018) — Cited for the doctrine on exemplary damages in contracts and quasi-contracts, supporting the award against Empire East.
• Lara's Gifts & Decors, Inc. vs. Midtown Industrial Sales, Inc., 929 Phil. 754 (2022) — Cited for the rule on legal interest at 6% per annum from finality of judgment until full payment.

• Section 19, Presidential Decree No. 957 (Subdivision and Condominium Buyers' Protective Decree) — Provides that advertisements made by the owner or developer through newspaper, radio, television, leaflets, circulars, or any other form must reflect real facts and must not tend to mislead or deceive the public, and that the owner or developer shall be liable for facilities, improvements, infrastructures, or other forms of development represented or promised in sales propaganda disseminated by the developer or its agents. The Court held that this provision does not cover a sales agent's individual representation to a single buyer regarding the issuance of a Contract to Sell, construing the catch-all phrase "or any other form" under ejusdem generis as limited to forms of mass media directed at the general public.
• Section 33, Presidential Decree No. 957 — Declares void any stipulation purporting to free the owner or developer from liability arising from representations made by its agents. The lower tribunals relied on this provision to invalidate the "hold free and harmless" stipulation in the Buyer's Information Sheet and RROP; the Supreme Court did not disturb this finding, though it rested its ruling on the Civil Code instead.
• Article 1191, Civil Code — Provides that rescission is a remedy implied in all reciprocal obligations, available when one party fails to comply with what is incumbent upon it. Applied to hold that the reservation agreement created a reciprocal obligation and that Empire East's failure to issue the Contract to Sell entitled Bautista to rescind.
• Article 1385, Civil Code — Provides that rescission creates the obligation to return the things which were the object of the contract, together with their fruits, and the price with its interest. Applied to require Empire East to refund the full PHP 130,000.00 paid by Bautista.
• Article 2229, Civil Code — Authorizes exemplary damages in contracts and quasi-contracts when a party has acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner. Applied to award PHP 260,000.00 in exemplary damages against Empire East for its oppressive litigation conduct.
• Republic Act No. 6552 (Realty Installment Buyer Act) — Governs installment sales of real estate. The Court held it inapplicable because the parties never executed a Contract to Sell and the transaction never progressed past the reservation stage.

Caguioa (Chairperson), Inting, Gaerlan, and Dimaampao, JJ., concurred.