G.G. Sportswear Mfg. Corp. vs. World Class Properties, Inc.

A buyer cannot rescind a reservation agreement and demand a refund based on the developer's lack of a license to sell at the time of execution if the defect is subsequently cured, nor based on dissatisfaction with the completion date if it was not a material consideration and the completion period has not yet lapsed.

World Class Properties, Inc. (World Class) owned and developed the Global Business Tower (later Antel Global Corporate Center), an office condominium project in Ortigas Center, Pasig City. G.G. Sportswear Mfg. Corp. (GG Sportswear) offered to purchase the 38th-floor penthouse unit and 16 parking slots for a pre-selling price of ₱89,624,272.82. On May 15, 1996, the parties signed a Reservation Agreement stipulating the schedule of payments. The Agreement provided that a contract to sell would be executed upon GG Sportswear's payment of 30% of the total purchase price, and that all provisions of the Agreement would be incorporated into the future contract to sell. From May to December 1996, GG Sportswear paid eight monthly installments totaling ₱19,717,339.50, representing 21% of the total contract price. In early 1997, GG Sportswear encountered financial difficulties, requested the replacement of postdated checks, and sought a 90-day deferment of check deposits, which World Class denied. GG Sportswear subsequently refused to sign a second Reservation Agreement, claiming it lacked an express completion date, and eventually filed a complaint for rescission and refund.

• The Reservation Agreement: On May 15, 1996, GG Sportswear and World Class signed a Reservation Agreement for the purchase of a penthouse unit and parking slots for ₱89,624,272.82. The Agreement stipulated that the contract to sell would be executed upon GG Sportswear's payment of 30% of the total purchase price. It also contained a forfeiture clause providing that failure to pay installments would allow World Class to rescind the Agreement and forfeit payments.
• Payment and Default: From May to December 1996, GG Sportswear made eight monthly installment payments totaling ₱19,717,339.50, or 21% of the contract price. In January 1997, GG Sportswear requested the return of postdated checks to replace them with checks from a new bank, and further requested a 90-day deferment of deposit due to financial difficulties. World Class denied the deferment and demanded payment of the overdue January 1997 installment.
• Dispute over Completion Date: On March 5, 1997, GG Sportswear delivered replacement checks and paid the overdue January installment. World Class sent a second Reservation Agreement and a provisional Contract to Sell, which stated a project turnover date of December 15, 1998. GG Sportswear refused to sign the second Agreement, claiming it was incomplete for lacking an express completion date. World Class countered that the provisional Contract to Sell expressly provided the completion date and insisted on payment of overdue accounts.
• HLURB Complaint: On June 10, 1997, GG Sportswear filed a complaint with the HLURB for rescission and refund, citing dissatisfaction with the completion date indicated in the provisional Contract to Sell and the lack of a CR/LS at the time the Agreement was executed. At the time of the filing, the project's completion dates (August 1998, December 1998, or December 1999) had not yet arrived. The project was ultimately completed in August 1999, within the period under the second License to Sell.

• Obiter Dictum: Petitioner argued that the CA erred in relying on the HLURB Board's finding that the Agreement could no longer be rescinded due to the subsequent issuance of the CR/LS, contending that this finding was merely an obiter dictum.
• Entitlement to Contract to Sell: Petitioner maintained that it was entitled to the execution of a Contract to Sell and that the lack of an express completion date in the second Reservation Agreement rendered the Agreement void for failure to ascertain the parties' intent.
• Right to Rescission and Refund: Petitioner asserted that it was entitled to rescind the Agreement and receive a refund under Article 1416 of the Civil Code and P.D. No. 957 due to World Class's lack of a CR/LS at the time of execution and its dissatisfaction with the completion date.

• No Breach by Developer: Respondent countered that it was not guilty of breach, as the petitioner was the party in default for failing to pay installments on time.
• Afterthought and Unclean Hands: Respondent argued that the complaint was merely an afterthought stemming from petitioner's financial difficulties, and that petitioner came to court with unclean hands due to its prior default.
• Dissatisfaction Invalid: Respondent maintained that dissatisfaction with the expected completion date in the proposed Contract to Sell is not a valid ground for refund under P.D. No. 957, which requires a failure to develop the project within the specified period—a period that had not yet arrived.

• Finality of HLURB Board Ruling: Whether the HLURB Board's ruling that the Agreement could no longer be rescinded due to the subsequent issuance of a CR/LS was a mere obiter dictum.
• Right to Rescission and Refund: Whether GG Sportswear is entitled to rescind the Agreement and a refund of payments based on dissatisfaction with the completion date or the lack of a Contract to Sell.
• Applicability of P.D. 957: Whether GG Sportswear is entitled to a refund under P.D. No. 957 for the developer's failure to develop the project.
• Effect of Lack of CR/LS: Whether the lack of a Certificate of Registration and License to Sell at the time of the Agreement's execution renders the contract void.

• Finality of HLURB Board Ruling: The Board's pronouncement was not an obiter dictum. An adjudication on any point within the issues presented cannot be considered obiter dictum, even if the case could have been disposed of on another ground. The Board's ruling on the CR/LS squarely addressed an issue raised by the parties and reversed the Arbiter's ruling on that specific matter. Having not been appealed by GG Sportswear to the Office of the President, the ruling attained finality and bound the parties.
• Right to Rescission and Refund: Rescission was not justified. Dissatisfaction with the completion date did not constitute a substantial breach, as a specific completion date was not a material consideration when the Agreement was signed, given its omission in the original Agreement. Furthermore, the obligation to execute a Contract to Sell had not yet arisen because GG Sportswear had only paid 21% of the total contract price, falling short of the 30% suspensive condition stipulated in the Agreement. GG Sportswear's complaint appeared to be an attempt to evade its obligations after defaulting due to financial difficulties.
• Applicability of P.D. 957: A refund under Section 23 of P.D. No. 957 was premature. A buyer's cause of action for failure to develop ripens only when the developer fails to complete the project after the lapse of the completion period stated in the contract or License to Sell. At the time the complaint was filed, the projected completion dates had not yet arrived. The developer completed the project within the period under the second License to Sell, rendering the issue moot.
• Effect of Lack of CR/LS: The lack of a CR/LS does not automatically render a contract void. The requirements of Sections 4 and 5 of P.D. No. 957 are intended for administrative convenience and regulation; the absence thereof merely subjects the developer to administrative sanctions, not the nullification of the contract.

• Obiter Dictum — An adjudication on any point within the issues presented by the case cannot be considered as obiter dictum. A point expressly decided does not lose its value as a precedent merely because the case could have been disposed of on another ground, or because another point was more fully argued and considered. The Court applied this to hold that the HLURB Board's ruling on the CR/LS was a binding adjudication, not an obiter dictum, as it directly reversed the Arbiter's ruling on an issue squarely raised by the parties.
• Rescission of Reciprocal Obligations — Rescission is allowed only when the breach of the contract is substantial and fundamental to the fulfillment of the obligation. The breach is determined by the attendant circumstances. The Court applied this to rule that dissatisfaction with a completion date—not a material consideration at the time of signing—does not constitute a substantial breach justifying rescission.
• Non-Forfeiture of Payments under P.D. No. 957 — Under Section 23 of P.D. No. 957, a buyer's installment payments shall not be forfeited if the buyer desists from payment due to the developer's failure to develop the project according to approved plans and within the time limit. The buyer may choose to: (1) continue with the contract but suspend payments until the developer complies, or (2) cancel the contract and demand a refund of all payments made, excluding delinquency interests. The Court found this inapplicable because the developer had not yet failed to develop the project when the complaint was filed.
• License to Sell and Contract Validity — The lack of a Certificate of Registration and License to Sell at the time of contract execution does not automatically render the contract void. The requirements of P.D. No. 957 are intended for administrative convenience and regulation, and the penalty for their violation is administrative in nature, not the nullification of otherwise valid contracts.

• "Unless the parties stipulated it, rescission is allowed only when the breach of the contract is substantial and fundamental to the fulfillment of the obligation."
• "A review of the relevant provisions of P.D. 957 reveals that while the law penalizes the selling of 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."
• "Notably, 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."

• Villanueva v. Court of Appeals, G.R. No. 142947, March 19, 2002 — Followed for the definition and application of the obiter dictum doctrine, establishing that a ruling on a point squarely raised and necessary to reverse a lower body's decision is not obiter dictum.
• Co Chien v. Sta. Lucia Realty & Development, Inc., G.R. No. 162090, January 31, 2007 — Followed as controlling precedent holding that the absence of a Certificate of Registration and License to Sell does not automatically void a contract of sale, as P.D. No. 957 provides only administrative penalties for such violations.
• Del Castillo vda. de Mistica v. Naguiat, G.R. No. 137909, December 11, 2003 — Followed for the principle that rescission requires a substantial and fundamental breach of the obligation.
• Sps. Velarde v. Court of Appeals, G.R. No. 108346, July 11, 2001 — Cited for the rule that a substantial breach of a reciprocal obligation, such as failure to pay the price as prescribed, entitles the injured party to rescind the obligation.

• Article 1191, Civil Code — Implies the power to rescind in reciprocal obligations in case of non-compliance by one obligor. Applied to find that rescission was premature because the developer had not yet breached its obligation to complete the project when the complaint was filed.
• Article 1416, Civil Code — Allows recovery of what has been paid under a contract that violates a prohibitory law designed for the plaintiff's protection. Found inapplicable because the lack of a CR/LS does not void the contract.
• Sections 4 and 5, Presidential Decree No. 957 — Require an owner/developer to secure a Certificate of Registration and License to Sell before selling subdivision lots or condominium units. Held to be requirements for administrative convenience; their absence does not void the contract.
• Section 23, Presidential Decree No. 957 — Provides for the non-forfeiture of installment payments when a buyer desists from payment due to the developer's failure to develop the project within the specified time limit. Applied to determine that a refund was premature because the developer's failure to develop had not yet occurred when the complaint was filed.

Antonio T. Carpio (Chairperson), Mariano C. del Castillo, Roberto A. Abad, Jose Portugal Perez.