SPOUSES GREGORIO B. ABREAU AND CORNELIA M. ABREU, ANTONIO B. ABREU A.K.A. ANTONIO ROBERTO ABREU, ENRIQUE J. ABREU, REPRESENTED BY SPOUSES GREGORIO B. ABREU AND CORNELIA M. ABREU…

Abreu versus Landbank

The Case

This is a petition for review on certiorari brought by condominium unit buyers, the spouses Gregorio and Cornelia Abreu, Enrique Abreu, and Antonio Abreu, against the Land Bank of the Philippines, J.V. Williams Realty and Development Corporation, William Siy, and Goram Development Corporation. The buyers paid substantial sums for condominium units and parking slots in a project called La Insula Condominium, which the developer abandoned at less than half completion. The buyers sued to compel completion and delivery, or in the alternative to recover their payments. The case matters because it tests whether parties who are not the original developer — a mortgagee bank that foreclosed, and a later purchaser of the land — may be drawn into a complaint for unsound real estate business practices under Presidential Decree Number 957, and whether such a complaint states a cause of action against them.

Procedural History

The buyers filed a complaint for specific performance and damages before the Housing and Land Use Regulatory Board. The HLURB Arbiter dismissed the complaint against Landbank and Goram Development, but ordered J.V. Realty and Siy to refund the buyers with interest and to pay damages. The buyers appealed to the HLURB Board of Commissioners, which set aside the Arbiter's decision, dismissed the complaint against Landbank, and ordered Goram Development to complete the project or refund the buyers, with damages. Goram Development elevated the case to the Office of the President, which reversed and set aside the Board's decision and reinstated the Arbiter's decision with modification as to the interest award. The buyers then filed a petition for review before the Court of Appeals, which denied the petition and affirmed the Office of the President. Hence, the buyers filed the present petition before the Supreme Court.

Facts

J.V. Realty was the developer of a proposed twenty-one storey condominium project known as La Insula Condominium, to be built on two parcels of land registered in its name. On September 13, 1996, J.V. Realty mortgaged those parcels to Landbank, and the mortgage was annotated on the certificates of title. On January 29, 1997, J.V. Realty, through its president William Siy, entered into separate contracts to sell with the buyers for several condominium units and parking slots. The spouses Abreu paid 9,456,349.06 pesos; Enrique Abreu paid 4,325,323.13 pesos; and Antonio Abreu paid 4,325,323.13 pesos, with balances payable upon turnover of the units.

On August 6, 1997, the parcels were converted into a condominium form of ownership, and a Master Deed with Declaration of Restrictions was executed and annotated on the titles. On April 21, 1998, the HLURB issued a License to Sell to J.V. Realty, obligating it to complete the project not later than September 1999. Landbank later foreclosed the mortgage and acquired the parcels through a foreclosure sale, becoming the registered owner in June 2001. Goram Development then acquired the parcels from Landbank through a Deed of Conditional Sale dated December 29, 2006, and titles were issued in its name in January 2013.

Despite less than fifty percent completion, J.V. Realty ceased construction. The buyers then filed their complaint against all four respondents, seeking to compel them jointly and severally to complete the project and deliver the units, plus damages. Landbank and Goram Development answered that they were not parties to the contracts to sell and could not be held solidarily liable. J.V. Realty and Siy filed no responsive pleading.

Issues

• Whether or not the complaint sufficiently states a cause of action against Landbank and Goram Development.
• Whether or not Goram Development, by virtue of the annotations on the certificates of title and the Deed of Conditional Sale, assumed or became bound by the obligations arising from the contracts to sell and the condominium project.
• Whether or not Landbank and Goram Development may be held solidarily liable under Presidential Decree Number 957 for the failure of J.V. Realty and Siy to complete the La Insula Condominium project.

Applicable Provisions

Section 1 of Presidential Decree Number 1344 defines the jurisdiction of the Housing and Land Use Regulatory Board, and provides:

Section 1. In addition to the powers and functions vested under the provisions of existing laws, the National Housing Authority shall have exclusive jurisdiction to hear and decide cases of the following nature: (a) Unsound real estate business practices; (b) Claims involving refunds and other claims filed by subdivision lot or condominium unit buyers against the project owner, developer, dealer, broker, or salesman; and (c) Cases involving specific performance of contractual and statutory obligations filed by buyers of subdivision lot or condominium unit against the owner, developer, dealer, broker, or salesman.

This provision matters because the Court holds that paragraph (a), on unsound real estate business practices, is broad enough to reach third parties whose acts directly prejudice condominium buyers.

Section 23 of Presidential Decree Number 957 provides:

Section 23. Non-Forfeiture of Payments. No forfeiture of payments made by the buyer shall be made for failure of the buyer to pay the installment payments, except for reasons provided for in the contract.

This provision matters because the Court holds that where the developer can no longer deliver the project, buyers may seek reimbursement of the amounts they paid.

Ruling

On the first issue, the Court ruled that the petition is partly meritorious and that the complaint sufficiently states a cause of action against Landbank and Goram Development. A cause of action is the act or omission by which a party violates the right of another, and a complaint states a cause of action when it alleges a right in favor of the plaintiff, an obligation on the part of the defendant to respect that right, and an act or omission violative of that right. The test is whether, admitting hypothetically the truth of the facts alleged, the court may render a valid judgment in accordance with the prayer. The Court found that the buyers alleged their rights as condominium buyers under Presidential Decree Number 957, imputed to the respondents the obligation to respect those rights given their alleged knowledge of the project and the annotations on the titles, and alleged that the respondents' participation in the foreclosure and transfer contributed to the non-completion of the project. The annexes, including transfer certificates of title bearing the Master Deed with Declaration of Restrictions, supported these allegations. At the very least, the respondents had constructive notice that the properties were dedicated to a condominium project and burdened by the rights of buyers. Although the complaint principally prayed for specific performance, it also contained a general prayer for other proper or just reliefs, so reimbursement under Section 23 of Presidential Decree Number 957 may be granted.

On the second and third issues, the Court held that Landbank and Goram Development are not the actual developers of the project, and this does not negate their potential liability under the broad reach of the law on unsound real estate business practices. The Court thus reversed the rulings below insofar as they dismissed the complaint outright for failure to state a cause of action.

Doctrine

A complaint states a cause of action when it alleges a right in favor of the plaintiff, an obligation on the part of the defendant to respect that right, and an act or omission violative of that right. The test is whether, admitting hypothetically the truth of the allegations, the court may render a valid judgment in accordance with the prayer. Under Section 1 of Presidential Decree Number 1344, the jurisdiction of the Housing and Land Use Regulatory Board over unsound real estate business practices is broad enough to encompass third parties whose acts directly prejudice condominium buyers and undermine the protective policy of Presidential Decree Number 957. A mortgagee bank that forecloses and a subsequent purchaser of the land are not the actual developers, but this does not negate a cause of action against them where the complaint alleges their knowledge of the condominium project and their participation in the transactions that prejudiced the buyers. Where a developer can no longer deliver the project, buyers may seek reimbursement under Section 23 of Presidential Decree Number 957, and courts may grant such relief under a general prayer for equitable relief.

Disposition

The petition is partly granted. The Court reversed the dismissal of the complaint against Landbank and Goram Development and remanded the case for further proceedings, while affirming the liability of J.V. Realty and Siy to refund the buyers.

Remember This

The single line worth memorizing is that a complaint states a cause of action when it alleges a right, an obligation to respect that right, and a violation of that right, and that the jurisdiction over unsound real estate business practices reaches third parties who prejudice condominium buyers. Examiners like to use this case to test the sufficiency of a complaint and the protective reach of Presidential Decree Number 957 against mortgagees and subsequent purchasers.