Review and Survey of Cases

on PD 957 and Related Laws

Part I
HSAC LEGAL ENHANCEMENT WEBINAR SERIES
16 September 2020
 Outline of Discussion
I. Introduction: Brief History of HLURB/HSAC as
a Quasi-Judicial Body
II. Supreme Court Decisions on PD 957 Cases
A. Jurisdiction
B. Licensing
C. Mortgage Clearance
D. Advertisements & Warranties
E. Open Spaces & Common Areas
F. Others (Procedural, Etc.)
III. Q & A
 HLURB as a Quasi-Judicial Body

Brief History

• Human Settlements Commission (1977)

• Human Settlements Regulatory Commission
§ EO 648 (1981) – HSRC Charter -
vested it with adjudication functions over subdivision
and condominium cases
§ EO 90 (1986) – renamed as HLURB
§ RA 8763 (2000) -- jurisdiction over intra-HOA cases
transferred to HLURB
§ RA 9904 (2010) – inter-HOA included in jurisdiction
• Human Settlements Adjudication Commission –
RA 11201 (2019)
 Jurisdiction of HSAC in Real
Estate Cases under RA 11201
Section 16. Jurisdiction of Regional Adjudicators. - The Regional
Adjudicators shall exercise original and exclusive jurisdiction to
hear and decide cases involving the following:
PD 1344:
(a) Cases involving subdivisions, condominiums, memorial
xxx cases of the following nature:
parks and similar real estate developments:
(a) Unsound real estate business practices

(1) Actions concerning unsound real estate business

practices filed by buyers or homeowners against the
project owner or developer, which cause prejudice to
the buyers or committed with bad faith and disregard
of the buyers’ rights;
 Jurisdiction of HSAC in Real
Estate Cases under RA 11201
(2) Claims for refund, and other claims filed by subdivision lot
or condominium unit buyer against the project owner,
developer, dealer, broker or salesman: Provided, That when
the cause of action arises from the buyer’s rights under
Section 23 of Presidential Decree No. 957 and the purchase
price of the property is paid through a housing loan from a
bank or other financing institutions, the latter shall be
impleaded as necessary party;

PD 1344:

(b) Claims involving refund and any other claims filed

by subdivision lot or condominium unit buyer
against the project owner, developer, dealer, broker
or salesman;
 Jurisdiction of HSAC in Real
Estate Cases under RA 11201

(3) Cases involving specific performance or contractual and

statutory obligations arising from the sale of the lot or unit and
development of the subdivision or condominium project;

PD 1344:

(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.
 Jurisdiction of HSAC in Real
Estate Cases under RA 11201
(a) Abandoned subdivision or condominium refers to a project
(4) Disputes involving the openhas
whose development spaces or completed
not been commoninareas and with
accordance
the approved development plan despite the lapse of at least ten
their use filed by the
(10) years project
from owner
the target orcompletion
date of developer orit the
and dulythat
appears
registered said
HOA, including
project the
owner or eviction
developer hasofnoinformal
intention settlers
to complete the
therein, inproject development
accordance with or,
thedespite diligent effort
requirements offor at least
law, andthe last
five (5) years, the project owner or developer cannot be located.
the rules and regulations promulgated by duly constituted
authorities;

(5) Suits to declare subdivision, condominium or other real

estate developments within the regulatory jurisdiction of the
Department as abandoned, as defined under Section 3 of
this Act for the purpose of Section 35 of Presidential Decree
No. 957;
 Jurisdiction of HSAC in Real
Estate Cases under RA 11201

(6) Disputes involving easements within or among

subdivision projects; and

(7) Actions to annul mortgages executed in violation of

Section 18 of Presidential Decree No. 957 filed by a
subdivision lot or condominium unit buyer against the
project owner and/or developer and the mortgagee.
 Jurisdiction of HSAC in Real
Estate Cases under RA 11201

Section 16 --

(c) Disputes involving the implementation of Section 18 of

Republic Act No. 7279, as amended, and its
Implementing Rules and Regulations.

(d) Disputes or controversies involving laws and

regulations being implemented by the Department
except those cases falling within the jurisdiction of
other judicial or quasi-judicial body.
 PRESIDENTIAL DECREE NO. 957
REGULATING THE SALE OF SUBDIVISION LOTS
AND CONDOMINIUMS, PROVIDING PENALTIES
FOR VIOLATIONS THEREOF
• Short title: The Subdivision and
Condominium Buyers' Protective Decree
• Social Legislation
• Rationale for the enactment of the law as
stated in the Whereas Clauses
• Used to be implemented by NHA
Sps. Lim V. Ruby Shelter Builders, (G.R. No. 182707,
September 1, 2010)

Facts: The Lims bought a 318-square meter lot that then formed
part of a bigger lot from Ruby Shelter Builders and Realty Devt
Corp. Ruby Shelter subdivided the original lot into 4 and
executed a deed of sale in favor of the Lims over one lot but
failed to deliver the title. The Lims filed a case for delivery of
title and damages before HLURB. Ruby Shelter prayed for the
dismissal of the case for lack of jurisdiction
Does HLURB have jurisdiction over the sale of only a part
of a parcel of land to be converted into a subdivision?

LSG : Yes; delivery of title ordered

BOC : Affirmed
OP : Affirmed
CA : Reversed OP Decision – No.
SC
q Yes. The circumstances of the case clearly present a case for
specific performance that the subdivision lot buyers brought
against Ruby Shelter, a matter properly cognizable by the
HLURB.
qDoes size matter?
On Ruby Shelter’s claim that the lot purchased did not form
part of a subdivision development, the size of a community;
that it merely subdivided a lot into four and sold one
portion --

“[T]he controlling fact is not the size of the original lot that
Ruby Shelter had subdivided but the fact that the Lims bought
their portion of that lot from a licensed land developer whose
dealings on properties are regulated by the HLURB. The Lims
bought their lot relying on the belief that Ruby Shelter, as a
licensed land developer, shall abide by its duties and
obligations under its contract and the laws.”
Kakilala vs Faraon, G.R. No. 143233, October 18, 2004
Jurisdiction of HLURB
Facts: In 1987, Sps Kakilala bought a parcel of land for 250K, DP
of 50K, the balance payable in 5 years, at about P4,800.000
monthly. The spouses built a house, managed to pay several
monthly installments totaling 51k, but failed to pay the
succeeding installments. In 1996, Faraon cancelled the contract
and filed an unlawful detainer case. Kakilala filed a case before
HLURB for the revocation of the cancellation.

Faraon raised the issue of jurisdiction.

Arbiter: Assumed jurisdiction, subject matter is a subdivision lot

BOC : Affirmed with modification (deleted damages)
CA : Reversed.
SC:
“Under Section 2(d) and (e) of PD 957 ] subdivision project and
subdivision lot are defined as follows:

d) Subdivision project. “Subdivision project” shall mean a tract

or a parcel of land registered under Act No. 496 which is
partitioned primarily for residential purposes into individual lots
with or without improvements thereon, and offered to the
public for sale, in cash or in installment terms. It shall include all
residential, commercial, industrial and recreational areas as well
as open spaces and other community and public areas in the
project.”

e) Subdivision lot. - "Subdivision lot" shall mean any of the lots,

whether residential, commercial, industrial, or recreational, in a
subdivision project. “
 “There is no allegation in the complaint that the lot purchased by
petitioners is part of a tract of land partitioned primarily for
residential purposes into individual lots and offered to the public for
sale. There is likewise no allegation that the tract of land includes
recreational areas and open spaces. Nor does the Contract to Sell,
which forms part of the complaint, describe the subject property as a
subdivision lot. What the contract strongly suggests is that the
property is simply a lot offered by respondents, as vendors, to the
petitioners, as vendees, for sale on installment. As can be clearly
gleaned from the same contract, respondents are not acting as
subdivision owners, developers, brokers or salesmen, nor are they
engaged in the real estate business. What is plain is that the parties
are acting only as ordinary sellers and buyers of a specific lot, a
portion of a big tract of land co-owned by the heirs of Mariano
Faraon.
“Neither are there undertakings specified in the contract that
respondents shall develop the land, like providing for the subdivision
concrete roads and sidewalks, street lights, curbs and gutters,
underground drainage system, independent water system,
landscaping, developed park, and 24-hour security guard service.
Even the rights and obligations of the sellers and buyers of a
subdivision lot are not provided in the agreement. All these
provisions are usually contained in a standard contract involving a
sale of a subdivision lot.

“Moreover, although the receipts of payment delivered to

petitioners by respondents bear the name Faraon Village
Subdivision, the same does not automatically convert the ordinary
and isolated sale of real property into a sale of subdivision lot.

“Clearly, the HLURB has no jurisdiction over the present case.”

AMA Computer College vs. Factora, G.R. No. 137911,
February 27, 2002
Facts: Sevenis Enterprises, Inc. engaged the services of respondent Jesus Factora
to construct a four-storey condominium building on its lot. To finance the
construction, Sevenis obtained a P3.9M loan from Fund Centrum Finance, Inc.
secured by a mortgage on the project. Sevenis at that time also owed Factora
P1,333,523.00 as contractor's fees.

Sevenis failed to pay its loan. Thus, Sevenis entered into a dacion in a MOA with
Fund Centrum and Factora in 1985, where Sevenis conveyed ownership of the
land and improvements to Fund Centrum. Fund Centrum recognized the
contractor’s lien in favor of Factora and assigned to him three 2-BR units of the
condo project based on a “completed state.” In time, Fund Centrum sold the
condo building to Supreme Capital, Inc.. Supreme Capital then sold the building
to MCI Real Estate and Devt. Corp. through a CTS. MCI then leased out the
premises to AMA which converted the condo building, including the three units
assigned to Factora, to a computer school. Thus, Factora filed file two complaints
(later consolidated) against Fund Centrum, Supreme Capital and AMA with
HLURB for delivery of the units, CCTs and payment of damages.
Does HLURB have jurisdiction?

• HLURB-OAALA : HLURB has no jurisdiction,

dismissed the complaint. (1992)

• BOC: Affirmed OAALA (1995)

• OP : Reversed, case remanded for further

proceedings on the merits. (1997)

• CA : Dismissed AMA’s PFR (1998)

SC: “xxx [A] transaction to "buy" and "purchase" under P.D. 957
has been defined as "any contract to buy, purchase, or otherwise
acquire for a valuable consideration x x x a condominium unit in
a condominium project." The term "buyer" is not limited to
those who enter into contracts of sale. Its concept is broad
enough as to include those who "acquire for a valuable
consideration" a condominium unit. Thus, a buyer of said unit
seeking to enforce the performance of an obligation arising from
such transaction, or claiming damages therefrom, may bring an
action with the HLURB.

“[Factora] is a buyer within the contemplation of P.D.

957. He acquired the three condominium units as they were
assigned to him by Sevenis in payment for its indebtedness in
the amount of P1,333,523.00 as contractor's fee. Clearly, his
acquisition of the units was for a valuable consideration.”
 “[AMA’s] contention that the MOA merely intends to recognize
the indebtedness of Sevenis to respondent as a contractor's lien,
hence no assignment has been made, is unavailing. While the MOA
recognizes Sevenis' indebtedness as a lien, however, it expressly
provides for the settlement of such indebtedness by the assignment
of the three 2-BR units to respondent. Thus, by virtue of the
assignment, respondent relieved Sevenis from its indebtedness to
him. The extinguishment of such indebtedness vested upon
respondent the right to own the said units.

xxx [AMA’s] theory that respondent is not the owner of the said
condominium does not preclude the HLURB from exercising its
jurisdiction over the case. xxx [C]ases for specific performance of
contractual obligations against condominium owners filed by buyers
fall within its competence and expertise. xxx”
Section 4 – Registration of Projects
Section 5 – License to Sell
CR-LS Exempt Transactions (Sec. 7)
“SECTION 7. Exempt Transactions. - A license to sell and
performance bond shall not be required in any of the
following transactions:

a) Sale of a subdivision lot resulting from the PARTITION of

land among co-owners and co-heirs.

b) Sale or transfer of a subdivision lot by the original

purchaser thereof and any SUBSEQUENT SALE of the
same lot.

c) Sale of a subdivision lot or a condominium unit by or FOR

THE ACCOUNT OF A MORTGAGEE in the ordinary course
of business when necessary TO LIQUIDATE A BONA FIDE
DEBT.”
Exempt transactions?
• “Comunidades”
• “Build your own condo unit” approach
• Unit-for-investment schemes
• Rent-to-own
• “Simple subdivision”/piecemeal submission
1. “Comunidades”, “build your own condo
unit” approach, “investment contracts”

GGP Property vs. First Global Byo Corporation

Project : Fort Palm Spring, Taguig City
Contract: Contract to Manage and Execute the
Construction of Fort Palm Spring
Payments = Investment
Buyer = Client / Investor
Developer = Project Manager
Offer to sell = invitation to invest a specific amount to
fund the construction of the project and be
assigned a specific unit.
BOC Ruling: Sale . It is an attempt to circumvent PD 957.
 2. Rent-to-own Contracts:
Gimenez et al. vs. Roncorp 21 Inc. et al.
Terms of the contract:
Downpayment: P50,000.00
Lease period: 15 years
At the end of the 15th year, lessee may exercise option to
purchase by paying P10,000.00.
BOC Ruling: It’s a sale.

3. Condotel management contracts

First Global Byo cases

4. “Simple subdivisions”
What is the effect of the project’s lack of License to Sell on the
contract of sale or contract to sell executed between the seller and
buyer?

Sps. Co Chien vs. Sta. Lucia Realty and Devt. Inc., G.R. No. 162090,
January 31, 2007

In 1995, Sps. Co bought a parcel of land in Eagle Ridge Golf & Residential
Estates from SLRDI. The CTS provides that full balance shall be paid within
7 days from notice of availability of title at 10% discount. In 1997, LTS was
issued to the project. In 1998, SLRDI informed the spouses that title was
ready for delivery and demanded payment of the balance. The spouses
negotiated for further discount or a better lot. Since the spouses failed to
pay within 7 days, SLRDI forfeited their 10% discount. In 1999, the spouses
demanded the refund of their downpayment on the ground that the CTS
was void because the project had no LTS at the time of the transaction.

Were the spouses correct?

Arbiter: Contract not valid, ordered refund
BOC : Reversed Arbiter; contract valid, buyer update payment
OP : Affirmed BOC
CA : Affirmed OP
SC
• The lack of a License to Sell at the time of the execution of the
contract does not affect its validity
“[W]hile 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. The penalty imposed by the decree is the general
penalty provided for the violation of any of its provisions xxx The
general penalties for the violation of any provisions in P.D. 957 are
provided for in Sections 38 and 39
xxx [T]he requirements of Sections 4 and 5 of P.D. 957 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.
xxx xxx xxx
The lack of certificate and registration, without more, while penalized
under the law, is not in and of itself sufficient to render a contract void.
Such a deficiency, however, together with other relevant factors may
be duly considered in nullifying a contract, should the circumstances so
demand.

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

No. 182720, March 2, 2010
• Moldex Realty Inc. vs Saberon, G.R. No.176289, April 8, 2013.
Suspension of License to Sell (Sec. 8)

• Upon verified complaint or motu proprio

• If any information in the registration statement has
become misleading, incorrect, inadequate or
incomplete; or
• The sale or offering for sale of the subdivision or
condominium project may work or tend to work a
fraud upon prospective buyers
Revocation of Registration Certificate and
License to Sell (Sec. 9)
Grounds: Owner or developer --
a. Is insolvent; or
b. Has violated any provision of PD 957, or any
applicable rule or regulation or any undertaking of
the performance bond; or
c. Has been or is engaged or is about to engage in
fraudulent transactions; or
d. Has made any misrepresentation in any
advertisement that has been distributed to
prospective buyers; or
 Revocation of Registration
Certificate and License to Sell

e. Is of bad business repute; or

f. Does not conduct his business in accordance
with law or sound business principles.

How:
• Motu proprio or
• Upon verified complaint
SECTION 12: Suspension and Revocation of Registration
of Dealers Brokers, Salespersons
GROUNDS:
• Violation of any provision of P.D. No. 957 or any of its
rules or regulations

• Material false statement in the application for

registration
• Fraudulent act in connection with any sale of a lot
or unit in any project
• Unworthiness to engage in the practice of real
estate service
PROCEDURE FOR THE REVOCATION OF
REGISTRATION CERTIFICATE
• Section 13 – Hearing
• Section 14 – Contempt
• Section 15 – Decision
• Section 16 – Cease and Desist Order

-- subsumed in the Rules of Procedure of HSAC

 SECTION 17. Registration. - All contracts to sell, deeds of sale and other
similar instruments relative to the sale or conveyance of the subdivision lots and
condominium units, whether or not the purchase price is paid in full, shall be
registered by the seller in the Office of the Register of Deeds of the province or
city where the property is situated.

Whenever a subdivision plan duly approved in accordance with Section 4

hereof, together with the corresponding owner's duplicate certificate of title, is
presented to the Register of Deeds for registration, the Register of Deeds shall
register the same in accordance with the provisions of the Land Registration Act, as
amended: Provided, however, that if there is a street, passageway or required
open space delineated on a complex subdivision plan hereafter approved and as
defined in this Decree, the Register of Deeds shall annotate on the new certificate
of title covering the street, passageway or open space, a memorandum to the
effect that except by way of donation in favor of a city or municipality, no portion
of any street, passageway, or open space so delineated on the plan shall be
closed or otherwise disposed of by the registered owner without the requisite
approval as provided under Section 22 of this Decree.
What is the effect of the developer’s non-compliance
with the registration requirement under Section 17?

Luzon Devt. Bank vs Enriquez, G.R. No. 168646, January 21, 2011

“The purpose of registration is to protect the buyers from any future

unscrupulous transactions involving the object of the sale or
contract to sell, whether the purchase price therefor has been fully
paid or not. Registration of the sale or contract to sell makes it
binding on third parties; it serves as a notice to the whole world that
the property is subject to the prior right of the buyer of the property
(under a contract to sell or an absolute sale), and anyone who
wishes to deal with the said property will be held bound by such
prior right.”
“While DELTA xxx failed to register Enriquez's Contract to Sell with the
Register of Deeds, this failure will not prejudice Enriquez or relieve the
BANK from its obligation to respect Enriquez's Contract to
Sell. Despite the non-registration, the BANK cannot be considered,
under the circumstances, an innocent purchaser for value of Lot 4 when
it accepted the latter (together with other assigned properties) as
payment for DELTA's obligation. The BANK was well aware that the
assigned properties, including Lot 4, were subdivision lots and therefore
within the purview of PD 957. It knew that the loaned amounts were to
be used for the development of DELTA's subdivision project, for this was
indicated in the corresponding promissory notes. The technical
description of Lot 4 indicates its location, which can easily be
determined as included within the subdivision development. xxxUnder
these circumstances, the BANK knew or should have known of the
possibility and risk that the assigned properties were already covered by
existing contracts to sell in favor of subdivision lot buyers.”
 MORTGAGE CLEARANCE
SECTION 18. Mortgages. - No mortgage on any unit or lot shall be
made by the owner or developer without prior written approval of
the Authority.
• Such approval shall not be granted unless it is shown that the
proceeds of the mortgage loan shall be used for the development
of the condominium or subdivision project and effective measures
have been provided to ensure such utilization.
• The loan value of each lot or unit covered by the mortgage shall be
determined and the buyer thereof, if any, shall be notified before
the release of the loan.
• The buyer may, at his option, pay his installment for the lot or unit
directly to the mortgagee who shall apply the payments to the
corresponding mortgage indebtedness secured by the particular lot
or unit being paid for, with a view to enabling said buyer to obtain
title over the lot or unit promptly after full payment thereto;
• Union Bank of the Philippines vs HLURB,
G.R. No. 95364, June 29, 1992 Mortgage Clearance Cases
Facts: In 1973 Martha David purchased from Fereit Realty Devt.
Corp. (FRDC) a unit in Europa Condominium Villas for P217,000.00 and
took possession in 1975. In 1978, FRDC mortgaged the project to
Bancom Devt./Union Bank as security for a loan. FRDC failed to pay,
and UBP foreclosed the mortgage on 45 condo units, including David’s.
At the execution sale, FEBT won the bid and a certificate of sale was
executed in its favor. Title was issued under FEBTC’s name.
Upon discovering the mortgage and that a new title was issued to
FEBTC, David filed a complaint before HLURB against FRDC, UBP and
FEBTC, praying for annulment of the execution sale, cancellation of the
title issued to FEBTC and issuance of a new title in her name.
UBP’s defense: HLURB has no jurisdiction over the action.
“xxx [A]ction for annulment of the mortgage, the mortgage
foreclosure sale and the condominium certificate of title that
was issued to the UBP and FEBTC as highest bidders at the sale
xxx falls within the exclusive jurisdiction of the NHA (now HLURB)
as provided in P.D. No. 957 of 1976 and P.D. No. 1344 of 1978.
xxx
Its jurisdiction is broad enough to include jurisdiction over
specific performance of the sale, or annulment of the mortgage,
of a condominium with damages”
Philippine National Bank vs. Office of the President,
G.R. No. 104528, January 18, 1996 Mortgage Clearance Cases

• PD 957 applies to mortgages constituted prior to its enactment.

“Verily, if P.D. 957 were to exclude from its coverage the aforecited mortgage
contract, the vigorous regulation which PD. 957 seeks to impose on
unconscientious subdivision sellers will be translated into a feeble exercise of
police power just because the iron hand of the State cannot particularly touch
mortgage contracts badged with the fortunate accident of having been constituted
prior to the enactment of P.D. 957. Indeed, it would be illogical in the extreme if
P.D. 957 is to be given full force and effect and yet, the fraudulent practices and
manipulations it seeks to curb in the first instance can nevertheless be liberally
perpetrated precisely because PD. 957 cannot be applied to existing antecedent
mortgage contracts. The legislative intent could not have conceivably permitted a
loophole which all along works to the prejudice of subdivision lot buyers .”
• Bank’ s lack of privity with buyer not a defense
“Privity of contracts as a defense does not apply in this case
for the law explicitly grants to the buyer the option to pay the
installment payment for his lot or unit directly to the mortgagee
xxx which is required to apply such payments to reduce the
corresponding portion of the mortgage indebtedness secured by
the particular lot or unit being paid for. And, as stated earlier,
this is without prejudice to petitioner Banks seeking relief
against the subdivision developer.”
Far East Bank & Trust Co. vs Marquez, G.R. No. 147964,
January 20, 2004 Mortgage Clearance Cases

• PD 957 applies even if what was mortgaged was then a whole

parcel of land and only subdivided later.

“That the subject of the mortgage loan was the entire land, not
the individual subdivided lots, does not take the loan beyond
the coverage of Section 18 of PD 957. Undeniably, the lot was
also mortgaged when the entire parcel of land, of which it was
a part, was encumbered.”
• Bank was NOT a mortgagee in good faith
Mortgage Clearance Cases
Far East Bank vs Marquez
“Petitioner bank should have considered that it was dealing
with a town house project that was already in progress. xxx Hence,
there was need to verify whether any part of the property was
already the subject of any other contract involving buyers or
potential buyers. In granting the loan, petitioner bank should not
have been content merely with a clean title, considering the
presence of circumstances indicating the need for a thorough
investigation of the existence of buyers like respondent. Having
been wanting in care and prudence, the latter cannot be deemed
to be an innocent mortgagee.”
Bank’s rights as the buyer in the foreclosure sale are
not superior to those of the subdivision lot buyer:

“Aside from being a buyer of the lot, petitioner was also

the mortgagee, which xxx was presumed to know the rights
of [the buyer] over that lot. The conversion of the status
of the former from mortgagee to buyer-owner will not
lessen the importance of such knowledge. Neither will the
conversion set aside the consequences of its negligence as
a mortgagee.”
• The mortgage is void only insofar as the subject
buyer’s lot is concerned, only as against the buyer.

“The HLURB, however, went overboard in its disposition in

paragraphs 3 and 4, which pertained not only to the lot but to
the entire parcel of land mortgaged. Such ruling was improper.
The subject of this litigation is limited only to the lot that
respondent is buying, not to the entire parcel of land. He has
no personality or standing to bring suit on the whole property,
as he has actionable interest over the subject lot only.”
Metropolitan Bank & Trust Co. vs. SLGT Holdings, Inc
Development, Inc. , G.R. Nos. 175181-82,
September 14, 2007
• The nullity extends to the entire mortgage contract.

“This disposition stems from the basic postulate that a mortgage contract
is, by nature, indivisible. Consequent to this feature, a debtor cannot ask
for the release of any portion of the mortgaged property or of one or some
of the several properties mortgaged unless and until the loan thus secured
has been fully paid, notwithstanding the fact that there has been partial
fulfillment of the obligation. Hence, it is provided that the debtor who has
paid a part of the debt cannot ask for the proportionate extinguishments
of the mortgage as long as the debt is not completely satisfied.
 Mortgage Clearance Cases
Metropolitan Bank vs. SLGT

“xxx It may be that Section 18 of PD 957 allows partial redemption of

the mortgage in the sense that the buyer is entitled to pay his
installment for the lot or unit directly to the mortgagee so as to
enable him - the said buyer - to obtain title over the lot or unit after
full payment thereof. Such accommodation statutorily given to a
unit/lot buyer does not, however, render the mortgage contract also
divisible. Generally, the divisibility of the principal obligation is not
affected by the indivisibility of the mortgage. The real estate mortgage
voluntarily constituted by the debtor (ASB) on the lots or units is one
and indivisible.
 Mortgage Clearance Cases
Metropolitan Bank vs. SLGT

“In this case, the mortgage contract executed between ASB

and the petitioner banks is considered indivisible, that is, it cannot
be divided among the different buildings or units of the Project.
Necessarily, partial extinguishment of the mortgage cannot be
allowed. In the same token, the annulment of the mortgage is an
all or nothing proposition. It cannot be divided into valid or invalid
parts. The mortgage is either valid in its entirety or not valid at all.
In the present case, there is doubtless only one mortgage to speak
of. Ergo, a declaration of nullity for violation of Section 18 of PD
957 should result to the mortgage being nullified wholly.
 Mortgage Clearance Cases
Metropolitan Bank vs. SLGT
• Effect of the Stay Order on account of rehabilitation proceedings
“xxx Section 24 of the interim rules limits the coverage of the Rules on
rehabilitation and consequently the rule of suspension of action to those who
stand in the category or debtors and creditors. The relationship between the
petitioner banks, as mortgagor of the ASB property, on one hand, and respondents
SLGT and Dylanco, as unit buyers, on the other, cannot be that of a debtor-creditor
as to bring the case within the purview of the rules on corporate recovery xxx
[T]he vinculum that binds SLGT/Dylanco, as unit buyers and as suitors before the
HLURB, and ASB is far from being akin to that of debtor-creditor. As it were,
SLGT/Dylanco sued ASB for having constituted, in breach of PD 957, a mortgage on
the condominium project without prior HLURB approval and so much as notifying
them of the loan release for which reason they prayed for the delivery of their
units free from all liens and encumbrances. With the view we take of the case, the
complaint of individual respondents is not in the nature of "claims" that should be
covered by the suspensive effect of a rehabilitation proceeding.”
• Philippine National Bank vs Lim, G.R. No. 171677,
January 30, 2013

• United Overseas Bank vs Board of Commissioners-

HLURB, J.O.S. Managing Builders, Inc., et al., G.R.
No. 182133, June 23, 2015 (En Banc)

“While a mortgage may be nullified if it was in violation

of Section 18 of P.D. No. 957, such nullification applies only
to the interest of the complaining buyer. It cannot extend to
the entire mortgage. A buyer of a particular unit or lot has no
standing to ask for the nullification of the entire mortgage.”
Home Bankers Savings & Trust Co. vs. Court of
Appeals, G.R. No. 128354, April 26, 2005
• Project owner/developer need not be impleaded

“Notably, although no issue was taken on the fact

that the case against Garcia/TransAmerican, the
developer/seller and mortgagor of the subject lots, was
archived for failure to serve summons on him/it as his
whereabouts or the office could not be located, it must be
stated that Garcia/TransAmerican is not an indispensable
party since a final determination on the validity of the
mortgage over the subject lots can be rendered against
petitioner. Thus, the absence of Garcia/TransAmerican did
not hamper the OAALA from resolving the dispute between
private respondents and petitioner.”
Development Bank of the Philippines vs. Capulong,
G.R. No. 181790, January 20, 2009. Mortgage Clearance Cases

• Whether the mortgage was constituted before or after the

sale to the lot buyer is immaterial
“DBP cannot bank on the factual difference in Far East Bank that
it granted the loan and constituted the mortgage on the property
subject of that case after the same was already subject of a
contract to sell. The circumstance that DBP and ADC executed the
mortgage contract prior to the selling of the subdivided portions
of the property to Capulong is immaterial considering that when
DBP granted the loan to ADC, it already knew that the loan was to
be used for realty development.”
Luzon Development Bank vs. Enriquez, G.R. No. 168646,
January 12, 2011
• Neither bank nor the project owner/developer can assert any
right arising from a void mortgage.

“Because of the nullity of the mortgage, neither DELTA nor the BANK
could assert any right arising therefrom. xxx
Since the Contract to Sell did not transfer ownership of Lot 4 to
Enriquez, said ownership remained with DELTA. DELTA could then validly
transfer such ownership xxx to xxx (the BANK). However, the transferee
BANK is bound by the Contract to Sell and has to respect Enriquez’s rights
thereunder. This is because the Contract to Sell, involving a subdivision lot,
is covered and protected by PD 957.

Q: What if the title is already in the name of the Bank or any buyer in the
foreclosure sale?
 Mortgage Clearance Cases
Luzon Development Bank vs. Enriquez

• Non-registration of the CTS pursuant to Sec. 17 of PD 957 does

not affect the buyer’s rights due to the bank’s lack of good faith
“ The purpose of registration is to protect the buyers from any future
unscrupulous transactions involving the object of the sale or contract to sell,
whether the purchase price therefor has been fully paid or not. Registration of
the sale or contract to sell makes it binding on third parties. xxx
While DELTA xxx failed to register Enriquezs Contract to Sell xxx this failure
will not prejudice Enriquez or relieve the BANK from its obligation to respect
Enriquez’s Contract to Sell. Despite the non-registration, the BANK cannot be
considered xxx an innocent purchaser for value of Lot 4 when it accepted the
latter (together with the assigned properties) as payment for DELTA’s
obligation. The BANK was well aware that the assigned properties, including
Lot 4, were subdivision lots and therefore within the purview of PD 957”
Prudential Bank vs. Rapanot
G.R. No. 191636, January 16, 2017
• SECTION 19. Advertisements. - Advertisements that may be
made by the owner or developer through newspaper, radio,
television, leaflets, circulars or any other form about the
subdivision or the condominium or its operations or activities
must reflect the real facts and must be presented in such
manner that will not tend to mislead or deceive the public.
The owner or developer shall be answerable and liable for
the facilities, improvements, infrastructures or other forms
of development represented or promised in brochures,
advertisements and other sales propaganda disseminated by
the owner or developer or his agents and the same shall
form part of the sales warranties enforceable against said
owner or developer, jointly and severally. Failure to comply
with these warranties shall also be punishable in accordance
with the penalties provided for in this Decree.
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.

SECTION 21. Sales Prior to Decree. - In cases of subdivision lots or

condominium units sold or disposed of prior to the effectivity of this
Decree, it shall be incumbent upon the owner or developer of the
subdivision or condominium project to complete compliance with his
or its obligations as provided in the preceding section within two years
from the date of this Decree unless otherwise extended by the
Authority or unless an adequate performance bond is filed in
accordance with Section 6 hereof.
SECTION 22. Alteration of Plans. - No owner or developer shall change or
alter the roads, open spaces, infrastructures, facilities for public use and/or
other form of subdivision development as contained in the approved
subdivision plan and/or represented in its advertisements, without the
permission of the Authority and the written conformity or consent of the
duly organized homeowners association, or in the absence of the latter, by
the majority of the lot buyers in the subdivision.

SECTION 23. Non-Forfeiture of Payments. - No installment payment made

by a buyer in a subdivision or condominium project for the lot or unit he
contracted to buy shall be forfeited in favor of the owner or developer
when the buyer, after due notice to the owner or developer, desists from
further payment due to the failure of the owner or developer to develop
the subdivision or condominium project according to the approved plans
and within the time limit for complying with the same. Such buyer may, at
his option, be reimbursed the total amount paid including amortization
interests but excluding delinquency interests, with interest thereon at the
legal rate.
Gina Lefebre vs. A Brown Company, Inc.,
G.R. No. 224973, September 27, 2017

Facts: Gina purchased a lot in Xavier Estates at TCP Php5,313,600.00 banking on the
representation in the advertisements of A Brown that a Manresa 18-Hole All
Weather Championship Golf Course will be built in the project. DP was Php1.6M
paid in December 1998, balance to be amortized in 84 months. She has paid a total
of 8.1M inclusive of interest, balance was 1.3M. She failed to pay the balance, thus
A Brown cancelled her contract. Gina filed a case before HLURB against A Brown
seeking refund on the ground of “deceptive and misleading advertisement”.

Arbiter: Contract is cancelled; Gina is entitled to refund under the Maceda Law.

BOC: Conttract was not validly cancelled; Gina is entitled to a full refund under
Section 23 of PD 957
SC: [N]otwithstanding Lefebre's failure to abide by her own
obligation to timely pay the amortizations due, the fact remains
that respondent also had its own obligation to deliver on its
promise. As the HLURB-BOC correctly observed, respondent had
indeed represented in its advertisements that the golf course
was one of its amenities and as such, formed part of the
warranties under Section 20 of PD 957. Unfortunately for
respondent, it failed to properly invoke Lefebre's delinquency as
a ground to cancel their contract, whereas Lefebre was able to
properly invoke her ground against respondent.
Tagaytay Realty Co., Inc., vs. Arturo G. Gacutan,
G.R. No. 160033, July 01, 2015

Facts: In 1976, Gacutan entered into a contract to sell for the purchase
on installment of a 308-sqm residential lot in the Foggy Heights
Subdivision still being developed by TRCI. TRCI executed an undertaking
to complete the development of the roads, curbs, gutters, drainage
system, water and electrical systems, as well as all the amenities such as,
swimming pool, pelota court, tennis and/or basketball court, bath house,
children's playground and a clubhouse within a period of two years from
15 July 1976, and failure on their part to complete such development
within the period shall give Gacutan the option to suspend payment of
monthly amortization until completion of development, subject to force
majeure, acts of God and prohibition by government.

In 1979, Gacutan notified TRCI of his suspension of payment .

In 1990, Gacutan sued TRCI for specific performance in the HLURB,
praying that the petitioner be ordered to accept his payment of the
balance of the contract without interest and penalty, and to deliver to
him the title of the property.

TRCI’s defense: Delaying the construction was reasonable on its part

considering that no one would have benefited from the amenities
anyway, and was also a sound business practice because the
construction would be at great cost to it as the developer; that it
suffered extreme economic hardships during the political and economic
turmoil of the 1980s that the parties did not foresee at the time they
entered into their contract.

Arbiter: Ruled for complainant

BOC : Affirmed
OP : Affirmed
CA : Affirmed
SC: Considering that the petitioner's unilateral suspension of the
construction of the amenities was intended to save itself from
costs, its plea for relief from its contractual obligations was
properly rejected because it would thereby gain a position of
advantage at the expense of the lot owners like the respondent

The petitioner had the legal obligation to complete the

amenities within one year from the issuance of the license
(under Section 20 of Presidential Decree No. 957), or within two
years from July 15, 1976 (under the express undertaking of the
petitioner). Hence, it should have complied with its obligation by
July 15, 1978 at the latest, long before the worsening of the
economy in 1983.
• Fortuitous event as a defense in Sec. 23 cases
Fil-Estate vs. Go, G.R. No. 165164, August 17, 2007
xxx we cannot generalize that the Asian financial crisis in 1997 was
unforeseeable and beyond the control of a business corporation. It is
unfortunate that petitioner apparently met with considerable difficulty
e.g. increase cost of materials and labor, even before the scheduled
commencement of its real estate project as early as 1995. However, a
real estate enterprise engaged in the pre-selling of condominium units
is concededly a master in projections on commodities and currency
movements and business risks. The fluctuating movement of the
Philippine peso in the foreign exchange market is an everyday
occurrence, and fluctuations in currency exchange rates happen
everyday, thus, not an instance of caso fortuito.

Q: What if there is an ETD?

SECTION 25. Issuance of Title. - The owner or developer shall deliver the
title of the lot or unit to the buyer upon full payment of the lot or unit. No
fee, except those required for the registration of the deed of sale in the
Registry of Deeds, shall be collected for the issuance of such title. In the
event a mortgage over the lot or unit is outstanding at the time of the
issuance of the title to the buyer, the owner or developer shall redeem the
mortgage or the corresponding portion thereof within six months from
such issuance in order that the title over any fully paid lot or unit may be
secured and delivered to the buyer in accordance herewith.

SECTION 26. Realty Tax. - Real estate tax and assessment on a lot or unit
shall de paid by the owner or developer without recourse to the buyer for
as long as the title has not passed the buyer; Provided, however, that if the
buyer has actually taken possession of and occupied the lot or unit, he shall
be liable to the owner or developer for such tax and assessment effective
the year following such taking of possession and occupancy.
Common defenses in suits for delivery of title:

• Purchase price not fully paid yet

• Title got lost

• Delay with Registry of Deeds

• Non-payment of title transfer expenses

Jose Clavano, Inc., vs. Housing and Land Use
Regulatory Board, G.R. No. 143781, Feb. 27, 2002
“While the Decision commands petitioner to “execute a Deed of Absolute
Sale in favor of [private respondents] and deliver the corresponding Transfer
Certificate of Title” to them and that only a public document would serve to
cede ownership of an immovable property, XXX We cannot infer from these
directives that petitioner should also pay for the expenses in notarizing the
deed and in obtaining a new certificate of title. The obligation to pay for
such expenses is unconnected with and distinct from the obligations to
execute and deliver the deed of absolute sale and the certificate of title.
Since there is no qualification that the duties to execute and to deliver shall
also compel petitioner to assume the expenses for transferring the
pertinent title in favor of private respondents, the ordinary and literal
meaning of the words “execute” and “deliver” should prevail, that is, for
petitioner to perform all necessary formalities of the deed of sale[27] and
give or cede the xxx cede certificate of title xxx
 TRANSFER OF TITLE EXPENSES

• Capital Gains Tax: equivalent to 6 percent of the selling price on the Deed of
Sale or the zonal value, whichever is higher
• Withholding Tax: applies only when the seller of the property is a corporation
• Real Property Tax
• Documentary Stamp Tax: this is commonly set at 1.5 percent of the selling
price, or its zonal value or fair market value, depending on which is higher
• Transfer Tax (Local Treasurer’s Office): this is tax is imposed on the sale, barter,
or any other mode of transferring of ownership or title of real property, at the
maximum rate of 50 percent of 1 percent (75 percent of 1 percent in the case of
cities and municipalities within Metro Manila) of a property’s worth.
• Registration Fee: commonly set at 0.25 percent of the selling price, or zonal
value or fair market value, depending on which is higher.
• Incidental and miscellaneous expenses incurred during the registration process,
such as notary fees.
 STANDARD SHARING OF TRANSFER EXPENSES
BETWEEN THE BUYER AND THE SELLER

The SELLER pays for the:

• Capital Gains Tax equivalent to 6% of the selling price on the Deed of Sale
or the zonal value, whichever is higher. (Withholding Tax if the seller is a
corporation)
• Unpaid real estate taxes due (if any).
• Agent / Broker's commission.
The BUYER pays for the cost of Registration:
• Documentary Stamp Tax - 1.5% of the selling price or zonal value or fair
market value, which ever is higher.
• Transfer Tax - 0.5% of the selling price, or zonal value or fair market value,
which ever is higher.
• Registration Fee - 0.25% of the selling price, or zonal value or fair market
value, which ever is higher.
• Incidental and miscellaneous expenses incurred during the registration
process.
SECTION 27. Other Charges. - No owner or developer shall levy
upon any lot or buyer a fee for an alleged community benefit. Fees
to finance services for common comfort, security and sanitation
may be collected only by a properly organized homeowners
association and only with the consent of a majority of the lot or
unit buyers actually residing in the subdivision or condominium
project.

SECTION 30. Organization of Homeowners Association. - The

owner or developer of a subdivision project or condominium
project shall initiate the organization of a homeowners association
among the buyers and residents of the projects for the purpose of
promoting and protecting their mutual interest and assist in their
community development.
SECTION 28. Access to Public Offices in the Subdivisions. - No
owner or developer shall deny any person free access to any
government office or public establishment located within the
subdivision or which may be reached only by passing through the
subdivision.

SECTION 29. Right of Way to Public Road. - The owner or

developer of a subdivision without access to any existing public
road or street must secure a right of way to a public road or street
and such right of way must be developed and maintained
according to the requirement of the government and authorities
concerned.
Section 31, as amended by PD 1216
Sec. 31. Roads, Alleys, Sidewalks and Open spaces. The owner or
developer of a subdivision shall provide adequate roads, alleys and
sidewalks. For subdivision projects one (1) hectare or more, the owner
or developer shall reserve thirty percent (30%) of the gross area for open
space. such open space shall have the following standards allocated
exclusively for parks, playgrounds and recreational use:

(a) 9% of gross area for high density or social housing (66 to 100 family
lot per gross hectare).

(b) 7% of gross area for medium-density or economic housing (21 to 65

family lot per gross hectare).

(c) 3.5 % of gross area low-density or open market housing (20 family
lots and below per gross hectare).
These areas reserved for parks, playgrounds and recreational use shall
be non-alienable public lands, and non-buildable. The plans of the
subdivision project shall include tree planting on such parts of the
subdivision as may be designated by the Authority.
Upon their completion as certified to by the Authority, the roads,
alleys, sidewalks and playgrounds shall be donated by the owner or
developer to the city or municipality and it shall be mandatory for the
local governments to accept provided, however, that the parks and
playgrounds may be donated to the Homeowners Association of the
project with the consent of the city or municipality concerned. No
portion of the parks and playgrounds donated thereafter shall be
converted to any other purpose or purposes.

Open space - shall mean an area reserved exclusively for parks, playgrounds,
recreational uses, schools, roads, places of worship, hospitals, health centers,
barangay centers and other similar facilities and amenities.
Liwag vs Happy Glen Loop Homeowners Association,
G.R. NO. 189755 - July 4, 2012

“The term "open space" is defined in P.D. 1216 as "an area reserved exclusively for
parks, playgrounds, recreational uses, schools, roads, places of worship, hospitals,
health centers, barangay centers and other similar facilities and amenities.33ςrνll
The decree makes no specific mention of areas reserved for water facilities. xxx
The basic statutory construction principle of ejusdem generis states that 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 things akin to or resembling, or of the same kind or class as, those
specifically mentioned. xxx
Applying this principle to the afore-quoted Section 1 of P.D. 1216, we find that the
enumeration refers to areas reserved for the common welfare of the community.
Thus, the phrase "other similar facilities and amenities" should be interpreted in
like manner.
xxx [T]he water facility was undoubtedly established for the benefit of
the community. Water is a basic need in human settlements, without
which the community would not survive. We therefore rule that, based
on the principle of ejusdem generis and taking into consideration the
intention of the law to create and maintain a healthy environment in
human settlements, the location of the water facility in the Subdivision
must form part of the area reserved for open space.
xxx
The law expressly provides that open spaces in subdivisions are
reserved for public use and are beyond the commerce of man. As
such, these open spaces are not susceptible of private ownership and
appropriation. We therefore rule that the sale of the subject parcel
of land by the subdivision owner or developer to petitioner s late
husband was contrary to law.
Is it mandatory for project owners or developers to
donate the open spaces of a subdivision project to the
local government?

• White Plains Homeowners Association vs. Legaspi

(1991) – YES
• Anonuevo vs. Court of Appeals (1995) --YES
• White Plains Homeowners Association vs Court of
Appeals (1998) – NO
• Woodridge School, Inc. vs. ARB Construction Co., Inc.,
(2007) -- NO
• Republic vs Spouses Llamas (2017) -- NO
• Casa Milan HOA vs. Roman Catholic Arcbishop of
Manila -- NO
Llamas case as cited in Casa Milan vs RCAM:
• The 1998 White Plains Decision unequivocally repudiated the 1991
White Plains Decision's allusion to a compulsion on subdivision
developers to cede subdivision road lots to government, so much that
it characterized such compulsion as an "illegal taking." It did away
with any preference for government's capacity to compel cession, and
instead, emphasized the primacy of subdivision owners' and
developers' freedom in retaining or disposing of spaces developed
as roads.

• Only after a subdivision owner has developed a road may it be

donated to the local government, if it so desires. On the other hand,
a subdivision owner may even opt to retain ownership of private
subdivision roads, as in fact is the usual practice of exclusive
residential subdivisions for example those in Makati City.’
Llamas case as cited in Casa Milan vs RCAM:

• The transfer of ownership from the subdivision owner or

developer to the local government is not automatic, but
requires a positive act from the owner or developer before
the city, municipality, or homeowners association can acquire
dominion over the subdivision open spaces.

• The last paragraph of Section 31 is oxymoronic. One cannot

speak of a donation and a compulsion in the same breath.
SECTION 33. Nullity of Waivers. - Any condition, stipulation, or provision
in contract of sale whereby any person waives compliance with any
provision of this Decree or of any rule or regulation issued thereunder
shall be void.

SECTION 38. Administrative Fines. - The Authority may prescribe and

impose fines not exceeding ten thousand pesos for violations of the
provisions of this Decree or of any rule or regulation thereunder. Xxx

SECTION 39. Penalties. - Any person who shall violate any of the
provisions of this Decree and/or any rule or regulation that may be issued
pursuant to this Decree shall, upon conviction, be punished by a fine of
not more than twenty thousand (P20,000.00) pesos and/or imprisonment
of not more than ten years: Provided, That in the case of corporations,
partnership, cooperatives, or associations, the President, Manager or
Administrator or the person who has charge of the administration of the
business shall be criminally responsible for any violation of this Decree
and/or the rules and regulations promulgated pursuant thereto.
Sps. Chua vs Jacinto G. Ang, GR NO. 156164, Sep 04, 2009

“[T]he petitioners have expressly chosen to pursue the criminal

prosecution as their remedy but the prosecutor dismissed their
complaint. The prosecutor's dismissal for prematurity was apparently
on the view that an administrative finding of violation must first be
obtained before recourse can be made to criminal prosecution. xxx
Where the law is silent on this matter, as in this case, the fundamental
principle - that administrative cases are independent from criminal
actions[23] - fully applies, subject only to the rules on forum shopping
under Section 5, Rule 7 of the Rules of Court.[24] In the present case,
forum shopping is not even a matter for consideration since the
petitioners have chosen to pursue only one remedy - criminal
prosecution. Thus, we see no bar to their immediate recourse to
criminal prosecution by filing the appropriate complaint before the
prosecutor's office.”
San Miguel Properties, Inc Vs. Sec. Hernando B. Perez,
G.R. No. 166836, September 4, 2013

“The pendency of an administrative case for specific

performance brought by the buyer of residential
subdivision lots in the Housing and Land Use Regulatory
Board (HLURB) to compel the seller to deliver the transfer
certificates of title (TCTs) of the fully paid lots is properly
considered a ground to suspend a criminal prosecution for
violation of Section 25 of Presidential Decree No. 9571 on
the ground of a prejudicial question. The administrative
determination is a logical antecedent of the resolution of
the criminal charges based on non-delivery of the TCTs.”
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