The Supreme Court ruled that a contract to sell remains valid even if the developer lacks a license to sell at the time of the agreement. This means buyers aren’t automatically entitled to nullify contracts based solely on this regulatory oversight. However, the buyer may still be entitled to certain remedies under the Maceda Law, such as a refund, if they default on payments after a certain period.

Can a Missing License Invalidate Your Property Contract? The Case of Flora and Moldex

Flora A. Saberon sought to acquire a lot from Moldex Realty, Inc. in Metrogate Subdivision, making installment payments from 1992 to 1996, totaling P375,295.49. Later, Flora received notices about her outstanding balance, which she disputed, claiming inconsistencies in the amounts. She then discovered Moldex didn’t have a license to sell when they initially agreed on the sale, leading her to file a complaint with the Housing and Land Use Regulatory Board (HLURB), seeking to nullify the contract. The core legal question revolves around whether the lack of a license to sell at the time of contract perfection automatically invalidates the agreement between the buyer and the developer.

The HLURB Arbiter initially sided with Flora, declaring the contract void due to Moldex’s lack of a license to sell, citing Section 5 of Presidential Decree (PD) No. 957, which requires developers to obtain a license before selling subdivision lots. Moldex was ordered to refund Flora’s payments, plus legal interest, and to pay attorney’s fees, along with an administrative fine for violating PD 957. On appeal, the HLURB Board of Commissioners affirmed the Arbiter’s decision. They emphasized the importance of a license to sell as a prerequisite for developers, reinforcing the invalidity of the contract and the refund order. The Office of the President (OP) also upheld the ruling, citing Article 5 of the Civil Code, stating that acts against mandatory laws, like Section 5 of PD 957, are void, which further strengthened the stance that the contract was a nullity.

Moldex argued that the absence of a license should not automatically void the contract, fearing developers might exploit this as an excuse to back out of agreements. They also pointed out that their license application was pending and later granted. Moldex elevated the case to the Court of Appeals (CA), which also sided with Flora, reinforcing the lower tribunals’ findings. The CA reasoned that Moldex’s non-compliance with Section 5 of PD 957 rendered the contract void, despite Flora’s payments and knowledge of the missing license. However, the Supreme Court reversed these decisions, holding that the lack of a license to sell does not automatically invalidate the contract to sell. The Court emphasized that while PD 957 penalizes selling without a license, it doesn’t explicitly nullify contracts entered without one.

The Supreme Court referenced the case of Spouses Co Chien v. Sta. Lucia Realty and Development Corporation, Inc., which established the precedent that a missing license to sell does not automatically invalidate a contract. The Court also quoted the ruling, which stated that:

“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.”

Building on this principle, the Supreme Court also addressed Flora’s claim that the contract was void due to Moldex’s failure to register the contract with the Register of Deeds, violating Section 17 of PD 957. The Court noted that Section 17, like Section 5, does not state that failure to register the contract results in its nullification. Non-registration primarily affects third parties, serving as a constructive notice under PD 1529, the Property Registration Decree.

Despite upholding the validity of the contract, the Supreme Court recognized Flora’s entitlement to a refund under the Maceda Law (Republic Act No. 6552), which protects buyers who default on installment payments for real estate. Section 3 of the Maceda Law provides certain rights to buyers who have paid at least two years of installments, including a grace period or a cash surrender value:

“Section 3. In all transactions or contracts involving the sale or financing of real estate on installment payments… where the buyer has paid at least two years of installments, the buyer is entitled to the following rights in case he defaults in the payment of succeeding installments:
(b) If the contract is canceled, the seller shall refund to the buyer the cash surrender value of the payments on the property equivalent to fifty per cent of the total payments made…”

Since Flora had paid installments for more than two years, the Court ruled that she was entitled to a 50% refund of her total payments, amounting to P187,647.75. Moldex was ordered to refund this amount to Flora within 15 days of the decision’s finality. Therefore, while Moldex’s violation of PD 957 did not nullify the contract, Flora was still entitled to relief under the Maceda Law due to her payments and the subsequent cancellation of the contract.

FAQs

What was the key issue in this case?	The central issue was whether the lack of a license to sell by the developer, Moldex Realty, at the time of the contract’s perfection automatically invalidated the contract to sell with the buyer, Flora Saberon. The court ultimately ruled that it did not.
Did Moldex Realty have a license to sell at the time of the contract?	No, Moldex Realty did not have a license to sell when the contract with Flora Saberon was initially made. This was a key point of contention in the case.
What is Presidential Decree (PD) No. 957?	PD No. 957, also known as “The Subdivision and Condominium Buyers’ Protective Decree,” is a law designed to regulate the real estate industry and protect buyers from fraudulent practices by developers. It requires developers to obtain a license to sell before offering subdivision lots or condominium units to the public.
What is the Maceda Law?	The Maceda Law (Republic Act No. 6552) protects real estate installment buyers who default on their payments. It provides rights such as a grace period to pay or a refund of a portion of the payments made, depending on the number of years of installments paid.
Was the contract between Moldex and Flora declared entirely void?	No, the Supreme Court reversed the lower courts’ decisions and declared that the contract to sell was not void despite Moldex’s lack of a license. The Court found the contract valid but canceled it due to Flora’s default, entitling her to a refund under the Maceda Law.
What refund was Flora entitled to?	Under the Maceda Law, Flora was entitled to a refund of 50% of the total payments she made to Moldex. This amounted to P187,647.75.
Does failure to register a contract invalidate it?	No, the Supreme Court clarified that failure to register a contract to sell with the Registry of Deeds does not invalidate the contract between the parties. Registration primarily serves as constructive notice to third parties.
What was the legal basis for the Supreme Court’s decision?	The Supreme Court based its decision on the interpretation of PD 957 and the Maceda Law, as well as the precedent set in the Spouses Co Chien v. Sta. Lucia Realty case. The Court emphasized that while PD 957 penalizes selling without a license, it does not explicitly nullify the contract.

This case clarifies that regulatory missteps by developers don’t automatically void property contracts. While the absence of a license to sell at the time of contract may trigger administrative penalties, it doesn’t necessarily nullify the agreement itself. Buyers in default may still have recourse through the Maceda Law, ensuring a degree of protection for payments made.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: Moldex Realty, Inc. v. Saberon, G.R. No. 176289, April 08, 2013