G.R. No. 239090 - Favis-Velasco vs. Gonzales

GG Sportswear Mfg. Corp. (petitioner) entered into a Reservation Agreement with World Class Properties, Inc. (respondent) for the purchase of the 38th floor penthouse unit and 16 parking slots in Global Business Tower (later Antel Global Corporate Center) located in Ortigas Center, Pasig City.
The Reservation Agreement was executed on May 15, 1996, after GG Sportswear paid a P500,000.00 reservation fee for a discounted pre-selling price of P89,624,272.82 for the units.

A 20% down payment of P17,924,854.56 less the reservation fee, payable in 10 equal monthly installments from May 1996 to February 1997.
A 60% payment amounting to P53,774,563.69, payable in monthly installments from March 1997 to August 1999.
A final 20% payment due upon turnover of the property.

The Agreement provided that a separate Contract to Sell would be executed only when the buyer had paid at least 30% of the total purchase price.
It contained a clause stating that if the buyer failed to pay any installment on its due date, the developer (World Class) could either charge 3% monthly interest on all outstanding amounts or cancel the Agreement without a court action, with the buyer forfeiting the reservation fee and other payments.

From May to December 1996, GG Sportswear paid the installments timely, accumulating 21% of the total contract price through eight monthly payments.
On January 30, 1997, GG Sportswear requested the return of previously delivered postdated checks—intending to replace them with new ones from a different bank.
World Class agreed to return the checks but proposed executing a new Reservation Agreement reflecting the replacement arrangement while retaining all other terms; GG Sportswear consented in principle but requested a 90-day deferment for depositing the new checks, which World Class denied.
On March 5, 1997, GG Sportswear delivered the replacement checks and paid its overdue January 1997 installment, which had been delayed by two months.
Subsequently, World Class transmitted a second Reservation Agreement along with a provisional Contract to Sell that specified a turnover deadline of December 15, 1998. GG Sportswear did not sign the new Agreement, instead contesting aspects like the deposition date of one of its checks and the absence of an express completion date.

On June 10, 1997, GG Sportswear filed a Complaint with the Housing and Land Use Regulatory Board (HLURB), seeking the rescission of the Reservation Agreement and a refund of its installment payments, grounding its claim mainly in dissatisfaction with the stated completion date and the lack of a Contract to Sell.
In its Answer, World Class contended that:

It was GG Sportswear that had breached the contract by delaying payments.
The buyer’s dissatisfaction was tied to financial difficulties, not a valid contractual defect.
A refund was warranted only if the developer failed to complete the project within the prescribed period under P.D. No. 957— a period that had not yet expired at the time of the complaint.
GG Sportswear had come to court with unclean hands due to its own defaults.

On September 12, 2005, HLURB Arbiter Atty. Dunstan T. San Vicente rescinded the Agreement, holding that World Class had violated Sections 4 and 5 of P.D. No. 957 by selling the units without the required Certificate of Registration and License to Sell (CR/LS), and he ordered a refund of P19,717,339.50 with legal interest plus attorney's fees and an administrative fine.
On January 31, 2006, the HLURB Board modified the Arbiter’s decision by stating that, since World Class had been issued a CR/LS on August 1, 1996 (prior to the filing of the complaint), the Agreement could no longer be rescinded on that basis; however, a refund was still awarded based on World Class’s implied inability to complete the project within the original License to Sell period.
The Office of the President (OP) denied World Class’s appeal in September 2006 (and later denied reconsideration in November 2006) by upholding the refund awarded by the HLURB Board.
On December 19, 2007, the Court of Appeals reversed the OP decision, holding that:

The Board’s finding that the CR/LS issue was no longer a valid ground for rescission became final since GG Sportswear did not contest it on appeal.
GG Sportswear was not entitled to a refund because it had not met the contractual condition for executing the Contract to Sell (payment of 30% of the total price), and its grounds for rescission—dissatisfaction with the completion date and non-execution of the Contract to Sell—were insufficient.

GG Sportswear filed a petition for review on certiorari before the Supreme Court, arguing that the CA erred in relying on the Board’s findings (regarding CR/LS and the contractual conditions), which it claimed were either mere obiter dicta or misapplied.

Whether the absence of a CR/LS at the time the Reservation Agreement was executed constitutes a valid ground for rescission of the contract and refund of the payments made by GG Sportswear.

Did the issuance of the CR/LS prior to the filing of the complaint render the rescission for lack thereof moot and binding on the parties?

Whether GG Sportswear’s dissatisfaction with the projected completion date of the condominium project is sufficient to justify rescission of the Agreement.

Can a subjective dissatisfaction with timeline be considered a substantial breach that justifies cancellation of the contract?

Whether failure to execute the Contract to Sell due to GG Sportswear having paid only 21% (instead of the required 30%) of the total contract price entitles them to demand rescission and a refund.

Does the contractual provision that ties the execution of the Contract to Sell to the payment of 30% preclude any claim for rescission based on non-performance by World Class?