For Lack of Cause, Property Not Disposed Off

May 5, 1993 BIR RULING NO. 186-93 FOR LACK OF CAUSE, PROPERTY NOT DISPOSED OFF 119 000-00 186-93 Village Developers Suite S-II A. Gallery Bldg. Amorsolo St., Makati Metro Manila Attention: Mr . Eduardo D . Bondoc General Manager This refers to your letter dated September 4, 1992, seeking exemption from payment of capital gains tax and documentary stamp tax on the Deed of Reconveyance of the subdivision property. It appears that you are a subdivision developer and builder presently engaged in low-cost housing project in San Jose del Monte, Bulacan, under the Unified Home Lending Program (UHLP) of the government; that once of your customers/clients, Mr. Francisco A. Reyes, bought a house-and-lot by availing himself of a housing loan under UHLP through an originating bank accredited with the National Home Mortgage Finance Corporation (NHMFC); that as required by the originating bank, the title of the lot was transferred to and registered in the name of Mr. Reyes; that due to financial constraints, Mr. Reyes backed out and withdrew his loan application; that the said withdrawal was made prior to the release of the loan (viz., loan take out) from the NHMFC; that you were able to obtain the cancellation or release of mortgage from the NHMFC and have recently sold the property to a new buyer; that before you can effect the transfer of the same property to a new buyer, the said property must first be reconveyed by Mr. Reyes in your favor without any consideration involved; that eventually, a Deed of Reconveyance was executed by Mr. Reyes returning the said property to you. In reply, please be informed that the Deed of Sale executed by you in favor of Mr. Reyes, as required by the originating bank, did not produce any legal effect because, with the withdrawal of Mr. Reyes prior to the release of his loan and the subsequent cancellation of the loan by the NHMFC, you failed to receive the proceeds which was to be the cause/consideration for the sale. For lack of consideration, it cannot be said that your property has been disposed, transferred or conveyed in favor of Mr. F. Reyes, pursuant to Article 1352 of the Civil Code, stating: "Art. 1352. Contracts without cause, or with unlawful cause, produce no effect whatsoever . xxx xxx xxx Consequently, since the Deed of Sale between you and Mr. F. Reyes failed to the effect the transfer of ownership of the lot for lack of consideration, the Deed of Reconveyance executed by Mr. Reyes on October 22, 1992 so as to effect the return of the subject property to you is not subject to the capital gains tax and documentary stamp taxes prescribed in Sections 21(e) and 196 of the Tax Code, as amended, respectively. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, and/or any of the requirements imposed in this letter are not complied with, then this ruling shall be considered null and void. VICTOR A. DEOFERIO, JR. Deputy Commissioner of Internal Revenue