Spouses Dr. Policarpio Peregrino and Wilhelmina Peregrino vs. Timeshare Realty Corporation

[SEC-SICD * CASE NO. 07-99-6376. September 18, 2000.] SPOUSES DR. POLICARPIO PEREGRINO AND WILHELMINA PEREGRINO , plaintiffs , vs . TIMESHARE REALTY CORPORATION , defendant . Civil Law ; Art . 1409 ; void contract ; right to refund . Were the contract was perfected between the parties, defendants was never authorized nor allowed to sell the said timeshare purchase to the plaintiffs, therefore, from the very start, the contract is void or void ab initio . When the plaintiffs requested for a refund as early as February 24, 1998, it is within the time limit given to plaintiffs to claim the refund if that is their intention to do so, otherwise, their right to rescind the contract within the thirty (30)-day period given by this Commission would have lapsed, they could have been considered to have waived their right to the refund. SADECI Revised Securities Act ; license to sell registered securities not absolute . The issuance of the license to defendant Timeshares to sell their registered securities (timeshare purchases) is not absolute. It is very clear and unequivocal that this Commission has mandated the licensee to respect the rights of early purchases as provided for in Sec. 53(b)(1) of the Revised Securities Act. D E C I S I O N This is a claim for refund of investment money used by plaintiff to purchase timeshares from Laguna De Boracay Resort Club through herein defendant. As alleged in the petition: On April 18, 1996, plaintiffs entered into a contract with defendant corporation for timeshare purchase from Laguna de Boracay Club Resort in Boracay Island, Malay, Aklan under Contract No. 135000348 (Annex "A"); the timeshare purchase was worth NINE THOUSAND NINE HUNDRED NINETY DOLLARS (US $ 9,999.00) was duly paid in its peso equivalent, by the plaintiffs to defendant as evidenced by an official receipt issued by defendant dated 18 April 1996 (Annex "B"); consequently, Holiday Certificate No. 348 was issued in favor of plaintiffs on 29 April 1996 (Annex "C") and duly confirmed by Hutchinson and Co. Trust Company Ltd. to have been duly paid, through a letter sent to plaintiffs dated 19 April 1996 (Annex "D"); that on 13 February 1998, the Securities and Exchange Commission (SEC) issued a letter-order declaring all contracts entered into with the herein defendant prior to the approval of the defendant's Registration Statement (RS) by the Commission, as void, and such order shall be without prejudice to the rights of early purchasers, which in effect allowed the early purchasers to exercise their right to rescind or to retain the contract; that upon being notified of the letter-order, plaintiffs immediately informed defendant of their intention to rescind the timeshare purchase contract and consequently to claim for a refund of the value paid for the purchase, through a letter addressed to the defendant dated 24 February 1998 (Annex "E"); that defendant through their counsel, Magsalin Pobre Lapid & Villena Law Offices, denied the request for rescission and refund, in a letter sent to plaintiffs dated 17 March 1998, claiming that the letter-order of 13 February 1998 was allegedly modified by the Commission's letter-order of 09 March 1998, and thus a refund is no longer possible. IAETSC Plaintiffs further charged that despite the clarification made by Acting Director of the Money Market Operations Department of the Commission, Linda A. Daoang, through a letter-order of 17 April 1998, stating that: "In our letter to Laguna De Boracay Village, Inc. dated 13 February 1998, we advised them that for timeshares sold before the RS was rendered effective, the 30-day period shall commence on February 11, 1998. In a subsequent letter dated 9 March 1998, we clarified that this 30-day rescission period shall not prejudice the rights of early purchasers under the Revised Securities Act, particularly the provision of Section 53 thereof on validity of contracts," the defendants has failed and still refuses to grant the request of plaintiffs; that plaintiffs through their former counsel, has already sent two letters to defendant demanding that they refund the amount paid by the plaintiffs as a consequence of the plaintiffs decision to rescind the contract for timeshare purchase, but defendant has not acted upon any of these letters until the present; that under Section 53 (b) (1) of the Revised Securities Act, "Every contract made in violation of any provision of this Act or of any rule, or regulation thereunder, . . ., shall be void; (1) As regards the rights of any person who, in violation of any such provision, rule or regulation, shall have made or engaged in the performance of any such contract, . . .; that applying this provision in the present case, this only implies that the contract entered into by the defendant, in violation of the Act, for having contracted with the public without the required prior approval of the corporation's RS, shall be void as to the Defendant, but that it shall not prejudice the right of those purchasers to exercise their option to retain, and thus to validate, the contract; further, it implies that since the contracts are void as to the defendant, the purchasers shall, at the same time, have the right to exercise their option to rescind the contract; that since the letter-orders of 13 February and 9 March, 1998 of the Commission allowed a 30-day rescission period, to begin after 11 February 1998, the plaintiffs have timely exercised their right to rescind having informed defendant of their intention to request for the refund on 24 February 1998; that due to the inaction of the defendant on the matter, plaintiffs have been incurring expenses in order to obtain what is due them from the defendant; that after diligent efforts to obtain favorable action from the defendant, plaintiffs are left with no other remedy but to file this case as what was advised of them by the MMOD Director through a letter dated 15 June 1999. Defendants, by way of an Answer to the complaint states: That defendant is a duly registered corporation in accordance with the provisions of the Corporation Code of the Philippines and was issued appropriate license to enter into timeshare transactions as broker (Annexes "A" & "B"); that it is of judicial notice that timeshare transaction is an acknowledged fact in the business world; it is categorized as high networking transactions involving top level income individuals as well as high placed professionals; that herein defendant happens to be the first entity to apply for the issuance of license involving timeshare transactions; that this being by matter of practice by its nature up to this moment, various brokers are still without any license to engage in this line of endeavor, and in fact, at the time of its application for license, this Commission is still without a clear-cut policy on the matter, however, defendant in good faith and in order to set a precedent for public good applied for such license resulting to the issuance of the license aforementioned. dctai Defendant further justified that a marketing briefing dealing on the acquisition of timeshare has been held explaining to prospective clients that as of the moment, the application for license remain pending with the Honorable Commission; that it is coupled with the assurance that in case of denial of the application for license, the defendant would be more than willing to coordinate with its principals for refund of all payment made; that defendant has declared before this Commission that it has entered into provisional transactions without prejudice to the outcome of its application for license which they were eventually granted for the sale of 1,071 timeshares including that of complainant (Annex "C") which according to defendants, in effect ratified and clothed all earlier transactions with validity; that the condition and commitment of defendant that the transaction is without prejudice to the pending application has in effect been fulfilled and complied with; that this condition and/or agreement is not contrary to law or public policy and therefore valid; that while it is true that the prospectus provides for refund within a period of thirty (30) days from the date of the agreement, this matter cannot be the subject of a whimsical and capricious exercise of discretion; Lastly, defendants contend that at this point, refund is no longer possible because defendant stands simply as broker and it follows that its part in the agreement is merely to undertake the marketing aspect, and it can not be denied that the principal has confirmed the transaction and therefore, the broker is already released from responsibility as what the contract provides (Annex "D") and that plaintiffs, having received the Holiday Certificate of the Laguna de Boracay is only an affirmation that plaintiff's cause of action must fail. This Commission finds for the plaintiffs. When the contract was perfected between the parties, defendants was never authorized nor allowed to sell the said timeshare purchase to the plaintiffs, therefore, from the very start, the contract is void or void ab initio . When the plaintiffs requested for a refund as early as February 24, 1998, it is within the time limit given to plaintiffs to claim the refund if that is their intention to do so, otherwise, their right to rescind the contract within the thirty (30)-day period given by this Commission would have lapsed, they could have considered to have waived their right to the refund. The issuance of the license to defendant Timeshares to sell their registered securities (timeshares purchases) is not absolute. It is very clear and unequivocal that this Commission has mandated the licensee (defendants) to respect the rights of early purchasers as provided for in Sec. 53 (b)(1) of the Revised Securities Act (RSA). This was clearly stated and clarified in the letter of the MMOD Acting Director that the grant of the license to defendant Timeshare is without prejudice to the rights of purchasers who bought the shares prior to the issuance of the RS, and such right is clearly the right to refund which should be exercised within thirty (30) days from date of the issuance of the license. Defendant Timeshare, acting as broker is only an agent of the principal. The products of the principal must first be approved for sale by this Commission before the same could be offered to the public. Timeshares, acting as agent, knows fully well that they have to secure first their license, timeshares being in the nature of registered securities, which is a condition precedent before it can be offered to the public. Having sold the same with the admitted provision that the purchasers are entitled to refund within the time allowed by the rules (as in fact, 30-days was granted to plaintiffs by this Commission (Letter of MMOD Director), defendants are estopped now from denying such right and claiming that as broker, their duty is only the marketing aspect of the transaction, therefore Timeshare is now released from any responsibility. TCaSAH It is a shallow defense. In approaching the plaintiffs, Timeshares as brokers are the ones responsible for introducing the product to the plaintiffs. It is undeniable fact that as agent, defendants acted without authority from this Commission, therefore any transactions entered into by the agent for and in behalf of the principal without the required license is void ab initio . The Civil Code provides that: "Art. 1409. The following contracts are inexistent and void from the beginning: (1) Those whose cause, object or purpose is contrary to law, morals, good customs, public order or public policy; xxx xxx xxx (7) Those expressly prohibited or declared void by law These contracts cannot be ratified. Neither can the right to set up the defense of illegality be waived" Having sold the said timeshares purchases to plaintiffs even without the necessary license to do so, defendant should be held liable for the refund of the same amount plus the corresponding expenses the plaintiffs are entitled under the circumstances. WHEREFORE, judgment is hereby rendered ordering defendants: 1. To refund to the plaintiffs the amount of P261,738.00 representing the purchase price of the timeshare purchase for Laguna de Boracay Club Resort plus 6% interest thereof computed from the date plaintiffs signified their intention to refund on February 24, 1998 until fully paid; 2. To reimburse plaintiffs the amount of P560.00 representing plaintiffs filing fee; and 3. To pay plaintiffs attorneys fee equivalent to 10% of the total award herein granted. Defendant's counterclaim is hereby DENIED for lack of merit. SO ORDERED. EDSA-Greenhills, Mandaluyong City 18 September 2000. (SGD.) LILIA R. BAUTISTA Chairperson (SGD.) FE ELOISA C. GLORIA (SGD.) EDJIER A. MARTINEZ Commissioner Commissioner (SGD.) JOSELIA A. POBLADOR Commissioner