SUPPLEMENTAL RESEARCH

PART 1: CONDOTELS AND DISCLOSURES

1. Can a Condotel Project be Sold Without Disclosing the Nature of the Project?

1.1 In the US

In the United States, the sale of condotel units are governed by state laws which may require
disclosures1 for common interest developments (i.e. developments concerning projects with common
areas. In most cases, the purchase agreement for a unit in a condotel project is through a public offering
statement, or through a resale package (for non-original purchasers of units).2 These purchase
agreements would typically declare that the project is a condominium hotel, and provide for the
corresponding rights and obligations of unit owners, in accordance with law. For instance, under Nevada
Law, the public offering statement must contain provisions which declare the project as a condominium
hotel, along with information relevant to the hotel unit owner and the residential unit owner:

Except as otherwise provided in this chapter, a public offering statement must

set forth or fully and accurately disclose each of the following:
(a) The name and principal address of the declarant, the hotel unit owner and
of the condominium hotel.
(b) A general description of the condominium hotel, including to the extent
possible, the types, number and declarant’s schedule of commencement and
completion of construction of buildings, and amenities that the declarant
anticipates including in the condominium hotel, including the shared
components.
(c) The estimated number of units in the condominium hotel.
(d) Copies of this chapter, the declaration, bylaws, and any rules or regulations
of the association or hotel unit owner, but a plan is not required.
xxx
(m) Any current or expected fees or charges to be paid by residential unit
owners for the use of the shared components, the hotel unit or the common
elements and other facilities related to the condominium hotel.3 (emphasis
supplied)

By way of example, this full disclosure can be seen in a typical sale contract for a Floridian
condotel project registered with the United States Securities and Exchange Commission (“U.S. SEC”). It

1
Disclosures through a “Public Offering Statement (POS)”:
Defined as a document provided to buyers of a new condominium by the builder. The
document contains details about how the condominium is structured and managed,
including its CC&Rs.
available at https://www.findwell.com/real-estate-dictionary/definition/public-offering-statement/
(last accessed February 3, 2019).
2
State of Nevada, Department of Business and Industry – Real Estate Division, Before you Purchase Property in a
Condominium Hotel, available at https://www.findwell.com/real-estate-dictionary/definition/public-offering-
statement/ (last accessed February 3, 2019).
3
Condominium Hotel Act NRS 116B.740 available at https://www.leg.state.nv.us/nrs/nrs-116b.html (last
accessed February 3, 2019).

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is apparent that the project is referred to as a “hotel condominium”, and clearly delineates “hotel units”
from those which are purely “residential units”:

ARTICLE I
PROPERTY

1.1 The property to be sold, conveyed, assigned or otherwise transferred by

Seller to Purchaser at closing (hereinafter collectively called the “Property”)
consists of the following:

1.1.1 The hotel condominium unit (“Hotel Unit”) comprising a portion of the
hotel condominium project (the “Hotel Condominium”) to be developed by
Seller on a portion of the property described on Exhibit “A” attached hereto
and made a part hereof (the “Land”) as shown on the site plan attached hereto
as and made a part hereof as Exhibit “B” (the “Site Plan”) consisting of all
portions of the Hotel Condominium, with the exception of the residential units
(the “Units”) and the air space above and below the Hotel Condominium, as
more particularly shown on the plans identified on Exhibit “C” attached hereto
and made a part hereof (the “Plans”)
xxxx4

Similarly, in the following U.S. SEC-registered purchase agreement for a New York-based
condotel development, the contract likewise makes the dichotomy between the two separate types of
unit ownership in a condotel development as “hotel unit” and a “commercial unit “:

PURCHASE AND SALE AGREEMENT

xxx
1.1 Property Identification. Subject to the terms and provisions hereof, Seller
agrees to sell to Purchaser, and Purchaser agrees to purchase from Seller,
subject to the Permitted Exceptions, and subject to the right, title and interest
of guests, the Tenants, licensees and concessionaires in and to the Hotel Unit
and the Commercial Unit and to all other terms, covenants and conditions set
forth herein, the following:5
xxxx

It is clear that, in U.S. practice, it is typical for a condotel developer to declare at the outset that
the project is marketed and declared as a condominium hotel project, as distinguished from a pure
condominium development and in fact, some states regulate the disclosures required in any document
purporting to sell a condotel project, as in the state of Nevada.

1.2 In the Philippines

Some condotel developers in the Philippines would likewise declare in their advertising and
promotional materials that the project is in the nature of a condotel development, For instance,

4
Agreement between MCZ/Centrum Florida and MHI Hollywood LLC, available at
https://www.sec.gov/Archives/edgar/data/1301236/000119312505223040/dex1019.htm (last accessed February
3, 2019).
5
Purchase and Sale Agreement Between DIG EH Hotel LLC and SHR Essex House LLC at 1, available at
https://www.sec.gov/Archives/edgar/data/1057436/000119312512360294/d395068dex101.htm (last accessed
February 3, 2019).

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CitiGlobal Development packages their Tagaytay project as a “CitiGlobal Condotel Investment”,6 while
Edgar “Injap” Sia, CEO of Hotel 101 developer Double Dragon markets his units as an easy investment
for their unit owners, since they would simply need to “sign a contract with the property management
company” in order to reap the returns of their investment.7 Similarly, Sta. Lucia Land’s condotel
developments around the country are being expressly marketed as condotel projects to its largely OFW
purchaser base.8

While it is certainly the norm for developers to be upfront about the nature of their projects to
prospective buyers, there is no specific law which sets out the required declarations needed on a
contract governing the purchase of a condotel project. In this case, general contract law and the law on
sales would apply.

The essential elements of a valid contract of sale are: (1) consent, or meeting of the minds to
transfer the ownership in exchange for the price; (2) determinate subject matter; and (3) price certain in
money or its equivalent.9

In a sale contract covering the sale of a condotel project, where the developer fails to disclose
the complete nature of the project (i.e. only disclosing that it is a condominium project rather than a
condotel project), it is submitted that this failure to fully disclose would vitiate consent, as well as
annul the subject matter of the contract.

a. As to Consent

Consent is the most important element in the contract for the sale or purchase of a condotel, or
any contract for that matter. This element refers to the concurrence of the wills of the contracting
parties, as to the object and the cause of the contract.10 As a contract of sale is a consensual contract, it
is perfected by mere consent of the parties, and is born from the moment there is a meeting of minds
upon the thing which is the object of the sale, and upon the price.11 Before there is consent, it is
essential that it be manifested by the meeting of the offer, which must be certain, and the acceptance
upon the thing and the cause, which are to constitute the contract. Once there is such manifestation,
the consensual contract is perfected.12

It is submitted that when a developer offers his real estate development as a condominium
project to prospective buyers, and the buyers, in turn, accept the offered condominium project without
variance from the offer, a perfected contract arises, and modifications by the developer as to the
nature of the project will annul such offer.

6
CitiGlobal Realty & Development Inc., A Guide to Condotel Investment , available at
https://citiglobal.com.ph/blog/citiglobalinvestmentguide/ (last accessed February 3, 2019).
7
Amy Remo, Hotel 101-Fort Makes for a Sound Investment, INQUIRER.NET, March 17, 2018, available at
https://business.inquirer.net/247837/hotel-101-fort-makes-sound-investment
8
Liezel Tuason-Magpoc, Popularity of Condotels, INQUIRER.NET, March 25, 2017 available at
https://business.inquirer.net/226758/popularity-of-condotels (last accessed February 3, 2019).
9
Coronel v. Court of Appeals, G.R. No. 103577, October 7, 1996.
10
DESIDERIO P. JURADO, COMMENTS AND JURISPRUDENCE ON OBLIGATIONS AND CONTRACTS 397 (2010).
11
Vda. De Ape v. Court of Appeals, G.R. No. 133638, April 15, 2005.
12
Jurado, supra note 10 at 398.

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 Additionally, any concealment as to the true nature of the project in order to induce the
buyers to enter into the contract may amount to dolo causante, or fraud employed by one party,
simultaneous with the contract, in order to secure the consent of the other, and may be cause for
vitiation of consent.13 For fraud to vitiate consent, the fraud must have been the principal or causal
inducement or consideration for the consent of the party who is deceived, such that he would have
never given such consent were it not for the fraud.14

Thus, should the buyers have been induced primarily due to the developer’s representations
that what was for sale was a condominium project, and the buyers purchased units in the project
principally because they thought they were buying units in a condominium project, when in fact it was a
condotel, the machinations employed by the developer can be said to be of such magnitude that can
be grounds for annulling the contract.

b, As to Subject Matter

A valid contract of sale results from the meeting of the minds of the parties on the subject
matter, at the time of the perfection of the contract. The requisites for valid subject matter are: (1) it
must be a “possible thing” (i.e. existing or having potential existence, a future thing or one subject to a
resolutory condition); (2) it must be licit; and (3) it must be determinate or at least determinable.15

A thing is determinate when it is particularly designated. This requisite is satisfied if, at the time
the contract is entered into, the thing is capable of being determinate without the necessity of a new or
further agreement between the parties.16 The Supreme Court has held that the test of determinability is
the meeting of the minds as to the object of sale, and the when the deed of sale fails to cover the true
intent of the parties, the same must give way to the real contract intended by the parties.17

It is submitted that once the subject matter the contract, in this case a condominium project,
has been made determinate and agreed on by the parties, varying the nature of the property will
violate the statutorily-mandated requisites of a valid subject matter. Moreover, changing the nature of
the subject property from a condominium to a condotel would necessarily require new contracts,
because condotel operations would concern activities beyond the ambit of a simple contract of sale
involving a condominium. T

SUMMARY

Part I of this research first outlined the norms surrounding purchase or sales contracts governing
condotels in the United States, which is one of the most developed condotel markets in the world. In
this portion, it was seen that typically, state laws would govern the sale of condotel properties and
resultantly, contracts would indicate at the first instance that what is being sold is a condotel property,
and not a simple condominium development.

13
Solidbank Corporation v. Mindanao Ferroalloy Corporation, et. al., G.R. 153
14
Jurado, supra note 10, at 451.
15
CESAR L. VILLANUEVA, THE LAW ON SALES 70 (2010).
16
An Act to Ordain and Institute the Civil Code of the Philippines [CIVIL CODE], Republic Act No. 386, art. 1460
(1950).
17
Atilano v. Atilano, G.R. L-22487, May 21, 1969.

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 In the Philippines, it was seen that major players in the real estate and hospitality sectors would
typically be forward about the nature of their condotel projects, packaging these projects as investment
products which could earn income through rental or income sharing schemes with the developer or
property manager. However, as there is no particular law setting the minimum disclosures required in
sale or purchase agreements of condotel units, these transactions are still embraced by the general law
on contracts and sales.

From a brief analysis of the applicable law and jurisprudence, it was seen that failing to disclose
a project as a condotel development to a buyer, who was induced to buy a unit believing it to be a
simple condominium project, can amount to dolo causante or causal fraud, which may be grounds for
the vitiation of consent. Sound industry practice here and abroad, as well as good faith dealings, would
certainly require the full disclosure of the complete nature of the project in the contract; failing which,
the buyers can seek remedies under the law to annul such contract.

PART 2: COURT-ANNEXED MEDIATION GUIDELINES

2. Background

In order to decongest court dockets and enhance access to justice, the Supreme Court, through
A.M. 01-10-05-SC approved the institutionalization of mediation in the Philippines through Court-
Annexed Mediation (“CAM”).18 Through this Circular, the Supreme Court established, among others, the
Philippine Mediation Center (“PMC”), and approved the Guidelines for the Implementation of Mediation
Proceedings (“Guidelines”).

CAM is defined as the mediation process conducted under the auspices of the court, and in
accordance with Supreme Court-approved guidelines, after such court has acquired jurisdiction over the
dispute.19 Because there are guidelines and institutions in place whereby CAM is to be implemented,
courts may not just indiscriminately refer any case for mediation.

3. When is CAM Proper?

The threshold question for the judge, in referring the case for CAM, is: “Is the case
mediatable?”

According to the Guidelines, the following cases shall be referred to CAM:

1. All civil cases, except those which by law may not be compromised;
2. Special proceedings for the settlement of estates;
3. All civil and criminal cases filed with a certificate to file action issued by the Punong
Barangay or the Pangkat ng Tagapagkasundo under the Revised Katarungang
Pambarangay Law;
4. The civil aspect of Quasi-Offenses under Title 14 of the Revised Penal Code;
5. The civil aspect of criminal cases where the imposable penalty does not exceed six
years imprisonment and the offended party is a private person; and

18
A.M. No. RTJ-17-2507, October 9, 2017.
19
DOJ Circular No. 98-2004, Implementing Rules and Regulations of the Alternative Dispute Resolution Act of 2004,
Rule 2 art. 1.6, December 4, 2009.

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 6. The civil aspect of theft (not qualified theft), estafa (not syndicated or large scale
estafa), and libel.
7. Civil cases and probate proceedings, testate and intestate, brought on appeal from the
exclusive jurisdiction of first-level courts;
8. Forcible entry and unlawful detainer, brought on appeal from the exclusive and original
jurisdiction of first-level courts;
9. Civil cases involving title to or possession of real property or an interest therein,
brought on appeal from the exclusive and original jurisdiction of first-level courts; and
10. Habeas corpus cases decided by the first-level courts, in the absence of RTC judges,
brought on appeal from their special jurisdiction.20

The following cases shall not be referred to CAM (and JDR):

1. Civil cases, which by law, cannot be compromised;

2. Habeas corpus petitions;
3. All cases under Republic Act No. 9262 (Anti-Violence against Women and Children or
“VAWC”);
4. Criminal cases not covered under the enumeration above; and
5. Cases with a pending application for Restraining Orders/Preliminary Injunctions.21

The Guidelines, however, provide an exception to (1) civil cases which may not be
compromised, (2) VAWC case, and (3) cases with a pending application for Restraining
Orders/Preliminary Injunctions, where the case MAY STILL BE REFERRED TO CAM. This is when the
parties INFORM THE COURT that they have AGREED TO UNDERGO MEDIATION on SOME ASPECTS.

CAM is a part of pre-trial.22 Upon appearance of the parties during pre-trial, when the same is
mediatable, or even when the case is not subject to mediation, but the parties have agreed to undergo
mediation on some aspects, the judge shall immediately direct the parties to appear before the PMC
unit for the initial mediation conference. The following scenarios illustrate when the case may be
subject to mediation:

Scenario 1: X filed a case for the declaration of the nullity of her marriage to B, with a prayer for support
pendete lite over their minor children, C and D.

Note: This case falls within the cases which may not be referred to CAM (and JDR), in accordance with
Art. 2035 of the New Civil Code. As the declaration of nullity of marriage concerns the civil status of
persons, the case may not be referred to CAM.23 However, the incident on the aspect of support for C
and D may undergo mediation, subject to the agreement of A and B.

20
Philippine Judicial Academy, Consolidated and Revised Guidelines to Implement the Expanded Coverage of
Court-Annexed Mediation (CAM) and Judicial Dispute Resolution (JDR) at 7-9, available at
http://philja.judiciary.gov.ph/assets/files/pdf/pmc/RevisedGuidelines.pdf (last accessed February 2, 2019).
21
Id. at 10.
22
A.C. No.20-2002, April 24, 2002.
23
Art. 2035. No compromise upon the following questions shall be valid:
(1) The civil status of persons;
(2) The validity of a marriage or a legal separation;
(3) Any ground for legal separation;
(4) Future support;

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Scenario 2: X was in a bar somewhere in Makati City, where he got drunk and attempted started a brawl
with B, a patron of the same bar. As a result, X was charged with a violation of Art. 155 of the Revised
Penal Code (on Alarms and Scandals) by the Makati City Police.

Note: This case is subject to CAM, since alarms and scandal is a light felony with an imposable penalty of
arresto menor, and the offended party is B, a private individual.

Scenario 3: The Republic of the Philippines, through the Department of Public Highways, filed a
complaint for expropriation in the RTC against X, seeking the acquisition of an easement of right of way
over a portion of X’s property.

Note: This case is not subject to CAM, since one party in the case is the Government, which places the
case outside the Revised Katarungang Pambarangay Law.

Scenario 4: X filed an action for collection of sum of money against B in the MTC of Makati City, to
recover the amount of PhP375,000 which he loaned to B. The RTC ruled against X.

Note: This case is subject to CAM. It is a civil case brought from appeal from the MTC.

Scenario 5: X Corporation filed a criminal action against B, its Vice President for Comptrollership, when
the latter failed to account for a large sum under his custody.

Note: This case is not mediatable. The crime committed is qualified theft, since the relationship of X
Company and the accused B, as the employee entrusted with overseeing the accounting and financial
operations of the company, is fiduciary and thus qualifying the crime. Qualified theft is expressly
excluded from the actions which may be referred to CAM.

Discussion on Cases with Pending Application for Issuance of a Writ of Preliminary Injunction

The Guidelines provide that cases with a pending application for restraining orders or
preliminary injunctions shall not be referred to CAM.24 Reference must be had to Rule 58 of the Rules of
Court in order to determine at what stage may cases concerning preliminary injunctions may or may not
be referred to CAM.

According to the Rules of Court, before a preliminary injunction may be granted by the court, a
verified application and bond must be filed before the court where the main action is pending.25
Moreover, as a general proposition, there must be a summary hearing for the application where all
parties concerned are heard, before the same is granted or denied by the court,26 unless the case falls
under the instances when an ex-parte temporary restraining order may be granted.

(5) The jurisdiction of courts;

(6) Future legitime
24
Guidelines, supra note 20, at 10.
25
1997 Revised Rules of Criminal Procedure, rule 58, §§ 3 and 4.
26
Id. at §4(d).

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 Reading the Guidelines together with the Rules, it is submitted that, pending and up until the
summary hearing where the application for the issuance of the writ of preliminary injunction is had, the
case may not be referred to CAM. This is because until the court conducts such summary hearing, it can
be said that the application is “pending”, which places it within the cases which shall not be referred to
mediation.

Scenario 6: Several representatives of indigenous peoples in Baguio City filed an action questioning the
proceedings for the selection of the Ibaloi representative to the Baguio City Council, with a prayer for
the issuance of a writ of preliminary injunction, to prevent Councilman X from assuming office. The
Judge granted the petition for the issuance of the writ of preliminary injunction.

Note: This case may be referred to mediation. In this instance, the mediation will follow after Judge X
had granted the petition for the issuance of a writ of preliminary injunction.27 Textually, the guidelines
for CAM provide that cases with pending application for preliminary injunctions shall not be referred to
CAM. In the above case, the provisional remedy being sought had already been granted before the
Judge referred the parties to mediation, which takes the case out of the instances when an action
should not be referred to CAM.

Scenario 7: X filed an action to recover the possession of a parcel of land against B, asking the court to
restrain B or his heirs from constructing his house over the premises during the pendency of the case.
The MTC ruled in favor of X. B filed an appeal with the RTC, with a corresponding prayer for the issuance
of a writ of preliminary injunction, to stay the judgment of the MTC.

Note: This case may not be referred to mediation, unless X and B agree to submit the case for
mediation. While forcible entry and unlawful detainer cases appealed to the RTC may be referred to
CAM, in this case, the same is still pending an application for preliminary injunction. The RTC judge must
first hold a summary hearing deciding on B’s application, before referring the case to CAM.

27
Rimaliza A. Opina, Mediation Ordered for IPMR Dispute, BAGUIO MIDLAND COURIER, available at
http://www.baguiomidlandcourier.com.ph/front.asp?mode=archives/2018/february/2-11-2018/front4.txt (last
accessed February 4, 2019).