Pilipinas Makro v. Coco Charcoal Philippines and Lim Kim San, G.R. No. 196419, October 4, 2017

FACTS:

On 26 November 1999, Makro and respondent Coco Charcoal executed a notarized Deed of Absolute Sale wherein the latter would sell its parcel of land, with a total area of 1,000 sqm and covered by TCT No. 208776, to the former for the amount of ₱8,500,000. On the same date, Makro entered into another notarized Deed of Absolute Sale with respondent Lim for the sale of the latter's land, with a total area of 1,000 square meters and covered by TCT No. 282650, for the same consideration of ₱8,500,000.

Coco Charcoal and Lim's parcels of land are contiguous and parallel to each other. Aside from the technical descriptions of the properties in question, both deeds of sale contained identical provisions, similar terms, conditions, and warranties.

In December 1999, Makro engaged the services of Engineer Josefina Vedua, a geodetic engineer, to conduct a resurvey and relocation of the two adjacent lots. As a result of the resurvey, it was discovered that 131 square meters of the lot purchased from Coco Charcoal had been encroached upon by the DPWH. On the other hand, 130 square meters of the land bought from Lim had also been encroached by the DPWH. Meanwhile, TCT Nos. T-321199 and T-321049 were issued in January 2000 in favor of Makro after the deeds of sale were registered and the titles of the previous owners were cancelled.

Makro informed the representatives of Coco Charcoal and Lim about the supposed encroachment on the parcels of land due to the DPWH project. Initially, Makro offered a compromise agreement in consideration of a refund of 75% of the value of the encroached portions. Thereafter, Makro sent a final demand letter to collect the refund, seeking to recover ₱1,113,500 from Coco Charcoal and ₱1,105,000 from Lim. Failing to recover such, Makro filed separate complaints against Coco Charcoal and Lim to collect the refund sought.

In its 16 August 2004 Decision, the RTC granted Makro's complaint and ordered respondents to refund the amount corresponding to the value of the encroached area.

In its 30 December 2010 Decision, the CA reversed the RTC decision. While the appellate court agreed that the DPWH project encroached upon the frontal portions of the properties, it ruled that Makro was not entitled to a refund. It explained that the warranty expressed in Section 4(i) of the deeds of sale is similar to the warranty against eviction set forth under Article 1548 of the Civil Code. As such, the CA posited that only a buyer in good faith may sue to a breach of warranty against eviction. It averred that Makro could not feign ignorance of the ongoing road widening project. The appellate court noted Makro's actual knowledge of the encroachment before the execution of the sale constitutes its recognition that Coco Charcoal and Lim's warranty against liens, easements, and encumbrances does not include the respective 131 and 130 square meters affected by the DPWH project, but covers only the remainder of the property.

 

ISSUE:

Did the appellate court err in denying Makro a refund on the ground of bad faith?

 

RULING:

YES. A warranty is a collateral undertaking in a sale of either real or personal property, express or implied; that if the property sold does not possess certain incidents or qualities, the purchaser may either consider the sale void or claim damages for breach of warranty. Thus, a warranty may either be express or implied.

An express warranty pertains to any affirmation of fact or any promise by the seller relating to the thing, the natural tendency of which is to induce the buyer to purchase the same. It includes all warranties derived from the language of the contract, so long as the language is express-it may take the form of an affirmation, a promise or a representation. On the other hand, an implied warranty is one which the law derives by application or inference from the nature of transaction or the relative situation or circumstances of the parties, irrespective of any intention of the seller to create it. In other words, an express warranty is different from an implied warranty in that the former is found within the very language of the contract while the latter is by operation of law.

Thus, the CA erred in treating Section 4(i) of the deeds of sale as akin to an implied warranty against eviction. First, the deeds of sale categorically state that the sellers assure that the properties sold were free from any encumbrances which may prevent Makro from fully and absolutely possessing the properties in question. Second, in order for the implied warranty against eviction to be enforceable, the following requisites must concur: (a) there must be a final judgment; (b) the purchaser has been deprived of the whole or part of the thing sold; (c) said deprivation was by virtue of a prior right to the sale made by the vendor; and (d) the vendor has been summoned and made co-defendant in the suit for eviction at the instance of the vendee. Evidently, there was no final judgment and no opportunity for the vendors to have been summoned precisely because no judicial action was instituted.

Further, even if Section 4(i) of the deeds of sale was to be deemed similar to an implied warranty against eviction, the CA erred in concluding that Makro acted in bad faith. It is true that the warranty against eviction cannot be enforced if the buyer knew of the risks or danger of eviction and still assumed its consequences. The CA highlights that Makro was aware of the encroachments even before the sale because the ongoing road widening project was visible enough to inform the buyer of the diminution of the land area of the property purchased.

It is undisputed that Makro's legal counsel conducted an ocular inspection on the properties in question before the execution of the deeds of sale and that there were noticeable works and constructions going on near them. Nonetheless, these are insufficient to charge Makro with actual knowledge that the DPWH project had encroached upon respondents' properties. The dimensions of the properties in relation to the DPWH project could have not been accurately ascertained through the naked eye. A mere ocular inspection could not have possibly determined the exact extent of the encroachment. It is for this reason that only upon a relocation survey performed by a geodetic engineer, was it discovered that 131 square meters and 130 square meters of the lots purchased from Coco Charcoal and Lim, respectively, had been adversely affected by the DPWH project.

To reiterate, the fact of encroachment is settled as even the CA found that the DPWH project had disturbed a portion of the properties Makro had purchased. The only reason the appellate court denied Makro recompense was because of its purported actual knowledge of the intrusion which is not reason enough to deny Makro a refund of the proportionate amount pursuant to Section 2 of the deeds of sale.