Spouses Mario and Julia Gaspar v. Hermino Angel Disini, Jr., Joseph Yu, and Diana Salita, G.R. No. 239644, February 3, 2021

FACTS:

The property subject of the litigation is a year 2000 model, white Mitsubishi Pajero with plate number WVC-555. The subject vehicle, registered in the name of a certain Artemio Marquez, was mortgaged by the latter as security for a loan obtained from Legacy Lending Investor. Legacy is owned by Joseph Yu. Marquez failed to pay his loan, leading Legacy to seize the Pajero. To facilitate the disposal of the Pajero, Marquez executed and signed a Deed of Sale in blank, that is, without the name and details of the buyer.

Spouses Gaspar who are engaged in the business of buying and selling second-band vehicles, purchased the subject Pajero from Legacy for the price of 1,000,000, as shown by a manager's check for said amount, and a receipt therefor signed by Diana Salita, Yu's employee, dated July 12, 2002.

Rocky Gaspar, son of the Spouses Gaspar, offered the Pajero for sale to Disini, who agreed to buy it for the total purchase price of 1,160,000. On July 22, 2002, Disini gave a  downpayment of 50,000 duly received by Rocky. On July 23, 2002, Disini filled in his details and signed the Deed of Sale previously executed by Marquez. On July 30, 2002, Disini paid the balance of 1,110,000, after the Spouses Gaspar obtained a Motor Vehicle Clearance Certificate, dated July 26, 2002, and registered the subject Pajero in the name of Disini on August 6, 2002.

About a year later, on June 30, 2003, the police apprehended the subject Pajero while it was illegally parked in Makati. Further police investigation revealed that the vehicle had been stolen from the Office of the President. It appears that the chassis number had been overlaid with another number through welding in order to avoid identification.

Disini immediately informed the Spouses Gaspar about the confiscation of the subject Pajero, and the latter promised to return the full purchase price that he had paid to them. In turn, the Spouses Gaspar sought reimbursement from Yu and Legacy, and the latter gave back 150,000. The Spouses Gaspar turned over the 150,000 to Disini on July 22, 2003. On August 5, 2003, the Spouses Gaspar paid further 200,000 to Disini, and finally 50,000.00 on December 3, 2003 for a total reimbursement of 400,000.00 and leaving an unpaid balance of 760,000.00.

Apart from the 150,000 initially returned by Yu to the Spouses Gaspar, Yu failed to reimburse the balance of the purchase price paid by the Spouses Gaspar for the subject Pajero in the amount of 850,000.00.

When written demand failed, Disini filed a complaint for sum of money with prayer for preliminary attachment against Rocky and the Spouses Gaspar to collect the unpaid reimbursement of what he paid for the subject Pajero.

In turn, the Spouses Gaspar filed a third-party complaint against Yu and his employee Salita for the unpaid reimbursement of 850,000.

After trial, the RTC rendered a Decision directing: (i) Spouses Gaspar to refund the amount of 760,000 with legal interest in favor of Disini; (ii) Yu to reimburse Spouses Gaspar the amount of 850,000.00 with legal interest. The RTC dismissed the third-party complaint as against Salita.

On appeal, the CA noted that during the course of trial, it was established that Spouses Gaspar promised to return Disini's money in case the title of the subject Pajero is found to be defective. Spouses Gaspar followed through with this promise when they partially returned Disini's payment. However, Spouses Gaspar failed to return the purchase price in full due to lack of funds. The CA found that these circumstances show that Spouses Gaspar did not act in bad faith. However, the CA found that the RTC also erred in ordering Yu to reimburse Spouses Gaspar the amount they returned to Disini, and to pay them attorney's fees. According to the CA, the sale of the subject Pajero from Yu to Spouses Gaspar gave rise to an implied warranty of title and a concomitant implied warranty against eviction. These implied warranties, in turn, prescribe six months from date of delivery of the thing sold pursuant to Article 1571 of the Civil Code. Here, Spouses Gaspar filed the third-party complaint against Yu and Salita on October 9, 2006, or nearly four years after delivery of the subject Pajero on July 12, 2002. Thus, said third-party complaint was filed out of time.

 

ISSUE:

Whether the CA erred in dismissing the third-party complaint filed by Spouses Gaspar against Yu and Salita

 

RULING:

By filing a third-party complaint against Yu for the purpose of seeking reimbursement of the purchase price they had paid for the subject Pajero, Spouses Gaspar effectively sought to declare the COS null and void ab initio and recover what they had given on account of said void COS. The third-party complaint thus assumes the nature of an action to declare the inexistence of a contract which does not prescribe.

Contrary to the CA's findings, Yu's liability in this particular case is not hinged on the implied warranties against hidden defects and/or eviction. That Spouses Gaspar's Memorandum before the RTC alleged that Yu can be considered in breach of an implied warranty considering he "sold to Spouses Gaspar a vehicle allegedly clean from any liens and encumbrances" is of no moment. To be sure, the implied warranties against hidden defects and eviction are legal concepts with fixed definitions in law.

The implied warranty against hidden defects pertains to defects which render the thing sold unfit for the use for which it is intended, or should diminish its fitness for such use to such an extent that, had the vendee been aware thereof, would not have acquired it or would have given a lower price. As its nomenclature suggests, hidden defects pertain to imperfections or defects of the object sold. Such is not the case here, where the subject Pajero, albeit stolen, was in working condition, and was in fact being used by Disini for its intended purpose when it was confiscated by the authorities.

On the other hand, a breach of the warranty against eviction presupposes the concurrence of the following requisites: (i) the purchaser has been deprived of the whole or part of the thing sold; (ii) this eviction is by a  final judgment; (iii) the basis thereof is by virtue of a right prior to the sale made by the vendor; and (iv) the vendor has been summoned and made co-defendant in the suit for eviction at the instance of the vendee. Here, Disini was not deprived of possession on the basis of a final judgment. In fact, based on the records, it  would appear that Disini did not contest the confiscation of the subject Pajero when he was informed that it had been stolen from the Office of the President.

Since none of the foregoing warranties apply, the six-month prescriptive period under Article 1571 of the Civil Code is inapplicable. As the third-party complaint filed by Spouses Gaspar assumes the nature of an action to declare the inexistence of a  contract due to its illicit object, said complaint is imprescriptible under Article 1409. The CA thus erred when it dismissed the third-party complaint on the ground of prescription.