Case Digest: Associated Realty Development Company, Inc. v. The Court of Appeals, Keater Huang and Tan Giok Tin

Facts

The case revolves around the Associated Realty Development Company, Inc. (petitioner), which, on May 7, 1946, purchased a parcel of land from the China Banking Corporation encompassing an area of 4,562.79 square meters, situated at the intersection of Soler and Alvarado Streets in Manila. The petitioner intended to subdivide the property for resale but faced challenges ejecting existing tenants, including Keater Huang and Tan Giok Tin (respondents), who were members of a tenants' association. After the matter drew the attention of the Chinese Consul General, a mediation committee was formed, which included Keater Huang. This committee facilitated an agreement that allowed tenants the option to buy the lots they occupied.

Upon subdivision, the petitioner offered Tan Giok Tin Lot No. 24, measuring 52 square meters, at a cost of P6,760. The associated deal also include

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Facts:

Acquisition and Intended Subdivision of the Property

• On May 7, 1946, the Associated Realty Development Company, Inc. (petitioner) purchased a parcel of land from the China Banking Corporation.
• The property, measuring 4,562.79 square meters, was located at the corner of Soler and Alvarado Streets, Manila, with intentions to subdivide and resell.
• The subdivision later became known as the Soler-Alvarado Subdivision, consisting of 43 lots, resulting from several surveys and a formal subdivision plan (Exhibit K) prepared by surveyor Sixto Tenmatay.
• Multiple surveys were conducted: the first from August 21–23, 1946; the second on December 10, 1946; a verification survey on June 23, 1947 by Jose N. Quedding; and a third survey on July 31, 1947.

Tenant Occupation and Mediation

• The property was occupied by Chinese tenants, including respondents Keater Huang and Tan Giok Tin, who were part of the Soler Tenant Association.
• The difficulty in ejecting the tenants led to the involvement of the Chinese Consul General in Manila.
• A mediation committee was formed, comprising Keater Huang, Y. C. Shueh (Vice-Consul of the Chinese Consulate), and Lim Sae Gim (another tenant).
• The mediation resulted in an agreement where the tenants were given the first option to purchase their occupied lots within a set period and at fixed prices.

Award of Additional Parcel and the Transaction of Lot 24

• As part of the settlement and recognition of Keater Huang’s mediation services, on April 22, 1947, Associated Realty wrote a confirmation letter to Tan Giok Tin offering an additional parcel of land adjacent to Lot No. 24.
• Conditions for the award included:
• The awarded lot was to be considered part and parcel of Lot No. 24, subject to later survey determination.
• It would be included in the Torrens Title registration with the contract of sale.
• No financial obligation would be incurred by Tan Giok Tin for its acquisition.
• On the same date, a document of sale (“receipt of full payment and agreement to convey”) was executed transferring Lot No. 24, described as having an area of approximately 52 square meters, from Associated Realty to Tan Giok Tin, for the payment of P6,760 at P130 per square meter.
• Upon execution, Associated Realty delivered possession of Lot No. 24 accompanied by the survey plan bearing the lot’s measurements and boundaries.
• Simultaneously, possession was delivered of an estero (canal) lot alongside the Estero de Magdalena, with an approved survey indicating an area of 79 square meters.
• The appellees further incurred costs of P3,400 for constructing a cement fence along the estero lot.

Construction of the Residential House and Subsequent Discrepancies

• On March 31, 1948, Keater Huang applied for a building permit for a three-story residential house to be constructed on Lot No. 24.
• The building plan, which conformed to the lot’s measurements as originally indicated in the subdivision plan, was approved by Associated Realty’s representative.
• After construction, it was discovered that:
• Lot No. 24 actually measured only 45.30 square meters—a reduction from the stated 52 square meters.
• The constructed house, occupying an area of 52 square meters, encroached upon the adjacent estero lot, which was government property over which Associated Realty had no authority.
• Demands were made for the release of proper titles and conveyance of the two parcels, but these demands were either ignored or refused by the petitioner.

The Initiation of the Lawsuit and Subsequent Actions

• On September 20, 1954, the respondent spouses filed a complaint for damages with the Court of First Instance (CFI) of Manila, seeking various compensatory amounts based on:
• The market value and difference in area for Lot No. 24.
• The value of the constructed house and expenditures related to the estero lot (including the fence).
• Additional damages including attorney’s fees, moral, and exemplary damages.
• Associated Realty, in its answer, contended:
• It was never definitively established that it owned the estero lot.
• The lot supposedly given as a “donation” lacked proper public documentation and acceptance.
• Keater Huang had acted in bad faith by constructing improvements on land known to be government property.
• Counterclaims were also filed against the respondents for malicious prosecution, wrongful attachment, and other alleged rentals paid on the government lot.
• The CFI rendered a judgment on December 29, 1956, awarding a total of P5,071 to the respondents and dismissing the counterclaims.
• Both parties appealed, and with reference to the amendments in the Judiciary Act (Rep. Act No. 2613), the case was eventually set for review before the Court of Appeals.

Court of Appeals Proceedings and Subsequent Reconsideration

• On November 9, 1960, the Court of Appeals rendered judgment where it:
• Accepted the evidence that Lot No. 24 was indeed only 45.30 square meters and triangular in shape.
• Recognized that the building plans approved by Associated Realty corresponded to the originally provided subdivision plan, despite later discrepancies.
• Held that Associated Realty was guilty of fraud and bad faith for concealing the true dimensions and ownership issues, particularly regarding the estero lot.
• Awarded damages for Lot No. 24 based on a market price of P300 per square meter and a reduced price for the house after depreciation.
• Determined a compensation of P5,000 for Keater Huang’s mediation services.
• Granted a total award amount that included attorney’s fees amounting to 10% of the total damages.
• Subsequent motions for reconsideration were filed:
• The respondents sought to replace the P5,000 mediator compensation with an award based on the fair market value of the estero lot (computed at P300 per square meter for its actual area).
• The petitioner, however, moved for reconsideration arguing that the award and findings were without factual and legal basis.
• On February 1, 1961, the Court of Appeals issued an Amended Decision modifying its previous award:
• The award for the estero lot was recalculated based on an actual area of 72.30 square meters.
• The total award was adjusted to P57,890, with the defendant allowed to take over Lot No. 24 and its house on full payment.

Appeal to the Supreme Court and the Final Issues

• The petitioner (Associated Realty) then appealed, assigning nine alleged errors in the Court of Appeals’ findings, which included:
• Issues on rescission of the sale due to non-delivery of the full area.
• The method of calculating damages (lump sum vs. price per square meter).
• The amount awarded for Lot 24 and the actual purchase price versus market value difference (lucro cesante).
• The validity of awarding the estero lot’s fair market value for mediator services, considering that formative negotiations designated it as part and parcel of Lot No. 24.
• The depreciation allowance granted for the house’s value.
• The central factual disputes revolved around:
• The true dimensions and nature of Lot 24 and the estero lot.
• The extent of fraud or bad faith on the part of Associated Realty.
• The appropriate compensation for both the property discrepancies and for mediation services rendered.
• The case was ultimately reconsidered in the context of whether the respondents were entitled to recover damages for the discrepancy in land delivery, and whether the petitioner’s business dealings amounted to fraud and bad faith.

Issue:

Whether the petitioner (Associated Realty) is liable for the discrepancies in the area and boundaries of Lot No. 24 compared to what was stated in the sale document.

• The dispute centers on the fact that Lot No. 24 was sold as 52 square meters but later found to be only 45.30 square meters.
• The collateral issue involves whether the respondents’ claim for the difference in market value (lucro cesante) is appropriate.

Whether the petitioner is liable for failing to deliver the estero lot as originally awarded, particularly considering the mediation arrangement and the subsequent revelation that the lot was government property with a different area than initially represented.

• The question includes whether the compensation for Keater Huang’s mediation services should be based on a monetary award or the fair market value of the estero lot.
• The issue also extends to the computation of damages for the loss of the estero lot, i.e., whether awarding its value at P300 per square meter is justified.

Whether the actions and representations by petitioner constitute fraud and bad faith in its dealings with the respondents.

• This includes alleged concealment of the true dimensions of Lot No. 24 and misrepresentations regarding the status of the estero lot.
• It considers if these actions justified the enhanced damages and compensatory awards granted by the lower courts.

• Whether the calculation and award of attorney’s fees (10% of the total awarded amount) and the depreciation allowance for the house are appropriate and justified under the prevailing legal principles.

Ruling:

• (Subscriber-Only)

The Court of Appeals, in its amended decision:

• Upheld the award against Associated Realty for damages based on:

• The discrepancy in the area of Lot No. 24.

• The loss of the estero lot’s value due to its misrepresentation and non-delivery.

• Set the market value of Lot No. 24 at P300 per square meter, thereby awarding the respondents the difference in value between the contract price and the market value.

• Affirmed an award for the depreciation of the residential house built on Lot No. 24, fixing it at P18,000.00 after accounting for depreciation and beneficial use.

• Ordered the petitioner to compensate Keater Huang with P5,000.00 as full and fair mediation fee.

• Condemned the petitioner to pay additional attorney’s fees amounting to 10% of the total damages.

• Stipulated that upon full payment of the awards, the petitioner may take over Lot No. 24 and the residence constructed thereon.

The Supreme Court, on review:

• Evaluated the nine alleged error

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