G.R. No. 65114 - Knecht vs. Court of Appeals

Lilian Hamby, the predecessor in interest of the private respondent, owned two lots in Baguio City, which included a house.
In February 1966, Rene Knecht, the petitioner, offered to buy the Baguio property for US$47,500.00 on a payment scheme consisting of a US$17,500.00 down payment and a balance of US$30,000.00 in equal quarterly installments of US$3,750.00 over two years.
As part of the arrangement, Knecht proposed to assume Hamby’s lease over a beach property in Bauang, La Union.

Hamby accepted the offer, and on April 20, 1966, Knecht paid US$4,750.00 as earnest money and took possession of the property.
On April 28, 1966, Knecht was furnished with photostatic copies of Hamby’s two titles to the lots.
Subsequent payments were made in September and October 1966—US$3,625.00 each—towards the down payment.

Knecht later refused to make any further payments and ignored Hamby’s demands for compliance, which were communicated through her attorney-in-fact.
Hamby formally demanded that Knecht vacate the property and proposed returning the money paid—less a reasonable deduction for his use and occupation (set at P1,000.00 per month).
A notarial demand for rescission of the contract was also issued by Hamby, which Knecht disregarded.

Hamby filed suit in the Court of First Instance in Baguio and Benguet for the rescission of the sale contract and recovery of possession of the property.
In response, Knecht argued his refusal to pay further on the basis that:

He had discovered what he considered a hidden defect—the two lots were not contiguous but separated by a strip of public land that passed under the existing house.
Hamby had failed to assign or transfer to him the lease of the Bauang property as previously indicated by her attorney-in-fact.

The Trial Court rendered judgment on May 2, 1972, ordering the rescission of the contract, the vacation of the premises, and restoration of possession to Hamby, without obligating Knecht to pay additional rentals.
On appeal, the Court of Appeals reaffirmed the Trial Court’s decision in its decision dated June 9, 1983, upholding all findings.

The Court of Appeals noted that upon receiving the photocopies of the titles, Knecht’s reaction was one of mild surprise rather than a complete protest.
Knecht neither raised immediate concerns nor conducted a survey of the property that would substantiate his claim of a hidden defect.
Regarding the lease of the Bauang property, Knecht had been informed early on that it was a separate transaction, and yet he proceeded to make down payments as agreed.
The factual record revealed that Knecht had ample opportunity to ascertain the property’s condition, including the existence of the strip of public land.

Whether the alleged hidden defect in the property, i.e., the non-contiguity of the two lots due to a strip of public land, constituted a ground for rescission under Article 1561 of the Civil Code.

Whether the fact that the petitioner, as a businessman with the means and opportunity to inspect and verify the property, waived his rights to such a claim.

Whether Hamby’s failure to assign the lease of her Bauang property to Knecht affected the validity or fulfillment of the sales contract.

Whether the communication regarding the lease at an earlier stage nullified any claim by Knecht later on.

Whether the appellate court was entitled to modify the factual findings of the Court of Appeals regarding the buyer’s awareness and conduct in relation to the property’s features.

The extent to which the doctrine of conclusiveness of the factual findings applies in this context.