G.R. No. 173454 - Philippine National Bank vs. Mega Prime Realty and Holdings Corp.

Mega Prime Realty Corporation filed a complaint for annulment of the contract before the RTC of Malabon City on November 28, 1997, later amending it on February 17, 1998.
The complaint alleged that Philippine National Bank (PNB) misrepresented the subject matter of the sale related to its subsidiary, PNB-Madecor.

On September 27, 1996, a deed of sale was executed between PNB (vendor) and Mega Prime (vendee) for the sale of all of PNB’s stockholdings in PNB-Madecor for a total of ₱505,620,000.00.
The sale was conducted on an “as is where is” basis with clearly delineated payment terms:

An initial installment of ₱50,562,000.00 paid on or before July 18, 1996;
A second installment of ₱50,562,000.00 on or before September 27, 1996; and
The balance funded through a loan agreement entered into concurrently, evidenced by a promissory note for ₱404,496,000.00.

The deed of sale expressly stated that upon transfer of the stockholdings, Mega Prime would also acquire properties and improvements of PNB-Madecor in Quezon City covering a total area of 19,080 square meters, as evidenced by five title numbers (TCT Nos. 87881, 87882, 87883, 87884, and 160470).

Mega Prime’s principal inducement for the transaction was the acquisition of assets, particularly the Pantranco property located at the corner of Quezon (formerly Boulevard/Avenue) and Roosevelt Avenues in Quezon City.
A conflict arose when Mega Prime discovered that the property covered by TCT No. 160470 faced a title overlap with another title registered in the name of the Quezon City Government.
This discovery undermined the development plans for the Pantranco property, leading Mega Prime to seek annulment of the deed of sale and reimbursement of ₱150,000,000.00 plus additional damages (moral, exemplary, and attorney’s fees).

PNB contended that the deed of sale pertained strictly to its stockholdings in PNB-Madecor, not directly to the real properties.
It maintained that PNB’s role was limited to transferring its control over PNB-Madecor, and the underlying real estate remained under PNB-Madecor’s ownership.
PNB argued that Mega Prime, an experienced real estate firm, should have exercised due diligence, particularly under the caveat emptor principle, given that the sale was on an “as is where is” basis.
PNB also denied any fraudulent misrepresentation, emphasizing that the evidence (the duly notarized deed of sale) supported the validity of the transaction.

The RTC initially ruled in favor of Mega Prime by annulling the deed of sale and awarding damages, including ordering reimbursement, exemplary damages, attorney’s fees, and mutual restitution of the properties and the stockholdings.
PNB elevated the matter to the Court of Appeals (CA) via Rule 41 of the 1997 Rules of Civil Procedure, arguing that Mega Prime’s complaint was a pretext to avoid its obligation under a pledged loan and that the sale was valid.
On January 27, 2006, the CA reversed the RTC ruling, dismissing Mega Prime’s complaint and denying its counterclaims.
Both parties subsequently moved for reconsideration, but their motions were denied, leading to the present consolidated petitions for review before the Supreme Court.

Whether the deed of sale dated September 27, 1996, should be annulled based on alleged misrepresentation or fraudulent behavior by PNB regarding the transfer of the subject property.
Whether Mega Prime is entitled to damages and reimbursement for the alleged expenses incurred in developing the Pantranco property, specifically the claim of ₱150,000,000.00 as actual damages, along with moral and exemplary damages, and attorney’s fees.
Whether Mega Prime’s filing of the complaint was merely a tactical maneuver to forestall PNB’s foreclosure of the pledge on its shares of stock in PNB-Madecor.
Whether the failure of PNB to deliver a title in the name of PNB-Madecor for the property covered by TCT No. 160470 constitutes a breach of the warranties expressly provided in the deed of sale.
Whether a proportionate reduction in the purchase price is justified given the breach in the warranties regarding the transfer of the subject property.