G.R. No. 196419 - Pilipinas Makro, Inc. vs. Coco Charcoal Philippines, Inc.

Case Digest (G.R. No. 196419)
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Facts:

Parties and Transaction

Makro, a duly registered domestic corporation, sought to expand its business by acquiring real properties in Davao City.
On November 26, 1999, Makro executed two notarized Deeds of Absolute Sale:

One with Coco Charcoal Philippines, Inc. for a parcel of land covering 1,000 square meters (TCT No. 208776).
Another with Lim Kim San for an adjacent parcel of land, also 1,000 square meters (TCT No. 282650).

Both sold properties were described in similar terms with identical provisions, terms, conditions, and warranties.

Discovery of Encroachment

In December 1999, Makro engaged Engineer Josefino M. Vedua to conduct a resurvey and relocation of the two contiguous lots.
The resurvey revealed that:

131 square meters of the lot bought from Coco Charcoal had been encroached upon by the Department of Public Works and Highways (DPWH) for road widening and drainage canal construction.
130 square meters of the lot purchased from Lim had similarly been affected by the same DPWH project.

After registration of the deeds, new TCT Nos. T-321199 and T-321049 were issued in January 2000 in favor of Makro following the cancellation of the previous titles.

Negotiations and Subsequent Litigation

Upon discovering the encroachments, Makro promptly informed the sellers.

Initially, Makro proposed a compromise agreement seeking a 75% refund of the encroached value.
A final demand letter was later sent requesting refunds corresponding to:

P1,113,500.00 from Coco Charcoal (for 131 square meters).

ii. P1,105,000.00 from Lim (for 130 square meters).

When the sellers did not comply with the refund demands, Makro filed separate complaints against both Coco Charcoal and Lim before the Regional Trial Court (RTC).

RTC Decision

On August 16, 2004, the RTC granted Makro’s complaint.
The RTC found that:

The DPWH project had indeed encroached on the purchased properties.
Makro had been forced to adjust its perimeter fences and subsequently bring legal action due to sellers’ concealment.

The RTC ordered:

Both respondents to refund Makro P1,500,000.00 each (plus interest at 12% per annum).
Payment of attorney’s fees of Php200,000.00 and exemplary damages of Php200,000.00 against each respondent.
Payment of litigation costs by both respondents.

Court of Appeals (CA) Ruling

On December 30, 2010, the CA reversed the RTC’s decision.

While acknowledging the encroachment by the DPWH project, the CA held that Makro was not entitled to a refund.
The CA explained that the warranty in Section 4(i) of the deeds was akin to a warranty against eviction, which requires that the buyer be in good faith.
Makro’s actual knowledge of the encroachments (through an ocular inspection) was held to negate the sellers’ warranty for the portions affected.

On April 7, 2011, the CA denied Makro’s subsequent motion for reconsideration, reaffirming the reversal.

Issues on Appeal and Procedural Motions

Makro filed motions for extension to file a motion for reconsideration due to:

The unexpected withdrawal of its former lawyer (due to his appointment as press secretary) and
The confinement of its new counsel (due to illness).

The CA ruled that the 15-day period for filing a motion for reconsideration is non-extendible and that motions for extension are prohibited.
The Supreme Court later addressed these procedural issues, noting that despite the strict deadline, compelling reasons might justify a relaxation of the rules.

Relevant Contractual Provisions

Section 2 of the deeds of sale details the process for a general investigation and relocation, including the adjustment of the purchase price at a rate of P8,500.00 per square meter in the event of area discrepancies.
Section 4(i) provides that the property is guaranteed to be free from easements, liens, and encumbrances – a warranty later treated by the CA as analogous to the warranty against eviction.
These provisions formed the basis for Makro’s claim for a refund corresponding to the portion of land affected by the DPWH project.

Issues:

Procedural Issue Regarding the Motion for Reconsideration

Whether the Court of Appeals erred in denying Makro’s motion for extension to file a motion for reconsideration, given the circumstances (withdrawal of counsel and illness of the new counsel).
Whether the strict 15-day reglementary period without allowance for extension should be flexibly applied in the interest of substantial justice.

Substantive Issue Regarding Refund and Warranty

Whether the CA erred in denying Makro a refund based on the argument that Makro had actual knowledge of the DPWH encroachments prior to the sale.
Whether Section 4(i) of the deeds of sale, as an express warranty, should be enforced even if the buyer was aware of potential encroachments.
Whether the sellers’ alleged concealment of facts (i.e., prior installation of drainage pipes) amounts to bad faith sufficient to warrant a refund adjustment.

Calculation of the Refund Amount

Whether the refund should be determined strictly according to Section 2 of the deeds of sale at P8,500.00 per square meter, resulting in:

P1,113,500.00 from Coco Charcoal for 131 square meters.
P1,105,000.00 from Lim for 130 square meters.

Whether the RTC’s award of P1,500,000.00 per respondent was factually and legally sustainable.

Ruling:

(Subscriber-Only)

Ratio:

(Subscriber-Only)

Doctrine:

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