Case Digest (G.R. No. 164686)
Facts:
Petitioner Joseph Harry Walter Poole-Blunden purchased at public auction Unit 2-C, T‑Tower Condominium, Makati City, after respondent Union Bank of the Philippines advertised the unit as having an area of ninety‑five square meters; he entered into a Contract to Sell dated May 7, 2001 with an "as‑is‑where‑is" clause, paid P3,257,142.49 in full by July 20, 2003, and subsequently discovered by survey that the unit's interior area was 74.4 square meters. He filed a Complaint for Rescission of Contract and Damages; the Regional Trial Court dismissed the complaint on April 20, 2010, the Court of Appeals affirmed on November 15, 2012, and the petition to the Supreme Court followed.
Issues:
- Did Union Bank of the Philippines commit fraud or act with such gross negligence as to vitiate petitioner’s consent and warrant rescission of the Contract to Sell?
- Do the "as‑is‑where‑is" stipulation and Article 1542 of the Civil Code bar rescission or relief in this case?
Ruling:
The Court granted the petition, reversed and set aside the decisions of the Court of Appeals and the Regional Trial Court, declared the Contract to Sell null and void, and ordered Union Bank of the Philippines to refund P3,257,142.49 with legal interest (twelve percent per annum from filing of the complaint to June 30, 2013; six percent per annum thereafter), to pay P100,000.00 as exemplary damages, P100,000.00 as attorney’s fees, and the costs of litigation.
Ratio:
The Court held that under Republic Act No. 4726 (the Condominium Act), a unit's bounds are the interior surfaces of its perimeter walls and do not include common areas, so the advertised ninety‑five square meters was false as to the unit's interior area; the bank knew or was so grossly negligent in ascertaining the unit's true area that its conduct amounted to bad faith/casual fraud that vitiated consent. The "as‑is‑where‑is" clause applies only to readily perceptible physical defects and cannot shelter a seller who knew or should have known of technical or legal defects, and Article 1542 does not preclude rescission for causal fraud especially where the discrepancy (about twenty‑one percent) is substantial.
Doctrine:
- Banks owe a high degree of diligence in investigating properties offered as loan security and are held to heightened standards because of their fiduciary role.
- An "as‑is‑where‑is" stipulation covers only readily observable physical conditions and does not excuse concealment or technical misrepresentations requiring specialized scrutiny.
- Under Republic Act No. 4726, the area of a condominium unit excludes common areas as defined in Section 6(a).
- Article 1542 does not bar rescission for causal fraud; it governs price adjustment for minor discrepancies, not annulment for fraud.
- Exemplary damages and attorney’s fees may be awarded where the defendant acted wantonly, recklessly, or in gross bad faith, pursuant to Article 2232 (in relation to Article 2229) and Article 2208.