Case Summary (G.R. No. 196419)
Petitioner
Pilipinas Makro, Inc. purchased two contiguous 1,000 sq. m. parcels in Davao City by two separate notarized Deeds of Absolute Sale executed on 26 November 1999, each sale for P8,500,000.00. Makro later discovered encroachments by the DPWH project and sought proportionate refunds from the sellers.
Respondents
Coco Charcoal Philippines, Inc. sold one parcel (covered by TCT No. 208776) and Lim Kim San sold the contiguous parcel (covered by TCT No. 282650). Both deeds contained identical technical descriptions, similar terms, and identical warranties and provisions including Section 2 (adjustment upon relocation/resurvey) and Section 4(i) (representation that the property is free and clear of easements, liens, and encumbrances).
Key Dates
- Sales executed: 26 November 1999.
- Transfer certificates canceled and TCTs issued to Makro: January 2000 (TCT Nos. T-321199 and T-321049).
- RTC decision in favor of Makro: 16 August 2004.
- CA decision reversing the RTC: 30 December 2010; CA resolution denying reconsideration: 7 April 2011.
(Note: Supreme Court decision rendered in 2017; 1987 Constitution governs applicable constitutional framework.)
Applicable Law and Authorities Cited by the Court
- Provisions of the deeds: Section 2 (resurvey/price adjustment at P8,500.00 per sq. m.) and Section 4(i) (express warranty that property is free of easements, liens, encumbrances).
- Civil Code provisions and doctrines cited: Article 1546 (express warranty), Article 1548 (warranty against eviction), Article 2232 (exemplary damages), Article 2208 (attorney’s fees as damages).
- Relevant jurisprudence referenced: Gonzales v. Serrano; Imperial v. Court of Appeals; Habaluyas Enterprises v. Japson; Ang v. Court of Appeals; Escaler et al. v. Court of Appeals; Luzon Development Bank v. Enriquez; ABS-CBN Broadcasting Corporation v. Court of Appeals; Philippine National Construction Corporation v. APAC Marketing Corporation; Gatmaitan v. Gonzales.
Factual Findings
After Makro’s resurvey (via Engr. Vedua), the parties established that DPWH works had encroached: 131 sq. m. on Coco Charcoal’s lot and 130 sq. m. on Lim’s lot. Makro initially sought compromise (a 75% refund of the encroached portions) and later made final demands for P1,113,500.00 (Coco Charcoal) and P1,105,000.00 (Lim) but received no refund, prompting separate suits for collection.
RTC Decision and Basis
The RTC (16 August 2004) found that the DPWH project encroached upon the purchased lots, required Makro to adjust perimeter fences, and concluded that respondents had acted in bad faith by concealing prior dispossession (e.g., drainage pipes already installed). The RTC awarded each defendant’s refund at P1,500,000.00 plus 12% interest, attorney’s fees of P200,000.00, and exemplary damages of P200,000.00.
Court of Appeals Decision and Basis for Reversal
The CA (30 December 2010) agreed there was encroachment but denied Makro a refund. The CA treated Section 4(i) as akin to the implied warranty against eviction under Article 1548, reasoning that a buyer asserting that warranty must be in good faith and that Makro had actual knowledge of the DPWH works before sale—thus precluding recovery. The CA consequently set aside the RTC judgment and dismissed Makro’s action for lack of cause of action.
Issues on Appeal to the Supreme Court
- Whether the CA erred in denying Makro’s motions for extension to file a motion for reconsideration (procedural issue). 2) Whether the CA erred in denying Makro a refund on the ground that Makro acted in bad faith (substantive issue).
Ruling on the Procedural Issue: Non-Extendible Period and Exception
The Supreme Court found the petition meritorious on the procedural question. While acknowledging the general prohibition on motions for extension to file motions for reconsideration (consistent with CA rules and this Court’s precedents), the Court emphasized that procedural rules are tools to promote substantive justice and may be relaxed when cogent reasons justify such relaxation. Makro presented compelling, non-frivolous reasons: its counsel withdrew due to national appointment and its new counsel was incapacitated by serious illness. The Court held that under the circumstances a liberal reading of the rule was warranted so the substantive issues could be adjudicated.
Ruling on the Substantive Issue: Nature of the Warranty (Express vs. Implied)
The Supreme Court held that the CA erred in treating Section 4(i) of the deeds as an implied warranty against eviction; Section 4(i) is an express contractual warranty assuring the buyer that the property is “free and clear of all easements, liens and encumbrances.” The Court reiterated the distinction between express warranties (derived from contract language and creating contractual liability) and implied warranties (created by law and subject to the requisites for warranty against eviction under Article 1548). The requisites for an implied warranty against eviction (final judgment, deprivation by virtue of prior right, vendor summoned as co-defendant) were not present in the case. Therefore, the CA’s analogy to Article 1548 was misplaced.
Ruling on Knowledge/Bad Faith and Its Legal Effect
The CA’s conclusion that Makro had actual knowledge of the encroachment sufficient to bar recovery was rejected. The Supreme Court found that ocular inspection and visible nearby works did not equate to knowledge of the precise extent of the encroachment; only a relocation survey by a geodetic engineer could measure the diminution. Because the facts affirm encroachment but do not establish Makro’s actual knowledge of the exact loss prior to sale, knowledge did not preclude enforcement of the express contractual remedy (Section 2 price adjustment).
Quantum of Recovery and Correct Application of the Contractual Formula
The Court concluded that Section 2 of the deeds controlled the remedy: in case of deficiency, the purchase price is to be adjusted at P8,500.00 per square m
...continue readingCase Syllabus (G.R. No. 196419)
Parties and Nature of the Case
- Petitioner: Pilipinas Makro, Inc. (Makro), a duly registered domestic corporation seeking to acquire real properties in Davao City in 1999 to build and operate a store.
- Respondents: Coco Charcoal Philippines, Inc. (Coco Charcoal) and Lim Kim San (Lim), sellers of two contiguous and parallel parcels of land.
- Relief sought: Refund of the purchase price corresponding to the portions of each lot found to have been encroached upon by a Department of Public Works and Highways (DPWH) road widening and drainage project.
- Procedural posture: Petition for Review on Certiorari to the Supreme Court from the Court of Appeals (CA) Decision dated 30 December 2010 and Resolution dated 7 April 2011 in CA-G.R. CV No. 83836, which reversed the Regional Trial Court (RTC), Branch 276, Muntinlupa City, Decision of 16 August 2004.
Relevant Factual Background
- In 1999 Makro identified two suitable lots in Davao City to establish its business presence; the lots were contiguous and parallel.
- On 26 November 1999, Makro and Coco Charcoal executed a notarized Deed of Absolute Sale for Coco Charcoal’s parcel (1,000 sq. m., TCT No. 208776) for P8,500,000.00.
- On the same date Makro and Lim executed a notarized Deed of Absolute Sale for Lim’s parcel (1,000 sq. m., TCT No. 282650) for P8,500,000.00.
- Both deeds contained identical provisions, similar terms, conditions, and warranties beyond the technical descriptions.
- In December 1999 Makro engaged Engr. Josefino M. Vedua, a geodetic engineer, to conduct a resurvey and relocation of the two adjacent lots.
- The resurvey revealed that 131 square meters of Coco Charcoal’s lot and 130 square meters of Lim’s lot had been encroached upon by the DPWH project (road widening and construction of a drainage canal for the Davao-Cotabato National Highway).
- Following registration of the deeds of sale and cancellation of prior owners’ titles, TCT Nos. T-321199 and T-321049 were issued in January 2000 in favor of Makro.
Contractual Provisions Material to the Dispute
- Section 2 (General Investigation and Relocation) of the deeds:
- Buyer (Makro) to undertake at its own expense a general investigation and relocation by a mutually acceptable surveyor.
- In case of discrepancy between actual area and TCT-indicated area, purchase price to be adjusted at the rate of PESOS: EIGHT THOUSAND FIVE HUNDRED (Php8,500.000) per square meter, with increase or decrease correspondingly.
- Seller agrees to make necessary correction of title in case of discrepancy before transfer to buyer.
- Section 4(i) (Representations and Warranties) of the deeds:
- Seller represents and warrants that the property "is and shall continue to be free and clear of all easements, liens and encumbrances of any nature whatsoever" and will not be subject to claims, set-offs or defenses preventing buyer from obtaining full and absolute ownership, possession, development or use of the property as a store site.
Makro’s Demand, Claims and Reliefs Sought
- Makro informed sellers of the encroachment discovered by the resurvey and initially offered a compromise (refund of 75% of the value of the encroached portions).
- Makro sent a final demand letter seeking the refund corresponding to the encroached areas: P1,113,500.00 from Coco Charcoal (131 sq. m. x P8,500) and P1,105,000.00 from Lim (130 sq. m. x P8,500).
- After demands went unheeded, Makro filed separate complaints against Coco Charcoal and Lim to collect those sums.
RTC Proceedings and Decision (16 August 2004)
- The RTC granted Makro’s complaint and ordered respondents to refund the amount corresponding to the value of the encroached areas.
- RTC factual findings:
- The DPWH project encroached upon the purchased properties, and Makro had to adjust its perimeter fences accordingly.
- Drainage pipes and evidence of DPWH work had been installed prior to the sale.
- Respondents were found to have acted in bad faith by concealing from Makro that DPWH had taken possession of portions of the lands sold.
- RTC awards and directives (dispositive portion):
- Judgment for Makro and defendants LIM KIM SAN and Coco Charcoal Philippines, Inc. each directed to return and reimburse ONE MILLION FIVE HUNDRED THOUSAND (Php1,500,000.00) with interest at 12% per annum.
- Attorney’s fees of Php200,000.00 and exemplary damages of Php200,000.00 awarded against each respondent.
- Both defendants directed to pay costs of litigation.
Court of Appeals Ruling (30 December 2010) and Resolution (7 April 2011)
- CA reversed the RTC decision and dismissed Makro’s action for lack of cause of action.
- CA’s reasons:
- Acknowledged that DPWH project encroached on the frontal portions of the properties.
- Interpreted Section 4(i) as akin to the warranty against eviction under Article 1548 of the Civil Code; held that only a buyer in good faith may sue for breach of that warranty.
- Found that Makro had actual knowledge of the ongoing road widening project prior to the execution of the sale through ocular inspection; therefore Makro cannot claim warranty for the already encroached 131 and 130 sq. m. portio