Pilipinas Makro, Inc. is a duly registered domestic corporation. It bought a parcel of land from Coco Charcoal and executed a Deed of Absolute Sale wherein the latter would sell its parcel of land with a total area of 1,000 square meters for the consideration of PHP 8,500,000. On the same day, Makro entered into a notarized Deed of Absolute Sale with Lim Kim San for the sale of the latter’s land with a total area of 1,000 square meters for the same consideration of PHP 8,500,000.
Coco and Lim’s parcels of land are contiguous and parallel to each other. Aside from the technical descriptions of the properties, both deeds of sale contained identical provisions, similar terms, conditions, and warranties.
In December 1999, a resurvey was conducted by a geodetic engineer engaged by Makro which reported that 131 square meters of the lot purchased from Coco had been encroached upon by the DPWH for its road widening project. On the other hand, 130 square meters of the land bought from Lim was also encroached by the said DPWH project.
Makro informed the representatives of Coco and Lim about the supposed encroachment on the parcels of land. Initially, Makro asked for a refund amounting to 75% of the value of the encroached properties.
Since no refund was made, Makro sent a final demand letter to collect the refund of PHP 1,113,500 from Coco and PHP 1,105,000 from Lim corresponding to the area encroached upon by the DPWH project.
The Regional Trial Court granted Makro’s complaint and ordered respondents to refund the amount corresponding to the value of the encroached area.
On the other hand, the Court of Appeals reversed the trial court’s decision and noted that Makro was not entitled to the refund. Accordingly, the warranty expressed in Section 4(i) of the deeds of sale is similar to the warranty against eviction set forth under Article 1548 of the New Civil Code. It also posited that only a buyer in good faith may sue to a breach of warranty against eviction. Further, it noted Makro’s actual knowledge of the encroachment before the execution of the sale constitutes its recognition that Coco and Lim’s warranty against liens, easements, and encumbrances does not include the respective 131 and 130 square meters affected by the DPWH project, but covers only the remainder of the property.
Issues:
- Whether the Court of Appeals erred in denying Makro’s motion for extension to file a motion for reconsideration;
- Whether the Court of Appeals erred in denying Makro a refund on the ground of bad faith
The petition was granted. Makro is entitled to the refund of PHP 1,113,500 from Coco and PHP 1,105,000 from Lim, respectively.
Procedural rules are set not to frustrate the ends of substantial justice, but are tools to expedite the resolution of cases on their merits. The Court found a cogent reason exists to justify the relaxation of the rules regarding the filing of motion for extension to file a motion for reconsideration.
A warranty is a collateral undertaking in a sale of either real or personal property, express or implied, that if the property sold does not possess certain incidents or qualities, the purchaser may either consider the sale void or claim damages for breach of warranty. Thus, a warranty may either be express or implied.
An express warranty pertains to any affirmation of fact or any promise by the seller relating to the things, the natural tendency of which is to induce the buyer to purchase the same. It includes all warranties derived from the language of the contract, so long as the language is express – it may take the form of an application, a promise or a representation.
Meanwhile, an implied warranty is one which the law derives by appreciation or inference from the nature of transactions of the relative situation or circumstances of the parties, irrespective of any intention of the seller to create it. Simply put, express warranty is found in the very language of the contract while implied warranty is by operation of law.
Thus, the Court of Appeals erred in treating Sec. 4(i) of the deeds of sale as akin to an implied warranty against eviction. First, the deeds of sale categorically state that the sellers assure that the properties sold were free from any encumbrances which may prevent Makro from fully and absolutely possessing the properties in question. Second, in order for the implied warranty against eviction to be enforceable, the following requisites must concur: (a) there must be a final judgment; (b) the purchaser has been deprived of the whole or part of the thing sold; (c) said deprivation was by virtue of a prior right to the sale made by the vendor; and (d) the vendor has been summoned and made co-defendant in the suit for eviction at the instance of the vendee. Notably, there was no final judgment and no opportunity for the vendors to have been summoned as no judicial action was instituted.
The Regional Trial Court erred in ordering respondents to pay PHP 1,500,000 each to Makro. Under Sec. 2 of the deeds of sale, the purchase price shall be adjusted in case of increase or decrease in the land area at the rate of PHP 8,500 per square meter. Applying the formula set under the deeds of sale, Makro should be entitled to receive PHP 1,113,500 from Coco Charcoal and PHP 1,105,000 from Lim.
Exemplary damages and attorney’s fees may be awarded only for cause provided by law. It is settled that the fact that a party was compelled to litigate his cause does not necessarily warrant the award of attorney’s fees.
The general rule is that attorney’s fees cannot be rewarded as part of damages because of the policy that no premium should be placed on the right to litigate. Even when a claimant is compelled to litigate with third persons to incur expenses to protect his rights, still, attorney’s fees may not be awarded where no sufficient showing of bad faith could be reflected in a party’s persistence in a case other than an erroneous conviction of the righteousness of his cause.
Exemplary damages may be awarded if the defendant had acted in a wanton, fraudulent, reckless, oppressive or malevolent manner.
Bad faith involves a state of mind dominated by ill will or motive implying a conscious and intentional design to do a wrongful act for a dishonest purpose or moral obliquity.
There being no showing that respondents had acted in bad faith in refusing Makro’s demand for refund, the damages and attorney’s fees awarded should be deleted.
