TL;DR
In land sales, a buyer can still claim a refund for encumbered portions even if the encumbrance (like a road widening project) was visible before the purchase. The Supreme Court clarified that an express warranty in the sale contract guaranteeing clear title overrides the buyer’s general awareness of visible issues. This means sellers are held to their explicit promises of unencumbered property, and buyers aren’t automatically assumed to have waived their rights just by seeing potential problems. This ruling protects buyers who rely on sellers’ contractual guarantees of clear land titles, ensuring they receive what they paid for.
Beyond the Pavement: Upholding Express Warranties in Property Deals
Imagine purchasing land for your business, only to discover a significant portion is already earmarked for a government road project. This was the predicament faced by Pilipinas Makro, Inc. (Makro) when it bought parcels of land from Coco Charcoal Philippines, Inc. and Lim Kim San. While Makro was aware of ongoing roadworks nearby, the deeds of sale explicitly warranted that the properties were free from encumbrances. Later, a survey revealed that the Department of Public Works and Highways (DPWH) had encroached on a substantial part of the land for a road widening project. The core legal question: Could Makro claim a refund for the unusable portion, despite the visible roadworks?
The Regional Trial Court (RTC) initially sided with Makro, ordering a refund. However, the Court of Appeals (CA) reversed this, arguing that Makro’s awareness of the road project meant they couldn’t claim ignorance of the encumbrance and thus waived the warranty. The CA likened the warranty in the deed to a warranty against eviction, requiring good faith from the buyer. The Supreme Court, however, disagreed with the CA’s interpretation. Justice Martires, writing for the Third Division, emphasized the distinction between express and implied warranties. The deeds of sale contained an express warranty stating the properties were “free and clear of all easements, liens and encumbrances.” This explicit promise, the Court reasoned, is distinct from an implied warranty against eviction, which arises by operation of law and requires specific conditions like a final judgment of eviction.
The Supreme Court highlighted that the CA erred in equating the express warranty to an implied warranty against eviction. An express warranty is directly stated in the contract, while an implied warranty is inferred by law. The requisites for enforcing an implied warranty against eviction, such as a final judgment and summoning of the vendor, were absent in this case because no eviction suit occurred. Even if the warranty were implied, the Court refuted the CA’s finding of bad faith on Makro’s part. While Makro conducted an ocular inspection and saw ongoing construction, the Court deemed this insufficient to equate to actual knowledge of the precise encroachment. A visual inspection alone couldn’t accurately determine the extent of the DPWH project’s impact on the property boundaries. It was only through a professional geodetic survey that the encroachment was definitively measured.
The decision underscores the primacy of express warranties in contracts. Sellers who explicitly warrant the clear title of property are bound by that promise. The Court clarified that visible, ongoing public works do not automatically negate a seller’s express guarantee of unencumbered land. This ruling provides significant protection to buyers who rely on the written terms of sale agreements. However, the Supreme Court corrected the RTC’s awarded refund amount. The deeds stipulated a price adjustment of P8,500.00 per square meter for discrepancies in land area. Applying this rate to the encroached areas (131 sqm and 130 sqm), the Court adjusted the refund to P1,113,500.00 from Coco Charcoal and P1,105,000.00 from Lim, rescinding the RTC’s inflated P1,500,000.00 award. The Court also removed the RTC’s awards for attorney’s fees and exemplary damages, finding no sufficient evidence of bad faith or malicious intent from the respondents to justify these additional penalties. The Court reiterated that attorney’s fees are not automatically granted and exemplary damages require proof of wanton, fraudulent, or oppressive conduct, which were not adequately demonstrated in this case.
FAQs
| What is an express warranty? | An express warranty is a specific promise or guarantee made by the seller about the property, explicitly stated in the contract of sale. |
| What is an implied warranty against eviction? | An implied warranty against eviction is a guarantee by the seller that the buyer will not be dispossessed of the property due to a prior claim. This warranty is implied by law, even if not explicitly stated in the contract. |
| Why was Makro entitled to a refund despite seeing the roadworks? | Because the deeds of sale contained an express warranty that the properties were free from encumbrances. This warranty took precedence over Makro’s general awareness of the visible road widening project. |
| Did the Supreme Court say buyers should ignore visible issues during property purchase? | No. Buyers should still conduct due diligence. However, this case clarifies that an express warranty in the contract is a binding promise from the seller, and buyers can rely on it. |
| What is the practical implication of this ruling for property buyers? | This ruling strengthens buyer protection by upholding express warranties in property sales. It ensures that sellers are accountable for their explicit promises regarding property titles. |
| Were attorney’s fees and exemplary damages awarded in the final decision? | No. The Supreme Court removed the RTC’s award of attorney’s fees and exemplary damages, finding insufficient evidence of bad faith or malicious intent from the sellers. |
For inquiries regarding the application of this ruling to specific circumstances, please contact Atty. Gabriel Ablola through gaboogle.com or via email at connect@gaboogle.com.
Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: Pilipinas Makro, Inc. v. Coco Charcoal Philippines, Inc., G.R. No. 196419, October 04, 2017
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