BREACH OF WARRANTY AGAINST EVICTION

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Published — April 28, 2021

The following post does not create a lawyer-client relationship between Alburo Alburo and Associates Law Offices (or any of its lawyers) and the reader. It is still best for you to engage the services of your own lawyer to address your legal concerns, if any.

Also, the matters contained in the following were written in accordance with the law, rules, and jurisprudence prevailing at the time of writing and posting, and do not include any future developments on the subject matter under discussion.

Aside from this article about BREACH OF WARRANTY AGAINST EVICTION, read also: Ejectment of unlawful occupant from leased premises

• A warranty is a collateral undertaking in a sale either real or personal property

• If the property sold does not possess certain qualities, the purchaser may either consider the sale void

• The buyer may claim damages for breach of warranty

May a buyer claim a refund even if he has knowledge of the encroachment on the land he bought?

For a better understanding, let us take the case of Pilipinas Makro, Inc., vs. Coco Charcoal Philippines, Inc. and Lim Kim San, G.R. No. 196419, October 4, 2017.

In this case, Pilipinas Makro, Inc. (Makro) is a duly registered domestic corporation. In 1999, it was in need of acquiring real properties to build on and operate a store to establish its business presence. After conferring with authorized real estate agents, Makro found two parcels of land suitable for the purpose.

On 26 November 1999, Makro and Coco executed a notarized Deed of Absolute Sale wherein the latter would sell its parcel of land to the former. On the same date, Makro entered into another notarized Deed of Absolute Sale with Lim for the sale of the latter’s land with the same total area and for the same consideration.

Coco and Lim’s parcels of land are contiguous and parallel to each other. Aside from the technical descriptions of the properties in question, both deeds of sale contained identical provisions, similar terms, conditions, and warranties.

In December 1999, Makro engaged the services of a geodetic engineer to conduct a resurvey and relocation of the two adjacent lots. As a result of the resurvey, it was discovered that 131 square meters of the lot purchased from Coco had been encroached upon by the Department of Public Works and Highways (DPWH) for its road widening project and construction of a drainage canal to develop and expand the Davao-Cotabato National Highway. On the other hand, 130 square meters of the land bought from Lim had been encroached upon by the same DPWH project. Meanwhile Transfer Certificate of Titles (TCTs) were issued in January 2000 in favor of Makro after the deeds of sale were registered and the titles of the previous owners were cancelled.

Makro informed the representatives of Coco and Lim about the supposed encroachment on the parcels of land due to the DPWH project. Initially, Makro offered a compromise agreement in consideration of a refund of 75% of the value of the encroached portions. Thereafter, Makro sent a final demand letter to collect the refund of the purchase price corresponding to the area encroached upon by the road widening project. Failing to recover such, Makro filed separate complaints against Coco and Lim to collect the refund sought.

Can Marko collect a refund?

The Supreme Court said:

Yes.

In ruling in favor of Marko, the Supreme Court noted that the former is entitled to the remedies available in case of breach of warranty of eviction. 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.

To recall, the deeds of sale between the parties in this case 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. Also, in order for the implied warranty against eviction to be enforceable, the following requisites must concur:

1. there must be a final judgment;
2. the purchaser has been deprived of the whole or part of the thing sold;
3. said deprivation was by virtue of a prior right to the sale made by the vendor; and
4. vendor has been summoned and made co-defendant in the suit for eviction at the instance of the vendee.

Furthermore, as opposed to the findings of the Court of Appeals, the knowledge of Marko that the DPWH project had encroached upon the subject of the sale is not enough to impute bad faith on the part of Marko. A mere ocular inspection could not have possibly determined the exact extent of the encroachment. It is for this reason that only upon a relocation survey performed by a geodetic engineer, was it discovered that 131 square meters and 130 square meters of the lots purchased from Coco Charcoal and Lim, respectively, had been adversely affected by the DPWH project. Bad faith, however, 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.

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Alburo Alburo and Associates Law Offices specializes in business law and labor law consulting. For inquiries regarding illegal dismissal, you may reach us at info@alburolaw.com, or dial us at (02)7745-4391/0917-5772207.

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