JM Tuazon & Co., Inc. v.

Court of Appeals
G.R. No. L-41233, 21 November 1979, 94 SCRA 413

FACTS:

Petitioner executed, in favor of Ricardo de Leon, a contract to sell a lot containing an

area of 1,703.6sqm. At the execution of the contract, the latter paid the down-payment
and agreed to pay the balance in the monthly installment including the agreed annual
interest. Meanwhile, petitioner signed a compromise agreement with the Deudors (in
another Civil case) which affect the same subject lot. This lot was later on sold to
Ramon Rivera.

On the other hand, De Leon transferred all his rights to the lot in favor of his parents,
herein private respondents Alfonso and Rosario de Leon. The parents paid the
outstanding balance. JM Tuason issued a deed of sale over the lot and upon its
registration, the Register of Deeds issued to the TCT. At the time of the execution of the
contract to sell, the contracting parties knew that a portion of the lot in question was
actually occupied by Ramon Rivera.

However, it was their understanding that the latter will be ejected by the petitioner from
the premises. Hence, JM Tuason filed a complaint of ejectment. The CFI dismissed and
ordered JM Tuason to enter into an agreement allowing Rivera to purchase 1,050 sqm.
The CA affirmed the decision and advised the De Leons to file a case against JM
Tuason. De Leons filed a case to enforce the vendor’s warranty against eviction or to
recover the value of the land. The CFI ruled in favor of De Leon and ordered JM Tuason
to pay. CA affirmed.

ISSUE:

Whether respondents De Leon are entitled to the vendor’s warranty against eviction and
damages.

RULING:

NO. It was not shown that they were vendees in good faith and thus being entitled to
warranty against eviction. One who purchases real estate with knowledge of a defect or
lack of title in his vendor cannot claim that he has acquired title thereto in good faith, as
against the true owner of the land or of an interest therein; and the same rule must be
applied to one who has knowledge of facts which should have put him upon such inquiry
and investigation as might be necessary to acquaint him with the defects in the title of
his vendor. A purchaser cannot close his eyes to facts which should put a reasonable
man upon his guard and then claim that he acted in good faith under the belief that
there was no defect in the title of the vendor.

The appellate court, in this action of warranty against eviction, found that petitioner J.M.
Tuason & Co., Inc. failed to comply with its obligation to transfer ownership over the lot
to the De Leons due to the compromise agreement it entered with the Deudors, and that
petitioner is guilty of “wilful deception, intentional forsaking of one to whom defendant
was bound in a contract to convey, and worse yet, even at that, after the compromise,
defendant still continued to collect installments from buyer.”

Contrary to these findings, this Court holds that it was not petitioner’s own making that it
executed the compromise agreement with the Deudors. This agreement was sanctioned
by the court after the Deudors filed an action against petitioner. JM Tuason also believed
that the compromise agreement did not include lots that have already been sold to third
parties. Its continuous receipt of payment from the De Leons only proved its honest
belief that it found no barrier against the enforceability of the contract to sell. It also
desired to compensate respondents as disclosed by prayer in the instant petition that it
is willing to sell to Ramon Rivera the lot in the sum of P60.00/ square meter. This again
reveals how fair petitioner would want to not to defraud them.

The prior right of Ramon Rivera to purchase the lot in litigation was based more on his
prior occupancy to the same since 1949, about which fact respondents De Leon were
informed by petitioner at the time of the execution of the contract to sell. Hence, private
respondents were lacking in good faith for knowing beforehand, at the time of the sale,
the presence of an obstacle to their taking over the possession of the land, which, in
effect, would amount to eviction from said land, and still they bought the land without first
removing that obstacle.

Without being shown to be vendees in good faith, respondents are not entitled to the
warranty against eviction nor are they entitled to recover damages (Article 1555 of the
Civil Code). However, for justice and equity sake, and in consonance with the salutary
principle of non-enrichment at another’s expense, herein petitioner J.M. Tuason & Co.,
Inc. should compensate respondents De Leons in the total sum of P126,000,
representing the aggregate value of the 1,050 square meters.