J. M. TUASON & CO., INC., PETITIONER, VS. HON. COURT OF APPEALS, ALFONSO DE LEON AND ROSARIO G. DE LEON, RESPONDENTS.

Appeal by certiorari from the decision of respondent Court
of Appeals (CA-G.R. No. 54695-R) affirming with modification the decision of
the Court of First Instance of Manila in Civil Case No. 89119, which is an
action based on warranty against eviction, and to recover the value of a subdivision lot at the time of eviction, plus damages.

The following facts may be regarded as without any dispute:

On January 31, 1952,
petitioner J. M. Tuason & Co., Inc. executed, in favor of Ricardo de Leon,
a contract to sell Lot No. 15,
Block 460 of the Sta. Mesa Heights Sub­division containing an area of 1,703.6
square meters with the agreed price of P24.60 per square meter or a total of
P41,908.56.  At
the execution of the contract, Ricardo de Leon paid the down-payment of P4,190.86 and agreed to pay the balance in the monthly
installment of P498.63 including the agreed annual interest of 10% (Exhibit A).

Meanwhile, on April 10,
1953, petitioner signed a compromise
agreement with the Deudors (in another Civil Case No. Q-135, captioned
Florencio Deudor, et al. vs. J. M. Tuason, et al.).

On July 19, 1965
with the consent of the petitioner, Ricardo de Leon transferred all his rights
to the lot in favor of his parents, herein private respondents Alfonso and
Rosario de Leon (Exhibit B).  On the same
date, private respondents paid the outstanding balance of the purchase price
(Exhibit 1-B).  On August 5, 1965 petitioner executed in favor of
private respondents the deed of sale over the lot (Exhibit C) and upon its
registration, the Register of Deeds issued to the respondents the Transfer
Certificate of Title No. 96143 (Exhibit 3; Annex B, Rollo, 39-40).

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 (Annex B, id.).

On May 13, 1958,
herein petitioner filed a complaint of ejectment against Ramon Rivera before
the Court of First Instance of Rizal (Civil Case No. Q-2989) and later peti­tioner
impleaded Ricardo de Leon and respondents Alfonso and Rosario de Leon as
necessary parties.  In
this Civil Case No. Q-2989, the decision of the lower court, principally
based on the compromise agreement executed in another Civil Case No. Q-135
entitled Florencio Deudor, et al. vs. J. M. Tuason, et
al has the following dispositive portion:

“WHEREFORE, the complaint against the defendant Ramon Rivera
is hereby DISMISSED, ordering the plaintiff to enter into an agreement with
Ramon Rivera allow­ing said defendant to purchase 1,050 square meters of land
now covered by Lot 15, Block 460 of the Sta. Mesa Heights Subdivision to be
priced at the prevailing costs in the year 1958 which is placed by this Court
to be P60.00 per square meters; to pay attorney’s fees of P3,000.00 to
defendant Ramon Rivera, with costs against the plaintiff.” x x x x
(Underscoring supplied).

The Court of Appeals wholly affirmed this
decision with costs against plaintiff-appellant J. M. Tuason & Co., Inc.
(CA-G.R. No. 38212-R), and denied the motion for reconsideration filed by the
other plaintiffs-appellants Alfonso and Rosario de Leon, stating among
others:  “x x x We believe, however,
that these questions should be properly ventilated in the proper action which
the plaintiffs-appellants, the De Leons, may file against the
plaintiff-appellant (J.M. Tuason & Co., Inc.) for failure of the latter to deliver to them the possession of
the whole of Lot 15, Block 460 of the Sta. Mesa Heights Subdivision.  x x x.” (Annex
E, 4-5).

This decision of the Court of Appeals became final and executory
in September, 1971 when the De Leons were evicted from the premises in question
(Annex E, 6).

Pursuing the step as suggested by the Court of Appeals advising
herein private respondents to file the proper action, the latter instituted on
December 5, 1972 before the Court of First Instance of Manila, Branch XXIX,
Civil Case No. 89119, an action against J. M. Tuason & Co., Inc. to enforce
the vendor’s warranty against eviction or to recover the value of the land amounting to P315,000.00,
plus damages.

The lower court decided the case against herein peti­tioner J. M.
Tuason & Co., Inc. (defendant below) disposing as follows:

“WHEREFORE, judgment is hereby rendered in favor of the
plaintiffs and against the defendant:

(1)  Ordering defendant to pay plaintiffs the sum
of TWO HUNDRED TEN THOUSAND (P210,000.00) PESOS representing the value of the
1,050 square meters at P200.00 per square meter, from which the latter were
evicted, with legal interest from December 5, 1972, the date of filing of the
complaint;

(2)  Ordering defendant to pay plaintiffs the sum
of TWENTY FIVE THOUSAND (P25,000.00) PESOS, by way of
moral damages, TEN THOUSAND (P10,000.00) PESOS, by way of exemplary damages,
and FIFTEEN THOUSAND (P15,000.00) PESOS,
for and as attorney’s fees; and

(3)  For costs of this suit.”

This decision of the lower court was
appealed to herein respondent Court of Appeals (CA-G.R. No. 54695-R), which on July 2, 1975 affirmed it with the sole
modification on the reduction of the awarded moral damages from P25,000.00 to
P5,000.00 (Annex B, Rollo, p. 52).

Hence, this petition before Us with the prayer that the decision
of respondent court be reversed and another rendered, dismissing the complaint
and ordering respondents De Leons to accept from petitioner J. M. Tuason &
Co., Inc. the sum of P60.00 per square meter for the 1,050 square meters which
the petitioner was ordered to sell to Ramon Rivera, and to pay petitioner P30,000.00 as attorney’s fees plus costs.

Petitioner J. M. Tuason & Co., Inc. alleges that respondent
court erred:  (1) in holding that the compromise agreement was the proximate cause
of its failure to comply with its contract to sell in favor of Ricardo de Leon;
(2) in holding that it entered into the compromise agree­ment without the
knowledge and behind the back of Ricardo de Leon and thereafter continued the
collection of the installments until the purchase
price was fully paid and thus it wilfully committed fraud against him;
(3) in not considering that Ricardo de Leon was guilty of bad faith in entering
into the contract to sell and therefore he is not entitled to the warranty
against eviction; and (4) in granting moral and exemplary damages.

The real point in issue is whether respondents De Leon are
entitled to the vendor’s warranty against eviction and damages.

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 x
x x.”

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 in Civil Case No. Q-135 entitled “Florencio Deudor, et al. vs.
J. M. Tuason, et al.” 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. 
The execution of the compromise agreement merely recognized this prior
right, under the condition as stipulated in said, agreement, that it was
possible to do so.

Petitioner claims, without having been contradicted, that it
executed the compromise agreement with the Deudors in the honest belief that
the lots it already sold, like the lot in question, were excluded from the
coverage of the agreement.  This claim
finds support in paragraph “SEVENTH” of the compromise agreement
which reads “x x x It shall be the joint and solidary obligation of the
Deudors to make the buyers of the lots purportedly sold by them recognize the
title of the OWNERS over the property purportedly bought by them, and to make
them sign, whenever possible, new contracts of purchase for the said
property at the current prices and terms specified by the OWNERS in their sales
of lots in their subdivision known as Sta. Mesa Heights Sub­division x x
x.  (Annex C, Rollo, p.
55).  In fact,
in their brief as appellants in CA-G. R. No. 38212-R, private
respondents stated that “as correctly pointed out in the brief for
plaintiff-appellant, it was not the intention of the signa­tories of the
Compromise Agreement to include within its coverage those parcels of land
already sold by plaintiff-appellant (petitioner herein) to third parties,”
and “We reproduce herein by way of reference the arguments in pp. 12 to 39
of plaintiffs-appellants brief.” (See Annex C, Petition,
pp. 3-4).  Private respondents
should not be allowed to turn back from what they stated in their brief in
CA-G. R. No. 38212-R, to impute “wilful deception”, as the respondent
court said in its decision under review.

This particular stipulation in the compromise agreement discloses
an understanding between the petitioner and the Deudors that the buyers of lots
from the Deudors, like Ramon Rivera, may acquire lots from the subdivision
being sold by petitioner and sign new contracts of purchase with the latter
“whenever possible”, or only when said lots have not already been sold to third parties.  Relying on the above-quoted provision,
petitioner believed in good
faith that said lot already sold to the De Leons would not be adversely
affected.  Nonetheless, with the
inevitable and admitted fact that Ramon Rivera was a prior occupant thereof,
petitioner was compelled, by
judicial fiat in Civil Case No. 2989 of the Court of First Instance of Rizal,
to recognize the preferential right of Rivera to rightfully purchase the
lot.  This fact is not of itself a proof
under the circumstance just cited, of bad faith on the part of the petitioner
or that it is guilty of committing fraud and deception upon the respondents, as
the respondent court found.  Its good
faith in dealing with Ricardo de Leon who was the one branded as a “buyer
in bad faith” by the Court of Appeals in its decision affirming that of
the Court of First Instance of Rizal in CA-G. R. No. 38212-R seems beyond question.

If petitioner continued the collection of the outstanding monthly
installments after the execution of the compromise agreement on April 10, 1953
pursuant to the agreements embodied in the contract to sell (Exhibit A), its
act only proved its honest belief that it found no barrier against the
enforceability of the contract to sell, the terms of which have the force of
law between the parties and must be complied with in good faith (Lazo vs.
Republic Surety & Insurance Co., Inc., 31 SCRA 329; Ramos vs. Central Bank
of the Philippines., 41 SCRA 565; Enriquez vs. Ramos, 73 SCRA 116; De Cortes
vs. Venturanza, 79 SCRA 709).  The
collection of the monthly installment payments terminated upon the full payment
of the purchase price on July 19, 1965,
long before the ejectment case against Ramon Rivera was finally resolved by the
appellate court in September, 1971 (Civil Case No. Q-2989;
CA-G. R. No. 38212-R).  As
properly claimed by the petitioner, it had the right to hopefully expect to win
the ejectment case.  It was not exactly
its fault that it lost the case.  Private
respondents joined in a common cause with it.

The subsequent execution of a deed of sale upon the total payment
of the purchase price in favor of herein respondents on August 5, 1965 in lieu
of the previous contract to sell made in favor of Ricardo de Leon, through
which deed of sale the respondents acquired a transfer certificate of title
over the questioned lot, is further evidence of the honesty and good faith of
petitioner in dealing with private respondents. 
Petitioner owns vast tracts of land, with the lot in question possibly
put an insignificant part in terms of value, and it would be much too difficult
to make the serious imputations made to petitioner.

In fulfillment of the assurance made to eject the occu­pant from
the lot, petitioner, on May 13, 1958,
later joined by Ricardo de Leon and respondents Alfonso and Rosario de Leon,
instituted a complaint of ejectment against Ramon Rivera in Civil Case No. Q-2989.  Unfortunately, however, the decision of the
lower court dismissing the complaint of ejectment was affirmed by the appellate
court in CA-G. R. No. 38212-R, which decision of the latter upon its finality in September, 1971 resulted in the
eviction of herein respondents from the lot. 
It is meet, at this juncture, to repeat that in
its decision, the Court of Appeals branded Ricardo de Leon as a buyer in bad
faith.

In manifesting its desire to compensate
respondents, as disclosed by prayer in the instant petition in the sum of
P60.00 per square meter for the 1,050 meters which it was ordered by the
courts, in Civil Case No. Q-2989 and CA-G. R.
No. 38212-R, to sell to Ramon Rivera, again reveals how fair petitioner would
want to be to private respondents, not to defraud them as the respondent court would ascribe such base intent to petitioner,
which is by no means not a disreputable, but a respectable, corporation.

For all the foregoing circumstances.  We have no hesitation to give to petitioner
the benefit of the doubt of its having acted in good faith, which is always
presumed, without any intention of taking advantage of the other party dealing
with it. “Good faith consists in an honest intention to abstain from
taking any unconscientious advantage of another.  Good faith is an opposite of fraud and of bad
faith and its nonexistence must be
established by competent proof.” (Leung Yee vs. Strong
Machinery Company, 37 Phil. 645; Cui vs Henson, 51 Phil. 606, 612; Fule vs. De
Legare, 7 SCRA 351).

Moreover, at the time of
the execution of the contract to sell, it is an admitted fact that Ricardo de
Leon knew that a third party was occupying a part of the lot subject of the
sale.  Ricardo de Leon ought to have
known that he was buying a property with the distinct possibility of not being
able to possess and own the land due to the occupancy of another person on the
same.  So there had to be an
understanding between him and the petitioner for the latter to eject the
occupant, something which, by the facts then obtaining and the law relevant
thereto, would make the eject­ment more speculative than certain.  Nonetheless, Ricardo de Leon knowingly
assumed the risk when he bought the land, and was even called a vendee in bad
faith by the Court of Appeals in doing so, clearly not an innocent
purchaser in good faith.  If petitioner
assumed that it would eject Ramon Rivera, he did so, not knowing that the
compromise agreement would stand on the way, as it had thought, in all good
faith, that paragraph 7 of the compromise agreement excluded the lot in question, having been already sold to Ricardo de Leon before the
agreement was executed in court.

This Court is impelled to
declare that 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.  (Angelo
vs. Pacheco, 56 Phil 70; Andaya vs. Manansala, 107 Phil 1151).

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
(Leung Yee vs. Strong Machinery Company, supra; Manacop, Jr. vs. Cansino, 1
SCRA 572; Paylago vs. Jarabe, 22 SCRA 1247; Barrios vs. Court of Appeals, 78
SCRA 427; Underscoring Ours).

Without being shown to be vendees in good faith, herein
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 ONE HUNDRED TWENTY SIX
THOUSAND (P126,000.00) PESOS, representing the aggregate value of the 1,050
square meters (which petitioner was judicially ordered to sell to Ramon Rivera
at the year 1958 prevailing rate of P60.00 per square meter) at the value of
P120.00 per square meter, doubling the price of P60.00 per square meter which
amount petitioner voluntarily offered to pay herein respondents following how
indemnity for death had been raised from P6,000.00 to P12,000.00 (People vs.
Pantoja, 25 SCRA 468, 474 [1968]) based on grounds of equity, due to the
reduced purchasing power of the peso, with the legal rate of interest from
December 5, 1972, the date respondents filed their complaint, until the said
total sum is fully paid.

WHEREFORE, the judgment of respondent court is hereby
modified by ordering petitioner J. M. Tuason & Co., Inc. to pay the respondents the amount of ONE HUNDRED
TWENTY-SIX THOUSAND (P126,000.00) PESOS plus the legal rate of interest from
December 5, 1972, the date of filing the complaint, until the said total sum is
fully paid.  No costs.

SO ORDERED.

Teehankee, (Chairman), Fernandez,
and Guerrero, JJ.,
concur.

Makasiar, J., in the result.

Melencio-Herrera, J., took no
part.