Makro v. Coco Charcoal
REITERATIONFacts
The Antecedents: Petitioner Pilipinas Makro, Inc. (Makro) purchased two contiguous parcels of land from respondents Coco Charcoal Philippines, Inc. (Coco Charcoal) and Lim Kim San (Lim) for their respective businesses. Both deeds of sale contained identical provisions, including warranties. Makro engaged a geodetic engineer for a resurvey, which revealed that portions of both lots (131 sqm from Coco Charcoal and 130 sqm from Lim) were encroached upon by the Department of Public Works and Highways (DPWH) for a road widening project and drainage canal construction. Procedural History: Makro demanded a refund for the encroached portions. Upon failure to recover, Makro filed separate complaints against Coco Charcoal and Lim. The Regional Trial Court (RTC) ruled in favor of Makro, ordering the respondents to refund the value of the encroached areas and awarding attorney's fees and exemplary damages. The Court of Appeals (CA) reversed the RTC decision, holding that Makro was not entitled to a refund because it had actual knowledge of the encroachment, likening the warranty in the deed to a warranty against eviction which requires good faith. Makro's motion for reconsideration was denied. The Petition: Makro filed a petition for review on certiorari, raising issues on the CA's denial of its motion for extension to file a motion for reconsideration and its denial of a refund on the ground of bad faith.
Issue(s)
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.
Ruling
The petition is meritorious. The Supreme Court reversed and set aside the CA decision, holding that Makro is entitled to recover ₱1,113,500.00 from Coco Charcoal Philippines, Inc. and ₱1,105,000.00 from Lim Kim San.
Ratio Decidendi
On the issue of the motion for extension: The Court found that Makro had cogent reasons for filing motions for extension to file a motion for reconsideration, namely, the withdrawal of its former counsel due to appointment as a cabinet secretary and the serious illness of its new counsel. The Court reiterated that procedural rules are not meant to frustrate substantial justice and that exceptions to the non-extendible period for filing a motion for reconsideration exist for compelling reasons. In the interest of justice, the Court opted to relax the prohibition to thoroughly ventilate the substantive issues, especially since Makro's position was found to be meritorious. On the issue of refund and bad faith: The Court held that the CA erred in treating Section 4(i) of the deeds of sale as akin to an implied warranty against eviction. Section 4(i) constituted an express warranty that the property was free from all easements, liens, and encumbrances that would prevent the buyer from obtaining full and absolute ownership and possession. This express warranty is distinct from the implied warranty against eviction, which has specific requisites, including a final judgment and the vendor being summoned in the eviction suit, none of which were present here. The Court further disagreed with the CA's finding of bad faith on Makro's part. While Makro's counsel conducted an ocular inspection and noticed construction, this was insufficient to charge Makro with actual knowledge of the precise extent of the encroachment. A relocation survey by a geodetic engineer was necessary to ascertain the exact dimensions of the encroachment. Therefore, Makro was entitled to a refund based on the express warranty and the deficiency in the area, calculated at the rate of ₱8,500.00 per square meter as stipulated in Section 2 of the deeds of sale. The RTC's award of ₱1,500,000.00 each was deemed excessive and without factual basis, thus modifying it to the amounts prayed for by Makro in its complaint.
Main Doctrine
A buyer who has actual knowledge of an encroachment on the property at the time of sale may still be entitled to a refund if the seller provided an express warranty that the property is free from encumbrances, as such warranty is distinct from the implied warranty against eviction which requires good faith. Furthermore, mere ocular inspection is insufficient to establish actual knowledge of the precise extent of encroachment.