Petitioner Power Commercial & Industrial Development Corporation, an industrial asbestos manufacturer, needed a bigger office space and warehouse for its products. For this purpose, on January 31, 1979, it entered into a contract of sale with the spouses Reynaldo and Angelita R. Quiambao, herein private respondents. The contract involved a 612-sq. m. parcel of land covered by Transfer Certificate of Title No. S-6686 located at the corner of Bagtican and St. Paul Streets, San Antonio Village, Makati City. The parties agreed that petitioner would pay private respondents P108,000.00 as down payment, and the balance of P295,000.00 upon the execution of the deed of transfer of the title over the property. Further, petitioner assumed, as part of the purchase price, the existing mortgage on the land. In full satisfaction thereof, he paid P79,145.77 to Respondent Philippine National Bank (“PNB”). Respondent spouses mortgaged again said land to PNB to guarantee a loan of P145,000.00, P80,000.00 of which was paid to respondent spouses. Petitioner agreed to assume payment of the loan. The parties executed a Deed of Absolute Sale With Assumption of Mortgage. On the same date, Mrs. C.D. Constantino, then General Manager of petitioner-corporation, submitted to PNB said deed with a formal application for assumption of mortgage. PNB informed respondent spouses that, for petitioner’s failure to submit the papers necessary for approval pursuant to the former’s letter, the application for assumption of mortgage was considered withdrawn; that the outstanding balance of P145,000.00 was deemed fully due and demandable; and that said loan was to be paid in full within fifteen (15) days from notice.Petitioner paid PNB P41,880.45 on June 24, 1980 and P20,283.14 on December 23, 1980, payments which were to be applied to the outstanding loan. PNB received a letter from petitioner. On March 17, 1982, petitioner filed Civil Case No. 45217 against respondent spouses for rescission and damages before the RTC of Pasig, Branch 159. Then, in its reply to PNB’s letter of February 19, 1982, petitioner demanded the return of the payments it made on the ground that its assumption of mortgage was never approved. While this case was pending, the mortgage was foreclosed. The property was subsequently bought by PNB during the public auction. Thus, an amended complaint was filed impleading PNB as party defendant. The trial court ruled that the failure of respondent spouses to deliver actual possession to petitioner entitled the latter to rescind the sale, and in view of such failure and of the denial of the latter’s assumption of mortgage, PNB was obliged to return the payments made by the latter.On appeal by respondent-spouses and PNB, Respondent Court of Appeals reversed the trial court. It held that the deed of sale between respondent spouses and petitioner did not obligate the former to eject the lessees from the land in question as a condition of the sale, nor was the occupation thereof by said lessees a violation of the warranty against eviction. Hence, there was no substantial breach to justify the rescission of said contract or the return of the payments made.
Issue: Whether or not there is a breach of warranty against eviction.
Obvious to us in the ambivalent stance of petitioner is its failure to establish any breach of the warranty against eviction. Despite its protestation that its acquisition of the lot was to enable it to set up a warehouse for its asbestos products and that failure to deliver actual possession thereof defeated this purpose, still no breach of warranty against eviction can be appreciated because the facts of the case do not show that the requisites for such breach have been satisfied. A breach of this warranty requires the concurrence of the following circumstances:
(1) The purchaser has been deprived of the whole or part of the thing sold;
(2) This eviction is by a final judgment;
(3) The basis thereof is by virtue of a right prior to the sale made by the vendor; and
(4) The vendor has been summoned and made co-defendant in the suit for eviction at the instance of the vendee. 25
In the absence of these requisites, a breach of the warranty against eviction under Article 1547 cannot be declared.Petitioner argues in its memorandum that it has not yet ejected the occupants of said lot, and not that it has been evicted therefrom. As correctly pointed out by Respondent Court, the presence of lessees does not constitute an encumbrance of the land, nor does it deprive petitioner of its control thereof.We note, however, that petitioner’s deprivation of ownership and control finally occurred when it failed and/or discontinued paying the amortizations on the mortgage, causing the lot to be foreclosed and sold at public auction. But this deprivation is due to petitioner’s fault, and not to any act attributable to the vendor-spouses.Because petitioner failed to impugn its integrity, the contract is presumed, under the law, to be valid and subsisting.
Digest Credit: Mac Burdeos Camposuelo