Power Commercial and Industrial Corp. v. CA, 274 SCRA 597 June 20, 1997

FACTS:

Petitioner Power Commercial & Industrial Development Corporation (PowerCom), an industrial asbestos manufacturer, needed a bigger office space and warehouse for its products. On January 31, 1979, petitioner Power Commercial entered into a contract of sale with the respondent spouses Reynaldo and Angelita R. Quiambao—involving a 612-sq. m. parcel of land in San Antonio Village, Makati City. The parties agreed that petitioner would pay private respondents spouses Quiambao P108,000.00 as down payment, and the balance of P295,000.00 upon the execution of the deed of transfer of the title. 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 PNB. June 1, 1979, 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 PowerCom agreed to assume payment of the loan. On June 26, 1979, the parties executed a Deed of Absolute Sale With Assumption of Mortgage. On the same date, Mrs. C.D. Constantino, then General Manager of PowerCom, submitted to PNB said deed with a formal application for assumption of mortgage. February 15, 1980, PNB informed respondent spouses that, for petitioner’s failure to submit the papers necessary for approval pursuant to the former’s letter dated January 15, 1980, the application for assumption of mortgage was considered withdrawn; that the outstanding balance of P145,000.00 was deemed fully due and demandable; and that said loan was to be paid in full within fifteen (15) days from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 PowerCom 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. On March 17, 1982, petitioner filed Civil Case No. 45217 against respondent spouses for rescission and damages. Petitioner demanded the return of the payments it made on the ground that its assumption of mortgage was never approved. May 31, 1983: while this case was pending, the mortgage was foreclosed. The property was  ubsequently bought by PNB during the public auction. 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. Court of Appeals reversed the trial court decision. 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 Petitioner contends: there was a substantial breach of the contract between the parties warranting rescission CA gravely erred in failing to consider in its decision that a breach of implied warranty under Article 1547 in relation to Article 1545 of the Civil Code applies in the case-at-bar.

ISSUE:

Whether or not petitioner failed to establish any breach of the warranty against eviction.

HELD:

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.

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: Lowell Vinluan