J.M. TUASON & CO, INC. VS.

CA (1979)

FACTS: J.M. Tuason & Co., Inc. executed, in favor of Ricardo de Leon, a contract to sell in Sta.
Mesa Heights Subdivision containing an area of 1,703.6sqm. He paid the down payment and
agreed to pay the rest in monthly installments. Meanwhile, JM Tuason entered into a
compromise agreement with Deudors (in another civil case) which affect the 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.

HELD: No. 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.