JM TUASON & CO., INC VS.

CA AND SPS DE LEON

FACTS:
 In 1952, Petitioner executed in favor of Ricardo De Leon a contract to sell a certain lot in
Sta. Mesa Heights Subdivision. At the execution, Ricardo paid a down-payment and
agreed to pay monthly installments for the balance.
 Meanwhile, Petitioner signed a Compromise Agreement with the Deudors.
 In 1965, Ricardo transferred all his rights to the lot in favor of his parents, herein private
respondents.
 Private respondents paid the outstanding balance and Petitioner then executed in their
favor the Deed of Sale of the subject lot and upon registration, ROD issued to them 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.
 Petitioner then filed a complaint of ejectment against Ramon Rivera before the CFI of
Rizal.
 CFI ruled in favor of Ramon Rivera and allowed him to purchase the lot he is occupying.
This decision was affirmed by the CA.
 Private respondents then instituted an action against Petitioner to enforce the vendor’s
warranty against eviction or to recover the value of the land.
 RTC ruled against JM Tuason. CA affirmed decision.

ISSUE:
 Whether or not the respondents De Leon are entitled to the vendor’s warranty against
eviction and damages.

RULING:
 NO. SC stated that there was no willful deception or fraud on the part of Petitioner when
he entered the Compromise Agreement with the Deudors since it was sanctioned by the
Court. 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.
 SC believes that Petitioner was in good faith and was in honest belief that the lots it
already sold to the De Leons were excluded from the coverage of the Compromise
Agreement as can be observed in the Par 7 of the said compromise agreement.
 Good faith of petitioner was also observed from the following:
o Continued collection of monthly installments after execution of compromise
Agreement showing that it honestly believed there are no barriers against the
enforceability of the contract to sell.
 o The subsequent execution of the Deed of Sale upon total payment of the purchase
price in favor of herein respondents.
o Manifesting its desire to compensate respondents for the portion of land sold to
Ramon Rivera.
 Ricardo De Leon and Private Respondents De Leon 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.
o 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.
 Without being shown to be vendees in good faith, herein respondents are not entitled to
the warranty against eviction