G.R. No. 78272 August 29, 1989
DR. and MRS. MERLIN CONSING, petitioners, vs. THE COURT OF APPEALS and CARIDAD SANTOS, respondents.

FACTS

Petitioners, the spouses Consing, subdivided their land and engaged in selling lots through Mearle Homes. On October 4, 1971, they entered into a Contract of Sale with respondent Caridad Santos for a house and two lots (Lots 25 and 26). The contract stipulated a purchase price payable in installments. Santos made payments but defaulted starting May 1972. The Consings made demands and eventually filed an ejectment case against her in 1974.
During the pendency of the ejectment case, Santos filed a complaint for specific performance with damages against the Consings. She alleged that the Consings sold her portions of the subdivision road, as a 168-square-meter “voluntary right of way” was constituted on the lots she purchased. It was also revealed that at the time of the sale, the Consings had not secured the required approval for their subdivision plan from the Municipal Council of Marikina, a fact they only rectified later.

ISSUE

The primary issue is whether Santos was justified in suspending her installment payments due to the Consings’ failure to secure subdivision approval and their act of selling portions of a designated road lot.

RULING

Yes, Santos was justified. The Supreme Court affirmed the decisions of the lower courts, which reduced the purchase price proportionately for the area used as a road and upheld Santos’s suspension of payments. The legal logic rests on the principle of reciprocal obligations under Article 1191 of the Civil Code and the vendors’ breach of warranty against hidden encumbrances.
The contract imposed reciprocal obligations: Santos to pay installments, and the Consings to deliver a lot free from defects. By selling lots that included a portion designated as a road right-of-way—a fact not fully disclosed as a permanent encumbrance diminishing the usable area—the Consings violated their warranty. Furthermore, their failure to secure the mandatory government approval for the subdivision plan at the time of the sale rendered their business operation illegal and the sale contract defective. This prior lack of approval constituted a breach of their obligation to ensure the property was legally fit for its intended residential purpose.
Santos’s refusal to continue payments was a valid remedy for the Consings’ prior breach. The reduction in price was an equitable adjustment for the loss of usable land area. The award of attorney’s fees was also upheld due to the Consings’ gross bad faith in selling property with a significant encumbrance and operating without the necessary permits, compelling Santos to litigate to protect her rights.