Goodyear Philippines, Inc. vs. Anthony Sy and Jose L. Lee

A complaint fails to state a cause of action if it does not allege an act or omission by the defendant that violates a right of the plaintiff. In a contract of sale, the vendor impliedly warrants that the thing is free from hidden charges or encumbrances not declared or known to the vendee; however, an unresolved police alert status over which the vendor has no authority does not constitute such an encumbrance, and its existence does not amount to a breach of warranty absent any deliberate act or omission by the vendor. Further, an action for breach of implied warranties must be brought within six months from delivery of the thing sold.

Goodyear Philippines, Inc. purchased a 1984 Isuzu JCR 6-wheeler truck in 1983. The vehicle was hijacked in April 1986, reported to the Philippine National Police, and an alert alarm was issued. The vehicle was recovered later in 1986 and returned to Goodyear, which continued using it until 1996. On September 12, 1996, Goodyear sold the vehicle to Anthony Sy. Sy then sold it to Jose L. Lee on January 29, 1997. When Lee attempted to register the vehicle in his name, the PNP Regional Traffic Management Office in Legazpi City certified that it was a stolen vehicle and the alarm had not been lifted. The PNP impounded the vehicle and charged Lee criminally. Lee filed an action for rescission of contract with damages against Sy. Sy brought a third-party complaint against Goodyear.

• The Vehicle and Initial Hijacking: Goodyear Philippines, Inc. was the original owner of a 1984 Isuzu JCR 6-wheeler truck with Plate No. PEL 685, purchased from Industrial and Transport Equipment, Inc. in 1983. The vehicle was hijacked on April 30, 1986. Goodyear reported the hijacking to the Philippine National Police, which issued an alert alarm for the vehicle as stolen. The vehicle was recovered later in 1986 and returned to Goodyear.
• Sale to Sy: Goodyear continued using the vehicle for a decade. On September 12, 1996, Goodyear sold the truck to Anthony Sy under a Deed of Sale, which stated that Goodyear was the absolute owner of the vehicle.
• Sale to Lee and Impoundment: Sy sold the vehicle to Jose L. Lee on January 29, 1997. When Lee attempted to register it, the PNP Regional Traffic Management Office in Legazpi City issued a certification that the vehicle was listed as stolen and the alert alarm had never been lifted. The PNP impounded the vehicle and charged Lee criminally. Lee filed an action for rescission of contract with damages against Sy.
• Third-Party Complaint: Sy, upon being informed of the registration denial, requested Goodyear to ask the PNP to lift the alert status. On July 10, 1997, Goodyear made such a request. Nevertheless, Sy filed a third-party complaint against Goodyear on January 9, 1998. The complaint alleged that because the vehicle was under a stolen-vehicle alert, Goodyear had violated its warranty to convey the vehicle free from liens and encumbrances.
• Goodyear’s Motion to Dismiss: Goodyear moved to dismiss on March 24, 1998, asserting that the third-party complaint stated no cause of action and that any cause of action had been extinguished. The RTC found that the complaint did not allege any act or omission by Goodyear violating Sy’s right, and that Goodyear’s ownership was never contested; the PNP’s failure to lift the alert did not make Goodyear any less the owner. The RTC dismissed the third-party complaint.

• Failure to State a Cause of Action: Petitioner argued that the third-party complaint did not allege any specific act or omission on its part that violated respondent Sy’s rights; the complaint merely relied on the PNP’s alert status, a matter over which petitioner had no control and which did not affect petitioner’s ownership.
• No Breach of Warranty: Petitioner maintained that it was the absolute owner of the vehicle at the time of sale and had delivered ownership and possession to Sy; the impoundment and registration refusal were caused solely by the PNP’s administrative lapse, not by any defect in petitioner’s title or any act imputable to it.
• Extinguishment of Cause of Action: Petitioner contended that even assuming a breach of implied warranty, the action had prescribed because more than six months had elapsed from the delivery of the vehicle on September 12, 1996 to the filing of the third-party complaint on January 9, 1998. Petitioner also pointed to the absence of any allegation that notice of the breach was given within a reasonable time.

• Breach of Warranty Against Encumbrances: Respondent Sy argued that Goodyear breached the warranty in the Deed of Sale to convey the vehicle free from all liens, encumbrances, and legal impediments; the unresolved hijacking alert constituted a legal impediment that prevented registration and peaceful possession.
• Right to Enforce Warranty: Respondent maintained that he had a right to protect and a warranty to enforce, while Goodyear had the corresponding obligation to honor that warranty; the refusal of registration rendered the sale defective, and Goodyear’s failure to ensure the alert was lifted proximately caused his injury.
• No Prescription: Implicit in respondent’s position was that the cause of action was not extinguished and that Goodyear remained liable for the consequences of the subsisting alert status.

• Cause of Action: Whether the third-party complaint filed by Sy stated a cause of action against Goodyear.
• Breach of Warranty: Whether Goodyear breached any implied warranty under the contract of sale.
• Extinguishment: Whether the cause of action, if any, was extinguished by prescription or by failure to give notice.

• Cause of Action: The third-party complaint was found not to state a cause of action. A cause of action requires three elements: the legal right of the plaintiff, the correlative obligation of the defendant, and an act or omission by the defendant violating that right. The complaint failed to allege the third element — no act or omission by Goodyear was pleaded that proximately caused injury to Sy. The pleading capitalized solely on the PNP’s alert status, a fact for which Goodyear was not responsible. The Deed of Sale attached to the complaint itself stated that Goodyear was the absolute owner; no contrary assertion was made. Thus, admitting the allegations as true, no valid judgment could be rendered against Goodyear.
• Breach of Warranty: No breach of the implied warranty against hidden encumbrances was established. Under Article 1547 of the Civil Code, the vendor impliedly warrants that the thing is free from any charge or encumbrance not declared or known to the vendee. The unresolved police alert was not a lien, encumbrance, or legal impediment within the meaning of the warranty. It did not arise from any creditor’s right, debt, or claim attached to the property, but from a purely administrative law enforcement record that Goodyear had requested be lifted. Goodyear had no authority over the PNP’s action or inaction. The vehicle was owned by Goodyear free from any charge or encumbrance at the time of sale. Neither was there a breach of the warranty against eviction, as no final judgment deprived Sy of ownership based on a right prior to the sale or an act imputable to Goodyear.
• Extinguishment: Assuming arguendo there had been a breach, the action was extinguished. No allegation of notice to Goodyear within a reasonable time, as required by Article 1586 of the Civil Code, appeared in the complaint. More decisively, Article 1571 prescribes an action for breach of implied warranties within six months from delivery. The vehicle was delivered on September 12, 1996, and the third-party complaint was filed only on January 9, 1998 — beyond the six-month prescriptive period.

• Elements of a Cause of Action — A cause of action has three elements: (1) the legal right of the plaintiff; (2) the correlative obligation of the defendant to respect that right; and (3) an act or omission of the defendant violating that right. Failure to allege the third element warrants dismissal for failure to state a cause of action.
• Test for Sufficiency of a Complaint — To determine whether a complaint states a cause of action, the test is: admitting the truth of the facts alleged, can the court render a valid judgment in accordance with the prayer? Only material allegations in the complaint, together with annexed documents and admissions, are considered; extraneous matters are excluded.
• Implied Warranty Against Hidden Encumbrances (Art. 1547, Civil Code) — The vendor impliedly warrants that the thing sold is free from any charge or encumbrance not declared or known to the vendee. An encumbrance is a claim, lien, or liability attached to property that may lessen its value. A police alert status resulting from an earlier hijacking report — which the vendor reported and later sought to lift — is not such an encumbrance, absent any debt, creditor’s interest, or deliberate act rendering the vendor’s title defective.
• Prescription of Actions for Breach of Implied Warranties (Art. 1571, Civil Code) — Actions for damages arising from breach of implied warranties must be filed within six months from the delivery of the thing sold. Delivery occurs when the thing is placed in the control or possession of the vendee.
• Notice of Breach of Implied Warranty (Art. 1586, Civil Code) — A vendee must give notice of a breach of the implied warranty against hidden encumbrances to the vendor within a reasonable time after the vendee knew or ought to have known of the breach. Failure to allege such notice is fatal to the complaint.

• “A cause of action, which is an act or omission by which a party violates the right of another, has these elements: 1) the legal right of the plaintiff; 2) the correlative obligation of the defendant to respect that legal right; and 3) an act or omission of the defendant that violates such right.” — This passage defines the three essential elements, the absence of any one being ground for dismissal.
• “In determining whether an initiatory pleading states a cause of action, the test is as follows: admitting the truth of the facts alleged, can the court render a valid judgment in accordance with the prayer?” — The canonical test for failure to state a cause of action under Rule 16.
• “The impoundment of the vehicle and the failure to register it were clearly acts that were not deliberately caused by petitioner, but that resulted solely from the failure of the PNP to lift the latter’s own alarm over the vehicle. … Petitioner had no authority, much less power, over the PNP. Hence, the former did not breach its obligation as a vendor to Respondent Sy; neither did it violate his right for which he could maintain an action for the recovery of damages.” — The ratio on why the police alert status does not constitute a breach of warranty.

• Jimenez Jr. v. Jordana, 444 SCRA 250 (2004) — Cited for the definition and elements of a cause of action, and the test for determining whether a complaint states a cause of action; followed as controlling doctrine.
• Regino v. Pangasinan Colleges of Science and Technology, 443 SCRA 56 (2004) — Cited for the rule that failure to sufficiently allege a cause of action warrants dismissal under Section 1, Rule 16 of the Rules of Court.
• Hongkong and Shanghai Banking Corp. Ltd. v. Catalan, 440 SCRA 498 (2004) — Cited for the principle that the sufficiency of a complaint is determined on its face, without reference to extraneous matters.
• Heirs of Gregorio Licaros v. Sandiganbayan, 440 SCRA 483 (2004) — Cited for the requirement that a breach or violation must be alleged for a cause of action to exist.
• Sabio v. International Corporate Bank, Inc., 416 Phil. 785 (2001) — Cited in distinguishing a police alert from a lien or encumbrance in the legal sense.

• Article 1495, Civil Code — Provides that the vendor is bound to transfer ownership of and deliver the thing sold. Applied as the foundational obligation of Goodyear, which was fulfilled by the execution of the Deed of Sale and delivery of the vehicle.
• Article 1547, Civil Code — Enumerates the implied warranties in a contract of sale, including the warranty that the thing is free from any charge or encumbrance not declared or known to the vendee. The Court held that the unresolved PNP alert was not a charge or encumbrance within the meaning of this provision.
• Article 1571, Civil Code — Prescribes a six-month period for actions based on breach of implied warranties, reckoned from delivery. Applied as an alternative ground for dismissal.
• Article 1586, Civil Code — Requires the vendee to give notice of breach of the warranty against hidden encumbrances within a reasonable time. The third-party complaint was found deficient for failing to allege such notice.
• Section 2, Rule 2, Rules of Court — Defines a cause of action as the act or omission by which a party violates a right of another. Central to the determination that no cause of action was stated.
• Section 1(g), Rule 16, Rules of Court — States that a motion to dismiss may be filed on the ground that the pleading asserts no cause of action. The RTC’s dismissal under this rule was reinstated.

Associate Justices Angelina Sandoval-Gutierrez (on official leave), Renato C. Corona (on medical leave), Conchita Carpio Morales, and Cancio C. Garcia concurred. Acting Chief Justice Reynato S. Puno certified the decision.

None.