Sui Man Hui Chan v.

CA
QUICK DIGEST: Napoleon Madalla (lessor) and Ramon Chan (lessee) entered into a Lease
contract. Both of them died, but the contract was continued by their successors-in-interest.
When Oscar Medalla (heir) was filing a complaint for money for breach of contract against
Chan (wife of Ramon) and Co (manager), Chan and Co alleged they were not real parties-
in-interest, not having been signatories to the contract. – SC held they were since a lease
contract is one that is not personal, and heirs are bound by contracts entered into by their
predecessors-in-interest except when the rights and obligations arising therefrom are not
transmissible.
FACTS: Private respondent Oscar Medalla filed a complaint before the RTC of Mandaluyong
City for collection of a sum of money arising from breach of a contract of lease and
damages, against petitioners Sui Man Hui Chan and Gonzalo Co. The complaint alleged
that Napoleon C. Medalla as lessor and Ramon Chan as lessee entered into a Lease
Contract over a hotel building located at No. 29 Abanao Street, Baguio City. Chan would
use the leased premises as a restaurant named Cypress Inn. It was agreed that the lease
would be for 10 years (1988-1998), that the lessee would pay for the real estate taxes, and
that the agreement would be binding on their heirs/successors-in-interest. Petitioner Gonzalo
Co was employed by Ramon Chan as the general manager of Cypress Inn and acted as his
agent in all his dealings with Napoleon Medalla. In 1989, Ramon Chan died. He was survived
by his wife, petitioner Sui Man Hui Chan, who continued to operate the restaurant. In 1996,
Napoleon Medalla died. Among his heirs is private respondent Oscar Medalla, who
succeeded him as owner and lessor of the leased premises. The contract was neither
amended nor terminated after the death of the original parties but was continued by their
respective successors-in-interest. On various occasions, petitioners failed to pay the monthly
rentals due on the leased premises. On February 26, 1997, Medalla sent a letter addressed to
Ramon Chan, indicating that (1) the contract of lease would expire on July 15, 1998, and (2)
he was not amenable to a renewal of said contract after its expiration. Medalla then sent
demand letters to petitioners, but the latter still failed to pay the unpaid rentals. He also
found out that petitioners had not paid the realty taxes due on the leased premises since
1991, amounting to P610,019.11. Medalla then asked petitioners to settle the unpaid rentals,
pay the unpaid real estate taxes, and vacate the leased premises. On January 1999,
petitioners vacated the premises but without paying their unpaid rentals and realty taxes.
Medalla instituted the civil case. In their answer, petitioners alleged that the late Ramon
Chan had paid all the rentals due up to March 15, 1998. Moreover, they need not pay any
balance owing on the rentals as they were required to pay 2 months advance rentals upon
signing of the contract. Also, they alleged that it was respondent who was liable to pay for
the real estate taxes. Subsequently, petitioners filed a Supplemental Answer with Motion to
Dismiss alleging that they were neither parties nor privies to the Contract of Lease, hence
they are not the real parties-in- interest. Respondent’s Reply alleged that petitioner Chan, as
the owner of the business and petitioner Co as the agent of petitioner Chan, are clearly real
parties-in-interest in the case. Private respondent pointed to their continuous dealings with
him in all transactions relating to the contract after the death of Ramon Chan and even
after the expiration of the Contract of Lease. The RTC denied petitioners’ motion to dismiss.
The CA affirmed.
ISSUE: W/N petitioners’ were real parties-in-interest. Yes.
HELD: Petitioners insist that they were neither parties nor were they privy to the Contract of
Lease between the late Ramon Chan and Napoleon Medalla. They vigorously assert that
any claim for unpaid rentals should be made against the estate of Ramon Chan. It bears
stressing that petitioners Motion to Dismiss was filed after an Answer had already been filed.
This alone warranted an outright dismissal of the motion for having been filed in
contravention of the clear and explicit mandate of Section 1, Rule 16, of the Revised Rules of
Civil Procedure. Under this section, a motion to dismiss shall be filed within the time for but
before filing the answer to the complaint or pleading asserting a claim. The Court of Appeals
stated that the grant or denial of a Motion to Dismiss is an interlocutory order, and it cannot
be the proper subject of a special civil action for certiorari. The proper remedy in such a
case is to appeal after a decision has been rendered. It is undeniable that petitioner Chan is
an heir of Ramon Chan and, together with petitioner Co, was a successor-in-interest to the
restaurant business of the late Ramon Chan. Both continued to operate the business after
the death of Ramon. Thus, they are real parties-in-interest in the case filed by private
respondent, notwithstanding that they are not signatories to the Contract of Lease. A lease
contract is not essentially personal in character. Thus, the rights and obligations therein are
transmissible to the heirs. The general rule is that heirs are bound by contracts entered into by
their predecessors-in-interest except when the rights and obligations arising therefrom are
not transmissible by (1) their nature, (2) stipulation or (3) provision of law. In the subject
Contract of Lease, not only were there no stipulations prohibiting any transmission of rights,
but its very terms and conditions explicitly provided for the transmission of the rights of the
lessor and of the lessee to their respective heirs and successors. The death of a party does
not excuse nonperformance of a contract, which involves a property right, and the rights
and obligations thereunder pass to the successors or representatives of the deceased.
Similarly, nonperformance is not excused by the death of the party when the other party has
a property interest in the subject matter of the contract.

ESTATE OF LLENADO V LLENADO

G.R. No. 145736, March 4, 2009
FACTS: Cornelio leased the subject lot to his nephew, Romeo Llenado (Romeo), for a period
of five years, renewable for another five years at the option of Cornelio. On March 31, 1978,
Cornelio, Romeo and the latter’s cousin Orlando Llenado (Orlando) executed an
Agreement whereby Romeo assigned all his rights to Orlando over the unexpired portion of
the aforesaid lease contract. The parties further agreed that Orlando shall have the option
to renew the lease contract for another three years commencing from December 3, 1980,
up to December 2, 1983, renewable for another four years or up to December 2, 1987, and
that “during the period that [this agreement] is enforced, the x x x property cannot be sold,
transferred, alienated or conveyed in whatever manner to any third party.”
Shortly thereafter or on June 24, 1978, Cornelio and Orlando entered into a Supplementary
Agreement amending the March 31, 1978 Agreement. Under the Supplementary
Agreement, Orlando was given an additional option to renew the lease contract for
an aggregate period of 10 years at five-year intervals, that is, from December 3, 1987 to
December 2, 1992 and from December 3, 1992 to December 2, 1997. The said provision was
inserted in order to comply with the requirements of Mobil Philippines, Inc. for the operation
of a gasoline station which was subsequently built on the subject lot.
Upon the death of Orlando on November 7, 1983, his wife, Wenifreda Llenado (Wenifreda),
took over the operation of the gasoline station. Meanwhile, onJanuary 29, 1987, Cornelio
sold the to his children, namely, Eduardo, Jorge, Virginia and Cornelio, Jr., through a deed of
sale. Several months thereafter or on September 7, 1987, Cornelio passed away. Sometime in
1993, Eduardo informed Wenifreda of his desire to take over the subject lot. However, the
latter refused to vacate the premises despite repeated demands. Thus, on September 24,
1993, Eduardo filed a complaint for unlawful detainer
ISSUE: Are rights arising from lease contract transmissible?
HELD: Yes. Under Article 1311 of the Civil Code, the heirs are bound by the contracts entered
into by their predecessors-in-interest except when the rights and obligations therein are not
transmissible by their nature, by stipulation or by provision of law. A contract of lease is,
therefore, generally transmissible to the heirs of the lessor or lessee. It involves a property right
and, as such, the death of a party does not excuse non-performance of the contract. The
rights and obligations pass to the heirs of the deceased and the heir of the deceased lessor
is bound to respect the period of the lease. The same principle applies to the option to
renew the lease. As a general rule, covenants to renew a lease are not personal but will run
with the land.[ Consequently, the successors-in-interest of the lessee are entitled to the
benefits, while that of the lessor are burdened with the duties and obligations, which
said covenants conferred and imposed on the original parties.

Sps. Mamaril vs. Boy Scout of the Philippines | G.R. No. 179382 | January 14, 2013

Facts: PUJ operators Sps. Mamaril would park their 6 passenger jeepneys every night at BSP’s
compound in Malate, Manila for a fee of P300.00 per month for each unit. One day, one of
the vehicles was missing and was never recovered. According to the security guards Peña
and Gaddi of AIB Security Agency with whom BSP had contracted for its security and
protection, a male person who looked familiar to them took the subject vehicle out of the
compound. Sps. Mamaril prayed that Peña and Gaddi, together with AIB and BSP, be held
liable for: (a) the value of the subject vehicle; (b) amount representing daily loss of
income/boundary reckoned from the day the vehicle was lost; (c) exemplary damages; (d)
moral damages; (e) attorney's fees; and (f) cost of suit.

BSP denied any liability contending that not only did Sps. Mamaril directly deal with AIB with
respect to the manner by which the parked vehicles would be handled, but the parking
ticket itself expressly stated that the "Management shall not be responsible for loss of vehicle
or any of its accessories or article left therein." It also claimed that Sps. Mamaril erroneously
relied on the Guard Service Contract. Apart from not being parties thereto, its provisions
cover only the protection of BSP's properties, its officers, and employees.

Issue: Whether or not BSP may be held liable for the loss of the vehicle caused by the
negligence of its security guards.

Held: The proximate cause of the loss of Sps. Mamaril's vehicle was the negligent act of
security guards Peña and Gaddi in allowing an unidentified person to drive out the subject
vehicle. The records are bereft of any finding of negligence on the part of BSP. Neither will
the vicarious liability of an employer under Article 2180 of the Civil Code apply in this case.
Peña and Gaddi were assigned as security guards by AIB to BSP pursuant to the Guard
Service Contract. No employer-employee relationship existed between BSP and the security
guards assigned in its premises. Sps. Mamaril are not parties to the Guard Service Contract.
Guard Service Contract between defendant-appellant BSP and defendant AIB Security
Agency is purely between the parties therein.
Contracts take effect only between the parties, their assigns and heirs, except in case where
the rights and obligations arising from the contract are not transmissible by their nature, or by
stipulation or by provision of law. The heir is not liable beyond the value of the property he
received from the decedent. If a contract should contain some stipulation in favor of a third
person, he may demand its fulfillment provided he communicated his acceptance to the
obligor before its revocation. A mere incidental benefit or interest of a person is not sufficient.
The contracting parties must have clearly and deliberately conferred a favor upon a third
person.

Thus, in order that a third person benefited by the second paragraph of Article 1311, referred
to as a stipulation pour autrui, may demand its fulfillment, the following requisites must
concur: (1) There is a stipulation in favor of a third person; (2) The stipulation is a part, not the
whole, of the contract; (3) The contracting parties clearly and deliberately conferred a favor
to the third person - the favor is not merely incidental; (4) The favor is unconditional and
uncompensated; (5) The third person communicated his or her acceptance of the favor
before its revocation; and (6) The contracting parties do not represent, or are not authorized,
by the third party. However, none of the foregoing elements obtains in this case.There is
absolutely nothing in the said contract that would indicate any obligation and/or liability on
the part of the parties therein in favor of third persons such as herein plaintiffs-appellees.
Moreover, the Court concurs with the finding of the CA that the contract between the
parties herein was one of lease as defined under Article 1643 of the Civil Code. It has been
held that the act of parking a vehicle in a garage, upon payment of a fixed amount, is a
lease. The agreement with respect to the ingress and egress of Sps. Mamaril's vehicles were
coordinated only with AIB and its security guards, without the knowledge and consent of
BSP. Accordingly, the mishandling of the parked vehicles that resulted in herein complained
loss should be recovered only from the tort feasors (Peña and Gaddi) and their employer,
AIB; and not against the lessor, BSP.

[G.R. No. 160014. February 18, 2005]

ROMEO MENDOZA, petitioner, vs. THE COURT OF APPEALS and MANOTOK SERVICES, INC.,
Allegedly represented by Attorney-In-Fact PERPETUA BOCANEGRA, respondents.
DECISION
PUNO, J.:
This case originated from the complaint for ejectment filed before the Metropolitan Trial
Court (MeTC) of Manila on July 31, 1996 by respondent Manotok Services, Inc. (Manotok)
against petitioners father, Benjamin Mendoza, and all those claiming rights under him.
In the amended complaint, Manotok impleaded herein petitioner Romeo Mendoza as
defendant. It alleged that Manotok was the administrator of a parcel of land which it leased
to Benjamin Mendoza; that the contract of lease expired on December 31, 1988; that even
after the expiration of the lease contract, Benjamin Mendoza, and after his demise, his son,
Romeo, continued to occupy the premises and thus incurred a total of P44,011.25 as unpaid
rentals from January 1, 1989 to July 31, 1996; that on July 16, 1996, Manotok made a demand
on Benjamin Mendoza to pay the rental arrears and to vacate the premises within fifteen
(15) days from receipt of the demand letter; that despite receipt of the letter and after the
expiration of the 15-day period, the Mendozas refused to vacate the property and to pay
the rentals. The complaint prayed that the court order Mendoza and those claiming rights
under him to vacate the premises and deliver possession thereof to Manotok, and to pay the
unpaid rentals from January 1, 1989 to July 31, 1996 plus P875.75 per month starting August 1,
1996, subject to such increase allowed by law, until he finally vacates the premises.[1]
In his answer to the amended complaint, petitioner admitted that Manotok was the lessor of
the property subject of this case, but denied knowledge about the lease contract allegedly
executed by Manotok and his father, and the unpaid rentals on the property. As special and
affirmative defense, petitioner argued that the demand made by Manotok did not bind him
because it was addressed to his father and the amount of rental has been unconscionably
increased to compel him to leave the premises; that the lease contract was obnoxious to
existing social legislation and proclamations, i.e., PD 2016, PD 1517, LOI 1204 and RA 7279;
that petitioner and his predecessor-in-interest have been in continuous possession of the
property for more than twelve (12) years, and therefore, may no longer be ejected
therefrom as he is protected by said laws and proclamations as bona fide tenant-occupant.
Petitioner also questioned the validity of Manotoks title to the property for being allegedly
spurious.[2]
The MeTC ruled in favor of respondent Manotok. It held that petitioner Romeo Mendoza, as
successor of his father, merely stepped into the shoes of his predecessor who was a lessee on
the property in question. Hence, petitioner was also a mere lessee and cannot claim
ownership of the property. The MeTC ordered petitioner to vacate the property, to pay the
amount of P44,011.22 as compensation for the use of the premises from January 1, 1989 to
July 31, 1996 plus P875.75 per month for the succeeding months until the property is vacated,
and to pay P5,000.00 as attorneys fees, plus costs of suit.[3]
The Regional Trial Court (RTC), however, reversed the decision of the MeTC. It held that
Manotok failed to show that it had superior and better right to possess the subject property
than Mendoza. It said that Manotok failed to show sufficient proof of ownership over the
land in question, while Mendoza presented documents to prove actual possession of the
questioned property for almost thirty (30) years. The RTC dismissed the complaint for
ejectment.[4]
When the case was elevated to the Court of Appeals, the appellate court reversed the
decision of the RTC and reinstated the MeTC decision.[5]
Hence this petition.
Petitioner raised the following assignments of error:
1. The Honorable Court of Appeals committed error in giving efficacy to a lease contract
signed in 1988 when the alleged signatory was already dead since 1986.
2. The jurisdictional demand to vacate under Section 2 of Rule 70 was addressed to a dead
person only on July 16, 1996 when said person was already dead in 1986.
3. The Honorable Court of Appeals was right in its observation that in the event that the issue
of ownership is raised in the pleadings, such issue shall be taken up only for the limited
purpose of determining who between the contending parties has the better right of
possession. The Honorable Court of Appeals did not apply this observation.[6]
The petition must be denied.
This is a case for unlawful detainer. It appears that respondent corporation leased the
property subject of this case to petitioners father. After expiration of the lease, petitioner
continued to occupy the property but failed to pay the rentals. On July 16, 1996, respondent
corporation made a demand on petitioner to vacate the premises and to pay their arrears.
An action for unlawful detainer may be filed when possession by a landlord, vendor, vendee
or other person of any land or building is unlawfully withheld after the expiration or
termination of the right to hold possession by virtue of a contract, express or implied.[7] The
only issue to be resolved in an unlawful detainer case is physical or material possession of the
property involved, independent of any claim of ownership by any of the parties involved.[8]
In the case at bar, petitioner lost his right to possess the property upon demand by
respondent corporation to vacate the rented lot. Petitioner cannot now refute the existence
of the lease contract because of his prior admissions in his pleadings regarding his status as
tenant on the subject property. We agree with the observation of the Court of Appeals, thus:
Evidently, there is no need to resolve the issue of ownership in this case, since it is not required
to determine the issue of possession. Moreover, there is no issue as to who has the better right
of possession inasmuch as the respondent himself admitted in his pleadings that indeed
Manotok Services, Inc., is the lessor while he is merely the tenant-occupant of the property.
The respondent alleged in his pleading, that being a bona fide tenant-occupant, (Romeo
Mendoza) he is now entitled to the protection of all the social legislations, proclamations
The respondent, in his ANSWER, acknowledged that, indeed, there was a contract of lease
executed between his father and Manotok Services, Inc. He alleged that the contract of
lease had expired, and that after the said expiration, he continued occupying the premises.
In his ANSWER TO AMENDED COMPLAINT, he maintained that the demand for payment does
not concern the defendant because it is addressed to his deceased father and the same
has been unconscionably increased. Also, he stated that the same rentals or charges are
unconscionably high and unilaterally done and without the knowledge and consent and
mutual agreement on the proper amount of rentals but plaintiff unilaterally and
unconscionably increased said rentals so as to discourage the defendant from further
occupying the premises subject of the complaint.[]
These allegations negate his claim of ownership.
Furthermore, he stated that the matter of occupancy of the lot of the Manotok Estate is a
nagging social problem where about 1,000 bona fide occupants and their families are
occupying through a scheme adopted by the National Housing Authority (NHA) and later
on, by the City Government of Manila, which, aware of the plight of the bona fide
leaseholders or occupants, has adopted City Ordinance or Resolution No. 7814, authorizing
the City Mayor, as follows:
ORDINANCE NO. 7814
AN ORDINANCE AUTHORIZING THE CITY MAYOR TO ACQUIRE BY NEGOTIATION OR
EXPROPRIATION THE SIX-HECTARE MANOTOK SUBDIVISION IN DULONG GAGALANGIN,
TONDO, MANILA []
Also, that among the lots covered by the said ordinance is the portion of the property
occupied by the defendant Romeo Mendoza, and that being a bona fide tenant-
occupant, he is now entitled to the protection of all the social legislations, proclamations []
The defendants Position Paper likewise reiterates the aforementioned allegations of the
defendant.
By invoking Ordinance No. 7814, the respondent, in effect, admitted that the subject
property is in fact, managed by the Manotok Services and that there is a move to acquire
by negotiation or expropriation the subject property for the benefit of the bona fide
LEASEHOLDERS or OCCUPANTS. There was a plan to acquire it, but nevertheless, the said
property is still owned by the Manotok Subdivision. In truth and in fact, the occupants therein,
including the respondent, are merely leaseholders or tenants, hoping to be benefited by the
future acquisition of the property by the City Government of Manila to be distributed and
sold to bona fide tenants of the subject premises.
The defendants averments are unequivocal. However, instead of bolstering his arguments,
they served to negate and to defeat the same.
In his pleadings, he tacitly admitted the existence of the contract of lease as between
Manotok Services, Inc. and Benjamin Mendoza, his deceased father. He admits of the
expiration of the said contract and his continuous occupation of the subject premises.
Moreover, he categorically stated that he is a bona fide tenant-occupant of the subject
property.
It cannot be controverted that he knew of the lease contract. Thus, he cannot now allege a
better right than the petitioner, knowing beforehand of the lessor-lessee relationship
between the petitioner and his deceased father insofar as the subject lot is concerned.
(citations omitted)[9]
Petitioner cannot now question the validity of the lease contract as it appears from the
record that a representative of Benjamin Mendoza had signed the lease contract in his
behalf on February 5, 1988, but did not inform respondent corporation that Benjamin
Mendoza had already died.[10] Section 2 (a), Rule 131 of the Revised Rules of Court provides
that (w)henever a party has, by his own declaration, act, or omission, intentionally and
deliberately led another to believe a particular thing true, and to act upon such belief, he
cannot, in any litigation arising out of such declaration, act or omission, be permitted to
falsify it. Petitioner also admitted in his answer to the complaint that there was indeed a
contract of lease between his father and respondent corporation.[11] While he claimed that
said contract has been repudiated, the ground for such repudiation was the question on the
ownership of the property, but not the capacity of the contracting parties.[12] Apparently,
petitioner has been enjoying possession of the property in question by virtue of the lease
entered into by his father with respondent corporation. It would run counter to the rules of
fair play to now allow petitioner to deny the efficacy of the lease contract.
Finally, we also find no merit in petitioners contention that the demand to vacate sent by
respondent corporation does not bind him. Records show that the letter was addressed to
Mr. Benjamin Mendoza and all those persons claiming rights under him.[13] Clearly, petitioner,
who derived his right to occupy the premises from the lease entered into by his father, is
covered by said notice to vacate.
In view of the foregoing discussion, we find that the Court of Appeals did not err in setting
aside the decision of the RTC and reinstating the decision of the MeTC.
IN VIEW WHEREOF, the petition for review is DENIED.
SO ORDERED.

SAMELO VS MANOTOK SERVICE INC.

DECISION
BRION, J.:

Before us is the petition for review on certiorari[1] filed by Viegely Samelo (petitioner),
represented by her attorney-in-fact Cristina Samelo, to challenge the decision dated June
21, 2005[2] and the resolution dated November 10, 2005[3] of the Court of Appeals (CA) in CA-
G.R. SP No. 85664.

Background Facts

Manotok Services, Inc. (respondent) alleged that it is the administrator of a parcel of land
known as Lot 9-A, Block 2913, situated at 2882 Dagupan Extension, Tondo, Manila. On
January 31, 1997, the respondent entered into a contract with the petitioner for the lease of
a portion of Lot 9-A, Block 2913, described as Lot 4, Block 15 (subject premises). The lease
contract was for a period of one (1) year, with a monthly rental of P3,960.00. After the
expiration of the lease contract on December 31, 1997, the petitioner continued occupying
the subject premises without paying the rent.[4] On August 5, 1998, the respondent, thru its
President Rosa Manotok, sent a letter to the petitioner demanding that she vacate the
subject premises and pay compensation for its use and occupancy.[5] The petitioner,
however, refused to heed these demands.

On November 18, 1998, the respondent filed a complaint for unlawful detainer against the
petitioner before the Metropolitan Trial Court (MeTC), Branch 3, Manila.[6] The case was
docketed as Civil Case No. 161588-CV. The respondent prayed, among others, that the
petitioner and those claiming rights under her be ordered to vacate the subject premises,
and to pay compensation for its use and occupancy.

In her answer, the petitioner alleged that the respondent had no right to collect rentals
because the subject premises are located inside the property of the Philippine National
Railways (PNR). She also added that the respondent had no certificate of title over the
subject premises. The petitioner further claimed that her signature in the contract of lease
was obtained through the respondents misrepresentation. She likewise maintained that she is
now the owner of the subject premises as she had been in possession since 1944.[7]

The MeTC Ruling

The MeTC, in its judgment[8] of March 28, 2002, decided in favor of the respondent, and
ordered the petitioner to vacate the subject premises and to deliver their peaceful
possession to the respondent. The MeTC held that the only issue to be resolved in an unlawful
detainer case is physical possession or possession de facto, and that the respondent had
established its right of possession over the subject premises. It added that the petitioners right
under the lease contract already ceased upon the expiration of the said contract. It further
ruled that the petitioner is already estopped from questioning the right of the respondent
over the subject premises when she entered into a contract of lease with the respondent.
The dispositive portion of the MeTC judgment reads:

WHEREFORE, premises considered, judgment is hereby rendered for the plaintiff and against
defendant, ordering the latter and all persons claiming rights under her:

1. To vacate the premises located at 2882 Dagupan Extension, Tondo, Manila, and deliver
the peaceful possession thereof to the plaintiff[;]

2. To pay plaintiff the sum of P40,075.20 as compensation for the use and occupancy of
the premises from January 1, 1998 to August 30, 1998, plus P4,554.00 a month starting
September 1, 1998, until defendant and all person[s] claiming rights under her to finally
vacate the premises[;]
3. To pay plaintiff the sum of P5,000.00 for and as attorneys fees; and
4. To pay the cost of suit.[9]

The RTC Decision

The petitioner filed an appeal[10] with the Regional Trial Court (RTC), Branch 50, Manila. The
RTC, in its decision[11] of July 1, 2004, set aside the MeTCs decision, and dismissed the
complaint for unlawful detainer. The RTC held, among others, that the respondent had no
right to collect rentals as it failed to show that it had authority to administer the subject
premises and to enter into a contract of lease with the petitioner. It also ruled that the
subject premises, which were formerly owned by the PNR, are now owned by the petitioner
by virtue of her possession and stay in the premises since 1944.
The CA Decision
Aggrieved by the reversal, the respondent filed a petition for review with the CA, docketed
as CA-G.R. SP No. 85664.[12] The CA, in its decision of June 21, 2005, reversed and set aside
the RTC decision, and reinstated the MeTC judgment. The CA held that the petitioner is now
estopped from questioning the right of the respondent over the subject property. It
explained that in an action involving the possession of the subject premises, a tenant cannot
controvert the title of his landlord or assert any rights adverse to that title, without first
delivering to the landlord the premises acquired by virtue of the agreement between
themselves. The appellate court added that the petitioner cannot claim that she repudiated
the lease contract, in the absence of any unequivocal acts of repudiation.

The CA further held that the only issue in an ejectment suit is physical or material possession,
although the trial courts may provisionally resolve the issue of ownership for the sole purpose
of determining the issue of possession. It explained that the issue of ownership is not required
to determine the issue of possession since the petitioner tacitly admitted that she is a lessee
of the subject premises.[13]

The petitioner moved to reconsider this decision, but the CA denied her motion in its
resolution dated November 10, 2005.[14]

In presenting her case before this Court, the petitioner argued that the CA erred in ruling that
a tenant is not permitted to deny the title of his landlord. She maintained that the
respondent is not the owner or administrator of the subject premises, and insisted that she
had been in possession of the land in question since 1944. She further added that she
repudiated the lease contract by filing a case for fraudulent misrepresentation, intimidation,
annulment of lease contract, and quieting of title with injunction before another court.[15]

The Courts Ruling

We find the petition unmeritorious.

Respondent has a better right of possession over the subject premises

An action for unlawful detainer exists when a person unlawfully withholds possession of any
land or building against or from a lessor, vendor, vendee or other persons, after the
expiration or termination of the right to hold possession, by virtue of any contract, express or
implied.[16] The only issue to be resolved in an unlawful detainer case is physical or material
possession of the property involved, independent of any claim of ownership by any of the
parties involved.[17] Thus, when the relationship of lessor and lessee is established in
an unlawful detainer case, any attempt of the parties to inject the question of ownership into
the case is futile, except insofar as it might throw light on the right of possession.[18]
In the present case, it is undisputed that the petitioner and the respondent entered into a
contract of lease. We note in this regard that in her answer with affirmative defenses and
counterclaim before the MeTC, the petitioner did not deny that she signed the lease
contract (although she maintained that her signature was obtained through the respondents
misrepresentations). Under the lease contract, the petitioner obligated herself to pay a
monthly rental to the respondent in the amount of P3,960.00. The lease period was for one
year, commencing on January 1, 1997 and expiring on December 31, 1997. It bears
emphasis that the respondent did not give the petitioner a notice to vacate upon the
expiration of the lease contract in December 1997 (the notice to vacate was sent only on
August 5, 1998), and the latter continued enjoying the subject premises for more than 15
days, without objection from the respondent. By the inaction of the respondent as lessor,
there can be no inference that it intended to discontinue the lease contract.[19] An implied
new lease was therefore created pursuant to Article 1670 of the Civil Code, which expressly
provides:

Article 1670. If at the end of the contract the lessee should continue enjoying the thing
leased for fifteen days with the acquiescence of the lessor, and unless a notice to the
contrary by either party has previously been given, it is understood that there is an implied
new lease, not for the period of the original contract, but for the time established in Articles
1682 and 1687. The other terms of the original contract shall be revived.

An implied new lease or tacita reconduccion will set in when the following requisites are
found to exist: a) the term of the original contract of lease has expired; b) the lessor has not
given the lessee a notice to vacate; and c) the lessee continued enjoying the thing leased
for fifteen days with the acquiescence of the lessor.[20] As earlier discussed, all these requisites
have been fulfilled in the present case.
Article 1687 of the Civil Code on implied new lease provides:
Article 1687. If the period for the lease has not been fixed, it is understood to be from year to
year, if the rent agreed upon is annual; from month to month, if it is monthly; from week to
week, if the rent is weekly; and from day to day, if the rent is to be paid daily.

Since the rent was paid on a monthly basis, the period of lease is considered to be from
month to month, in accordance with Article 1687 of the Civil Code. [A] lease from month to
month is considered to be one with a definite period which expires at the end of each
month upon a demand to vacate by the lessor.[21] When the respondent sent a notice to
vacate to the petitioner on August 5, 1998, the tacita reconduccion was aborted, and the
contract is deemed to have expired at the end of that month. [A] notice to vacate
constitutes an express act on the part of the lessor that it no longer consents to the
continued occupation by the lessee of its property.[22] After such notice, the lessees right to
continue in possession ceases and her possession becomes one of detainer.[23]
Estoppel of tenant
We find no merit in the petitioners allegation that the respondent had no authority to lease
the subject premises because the latter failed to prove that it is its owner or administrator.

The Rules of Court protects the respondent, as lessor, from being questioned by the
petitioner, as lessee, regarding its title or better right of possession over the subject premises.
Section 2(b), Rule 131 of the Rules of Court states that the tenant is not permitted to deny the
title of his landlord at the time of the commencement of the relation of landlord and tenant
between them. Article 1436 of the Civil Code likewise states that a lessee or a bailee is
estopped from asserting title to the thing leased or received, as against the lessor or bailor.

These provisions bar the petitioner from contesting the respondents title over the subject
premises. The juridical relationship between x x x [a] lessor and x x x [a lessee] carries with it a
recognition of the lessor's title. As [lessee, the petitioner is] estopped [from denying the]
landlord's title, or to assert a better title not only in [herself], but also in some third person
while [she remains] in possession of the subject premises and until [she surrenders] possession
to the landlord. This estoppel applies even though the lessor had no title at the time the
relation of [the] lessor and [the] lessee was created, and may be asserted not only by the
original lessor, but also by those who succeed to his title.[24] Once a contact of lease is shown
to exist between the parties, the lessee cannot by any proof, however strong, overturn the
conclusive presumption that the lessor has a valid title to or a better right of possession to the
subject premises than the lessee.

The Court thus explained in Tamio v. Ticson:[25]

Indeed, the relation of lessor and lessee does not depend on the formers title but on the
agreement between the parties, followed by the possession of the premises by the lessee
under such agreement. As long as the latter remains in undisturbed possession, it is
immaterial whether the lessor has a valid title or any title at all at the time the relationship
was entered into.[citations omitted]

The issue of ownership

We are likewise unpersuaded by the petitioners claim that she has acquired possessory rights
leading to ownership[26] over the subject premises, having been in possession thereof since
1944. We emphasize that aside from her self-serving allegation, the petitioner did not present
any documentary evidence to substantiate her claim that she stayed on the subject
premises since 1944. That the petitioner presented certificates of title of the Manila Railroad
Company over certain properties in Tondo, Manila, which allegedly cover the subject
premises, is of no moment. One cannot recognize the right of another, and at the same time
claim adverse possession which can ripen to ownership, thru acquisitive prescription. For
prescription to set in, the possession must be adverse, continuous, public, and to the
exclusion of [others].[27] Significantly, the RTC decision failed to state its basis for concluding
that the petitioner stayed in the subject premises since 1944.

At any rate, we hold that no need exists to resolve the issue of ownership in this case, since it
is not required to determine the issue of possession; the execution of the lease contract
between the petitioner, as lessee, and the respondent, as lessor, belies the formers claim of
ownership. We reiterate that the fact of the lease and the expiration of its term are the only
elements in an action for unlawful detainer. The defense of ownership does not change the
summary nature of [this] action. x x x. Although a wrongful possessor may at times be upheld
by the courts, this is merely temporary and solely for the maintenance of public order. The
question of ownership is to be settled in the proper court and in a proper action.[28]

Interest on rentals due

Additionally, the petitioner is liable to pay interest by way of damages for her failure to pay
the rentals due for the use of the subject premises.[29] We reiterate that the respondents
extrajudicial demand on the petitioner was made on August 5, 1998. Thus, from this date, the
rentals due from the petitioner shall earn interest at 6% per annum, until the judgment in this
case becomes final and executory. After the finality of judgment, and until full payment of
the rentals and interests due, the legal rate of interest to be imposed shall be 12%.

WHEREFORE, in light of all the foregoing, we DENY the petition. The decision and the
resolution of the Court of Appeals dated June 21, 2005 and November 10, 2005, respectively,
in CA-G.R. SP No. 85664 are AFFIRMED with the MODIFICATION that the unpaid rentals shall
earn a corresponding interest of six percent (6%) per annum, to be computed from August 5,
1998 until the finality of this decision. After this decision becomes final and executory, the
rate of legal interest shall be computed at twelve percent (12%) per annum from such finality
until its satisfaction.
SO ORDERED.

[G.R. NO. 121159. December 16, 2002]

VSC COMMERCIAL ENTERPRISES, INC., petitioner, vs. COURT OF APPEALS, OSCAR ESTOPACE
and JOSE SILAPAN, respondents.
DECISION
AUSTRIA-MARTINEZ, J.:
The present petition for review on certiorari brought before us by VSC Commercial
Enterprises, Inc. (VSC) seeks the reversal of the decision of the Court of Appeals promulgated
on June 16, 1994 reversing and setting aside the order of dismissal, dated March 15, 1991, of
Civil Case No. 90-55411 issued by the Regional Trial Court of Manila (Branch 21) and the
resolution of the appellate court, dated July 7, 1995, denying petitioners motion for
reconsideration.
The facts of the case are as follows:
On December 12, 1990, herein private respondents Oscar Estopace and Jose Silapan filed
with the Regional Trial Court of Manila a complaint against the Register of Deeds of Manila
and petitioner VSC alleging:
3. x x x that they are bona-fide stallholders inside the Pamilihang Sentral ng Sta. Mesa, for
about ten (10) years or so prior to the institution of this action;
4. As such stallholders, plaintiffs have been paying their market fees to defendant VSC
Commercial Enterprises, Inc. under the latters claim that he (sic) was the registered owner of
the lot and building known as the Pamilihang Sentral ng Sta. Mesa;
5. Of late, the plaintiffs came into possession of certain documents which would indicate
that TCT No. 153406 of the Register of Deeds of Manila (which is in the name of VSC
Commercial Enterprises, Inc.),[1] originating as it did after several transfers of titles, from O.C.T.
No. 2863 covers lands not in Sta. Mesa, Manila but lands situated either in Caloocan,
Mariquina Estate or in San Juan, Metro Manila;[2]
In support thereof, private respondents cited several documents annexed to their complaint
showing that TCT No. 153406 is fraudulent, spurious and highly questionable. They pray for the
cancellation of defendant VSCs title over the subject property claiming that:
13. As a consequence of the cancellation of said title of land, the land thereunder (sic)
remains with or reverts to the estate (sic) disposable to qualified applicants to buy the said
land in accordance with law;
14. As stallholders, the plaintiffs together with the other several stallholders on this land would
have pre-emptive rights over this government property.[3]
Instead of filing an Answer, petitioner VSC filed a Motion to Dismiss on the following grounds:
PLAINTIFFS ARE NOT THE REAL PARTIES IN INTEREST. AS SUCH, THEY HAVE NO CAUSE OF ACTION
AGAINST THE HEREIN DEFENDANT.
THE COMPLAINT STATES NO CAUSE OF ACTION CONSIDERING THAT PLAINTIFFS ARE ESTOPPED
FROM ASSERTING TITLE OF THE PROPERTY LEASED BY THEM FROM THE HEREIN DEFENDANT.
AND ASSUMING BUT WITHOUT ADMITTING THAT PLAINTIFFS ARE THE REAL PARTIES IN INTEREST
AND HAVE CAUSE OF ACTION AGAINST DEFENDANT, THE CLAIM OR DEMAND SET FORTH IN
THE PLAINTIFFS COMPLAINT HAS ALREADY PRESCRIBED OR OTHERWISE EXTINGUISHED.[4]
On March 15, 1991, the lower court issued an order dismissing the complaint.[5]
Private respondents appealed the said order to the Court of Appeals.
On June 16, 1994, the appellate court rendered the assailed decision, the dispositive portion
of which reads:
ACCORDINGLY, the order of dismissal of Civil Case No. 90-55411 is hereby REVERSED and SET
ASIDE. The records of the case are ordered remanded to the Court of origin or the Regional
Trial Court of Manila, Branch 21 for appropriate hearing and/or for further proceedings. We
make no pronouncement as to costs.
SO ORDERED.[6]
Petitioner VSC filed a Motion for Reconsideration but the appellate court, in a Resolution
issued on July 7, 1995, denied the same.[7]
Hence, herein petition raising the following Assignment of Errors:
I
THE COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION IN ORDERING THE TRIAL
COURT FOR FURTHER PROCEEDING/TRIAL OF THE RESPONDENTS COMPLAINT DESPITE ITS
FINDINGS THAT RESPONDENTS ARE MERE LESSEES OR TENANTS OF THE PETITIONERS PROPERTY
COVERED BY TRANSFER CERTIFICATE OF TITLE NO. 153406 WHICH RESPONDENTS SEEK TO
ANNUL IN THE SAID COMPLAINT. IN SO DOING, THE COURT OF APPEALS PATENTLY VIOLATED
ARTICLE 1436 OF THE CIVIL CODE OF THE PHILIPPINES AS WELL AS SECTION 3(b), RULE 131 OF
THE RULES OF COURT AND OTHER JURISPRUDENCE ON THE MATTER.
II
THE COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION IN ALLOWING THE
RESPONDENTS TO PROSECUTE THE SAID COMPLAINT DESPITE THE CLEAR ALLEGATIONS THEREIN
THAT RESPONDENTS ARE NOT THE REAL PARTY IN INTEREST TO PROSECUTE THE SAME. IN SO
DOING, THE COURT OF APPEALS VIOLATED SECTION 2, RULE 3 OF THE RULES OF COURT.
III
THE COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION IN ORDERING THE TRIAL
COURT TO CONTINUE FURTHER PROCEEDINGS OF THE SAID RESPONDENTS COMPLAINT DESPITE
THE PARTIES CLEAR ADMISSION OF FACTS AND EVIDENCE ON RECORD THAT THE CAUSE OF
ACTION STATED IN THE SAID COMPLAINT HAS ALREADY PRESCRIBED. IN SO DOING, THE COURT
OF APPEALS VIOLATED SECTION 32 OF PRES. DECREE NO. 1529 AS WELL AS SEVERAL
JURISPRUDENCE ON THE MATTER.
The petition is impressed with merit.
Private respondents do not directly assert title to the thing leased as against
petitioner. Instead, they contend that petitioners title over the subject property is void,
praying that the same should be cancelled and the disputed property should be reverted
back to the State.
We agree with the petitioner that private respondents are barred from questioning the
formers title over the subject property. In a long line of cases, this Court has consistently held
that the private respondents, as lessees, who had undisturbed possession for the entire term
under the lease, are estopped to deny their landlords title, or to assert a better title not only
in themselves, but also in some third person, including the State, while they remain in
possession of the leased premises and until they surrender possession to the landlord.[8] In the
present case, it is undisputed that there exists a lessor-lessee relationship between petitioner
and private respondents, the latter being among the persons who lease a portion of the
subject property owned by herein petitioner. Clearly, therefore, private respondents, as
lessees, are estopped from questioning petitioners title, even on the ground that the subject
property properly belongs to the State.
Moreover, we also agree with petitioner that private respondents are not the real parties in
interest.
Under Rule 3, Section 2 of the Revised Rules of Court, a real party in interest is defined as the
party who stands to be benefited or injured by the judgment in the suit, or the party entitled
to the avails of the suit. Interest within the meaning of the rule means material interest, an
interest in issue and to be affected by the decree, as distinguished from mere interest in the
question involved, or a mere incidental interest.[9] The interest of the party must also be
personal and not one based on a desire to vindicate the constitutional right of some third
and unrelated party.[10] Real interest, on the other hand, means a present substantial interest,
as distinguished from a mere expectancy or a future, contingent, subordinate, or
consequential interest.[11]
In the case at bar, the private respondents are mere lessees of the property in question. As
such, they have no present substantial and personal interest with respect to issues involving
ownership of the disputed property. The only interest they have, in the event that petitioners
title over the subject property is cancelled and ownership reverts to the State, is the hope
that they become qualified buyers of the subject parcel of land. Undoubtedly, such interest
is a mere expectancy. Even the private respondents themselves claim that in case of
reversion of ownership to the State, they only have pre-emptive rights to buy the subject
property;[12] that their real interest over the said property is contingent upon the governments
consideration of their application as buyers of the same.[13] It is settled that a suit filed by a
person who is not a party in interest must be dismissed.[14]
It is only the government that has the personality to bring an action for the cancellation of
petitioners title and reversion of ownership of the subject property to the State. Section 101 of
the Public Land Act categorically declares that only the government may institute an action
to recover ownership of a public land. The principle enunciated in Sumail vs. CFI[15] is
applicable in the resolution of the present controversy. In the said case, this Court held:
Under Section 101 above reproduced, only the Solicitor General or the officer acting in his
stead may bring the action for reversion. Consequently, Sumail may not bring such action or
any action which would have the effect of canceling a free patent and the corresponding
certificate of title issued on the basis thereof, with the result that the land covered thereby
will again form part of the public domain.Furthermore, there is another reason for withholding
legal personality from Sumail. He does not claim the land to be his private property. x x
x Consequently, even if the parcel were declared reverted to the public domain, Sumail
does not automatically become owner thereof. He is a mere public land applicant like
others who might apply for the same.
The same principle was reiterated in Lucas vs. Durian[16] and in Nebrada vs. Heirs of Alivio.[17]
Considering that private respondents have no valid cause of action against herein
petitioners, the issue on prescription has perforce been rendered off-tangent and therefore
there is no longer any need to resolve the same.
WHEREFORE, the petition is GRANTED. The assailed Decision and Resolution of the Court of
Appeals, dated June 16, 1994 and July 7, 1995 are REVERSED and SET ASIDE. The Order of the
Regional Trial Court of Manila (Branch 21) dated March 15, 1991, dismissing the complaint in
Civil Case No. 90-55411, is REINSTATED.
Let copy of herein decision be furnished the Office of the Solicitor General for proper
information and guidance.
SO ORDERED.

DATALIFT MOVERS, INC. vs BELGRAVIA REALTY & DEVELOPMENT CORPORATION

In an action for ejectment filed by Sampaguita Brokerage, Inc. and its sister company,
Belgravia Realty & Development Corporation, against the herein petitioners Datalift Movers,
Inc. and/or Jaime B. Aquino, the Metropolitan Trial Court (MeTC), of Manila, Branch 3, later
the Regional Trial Court (RTC) of Manila, Branch 36, and eventually the Court of Appeals
(CA) in CA-G.R. SP No. 52189 are one in ordering the petitioners ejectment from the premises
involved in the suit and their payment of unpaid rentals, attorneys fees and
costs. Undaunted, the petitioners have come to this Court via this petition for review with
application for a temporary restraining order and/or preliminary injunction to seek the
reversal of the affirmatory decision of the CA, including those of the courts below it.

We likewise AFFIRM, but first the facts:

The premises involved in this case is a warehouse (bodega) used by petitioner Datalift
Movers, Inc. (Datalift for short) for its cargoes in connection with its brokerage business. The
warehouse stands on a 3,967.70 squaremeter lot owned by the Philippine National Railways
(PNR) and located at No. 883 Santibaez Street corner Cristobal Street, Pandacan, Manila.

Sometime in 1987, PNR leased out the lot to Sampaguita Brokerage, Inc. (Sampaguita,
hereafter), pursuant to a written contract commencing on July 1, 1987 and terminating on
June 30, 1990 for a monthly rental of P6,282.49, subject to a ten (10%) percent increase every
year.

Sampaguita thereafter entered into a special arrangement with its sister company,
Belgravia Realty & Development Corporation (Belgravia for short) whereby the latter would
put up on the lot a warehouse for its own use. True enough, Belgravia did put up a
warehouse occupying an area of about 3,000 squaremeters of the lot. However, instead of
using the said warehouse for itself, Belgravia sublet it to petitioner Datalift, represented by its
president Jaime B. Aquino, pursuant to a 1-year written contract of lease[1] dated October 2,
1990, commencing on October 5, 1990 and ending on October 5, 1991, subject to extension
upon mutual agreement by the parties. By the terms of lease, Datalift shall pay Belgravia a
monthly rental of P40,000.00 payable on or before the 15th day of each month, provided an
advance rental for two (2) months is paid upon execution of the contract.

After the one year contract period expired, lessee Datalift continued in possession and
enjoyment of the leased warehouse, evidently by acquiesance of lessor Belgravia or by
verbal understanding of the parties. Subsequently, Belgravia unilaterally increased the
monthly rental to P60,000.00 starting June 1994 to October 1994. Monthly rental was again
increased from P60,000.00 to P130,000.00 beginning November 1994 onwards, allegedly in
view of the increased rental demanded by PNR on Sampaguita for the latters lease of
the formers lot whereon the warehouse in question stands. Because of the rental increase
made by Belgravia, Datalift stopped paying its monthly rental for the
warehouse.Thereafter, Sampaguita addressed demand letters to Datalift asking the latter to
pay its rental in arrears in the amount of P4,120,000.00 and to vacate and surrender the
warehouse in dispute. The demands having proved futile, Belgravia and/or Sampaguita filed
with the MeTC of Manila their complaint[2] for ejectment against Datalift and/or its controlling
stockholder, Jaime B. Aquino.

In their Answer with Counterclaim,[3] the defendants interposed the following defenses:

1) Sampaguita has no cause of action against them, not being a party nor privy
to the Datalift-Belgravia contract of lease;

2) Under the PNR-Sampaguita contract of lease over the PNR lot, Sampaguita is
prohibited from subleasing the property;

3) The same PNR-Sampaguita contract had allegedly expired;

4) Lessor Belgravia likewise has no cause of action because it was neither the
owner nor lessee of the lot whereon the warehouse stands.

By way of counterclaim, defendants Datalift and Aquino prayed for the refund
by Belgravia of the rentals they paid during the entire period of their lease of the warehouse,
plus exemplary damages and litigation expenses.

In a decision[4] dated October 16, 1997, the MeTC of Manila, Branch 3, rendered
judgment for plaintiffs Sampaguita and Belgravia but reduced the amount of rental
arrearages to a reasonable level of P80,000,00 a month, saying:

Upon the other hand, this Court is not persuaded or inclined to favor the
very substantial increase in the amount demanded
by Sampaguita and/or Belgravia upon Datalift, from P60,000.00 to P130,000.00
per month. Such increase is arbitrary, highly unconscionable and beyond the
 ambit of equity and justice considering that the original agreed rental on the
premises in 1990 was only P45,000.00 per month, the latter increase to P60,000.00
per month. The unilateral increase of P70,000.00 making the monthly
rental P130,000.00 effective June, 1994, is, as earlier said, beyond the
conscience of man. Belgravia would be guilty likewise, of unjust enrichment.

The increase in rental for P60,000.00 per month to P80,000.00 per month,
following the trend in the amount of increase during the previous years would, to
the mind of the Court be reasonable and justified. Thus, the rental in arrears due
and demandable upon defendants would be P20,000.00 per month from June,
1994 to October, 1994, defendants having paid already P60,000.00 per month
during the five (5) months period, the P80,000.00 per month from November,
1994 to the present.

In the same decision, the MeTC rejected the defendants challenge against Belgravias title
over the PNR lot occupied by the subject warehouse.

More particularly, the MeTC decision dispositively reads:

WHEREFORE, premises considered, the Court finds and so hold
that plaintiffs have proven their case against defendants by
preponderance of evidence sufficient to grant what is prayed for in
their Complaint with certain modification and hereby renders
judgment:

1) Ordering defendants and all persons, natural or juridical,

claiming rights, interest or title under them, to vacate and surrender
peacefully to plaintiffs that warehouse and the area/premises
occupied by them located at No.
883 Santibaez Street corner Cristobal Street, Pandacan, City
of Manila;

2) Ordering defendants to pay plaintiff Belgravia the

difference of P20,000.00 from what had been already paid
of P60,000.00 per month for the months of June, 1994 to October,
1994 or a total of P100,000.00; and the unpaid rentals at P80,000.00
per month from November, 1994 to the present and until
defendants vacate and surrender the warehouse and premises
subject of this litigation;

3) Ordering defendants to pay plaintiff P30,000.00 for and as

attorneys fees and expenses of litigation, and

4) To pay the cost of suit.

SO ORDERED.
 Obviously dissatisfied, both parties appealed to the RTC whereat the appeal was
raffled to Branch 36 thereof. In their appeal, Datalift and its co-defendant Jaime
B. Aquinoquestioned the MeTCs finding that there was an implied new lease between PNR
and Sampaquita on the lot on which the warehouse in question stands, and accordingly
fault the same court for ordering them to vacate the same warehouse and to pay rentals as
well as attorneys fees and litigation expenses.

For their part, Sampaguita and Belgravia assailed the MeTC decision for not
ordering Datalift and Aquino to pay the increase rental of P130,000.00 a month beginning
June 1994, and for not ruling that both defendants are jointly and subsidiary liable for the
amounts awarded to them.

In a decision[5] dated March 11, 1999, the RTC, reechoing the MeTCs ruling on the
authority of Sampaguita and Belgravia to institute the complaint for ejectment as well as the
same courts finding as to the reasonable amount of rental in arrears due Belgravia,
affirmed in toto the assailed MeTC decision, thus:

In the light of the foregoing, the assailed decision of MeTC of Manila,

Branch 3 is affirmed in toto.

SO ORDERED.

This time, only Datalift and its co-petitioner Jaime B. Aquino elevated the case to the
CA in CA-G.R. SP No. 52189.

Again, in a decision[6] dated August 4, 2000, the CA dismissed the petitioners recourse
thereto and affirmed with slight modification the challenged affirmatory decision of the RTC,
to wit:

WHEREFORE, the petition is DISMISSED and the decision of the Regional

Trial Court, Branch 36, Manila, dated March 11, 1999, affirming in toto the
decision of the Metropolitan Trial Court, Branch 3, is hereby AFFIRMED, except
that the award of P30,000.00 as attorneys fees is DELETED.

SO ORDERED.

Still unable to accept the adverse decisions of the three (3) courts below, the
petitioners are now with this Court via this petition for review on their submission that the CA
erred:
 XXX IN HOLDING THAT AN IMPLIED NEW LEASE WAS CREATED BETWEEN PNR AND
RESPONDENTS (i.e. SAMPAGUITA and BELGRAVIA) WHEN THE FORMER DID NOT
TAKE POSITIVE ACTION TO EJECT THE LATTER FROM THE SUBJECT PREMISES.

XXX IN HOLDING THAT PETITIONERS HAVE NO PERSONALITY TO QUESTION

WHETHER AN IMPLIED NEW LEASE WAS CREATED BETWEEN PNR AND THE
RESPONDENTS.

The petition lacks merit.

Petitioners first fault the CA for affirming the RTC and the MeTC which ruled that the
subject warehouse and the land and area which it occupies rightfully belong to
respondent Belgravia, not Datalift, for an implied new lease was created between PNR, the
acknowledged owner of the lot, and Sampaguita, Belgravia's sister company, which, by
virtue of a special arrangement, Sampaguita allowed Belgravia to construct a warehouse
on the leased lot and sub-leased the same to Datalift.

At first glance, the petitioners' argument may appear to have some merit, but it is still
insufficient to warrant a reversal of the CA decision.

Relative to the first argument, the CA decision pertinently reads:

There is no definite showing that the lease contract between PNR

and Sampaguita Brokerage, Inc. had been effectively terminated. As held by
the court a quo: (B)y PNR not taking a positive action to eject Sampaguita from
the leased premises up to the present, again, there is a tacit renewal of the
lease contract between PNR and Sampaguita.(Emphasis in the original.)

The Rules of Court already sufficiently shields respondent Belgravia, as lessor, from
being questioned by the petitioners as lessees, regarding its title or better right of possession
as lessor because having admitted the existence of a lessor-lessee relationship, the
petitioners are barred from assailing Belgravia's title of better right of possession as their lessor.

Section 2, Rule 131, of the Rules of Court provides:

SEC. 2. Conclusive presumptions. -- The following are instances
of conclusive presumptions:

(a) Whenever a party has, by his own declaration, act, or omission,

intentionally and deliberately led another to believe a particular thing true, and
to act upon such belief, he cannot, in any litigation arising out of such
declaration, act or omission, be permitted to falsify it;
 (b) The tenant is not permitted to deny the title of his landlord at the time
of the commencement of the relation of landlord and tenant between
them. (Underscoring ours.)

Conclusive presumptions have been defined as inferences which the law makes so
peremptory that it will not allow them to be overturned by any contrary proof however
strong.[7] As long as the lessor-lessee relationship between the petitioners and Belgravia exists
as in this case, the former, as lessees, cannot by any proof, however strong, overturn the
conclusive presumption that Belgravia has valid title to or better right of possession to the
subject leased premises than they have.

It was superfluous on the part of the MeTC to rule on the source or validity
of Belgravia's title or right of possession over the leased premises as against the petitioners as
lessees in this case. If at all, Belgravia's title or right of possession should only be taken
cognizance of in a proper case between PNR and Belgravia, but not in the present case.Any
ruling which the court may render on this issue will, at the very least, be an obiter dictum, if
not outrightly ultra vires.

The apparent error made by the MeTC will, however, not affect
the result of the judgment rendered in this case. In fact, the application of the rule on
conclusive presumption under the afore-quoted Section 2,
Rule 131 strengthens the position of the MeTC that the petitioners may be validly ordered to
vacate the leased premises for nonpayment of rentals. Likewise, the logical consequence of
the operation of this conclusive presumption against the petitioners is that they will never
have the personality to question whether an implied new lease was created between PNR
and the respondents, because so long as there is no showing that the lessor-lessee
relationship has terminated, the lessors title or better right of possession as against the lessee
will eternally be a non-issue in any proceeding before any court.

Additionally, as correctly pointed out by the CA, being non-privies to the contract of
lease between PNR and respondent Sampaguita, the petitioners have no personality to raise
any factual or legal issue relating thereto.

Despite non-merit of petitioners' arguments, and notwithstanding the petitioners' failure

to assail the accuracy of the dates when the increase of rental
from P60,000.00 to P130,000.00 was effected, in the interest of justice, the Court shall correct
this plain error, and adjust the rental due in accordance with the facts as borne by the
evidence on record. The Court readily noticed that the MeTC decision erroneously reckoned
the effective date of the increased rental of P130,000.00 from June 1994 instead of the
correct date of November 1994, which shall cause an overpayment of P100,000.00 by the
petitioners. It is clear from the records that the rental due and demandable, and which the
petitioners already paid to respondent Belgravia from June 1994 to October 1994 was
only P60,000.00. It was only when Belgravia drastically increased the monthly rental
from P60,000.00 to P130,000.00, effective November 1994, that the petitioners altogether
stopped paying rentals. Thus, the order to pay unpaid rentals in the adjusted amount
of P80,000.00 should be reckoned only from November 1994 until the time that the petitioners
finally vacate the premises. There are no unpaid differentials of P20,000.00/month due from
June 1994 to October 1994.

WHEREFORE, the assailed Decision of the CA is hereby AFFIRMED with

the MODIFICATION that the petitioners are ordered to pay only the unpaid rentals from
November 1994 in the amount of P80,000.00 until they vacate the leased premises.
No pronouncement as to costs.
SO ORDERED.

DOMESTIC SAVINGS & LOAN ASSOCIATION, INC., REPRESENTED BY ITS PRESIDENT & MANAGER
RENATO E. CADELIÑA, PETITIONER, VS. THE HON. MILAGROS VILLAFANIA-CAGUIOA
VASQUEZ, J.:

Private respondents Roberto, Rodolfo, Marina, Teodoro, Renato, Ildefonso and Gilda, all
surnamed MARQUEZ, are the registered owners of a parcel of land situated in Lucena City,
covered by Transfer Certificate of Title No. T-23486 of the Registry of Deeds of Lucena City.

On April 5, 1976, private respondents leased the said property to the herein petitioner by
virtue of a notarial instrument, and delivered T. C. T. No. 23486 to the petitioner. Private
respondent Roberto Marquez subsequently borrowed the said title and promised to return
the same. When the private respondents refused to give back the Torrens title, petitioner filed
a petition in the Court of First Instance of Quezon, Branch VIII, presided over by the
respondent Judge, Hon. Milagros Villafania-Caguioa, docketed as LRC Cad. Rec. No. 202,
Cad. Case No. 1, M. C. No. 285-81, praying therein that private respondent Roberto Marquez
be ordered to return to petitioner the owner's duplicate of T. C. T. No. 23486. The avowed
purpose was to enable petitioner to register the contract of lease hereinabove-mentioned.

Private respondents filed their answer to the said petition with a motion to dismiss on the
ground that the respondent Court lacked jurisdiction, sitting as land registration Court, to
entertain said petition under Section 112 of the Land Registration Act, the issues involved
therein being controversial.

In an order dated December 17, 1981, the respondent Judge denied the private
respondents' motion to dismiss. However, on a motion for reconsideration, the respondent
Judge sustained the opposition of the private respondents and ordered the petition
"dismissed, without prejudice to petitioner's right to institute the appropriate civil action"
(Order dated March 12, 1982).
Petitioner appeals said order in the instant petition for review on certiorari. The private
respondents filed their Comment to the petition.

The private respondents' principal objection to the relief sought by the petitioner is that such
remedy may not be availed of by means of a petition under Section 112 of the Land
Registration Act, the issues involved being serious and highly controversial which may only be
threshed out in an ordinary action, and may not be taken cognizance of by the respondent
Judge acting as a land registration Court. More specifically, private respondents spelled out
the alleged controversial issues in their Comment to the Petition as follows:

"2(a). Petitioner breached said lease contract, executed 5 April 1976, by failing to adjust
the initial P625.00 monthly rentals thereunder every six (6) months on the basis of the upward
difference between the U.S. dollar and R.P. Peso exchange rate, as provided for in Par. 2(d)
of said lease contract;

2(b). Petitioner further breached said lease contract by not complying with its Par. 2(c),
that all plans and specifications of the proposed building 'shall be first referred to the
LESSORS for due acceptance before approval by the City Engineer's Office is sought by the
Lessee.' This was to safeguard Petitioner's commitment that the building it shall construct shall
cover the entire area of Lot 2772-A, covered by said TCT No. T-23486;

2(c). As it turned out, Petitioner submitted to the City Engineer of Lucena City the plans
and specifications for the aforesaid building, without first referring them to Private
Respondents (LESSORS) for due acceptance;

2(d). The Lease Contract does not represent the true intent and agreement of the parties,
because:.

2(d)(1). FIRST, it was also agreed upon that after the expiration of the lease contract
(Annex 'A', Petition), the portion of the building standing on Lot 2772-A shall pertain to and
be owned by Private Respondents-LESSORS;

2(d)(2). SECOND, the above is not, however, reflected in the lease contract, since Par.
13 thereof only states that upon the expiration of the lease, LESSORS shall recover only legal
possession of the leased premises, without mentioning that ownership of the portion of the
building standing on Lot 2772A shall pertain to said LESSORS;"

It is Our view that the respondent Court erred in declaring itself without jurisdiction to
entertain the petition to order private respondent Roberto Marquez to return to petitioner the
owner's duplicate of Transfer Certificate of Title No. T-23486 in order to enable the petitioner
to register the contract of lease.

In the first place, said petition is not based on the provisions of Section 112 of the Land
Registration Act. There is nothing therein, either in its form or in its substance, to indicate that
petitioner is relying on the provision just cited. In its Opposition to the private respondents'
motion to dismiss, petitioner has expressly indicated that its petition is based, not on Section
112, but on Section 55 of the Land Registration Act which provides in part:
"No new certificate of title shall be entered, no memorandum shall be made upon any
certificate of title by the register of deeds, in pursuance of any deed or other voluntary
instrument, unless the owner's duplicate certificate is presented for such indorsement, except
in cases expressly provided for in this Act, or upon the order of court for cause shown and
whenever such order is made, a memorandum thereof shall be entered upon the new
certificate of title and upon the owner's duplicate. . . .".

There appears to be no issue as to the registrability of the contract of lease in question; nor of
the right or obligation to register the same. Paragraph 7 of the contract of lease explicitly
ordains its registration in this wise:

"This Agreement shall be registered with the Register of Deeds for the City of Lucena, and all
expenses in connection therewith shall be borne by the LESSEE, the LESSORS shall at their
expense provide and execute all documents and do all things which may be necessary for
the registration of this Agreement."

Inasmuch as the law requires the presentation of the owner's duplicate certificate of title to
authorize the register of deeds to register a deed or voluntary instrument, and private
respondents having imposed upon themselves the obligation of doing "all things which may
be necessary for the registration of this Agreement", it follows that the petitioner is entitled to
possess the owner's duplicate of T.C.T. No. T-23486 in order to enable it to register the
contract of lease.

Private respondents seek to thwart the petitioner's right to cause the registration of the
contract of lease by raising issues which are totally irrelevant to the matter of surrendering
the owner's duplicate certificate of title for the purpose of registering the encumbrance
constituted by them on the property covered thereby. By their refusal to do so, they not only
renege on a contractual commitment, but also deprive petitioner of a right to which it is
entitled by law. It goes without saying that there is a big difference, legally speaking,
between a registered and an unregistered lease of a parcel of land.

The questions as to the alleged violations by the petitioner of the contract of lease and the
need for a reformation of the same on the supposed ground that it does not represent the
true intent and agreement of the parties have nothing to do with registering the contract of
lease. The right of the private respondents to ventilate said issues in an appropriate
proceeding is not proscribed by the mere fact that the lease contract had been duly
recorded in the office of the register of deeds. Private respondents may not defeat the
jurisdiction of the Court by raising issues which, although not within its judicial competence
and authority to decide, are gross irrelevant to the proceeding involved. Whatever is
immaterial in any given case is as good as not raised or alleged.

WHEREFORE, the Order of respondent Judge dated March 12, 1982 is hereby REVERSED AND
SET ASIDE. The private respondents are hereby ordered to surrender to the petitioner owner's
duplicate of Transfer Certificate of Title No. T-23486 of the Registry of Deeds of Lucena City
for the purpose of enabling the petitioner to register the contract of lease dated April 5,
1976. It is understood that such registration shall not in any manner preclude the private
respondents from filing the appropriate proceedings to seek relief from the alleged violations
of the contract of lease, or for seeking a reformation of the same. Private respondents shall
pay costs.

SO ORDERED.
(Ocampo vs Tirona, G.R. No.147812. April 6, 2005)

Facts: Ocampo bought a parcel of land from Rosauro Breton. Ocampo then possessed and
administer the subject land although the TCT is not yet in his name. Ocampo notified Tirona,
who was a lessee occupying a portion of the subject land, about the sale. Tirona religiously
paid her rents to Ocampo. However, when the subject premises were declared under area
for priority development, Tirona invoked her right to first refusal and refused to pay her rent
until the NHA processed her papers. Ocampo filed a complaint for unlawful detainer. In her
Answer, Tirona‘s asserted that Dona Yaneza was the owner of the land and not
Ocampo. She likewise reiterated that she has the right of first refusal over the land as it was
included in the area of priority development under PD 1517. The MTC ruled in favor of
Ocampo.
In the RTC, Tirona changed her theory and disclosed that Alipio Breton is the registered
owner of the subject land. When Alipio Breton died, his children, Rosauro Breton and Maria
Lourdes Breton-Mendiola, inherited the subject land. Tirona claims she has never stopped
paying her rent to Maria Lourdes. Tirona also stated that Rosauro could not transfer
ownership to the subject land to Ocampo because Rosauro executed a deed of
conveyance and waiver in favor of Maria Lourdes. The RTC affirmed the decision of the
MTC.
The CA considered partition of the estate of Alipio Breton as a prerequisite to Ocampo’s
action; hence, it dismissed the case.
Issues:
1. Has Ocampo the right to eject Tirona from the subject land?
2. Is the issue of ownership essential in a suit to eject a person illegally occupying a land?
3. Is the CA correct in holding that unlawful detainer had to wait for the results of the
partition proceedings?
4. What should have been filed by Tirona when she does not know the person to whom to
pay the rentals due?

Held:
1. Yes. Unlawful detainer cases are summary in nature. The elements to be proved and
resolved in unlawful detainer cases are the fact of lease and expiration or violation of its
terms. All the elements required for an unlawful detainer case to prosper are present.
Ocampo notified Tirona that he purchased the subject land from Tirona’s lessor. Tirona’s
continued occupation of the subject land amounted to acquiescence to Ocampo’s terms.
However, Tirona eventually refused to pay rent to Ocampo, thus violating the lease.
2. No. The issue of ownership is not essential to an action for unlawful detainer. The fact of the
lease and the expiration of its term are the only elements of the action. The defense of
ownership does not change the summary nature of the action. The affected party should
raise the issue of ownership in an appropriate action, because a certificate of title cannot
be the subject of a collateral attack.
In actions for forcible entry and unlawful detainer, the main issue is possession de facto,
independently of any claim of ownership or possession de jure that either party may set forth
in his pleadings, and an appeal does not operate to change the nature of the original
action.
3. Unlawful detainer being a summary proceeding, it was error for the appellate court to
include the issue of ownership. Had the appellate court limited its ruling to the elements to
be proved in a case of unlawful detainer, Ocampo need not even prove his ownership.
When the appellate court ruled that the case of unlawful detainer had to wait for the results
of the partition proceedings, it effectively put ownership as the main issue in the case. The
issue of ownership opens a virtual Pandora’s Box for Tirona and her supposed intervenor,
Maria Lourdes Breton-Mendiola.
4. The good faith of Tirona is put in question in her preference for Maria Lourdes Breton-
Mendiola. As a stakeholder, Tirona should have used reasonable diligence in hailing the
contending claimants to court. Tirona need not have awaited actual institution of a suit by
Ocampo against her before filing a bill of interpleader. An action for interpleader is proper
when the lessee does not know the person to whom to pay rentals due to conflicting claims
on the property.
The action of interpleader is a remedy whereby a person who has property whether personal
or real, in his possession, or an obligation to render wholly or partially, without claiming any
right in both, or claims an interest which in whole or in part is not disputed by the conflicting
claimants, comes to court and asks that the persons who claim the said property or who
consider themselves entitled to demand compliance with the obligation, be required to
litigate among themselves, in order to determine finally who is entitled to one or the other
thing. The remedy is afforded not to protect a person against a double liability but to protect
him against a double vexation in respect of one liability. When the court orders that the
claimants litigate among themselves, there arises in reality a new action and the former are
styled interpleaders, and in such a case the pleading which initiates the action is called a
complaint of interpleader and not a cross-complaint.
 bpi-family savings bank v. sps domingo, villa and sps. cruz [2006]
doctrine:
In the construction of an instrument where there are several provisions or particulars, such a
construction is, if possible, to be adopted as will give effect to all. The act of sub-leasing in
the first sentence may be done by the lessee without the consent of the lessor but the act of
assignment or transfer of rights in the second sentence cannot be done by the lessee
without the consent of the lessor.

contested provision:

Assignment and Sublease – The lessee has the right to sublease the premises or any portion
thereof to a third party. The lessee may not, however, assign or transfer its right or interest
under this lease without the written consent of the lessor.

Facts:

· Contracts Involved:

1) The original lease agreement between Julian Cruz and BPI-FSB;

2) The first sublease contract between BPI-FSB and Villa;

3) The sale of goodwill of the Carousel Food House, and the assignment and transfer of all of
Villa's rights and interests to the premises and improvements thereon, between Villa and the
Domingos;

4) The second sublease contract between BPI-FSB and the Domingos; and

5) The Deed of Rescission of the first sublease contract between Villa and BPI-FSB.

· Julian Cruz is the owner of a commercial lot and building in Novaliches, which he leased
out to the Family Savings Bank. After BPI acquired FSB but before the expiration of the
original lease, a new lease was executed between BPI-FSB and Cruz.

· The contracts contained a stipulation that: the lessee has the right to sublease the
premises or any portion thereof to a third party. The lessee may not, however, assign or
transfer its right or interest under this lease without the written consent of the lessor.

· While the original lease was still subsisting, BPI-FSB subleased the premises to Benjamin Villa
(now deceased), a former VP of BPI-FSB. BPI-FSB did not secure the consent of Cruz, but the
latter was aware of the sublease and acceded to it because he made neither an objection
nor a protest thereto.

· The sublease contract contained a stipulation that: the sublessee shall not assign this
contract of sublease or sublease any part of the premises to any person or entity.

· Villa operated in the premises a restaurant business, which failed to prosper. After about
a year of operation, Villa closed it down. While still operating the business, Villa learned that
 Zenaida Domingo was interested in taking over his restaurant. The price of P650K was agreed
upon.

· BPI-FSB executed a sublease contract in favor of the Domingos. Then a deed of rescission
of the sublease agreement between BPI-FSB and Villa was executed.

· The Domingos went to clean the premises but the door was padlocked. There was
posted a sign that the place was not for lease or sublease. The Domingos demanded of Villa
either compliance with their contract of sublease or the return of their payment.

· With Villa unable to return the money, the Domingos filed suit in the RTC of Quezon City
for a sum of money with damages against both Villa and BPI-FSB. In turn, Villa and BPI-FSB
filed their respective third-party complaints against Cruz.

· Cruz claimed that he had every right to close down the premises and to refuse the entry
thereto of the Domingos because under his lease agreement with BPI-FSB, the latter cannot
sublease the premises without his written consent.

· RTC found for the Domingos, ordering defendants to pay damages solidarily and for Cruz
to reimburse the amounts to BPI and Villa. The CA affirmed in toto. Only BPI-FSB elevated the
case to the SC.

ISSUE #1: WON BPI-FSB and villa should be solidarily liable. yes.

· BPI-FSB: It cannot be found solidarily liable with Villa for the latter’s breach of his sublease
with the Domingos because it was not privy to the agreement.

· Villa : not being a party to the second sublease contract between BPI-FSB and the
Domingos, he cannot be held responsible for the Domingos' failure to occupy the premises

· Neither BPI-FSB nor Villa can escape liability by disclaiming privity to an agreement with
the Domingos.

· Both assured the Domingos that they would eventually be placed in possession of the
premises as sublessee.

· Each had their own respective agreements with the Domingos, albeit for a single
purpose. The two contracts are intertwined.

· BPI-FSBs failure to put the Domingos in possession of the premises as its sublessees, in
breach of its own contract with them, makes the Peaches solidarily liable with Villa for the
amount the Domingos had paid to enjoy the premises.

· Villa, on the other hand, though not a privy to the second sublease contract, had his own
contract with the Domingos which he had breached.
 Issue #2: won cruz should reimburse bpi-fsb and villa. yes.

· Cruz himself was guilty of breach wrt his basic lease agreement with BPI-FSB. The sublease
stipulation seemingly insulates Cruz from any liability in this case.

· In the construction of an instrument where there are several provisions or particulars, such
a construction is, if possible, to be adopted as will give effect to all. The first sentence speaks
of what the lessee can do, while the second sentence refers to what it cannot do without
the consent of the lessor.

· The act of sub-leasing in the first sentence may be done by the lessee without the
consent of the lessor but the act of assignment or transfer of rights in the second sentence
cannot be done by the lessee without the consent of the lessor. Clearly, the parties intended
a distinction between a sublease and an assignment of rights.

· The subject agreement was not an assignment. Had it been one, then a written consent
of Cruz would have been required; but it was a mere sublease.

SUBLEASE ASSIGNMENT

lessee continues to be the assignee steps into

liable to the lessor for the the shoes of the lessee
payment of rent who is thereupon freed
from his obligations under
the lease

the lessee retains an lessee makes an absolute

interest in the lease; he
remains a party to the
contract;
transfer of his interest as
lessee; thus,
he disassociates himself
from the original contract
of lease;

the sublessee does not the assignee has a direct

have any direct action action against the lessor;
against the lessor;

can be done without the cannot be done unless

permission of the lessor the lessor consents.
(unless there be an
express prohibition).
 Analita Inocencio v. Hospicio de San Jose

Facts:

- Hospicio de San Jose (HDSJ) leased a parcel of land to German Inocencio (German).
German then constructed two buildings over the land which he subleased. Ramon, his
son, was designated to administer the properties)
- German died but Ramon did not inform HDSJ. Nonetheless, Ramon collected rentals
from the sublessees and paid rent to HDSJ.
- HDSJ acknowledged the existence of an implied lease between Ramon and HDSJ, as
the latter has been receiving rental payments from the former. HDSJ informed Ramon
that the contract shall expire on 31 March 2001 and it has no intention of renewing the
same since Ramon did not inform HDSJ of the sublease
- HDSJ then demanded Ramon to vacate the property within 30 days. HDSJ also
entered into lease agreements with other parties.
- HDSJ now filed a complaint for unlawful detainer. While pending, Ramon passed away
and substituted now by Analita Inocencio, his wife.
- MTC
o Ordered defendants to pay
- RTC
o Ramon had no right to sublease the property
- CA
o Affirmed RTC. Merely modified the award for damages
- Hence, this Petition.

Issues:

- Whether the sublease is valid

Ruling:

- Despite the non-transferability of the contract without the consent of the lessor, HDSJ
nonetheless acknowledged that Ramon is its month-to-month lessee. Thus, German’s
death did not terminate the lease. (Validity of the lease to Ramon)
- Ramon likewise had the right to sublease the property since the lease contract did not
contain any prohibitions on sublease, pursuant to Article 1650. Thus, the sublease
contracts entered into by Ramon were valid. (Validity of sublease)
- Inocencios claim ownership over the property since they claim that these are
separate and distinct from the land on which they were built. Thus, they argue that
they have a right to lease the buildings to 3rd-parties, even after the termination of the
lease. Further, the Inocencios argue that when they entered into lease contracts with
tenants for the lease of portions of the said buildings, these contracts were
independent contracts of lease over their own building and not sub-leases of the
parcel of land which they leased from Respondent
 - The Court DISAGREES with the Inocencios by stating the ruling in the case of Duellome
v. Gotico:
o The lease of a building includes the lease of the lot and consequently, the
rentals of the building include the rentals of the lot.
o Accordingly, they pointed out that the ARGUMENT of HDSJ is CORRECT when
they stated the following:
 When the Inocencios leased the buildings to third parties, they also
"leased" to the third parties the plot of land on which the buildings stood —
either by implied transfer of the lease covering the plot of the land, or by
sublease. Either way, x x x the Inocencios themselves must have a valid
lease contract with [HDSJ] over the land. However, when the lease
contract x x x with HDSJ ended on 31March 2001, Ramon lost his status as
lessee of the land, and therefore, had no authority to transfer the lease or
sublease the land.

Chua Tee Dee vs. CA

G.R. No. 135721, May 27, 2004

FACTS:

This is a case for collection of back rentals plus interest and attorney’s fees filed by Agricom
against Chua Tee Dee, doing business as Pioneer Enterprises.

On May 22, 1985, Agricom and Dee entered into a 15-year lease contract over the rubber
plantation owned by the former. Among the stipulations in the contract was the payment of
deposit in the amount of P135,000.00 and payment of back rentals in case of non-payment
of rentals for three months. The contract also stipulated that Agricom had the duty to
maintain Dee in the quiet peaceful possession and enjoyment of the leased premises.

However, sometime in 1986, a labor case for illegal dismissal and unfair labor practice was
filed against Agricom, Amado Dee (Chua Tee Dee’s husband) and Pioneer. This case arose
from the fact that some of the plantation laborers were dismissed from work due to the
contract of lease with Dee. The labor case dragged on for a number of years. In addition,
Dee also complained of being pestered by some individuals who claimed portions of the
plantation as their own property.
Later on, Pioneer defaulted in its monthly payments, prompting Agricom to file a complaint
for sum of money. In its Answer, Dee asserted that Agricom committed breach of contract
for its failure to maintain her in peaceful possession and enjoyment of the leased premises.
The breach, in turn, entitled her to suspend payment of rentals.

While the case was pending, Dee extended a personal loan of P30,000 to Lillian Carreido.
When judgment was finally rendered, the complaint was dismissed and the lease contract
terminated, the court stating that it was Agricom’s duty as lessor to maintain the lessee in
peaceful possession and enjoyment of the leased premises.
Upon motion for recommendation, the lower court reversed its own ruling, ordering Dee to
pay Agricom back rentals and rentals for the first three years of the lease already paid for.
The CA affirmed the order.

Hence this appeal.

ISSUE:

Whether or not CA committed grave abuse of discretion in upholding the validity of the
lease contract and holding Dee liable for back rentals, including rentals already paid for
HELD:

The Supreme Court ruled partly in favor of Dee.

On the issue of suspension of payment of rentals, Dee anchors her argument on Art. 1658,
NCC, which entitles the lessee to suspend payment of rent in case the lessor fails to make the
necessary repairs or to maintain the lessee in peaceful and adequate enjoyment of the
property leased. Dee asserted that she was harassed by squatters and several claimants of
the leased premises.

The duty “to maintain the lessee in the peaceful and adequate enjoyment of the lease for
the duration of the contract” is merely a warranty that the lessee shall not be disturbed in his
legal, and not physical, possession. In the present case, however, petitioner had not been
disturbed in her legal possession of the property.

As to the claims of loss due to the labor dispute, the Supreme Court agreed with the CA that
Dee failed to prove this. During the period of pendency of the labor case, Dee regularly paid
the monthly rentals. It was only after the labor case has been resolved that she started to fail
to pay her rentals, strongly indicating that the labor case has not dampened her peaceful
and adequate possession of the leased premises.

The Supreme Court, however, ruled that Dee should not be made to pay rentals for the first
three years of the lease, since those rentals were already paid for. Moreover, the personal
loan extended by Dee to Lillian Carriedo should not be charged against Agricom. While it is
true that the petitioner and Carriedo had agreed that the personal loan of the latter shall be
“chargeable against Agricom’s account,” the private respondent is not privy to the
agreement; nor did it agree to pay the said loan. It must be stressed that the private
respondent has a personality separate and distinct from its stockholders.

PUP Vs. GOLDEN

Facts:
 National Development Company (NDC) had in its disposal a 10 hectare property,
commonly called as NDC Compound, located along Pureza St., Sta. Mesa, Manila.
 September 7, 1977: NDC entered into a Contract of Lease with Golden Horizon Realty
Corporation (GHRC) over a portion of the NDC Compound for a period of ten years,
renewable for another ten years with mutual consent of the parties.
  May 4, 1978: a second Contract of Lease was executed between NDC and GHRC. In
addition, GHRC as lessee was granted the “option to purchase the area leased, the
price to be negotiated and determined at the time the option to purchase is
exercised.”
 Sometime after September 1988, GHRC discovered that NDC had decided to secretly
dispose the property to a third party.
 In the meantime, then President Corazon C. Aquino issued Memorandum Order No. 214
dated January 6, 1989, ordering the transfer of the whole NDC Compound to the
National Government, which in turn would convey the said property in favor of PUP at
acquisition cost.
 The order of conveyance of the 10.31-hectare property would automatically result in the
cancellation of NDC’s total obligation in favor of the National Government in the
amount of P57,193,201.64.
 PUP demanded that GHRC vacate the premises, insisting that the latter’s lease contract
had already expired. Its demand letter unheeded by GHRC, PUP filed an ejectment
case. GHRC argued that Memorandum Order No. 214 is a nullity.
 RTC rendered its decision upholding the right of first refusal granted to GHRC under its
lease contract with NDC and ordering PUP to reconvey the said portion of the property
in favor of GHRC. CA affirmed the RTC ruling.

Issue: WON the option to purchase the portion leased to GHRC was violated by the sale of
the NDC Compound in favor of PUP pursuant to Memorandum Order No. 214. YES

Held:

The contract between NDC and GHRC contained an option to purchase in favor to the lessee
The second lease contract contained the following provision:
III. It is mutually agreed by the parties that this Contract of Lease shall be in full force and
effect for a period of ten (10) years counted from the effectivity of the payment of rental as
provided under sub-paragraph (b) of Article I, with option to renew for another ten (10) years
with the mutual consent of both parties. In no case should the rentals be increased by more
than 100% of the original amount fixed.
Lessee shall also have the option to purchase the area leased, the price to be negotiated
and determined at the time the option to purchase is exercised.

Option Contract vs. Right of First Refusal

An option is a contract by which the owner of the property agrees with another person that
the latter shall have the right to buy the former’s property at a fixed price within a certain
time. It is a condition offered or contract by which the owner stipulates with another that the
latter shall have the right to buy the property at a fixed price within a certain time, or under,
or in compliance with certain terms and conditions; or which gives to the owner of the
property the right to sell or demand a sale. It binds the party, who has given the option, not
to enter into the principal contract with any other person during the period designated, and,
within that period, to enter into such contract with the one to whom the option was granted,
if the latter should decide to use the option.
Upon the other hand, a right of first refusal is a contractual grant, not of the sale of a
property, but of the first priority to buy the property in the event the owner sells the same. As
distinguished from an option contract, in a right of first refusal, while the object might be
made determinate, the exercise of the right of first refusal would be dependent not only on
the owner’s eventual intention to enter into a binding juridical relation with another but also
on terms, including the price, that are yet to be firmed up.

The contract between the parties involve a right of first refusal

As the option to purchase clause in the second lease contract has no definite period within
which the leased premises will be offered for sale to respondent lessee and the price is made
subject to negotiation and determined only at the time the option to buy is exercised, it is
obviously a mere right of refusal, usually inserted in lease contracts to give the lessee the first
crack to buy the property in case the lessor decides to sell the same.

When a lease contract contains a right of first refusal, the lessor has the legal duty to the
lessee not to sell the leased property to anyone at any price until after the lessor has made
an offer to sell the property to the lessee and the lessee has failed to accept it. Only after the
lessee has failed to exercise his right of first priority could the lessor sell the property to other
buyers under the same terms and conditions offered to the lessee, or under terms and
conditions more favorable to the lessor.

Respondent GHRC thus timely exercised its option to purchase on August 12, 1988 and NDC
violated the right of first refusal
However, considering that NDC had been negotiating through the National Government for
the sale of the property in favor of PUP as early as July 15, 1988 without first offering to sell it to
respondent and even when respondent communicated its desire to exercise the option to
purchase granted to it under the lease contract, it is clear that NDC violated respondent’s
right of first refusal. Under the premises, the matter of the right of refusal not having been
carried over to the impliedly renewed month-to-month lease after the expiration of the
second lease contract on October 21, 1988 becomes irrelevant since at the time of the
negotiations of the sale to a third party, petitioner PUP, respondent’s right of first refusal was
still subsisting.

Indeed, basic is the rule that a party to a contract cannot unilaterally withdraw a right of first
refusal that stands upon valuable consideration
We have categorically ruled that it is not correct to say that there is no consideration for the
grant of the right of first refusal if such grant is embodied in the same contract of lease. Since
the stipulation forms part of the entire lease contract, the consideration for the lease
includes the consideration for the grant of the right of first refusal. In entering into the
contract, the lessee is in effect stating that it consents to lease the premises and to pay the
price agreed upon provided the lessor also consents that, should it sell the leased property,
then, the lessee shall be given the right to match the offered purchase price and to buy the
property at that price.

The true value of the land at the time of the sale to PUP was P1,500
GHRC, which did not offer any amount to petitioner NDC, and neither disputed the P1,500.00
per square meter actual value of NDC’s property at that time it was sold to PUP at P554.74
per square meter, as duly considered by this Court in the Firestone case, should be bound by
such determination. Accordingly, the price at which the leased premises should be sold to
respondent in the exercise of its right of first refusal under the lease contract with petitioner
NDC, which was pegged by the RTC at P554.74 per square meter, should be adjusted to
P1,500.00 per square meter, which more accurately reflects its true value at that time of the
sale in favor of petitioner PUP.

RULING: RTC and CA ruling affirmed with modification: the price to be paid by respondent
Golden Horizon Realty Corporation for the leased portion of the NDC Compound under
Lease Contract Nos. C-33-77 and C-12-78 is hereby increased to P1,500.00 per square meter.

Chua vs. Victorio

G.R. No. 157568
May 18, 2004

Ynares-Santiago, J.

Facts: The petition has its roots from several ejectment cases filed by respondent Mutya
Victorio, the owner of certain commercial units located on Panganiban Street Snatiago City,
Isablea, against herein petitioners. An earlier ejectment case ended in a compromise
between the parties, approved by the trial court. Thereafter, in September 1994, respondent,
demanded a 25% rental increase from petitioners on the basis of a rental survey of other
commercial establishments along Panganiban Street, through her attorney-in-fact.
Petitioners refused to pay the increased rentals, compelling the respondent to filed unlawful
detainer cases against lessee.

Issue: Whether or not the rescission made by respondent in relation to the Compromise
Agreement is valid.

Held: Yes. The right of rescission is statutorily recognized in reciprocal obligations, such as
contracts of lease. Ordinarily, an obligee’s remedies upon breach of an obligation are
judicial in nature. The mere failure by the lessees to comply with the increased rental does
not ipso jure produce the rescission of the contract of lease. Rescission of lease contracts
under Article 1659 of the Civil Code is not one that requires an independent action, unlike
resolution of reciprocal obligations under Article 1191.

Fallo: Petition for review is denied. The decision of the Court of Appeals is affirmed with the
modification that petitioners are ordered to vacate the leased premises one month after the
finality of this decision. Petitioner Leonardo Chua is also ordered to pay respondent the sum
of P15,000.00 a month as reasonable compensation for the use of the premises from
November 1, 1998 until he finally vacates the premises. Petitioners, Heirs of Yong Tian, are
ordered to pay respondent the monthly sum of P15,000.00 per unit, or P30,000.00 per month
from November 1, 1998 until they finally vacate the premises.

EVANGELINE A. LEONIN and PEPITO A. LEONIN v. COURT OF APPEALSand GERMAINE P. LEONIN

503 SCRA 595 (2006)

Occupants of a property by tolerance of the owner becomes deforciant occupants upon

their failure to heed to the owner’s demand to vacate.

FACTS: Prospero Leonin and his co-owners allowed his siblings, Evangelime and Pepito Leonil
to occupy Apartment C without paying any rentals. The owners of the property mortgaged it
with the Government Service Insurance System (GSIS) to secure a loan in the amount
of Forty Eight Thousand Pesos (P48,000.00). They however failed to settle the said loan. As
a consequence thereof, GSIS foreclosed the mortgage and the property was sold at public
auction to GSIS.

Prospero‘s brother, Teofilo Leonin (Teofilo), redeemed the property, upon which GSIS
executed a Release of Mortgage and turned over to him the owner‘s duplicate title. Teofilo
later sold the property by Deed of Absolute Sale to his daughter, herein respondent
Germaine Leonin, for Forty Eight Thousand Pesos (P48,000.00). A new Transfer Certificate of
Title (TCT) No. 95939 was issued in her favor.

After her father Teofilo‘s death, Germaine sent a letter to her father‘s siblings-herein
petitioners asking them to vacate Apartment C as their occupation thereof was by mere
tolerance and, at any rate, requiring them to execute a contract of lease with her. This
demand remained unheeded.

ISSUE:

Whether respondent had the right to possess the property upon the execution of a deed of
absolute sale and the issuance of a transfer of certificate of title in her favor

HELD:

Respecting the issue of whether germane has the right to possess the property upon the
execution of a deed of absolute sale and the issuance of a transfer of certificate of title in
her favor, the same must be resolved in the affirmative. It bears noting that Evangeline‘s and
Pepito‘s occupation of the property was on the mere tolerance of the former owners.
Hence, when they failed to heed Germaine’s demand to vacate, they had become
deforciant occupants.

BUKIDNON DOCTORS HOSPITAL VS METROPOLITANT BANK TRUST & CO.

GR 161882 JULY 8, 2005

FACTS:

Herein petitioner loaned a money amounting to P25 M from respondent as a security it

mortgaged 6 parcels of land located in Bukidnon. Upon default in the payment of the loan,
the said parcels of land were extrajucially foreclosed and put in a public auction and were
sold to the repondent bank.

In order to continue its business the petitioner proposed that It would lease the land where its
hospital is erected in 3 years for 100,000 a month. Respondent bank agreed to the proposal
however increasing the rental to 200,000 a month with the contract subject to a review
every 6 months. The parties were able to agree with a monthly rental of 150,000 and that the
contract shall take effect in November 2001.

Approximately 1 year and 8 months, respodent ordered the petitioner to vacate the
premises within 15 days. The latter refused.

MBTC filed for Ex Parte Motion for a Writ of Possession.

RTC granted the motion.

ISSUE:

whether or not a writ of possession is the proper remedy for evicting a mortgagor who
became a lessee of the mortgaged properties after the mortgagee has consolidated
ownership over the properties and was issued new certificates of title.

HELD:

NO

In the case at bar, it is not disputed that after the foreclosure of the property in question and
the issuance of new certificates of title in favor of the respondent, the petitioner and the
respondent entered into a contract of lease of the subject properties. This new contractual
relation presupposed that the petitioner recognized that possession of the properties had
been legally placed in the hands of the respondent, and that the latter had taken such
possession but delivered it to the former as lessee of the property. By paying the monthly
rentals, the petitioner also recognized the superior right of the respondent to the possession
of the property as owner thereof. And by accepting the monthly rentals, the respondent
enjoyed the fruits of its possession over the subject property. Clearly, the respondent is in
material possession of the subject premises. Thus, the trial court’s issuance of a writ of
possession is not only superfluous, but improper under the law. Moreover, as a lessee, the
petitioner was a legitimate possessor of the subject properties under Article 525 of the Civil
Code. Thus, it could not be deprived of its lawful possession by a mere ex parte motion for a
writ of possession.

In a nutshell, where a lease agreement, whether express or implied, is subsequently entered

into by the mortgagor and the mortgagee after the expiration of the redemption period and
the consolidation of title in the name of the latter, a case for ejectment or unlawful detainer,
not a motion for a writ of possession, is the proper remedy in order to evict from the
questioned premises a mortgagor-turned-lessee. The rationale for this rule is that a new
relationship between the parties has been created. What applies is no longer the law on
extrajudicial foreclosure, but the law on lease. And when an issue arises, as in the case at
bar, regarding the right of the lessee to continue occupying the leased premises, the rights
of the parties must be heard and resolved in a case for ejectment or unlawful detainer under
Rule 70 of the Rules of Court.

CEBU BIONIC V. DBP (G.R. NO. 153366; NOVEMBER 17, 2010)

FACTS: Spouses Robles entered into a mortgage contract with the DBP to create the State
Theatre Building in Talisay, Cebu. Upon completion, Rudy Robles executed a contract of
lease in favour of Cebu Bionic Builders Supply. However, the spouses defaulted on their
obligation to pay and DBP extrajudicially foreclosed the mortgage. DBP sent a letter to Cebu
Bionic that if they were interested in leasing the facilities, they would have to pay DBP.
However, nothing came from these correspondences.

DBP then invited parties to bid on the property. Initially, Cebu Bionic submitted their interest in
bidding, but the price that they gave was insufficient. DBP then awarded the auction to
Respondents To Chip, Yap and Balila. In response to several demand letters by the
Respondents, Cebu Bionic filed a petition for preliminary injunction, cancellation of deed of
sale and specific performance against DBP. Petitioners then related that, without their
knowledge, DBP sold the subject properties to respondents To Chip, Yap andBalila.The sale
was claimed to be simulated and fictitious, as DBP still received rentals from petitioners until
March 1991.By acquiring the subject properties, petitioners contended that DBP was
deemed to have assumed the contract of lease executed between them and Rudy Robles.
They alleged that the original leases clause of the Right of First Option to Buy should be
upheld.

The trial court granted their complaint. The Court of Appeals similarly upheld the decision of
the trial court. Cebu Bionic filed a motion for entry of judgment, but Respondents filed a
motion for reconsideration on the ground that they relied on the friend of their lawyer to
personally file the MR, but apparently did not. The court granted their MR, and reversed their
judgment before. Thus, the petitioners file the case before the Supreme Court.

ISSUES:

Was a contract of lease between petitioners and DBP?

If in the affirmative, did this contract contain a right of first refusal in favor of petitioners?
Are respondents To Chip, Yap and Balila likewise bound by such right of first refusal?
HELD: Under Article 1305 of the Civil Code, "[a] contract is a meeting of minds between two
persons whereby one binds himself, with respect to the other, to give something or to render
some service."A contract undergoes three distinct stages preparation or negotiation, its
perfection, and finally, its consummation.Negotiation begins from the time the prospective
contracting parties manifest their interest in the contract and ends at the moment of
agreement of the parties.The perfection or birth of the contract takes place when the
parties agree upon the essential elements of the contract.The last stage is the
consummation of the contract wherein the parties fulfill or perform the terms agreed upon in
the contract, culminating in the extinguishment thereof

In the case at bar, there was no concurrence of offer and acceptancevis-visthe terms of the
proposed lease agreement.In fact, after the reply of petitioners counsel dated July 7, 1987,
there was no indication that the parties undertook any other action to pursue the execution
of the intended lease contract.Petitioners even admitted that they merely waited for DBP to
present the contract to them, despite being instructed to come to the bank for the
execution of the same.

DBP cannot, therefore, be accused of violating the rights of petitioners when it offered the
subject properties for sale, and eventually sold the same to respondents To Chip, Yap and
Balila, without first notifying petitioners.Neither were the said respondents bound by any right
of first refusal in favor of petitioners.Consequently, the sale of the subject properties to
respondents was valid.Petitioners claim for rescission was properly dismissed.

DENIED

La Campana Dev. Corp. vs. Ledesma

Facts: Petitioner filed an ejectment case with the Metropolitan Trial Court (MeTC) against
private respondent Ledesma, alleging that despite expiration of the contract of lease
executed between them and demands to vacate subject premises and pay rentals
therefor, the latter failed to comply with such demands. Private respondent countered in his
Answer that he had paid the rentals over subject premises and petitioner no longer had the
right to possess the property as it had been foreclosed by the Development Bank of the
Philippines (DBP). Private respondent further pointed out that subject premises had in fact
been in the possession of the DBP since March or April of 1997, so since that time, it was with
the DBP that he made arrangements for his continued occupation of the subject premises.
The MeTC then rendered judgment in favor of petitioner, ordering private respondent to
surrender possession of subject premises to petitioner. Private respondent appealed to the
Regional Trial Court (RTC), and to stay execution of said judgment, private respondent filed a
supersedeas bond with the MeTC. The RTC affirmed the MeTC judgment. Petitioner then
moved for the immediate execution of the RTC Decision, which motion was granted by the
RTC. Meanwhile, private respondent elevated the case to the CA via a petition for review on
certiorari with prayer for the issuance of a temporary restraining order or writ of preliminary
injunction. A temporary restraining order was issued by the CA, effectively staying
implementation of the writ of execution issued by the RTC. Now the present petition for
certiorari for the annulment of the CA’s resolution

Issue: 1. Whether the CA committed grave abuse of discretion amounting to lack or excess
of jurisdiction when it ordered the issuance of a writ of preliminary injunction to stay the
immediate execution of the RTC judgment

2. Whether the CA err in considering the supersedeas bond filed with the MTC, which
answers for unpaid rentals, as sufficient bond for the issuance of a writ of preliminary
injunction
Held: No. When exigencies in the case warrant it, the appellate court may stay the writ of
execution issued by the RTC in an action for ejectment if there are circumstances
necessitating such action. Where supervening events (occurring subsequent to the
judgment) bring about a material change in the situation of the parties which makes the
execution inequitable, or where there is no compelling urgency for the execution because it
is not justified by the prevailing circumstances, the court may stay immediate execution of
the judgment.

There also exists a material change in the situation of the parties. The CA properly took into
serious consideration the fact that in its Decision in CA-G.R. CV No. 34856 entitled La
Campana Food Products, Inc. v. Development Bank of the Philippines, which has become
final and executory, it ordered herein petitioner, formerly known as La Campana Food
Products, Inc., to surrender possession of subject properties to the Development Bank of the
Philippines. Evidently, a serious cloud of doubt has been cast on petitioner’s right of
possession, making it questionable whether the RTC Decision, ordering private respondent to
surrender possession of subject premises to petitioner, should be immediately implemented.
Therefore, the CA did not gravely abuse its discretion in this case; rather, it acted prudently
when it stayed execution of the RTC Decision until such time that a final resolution of the
main case is reached.

Petitioner's contention, that it was improper for the CA to have granted private respondent's
motion to consider the supersedeas bond it posted with the Metropolitan Trial Court as
sufficient to cover the bond required for the issuance of the writ of preliminary injunction, is
likewise incorrect. Petitioner argues that, "said supersedeas bond is posted solely and
primarily to answer for a specific purpose which is for the payment of unpaid rentals
accruing up to the final judgment. This cannot be held answerable for damages to
petitioner should it later be found out that the private respondent is not entitled to the
issuance.

Since the only damages that petitioner may be entitled to in an action for unlawful detainer
are those arising from its loss of the use or occupation of subject premises, the only damages
petitioner can claim by reason of the stay of execution of the RTC judgment is also only for
the "rent" or "fair rental value" for the property in question. Therefore, the CA did not err in
considering the supersedeas bond filed with the MTC, which answers for unpaid rentals, as
sufficient bond for the issuance of a writ of preliminary injunction.

PAUL T. IRAO v. BY THE BAY, INC.

558 SCRA 315 (2008)

A notice or demand to vacate does not have to expressly use the word “vacate”, as it
suffices that the demand letter puts the lessee or occupant on notice that if he does not pay
the rentals demanded or comply with the terms of the lease contract, it should move out of
the leased premises.

FACTS: Ruby Roxas (Ruby) the representative of the Estate of Doña Trinidad de Leon Roxas
and Ronald Magbitang (Ronald) representative of By the Bay, Inc. forged a contract of
lease of a 3-storey building located in Pasay City for 5 years.
By the Bay‘s restaurant was closed by the City Government and they started defaulting in
the payment of the rent. Ruby executed another contract of lease in favor of Paul T. Irao
(Paul), herein petitioner. Paul, together with the Barangay Kagawad and Security Guards,
entered and took possession of the leased premises.

By the Bay, Inc. filed a case of Forcible Entry to the Metropolitan Trial Court of Pasay City
(MeTC) with Prayer for Preliminary Injunction and Damages. The MeTC dismissed the
complaint of By the Bay Inc. holding that the failure of By the Bay Inc. to pay monthly rentals
renders them with unclean hands. By the Bay Inc. contends that the letter sent to them by
Ruby Roxas was the demand to pay the rental arrearsand not a notice to terminate the
contract of lease.

The Regional Trial Court affirmed the decision of the MeTC. It was reversed by the Court of
Appeals holding that Paul Irao should turn over the possession to By the Bay, Inc.

ISSUE:

Whether or not the lessor‘s demand letter to respondent sufficiently contained a notice of
termination of the lease contract and a demand to vacate the leased premises to justify the
taking over the possession

HELD:

The language and intent x x x of the demand letter are unambiguous. The lessor demanded
from By the Bay Inc. the full payment of its unpaid rentals of P2,517,333.36 within five days
from notice. The phrase ―otherwise we shall be constrained, much to our regret‖ in the letter
sends a clear warning that failure to settle the amount within the stated period would
constrain the lessor to ―terminate [the] Contract of Lease‖ and ―take the necessary legal
measures against [respondent] to protect [its] interest without further notice.‖

The letter made it clear to respondent that the therein stated adverse consequences would
ensue ―without further notice,‖ an unmistakable warning to respondent that upon its default,
the lease contract would be deemed terminated and that its continued possession of the
leased premises would no longer be permitted.

The notice of impending termination was not something strange to respondent since it
merely implemented the stipulation in Section 31 of their contract that ―if default
or breach be made of any of such covenants and conditions, then this lease, at the
discretion of the LESSOR, may be terminated and cancelled forthwith.‖

To ―warn‖ means ―to give notice to somebody beforehand, especially of danger;‖ and a
―warning‖ may be ―a notice of termination of an agreement, employment, etc.‖ Its purpose
is ―to apprise a party of the existence of danger of which he is not aware to enable him to
protect himself against it.‖

―[W]here,‖ as here, ―the party is aware of the danger, the warning will serve no useful
purpose and is unnecessary, and there is no duty to warn against risks which are open and
obvious.‖
The appellate court‘s ruling that the lessor‘s letter did not demand respondent to vacate is
flawed. A notice or demand to vacate does not have to expressly use the word ―vacate,‖
as it suffices that the demand letter puts the lessee or occupant on notice that if he does not
pay the rentals demanded or comply with the terms of the lease contract, it should move
out of the leased premises.

Contractual stipulations empowering the lessor and/or his representative to repossess the
leased property extrajudicially from a deforciant lessee, as in the present case, have been
held to be valid. Being the law between the parties, they must be respected. By the Nay,
Inc. cannot thus feign ignorance that the repossession of the leased property by the lessor
and/or its representative-herein Paul was the appropriate legal measure it (respondent) itself
authorized under their contract.

Sulo sa Nayon Inc vs Nayong Pilipino Foundation

Facts: On 1975, Respondent leased to petitioner Sulo sa Nayon a portion of land for the
construction and operation of a hotel building for an initial period of 21 years until May1996
and renewable for 25 years upon due notice in writing to respondent at least 6months prior
of the expiration of the lease. On March 1995, petitioners sent respondent a letter notifying
the latter’s intention to renew the contract fro another 25 years and that they executed a
Voluntary Addendum to the lease agreement. Beginning 2001,petitioners defaulted
in the payment of their monthly rental so respondent demanded petitioner to pay. On
September 2001, respondent filed a complaint for unlawful detainer. Petitioners insist
that they should be considered builders in good faith who have the right of retention until
reimbursement by respondent is made and they also argue that to apply Art 1678 to their
case would result to sheer injustice, as it would amount to giving away the hotel and its other
structures at virtually bargain prices.

Issue: Is petitioners a builder in good faith?

Ruling: No. In the case at bar, petitioners have no adverse claim or title to the land. In fact,
as lessees, they recognize that the respondent is the owner of the land. What petitioners insist
is that because of the improvements, which are of substantial value, that they have
introduced on the leased premises with the permission of respondent, they should be
considered builders in good faith who have the right to retain possession of the property until
reimbursement by respondent. We affirm the ruling of the CA that introduction of valuable
improvements on the leased premises does not give the petitioners the right of
retention and reimbursement which rightfully belongs to a builder in good faith. Otherwise,
such a situation would allow the lessee to easily “improve” the lessor out of its property. His
right are governed by Art 1678 of the Civil Code.