Plan v. Court of Appeals
REITERATIONFacts
The Antecedents: Regino Bautista constructed the Cine Central on his lots, with his son Federico managing the theatre and residing on the premises, later converting a sari-sari store into a residence. After Regino's death, Federico continued managing the theatre, which was losing money and mortgaged. On September 22, 1960, the heirs leased the theatre to Amorante Plan for 5 years and 10 months, with the lease subject to the rights of Federico and Conrado Bautista to operate their spaces. Guillerma Reyes, a 10% owner, sold her share to Plan, who also became a co-owner. Conrado moved out, leaving Federico occupying a space. When the estate defaulted on its mortgage to PNB, Plan purchased the theatre and lots from the estate on December 22, 1964, with court authorization, and registered the lots in his name on February 26, 1966. On March 5, 1965, Plan demanded Federico vacate, but Federico refused and instead constructed a well on May 7, 1965, obstructing the theatre's lobby view and causing losses. Federico ignored warnings from the City Engineer regarding the illegal construction. Procedural History: Plan initiated an ejectment and damages case against Federico and Nena Bautista in the City Court, which ruled in favor of Plan, ordering the defendants to vacate and pay damages. Federico appealed to the Court of First Instance (CFI), which reversed the City Court's decision, dismissed the complaint, and awarded moral damages and attorney's fees to the defendants on their counterclaim. Plan then appealed to the Court of Appeals (CA), which initially reversed the CFI decision and reinstated the City Court's ruling with modifications. However, upon reconsideration, the CA reversed its own decision, affirming the CFI's decision in its entirety, and subsequently denied Plan's motion for reconsideration. The Petition: Petitioner Amorante Plan filed a petition for certiorari with the Supreme Court, alleging that the CA committed grave abuse of discretion by reversing its earlier decision, ruling contrary to law and jurisprudence, making conflicting factual findings, and exceeding the scope of the case's issues. The resolution of the petition hinges on the legal effect of a "Kasulatan" executed by Regino Bautista on October 21, 1953, granting Federico Bautista the right to remain on a portion of the theatre indefinitely. Private respondents asserted that Plan was aware of this "Kasulatan" and that it was acknowledged in the lease contract. Petitioner countered that he had no knowledge of the "Kasulatan," that it was unregistered, and therefore could not prejudice him as a third party under Article 709 of the Civil Code. Petitioner further argued that the lease contract was terminated when he acquired ownership of the property on December 22, 1964.
Issue(s)
Whether the unregistered "Kasulatan" granting Federico Bautista the right to occupy a portion of the premises could prejudice Amorante Plan, a third-party purchaser. Whether the lease contract between Plan and the heirs of Regino Bautista, and consequently Federico Bautista's right to occupy the premises, was terminated upon Plan's purchase of the property. Whether the Court of Appeals committed grave abuse of discretion in reversing its earlier decision.
Ruling
The Supreme Court reversed and set aside the resolution of the Court of Appeals dated August 21, 1978, and reinstated the decision of the Court of Appeals dated July 27, 1977, with a modification regarding the period of monthly rental payments. The Court ruled that the private respondents must vacate the premises and pay monthly rentals from May 15, 1965, until they vacate.
Ratio Decidendi
On the legal effect of the "Kasulatan" and prejudice to third persons: The Court found merit in the petition, holding that the "Kasulatan," which granted Federico Bautista the right to stay as long as he desired, was a gratuitous contract that was only binding as long as Regino Bautista was the owner. Even assuming Plan was informed of this document, his recognition of Federico's right was limited to the duration of the lease contract he entered into with the heirs. Crucially, the "Kasulatan" was not registered nor annotated on the title. As such, it could not prejudice third persons like Plan, who acquired the property in good faith and for value, pursuant to Article 709 of the Civil Code. The Court emphasized that unregistered instruments concerning immovable property do not bind third parties. On the termination of the lease and Federico Bautista's right to occupy: The Court held that when Plan bought the entire property on December 22, 1964, he became the absolute owner. Consequently, any leasehold rights derived from the previous owner, including Federico Bautista's right to occupy a portion of the premises, were automatically terminated. The lease contract was an accessory to the principal ownership, and with the transfer of ownership, the accessory contract ceased to have effect. Federico's admission that his occupation was only until the end of the lease contract further supported this conclusion. The Court reiterated that a contract of lease is a personal right that binds only the parties thereto and does not bind a subsequent owner, especially when the lease is unrecorded. On the Court of Appeals' reversal and grave abuse of discretion: The Court found that the CA's reversal of its earlier decision, particularly on the ground of lack of cause of action, was indeed a misapprehension of facts and a decision not in accordance with law or jurisprudence. The CA's initial decision correctly recognized the termination of Federico's right to occupy upon Plan's acquisition of ownership. The subsequent reversal, which relied on the unregistered "Kasulatan" and extended Federico's right beyond the termination of the lease and the sale of the property, constituted grave abuse of discretion. The Court noted that Federico's claim of a right to stay until September 28, 1966, despite Plan's purchase in 1964, was untenable. The Court also pointed out that the absence of any mention of the "Kasulatan" in the lease contract and the mortgage executed by Federico, where he warranted the property to be free from encumbrances, corroborated Plan's claim of ignorance of the "Kasulatan."
Main Doctrine
An unregistered instrument concerning immovable property cannot prejudice third persons who acquire rights over the property in good faith and for value, and the termination of a principal lease contract also terminates accessory rights derived therefrom.