Soriano v. Court of Appeals
REITERATIONFacts
The Antecedents: Lucio Pabico, Sr. originally owned a parcel of land. Upon his death, his heirs, including his widow Filomena Pabico, partitioned his estate. Filomena was adjudicated the lot in question. On February 15, 1961, Filomena and her children entered into a contract of lease with Gelano Sanchez for a period of thirty (30) years at a monthly rental of P3.00. This lease was duly registered. On the same date, they sold their house on the lot to Sanchez. On June 16, 1962, Filomena sold a portion of the lot to her son Emiliano. On January 22, 1966, Sanchez sold the house to Ignacio Soriano (petitioner) with a right to repurchase, which was not exercised. On February 23, 1967, Filomena and Emiliano sold their respective portions of the lot to Soriano with a warranty that the land was free from liens and encumbrances. Subsequently, on November 1, 1967, Soriano leased the lot to Filoil for twenty (20) years at P500.00 monthly rental. Procedural History: On June 9, 1969, Sanchez filed a complaint against Filomena, Emiliano, Soriano, and Filoil, seeking to declare his lease valid and to have Filoil's payments delivered to him. The Court of First Instance (CFI) ruled in favor of Sanchez on July 19, 1973. After a motion for reopening and new trial was granted, the CFI rendered judgment on October 29, 1973, ordering the defendants to pay Sanchez P79,119.00 jointly and severally. Soriano appealed to the Court of Appeals (CA). The CA affirmed the CFI decision on October 22, 1986, modifying it to make Emiliano Pabico jointly and severally liable. The CA denied Soriano's motion for reconsideration. The Petition: Soriano filed a petition for review on certiorari, arguing that Sanchez's lease was terminated when Sanchez sold the house to him, that Sanchez should have taken possession or filed suit earlier, and that consolidation of ownership terminated the lease. He also claimed Sanchez would be unjustly enriched.
Issue(s)
Whether a vendee is bound by an existing lease agreement entered into by the vendor prior to the sale. Whether the consolidation of ownership of the land and the house terminates a prior registered lease agreement over the land. Whether the doctrine of unjust enrichment applies in this case. Whether the award of damages is excessive.
Ruling
The petition is DISMISSED for lack of merit. The decision of the Court of Appeals is affirmed.
Ratio Decidendi
On whether a vendee is bound by an existing lease agreement entered into by the vendor prior to the sale: The Supreme Court held that once a lease is registered, it becomes binding on third persons as it constitutes a real right. Furthermore, even if the lease were not registered, the petitioner had actual knowledge of the subsisting lease agreement between Sanchez and the Pabicos as early as January 22, 1966, more than a year before he acquired the lot on February 23, 1967. Actual knowledge is equivalent to registration for the purpose of binding a third party. The Court reiterated the ruling in Gustilo vs. Maravilia that a purchaser with actual knowledge of a lease and its terms is bound to respect it. The Court emphasized that a valid lease can only be terminated by expiration of its period, violation of contractual conditions, or non-payment of rentals, none of which were sufficiently established to have terminated Sanchez's lease. On whether the consolidation of ownership of the land and the house terminates a prior registered lease agreement over the land: The Court disagreed with the petitioner's contention that the sale of the house to him by Sanchez, and his subsequent lease of the lot to Filoil, terminated Sanchez's lease. The lease contract was executed separately from the contract of sale of the house, and its continuance was not dependent on Sanchez's ownership of the house. The Court found Sanchez's testimony that he needed a long-term lease for his planned warehousing and ricemill business to be uncontroverted. The fact that Sanchez sold the house to petitioner did not extinguish his leasehold rights over the land. The Court also noted that Sanchez's delay in filing suit did not militate against his rights, as he did institute an ejectment suit against Filoil upon learning of the subsequent lease, which was dismissed on grounds of no illegal possession, leading him to file the present suit for damages. On whether the doctrine of unjust enrichment applies in this case: The Court found no cogent basis for the application of the doctrine of unjust enrichment. The doctrine requires that a person should not be allowed to profit or enrich himself inequitably at another's expense. In this case, Sanchez entered into a valid contract of lease, and the petitioner was bound by it. Therefore, it was deemed fair that the fruits resulting from the use of the lot be awarded to Sanchez. The Court clarified that the award of damages, which corresponded to the rentals due based on the lease petitioner entered into with Filoil, was a consequence of petitioner's violation of Sanchez's valid lease contract, not an inequitable enrichment. On whether the award of damages is excessive: The Court found the award of damages to be correct. The lower court awarded damages based on the rentals petitioner received from Filoil. The court correctly considered that the P500.00 monthly rental from Filoil covered both the petitioner's lot and the portion leased by Sanchez. It was determined that two-thirds (2/3) of the P500.00 belonged to Sanchez, as his lease covered a larger portion of the land. Thus, the award of P79,920.00 (representing 20 years of rentals at the calculated rate for Sanchez's portion, less unpaid rentals) was deemed correct.
Main Doctrine
A registered lease agreement is binding on third persons, and a purchaser with actual knowledge of the lease is bound to respect it, even if it has not been annotated on the certificate of title. The consolidation of ownership of the land and the house does not automatically terminate a valid lease agreement.