THIRD DIVISION

[G.R. No. 154895. November 18, 2004.]

JOSIE GO TAMIO , petitioner, vs . ENCARNACION TICSON , respondent.

DECISION

PANGANIBAN , J : p

In general, a lessee is not allowed to challenge the title of the lessor. Indeed, it is
immaterial whether the lessor had any title at all to the property at the time the lease was
commenced. However, due to the peculiar circumstances in the present case, the Court
makes an exception to this rule. Otherwise, it would sanction unjust enrichment in favor of
the respondent and cause unjust poverty to the petitioner.
The Case
The instant Petition for Review on Certiorari 1 seeks to set aside the February 28,
2002 Decision 2 and the April 30, 2002 Resolution 3 of the Court of Appeals (CA) in CA-GR
SP No. 62908. The dispositive portion of the challenged Decision reads:
"WHEREFORE, the instant petition is hereby DENIED DUE COURSE and
DISMISSED. The Decision, dated March 24 1999, is hereby AFFIRMED." 4

The assailed Resolution denied reconsideration of the foregoing disposition.

The March 24, 1999 Decision 5 of the Regional Trial Court (RTC) 6 of Manila, upheld
by the CA, disposed as follows:
"WHEREFORE, the appealed judgment is hereby a rmed with
modification, to wit:
1) Ordering [petitioner] to pay [respondent] the amount of P86,000 as
payment for rental arrearages covering the period September, 1996
to June, 1997 and from July, 1997 to December, 1997 at a monthly
rate of P5,000 and P6,000 respectively.
2) [Petitioner's] counterclaim is hereby dismissed for lack of merit." 7

On the other hand, the Decision 8 of the Metropolitan Trial Court (MTC) 9 of Manila
(Branch 5), which was "a rmed with modi cation" by the RTC, dismissed respondent's
complaint for unlawful detainer against the petitioner. TaEIAS

The Facts
The CA summarized the facts in this manner:
"The Roman Catholic Archbishop of Manila (RCAM) is the owner of an
apartment unit originally leased to Mr. Fernando Lopez Lim. After the demise of
Mr. Fernando Lim, [his] children became the occupants thereof. One of [them,
Valentine Lim] requested respondent Encarnacion Ticson, for nancial assistance
[in order] to purchase the apartment unit from RCAM. In exchange, Valentine Lim
CD Technologies Asia, Inc. © 2018 cdasiaonline.com
 executed a waiver in favor of respondent.

"On June 15, 1996, respondent executed a contract of lease [in favor of
petitioner], on the basis of the waiver from Valentine Lim respecting the
apartment unit, for a period of three (3) months. After signing the contract and
paying the rentals, [petitioner] discovered that the apartment was actually owned
by RCAM.
"Meanwhile, after the expiration of the three (3) month lease, respondent
demanded petitioner to vacate the premises for the use of the former's family
members. Petitioner failed to comply, giving rise to the instant case for unlawful
detainer.
"After trial, the Metropolitan Trial Court (MTC) found respondent guilty of
concealment [amounting to] fraud when she misrepresented that she was the
owner or authorized lessor of the apartment. Consequently, the contract did not
produce any legal effect, much less, rights or obligations. Thus, the MTC ordered
the dismissal of the complaint for unlawful detainer.

"Unsatis ed therewith, respondent appealed the dismissal with the

Regional Trial Court (RTC). After review thereof, the RTC found that the
concealment did not amount to fraud, but [was merely due] to respondent's
honest belief that she became or will eventually become the owner of the property
by reason of the said waiver.

"Moreover, the RTC found that ' if [petitioner] has indeed questioned the
[respondent's] title, she should have communicated with RCAM immediately since
she came to know of RCAM's ownership over the subject property early on.'
"On the basis thereof, the RTC ordered petitioner to pay respondent
P86,000.00 as rental arrearages from September 1996 to June 1997 and from
July 1997 to December 1997 at a monthly rate of P5,000.00 and P6,000.00
respectively, and dismissed petitioner's counterclaim for lack of merit." 1 0

Meanwhile, on March 3, 1998, petitioner entered into a Contract of Lease 1 1 over the
same property with RCAM for a term of one year, commencing from January 1, 1998 to
December 31, 1998. In that Contract, petitioner assumed to pay the rent corresponding to
her use and occupation of the property prior to its execution; that is, from June 1, 1996 to
December 31, 1997.
Ruling of the Court of Appeals
The CA agreed with the RTC that the misrepresentation of respondent as the owner
or lessor of the property did not amount to fraud, but was merely an error under Article
1343 of the Civil Code. The appellate court added that she must have acquired legal
possession over the apartment unit as an assignee thereof, considering the
waiver/assignment executed in her favor by the previous lessees.
The appellate court added that petitioner herself had been negligent in not
immediately communicating with the owner of the property — the Roman Catholic
Archbishop of Manila (RCAM) — regarding her discovery, thereby implying her
acknowledgment of respondent's right to sublease the property.
Consequently, while holding that, "as found by the lower court, RCAM and petitioner
entered into a new Contract of Lease that rendered the instant case moot and academic,"
the CA ordered petitioner to pay rental arrearages to respondent for the period September
CD Technologies Asia, Inc. © 2018 cdasiaonline.com
 1996 to December 1997. aTEHCc

Hence, this Petition. 1 2

Issue
The lone issue presented for our consideration is as follows:
"Whether or not petitioner should be held liable to pay respondent the
amount of P86,000.00 representing the alleged rental arrearages from September
1996 to December 1997." 1 3

The Court's Ruling

The Petition has merit.
Lone Issue:
Entitlement to Rental Arrearages
Petitioner contends that she is not bound by her lease agreement with respondent,
because the latter never acquired legal possession of the property. The
assignment/waiver of rights executed by Valentine Lim was null and void, as the lease of
her father (Fernando) with RCAM had long been terminated for nonpayment of rentals.
With the invalidity of the assignment, respondent acquired no rights that she could
transmit. Assuming arguendo that Valentine's lease was still subsisting, petitioner argues
that the consent of RCAM should have been obtained.
Petitioner further avers that under her Contract with RCAM, she undertook to pay
rentals corresponding to the holdover period. Hence, she would in effect be paying the
rental twice, if she were still to pay respondent. The latter would be unjustly enriched at
petitioner's expense, which should not be allowed by the Court.
The assignment of a lease by the lessee involves a transfer of rights and obligations
pertaining to the contract; hence, the consent of the lessor is necessary. 1 4 Article 1649 of
the Civil Code is explicit:
"Art. 1649. The lessee cannot assign the lease without the consent of
the lessor, unless there is a stipulation to the contrary."

The objective of the law in prohibiting the assignment of the lease without the
lessor's consent is to protect the owner or lessor of the leased property. 1 5 In the case of
cession or assignment of lease rights on real property, there is a novation by the
substitution of the person of one of the parties — the lessee. 1 6 The personality of the
lessee, who dissociates from the lease, disappears; only two persons remain in the
juridical relation — the lessor and the assignee who is converted into the new lessee. 1 7
In the instant case, RCAM never assented to the assignment of the lease. This is
apparent from the December 11, 1997 letter 1 8 of its counsel, Atty. Socrates R. Rivera,
stating that Fernando Lim was no longer its tenant for his failure to pay the rentals as of
August 1988. As a rule, this letter may not necessarily result in the cessation of Mr.
Fernando's right to possess the leased premises. Under the law, mere nonpayment of
rentals without the lessor's demand to pay and vacate is not su cient to oust the lessee
from the leased premises. 1 9 The letter, however, demonstrates the lessor's lack of
consent to the assignment.
There is no evidence to show that RCAM subsequently agreed to the substitution of
CD Technologies Asia, Inc. © 2018 cdasiaonline.com
 the original lessee by respondent. In fact, the only lessee it ever recognized was Fernando
Lim. In the same letter, it was stated that "neither [petitioner] nor [respondent] have the
right to [possess] said apartment considering that it [was] Mr. Fernando Lopez Lim whom
our client RCAM ha[d] contractual relationship; unfortunately said tenant [has ceased] to
be such."
Neither does respondent appear to have paid monthly rents to RCAM to apprise it
su ciently of her occupation of the subject premises. Hence, it cannot be charged with
knowledge of, much less implied consent to, this fact. IaHDcT

As against RCAM, which has not consented to the assignment, respondent-assignee

obtains no rights to the leased premises. Consequently, the sublease between her and
petitioner is not binding on it. With the abandonment of the lease by the original lessee
through his unauthorized assignment, the right to the possession of the apartment
reverted to the owner. Being the owner, RCAM enjoys the prerogative to enter into a new
lease contract over the property with anyone it chooses. 2 0 Unfortunately for respondent, it
chose to grant to petitioner leasehold rights to the subject premises by virtue of the
Contract entered into on March 3, 1998. It was agreed thereunder that petitioner would
pay RCAM reasonable compensation for the entire period of her occupancy of the
property.
To allow respondent to receive from petitioner rental arrearages for the period
September 1996 to December 1997, notwithstanding the latter's agreement with the
owner to pay rent for her occupancy of the property, would constitute unjust enrichment at
the expense of petitioner. Under Article 22 of the Civil Code, there is unjust enrichment
when (1) a person is unjustly bene ted, and (2) such bene t is derived at the expense of or
with damages to another. 2 1

Prior to the March 3, 1998 Contract, petitioner and respondent were technically
"strangers" to the property; both were unlawfully withholding its possession from the
owner. Petitioner cannot therefore be faulted in assuming to pay a reasonable value for her
occupancy of the property as a sign of good faith. On the other hand, nonpayment of
rentals of respondent to RCAM — notwithstanding her receipt from petitioner of the rental
covering the term of the sublease contract — is indicative of bad faith.
Having assumed to pay the rentals to RCAM, petitioner should no longer be required
to pay rental arrearages to respondent. To do so would be to sanction unjust enrichment in
favor of respondent and to cause unjust poverty to the petitioner. A double burden would
be imposed upon the latter, because she would be paying twice for her use of the same
premises for the same period of time.
We are not unmindful of the standing rule that a lessee is estopped or prevented
from disputing the title of the landlord in an action for recovery of possession of the
leased premises. 2 2
In Geminiano v. Court of Appeals, 2 3 we stated:
". . . The private respondents, as lessees who had undisturbed possession
for the entire term under the lease, are then estopped to deny their landlord's title,
or to assert a better title not only in themselves, but also in some third person
while they remain in possession of the leased premises and until they surrender
possession to the landlord. This estoppel applies even though the lessor had no
CD Technologies Asia, Inc. © 2018 cdasiaonline.com
 title at the time the relation of lessor and lessee was created, and may be asserted
not only by the original lessor, but also by those who succeed to his title." 2 4

Indeed, the relation of lessor and lessee does not depend on the former's title but on
the agreement between the parties, followed by the possession of the premises by the
lessee under such agreement. 2 5 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. 2 6 Between the present parties, the lease — which was
actually a sublease — was effective. And respondent had a colorable right to lease the
premises by virtue of the assignment even if, as against the owner, both the assignment
and the sublease were ineffectual.
However, considering the peculiar circumstances availing in the present case, equity
demands that such rule be relaxed. As discussed earlier, it would be grossly unjust if, after
having paid the owner prior rentals for June 1996 to December 1997, petitioner would still
be required to pay again the same rental arrearages to respondent for the latter's retention
of the property after the termination of sublease contract. Note that the sublease had
already expired, and that the arrearages refer to a subsequent period not covered by the
said sublease. IEHTaA

It is worth reminding everyone of our pronouncement in Air Manila v. CIR : 2 7 "Equity

as the complement of legal jurisdiction seeks to reach and to complete justice where
courts of law, through the in exibility of their rules and want of power to adapt their
judgments to the special circumstances of cases, are incompetent to do so. Equity
regards the spirit and not the letter, the intent and not the form, the substance rather than
the circumstance, as it is variously expressed by different courts."
WHEREFORE, the Petition is GRANTED and the assailed Decision and Resolution SET
ASIDE. The dispositive portion of the August 14, 1998 Decision of the Metropolitan Trial
Court of Manila is hereby REINSTATED. No costs.
SO ORDERED.
Sandoval-Gutierrez, Carpio Morales and Garcia, JJ ., concur.
Corona, J ., is on leave.

Footnotes

1. Under Rule 45 of the Rules of Court; rollo, pp. 3–18.

2. Annex "A" of Petition; id., pp. 19–23. Penned by Justice Bernardo P. Abesamis (Acting
Chairman of the Special Fourth Division) and concurred in by Justices Bienvenido L.
Reyes and Perlita J. Tria Tirona (members).

3. Annex "J" of Petition; id., p. 53.

4. CA Decision, p. 4; id., p. 22.
5. Civil Case No. 98-90953.

6. Branch 33. Presided by Pairing Judge Romulo A. Lopez.

7. RTC Decision dated March 24, 1999, Annex "N" of Petition; id., p. 70.

8. Decision dated August 14, 1998 in Civil Case No. 157450 CV; Annex "M" of Petition; id.,
CD Technologies Asia, Inc. © 2018 cdasiaonline.com
 pp. 61–63.

9. Presided by Judge Alejandro G. Bijasa.

10. CA Decision, pp. 2–3; id., pp. 20–21.
11. Annex "L" of the Petition; id., pp. 57–60.

12. This case was deemed submitted for decision on November 3, 2003, upon this Court's
receipt of respondent's 7-page Memorandum — signed by Atty. Romualdo M. Jubay.
Petitioner's Memorandum, signed by Attys. Amelia C. Garchitorena, Teresita S. de
Guzman, and Teresa E. Pilares of the Public Attorney's Office — was received by this
Court on July 21, 2003.

13. Petitioner's Memorandum, pp. 5–6; rollo, pp. 135–136. Original in upper case.
14. Paterno v. Court of Appeals, 272 SCRA 770, May 29, 1997.
15. Dakudao v. Consolacion, 122 SCRA 877, June 24, 1983.
16. Sadhwani v. Court of Appeals, 281 SCRA 75, October 17, 1997.
17. Manlapat v. Salazar, 98 Phil. 356, 357–358, January 31, 1956.
18. Annex "R" of the Petition; rollo, p. 93.
19. LL and Company Development and Agro-Industrial Corporation v. Huang Chao Chun,
378 SCRA 612, 625, March 7, 2002.
20. Article 428, New Civil Code.
21. HL Carlos Construction, Inc. v. Marina Properties Corporation, GR No. 147614; January
29, 2004.
22. Rule 131, Section 2(b) of the Rules of Court, provides:
"Section 2. Conclusive presumptions. — The following are instances of conclusive
presumptions:
xxx xxx xxx
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.
Art. 1436 of the Civil Code. A lessee or a bailee is estopped from asserting title to the
thing leased or received, as against the lessor or bailor."
23. 328 Phil. 682, July 24, 1996.
24. Id., pp. 688–689, per Davide Jr., CJ.
25. §253 51 C.J.S.
26. §270 51 C.J.S.
27. 83 SCRA 579, 589, June 9, 1978, per curiam.

CD Technologies Asia, Inc. © 2018 cdasiaonline.com

CD Technologies Asia, Inc. © 2018 cdasiaonline.com