Ballesteros vs. Abion Digest

CASE: BALLESTEROS VS.
ABION
FACTS:
 The property subject of this petition is a two-door, three-story commercial
building and the 229 sq.m. parcel of land on which it stands. The property was
originally owned by Ruperto Ensano, as evidenced by TCT No. 6178. Ownership
was subsequently transferred to the Development Bank of the Philippines (DBP)
which, in turn, sold the property to Dr. Rodolfo Vargas in a deed of absolute sale
dated March 30, 1988. Despite these transfers of ownership, however, the
property was registered in the names of DBP and Dr. Vargas (TCT Nos. 941 and
942, respectively) only on February 21, 1996.
 Meanwhile, on March 14, 1991, petitioner entered into a contract of lease for one
door of the building with Ronald Vargas, son of Dr. Vargas, who represented
himself as the absolute owner of the property. Under the agreement (which was
not registered in the Register of Deeds), the lease was to run until April 1, 1996.
 On September 27, 1995, Dr. Vargas sold the property to respondent. This was
evidenced by a deed of absolute sale of even date. TCT No. 949 in the name of
the respondent was subsequently issued on April 10, 1996.
 In the meantime, on October 30, 1995, petitioner entered into a new contract of
lease with Ronald Vargas who again misrepresented himself as the absolute
owner of the property. This new agreement extended the term of the original
contract of lease between the parties and included the remaining door of the
building in its coverage. It was to be effective for a period of five years from
November 1, 1995, or until November 1, 2000.
 Since respondent had not yet taken possession of the building, petitioner
immediately occupied the additional door upon the execution of the new contract
of lease. He made advance payments for the rent of the two doors until June
1997. He also sought to register the new contract of lease with the Register of
Deeds of Iriga City. However, the contract was entered only in the primary book
because it could not be registered for several reasons: (a) the requisite tax had
not been paid (b) the contract lacked a documentary stamp and (c) the tax
declaration of the property was not in the name of the lessor. 2
 On April 30, 1996, petitioner received respondent’s April 25, 1996 letter
demanding that he vacate the property and surrender its possession. On June
20, 1996, petitioner received another letter from respondent’s counsel reiterating
the demand for him to vacate the property. All this notwithstanding, petitioner
refused to vacate the premises.
 MTC: Dismissed for failure to state a cause of action.
 RTC: reversed and ordered petitioner to vacate the property
 CA: affirmed decision of the RTC with modifications
 The CA ruled that petitioner’s right of possession to the property was only by
virtue of the second lease contract dated October 30, 1995 between petitioner
and Ronald Vargas. It was clear, however, that Ronald Vargas was not the
owner of the property and therefore had no right to lease it out. Petitioner
Page 1 of 4
himself admitted respondent’s ownership of the property. Neither was there
any evidence that Ronald Vargas had been authorized by respondent or even
by Dr. Vargas himself to transact the second lease on their behalf.
 The CA held that petitioner’s possession of the property from the date of
purchase by respondent was merely by tolerance. Such possession became
unlawful from the time respondent made a demand on petitioner to vacate it.
ISSUE:
1. WON respondent could legally eject petitioner or terminate the lease

2. WON respondent was able to establish a cause of action
RULING:
1. Although the lessor need not be the owner of the property being leased, 10 he
should have a right (e.g., either as a usufructuary or a lessee) or at least an
authority (e.g., as an agent of the owner, usufructuary, or lessee) to lease it
out. Here, Ronald Vargas had neither the right nor the authority to grant
petitioner the lease of the property.
Dr. Vargas is deemed to have ratified the first lease because he never

objected to it and in fact allowed petitioner to occupy the property for five
years despite his knowledge of his son Ronald’s misdeed. Thus, we consider
the first lease valid. But the same cannot be said of the second lease. Under
the principle of relativity of contracts, the sale of the property by Dr. Vargas to
respondent bound Ronald Vargas as an heir of the seller. Neither did
respondent authorize him to enter into a new lease contract with petitioner.
Thus, Ronald Vargas could not have validly executed the second lease
agreement upon which petitioner now bases his right to the continued
possession of the property.
Petitioner’s claim of good faith is of no moment. The good faith of a party in

entering into a contract is immaterial in determining whether it is valid or not.
Good faith, not being an essential element of a contract, has no bearing on its
validity. No amount of good faith can validate an agreement which is
otherwise void. A contract which the law denounces as void is necessarily no
contract at all and no effort or act of the parties to create one can bring about
a change in its legal status.11
Any presumption of good faith on the part of petitioner disappeared after he

learned from the Register of Deeds that the property was already registered in
the name of another person. Possession in good faith ceases from the
moment defects in the title are made known to the possessor by extraneous
evidence or by a suit for recovery of the property by the true owner. 12 Every
Page 2 of 4
possessor in good faith becomes a possessor in bad faith from the moment he
becomes aware that what he believed to be true is not so. 13
When petitioner presented the second lease contract to the Register of Deeds
a day after its execution, his attention was called to the fact that the "lessor"
(Ronald Vargas) whom he believed to be the owner of the property had no
authority to lease it out. From that moment, his possession ceased to be in
good faith.
Whether the second lease contract was registered or not was immaterial since
it was void. Registration does not legitimize a void contract.
It is well settled that for the registration of voluntary instruments (e.g., deed of
sale or contract of lease), it is necessary not only to register the deed,
instrument of assignment, mortgage or lease in the entry book of the register
of deeds but also for the Register of Deeds to annotate a memorandum
thereof on the owner’s duplicate certificate and its original. 14 In voluntary
registration, if the owner’s duplicate certificate is not surrendered and
presented or if no payment of registration fees is made within fifteen days,
entry in the day book will not convey or affect the land sold, mortgaged or
leased.15
Entry alone produces the effect of registration, whether the transaction

entered is voluntary or involuntary, so long as the registrant has complied with
all that is required of him for purposes of entry and annotation, and nothing
more remains to be done but a duty incumbent solely on the Register of
Deeds.16 Here, petitioner admits that the second lease contract was refused
registration by the Register of Deeds for his failure to comply with certain
conditions for registration. And since petitioner failed to comply with all the
requisites for entry and annotation, the entry in the primary book did not ripen
into registration.
Curiously, petitioner uses "registered" (that is, the word ‘registered’ in

quotation marks) to describe his act of presenting the lease contract to the
register of deeds. This shows that petitioner himself doubted whether he had
actually fulfilled the requirements for the registration of the lease.
Petitioner also anchors his arguments against the ejectment on the second
contract of lease which was inexistent and void ab initio. But even assuming
that it was valid, it already lapsed on November 1, 2000, in which case the
question of the propriety of petitioner’s ejectment would now be moot.
Page 3 of 4
2. What determine the nature of the action as well as the court which has
jurisdiction over the case are the allegations in the complaint.
While possession by tolerance is lawful, such possession becomes illegal

from the moment a demand to vacate is made by the owner and the
possessor refuses to comply with such demand. 20 A person who occupies the
land of another with the latter’s tolerance or permission, without any contract
between them, is necessarily bound by an implied promise that he will vacate
upon demand, failing which a summary action for ejectment is the proper
remedy against him
Page 4 of 4

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CASE: BALLESTEROS VS.

1. WON respondent could legally eject petitioner or terminate the lease

Dr. Vargas is deemed to have ratified the first lease because he never

Petitioner’s claim of good faith is of no moment. The good faith of a party in

Any presumption of good faith on the part of petitioner disappeared after he

Entry alone produces the effect of registration, whether the transaction

Curiously, petitioner uses "registered" (that is, the word ‘registered’ in

While possession by tolerance is lawful, such possession becomes illegal

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