Caleon vs. Agus Development Corporation

The lease of a building or apartment inherently includes the lease of the lot on which it is constructed; consequently, the unauthorized subleasing of the building constitutes an unauthorized sublease of the land, which is a ground for judicial ejectment under Batas Pambansa Blg. 25. The retroactive application of this law to pre-existing lease contracts is constitutional, as it falls within the State's police power to regulate rentals and protect public welfare, and does not violate the non-impairment clause of the Constitution.

Private respondent Agus Development Corporation owned a parcel of land in Manila, which it leased to petitioner Rita Caleon for a monthly rental. Caleon constructed a four-door apartment building on the leased land. Without obtaining the written consent of Agus Development Corporation, Caleon subleased two of the apartment units to third parties. Upon discovering the sublease, the lessor demanded that Caleon vacate the premises. When Caleon failed to comply, Agus Development Corporation filed an ejectment complaint before the Metropolitan Trial Court of Manila, invoking Section 5 of Batas Pambansa Blg. 25, which allows ejectment for unauthorized subleasing.

• Nature of the Lease: Private respondent Agus Development Corporation owned a parcel of land (Lot 39, Block 28) in Sampaloc, Manila, which it leased to petitioner Rita Caleon for a monthly rental of P180.00. Caleon constructed a four-door apartment building on the leased land.
• Unauthorized Sublease: Without the written consent of the lessor, Caleon subleased two of the four apartment units to Rolando Guevarra and Felicisima Estrada for a monthly rental of P350.00 each.
• Demand to Vacate: Upon learning of the sublease, Agus Development Corporation, through counsel, made a written demand for Caleon to vacate the leased premises.
• Ejectment Complaint: For failure to comply with the demand, Agus Development Corporation filed a complaint for ejectment (Civil Case No. 048908) with the Metropolitan Trial Court of Manila, citing Section 5 of Batas Pambansa Blg. 25 (unauthorized subleasing) as the ground.
• Lower Court Findings: The Metropolitan Trial Court found for the lessor and ordered ejectment. The Regional Trial Court affirmed this decision on appeal.

• Non-Applicability of BP 25: Petitioner argued that Batas Pambansa Blg. 25 was inapplicable because she leased only her own apartment building, not the land, and therefore did not sublease the land owned by private respondent. She distinguished the case from Duellome v. Gotico, claiming that precedent involved a damage suit, not an ejectment case.
• Unconstitutional Impairment: Petitioner maintained that the lease contract was perfected long before the enactment of Batas Pambansa Blg. 25 and contained no express prohibition on subleasing. Applying the law retroactively would constitute an unconstitutional impairment of the obligation of contracts.
• Social Justice: Petitioner invoked the social justice policy of the Constitution, suggesting that the law, intended to protect lessees, should be interpreted in her favor.

• Police Power and Constitutionality: Respondent countered that Batas Pambansa Blg. 25 is a valid exercise of police power, applicable to pre-existing contracts. The non-impairment clause is subordinate to this paramount power when exercised to promote public welfare, such as regulating rentals.
• Definition of Residential Unit: Respondent argued that under Section 2(b) of BP 25, a "residential unit" includes an apartment and the land on which it is located. Therefore, leasing the apartment inherently involved leasing the land, and subleasing the apartment constituted subleasing the land.
• Social Justice Limitation: Respondent contended that social justice cannot be invoked to trample on the rights of property owners. The law's prohibition on unauthorized sublease protects the lessor's rights and prevents exploitation by lessees.

• Construction of Lease: Whether the lease of an apartment building includes the lease of the land on which it is constructed, such that subleasing the apartment constitutes a sublease of the land.
• Constitutionality of Retroactive Application: Whether the retroactive application of Batas Pambansa Blg. 25 to a pre-existing lease contract violates the constitutional prohibition against impairment of obligations of contracts.

• Construction of Lease: The lease of a building naturally includes the lease of the lot on which it stands. Following Duellome v. Gotico, the occupancy of a building implies tenancy or possession of the underlying land. Consequently, petitioner's sublease of the apartment units constituted an unauthorized sublease of private respondent's land, violating Section 5 of Batas Pambansa Blg. 25.
• Constitutionality of Retroactive Application: The retroactive application of Batas Pambansa Blg. 25 is constitutional. The law is a police power measure derived from P.D. No. 20, designed to regulate rentals and remedy the plight of lessees. The non-impairment clause is limited by and subject to the State's exercise of police power for the general welfare. All presumptions favor constitutionality, and petitioner failed to prove invalidity beyond a reasonable doubt.

• Lease of Building Includes Lease of Land — The lease of a building or house necessarily includes the lease of the lot on which it is constructed. The rentals for the building are deemed to include the rentals for the land. This principle applies to both civil actions for damages and ejectment proceedings.
• Police Power and Non-Impairment Clause — The constitutional guarantee of non-impairment of contracts is not absolute. It is subordinate to the State's exercise of police power to promote public health, safety, morals, and general welfare. Legislation enacted under police power may modify or abrogate existing contracts without violating the non-impairment clause.
• Retroactive Application of Rent Control Laws — Rent control laws like Batas Pambansa Blg. 25, which regulate rentals and provide grounds for ejectment such as unauthorized subleasing, are applicable to lease contracts entered into before their enactment. They are considered police power legislation with an implied reservation in all contracts affecting public interest.

• "The lease of a building would naturally include the lease of the lot and that the rentals of the building include the rentals of the lot." — Articulates the core principle that the Court applied to find that subleasing the apartment constituted subleasing the land.
• "Every contract affecting public interest suffers a congenital infirmity in that it contains an implied reservation of the police power as a postulate of the existing legal order." — Explains the inherent limitation on freedom of contract due to the State's police power, justifying the retroactive application of BP 25.

• Duellome v. Gotico, 7 SCRA 841 (1963) — Controlling precedent cited for the rule that the lease of a building includes the lease of the underlying lot. The Court rejected petitioner's attempt to distinguish it as a damage case, holding the principle applicable to ejectment.
• Victoriano v. Elizalde Rope Workers' Union, 59 SCRA 54 (1974) — Cited for the principle that all presumptions favor the constitutionality of a statute, and the burden to prove unconstitutionality beyond reasonable doubt lies with the party attacking it.
• Gutierrez v. Cantada, 90 SCRA 1 (1979) — Followed for the holding that P.D. No. 20 (the precursor to BP 25) is police power legislation applicable to leases entered into prior to its effectivity.
• Baens v. Court of Appeals, 125 SCRA 634 (1983) — Cited to define the scope of BP 25 as regulating rentals for dwelling units constructed before its effectivity.

• Section 5, Batas Pambansa Blg. 25 — Enumerates the grounds for judicial ejectment, including "Subleasing or assignment of lease of residential units in whole or in part, without the written consent of the owner/lessor." Applied to find petitioner's actions constituted a ground for ejectment.
• Section 2(b), Batas Pambansa Blg. 25 — Defines "residential unit" to include "an apartment, house and/or land on which another's dwelling is located." Used to support the interpretation that leasing the apartment included leasing the land.
• Article III, Section 10 (1987 Constitution) — Non-Impairment Clause — Invoked by petitioner but held inapplicable because the law was a valid exercise of police power.

• Justice Hugo E. Gutierrez, Jr.
• Justice Hilario G. Davide, Jr.
• Justice Flerida Ruth P. Romero
• Justice (on leave) Florentino P. Feliciano