CJH Development Corporation vs. Aniceto

A stipulation in a lease contract authorizing the lessor to extrajudicially repossess the premises upon termination is valid as a resolutory condition, but a blanket provision granting the lessor ownership of permanent improvements without reimbursing the lessee violates Article 1678 of the Civil Code and must be struck down.

Aniceto owned and operated El Rancho Cafe and Restaurant on property within Camp John Hay, Baguio City, under lease arrangements with CJH Development Corporation. The parties' relationship was governed by formal lease contracts containing stipulations on termination, extrajudicial repossession of the premises, and ownership of permanent improvements introduced by the lessee. The Civil Code provisions on lease — particularly Articles 1665, 1669, 1670, 1673, 1678, and 1687 — frame the respective rights and obligations of lessor and lessee upon expiration, implied renewal, and termination of the lease.

Aniceto owned El Rancho Cafe and Restaurant, which stood on Camp John Hay in Baguio City. CJH Development had allowed her to use a junkyard within the vicinity, on which she built her restaurant from October to December 2003. On December 1, 2003, the parties formally entered into a Lease Contract effective until November 30, 2004; when that lease expired, it was renewed on a monthly basis. On November 18, 2005, they entered into another Lease Contract lasting until November 17, 2006. Under Article VI, Section 1 of this contract, all permanent improvements made by Aniceto would form an integral part of the premises and become CJH Development's property upon termination, with the lessee having no right to reimbursement. Under Article X, upon termination, Aniceto was required to promptly deliver the premises devoid of occupants, furniture, articles, and effects; failing which, CJH Development could enter the premises, take inventories of merchandise, and place them in its bodega for Aniceto's retrieval, with the lessee shouldering all reasonable storage expenses.

When the second lease lapsed, the parties amended it to extend for six more months, until May 17, 2007. Before that extension expired, Aniceto asked Federico S. Alquiros, the officer-in-charge of CJH Development, for another extension, but the request was denied. Nevertheless, El Rancho continued to operate on a monthly basis, with Aniceto paying advance rentals up to February 28, 2008. On January 30, 2008, Alquiros wrote Aniceto informing her to vacate the premises as the property would undergo land development, giving her until March 1, 2008 to remove all furniture, equipment, and furnishings. In February 2008, Aniceto twice tried to convince Alquiros to extend the lease, reasoning that El Rancho would not interfere with the land development; both requests were denied. On February 28, 2008, a day before the deadline, Aniceto sent yet another request for extension, which was likewise rejected, and she was given 24 hours to vacate.

Aniceto then filed a Complaint before the Regional Trial Court of Baguio City seeking to enjoin the closure and demolition of El Rancho, lodged against CJH Development, Atty. Ma. Georgina Alvarez, Atty. Hilario Belmes, and Alquiros. On March 4, 2008, the trial court issued a 72-hour Temporary Restraining Order directing CJH Development to cease and desist from closing El Rancho, followed by a status quo order on March 6, 2008. Eventually, however, the trial court denied the application for a writ of preliminary injunction. While Aniceto was seeking reconsideration of that denial, on May 1, 2008, El Rancho was demolished. The trial court denied her Motion for Reconsideration for mootness, and the case became a complaint for damages.

Aniceto sought actual damages worth P4,983,625.00, broken down as: (a) P2,500,000.00 for the value of the structures; (b) P300,000.00 for the landscaping; (c) P146,000.00 for the signage; and (d) P2,137,625.00 for personal properties. CJH Development countered that Aniceto had no cause of action because the lease had expired on May 17, 2007, that the monthly extension was merely a hold-over pursuant to the contract, and that the demolition was legal under Article VI, Section 1 and Article X, Section 2. The trial court found in favor of Aniceto, declaring the demolition illegal and Article X, Section 2 without force and effect for ignoring due process, and awarding P2,183,625.00 in actual damages for personal properties, P1,000,000.00 in moral damages, P500,000.00 in exemplary damages, P200,000.00 in attorney's fees, and costs. The Court of Appeals reversed, ruling that CJH Development was within its rights to demolish but ordering it to pay P2,183,625.00 for the personal properties, less the value of any undamaged items still in its custody. Both parties moved for reconsideration, which was denied, prompting both to file Petitions for Review on Certiorari before the Supreme Court.

• Validity of Lease Provisions (Aniceto): Aniceto argued that Article X, Section 2 violates due process and is contrary to law, morals, good customs, public order, and public policy, because it gives CJH Development the right to unilaterally take possession of the premises without court intervention.
• Permanent Improvements (Aniceto): Aniceto assailed Article VI, Section 1 for granting the lessor an unbridled right over the property, contending that the provision cannot shield CJH Development from civil or criminal liabilities.
• Illegal Demolition (Aniceto): Aniceto claimed that in demolishing the restaurant without any court order, CJH Development disregarded the court and violated the rules on forcible entry and unlawful detainer.
• Abuse of Rights (Aniceto): Aniceto imputed bad faith to CJH Development for taking the law into its own hands, asserting a violation of the abuse of rights principle under Articles 19, 20, and 21 of the Civil Code.
• Lawyers' Liability (Aniceto): Aniceto argued that Attys. Belmes and Alvarez, as lawyers, cannot feign innocence and claim they saw no legal impediment against the demolition.
• Damages and Inventory (Aniceto): Aniceto asserted entitlement to the damages awarded by the trial court, maintaining that her inventory of demolished structures and goods taken should be given more weight and credence than CJH Development's incomplete list.
• Contract of Adhesion (Aniceto): Aniceto countered that the Lease Contract is a contract of adhesion whose provisions she had no option but to accept, and that the trial court correctly struck down the provisions for violating due process and human relations principles.
• No Liability for Deterioration (CJH Development): CJH Development argued that it should not be held liable for any deterioration, damage, or loss of personal properties, which included perishable food items and wood materials that had already rotted, and which had long been available for Aniceto's retrieval.
• Storage Expenses (CJH Development): Citing Article X, Section 1, CJH Development insisted that Aniceto had agreed to pay all reasonable expenses incurred in storing the removed properties, and that its employees were constrained to take the properties and store them in the bodega only after Aniceto's employees refused to remove the items or sign the inventories.
• Self-Serving Inventory (CJH Development): CJH Development attacked Aniceto's inventory as self-serving and inadmissible, and prayed for deletion of the P2,183,625.00 actual damages award for failure to prove actual loss.
• Factual Review Exception (CJH Development): CJH Development asserted that its Petition falls under recognized exceptions to the Rule 45 bar on factual questions, namely: (1) the CA's inference was manifestly mistaken, absurd, or impossible; (2) its judgment was based on a misapprehension of facts; and (3) its findings were premised on the absence of evidence and contradicted by the evidence on record.

• Validity of Extrajudicial Ejectment (CJH Development): CJH Development countered that stipulations allowing eviction of the lessee without court intervention are valid, and that the stipulation allowing repossession upon default is a valid resolutory condition. Citing jurisprudence, it averred that a lessee whose lease has expired cannot maintain an action against the lessor even if the ouster was done extrajudicially.
• Good Faith in Demolition (CJH Development): CJH Development maintained that it acted in good faith, invoking Article 1306 of the Civil Code, and that the removal was done after the status quo order had expired and the application for preliminary injunction had been denied, and was witnessed by Aniceto's employees and police officers.
• No Abuse of Rights (CJH Development): Absent bad faith, CJH Development argued it cannot be held liable under the abuse of rights principle, as it was constrained to remove the structures because Aniceto refused to vacate despite several notices.
• Lawyers' Liability (CJH Development): CJH Development maintained that Attys. Alvarez and Belmes are not personally liable, given the corporation's separate personality, and absent bad faith or gross negligence on their part.
• Inventory Prevails (Aniceto, as respondent in G.R. No. 224006): Aniceto echoed the CA ruling that her inventory prevails over CJH Development's incomplete list, and maintained CJH Development's liability for the value of the personal properties it confiscated.

• Rule 45 Factual Review: Whether questions of fact may be raised in the Rule 45 Petition of CJH Development.
• Validity of Article X (Extrajudicial Repossession): Whether the provisions of the Lease Contract authorizing the lessor to extrajudicially repossess the premises upon termination are valid, and whether the demolition and ejectment were validly made without a court order.
• Validity of Article VI (Permanent Improvements): Whether a contract may grant the lessor ownership over permanent improvements introduced by the lessee without reimbursement.
• Contract of Adhesion: Whether the Lease Contract is an unenforceable contract of adhesion.
• Liability for Personal Properties: Whether CJH Development is liable for the personal properties of the lessee that deteriorated while stored in its bodega.
• Abuse of Rights: Whether CJH Development and its lawyers are liable for damages under the abuse of rights principle.

• Rule 45 Factual Review: Yes. The Court found it necessary to review the facts under recognized exceptions, specifically that the CA's inference was manifestly mistaken, its judgment was based on a misapprehension of facts, and its findings were premised on the absence of evidence and contradicted by the record.
• Validity of Article X (Extrajudicial Repossession): Yes, the provision is valid. A stipulation authorizing the lessor to extrajudicially repossess the premises upon termination is a valid resolutory condition, and due process is not violated when the law and the lease contract allow the lessor to repossess upon termination.
• Validity of Article VI (Permanent Improvements): Partially invalid. The last sentence of Article VI, Section 1, denying any reimbursement, was struck down for violating Article 1678 of the Civil Code, which requires the lessor to choose between appropriating improvements (paying half their value) or allowing the lessee to remove them.
• Contract of Adhesion: No. Contracts of adhesion are not void per se, and Aniceto failed to show how CJH Development dominated her or that she was unaware of the provisions, she having entered into a second lease and further extensions.
• Liability for Personal Properties: No. CJH Development is not liable for the deteriorated personal properties, as the loss occurred without its fault and was caused by Aniceto's unjustified refusal to retrieve them. Under Article 1262, the obligation to deliver is extinguished if the thing is lost without fault of the obligor.
• Abuse of Rights: No. The elements of abuse of rights — exercise of a legal right or duty in bad faith, with the sole intent of prejudicing another — were not proven; CJH Development acted within its contractual rights and its lawyers merely advised their client.

• Rule 45 Factual Review: While only questions of law may be raised in a Rule 45 petition and the lower courts' factual findings are generally binding, jurisprudence recognizes exceptions, including when the CA's inference is manifestly mistaken, its judgment is based on a misapprehension of facts, or its findings are premised on the absence of evidence and contradicted by the record. CJH Development alleged all three exceptions. After judicious review, the Court found it necessary to examine the factual issues to properly determine the cases.

• Validity of Article X (Extrajudicial Repossession): Contracts have the force of law between the parties, and under Article 1306, parties may stipulate on terms and conditions as they deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy. While Article 1673 of the Civil Code provides for judicial ejectment, judicial action is not always required. In Consing vs. Jamandre, the Court upheld a stipulation authorizing the lessor to take possession without court action as a valid resolutory condition, holding that there is nothing in the law proscribing such an agreement. This doctrine was reiterated in Viray vs. Intermediate Appellate Court and Republic vs. Peralta. Here, an implied lease arose when CJH Development acquiesced to Aniceto's continued occupancy after the lease expired on May 17, 2007, accepting monthly payments until February 28, 2008. The implied lease ran month-to-month under Article 1687, terminable at the end of each month upon demand. The January 30, 2008 notice to vacate signified CJH Development's decision not to renew. When Aniceto refused to surrender the premises, Article X, Section 2 authorized CJH Development to enter and extrajudicially regain possession. Due process was not violated, as the lessor owns the property and merely allowed the lessee to occupy it for a certain period. The demolition was also proper, as the 72-hour TRO had expired, the status quo order had lapsed, and the application for preliminary injunction had been denied before the demolition occurred.

• Validity of Article VI (Permanent Improvements): Article 1678 of the Civil Code governs useful improvements made by the lessee: the lessor, upon termination, shall pay the lessee one-half of the value of the improvements if the lessor chooses to appropriate them; if the lessor refuses to reimburse, the lessee may remove the improvements. The last sentence of Article VI, Section 1, which grants the lessor ownership of permanent improvements with no right to reimbursement, outright violates Article 1678, which mandates the lessor to choose between appropriation (with payment of half the value) or allowing removal. The lessor cannot own the improvement without paying the lessee. Accordingly, the last sentence was struck down. However, since CJH Development decided not to appropriate the improvements but instead demolished them, it is not liable to reimburse Aniceto for the demolished structures.

• Contract of Adhesion: An adhesion contract is one unilaterally prepared and drafted by one party, where the weaker party has no option but to accept the terms. Nevertheless, contracts of adhesion are not void per se and are as binding as any ordinary contract. A party who enters into such a contract is free to reject the stipulations entirely; if accepted without objection, the contract serves as the law between the parties. Here, Aniceto failed to show how CJH Development dominated her when they entered into the contract, or that she was unaware of the provisions or that they were vaguely worded. She even entered into a second lease and further extensions, indicating she understood the implications of the contract.

• Liability for Personal Properties: Article X, Section 2 authorized CJH Development to take Aniceto's personal properties and place them in its bodega for retrieval. While this arrangement is akin to a contract of deposit, the special rules on deposit do not apply because safekeeping was not the principal purpose of the contract. Under Article 1262, an obligation to deliver a determinate thing is extinguished if it is lost or destroyed without fault and delay on the part of the obligor. Under Article 1265, if the thing is lost while in the possession of the obligor, the law presumes fault unless proven otherwise. Here, CJH Development proved the deterioration was not its fault: when it entered the premises, Aniceto's employees were present but refused to remove the items; the corporation took the articles and stored them in the bodega; when it prepared inventories, the employees refused to sign them. Aniceto did not deny these allegations. It was her unjustified refusal to retrieve the properties that caused them to deteriorate over time. CJH Development is released from its obligation to safekeep and return the items, as they were destroyed without fault or delay on its part. Aniceto must solely bear the loss she brought upon herself.

• Abuse of Rights: Articles 19, 20, and 21 of the Civil Code establish the abuse of rights principle, requiring every person to act with justice, give everyone their due, and observe honesty and good faith in the exercise of rights and performance of duties. To be awarded damages under this principle, the following elements must be proven: (1) there is a legal right or duty; (2) it was exercised in bad faith; and (3) it was done for the sole intent of prejudicing or injuring another. Bad faith is not merely bad judgment or simple negligence, but a dishonest purpose or some moral obliquity and conscious doing of a wrong. Here, CJH Development was not shown to have acted in bad faith or with malice. It sent Aniceto several notices to vacate before demolishing, the removal of personal properties was witnessed by Aniceto's employees and the police, and it requested Aniceto to retrieve her properties but she refused. The lawyers, Attys. Alvarez and Belmes, only advised their client to protect its interests under the law, acting within their duty. The circumstances do not demonstrate bad faith, malice, or unjustifiable harm.

• Resolutory Condition in Lease Contracts — A stipulation in a lease contract authorizing the lessor to take possession of the leased premises without judicial action upon termination or default is in the nature of a resolutory condition. Upon the exercise of the lessor's right to take possession, the contract is deemed terminated. Such a stipulation is not illegal, there being nothing in the law proscribing it. Judicial action for ejectment under Article 1673 is necessary only in the absence of a special provision in the contract granting the power of cancellation. The Court applied this doctrine to uphold Article X, Section 2 of the Lease Contract, finding that CJH Development validly repossessed the premises extrajudicially after the implied lease was terminated by the January 30, 2008 notice to vacate.

• Implied Lease (Article 1670, Civil Code) — If at the end of the contract the lessee continues enjoying the thing leased for fifteen days with the acquiescence of the lessor, and no notice to the contrary has been given, there is an implied new lease, not for the period of the original contract but for the time established in Articles 1682 and 1687. The other terms of the original contract are revived. When rent is paid monthly, the implied lease runs month-to-month and is terminable at the end of each month upon demand to vacate by the lessor. The Court found that an implied lease arose when CJH Development acquiesced to Aniceto's continued occupancy after May 17, 2007 and accepted monthly rentals until February 28, 2008, making the implied lease terminable at the end of each month.

• Useful Improvements by Lessee (Article 1678, Civil Code) — If the lessee makes, in good faith, useful improvements suitable to the use for which the lease is intended, without altering the form or substance of the property, the lessor upon termination shall pay the lessee one-half of the value of the improvements. Should the lessor refuse to reimburse, the lessee may remove the improvements. The lessor cannot own the improvement without paying the lessee. A lessee is conclusively presumed to know that he or she does not own the land, and improvements are introduced at the lessee's own risk. The Court struck down the last sentence of Article VI, Section 1 for violating this provision, as it granted the lessor ownership of permanent improvements without any reimbursement, but found CJH Development not liable for reimbursement since it chose not to appropriate but to demolish the improvements.

• Abuse of Rights Principle (Articles 19, 20, 21, Civil Code) — Article 19 lays down a primordial limitation on all rights, requiring every person to act with justice, give everyone their due, and observe honesty and good faith. Article 20 provides damages for injury caused contrary to law; Article 21 provides damages for loss or injury caused in a manner contrary to morals, good customs, or public policy. The elements are: (1) there is a legal right or duty; (2) the legal right or duty was exercised in bad faith; and (3) it was done for the sole intent of prejudicing or injuring another. Bad faith implies a dishonest purpose or some moral obliquity and conscious doing of a wrong. The Court found none of these elements present, as CJH Development acted within its contractual rights, sent notices, and its lawyers merely advised their client.

• Contracts of Adhesion — A contract of adhesion is one unilaterally prepared and drafted in advance by one party, where the weaker party has no option but to accept the terms. Such contracts are not void per se and are as binding as any ordinary contract. A party who enters into an adhesion contract is free to reject the stipulations entirely; if accepted without objection, the contract serves as the law between the parties. The Court rejected Aniceto's challenge, finding no showing that CJH Development dominated her or that she was unaware of the provisions, she having entered into a second lease and further extensions.

• Loss of Thing in Obligor's Custody (Articles 1262, 1265, Civil Code) — An obligation to deliver a determinate thing is extinguished if it is lost or destroyed without fault and delay on the part of the obligor. When the thing is lost in the possession of the obligor, the law presumes the loss was due to the obligor's fault, unless proven otherwise. The Court found that CJH Development overcame this presumption by proving the deterioration was caused by Aniceto's unjustified refusal to retrieve her properties, not by any fault of the corporation.

• "A stipulation in a lease contract that authorizes the lessor to take possession of the leased premises is valid and binding, even when there is no judicial action." — The opening sentence of the decision, stating the core ruling on extrajudicial repossession that frames the entire analysis.

• "This stipulation is in the nature of a resolutory condition, for upon the exercise by the Sub-lessor of his right to take possession of the leased property, the contract is deemed terminated. This kind of contractual stipulation is not illegal, there being nothing in the law proscribing such kind of agreement." — Quoted from Consing vs. Jamandre, this passage articulates the canonical formulation of the resolutory condition doctrine for extrajudicial repossession stipulations in lease contracts.

• "Due process was not violated here, considering that the lessor owns the property and merely allowed the lessee to occupy and possess it for a certain period. There is no deprivation of property without due process when the law and the provision of the lease contract allow the lessor to immediately repossess the property when the lease is terminated." — This passage explains why extrajudicial repossession does not violate due process, distinguishing the lessor's ownership from any deprivation of the lessee's property.

• "The outright violates Article 1678, which mandates the lessor to choose whether or not to appropriate the improvement. If so, the lessee must be reimbursed half of its value; if not, the lessee has the right to remove the improvements. Either way, the lessor cannot own the improvement without paying the lessee." — This passage states the ratio decidendi for striking down the blanket no-reimbursement clause, anchoring the ruling on the mandatory nature of Article 1678.

• Consing vs. Jamandre, 159-A Phil. 291 (1975) — Controlling precedent. Held that a stipulation in a lease contract authorizing the lessor to take possession of the premises without judicial action is a valid resolutory condition, there being nothing in the law proscribing such an agreement. The Court applied this doctrine to uphold Article X, Section 2.

• Viray vs. Intermediate Appellate Court, 275 Phil. 870 (1991) — Followed. Reiterated the Consing doctrine, upholding a similar provision authorizing extrajudicial repossession and noting there is no law against extrajudicial ejectment; stipulations may even authorize the use of reasonable force.

• Republic vs. Peralta, 669 Phil. 81 (2011) — Followed. Upheld a contract provision allowing extrajudicial ejectment upon expiration of the lease, declaring that such stipulations form the law between the parties and must be respected.

• Land Bank of the Philippines vs. AMS Farming Corporation, 590 Phil. 170 (2008) — Followed. Explained that a lessee who builds on leased premises is treated differently from a builder in good faith, as the lessee is conclusively presumed to know he or she does not own the land, and improvements are introduced at the lessee's own risk.

• Ong Lim Sing, Jr. vs. FEB Leasing & Finance Corp., 551 Phil. 768 (2007) — Followed. Held that contracts of adhesion are not void per se and are as binding as any ordinary contract; a party who accepts the terms without objection is bound by them.

• Globe Mackay Cable and Radio Corp. vs. Court of Appeals, 257 Phil. 783 (1989) — Cited for the abuse of rights principle. Described Articles 19, 20, and 21 as providing basic principles for rightful relationships between human beings and stability of the social order.

• Article 1306, Civil Code — Allows parties to establish stipulations, clauses, terms, and conditions as they deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy. Applied to test the validity of the lease contract stipulations; the Court found Article X, Section 2 not contrary to law but the last sentence of Article VI, Section 1 contrary to Article 1678.

• Article 1665, Civil Code — Requires the lessee to return the thing leased upon termination of the lease as received, save what has been lost or impaired by lapse of time, ordinary wear and tear, or inevitable cause. Applied to establish Aniceto's obligation to surrender the premises upon termination.

• Article 1669, Civil Code — Provides that a lease made for a determinate time ceases upon the day fixed without need of a demand. Applied to determine when the lease terminated.

• Article 1670, Civil Code — Provides that if the lessee continues enjoying the thing leased for fifteen days with the acquiescence of the lessor after the contract ends, there is an implied new lease for the period established in Articles 1682 and 1687. Applied to find an implied month-to-month lease arose after May 17, 2007.

• Article 1671, Civil Code — Provides that if the lessee continues enjoying the thing after expiration over the lessor's objection, the lessee shall be subject to the responsibilities of a possessor in bad faith. Cited in the context of a lessee who refuses to vacate.

• Article 1673, Civil Code — Enumerates the grounds for judicial ejectment of the lessee, including expiration of the agreed period. The Court clarified that judicial action under this article is required only in the absence of a special contractual provision granting the power of cancellation.

• Article 1678, Civil Code — Governs useful improvements made by the lessee: the lessor shall pay one-half the value upon termination if the lessor appropriates them; if the lessor refuses, the lessee may remove them. Applied to strike down the last sentence of Article VI, Section 1, which denied any reimbursement.

• Article 1687, Civil Code — Establishes the period of lease based on the frequency of rental payment: monthly rent yields a month-to-month lease. Applied to determine that the implied lease ran month-to-month and was terminable at the end of each month.

• Article 1262, Civil Code — Provides that an obligation consisting in the delivery of a determinate thing is extinguished if lost or destroyed without fault of the debtor and before incurring delay. Applied to release CJH Development from liability for the deteriorated personal properties.

• Article 1265, Civil Code — Presumes that loss of a thing in the possession of the debtor was due to the debtor's fault, unless proven otherwise. Applied but the presumption was overcome by evidence that Aniceto's refusal to retrieve the properties caused the deterioration.

• Articles 19, 20, 21, Civil Code — Embody the abuse of rights principle, requiring good faith in the exercise of rights and providing damages for injury caused contrary to law, morals, good customs, or public policy. Applied to test CJH Development's and its lawyers' liability; the Court found no bad faith or malice.

• Rule 45, Section 1, Rules of Court — Limits petitions for review on certiorari to questions of law. Applied with recognized exceptions to allow factual review in this case.

Carandang, Zalameda, and Gaerlan, JJ., concurred. Gesmundo, J., was on official leave.