Heirs of Leopoldo Esteban, Sr. vs. Lynda Lim Llaguno

A co-owner’s lease of the entire co-owned property without the consent of the other co-owners is valid to the extent of the leasing co-owner’s ideal or undivided share; the lessee, possessing on behalf of that co-owner, cannot be ejected by the non-consenting co-owners before partition, but the latter are entitled to their proportionate share of the rentals.

The property was held in common by the heirs of Leopoldo Esteban, Sr., including Salvador B. Esteban and petitioners. Respondent Lynda Lim Llaguno occupied the property under a lease originally executed by Salvador in representation of himself and petitioners. The dispute concerns the effect of a subsequent lease executed by Salvador alone, without the consent of his co-owners, under the Civil Code provisions on co-ownership, particularly Articles 493 and 494.

Leopoldo B. Esteban, Sr. left a parcel of land measuring 238.5 square meters in San Jose St., Goa, Camarines Sur, which remained under co-ownership among his heirs, including petitioners and Salvador B. Esteban. On February 11, 2000, Salvador, representing himself and petitioners as lessor, entered into a fifteen-year contract of lease with respondent Lynda Lim Llaguno and Medellene Dy. The contract provided that the lease would run for fifteen years from the time the lessees actually started business operations, renewable upon mutual agreement, with notice at least two months before termination. It also required the lessees to construct, at their own expense, a concrete commercial building costing no less than ₱500,000.00, and stipulated that all improvements would become integral parts of the leased premises and the exclusive property of the lessor upon completion, without reimbursement to the lessee.

According to petitioners, in February 2015, before the first lease expired, they informed respondent that they no longer wished to renew it. They later sent a Notice of Termination and Non-Renewal of Contract dated August 20, 2014, and a demand letter dated May 15, 2015, asking respondent to turn over possession. Respondent refused to vacate and did not heed the demand, prompting petitioners to file the unlawful detainer complaint on November 19, 2015.

Respondent alleged that before the first lease expired, she and Salvador executed two other contracts extending the original term. The second lease contract, dated July 6, 2008, provided for a thirty-year term from June 1, 2008 to June 1, 2038. Respondent claimed Salvador agreed to the extension because he knew of her business reversals and wanted to help her recoup her investment in the commercial building she had erected on the premises, which she valued at ₱1,200,000.00. In her appeal, respondent also contended for the first time that the complaint was premature because the first lease commenced only when she started business in January 2001, so it would expire in January 2016, after the November 19, 2015 filing.

The MTC and the RTC found that the first lease was signed by Salvador on behalf of himself and petitioners, and that petitioners acquiesced to it. They found no showing that petitioners gave their imprimatur to the second lease, which was executed by respondent and Salvador acting for himself and not in representation of his co-owners. The RTC also found no evidence that respondent started business only in January 2001. The leased premises remained under co-ownership, as no partition had been effected.

• CA Error in Dismissing Unlawful Detainer: Petitioners submitted as the sole issue whether the CA erred in granting respondent’s petition and dismissing their action for unlawful detainer.
• Unauthorized Lease by a Co-Owner: Petitioners cited Barretto vs. Court of Appeals and Cabrera vs. Ysaac to argue that the second lease, executed without their consent, cannot bind them and that the CA erred in dismissing the unlawful detainer complaint.
• Contrary to Law and Jurisprudence: Petitioners maintained that the CA Decision was contrary to law and jurisprudence and that the Petition had ostensible merit.
• Procedural Relaxation: Petitioners sought leave to admit their belated Petition, citing extenuating circumstances and the interest of substantial justice.

• Validity of Second Lease: Respondent alleged that before the first lease expired, she and Salvador executed two contracts extending the original term; the second lease, dated July 6, 2008, provided a thirty-year term from June 1, 2008 to June 1, 2038, and should be deemed binding on Salvador’s co-owners, petitioners.
• Prematurity of Complaint: Respondent contended that the complaint was prematurely filed because the first lease commenced only when she started business in January 2001, making it expire in January 2016, after the November 19, 2015 filing.
• Business Reversals and Recoupment: Respondent explained that Salvador agreed to the extension because he knew of her business reversals and the extension would help her recoup her investment in the commercial building she erected, valued at ₱1,200,000.00.

• CA Error / Unlawful Detainer: Whether the CA erred in granting respondent’s petition and dismissing petitioners’ action for unlawful detainer.
• Validity of Unauthorized Lease: Whether the second lease contract executed by Salvador without petitioners’ consent is valid to the extent of Salvador’s ideal share in the co-owned property.
• Ejectment Before Partition: Whether petitioners may eject respondent, the lessee of a co-owner, from the co-owned property before partition.
• Rental Shares: Whether petitioners are entitled to their proportionate share in the rentals under the second lease.

• CA Error / Unlawful Detainer: No. The CA’s dismissal of the unlawful detainer complaint is affirmed, although its equity rationale is erroneous, because respondent cannot be ejected before partition.
• Validity of Unauthorized Lease: Yes. The second lease is valid to the extent of Salvador’s ideal share under Article 493, by analogy to jurisprudence on unauthorized sale of entire co-owned property.
• Ejectment Before Partition: No. A co-owner cannot be ejected before partition; the lessee possessing on behalf of a co-owner enjoys the same protection.
• Rental Shares: Yes. Petitioners are entitled to their proportionate share in rentals from June 1, 2008 until June 1, 2038 or partition, whichever is earlier.

• CA Error / Unlawful Detainer: The CA’s reliance on equity and unjust enrichment was misplaced. The first lease expressly provided that improvements, including the concrete commercial building, would become the lessor’s exclusive property upon expiration without reimbursement. Respondent knew she was not obligated to build a ₱1,200,000.00 structure and that it would pass to the lessors; the CA should have enforced the contract, which was not contrary to law, morals, good customs, public order, or public policy. Although the CA’s basis was erroneous, its dismissal of the complaint is affirmed because the legal result is correct: respondent’s possession is on behalf of a co-owner and cannot be disturbed before partition. No true hiatus existed; existing laws and jurisprudence could resolve the issues by analogy.
• Validity of Unauthorized Lease: Article 493 of the Civil Code grants each co-owner full ownership of his part and the fruits and benefits pertaining thereto, and allows him to alienate, assign, mortgage, or substitute another in enjoyment, except when personal rights are involved; the effect is limited to the portion allotted to him upon partition. While jurisprudence on unauthorized sale of the entire co-owned property is more developed, that jurisprudence was applied by analogy to a lease for more than one year, which is also an act of strict ownership. Under Bailon-Casilao vs. Court of Appeals, Heirs of Caburnay vs. Heirs of Sison, and Spouses Del Campo vs. Court of Appeals, even if a co-owner sells the whole property as his, the sale affects only his own share; the buyer steps into his shoes as co-owner. Thus, Salvador’s second lease without petitioners’ consent is valid to the extent of his ideal share. Barretto vs. Court of Appeals was distinguished because there the original lease had been rescinded before the unauthorized extension, and ejectment was not in issue; Cabrera vs. Ysaac involved a sale of a definite portion and was likewise not controlling.
• Ejectment Before Partition: Under Anzures vs. Spouses Ventanilla and Sps. Bangug vs. Dela Cruz, a co-owner cannot be ejected from co-owned property before partition because the respective shares cannot be determined and each co-owner may use and enjoy the whole property without injuring the others. Articles 485, 486, and 493 confirm that a co-owner’s right is pro indiviso, pro rata, and pari passu; no co-owner may assert exclusive possession. Since respondent’s possession as lessee is on behalf of Salvador, a co-owner, under Articles 524 and 525, she is akin to a person substituted in the enjoyment of Salvador’s share under Article 493. Petitioners cannot eject her before partition. Their remedy is to demand partition under Article 494; only after the specific portions are allotted can they eject respondent from portions belonging to them.
• Rental Shares: Even if ejectment is unavailable and the second lease does not bind petitioners, they are entitled to their proportionate share in the rentals from the start of the second lease on June 1, 2008 until June 1, 2038 or until partition, whichever is earlier. Pardell vs. Bartolome held that a co-owner who uses common property to the detriment of another co-owner must account for the latter’s share in the rents the property could have produced. Rentals are industrial fruits of the common property, and co-owners are entitled to them under the principle of accession.

• Co-owner’s right to alienate, assign, mortgage, or substitute another in enjoyment (Article 493, Civil Code) — Each co-owner has full ownership of his part and the fruits and benefits pertaining thereto; he may alienate, assign, mortgage, or substitute another in its enjoyment, except when personal rights are involved. The effect of the disposition with respect to the other co-owners is limited to the portion that may be allotted to him upon partition. Applied: Salvador’s second lease, executed without petitioners’ consent, is valid only to the extent of his ideal share.
• Unauthorized disposition of entire co-owned property — Even if a co-owner sells or leases the whole property as his own, the disposition affects only his own share and not those of the co-owners who did not consent; the transferee or lessee steps into the shoes of the disposing co-owner as to the latter’s ideal share. The Court applied the sale jurisprudence by analogy to a lease for more than one year, which is an act of strict ownership.
• No ejectment of a co-owner before partition — Until partition, the respective shares of co-owners cannot be determined, and each co-owner may use and enjoy the whole property without injuring the interests of the others. No co-owner may assert exclusive ownership or possession before partition. A lessee possessing on behalf of a co-owner enjoys the same protection and cannot be ejected by the other co-owners before partition.
• Partition as the proper remedy — Under Article 494, each co-owner may demand at any time the partition of the thing owned in common insofar as his share is concerned. Applied: petitioners’ remedy is to seek partition; only after the specific portions are allotted may they eject respondent from the portions awarded to them.
• Rentals as industrial fruits and proportionate accounting — Rentals from common property are industrial fruits to which co-owners are entitled under the principle of accession. A co-owner who uses common property to the detriment of another must account for the latter’s proportionate share in the rents. Applied: petitioners are entitled to their share in rentals under the second lease from June 1, 2008 until June 1, 2038 or partition, whichever is earlier.
• Equity cannot override express contract terms — Equity may fill gaps in the law, but it cannot be invoked to defeat clear contractual stipulations. The CA erred in using equity to prevent unjust enrichment because the first lease expressly provided that improvements would pass to the lessor without reimbursement. However, the dismissal was affirmed on other legal grounds.

• "Thus, the Court finds that the second lease contract executed by Salvador and respondent, without the consent of petitioners, is valid to the extent of the ideal share of Salvador in the subject property." — This states the ratio decidendi on the validity of the unauthorized lease.
• "Had Salvador possessed the subject property to the exclusion of petitioners, the latter could not evict Salvador therefrom. In the same vein, petitioners could not evict from the leased premises respondent, who is merely exercising the right to enjoy and use the co-owned property on behalf of a co-owner." — This explains why the lessee cannot be ejected before partition.
• "The co-ownership being subsisting, petitioners may avail of their remedy under Article 494 of the Civil Code where '[e]ach co-owner may demand at any time the partition of the thing owned in common, insofar as his share is concerned.'" — This identifies partition as the proper remedy.
• "Also, the rentals being industrial fruits of the common property, the co-owners are entitled thereto pursuant to the principle of accession." — This supports the award of proportionate rental shares.

• Anzures vs. Spouses Ventanilla, 835 Phil. 946 (2018) — Controlling precedent for the rule that a co-owner cannot be ejected from co-owned property before partition; the Court applied it to protect respondent as lessee of a co-owner.
• Sps. Bangug vs. Dela Cruz, G.R. No. 259061, August 15, 2022 — Reiterated Anzures; confirmed that co-owners have pro indiviso, pro rata, pari passu rights and no co-owner may possess the common property to the exclusion of others.
• Heirs of the late Apolinario Caburnay vs. Heirs of Teodulo Sison, G.R. No. 230934, December 2, 2020 — Reiterated Bailon-Casilao; unauthorized disposition of entire co-owned property affects only the disposing co-owner’s share.
• Bailon-Casilao vs. Court of Appeals, 160 SCRA 738 (1988) — Cited for the rule that even if a co-owner sells the whole property as his, the sale affects only his own share; the Court applied the doctrine by analogy to the unauthorized lease.
• Spouses Del Campo vs. Court of Appeals, 351 SCRA 1 (2001) — Held that the vendee steps into the shoes of the co-owner-vendor and acquires a proportionate abstract share; cited to support the lessee’s derivative right.
• Pardell vs. Bartolome, 23 Phil. 450 (1912) — Held that a co-owner using common property must account to the other co-owner for the latter’s share in the rents; basis for petitioners’ entitlement to rental shares.
• Barretto vs. Court of Appeals, 272 Phil. 479 (1991) — Distinguished; although it invalidated an unauthorized lease extension, the original lease there had been rescinded and ejectment was not in issue.
• Cabrera vs. Ysaac, 747 Phil. 187 (2014) — Distinguished; it involved a sale of a definite portion of unpartitioned co-owned land and did not involve ejectment.
• Reyes vs. Lim, 456 Phil. 1 (2003) — Cited by the CA for applying equity where the law is silent; the Supreme Court found the CA’s reliance on equity erroneous because the contract and existing laws supplied the rule.
• Tiangco vs. Land Bank of the Philippines, 646 Phil. 554 (2010) — Cited for relaxing procedural rules in the interest of substantial justice; the Court granted petitioners’ Motion for Leave despite the belated filing.
• Punsalan vs. Boon Liat, 44 Phil. 320 (1923) — Cited in Bailon-Casilao for the rule that a co-owner’s sale of the whole property affects only his own share.
• Ramirez vs. Bautista, 14 Phil. 528 (1909) — Cited in Bailon-Casilao for the same rule; the transferee gets only what corresponds to the grantor in partition.
• Tan vs. Lim, 357 Phil. 452 (1998) — Cited for the proposition that a lease for more than one year is an act of strict ownership, supporting the analogy to unauthorized sale.

• Article 485, Civil Code — Provides that the share of co-owners in benefits and charges is proportional to their respective interests, with portions presumed equal unless the contrary is proved. Cited to describe the co-ownership relationship.
• Article 486, Civil Code — Allows each co-owner to use the thing owned in common in accordance with its purpose and without injuring the interests of the co-ownership or preventing other co-owners from using it according to their rights. Applied to the co-owner’s and lessee’s right to use and enjoy the common property.
• Article 491, Civil Code — States that no co-owner shall, without the consent of the others, make alterations in the thing owned in common, even if benefits would result. The Court noted that the recognition of the validity of an unauthorized sale or lease to the extent of the disposing co-owner’s share subsists despite this provision.
• Article 493, Civil Code — Grants each co-owner full ownership of his part and the fruits and benefits pertaining thereto, and allows him to alienate, assign, mortgage, or substitute another in its enjoyment, except when personal rights are involved; the effect is limited to the portion allotted upon partition. This is the central provision validating Salvador’s second lease to the extent of his ideal share.
• Article 494, Civil Code — Provides that each co-owner may demand at any time the partition of the thing owned in common insofar as his share is concerned. Identified as petitioners’ proper remedy before ejectment.
• Article 524, Civil Code — Provides that possession may be exercised in one’s own name or in that of another. Applied to respondent’s possession on behalf of Salvador.
• Article 525, Civil Code — Provides that possession may be had in the concept of an owner or in that of a holder of the thing or right to keep or enjoy it, with ownership pertaining to another. Applied to the lessee’s possession.
• Rule 45, Rules of Court — Governs the Petition for Review on Certiorari. The Court granted petitioners’ Motion for Leave and gave due course to the belated Petition in the interest of substantial justice.

Inting, Gaerlan, Dimaampao, and Singh, JJ., concur.