Perez vs. Court of Appeals

A lessor who receives rental payments from a sublessee with knowledge of the sublessee's possession is estopped from questioning the sublessee's right to possess the property, notwithstanding a contractual prohibition against subleasing. However, the sublessor who violates the prohibition against subleasing is liable for the value of improvements introduced by the sublessee, pursuant to Article 1168 of the Civil Code, which requires that what is done in violation of a prohibitory obligation be undone at the obligor's expense.

The case involves a parcel of land known as the "Papaya Fishpond" in Hagonoy, Bulacan, covered by Transfer Certificate of Title No. 8498, with an area of approximately 110 hectares. The property was subject to a usufruct in favor of several individuals, including petitioner Juan Perez, Maria Perez, Fructuosa Perez, Victoria Perez, Apolonio Lorenzo, and Vicente Asuncion. On June 5, 1975, the usufructuaries leased the fishpond to petitioner Luis Keh for five years, renewable for another five years, with annual rentals of P150,000.00 for the first period and P175,000.00 for the second. Paragraph 5 of the lease contract expressly provided that the lessee "cannot sublease" the fishpond "nor assign his rights to anyone." Private respondent Luis Crisostomo, a businessman engaged in fishpond operation who reached only the 5th grade, later became involved with the property through an arrangement with petitioners Keh and Lee.

The "Papaya Fishpond" in Sto. Rosario, Hagonoy, Bulacan, covered by Transfer Certificate of Title No. 8498, was subject to a usufruct in favor of several individuals including petitioner Juan Perez, Maria Perez, Fructuosa Perez, Victoria Perez, Apolonio Lorenzo, and Vicente Asuncion. On June 5, 1975, the usufructuaries leased the fishpond to petitioner Luis Keh for five years, renewable for another five years, with annual rentals of P150,000.00 for the first period and P175,000.00 for the second. Paragraph 5 of the lease contract expressly provided that the lessee "cannot sublease" the fishpond "nor assign his rights to anyone."

On September 20, 1977, private respondent Luis Crisostomo, a businessman engaged in fishpond operation who reached only the 5th grade, was at his fishpond in Almazar, Hermosa, Bataan when his friend Ming Cosim arrived with petitioner Charlie Lee. The two persuaded Crisostomo to take over the operation of the "Papaya Fishpond" as Lee and his partner, petitioner Keh, were allegedly losing money in its operation. Crisostomo acceded, and sometime in December of that year, he and petitioners Lee and Keh executed a written agreement denominated as "pakiao buwis" whereby Crisostomo would take possession of the fishpond from January 6, 1978 to June 6, 1978 in consideration of P128,000.00, broken down as P75,000.00 for rental, P50,000.00 for the value of milkfish, and P3,000.00 for labor expenses. Crisostomo paid the P75,000.00 to Keh at Lee's house in Sta. Cruz, Hagonoy, Bulacan, and paid the balance to Lee sometime in February or March 1978 after receiving a copy of a written agreement dated January 9, 1978 whereby Keh ceded, conveyed, and transferred all his "rights and interests" over the fishpond to Lee "up to June 1985." From Crisostomo's point of view, that document assured him of continuous possession of the property for as long as he paid the agreed rentals.

For the operation of the fishpond from June 1978 to May 1979, Crisostomo paid P150,000.00 at Keh's office in Malabon, Metro Manila. A receipt dated June 6, 1978 was issued, signed by petitioner Tansinsin for and in behalf of "JUAN L. PEREZ ET AL.," with the statement "Mr. Luis Keh has not transferred his rights over the fishpond to any person," and bearing Keh's signature signifying "Conforme to the above." Handwritten below the receipt but above Lee's signature were the words: "Rec'd from Luis Crisostomo sum of one hundred fifty-four thousand P154,000.00 for above payment." Crisostomo incurred expenses for repairs and improvement of the fishpond totaling P486,562.65.

Sometime in June 1979, petitioners Tansinsin and Juan Perez, accompanied by men bearing armalites, went to the fishpond and presented Crisostomo with a letter dated June 7, 1979 showing that Keh had surrendered possession of the fishpond to the usufructuaries. Because of the threat to deprive him of earnings of around P700,000.00 from the 700,000 milkfish in the fishpond, and the refusal of petitioners Keh, Perez, and Lee to accept the rental for June 5, 1979 to June 6, 1980, Crisostomo filed on June 14, 1979 an action for injunction and damages with the then Court of First Instance of Bulacan. That same day, the lower court granted the prayer for a restraining order. On November 13, 1979, Crisostomo paid one of the usufructuaries, Maria Perez, the amount of P21,428.00 as her 1/7 share of the annual rental for 1979-80, for which Maria Perez issued a notarized receipt.

On January 11, 1980, the court lifted the restraining order, effectively depriving Crisostomo of possession. On February 14, 1980, the parties submitted a partial compromise agreement stipulating that the amount of P128,572.00 Crisostomo deposited as rental be withdrawn and deposited with the Paluwagan ng Bayan Savings & Loan Association, Inc., and that Crisostomo could personally harvest milkfish "with commercial value" in the presence of Perez and under the supervision of the deputy clerk of court, with the net proceeds of P123,993.85 to be deposited in the name of the deputy clerk of court. Thereafter, the usufructuaries leased the property to Vicente Raymundo and Felipe Martinez for six years from June 1, 1981 to May 30, 1987 at annual rentals of P550,000.00 for the first two years and P400,000.00 for the next four years, and later to Pat Laderas for P1 million a year.

The complaint was later amended to include petitioner Tansinsin, the alleged administrator of the fishpond, as a defendant. Except for their joint answer, petitioners Keh and Lee did not appear before the court nor testify. In their defense, petitioners Perez and Tansinsin presented evidence that they had negotiated for the lease with Benito Keh in 1975, but for reasons unknown to Perez, the contract named Luis Keh as lessee. Sometime in 1979, Keh's agent Catalino Alcantara relayed to Perez Keh's intention to surrender possession, and on June 5, 1979, Perez received a letter to that effect. When Crisostomo received a copy of that letter, he took the position that Perez had no right to demand possession because Perez had no contract with him. Crisostomo was allowed four months to vacate but immediately filed the complaint for injunction and damages.

The trial court rendered its decision on September 6, 1989, concluding that the defendants "conspired with one another to exploit the plaintiff's naivete and educational inadequacies and, in the process, to defraud him." The trial court founded this conclusion on several findings: Crisostomo's testimony bore the "hallmarks of truth"; the notarized receipt of Maria Perez was a "clear avowal of plaintiff's legitimate operation of the fishpond as assignee or transferee thereof"; the receipt whereby Tansinsin acknowledged payment of P150,000.00 bore "tell-tale signs" of conspiracy; service upon Crisostomo of Keh's letter surrendering possession implied that defendants knew of his possession; the nonpresentation of Lee and Keh on the witness stand "can very well be construed as a smart maneuver to cover up the sinister cabal for deception"; Tansinsin was the common legal counsel of all defendants; and the fact that the fishpond was subsequently rented out for astronomical amounts proved that Crisostomo had considerably improved the fishpond.

• Res Judicata: Petitioners argued that the principle of res judicata applied because the Court of Appeals had ruled on the issue of possession in CA-G.R. No. 10415, a petition for certiorari and injunction, which was in effect upheld by this Court when it denied the petition for review on certiorari in G.R. No. 64354. They insisted that the issue of possession had been "squarely decided" in CA-G.R. No. 10415.

• Premature Promulgation: Petitioners alleged that the Court of Appeals' Decision was premature because it was rendered when they had not yet even received a copy of the intervenor's brief wherein assignments of errors that directly affected their rights and interests were made.

• No Sublease: Petitioners argued that private respondent Crisostomo could not have been an assignee or sub-lessee of the fishpond because no contract authorized him to be so, and the contract of lease between Keh and the usufructuaries prohibited subleasing of the fishpond.

• Forum Shopping: Petitioners added that appellee Crisostomo was guilty of forum shopping because the issue of possession had been "squarely decided" in CA-G.R. No. 10415.

• Deficiencies in Award: Petitioners averred that the Court of Appeals erred in awarding damages that were not prayed for in the second amended complaint and that amounts not specified in the complaint were awarded as damages.

• Intervention Pro Interesse Suo: Intervenor Vicente Asuncion sought to protect his right as a usufructuary, having acquired his right from a sale in execution of the share of Jorge Lorenzo, one of the usufructuaries of the fishpond. The Court of Appeals ruled that the intervention should be allowed because, even if the litigation would not be technically binding upon him, complications might arise that would prejudice his rights.

• Possession in Good Faith: The Court of Appeals ruled that appellee Crisostomo "cannot be considered a possessor in bad faith, considering that he took possession of the fishpond when appellants Keh and Lee assigned to him appellant Keh's leasehold right."

• Res Judicata: Whether the principle of res judicata applies based on the prior Decision in CA-G.R. No. 10415 which was upheld by this Court in G.R. No. 64354.

• Prematurity of Decision: Whether the Court of Appeals' Decision was premature and therefore null and void because petitioners were not furnished with a copy of the intervenor's brief.

• Validity of Sublease: Whether private respondent Crisostomo could be considered a sublessee or assignee of the fishpond despite the contractual prohibition against subleasing.

• Liability for Improvements: Whether petitioner Keh should be liable for the value of improvements introduced by Crisostomo.

• Awards of Damages: Whether the awards of moral damages, exemplary damages, and attorney's fees against all petitioners were proper.

• Res Judicata: No. The Decision in CA-G.R. No. 10415 resolved only an interlocutory matter—the propriety of lifting the restraining order—and not a judgment on the merits of Civil Case No. 5610-M. For res judicata to apply, the former judgment must be final, rendered by a court with jurisdiction, on the merits, and with identity of parties, subject matter, and causes of action; the interlocutory order here fails the "on the merits" requirement.

• Prematurity of Decision: No. The failure of the intervenor to furnish petitioners with a copy of his brief did not result in the nullity of the Court of Appeals' Decision. The Court of Appeals properly issued a Resolution directing counsel for intervenor to furnish petitioners with a copy of the brief and granted petitioners an opportunity to file a reply-brief or memorandum.

• Validity of Sublease: The contractual prohibition against subleasing was violated by petitioner Keh himself, but petitioners Perez and Tansinsin were put in estoppel to question Crisostomo's right to possess the fishpond by their act of receiving rental from him through the receipt dated June 6, 1978.

• Liability for Improvements: Yes. Pursuant to Article 1168 of the Civil Code, petitioner Keh, who violated the prohibition against subleasing, shall be liable to Crisostomo for the value of the improvements he had made in the fishpond, or P486,562.65 with interest of six percent per annum from September 6, 1989.

• Awards of Damages: Yes. The conspiratorial scheme to utilize Crisostomo's expertise was satisfactorily established to warrant an award of moral damages under Article 21 of the Civil Code, exemplary damages under Article 2229, and attorney's fees under Article 2208(2).

• Res Judicata: The Court explained that CA-G.R. No. 10415 was spawned by the lifting on January 11, 1980 of the restraining order previously issued by the trial court on June 14, 1979. The issue in that petition was whether or not the trial court gravely abused its discretion in lifting the restraining order. The statement in that Decision that a writ of preliminary injunction may be denied "if the party applying for it has insufficient title or interest to sustain it and no claim to an ultimate relief (is) sought" by no means resolved the issue of who is entitled to possess the fishpond. The issue of possession was collaterally discussed only to resolve the propriety of the lifting of the restraining order based on evidence available at that time. Hence, there was no judgment on the merits in the main case. The Court cited the requisites for res judicata: (a) the former judgment must be final; (b) the court which rendered it had jurisdiction over the subject matter and the parties; (c) the judgment must be on the merits; and (d) there must be between the first and second actions identity of parties, subject matter and causes of action. The Decision in CA-G.R. No. 10415 having resolved only an interlocutory matter, res judicata cannot apply. There can be no res judicata where the previous order was not determinative of an issue of fact pending before the court but was only an interlocutory order because it required the parties to perform certain acts for final adjudication.

• Prematurity of Decision: The Court held that while it is true that petitioners were deprived of the opportunity to contravene the allegations of the intervenor in his brief, that fact cannot result in the nullity of the Decision of the Court of Appeals. Intervention pro interesse suo is a mode of intervention in equity wherein a stranger desires to intervene for the purpose of asserting a property right in the res, or thing, which is the subject matter of the litigation, without becoming a formal plaintiff or defendant, and without acquiring control over the course of a litigation. In this case, intervenor Vicente Asuncion aimed to protect his right as a usufructuary. The Court noted that after the trial court allowed the intervention, petitioner Juan Perez filed a petition for certiorari docketed as CA-G.R. No. 13519 to set aside the order denying his motion to dismiss the pleading in intervention, which was denied for lack of merit. The Court also noted that granting that the intervention be considered as Asuncion's "appeal," a litigant's failure to furnish his opponent with a copy of his appeal does not suffice to warrant dismissal of that appeal; all that is needed is for the court to order the litigant to furnish his opponent with a copy of his appeal. This is precisely what happened when the Court of Appeals issued a Resolution directing counsel for intervenor to furnish petitioners with a copy of the brief and granting them an opportunity to file a reply-brief or memorandum.

• Validity of Sublease: The Court acknowledged that the contract between the usufructuaries and petitioner Keh had a provision barring the sublease of the fishpond. However, it was petitioner Keh himself who violated that provision in offering the operation of the fishpond to private respondent. The Court noted that on January 9, 1978, petitioner Keh executed a document ceding and transferring his rights and interests over the fishpond to petitioner Lee. Although no written contract to transfer operation of the fishpond to private respondent was offered in evidence, the established facts show that petitioner Juan Perez and his counsel, petitioner Tansinsin, knew of and acquiesced to that arrangement by their act of receiving from the private respondent the rental for 1978-79. By their act of receiving rental from private respondent through the peculiarly written receipt dated June 6, 1978, petitioners Perez and Tansinsin were put in estoppel to question private respondent's right to possess the fishpond as a lessee. The Court defined estoppel in pais as arising when one, by his acts, representations or admissions, or by his own silence when he ought to speak out, intentionally or through culpable negligence, induces another to believe certain facts to exist and such other rightfully relies and acts on such belief, so that he will be prejudiced if the former is permitted to deny the existence of such facts.

• Liability for Improvements: The Court cited Article 1168 of the Civil Code, which provides that when an obligation "consists in not doing and the obligor does what has been forbidden him, it shall also be undone at his expense." The lease contract prohibited petitioner Luis Keh, as lessee, from subleasing the fishpond. In entering into the agreement for pakiao-buwis with private respondent, not to mention the apparent artifice that was his written agreement with petitioner Lee on January 9, 1978, petitioner Keh did exactly what was prohibited of him under the contract—to sublease the fishpond to a third party. That the agreement for pakiao-buwis was actually a sublease is borne out by the fact that private respondent paid petitioners Luis Keh and Juan Perez, through petitioner Tansinsin, the amount of annual rental agreed upon in the lease contract between the usufructuaries and petitioner Keh. Petitioner Keh led private respondent to unwittingly incur expenses to improve the operation of the fishpond. By operation of law, therefore, petitioner Keh shall be liable to private respondent for the value of the improvements he had made in the fishpond or for P486,562.65 with interest of six percent per annum from the rendition of the decision of the trial court on September 6, 1989.

• Awards of Damages: The Court held that the law supports the awards of moral and exemplary damages in favor of private respondent and against the petitioners. Their conspiratorial scheme to utilize private respondent's expertise in the operation of fishponds to bail themselves out of financial losses has been satisfactorily established to warrant a ruling that they violated Article 21 of the Civil Code, which states that "(a)ny person who wilfully causes loss or injury to another in a manner that is contrary to morals, good customs or public policy shall compensate the latter for the damage." Exemplary damages shall likewise be awarded pursuant to Article 2229 of the Civil Code. Because private respondent was compelled to litigate to protect his interest, attorney's fees shall also be awarded under Article 2208(2) of the Civil Code.

• Res Judicata — For res judicata to apply, the following requisites must concur: (a) the former judgment must be final; (b) the court which rendered it had jurisdiction over the subject matter and the parties; (c) the judgment must be on the merits; and (d) there must be between the first and second actions identity of parties, subject matter and causes of action. The Court held that res judicata cannot apply where the previous order was only an interlocutory order because it required the parties to perform certain acts for final adjudication, not a judgment on the merits.

• Intervention Pro Interesse Suo — This is a mode of intervention in equity wherein a stranger desires to intervene for the purpose of asserting a property right in the res, or thing, which is the subject matter of the litigation, without becoming a formal plaintiff or defendant, and without acquiring control over the course of a litigation, which is conceded to the main actors therein. The Court held that such intervention can proceed independently of the main action, and the failure to furnish the opposing party with a copy of the intervenor's brief does not nullify the decision; the proper remedy is for the court to order the litigant to furnish his opponent with a copy of his appeal.

• Estoppel In Pais — Estoppel in pais arises when one, by his acts, representations or admissions, or by his own silence when he ought to speak out, intentionally or through culpable negligence, induces another to believe certain facts to exist and such other rightfully relies and acts on such belief, so that he will be prejudiced if the former is permitted to deny the existence of such facts. The Court applied this doctrine to hold that petitioners Perez and Tansinsin, by receiving rental payments from Crisostomo, were estopped from questioning his right to possess the fishpond.

• Factual Findings of the Court of Appeals — Questions of fact are not proper subjects of appeal by certiorari under Rule 45 of the Rules of Court as this mode of appeal is confined to questions of law. Factual findings of the Court of Appeals are conclusive on the parties and carry even more weight when said court affirms the factual findings of the trial court.

• "For res judicata to apply, the following requisites must concur: (a) the former judgment must be final; (b) the court which rendered it had jurisdiction over the subject matter and the parties; (c) the judgment must be on the merits, and (d) there must be between the first and second actions identity of parties, subject matter and causes of action." — This passage states the canonical formulation of the requisites for res judicata, which the Court applied to reject petitioners' argument that the prior certiorari decision barred the main action.

• "By their act of receiving rental from private respondent through the peculiarly written receipt dated June 6, 1978, petitioners Perez and Tansinsin were put in estoppel to question private respondent's right to possess the fishpond as a lessee." — This passage articulates the Court's application of estoppel in pais, which was central to affirming Crisostomo's right to possess the fishpond despite the contractual prohibition against subleasing.

• "Art. 1168 of the Civil Code provides that when an obligation 'consists in not doing and the obligor does what has been forbidden him, it shall also be undone at his expense.' The lease contract prohibited petitioner Luis Keh, as lessee, from subleasing the fishpond. In entering into the agreement for pakiao-buwis with private respondent, not to mention the apparent artifice that was his written agreement with petitioner Lee on January 9, 1978, petitioner Keh did exactly what was prohibited of him under the contract — to sublease the fishpond to a third party." — This passage explains the basis for holding petitioner Keh liable for the value of improvements introduced by Crisostomo, applying Article 1168 of the Civil Code.

• A.G. Development Corporation vs. Court of Appeals, G.R. No. 111662, October 23, 1997, 281 SCRA 155 — Cited as authority for the requisites of res judicata, which the Court applied to determine that the prior decision in CA-G.R. No. 10415 did not bar the main action.

• Philippine Coal Miner's Union vs. Cebu Portland Cement Co., et al., 119 Phil. 1063 (1964) — Cited for the proposition that there can be no res judicata where the previous order was not an order or judgment determinative of an issue of fact pending before the court but was only an interlocutory order.

• Joaquin vs. Herrera, 37 Phil. 705, 723 (1918) — Cited in defining intervention pro interesse suo as a mode of intervention in equity wherein a stranger desires to intervene for the purpose of asserting a property right in the res without becoming a formal plaintiff or defendant.

• Precision Electronics Corporation vs. NLRC, G.R. No. 86657, October 23, 1989, 178 SCRA 667 — Cited for the proposition that a litigant's failure to furnish his opponent with a copy of his appeal does not suffice to warrant dismissal of that appeal; all that is needed is for the court to order the litigant to furnish his opponent with a copy of his appeal.

• Valmonte vs. Court of Appeals, L-41621, February 18, 1999, citing Far East Bank & Trust Company vs. Court of Appeals, 326 Phil. 15 (1996) — Cited for the doctrine that questions of fact are not proper subjects of appeal by certiorari under Rule 45 of the Rules of Court.

• Fortune Motors (Phils.) Corporation vs. Court of Appeals, 335 Phil. 315, 330 (1997) — Cited for the rule that factual findings of the Court of Appeals are conclusive on the parties and carry even more weight when said court affirms the factual findings of the trial court.

• Roblett Industrial Construction Corporation vs. Court of Appeals, 334 Phil. 62, 67 (1997) — Cited for the definition of estoppel in pais, which the Court applied to hold that petitioners Perez and Tansinsin were estopped from questioning Crisostomo's right to possess the fishpond.

• Philippine Airlines, Inc. vs. Court of Appeals, 341 Phil. 624, 633-634 (1997) — Cited in support of the award of interest on the value of improvements from the rendition of the trial court's decision.

• Article 1168, Civil Code — Provides that when an obligation consists in not doing and the obligor does what has been forbidden him, it shall also be undone at his expense. The Court applied this provision to hold petitioner Keh liable for the value of improvements introduced by Crisostomo, since Keh violated the prohibition against subleasing.

• Article 21, Civil Code — States that any person who wilfully causes loss or injury to another in a manner that is contrary to morals, good customs or public policy shall compensate the latter for the damage. The Court applied this provision to support the award of moral damages against petitioners whose conspiratorial scheme was established.

• Article 2229, Civil Code — Provides that exemplary or corrective damages are imposed, by way of example or correction for the public good, in addition to the moral, temperate, liquidated or compensatory damages. The Court applied this provision to support the award of exemplary damages.

• Article 2208(2), Civil Code — Provides for the award of attorney's fees. The Court applied this provision because private respondent was compelled to litigate to protect his interest.

• Article 603, Civil Code — Provides that a usufruct is extinguished by the death of the usufructuary, unless a contrary intention clearly appears. The Court noted this provision in discussing whether the usufruct originally exercised by Jorge Lorenzo survived his demise, but held that this matter is best addressed in Civil Case No. 8215-M.

• Rule 45, Rules of Court — Confines appeals by certiorari to questions of law. The Court applied this rule to limit its review to questions of law arising from the facts as found by both the Court of Appeals and the trial court.

• Rule 16, Sec. 1(e), Rules of Court — Provides for the dismissal of an action where there is another action pending between the same parties for the same cause. The Court noted this provision in discussing whether Vicente Asuncion's filing of Civil Case No. 8215-M would be a reason for dismissal of the motion for intervention.

Melo, Vitug, Panganiban, and Purisima, JJ., concurred.