Tamio vs. Ticson

A lessee who has already assumed payment of rentals to the true owner of the property cannot be compelled to pay the same rental arrearages to a purported lessor whose assignment of lease rights was void for lack of the owner's consent, as such double payment would constitute unjust enrichment. The general rule that a lessee is estopped from denying the lessor's title admits of an exception where equity demands, as when the lessor's claim would sanction unjust enrichment and cause unjust poverty to the lessee.

The Roman Catholic Archbishop of Manila (RCAM) owned an apartment unit originally leased to Fernando Lopez Lim. After Fernando's death, his children occupied the premises. One of the children, Valentine Lim, requested respondent Encarnacion Ticson for financial assistance to purchase the apartment unit from RCAM, and in exchange executed a waiver in her favor. The respondent thereafter executed a contract of lease in favor of petitioner Josie Go Tamio based on that waiver. The dispute concerns the validity of the assignment of lease rights without the lessor's consent and the consequent entitlement to rental payments.

The Roman Catholic Archbishop of Manila (RCAM) owned an apartment unit originally leased to Fernando Lopez Lim. After Fernando's death, his children became the occupants. One of them, Valentine Lim, requested respondent Encarnacion Ticson for financial assistance to purchase the apartment unit from RCAM; in exchange, Valentine executed a waiver in favor of the respondent.

On June 15, 1996, the respondent executed a contract of lease in favor of petitioner Josie Go Tamio, based on the waiver from Valentine Lim, for a period of three months. After signing the contract and paying the rentals, the petitioner discovered that the apartment was actually owned by RCAM. After the expiration of the three-month lease, the respondent demanded that the petitioner vacate the premises for the use of the former's family members. The petitioner failed to comply, giving rise to the case for unlawful detainer.

After trial, the MTC found the respondent guilty of concealment amounting to fraud when she misrepresented herself as the owner or authorized lessor of the apartment, and ordered the dismissal of the complaint. On appeal, the RTC found that the concealment did not amount to fraud but was merely due to the respondent's honest belief that she became or would eventually become the owner by reason of the waiver. The RTC also noted that if the petitioner had indeed questioned the respondent's title, she should have communicated with RCAM immediately upon learning of its ownership. The RTC ordered the petitioner to pay the respondent P86,000 as rental arrearages and dismissed the petitioner's counterclaim.

Meanwhile, on March 3, 1998, the petitioner entered into a Contract of Lease over the same property with RCAM for a term of one year, commencing January 1, 1998 to December 31, 1998. In that Contract, the petitioner assumed to pay the rent corresponding to her use and occupation of the property prior to its execution, that is, from June 1, 1996 to December 31, 1997. The Court of Appeals agreed with the RTC that the respondent's misrepresentation did not amount to fraud but was merely an error under Article 1343 of the Civil Code, and held that the respondent must have acquired legal possession as an assignee of the previous lessees. The CA also held that the petitioner was negligent in not immediately communicating with RCAM, and ordered her to pay rental arrearages to the respondent for September 1996 to December 1997.

• Invalidity of the Assignment: Petitioner contended that she was not bound by her lease agreement with respondent because the latter never acquired legal possession of the property; the assignment/waiver executed by Valentine Lim was null and void, as Fernando Lim's lease with RCAM had long been terminated for nonpayment of rentals, and with the invalidity of the assignment, respondent acquired no rights that she could transmit.
• Lack of Lessor's Consent: Petitioner argued that assuming arguendo that Valentine's lease was still subsisting, the consent of RCAM should have been obtained for the assignment to be valid.
• Double Payment / Unjust Enrichment: Petitioner averred that under her Contract with RCAM, she undertook to pay rentals corresponding to the holdover period; hence, she would in effect be paying the rental twice if she were still required to pay respondent, which would unjustly enrich the latter at her expense.

• Validity of the Lease: Respondent argued that the misrepresentation of her status as owner or lessor did not amount to fraud but was merely an error under Article 1343 of the Civil Code, and that she must have acquired legal possession over the apartment unit as an assignee thereof, considering the waiver/assignment executed in her favor by the previous lessees.
• Petitioner's Negligence: Respondent maintained that petitioner herself had been negligent in not immediately communicating with RCAM regarding her discovery of the owner's identity, thereby implying her acknowledgment of respondent's right to sublease the property.

• Entitlement to Rental Arrearages: Whether petitioner should be held liable to pay respondent the amount of P86,000.00 representing the alleged rental arrearages from September 1996 to December 1997.

• Entitlement to Rental Arrearages: No. The petition has merit. The assignment of the lease by Valentine Lim to respondent was void for lack of the lessor's consent under Article 1649 of the Civil Code, and respondent consequently acquired no rights she could transmit to petitioner. Because petitioner had already assumed payment of rentals to the true owner RCAM for the same period, requiring her to pay respondent again would constitute unjust enrichment under Article 22 of the Civil Code.

• Entitlement to Rental Arrearages: The Court applied Article 1649 of the Civil Code, which provides that the lessee cannot assign the lease without the consent of the lessor, unless there is a stipulation to the contrary. The objective of this prohibition is to protect the owner or lessor of the leased property. In a cession or assignment of lease rights on real property, there is a novation by the substitution of the person of the lessee; the personality of the lessee who dissociates from the lease disappears, and only two persons remain in the juridical relation — the lessor and the assignee who is converted into the new lessee.

In the instant case, RCAM never assented to the assignment of the lease. This was apparent from the December 11, 1997 letter of its counsel stating that Fernando Lim was no longer its tenant for failure to pay rentals as of August 1988. While the Court noted that mere nonpayment of rentals without the lessor's demand to pay and vacate is not sufficient to oust the lessee, the letter nevertheless demonstrated the lessor's lack of consent to the assignment. There was no evidence that RCAM subsequently agreed to the substitution of the original lessee by respondent; the only lessee it ever recognized was Fernando Lim. Neither did respondent appear to have paid monthly rents to RCAM to apprise it of her occupation, so RCAM could not be charged with knowledge of, much less implied consent to, the assignment.

As against RCAM, which had not consented to the assignment, respondent-assignee obtained no rights to the leased premises. Consequently, the sublease between her and petitioner was not binding on RCAM. With the abandonment of the lease by the original lessee through his unauthorized assignment, the right to possession of the apartment reverted to the owner. Being the owner, RCAM enjoyed the prerogative to enter into a new lease contract over the property with anyone it chose, and it chose to grant petitioner leasehold rights by virtue of the March 3, 1998 Contract, under which petitioner agreed to pay RCAM reasonable compensation for the entire period of her occupancy.

The Court then applied Article 22 of the Civil Code on unjust enrichment, which exists when (1) a person is unjustly benefited, and (2) such benefit is derived at the expense of or with damages to another. To allow respondent to receive from petitioner rental arrearages for September 1996 to December 1997, notwithstanding petitioner's agreement with the owner to pay rent for her occupancy of the same property for the same period, would constitute unjust enrichment at petitioner's expense. Prior to the March 3, 1998 Contract, both petitioner and respondent were technically "strangers" to the property, both unlawfully withholding its possession from the owner. Petitioner could not be faulted for assuming to pay a reasonable value for her occupancy as a sign of good faith, while respondent's nonpayment of rentals to RCAM notwithstanding her receipt from petitioner of the rental covering the sublease contract was indicative of bad faith.

The Court acknowledged the standing rule that a lessee is estopped from disputing the title of the landlord in an action for recovery of possession of the leased premises, citing Rule 131, Section 2(b) of the Rules of Court and Article 1436 of the Civil Code. The relation of lessor and lessee does not depend on the former's title but on the agreement between the parties, followed by possession of the premises by the lessee under such agreement. As long as the lessee remains in undisturbed possession, it is immaterial whether the lessor has a valid title — or any title at all — at the time the relationship was entered into. Between the present parties, the lease — which was actually a sublease — was effective, and respondent had a colorable right to lease the premises by virtue of the assignment even if, as against the owner, both the assignment and the sublease were ineffectual.

However, considering the peculiar circumstances of the case, equity demanded that the rule be relaxed. It would be grossly unjust if, after having paid the owner prior rentals for June 1996 to December 1997, petitioner would still be required to pay again the same rental arrearages to respondent. The Court noted that the sublease had already expired, and the arrearages referred to a subsequent period not covered by the sublease. Citing Air Manila vs. CIR, the Court emphasized that equity seeks to reach and complete justice where courts of law, through the inflexibility of their rules, are incompetent to do so.

• Assignment of Lease Requires Lessor's Consent — Under Article 1649 of the Civil Code, the lessee cannot assign the lease without the consent of the lessor, unless there is a stipulation to the contrary. The objective of this prohibition is to protect the owner or lessor of the leased property. In this case, the assignment from Valentine Lim to respondent was void because RCAM never consented, as demonstrated by its counsel's letter stating that Fernando Lim was no longer its tenant.

• Novation by Substitution of Lessee — In a cession or assignment of lease rights on real property, there is a novation by the substitution of the person of one of the parties — the lessee. The personality of the lessee who dissociates from the lease disappears; only two persons remain in the juridical relation — the lessor and the assignee who is converted into the new lessee. Because RCAM did not consent to the assignment, respondent never became the new lessee as against the owner.

• Unjust Enrichment — Under Article 22 of the Civil Code, there is unjust enrichment when (1) a person is unjustly benefited, and (2) such benefit is derived at the expense of or with damages to another. The Court applied this doctrine to prevent respondent from receiving rental arrearages from petitioner when the latter had already assumed payment of the same rentals to the true owner RCAM.

• Lessee's Estoppel and Its Equitable Exception — A lessee is estopped from denying the title of the landlord at the time of the commencement of the relation of landlord and tenant, under Rule 131, Section 2(b) of the Rules of Court and Article 1436 of the Civil Code. The relation of lessor and lessee does not depend on the former's title but on the agreement between the parties, followed by possession by the lessee under such agreement. However, the Court recognized an exception to this rule where peculiar circumstances render its application inequitable, as when it would sanction unjust enrichment in favor of the lessor and cause unjust poverty to the lessee.

• "In general, a lessee is not allowed to challenge the title of the lessor. Indeed, it is immaterial whether the lessor had any title at all to the property at the time the lease was commenced. However, due to the peculiar circumstances in the present case, the Court makes an exception to this rule. Otherwise, it would sanction unjust enrichment in favor of the respondent and cause unjust poverty to the petitioner." — This opening passage frames the entire decision, announcing the Court's departure from the general rule on lessee's estoppel based on equitable considerations.

• "To allow respondent to receive from petitioner rental arrearages for the period September 1996 to December 1997, notwithstanding the latter's agreement with the owner to pay rent for her occupancy of the property, would constitute unjust enrichment at the expense of petitioner." — This states the core ratio decidendi: the double payment scenario that the Court found inequitable and prohibited under Article 22 of the Civil Code.

• "Having assumed to pay the rentals to RCAM, petitioner should no longer be required to pay rental arrearages to respondent. To do so would be to sanction unjust enrichment in favor of respondent and to cause unjust poverty to the petitioner. A double burden would be imposed upon the latter, because she would be paying twice for her use of the same premises for the same period of time." — This passage articulates the operative consequence of the Court's ruling and the precise injustice it sought to prevent.

• "Equity as the complement of legal jurisdiction seeks to reach and to complete justice where courts of law, through the inflexibility of their rules and want of power to adapt their judgments to the special circumstances of cases, are incompetent to do so. Equity regards the spirit and not the letter, the intent and not the form, the substance rather than the circumstance, as it is variously expressed by different courts." — Quoted from Air Manila v. CIR, this passage supplies the equitable foundation for the Court's exception to the estoppel rule.

• Geminiano vs. Court of Appeals, 328 Phil. 682 (1996) — Cited for the general rule that lessees are estopped to deny their landlord's title or to assert a better title in a third person while they remain in possession of the leased premises; the Court distinguished this case based on the peculiar circumstances warranting an equitable exception.

• Paterno vs. Court of Appeals, 272 SCRA 770 (1997) — Cited for the proposition that the assignment of a lease by the lessee involves a transfer of rights and obligations pertaining to the contract, hence the consent of the lessor is necessary.

• Dakudao vs. Consolacion, 122 SCRA 877 (1983) — Cited for the objective of the law in prohibiting assignment of the lease without the lessor's consent, which is to protect the owner or lessor of the leased property.

• Sadhwani vs. Court of Appeals, 281 SCRA 75 (1997) — Cited for the principle that in cession or assignment of lease rights on real property, there is a novation by the substitution of the person of the lessee.

• Manlapat vs. Salazar, 98 Phil. 356 (1956) — Cited for the proposition that the personality of the lessee who dissociates from the lease disappears, leaving only the lessor and the assignee who becomes the new lessee.

• LL and Company Development and Agro-Industrial Corporation vs. Huang Chao Chun, 378 SCRA 612 (2002) — Cited for the rule that mere nonpayment of rentals without the lessor's demand to pay and vacate is not sufficient to oust the lessee from the leased premises.

• HL Carlos Construction, Inc. vs. Marina Properties Corporation, G.R. No. 147614 (2004) — Cited for the elements of unjust enrichment under Article 22 of the Civil Code.

• Air Manila vs. CIR, 83 SCRA 579 (1978) — Cited for the definition and purpose of equity as a complement to legal jurisdiction, supporting the Court's relaxation of the estoppel rule.

• Article 1649, Civil Code — Provides that the lessee cannot assign the lease without the consent of the lessor, unless there is a stipulation to the contrary; applied to void the assignment from Valentine Lim to respondent for lack of RCAM's consent.

• Article 22, Civil Code — Defines unjust enrichment as existing when a person is unjustly benefited and such benefit is derived at the expense of or with damages to another; applied to prevent respondent from collecting rentals already assumed by petitioner to the true owner.

• Article 1436, Civil Code — Provides that a lessee or bailee is estopped from asserting title to the thing leased or received as against the lessor or bailor; recognized as the general rule but relaxed in equity.

• Article 428, Civil Code — Recognizes the owner's prerogative to enter into a new lease contract over the property with anyone it chooses; applied to uphold RCAM's right to contract with petitioner.

• Article 1343, Civil Code — Referred to by the lower courts in characterizing respondent's misrepresentation as an error rather than fraud; the Supreme Court did not rely on this provision in its disposition.

• Rule 131, Section 2(b), Rules of Court — Establishes the conclusive presumption that the tenant is not permitted to deny the title of his landlord at the time of the commencement of the relation of landlord and tenant; recognized as the general rule subject to the equitable exception.

Sandoval-Gutierrez, Carpio-Morales, and Garcia, JJ., concurred. Corona, J., was on leave.

N/A — No dissenting opinion was noted in the provided case text.