FIRST DIVISION

[G.R. No. 224022. June 28, 2017.]

TEODORICO A. ZARAGOZA, petitioner , vs. ILOILO SANTOS TRUCKERS,

INC., respondent .

DECISION

PERLAS-BERNABE, J : p

Assailed in this petition for review on certiorari 1 are the Decision 2 dated July 22,
2015 and the Resolution 3 dated April 8, 2016 of the Court of Appeals (CA) in CA-G.R.
CEB-SP No. 07839 which affirmed the Decision 4 dated July 5, 2013 of the Regional
Trial Court of Iloilo City, Branch 23 (RTC-Br. 23) in Civil Case No. 12-31294, and
accordingly, held, inter alia , that petitioner Teodorico A. Zaragoza (petitioner) could not
eject respondent Iloilo Santos Truckers, Inc. (respondent) from the leased premises as
the latter complied with its obligation to pay monthly rent thru consignation. HTc ADC

The Facts
On June 26, 2003, petitioner Teodorico A. Zaragoza (petitioner) bought a 3,058-
square meter (sq. m.) parcel of land located at Cabatuan, Iloilo, denominated as Lot No.
937-A, from his parents, Florentino and Erlinda Zaragoza, 5 and eventually, had the
same registered under his name in Transfer Certificate of Title No. 090-2010009190. 6
Petitioner claimed that unknown to him, his father leased 7 a 1,000-sq. m. portion of Lot
937-A (subject land) to respondent Iloilo Santos Truckers, Inc. (respondent), for a
period of eight (8) years commencing on December 5, 2003 and renewable for another
eight (8) years at the sole option of respondent. 8 This notwithstanding, petitioner
allowed the lease to subsist and respondent had been diligent in paying its monthly rent
amounting to P10,000.00 per month 9 (P11,200.00 10 including value added tax) 11
pursuant to the lease contract.
Petitioner claimed that when Florentino died, respondent stopped paying rent. On
the other hand, respondent maintained that it was willing to pay rent, but was uncertain
as to whom payment should be made as it received separate demands from Florentino's
heirs, including petitioner. 12 Thus, respondent filed an interpleader case before the
Regional Trial Court of Iloilo City, Branch 24 (RTC-Br. 24), docketed as Civil Case No.
07-29371. After due proceedings, RTC-Br. 24 issued: (a) Order 13 dated June 22, 2010
dismissing the action for interpleader, but at the same time, stating that respondent may
avail of the remedy of consignation; and (b) Order 14 dated August 17, 2010 which, inter
alia, reiterated that respondent may consign the rental amounts with it in order to do
away with unnecessary expenses and delay. Pursuant thereto, respondent submitted a
Consolidated Report 15 dated January 26, 2011 and a Manifestation and Notice 16 dated
May 30, 2011 informing petitioner that it had consigned the aggregate amount of
P521,396.89 17 before RTC-Br. 24. 18
 This notwithstanding, petitioner sent respondent a letter 19 dated May 24, 2011,
stating that granting without conceding the propriety of consignation, the same did not
extinguish the latter's obligation to pay rent because the amount consigned was
insufficient to cover the unpaid rentals plus interests from February 2007 to May 2011 in
the amount of P752,878.72. In this regard, petitioner demanded that respondent pay said
amount and at the same time, vacate the subject land within fifteen (15) days from
receipt of the letter. In its reply, 20 respondent reiterated that it had already paid rent by
consigning the amount of P521,396.89 with RTC-Br. 24 representing monthly rentals
from February 2007 to March 2011, and maintained that it is not obligated to pay
interests under the lease contract. In a letter 21 dated June 9, 2011, petitioner clarified
that the aforesaid amount consigned by respondent was insufficient to cover monthly
rentals from February 2007 to March 2011 which already amounted to P562,125.00
without interest. He likewise reiterated that his earlier demand to pay was for the period
of February 2007 to May 2011. Thus, petitioner posited that respondent had
continuously failed and refused to comply with the terms and conditions of the lease
contract concerning the payment of monthly rental, with or without consignation. 22 As
his demands went unheeded, petitioner filed on June 21, 2011 a suit 23 for unlawful
detainer against respondent before the Municipal Trial Court in Cities, Iloilo City, Branch
10 (MTCC), docketed as Civil Case No. 32-11. 24
In its defense, respondent maintained, inter alia , that its consignation of rental
amounts with RTC-Br. 24 constituted compliance with the provisions of the lease
contract concerning the monthly rental payments. As such, petitioner has no cause of
action against it, and accordingly, it cannot be ejected from the subject land. 25
Pending the unlawful detainer suit, respondent sent petitioner a letter 26 dated
September 29, 2011 expressing its intention to renew the lease contract. In response,
petitioner sent letters dated October 10, 2011 27 and October 11, 2011 28 rejecting
respondent's intent to renew in view of the latter's failure to timely pay its monthly
rentals.CAIHTE

The MTCC Ruling

In a Decision 29 dated December 29, 2011, the MTCC ruled in petitioner's favor,
and accordingly, ordered respondent to: (a) vacate the subject land; and (b) pay
petitioner back rentals in the amount of P10,000.00 a month from February 2007 and the
succeeding months thereafter until it vacates the subject land, plus legal interest of
twelve percent (12%) per annum from extrajudicial demand until full payment,
P20,000.00 as attorney's fees, P50,000.00 as litigation expenses, and the costs of suit.
30

The MTCC found that petitioner's complaint properly makes out a case for
unlawful detainer as it alleged that respondent defaulted in its rental payments from
February 2007 to May 2011 in the total amount of P752,878.72 and that the latter failed
to pay the same and to vacate the subject land despite demands to do so. 31 Further,
the MTCC opined that respondent's consignation with RTC-Br. 24 is void, and thus, did
not serve to release respondent from paying its obligation to pay rentals. As there was
no valid consignation, respondent was held liable to pay unpaid rentals and that
petitioner was justified in terminating the lease contract. 32
Aggrieved, respondent appealed 33 to the RTC-Br. 23, docketed as Civil Case No.
12-31294.
 The RTC-Br. 23 Ruling
In a Decision 34 dated July 5, 2013, the RTC-Br. 23 reversed and set aside the
MTCC ruling, and accordingly, dismissed petitioner's complaint. Contrary to the MTCC's
findings, the RTC-Br. 23 ruled, inter alia , that respondent's consignation of the rental
amounts was proper, considering that: (a) it was made pursuant to RTC-Br. 24's order,
which had jurisdiction over the interpleader case, consignation being an ancillary
remedy thereto; (b) it was made even before petitioner's filing of the unlawful detainer
case and that petitioner knew of such fact; and (c) petitioner even withdrew the
consigned amounts. Thus, the consignation effectively released respondent from its
obligation to pay rent, and hence, petitioner's complaint for unlawful detainer must
necessarily fail. 35DETACa

Dissatisfied, petitioner appealed to the CA via a petition for review, 36 docketed

as CA-G.R. CEB-SP No. 07839.
The CA Ruling
In a Decision 37 dated July 22, 2015, the CA affirmed the RTC-Br. 23 ruling. It
held, inter alia , that while petitioner's complaint for unlawful detainer sufficiently states a
cause of action on its face, petitioner, however, failed to substantiate his allegation that
respondent violated the terms and conditions of the lease contract by intentionally failing
to pay the monthly rentals. 38 In this regard, the CA found that respondent was actually
ready and willing to comply with its obligation to pay rent, but was in a quandary as to
whom it should remit its payment. 39 Hence, it showed good faith by consigning its
rental payments to RTC-Br. 24, which was properly made and was acknowledged by
petitioner by withdrawing the consigned amounts in court. There being no violation of the
lease contract, petitioner could not validly eject respondent from the subject land. 40
Undaunted, petitioner moved for reconsideration, 41 which was, however, denied
in a Resolution 42 dated April 8, 2016; hence, this petition.
The Issue Before the Court
The issue for the Court's resolution is whether or not the CA correctly ruled that
petitioner could not eject respondent from the subject land as the latter fully complied
with its obligation to pay monthly rent thru consignation. aSc ITE

The Court's Ruling

The petition is meritorious.
I n Spouses Manzanilla v. Waterfields Industries Corporation, 43 the Court
discussed the requisites of an unlawful detainer suit in instances where there is a
subsisting lease contract between the plaintiff-lessor and defendant-lessee, to wit:
For the purpose of bringing an unlawful detainer suit, two requisites
must concur: (1) there must be failure to pay rent or comply with the
conditions of the lease, and (2) there must be demand both to pay or to
comply and vacate. The first requisite refers to the existence of the cause of
action for unlawful detainer, while the second refers to the jurisdictional
requirement of demand in order that said cause of action may be pursued.
Implied in the first requisite, which is needed to establish the cause of action of
the plaintiff in an unlawful detainer suit, is the presentation of the contract of
lease entered into by the plaintiff and the defendant, the same being needed to
 establish the lease conditions alleged to have been violated. Thus, in Bachrach
Corporation v. Court of Appeals [(357 Phil. 483, 492 [1998])], the Court held
that the evidence needed to establish the cause of action in an unlawful
detainer case is (1) a lease contract and (2) the violation of that lease by
the defendant. 44 (Emphases and underscoring supplied)
In other words, for an unlawful detainer suit to prosper, the plaintiff-lessor must
show that: first, initially, the defendant-lessee legally possessed the leased premises
by virtue of a subsisting lease contract; second, such possession eventually became
illegal, either due to the latter's violation of the provisions of the said lease contract or
the termination thereof; third, the defendant-lessee remained in possession of the
leased premises, thus, effectively depriving the plaintiff-lessor enjoyment thereof; and
fourth, there must be a demand both to pay or to comply and vacate and that the suit is
brought within one (1) year from the last demand. 45
In this case, the first, third, and fourth requisites have been indubitably complied
with, considering that at the time the suit was instituted on June 21, 2011: (a) there was
a subsisting lease contract 46 between petitioner and respondent; (b) respondent was
still in possession of the subject land; and (c) the case was filed within one (1) year
from petitioner's letter 47 dated May 24, 2011 demanding that respondent pay monthly
rentals and at the same time, vacate the subject land. Thus, the crux of the controversy
is whether or not the second requisite has been satisfied, that is, whether or not
respondent violated the terms and conditions of the lease contract, specifically with
regard to the payment of monthly rentals.
According to the RTC-Br. 23 and the CA, respondent did not breach its obligation
to pay rent as its consignation of its monthly rentals with RTC-Br. 24 constitutes
sufficient compliance thereof.
The RTC-Br. 23 and the CA are mistaken.
To recapitulate, in its letter 48 dated May 24, 2011, petitioner demanded payment
for, among others, monthly rentals for the period of February 2007 to May 2011. In
response thereto, 49 respondent claimed that it had already complied with its obligation
to pay monthly rentals via consignation with RTC-Br. 24, as evidenced by the
Manifestation and Notice 50 dated May 30, 2011 it filed before said court. However, a
closer reading of such letter-reply and Manifestation and Notice reveals that the amount
consigned with RTC-Br. 24 represents monthly rentals only for the period of February
2007 to March 2011, which is two (2) whole months short of what was being demanded
by petitioner. In fact, petitioner pointed out such fact in his letter 51 dated June 9, 2011
to respondent, but the latter still refused to make any additional payments, by either
making further consignations with RTC-Br. 24 or directly paying petitioner. HEITAD

From the foregoing, it appears that even assuming arguendo that respondent's
consignation of its monthly rentals with RTC-Br. 24 was made in accordance with law, it
still failed to comply with its obligation under the lease contract to pay monthly rentals. It
is apparent that at the time petitioner filed the unlawful detainer suit on June 21, 2011,
respondent was not updated in its monthly rental payments, as there is no evidence of
such payment for the months of April, May, and even June 2011. Irrefragably, said
omission constitutes a violation of the lease contract on the part of respondent.
Considering that all the requisites of a suit for unlawful detainer have been
complied with, petitioner is justified in ejecting respondent from the subject land. Thus,
the rulings of the RTC-Br. 23 and the CA must be reversed and set aside, and
accordingly, the MTCC ruling must be reinstated. However, in light of prevailing
jurisprudence, the rental arrearages due to petitioner shall earn legal interest of twelve
percent (12%) per annum, computed from first demand on May 24, 2011 to June 30,
2013, and six percent (6%) per annum from July 1, 2013 until fully paid. The other
amounts awarded by the MTCC, i.e., P20,000.00 as attorney's fees, P50,000.00 as
litigation expenses, and the costs of suit) shall likewise earn legal interest of six percent
(6%) per annum from finality of the Decision until fully paid. 52
WHEREFORE, the petition is GRANTED. The Decision dated July 22, 2015 and
the Resolution dated April 8, 2016 of the Court of Appeals in CA-G.R. CEB-SP No.
07839 are hereby REVERSED and SET ASIDE. Accordingly, the Decision dated
December 29, 2011 of the Municipal Trial Court in Cities, Iloilo City, Branch 10 in Civil
Case No. 32-11 is hereby REINSTATED with MODIFICATION in that the rental
arrearages due to petitioner Teodorico A. Zaragoza shall earn legal interest of twelve
percent (12%) per annum, computed from first demand on May 24, 2011 to June 30,
2013, and six percent (6%) per annum from July 1, 2013 until full satisfaction. The other
amounts awarded in favor of petitioner Teodorico A. Zaragoza, such as the P20,000.00
as attorney's fees, P50,000.00 as litigation expenses, and the costs of suit shall also
earn legal interest of six percent (6%) per annum from finality of the decision until fully
paid. aDSIHc

SO ORDERED.
Sereno, C.J., Leonardo-de Castro, Del Castillo and Caguioa, JJ., concur.
Footnotes

1. Rollo, pp. 8-20.

2. Id. at 25-33. Penned by Associate Justice Germano Francisco D. Legaspi with Associate
Justices Pamela Ann Abella Maxino and Jhosep Y. Lopez concurring.

3. Id. at 36-37.

4. Id. at 297-309. Penned by Judge Edgardo L. Catilo.

5. See Deed of Absolute Sale, id. at 47.

6. Id. at 44.

7. See Lease Contract, id. at 50-53.

8. Id. at 26.

9. See id.

10. The monthly rent, however, varied: from February-May 2007, rent fee was P11,700.00 and
on June 2007, rent fee was P11,325.00. See CA rollo, p. 282.

11. See Position Paper dated November 19, 2011; id. at 263-275. See also Statement of
Account on Unpaid Rentals, id. at 281-284.
12. Rollo, p. 26.

13. Id. at 80-81. Penned by Judge Danilo P. Galvez.

14. Id. at 114-115.

15. CA rollo, pp. 208-211.

16. Id. at 216-218.

17. See id. at 212-214 and 219.

18. See rollo, p. 26.

19. CA rollo, p. 285.

20. See letter dated June 7, 2011, id. at 286.

21. Id. at 287-288.

22. Id.

23. See Complaint for Unlawful Detainer with Damages dated June 13, 2011; rollo, pp. 38-43.

24. Rollo, pp. 26-27.

25. See Answer with Counterclaim dated July 22, 2011; CA rollo, pp. 224-239.

26. Id. at 289-290.

27. Id. at 291.

28. Id. at 292.

29. Rollo, pp. 195-228. Penned by Presiding Judge Enrique Z. Trespeces.

30. Id. at 227-228.

31. See id. at 217-220.

32. See id. at 220-224.

33. See Memorandum-On-Appeal dated March 30, 2012; id. at 232-271.

34. Id. at 297-309.

35. See id. at 303-307.

36. Dated July 31, 2013. CA rollo, pp. 22-47.

37. Rollo pp. 25-33.

38. Id. at 30.

39. See id. at 32.

40. See id. at 31-33.

41. See motion for reconsideration dated September 2, 2015; CA rollo, pp. 504-517.

42. Rollo, pp. 36-37.

43. 739 Phil. 94 (2014).

44. Id. at 106, citing Fideldia v. Spouses Mulato, 586 Phil. 1, 14 (2008).

45. See Zacarias v. Anacay , 744 Phil. 201, 208-209 (2014), citing Cabrera v. Getaruela, 604
Phil. 59, 66 (2009).

46. Rollo, pp. 50-53.

47. CA rollo, p. 285.

48. Id.

49. See letter dated June 7, 2011, id. at 286.

50. Id. at 216-218.

51. Id. at 287-288.

52. See Nacar v. Gallery Frames , 716 Phil. 267 (2013).