Ejectment; Estoppel; Conclusive Presumptions

G.R. No. 171129. April 6, 2011.*

It is clear from the above-quoted provision that “[w]hat a tenant is estopped from denying x x x
is the title of his landlord at the time of the commencement of the landlord-tenant relation. If the
title asserted is one that is alleged to have been acquired subsequent to the commencement of
that relation, the presumption will not apply.” Hence, “the tenant may show that the landlord’s
title has expired or been conveyed to another or himself; and he is not estopped to deny a claim
for rent, if he has been ousted or evicted by title paramount.”

DEL CASTILLO, J.:

FACTS:

National Statistics Office in this case resists ejectment by the Enrico Santos on the ground
that the leased property has already been foreclosed and is now owned by China Bank.

Enrico Santos filed a Complaint for Unlawful Detainer in the Municipal Trial Court (MTC)
of Sta. Maria, Bulacan. He claimed therein that he is the registered owner of the property. On
January 2, 1998, he entered into a Contract of Lease with National Statistics Office for the lease
of 945 square meters (sq m) of the first floor of the structure on said property for a monthly
rental of P74,000.00. Subsequently, the parties agreed to renew the lease for a period of one year
from January 1, 2003 to December 31, 2003, covering a bigger area of the same floor for an
increased monthly rental of P103,635.00. As the area leased by respondent was not sufficient for
its use, petitioner and respondent again entered into another Contract of Lease dated September
11, 2003 which covered an additional space for a monthly rental of P45,000.00. For failing to
pay despite demand the rentals for the months of December 2003 and January 2004 in the total
amount of P297,270.00, and for its refusal to vacate the property even after the termination of the
lease contracts on December 31, 2003, petitioner sent respondent a formal demand for the latter
to pay its unpaid monthly rentals and to vacate the property. Notwithstanding receipt, respondent
still refused to pay and to vacate the property.

National Statistics Office alleged that Enrico Santos and his wife obtained a loan from China
Banking Corporation (China Bank), the payment of which was secured by a Real Estate
Mortgage. constituted over the subject property covered by Transfer Certificate of Title (TCT)
No. T-95719(M). It claimed that when Enrico Santos entered into a contract of lease with it in
1998, he did not inform respondent of the existence of said loan. When Enrico Santos failed to
pay his obligation with China Bank, the property was eventually sold in an extrajudicial
foreclosure sale where said bank emerged as the highest bidder. Since petitioner likewise failed
to redeem the property within the redemption period, title to the same was consolidated in favor
of China Bank and TCT No. T-370128(M) was issued in its name on August 21, 2000. Despite
this and again without informing respondent, petitioner misrepresented himself as still the
absolute owner of the subject property and entered into the second and third contracts of lease
with respondent in February and September 2003. According to respondent, it was only in
November 2003 that it knew of the foreclosure of the subject property when it received a
letter12 from China Bank informing it that as early as August 2000, title to the property had
already been effectively consolidated in the name of the bank. Hence, China Bank advised
respondent that as the new and absolute owner of the subject property, it is entitled to the rental
payments for the use and occupancy of the leased premises from the date of consolidation.
Petitioner having ceased to be the owner of said property, respondent believed that the second
and third contracts of lease it entered with him had ceased to be in effect. Hence, petitioner has
no legal right to demand that respondent pay him said rentals and vacate the leased premises.
Conversely, respondent has no legal obligation to pay to petitioner the rentals for the use and
occupancy of the subject property. Moreover, petitioner failed to exhaust administrative
remedies as there was no indication that he filed a money claim before the Commission on Audit
(COA) as required by Act No. 308313 as amended by Presidential Decree (P.D.) No.
1445. Lastly, respondent alleged that petitioner is without any legal personality to institute the
complaint because he is neither the owner, co-owner, legal representative or assignee of China
Bank, landlord or a person entitled to the physical possession of the subject property.

The MTC rendered its reiterated the well settled rule that a tenant cannot, in an action
involving the possession of leased premises, controvert the title of his landlord. As the evidence
showed that respondent was no longer paying rents in violation of its obligation under the second
and third contracts of lease, and since said contracts already expired and no new contract was
entered into by the parties, the MTC declared respondent a deforciant lessee which should be
ejected from the property.

RTC agreed with the MTC’s declaration that respondent is a deforciant lessee which should
be ejected from the leased premises. This was in view of the settled rule that the fact of lease and
the expiration of its terms are the only elements in an action for ejectment, which it found to
have been established in this case. According to said court, a plaintiff need not prove his
ownership and defendant cannot deny it. If defendant denies plaintiff’s ownership, he raises a
question which is unessential to the action. The RTC further held that if there was an issue of
ownership, it is a matter between China Bank and petitioner to settle in an appropriate
proceeding.

In its Decision, the CA recognized the settled rule that a tenant, in an action involving the
possession of the leased premises, can neither controvert the title of his landlord nor assert any
rights adverse to that title, or set up any inconsistent right to change the relation existing between
himself and his landlord. However, it declared that said doctrine is subject to qualification as
enunciated in Borre v. Court of Appeals wherein it was held that “[t]he rule on estoppel  against
tenants x x x does not apply if the landlord’s title has expired, or has been conveyed to another,
or has been defeated by a title paramount, subsequent to the commencement of lessor-lessee
relationship.” In view of this, the CA concluded that the RTC erred when it relied mainly on the
abovementioned doctrine enunciated under Sec. 2(b), Rule 131 of the Rules of Court and skirted
away from resolving the issue of ownership. The CA noted that respondent was able to prove
that title to the subject property has already been effectively consolidated in the name of China
Bank. Hence, it found petitioner to be in bad faith and to have acted with malice in still
representing himself to be the owner of the property when he entered into the second and third
contracts of lease with respondent. Under these circumstances, the CA declared that respondent
was justified in refusing to pay petitioner the rents and thus, the ejectment complaint against
respondent states no cause of action.

In addition, the CA opined that there was no landlord-tenant relationship created between the
parties because the agreements between them are void. The element of consent is wanting
considering that petitioner, not being the owner of the subject property, has no legal capacity to
give consent to said contracts.

Issue:

Whether x x x the Honorable Court of Appeals erred in overturning the respective decisions
of the RTC-Malolos City, Bulacan and MTC-Sta. Maria, Bulacan which both held that a lessor
has the better right of possession over a realty.

Ruling:

The conclusive presumption found in Sec. 2(b), Rule 131 of the Rules of Court known
as estoppel against tenants provides as follows:
“Sec. 2. Conclusive presumptions.—The following are instances of conclusive
presumptions:
       x x x x
(b) 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 between them.” (Emphasis supplied).

It is clear from the above-quoted provision that “[w]hat a tenant is estopped from denying x x
x is the title of his landlord at the time of the commencement of the landlord-tenant relation. If
the title asserted is one that is alleged to have been acquired subsequent to the commencement of
that relation, the presumption will not apply.” Hence, “the tenant may show that the landlord’s
title has expired or been conveyed to another or himself; and he is not estopped to deny a claim
for rent, if he has been ousted or evicted by title paramount.”

Thus, we declared in Borre v. Court of Appeals34 that:

“The rule on estoppel against tenants is subject to a qualification. It does not apply if the
landlord’s title has expired, or has been conveyed to another, or has been defeated by a title
paramount, subsequent to the commencement of lessor-lessee relationship [VII Francisco, The
Revised Rules of Court in the Philippines 87 (1973)]. In other words, if there was a change in
the nature of the title of the landlord during the subsistence of the lease, then the presumption
does not apply. Otherwise, if the nature of the landlord’s title remains as it was during the
commencement of the relation of landlord and tenant, then estoppel lies against the tenant.”
(Emphasis supplied.)
While petitioner appears to have already lost ownership of the property at the time of the
commencement of the tenant-landlord relationship between him and respondent, the change in
the nature of petitioner’s title, as far as respondent is concerned, came only after the
commencement of such relationship or during the subsistence of the lease. This is precisely
because at the time of the execution of the second and third contracts of lease, respondent was
still not aware of the transfer of ownership of the leased property to China Bank. It was only in
November 2003 or less than two months before the expiration of said contracts when respondent
came to know of the same after it was notified by said bank. This could have been the reason
why respondent did not anymore pay petitioner the rents for the succeeding months of December
2003 and January 2004. Thus, it can be said that there was a change in the nature of petitioner’s
title during the subsistence of the lease that the rule on estoppel against tenants does not apply in
this case. Petitioner’s reliance on said conclusive presumption must, therefore, necessarily fail
since there was no error on the part of the CA when it entertained respondent’s assertion of a title
adverse to petitioner.