IN THE MATTER OF THE INTESTATE ESTATE OF THE DECEASE GO FOOK. LIANE C. GOMEZ, ADMINISTRATRIX AND APPELLEE, VS. AUGUSTO G. SYJUCO, ET AL., CREDITORS, CLAIMANTS AND APPELLANTS; ME…

Syjuco versus Gomez

The Case

This is an appeal in the settlement of the intestate estate of Go Fook, a hotel operator in Baguio City. The creditors Augusto Syjuco and others, who owned the land and building leased to the deceased, claimed that their unpaid rentals for one year should be paid ahead of other creditors out of the proceeds of the sale of the movable properties found on the leased premises. The probate court refused the preference, and the creditors appealed. The case matters because it fixes the reach of the special preferred credit for rent: whether it belongs only to rentals incurred personally by the deceased lessee, or also to rentals that fell due after his death under his own lease and under a lease continued by his administratrix with court approval.

Procedural History

The claim was filed in the intestate proceedings before the Court of First Instance of Baguio City. The probate court first disallowed the claim, then reconsidered and allowed it in the sum of fourteen thousand one hundred eighty pesos. The movables on the premises were later sold at public auction for fourteen thousand one hundred forty three pesos and forty centavos. The creditors then moved that their claim for unpaid rents, which by then totalled nineteen thousand seven hundred fifty pesos, be declared a preferred claim over those proceeds under paragraph 12 of Article 2241 of the Civil Code. In its order of November 14, 1958, the probate court denied the preference, holding that the law, being an exception to the general rule, must be strictly construed, so that only rentals incurred by the deceased himself could enjoy it. The creditors appealed directly to the Supreme Court.

Facts

On March 20, 1954, Go Fook leased from the Security Investment Corporation, for two years and at a monthly rental of two thousand pesos, a parcel of land with the building on it in Baguio City, where he ran the St. Francis Hotel. On July 12, 1954, the lessor sold the property to the appellants, who agreed to recognize the lease. On September 14, 1954, Go Fook died intestate, leaving an estate consisting solely of the furnishings used in the hotel, which was placed under administration.

On December 20, 1954, the appellants filed a claim for unpaid rentals for August and September 1954, with interest. They also brought an ejectment action, in which the municipal court ordered the administrator to vacate and to pay six thousand pesos for the last quarter of 1954, plus two thousand pesos monthly from January 1955 until the property was vacated. The appellants then filed an amended and supplemental claim for fourteen thousand two hundred fifty one pesos and seventy centavos, covering August 1954 to January 1955.

In February 1955, the probate court appointed Liane Gomez as administrator in place of the bank, and authorized her to continue running the hotel to pay the back and future rentals, under a memorandum of agreement of lease signed by the parties. The claim was disallowed in June 1955 on the ground that it should be pursued against an alleged partnership, but on reconsideration it was allowed. The movables were then sold at public auction, most of them bought by the appellants, who filed a bond for the price instead of paying cash. In March 1956, the appellants moved that their claim, then totalling nineteen thousand seven hundred fifty pesos, be declared preferred over the proceeds. The probate court denied the motion, and this appeal followed.

Issues

• Whether or not the special preferred credit for rent for one year under paragraph 12 of Article 2241 of the Civil Code requires that the rent have been incurred personally by the deceased lessee, and not by the administrator of his estate.
• Whether or not the unpaid rentals claimed, covering February 1955 to January 1956, fell due under the contract of lease entered into by Go Fook himself during his lifetime.
• Whether or not the rentals under the lease entered into by the administratrix with court authority are, for all legal purposes, the same as those under the original lease, so as to enjoy the same preference.

Applicable Provisions

Paragraph 12 of Article 2241 of the Civil Code provides:

With respect to the other property of the debtor, the following are preferred: ... Credits for rent for one year upon the personal property of the lessee existing on the immovable leased, and on the fruits of the same.

This is the very provision the Court construes: it grants the preference over the lessee's personal property on the leased premises, and the question is whether it demands that the rent have been incurred by the lessee personally.

Ruling

On the first issue, the Court held that the probate court read into the law a condition that is not there. The provision establishes a preference in favor of credits for rent for one year upon the personal property of the lessee existing on the immovable leased, and on the fruits of the same, without imposing the condition that the rent should have been incurred personally by the lessee and not by the executor or administrator of his estate. The Court rejected the strict-construction approach of the lower court.

On the second issue, the Court held that even on the lower court's own view its ruling could not stand. The lease between the Security Investment Corporation and Go Fook was for two years ending in April 1956, and the one year of unpaid rentals for which preference was claimed covered February 1955 to January 1956, a period well within the term of that lease. The lease was not automatically extinguished by Go Fook's death in September 1954, so the rentals in truth fell due under the contract he had entered into personally during his lifetime.

On the third issue, the Court held that the lease entered into by the administratrix, with court authority, was entered into on behalf of the estate of Go Fook. Consequently, the rentals that fell due under it are, for all legal purposes, the same as those provided for under the original contract of lease.

Doctrine

The special preferred credit for rent for one year under paragraph 12 of Article 2241 of the Civil Code does not require that the rent have been incurred personally by the lessee. It attaches to the personal property of the lessee existing on the immovable leased, and on the fruits of the same, whoever the lessee may be at the time the rent falls due. A lease is not extinguished by the death of the lessee, so rentals falling due within its term remain rentals under the contract he personally entered into. And a lease entered into by the administrator with court authority is entered into on behalf of the estate, so the rentals under it are for all legal purposes the same as those under the original lease. The preference is therefore not lost merely because the rent accrued after the lessee's death.

Disposition

The Supreme Court reversed the probate court and held that the appellants' claim for unpaid rentals for one year, totalling nineteen thousand seven hundred fifty pesos and covering February 1955 to January 1956, is entitled to the preference established by paragraph 12 of Article 2241 of the Civil Code.

Remember This

The line to memorize is that the preferred credit for rent for one year does not require that the rent have been incurred personally by the lessee. Examiners use this case to test the strict construction of preferred credits, the effect of the lessee's death on a lease, and the treatment of rentals under a lease continued by the administrator with court approval.