JOSE AND ANITA LEE, PETITIONERS, VS. COURT OF APPEALS, HON. N.C. PERELLO, AS JUDGE OF RTC, BRANCH 276, MUNTINLUPA CITY AND HEIRS OF THE DECEASED SPOUSES MANUEL AND CARMEN RECARI…

Lee versus Court of Appeals

The Case

This is a petition for review brought by spouses Jose and Anita Lee against the Court of Appeals, the presiding judge of the Regional Trial Court of Muntinlupa City, and the heirs of the deceased spouses Manuel and Carmen Recario. The petitioners ask the Supreme Court to set aside the appellate court's dismissal of their appeal and to declare that they may not be ejected from a commercial lot and building in Alabang, Muntinlupa. The case matters because it teaches how a lease contract is read as a whole, how co-ownership of a building coexists with a subsisting lease, and how a valid consignation releases a debtor from the obligation to pay rent.

Procedural History

The heirs of Carmen Recario filed a complaint for unlawful detainer in the Metropolitan Trial Court of Muntinlupa City. That court dismissed the complaint for lack of cause of action, holding that the premises were under lease and that the agreement did not require the petitioners to surrender half of the building after seven and one half years. The private respondents appealed to the Regional Trial Court, which reversed the Metropolitan Trial Court. The Regional Trial Court ordered the petitioners to vacate the premises, to pay unpaid rentals, to pay damages in the form of reasonable monthly rentals, and to pay attorney's fees and costs. The petitioners moved for reconsideration, but their motion was denied. They then filed a petition for review in the Court of Appeals, which dismissed the petition on the ground that it was not accompanied by certified true copies of the assailed issuances. The petitioners moved for reconsideration, pointing out that the copies attached were duplicate originals duly signed by the trial judge, but the motion was denied. Hence this petition for review before the Supreme Court.

Facts

On the first of August 1986, Anita Rivero, now Anita Lee, entered into an agreement with Carmen Recario, who owned a fifty two square meter commercial lot in Alabang, Muntinlupa, on which stood an unfinished two storey commercial building. Under the agreement, Anita paid two hundred seventy five thousand pesos as reimbursement for the cost of completing the building, which was to be finished within thirty days. Upon completion, the building would belong exclusively to Anita. After seven and one half years, however, Carmen would become a co-owner of one half undivided portion of the building, and after the term expired, the co-ownership would end and Carmen would become the exclusive owner of the building.

The agreement had a term of fifteen years from completion and delivery of the building, with a five year extension. The monthly rental on the lot and both lot and building was five thousand pesos for the first ten years and six thousand pesos from the eleventh to the fifteenth year. Because Anita had invested in the construction, she would pay only one half of the agreed monthly rentals, which would be considered full satisfaction of the rentals.

The building was completed, and the petitioners occupied it as absolute owners. Before the seven and one half year term expired, Carmen Recario died. On the first of March 1994, at the end of that term, her heirs demanded that the petitioners vacate one half of the building, saying they needed the space for a dental clinic. The petitioners refused, insisting that a lease over the building subsisted until the year 2001. After their letters of demand were ignored, the heirs filed the unlawful detainer case.

Issues

• Whether or not the Court of Appeals erred in dismissing the petition for review despite the fact that duplicate originals of the assailed issuances had been attached.
• Whether or not the private respondents can lawfully eject the petitioners from the subject premises.
• Whether or not the private respondents are entitled to damages of ten thousand pesos per month and attorney's fees.

Applicable Provisions

Article 1374 of the Civil Code provides:

The various stipulations of a contract shall be interpreted together, attributing to the doubtful ones that sense which may result from all of them taken jointly.

This provision governs the reading of the lease agreement, requiring its stipulations to be construed together so that the lease is seen to cover both the lot and the building.

Article 1256 of the Civil Code provides:

If the creditor to whom tender of payment has been made refuses without just cause to accept it, the debtor shall be released from responsibility by the consignation of the thing or sum due.

This provision bears on the petitioners' deposit of the rentals with a bank after the private respondents refused to accept payment, releasing them from liability for those rentals.

Ruling

On the first issue, the Court held that the Court of Appeals erred in dismissing the petition for review. The rule requires that a petition for review be accompanied by clearly legible duplicate originals or true copies of the judgments or final orders of both lower courts, certified correct by the clerk of court. It suffices that the copy attached is a duplicate original. The Court noted that the applicable rule at the time of filing made no mention of duplicate originals, but that in an earlier case it had considered duplicate originals sufficient to support petitions for review.

On the second issue, the Court held that the petitioners cannot be ejected. Reading the agreement as a whole, the phrase "on the lot and/or both lot and building" in the fourth paragraph indicates that the lease covers both the land and the building, and the third paragraph fixes the duration at fifteen years. Hence, even if the private respondents became co-owners of the building on the first of March 1994, the petitioners' lease over the land and the building gave them the right to remain until the year 2001. The Court explained that during the first half of the agreement the lease covered only the lot, since the petitioners were then absolute owners of the entire building, but during the second half it covered both the lot and the building, since the latter was by then owned in common. As co-owners, the private respondents could exercise rights of ownership over their undivided portion, but subject to the lease of that portion to the petitioners. The purpose of the second paragraph was to give the private respondents an interest in the building after seven and one half years, qualifying the petitioners' right to sell it, but not to give them possession of any part of the building while the lease subsisted.

On the third issue, the Court held that the private respondents are not entitled to damages and attorney's fees. Both lower courts found that the petitioners religiously paid two thousand five hundred pesos every month, except that from September 1994 they deposited the amount with a bank in the name of Marivic Recario after the latter refused to accept payment. In accordance with Article 1256 of the Civil Code, the petitioners were thereby released from responsibility for payment of rents.

Doctrine

A contract is interpreted as a whole, and its various stipulations are read together, attributing to the doubtful ones the sense that results from all of them taken jointly, as Article 1374 of the Civil Code commands. Where a lease agreement speaks of rentals on the lot and both lot and building, the lease covers both the land and the building, and a co-owner of the building takes the property subject to the subsisting lease. Co-ownership of an undivided portion does not by itself confer the right to possess that portion while a lease over it remains in force. Finally, when a creditor refuses without just cause to accept tender of payment, the debtor is released from responsibility by consignation under Article 1256 of the Civil Code.

Disposition

The Court reversed the decision of the Court of Appeals and reinstated the decision of the Metropolitan Trial Court dismissing the complaint, so the petitioners prevailed and were not ejected from the premises.

Remember This

The single line worth memorizing is that a lease of the lot and both lot and building subsists against a co-owner of the building until the term expires, and consignation releases the lessee from unpaid rentals. Examiners like to use this case on contract interpretation under Article 1374 and on consignation under Article 1256.