WHEELERS CLUB INTERNATIONAL, INC., PETITIONER, VS. JOVITO BONIFACIO, JR., RESPONDENT.

Wheelers Club International versus Bonifacio

The Case

This is a petition for review brought by Wheelers Club International against Jovito Bonifacio, Jr., one of several co-owners of a parcel of land and building along Epifanio de los Santos Avenue in Mandaluyong City. Jovito sued Wheelers for unlawful detainer, demanding that it vacate the property and pay rentals directly to the co-owners. The case matters because it draws the boundary between a principal lease and a sublease, and it teaches that a sublessee owes rent to its own sublessor, not to the owner, until a court cancels the principal lease or ousts the lessee.

Procedural History

Jovito filed the complaint for unlawful detainer with the Metropolitan Trial Court of Mandaluyong City, Branch 59. In a joint decision dated 5 June 1998, the Metropolitan Trial Court dismissed the complaint for lack of cause of action. Jovito appealed to the Regional Trial Court of Mandaluyong City, Branch 214, which reversed the Metropolitan Trial Court in a decision dated 11 March 1999. The Regional Trial Court ordered Wheelers to vacate the premises, to pay monthly rentals computed from February 1997 with the agreed yearly increment, to pay attorney's fees and costs, and it dismissed the counterclaims. Wheelers elevated the matter to the Court of Appeals by petition for review. The Court of Appeals dismissed the petition on 30 July 1999. Wheelers then came to the Supreme Court by petition for review under Rule 45.

Facts

The Bonifacio family members were the registered co-owners of a parcel of land with a building in Mandaluyong City, and they comprised the board of directors of J and R Bonifacio Development Corporation. On 5 May 1994, Bonifacio Development Associates, Incorporated, represented by Jaime Bonifacio, Senior, as its president and chairman, entered into a contract of lease with Wheelers for five years, from 1 June 1994 to 31 May 1999, at a monthly rental of 108,750 pesos. On 31 May 1994, the corporation entered into a lease development agreement with the same Bonifacio Development Associates, authorizing it to renovate, manage, develop, and sublease the property, also for five years. On the same day, the co-owners executed a general power of attorney in favor of Jaime to administer the property and lease it to any person.

In 1996, disputes arose over accounting. The co-owners demanded records of income; Bonifacio Development Associates demanded receipts for its advances. On 18 August 1996, the co-owners, as directors, approved a resolution terminating Jaime's authority to manage the property. On 20 August 1996, Rosario Bonifacio, as president and chairman, wrote Jaime terminating the agreement with the corporation. On 26 January 1997, the co-owners appointed Jovito as the new administrator, and the next day informed Wheelers of the appointment and of the termination of Jaime's authority. Bonifacio Development Associates protested, insisting there was no valid ground for termination.

On 4 March 1997, Jovito wrote Wheelers claiming the co-owners never authorized the lease and giving it ten days to vacate. Wheelers nonetheless continued paying monthly rentals to Bonifacio Development Associates from February to September 1997. On 9 October 1997, the co-owners demanded payment of rentals in arrears from February to October 1997 and demanded that Wheelers vacate within five days. On 21 October 1997, Jovito filed the complaint for unlawful detainer. Wheelers answered that it had paid Bonifacio Development Associates and had held the October rental in abeyance.

Issues

• Whether or not the co-owners have a cause of action for unlawful detainer against Wheelers for non-payment of rentals and for the expiration of the term of the lease agreement.
• Whether or not the co-owners could revoke at will the authority of Bonifacio Development Associates to manage and administer the property.
• Whether or not the lease over the common property without the consent of all the co-owners is void.

Applicable Provisions

Article 1652 of the Civil Code provides:

Article 1652. The sublessee is subsidiarily liable to the lessor for any rent due from the lessee. However, the sublessee shall not be responsible beyond the amount of rent due from him, in accordance with the terms of the sublease, at the time of the extra-judicial demand by the lessor.

This fixes the sublessee's liability as merely subsidiary, arising only after the lessee is ousted or the principal lease is cancelled by judgment.

Article 491 of the Civil Code provides:

Article 491. None of the co-owners shall, without the consent of the others, make alterations in the thing owned in common, even though benefits for all would result therefrom. However, if the withholding of the consent by one or more of the co-owners is clearly prejudicial to the common interest, the courts may afford adequate relief.

Jovito invoked this to argue that the lease required unanimous consent and was therefore void, an argument the Court rejected.

Article 441 of the Civil Code provides:

Article 441. To the owner belongs: (1) The natural fruits; (2) The industrial fruits; (3) The civil fruits. These include the rents of buildings, the price of leases of lands and other property and the amount of perpetual or life annuities or other similar income.

This confirms that the co-owners are entitled to the rents, but as against the party actually obliged to pay them.

Ruling

On the first issue, the Court ruled that there was no cause of action. In unlawful detainer, possession is at first lawful and becomes illegal only upon termination of the right to possess. By suing, Jovito admitted that Wheelers' possession since 1 June 1994 was lawful, which debunks the claim that the lease was unauthorized or void. The Court found a sublease arrangement: the co-owners were the actual lessors, Bonifacio Development Associates was the lessee-sublessor, and Wheelers was the sublessee. There being no privity between the co-owners and Wheelers, Wheelers had no obligation to pay them. Under Article 1652, the sublessee's liability is subsidiary and arises only after a judgment cancelling the principal lease or ousting the lessee, and no such judgment existed. The lease was still subsisting when the complaint was filed on 21 October 1997.

On the second issue, the Court held that a sublessor is not an agent of the lessor. Even assuming an agency, Bonifacio Development Associates had built permanent improvements at its own expense, creating an interest that made the agency one coupled with interest, which cannot be revoked at will. The Court also stressed that Jaime and the corporation are distinct persons, so revoking Jaime's authority did not cancel the lease.

On the third issue, the Court held that a lease of the entire common property without the consent of all co-owners is not void; it is valid as to the consenting co-owners. Still, the co-owners are entitled to the rents, and since Bonifacio Development Associates received them, their remedy is against that corporation, not against Wheelers.

Doctrine

A sublessee is bound primarily to its sublessor and is only subsidiarily liable to the lessor under Article 1652, and that subsidiary liability arises only after a judgment cancelling the principal lease or ousting the lessee. A sublessor is not an agent of the lessor, and an agency coupled with interest cannot be revoked at the principal's pleasure. A lease of common property without unanimous consent is not void but binds only the consenting co-owners, who remain entitled to the fruits under Article 441.

Disposition

The Court granted the petition, reversed the Court of Appeals, and reinstated the dismissal of the unlawful detainer complaint, so Wheelers won.

Remember This

Memorize this line: the sublessee pays the sublessor, and becomes subsidiarily liable to the lessor only after a judgment cancels the principal lease or ousts the lessee. Examiners use this case to test the distinction between a lease and a sublease, privity of contract, and agency coupled with interest.