19) Crisologo-Jose v. CA

3/12/2015 SUPREMECOURTREPORTSANNOTATEDVOLUME177

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594 SUPREME COURT REPORTS ANNOTATEDCrisologoJose vs. Court of Appeals

G.R. No. 80599.September 15, 1989.*

ERNESTINA CRISOLOGOJOSE, petitioner, vs. COURTOF APPEALS and RICARDO S. SANTOS, JR. in his ownbehalf and as VicePresident for Sales of MoverEnterprises, Inc., respondents.

Negotiable Instruments Law Corporations Rule that anaccommodation party liable on the instrument to a holder forvalue does not apply to corporations which are accommodationparties Reasons.The aforequoted provision of the NegotiableInstruments Law which holds an accommodation party liable onthe instrument to a holder for value, although such holder at thetime of taking the instrument knew him to be only anaccommodation party, does not include nor apply to corporationswhich are accommodation parties. This is because the issue orindorsement of negotiable paper by a corporation withoutconsideration and for the accommodation of another is ultra vires.Hence, one who has taken the instrument with knowledge of theaccommodation nature thereof cannot recover against acorporation where it is only an accommodation party. If the formof the instrument, or the nature of the transaction, is such as tocharge the indorsee with knowledge that the issue or indorsementof the instrument by the corporation is for the accommodation ofanother, he cannot recover against the corporation thereon.

Same Same Same Same Exception An officer or agent of acorporation shall have the power to execute or indorse a negotiablepaper in the name of the corporation for accommodation only ifspecifically authorized to do so Personal liability of signatories inthe instrument.By way of exception, an officer or agent of acorporation shall have the power to execute or indorse anegotiable paper in the name of the corporation for theaccommodation of a third person only if specifically authorized todo so. Corollarily, corporate officers, such as the president and



vicepresident, have no power to execute for mere

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* SECOND DIVISION.

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VOL. 177, SEPTEMBER 15 ,1989 595

CrisologoJose vs. Court of Appeals

accommodation a negotiable instrument of the corporation fortheir individual debts or transactions arising from or in relationto matters in which the corporation has no legitimate concern.Since such accommodation paper cannot thus be enforced againstthe corporation, especially since it is not involved in any aspect ofthe corporate business or operations, the inescapable conclusionin law and in logic is that the signatories thereof shall bepersonally liable therefor, as well as the consequences arisingfrom their acts in connection therewith.

Same Same Same Same Consignation Payment Remedy ofconsignation, proper Case at bar Effects of consignation.Weinterpose the caveat,however, that by holding that the remedy ofconsignation is proper under the given circumstances, we do notthereby rule that all the operative facts for consignation whichwould produce the effect of payment are present in this case.Those are factual issues that are not clear in the records before usand which are for the Regional Trial Court of Quezon City toascertain in Civil Case No. Q33160, for which reason it hasadvisedly been directed by respondent court to give due course tothe complaint for consignation, and which would be subject tosuch issues or claims as may be raised by defendant and thecounterclaim filed therein which is hereby ordered similarlyrevived.

Checks B.P. 22 Presumptive rule to determine whether or notthere was insufficiency of funds in or credit with the drawee bank.These are aside the considerations that the disputed periodinvolved in the criminal case is only a presumptive rule, juristantum at that, to determine whether or not there was knowledge



of insufficiency of funds in or credit with the drawee bank thatpayment of civil liability is not a mode for extinguishment ofcriminal liability and that the requisite quantum of evidence inthe two types of cases are not the same.

PETITION to review the decision of the Court of Appeals.Torres, Jr., J.

The facts are stated in the opinion of the Court.Melquiades P. de Leon for petitioner.Rogelio A. Ajes for private respondent.

596


REGALADO, J.:

Petitioner seeks the annulment of the decision1 of

respondent Court of Appeals, promulgated on September 8,1987, which reversed the decision of the trial court

2

dismissing the complaint for consignation filed by thereinplaintiff Ricardo S. Santos, Jr.

The parties are substantially agreed on the followingfacts as found by both lower courts:

In 1980, plaintiff Ricardo S. Santos, Jr. was the vicepresident ofMover Enterprises, Inc. incharge of marketing and sales and thepresident of the said corporation was Atty. Oscar Z. Benares. OnApril 30, 1980, Atty. Benares, in accommodation of his clients, thespouses Jaime and Clarita Ong, issued Check No. 093553 drawnagainst Traders Royal Bank, dated June 14, 1980, in the amountof P45,000.00 (Exh. 1) payable to defendant Ernestina CrisologoJose. Since the check was under the account of MoverEnterprises, Inc., the same was to be signed by its president, Atty.Oscar Z. Benares, and the treasurer of the said corporation.However, since at that time, the treasurer of Mover Enterpriseswas not available, Atty. Benares prevailed upon the plaintiff,Ricardo S. Santos, Jr., to sign the aforesaid check as an alternatesignatory. Plaintiff Ricardo S. Santos, Jr. did sign the check.

It appears that the check (Exh. 1) was issued to defendantErnestina CrisologoJose in consideration of the waiver orquitclaim by said defendant over a certain property which theGovernment Service Insurance System (GSIS) agreed to sell tothe clients of Atty. Oscar Benares, the spouses Jaime and Clarita



Ong, with the understanding that upon approval by the GSIS ofthe compromise agreement with the spouses Ong, the check willbe encashed accordingly. However, since the compromiseagreement was not approved within the expected period of time,the aforesaid check for P45,000.00 (Exh. 1) was replaced by Atty.Benares with another Traders Royal Bank check bearing No.379299 dated August 10, 1980, in the same amount of P45,000.00(Exhs. A and 2), also payable to the defendant Jose. Thisreplacement check was also signed by Atty. Oscar Z. Benares and

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1 Penned by Justice Justo P. Torres, Jr. and concurred in by Associate JusticesLeonor Ines Luciano and Oscar M. Herrera Rollo, 18.

2 Civil Case No. Q33160, Regional Trial Court of Quezon City, Branch XCVI.

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VOL. 177, SEPTEMBER 15, 1989 597CrisologoJose vs. Court of Appeals

by the plaintiff Ricardo S. Santos, Jr. When defendant depositedthis replacement check (Exhs. A and 2) with her account atFamily Savings Bank, Mayon Branch, it was dishonored forinsufficiency of funds. A subsequent redepositing of the said checkwas likewise dishonored by the bank for the same reason. Hence,defendant through counsel was constrained to file a criminalcomplaint for violation of Batas Pambansa Blg. 22 with theQuezon City Fiscals Office against Atty. Oscar Z. Benares andplaintiff Ricardo S. Santos, Jr. The investigating Assistant CityFiscal, Alfonso Llamas, accordingly filed an amended informationwith the court charging both Oscar Benares and Ricardo S.Santos, Jr., for violation of Batas Pambansa Blg. 22 docketed asCriminal Case No. Q14867 of then Court of First Instance ofRizal, Quezon City.

Meanwhile, during the preliminary investigation of thecriminal charge against Benares and the plaintiff herein, beforeAssistant City Fiscal Alfonso T. Llamas, plaintiff Ricardo S.Santos, Jr. tendered cashiers check No. CC 160152 for P45,000.00dated April 10, 1981 to the defendant Ernestina CrisologoJose,the complainant in that criminal case. The defendant refused toreceive the cashiers check in payment of the dishonored check inthe amount of P45,000.00. Hence, plaintiff encashed the aforesaidcashiers check and subsequently deposited said amount ofP45,000.00 with the Clerk of Court on August 14, 1981 (Exhs. D



and E). Incidentally, the cashiers check adverted to above waspurchased by Atty. Oscar Z. Benares and given to the plaintiffherein to be applied in payment of the dishonored check.

3

After trial, the court a quo, holding that it was notpersuaded to believe that consignation referred to in Article1256 of the Civil Code is applicable to this case, renderedjudgment dismissing plaintiffs complaint and defendantscounterclaim.

4

As earlier stated, respondent court reversed and setaside said judgment of dismissal and revived the complaintfor consignation, directing the trial court to give due coursethereto. Hence, the instant petition, the assignment oferrors wherein are prefatorily stated and discussedseriatim.

1. Petitioner contends that respondent Court of Appealserred in holding that private respondent, one of thesignatories of the check issued under the account of MoverEnterprises, Inc., is an accommodation party under theNegotiable Instru

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3 Rollo, 1920.4 Rollo, 18.

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amount of said check.Petitioner avers that the accommodation party in this

case is Mover Enterprises, Inc. and not private respondentwho merely signed the check in question in arepresentative capacity, that is, as vicepresident of saidcorporation, hence he is not liable thereon under theNegotiable Instruments Law.

The pertinent provision of said law referred to provides:

Sec. 29. Liability of accommodation party.An accommodationparty is one who has signed the instrument as maker, drawer,acceptor, or indorser, without receiving value therefor, and for thepurpose of lending his name to some other person. Such a personis liable on the instrument to a holder for value, notwithstanding



such holder, at the time of taking the instrument, knew him to beonly an accommodation party.

Consequently, to be considered an accommodation party, aperson must (1) be a party to the instrument, signing asmaker, drawer, acceptor, or indorser, (2) not receive valuetherefor, and (3) sign for the purpose of lending his namefor the credit of some other person.

Based on the foregoing requisites, it is not a validdefense that the accommodation party did not receive anyvaluable consideration when he executed the instrument.From the standpoint of contract law, he differs from theordinary concept of a debtor therein in the sense that hehas not received any valuable consideration for theinstrument he signs. Nevertheless, he is liable to a holderfor value as if the contract was not for accommodation,

5 in

whatever capacity such accommodation party signed theinstrument, whether primarily or secondarily. Thus, it hasbeen held that in lending his name to the accommodatedparty, the accommodation party is in effect a surety for thelatter.

6

Assuming arguendo that Mover Enterprises, Inc. is theaccommodation party in this case, as petitioner suggests,the inevitable question is whether or not it may be heldliable on

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5 Ang Tiong vs. Ting, et al., 22 SCRA 713 (1968).6 Philipine Bank of Commerce vs. Aruego, 102 SCRA 530 (1981).

599


the accommodation instrument, that is, the check issued infavor of herein petitioner.

We hold in the negative.The aforequoted provision of the Negotiable Instruments

Law which holds an accommodation party liable on theinstrument to a holder for value, although such holder atthe time of taking the instrument knew him to be only anaccommodation party, does not include nor apply tocorporations which are accommodation parties.

7 This is



because the issue or indorsement of negotiable paper by acorporation without consideration and for theaccommodation of another is ultra vires.

8 Hence, one who

has taken the instrument with knowledge of theaccommodation nature thereof cannot recover against acorporation where it is only an accommodation party. If theform of the instrument, or the nature of the transaction, issuch as to charge the indorsee with knowledge that theissue or indorsement of the instrument by the corporationis for the accommodation of another, he cannot recoveragainst the corporation thereon.

9

By way of exception, an officer or agent of a corporationshall have the power to execute or indorse a negotiablepaper in the name of the corporation for theaccommodation of a third person only if specificallyauthorized to do so.

10 Corollarily, corporate officers, such as

the president and vicepresident, have no power to executefor mere accommodation a negotiable instrument of thecorporation for their individual debts or transactionsarising from or in relation to matters in which thecorporation has no legitimate concern. Since suchaccommodation paper cannot thus be enforced against thecorporation, especially since it is not involved in any aspectof the corporate business or operations, the inescapableconclusion in law and in logic is that the signatories thereofshall be personally liable therefor, as well as theconsequences arising from their acts in connectiontherewith.

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7 11 C.J.S. 309.8 14A C.J. 732.9 Oppenheim vs. Simon Reigel Cigar Co., 90 N.Y.S. 355, cited in 11

C.J.S. 309.10 In re Wrentham Mfg. Co., 2 Low. 119 Hall vs. Auburn Turnp. Co., 27

Cal. 255, cited in 14A C.J. 461.

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The instant case falls squarely within the purview of theaforesaid decisional rules. If we indulge petitioner in her



2.

aforesaid postulation, then she is effectively barred fromrecovering from Mover Enterprises, Inc. the value of thecheck. Be that as it may, petitioner is not without recourse.

The fact that for lack of capacity the corporation is notbound by an accommodation paper does not therebyabsolve, but should render personally liable, the signatoriesof said instrument where the facts show that theaccommodation involved was for their personal account,undertaking or purpose and the creditor was aware thereof.

Petitioner, as hereinbefore explained, was evidentlycharged with the knowledge that the check was issued atthe instance and for the personal account of Atty. Benareswho merely prevailed upon respondent Santos to act as cosignatory in accordance with the arrangement of thecorporation with its depository bank. That it was apersonal undertaking of said corporate officers wasapparent to petitioner by reason of her personalinvolvement in the financial arrangement and the factthat, while it was the corporations check which was issuedto her for the amount involved, she actually had notransaction directly with said corporation.

There should be no legal obstacle, therefore, topetitioners claims being directed personally against Atty.Oscar Z. Benares and respondent Ricardo S. Santos, Jr.,president and vicepresident, respectively, of MoverEnterprises, Inc.

On her second assignment of error, petitionerargues that the Court of Appeals erred in holdingthat the consignation of the sum of P45,000.00,made by private respondent after his tender ofpayment was refused by petitioner, was properunder Article 1256 of the Civil Code.

Petitioners submission is that no creditordebtorrelationship exists between the parties, hence consignationis not proper. Concomitantly, this argument was premisedon the assumption that private respondent Santos is not anaccommodation party.

As previously discussed, however, respondent Santos isan accommodation party and is, therefore, liable for thevalue of the check. The fact that he was only a cosignatorydoes not detract from his personal liability. A comaker orcodrawer under the circumstances in this case is as muchan accommoda



601


tion party as the other cosignatory or, for that matter, as alone signatory in an accommodation instrument. Under thedoctrine in Philippine Bank of Commerce vs. Aruego, supra,he is in effect a cosurety for the accommodated party withwhom he and his cosignatory, as the other cosurety,assume solidary liabilityex lege for the debt involved. Withthe dishonor of the check, there was created a debtorcreditor relationship, as between Atty. Benares andrespondent Santos, on the one hand, and petitioner, on theother. This circumstance enables respondent Santos toresort to an action of consignation where his tender ofpayment had been refused by petitioner.

We interpose the caveat,however, that by holding thatthe remedy of consignation is proper under the givencircumstances, we do not thereby rule that all the operativefacts for consignation which would produce the effect ofpayment are present in this case. Those are factual issuesthat are not clear in the records before us and which are forthe Regional Trial Court of Quezon City to ascertain inCivil Case No. Q33160, for which reason it has advisedlybeen directed by respondent court to give due course to thecomplaint for consignation, and which would be subject tosuch issues or claims as may be raised by defendant andthe counterclaim filed therein which is hereby orderedsimilarly revived.

3. That respondent court virtually prejudged CriminalCase No. Q14687 of the Regional Trial Court of QuezonCity filed against private respondent for violation of BatasPambansa Blg. 22, by holding that no criminal liability hadyet attached to private respondent when he deposited withthe court the amount of P45,000.00 is the final plaint ofpetitioner.

We sustain petitioner on this score.Indeed, respondent court went beyond the ratiocination

called for in the appeal to it in CAG.R. CV. No. 05464. Inits own decision therein, it declared that (t)he lone issuedwells in the question of whether an accommodation partycan validly consign the amount of the debt due with thecourt after his tender of payment was refused by the



creditor. Yet, from the commercial and civil law aspectsdeterminative of said issue, it digressed into the merits ofthe aforesaid Criminal Case No. Q14867, thus:

602


Section 2 of B.P. 22 establishes the prima facie evidence ofknowledge of such insufficiency of funds or credit. Thus, themaking, drawing and issuance of a check, payment of which isrefused by the drawee because of insufficient funds in or creditwith such bank is prima facie evidence of knowledge ofinsufficiency of funds or credit, when the check is presentedwithin 90 days from the date of the check.

It will be noted that the last part of Section 2 of B.P. 22provides that the element of knowledge of insufficiency of funds orcredit is not present and, therefore, the crime does not exist, whenthe drawer pays the holder the amount due or makesarrangements for payment in full by the drawee of such checkwithin five (5) banking days after receiving notice that such checkhas not been paid by the drawee.

Based on the foregoing consideration, this Court finds that theplaintiffappellant acted within his legal rights when heconsigned the amount of P45,000.00 on August 14, 1981, betweenAugust 7, 1981, the date when plaintiffappellant receive (sic) thenotice of nonpayment, and August 14, 1981, the date when thedebt due was deposited with the Clerk of Court (a Saturday and aSunday which are not banking days) intervened. The fifthbanking day fell on August 14, 1981. Hence, no criminal liabilityhas yet attached to plaintiffappellant when he deposited theamount of P45,000.00 with the Court a quo on August 14, 1981.

11

That said observations made in the civil case at bar and theintrusion into the merits of the criminal case pending inanother court are improper do not have to be belabored. Inthe latter case, the criminal trial court has to grapple withsuch factual issues as, for instance, whether or not theperiod of five banking days had expired, in the processdetermining whether notice of dishonor should be reckonedfrom any prior notice if any has been given or from receiptby private respondents of the subpoena therein withsupporting affidavits, if any, or from the first day of actualpreliminary investigation and whether there was a



justification for not making the requisite arrangements forpayment in full of such check by the drawee bank withinthe said period. These are matters alien to the presentcontroversy on tender and consignation of payment, whereno such period and its legal effects are involved.

These are aside from the considerations that thedisputed

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11 Rollo, 2122.

603


period involved in the criminal case is only a presumptiverule, juris tantum at that, to determine whether or notthere was knowledge of insufficiency of funds in or creditwith the drawee bank that payment of civil liability is nota mode for extinguishment of criminal liability and thatthe requisite quantum of evidence in the two types of casesare not the same.

To repeat, the foregoing matters are properly addressedto the trial court in Criminal Case No. Q14867, theresolution of which should not be interfered with byrespondent Court of Appeals at the present posture of saidcase, much less preempted by the inappropriate andunnecessary holdings in the aforequoted portion of thedecision of said respondent court. Consequently, we modifythe decision of respondent court in CAG.R. CV No. 05464by setting aside and declaring without force and effect itspronouncements and findings insofar as the merits ofCriminal Case No. Q14867 and the liability of the accusedtherein are concerned.

WHEREFORE, subject to the aforesaid modifications,the judgment of respondent Court of Appeals isAFFIRMED.

SO ORDERED.

Paras, Padilla and Sarmiento, JJ., concur.MelencioHerrera J., No part. Did not participate in

deliberations.



Judgment affirmed with modifications.

Notes.In order that consignation may be effective, thedebtor must first comply with certain requirementsprescribed by law. (Soco vs. Militante, 123 SCRA 160.)

Without prior notice, consignation is void as payment.(Soco vs. Militante, 123 SCRA 160.)

o0o

604

604 SUPREME COURT REPORTS ANNOTATEDGuzman vs. Court of Appeals

G.R. No. 81949.September 15, 1989.*

SPOUSES EMETERIO and LOLITA GUZMAN,petitioners, vs. HONORABLE COURT OF APPEALS andSPOUSES GUILLERMO and GERARDA EVANGELISTA,respondents.

Agrarian Reform Urban Land Reform Law Right of FirstRefusal Only legitimate tenants who have resided for ten years ormore on specific parcels of land in declared urban land reformzones or urban zones, and who have built their houses thereon,have the right of first refusal.It is clear from the language of thelaw that only legitimate tenants who have resided for ten years ormore on specific parcels of land situated in declared Urban LandReform Zones or Urban Zones, and who have built their homesthereon, have the right not to be dispossessed therefrom and theright of first refusal to purchase the property under reasonableterms and conditions to be determined by the appropriategovernment agency. At the time of the sale of the subject propertyto petitioners, Proclamation No. 1967 [Amending ProclamationNo. 1893 by specifying 244 sites in Metropolitan Manila as Areasfor Priority Development (APDs) and Urban Land Reform Zones],promulgated on May 14, 1980, was the prevailing lawenumerating the parcels of land affected by Pres. Dec. Nos. 1517,1640 and 1642, and LOI No. 935. A simple reading of the list of244 sites described in the annex to Proclamation No. 1967 revealsthat the subject property was not among the APDs or Urban LandReform Zones in Navotas. Thus, when the subject property wassold to petitioners, it was neither covered by, nor subject, to the



conditions set forth in, the Urban Land Reform Law.

Same Same Tenants, Defined Tenants, as defined in Pres.Decree No. 1517 does not include those whose possession of theproperty is under litigation.Secondly, private respondents arenot even tenants within the purview of Pres. Dec. No. 1517.Section 3 (f) of this decree, which defines the term tenant,provides: Tenant refers to the rightful occupant of land and itsstructures, but does not include those whose presence on the landis merely tolerated and without the benefit of contract, those whoenter the land by force or deceit, or those whose possession isunder litigation [italics supplied.] It cannot be denied that at thetime the subject property was declared an APD in December 1987,the right of private respondents to occupy and possess the subjectproperty was then an issue under litigation in the action

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* THIRD DIVISION.

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VOL. 177, SEPTEMBER 15, 1989 605

Guzman vs. Court of Appeals

for ejectment filed against them by petitioners.

Civil Law Contracts Lease Suspension of Rental PaymentsPrivate respondents belief that the subject property should havebeen sold to them, does not justify the unilateral withholding ofrental payments due the new owner.Upon the purchase of theleased property and proper notice by the vendee to the lessee, thelatter must pay the agreed monthly rentals to the new ownersince, by virtue of the sale, the vendee steps into the shoes of theoriginal lessor to whom the lessee bound himself to pay [Mirasolv. Magsuci, G.R. No. L17125, November 28, 1966, 18 SCRA 801].In the instant case, despite their receipt of the demand letterdated March 21, 1986 informing them of the change of propertyownership, private respondents unjustifiably failed to pay themonthly rentals which accrued for the account of the new owner.Their belief that the subject property should have been sold to



them does not justify the unilateral withholding of rentalpayments due to Lolita Guzman as new owner of the property.Private respondents must be reminded that Article 1658 of theNew Civil Code provides only two instances wherein the lesseemay suspend payment of rent, namely, in case the lessor fails tomake the necessary repairs or to maintain the lessee in peacefuland adequate enjoyment of the property leased [See Reyes v.Arca, G.R. No. L21447, November 29, 1965, 15 SCRA 442].

Same Same Same Ejectment Private respondents continuedstay in the property without having paid a single monthly rental isa sufficient cause for ejectment.Private respondents should haveat the very least replied to Lolita Guzmans letter and tenderedpayment of the monthly rentals which accrued in her favorbeginning March 1986, and if such were to be refused by her, thenprivate respondents should have made a consignation thereof ordeposited the rentals due pending the resolution of their allegedclaim against the administratrix of the estate of the late MercedesPolicarpio [SeeIpapo v. IAC, G.R. No. 72740, January 27, 1987,147 SCRA 342]. Instead, they opted to take a hardline stance inrefusing to acknowledge Lolita Guzman as owner and lessor, and,in so doing, gave cause to be declared in default in their obligationto pay rentals due her. [SeeLandicho v. Tensuan, G.R. No. 51216,June 30, 1987, 151 SCRA 410]. Thus, when petitioners filed theiraction for ejectment, the rentals (which were payable in advancewithin the first five days of each month) corresponding to themonths of March, April and May, 1986 had not been paid. And theglaring situation to date is that private respondents continue tooccupy the subject property without having paid a single monthlyrental which accrued pending litigation. Under thesecircumstances,

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606 SUPREME COURT REPORTS ANNOTATED


the Court finds that sufficient cause for their ejectment underSection 5 (b) of Batas Pambansa Blg. 877 has been established.[SeeRoxas v. IAC, G.R. Nos. 74279 and 7480103, January 20,1988, 157 SCRA 166].

Civil Procedure Prejudicial Question Ejectment Possession



Mere allegation of ownership by the defendant in an ejectment caseor the pendency of an action for reconveyance does not divest theinferior court of jurisdiction over the ejectment suit Exceptions.Finally, the Court is not unaware of Civil Case No. 957MNpending in the Regional Trial Court of Malabon. This action wasinstituted by private respondents on July 1, 1987 againstpetitioners and administratrix Rufina Samaniego for theannulment of the sale and the reconveyance of the subjectproperty in favor of private respondents. As correctly held byrespondent appellate court, Civil Case No. 957MN poses noprejudicial question to the resolution of the instant petition. Wellsettled is the rule that the mere allegation of ownership of theproperty in dispute by the defendant in an ejectment suit or thependency of an action for reconveyance of title over the sameproperty does not divest the inferior court of its jurisdiction overthe ejectment suit [Alilaya v. Espanola, G.R. No. L36208,September 18, 1981, 107 SCRA 564 De la Cruz v. Court ofAppeals, G.R. No. 57454, November 29, 1984, 133 SCRA 520Drilon v. Gaurana, G.R. No. L35482, April 30, 1987, 149 SCRA342]. The only exception to this rule is where the question of defacto possession cannot be determined properly without settlingthat of de jure possession and ownership because the latter isinseparably linked with the former [Andres v. Soriano, 101 Phil.848 (1957) Castro v. de los Reyes, 109 Phil. 64 (1960) Alvir v.Vera, G.R. No. L39338, July 16, 1984, 130 SCRA 357 De laSanta v. Court of Appeals, G.R. Nos. L30560 and L31078,November 18, 1985, 140 SCRA 44].

Contracts Lease Right of Removal Useful ImprovementsPrivate respondents have the right to remove their house and otheruseful improvements should petitioner refuse to reimburse theamount thereof ornamental objects may be removed if no damageshall be caused to the principal and that the owner of the principaldo not choose to retain them by paying their value.Moreover,since private respondents had built in good faith their house onthe leased subject property, it is appropriate to mention thatArticle 1678 of the New Civil Code governs the parties rightsthereto. As the new lessors, petitioners have the option toappropriate the house and other useful improvements made byprivate respondents by paying onehalf of their value. But privaterespondents do not have the right to compel petitioners toappropriate the improvements and make reimbursement, nor toretain possession

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VOL. 177, SEPTEMBER 15, 1989 607


of the subject property until such reimbursement. Their rightunder the law is the removal of the house and other usefulimprovements in the event that petitioners refuse to reimbursethe above amount [Lapena v. Morfe, 101 Phil. 997 (1957)Balucanag v. Francisco, G.R. No. L33422, May 30, 1983, 122SCRA 498]. Incidentally, as regards ornamental objects, privaterespondents may remove the same provided that no damage iscaused to the principal thing and petitioners do not choose toretain them by paying their value at the time the lease isextinguished.

PETITION for certiorari to review the decision of the Courtof Appeals.

The facts are stated in the opinion of the Court.Eleazar S. Calasan for petitioners.Bienvenido J. Medel for private respondents.

CORTS, J.:

This is a petition for review on certiorari which seeks thereversal of the decision of the Court of Appeals rendered inCAG.R. SP No. 13475 setting aside the decisions of theRegional Trial Court and Metropolitan Trial Court, anddismissing the complaint for ejectment filed by petitionersagainst private respondents.

The facts of the case are as follows:Since 1937, private respondents have been in possession

of a 184 sq. m. parcel of land situated at M. PolicarpioStreet, Bagong Barrio, Navotas, Metro Manila by virtue ofan oral lease agreement with the late Mercedes Policarpiowhereby the former agreed to pay a monthly rental ofthirty eight pesos (P38.00), payable in advance within thefirst five (5) days of each month.

Petitioner Lolita Guzman, on the other hand, ispresently the registered owner of the same property,having acquired the same from the Estate of the lateMercedes Policarpio by virtue of a Deed of Absolute Saledated March 3, 1986 executed in her favor by theadministratrix Rufina Samaniego. This sale was judiciallyapproved by the probate court in Special Proceedings No.



2640 entitled Testate Estate of Mercedes Policarpio.Lolita Guzmans ownership is evidenced by TCT No. T134078 issued by the Register of Deeds of Caloocan City onMarch 17, 1986. Soon after the sale, Lolita Guzman,through her counsel, sent

608


private respondents a letter dated March 21, 1986informing them that she is the new owner of the subjectproperty and demanding that they vacate it in view of theirfailure to pay the monthly rentals since October 1983despite previous demands by the former owner and pay therentals in arrears.

Due to the failure of private respondents to reply to, orcomply with, the above demand, peitioner spouses broughttheir complaint before the Barangay Chairman, but noamicable settlement was reached. Petitioners then filed onMay 7, 1986 a complaint for ejectment against privaterespondents in the Metropolitan Trial Court, invokingSection 5(b) of Batas Pambansa Blg. 877. The case wasdocketed as Civil Case No. 2839.

Private respondents, in their verified answer, allegedthat they had been religiously paying their monthly rentalsfor the subject property upon which they constructed theirhome until the middle part of 1984 when they were advisedby the administratrix Rufina Samaniego to cease makingpayments because the estate was then being partitionedand the subdivided units were to be offered for sale to therespective occupants at twentyfive thousand pesos(P25,000.00). They had offered to pay the amount in cashon the condition that a clear title would be given, but wereinformed that it would be sometime before titles could beissued for the individual units. But in violation of theirright of first refusal under Pres. Dec. No. 1517 [otherwiseknown as the Urban Land Reform Law], the administratrixexecuted an absolute deed of sale over the property in favorof petitioner Lolita Guzman. They finally concluded thatpetitioners had no cause of action against them in view ofthe nullity of this deed of sale.

On May 5, 1987, the court rendered judgment againstprivate respondents ordering them to vacate the subject



property and to pay the sum of one thousand one hundredseventyeight pesos (P1,178.00) representing unpaidrentals from October 1983 until April 1986 and the sum ofthirtyeight pesos (P38.00) for every month thereafter untilthey have completely surrendered possession of theproperty to the petitioners. The court held that:

x x xThe defendant admitted in his answer (par. 3) that he received

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VOL. 177, SEPTEMBER 15, 1989 609Guzman vs. Court of Appeals

the letter of demand dated March 17, 1986 (sic) sent by theplaintiffs counsel, but there is (sic) no reply or answer was madeby the defendant to the aforesaid letter of demand, to explain whyhe should not pay the rentals claimed by the plaintiffs. Thus, theplaintiffs were constrained to file the present action under Section5 (b) of BP 877.

The plaintiffs being the registered owner of the property inquestion, as evidence (sic) by TCT No. T134078, they have thebetter right of possession as adverse to the defendant. Moreover,the defendant cannot be considered as a legitimate tenant ascontemplated by the Urban Land Reform Act, he having failed tocomply religiously with his obligation to pay the agreed rentals ontime, he became a possessor in bad faith and his ejectment fromthe premises is allowed by BP 877 and therefore not entitled tothe protection of P.D. No. 1517 as amended and its implemented(sic) proclamations of the Rental Control Law.

x x x

[MTC Decision, p. 3 Rollo, p. 52.]

On Appeal, this decision was affirmed in toto by theRegional Trial Court on October 16, 1987 in Appealed CivilCase No. 262MN.

Private respondents then filed on December 11, 1987 apetition for review with the Court of Appeals. In a decisionpromulgated on January 28, 1988, the Court of Appeals

1 set

aside the decisions of the lower courts and dismissed forlack of merit petitioners complaint for ejectment. The Courtof Appeals held that the ejectment of private respondentsfrom the subject property on the ground of nonpayment ofrentals was baseless and improper, finding that:



x x x... [private respondents] have been leasing and actually

occupying subject lot since 1937 at a meager rental of P38.00 amonth, and did even offer to pay cash of P25,000.00 therefor, it issimply unbelievable that they defaulted or failed to pay themeasly rental of P38.00 a month as [petitioners] would like thecourt to understand. [Private respondents] theory that they weretold to stop paying their rents sometime in October 1984 is morein accord with reason and human experience. If they were reallytold by the administratrix of the estate

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1 Penned by Fidel P. Purisima with Segundino G. Chua and Nicolas P. Lapena,Jr. concurring.

610


of the deceased ownerlessor to hold or defer their rentalpayments, it stands to reason that [they] never defaulted in thepayment of their rental for the lot in question. Indeed, if theywere not advised to pay their rents, why should [they] falter intheir rental payments when they have their house thereon, areactually residing therein and have the financial capacity to buythe lot in dispute on spot cash basis?

... If they stopped paying the monthly rental therefor sinceOctober 1984, it was not due to inability or refusal on their part topay but was upon the advice of the administratrix of the estate ofthe late ownerlessor Mercedes Policarpio. The latterunequivocably [sic] told [private respondents] not to pay theirrents anymore because the area would be subdivided and sold tothe actual occupants, including the [private respondents] withrespect to the lot in question which they have been renting andoccupying for around fifty (50) years already. With the foregoingexplanation of [private respondents] for their failure to pay theirrental starting October 1984, an assertion inducing faith andreliance and which has not been effectively controverted, [their]ejectment on the ground of nonpayment of rental is improper andcannot be sanctioned.

x x x

[CA Decision, pp. 56 Rollo, pp. 1819.]



I.

II.

Moreover, the Court of Appeals upheld privaterespondents contention that they have the right of firstrefusal to purchase the property pursuant to Section 6 ofPres. Dec. No. 1517.

Hence, petitioners filed the instant petition, assigningthe following as errors:

THE HONORABLE COURT OF APPEALS ERREDIN APPLYING SECTION 6 OF PRESIDENTIALDECREE NO. 1517, OTHERWISE KNOWN ASURBAN LAND REFORM LAW IN FAVOR OFPRIVATE RESPONDENTS IN UTTERDISREGARD OF THE EXPRESS PROVISIONS OFPROCLAMATION NO. 1967 WHICH SPECIFIESTHE AREAS OF APPLICABILITY OF THEURBAN ZONES MENTIONED IN SAIDSECTION 6 OF P.D. NO. 1517THE HONORABLE COURT OF APPEALS ERREDIN HOLDING THAT PRIVATE RESPONDENTSWERE NOT GUILTY OF NONPAYMENT OFRENTALS [Petition, p. 5 Rollo, p. 6.]

After a careful consideration of the issues raised in thepleadings and the various laws applicable to the case athand, this Court finds merit in the instant petition.

611


I.

The Court holds that there is no basis to the claim that thesale of the subject property between the estate of the lateMercedes Policarpio and petitioner Lolita Guzman is nulland void for being violative of the right of first refusalgranted to tenants under Section 6 of Pres. Dec. No. 1517.

Section 6 of Pres. Dec. No. 1517 reads as follows:

SECTION 6. Land Tenancy in Urban Land Reform Areas.Within the Urban Zones, legitimate tenants who have resided onthe land for ten years or more, who have built their homes on theland, and residents who have legally occupied the lands bycontract continuously for the last ten years shall not be



dispossessed of the land and shall be allowed the right of firstrefusal to purchase the same within a reasonable time and atreasonable prices, under terms and conditions to be determinedby the Urban Zone Expropriation and Land ManagementCommittee created by Section 8 of this Decree.

It is clear from the language of the law that only legitimatetenants who have resided for ten years or more on specificparcels of land situated in declared Urban Land ReformZones or Urban Zones, and who have built their homesthereon, have the right not to be dispossessed therefromand the right of first refusal to purchase the propertyunder reasonable terms and conditions to be determined bythe appropriate government agency.

At the time of the sale of the subject property topetitioners, Proclamation No. 1967 [AmendingProclamation No. 1893 by specifying 244 sites inMetropolitan Manila as Areas for Priority Development(APDs) and Urban Land Reform Zones], promulgated onMay 14, 1980, was the prevailing law enumerating theparcels of land affected by Pres. Dec. Nos. 1517, 1640

2 and

1642,3 and LOI No. 935. A simple reading of the list of 244

sites described in the annex to Proclamation No. 1967reveals that

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2 Freezing the prices of land in Metropolitan Manila at current value.(1979)

3 Freezing the rates of rental, above three hundred pesos a month, ofresidential and commercial buildings, houses, apartments, and dwellingunits in Metropolitan Manila at current levels. (1979)

612


Reform Zones in Navotas. Thus, when the subject propertywas sold to petitioners, it was neither covered by, norsubject, to the conditions set forth in, the Urban LandReform Law.

This is made all the more obvious by the fact thatResolution No. 1369 of the National Housing AuthorityBoard of Directors which proclaimed the Estate of the late



Mercedes Policarpio in Navotas an APD was passed only onDecember 18, 1987 [Rollo, p. 81], long after the sale wasexecuted between administratrix Rufina Samaniego andpetitioners and judicially approved by the probate court.Private respondents, therefore, have no basis in claimingthat the sale violated the right of first refusal granted totenants by Pres. Dec. No. 1517.

Furthermore, notwithstanding the fact that, as providedby the above resolution, the subject property is presentlyan APD or Urban Land Reform Zone, private respondentsstill do not enjoy the protective mantle of Pres. Dec. No.1517.

In the first place, petitioners cause of action to evictprivate respondents accrued, and the complaint on thebasis thereof was filed, while the subject property had notyet been declared an APD and subject to Pres. Dec. No.1517. In addition, prior to the issuance of Resolution No.1369, the Metropolitan Trial Court in Civil Case No. 2839had already rendered a decision in favor of petitionersordering private respondents to vacate the property fornonpayment of rentals pursuant to Section 5 (b) of BatasPambansa Blg. 877.

Secondly, private respondents are not even tenantswithin the purview of Pres. Dec. No. 1517, Section 3 (f) ofthis decree, which defines the term tenant, provides:

Tenant refers to the rightful occupant of land and its structures,but does not include those whose presence on the land is merelytolerated and without the benefit of contract, those who enter theland by force or deceit, or those whose possession is underlitigation [Italics supplied.]

It cannot be denied that at the time the subject propertywas declared an APD in December 1987, the right ofprivate respondents to occupy and possess the subjectproperty was then an issue under litigation in the actionfor ejectment filed against them by petitioners.

613


Thirdly, private respondents are not the legitimatetenants envisaged in Section 6 of Pres. Dec. No. 1517



considering that their possession of the subject propertyhas been rendered illegal by their stubborn andunjustifiable refusal to comply with their obligation to paytheir monthly rentals to petitioners.

4

Consequently, the Court holds that respondent appellatecourt committed a reversible error in applying theprovisions of Pres. Dec. No. 1517 to sustain privaterespondents defense in the action for ejectment.

II.

Anent the second error raised, the record of the case doesnot support respondent appellate courts conclusion thatprivate respondents were not in default in the payment oftheir monthly rentals due to petitioners.

While discussion was made concerning privaterespondents explanation for nonpayment of the rentalsdue to the estate of the late Mercedes Policarpio, this isirrelevant to the issue at hand. What is palpably clear fromthe record of the case is the fact that private respondentshad failed to pay the monthly rentals which accrued fromthe time petitioner Lolita Guzman acquired ownership ofthe subject property in March 1986.

Upon the purchase of the leased property and propernotice by the vendee to the lessee, the latter must pay theagreed monthly rentals to the new owner since, by virtue ofthe sale, the vendee steps into the shoes of the originallessor to whom the lessee bound himself to pay [Mirasol v.Magsuci, G.R. No. L17125, November 28, 1966, 18 SCRA801]. In the instant case, despite their receipt of thedemand letter dated March 21, 1986 informing them of thechange of property ownership, private respondentsunjustifiably failed to pay the monthly rentals whichaccrued for the account of the new owner. Their belief thatthe subject property should have been sold to them does notjustify the unilateral withholding of rental payments due toLolita Guzman as new owner of the property. Privaterespondents

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4 This point will be discussed in length in the following section of thisdecision.

614




provides only two instances wherein the lessee maysuspend payment of rent, namely, in case the lessor fails tomake the necessary repairs or to maintain the lessee inpeaceful and adequate enjoyment of the property leased[See Reyes v. Arca, G.R. No. L21447, November 29, 1965,15 SCRA 442].

Private respondents should have, at the very least,replied to Lolita Guzmans letter and tendered payment ofthe monthly rentals which accrued in her favor beginningMarch 1986, and if such were to be refused by her, thenprivate respondents should have made a consignationthereof or deposited the rentals due pending the resolutionof their alleged claim against the administratrix of theestate of the late Mercedes Policarpio [See Ipapo v. IAC,G.R. No. 72740, January 27, 1987, 147 SCRA 342]. Instead,they opted to take a hardline stance in refusing toacknowledge Lolita Guzman as owner and lessor, and, in sodoing, gave cause to be declared in default in theirobligation to pay rentals due her. [See Landicho v.Tensuan, G.R. No. 51216, June 30, 1987, 151 SCRA 410].Thus, when petitioners filed their action for ejectment, therentals (which were payable in advance within the first fivedays of each month) corresponding to the months of March,April and May, 1986 had not been paid. And the glaringsituation to date is that private respondents continue tooccupy the subject property without having paid a singlemonthly rental which accrued pending litigation. Underthese circumstances, the Court finds that sufficient causefor their ejectment under Section 5 (b) of Batas PambansaBlg. 877

5

_______________

5 SEC. 5. Grounds For Judicial Ejectment.Ejectment shall be allowedon the following grounds:

x x x(b) Arrears in payment of rent for a total of three (3) months: Provided,

That in case of refusal by the lessor to accept payment of the rental agreedupon, the lessee may either deposit, by way of consignation, the amount incourt, or with the city or municipal treasurer, as the case may be, or in abank in the name of and with notice to the lessor, within one month afterthe refusal of the lessor to accept payment.



The lessee shall thereafter deposit the rental within ten days of everycurrent month. Failure to deposit rentals for three months shall constitutea ground for ejectment. x x x

615


has been established. [See Roxas v. IAC, G.R. Nos. 74279and 7480103, January 20, 1988, 157 SCRA 166].

It might be argued that petitioners action for ejectmentwas prematurely filed on May 7, 1986 because less thanthree (3) months had elapsed since private respondentsfailed to tender payment of the March 1986 rental in favorof the new lessor Lolita Guzman.

However, this point was never raised as an issue in theproceedings below by private respondents, and, therefore,cannot be passed upon for the first time on appeal[Matienzo v. Servidad, G.R. No. L28135, September 10,1981, 107 SCRA 276 Dulos Realty & DevelopmentCorporation v. Court of Appeals, G.R. No. 76668, January28, 1988, 157 SCRA 425]. And, even assuming that theaction for ejectment was indeed prematurely filed in thecourt a quo, such will not in anyway change the conclusionreached by this Court that petitioners have established aright to evict private respondents from the subject propertyfor nonpayment of rentals. For if the Court were to dismisspetitioners complaint based on this point, there would bemore than sufficient basis for petitioners to file anothercomplaint for ejectment against private respondents asdelinquent lessees under Section 5(b) Batas Pambansa Blg.877 in view of the latters inexcusable failure to pay,deposit or consign for the account of petitioners monthlyrentals since March 1986 up to the present. It must beborne in mind that ejectment cases must be expeditiouslyresolved and terminated. Certainly, it will serve the ends ofjustice for the Court to promptly settle the issue of nonpayment of rentals in the case at bar, rather than torequire the parties to litigate anew. Otherwise, as theCourt has had occasion to state, further proceedings willundoubtedly be only a waste of effort and time and to thecontinuing, prejudice of the petitioners. It will only prolongthe already unjustified stay of the private respondent[s]and provide [them] an unwarranted excuse to remain in



the leased premises, notwithstanding her nonpayment ofthe corresponding rentals for the past several years [Ipapov. IAC, supra].

Finally, the Court is not unaware of Civil Case No. 957MN pending in the Regional Trial Court of Malabon. Thisaction was instituted by private respondents on July 1,1987 against petitioners and administratrix RufinaSamaniego for the annul

616


favor of private respondents.As correctly held by respondent appellate court, Civil

Case No. 957MN poses no prejudicial question to theresolution of the instant petition. Well settled is the rulethat the mere allegation of ownership of the property indispute by the defendant in an ejectment suit or thependency of an action for reconveyance of title over thesame property does not divest the inferior court of itsjurisdiction over the ejectment suit [Alilaya v. Espanola,G.R. No. L36208, September 18, 1981, 107 SCRA 564 Dela Cruz v. Court of Appeals, G.R. No. 57454, November 29,1984, 133 SCRA 520 Drilon v. Gaurana, G.R. No. L35482,April 30, 1987, 149 SCRA 342]. The only exception to thisrule is where the question of de facto possession cannot bedetermined properly without settling that of de jurepossession and ownership because the latter is inseparablylinked with the former [Andres v. Soriano, 101 Phil. 848(1957) Castro v. de los Reyes, 109 Phil. 64 (1960) Alvir v.Vera, G.R. No. L39338, July 16, 1984, 130 SCRA 357 Dela Santa v. Court of Appeals, G.R. Nos. L30560 and L31078, November 18, 1985, 140 SCRA 44].

Such exception is unavailing in the case at bar.Petitioner Lolita Guzman was at the time of the institutionof the ejectment suit the titled owner of the property,having acquired the same by absolute deed of sale whichwas judicially approved by the probate court. Privaterespondents claim of preference, on the other hand, restson the mere allegation that an agreement to purchase andsell existed between them and the administratrix RufinaSamaniego. Yet, no written document evidencing thisagreement has been presented by them to enforce, much



less support, their claim. From the facts thus presented,the claim of preference is without concrete basis in fact andin law and does not preclude the courts from assuming, andcontinuing to exercise, jurisdiction over the ejectment suit[De la Cruz v. Court of Appeals, supra].

Premises considered, the Court finds that petitionershave established a cause of action for the ejectment ofprivate respondents for nonpayment of rentals pursuant toSection 5(b) of Batas Pambansa Blg. 877.

But inasmuch as no evidence has been presented bypetitioners to the effect that the original owner or vendor ofthe subject

617


property had assigned to them her rights under the leaseagreement with the lessees, i.e. the collection of rentals inarrears, there is no legal basis for ordering privaterespondents to pay monthly rentals which accrued prior toMarch 1986.

Moreover, since private respondents had built in goodfaith their house on the leased subject property, it isappropriate to mention that Article 1678 of the New CivilCode

6 governs the parties rights thereto. As the new

lessors, petitioners have the option to appropriate thehouse and other useful improvements made by privaterespondents by paying onehalf of their value. But privaterespondents do not have the right to compel petitioners toappropriate the improvements and make reimbursement,nor to retain possession of the subject property until suchreimbursement. Their right under the law is the removal ofthe house and other useful improvements in the event thatpetitioners refuse to reimburse the above amount [Lapenav. Morfe, 101 Phil. 997 (1957) Balucanag v. Francisco, G.R.No. L33422, May 30, 1983, 122 SCRA 498]. Incidentally,as regards ornamental objects, private respondents mayremove the same provided that no damage is caused to theprincipal thing and petitioners do not choose to retain themby paying their value at the time the lease is extinguished.

WHEREFORE, the judgment of respondent appellatecourt rendered in CAG.R. SP No. 13475 is REVERSED.Private respondents and all persons claiming rights under



them are hereby ordered to immediately vacate the subjectproperty and

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6 ARTICLE 1678. If the lessee makes, in good faith, usefulimprovements which are suitable to the use for which the lease isintended, without altering the form or substance of the property leased,the lessor upon the termination of the lease shall pay the lessee onehalf ofthe value of the improvements at that time. Should the lessor refuse toreimburse said amount, the lessee may remove the improvements, eventhough the principal thing may suffer damage thereby. He shall not,however, cause any more impairment upon the property leased than isnecessary.

With regard to ornamental expenses, the lessee shall not be entitled toany reimbursement, but he may remove the ornamental objects, providedno damage is caused to the principal thing, and the lessor does not chooseto retain them by paying their value at the time the lease is extinguished.

618

618 SUPREME COURT REPORTS ANNOTATEDAndres vs. Manufacturers Hanover & Trust Corporation

surrender possession thereof to petitioners, and to paypetitioners rentals in arrears in the monthly sum of thirtyeight pesos (P38.00) to be computed only from March 1986until they have completely vacated the subject property,the further sum of two thousand pesos (P2,000.00) asattorneys fees, and costs of the suit. This case isREMANDED to the Regional Trial Court for thedetermination of the value of the improvements made byprivate respondents on the subject property, in accordancewith Article 1678 of the New Civil Code.

SO ORDERED.

Fernan, (C.J.), Gutierrez, Jr., and Bidin, JJ.,concur. Feliciano, J., on leave.

Judgment reversed. Case remanded to trial court fordetermination of the value of improvements made by privaterespondents on the subject property.

Note.Persons who are not tenants on the property arenot covered by Pres. Decree No. 316 which prohibits the



ejectment of tenant farmers in agricultural lands primarilydevoted to rice and corn. (Geronimo vs. Court of Appeals,121 SCRA 859.)

o0o

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