G.R. No. 188467 - Peralta vs. Raval

Renato Ma. R. Peralta was the lessee under a Contract of Lease dated February 19, 1974.
Spouses Arzaga (Flaviano Arzaga, Sr. and Magdalena Agcaoili-Arzaga) were the lessors and original registered owners of Lot Nos. 9128-A and 9128-B in San Jose, Laoag, Ilocos Norte, formerly covered by TCT Nos. T-2406 and T-3538; each lot measured 660 square meters, more or less.
The lease covered the described portions of Lot No. 9128-A and Lot No. 9128-B and specified improvements including first floor areas, garage, kitchen, room above the garage, and water tank.
The lease term was forty years with monthly rentals set at P500 beginning May 1974, P600 after the tenth year, P700 after the twentieth year, and P800 after the thirtieth year until termination.
The lease required the lessee to construct a building that would become the lessors' property upon termination, to pay realty taxes for both lots, and to develop a water system for use by both parties.

In May 1988, Flaviano Arzaga, Jr. (adopted son and heir of the Spouses Arzaga) filed a complaint for annulment of lease (Civil Case No. 9121-16) against Peralta alleging breach; the RTC dismissed the complaint on December 10, 1990, and the Court of Appeals affirmed the dismissal in CA-G.R. CV No. 30396.
On July 28, 1995, Flaviano Jr. executed a Deed of Assignment, assigning all his interests, rights and participation in the subject properties to Jose Roy B. Raval for P500,000; the Deed expressly authorized substitution in the pending cases and the filing of other actions for protection of the property rights.
A separate cadastral registration proceeding (Cad. Case No. 51, RTC Laoag, Branch 15) later declared the Deed of Assignment valid, ordered cancellation of the Spouses Arzaga’s TCTs and issuance of new TCTs (T-30107 and T-30108) in Raval’s name; that decision became final and executory.

Peralta refused to recognize the assignment to Raval and continued to deposit rental payments to bank accounts opened by his wife, Gloria Peralta, labeled "Gloria F. Peralta ITF: Flaviano Arzaga, Jr."
Beginning August 1995, Raval demanded compliance with the lease terms; his father and counsel, Atty. Castor Raval, sent demand letters on October 2 and November 4, 1995, seeking removal of structures alleged to be outside the leased area, access to the second floor, and an accounting of rentals.
Several further demand letters were sent in 1996, barangay conciliation was attempted twice, and Raval persisted in extrajudicial demands before filing suit.

In 1998, Raval filed a complaint for rescission of lease with the RTC of Laoag City (Civil Case No. 11424-14), alleging that Peralta:

refused to render an accounting of unpaid monthly rentals prior to July 28, 1995 and to pay monthly rentals thereafter;
refused to vacate the second storey of the house;
refused to remove alleged unauthorized improvements on areas not covered by the lease;
refused to operate and provide a water system; and
refused to refund taxes paid by Flaviano Jr. pursuant to the decision in Civil Case No. 9121-16.

Raval prayed for rescission of the lease contract, an order to vacate, payment of back rentals, moral, exemplary and nominal damages, attorney’s fees and costs.
Peralta answered denying Raval was a real party-in-interest, contending the Deed of Assignment was void and that Raval lacked power to seek rescission; Peralta also asserted compliance with his obligations and filed a counterclaim for P500,000 moral damages, P50,000 exemplary damages and P30,000 attorney’s fees alleging harassment, humiliation and reputational injury.

On May 17, 2005, the RTC of Laoag City, Branch 14 dismissed Raval’s complaint and Peralta’s counterclaim.
The RTC found the Deed of Assignment could not be collaterally attacked because TCTs had been issued in Raval’s name and that Peralta had been depositing rentals in the "ITF" bank accounts, thereby satisfying his obligation to pay rent; the alleged lapses were minor.
The RTC concluded the filing of the rescission action was ...(Subscriber-Only)

Whether Raval had rights and interests sufficient to sue as assignee given challenges to the Deed of Assignment and the subsequent issuance of TCTs in his name.
Whether Peralta could collaterally attack the Deed of Assignment and the TCTs issued to Raval in the rescission proceeding.

Whether the complaint for rescission filed by Raval in 1998 was timely or had prescribed under Article 1389, New Civil Code.
Whether Article 1659, New Civil Code (the special rule on rescission of leases) or Article 1389, New Civil Code governed the prescriptive period applicable to Raval’s action.

Whether the Court of Appeals correctly ordered Peralta to pay unpaid monthly rentals from August 1998 plus 12% interest and awarded P10,000 moral damages to Raval.
Whether Peralta proved enti...(Subscriber-Only)