Title
Supreme Court
Peralta vs. Raval
Case
G.R. No. 188467
Decision Date
Mar 29, 2017
A 40-year lease dispute arose when Raval, as assignee, sought rescission due to alleged breaches by Peralta. Courts upheld the assignment but denied rescission, ruling Peralta complied with lease terms and payments.

Case Digest (G.R. No. 133289)
Expanded Legal Reasoning Model

Facts:

  • Consolidated Petitions and Parties
    • The case involves consolidated petitions for review on certiorari under Rule 45, filed by two parties:
      • Renato Ma. R. Peralta
      • Jose Roy B. Raval
    • The dispute originates from a lease agreement over two parcels of residential land in San Jose, Laoag, Ilocos Norte, which were previously owned by spouses Flaviano Arzaga, Sr. and Magdalena Agcaoili-Arzaga.
    • The lease contract, executed on February 19, 1974, covered Lot Nos. 9128-A and 9128-B with specific areas and improvements described in detail.
    • The lease provided for a 40-year term with scheduled increases in monthly rentals and contained obligations for both parties, including construction of a building (which would become the lessor’s property upon termination), payment of realty taxes, and development of a water system.
  • Background of Dispute and Early Litigation
    • In May 1988, Flaviano Arzaga, Jr. (the adopted son and heir of the Spouses Arzaga) filed an annulment of the lease alleging breach by Peralta.
    • The complaint was dismissed by the Regional Trial Court (RTC) of Laoag City on December 10, 1990 and later affirmed by the Court of Appeals (CA).
    • Flaviano Arzaga, Jr.’s interest in the subject properties later became central when he assigned all his rights and interests to Raval via a Deed of Assignment dated July 28, 1995, in exchange for ₱500,000.00.
  • Development of the Conflict
    • Peralta refused to recognize the validity of the assignment to Raval and continued to deposit his monthly rental payments into bank accounts opened “in trust for” Flaviano Arzaga, Jr. by his wife, Gloria Peralta.
    • Beginning in August 1995, Raval demanded compliance with the terms of the lease, asserting that:
      • Unauthorized structures had been constructed on areas allegedly not covered by the lease.
      • Peralta had failed to render an updated accounting for the rental payments.
      • Peralta refused to vacate the second storey of the residential house and to remove improvements on the disputed portions of the property.
    • Raval’s father and counsel, Atty. Castor Raval, sent multiple demand letters between October 1995 and June 1996 reiterating these claims and seeking either removal of the disputed improvements, access to the premises, or determination of the proper accounting of funds.
    • In 1998, Raval instituted a complaint for rescission of the lease before the RTC of Laoag City, alleging Peralta’s multiple breaches, and seeking rescission of the lease, vacatur of the property, recovery of back rentals, and an award of moral, exemplary, and nominal damages plus attorney’s fees.
    • In his Answer, Peralta counterclaimed for damages, arguing that:
      • He had complied with his obligation by depositing rentals through the proper “in trust for” mechanism.
      • The assignment was invalid due to lack of his consent during its execution.
      • Raval’s rescission action was untimely and an attempt to harass him.
  • Procedural History and Trial Court Decisions
    • The RTC, on May 17, 2005, dismissed both Raval’s complaint for rescission and Peralta’s counterclaim.
    • The RTC’s decision, among other findings, noted that:
      • Peralta’s method of paying rent via bank accounts “in trust for” was proper and did not constitute a breach.
      • The alleged minor lapses did not amount to a substantial breach warranting rescission.
    • Both parties subsequently filed appeals with the Court of Appeals, with Raval seeking rescission plus unpaid rentals and damages, while Peralta sought dismissal of Raval’s action and recovery of damages on his counterclaim.
  • Court of Appeals Ruling
    • The CA partly granted Raval’s appeal by affirming:
      • The validity of the deed of assignment, which conferred upon Raval the rights as an assignee and lessor in place of the original lessors.
      • The entitlement of Raval to claim unpaid rental payments from Peralta post-assignment.
    • However, the CA denied the plea for complete rescission of the lease and dismissed Peralta’s counterclaims for moral, exemplary damages, and attorney’s fees, grounding its ruling on the absence of gross or bad faith breaches by Peralta.
  • Supreme Court Resolution
    • In the consolidated petitions, Peralta and Raval presented conflicting arguments regarding:
      • The validity and enforceability of the deed of assignment.
      • Whether the lease agreement could be rescinded based on the alleged breaches.
      • The appropriateness of awarding rental arrears and damages.
    • The Supreme Court ultimately held:
      • The deed of assignment executed by Flaviano Arzaga, Jr. in favor of Raval is valid and its effects, including the issue of land titles, cannot be attacked collaterally.
      • Peralta had properly discharged his rental payment obligations by depositing funds in the designated accounts.
      • The remedy for rescission of lease, being moot (given the lapse of the lease term) and inapplicable given the facts, should not extend to monetary awards against Peralta.
      • Accordingly, while Raval’s petition (G.R. No. 188764) was denied, Peralta’s petition (G.R. No. 188467) was partly granted by modifying the CA’s award, specifically deleting the order for Peralta to pay unpaid rentals, interest, and attorney’s fees.

Issues:

  • Validity and Effect of the Deed of Assignment
    • Whether the deed of assignment executed by Flaviano Arzaga, Jr. in favor of Raval is valid and sufficient to confer upon him the status of lessor and owner of the interests in the leased properties.
    • Whether Peralta’s claims that the assignment was void due to lack of his consent and the alleged collateral attack on the issued titles are tenable.
  • Right to Rescind the Lease Agreement
    • Whether Raval, as assignee with alleged rights, had the statutory power under the applicable provisions of the Civil Code (including Article 1191 and Article 1659) to rescind the lease agreement on grounds of Peralta’s noncompliance.
    • Whether the rescission remedy is applicable after such a long period and, given that the lease had already terminated in 2014, whether the issue has become moot.
  • Payment of Monthly Rentals and Alleged Breaches
    • Whether depositing the monthly rentals in bank accounts “in trust for” Flaviano Arzaga, Jr. constitutes compliance with Peralta’s obligations under the lease, despite the assignment.
    • Whether the alleged breaches (failure to account, unauthorized construction, non-removal of structures, etc.) by Peralta were substantial enough to warrant rescission or any monetary award.
  • Prescription and Timeliness of the Action
    • Whether Raval’s action for rescission, filed in 1998, was timely given the provisions on prescription under Article 1389 versus those applicable to lease contracts (Article 1659).
    • How the moment of accrual of the cause of action (upon Peralta’s alleged default) affects the timeliness of the filing.
  • Merits of Peralta’s Counterclaims
    • Whether the counterclaims for moral, exemplary damages, and attorney’s fees are justified under the circumstances, particularly in view of the conduct of the parties and the established payment practices.

Ruling:

  • (Subscriber-Only)

Ratio:

  • (Subscriber-Only)
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