G.R. No. 201787 - Inocencio vs. Hospicio de San Jose

Case Summary (G.R. No. 201787)

Factual Background

In 1946 Hospicio de San Jose leased a parcel of land in Pasay City to German Inocencio. German constructed two buildings on the leased parcel and designated his son, Ramon Inocencio, to administer the property and to collect rentals from sublessees. The written lease contained Section 6 stating that the contract was nontransferable without the prior written consent of the lessor. German died in 1997. After German’s death, Hospicio de San Jose continued to accept rental payments that Ramon tendered and, by letter dated 1 March 2001, its property administrator acknowledged acceptance of the rentals and characterized the tenancy as an implied month-to-month lease expiring 31 March 2001. On 3 April 2001 Hospicio de San Jose notified Ramon that the contract would not be renewed because Ramon had subleased the premises to about twenty families and commercial occupants without the lessor’s consent. Thereafter Hospicio de San Jose refused further rental payments, posted notices to the sublessees to vacate, entered into new lease contracts with third parties in 2005, and on 28 June 2005 filed a complaint for unlawful detainer against Ramon and his sublessees seeking possession, reasonable compensation for use and occupation, and attorneys’ fees.

Parties’ Contentions

Analita P. Inocencio (for Ramon) asserted that the buildings on the leased parcel were owned by German and passed to Ramon as part of the estate; that the sublease contracts were valid because the lease did not expressly prohibit subleasing and Article 1650 of the Civil Code permitted subletting in the absence of an express prohibition; that Hospicio de San Jose was estopped from invoking the nontransferability clause because it had accepted rentals after German’s death and acknowledged an implied lease with Ramon; that the Spanish lease should be excluded under Section 33, Rule 133 for failure to provide a translation; and that Hospicio de San Jose had tortiously interfered with contractual relations between Ramon and his sublessees. Hospicio de San Jose maintained that Section 6 made the lease intransferable and therefore Ramon had no right to continue or to assign the lease after German’s death; that the subleases were invalid; that it was entitled to reasonable compensation for unlawful withholding of possession and attorneys’ fees; and that its filing for unlawful detainer was timely.

Ruling of the Metropolitan Trial Court

The Metropolitan Trial Court of Pasay ruled for Hospicio de San Jose. It held that the express nontransferability clause prevented transmission of the lease to Ramon as heir and that Ramon therefore had no right to sublease the property. The MeTC ordered eviction of Ramon and all persons claiming under him, awarded reasonable compensation in the aggregate amount of P552,195.36 for use and occupation for the period 1 April 2001 to 31 March 2005 and P10,512.00 per month from 1 April 2005 until eviction, plus twelve percent interest per annum, and awarded P50,000.00 for attorneys’ fees and costs of suit.

Ruling of the Regional Trial Court

The Regional Trial Court, Branch 119, Pasay, affirmed the MeTC decision in toto on 21 January 2009. The RTC agreed that Ramon had no right to sublease because of the intransferability clause in the lease contract and thus affirmed the MeTC’s orders and awards. Analita’s motion for reconsideration before the RTC was denied.

Ruling of the Court of Appeals

The Court of Appeals dismissed Analita’s petition and affirmed the RTC’s Decision with modification as to damages. The CA pegged the award for reasonable compensation at P504,576.00 representing accumulated rentals from 1 April 2001 to 31 March 2005 with six percent interest per annum, plus P10,512.00 per month from 1 April 2005 until possession was restored, also with six percent interest per annum until finality, and thereafter twelve percent until full payment. The CA therefore sustained the eviction and damages awards while adjusting the monetary computation.

Issues Presented to the Supreme Court

The petition for review raised, inter alia, the following issues: whether the sublease contracts executed by Ramon were valid; whether Hospicio de San Jose committed tortious interference with the Inocencios’ contracts with their tenants; whether Ramon or his estate owned the buildings erected on the leased premises; whether Hospicio de San Jose was entitled to reasonable compensation in the amounts awarded and to attorneys’ fees; and whether the action for unlawful detainer was barred by prescription.

Supreme Court’s Disposition

The Supreme Court partly granted the petition. It affirmed the CA Decision dated 12 January 2012 with modification and remanded the case to the Metropolitan Trial Court of Pasay, Branch 48, for determination of the value of the improvements, should Hospicio de San Jose desire to keep them. If Hospicio de San Jose refused to reimburse the value, the Court ordered that the Inocencios be allowed to demolish the buildings at their expense.

Legal Reasoning — Transmissibility of the Lease and Effect of the Nontransferability Clause

The Court recited Art. 1311 of the Civil Code and reaffirmed the established rule that lease contracts are not essentially personal and therefore survive the death of a party unless the contract provides otherwise. The Court interpreted the lease’s Section 6 nontransferability clause as addressing transfers inter vivos and not transmissions mortis causa. The Court explained that the clause sought to prevent substitution of the lessee during the latter’s lifetime without the lessor’s consent, and it cited Art. 1649 to distinguish assignment from sublease. Because Hospicio de San Jose had accepted payments from Ramon and had acknowledged an implied month-to-month tenancy, the Court concluded that German’s death did not automatically terminate the lease and that Ramon was recognized as lessee.

Legal Reasoning — Validity of the Subleases

Relying on Art. 1650, the Court held that when a lease contains no express prohibition against subletting, the lessee may sublet without prejudice to his responsibility toward the lessor. The Court found that the lease did not expressly prohibit subleasing and therefore the sublease contracts executed by Ramon were valid. The Court further explained the legal distinction between assignment of lease, which substitutes the parties, and sublease, which preserves the juridical relation between original lessor and lessee while creating a separate relation between lessee and sublessee.

Legal Reasoning — Tortious Interference

The Court addressed Art. 1314 and the elements of tortious interference: existence of a valid contract, knowledge of the contract by the third person, and unjustified interference. Although Hospicio de San Jose knew of the subleases and the subleases were valid, the Court found no tortious interference because the third element was absent. Citing So Ping Bun v. Court of Appeals, the Court explained that intrusion driven by legitimate economic motives—in this case, Hospicio de San Jose’s right to collect rentals and to secure its interest upon termination of the lease—did not amount to tortious interference. There was no showing of wrongful or malicious motive.

Legal Reasoning — Ownership of Buildings and Reimbursement for Improvements

The Court rejected the Inocencios’ contention that as owners of the buildings they could freely lease them independently of the land lease. It reaffirmed precedent that the lease of a building includes the lease of the lot on which it stands and that rentals for the building include rentals for the lot. Notwithstanding this, the Court found that Art. 1678 applied: th

Case Syllabus (G.R. No. 201787)

Parties and Procedural Posture

Analita P. Inocencio filed the petition substituting for Ramon Inocencio, deceased, as petitioner in this Court review under Rule 42 of the Rules of Court and thereafter in this petition for review.
Hospicio de San Jose was the respondent and original lessor in the underlying lease dispute.
The petition assailed the Court of Appeals Decision dated 12 January 2012 in CA-G.R. SP No. 117009 and its Resolution dated 9 May 2012.
The case arose from an unlawful detainer action filed by Hospicio de San Jose in the Metropolitan Trial Court of Pasay, Branch 48, and progressed by appeal to the Regional Trial Court, Branch 119, then to the Court of Appeals, and finally to the Supreme Court.

Key Factual Allegations

Hospicio de San Jose leased a parcel in Pasay City to German Inocencio beginning 1 March 1946 with renewals and the last written contract dated 31 May 1951.
Section six of the written lease provided that the contract was nontransferable unless the lessor gave prior written consent.
German Inocencio constructed two buildings on the leased parcel and designated his son, Ramon, to administer the property and collect rentals.
German died in 1997 and Ramon continued collecting rentals, paying rentals to Hospicio de San Jose, and paying property taxes without notifying Hospicio de San Jose of the death.
On 1 March 2001 Hospicio de San Jose acknowledged acceptance of rentals from Ramon and notified him that the lease was treated as month-to-month and would expire on 31 March 2001.
Hospicio de San Jose later refused renewal and accused Ramon of subleasing to about twenty families without its written consent and declined to accept further rental payments.
Hospicio de San Jose demanded vacatur and payment of purported unrealized fruits of PHP 756,449.26 on 3 March 2005 and filed an unlawful detainer complaint on 28 June 2005.
Ramon (later substituted by Analita) asserted that the buildings belonged to the Inocencio estate and that subleases were valid since the contract did not expressly prohibit subletting.

Lower Court Proceedings

The Metropolitan Trial Court of Pasay rendered judgment in favor of Hospicio de San Jose ordering vacatur, awarding reasonable compensation of PHP 552,195.36 for use and occupation from 1 April 2001 to 31 March 2005, PHP 10,512.00 per month thereafter, twelve percent interest per annum until vacatur, and PHP 50,000.00 attorneys fees.
The Regional Trial Court, Branch 119, Pasay City, dismissed Analita's appeal and affirmed the MeTC decision in toto in a judgment dated 21 January 2009.
The Court of Appeals affirmed the RTC decision but modified the award for reasonable compensation to PHP 504,576.00 for the period 1 April 2001 to 31 March 2005 with six percent interest per annum and ordered PHP 10,512.00 per month from 1 April 2005 with six percent interest until finality and twelve percent after finality.

Issues Presented

Whether the sublease contracts executed by Ramon were valid despite the lease clause stating the contract was nontransferable.
Whether Hospicio de San Jose committed tortious interference by entering into leases with the former sublessees.
Whether Ramon or his estate owned the buildings erected on the leased premises.
Whether Hospicio de San Jose was entitled to the award of reasonable compensation and attorneys fees as decreed by lower courts.
Whether the unlawful detainer action was barred by prescription.

Statutory Framework

Art. 1311 of the Civil Code governing transmissibility of contractual rights and l