Title
Zaragoza vs. Iloilo Santos Truckers, Inc.
Case
G.R. No. 224022
Decision Date
Jun 28, 2017
Petitioner sued ISTI for unpaid rent and unlawful detainer; SC ruled consignation incomplete, ordered eviction, back rentals, and interest.
zaragoza
iloilo santos truckers
lessor

Case Summary (G.R. No. 224022)

Factual Background

On June 26, 2003, petitioner purchased the subject 3,058-square meter parcel from his parents, Florentino and Erlinda Zaragoza, and eventually registered it under his name. Petitioner asserted that, unknown to him, Florentino leased a 1,000-square meter portion of Lot 937-A to respondent for eight years starting December 5, 2003, renewable for another eight years at respondent’s sole option. Petitioner stated that he allowed the lease to subsist and that respondent paid monthly rent of P10,000.00 per month (or P11,200.00 including value added tax, subject to variations stated in the record). Petitioner claimed that after Florentino’s death, respondent stopped paying rent.

Respondent, for its part, maintained that it was willing to pay rent but was uncertain as to whom payment should be made because it received separate demands from Florentino’s heirs, including petitioner. As a result, respondent filed an interpleader case before the RTC-Br. 24, Civil Case No. 07-29371, seeking to determine the proper party to receive rental payments.

After due proceedings, the RTC-Br. 24 issued (a) an Order dated June 22, 2010 dismissing the interpleader action but advising that respondent could avail itself of the remedy of consignation, and (b) an Order dated August 17, 2010 reiterating that respondent may consign rental amounts to avoid unnecessary expenses and delay. Complying with these orders, respondent submitted a consolidated report and a manifestation and notice, informing petitioner that it had consigned an aggregate amount of P521,396.89 before RTC-Br. 24.

Despite this, petitioner sent respondent a letter dated May 24, 2011. Petitioner argued that even assuming the propriety of consignation, the consigned amount was insufficient to extinguish respondent’s obligation because it did not cover unpaid rentals plus interests from February 2007 to May 2011 in the amount of P752,878.72. Petitioner demanded payment and required respondent to vacate within fifteen days. In reply, respondent reiterated that it had already paid rent through consignation in the amount of P521,396.89, which it stated covered monthly rentals from February 2007 to March 2011, and insisted that it owed no contractual interest. Petitioner then clarified, through a letter dated June 9, 2011, that the amount consigned was still short because it did not cover April and May 2011 and thus still failed to satisfy the period demanded (February 2007 to May 2011). Petitioner characterized respondent as continuously failing, with or without consignation, to comply with the lease terms regarding monthly rent.

When petitioner’s demands went unheeded, petitioner filed an unlawful detainer suit on June 21, 2011 against respondent in the MTCC. Respondent denied liability, arguing that its consignation with the RTC-Br. 24 constituted compliance with the lease’s rental payment obligation and that petitioner had no cause of action to eject it. After the unlawful detainer suit commenced, respondent sent petitioner a letter dated September 29, 2011 expressing intent to renew the lease. Petitioner rejected the renewal through letters dated October 10 and 11, 2011, citing respondent’s failure to timely pay rent.

Trial Court Proceedings

In a Decision dated December 29, 2011, the MTCC ruled for petitioner. It ordered respondent to (a) vacate the leased premises and (b) pay petitioner back rentals of P10,000.00 per month from February 2007 and succeeding months until vacating, plus legal interest of twelve percent (12%) per annum from extrajudicial demand until full payment. The MTCC also awarded P20,000.00 as attorney’s fees, P50,000.00 as litigation expenses, and the costs of suit.

The MTCC found that petitioner’s complaint sufficiently alleged grounds for unlawful detainer, including respondent’s default in rental payments from February 2007 to May 2011 totaling P752,878.72, respondent’s failure to pay or vacate despite demand, and the consequent illegality of respondent’s continued possession. The MTCC further concluded that respondent’s consignation with RTC-Br. 24 was void and did not discharge respondent’s rental obligations. Since no valid consignation was deemed to have occurred, respondent remained liable for unpaid rentals and petitioner was considered justified in terminating the lease.

RTC Reversal

Respondent appealed to the RTC-Br. 23, docketed as Civil Case No. 12-31294. In a Decision dated July 5, 2013, the RTC reversed and dismissed petitioner’s complaint.

The RTC held that respondent’s consignation was proper. It reasoned that the consignation was made pursuant to the RTC-Br. 24 orders in the interpleader case, which rendered consignation an ancillary remedy; that consignation occurred even before petitioner filed the unlawful detainer case and that petitioner knew of it; and that petitioner even withdrew the consigned amounts. Based on these considerations, the RTC concluded that consignation effectively released respondent from rent obligations, and therefore petitioner could not eject respondent.

Court of Appeals Ruling

Petitioner elevated the matter to the CA via a petition for review, CA-G.R. CEB-SP No. 07839. In a Decision dated July 22, 2015, the CA affirmed the RTC.

The CA acknowledged that petitioner’s unlawful detainer complaint stated a cause of action on its face. However, the CA ruled that petitioner failed to substantiate the crucial factual allegation that respondent intentionally violated the lease conditions by failing to pay monthly rentals. The CA considered that respondent was ready and willing to comply but was uncertain as to whom it should remit rent. It treated respondent’s consignation to RTC-Br. 24 as evidence of good faith. It also emphasized that consignation was properly made and was recognized by petitioner through withdrawal of the consigned amounts. Absent proof of a lease violation, the CA held that petitioner could not validly eject respondent.

Petitioner’s motion for reconsideration was denied by Resolution dated April 8, 2016, prompting the present petition.

Issues Presented

The principal issue for the Court’s resolution was whether the CA correctly ruled that petitioner could not eject respondent because respondent fully complied with its monthly rental obligation through consignation.

Legal Basis and Reasoning

The Court treated the petition as meritorious and reversed the CA and RTC for misapprehension of the requisites of unlawful detainer and the effect of respondent’s consignation. In doing so, the Court reiterated the requisites for unlawful detainer where there is a subsisting lease: first, there must be failure to pay rent or comply with the conditions of the lease, and second, there must be demand to pay or comply and to vacate. The Court stressed that the first requisite establishes the cause of action, which requires proof of the lease contract and its violation, as stated in the Court’s discussions in cases cited in the decision.

The Court held that in this case the first, third, and fourth requisites were satisfied when the unlawful detainer suit was filed on June 21, 2011. A subsisting lease contract existed; respondent remained in possession; and the suit was filed within one year from the last demand, the Court pointing to petitioner’s letter dated May 24, 2011 that demanded payment and vacating. The real controversy, therefore, centered on the second requisite—whether respondent violated the lease terms, especially the obligation to pay monthly rentals.

The Court found that the RTC and CA erred in treating respondent’s consignation with RTC-Br. 24 as complete compliance. While the lower courts had relied on the proper nature of the consignation and on petitioner’s withdrawal of the consigned amounts, the Court focused on the scope of what was actually consigned compared with what petitioner demanded. Petitioner’s letter dated May 24, 2011 demanded rental payment for the period February 2007 to May 2011. Respondent replied that it had complied by consigning rent with RTC-Br. 24, supported by a manifestation and notice it filed before that court.

The Court noted that a close reading of respondent’s reply and its manifestation and notice showed that the consigned amount covered monthly rentals only for February 2007 to March 2011, which left two full months (April and May 2011) uncovered relative to petitioner’s demand. Petitioner had already pointed out this deficiency in the letter dated June 9, 2011. Despite that notice, respondent refused to make additional payments, either through further consignations with RTC-Br. 24 or by direct payment to petitioner.

Accordingly, even assuming arguendo that the consignation was made in accordance with law, the Court held that respondent still failed to comply with the lease contract because respondent was not updated in its monthly rentals at the time petitioner filed the unlawful detainer action. The Court emphasized that there was no evidence that respondent paid rentals for April 2011, May 2011, and even June 2011. The Court concluded that this omission constituted a violation of the lease conditions by respondent.

Having found that the requisites for unlawfu

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