Lao Chit v Security Bank & Trust Co. and Consolidated Investment, Inc.

(17 April 1959)

Concepcion, J.
FACTS:
Consolidated Investments (lessor), leaser to Domingo Dikit part of the lobby of the Consolidated Building at Plaza
Goiti, Manila to be used as offices for a proposed Bank of Manila to be organized by Dikit and Jose Silva.
The lessee undertook to construct walls, partitions, and other improvements; such improvements shall become
the property of the lessor upon the termination and/or rescission of the lease contract.
Dikit and Silva entered into a contract with plaintiff Lao Chit for the latter to furnish the materials and the work for
the improvements at a total cost of P59,365 payable as soon as the Bank of Manila opens for business, and is
given permit by the Central Bank. The permit was never issued.
The rentals for the lease of the space were also not paid. The lessor then instituted an unlawful detainer action.
Municipal Court of Manila: rendered judgment sentencing Dikit.
Dikit appealed to the CFI and eventually the Supreme Court.
The cases were soon dismissed upon agreement of the parties that Dikit will relinquish whatever rights he might
have to the possession of the leased premises and disclaimed all rights to and over any and all improvements
introduced therein.
Lao filed a separate civil action against Dikit and Silva for recovery of whatever was due from them.
CFI of Manila: ruled in favor of Lao and sentenced Dikit and Silva as solidarily liable for the sum of P59,365.
A writ of execution was issued but remained unsatisfied. Dikit nor Silva had any properties registered in their
respective names and Silva was nowhere to be found.
Lao Chit then brought the present action against Security Bank and (Bank) to which lessor had leased the
property, together with the improvements. He demanded a payment of P1,000/month by way of rentals.
In its answer, the Bank alleged that it used the improvements pursuant to its contract of lease with the lessor.
Soon after, Lao demanded the amount of the improvements plus P1000/month from the lessor, which did not heed
said demand.
According to the lessor, it had no contractual or juridical relation with Lao and that the improvements belonged to it
and not to Lao.
CFI of Manila: sentenced Consolidated Investments and Security Bank solidarily to pay P59,365 and rentals at
the rate of P1,000/mo.
Defendants filed a motion for reconsideration and new trial, but were denied. Hence, this appeal.
ISSUES + RULING:
WoN the lower court erred in rendering judgment against the Bank. YES.
It is clear that the Bank entered into the premises in question pursuant to a lease contract with the lessor.
The Bank paid the rentals and fulfilled its obligations under the contract.
It cannot be denied that the improvements introduced became property of the lessor pursuant to the provision in
the contract between it and Dikit and Silva that the former shall own said improvements upon expiration and/or
rescission of the contract.
Although Lao Chit was not a party to said contract, this stipulation is binding upon him, he having introduced said
improvements pursuant to his contract with Dikit, from whom he derived, therefore, his right to enter the building
and make the improvements.
o In short, insofar as the construction thereof, Lao Chit was, vis-a-vis the lessor, a mere agent or
representative of Dikit and, as such, was privy to the undertakings of Dikit under his contract of lease with
the lessor.
WoN the lessor is liable to Lao Chit for the improvements. NO.
The lower court held the lessor liable to Lao upon the ground that he was a builder in good faith, and under the
theory of unjust enrichment.

Art. 361 (now 448) of the [Old] Civil Code provides:

o The owner of land on which anything has been built, sown, or planted, in good faith, shall be entitled to
appropriate the thing so built, sown, or planted, upon paying the compensation mentioned in Articles 453
and 454, or to compel the person who has built or planted to pay him the value of the land, and the
person who sowed thereon to pay the proper rent therefor.
However, this provision refers to one who builds upon a land which he believes to be his property. Neither Lao nor
Dikit claimed the building as their own.
Moreover, the provision is limited in its application to buddings constructed on anothers land, and not to
partitions, railing, counters, shelves, and the like.
Moreover, there was no bad faith on the part of the lessor since it was bound to permit Dikit and Lao as his agent
to construct improvements.
The lower court also relied on Art. 356 (now 443) in ruling that there should be no unjust enrichment:
o He who receives fruits is obliged to pay any expenses which may have been incurred by another in the
production, gathering, and preservation thereof.
The Supreme Court ruled, however, that the provision is not on point since it refers to "expenses" of production,
gathering and preservation" of fruits received by the owner of a property, not to improvements, whereas the claim
of Lao Chit is based upon "improvements" introduced, not "expenses" incurred by him for the "production,
gathering and preservation" of fruits.
The provision on quasi-contracts (Art. 2142) of the Civil Code cannot likewise be applied. It provides:
o Certain lawful, voluntary and unilateral acts give rise to the juridical relation of quasi-contract to the end
that no one shall be unjustly enriched or benefited at the expense of another.
The construction of the improvements in question was not a "purely voluntary act" or "unilateral act" of Lao Chit.
He introduced them in compliance with a bilateral "obligation" he undertook under his contract with Dikit.
For the principle of undue enrichment to apply, there must be "enrichment" and the same must be "undue" or
"unjust".
In the case at bar, Dikit failed to pay the agreed monthly rental of P5,000 from October, 1949. Up to July 1, 1951,
when the premises in question were leased to the Bank, the rentals due from Dikit aggregated, therefore,
P105,000.
Thus, despite the fact that the lessor had become the owner of the improvements in question, worth P59,365.00, it
still suffered a loss of over P45,000.00. Such "loss" negates the idea of "enrichment".
Had he been reasonably vigilant, Lao Chit could have demanded from Dikit a mortgage, or a bond, or some other
security, for the protection of his rights, yet he did not do so.
Should the lessor be required to pay Lao Chit what he is entitled to recover from Dikit, but which he (Lao Chit)
cannotdue to his oversight, carelessness or negligencecollect from Dikit, the effect would be to relieve Lao
Chit of the consequences of his own inadvertence or negligence, and hold the lessor responsible therefor.

DISPOSITION: Reversed. Costs against Lao Chit.