Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 177120 July 14, 2008

PAUL T. IRAO, Petitioner,

vs.
BY THE BAY, INC., Respondent.

DECISION

CARPIO MORALES, J.:

By Resolution of February 20, 2008, this Court denied the Petition for Review on Certiorari filed by Paul T.
Irao (petitioner) due to non-compliance with the September 17, 2007 Resolution directing him to file a reply
to the comment of By the Bay, Inc. (respondent) on the petition.

Petitioner, through counsel, promptly filed an Urgent Omnibus Motion1 praying for the reconsideration of the
above-said February 20, 2008 Resolution, the reinstatement of his petition, and the admission of his belated
reply attached to the motion.

Explaining the non-compliance, petitioners counsel Atty. Tristram B. Zoleta of A., Tan, Zoleta and Associates
alleges that "the previous lawyer (Atty. Wilfred F. Neis) assigned to this case inadvertently and unintentionally
failed to file the required reply due to his resignation from the law firm, without properly turning over all the
cases assigned to him;" that "the law firm and its associates had no slightest intention" to disobey the
September 17, 2007 Resolution; and that they have "committed themselves under their oath as lawyers that
they will be more circumspect in the supervision and handling of petitioners case."2 Atty. Zoleta further
averred that "petitioner has a valid and meritorious case," warranting the grant of the petition. 3

The Court finds counsels excuse to be flimsy and hackneyed. It is preposterous for his law firm to allow the
handling lawyer to resign without requiring him to turn over all the cases assigned to him.

Given that the findings on the case by the Metropolitan Trial Court and the Regional Trial Court on one hand,
and the Court of Appeals on the other, are conflicting, however, and the prima facie merit of the petition,
the Court heeds petitioners entreaty and thus reconsiders the February 20, 2008 Resolution, reinstates the
petition, and admits petitioners belated reply to respondents comment on the petition.

In June of 2002, the Estate of Doa Trinidad de Leon Roxas represented by Ruby Roxas as lessor, and herein
respondent represented by Ronald M. Magbitang as lessee, forged a contract of lease4 over a three-storey
building with an area of 662 square meters, located at Roxas Boulevard corner Salud Street, Pasay City, for
a term of five (5) years commencing on July 1, 2002 until June 30, 2007, for a monthly rental of 200,000.00,
to be increased annually by 50,000.00.5

It appears that in November 2003, respondents restaurant business at the leased premises was "closed
down by the City Government."

Respondent defaulted in the payment of rentals which, as of January 2004, totaled 2,517,333.366 inclusive
of interest and penalty charges. Despite demands to pay the amount and comply with the terms and
conditions of the contract, respondent failed and refused to do so.7

1
The lessors counsel thereupon demanded, by letter8 of January 16, 2004, the payment by respondent of
2,517,333.36 within five (5) days from notice "otherwise the Contract of Lease would be terminated without
notice." It appears that the letter to respondent was received on January 23, 2004.9

Respondent failed to heed the demand, however, drawing the lessor to terminate the contract without notice,
in accordance with Section 31 of the contract which provides:

31. DEFAULT The LESSEE agrees that all the covenants and agreements herein contained shall be deemed
conditions as well as covenants and that if default or breach be made of any of such covenants and conditions
then this lease, at the discretion of the LESSOR, may be terminated and cancelled forthwith, and the LESSEE
shall be liable for any and all damages, actual and consequential, resulting from such default and termination.

If after due notice has been given to the LESSEE of the cancellation of the lease, the latter fails to comply
with the LESSORs demand for the return to it of the possession of the premises and the payment of the
LESSEEs accrued obligations pursuant to the provisions of this Contract or in the event the LESSOR should
exercise its Contract or in the event the LESSOR should exercise its right to enforce its preferred lien on the
personal properties of the LESSEE existing on the Leased Premises, or in the event of default or breach by
the LESSEE of any of the provisions herein contained, the LESSEE hereby empowers the LESSOR and/or
her authorized representatives to open, enter, occupy, padlock, secure, enclose, fence and/or discontinue
public utilities and otherwise take full and complete physical possession and control of the Leased
Premises without resorting to court action; x x x. For purposes of this provision and other pertinent provisions
of this Contract, the LESSEE hereby constitutes the LESSOR and her authorized representatives as the
LESSEEs attorney-in-fact, and all acts performed by them in the exercise of their authority are hereby
confirmed. The LESSEE hereby expressly agrees that only or all acts performed by the LESSOR, her
authorized agents, employees and/or representatives under the provisions of this Section may not be the
subject of any Petition for a Writ of Preliminary Injunction or Mandatory Injunction in court.10(Emphasis and
underscoring supplied)

Subsequently or on February 4, 2004, the lessor executed a lease contract11 over the same property with
herein petitioner, Paul T. Irao, effective February 1, 2004 until January 30, 2009. Paragraph 6 of this contract
empowers petitioner to enter and take over the possession of the leased premises, thus:

6. TURNOVER OF POSSESSION The Leased Premises is presently being unlawfully detained by the previous
lessee and the LESSEE acknowledges and recognizes such fact. The LESSEE undertakes that it shall take the
necessary legal measures to eject or evict the previous lessee and its employees and assigns and take over
possession of the Leased Premises.12

Consequently, on or about February 6, 2004, petitioner, accompanied by a Barangay Kagawad and some
security guards from the Spy Master Security Agency, entered and took possession of the leased premises.

Respondent thereupon filed with the Metropolitan Trial Court (MeTC) of Pasay City a complaint13 for forcible
entry with prayer for preliminary mandatory injunction and damages against petitioner and all persons
claiming rights under him, docketed as Civil Case No. 89-04 CFM.

In its complaint, respondent alleged that its lease contract had not been terminated14 because the lessors
demand letter was merely a demand to pay the rental arrears, without a notice to terminate the contract,
hence, it "has the right to occupy the leased premises until June 30, 2007,"15 the expiry date of the lease;
and that, therefore, petitioners taking over the possession of the leased premises on February 6, 2004 was
illegal.

By Decision16 of May 21, 2004, Branch 44 of the MeTC dismissed respondents complaint, it holding that by
respondents failure to pay monthly rentals, it "violated its contractual obligations and therefore come to
Court with unclean hands."17

2
On appeal, the Regional Trial Court (RTC) of Pasay City, Branch 108, by Decision 18 dated August 16, 2004,
dismissed respondents appeal and affirmed the MeTC Decision.

Respondent elevated the case via petition for review to the Court of Appeals which, by Decision19 of February
22, 2006, granted the petition, disposing as follows:

WHEREFORE, the petition is GRANTED. Accordingly, the August 16, 2004 Decision of the Regional Trial Court
of Pasay City, Branch 108, and May 21, 2004 Decision of the Metropolitan Trial Court of Pasay City, Branch
44, are REVERSED and SET ASIDE. A NEW JUDGMENT is rendered ordering respondent [herein petitioner]
Paul Irao to turn over the possession of the subject premises to petitioner.

SO ORDERED. (Emphasis in the original; underscoring supplied)

In reversing the RTC decision, the appellate court held that "while the contract with respondent provided
that [i]n case of default, the parties stipulated that the lessor (or its authorized representative) could take
over the physical possession of the leased premises without resorting to court action, [t]his empowerment,
however, comes into play only after due notice has been given to the LESSEE of the cancellation of the
lease,"20 citing the second paragraph of Section 31 of respondents lease contract, quoted earlier. Finding
that a termination notice and a demand to vacate the leased premises were not incorporated in the lessors
demand letter, the appellate court ruled that respondents eviction was improper.

Petitioners motion for reconsideration was denied by Resolution21 of March 26, 2007.

Hence, the present petition for review on certiorari filed on May 15, 2007 hinged on the issue of whether the
lessors demand letter to respondent contains a notice of termination of the lease contract and a demand to
vacate the leased premises to justify the taking over of possession thereof by the lessor and/or its
representative-herein petitioner.

The Court finds in the affirmative.

The pertinent portions of the demand letter read:

xxxx

Our client [the lessor] has informed us that since June 2003, you failed to pay and refused to pay your
monthly rentals including the interest due thereon, which to date amounts to Php1,450,000. In addition, you
also owe our client the amount of Php567,333.36 by way of penalty and interest for late payment of your
rentals from January 2003 to January 2004. A statement of account is attached herewith for your guidance
and information.

xxxx

In view of the foregoing, formal demand is hereby made on you to pay our client the full amount of
Php2,517,333.36 within five (5) days from receipt hereof, otherwise we shall be constrained, much to our
regret, to terminate your Contract of Lease and take the necessary legal measures against you to protect
our clients interest, without further notice. (Emphasis and underscoring supplied)

The language and intent of the abovequoted portions of the demand letter are unambiguous. The lessor
demanded from respondent the full payment of its unpaid rentals of 2,517,333.36 within five days from
notice. The phrase "otherwise we shall be constrained, much to our regret" in the letter sends a clear warning
that failure to settle the amount within the stated period would constrain the lessor to "terminate [the]
Contract of Lease" and "take the necessary legal measures against [respondent] to protect [its] interest
without further notice."

3
The letter made it clear to respondent that the therein stated adverse consequences would ensue "without
further notice," an unmistakable warning to respondent that upon its default, the lease contract would be
deemed terminated and that its continued possession of the leased premises would no longer be permitted.

The notice of impending termination was not something strange to respondent since it merely implemented
the stipulation in Section 31 of their contract that "if default or breach be made of any of such covenants
and conditions, then this lease, at the discretion of the LESSOR, may be terminated and cancelled forthwith."

To "warn" means "to give notice to somebody beforehand, especially of danger;" and a "warning" may be
"a notice of termination of an agreement, employment, etc."22 Its purpose is "to apprise a party of the
existence of danger of which he is not aware to enable him to protect himself against it."23

"[W]here," as here, "the party is aware of the danger, the warning will serve no useful purpose and is
unnecessary, and there is no duty to warn against risks which are open and obvious."24

The appellate courts ruling that the lessors letter did not demand respondent to vacate is flawed. A notice
or demand to vacate does not have to expressly use the word "vacate," as it suffices that the demand letter
puts the lessee or occupant on notice that if he does not pay the rentals demanded or comply with the terms
of the lease contract, it should move out of the leased premises.25

It bears reiteration that the demand letter priorly warned respondent that upon its default the lease contract
would not only be terminated, but the lessor would "take the necessary legal measures against [respondent]
to protect [its] interest, without further notice" and "without resorting to court action" as stipulated in their
lease contract. The "necessary legal measures" are those expressly stipulated in Section 31 of the lease
contract among which are, for expediency, requoted below:

"x x x in the event of default or breach by the LESSEE of any of the provisions herein contained, the LESSEE
hereby empowers the LESSOR and/or her authorized representatives to open, enter, occupy, x x x and
otherwise take full and complete physical possession and control of the Leased Premises without resorting
to court action; x x x. For purposes of this provision and other pertinent provisions of this Contract, the
LESSEE hereby constitutes the LESSOR and her authorized representatives as the LESSEEs attorney-in-fact,
and all acts performed by them in the exercise of their authority are hereby confirmed. x x x." (Emphasis
and underscoring supplied)

Contractual stipulations empowering the lessor and/or his representative to repossess the leased property
extrajudicially from a deforciant lessee, as in the present case, have been held to be valid. 26 Being the law
between the parties, they must be respected. Respondent cannot thus feign ignorance that the repossession
of the leased property by the lessor and/or its representative-herein petitioner was the appropriate legal
measure it (respondent) itself authorized under their contract. 1avvphi 1

In Viray v. Intermediate Appellate Court27 where the lessor and the lessee stipulated as follows:

7. Upon failure of the Lessee to comply with any of the terms and conditions of this lease, as well as such
other terms and conditions which may be imposed by the Lessor prior to and/or upon renewal of this lease
agreement as provided in par. 2 above, then the Lessor shall have the right, upon five (5) days written notice
to the Lessee or in his absence, upon written notice posted at the entrance of the premises leased, to enter
and take possession of the said premises holding in his trust and custody and such possessions and
belongings of the Lessee found therein after an inventory of the same in the presence of a witness, all these
acts being hereby agreed to by the Lessee as tantamount to his voluntary vacation of the leased
premises without the necessity of suit in court." (Underscoring supplied; italics in the original),

this Court, finding that the stipulation empowered the lessor to reposses the leased premises extrajudicially,
and citing, inter alia, Consing v. Jamadre28 wherein this Court sustained the validity of a lease agreement
empowering the sub-lessor to take possession of the leased premises, in case the sub-lessee fails "to comply

4
with any of the terms and conditions" of the contract "without necessity of resorting to court action," held
that the stipulation was valid.

In Subic Bay Metropolitan Authority v. Universal International Group of Taiwan,29 this Court, in resolving in
the affirmative the issue of whether a "stipulation authorizing [the therein petitioner-lessor] to extrajudicially
rescind its contract [with the therein respondent-lessee] and to recover possession of the property in case
of contractual breach is lawful," considered, among other things, the therein lessees several violations of
the Lease and Development Agreement including its failure to complete the "rehabilitation of the Golf Course
in time for the APEC Leaders Summit, and to pay accumulated lease rentals, and to post the required
performance bond," which violations the lessee did not deny or controvert. The Court therein concluded that
the lessee "effectively . . . offered no valid or sufficient objection to the lessors exercise of its stipulated right
to extrajudicially rescind the [agreement] and take over the property in case of material breach."

As in Subic Bay,30 herein respondent-lessee violated its agreement with the lessor and offered no valid or
sufficient objection to the exercise by the lessor through petitioner of its stipulated right to extrajudicially
take possession of the leased premises.

Apropos with respect to herein respondents having already been ousted of the leased premises is this Courts
explanation in Viray that "the existence of . . . an affirmative right of action [of the lessor] constitutes a valid
defense against, and is fatal to any action by the tenant who has been ousted otherwise than judicially to
recover possession," citing Apundar v. Andrin31 which held:

. . . The existence of an affirmative right of action on the part of the landlord to oust the tenant is fatal to
the maintenance of any action by the tenant. Otherwise, the absurd result would follow that a tenant ousted
under the circumstances here revealed would be restored to possession only himself to be immediately put
out in a possessory action instituted by the landlord. To prevent circuity of action, therefore, we must
recognize the affirmative right of action on the part of the landlord as a complete and efficacious defense to
the maintenance of an action by the tenant. Circuitus est evitandus; et boni judices est lites dirimere, ne lis
ex lite oriatur.

Another consideration based upon an idea familiar to jurisprudence is equally decisive. This is found in one
of the implications of the familiar maxim, Ubi jus ibi remedium, the converse of which is of course equally
true, namely: Nullum jus nullum remedium. Applying this idea to the case before us, it is manifest that
inasmuch as the plaintiffs right of possession has been destroyed, the remedy is also necessarily taken
away.32 (Underscoring supplied)

To restore possession of the premises to herein respondent, who was ousted under the circumstances
reflected above, would undoubtedly, certainly result to absurdity.

WHEREFORE, the petition is GRANTED. The challenged Court of Appeals Decision dated February 22, 2006
and its Resolution dated March 26, 2007 are REVERSED and SET ASIDE.

The August 16, 2004 Decision of the Regional Trial Court of Pasay City, Branch 108 affirming that of the
Metropolitan Trial Court of Pasay City, Branch 44 is REINSTATED.

Costs against respondent.

SO ORDERED.

5
SECOND DIVISION

G.R. No. 148759 June 8, 2006

GERMELINA TORRES RACAZA and BERNALDITA TORRES PARAS, Petitioners,

vs.
ERNESTO GOZUM,1 Respondent.

DECISION

AZCUNA, J.:

In this petition for review on certiorari under Rule 45 of the Rules of Court, petitioners Germelina Torres
Racaza and Bernaldita Torres Paras seek the nullification of the decision2 dated July 12, 2000 as well as the
resolution3 dated June 28, 2001 rendered by the Court of Appeals (CA) in CA-G.R. CV No. 61227 which
reversed and set aside the decision4 dated September 30, 1998 of the Regional Trial Court (RTC), Branch
158 of Pasig City, consequently dismissing the complaint for accion publiciana filed by petitioners against
respondent Ernesto Gozum.

The antecedents of this case are as follows:

The plaintiffs are the registered co-owners of a parcel of land under Transfer Certificate of Title No. PT-
92411 situated at Amang Rodriguez Avenue, Santolan, Pasig City. Standing on this lot is a 2-storey, 3-door
apartment. The property was formerly owned by the father of the plaintiffs, the late Carlos Torres.

In 1981, defendant Ernesto Gozum occupied the back portion of the property on a P3,500.00 monthly rental
and continued to occupy the same even after the death of Carlos Torres on December 26, 1993.

On July 1, 1995, plaintiffs sent Gozum a letter of demand to vacate [the] premises (Annex G, Complaint).
After a failed barangay conciliation, on November 24, 1995, plaintiffs commenced an ejectment case [with
the Metropolitan Trial Court] against Gozum. The case was, however, dismissed due to [a] technicality.

Almost two (2) years thereafter, on May 27, 1997, plaintiffs sent anew a formal demand letter to vacate on
the ground that the verbal contract of lease over the property had already expired sometime in July 1995,
and the same has not been renewed and since then, defendant had discontinued paying the monthly rentals
of P3,500.00. When this latter demand was not heeded, on June 4, 1997, the present complaint for recovery
of possession or accion publiciana was initiated before the Regional Trial Court of Pasig City.

The initial reaction of the defendant was to file a motion to dismiss based on lack of jurisdiction claiming that
the cause of action should have been for unlawful detainer falling within the jurisdiction of the municipal trial
courts and that the provision of P.D. No. 1508 was not complied with.

In the Order dated September 30, 1997, the court a quo denied the motion to dismiss on the ground that
an unlawful detainer must be filed within one (1) year from the notice to vacate [given] as early as July 1,
1995 and since over two (2) years had passed when the case was filed, the proper action is accion
publiciana and no longer unlawful detainer.

Defendant thereafter filed his answer asseverating that he has a 10-year contract of lease (Annex 1,
Complaint) over the premises executed between him and plaintiffs late father on October 1, 1989 to expire
on September 30, 1999 and so, the notice to vacate and the present case were all prematurely done.
Defendant likewise denied the allegation that he has not been paying rentals. The truth is that it was the
plaintiffs who refused to receive payments so that the same were deposited with the bank. In the same
answer, defendant asserted that the contract of lease gave him the right of first refusal to buy the property
and in violation thereof, plaintiffs have already sold the property to a certain Ernesto Brana.

6
After due proceedings on September 30, 1998, the appealed decision was promulgated with the following
dispositive portion:

"WHEREFORE, in view of the foregoing, judgment is rendered in favor of the plaintiffs and against the
defendant, ordering the latter and all persons claiming rights under him to vacate the premises covered by
Transfer Certificate of Title No. PT-92411 of the Register of Deeds of Pasig City and turn it over to the
plaintiffs. Defendant is also ordered to pay plaintiffs the amount of P3,500.00 effective July 1, 1995 until
such time he shall have vacated the premises. In addition, he shall pay attorneys fees in the amount
of P30,000.00 plus P1,500.00 per court appearance and the cost of suit.

SO ORDERED.

Pasig City, September 30, 1998." (pp. 4-5, RTC Decision; pp. 76-77, Rollo).5

Aggrieved, respondent seasonably appealed the decision to the CA, ascribing to the lower court the following
errors:

I. THE COURT A QUO ERRED IN HOLDING THAT THE PLAINTIFFS HAVE A LEGAL RIGHT TO
RECOVER POSSESSION OF THE SUBJECT PROPERTY FROM THE DEFENDANT.

II. THE LOWER COURT ERRED IN NOT RECOGNIZING THE VALIDITY OF THE CONTRACT OF LEASE
DATED OCTOBER 5, 1989, WHICH WAS PREVIOUSLY EXECUTED BY THE PLAINTIFFS FATHER,
ATTORNEY CARLOS P. TORRES, AND HEREIN DEFENDANT.

III. THE COURT A QUO ERRED IN DECLARING THAT THE ABOVEMENTIONED CONTRACT IS
FRAUDULENT, FABRICATED AND FICTITIOUS AND THAT THE SIGNATURE OF ATTY. TORRES
AFFIXED THEREON IS NOT GENUINE.

IV. THE TRIAL COURT COMMITTED ERROR IN AWARDING DAMAGES AND ATTORNEYS FEES IN
FAVOR OF PLAINTIFFS.6

After the submission by the parties of their respective briefs but prior to the resolution of the appeal,
petitioners filed with the CA a Motion to Dismiss or for Execution Pending Appeal7 dated December 6, 1999
on the ground that the lease contract relied upon by respondent to justify his continued possession of the
subject property had, by its own terms and respondents own admission, expired on September 30, 1999.

Thereafter, without acting upon petitioners motion to dismiss, the CA reversed the decision of the RTC and
dismissed the case, holding that the lower court had no jurisdiction over the complaint for accion
publicianaconsidering that it had been filed before the lapse of one (1) year from the date the last letter of
demand to respondent had been made. The CA ruled that the proper remedy of petitioners should have
been an action for unlawful detainer filed with the first level court, or the municipal or metropolitan trial
court.

Their motion for reconsideration having been denied, petitioners filed this present petition arguing that:

1) The Court of Appeals decided a question of substance not in accord with jurisprudence and
remedial law authorities when it declared as null and void the entire proceedings in the trial court
despite the fact that:

(i) petitioners correctly filed the accion publiciana with the trial court below;

(ii) respondent actively participated in the trial proceeding, testified in person, and submitted
to the trial courts authority to decide the case; and

7
 (iii) respondent did not raise any jurisdictional issue in his appeal where he raised only the
substantive portions of the trial courts decision.

2) The Court of Appeals likewise departed from the accepted and usual course of judicial proceedings
amounting to serious abuse of discretion when it chose to ignore the glaring fact that respondents
appeal had become moot and academic with the expiration of the lease contract upon which his
appeal rested.8

In due course, respondent filed his Comment9 dated October 10, 2001, asserting that the CA correctly
set aside the decision of the RTC because the lower court had no jurisdiction over the subject matter
of the case. In this regard, respondent pointed out that he had previously assailed the jurisdiction of
the trial court in the proceedings below via his Motion to Dismiss10 dated July 8, 1997. Respondent
likewise adopted the reasoning of the CA and argued that petitioners ran afoul of Section 1, Rule
7011 of the Rules of Court considering that petitioners Complaint12 dated June 4, 1997 for recovery
of possession was filed only within months from the date the second demand letter to vacate dated
May 27, 1997 was served upon him.

In their Reply13 dated October 20, 2001, petitioners countered that respondent is estopped from raising any
jurisdictional issue in connection with the demand letter dated May 27, 1997 considering that respondent
never argued during the trial or even in his appeal to the CA that the existence of the second letter divested
the trial court of jurisdiction over the complaint.

The petition has merit.

The allegations of a complaint determine the nature of the action as well as which court will have jurisdiction
over the case.14 The complaint would be deemed sufficient if, on its face, it shows that the court has
jurisdiction without resorting to parol testimony.15 Precisely because ejectment proceedings are summary in
nature, the complaint should contain a statement of facts which would bring the party clearly within the class
of cases for which the statutes provide a remedy.

In the present case, petitioners made the following allegations in their complaint:

xxx

2. [Petitioners] are the duly registered co-owners of a parcel of land and its improvements, more
particularly identified as a 3-door apartment, specifically located between Fumakilla Laboratories,
Inc. and the Shell Gasoline Station along Amang Rodriguez, Sr. Avenue, Santolan, Pasig City, Metro
Manila x x x.

3. Sometime in 1981, [respondent] entered into a verbal lease contract with the parents of herein
[petitioners], who agreed to lease to the [respondent], on a month-to-month basis, the
aforementioned property at the rental rate of Php3,500.00 per month.

4. On July 1, 1995, [petitioners] sent [respondent] a Notice to Vacate x x x informing the latter of
the termination of the said verbal lease contract and demanding from him to vacate and peacefully
surrender to the [petitioners] the aforesaid premises, the possession of which [respondent] has
unlawfully withheld from the latter. Notwithstanding these written and oral demands, [respondent]
has repeatedly failed and up to now still refuses to turn over the said premises peacefully to the
[petitioners].

Since that time, [respondent] has failed to remit his monthly rentals of Php3,500.00 so that as of May 30,
1997, [respondent] has incurred rental arrears now totaling Php 80,500.00 x x x16

To summarize, petitioners claim that (1) they are the owners of the property, being the successors-in-interest
of the original owners; (2) their predecessors-in-interest entered into a verbal lease agreement with
8
respondent on a month-to-month basis; (3) they decided to terminate the verbal lease contract upon the
expiration of the last monthly term sometime in 1995; and (4) on July 1, 1995, they demanded that
respondent leave the property, but respondent refused to do so.

Undeniably, the foregoing averments constitute a cause of action that is based primarily on unlawful
deprivation or withholding of possession. Petitioners seek the recovery of the possession of the leased
premises following the lapse of the term of the verbal lease contract entered into by petitioners
predecessors-in-interest with respondent. The allegation that the contract is on a month-to-month basis
becomes material in this sense because it signifies that the lease contract is terminable at the end of every
month.17 Thus, petitioners may exercise their right to terminate the contract at the end of any month even
if none of the conditions of the contract had been violated, and such right cannot be defeated by the lessee's
timely payment of the rent or by his willingness to continue doing so. The lease contract expires at the end
of every month unless there is an implied or tacit renewal thereof as when the lessee is allowed to continue
enjoying the leased premises for fifteen (15) days after the end of every month with the acquiescence of the
lessor. Such exception, however, cannot be invoked when notice to vacate is given to the lessee in which
case the contract of lease expires at the end of the month.18

Moreover, even if the month-to-month agreement is only on a verbal basis, if it is shown that the property
is needed for the lessors own use or for the use of an immediate member of the family or for any of the
other statutory grounds to eject, then the lease is considered terminated as of the end of the month, after
proper notice or demand to vacate has been given.19 At this juncture, it must be pointed out that notice or
demand to vacate had been properly served upon respondent through the letter20 dated July 1, 1995, to wit:

July 1/95

Dear Ernesto Gozom,

I would like to reiterate my verbal demand upon you to vacate the premises you are presently occupying
made sixty (60) days ago.

The said premises should be vacated within THIRTY (30)21 DAYS upon receipt hereof for I badly needed it
and please take this notice as my final demand after I have verbally given you sixty (60) days already.

Hoping you will give this matter your preferential and utmost attention in order to avoid a costly litigation.

Very truly yours,

(sgd.)
GERMELINA T. RACAZA and

(sgd.)
BERNALDITA T. PARAS

Verily, respondents right to remain in possession of the property subject of the lease was extinguished upon
the expiration of the grace period mentioned in the July 1, 1995 demand letter. It thus becomes respondents
obligation to turn over the property to petitioners, failing which petitioners would have the right to
immediately resort to ejectment action to recover possession. Their complaint could thus fall under two kinds
of ejectment suits, the first being for unlawful detainer cognizable by the metropolitan or municipal trial
courts under Rule 70 and the second being for accion publiciana cognizable by the regional trial courts.22

An action for unlawful detainer exists when a person unlawfully withholds possession of any land or building
against or from a lessor, vendor, vendee or other persons, after the expiration or termination of the right to
hold possession, by virtue of any contract, express or implied.23 This summary action should be filed with the
municipal trial courts within one year after the occurrence of the unlawful deprivation or withholding of

9
possession.24 Beyond the one-year period, the real right of possession may be recovered through the filing
of an accion publiciana with the regional trial courts. 25

In upholding the propriety of the mode adopted by petitioners to recover possession of their real property,
the trial court found that more than one (1) year had lapsed from the time of petitioners dispossession, to
wit:

xxx

As to the first issue, the [petitioners] have the legal right to recover the property from the [respondent].
[Petitioners] are the absolute owners of the property and the portion of the property which is occupied by
the [respondent]. The possession by the [respondent] of the back portion of the property is unlawful and
[petitioners] have been unlawfully deprived of the property since July 1, 1995 when they served the notice
to vacate to the [respondent]. [Respondent] admits that after the notice to vacate was served upon him, he
stopped paying his monthly rentals to the [petitioners]. The present action for recovery of possession was
filed more than one year from the time the cause of action of the [petitioners] accrued, which was from the
time the [respondent] stopped paying his rental to the [petitioners] or on July 1, 1995. x x x26

Respondent nevertheless insists, for the first time, that the one-year period must be reckoned from the date
of the second demand letter to vacate, that is, on May 27, 1997. Considering that petitioners complaint was
filed within days from this date, respondent contends that the RTC had no jurisdiction to hear the case.
Adopting in toto the position of the CA, respondent argues that petitioners should have filed an action for
unlawful detainer instead with the metropolitan or municipal trial courts.

The records of the case, however, do not support this view. Demand or notice to vacate is not a jurisdictional
requirement when the action is based on the expiration of the lease. Any notice given would only negate
any inference that the lessor has agreed to extend the period of the lease. The law requires notice to be
served only when the action is due to the lessees failure to pay or the failure to comply with the conditions
of the lease.27 The one-year period is thus counted from the date of first dispossession. To reiterate, the
allegation that the lease was on a month-to-month basis is tantamount to saying that the lease expired every
month. Since the lease already expired mid-year in 1995 as communicated in petitioners letter dated July 1,
1995, it was at that time that respondents occupancy became unlawful.

Even assuming, for the sake of argument, that a demand or notice to vacate was necessary, a reading of
the second letter shows that petitioners were merely reiterating their original demand for respondent to
vacate on the basis of the expiration of the verbal lease contract mentioned in the first letter. For clarity, the
full text of the second letter28 sent by petitioners counsel is reproduced below:

Dear Mr. Gozom:

My principals, Germelina Torres Racaza and Bernaldita Torres Paras, have brought to me for legal action the
fact of your unjustified and unlawful possession and occupation of the entire back portion of their apartment
building, located between Fumakilla Laboratories Inc. and the Shell Gasoline Station along Amang Rodriguez,
Sr. Avenue, Santolan, Pasig City, Metro Manila.

According to my principals, your verbal contract of lease covering the said premises already
expired sometime in July 1995 and the same has never been renewed, for which reason you
discontinued paying your monthly rentals of Php3,500.00.

Notwithstanding their constant reminders and requests to you, for you to immediately vacate
the aforesaid leased premises in view of the expiration of the lease contract, you have up to
this time failed and still refuse to vacate the said premises to the prejudice of my clients.

In this regard, please consider this letter our formal demand and notice for you to vacate the said leased
premises on or before the 2nd day of June 1997. Should you fail to so vacate and leave the premises and to
10
pay your total monthly rental arrearages, amounting to Php 80,500.00, on or before the said date, we shall
be constrained to pursue all available remedies under the law to protect the interests of my clients.

Very truly yours,

(sgd.)
ATTY. CELSO P. YLADAN II
Counsel for Germelina Torres Racaza and Bernaldita Torres Paras

(Emphases supplied.)

The Court has, in the past, ruled that subsequent demands which are merely in the nature of reminders or
reiterations of the original demand do not operate to renew the one-year period within which to commence
the ejectment suit considering that the period will still be reckoned from the date of the original demand.29

Besides, the allegations in the complaint and the answer put in issue the existence and validity of the verbal
lease contract itself. Respondent contends that the lease term over the property is ten (10) years based on
a written lease contract purportedly executed by him and petitioners predecessors-in interest. In this
situation, it is the RTC which would be in the best position to determine the true nature of the agreement
between the parties and to decide which of the two agreements is valid. In fact, it found that the written
lease contract was spurious and not binding upon the petitioners.

Moreover, it is too late for respondent to invoke the defense of lack of jurisdiction on the ground that the
action was filed before the lapse of one year from the date of last demand. Based on the records, respondent
never pursued this line of argument in the proceedings before the trial court and even in his appeal to the
CA. While it is true that prior to the filing of his answer, respondent moved to dismiss the complaint on the
theory that the allegations therein merely constituted an action for unlawful detainer, the motion did not
raise any jurisdictional issue relative to the second demand letter. When his motion to dismiss was denied,
respondent no longer challenged the jurisdiction of the trial court in his subsequent pleadings and instead
actively participated in the proceedings held before the RTC by relying principally on the strength of the
written lease contract allegedly executed between him and petitioners predecessors-in-interest. It was only
when the CA motu proprio dismissed the complaint that respondent conveniently thought of adopting the
novel theory embodied in the assailed decision of the appellate court. Under these circumstances, estoppel
has already set in.

In Tijam v. Sibonghanoy,30 this Court held that a partys active participation in all stages of the case before
the trial court, which includes invoking the courts authority to grant affirmative relief, effectively estops such
party from later challenging that same courts jurisdiction. The CAs conclusion that the doctrine enunciated
in Tijam has been abandoned is erroneous as, in fact, the same has been upheld and reiterated in many
succeeding cases.31 Thus, while an order or decision rendered without jurisdiction is a total nullity and may
be assailed at any stage, a partys active participation in the proceedings in the tribunal which rendered the
order or decision will bar such party from attacking its jurisdiction.

In any event, this Court notes that by respondents own claim,32 the term of the alleged written lease contract
expired on September 30, 1999 or several months before the decision of the appellate court was rendered.
The CA should have taken cognizance of this material fact considering that the statement is binding upon
respondent and is an admission which renders moot the issue of who has a better right of possession.

WHEREFORE, the petition is GRANTED and the assailed Decision dated July 12, 2000 as well as the
Resolution dated June 28, 2001 rendered by the Court of Appeals in CA-G.R. CV No. 61227
are REVERSED and SET ASIDE. Accordingly, the Decision dated September 30, 1998 of the Regional Trial
Court, Branch 158, Pasig City in Civil Case No. 66295 is REINSTATED.

No costs.

11
SECOND DIVISION

G.R. No. 140182. April 12, 2005

TANAY RECREATION CENTER AND DEVELOPMENT CORP., Petitioners,

vs.
CATALINA MATIENZO FAUSTO* and ANUNCIACION FAUSTO PACUNAYEN, Respondents.

DECISION

AUSTRIA-MARTINEZ, J.:

Petitioner Tanay Recreation Center and Development Corp. (TRCDC) is the lessee of a 3,090-square meter
property located in Sitio Gayas, Tanay, Rizal, owned by Catalina Matienzo Fausto,1 under a Contract of Lease
executed on August 1, 1971. On this property stands the Tanay Coliseum Cockpit operated by petitioner.
The lease contract provided for a 20-year term, subject to renewal within sixty days prior to its expiration.
The contract also provided that should Fausto decide to sell the property, petitioner shall have the "priority
right" to purchase the same.2

On June 17, 1991, petitioner wrote Fausto informing her of its intention to renew the lease.3 However, it was
Faustos daughter, respondent Anunciacion F. Pacunayen, who replied, asking that petitioner remove the
improvements built thereon, as she is now the absolute owner of the property.4 It appears that Fausto had
earlier sold the property to Pacunayen on August 8, 1990, for the sum of 10,000.00 under a "Kasulatan ng
Bilihan Patuluyan ng Lupa,"5 and title has already been transferred in her name under Transfer Certificate of
Title (TCT) No. M-35468.6

Despite efforts, the matter was not resolved. Hence, on September 4, 1991, petitioner filed an Amended
Complaint for Annulment of Deed of Sale, Specific Performance with Damages, and Injunction, docketed as
Civil Case No. 372-M.7

In her Answer, respondent claimed that petitioner is estopped from assailing the validity of the deed of sale
as the latter acknowledged her ownership when it merely asked for a renewal of the lease. According to
respondent, when they met to discuss the matter, petitioner did not demand for the exercise of its option to
purchase the property, and it even asked for grace period to vacate the premises.8

After trial on the merits, the Regional Trial Court of Morong, Rizal (Branch 78), rendered judgment extending
the period of the lease for another seven years from August 1, 1991 at a monthly rental of 10,000.00, and
dismissed petitioners claim for damages.9

On appeal, docketed as CA-G.R. CV No. 43770, the Court of Appeals (CA) affirmed with modifications the
trial courts judgment per its Decision dated June 14, 1999.10 The dispositive portion of the decision reads:

WHEREFORE, the appealed decision is AFFIRMED AND ACCORDINGLY MODIFIED AS DISCUSSED.

Furthermore, we resolved:

1.0. That TRCDC VACATE the leased premises immediately;

2.0. To GRANT the motion of Pacunayen to allow her to withdraw the amount of 320,000.00, deposited
according to records, with this court.

12
3.0. To order TRCDC to MAKE THE NECESSARY ACCOUNTING regarding the amounts it had already
deposited (for unpaid rentals for the extended period of seven [7] years of the contract of lease). In case it
had not yet completed its deposit, to immediately pay the remaining balance to Pacunayen.

4.0. To order TRCDC to PAY the amount of 10,000.00 as monthly rental, with regard to its continued stay
in the leased premises even after the expiration of the extended period of seven (7) years, computed from
August 1, 1998, until it finally vacates therefrom.

SO ORDERED.11

In arriving at the assailed decision, the CA acknowledged the priority right of TRCDC to purchase the property
in question. However, the CA interpreted such right to mean that it shall be applicable only in case the
property is sold to strangers and not to Faustos relative. The CA stated that "(T)o interpret it otherwise as
to comprehend all sales including those made to relatives and to the compulsory heirs of the seller at that
would be an absurdity," and "her (Faustos) only motive for such transfer was precisely one of preserving
the property within her bloodline and that someone administer the property."12 The CA also ruled that
petitioner already acknowledged the transfer of ownership and is deemed to have waived its right to purchase
the property.13 The CA even further went on to rule that even if the sale is annulled, petitioner could not
achieve anything because the property will be eventually transferred to Pacunayen after Faustos death.14

Petitioner filed a motion for reconsideration but it was denied per Resolution dated September 14, 1999. 15

Dissatisfied, petitioner elevated the case to this Court on petition for review on certiorari, raising the following
grounds:

THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS REVERSIBLE ERROR IN HOLDING THAT THE
CONTRACTUAL STIPULATION GIVING PETITIONER THE PRIORITY RIGHT TO PURCHASE THE LEASED
PREMISES SHALL ONLY APPLY IF THE LESSOR DECIDES TO SELL THE SAME TO STRANGERS;

THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS REVERSIBLE ERROR IN HOLDING THAT
PETITIONERS PRIORITY RIGHT TO PURCHASE THE LEASED PREMISES IS INCONSEQUENTIAL. 16

The principal bone of contention in this case refers to petitioners priority right to purchase, also referred to
as the right of first refusal.

Petitioners right of first refusal in this case is expressly provided for in the notarized "Contract of Lease"
dated August 1, 1971, between Fausto and petitioner, to wit:

7. That should the LESSOR decide to sell the leased premises, the LESSEE shall have the priority right to
purchase the same;17

When a lease contract contains a right of first refusal, the lessor is under a legal duty to the lessee not to
sell to anybody at any price until after he has made an offer to sell to the latter at a certain price and the
lessee has failed to accept it. The lessee has a right that the lessor's first offer shall be in his
favor.18 Petitioners right of first refusal is an integral and indivisible part of the contract of lease and is
inseparable from the whole contract. The consideration for the lease includes the consideration for the right
of first refusal19 and is built into the reciprocal obligations of the parties.

It was erroneous for the CA to rule that the right of first refusal does not apply when the property is sold to
Faustos relative.20 When the terms of an agreement have been reduced to writing, it is considered as
containing all the terms agreed upon. As such, there can be, between the parties and their successors in
interest, no evidence of such terms other than the contents of the written agreement, except when it fails
to express the true intent and agreement of the parties.21 In this case, the wording of the stipulation giving
petitioner the right of first refusal is plain and unambiguous, and leaves no room for interpretation. It simply
means that should Fausto decide to sell the leased property during the term of the lease, such sale should
13
first be offered to petitioner. The stipulation does not provide for the qualification that such right may be
exercised only when the sale is made to strangers or persons other than Faustos kin. Thus, under the terms
of petitioners right of first refusal, Fausto has the legal duty to petitioner not to sell the property to anybody,
even her relatives, at any price until after she has made an offer to sell to petitioner at a certain price and
said offer was rejected by petitioner. Pursuant to their contract, it was essential that Fausto should have first
offered the property to petitioner before she sold it to respondent. It was only after petitioner failed to
exercise its right of first priority could Fausto then lawfully sell the property to respondent.

The rule is that a sale made in violation of a right of first refusal is valid. However, it may be rescinded, or,
as in this case, may be the subject of an action for specific performance.22 In Riviera Filipina, Inc. vs. Court
of Appeals,23 the Court discussed the concept and interpretation of the right of first refusal and the
consequences of a breach thereof, to wit:

. . . It all started in 1992 with Guzman, Bocaling & Co. v. Bonnevie where the Court held that a lease
with a proviso granting the lessee the right of first priority "all things and conditions being equal" meant that
there should be identity of the terms and conditions to be offered to the lessee and all other prospective
buyers, with the lessee to enjoy the right of first priority. A deed of sale executed in favor of a third party
who cannot be deemed a purchaser in good faith, and which is in violation of a right of first refusal granted
to the lessee is not voidable under the Statute of Frauds but rescissible under Articles 1380 to 1381 (3) of
the New Civil Code.

Subsequently in 1994, in the case of Ang Yu Asuncion v. Court of Appeals, the Court en banc departed
from the doctrine laid down in Guzman, Bocaling & Co. v. Bonnevie and refused to rescind a contract of
sale which violated the right of first refusal. The Court held that the so-called "right of first refusal" cannot
be deemed a perfected contract of sale under Article 1458 of the New Civil Code and, as such, a breach
thereof decreed under a final judgment does not entitle the aggrieved party to a writ of execution of the
judgment but to an action for damages in a proper forum for the purpose.

In the 1996 case of Equatorial Realty Development, Inc. v. Mayfair Theater, Inc., the
Court en banc reverted back to the doctrine in Guzman Bocaling & Co. v. Bonnevie stating that
rescission is a relief allowed for the protection of one of the contracting parties and even third persons from
all injury and damage the contract may cause or to protect some incompatible and preferred right by the
contract.

Thereafter in 1997, in Paraaque Kings Enterprises, Inc. v. Court of Appeals, the Court affirmed the
nature of and the concomitant rights and obligations of parties under a right of first refusal. The Court,
summarizing the rulings in Guzman, Bocaling & Co. v. Bonnevie and Equatorial Realty
Development, Inc. v. Mayfair Theater, Inc., held that in order to have full compliance with the
contractual right granting petitioner the first option to purchase, the sale of the properties for the price for
which they were finally sold to a third person should have likewise been first offered to the former. Further,
there should be identity of terms and conditions to be offered to the buyer holding a right of first refusal if
such right is not to be rendered illusory. Lastly, the basis of the right of first refusal must be the current offer
to sell of the seller or offer to purchase of any prospective buyer.

The prevailing doctrine therefore, is that a right of first refusal means identity of terms and conditions to be
offered to the lessee and all other prospective buyers and a contract of sale entered into in violation of a
right of first refusal of another person, while valid, is rescissible.24

It was also incorrect for the CA to rule that it would be useless to annul the sale between Fausto and
respondent because the property would still remain with respondent after the death of her mother by virtue
of succession, as in fact, Fausto died in March 1996, and the property now belongs to respondent, being
Faustos heir.25

For one, Fausto was bound by the terms and conditions of the lease contract. Under the right of first refusal
clause, she was obligated to offer the property first to petitioner before selling it to anybody else. When she

14
sold the property to respondent without offering it to petitioner, the sale while valid is rescissible so that
petitioner may exercise its option under the contract.

With the death of Fausto, whatever rights and obligations she had over the property, including her obligation
under the lease contract, were transmitted to her heirs by way of succession, a mode of acquiring the
property, rights and obligation of the decedent to the extent of the value of the inheritance of the heirs.
Article 1311 of the Civil Code provides:

ART. 1311. Contracts take effect only between the parties, their assigns and heirs, except in case where the
rights and obligations arising from the contract are not transmissible by their nature, or by stipulation or by
provision of law. The heir is not liable beyond the value of the property he received from the decedent.

A lease contract is not essentially personal in character.26 Thus, the rights and obligations therein are
transmissible to the heirs. The general rule is that heirs are bound by contracts entered into by their
predecessors-in-interest except when the rights and obligations arising therefrom are not transmissible by
(1) their nature, (2) stipulation or (3) provision of law.27

In this case, the nature of the rights and obligations are, by their nature, transmissible. There is also neither
contractual stipulation nor provision of law that makes the rights and obligations under the lease contract
intransmissible. The lease contract between petitioner and Fausto is a property right, which is a right that
passed on to respondent and the other heirs, if any, upon the death of Fausto.

In DKC Holdings Corporation vs. Court of Appeals,28 the Court held that the Contract of Lease with Option to
Buy entered into by the late Encarnacion Bartolome with DKC Holdings Corporation was binding upon her
sole heir, Victor, even after her demise and it subsists even after her death. The Court ruled that:

. . . Indeed, being an heir of Encarnacion, there is privity of interest between him and his deceased
mother. He only succeeds to what rights his mother had and what is valid and binding against
her is also valid and binding as against him. This is clear from Paraaque Kings Enterprises vs. Court
of Appeals, where this Court rejected a similar defense-

With respect to the contention of respondent Raymundo that he is not privy to the lease contract, not being
the lessor nor the lessee referred to therein, he could thus not have violated its provisions, but he is
nevertheless a proper party. Clearly, he stepped into the shoes of the owner-lessor of the land as, by virtue
of his purchase, he assumed all the obligations of the lessor under the lease contract. Moreover, he received
benefits in the form of rental payments. Furthermore, the complaint, as well as the petition, prayed for the
annulment of the sale of the properties to him. Both pleadings also alleged collusion between him and
respondent Santos which defeated the exercise by petitioner of its right of first refusal.

In order then to accord complete relief to petitioner, respondent Raymundo was a necessary, if not
indispensable, party to the case. A favorable judgment for the petitioner will necessarily affect the rights of
respondent Raymundo as the buyer of the property over which petitioner would like to assert its right of first
option to buy.29 (Emphasis supplied)

Likewise in this case, the contract of lease, with all its concomitant provisions, continues even after Faustos
death and her heirs merely stepped into her shoes.30 Respondent, as an heir of Fausto, is therefore bound to
fulfill all its terms and conditions.

There is no personal act required from Fausto such that respondent cannot perform it. Faustos obligation to
deliver possession of the property to petitioner upon the exercise by the latter of its right of first refusal may
be performed by respondent and the other heirs, if any. Similarly, nonperformance is not excused by the
death of the party when the other party has a property interest in the subject matter of the contract.31

The CA likewise found that petitioner acknowledged the legitimacy of the sale to respondent and it is now
barred from exercising its right of first refusal. According to the appellate court:
15
Second, when TRCDC, in a letter to Fausto, signified its intention to renew the lease contract, it was
Pacunayen who answered the letter on June 19, 1991. In that letter Pacunayen demanded that TRCDC
vacate the leased premises within sixty (60) days and informed it of her ownership of the leased premises.
The pertinent portion of the letter reads:

Furtherly, please be advised that the land is no longer under the absolute ownership of my mother and the
undersigned is now the real and absolute owner of the land.

Instead of raising a howl over the contents of the letter, as would be its expected and natural reaction under
the circumstances, TRCDC surprisingly kept silent about the whole thing. As we mentioned in the factual
antecedents of this case, it even invited Pacunayen to its special board meeting particularly to discuss with
her the renewal of the lease contract. Again, during that meeting, TRCDC did not mention anything that
could be construed as challenging Pacunayens ownership of the leased premises. Neither did TRCDC assert
its priority right to purchase the same against Pacunayen.32

The essential elements of estoppel are: (1) conduct of a party amounting to false representation or
concealment of material facts or at least calculated to convey the impression that the facts are otherwise
than, and inconsistent with, those which the party subsequently attempts to assert; (2) intent, or at least
expectation, that this conduct shall be acted upon by, or at least influence, the other party; and (3)
knowledge, actual or constructive, of the real facts.33

The records are bereft of any proposition that petitioner waived its right of first refusal under the contract
such that it is now estopped from exercising the same. In a letter dated June 17, 1991, petitioner wrote to
Fausto asking for a renewal of the term of lease.34 Petitioner cannot be faulted for merely seeking a renewal
of the lease contract because obviously, it was working on the assumption that title to the property is still in
Faustos name and the latter has the sole authority to decide on the fate of the property. Instead, it was
respondent who replied, advising petitioner to remove all the improvements on the property, as the lease is
to expire on the 1st of August 1991. Respondent also informed petitioner that her mother has already sold
the property to her.35 In order to resolve the matter, a meeting was called among petitioners stockholders,
including respondent, on July 27, 1991, where petitioner, again, proposed that the lease be renewed.
Respondent, however, declined. While petitioner may have sought the renewal of the lease, it cannot be
construed as a relinquishment of its right of first refusal. Estoppel must be intentional and unequivocal.36

Also, in the excerpts from the minutes of the special meeting, it was further stated that the possibility of a
sale was likewise considered.37 But respondent also refused to sell the land, while the improvements, "if for
sale shall be subject for appraisal."38 After respondent refused to sell the land, it was then that petitioner filed
the complaint for annulment of sale, specific performance and damages.39 Petitioners acts of seeking all
possible avenues for the amenable resolution of the conflict do not amount to an intentional and unequivocal
abandonment of its right of first refusal.

Respondent was well aware of petitioners right to priority of sale, and that the sale made to her by her
mother was merely for her to be able to take charge of the latters affairs. As admitted by respondent in her
Appellees Brief filed before the CA, viz.:

After June 19, 1991, TRCDC invited Pacunayen to meeting with the officers of the corporation. . . . In the
same meeting, Pacunayens attention was called to the provision of the Contract of Lease had
by her mother with TRCDC, particularly paragraph 7 thereof, which states:

7. That should the lessor decide to sell the leased premises, the LESSEE shall have the priority right to
purchase the same.

Of course, in the meeting she had with the officers of TRCDC, Pacunayen explained that the sale made in
her favor by her mother was just a formality so that she may have the proper representation with TRCDC in
the absence of her parents, more so that her father had already passed away, and there was no malice in
her mine (sic) and that of her mother, or any intention on their part to deceive TRCDC. All these
16
notwithstanding, and for her to show their good faith in dealing with TRCDC, Pacunayen started the ground
work to reconvey ownership over the whole land, now covered by Transfer Certificare (sic) of Title No. M-
259, to and in the name of her mother (Fausto), but the latter was becoming sickly, old and weak, and they
found no time to do it as early as they wanted to.40 (Emphasis supplied)

Given the foregoing, the "Kasulatan ng Bilihan Patuluyan ng Lupa" dated August 8, 1990 between Fausto
and respondent must be rescinded. Considering, however, that Fausto already died on March 16,
1996, during the pendency of this case with the CA, her heirs should have been substituted as
respondents in this case. Considering further that the Court cannot declare respondent Pacunayen as the
sole heir, as it is not the proper forum for that purpose, the right of petitioner may only be enforced against
the heirs of the deceased Catalina Matienzo Fausto, represented by respondent Pacunayen.

In Paraaque Kings Enterprises, Inc. vs. Court of Appeals,41 it was ruled that the basis of the right of the first
refusal must be the current offer to sell of the seller or offer to purchase of any prospective buyer. It is only
after the grantee fails to exercise its right of first priority under the same terms and within the period
contemplated, could the owner validly offer to sell the property to a third person, again, under the same
terms as offered to the grantee. The circumstances of this case, however, dictate the application of a different
ruling. An offer of the property to petitioner under identical terms and conditions of the offer previously given
to respondent Pacunayen would be inequitable. The subject property was sold in 1990 to respondent
Pacunayen for a measly sum of 10,000.00. Obviously, the value is in a small amount because the sale was
between a mother and daughter. As admitted by said respondent, "the sale made in her favor by her mother
was just a formality so that she may have the proper representation with TRCDC in the absence of her
parents"42 Consequently, the offer to be made to petitioner in this case should be under reasonable terms
and conditions, taking into account the fair market value of the property at the time it was sold to respondent.

In its complaint, petitioner prayed for the cancellation of TCT No. M-35468 in the name of respondent
Pacunayen,43which was issued by the Register of Deeds of Morong on February 7, 1991. 44 Under ordinary
circumstances, this would be the logical effect of the rescission of the "Kasulatan ng Bilihan Patuluyan ng
Lupa" between the deceased Fausto and respondent Pacunayen. However, the circumstances in this case
are not ordinary. The buyer of the subject property is the sellers own daughter. If and when the title (TCT
No. M-35468) in respondent Pacunayens name is cancelled and reinstated in Faustos name, and thereafter
negotiations between petitioner and respondent Pacunayen for the purchase of the subject property break
down, then the subject property will again revert to respondent Pacunayen as she appears to be one of
Faustos heirs. This would certainly be a winding route to traverse. Sound reason therefore dictates that title
should remain in the name of respondent Pacunayen, for and in behalf of the other heirs, if any, to be
cancelled only when petitioner successfully exercises its right of first refusal and purchases the subject
property.

Petitioner further seeks the award of the following damages in its favor: (1) 100,000.00 as actual damages;
(2) 1,100,000.00 as compensation for lost goodwill or reputation; (3) 100,000.00 as moral damages; (4)
100,000.00 as exemplary damages; (5) 50,000.00 as attorneys fees; (6) 1,000.00 appearance fee per
hearing; and (7) the costs of suit.45

According to petitioner, respondents act in fencing the property led to the closure of the Tanay Coliseum
Cockpit and petitioner was unable to conduct cockfights and generate income of not less than 100,000.00
until the end of September 1991, aside from the expected rentals from the cockpit space lessees in the
amount of 11,000.00.46

Under Article 2199 of the Civil Code, it is provided that:

Except as provided by law or by stipulation, one is entitled to an adequate compensation only for such
pecuniary loss suffered by him as he has duly proved. Such compensation is referred to as actual or
compensatory damages. (Emphasis supplied)

17
The rule is that actual or compensatory damages cannot be presumed, but must be proved with reasonable
degree of certainty. A court cannot rely on speculations, conjectures, or guesswork as to the fact and amount
of damages, but must depend upon competent proof that they have been suffered by the injured party and
on the best obtainable evidence of the actual amount thereof. It must point out specific facts, which could
afford a basis for measuring whatever compensatory or actual damages are borne.47

In the present case, there is no question that the Tanay Coliseum Cockpit was closed for two months and
TRCDC did not gain any income during said period. But there is nothing on record to substantiate petitioners
claim that it was bound to lose some 111,000.00 from such closure. TRCDCs president, Ambrosio
Sacramento, testified that they suffered income losses with the closure of the cockpit from August 2, 1991
until it re-opened on October 20, 1991.48 Mr. Sacramento, however, cannot state with certainty the amount
of such unrealized income.49 Meanwhile, TRCDCs accountant, Merle Cruz, stated that based on the
corporations financial statement for the years 1990 and 1991,50 they derived the amount of 120,000.00 as
annual income from rent.51 From said financial statement, it is safe to presume that TRCDC generated a
monthly income of 10,000.00 a month (120,000.00 annual income divided by 12 months). At best
therefore, whatever actual damages that petitioner suffered from the cockpits closure for a period of two
months can be reasonably summed up only to 20,000.00.

Such award of damages shall earn interest at the legal rate of six percent (6%) per annum, which shall be
computed from the time of the filing of the Complaint on August 22, 1991, until the finality of this decision.
After the present decision becomes final and executory, the rate of interest shall increase to twelve percent
(12%) per annum from such finality until its satisfaction, this interim period being deemed to be equivalent
to a forbearance of credit.52 This is in accord with the guidelines laid down by the Court in Eastern Shipping
Lines, Inc. vs. Court of Appeals,53regarding the manner of computing legal interest, viz.:

II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the
rate of interest, as well as the accrual thereof, is imposed, as follows:

1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or
forbearance of money, the interest due should be that which may have been stipulated in writing.
Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the
absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from
judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code.

2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the
amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum.
No interest, however, shall be adjudged on unliquidated claims or damages except when or until the demand
can be established with reasonable certainty. Accordingly, where the demand is established with reasonable
certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art.
1169, Civil Code) but when such certainty cannot be so reasonably established at the time the demand is
made, the interest shall begin to run only from the date the judgment of the court is made (at which time
quantification of damages may be deemed to have been reasonably ascertained). The actual base for the
computation of legal interest shall, in any case, be on the amount finally adjudged.

3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal
interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from
such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a
forbearance of credit.54

Petitioner also claims the amount of 1,100,000.00 as compensation for lost goodwill or reputation. It alleged
that "with the unjust and wrongful conduct of the defendants as above-described, plaintiff stands to lose its
goodwill and reputation established for the past 20 years."55

An award of damages for loss of goodwill or reputation falls under actual or compensatory damages as
provided in Article 2205 of the Civil Code, to wit:

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Art. 2205. Damages may be recovered:

(1) For loss or impairment of earning capacity in cases of temporary or permanent personal injury;

(2) For injury to the plaintiffs business standing or commercial credit.

Even if it is not recoverable as compensatory damages, it may still be awarded in the concept of temperate
or moderate damages.56 In arriving at a reasonable level of temperate damages to be awarded, trial courts
are guided by the ruling that:

. . . There are cases where from the nature of the case, definite proof of pecuniary loss cannot be offered,
although the court is convinced that there has been such loss. For instance, injury to one's commercial credit
or to the goodwill of a business firm is often hard to show certainty in terms of money. Should damages be
denied for that reason? The judge should be empowered to calculate moderate damages in such cases,
rather than that the plaintiff should suffer, without redress from the defendant's wrongful act. (Araneta v.
Bank of America, 40 SCRA 144, 145)57

In this case, aside from the nebulous allegation of petitioner in its amended complaint, there is no evidence
on record, whether testimonial or documentary, to adequately support such claim. Hence, it must be denied.

Petitioners claim for moral damages must likewise be denied. The award of moral damages cannot be
granted in favor of a corporation because, being an artificial person and having existence only in legal
contemplation, it has no feelings, no emotions, no senses. It cannot, therefore, experience physical suffering
and mental anguish, which can be experienced only by one having a nervous system. 58 Petitioner being a
corporation,59 the claim for moral damages must be denied.

With regard to the claim for exemplary damages, it is a requisite in the grant thereof that the act of the
offender must be accompanied by bad faith or done in wanton, fraudulent or malevolent manner.60 Moreover,
where a party is not entitled to actual or moral damages, an award of exemplary damages is likewise
baseless.61 In this case, petitioner failed to show that respondent acted in bad faith, or in wanton, fraudulent
or malevolent manner.

Petitioner likewise claims the amount of 50,000.00 as attorneys fees, the sum of 1,000.00 for every
appearance of its counsel, plus costs of suit. It is well settled that no premium should be placed on the right
to litigate and not every winning party is entitled to an automatic grant of attorney's fees. The party must
show that he falls under one of the instances enumerated in Article 2208 of the Civil Code. In this case, since
petitioner was compelled to engage the services of a lawyer and incurred expenses to protect its interest
and right over the subject property, the award of attorneys fees is proper. However there are certain
standards in fixing attorney's fees, to wit: (1) the amount and the character of the services rendered; (2)
labor, time and trouble involved; (3) the nature and importance of the litigation and business in which the
services were rendered; (4) the responsibility imposed; (5) the amount of money and the value of the
property affected by the controversy or involved in the employment; (6) the skill and the experience called
for in the performance of the services; (7) the professional character and the social standing of the attorney;
and (8) the results secured, it being a recognized rule that an attorney may properly charge a much larger
fee when it is contingent than when it is not.62 Considering the foregoing, the award of 10,000.00 as
attorneys fees, including the costs of suit, is reasonable under the circumstances.

WHEREFORE, the instant Petition for Review is PARTIALLY GRANTED. The Court of Appeals Decision dated
June 14, 1999 in CA-G.R. CV No. 43770 is MODIFIED as follows:

(1) the "Kasulatan ng Bilihan Patuluyan ng Lupa" dated August 8, 1990 between Catalina Matienzo Fausto
and respondent Anunciacion Fausto Pacunayen is hereby deemed rescinded;

(2) The Heirs of the deceased Catalina Matienzo Fausto who are hereby deemed substituted as respondents,
represented by respondent Anunciacion Fausto Pacunayen, are ORDERED to recognize the obligation of
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Catalina Matienzo Fausto under the Contract of Lease with respect to the priority right of petitioner Tanay
Recreation Center and Development Corp. to purchase the subject property under reasonable terms and
conditions;

(3) Transfer Certificate of Title No. M-35468 shall remain in the name of respondent Anunciacion Fausto
Pacunayen, which shall be cancelled in the event petitioner successfully purchases the subject property;

(4) Respondent is ORDERED to pay petitioner Tanay Recreation Center and Development Corporation the
amount of Twenty Thousand Pesos (20,000.00) as actual damages, plus interest thereon at the legal rate
of six percent (6%) per annum from the filing of the Complaint until the finality of this Decision. After this
Decision becomes final and executory, the applicable rate shall be twelve percent (12%) per annum until its
satisfaction; and,

(5) Respondent is ORDERED to pay petitioner the amount of Ten Thousand Pesos (10,000.00) as
attorneys fees, and to pay the costs of suit.

(6) Let the case be remanded to the Regional Trial Court, Morong, Rizal (Branch 78) for further proceedings
on the determination of the "reasonable terms and conditions" of the offer to sell by respondents to
petitioner, without prejudice to possible mediation between the parties.

The rest of the unaffected dispositive portion of the Court of Appeals Decision is AFFIRMED.

SO ORDERED.

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