FIRST DIVISION

[G.R. No. 78975. September 7, 1989.]

IGNACIO V. SORIANO , petitioner, vs. HONORABLE COURT OF

APPEALS and GELANO SANCHEZ , respondents.

Pedro A. Venida for petitioner.

Remegio M. Tividad for respondents.

SYLLABUS

1. PROPERTY; RECORDED LEASE; EFFICACY CONTINUOUS UNTIL LAWFULLY

TERMINATED. — Once a lease is recorded as in this case, it becomes binding on third
persons. It is a real right, an act of strict ownership and not merely an act of
administration. From the time of the execution of the lease contract, its e cacy
continues until it is terminated when the period of the lease expired of where there was
a violation of contractual conditions or for non-payment of rentals.
2. ID.; LEASE; PERSONAL KNOWLEDGE OF ITS EXISTENCE EQUIVALENT TO
REGISTRATION. — Petitioner admitted he had personal knowledge of the said
subsisting lease as early as January 22, 1966, more than a year before he acquired said
lot on February 23, 1967. The rule is that when a third person already knows of the
existence and duration of the lease, he is bound by such lease even if it has not been
recorded. The reason is that actual knowledge is for this purpose equivalent to
registration.
3. CONTRACT; AWARD OF DAMAGES; ABSENCE OF THE ELEMENTS OF THE
DOCTRINE OF UNJUST ENRICHMENT. — Finally, We see no cogent basis for the
application of the doctrine of unjust enrichment. It is commonly accepted that this
doctrine simply means that, "a person shall not be allowed to pro t or enrich himself
inequitably at another's expense." The aforesaid elements are absent in the case before
Us. The fact that for a modest outlay of One Thousand Eighty Pesos (P1.080.00), the
total rentals for 30 years, the trial court awarded Sanchez Seventy Nine Thousand Nine
Hundred Twenty Pesos (P79,920.00), less Eight Hundred One Pesos (P801.00)
corresponding to the unpaid rents, does not make the situation one of unjust
enrichment. As discussed earlier, there exists a valid contract of lease in favor of
Sanchez and the petitioner is bound by the same. This being so, it is but fair that the
fruits resulting from the use of the said lot be awarded to Sanchez.
4. ID.; ID.; NOT EXCESSIVE. — Petitioner insists, however, that the award of
damages is excessive. The award made by the lower court actually corresponds to the
rental due the land on the basis of the lease entered by the petitioner in favor of Filoil.
The lower court, in awarding P79,920.00, took into account that the P500.00 a month
paid by Filoil to herein petitioner as rentals include the lease for the use of petitioner's
lot covered by OCT No. T-33711, with an area of 418.33 sq. meters which is almost 1/3
of the total area leased. The lower court correctly concluded thus that 1/3 of the
P500.00 belongs to the petitioner while the remaining 2/3 belongs to Sanchez. Thus,
the award of damages to the rental for 20 years in the amount of P79,920.00 minus
unpaid rentals of P801.00 is correct.

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 DECISION

GANCAYCO , J : p

Is the vendee bound by the existing lease agreement of a lot entered into by the
vendor in favor of another person prior to the sale? This is the principal issue which the
Court is called upon to decide in this petition for review on certiorari of the decision 1
and the resolution 2 of the Court of Appeals dated October 22, 1986 and June 4, 1987,
respectively, in CA-G.R. CV No. 64799.
The parcel of land in question with an area of 870 square meters (sq.m.) is
located in Daet, Camarines Norte, which originally belonged to Lucio Pabico, Sr. Upon
his death, his heirs, namely his widow, Filomena Pabico and her children, entered into an
extra-judicial partition of his estate. Among the properties adjudicated to Filomena was
the aforementioned lot. On February 15, 1961, Filomena and her children entered into a
contract of lease over the aforesaid lot with Gelano Sanchez, also a respondent herein,
for a period of thirty (30) years at a monthly rental of THREE PESOS (P3.00). Said lease
was duly registered with the Registry of Deeds in Camarines Norte. On the same date,
they sold their house erected on the said lot to Sanchez. On June 16, 1962, Filomena
sold part of the aforesaid lot with an area of 420 sq.m. to her son Emiliano.
On January 22, 1966, that is, ve (5) years after the execution of the lease
contract, Sanchez sold the house he bought from the Pabicos to Ignacio Soriano,
petitioner herein, for the sum of Five Thousand Pesos (P5,000.00) with right to
repurchase, but this was not effected. After over a year, or on February 23, 1967,
Filomena and Emiliano sold their respective portions of the property to the petitioner
with a warranty that the land is free from all liens and encumbrances. Subsequently, on
November 1, 1967, petitioner leased the lot in question to Filoil together with his lot
covered by OCT No. T-3374 with an area of 418 sq.m. for a period of twenty years (20)
at a monthly rental of FIVE HUNDRED PESOS (P500.00). cdphil

On June 9, 1969, two (2) years after the lease entered into by the petitioner with
Filoil, Sanchez led a complaint for damages against Filomena and Emiliano Pabico,
Ignacio Soriano and Filoil, before the then Court of First Instance (CFI) of Daet,
Camarines Norte, praying that the lease entered into between him and the Pabicos be
declared existing and in full force and that all payments made by Filoil to the petitioner
be delivered to him instead.
After hearing and submission of the memorandum, judgment was rendered on
July 19, 1973 in favor of Sanchez. 3
On September 10, 1973, defendants led a motion for the reopening of the case
and for new trial on the grounds of fraud, accident, mistake or excusable negligence
which allegedly led to their failure to adduce complete evidence. Defendants
questioned further the award of damages on the ground that the same is excessive. LLphil

On October 3, 1973, the trial court granted the reopening of the case wherein the
movants manifested that the contract was vitiated on the ground that Filomena was
already nearing 90 years old at the time of the execution of the contract and that she
was no longer in possession of her faculties. 4
On October 29, 1973, the trial court rendered judgment requiring the defendants
below to pay Sanchez jointly and severally the sum of P79,119.00 with legal interest
until the same is fully paid. 5
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 Petitioner appealed the decision to the Court of Appeals. In the decision dated
October 22, 1986, the appellate court a rmed the judgment with the modi cation
making Emiliano Pabico jointly and severally liable. 6 The appellate court likewise
denied petitioner's motion for reconsideration.
Hence, the present petition.
Petitioner posits the view that the contract of lease in favor of Sanchez was
already terminated when the latter sold to him the house existing on the lot and
imposed no condition regarding the right of the petitioner to sub-lease the premises
nor require petitioner to pay rentals for the use of the portion of the lot occupied by the
house. 7 Petitioner added that if Sanchez was actually interested in his registered
leasehold right, then he should have taken material possession thereof by ling a suit
when the gasoline station was being built thereon. 8 Petitioner further argues that the
consolidation of ownership of the land and the house in his name rightfully terminated
the leasehold right of Sanchez over the lot as its retention would be incompatible with
the idea of consolidation. 9 Finally, he contends that Sanchez would be unjustly
enriching himself in this instance.
We do not agree.
Once a lease is recorded as in this case, it becomes binding on third persons. 1 0
It is a real right, an act of strict ownership and not merely an act of administration. From
the time of the execution of the lease contract, its e cacy continues until it is
terminated on the grounds provided for by law.
In the case before Us, the lease was not only duly registered but as borne by the
record the petitioner had actual knowledge of the fact that prior to the sale of the land
in his favor by the Pabicos, the land had been leased to Sanchez. Petitioner admitted he
had personal knowledge of the said subsisting lease as early as January 22, 1966,
more than a year before he acquired said lot on February 23, 1967. 1 1 The rule is that
when a third person already knows of the existence and duration of the lease, he is
bound by such lease even if it has not been recorded. The reason is that actual
knowledge is for this purpose equivalent to registration. 1 2
The Court had the occasion to rule squarely on the same issue in Gustilo vs.
Maravilla, 1 3 where We held that when a purchaser of the land at the time of the
purchase has actual knowledge of the fact that the land has been leased to a third
person and is informed of the terms of such lease, he is bound to respect said lease
although it is not entered upon the certificate of title.LLphil

Moreover, where there exists a valid lease, as in this case, the same may only be
terminated when the period of the lease expired or where there was a violation of
contractual conditions or for non-payment of rentals. 1 4
Petitioner alleges that Sanchez continued paying rent for a period of seven (7)
years only. Be that as it may, it should be noted that mere failure to pay rent does not
ipso facto make the lessee's possession of the premises unlawful. It is necessary that
there be non-payment after the demand for payment of the rent was made. It appears
that Sanchez kept paying or offering to pay the rent due on the leased premises to one
Ester Pabico who was allegedly authorized by her mother Filomena to receive the
same. 1 5 Obviously, at the time that the leased premises had been sold to the petitioner
and when he rented out the same to Filoil, there existed a valid contract of lease in favor
of Sanchez which was thereby violated by the petitioner.
Petitioner insists, however, that the prior and subsequent acts of Sanchez were
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 indicative of his will to terminate the contract of lease.
We disagree. As borne by the records, the lease contract was executed
separately from the contract of sale of the house in favor of Sanchez. The continuance
of the contract of lease does not appear to be dependent upon his ownership of the
house existing thereon. Hence, the fact that Sanchez later on sold the house to the
petitioner is immaterial. As asserted by Sanchez, he planned to put up a warehousing
business for copra and palay, and a ricemill, hence a long term lease was necessary. 1 6
Said testimony remained uncontroverted.
On the other hand, the fact that it took Sanchez a period of over a year before he
sued for possession or a declaration of the existence of the lease contract would not in
any manner militate against his right over the leased premises. The records reveal that
upon knowing that the petitioner executed a lease in favor of Filoil, Sanchez instituted
an ejectment suit against Filoil. 1 7 However, the case was dismissed in a decision dated
December 10, 1971 on the ground that there was no illegal possession. 1 8 Thus,
Sanchez filed a suit for damages which is now the subject of the present petition.
Finally, We see no cogent basis for the application of the doctrine of unjust
enrichment. It is commonly accepted that this doctrine simply means that, "a person
shall not be allowed to pro t or enrich himself inequitably at another's expense." 1 9 The
aforesaid elements are absent in the case before Us. The fact that for a modest outlay
of One Thousand Eighty Pesos (P1.080.00), the total rentals for 30 years, the trial court
awarded Sanchez Seventy Nine Thousand Nine Hundred Twenty Pesos (P79,920.00),
less Eight Hundred One Pesos (P801.00) corresponding to the unpaid rents, does not
make the situation one of unjust enrichment. As discussed earlier, there exists a valid
contract of lease in favor of Sanchez and the petitioner is bound by the same. This
being so, it is but fair that the fruits resulting from the use of the said lot be awarded to
Sanchez. llcd

Petitioner insists, however, that the award of damages is excessive. The award
made by the lower court actually corresponds to the rental due the land on the basis of
the lease entered by the petitioner in favor of Filoil. The lower court, in awarding
P79,920.00, took into account that the P500.00 a month paid by Filoil to herein
petitioner as rentals include the lease for the use of petitioner's lot covered by OCT No.
T-33711, with an area of 418.33 sq. meters which is almost 1/3 of the total area
leased. The lower court correctly concluded thus that 1/3 of the P500.00 belongs to
the petitioner while the remaining 2/3 belongs to Sanchez. Thus, the award of damages
to the rental for 20 years in the amount of P79,920.00 minus unpaid rentals of P801.00
is correct.
WHEREFORE, the petition is DISMISSED for lack of merit. No costs.
This decision is immediately executory.
SO ORDERED.
Narvasa, Cruz, Griño-Aquino and Medialdea, JJ., concur.

Footnotes

1. Penned by Justice Jorge R. Coquia and concurred in by Justices Bienvenido C. Ejercito

and Antonio M. Martinez.

2. Penned by Justice Oscar N. Herrera and concurred in by Justices Leonor Ines Luciano
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 and Justo P. Torres.
3. Page 35, Record on Appeal.
4. Page 120, Record on Appeal.

5. Pages 128-143, Record on Appeal.

6. Pages 17-24. Rollo.

7. Page 7, Rollo.
8. Page 10, Rollo.

9. Page 11, Rollo.

10. Article 1648, Civil Code of the Philippines.
11. T.S.N., October 25, 1972, pages 6-7, and January 24, 1973, page 9.

12. Quimson vs. Suarez, 45 Phil. 901 (1924).

13. 48 Phil. 442 (1925).

14. Article 1673, Civil Code of the Philippines.

15. Page 20, Rollo.

16. T.S.N., March 5, 1974, page 3.

17. Civil Case No. 790, Municipal Court of Daet, Camarines Norte.
18. Page 84, Record on Appeal.

19. 43 Words & Phrases Perm. 272, citing American University vs. Forbes, 182 A. 258, 262,
88 N.H. 17.

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