G.R. No. 129609 & G.R. No. 135537; November 29, 2001
RODIL ENTERPRISES, INC., petitioner, vs. COURT OF APPEALS, CARMEN BONDOC, TERESITA BONDOC-ESTO, DIVISORIA FOOTWEAR and CHUA HUAY SOON, respondents. (G.R. No. 129609) / RODIL ENTERPRISES, INC., petitioner, vs. IDES O’RACCA BUILDING TENANTS ASSOCIATION, INC., respondent. (G.R. No. 135537)

FACTS

Petitioner Rodil Enterprises Inc. (RODIL) was the long-term lessee of the Ides O’Racca Building, a former alien property owned by the Republic. In 1980, RODIL subleased portions of the building to the individual respondents (Bondoc, et al.), who were members of the Ides O’Racca Building Tenants Association Inc. (ASSOCIATION). In 1987, RODIL’s request for a lease renewal was initially approved by a bureau director but was subsequently disapproved by the Department Secretary, who found a competing lease offer from the ASSOCIATION more beneficial to the government. RODIL filed an action for specific performance. While this case was pending, a subsequent DENR Secretary, Factoran, approved a new 10-year lease contract with RODIL in 1992.
The ASSOCIATION challenged this 1992 contract. Meanwhile, RODIL initiated unlawful detainer cases against its sublessees for non-payment of rent. The Metropolitan Trial Court ruled in favor of RODIL, ordering the sublessees’ ejectment. The Office of the President later nullified the 1992 lease contract between RODIL and the Republic. The Court of Appeals reversed the ejectment rulings, holding that the nullification of the main lease contract deprived RODIL of any right to collect rent or eject the sublessees. RODIL elevated the case to the Supreme Court.

ISSUE

The core issue is whether the nullification of the principal 1992 lease contract between RODIL and the Republic retroactively invalidates RODIL’s right to collect rentals from and eject its sublessees for periods during which RODIL was in possession and the sublease contracts were operative.

RULING

The Supreme Court ruled in favor of RODIL and reversed the Court of Appeals. The legal logic is anchored on the principle of relativity of contracts and the nature of a lessee’s rights. A contract of lease creates a real right (jus in re) which, once the lessee takes possession, is enforceable against third persons. RODIL’s sublease agreements with the individual respondents were separate and distinct contracts from its since-nullified contract with the Republic. The nullification of the main contract does not have a retroactive effect on perfected and implemented sublease contracts concerning obligations already incurred.
The sublessees enjoyed possession and use of the premises for specific periods under their agreements with RODIL. Consequently, they incurred an obligation to pay rent for that beneficial use based on the principle of solutio indebiti or unjust enrichment. The right to collect these accrued rentals and to seek ejectment for non-payment vested in RODIL at the time the obligations arose, prior to the contract’s nullification. Therefore, the subsequent nullification of the main lease did not extinguish the sublessees’ liability for rentals that had already become due, nor did it invalidate the ejectment suits based on that default. The Court reinstated the MeTC decisions ordering the respondents to pay accrued rentals and vacate the premises.