G.R. No. 142383 ; August 29, 2003
ASIAN TRANSMISSION CORPORATION, Petitioner, vs. CANLUBANG SUGAR ESTATES, Respondent.

FACTS

Respondent Canlubang Sugar Estates (CSE) leased a parcel of land to petitioner Asian Transmission Corporation (ATC) under a 25-year contract, renewable for another 25 years. The lease agreement, amended in 1978, provided for a mutual review and reasonable adjustment of the annual rental every five years. In 1991, the parties executed a Memorandum of Agreement (MOA) increasing the rent to ₱3,373,552.80 for 1991-1992 and to ₱3,642,187.50 for 1992-1993. No agreement was reached for rentals after June 30, 1993. CSE later proposed reducing the leased area and increasing the annual rent to ₱15,000,000. ATC rejected this as excessive and contrary to the five-year review cycle, offering instead a modest increase. CSE considered this a violation, terminated the lease, and filed an ejectment suit.
The Municipal Trial Court (MTC) ordered ATC to vacate and pay ₱15,000,000 annually as reasonable compensation from July 1993. The Regional Trial Court (RTC) and the Court of Appeals (CA) affirmed, holding that ATC failed to present controverting evidence on the fair rental value. ATC appealed, arguing the courts fixed an exorbitant rent without sufficient evidentiary basis.

ISSUE

Whether the lower courts erred in fixing the reasonable compensation for the use of the leased property at ₱15,000,000 per annum without adequate supporting evidence.

RULING

Yes. The Supreme Court granted the petition and remanded the case. The legal logic centers on the burden of proof in civil cases. In the ejectment suit, CSE, as the plaintiff seeking payment of reasonable compensation, carried the burden of proving the fair rental value of the property. The MTC’s decision to set the rent at ₱15,000,000—a 500% increase from the last agreed rate—was made without any factual explanation or substantiation in its decision. The CA erred in affirming this simply because ATC allegedly failed to present controverting evidence. The burden of evidence shifts to the defendant only after the plaintiff has first established a prima facie case. Since CSE did not satisfactorily discharge its initial burden to prove the basis for the drastic rental increase, ATC was not obligated to present opposing evidence. The courts therefore committed reversible error by fixing compensation without a proper evidentiary foundation. The case was remanded to the MTC to determine the fair rental value based on the evidence on record.