G.R. No. 78975 September 7, 1989
IGNACIO V. SORIANO, petitioner, vs. HONORABLE COURT OF APPEALS and GELANO SANCHEZ, respondents.

FACTS

The subject property, a lot in Daet, Camarines Norte, originally belonged to the estate of Lucio Pabico, Sr. On February 15, 1961, his heirs, led by widow Filomena Pabico, executed a 30-year contract of lease over the entire lot in favor of respondent Gelano Sanchez, which was duly registered. On the same date, Sanchez also purchased the house standing on the lot from the Pabicos. Years later, on February 23, 1967, Filomena and her son Emiliano sold their respective portions of the lot to petitioner Ignacio Soriano, with a warranty that it was free from liens.
Prior to this sale, however, on January 22, 1966, Sanchez had already sold the house to Soriano under a pacto de retro. After acquiring the lot, Soriano, on November 1, 1967, leased it along with his own adjacent lot to Filoil for 20 years at a monthly rental of P500. Sanchez subsequently filed a complaint for damages, seeking to enforce his leasehold rights and to receive the rentals paid by Filoil.

ISSUE

Is a vendee of a leased property bound by the existing lease agreement executed by the vendor prior to the sale?

RULING

Yes. The Supreme Court affirmed the decision of the Court of Appeals, holding that petitioner Soriano is bound by the lease contract in favor of Sanchez. The legal logic is anchored on the nature of a registered lease as a real right under Article 1648 of the Civil Code. Once recorded, a lease becomes binding on third persons, including subsequent purchasers of the property.
Critically, the Court found that Soriano had actual knowledge of the subsisting lease more than a year before he purchased the lot. Actual knowledge of a lease is equivalent to registration for the purpose of binding a third party. Consequently, Soriano stepped into the shoes of the original lessors (the Pabicos) and was obligated to respect the lease’s full 30-year term. The lease could only be terminated on grounds provided by law, such as expiration of the term or violation of conditions, none of which were present. Sanchez’s occasional non-payment of rent did not automatically terminate the lease absent a judicial demand.
The Court also rejected the claim of unjust enrichment. The award of damages corresponding to two-thirds of the Filoil rentals (P79,119.00) was deemed proper, as it represented the fruits (rentals) rightfully accruing to Sanchez from the lot he validly leased. The consolidation of ownership of the land and house in Soriano did not extinguish the leasehold right, as the two rights are compatible under law.