G.R. No. L-49281. April 15, 1988.
AMORANTE PLAN, petitioner, vs. THE HONORABLE COURT OF APPEALS, SPOUSES FEDERICO BAUTISTA and NENA FILOTEO, respondents.

FACTS

The late Regino Bautista owned lots and the Cine Central theatre built thereon. His son, respondent Federico Bautista, managed the theatre and occupied a portion, converting a store into a residence. After Regino’s death, the estate, facing financial difficulties, leased the theatre to petitioner Amorante Plan in 1960. The lease contract explicitly recognized Federico’s right to operate his store within the premises for the lease’s duration. Plan later acquired Guillerma Reyes’s co-ownership share and, in December 1964, purchased the entire property from the estate, with the sale approved by the probate court. New titles were issued in Plan’s name.
Subsequently, Plan demanded that Federico vacate the premises. Federico refused and constructed a well, obstructing the theatre lobby. Plan filed an ejectment case. The City Court ruled for Plan, but the Court of First Instance reversed, dismissing the complaint and awarding damages to Federico. The Court of Appeals initially reversed the CFI, reviving the City Court’s decision with modifications, but upon reconsideration, it reinstated the CFI’s dismissal, affirming Federico’s right to occupy based on the lease contract’s stipulation.

ISSUE

Whether respondent Federico Bautista has a right to continue occupying a portion of the property after petitioner Amorante Plan purchased it, thereby terminating the original lease contract.

RULING

The Supreme Court reversed the Court of Appeals’ resolution and ruled in favor of petitioner Plan. The legal logic centers on the effects of a sale of leased property and the binding nature of unregistered agreements on third parties. The original lease contract between Plan and the Bautista heirs, which recognized Federico’s occupancy, was terminated by the sale of the property to Plan in December 1964. A sale of the leased property extinguishes the lease, and the buyer as the new owner is not bound by the old lease terms unless he expressly assumes it. Plan did not assume the lease; he became the absolute owner.
Furthermore, respondents’ claim of a separate, perpetual right via an unregistered “Kasulatan” (agreement) with the late Regino Bautista is unavailing against Plan as a purchaser for value and in good faith. The Court found Plan had no knowledge of this document, as it was not mentioned in the lease, the subsequent mortgage, or the deed of sale, and crucially, it was not annotated on the title. Under the Torrens system, an unregistered instrument cannot bind third parties. Any right Federico had under the original lease expired, at the latest, by the end of the lease term in September 1966. His continued occupation for years thereafter constituted unlawful withholding. Therefore, Plan is entitled to possession and damages. The Court reinstated the Court of Appeals’ initial decision with a modification for the payment of monthly compensation until actual vacation.