Estate of Llenado vs. Llenado G.R. No. 145736 |March 4, 2009

CASE DIGEST:

Estate of Llenado vs. Llenado

G.R. No. 145736 |March 4, 2009

Topic: Rights Arising From Lease Contract Are Transmissible

Doctrines:

This issue is being raised for the first time on appeal. True, in Mataas Na Lupa Tenants Association, Inc., the Court explained that Section 1 of R.A. No. 1162, as amended by R.A. No. 3516, authorizes the expropriation of any piece of land in the City of Manila, Quezon City and suburbs which have been and are actually being leased to tenants for at least 10 years, provided said lands have at least 40 families of tenants thereon. Prior to and pending the expropriation, the tenant shall have a right of first refusal or preferential right to buy the leased premises should the landowner sell the same. However, compliance with the conditions for the application of the aforesaid law as well as the qualifications of the heirs of Orlando to be beneficiaries thereunder were never raised before the trial court, or even the Court of Appeals, because petitioner solely anchored its claim of ownership over the subject lot on the alleged violation of the prohibitory clause in the lease contract between Cornelio and Orlando, and the alleged non-performance of the right of first refusal given by Cornelio to Orlando. The rule is settled, impelled by basic requirements of due process, that points of law, theories, issues and arguments not adequately brought to the attention of the lower court will not be ordinarily considered by a reviewing court as they cannot be raised for the first time on appeal. As the issue of the applicability of R.A. No. 1162, as amended, was neither averred in the pleadings nor raised during the trial below, the same cannot be raised for the first time on appeal.

Under Article 1311 of the Civil Code, the heirs are bound by the contracts entered into by their predecessors-in-interest except when the rights and obligations therein are not transmissible by their nature, by stipulation or by provision of law. A contract of lease is, therefore, generally transmissible to the heirs of the lessor or lessee. It involves a property right and, as such, the death of a party does not excuse non-performance of the contract. The rights and obligations pass to the heirs of the deceased and the heir of the deceased lessor is bound to respect the period of the lease. The same principle applies to the option to renew the lease. As a general rule, covenants to renew a lease are not personal but will run with the land. Consequently, the successors-in-interest of the lessee are entitled to the benefits, while that of the lessor are burdened with the duties and obligations, which said covenants conferred and imposed on the original parties.

It does not follow, however, that the lease subsisted at the time of the sale of the subject lot on January 29, 1987. When Orlando died on November 7, 1983, the lease contract was set to expire 26 days later or on December 3, 1983, unless renewed by Orlando’s heirs for another four years. While the option to renew is an enforceable right, it must necessarily be first exercised to be given effect.

The question as to whether a right of first refusal may be proved by parole evidence has been answered in the affirmative by this Court in Rosencor Development Corporation v. Inquing (354 SCRA 119 [2001]): We have previously held that not all agreements “affecting land” must be put into writing to attain enforceability. Thus, we have held that the setting up of boundaries, the oral partition of real property, and an agreement creating a right of way are not covered by the provisions of the statute of frauds. The reason simply is that these agreements are not among those enumerated in Article 1403 of the New Civil Code. A right of first refusal is not among those listed as unenforceable under the statute of frauds. Furthermore, the application of Article 1403, par. 2(e) of the New Civil Code presupposes the existence of a perfected, albeit unwritten, contract of sale. A right of first refusal, such as the one involved in the instant case, is not by any means a perfected contract of sale of real property. At best, it is a contractual grant, not of the sale of the real property involved, but of the right of first refusal over the property sought to be sold.

The Urban Land Reform Law grants the right of first refusal only to legitimate tenants who have built their homes on the land they are leasing—apartment dwellers are excluded from the protective mantle of said law. (Arlegui vs. Court of Appeals, 378 SCRA 322 [2002])

The concept and interpretation of the right of first refusal and the consequences of a breach thereof evolved in Philippine juristic sphere only within the last decade. (Riviera Filipina, Inc. vs. Court of Appeals, 380 SCRA 245 [2002]) Estate of Orlando Llenado and Wenifreda T. Llenado vs. Llenado, 580 SCRA 546, G.R. No. 145736 March 4, 2009

Facts: 

Cornelio Llenado (Cornelio) leased the subject land to his nephew Romeo Llenado (Romeo). Romeo in turn, executed an agreement with Orlando Llenado (Orlando) whereby Romeo assigned all his rights to Orlando over the unexpired portion of the aforesaid lease contract with an additional agreement that at Orlando‘s option the lease can be extended for another 3 years. 

Cornelio and Orlando entered into another supplementary agreement to amend the lease contract giving an additional option to renew for period of 10 years to comply the requirements for the operation of a gasoline station which was operated by Winifreda, wife of Orlando. Thereafter, Cornelio sold the subject land (where the gasoline station was erected) to his children and Eduardo (one of the children of Cornelio) informed the widow of his desire to take over the land, but despite repeated demands the widow refused. 

An unlawful detainer case was filed against Winifreda as administrator of the estate of her husband and in her answer the widow cited that there was an agreement between Cornelio and Orlando which provide that while the lease is in force, the subject lot cannot be sold, transferred or conveyed to any third party. The RTC found that upon the death of Orlando, his rights under the lease contract were transmitted to his heirs; hence, the same is binding on Cornelio and his heirs but on appeal to the CA, it reversed the RTC holding that the death of Orlando did not extinguish the lease agreement and had the effect of transmitting his lease rights to his heirs. 

Issue: 

1. WON rights arising from lease contract transmissible. - YES. 

Held:

1. Under Article 1311 of the Civil Code, the heirs are bound by the contracts entered into by their predecessors-in-interest except when the rights and obligations therein are not transmissible by their nature, by stipulation or by provision of law. A contract of lease is, therefore, generally transmissible to the heirs of the lessor or lessee. It involves a property right and, as such, the death of a party does not excuse non-performance of the contract. The rights and obligations pass to the heirs of the deceased and the heir of the deceased lessor is bound to respect the period of the lease. The same principle applies to the option to renew the lease. As a general rule, covenants to renew a lease are not personal but will run with the land. Consequently, the successors-in-interest of the lessee are entitled to the benefits, while that of the lessor are burdened with the duties and obligations, which said covenants conferred and imposed on the original parties.

The foregoing principles apply with greater force in this case because the parties expressly stipulated in the Agreement that Romeo, as lessee, shall transfer all his rights and interests under the lease contract with option to renew in favor of the party of the Third Part (Orlando), the latter heirs, successors and assigns indicating the clear intent to allow the transmissibility of all the rights and interests of Orlando under the lease contract unto his heirs, successors or assigns. Accordingly, the rights and obligations under the lease contract with option to renew were transmitted from Orlando to his heirs upon his death.