In a significant ruling, the Supreme Court clarified the rights of co-owners in leased properties. The Court held that a lease contract entered into by one co-owner without the consent of the other co-owners is valid only to the extent of the lessor’s share in the property. This means non-consenting co-owners cannot evict a lessee from the entire property but are entitled to their proportionate share of the rentals. This decision balances the rights of all co-owners and prevents unjust enrichment, offering a practical framework for resolving disputes in co-owned properties.

Leasing Limbo: When One Owner’s Agreement Isn’t Everyone’s Agreement

This case revolves around a dispute over a leased property in Goa, Camarines Sur, originally co-owned by the heirs of Leopoldo Esteban, Sr. In 2000, Salvador Esteban, one of the co-owners, entered into a lease agreement with Lynda Lim Llaguno for fifteen years. A key provision of this initial contract stipulated that any improvements made on the property would become the property of the lessor upon the lease’s expiration. Before the lease expired, Salvador, without the consent of his co-heirs, extended the lease for another thirty years. When the original lease term ended, the other heirs sought to terminate the lease and evict Llaguno, leading to a legal battle that reached the Supreme Court. The central legal question was whether the non-consenting co-owners had the right to evict the lessee, given that one co-owner had agreed to extend the lease.

The Municipal Trial Court (MTC) initially ruled in favor of the heirs, ordering Llaguno to vacate the property. The MTC reasoned that since the second lease contract was not authorized by all co-owners, it should not bind those who did not consent. The Regional Trial Court (RTC) affirmed this decision, echoing the MTC’s concerns about the complications that could arise from enforcing the lease on only Salvador’s share. However, the Court of Appeals (CA) reversed these rulings, finding that the lower courts failed to adequately consider the equities involved and the potential for unjust enrichment if the heirs were allowed to benefit from the improvements made by Llaguno without honoring the extended lease. The CA emphasized the need for partition before eviction to determine the definite portions belonging to each co-owner.

The Supreme Court, while ultimately agreeing with the CA’s decision to deny the eviction, disagreed with its reasoning regarding equity and the perceived gap in jurisprudence. According to the Supreme Court, there was no justification for applying equity to prevent unjust enrichment on the part of the heirs because the initial lease contract clearly stipulated that all improvements would revert to the lessor upon the lease’s expiration. The Court noted that Llaguno knowingly entered into this agreement and voluntarily made the improvements. It was also highlighted that the CA erred in concluding that there was a hiatus in law, as existing legal principles and jurisprudence could be applied to resolve the issues at hand.

The petitioners argued that two cases, Barretto v. Court of Appeals, et al. and Cabrera v. Ysaac, supported their position that they, as co-owners, had the right to evict Llaguno. However, the Supreme Court found that these cases were not directly applicable. In Barretto, the issue was the validity of a lease contract extension made by one co-owner without the consent of the others, but it did not involve ejectment. In Cabrera, the case concerned the sale of a specific portion of a co-owned property, and the Court emphasized that without the consent of all co-owners, none could sell a definite part of the land.

Building on this, the Supreme Court reiterated the principle established in Anzures v. Spouses Ventanilla, stating that a co-owner cannot be ejected from a co-owned property. Each co-owner may use and enjoy the property, provided they do not injure the interests of the other co-owners. The Court also cited Articles 485, 486, and 493 of the Civil Code, which outline the rights and limitations of co-owners. Article 493 specifically grants each co-owner the right to alienate, assign, or mortgage their part of the property, but the effect of such actions is limited to the portion that may be allotted to them upon the termination of the co-ownership.

Consequently, the High Court addressed the core issue of whether the second lease contract was valid, considering that the heirs had terminated the first contract and Salvador entered into the second without their consent. Referencing Heirs of the late Apolinario Caburnay, etc. v. Heirs of Teodulo Sison, etc., the Court reiterated that even if a co-owner sells the entire property, the sale only affects their share, not the shares of the other non-consenting co-owners. This principle was applied by analogy to the lease agreement, thus recognizing the validity of the unauthorized lease to the extent of Salvador’s ideal share in the property.

The Supreme Court clarified that Llaguno’s possession of the leased premises was on behalf of Salvador, the co-owner who entered into the lease. Just as the heirs could not evict Salvador from the property, they could not evict Llaguno, who was merely exercising the right to enjoy and use the co-owned property on behalf of a co-owner. The Supreme Court emphasized that the co-ownership was still in effect, and the proper remedy for the heirs was to demand the partition of the property under Article 494 of the Civil Code. Only after partition, when the specific shares are determined, could the heirs enforce their rights of ownership and potentially eject Llaguno from the portions allotted to them.

Furthermore, the Court stated that even if ejectment was not a viable remedy, the heirs were entitled to their proportionate share of the rentals from the start of the second lease contract until its expiration or the partition of the property, whichever came first. Citing Pardell v. Bartolome, the Court affirmed the principle that each co-owner has the right to use and enjoy the co-owned property, and is entitled to their share of the industrial fruits, such as rentals, derived from the property.

FAQs

What was the key issue in this case?	The central issue was whether co-owners who did not consent to a lease agreement could evict the lessee from a property co-owned with another heir who had authorized the lease.
What did the Supreme Court decide?	The Supreme Court ruled that the non-consenting co-owners could not evict the lessee. However, the lease was valid only to the extent of the leasing co-owner’s share, and the non-consenting co-owners were entitled to a proportionate share of the rentals.
Why couldn’t the non-consenting co-owners evict the lessee?	The lessee’s possession was considered to be on behalf of the co-owner who authorized the lease. Just as the non-consenting owners couldn’t evict the co-owner, they couldn’t evict someone acting on the co-owner’s behalf.
What remedy do the non-consenting co-owners have?	The non-consenting co-owners can demand a partition of the property. Once the property is partitioned and specific shares are determined, they can enforce their ownership rights, including the right to possess their specific portion, and potentially eject the lessee from that portion.
Are the non-consenting co-owners entitled to any compensation?	Yes, the non-consenting co-owners are entitled to their proportionate share of the rentals paid by the lessee from the start of the second lease contract. This ensures they receive their fair share of the benefits derived from the co-owned property.
What is the significance of Article 493 of the Civil Code?	Article 493 of the Civil Code grants each co-owner the right to alienate, assign, or mortgage their share of the property. The Supreme Court used this to recognize the validity of the lease agreement to the extent of the lessor’s share, even without the other co-owners’ consent.
How did the Court distinguish this case from previous rulings like Barretto and Cabrera?	The Court found Barretto and Cabrera not directly applicable because they involved different factual scenarios (lease extension and sale of property). The key difference was the ejectment issue at hand, which was not central to those cases.
What does this ruling mean for co-owners in the Philippines?	This ruling clarifies the rights of co-owners when one co-owner enters into a lease agreement without the consent of the others. It establishes that while the lease is valid to the extent of the lessor’s share, non-consenting co-owners cannot evict the lessee but are entitled to their share of rentals.

The Supreme Court’s decision provides a balanced approach to co-ownership disputes, protecting the rights of all parties involved. By upholding the validity of the lease to the extent of the lessor’s share, the Court ensures that the lessee is not unduly prejudiced, while also safeguarding the interests of the non-consenting co-owners by granting them a share of the rental income. Moving forward, co-owners should be aware of their rights and obligations to avoid future disputes and consider partition as a means to clarify their individual ownership.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: Heirs of Leopoldo Esteban, Sr. v. Lynda Lim Llaguno, G.R. No. 255001, June 14, 2023