WBench1

SECOND DIVISION

[G.R. No. 140886. April 19, 2001]

EULOGIO “EUGUI” LO CHUA, petitioner, vs. COURT OF APPEALS, ERIC CHUA and MAGIC AIRE INDUSTRIES, INC., respondents.

D E C I S I O N

BELLOSILLO, J.:

GIVEN THESE FACTS: the lease period was not agreed upon by the parties, rental was paid monthly, and the lessee has been occupying the premises for a couple of years, will the law step in to fix the period, or authorize the court to fix a longer period?

On 19 April 1996 a Complaint for Unlawful Detainer and Damages was filed by respondent Eric Chua against petitioner Eulogio “Eugui” Lo Chua before the Metropolitan Trial Court of Manila. On 3 December 1996 the Complaint was amended joining respondent Magic Aire Industries, Inc. (MAGICAIRE) as plaintiff being the present owner of the premises.

Respondent Eric Chua, plaintiff in the trial court, alleged that he was the former owner of a parcel of land with a four (4)-storey commercial building thereon known as National Business Center (NBC) Bldg. situated at 567 G. Puyat St., Sta. Cruz, Manila. Room No. 308 and Stall No. 561 thereof were both leased by petitioner on a month-to-month basis for P12,938.20.

Subsequently, respondent Eric Chua decided to sell the property. Through a letter of 6 November 1995 he offered petitioner a right of first refusal to be exercised within five (5) days from receipt thereof, which was on 7 November 1995.[1]

Petitioner failed to manifest his intention within the period. Thus, on 16 November 1995 respondent Chua sold the property to respondent MAGICAIRE for P25,000,000.00 subject to the condition stated in the Deed of Conditional Sale that P5,000,000.00 would be paid after the building was completely vacated by the tenants.[2]

On 4 December 1995 respondent Chua through a letter informed petitioner about the sale transaction, the termination of their lease agreement effective 31 March 1996 and demanded that petitioner vacate the premises after the end of the period, at the same time waiving the rentals for January to March 1996 in consideration of petitioner’s understanding and cooperation.[3]

On 23 January 1996 petitioner tendered payment of the rental for that month but was declined by respondent Chua.

On 1 February 1996 petitioner filed a Petition for Consignation before the Metropolitan Trial Court of Manila. On 28 March 1996 respondent Chua made a final demand on petitioner to vacate the property[4] but was refused.

Petitioner contended that he ignored the demand letters of respondent Chua because upon verification from the Register of Deeds of Manila petitioner learned that respondent Chua was no longer the owner of the property; that petitioner allowed the Petition for Consignation to be dismissed on 25 September 1996 because respondent Chua was not the real party-in-interest; and, that petitioner made a counter offer to purchase the property on 11 November 1995 but respondent Chua nonetheless proceeded with the sale to respondent MAGICAIRE.

During the preliminary conference, the parties stipulated on certain facts, among which insofar as pertinent were: (a) payment of rental was on a monthly basis; (b) receipt by petitioner of the 6 November 1995 letter from respondent Chua offering petitioner a right of first refusal; (c) validity of TCT No. 167283 in the name of respondent Chua; (d) receipt by petitioner of the 4 December 1995 letter of respondent Chua terminating the lease and ejecting petitioner from the premises; (e) filing by petitioner of a Petition for Consignation before the MTC of Manila; (f) existence of the 28 March 1996 letter of respondent Chua containing the final demand to vacate; (g) receipt by respondent Chua of the Reply of petitioner of 11 November 1995 to his letter of 6 November 1995; (h) existence of the Deed of Absolute Sale over the property executed by respondent Chua in favor of respondent MAGICAIRE on 16 November 1995 aside from the Deed of Conditional Sale executed on the same day; and, (i) issuance on 27 November 1995 of TCT No. 225102 in the name of respondent MAGICAIRE cancelling the title of respondent Chua.

The parties also stipulated on the following issues: (a) whether petitioner may be validly ejected from the premises on the ground of termination of monthly lease contract and non-payment of rentals; (b) whether petitioner was entitled to exercise his right of first refusal; (c) whether petitioner was entitled to an extension of the lease period conformably with Art. 1687 of the Civil Code for having occupied the property for more than thirty (30) years; (d) whether respondent Chua had the right to demand that petitioner vacate the premises and to file the present case after he ceased to be the owner thereof; and, (e) whether the amendment of the Complaint joining respondent MAGICAIRE as plaintiff validated the demand letter of 28 March 1996 for the purpose of filing the ejectment suit.

As to the first issue, the trial court found -

x x x in the letter dated December (4), 1995 sent by plaintiff’s counsel to defendant x x x x defendant was advised about the termination of his month to month lease contract effective end of March 1996 and required him to vacate the subject premises thereafter. In the event of compliance with this demand, plaintiff shall waive the rentals for the period covering January to March 1996 which was the reason why the tender of rental payments made by defendant was initially rejected by plaintiff in anticipation of the former’s compliance with the demand to vacate subject premises.

Apparently however, defendant refused to heed said demand and in the letter dated March 28, 1996 x x x accrued rentals were likewise demanded from defendant in addition to the reiterated demand to vacate subject premises x x x x[5]

The MTC concluded that petitioner could be ejected from the premises for non-payment of rentals and termination of the lease contract, and for the period that petitioner unlawfully withheld possession thereof, he was liable to pay accrued rentals as reasonable compensation for its use and occupation until final surrender to respondents.

Regarding the second issue, the MTC opined that petitioner was not entitled to exercise his right of first refusal since the property was not located within the Priority Development Zone decreed pursuant to Sec. 4, PD 1517.[6] Moreover, the right pertained only to tenants who built their homes on a parcel of land.

With respect to the third issue, the MTC did not find justification to extend the lease period since petitioner invoked extension only after the period of lease had already expired or during the court proceedings.

Concerning the fourth and fifth issues, the MTC held that under Sec. 1, Rule 70, of the Rules of Court, a landlord, vendor or vendee may rightfully file an ejectment case against the person unlawfully withholding possession of a specific property as well as the legal representatives or assigns of such persons. Respondent Chua was the vendor of the property and as stated in the Deed of Conditional Sale, he was under obligation to cause the ejectment of the tenants thereon within one (1) year from the execution of the deed.

On 1 April 1997 the MTC thus ordered petitioner and all persons claiming under him to immediately vacate and surrender possession of Rm. No. 308 and Stall No. 561 of the NBC, and to pay the current monthly rental of P12,938.20 as reasonable compensation for the continued use and occupancy thereof from April 1996 until he finally vacated and surrendered possession to private respondents as well as to pay attorney’s fees of P5,000.00 and the costs.[7]

On 16 October 1997 the Regional Trial Court affirmed the Decision of the lower court.[8] As regards the fifth issue, it elaborated that the demand sent by respondent Chua on 4 December 1995 was sufficient compliance with the rules for filing an ejectment suit. It cited Garcia v. Court of Appeals[9] where this Court ruled that when the former owner of the leased estate already sent a notice to vacate, the buyer thereof need not send another notice before filing the ejectment suit.

On 19 November 1999 the Court of Appeals likewise affirmed the Decision of the Regional Trial Court.[10] On the same day, it granted private respondents’ Motion for Immediate Execution and to Withdraw Rental Deposits.[11]

On 19 January 2000 this Court directed the parties to maintain the status quo as of the filing of the present Petition on 14 December 1999.

It may be mentioned at this juncture that petitioner makes a big fuss over the circumstance that in the first sentence of the Decision of the RTC, it is stated that the subject matter thereof was “an appeal from the decision of the Metropolitan Trial Court of Manila, Branch 22 x x x (underscoring supplied).”[12] He deduces that the RTC Decision was based on the records which originated from MTC-Br. 22, not Br. 30, and/or the RTC Decision was merely copied from a Decision which affirmed a Decision of MTC-Br. 22.

The argument is hollow. It is very clear that the reference in the first sentence of the RTC Decision to the ruling of Br. 22, instead of Br. 30, is a mere typographical error. The dispositive portion of the MTC Decision quoted by the RTC as part of that sentence is precisely that of Br. 30. Being harmless, the error should have been simply disregarded by petitioner.

Petitioner argues that his lease contract with the owners of the property previous to respondent Chua, referring to Vic-Mar Industries and Mariano Chua, was in writing and on a yearly basis which was thereafter assumed by respondent Chua also on a yearly basis, except that the new lease agreement was not reduced to writing.

We agree with the finding of all the three (3) lower courts that the lease contract between petitioner and respondent Chua was on a monthly basis. We recall that one of the subject matters of the stipulation during the preliminary conference was that “the manner of payment of rental is on a monthly basis.” It is settled that if the rent is paid monthly, the lease is on a month-to-month basis[13] and may be terminated at the end of each month.[14] Article 1687 of the Civil Code is in point. Among other things, it provides that “if the period for the lease has not been fixed, it is understood to be from year to year, if the rent agreed upon is annual; from month to month if it is monthly.”

Petitioner also claims that respondent Chua ceased to be the owner-lessor of the property effective 16 November 1995 when he executed his Deed of Absolute Sale in favor of MAGICAIRE on 27 November 1995 and a new title was issued in favor of respondent MAGICAIRE, such that respondent Chua had no more right to serve upon petitioner the notice of termination of the lease and to vacate on 4 December 1995 nor to file the Complaint for ejectment on 19 April 1996.

The lower courts correctly resolved the question by relying on Sec. 1, Rule 70, of the Rules of Court -

Sec. 1. Who may institute proceedings, and when. - Subject to the provisions of the next succeeding section,[15] a person deprived of the possession of any land or building by force, intimidation, threat, strategy, or stealth, or a landlord, vendor, vendee or other person against whom the possession of any land or building is unlawfully withheld after the expiration or termination of the right to hold possession, by virtue of any contract, express or implied, or the legal representatives or assigns of any such landlord, vendor, vendee, or other person, may, at any time within one (1) year after such unlawful deprivation or withholding of possession, bring an action in the proper inferior court against the person or persons unlawfully withholding or depriving possession, or any person or persons claiming under them, for the restitution of such possession, together with damages and costs x x x x

On the strength of this provision of Rule 70, respondent Chua as vendor was without doubt authorized to institute the action for ejectment. Moreover, inasmuch as the rule recognizes such right of the vendor, respondent Chua also had the right to send the notices of termination of the lease agreement and to vacate on 4 December 1995 and 28 March 1996. The right to send the notices is rooted in the right to file the court action. At any rate, petitioner need not have harped on the alleged absence of the right of respondent Chua to send the notices. The notice or demand to vacate is not necessary when the unlawful detainer is based on expiration of the contract of lease,[16] as what obtains here.

Petitioner invites attention to the circumstance that he had a right of first refusal which he exercised when he manifested his interest to buy the property through his 11 November 1995 letter sent by his counsel to respondent Chua.

The right of first refusal is provided in Sec. 6, P. D. 1517 -

Sec. 6. Land Tenancy in Urban Land Reform Areas. - Within the Urban Zones legitimate tenants who have resided on the land for ten years or more who have built their homes on the land and residents who have legally occupied the lands by contract, continuously for the last ten years shall not be dispossessed of the land and shall be allowed the right of first refusal to purchase the same within a reasonable time and at reasonable prices, under terms and conditions to be determined by the Urban Zone Expropriation and Land Management Committee x x x x

Clearly, petitioner was not entitled to the right of first refusal under PD 1517 since he was using the premises not for residential but for business purpose. Even granting that the right was available to him, the Court of Appeals correctly noted that his reply to the 6 November 1995 letter of respondent Chua was not timely exercised. The reply of 11 November 1995 was received by respondent Chua only on 21 November 1995 or beyond the period that ended on 12 November 1995.

Petitioner invokes Sec. 5, BP 877 which provides that “no lessor or his successor-in-interest shall be entitled to eject the lessee upon the ground that the leased premises have been sold or mortgaged to a third person regardless of whether the lease or mortgage is registered or not.”

Petitioner cannot seek refuge in the above provision as the ground for his ejectment was not the sale of the property to respondent MAGICAIRE but the expiration of the term of the lease.

Finally, petitioner contradicts himself by arguing that since he has been occupying the premises for more than thirty (30) years, his lease contract should be understood as one for an indefinite period entitling him to an extension thereof pursuant to Art. 1687 of the Civil Code.

This point must be discussed at length. In this regard, the Court of Appeals ruled -

Although (Art. 1687) grants the courts the auhority to extend the period of lease, the same provision should be appreciated only if the duration of the lease is not fixed (Jueco vs. Court of Appeals, 224 SCRA 390) and not where the lease is for a fixed period, especially if said period has expired (Gindoy vs. Tapucar, 75 SCRA 81). Considering that the lease in the case at bench is for a definite period which has expired at the time respondent Chua demanded petitioner to vacate the subject premises, petitioner can no longer ask for an extension of the term of lease.[17]

Simply put, in the appellate court’s view, Art. 1687 was not available to petitioner because, first, the lease was for a definite period; and second, the period expired when the demand to vacate was made by respondent Chua. Along the same line, to which the RTC sided, the MTC ruled -

Defendant failed to ask plaintiff for an extension of the lease period prior to its expiration at the end of March 1996 as contained in the plaintiff’s letter, dated December 4, 1995. Defendant belatedly invokes the same only in this action after the period had already expired, and therefore, could no longer be extended x x x x[18]

The Court disagrees with these identical rulings. Article 1687 reads -

Art. 1687. If the period for the lease has not been fixed, it is understood to be from year to year, if the rent agreed upon is annual; from month to month, if it is monthly; from week to week, if the rent is weekly; and from day to day, if the rent is to be paid daily. However, even though a monthly rent is paid, and no period for the lease has been set, the courts may fix a longer term for the lease after the lessee has occupied the premises for over one year. If the rent is weekly, the courts may likewise determine a longer period after the lessee has been in possession for over six months. In case of daily rent, the courts may also fix a longer period after the lessee has stayed in the place for over one month (underscoring supplied).

Article 1687, to the extent pertinent to the present case, is explicit that if the period for the lease has not been fixed, it is understood to be from month to month if the rent agreed upon is monthly. However, even though a monthly rent is paid, and no period for the lease has been set, the courts may fix a longer term for the lease after the lessee has occupied the premises for over a year. Thus, the provision contemplates two (2) situations. One, where the period for the lease has not been fixed but the rent agreed upon is monthly, in which event the period is understood to be from month to month. In other words, the law itself fixes the period. Two, where no period for the lease has been set, a monthly rent is paid and the lessee has occupied the premises for over a year authorizing the courts to fix a longer period of lease. In this second situation, both circumstances mentioned in the first situation also exist and coupled with another circumstance, i.e., the lessee has occupied the premises for over a year. The law treats the matter differently in the second situation because the length of stay of the lessee in the premises may justify the courts to fix a longer period of lease. The second situation is understood thus: where no period for the lease has been set and and a monthly rent is paid the law itself fixes the period as monthly; yet, the circumstance that the lessee has occupied the premises for over a year warrants the fixing of a longer period by the courts. It is precisely the second situation that is involved in the present case, not the first situation, as all three (3) lower courts erroneously appreciated. Apparently, to them since the first sentence of Art. 1687 already fixed the period of lease, recourse to the second sentence is no longer relevant.

Inasmuch as the existence in the present case of the circumstances that no period for the lease has been set, rent was being paid monthly, and petitioner has been occupying the premises for more than thirty (30) years justify extending the period by the courts, it cannot be said that the period expired on 31 March 1996 when respondent Chua stated this date as the effectivity of the termination of their lease agreement in his 4 December 1995 letter. The unilateral act of the lessor in terminating the lease should not be recognized as writing finis to the agreement when the second situation in Art. 1687 is involved. A contrary view would result in barring recourse to judicial lengthening of the period and in allowing the utilization as subterfuge of the concept that “once a period had expired, nothing is left to extend.” The opinion expressed by Mr. Justice Jose C. Vitug in his Compendium of Civil Law and Jurisprudence[19] may be invoked -

There are rulings to the effect that an extension of time may be sought by the lessee before, but not after, the termination or expiration of the lease (see Yek vs. CA, 205 SCRA 305; Alegre vs. De Laperal, 23 SCRA 934; Prieto vs. Santos, 98 Phil. 509). This statement should not be taken out of context; it is valid and sound where the lease, in fact, had been terminated or had expired. But where the term of the lease in understood to be that which is provided for in Article 1687 because the contract itself has failed to state the period thereof, the mere notice by the lessor, without concurrence by the lessee, to terminate the lease is not enough to consider the lease as having expired that would thereby render powerless the courts to fix a term longer than the periods stated in the law. The periods set by Article 1687 are presumptive in nature and are clearly held subject to the potestative authority of the court in the event that the parties are unable to reach an agreement on a definitive term. If it were otherwise, then the power of the courts to grant an extended period becomes illusory since it is only when the lessor decides not to grant a longer period or refuses to grant an extended term that the lessee should and can be expected to seek court relief. Considering that the authority of the court is potestative and predicated not only on the presumed intention of the parties but on equity as well, the application and interpretation of the provision must not be too restrictive and limitative to the point of rendering the remedy of seeking for extension meaningless and useless such as by the simple and expedient process of the lessor promptly giving notice of termination and making the lessor, rather than the Court, the final arbiter on the presumptive period of the lease.

The second situation dealt with in Art. 1687 has found its way in our jurisprudence. In Divino v. Marcos,[20] the lot in question had been rented to petitioner for about twenty (20) years and to his predecessor-in-interest for a longer period. Although rentals were being paid monthly, still no period for the duration of the lease was set. Having made substantial or additional improvements on the lot, the difficulty of looking for another place to which he could transfer such improvements, the length of his occupancy of the lot and the impression he acquired that he could stay on the premises as long as he paid the rentals, petitioner was accorded by this Court the beneficence of Art. 1687. An extension of the lease of two (2) years was considered fair and equitable.

In F.S. Divinagracia Agro-Commercial, Inc. v. Court of Appeals,[21] the lessee and his ascendant had been occupying the premises for seventy-six (76) years and paying rentals per month. This Court saw fit to extend the period of the lease for another five (5) years.

Recently in Arquelada v. Philippine Veterans Bank[22] which involved a verbal lease on a monthly scheme, this Court applied the guidelines in Divino in extending the period of lease for six (6) months from finality of its Decision.

In this light, we reiterate that the rulings of the courts below on the last issue raised by petitioner may not be sustained. Reliance on Jueco v. Court of Appeals and Gindoy v. Tapucar was certainly misplaced because of the difference in their factual settings. In Jueco this Court held that since the instrument embodying the lease was definite as to the duration thereof, the grace period under Art. 1687 was unavailing. In Gindoy this Court ruled that the extension of the lease for seven (7) years by the trial court was baseless and unwarranted inasmuch as the stipulated period of the contract has already expired and the lessor was unwilling to extend it.

Notwithstanding the preceding discussion drawing to the conclusion that petitioner earned a score in his last argument, the power of the courts to establish a grace period pursuant to Art. 1687 is potestative or discretionary, to be exercised or not depending on the particular circumstances of the case: a longer term to be granted where equities come into play demanding extension, to be denied where none appears, always with due deference to the parties’ freedom to contract.[23] Here, even as this Court has the discretion to fix a longer term for the lease, we find that petitioner’s continuing possession as lessee of the premises from the supposed expiration of the lease on 31 March 1996 up to the present, or for a period now of more than five (5) years, suffices as an extension of the period. There is no longer need to extend it any further.[24]

WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals of 19 November 1999 which affirmed the Decision of the Regional Trial Court of Manila-Br. 49 which in turn affirmed the Decision of the Metropolitan Trial Court of Manila-Br. 30 ordering petitioner Eulogio “Eugui” Lo Chua and all persons claiming rights under him to immediately vacate and surrender possession of Rm. No. 308 and Stall No. 561 of the NBC Bldg. and to pay the current monthly rental of P12,938.20 as reasonable compensation for the continued use and occupancy thereof from April 1996 until he finally vacates and surrenders possession to private respondents Eric Chua and Magic Aire Industries, Inc., as well as to pay attorney’s fees of P5,000.00 and the costs, together with the Court of Appeals’ Resolution of the same date granting respondents’ Motion for Immediate Execution and to Withdraw Rental Deposits, is AFFIRMED. In addition, all rentals due to private respondents from petitioner shall earn interest of six percent (6%) per annum from April 1996 when the complaint was originally filed by private respondent Eric Chua.

The status quo order issued by this Court on 19 January 2000 is accordingly LIFTED.

Costs against petitioners.

SO ORDERED.

Mendoza, Quisumbing, Buena and De Leon, Jr., JJ., concur.